How to Invest in Unlisted Shares?
You can invest in stocks of some of the top unlisted companies in India in several ways. The most popular methods include:
l Pre-IPOs and Start-Ups:
A pre-IPO company is the one that is currently unlisted but plans to go public in the future. The shares from the unlisted company will be directly delivered to the Demat account, even if the transaction is off-the-record and the exchange is not involved. The important criteria when investing in unlisted companies is to choose a trusted intermediary while avoiding any counterparty risks. We can also invest in start-ups that are already unlisted and have huge potential for multi-fold growth in the future. These companies might not be popular right now, but they have the potential to bring profits and growth in the future.
l Buy From Existing Employees With ESOPs:
Companies provide stock ownership plans to employees by allowing them to purchase a predetermined number of shares in the company at a predetermined price after a predetermined period with the help of brokers.
l Buy from Promoters:
Direct investment in the companies can be done through private placements. To invest a significant stake in a company, approach a trusted wealth manager, investment bank, or broker who can help in connecting with the company’s promoters and introduce to a list of unlisted companies. They also help in arriving at a mutual fair value for the unlisted shares.
l Buy AIFs or PMS Which Pick Up Unlisted Shares:
Financial institutions offer portfolio management services (PMS) and alternative investment funds (AIF) that buy unlisted shares. Many of these funds invest to capture pre-IPO valuations or to profit from a rise in valuations following an IPO. But there is also a risk associated when trying to capture the valuations following an IPO, the prices can immediately fall after they are listed.
l Buy Through Equity Crowdfunding Platforms and Angel Funds:
A method through which large groups of investors fund start-ups and small businesses in exchange for stock ownership is called Equity crowdfunding. Individuals who provide funding to promising start-up companies in exchange for a stake in the company, usually in the form of equity or royalties, are known as angel investors. Individuals who are looking forward to making huge investments can invest as angel investors or through equity crowdfunding platforms.