Akash Jha
The commodity markets and capital markets in India are governed by the Securities and Exchange Board of India (SEBI). The rules for an initial public offering (IPO) issued by SEBI are well-defined and have been updated recently.
SEBI Guidelines for an IPO
When you decide to register a Demat account and begin investing in the equity markets, you can rest assured that the regulatory organization known as SEBI has your best interests at heart. The Securities and Exchange Board of India establishes norms for market trading that encourage responsible investing and trading. However, when sixty or more initial public offerings (IPOs) were conducted in 2021, SEBI attempted to change some of the regulations to better protect the interests of ordinary and non-institutional investors. Many rules have been updated as a result, and it’s important for investors to understand their benefits.
An Increase in Transparency
The new SEBI criteria for an initial public offering (IPO) include a provision focused on openness to the public. Fundraising organizations seeking to achieve inorganic growth objectives must disclose these objectives openly. Reserves for investments and acquisitions shouldn’t exceed 25% of the total cash raised in the event that the company doesn’t fulfill its qualification criteria. In addition, expenses can’t go up by more than 35%. Investors can use this information to choose the best initial public offering (IPO) to back. Companies will not be granted approval for IPOs unless their objectives and funding needs are made very clear.
Anchor Investors Get More of a Lock-In Time
After the initial 30 day lock-in period, anchor investors are allowed to sell just 50% of their assets. Anchor investors must wait 90 days before selling their remaining 50%. Several IPO-launching businesses have been actively allotting stock to anchor investors. This was primarily done to increase interest in initial public offerings. With the initial public offering (IPO) hype behind them, investors could cash out after the 30-day lock-in period. This resulted in a significant drop in share price for retail investors following the IPO filing. This will no longer happen. The initial public offering (IPO) standards set forth by SEBI clearly favor the new investor.
Restrictions on the Offer to Sell
Several companies were on the verge of doing IPOs before the new SEBI guidelines were released because of the opportunity an IPO offered for promoters and present company shareholders to exit. Investors seeking an exit from a corporate structure were especially affected by this. Such companies’ IPO debuts have nothing to do with needing additional finance to run their operations. This means that the returns for some early investors were higher than for IPO retail investors. Current shareholders who control more than 20% of the firm stock are restricted from selling more than 50% of their shares under the new rule. Those with less than 20% are restricted from selling more than 10% of their shares.
New SEBI Guidelines Bring Fair Play
SEBI will also take steps to watch and keep track of all funds raised by an IPO. This is to make sure that the funds are being used for the reason the IPO was started. With rules in place, now would be a good time to invest in an IPO that is about to happen. You could also open a Demat account and try stocks to make sure your wealth is balanced.
