Unlisted Shares

▶ So, what is an Unlisted Share?

Equity shares of a company which are not yet listed on any of the Stock Exchanges like Bombay Stock Exchange, National Stock Exchange etc. are called unlisted equity shares. These shares can be both in Physical or Demat form but in the recent years most companies have got their shares converted into Demat.

▶ Ok, that seems simple. But how do these shares come in the secondary market if they haven’t been listed?

Existing shareholders of the unlisted company can sell unlisted equity shares. These can include ESOPs of Ex-Employees or Current employees and even the shares held by CEO, Promoters, Private Equity investors etc.

▶ Is the Company involved in selling unlisted shares?

The company may or may not be involved. If the company is looking to raise funds and issuing further paid-up capital, it can be involved, otherwise, the company would not be involved.

▶ Why should you as an investor buy unlisted shares?

Investing in pre-IPO helps the investor:

1. To participate in the growth of the company well before others.
2. Get investment opportunities which otherwise would ONLY be available to big entities like PE Firms, HNIs etc.
3. Get in at reasonable/justified valuations.

▶ What is the kind of time horizon to see the gains in unlisted shares?

To get the optimal returns, one will have to be invested in the company until it comes with IPO and keeps growing until it has reached its saturation point. This duration cannot be accurately predicted by almost anyone. Having said that, in our experience one should be looking to at least hold for 3 years to see meaningful returns.

▶ Do the unlisted shares have any lock-in?

There are no specific restrictions on the sale of unlisted shares. However, as per SEBI rules if the company comes up with an IPO and gets itself listed, then all unlisted shares have a lock-in period of 6 months from the date of listing. Hence, unlisted shares bought in the Pre-IPO period cannot be sold for 6 months after its listing. Say, Miss Hrishvi buys 10,000 shares of AU Small Finance on 20^th July 2016 and it got listed on the exchange on 10^th Jan 2018. Now she can sell those shares only after 10^th Jan 2018.

▶ What are the kinds of risks involved in investing in Unlisted Shares?

Basically, it encompasses the following two additional risks when compared to Listed Shares:

1. Timeline Risk-The Company takes longer than expected to get listed.
2. Liquidity Risk-Unlisted shares are inherently illiquid, and although various players in this segment have made it a fairly liquid market, it is still far behind the regular Stock Exchange where your trades get executed in seconds.

▶ What is the minimum amount one can invest in a Pre-IPO?

Depending on the Script, investment can be made with a nominal amount of as low as ₹50,000/-

▶ How are these Unlisted Shares priced? What is the basis?

Just like in share markets, share valuation is done based on quantitative techniques and share value will vary depending on the market demand and supply.

▶ What is a CML (Client Master List) or CMR (Client Master Report)?

Client Master List also known as Client Master Report contains DP ID, Client ID, PAN, Linked Bank Account with Demat etc. This can be easily obtained within 4-5 hours by sending an email to your DP requesting a soft copy of the same. CML/CMR copy is a pre-requisite to be able to buy/sell Unlisted Shares.

▶ What is the role of Richfield Fintech?

Richfield Fintech plays the role of a market maker. It buys from those who wish to sell and sells to those who wish to buy.