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

The Securities and Exchange Board of India (SEBI) has unveiled a sweeping suite of regulatory reforms designed to enhance market liquidity, simplify compliance, and protect investor interests. These strategic decisions, finalized during the latest board meeting, impact everything from how corporations return capital to how mutual funds manage daily liquidity.

Reintroduction of Open Market Buybacks

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

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.
  • Strict Timelines: The entire buyback process must be concluded within 66 working days.
  • Promoter Restrictions: Promoters and their associates are barred from participating, and their holdings will remain frozen throughout the duration of the buyback.
  • Reduced Costs: In a bid to ease the compliance burden, the appointment of a merchant banker has been made optional for these transactions.

Enhanced Liquidity for Mutual Funds and AIFs

The regulator is also focusing on operational efficiency for institutional players. SEBI has amended Mutual Fund Regulations to allow 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 cannot be used for leverage, and all borrowings must be repaid by the end of the trading day.

For Alternative Investment Funds (AIFs), the new "GARUDA" (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism will significantly accelerate scheme launches. Regular AIF schemes can now be launched within just 10 working days, while AI-only schemes and Angel Funds can launch immediately upon registration or filing, bypassing the need for merchant banker reviews.

Deepening Municipal Bonds and Simplifying Inheritance

To bolster India's infrastructure financing, SEBI has eased the municipal bond framework. Municipalities can now raise funds to refinance existing project debt and engage in pooled financing. To attract retail investors, issuers can offer incentives like interest boosts or price discounts for senior citizens and women. Furthermore, the face value for privately placed municipal bonds has been slashed to as low as ₹10,000 under specific conditions.

Finally, SEBI has addressed a long-standing pain point for families: the transmission of securities to legal heirs. By removing the mandatory requirement for probate of wills (where succession laws permit) and accepting death certificates with QR codes, the regulator aims to minimize procedural hardships and reduce the documentation burden on claimants.

Key Takeaways

  • Corporate Flexibility: Companies regain the ability to conduct buybacks through stock exchanges starting August 2026, offering more strategic options for capital return.
  • Faster Capital Deployment: The GARUDA mechanism and intraday borrowing provisions will significantly reduce operational delays for AIFs and Mutual Funds.
  • Retail Inclusion: Lowered entry barriers for municipal bonds and simplified inheritance processes make the market more accessible to individual investors.