Think of unlisted shares as a secret recipe that has been passed down through the generations within a close-knit family. While everyone knows the popular dishes that are served in a restaurant, the unlisted shares are like a secret recipe that is only shared with the members of the family. These shares represent ownership in private companies. They aren't widely known or traded on stock exchanges.

In the same way that the secret recipe has a unique value and potential for success, investing in unlisted shares offers you a unique opportunity to be a part of something exclusive, with the potential for significant returns if the company does well.

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Let's understand how you can invest in unlisted shares in detail.

Unlisted shares are stocks of privately-held companies that are not traded on public stock exchanges. They are investment opportunities away from the mainstream market, with potential risks and rewards. It's vital to note that these shares may have limited liquidity and transparency compared to those listed.

What is the benefit of investing in unlisted shares?

• Possibility of higher returns: Unlisted shares can offer high returns if the company clocks credible revenue or profit growth or successfully exits. It is a high-risk, high-return proposition.
• Access to unique investment opportunities: Investing in unlisted shares allows you to support early-stage or private companies with promising potential.
• Diversification: Unlisted shares provide an opportunity to diversify your investment portfolio beyond traditional listed stocks and asset classes.
• Potential for early entry: Investing in unlisted shares enables you to enter a company's ownership early, potentially benefiting from future valuation increases.
• Possibility for involvement: Through an investment in unlisted shares, you may have the opportunity to engage with the company's founders, management or other stakeholders.
• Flexibility in negotiation: When investing in unlisted shares, you may have more flexibility to negotiate terms such as valuation or rights.
• Limited impact of market fluctuations: Compared to listed shares, unlisted shares may be less affected by short-term market fluctuations.

Where to buy unlisted shares In India?

Investing in unlisted companies typically involves seeking opportunities outside of traditional stock exchanges. So, here are some common avenues where you can explore investing in unlisted companies:

• Employee Stock Options (ESOPs): Employee Stock Options (ESOPs) are a unique form of employee compensation that gives employees the privilege of buying shares in the company at a pre-determined price. This acts as a motivating and rewarding incentive for employees, enabling them to become shareholders in the company they work for.
• Private Placement: Private placements involve selling unlisted securities directly to selected investors, bypassing public offerings. Networking with industry experts, attending investment conferences and signing up for private placement platforms can help keep you abreast of private placement opportunities.
• Portfolio Management Systems: A portfolio management system is a platform or service that is designed to help investors like you manage their investment portfolios. All you need to do is choose a PMS provider and open an account. You will probably need to fill in the necessary paperwork and meet any requirements that may apply, such as minimum investment criteria.
• Alternative Investment Funds: An alternative investment fund is where you pool your money to invest in non-traditional assets such as real estate, hedge funds, private equity or venture capital.
• Pre-IPO funds: Pre-IPO funds invest in companies before they go public through an initial public offering (IPO). You may be able to add unlisted stocks to your portfolio by investing in these funds.
• Private investment platforms: Private investment platforms such as UnlistedZone, Leadoff and many others connect you with promising early stage companies in need of funding. You can support innovative start-ups or growth-oriented companies by participating in private placements or pre-IPO investments.

What are the legal and tax implications?

Regarding the trading of unlisted shares, the income tax treatment follows a similar pattern as that of other capital assets. The tax rates applicable on the sale of unlisted shares are as follows:

• Long-Term Capital Gains (LTCG) are taxed at a rate of 20% with the benefit of indexation.
• Short-Term Capital Gains (STCG) are taxed based on the individual's applicable slab rates.

Conclusion

Despite these potential benefits, it's important to be aware that there are also risks associated with unlisted share investments. These risks include liquidity problems, valuation uncertainty, lack of public disclosure and potential volatility. Before investing in unlisted shares, you should conduct thorough due diligence, seek professional advice and assess your risk tolerance.

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