Mainboard IPO vs SME IPO: Key Differences Explained

When exploring IPO investments in India, you'll encounter two main categories: Mainboard IPOs and SME IPOs. While both offer opportunities to invest in newly listed companies, they differ significantly in terms of size, risk, returns, and regulations. Let's understand these differences to help you make informed decisions.

What is a Mainboard IPO?

Mainboard IPOs are offered by larger, established companies listing on the main board of NSE (National Stock Exchange) or BSE (Bombay Stock Exchange). These are typically well-known brands or substantial businesses with proven track records. Examples of Recent Mainboard IPOs: - Zomato - Nykaa - Paytm - LIC - Tata Technologies

What is an SME IPO?

SME (Small and Medium Enterprises) IPOs are offered by smaller companies listing on dedicated SME platforms: NSE Emerge and BSE SME. These platforms were created to help growing businesses raise capital. Examples of SME IPOs: - Salasar Techno Engineering - Platinum Industries - Rolex Rings

Key Differences: Mainboard vs SME IPO

1. Minimum Issue Size

Mainboard: - Minimum issue size: ₹10 crore (post-issue paid-up capital) - Typical range: ₹100 crore to ₹10,000+ crore - Example: LIC IPO was ₹21,000 crore SME: - Minimum issue size: ₹1 crore - Maximum: ₹25 crore - Smaller, more accessible to emerging companies

2. Listing Requirements

Mainboard: - 3 years of operational track record (or relaxations for startups) - Minimum net tangible assets of ₹3 crore - Average pre-tax profit of ₹15 crore in 3 out of 5 preceding years - Post-issue paid-up capital minimum ₹10 crore SME: - Net tangible assets of at least ₹1.5 crore - Track record of just 2 years (vs 3 for mainboard) - Simpler eligibility criteria - Lower compliance requirements

3. Lot Size and Minimum Investment

Mainboard: - Lot size varies but typically 10-50 shares - Minimum investment: Usually ₹10,000 to ₹15,000 - Example: If lot size is 20 shares at ₹500, minimum investment = ₹10,000 SME: - Fixed minimum application: ₹1,00,000 (Retail) - Lot sizes are larger to meet this minimum - Example: If price is ₹50/share, lot size might be 2,000 shares Why the difference? SMEs have higher minimum investment to filter serious investors and reduce volatility.

4. Trading and Liquidity

Mainboard: - High liquidity - easy to buy and sell - Trading on NSE and BSE main platforms - Large number of daily trades - Institutional participation - Better price discovery SME: - Lower liquidity - harder to exit - Trading only on SME platforms (NSE Emerge, BSE SME) - Fewer buyers and sellers - Limited institutional interest - Higher price volatility Example: A Mainboard IPO like Zomato sees millions of shares traded daily. An SME IPO might see only thousands of shares traded per day.

5. Investor Categories

Mainboard: - Retail (up to ₹2 lakhs) - HNI (above ₹2 lakhs) - QIB (institutional) - Allocation: 35% retail, 15% HNI, 50% QIB SME: - Retail (minimum ₹1 lakh) - HNI (no separate category) - No QIB reservation - Allocation: 50% retail, 50% others

6. Market Making

Mainboard: - No mandatory market making - Liquidity driven by natural demand-supply SME: - Mandatory market making for 3 years - Market maker provides liquidity by offering to buy/sell - Helps maintain some liquidity despite smaller investor base

7. Migration to Main Board

SME to Mainboard: SME companies can migrate to mainboard if they meet these criteria: - Market capitalization ≥ ₹25 crore - Net worth ≥ ₹10 crore - Track record of 2 years on SME exchange - SEBI approval Successful migrations: Nureca, Salasar Techno

8. Compliance and Regulations

Mainboard: - Stricter disclosure requirements - Quarterly results mandatory - Higher corporate governance standards - SEBI scrutiny is more stringent - Must appoint independent directors SME: - Relaxed compliance norms - Half-yearly results acceptable - Simpler governance requirements - Faster approval process - Lower regulatory costs

Risk-Return Profile

Mainboard IPOs

Risk Level: Low to Moderate ✅ Pros: - Established companies with proven business models - Better transparency and disclosures - High liquidity for easy exit - Institutional investor participation - Lower volatility ❌ Cons: - Lower potential for multibagger returns - Often expensive valuations - Large issues can face weak debuts - Higher competition for allotment Typical Returns: 10-30% listing gains for well-received IPOs Long-term returns depend on business fundamentals

SME IPOs

Risk Level: High ✅ Pros: - Potential for very high returns (100-500% in some cases) - Early-stage investment opportunity - Better allotment chances (less competition) - Smaller ticket size allows diversification ❌ Cons: - Much higher risk of loss - Poor liquidity - difficult to exit - Limited information and research available - Prone to price manipulation - Many fail to perform post-listing Typical Returns: Highly variable - can range from -50% to +500% Many SME IPOs give poor long-term returns

Which Should You Choose?

Choose Mainboard IPOs If You:

✅ Are a conservative investor ✅ Want better liquidity and exit options ✅ Prefer established, transparent companies ✅ Have limited risk appetite ✅ Want to invest for long-term wealth creation ✅ Value institutional investor confidence Ideal for: Most retail investors, beginners, long-term investors

Choose SME IPOs If You:

✅ Have high risk tolerance ✅ Can afford to lose the investment ✅ Don't need liquidity (willing to hold 3-5 years) ✅ Are willing to research deeply ✅ Want exposure to early-stage companies ✅ Allocate only 5-10% of portfolio to high-risk investments Ideal for: Aggressive investors, experienced traders, those with diversified portfolios

Real Examples: Success and Failures

Mainboard Successes:

Zomato: Listed at 53% premium, grew multifold Nykaa: Listed at 80% premium, strong long-term performer

Mainboard Failures:

Paytm: Listed 9% below issue price, fell 75% from issue price Burger King India: Listed flat, declined post-listing

SME Successes:

Salasar Techno: Migrated to mainboard, 10x returns Nureca: Listed and migrated, strong growth

SME Failures:

Many SME IPOs trade below issue price with virtually no liquidity. Names withheld, but data shows 40-50% of SME IPOs underperform.

How to Evaluate SME IPOs

Since SME IPOs are riskier, apply stricter filters:

Red Flags to Avoid:

❌ Company with losses or irregular revenue ❌ Promoters with poor track record ❌ Issue price far above peer valuations ❌ Offer for Sale > Fresh Issue (promoters exiting) ❌ Complex business model or unclear revenue source ❌ Pending litigation or regulatory issues

Green Flags to Look For:

✅ Consistent revenue and profit growth ✅ Clear, simple business model ✅ Promoters with skin in the game ✅ Fresh issue for growth (capex, expansion) ✅ Reasonable valuations vs peers ✅ Strong order book or contracts

Tax Implications

Both Mainboard and SME IPOs have similar tax treatment: Short-term Capital Gains (<1 year): 15% Long-term Capital Gains (>1 year): 10% (above ₹1 lakh exemption) Note: SME shares need to be held longer due to poor liquidity, so LTCG is more likely.

Tips for Investing in SME IPOs

1. Allocate smartly: Max 5-10% of portfolio to SME IPOs 2. Diversify: Don't put all money in one SME IPO 3. Research thoroughly: Read RHP, check financials 4. Check promoters: Background, track record, integrity 5. Plan for illiquidity: Assume you'll hold 3-5 years 6. Avoid hype: Don't invest based on social media tips 7. Track post-listing: Monitor quarterly results

Conclusion

Both Mainboard and SME IPOs have their place in an investment portfolio, but they serve different purposes: Mainboard IPOs: Core portfolio holdings with moderate risk-reward SME IPOs: Satellite holdings with high risk-reward For most investors, Mainboard IPOs are the safer, more sensible choice. SME IPOs should only be considered if you: - Understand and accept the risks - Have experience in equity investing - Can afford to lose the invested amount - Are diversifying a larger portfolio Remember: High returns come with high risk. Choose based on your risk appetite, investment horizon, and financial goals. Track both Mainboard and SME IPOs on IPO Guruji with live GMP, subscription status, and expert analysis!