Unlisted shares are equity shares of firms which do not get listed on known stock exchanges such as NSE or BSE. They comprise startups, pre-IPO firms, and units of big corporates. Though they possess high-risk, high-return potential, investment in unlisted shares has to be done with caution, diligence, and the correct route.
This blog describes what unlisted shares are, where they can be procured, how to invest in them legally in India, and important points to take note of before investing.
Introduction
The Indian stock market is no longer limited to listed companies on the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE). In recent years, investor appetite has gradually increased in unlisted shares, the stocks of companies that are not yet listed. From pre-IPO technology startups to listed giants’ subsidiaries, unlisted shares are being sought after for their early access and potentially disproportionate returns.
But this is not a place for everyone. Purchasing unlisted shares is not as easy or controlled as dealing in listed stocks. There is limited liquidity, thin information, and greater risks. For retail investors with a moderate to high-risk tolerance, however, it can be a useful addition to a diversified portfolio as long as the process is pursued legally and intelligently.
What are Unlisted Shares?
Unlisted shares are of those companies that are not listed on a stock exchange, i.e., they are not traded through the normal trading platforms such as Zerodha, Groww, or Upstox. These shares can usually be discovered in –
- Private limited companies
- Early or mid-stage growth-stage startups
- Subsidiaries of listed firms
- Companies awaiting IPO sanction
For instance, widely used names such as OYO, PharmEasy, Tata Technologies (prior to IPO) or Reliance Retail (subsid) have been regularly transacted in the unlisted marketplace.
Purchasing such stocks provides investors an opportunity to come in early without a company’s valuation shooting off after the IPO. However, unlike listed stock, you don’t have any daily price variations, assured exit channels, or SEBI regulations in the majority of cases.
Who Can Purchase Unlisted Shares in India?
Both individual investors and institutional investors can buy unlisted shares in India. But all brokers or platforms do not offer access. Usually, high net-worth individuals (HNIs), angel investors, family offices, and venture capitalists are most engaged in this space.
That having been said, the retail segment has come open in recent years due to the intervention of tech-enabled intermediaries and platforms that deal in unlisted shares.
Steps to Buy Unlisted Shares in India
Unlike listed shares, you cannot simply search and purchase unlisted shares through your stockbroker. You will need to use certain channels. Here is how the process usually goes:
1. Through Online Platforms or Intermediaries
There are SEBI-registered intermediaries and startups such as UnlistedZone, Planify, SharesKart, or ALTIUS that deal with unlisted shares. They match buyers with sellers and offer key company information such as –
- Valuation reports
- Financials
- Shareholding pattern
- Anticipated IPO timelines
You must open an account, complete KYC, and subsequently show interest in a particular share. If in existence, the transaction occurs through offline demat transfer or NSDL/CDSL settlement.
2. Purchasing From Existing Shareholders
Employees, early investors, or founders who wish to exit partially often sell many unlisted shares. These shares may be transferred privately through a share purchase agreement (SPA), generally facilitated by intermediaries.
3. Through ESOP or Employee Buyback Programs
If you are an employee of a firm that has ESOPs, then you can choose to buy company shares privately or sell them to willing investors prior to an IPO.
4. Via Pre-IPO Placement Deals
Occasionally, public offer companies offer strategic investors the chance to purchase equity pre-IPO. Shares often have a lock-in period after the IPO (typically 6 months), but if timed perfectly, it can provide a strong upside.
Why Invest in Unlisted Shares?
Investing in unlisted shares is risky but has some distinct advantages –
- Access to growth companies early – You can invest in a company prior to it being a darling of the public markets.
- High return potential – If the company is successful or lists on the public markets, early investors tend to reap generous profits.
- Diversification of portfolios – Unlisted equities are different from listed stocks and can diversify your portfolio.
Nevertheless, the absence of liquidity, information transparency, and assured exit makes it inappropriate for risk-averse investors.
Key Documents and Process Involved
- Demat Account – Required for holding unlisted shares in demat form.
- PAN and KYC Documents – For confirmation by the broker/intermediary.
- Share Purchase Agreement (SPA) – An agreement specifying price, quantity, and rights.
- Bank Transfer/Payment – Transferred to the seller’s account or through escrow.
- Share Transfer Form – To transfer shares to your demat account through NSDL or CDSL.
After the transaction is settled, the shares appear in your demat account although it may take a few days as opposed to listed shares.
Risks Involved in Purchasing Unlisted Shares
Investment in unlisted shares has its own share of risks –
- Liquidity Risk – There is no active market for selling, particularly if the company does not go public.
- Valuation Uncertainty – Negotiated prices might not be the real value.
- Information Gap – Access to verified financials and performance metrics is restricted.
- Regulatory Risk – Private market transactions are not strictly monitored by SEBI.
- Company-Specific Risk – Startups and private companies have a higher risk of business failure or governance problems.
This is why it is essential to do research widely and not invest gigantic portions of your portfolio in these kinds of holdings.
Conclusion
Purchasing unlisted shares in India can be a savvy investment for those who want to access upcoming firms before they list. The method is less transparent and regulated than the conventional equity market. Due diligence is higher, patience is needed, and risk acceptance in favor of a possibility of high returns is called for.
With growing digitization and access through platforms, retail investors also have more possibilities to venture here. But never forget: best choices are informed by good research, reliable intermediaries, and a long-term perspective. When done correctly, unlisted shares can provide that special edge in your investment basket.
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