Companies can be categorised on various bases. On the basis listing of securities, a company may be divided into listed and unlisted companies. Listed companies collect funds from many investors, while unlisted companies have a limited number of investors.
Listed and unlisted companies have different risk and return potentials. Therefore, understanding the difference between listed and unlisted companies will probably help you make better investment decisions.
This article will guide you on the meaning of a listed and unlisted company, how to invest in them, and the key differences between listed and unlisted companies.
What Is A Listed Company?
As per the Companies Act 2013 [Section 2 (52)], a listed company is a company with any of its securities listed on any recognised stock exchange. Such companies must comply with the respective stock exchanges’ listing requirements.
A few examples of listed companies in India are Reliance Industries Limited, Tata Consultancy Services, HDFC Bank, Infosys Limited, Bharti Airtel Limited, etc. The stocks of these companies are listed on the Bombay Stock Exchange (BSE) or National Stock Exchange.
How To Invest In a Listed Company?
1. Direct equity investments
You need a Demat and trading account to invest in the stocks of listed companies. Once you have it, you can purchase equity shares through the stock exchange and get partial ownership in a listed company.
2. Mutual funds
Another way to invest in listed securities is through mutual funds. Mutual funds involve pooling money from various investors, are managed by professional fund managers, and may invest in securities like stocks, bonds, money market securities, etc.
3. WealthBaskets
WealthBaskets are the research-backed combination of stocks and ETFs based on idea, theme or strategy and are built by SEBI-registered professionals.
4. Index funds
Index funds are the investment avenues that track market index performance, for instance, Nifty 50.
5. Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs), are funds that are traded on the stock exchange similar to stocks.
What Is An Unlisted Company?
An unlisted company means a company which does not have any of its securities listed on any recognised stock exchange. If a public company is not listed on any stock exchange, it is an unlisted public company. For example, Tata Technologies.
Similarly, unlisted private companies are private companies without any listed security, such as Swiggy, RazorPay, Oyo, etc.
How To Invest In An Unlisted Company?
1. By purchasing ESOPs
Some companies offer their employees stock options via Employee Stock Ownership Plan (ESOP), giving them the chance to have an ownership interest in the company at a nominal rate. After a point of time decided by the employer, the employees may be able to sell these shares.
Your broker may help you connect with employees of unlisted companies in India who are ready to sell their shares at a specific price. This way, you may invest in top unlisted companies in India.
2. By private placements
Sometimes companies opt to sell shares to a few selected investors through a private offering. Intermediaries like brokers, wealth managers or investment banks may help you connect with company promoters from whom you may buy that company’s shares as a private investor.
3. By investing in PMS and AIF schemes
Portfolio Management Services (PMS) are services that offer you customised investment portfolios of various securities. They keep rebalancing portfolios according to market sentiments to reduce risk and maximise return.
Alternative Investment Funds (AIFs) are not-so-old school investment vehicles that collect funds from high-net-worth individuals and institutions and invest that across alternative investment avenues.
PMS and AIFs can invest in unlisted companies’ shares as a part of their investment strategies.
4. Investing in pre-IPO funds
Pre-IPO funds work like mutual funds. However, they invest in private companies looking to go public in three to five years. Investors investing in such funds may significantly benefit if companies do well post-IPO.
Key Differences Between Listed And Unlisted Companies
| Point of difference | Listed companies | Unlisted companies |
| Ownership | Usually owned by several shareholders. | Usually owned by a few private investors. |
| Liquidity of securities | Higher | Lower |
| Regulatory requirements | Need to comply with strict guidelines of regulators, such as SEBI. | May have relatively lesser guidelines to follow. |
| Volatility | Higher volatility | Relatively lower volatility |
| Valuations of securities | Arriving at the market value of securities is easier due to the availability of stock prices. | Arriving at the exact market value is quite challenging. Instead, estimated market value is used. |
| Trading | Securities are traded over stock exchanges. | Securities are traded in the over-the-counter market. |
| Risks & returns | Relatively lower risk and lesser chances for exceptional returns. | Relatively higher risk, though more chances for exceptional returns. |
Final Thoughts
Listed and unlisted companies differ based on whether the company has any listed security. Investing in listed security may be relatively less risky due to their adherence to regulatory requirements. However, unlisted companies may offer great returns against higher risk. It is advisable to consider your investment goal before making an investment decision.
Do you want to invest and create wealth? Invest in WealthBaskets via WealthDesk. WealthBaskets are the research-backed combination of stocks and ETFs based on idea, theme or strategy and are built by SEBI-registered professionals.
FAQs
Private companies with debt securities listed on any recognised stock exchange are considered listed companies. If a private company does not have any security listed on the stock exchange, it is considered an unlisted private company.
If you are connected to the company’s promoter/promoters, you can get updates about the share price of unlisted companies in India. Other than that, some online websites like UnlistedZone, UnlistedDeal, etc. also display their share prices.
You can sell unlisted securities to other investors through the over-the-counter market.
Some unlisted companies may have the potential to offer great returns, though at a higher risk due to lesser regulations.
