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

The Securities and Exchange Board of India (SEBI) has announced a sweeping set of regulatory reforms designed to enhance market efficiency, reduce compliance hurdles, and strengthen investor protection. These decisions, finalized during the recent board meeting, impact everything from corporate buyback strategies to the operational agility of mutual funds and alternative investment funds.

The Return of Open Market Buybacks

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

To ensure market integrity, SEBI has implemented strict safeguards. Companies must utilize at least 40% of the earmarked funds during the first half of the buyback period, and the entire process must be completed within 66 working days. Furthermore, promoters and their associates are prohibited from participating, and their holdings will remain frozen throughout the duration of the buyback. In a bid to lower compliance costs, the appointment of a merchant banker has now been made optional for this process.

Enhanced Liquidity for Mutual Funds and AIFs

The regulator is also addressing liquidity and speed in the investment ecosystem. SEBI has amended Mutual Fund Regulations to allow intraday borrowing. This facility is specifically designed 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.

For Alternative Investment Funds (AIFs), the introduction of the GARUDA (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism is a game-changer. Under this framework, regular AIF schemes can be launched within just 10 working days. AI-only schemes and Angel Funds, which cater to accredited investors, can now launch immediately upon registration or filing of the placement memorandum, bypassing the need for merchant banker reviews.

Deepening Municipal Bonds and Simplifying Asset Transmission

To bolster India's municipal debt market, SEBI has eased several regulations. Municipalities can now raise funds to refinance existing project debt and utilize pooled financing frameworks. To attract retail participation, issuers are permitted to offer incentives like interest boosts or issue-price discounts to women, senior citizens, and retail investors. Additionally, the face value for privately placed municipal bonds can now be as low as ₹10,000 under certain conditions.

Finally, SEBI is addressing the procedural pain points for legal heirs. The mandatory requirement for probate of wills has been removed where succession laws permit. Documentation has been streamlined through a combined affidavit-cum-NOC, and the regulator will now accept death certificates with QR codes for faster verification.

Key Takeaways

  • Corporate Flexibility: Companies regain the option to conduct buybacks via stock exchanges starting August 2026, provided they meet strict utilization and timeline mandates.
  • Operational Efficiency: The GARUDA mechanism and new intraday borrowing rules for Mutual Funds aim to accelerate capital deployment and manage liquidity more effectively.
  • Retail Inclusion: Lower face values for municipal bonds and simplified processes for transmitting securities to legal heirs are set to increase ease of access for individual investors.