Risk of investing in unlisted Companies

 Risk of  investing in unlisted companies

An unlisted company is a company that is not listed on the stock exchange. Unlisted companies are privately owned that has not yet gone through the IPO. Unlisted stocks are a financial instrument that is available for trade on over-the-counter markets. The risk associated with unlisted investments are as follows:

Risk of investing in unlisted companies

Loss of capital invested

Loss of capital is the biggest risk when investing in the equity of unlisted companies. So investors need to be financially able to absorb any losses.

Illiquidity

Unlisted shares are highly illiquid. They are not on the stock exchange where multiple buyers and sellers are trading them.

No regulatory framework

There is always a huge counterparty risk as no regulatory is involved. There is no fair market price that can be tracked. People who invest in unlisted stocks do not enjoy the safety and protection provided by SEBI.

Lack of transparency 

There is no transparency in the financials as unlisted companies are in the early stage of the revolution.

Risk associated

Higher risk is associated with unlisted stocks.