Pre-IPO Unlisted Shares: Risks, Lock-in, Pricing, Scams
Buying pre-IPO or unlisted shares? Know the 6-month lock-in after listing, how platform prices are set, SEBI's warnings, tax rules and common scams.
In this article
Pre-IPO or unlisted shares are shares of companies not yet listed on NSE or BSE, bought through dealers, wealth platforms or employee sellers. The main risks are that prices are set by dealers rather than an exchange, you can be locked in for six months after the IPO, SEBI does not regulate the platforms, and you may have paid more than the eventual IPO price. Treat them as illiquid, high-risk holdings, not a shortcut to listing gains.
This guide explains each risk with numbers, the rules as of October 2026, and the checks to run before you transfer money. To compare with what the company later offers in its IPO, see our live IPO dashboard.
How the unlisted market works
There is no stock exchange for unlisted shares. A typical deal looks like this:
- A platform or dealer quotes a buy price for a well-known unlisted company.
- You pay the dealer's bank account.
- The dealer transfers shares from its demat account (or a seller's) to yours as an off-market transfer using a delivery instruction slip.
- You hold the shares until the company lists, is bought out, or you find another buyer.
Since you are not trading on an exchange, there is no settlement guarantee, no investor protection fund and no exchange grievance cell. If a dealer takes the money and does not deliver, your remedy is mostly civil or criminal law, not a quick exchange complaint.
SEBI's warnings
SEBI has cautioned investors more than once (including in 2016, December 2024 and again in 2026, as reported) that electronic platforms offering unlisted securities are not recognised or authorised by SEBI, and that dealing in securities of unlisted public companies through such platforms can breach securities law. SEBI has also said that its registered intermediaries, such as stockbrokers, should not deal in unlisted securities through such platforms. As a buyer, assume that SEBI SCORES may not be able to help with a dispute against an unregulated dealer.
The six risks, in order of how often they bite
| Risk | What happens | How bad it can get |
|---|---|---|
| Overpaying | Dealer prices run ahead of fundamentals and IPO expectations | IPO price can be far below what you paid |
| Lock-in | Non-promoter pre-IPO shares are generally locked for 6 months from IPO allotment | You cannot sell during the listing-day rally |
| Liquidity | Few buyers; dealers quote a wide buy-sell spread | Selling quickly can cost 5-15% or more |
| Delays or no IPO | IPO plans slip by years or are dropped | Money stuck with no exit |
| Information gap | Unlisted companies disclose less, less often | You may miss bad news |
| Fraud | Fake shares, non-delivery, fake "pre-IPO allotments" | Total loss |
The lock-in in detail
Under SEBI's ICDR Regulations, 2018, the entire pre-issue share capital held by shareholders other than promoters is generally locked in for six months from the date of allotment in the IPO. This was cut from one year in 2021. Exemptions exist, for example for certain venture capital funds, Category I and II AIFs and foreign venture capital investors that have held the shares for at least six months, and for shares from employee stock options, but individual buyers on platforms usually do not qualify. Promoters face longer lock-ins (18 months on their minimum 20% contribution). For how this compares with institutional lock-ins, see anchor investors and IPO lock-in.
Check the RHP's "Capital Structure" section, which lists the lock-in for every pre-issue shareholder category.
Worked example: paying above the IPO price (illustrative)
Ananya buys 100 unlisted shares at ₹1,200 each = ₹1,20,000 in January, attracted by IPO talk. In June, the company files its RHP with a price band of ₹700-740. Retail investors buy at ₹740. The stock lists at ₹900 on listing day, a 21.6% gain for IPO investors.
| Item | Ananya (pre-IPO buyer) | IPO investor |
|---|---|---|
| Cost per share | ₹1,200 | ₹740 |
| Price on listing day | ₹900 | ₹900 |
| Gain or loss per share | −₹300 (−25%) | +₹160 (+21.6%) |
| Can sell on listing day? | No, 6-month lock-in | Yes |
Six months later the stock trades at ₹820. Ananya can now sell: 100 × ₹820 = ₹82,000, a loss of ₹38,000 (about 31.7%), before any costs. The IPO investor who held on is still up ₹80 a share (about 10.8%).
If instead the stock had climbed to ₹1,500 by the end of lock-in, Ananya would gain 25% on her cost over about a year. The point is that her result depends on the entry price, which the dealer set, not on the IPO's success. Use our CAGR calculator to turn any holding-period result into an annual figure before comparing it with other investments.
How unlisted prices are set
- Dealer inventory. Dealers buy from employees, early investors and other sellers, and mark up the price.
- IPO hype. News of a draft RHP filing can push quotes up sharply, sometimes well above where bankers later price the issue.
- Thin trading. A handful of trades can move the quote. Platform charts are not exchange prices.
- Spread. The price at which a dealer buys back from you is lower than the price at which it sells.
Always ask for both the buy and the sell quote on the same day, and compare with the company's latest valuation round or financials.
Tax rules (as of October 2026)
| Situation | Holding period for long-term | Rate |
|---|---|---|
| Sale while still unlisted | More than 24 months | LTCG 12.5% without indexation; STCG at slab rate |
| Sale after listing, on the exchange | More than 12 months (period before listing counts) | Rules for listed equity can apply; STCG 20%, LTCG 12.5% above ₹1.25 lakh, subject to conditions |
Whether the listed-equity rates and the ₹1.25 lakh exemption apply to shares you bought off-market before listing depends on conditions in the law, including the Income-tax Act, 2025 that replaced the 1961 Act from 1 April 2026. Confirm with a tax adviser. For IPO-specific gains, see tax on IPO listing gains.
Checks before you buy
- Confirm the company is real and active on the MCA portal and check its latest filed financials.
- Ask for the ISIN and confirm the shares are in demat form. Do not buy physical certificates.
- Prefer delivery before or against payment where possible, and pay only to a bank account in the dealer's registered business name.
- Get a written contract note with price, quantity, date and the dealer's details.
- Check the lock-in you will face if the company lists, and plan to hold for at least the lock-in plus the time to listing.
- Size it small. Keep unlisted holdings to money you can leave untouched for years.
- Read the draft RHP once filed; it reveals risks the dealer will not mention. See how to read the IPO offer document.
Scams to watch for
- "Pre-IPO allotment" offers promising shares at the IPO price before the issue. Retail allotment only happens through the exchange bidding process.
- WhatsApp or Telegram groups selling "guaranteed listing gains" in unlisted shares.
- Requests to pay a personal account or in crypto.
- Fake share transfer screenshots without a real demat credit.
If you are targeted, report it on cybercrime.gov.in or call 1930. Our guide on how to spot investment scams lists more warning signs. This article is educational and not a recommendation to buy or sell any security.
Key takeaways
- Unlisted share platforms are not recognised by SEBI; you lose exchange-level protection.
- Non-promoter pre-IPO shares are generally locked in for six months from IPO allotment, as of October 2026.
- Dealer prices can be far above the eventual IPO price, so a good listing can still mean a loss for you.
- Unlisted gains are long-term after 24 months (12.5%); after listing, listed-equity rules may apply, subject to conditions.
- Verify the company, demand demat delivery, pay only business accounts and invest only what you can lock away.
Frequently asked questions
Is there a lock-in on pre-IPO shares after listing?
Yes. Under SEBI's ICDR Regulations, shares held by non-promoter shareholders before an IPO are generally locked in for six months from the date of IPO allotment. Some holders, such as certain venture capital funds and AIFs that meet holding conditions, are exempt, but individual buyers usually are not.
Are unlisted share platforms regulated by SEBI?
No. SEBI has cautioned investors several times that electronic platforms dealing in unlisted securities are not recognised or authorised by it, and that such deals lack the investor protection and grievance redressal of stock exchanges.
How is the price of unlisted shares decided?
There is no exchange or official price. Dealers and platforms quote prices based on their own buy and sell interest, recent deals and IPO expectations, so spreads can be wide and prices can differ from the eventual IPO price by a large margin.
How are unlisted shares taxed?
As of October 2026, gains on unlisted shares held for more than 24 months are long-term and taxed at 12.5% without indexation, while gains on shorter holdings are taxed at your slab rate. Once the company lists, the rules for listed shares can apply to later sales, so confirm with a tax adviser.
Can I lose money on pre-IPO shares even if the IPO does well?
Yes. If you bought at a price above the IPO price, you can be in a loss even when the stock lists at a premium. The six-month lock-in also stops you selling during the listing rally.
This article is for general education and is not personalised financial, tax or legal advice. Rates and rules are as of 22 Oct 2026; confirm current terms with your lender, AMC or a qualified adviser.
