Description

SEBI has amended the anchor investor allocation norms under ICDR Regulations, revising the number of anchor investors permitted based on allocation size and introducing reservations for mutual funds, life insurance companies, and pension funds.

Summary

SEBI has issued the third amendment to the ICDR Regulations, 2018, modifying the anchor investor allocation framework under Schedule XIII. The amendments introduce a tiered structure for the number of anchor investors based on allocation size, and mandate a 40% reservation within anchor portion for domestic mutual funds (33.33%) and life insurance companies/pension funds (6.67%). These regulations come into effect from the third day of their publication in the Official Gazette (October 31, 2025).

Key Points

  • For allocations up to ₹250 crores: minimum 2 and maximum 15 anchor investors allowed, with each investor receiving minimum ₹5 crores
  • For allocations exceeding ₹250 crores: minimum 5 anchor investors for first ₹250 crores (maximum 15), then additional 15 investors permitted for each subsequent ₹250 crores (or less)
  • Each anchor investor must receive minimum allocation of ₹5 crores
  • 40% of anchor investor portion reserved: 33.33% for Indian mutual funds and 6.67% for life insurance companies and pension funds
  • Undersubscribed portion reserved for life insurance/pension funds can be allocated to Indian mutual funds
  • Effective date: Third day from October 31, 2025 (November 3, 2025)

Regulatory Changes

Amendment to Schedule XIII, Part A, Para 10:

Previous Structure (Replaced): Sub-clauses (i), (ii), and (iii) under clause (I) have been completely replaced

New Allocation Structure:

  • Sub-clause (i): Up to ₹250 crores - 2 to 15 investors (minimum ₹5 crores each)
  • Sub-clause (ii): Beyond ₹250 crores - tiered approach with minimum 5 investors for first ₹250 crores, then 15 more investors for each additional ₹250 crores or less

New Reservation Requirements:

  • 40% of anchor investor portion (within limits specified in sub-para (b)) reserved as:
    • 33.33% for Indian mutual funds
    • 6.67% for life insurance companies and pension funds
  • Undersubscribed portion from life insurance/pension fund reservation can flow to mutual funds

Definitions Added:

  • Life Insurance Company: Entity registered with IRDAI under Insurance Act, 1938
  • Pension Fund: Fund registered with PFRDA under PFRDA Act, 2013

Compliance Requirements

For Issuers:

  • Must structure anchor book to accommodate minimum and maximum investor limits based on allocation size
  • Must ensure each anchor investor receives at least ₹5 crores
  • Must reserve 40% of anchor allocation for specified institutional categories (33.33% mutual funds + 6.67% life insurance/pension funds)
  • Must allocate undersubscribed life insurance/pension fund portion to mutual funds if applicable

For Book Running Lead Managers (BRLMs):

  • Recalibrate anchor book building processes to comply with new tiered structure
  • Ensure proper categorization and reservation for mutual funds, life insurance companies, and pension funds
  • Maintain records demonstrating compliance with minimum investor requirements

For Anchor Investors:

  • Indian mutual funds gain preferential reservation rights (33.33% of 40% anchor portion)
  • Life insurance companies and pension funds gain new reservation rights (6.67% of 40% anchor portion)
  • Must meet minimum investment threshold of ₹5 crores per investor

Important Dates

  • Notification Date: October 31, 2025 (published in Official Gazette)
  • Effective Date: Third day from publication = November 3, 2025
  • Applicability: All IPOs with anchor investor portions filed/opened on or after November 3, 2025

Impact Assessment

Market Impact:

  • Expands anchor investor base for larger IPOs, potentially improving price discovery
  • Provides preferential access to domestic institutional investors (mutual funds, life insurance, pension funds)
  • May increase participation from domestic long-term investors in anchor rounds

Operational Impact:

  • Issuers and BRLMs must redesign anchor allocation methodology
  • Systems and processes need updates to handle tiered investor limits and category-wise reservations
  • Additional documentation required to verify life insurance company and pension fund eligibility

Strategic Impact:

  • Strengthens domestic institutional investor participation in IPO price discovery
  • Aligns with regulatory objective of increasing domestic investor presence in primary markets
  • May reduce concentration risk in anchor book for larger issues by mandating higher minimum investor count

Compliance Risk:

  • Non-compliance with minimum investor requirements or reservation percentages could invalidate anchor allocation
  • Requires careful coordination between issuers, BRLMs, and registrars to ensure accurate categorization and allocation

Impact Justification

Fundamental changes to anchor investor allocation rules affecting all future IPO issuances, with specific requirements for minimum investors and mandatory reservations for institutional categories