Understanding Unlisted Shares

As mentioned earlier, unlisted shares are equities or financial instruments that can only be traded privately. These are available for trading over the counter, known as over-the-counter securities or OTC, and therefore, you will not find them on the stock exchange. These shares come from smaller firms or those firms that are new in the market. They do not need to follow the SEBI norms for listing on the stock exchange.

Examples of Unlisted Shares

• Government securities
• Corporate Bonds
• Derivatives like Swap
• Penny Stocks

Where Can You Buy Unlisted Shares?

You can purchase shares in unlisted companies in many ways. Some of the ways are as follows:

Pre-IPO Companies

You can buy the unlisted shares in pre-IPO companies that intend to list in the future. These companies have the potential for high growth in the future, and you can capitalise on that by buying their shares at an early stage. Once you invest in these companies, your shares will automatically be transferred to your demat account. Additionally, you must opt for a trusted intermediary to guide you to invest in these shares.

Startups

In current times, the startup segment in India is very active, with full of growth potential. You can invest in startups that may grow many times in value. Most startups require the minimum investment amount of Rs 50,000, and the shares will be directly credited to your Demat account.

Buying ESOPs from employees

Employees in a company sometimes get their company shares (ESOPs) at a discount. Some brokers can help you buy these shares directly from employees who want to trade them.

Buying directly from promoters

If you want a major share in a private company, you can work with a broker or investment expert to buy shares directly from the company’s founders or top owners.

Invest in PMS and AIF schemes with exposure to unlisted companies

You can invest in unlisted shares through investing in the portfolio of PMS (professionally managed portfolios), which include unlisted companies as part of their investment plan.

Drawback of Investing in Unlisted Companies

• Unlisted stocks are riskier as there’s limited information available in public about them.
• Selling them can be difficult as you may have to wait for an IPO or find a buyer to sell in the secondary market.

How to Invest in Unlisted Shares?

Select Industries with Future Potential

Look for early-stage companies that could grow larger, as this is the main reason to invest in unlisted shares.

Know About Existing Investors

Start looking for where the well-known investors are investing their money. If a company is supported by successful startup founders, top investors, or large businessmen, it may have strong future potential.

Buy unlisted shares of Pre-IPO Companies

You can invest in companies that are wanting to go public in the future. A key advantage is that their DRHP is available, where you can get insights into their performance, finances, and future plans.

Liquidity

Before investing in an unlisted company, check if its shares are in demand. Strong interest from buyers means better chances to sell these shares later.

Important Things to Consider

• Market volatility can affect the investment.
• Capital gains tax will be applicable (long-term and short-term).
• Check the company’s performance before investing.
• Unlisted shares are risky, especially because of liquidity issues.

Investors should note that the above information is only for educational purposes and not a recommendation. Always consult an expert before buying or selling shares.