SEBI Proposes Major Overhaul in IPO Framework: Reforms Target Anchor Investors, Retail Quota, and Long-Term Fund Participation

Mumbai, August 1, 2025: The Securities and Exchange Board of India (SEBI) has released a comprehensive consultation paper outlining sweeping amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. These proposed reforms aim to address key challenges within the Initial Public Offering (IPO) process by streamlining anchor investor allotments, broadening the participation of long-term institutional investors, and recalibrating the retail quota in large public offers.

Key Proposals at a Glance

Anchor Investor Norms Recast to Attract Global Funds

To enhance the attractiveness of IPOs for global funds, SEBI has proposed several modifications to anchor investor norms. The regulator intends to expand the number of anchor investors permitted for IPOs with an anchor portion exceeding ₹250 crore, by increasing the existing limit from 10 to 15 per every ₹250 crore. Additionally, SEBI proposes to merge Category I and II for anchor allocation sizing, aiming to reduce redundancy in the framework and align it more effectively with the scale of current IPOs.

The amendments also seek to accommodate multiple Foreign Portfolio Investor (FPI) applications under the same beneficial owner with greater flexibility, thereby addressing existing PAN-based duplication limits that have historically restricted broader participation. An impact analysis table (Page 4 of the consultation paper) clearly illustrates that for an IPO size of ₹10,000 crore, the maximum number of anchor lines would increase by 44%, from 125 to 180, under the newly proposed norms.

Inclusion of Life Insurers and Pension Funds in Anchor Reservations

SEBI is proposing a 40% reservation in the Anchor Book for three long-term investor categories:

• Domestic Mutual Funds (33% as before)
• Life Insurance Companies (IRDAI registered)
• Pension Funds (PFRDA registered)

If the 7% reserved for insurers and pension funds remains unsubscribed, it will be reallocated to mutual funds.

Past Anchor Allotment to Insurers (Page 7):

Average allocation stood at 6.65%, validating insurer appetite for IPO anchor slots.

Retail Quota Flexibility in Oversized IPOs

Recognising that large IPOs have faced challenges in fully subscribing the 35% retail quota mandated under Regulation 6(1), primarily due to massive applicant volume requirements (up to 17.5 lakh bids for ₹10,000 crore IPOs), weak retail response outside of highly prominent issues like LIC and Bajaj Housing, and volatile global equity market conditions affecting retail sentiment, SEBI now proposes greater flexibility. The regulator suggests a graded reduction in the retail quota for IPOs exceeding ₹5,000 crore, potentially lowering it to as little as 25%. Concurrently, the Qualified Institutional Buyer (QIB) share would be increased from 50% to 60%.

As per the Retail Allotment Proposal (Page 13), for an IPO size of ₹5,000 crore, the existing retail allocation of ₹1,750 crore (35%) remains unchanged, with the QIB share at 50%. However, for a ₹6,000 crore IPO, the proposed retail allocation would be ₹1,850 crore (31%) versus an existing ₹2,100 crore, with a revised QIB share of 54%. For a ₹7,000 crore IPO, proposed retail is ₹1,950 crore (28%) against an existing ₹2,450 crore, with a revised QIB of 57%. Lastly, for an ₹8,000 crore IPO, the proposed retail allocation would be ₹2,050 crore (26%) against an existing ₹2,800 crore, with a revised QIB of 59%.

Retail Allotment Proposal (Page 13):

Mutual Fund Allocation in QIB Raised to 15%

SEBI also proposes a significant threefold increase in mutual fund allocation within the non-anchor QIB portion, raising it from 5% to 15%. This move is strategically intended to counterbalance any potential decline in direct retail allotment, thereby preserving overall retail participation through the mutual fund investment channel. Consequently, for an ₹8,000 crore IPO (Page 15), the current effective retail participation stands at ₹3,680 crore (46%). Under the proposed changes, the effective retail participation would be ₹3,475 crore (44%), which includes ₹1,140 crore via mutual funds in the anchor portion, ₹285 crore via mutual funds in the QIB portion, and ₹2,050 crore through direct retail investment.

Public Comment Period Open Until August 21, 2025

SEBI has invited feedback from all stakeholders on its official portal until August 21, 2025, for all three regulatory proposals covering:

• Anchor investor flexibility
• Reserved categories in the Anchor Book
• Retail allocation in large IPOs

What Does This Mean For Investors

• Greater Role for Anchor Investors
  SEBI may allow anchor investors to subscribe to more than the current 30% limit in large IPOs (over Rs. 10,000 crore). This could improve price stability and boost investor confidence, as anchor investors often bring reputational strength and long-term commitment to an IPO.
• Dedicated Quotas for Insurers and Pension Funds
  SEBI is considering setting aside a portion of mega IPOs specifically for institutional investors like LIC and EPFO. This can ensure a steady flow of long-term capital and reduce over-reliance on foreign or short-term investors, supporting more stable listings.
• Reduced Retail Quota in Mega IPOs
  To make room for larger institutional allocations, SEBI may reduce the retail investor share in very large IPOs. While this limits direct access for individual investors, it could lead to more orderly listings and less speculative activity on debut.
• Higher Mutual Fund Allocation
  By offering mutual funds a larger portion of IPOs, SEBI encourages professional management of IPO investments. This can benefit retail investors who invest through mutual funds and lead to better-informed participation in the IPO market.
• Improved Price Discovery and Listing Stability
  All these changes aim to strengthen demand quality and reduce volatility on listing day. A broader mix of long-term, informed investors can lead to more accurate pricing and steadier post-listing stock performance.

About SEBI’s ICDR Framework

The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, form the cornerstone of India’s IPO process, governing crucial aspects such as anchor allocation, retail participation, and institutional quotas. The current consultation paper reflects SEBI’s commitment to making India’s IPO ecosystem more agile, investor-friendly, and capable of scaling up for larger deals, aligning it with global best practices in capital markets.

REF: https://www.sebi.gov.in/reports-and-statistics/reports/jul-2025/consultation-paper-on-facilitating-ease-of-doing-business-relating-to-anchor-investor-allocation-long-term-institutional-participation-and-retail-quota-in-initial-public-offerings-ipo-under-icdr-re-_95748.html

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