Unlisted shares are shares of companies that are not listed at stock exchanges. They are traded over-the-counter without the involvement of a recognised stock exchange.
Note:
Yes, it is legal to buy unlisted shares. However, one must be cautious when investing one's money as the market for unlisted securities is illiquid, risky and unregulated.
No, once a company is listed, its shares can be traded on a recognized stock exchange. When a listed company issues new shares, it may be in the form of a follow-on public offering, bonus or rights issue. They are part of the primary market and are not traded as unlisted shares.
You can sell the unlisted shares in one of the following ways:
It is a good idea to buy unlisted shares provided you have analysed and researched the company you want to invest in. Unlisted shares help in diversifying investments. Also, invest surplus funds that are not needed immediately, as the waiting time to receive the expected return on unlisted shares can be long.
You can buy unlisted shares through brokers or dealers.
Steps to buy unlisted shares:
You can also buy the unlisted shares if you find a buyer directly who wants to sell his shares.
The unlisted shares are dealt over the counter. Unlisted shares are the shares of startups, employees, promoters, IPO aspirant companies. Unlisted shares can be bought or sold directly or through brokers who specialize in trading unlisted shares. The minimum ticket/lot size for investing in unlisted shares is slightly higher. You can check the price at which the unlisted share is trading and then agree on a price that suits both parties.
Unlisted shares are those shares which are not yet admitted to public trading on the platform of a recognised stock exchange/exchange. Unlisted shares include the following:
Listed shares are shares that can be publicly traded on the stock exchange, while unlisted shares can be traded over the counter.
Features of listed shares:
Features of unlisted shares:
Unlisted stocks offer investors the opportunity to invest in early stage companies. You can invest in start-up or pre-IPO companies that have good prospects. Since you are investing at an early stage, there is a possibility of earning high returns if the company flourishes later on.
It is very important to analyse and study the company you want to invest in and be clear about your financial goals, as unlisted shares generally have a longer time horizon to generate the expected returns.
Unlisted shares are traded through brokers who specialize in trading unlisted shares. Trading in unlisted shares is usually done through telephone calls and is described below:
Note: The price quoted by brokers is usually net of all charges, i.e. commission and stamp duty.
You can contact the broker through whom the shares were purchased or find another broker through whom you wish to trade.
Steps to sell the unlisted shares:
Note: Unlisted shares cannot be sold immediately after listing, as a lock-in period of 6 months applies after listing.
You can buy unlisted shares in India through a broker who facilitates or specializes in unlisted shares trading.
Steps to buy unlisted shares in India:
The long-term capital gains (LTCG) on unlisted shares becomes applicable when such stock is sold after a holding period of 24 months.
LTCG on unlisted shares is taxed at a rate of 20%, with the indexation benefit. The indexation benefit helps to adjust the purchase price of the asset to the effects of inflation, so that the taxation is fair.
Let us take a simple example to understand the calculation of LTCG on unlisted shares:
Yes, unlisted shares can be dematerialized. Nowadays, unlisted shares are traded only in dematerialized form.
If you hold shares in physical form, you should have them dematerialized because physical share certificates will soon disappear even for unlisted shares.
Brokers require the client master list of the demat account as one of the KYC documents when an investor wants to buy unlisted shares.
Yes, unlisted shares can be sold provided you find the right price and buyer.
Some of the exit strategies for unlisted shares that will help you sell your shares include:
However, once the Company announces an IPO, these shares become pre-IPO shares and are subject to a lock-up period of six months from the date of listing.
Unlisted shares are safe, provided they are purchased after proper analysis.
Investing in unlisted stocks involves some risk because, unlike listed companies, not much information is available about the company. However, if an investor is aware of the business overview, company prospects, and vision, it provides a very good opportunity to invest in unlisted stocks. Unlisted shares offer investors an early entry into the company at a reasonable price. If the company performs as expected, it can certainly reap handsome profits.
Yes, indexation is allowed on unlisted shares for long-term capital gains.
Long-term capital gains on unlisted shares sold after a holding period of 24 months are taxable at a rate of 20%. Unlisted shares are ideally intended for long-term investment. Since the holding period is long, the indexation benefit is allowed to adjust the purchase price for the effects of inflation over the years to ensure fair taxation.
No, there is no STT applicable on unlisted shares.
The STT (securities transaction tax) is levied on transactions traded on a stock exchange. Since unlisted shares are not traded on the stock exchange, STT is not payable on unlisted shares.
Yes, stamp duty is payable on unlisted shares.
Stamp duty is mandatory on any transfer of shares from one account to another, regardless of whether the shares are listed or unlisted. The current stamp duty rate for the transfer of unlisted shares is 0.015% of the market value.
Unlisted shares offer investors the opportunity to earn good returns if they invest in the right stocks at the right time.
Unlisted stocks offer the following advantages: