In recent years, India saw a massive surge in retail investments. So did the market. Along with the rise in investments in listed shares, the unlisted markets also attracted attention. Pre-IPO shares, often seen as ‘hidden gems,’ became a tempting opportunity for many, promising the chance to strike it rich by discovering the next big thing.
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But beneath this shiny allure lies a world of risk. Unlisted shares come with major hurdles, regulatory gaps, liquidity issues, and a lack of transparency, that make them far more dangerous than rewarding.
In this article we talk about the risk of investing in unlisted shares and why financial advisors recommend most of us should stay from it.
What are unlisted shares?
When people talk about investing in stocks, they are usually referring to listed shares, the shares of companies traded on recognised stock exchanges like the NSE and BSE. These stocks are regulated, scrutinised, and generally considered relatively safer.
In contrast, unlisted shares are equity of private companies that are not traded on these recognised stock exchanges. They are bought and sold on unregulated platforms, through over-the-counter transactions, without any moderators or regulators overseeing the process.
How unlisted shares are created
Shares in a company represent ownership, and there are several ways one can gain it.
[1] One way is Employee Stock Ownership Plans (ESOPs). Many private companies offer ESOPs, where a portion of the company’s equity is granted to employees as part of their compensation. These are essentially unlisted shares that employees can buy at a fixed price, usually lower than the market price, once the company goes public.
[2] Companies raise money through private placements, venture capital, or angel investors which leads to the creation of unlisted shares.
[3] Additionally, in some cases, debt can be converted into equity, resulting in the creation of unlisted shares.
Now, these shareholders of private companies can sell their shares to other private investors in a secondary market. Transactions happen through unregulated platforms like UnlistedZone, Sharescart, and Planify, which are unregulated.
This lack of regulation makes buying unlisted shares full of risk and unsuitable for most investors.
Why should you not buy unlisted shares
Unlisted shares are hard to sell
Finding buyers or sellers for unlisted shares is challenging. It can take anywhere from days to even months to sell these shares and that too only if you get lucky. It is entirely possible that your shares may not sell at all. As a result, investors can find themselves stuck with shares they are unable to liquidate.
No price discovery
There is no clear price discovery for unlisted shares. Prices are set by the sellers, and there can be significant price variations across different platforms.
Regulatory risks
SEBI has issued warnings against trading on unauthorized platforms. These platforms offer no investor protections and lack grievance mechanisms.
In fact, SEBI had clarified in December 2024 that such platforms are illegal:
“It has come to the notice of SEBI that certain electronic platforms and/or websites are facilitating transactions in unlisted securities of public limited companies. Such activities are in violation of Securities Contract (Regulation) Act, 1956 and SEBI Act, 1992 which are, inter alia, laws designed to regulate and protect the interest of investors in the securities market.”
Lack of transparency:
Unlisted companies are not required to release quarterly results, and financial reports can be delayed by up to 15 months or more. For example, Byju’s has not released its annual reports for the past 2–3 years.
Manipulation and speculation
Unlisted shares are vulnerable to insider trading and speculation. Prices can be influenced by hype or inside information, and there is no independent valuation to confirm their worth.
Additionally, unlisted shares carry significant risks, as seen in the NSE Shares Fraud case. In this case, Atom Capital and Supremus Angel were accused of falsely claiming to hold 1.68 lakh unlisted NSE shares, cheating investors of ₹26.5 crore, and failing to deliver the shares even after receiving payment.
Lock-in period after IPO
After a company goes public, investors holding unlisted shares are typically subject to a mandatory lock-in period of 6 months. This means you cannot sell your shares on the stock exchange immediately after the IPO, limiting your ability to exit during the initial listing phase.
Humans often have a tendency to want to experience things for themselves, and many still feel drawn to investing in unlisted shares.
However, recent events like this should serve as a strong reminder to reconsider the risks involved before diving in.
HBD unlisted shares: How unlisted investors made loss
The last few days have been tough for pre-IPO investors in HDB’s unlisted shares. Many people bought shares at ₹1,275, but the IPO was announced at just ₹740—42% lower. This pricing came just 15 days after the last unlisted market rate.
It gets worse. In September 2024, HDB shares had even touched ₹1,525 in the unlisted market—more than double the IPO price.
Now, investors are also stuck with a 6-month lock-in, meaning even if the stock goes up after listing, they won’t be able to sell and recover their investment during that time.
In recent years, retail investors have rushed to buy shares before IPOs—like those of NSE, Oyo, and Swiggy—without fully understanding the risks involved.
But HDB is not the only case.
Reliance Retail buyback of unlisted shares
Reliance Retail’s unlisted shares experienced a significant rally after the pandemic, with prices soaring from around 3500, driven by IPO speculation and strong business growth.
In 2023, Reliance Retail initiated a buyback of its unlisted shares at ₹1,362 per share. Many retail investors had purchased at much higher prices, leading to substantial losses for those who bought at the peak. This buyback price was less than half of the prevailing market rate at its peak, causing disappointment and a sharp correction in the unlisted share market.
One must also not forget the disaster that was Paytm’s IPO listing. In November 2021, Paytm’s shares plummeted by over 27% on the first day of trading, leading to massive losses for unlisted investors. This caused a ripple effect, unsettling the entire unlisted market.
| Companies | Last Trade Unlisted Price | Issue Price | Listing Price |
| Waree | 2,750 | 1,503 | 2,550 |
| HDB | 1,275 | 740 | Yet to list |
| Tata Technologies | 900 | 500 | 1,200 |
| Reliance Retail | 3,000* | 1,362 # | Yet to list |
| Go Digit General Insurance | 328 | 272 | 286 |
| One 97 Communication | 2,700 | 2,150 | 1,950 |
| Sambhv Steel Tubes | 118 | 82 | Yet to list |
Notes:
- *3,000: Before Buyback
- 1,362: Buyback price
Conclusion
Unlisted shares are not a trendy, everyday investment; they come with significant risks. Financial advisors advice investors to focus on regulated, liquid, and transparent investment options like mutual funds, ETFs, and listed securities. These vehicles offer better risk-adjusted returns and come with proper investor protection mechanisms.
