Unlisted Shares Vs Listed Shares: The Ultimate Comparison
Listed companies are the ones which are included and exchanged on a specific stock exchange, according to different sources. The stock exchanges have specific requirements which a corporation must achieve and continue to fulfil to be listed and continue to stay.
To sell their share to the public, a private corporation has to go public; if it goes public, they file with a stock exchange which becomes a listed share. The reason businesses want to go public is that, aside from bank loans, they can reduce their debt and have the means to finance themselves.
A public company does not necessarily need to be listed. An unlisted public corporation is one that is not listed on the stock exchange but can have an infinite number of shareholders collecting money for any business company. Their shares are known as unlisted shares.
In this blog, we’ll discuss the difference between listed and unlisted shares and why investing in unlisted shares is worth the effort.
The Key Differences Between Listed & Unlisted Shares
To better understand the difference between listed and unlisted shares, we first need to define the main differences between a listed company and an unlisted one.
|Factors||Listed Company||Unlisted Company|
|Meaning||A listed company is a stock exchange-listed company wherein the shares are openly tradable.||An unlisted company is a company that is not listed on the stock market.|
|Ownership||Listed companies are acquired by several shareholders.||Unlisted companies are acquired by private investors like founders, founders’ family and peers.|
|Liquidity of shares||Shares are very liquid, as demand is readily open.||There is no openly available market for shares; therefore, they are illiquid.|
|Valuation||Business valuation can be conveniently calculated because it is simple to determine market value.||Because of the non-availability of a stock price, the company's valuation is sometimes uncertain, and the share value of a proxy traded firm can only be used to arrive at acceptable market value.|
|Regulatory Requirements||Complicated and strict regulatory standards have been set for listed companies.||Unlisted companies have less complicated and stringent regulatory requirements compared to listed companies.|
Benefits of Investing in Unlisted Shares
Although there are several reasons as to why you should invest in unlisted shares, some of the most common benefits of owning unlisted shares are as follows.
High Value Investments
Since the markets are not quite liquid, they are mostly either overvalued or undervalued for prolonged times. And, if an investor can buy while the stock is undervalued, then he/she will make good returns on the investments.
Peace Of Mind
Unlike listed equity shares, unlisted equity stock prices are relatively steady, and the buyer does not need to worry about price fluctuations.
High Growth Investments
Usually, unlisted companies are smaller in scale and are yet to hit a point where they can go to the market and make use of funds and satisfy their capital needs.
As a result, investment when the firm is low and when it is listed on stock exchanges being invested in its growth also yields good returns due to limited base impact.
Diversification Of Risk
Unlisted equity shares are a different investment option on their own and thus offer some risk diversification for investors who are primarily invested in the listed equity markets.
Importance of Tracking Unlisted Share Prices
The current price is often referred to as the unlisted valuation of the market, which is essentially the price at which a stock share or some other asset was last traded.
The current price serves as a benchmark in an open market. It shows the price a buyer would be ready to pay, and a seller would be willing to agree to that value for a future sale. Hence, you should also know how to check unlisted share price.
Here are a few of the top reasons why it’s essential to track unlisted share prices:
The market value of a stock fluctuates during a trading day, depending on the availability of shares combined with the demand of buyers. The stock valuation lets an investor know if the shares are affordable at present. The interest is significant as trading techniques are used too.
An investor can lose out on an opportunity to cash in on investment and profit without realising when a stock is too richly priced, or overvalued. Worse, a buyer might end up buying a stock with a price that's not going anywhere but going down.
Investors may seize an opportunity to gain money by finding stocks on the market that are undervalued or sold below where they are worth depending on specific metrics.
3 Ways To Invest In Unlisted Shares
If you’re wondering how to buy unlisted shares, here are a couple of most effectively ones:
Buy from existing employees with ESOPs
Companies offer employees equity investment options by providing staff with the ability to purchase some amount of shares in the company over a fixed time at a predefined price. You should get these transactions reviewed with your broker.
Buy from Promoters Directly
These are described as Private Placements, and investment banks and fund managers support many of these private assets. Network pushes this sort of transaction, and you can look at a substantial amount of risk.
Buy PMS or AIFs which pick up unlisted shares
Financial companies managing portfolio management services (PMS) and alternative investment funds (AIF) buy up unlisted shares in addition to institutional investors. Many of these funds engage in "capturing pre-IPO valuations" to benefit from an increase in valuations after an initial public offering.
Taxation on Unlisted Shares (Private Share)
Unlisted Stock is not registered on any approved stock exchange. Therefore, the Organization will not pay STT, i.e. Securities Tax on these shares. The retention time is 24 months.
- Long Term Capital Gain (LTCG): The Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL) is the gain or loss on such transactions if an investor sells an unlisted stock owned for more than 24 months.
- Short Term Capital Gain (STCG): When an owner sells an unlisted stock owned for up to 24 months, a short term capital gain (STCG) or short term capital loss (STCL) is a gain or loss on such a transaction.
Income Tax on Unlisted Shares
Income Tax on Trade of Unlisted Shares is equivalent to most financial assets' tax status. Below is the rate of income tax on the selling of Domestic Business or International Corporation unlisted shares.
- Long Term Capital Gain – 20% with Indexation
- Short Term Capital Gain – taxed as per slab rates
Note: In the case of a non-resident, LTCG without indexation on Unlisted Stock is 10 per cent.
Top 5 Unlisted Shares to Invest Now
Fino is a professionally run organisation and is Fino payments bank's parent company, which was founded to catalyse nation-building and make every person financially secure. The firm is the country's most prominent business correspondent and has played on the unlisted stock (bid) market in favour of the Fino Paytech Ltd share price.
HDB Financial Services (HDBFS) is an HDFC Banking subsidiary. The company is the largest Non-Banking Financial Company (NBFC), serving both individual and business customers.
The share value of HDFC securities depends on its vast array of products. The company provides 3 in 1 online investment accounts which is a blend of HDFC bank and Demat bank account and HDFC Securities trading services.
Motilal Oswal Home Finance Limited (MOHFL), is a Motilal Oswal Financial Services Limited (MOFSL) subsidiary. The housing finance business is run efficiently by a rare mix of financially stable and technologically competent promoters who are well known for professional integrity and good implementation skills in their jurisdiction.
Metropolitan Stock Exchange of India Limited (MSE) is identified under Section 4 of the Securities Contracts ( Regulation) Act, 1956 with the Securities and Exchange Board of India (SEBI). The Exchange has been declared a "recognised stock exchange" via the Corporate Affairs Ministry, Govt. by India, on 21 December 2012. In Stock Market, Futures & Options, Currency Derivatives and Debt Market Pieces, MSE provides an online, free, and hi-tech network.
If you are looking for more information on unlisted shares, our team at Unlisted Deal provides analysis reports on select companies and their securities of investments from well-known venture capitalists and significant private equity firms. For more details, please contact us!