An offering of shares in a company before its Initial Public Offering. An unlisted security is a financial instrument that is not traded on any of stock exchange, but through over-the-counter (OTC) market, that is between a buyer and seller of the security, who enter into an offline transaction i.e either direct or through any intermediary.
Past or present employees who got these shares in ESOP’s (Employee Stock Option Program), existing shareholders (vendors etc) of any holding company or promoter and people close to promoters who have been holding the equity since company formation.
Yes, these shares are sold in Demat format and gets credited into your existing Demat account once bought. If you don’t have one, we can help you open the same.
Yes its legal as the shares gets transferred through either NSDL or CDSL, the 2 primary depositary participants in India.
- Confirmed Allotment or access to a sizable quantity. Buying the shares beforehand means that you don’t have to put your hopes on a lottery. As most good IPO’s get over subscribed by 50-100 times wherein investors either does not get allotment or get the same through a lucky draw, HDFC Life,HDFC AMC,CSB Bank are few such examples).
- Discounted Valuations when compared to their Listed Peers.
- Lower Volatility as these stocks are isolated from the stock market, they are immune to investor panic.
- First Mover Advantage of Investing in High Growth Companies with sound management, disruptive business model & an economic moat which otherwise has been a prerogative of large Institutional or Private Equity Companies.
- Low Entry Barrier in terms of Capital Investment that starts from Rs 1 lac
- Proxy to PMS and AIF (which are concentrated portfolios of 15-20 stocks) where the minimum investment starts from Rs 50 lacs and Rs 1 cr respectively. Here you can create a PMS type portfolio of Rs 5/10 lacs without paying any AMC( Annual Maintenance Charges)
- Asset Allocation & Diversification, Though investing in Unlisted space is little risky because of liquidity, yet a 10-15% allocation of portfolio in these securities can give a decent alpha to your portfolio and can fetch far superior return than any other financial asset over a 3-5 year period thereby creating Long Term Wealth
Minimum 2 to 5 years depending upon the IPO/ Listing date and any major private equity investment by any Large Private Equity Player which leads to a decent price rise. Most pre-IPOs take 2/3 years to get listed as it involves taking shareholder approval, getting internal processes in order, hiring merchant bankers, filing DRHP, getting SEBI approvals etc. Though minimum recommended time horizon is from 3-5 years to fetch decent return from such securities
For Example Warren Buffet’s Company’s Berkshire Hathway first Indian Investment went into PayTm, leading to a 20-30 % price rise in its unlisted shares & Prem Watsa managed CSB Bank which was available in Pre-IPO between Rs 160-Rs 185 came out with an IPO @ Rs 195 and got listed at Rs 280 (40% premium to issue price)
When the company floats an IPO, the existing shares of that company will go for a lock in period of 1 year i.e. You cannot trade/sell shares for 1 year after IPO listing. If the company doesn’t files for an IPO and only listing of that share happens without an IPO, then there is no such lock-in period.
Though one can sell such shares offline (depending upon the availability of the buyer) to a specific buyer, and that must happen before the company comes with an IPO and allots shares.
Not guaranteed, though the returns can be multifold depending upon your holding period, the longer you hold the more you earn. Though it can vary anywhere between 20-30 % per annum as per historical data and a series of past events.
LIQUIDITY RISK, wherein you may not get immediate exit at your desired price, as the holding period for these investments is a little longer, and there is a possibility of IPO may getting deferred than the anticipated time line.
COUNTER PARTY RISK, You need to be very cautious while dealing with the seller or intermediary, because at times there may be a possibility that you transfer money into the bank account of any unknown intermediary or seller and still not get the credit of shares into your DMAT account.
Unlisted shares sold in less than 24 months, you would be charge Short Term Capital Gain as per your normal income slab & if the same is sold after 24 months though before IPO Long Term Capital Tax would be charged @ 20% on the booked profits with indexation & @10% without indexation. Post listing, by default LTCG would be charged @10%.
You can view these unlisted securities in the DP Holding Statement of your DMAT account. The statement would not reflect the price.
Quantity is subject to availability of stocks and prospective sellers. You need to check for the quantity either with the seller or the intermediary.
There is no major change in the prices of these securities on regular or short time intervals. Alike the listed stock markets, the change in prices is a function of demand supply depending upon the number of sellers and buyers in the market along with events like company’s quarterly/annual results, any strategic expansion, or any large Private Equity Player buying stake in the company.
Recent Examples of large scape Private Equity Investments being made in likes of Flipkart,Paytm,Ola,Bira etc.The unlisted shares of these companies saw significant price appreciation and demand post such PE investments.
Self-Attested scanned copy of Pan Card and Adhar Card, Client Master from the company where you hold a D Mat account along with Cheque copy of the bank from where you will transfer funds.
We will help you find a buyer however, we do not guarantee the same. You are also free to sell these shares on your own.
Any company which has more than 100 shareholders can pass a Board resolution and get its shares dematerialised with NSDL/CDSL.