InvestorQ : Can I invest money in unlisted companies?
Rohan Bhadani made post

Can I invest money in unlisted companies?

Deepali Khupte answered.
8 months ago

If you are a beginner. I would advise you to stay clear of the unlisted space. Whether you simply buy the shares of unlisted companies that its existing investors want to sell or from an alternate investment fund (AIF) that investors wish to exit midway or even shares held by employees — these are some of the opportunities that could prop up time and again.

Since shares of unlisted companies are not listed on the stock markets, there is no market price. Instead, a fair value of the share is arrived at by investors and the promoters. Unlike listed stocks and mutual funds, you won’t get information very easily in this space. Nor would you have research reports from all stock brokers. You have to ask questions to the firm that is arranging these shares for you or the market maker if any.

As there is no formal market for these stocks, liquidity is a serious issue and one should never overlook that. Another aspect is that many unsuspecting investors are trapped by a sales pitch that confidently proclaims that these shares are at the cusp of being listed, which will lead to manifold gains. This need not always be true. Small buyers of these unlisted stocks are not aware of the problems and delays in the said IPOs.

So, it's not really safe to invest in unlisted stocks especially when you are a novice. You will find much better opportunities, and more importantly, transparency and healthy regulatory practices in the listed space.