As the name suggests, listed shares are the shares which might be listed (and traded) on any inventory exchange corresponding to NSE or BSE and so on. On the opposite hand, unlisted shares are the shares that are not listed on any of the inventory exchanges.
Let us take a look at the journey of the company to know the difference even better.
When an entrepreneur starts a company, he places in his own funds or takes money from family and friends. He may take financial institution loan to meet the working capital necessities but in order to develop further, he has to take funding from outsider investors in exchange of fairness. This funding can have totally different names such as 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 until that point, such shares are known as unlisted shares. As the company is still private, these shares can't be traded on any inventory exchange but 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 numerous market makers who allow shopping for and selling of unlisted shares. One can find quotes from such market makers at Prastaav.
As these shares usually are not traded on any trade, they tend to be less liquid than listed shares.
Now, in order to grow additional, the company may decide to invite public participation and offer its fairness under preliminary public offering (commonly known as IPO). It mainly implies that the company is now inviting basic public to subscribe to its shares and it will be listed on the inventory exchanges in order that the shares could be traded easily. Now, such shares are called listed shares.
At the time of IPO, the corporate has to choose the exchange on which it plans to list. It must meet the exchange's necessities and pay the requisite charges. This ensures that solely those corporations that are in good standing (meet change criteria) are listed and traded by investors. The exchanges even have market making necessities which ensure that there is fair quantity of liquidity out there in the listed shares. The listed shares are transferred via demat accounts and STT is paid on the value 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 observe record, meets trade requirements, IPO due diligence is completed. Investors can get entry to DHRP (prospectus), regulatory filings and traders presentations and so on
• Unlisted Shares: Such firms may be in early to late stage of evolution. The investor should do his personal due diligence earlier than investing. Limited documents may be out there as per the discretion of the corporate.
2. Investment Process
• Listed Shares: Simple and paperless. Can be bought in any trading account. No counterparty threat as it's taken care of, by the trade.
• Unlisted Shares: The course of has been just lately simplified as such shares can now be transferred only through demat account. However, counterparty risk is present as there can be dangerous supply / no fee and so on. Better to deal with trusted celebration.
• Listed shares: Fairly liquid, Large and midcap corporations have decrease bid ask spread and higher volumes as compared to small cap companies. The penny shares will not be very liquid.
• Unlisted Shares: Less Liquid because the shares may be offered solely privately.
4. Taxation (LTCG)
• Listed Shares: If listed stocks are held for more than 1 12 months then features are categorized as LTCG and taxed at 10%
• Unlisted Shares: If unlisted shares are held for greater than 2 12 months then features are classified as LTCG and taxed at 20% and indexation benefit is provided.
• Listed Shares: Negotiation not required as priced are quoted on change.
• Unlisted Shares: Negotiation could be done as worth is a function of demand and provide and is set by one’s evaluation of monetary statements of the company.
6. Holding restrictions
• Listed shares: not many, most shares can be traded intra-day!
• Unlisted shares: Before IPO, is determined by preparing buyer / vendor. After IPO, lock-in of 1 yr from date of IPO.
• Listed Shares: No Counterparty danger however danger of loss can't be avoided.
• Unlisted Shares: Counterparty threat, Risk of IPO not taking place. Plus threat 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