Mumbai: The Securities and Exchange Board of India (Sebi) has proposed increasing the reservation for anchor investors in initial public offerings (IPOs) from 33% to 40%, with a greater share allocated to domestic institutional investors such as mutual funds, insurance companies and pension funds.In a consultation paper released last week, the market regulator has proposed that one-third of the 40% anchor investor reservation be earmarked for domestic mutual funds. An additional 7% will be set aside exclusively for life insurance companies registered with the Insurance Regulatory and Development Authority of India (IRDAI) and pension funds regulated by the Pension Fund Regulatory and Development Authority (PFRDA).The market watchdog clarified that if insurance companies or pension funds do not fully utilise their reserved portion, the unutilised quota will be made available to mutual funds.SEBI has also proposed trimming the retail quota from 35% to 25% in a staggered manner, while boosting the qualified institutional buyer quota from 50% to 60% to ensure demand stability.Anchor investors are large institutional players who are allotted shares a day before an IPO opens to the public. Their early participation lends credibility to the issue and helps attract wider investor interest.Currently, only mutual funds have a dedicated reservation in the anchor book. They are given one-third of the anchor portion, subject to demand. Insurance companies and pension funds, although eligible to participate, do not enjoy any formal reservation. Mutual funds are also eligible for up to 5% reservation in the non-anchor portion of the Qualified Institutional Buyers (QIB) category.SEBI’s proposal also includes formally recognising insurance companies and pension funds as eligible entities within the anchor investor category, expanding the base of long-term domestic investors in public issues.Experts have welcomed the proposal, saying this increased reservation will benefit small investors who put their money in mutual funds, Ulips and pension funds but often don’t get the shares they apply for in IPOs.
