The Securities and Exchange Board of India (Sebi) has proposed major changes in the initial public offering (IPO) framework to facilitate ease of doing business and bolster long-term investor participation.

In a consultation paper released on Thursday, the capital market regulator proposed reducing the reserved limit for retail investors and increasing the allocation for qualified institutional buyers (QIBs) in the case of large IPOs. It noted that the average IPO size has been rising, and for issues above ₹1,000 crore, the average issue size was approximately ₹4,000 crore in CY2024, a figure expected to increase further in CY2025 and 2026. This trend reflects the maturity and growing confidence in the Indian capital markets, it said.

The regulator has invited public comments until August 21, 2025, to make amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Flexibility in retail, QIB quota for large IPOs

The Sebi seeks to overhaul the IPO allocation structure for large offerings (above ₹5,000 crore), which currently require at least 35% allocation to retail individual investors. The regulator proposes a reduction in the retail portion to a minimum of 25% in a staggered manner, especially in very large deals where full retail subscription becomes difficult.

“Simply put, in the case of large IPOs, the size of the retail portion increases substantially and requires significant retail participation. This is especially challenging in tepid or uncertain markets… While overflow of demand is permitted in IPOs from retail to QIB category, undersubscription has a negative impact on the sentiment for the IPO and also creates a negative perception,” it noted.

The regulator has suggested increasing the quota reserved for QIBs (qualified institutional buyers) from the existing 50% to 60% to ensure demand stability and enhance issuer confidence in volatile or clustered market conditions.

“It is proposed to revise the issue structure for large IPOs (i.e., those exceeding ₹5,000 crore) under Regulation 6(1) of the SEBI (ICDR) Regulations. Specifically, the allocation to the retail category may be reduced from the existing 35% to 25% in a graded manner, while the allocation to the QIB category may be increased from 50% to 60% (up to ₹8,000 crore) in a graded manner,” the consultation paper highlighted.

The Sebi noted that in the QIB category, there is a reservation for mutual funds (MFs) in both anchor and non-anchor portions, which also represents retail individual investors indirectly. “Reducing the retail portion from 35% to 25% in a graded manner and increasing the QIB share to 60% in a graded manner better reflects market realities, ensures demand stability, and enhances issuer confidence in volatile or clustered market conditions.”

The regulator also proposed enhancing the reservation for MFs from the existing 5% to 15% in the non-anchor QIB category.

Raising limit of anchor allottees for IPOs

The Sebi has proposed increasing the number of permissible anchor investors, especially in larger IPOs. Under the current framework, the number of anchor investors is capped based on the issue size.

To address this disparity, the regulator has recommended raising the limit of anchor allottees for IPOs with anchor allocations above ₹250 crore. It is considering allowing 15 additional anchor investors for every ₹250 crore beyond the initial ₹250 crore tranche, compared to 10 under the existing rules, subject to a minimum allotment of ₹5 crore per investor.

The proposal aims to ease participation for large FPIs operating multiple funds with distinct PANs, which currently face allocation limits due to line caps.

“By increasing the number of permissible anchor lines, the framework would accommodate such investors, enabling larger, more diversified anchor books and attracting global funds with minimum size criteria,” it said.

Inclusion of life insurance companies and pension funds in anchor book

The Sebi has suggested including life insurance companies and pension funds (registered with IRDAI and PFRDA respectively) in the anchor investor portion. Currently, only mutual funds enjoy a mandatory reservation of 33% within this category.

The regulator has also proposed increasing the anchor reservation from the existing 33% to 40% to boost participation from life insurance companies, pension funds, and domestic mutual funds. “It would diversify the long-term investor base while retaining the existing one-third reservation for mutual funds, enhancing the depth and stability of anchor investments,” the paper noted.

The regulator opined that retail investors have consistently invested in capital markets via mutual funds, despite market volatility. While direct retail participation has remained largely flat over the past three years, their involvement through mutual funds has steadily increased. Therefore, a reduced allocation to the retail portion can be offset by a higher reservation for domestic mutual funds within the QIB category, it said.