SEBI has tightened the rules for SME IPO, now investors' interests will not be tampered with

The rules for Small and Medium Enterprises (SME) IPO have been made stricter by Capital Market Regulator SEBI. Now the promoters cannot sell up to 20% of the total SME IPO under Offer for Sale (OFS). Apart from this, selling shareholders will no longer be able to sell up to 50% of their current stake.

It will henceforth be mandatory for SMEs to prove at least an operating profit of ₹1 crore for at least two of the last three financial years in order to go for an IPO. It will discourage companies that try to raise money from the market in the absence of stable profits.

SEBI has made the decision to synchronize the allotment process for non-institutional investors (NIIs) in SME IPOs with the main market. It will be more transparent in nature and will provide equal opportunities for the investors.

SEBI has set a maximum limit of 15% or ₹ 10 crore (whichever is lower) for general corporate purposes (GCP) from the amount raised from SME IPO. This will help prevent misuse of IPO funds.

Now the Draft Red Herring Prospectus (DRHP) in SME IPO will be kept available for public comments for 21 days. Also, there will be a need to publish announcements in newspapers and include QR codes for easy access to DRHP.

SEBI has made it clear that the funds raised from SME IPOs cannot be used to repay the debt of the promoter, promoter group, or related parties. This will ensure that companies make proper use of the capital received from IPO.

Now the minimum application size for SME IPOs has been increased to two lots. This will prevent small investors from investing in haste just by looking at the rising share prices without doing adequate research. According to corporate compliance expert Makrand M. Joshi, "This move of SEBI will reduce the speculation related to SME IPOs and ensure the safety of small investors."