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Well, we all know how to buy stocks that are listed on any exchange. But do you have any idea about how to buy stocks that are not listed? There are many unlisted businesses that can provide impressive results. So, you are free to invest in businesses like CSK, LAVA, BOAT, or OYO. Nonetheless, knowledge and experience are needed to invest in unlisted companies. Investing in the stock market has a safety net provided by SEBI's ongoing oversight and rules. Unlisted equities, however, carry greater risks because they are not regulated. Investing in publicly traded corporations like State Bank of India and Reliance Industries is well-known and easy with the help of brokers and apps. Yet, there are alternative methods to invest in unlisted businesses, which are expanding quickly and might offer lucrative profits. Shares of unlisted firms cannot be traded on any stock markets, unlike those of listed companies. Consequently, through other venues, those who want to invest in those companies can do so.

To buy unlisted stock we must understand what an unlisted stock is: Unlisted shares by definition are the stocks or financial products that can be traded off-exchange, sometimes known as over-the-counter securities, or OTC. Naturally, you won't find them available for trading on stock exchanges. They are shares of younger or smaller companies. Companies that are not listed are not traded on any official stock exchange. This is due to the fact that smaller or more recent businesses either don't want to or are unable to meet requirements like listing costs and market capitalization.

Common stock is the most popular category of unlisted financial instruments. Over-the-counter (OTC) markets are where the majority of these unlisted equities are traded. Commonly traded instruments that can be traded are:

  • Penny stocks
  • Corporate bonds
  • Government securities
  • Derivative products like swaps, etc.

Now one can invest in unlisted stocks here are a few methods:

Pre-IPO firms
You can invest in companies that are getting ready to go public. By making an early investment in these businesses, you may take advantage of their strong growth potential. Without the intervention of the stock market, the shares will be credited straight to your Demat account. To successfully invest in these shares, though, you'll need to choose a reliable broker. As an alternative, you might invest in unlisted startups with the potential for future multi-fold development. Even though these businesses are now under the radar, they have the potential to contribute to growth and profitability in the future. The minimum investment required by the majority of startups is close to Rs 50,000 in order to receive the stocks in your Demat account.

Invest in PMS and AIF
Portfolio Management Systems, or PMS, are financial portfolios that are expertly managed. To maximize the investors' net returns, the portfolio manager in this case makes dynamic changes to the weight and composition of the portfolio based on market developments. Using PMS programs, which include unlisted shares as part of the investment strategy, you can benefit from investing in unlisted shares in India. Compared to direct buying, this is significantly safer because firstly risk can be spread out among the components of the portfolio and secondly Based on each stock's performance, the portfolio manager dynamically adds and removes stocks.

Buying ESOP from employees
Some brokers can put you in touch with company personnel who sell their shares at a predefined price after a specified time period. This is one method of purchasing stock in prestigious Indian unlisted enterprises.

Buying stocks from the promoter
To invest a significant stake in a company, you can approach a trusted investment bank, wealth manager, or broker who can help you learn how to know the share price of an unlisted company. In addition, they will help you connect with the company’s promoters directly and introduce you to a list of unlisted companies in India in 2022 and 2021. Such transactions are called private placements.

Pre IPO funds
Investors invest in pre-IPO funds to gain quick access to some of the best businesses. Among the wealth management companies that provide funds that invest in pre-IPO businesses are Edelweiss Wealth Management, Kotak Investment Advisers, Trifecta Capital, and IIFL Wealth. According to reports, the Edelweiss Recently Listed IPO Fund has produced a compound annual growth rate (CAGR) of 21.7% since its debut. The fund makes investments in up to 100 recently listed firms and forthcoming IPOs. Due to the volatility and illiquidity of unlisted companies, a retail investor should only invest their excess funds in them. In this sense, it shouldn't matter to you whether you lose this money.

But, before buying anything, be it a car or phone, you do some degree of research about its performance and quality. Investment is no different. It is your hard-earned money that you are about to invest, so you must have a fair knowledge of what you are investing in. If you don't have the time to check these metrics and build valuations of companies, you can subscribe to our research solutionsOur team of SEBI-registered analysts can help you identify the right investment. Such clients also get access to monthly investment newsletter where they can see our latest recommendations and my sample portfolio, which includes index ETFs as well as individual stocks. The newsletter typically comes out once a month and keeps readers updated on where we seem to be in the business cycle, how expensive or cheap stocks are, new recommendations[if any], and what I’m doing with my own money.

Let's keep risk at bay,
Investment Advisor and Research Analyst
Start Smart Investment Solutions.

Thank you for reading. See you next time. :-)...

Start Smart

Start Smart provides investment research and portfolio building services. Our blog provides equity research and investment strategies to give you the insight and data you need for managing your money through all market conditions.

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