India's evolving financial landscape is seeing more business owners, founders, senior executives, and early employees grappling with a defining moment: the liquidity event. Whether it’s a high-profile IPO, a strategic merger, divestment or a stake sale, these events can be transformative. But without foresight and structured planning, they can also be the breeding ground for costly errors.

The Indian IPO market has displayed robust resilience even amid global economic turbulence and shifting investor sentiment. According to a KPMG analysis, FY25 saw 80 mainboard IPOs—a modest rise from 76 in FY24—but with a remarkable surge in capital raised: INR 1,630 billion, compared to INR 619 billion the previous year.

Optimism around new-age tech listings were palpable at the beginning of 2025, as 13 such companies went public in 2024, collectively raising INR 290.7 billion. Statistics also imply that approximately 20 startups are currently in different stages of IPO preparation, further reflecting the persistent momentum in the liquidity scenario.

As liquidity events happen more frequently across industries, financial preparedness becomes more crucial than ever. While everyone gets focused on valuation, deal structure, and media coverage, it is usually the nuts-and-bolts missteps that strip away long-term wealth.

Here are five key mistakes to avoid when planning for a liquidity event:

Overlooking tax and regulatory planning

The most prevalent and costly error is ignoring the tax effect of a liquidity event. A windfall, unless wisely planned, can turn against you very fast. India has a fairly complex tax environment for equity compensation. Unplanned, you may unnecessarily pay high taxes on ESOPs, restricted shares, or capital gains. Strategic timing can save you a lot of taxes.

One of the strongest provisions is exemption under Section 54GB or 54F where the reinvestment of capital gains in approved assets is permitted. Even for eligible investors, knowledge regarding the implications of STCG vs. LTCG, or the advantage of holding shares for more than 24 months for tax efficiency, becomes important.

We are also seeing many exits happening in other jurisdictions. Regulatory considerations then become an equally important aspect to take into account.

Overconcentration in one asset

After listing, it is easy to retain your shares due to loyalty or faith in long-term performance. But this sentimental thinking can derail financial security. Most first-time founders and employees get caught in overconcentration. A lot of their net worth is still invested in one stock, which usually results in heavy exposure to volatility and firm-specific risk.

Diversification techniques, including regular time-periodical selling or tax-loss harvesting, can be employed to stabilize your portfolio. Periodic selling of small tranches helps you control tax effects without being over-reliant on one asset.

Don't get trapped in anchoring bias. Don't hold out for the "perfect" price. Designate an exit plan consistent with overall financial objectives and maintain commitment to it.

Inadequate estate and succession planning

Without a solid estate plan, a liquidity event can trigger extensive wealth depletion when wealth is being passed from one generation to the next. Setting up family trusts, writing a well-defined will, and looking at tools such as Private Trusts or Succession Planning mandates with the help of wealth managers, tax consultants and legal consultants is becoming necessary. As family wealth grows, forward-looking intergenerational planning is not only wise; it's imperative.

A well-designed estate plan ensures your wealth lasts beyond you, with minimal conflict and tax losses. It also allows for philanthropic desires, legacy building, and family peace.

Forgoing charitable and strategic giving opportunities

High-impact liquidity events also offer the chance to infuse philanthropy into your life. Strategic giving enables you to make an impact, and anchor your values into your wealth narrative. And in contrast to sporadic donations, structured giving gives you continuity and scale of impact. In India, donations to Section 80G-approved institutions can provide partial or total deductions.

Treating the liquidity event as the finish line

The most insidious but impactful error is taking the event as a finishing line. In reality, a liquidity event is the starting point of a more complicated financial journey. Either way, whether cashing out from a private firm or moving into a listed universe, the injection of capital should prompt a switch from "wealth creation" to "wealth preservation and growth."

Create a multi-year wealth plan that encompasses objectives like retirement, education of children, charity, or beginning new businesses. Seek out an integrated team: a wealth advisor, tax professional, estate lawyer, and if necessary, an investment banker. With them, they work together to align your financial goals and activities.

Also, conduct an internal audit before the liquidity event. Identify "skeletons" (legal, operational, or financial red flags) and "Rembrandts" (unique differentiators that can boost enterprise value). Doing this early gives you control over narrative, valuation, and structure.

Preparation is the best protection

The Indian startup and investment ecosystem is now fertile ground for frequent and sizable exits. But to truly convert this into personal financial success, founders, business owners and stakeholders must think beyond the deal.

As the adage goes, the best time to prepare was years ago. The next best time is today.

Prepare with intent. Plan with foresight. And partner with the right experts to make your liquidity event a launchpad for lasting value.