Before You Buy Unlisted Shares Like NSE, Here's A Guide From Kshitiz Mahajan
These off-market, one-to-one transactions that happen without a central settler or exchange brings in a few benefits.
Investing in unlisted shares, once the exclusive ball game of high-net-worth individuals and big family businesses, is now seeing a shift. The change is not only in volumes but also in the interest coming in from retail investors.
Kshitiz Mahajan, chief executive officer and managing partner of Complete Circle Wealth, explains that this market, while offering potential, comes with unique challenges and risks that require time in the market and understanding of the system.
What Are Unlisted Shares?
Mahajan explains that unlisted shares, unlike listed counterparts, are not traded on exchanges like the NSE or BSE.
"The flavour of the month is the shares of companies that are not on any exchanges that cannot be traded on NSE, BSE. These are from stakeholders or employees who have offloaded their shares through off-market transactions," he said.
These off-market, one-to-one transactions that happen without a central settler or exchange brings in a few benefits, according to Mahajan.
"There is more price discovery as it's not the same price like the exchanges. All the sheets will have different price points for these shares," he said.
Earlier, the unlisted share deals used to be crores as it was family businesses buying some stakes in the company, according to Mahajan.
"But now you hear about deals of 100 and 200 shares. There are less-than-a-lakh trades that are happening. While this system can offer flexibility, it also means prices are not standardised," he said.
Mahajan cites the NSE as one of the prominent unlisted shares. I still remember in 2018, it used to trade around Rs 900. After the split, the effective price per share reset to roughly Rs 1,600, he said.
Issues Of Investing In Unlisted Shares
Despite the growing accessibility and traction to unlisted shares among retail investors, Mahajan stresses on a number of critical warnings for these investors. He pointed out that while there is settlement and transparency in these transactions, the absence of a regulatory framework calls for investors to understand the system first.
The first issue flagged is liquidity, as this can be a significant hurdle. While you can find a buyer, it's different from the usual ready-buyer availability found on exchanges, he said. In this space, once the shares are bought, there is no assurance that there will be a buyer interested in the shares when one wants to exit.
"When you want to sell and exit, it takes time to find a buyer as there are shares with no buyers," he said.
Secondly, the absence of a regulatory framework introduces settlement risk, Mahajan warns, "There is mis-commitment from players and instances of not honouring the contract that takes place."
He explains that the risk of settlement is taken on by an exchange in a regulated scenario. There is no such regulator here, so this implies that the responsibility of ensuring the transaction takes place, falls fully on the buyer.
When it comes to buying these shares, he said that HNIs take a smaller bet from their big portfolios. For retail investors, Mahajan advises assessing the risk they are willing to take first and then limit participation to 3–5% of the portfolio.
Disclaimer: The views and opinions expressed by the investment advisers on NDTV Profit are of their own and not of NDTV Profit. NDTV Profit advises users to consult with their own financial or investment adviser before taking any investment decision.
