What is SME IPO? Meaning and How to Apply?

In recent years, Initial Public Offerings (IPOs) have become a popular investment option for those looking to invest in emerging businesses. While traditional IPOs have garnered much attention, a lesser-known but equally promising category is the SME IPO. SME IPO means an Initial Public Offering tailored specifically for Small and Medium Enterprises (SMEs). These smaller firms seek to raise capital by offering shares to the public, and investors are increasingly considering SME IPOs for their high-growth potential. But what exactly is the SME IPO meaning, how does it differ from regular IPOs, and how can investors apply for one? This blog delves into these questions and more.

What is SME IPO?

Before we get into the process of applying for an SME IPO, let’s first understand what it is. SME IPO means a public offering made by small and medium enterprises looking to raise capital to fund expansion, growth, or other business needs. The primary goal of an SME IPO is to allow smaller companies to tap into public capital markets, providing them with an opportunity to grow without relying solely on traditional banking or private investors.

In the context of Indian markets, SME IPOs are listed on specific platforms like the BSE SME and NSE Emerge, which are separate from the primary stock exchanges but function similarly.

What is Different in SME IPO?

One key difference between IPO SME and a traditional IPO is the scale. Non-SME shares typically belong to large companies, often blue-chip firms with established revenue streams and market presence. In contrast, SME stocks refer to the shares of smaller companies with a limited market cap. The smaller size of these companies often means more volatility but also a higher potential for growth.

Additionally, the regulatory requirements for SME IPOs are somewhat relaxed compared to traditional IPOs, making it easier for small businesses to go public. The SME IPO maximum amount for investment and the minimum lot size in SME IPO are also typically higher, making it more accessible for high net-worth individuals (HNIs).

Why Invest in SME IPOs?

The allure of IPO investments in SMEs lies in their growth potential. Small and medium enterprises are often in the early stages of their business cycle, and by investing early, investors stand to gain substantial returns if the company performs well. However, this also comes with increased risk, as smaller companies may face more challenges compared to larger, established firms.

Furthermore, upcoming IPOs in the SME sector are regularly listed, offering a wide range of industries and sectors for investors to choose from. Many investors also find that investing in SME stocks helps diversify their portfolio, giving them exposure to high-growth businesses.

How to Apply for SME IPO?

Now that you understand the SME stock meaning and the potential advantages of investing in SME IPOs, let’s explore how to apply for one.

You can Open Free Demat Account Online effortlessly, enabling you to securely store and manage your securities while participating in the SME IPO.

IPO Application App

To apply for an SME IPO, investors generally need to use an IPO App or an online platform. Several brokerage houses and banks offer IPO online services, allowing investors to apply for an IPO from the convenience of their mobile devices or desktops. One popular platform is the HDFC Sky app, which simplifies the application process for IPOs, including those for SMEs.

An app for IPO also allows you to track upcoming IPOs, check the issue size, and submit your application seamlessly. Before applying, ensure that your brokerage account is linked with a Demat account. 

Steps to Apply

Step 1: Login to the IPO application app

Step 2: Go to the IPO online section and look for upcoming IPOs under the SME category.

Step 3: Review the company’s details, such as its financials, business model, and objectives for raising funds.

Step 4: Enter the number of shares you wish to apply for, keeping in mind the minimum lot size in SME IPO.

Step 5: Complete your application by making the necessary payment and submitting the form.

Step 6: Track the Allotmen.  After the bidding period ends, use the app to track your application and the status of the IPO allotment process.

By following these steps, you can easily apply for an SME IPO through your preferred IPO app.

Process of SME IPO in Secondary Market

Once an SME IPO is listed, its shares are available for trading in the secondary market, just like any other stock. The process of SME IPO in secondary market follows similar rules as regular stocks, with the added distinction that these shares are traded on platforms like the BSE SME or NSE Emerge. After the IPO, investors can buy and sell shares of the company based on its market performance.

How to Sell SME IPO Shares?

Selling SME IPO shares is relatively straightforward. Once the shares are listed, you can sell them through your brokerage platform. Here’s how:

Step 1: Log in to your brokerage account or IPO application app.

Step 2: Go to the “portfolio” or “holdings” section and select the SME stock you wish to sell.

Step 3: Enter the number of shares and execute the trade.

This process is similar to selling non-SME shares, but it is crucial to monitor liquidity, as SME stocks may have lower trading volumes.

How to Trade in SME Stocks?

Trading in SME stocks is similar to trading in regular stocks, but the lower liquidity and higher volatility of SME shares require careful consideration. Investors must closely monitor market conditions, company performance, and external factors that may impact the stock’s price.

Costs and Regulations for SME IPOs

One important aspect to consider is how much does it cost to do an SME IPO. For companies, the cost of an SME IPO is generally lower than a traditional IPO, but it still involves fees related to underwriting, listing, and compliance.

For investors, the costs associated with investing in an SME IPO include brokerage fees and potential taxes. However, since SME stocks are often priced lower, the barrier to entry is relatively minimal compared to large-cap IPOs.

SME IPO HNI Allotment Rules

High-net-worth individuals (HNIs) are also eligible to apply for SME IPOs, but the SME IPO HNI allotment rules may differ from those for retail investors. HNIs typically have a separate quota in SME IPOs, but they may need to apply for a larger number of shares compared to retail investors.

BSE SME IPO Index ETF

For those looking for diversified exposure to SME stocks, the BSE SME IPO Index ETF is an option. This exchange-traded fund (ETF) tracks the performance of SME IPOs listed on the BSE SME platform, offering a way to invest in a basket of SME stocks rather than individual companies.

Conclusion

Investing in an SME IPO can be an exciting opportunity for investors looking to diversify their portfolios and gain exposure to high-growth, small-cap businesses. With platforms like HDFC Sky simplifying the application process, it’s easier than ever to participate in IPO online and explore upcoming IPOs

However, it’s crucial to understand the risks associated with SME stocks, including liquidity and volatility. Whether you are a retail investor or an HNI, careful planning and research are key to making the most of your IPO investments in the SME sector.