{"id":11188,"date":"2022-04-27T13:21:21","date_gmt":"2022-04-27T13:21:21","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=11188"},"modified":"2022-10-19T11:00:29","modified_gmt":"2022-10-19T05:30:29","slug":"how-to-buy-unlisted-shares","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/","title":{"rendered":"How to Buy Unlisted Shares?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-69ebbc16ac232\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-69ebbc16ac232\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#How_Can_You_Invest_in_Unlisted_Shares\" title=\"How Can You Invest in Unlisted Shares?\">How Can You Invest in Unlisted Shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#How_Do_Unlisted_Shares_Work\" title=\"How Do Unlisted Shares Work?\">How Do Unlisted Shares Work?<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Types_of_Unlisted_Securities_in_India\" title=\"Types of Unlisted Securities in India\">Types of Unlisted Securities in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Important_Characteristics_of_Unlisted_Shares\" title=\"Important Characteristics of Unlisted Shares\">Important Characteristics of Unlisted Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Risks_of_Investing_in_Unlisted_Shares\" title=\"Risks of Investing in Unlisted Shares\">Risks of Investing in Unlisted Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Valuation_of_Unlisted_Shares\" title=\"Valuation of Unlisted Shares\">Valuation of Unlisted Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Benefits_of_Investing_in_Unlisted_Shares\" title=\"Benefits of Investing in Unlisted Shares\">Benefits of Investing in Unlisted Shares<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Final_Word\" title=\"Final Word\">Final Word<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Frequently_Asked_Questions\" title=\"Frequently Asked Questions\">Frequently Asked Questions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Can_you_get_loans_or_advances_on_unlisted_shares\" title=\"Can you get loans or advances on unlisted shares?\">Can you get loans or advances on unlisted shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#How_much_should_I_invest_in_unlisted_stocks\" title=\"How much should I invest in unlisted stocks?\">How much should I invest in unlisted stocks?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#What_type_of_companies_do_you_usually_find_in_the_unlisted_category\" title=\"What type of companies do you usually find in the unlisted category?\">What type of companies do you usually find in the unlisted category?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#What_are_the_tax_implications_of_unlisted_shares\" title=\"What are the tax implications of unlisted shares?\">What are the tax implications of unlisted shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#What_are_some_of_the_things_to_check_before_investing_or_buy_unlisted_shares\" title=\"What are some of the things to check before investing or buy unlisted shares?\">What are some of the things to check before investing or buy unlisted shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/#Interested_in_how_we_think_about_the_markets\" title=\"Interested in how we think about the markets?\">Interested in how we think about the markets?<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>Many are looking for alternative investments because of the recent growth in the number of retail investors in India and high market valuations. There is a large share market outside of the well-known stock exchanges for such investors. Shares sold in this market are buy unlisted shares, i.e., they are not listed on formal stock exchanges.<\/p>\n<p>&nbsp;<\/p>\n<p>In contrast to the SEBI regulated stock market, unlisted shares are less transparent and have lower liquidity. However, they offer the potential for you to get significant returns upon listing on the stock exchanges.<\/p>\n<p>&nbsp;<\/p>\n<p>Now, let us look at how to buy unlisted shares in India.<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/kuvera.in\/explore\/fixed-deposit\/c\/all\"><img loading=\"lazy\" class=\"size-large wp-image-13417 aligncenter\" src=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-1024x334.jpg\" sizes=\"(max-width: 640px) 100vw, 640px\" srcset=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-1024x334.jpg 1024w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-300x98.jpg 300w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-768x250.jpg 768w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022.jpg 1080w\" alt=\"Online Fixed Deposits on Kuvera\" width=\"640\" height=\"209\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<h2 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"How_Can_You_Invest_in_Unlisted_Shares\"><\/span>How Can You Invest in Unlisted Shares?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">In contrast to listed shares, you cannot trade unlisted shares on the stock exchanges.\u00a0 So, if you want to invest, you have to do so in the following ways:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Buying directly from promoters<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Private placements allow one to invest directly by buying unlisted shares from promoters.\u00a0 Before allocating funds, contact a broker, investment bank, or wealth manager to help you with the price discovery and valuation.\u00a0 They will also help you connect with the company&#8217;s promoters and arrive at a mutual fair value.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\u00a0<strong>Buying from existing employees<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>Many companies provide stock ownership to their employees. You can connect with platforms specializing in sourcing and placement of unlisted shares to find employees willing to sell their shares. Brokers at these intermediaries offer employee stock options (ESOP) at predetermined prices.\u00a0 It is the only option to buy shares of some unlisted startups.<\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\u00a0<strong>Pre-IPO investments<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Pre-IPO trading refers to the buying\/selling of shares of a company before its listing on the stock exchanges. Various investment companies offer platforms on which you can trade unlisted shares. You will get the shares of unlisted companies directly delivered to your Demat account even if the transaction is off the record.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You can also choose to invest in startups that are currently unlisted but have the potential for multi-fold growth.\u00a0 The minimum investment amount is Rs. 50,000 for such investments.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>PMS and AIF schemes<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Various financial institutions offer Portfolio Management Services (PMS) for individual investors. PMS refers to a customised portfolio of stocks that professional portfolio managers operate based on specific investment objectives.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Alternative Investment Funds (AIFs) are pooled investments for institutional investors and High Net-Worth Individuals (HNIs). Both of these funds aim to capture pre-IPO valuations and profits from a rise in valuations following a listing.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Through crowdfunding platforms and angel funds<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Equity crowdfunding allows large groups of investors to fund various startups and small businesses for stock ownership.\u00a0 Meanwhile, angel investors are those who fund upcoming startups in exchange for shares or royalties.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Individuals who aim to make huge investments in unlisted startups can use crowdfunding platforms and angel funds.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>Now, let us learn how to buy unlisted shares work and their features.<\/p>\n<p>&nbsp;<\/p>\n<h2 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"How_Do_Unlisted_Shares_Work\"><\/span>How Do Unlisted Shares Work?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Various securities and financial instruments are not listed on formal stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).\u00a0 While stocks are the most common unlisted security, various corporate bonds, government bonds, and OTC derivate products trade outside the stock exchanges.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>Many companies are private and are yet to initiate an Initial Public Offering (IPO) process.\u00a0 Investing in unlisted shares of new-age companies about to go public offers you the chance to earn exponentially from your investment.<\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The <a href=\"https:\/\/kuvera.in\/explore\/stocks\/c\/all\">Indian stock markets<\/a> are well-regulated, resulting in high transparency in market pricing and disclosures. As these features are not applicable for unlisted securities, they carry higher risks of investments. Information, including company size, market capitalisation, etc., is sometimes not available. Some businesses have highly risky business plans, making them unsafe investments.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>Therefore, you have to perform due diligence before investing in unlisted shares in India.\u00a0 These are also called OTC securities, as you can get them from over-the-counter (OTC) markets. Market makers or dealers facilitate the trading of unlisted securities in these markets.<\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Types_of_Unlisted_Securities_in_India\"><\/span>Types of Unlisted Securities in India<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The following are some of the unlisted securities you can find in India:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<div><strong>Common stocks<\/strong><\/div>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>The common stock or capital stock of a company represents a portion of its ownership.\u00a0 Distributing stocks divides up a corporation&#8217;s ownership, with one share representing a certain percentage of ownership of a firm.\u00a0 Popular unlisted shares of this type include shares of well-known companies and new-age businesses.<\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Government securities<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">In India, these include certain debt instruments such as dated government securities (G-Sec), treasury bills (T-Bills), state development loans (SDLs), cash management bills (CMBs), etc. The government issues these securities with the guarantee to fully repay the money with interest (coupon) after the maturity period.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>\u00a0Corporate bonds<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Private and public companies can issue debt securities called corporate bonds to raise money for various purposes like expanding business, purchasing equipment, or building a new facility. These bonds are backed by the company&#8217;s repayment capacity or physical assets (in some cases).<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Penny stocks<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">These stocks trade at a very low price, have little market capitalisation, and are listed at smaller exchanges or unlisted. These stocks are considered very risky due to their lack of liquidity, highly speculative nature, extreme bid-ask prices, and a smaller number of owners.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Derivative products<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Derivative products are financial contracts whose value is derived from the underlying stocks, bonds, currencies, commodities, precious metals, etc. Some examples of derivative instruments include options, futures, and swaps.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Important_Characteristics_of_Unlisted_Shares\"><\/span>Important Characteristics of Unlisted Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p>Here are some of the features of unlisted shares you will want to know of before investing:<\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><strong>Possibility of earning impressive returns<\/strong><b>:<\/b><span style=\"font-weight: 400;\"> If you invest with careful research and at the right time, you can get considerable returns. As these shares come at a significantly lower price than listed shares, the listing gains can help you accumulate wealth at a low price.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>High levels of risk: <\/b>Before investing in unlisted shares, investors need to be aware of their high risks. As its market is not regulated or organised, possibilities of capital loss cannot be ruled out.\u00a0 Furthermore, these shares tend to be volatile and illiquid.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><strong>\u00a0Liquidity problems<\/strong>: Liquidity problems are common in the unlisted marketplace due to a smaller number of investors who seldom liquidate their stakes. Unlike listed securities, where investors can sell their stake without much delay, it may be difficult for investors of unlisted shares to find buyers when needed.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Information shortage:<\/b><span style=\"font-weight: 400;\"> Unlisted companies have relaxed disclosure norms.\u00a0 As a result, they do not usually have much news about their current affairs and financials.\u00a0 Investors need such information to understand a business&#8217;s profitability, industry dynamics, and prospects for future growth.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Lock-in period:<\/b><span style=\"font-weight: 400;\"> The Securities and Exchange Board of India (SEBI) has stipulated a 6-month lock-in period for non-promoter, pre-IPO investors. So, if you invest in unlisted shares just before the IPO, you cannot immediately exit if the value of the securities falls.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Risks_of_Investing_in_Unlisted_Shares\"><\/span>Risks of Investing in Unlisted Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Investments in unlisted shares carry considerable risks. The following are some of the risks involved:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Capital loss:<\/b> Investments in unlisted shares carry the risks of capital loss.\u00a0 If you do not perform due diligence on the stock&#8217;s fundamentals, you can lose your entire capital. There have also been cases where promoters have participated in willful malpractices to raise money from gullible investors.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Risk of equity dilution:<\/b><span style=\"font-weight: 400;\"> After share allotment, there is a further risk of equity dilution for investors. It refers to your shares getting devalued due to additional shares being issued in the market.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Lack of liquidity:<\/b> Even in a bear market, you can sell high-quality listed stocks at any time to get cash.\u00a0 However, unlisted shares are highly illiquid due to their substantial minimum investment amount and absence of frequent transactions.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Missing dividend payouts:<\/b><span style=\"font-weight: 400;\"> Unlike listed companies, unlisted companies do not usually pay dividends in a structured way.\u00a0 If the company does not make profits, it will not pay any dividends. Then, you will have to bear the risk of no return on investment.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Counterparty risk:<\/b> Listed shares have standard payment mechanisms and order placement systems, and there is no counterparty risk. With unlisted shares, you need to be very careful about such risks. A counterparty risk happens when the other party does not fulfill its end of the deal.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Valuation_of_Unlisted_Shares\"><\/span>Valuation of Unlisted Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p>There is no market price for unlisted shares as they do not trade on stock exchanges.\u00a0 Instead, the investors and promoters agree on an indicative market value or selling quote.\u00a0 Some wealth management firms offer to arrange these transactions for such shares. For large investors, they can arrange a fixed fee for the purchase.<\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">One of the most common methods for estimating the value of a private company is the comparable company analysis. It involves analysing publicly traded companies of a similar nature in terms of industry, age, and growth rate to estimate their value. Metrics such as price-to-earnings, price-to-book, price-to-sales ratios, and EBITDA also determine their valuation.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>When unlisted shares enter trading circles, investors further decide on their fair value before carrying out a transaction. Investment bankers or underwriters calculate their fair market value (FMV) for transactions.<\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">To calculate the FMV of a company&#8217;s share, you have to deduct the book value of all liabilities (L) from the book value of all its assets (A).\u00a0 Then, you have to multiply this amount with the paid-up value of equity shares (PV) divided by the paid-up equity share capital (PE).\u00a0 The following formula shows this calculation:<\/span><\/p>\n<p>&nbsp;<\/p>\n<pre style=\"padding-left: 40px;\">FMV = (A-L) x PV\/PE<\/pre>\n<p>&nbsp;<\/p>\n<p>Another method of calculating the price of unlisted shares is the discounted cash flow (DCF) method. In this, you have to anticipate all the future cash flows and discount them at a particular rate to get the present value of shares.<\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Benefits_of_Investing_in_Unlisted_Shares\"><\/span>Benefits of Investing in Unlisted Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The following are some of the benefits of investing in unlisted shares:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Portfolio diversification:<\/b><span style=\"font-weight: 400;\"> The more you diversify your investments, the less the risk of your investment portfolio. Unlisted shares offer different risk dynamics compared to listed shares and thus, can be complementary to anyone invested in listed shares.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Low volatility:<\/b><span style=\"font-weight: 400;\"> Unlisted shares tend to have less volatility than listed shares. As many investors do not affect their supply and demand, their prices too do not fluctuate daily. If you have highly volatile stocks in your portfolio, you can mitigate your risks by adding some unlisted stocks.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Possible undervaluation:<\/b><span style=\"font-weight: 400;\"> There is a low demand for unlisted shares owing to their illiquid nature. Moreover, fewer investors are willing to hold their unlisted securities.\u00a0 That is why their valuations also tend to be on the lower side. For experienced investors, this presents opportunities to invest in undervalued stocks.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Exponential gains:<\/b><span style=\"font-weight: 400;\"> The illiquid nature of unlisted shares can turn into an advantage for market-savvy investors. If the stock price remains undervalued for a long time, you can invest at low costs and get exponential gains when the company gets listed.\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Possibility of negotiation:<\/b><span style=\"font-weight: 400;\"> On OTC platforms, there are fewer buyers and sellers.\u00a0 So, you have a high chance of getting the right price by negotiating directly with the intermediary.\u00a0\u00a0<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"Final_Word\"><\/span>Final Word<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p>Unlisted shares carry considerable risks, including liquidity risk and risk of capital loss. Furthermore, there is little to no information on them.\u00a0 However, they offer the potential to earn significant returns upon the company\u2019s listing on the stock exchanges. As regulations do not apply to them, you will want to be very careful when investing in these stocks.<\/p>\n<p>&nbsp;<\/p>\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"Can_you_get_loans_or_advances_on_unlisted_shares\"><\/span>Can you get loans or advances on unlisted shares?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">While loans and advances on listed stocks are easy to get, the same is not true for unlisted shares. Their illiquid nature means that there is little demand for these stocks.\u00a0 Moreover, it is also difficult to know their fair value, which makes it hard to grant for loans\/advances. <\/span><b>\u00a0<\/b><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"How_much_should_I_invest_in_unlisted_stocks\"><\/span>How much should I invest in unlisted stocks?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Your risk appetite will determine if unlisted stocks are a suitable option for you. Some experts suggest that you should not allocate more than 10% of your equity investments even if you are a high-risk taker. These stocks carry various risks like low liquidity and uncertainty concerning their IPO.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"What_type_of_companies_do_you_usually_find_in_the_unlisted_category\"><\/span>What type of companies do you usually find in the unlisted category?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Unlisted companies are usually in the early stages of their evolution. It includes some popular new-age businesses that are yet to open to the public. These are highly innovative digital companies in sectors like finance, gaming, e-commerce, technologies, etc. It also includes subsidiaries of well-known parent companies.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"What_are_the_tax_implications_of_unlisted_shares\"><\/span>What are the tax implications of unlisted shares?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">If you sell unlisted shares within 24 months of investment, short-term capital gains (STCG) taxes will be applicable at marginal tax rates.\u00a0 For a longer holding period, long-term capital gains (LTCG) taxes will be applicable at a 20% rate with the benefit of indexation.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Profits for taxation purposes are calculated as per FMV till the shares are listed on stock exchanges.\u00a0 If you sell your shares afterwards, the taxation rules of listed shares still apply.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"What_are_some_of_the_things_to_check_before_investing_or_buy_unlisted_shares\"><\/span>What are some of the things to check before investing or buy unlisted shares?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Here are some of the things you need to check before investing in unlisted shares:<\/span><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Compare commission rates of brokers and intermediaries before investing<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Make sure that you have enough funds to invest in these shares after allocating funds to other investment options such as mutual funds, debt instruments, gold, etc.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The company you are investing in should be registered with the Registrar of Companies\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">You should check the fundamentals of the company to check if it is profitable\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Read through the plans of the company to check its future growth<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Lastly, read the prospectus of the company before investing.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"Interested_in_how_we_think_about_the_markets\"><\/span>Interested in how we think about the markets?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>Read more: <a href=\"https:\/\/kuvera.in\/blog\/category\/zen-and-the-art-of-investing\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Zen And The Art Of Investing<\/strong><\/a><\/p>\n<p>Watch\/hear on YouTube:<\/p>\n<p><iframe loading=\"lazy\" title=\"Kuvera Insights\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/videoseries?list=PLDSzQdT9nLmCysU31bg4Ngh7WY2p3UiiI\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/p>\n<p>Start investing through a platform that brings goal planning and investing to your fingertips. Visit <a href=\"https:\/\/www.kuvera.in\/\"><strong>kuvera.in<\/strong><\/a> to discover <a href=\"https:\/\/kuvera.in\/blog\/direct-plans-better\/\"><strong>Direct Plans<\/strong><\/a> and <strong><a href=\"https:\/\/kuvera.in\/explore\/fixed-deposit\/c\/all\">Fixed Deposits<\/a><\/strong> and <a href=\"https:\/\/kuvera.in\/user\/login\"><strong>start investing today.<\/strong><\/a><\/p>\n<p>#MutualFundSahiHai #KuveraSabseSahiHai!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many are looking for alternative investments because of the recent growth in the number of retail investors in India and high market valuations. There is a large share market outside of the well-known stock exchanges for such investors. Shares sold in this market are buy unlisted shares, i.e., they are not listed on formal stock [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":11,"featured_media":11189,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[679],"tags":[176,688,332,686,687],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How to Buy Unlisted Shares? - Kuvera<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/kuvera.in\/blog\/how-to-buy-unlisted-shares\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to Buy Unlisted Shares? - Kuvera\" \/>\n<meta property=\"og:description\" content=\"Many are looking for alternative investments because of the recent growth in the number of retail investors in India and high market valuations. 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