When you think about investing in stocks, the first thing that comes to your mind is opening a demat and trading account. The Securities and Exchange Board of India mandates that investors can buy and sell shares listed on stock exchanges such as the BSE and NSE through their demat and trading accounts. However, a demat and trading account only allows you to buy and sell stocks listed on the stock exchanges (secondary market). What if you want to invest in the stocks of companies that are not listed on the stock exchanges? There is a way to invest in such unlisted shares, which can help you make high returns.

This blog will help you understand how to buy over-the-counter stocks in the share market, allowing you to invest in stocks even before they list on the stock exchanges.

• Unlisted shares are securities of companies that are not listed on formal stock exchanges, such as NSE and BSE.
• These shares are traded on the over-the-counter exchange called OTC Exchange of India.
• Investors need to find full-service or discount brokers who facilitate trading in OTC shares to buy them in India.

Over-the-counter stocks are shares of companies that are private organisations and do not have their shares listed on the stock exchanges. Most companies IPO on the stock exchanges by offering their shares to the general public. The shares enter the secondary market after the IPO and start trading on stock exchanges. However, over-the-counter stocks do not see any such listing process and are mostly owned privately by executives and owners of the company who offer the shares in the over-the-counter market rather than listing them on stock exchanges. This happens because some companies are not eligible to come out with an IPO or fail the compliance rules set by SEBI. The companies set the prices of the shares in the OTC market as per their price mechanisms.

Unlike shares of companies that come out with an IPO, the shares of unlisted companies are not listed on stock exchanges such as NSE and BSE. This means that you can not use the basic process of buying and selling shares on the secondary market to buy OTC stocks in India. OTC stocks are listed on a specially designed stock exchange called the OTC Exchange of India. Hence, to buy unlisted shares in India, you need to trade on the OTC Exchange of India. However, you need to choose from the following options to trade unlisted shares in India:

• Full-service brokers: Full-service brokers are a type of stockbrokers who offer investments in a wide range of financial instruments. They also offer investment advice to their clients and help manage their portfolios. They charge a higher fee than regular stockbrokers and can assist you in investing in OTC shares.
• Discount brokers: Discount brokers offer fewer investment services than full-service brokers but charge a lower fee. Some discount brokers may offer investments in over-the-counter stocks, which can help you save on paying a higher fee.

Here are some things to consider when investing in over-the-counter stocks in India:

• Cost-effective: OTC stocks are priced low because they do not have to include the cost of launching an IPO. Hence, they provide a cost-effective investment option.
• Negligible transparency: Unlisted companies are not required to submit their financial reports, making the investments risky as investors have limited financial information.
• Growth potential: Unlisted companies may have high growth potential, as their shares might be undervalued. Their prices can increase significantly over time, leaving investors with high returns.
• High risk: Market makers can manipulate the prices of unlisted shares, leading to heavy losses and making them a risky investment. They also have low liquidity, making them difficult to buy and sell.

Unlisted stocks are shares of companies that are not listed on traditional stock exchanges, such as NSE and BSE, but are available in the over-the-counter market. Such shares trade on the OTC Exchange of India and can be bought through full-service or discount brokers. Although they can offer good returns, they come with high associated risks, making it important to invest after extensive research.