When most people think about investing, they imagine buying shares in big, well-known companies that are already on the stock market. This feels like a safe and easy option. But what if there’s another way to invest—by supporting smaller, growing companies before they even reach the stock market?
Investing in companies that are not publicly listed can seem complicated at first. However, unlisted shares are easier to understand and invest in than they might appear. They give you the chance to be part of a company’s growth from the very start.
Buying shares is like owning a small part of the company. If the company grows, you can earn money from your investment. Unlisted shares, as the name suggests, are shares of companies that have not yet been listed on the stock market. These companies are often private or in the early stages of growth, and their shares are not traded on public exchanges.
Focus on Growth: One big reason companies stay unlisted is that it allows them to focus on growing the business without the pressure of meeting short-term targets. Public companies, on the other hand, have to report their performance regularly to shareholders and follow strict rules. This can sometimes force them to make decisions that are good for short-term profits but not necessarily for long-term growth.
Lower Costs: When a company decides to go public, it has to spend a lot of money on things like legal fees, paperwork, and complying with regulations which can be too expensive for smaller companies. By staying unlisted, businesses can save these costs and spend more money on growing their business instead.
Ownership and Control: When a company goes public, the founders and early investors might lose some control because the public shareholders get a say in how the company is run. Many company owners prefer to keep control and make decisions on their own, so they stay private.
Funding Options: Unlisted companies can get money from private investors without having to share all their financial details with the public. Public companies are required to disclose a lot of information about their financial health, which can be uncomfortable or burdensome for some businesses.
Now that we know why companies choose to stay unlisted, the next question to consider is why investors look for opportunities in these unlisted shares.
Access to Early-Stage Growth Potential Investing in such shares gives you the chance to back a company at its early stages, before it becomes widely recognized. By entering early, you have the opportunity to see growth if the company thrives, scales, or eventually goes public. This early access can lead to greater returns as the company develops and increases in value.
Exposure to High-Growth, Innovative Sectors Many unlisted companies operate in high-growth industries as they address emerging needs or disrupt traditional markets. By investing in these shares, you can tap into these opportunities and gain exposure to transformative industries that are still in their early stages.
Potential for IPO Gains One of the most compelling reasons to invest in unlisted shares is the possibility of a company going public through an Initial Public Offering (IPO) in which, as shares are offered to the public and institutions, the value of the shares may rise if the company is well-received by the market post-IPO.
Diversification Beyond Traditional Assets Unlisted shares allow you to diversify your portfolio beyond the typical stocks, fixed interest instruments like bonds, and mutual funds. Adding private company shares to your investment mix can help you balance risk and potentially improve returns. Diversification in this way reduces your reliance on a single asset class.
Protects Your Money from Inflation: As inflation causes the prices of goods and services to rise, the value of money decreases over time. This means that the money you save today could buy less in the future. However, investing in high-growth companies can help protect your money due to the potential to grow their profits and adjust their prices to keep up with inflation, helping your investment grow in value even when money itself is losing its purchasing power.
The Primex 40 Index offers investors a unique lens to track the performance of India’s unlisted and delisted companies spanning various sectors. Designed to serve as a benchmark for the private equity market, it reflects the opportunities therein. Unlike indices such as the Nifty 50, which focus on publicly traded companies, the Primex 40 completely focuses on this relatively untapped area of investment.
In the past year to date, the Primex 40 Index delivered an impressive 77.40% return, far surpassing the Nifty 50’s modest 7.48% return. This stark difference reflects the scope in private markets, where companies often have more room for rapid expansion compared to their public counterparts.
The same factors that make unlisted shares appealing, such as early-stage growth and limited market exposure, also introduce challenges that can affect an investor’s ability to access their capital or accurately assess a company’s value. Before diving in, it's essential to carefully consider these risks and how they might impact your overall investment strategy, ensuring one is well-prepared for both the opportunities and challenges that lie ahead.
Investing in unlisted shares offers a unique opportunity to gain early exposure to promising companies with high growth potential. However, this type of investment comes with its own set of challenges, requiring careful evaluation and strategic planning. Below is a step-by-step guide to help you navigate the process effectively and make informed decisions.
Thorough research is the cornerstone of confidence when investing in unlisted shares. Before making any investment, it’s important to evaluate several key factors, including the financial health, business model assessment, management analysis, and sectoral analysis.
When investing in unlisted shares, it's important to understand whether the company’s current price reflects its true worth. Unlike publicly listed companies, whose share prices are influenced by market demand, the value of unlisted companies is usually determined during private funding rounds. To assess a company’s value, consider:
Backing Investors: Large and reputable investors, such as venture capital firms, can signal that the company has solid growth potential. Knowing who supports the company can help you assess the credibility of your investment.
Market Comparisons: Compare the company’s valuation to others in the same industry. This gives you an idea of whether the company's price is fair compared to its competitors and whether it is performing well in its sector.
Since unlisted shares are not traded on public stock exchanges, they can only be accessed through specialized platforms, brokers, or intermediaries. It’s essential to choose a platform that prioritizes transparency, security, and regulatory compliance. A trustworthy platform should provide:
Access to Verified Companies: The platform should offer a curated list of pre-IPO companies (companies that have near-term plans of listing on the stock exchanges) and unlisted companies, ensuring that they have been properly vetted for investment.
Research Assistance: Many platforms provide in-depth research and insights to help you make well-informed investment decisions.
Transaction Support: Look for a platform that offers support throughout the transaction process, from buying shares to handling necessary regulatory paperwork.
Browse through pre-IPO and unlisted shares on our platform, Unlisted Shares India, where we make it easy to explore and invest in emerging companies.
Once you have selected the unlisted shares you'd like to invest in, the next step is to complete the transaction. Here’s a detailed look at how the process typically unfolds:
Initial Contact: Contacting the platform or broker where the relationship manager assists with the available options, provide information, and help you make the right investment choice.
Agreement and Payment: After selecting the quantity of shares, one receives a formal agreement or confirmation, following which the payment needs to be made.
Share Transfer: Upon receiving the payment, the platform or intermediary will process the transaction. Once payment has been confirmed, the shares will be transferred to your account which can take anywhere from a few hours to a couple of days, depending on the platform. With our platform, shares are transferred within 24 hours.
While investing in unlisted shares can be a rewarding experience, it is important not to allocate all your resources into a single asset class. Given the risks involved, diversification is key. Balancing the portfolio by including a mix of assets of high as well as low risk could help spread risk and ensure that the investments align with the long-term financial goals.
For a new investor, keeping track of the company’s progress and market developments is essential, which includes understanding the business updates, be it new funding rounds or key partnerships. Subscribing to newsletters, following the latest trends in the sector, or joining investment communities.
Investing in unlisted shares is like nurturing a seed in a garden, watching it grow into something much greater over time, and hence a thoughtful approach to choosing a reliable platform, as well as balancing risk through diversification, can open doors to better opportunities in the private market. As with any investment, being mindful of both the rewards and risks will lead to wiser and more confident decisions in the long run.
