The Indian primary stock market has been on an upward trend in recent months. So far this year, 121 IPOs have taken place. BSE data shows that 107 IPOs generated returns for investors upon listing. However, the process of awarding IPOs is complex.
When demand is high, it becomes difficult for retail investors to obtain shares. Many retail investors want to know if they can buy shares of a company before it is listed on a stock exchange? The answer is that it can be done via a pre-IPO.
What is pre-IPO?
This is a way of buying shares of a company before it is even listed on a stock exchange. These stocks are generally available to institutional investors, venture capitalists, or high net worth (rich) individuals. The main attraction of pre-IPO investing is that it is an opportunity to buy shares at a lower price than the IPO price.
However, pre-IPO investing carries certain risks. Unlisted companies often have less transparency and liquidity, meaning they can sell at any time. Their valuation is uncertain. There is no guarantee whether the company will be listed on the market or not, nor whether its stock price will increase after listing.
You can buy shares of unlisted companies like this…
Brokerage companies: Many brokerage firms help in purchasing unlisted stocks. They buy shares from employees or early investors of the company concerned and resell them to interested investors. For security and transparency reasons, it is best to deal with a SEBI registered broker.Existing shareholders: Sometimes a company’s employees or early investors want to sell the company before it goes public. Such transactions are often concluded privately through brokers. In this case, the buyer and seller negotiate the price and the broker facilitates the transaction.Angel Investing Platform: These platforms connect investors with startups and private companies. This gives them the opportunity to invest early in companies that can then be listed on the stock exchange. However, these investments can be extremely risky.Online platform: Many such online platforms have emerged in the country, providing a market for unlisted shares. Some of these platforms are registered with SEBI. This makes the process safer for investors. These platforms also provide company data, which helps investors make the right decisions.
Make sure to keep these things in mind
Tax: Profits from unlisted shares are taxed differently. Therefore, investors should have a clear idea of the tax policy before investing in such companies.Price: There may be significant fluctuations in the prices of unlisted shares due to increase or decrease in demand. Before investing, one should research the financial position and growth prospects of the company.risk: Unlisted stocks are riskier than listed stocks. They are less liquid, which means they can be difficult to sell. There is also no guarantee that the company will be listed on the stock exchange.