5 Mistakes to Avoid While Investing in Unlisted Shares

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Before Investing in a Tech Startup IPO

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When you’re a new investor in an unfamiliar asset class, you have to be extra careful to avoid unnecessary losses. If you aren’t, you might end up making costly mistakes that will block your capital. Worse still, it might lead to opportunity costs and, in the case of shares being devalued, extreme losses. To avoid making such mistakes, we’ve made a list of the most common mistakes one makes while investing in unlisted shares:

1. Don’t Follow hat everyone else is doing. 

Make sure to conduct thorough research of the company before you invest in it. Remember, if you invest money in a company without being aware of its profitability or authenticity of the promoters, you risk losing every single penny because these are illiquid stocks. Moreover, in case the company does badly, it’s shares are hard to sell.

Also, if you find unlisted shares being sold by existing investors at discounted prices, don’t jump on the chance. There might be a reason for investors to exit these companies. Third-party companies like Unlistedkart offer you detailed reports about pre-IPO companies. These reports include financial statements, publicly available information about the company, directorships, and more. These will help you make informed decisions.

Related Article- Safety & Income Tax on Unlisted Shares 101: The Essential Guide

2. Assess the share value based on the company’s future prospects.

Since unlisted shares fluctuate considerably, you have to time your investment well. After preliminary research, try and invest at the correct price apart from investing in the right company. A high entry price can shave off the bulk of the returns in the short term at least.

3. Do not invest short-term (less than 3 years).

With most investors, the goal is to get rich quickly. Unfortunately, with unlisted markets, you need oodles of patience. The highest growth in capital takes place when you invest in the entire life cycle of the company. That is, from the time the company is an unlisted firm to it becoming listed. This may take anywhere between a few years to even 20 years or more, depending on when you’ve bought your shares. Expecting short-term results, then, is a sure path to becoming disappointed.

4. Do not buy shares from non-reputed brokers.

A trusted advisor can help you invest in those unlisted shares that have the most potential to yield returns. Reach out to an authentic third-party service like Unlistedkart, that offers genuine financial reports so you can make well-informed choices. Any legitimate broker must ensure that shares are supplied. In the worst-case scenario, if the seller/buyer withdraws the shares, the broker must at least refund the entire money of the purchaser instantly or the shares of the seller.

5. Be mindful of your wealth allocation.

It is ill-advised to invest more than 40 percent of your wealth since these assets are illiquid. Keep your personal circumstances in mind and plan your finances carefully before investing. It is prudent to keep some contingencies in place for sudden, uncertain needs.

Learn More – What is the Process to Buy And Sell Unlisted Shares?