An IPO refers to the process whereby an organization raises money through the sale of its stock to the public for the very first time. This does not mean that all IPOs are conducted in the same way. Public offerings in India can be categorized into two namely Mainboard and Small and Medium Enterprise (SME) IPOs. There exist variations in terms of the company size, listing requirements, lot size and eligible investors. It is imperative for beginners to know about these differences while conducting IPO investments.
What is an IPO in the Share Market?
An IPO refers to the process by which a private company makes its shares available to the public and is subsequently listed on a recognized stock market.
IPOs are usually undertaken by firms in order to generate money for business growth, debt repayment, working capital needs, or any other purpose.
The application to subscribe to an IPO can result in allotment of shares to the investor. The allotted shares can later be traded on the stock exchange.
What is a Mainboard IPO?
With the issue of an IPO share market by the Main Board is considered, it means that the company is going to be listed on the primary stock exchanges boards like NSE and BSE.
These are large firms which have created their reputation, along with some financial track record.
The process of issuance of main board IPOs is carried out under the SEBI guidelines.
Some key features include:
- Generally larger issue sizes.
- Established business operations and financial disclosures.
- Retail investor application category with an investment limit of up to ₹2 lakh.
- Shares traded in the regular market lot applicable to the security after listing.
- Participation from retail, institutional and non-institutional investors.Mainboard IPOs may attract investors looking for opportunities in established businesses. However, company size does not eliminate business or market-related risks.
What is an SME IPO?
An SME IPO is a public issue launched by a small or medium-sized company seeking to raise funds through the SME platforms of recognised stock exchanges.
In India, these platforms include NSE Emerge and BSE SME.
SME IPOs help smaller businesses access capital markets without having to meet all the requirements applicable to Mainboard listings.
Their important features include:
- Smaller companies with relatively limited business operations.
- Issue sizes generally lower than those of Mainboard IPOs.
- Higher application amounts due to larger lot sizes.
- Specific eligibility and application requirements.
- Potentially lower trading liquidity after listing.
Mainboard vs SME IPO: Key Differences
Understanding the differences between these two IPO categories can help investors evaluate public issues.
| Basis | Mainboard IPO | SME IPO |
| Company profile | Relatively larger businesses | Small and medium-sized enterprises |
| Listing platform | NSE and BSE mainboard | NSE Emerge and BSE SME |
| Issue size | Generally larger | Generally smaller |
| Application size | Retail applications up to ₹2 lakh | Higher minimum application requirements |
| Lot size | Generally smaller | Generally larger |
| Liquidity | Often relatively higher | Can be relatively lower |
| Risk profile | Depends on company fundamentals | May involve higher business and liquidity risks |
These are general differences. Actual requirements depend on applicable SEBI regulations and exchange rules.
How Does Investor Eligibility Differ?
Investor eligibility and application requirements can vary between Mainboard and SME IPOs.
Mainboard IPOs allow retail individual investors to apply for an amount not more than ₹2 lakh. Applications exceeding this limit are categorised in accordance with the relevant non-institutional investor category.
On the other hand, application guidelines are different for SME IPOs. In accordance with the new guidelines, individual investors applying in SME IPOs should apply for a minimum of two lots where the application amount is greater than ₹2 lakh.
Other eligibility considerations include:
- A valid PAN.
- An active Demat account.
- A supported bank account with the required UPI facility or ASBA arrangement.
- Sufficient funds to meet the application amount.
- Compliance with the applicable investor category requirements.
Investors should always check the latest issue documents and exchange guidelines before submitting an application.
What Should Investors Check Before Applying?
An ipo share market app can help investors access IPO details, application dates, price bands and subscription information. However, these details should be considered alongside company-related research.
Before applying, investors should review:
- Financial performance: Look at income, profit margin, borrowing and cash flows.
- Business activities: Find out about the products and services, customers and positioning of the company.
- Valuation: Compare the value of the issue with the value of comparable listed companies.
- Risk factors: Learn about the risks facing the company from the Red Herring Prospectus (RHP).
- Use of funds: Find out how the company intends to use the funds received from the IPO.
Conclusion
Mainboard and SME IPOs provide companies with different routes to access public capital markets. While Mainboard issues generally involve larger businesses, SME IPOs help smaller enterprises raise funds. Their application sizes, eligibility requirements and liquidity conditions also differ. Investors should understand these factors before applying and evaluate each company’s financial position and risks independently. Platforms such as 5paisa Alpha can help investors access relevant IPO and market information while researching opportunities in the IPO share market.
