Can You Invest In An Unlisted Company In India?

Investing in an unlisted company in India that has yet to register in any regulated public stock market is possible. These types of shares are generally not available publicly. Anyone wishing to buy unlisted shares must trade via the over-the-counter market known as OTC securities. To do the transaction directly, the buyer and seller connect through intermediaries.

However, there is more risk associated with unlisted share trading as the shares have less liquidity than the publicly listed shares. Also, it is not regulated by any authority, and only a little information is available about the company’s financial practices is available. But these are the hidden gems, as investing in a well-chosen unlisted share with growth potential can yield higher returns.

How to invest in unlisted shares?

To buy unlisted shares, you must trade through various intermediaries, as the shares are not publicly available. There are several ways to invest in an unlisted company in India, some of which are listed here:

• Purchasing from promoters directly- You can contact a reputable investment bank, wealth manager, or broker to understand how to determine the share price of an unlisted company if you want to invest a significant amount. Also, they will let you contact company promoters to purchase directly from them. It is also called private placement.
• Buying ESOPs from the employees- Companies offer their employees the shares at a special price. You can contact an employee who is interested in selling his ESOP.
• Investing in Startups- You can invest in early startups and Pre-IPO companies; these companies have growth potential. It involves investing capital in these companies in exchange for equity, and the shares will get credited directly to your Demat account without any involvement of the stock exchange.
• Investing in PMs and AIF schemes- Exposure to unlisted shares are obtained by investing in portfolio management programs that include unlisted shares in their investment strategy. Investors can indirectly access unlisted shares and profit from any value increases by investing in such systems.

The risk involved in trading

• Less liquidity- As the company is not listed, the share demand will be less; therefore, it would be difficult to sell these shares.
• Limited information- Unlisted companies do not have any regulation imposed over them, so they don’t need to disclose their financial information publicly, making it difficult for investors to examine the company’s growth potential.
• Stock Exchange Protection- The protection the holder of a listed share receives from the stock exchange is unavailable to owners of unlisted shares.

How is unlisted shares trading done?

Unlisted share trading refers to the buying and selling of shares of privately held companies not listed on any stock exchange. This type of trading is done through various mediums, such as over-the-counter (OTC) platforms, private equity firms, and stockbrokers. The process involves:

• Finding a buyer or seller interested in transacting the shares.
• Negotiating the price.
• Completing the transaction with the help of a legal advisor.

Unlisted share trading is often done by sophisticated investors looking for higher returns, but it can also be risky due to the lack of transparency and liquidity. Therefore, conducting thorough research and analysis is essential before investing in unlisted shares.

Benefits of unlisted shares trading

Unlisted shares trading offers various benefits to investors looking for alternative investment opportunities. One of the main advantages is the potential for high returns on investment, as unlisted shares often have the potential to increase in value rapidly. Additionally, unlisted shares trading offers more flexibility than traditional stock exchanges, enabling investors to buy and sell shares in smaller quantities and with fewer restrictions. This type of trading also allows for more personalized investment strategies, as investors can choose which companies to invest in based on their personal beliefs and values. Finally, unlisted shares trading can provide investors access to many companies and industries that may not be available on traditional stock exchanges.

Why do unlisted shares trade?

Unlisted or private shares are not traded on a stock exchange. They can still be bought and sold through private transactions despite being unlisted. There are several reasons why unlisted shares trade:

• Some investors may be interested in investing in a company that has yet to go public. They may believe the company has significant growth potential and want to get in early.
• Shareholders in private companies may wish to sell their shares for various reasons, such as diversifying their investments or needing liquidity.
• Companies may issue unlisted shares to raise capital without going public, which can be lengthy and costly.

Overall, unlisted shares trading provides an alternative investment opportunity for investors and a source of capital for companies.

Unlisted companies in India

Unlisted companies in India are not traded on any stock exchange and do not have public shareholders. These companies are often smaller, privately owned, and may need more access to capital and resources. However, they also have greater flexibility and control over their operations and strategy. Unlisted companies can be found in various industries, from technology startups to family-owned businesses. While they may have a different level of visibility than listed companies, unlisted companies can still be successful and profitable. They may offer unique investment opportunities for those willing to seek them out.

Benefits of investing in an unlisted company in India

Investing in unlisted companies in India can be a lucrative option for investors looking for higher returns. Unlisted companies are often new and innovative startups that have yet to go public. These companies are not listed on stock exchanges, so their shares are not readily available for trading. Unlisted companies can also offer higher returns than publicly traded companies, as they are not subject to the same regulatory requirements and can focus more on growth and expansion. Additionally, investing in unlisted companies can diversify a portfolio, as these companies tend to operate in niche markets or industries. Overall, investing in unlisted companies in India can be a viable option for investors willing to take on higher risks for potentially higher rewards.

Bottom line

However, there is a high-risk factor involved in unlisted share trading, so it is important to research the financial stability, potential for growth, and ownership group of the company before investing in it and always deal with trusted brokers or trading platforms.