How to Grab 10x Returns from Unlisted Shares? Here are some points to consider before investing in Unlisted Equity

Will you invest more in stocks or increase your current investments? While stock buying is a wonderful way to diversify your investments and generate wealth, it is also a difficult financial choice to make. Though specialized knowledge and monitoring may be required to fully comprehend the trends, rules, rewards, and disadvantages of such investments, it is highly recommended that you learn and renew yourself before continuing. 

So, before moving ahead, check out the points to consider prior to making investments in Unlisted Equity.

What are Unlisted Shares?

Unlisted shares and stocks are not traded on traditional stock markets. Because of their non-listing, unlisted shares are riskier than public shares because their liquidity is restricted. Their assessments are more accurate, but less accurate. So, if you can discover an unlisted share that has all of the ability to be listed and the firm has potential for growth, your profits from that share can skyrocket. 

Before making investments in unlisted shares, it is also crucial to know the regulations pertaining to unlisted shares in India. 

Lock-in period

Investors typically have a one-year lock-in term when unlisted shares are issued in an Initial Public Offering (IPO) on a stock market. Prior to listing, there is typically no lock-in period.

Gains may be adjusted in accordance with the basic exemption restrictions, but only a permanent individual or HUF is qualified for this. Additionally, the investor must first adjust earnings from all streams aside from LTCG against the exemption limit before adjusting the residual limit (if any) against LTCG.

Profit taxation regulations

Profit tax regulations categorize profits on the sale of unlisted shares as capital gains. Short-term capital gains on the sale of unlisted securities are now taxable at a 15% rate. Short-term capital gains tax applies to shares of unlisted companies owned for less than 24 months. If the shares are retained for more than 24 months, they are liable for long-term capital gains (LTCG) tax in addition to an annual 20% tax. Investors can gain from adjustment if they hold securities for a long time.

The next question that strikes the minds of every trader with respect to unlisted shares is how to buy unlisted stocks. 

When you buy unlisted shares, you are not buying stock in a firm that is listed on the SEIC or another significant stock exchange. The buying and selling of stocks is regulated by the corporate law of the country wherein you acquired the shares. Maybe you asking how this relates to stocks of unlisted publicly traded companies.

If you buy unlisted stocks from a broker or stockbroker, the broker or stockbroker will refer you to the business that is registered on the SEIC or another major stock exchange. When you buy the shares, you become a shareholder of the company. Because you are not a recognized member of the public entity, you will not be liable to capital gains or dividends on the shares you bought. As a result, a broker or stock broker cannot legally counsel you on the acquisition of the stocks. Unregistered securities sales do not provide a legitimate justification for your broker or the broker’s business to offer you legal advice.

After knowing different ways of buying unlisted stocks, now investment is also necessary. So, how to invest in unlisted shares and stocks? 

Some tips to invest in unlisted stocks-

Buying stocks from promoters

In addition to other OTC alternatives, unlisted stock investment packages can be bought directly from a company’s promoters. The concepts are a little vague, and they could pertain to a complex type of financing in which an investment firm requires a fixed percentage of the company’s outstanding shares, or to an aristocracy stream agreement in which an individual or company ends up paying for the use of company’s brand name and other proprietary information.

Invest in unlisted share AIF and PMS schemes

The Public Provident Fund (PPF) is one of the greatest ways to invest in unlisted shares. This is due to PPF regulation by the Securities and Exchange Board of India (SEBI), which guarantees that these assets are not subjected to unnecessary risks. Unlisted shares, on the other hand, can be acquired via mutual funds or exchange-traded funds (ETFs).

Investing in start-ups and brokers

Usually, small companies trading on the OTC securities market beat larger, more established companies. Because they are less tied to overall market fluctuations, unlisted shares are frequently more appreciated by investors. Some unlisted shares provide significant benefits to unlisted investors, such as restricted liability protection and the chance to acquire direct ownership of the business. Because their value is not supported by real assets, unlisted shares are still paid as debt. As a result, there is an obligation for investors to pay income tax.

By taking the help of Crowdfunding platforms and angel investors

Large groups of investors can use equity crowdfunding to fund various startups and small companies in exchange for stock holdings. Meanwhile, angel investors are individuals who provide seed funding to new companies in return for stock or royalties. Crowdfunding platforms and angel funds can be utilized by individuals who wish to make significant investments in unlisted startups.

Unlisted shares present threats such as liquidity risk and capital loss risk. Moreover, there is minimal to no available information about them. They stand to benefit significantly if the firm is listed on public exchanges. When investing in these companies, you must proceed with caution because the regulations do not extend to them. 
RURASH is an Indian wealth management firm that provides financial solutions to its customers in order to boost their wealth and enable the creation of a legacy. For extra information or concerns, simply notify us at invest@rurashfin.com. We would gladly assist you with your inquiries and even trades.