Retail Investors Find Loophole in SME IPO Rules

Regulatory Loophole Allows Retail Investors to Access Select SME IPOs

By Pratishtha Sehgal --
Wednesday, 04 Jun, 2025

Recent changes in regulations governing SME initial public offerings (IPOs) have created a loophole that allows retail investors to continue participating in certain issues despite new restrictions.

The National Stock Exchange (NSE) and BSE, in consultation with the Securities and Exchange Board of India (SEBI), amended Regulation 267 of the Issue of Capital and Disclosure Requirements. As of March 8, 2025, these amendments raised the minimum bid for SME IPOs to above ₹2 lakh, effectively excluding retail investors who typically invest amounts up to ₹2 lakh.

The new rules apply to SME IPOs whose offer documents are filed with the exchange on or after March 8. However, companies that filed their offer documents before this cut-off can still offer bids below ₹2 lakh. Exchanges generally provide companies with up to one year from the date of approval to launch their IPOs, allowing such firms to retain the option of smaller investment thresholds. This has resulted in a divergence in eligibility. Investors can still apply to older IPOs at bid amounts between ₹1 lakh to ₹1.2 lakh, while newer IPOs require bids exceeding ₹2 lakh. Analysts note that this discrepancy may offer short-term access to individual investors but highlight the narrow window available, as most pre-March 8 IPOs are expected to hit the market within weeks.

Among the firms with prospectuses approved before the regulatory change are 3B Films Ltd., LGT Business Connexions Ltd., Mahendra Relators and Infrastructure Ltd., and Everstims Technologies Ltd. For example, 3B Films Ltd.'s IPO opened for subscription on May 30 and closes on June 3, having already received 177 applications from retail investors. The company is targeting to raise ₹33.75 crore.

The exchanges will now be required to specify whether such IPOs can be opened to small investors. Until further clarification is issued through exchange circulars, the participation of retail investors in fresh SME IPOs remains uncertain.

Regulatory Loophole Allows Retail Investors to Access Select SME IPOs. Recent changes in regulations governing SME initial public offerings (IPOs) have created a loophole that allows retail investors to continue participating in certain issues despite new restrictions.

The National Stock Exchange (NSE) and BSE, in consultation with the Securities and Exchange Board of India (SEBI), amended Regulation 267 of the Issue of Capital and Disclosure Requirements. As of March 8, 2025, these amendments raised the minimum bid for SME IPOs to above ₹2 lakh, effectively excluding retail investors who typically invest amounts up to ₹2 lakh.

The new rules apply to SME IPOs whose offer documents are filed with the exchange on or after March 8. However, companies that filed their offer documents before this cut-off can still offer bids below ₹2 lakh. Exchanges generally provide companies with up to one year from the date of approval to launch their IPOs, allowing such firms to retain the option of smaller investment thresholds. This has resulted in a divergence in eligibility. Investors can still apply to older IPOs at bid amounts between ₹1 lakh to ₹1.2 lakh, while newer IPOs require bids exceeding ₹2 lakh. Analysts note that this discrepancy may offer short-term access to individual investors but highlight the narrow window available, as most pre-March 8 IPOs are expected to hit the market within weeks.

Among the firms with prospectuses approved before the regulatory change are 3B Films Ltd., LGT Business Connexions Ltd., Mahendra Relators and Infrastructure Ltd., and Everstims Technologies Ltd. For example, 3B Films Ltd.'s IPO opened for subscription on May 30 and closes on June 3, having already received 177 applications from retail investors. The company is targeting to raise ₹33.75 crore.

The exchanges will now be required to specify whether such IPOs can be opened to small investors. Until further clarification is issued through exchange circulars, the participation of retail investors in fresh SME IPOs remains uncertain.