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Mutual Funds Become Selective in IPO Allocations as Assets Swell
30 Aug
Summary
- Mutual fund IPO participation drops from 96% in 2021 to 68% in 2025
- Smaller IPOs with low market cap make it difficult for funds to build meaningful positions
- Only 1 in 6 IPOs launched since 2023 turned into wealth multipliers for mutual funds
As of August 30th, 2025, mutual funds have turned increasingly selective in their IPO allocations, a sharp contrast to their earlier aggressive stance. A study by bl.portfolio shows the proportion of IPOs where funds participated, either as anchor investors or through post-listing buys, has fallen from 96% in 2021 to 68% year-to-date up to July 31st, 2025.
The shift in mutual fund behavior can be attributed to the surge of smaller IPOs with inadequate market capitalization. Bharat Lahoti, Co-Head of Factor Investing at Edelweiss MF, explains that many recent IPOs have had a market cap below ₹1,000 crore, making it difficult for funds to build meaningful positions. Typically, funds require a free-float market cap of at least ₹2,000-3,000 crore to justify allocation.
This selective approach by mutual funds comes despite their assets under management nearly tripling, from ₹27 lakh crore in July 2020 to ₹75 lakh crore in July 2025. The industry's experience with IPOs launched since 2023 has also not been very encouraging, with only 1 in 6 turning into wealth multipliers for mutual funds.
