Zerodha founder Nithin Kamath in a post on X advised against investing in unlisted companies and the risk associated with it. He also mentioned that investors are ” better off investing in mutual funds”.

He shared that, recently, a wealth manager approached Kamath to buy one of the unlisted companies to sell it at a 50% markup immediately. This comes after the rising popularity of some of these unlisted companies, like NSE, MSEI, Chennai Super Kings, among retail investors. “Most investors think they can make easy money by picking these pre-IPO companies, waiting for the IPO, and making big listing gains. But it’s not as easy as it sounds…,” read his post.

Risks involved

Unlisted shares, as the name suggests, do not trade on any formal stock exchange. Unlike listed shares that undergo transparent price discovery based on company fundamentals, market sentiment, and demand-supply dynamics, unlisted shares are bought and sold on informal, unregulated platforms.

Here, the price is typically whatever the seller demands, with little to no visibility or consistency. As a result, these shares often trade at steep premiums that may not reflect their actual intrinsic value.

Citing the example of HDB, he said, “HDB set its IPO price band 40% below the last traded prices on unlisted platforms.” This implied that even if an unlisted company converts, the price may be lower than what an investor paid.

“Stuck without liquidity”

Certain unlisted companies may postpone their IPOs for extended periods, or may never go public at all. Kamath highlighted the example of the National Stock Exchange (NSE), which remains unlisted despite long-standing speculation. “You can get stuck without liquidity,” he warned.

Additionally, unlisted firms are not required to provide the same level of financial or business disclosures as listed companies, making it more difficult for investors to accurately assess potential risks.

Mutual funds: A safer bet?

Kamath wrapped up his thread with a clear suggestion: “You are better off investing in mutual funds than trying to pick unlisted companies.” With built-in diversification, strong regulatory oversight, and transparent reporting, mutual funds provide a more secure and practical route for retail investors looking to grow their wealth without taking on unnecessary risk.