SEBI is considering how to keep retail investors safe on the issue of IPOs of companies which are not profitable.
Retail investors quota for loss-making companies only 10 percent.
In order to protect retail investors from market risk, the Market Regulator Security and Exchange Board of India (SEBI) is considering a special concept. Under this concept, if a company brings an IPO, only institutional investors will get an opportunity to participate in it. A total of 16 IPOs came on the market in 2020 and through this, companies collected funds of about 31 thousand crores.
Regulatory and investment banking sources said in a report published in Business Standard that SEBI is considering whether companies which are not profitable or are new-age tech companies, keeping in mind the potential dangers associated with it. How did investors be protected? For this, the concept is not going on to participate in retail investors and concepts like safety net are required.
How do investors get quota in IPO
When a domestic company comes out with an IPO, it mainly has two quotas. The first quota is for Institutional Investors while the second quota is for non-Institutional Investors. The quota of non-institutional investors is then divided into a ratio of 70:30. In this, 70 percent quota is for retail investors who invest up to 2 lakhs. 30% quota is for High Networth Individual ie HNI.
Retail investors quota 10 percent
In 2012, SEBI had reduced the quota for retail investors in the IPO of a loss-making company from 35 per cent to 10 per cent. If Sebi Institutional Investors only implements the concept of an IPO, then retail investors will have a chance in two categories. First, they can invest through mutual funds. Apart from this, HNI will have to come in the category. This kind of concept is already applicable in developed markets like America.
Read this also, now no other Mallya or Nirav Modi will be able to make such a shock to the billionaires due to this decision of the Supreme Court
Also read, cyber attack is not only for customers but also for banks, there is loss of money with low rating.