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What are the SEBI Guidelines for an IPO
12 Sep 2023

The Securities and Exchange Board of India (SEBI) is the entity regulating the Indian commodity markets and capital Indian markets. SEBI guidelines for an IPO are clearly laid out, and recently, these have seen some amendments. 

SEBI Guidelines for an IPO

When you open a Demat account and start your way to investment in the equity markets, a governing body, known as SEBI, is working in your best interests as an investor. The Securities and Exchange Board of India lays down ground rules that govern trading activity in the markets, and this promotes best practices in trading and investment. However, during the frenzy of 2021’s IPO activity, with some sixty or more IPOs launched, SEBI sought to modify some of the regulations in a bid to safeguard the interests of non-institutional and retail investors. As a result, many rules have changed, and it is worth probing into key rules to know how they help investors. Discover the latest updates and insights on the Upcoming IPOs 2023!

An Increase in Transparency

In new SEBI guidelines for an IPO, the first rule is related to transparent operations. The rule states that those organisations raising funds that have to do with aims of inorganic growth must make their targets and goals clear. In the event such companies are unable to qualify their targets, amounts which are reserved to meet investments and acquisitions must not go above 25% of the amount raised in total. Additionally, spending cannot go above 35%. This helps investors to make decisions about the right upcoming IPO to invest in. Unless companies make their goals and fund requirements totally clear, their permissions for IPOs will not be granted. 

Anchor Investors Get More of a Lock-In Time

Anchor investors are permitted to sell just 50% of investments after a lock-in of 30 days. To make a sale of the 50% left over, anchor investors must wait for 90 days. Several companies launching IPOs were busy allocating stock to anchor investors previously. This was mainly done so that IPOs could gain high traction. After 30 days of lock-in, investors could exit with a bull run of the IPO behind them. For regular investors, this meant a steep dip in the value of shares after the IPO listing. This will be prevented now. SEBI guidelines for an IPO are clearly on the side of the new investor. 

Restrictions on the Offer to Sell

Before the new SEBI guidelines for an IPO came out, several companies about to launch IPOs did so due to an IPO offering opportunities for promoters and current company shareholders to exit. This was especially true for venture capitalists who wanted out of the company structure. The reasons for an IPO launch in such companies was far removed from actually raising capital for business operations. Therefore, some initial investors gained more than those retail investors of the IPO. The new rule states that current shareholders who own above 20% of company stock are not allowed to sell above 50% of their shares. Those with lower than 20% are not permitted to sell above 10% of the total shareholding. 

New SEBI Guidelines Bring Fair Play

Above and beyond the rules mentioned, SEBI will also make a move to monitor and track all funds raised by an IPO to check that funds are being used for the purpose for which the IPO was launched. If you are an investor in an upcoming IPO, this would be a good time to invest with regulations in action. You may also open a Demat account and try equities for equitable distribution in your portfolio. 


Related articles: 5 Tips for Investing In IPOs | What's the big deal about IPOs | Clearing the confusion from IPOs | IPO in India- The future looks bright | Upcoming IPO


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