How to Invest in Unlisted Shares in India: Meaning, Real Examples, Risks, and Tax Rules Explained

In recent years, unlisted equity shares have captured the interest of a growing segment of investors—those looking to go beyond the traditional stock market and tap into the early-stage growth of promising businesses.

These are shares of companies that haven’t yet made their way to stock exchanges like NSE or BSE. Instead, they’re traded privately, often among insiders, early investors, or through specialized platforms that facilitate access to such opportunities.

What makes these shares so appealing is the chance to invest in high-growth ventures long before they become household names. From tech startups building the next innovation wave to established private enterprises gearing up for IPOs, unlisted equity offers investors a front-row seat to value creation, well before public market participants are allowed in. This early access can result in outsized returns, particularly when the invested company eventually goes public or is acquired at a premium. For this reason, unlisted shares are increasingly sought after by seasoned investors, family offices, ultra-high-net-worth individuals (UHNIs), and even ambitious retail investors aiming to diversify their portfolios with alternative assets.

However, with this opportunity comes a set of unique challenges and risks. Lack of liquidity, limited financial disclosures, valuation ambiguities, and complex taxation are just a few of the hurdles investors must understand and navigate. Unlike listed equities, where buying and selling can happen in a few clicks with full regulatory visibility, unlisted shares require careful research, trusted intermediaries, and a long-term perspective. 

This guide from Team Pluto Money dives deep into the world of unlisted equity shares—what they are, how they differ from listed stocks, the risks you should be aware of, the taxation rules applicable in India, and the various routes available for investing. Whether you’re a first-time investor curious about private markets or an experienced professional seeking high-growth opportunities, this article is designed to give you the clarity and confidence to explore unlisted equities intelligently and responsibly.

Whether you’re a first-time investor curious about private markets or an experienced professional seeking high-growth opportunities, this article is designed to give you the clarity and confidence to explore unlisted equities intelligently and responsibly.

What Are Unlisted Equity Shares? 

Unlisted equity shares refer to the ownership stakes in companies that are not listed on any recognized stock exchange. These companies do not meet—or choose not to meet—the regulatory, compliance, and disclosure requirements mandated by bodies like SEBI for public listing. As a result, their shares are not available for trading on platforms like NSE or BSE. Instead, these shares are bought and sold through private transactions, over-the-counter (OTC) markets, or via intermediaries such as brokers and digital investment platforms. These companies are often startups or privately held businesses, including subsidiaries of listed companies or firms in sectors where regulation around public listing is stringent. Unlike public companies, unlisted firms are not bound to disclose quarterly earnings or conduct AGMs for public shareholders. This makes them less transparent but more nimble, often operating in emerging or high-growth sectors like fintech, edtech, EVs, and healthtech. 

Real-World Examples of Unlisted Shares

To better understand how unlisted shares work in real life, let’s take a look at a few case studies:

● Reliance Retail (2023): Once a favorite in the unlisted market, its share price plummeted from

~₹2,700 to ₹1,362 after a corporate restructuring move that forced exits and left investors

disgruntled. This case highlighted the importance of understanding company policies and exit

mechanisms.

● Delhivery (2022): Ahead of its IPO, Delhivery’s unlisted price dropped by nearly 35% after its

price band announcement, showcasing how unlisted share prices are often speculative and can

face sudden corrections.

● Tata Capital: Unlisted shares of Tata Capital surged in value following its IPO announcement,

demonstrating how public listing news can spark a rally in the unlisted market.

● Swiggy and NSE: These firms had active unlisted share markets prior to their IPOs, attracting

investors looking to get in before the valuation surged. Early employees and angel investors in

such firms often see multi-fold returns if the company succeeds.

Why Invest in Unlisted Shares?

Investing in unlisted equity isn’t just about getting in early. It’s also about tapping into unique value

propositions that public markets can’t always offer.

1. Early Access to Innovation Investors get to back disruptive businesses during their formative

stages—often in sectors like AI, clean energy, D2C brands, or deep tech—long before they become buzzwords on Dalal Street.

2. Higher Return Potential Because the entry price is often lower and the companies are in high-growth phases, investors may enjoy better upside. For example, a company growing at 100-150% annually can deliver exponential returns over a 5-10 year horizon.

3. Valuation Arbitrage The lack of institutional investor involvement and public scrutiny often means valuations are more flexible and can provide a price advantage to early movers.

4. Portfolio Diversification Adding unlisted shares gives investors exposure to alternative equity not tied to the daily volatility of the stock market.

Difference Between Listed and Unlisted Shares

• Trading Platform: Listed shares are traded on recognized stock exchanges like the NSE and the BSE. Unlisted shares, on the other hand, are traded over-the-counter (OTC), through private deals, or on broker platforms

• Liquidity: Listed shares offer high liquidity as they can be bought or sold anytime on the exchange. Unlisted shares have low liquidity due to limited buyers and restricted platforms. 

• Regulatory Oversight: Listed shares are strictly regulated by SEBI and follow compliance rules. Unlisted shares have minimal SEBI oversight, making them less transparent and less regulated.

• Valuation: Listed shares are valued based on real-time market prices. Unlisted shares are usually priced through negotiated or private valuations.

• Transparency: Listed companies are required to disclose quarterly financial reports and other public disclosures, ensuring high transparency. Unlisted companies offer limited access to such data, resulting in lower transparency. 

• Exit Options: Investors can easily exit listed shares by selling them on the stock exchange. With unlisted shares, exits are limited and typically happen through IPOs, buybacks, or secondary market sales. 

• Investor Access: Listed shares are accessible to both retail and institutional investors. Unlisted shares are mainly targeted at High high-net-worth individuals (HNIs) and early-stage investors. 

• Risk Level: Listed shares are considered lower risk due to their regulated and liquid nature. Unlisted shares carry higher risk because of opacity and illiquidity. 

Understanding these differences is crucial before deciding whether to include unlisted equity in your portfolio.Explore top opportunities in listed stocks on Pluto Money’s stock investment page.

Key Risks of Unlisted Equity

Despite the rewards, investors must be prepared for the following challenges:

1. Liquidity Risk

Exiting your investment is not easy. You may have to wait for an IPO, acquisition, or buyback. The lack of a secondary market reduces flexibility.

2. Valuation Uncertainty

Since these companies are not traded on open markets, their share price is often based on projections or negotiations, which can be inflated.

3. Information Asymmetry

Without SEBI-mandated disclosures, you’re often relying on limited data to make your decision. This increases due diligence costs and uncertainty.

4. Legal and Regulatory Gaps

Investors have limited recourse in case of fraud, default, or disputes with the company.

How to Buy Unlisted Shares in India

There are several ways to invest in unlisted equity:

● Unlisted Share Brokers – Specialized platforms or individuals who deal in ESOPs, promoter

holdings, and pre-IPO stocks.

● Angel Investing Networks – Platforms like AngelList or LetsVenture allow HNIs and accredited

investors to fund startups.

● Private Equity/Venture Capital Funds – Participate indirectly via pooled funds.

● Secondary Market Portals – Some digital platforms now list verified secondary sale offers from

employees or existing shareholders.

● Company Buybacks or Employee Sales – Occasionally, insiders liquidate via buybacks or

internal exchanges.

Tip: Always verify the broker/platform’s SEBI registration and check for documentation like share transfer forms, DP slips, and taxation certificates.

Choosing the Right Platform

Selecting a reliable partner is half the battle:

● Reputation: Look for platforms with a strong market presence and verified track record.

● Transparency: Are fees, timelines, and transfer protocols clearly explained?

● Support: Does the platform assist with legal documentation, demat transfers, and reporting?

Taxation Rules for Unlisted Equity Shares in India

1. Short-Term Capital Gains (STCG):

If sold within 36 months, the gains are taxed as per your income tax slab (not a flat 15% as in listed

shares).

2. Long-Term Capital Gains (LTCG):

Held for over 36 months? You pay 20% LTCG tax with indexation benefit (adjusting cost using Cost

Inflation Index).

3. Dividends:

Dividends from unlisted companies are taxed as part of your total income at applicable slab rates.

Reporting in Income Tax Returns (ITR)

When filing your returns:

● Report STCG/LTCG under “Income from Capital Gains”

● Mention dates of purchase/sale, cost, proceeds, and holding period

● Maintain records for audit: contract notes, bank transfers, demat slips

For LTCG, don’t forget to apply the indexation benefit to reduce taxable gains

Final Thoughts: Are Unlisted Shares for You?

Unlisted equity shares are not for the faint-hearted. They require conviction, patience, and careful

planning. But for those who do their homework and stay invested, the upside can be transformative.

As India's startup and private market ecosystem continues to expand, more investors are seeking early

entry into promising businesses. The key is not just finding the next big thing, but also ensuring that your

investment is secure, backed by compliance, and part of a diversified wealth strategy.

At Pluto Money, we believe in enabling smart financial journeys. Whether you're starting small or going

big, unlisted shares can be a powerful tool when aligned with your life goals.

"Don't just invest where the market is; invest where the market is going." — Team Pluto