India’s market regulator, the Securities and Exchange Board of India (SEBI), has clarified that mutual funds are not allowed to invest in companies before they are officially listed, according to sources cited by Reuters.
Certain fund houses had approached SEBI seeking clarification on whether pre-IPO placements—private sales of shares to select investors prior to a company’s official listing—qualify as eligible investments. SEBI stated that mutual fund investments are permitted only during the official IPO process, including large early-stage anchor placements.
Mutual funds are not permitted to hold unlisted shares, SEBI communicated to fund managers.
Pre-IPO placements are typically reserved for alternative investment funds and foreign investors in India. The clarification comes as Indian companies are projected to raise a record $18.5 billion in 2025, making India the third-largest market globally for IPO fundraising.
Mutual funds in India currently manage approximately ₹75.61 lakh crore ($860.23 billion), largely serving retail investors. Some fund houses had hoped to participate in pre-IPO deals to generate higher returns, but SEBI’s directive effectively bars them from doing so.
A source explained the regulator’s concern: if a mutual fund invests in a pre-IPO placement and the company fails to list, the fund would end up holding unlisted shares, which is prohibited under current regulations.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Readers should consult official SEBI guidelines and fund disclosures before making investment decisions.
