Is it OK to invest in unlisted shares
Along with changing times, investment patterns have changed too. Individuals today aren’t afraid to take risks in exchange for optimistic returns. An alternative investing route, also known as the Unlisted Market has drawn more attention than ever. Continue reading to gather an in-depth understanding of what this platform means to you as an investor.
In this article, we will cover the types and advantages of buying unlisted shares, as well as the distinctions between listed and unlisted shares.
What are unlisted shares
As the name suggests, these shares are financial securities not listed on any formal stock exchange because they do not meet (or want to meet) the listing requirements. Unlisted stocks or Pre-IPO shares are traded on Over-the-counter (OTC) platforms. OTC securities are not restrained by any regulatory authority, however, they are still governed by the Companies Act.
Basically, unlisted shares are private companies that are yet to go through the IPO process. These investments are known to reap high benefits. As a plus point, you get access to numerous creative and cutting-edge ventures.
Comparison between Listed and Unlisted Shares
Now that we understand the meaning let’s dive deep into the key areas that set unlisted shares apart from the listed ones.
Listed securities are available to all on stock exchange platforms, while unlisted companies are specifically traded Over-the-counter(OTC).
IPO shares are publicly traded, which is why their liquidity rate is high. On the other hand, there is no open market for unlisted shares; hence the liquidity rate is low.
Unlisted shares go through minimal compliance as compared to listed shares. Therefore, the risk is high. However, unlisted shares make for good ROI.
Listed shares are public and have many stakeholders. Unlisted companies are primarily acquired by private investors, known peers, angel investors, etc.
Types of Unlisted shares
There are many types of unlisted shares, Capital Stock is the most commonly traded financial instrument. Other types include Product Derivatives, Government securities, Penny stocks, and corporate bonds. Amongst all these, Penny stocks are known to be highly illiquid.
Advantages of buying Unlisted Shares
There are a lot of advantages to investing in unlisted shares, below are some of the most beneficial ones:
Unlike listed shares, here share price seldom fluctuates. Since the liquidity rates are low, the community is closely knit, and the investors are limited too. Which often leads to undervaluing of shares. If one is lucky, one can strike the iron while it is hot and earn eye-popping returns.
Unlisted shares can be a splendid route to diversify your portfolio. At the same time, the return rates are slightly better than listed shares. Later, if the company decides to go public, this investment can truly work in your favor. If done with precise knowledge, unlisted shares can be a lot more lucrative.
Investment Growth Opportunity:
Unlisted firms are usually startups that are yet to reach their full potential. Such ventures are likely to be smaller in size. Also, they might not be at a stage where they can go public to fulfill their capital requirements. In the long run, investing in such a company’s growth can lead to great returns.
1. Can I sell unlisted shares after listing?
No, Pre-IPO shares have a lock-in period of 6 months. This means that you cannot sell the shares until six months from the date of listing.