Domestic mutual funds are increasingly holding onto small-cap IPO shares longer than foreign investors. A recent SEBI study shows mutual funds sold only 38% of their anchor allotment after one year, compared to 60% for FPIs. This strategy highlights a shift toward long-term bets in smaller companies, though retail investors should still track post-lock-in price volatility.
Indian mutual funds are changing how they approach Initial Public Offerings (IPOs). Instead of quickly selling shares after the mandatory lock-in period, these funds are increasingly holding onto their anchor investments for the long term. This strategy highlights a growing preference for holding small-cap stocks based on their fundamental growth potential rather than short-term gains.
A recent study by the Securities and Exchange Board of India (SEBI), which reviewed 242 IPOs between April 2022 and October 2025, confirmed this trend. It found that domestic mutual funds are cautious and patient. Over a one-year period, mutual funds sold only 38% of their anchor allotment value. In contrast, Foreign Portfolio Investors (FPIs) were much more active, unwinding 60% of their holdings during the same timeframe. Mutual funds maintained a zero-exit stance in over 100 IPOs past the 30-day mark, signaling high conviction.
For large mutual fund houses, the anchor investor route offers a strategic advantage. It allows them to acquire a significant amount of shares at the offer price without causing a sharp jump in the stock price, which often happens when buying large quantities in the open secondary market. Once they secure these positions, finding similar entry points is difficult, providing a strong reason to stay invested. This strategy is also supported by high liquidity in the small-cap mutual fund category, which has seen its assets under management rise to Rs 4.37 trillion.
For example, Nippon India Small Cap Fund, one of the largest in its category, has maintained significant positions in companies like Omnitech Engineering. This reflects a commitment to holding assets where the fund manager has high conviction in the business fundamentals.
However, investors should not assume that mutual fund support guarantees a rising stock price. While mutual funds are more patient, the end of the mandatory lock-in periods—at 30 days and 90 days after an IPO—can still create price volatility. When the lock-in expires, some investors may choose to book profits, which can influence short-term share prices. Additionally, while anchor investors provide a measure of stability during the initial phase, they are not immune to broader market downturns or company-specific business risks. The commitment of anchor investors does not protect a company from poor financial performance or weak sector demand. Moving forward, the key for retail investors is to watch how these stocks behave after the 90-day lock-in period expires. While mutual funds are signaling confidence, market conditions and individual company earnings will ultimately decide the long-term stock performance.