What Are Unlisted Shares?
The Complete 2026 Guide to Pre-IPO Investing in India
By Kanishk Devbangia, NISM Series XV Certified Research Analyst (NISM-202300182946)
The private investment climate in India is flourishing. There are countless companies ranging from fintech unicorns to age-old family businesses running completely away from the clutches of public stock markets, but which create immense wealth for their early stage investors. All thanks to an asset class known as unlisted shares.
When someone tells you that they have "invested in a company before its IPO" or that they possess shares of a company not listed on NSE or BSE, then they are referring to unlisted shares. The trend regarding this particular type of investing has increased remarkably over the last few years; as reported by the Economic Times, the participation of retail investors in pre-IPO placement rose by more than 40% between 2023 to 2025 owing to some successful listings such as LIC, Paytm, and Zomato.
In this article, we will be covering everything from the basics of what an unlisted share is, how they are traded, tax laws, and things to consider when investing in them.
What Are Unlisted Shares?
In its simplest form, unlisted shares refer to shares offered by firms that have not conducted an IPO and are therefore not listed on stock exchanges such as BSE and NSE. In other words, they represent ownership in companies that have not been officially quoted by an exchange and are thus not traded on such platforms. Nevertheless, just as in the case of any publicly listed entity, ownership is demonstrated through the same certificates or dematerialized shares. There exists no centralized trading floor where interested parties can meet for trading purposes.
As per SEBI’s guidelines on private placements and off-market trades, shares in unlisted firms can be legitimately transferred from one willing party to another, with the transaction being recorded in the register of members of the firm as per the timelines set forth under the Companies Act of 2013.
Pre-IPO Shares vs ESOPs vs Delisted Shares — Key Distinctions
Understanding unlisted shares also means knowing the sub-categories that fall under this umbrella, because each one has a different risk-return profile.
How Unlisted Shares Work in India
Without an exchange to facilitate trades, the mechanics of buying and selling unlisted shares are fundamentally different from what retail investors are used to. Here is how the entire ecosystem functions.
Where Do They Trade?
Unlisted stocks trade mainly through off-market deals. There are two major ways in which this happens: first, the stock can be bought or sold directly between the parties themselves; second, the transaction can be arranged through an intermediary dealer or intermediary platform. These dealers keep records of buy and sell orders, provide indicative prices, and effect transactions when both parties agree. This is similar to what a real estate broker does, not a stock exchange.
Intermediary platforms such as Unlisted Axis operate in this niche, bringing together pre-IPO investment opportunities for retail and HNI investors through a curated and SEBI-approved deal flow system. SEBI has been tightening its regulations on intermediaries in this segment, and it is wise to check whether your intermediary platform follows SEBI guidelines.
Pricing Mechanism
The first point to grasp is that there is no live or transparent price for the share. The prices of such shares are negotiated and determined by various factors like:
Price from previous transactions communicated by the dealer; latest published annual accounts and valuation multiples; likelihood of any upcoming IPO in future; and demand and supply dynamics.
Grey market premium (GMP) is quoted in various financial media like Moneycontrol from time to time regarding some upcoming IPOs.
Demat Custody
Beginning 2019, it was stipulated by SEBI that all the unlisted public limited company shares should be dematerialized (demat). Hence, having a functional demat account at any registered DP in SEBI like CDSL or NSDL is essential to possess unlisted shares. Dematerialization greatly lowered fraudulent practices and improved settlement reliability.
Settlement Process
As soon as the price of the shares is negotiated between the buyer and seller, the seller starts the transaction through his/her DP through a DIS (Delivery Instruction Slip) or through the online interface of the demat account. All the funds are transferred by the buyer straight into the sellers' bank accounts or through the intermediary portal. The process usually lasts from 2 to 5 working days, which is considerably longer than the T+1 settlement in the Indian stock markets.
Types of Unlisted Shares
Let us go deeper into the four major categories of unlisted shares that Indian investors can access.
1. Pre-IPO Shares
These are shares in companies that are either formally preparing for a listing (having filed a Draft Red Herring Prospectus, or DRHP, with SEBI) or are widely expected to go public within a defined horizon. Examples include companies like NSE India, HDB Financial Services, and Tata Capital, all of which have been actively discussed in IPO pipelines in recent years. Pre-IPO shares are attractive because investors can enter at valuations that are lower than the eventual IPO price — though this is not guaranteed.
2. ESOPs (Employee Stock Options)
Employees at fast-growing startups often accumulate significant ESOP holdings. When they want liquidity before an IPO or buyback event, they sell these shares in the secondary unlisted market. From a buyer's perspective, ESOP shares are legitimate equity with full rights, but buyers should verify that the company's Articles of Association (AoA) permit free transfer, as some companies impose right of first refusal clauses.
3. Delisted Company Shares
Delisted shares are shares in companies that once traded publicly but have since been removed from exchange listing. This happens through voluntary delisting (promoters take the company private), compulsory delisting (for regulatory non-compliance), or merger and acquisition activity. These shares are generally illiquid and risky, but they can offer value if the underlying company is financially strong and the delisting was voluntary at a fair exit price.
4. Foreign Unlisted Shares
Under RBI's Liberalised Remittance Scheme (LRS), Indian residents can invest up to USD 250,000 per financial year abroad, which includes investing in foreign private companies. This has given sophisticated Indian investors access to pre-IPO rounds of global tech companies. However, compliance requirements under FEMA and disclosure norms under the Income Tax Act make this a complex space requiring professional guidance.
Pros and Cons of Investing in Unlisted Shares
Like any asset class, unlisted shares offer a compelling risk-return tradeoff. Here is an honest assessment of both sides.
Advantages
Pre-IPO Upside - The Numbers Don’t Lie
One of the most convincing cases for unlisted stocks is the opportunity to gain from the pre-IPO stock upside on listing day. Investors who invested in unlisted Nazara Technologies shares, which were trading around Rs 1,000-1,200, had their shares list at Rs 1,971 in March 2021. Similarly, early investors in Nykaa's unlisted shares, which were trading at Rs 800-1,000, had the stock list at Rs 2,001. Although not all pre-IPO investments provide such high returns, many do. Economic Times has covered several examples of profitable pre-IPO investments, stating that the average upside gained on pre-IPO investments in DRHP-filing companies between 2020 and 2024 was 35-45%.
Private Market Diversification of Your Portfolio
Traditionally, retail investors can invest only in publicly listed securities, including equities, bonds, and mutual funds. Unlisted stocks give access to the private market, where about 80% of India’s economy operates, comprising companies that haven’t listed yet. By adding even a small portion of the portfolio (5-15%) in unlisted stocks, you will diversify your portfolio, as the valuation of private companies is uncorrelated to the stock market movements.
Access to High-Quality Companies Before They List
There are companies such as Reliance Retail, HDFC Securities, and National Securities Depository Limited (NSDL), which have been making profits for many years but do not feature on stock exchanges. People buying stocks of such companies get an opportunity to hold shares in the company even when it is unlisted.
Disadvantages
Liquidity Risk
This is the single biggest risk in unlisted shares. If you need to exit your position quickly, there may simply be no buyer willing to purchase your shares at a fair price. Unlike listed equities where millions of shares change hands daily, the unlisted market is thin and illiquid. During market downturns or negative news cycles around a company, you could find yourself holding shares with no exit route.
Price Opacity
Without a regulated exchange, you cannot know with certainty whether the price you are paying is fair. Dealers quote prices based on their perception of market conditions, and there is a spread between the buy and sell price (similar to a bid-ask spread) that is often wider than in listed markets. This opacity can disadvantage uninformed buyers.
Lock-in Periods and SEBI IPO Regulations
If a company you hold shares in successfully lists via an IPO, SEBI requires pre-IPO investors (who are not part of the promoter group) to hold their shares for six months post-listing in certain categories. This lock-in can prevent you from booking profits at peak listing prices.
Higher Minimum Investment
Most unlisted share transactions have a minimum ticket size of Rs 25,000–50,000 or higher, and many quality pre-IPO deals start at Rs 1 lakh or more. This makes position sizing and diversification within the unlisted space more capital-intensive compared to listed equities.
How to Buy Unlisted Shares in India
Though the procedure for purchasing unlisted shares is slightly complex compared to placing an order through the app of any stock exchange, it is absolutely possible once you get to know how to do it. The basic stages include finding out a reliable intermediary or exchange, choosing the company and number of shares to be purchased, performing the KYC validation process, making payments, and finally receiving shares into your demat account.
There are many methods through which pre-IPO shares may be bought. These include the use of SEBI regulated brokers, using unlisted share exchanges, purchasing directly from ESOPs, or joining private equity syndicates.
Taxation of Unlisted Shares in India 2026
Long-Term Capital Gains (LTCG) — Held for More Than 24 Months
In case the selling of the unlisted shares occurs after holding them for over 24 months, then the gain is termed as Long-Term Capital Gain (LTCG). The taxation will be done according to the 20% rate of tax with the benefit of indexation. Indexation allows a deduction to the amount that can be adjusted based on the Cost Inflation Index (CII) issued by CBDT. For instance, assume that you bought the shares in FY 2022-23 for Rs 1,00,000, but after the indexation, you end up getting a revised cost of Rs 1,15,000..
Short-Term Capital Gains (STCG) — Held for 24 Months or Less
If the sale happens within two years of buying the property, the full amount of profit would be considered Short-Term Capital Gain and included in the overall income. The applicable income tax slab rate would apply to this income – 30% could be the maximum rate for individual taxpayers, in addition to any surcharge and cess.
Surcharge Applicability
If your total income (including capital gains) exceeds Rs 50 lakh in a financial year, a surcharge becomes applicable on the income tax payable. For incomes between Rs 50 lakh and Rs 1 crore, the surcharge is 10%. Between Rs 1 crore and Rs 2 crore, it rises to 15%. This can materially increase the effective tax rate on large unlisted share gains.
Top Unlisted Shares to Watch in 2026
The following companies represent some of the most actively discussed names in India's unlisted market in 2026. This is not investment advice — it is an overview to help you understand the landscape. Always conduct your own due diligence before investing.
How to Verify Unlisted Share Authenticity Before Buying
Due diligence is not an option for you when it comes to unlisted transactions – it is your main security. Here are some things to check.
1. Verify Dealer Information: Does the dealer have an account at any financial regulatory agency? Is it registered as a SEBI Investment Advisor or Research Analyst (IA/RA)? Do they maintain separate customer accounts?
2. Insist on a Contract Note: An authentic intermediary will give you a contract note containing details such as the name of the company, its ISIN number, the amount, price per share, total cost, and names of the buyer and seller.
3. Verify via the MCA Portal: Go to mca.gov.in and enter the corporate identity number (CIN) of the company. Check if the company’s paid-up capital, recent annual returns, and director information match the information provided by the dealer.
4. Verify SEBI Compliance for Companies Submitting DRHP: For companies submitting their DRHPs to SEBI, the DRHP is readily available for public viewing through the SEBI website. Analyze the financials, risks, and usage of proceeds disclosed in the DRHP.
5. Verify the Transfer of Shares in Demat Form: Once you make the purchase, check whether the shares have been transferred to your demat account through the CDSL/NSDL portal. Do not accept physical share certificates when they should be held in demat form.
At Unlisted Axis, every deal on our platform goes through a structured verification process — from MCA filings and DRHP review to seller demat confirmation — before it is made available to investors. We believe transparency is not a differentiator; it is a baseline requirement.
Frequently Asked Questions
Q : Is buying unlisted shares legal in India?
Yes, it is entirely legal. Shares of unlisted public limited companies can be legally transferred between consenting parties under the Companies Act, 2013. The transaction must be duly recorded through proper demat transfer processes and all applicable taxes must be paid. SEBI and the Ministry of Corporate Affairs oversee the regulatory framework that governs these transactions.
Q : How are unlisted share prices determined?
Unlisted share prices are determined through negotiated transactions between buyers and sellers, often facilitated by intermediary dealers or platforms. Prices are influenced by the company's latest valuation (based on audited financials, comparable listed peers, and funding round prices), the proximity of an anticipated IPO, overall market sentiment, and supply-demand dynamics in the secondary market. There is no real-time price feed.
Q : What is the difference between unlisted shares and pre-IPO shares?
All pre-IPO shares are unlisted shares, but not all unlisted shares are pre-IPO shares. "Unlisted shares" is the broader category covering any equity in a non-exchange-listed company — including pre-IPO companies, delisted companies, and businesses with no listing plans. "Pre-IPO shares" specifically refers to shares in companies that are preparing for or expected to undergo an IPO in the near future.
Q: Are unlisted shares a good investment?
Unlisted shares can be a rewarding addition to a portfolio — but only for investors who fully understand and can tolerate the associated risks: illiquidity, price opacity, longer investment horizons, and the possibility of a company never listing. They are best suited to investors with a horizon of 2–5 years, adequate financial cushion, and a risk appetite beyond standard equity investing. They should complement, not replace, a well-diversified core portfolio.
Q : Can NRIs buy unlisted shares in India?
Yes, NRIs (Non-Resident Indians) can purchase unlisted shares in India on a repatriation or non-repatriation basis, subject to RBI guidelines under the Foreign Exchange Management Act (FEMA). Investments must be routed through NRE (repatriable) or NRO (non-repatriable) accounts. Specific sectoral caps and reporting requirements under FEMA apply, and NRIs are strongly advised to consult a FEMA-compliant advisor before investing.
Q : What happens to unlisted shares after IPO?
When a company in which you hold unlisted shares successfully completes its IPO, your shares are typically converted into listed equity. Depending on your investor category and the timing of your purchase, you may be subject to a SEBI-mandated lock-in period of up to six months post-listing before you can sell on the exchange. After the lock-in expires, your shares trade freely on the stock exchange like any listed equity.
Author : By Kanishk Devbangia, NISM Series XV Certified Research Analyst
Disclaimer :
This is written for educational and informational purposes only. Nothing here constitutes investment advice or a recommendation to buy or sell securities. All data is sourced from publicly available information. Investments in securities markets are subject to market risks — please read all offer documents carefully before investing.
