Why is the minimum investment size in SME IPOs higher?

There has been a flurry of SME (small and medium enterprise) IPOs hitting the primary market so far in FY27. As per the NSE data, as many as 30 SME IPOs have raised funds during the period, compared with just 9 mainboard IPOs that listed during the same time. While retail participation remains robust in the SME space, not all retail investors are able to subscribe to these offers.

This is due to the revised SME IPO bidding norms that came into effect from July 1, 2025. Under these rules, the minimum application size for individual investors must exceed ₹2 lakh and include a minimum of two lots. Consequently, not every retail investor intending to participate in an SME issue may be able to do so because of the higher application size.

Last year, the NSE revised the bidding framework for SME IPOs. According to a circular dated June 18, 2025, the following rules were introduced: The existing retail individual investor or RII category has been replaced by the individual investor category. Individual investors are defined as investors applying for a minimum of two lots, with a minimum application size exceeding ₹2 lakh. The facility to place bids at the cut-off price is not available for any category of investors. Downward modification as well as cancellation of bids are not allowed for any investor category. Bidding for all categories closes at 4:00 PM on the last day of the issue. UPI mandate acceptance/ confirmation is available up to 5:00 PM on the last day of bidding.

In case of reserved categories, the following rules will be applicable:

In the employee category, the minimum application size is two lots (with a minimum application size of above ₹2 lakh) and in multiples of the lot size, not exceeding ₹5 lakh.

In the shareholder and policyholder categories, the minimum application size is two lots (with an application size exceeding ₹2 lakh).

Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs) are required to apply for more than two lots.

Why is the minimum application size in SME IPOs relatively high?

The SME IPO framework has been designed in a way that allows participation primarily from investors who can afford a relatively high risk associated with these offerings.

The higher bidding size restricts participation to investors who are willing and able to commit a larger amount of capital. Also, as the issue is comparatively small, less liquid and more susceptible to speculation, a higher entry or application size can reduce excessive retail speculation. In conclusion, a relatively higher application size of SME IPOs is largely to mitigate the high-risk associated with these SME IPOs and serves as an entry barrier.