SME IPO is a specific Initial Public Offering (IPO) designed for Small and Medium Enterprises (SMEs).
SME IPOs are intended for smaller companies that do not meet the stringent SEBI regulatory requirements and financial thresholds necessary for listing on the main platform of BSE and NSE exchanges.
SME companies are typically in their early stages of growth and do not have the size and scale of larger established companies. Through the SME IPO route, the smaller companies offer shares to the public in order to raise capital from external investors.
To facilitate the listing and fundraising process for SMEs, Indian stock exchanges have created separate platforms dedicated to SME IPOs.
BSE SME platform and the NSE EMERGE platforms are examples of such dedicated exchanges for SME IPOs. The regulatory requirements and listing norms for SME IPOs are relaxed compared to those for regular IPOs.
This makes it easier for smaller companies to access capital markets to raise funds from the public.
Disclaimer – Investing in SME IPOs carries higher risks since these companies may have less track record, lower trading liquidity, and higher volatility compared to larger, more established firms that are traded on Main BSE and NSE exchanges.
SME companies’ shares are traded in lot sizes ranging from 100 to 10,000 shares for which you require a higher purchase amount.
Basic Requirements to Apply for SME IPO
To apply for an SME IPO, you will require the following.
Demat Account: Demat account serves as the repository where your SME IPO allotted shares along with other securities like shares, bonds and mutual funds will be held in electronic form.
Trading Account: You must have a trading account before applying for an IPO online. A trading account will help you sell the share if you want. You can easily open a demat cum trading account with any SEBI registered stock broker firm.
Bank Account: A bank account is needed for making payments for IPO applications. The Application Supported by Blocked Amounts (ASBA) method is used, where a specific amount is temporarily blocked based on your bid for shares.
You can check your IPO allotment online. Once shares are allotted, the amount is debited, and if you receive fewer shares, the remaining amount will be refunded.
UPI ID: You can link your UPI ID to your bank account for IPO applications. You have the option to use an existing UPI ID or create a new one to facilitate the SME IPO application process.
How to Invest in SME IPO
To apply for an SME IPO, follow the below steps
#1. Open a Demat cum Trading Account
You need an active demat account with any SEBI-registered stockbroker firm. If you don’t have one, you’ll need to open a Demat account to participate in the IPO.
A Demat account is required for safe keeping of the shares you get in SME IPO in an electronic form. Whereas, the trading account is needed to sell the shares.
#2. Funds for Investment
Make sure you have sufficient funds available in your brokerage account to cover the investment in the SME IPO. The amount required will depend on the number of shares you wish to purchase and the price per share.
The minimum application amount for SME IPO is around Rs. 1 Lakh due to lot size.
#3. Keep Watch on the Upcoming SME IPO and Stay Informed
Keep an eye on the stock market and financial news to stay informed about upcoming SME IPOs. Your brokerage firm or financial news sources will provide information about SME IPO’s subscription status.
#4. Review the Red Herring Prospectus (RHP)
When an SME IPO is open for subscription, review the RHP prospectus provided by the company. The prospectus contains detailed information about the company, its financials, risk factors, and the offering.
#5. Submit SME IPO Application
The process for applying for an SME IPO is the same as applying for normal IPOs.
You can apply for an IPO using net banking (ASBA method) or through the broker-provided mobile app or trading account. If you have Zerodha account then you can apply for IPO directly through a Zerodha account.
Log in to your net banking or your brokerage account, go to the IPO section, and follow the instructions to submit your application.
You’ll need to provide details such as the number of shares you want to purchase and the price you are willing to pay.
How to Apply SME IPO in Angel Broking (Angel One)
Applicable if you are having Angel One Demat cum trading account. Check the below video for steps to apply for any company coming out with an IPO including SME IPO.
How to Apply for SME IPO in Upstox
#1. Apply IPO via the UPI Facility on Upstox
Log in to your Upstox trading account for using the UPI facility for SME IPO application. Next, you need to select the IPO that you want to invest in.
Provide the number of shares and your bid price for the same. Then you need to fill in your personal information including your UPI ID.
Finally, complete the form, accept the terms and conditions and clear the transaction by accepting the UPI mandate.
Once done the money will be blocked in your bank account and will debited only after your SME IPO application is successful.
#2. Apply IPO via the ASBA Facility Using Upstox Demat Number
Log onto your net banking account. Click on the IPOs option and apply for any SME IPO that is open for subscription.
The IPO option can be found under the Invest or Investment tab. Few banks provide an IPO tab in the dashboard itself.
If you are doing for the first time then you need to register your beneficiary ID (BOID) provided by Upstox with the bank. This is a one-time process.
For SME IPO application – Submit information regarding the number of shares and bid price.
Accept the terms and conditions and go ahead with the transaction. This will block the transaction amount in your bank and once the IPO application is accepted, the amount will be debited.
In case your SME IPO is rejected or you are not allotted any shares then the amount will be released.
How to Apply for SME IPO in Groww App
Use only if you have a Groww Demat account for investment in stocks and mutual funds.
IPO investment steps shown below are for Mainboard but the steps are exactly the same for SME IPO also.
How to Apply for SME IPO in Zerodha
You can use the Zerodha Kite app or the Kite desktop trading platform for investment in SME IPO by watching the below video. The process is the same for both (mainboard and SME) IPOs.
Conclusion
SME IPO gives you the opportunity to lock in growth for promising startups. But the risk of investing in SME IPO is high due to their smaller size, price fluctuations, mandatory lot size and illiquid trading.
Go for SME IPO only if you have a longer investment time frame and deep pockets.
FAQs
The minimum investment required for an IPO varies based on the price of the shares and the lot size specified in the IPO prospectus.
In the case of SME IPO, there is a lot size in the range of 100 to 10,000 shares. Based on which the minimum application amount will be around Rs. 1 Lakh
SME IPO shares are allotted based on the demand and supply dynamics during the subscription period. If the IPO is oversubscribed, the allotment is done through a lottery system, and investors may receive a partial allocation or no allocation at all.
Yes, you can apply for an IPO using the Unified Payments Interface (UPI) method, where the bid amount is blocked in your bank account until the shares are allotted.
Investing in SME IPOs carries risks such as price volatility, uncertainty about future performance, and the possibility of not receiving the full number of shares applied for if the SME IPO is oversubscribed.
Trading in SME shares happens in lot size which continues after the IPO also. That means you can’t buy/sell single SME shares. Further, the SME trading market is illiquid.
Yes, you can sell SME IPO shares immediately after they are listed on the stock exchange, subject to the availability of buyers.
But note you can sell in lot size only. You can’t sell individual shares. Also, note that SME trading is illiquid.
You can track the status of your SME IPO application through the website of the registrar to the issue or by contacting your bank or brokerage.
You can also check the status on NSE and BSE websites depending on where the SME IPO is getting listed.
Non-resident Indians (NRIs) and foreign investors can also apply for IPOs in India subject to specific regulations and compliance with Foreign Exchange Management Act (FEMA) guidelines.
