The market market regulator,SEBI, has reportedly instructed mutual fund managers not to invest in companies before they are listed. The move follows growing interest among fund houses seeking early access to promising companies through pre-IPO placements.
Certain mutual funds had recently approached the Securities and Exchange Board of India for clarification on whether such pre-Initial Public Offer (IPO) placements could be considered eligible investments. However, the regulator made it clear that only investments made during the official IPO process would be permitted, including large early-stage anchor allocations.
A pre-IPO placement refers to the private sale of shares to select investors before a company formally launches its listing. In India, such opportunities are typically open to alternative investment funds and foreign investors.
Mutual funds, which collectively manage 75.61 lakh-crore rupees and are primarily targeted at retail investors, had been exploring this route to enhance returns. Fund houses, under pressure to generate higher yields, had hoped to invest in pre-IPO placements, but SEBI’s clarification had effectively ended those plans.
The regulator reportedly told fund houses it was concerned that if they invested in pre-IPO placements and the company failed to list, they would be left holding unlisted shares. SEBI reiterated mutual funds are not permitted to hold such unlisted securities.
Indian companies are expected to raise a record $18.5 billion this year, positioning India as the third-largest market globally in terms of funds raised through first-time listings.
