Investors world over are soon beginning to understand the true potential of unlisted stocks. Investing in Employee Stock Option (ESOPs), Portfolio Management Systems (PMS), and getting wealth managers to invest in pre-IPO companies have almost become buzzwords in trading circles.
So what makes unlisted stocks different from listed stocks? Unlisted stocks/financial instruments do not trade on formal stock exchanges like the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE).
These pre-IPO companies have an up-and-running business model with steady revenues, and intend to list on a stock exchange on a future date to gain new capital and boost value for existing shareholders. As an investor you could either wait till a desired company lists itself on a stock market to trade or you could invest in them even before they go public with their Initial Public Offering (IPO). As mentioned earlier, investors gravitate towards unlisted instruments due to their high profit potential.
On the other hand, listed stocks are traded on official stock exchanges like NSE and BSE through a brokerage account.
Shareholders of listed companies have voting rights and because these companies are public in nature anyone can buy and sell their shares. Such shareholders are also entitled to dividends. Owners of unlisted stocks do not have voting rights and claim to dividends. However, if the company is at a pre-IPO stage, owners of unlisted stock can unlock huge profits once the company goes public. Unlisted stocks are known to be long-term investment as the principal amount grows parallelly with the company’s financial maturity.
When it comes to liquidity, listed stocks take the lead.
As listed shares are traded in volume on stock exchanges they have higher liquidity. Contrarily, unlisted shares are not publicly traded and are typically reserved for long-term wealth creation exercises — this makes them relatively less liquid than listed stocks.
Moving to valuation, listed stocks are traded at market prices that are in turn determined by demand and supply. Factors like values, changes in policies, cash flows, and relevant news cycles can also affect the valuation of listed stocks — these variables tend to make listed stocks volatile in nature. However, unlisted shares are not valued based on market conditions like supply and demand. Valuation for unlisted stocks is calculated based on future cash flows of the company.
So what are the benefits of trading listed and unlisted stocks?
The perks of buying listed shares include voting rights, dividends, and liquidity. Unlisted shares come with higher returns and grow with the company’s potential to generate profits. And while listed shares can be bought through a stock broker, unlisted shares need to be bought through trusted intermediaries.
If you are interested in investing in unlisted shares, get in touch with Unlistedkart. We’ve created a vast ecosystem of pre-IPO and new-age companies for HNI, investors, and retailers to create wealth. And if you are a company seeking liquidity for ESOPs, we could add you to our network of potential buyers to help you grow your business.