Day 95 : Should you buy unlisted shares?
In the recent budget, the government decided to cap surcharge on LTCG on all assets at 15%. This is a good relief for owners of unlisted shares, which could be taxed up to 37% earlier. So what are unlisted shares, and should you invest in them?
Many companies not listed on the market have raised capital from shareholders and offered ESOPs. The unlisted market exists to create liquidity for these people.
These investments are very attractive since they can potentially be multi-baggers. However, they are not the same as listed shares and have different risks.
In the share market, the buying and selling of shares is anonymous and is carried out by a market regulator. The listed company’s information is public, and the market values it fairly.
This is not the case with unlisted companies. Since these companies are not listed on the market, we cannot track their daily value. Hence, a fair value has to be arrived at with every trade.
These investments also have low liquidity. In listed shares, markets have already assigned a value to the shares, and you decide whether it is correct or not.
It isn’t easy to find a buyer for unlisted shares at a fair value in a short period.
Before getting into these investments, you must understand that they require a lot of patience and are very risky. You could even lose your entire capital.
Stick to vanilla investments like mutual funds, FDs, stocks if you are early in your career. You have time on your side to let your investments compound and grow.
High-risk investments with low capital rarely work. If they fail, you lose your money, and if they do great, your capital invested is not enough to make a huge difference.
Only once you have a significant portfolio enter the space. And here, too, only invest in companies you know well and completely believe in. It’s easy to lose money and takes hard work to earn.
95/100
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