Is it Okay to Buy Unlisted Shares? A Deeper Look at the Subject

Due to the country’s rapid increase in the number of retail investors and the high market valuations, investors are pursuing alternative investment strategies in search of higher returns. Investments in unlisted shares are receiving more and more inquiries. However, this market is a minefield, making investment exceedingly perilous unless investors take tremendous caution.

Securities or financial instruments that are not listed on the stock market are known as unlisted shares. The risk associated with investing is comparatively lesser because the stock market is tightly controlled by the SEBI and market pricing and disclosures are open. The unlisted space lacks this transparency and regulation.

As a result, before making an investment in this market, investors must find a trustworthy unlisted shares dealer.

The Risk factor Involved

The profits on investments in unlisted securities can be very high if they are made carefully and at the proper moment. Companies occasionally sell their shares to AMCs or brokerages, who then resell them to high-net-worth people for a profit (HNIs). Gains from listing may be substantial for all.

Investors need to be aware of the fact that it is precarious to buy unlisted shares. A capital loss is always a possibility. Investors risk losing all of their money if they make investments without doing their due diligence on the firm’s finances and the caliber of the promoters. To attract funds from credulous investors, promoters have frequently provided insufficient information about a company’s fundamentals.

  • The lack of liquidity is a significant issue in the unlisted market. Finding buyers and selling the securities would be challenging if the investor needed money.
  • In the listed market, quality stocks may always be sold and turned into cash, even during a down market. As a result, only capital that investors won’t need for a long time should be put into unlisted shares.
  • Investing in unlisted securities also involves unfavourable tax implications compared to listed shares. Short-term capital gains tax is applied to unlisted shares that are sold within 24 months of purchase. Long-term capital gains are taxed at 20% with incentives for indexation if sold after 24 months.

What Can be Done?

AIFs, which invest in venture capital, private equity, real estate, and hedge funds, would be a better choice if you wanted to invest in this market.

AIFs have qualified staff members who are capable of performing due diligence and evaluating the chances of a potential investment. Comparing this option to individual investors directly investing their money in unlisted assets, it is less risky and perhaps more lucrative.

The unlisted market should only be entered by investors who are capable of doing a thorough and in-depth research of a company’s fundamentals. Others may find listed shares to be a safer and preferable alternative, either directly or via a mutual fund.

Only the best corporate executives and financial experts understand and are willing to invest in unlisted shares, making these securities obscure and covert. These are undiscovered gems that provide brave investors an alternative to smaller public stocks and secure repeating plans for their investments.