Listed shares are traded on the stock market. They are closely monitored and regulated by SEBI, which makes them relatively safer investments than their counterparts, “unlisted shares”. They are not traded on the stock market and carry fewer regulations. However, unlisted shares offer higher growth potential.

Hence, if you are seeking high growth, buying unlisted shares could be an option. In this article, let’s check out the various ways in which you can start investing in unlisted shares.

• Unlisted shares are financial instruments from companies not traded on stock exchanges.
• Some common types of unlisted instruments are common stocks, penny stocks, corporate bonds, government securities, and derivatives like swaps.
• You can invest in unlisted companies by funding start-ups, buying shares from employees (ESOPs), purchasing directly from promoters, or using PMS and AIF schemes.
• Some key risks associated with investing in unlisted shares are illiquidity, no guaranteed dividends, and dilution of ownership.

Unlisted shares are financial instruments. They are traded on over-the-counter (OTC) markets instead of regular stock exchanges. Usually, these shares belong to companies that:

• Have just been incorporated
• Are small in size
• Do not meet the listing requirements

It must be noted that these shares are traded in a more informal setting. Also, they offer a chance to achieve high growth but with more risks compared to listed shares.

The most common type is “unlisted common stock”, which is traded on OTC markets. Some other examples include:

• Penny stocks
• Corporate bonds
• Government securities
• Derivative products like swaps

Be aware that investing in unlisted shares or companies can be a rewarding but risky opportunity. If you are an investor with a high-risk appetite, you can invest through various methods. Let’s check out some of the most popular ways below:
 

Investing in start-ups and pre-IPO companies

You can invest in companies that are currently unlisted but plan to get listed later. These are known as pre-IPO companies. Upon investing, the shares will be transferred to your Demat account. However, be aware that the transaction will happen outside formal exchanges. Alternatively, you can invest in start-ups that have the potential for high growth. The minimum investment in this route is usually around Rs. 50,000.
 

Buying ESOPs from employees

Through some brokers, you can purchase shares directly from employees who are willing to sell their Employee Stock Ownership Plan (ESOP) shares. Usually, these shares are sold at a set price after a lock-in period. This is an alternative way to buy unlisted shares in well-known companies.

One must note that employees usually receive shares as part of their compensation. Later on, after the end of the stipulated lock-in period, some employees prefer selling their holdings. When they do so, you can buy their shares at a negotiated price. This price is often lower than market rates if the company eventually lists its shares.
 

Buying shares directly from promoters

If you’re looking to invest a significant amount, you can approach investment banks or brokers to buy shares directly from the company’s promoters. For those unaware, promoters are the original founders or owners of a company.

Through the help of brokers or wealth managers, you can determine the share price of the unlisted company and connect with promoters for “private placements”. This method even gives you access to insider opportunities.
 

Investing through PMS or AIF schemes

Portfolio Management Systems (PMS) and Alternative Investment Funds (AIF) are professionally managed investment portfolios. In these schemes, the manager buys and sells shares based on market trends. Some PMS and AIF schemes even include unlisted shares as part of their strategy.

Mostly, this option is considered safer than direct investment. That’s because portfolio managers handle all the investment-related challenges in PMS or AIF. They even manage risk by adjusting the portfolio based on company performance and market trends.