Summary of this article
Sebi bans mutual funds from investing in pre-IPO placements.
Mutual funds can now participate only as anchor investors or in the public issue portion.
The move protects retail investors from illiquid, unlisted shares.
AMFI will ensure all asset management companies implement the guidance immediately.
The Securities and Exchange Board of India (Sebi) has drawn a clear line regarding where mutual fund schemes can put their money during an Initial Public Offering (IPO) process. In a detailed letter sent out on October 23, 2025, Sebi made it clear that mutual funds are now excluded from all pre-IPO placements. This means funds are allowed to purchase shares only when acting as anchor investors or when participating in the public issue portion once the IPO opens for subscription.
Sebi’s rationale flows from Clause 11 of the seventh schedule of its (mutual funds) Regulations, 1996. As per this rule, mutual funds may only invest in shares or equity-related instruments that are listed or “to be listed.” The problem with pre-IPO placements is simple: if the planned listing is delayed or cancelled, the mutual fund scheme could end up holding shares that never get listed.
Clear Ban On Pre-IPO Placements For Mutual Funds
For retail investors, this opens the door to illiquid holdings that cannot easily be sold and whose value may be uncertain. Such an outcome runs afoul of the original regulatory intention, which is to shield mutual fund investors—mainly the public—from holding risky, unlisted securities.
1 October 2025
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Industry participants had sought clarity. Many asset managers argued that being allowed into pre-IPO placements would offer them better entry prices into promising companies. According to them, private equity, family offices, and Alternative Investment Funds (AIFs) still have access to these deals, and thus, a perception of an unlevel playing field is created.
Regulatory Focus: Safeguarding Investors From Unlisted Securities
The absence of a guaranteed listing, combined with ambiguous regulatory definitions around “to be listed,” underpins Sebi’s conservative stance.
With this step, the regulator has also asked the Association of Mutual Funds in India (AMFI) to promptly spread the word to all asset management companies. The instructions are to be implemented without delay across the sector, leaving little doubt about what is— and what is not—allowed in the evolving world of IPO investing.
While this change will require mutual funds to focus all IPO investments solely on listed or imminently-to-be-listed companies, it emphasizes Sebi’s long-standing themes: protect the retail participant, keep funds liquid and transparent, and clamp down on regulatory risk-taking that could leave small investors vulnerable.
As debate continues over how much flexibility mutual funds should have, the new guidance is decisive: in India’s IPO market, it’s now anchor and public issue or nothing for mutual funds.
