The Securities and Exchange Board of India (Sebi) on Friday cleared a clutch of reforms, reinstating open market share buybacks, accelerating alternative investment fund (AIF) launches, and enabling pooled borrowing by municipalities, to improve ease of doing business and expand capital market depth.
At its board meeting, Sebi reintroduced open market share buybacks, barely a year after they were barred due to differential tax treatment of buybacks compared with ordinary share sales.
The regulator had earlier expressed concerns that open-market buybacks led to uneven shareholder participation and taxation framework. However, tax changes introduced in 2024 aligned the treatment of buyback proceeds with capital gains tax applicable to ordinary share sales, removing the arbitrage. Prior to 2024, buybacks were taxed at the company level, leaving investors largely tax-free. The changes in taxation since 2024 have shifted the tax burden to shareholders as buyback gains are now taxed like capital gains.
“The tax which a company was paying was higher and therefore, people who are availing open market buyback in the special window was going down over the years. Then there was a change in taxation law… (that) investor will pay tax but at dividend tax. That means nobody was willing to come to the special window because as an investor if I go to normal window, I pay capital gain tax which is lesser or if I go to buyback window, I pay dividend tax which is higher. So, why would I go to special window?” said Sebi whole-time member Kamlesh Varshney at a press conference after the board meeting.
The decision follows representations from industry bodies such as The Federation of Indian Chambers of Commerce and Industry (FICCI) and the Association of Investment Bankers of India (AIBI), which argued that open-market buybacks provide companies greater flexibility in capital allocation and help avoid sudden selling pressures in stocks. The move was first introduced in a consultation paper issued in May.
“The move to reintroduce open market buybacks and discretion in appointment of merchant bankers for buybacks shifts responsibility to the company, stock exchanges, and statutory auditors. This would raise the bar on board-level and auditor accountability,” said Makarand M. Joshi, founder partner at MMJC and Associates, a corporate compliance firm.
The new norms will come into effect from 1 August 2026.
The market regulator also approved a fast-tracked method for launching AIF schemes, which will shorten the timeline from 30 days to 10 days.
Under the new framework, regular AIF schemes excluding large value funds can be launched in 10 working days after filing documents with Sebi unless the regulator raises objections, compared with the existing 30-day waiting period.
Sebi also eased compliance norms for AIF schemes aimed at accredited investors and for angel funds that invest in early-stage startups. Such schemes will no longer be required to route private placement memoranda (PPM) through merchant bankers and can file documents directly with the regulator.
Accredited investor-only schemes will be able to launch immediately after registration or filing of documents, while angel funds can begin circulating private placement memoranda and raising capital as soon as they receive registration.
The changes come amid rapid growth in India’s AIF industry. The number of registered AIFs rose to 1,849 as of March 2026, more than double the level seen five years earlier.
Mutual funds have also been allowed a broader scope for borrowing intra-day from banks. Asset management companies will now be permitted to use intraday bank borrowings not only for redemption payouts but also for trade settlements, foreign exchange obligations, mark-to-market requirements on derivative positions and other short-term liquidity requirements.
The move broadens a framework approved earlier this year that allowed intra-day borrowing solely to bridge temporary liquidity mismatches arising from redemption payments and same-day receivables.
To deepen the municipal bond market, Sebi approved a framework allowing two or more municipalities to raise funds collectively through pooled finance vehicles or special purpose vehicles (SPVs).
The regulator said the structure would help smaller municipalities access debt markets despite limited scale or weaker financial profiles. Participating municipalities will enter into agreements with the SPV before fundraising, while the pooled entity will maintain dedicated escrow account.
Sebi also approved measures aimed at attracting investors, including by lowering face values for privately-placed municipal bonds, and offering incentives such as discounts or additional interest for retail investors.
The regulator further tightened disclosure requirements for refinancing issuances.
Municipal bonds remain a small segment of India’s debt market, with only 22 municipal corporations having raised a cumulative ₹4,540 crore through 31 bond issuances as of March 2026, according to Sebi data.
The market regulator also introduced a new framework for transmission of securities to legal heirs/claimants of deceased investors. A category called Quick Transmission Processing (QTP) for small-value claims has been launched to “facilitate efficient processing of such claims with minimum documentation”.
The revised framework also introduces several other documentation and process-related measures to ease transmission of securities.
The board also approved amendments to securitization regulations to bring them closer to the Reserve Bank of India’s 2021 securitization framework.
The changes will allow RBI-regulated entities such as banks and non-banking financial companies to undertake single-asset securitizations, shift quarterly disclosure responsibilities from originators to servicers and strengthen the independence of special purpose distinct entities (SPDE) used in securitization transactions.
The capital market watchdog also allowed replacement of trustees in case of registration suspension or cancellation instead of winding up of SPDE schemes.
An SPDE is a distinct, legally independent company created to fulfill a narrow, specific, or temporary objective. Parent companies use them to isolate financial risk, secure financing, or hold specific assets without endangering their main operations.
The approvals form part of Sebi’s broader effort to streamline fundraising processes, reduce compliance burdens and widen participation across India’s capital markets.
The Union Budget for FY26 had announced measures to ensure an impact assessment of existing regulations. The Sebi board has approved an assessment of the framework for capital raised by small and medium enterprises (SMEs) in the Indian stock market for FY27.
In response to a slew of measures recommended by the high-level committee (HLC) set up to recommend measures on conflict of interest and disclosure norms for Sebi employees, the board approved a code of conduct for Sebi officers.
The market regulator had approved a slew of measures to enhance asset disclosures, conflict of interest rules and recusal norms in its last board meeting held in March. These measures included investment restrictions, a digital system for managing whistleblower and conflict of interest norms, among others.
