Unlisted Shares

Unlisted shares are the company's shares that are not listed on stock exchanges. These shares are traded over-the-counter.

Unlisted shares are those shares of a company that are not listed on stock exchanges. They normally are traded over-the-counter (OTC), either between two related persons or through a broker dealing in unlisted securities.

• Pre-IPO Shares: Those shares issued by companies which are going to be listed.
• Delisted Shares: The shares that were once in public trading but are not valid for trading anymore due to delisting rules.
• Private Placement Shares: Shares issued from private placements.
• ESOP Shares: Shares given under employee stock ownership plans.
• Shares held by Group Shareholders: Shares possessed by share-holders of private companies.

• Early Investment Opportunities: You have the opportunity to invest in a company at an early stage.
• Secure Allotment: No worry about IPO allotment after a company declares its IPO.
• High Return Potential: There can be better returns than listed stocks.
• Diversification: It provides an opportunity to diversify your investment portfolio.
• Dematerialized Form: Unlisted shares are traded in electronic form and kept in a demat account.

• More Risk: These shares are not controlled by stock exchanges, hence are riskier.
• Longer Time for Buying and Selling: It takes longer for buying and selling.
• Issues with Liquidity: Unlisted shares tend to have lower liquidity.
• Increased Investment Threshold: Minimum investment is generally higher.
• Limited Number of Dealers: There are limited brokers through which you can complete transactions.

Buying unlisted shares is usually advantageous if you expect long-term gains.

Unlisted shares are bought from brokers, dealers, or direct sellers specializing in such securities. Intermediaries source and place unlisted shares by mediating trades. Brokers tend to buy shares from employees (via ESOPs), existing investors, or promoters and sell them to new investors.

Investment Methods

• Invest in startups using intermediaries.
• Buy ESOPs directly from employees.
• Invest in shares offered by company promoters.
• Invest in AIF (Alternative Investment Fund) and PMS (Portfolio Management Service) schemes that handle unlisted shares.

Brokers for Unlisted Shares

There are a number of brokers in India who handle unlisted shares. The orders can be given through internet, phone, or mail. These shares are traded in demat form.

Exit Strategies

One can exit unlisted shares at any time but will need to look for a buyer. Due to the illiquid nature of unlisted shares, it can take weeks to exit.

• Selling over the counter to another buyer.
• Selling via an unlisted shares dealer.
• Company buyback.
• Takeover of the company by a listed entity.

Lock-in Period

Unlisted shares, except for Pre-IPO shares, do not carry a lock-in period. Once you buy them, you can sell them after you get a buyer.

For firms declaring an IPO, Pre-IPO shares have a six-month lock-in period from the date of listing. You cannot sell these shares during this time.

The tax on unlisted shares varies based on the period of holding prior to sale.

• Short-Term Capital Gains (STCG): Unlisted shares sold within 24 months from purchase are short-term gains and are taxed on the basis of the concerned tax slab of the taxpayer.
• Long-Term Capital Gains (LTCG): If the shares are held for over 24 months prior to sale, the gains are long-term. Long-term capital gains on unlisted shares are taxed at 20% with the advantage of indexation (inflating the purchase price).

PMS (Portfolio Management Service)

PMS is a financial institution service that professionally manages an investor's portfolio according to their risk tolerance and financial objectives.

It has an associated fee for the management service.

Investments are diversified into various asset classes such as equities, mutual funds, and bonds with the objective of giving both growth and income to the investor.

Most PMS providers also provide access to unlisted shares as one of their investment choices.

AIF (Alternative Investment Fund)

AIF is a group of funds managed by professional fund managers, where funds from different investors are combined and invested in alternative assets like real estate, commodities, hedge funds, and unlisted shares.

AIFs invest in asset classes other than traditional equities and debt.

These funds generally adopt a high-risk, high-return investment strategy.