If you have ever browsed through IPO websites, you must have seen sections mentioning “Mainboard IPOs” and “SME IPOs”. They are both termed IPOs, but what is the difference between them?
Understanding this difference matters, especially if you are new to investing in IPOs. In this blog, we will discuss what a Mainboard IPO and an SME IPO actually are, how they differ, the key differences in their risk characteristics and how you can apply to one through Choice.
What Is a Mainboard IPO?
A Mainboard IPO is when a relatively large, established company offers its shares to the public for raising capital and lists them on a main stock exchange, such as the NSE or the BSE. These are usually companies with a solid financial track record, higher revenue and strict regulatory requirements prescribed by SEBI and the stock exchanges that they need to meet before going public.
Some of the key features of Mainboard IPO:
- Strict eligibility criteria: The company must meet the applicable eligibility requirements set by SEBI and the stock exchanges. Depending on the listing route, these may include financial track record, net worth, profitability, or other regulatory criteria.
- Minimum application size: The application (lot) size is generally lower, making it accessible to retail investors.
- Liquidity: Once listed, these stocks tend to have high trading volume and liquidity as compared to SME stocks.
- Strict Compliance rules: These companies face strict ongoing compliance, governance and financial reporting rules.
- High public visibility: Companies launching a mainboard IPO receive considerable attention from the media as these companies are established and listed on main stock exchanges such as NSE or BSE.
What Is an SME IPO?
SME stands for small and medium enterprises. An SME IPO allows smaller companies to raise capital by listing on a separate platform such as BSE SME or NSE Emerge. The listing requirements for SME IPOs are designed to suit small businesses so that they can access the capital market.
Some of the key features of SME IPO:
- Post-issue capital limits: The company’s post paid-up capital should not exceed ₹25 crore to remain eligible for listing on the SME platform.
- Net worth and profitability requirements: To qualify, the company needs a minimum net worth of ₹1 crore in each of the preceding 2 financial years, and an operating profit of at least ₹1 crore in at least 2 of the preceding 3 financial years.
- Track record: The company must have a minimum operating history of about 3 years.
- Higher minimum investment: Unlike regular IPOs where you can invest smaller amounts, the minimum investment amount for SME is typically higher than mainboard IPOs (between ₹1 lakh and ₹2 lakh), so that only informed and serious investors participate.
- Documents reviewed by the stock exchange: SME IPO offer documents are generally reviewed by the relevant stock exchange under the applicable regulatory framework, rather than SEBI directly, though SEBI's overall framework still applies.
- Lower trading volume: These stocks are typically traded in lower volumes after listing, since fewer investors are active in this segment.
Difference Between Mainboard IPO and SME IPO
| Parameter | Mainboard IPO | SME IPO |
|---|---|---|
| Exchange platform | BSE / NSE Main Board | BSE SME / NSE Emerge |
| Company size | Larger, established companies | Smaller, growing companies |
| Eligibility norms | Stricter SEBI criteria | Comparatively simplified listing and disclosure requirements |
| Minimum investment | Generally lower lot value | Generally higher lot value |
| Liquidity | Usually higher | Usually lower |
| Disclosure requirements | SEBI vets these companies rigorously, and disclosure and reporting standards are strict. | Stock exchanges vet these companies directly, with relatively relaxed compliance and disclosure norms. |
| Investor base | Broad retail and institutional participation | More niche, informed investor base |
Risk and Return Profile
It's important to remember that both Mainboard and SME IPOs carry market risk, and how a stock has performed in the past doesn’t guarantee how it will perform in the future.
| Factor | Mainboard IPO | SME IPO |
|---|---|---|
| Track record & information | Longer operating history and stricter regulatory scrutiny mean more information is available to evaluate before applying, which lowers governance-related risk. | Companies are often at an earlier growth stage, so less historical data is available. This raises risk, since it's harder to assess how the business will perform over time. |
| Pricing & listing gains | Larger, more closely tracked companies tend to see more efficient IPO pricing, so listing-day price movements are usually more moderate. This reflects lower mispricing risk, but also means a smaller price jump on listing day. | Smaller issue sizes mean less stock is available for trading, which can lead to sharper price swings, including larger price movements after listing. This raises risk. |
| Liquidity | Higher post-listing liquidity generally makes it easier to enter or exit a position. | Fewer buyers and sellers trade on platforms like NSE Emerge or BSE SME, which raises liquidity risk; it can be difficult to exit during a downturn. |
| Investment size | Lower. A single retail lot typically costs about ₹10,000 to ₹15,000, which keeps capital concentration risk relatively low. | Higher. Typically ₹1 to 2 lakh per lot, which raises concentration risk since more of your capital sits in a single stock. |
Every IPO carries company-specific and market-specific risks. It's advisable to go through the company's prospectus (RHP) carefully, understand the business model, financials, and risk factors, before applying.
Which One Should You Invest In?
Whether you choose to invest in a Mainboard IPO or SME IPO depends on your financial goals, risk appetite, investment horizon and how much capital you are comfortable allocating to a single stock.
- If you prefer relatively higher liquidity and a lower entry investment, Mainboard IPOs may be worth evaluating.
- If you're open to higher-risk investments that generally require a larger minimum application amount and are willing to research smaller, less-established companies closely, SME IPOs are another category to explore.
No matter what category you choose, diversification, position sizing and reading the RHP (Red Herring Prospectus) remain important.
How to Apply in Choice
Applying for an IPO, Mainboard or SME, through Choice is a simple process. Follow the process below:
- Open the app: Log in to your Choice trading account (app or web platform).
- Find the IPO section: Head to the IPO section, where currently open Mainboard and SME IPOs are listed.
- Select the IPO: Choose the IPO you wish to apply for and review the issue details, including price band, lot size, and closing date.
- Enter your bid details: Enter the number of lots you want to bid for and price (or opt for "cut-off price," where applicable).
- Confirm the payment: Provide your UPI ID linked to your bank account for payment authorisation. Approve the mandate request on your UPI app within the specified time window to complete the process.
Your funds get blocked (not debited) until allotment is finalised. If you're allotted shares, the amount is debited; if not, the block is released.
Before applying, make sure that:
- Your PAN and KYC details are updated.
- You have sufficient balance in your bank account for the UPI mandate.
Note: submission of the application does not guarantee allotment of shares.
Conclusion
Both Mainboard IPOs and SME IPOs provide investors with opportunities to participate in the growth of listed companies. However, they differ in terms of company size, listing platform, investment requirements, liquidity, and risk profile.
Mainboard IPOs are generally associated with larger and more established businesses, while SME IPOs offer exposure to growing companies that are in earlier stages of growth, which may also involve higher risks.
Before investing, take the time to understand the company, read the offer documents, assess the risks involved, and ensure that the investment aligns with your financial goals and risk appetite.
FAQs
Who can invest in a Mainboard IPO or an SME IPO?
Most investors, such as retail, non-institutional (NII), and institutional (QIB), can apply for both Mainboard and SME IPOs, as long as they meet the eligibility rules for that category.
Is an SME IPO riskier than a Mainboard IPO?
SME IPOs generally carry higher risk due to factors like lower liquidity, less historical data, and smaller issue sizes that can lead to sharper price swings. That said, all IPOs carry market risk, and it's important to review the offer document before applying to either type.
Can I sell my SME IPO shares immediately after listing?
Yes, if you have been allotted shares in an SME IPO, you can generally sell them once they are listed on the relevant SME exchange platform, subject to market hours, trading regulations, and the availability of buyers.
However, SME-listed stocks may have lower trading volumes compared to Mainboard-listed stocks. As a result, buying or selling shares at your preferred price may not always be possible, depending on market liquidity and demand.
Where can I find information about an IPO before investing?
The best source is the company's offer document (RHP), which is filed before the IPO and covers the business, financials, and risk factors in detail. You can find it on the websites of SEBI, the stock exchanges (BSE/NSE), or through your broker's IPO section, including on Choice.
Can an SME-listed company move to the Mainboard?
Yes, an SME listed company can move to the Mainboard, but only when it meets the required eligibility criteria and regulatory requirements. The process is called migration and it is not automatic. It depends on the company applying and satisfying the norms set for mainboard listing.
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