Investor’s guide on how to apply for SME IPOs

For applying to the public issues, a supplementary process namely ‘ASBA’ can be used. ASBA is a facility that can be used to apply for SME IPO, FPO, debt issues and rights issue. The investor can reach the convenient branch of the bank in person and apply through ASBA.

The funds under the ASBA will continue to earn interest while the application process continues, if held in an interest-bearing account.

The bank will mark a lien on the deposit account of the investor to the extent of the application money.

After finalisation of the basis of allotment, the lien will be immediately removed. The deposit account will be debited if the bid is successful and the share allotted will be transferred to the investor's demat account.

Any investor can apply through ASBA at a bank of his/her choice, provided that he/she:

1.    Is from any of the approved categories as per SEBI guidelines and eligible to apply.

2.    Maintains a current or saving account with the bank.

3.    Has an active demat account with DPs with PAN number or net banking account provided by the bank

4.    Saving or current account should have sufficient clear balance for application money.

An investor can apply for an SME IPO in the following two ways:

1.    Offline method – The investor need to physically get the ASBA application form for the IPO through sources such as banks, investment consultants, brokers and other sources. The form needs to be filled and submitted in the designated bank with the money.

If the stocks are not allotted to you then a refund check will be sent to your address.

2.    Online method – This is the most easy and convenient way of applying for any IPO. You simply need to have a net banking account provided by any bank or a demat account with access to online trading. The investors then needs to choose the IPO he wants to invest in.

If the stocks are not allotted to him/her, the money will be credited back into his account via online fund transfer.

The online method of applying for IPO is by far the best one as it avoids paperwork involved in the process.

Is it sensible for new investors to invest in such SME IPOs ?

There’s a catch in this: the minimum trading lot for the SME IPOs are much higher as compared to normal IPOs. The intention behind this is to ensure that only well-informed investors participate in such public offers.

If the shares are in the price range of Rs 10 and Rs 14, a lot should typically contain 10,000 shares, according to the SEBI norms. This means investors who invest his/her Rs 1 lakh in a lot containing 10,000 shares does not have the flexibility to sell lower number of shares in the secondary market.

The SME IPO while listing on the SME exchange of NSE and BSE is not well-known in the market and there is always a risk involved in investing in such IPOs.