A Bigger Role for Insurance and Pension Funds
The Securities and Exchange Board of India has introduced significant reforms in the way anchor investors participate in public issues. For the first time, life insurance companies registered with the Insurance Regulatory and Development Authority of India and pension funds registered with the Pension Fund Regulatory and Development Authority have been included in the reserved category of the anchor investor portion. These institutions will now share space with domestic mutual funds which have traditionally been the mainstay of this category.
Increase in Reservation Quota
The overall reservation for anchor investors has been increased from one third to forty percent. Of this, one third will remain exclusively reserved for domestic mutual funds while the remaining share is allocated to life insurance companies and pension funds. Importantly, if insurance companies or pension funds do not fully utilize their quota, the unused portion will revert to mutual funds. This change is expected to bring in more long-term institutional capital into initial public offerings and strengthen market depth.
More Anchor Investors Allowed in Large IPOs
Another major change relates to the number of permissible anchor investors in large allocations. Until now, a limited number of anchor investors could participate in allocations above 250 crore rupees. SEBI has now expanded this by allowing a minimum of five and a maximum of fifteen investors for allocations up to 250 crore rupees. For every additional 250 crore rupees or part thereof, an additional fifteen investors will be permitted, subject to a minimum allotment of five crore rupees per investor. This reform is designed to broaden participation, enhance stability, and reduce concentration risk in high-value anchor investments.
Consultation and Final Approval
The reforms follow a consultation paper that SEBI had issued earlier in July. The proposals had suggested both the inclusion of insurance companies and pension funds and the increase in the reservation quota. With the board’s approval, these suggestions have now been formally adopted, signaling SEBI’s commitment to strengthening transparency and inclusiveness in the IPO process.
What This Means for Markets
The participation of insurance companies and pension funds adds a layer of credibility and stability to IPOs as these institutions are known for long-term investment horizons. Their involvement is expected to inspire greater retail investor confidence and improve the demand-supply balance during large listings. By broadening the anchor investor base, SEBI is also ensuring that IPOs attract a wider range of institutional capital, which can help in smoother price discovery and market efficiency.
SEBI Chairman Tuhin Kanta Pandey emphasized that these measures will deepen the market and align with the regulator’s vision of building a more resilient and inclusive capital market ecosystem.
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