Listed and unlisted equity refer to two different types of company shares based on their listing status on a stock exchange. Let's explore each of them:
- Listed Equity:
Listed equity refers to company shares that are traded on a stock exchange, and their prices are publicly available and easily accessible to investors. When a company decides to go public and offer its shares to the public, it goes through an initial public offering (IPO) process. During the IPO, the company issues new shares or sells existing shares to the public, and these shares are listed on a stock exchange.
Key features of listed equity:
Liquidity: Listed equity is more liquid than unlisted equity because shares can be bought and sold on the stock exchange during trading hours.
Market Price: The market price of listed shares is determined by supply and demand dynamics on the stock exchange. Prices fluctuate throughout the trading day based on investor sentiment and market conditions.
Transparency: Companies with listed equity are subject to various regulatory requirements, including financial reporting, disclosure, and governance standards, which enhance transparency for investors.
Access to Public Investors: Listing on a stock exchange allows companies to raise capital from a broader pool of public investors.
Regulation: Listed companies are subject to the rules and regulations of the stock exchange they are listed on, as well as the regulatory authorities governing securities markets.
- Unlisted Equity:
Unlisted equity, also known as private equity, refers to shares of companies that are not traded on any public stock exchange. These shares are privately held by a limited number of investors, such as the company's founders, venture capitalists, or private equity firms.
Key features of unlisted equity:
Limited Liquidity: Unlisted equity is generally illiquid because there is no established market for trading these shares. Investors typically need to wait for a specific event (e.g., a private sale or exit event) to sell their shares.
Valuation: The valuation of unlisted equity is often determined through negotiations between the company and potential investors or based on periodic external valuation exercises.
Limited Public Information: Unlisted companies are not required to disclose financial information or operational details publicly, which can make it challenging for investors to assess the company's performance and prospects.
Long-Term Investment: Investing in unlisted equity often requires a longer-term investment horizon, as it may take time for the company to grow and reach a stage where it can be acquired, go public, or provide an exit opportunity for investors.
Regulation: While unlisted companies may be subject to certain regulatory requirements, they generally face less stringent reporting and disclosure obligations compared to listed companies.
In summary, listed equity refers to shares of companies traded on a stock exchange, providing investors with liquidity and transparency, while unlisted equity represents shares of privately held companies, which are typically illiquid and require a longer-term investment approach. Each type of equity investment carries its own set of risks and rewards, and investors should carefully consider their investment goals, risk tolerance, and time horizon before investing in either listed or unlisted equity.