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Some Difference Between Listed and Unlisted Shares

by ragini giri (2021-02-06)

In response to Important role of micro switches

As the name suggests, listed shares are the shares that are listed (and traded) on any inventory trade such as NSE or BSE and so forth. On the other hand, unlisted shares are the shares that are not listed on any of the inventory exchanges.

Let us look at the journey of the corporate to understand the difference even higher.

When an entrepreneur begins a company, he places in his own funds or takes money from family and friends. He can also take bank mortgage to satisfy the working capital necessities but in order to develop additional, he has to take funding from outsider traders in exchange of fairness. This funding can have different names similar to venture capital or personal equity relying on the stage of funding. When such funding is taken, shares are issued to such traders.

As the company is not listed till that time, such shares are known as unlisted shares. As the company continues to be private, these shares can't be traded on any stock exchange however only privately on one on one foundation. Unlisted shares are also referred to as (over-the-counter) OTC shares as they were traded over the counter (bodily supply). There are numerous market makers who enable shopping for and selling of unlisted shares. One can discover quotes from such market makers at Prastaav.

As these shares aren't traded on any exchange, they are typically much less liquid than listed shares.

Now, to be able to develop additional, the corporate may decide to ask public participation and offer its equity under initial public offering (commonly generally 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 could be traded simply. Now, such shares are known as listed shares.

At the time of IPO, the company has to choose the exchange on which it plans to list. It should meet the change's necessities and pay the requisite fees. This ensures that solely these companies which might be in good standing (meet trade criteria) are listed and traded by investors. The exchanges also have market making necessities which ensure that there's truthful quantity of liquidity out there within the listed shares. The listed shares are transferred via demat accounts and STT is paid on the worth of the shares.

Let us additionally look at the important thing differences between listed and unlisted shares:

1.    Type of Company

•    Listed Shares: The company has a monitor record, meets exchange requirements, IPO due diligence is done. Investors can get entry to DHRP (prospectus), regulatory filings and investors shows and so on

•    Unlisted Shares: Such firms can be in early to late stage of evolution. The investor ought to do his own due diligence earlier than investing. Limited documents could also be available as per the discretion of the company.

2.    Investment Process

•    Listed Shares: Simple and paperless. Can be bought in any buying and selling account. No counterparty threat as it's taken care of, by the exchange.

•    Unlisted Shares: The process has been recently simplified as such shares can now be transferred solely through demat account. However, counterparty risk is current as there can be dangerous supply / no fee and so on. Better to take care of trusted get together.

3.    Liquidity

•    Listed shares: Fairly liquid, Large and midcap firms have decrease bid ask unfold and higher volumes as compared to small cap corporations. The penny shares 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 more than 1 yr then positive aspects are categorized as LTCG and taxed at 10%

•    Unlisted Shares: If unlisted stocks are held for greater than 2 year then gains 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 could be accomplished as worth is a function of demand and provide and is determined by one’s analysis of financial statements of the corporate.

6.    Holding restrictions

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

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

7.    Risk

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

•    Unlisted Shares: Counterparty danger, Risk of IPO not happening. Plus risk of not getting exit earlier than 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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by ragini giri (2021-02-06)