Anchor Investors and No Entry Load Funds - SEBI's Investor-Friendly Actions

SEBI, the market regulator in India, announced the approval of 'anchor investors' for public offers. This allows an individual or entity to subscribe up to 30% of the institutional share of an IPO, similar to a pre-placement agreement, and enforces a lock-in of 30 days on such investors. Since 50% of an IPO is typically reserved for institutional investors, this would mean upto 15% of the total offering could be given to an 'anchor investor.'

The bidding process for anchor investors will be done one day prior to the opening of the IPO for subscription. This would thereby impute confidence to the retail investors as they see a large investor taking a significant stake in the IPO.

This step is expected to stabilize public offerings and give an overall boost to the primary market. This could lead to concentrated shareholdings, though, and it is likely the general norms of any single investor holding over 34% stake in a company having to make an open offer will still hold.

Additionally, SEBI did away with entry loads on mutual funds, directing that commissions be paid upfront by investors to distributors. Fees on equity and debt were cut by 50%.

Investors will heave a sigh of relief with these actions, but the industry players will not be too pleased.