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Explore how unlisted shares work, the different ways to invest in them, and important considerations for investors in India.
Unlisted shares have gained traction among investors exploring equity investments beyond public stock exchanges. These shares represent companies that are not listed on formal exchanges like NSE or BSE. Investors often consider them for early access to growth-oriented businesses or diversification.
Unlisted shares are equity securities that are not traded on recognised stock exchanges. These shares are typically offered by privately held companies, start-ups, pre-IPO entities, or government-backed firms awaiting listing.
Various organisations offer unlisted shares under different business contexts:
Private limited companies
Government companies pending disinvestment
Pre-IPO companies
Start-ups
ESOP-driven entities
Here are the characteristics that make unlisted shares distinct from listed ones:
These shares are traded over-the-counter or via intermediaries instead of open stock exchanges.
Unlike listed stocks with real-time market pricing, unlisted share prices are set through negotiations, recent funding rounds, or internal company valuations.
Though not listed, unlisted share transactions must comply with applicable SEBI rules and provisions under the Companies Act.
The factors given below are what attracts investors to this lesser-known segment of equity investing:
Investors may gain access to businesses with strong growth potential before they go public.
Unlisted shares provide alternative exposure outside conventional capital markets, aiding portfolio diversification.
Start-up employees and shareholders often use unlisted platforms to monetise employee stock options.
Evaluate the potential downsides given below before making any investment decisions:
As these shares are not exchange-traded, finding buyers or sellers may take time.
Privately held companies may not disclose data as frequently or in as much detail as listed firms.
The absence of daily pricing leads to subjective valuations and potential overpricing.
Investors must comply with capital gains tax rules and regulatory conditions governing unlisted securities.
Here are the different channels and processes for purchasing unlisted shares:
Specialised financial platforms offer access to unlisted stocks, subject to investor verification, KYC, and onboarding.
Investors can directly purchase shares from promoters or employees wishing to liquidate holdings.
Authorised dealers connect potential buyers and sellers in private transactions.
Certain PMS schemes allow exposure to curated unlisted equity baskets under regulatory guidelines.
Following is a step-by-step guide on how a typical transaction works:
Start by evaluating the financial strength, performance history, and ownership structure of the target firm.
Connect with verified market participants authorised to deal in unlisted shares.
Formalise the transaction through share transfer forms, supported by payment confirmations and identity checks.
Post verification, the shares are credited to your demat account by the depository participant.
Valuation depends on multiple parameters rather than just market forces:
Recent funding round valuations
Financial performance and earnings
Comparable company analysis
Liquidity and shareholding demand
Understanding how capital gains from unlisted equity are taxed in India:
Short-term: Held for less than 24 months
Long-term: Held for 24 months or more
Short-term Capital Gains: Taxed as per applicable income slab
Long-term Capital Gains: Taxed at 20% with indexation benefit
Find out how and when you may be able to sell these shares:
Many investors choose to sell shares to other interested parties through off-market transactions.
Buybacks, strategic mergers, or company acquisitions may trigger liquidity events enabling shareholders to exit.
In the event of an IPO, unlisted shares become listed, offering an opportunity for exit through secondary markets.
The legal and compliance framework surrounding unlisted equity transactions:
All unlisted equity transfers must comply with investor protection regulations issued by SEBI.
Cross-border shareholding transactions must adhere to FEMA (Foreign Exchange Management Act) and RBI guidelines, particularly in cases involving NRIs.
While not a recommendation, unlisted shares may appeal to informed investors with higher risk appetite:
Investors with long-term horizons
Those who understand private markets
Individuals capable of conducting due diligence independently
Key considerations to keep in mind when investing in unlisted shares:
Check company’s latest financials and shareholder agreements
Validate source and authenticity of the shares
Understand lock-in periods, if any
Ensure your demat account can hold unlisted securities
Unlisted shares offer a unique investment route for those looking to explore equity outside traditional markets. While they provide an early-stage entry into potentially high-growth companies, the risks are also higher due to liquidity constraints and limited data disclosures. Prospective investors should always conduct due diligence, understand valuation dynamics, and comply with regulatory norms before participating.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Listed shares are traded on public stock exchanges, while unlisted shares are privately held and traded through alternate channels.
No. A demat account is essential for holding and transacting in unlisted equity.
Unlisted investments carry more risk than listed equities due to limited liquidity and less regulatory scrutiny.
You can track news articles, analyst reports, or funding data where available. Most companies do not publish regular earnings.
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