Listed shares or unlisted shares, both are risky. The risks may differ in nature, but it is certain that they are subject to various risks. The primary and most important risk is liquidity. If the company does not go public for some reason, liquidity may cause you losses. When you need to sell your shares, you may have difficulty finding purchasers. If a company’s fundamental performance is poor in the unlisted market, the price of its shares will fall, and finding a buyer will become difficult. If the company is functioning well, then liquidity may not be an issue.
Risk of Delayed IPO
Delayed IPO is one of most common risks in unlisted shares. The majority of investors in the unlisted market invest with the expectation that if an IPO occurs, they will be able to sell their investments at a greater price. Therefore, it will take time to sell their unlisted shares if the IPO is delayed. Moreover, if an IPO is delayed, demand in the unlisted market decreases as well. Therefore, selling will become difficult, which ultimately leads investors to losses.
Risk of Buying at a high valuation
Buying unlisted shares at a high valuation is also a risk. If you invest in the Pre-IPO companies at a higher valuation, then your chances of making money when the IPO comes will be difficult.
The absence of a regulatory framework is also a concern. Similar to the crypto currency market, the unlisted market is also unregulated. Currently, SEBI has no regulations regarding the unlisted market. Therefore, you may end up purchasing unlisted shares at a greater price than what they will receive in the IPO. This will lead to losses on the investment.
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