Recent figures show that the market for unlisted shares has been growing at a steady pace, with an estimated valuation of $55 billion in India alone. In fact, according to a report, unlisted shares have outperformed their listed counterparts in terms of returns in recent years, with some companies offering returns of up to 500% over a period of 5 years.
What are Unlisted Shares?
Unlisted shares are private equity shares and are not listed on any stock exchange. They are typically owned by a smaller group of investors, including founders, early-stage investors, and employees. Unlike listed shares, unlisted shares are not publicly traded, and their value is not determined by the market.
Unlike listed companies, unlisted companies are not subject to the same regulatory requirements and reporting obligations. This can result in lower costs for the company and potentially higher returns for investors. And talking about taxation, being a long-term capital asset, these are taxed at a flat 20% with indexation.
While unlisted shares are not as commonly known as listed shares, they offer investors many advantages that make them worth considering.
According to a recent report, unlisted shares have outperformed listed shares by an average of 3.5% per year over the last decade. This means that investors who are willing to take on a bit more risk have the potential to see significant gains.
The main advantage of unlisted shares is the potential for greater control and influence over the company. When you buy listed shares, you are simply buying a small piece of the company and have little say in how it is run.
However, when you invest in unlisted shares, you may be able to negotiate better terms and have a greater say in company decisions. This can be especially appealing to investors who are interested in having a more active role in the companies they invest in.
Furthermore, there are several other advantages that unlisted shares offer as mentioned below:
- They provide investors with access to companies that are not yet ready to go public or do not want to go through the costly and time-consuming process of listing on a stock exchange. This means that investors can get in on the ground floor of potentially high-growth companies before they become widely known or accessible to the public.
- These shares may offer greater potential for capital appreciation due to their lower liquidity and higher risk profile. This means that investors who are willing to hold onto their shares for a longer period may see greater returns in the future. Besides, as mentioned earlier, unlisted shares have the potential to offer higher returns than listed shares. This is because they are not subject to the same market fluctuations and are not influenced by the same factors as listed shares.
- Another advantage of unlisted shares is the potential for higher dividends. Since unlisted companies are not subject to the same regulations as listed companies, they may have more flexibility in deciding how to distribute profits. This means that investors in unlisted shares may have the potential to earn higher dividends than those who invest in listed shares.
- Investing in unlisted shares can help diversify your investment portfolio, as they offer exposure to a different set of companies and industries than listed shares. This can help reduce your overall investment risk. Also, it can be a way to support innovative companies and entrepreneurs. By investing in these companies, you can help fund their growth and potentially contribute to the development of new products and services.
Turning to recent developments around unlisted shares, the impact of Budget 2023 cannot be ignored. Although there was no change in the capital gain taxation, there were some notable changes that may affect the unlisted shares market.
The Union budget of 2023 has a primary focus on uplifting and creating a new generation of workforce, and entrepreneurs and upskilling a large pool of people from below-poverty and middle-income groups. This is a welcoming sight, as India is currently in a huge transition stage from emerging to a developed country. The consistent push towards startups and entrepreneurial spirit, along with the support provided from resources, tools, and funding, will have a direct impact on how the market backs the capital markets. This is a great sign for retail investors, as more participation will happen due to the government’s approach to uplifting lives in general.
The proposed budget emphasized growth, capital, and infrastructure expansion. The budget’s influence on the Indian economy will be determined by its impact on the particular sectors that drive the country. Sectors like Agri tech, EVs, AI, and Electronics will have a significant impact on the shares of unlisted companies. Unlisted shares or corporations are securities that are not listed on stock exchanges, and as a result, unlisted corporations enter the stock market through an initial public offering (IPO).
For instance, a company like Lava, whose shares are traded in the unlisted market, has moved up by 50% in the past 6 months. Investors who entered the past year have already made considerable upside more than nifty returns of 12-14%, even before the company freezes its IPO listing date.
Check out the Unlisted Shares Price List India