As the name suggests, listed shares are the shares which might be listed (and traded) on any inventory exchange similar to NSE or BSE and so forth. On the other hand, unlisted shares are the shares that are not listed on any of the stock exchanges.
Let us have a look at the journey of the corporate to know the difference even higher.
When an entrepreneur starts an organization, he places in his personal funds or takes money from friends and family. He can also take bank mortgage to fulfill the working capital requirements however so as to develop further, he has to take funding from outsider investors in exchange of fairness. This funding can have different names similar to enterprise capital or non-public equity depending on the stage of funding. When such funding is taken, shares are issued to such traders.
As the corporate is not listed until that point, such shares are called unlisted shares. As the corporate is still non-public, these shares cannot be traded on any stock trade however only privately on one on one foundation. Unlisted shares are also referred to as (over the counter) OTC shares as they had been traded over-the-counter (physical delivery). There are varied market makers who enable buying and selling of unlisted shares. One can find quotes from such market makers at Prastaav.
As these shares usually are not traded on any exchange, they are typically much less liquid than listed shares.
Now, in order to grow additional, the corporate might resolve to invite public participation and offer its equity under preliminary public offering (commonly often known as IPO). It basically means that the corporate is now inviting basic public to subscribe to its shares and will probably be listed on the inventory exchanges so that the shares could be traded easily. Now, such shares are known as listed shares.
At the time of IPO, the company has to choose the change on which it plans to list. It must meet the exchange's requirements and pay the requisite fees. This ensures that solely those firms which might be in good standing (meet exchange criteria) are listed and traded by buyers. The exchanges even have market making requirements which ensure that there is honest quantity of liquidity available in 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 differences between listed and unlisted shares:
1. Type of Company
• Listed Shares: The firm has a monitor report, meets exchange requirements, IPO due diligence is completed. Investors can get access to DHRP (prospectus), regulatory filings and buyers displays and so forth
• Unlisted Shares: Such companies could be in early to late stage of evolution. The investor ought to do his own due diligence before investing. Limited paperwork could also be available as per the discretion of the company.
2. Investment Process
• Listed Shares: Simple and paperless. Can be purchased in any buying and selling account. No counterparty threat as it is taken care of, by the change.
• Unlisted Shares: The course of has been just lately simplified as such shares can now be transferred solely through demat account. However, counterparty danger is present as there can be bad delivery / no fee and so forth. Better to take care of trusted celebration.
• Listed shares: Fairly liquid, Large and midcap companies have lower bid ask spread and higher volumes as compared to small cap corporations. The penny shares will not be very liquid.
• Unlisted Shares: Less Liquid because the shares may be bought only privately.
4. Taxation (LTCG)
• Listed Shares: If listed shares are held for greater than 1 12 months then features are classified as LTCG and taxed at 10%
• Unlisted Shares: If unlisted stocks are held for greater than 2 yr then positive aspects are categorised as LTCG and taxed at 20% and indexation benefit is offered.
• Listed Shares: Negotiation not required as priced are quoted on exchange.
• Unlisted Shares: Negotiation could be done as price is a perform of demand and provide and is set by one’s analysis of financial statements of the company.
6. Holding restrictions
• Listed shares: not many, most shares could be traded intra-day!
• Unlisted shares: Before IPO, is dependent upon preparing purchaser / seller. After IPO, lock-in of 1 12 months from date of IPO.
• Listed Shares: No Counterparty danger but danger of loss cannot be averted.
• Unlisted Shares: Counterparty threat, Risk of IPO not taking place. Plus danger of not getting exit before IPO.
• Listed Shares: Reliance Industries, HDFC Bank, Infosys, ICICI Bank, L&T
• Unlisted Shares: Paytm share price, HDB Financial share price, Reliance Retail, Nazara Technologies