First-Time Unlisted Share Buyer’s Checklist: 7 Things to Verify Before You Pay

Reviewed by Kanishk Dev Bangia, NISM Series XV Certified Research Analyst

Last Updated: May 2026 | Reg. No: NISM-202300182946

Almost all the negative experiences in India's unlisted share market over the last few cycles did not have anything to do with choosing the wrong stock. The issue was with failing to do proper due diligence regarding the counterparty – the dealer, the paperwork, the transaction route. In the 2024-25 cycle, there have been several instances of investor complaints involving counterfeit pre-IPO sales, cash off-record transactions, and "introducers" who failed to provide the shares. All these would be easily avoided through basic due diligence.

Here are the seven steps in the checklist used by disciplined unlisted shareholders whenever they decide to take up an investment opportunity, including one with a dealer they have previously worked with. It’s not a complicated methodology; rather, it is a series of basic verifications that will prevent almost all operational risk in this market.

• TL;DR - Best for: First-time unlisted-share buyers and investors revisiting their due-diligence process
• Min investment context: Typically ₹50,000–₹1,00,000 starting ticket — the checklist applies at every ticket size
• Lock-in note: Six-month post-IPO lock-in under SEBI ICDR Reg 16 applies separately and is not a buyer-process risk
• Top risk: Off-record / cash transactions and unverified dealer counterparties
• Key thing to verify: All seven points below, in order, before the bank transfer goes out

Why a checklist matters

However, the market in unlisted stocks poses a greater degree of risk as compared to the one in listed equity. Here, there exists no level of regulation for buyers at the exchange level. SEBI regulation in relation to ICDR (Issue), LODR (Listing), and Research Analyst/Investment Adviser applies, but then the market in which the buyer is dealing is an off-exchange market not covered under a particular rule which protects the buyer.

Here, what substitutes for this protection is the discipline of the buyer himself. The SEBI Investor Awareness Material (2024) and CDSL guidelines for off-market transfers together define the safe method. Yet none of them are enforced by the dealers in the market; rather, they enforce it upon themselves.

Some examples of practices that this checklist is intended to guard against:

• "Introducer" schemes where money went to one side, and stock was supposed to come from another, and then the whole process fell apart.

• Transactions involving cash but not a contract note, so the investor had no official record of purchase either for tax purposes or to get the money back.

• Offered prices that were way off the prevailing rate, thanks to mark-ups.

• Shares "to be delivered at a later date," which means the broker did not have the stock in hand when making the sale.

• Settlements off the books, totally ignoring the CDSL/NSDL dematerialization system.

None of the above practices are hypothetical in nature. Each of these has been documented in a complaint filed by investors with SEBI Scores.

And the checklist below addresses each of these failure points.

The 7-point checklist

1. Verify dealer’s credentials (KYC, GST, time in the market)

The first step is the verification of the party. An unlisted shares dealer in India will be a business entity that has GST registration, time in the market, experience, etc. and would be ready to prove the same before entering into any transaction.

To look out for:

- GST registration of the business entity - This should be verifiable from the GST portal (www.gst.gov.in). The name of the entity in the GST record should be same as mentioned in the contract note.

- PAN of the business entity – Should be verifiable from another source. The bank account into which money is transferred by you should belong to the same business entity.

- Experience in the market – How much time the particular dealer has been dealing in unlisted shares. If the experience period is just 6 months, it is highly suspicious in the market where the operators who have been there for 5+ years.

- References of earlier settlements – Client references from people whom you could cross-check through LinkedIn.

- Business Address – It should not be a virtual address.

The largest of all filters in making sure this can be done safely is whether the dealer is ready to provide this information without getting into trouble. The legitimate dealers will anticipate this and be prepared to do so. The dubious dealers will either avoid answering or take exception to your demand.

2. Ask for a signed contract note before paying

The contract note is the document which sets up the paper trail in your favor for any future dealings. Paying through bank transfer without receiving the contract note first is the equivalent of giving away money to the dealer.

What the contract note must specify:

• Buyer details: Your full name, PAN, and demat ID.

• Seller details: The dealer’s business name, PAN, and authorized signatory.

• Security details: The company name, ISIN (yes, unlisted shares have ISINs registered with CDSL/NSDL), and quantity.

• Pricing: Per-share price, total consideration, and any stamp duty (currently 0.015% on transfer per the Companies Act framework).

• Settlement details: The expected demat credit date, your demat ID and DP name, and the dealer’s bank account.

• Date and signature: The contract note must be dated, signed by an authorized signatory of the dealer entity, and ideally include the dealer’s company stamp.

The contract note is delivered to you BEFORE you initiate the bank transfer. If a dealer asks for payment first and the contract note “after,” walk away — that is non-negotiable in this market and not a polite negotiation point.

3. Confirm CDSL/NSDL settlement path (no cash, no off-record)

All valid unlisted share transactions in India must go through CDSL or NSDL, the same custodians used for listed stocks. The transfer of the share happens via the off-market transfer instruction to move the shares from the dealer’s demat account to yours, no cash involved, no off-record, no "share certificates" in 2026 except for a legacy holding.

What does that mean in terms of operation:

• You hold all shares (listed/unlisted) in your demat account. There is no such thing as a "unlisted demat," which is just a myth.

• The dealer sends an off-market transfer request from their demat to yours, and issues you the debit instruction copy as proof.

• You will see the shares reflected in your demat statement in T+3 to T+5 working days of the transfer instruction.

• Your demat statement becomes your primary evidence of the purchase date, meaning your holding period starts from the date you received the shares in your demat account.

An offer made by the dealer for any shares which are not listed, whether through physical share certificates, off-record shares held in their name for your benefit, cash payment and verbal agreement – it is time to end the deal. All legitimate dealers of unlisted shares use the route of depository settlement.

4. Cross-check the price against multiple sources

The unlisted share rate at any given time will represent dealer network consensus, and not an electronic quote. In most cases, two reliable sources will give you a discrepancy of 3-5%. However, a spread of more than 10% raises a red flag and any quote that is significantly higher than the prevailing spread is likely marked up.

What should you do?

• Get quotes from a minimum of two independent dealers on the same day, for the same share. Ideally three when the ticket size is substantial.

• Compare with any quote you get from a reputable source for the dealer network rate (reliable research platforms may publish an indicative rate although not necessarily real-time).

• The tighter the dealer network spread will be for popular pre-IPO companies; it widens for dormant ones.

• Just because a certain rate is low does not mean it is always the correct rate; factor in point 1.

One to two percent above the range would be considered a typical margin for a dealer. An increase of 5% or more requires some justification, while 10% or more without justification is a sign to leave the deal.

For the underlying reasons why prices of unlisted stocks should operate this way, refer to the structural differences of unlisted and listed stocks.

5. Verify the company is genuinely planning to list (DRHP, listing intent)

If your rationale for purchasing pre-IPO stock is based on an expected liquidity event on the day of the IPO, confirm that the listing thesis is realistic — not just the result of dealers’ hype.

Indicators of a legitimate listing intention include:

• Filing of the DRHP with SEBI. Most definitive indicator. SEBI’s publicly available documents list all submitted DRHPs. If this company is on this list, listing is definitely imminent (pending only SEBI approval and pricing decisions).

• Investor relations information from the company. References made by management during quarterly conference calls or press conferences regarding IPO timing.

• Industry / regulatory situation. Companies that fall within a regulated sector (e.g., banking, insurance, asset management) require regulatory approval before listing.

Evidence which will NOT be considered as intent-to-listing:

• The dealer's confidence statement saying, "IPO within 6 months."

• Unfounded speculation reported in media with no mention of a SEBI filing.

• Founder interviews from more than 3 years ago talking about listing intentions.

• "Pre-IPO" nomenclature from the dealer without any corporate backing.

In case the IPO theory forms the main motive behind purchasing, the non-filing of a DRHP makes the time risk involved much higher than is advertised. Buy only if you can hold the stock for at least 5 years without an IPO.

6. Understand the lock-in period and pre-IPO holding rules

In case you have purchased shares which are not yet listed, SEBI’s ICDR Regulation 16 usually makes it mandatory for the company to have a 6-month lock-in period starting from the day it gets listed – if you are a non-promoter shareholder who acquired his shares prior to the IPO listing.

Implications:

• If the listing happens in December 2027 (for example), then your earliest possible exit from the stock exchange would be June 2028.

• During this period, you cannot do anything other than hold your shares in your demat account; however, you cannot trade them.

• In the case where the purchase was made through a newly formed investment company, or a mechanism that moves you up to another class of shareholders, the lock-in period may differ. For a regular retail investor, the six months rule applies.

• Certain categories of pre-IPO shareholders (promoters, ESOP employees in certain schemes) have longer lock-ins under other ICDR rules. The six-month period is for a regular retail investor who is not a promoter.

Consider this lock-in in your planning for liquidity. If you require exiting between 18-24 months after the listing date, then the listed shares are the correct way out. Unlisted would be an incorrect choice with the IPO as the exit.

7. Document the entire transaction (paper trail for tax)

Every off-list transaction must generate a document package that would stand scrutiny by the tax authorities years down the line. This should be considered as an essential part of the purchase process and not merely as an add-on.

Documentation needed:

• Contract note (point #2 above)

• Bank transfer details reflecting funds transfer from your bank account to the demat account of the stockbroker

• Off-market transfer debit instructions of the stockbroker (dealer’s copy)

• Demat statement reflecting receipt of shares in your demat account along with credit date

• Correspondence by email/letter establishing price/lots/Settlement date

• KYC documents of dealer (PAN/GST/Business address)

Relevance to Tax: Section 112 (LTCG) requires (a) Cost of acquisition (purchase price), (b) Date of acquisition (credit date of demat statement), and (c) Sale Price/Settlement date. Document package is the evidence for each of these inputs under Section 112 calculation. No document = possibility of gains reassessment.

Store this document package for as long as you retain the shares – minimum of 7 years beyond sale (per income tax guidance on record retention period).

Red flags to walk away from

Seven points for your checklist; here you will find out what to avoid at first glance.

- Pressure to “choose now” or “rates will be higher tomorrow.” Rates in the grey market do change, but such pressure is invariably just sales tactics. You have all the time in the world to decide.

- Cash transactions or deals “off the books.” No exceptions; always. Regardless of how attractive the discount may seem. The biggest red flag in this market.

- No provision of GST or PAN numbers. A reputable trader anticipates this question and answers right away. If evasive, walk away.

• Personal bank account. The money must be transferred into a bank account of the firm, and not of any individual, and certainly not to the UPI account.

• “No contract note yet, but we will send you one shortly.” This cannot happen, as the contract note must be there before making the payment.

• Assurances regarding guaranteed IPO timelines. Nobody — neither the dealer nor the company — can give any guarantees on the IPO timelines. Such assurances are fictitious.

• An overly aggressive markup beyond the prevailing dealer network rate range without explaining the reasons. A reasonable markup is 1-2%. Markup beyond 10%+ without explaining the reasons cannot be considered acceptable.

• Recommendation to “keep the shares in our name on behalf of yours.” This cannot happen as the shares should remain in YOUR demat right from the day of settlement.

• Introducer whose identity is unknown. If the introducer cannot explain his role, his registration number, and how he is being paid, do not become part of such a chain.

The principle is straightforward: in a market with high information asymmetry, the dealers you transact with should be the most transparent part of the equation, not the most opaque. If transparency feels hard to get, that’s a signal — not a problem to negotiate through.

FAQs

Q: How do I purchase shares that have not yet been listed in India safely? Unlisted share purchases in India can be done safely through a seven-point check on each and every deal: verification of identity and credentials of dealer (GST number, PAN number, years in the market); signed contract note prior to making payment; mode of settlement either via CDSL or NSDL; cross-price check from two sources; proof of intention to list; awareness of post-IPO lock-in period; and complete paperwork for taxation purposes.

Q: What are the documents required to purchase unlisted shares? Required documents include PAN card copy, demat account details (DP ID and Client ID), KYC papers held at DP level, and a signed contract note issued by dealer. Required from dealer side is GST certificate, business PAN number, and an authorized contract note. Bank transfer papers and demat credit advice after the transaction must be retained for tax purposes.

Q: Is it possible to purchase unlisted stocks without a demat account? Purchasing unlisted shares without having a demat account is impossible because all transactions will settle using either CDSL or NSDL, which will credit the shares into your demat account. Your demat account for listed equities is also used for unlisted shares; there is no need to open a separate demat account.

Q: What process can be done to determine if a particular dealer dealing with unlisted shares is trustworthy? If you want to check the legitimacy of unlisted stock dealers, you should see whether they have GST registration on the official portal, verify the validity of business PAN number, confirm whether the bank account belongs to the business, and analyze the time in the market as well as settlement record.

Q: Are the cash transactions for unlisted shares allowed in India? Cash transactions are not allowed for unlisted shares for ordinary traders. Section 269ST of the income tax act caps the cash limit at ₹2 lakhs in total from a single person. PMLA restrictions impose more restrictions on cash movements in security deals. Proper off-market settlements always involve bank transfers and demat through CDSL or NSDL with cash being the exception.

Q: What is the off-market settlement process of unlisted shares? Off-market settlement of unlisted shares means that the selling party would issue a debit mandate for their CDSL or NSDL demat account with your demat ID as the receiving party. DP will settle it within T+3 to T+5 business days. Shares will be credited to you in your demat statement. Off-market mode of settlement is the common practice for all unlisted stock dealings.

Question: What amount of money do I require to buy shares that are not listed?

One will need to have somewhere between ₹50,000 to ₹1,00,000 as a minimum investment for unlisted shares based on the per share price of the particular company. Below this ticket, the economics of the dealership network does not work. The verification list will apply to every ticket, but a lower than minimum ticket can create problems.

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.