How To Buy Unlisted Shares: What You Must Know?

An unlisted share is a security or financial instrument that is not listed on a stock exchange. Generally, an unlisted share is a security or financial instrument that is available for trade on over-the-counter markets. When shares are traded in an exchange, they are traded at the same price and number of shares that the public trades. An unlisted share trading as a whole represents a small share of the total market capitalization of the company, so it is difficult to find investors for unlisted stocks.

To buy and sell unlisted shares an investor needs to have a brokerage account that has access to these markets. In a brokerage account, an investor will list security that they wish to purchase and will be able to view the price history of that security on the exchange where it is listed. If the security is trading for less than a certain dollar amount, the investor will be able to purchase it at that price. There are many different types of stock, such as options, exchange-traded funds, and other securities, but the only securities that are available to unlisted shares are those listed on the OTC markets.

Thus, below are some of the tips on how to buy unlisted shares.

Purchasing ESOPs from employees-

One of the most common forms of unlisted shares is an Employee Stock Ownership Plan (ESOP). An ESOP allows current or former employees of a business to directly purchase ownership stakes in the company from the business. An ESOP is essentially a retirement plan that the employees and executives can use to contribute to the growth and profitability of a company. The funds from an ESOP are considered to be an ownership stake in the company. Unlisted shares also have an inherent liquidity advantage over the majority of companies listed on any stock exchange. Because they are not listed, unlisted shares can generally be bought and sold quickly on over-the-counter markets without much delay.

Purchasing stocks from promoters-

In a related manner, you may also have purchased an unlisted share from a promoter through crowdfunding or a peer-to-peer platform. The company or person offering the shares is not required to list the shares on a stock exchange. The purpose of this type of deal is to allow smaller companies to gain funding without the typical market test of institutional investors.

Investing in small companies-

Investors who invest in unlisted shares are often first-time retail investors. As small firms are generally new and inexperienced, their shares often offer greater potential for higher returns. In addition, stock prices for small companies tend to trade more often. So, the opportunities to buy unlisted shares are usually much more frequent, and the transaction costs are lower.

Invest in PMS and AIF schemes-

Using PMS is especially popular with retail investors since it does not require registration with a financial institution or any special tools.

All companies need funding, and for a small company, that comes from additional investors. By using several different methods, investors can bring your start up to fruition. As with any other funding option, if you buy unlisted stocks, it means your stake in the company is limited to what you’re comfortable with.

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