Which is better: a mainboard IPO or a SME IPO?

If you’re thinking about starting an IPO or putting money into one, especially a SME IPO, it’s helpful to know how Mainboard IPOs compare to SME IPOs. Let’s make it easy to understand so you can choose the solution that best fits your needs.

What is an IPO on the Main Board?

A Mainboard IPO is when a well-known company sells its shares to the public on big stock exchanges like the BSE or NSE. These businesses have to follow tight requirements to be eligible. The company’s paid-up capital must be at least ₹10 crore after the IPO. They should also be very profitable, with an average operational profit of ₹15 crore over the past three years.

The Draft Red Herring Prospectus (DRHP) is carefully looked at by SEBI as part of the clearance procedure. Companies that are listed must send in audited financial results every three months. In general, Mainboard IPOs are for big, solid companies that want to raise a lot of money from a lot of different investors.

What is an IPO for a small business?

An SME IPO is for small and medium-sized businesses that wish to get money from the public but might not be able to meet the stricter requirements for the mainboard. The paid-up capital after a SME IPO cannot be more than ₹25 crore. The requirements are less strict. The business needs to have made money in at least two of the last three years or have a net worth of at least ₹3 crore.

The stock exchange itself checks the DRHP instead of SEBI. SME IPOs can be found on particular sites like BSE SME or NSE Emerge. Some of the other rules are that underwriting must be 100%, market making must be done, investors must buy larger lots, and financial reports must be sent out every six months instead of every three months. This is a great way for companies that aren’t ready for the mainboard yet but want to get money from the public to do so.

The main differences between mainboard and SME IPOs are

After the offering, mainboard IPOs need at least ₹10 crore in paid-up capital, whereas SME IPO businesses can have up to ₹25 crore in paid-up capital. To qualify for a mainboard firm, they usually have to show that they have made money consistently for three years. To qualify for a SME, they only need to show that they have made money in two of the last three years or that they have a strong nett worth.

SEBI looks over Mainboard IPOs’ prospectuses, but the stock exchange directly approves SME IPOs. The frequency of reports is also different: mainboard corporations report every three months, while SME companies report every six months. When it comes to listing, Mainboard IPOs start on the main BSE or NSE platforms, whereas SME IPOs start on special SME markets.

Another big distinction is what investors need to do to get in. Small retail investors can buy shares in Mainboard IPOs, often with just one share lot. In contrast, SME IPOs demand bigger lot sizes, usually ₹1–2 lakh or more per application. Underwriting and market making are required for SME issues. This makes sure there is liquidity, but it also makes it harder to get out quickly.

A Closer Look: The Process of IPO Allotment

The process for ipo allotment is basically the same for both Mainboard and SME IPOs.

First, investors fill out an ASBA (Applications Supported by Blocked Amount) form. This means that the money will stay in your bank account until the shares are given out. The registrar checks all applications once the subscription time ends and gets rid of any that are invalid or duplicate.

If an IPO doesn’t get enough interest, most of the time, applicants get all the shares they asked for. If there are more people who want to buy than there are shares available, retail investors get their shares through a lottery method, and institutional and non-institutional investors get their shares in proportion to how many they want. To make sure that everyone gets a fair chance, allotment regulations for SME IPOs are trending more and more towards the lottery technique, which is the same as the mainboard process.

Then, the Basis of Allotment is made public, showing how many shares each type of investor has gotten. Shares are added to the Demat accounts of people who are chosen, and investors get their money back for shares that were not assigned.

Which one should you pick?

A Mainboard IPO gives your company more exposure, access to more investors, and more credibility in the market if it has been around for a while and has a good track record. Mainboard listings normally have better liquidity and smaller lot sizes, which makes it easier for investors to get in and out of holdings.

An SME IPO could be a good way for your developing business to get the money it needs even if it doesn’t currently fulfil mainboard requirements. These IPOs let smaller businesses get cash and visibility to the public with less strict requirements. SME IPOs can be exciting ways for investors to put money into early-stage firms that have a lot of room to develop, but they also come with more risk and less liquidity.

Last Thoughts

An SME IPO lets smaller businesses get into the public markets, while a Mainboard IPO is for big companies that want to raise a lot of money. The process for allotting shares in an IPO is the same for both, but the entrance requirements, lot sizes, and listing platforms are very different.

Your option relies on your role: as a firm, it’s about your eligibility and growth stage; as an investor, it’s about how much risk you’re willing to take, how much money you want to invest, and how quickly you need your money. Knowing these differences can help you make a confident and educated choice in either circumstance.