IPO mutual funds: How do fund managers buy and sell shares at pre- and post-listing stages? Experts explain

IPO mutual funds remain a niche category, with some schemes investing in newly listed stocks and others tracking IPO-focused indices. Here’s how fund managers approach IPOs, when they buy or sell, and what investors should check before considering these funds.

Mutual funds allow you to invest in a basket of stocks, but IPO-focused mutual funds offer a way to participate in the IPO segment. As this category is still at a nascent stage, how exactly do these funds work?

Examples include Edelweiss Recently Listed IPO Fund and Mirae Asset BSE Select IPO ETF FoF. While one is an active fund that gives the fund manager flexibility to select stocks, the other is a passive fund that tracks an index.

But how do fund managers actually buy and sell IPO stocks, and what should investors look at when evaluating these funds?

How do IPO mutual funds work?

Uttam Agarwal, Chief Business Officer at Bajaj Capital, mentioned that “for a fund manager, the real work starts much before the listing. Fund managers study the offer documents, meet the management and look at the business, financials, promoter track record and, importantly, whether the valuation makes sense”.

Once they decide to invest, position sizing becomes important. With a newly listed company, there is limited market history, so a manager may start with a measured allocation and increase it as the business delivers and the investment case gets stronger.

The same thinking applies to exits. A stock going up isn't automatically a reason to sell. If the business continues to perform and the valuation remains reasonable, there may be merit in staying invested. If the fundamentals or valuation change, the manager can reassess, he explained.

When do these funds typically buy IPO shares?

Manish P. Hingar, Founder and Chief Executive Officer of Fintoo, explained that the IPO-focused mutual funds can buy IPO shares at different stages: