What Sebi's latest reforms mean for SME IPOs and MFs

On 18 December, the Securities and Exchange Board of India (Sebi) approved several key amendments to improve business operations, investor protection, and the efficiency of market participants.

- Neha Joshi

The changes impact various sectors, particularly small and medium enterprises (SMEs), merchant bankers, and mutual funds. Mint explains:

Which of Sebi's decisions was the most anticipated?

In its 208th board meeting, Sebi strengthened the framework for the initial public offerings (IPOs) of small and medium enterprises (SMEs). It also established the Past Risk and Return Verification Agency (PaRRVA) to validate risk-return metrics for financial service providers.

How has Sebi tightened the framework for small businesses to access the public markets?

Sebi has imposed stricter requirements to ensure that only financially sound and operationally viable SMEs can raise capital through IPOs. An SME can launch an IPO only if it had a minimum operating profit of ₹1 crore in at least two of its three most-recent fiscal years while filing its draft red herring prospectus (DRHP). This is to ensure that only businesses with a proven record can access public funding, reducing risks for investors.