What are unlisted shares?
Unlisted shares, also known as off-market stocks, are not traded on traditional/regulated stock exchanges. These shares have a higher risk as they are less liquid than listed shares, and their valuations are less transparent. However, investing in a well-chosen unlisted share with growth potential can lead to substantial returns once it gets listed, making them a good investment opportunity.
Things to consider / Unlisted Shares Facts / Pros and Cons
- Unlisted shares trade over the counter (OTC). The buyer and seller connect via intermediaries to perform the trade directly.
- These shares bear a credit risk since government entities do not regulate the trades.
- Choosing the right intermediary for trading in unlisted shares minimizes risk significantly.
- Unlisted shares are generally traded between companies, big brokerage houses, and HNIs or institutional clients.
- You need to analyze the company’s fundamentals and other factors in-depth before investing in any unlisted share, as circumstances can move sideways easily.
- Unlisted shares can be a hidden gem and provide exponential returns if you pick the right one.
Unlisted shares have different tax implications compared to listed shares. Short-term capital gains tax (at a marginal rate) applies if sold within 24 months. Long-term capital gains tax (20%) with indexation applies if sold after 24 months. Profits are calculated based on the Fair Market Value (FMV) until the shares are listed on a formal stock exchange.
Suppose your unlisted shares get listed, and you sell your investment. In that case, the tax implications will remain the same as listed equities: long-term capital gains tax of 10% on profits over INR 1 lakh, without indexation.
The minimum investment amount is Rs 3 Lakhs.