Double quota for mutual funds in IPOs: Assocham

New Delhi, Feb 16: Industry chamber Assocham today urged market regulator SEBI to double the quota reserved for mutual funds in Initial Public Offerings (IPOs) up to atleast 10 per cent from the current level.

''The mutual funds have demonstrated a huge appetite for IPOs. In as many as 32 of these, they subscribed heavily and not only used up their five per cent quota but were also able to extract significant allocations from the balance qualified institutional buyer (QIB) quota,'' a study by Prime Database and Assocham of 40 IPOs during April-December 2006 revealed.

At present, 35 per cent of shares are reserved for retail investors, 15 per cent for high net worth individuals/corporates and 50 per cent for QIBs. Within the QIB quota, five per cent is reserved for mutual funds.

''The time is now ripe for upping the quota for mutual funds.

Any increase in this quota is indirectly an increase for the small investors and would help in mobilising more household savings for the capital market,'' Assocham Capital Markets Committee Co-Chairman Prithvi Haldea said.

The increase in mutual funds quota should come out of the QIB and not the retail quota. The present allocation should be increased to 10-15 per cent from the present five per cent.

For PSU IPOs, in specific, the entire QIB quota should be reserved for the domestic QIBs, the industry body recommended the Securities and Exchange Board of India.

''Mutual fund investments in IPOs are long-term in nature and as such are ideally suited for the retail investors. Mutual funds would be able to provide the benefits of IPOs to investors who normally fail to obtain allotments in oversubscribed issues,'' Mr Haldea said.

In August 2005, with the objective of promoting investments by individual investors through the mutual fund route, SEBI had mandated that part of the the 50 per cent QIB quota that is five per cent of the issue size would be reserved for mutual funds.

In addition, they were allowed to compete for allocations on a proportionate basis in the balance 45 per cent quota.

Mutual funds hold just 3 per cent of the total listed equities.

On the other hand, in the pro-rata allotment, mutual funds are sidelined due to the sheer number of FII participants; at present, there are close to 1,100 FIIs compared to just about 30 mutual funds.

UNI