As the name suggests, listed shares are the shares which might be listed (and traded) on any stock change similar to NSE or BSE and so forth. On the opposite hand, unlisted shares are the shares that aren’t listed on any of the stock exchanges.
Let us take a look at the journey of the company to understand the difference even better.
When an entrepreneur starts an organization, he puts in his own funds or takes money from friends and family. He may also take financial institution mortgage to meet the working capital necessities however so as to grow further, he has to take funding from outsider investors in trade of fairness. This funding can have completely different names corresponding to venture capital or non-public equity relying on the stage of funding. When such funding is taken, shares are issued to such traders.
As the company is not listed till that time, such shares are known as unlisted shares. As the corporate is still non-public, these shares can’t be traded on any inventory change however only privately on one on one basis. Unlisted shares are additionally called (over-the-counter) OTC shares as they were traded over-the-counter (bodily delivery). There are varied market makers who allow shopping for and promoting of unlisted shares. One can find quotes from such market makers at Prastaav.
As these shares aren’t traded on any change, they tend to be less liquid than listed shares.
Now, to be able to develop additional, the company might determine to invite public participation and offer its fairness under initial public providing (commonly often known as IPO). It principally means that the company is now inviting basic public to subscribe to its shares and it is going to be listed on the stock exchanges in order that the shares could be traded easily. Now, such shares are known as listed shares.
At the time of IPO, the corporate has to choose the trade on which it plans to list. It should meet the trade’s requirements and pay the requisite fees. This ensures that only these corporations which might be in good standing (meet exchange standards) are listed and traded by investors. The exchanges also have market making requirements which guarantee that there’s truthful amount of liquidity available within the listed shares. The listed shares are transferred via demat accounts and STT is paid on the worth of the shares.
Let us additionally have a look at the important thing variations between listed and unlisted shares:
1. Type of Company
• Listed Shares: The firm has a monitor document, meets trade requirements, IPO due diligence is finished. Investors can get access to DHRP (prospectus), regulatory filings and traders displays etc
• Unlisted Shares: Such firms could be in early to late stage of evolution. The investor ought to do his own due diligence before investing. Limited documents may be available as per the discretion of the corporate.
2. Investment Process
• Listed Shares: Simple and paperless. Can be bought in any buying and selling account. No counterparty danger as it is taken care of, by the trade.
• Unlisted Shares: The course of has been lately simplified as such shares can now be transferred only via demat account. However, counterparty danger is present as there may be unhealthy delivery / no fee etc. Better to take care of trusted celebration.
• Listed shares: Fairly liquid, Large and midcap companies have decrease bid ask unfold and higher volumes as compared to small cap firms. The penny shares will not be very liquid.
• Unlisted Shares: Less Liquid as the shares may be sold only privately.
4. Taxation (LTCG)
• Listed Shares: If listed stocks are held for more than 1 12 months then positive aspects are categorized as LTCG and taxed at 10%
• Unlisted Shares: If unlisted shares are held for more than 2 12 months then gains are categorised as LTCG and taxed at 20% and indexation profit is offered.
• Listed Shares: Negotiation not required as priced are quoted on exchange.
• Unlisted Shares: Negotiation could be done as worth is a perform of demand and provide and is decided by one’s analysis of financial statements of the company.
6. Holding restrictions
• Listed shares: not many, most shares may be traded intra-day!
• Unlisted shares: Before IPO, is determined by getting ready buyer / seller. After IPO, lock-in of 1 yr from date of IPO.
• Listed Shares: No Counterparty risk however threat of loss cannot be averted.
• Unlisted Shares: Counterparty risk, Risk of IPO not taking place. Plus threat of not getting exit earlier than IPO.
• Listed Shares: Reliance Industries, HDFC Bank, Infosys, ICICI Bank, L&T