Sign In
By signing in or creating an account, you agree with Associated Broadcasting Company's Terms & Conditions and Privacy Policy.
By signing in or creating an account, you agree with Associated Broadcasting Company's Terms & Conditions and Privacy Policy.
Kolkata: Sebi has taken a new step to shield investors from market risks. The market regulator wants mutual funds not to invest in pre-IPO placements. Mutual funds will be able to invest in the anchor book or public issues. Analysts state that these will shield mutual fund schemes from risks of unlisted shares. Pre IPO market refers to a space where companies privately sell shares to institutional investors before an IPO opens. These are negotiated placements which are designed to companies capital cushion.
Market regulator Securities and Exchange Board of India, or Sebi, has said that mutual funds will not be permitted to take part in pre-IPO placements. But they will be able to invest as anchor investors or in public issues, reports stated. This has been done under Clause 11 of the Seventh Schedule of the SEBI Mutual Fund Regulations of 1996, which states that mutual funds can only invest in listed or to-be-listed securities.
Reports state that the move of the regulator will trigger concerns for some fund managers, many of whom aim at earning higher returns from pre-IPO investments. Participating in the anchor book is not as profitable, many analysts say. Thus banning the mutual funds from entering pre-IPO investments actually creates more opportunities for wealthy investors.
Though SEBI's decision can restrict the alpha opportunities for mutual fund managers, it will help common investors in MF schemes. Consider a situation where an IPO is delayed or canceled. In such a situation, the funds committed by a mutual fund gets stuck with unlisted shares and its returns are adversely impacted. Mutual fund schemes can invest in anchor investor tranches or public issues, which come under the regulation of Sebi.
Reports say that many fund managers are quite taken aback by the move of the regulator as surprising. They have indicated that it is a discrimination against mutual funds since other regulated institutional investors, family offices, AIFs, and foreign investors can invest in pre-IPO rounds. But Sebi's opinion it is needed for protection of investors from the risks of unlisted shares.
(Disclaimer: This article is only meant to provide information. TV9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, REITs, INVITs, any form of alternative investment instruments and crypto assets.)
