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Unlisted shares are the shares of the company that are not listed on stock exchanges. These shares are traded over-the-counter.
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Unlisted shares are the shares of the company that are not listed on stock exchanges. These shares are traded over-the-counter between two people who know each other or through a broker who deals in unlisted securities.
The unlisted shares include the following:
Unlisted Shares Advantages
Unlisted shares Disadvantages
The purchase of unlisted shares can be made through brokers, dealers, or direct sellers who specialise in sourcing and placing unlisted shares and can facilitate trades. Intermediaries buy shares from employees, such as under employee stock options (ESOPs), from existing investors and offer shares to new investors who wish to invest.
You could also invest in unlisted shares using methods like:
There are a few brokers who deal in unlisted shares in India. You can place an order online over the phone call or by email to the broker for the shares you want to buy or sell. Trading in unlisted shares is done in Demat form.
You can make an exit from the unlisted shares at any time, provided you find the buyer. Note that liquidity in unlisted shares is a challenge and it may take a few weeks to exit. Some of the ways you can exit unlisted shares are listed below:
There is no lock-up period for the unlisted shares expect for the Pre-IPO shares. You can sell the shares at any time after you have bought them if you have found the right seller.
There is a lock-in period of six months if you have the shares of a company that announces an IPO and is getting listed on the stock exchange. You cannot sell such shares for six months from the date of listing. Such shares are known as Pre-IPO shares.
The unlisted shares holding period decides the capital gains tax rate.
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Unlisted Shares |
Listed Shares |
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Traded over the counter. |
Traded on recognized stock exchange |
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Illiquid market. |
Higher Liquidity. |
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Unregulated but governed by Companies Act. |
Regulated by SEBI. |
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Risky investment. |
Less risky. |
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Difficult to enter and exit. |
Easy to buy/sell. |
PMS (Portfolio Management Service)
PMS is a service provided by financial institutions to professionally manage the investment of investors as per their risk tolerance and financial goals.
The PMS are provided against a fee. The investments are diversified across various asset categories like Equities, Mutual funds, bonds that may take of growth and income of investors. One such investment category that many PMS provide is access to unlisted shares.
AIF (Alternative Investment Fund)
AIF is a funds managed by professional fund managers wherein the money is pooled from investors and invested in real estate, commodities, hedge funds, unlisted shares etc.
AIF deploy funds in investment categories beyond Equities and debt. AIF involve high risk return strategy.
Unlisted shares are shares of companies that are not listed at stock exchanges. They are traded over-the-counter without the involvement of a recognised stock exchange.
Note:
Yes, it is legal to buy unlisted shares. However, one must be cautious when investing one's money as the market for unlisted securities is illiquid, risky and unregulated.
No, once a company is listed, its shares can be traded on a recognized stock exchange.
When a listed company issues new shares, it may be in the form of a follow-on public offering, bonus or rights issue. They are part of the primary market and are not traded as unlisted shares.
You can sell the unlisted shares in one of the following ways:
It is a good idea to buy unlisted shares provided you have analysed and researched the company you want to invest in.
The unlisted shares help in diversifying the investments. Also, invest surplus funds that are not needed immediately, as the waiting time to receive the expected return on unlisted shares can be long.
You can buy unlisted shares through brokers or dealers.
Steps to buy unlisted shares:
You can also buy the unlisted shares if you find a buyer directly who wants to sell his shares.
The unlisted shares are dealt over the counter.
Unlisted shares are the shares of startups, employees, promoters, IPO aspirant companies. Unlisted shares can be bought or sold directly or through brokers who specialize in trading unlisted shares.
The minimum ticket/lot size for investing in unlisted shares is slightly higher. You can check the price at which the unlisted share is trading and then agree on a price that suits both parties.
Unlisted shares are those shares which are not yet admitted to public trading on the platform of a recognised stock exchange/exchange. Unlisted shares include the following:
Listed shares are shares that can be publicly traded on the stock exchange, while unlisted shares can be traded over the counter.
Features of listed shares:
Features of unlisted shares:
Unlisted stocks offer investors the opportunity to invest in early stage companies. You can invest in start-up or pre-IPO companies that have good prospects. Since you are investing at an early stage, there is a possibility of earning high returns if the company flourishes later on.
It is very important to analyse and study the company you want to invest in and be clear about your financial goals, as unlisted shares generally have a longer time horizon to generate the expected returns.
Unlisted shares are traded through brokers who specialise in trading unlisted shares. Trading in unlisted shares is usually done through telephone calls and is described below:
Note: The price quoted by brokers is usually net of all charges, i.e. commission and stamp duty.
You can contact the broker through whom the shares were purchased or find another broker through whom you wish to trade.
Steps to sell the unlisted shares:
Note: Unlisted shares cannot be sold immediately after listing, as a lock-in period of 6 months applies after listing.
You can buy unlisted shares in India through a broker who facilitates or specializes in unlisted shares trading.
Steps to buy unlisted shares in India:
The long-term capital gains (LTCG) on unlisted shares becomes applicable when such stock is sold after a holding period of 24 months.
LTCG on unlisted shares is taxed at a rate of 20%, with the indexation benefit. The indexation benefit helps to adjust the purchase price of the asset to the effects of inflation, so that the taxation is fair.
Let us take a simple example to understand the calculation of LTCG on unlisted shares:
An investor invested Rs 85,000 (170 shares purchased at Rs 500) in an unlisted stock ABC in August 2019. In March 2023, he sells the stock at Rs 650 and receives Rs 110,500. Since the holding period is more than 24 months, the gains would be taxed as LTCG at the rate of 20%. The investor gets the benefit of indexation.
To account for indexation benefit, investors should look for the Cost of Inflation Index (CII) that is published each year on the Income tax website and recalculate the purchase price of the stock. The CII for August 2019 is 289 and that for March 2023 is 331. Thus, considering the inflation over the years, the purchase power of the same stock in March'23 would be Rs 97352 (331 * 85000 / 289).
Thus, the LTCG of 20% would be applicable on 13,148 (110,500 - 97,352) instead of 25,500 (110,500 - 85,000)
Yes, the unlisted shares can be dematerialized. Nowadays, unlisted shares are traded only in dematerialized form.
If you hold shares in physical form, you should have them dematerialized because physical share certificates will soon disappear even for unlisted shares.
Brokers require the client master list of the demat account as one of the KYC documents when an investor wants to buy unlisted shares.
Yes, unlisted shares can be sold provided you find the right price and buyer.
Some of the exit strategies for unlisted shares that will help you sell your shares include :
However, once the Company announces an IPO, these shares become pre-IPO shares and are subject to a lock-up period of six months from the date of listing.
Unlisted shares are safe, provided they are purchased after proper analysis.
Investing in unlisted stocks involves some risk because, unlike listed companies, not much information is available about the company. However, if an investor is aware of the business overview, company prospects, and vision, it provides a very good opportunity to invest in unlisted stocks. The unlisted shares offer investors an early entry into the company at a reasonable price. If the company performs as expected, it can certainly reap handsome profits.
Yes, indexation is allowed on unlisted shares on long term capital gains.
Long-term capital gains are taxable at a rate of 20% on unlisted shares sold after a holding period of 24 months. Unlisted shares are ideally intended for long-term investment. Since the holding period is long, the indexation benefit is allowed to adjust the purchase price for the effects of inflation over the years to ensure fair taxation.
No, there is no STT applicable on unlisted shares.
The STT is the securities transaction tax levied on transactions that are traded on a stock exchange. Since unlisted shares are not traded on the stock exchange, the STT is not payable on unlisted shares.
Yes, stamp duty is payable on unlisted shares.
Stamp duty is mandatory on any transfer of shares from one account to another, regardless of whether the shares are listed or unlisted. The current stamp duty rate for the transfer of unlisted shares is 0.015% of the market value.
Unlisted shares offer investors the opportunity to earn good returns if they invest in the right stocks at the right time.
Unlisted stocks offer the following advantages :
Zerodha does not offer trading in unlisted shares, but you can buy unlisted shares in a Zerodha Demat account.
You can provide your Zerodha demat account details to the unlisted broker to receive credit for unlisted shares in that account. There are no restrictions on the use of the Zerodha Demat Account for holding unlisted shares. You cannot use Zerodha's trading account for trading in such shares as Zerodha is a broker registered with SEBI to facilitate trading of securities through the exchange floor.
Groww does not offer trading in unlisted stocks. However, you can use Groww's demat account to hold unlisted shares.
You can find out if the shares are listed or unlisted by using a stock exchange website or your trading platform.
To find out whether the shares are listed or unlisted, enter the name of the said share in the share search box on the BSE or NSE website, or enter the name of the share in the watchlist on your broker's trading app or on your web platform. If the name of the stock appears, the stock is listed, otherwise it is unlisted.
Yes, you can sell unlisted shares after listing post the expiry of lock-in period.
The Pre-IPO shares are subject to a lock-up period of six months from the date of listing. Once the IPO is announced, you cannot sell the pre-IPO shares immediately, either through an unlisted broker or through the stock exchange. You must wait six months after listing.
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| Link|November 6, 2024 6:59:04 PMReply
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