Unlisted shares are quickly gaining traction among investors seeking higher returns and early access to fast-growing companies. Unlike listed shares, which trade openly on stock exchanges like NSE and BSE, unlisted shares (or pre-IPO shares) are not available in the public market. They are usually held by founders, early employees, venture capitalists, or angel investors. To buy them, investors need to go through specialised brokers or private placements.
But before you jump in, there are a few things you must carefully evaluate. Here are six things you should check before investing in unlisted equity shares in India.
1. The Investment Process
Buying unlisted shares isn’t as straightforward as trading listed stocks. The process largely happens offline (over-the-counter) and requires due diligence. While settlement can take time, reliable online platforms like Stockify make the process smoother, allowing investors to purchase shares online with transfers completed within one business day. Still, patience and preparation are key.
2. Who Owns the Shares?
Unlisted shares are usually held by start-ups, promoters, angel investors, or venture capital firms. When you buy, you are purchasing directly from these existing shareholders. It’s important to know who the seller is and whether the transfer is legitimate. Working with trusted brokers reduces the risk of fraudulent transactions.
3. Risk Involved
Transparency is limited in the unlisted space. Unlike listed firms, unlisted companies don’t publish quarterly financials or provide detailed public disclosures. This makes it harder to assess performance and outlook. That’s why expert advice and thorough research are crucial. Remember, high return potential comes with higher risk.
4. Liquidity Challenges
Unlisted shares are illiquid—finding a buyer when you want to sell can be difficult. You can’t just exit at the click of a button like on a stock exchange. However, some platforms and brokers (like Stockify) offer buyback guarantees, which provide added comfort to investors worried about exits.
5. Valuation of Shares
Because unlisted shares don’t trade on NSE or BSE, there’s no market-driven price. Instead, valuation is done using models such as discounted cash flow (DCF) or net asset value (NAV). Promoters, wealth managers, and merchant bankers usually determine fair value. As an investor, you should carefully review valuation methods before committing.
6. Tax Implications
Tax treatment of unlisted shares differs from listed ones.
- If held for less than 2 years, gains are considered short-term and taxed as per your income slab.
- If held for more than 2 years, gains qualify as long-term capital gains (LTCG) and are taxed at 12.5% without indexation benefits.
Understanding taxation upfront helps you estimate your actual returns and avoid surprises later.
Final Words
Unlisted shares can be an exciting addition to your portfolio, offering access to companies before they hit the stock market. But they also come with challenges like illiquidity, valuation uncertainty, and higher risk. That’s why it’s essential to check these factors carefully and work with the best-unlisted share brokers in India, who can guide you toward promising opportunities.
If you’re looking to invest wisely in pre-IPO companies, consider exploring different platforms to discover high-potential unlisted shares and make the process seamless.
