Introduction: Why SME IPO Allotment Matters

The ongoing SME IPO wave in India reflects a high investor appetite, powered by a strong domestic economy, supportive government policies, and smoother digital systems. However, with so many investors rushing to apply for SME IPOs, public issues launched by small and medium enterprises, how do companies decide who gets allotted shares and who doesn’t?

While thriving subscriptions and quick listing gains grab the attention of investors, understanding the SME IPO allotment process is what helps investors see beyond the hype and assess the real opportunity and risk.

This blog explains the SME IPO allotment process step by step, the regulatory framework, and recent changes in rules, subscription checks, and much more.

Read further to learn more about the SME IPO allotment.

What is Allotment in SME IPO?

Small and Medium Enterprise (SME) IPO, allotment is the process of allocating shares to investors after the IPO window closes, managed by the IPO registrar. It is dependent on the net shares offered, investor demand, and the bids placed.

If the IPOs are oversubscribed, shares are allocated by calculating the allotment ratio or through a lottery system, depending on the  investors’ category.

Step-by-Step SME IPO Allotment Process

The SME IPO allotment process involves several essential steps, from the application to the credit of shares, managed by the registrar along with the stock exchange to ensure fair and transparent distribution.

1. Application & Bidding Process

The SME IPOs are open for a bidding period of 3 to 10 working days. During this period, investors place their bids for shares through brokers or the Application Supported by Blocked Amount (ASBA) facility through their banks.

The company sets a ‘lot size’ which denotes the minimum number of shares an investor needs to apply for. In SME IPOs, the lot size is generally higher compared to mainboard IPOs, requiring a minimum investment of minimum ₹2 lakh.

2. Subscription check

After the bidding period ends, the registrar compiles all the applications to see the total shares requested compared to the net shares offered and determines the subscription status.

If the shares are undersubscribed, all valid applicants receive a full allotment. However, if the shares are oversubscribed, an allotment ratio or pro-rata system is used. 

3. Validity Checks & Rejections

The registrar scrutinises all applications for validity and checks grounds for rejection. Some of the common reasons include incorrect Demat account or PAN details, invalid lot size, multiple applications from the same PAN, payment failure, and third-party applications.

4. Segmentation: Retail, NII, Institutional

The valid applications are next categorised based on the type of investor. SEBI has formulated a specific reservation criterion for each group.

This table gives an overview of SME IPO allocation in the case of a book-built IPO:

Type of Investor	Reservation
Retail Investors	Minimum 35% of the net issue
Non-Institutional Investors (NIIs)	Minimum 15% of the net issue
Qualified Institutional Buyers (QIBs)	Maximum 50% of the net issue

5. Basis of Allotment & Allocation Method

The Basis of Allotment (BOA) is a report that presents how shares are to be allocated. The finalisation of BOA is a key step as it determines the allotment methodology for oversubscription.

6. Oversubscription Handling: Lottery / Pro Rata

In case of SME IPO oversubscription, the method for distributing shares varies depending on the investor category:

• For retail investors, a random, computerised lottery system is used to select winners or successful applicants.
• For non-institutional investors and QIBs, shares are allotted proportionately. This involves calculating the allotment ratio to allocate shares in proportion to the application size.

7. Credit of Shares & Refund Handling

The shares are allocated by transferring them to the Demat accounts of successful applicants or investors. And for investors who didn’t receive any shares or received only a partial amount, the excess amount is refunded.

Nowadays, most applications are made via ASBA, so the unallotted funds are automatically unblocked or refunded in the investor’s bank account.

Investors are usually notified regarding the allotment status through email or SMS; however, they may still check the status on the registrar’s or stock exchange’s website. 

Key Differences: SME vs Mainboard IPO Allotment

Key Differences	SME IPO Allotment	Mainboard IPO Allotment
Minimum Investment (Lot size)	It requires a high minimum investment, usually over ₹1 lakh per lot	It requires a lower minimum investment, usually between ₹10,000 to ₹15,000 per lot
Minimum allottees	Minimum 200 allottees are required for distribution of shares.	The company needs to have at least 1,000 allottees for listing.
Trading unit	Trading of these shares can only be done in lot sizes, which means the investors cannot sell shares individually resulting in lower liquidity post-listing.	Investors can trade these shares in single units, which ensures higher liquidity.
Application size	With a bigger lot size, the application value is higher, which discourages small retail bids.	Here, applications can be made for smaller values, which widens the pool of prospective investors.
Investor base	It attracts a smaller pool of investors, including QIBs and HNIs.	It attracts a wider range of investors, including large institutional investors, HNIs, as well as retail applicants.

Regulatory Framework Governing SME IPO Allotment

• SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018: It is the primary regulatory body that governs SME IPOs, including its eligibility criteria, underwriting, and disclosure requirements.
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Its regulations set the corporate governance rules for the listed entities, including SMEs, after the IPO window closes.
• Companies Act, 2013: This act governs the general processes of public issues and listings, with provisions for listed companies that apply post-listing.
• Securities Contracts (Regulation) Act, 1956: This act regulates the stock exchanges where the SME IPOs are listed.  

Recent Changes in SME IPO Rules (2025)

The following changes have been made in the SME IPO allotment rules by SEBI in 2025:

• Revised Minimum Bid Size and Application Amount: The minimum bid size for all investor categories is now two lots, with a minimum application amount of approximately ₹2 lakh, with a cut-off price no longer permitted.
• Restrictions on Bid Revisions and Timings: Moreover, the investors are not allowed to revise or cancel their bids after the submission. On the last day, the bidding closes at 4 PM, and the UPI mandate confirmation must be completed by 5 PM.
• Stricter Financial Eligibility for Companies: The companies must meet the financial criteria, such as having a minimum EBITDA of ₹1 crore in at least two years of the last three years.
• Limits on Use of IPO Proceeds: The use of IPO funds for ‘general corporate purposes’ has been lowered to below 15% of the issue size or ₹10 crore. Additionally, the IPO proceeds are prohibited from utilising to repay promoter and related party loans.

Worked Example: Allotment Calculation for SME IPO

• Calculation of the maximum number of allottees:

The net shares offered are divided by the minimum lot size to determine how many investors can get at least one lot.

Let’s say, a small-cap firm issued 50,00,000 shares with a lot size of 2,000 shares. So, the maximum number of investors that can be allotted = 50,00,000 ÷ 2,000 = 2,500 investors.

• Handling oversubscription in the retail portion:

Next, if the total retail applications are higher than the maximum allottees, the registrar conducts a random, computerised lottery to allot shares.

For example, if 3,000 investors apply, where only 2,500 lots are available, the system randomly selects 2,500 investors to provide one lot each, while 500 investors do not get any shares.

• Pro-rata or Proportional allotment:

For categories such as Non-institutional Investors (NIIs) or Qualified Institutional Buyers (QIBs), the allotment is made on a pro-rata basis instead of a lottery.

So, let’s say, if the NII portion is oversubscribed by 2 times, and an investor applied for 1,000 shares, they’ll receive approximately 500 shares (1,000 ÷ 2)

Factors That Impact Allotment Chances

• Investor category: For different investor categories, a different method is used to allot shares, in case of oversubscription, which affects the chances of getting allotment.
• Subscription level: If the IPO is oversubscribed, the investors are likely not to get the full allotment of applied shares, or might not even receive allotment at all.
• Bid price: Since the issuing company sets a price band for each share and decides the final price depending on the demand, if the investor bids at a lower price than the final price of the IPO, the application automatically gets rejected.
• Incorrect application strategy: Investors might implement strategies in an incorrect way, such as applying multiple times through the same demat account and PAN, or forgetting to approve the UPI mandate on time.

Bottom line  

The SME IPO allotment process ensures that the shares are distributed fairly among investors through transparent rules and regulatory checks. While oversubscription can make allotment competitive, understanding the basis of allotment in SME IPOs and the recent SEBI updates helps investors to make smarter applications. 

FAQ (People Also Ask)