SEBI Proposes Higher Anchor Investor Reservation in IPOs for Mutual Funds, Insurers and Pension Funds

SEBI has proposed a significant change in the structure of anchor investor participation in initial public offerings (IPOs). The move is designed to deepen the involvement of domestic institutional investors such as mutual funds, insurance companies, and pension funds.

 By expanding the anchor investor reservation and offering specific allocations to different institutional categories, SEBI aims to build greater confidence in IPOs and promote stronger market participation.

Proposed Increase in Anchor Investor Reservation

SEBI has suggested increasing the overall anchor investor reservation in IPOs from the current 33% to 40% for mutual funds, insurance companies, and pension funds, boosting institutional participation.

Dedicated Allocation for Mutual Funds, Insurers and Pension Funds

As part of the proposed 40% anchor reservation, SEBI has recommended a specific breakdown. One-third of the anchor allocation will be reserved exclusively for domestic mutual funds. An additional 7% will be set aside for life insurance companies registered with the Insurance Regulatory and Development Authority of India (IRDAI) and for pension funds registered with the Pension Fund Regulatory and Development Authority (PFRDA).

Provision for Redistribution in Case of Under Subscription

SEBI has also addressed scenarios where either insurance companies or pension funds do not fully utilise their allocated anchor shares. In such cases, the unutilised portion will be transferred to mutual funds. This redistribution mechanism aims to prevent under-allocation within the anchor investor quota and ensures optimal utilisation of the reserved limit.

Inclusion of Insurers and Pension Funds in the Anchor Category

Currently, the anchor investor category in IPOs formally includes only mutual funds. SEBI's proposal introduces insurance companies and pension funds into this category on an official basis. This formal inclusion is expected to broaden the institutional investor base within the anchor segment and enhance the stability of IPO offerings.

Existing Reservations for Mutual Funds

Under the existing framework, mutual funds are allocated one-third of the anchor investor portion, depending on the level of demand. In addition, mutual funds are entitled to a reservation of up to 5% in the non-anchor QIB portion. With the proposed changes, mutual funds could see an increase in their overall access to IPO shares through both anchor and non-anchor channels.

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Conclusion 

The proposed amendment is intended to build stronger institutional participation in public issues and provide a robust signal to the broader market. By ensuring that long-term domestic institutions such as mutual funds, insurers, and pension funds have early access to IPOs, SEBI aims to enhance confidence and improve the efficiency of the capital raising process.

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