In a surprise development, the Securities and Exchange Board of India ( Sebi ) has directed mutual fund houses not to invest in pre-initial public offering ( IPO ) share placements.

In a letter to the Association of Mutual Funds in India (Amfi) it said, “ “It is hereby clarified that in case of IPOs of equity shares and equity-related instruments, schemes of mutual funds can only participate in the anchor investor portion or in the public issue.”

Both Sebi sources and an Amfi official did not comment on the reasons that led to this development. Pre-IPO placements are those in which the company raises money from mutual funds/other investors before it has filed the draft red herring prospectus with the market regulator.

According to sources, Sebi is worried that if the company was una

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