Introduction
On July 31, 2025, the Securities and Exchange Board of India (SEBI) issued a consultation paper proposing significant amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations). The proposals aim to address practical limitations, align the regulatory framework with evolving market realities, and reinforce institutional participation in large initial public offerings (IPOs).
The paper focuses on three distinct but interrelated themes:
- Revision of limits and structure relating to Anchor Investor allotments
- Expansion of reserved categories in the Anchor Book, including pension funds and insurers
- Rationalisation of retail investor quota in large-sized IPOs (₹5,000 crore and above)
SEBI has invited public comments on the proposals by August 21, 2025.
I. Anchor Investors: Addressing Structural Constraints
a) Current Framework
Under Regulation 32(3) read with Schedule XIII of the ICDR Regulations, up to 60% of the Qualified Institutional Buyer (QIB) portion in an IPO may be allocated to Anchor Investors on a discretionary basis. The number of permitted anchor investors is currently linked to the size of the anchor book (e.g., 15 anchor investors for allocations up to ₹250 crore, with 10 additional investors permitted per ₹250 crore thereafter).
Additionally, one-third of the anchor portion is reserved for domestic mutual funds, subject to demand.
b) Identified Challenges
Stakeholders particularly large foreign portfolio investors (FPIs) have highlighted structural limitations under the present cap regime. Since each FPI fund (even if under common beneficial ownership) holds a separate PAN, they are treated as distinct applicants, thereby consuming multiple anchor slots.
- This constraint limits participation from global institutional investors operating multiple funds.
- It also places FPIs at a disadvantage compared to mutual funds (which use a single PAN)
- Which ultimately inhibits participation from global funds with large ticket sizes and minimum investment thresholds
Moreover, Category I (maximum 2 investors for allocations up to ₹10 crore) is practically obsolete in today’s capital markets where the average main board IPO exceeds ₹3,000 crore.
c) SEBI’s Proposals
- Proposal 1: For anchor allocations above ₹250 crore, increase the permissible number of anchor investors from 10 to 15 per ₹250 crore or part thereof.
- Proposal 2: Merge Category I and II, so that all anchor allocations up to ₹250 crore permit 2 to 15 investors, with minimum allotment of ₹5 crore per investor.
d) Expected Impact
These proposals are designed to:
- Facilitate seamless participation by large FPIs with multiple funds
- Reduce artificial constraints in anchor participation
- Promote diversified and deeper anchor books, enhancing price stability during listing
II. Institutional Deepening: Inclusion of Insurers and Pension Funds
a) Existing Position
Currently, mutual funds enjoy a one-third reservation within the anchor book. However, life insurance companies (regulated by IRDAI) and pension funds (regulated by PFRDA) do not have a statutory reservation, despite their growing presence in IPO anchor rounds.
b) Observed Trends
Recent IPO data indicates increasing anchor participation by insurance companies ranging between 3% and 11% in select large IPOs such as Bajaj Housing, Hyundai Motors, and HDB Financial. Pension funds, while restricted to top 200 market cap companies, are emerging as long-horizon investors with conservative mandates.
c) SEBI’s Proposals
- Proposal 1: Include insurance companies and pension funds in the reserved anchor category alongside mutual funds.
- Proposal 2: Increase total reservation in the anchor portion from 33% to 40%, divided as:
- 33% for mutual funds
- 7% for insurers and pension funds
- Provision for inter-category reallocation in case of undersubscription
d) Implications
The proposal strengthens the presence of long-term institutional capital in the IPO ecosystem and ensures equitable access for conservative, regulated financial institutions enhancing depth and reducing reliance on short-term funds.
III. Retail Participation in Large IPOs: Towards Graded Flexibility
a) Existing Rule
As per Regulation 6(1), 35% of the net public offer is mandatorily reserved for retail individual investors (RIIs).
b) Challenges in Large Issues
For IPOs above ₹5,000 crore, maintaining a 35% retail quota translates into the need for 7–17 lakh valid applications an increasingly difficult target in uncertain or volatile markets.
While retail enthusiasm via mutual funds (especially through SIPs) has been steadily rising, direct retail applications have stagnated. The monthly SIP inflow crossed ₹26,000 crore in May 2025, reflecting a secular shift toward collective investment mechanisms.
c) SEBI’s Proposals
- Reduce minimum retail quota from 35% to 25% for IPOs exceeding ₹5,000 crore, in a graded structure
- Increase QIB allocation from 50% to 60%
- Raise mutual fund reservation in the non-anchor QIB book from 5% to 15%
d) Illustrative Scenario
In an ₹8,000 crore IPO:
- Retail portion reduces from ₹2,800 crore (35%) to ₹2,050 crore (~26%)
- Mutual fund reservation (anchor + QIB) increases from ₹880 crore to ₹1,425 crore
- Effective retail participation (direct + via MFs) remains stable: ~₹3,475 crore
e) Rationale
SEBI recognizes the importance of maintaining fair retail access while acknowledging that market absorption at scale is increasingly mediated through institutions. The proposal offers supply-side flexibility without compromising demand-side inclusivity.
Key Takeaways
| Aspect | Current Regulation | Proposed Change |
| Max anchor investors per ₹250 cr. | 10 | 15 |
| Reserved anchor portion for MFs | 33% | 33% |
| Reserved anchor portion for insurers & pension funds | None | 7% |
| Retail quota for IPOs > ₹5,000 cr. | 35% | Graded down to min. 25% |
| Mutual fund quota in non-anchor QIB | 5% | 15% |
Public Consultation Open
Stakeholders may submit their feedback through SEBI’s official portal or via email until August 21, 2025: