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Listed Security vs Unlisted Security
As the name suggests, listed shares are the shares that are listed (and traded) on any stock exchange such as 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 have a look at the journey of the corporate to understand the difference even better.

When an entrepreneur begins a company, he places in his personal funds or takes cash from family and friends. He may take financial institution loan to satisfy the working capital requirements however to be able to develop additional, he has to take funding from outsider investors in exchange of equity. This funding can have different names corresponding to venture capital or non-public fairness depending on the stage of funding. When such funding is taken, shares are issued to such buyers.

As the company just isn't listed until that time, such shares are called unlisted shares. As the company continues to be non-public, these shares can't be traded on any inventory exchange but solely privately on one on one foundation. Unlisted shares are additionally referred to as (over-the-counter) OTC shares as they were traded over the counter (physical supply). There are varied market makers who allow shopping for and selling of unlisted shares. One can discover quotes from such market makers at Prastaav.

As these shares usually are not traded on any change, they are usually less liquid than listed shares.

Now, to be able to develop further, the company might decide to invite public participation and supply its equity under preliminary public offering (generally known as IPO). It principally implies that the corporate is now inviting common public to subscribe to its shares and it will be listed on the inventory exchanges so that the shares can be traded simply. Now, such shares are referred to as listed shares.

At the time of IPO, the corporate has to decide on the exchange on which it plans to list. It must meet the exchange's requirements and pay the requisite fees. This ensures that solely these companies which 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 honest amount of liquidity out there within the listed shares. The listed shares are transferred via demat accounts and STT is paid on the value of the shares.

Let us additionally look at the key variations between listed and unlisted shares:

1. Type of Company

• Listed Shares: The firm has a track document, meets change requirements, IPO due diligence is finished. Investors can get access to DHRP (prospectus), regulatory filings and investors displays and so forth

Unlisted Shares: Such firms can be in early to late stage of evolution. The investor should do his own due diligence before investing. Limited paperwork may be available as per the discretion of the corporate.

2. Investment Process

• Listed Shares: Simple and paperless. Can be purchased in any buying and selling account. No counterparty danger as it is taken care of, by the exchange.

• Unlisted Shares: The process has been recently simplified as such shares can now be transferred solely by way of demat account. However, counterparty threat is current as there could be dangerous delivery / no fee and so forth. Better to deal with trusted get together.

3. Liquidity

• Listed shares: Fairly liquid, Large and midcap corporations have lower bid ask unfold and better volumes as in comparison with small cap companies. The penny stocks is probably not very liquid.

• Unlisted Shares: Less Liquid because the shares could be bought solely privately.

4. Taxation (LTCG)

• Listed Shares: If listed shares are held for greater than 1 year then positive aspects are categorised as LTCG and taxed at 10%

• Unlisted Shares: If unlisted stocks are held for more than 2 year then features are categorised as LTCG and taxed at 20% and indexation benefit is provided.

5. Negotiation

• Listed Shares: Negotiation not required as priced are quoted on change.

• Unlisted Shares: Negotiation may be carried out as worth is a perform of demand and provide and is decided by one’s evaluation of financial statements of the company.

6. Holding restrictions

• Listed shares: not many, most shares can be traded intra-day!

• Unlisted shares: Before IPO, depends on preparing buyer / seller. After IPO, lock-in of 1 yr from date of IPO.

7. Risk

• Listed Shares: No Counterparty risk however risk of loss cannot be prevented.

• Unlisted Shares: Counterparty threat, Risk of IPO not happening. Plus risk of not getting exit before IPO.

8. Example:

• Listed Shares: Reliance Industries, HDFC Bank, Infosys, ICICI Bank, L&T

• Unlisted Shares: Paytm share price, HDB Financial share price, Reliance Retail, Nazara Technologies
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