Pre IPO Shares – Procedure to Buy & Sell and Taxation

There are a lot of misconceptions and queries regarding Pre IPO shares in the market. Many investors are confused between Pre-IPO shares, Unlisted Shares, delisted shares, etc and many other related queries. So to unearth all these queries, today we are presenting a questionnaire to understand all of these in a better way.

1. What are Pre-IPO shares, Unlisted and De-listed Shares?

(i) Pre IPO Shares: Every company needs funds to run the business. Funds are raised via debt or Equity. When funds are raised via Equity, the investors who are investing in the company want a good return of their investment. Let us suppose investors have invested Rs.500 Crores in the company. Now after 5 years they want to take exit and handover company shares to other investors. So accordingly, the company plans for IPO to give exit to these investors and generally such information comes in media. Before the launch of such IPOs, we at UnlistedZone arrange Pre-IPO shares to our investors.

Benefits of Pre IPO Shares: These days, due to more awareness via social media/news-papers/news channels, IPOs receives a lot of attention and good IPOs are subscribed heavily. Therefore, getting a single lot in IPO is very difficult. Here, the Pre-IPO shares play a vital role. You can purchase these shares well below the IPO price before it actually launches on exchanges and gets the maximum benefit. The only lacuna in Pre-IPO shares is that there is a lock-in period of six months. It means you can’t sell stocks before six months from the date of listing. However, we at UnlistedZone consider that this should not be an issue because it is a well-known phenomenon that equity always rewards its investors who invest for a longer duration. Ex: Nazara Tech, Barbeque Nation, Studds, Chennai Super Kings, HDB, UTI AMC, Fino-Paytech, Suryoday Small Fin Bank, Utkarsh SFB, etc.

(ii) Unlisted Shares: Unlisted shares simply mean which is not listed on National stock exchanges like NSE or BSE and they don’t have nearby plans for IPO. There are a lot of good companies in the unlisted space which gives a very good dividend to its investors. Such unlisted shares are good investment ideas. The liquidity is an issue in these unlisted shares but we at UnlistedZone act as a market maker to buy and sell good rated companies. Ex: Tata Technologies, Carrier Air Conditioning, etc. are such companies which are good dividend-paying unlisted companies and have not informed any IPO plans in the media.

(iii) Delisted Shares: The shares are delisted from national stock exchanges like NSE or BSE and currently not trading. The reason could be anything from not adhering to disclosures as per exchanges requirement or management call to delist the company. Ex: Essar Oil gets delisted from exchanges in 2015 when it was acquired by the Russian company. Essar Steel and Electrosteel are an example of other such companies.

2. How is Pre-IPO shares priced?

Pre-IPO shares are priced as per demand and supply in the unlisted market in a similar way the shares are priced in the listed market. Though, research and analysis of Pre-IPO shares are available less as compared to listed stocks. We at UnlistedZone try to cover and research all the quality Pre-IPO shares on our platform so that investors can make a wise decision before buying these shares. We also do the valuation of these shares and compare them with listed players in the market to understand where they stand.

3. Can you sell Pre-IPO shares immediately?

No, the Pre-IPO shares have a lock-in period of six months. It means you can’t sell stocks before six months from the date of listing. 

4. How Pre-IPO shares are taxed?

The Pre-IPO shares are taxed as per STCG or LTCG. STCG (<2 Years): If you sell Pre-IPO shares before 2 years of buying, capital gain will be charged as per income tax slab.

LTCG (>2 Years): If you sell Pre-IPO shares after 2 years of buying, a 20% tax with indexation benefit will be levied. In Pre-IPO shares, you don’t have to pay GST or STT (Security Transaction Tax).

5. How to buy Pre-IPO Shares, Unlisted Shares and Delisted Shares?

We at UnlistedZone provide the facility of buying Pre-IPO, unlisted and delisted shares. The link to buy these shares is mentioned below. https://unlistedzone.com/procedure-to-buy-and-sell-unlisted-shares-with-unlistedzone/

6. What is the Client Master Copy?

In the unlisted market, Client Master Report (CMR) Copy is the most important document which is required to buy unlisted and Pre IPO shares. It contains DP ID, Client ID, PAN number, Bank Number, etc. This can be easily obtained by sending an email to the broker and the same is delivered within 2-3 hrs.

7. How to check the credit of Shares?

After 01.04.2019, SEBI has mandated that no physical shares can be sold. If somebody wants to sell its shares, then first, it must be converted into Demat form. So in the unlisted market, shares are always credited in Demat form only. The credit of shares can be checked by downloading the NSDL or CDSL app. How do you know which app to download: NSDL or CDSL? By carefully examining the number format of Demat Account we can easily identify whether the stock broker is registered with CDSL or NSDL. Demat Account = 16 Characters which has DP ID + Client ID. DP ID is the unique identification of the Broker. Every broker gets a unique number from CDSL or NSDL. Client ID is the unique identification of the Client. Every client gets this unique number which represents his/her portfolio.

In CDSL, all these characters are numbers (1234567891234567). The first 8 digits are DP ID and the next 8 digits are Client Id whereas in NSDL the first two characters are letters which are in accordance with the country IN12345678912345), then 6 unique digits for broker and next 8 digits are client ID.

CDSL = 12345678 (DP ID) and 91234567 (Client ID).

NSDL = IN123456 (DP ID) and 78912345 (Client ID)