Unlisted Shares – Overview

Unlisted shares
January 12, 2022

An unlisted share is a security or financial instrument that’s available for trade on over-the-counter markets and is also known as over-the-counter (OTC) securities. They are usually issued by smaller or new companies which do not comply with the requirements like market capitalization, listing fees, etc. to be list on official exchange. These requirements ensure that only the highest quality companies trade on exchanges. Unlisted segment is 100 times bigger than Listed Market and there more than 1lakh unlisted companies in India. 

Characteristics of Unlisted Shares

l  These shares are currently not listed on any stock exchange.

l  Shares which were listed on any regional stock exchange & are non tradable are also considered as Unlisted.

l  Price discovery is tough.. Depending on local dealers.

l  Buying selling gap means ” Spread Difference ” is wide.

Types of Unlisted Shares

The most common type of unlisted financial instrument is the common stock. Most of these unlisted stocks trade on the OTC markets. Other instruments include:

l  Penny stocks

l  Corporate bonds

l  Government securities

l  Derivative products like swaps, etc.

Is it safe to buy Unlisted/Pre-IPO Shares?

Yes, it is safe to buy unlisted shares on the basis of your own understanding about the unlisted market. If you are a intelligent investor, having good knowledge about shares, then definitely you should go for investment in Unlisted Shares. A strong suggestion to go through the financials of the company before investing. In the market, there are some sellers who sell poor quality stocks to the investors who don’t have adequate knowledge of investing. Thus, unlisted securities may be of lower quality and present a greater risk to investors. investing in unlisted shares can be quite beneficial but, such investments come with a great deal of risk as well. Some associated risks are:

l  Liquidity

l  Loss of capital 

l  May does not pay dividends

l  Risk of dilution

Therefore, make your investment decisions wisely and consult an experienced and trusted wealth manager before knowing how to buy unlisted shares in India. Unlisted companies come into the headlines generally when the market is in a bull phase. The shares of these unlisted companies are generally brought during a momentum by most of the investors.  A retail investor should only invest in unlisted stocks if they have room for this category after allocating to domestic and international equity via mutual funds, fixed income instruments, and gold.