Introduction to Unlisted Shares

In India's dynamic financial landscape, most investors are familiar with shares traded on stock exchanges like the NSE and BSE. However, beyond the well-lit floors of these markets exists another growing segment—the unlisted market. Unlisted shares refer to equity shares of companies that are not listed on any recognized stock exchange. These shares do not trade through public platforms but are exchanged via private placements, dealer networks, specialized platforms, and demat-to-demat transfers.

Unlisted companies can be early-stage startups, subsidiaries of large conglomerates, family-owned businesses, or even mature enterprises gearing up for an Initial Public Offering (IPO). Despite being outside traditional stock exchanges, these companies can have robust operations, high revenue, and substantial investor interest, particularly from private equity and venture capitalists.

In recent years, India’s pre-listing market has garnered increasing attention due to several high-profile IPOs. For example, Tata Technologies, NSDL, and Mobikwik created buzz in the unlisted space well before filing their draft red herring prospectuses (DRHPs). Platforms facilitating these trades have also expanded, offering information on share availability, indicative pricing, and regulatory compliance. The result is a parallel ecosystem of capital formation that, while less liquid and less regulated, serves an essential function in the investment pipeline.

Unlisted shares are typically transacted among high-net-worth individuals (HNIs), employees (via ESOPs), angel investors, or institutional players. However, growing transparency and digital tools are now allowing more informed retail participation—provided there is a clear understanding of the mechanics, risks, and regulatory framework of this market.

2. Difference Between Listed and Unlisted Shares

Understanding the core differences between listed and unlisted shares is crucial for navigating the pre-listing market. Though both represent ownership in a company, the market access, regulatory environment, and liquidity profile vary significantly.

Here is a structured comparison to help clarify:

Trading Mechanism: Listed shares are traded on stock exchanges and settled via clearing corporations, ensuring transparency and investor protection. In contrast, unlisted shares are transferred using Depository Participants (DPs) such as NSDL and CDSL in an off-market mode, meaning that buyers and sellers have to coordinate the terms and documentation privately.

Liquidity Profile: One of the most defining factors is liquidity. Listed shares enjoy daily trading, making it easy to enter and exit. Unlisted shares can take days or weeks to sell, especially if buyer interest is low or the company lacks a prominent market profile.

Price Transparency: Listed share prices are updated in real time, reflecting market sentiment. For unlisted shares, pricing is opaque. It is typically determined by the last traded value, company financials, or negotiations with intermediaries. For example, before the IPO of Chennai Super Kings Ltd. was considered, shares in the unlisted market were priced based on brand value and limited financial disclosures.

Regulatory Differences: SEBI plays an active role in regulating listed markets. However, in the unlisted space, while SEBI still provides off-market transfer guidelines, there is less scrutiny. This makes it important for investors to conduct due diligence independently.

Understanding these differences is not just a matter of investor sophistication—it’s a necessary step toward making informed decisions when dealing with unlisted securities. The lack of price visibility, liquidity, and mandatory disclosures makes this market suitable only for those who are fully aware of its operational nuances.

3. How Unlisted Shares Are Traded in India

The trading of unlisted shares in India operates through a fragmented yet increasingly structured network, markedly different from the seamless, exchange-based mechanisms of the listed market. This system primarily involves private transactions conducted between buyers and sellers, facilitated by intermediaries who specialize in off-market equity transfers.

Key Participants in the Unlisted Share Ecosystem

Unlisted share transactions generally involve several key players:

• Pre-IPO Investors and Existing Shareholders: These include venture capital (VC) firms, private equity (PE) players, early-stage investors, company employees holding ESOPs (Employee Stock Ownership Plans), and sometimes promoters who wish to liquidate part of their holdings before an IPO.
  
  

• Market Intermediaries: Licensed brokers or dealer networks act as facilitators, sourcing unlisted shares from sellers and offering them to interested buyers. These intermediaries operate either independently or through online platforms.
  
  

• High-Net-Worth Individuals (HNIs): Given the risks and illiquidity, a majority of unlisted share activity is dominated by HNIs and informed investors. Retail investors are gradually participating more, especially with better access to data and simplified digital onboarding processes.
  
  

• Bulk Deal Platforms and Specialized Digital Portals: Platforms like UnlistedZone, Delisted.in, and other similar players have emerged to serve as a marketplace where unlisted shares can be bought and sold. They act as deal aggregators, offering indicative prices, company profiles, and facilitating DP-to-DP transfers.
  
  

Transaction Mechanism

Unlike stock exchanges, where trades are matched anonymously, unlisted shares are exchanged through direct negotiations or platform-mediated interactions. Here is a general flow:

1. Identification of Opportunity: Investors either approach a platform or a broker to inquire about available unlisted shares of specific companies (such as Tata Technologies, OYO, or HDB Financial Services).
   
   

2. Price Discovery: Since there's no real-time order book, prices are determined based on past transactions, company valuations (where available), market sentiment, and peer comparisons.
   
   

3. Documentation and KYC: Buyers and sellers are required to complete standard Know Your Customer (KYC) protocols. This is necessary to comply with SEBI guidelines for off-market transfers.
   
   

4. Transfer via Depository Participant (DP): Once terms are agreed upon, shares are transferred from seller’s demat account to the buyer’s demat account through NSDL or CDSL using the off-market transfer option. Each share has a unique ISIN (International Securities Identification Number), which is required for the transaction.
   
   

5. Payment and Confirmation: Funds are usually transferred via bank transfer or UPI in some cases. The transaction is completed once the buyer receives the shares in their demat account and confirms the same with the intermediary.
   
   
   

Regulatory Framework

Although the unlisted market is not governed with the same rigor as the listed segment, certain compliance measures are applicable:

• Off-market transfers must be reported to NSDL/CDSL.
  
  

• PAN and bank details are validated for all parties.
  
  

• No cash transactions are allowed to prevent money laundering or unaccounted wealth transfers.
  
  

As this space continues to grow, regulatory oversight is also expected to tighten, especially with increased retail interest and IPO-linked activities. The introduction of standardized disclosures and better valuation mechanisms may soon form part of broader SEBI reforms.

4. Where to Buy Unlisted Shares: Platforms and Sources

For those interested in unlisted equity exposure, the question often arises—where and how can one access such opportunities?

Unlike public stock markets where exchanges serve as a centralized source of liquidity and information, the unlisted market depends on a variety of intermediaries, platforms, and personal networks. The buying experience may differ significantly based on the channel chosen.

Key Channels for Buying Unlisted Shares

1. Broker-Intermediated Deals

Several SEBI-registered brokers specialize in facilitating off-market transactions. These brokers typically deal with pre-IPO shares or shares held by early investors in prominent private companies. Such brokers offer:

• Information on available shares and price range
  
  

• Assistance in documentation and DP transfers
  
  

• Advisor on taxation and lock-in periods (if applicable)
  
  

These intermediaries are usually preferred by HNIs and institutions who seek bulk allocations and high-value transactions.

2. Online Unlisted Share Platforms

The last five years have witnessed the emergence of digital platforms focused exclusively on the unlisted space. These platforms list available shares, display indicative pricing, and streamline KYC and demat account integration. Examples include:

• UnlistedZone
  
  

• Delisted.in
  
  

• PMSBazaar
  
  

• EquityBulls
  
  

These platforms serve as marketplaces where sellers (like employees with ESOPs) and buyers (like investors seeking pre-IPO exposure) can connect. Some platforms also aggregate data like:

• Last traded price
  
  

• DRHP filings (if the company plans to go public)
  
  

• Peer comparisons
  
  

While these portals offer ease of access, pricing transparency can vary and buyers must perform their own due diligence.

3. Employee Stock Ownership Plan (ESOP) Marketplaces

Many unlisted shares enter the market via ESOP holders seeking liquidity. Companies like Razorpay, Ola, and Flipkart have issued ESOPs that get sold privately before potential IPOs. Some platforms now allow such employees to sell their shares to investors through curated secondary offerings.

4. Private Deal Networks and VC Circles

In many cases, buying unlisted shares requires access to private deal flow through angel networks, startup accelerators, or personal relationships. For example:

• A family office may acquire equity in a high-growth startup through its VC connections.
  
  

• An early investor in a fintech startup may offer to exit via a private deal with a known party.
  
  

This method is informal and requires legal vetting, valuation expertise, and substantial capital.

Important Note on Accessibility

Most of the above avenues cater to informed or high-net-worth investors due to:

• Minimum investment size (often ₹1–5 lakh per transaction)

• Illiquidity risk

• Documentation and tax considerations
  
  

Retail investors can still participate, especially via digital intermediaries, but should exercise due diligence. There are no guarantees of liquidity, exit, or returns, and market depth may vary widely depending on the company’s popularity or IPO proximity.

5. Key Terms to Know in the Unlisted Market

Navigating the unlisted market requires familiarity with several financial and compliance-related terms. These terms not only help in understanding the transaction structure but also in evaluating investment risks and post-deal obligations. Here are some essential concepts every buyer and seller should be aware of:

1. Face Value vs. Market Value

• Face Value refers to the nominal value assigned to a share when it is issued. For most Indian shares, this is ₹1 or ₹10. It has little relation to the actual trading price in the unlisted space.
  
  
  

• Market Value in the unlisted segment is determined by demand-supply, recent transaction benchmarks, and expected IPO price. It is negotiable and can fluctuate significantly, especially for high-demand companies like OYO or PharmEasy.
  
  
  

2. ISIN (International Securities Identification Number)

Every unlisted company’s shares are assigned a unique ISIN by depositories like NSDL or CDSL. This ISIN is used during off-market transfers and helps identify the correct security being bought or sold. Always confirm the ISIN before making a transaction.

3. DP ID and Client ID

These refer to your Depository Participant ID and Client ID under NSDL or CDSL — mandatory for share transfers. The buyer must provide these details to receive the shares, and both IDs must match the beneficiary’s KYC records.

4. Lock-In Period

If you acquire unlisted shares in a pre-IPO company, SEBI rules may impose a lock-in period post-IPO, especially if you bought them within one year of the IPO. This means you cannot sell them on the exchange for six months or more after listing, depending on classification.

5. Pre-IPO Valuation

This is the valuation of a company just before it files or plans its Initial Public Offering. Often used to negotiate unlisted share prices, the pre-IPO valuation is based on the company’s financials, investor rounds, or DRHP disclosures.

6. Dematerialization and Off-Market Transfer

Unlisted shares must be held in dematerialized form (demat) for seamless transfer. The off-market transfer mechanism allows direct DP-to-DP transactions without going through an exchange. It is regulated by SEBI and requires proper documentation.

7. Capital Gains Tax Classification

Knowing whether a transaction qualifies for Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) is crucial for tax planning. The threshold period for unlisted shares to qualify as long-term is 24 months, unlike 12 months for listed shares.

6. Types of Companies in the Unlisted Market

The unlisted share market in India encompasses a wide range of companies at different stages of growth and industry presence. Understanding these types helps investors evaluate the nature of risks, access to information, and potential future liquidity events like IPOs or acquisitions.

A. Startups and Early-Stage Ventures

These are typically high-growth companies backed by VC or angel funding. While they offer significant upside if they eventually list, they also carry higher operational and market risks. Examples include:

• boAt Lifestyle

• Razorpay

• Mobikwik (before filing DRHP)

These companies often offer ESOPs to employees, creating a secondary market for those shares even before the company officially lists.

B. Pre-IPO Companies

These are firms that have announced plans for a public offering and may have filed a Draft Red Herring Prospectus (DRHP) with SEBI. Pre-IPO companies attract considerable attention in the unlisted space due to anticipated listing gains. Examples include:

• Tata Technologies (prior to its 2023 IPO)

• OYO

• Ixigo

• NSDL
  
  

The unlisted shares of these firms often trade at premiums that factor in IPO expectations and grey market buzz.

C. Subsidiaries of Listed Companies

These include private subsidiaries of publicly listed conglomerates. In some cases, these subsidiaries have operations that are more niche or high-growth than their parent. For example:

• Reliance Retail Ventures Ltd. (a subsidiary of Reliance Industries)

• Tata Capital

• HDFC Securities (prior to listing)
  
  

Investors may gain indirect exposure to such subsidiaries through unlisted share purchases.

D. Privately Held Mature Businesses

Some unlisted companies are well-established but choose to remain private due to operational, regulatory, or strategic reasons. Their shares may still be traded in the unlisted market through ESOP liquidity or private placements. Notable names include:

• Chennai Super Kings Ltd. (CSK)

• Studds Accessories

• Hero FinCorp
  
  

Such companies generally have stable cash flows and a defined brand presence, making them more predictable in performance, though they still carry unlisted market risks.

E. Delisted Companies or Formerly Listed Firms

Certain companies may have been listed in the past but are now delisted either voluntarily or due to regulatory issues. Investors may still trade their shares privately. However, caution is advised since financial disclosures and exit options may be limited.

7. Process of Buying and Selling Unlisted Shares

Buying and selling unlisted shares in India requires navigating a structured, albeit less formalized, off-market transaction process. While the absence of a central exchange adds complexity, the process remains legal and is governed under SEBI and depository guidelines. Here is a step-by-step walkthrough of how a typical unlisted share transaction unfolds:

Step 1: Identifying a Seller or Buyer

The first step involves locating a reliable counterparty — either a seller if you're buying, or a buyer if you're selling. This could be:

• An employee looking to liquidate their ESOP shares.

• A venture capital or private equity investor exiting a position.

• A platform or broker that aggregates supply from multiple sources.

Buyers typically access these shares through online aggregators, SEBI-registered brokers, or private introductions in investor networks.

Step 2: Negotiating the Share Price

Since there is no real-time market price, share valuation is a matter of negotiation. Factors influencing price include:

• The company’s last known valuation.

• Comparable company valuations.

• Upcoming corporate events (e.g., IPO, funding round).

• Last traded price on similar platforms.

Sellers may quote prices based on demand, recent deal history, or book value.

Step 3: Verifying the ISIN and Company Details

Before proceeding, both parties should verify:

• The company’s ISIN number.

• Whether shares are dematerialized.

• Any lock-in period or transfer restrictions.

• That the shares are not encumbered or pledged.

Many intermediaries provide a due diligence report along with a confirmation of the company’s compliance status with depositories.

Step 4: Execution of Off-Market Transfer

Once both parties agree on terms, the transaction proceeds as an off-market demat transfer. The seller initiates the transfer using a Delivery Instruction Slip (DIS) provided by their Depository Participant (DP) or through an online platform.

Details required include:

• Buyer’s DP ID and Client ID.

• ISIN and quantity of shares.

• Consideration amount (agreed price).

• Signature and authorization (online or physical).
  
  

The DP verifies and submits the instruction to NSDL or CDSL for settlement.

Step 5: Payment and Settlement

The payment is usually made via NEFT/RTGS bank transfer. In most compliant transactions:

• The buyer transfers funds to the intermediary’s escrow account or directly to the seller.

• The intermediary holds the funds in escrow until the demat transfer is confirmed.

• The transfer is reflected in the buyer’s demat account within 1–3 working days.
  
  

It is important to maintain a record of the transaction — bank receipts, confirmation emails, and demat statements for audit and tax purposes.

Step 6: Post-Transaction Documentation

After the transfer is complete, the buyer receives:

• An updated demat account statement showing the new holdings.

• A transaction receipt or contract note (in case of an intermediary-mediated deal).
  
  

Buyers should verify shareholding using their depository login (NSDL or CDSL), and sellers should ensure the debit entry is properly recorded.

8. Regulatory and Tax Considerations

Though less formalized than stock exchange trades, buying and selling unlisted shares is a legally permissible transaction in India, subject to several tax and regulatory compliances. Understanding these requirements is essential to avoid future liabilities and ensure proper documentation.

A. Capital Gains Tax on Unlisted Shares

Capital gains tax is applicable when you sell unlisted shares for a profit. The classification is based on the holding period:

• Short-Term Capital Gains (STCG): If held for less than 24 months.

  • Taxed as per the individual’s income tax slab.

• Long-Term Capital Gains (LTCG): If held for more than 24 months.

  • Taxed at 20% with indexation under Section 112 of the Income Tax Act.
    
    

For example, if you bought unlisted shares of a company in 2020 and sell them in 2024, you qualify for LTCG with indexation.

B. TDS Applicability

As of recent circulars, certain transactions involving resident sellers of unlisted shares may attract TDS under Section 194Q or Section 194-IA if consideration exceeds threshold limits. Buyers should consult a tax professional for clarity on when TDS is applicable.

C. STT (Securities Transaction Tax)

Unlike listed shares, STT is not applicable on the sale or purchase of unlisted shares. This affects the calculation of capital gains since STT-paid transactions get a concessional tax regime (not available here).

D. Reporting and Disclosure

If you hold or transfer unlisted shares:

• You must disclose them in your Income Tax Return (ITR) under the Assets and Liabilities section.

• Any capital gains from their sale should be declared with proper documentation.

• For Non-Resident Indians (NRIs), transactions must comply with RBI’s FEMA guidelines for cross-border investments and repatriation.
  
  

E. Compliance via NSDL/CDSL

Unlisted share transfers must be routed through a Depository Participant (DP) linked to either NSDL or CDSL. This ensures the integrity of ownership, traceability of movement, and recognition of corporate actions (such as bonus issues or IPO conversions).

Failure to adhere to proper procedures can result in disputes, loss of investor rights, or regulatory scrutiny.

F. FEMA Regulations for NRIs

Foreign and NRI investors should note that:

• All investments must comply with FEMA regulations.

• Repatriation of sale proceeds requires authorized dealer bank involvement.

• Reporting via Form FC-GPR (for allotment) or Form FC-TRS (for transfer) may be required.
  
  

Thus, for cross-border investors, legal and tax structuring is often more complex and may require professional assistance.

Common Precautions When Dealing in Unlisted Shares

While the unlisted market can provide access to promising pre-IPO opportunities or niche equity holdings, it also comes with unique risks and considerations. Because there is no central exchange or regulator watching every transaction closely, caution and self-verification become vital.

Below are key precautions that every participant in the unlisted market — whether buyer or seller — should be mindful of:

A. Verify Company Credentials and ISIN

Before initiating any deal:

• Check the company’s official name, CIN (Corporate Identification Number), and ISIN (International Securities Identification Number).

• Verify if the company is registered with the Ministry of Corporate Affairs (MCA).

• Ask for copies of the most recent financial statements, shareholder register, and compliance filings (if accessible).
  
  

This reduces the risk of purchasing ineligible or disputed shares and helps ensure the entity is operational and in good standing.

B. Use a Registered Intermediary

Always work with SEBI-registered brokers, reputable online platforms, or recognized market intermediaries to avoid fraud or illegal transactions. Ensure:

• The intermediary provides clear documentation of share price, counterparty details, and transaction mode.

• They provide assistance with demat transfer instructions, compliance forms, and support during grievance redressal (if required).
  
  

Avoid engaging in cash deals or undocumented transactions — these lack legal enforceability and tax clarity.

C. Confirm Demat Transfer Procedure

Ensure that the seller initiates an off-market demat transfer through proper channels:

• The Delivery Instruction Slip (DIS) should match the agreed share quantity, ISIN, and buyer DP details.

• The seller must confirm that shares are free from any pledge, lien, or encumbrance.

• Always get an acknowledgement from your DP and check whether the shares reflect in your demat account within the stipulated time (usually 2–3 working days).

If delays occur, notify your DP and the intermediary at once.

D. Get All Transactional Evidence

Retain clear records of:

• Transaction slips or demat account statements.

• Bank payment confirmation (usually via NEFT, RTGS, or IMPS).

• Contract notes or receipts from intermediary platforms.

• Email or communication trail confirming all transaction steps.
  
  

This documentation becomes important not just for audit or income tax purposes but also in the event of disputes.

E. Understand Exit Risks

Unlisted shares are inherently illiquid. You may not be able to exit your position quickly or at the desired price. This is because:

• There’s no real-time price discovery.

• Buyers are limited, especially for companies with low visibility or uncertain IPO timelines.

• Your capital may be locked for months or years, especially if you invest close to an IPO and are subject to SEBI’s lock-in regulations.
  
  

Thus, investors must assess their liquidity preference and risk appetite before engaging in these transactions.

F. Check for Lock-in Restrictions

If the company plans to go public in the future, SEBI mandates a lock-in period for pre-IPO investors — usually 6 months from the listing date for institutional players and up to 1 year for certain promoters.

Make sure:

• You know whether the shares you’re buying will be subject to a lock-in during IPO.

• You understand your rights and limitations as a shareholder (e.g., voting rights, dividend rights, non-transfer clauses).

G. Avoid Unregulated Platforms and Cold Calls

A growing number of unsolicited messages, cold calls, or social media advertisements may claim to offer “hot” unlisted shares. Often, these:

• Inflate prices significantly.

• Offer little to no documentation.

• Engage in pump-and-dump tactics.

Avoid engaging with any source that doesn’t provide complete documentation, compliance guidelines, and verifiable due diligence. Remember, in the unlisted market, it is very much “buyer beware.”

10. Conclusion: Understanding the Unlisted Market Landscape

Unlisted shares form an important, if lesser-known, segment of India’s broader equity ecosystem. They represent ownership in private enterprises — ranging from startups and unicorns to pre-IPO giants and stable subsidiaries — and operate outside the traditional confines of public exchanges.

The Role of the Unlisted Market

The unlisted space serves several purposes:

• It allows early investors and employees to partially exit before an IPO.

• It gives HNIs and institutional players access to promising businesses before they go public.

• It enables companies to build liquidity or reward stakeholders without triggering SEBI’s listing compliance.

In recent years, the rise of online platforms, bulk deal facilitators, and alternative investment networks has brought more structure and visibility to the unlisted market. However, it still lacks the transparency and protections of the listed market.

Navigating with Information and Caution

For those looking to understand or engage with unlisted shares, the most important tools are:

• Due diligence: Always verify companies, intermediaries, and share structures.

• Documentation: Keep a paper trail of all agreements, demat confirmations, and payment proofs.

• Awareness of tax and legal norms: Know your capital gains obligations, SEBI rules, and demat transfer processes.
  
  

Importantly, avoid speculative behavior — especially if share prices seem inflated or documentation is inadequate. And refrain from viewing the unlisted market as a shortcut to IPO riches. Many companies may never go public, or may do so years later under different valuations.

A Complementary Ecosystem

Rather than seeing the unlisted market as a shadow version of the listed world, it’s better understood as a complementary financial ecosystem. It bridges the gap between private enterprise and public capital markets — enabling value creation, price discovery, and stakeholder participation well before an IPO.

With India’s growing emphasis on innovation, digitization, and capital formation, the unlisted space is likely to become more accessible and better regulated. Platforms will continue to improve. Investor education will expand. But the core principle will remain the same: engage only with proper understanding and transparency.