How to Invest in Unlisted shares?

Summary

Investing in unlisted shares bring lot of complexities and fear, however read the article till end where we have answered most of the questions and described a simple process of how to invest in unlisted shares.

Unlisted shares brief:-

Unlisted shares are those shares that are not listed on the stock exchange of India. These financial instruments are traded on the over-the-counter market and are also known as over-the-counter securities. The reason people invest in these shares is that they offer tremendous growth opportunities, diversification & early access to quality businesses. 

Why Invest in Unlisted Shares?

Investing in unlisted shares provides a lucrative opportunity for investors looking to diversify their portfolio and gain early-stage to high-growth companies. Here are some key reasons why one should consider investing in unlisted shares:

• Early stage growth potential:- Unlisted shares allow investors to invest early in high growth companies before their IPO. If later the company gets listed at a premium valuation then investors can gain higher returns.

• Lower valuation:- Unlisted shares are often traded at a lower value compared to their listed peers, also investors get pre-ipo companies valuation.

• Diversification benefits:- Unlisted shares possess negative correlation as compared to listed companies as seen in the case of NSE’s shares. Investor can reduce volatility in their portfolio by having some allocation in unlisted shares.

Now people might be wondering,

Can One invest in unlisted shares? 

Yes, definitely. There are various ways through which one can invest in unlisted shares, some of them are:-

1. Buy from Unlisted Share Dealers/Broker- Some investment firms and brokers specialize in trading unlisted shares like SharesCart.com, UnlistedZone.

2. Buy from Employees (ESOP Sales)- Many startup and private company employees receive Employee Stock Ownership Plan (ESOP) shares, which they often sell in secondary market to investors before an IPO.

3. Invest via PMS & AIF Funds- Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) invest in unlisted shares on behalf of HNIs, which provides professional management & access to exclusive pre-IPO deals.

Considerations Before Investing in the Unlisted Share Market:-

Investing in the unlisted share market can be highly rewarding, but it comes with its own set of risks. Here are some key considerations before making an investment:

1. Company Fundamentals:- Analyze the financial performance, revenue growth, and profitability of the company along with its corporate governance and management before investing.

2. Valuation & Pricing:- Unlisted shares are not regulated hence there can be price differences among brokers. Also check key financial ratios such as Price-to-earning (PE), Price-to-book (PB), Price-to-sale (PS), to check the valuation of the company.

3. Liquidity Risk:- Unlisted shares are not frequently traded, making it difficult to buy & sell them. One should look at trade volume to get an idea about the liquidity position the stock offers.

4. Exit Strategy:- One should plan their exit strategy via IPO listing, buyback, or private deals, in advance before investing in unlisted shares. Also check for lock-in-periods if any.

5. Tax planning:- One should be careful with their tax planning, since unlike mutual funds or PPF, investing in unlisted shares does not qualify for Section 80C deductions. Additionally the dividends received from unlisted shares are taxed as per your income tax slab.

How to invest in unlisted shares?

Investing in unlisted shares often looked as a complex process, however with Sharescart it is simple 3 step process:-

1. Explore & Select- 

Visit Sharescart.com and browse through the list of available unlisted shares.

2. Add Money-

Go to My accounts >> My holdings >> Add Money

3. Place your Buy/Sell order- 

Confirm your price & quantity & select Buy/Sell.

Once done your order ID is generated and shares will get transferred to/from your demat in next 12-24 hours.

Additionally, with sharescart you get an “Insta buy” option on selected stocks (NSE, TATA Capital) through which shares get transferred to your demat instantly.

Top unlisted shares to invest right now?

Investing in unlisted shares requires thorough analysis & due diligence about the company. Some of the top stocks to pick right now would be:-

1. National Stock Exchange (NSE):- NSE has showed tremendous performance in last 1 year with its share price surging over 95%. Additionally It is a leading stock exchange in india with over 90% market share in its industry. The recent announcement made on 24th march which highlighted the defreezing of NSE’s of its ISN’s, and making the shares transfer process done in a week as compared to 3-4 months which was the case earlier.

2. Tata Capital:- The esteemed subsidiary of Tata Group, Tata Capital the financial servicing arm has shown brilliant performance in the unlisted share market with its share price surging 3x in last 1 year. Also it recently filed its DRHP and is soon coming out with its IPO.

3. OYO:- The hospitality giant is witnessing positive YOY growth in its global operations, especially in UK. It is now tapping on to the premium segment with OYO Townhouse, OYO collection across India, UK, Middle east & Indonesia. Moreover it has recently turned profitable in FY24-25 in with a positive PAT, EBITDA & ROE margin. 

Read the full list here

Conclusion:-

Unlisted shares offer early growth potential and portfolio diversification but come with risks like liquidity and valuation challenges. With thorough research and trusted platforms like SharesCart, investors can navigate this market wisely for long-term gains.