Investing in unlisted equity securities—those not traded on formal stock exchanges. This can be both promising and complex. However, many misunderstandings sometimes prevent investors from investing and let’s talk about debunk some of the common myths and the truth behind them.
Myth 1: Unlisted Shares Are Illegitimate or Risky Investments
Reality: They are legitimate financial instruments that reflect ownership in businesses not listed on public markets. They present chances for significant rewards even though they come with concerns, including less liquidity and marketability.
Myth 2: Unlisted Shares Lack Liquidity Entirely
Reality: Unlisted shares are generally less liquid than their listed counterparts; however, secondary markets and over-the-counter (OTC) platforms facilitate their trading.
Myth 3: Unlisted Shares Are Not Transparent
Reality: Unlisted companies are not under any obligations to comply with the strict disclosure laws that apply to listed companies, thus less disclosure might lead to incomplete reporting of their performance. However, unlisted companies are likely to disclose lots of information to potential investors, and appropriate due diligence should mitigate this risk. Unlisted companies occasionally have to share all the information related to major events such as audited annual results, right issue, bonus issue, splits, private placement, etc., on the MCA Portal.
Myth 4: Just the rich can play the game of unlisted share investment
Reality: Jumping into unlisted shares is way easier now. Closed-door participation in private placement rounds allows investors to grab a piece of the action that used to be just for the heavy hitters.
Myth 5: Unlisted Shares Are Always Undervalued
Reality: The value of private stocks depends on several factors, including market conditions, investor interest, and how well the company’s financials appear. Indeed, some private stocks may not receive attention due to a lack of awareness which results in undervaluation. Some of them are overpriced and some are fairly valued. Thus, the investor is expected to have due diligence before placing any amount of investment.
Myth 6: Unlisted Shares Doesn’t Operate Under Regulatory Oversight
Reality: But even if a stock isn’t on the market, rules still apply. In India, SEBI watches over all that non-listed stock stuff to keep things above board and protect folks who invest. It’s smart for investors to get the lowdown on the rules for these kinds of shares where they live.
Some key regulations –
- The primary regulatory body overseeing unlisted companies is the Ministry of Corporate Affairs (MCA), which enforces rules under the Companies Act,2013 power to regulate and penalize unlisted companies and their board members are accountable for illegal actions such as insider trading.
- SEBI regulates unlisted companies that have raised funds from the public. SEBI also regulates non-convertible securities and market practices.
- SEBI has taken action against unregistered online bond platforms that pose significant risks to public investors.
Conclusion
Investing in unlisted shares presents both significant potential and inherent complexities.. Investors can better navigate the market for unlisted securities by not letting misconceptions govern their approach and by applying considered strategies. As always, thorough research and diligence stand at the foundation of a sound investment decision.