In order to eliminate the high risk associated with investment in unlisted securities, SEBI (Securities and Exchange Board of India) prohibits MFs (mutual funds) from investing in such instruments from September 2019.
Earlier, mutual funds were allowed to invest a minor part of their portfolio in unlisted common share,
A fund house can invest up to 5% of its NAV (Net Asset Value) in unlisted equity shares or equity related instruments in case of open-ended schemes and 10% of its net asset value in case of closed-ended schemes. can invest up to
After the IL&FS crisis in 2018, on a review of investment norms for mutual funds in debt and equity securities, SEBI prohibited MFs from investing in unlisted debt and equity instruments.
As per SEBI (Mutual Funds) Regulations, 2019, “All investments in equity shares and equity related instruments by a Mutual Fund scheme shall be made only if such securities are listed or are listed.” Mutual funds may come in as anchor investors. In the case of entities to be listed, said Anil Ghelani, Head Passive Investments and Products, DSP Mutual Fund. “Therefore, we looked at a few mutual funds participating in the recent IPO (initial public offering) prior to listing.”
“Unlisted equities are a very liquid asset class. If there was undue redemption pressure, the assets should be sold at distressed value, which would impact not only exit investors but also existing investors,” said Vishal Dhawan, Board Member, Registered Investment Advisors Association (ARIA).
Dhawan said that a lot of investors have a tendency to get misled because a lot of unlisted stocks may have brands or names which we may use on a daily basis.
“We believe that it is best that access to unlisted stocks is available only through investments such as AIFs, in which only those investors participate who can handle the risks,” Dhavan concluded.
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