The primary stock market of India has been witnessing a bullish trend for the last few months. So far this year, 121 IPOs have come. BSE data shows that 107 IPOs have given returns to investors upon listing. However, the allotment process of IPOs is complex.
When demand is high, it becomes difficult for retail investors to get shares. Many retail investors want to know if they can buy shares of a company before it gets listed on the stock exchange? The answer is that this can be done through pre-IPO.
What is Pre-IPO? This is a way of buying shares of a company even before it is listed on the stock exchange. These shares are generally available to institutional investors, venture capitalists or high-net-worth individuals (wealthy). The main attraction of pre-IPO investing is that it is an opportunity to buy shares at a lower price than the IPO.
However, there are some risks in pre-IPO investing. Unlisted companies often have less transparency and liquidity i.e. scope for selling at any time. Their valuation is uncertain. There is no guarantee whether the company will be listed in the market or not, or whether its share price will increase after listing.
You can buy shares of non-listed companies like this…
- Brokerage Companies: Many brokerage firms help in purchasing non-listed shares. They buy shares from employees or early investors of the company concerned and sell them to interested investors. For security and transparency, it is better to deal with a SEBI registered broker.
- Existing Shareholders: Sometimes employees or early investors of a company want to sell the company before it is listed in the stock market. Such deals are often done privately through brokers. In this case, the buyer and seller negotiate the price and the broker facilitates the transaction.
- Angel Investment Platform: These platforms connect investors with startups and private companies. This gives them an opportunity to make early investments in businesses which can later be listed on the stock exchange. However, these investments can be extremely risky.
- Online Platform: Many such online platforms have emerged in the country, which provide market for unlisted shares. Some of these platforms are registered with SEBI. This makes the process safer for investors. These platforms also provide data about companies, which helps investors make the right decisions.
Be sure to keep these things in mind
- Tax: Profits from unlisted shares are taxed differently. Therefore, investors should have a clear idea of the tax policy before investing in such companies.
- Pricing: There may be major fluctuations in the prices of unlisted shares due to increase or decrease in demand. Before investing, research should be done about the financial position and growth prospects of the company.
- risk: Non-listed shares are more risky than listed shares. They are less liquid which means they can be difficult to sell. It is also not guaranteed that the company will be listed on the stock exchange.
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