Trading and Investing

Unlisted Equity Shares: Overview, Risks & How To Invest

The formal stock exchange market is known to everyone where a number of investors put money to earn profits. However, the stock exchange only allows buying listed equity shares.

The equity shares meaning on the stock exchange are the stocks of the companies that have become public and the shares are traded publicly. But there are a number of companies from different industries which are not listed on any stock exchange. The shares of such companies are known as unlisted equity shares.

Unlisted Equity Shares

You can earn substantial returns from unlisted equity shares.

Equity shares meaning is different for listed companies and unlisted companies. The process of buying and selling unlisted equity shares, risks associated, stability, future prospects, etc., in unlisted equity shares are very much different from the listed ones.

Let us learn all such crucial details that are necessary to understand unlisted equity shares meaning and their other aspects.

Unlisted Equity Shares Meaning

As said, the shares of the companies that are not listed formally on a stock exchange are known as unlisted equity shares. These companies are not yet in compliance with the rules to get listed on a stock exchange and become public. Some popular names in this regard are Jio, Ola, etc.

These shares/securities are available to trade over-the-counter markets, and hence, also known as over-the-counter or OTC securities.

Risks Associated with Unlisted Shares

The risks associated with trading/investing in unlisted equity shares are different from the listed shares. Since the market of unlisted equity shares is not regulated, there is a bit of lack of transparency and higher chances of manipulation by intermediaries.

However, considering the fact that unlisted equity shares are generally traded only by big companies, institutional investors, big brokerage firms, etc., the risks associated with trading in such securities get minimized.

The real problem lies with the intermediaries who often manipulate investors and scam their money. But this hurdle too can be very well avoided, if one chooses a reputed and trusted intermediary to buy/sell unlisted equity shares.

Besides the risks related to the unlisted equity shares market being unregulated, the other and also the main risk is with the investment itself. Investments in unlisted equity shares are usually made with the hope that the company will get listed in the future and its shares’ prices will increase substantially.

But no one knows whether the company is going to get listed or it will succumb to nothing. And even if it is going to get public, the worry remains whether shares’ prices will increase or not. Hence, it is always necessary to do an in-depth analysis of the company’s business and a forecast of its performance in the coming years.

Only by doing proper research about the unlisted company, you can earn higher returns by investing in unlisted equity shares.

How Unlisted Equity Shares are Valued/Priced?

Unlike listed equity shares, the price of unlisted equity shares is not determined by demand and supply created by investors/traders. There is no such concept of market price in unlisted equity shares meaning as they are not tarded publicly on a stock exchange.

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About the author

Vidya Menon

Vidya is an online content developer for Justwebworld. She has a BA in English Language and Literature and an MA in Current Linguistics. She is a passionate reader, writer and researcher with a background in academic writing.