Start-ups raise funds for the establishment and growth. When the company lists on NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) with its equity share capital, it evolves as a publicly-traded company. A listed company can freely trade its equity shares with retail and institutional investors. Listed shares come from the companies that are available on a stock exchange. There is another type of share that also includes the equity share capital of a firm, called unlisted equity share. You can take the assistance of one of the best-unlisted share brokers in India to buy unlisted equity shares.
Pre-IPO shares or unlisted shares are not available for public trading on a stock exchange. These unlisted shares become available for trading before the firm lists itself on the stock exchange and becomes public. An investor has to use unconventional ways to buy unlisted shares. Before learning how to buy unlisted shares in India, we must highlight a few essential things before purchasing unlisted equity shares.
Things worth knowing before investing in unlisted equity shares
As you know, unlisted shares are different from listed shares; you must have some essential information before investing in unlisted shares to make an informed decision.
A)The Investment Process
The entire process of trading unlisted shares occurs offline (over the counter) and involves lots of information. While purchasing an unlisted share is a bit complex and time-consuming, investors might be unable to buy unlisted shares instantly. However, unlisted share trading is efficient and quick with Stockify. As an online unlisted share trading platform, we allow investors to trade unlisted stocks online except for the transfer, which is done offline. It takes one business day to transfer shares to a client Demat account.
B)Share Owner
Unlisted share owners are start-ups, angel investors, and venture capitalists. Therefore, an investor must buy unlisted equity shares in unconventional ways.
C)Involved Risk
Investing in unlisted shares is risky because company information is not publicly available. Therefore, you should always take help from experts and do proper research before investing.
D)Liquidity Challenges
Unlisted share buyers are not easy to find because the pre-IPO shares are not publicly available. Therefore, unlisted equity shares are illiquid, and you might not instantly cash them. However, Stockify gives a buyback guarantee to its client.
E)Valuation
Knowing the fact that Unlisted shares are not available on NSE and BSE, they are devoid of market value. Investors and promoters of the firm own unlisted equity shares, and they evaluate the firm's valuation through the concept of fair value.
How to buy unlisted shares in India?
Now, as we are aware of different aspects of unlisted shares, let's dive into different ways through which an investor can buy unlisted equity shares.
Method 1:Buy With The Best Unlisted Share Brokers In India
An investor has to open a Demat account to buy unlisted equity shares. The minimum value to invest in unlisted shares of any firm is Fifty thousand Rupees. The investor has to invest in advance and will receive shares after a full one working day from the payment date.
Method 2:Promoters of firms offering stakes
Usually, promoters place their stake in the firm, and this is what we call Private Placement. Pre-IPO shares, on the other hand, are placed with financial institutions and wealth managers. Investors can buy unlisted equity shares through Private Placement.
Individuals who wish to invest in unlisted shares should have an extensive network to get info and updates at the time of Private Placement. Moreover, Investors can buy a significant stake in the firm as the promoters usually have a considerable stake in the firm.
Method 3:Alternative investment funds and portfolio management services
Large-scale investors invest significant capital in alternative investment funds and portfolio management services to own unlisted shares. Some organisations offer different modes of alternative investment to invest in pro-IPO shares at a lower valuation and earn the returns when the firm enlists itself to IPO, or the firm's valuation rises because of a succeeding IPO.
AIF and PMF are investment types for foreign investors and NRIs as they usually invest significantly. Hence, this mode is suitable for those who don't need to worry about their pocket.
Method 4: Equity crowdfunding platforms
Numerous crowdfunding platforms enable you to become an angel investor to invest in unlisted equity of companies. The crowdfunding platforms allow you to invest in angel funds and buy unlisted shares. When investors buy equity shares of an unlisted firm through crowdfunding, they help the firm in venture establishment.
Tax implications for unlisted investment
If unlisted equity shares are held for up to 24 months, any gains are treated as short-term capital gains and taxed according to the investor’s applicable income tax slab.
If the shares are held for more than 24 months, the gains qualify as long-term capital gains. As per the latest tax rules, long-term capital gains on unlisted shares are taxed at a flat rate of 12.5%, without the benefit of indexation.
Capital gains are calculated by deducting the cost of acquisition and transfer expenses from the sale consideration. The sale consideration is generally the actual transaction value, subject to fair market value (FMV) provisions under tax laws.
It is important to note that indexation benefits are no longer applicable for long-term capital gains on unlisted shares, and the original purchase cost must be used for calculation.
Final Words
We hope the above information and guide will be valuable for you and help you make an informed decision. For more assistance, you can contact the best-unlisted share brokers in India. The best brokers for unlisted shares will help you find promising unlisted companies for you..
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