- Interest in pre-IPO investing has surged among retail investors in unlisted shares
- Retail investors access unlisted shares via high-minimum AIFs or brokerage platforms
- Unlisted shares face inefficient price discovery and can be driven by market euphoria
Interest in pre-IPO investing has surged among retail investors looking to enter companies before they list on the stock market. From National Stock Exchange of India to startups such as Zepto, unlisted shares have increasingly become a new corner of retail investing conversations. But according to Gurmeet Chadha, the excitement around unlisted shares often overlooks a key reality: these investments come with far higher risks than regular listed stocks.
“There was a lot of euphoria on unlisted last year,” Chadha said in an interview with NDTV Profit. “Some experiences were good and some experiences were pretty ugly.”
Chadha explained that retail investors can broadly access unlisted shares through two routes. One is via Category II and III Alternative Investment Funds, or AIFs, which invest in pre-IPO opportunities but typically require a minimum investment of Rs 1 crore.
The second route is through specialised platforms and brokerage networks that facilitate transactions in unlisted shares. Platforms and brokers now allow investors to track prices and purchase shares in companies that may eventually go public. However, Chadha cautioned that price discovery in the unlisted market is often inefficient and heavily sentiment-driven. “Sometimes the price discovery is more a function of euphoria around the stock,” he said.
Liquidity, Delays and Settlement Risks
Unlike listed shares, unlisted investments can remain illiquid for years. Chadha pointed to companies such as NSE and OYO, where IPO timelines have faced repeated delays. Investors buying shares before listing must therefore be prepared for extended holding periods. “You cannot come with a short-term mindset,” he said.
Another major issue is liquidity. While some unlisted names such as NSE or Chennai Super Kings may have relatively active demand, smaller companies can become difficult to exit without taking steep discounts. “You first have to pay, and then the shares get delivered in your demat with a bit of lag,” Chadha said, adding that investors should deal only with reputed, institutional brokers and insist on near-instant transfer mechanisms.
‘Do Not Chase Euphoria'
Chadha also warned retail investors against blindly chasing fashionable themes such as AI, semiconductors or clean energy in the unlisted space. “There are a lot of frauds in the market,” he said.
His advice was straightforward: invest only in businesses and sectors you genuinely understand, avoid concentration risks and limit exposure to unlisted shares to a small portion of an overall portfolio. “Do not just chase momentum and euphoria here,” Chadha said. “Chances are not only will you lose money, you can have a permanent lock-in of capital.”
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