In 2025, SME IPOs have become a prominent route for small and medium enterprises (SMEs) to raise funds from the public. These IPOs not only provide capital for growth but also enhance visibility and credibility in the financial markets. If you are curious about how smaller companies go public and how you can participate as an investor, understanding the eligibility criteria, listing process, and investment steps is crucial. This guide covers everything you need to know about SME IPOs in India, including practical tips for first-time investors.

What is an SME IPO?

A Small and Medium Enterprise Initial Public Offering (SME IPO) is a process through which smaller companies issue shares to the public for the first time. Unlike regular IPOs listed on the mainboard, SME IPOs are generally listed on dedicated platforms like BSE SME and NSE Emerge, specifically designed for smaller businesses.

These platforms have relaxed eligibility criteria and simplified compliance requirements compared to mainboard listings, making it easier for SMEs to access public funding. Companies often plan an upcoming SME IPO to raise capital for business expansion, reduce debt, or enhance their public profile.

Who Qualifies for an SME IPO?

Eligibility for Companies

To list on an SME exchange in India, companies must meet certain criteria as defined by SEBI (Securities and Exchange Board of India) and the respective stock exchanges:

• Paid-Up Capital: Post-issue paid-up capital should not exceed ₹25 crore.
  
  

• Operational Track Record: The company should have a minimum of three years of operational history.
  
  

• Net Worth: A minimum net worth of ₹1.5 crore is required.
  
  

• Profitability: The company must have been profitable in at least two of the last three financial years.
  
  

• Tangible Assets: At least ₹3 crore in tangible assets in the preceding financial year.
  
  

Eligibility for Investors

Investors who want to participate in an SME IPO must:

• Be Indian citizens or entities registered in India.
  
  

• Possess a valid PAN card.
  
  

• Have a Demat account.
  
  

• Use a Trading online app or the ASBA (Application Supported by Blocked Amount) facility to apply.
  
  

It’s important to note that the minimum application size for SME IPOs is typically higher than that of mainboard IPOs, often starting from ₹2 lakh. Additionally, shares are allotted in fixed lot sizes, which may vary between different IPOs.

Key Steps in the SME IPO Listing Process

The process of listing an SME IPO involves several critical steps:

1. Appointment of Merchant Banker and Registrar

The first step in launching an SME IPO is appointing a merchant banker and registrar. The merchant banker manages the IPO process, ensuring compliance with regulations and guiding the company through all legal and procedural requirements. The registrar assists in investor communication and subscription management, making the process smooth and transparent.

2. Draft Red Herring Prospectus (DRHP) Preparation

Next, the company prepares a Draft Red Herring Prospectus (DRHP), which contains detailed information about its financials, business model, objectives, and associated risks. This document is crucial for investors to evaluate the company’s potential and make informed investment decisions.

3. Regulatory Approval

Once the DRHP is prepared, it is submitted to SEBI and the concerned stock exchange for review. SEBI ensures that the company complies with all regulatory standards and that disclosures are accurate and complete. Approval from SEBI is mandatory before proceeding to the next stage.

4. Filing with the Stock Exchange

After SEBI approval, the company files the final prospectus with the stock exchange. This document includes the offer price, lot size, and total shares on offer. Filing formalizes the IPO and makes it ready for public subscription. Investors often monitor the BSE share price after listing to track performance during the initial trading period.

5. Marketing and Roadshows

To generate investor interest, the company conducts marketing campaigns and roadshows. These initiatives showcase the company’s growth strategy, explain business potential, and attract investors to participate in the IPO.

6. Final Pricing and IPO Opening

The final offer price is determined based on market conditions and investor response. Once the price is set, the IPO opens for subscription, allowing investors to apply for shares. This step marks the transition from planning to public listing and trading.

It is essential for companies to maintain accurate disclosures and adhere to SEBI compliance throughout this process to ensure transparency and build investor confidence.

How to Apply for an SME IPO

Investors can apply through two main methods:

1. Online Trading Platforms

Using a trading online app, investors can apply directly through their trading accounts. This is often the most convenient option for retail investors, offering instant submission and tracking.

2. ASBA (Application Supported by Blocked Amount)

ASBA allows the application money to remain blocked in the investor’s bank account until share allotment is finalized. Payment is only debited if shares are allotted.

Application Process Steps

1. Filling Application Form: Provide personal and bank details.
   
   

2. Selecting IPO Details: Choose the SME IPO, lot size, and bid price.
   
   

3. Payment: Make payment via UPI or net banking.
   
   

After the IPO closes, the allotment process begins. Shares are credited to the investor’s Demat account if allotted. In case of oversubscription, allotment is done through a lottery system.

Risks and Considerations

Investing in SME IPOs carries certain risks:

• Liquidity Risk: SME stocks may have lower trading volumes, making it challenging to buy or sell shares.
  
  

• Price Volatility: Limited market activity can lead to high price fluctuations.
  
  

• Limited Information: Smaller companies may not have extensive analyst coverage, leading to information asymmetry.
  
  

Investors should conduct thorough due diligence, including carefully reading the prospectus, to understand the company’s financial health and business prospects before investing.

Tips for First-Time SME IPO Investors

• Start Small: Invest an amount you can afford to lose.
  
  

• Diversify: Avoid putting all funds into a single IPO.
  
  

• Stay Informed: Keep track of upcoming SME IPOs and market trends.
  
  

• Monitor Performance: Regularly check how your investments are performing.
  
  

Conclusion

Understanding SME IPOs is crucial for investors seeking to explore opportunities in smaller enterprises. These IPOs not only allow companies to raise capital but also offer investors the potential to benefit from early-stage growth. By conducting thorough research, staying informed, and applying sound investment strategies, investors can make informed decisions and potentially profit from the dynamic SME segment of the capital market.

Participating in SME IPOs in 2025 can open doors to exciting opportunities for both investors and emerging businesses. Whether you use a trading online app, ASBA facility, or monitor the BSE share price, being informed is the key to making smart investment decisions.