Advantages of Investing in Unlisted Stocks

advantages of investing in unlisted stocks

There is a lot of money to be made in pre-IPO investment, which was previously exclusively open to high-net-worth people since the typical investor could only participate in public limited firms that were listed on the stock market. However, times have changed, and the common investor may now buy shares in a growing company. Startups are risky, but they have the potential to deliver large gains not seen in the stock market. This is why investing in pre-IPO firms is a good idea. 

Investing in stocks on the grey market — the unlisted market for unlisted shares — has risks, but it may also be rewarding, according to market experts. 

Companies in the pre-IPO stage often have an established revenue model and are in the process of obtaining additional money from the market via a public listing. According to financial experts, investing in a firm that is ready to launch its IPO (initial public offering) may enable an investor participate in a company’s development, but such bets should only be done by aggressive traders since they include risk. 

Meanwhile, analysts claim that stock values on the grey market are frequently less volatile than those in the main market. Furthermore, purchasing stocks on the grey market is no longer a luxury reserved for large corporations/investors. Individual investors now have access to the grey market.

In this article, we’ll go over the advantages of investing in unlisted shares and best unlisted shares in India that you should consider investing in. However, before we delve into that, let’s first understand what unlisted shares are and how they work. 

What Are Unlisted Shares and How Does It Work?

A pre-IPO investment is one that is made in a private or public limited business before it becomes public via an Initial Public Offering (IPO). An initial public offering (IPO) is the first time a business trades on a public market. Pre-IPO shares are not available to everyone due to a lack of understanding or public awareness. 

Unlisted shares were formerly exclusively accessible to banks, private equity firms, hedge funds, and a few other privileged groups. But it is no longer an issue. Everyone may invest in the pre-IPO stage if they choose the proper firm. There are currently procedures in place that enable a firm to dematerialize its shares, enabling anybody to buy them and simply transfer them from one Demat account to another.

Should You Invest In Pre-IPO Companies?

The potential profit is the most compelling argument to invest in a pre-IPO. It has the potential to provide the best possible return on investment. Most technology stocks have a lot of upward potential in the stock market. Despite the fact that it is obvious that early investors profit the most before the firm goes public. You may now join in on the fun as well. 

Another benefit is the lack of stock market volatility. Depending on the industry, pre-IPO investment is less influenced by events such as the 2008 financial crisis or the 2020 pandemic. However, the accidents may have an impact on enterprises. This, in turn, will have an effect on your savings. 

Investing in pre-IPOs, like investing in the stock market, is not without risk. Startup enterprises aren’t always successful. As a consequence, when an investment fails, there are no rewards. There are only setbacks. Businesses, on the other hand, are aware of the danger. In order to compensate, companies sell shares at a lower price. This not only attracts investors but also protects the company. If it goes public but the IPO stocks do not perform well, the firm will still get funding from private investors.

Benefits of Buying Unlisted Shares

While there are several reasons why a person would invest in unlisted shares, the following are some of the more popular benefits of doing so: 

1. High-value investments: Because shares are not extremely liquid, they are often undervalued or overpriced for extended periods of time. As a result, if an investor can invest while the shares are inexpensive, he or she may profit handsomely. 

2. Risk diversification: Because unlisted equity shares are a separate asset class, they provide some risk diversification for investors who are heavily engaged in listed stock markets. 

3. High growth investments: Unlisted enterprises are often smaller in size and have yet to reach a stage where they may go public in order to get funding for their capital needs.  As a consequence of the small base effect, investing while the firm is tiny and investing through its growth when it lists on public markets generally generates large returns. 

4. Peace of mind: Unlike listed equity shares, the values of unlisted equity shares are typically constant, so the investor does not need to be concerned about price changes.

What Is a Good Way to Invest in Pre-IPO Stocks?

It’s tough to identify the proper company, and it’s much more difficult to find a means to invest in them. However, there are a variety of methods to invest in these thriving enterprises, including: 

  • Consult with a firm that specialises in capital raising and pre-IPO stock. They will advise and guide you on how to invest in a pre-IPO firm. 
  • Keep up with the latest news on which companies are doing well. 
  • For information on firms seeking capital, contact your local lenders. 
  • Expand your company network. 
  • Become an angel investor to establish yourself in the angel community.

Moreover, according to LiveMint, A person who has unlisted shares must report them on his or her income tax return. In this circumstance, ITR-1 and ITR-4 cannot be utilised; only ITR-2 and ITR-3 may be used.

Top Unlisted Shares In India To Invest

A)  HDB Financial Services

B)  Metropolitan Stock Exchanges of India (MSEI)

C)  Care (Religare) Health Insurance Limited 

D)  Reliance Retail

E)  One97 Communications (Paytm)

F)  Chennai Super Kings Cricket Limited 

Wrapping Up

Investing in initial public offerings (IPOs) is a common activity around the globe. There are individuals who are feasible and likely to succeed in the business sector firm shares. Many individuals rely on the purchase and sale of stocks to augment their income. However, an unpopular reality is that purchasing Pre-IPO shares from corporations might help you earn a lot of money. Investing in a company’s stock while it is still in its early phases of growth might result in a large profit. So, if you’re looking to invest in unlisted shares, contact us at Unlisted Deal today!

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