Unlisted Company Exposure by Indian MFs

According to the SEBI laws, Indian Mutual Funds can invest up to Maximum 5% of their total assets in Unlisted Companies.

Well, this is not the Venture Capital Investment. But this is the Investment in already established companies who may hit the Primary Market (IPO) in the near future. Mutual Fund managers take the exposure in these companies because when these companies listed on the stock exchange, They have a huge profit from the day of listing.

Fund managers buy unlisted companies shares because of the expectation of huge gains at the time of listing. if the Company goes public during the Bull market, the fund manager would expect to gain 65-40% gain.

Fund managers invest in Unlisted Companies only when they are sure about its IPO. Fund managers usually don’t hold the shares of unlisted companies for a longer time horizon.

But in case of ICICI Prudential, it is holding 13% stake in troubled Subhiksha Retail Chain for more than 5 years. Not only this but many mutual fund managers are holding the shares of troubled unlisted companies for more than 5 years. and now they are waiting for the Primary Market (IPO) to get corrected so that they can offload these troubled shares to public whenever these troubled companies go public.