With increasing awareness about the benefits of investing in equity shares, people have been taking a keen interest in listed and unlisted shares. The seasoned investors in private equity too have a long way to go in exploring every nook and cranny of the stock market.
What are Listed Shares?
Shares that are listed on exchanges like BSE, NSE, or other recognized stock exchanges are called listed shares. When a company decides to issue shares by going public, it needs to select an exchange for its listing. For that, it has to pay the entry and listing charges along with meeting the listing pre-requisite of the respective stock exchanges.
The reputation of an exchange is a top priority. Therefore, these exchanges make sure that trading of only quality shares takes place.
What are Unlisted Shares?
As the name suggests, unlisted shares are not listed on any stock exchange. Trading occurs independently over the counter. It’s not mandatory for a public corporation to be listed. The company can continue to be a publicly limited company but not necessarily a listed company.
Unlisted Shares Vs Listed Shares: The Ultimate Comparison
Besides the major difference between being listed and unlisted on a stock exchange board, there are other differences in listed v/s unlisted. In this section, we’re going to take a look at various factors and see how listed and unlisted shares differ.
1️⃣ Valuation
Since listed shares have an available stock price along with the necessary performance data, the Estimation of business valuation is simple along with determining market value as there are comparable benchmarks. On the other hand, the valuation of an unlisted company is generally benchmarked to the listed company basis on DCF or Asset based valuation.
2️⃣ Ownership
The ownership of listed companies lies in the hands of various shareholders. On the other hand, in the case of unlisted companies, the ownership of shares is generally concentrated in the hands of private investors. It usually includes the founders of the company, their peer group, and kin.
3️⃣ Liquidity
Since the availability of listed shares isn’t a problem, the liquidity is high. However, unlisted shares don’t have an openly available market like their listed peer. Hence the liquidity in unlisted stock is comparatively lower.
4️⃣ Investment Process
Investing in listed and unlisted companies is simple. However, the settlement of Listed shares is complex as it generally takes Trading+2 days to settle the listed trades. Unlisted shares are instantly settled.
5️⃣ Regulatory Requirements
The regulatory requirements set by stock exchanges are defined. Unlike them, unlisted companies have stringent regulatory requirements that are not as complicated as their listed counterparts.
Should I invest in unlisted shares?
Yes, you should assign a segment of your diversified portfolio to unlisted shares. Most of the time, they are either undervalued or undiscovered. Most investors fail to recognize the potential of unlisted shares or are too afraid to invest in them.
It’s a relatively untapped market with growth potential to earn higher returns. Unlisted companies are usually from small-scale startups to publicly limited companies. If they make good use of funds to fulfill their capital needs for company growth, Unlisted equity shares can also turn out to be great risk diversification options in case you have large concentrated exposure to listed companies.
Conclusion
The unlisted shares are generally considered to be undervalued to their listed peers and secondly, they are undiscovered as most people are generally afraid to do proper due diligence.
The unlisted shares don’t only offer diversification but also an opportunity to invest in sectors that are not listed on stock exchanges. Some of the good companies in unlisted segments are Policybazaar.com, the National Stock Exchange of India, Studds Accessories, Zomato, Paytm and many more.
It’s high time we realize that even though listed shares offer more convenience, unlisted shares are hidden gems, especially at the pre-IPO stage that can offer excellent returns. At times they are even able to beat the returns of listed equities. However investing in unlisted shares calls for a thorough evaluation of the business model, a study of the competition, and a detailed analysis of demand and supply.
Fortunately, Rurash Financials carries out a fundamental analysis of unlisted equities. Our investment experts will help you increase your chances of investing in companies with high growth rates. They provide all the relevant and important research reports and market updates to help you pick the right listed or unlisted stock depending on your portfolio and financial goals.