How To?

How to Buy Unlisted Shares in India

Personal Finance

The Securities and Exchange Board of India (SEBI) constantly monitors and regulates listed shares, giving them a safety label. Unlisted shares, on the other hand, provide enormous potential for exposure and growth, but they also carry their own set of hazards.

Like you, countless people in India know the value and potential of unlisted shares but need help figuring out how to start. Many people like you invested when the idea of unlisted shares arrived in India and lost money to con artists. Today’s environment, where scams abound on nearly everything, makes it challenging to distinguish between real and bogus information.

This post is for you if you wish to learn more about unlisted shares and how to purchase them.

Unlisted Shares: What Are They?

Any security or financial instrument that can be traded on over-the-counter markets is referred to as an “unlisted share” and is also referred to as an “over-the-counter” (OTC) security. Unlisted businesses typically do not trade on a recognised stock market. It is because smaller or more recent companies either don’t want to or cannot meet requirements like listing costs and market capitalization.

Different Kinds of Unlisted Shares

Stocks are the most prevalent category of unlisted financial instruments, and the majority of these trade on the OTC market. Additional unlisted financial components include:

  • Penny Stocks
  • Corporate Bonds
  • Government Securities
  • Derivative products such as swaps.

How do you buy shares in unlisted companies and invest in them?

The following are some of the methods for investing in some of the best and most well-known unlisted shares in India:

Putting money into new start-ups and intermediaries

A company in the pre-IPO stage may not be listed today but will be listed tomorrow. You can participate in pre-IPO companies since the shares are sent straight to your Demat account, even though the transaction is off-record and the exchange is not involved. When choosing a trustworthy intermediary, your only concern should be finding someone to help close the business while reducing counterparty risks.

You can also invest in start-up companies that are not publicly traded but have the potential to develop in the future. Although many people are unaware of these businesses, India is home to several that could soon start making money and demonstrating their growth. The minimum amount is typically about Rs. 50,000 in start-ups, which is placed into your Demat account.

  1. Purchasing ESOPs straight from employees

Directly coordinating with the personnel of unlisted companies is another approach to purchasing shares and stocks in India. In India, some brokers may put you in touch with start-up personnel who are prepared to sell their firm’s shares for a predetermined price. Usually, it occurs after the prescribed amount of time has passed.

  1. Purchasing securities straight from promoters

Currently, there is a thing called a private placement. It occurs when you are about to stake a sizable sum of money in a business. In this case, you should speak with a reputable investment banker, wealth manager, or broker who can advise you on purchasing an unlisted share. Even the share price of the specific firm in which you are interested can be disclosed by them. Additionally, they can put you in touch with the company’s promoters so you can directly purchase its unlisted shares.

  1. Invest in PMS and AIF plans that buy shares that aren’t listed.

A portfolio management system, or PMS, is a professionally managed investment portfolio. To maximise the investors’ net returns, the portfolio manager, in this case, makes dynamic changes to the balance and composition of the portfolio based on market trends. Many PMS programmes choose Indian unlisted shares as a component of their investment plan. You can benefit from PMS and capitalise on the situation by investing in it. In many scenarios, it is much safer than buying it directly from an employee or a promoter. Some of them are:

  • It is easier for you to spread out the risk among several components of your portfolio instead of just one.
  • Since a portfolio manager will be involved in this situation, they will dynamically add or remove equities depending on their performance.

Unlisted shares come with risk factors such as:

Unlisted shares may entice you with the potential for increased profit and growth, but they also come with considerable risk. Some of the dangers include the following:

  • Lack of liquidity
  • Loss of capital
  • potential for missed dividends
  • risk of dilution

Therefore, it becomes crucial to use good judgement when making investment plans.

Things to take into account when purchasing unlisted shares

Easy money often seems fantastic, but remember that the money you are investing is your hard-earned cash. Below are a few points to remember before purchasing an unlisted share.

  • Always approach an experienced person to discuss investment.
  • Conduct an unbiased analysis and extensive research on the company or start-up in which you wish to invest.
  • Invest in those unlisted shares that show potential to grow in the future instead of those that may have a fluctuating trend.
  • Look for a company with no hidden charges or tricks.
  • Ensure your transactions are smooth and legitimate.
  • There should be a fast turnaround time. The amount should be credited to your Demat account in a short time or at a fixed time.

If it is your first time investing in an unlisted share, do background checks on where the big investors are investing and making money. Initially, you can start by investing at the same place until you learn the skills of the trade.

Key Conclusions

Investing in unlisted shares, which are financial instruments that belong to a firm but are not traded publicly on the stock market, is risky. As was mentioned, there are various unlisted share types you could consider investing in, depending on your situation and preferences. But before making any investments, be aware of the hazards involved and speak with an expert in the market.

Do read more such articles to learn about buying unlisted shares on Piramal Finance.