Two Roads to Going Public: Decoding SME IPO vs Mainboard IPO
Not every IPO listed on your trading platform follows the same regulatory framework. Some are large, well-established companies raising capital through the Mainboard IPO framework, while others are smaller businesses raising capital through the SME listing framework under a different set of listing requirements. Although both appear as “IPOs,” they differ significantly in terms of eligibility, regulations, investment requirements, liquidity, and risk.
In this blog, we’ll break down the key differences between SME IPOs and Mainboard IPOs in simple, easy-to-understand language, helping you make more informed decisions before applying for an IPO through your broker.
What is an IPO?
An Initial Public Offering (IPO) is the first time a private company sells its shares to the general public, in order to raise money for growth, expansion, or paying off existing obligations. Once listed, anyone with a demat account can buy or sell that company’s shares on a stock exchange.
In India, every IPO falls into one of two categories, based on the size of the company: a Mainboard IPO or an SME IPO.
The Core Difference in One Line
A Mainboard IPO is generally meant for larger companies listing on the main platform of the NSE or BSE, with SEBI reviewing the draft offer document under the applicable regulatory framework. An SME IPO is generally meant for eligible small and medium enterprises listing on the NSE Emerge or BSE SME platforms, where the stock exchange reviews the offer documents, with SEBI performing a supervisory role under the regulatory framework.
That one distinction — who reviews the company, and how big it needs to be — is the root of almost every other difference between the two.
SME IPO vs Mainboard IPO: Full Comparison Table
| Parameter | Mainboard IPO | SME IPO |
|---|---|---|
| Listing Platform | NSE / BSE main board | NSE Emerge / BSE SME |
| Post-Issue Paid-Up Capital | Generally ₹10 crore or more | Between ₹1 crore and ₹25 crore |
| Document Review | Reviewed directly by SEBI | Reviewed by the stock exchange, with SEBI in a supervisory role |
| Track Record Required | Broadly, a multi-year profitability/net worth history under SEBI’s ICDR norms (with alternate routes for high-growth, pre-profit companies) | Operating profit (EBITDA) of at least ₹1 crore in 2 of the last 3 financial years, or a minimum net worth requirement if not |
| Underwriting | Not mandatory | 100% underwriting is mandatory |
| Market Making | Not compulsory | Mandatory for a minimum of 3 years post-listing |
| Financial Disclosures | Quarterly | Half-yearly |
| Typical Process Time | Varies depending on regulatory review and issuer readiness | Varies depending on exchange review and issuer readiness |
| Minimum Application Size | Roughly ₹14,000–₹15,000 | Roughly ₹2 lakh (raised in recent SEBI reforms) |
| Retail Investor Category | Generally up to 35% of the issue (for profitable companies) | At least 50% of the issue |
| Secondary Market Trading | Can trade in single-share multiples | Must trade in fixed lot sizes, even after listing |
| Investor Base | Retail investors, HNIs, and institutional investors (QIBs) | Mostly retail investors and HNIs; institutional participation is limited |
Mainboard IPO Explained
A Mainboard IPO is what most people picture when they think of a company “going public.” These are generally larger companies with a longer operating history that list on the main platform of the NSE or BSE.
Eligibility, broadly speaking: SEBI’s ICDR (Issue of Capital and Disclosure Requirements) regulations require companies to demonstrate a meaningful financial track record — this generally includes minimum net worth and operating profit criteria built up over several preceding years, along with a post-issue paid-up capital that’s usually ₹10 crore or higher. Companies that don’t meet the standard profitability route may still list through an alternate route, but with tighter restrictions on institutional allocation.
Oversight: The draft prospectus (DRHP) for a Mainboard IPO is reviewed directly by SEBI, which can raise observations, seek clarifications, or delay the offer until its concerns are addressed. This is one of the factors that may influence the overall timeline for a Mainboard IPO.
Investor experience: Application sizes are relatively affordable — usually in the range of ₹14,000–₹15,000 for one lot — and once listed, shares can be bought or sold in any quantity, including single shares. Liquidity is generally strong, since these companies attract both retail and institutional participation.
SME IPO Explained
An SME (Small and Medium Enterprise) IPO allows eligible small and medium enterprises to raise capital through the SME listing framework, listing on the NSE Emerge or BSE SME platforms rather than the main exchange boards.
Eligibility: Following SEBI’s tightened norms, an SME company must generally show an operating profit (EBITDA) of at least ₹1 crore in at least 2 of the preceding 3 financial years. If it cannot meet this profitability threshold, it must instead demonstrate a minimum net worth. The company’s post-issue paid-up capital must stay between ₹1 crore and ₹25 crore — cross that ₹25 crore ceiling, and the company no longer qualifies for the SME platform and must pursue a Mainboard listing instead.
Oversight: Unlike a Mainboard IPO, the offer document for an SME IPO is examined and approved by the relevant stock exchange, not SEBI directly. SEBI’s role here is supervisory. This is exactly why SME prospectuses often carry a standard disclaimer clarifying that SEBI has not recommended or vetted the offer.
Additional Regulatory Requirements: SME IPOs are subject to certain additional regulatory requirements under the applicable regulatory framework. These include mandatory underwriting of the issue and the appointment of a market maker for a minimum period of three years after listing. These requirements are intended to support the SME listing framework and post-listing market functioning.
Why SME IPO Rules Have Gotten Stricter?
The SME segment has witnessed strong growth in recent years, with several issues attracting high subscription levels. That growth also led to certain regulatory concerns: instances of companies diverting IPO proceeds to related parties, inflating revenues through circular transactions between group entities, and in at least one publicly reported case, an SME IPO being cancelled by SEBI altogether after evidence of fund misuse came to light.
In response, SEBI introduced a set of tighter rules for SME issuers, including:
- A firmer profitability requirement (operating profit of at least ₹1 crore in 2 of the last 3 years) instead of relying on revenue growth alone.
- A cap on how much promoters can sell during the IPO — generally limited to 20% of the total issue size, and no more than 50% of their overall holding.
- A restriction on using IPO proceeds to repay loans owed to promoters or related parties.
- A cap on funds earmarked for “general corporate purposes,” to reduce the risk of vaguely justified spending.
- A higher minimum application size and a higher minimum number of public allottees, intended to ensure only genuinely informed investors participate, and that ownership is reasonably spread out.
SEBI has introduced additional regulatory measures for SME IPOs to strengthen the SME listing framework. However, investors should evaluate each IPO independently by reviewing the offer document, financial information, business model, objectives of the issue and associated risk factors before making an investment decision.
Minimum Investment: The Biggest Practical Difference
For most first-time investors, this is where the two categories feel most different in everyday terms.
A single lot of a Mainboard IPO typically costs somewhere in the ₹14,000–₹15,000 range — well within reach for most retail investors applying through the Navia All in One App.
An SME IPO, on the other hand, now generally requires a minimum application of around ₹2 lakh, following SEBI’s recent increase to the minimum application size. This isn’t accidental — the minimum application size has been revised under the applicable regulatory framework for SME IPOs.
Liquidity: Why Exiting an SME Stock Isn’t Always Easy?
On the Mainboard, once you own shares, you can typically buy or sell any number of them — even a single share — at almost any time during market hours, because Mainboard-listed securities generally have relatively higher trading volumes and liquidity than SME-listed securities.
SME stocks trade differently. Shares are bought and sold only in fixed lot sizes, even after listing — so if your lot size is, say, 1,000 shares, you can’t sell just 200 of them; you need a buyer willing to take the full lot. Combined with generally lower trading volumes, this means an SME stock can occasionally be hard to exit at a fair price, or at all, on a given day. This is an important liquidity consideration for investors evaluating SME IPOs, and it’s precisely why SEBI mandates a market maker for these stocks in the first place.
Which One Should You Consider?
There is no universally better option between a Mainboard IPO and an SME IPO. Each category has different eligibility requirements, application sizes, liquidity characteristics, disclosure requirements and associated risks.
Before applying for any IPO, investors may consider:
• the company’s business model
• financial performance
• objectives of the issue
• promoter background
• valuation
• liquidity characteristics
• risk factors disclosed in the offer document
• their own financial circumstances and risk tolerance
Reading the offer document carefully can help investors better understand the company, the issue, and the associated risks before making an investment decision.
Common Mistakes First-Time SME Investors Make
❌ Assuming “IPO” means the same level of scrutiny everywhere. An SME IPO’s offer document is reviewed by the exchange, not vetted end-to-end by SEBI the way a Mainboard prospectus is — treating the two as equally scrutinized is a costly assumption.
❌ Chasing Grey Market Premium (GMP) as a guarantee. GMP reflects informal, pre-listing sentiment based on very thin trading — it is not a reliable predictor of the actual listing price, especially for SME issues where volumes are low to begin with.
❌ Underestimating the lock-in effect of lot-based trading. Not being able to sell a partial lot can leave you stuck in a position longer than you intended, particularly if the stock isn’t actively traded.
❌ Applying with money you might need soon. Given the higher entry ticket size and lower liquidity of SME IPOs, this segment is not the place for funds you may need to access quickly.
❌ Skipping the offer document. The offer document contains important information about the company’s business, financial statements, promoter shareholding, objectives of the issue and risk factors. Reviewing it carefully can help investors better understand the IPO before making an investment decision.
Conclusion
Both SME IPOs and Mainboard IPOs provide investors with an opportunity to participate in a company’s public listing, but they differ in terms of eligibility criteria, issue size, investment requirements, liquidity, regulatory framework, and associated risks. Understanding these differences can help investors evaluate IPO opportunities in light of their own financial circumstances, investment objectives, and risk tolerance.
Before investing in any IPO, take the time to read the offer document carefully, assess the company’s business fundamentals and financial performance, and understand the potential risks involved. Making informed decisions based on thorough research, rather than market sentiment or subscription figures alone, can help investors build a more disciplined and informed investment approach.
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Frequently Asked Questions
What is the main difference between an SME IPO and a Mainboard IPO?
The core difference is who reviews the company and how big it needs to be. Mainboard IPOs are for larger companies and are reviewed directly by SEBI; SME IPOs are for smaller companies and are reviewed by the stock exchange, with SEBI acting in a supervisory capacity.
Is an SME IPO riskier than a Mainboard IPO?
SME IPOs may involve different risks compared with Mainboard IPOs, including lower liquidity, investment in relatively smaller companies and different trading characteristics. Investors should review the offer document and evaluate the associated risks before investing.
How much money do I need to apply for an SME IPO?
Following recent SEBI reforms, the minimum application size for an SME IPO is generally around ₹2 lakh, considerably higher than the roughly ₹14,000–₹15,000 needed for a typical Mainboard IPO lot.
Can an SME company later move to the Mainboard?
Yes. A company that has grown sufficiently and meets Mainboard eligibility criteria can migrate from the SME platform to the main board of the exchange, which can improve its liquidity and visibility.
Why do SME stocks sometimes seem hard to sell?
Because SME shares are traded only in fixed lot sizes (not single shares) and generally see lower trading volumes, finding a buyer for your full lot can sometimes take time — this is a structural liquidity risk of the segment.
Is SEBI not involved in SME IPOs at all?
SEBI is involved, but in a supervisory role rather than as the direct reviewer of the offer document. The stock exchange (NSE Emerge or BSE SME) is responsible for vetting and approving the SME prospectus.
DISCLAIMER: Investment in securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Full disclaimer: https://bit.ly/naviadisclaimer.
