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Make Your Investment On Top Unlisted Shares

As the name suggests, listed shares are the shares that are listed (and traded) on any stock trade similar to NSE or BSE and so on. On the other hand, unlisted shares are the shares that aren't listed on any of the stock exchanges.

Let us look at the journey of the company to understand the difference even better.

When an entrepreneur begins an organization, he places in his personal funds or takes cash from family and friends. He may also take bank loan to fulfill the working capital necessities however so as to develop further, he has to take funding from outsider investors in change of equity. This funding can have completely different names similar to venture capital or non-public fairness relying on the stage of funding. When such funding is taken, shares are issued to such investors.

As the corporate just isn't listed till that point, such shares are called unlisted shares. As the corporate is still private, these shares can't be traded on any stock trade but solely privately on one on one foundation. Unlisted shares are additionally referred to as (over-the-counter) OTC shares as they were traded over the counter (bodily delivery). There are various market makers who allow buying and selling of unlisted shares. One can discover quotes from such market makers at Prastaav.

As these shares are not traded on any exchange, they are typically less liquid than listed shares.

Now, so as to develop additional, the corporate may resolve to invite public participation and offer its fairness under preliminary public providing (commonly generally known as IPO). It mainly signifies that the corporate is now inviting common public to subscribe to its shares and it is going to be listed on the inventory exchanges so that the shares can be traded easily. Now, such shares are referred to as listed shares.

At the time of IPO, the company has to choose the change on which it plans to list. It should meet the trade's requirements and pay the requisite fees. This ensures that only these corporations that are in good standing (meet change standards) are listed and traded by buyers. The exchanges also have market making requirements which guarantee that there's honest amount of liquidity out there within the listed shares. The listed shares are transferred by way of demat accounts and STT is paid on the value of the shares.

Let us also take a look at the key variations between listed and unlisted shares:

1. Type of Company

• Listed Shares: The company has a observe report, meets exchange requirements, IPO due diligence is finished. Investors can get access to DHRP (prospectus), regulatory filings and buyers shows and so on

Unlisted Shares: Such firms may be in early to late stage of evolution. The investor ought to do his personal due diligence earlier than investing. Limited paperwork could also be obtainable as per the discretion of the corporate.

2. Investment Process

• Listed Shares: Simple and paperless. Can be bought in any trading account. No counterparty risk as it is taken care of, by the change.

• Unlisted Shares: The course of has been lately simplified as such shares can now be transferred solely by way of demat account. However, counterparty risk is present as there can be unhealthy delivery / no fee etc. Better to deal with trusted party.

3. Liquidity

• Listed shares: Fairly liquid, Large and midcap corporations have decrease bid ask spread and better volumes as compared to small cap firms. The penny stocks is probably not very liquid.

• Unlisted Shares: Less Liquid as the shares may be offered only privately.

4. Taxation (LTCG)

• Listed Shares: If listed shares are held for greater than 1 yr then features are categorized as LTCG and taxed at 10%

• Unlisted Shares: If unlisted shares are held for greater than 2 yr then gains are categorized as LTCG and taxed at 20% and indexation benefit is supplied.

5. Negotiation

• Listed Shares: Negotiation not required as priced are quoted on exchange.

• Unlisted Shares: Negotiation may be accomplished as worth is a operate of demand and provide and is decided by one’s analysis of monetary statements of the company.

6. Holding restrictions

• Listed shares: not many, most shares could be traded intra-day!

• Unlisted shares: Before IPO, is determined by getting ready purchaser / vendor. After IPO, lock-in of 1 12 months from date of IPO.

7. Risk

• Listed Shares: No Counterparty risk but threat of loss can't be prevented.

• Unlisted Shares: Counterparty threat, Risk of IPO not happening. Plus danger of not getting exit before IPO.

8. Example:

• Listed Shares: Reliance Industries, HDFC Bank, Infosys, ICICI Bank, L&T

• Unlisted Shares: Paytm share price, HDB Financial share price, Reliance Retail, Nazara Technologies

-- Dilip Sharma - 2021-02-06


Topic revision: r1 - 2021-02-06 - DilipSharma
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