Want to buy shares in Ola, Paytm, or Byju’s, like the stocks that aren’t in the open market? Know about Pre-IPO investment.

  • The current employees of a company that doesn’t want to face an IPO, have the ability to sell their stock in the company to interested investors.
  • Some investment firms, like Analah Capital, TradeUnlisted, and Unlistedkart, offer their online brokerage services to help investors purchase shares in companies that aren’t listed on the major stock exchanges.
  • Investing in unlisted companies is a risky venture that’s not recommended unless your cash sits in your savings account after covering your other expenditures.
Pre-IPO investment
Pre-IPO investment

Reliance Industries and State Bank of India are popular among the public for making investments. Investing in private companies with growth potential can lead to attractive returns even though one may also invest in listed companies that could benefit from growth.

Shares of private companies are not open to trading in any stock markets. As a result, those interested in investing in those companies can do so through alternative platforms.
Retail investors have several options when it comes to the unlisted space, here are some of the methods to use:

Pre-IPO investment

Pre-IPO trading (or purchasing shares of a company before they’re traded on the stock exchange) is the act of buying or selling shares in a company before it goes public. You do not have a stock exchange to buy these shares because they are not being traded publicly.

People who can’t or don’t want to trade unlisted shares on an exchange can buy them via intermediaries and platforms that trade them. Intermediaries and platforms purchase shares from employees, i.e., employee stock options (ESOP), existing investors, and new investors who want to invest.
For the first time in years, the pre-IPO market has finally been opened up to the general public. Some investment firms, like Analah Capital, TradeUnlisted, and Unlistedkart, all of which offer various platforms for helping investors in their quest to purchase unlisted stock. People will put their shares in a Demat account.
According to Unlistedkart, the minimum price could be as low as ₹ 25,000 to ₹ 50,000. No other investment platforms mention a minimum investment threshold.
Share prices are locked for six months after the IPO is finished, as dictated by the regulator. The ban on selling stocks in the first six months after they’re listed means you won’t be able to sell until after that.
Unlisted securities are considered short term if they are sold within 24 months. Your gains are taxable, and the amount is added to your income. In addition, it is subject to a 20% long-term capital gains tax with indexation (after 24 months).
Remember that unlisted shares are illiquid and volatile, so if you try to sell your shares immediately, you may find it difficult. Since the early-stage markets are mostly held by institutional players, and transaction speed is relatively slow (making it impossible to sell shares and access capital whenever it is needed).

CompaniesPre-IPO sellingIPO price bandListing priceCurrent price
Bombay Stock Exchange₹200₹806₹1069₹1179
Ratnakar Bank (RBL)₹60₹225₹301₹179
ICICI Lombard₹400₹661₹680₹1600
HDFC Standard Life₹210₹290₹344₹742
Avenue Supermarts (DMart)₹280₹300₹616₹4209
ICICI Prudential Life Insurance₹130₹334₹310₹696
Central Depository Services (CDSL)₹60₹149₹261₹1335
AU Small Finance Bank₹175₹358₹597₹1115
Source: Planify

Pre-IPO funds

One of the major reasons investors invest in pre-IPO funds is because they are given access to good companies early. Some wealth management firms that offer investment funds that invest in pre-IPO companies include Edelweiss Wealth Management, Kotak Investment Advisors, Trifecta Capital, and IIFL Wealth.

A company that invests in newly listed and forthcoming IPOs claims to have generated a compound annual growth rate (CAGR) of 21.7 percent since its establishment.

Warning: You should invest only extra money into illiquid and volatile investments when you’re a retail investor. Even if you get robbed, it won’t really affect you.

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