What are unlisted shares?

Pharmeasy NSE BOAT Nayara Energy Greenchef Appliances Ltd Tata Capital Polymatech Electronics Pvt Ltd

Summary

Unlisted shares, traded in the over-the-counter market, offer high growth potential and diversification but come with risks like lower liquidity and regulatory complexity. Read this to know about its types, working & legalities.

Unlisted Share:- Overview

Shares that are not listed on a stock exchange, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE), are known as unlisted shares. These financial instruments, commonly referred to as over-the-counter securities, are traded discreetly in the over-the-counter market. The reason people invest in these shares is that they offer tremendous growth opportunities.

Key aspects of unlisted shares:-

• Limited Liquidity: Because there are fewer buyers and sellers of unlisted shares than public equities, it is more difficult to buy and sell them.

• Regulations: They are subject to the provisions of the Securities and Exchange Board of India (SEBI) and the Company Law, even though they are not as regulated as listed equities.

• Unlisted Company Examples: Among the well-known brands in the unlisted market are PharmEasy, OYO, boat, and Tata Capital.

Types of unlisted shares?

Unlisted shares come in various forms, some of them are listed below:-

1️) Pre-IPO Shares – Companies planning to go public soon (e.g., OYO, bOAT).

2) ESOP Shares – Employee-owned shares sold before IPO (e.g., Flipkart, Paytm).

3) VC/PE-Backed Shares – Startups backed by investors (e.g., BYJU’S, PharmEasy).

4) Delisted Shares – Previously listed but now unlisted (e.g., Essar Oil).

5) Unlisted Subsidiaries – Private arms of listed firms (e.g., HDB Financial).

6) Startup Shares – Early-stage companies with high growth potential (e.g.,Greenzo).

How do unlisted shares work?

Shares that are not listed on stock exchanges such as the NSE or BSE are known as unlisted shares, and they are sold privately through brokers, investment firms, online platforms (sharescart) or direct deals with shareholders. They have lower liquidity and higher risk, but their pricing are determined on demand, company valuation, and future IPO potential. Investors usually exit when the company goes public (IPO) or through private buyouts.  

Example: Before its IPO,  NSE (National Stock Exchange) shares are traded in the unlisted market. Early investors who bought at lower valuations have witnessed close to 104% returns when its price surged from Rs. 956 to Rs. 1950 ahead of its expected listing. 

Pros and Cons of investing in unlisted shares

Investing in unlisted shares comes with its own pros and cons, here are some of them:-

Pros:  

- High Growth Potential – Early investment in emerging companies like  Polymatech Electronics can yield multifold returns.  

- Pre-IPO Advantage – Buying before listing can lead to huge gains if the company goes public. Ex- Swiggy

- Portfolio Diversification – Helps reduce risk by investing in private markets

- Less Market Volatility – Unlisted shares are less affected by the listed market fluctuations.  

Cons: 

- Lower Liquidity – Difficult to buy/sell quickly due to lot size & less investor's activity.

- Higher Risk – No fixed regulations compared to listed stocks, making them little risky.  

- Uncertain Exit Route – Returns depend on IPO, buyouts, or private sales.  

- Price Transparency Issues – No public price discovery, valuations can vary among brokers.

What are the legalities of buying unlisted shares in India?

SEBI & Company Act Regulations – Unlisted shares fall under the Companies Act, 2013 however are not under SEBI’s direct oversight for Pre-IPO shares.  

Eligibility to Invest – Open to individuals, HNIs, institutional investors, and private equity firms.  

Mode of Transaction – Bought through private deals, brokers, investment firms, or online platforms (sharecart) and settled via Demat accounts.  

Taxation Rules –  

   - STCG (if sold within 24 months) – Taxed as per income slab

   - LTCG (after 24 months) – 12.5% without indexation benefit.

Lock-in Period Post-IPO – If a company goes public, pre-IPO investors face a 6-month lock-in period as per SEBI guidelines.  

RBI Restrictions for Foreign Investors – Foreign investors need RBI approval for unlisted shares under FEMA regulations.  

Conclusion

Investing in unlisted shares offers significant growth potential and diversification benefits, as seen with companies like Swiggy and HDB Financial Services. However, these investments come with notable risks, including lower liquidity and uncertain exit routes. While unlisted shares can provide substantial returns, especially pre-IPO, they require thorough due diligence, understanding and  their tax implications.