What is Pre-IPO? How to buy and sell unlisted shares in India?
Source: Business Standard
Indian primary markets have been booming, as nearly as many as 121 initial public offerings (IPOs) have gone public this year. The BSE data reveals that as many as 107 IPOs posted gains on listing. That said, given the allotment process usually remains vague as the allotment depends on the level of subscription in the IPO and the category in which the investor has applied. At times, the shares are allotted through a lottery system. This raises the question for investors: is it possible for them to apply in the pre-IPO?
What is pre-IPO?
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Pre-IPO shares are a way for investors to buy into a company before it officially goes public. These shares are sold during a private round of fundraising and are generally available to institutional investors, venture capitalists, or high-net-worth individuals. The main attraction of pre-IPO investing usually remains that it gives a chance to buy shares at a lower price compared to the price offered during the IPO.
However, pre-IPO investments also come with certain risks. Since these companies are still private, there’s a lack of transparency and liquidity, and the valuation is uncertain. Moreover, there is no guarantee that the company will go public or that the stock price will rise after listing.
How to buy unlisted shares in India?
Brokers specialising in unlisted shares: Several brokerage firms in India help investors buy unlisted shares. These brokers act as intermediaries, sourcing shares from employees or early investors who want to sell their holdings. Investors can contact these brokers to purchase the unlisted shares. It’s important to work with SEBI-registered brokers for safety and transparency.
Buy from existing shareholders: Sometimes, employees or initial investors in a company may want to sell their shares before the company goes public. These deals are often arranged privately through brokers. In this case, the buyer and seller negotiate the price, and the broker facilitates the transaction.
Angel investing platforms: Another way to buy unlisted shares is through angel investing or venture capital platforms. These platforms connect investors with startups and private companies, giving them the chance to invest early in businesses that may go public later. However, these investments are highly speculative.
Online platforms: Many online platforms have emerged that provide a marketplace for unlisted shares. These platforms give investors access to a range of companies that have not yet gone public. Some platforms are SEBI-registered, making the process more secure for investors. These platforms also offer data about the companies, helping investors make informed decisions.
What are the things to keep in mind?
Risks: Unlisted shares come with a higher risk compared to listed stocks. They are less liquid and can be harder to sell. Moreover, there is no guarantee that the company will eventually list on the stock exchange.
Pricing and research: Prices for unlisted shares can fluctuate widely depending on demand. It’s crucial to conduct thorough research about the company’s financials and growth prospects before making an investment.
Tax implications: Gains from unlisted shares are taxed differently. Therefore, investors should have a clear understanding of the taxing policies before investing in unlisted companies.
First Published: Oct 14 2024 | 3:29 PM IST
