How to Apply for SME IPO?
14 January, 2025
Synopsis
- SMEs can apply for IPO through an SME IPO.
- SMEs can subscribe to SME IPO through UPI.
- Clients can only sell their SME shares on the exchange where they are listed.
An SME IPO is a process by which small and medium-sized companies raise capital from the public by issuing shares on a stock exchange for the very first time. SME IPOs offer fundraising opportunities to companies that may not meet the stringent criteria for listing on the main board of the stock exchange. In India, businesses with post-issue paid-up capital up to ₹25 crore are eligible to pursue SME IPOs, providing them with a viable avenue to access capital markets and fuel their growth initiatives.
How to apply for SME IPO?
Applying for an SME IPO involves several factors that you need to know before you continue:
Selection of the IPO
You can start by researching the available SME IPOs on stock exchange websites or on financial news websites. Next, thoroughly study the companies’ financials, business models, market conditions, and growth potential. Prior research helps you to identify the IPO that aligns with your investment objectives and risk tolerance.
Open a Demat Account
Although you can apply for an SME IPO without a Demat Account, however, you will need one to start trading in securities on the stock exchange. Clients can only sell their SME shares on the exchange where they are listed. They cannot sell their BSE listed lot on the NSE and NSE listed lot in BSE.
Subscribing SME IPO through UPI (Unified Payment Interface) ID
There are various UPI applications available that you can choose to apply for SME IPO. You can subscribe to an SME IPO by using your UPI ID to initiate the mandate request up to a limit of ₹2 lakh.
Here are the steps that you will need to follow:
Once the SME IPO is live and open to accept subscription requests:
Login to your Demat Account and initiate the IPO subscription process. You will need to enter the details like the number of shares you want to buy and your UPI ID through which you will transfer funds.
You will receive a mandate request on the UPI application.
Authorise the mandate request using your UPI PIN.
The desired funds will be blocked in your bank account until the IPO allotment is finalised.
What are the benefits of SME IPO for retail investors?
While SMEs might not be as widely recognised as larger corporations, there are several compelling reasons why participating in SME IPO can be advantageous for investors.
Early entry to high-potential companies
SME companies are usually in their nascent stage of development. Investing early in these companies can provide investors the opportunity to benefit from significant value appreciation as the company expands its operation and market presence down the line.
Access to untapped markets
Various SMEs cater to local or specialised markets that larger companies may not prioritise or have access to. By investing in such SMEs, you could earn significant returns as these companies often leverage underserved demand to grow financially.
Early access to IPO shares
SME IPOs might not get oversubscribed when compared to IPOs introduced by larger corporations. This can increase your chances of getting a higher allocation of shares.
Dividend potential
As SMEs grow and generate profits, they might choose to distribute dividends to shareholders. In such a case, you could benefit from regular dividend payments in addition to potential gains.
What are the key considerations when applying for an SME IPO?
While applying for an IPO, there are several key factors to keep in mind before deciding:
Assess risk and return
Investing in an IPO can be rewarding, but it has its challenges. By carefully evaluating the associated risk with the company’s business approach, past performance, and future aspiration you can easily determine whether it aligns with risk tolerance and return expectations.
Stay informed
Keep track of the new IPO introduced in the market, economic indicators, and any developments related to the companies you have invested.
Consult with experienced professionals
If you are a beginner, consider seeking advice from financial advisors or individuals you have proven experience of trading in the stock market.
Participating in SME IPOs offers investors a chance to be a part of a company’s future success at a relatively early stage of its financial journey. However, always remember to do your due diligence before investing in IPOs to stay well-prepared and to make informed investment decisions.
Invest, grow, and repeat! Open your Demat Account with HDFC Securities and start your investment journey today!
*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not an investment recommendation. Investments are subject to market risks and other risks.
