Unlisted Shares

1 Companies that are subsidiaries of well-known parent companies. Examples include HDB Financial Services (a leading NBFC which is a subsidiary of HDFC Bank), Reliance Retail (a retail initiative of Reliance group), HeroFincorp (financial services company and an associate company of Hero MotoCorp).

2 New-age business in technology, e-commerce, medical technologies, finance, gaming, etc. Examples include OYO, OLA, Razorpay,Dream11, etc.

While there are many reasons why a person might invest in unlisted shares the following are some of the common advantages of owning unlisted shares:

1. High-value investments: Since the shares are not very liquid, they are often either undervalued or overvalued for long periods.

Thus, if an investor can invest when the shares is undervalued, then he/she can gain significant returns on the investment.

2. Diversification of risk: Unlisted equity shares are a different asset class by themselves and as a result offer some diversification of risk for investors who are majorly invested in listed equity markets.

3. High growth investments: Often unlisted firms are smaller in size and are yet to reach a stage where they can go public to avail funds for their capital requirements.

As a result, investing when the company is small and invested through its growth when it lists on equity markets often yields high returns due to the small base effect.

4. Peace of mind: Unlike listed equity shares, the prices of unlisted equity shares are relatively stable and the investor need not worry about fluctuations in prices.

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 (someone who can successfully help you close the transaction) while avoiding any counterparty risks (counterparty risk is the risk that we may transfer the money, but there is no guarantee that we will get the shares). We can also invest in start-ups that are unlisted which 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. The minimum investment amount in most start-ups is around Rs 50,000 and stocks will be transferred to the Demat account.