When it comes to making an investment in unlisted shares, there are many myths doing the rounds. It may be that you were told it’s illegal. It may be that you were told it’s something that only the super-rich get to do.
The reality of the situation, though, is that these myths might be the only things that prevent you from pursuing an opportunity in an investment space. It’s about setting the record straight in this blog on the most popular myths about unlisted shares.
Common Myths About Unlisted Shares You Should Stop Believing
Below are some of the most common myths about unlisted shares you should no longer believe:
Myth 1: Unlisted Shares are Only for Ultra-Rich Investors and Institutions
This is absolutely not the case. Of course, heavy funding is a part of it, but the truth is that unlisted shares on a smaller scale are definitely available to the common man. Thanks to the growth of portals that help trade pre-IPO shares, times have really changed, and one does not require crores in the bank to invest. Nonetheless, you can invest in unlisted companies if you understand what you're doing.
Myth 2: “The Unlisted Market in India is too risky and is completely unregulated.”
There is risk involved, of course, but it is not the Wild West out there either. SEBI has been tightening its vigil on this front, and it is mostly established portals that do due diligence before offering any unlisted shares for public sale. As with mutual funds or stocks, it is what you choose, and your grasp of the enterprise it stands for that will determine your risk exposure again.
Myth 3: You Can’t Easily Buy/Sell Unlisted Shares (Poor Liquidity is a Deal Breaker)
However, the illiquidity of unlisted shares is surely less compared to listed ones, though it isn't zero. You can always buy or sell these shares with the help of some intermediaries or brokers. Some fintech companies have also made it easier, thanks to which, in the last few years, things have become smoother. You may require more time to exit, though.
Myth 4 Valuation of Unlisted Shares is Pure Guesswork and Manipulative
In unlisted companies, there are proper methodologies such as Net Asset Valuation (NAV), Discounted Cash Flow (DCF), or peer comparison. All of these methods are the same tools used for valuing startups and IPOs. While price discovery can be tricky, it is not random or manipulated in every case. If you work with reliable sources and do your research, you can get a fair sense of value.
Myth 5: It’s Impossible to Get Reliable Information on Unlisted Companies
There is a little more effort involved, but data is available. Many unlisted companies are required to report their balance sheets to the Ministry of Corporate Affairs (MCA), but they do so on a confidential basis for their investors. Stock platforms and brokers provide access to basic data on companies' finances, recent performance, and plans for expansion. You can get all the information you want if you are serious about investing.
Myth 6: Making An Investment In Unlisted Stocks is a Complex, Opaque Legal Process
Buying unlisted shares in India is simpler than most people make it out to be. You can easily do the whole process online with a demat account once basic KYC is done. While it’s good to understand the terms and conditions involved and not go in blindly, it’s certainly not a legal process that is only understandable to those in the industry.
Myth 7: Unlisted Shares are a “Get Rich Quick” Scheme with Guaranteed High Returns
One that is very risky. Unlisted shares are not lottery tickets. No matter whether they are listed or not, some shares grow, while some just stagnate. You must judge them on some real business acumen, rather than mere market noise. You are expected to think long-term, with plans of steady development. You must steer clear of people who claim guaranteed profits in that market.
How to Buy and Sell Unlisted Shares in India Successfully
When you are contemplating entering the unlisted shares market, here are six steps you may find helpful in helping you make informed decisions and avoid some common pitfalls:
1. Do Your Homework (Due Diligence)
Before investing in any unlisted share, one needs to do their own research on the company. The initial steps would be to read the annual reports on the MCA website and presentations given to the investors, and then read news articles related to the company. The more one knows about the unquoted shares market, the higher the chances of making a good purchase.
2. Understand Risks
Risks associated with unlisted shares differ from those of listed shares. Liquidity is low, information is not public, and the period of holding is long. Make sure you are comfortable with these before you deposit your money.
3. Diversify your Portfolio
Do not put all your money into an unlisted share. It’s just a part of the whole portfolio that you have. Try to diversify your funds into different sectors so that if one sector fails, everything won’t go down the drain.
4. Utilize Trustworthy Platforms and Consultants
All buying and selling must be done with licensed brokers or online portals that are licensed to trade in unlisted shares. You may need to consult with an SEBI-registered advisor to buy huge investments.
5. Have a Long-Term Perspective
Unlisted shares rarely provide fast profits. This kind of investment should be a long-term gamble, in which you put your money on the basis of the potential of that particular company. Be calm, and do not rush to sell the shares.
6. Study Appraisal Reports
Check the pricing of shares. Many platforms give out valuation reports, drawing on methods such as discounted cash flow or peer comparison. Compare this with the company's past performance and growth plans to see if the price makes sense.
Closing Thoughts
Unlisted shares suffer from several myths and untruths. They are not illegal, nor are they only for the select few. Like any investment, they carry risk, but with adequate research, reliable platforms, and a long-term approach, they can fit well into a balanced portfolio. The focus should always be on informed decisions and not on quick returns.
