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Objective of the SEBI Consultation Paper (July 2025)
SEBI has released a consultation paper with a simple yet important goal — to make the IPO process easier, fairer, and more practical for all participants in India’s capital market.
Over the years, the IPO ecosystem has grown rapidly in size and complexity. But the current rules under the SEBI ICDR Regulations, 2018 haven’t kept up with some of the ground realities — especially when it comes to anchor investor participation, long-term institutional involvement, and retail investor quotas in large IPOs.
That’s why SEBI is proposing a few key changes and is now inviting feedback from companies, investors, and the general public.
This paper focuses on three main areas:
1. Anchor Investor Allocation
Currently, there are strict limits on how many anchor investors can be allotted shares based on the size of the issue. This makes it hard for big global funds and multiple FPI accounts (with different PANs) to participate fully. SEBI wants to make the rules more flexible and inclusive, especially for large-sized IPOs.
2. Inclusion of Insurance Companies & Pension Funds
Right now, only Mutual Funds get a reserved portion in the anchor book. However, Insurance Companies and Pension Funds are also large, long-term investors — and SEBI believes they should be given a fair and formal seat at the table.
3. Retail Quota in Large IPOs
In very large IPOs (₹5,000 crore or more), it has become difficult to get enough retail investors to subscribe fully — especially during uncertain markets. To fix this, SEBI proposes to reduce the retail quota slightly and allow more room for institutional investors (like MFs and QIBs), who are more consistent in participation. This also reflects the fact that many retail investors now invest indirectly through mutual funds.
Section I: Discretionary Allotment in the Anchor Investor Portion
What is this about?
In an IPO, companies reserve up to 60% of the QIB (Qualified Institutional Buyers) quota for Anchor Investors — big investors like mutual funds, insurance companies, and FPIs — who are allotted shares before the IPO opens to the public.
Right now, SEBI limits how many anchor investors can get shares, based on the size of the anchor portion. But these limits are now too strict and outdated, especially as IPO sizes have become much larger.
What’s the problem with current rules?
| Issue | Explanation |
| 1. Too restrictive for FPIs | Large FPIs manage many funds (each with its own PAN). But SEBI counts each PAN as a separate investor, which causes them to hit limits quickly. |
| 2. Mutual Funds treated better | MFs can apply as one investor across multiple schemes (because they use a single PAN), giving them more flexibility. |
| 3. Big global investors stay away | Global funds often need large, assured allocations. But current rules limit how much they can get. |
| 4. Outdated small-size category | Most IPOs today are much bigger than ₹10 crore, making Category I (for very small allocations) practically useless. |
Annexure-Based Illustration: Large Anchor Books & Investor Constraints
SEBI’s Annexure clearly shows how large IPOs are seeing a surge in anchor demand — yet investor limits remain tight.
| Issuer | Issue Size (₹ Cr) | Anchor Portion (₹ Cr) | Anchor Investors Allotted |
| LIC | 20,557 | 5,627 | 59 |
| Hyundai Motors | 27,859 | 8,100 | 83 |
| Zomato | 9,375 | 4,196 | 186 |
| Vishal Mega Mart | 8,000 | 2,400 | 39 |
| Star Health | 6,019 | 1,800 | 66 |
| Bajaj Housing Finance | 6,560 | 1,860 | 43 |
Source: Annexure, SEBI Consultation Paper, July 31, 2025
Observation:
- In high-demand IPOs like Zomato, anchor interest was massive (186 investors), showcasing the importance of flexibility.
- However, the current cap system limits broader participation, especially by FPI funds with separate PANs.
SEBI’s Proposals to Fix This
Proposal 1: Allow More Anchor Investors in Large IPOs
Currently, SEBI allows:
- 15 investors for anchor portion up to ₹250 crore
- Plus 10 extra investors for every ₹250 crore above that
Proposed Change:
Increase that to 15 extra investors per additional ₹250 crore.
Comparison Table
| IPO Size | Anchor Portion (30%) | Max Investors (Current) | Max Investors (Proposed) |
| ₹500 crore | ₹150 crore | 15 | 15 |
| ₹1,000 crore | ₹300 crore | 25 | 30 |
| ₹2,500 crore | ₹750 crore | 35 | 45 |
| ₹5,000 crore | ₹1,500 crore | 65 | 90 |
| ₹10,000 crore | ₹3,000 crore | 125 | 180 |
Source: Annexure, SEBI Consultation Paper, July 31, 2025
Why this helps:
More anchor investors = more participation = better IPO success and stronger institutional support.
Proposal 2: Merge Category I with Category II
Currently, SEBI divides anchor allocations into 3 categories:
| Category | Anchor Size | No. of Investors Allowed |
| I | Up to ₹10 crore | Max 2 |
| II | ₹10 crore to ₹250 crore | Min 2 – Max 15 |
| III | Above ₹250 crore | 15 + 10 per ₹250 crore extra |
What SEBI proposes:
- Remove Category I altogether
- Apply Category II rules (Min 2 – Max 15 investors) to all anchor portions up to ₹250 crore
Why this helps:
Category I is outdated (almost no IPO is that small anymore), and merging simplifies the rulebook.
SEBI Seeks Public Feedback on:
| Question | What SEBI Wants to Know |
| Proposal 1 | Should the number of permitted anchor investors be increased for larger IPOs? |
| Proposal 2 | Will merging Category I and II create any issues for companies or investors? |
Last date to submit feedback: 21st August 2025
https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=4&ssid=38&smid=35
Section II: Reservation for Life Insurance Companies & Pension Funds in Anchor Book
What is this section about?
In an IPO, a portion of shares (called the Anchor Investor portion) is reserved for big institutional investors like Mutual Funds (MFs), who commit to investing before the IPO opens to the public. Currently, only domestic Mutual Funds have a reserved quota — one-third (33%) of the anchor portion, subject to demand.
But with the growing interest from Life Insurance Companies and Pension Funds, SEBI is proposing to bring them into the reserved category as well.
What is the current problem?
| Issue | Explanation |
| No reservation for Insurance or Pension Funds | Even though they are large, stable, long-term investors, they don’t have a reserved share in the anchor portion. |
| Rising interest not supported by rules | In the past year, insurance companies have started investing more actively in IPOs — but there’s no regulatory mechanism to ensure they get space. |
| Missed opportunity for long-term capital | Insurance & pension funds bring stable, long-term money. Not reserving for them limits diversity in the investor base. |
Real-World Evidence: Insurer Participation (Annexure-Based)
SEBI’s Annexure data clearly shows that Life Insurance Companies have been actively participating in large IPOs through the anchor route — even without reservation.
| IPO Issuer | Anchor Book Size (₹ Cr) | Insurer Allocation (₹ Cr) | % of Anchor Book |
| Hyundai Motors | 8,100 | 756 | 9.32% |
| Bajaj Housing Finance | 1,860 | 206 | 11.08% |
| Vishal Mega Mart | 2,400 | 135 | 5.63% |
| Star Health | 1,800 | 121 | 6.70% |
| LIC | 5,627 | 308 | 5.50% |
| Zomato | 4,196 | 28 | 0.70% |
Source: Annexure, SEBI Consultation Paper, July 31, 2025
Key Insight: Despite having no formal quota, insurance companies still take up 5–11% of the anchor book in many IPOs. This validates their genuine demand and trust in India’s equity markets.
What is SEBI proposing?
SEBI has made two clear proposals in this section:
Proposal 1: Include Insurance Companies & Pension Funds in Reserved Anchor Allocation
- Right now, only Mutual Funds get a 33% reservation in the anchor book.
- SEBI proposes to formally include:
- Life Insurance Companies (registered with IRDAI)
- Pension Funds (registered with PFRDA)
This will give them fair and guaranteed participation in the anchor portion of IPOs.
Proposal 2: Increase Total Reservation in Anchor Portion from 33% to 40%
| Current Rule | Proposed Rule |
| 33% reserved for Mutual Funds | 40% reserved in total, split as: |
| – 33% for Mutual Funds | |
| – 7% for Life Insurance Companies & Pension Funds |
What if insurance or pension funds don’t fully subscribe?
The remaining part of their 7% quota can be given to Mutual Funds (and vice versa). This ensures full utilization.
Why is this a good idea?
| Benefit | Explanation |
| Encourages long-term investing | Insurance and pension funds typically invest for 10–20 years. |
| More balanced anchor book | Reduces over-reliance on Mutual Funds alone. |
| Better representation of institutional demand | Reflects the actual market interest across different investor types. |
SEBI Wants Your Views On:
| Question | What SEBI Wants to Know |
| Proposal 1 | Should insurance and pension funds be included in the reserved anchor category? |
| Proposal 2 | Should the total anchor reservation be increased from 33% to 40%, with 7% for insurance/pension funds? |
Last date to submit feedback: 21st August 2025
https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=4&ssid=38&smid=35
SECTION III: Flexibility in Retail Quota for Large IPOs
What’s This About?
SEBI currently mandates that 35% of the public offer in IPOs be reserved for Retail Individual Investors (RIIs). While this has supported retail inclusion in equity markets, it causes practical issues in large IPOs (₹5,000 Cr and above), where such high retail participation is difficult to achieve.
What Problem is SEBI Solving?
| Issue | Explanation |
| Excess Retail Quota | A fixed 35% under Regulation-6(1) of ICDR Regulations, Hence in massive IPOs (₹10,000 Cr+) requires over ₹3,500 Cr from lakhs of retail investors — hard to achieve. |
| Undersubscription Risk | Poor retail demand leads to under-subscription, damaging market perception, even if QIB and NII quotas are oversubscribed. |
| Outdated Allocation Logic | Retail interest today flows increasingly through Mutual Funds — the fixed 35% doesn’t reflect this shift. |
| Poor Market Efficiency | The rigid rule limits flexibility in IPO structuring and deters large listings due to execution uncertainty. |
Retail Response in Recent Large IPOs
(Annexure-Based)
| IPO Issuer | Total Issue Size (₹ Cr) | Retail Quota (₹ Cr) | Retail Bids (₹ Cr) | Retail Subscription (x) |
| Hyundai Motors | 27,859 | 9,758 | 4,294 | 0.4x |
| LIC | 20,557 | 6,270 | 10,094 | 1.6x |
| Hexaware Tech. | 8,750 | 3,156 | 316 | 0.1x |
| Bajaj Housing Fin. | 6,560 | 2,050 | 15,459 | 7.5x |
| Swiggy | 11,327 | 1,134 | 1,202 | 1.1x |
Source: SEBI Consultation Paper, July 31, 2025
Insight:
- Hyundai, Hexaware, and Swiggy struggled to achieve even 1x subscription in retail despite their strong brand value.
- LIC and Bajaj Housing saw success, but such strong retail bids are not consistent across IPOs.
SEBI’s Proposals in Detail
Proposal 1: Reduce Retail Quota for IPOs Above ₹5,000 Cr
SEBI proposes a tiered structure where retail quota decreases with increasing IPO size:
Proposed Retail & QIB Allocation by IPO Size
| IPO Size | Retail Quota (Current) | Retail Quota (Proposed) | QIB Quota (Proposed) | Comment |
| ₹5,000 Cr | 35% = ₹1,750 Cr | 35% = ₹1,750 Cr | 50% = ₹2,500 Cr | No change |
| ₹6,000 Cr | 35% = ₹2,100 Cr | 31% = ₹1,860 Cr | 54% = ₹3,240 Cr | QIB gain of 4% |
| ₹8,000 Cr | 35% = ₹2,800 Cr | 26% = ₹2,080 Cr | 59% = ₹4,720 Cr | Lower retail requirement |
| ₹10,000 Cr | 35% = ₹3,500 Cr | 25% = ₹2,500 Cr | 60% = ₹6,000 Cr | Highest reallocation |
Source: SEBI Consultation Paper, July 31, 2025
QIB Reallocation: The portion reduced from retail will be added to QIB quota to ensure full utilization and successful subscription.
Proposal 2: Increase Mutual Fund Reservation in QIB (Non-Anchor Portion)
SEBI also notes that retail investors increasingly prefer investing in IPOs indirectly via Mutual Funds (MFs).
Currently:
- Only 5% of the QIB (non-anchor) portion is reserved for Mutual Funds.
- SEBI proposes increasing this to 15%, reflecting the retail shift toward professionally managed SIPs.
Change in Mutual Fund Quota in QIB (Non-Anchor)
| Category | Existing MF Reservation | Proposed MF Reservation | Impact |
| QIB (Non-Anchor) | 5% of QIB non-anchor | 15% of QIB non-anchor | Triple the allocation to MFs |
This change aligns IPO structure with current investor behaviour.
Example – Allocation in an ₹8,000 Cr IPO
Here’s a before-and-after simulation for a ₹8,000 Cr IPO under the current and proposed rules:
| Investor Category | Current Allocation (₹ Cr) | Proposed Allocation (₹ Cr) |
| QIB (Total) | 4,000 | 4,750 |
| Anchor (60% of QIB) | 2,400 | 2,850 |
| – Mutual Funds in Anchor (33%) | 800 | 940 |
| – Insurers & Pensions in Anchor | 0 | 200 |
| QIB Non-Anchor (40% of QIB) | 1,600 | 1,900 |
| – MF Share in Non-Anchor (15%) | 80 | 285 |
| NII | 1,200 | 1,200 |
| Retail | 2,800 | 2,050 |
| Retail Exposure (Retail + MF) | 3,680 | 3,475 |
Source: SEBI Consultation Paper, July 31, 2025
Key Takeaway:
Retail allocation drops, but total retail-related exposure (direct + via MFs) remains stable — now handled more efficiently.
Summary: Comparison Between Existing and Proposed Scenario
| Aspect | Existing Model | Proposed Model |
| Retail % (All IPOs) | Fixed 35% | 25–35% (graded by size) |
| QIB % | 50% | Up to 60% |
| MF Reservation (QIB) | 5% | 15% |
| IPO Success Risk (Large) | Higher due to volatility | Lower due to structure flexibility |
SEBI Wants Feedback On:
| Proposal | Question SEBI Asks |
| Proposal 1 | Should the retail quota be reduced for large-sized IPOs above ₹5,000 Cr? |
| Proposal 2 | Should Mutual Fund reservation in non-anchor QIB increase from 5% to 15%? |
Comment Deadline: 21st August 2025
https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=4&ssid=38&smid=35
Annexure I – Proposed Amendments to SEBI (ICDR) Regulations, 2018
| Sl. No. | Reference to Existing Provision | Proposed Amendment | Linked Section |
| 1 | Regulation 2(1) | Insert a new clause defining ‘Strategic Anchor Investor’, if applicable | Section I |
| 2 | Regulation 6(2) | Insert a proviso to allow flexibility in retail reservation percentages based on total issue size | Section I / III |
| 3 | Regulation 129(1) | Insert explanation that in case of graded retail reservation, the balance shall be allocated to QIBs | Section I / III |
| 4 | Schedule XIII, Part A, Clause 10 | Insert new sub-clause: “(d) In case of public issues > ₹5,000 Cr, anchor reservation may be specified in a graded manner, based on issue size and SEBI guidance.” | Section I |
| 5 | Regulation 2(1)(zb) | Update definition of ‘Institutional Investor’ to include IRDAI-registered insurers and PFRDA-registered pension funds | Section I / II |
| 6 | Schedule XIII, Part A, Clause 10(d) (new) | Reserve min. one-third of anchor portion for domestic mutual funds, and up to 7% for insurance companies and pension funds | Section II |
| 7 | Regulation 32 (in IPO under Regulation 6(1)) | Insert proviso: In IPOs > threshold (e.g., ₹5,000 Cr), allow graded reservation for RIIs, and allocate balance (if any) to QIBs | Section III |
| 12 | Regulation 6(2) | Reiterate proviso to allow graded retail reservation in IPOs above specified size threshold | Section III |
Source: Annexure I – SEBI Consultation Paper, 31 July 2025
Conclusion
SEBI’s proposed amendments to the SEBI (ICDR) Regulations, 2018, as outlined in Annexure I, mark a significant step toward modernizing India’s primary capital market framework. These reforms are not just regulatory in nature — they reflect the changing dynamics of investor behavior, the growing size of IPOs, and the increasing importance of long-term domestic institutions such as mutual funds, insurers, and pension funds.
By enabling graded retail reservation, expanding the institutional investor base, and providing flexibility in anchor investor structuring, SEBI seeks to:
- Prevent undersubscription risks in mega-issues
- Improve allocation efficiency
- Deepen participation from high-quality, stable capital sources
- Align with global best practices while safeguarding retail interest
Most importantly, these changes are not imposed in isolation. SEBI has laid out a clear, data-backed, consultative roadmap — offering market participants a chance to respond, refine, and shape the implementation. If adopted, these regulatory updates could significantly enhance the credibility, transparency, and efficiency of India’s IPO ecosystem in the years ahead.
Reference:
Written by Mahboob Gaddi and Farman Ahmad | Founders, Lawgical Search