Listed Shares vs Unlisted Shares – A Detailed Comparison
In this article, we will discuss the different aspects where both type of stocks differ, Listed Shares vs Unlisted Shares.
The differences are pretty clear and on we state the same to you. Let us address them all one by one
When we talk about shares, we generally talk about listed shares. However, there is another counterpart which is called unlisted shares.
Unlisted shares unlike listed ones, do not get traded on the stock exchanges. These stocks are being traded over the counter.
These OTC securities are one of those where the risk is high but the returns are too lucrative. Listed shares are the ones where everyone invests but unlisted stocks are the choice of the risk-takers.
Overview – Listed Shares vs Unlisted Shares
Listed stocks are the stocks of the companies which are listed on any stock exchange like NSE or BSE.
While on the other hand, unlisted stocks are of those companies which are yet to list themselves on any such exchange.
However, there is another definition of unlisted stocks as well.
The unlisted stocks can be of a company that is listed but they want to issue some new shares which they haven‘t listed yet with the stock exchange.
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Ownership – Compare Listed Shares and Unlisted Shares
Listed companies’ stocks or the listed stocks are owned by the shareholders. They have voting rights in the company. They earn dividends when the company distributes the same.
However, there are innumerable owners of a listed company. It is because the company is a public company and anyone can buy and sell its shares.
On the other hand, the unlisted stocks do not provide any voting rights or dividends to the shareholders.
The founder of the company, family members, and employees only has the right to decide for the company.
For instance, if today you are buying some of the unlisted stocks of JIO or OLA, that won’t mean that, you will receive dividends, or have the right to vote for the company’s decision or take part in other affairs.
However, here the number of shareholders is pretty less so if you hold a substantial number of shares, then you can be one of the members of the board.
Trading Process – Listed Shares vs Unlisted Shares
The listed stocks are traded over the stock exchange. They are bought and sold directly on the exchange and this is known as open market trading.
Unlisted stocks are traded over the counter via intermediaries. These stocks are close market instruments.
So, if you are buying or selling unlisted stocks, you need to contact any of the intermediaries who have the unlisted shares of the company. Then you can buy or sell the same.
Liquidity – Unlisted Stocks vs Listed Stocks
It is quite simple to understand that the shares which are traded on the stock exchange have higher liquidity than the unlisted shares.
The listed shares are traded in volume. While the unlisted shares are very few and traded behind closed doors. So, you cannot expect the unlisted stocks to be highly liquid.
However, the unlisted stocks are meant for long-term investment. So, do not put your money in these stocks if you are planning to encash them anytime soon.
Valuation – Compare Listed Stocks & Unlisted Stocks
The listed stocks have a market price. They are on the stock exchange, being traded round the clock, so the demand and supply dictate the price of the listed stocks.
However, the valuation of these stocks can be done based on the cash flows, intrinsic value, and other aspects.
However, the unlisted shares do not have any market value at all. As these stocks are not traded in the stock exchange, there is no such demand-supply rule that applies to these stocks.
The valuation is done completely on the basis of future cash flows. The future cash flows are discounted to get the present value of the company and so its shares.
This is thus an uncertain value of the stock. The valuation can alter at any given point in time.
Regulations – Listed Shares vs Unlisted Shares
SEBI regulates the Stock market and the stock exchanges. However, these unlisted stocks are not on these exchanges only. So, these stocks are pretty less regulated.
Listed companies have to follow stringent guidelines. While on the other hand, the unlisted stocks are being traded without many regulatory actions.
The process of listing is also quite rigorous and complicated which the unlisted companies are yet to go through.
Taxation – Listed Stocks vs Unlisted Stocks
Both listed and unlisted shares are under the tax regime. However, the taxation rules or criteria differ for both.
- Listed stocks are considered to be a long-term investment if they are held for more than 1 year. On the other hand, the unlisted stocks will be considered so, if they are held for more than 2 years.
- Similarly, the rate of tax which is levied on listed stocks (LTCG) is 10%. While on the unlisted stocks it is the exact double which is 20%.
Risks – Compare Unlisted Shares & Listed Shares
When you are buying the listed shares, the risk is minimal compared to the unlisted ones. The unlisted shares are highly risky investments because they are illiquid investments.
There are no certainty about the company to last in the market or not and many others. While in the case of listed shares, the risks are similar but the extent is very low.
Even the listed companies can wind up, but the chances are pretty lower than an unlisted company of winding up.
Benefits – Listed Shares vs Unlisted Shares
Listed companies provide dividends, voting rights, less risky investments, openly traded, liquidity benefits, and others.
The unlisted stocks bring in a whole new set of benefits like a higher return or shall we say exceptional returns if the company can run properly and generate profit.
Then there are fewer regulations and rigid rules of trading.
Process of Investment – Listed Stocks vs Unlisted Stocks
Finally, we have the process of investing in these two types of shares. You can invest in listed shares just by buying them from the secondary market and trade them on the stock exchange.
However, for buying the unlisted shares, you have to contact an intermediary, negotiate about the price of the stocks, and then if everything falls into place when you buy these stocks.
Listed Share vs Unlisted Shares – Conclusion
To conclude, we can say the difference between listed and unlisted shares is very much visible and thus one can easily decide which one they want to invest their money into.
While listed shares provide higher security of your capital or the money, the unlisted one can earn you huge profits. The tax rate for listed shares is 10% and for unlisted shares it is 20%, exact double.
FAQs – Listed Share vs Unlisted Shares
Here are the FAQs on comparison between Listed Shares & Unlisted Shares –
Ques – What are listed shares?
Answer: Listed shares are those shares that are of listed companies in the stock exchange.
Ques – What are stock exchanges?
Answer: Stock exchanges are the places where stocks are listed and available for trading and investment.
Ques – What is a short-term investment in unlisted shares?
Answer: If you hold the investment in unlisted shares for less than 24 months, then it is considered to be a short-term investment.
Ques – What is open market trading?
Answer: Open market trading refers to trading on a stock exchange. Here everything is transparent.
Ques – What is close market trading?
Answer: When the shares are bought and sold directly between the buyer and the seller without any stock exchange then it is known as close market trading. It is because very few know about the transaction.
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