Reasons Why Investors Must Consider to Invest in Unlisted Shares in 2023
The Indian financial market has undergone a plethora of changes in recent years. While just a few years ago it was facing an existential crisis, today it’s ready to explore different verticals. And while listed companies are stuck in a rut, unlisted companies are set to dominate the growth game. To many financial experts, Unlisted shares are like the dark horse of the Indian stock market. These are hidden gems in the investment world that may offer investors the opportunity to tap into the untapped potential profits of this market.
- Facts on returns on unlisted shares, there is high demand for quality unlisted shares in the market – the companies with good fundamentals. These are the companies that are changing hands at high prices. One such company is Chennai Petroleum Ltd. Its shareholders are enjoying significant returns, delivering 264% returns. The shares were traded at Rs.102.6 on December 31, 2021, and reached Rs 374.80 in June 2022.
- Experts have looked at tech-enabled sectors, like metaverse, e-commerce, and rapid delivery, to be very fruitful in 2023 and beyond. These are the sectors in which unlisted companies with fast growth potential and significant economies of scale, B2B and clean energy also have good traction.
- According to a recent study, the profits of some of the top unlisted companies have been growing at a faster rate than their listed counterparts. It highlights the potential for higher returns on investment in unlisted shares and strengthens its position in the coming years.
But why are unlisted companies performing so well?
- For starters, they often operate in niche markets and have less competition. This allows them to focus on their strengths and carve out a profitable niche for themselves.
- Additionally, unlisted companies tend to be more agile and able to adapt to changes in the market quickly. They don’t have to answer to the same level of scrutiny and regulations as listed companies, which gives them the freedom to make bolder business decisions.
- Another advantage for investors in unlisted shares is the potential for a higher level of control and influence in the company’s decision-making process. As unlisted companies are not publicly traded, they are often owned by a smaller group of shareholders. This gives investors more of a say in the company’s direction and can result in a better alignment of interests.
- Not to forget the opportunity cost, unlisted space also includes pre-IPO companies, which provide an excellent investment opportunity for long-term wealth creation. These companies are yet to be listed on the stock exchange, and investors can sometimes buy shares before the IPO from promoters or employees. This can result in significant returns if the right investment is made at the right time.
But let’s keep in mind that investing in unlisted shares may come with certain risks such as:
- For one, these investments are not regulated by SEBI, which means that investors are on their own when it comes to conducting due diligence on the company and its promoters. Additionally, investors are generally required to invest a significant amount, which can be risky exposure.
- Another risk to keep in mind is the waiting period for an IPO can be long, and the equity dilution after the IPO allotment is a concern. This means that if the company doesn’t make profits and is unable to pay a dividend, there may be no return on investments. To mitigate such risks, it is always advised to consult a seasoned stockbroker or wealth consultant before investing in unlisted shares.
- Taxation on unlisted equity is different from listed shares. If the unlisted securities are held for less than 24 months of investing, they attract short-term capital gains (STCG) tax and are taxed at a marginal tax rate. If they are held for more than 24 months, they attract long-term capital gains at 20% with indexation benefits. Navigating these tax laws can be confusing and time-consuming.
Investing in unlisted shares may not be for the faint of heart, but it can be a rewarding experience for those willing to take on a bit of risk such as unregulated market risk. That’s where Rurash Financials comes in. If you are looking to navigate the OTC market and mitigate the risks involved in unlisted stock investments, our platform can help you with research reports and a wealth of financial expertise, making it easy for you to make informed decisions.
We can also help simplify the process of buying and selling unlisted shares, pre-IPO shares, and ESOP shares, and help you to navigate the tax implications of these investments.