What is Unlisted Equity?
Unlisted equity refers to shares of a company that are not traded on a public stock exchange and are privately held by a limited number of investors. They can provide opportunities for private investment, potentially offering higher returns but also carrying higher risk. They are typically meant for institutional investors, high-net-worth individuals, and accredited investors who have the financial resources and risk tolerance to invest in privately held companies.
Types of Unlisted Equities
Basically, when you invest with an AMC, you invest in a portfolio that AMC maintains for you. It is the responsibility of AMC to ensure an investor’s financial objective is met.AMC ensures this by the following means:
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ESOP (Employee Stock Ownership Plan) Shares
ESOP shares are offered by companies as part of an employee benefit plan. Through an ESOP, employees can purchase shares of company stock, usually at a discounted price.
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Pre-IPO Shares
Pre-IPO shares refers to shares of a company that are sold before the company goes public and listed on a stock exchange. They are typically offered to institutional investors, private equity firms, and high-net-worth individuals.
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Unlisted Shares
Unlisted shares are shares that are not listed on stock exchanges. These shares are generally held by privately owned companies or smaller, less liquid companies that do not meet the requirements for listing on recognized stock exchanges.
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How to buy unlisted shares
in India ?
Direct Transactions
You can buy unlisted shares directly from existing shareholders or through intermediaries who facilitate such transactions. These intermediaries might be private broking firms or financial institutions that specialize in dealing with unlisted securities.
Pre-IPO Placements
Some companies offer the opportunity to purchase shares before their initial public offering (IPO) through pre-IPO placements. This can be done through registered intermediaries such as investment banks, brokerage firms or financial institutions.
ESOPs
Employee Stock Ownership Plans (ESOPs) provide a way for employees to acquire shares of their company at a discounted price. If you are an employee of a company that offers an ESOP, you may be eligible to participate and buy unlisted shares
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Risks associated with Unlisted Equity
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Liquidity Risk
Unlisted equity investments can be less liquid compared to publicly traded stocks, making it challenging to easily buy or sell them.
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Valuation Risk
Determining the true value of unlisted equity can be more subjective and uncertain due to the absence of a transparent market.
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Limited Information
Unlisted companies provide limited financial information, making it harder to evaluate their financial health and future prospects.
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Regulatory Risk
Investing in unlisted equity involves regulatory risks, as the regulatory framework may differ and changes in regulations can impact the value and liquidity of unlisted shares.
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