How to Buy Unlisted Shares in India?

Stock market listed shares are monitored by the Securities and Exchange Board of India's constant monitoring and regulations (SEBI). Although unlisted shares provide tremendous opportunities for growth and exposure, they also carry the risk of less stringent regulations. If such rapidly expanding opportunities stir up your interest, this will help you understand the advantages of investing in unlisted companies.

Definition of Unlisted Shares

Unlisted Shares are defined as shares that are not listed on a stock exchange.

Unlisted shares, also known as over-the-counter (OTC) securities, are any security or financial instrument that is available for trade on over-the-counter markets.

Unlisted companies generally do not trade on any formal stock exchange. This is because smaller or newer firms do not want to or are unable to comply with certain requirements such as listing fees, market capitalization, and so on.

Unlisted Financial Instruments: What Are They?

The common stock is the most common type of unlisted financial instrument. The majority of these unlisted stocks are traded on the over-the-counter (OTC) markets. Among the other instruments are:

·         Penny Stocks

·         Corporate Bonds

·         Securities issued by the government

·         Swaps, for example, are a type of derivative product.

How Can You Make Money Trading Unlisted Stocks?

You can invest in stocks of some of India's top unlisted companies in a variety of ways. Among the most popular methods are:

Investing in new businesses and intermediaries

A pre-IPO company is currently unlisted but plans to go public in the future. You can invest in pre-IPO companies because the shares are delivered directly to your Demat account, even if the transaction is off-the-record and the exchange is not involved. The only thing to look for when selecting a trusted intermediary is someone who can successfully help you close the transaction while avoiding any counterparty risks.

You can also invest in unlisted start-ups with the potential for multi-fold growth in the future. These companies may be off the radar right now, but they have the potential to bring profits and growth in the future. Most start-ups require a minimum investment of around Rs 50,000 to have the stocks transferred into your Demat account.

Purchasing ESOPs from employees

Some brokers connect you with employees of organizations who sell their shares at a predetermined price after a set period of time. This is one method of purchasing shares in India's top unlisted companies.

Purchasing stocks from promoters

To invest a significant stake in a company, contact a reputable investment bank, wealth manager, or broker who can teach you how to calculate the share price of an unlisted company. They will also help you connect with the business promoters and introduce you to a list of unlisted companies in India in 2020-21. Private placements are the term for such transactions.

Invest in PMS and AIF schemes that acquire unlisted stocks.

Portfolio Management Systems, also known as PMS, are professionally managed investment portfolios. In this case, the portfolio manager changes the weight and composition of the portfolio dynamically based on market trends in order to maximize the net returns of the investors. Investing in unlisted shares in India can be beneficial through PMS schemes that include unlisted shares in their financial strategy. This is far more secure than direct purchase because:

You can spread the risk across the portfolio's components.

Based on the performance of the stocks, the portfolio manager dynamically removes and adds them.

While investing in unlisted shares can be advantageous, it also carries a high level of risk. The risks are as follows:

·         Illiquidity

·         Capital depletion

·         There is a chance that dividends will not be paid.

·         Dilution risk

As a result, before investing, make wise investment decisions and consult with an experienced and trusted wealth manager.

Important Takeaways

An unlisted share is a security or financial instrument issued by a company that does not trade on the stock exchange.

Common stocks, penny stocks, corporate bonds, government securities, and derivative products are examples of unlisted stocks.

Investing in start-ups and intermediaries, purchasing ESOPs directly from employees or promoters, or investing in PMS and AIF schemes that pick up unlisted shares are all ways to invest in India's top unlisted companies.

The risks include illiquidity, capital loss, dividend omission, and dilution.