SEBI board meeting: Key takeaways from major regulatory overhaul covering start-ups, PSUs, REITs and more-OxBig News Network

The Securities and Exchange Board of India (SEBI) today announced a series of regulatory changes affecting promoters, public sector undertakings (PSUs), merchant bankers, investment funds, and foreign portfolio investors (FPIs). These reforms, finalized following public consultations held in April and May 2025, aim to simplify compliance, improve transparency, and provide greater ease of doing business in the capital markets.

Key changes include new dematerialisation rules for shareholders

Promoters and large shareholders will now be required to hold shares in dematerialised (demat) form before filing a Draft Red Herring Prospectus (DRHP). This demat mandate extends to ten categories of shareholders including promoters, key managerial personnel (KMP), qualified institutional buyers (QIBs), and employees. SEBI stated that this move is intended to reduce fraud, share losses, and legal disputes.

Simplified QIP disclosures and PSU delisting norms

The framework for Qualified Institutional Placement (QIP) documents will be streamlined, with companies required to disclose only essential risks and a concise company summary to avoid repetitive information. In a separate development, PSUs with over 90 per cent government ownership will receive exemptions under new delisting rules, and those with low trading volumes will benefit from easier delisting procedures. Notably, such PSUs will no longer need to comply with the 60-day price average condition.

Revised PSU delisting regulations

SEBI’s new rules eliminate the requirement for two-thirds shareholder approval for PSU delisting. Delisting offers will be made only at a fixed price, which must exceed the floor price by at least 15 per cent. The floor price can be determined by one of three methods, whichever is highest. Shareholders who do not sell their shares will have their amounts held in stock exchange accounts for seven years, after which unclaimed funds will transfer to the Investor Education and Protection Fund (IEPF). These rules exclude government banks, non-banking financial companies (NBFCs), and insurance companies.

Merchant banker classifications updated

Merchant bankers will be divided into two categories: Category 1 firms, eligible for exemptions covering IPOs and takeovers, must have a minimum net worth of Rs 50 crore. Category 2 firms, which provide advisory and documentation services only, require a net worth of Rs 10 crore. Underwriting limits will be capped at 20 times the net worth. Compliance officers will now need a minimum of five years’ experience, and individuals holding more than 0.1 per cent shares in a merchant banker cannot participate in decision-making. SEBI cited transparency and accountability as key drivers behind these changes.

Changes in REITs and InvITs norms

Sponsors and investment managers of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), even if classified as QIBs, will no longer be considered ‘public’ investors for unit holding calculations. Holding companies (Holdcos) can now adjust losses against cash flows received from special purpose vehicles (SPVs), replacing the earlier 100 per cent pass-through requirement. Reporting timelines will be aligned with financial result disclosures. For private InvITs, the minimum primary market investment threshold has been reduced from Rs 1 crore–25 crore to Rs 25 lakh.

Expanded services for custodians

SEBI has permitted custodians to offer additional financial services such as insurance and portfolio management services (PMS) without the need to form separate legal entities. This measure is designed to improve operational efficiency and reduce costs, provided conflicts of interest are adequately managed. Custodian Development and Supervisory Framework (CDSSF) will coordinate with SEBI on which services will be regulated.

Introduction of co-investment vehicles in Alternate Investment Funds (AIFs)
Category I and II AIFs can now incorporate co-investment vehicles (CIVs) to promote direct investment in unlisted companies alongside the fund. This structure aims to bypass certain restrictions of portfolio management services, with CIVs subject to relaxed regulatory norms. Each company will require a separate CIV scheme.

Angel fund rule revisions

Angel funds will be allowed to raise capital only from accredited investors, with updated eligibility thresholds. Accredited investors will also be granted QIB status, expanding investment opportunities. The minimum investment limit has been widened from Rs 25 lakh to between Rs 10 lakh and Rs 25 crore. Proposed changes include removing the 25 per cent investment cap, increasing the number of investors permitted to over 200, and allowing follow-on investments in non-startup firms. Fund managers must invest at least 0.5 per cent of the fund in every deal. Existing non-accredited investors will receive a one-year grandfathering period.

FPI compliance eased for government securities investments

Foreign portfolio investors (FPIs) investing solely in government securities will now follow Know Your Customer (KYC) norms set by the Reserve Bank of India (RBI), eliminating frequent KYC requirements. These FPIs are exempt from providing detailed investor group information and can include Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and resident Indians. The onboarding process for government securities FPIs will be finalized at account setup, with SEBI overseeing compliance.

Additional reforms

1) Portfolio managers will use simplified disclosure documents split into dynamic and static sections to improve investor clarity.

2) A new group has been formed to examine and unbundle clearing corporation charges, increasing transparency.

3) SEBI highlighted that 93 per cent of retail investors suffered losses in futures and options trading over the past three years and indicated readiness to introduce further measures if necessary.

4) Settlement schemes were launched for brokers involved in National Spot Exchange Limited (NSEL) trading violations and for venture capital funds delaying migration to Alternative Investment Funds. These schemes aim to expedite resolution while protecting investors.

5) Listed companies must now issue securities exclusively in demat form, with physical share issuance discontinued and compliance processes streamlined.

6) Liquid funds have been permitted as eligible deposits for investment advisers and research analysts, replacing fixed deposits and providing lower-risk alternatives.

The regulatory package marks one of SEBI’s most comprehensive updates in recent years, reflecting evolving market practices and investor protection priorities.