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Unlisted shares are shares of companies that are not listed on a stock exchange and are therefore not publicly traded. Shareholders of unlisted companies don’t have the same privileges as shareholders of listed companies (BSE/ NSE/ MSEI).
How Does Unlisted Shares Work?
When a company goes public, it hires promoters or underwriters, usually investment and merchant banks. They buy unlisted shares from the company and offer them to investors. This is known as private placement, and shares are bought and sold privately. However, these promoters have a higher minimum investment requirement than other intermediaries.
Benefits Of Unlisted Shares
Exponential Gains
The unlisted stock market is illiquid, but this can be an advantage for investors. Because of illiquidity, the stock price is undervalued or overvalued for a long time. In the long-term, you can make huge profits.
No Worries
Unlisted stocks are for long-term investment, not trading. You can research, buy the best unlisted stock, and wait. No need to bite your fingers at the market's open or close.
Diversification
Diversifying reduces portfolio risk. Unlisted stocks are not or barely volatile. If you have volatile stocks in your portfolio, you can reduce their risk by adding unlisted stocks.
Close Market Investment
OTC trades unlisted stocks. You buy or sell shares directly from the broker. This boosts future investment confidence. The intermediary can advise you when to invest in unlisted shares or other instruments.
Comparison Of Unlisted Shares With Other Products
| PARTICULARS | LISTED SHARES | UNLISTED SHARES |
| Meaning | Listed Shares are stocks listed on the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). | Unlisted shares are those that are not listed on the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). |
| Trading | Shares that are listed are traded on stock exchanges. | Shares are traded OTC. The shares can be bought and sold by brokers or directly. |
| Classification as Long Term and Short Term | Listed shares are long-term if held for over a year. Less than 12 months is short-term. | Unlisted shares are long-term if held for 24 months. Less than 24 months is short term. |
| Selling Price for Computation of Capital Gain | Stock exchange trading makes purchase and sale prices readily available. | First, the fair market value of the shares sold must be determined. The higher of fair market value and actual selling price is used to calculate capital gain. Merchant Banker or Chartered Accountant calculates FMV. |
| Benefit of Indexation | No indexation is provided when computing capital gains. | Indexation helps compute Long-Term Capital Gains. |
| Rate of Tax | Tax-free long-term gains up to Rs. 1 lakh. Gains over Rs. 1 lakh are taxed at 10%. Short-term gains are taxed 15%. | Long-term capital gains are taxed at 20% after indexation and 10% without indexation if held by a nonresident. Short term gains are taxed in slabs. |
| Set off and Carried Forward of Losses | Long-term capital losses can only be offset by long-term gains, but short-term losses can be offset by both. Losses carried forward for 8 years | Long-term capital losses can only be offset by long-term capital gains, but short-term losses can be offset by both types of gains. Losses can be carried over for 8 years. |
Features Of Unlisted Shares
Untraded on Exchanges
Unlisted firm shares are not traded on any exchange. Buyers and sellers in this category transact through dealers.
Dematerialized
Unlisted equities are transferred to your Demat account. Unlisted shares bought through a depository participant account can be checked.
Price Mechanism
Unlisted markets test an investor's judgement with supply and demand. Without exchanges, fair price discovery is constantly under scrutiny.
Liquidity concerns
Unlisted markets have liquidity issues. Investors rarely sell their stake in an unlisted market.
ORBIS (Orbis Financial Corporation Limited)
Orbis Financial Corporation Limited (“Orbis”) was founded in 2005.
It is a financial services company that focuses on providing its clients with custodial and fund accounting services, equity and commodity derivatives clearing, currency derivatives clearing, and registrar and transfer agency and trust services.
Profit & Loss Statement of ORBIS
31-Mar-2022 |
31-Mar-2021 |
31-Mar-2020 |
31-Mar-2019 |
31-Mar-2018 |
31-Mar-2017 |
|
Net Revenue |
152.93 |
65.88 |
33.72 |
15.92 |
12.09 |
7.63 |
Total Operating Cost |
93.90 |
55.79 |
20.15 |
11.55 |
9.64 |
7.65 |
Operating Profit (EBITDA) |
59.03 |
10.09 |
13.57 |
4.37 |
2.46 |
-0.02 |
Other Income |
36.19 |
19.71 |
10.16 |
6.53 |
5.52 |
1.11 |
Depreciation and Amortization Expense |
1.30 |
1.15 |
0.89 |
0.57 |
0.51 |
0.47 |
Profit Before Interest and Taxes |
93.92 |
28.65 |
22.84 |
10.33 |
7.46 |
0.63 |
Finance Costs |
30.23 |
9.93 |
6.51 |
1.29 |
0.13 |
0.01 |
Profit Before Tax and Exceptional Items Before Tax |
63.69 |
18.72 |
16.34 |
9.04 |
7.33 |
0.62 |
Profit Before Tax |
63.69 |
18.72 |
16.34 |
9.04 |
7.33 |
0.62 |
Income Tax |
16.94 |
3.37 |
4.77 |
1.83 |
0.00 |
0.00 |
Profit for the Period from Continuing Operations |
46.75 |
15.35 |
11.57 |
7.22 |
7.33 |
0.62 |
Profit for the Period |
46.75 |
15.35 |
11.57 |
7.22 |
7.33 |
0.62 |
In the financial year 2017 profit after making all the deduction for the year was 0.62cr which gradually kept on increasing year by year. As in FY 2018, it was 7.33 cr; in FY 2021, it was 15.35 cr; and in FY 2022, it gradually increased to 46.75 cr. By examining the data in the table above, we can see that the value of the unlisted share company (ORBIS) has been steadily increasing over the past few years.
FAQ
Depends on factors. Unlisted shares can be sold freely. If the company issues an IPO and gets listed, all unlisted shares are locked for 6 months from the listing date. This is a year before August 2021 if a company filed for DRHP. Once the company’s Issue date and Listing are published, corporate action restricts stock sales.
Existing investors sell their shares because they have other investment options or personal financial needs. Shareholders include current and ex-employees, private equity investors, etc.
To get the best returns, invest in the company from its early stages until its IPO and keep growing until it reaches saturation. Nobody can predict this duration.
There is a 10,000 INR (Indian Rupees) minimum per order.
Ultimately, it is determined by the state of the market. So, when the market performs well, the potential reward is usually worth taking the risk.
