Pre IPO Investing

Pre IPO Investing :

​

 

Many young companies grow much faster than mature companies due to their lower base hence they tend to significantly outperform the benchmark returns. However, a lot of this growth happens before the company goes public with an IPO. Hence participating in such companies in the Growth / Pre IPO stage can provide superior returns to the investor. Buyers need a safe mechanism that gives them access to high quality shares at the best price, provides matching of trade and enables even retail purchases.

Liquidity is one of the key challenges for shareholders of unlisted / Pre IPO shares. An employee holding ESOPs or an investor with a diversified portfolio may want to sell their unlisted / Pre IPO shares to generate cash or to simply book profits. Sellers need a safe mechanism that provides them the best price for their shares, matching of trade and enables even retail trades.

​

​

While investments in Unlisted/Pre IPO shares have the potential of giving high returns, they are also accompanied by higher risk due to a variety of reasons. Investors need to exercise caution while investing in Unlisted/Pre IPO companies. Generally, they should have a minimum time horizon of 4 years and should not allocate more than 30% of their portfolio in Unlisted/Pre IPO shares*.

Many young companies grow much faster than mature companies due to their lower base hence they tend to significantly outperform the benchmark returns. However, a lot of this growth happens before the company goes public with an IPO. Hence participating in such companies in the Growth / Pre IPO stage can provide superior returns to the investor.

​

  1. Are unlisted shares in Physical form or Demat form?
Ans: Unlisted shares can be in either Physical or Demat form. Demat shares are easier and safer and usually are available in Demat form.
 

  2. Do I need a trading account and Demat Account to buy Unlisted Shares?
Ans: Only a Demat account (NSDL or CDSL) is required.
 

  3. Is Securities Transaction Tax charged on transactions in Unlisted Shares?
Ans: No.
 

  4. What is the capital gains tax treatment of investing in unlisted shares?
Ans: Yes,Short Term Capital Gains are taxed at the respective income slab of the assesse.
Short Term Capital Gains
Long Term Capital Gains are taxed at 20% plus cess with Indexation.
 

  5. Is there any Locking period, if yes, for how long?
Ans: No, unless the company floats an IPO.
If the company goes for an IPO, there entire Pre-IPO capital is locked in for a period of 1 year in accordance with SEBI’s Investor Protection guidelines.