There is a plethora of companies that are not listed on any formal stock exchange. But you can buy and sell the shares of these companies in several ways.
What are Unlisted Shares?
Unlisted shares are financial instruments or securities that are not listed on a stock exchange. They can be bought and sold over-the-counter and are known as OTC (over-the-counter securities). While investing in listed companies is regulated by SEBI (Securities and Exchange Board of India), trading in unlisted shares is unregulated and therefore involves higher risks. However, investment in unlisted shares can give you access to new-age businesses and may be a source of profitable returns for you.
If you are interested in buying unlisted shares, it is essential to understand how to buy unlisted shares, as discussed in this article.
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Types of unlisted financial instruments
General equities or stocks are the most common type of unlisted financial instruments. However, some other instruments that fall under the category include corporate bonds, penny stocks, government securities or derivatives such as swaps.
How to buy unlisted shares in India?
While you can invest in the shares of unlisted companies in several ways, some of the most common ways of investment include the following:
1. Pre-IPO companies
Investing in pre-IPO funds can offer you early exposure to some of the most promising companies. Pre-IPO companies are not yet listed but intend to get listed on stock exchanges shortly. Investing in these unlisted companies is easy. The shares are transferred directly to your Demat account despite the trade taking place off-record. But make sure you pick a trustworthy intermediary to stay safe from any investment risks.
2. PMS (Portfolio Management Service) or AIF (Alternative Investment Fund)
You can also invest in PMS or AIF schemes to gain access to unlisted shares. PMS is professionally managed, where the managers change the portfolio according to the market trends to maximise returns. On the other hand, AIFs are pooled funds that further invest in hedge funds, venture capital or private equity. Investing in these schemes can offer you exposure to unlisted shares and allow you to diversify your portfolio.
2. Startups
Investing in unlisted startups that are high on innovation may offer good returns in the future. While these companies may be currently off the radar, they have a high growth potential. The minimum amount you can invest in most startups is INR 50,000, after which the shares are transferred directly to your Demat account.
3. Buying from promoters
You can buy shares of unlisted companies directly from promoters. Many wealth managers and investment banks deal in these private assets. All you need to do is approach a trustworthy wealth manager, investment bank, or broker. They will introduce you to the best-unlisted companies in India and facilitate buying and selling of unlisted shares. The dealers and brokers also connect you with the promoters of the companies via private placements.
3. Buying ESOPs from employees
ESOPs (Employee Stock Ownership Plans) are employee benefit plans offered by companies. These plans provide ownership interest to employees and allow them to buy and sell shares in the company at a predetermined price. You can connect with such employees through brokers and buy ESOPs to invest in some of the best-unlisted companies in the country.
To sum it up
Now that you have a clear picture of how to buy shares of unlisted companies, it is also critical to know about the related risks with the investment. Unlisted shares are less liquid than listed shares as they are not traded on the stock exchanges. Additionally, the valuations of these shares are less transparent, and they may be more prone to market volatility. However, despite high risk, investing in unlisted shares can offer attractive returns when done correctly. Understanding market dynamics can help you make informed investments and achieve your goals. You can also consult a trusted broker or dealer to know how to buy and sell unlisted shares.
Buying and selling unlisted shares is not difficult when you know how it works. You can open a Demat account with Motilal Oswal today and venture into the world of unlisted companies.
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