Sebi clears major reforms: Easier delisting norms for PSUs, startup listing, and angel funding get a boost

In a landmark meeting that could reshape India’s capital market contours, the Securities and Exchange Board of India (Sebi) in its 210th board meeting cleared a host of sweeping proposals aimed at enhancing investor participation, simplifying public market access, and easing operational compliance across a range of market participants — from IPO-bound firms and PSUs to angel funds, custodians, and portfolio managers.

Sebi approved critical amendments to its Issue of Capital and Disclosure Requirements (ICDR) Regulations to smoothen the IPO process:

Exemption from one-year holding period extended to equity shares resulting from conversion of Compulsorily Convertible Securities under approved schemes — aiding reverse-flipping companies relocating to India.

Relevant non-promoter entities (such as AIFs, FVCIs, PEs, insurers) can now contribute to minimum promoter contribution using converted securities.

Founders designated as promoters can retain share-based benefits (e.g., ESOPs) if granted a year before the IPO filing — a significant relief for startup founders.

Delisting for select PSUs easier

In a major policy shift, PSUs (excluding banks, NBFCs, insurers) with 90% or more government/PSU holding can delist through a fixed-price mechanism with a 15% premium over the floor price. The two-thirds public shareholder approval requirement has been waived, addressing the challenge of illiquid PSU stocks trading far below intrinsic value.

Angel fund framework overhauled

In a post–angel tax era, SEBI has:

Mandated Accredited Investor status for angel investors.

Relaxed investment floors/caps, removed company-wise concentration limits, and allowed >200 investors per deal.

Permitted follow-on investments even if the startup is no longer early-stage.

Created a glide path with grandfathering for existing non-accredited investors.

AIFs can offer co-investment schemes

Category I & II AIFs can now offer co-investment opportunities within the AIF framework itself (bypassing the PMS route). This will ease compliance, streamline cap tables, and facilitate capital formation in startups and unlisted entities.

REITs & InvITs given more flexibility

SEBI reduced minimum allotment size in privately placed InvITs to ₹25 lakh, aligned financial disclosure timelines, and allowed HoldCos to offset negative cash flows — improving investor participation and operational efficiency in yield instruments.

Merchant bankers and trustees

SEBI allowed merchant bankers and debenture trustees to undertake non-SEBI-regulated but financial sector-aligned fee-based activities under the same legal entity, without hiving off into separate firms — provided adequate safeguards against conflict of interest are in place.

Social stock exchange reforms

The scope of Not-for-Profit Organisations was widened to include more legal entities, timelines introduced for fundraising post registration, and self-reporting permitted for impact disclosures — enhancing viability of the SSE framework.

Portfolio managers get simplified compliance

Disclosure documents will now be split into dynamic and static sections. Format changes will be communicated via circulars instead of requiring formal regulation amendments, making updates easier for PMS players and investors.

Custodians and IAs/RAs get operational relief

Custodians can continue unregulated but relevant financial activities without setting up separate entities. Investment Advisors and Research Analysts can now hold their required deposits in liquid and overnight mutual funds instead of only FDs, easing operational friction.

Settlement schemes for past violations

SEBI also introduced limited-time settlement schemes: For stock brokers involved in NSEL contracts to resolve outstanding regulatory actions.

For Venture Capital Funds that missed winding-up timelines but have since migrated to the AIF regime — allowing for a clean slate through structured penalties.