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In this article, we will discuss all the aspects of How to invest in unlisted shares in India?

In India, there is a huge market for unlisted shares which is not very much in the public eye yet.

However, HNIs, institutional investors, and even some retail investors keep their eyes on unlisted shares.

These shares are referred to as the market’s hidden gems and thus investors need to invest in them with a long-term perspective.

How to Investment in Unlisted Shares? – Step by Step Process

The investment process of unlisted shares can be broken down into the following seven steps which are –

  1. Requirement of Demat and Trading Account
  2. Choose the right intermediary
  3. Stock analysis
  4. Negotiation
  5. Order placement
  6. Required Documents submission
  7. Transfers and Payment

Let us now discuss each of the steps in detail.

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    Demat and Trading Account – 1st Step to Invest in Unlisted Shares

    When first time investing in unlisted shares, you would need a Demat account. For selling them, you will need a trading account.

    How to Invest in Unlisted SharesYou can use any Demat and trading account which is registered with the CDSL or NSDL.

    The brokerage house that is providing you the Demat account might not deal in unlisted stocks, but the Demat account, you can use for buying and selling the unlisted stocks.

    Here, the main role is played by the depositories in the country – CDSL and NSDL. When you buy unlisted stocks, the stocks are delivered to your Demat account.

    You can check the same by using CDSL’s MyEasi App or NSDL’s application.

    Choose the Right Intermediary – Next Step to Invest in Unlisted Stocks

    The next step is one of the most crucial steps in this whole process – that is choosing the right intermediary.

    There are multiple intermediaries from whom you can purchase the unlisted stocks. There are –

    • Brokers
    • PMS Firms
    • Promoters
    • Equity Crowdfunding investors/ Angel Funds
    • Existing employees of the company with ESOPs

    The easiest way to invest in unlisted shares is via brokers who deal in these shares. You can find multiple brokers in the country who deals in unlisted shares.

    These brokerage houses buy the shares from the companies who want to sell their shares. Then they sell the shares to the investors like you.

    They not only help in buying and selling the shares but also keep track of the price of these unlisted shares.

    Since the price of these shares are not on the exchange and you cannot find them online, you need to keep faith in these brokers.

    There are certain charges that they charge for rendering their services. The charges vary from one broker to another.

    You must compare the charges and also the services they are providing. Moreover, you need to see which all unlisted shares they are dealing in.

    Stock Analysis – 3rd Step to Invest in Unlisted Shares

    Once you choose the broker after thorough scrutiny, it’s time to analyze the stocks. For analyzing the stock, you need to first analyze the company.

    You need to start with the financials, then dig into the management decisions and performance, competitive edge that the company has, and many other quantitative and qualitative factors.

    The choice of stock is very crucial as unlisted stocks carry quite a high amount of risk with them.

    However, with risk, comes bigger rewards. However, you need to analyze and check whether the risk is worth taking or not before investing.

    Negotiation – Step 4 in Unlisted Shares Investent

    When you are investing in unlisted stocks, you need to negotiate the price with the intermediary as unlisted stocks are traded over the counter.

    Suppose, you want to buy some of the unlisted shares of a company at Rs.100, however, your intermediary is offering the shares at Rs.120 per share.

    Then you can either buy the shares at Rs.120 each or negotiate the price. If the price drops towards Rs.100, the intermediary will revert to you and you can then close the deal.

    Similarly, when you are selling the shares, you can wait for the price to rise to your expectation and then only sell.

    Order Placement – Invest in Unlisted Shares 5th Step

    The next step is placing the order. The order would consist of the number of shares you want to buy or sell, and the price at which you want to buy or sell.

    Then the order will be evaluated by the intermediary and then they will process the order. The order placement can be done overcall.

    You can call the intermediary (or mail them) and provide all the details. Some documents will be required to process the order and they are discussed below.

    Required Documents Submission – Next Step of Investing in Unlisted Stocks

    The documents which are required for both buying and selling the shares are –

    • Pan Card
    • Client’s Master Copy
    • Canceled Cheque

    Documents required for selling the unlisted shares only include the Delivery instruction slip (DIS) along with the above-mentioned documents.

    The CMC is the document where the instructions about the number of shares to be bought, the price for each share, the total amount is mentioned.

    Similarly in DIS, the number of shares you want to sell at what price and the total sale process amount is mentioned. Both these documents are given by the broker/intermediary.

    Transfers and Payment – Final Step to Invest in Unlisted Stocks

    Finally, we come to the last step which is transfers of shares and payment. If you are buying the shares, you have to make the payment for the number of shares bought.

    Once the intermediary receives the payment, they will start processing your order. The shares will be in your Demat account within T+3 workings days from the date of transaction.

    For selling the shares, you need to first transfer the shares to the intermediaries account or directly to another investor’s account and they will send the money to you in your bank account.

    Once you receive the shares in case of purchase or the money in case of selling the shares, the trade is complete.

    Invest in Unlisted Shares – Conclusion

    So, investing in unlisted shares is quite different from trading normal shares but it is not difficult.

    If you can find out a proper intermediary and then choose the right stocks and negotiate properly, your deal is almost done.

    Then all you have to do is to submit the documents required and there you go.

    Invest in Unlisted Shares – FAQs

    Here are the FAQs related to How to Invest in Unlisted Stocks in India –

    Ques – What is ESOP?

    Answer: ESOP stands for employee stock option plan. This is a scheme where companies allot a certain number of stocks to their employees.

    Ques – What are CDSL and NSDL?

    Answer: NSDL and CDSL are the two national depositories in India. The Demat accounts are provided by these depositories and maintained as well.

    Ques – What is DIS?

    Answer: DIS stands for delivery instruction slip which you need to fill when selling the unlisted shares.

    Ques – What is CMC?

    Answer: CMC is the client master copy where you mention all the details for the unlisted stock purchase order.

    Ques – How the money can be transferred to the intermediary?

    Answer: You can transfer the money into the intermediary’s bank account when purchasing the unlisted stocks from them.

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