‘You’re better off investing in…’: Zerodha’s Nithin Kamath warns retail investors chasing unlisted shares; here’s what he recommends instead

As more and more companies take the public market route by launching their initial public offerings (IPOs), retail investors are seen flocking to buy unlisted shares of high-profile companies. But amidst this euphoria, Zerodha’s co-founder Nithin Kamath has sounded a sharp warning: investing in unlisted shares is far riskier than it appears.

In a recent post on X (formerly Twitter), Kamath revealed how a wealth manager had approached Zerodha to purchase a stake in one of its unlisted entities—only to resell it to retail clients at a 50% markup. According to Kamath, this reflects the rising appetite among small investors for early-stage bets that promise big IPO-day gains.

“Most investors think they can make easy money by picking these pre-IPO companies, waiting for the IPO, and making big listing gains,” Kamath wrote. “But it’s not as easy as it sounds.”

A murky market with steep markups

The market for unlisted shares operates largely in the shadows, as Kamath explains. Unlike traditional stock exchanges, these shares are traded on loosely structured platforms with little to no transparency. Kamath called out the “ridiculous” markups and commissions often baked into such transactions, which are frequently brokered by intermediaries and wealth managers without regulatory oversight.

“Unlike stock exchanges, there's no price discovery for unlisted shares. The markups and commissions are ridiculous. These platforms are also unregulated, so there's nobody to protect you. 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 warned.

Taking an example, Kamath further noted: “Even if an unlisted company [goes the IPO route], its price can be below what you paid. For example, HDB set its IPO price band 40% below the last traded prices on unlisted platforms,” he said.

Therefore, for investors who had bought in earlier, the announcement translated into immediate notional losses—even before the stock hit the public markets.

No promise of an IPO—or an exit

Another major risk is illiquidity. While the dream of a big IPO payday fuels the unlisted share frenzy, many of these companies may take years to go public—if at all.

“The NSE, for example, has been the subject of listing speculation for years, but it remains unlisted,” Kamath said. “You can get stuck without liquidity.”

Making matters worse, unlisted firms typically disclose far less information than listed companies. Investors are left guessing about business performance, governance standards, or even basic financial health—all of which makes risk assessment more difficult.

Kamath’s advice: Stick to mutual funds

For retail investors seeking long-term wealth creation, Kamath offered a blunt piece of advice: don’t fall for the pre-IPO gold rush.

“You are better off investing in mutual funds than trying to pick unlisted companies,” he said.

Mutual funds, he pointed out, are regulated, diversified, and subject to rigorous disclosure norms—making them far safer vehicles for retail participation in equity markets.