Today saw the first SME IPO that disallowed retail investors (bids less than ₹2 lakhs) from participating.

In 2024, SEBI proposed new SME IPO rules through a consultation paper. The changes were finally incorporated into the Issue of Capital and Disclosure Requirements (ICDR) regulations in March 2025.

Let’s break down what has changed.

What’s New?

1. SEBI has proposed increasing the minimum application size for SME IPOs from ₹1 lakh to ₹2 lakh. This change aims to limit participation by smaller investors and attract only those with higher risk tolerance. Unlike mainboard IPOs that have a retail category with lower minimum investments, SME IPOs have always maintained higher entry barriers to ensure participation by serious, committed investors. The increased threshold reinforces this approach by further filtering out casual retail participation.

2. Lottery for HNI Allotment: For book-built SME IPOs, the Non-Institutional Investor (NII) category, which includes HNIs, now uses a “draw of lots” instead of the old proportionate allotment. This change was already in place in mainboard IPOs, and SME HNI bids were getting differential treatment. This is bound to reduce bids in the SME space.

Why is today’s SME IPO launch the first to exclude retail participation entirely?

SEBI announced new SME IPO rules in March 2025. There have been about 30 SME IPOs since then.

However, since the new rules were only valid for companies who filed their IPO prospectus with the exchange after March 2025, anyone who went public after March 2025 but had filed their prospectus earlier could still invite retail participation. This can get confusing for investors over the next few weeks, since a prospectus filed stays valid for a year.

Although the future path is set, and over time, all SME IPOs will have a minimum investment above Rs. 2 lakhs, for now, some can have a minimum of Rs. 1 lakh, whereas others will follow the new rule. The exchanges may issue a roadmap to help clarify this.

Here is the ICDR amendment for reference – link.