Zerodha founder and CEO Nithin Kamath has raised concerns over the increasing interest among retail investors in unlisted shares. Sharing his thoughts on social media platform X, he cautioned against the risks these investments carry.
“A wealth manager approached us recently to buy one of our unlisted companies so that he could sell it at a 50% markup immediately. The popularity of some of these unlisted companies, like NSE, MSEI, Chennai Super Kings, among retail investors, etc., is crazy.”
Zerodha founder and CEO Nithin Kamath pointed out how many investors are getting caught up in the excitement of owning pre-IPO shares, hoping to make quick profits once the company goes public.
A common belief among investors is that unlisted shares will always rise in value after a company lists on the stock exchange. Kamath says this notion is often misleading.
“Even if an unlisted company IPOs, its price can be below what you paid,” he explained.
He gave the example of HDB Financial Services, whose IPO price band was about 40% lower than the rate at which many retail investors had bought its shares through unlisted platforms.
Another key issue Kamath highlighted was the absence of a transparent pricing system for unlisted companies.
“Unlike stock exchanges, there’s no price discovery for unlisted shares. The markups and commissions are ridiculous,” Kamath said.
Because of this, retail investors often end up buying these shares at inflated prices without knowing their actual worth.
Liquidity, or the ability to sell investments easily, is another major concern when it comes to unlisted shares.
“Companies can go a long time without an IPO like NSE, which means you can get stuck without liquidity. Unlisted companies also make fewer disclosures than listed companies,” Kamath wrote.
Without regular financial updates or exit routes, investors may end up holding shares for years with no way to sell them.
Kamath advised that mutual funds remain a better option for most small investors due to their regulation, transparency, and diversification.
“Companies can go a long time without an IPO like NSE... Unlisted companies also make fewer disclosures than listed companies.”
“Mutual funds are much safer because they are regulated by SEBI, are well-diversified, and share regular information with investors.”
Zerodha CEO Nithin Kamath’s warning serves as a timely reminder for retail investors chasing quick gains in unlisted stocks. While pre-IPO shares might seem lucrative, they come with significant risks such as lack of price transparency, poor liquidity, and minimal regulatory oversight.
Kamath’s example of HDB Financial Services — where the IPO price was nearly 40% lower than the unlisted share price — highlights the dangers of speculative investments. Moreover, without the guarantee of a timely IPO or mandatory disclosures, investors may find themselves holding onto shares with little value or exit opportunity.
Kamath emphasizes that, unlike stock exchanges, the unlisted market lacks proper price discovery and is often burdened with high markups. He encourages investors to consider mutual funds instead, which offer regulated, diversified, and more secure investment avenues. For small investors looking to grow their wealth with lower risk, Kamath’s message is clear: avoid the hype, and invest wisely.