With stock picks shrinking, fund-laden MFs turn to IPOs

The recent uproar over mutual funds investing in Lenskart’s IPO despite lofty valuations grabbed attention, but it is hardly an isolated case.

- Srushti Vaidya

Most mutual fund houses had participated in the IPO, and their investors took to social media questioning the rationale to invest in a firm with a steep valuation of 260x.

Squeezed by a sluggish, overvalued secondary market and a growing fear of missing out, India’s MFs are pushing more money into initial public offerings (IPOs) in search of better returns as they continue to receive robust flows.

MFs typically participate in IPOs as anchor investors or qualified institutional buyers (QIBs), routes also used by foreign institutional investors (FIIs), banks, insurers, alternative investment funds, and venture capital funds.

In the 10 months ended October, mutual fund investments in IPOs jumped 38% to ₹25,966 crore compared with the same period last year, as per data from Primedatabase.com. The share of mutual funds in total money raised via IPOs has also gone up to 20%, as against 18% a year ago.