SEBI Reforms: Open Market Buybacks Return and New Rules for MFs

The Securities and Exchange Board of India (SEBI) has announced a sweeping suite of regulatory reforms designed to enhance market liquidity, reduce compliance burdens, and protect investor interests. From the reintroduction of exchange-based buybacks to streamlined processes for legal heirs, these decisions signal a major push toward market efficiency.

Return of Open Market Buybacks via Stock Exchanges

In a significant move for corporate actions, SEBI has approved the reintroduction of open market buybacks through stock exchanges, effective August 1, 2026. Previously discontinued due to tax regime changes, this reform allows companies to choose between the tender offer route and open market purchases.

To ensure market integrity, SEBI has implemented strict safeguards:

  • Mandatory Utilization: Companies must use at least 40% of earmarked funds during the first half of the buyback period.
  • Timeframe: The entire buyback process must be completed within 66 working days.
  • Restrictions: Promoters and their associates are barred from participating, and their holdings will be frozen throughout the period.
  • Cost Reduction: The appointment of a merchant banker is now optional, aimed at lowering compliance costs for issuers.

Enhanced Liquidity for Mutual Funds and Faster AIF Launches

The regulator is tackling operational bottlenecks by allowing Mutual Funds (MFs) to engage in intraday borrowing. This facility is intended solely to manage temporary liquidity mismatches, such as settlement timing differences, foreign exchange settlements, and mark-to-market obligations in derivatives. Crucially, this borrowing cannot be used for leverage and must be repaid by the end of the trading day.

Simultaneously, the launch of Alternative Investment Fund (AIF) schemes will see a massive speed boost through the new GARUDA (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism. Under this framework, regular AIF schemes can be launched within just 10 working days. Angel Funds and AI-only schemes can now launch immediately upon registration or filing, bypassing the need for merchant banker reviews.

Boosting Municipal Bonds and Simplifying Inheritance

To deepen the municipal debt market, SEBI has eased several regulations. Municipalities can now raise funds to refinance existing project debt and utilize pooled financing frameworks. To encourage retail participation, issuers can offer incentives like interest bonuses or price discounts to 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.

Finally, SEBI is addressing the procedural hardships faced by families during the transmission of securities. The regulator has removed the mandatory requirement for a probate of wills where succession laws permit and has introduced a combined affidavit-cum-NOC to reduce paperwork. The acceptance of QR-coded death certificates will also expedite the verification process.

Key Takeaways

  • Corporate Flexibility: Companies gain more options for share buybacks, with open market routes returning in 2026 to provide greater execution flexibility.
  • Operational Efficiency: The GARUDA mechanism and new intraday borrowing rules for MFs will ensure faster capital deployment and smoother liquidity management.
  • Investor Accessibility: Lower face values for municipal bonds and simplified transmission processes for legal heirs make the market more inclusive and user-friendly.