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SEBI plans extensive reforms of IPO, MF rules

Market regulator Securities and Exchange Board of India (SEBI) will consider this week wide-ranging reforms in its regulations for mutual funds and initial public offers (IPOs), including a ‘safety net’ guarantee and tax incentives for new investors.

Various proposals expected to be discussed and approved at the upcoming board meeting of SEBI on 16 August also include introduction of e-IPO, which would allow investors to bid for IPO shares electronically and without any physical paperwork.

According to a senior official, the key proposals for reforms in primary market include introduction of a 'safety net' guarantee for the investors buying shares through IPOs.

As per the proposed mechanism, a certain portion of the investment made by retail shareholders in the IPOs could be guaranteed for a fixed period, which could of six months, even if the shares' value plunge below the IPO allotment price during this time.

This 'safety net' mechanism is being considered only for the small retail investors, who would be compensated by the promoters and other entities selling shares through IPOs in the event of the company's shares plunging below a certain threshold limit within six months of listing or the time frame set by SEBI sources said.
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