How to Buy Unlisted Shares?

Ever wondered how to invest in unlisted companies and acquire unlisted shares for potential growth? Unlisted companies, while not listed on stock exchanges, can offer appealing returns. However, investing in them is quite different from buying regular stocks because they aren't regulated by SEBI, the Securities and Exchange Board of India.

In this article, we'll show you how to buy unlisted shares and explain the various types of unlisted financial instruments, giving you a clear understanding of this unique investment option.
 

What are Unlisted Shares?

What are unlisted shares?

Unlisted shares provides a pathway for investors to participate in the ownership of companies that have opted not to list their stocks on formal stock exchanges. These unlisted shares can represent a unique and potentially rewarding investment opportunity, as they are often associated with smaller or emerging companies that may not meet the requirements or choose to avoid the regulatory obligations of public listing.
 

Understanding Unlisted Shares

Unlisted shares refer to ownership in a company through equities or financial instruments that are not publicly traded on established stock exchanges. Instead, these shares are available for trading through less regulated methods, often called over-the-counter (OTC) trading or other private platforms. In simpler terms, unlisted shares provide an investment opportunity in companies that prefer more flexible and less public forms of trading, as they may not meet the criteria for public listing.
 

Types of unlisted financial instruments

Before delving into how to buy unlisted stocks, it's essential to familiarise yourself with the following types of these shares:

●    Common Stock
Common stock, also referred to as capital stock, symbolises your stake in a company. Owning one share of common stock equates to a portion of ownership in the company. To illustrate, if a company has 100 shares in total, possessing one share means you possess a 1% ownership interest in the company.

●    Penny Stocks
Penny stocks are stocks with very low prices, often found on smaller exchanges. They tend to have low market capitalization and low trading volume. Investing in penny stocks is considered speculative and risky because they lack liquidity, have few shareholders, and may have limited available information.

●    Corporate Bonds
Corporate bonds are financial instruments issued by companies to raise capital. When you invest in a corporate bond, you receive periodic interest payments. These payments continue until the bond matures, at which point you receive your initial investment back. Corporate bonds are typically linked to the company's financial performance and may be secured by company assets in some cases.

●    Government Securities
Government securities are financial products issued by a government. The most familiar government securities are Treasury bonds, bills, and notes. These are considered low-risk investments because they are backed by the government, ensuring that your invested money will be repaid in full when the security matures. Some government securities also pay periodic interest, making them conservative investments.
 

How to buy unlisted shares in India ?

Here are the possible ways on how to buy unlisted shares, that will aid you in understanding and navigating this financial instrument effectively:

1.    Investing in pre-IPO companies
Invest in companies planning to go public in the future, known as pre-IPO companies. These companies often have high growth potential, and investing early can be rewarding. Shares from such investments are typically credited directly to your Demat account, bypassing the stock exchange. However, it's crucial to work with a reputable intermediary for a successful investment.

2.    Exploring opportunities in startups
India's startup sector is known for its dynamism and growth potential. You can invest in startups with promising growth prospects. Most startups require a minimum investment, often around Rs 50,000, and shares are directly credited to your Demat account.

3.    Acquiring Employee stock options (ESOPs)
ESOPs are shares offered to employees at a special price. Some brokers can help you connect with employees looking to sell their ESOPs, giving you the opportunity to invest in unlisted companies.

4.    Direct purchases from promoters
If you want a significant stake in an unlisted company, you can engage investment banks, wealth managers, or trusted brokers. They can assist you in purchasing shares directly from the company's promoters through private placement.
 

Knowing how to buy unlisted shares opens doors to diverse investment opportunities, from promising startups to pre-IPO ventures. Whether you're seeking high growth potential or direct involvement in unlisted companies, the avenues mentioned provide a roadmap for your investment journey. It's important to conduct thorough research, seek trusted intermediaries, and evaluate the risks and rewards before diving into unlisted shares.