SEBI Unveils Major Market Reforms: Buybacks, Mutual Fund Borrowing, and More

The Securities and Exchange Board of India (SEBI) has announced a sweeping set of regulatory reforms designed to enhance market liquidity, ease compliance, and protect investor interests. These decisions, stemming from the latest board meeting, introduce transformative changes across various segments including share buybacks, mutual funds, and municipal bonds.

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 changes, companies will now have the flexibility to choose between the tender offer route and open market purchases through stock exchanges.

To ensure transparency and prevent delays, SEBI has introduced strict safeguards. Companies must utilize at least 40% of earmarked buyback funds during the first half of the buyback period, and the entire process must be completed within 66 working days. Notably, promoters and their associates are barred from participating, and their holdings will be frozen during this window. Additionally, the appointment of a merchant banker is now optional, a move intended to lower compliance costs for corporations.

Liquidity Management for Mutual Funds

To address operational hurdles, 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, SEBI has clarified that this borrowing is strictly for operational requirements and cannot be used for leverage. All intraday borrowings must be repaid by the end of the trading day; any borrowing that extends overnight must strictly adhere to existing regulatory limits.

Faster AIF Launches via GARUDA Mechanism

The regulator is aiming to improve the ease of doing business for Alternative Investment Funds (AIFs) through the new GARUDA (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism. This framework aims to accelerate capital deployment by speeding up the launch of new schemes.

Under these rules, regular AIF schemes can now be launched within just 10 working days. For AI-only schemes and Angel Funds—which cater to accredited investors—the process is even faster: they can launch immediately after registration or the filing of the placement memorandum, without requiring a merchant banker's review.

Deepening the Municipal Bond Market

To bolster India's municipal debt market, SEBI has eased several regulations. Municipalities can now raise funds to refinance existing project debt and utilize a framework for pooled financing involving multiple municipalities.

To encourage retail participation, issuers are permitted to offer incentives like additional interest or discounts on issue prices to specific groups, including women, senior citizens, 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

SEBI is also tackling the procedural hardships faced by legal heirs during the transmission of securities. The regulator has removed the mandatory requirement for the probate of wills where succession laws permit. Documentation is being simplified through the introduction of a combined affidavit-cum-No Objection Certificate (NOC). Additionally, the regulator will now accept death certificates with QR codes for easier verification, including those issued overseas.

Key Takeaways

  • Corporate Flexibility: The return of open market buybacks provides companies more strategic options for returning value to shareholders.
  • Operational Efficiency: The GARUDA mechanism and intraday borrowing for MFs will significantly reduce time lags and liquidity friction in the markets.
  • Retail Inclusion: Lower face values for municipal bonds and simplified security transmission processes aim to make financial markets more accessible to the common man.