SEBI Board Reforms: Open Market Buybacks and New Rules for Mutual Funds

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, signal a significant shift in how companies conduct buybacks, how mutual funds manage liquidity, and how investors access capital markets.

Reintroduction of Open Market Buybacks

In a major 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 market integrity, the regulator has implemented strict safeguards. Companies must utilize at least 40% of their 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 for the duration. Furthermore, the appointment of a merchant banker is now optional, a move intended to lower compliance costs for issuers.

Enhanced Liquidity for Mutual Funds and AIFs

SEBI is also addressing operational efficiency within the fund management sector. Amendments to Mutual Fund Regulations will now allow funds to engage in intraday borrowing. This facility is strictly intended 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 regulator introduced the GARUDA (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism. This initiative aims to accelerate scheme launches; regular AIF schemes can now be launched within 10 working days. AI-only schemes and Angel Funds can launch immediately after registration or filing, bypassing the need for merchant banker reviews to speed up capital deployment.

Deepening the Municipal Bond Market

To bolster India's municipal debt infrastructure, SEBI has eased several regulations. Municipalities are now permitted to raise funds specifically to refinance existing project debt and can engage in pooled financing models.

To encourage retail participation, issuers can now offer incentives like interest boosts or issue-price discounts to senior citizens, women, and retail investors. Additionally, the face value for privately placed municipal bonds has been reduced to as low as ₹10,000 under specific conditions, making them more accessible to a broader base of investors.

Streamlining Security Transmission for Heirs

Recognizing the procedural hurdles faced by families, SEBI has simplified the transmission of securities to legal heirs. The regulator has removed the mandatory requirement for the probate of wills where succession laws permit and has introduced a combined affidavit-cum-No Objection Certificate (NOC) to reduce paperwork. The acceptance of QR-coded death certificates and improved verification methods for overseas certificates will further expedite the process and minimize costs for claimants.

Key Takeaways

  • Corporate Flexibility: Companies gain the choice between tender offers and open market buybacks starting August 2026, with reduced compliance costs.
  • Operational Speed: The GARUDA mechanism and intraday borrowing for MFs will improve liquidity management and speed up capital deployment.
  • Retail Accessibility: Lower face values in municipal bonds and simplified security transmission processes make the market more inclusive for individual investors.