Investment in the stock market is not a new norm, and people have been investing in shares since 1857. The first share trading association in India was “Native Share and Stock Brokers Association,” which later became the Bombay Stock Exchange (BSE) in 1875. Since then, people have been investing in the stock market to get better returns on their shares. However, the rise of security issues and loss in the share market has affected this badly.
Today, unlisted stocks are making a huge splash in the market because they are rare, and investors refer to them as ‘hidden gems.’ These stocks are moving a step ahead of the formal stock exchange, and it is because these shares can earn you more profit enormously than listed stock. However, the fact is that investors are still unaware of these stocks and want to know how to buy unlisted shares in India.
Here in this guide, we’re going to confabulate with unlisted stocks and best practices to pick the high return stock for you. Stride along with this article. We’ll start from scratch.
What Is Unlisted Stock? A Brief Overview
Unlisted stock are securities of financial instruments that are not available on the stock exchange. Security and Exchange Board Of India (SEBI) regulates the unlisted share market and therefore, the market pricing and disclosure are transparent. That’s why the risk in investing is relatively less. Since unlisted shares are not available for public trading, buyers can only get them through intermediaries. Transparency and regulation are not available in the unlisted shares which makes them a little riskier.
How To Pick An Unlisted Share?
In order to buy unlisted shares in India, there are a few tips you need to take into consideration before buying them, which include:
Know who owns the shares
Before buying unlisted equity shares, you first need to know the ownership of these unlisted shares. Venture capitalists, employees, angel investors, start-ups, and intermediaries often provide these shares for trading publically. Therefore, you will have to use unconventional methods to invest in unlisted shares.
Find the valuation of unlisted shares
You know very well that unlisted shares are not available on the stock exchange, that’s the reason why these unlisted shares in India do not carry market value. How do they get value then? Well, unlisted shares get their value by using the concept of fair value. Promoters and investors of the company determine the value of unlisted shares in this step. It simply means the value of the shares may not be reliable as per your expectations. That's why it may be a little riskier for you to recognise.
Goals of the company
Another best way to pick the right unlisted share is to understand the goal of the company from which you’re buying unlisted shares. Basically, unlisted companies are small or new ventures that cannot comply with certain requirements like listing fees, market capitalisation, etc. So, make sure the company you’re buying unlisted shares from has good growth opportunities in the future to avoid risk.
Company’s board
When selecting the company to invest in unlisted shares, it’s very important for you to know the company’s board and management team. You should also read the annual report of the financial performance of the company and understand the valuation on the current market price. If the price is not efficient, we recommend you to deal with unlisted share brokers who can help you with company and market information and ensure the availability of stock.
Growth Potential Of Company
Before you pick an unlisted share, assess the company's growth potential. You should research its business expansion or new investment plans. It will also give a rough idea of the particular company's predicted growth in the unlisted share market. By doing this, you can select pre-IPO shares of companies with positive future growth plans.
Analyse Market Trends
You should analyse the market trends by getting better insights of the company via in-depth industry analysis, financial assessment, and understanding of its business model. Since the market demand and supply govern unlisted shares, analysing the current market trend will help you buy unlisted shares, which have a high potential to grow in price.
Factors That Might Affect Your Investment
Since investment in unlisted shares is a little informal way of buying and selling them, it is a little riskier investment. Nevertheless, investors like to invest in unlisted shares due to an opportunity to earn a low-risk and high -return, which isn’t easily available in listed shares in India. However, there are some factors that might affect your investment in unlisted shares. These facts include:
Liquidity risk
The first risk factor is liquidity risk. Believe it or not, liquidity risk is the biggest risk involved in any investment. It simply means you may not be able to sell your investment without making a significant loss in capital invested. You can’t buy or sell unlisted shares whenever you want to.
Less transparency
Unlike other listed companies that share public reports on investment and fluctuation of share prices, unlisted companies are not obliged to tell you everything no matter the number of shares you hold. Most of the decisions are taken by the promoter of the company therefore the lack of information may put your investment at risk.
Valuation risk
The next factor that can be riskier for your unlisted investment is the valuation of money. Most of the information in unlisted shares is either missing, absent, or not available on time. It simply means you may be paying far more for a share than its actual worth, or selling it for less.
Without any speck of doubt, risks come with every investment and unlisted shares are no exception. All the above-mentioned risks can easily be mitigated as you track the fundamentals of the company. Moreover, we suggest you trade with high reputed dealers and do as per their advice.
Company's Performance
One of the prominent factors that might affect your investment in pre-IPO shares is the company's current and future performance. Whether it's financial performance or market share, you should consider every possible risk and plan your investment in the unlisted shares per your risk appetite. You can perform an in-depth analysis of a company on Stockify.
Timeline of IPO
Since the Securities Exchange Board of India(SEBI) doesn't directly regulate the unlisted share market, your investment might be prone to high risk. A delay in the IPO of the company might affect your investment in pre-IPO shares. It is recommended to stay updated with the existing and new regulations for trading in unlisted shares or get guidance from unlisted share brokers in India for profitable investment.
Stockify’s Best Pick!
Stockify is known to be the best broker to buy unlisted shares in India that provides investors access to stocks of unlisted companies in India through the pre-IPO (initial public offerings) route. We help clients maximise their wealth by investing in unlisted shares in India. If you’re looking for the best-unlisted shares brokers in India, let Stockify help you maximise your return on unlisted shares. Whether you’re an investor looking to invest in unlisted shares or a small firm to sell unlisted shares, we help you build a successful long-term relationship.
