Zerodha co-founder Nithin Kamath has sounded alarm for retail investors against investing in unlisted shares, terming them risky and suggesting that mutual funds are a safer alternative.
In a post on social media platform X, Kamath narrated an instance where a wealth manager allegedly wanted to buy one of Zerodha’s unlisted companies and sell it again to retail buyers at a 50 per cent premium. The whole exercise, said Kamath, was part of this larger trend where investors are often attracted to pre-IPO firms on the hype, mostly without understanding much about the upside or downside of the risk.
‘Price discovery doesn’t exist here’
Unlisted shares, unlike those listed on formal exchanges, are traded on informal platforms with no regulatory oversight. This means there’s no transparent mechanism to determine fair value—prices are often set arbitrarily, based on what the seller demands, not on fundamentals.
Kamath gave an example of a prominent financial services company whose IPO price band was set 40 per cent lower than its last traded price in the unlisted market. This, he said, underlined the risk of entering such investments hoping for listing gains—only to see the actual public offer price disappoint.
Illiquidity and lack of disclosure
Another big concern, Kamath said, is that unlisted shares don’t offer guaranteed liquidity. Many companies stay unlisted for years—or never go public—leaving investors stuck with no easy way to sell. These companies also don’t have to share detailed financial information like listed ones do, making it harder for people to judge the risk.
Unregulated and unclear market
The platforms where these shares are traded are not regulated. There are no fixed rules, investor protections, or clear pricing. Kamath pointed out that sellers often charge high markups and commissions, making the whole system easy to misuse.
Better to choose mutual funds
Kamath ended his post by advising retail investors to stay away from unlisted shares and choose mutual funds instead. He said mutual funds are safer because they’re regulated, diversified, and more transparent—making them a better option for growing your money.
The bottom line: chasing quick profits through unlisted shares might actually lead you into risky and expensive trouble.
