Pre IPO
PRE IPO
Welcome to the world of high returns and high patience! Yes, you read it right, the world of unlisted investments in stocks or also popularly known as investments in Pre-Ipo shares, is one which provides high returns often called as multi-bagger returns and it also needs a lot of patience.
Often investors invest in a growing phase where the company undertakes expansion and the results of the growth often accrue after a few years. This has been the golden rule of thumb to gather multibagger returns. A company often approaches the capital markets in the form of issuing IPO and thereby listing the firm on the stock exchanges. Once these shares are listed, they then stop being unlisted or pre-ipo shares and becomes listed shares. Often at this stage, many investors look at the performance of the company and many analysts start tracking the growth of the company. Suddenly the company finds that its share price starts increasing because a lot of investors are now interested in investing in the company partly due to it getting noticed and partly due to increasing liquidity of the stocks.
Hence to find higher return on investment, a smart investor should try to invest before other investors invest and before the valuation of the company grows. This is something often done by private equity investors and hedge funds. This is an opportunity between the two worlds. Before it gets crowded while after the company has been proven winner and survived its initial years of struggle because the failure rate of startups is as high as 9 out of 10. Thus pre-ipo investing is a safer and more rewarding way of investing and accelerating the rate of return.
Often a common question asked by new investors is, how much can a person earn by investing at pre-ipo stage. While there is no fixed guarantee of any specific return and the return too depends on the price at which an investor buys and the time when the investor exits. It will be unwise to put a number to it because in the past, people have made multiple times returns which can go as high as 3 times to 10 times the amount invested but to be realistic, one should aim for a return that is better than the index returns. Over a long-term investment in index, one can often earn 15% p.a. so an investor investing in pre-ipo markets should aim for around 20%-25% p.a. return. Investing in pre-ipo markets is more like value investing where an investor invests because the business is undervalued or available at cheap valuations due to lack of liquidity of trading the equity shares. The investor gains after the IPO has been out and the value has been unlocked or very near but prior to the IPO.
To educate yourself more about regulations involved in pre-ipo markets, browse through our knowledge center and find out the important things you should be aware of. Additionally, if you want to know top mistakes people can make while investing in pre-ipo market or advantages of investing in pre-ipo shares then feel free to browse through our knowledge centre for more information.
WHAT ARE UNLISTED SHARES?
Unlisted shares are those shares that are not listed on the stock exchange of India. These financial instruments are traded on the over-the-counter market and are also known as over-the-counter securities. The reason people invest in these shares is that they offer tremendous growth opportunities.
TYPES OF UNLISTED SHARES
BENEFITS OF INVESTING IN UNLISTED SHARES
Portfolio Diversification
Listed and unlisted shares complement each other. Investing in unlisted shares can help diversify the portfolio as well as the risk involved. If an unlisted company goes public, the investors in the company would have an upper hand once the company is listed on the stock exchange.
Proliferating Profits
The majority of the shares in the unlisted market are illiquid. Thus, the valuation is low or undervalued due to the limited number of investors that invest for long. The investor should be able to identify such opportunities and invest in undervalued shares to gain exponential returns in the future.
Peace Of Mind
Investing in unlisted shares can be less stressful as compared to listed shares as the standard deviation rate is much lower in unlisted shares. There is no need to stress over the price fluctuations daily as unlisted shares are illiquid and prices are not tracked daily.
The Ultimate Comparison Of Listed and Unlisted Shares
Shares from various companies are divided into different different categories based on the company status. Similarly, shares from listed and unlisted companies are known as listed and unlisted shares respectively. These companies are segregated based on their company listing on any of the formal exchanges.In this article you will understand everything that you need to know about unlisted and listed shares.
What Are Listed Shares?
Listed shares are shares of those companies that are listed on the stock exchange i.e. BSE or NSE and are open for investors in the public. Listed stocks are only for public companies. The shares of listed companies are generally owned by several shareholders. According to Section 2 (52) of the Companies Act 2013, a listed company is one that has any of its securities listed on a recognised stock market. Such businesses must abide by the listing criteria of the relevant stock exchanges.For Example - Tata Consultancy Services, HDFC Bank, Infosys Limited, Reliance Industries Limited etc. These business entities are traded either on the National Stock Exchange or the Bombay Stock Exchange.
What Are Unlisted Shares?
Unlisted shares are shares of those companies that haven’t been listed on any formal exchange. These companies can either be privately owned or a public limited. The shares of unlisted companies are generally owned by a few private investors.
Unlisted shares are further divided into three categories:
- Pre-IPO shares These are shares of companies waiting for their Initial Public Offering (IPO) and would get listed on the stock exchange in the near future.
- ESOP Shares Employee Stock Option Plan, is an option given to an employee to buy a certain amount of shares in the company in which they are working. These shares are issued to tenured employees in a company as a form of motivation.
- Delisted SharesThese are shares of companies that were listed on the stock exchange of India, but are now removed from it due to specific reasons. Delisted shares can no longer be traded on the stock exchange.
Difference Between Listed and Unlisted Shares
There are various differences between listed and unlisted shares apart from the listing of securities. Let’s look at them one-by-one and compare listed and unlisted shares taking up a few points of difference such as trading platform, regulatory body, taxation and more.
Trading Platform and Legality Of Shares
Since listed companies are registered with the stock exchange of India, their shares are traded on the stock exchange such as the Bombay Stock Exchange or the National Stock Exchange. Since unlisted shares are not listed anywhere they have no such platform. These shares are traded in the over-the-counter market.Trading in Listed and Unlisted shares is legal in India.
Regulatory Body
While listed shares are regulated by the Securities Exchange Board Of India, there is no proper regulatory body for unlisted stock though it is governed by the companies act. Listed companies follow strict regulations and have no other option than to abide by it whereas in unlisted shares the regulations are not that rigid as compared to listed shares.
Taxation Of Shares
The taxation of listed and unlisted shares are based on the two categories: Long-term capital gain and short-term capital gain. Since these shares are different, the tax implications are different as well.
Long-Term Capital Gain
- Listed Shares Under long-term capital gains, listed shares are taxed at 10% after an exemption of 1 lakh.
- Unlisted SharesThe long-term capital gain in unlisted shares is taxable at 20% with indexation benefits
Short-Term Capital Gain
- Listed Shares The short-term capital gain is taxable according to the investor's tax slab
- Unlisted Shares In listed shares, the taxation for short-term capital gains i.e. less than 12 months is at 15%.
Liquidity, Risks and Returns Of Shares
Listed shares are highly liquid as there are a lot of people on the stock exchange ready to trade. The risk element in listed shares is comparatively low but so is the chance to earn exceptional returns. In unlisted shares, the liquidity is a tad lower because of the limited number of investors who invest in long term investments but if you know a trusted trader in unlisted shares like nrnfincaap.com, the liquidity increases. The risk element in unlisted shares is relatively high but even higher are the chances for exceptional returns.
Selling and Buying Of These Shares Through NRN Fincaap
nrnfincaap.com is a platform that deals in listed and unlisted shares. You won't need to worry about anything with NRN Fincaap. Before putting a company up for investment on the platform, NRN Fincaap undertakes extensive research on it. Your questions will be answered and you will receive assistance at every stage of the process from the knowledgeable team at NRN Fincaap. With NRN Fincaap selling and buying of listed and unlisted shares can’t get simpler.
Closing
Whether a corporation has any listed securities determines whether it is listed or unlisted. Due to its adherence to regulatory restrictions, investing in listed securities may be less risky than other types of investments. Unlisted businesses, however, might provide excellent rewards at a higher risk. Before making an investment selection, it is a good idea to think about your investing aim.
OUR PAST RECOMMENDATIONS
We mainly operate in the PRE-IPO/Relisting space. We believe our space has excellent opportunities to multiply your wealth. Investments in PRE-IPO companies do not necessarily require a lot of capital. We cater to all kinds of clients from salaried to ultra-HNI. You can start with small investments also. This is a very unique product offering which your banks, wealth managers, certified financial planners, etc may not be able to offer.
A lot of research is done to identify such companies which can give good returns. Although past performance is not a guarantee for future success but it is desirable to have a good track record.
Some of our past success stories are as given below:
| Company Name | Client investment Rate (Rs.) | IPO Rate | Recent market Rate (Rs.) |
|---|---|---|---|
| RBL Bank | 145/- | 226/- | 560/- |
| ICICI Pru | 160/- | 334/- | 380/- |
| HDFC Life | 140/- | 290/- | 401/- |
| ICICI Lombard | 175/- | 661/- | 846/- |
| Galaxy Surfactants | 175/- | 1480/- | 1205/- |
| Seya Industries | 55/- | 250/- (relisting) | 561/- |
| Lux Industries | 425/- | 3000/- (relisting) | 9000/- (Adjusted for split) |
| Resin & Plastics | 65/- | Buyback at 196/- | |
| Syngenta India | 800/- | Buyback at 2445/- | |
| Bharti telecom | 55/- | Buyback at 163/- |