'There’s nobody to protect you': Nithin Kamath warns retail investors against unlisted share trap

Zerodha co-founder Nithin Kamath has issued a stark warning about the frenzy around unlisted shares, labelled as a “hot new way to lose money” and comparing the craze to a classic pump-and-dump scheme aimed squarely at retail investors.

In a post on X, Kamath recounted how a wealth manager approached Zerodha offering to buy one of its unlisted firms with the intent of flipping it to retail buyers at a 50% markup. “The popularity of some of these unlisted companies, like NSE, MSEI, Chennai Super Kings, among retail investors, is crazy,” he said.

According to Kamath, many retail investors falsely believe they can score easy returns by picking pre-IPO companies and cashing out during the IPO. “But it’s not as easy as it sounds, and there are all sorts of risks,” he warned.

He cited HDB Financial Services as a prime example. Its IPO price band—set between ₹700 and ₹740—was nearly 40% lower than its previous trading price on unlisted share platforms, where it had reached ₹1,500+.

Kamath emphasized that unlisted share trading lacks the foundational protections of regulated exchanges: no price discovery, no oversight, and excessive markups. “The markups and commissions are ridiculous. These platforms are also unregulated, so there’s nobody to protect you,” he noted.

Beyond inflated prices, liquidity is another major issue. IPOs can be delayed indefinitely or never happen at all—like the National Stock Exchange, which has been eyeing an IPO for over a decade. Meanwhile, unlisted firms typically disclose financials just once a year, with minimal transparency and no analyst coverage.

“Even if an unlisted company IPOs, its price can be below what you paid,” Kamath said, adding that investors often get trapped without an exit.

Tax complications add to the headaches. Investors must track dividends manually and calculate fair market values when selling. Further compounding the risks, SEBI has labeled such unlisted share transactions as illegal under current securities laws.

Kamath’s advice was clear: “You are better off investing in mutual funds than trying to pick unlisted companies.”