What Is Unlisted Equity? Risks, Rewards and How You Actually Exit

Unlisted equity is a share of ownership in a company whose shares are not traded on a recognised stock exchange such as NSE or BSE. The company might be a two-year-old startup, a profitable family business, a subsidiary of a listed group, or a large institution that has simply not listed yet. National Stock Exchange was one of those until September 2026.

Owning such a share gives you the same basic things a listed share does: a slice of the company's profits and assets, and usually a vote. What it does not give you is a market. There is no order book, no closing price, no circuit filter and no clearing corporation guaranteeing that the other side pays or delivers.

Most writing on this subject asks how to get into these deals. This guide asks the owner's questions instead:

1. What exactly am I holding, and where does it rank against other shareholders?
2. Who sets the price, and how far can that price drift from what the company is worth?
3. How do I get out, and when?
4. What will tax and reporting cost me while I hold it and when I sell?

If you want the comparison of buying routes (pre-IPO funds, online platforms and direct deals), our earlier guide to pre-IPO investing covers that in depth. Here the focus is the asset itself, the risks it carries and the rewards it can pay. Rules are stated as of 26 October 2026, and nothing here is a recommendation to buy or sell any security.

For decades, unlisted shares changed hands on paper, through a small circle of dealers who knew which family or employee wanted to sell. Four forces turned that circle into a retail market: compulsory demat, startup stock options, a crowded IPO calendar and apps.

• 30 August 2016: SEBI issues its first press release cautioning investors about electronic platforms dealing in unlisted securities.
• 2 October 2018: Rule 9A of the company-law allotment rules takes effect. Unlisted public companies must issue and transfer securities only in demat form, which gives their shares an ISIN.
• 2018: Flipkart offers to buy back vested employee stock options, a move later cited as the start of the startup ESOP-buyback trend.
• 2021–2022: ESOP buybacks in Indian startups exceed US$700 million across the two years, according to Qapita data reported by Business Standard.
• 23 July 2024: long-term capital gains on unlisted shares move to 12.5% without indexation.
• 1 October 2024: money received in a share buyback starts being taxed as dividend in the shareholder's hands.
• 9 December 2024: SEBI's second caution on unlisted-share platforms.
• 12 February 2025: the Ministry of Corporate Affairs extends the demat deadline for private companies (other than small companies) under Rule 9B to 30 June 2025.
• June–October 2025: NSDL and Tata Capital come to market at prices far below their earlier unlisted highs.
• 1 April 2026: the Income-tax Act, 2025 takes effect, and buybacks return to capital-gains treatment for ordinary shareholders.
• 17 June 2026: SEBI's third caution, PR No. 32/2026.
• 24 September 2026: NSE lists on BSE at ₹1,800, against an issue price of ₹1,785.

Every unlisted share you can buy was first issued by the company to someone else. Knowing which door it came through tells you a lot about its rights and its price.

• Primary rounds. The company issues new shares to founders, angels, venture funds or private-equity funds. Under company law, a private placement offer can go to at most 200 persons per financial year for each kind of security, not counting qualified institutional buyers and employees under stock option schemes.
• Employee stock options. Employees receive options, exercise them at a set price and get shares. Over time, ex-employees become one of the largest sources of supply.
• Secondaries. An existing holder sells to a new buyer. No money reaches the company; ownership simply changes hands. This is what most retail buyers of unlisted shares in India are doing, whether through a dealer, an app or a private deal.

The legal form of the company matters more than most buyers realise.

A private company, under section 2(68) of the Companies Act, 2013, must have articles that restrict the right to transfer its shares, limit members to 200 (current and former employees excluded) and bar public invitations to subscribe. In practice, a sale needs board approval and often runs into a right of first refusal for existing investors.

An unlisted public company has no such statutory restriction and no member cap. That is why the large names that circulate on dealer price lists tend to be public companies, and why SEBI's cautions speak of "unlisted securities of public limited companies". NSE had around 2 lakh shareholders before its IPO, by one analyst's estimate quoted by Business Standard on listing day.

Because of Rules 9A and 9B, most unlisted equity now sits in demat accounts at NSDL or CDSL. A trade is an off-market delivery instruction from the seller's account to yours, with the money moving separately by bank transfer. Stamp duty of 0.015% applies to a share transfer.

That plumbing makes title safer than paper certificates did. It does not add an exchange. Payment and delivery are not locked together, so one side always trusts the other for a day or two.

SEBI's press release of 17 June 2026 says certain websites are "facilitating transactions/ trading in unlisted securities of public limited companies" and that these platforms are "neither authorized nor recognized by SEBI". It adds that disputes on such platforms get no investor protection under SEBI or exchange jurisdiction, no exchange grievance redressal and no access to the SMART ODR dispute portal. Owning unlisted shares is not unlawful; buying them through an unrecognised venue means you hold a contractual claim, not a regulated one.

A cap table (capitalisation table) lists who owns what in a company. In a venture-backed Indian company, it rarely contains one kind of share.

Venture and private-equity investors usually hold compulsorily convertible preference shares, not plain equity. Their shareholder agreements commonly carry a liquidation preference: a contractual right to be paid before common shareholders if the company is sold or shut down.

Here is why that matters to you. Suppose investors put ₹500 crore into a company with a 1x preference, and the company is later sold for ₹600 crore. The preference holders can take their ₹500 crore first. The remaining ₹100 crore is what flows to everyone holding ordinary equity, including employees and anyone who bought their shares. The headline "valuation" of the last round said nothing about that order of payment.

Most shares sold in secondaries are ordinary equity, often from exercised stock options. You are buying the class that sits at the back of the queue in a weak exit.

A listed company must publish quarterly results and disclose material events. An unlisted company files annual financial statements with the Registrar of Companies, often months after year-end, and owes you an annual report and a notice of general meetings. Investors with board seats or information rights in their agreements see far more than that. A small secondary buyer, in practice, sees the annual accounts and whatever the seller or dealer chooses to share.

The valuation of unlisted shares is less a calculation than a negotiation between estimates. Three different groups produce numbers: tax rules, professional valuers and the dealer market. They rarely agree.

Sound practice is to triangulate two or three methods and ask why they disagree. A wide gap usually means one set of assumptions is doing heavy lifting.

When a startup announces a round "at a ₹10,000 crore valuation", that is the price per preference share multiplied by the fully diluted share count. Ordinary equity without the preference, anti-dilution and information rights is worth less than that per share, even before you add illiquidity. A secondary quote near the last round price is therefore not a discount; it may be a premium for the weaker class.

The IPO is the first time a large, informed group of institutions prices the company through book-building. Three recent cases show how far that can sit from the dealer market:

• NSDL (2025). Business Today reported in June 2025 that NSDL's unlisted price had risen almost 40% to about ₹1,200–1,250, from around ₹900 in April. The IPO price band announced weeks later was ₹760–800.
• Tata Capital (2025). The IPO was priced at ₹326. Carnelian Asset Advisors founder Vikas Khemani wrote that many investors had bought in the unlisted market "as high as Rs 1050" over the previous few years.
• NSE (2026). Bloomberg reported on 9 September 2026 that NSE's IPO pricing left unlisted-share buyers facing losses. The issue was priced at ₹1,785 and listed at ₹1,800 on 24 September.

None of these cases predicts any other company. They show that an unlisted share price is a negotiated number, not a discovered one, and that the IPO can reset it in a single announcement.

Buyers tend to plan the entry and assume the exit. With unlisted equity, the exit is the harder half.

An IPO converts your holding into a listed share, but rarely on listing day. Under Regulation 17 of SEBI's ICDR Regulations, as summarised in SEBI's November 2025 consultation paper, the entire pre-issue capital held by persons other than promoters is locked in for six months from the date of allotment in the IPO, subject to listed exemptions. SEBI's FAQs on the ICDR Regulations confirm that equity shares allotted to employees under a stock option or purchase scheme before the IPO are exempt. That exemption is written for employees; a buyer who purchased those shares from an employee should not assume it carries over. During the lock-in, the share price can fall and you cannot sell.

You can sell to another individual, a dealer, a fund or an incoming investor in a new round. Expect three frictions: finding a buyer, agreeing a price (likely below the dealer's selling quote), and, for a private company, board approval and any right of first refusal. Dealers buying from you are principals with their own spread.

Many startups run periodic liquidity programmes for employees, sometimes funded by investors, sometimes by the company or an employee trust. In the funding slowdown, ESOP earnings fell from almost US$400 million in 2021 to less than US$100 million in 2023, according to Qapita data. A 2025 Qapita survey found buyback by the company or trust cited by 15% of companies as a liquidity route, down from 22% in 2022.

Two cautions. A statutory buyback must generally be offered to shareholders as a class, so companies usually reach employees through trusts, investor-funded windows or cash settlement of options instead. And liquidity windows are discretionary; there is no right to one.

If a larger company buys the business, ordinary shareholders are paid out under the deal terms. This is where liquidation preferences and drag-along clauses bite: preference holders may be paid first, and a drag-along can force minority holders to sell on the same terms the majority accepts.

Some companies never list, never run a buyback and never get acquired. Others are wound up. For a minority holder of ordinary equity in a private company, this outcome means holding an asset with value on paper and no buyer. It is the scenario that matters most when deciding how much to put in.

The taxation of unlisted shares is not complicated, but it is unforgiving of paperwork gaps. From 1 April 2026 the Income-tax Act, 2025 applies, so section numbers changed while most rates did not. Treat this section as general information and check your own case with a tax adviser.

• Holding period: more than 24 months makes the gain long-term (listed equity needs 12).
• Long-term gains: 12.5% without indexation, under section 197 of the 2025 Act (formerly section 112). For shares acquired before 23 July 2024, check the transitional rules with your adviser.
• Short-term gains: added to your income and taxed at your slab rate.
• No ₹1.25 lakh exemption: that belongs to STT-paid listed equity.
• Surcharge: capped at 15% on long-term gains, so the top effective rate is about 14.95% with cess.

If you hold through the IPO and sell on the exchange after the lock-in, you sell a listed, STT-paid share. The commonly held view is that the holding period still runs from your original purchase date, so long-term status follows after 12 months, and gains above ₹1.25 lakh a year are taxed at 12.5% (short-term at 20%). At least one tax practice reads the holding-period rule differently, so confirm the treatment before you file.

Two anti-abuse rules use a fair market value computed under Rule 11UA. If you buy below that value and the shortfall exceeds ₹50,000, the shortfall is taxed as your income from other sources (section 92 of the 2025 Act, formerly 56(2)(x)). If you sell below it, that value is treated as your sale price (section 79, formerly 50CA). A "bargain" price can therefore be taxed on both sides.

When an employee exercises options, the difference between fair market value and the exercise price is taxed as a salary perquisite. On a later sale, the cost for capital gains is that same fair market value, not the exercise price, and the 24-month clock starts at allotment after exercise. Employees who use the exercise price as cost overstate their gain.

Between 1 October 2024 and 31 March 2026, buyback proceeds were taxed as dividend and the cost became a capital loss. The Income Tax Department noted that small shareholders "often had no capital gains against which they could set off the capital loss". From 1 April 2026, shareholders other than promoters are taxed on buybacks as capital gains, with cost deductible and long-term gains on unlisted shares at 12.5%. Promoters pay an additional tax.

Holding unlisted equity changes which return you file. The ITR-2 form asks "Whether you have held unlisted equity shares at any time during the previous year?" If yes, as Business Standard's guide to mandatory ITR disclosures explains, you list each company's name, type and PAN, your opening holding with cost, shares acquired (with date and price), shares transferred (with sale consideration) and your closing balance. This applies even in years when you sold nothing. Gains themselves go in the capital gains schedule.

The risks are real, and so are the reasons unlisted equity keeps attracting money.

• An earlier entry point. Issuer pre-IPO placements "generally happen at a discounted price compared to IPOs", Business Standard reported in October 2025. That applies to deals negotiated with the company, not automatically to dealer trades.
• Access to companies that stay private for years. Large businesses can remain unlisted for a long time. Owning them before listing is the only way to share in that phase.
• Ownership without a lottery. An oversubscribed IPO allots retail shares by lottery. A pre-listing holder already owns the stock.
• A capped long-term tax rate. Long-term gains are taxed at 12.5%, with surcharge capped at 15%.
• Cleaner buyback taxation from April 2026. Non-promoter holders are taxed on the gain, not the whole payout.
• Liquidity for employees. For staff holding stock options, secondaries and liquidity programmes turn paper wealth into cash before an IPO.
• Lock-in relief for employee allotments. ESOP shares allotted to employees before the IPO fall outside the six-month lock-in.

The common thread: unlisted equity pays you for accepting illiquidity, weaker information and a longer horizon. Those rewards are earned only when the entry price leaves room for them.

PMS Sahi Hai does not sell unlisted shares. It has no dealer price list, no unlisted-share marketplace and no tool that values a single private company. Where it helps is the decision that should come before any unlisted purchase: whether a SEBI-registered, diversified vehicle already gives you the exposure you are after, with documents you can question.

• See what regulated private-market funds look like. Many funds that buy late-stage unlisted companies are registered as Category II AIFs. The AIF comparison shelf puts funds side by side, and each fund page shows the same fields, such as minimum investment, AUM, returns, risk measures and a facts-and-fees panel. Where a manager has not disclosed something, the page shows a blank, not a guess. Our Category II AIF explainer covers the structure and tax.
• Ask Nyra the structural questions. Nyra is the platform's AI research analyst. It is grounded only in SEBI, AMC and IFSCA primary sources, cites a source for every answer, and declines when no verifiable source exists. Useful questions here: what lock-in applies to a fund's pre-IPO holdings, how long is the stated tenure, and what the fee and carry terms cost over the fund's life.
• Read the score for what it is. Nyra rates strategies from 0 to 10 across five pillars, and its scoring methodology is public. Strategies with under 12 months of track record are "Not Rated". The score is backward-looking; it does not value an unlisted company or a dealer quote.
• Compare the routes before choosing one. Our guide to pre-IPO investing in India sets a fund, a platform and a direct deal side by side, including why a Category I or II AIF that has held a company for six months can usually sell from listing day while an individual buyer cannot.

One honest limit: Nyra is a research tool, not a SEBI-registered Investment Adviser, and it does not give personalised investment advice.

The risks of unlisted shares fall into nine groups, and most of them compound one another.

• Price risk at entry. No discovered price; dealer quotes differ; three high-profile IPOs priced at or below private levels.
• Ranking risk. Ordinary equity sits behind investors' liquidation preferences in a weak sale.
• Exit risk. IPOs get delayed or cancelled; company liquidity is discretionary; some companies never offer an exit.
• Lock-in risk. Six months from IPO allotment for most non-promoter holders.
• Information risk. Annual filings only; the seller usually knows more than you.
• Counterparty and venue risk. No clearing guarantee and, on unrecognised platforms, no SEBI or exchange recourse.
• Transfer risk. Private-company articles restrict transfers; board approval or a right of first refusal can block or delay a sale.
• Tax and reporting risk. A 24-month wait for long-term status, fair-market-value rules on both sides, and an ITR-2 disclosure table that must reconcile with the other party's filing.
• Concentration risk. A single unlisted holding is a single-company bet with no stop-loss.

1. Is the company private or public? If private, read the transfer clauses in the articles.
2. Which share class am I buying, and what preference sits above it?
3. What did the last funding round pay, and for which class?
4. What do two methods of valuation say, and why does the quote differ?
5. Which exit do I expect, and what happens if it never comes? Size the position for the second answer.
6. Who is my counterparty, and is payment matched to delivery into my own demat account?
7. Can I document the tax position: purchase price versus Rule 11UA value, holding period, and the ITR-2 disclosure every year?

If several of these have no answer, treat the quoted price as an opening bid, not as information.

Unlisted equity is real ownership in real businesses, and some of India's most valuable companies were unlisted for most of their growth. The case for holding it rests on buying at a price that pays you for illiquidity, opacity and a long wait.

The record from 2025 and 2026 shows how often that condition fails. NSDL, Tata Capital and NSE all came to market at prices that left many private buyers with losses or flat returns, and holders then faced a six-month lock-in. Add ordinary shares' place behind preference holders, exits that the company controls, and reporting duties that last as long as you hold, and unlisted equity looks like a small satellite position for patient money, not a shortcut to listing-day gains.

For many investors, the more practical question is whether a regulated, diversified vehicle that owns unlisted companies serves the same goal with less single-company risk. That is a comparison PMS Sahi Hai and Nyra are built to support.

Before you act on the next price list or "about to list" message, write down which share class you are buying, which exit you expect, how long the money can stay locked if that exit never arrives, and how you will report the holding every year.

If what you want is exposure to unlisted companies rather than one specific name, compare regulated, diversified vehicles first. On PMS Sahi Hai you can compare SEBI-registered AIFs side by side and ask Nyra a sourced question about a fund's category, lock-in or fees. Then decide whether a single unlisted holding still earns its place.

This article is for information only and is not investment, legal or tax advice. Rules are stated as of 26 October 2026 and can change. Unlisted equity carries a high risk of loss and illiquidity.