Latest SEBI SME IPO Allotment Process Tricks NII & Retail [2024] | Basis of Allotment | Best Process to apply SME IPO from Zerodha, ASBA etc.

In the fast-paced world of investment, opportunities often come in the form of Initial Public Offerings (IPOs). SME IPOs, in particular, have gained significant attention due to their potential for substantial returns. However, understanding SME IPO allotment process, especially for Non-Institutional Investors (NII) and Retail Investors, is crucial to avoid risks. In this comprehensive guide, we will delve into the SEBI SME IPO allotment rules for NII and Retail Investors and explore strategies on how to secure SME IPO allotment successfully.

Introduction to SME IPOs

SME IPOs, also known as Small and Medium Enterprises IPOs, are initial public offerings specifically designed for small and medium-sized companies. These companies use the IPO route to raise capital from the public for various purposes, including expansion, debt repayment, and working capital.

Investors are drawn to SME IPOs because of the potential for significant capital appreciation. However, the allotment process for SME IPO shares is subject to regulations set by the Securities and Exchange Board of India (SEBI). These regulations are designed to ensure fairness and transparency in the allocation of shares.

Everything about SME IPO [Explained] | Risks | Best Examples 4000% Returns [September 2023]

SEBI Regulations for SME IPO Allotment

– Eligibility Criteria for Retail Investors

Retail Investors play a vital role in SME IPOs. To be eligible as a Retail Investor, an individual must adhere to the following criteria:

• The investor should apply for shares worth above 1,00,000 in the SME IPO.
• The application should be for share lot size valued above Rs. 1,00,000 or more for one lot size. Example below of Basilic Fly SME IPO.

– Eligibility Criteria for Non-Institutional Investors

Non-Institutional Investors (NIIs) are high-net-worth individuals. To be eligible as an NII in SME IPOs, an investor must meet the following criteria:

• The investor should apply for shares worth more than Rs. 2,00,000 in the SME IPO.
• The application should be for share lot size valued at more than Rs. 2,00,000 on an individual PAN card.
  Refer Example of Basilic Fly SME IPO

Understanding the SME IPO Allotment Process

The SME IPO allotment process by SEBI has mandated that SME IPOs follow:

1. Retailers: Lottery Draw System

2. HNI/NII: Proportionate allotment system. Under this system, the allotment is made in such a way that all eligible investors receive shares in proportion to their application size.
For Example: Basilic Fly SME IPO was one of the most subscribed IPO of 2023, in NII/HNI category subscription was 549.44 times, to get a definite allotment in NII category of 2 lots i.e 2400 shares here, one must place IPO bid for 550 lots.

Few other specific rules for HNI/NII application:
1. What sets this category apart from others is that investors here cannot bid at the cut-off price, nor can they withdraw or modify their bids.
2. Furthermore, there is no lock-in period for both HNIs, can sell their shares on the listing day to realize profits just like retail category.

Best process to Apply for SME IPO

To be considered appropriately in basis of allotment under SME IPO Allotment Process, one must apply without errors in application, here’s the process to apply in SME.

– Demat Account and UPI

Ensure you have a Demat account and a UPI (Unified Payments Interface) ID linked to your bank account.
THERE HAVE BEEN CASES WITH MANY USERS THAT THERE UPI MANDATE FOR SME IPO WAS REJECTED (maybe due to being over 1 Lakh).

1. Go to IPO section and click apply of that particular IPO.
2. Fill in the Shares in multiple of lot size, 1 lot for retail and more than 1 for NII/HNI Category.
3. Select the Cut off price, if oversubscribed.
4. Accept the Terms and Conditions and click Submit.

Note: Although UPI daily transaction Limit is 1 Lakh but few demat allows UPI mandate for SME IPO till 5 lakhs, check yours beforehand.

– ASBA Facility

Use of ASBA (Application Supported by Blocked Amount) facility provided by your bank is always better option. This facility ensures that the application amount remains blocked in your bank account until the allotment process is completed.

1. Find ASBA/IPO option in your bank’s Netbanking website or mobile app.
2. Add Beneficiary Details if you have Demat account with any other DP (instead of your ASBA bank) such as Zerodha, Upstox etc.
3. It would ask for CDSL/NSDL and DP ID/BO number that is usually 16 or 8 digit number that you can find in Profile/Settings>>Demat of Zerodha, Upstox etc.
4. Then fill in your Bid details of shares and Price, system will automatically put you in respective Retail, NII/HNI categories.
Keep the bid minimum of that category in mainboard IPO, as it would not have much effect on allotment, although at 5-6 lots more than minimum, the chances improve (as we saw above in BoA).
5. Make sure the details are correct and then Submit.
6. The cutoff time for ASBA IPO application submission is usually 3:00 PM on closing day of IPO, please find your bank’s timings to be on safe side.
7. Don’t apply 3rd Party ASBA IPO application, it has been stopped by almost all banks, check with yours first.

WHAT NOT TO DO?
1. Don’t place bid lower than cutoff if oversubscribed, your application will get rejected first (every IPO almost 2% get rejected like this).
2. Don’t apply 3rd Party ASBA IPO application, it has been stopped by almost all banks, check with yours first.

Strategies to Increase Chances of SME IPO Allotment

Investors can adopt several strategies to enhance their chances of securing SME IPO allotment:

– Applying with Multiple Demat Accounts

Investors can apply for SME IPOs using multiple Demat accounts in the family’s name, as in other words different PAN card. This increases the chances of receiving more allotments.

– Leveraging the Cut-off Price Option

Choosing the “cut-off price” option can enhance your chances of allotment. This option allows investors to bid without specifying a price, and shares are allotted at the final issue price.

– Participating in the Retail Category

Retail investors can benefit from the Retail category, which often receives generally more than double allocation percentage compared to NIIs. Applying in the Retail category can improve your chances of allotment.
Refer the SME IPO as an example below.

What is Basis of Allotment in SME IPO?

To better understand SME IPO Allotment Process for retail and HNI let’s analyze our example from Basilic Fly SME IPO’s published official BoA to get real idea of Basis of Allotment:

1. It is generally divided into 2 to 3 tables in allotment- Retail and HNI and Employee (if applicable).
2 Refer to BoA image for Basilic Fly SME IPO as example.
2.1 Table 1. – Retail Applications with their respective ratio of allotted to applied application shares.
2.2 Table 2. – HNI/NII ( bids above 2 lakhs) with their respective ratio of allotted to applied application shares.
Other table will be for QIB and Anchor Investors, not mentioned here.

FACTORS THAT ARE CONSIDERED DURING ALLOTMENT :
Considering that if all IPO application details are error free and placed at cutoff price, so that it won’t be rejected .

2.1 The Bid Group (Category column in tables below) in which you will be considered. Example: In Basilic Fly SME IPO 1 lot = 1200 share and 1 HNI (min) bid = 2 lots = 2400 share, when you apply minimum HNI bid you will be considered into that particular group of 2 lots.

2.2 The RATIO of that particular BID Group. Example: In Table 2 – Ratio of each group gets slightly better as we go below and the lots increase.
If we refer the ratios of each group, this effectively means to increase your probability just minutely – Apply 5-6 lots more than the minimum of that HNI category, as it places you in a group with slightly better probability.

2.3 But if you have enough capital and want sure shot allotment in SME IPO, place HNI bid lot size more than the oversubscription of the HNI category as mentioned above. In Basilic if you have applied bid for over 550 lots, there is definite proportionate allotment.

How many shares/lots will you get in HNI category, if alloted?

According to SME IPO Allotment process for HNI – allotees in an SME IPO will get only 2 lot shares of around 2 lakhs i.e basically the minimum bid amount while retailers get 1 lot shares worth around 1 Lakh.

For example, according to above example of Basilic Fly, if alloted one would get 1200 shares of amount in retail and 2400 in NII.

Conclusion

SME IPOs offer exciting investment opportunities, but securing allotment requires a clear understanding of SEBI regulations and strategic planning. By following the rules and implementing effective strategies, investors can maximize their chances of successful SME IPO allotment.

Frequently Asked Questions (FAQs)

Q1: Can an I apply for an SME IPO with family member’s multiple PAN cards?
A1: Yes an individual can apply for an SME IPO with family’s multiple PAN cards. SEBI has strict regulations against using single PAN and multiple applications and applications are also thoroughly scrutinized for duplicate PANs.

Q2: Are SME IPOs risk-free investments?
A2: No investment is entirely risk-free. SME IPOs, like all investments, carry inherent risks. It’s essential to conduct thorough research and due diligence before investing in any IPO.

Q3: What happens if I don’t receive an allotment in an SME IPO?
A3: If you do not receive an allotment in an SME IPO, the blocked funds in your bank account will be unblocked, and you can use them for other investments.

Q4: Can I sell my allotted SME IPO shares immediately after listing?
A4: Yes, you can sell your allotted SME IPO shares in the secondary market immediately after listing, subject to market conditions and trading rules but better to sell in pre open market to avoid risks later.

Q5: How can I check my SME IPO allotment status?
A5: You can check your SME IPO allotment status on the SME IPO registrar’s website or through mail from Demat account provider.

In conclusion, investing in SME IPOs can be rewarding, but it requires adherence to SEBI regulations and the implementation of effective strategies. By following the outlined guidelines, investors can navigate the SME IPO allotment process with confidence and potentially capitalize on exciting investment opportunities.

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