Archive / Investment Adviser (Level 1) / Securities Market Segments

nism-series-xa-anchor-investor-quota-qib-allocation[ INVESTMENT ADVISER (LEVEL 1) ]

Under SEBI ICDR Regulations, what is the allocation quota for 'Anchor Investors' within the Qualified Institutional Buyer (QIB) category in a Book-Built IPO?

[ A ]Anchor investors are limited to a maximum of 5% of the QIB portion.

[ B ]100% of the QIB portion must be allocated to foreign hedge funds.

[ C ]Anchor allocation is prohibited for mainboard IPOs.

[ D ]Up to 60% of the QIB portion may be allocated to Anchor Investors on a discretionary basis, with at least one-third (33.33%) reserved for domestic mutual funds.[ CORRECT ]

Takeaway

Under SEBI ICDR Regulations, up to 60% of the QIB portion of a book-built IPO may be allocated to Anchor Investors at the issuer's discretion, with at least one-third of that anchor tranche reserved for domestic mutual funds.

Derivation

The anchor investor mechanism lets an issuer allocate shares to select large institutional investors a day before the IPO opens to the public, at a price the issuer sets within the band — this builds pre-issue price credibility and demand signaling for the rest of the offering. SEBI caps this discretionary allocation at 60% of the total QIB portion (not the whole issue), and specifically mandates that at least one-third of the anchor allocation go to domestic mutual funds, to ensure the benefits of anchor participation aren't captured entirely by foreign institutional or other investors. Both the 60% ceiling and the one-third domestic-mutual-fund carve-out are the two specific numeric details this exam question is testing together.

Why the others fail

A — Anchor investors are limited to a maximum of 5% of the QIB portion.

5% falls far below the statutory ceiling — SEBI permits issuers to allocate up to 60% of the QIB portion to anchor investors, not a mere 5%.

B — 100% of the QIB portion must be allocated to foreign hedge funds.

Domestic mutual funds have a guaranteed statutory carve-out of at least one-third (33.33%) within the anchor tranche; allocating 100% to foreign hedge funds would violate that mandatory reservation.

C — Anchor allocation is prohibited for mainboard IPOs.

Anchor investor allocation is a standard, widely-used feature of Indian book-built mainboard IPOs under SEBI ICDR Regulations, not a prohibited practice.