Welcome to the world of pre-IPO shares. Its a niche growing field in Indian equity markets. There are number of advantages of investing in shares at pre-IPO level. Below are the few FAQ related to same.
Pre IPO FAQ
1. Which companies Pre-IPO shares are available?
At any given point of time, There are always a number of companies who wants to know the price at which the markets are ready to absorb its IPO. Please subscribe via email to Alpha Affairs to receive the offers as and when available
2. What is the meaning of Pre-IPO shares ?
Pre-IPO means buying/selling shares in a unlisted company before its IPO i.e. before it gets listed on the Stock Exchanges
3.Who sells shares in a pre-IPO, why someone is selling shares and how it will reflect in your account ?
Existing shareholders of the Company sell shares in the pre-IPO in demat form. Such Shares are sold mainly because existing shareholders need the money which they can use either for expenses or investments. Once transferred, shares will reflect in your DP portfolio.
4.Why do I buy in a pre IPO?
Most of the IPOs today are meant to provide exits to existing shareholders . As such, IPOs are are priced expensive and even at those valuations, retail investors do not get allotment. Most of the times good IPO’s are highly oversubscribed (50 times or more) in retail category thus limiting the allotment size even if retail investor is lucky.
Investing in pre-IPO helps the investor:
1. To participate in the growth of the company
2.Get opportunities which otherwise would ONLY be available to big entities like PE Firms etc
3.Get in at reasonable valuations
5. What is the kind of time horizon is involved in investing in Pre-IPOS?
Most pre-IPOs take 2/3 years to get listed as it involves taking shareholder approval,getting internal processes in order,hiring merchant bankers, filing DRHP, getting SEBI approvals etc
6. What is the minimum amount one can invest in a Pre-IPO?
Depending on the Scrip,the minimum amount can be between Rs.20,000-Rs.50,000-Rs 1,00000 or more
7. Do the pre-IPO shares have any lockin?
Yes.As per SEBI rules,all pre-IPO shares have a lockin for 1 year from the date of listing. Sebi is bringing a new rule where lock in period will be reduced by six months for people (other than promoters) holding pre ipo shares
8.What is the kind of returns one can expect in investing in pre-IPO?
Depends on the Company and its management’s execution capabilities.In Equities, nobody can guarantee any kind of returns.
9.What are the kinds of risks involved in investing in pre-IPO?
Do consider following risks before investing
- The Company may execute poorly and the Company’s results falter after you buy (also True for listed stocks)
- The Company takes longer than expected to get listed due to various reasons. There is no commitment from our side on the timelines of listing of such companies
- Unlisted shares are inherently illiquid and you may not be able to sell your shares in a hurry when you need the money.
- Unlisted shares prices fall down based on supply/demand in future and may fall down significantly from your buying price(also True for listed stocks)
10. Are there any tax implications of investing in pre-IPO?
Capital gains on sale of unlisted shares will be classified as long term, if held for more than 24 months.
STCG on sale of unlisted equity shares is taxable at applicable marginal tax rate.
LTCG on sale of unlisted equity shares is taxable at 10% without indexation and 20% with indexation
Check with Income tax India website for latest rules on tax implications
11. How does one buy shares in pre-IPO?
The process is as follows:
1. Alpha Affairs post the pre-IPO shares deal as available or alternatively one can enquire through contact form.
2. The Buyer confirms the quantity
3.He provides his demat account details. We felicitate provide the bank account details where money has to be transferred by Buyer
4.On Trade Settlement Date,the Buyer transfers the purchase amount via
NEFT/RTGS/IMPS. On receipt of payment,we felicitate the transfer of shares to his demat account (mostly within 2 days)