The market watchdog Sebi has taken a significant step by banning mutual fund schemes from investing in pre-IPO placements of equity shares and associated securities. However, MFs are permitted to invest in the public offering of an initial public offering (IPO) or in the Anchor Investor segment.
In response to many inquiries on whether mutual funds might take part in pre-IPO placements before to the opening of the anchor or public offering, Sebi provided clarity.
In order to invest and produce alpha returns—which are typically earned by private investors—some MF managers search for pre-IPO opportunities.
In a letter to the Association of Mutual Funds in India (AMFI), Sebi emphasized that all investments made by mutual fund schemes in equity shares and equity-related instruments must be made in securities that are listed or to be listed, as required by Clause 11 of the Seventh Schedule of the SEBI (Mutual Funds) Regulation, 1996, according to the Moneycontrol report.
According to a letter obtained by Moneycontrol, SEBI said that mutual fund schemes are not permitted to participate in pre-IPO placements as doing so might result in them owning unlisted shares in the event that the IPO is cancelled, which would be against the law.
It made clear that mutual fund schemes are only permitted to participate as Anchor Investors or in the public offering of equity shares or comparable instruments.
According to the regulator official cited by MC, there is a risk involved in permitting MF plans to engage in pre-IPO placement. How would unlisted shares be handled under the plan if a promoter decides later to not list his company? He asked.
The regulator pointed out that mutual funds had to make advantage of the anchor investor quota that is currently in place for initial public offerings. Mutual funds contend, however, that pre-IPO rounds provide a pricing advantage while the anchor component does not. Additionally, they fear that AIFs and family offices would control pre-IPO rounds, allowing mutual funds to purchase shares at higher IPO prices.
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