Unlisted and pre-IPO shares: meaning, how buying works in India

Shares that trade on the NSE or BSE are listed. Every other share of an Indian company, including those of most startups, is unlisted. Founders, early employees, angel investors and venture funds hold unlisted shares until the company goes public or is sold.

Pre-IPO shares are a subset. They belong to a company that has announced, filed or is widely expected to file for an initial public offering (IPO). The phrase usually refers to a chance to own the shares before they appear on an exchange, in the hope of selling at a higher listed price.

There is no exchange. A trade happens directly between a seller and a buyer, often through an intermediary or a platform that matches them. The seller can be an early investor, a founder or an employee who has received shares by exercising stock options. The buyer pays by bank transfer and the shares move through the depository system, in dematerialised form, or on paper in older cases.

Because there is no order book, the price is set by negotiation. Platforms publish indicative prices, but these are not official quotes. A company's own board may also restrict transfers: many companies need board approval or give existing shareholders a first right to buy, through clauses in their articles of association.

• Agree a price with the seller, directly or through an intermediary.
• Check that the shares can be transferred under the company's articles and any shareholder agreement.
• Confirm the seller actually holds the shares, in demat form where possible.
• Pay by bank transfer and ensure the shares are credited to the buyer's demat account.
• Keep records for tax, since the buyer's cost price matters later.

The appeal is simple. If a company lists at a price well above where unlisted shares were bought, the early buyer gains. Retail investors also like the sense of getting in before the crowd, which is why news about an IPO often leads to stories of pre-IPO prices.

But a high listing price is not guaranteed. Several Indian technology listings have traded below their issue price after the first days. The unlisted price may already include the market's excitement, so buying is not a safe route to a gain.

SEBI, the markets regulator, sets lock-in periods under its issue of capital rules (the ICDR Regulations, Regulation 17 and related provisions). As of November 2026, shares held before the IPO by investors who are not promoters are generally locked in for six months from the date of allotment in the IPO, meaning they cannot be sold on the exchange during that time. Promoters' minimum contribution has a longer lock-in, commonly 18 months or three years depending on the case, and some holders have different periods.

The practical point for a buyer is this: a person who buys unlisted shares shortly before an IPO may not be able to sell on the first day of listing. Lock-in rules have been amended several times, so the current SEBI text should be read for the exact period that applies to a particular holding.

Information is thin. A private company publishes far less than a listed one, and the buyer often sees little more than a platform's summary. Valuations can be inflated by hype. Liquidity is poor, so a buyer may not find anyone to sell to at a fair price. Fraud and fake share certificates have also been reported.

SEBI has repeatedly cautioned investors about unregulated platforms that sell unlisted securities, since many such platforms are not registered with the regulator. A platform's website does not make a deal safe. The safest checks are to confirm that the shares exist in a demat account, to deal with a registered intermediary, and to expect to hold for a long time.

Tax on a sale depends on how long the shares were held. As of November 2026, unlisted shares held for more than 24 months are generally treated as long term, with gains taxed at a flat 12.5% without indexation. Shorter holdings are short term and taxed at the person's income tax slab rate. The Income-tax Act 2025 applies from April 2026 and renumbers the sections, but secondary sources say it keeps these basics.

Buying below fair value can also create a tax charge for the buyer, since the difference between a share's fair market value and the price paid can be taxed as income in some cases. Tax rules are technical and change, so a chartered accountant should confirm the position for a given transaction.

Start with the seller. Ask for proof that the shares are held in the seller's demat account or, for older holdings, a valid certificate, and check that the name matches the seller's identity documents. Then check the company: read its latest filings with the Registrar of Companies, its recent funding rounds and whether it has announced IPO plans. A platform's price chart is not a substitute for reading these.

Next, check the price against what the company itself did. If the last round priced shares well below the quoted unlisted price, ask why. Finally, think about time. Unlisted shares may take years to become liquid, and an IPO may be delayed or cancelled. Money that may be needed soon should not go into them.

• Seller identity and proof of holding.
• Transfer rules in the articles and shareholder agreement.
• Latest funding round price compared with the quoted price.
• Whether an IPO filing exists, and the lock-in that would apply.
• Registration of any platform or broker involved.

A pre-IPO placement is a fresh issue or sale of shares by the company itself, to institutions or large investors, shortly before the IPO. It is arranged by the company and its bankers and disclosed in the offer documents. Buying unlisted shares from an existing holder is a secondary trade with no such oversight by the company.

A reader of news should separate the two. Headlines about a pre-IPO round point to money raised or shares sold by or through the company. Stories about the unlisted market refer to prices from side trades that the company may not endorse. This is general education, not advice to buy or sell, so seek a registered adviser for personal decisions.