Buying Unlisted Shares of Pre IPO Companies
You can invest in a private company even before its initial public offer (IPO) by buying its unlisted shares. One of the main reasons investors buy these shares is for the expected gains. Companies sell these shares at a discounted price to tempt investors to buy a significant stake of their unlisted shares. The price of these shares then has the probability of increasing during the IPO, fetching the investors a good profit.
Anyone who wants to acquire unlisted shares must have a demat account since the transfer of these shares is only done online. That is to ensure transparency, investor protection and governance in the corporate sector.
Let us looks at how to buy these unlisted shares.
· Through intermediaries and startups
Most startups provide the option to buy unlisted shares online. The buying and selling take place on their website. You need a minimum of Rs.50,000 to invest. The shares will be delivered to you three days after the payment.
· From employees of the company
At the early stages of growth, most private companies offer their employees stock ownership plans (ESOPs) to retain them and provide a sense of ownership. These are also unlisted shares and can be bought from the employees.
· From promoters of the company
Most promoters have a stake in the company. You can buy shares from them through a process called private placement. That is where the promoters can sell their shares to a select group of individuals that meet specific requirements.
· Through financial institutions
Financial institutions usually manage investments in unlisted shares. They invest in a large number of unlisted shares because the price of these shares is low. They expect the IPO share valuation to earn them a good profit when the company lists itself. Investing in unlisted shares through a financial institution is mainly done by an investor with huge capital and a high-risk profile.
· Through crowdfunding platforms
Mostly followed in startups, this allows a large group of investors to join together and fund small businesses for a stake in their unlisted shares. They provide money to the startups in exchange for shares.
The rise in investing in unlisted shares is due to the idea of making huge profits once the stock lists. Still, you also need to check valuations and evaluate the risks before investing your money in these unlisted shares. Seasoned investors with high-risk profiles and high capital usually invest in unlisted shares because they can understand the financials of the company and the risks involved in greater detail. Buying shares that aren’t listed comes with its own set of risks. There might be a chance of the IPO not taking place. There is also a very high commission rate involved in these transactions, plus there is a chance of companies vanishing with investors money. The volatility of the market also makes a long-term investment prone to high risks.
ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. Please note, IPO related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.