Best Strategies to Exit Unlisted Share Investments

Table of Contents

• Introduction
• Understanding unlisted shares
• Why exit unlisted shares need a strategy?
• Best Strategies to Exit Unlisted Share Investments
• Factors to consider before exiting
• Tax implications on unlisted shares
• Key points to keep in mind
• Conclusion
• FAQs

Introduction

Investing in unlisted shares proves to be profitable. They are shares of those companies whose shares are not listed on the stock exchanges. But when it is about selling such investments, investors are stuck.

In this blog, we will discuss the optimal strategies to sell unlisted share investments. We’ll divide the process into easy-to-follow steps and describe it in layman’s language. Therefore,  if you ever thought about how to sell such holdings effectively and lawfully, then this guide is for you.

Understanding unlisted shares

Unlisted shares are shares of companies that have not been listed on known stock exchanges such as NSE or BSE. Most startups and emerging companies belong to this category. Moreover, investors typically purchase them expecting future growth or an exit profit in the IPO of the company.

There are a few methods of buy unlisted shares in India, normally through brokers, investment companies, or online platforms. But getting out of them involves more knowledge and strategy planning.

Why exit unlisted shares need a strategy?

Exiting listed shares is easy—you can sell them on the stock exchange. But for unlisted shares, it is not that easy. There’s no central point where you can simply “sell” and receive your cash.

Therefore, you require a strategy that enables you to exit with healthy returns and in accordance with the law. Additionally, bad planning could lead to losses or legal consequences.

Let us now examine the best strategies available to investors.

Best methods to exit unlisted share investments

1. Selling via Secondary Market Platforms

One of the most popular methods is through an unlisted shares buying platform. The platforms bring buyers and sellers of unlisted shares together. It provides a clear, regulated, and simple way out.

Benefits:

• Fast and convenient process
• Multiple buyers available
• Equitable price discovery

However, not all platforms are equally good. Always check for authenticity before acting.

2. Exit During IPO

When a company is going public, it makes an IPO (Initial Public Offering) filing. If you have unlisted shares in that company, you have the chance to sell them when the company lists.

Main Points:

• Wait for the lock-in period (typically 6 months after listing).
• Sometimes provides good returns if the company does well
• Suitable for patient investors

Furthermore, this is one of the most lucrative exit methods if done at the right time.

3. Sale to Institutional Investors or Promoters

At times, the promoters of the company or large institutional investors can be interested in purchasing your share. Such transactions are normally made in private and depend on mutual negotiations.

When to Opt for This Route:

• If the company is not listing immediately
• You have a substantial holding.
• You are being offered a reasonable valuation.

Such exits tend to be faster than holding out for an IPO but may involve negotiations.

4. Off-Market Transfers

Off-market transactions are the transfer of shares directly from one Demat account to another without going through a stock exchange.

Steps Involved:

• Both parties must have Demat accounts.

• Complete the Delivery Instruction Slip (DIS).
• Share transfer occurs through NSDL or CDSL.

Therefore, it is appropriate for small-scale exits among familiar parties. It does not have price transparency.

5. Buyback by the Company

In certain situations, the company can propose to purchase its unlisted shares. These proposals normally come up when the company is restructuring or balancing its cap table.

Why Consider This?

• Pre-agreed and fair price
• Easy for investors
• No external buyers need to be located.

Moreover,  these types of proposals are not common and are subject to the company’s policies.

Factors to consider before exiting

Before you initiate your exit strategy, consider the following important factors:

• Current Valuation: Make sure the price quoted is reasonable.
• Buyer Credibility: Confirm buyer identity and intention.
• Regulatory Compliance: All papers must comply with SEBI and RBI regulations.
• Holding Period: Has a major influence on taxation.

However, market conditions and the performance of the company will also influence your choice. Be knowledgeable, not impulsive.

Tax implications on unlisted shares

Understanding taxes on unlisted share exits is vital. Here’s a simple breakdown:

Furthermore, always have a tax consultant to ensure you’re abiding by the newest rules. 

Key points to keep in mind

Never hasten selling your shares without determining their worth in the future.

• Always opt for secure means—either through a broker or an unlisted share purchasing site.
• Think about your long-term financial plan before stepping out.
• Keep every document and contract for future reference.
• Timing is everything—stepping out during positive market cycles can yield maximum returns.

Additionally, diversifying your investments in several companies can minimize risk and enhance exit prospects. 

Conclusion

It may appear challenging to exit unlisted shares, but applying strategies is feasible and rewarding. Whether you’re buying unlisted shares using a platform in India or getting ready to exit with an IPO, planning is essential.

Every strategy has advantages and disadvantages. What is right for an investor may not be right for another. Therefore, always weigh your specific goals, risk tolerance and financing requirements before exiting.

However, the silver lining is that India’s unlisted market is growing up, and new equipment is simplifying exit. Be aware, be cautious, and you will maximize your unlisted investments.

FAQs

1. Is buying and selling unlisted shares illegal in India?

No, it is not illegal. But all the transactions have to be in accordance with SEBI and RBI rules.

2. When should I sell my unlisted shares?

The best time is typically either at an IPO or when the market is optimistic.

3. How do I know if I’m being offered a good share price?

Research recent trades, examine accounts, or have experts estimate value.

4. May I sell my unlisted shares when I wish?

Not always. Departure is subject to company policy and market liquidity.

5. Are unlisted shares more risky than listed shares?

Yes, they are illiquid and subject to uncertainty of valuation. But they offer greater potential for growth too.