How to Invest in Unlisted Companies? Pros, Cons & Selection Criteria

Invest in Unlisted Companies: Do you want to invest in CSK, Lava, or OYO today? Yes, it is absolutely possible! If we go around saying this, your friend who also calls himself an investment guru might be the first to tell you that this is not possible as these are unlisted companies and hence cannot be invested in before they opt for an IPO. But before he gets on his high horse ask him to think again.

Just a few months back I read news of Ambani investing in the Delivery startup called Dunzo. Why do I need to be a millionaire (or billionaire) and have high contacts to be able to invest in these startups? And for an avid investor who looks for investment opportunities all around this hurts.

When I watch the IPL, I look for investment opportunities in these teams. With such a huge fan base and being in the world’s richest leagues, it sure must pay off. From booking my vacation on IXIGO and staying at one of the finest OYOs, to reading the Hindustan Times and ordering my mattress from Kurlon, the one thing I couldn’t stop thinking of is finding a way to invest in these startups.

And luckily enough if you are tired of limiting yourself by the stock market your search ends here. Today in this article we will talk about how you can invest in these companies (one option I would suggest is Altius Investech) and why you should and also how to select these stocks! So keep reading to find out!



Table of Contents

  1. Why Should you Invest in unlisted companies? (Pros)

  2. Risks – Cons of Investing in Unlisted Companies

  3. How to select unlisted Companies to invest in?

  4. How to invest in Unlisted Companies?

  5. In Closing

Why Should you Invest in unlisted companies? (Pros)

Investment opportunities are all around us. And one of the best ways to make the perfect investment is to search out futuristic disruptive industries before they blow up. This is where most of the value creation happens.

By the time they would hit the stock market it would still have eroded a significant early mover advantage. Don’t believe me? Take a look at these stats! StockInitial Investment PriceListing DateIPO Listing PriceReturn MultipleYears Invested Nazara Technologies43019 March 202111012.563 Anand Rathi Wealth1606 December 20215503.442.5 One97 Communications140010 November 202121501.545 Barbeque Nation22826 March 20215002.191.5

Source – Altius Investech

These investments would have easily doubled and tripled your money already by the time they opt for IPOs. On a gross portfolio level, average returns for the last 5 year period have been 25%+ CAGR. So why even wait till then.

Apart from this, there are also several other advantages. These include diversifying your investments into industries that do not even exist in the stock market.

But before we move further it is also important that we take a look at the risks too. This will give us a clearer picture.

Risks – Cons of Investing in Unlisted Companies

It goes without saying that unlisted stocks come with a higher risk as information about these companies is not widespread. In addition to this, exiting from these stocks also poses a problem. Exiting from investment is through the IPO by sale on an exchange or through a later exit in the secondary market.

How to select unlisted Companies to invest in?

Here are some steps on how to select or shortlist unlisted stocks:

Look For Futuristic industries

This remains the main reason why you should invest. So look for industries of tomorrow to invest in. These are generally in their nascent stages with very few companies in the market. And for sure they are not even listed. Some famous industries over the last few years have included gaming, SaaS, Fintech, Ecommerce etc.

Find out who has already Invested

Here you can find companies where some prominent founders of huge startups are having a second go at industries they believe in. In addition to this, you can also look at which prominent angel investors, businessmen/tycoons have invested in them.

Generally, these angel investors have a knack for hunting out startups that will make it big tomorrow. In addition to this, they also come with a whole investment team that does all the necessary research to ensure that their investments are in the right hands.

Companies already en route to IPO

Companies that are on their track to an IPO still may offer an advantage in comparison to their issue price. But this is only one of their advantages. These companies generally already have their DRHP released.

These are documents which have all the necessary information about the company and are also called holy grails. They are also subsidiaries of companies that are already listed and are professionally managed.

Liquidity

When looking for unlisted companies, liquidity plays an important role. Generally, companies that are liquid have a huge number of investors interested and have high trading volumes.

How to invest in Unlisted Companies?

Finally to the most important part. As I have mentioned earlier, one of the sources you could use is Altius Investech. If you have already selected a company you can invest in them by following these steps:

We chose Altius Investech due to the following reasons. The company has an experience of over 20 years in the financial services industry. It is trusted by over 8000 investors across 15 countries and has handled investments over 300 Crores in the Pre-IPO space.

But before you jump in, here is some important information you need to know:

The minimum amount that you can invest ranges between Rs. 20,000 to Rs. 50,000.

These securities are taxed differently too

  1. Holding Period – 2 years for Long Term

  2. On Sale of Short term assets – Slab rate @ 30%

  3. On the sale of Long Term Assets – 10% of LTCG without indexation benefits. CompanySectorRisk Rating Cochin International Airport (CIAL)AviationLow AGS Transact Technologies LtdPayment Processing/FintechMedium API Holdings Pvt LtdPharma/EcomMedium Care Health Insurance Ltd (Religare)Health InsuranceMedium Chennai Super Kings Cricket Limited (CSK)SportsMedium ESL Steel LtdSteelLow Fincare Business Services LtdSmall Finance BankMedium Five-Star Business Finance LtdNBFCMedium HDFC Securities LtdFinancial ServicesLow Indofil Industries LtdSpeciality ChemicalsMedium Merino Industries LimitedHome FurnishingLow LAVA International LtdSmartphones ManufacturingLow Mobikik (One Mobikwik Systems Ltd)FintechHigh Mohan Meakin LtdLiquorLow National Stock Exchange Ltd. (NSE)Stock ExchangeMedium NCL BUILDTEK LtdPaints/Construction MaterialMedium Reliance Retail LtdRetailHigh Sterlite Power Transmission LtdPowerMedium Studds Accessories LtdManufacturingLow Tata Technologies LtdEV/DesignMedium

Source – Altius Investech

In Closing

After reading this we hope that you have has a clearer picture when it comes to investing in unlisted companies. So take your investment journey to the next level. Let us know what you think about this article in the comments below. Happy reading!

You can now get the latest updates in the stock market on Trade Brains News and you can even use our Trade Brains Portal for fundamental analysis of your favourite stocks.

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