Unlike their listed counterparts that trade on regulated exchanges, Unlisted shares are traded off-exchange. This unstructured network includes merchants that facilitate direct exchanges between buyers and sellers.
Unlisted investments range from ownership in private firms to pre-IPO shares, non-exchange-traded bonds, and complicated structured products.
Equity provided by private companies not listed on exchanges is known as unlisted shares.
Shares of companies getting ready for an IPO are known as pre-IPO shares. The other options available for investment are –
Bonds
Debt instruments cannot be exchanged on exchanges but are issued by governments or some businesses.
Structured Products
Some complex financing products with several assets are called structured products.
Putting money into unlisted shares:
Investing in unlisted shares requires a different technique than regular stock market transactions.
Restricted Access
Building relationships with investment banks, brokers, or specialist platforms that deal in unlisted securities is often the first step towards discovering opportunities.
Negotiation: Unlike conventional exchange agreements, prices are negotiated directly with the seller, requiring adept market knowledge and bargaining abilities.
Due diligence: Analysing the underlying company’s finances, business plans, and prospects is crucial because there is a dearth of publicly available information.
Lock-in periods: Unlisted assets sometimes include lock-in periods, which prevent them from being sold for a specific amount of time.
How do you invest in unlisted shares in India?
Swiggy, BoAt, Pharmeasy, NSE India and HDFC are all the dominant players in valuations, quantity of services and goods supplied, or market reach. However, unlike bigwigs like Reliance, these companies are not listed in public markets.
However, this does not change the fact that they are growing, does it? Several of them are developing far faster than their listed competitors.
Investing in unlisted companies is a complex yet relatively simple process. All you need is a keen eye for detail when considering such possibilities.
Investing in unlisted shares in India seems to be difficult. Still, there are some basic options which you can consider:
Brokers and Investment Banks:
You can get help for unlisted shares from well-established platforms such as Stockify.
They can link you with brokers and guide you through the process, since they have a lot of knowledge in the subject and necessary connections.
Platforms with a focus:
Numerous internet markets focus on pre-IPO offerings and unlisted shares.
They provide many possibilities and are an excellent place to investigate this industry.
Networks of Angel Investment:
Join angel investor networks like the Indian Angel Network or Mumbai Angels if you are interested in investing in companies.
These networks provide you exclusive access to transactions and put you in touch with fascinating early-stage businesses.
Wealth Management Companies:
People with high net worth may want to investigate wealth management firms that offer unlisted investment services.
These companies can give tailored investment advice and have access to exclusive deals.
Investing in unlisted shares has advantages.
High growth potential:
Unlisted shares in early-stage businesses might indicate significant growth potential.
The act of diversification Beyond standard assets, unlisted investments can aid in portfolio diversification.
Low estimations:
Buying shares might be less expensive than investing in listed firms with similar potential.
Strategies for Investing in Unlisted Shares
Most people are unaware of the many ways to invest in unlisted companies. Each of these strategies, however, has unique advantages and disadvantages.
a. Pre-IPO investment.
This strategy allows investors and traders to acquire and sell company shares before they are listed in stock markets. As a result, issues like illiquidity, decreased transaction security, and lower regulatory compliance become more likely.
You can acquire unlisted shares through various intermediaries, including investment companies, which provide a platform for trading unlisted shares. Under this mechanism, the shares given to you are purchased from employees using Employee Stock Options (ESOPs).
Now, if these shares are listed at any moment and the price increases dramatically, you may consider taking gains. According to Indian Pre-IPO market investment restrictions, you are not permitted to sell these shares until 6 months have passed since they’re listed.
b. Startups.
Invest directly in startups with significant growth potential that operate in a fast expanding market. The minimum investment amount varies based on the investment platform and the companies you want to participate in.
Investing in startups poses a significant risk owing to the firms’ early stage.
c. Employee Stock Ownership Plan (ESOP):
Employee stock ownership plans (ESOPs) are a method of payment that allows employees to purchase business stock at a fixed price, often less than the fair market value, over a particular duration. Employees get a stake in the company’s ownership, connecting their interests with its performance.
You can buy ESOPs from employees of unlisted companies and you can sometimes find a discount. Liquidity in ESOP investments is restricted, and the company’s future success determines the value of ESOPs.
d. Private placements.
Another option is to use a broker, wealth manager, or even an investment bank to assist you with finding out the price and valuation of an unlisted company. They can connect you with the company’s promoters. You can then purchase a percentage of their shares at that time. This approach of gathering shares from promoters is known as private placement.
e. PMS and AIF schemes.
Portfolio Management Systems can also be used to invest in unlisted shares. These custom share portfolios can help you diversify your risk by adjusting the weights of different Securities in a portfolio based on market sentiment.
In addition, investors can invest in unlisted shares through Alternative Investment Funds (AIFs). Don’t get confused and make a well-informed decision. AIFs are a pooled investment vehicle that attracts funds from high-net-worth individuals (HNIs) and large institutional investors. The minimum investment amount for PMS is ₹50 lakhs, whereas AIF is ₹1 crore.
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FAQs
What are Unlisted Shares, and How Do They Differ from Listed Counterparts?
Unlisted shares are traded off-exchange, facilitated by merchants outside regulated exchanges. Unlike listed shares, they involve direct exchanges between buyers and sellers, offering investment opportunities in private firms, pre-IPO shares, non-exchange-traded bonds, and structured products.
How Can Investors Access Unlisted Shares in India?
Investors can access unlisted shares through various channels, including brokers, investment banks, specialised platforms like Stockify, and angel investor networks like the Indian Angel Network or Mumbai Angels. Wealth management companies also offer tailored services for high-net-worth individuals interested in unlisted investments.
What Are the Advantages of Investing in Unlisted Shares?
Investing in unlisted shares offers high growth potential, portfolio diversification beyond standard assets, and the opportunity to acquire shares at lower valuations than listed companies with similar potential.
What Strategies Can Investors Employ to Invest in Unlisted Shares?
Investors can adopt several strategies, including pre-IPO investments, direct investments in startups, participation in Employee Stock Ownership Plans (ESOPs), private placements, and investing through Portfolio Management Systems (PMS) and Alternative Investment Funds (AIFs).
What Risks Should Investors Consider When Investing in Unlisted Shares?
Risks associated with investing in unlisted shares include illiquidity, decreased transaction security, lower regulatory compliance, high volatility, limited access to information, and the potential for loss due to the early-stage nature of startups and unlisted companies. Investors need to conduct thorough due diligence and seek professional advice before investing.
