Disadvantages of investing in unlisted shares - Unlisted Investments
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Disadvantages of investing in unlisted shares

One may be very happy owning unlisted shares and keep counting the benefits but at the same time, one must be aware of the disadvantages of owning unlisted shares.

  1. Lack of liquidity:
    • Unlisted shares cannot be very readily converted into cash and need more time to be liquidated. They cannot provide cash flow in emergency situations and often need several days to weeks to liquidate.
  2. Higher Taxes: 
    • While long-term capital gains taxes in listed securities is zero, when STT is paid, long-term capital gains taxes for unlisted securities is currently at 20% in India.
  3. Limited company-specific data:
    • Disclosure norms on unlisted companies are relatively relaxed and as a result of the unlisted companies often provide limited news and information about their current affairs. As a result, it becomes difficult for investors to keep a track of the growth of the company they have invested in. As a result, they could lose money if they remain invested in a company that produces a weak financial performance.
  4. Utilizing shares for obtaining loans/advances:
    • It is relatively easy to obtain loans and advances against shares that are listed and traded into stock exchanges. However, this is not true for unlisted shares which are illiquid by nature. Additionally, their fair value is also difficult to ascertain and due to this, getting any loan or advance becomes even more difficult.