Unlisted
shares are shares not listed on formal stock exchanges. Many businesses have
yet to go public because they do not meet the requirements for listing on a
formal stock exchange.
Unlisted
shares are highly risky than listed shares. Their liquidity is limited because
they are not listed. They are less transparent, but their valuations are more
stable. So, if you can find an unlisted share or an unlisted company share that has all the potential to be listed
and the company has potential growth, your returns from that share can be
massively amplified.
Difference
Between Unlisted And Delisted Shares?
Unlisted
and delisted shares are not the same thing. These two types of shares are
opposed. While unlisted shares have not yet been listed on stock exchanges,
delisted shares are those that were once listed but were removed from the
listed stocks category for various reasons.
On OTC
markets, you can trade and invest in unlisted shares, but you cannot invest
in/trade delisted shares. Delisted shares are not accessible on any platform,
whether formal stock exchanges or over-the-counter (OTC).
Companies
have unlisted shares once they do not intend to issue an IPO or do not meet the
SEBI requirements for listing the shares on any stock exchange, such as the NSE
or BSE. On the other hand, companies have delisted shares once they do not
adhere to any disclaimer guidelines provided by SEBI and stock exchanges. They
thus are delisted from stock exchanges, or the company's management wishes to
delist the company itself.
Is It Safe
To Invest In Unlisted Shares?
Unlisted
shares are traded over-the-counter (OTC), which means that buyers and sellers
trade the instruments directly without the use of intermediaries. As a result,
because this market is neither regulated nor organized, trading in unlisted
shares carries credit risk. Unlisted shares on the unlisted securities
market, on the other hand, are typically traded between companies, large
brokerage houses, and HNIs or institutional clients. As a result, the risks are
reduced based on the reputation of market participants in unlisted shares. The
risk is reduced further if you select the right middleman for trying to trade
in unlisted shares.
However,
the primary danger lies in the investment decision itself, whether the company
whose unlisted shares you are purchasing will go public, whether the share
price will rise, or whether the company will fail due to a lack of business.
Before investing in any unlisted share, the only option is to conduct an
in-depth analysis of the company's fundamentals and other factors.
The
Valuation
The
unlisted shares are valued using the Fair market value (FMV) method. Because
unlisted shares are not traded on a stock exchange and therefore have no market
price, FMV is calculated by underwriters or investment bankers.
To calculate the fair market value, subtract the book value of all the company's liabilities from the valuation of all the company's assets. The resulting amount is then multiplied by the paid-up value (PV) of share capital and divided by the total amount of paid-up equity capital (PE) as shown on the company's balance sheet.