What Are Unlisted Shares? A Comprehensive Guide for Investors

The stock market has become one of the most popular investment avenues in India, attracting millions of investors looking for growth opportunities. Yet, a large part of the investment ecosystem remains hidden from the regular retail investor: unlisted shares. While listed stocks are traded openly on exchanges like NSE and BSE, unlisted shares operate in a less visible space. With the rise of startups, unicorns, and pre-IPO investing, unlisted shares have become a hot topic for investors seeking higher potential returns – but they also come with unique risks.

In this blog, we will cover everything you need to know about unlisted shares – including their meaning, features, how they are traded, advantages, disadvantages, and frequently asked questions.

What Are Unlisted Shares?

Unlisted shares are simply the equity shares of companies that are not listed on any recognized stock exchange, such as the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE).

Since they are outside the public exchange system, they are not traded openly for everyone to buy and sell. Instead, transactions happen privately through intermediaries, employees, or specialized dealers.

Companies often remain unlisted because:

• They are still in their early stages of growth.
• They do not meet the strict eligibility criteria for listing set by SEBI.
• They choose to stay private for strategic, financial, or operational reasons.

This means unlisted shares provide a window into businesses before they go public, such as startups, private companies, or even subsidiaries of large corporations.

Check out 9 Risks of Investing in Unlisted Shares in India

Key Features of Unlisted Shares

Unlisted shares have several unique characteristics that set them apart from listed equities:

• No public trading platform: They are not available on NSE or BSE. Transactions are usually negotiated privately through brokers or peer-to-peer deals.
• Illiquidity: Unlike listed shares, you cannot sell them quickly at market prices. Selling may take weeks or months depending on demand.
• Price discovery challenges: Prices are not updated daily like listed shares. Valuation depends on company performance, investor demand, and negotiations.
• Regulated differently: While SEBI regulates financial markets, unlisted share transactions often involve FPI rules, RBI guidelines, and taxation nuances.
• Higher potential returns: If the company eventually succeeds or gets listed through an IPO, investors can reap huge returns compared to early valuations.

In short, unlisted shares combine higher opportunities with higher risks when compared to listed companies.

Check out Benefits of Investing in Unlisted Shares Over Listed Stocks

Listed vs. Unlisted Shares: A Comparison

To better understand how unlisted shares differ from listed ones, here’s a side-by-side comparison:

Factor	Listed Shares	Unlisted Shares
Trading Platform	NSE, BSE, or other recognized stock exchanges	Private deals, brokers, ESOPs, intermediaries
Liquidity	Highly liquid, easy to buy/sell anytime	Low liquidity, takes longer to find buyers
Price Discovery	Transparent, market-driven daily trading	Negotiated, based on demand and valuation
Regulation	Strictly regulated by SEBI	Limited regulation, involves SEBI/RBI norms
Accessibility	Open to all retail and institutional investors	Restricted, mostly high-net-worth or niche
Risk Level	Moderate with diversification	Higher risk due to limited transparency
Return Potential	Relatively stable, market-linked	Very high if company grows or goes public
Examples	Reliance, TCS, Infosys	Reliance Retail, HDB Financial, Ola, Byju’s

This table highlights why unlisted shares are riskier but more rewarding compared to traditional listed equities.

Check out Benefits of PMS in Terms of Investment Strategy

Types of Companies That Issue Unlisted Shares

Not every company chooses the public route. Many businesses prefer to stay private and raise capital through private placement or equity sales. The most common issuers include:

• Startups: High-growth companies that don’t meet listing criteria but seek capital from angel investors and venture capitalists.
• Family-owned businesses: Traditional businesses that avoid public scrutiny and operate privately to maintain control.
• Multinational subsidiaries: Many MNCs operate in India as subsidiaries without getting listed but may offer shares to employees through ESOPs.
• Pre-IPO companies: Companies planning to go public in the near future may issue shares privately at attractive valuations.

A well-known example is when major companies like Reliance Retail or HDB Financial Services attracted attention in the unlisted market long before a potential IPO.

How to Buy and Sell Unlisted Shares

Unlike listed shares, where you can use a trading app or demat account linked to an exchange, buying unlisted shares is more complicated. The process typically involves:

• Through intermediaries or dealers: Specialized brokers connect buyers and sellers.
• Employee Stock Ownership Plans (ESOPs): Employees often sell shares allotted to them once they exit a company.
• Private placements: Companies may directly allot shares to select investors.
• Startups and pre-IPO investment platforms: Several platforms now facilitate investments in pre-IPO companies.

However, investing comes with challenges such as price discovery, verification of authenticity, and ensuring fair valuations. Selling unlisted shares also requires buyers to be identified off-market, making the process slower.

Check out 9 Best Platforms to Buy Unlisted Shares in India

Benefits of Investing in Unlisted Shares

Despite the hurdles, more investors are showing interest in unlisted shares because of these benefits:

• Early access to promising companies: Investing before a company goes public allows you to enter at a low valuation.
• High growth potential: If the company grows significantly or gets listed, the returns can be far superior.
• Portfolio diversification: Exposure to unlisted shares can diversify risks away from traditional market-linked securities.
• Pre-IPO opportunities: Some investors buy unlisted shares just before an IPO, aiming to sell them at a much higher valuation after listing.
• Access to niche businesses: Only unlisted markets provide access to certain high-growth startups, subsidiaries, or private firms.

A striking real-world example is investors who bought Paytm, Zomato, or Nykaa shares in the unlisted market years before their IPO, benefiting massively once the companies went public.

Check out What Is the Market for Unlisted Shares?

Risks and Challenges of Unlisted Shares

Every investment avenue carries risk, and unlisted shares are no exception. Here are the major drawbacks:

• Illiquidity: Finding buyers can be difficult, and shares may need to be held for years.
• Lack of transparency: Limited financial disclosures make it harder to assess company performance.
• Valuation risk: Prices are subjective and can be manipulated based on demand and supply.
• Regulatory limitations: Non-compliance with SEBI rules or taxation norms can create hurdles.
• Risk of company failure: Startups and early-stage businesses have a higher failure rate, which could lead to a total loss of investment.

Understanding these risks is essential before committing funds to unlisted shares, making due diligence absolutely critical.

Conclusion

Unlisted shares represent a high-risk, high-reward investment avenue. They provide investors with a unique chance to participate in the growth story of promising businesses before they go public. However, the lack of liquidity, absence of transparent valuations, and regulatory challenges make them suitable only for experienced investors with a higher risk appetite.

If you’re considering investing in unlisted shares, always conduct thorough due diligence, verify the source of the shares, and ideally seek professional advice. Unlisted shares can add immense value to a portfolio, but only if approached with caution and long-term vision.

Check out How to Check the Value of Your Unlisted Shares?

FAQs on Unlisted Shares