Unlisted Securities and IPO Market investments have risen dramatically in recent years as more people are getting interested in equities and learning more about them. The difference in gains and losses is all about choosing a potentially good investment and right timing. It has been seen that unlisted shares & IPOs of good companies have provided returns ranging from 30% – 100% & even more when the markets were at their peak. We will go in-depth in this article to understand the same.
What are Unlisted Securities?
Unlisted Securities are those that are not listed on a stock exchange like BSE/NSE. Unlisted securities are traded over-the-counter (OTC), which means that the buyer and seller of these shares trade the instruments directly rather than through middlemen. These securities are typically exchanged between corporations, large brokerage firms, and high-net-worth individuals (HNIs) or institutional clients. As a result, the risks of unlisted shares are reduced based on the reputation of market participants. If you choose the correct intermediary like Rurash Financials for trading in unlisted shares, the risk is also reduced to negligible.
If you can find an unlisted share with the potential to be listed and a firm with growth potential, your returns will be greatly amplified. The bull market in listed stock exchanges has spawned a bull market in unlisted stock markets as well, where investors buy and sell shares in private companies not currently listed on the NSE or BSE. Unlisted stock prices have also increased dramatically in the past few years, providing investors with huge gains. On unlisted markets, these shares are purchased through brokers/direct sellers and then sold in a similar manner.
What are IPO Shares?
For the first time, a privately held corporation makes its shares available for public subscription. When a company’s shares are first released to the market, it is known as an initial public offering or IPO. The stock is available to both institutional and ordinary investors (individuals). It is the process of turning a privately owned company into a publicly listed one. The initial public offering (IPO) allows the corporation to raise funds for its numerous commercial operations. Once this process is done, the shares get listed & can be traded in the market. The launch of initial public offerings (IPOs) is also an exciting time for investors because it allows them to purchase shares of a firm for the first time. Investors can get their hands on shares at the issue price i.e., a fixed or a price band (range). An IPO can be profitable if proper research is done before investing.
Furthermore, India has also been a global hub for initial public offerings. For good reason, international investors are looking at India. Some of the most recent IPOs have generated triple-digit annualized profits.
Things to Consider- When Buying Unlisted or IPO Shares
1. There have been instances where dealers have taken the money and failed to deliver shares, so buy only from reputable dealers or from someone you know who has purchased it and received the shares. Basically, an investor must buy from trusted dealers. Do not get caught up in the herd mentality. Conduct your own analysis.
2. Like Listed Shares, one can hold the Unlisted securities also in the Demat form. To participate in an IPO, investors must have a Demat account. In order to open a Demat account, you must have a PAN card.
3. Invest in Unlisted Securities with a long-term investment perspective. Unlisted shares prove their worth over time as the firm expands and establishes itself in the market.
4. If you get the opportunity to buy shares at an unreasonably low price, don’t take it blindly. Existing investors may be exiting at reduced prices for a variety of reasons.
5. Before investing in the IPOs, an investor must go through the Red Herring prospectus with SEBI. This document explains how the firm plans to use the cash raised from the general public, as well as the risks that investors may encounter.
6. IPOs are inextricably related to market conditions. When the current market trend is rising, IPOs become more attractive. As a result, investing in an initial public offering (IPO) when the trend is up is a good method to build wealth.
7. One must keep an eye on the application’s volume. Over-subscriptions of reputed companies’ IPOs are inevitable because these IPOs are regarded to be a safe investment option. As a result, more applications mean fewer shares for you & one must keep a watch on the number of applications IPO receives.
8. Several novices fall into this trap by investing in big names. However, before investing in an IPO, you must study the company’s facts and data in the prospectus and concentrate on its growth prospects in order to understand the value of money.
Benefits of Investing in Unlisted Securities & IPO Shares for Financial growth
Following are some of the typical benefits that an investor could expect when investing in Unlisted Securities & IPO Shares –
A) For Unlisted Securities
- Unlisted companies’ stocks cannot be traded on stock exchanges, but they can be found if you do your research, as the pre-listing price of shares is usually cheaper than the post-listing price in most cases. As a result, when an investor invests in discounted stocks, they have a good chance of making a profit. Unlisted Shares can be a good investment in this situation.
- Unlisted shares can help you diversify your risk because they are a different asset class, providing risk diversification to investors.
B) For IPO Shares
- When an IPO gets listed in the secondary market at a bigger premium i.e., higher than the issue price, one can sell the shares allotted (if any) without any lock-in period for retail investors.
- In the document offered by the company over their website/to the exchange, the price per security is explicitly mentioned. Not only this, but an investor also gets access to the same data as other informed investors.
- Since an IPO is issued in the primary market, it is the first step for any novice company to get into the market. For the same reason, an investor can invest in growth stocks at an initial stage if found properly. This could also help the investor to book quick profits & aid in the long-term growth of their wealth.
- Purchasing IPO shares is frequently done at no cost. This is due to the fact that underwriters are in charge of distribution, and they do not charge their clients for this service (unlike with standard stocks where brokers do charge fees).
Recent News Related to Unlisted Securities & IPO Shares
Unlisted equities such as Tega Industries, Zomato, Go Fashion, Latent View, and many more were listed on the stock markets in 2021, earning a premium of more than 40% return (60.15% on Tega Industries,65.59% on Zomato, 81.54% on Go Fashion,148.02% on Latent View) on the amounts invested during their listings. This shows the gains that the investors have earned in return for the amounts invested.
To summarize, the saying “don’t judge a book by its cover” (or, in this case, by the excitement around a new startup) holds true. Examine the basics, read the prospectus thoroughly, and determine if it aligns with your financial objectives. Both Unlisted Securities & IPO Shares have the potential to give exponential returns if chosen wisely.
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