Understanding Unlisted Equity in India

1. What Is Unlisted Equity?

Unlisted equity refers to shares of companies not listed on public stock exchanges like NSE or BSE. These shares are typically acquired through private placements, pre-IPO deals,ESOPs, or secondary market platforms.

2. Why Investors are turning to Unlisted Equity

• Early-stage access: Invest in high-growth startups and evolving businesses before their IPOs
• Potentially higher returns: Early investments in successful startups can yield exponential gains
• Diversification: Exposure to sectors still underrepresented in public markets (fintech, cleantech, biotech etc).
• Lower short-term volatility: Not traded daily, hence less affected by market noise

3. Risks & Challenges

• Illiquidity: Hard to find buyers, no daily market
• Valuation difficulties: Prices are negotiated, with no transparent market signal
• Limited disclosure: Not bound by SEBI’s strict reporting norms, leading to information asymmetry
• Regulatory risk: Lesser oversight compared to listed markets; SEBI warns against unauthorized trading     platforms
• Exit uncertainty: Exit options include IPOs, buybacks, or secondary sales—none guaranteed

4. How to Invest in Unlisted Shares

1. Direct deals / pre-IPO: Usually available for HNIs or institutional investors
2. Unlisted brokers/platforms: Specialised platforms like UnlistedZone, Sharescart, WWIPL, Stockify etc
3. Grey market trading: Informal OTC deals—highly risky due to unreliable pricing
4. PMS / PE/VC funds: Invest via professionally managed vehicles with access to private firms
5. ESOPs: Many startups offer ESOPs, later sellable via secondary routes

5. Taxation of Unlisted Equity

• Short-Term Capital Gains (STCG): Holdings ≤ 24 months taxed at applicable slab rate.
• Long-Term Capital Gains (LTCG): Holdings > 24 months taxed at 12.5% + Applicable Surcharge.
• Dividend income: Taxed as per the investor’s income tax slab

6. Recent Market Highlights

• NSE (unlisted) is India’s most valuable unlisted company (~₹4.7 lakh crore), with share price up 140% since 2021
• Over 100,000 investors now hold unlisted NSE shares, preceding its anticipated IPO
• SEBI warnings have increased, highlighting the risks of unregulated online platforms

7. Comparison Table: Unlisted Equity vs. Listed Equity

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Final Thoughts

Unlisted equity in India offers exciting opportunities for early investment in high-growth companies—but comes with significant illiquidity, valuation opacity, and regulatory uncertainty. It’s best suited for sophisticated investors who can navigate these risks and have a long-term horizon.

Due diligence, reliable intermediaries, and a well-defined exit strategy are essential before committing capital.

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Written by Revanth Sudish

For suggestions/ feedback, please write to us at: research@dexterr.one

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Disclaimer:

This information is for educational purposes only and should not be considered as an investment recommendation. We strongly suggest that you conduct your own research or consult with a qualified financial advisor before making any investment decisions.

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