SBI Funds Management is all set to launch its IPO on July 14 onwards. The IPO will go on for three days till July 17. However, before investors decide to subscribe to the issue, they also need to carefully consider the risks outlined by the company in its DRHP.
Investors should be aware of the increased risk the company faces due to SEBI’s new regulations, the change in investment trends, and the high royalty.
SBI Funds IPO: Profitability squeeze from new BER framework
SEBI has notified a new framework for mutual fund fees. The market’s watchdog has introduced SEBI (Mutual Funds) Regulations, 2026, effective April 1, 2026, which brings in the Base Expense Ratio (BER) framework. This new structure will reduce management fee income by lowering fee caps and requiring the company to absorb certain expenses that were previously charged to schemes. The company admitted there is no assurance it can offset these fee reductions through cost savings or AUM growth, which could fundamentally impact its profit margins.
SBI Funds Management: Revenue cannibalisation concerns
The industry trend is changing significantly towards passive investment products like ETFs and index funds, which carry substantially lower management fees than active funds. As of Q3FY26, passive products already constituted 32% of the company’s total mutual fund QAAUM. A continued shift in investor preference toward passives will put downward pressure on the weighted average fee yields, meaning the company may see declining profitability even if its absolute AUM levels remain stable.
SBI Funds Management IPO: No provisions for contingent liabilities
The company has outstanding legal and tax proceedings that are not yet reflected in its financial statements. Most notably, there is a disputed GST liability of Rs 131.93 crore (including tax and penalty) for which no provision has been made. If these cases are determined against the company, it would require substantial cash outflows.
Lack of ownership of the “SBI” brand
In its DRHP, the company said it does not own the “SBI” trademark or logo, which are critical to its brand identity and investor trust. These are used under a license agreement that can be terminated by State Bank of India at any time with prior notice. You can read more about the same on this link.
Conclusion
The SBI Funds IPO GMP has risen 17.25% a day ahead of the launch. Investors must carefully consider the risk factors before they decide to invest in the IPO.