What is the difference between listed and Unlisted Market? The unlisted or the pre-IPO market has been in a lot of buzz among the select section of investors. However, earlier this market was primarily confined to a few wealthy investors but now the popularity of this marketplace has allowed active participation from the retail investors. Before diving deep into the topic, one must understand what is unlisted and what are unlisted shares. One also needs to understand how it is different from the mainstream or the so-called listed markets. What are unlisted shares? Unlisted shares are those equity shares or securities which are not traded on any particular exchange. Such stocks are bought and sold from the dealers, which are active in the informal markets. For any company to be listed on an exchange, it has to comply with various norms and float its primary issue. Companies, which are not able to comply with those norms or operate at the nascent stage, are traded in the unlisted space. If a company is trading in an unlisted market, it does not mean that it has some issues. Various startups also trade in the pre-IPO market. It is simply because either the company is not making enough profits to be listed or it's looking for minimal capital for its funding needs. An unlisted public company can have an unlimited number of shareholders to raise capital. Not all listed companies are successful and not all unlisted companies are unsuccessful. Unlisted share markets are the key market for value hunters who invest a decent amount in a strong business model at an early stage to see their wealth multiply over the years. Buying of shares In the listed markets, most investors are unaware of the buyers or sellers of the stock. However, the fair price discovery takes place on exchanges that are based on the demand-supply mechanism of the scrip and investors have to deal at the same price shown at the exchange at the particular time only during the market hours. Unlisted markets differ from this practice at multiple steps. There are ample differences between the two. Investors know the buyer or seller and the price discovery is fair but can be bargained by both parties. So both have to agree on the given price and given quantity. Also, the deals can take place beyond the market hours as well. If you are able to find a reliable and supportive dealer in the unlisted space, half of the battle is won. Buying or selling of the share is very much simple when the dealer is finalized and the buy/sell price and quantity are agreed upon between the two parties. An Investor will need to share his details with proofs including the DEMAT account, Client Master Report (CMR). The investor needs to transfer the unlisted share which he/she wants to sell with the quantities to the buyers or broker's DEMAT account. The same day when the dealer receives the unlisted shares in his DEMAT Account, the payment is done by the latter via the preferred mode of transfer. Client Master Report (CMR) copy is a paramount document, required to buy unlisted and Pre IPO shares. CMR contains Depository Participant Identity (DP ID), Client ID, PAN number, Bank Account Number, along with more details. This can be easily obtained by sending an email to the broker and the same is delivered within a few hours. The dealer will require a PAN Card, Aadhar Card, and a copy of DIS Slip, which is used to transfer shares into the account. Opportunity Size Indian listed markets have more than 2,000 companies listed on the various exchanges. However, not all companies are investment-worthy. Stock exchanges have different groups based on the settlement and activeness of the stocks. However, unlisted stocks are not widely classified and not all unlisted shares are available. As mentioned above unlisted markets do not have a fixed mechanism of fair price discovery and the pool size is very less. In the unlisted market, the number of good opportunities is very scarce. Also, the free float of such shares is very less as either private equity players or employees getting shares through ESOPs exit their positions through the private market. However, valuation stock in unlisted markets is quite conservative as it is a more risky bet. Also, the liquidity in this space is pretty much. Though, it is not a space for traders or short-term investors. The unlisted market is an investment space for the investors who have enough spare funds, a longer investment horizon, and a strong knack to identify amazing business opportunities at an early age. Why is an Unlisted Market needed? It is always better to have an alternative market. It gives you more variety and options, along with an alternative to investing in the new age companies at an early stage. Investors are rushing towards the pre IPO market simply for one reason- to buy quality at competitive rates. They believe that by the time a company floats its IPO, the entire juice is squeezed out of it. Most of the companies and merchant bankers demand supernormal valuations in the IPOs which leaves limited room for upside for the retail investors. The unlisted market gives him a better, if not equal, opportunity to hunt for multi-baggers. Taxation on the Unlisted Shares? The pre-IPO shares will be taxed either as short-term capital gains (if held for less than 24 months) at the rate depending upon the tax slab of individuals or long-term capital gains (if held more than 24 months) at the rate of 20% (excluding surcharge and cess but with indexation benefits). However, the unlisted shares have a mandatory lock-in of six months, which was a year earlier. Even if the investor sell shares in the listed market, the applicable rates of unlisted market will prevail. Conclusion Unlisted shares give the same and equal rights to shareholders as those of the listed ones. The market might be unregulated but it is completely legal and the legitimacy of the transfer of shares from one owner to another cannot be challenged by the company.