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# What Happens to Your Unlisted Shares After an IPO?
You bought shares in a private company twelve months ago. This week, the company announced it has filed its DRHP with SEBI. IPO season has arrived — and you have questions.
This guide walks through the exact mechanics: what happens to your demat, when you can sell, and what the tax treatment looks like at each stage.
Disclaimer: This article is educational and not investment advice. SEBI rules change — always verify lock-in and tax treatment with a SEBI-registered adviser or chartered accountant before making decisions.
Step 1: DRHP Filing — Nothing Changes Yet
When a company files its Draft Red Herring Prospectus, your position is unchanged. The unlisted shares sit in your demat exactly as before. The DRHP is a public document you can read on SEBI's EFILING portal — it contains detailed financials, risk factors, and the proposed use of IPO proceeds.
What to do: Read the DRHP, especially the sections on "Risk Factors", "Lock-in Period", and "Objects of the Issue". Understanding why the company is raising money (primary issue vs. offer for sale) matters for your post-IPO thesis.
Step 2: SEBI Observation and RHP
SEBI reviews the DRHP and may send an observation letter asking for changes. Once the company addresses SEBI's comments, it files the final RHP (Red Herring Prospectus), sets the price band, and opens the public subscription.
This is when the IPO price becomes public knowledge. Compare it to your purchase price. If you bought at ₹500 and the price band is ₹400–420, you are already underwater at listing — plan your exit strategy for after the lock-in expires.
What to do: Note your cost of acquisition. Note the IPO price. Calculate the implied return if you sell at listing (subject to lock-in) vs. holding 6–12 months post-listing.
Step 3: Listing Day — The Automatic Conversion
On the day the company's shares begin trading on BSE or NSE, your demat account reflects the change automatically. The ISIN remains the same — only the status switches from "unlisted equity" to "listed equity" in your broker's interface.
You will NOT receive a notification in most cases. Log into your demat account or broker app and search for the company name or ISIN.
What you see:
- The shares now appear in your "listed holdings" section
- A market price is visible
- Your buying price (cost of acquisition) is exactly what you paid for the unlisted shares
What you cannot do: Sell on listing day. SEBI's lock-in rules prevent this.
Step 4: The Lock-In Period
This is the most misunderstood aspect of pre-IPO investing.
Under SEBI's regulations for IPO lock-ins, pre-IPO shareholders are typically locked in for 1 year from the listing date. Shares acquired under ESOP plans may have different lock-in terms set by the company. The exact lock-in applicable to your shares is disclosed in the RHP under the "Capital Structure" or "Lock-in Period" section — read it.
Common misconceptions:
| Misconception | Reality | |---|---| | "I can sell on listing day" | No — lock-in prevents this | | "Lock-in only applies to promoters" | No — it applies to all pre-IPO investors under SEBI rules | | "Six months is the standard" | The rule has changed multiple times; 6 months to 1 year depending on share class and date of acquisition |
Step 5: After Lock-In Expires
Once the lock-in period is over, you can sell your shares through your broker exactly like any other listed stock. No additional paperwork, no demat transfer needed.
Strategy considerations at this point:
- If the market price is above your cost, you have a gain. Tax applies (see below).
- If below your cost, selling crystallises a loss which can offset other capital gains in the same financial year.
- Avoid selling all at once if the company's float is thin — large block sales can move the price against you.
Tax Treatment: Listed vs. Unlisted
Most investors are confused about whether the "24-month LTCG clock" (for unlisted shares) or the "12-month LTCG clock" (for listed shares) applies after IPO.
The answer: Once listed, your shares are taxed as listed equity — not unlisted equity. The 12-month LTCG clock starts from the date of your original purchase (not the listing date). This is favourable: if you held for 13 months before listing and sold immediately after lock-in, your entire gain is LTCG at 10% (above ₹1 lakh threshold), not STCG at 15%.
| Holding scenario | Tax rate | |---|---| | Sold within 12 months of original purchase date | STCG at 15% | | Sold after 12 months from original purchase date | LTCG at 10% (above ₹1 lakh) |
The "unlisted shares" tax rates (20% with indexation for 24-month LTCG) stop applying once the company lists. You are taxed under listed-equity rules from listing day.
One More Risk: IPO Cancellation
Not every DRHP leads to a listing. Companies withdraw IPOs due to weak market conditions, SEBI rejection, or internal decisions. If the IPO is cancelled, you remain an unlisted shareholder. Your exit options revert to the secondary market (finding a buyer via a platform like Polemarch), a company buyback, or an eventual re-attempt at listing.
Historically, cancelled DRHPs in India eventually refile — but the timeline can stretch 2–3 years.
Summary
| Event | What Happens to Your Shares | |---|---| | DRHP filed | No change — still unlisted in your demat | | RHP filed / IPO opens | Still unlisted, but IPO price now public | | Listing day | Automatically converted to listed; cannot sell yet | | Lock-in expiry | Can sell freely on exchange |
The process is largely automatic. The decisions are yours: when to sell (timing around lock-in), how much to sell (position sizing), and what to do with the proceeds.
*This article is published by the Polemarch editorial team for educational purposes only. It does not constitute investment advice. Tax rules are subject to change — consult a chartered accountant for your specific situation.*