Step-by-Step Guide to Buying Unlisted Shares in India
SECTION A: What Are Unlisted Shares?
=> When people talk about stocks, they usually mean companies listed on exchanges like NSE or BSE.
=>But not every company chooses to go public. Some remain private and their shares are not available on the open market. These are called unlisted shares.
=>In simple terms, unlisted shares are the shares of companies that are not traded on formal stock exchanges.
=>Instead, they are bought and sold through private transactions, over-the-counter (OTC) markets, or specialized dealers. To understand better, let’s break it down.
~ Key Features of Unlisted Shares
Not listed on NSE or BSE.
Traded privately between investors or through intermediaries.
Prices are not regulated by SEBI in the same way as listed shares.
Liquidity (ease of buying and selling) is usually lower.
Often belong to startups, growing companies, or even subsidiaries of big brands.
~ Why Companies Remain Unlisted
=> Companies may choose not to list for several reasons:
Avoid high compliance costs: Listing requires meeting strict regulations.
Retain more control: Founders and promoters don’t want to dilute ownership.
Early-stage business: Many startups are not ready for IPO.
Strategic reasons: Some firms may prefer private funding rounds instead of going public.
~ Example of Unlisted Companies in India
=> Some well-known names that have operated in the unlisted space before IPO or remain unlisted today:
Reliance Retail
HDB Financial Services (subsidiary of HDFC Bank)
BYJU’S
National Stock Exchange (NSE) itself was unlisted before its IPO plans
~ Difference Between Listed and Unlisted Shares
=> Here’s a quick comparison to make it clearer:
~ The Meaning of Unlisted Shares in Simple Words
=> If you’re wondering about the meaning of unlisted shares, think of them as ownership in companies that haven’t yet entered the public market.
=> They are like “pre-market” investments, often available before an IPO, and are typically considered higher risk but also potentially higher reward.
~ Quick Takeaway
=> Unlisted shares are not mystery assets.
=> They simply represent companies that are either not ready or not willing to list publicly.
=> For investors, they can be a gateway to promising businesses before they become household names on the stock exchange.
SECTION B: Why Do Investors Buy Unlisted Shares?
=> At first glance, investing in unlisted shares may look risky because they are not traded on stock exchanges and lack transparency compared to listed stocks.
=> But many investors, especially high-net-worth individuals (HNIs), private equity players, and even retail investors, still put their money into them.
=> The reason is simple: the benefits of unlisted shares can be quite attractive when chosen wisely.
~ Major Reasons Investors Choose Unlisted Shares
Early Entry Into Promising Companies
Buying unlisted shares allows investors to enter companies before they go public.
If the company later launches an IPO, early investors often benefit from a significant price jump.
Example: Investors who bought shares of NSE or Reliance Retail in the unlisted market saw high value appreciation later.
High Growth Potential
Many startups and pre-IPO companies are still in their rapid growth stage.
Unlisted shares give access to businesses that can grow 2x, 3x, or more in a few years.
Portfolio Diversification
Traditional investors usually buy only listed equities, mutual funds, or bonds.
Adding unlisted shares offers a new asset class that behaves differently from listed stocks.
This helps balance risk and reward in the portfolio.
Valuation Advantage
Since unlisted shares are not traded daily, their prices are negotiated.
Investors may find opportunities to buy at lower valuations compared to what the IPO price may be.
Access to Unique Sectors
Some high-potential companies in fintech, edtech, or retail may remain unlisted for years.
Buying their shares gives investors exposure to sectors that might not yet be available in the stock market.
~ Risks vs Rewards
Investors weigh the benefits of unlisted shares against the possible risks. Here’s a quick view:
~ Real-Life Example
Case 1: Investors who bought shares of HDB Financial Services in the unlisted market gained significantly because of the brand backing of HDFC Bank.
Case 2: On the other hand, some investors in edtech companies like BYJU’S are facing challenges because the company’s valuation dropped.
~ Final Thought
=> Investors buy unlisted shares mainly for early access, high growth potential, and diversification.
=> While the risks are higher compared to listed equities, the possible rewards are equally appealing.
The key lies in careful selection, due diligence, and patience.
SECTION C: How to Legally Buy Unlisted Shares in India
=> Buying unlisted shares in India may sound complicated, but the process is straightforward if you follow the right steps.
=> Since these shares are not available on NSE or BSE, you need to go through private channels, intermediaries, or specific platforms.
=> Let’s walk through the process of buying unlisted shares step by step.
Step 1: Open a Demat Account
Just like listed shares, unlisted shares also require a Demat account for electronic holding.
You can open a Demat account with brokers like Zerodha, Upstox, ICICI Direct, or any SEBI-registered depository participant.
Step 2: Identify the Source of Unlisted Shares
You can buy unlisted shares from different sources, including:
Private Dealers and Brokers: Specialized dealers who trade in unlisted stocks.
Employees of the Company: Many employees receive ESOPs (Employee Stock Ownership Plans) and later sell them.
Unlisted Share Platforms: Online marketplaces like Stockify, UnlistedZone, or Planify connect buyers and sellers.
Pre-IPO Placements: Companies sometimes allow selected investors to buy shares before the IPO.
Step 3: Negotiate the Price
Unlike listed stocks, there is no fixed market price.
Price depends on company valuation, demand, and negotiation between buyer and seller.
Always compare prices across multiple dealers to avoid overpaying.
Step 4: Complete the KYC and Documentation
KYC (Know Your Customer) verification is mandatory.
Required documents:
PAN Card
Aadhaar Card
Bank Account Proof
Demat Account Details
Step 5: Execute the Transfer
The seller transfers shares to your Demat account using an off-market transfer via depositories like NSDL or CDSL.
Payment is usually done through banking channels for record-keeping.
Step 6: Confirm the Allotment
Within a few days, the shares reflect in your Demat account.
Keep the contract note and transfer details for tax and compliance purposes.
~ Legal Guidelines for Buying Unlisted Shares
~ Things to Keep in Mind
Always buy from trusted dealers or verified platforms.
Do background checks on the company’s financials.
Avoid cash transactions, as they can create legal trouble.
Track IPO news if the company is planning to list soon.
Be prepared for low liquidity (selling may take time).
~ Final Note
=> The process of buying unlisted shares may look different from purchasing listed equities, but it’s not complicated once you know the right steps.
=> With proper documentation, trusted sources, and due diligence, investors can legally and safely participate in the unlisted market.
SECTION D: Trusted Platforms and Dealers for Unlisted Shares
=> Once you decide to invest in unlisted companies, the next big question is: where to buy unlisted shares safely and at a fair price.
=> Since these shares are not traded on NSE or BSE, you must rely on specialized dealers, brokers, or online platforms that facilitate such transactions.
=> Choosing the right channel is crucial because the unlisted market is less transparent than the stock exchange.
~ Popular Sources to Buy Unlisted Shares
Specialized Dealers and Brokers
These are individuals or firms dedicated to the unlisted market.
They serve as a bridge that connects buyers with sellers.
Example: Some dealers connect directly with employees or early investors of companies.
Online Platforms
Several digital marketplaces make buying unlisted shares more accessible. These platforms usually provide:Company details (financials, valuation, future IPO plans).
Verified sellers to ensure safe transactions.
Price comparisons to avoid overpaying.
Some well-known names:
UnlistedZone
Planify
Stockify
TradeUnlisted
Employee Stock Options (ESOPs)
Many private companies give ESOPs to employees.
When employees sell their shares, investors can purchase directly.
Example: Buying shares of startups like Byju’s or Ola through employees selling their ESOPs.
Pre-IPO Placements
Large investors often get access to shares before IPO through private placements.
This route may require higher investment amounts.
~ Key Things to Check Before Choosing a Dealer/Platform
Reputation: Look for platforms with good track records.
Transparency: Ensure they provide contract notes and proper invoices.
Pricing: Compare rates across multiple dealers.
Process: Check if they facilitate KYC and direct Demat transfers.
Customer Support: Reliable after-sale support is important for resolving issues.
~ Comparison of Sources
~ Red Flags to Avoid
Dealers pushing cash transactions (always insist on bank transfer).
Lack of documentation or refusal to provide contract notes.
Unrealistic promises like “guaranteed IPO listing” or “fixed returns.”
Platforms without proper KYC process.
~ Final Thought
=> Deciding where to buy unlisted shares is one of the most critical parts of the investment journey.
=> Trusted platforms, verified brokers, and employee ESOP sales can all be good sources.
=> However, investors should always prioritize transparency, proper documentation, and regulated payment methods to avoid risk
SECTION E: Documents and Requirements for Investing in Unlisted Companies
=> Investing in unlisted shares is not the same as buying stocks on an exchange.
=> Since the trades happen privately, the buyer and seller must complete additional paperwork and follow regulatory guidelines.
=> One of the most important aspects is KYC for unlisted shares, which ensures the investment is transparent and legally compliant.
~ Essential Documents Required
PAN Card
A mandatory document for all financial transactions in India.
It is used to track tax liabilities related to capital gains.
Aadhaar Card
Serves as proof of identity and address.
Needed for verification by dealers, brokers, or platforms.
Demat Account Details
Since unlisted shares are stored electronically, you must provide your Demat account number.
Both NSDL and CDSL are accepted.
Bank Account Proof
A cancel cheque or bank statement is usually required.
Ensures that payments are made only through legitimate banking channels.
Recent Passport-Size Photograph
Often asked by platforms during the KYC process for verification.
Signed Client Agreement Form
Some dealers and platforms may require you to sign a formal agreement to record the terms of the transaction.
~ Why KYC Is Important for Unlisted Investments
Prevents money laundering and ensures funds are legitimate.
Protects investors from fraud by verifying the buyer and seller.
Creates a clear record for taxation purposes.
Builds transparency in a less regulated market.
~ Step-by-Step Process of KYC for Unlisted Shares
Submit scanned copies of required documents (PAN, Aadhaar, bank proof, etc.).
Fill out a KYC form provided by the platform or dealer.
Complete in-person or video verification (some platforms mandate this).
Once approved, you are eligible to buy and hold unlisted shares legally.
~ Common Requirements for Investing
Besides documents, here are some other requirements investors should keep in mind:
Minimum Investment Amount: Some platforms set a minimum investment (e.g., ₹50,000 or more).
Lock-in Period: If shares are bought in a pre-IPO round, they may come with a lock-in restriction.
Tax Compliance: Investors need to report capital gains when they sell unlisted shares.
~ Comparison of Listed vs Unlisted Documentation
~ Final Note
=> The documentation and KYC for unlisted shares may feel like an extra step compared to buying listed stocks, but it is crucial for safety and legality.
=> By keeping your paperwork ready and ensuring transactions go through verified channels, you can invest in unlisted companies with confidence and peace of mind.
SECTION F: Risks and Challenges of Buying Unlisted Shares
=> Unlisted shares can be exciting because they offer early access to high-growth companies.
=> But at the same time, they come with unique challenges that every investor must understand.
=> Unlike listed equities, unlisted shares are less transparent, harder to sell, and riskier overall.
=> Before putting in money, it’s important to weigh the risks of unlisted shares investment carefully.
~ Key Risks Investors Face
Liquidity Risk
The biggest drawback of unlisted shares is low liquidity.
Finding a buyer when you want to sell may take time.
Even if there is demand, the price may not be in your favor.
Valuation Uncertainty
Prices are not market-driven but negotiated between parties.
Dealers or platforms may quote different rates for the same company.
Lack of transparency increases the risk of overpaying.
Company Performance Risk
Many unlisted firms are startups or mid-sized businesses.
If the company struggles financially, share value can drop sharply.
Some companies may never reach the IPO stage.
Regulatory and Compliance Risks
Though legal, unlisted share trading is not as closely regulated as listed equities.
If the seller is unverified or uses improper methods (like cash deals), it could lead to compliance issues.
Long Holding Period
Pre-IPO shares may come with lock-in periods.
Even without lock-in, liquidity challenges mean you might be forced to hold shares for years.
~ Table: Risks vs Possible Impact
~ Challenges Beyond Financial Risks
Information Gap: Unlike listed firms, unlisted companies do not publish quarterly reports publicly. Investors often depend on limited data provided by dealers or platforms.
Lack of Ratings: Most unlisted companies are not covered by analysts, making it harder to assess their true potential.
Tax Complexity: Capital gains tax on unlisted shares can be higher, and rules vary based on holding period.
~ How to Reduce These Risks
Buy only through verified dealers or SEBI-registered platforms.
Do thorough research on the company’s financial health and future IPO plans.
Diversify investments rather than putting all money into one unlisted stock.
Be prepared for long-term holding and avoid investing money you may need soon.
~ Final Note
=> Every investor must remember that the risks of unlisted shares investment are real, and ignoring them can lead to losses.
=> While the rewards can be big, so can the setbacks.
=> A cautious approach, combined with due diligence, can help strike the right balance between risk and return.
SECTION G: Final Tips for Safe Investment in Unlisted Market
=> Unlisted shares can unlock great opportunities, but they also come with higher risks compared to listed equities.
=> Many investors jump in without proper knowledge and end up facing liquidity issues, overpaying for shares, or holding onto companies that never reach the IPO stage.
=> To avoid such pitfalls, you need a structured approach. Here are some practical tips to ensure a safe investment in unlisted shares.
1. Choose Reliable Sources Only
Stick to verified platforms and SEBI-registered dealers.
Avoid unknown brokers who cannot provide documentation.
Always insist on receiving a contract note after the transaction.
2. Verify the Company’s Fundamentals
Study the company’s financial performance (revenue, profit, debt levels).
Check its business model, market share, and growth prospects.
Look for news on IPO plans, fund-raising rounds, or expansion.
3. Diversify Your Portfolio
Don’t put all your money into one unlisted company.
Balance your portfolio with a mix of listed stocks, mutual funds, and some unlisted shares.
Diversification reduces the impact if one company underperforms.
4. Be Cautious With Valuations
Compare prices across multiple dealers and platforms.
Avoid paying inflated premiums just because of “hype” around an upcoming IPO.
Remember that IPO valuations often differ from private market prices.
5. Understand the Exit Strategy
Liquidity is limited, so plan your exit before entering.
Options to exit:
When the company lists through IPO.
Selling to other private investors.
Employee buyback programs (in some cases).
6. Keep Tax Implications in Mind
Short-term capital gains (STCG): If sold within 24 months, taxed as per income slab.
Long-term capital gains (LTCG): If held for 24 months or more, taxed at 20% with indexation.
Always maintain transaction records to avoid tax disputes.
~ Do’s and Don’ts of Investing in Unlisted Shares
~ Quick Checklist Before You Invest
Dealer is SEBI-registered and trustworthy
Proper KYC and contract notes completed
Company has strong fundamentals and growth potential
Exit strategy is clear (IPO, private sale, or buyback)
Amount invested is within your risk tolerance
~ Final Thought
=> A safe investment in unlisted shares is all about balancing opportunity with caution.
=> The potential rewards are high, but so are the risks if you skip due diligence.
=> By choosing reliable sources, verifying company fundamentals, diversifying wisely, and planning your exit, you can participate in the unlisted market with greater confidence and security.
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