For retail investors, unlisted shares may prove a dangerous gamble

Investing in unlisted shares is fraught with risks that retail investors may not even be aware of

- Jash Kriplani

Recent months have seen a rush for the unlisted shares of the National Stock Exchange of India (NSE) among retail investors, causing a more than fourfold surge in the number of such shareholders at India's largest bourse.

The count has jumped from 33,896 as of 31 March 2024 to 146,208 as of 30 June this year. But it's not just the NSE. Tata Capital, the Metropolitan Stock Exchange and the National Commodity and Derivatives Exchange are among the companies that have seen investor appetite for their unlisted shares grow.

However, investing in unlisted shares is not as straightforward as buying and selling listed stocks. The intermediaries include dealers working offline and online platforms. While investors hope to exit with large gains when such companies eventually list, the unlisted space is also fraught with risks. Here is a look at how investors can deal in unlisted shares.

How it works To invest in unlisted shares, you must have a demat account to get the securities credited after the transfer. Platforms or dealers collect these stocks from a mix of shareholders—employees owning the company shares, early-stage investors looking for exit or, in some cases, from the promoters themselves.

The process starts with identifying a credible digital platform or an offline dealer. Once an investor selects a stock to buy, the dealer will ask for documents such as PAN, Aadhaar, client market list (CML) and a cancelled cheque of your bank account.

CML contains all the details of your demat account and can be procured from the broking platform that holds the account.

You then need to sign the deal confirmation letter (DCL) or an agreement with the dealer.

The investor then has to transfer funds to the platform of the dealer buying shares. Once the platform receives the shares in its demat account, those are transferred to the investor's demat account.