As the name suggests, listed shares are the shares which are listed (and traded) on any stock trade such as NSE or BSE etc. On the opposite hand, unlisted shares are the shares that aren't listed on any of the inventory exchanges.
Let us look at the journey of the company to grasp the distinction even higher.
When an entrepreneur starts a company, he puts in his personal funds or takes money from friends and family. He may also take bank mortgage to meet the working capital necessities but so as to develop additional, he has to take funding from outsider investors in exchange of fairness. This funding can have different names similar to venture capital or personal equity depending on the stage of funding. When such funding is taken, shares are issued to such investors.
As the company isn't listed till that time, such shares are called unlisted shares. As the company remains to be private, these shares can't be traded on any inventory change but solely privately on one on one foundation. Unlisted shares are additionally known as (over-the-counter) OTC shares as they were traded over-the-counter (bodily supply). There are various market makers who allow buying and selling of unlisted shares. One can find quotes from such market makers at Prastaav.
As these shares are not traded on any exchange, they tend to be much less liquid than listed shares.
Now, so as to grow further, the company could resolve to ask public participation and provide its fairness beneath preliminary public providing (commonly known as IPO). It principally signifies that the company is now inviting common public to subscribe to its shares and it is going to be listed on the inventory exchanges in order that the shares can be traded easily. Now, such shares are known as listed shares.
At the time of IPO, the company has to choose the trade on which it plans to list. It should meet the change's necessities and pay the requisite charges. This ensures that solely those corporations which are in good standing (meet change standards) are listed and traded by investors. The exchanges also have market making necessities which ensure that there's honest amount 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 variations between listed and unlisted shares:
1. Type of Company
• Listed Shares: The company has a monitor report, meets change requirements, IPO due diligence is finished. Investors can get entry to DHRP (prospectus), regulatory filings and traders shows and so on
• Unlisted Shares: Such corporations may be in early to late stage of evolution. The investor should do his personal due diligence earlier than investing. Limited paperwork could also be available as per the discretion of the corporate.
2. Investment Process
• Listed Shares: Simple and paperless. Can be bought in any buying and selling account. No counterparty danger as it's taken care of, by the trade.
• Unlisted Shares: The course of has been recently simplified as such shares can now be transferred solely through demat account. However, counterparty threat is present as there could be unhealthy supply / no payment etc. Better to cope with trusted party.
• Listed shares: Fairly liquid, Large and midcap companies have lower bid ask unfold and better volumes as in comparison with small cap firms. The penny stocks is probably not 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 greater than 1 year then positive aspects are categorised as LTCG and taxed at 10%
• Unlisted Shares: If unlisted shares are held for greater than 2 12 months then positive aspects are categorised as LTCG and taxed at 20% and indexation profit is supplied.
• Listed Shares: Negotiation not required as priced are quoted on change.
• Unlisted Shares: Negotiation can be accomplished as price is a function of demand and provide and is decided by one’s evaluation of economic statements of the corporate.
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 12 months from date of IPO.
• Listed Shares: No Counterparty risk but threat of loss can't be prevented.
• 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