Unlisted Shares Buying Guide & FAQs

Imagine your friend tells you they bought shares of a company before it got listed. A few months later, the company’s IPO hits the news, and suddenly everyone is talking about “pre-IPO wealth.” You open your phone, search the company, and realise you can’t buy it on NSE/BSE. That’s when you discover the world of unlisted shares—a market that is real, active, and profitable for some… but also confusing, opaque, and full of traps for the unprepared.

This unlisted shares buying guide is written for the everyday investor who wants clarity. By the end, you will know:

• How unlisted share deals actually work,
• How to verify authenticity and avoid fraud,
• How to plan an exit in a low-liquidity market,
• What happens when the company announces an IPO,
• How your unlisted shares go to demat after IPO,
• How to sell unlisted shares after IPO, and
• whether there is a lock-in for pre-IPO/unlisted shareholders.

If you only remember one line, remember this: In unlisted shares, returns come from business value—but losses often come from poor process.

What Are Unlisted Shares?

Unlisted shares are shares of a company that are not traded on a public exchange such as NSE or BSE. The company may be private, in a pre-IPO phase, or simply not ready (or not willing) to comply with listing requirements.

Because there is no exchange order book, unlisted shares trade through negotiated transactions. This changes the entire investor experience. In listed shares, liquidity is built into the market. In unlisted shares, liquidity must be created—by finding a buyer, agreeing on price, and completing a transfer that is often slower and more document-heavy than people expect.

The most important implication is not philosophical; it is practical: the quality of your process becomes part of your return.

Read Also: NSE Unlisted Share Price

Why People Buy Unlisted Shares?

Investors typically buy unlisted shares for one of three reasons. First, they want exposure to a business before it lists, hoping public market participation will reprice the company. Second, they want access to growth companies that may not be available in listed markets yet. Third, they see liquidity opportunities when employees or early investors sell.

Where investors go wrong is predictable. They overpay because they treat “IPO coming” as a guarantee. They underestimate how hard selling can be. And they ignore execution risk—meaning the deal mechanics, documentation, and counterparty reliability.

In unlisted shares, you can be right about the company and still lose money due to process failures. That is not a rare edge case; it is one of the dominant risks.

Unlisted Shares Buying Guide: How Pricing Works Without Exchanges

In a listed stock, one price is visible to everyone at the same time. In unlisted shares, price is usually a range. It is shaped by business performance, comparable listed valuations, any recent funding round (if available), the supply of shares currently for sale, and what buyers believe about IPO timing.

A key idea that explains many “why is this so expensive?” moments is the liquidity discount. When an asset is hard to sell, rational buyers usually demand a discount. If a seller insists on a large premium without strong fundamentals or credible liquidity pathways, you are often looking at a price driven by narrative rather than value.

A practical mindset helps: assume the price can be negotiable, assume liquidity can be delayed, and assume the exit will need planning.

Is Unlisted Investing Appropriate for You?

Unlisted investing typically suits investors who can hold for multiple years, who do not rely on the investment for near-term cash needs, and who are comfortable doing due diligence that goes beyond screenshots and rumours.

If you need quick liquidity, unlisted shares are structurally mismatched to your need. If you are investing because someone promised fixed listing gains, you are not investing—you are taking a counterparty bet on a narrative. And if you dislike paperwork, the market will eventually punish you, because paperwork is how ownership is proven and enforced in private transactions.

Read Also: CSK Unlisted Share Price

How a Clean Unlisted Purchase Typically Works

Most confusion in unlisted shares is not about valuation—it is about the mechanics of ownership transfer.

A responsible deal begins with a quote and written terms that specify quantity, price, fees or spread, the transfer method, and the expected timeline. The next phase is documentation: seller identity confirmation, proof that the seller actually holds the shares, and clear settlement terms. Payment should be routed through a bank trail. Cash arrangements are not merely “risky”; they often destroy your ability to prove the transaction later.

The transfer commonly occurs as an off-market transfer into your demat account (or via the appropriate mechanism, depending on how the shares are held). The deal is not complete when someone sends you a confirmation message. The deal is complete when the holdings appear in your demat in the expected form, with correct identifiers, and you have preserved proof of that credit.

A disciplined investor treats demat credit as the finish line, not the starting point.

The Risk Most Investors Underestimate: Counterparty and Fraud

Many investors focus entirely on whether the company is “good,” while ignoring whether the transaction is safe. In unlisted markets, the counterparty and intermediary are part of the risk equation.

The most common risk patterns are familiar: pressure to act immediately, refusal to share written terms, unclear seller identity, and the “paperwork later” approach. Another frequent trap is pricing that is justified only by expected listing gains rather than by business fundamentals.

If a deal cannot tolerate transparency, it does not deserve your capital.

The documentation rule that saves investors: Keep your process simple: if you cannot build a clean paper trail—who sold, what was sold, what you paid, how transfer happened, and when credit occurred—then you are not buying an asset, you are buying an argument.

Read Also: Sterlite Power Unlisted Shares

How to Sell Unlisted Shares: The Part Nobody Enjoys

Selling unlisted shares is often harder than buying them. That is not because selling is “impossible,” but because the market is not continuously liquid. You must locate a buyer, negotiate a price, and manage settlement steps. The time required can be longer than investors expect, and the price can reflect liquidity discounting.

A practical way to reduce pressure is to plan an exit ladder. If your only plan is “I will sell on listing day,” you are depending on perfect execution at the most volatile moment. A better plan includes alternatives: selling partially after listing (if permitted), selling through secondary transactions (if needed), or holding longer if fundamentals justify it.

Unlisted investing works best when your exit plan is not a single date, but a strategy.

What Happens to Your Unlisted Shares After IPO?

There are two practical situations.

If your holdings are already reflected in your demat account from the time you purchased them, the transition is usually smoother. After listing, those holdings become tradable on the exchange—subject to any restrictions that may apply to your category of holding.

If your holdings are not in demat or if records are not aligned, friction appears. Issues like PAN mismatch, name mismatch, incomplete KYC, inactive DP status, or procedural delays can prevent the holding from being reflected correctly when it matters most. In that situation, the IPO does not magically fix the process. In fact, it often exposes the weaknesses of a casual transaction.

Here is the rule that prevents most disappointment: you cannot sell what is not available in your demat holdings in a free-to-sell form. Listing does not automatically equal sellability.

Can You Sell Unlisted Shares on Listing Day?

You can sell on listing day only if two conditions are true. First, the shares must be credited and visible in demat such that your broker can place a sell order. Second, your holding must not be restricted by any lock-in or contractual resale limitation.

Listing-day trading can be extremely volatile. Even when you are able to sell, disciplined execution matters. Many investors lose value not because they lacked access, but because they used poor order discipline during high volatility.

Is There A Lock-in Applicable for Unlisted Shareholders in an IPO?

Suppose you bought 100 shares while the company was unlisted, and the company comes with an IPO 5 months later—you are not treated as a “retail IPO buyer.” You are treated as a pre-issue (pre-IPO) shareholder. Under SEBI’s ICDR framework, the default rule is that the entire pre-issue capital held by persons other than promoters is locked-in for 6 months from the date of allotment in the IPO (with certain specified exemptions for categories such as: ESOP/ESPS, ESOP Trust holdings, VCF / AIF Category I or II / FVCI holdings).

What this means in practical terms is: even though your shares may appear in your demat and the company gets listed, you generally cannot sell on listing day if your holding falls under this 6-month lock-in. For example, suppose allotment happens on 1 June, and listing is on 3 June. If your holding is under lock-in until 1 December, you may see the shares in demat but still be unable to sell until the lock-in ends.

Separately, even if a regulatory lock-in didn’t apply in a specific case, many pre-IPO deals have contractual resale restrictions written into the term sheet/confirmation. Those restrictions can still block selling after listing, so the correct approach is to verify both: (1) the IPO offer document disclosures on lock-in and (2) your purchase documentation.

What If the IPO is Delayed or Cancelled?

This is why you should never price a deal as if IPO is guaranteed. If the timeline extends, liquidity can tighten and negotiated exit prices can decline. A delay is not automatically a loss, but it can be if you entered with a time-based thesis rather than a business-based thesis.

A strong investor mindset is simple: treat IPO as optional upside, not as the base case that justifies any price.

Troubleshooting the Problems in Unlisted Shares

This market is full of preventable stress. Most issues fall into three buckets.

The first is credit delay—listing happened, but your demat does not show the holding in the expected way. KYC mismatches and procedural delays commonly drive this. The second is settlement delay—payment is done, transfer is pending, and the intermediary starts giving vague assurances. The third is restriction confusion—your holding appears, but it is locked or frozen. That can be regulatory, contractual, or operational, and it must be clarified rather than guessed.

Read Also: PharmEasy Unlisted Share Price

What Happens to My Unlisted Shares If a Company Shuts Down

If a company becomes insolvent, equity holders are typically at the bottom of the recovery hierarchy after secured and unsecured creditors. In real-world terms, that means equity recovery can be low or even zero.

This is not written to scare you; it is written to keep you rational. Unlisted investing needs position sizing, diversification, and an acceptance that some outcomes can be binary. If you treat unlisted shares like a safe fixed-return bet, you are structurally mis-framing the risk.

Conclusion

The winning investor in unlisted markets is not necessarily the one with the earliest access. It is the one with the cleanest process. If you price the deal with a margin of safety, verify what you are buying, maintain rigorous documentation, respect liquidity constraints, and plan multiple exit routes, unlisted shares can be a legitimate part of a high-risk, high-return allocation. If you rely on hype, skip documentation, and assume you can sell whenever you want, the market will eventually teach you the cost of that assumption.

Disclaimer: This article is for investor education and does not constitute legal or tax advice; always refer to the offer document and professional advice for transaction-specific decisions.

Unlisted Shares Buying Guide: FAQs