Want to invest in unlisted companies like Ola, Paytm or Byju’s? Here is how you can do it

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Want to invest in unlisted companies like Ola, Paytm or Byju’s? Here is how you can do it
BCCL
  • Unlisted shares are bought from existing employees of the specific company who can offer shares to new investors who are keen to invest.
  • Some investment firms like Analah Capital, TradeUnlisted and Unlistedkart are providing their portals to help investors buy unlisted shares.
  • A retail investor should invest only the surplus money in unlisted companies as these are volatile and illiquid investments.
Investment in publicly listed companies like Reliance Industries, State Bank of India is very well known. But there are also ways to invest in unlisted companies, which are growing at a pace and could give attractive returns.

Unlike the listed ones, shares of unlisted companies are not available for trading on any stock exchanges. So those who want to invest in those companies can do so through other platforms.

Here are some ways for retail investors to invest in unlisted space:

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Pre-IPO investment

Pre-IPO (initial public offering) trading means buying/selling the shares of a company before it gets listed on the stock exchanges. Since these shares are not traded in the public market, you do not have a marketplace like stock exchange to buy it.

Unlisted shares can be bought through intermediaries and platforms who specialise in sourcing and placement of unlisted shares and can facilitate the trade. Intermediaries and platforms buy shares from employees i.e., employee stock options (ESOP), existing investors and offers new investors who are keen to invest.

In the last few years, the pre-IPO market has opened up and is now available to the masses. Some investment firms like Analah Capital, TradeUnlisted and Unlistedkart have portals to help investors buy unlisted shares. Shares of these unlisted companies will be held in a demat account.
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According to Unlistedkart, depending on the unlisted share, the minimum amount can be between ₹ 25,000–₹ 50,000. Other investment platforms have not mentioned a threshold of minimum investment.

As per India’s market regulator’s rules, all pre-IPO shares are locked in for six months from the date of listing. It means you cannot sell stocks before six months from the date of listing.

In case of unlisted securities, if the stock is sold within 24 months, it’s considered short term. The gains are added to the income of the person and taxed at a tax slab rate applicable to you. And if sold after 24 months, it is taxed as long term capital gains at 20% after indexation.
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However, remember unlisted shares are illiquid and volatile, so you may not be able to sell your shares in a hurry. Since the pre-IPO market is mostly dominated by institutional players and the transaction among them is generally slower which makes it difficult to sell shares and get money any time of the day.

Here is the data on some of the past IPOs:
CompaniesPre-IPO sellingIPO price bandListing priceCurrent price
Bombay Stock Exchange₹200₹806₹1069₹1179
Ratnakar Bank (RBL)₹60₹225₹301₹179
ICICI Lombard₹400₹661₹680₹1600
HDFC Standard Life₹210₹290₹344₹742
Avenue Supermarts (DMart)₹280₹300₹616₹4209
ICICI Prudential Life Insurance₹130₹334₹310₹696
Central Depository Services (CDSL)₹60₹149₹261₹1335
AU Small Finance Bank₹175₹358₹597₹1115
Source: Planify

Pre-IPO funds

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Investors get into the pre-IPO funds to get easy and early access to some of the good companies. Edelweiss Wealth Management, Kotak Investment Advisors, Trifecta Capital and IIFL Wealth are some of the wealth management firms that offer funds that invest in pre-IPO companies.

Edelweiss Recently Listed IPO Fund, which invests in up to 100 recently listed companies and upcoming IPOs, has reportedly delivered a compound annual growth rate (CAGR) of 21.7% since inception.

A retail investor should invest only the surplus money in unlisted companies as these are volatile and illiquid investments. This way, even if you lose this money it should not matter to you.

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