mutual fund investment
The stock market regulatory body SEBI has made a big announcement regarding mutual funds. Mutual funds cannot participate in pre-IPO share placement. In a letter to industry body Association of Mutual Funds in India (AMFI), the capital markets regulator has directed these asset managers to invest only in the anchor investor portion of the IPO or public issue.
SEBI cited Clause 11 of the Seventh Schedule of the Mutual Funds Regulations, 1996, which states that all investments by mutual fund schemes in equity shares and equity-related instruments should be made only in securities that are listed or about to be listed.
The regulator said this clarification was issued after it received several queries on whether mutual funds can participate in pre-IPO placement before the anchor or public issue opens. The regulator warned that if the IPO is delayed or cancelled, such participation could lead to mutual funds holding unlisted shares. SEBI clarified that in case of IPO of equity shares and equity-related instruments, mutual fund schemes can participate only in the anchor investor portion or public issue. The regulator has asked AMFI to immediately give this instruction to all asset management companies (AMC) and follow it.
What will be the benefit to common investors?
Common investors will benefit from this step of SEBI. Since the fund market is quite big. Common investors do not invest money in shares due to risk and invest here for safe returns. Earlier, fund managers used to buy cheap shares in pre-IPO, but if the IPO of the company was canceled then your money would get stuck in unlisted shares. Now this risk has reduced, because the funds will invest only before the listing or in the IPO.
Also, the investments of the funds will be more transparent, because in pre-IPO the prices were hidden. Now everything will be done in a regulated manner, so you will get better information.