A wealth manager approached us recently to buy one of our unlisted companies so that he could sell it at a 50% markup immediately. The popularity of some of these unlisted companies, like NSE, MSEI, Chennai Super Kings, among retail investors, etc., is crazy.

Most investors think they can make easy money by picking these pre-IPO companies, waiting for the IPO, and making big listing gains. But it’s not as easy as it sounds, and there are all sorts of risks.

Even if an unlisted company IPOs, its price can be below what you paid. For example, HDB set its IPO price band 40% below the last traded prices on unlisted platforms.

Unlike stock exchanges, there’s no price discovery for unlisted shares. The markups and commissions are ridiculous. These platforms are also unregulated, so there’s nobody to protect you. Companies can go a long time without an IPO like NSE, which means you can get stuck without liquidity. Unlisted companies also make fewer disclosures than listed companies.

You are better off investing in mutual funds than trying to pick unlisted companies. We recently wrote a post about the risks.

Bhuvan recently wrote a post about the risks.

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