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These days, many high-potential startups create massive wealth long before they get listed on the stock exchange. Brands we use every day, whether it is boAt, NSE, etc, often deliver extraordinary returns to their early investors. Yet, most retail investors believe that buying unlisted shares are reserved only for venture capital firms or big private investors.
The reality is different. With the rise of unlisted market in India, even individual investors can now participate in pre-IPO opportunities and buy shares of strong companies before they come to the stock market. But to benefit from this segment, one must understand what unlisted shares are, how they differ from listed stocks, the risks involved, and the right process to invest safely.
In this blog we’ll explain what are unlisted shares, how to invest in unlisted shares in India, and the differences between listed and unlisted stocks.
What are Unlisted Shares?
Unlisted shares are the equity of companies that are not listed on stock exchanges like BSE or NSE. These companies have not launched an IPO, so their shares cannot be freely bought or sold in the open market. Because they do not raise money from the general public, their ownership is usually held by private investors such as angel investors, venture capital firms, and private equity funds.
Unlisted companies generally fall into two categories:
- Subsidiaries of listed companies that themselves are not listed. For example, a parent company may be publicly traded, but its subsidiary continues to operate privately.
- Fast-growing new-age businesses such as boAt, or JIO that grow rapidly but remain outside the stock exchange.
How to Invest in Unlisted Companies in India?
Here is how you can buy unlisted shares:
- Unlisted Brokers
There are some platforms, such as Incred Money, Precize, unlisted zone, sharescart, etc, which can help you to buy and sell unlisted shares in India. Through these platforms you can buy unlisted shares of NSE, OYO etc.
- Direct Transactions
You can buy unlisted shares directly from current shareholders such as employees, early investors, or founders, through an authorised broker. These over-the-counter transactions are documented and legally safe.
- ESOPs Sold by Employees
Many employees sell their ESOP shares after they vest. Brokers or platforms help you connect with them and purchase these shares at a negotiated price.
- Angel Networks
If you want early exposure, you can join angel investor networks where members jointly invest in promising private companies.
- Through VC, PE, PMS, or AIF Funds
Instead of buying unlisted shares directly, you can invest in professional funds (VC, private equity, PMS, AIF) that include unlisted companies in their portfolio. This option provides diversification and expert management.
How to Sell Unlisted Shares in India?
Selling unlisted shares is harder than selling listed stocks because fewer buyers are available. Here are the common ways to sell unlisted shares:
- Sell via unlisted platforms
Trusted platforms connect sellers with verified buyers, handle price negotiation and paperwork, and complete Demat-to-Demat transfers.
- Private (OTC) transfer to a known buyer
If you have a buyer, an acquaintance, investor, or another shareholder, you can agree privately and transfer shares off-market through your Demat accounts.
- IPO
When the company lists, your unlisted shares convert to listed shares. After the SEBI lock-in period of 6 months, you can sell your share on the exchange.
- Buyback or tender offer
Occasionally, the company may buy back unlisted shares from investors at a set price, offering a direct and formal exit route.
- Acquisition / M&A exit
If a larger company acquires the firm, you may receive cash or shares of the acquirer, often a high-liquidity exit.
Advantages and Disadvantages of Investing in Unlisted Shares in India
- Early Entry Opportunity: Unlisted shares allow investors to enter a company before it goes public. Early entry leads to better wealth creation because valuations are generally lower in the pre-IPO stage. By the time an IPO opens, the price is already discovered and demand-driven. Unlisted investing gives retail investors a chance to access companies at an earlier and more attractive stage.
- Potential for Higher Returns: Before a company becomes popular, there is less noise, fewer news, and no hype-driven valuation. When a business gains visibility through media coverage, fundraising, or IPO, its value rises. Investors who enter during the quieter phase can benefit the most when the company lists or gains market recognition.
- Guaranteed Allocation: In IPO, applying does not guarantee that you will receive shares. In unlisted market, if you buy shares, allocation is assured, subject to availability and completion of documentation.
- Better Diversification: Unlisted shares help expand a portfolio into sectors or companies that are not yet listed on stock exchanges. Whether it is a fast-growing consumer brand, or a tech startup, unlisted equities offer access to unique opportunities.
- Lower Volatility: Because unlisted shares do not trade daily on exchanges, they are less affected by short-term market swings, news events, or sentiment. This makes the unlisted market relatively stable compared to listed stocks, especially for investors who prefer a less volatile experience.
- Valuation Risk: Unlisted companies often trade at valuations that may not match their actual financial performance. If the private valuation is inflated, the stock may list at a much lower value or in some cases, not list at all. This can lead to significant losses for early investors. Evaluating the fair value before investing is essential.
- Liquidity Risk: Unlike listed stocks, unlisted shares cannot be bought or sold instantly. Exit is possible only during IPO, buyback, a private transfer, or if the company is acquired. The timing and certainty of these events are unpredictable, so investors must be prepared to stay invested for a longer period.
- Lock-in Period: SEBI mandates a 6-month lock-in after listing for investors who hold unlisted shares before the IPO. This means you cannot sell your shares on the listing day, even if the stock lists at a premium.
- Limited Information: Listed companies disclose quarterly results, financial statements, and material updates as per SEBI rules. Unlisted companies do not follow the same level of transparency, so financial and operational information may be limited or delayed. This makes analysis and decision-making more difficult.
- Higher Transaction Costs: Buying unlisted shares through platforms or intermediaries often involves higher brokerage or processing fees and commissions as well. These charges increase your effective purchase cost and reduce overall returns.
- Higher Minimum Investment: Many unlisted shares require a comparatively large investment amount. As these deals resemble private placements, ticket sizes can be much higher than stock market purchases. This limits participation for small investors. Unlisted share prices depend solely on the seller’s quote, as there’s no transparent market. This often leads to prices that are much higher than their actual value.
Examples of Losses in Unlisted Shares
- HDB Financial Services’ IPO price band was fixed at ₹700–₹740, nearly 40% lower than its peak unlisted trades of ₹1,500+, causing big losses for investors.
- Similarly, in 2023, many retail holders of Reliance Retail’s unlisted shares saw values fall by around 60% after the company reduced its share capital. These examples show how volatile and unpredictable unlisted valuations can be.
Tax on Unlisted Shares in India
Here’s how LTCG and STCG work on unlisted shares.
| Type of Gain | Holding Period | Tax Rate | STT Applicable |
|---|---|---|---|
| Short-Term Capital Gain (STCG) | Sold within 24 months | Taxed as per your income slab | No |
| Long-Term Capital Gain (LTCG) | Held for more than 24 months | 12.50% | No |
Final Words
Unlisted shares offer early access to high-growth companies and strong wealth-creation potential, but they also come with valuation, liquidity, and information risks. Invest carefully, compare prices, and choose trusted platforms before entering the unlisted market. Hope you learn how to buy unlisted shares and taxes on unlisted shares.
FAQs on How to Buy Unlisted Shares
Is it illegal to buy unlisted shares in India?
No, buying unlisted shares is legal if done through registered brokers or recognised platforms that follow proper regulatory procedures.
Is it worth buying unlisted shares?
Unlisted shares can deliver strong returns, but they involve higher risk, limited liquidity, and less transparency. Suitable only for informed, long-term investors.
Can I sell my unlisted shares?
Yes, you can sell through unlisted share platforms, private transfers, or after the company gets listed on an exchange, subject to SEBI lock-in rules.
What is the minimum investment for unlisted shares?
The minimum amount depends on the company and broker, through some platform you can by unlisted stocks from ₹10,000.
Are unlisted shares taxable?
Yes. Gains are taxed based on holding period, short-term taxed at slab rate, long-term at 12.5%, with no STT applicable.
Can NRIs invest in unlisted shares?
Yes, NRIs can invest in unlisted shares. Most purchases are non-repatriable unless specifically reported to RBI for repatriable status.
Can retail investors buy unlisted shares in India?
Yes, retail investors can buy unlisted shares through authorised brokers, platforms, or private transactions with proper documentation.
Do unlisted shares offer dividends?
Yes, if the company declares dividends, unlisted shareholders receive them just like listed shareholders.
How to buy and sell NSE unlisted shares?
You can trade NSE unlisted shares through verified unlisted-share platforms, specialised brokers, or private OTC deals. After NSE lists, your unlisted shares convert to listed ones for regular market selling.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
