Initial public offerings: Why retail investors should be wary of SMEs

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Mainboard vs SME IPOs The mainboard typically demands a minimum of 1,000 subscribers or allottees for an IPO, with application amounts ranging from ₹13,000 to ₹15,000. These offerings undergo rigorous scrutiny as their Draft Red Herring Prospectuses (DRHP) are thoroughly vetted by Sebi. Moreover, companies aiming for the mainboard listing must have a post-issue paid-up capital exceeding ₹10 crore.

While it offers a prestigious platform, the mainboard pathway is slower and often more expensive, with companies obligated to report their financials on a quarterly basis. On the other hand, the SME segment caters to smaller enterprises, requiring a minimum of 50 subscribers or allottees, with an IPO application amount greater than ₹1 lakh. Notably, DRHP filings for SMEs are vetted by stock exchanges rather than Sebi.

These enterprises are required to have post-issue paid-up capital ranging from over ₹1 crore to under ₹25 crore. The SME IPO route is known for its swifter and more cost-effective processes, with companies having to report their financials on a half-yearly basis. This differentiation in requirements and regulations provides a tailored approach to businesses of varying sizes and capital needs in the Indian IPO landscape.

Frenzy for SMEs Over the past decade, the BSE SME IPO Index has demonstrated remarkable growth, surging a staggering 100 times. The index has delivered impressive annualized returns, with gains of 132% over the last year, 195% over the past three years, 82% over the past five years, and a solid 60% since its inception. These statistics highlight the robust performance of SME IPOs in India, making them an attractive investment avenue.