Sebi bars MFs from participating in cos' pre-IPO shares sale

MUMBAI: Markets regulator Sebi has barred mutual funds (MFs) from investing in companies which are in their pre-IPO stage. However, this ban won't apply to fund houses investing through the anchor investment route, which is reserved for qualified investors only and is done a day before the IPO opens to all investors.

The regulator's logic behind this decision is the probability of companies being unable to complete their IPOs and fund houses getting forced to hold those unlisted shares. The move, however, is unlikely to affect most of the fund houses and only the large ones would be disappointed by the move, CEO of a MF told TOI.

Sebi, through fund industry trade body AMFI, directed all the MFs not to invest in the shares of companies in the pre-IPO stage. Often IPO-bound companies offer their shares to large investors like fund houses, private equity funds, wealth management firms, high networth investors and some other type of investors to pick up their shares at a price that usually is at a discount to the expected IPO price. To generate extra profit for investors, some MFs invest in such shares.

"I think for the majority it won't matter since getting access to (such shares) itself is a challenge. But for bigger funds, they would be disappointed," the CEO said.