Unlisted shares represent equity in companies that are not traded on recognised stock exchanges like the NSE or BSE. While they offer access to early‑stage growth opportunities and pre‑IPO gains, selling them involves distinctly different processes compared with listed equities. This guide explains how to sell unlisted shares, what to expect from the process, regulatory considerations, taxation you should plan for, and best practices to ensure a smooth, compliant transaction.
What It Means to Sell Unlisted Shares?
Unlike listed shares, unlisted shares are traded off‑market through private deals, registered intermediaries, or specialised platforms. There is no central exchange, and pricing, liquidity, and transaction mechanics are negotiated between buyers and sellers.
Investors can sell these shares:
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Before an IPO, in the unlisted secondary market.
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After a company goes public, provided any post‑listing lock‑in periods have expired (see below).
Step‑by‑Step Process to Sell Unlisted Shares
1. Identify a Reliable Buyer or Platform
Before initiating a sale:
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Approach specialised unlisted share brokers or platforms that facilitate matches between buyers and sellers.
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Alternatively, negotiate directly with a known buyer or investor.
There is no centralized trading system, so sourcing a counterparty is the first critical step.
2. Agree on Price and Terms
Unlike listed markets, there is no market price, and valuations are usually negotiated. Agree on:
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Sale price per share.
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Lot size.
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Settlement terms.
Platforms may fix the offered price for a limited time (e.g., three days) to avoid valuation discrepancies.
3. Complete Documentation
Typically, you will need:
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Delivery Instruction Slip (DIS) to transfer the shares from your Demat account.
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KYC details (PAN, Demat details, bank account).
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Any additional documentation required by the buyer or intermediary.
Once formalised, the DIS facilitates the off‑market transfer of shares.
4. Transfer Shares
Submit the DIS to your Depository Participant (DP) (CDSL or NSDL) for execution.
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Shares are transferred to the buyer’s Demat account.
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Ensure accuracy; incorrect transfers can delay transactions and complicate tax reporting.
5. Receive Payment
After share receipt confirmation:
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Funds are typically transferred via RTGS/NEFT/IMPS to the bank account linked with your Demat.
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Some platforms pay within 24–48 hours of transfer; others may take slightly longer.
Regulatory and Compliance Considerations
No Centralised Exchange Regulation
Unlisted share trades occur off‐market and are not regulated like listed securities on NSE/BSE. However:
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Transactions must follow Demat transfer rules.
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Avoid payments to third parties not linked to the Demat account.
Lock‑in After IPO
If the company goes public:
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Shares may become illiquid if the company announces an IPO and freezes its ISIN (International Securities Identification Number).
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Pre‑IPO investors often face a mandatory 6‑month lock‑in period post‑listing before they can sell on the exchange.
Mutual Fund Restrictions (Contextual News Insight)
Recent SEBI guidance clarified that mutual funds cannot invest in pre‑IPO placements. This reinforces the regulatory focus on managing unlisted share exposure through formal processes and preventing institutional investors from holding unlisted positions outside regulated frameworks.
Taxation When Selling Unlisted Shares
India’s tax treatment for unlisted share sales is based on the holding period of the asset:
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Short‑Term Capital Gains (STCG):
If you sell within 24 months of acquisition, gains are treated as STCG and taxed according to your income slab rate. -
Long‑Term Capital Gains (LTCG):
If held longer than 24 months, gains generally qualify as LTCG, taxed at 20% with indexation benefits under current rules.
(Always confirm with a tax professional, as regimes and holding periods may evolve.)
Note: Stamp duty, valuation rules (e.g., FMV when selling below fair value), and Gift tax provisions can also apply depending on transaction structure. Consult a tax advisor for larger transactions.
Key Risks and Practical Challenges
1. Liquidity Risk
Unlisted shares can be illiquid. Finding a buyer may take time, and negotiating price discounts may be necessary.
2. Pricing Uncertainty
There is no exchange‑determined market price; valuations depend on negotiation, which may lead to significant spreads between buyer and seller expectations.
3. Regulatory and Fraud Risk
Unlisted markets are less transparent and not strictly regulated; choose trusted intermediaries, verify documentation, and consider using authorised platforms to reduce risk.
Best Practices for Selling Unlisted Shares
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Work with Verified Platforms or Brokers:
Use intermediaries with clear credibility and documented processes to avoid fraudulent dealings. -
Keep Accurate Documentation:
Maintain records of DIS, valuation agreements, and KYC details to support compliance and tax reporting. -
Understand Lock‑in Periods:
Plan sale timing, especially for pre‑IPO shares subject to post‑listing lock‑in. -
Factor in Taxes Early:
Capital gains taxation can materially impact net returns; early planning helps optimise your strategy. -
Assess Liquidity Needs:
If you may need quick liquidity, be realistic about timelines and possible negotiated pricing.
Conclusion
Selling unlisted shares in India involves a well‑defined but distinct process from listed markets. It requires identifying buyers, negotiating terms, completing off‑market share transfers, and ensuring regulatory and tax compliance. While liquidity and pricing dynamics present challenges, adhering to best practices and structured procedures significantly improves transaction efficiency.
If you are planning to sell unlisted shares, prioritise verified intermediaries, stay informed about lock‑ins post‑IPO, and consult financial and tax advisors to maximise value and minimise compliance risks.
Regulatory & Market Sources
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India regulator bars mutual funds from investing in pre‑IPO placements — Reuters news article on SEBI’s restriction on mutual funds participating in pre‑IPO placements (relevant regulatory context). India regulator bars mutual funds from investing in pre‑IPO placements | Reuters (2025)
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SEBI restricts mutual funds from pre‑IPO placements — Angel One explanation of SEBI’s clarification on pre‑IPO placements and risks of holding unlisted shares. SEBI restricts mutual funds from pre‑IPO placements | Angel One
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Mutual funds can invest only in anchor or public IPO portions — NDTV business news summary on SEBI’s position on pre‑IPO placements. Mutual funds can’t invest in pre‑IPO placements, says SEBI | NDTV
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SEBI restricts MFs to anchor/public issues — Business Today explanation of regulatory wording under SEBI (Mutual Funds) Regulations. SEBI restricts MFs from pre‑IPO shares to anchor/public issues | Business Today
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SEBI warns against unauthorised trading platforms — Reuters report on SEBI cautioning investors about trading unlisted securities via unauthorized platforms, highlighting compliance importance. India’s market regulator warns against trading unlisted securities via unauthorised platforms | Reuters (2024)