What Are Unlisted Shares?

Unlisted shares refer to the shares of a company that are not listed on stock exchanges such as the NSE (National Stock Exchange) or BSE (Bombay Stock Exchange) in India. These shares are traded over-the-counter (OTC), meaning that transactions take place privately between two parties or through brokers specializing in unlisted securities.

Types of Unlisted Shares

Unlisted shares include:

1. Pre-IPO Shares – Shares of a company before it goes public.
2. Delisted Shares – Shares of companies that were removed from the stock exchange (voluntarily or involuntarily).
3. Private Placement Shares – Shares issued privately to investors or institutions.
4. ESOP Shares – Employee Stock Option Plan (ESOP) shares offered to employees.
5. Shares Held by Private Company Investors – Shares owned by founders, promoters, or private equity firms.

Advantages of Investing in Unlisted Shares

1. Early Investment Opportunity – Invest in potential future blue-chip stocks before they get listed.
2. No IPO Allotment Hassle – Since these shares are purchased before an IPO, there’s no worry about IPO oversubscription.
3. Possibility of High Returns – If a company performs well and gets listed at a high valuation, investors can gain significant profits.
4. Diversification – Adds variety to your investment portfolio, reducing reliance on listed stocks.
5. Held in Demat Account – Like listed shares, unlisted shares are stored in a Demat account, ensuring secure transactions.

Disadvantages of Investing in Unlisted Shares

1. Higher Risk – Unlike listed shares, unlisted stocks are not regulated by SEBI (Securities and Exchange Board of India).
2. Liquidity Issues – Difficult to buy/sell quickly, as these stocks have fewer buyers.
3. Longer Transaction Time – Transactions take days or even weeks compared to real-time trading in listed stocks.
4. Higher Minimum Investment – The lot size for unlisted shares is usually large, requiring higher capital.
5. Limited Market Access – Fewer brokers deal in unlisted shares, making price discovery difficult.

How to Buy Unlisted Shares?

There are multiple ways to invest in unlisted shares:

1. Buying from Brokers or Dealers

Some brokers specialize in sourcing and placing unlisted shares. They acquire stocks from existing investors and offer them to new buyers. You can buy/sell through them.

2. Buying ESOPs from Employees

Many employees of startups and private firms hold ESOP shares and may choose to sell them before an IPO. Investors can buy directly from them through intermediaries.

3. Investing in Startups

Angel investors or venture capitalists directly invest in startups, acquiring unlisted shares before they become public.

4. Buying from Promoters or Early Investors

Company founders or early-stage investors sometimes sell their shares before an IPO.

5. Investing Through PMS & AIF

• PMS (Portfolio Management Services) – Managed funds that include unlisted stocks.
• AIF (Alternative Investment Fund) – Investment pools that include unlisted securities along with other assets like real estate and hedge funds.

6. Pre-IPO Investment Platforms

There are specialized platforms that allow investors to buy shares before an IPO at negotiated prices.

How to Sell Unlisted Shares? 

Selling unlisted shares can be challenging due to liquidity issues. Here are some exit options:

1. Private Sale – Selling to an interested buyer directly.
2. Through Unlisted Share Brokers – Brokers help find buyers in exchange for a fee.
3. Company Buyback – Some companies buy back their unlisted shares from investors.
4. Acquisition by a Listed Company – If a listed company acquires the firm, investors can exit by selling their shares.
5. IPO Listing – Once the company gets listed, shares automatically become tradeable on stock exchanges.

Lock-in Period for Unlisted Shares

• Regular unlisted shares – No lock-in; can be sold anytime.
• Pre-IPO shares – Have a 6-month lock-in period after the IPO. Investors cannot sell their shares for six months from the listing date.

Unlisted Shares Taxation

Taxation on unlisted shares in India depends on the holding period:

1. Short-Term Capital Gains (STCG)

• If sold within 24 months, gains are considered short-term capital gains (STCG).
• Tax rate: As per the investor’s income tax slab.

2. Long-Term Capital Gains (LTCG)

• If held for more than 24 months, gains are taxed as long-term capital gains (LTCG).
• Tax rate: 20% with indexation benefits.

Unlisted Shares vs Listed Shares

FAQs About Unlisted Shares

1. Can retail investors buy unlisted shares?

Yes, retail investors can buy unlisted shares through brokers, private sellers, or Pre-IPO platforms.

2. How are unlisted shares taxed?

• Held for less than 24 months → STCG tax as per income tax slab.
• Held for more than 24 months → LTCG tax at 20% with indexation.

3. Are unlisted shares riskier than listed shares?

Yes, since they are not regulated by SEBI, they carry higher risk but also higher potential returns.

4. How can I sell my unlisted shares?

You can sell through private sales, brokers, buybacks, acquisitions, or an IPO listing.

5. What happens to unlisted shares if the company gets listed?

Once the company gets listed, unlisted shares convert into listed shares and can be traded on stock exchanges.

6. Are pre-IPO shares locked after listing?

Yes, pre-IPO shares have a 6-month lock-in period after the IPO.

7. Can I hold unlisted shares in a Demat account?

Yes, unlisted shares are held in Demat form just like listed shares.