With the power of technology, it has become possible to buy unlisted stocks. These are shares that don’t appear on major indices like the Nifty or Sensex because they are not part of popular companies or do not meet requirements for listing on stock exchanges. Though these stocks may come at a relatively low price, there is always risk involved in investing in them and policies may not be clear about how to deal with such securities. As an investor, one should keep several things in mind before they buy unlisted shares:
1) Lower price than listed counterparts – The first thing one must consider is why would anyone sell his company’s stakes? Buyers usually buy unlisted shares when they expect the value of the company to increase significantly after it gets listed on a stock exchange.
2) Potential loss –
Even if the potential is there, it may not be possible to sell the shares at a later date because they are no longer valid after a particular period. If they have bought these shares and want to sell them, they may take a loss as the market value of such shares falls considerably compared with those traded in exchanges. For this not to happen, investors need to consider buying unlisted stocks with a minimum one-year holding period. Also, check whether the dividend will be paid or not before finalizing their decision.
3) No voting rights –
A company’s board decides major policy changes like mergers and acquisitions, but most companies allow shareholders to vote on these decisions. If they buy unlisted shares, they may not be able to vote here.
4) No disclosures on financials –
Unlike listed companies, there is no regulatory body that requires unlisted companies to disclose their financials every quarter. Investors also cannot track the company’s progress through financial numbers like the number of sales or expenses incurred. There are usually no independent directors on the board who can take care of this either.
5) Proceed with caution –
It’s best not to invest too much in such offbeat stocks as it may be difficult for buyers to get back their investment if things go wrong. Supply and demand also play a crucial role in whether or not a particular share will retain its value over time. In many cases, the company itself may not be able to meet its obligations if it is not generating enough profit.
6) One needs a portfolio –
It is important to diversify one’s investment portfolios because unlisted stocks usually do not offer regular dividends and capital appreciation.
7) No regulation –
Unlisted companies are subject to market forces alone, which means that there is no formal governing body that ensures all stakeholders get fair treatment. This means that prices of such shares may rise or fall sharply without any prior notice. A shareholder will have little recourse in such instances, and so this should be kept in mind before investing in unlisted securities.
So, these were some essential tips to invest in an unlisted shares list.