SEBI Restricts Mutual Funds from Pre-IPO Placements, Introduces New Processes

Strategic Insights -

The Securities and Exchange Board of India (SEBI) has clarified that mutual fund schemes are not allowed to participate in pre-IPO placements of equity shares and related instruments. The regulator cited Clause 11 of the Seventh Schedule of the Sebi (Mutual Funds) Regulations, 1996, which mandates that all investments by mutual fund schemes in equity shares and equity-related instruments must be made only in securities that are listed or to be listed. This move aims to prevent mutual funds from holding unlisted shares in case an IPO is delayed or cancelled. Additionally, SEBI has introduced a new process for transferring Portfolio Management Services (PMS) business from one portfolio manager to another, and proposed changes to regulate non-convertible securities and unclaimed amounts.

Key Takeaways:

  • SEBI has barred mutual fund schemes from participating in pre-IPO placements of equity shares and related instruments, citing Clause 11 of the Seventh Schedule of the Sebi (Mutual Funds) Regulations, 1996.
  • The regulator warned that allowing mutual funds to participate in pre-IPO placements could result in them holding unlisted shares in case an IPO is delayed or cancelled.
  • SEBI has introduced a streamlined process for transferring PMS business from one portfolio manager to another, requiring prior approval from the regulator.
  • The market regulator has proposed changes to align regulations for entities issuing non-convertible securities, allowing transfer of unclaimed amounts only after seven years from maturity.
  • The public has been invited to comment on the proposal until November 14, 2025.
  • The clarification aims to prevent regulatory breaches and maintain compliance with the Sebi (Mutual Funds) Regulations, 1996.

Statistics:

  • 7 years: The proposed time period after which unclaimed amounts in non-convertible securities can be transferred.
  • 14 number: The deadline for the public to comment on SEBI's proposal.

Sources:

  • A letter to AMFI (Association of Mutual Funds in India) by SEBI, citing Clause 11 of the Seventh Schedule of the Sebi (Mutual Funds) Regulations, 1996.
  • A Moneycontrol report on Friday, citing SEBI's clarification on mutual fund schemes and pre-IPO placements.