Difference between Mainboard IPO and SME IPO
In recent years since the pandemic, the IPO (Initial Public Offering) scene has exploded and the Indian stock market has seen a deluge of companies going public. These companies include large corporations as well as small and medium enterprises (also known as SMEs).
Though these companies raise funds through IPOs, they do not take the same route. While large corporations get their shares listed on the exchanges, NSE and BSE, through the Mainboard IPO, the SMEs list their shares through BSE SME or NSE Emerge. These IPOs give the companies good brand visibility and also allow them to raise funds from a wide range of investors.
What is a Mainboard IPO?
A Mainboard IPO or normal IPO is a path taken by larger companies to raise larger funds by selling their shares to the public. The shares of the companies are listed in NSE and BSE which are the two main exchanges in India.
Companies that are planning to list their shares in NSE and BSE must meet stringent guidelines outlined by the market regulator Securities Exchange Board of India (SEBI) as well as NSE and BSE. One of the criteria for the Mainboard IPO is the company should have a post-issue paid-up capital of at least ₹10 crore.
These companies have strong corporate governance, robust financials, higher revenue, bigger market share than SMEs. These companies’ shares are actively traded and have higher volume and liquidity.
What is SME IPO?
An SME IPO is the route taken by Small and Medium Enterprises or companies which are in the initial phase to raise capital. These companies normally operate in niche industries and sell their shares to the public for the first time to raise funds for the next phase of growth. For a company to be eligible for an SME IPO, its post-issue paid-up capital must not exceed ₹25 crore.
Smaller companies go public via SME IPO because the rules and criteria to raise money is more simplified and flexible. Investors who want to invest in SME IPO must be cautious because these SME IPOs have higher risk due to less financial history, low liquidity and not covered by big institutional investors. Since it has higher risk, the minimum investment ticket size is more than ₹2 lakhs to discourage many retail investors who have low risk appetite.
Major difference between Mainboard IPO and SME IPO
| Particulars | Mainboard IPO | SME IPO |
| Company Size | Large corporation | Small and Medium Companies |
| Listing At | BSE and NSE | BSE SME or NSE Emerge. |
| Time to Go Public | 6 months or more to complete | 3 to 4 months to complete an SME IPO |
| Minimum Investment | It requires a minimum application amount of Rs 10,000 to Rs 15,000 | Minimum investment is more than Rs 200,000 |
| Capital Requirement | Must have at least Rs 10 crore in post-issue capital | Post-issue capital can’t be more than Rs 25 crore |
| Underwriting | Not required if 50% of shares go to big investors (QIBs) | 100% underwriting required and 15% of it should come from merchant bankers |
| Review of Offer Documents | SEBI reviews the draft offer document before approval. | The stock exchange reviews the draft; SEBI review isn’t needed. |
| Regulatory Compliance | Strict | Relaxed |
| Market Making | Not Mandatory | Mandatory |
| Number of Investors Needed | Needs at least 1,000 investors | Needs only 50 investors |
| Reporting Frequency | Financial reports must be filed every 3 months | Financial reports must be filed every 6 months |
Conclusion
Indian investors have a plethora of investment opportunities when it comes to IPOs. However, they must do extensive research and understand the company’s financials, the company’s management, strengths and weakness, risk associated with the sector in which the company operates, their competitors, etc. before investing their hard-earned money.
Investors must also gauge their risk appetite before choosing between companies from Mainboard IPO and SME IPO. In addition, they must also pick the right broker like Aetram Trades for a seamless and hassle-free IPO investing that would result in reduced risk and help them build a smart and well-balanced portfolio.
Frequently Asked Questions
1. Is there any difference between Mainboard IPO and an SME IPO?
Yes. There are two types of IPOs namely Mainboard IPO and SME IPO. The Mainboard IPO caters to large companies as the issue size is much larger compared to SME IPO. Shares from Mainboard IPO are listed on NSE and BSE. SME IPO is for small and medium enterprises as the issue size is small and the shares from SME IPO are listed on separate platforms such as BSE SME and NSE Emerge.
2. Why is the minimum investment ticket size higher for an SME IPO?
The minimum investment for an SME IPO is at least ₹2 lakhs or more because the regulators want investors only with high risk tolerance to apply and they want to discourage many retail investors who have a low-risk appetite. SME IPOs are considered high-risk investments due to reasons like less financial history, low liquidity, volatility, and lack of coverage by big institutional investors. In contrast, a Mainboard IPO requires a minimum application amount of only ₹10,000 to ₹15,000.
3. Who can apply for IPO and SME IPO?
Retail investors, high net-worth individuals and institutional investors can invest in IPOs. When it comes to SME IPOs, individual investor, qualified institutional buyers (QIBs) and non-institutional investors (NIIs) can apply. In SME IPO, individual investors or retail investors can apply for 2 lots totaling at least ₹2 lakhs or more.
4. What is the minimum post-issue paid-up capital requirement for a company to be eligible for a Mainboard IPO versus an SME IPO?
To be eligible for Mainboard IPO, the company should have a post-issue paid-up capital of minimum ₹10 crore and to be eligible for an SME IPO, the company’s post-issue paid-up capital must not exceed ₹25 crore.
5. How does the regulatory review process differ between Mainboard IPO and SME IPO offer documents?
For a Mainboard IPO, the Securities Exchange Board of India (SEBI) reviews the draft offer document before approval, while for an SME IPO, the stock exchange reviews the draft, and a SEBI review is not mandatory.
