Sabyasachi Garai @Sabyasachi

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A guide to investing in unlisted companies

Does anyone familiar with the investment and stock market understand a listed company? How can you invest in unlisted companies? But have you come across the term unlisted stocks or unlisted companies? There are so many eminent start-ups happening in India every year. Seeing the mammoth funding rounds or astronomical valuations, would you also like to invest in unlisted companies such as OYO, LAVA, or CSK today? Wondering how? Continue reading on! 

 

Ways to Invest in Unlisted Companies - 

There are primarily five ways by which you can invest in the unlisted companies- 

1. Investing through third-party and start-ups that facilitate unlisted investing

Various start-ups presently offer the facility to invest in unlisted companies. These third parties assist in forming a connection between buyers and sellers with the unlisted companies to meet their particular needs. The minimum funds needed to invest in unlisted companies generally ranges from 10,000 to 50,000. 

2. Buying ESOPs from existing employees

An investor can speak to the staff having ESPOs. They can process the investment through brokers/intermediaries and privately sell the shares. This procedure needs a lot of negotiation as the public share value of the firm remains inaccessible. In this method, the transaction is directly performed between the seller and the buyer. 

3. Buying directly form Promoters

Buying directly from promoters is also referred to as private placement. In this method, the supporters do the personal selling of shares. Also, many third parties are involved in the private sale process, like wealth managers, banks, investments, etc. 

4. Alternative Investment Funds (AIF) & Portfolio Management Services (PMS) 

This mechanism is similar to the mutual fund investment process for the listed company. In this process, the investors invest in alternative investment funds and portfolio management services, supporting unlisted firms. The only difference is the decision-making power concerning investment and who will perform the transactions lies in the hands of the investment manager. This means the investor will not have direct control over the decision. 

5. Purchasing through angel funds or direct funding platform 

This form of investment requires meagre investment, that is, on the firm and its financial condition. 

 

Benefits of buying the Unlisted Shares 

While you plan to invest in the unlisted companies, do read some of its benefits to ensure you are taking the right decision- 

  • High-value investment: As the shares are not that liquid, they are often undervalued, overvalued or undervalued for long periods. Therefore, the investors can easily invest in the undervalued claims and get a good return on investment. 
  • Diversification of risk: The shares of the unlisted company are a unique class asset by themselves, because of which they have diversified risk of investment. 
  • Peace of mind: The share prices of the unlisted companies are mostly stable, which eases the investors' worries concerning price fluctuation. 
  • High growth investments: Generally, unlisted companies are smaller in size, because of which investing in them increases the chances of high growth returns. 

Conclusion 

Henceforth, these are the ways or mechanisms by which you can invest in unlisted companies and leverage their associated benefits, such as high-value investment, diversification of risk, peace of mind, and high-growth investments. 

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