SEBI Reforms: Open Market Buybacks, MF Borrowing, and 3 More Big Changes

The Securities and Exchange Board of India (SEBI) has announced a sweeping set of regulatory reforms designed to enhance market liquidity, ease compliance, and strengthen investor protection. These decisions, approved during the recent board meeting, touch upon critical segments including share buybacks, mutual funds, and the municipal bond market.

Reintroduction of Open Market Buybacks

In a significant move for corporate actions, SEBI has approved the return of exchange-based buybacks, effective August 1, 2026. Previously discontinued due to tax regime shifts, companies will now have the flexibility to choose between the tender offer route and open market purchases via stock exchanges.

To ensure discipline, SEBI has mandated that at least 40% of earmarked funds must be utilized during the first half of the buyback period. The entire process must be completed within 66 working days. To prevent manipulation, promoters and their associates are barred from participating, and their holdings will remain frozen throughout the period. Additionally, appointing a merchant banker is now optional, a step intended to lower compliance costs for issuers.

New Liquidity Rules for Mutual Funds

To address temporary liquidity mismatches, SEBI has amended Mutual Fund Regulations to allow intraday borrowing. This facility is specifically designed to manage settlement timing differences, foreign exchange settlements, and mark-to-market obligations in derivatives.

Crucially, the regulator has drawn a clear line: this borrowing cannot be used for leverage. All intraday loans must be repaid by the end of the trading day. Any borrowing that extends overnight will fall under existing, stricter regulatory limits to ensure fund stability.

Faster AIF Launches via GARUDA Mechanism

The ease of doing business for Alternative Investment Funds (AIFs) is set for a boost with the introduction of the GARUDA (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism. This framework aims to accelerate capital deployment by reducing bureaucratic wait times.

Under GARUDA, regular AIF schemes can now be launched within just 10 working days. For AI-only schemes and Angel Funds catering to accredited investors, the process is even faster: they can launch immediately upon registration or the filing of a placement memorandum, bypassing the need for a merchant banker's review.

Deepening the Municipal Bond Market

SEBI is actively working to expand India's municipal debt market by easing fundraising constraints. Municipalities can now raise funds to refinance existing project debt and utilize frameworks for pooled financing involving multiple municipalities.

To encourage retail participation, issuers can now offer incentives like additional interest or discounts on the issue price to specific groups, including senior citizens, women, and retail investors. Furthermore, the face value for privately placed municipal bonds has been reduced to as low as ₹10,000 under certain conditions.

Streamlining Security Transmission for Heirs

In a move to reduce procedural hardship, SEBI has simplified how securities are transmitted to legal heirs. The regulator has removed the mandatory requirement for a probate of wills where succession laws permit and introduced a combined affidavit-cum-NOC to minimize paperwork. Verification processes have also been modernized, with QR-coded death certificates now being officially accepted.

Key Takeaways

  • Greater Corporate Flexibility: Companies can once again use stock exchanges for buybacks, offering more choices for capital management.
  • Operational Efficiency: The GARUDA mechanism and new mutual fund borrowing rules aim to reduce delays and manage liquidity more effectively.
  • Enhanced Accessibility: Lower face values for municipal bonds and simplified inheritance processes make the markets more inclusive for retail investors and heirs.