In a final move to protect retail investors, SEBI (Securities & Exchange Board of India) has blocked mutual funds from participating in pre-IPO share placements. The capital markets regulator made this clear in a letter to the AMFI (Association of Mutual Funds in India), instructing asset managers that mutual fund schemes can only invest in the anchor investor segment or the public issue of an initial public offering (IPO).
SEBI mentioned Clause 11 of the Seventh Schedule of the SEBI (Mutual Funds) Regulations, 1996, which says, "All investments by mutual fund schemes in equity shares and equity-related instruments must be made only in securities that are listed or to be listed."
This clarification comes after repeated queries from the industry on whether funds could invest in pre-IPO placements before the anchor or public issue opens. SEBI warned that such activity could leave mutual funds holding unlisted shares if an IPO is delayed or cancelled, potentially exposing retail investors to illiquid & hard-to-value securities.
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SEBI has told AMFI to quickly inform all asset management companies (AMCs) about this ruling and to make sure they follow it right away. This change comes at a time when pre-IPO placements have already been going down. Fund managers say they are missing chances for early gains, but they also recognize that the regulator’s decision aims to protect public trust.
Alternative investment vehicles, such as family offices and AIFs, may continue participating in pre-IPO rounds. Still, for mutual funds and their investors, the pathway is now confined to anchor and public issue allocations. The regulator has asked AMFI to immediately communicate this instruction to all asset management companies (AMCs) and ensure compliance.
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