With an aim to increase retail investors' participation in stock market, Sebi is considering higher allocation of public offer shares for mutual funds.
Initial and follow-on public offers have traditionally been a preferred route of stock market investment for mutual funds, but they do not get enough shares these days because of a surge in demand from foreign institutional investors.
Currently, all the Qualified Institutional Buyers (QIBs), which includes a whole range of institutional investors including mutual funds, are together allocated 50 per cent of shares being sold through IPOs and FPOs. But, there is no direct reservation for mutual funds (MFs).
The maximum indirect allocation available to mutual funds as per the existing regulations is not even 10%, and intense competition in the QIB segment makes it tough for MFs to get desired amount of shares, a senior official said.
Sebi is mulling over steps to increase the public offer allocation for mutual funds, as retail investors prefer to invest through MFs because of risks being less in comparison to direct investment in stocks, he added.
As retail investors' portion in public offers is not as highly oversubscribed as the QIB portion, Sebi believes that a higher quota for retail investors directly might not help them get more shares, the official said.
While retail investors are required to be allocated a minimum of 35% of shares being sold, 50% of shares are reserved for all the QIBs together.
The Qualified Institutional Buyer (QIB) category includes a whole range of financial institutions such as mutual funds, insurers, banks and foreign institutional investors (FIIs).
But, there is no direct reservation for MFs, as is the case for retail individual investors, employees and non-institutional investors (HNIs and corporate bodies).
Out of the QIB quota, only 5% shares need to be allocated to the mutual funds.
Besides, the companies have an option to sell up to 30% of QIB quota shares to 'anchor investors', to whom shares are sold a day before the opening of the public offer. Mutual funds are allocated one-third of shares being sold to such investors.
The retail investors mostly invest in equity schemes of mutual funds, while debt schemes are preferred by corporates.
The existing equity schemes of mutual funds are estimated to be getting an average of Rs 5,000 crore fund inflow every month from investors.
In last fiscal, the funds houses are estimated to have sold equity schemes worth Rs 60,000 crore and the trend so far suggests a similar amount for the current financial year ending in March 2011.