SEBI Reintroduces Open Market Buybacks: Major Reforms for Mutual Funds and AIFs

The Securities and Exchange Board of India (SEBI) has announced a series of landmark decisions aimed at transforming the corporate and investment landscape in India. In a significant move, the market regulator has officially approved the reintroduction of open market share buybacks through stock exchanges. This decision, taken during a high-level board meeting, marks a pivotal shift in the regulatory framework, allowing companies to once again take advantage of the regular trading system for capital allocation. Starting from 1 August, listed entities will be permitted to purchase their own shares from the open market, subject to a strictly defined timeline of 66 working days. This move is expected to streamline the buyback process, Importantly reducing the administrative burden and paperwork previously associated with dedicated buyback windows.

The Return of Open Market Buybacks

The reintroduction of open market buybacks comes after SEBI had previously moved to phase out this mechanism in 2025. At that time, the regulator had expressed concerns regarding potential inequalities among shareholders and issues related to tax arbitrage, suggesting that the system could be exploited to favor specific groups of investors. However, the latest decision reflects a renewed focus on operational efficiency and flexibility for listed companies. By allowing buybacks through the stock exchange, SEBI aims to provide companies with a more attractive tool for managing their capital structures. A buyback occurs when a company uses its surplus cash to purchase its own shares from the market, thereby reducing the total number of outstanding shares. This process often leads to an improvement in Earnings Per Share (EPS) and serves as a strong signal of management's confidence in the company's intrinsic value, often providing much-needed support to the share price during periods of market volatility.

Relaxation in Mutual Fund Borrowing Rules

In addition to the buyback reforms, SEBI has introduced significant relaxations in the borrowing rules for Mutual Funds. Under the new Mutual Fund Rules 2026, schemes will be permitted to engage in intra-day borrowing. This facility is designed to help fund managers address timing mismatches related to pay-in and pay-out settlements, foreign exchange liabilities, and mark-to-market payments on derivative positions. SEBI Chairman Tuhin Kant Pandey stated that this move is intended to assist fund managers in better managing daily liquidity mismatches. The regulator has emphasized that such intra-day borrowings must be repaid before the end of the trading day, ensuring that the schemes maintain financial discipline while benefiting from increased operational flexibility beyond just meeting redemption payments.

Simplifying Securities Transmission

The board has also approved measures to simplify the process of securities transmission following the death of an investor, while this reform is aimed at making it easier and faster for nominees and legal heirs to claim financial assets. SEBI has introduced a new category called Quick Transmission Processing (QTP) for low-value claims. Under this framework, the QTP facility will be available for claims up to 10,000 rupees for physical securities and up to 30,000 rupees for demat securities. Plus, the regulator has doubled the limits for transmission through simplified documentation. The new limit for physical holdings has been increased to 10 lakh rupees, while for demat holdings, it has been raised to 30 lakh rupees, providing significant relief to grieving families and legal successors.

Boosting the AIF Sector with GARUDA

To provide a boost to the Alternative Investment Fund (AIF) sector, SEBI has approved a new green-channel mechanism named GARUDA. This framework is designed to accelerate the process of launching AIF schemes. Under GARUDA, eligible AIF schemes can begin raising funds within 10 working days of filing their placement memorandum, a significant reduction from the previous 30 day waiting period. SEBI believes this will lead to faster and more efficient capital deployment within the AIF industry. 74 lakh crore rupees. For schemes involving only accredited investors and angel funds, the regulator has removed the requirement to file placement memorandums through merchant bankers, allowing these schemes to launch immediately upon document submission, provided the fund managers give the necessary undertakings.

Governance and Code of Conduct

Finally, the SEBI board approved a new Code of Conduct for its members and amendments to the SEBI (Employee Service) Regulations, 2001. These changes are based on the recommendations of a high-level committee formed to review the regulator's governance system. The amendments aim to strengthen rules regarding conflicts of interest and the sharing of information, ensuring that the regulatory body maintains the highest standards of integrity and transparency in its operations.