The Securities and Exchange Board of India (SEBI) has revealed major reforms in 2025 aimed at deepening capital markets while safeguarding investor interests. These changes focus on easing compliance for large issuers, expanding institutional participation, improving governance, and broadening investor access. The regulator has balanced market realities with oversight to support sustainable growth.
Revised IPO and Public Shareholding Norms
SEBI has amended the Securities Contracts (Regulation) Rules, 1957, easing minimum public offer and shareholding requirements for large companies. Issuers with a market capitalisation between Rs 50,000 crore and Rs 1 lakh crore can list with an 8% public float, subject to a Rs 1,000 crore floor. For the largest issuers above Rs 5 lakh crore, the public offer can be as low as 1%, with minimum dilution of 2.5% and a Rs 15,000 crore floor. The timeline to achieve 25% public shareholding is extended to 10 years for the biggest companies. This calibrated approach avoids oversupply and valuation pressure while ensuring genuine public participation.
Expanded Anchor Investor Participation
The anchor investor segment in IPOs is restructured into a single class with participation linked to issue size. The anchor portion is increased to 40% of the institutional book. One-third is reserved for domestic mutual funds, with insurers and pension funds sharing the remainder. Undersubscription in insurer and pension fund tranches can be reallocated to mutual funds. This diversification aims to stabilise IPO books and attract long-term institutional capital. Foreign portfolio investors managing multiple funds gain easier access, aligning India with global norms.
Proportional Related Party Transaction (RPT) Thresholds
SEBI has introduced scale-based thresholds for material related party transactions under the Listing Obligations and Disclosure Requirements Regulations, 2015. Thresholds now depend on company turnover, with higher limits for firms exceeding Rs 20,000 crore. Subsidiary-level thresholds are harmonised with parent company requirements to prevent regulatory arbitrage. This rationalisation reduces arbitrary triggers and enhances governance. Audit committees retain discretion to review transactions beyond numeric limits, recognising qualitative risks.
Simplified Foreign Investor Access with SWAGAT-FI
The Single Window Automatic and Generalised Access for Trusted Foreign Investors (SWAGAT-FI) framework streamlines entry for low-risk foreign investors such as sovereign wealth funds and pension funds. Benefits include 10-year registration validity, exemptions from certain ownership caps, and simpler demat account structures. This initiative reduces regulatory complexity and signals India’s commitment to attracting stable, long-term foreign capital.
Broadened Scope for Accredited Investors and Large Value Funds
SEBI has relaxed norms for accredited investors and large value funds in alternative investments. Accredited investor-only schemes gain flexibility on tenure and pari-passu treatment. The minimum size threshold for large value funds is lowered from Rs 70 crore to Rs 25 crore. These changes recognise investor sophistication and expand the investor base, though regulators must monitor potential misuse to avoid compliance evasion.
Reclassification of REITs and Mutual Fund Reforms
Real Estate Investment Trusts (REITs) are now classified as equity instruments for mutual fund investment. This allows REITs to be part of equity allocations and eligible for index inclusion, unlocking passive investments and reducing capital costs for developers. Mutual fund reforms also include lowering exit load caps from 5% to 3%, revising distributor incentives to encourage investments from beyond top 30 cities, and introducing incentives for onboarding female investors. These steps promote financial inclusion and investor diversification.
Governance Reforms for Market Infrastructure Institutions
SEBI mandates two executive directors in addition to the managing director for market infrastructure institutions. Defined roles cover operations, compliance, risk, and investor grievances. This aims to improve accountability but may limit operational flexibility. A board-approved governance framework could offer a balanced alternative.
Holistic Market Development Approach
SEBI’s 2025 reforms reflect a pragmatic regulator adopting differentiated rules for issuers and investors. The focus is on digital facilitation, global harmonisation, and balancing growth with oversight. The reforms cater to mega issuers and retail investors alike. Effective implementation will be key to maintaining market integrity and investor confidence.
Questions for UPSC:
- Critically analyse the impact of easing IPO listing norms on market stability and investor protection in India.
- Explain the role of institutional investors in capital markets and how SEBI’s recent reforms aim to enhance their participation.
- What are the challenges in regulating related party transactions in listed companies? Discuss the effectiveness of turnover-based thresholds with suitable examples.
- With suitable examples, comment on the significance of financial inclusion reforms in mutual funds and their potential impact on the Indian economy.
