Lock-in period for anchor investors after IPO

We all are familiar with the term lock-in period. It is widely used in the financial world. Such as lock-in periods for insurance policy, bank fixed deposits, long-term savings schemes like Public Provident Fund and even Equity Linked Saving Schemes.

Similarly, anchor investors who buy shares ahead of the proposed IPO also have a lock-in period for their investments, before which they cannot sell their holdings.

Before we get to what the market regulator SEBI has proposed in the new IPO norms with regards to the lock-in period, let us briefly understand the role of anchor investors.

An anchor investor can be a Qualified Institutional Buyer (QIB) -- excluding the family members, relatives and merchant bankers-- who makes a bid for minimum Rs 10 crore.

And up to 30 per cent of the total issue size can be allotted to anchor investors. 1/3rd of the anchor investor portion can be reserved for domestic mutual funds. Anchor investors are offered shares in an IPO a day before the issue opens for the general public. And they cannot sell shares for at least 30 days after the allotment.

Now that we know all about anchor investors, let us see what Sebi has proposed on the lock-in period on IPO investments

Sebi has proposed to increase the lock-in period for anchor investors from 30 days to 90 days. The new lock-in rule will be applicable for at least 50 per cent of the shares allotted to anchor investors 

Experts believe this is a good move. Considering the lofty valuations at which the companies are launching IPOs, anchor investors get an easy exit in just one month of listing. That apart, the new norms on longer lock-in period for anchor investors can also provide confidence to the investors, says the SEBI consultation paper on new IPO norms.