The Complete Guide to Unlisted Shares in India: FAQ for Retail Investors
Your comprehensive roadmap to understanding, investing in, and maximizing returns from unlisted shares in India's growing private market
Basics & Fundamentals
Q1: What are unlisted shares?
Unlisted shares are equity securities of companies that are not traded on recognized stock exchanges like NSE or BSE. These companies operate privately and their shares are traded through over-the-counter (OTC) markets, private placements, or intermediary platforms. Unlike listed companies, unlisted companies don't need to meet stringent listing requirements or maintain continuous public disclosure.
Q2: How do unlisted shares differ from listed shares?
Q3: Why are companies unlisted?
Companies remain unlisted for various reasons:
Early-stage companies: Startups and growing businesses not ready for public markets
Cost considerations: Avoiding high listing fees and compliance costs
Control retention: Founders maintaining majority control without public scrutiny
Flexibility: Operating without quarterly earnings pressure
Strategic choice: Family businesses preferring private operations
Q4: Are unlisted shares legal to buy and sell in India?
Yes, buying and selling unlisted shares is completely legal in India. However, transactions must comply with:
SEBI regulations for unlisted public companies
Companies Act, 2013 provisions
FEMA regulations (for NRI investments)
Stamp duty and registration requirements
Tax obligations under Income Tax Act
Types & Categories
Q5: What types of unlisted companies can I invest in?
Pre-IPO Companies: Companies planning to go public within 1-3 years
Examples: NSE, HDFC Securities, Studds Accessories
Advantage: Potential listing gains when IPO happens
Risk: IPO timeline uncertainty
Mature Private Companies: Established businesses with no immediate IPO plans
Examples: Reliance Retail, Tata Motors Finance
Advantage: Stable business models, regular dividends
Risk: Limited exit opportunities
Startups & Growth Companies: Early-stage high-potential businesses
Examples: PharmEasy, OYO, Incred Finance
Advantage: High growth potential, significant returns possible
Risk: High failure rate, volatile valuations
Employee Stock Ownership Plans (ESOPs): Shares offered to company employees
Advantage: Often available at discounted prices
Risk: Lock-in periods, company-specific risks
Buying & Selling Process
Q6: How can I buy unlisted shares?
Step 1: Choose Your Investment Method
Direct approach to company management
Through registered intermediaries/platforms
Via Portfolio Management Services (PMS)
Step 2: Complete KYC Process Required documents:
PAN Card
Aadhaar Card
Bank account statements
Demat account details
Client Master Report (CMR)
Step 3: Due Diligence
Company financials review
Management background check
Industry analysis
Valuation assessment
Step 4: Transaction Execution
Price negotiation
Agreement signing
Payment transfer (RTGS/NEFT only)
Share transfer to demat account
Q7: What is the typical minimum investment amount?
Most unlisted share investments require:
Minimum: ₹50,000 to ₹1,00,000
Popular range: ₹2-5 lakhs for retail investors
Premium deals: ₹10+ lakhs for high-quality companies
ESOP purchases: Sometimes as low as ₹25,000
Q8: How long does the buying process take?
Documentation: 1-2 days
Due diligence: 2-3 days
Payment and transfer: 24-48 hours after payment
Demat credit: 1-3 business days
Total timeline: 5-7 days typically
Q9: How do I sell unlisted shares?
Traditional Methods:
Contact the same intermediary who sold you shares
Approach other unlisted share dealers
Direct sale to interested buyers
Company buyback programs (if available)
Process:
Get current market valuation
Find buyer through intermediary
Negotiate price
Transfer shares from your demat
Receive payment within 24-48 hours
Tax Implications
Q10: How are unlisted shares taxed in India?
Capital Gains Tax Structure (Post Budget 2024):
Short-Term Capital Gains (STCG):
Holding Period: Less than 24 months
Tax Rate: As per your income tax slab (5%-30%)
No indexation benefit available
Long-Term Capital Gains (LTCG):
Holding Period: More than 24 months
Tax Rate: 12.5% without indexation (from July 23, 2024)
Q11: What about Securities Transaction Tax (STT)?
Unlisted shares are not subject to STT since they're not traded on exchanges. However, stamp duty applies:
Stamp duty: 0.25% of transaction value
DP charges: ₹25-50 per transaction
Brokerage: 0.5-2% depending on intermediary
Q12: How do I report unlisted shares in my ITR?
ITR Forms: Use ITR-2 or ITR-3
Capital gains: Report in Schedule CG
Short-term gains: Point A5 in Schedule CG
Long-term gains: Point A2 in Schedule CG
Shares holding: Schedule AL (if total value exceeds specified limits)
Q13: Can NRIs invest in unlisted shares?
Yes, NRIs can invest with conditions:
Use NRO account for transactions
Comply with FEMA regulations
Sector restrictions may apply (defense, telecom, etc.)
Repatriation limits: Subject to RBI guidelines
Higher tax rates: May apply compared to residents
Regulatory Framework
Q14: What regulations govern unlisted shares?
SEBI Regulations:
Transaction guidelines for unlisted public companies
Prohibition on public solicitation without proper disclosures
Guidelines on electronic platforms for unlisted securities
Companies Act, 2013:
Share transfer procedures
Board approval requirements for certain transfers
Disclosure norms for significant shareholding changes
Recent Regulatory Developments (2024-25):
Enhanced oversight of unlisted trading platforms
Stricter KYC requirements
Action against unauthorized platforms (altGraaf, Tap Invest cases)
Q15: Are unlisted share platforms regulated?
Currently, most unlisted share trading platforms operate in a regulatory grey area. SEBI has issued warnings against unauthorized platforms but hasn't established a comprehensive regulatory framework yet. However:
Platforms must comply with existing securities laws
KYC and anti-money laundering norms apply
Proper documentation and stamp duty requirements must be met
Valuation & Pricing
Q16: How are unlisted shares priced?
Valuation Methods:
Comparable Company Analysis: Comparing with similar listed companies
Discounted Cash Flow (DCF): Based on future cash flow projections
Recent Transaction Pricing: Based on last funding round or secondary sales
Book Value Method: Asset-based valuation
Revenue/EBITDA Multiples: Industry-specific multipliers
Price Discovery Challenges:
No real-time market pricing
Limited transaction data
Subjective valuations
Information asymmetry between buyers and sellers
Q17: Why do unlisted share prices fluctuate?
Market Factors:
Company performance updates
Funding round announcements
IPO timeline news
Industry trends and sentiment
Economic conditions
Regulatory changes
Company-Specific Factors:
Financial results
Management changes
New business launches
Strategic partnerships
Competitive positioning
Risks & Challenges
Q18: What are the major risks of investing in unlisted shares?
Liquidity Risk 🚨 HIGHEST RISK
Difficulty finding buyers when you want to sell
Long holding periods may be required
Price discounts might be necessary for quick exits
No guaranteed market or exchange to facilitate trades
Information Risk
Limited financial disclosures compared to listed companies
Irregular or delayed reporting
Difficulty accessing management for updates
Less analyst coverage and research availability
Regulatory Risk
Changing government policies
Potential new regulations affecting unlisted markets
Tax law modifications
Compliance uncertainties
Valuation Risk
Subjective and potentially inflated valuations
No real-time market validation of prices
Wide bid-ask spreads
Difficulty in accurate price discovery
Fraud Risk
Less regulatory oversight
Potential for misleading information
Risk of dealing with unauthorized intermediaries
Document forgery possibilities
Q19: How can I minimize these risks?
Risk Mitigation Strategies:
Diversification: Never invest more than 5-10% of your portfolio in unlisted shares
Due Diligence: Thoroughly research company, management, and financials
Trusted Intermediaries: Deal only with reputable, established platforms
Documentation: Ensure all paperwork is proper and legally compliant
Long-term Perspective: Be prepared to hold for 3-5 years minimum
Professional Advice: Consult financial advisors familiar with unlisted investments
Popular Investment Opportunities
Q20: Which are the most popular unlisted shares in 2025?
Financial Services Sector:
NSE India: ₹2,375 per share (Market leader in derivatives, IPO expected)
HDFC Securities: ₹11,250 per share (Leading brokerage firm)
HDB Financial: ₹1,225 per share (SEBI-approved for ₹12,500 crore IPO)
Technology & Healthcare:
PharmEasy: ₹8.5 per share (Online pharmacy platform)
OYO: ₹46 per share (Hospitality tech company)
Lava: ₹42 per share (Mobile manufacturer)
Infrastructure & Manufacturing:
Sterlite Power: ₹645 per share (Power transmission)
Studds Accessories: ₹675 per share (Helmet manufacturer, 2025 IPO planned)
Emerging Opportunities:
Apollo Green Energy: Renewable energy sector
Urban Tots: Toy manufacturing
BOAT: Audio accessories brand
Q21: What should I look for in a good unlisted share investment?
Strong Fundamentals:
Consistent revenue growth (20%+ annually)
Positive cash flows
Strong management team
Clear business model
Competitive advantages
Market Position:
Leadership in growing markets
Scalable business model
Strong brand recognition
Barrier to entry for competitors
Growth Catalysts:
IPO plans within 2-3 years
Expansion into new markets
New product launches
Strategic partnerships
Regulatory tailwinds
Due Diligence & Research
Q22: What due diligence should I perform before investing?
Company Analysis Checklist:
Financial Health ✅
Review last 3 years' financial statements
Check revenue growth trends
Analyze profitability margins
Assess debt-to-equity ratios
Examine cash flow patterns
Management Quality ✅
Background check of key executives
Track record of previous ventures
Corporate governance practices
Transparency in communications
Alignment with shareholder interests
Business Model ✅
Understand revenue streams
Assess market size and growth potential
Evaluate competitive positioning
Identify key success factors
Analyze scalability potential
Industry Analysis ✅
Market trends and dynamics
Regulatory environment
Competitive landscape
Growth drivers and challenges
Technology disruption risks
Q23: What documents should I verify?
Essential Documents:
Certificate of Incorporation
Memorandum and Articles of Association
Latest Financial Statements (audited)
Board Resolutions for share transfers
Share Certificate or demat statement
PAN and Tax clearance certificates
ROC filings and compliance certificates
Transaction Documents:
Share Purchase Agreement
Share Transfer Deed
Power of Attorney (if applicable)
Delivery Instruction Slip
Bank transaction proofs
Exit Strategies
Q24: How can I exit my unlisted share investments?
Primary Exit Routes:
IPO Listing 🎯 Best Returns
Company goes public on stock exchanges
Shares become liquid and tradable
Potential for significant appreciation
Timeline: Usually 2-5 years
Strategic Sale/Acquisition
Company gets acquired by larger entity
Shareholders receive cash or shares of acquiring company
Good returns if acquirer pays premium
Timeline: Can happen anytime
Secondary Market Sale
Sell to other private investors
Use same platforms where you bought
Pricing depends on market conditions
Timeline: Immediate, but may require discounts
Company Buyback
Some companies offer to repurchase shares
Usually at predetermined prices
Provides guaranteed exit route
Timeline: As per company policy
Q25: How long should I expect to hold unlisted shares?
Typical Holding Periods:
Minimum recommended: 2-3 years
Average for good returns: 3-5 years
Pre-IPO investments: 1-3 years until listing
Growth companies: 5-7 years for maturity
Be prepared for: 7-10 years in worst case
Q26: What factors affect exit valuations?
Positive Factors:
Strong financial performance
Market leadership position
Upcoming IPO announcements
Industry growth trends
Strategic interest from buyers
Negative Factors:
Deteriorating business performance
Management issues or scandals
Regulatory challenges
Economic downturns
Lack of liquidity in broader unlisted market
Common Mistakes to Avoid
Q27: What are the biggest mistakes retail investors make?
Investment Mistakes 🚫
Over-allocation: Investing too much of portfolio (>10%) in unlisted shares
FOMO Investing: Buying due to hype without proper research
Ignoring Lock-in Periods: Not understanding 6-month post-IPO restrictions
Inadequate Due Diligence: Relying solely on intermediary recommendations
Wrong Expectations: Expecting quick returns or easy exits
Process Mistakes 🚫
Improper Documentation: Not maintaining proper share transfer records
Tax Planning Ignorance: Not understanding capital gains implications
Platform Selection: Using unverified or suspicious intermediaries
Price Negotiation: Accepting first quoted price without comparison
Exit Planning: No clear strategy for selling shares
Q28: How can I avoid these mistakes?
Best Practices:
Limit Allocation: Keep unlisted shares to 5-10% of total portfolio
Research Thoroughly: Spend at least 2-3 days researching before investing
Use Multiple Sources: Cross-verify information from different platforms
Maintain Records: Keep all documents organized for tax and legal purposes
Have Patience: Understand this is a long-term investment strategy
Stay Updated: Regularly monitor company performance and industry trends
Future Outlook
Q29: What's the future of unlisted shares in India?
Growth Drivers 📈
Startup Ecosystem: India's unicorn boom creating more opportunities
Digital Platforms: Technology making unlisted trading more accessible
Investor Awareness: Growing retail interest in alternative investments
Regulatory Clarity: SEBI working on better frameworks
Economic Growth: Strong GDP growth supporting private company valuations
Market Size Projections:
Current unlisted market size: ₹50,000+ crores
Expected growth rate: 25-30% annually
Projected size by 2030: ₹3-5 lakh crores
Number of participants: Expected to grow 5x
Q30: What regulatory changes can we expect?
Anticipated Developments:
Formal regulation of unlisted trading platforms
Standardized pricing mechanisms and disclosures
Investor protection measures and grievance mechanisms
Tax rationalization to encourage long-term investments
Reporting requirements for large unlisted transactions
Q31: Should retail investors consider unlisted shares?
Good Candidates for Unlisted Investing:
High-income individuals with diversified portfolios
Long-term investors with 5+ year investment horizon
Risk-tolerant investors comfortable with illiquidity
Experienced investors who understand private markets
Those seeking diversification beyond traditional assets
Not Suitable For:
First-time investors without stock market experience
Those needing liquidity for near-term goals
Risk-averse investors preferring guaranteed returns
Investors without adequate emergency funds
Those expecting quick returns or frequent trading
Key Takeaways for Retail Investors
🎯 The Bottom Line
Unlisted shares can be a valuable addition to a diversified portfolio, offering:
High growth potential through early-stage company access
Portfolio diversification beyond traditional listed securities
Pre-IPO opportunities with potential listing gains
However, they require:
Significant research and due diligence
Long-term investment horizon (3-5+ years)
Risk tolerance for illiquidity and volatility
Limited portfolio allocation (5-10% maximum)
Professional guidance for complex transactions
🛡️ Success Framework
Start Small: Begin with ₹1-2 lakhs to gain experience
Choose Quality: Focus on fundamentally strong companies
Use Reputable Platforms: Deal only with established intermediaries
Maintain Records: Keep thorough documentation for tax and legal purposes
Stay Patient: Allow investments time to mature and create value
Keep Learning: Continuously educate yourself about private markets
Remember: This guide provides educational information only and should not be considered as investment advice. Always conduct your own research and consult with qualified financial professionals before making investment decisions.
Happy investing in India's exciting unlisted shares market! 🚀
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