24th December, 2021

Opportunistic investors are always looking for new tools and avenues to stack up their wealth. 

In the last one decade, two unconventional modes of investments have gradually become popular among investors: unlisted shares and cryptocurrencies.

Investing in unlisted shares means buying shares of those companies that are yet to list on the stock exchange. Most of these transactions happen in an unofficial and unorganised market with little regulatory oversight.

Cryptocurrencies are basically digital tokens, based on Blockchain technology, which was invented to solve many problems, especially those that require record keeping of data. It is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.

Investing in both asset classes carries their own risks and rewards

So how should you choose between them?

Where you want to invest needs deliberate assessment of your risk profile.

Let’s understand the next 6 points to see which asset class may suit you better.

Legality

There is no clarity on the legality of the cryptocurrencies in India--currently they operate in a somewhat grey area i.e., they are neither legal nor illegal. They are available in the country for trading, but there is no entity that regulates the transactions.

The government is currently framing a law regarding cryptocurrencies, though it is still not clear if it will recognise them as legal.  In case, if it doesn’t, all your investments may become zero overnight. Unlisted shares, on the other hand, are perfectly legal. 

Unlisted shares are recognised by the authorities and there are contract laws that govern the transaction of such shares. Though there is no organised market to buy or sell those shares, there are a number of reputed brokers who provide the necessary liquidity for these shares. 

Ease of buying-selling 

To invest in unlisted shares, all you need is a DEMAT account, which can be easily opened through any stock broker after submission of requisite documents. 

Buying cryptocurrencies is also not that difficult. All you need to do is select an exchange, create a wallet on that exchange, transfer money if your bank allows it (more on this later) and buy what you want.

Risk

Given the historical volatility in prices, it is a fact that cryptocurrencies are more risky. There is a possibility that you can lose your entire capital within minutes.

Currently, the whole cryptocurrency ecosystem is somewhat opaque, as not many can explain why they have invested in a particular token. Due to these reasons, they need to constantly monitor your investments. 

Besides, there is one hidden risk always lingering around the corner for cryptocurrencies - risk of hacking. Your digital wallet can be hacked and you may lose your investments forever.

Unlisted shares behave more like listed stocks, though with relatively lesser regulation. When you buy unlisted shares, you get to own a part of the company. Though there are business risks involved in owning unlisted shares, your capital can hardly vanish in a few minutes (like cryptocurrencies).  

Though, make sure you trade with reputed brokers only to be safe from any fraud. [Read more about why unlisted shares are safer?]

Reward

If there are more risks with cryptocurrencies, rewards can also be exponential. Many tokens are appreciated thousands of times in a day. However, picking the right coin at the right time is just pure luck. 

Unlisted shares, however, largely move according to underlying fundamentals of the company --how a company is performing and its expected future growth. Sometimes, exuberance or skewed demand-supply dynamics may also influence prices, leading to sudden spikes or losses.  

Liquidity

Suppose you invested in an asset and it has given 100% returns in a short time but that is worth nothing if you can’t convert them into hard currency when you need it the most. The ease of converting any asset into money, when you need that, is equally important.

On this front, both assets have their own problems. Since unlisted shares trade in an unofficial market, you never know in real time if there will be a ready buyer for shares you hold. Your best recourse is to call brokers and ask if there are people willing to buy them. [Read more about most liquid unlisted shares]

In case of cryptocurrencies, there are digital exchanges that show the demand and supply for any token and you will easily find buyers for your assets, unless you hold some obscure ones. 

But there are some caveats !!!

Even if you find buyers, your bank might not allow you to transfer your cash from crypto wallets as many banks have banned them. Your best chance is to find a bank that allows it. But even that may change in the times of ever changing regulations and stricter compliance requirements.

Tax

Unlisted shares are taxed differently from listed ones i.e. if you sell your shares after 24 months, your gains will be considered as long term capital gains and taxed at 20% and short term capital gains will be taxed as per your income slab.

Since there is no clarity on the status of cryptocurrencies, there is a great deal of confusion over how gains from them will be taxed.

Some experts believe they should be treated as assets, and hence normal long-term and short-term taxation laws should apply. However, no one can say with confidence unless the tax department comments on it.

So, if you are more concerned with safeguarding your money and can remain patient while your money compounds, it would be better for you to invest in blue-chip unlisted shares, having ready liquidity. 

If you have surplus capital to spare and invest, then investing in lucrative cryptocurrencies, offering significant growth potential, is also not a bad idea. 

Read More About Unlisted Shares: 

Is It Safe to Buy Unlisted Shares?

Top Performing Unlisted Stocks