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DBFS Securities ltd is a associate of, Doha Bank, Qatar, One of Indias Leading & fastest growing private sector financial services companies, With interests in Asset Management and Mutual Funds, and other activities in financial services. DBFS Securities ltd offers a single window platform for the financial transactions. Offering an investment avenue for a wide range of asset classes like Equity, Equity & Commodity Derivatives, Mutual Funds, IPO Undertaking, Offshore Investments, Their endeavor is to change the way India transacts in financial markets and avails financial services. One of their key features is that the most cost-effective, convenient and secure way to transact in a wide range of financial products and services. DBFS Securities ltd is targeting the low level of retail penetration in Indian retail financial market. Retail participation in equities in India is amongst the lowest in the world, with less than 3 percent of household sector financial savings invested in equity/equity-related assets. The company has formally commenced operations in April 1992, as one of the first corporate brokerages in India, The Doha Brokerage & Financial Services Ltd (formerly Select Securities Ltd), is the flagship company of the DBFS group. Doha Brokerage & Financial Services Ltd is focused on creating utmost value for its customers, consistently by drawing on our collective expertise, resources and global exposure. To serve our customers better, the company has gone beyond the traditional brokerage business, and offers a wide range of services, which include total wealth management and investment solutions. With a pan Indian presence, which comprises over 260 branches across major cities, as well as in Dubai and Doha in the Middle East, DBFS is always closer to its customers.


Highlights of DBFS Securities ltd Cost- effective:

The fee charged by the affiliates of DBFS Securities ltd, through Whom the transactions can be placed, is among the lowest charged in the Present scenario & would revolutionize the broking fee structure.

You have the flexibility to access DBFS Securities ltd Services in Multiple ways: through the Internet, Transaction, Call & Transact (phone) or seek assistance through our Business Partners.

3 in 1 integrated access:
DBFS Securities ltd offers integrated access to Your banking, trading and de-mat account. And transact without the hassle of writing cheque.

Table 1: Key employees Name R.Seetharaman K V Samuel Prince George Binny C. Thomas Sekhar M Suresh Yezhuvath Job Title Chairman Vice Chairman MD & CEO Board of Director Board of Director Board of Director


We want to remain as the leading, trusted total financial services provider, wherever we operate, by maintaining superior technological and service standards, and by keeping trust and transparency as our core values.

We are committed to create and enhance wealth for corporate and retail customers, by delivering cutting-edge financial solutions which suit their specific needs.

THE DBFS Way of Life:

 People driven relationships  Growth driven  Values and ethics based


Group Companies Equity: DBFS Securities.Ltd Commodities: DBFS Derivatives and commodities ltd Depository: NBFC: Doha brokerage and financial services DBFS Finance and leasing Company Ltd


DBFS is a non-banking finance company. Its services include:
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Stock and Derivatives Commodity Derivatives Mutual Funds Portfolio Management Offshore Investments Currency Derivatives Depository Services

Bonanza Portfolio LTD JRG Security LTD Share Khan India Bulls Security .


Requirements to open De-mat Account at DBFS Securities.

De-mat account Meaning : Demat means dematerilisation of securities in dematerilisation process physical form of securities will be converted in to electronic form and this account just we require to store the shares we bought. We can open a demat account with registered Depository participant. The typical steps involved in opening a demat account are as follows. 1. Filling an account opening form by physically or electronically. 2. Signing an agreement with Depository Participant. 3. Submitting documents supporting the proof of your identity and address which has to be attested copies of the account details given by the bank , pan card , and 2 recent photographs ,and account opening charges. Doha brokerage and Financial Services have been providing demats in three ways viz. 1. Zero account opening. 2. Rs1000 account opening. 3. Rs3000 account opening. 4. Rs5000 account opening.

Zero account opening.

We can open demat account without any charges at DBFS securities Ltd. for this zero account opening the company will be charging Rs500 as annual maintenance charges.

Rs.1000 account opening .

We can open demat account with charge of Rs1000 as account opening charge at DBFS securities Ltd. for this account opening the company will be providing free annual maintenance services for first three years.


Rs.3000 account opening.

We can open demat acconut with charge of Rs3000 as account openimng charge at DBFS securities Ltd. for this account opening the copmany will be providing free services for first three years which are listed below. 1. Three year annual maintainance free 2. Three year service charges free. 3. Three year demat charges free. 4. Three year depository Participant charges free.

Rs 5000 account opening.

We can open demat account with charge of Rs3000 as account opening charge at DBFS securities Ltd. for this account opening the company will be providing free Services for first three years which are listed below. 1. Life time annual maintenance free 2. Life time service charges free. 3. Life time demat charges free. 4. Life time depository Participant charges free.




BASICS OF STOCK MARKET: The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up coming economy. In fact, the stock market is often considered the primary indicator of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving and financing flows directly to the financial markets instead of being routed via banks' traditional lending and deposit operations. The general public's heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process.


Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. In the 1970s, in Sweden, deposit accounts and other very liquid assets with little risk made up almost 60 per cent of households' financial wealth, compared to less than 20 per cent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to be found in other industrialized countries. In all developed economic systems, such as the European Union, the United States, Japan and other developed nations, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky securities of one sort or another. Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government insured) bank deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered the stock market, or have acquired other 'risky' investments (such as 'investment' property, i.e., real estate and collectables). This is a quote from the preface to a published biography about the long-term value-oriented stock investor Warren Buffett. Buffett began his career with $100, and $105,000 from seven limited partners consisting of Buffett's family and friends. Over the years he has built himself a multi-billion-dollar fortune. The quote illustrates some of what has been happening in the stock market during the end of the 20th century and the beginning of the 21st century.


Some important basic terms in stock market:

The Bulls:
A bull market is when everything in the economy is great, people are finding jobs, GDP is growing, and stocks are rising. Picking stocks during the bull market is easier because everything is going up. Bull market cannot last forever, sometime they can lend to dangerous situations if stocks become overvalued. If person is optimistic, believing that stocks will go up, he or she is called a BULL and said to have a Bullish outlook.

The Bears:
A bear market is when the market is bad, recession is looming, and stock prices are falling. Bear market make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait opn untill you feel that the bear amrket is over, and to buy again in anticipation of a bull market. If a perason is pessimistic, believing that stocks are going to drop, he or she is called a Bear and said to have a Bearish outlook.

It is another way of saying within the day. Intraday price movenments are particularly important to short term traders looking to make many trades over the course of a single trading session the term intrday is occasionally used to describe securities that trade on the markets during regular business hours, such as stocks and ETFs, ass opposed to mutual funds, which must be bought from a dealer.

Day trader:
A stock trader who holds positions for a very short time (from minutes to hours) and makes numerous trades each day . Most trades are entered and closed out within the same day.


Speculator is a person who trades with a higher-than-average risk, in return for a higher-thanaverage profit potential. Speculators take large risks, especially with respect to anticipating future price movements, or gambling, in the hopes of making quick, large gains.

Going long:
It means holding the security for an extended period of time. Depending on the type of security, a long-term asset can be held for as little as one year or more

Going short
Selling the existing security immediately to protect the profit made or to minimizing the loss.

Squaring off:
Its an intraday trading in the trader first sells the shares and then reverse the process (buying

/selling) within the closing of the market on the same day and pays off difference amount if he has lost or gains profit. So by doing so at the end of the day he owns shares in his account.

Derivatives markets:
Derivatives markets provides instruments for handling of financial risks.Derivatives markets broadly can be classified into two categories, those that are traded on the exchange and the those traded one to one or over the counter. They are hence known as.
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Exchange Traded Derivatives . OTC Derivatives (Over The Counter).


OTC Equity Derivatives

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Traditionally equity derivatives have a long history in India in the OTC market. Options of various kinds (called Teji and Mandi and Fatak) in un-organized markets were traded as early as 1900 in Mumbai

The SCRA however banned all kind of options in 1956.

Bombay Stock Exchange LOGO

The Bombay Stock Exchange (BSE) is located in Dalal Street, Mumbai. Established in 1875, BSE is the oldest stock exchange in Asia. There are around 3,500 companies in the country which are listed and have a significant trading volume. As of July 2005, the market capitalization of the BSE is about Rs. 20 trillion (US $466 billion). The BSE `Sensex' is a widely used market index for the BSE. As of 2005, it is among the 5 biggest stock exchanges in the world in terms of number of transactions. Along with the NSE, the companies listed on the BSE have a combined market cap of $125.5Billion. An informal group of 22 stockbrokers had been trading under a banyan tree opposite the Town Hall of Bombay from mid-1850s. This banyan tree still stands in Horniman Circle Park, Mumbai. This informal group of stockbrokers organized themselves as The Native Share and Stockbrokers Association which, in 1875, was formally organized as the Bombay Stock Exchange (BSE). BSE is the oldest stock exchange in Asia, the second being the Tokyo Stock Exchange, established in 1878. Premchand Roychand was a leading stockbroker of that time, and he assisted in setting out traditions, conventions, and procedures for the trading of stocks at Bombay Stock Exchange and they are still being followed.


Dalal Street James M. Maclean inaugurated the Brokers Hall in January 1899. After the First World War, BSE was shifted to an old building, near the Bombay Town Hall and in 1928, the plot on which the BSE building now stands, on Dalal Street, was acquired, and a building was constructed in 1930.The Bombay Stock Exchange followed the familiar outcry system for stock trading, which was replaced, in the year 1995, with screen-based eTrading. BSE is presently housed in a 28-storied Jeejeebhoy Towers, where the older structure once stood: the present building derives its name from Sir Phiroze Jamshedjee Jeejeebhoy, the chairman of the Bombay Stock Exchange from 1966, until his death in 1980.

BSE Sensex The BSE Sensex is a value-weighted index composed of top 30 companies, with the base April 1979 = 100. The set of companies in the index is essentially fixed. These companies account for around one-fifth of the market capitalization of the BSE.

BSE - other Indices Apart from BSE Sensex, which is the most popular stock index in India, BSE uses other stock Indices as well:
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Hours of operation
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Beginning of the Day Session....8:00 - 9:00 Login Session....9:00 - 9:30 Trading Session....9:55 - 15:30 Position Transfer Session....15:30 - 15:50 Closing Session....15:50 - 16:05 Option Exercise Session....16:05 - 16:35 Margin Session....16:35 - 16:50 Query Session....16:50 - 17:35 End of Day Session....17:35 The hours of operation for the BSE quoted above are stated in terms of the local time in Mumbai, India (also known as Bombay). This translates into a standard time zone UTC/GMT +5:30.

BSE categories
Bombay Stock Exchange or the BSE is the largest stock exchange in India in terms of highest number of companies listed with the stock exchange. If you consider the market capitalization of the companies listed with BSE even then the stock exchange is the largest in the country. There are thousands of companies listed at the stock exchange and they are divided into different categories depending on various factors including market capitalization, parameters set by the Securities and Exchange Board of India or the SEBI, number of years of listing at the exchange, equity capital of the company, liquidity of the company and so many other factors. Market capitalization of the company is a determining factor for dividing the stocks in different groups. Market capitalization of a company is calculated by multiplying the number of outstanding stocks of the company at the market with the current price of the stock at the market. Along with that the bonds at the debt market of the company are also


taken into consideration. Depending on the market capitalization stocks are divided mainly into three categories the large cap stocks, mid cap stocks and the small cap stocks. Generally the biggest companies with a market capital of more than $10 billion are considered to be large cap stocks. The range for determining the mid cap stocks is between $ 2 billion to $ 10 billion. Companies that have a market capitalization of the less than $ 2 billion are grouped under the small cap stocks. Securities and Exchange Board of India is the governing body for all the stock exchanges in India and they frame the rules and regulations for the stock exchanges. Starting right from the listing of the companies, issuing of securities, trading of stocks at the stock market, everything is controlled by the Securities and Exchange Board of India or SEBI. Based on the guideline and parameters of trading by the SEBI authorities, the stocks listed at the BSE are divided. That means there are different trading guidelines and rules for each of the categories of stocks listed at the Bombay Stock Exchange. Other factors like the number of years of listing of the company are considered for determining the authenticity of the company and the business potential of the company. The equity capital of the company and the asset of the companies are also considered for examining the financial potential of the company. When a company applies for listing at the Bombay Stock Exchange they have to fulfill all the set conditions and then the BSE authority carries out a due diligence to examine the company. After that depending on the parameters of the categorization the company is listed at the appropriate group. Often times listed stocks are rearranged by the BSE. That is the group or the category of the stocks is changed on the basis of the parameters that are set for determining the category of the stock. Here we are presenting the existing groups or categories in which the BSE stocks are divided. Primarily there are five groups in which the listed stocks are divided and they are A, B, T, Z, and F. The A group comprises stocks that have fairly good growth rate. These companies offer dividend to the investors and have good capital appreciation over the time. The stocks that are listed with A category have the facility to carry forward to


the next settlement cycle. This is an advantage from the margin and derivative trading point of view. The category B is basically a subset of all the listed stocks and the stocks listed in this category have greater market capitalization that the rest of the stocks. The trading of the stocks that are listed in the T category needs to be settled on the very trading day and the deals can not be carried forward. This is done by BSE to restrict any unwanted movement in these scripts. The stocks in the Z group are marked for not complying with the rules and regulations of the stock exchange and these stocks are often suspended from trading. The F group is reserved for the stocks listed at the debt market.

National Stock Exchange (NSE)


With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others.


Trading at NSE can be classified under two broad categories: (a) Wholesale debt market and (b) Capital market. Wholesale debt market operations are similar to money market operations - institutions and corporate bodies enter into high value transactions in financial instruments such as government securities, treasury bills, public sector unit bonds, commercial paper, certificate of deposit, etc. There are two kinds of players in NSE: (a) trading members and (b) participants. Recognized members of NSE are called trading members who trade on behalf of themselves and their clients. Participants include trading members and large players like banks who take direct settlement responsibility. Trading at NSE takes place through a fully automated screen-based trading mechanism which adopts the principle of an order-driven market. Trading members can stay at their offices and execute the trading, since they are linked through a communication network. The prices at which the buyer and seller are willing to transact will appear on the screen. When the prices match the transaction will be completed and a confirmation slip will be printed at the office of the trading member. NSE has several advantages over the traditional trading exchanges. They are as follows: y y NSE brings an integrated stock market trading network across the nation. Investors can trade at the same price from anywhere in the country since inter-market operations are streamlined coupled with the countrywide access to the securities.


Delays in communication, late payments and the malpractices prevailing in the traditional trading mechanism can be done away with greater operational efficiency and informational transparency in the stock market operations, with the support of total computerized network.

Unless stock markets provide professionalised service, small investors and foreign investors will not be interested in capital market operations. And capital market being one of the major sources of long-term finance for industrial projects, India cannot afford to damage the capital market path. In this regard NSE gains vital importance in the Indian capital market system.

NSE categories
NSE or the National Stock Exchange is one of the largest stock exchanges in India. In fact it is the biggest in terms of daily trading and turn over. It is being speculated that the National Stock Exchange will surpass the Bombay Stock Exchange in terms of market capitalization within 2010. There are thousands of companies that are listed with the NSE and they are divided into different categories primarily depending on market capitalization. Market capitalization is the primary factor for categorically dividing the listed stocks at the stock exchanges all over the world. Basically market capitalization is calculated by multiplying the present market price of the stock with the number of outstanding stocks in the market. While calculating the market capitalization of a company the bonds of that company at the debt market is considered as well. The market capitalization of a company is an indication of the financial position of the company. It also gives an idea of the fact that how big is the company. Primarily the stocks that are listed in the National Stock Exchange are divided into three different categories on the basis of the market capitalization large cap, mid cap and the small cap. There are certain criteria that are decided by the NSE authorities to determine which stocks will fall in the large cap segment and which one will come under the small cap category.


Large Cap Stocks These are stocks that represent the biggest and most reputed companies among all the listed companies in the stock exchange. Generally the companies that have a market capitalization of more than $ 10 billion are considered to have a large market capitalization. The stocks of these companies are categorized as the large cap stocks. At NSE as well companies with the large market capital is labeled as the large cap stocks. The large cap companies are mostly the companies that are in business for years and making significant growth in terms of profit and asset accumulation. This is primarily the reason that the large cap stocks are considered for including in the Nifty that is the prime index of the National Stock Exchange. Mid Cap Stocks The mid size businesses with moderate market capitalization are considered to be mid cap companies. Generally those companies that have a market capital between $ 2 billion and $ 10 billion is considered to be mid cap companies. The stocks of these companies are categorized as the mid cap stocks. The mid cap stocks have great investment proposition as they have all the sign of rising in the market and give you good return on your investment. Small Cap Stocks Then there are of course the small cap companies that have small capital. Generally companies with a market capital between $ 200 million and $ 2 billion are said to be small cap companies and stocks of these companies are considered in the small cal segment. Mostly the small cap companies are relatively new companies that have got listed at the stock market. Investing in the small cap stocks are have more risk as these companies take too long to rise in the market. As these companies are relative new and you hardly have any resources to guess the potential of the company it is not wise to invest in these companies for long term. But you can invest in these companies and do some margin trading if you have definite and trustworthy tips. Apart from these prominent stock categories in National Stock Exchange there are of course other categories like the Micro cap and the penny stocks. While the micro cap segment has companies with less than $ 300 million market capital, the penny stocks are low priced stocks. Besides the division that is made on the basis of the market capitalization, the stocks at the National Stock Exchange are also categorized on the basis of the sectors of the companies.


Securities and Exchange Board of India

It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI is headquartered in the business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmadabad. Controller of Capital Issues was the regulatory authority before SEBI came into existence it derived authority from the Capital Issues (Control) Act, 1947. Initially SEBI was a non statutory body without any statutory power. However in 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the securities and Exchange Board of India Act 1992. In April, 1998 the SEBI was constituted as the regulator of capital market in India under a resolution of the Government of India.

Functions and responsibilities

SEBI has to be responsive to the needs of three groups, which constitute the market:
y y y

the issuers of securities the investors the market intermediaries.

SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasiexecutive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial


capacity. Though this makes it very powerful, there is an appeals process to createaccountability. There is a Securities Appellate Tribunal which is a three-member tribunal and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law. SEBI has also been instrumental in taking quick and effective steps in light of the global meltdown and the Satyam fiasco it had increased the extent and quantity of disclosures to be made by Indian corporate promoters. More recently, in light of the global meltdown, it liberalised the takeover code to facilitate investments by removing regulatory structures. In one such move, SEBI has increased the application limit for retail investors to Rs 2 lakh, from Rs 1 lakh at present SEBI has been obligated to protect the interests of the investors in securities andto promote and development of, and to regulate the securities market by such measures,as it thinks fit.

(a) Regulating the business in stock exchanges and any other securities markets.

(b) Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such otherintermediaries who may be associated with securities markets in any manner.

c) Registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such otherintermediaries as SEBI may, by notification, specify in this behalf. Page 23 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

d) Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds. e) Promoting and regulating self-regulatory organizations. f) Prohibiting fraudulent and unfair trade practices relating to securities markets. g) Promoting investors' education and training of intermediaries of securities markets. h) Prohibiting insider trading in securities. i) Regulating substantial acquisition of shares and take-over of companies.

j) Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self-regulatory organizations in the securities market.

k) Calling for information and record from any bank or any other authority or board or l) Corporation established or constituted by or under any Central, State or Provincial Actin respect of any transaction in securities which is under investigation or inquiry bythe Board. m) Performing such functions and exercising according to Securities Contracts (Regulation) Act, 1956, as may be delegated to it by the Central Government.


For the discharge of its functions efficiently, SEBI has been invested with the necessary powers which are:

1. To approve bylaws of stock exchanges. 2. To require the stock exchange to amend their bylaws. 3. Inspect the books of accounts and call for periodical returns from recognized stock exchanges. 4. Inspect the books of accounts of financial intermediaries. 5. Compel certain companies to list their shares in one or more stock exchanges. 6. Levy fees and other charges on the intermediaries for performing its functions. 7. Grant licence to any person for the purpose of dealing in certain areas. 8. Delegate powers exercisable by it. 9. Prosecute and judge directly the violation of certain provisions of the companies Act. SEBI Committees 1. Technical Advisory Committee. 2. Committee for review of structure of market infrastructure institutions. 3. Members of the Advisory Committee for the SEBI Investor Protection and Education Fund. 4. Takeover Regulations Advisory Committee. 5. Primary Market Advisory Committee (PMAC). 6. Secondary Market Advisory Committee (SMAC). 7. Mutual Fund Advisory Committee. 8. Corporate Bonds & Securitization Advisory Committee. 9. Takeover Panel. 10. SEBI Committee on Disclosures and Accounting Standards (SCODA). 11. High Powered Advisory Committee on consent orders and compounding of offences. 12. Derivatives Market Review Committee. 13. Committee on Infrastructure Funds. Page 25 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH



Investment scenario in India :

Investment is the employment of funds on assets with the aim of earning income or capital appreciation. Investment has two attributes namely time and risk. Present consumption is sacrificed to get a return in the future. The sacrifice that has to be borne is certain but the return in the future may be uncertain. This attribute of investment indicates the risk factor. The risk is undertaken with a view to reap some return from the investment. For a layman, investment means monetary commitment. A persons commitment to buy a flat or house for his personal use may be an investment from his point of view. This cannot be considered as an actual investment as it involves sacrifice but does not yield any financial return. To the economist, investment is the net addition made to the nations capital stock that consists of goods and services that are used in the production process. A net addition to the stock means an increase in the buildings, equipments or inventories. These capital stocks are used to produce other goods and services.

Financial investment is the allocation of money to assets that are expected to yield some gain over a period of time. It is an exchange of financial claims such as stock and bonds for money. They are expected to yield returns and experience capital growth over the years.The financial and economic meanings are related to each other because the savings of the individual flow into the capital market as financial investments, to be economic investment. Even though they are related to each other, we are concerned only about the financial investment made on securities.

Investment Objectives:
The main investment objectives are increasing the rate of return and reducing the risk. Other objectives like safety, liquidity and hedge against inflation can be considered as subsidiary objectives.


1) Return:
Investors always expect a good rate of return from their investments. Rate of return could be defined as the total income the investor receives during the holding period stated ass a percentage of the purchasing price at the beginning of the holding period. Rate of return is stated semi-annually or annually to help comparison among the different investment alternatives. If it is a stock, the investor gets the dividend as well as the capital appreciation as returns. Market return of the stock indicates the price appreciation for the particular stock.

2) Risk:
Risk of holding securities is related with the probability of actual return becoming less than the expected return. The word risk is synonymous with the phrase variability of return. Investments risk is just as important as measuring its expected rate of return because minimizing risk and maximizing the rate of return are interrelated objectives in the investment management. An investment whose rate of return varies widely from period to period is risky than whose return that does not change much. Every investor likes to reduce the risk of his investment by proper combination of different securities.

3) Liquidity:
Marketability of the investment provides liquidity to the investment. The liquidity depends upon the marketing and trading facility. If a portion of the investment could be converted into cash without much loss of time, it would help the investor meet the emergencies. Stocks are liquid only if they command good market by providing adequate return through dividends and capital appreciation.

4) Hedge against inflation:

Since there is inflation in almost all the economy, the rate of return should ensure a cover against the inflation. The return rate should be higher than the rate of inflation else the investor will have loss in real terms.Growth stocks would appreciate in their values overtime and provide a protection against inflation. The return thus earned should assure the safety of the principal amount, regular flow of income and be a hedge against inflation. Page 28 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

5) Safety:
The selected investment avenue should be under the legal and regulatory frame work. If it is not under the legal frame work, it is difficult to represent the grievances, if any. Approval of the law itself adds a flavour of safety. Even though approved by law, the safety of the principal differs from one mode of investment to another. Investments done with the government assure more safety than with the private party. From the safety point of view investments can be ranked as follows: bank deposits, government bonds, UTI units, non-convertible debentures, convertible debentures, equity shares, and deposits with the non-banking financial companies.

The Investment Process:

There are five main steps in investment management: Setting investment objectives. Establishing investment policy. Selecting the portfolio strategy. Selecting the assets. Measuring and evaluating performance

1. Setting Investment Objectives:

The first main step in the investment management process is setting investment objectives. For institutions such as pension funds and life insurance companies, these objectives may be a cash flow specification to satisfy a liability due at some future date or a series of liabilities due at different future dates. A guaranteed investment contract (GIC) sold by a life insurance company is an example of the former; the projected benefit payout to beneficiaries of a pension plan and an annuity policy sold by a life insurance company are examples of multiple liabilities. Page 29 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

For institutions such as banks and thrifts, the objective may be to lock-in a minimum interest rate spread over the cost of their funds. For others, such as mutual funds and some trust accounts, the investment objective may be to maximize return. 2. Establishing Investment Policy: The second main step is establishing policy guidelines to satisfy the objectives. Setting policy begins with asset allocation among the major asset classes-the products of the capital market. The major asset classes include equities, fixed income securities, real estate, and foreign securities. Client and regulatory constraints must be considered in establishing an investment policy. For example, state regulators of insurance companies (life insurance companies and property and casualty insurance companies) may restrict the amount of funds allocated to certain major asset classes. Even the amount allocated within a major asset class may be restricted based on the characteristics of the particular asset. So too must tax and financial reporting implications be considered in adopting investment policies. For example, life insurance companies have certain tax advantages that make investing in tax-exempt municipal securities generally unappealing. Since pension funds are exempt from taxes, they too would not usually be interested in tax-exempt municipal securities. Property and casualty insurance companies will vary their ownership of tax-exempt municipal securities depending on projected profits from underwriting operations. Commercial banks at one time were major buyers of municipal securities; however, the 1986 tax act made investing in municipal bonds somewhat less attractive to commercial banks.

Financial reporting requirements, in particular Statement of Financial Accounting Board Nos. 87 and 88 and the Omnibus Budget Reconciliation Act of 1987 (a legislative initiative which reinforces the FASB 87 interpretation of liabilities), affect the way in which pension funds establish investment policies. Unfortunately, sometimes financial reporting considerations force institutions to establish investment policies that may not be in the best interest of the institution in the long run.


3. Selecting a Portfolio Strategy: Selecting a portfolio strategy that is consistent with the objectives and policy guidelines of the client or institution is the third step in the investment management process. Portfolio strategies can be classified as either active strategies or passive strategies. Essential to all active strategies are expectations about the factors that are expected to influence the performance of an asset class. For example, with active equity strategies this may include forecasts of futures earnings, dividends or price-earnings ratios. With active fixed income Portfolios this may involve forecasts of future interest rates, future interest rate volatility or future yield spreads. Active portfolio strategies involving foreign securities will require forecasts of future exchange rates. Passive strategies involve minimal expectation input. The most popular type of passive strategy is indexing. The objective in indexing is to replicate the performance of a predetermined index. While indexing has been employed extensively in the management of equity portfolios, the use of indexing for managing fixed income portfolios is a relatively new practice. Between these extremes of active and passive strategies have sprung strategies that have elements of both. For example, the core of a portfolio may be indexed with the balance managed actively. Or a portfolio may be primarily indexed but employ low risk strategies to enhance the indexed return. This strategy is commonly referred to as enhanced indexing or indexing plus. In the fixed income area, several strategies classified as structured portfolio strategies have been commonly used. A structured portfolio strategy is one in which a portfolio is designed so as to achieve the performance of some predetermined benchmark. These strategies are frequently used in funding liabilities. When the predetermined benchmark is to have sufficient funds to satisfy a single liability regardless of the course of future interest rates, a strategy known as immunization is used. When the predetermined benchmark is multiple future liabilities that must be funded regardless of how interest rates change, the strategy that can be used is immunization or cash flow matching. Even within the immunization and cash flow matching strategies, low risk active management strategies can be employed. One immunization strategy, contingent immunization, allows the portfolio manager to actively manage a portfolio until Certain parameters are realized. If those parameters are realized, the portfolio is then immunized. Page 31 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

Indexing can be considered a structured portfolio strategy where the benchmark is to achieve the performance of some predetermined index. Portfolio insurance strategies, where the objective is to ensure that the value of the portfolio does not fall below a predetermined amount is also viewed as a structured portfolio strategy. 4. Selecting Assets: Once a portfolio is selected, the next main step is the selection of the specific assets to be included in the portfolio. It is in this phase that financial theory tells us the investment manager attempts to construct an optimal or efficient portfolio. An optimal or efficient portfolio is one that provides the greatest expected return for a given level of risk, or equivalently, the lowest risk for a given expected return.

5. Measuring and Evaluating Performance: The measurement and evaluation of investment performance is the last step in the investment management process. (Actually, it is improper to say that it is the last step since investment management is an ongoing process.) This step involves measuring the performance and then evaluating that performance relative to some realistic benchmark. While the performance of a portfolio manager when compared to some benchmark may demonstrate superior performance, this does not necessarily mean that the portfolio satisfied its investment objective. For example, suppose that a life insurance company establishes as its objective maximization of Portfolio returns and allocates 75% of the fund to stocks and the balance to bonds. Suppose further that the portfolio manager responsible for the equity portfolio of this pension fund earns a return over a one year horizon that is 4% higher than the Standard & Poors 500 stock index (a benchmark used to evaluate equity performance). Assuming that the risk of the portfolio was similar to that of the S&P 500, it would appear that the portfolio manager performed well. However, suppose in spite of this performance the life insurance company cannot meet its liabilities. The failure was in establishing the investment objectives and setting policy, not with the manager responsible for managing the portfolio.


Investment Avenues:

1. Life Insurance:
Life insurance is a contract for payment of a sum of money to the person assured (or to the person entitled to receive the same) on the happenings of event insured against. Usually the contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals or if unfortunate death occurs. Among other things, the contracts also provide for the payment of premium periodically to the corporation by the policy holders. Life insurance eliminates risk. There are many variants of a life insurance policy: 1. Whole Life Assurance Plans: These are low-cost insurance plans where the sum assured is payable on the death of the insured 2. Endowment Assurance Plans: Under these plans, the sum assured is pay-able on the maturity of the policy or in case of death of the insured individual before maturity of the policy. 3. Term Assurance Plans: Under these plans, the sum assured is payable only on the death of the insured individual before expiry of the policy. 4. Pension Plans: These plans provide for either immediate or deferred pension for life. The pension payments are made till the death of the annuitant (person who has a pension plan) unless the policy has provision of guaranteed period. Life Insurance Corporation (LIC) is a government company. Till the year 2000, the LIC was the sole provider of life insurance policies to the Indian public. However, the Insurance Regulatory & Development Authority (IRDA) has now issued licenses to private companies to conduct the business of life insurance. Some of the major private players in the sector are:


y y y y y y y y y y y y y y

Bajaj Allianz Life Insurance Corporation Birla SunLife Insurance Co. Ltd. HDFC Standard Life Insurance Co. Ltd. ICICI Prudential Life Insurance Co. Ltd. ING Vysya Life Insurance Co. Pvt. Ltd. MAX New York Life Insurance Co. Ltd. MetLife India Insurance Co. Pvt. Ltd. Kotak Mahindra Old Mutual Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. TATA AIG Life Insurance Co. Ltd. AMP Sanmar Assurance Co. Ltd. AVIVA Life Insurance Co. Pvt. Ltd. Sahara India Life Insurance Co. Ltd. Shriram Life Insurance Co. Ltd.

The major advantages of life insurance are given below: Protection: Saving through life insurance guarantees full protection against risk of death of the saver. The full assured sum is paid, whereas in other schemes only the amount saved is paid. Easy payments: For the salaried people the salary savings schemes are introduced. Further, there is an easy installment facility method of payment through monthly, quarterly, half yearly or yearly mode. Liquidity: Loans can be raised on the security of the policy. Tax relief: Tax relief in Income Tax and Wealth Tax is available for amounts paid by way of premium for life insurance subject to the tax rates in force.


2. Mutual Funds:
Investment companies or investment trusts obtain funds from large number of investors through sale of units. The funds collected from the investors are placed under professional management for the benefit of the investors. The mutual funds are broadly classified into openended scheme and close-ended scheme.

Open-ended scheme: The open-ended scheme offers its units on a continuous basis and accepts funds from investors continuously. Repurchase is carried out on a continuing basis thus, helping the investors to withdraw their money at any time. In other words, there is an uninterrupted entry and exit into the funds. The open-end scheme has no maturity period and they are not listed in the stock exchanges. Investor can deal directly with the mutual fund for investment as well as redemption. The open-ended fund provides liquidity to the investors since the repurchase facility is available. Repurchase price is fixed on the basis of net asset value of the unit. In 1998 the open-ended schemes have crossed 80 in number.

Closed-ended funds: The close-ended funds have a fixed maturity period. The first time investments are made when the close end scheme is kept open for a limited period. Once closed, the units are listed on a stock exchange. Investors can buy and sell their units only through stock exchanges. The demand and supply factors influence the prices of the units. The investors expectation also affects unit prices. The market price may not be the same as the net asset value. Sometimes mutual funds with the features of close-ended and open-ended schemes have been launched, known as interval funds. They can be listed in the stock exchange or may be available for repurchase during specific periods at net asset value or relative prices.


Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. Let us now classify Mutual Fund Schemes on the Basis of its Investment Objective: Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. TAX IMPLICATIONS While dividend paid on closed-ended mutual funds is fully tax exempt, on redemption or sale of units in the secondary market, your realization will attract short-term capital gains tax of 10 per cent. However, you can save tax by investing in Equity-Linked Savings Scheme (ELSS) under Section 88 of the Income Tax Act, 1961, according to which 20 per cent of the amount invested in ELSS which have a lock-in period of 3 years-can be deducted from your tax liability subject to a maximum investment of Rs.10,000 per year. Also available under Section 88 are two


pension plans: Unit Trust of Indias Retirement Benefit Unit Plan (RBP) and Kothari Pioneers Pension Plan.

3. Equity Shares:
Equity shares are commonly referred to common stock or ordinary shares. Even though the words shares and stocks are interchangeably used, there is difference between them. Share capital of a company is divided into a no. of small units of equal value called shares. The term stock is the aggregate of a members fully paid up shares of equal value merged into one fund. It is a set of shares put together in a bundle. The stock is expressed in terms of money and not as many shares. Stock can be divided into fractions of any amount and such fractions may be transferred like shares.

Equity shares have the following rights according to section 85(2) of the companies act 1956. 1. Right to vote at the general body meetings of the company. 2. Right to control the management of the company. 3. Right to share in the profits in the firm of dividends and bonus shares. 4. Right to claim on the residual after repayment of all the claims in the case of winding of the company. 5. Right of pre-emption in the matter of issue of new capital. 6. Right to apply to court if there is any discrepancy in the rights set aside. 7. Right to receive a copy of the statutory report, copies of annual accounts along with audited report. 8. Right to apply the central government to call an annual when a company fails to call such a meeting. 9. Right to apply the Company Law Board for calling an extraordinary general meeting. In a limited company the equity shareholders are liable to pay the companys debit only to the extent of their share in the paid up capital.


The equity shares have certain advantages. The main advantages are Capital Appreciation Limited liability Free tradability Tax advantages (in certain cases) and Hedge against inflation. TAX IMPLICATIONS ON EQUITY SHARES While dividend is not taxable at the hands of the investor, capital gains are. When you sell your shares at a profit, it attracts a capital gains tax. Gains realized within one year of purchase of shares come under the short-term capital gains tax, and are included in gross taxable income. If the duration is more than one year, it is termed as long-term capital gains tax. The rate is 10 percent for short-term capital gains and nil for long-term capital gains (long-term capital gains is exempted totally).

4. Bonds:
Bond is a long term debt instrument that promises to pay a fixed annual sum as interest for specified period of time.

The basic features of the bond are given below. 1) Bonds have face value. The face value is called par value. The bonds may be issued at par value or at discount. 2) The interest rate is fixed sometimes it may be variable at as in the case of floating rate bond. Interest is paid semi-annually or annually. The interest rate is known as coupon rate. The interest rate is specified in the certificate. 3) The maturity date of the bond is usually specified at the issue time except in the case of perpetual bonds. 4) The redemption value is also stated in the bonds. The redemption value may at par value or at premium.


5) Bonds are traded in the stock market. When they are traded the market value may be at par or at premium or at discount. The market value and redemption value need not be the same.

The different bonds are:

Secured bonds and unsecured bonds Perpetual bonds and redeemable bonds Fixed interest rate bonds and floating interest bonds Zero coupon bonds Deep discount bonds Capital indexed bonds

Debentures: According to Companies Act 1956 debenture includes debenture stock, bonds and any other securities of company, whether constituting a charge on the assets of the company or not. Debentures are generally issued by the private sector companies as a long-term promissory note fro raising loan capital. The company promises to pay interest and principal as stipulated. Bond is an alternative form of debenture in India. Public sector companies and financial institutions issue bonds. Some of the characteristic features of debentures are from it is given in the form of certificate of indebtedness by the company specifying the date of redemption and interest rate. Interest: The rate of interest is fixed at the time of issue itself which is known as contractual or coupon rate of interest. Interest is paid as a percentage of the par. Redemption As earlier the redemption date would be specified in the issue itself. The maturity period may range from 5 years to 10 years in India. They may be redeemed in installments. Redemption is done through a creation of sinking fund by the company. A trustee In charge of the fund buys the debentures either from the market or owners. Creation of the sinking fund eliminates the risk of facing financial difficulty at the time of redemption because redemption requires huge sum. Page 39 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

Buy back provisions help the company to redeem the debentures at a special price before the maturity date. Usually the special price is higher than the par value of the debenture.

Indenture It is a trust deed between the company issuing debenture and the debenture trustee who represents the debenture holders. The trustee takes the responsibility of protecting the interest of the debenture holders and ensures that the company fulfills the contractual obligations. Financial institutions, banks, insurance companies or firm attorneies act s trustees to the investors. In the indenture the terms of the agreement, description of debentures, rights if the debenture holders, rights of the issuing company and the responsibilities of the company are specified clearly. Debentures are classified on the basis of the security and convertibility as 1) Secured or unsecured 2) Fully convertible debenture 3) Partly convertible debenture 4) Non-convertible debenture


There are specific tax saving bonds in the market that offer various concessions and taxbreaks. Tax-free bonds offer tax relief under Section 88 of the Income Tax Act, 1961. Interest income from bonds, up to a limit of Rs.12,000, is exempt under section 80L of the Income tax Act, plus Rs.3,000 exclusively for interest from government securities. However, if you sell bonds in the secondary market, any capital appreciation is subject to the Capital Gains Tax. Tax-Saving Bonds Some bonds have a special provision that allows the investor to save on tax. These are termed as Tax-Saving Bonds, and are widely used by individual investors as a tax-saving tool. Examples of such bonds are:


a. Infrastructure Bonds under Section 88 of the Income Tax Act, 1961 b. Capital Gains Bonds under Section 54EC of the Income Tax Act, 1961 c. RBI Savings Bonds (erstwhile, RBI Relief Bonds)

Tax Saving Infrastructure Bonds Infrastructure bonds are available through issues of ICICI Bank and IDBI, brought out in the name of ICICI Safety Bonds and IDBI Flexi bonds. These provide tax-saving benefits under Section 88 of the Income Tax Act, 1961, up to an investment of Rs.1, 00,000, subject to the bonds being held for a minimum period of three years from the date of allotment. Tax Saving Capital Gains Bonds Investments in bonds issued by the Rural Electrification Corporation (REC) are at present eligible for capital gains tax savings. Gains made out of a capital transfer need to be invested in the above bonds within six months of sale of capital assets in order for the proceeds of such sale to be exempt from capital gains tax.

RBI Savings Bonds RBI Savings Bonds are an instrument that are issued by the RBI, and currently has two options one carrying an 8 percent rate of interest per annum, which is taxable and the other one carries a 6.5 percent (tax-free) interest per annum. The interest is compounded half-yearly and there is no maximum limit for investment in these bonds. The maturity period of the 8 percent (taxable) bond is six years and that of the 6.5 percent (tax-free) bond is five years

5. Real Estate:
The real estate market offers a high return to the investors. The word real estate means land and buildings. There is a normal notion that the price of the real estate has increased by more than 12 percent over the past ten years. The population growth and the exodus of people towards the urban cities have made the prices to increase manifold. Recently, the recession in the economy has affected the real estate. Prices marked a substantial fall in 1998 from the 1997 prices.


Reasons for investing in real estate are given below: y y High capital appreciation compared to gold or silver particularly in the urban area. Availability of loans for the construction of houses. The 1999-2000 budget provides huge incentives to the middle class to avail of housing loans. Scheduled banks now have to disburse 3 percent of their incremental deposits in housing finance.

Tax rebate is given to the interest paid on the housing loans. Further Rs.75, 000 tax rebate on a loan up to Rs.5 lakhs which is availed of after April

1999. If an investor invests in a house for about Rs.6-7lakh, he provides a seed capital of about Rs.1-2 lakh. The Rs.5 lakh loan, which draws an interest rate of 15 percent, will work out to be less than 9.6 percent because of the Rs.75, 000 exempted from tax annually. In assessing the wealth tax, the value of the residential home is estimated at its historical cost and not on its present market value. The possession of a house gives an investor a psychologically secure feeling and a standing among his friends and relatives. Apart from making investment in the residential houses, the people in the higher income bracket invest their money in time share plans of the holiday resorts and land situated near the city limit with the anticipation of a capital appreciation. Farm houses and plantations also fall in the line. In spite of the fast capital appreciation investors generally do not invest in the real estate apart in the real estate apart from owning one or two houses. The reasons are:

Requirement of huge capital: To purchase a land or house in the urban area, the investor needs money in lakhs whereas he can buy equity, gold or other form of investment by investing thousands of rupees.

Malpractices: often-gullible investors become cheated in the purchase of land. The properties already sold are resold to the investors. The investor has to lose the hard-earned money.

Restriction of the purchase: The land ceiling Act restricts the purchase of agriculture land beyond a limit. Page 42


Lack of liquidity: If the investor wants to sell the property, he cannot immediately realize the money. The waiting period may be months or years.

The points to be taken care of while purchasing the real estate are: y The plots should be approved by the local authority because on the un approved layout construction of a house is not permitted.

Possibility of capital appreciation. It depends upon the locality and facilities of the site.

Originality of title deeds. The site should be free from encumbrance. Encumbrance certificate for a minimum period of latest 15 years should be got from the registrars office.

Plinth area should be verified.

Earliest records of securities trading in India are available from the end of eighteenth century. Before 1850 there was business conducted in Mumbai in the share of bank and the securities of east India Company, which were consider as securities for buying, selling and exchange. The share of commercial bank, mercantile bank and bank of Bombay were some of the prominent shares traded. The business was conducted under a sprawling banyan tree in front of the town hall, which is known as horniman Circle Park. In 1850, the companies act was passed and that heralded the commencement of joint stock companies in India. It was the American civil war that helped Indians to established broking business. The leading broker, Shri Premchand Roichand designed and developed a procedure to be followed while dealing in shares. In 1874 the dalal street became the prominent place for meeting of the brokers to conduct business. The broker organized an association on 9th July 1875 known as native share and stock broker association to protect the character, status of the native brokers. That was the foundation of the stock exchange, Mumbai. The exchange was established with 318 members. The stock exchange, Mumbai did not have to look back as it started raiding high ladder of growth. The stock exchange is a market Page 43 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

place, like any other centralize market where buyers and sellers can transact business in securities at given point of a time in a convenient and competitive manner at the fairest possible prizes. In Jan 1899, Mr. James M Mac Len, MP inaugurated the brokers hall. After the first world war the stock exchange was housed properly at an old building near the Town hall in1928, the present premises where acquired surrounded by Dalal street, Mumbai samachar marg and hamam street. A new building a present location was constructed and was occupied on 1st Dec 1930.In 1950 the regulation of business in securities and stock exchange became an exclusively central Government sub following adaptation of constitution of India. In 1956, the security contract act was passed by the parliament of India. to regulate the securities market, SEBI was initial established on Oct 12 1988 as an interim board under control of ministry of finance, Government of India. In 1992, SEBI act was passed through which the SEBI came into existence. Hence SEBI acquired statutory status on 30th Jan 1992 by passing an ordinance, which was subsequently converted into an act passed by the parliament on April 4th 1992. The main objective of SEBI is to protect the interest of investor, regulate and promote the capital market by creating an environment, which would facilitate mobilization of resources through efficient allocation and to generate confidents among the investor.

As such SEBI is responsible for regulating stock exchanges and other intermediaries who may be associated with capital market and the process of the public companies rising capital by issuing instrument that will be traded on capital market. SEBI has been empowered by the central government to develop and regulate capital markets in India and there by protect the interest of investors. In 1992, OTCI (Over the counter exchange of India) came in to existent where equities of small companies are listed. In 1994, NSE(national stock exchange) came into existent which brought an and to the open but cry system of trading securities which was in vogue for 150 years, and

introduced screen based trading system.


BSE (Bombay stock exchange) online trading system was launched on March 14th 1995. Online trading can be done who are authorized by the stock exchange. In screen based trading, investor place there buy and sale orders with brokers whose enter the orders in the automated trading system. When buy and sale order matches, a trade is generated and trade details are given to respective brokers. After a trade has taken place, the buyer as to pay money and seller has to deliver the securities. On the stock exchange hundred & thousands of trades take place every day. Buyers and sellers are spread over a large geographical area. Due to these problems completing a trade by paying cash to the seller & securities to buyer immediately on execution of trades on an individually basis is virtually impossible. So the exchange allows trading to take place for a specified period which is called trading cycle. A unique settlement number identifies each trading cycle. Once the trading period is over, buyer broker pays money and seller broker delivers securities to the CC/CH on a predefined day. This process is called as pay in, after pay in securities are given to the buyer brokers and money is given to seller brokers by the CC/CH, this process is called as pay out. This process of pay in & payout is called settlement. Initially the trading cycle was of one fortnight, which was reduced to one week. The transactions entered during this period, of a fortnight or one week, were used to be settled either by payment for purchase or by delivery of shares certificates sold on notified days one fortnight or one week of expiry of the trading. The settlement schedules are made known to the members of the exchange in advance. The weekly settlement period was reduced by daily settlement popularly known as rolling settlement, in which each day is separate trading day. With effect from December 2001, t+% rolling settlement cycle was introduced for all equities where T is the trading day and pay in & pay out for the settlement was done on the 5th business day after the trade day.



Of all the choice of investments available, can this yellow metal take pride of the place as a financial investment alternative option? Opinion on the subject of gold is divided, on several issues are the yields from an investment in gold positive? Are its uses productive? Is the strain on the economy evident? Should gold be allowed to be brought into India freely for purposes of investment or otherwise. Well, yields or no yields, there is hardly an Indian household that can ignore gold and keep its entire savings in financial assets alone. Every investment has an intrinsic appeal to its holder and to suggest that hundreds of tones of gold is bought every year without regard to its economic value is to suggest that Indians dont act rationally. The fact is, they do and probably do it better than others. Indians faith in GOD and GOLD dates back to the Vedic times; they worshipped both. According to the World Gold Council Report, India stands today as the worlds largest single market for gold consumption. In developing countries, people have often trusted gold as a better investment than bonds and stocks. Gold is an important and popular investment for many reasons:

In many countries gold remains an integral part of social and religious customs, besides being the basic form of saving. Shakespeare called it the saint seducing gold.

Superstition about the healing powers of gold persists. Ayurvedic medicine in India recommends gold powder and pills for many ailments.

Gold is indestructible. It does not tarnish and is also not corroded by acid except by a mixture of nitric and hydrochloric acids.

Gold has aesthetic appeal. Its beauty recommends it for ornament making above all other metals.

Gold is so malleable that one ounce of the metal can be beaten into a sheet covering nearly a hundred square feet.

Gold is so ductile that one ounce of it can be drawn into fifty miles of thin gold wire.


Gold is an excellent conductor of electricity; a microscopic circuit of liquid gold printed on a ceramic strip saves miles of wiring in a computer.

Gold is so highly valued that a single smuggler can carry gold worth Rs.50 lac underneath his shirt.

Gold is so dense that all the tones of gold, which has been estimated; to be mined through history could be transported by one single modern super tanker.

Finally, gold is scam-free. So far, there have been no Mundra type or Mehta type scams in gold.

Apparently, gold is the only product, which has an investment as well as ornamental value. Going beyond the narrow logic of yield and maturity values, thus, the lure of this yellow metal continues.

7. Company Fixed Deposits

Fixed deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits. Deposits thus mobilized are governed by the Companies Act under Section 58A. These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the company to recover his capital, thus making them a risky investment option. NBFCs are small organizations, and have modest fixed and manpower costs. Therefore, they can pass on the benefits to the investor in the form of a higher rate of interest. NBFCs suffer from a credibility crisis. So be absolutely sure to check the credit rating. AAA rating is the safest. According to latest RBI guidelines, NBFCs and companies cannot offer more than 14 per cent interest on public deposits


When you deposit a certain sum in a bank with a fixed rate of interest and a specified time period, it is called a bank Fixed Deposit (FD). At maturity, you are entitled to receive the principal amount as well as the interest earned at the pre-specified rate during that period. The rate of interest for Bank Fixed Deposits varies between 4 and 6 per cent, depending on the maturity period of the FD and the amount invested. The interest can be calculated monthly, quarterly, half-yearly, or annually, and varies from bank to bank. They are one the most common savings avenue, and account for a substantial portion of an average investors savings. The facilities vary from bank to bank. Some services offered are withdrawal through cheques on maturity; break deposit through premature withdrawal; and overdraft facility etc.

Employees Provident Fund Scheme The Employees Provident Fund (EPF) was first established on 1 October 1951 under the EPF Ordinance 1951 which was subsequently known as the EPF Act 1951. The EPF Act 1951 has since then been replaced by the EPF Act 1991 in June 1991. Besides being the worlds oldest national provident fund, EPF is also one of the most successful funds of its kind, providing a compulsory savings scheme to ensure security and well being in old age. The first contributions were received in July 1952, totaling Rs.2.6 million. The EPF is under the jurisdiction of a Board, which consists of 20 members who are appointed by the Minister of Finance. The EPF Board is made up of a Chairman, a Deputy Chairman and 18 other members, which comprise of y y y y 5 Government Representatives 5 Employer Representatives 5 Employee Representatives 3 Professional Representatives

The EPF Board is responsible for formulating EPF policies and to ensure implementation of these policies. Page 48 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

Apart from the Board, the EPF also has an Investment Panel, which is responsible to formulate EPF investment policies. The Minister of Finance also appoints the members of the Investment Panel. The Panel is made up of a Chairman, a representative of the Governor of Bank Negara Malaysia, a representative from the Ministry of Finance and three others who are experts in financial, business and investment related matters. The EPF Headquarters is situated in the EPF building in Kuala Lumpur. Apart from the Headquarters, the EPF has 14 State Offices and 33 Local Offices throughout the country.

Public Provident Fund (PPF)

A Public Provident Fund (PPF) is a long-term savings plan with powerful tax benefits. Your money grows @ 8 per cent per annum, and this is guaranteed by the Government of India (GOI). You may consider this option if you are not looking for short-term liquidity or regular income. Normal maturity period is 15 years from the close of the financial year in which the initial subscription was made. Maturity values for your PPF account depending on what you invest each year.




EQUITY MARKETS: A market is a location where buyers and sellers come into contact to exchange goods or services. Markets can exist in various forms depending on various factors. Efficient transfer of resources from those having idle resources to others who have a pressing need for them is achieved through financial markets. Stated formally, financial markets provide channels for allocation of savings to investment. These provide a variety of assets to savers as well as various forms in which the investors can raise funds and thereby decouple the acts of saving and investment. The savers and investors are constrained not by their individual abilities, but by the economy's ability, to invest and save respectively. The financial markets, thus, contribute to economic development to the extent that the latter depends on the rates of savings and investment. The financial markets have two major components: y y Money market Capital market.

The Money market refers to the market where borrowers and lenders exchange short-term funds to solve their liquidity needs. Money market instruments are generally financial claims that have low default risk, maturities under one year and high marketability. The Capital market is a market for financial investments that are direct or indirect claims to capital. It is wider than the Securities Market and embraces all forms of lending and borrowing, whether or not evidenced by the creation of a negotiable financial instrument. The Capital Market comprises the complex of institutions and mechanisms through which intermediate term funds and long-term funds are pooled and made available to business, government and individuals. The Capital Market also encompasses the process by which securities already outstanding are transferred. The Securities Market, however, refers to the markets for those financial instruments/claims/obligations that are commonly and readily transferable by sale. The Securities Market has two interdependent and inseparable segments, the new issues (primary) market and the stock (secondary) market. The Primary market provides the channel for sale of new securities. The issuer of securities sells the securities in the primary market to raise funds for investment and/or to discharge some obligation.


The Secondary market deals in securities previously issued. The secondary market enables those who hold securities to adjust their holdings in response to charges in their assessment of risk and return. They also sell securities for cash to meet their liquidity needs. The price signals, which subsume all information about the issuer and his business including associated risk, generated in the secondary market, help the primary market in allocation of funds. Secondary market has further two components. 1. The spot market Where securities are traded for immediate delivery and payment. 2. Forward market Where the securities are traded for future delivery and payment. This forward market is further divided into Futures and Options Market (Derivatives Markets). In futures Market the securities are traded for conditional future delivery whereas in option market, two types of options are traded. A put option gives right but not an obligation to the owner to sell a security to the writer of the option at a predetermined price before a certain date, while a call option gives right but not an obligation to the buyer to purchase a security from the writer of the option at a particular price before a certain date.

Different Forms of Markets The markets do exist in different forms depending on the nature of location and mode of contact. It can have a physical location where buyers and sellers come in direct contact with each other or a virtual location where the buyers and sellers contact each other employing advance means of communication. There is another form of market where actual buyers and sellers achieve their objectives through intermediaries.

Securities Markets in India: An Overview:

The process of economic reforms and liberalization was set in motion in the mid-eighties and its pace was accelerated in 1991 when the economy suffered severely from a precariously low foreign exchange reserve, burgeoning imbalance on the external account, declining industrial production, galloping inflation and a rising fiscal deficit. The economic reforms, being an integrated process, included deregulation of industry, liberalization in foreign investment, Page 52 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

regime, restructuring and liberalization of trade, exchange rate, and tax policies, partial disinvestments of government holding in public sector companies and financial sector reforms. The reforms in the real sectors such as trade, industry and fiscal policy were initiated first in order to create the necessary macroeconomic stability for launching financial sector reforms, which sought to improve the functioning of banking and financial institutions (FIs) and strengthen money and capital markets including securities market. The securities market reforms specifically included:

Repeal of the Capital Issues (Control) Act, 1947 through which Government used to expropriate and allocate resources from capital market for favored uses;

Enactment of the Securities and Exchange Board of India Act, 1992 to provide for the establishment of the Securities and Exchange Board of India (SEBI) to regulate and promote development of securities market;

Setting up of NSE in 1993, passing of the Depositories Act, 1996 to provide for the maintenance and transfer of ownership of securities in book entry form;

Amendments to the Securities Contracts (Regulation) Act, 1956 (SCRA) in 1999 to provide for the introduction of futures and option.

Other measures included free pricing of securities, investor protection measures, use of information technology, dematerialization of securities, improvement in trading practices, evolution of an efficient and transparent regulatory framework, emergence of several innovative financial products and services and specialized FIs etc.

These reforms are aimed at creating efficient and competitive securities market subject to effective regulation by SEBI, which would ensure investor protection. The corporate securities market in India dates back to the 18th century when the securities of the East India Company were traded in Mumbai and Kolkata. The brokers used to gather under a Banyan tree in Mumbai and under a Neem tree in Kolkata for the purpose of trading those securities. However the real beginning came in the 1850s with the introduction of joint stock companies with limited liability. The 1860s witnessed feverish dealings in securities and reckless speculation. Page 53 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

This brought brokers in Bombay together in July 1875 to form the first formally organized stock exchange in the country viz. The Stock Exchange, Mumbai. Ahmadabad stock exchange in 1894 and 22 others followed this in the 20th century. The process of reforms has led to a pace of growth almost unparalleled in the history of any country. Securities market in India has grown exponentially as measured in terms of amount raised from the market, number of stock exchanges and other intermediaries, the number of listed stocks, market capitalization, trading volumes and turnover on stock exchanges, investor population and price indices. Along with this, the profiles of the investors, issuers and intermediaries have changed significantly. The market has witnessed fundamental institutional changes resulting in drastic reduction in transaction costs and significant improvements in efficiency, transparency and safety, thanks to the National Stock Exchange. Indian market is now comparable to many developed markets in terms of a number of parameters. Structure and Size of the Markets: Today India has two national exchanges, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Each has fully electronic trading platforms with around 9400 participating broking outfits. Foreign brokers account for 29 of these. There are some 9600 companies listed on the respective exchanges with a combined market capitalization near $125.5bn. Any market that has experienced this sort of growth has an equally substantial demand for highly efficient settlement procedures. In India 99.9% of the trades, according to the National Securities Depository, are settled in dematerialized form in a T+2 rolling settlement The capital market is one environment. In addition, the National Securities Clearing Corporation of India Ltd (NSCCL) and Bank of India Shareholding Ltd (BOISL), Clearing Corporation houses of NSE and BSE, guarantee trades respectively. The main functions of the Clearing Corporation are to work out (a) what counter parties owe and (b) what counter parties are due to receive on the settlement date. Furthermore, each exchange has a Settlement Guarantee Fund to meet with any unpredictable situation and a negligible trade failure of 0.003%. The Clearing Corporation of the exchanges assumes the counter-party risk of each member and guarantees settlement through a fine-tuned risk management system and an innovative method of online position monitoring. It also ensures the financial settlement of trades on the appointed day and time irrespective of


default by members to deliver the required funds and/or securities with the help of a settlement guarantee fund. Style of Operating: Indian stock markets operated in the age-old conventional style of fact-to-face trading with bids and offers being made by open outcry. At the Bombay Stock Exchange, about 3,000 persons would mill around in the trading ring during the trading period of two hours from 12.00 noon to 2.00 p.m. Indian stock markets basically quote-driven markets with the jobbers standing at specific locations in the trading ring called trading posts and announcing continuously the twoway quotes for the scrips traded at the post. As there is no prohibition on a jobber acting as a broker and vice versa, any member is free to do jobbing on any day. In actual practice, however, a class of jobbers has emerged who generally confine their activities to jobbing only. As there are no serious regulations governing the activities of jobbers, the jobbing system is beset with a number of problems like wide spreads between bid and offer; particularly in thinly traded securities, lack of depth, total absence of jobbers in a large number of securities, etc. In highly volatile scrips, however, the spread is by far the narrowest in the world being just about 0.1 to 0.25 percent as compared to about 1.25 per cent in respect of alpha stocks, i.e. the most highly liquid stocks, at the International Stock Exchange of London. The spreads widen as liquidity decreases, being as much as 25 to 30 per cent or even more while the average touch of gamma stocks, i.e. the least liquid stocks at the International Stock Exchange, London, is just about 6 to 7 per cent. This is basically because of the high velocity of transactions in the active scrips. In fact, shares in the specified group account for over 75 percent of trading in the Indian stock markets while over 25 percent of the securities do not get traded at all in any year. Yet, it is significant to note that out of about 6,000 securities listed on the Bombay Stock Exchange, about 1,200 securities get traded on any given trading day.The question of automating trading has always been under the active consideration of the Bombay Stock Exchange for quite sometime. It has decided to have trading in all the non-specified stocks numbering about 4,100 totally on the computer on a quote-driven basis with the jobbers, both registered and roving, continuously keying in their bids and offers into the computer with the market orders getting automatically executed at the touch and the limit orders getting executed at exactly the rate specified.


In March 1995, the BSE started the computerized trading system, called BOLT - BSE online trading system. Initially only 818 scripts were covered under BOLT. In July 1995, all scripts (more than 5,000) were brought under the computerized trading system. The advantages realized are: (a) improved trading volume; (b) reduced spread between the buy-sell orders; c) better trading in odd lot shares, rights issues etc. Highlights of the Highly Attractive Indian Equity Market: Two major reasons why Indian securities are now increasingly regarded as attractive to international investors are the relatively high returns compared with more developed global markets as well as the low correlation with world markets. EQUITY INVESTMENT OBJECTIVES: Shares are suitable for an Increase in Investment Shares are meant to be long-term investments. Three golden rules for investment in equity Diversify, Average out & most importantly stay invested. Shares do generate income from dividend as well as capital appreciation and have a strong potential to increase value of investment. But shares are risky share prices are affected by factors beyond anyones control and hence one needs to have an appetite for that kind of risk. Shares are suitable for Regular Income Yes, if the company earns good profits and pays dividends regularly, shares are ideal for income purposes. But not all good companies regularly pay dividends as they may chose to employ the profits for investments and growth purposes. Shares are Protect against Inflation Generally, they do provide for some protection although share prices have no relation to inflation. The price may crash or rise far beyond the inflation rate. Borrowing against Shares Shares being what they are, it depends on the company whose shares you own. Keeping this in mind, you can pledge them with a bank for raising a loan. The banks have their list of approved shares that they accept as a security. Generally, shares of well-known and respectable companies are accepted as security.


RISK CONSIDERATIONS IN EQUITY INVESTMENT Assurance of getting full Investment Back Zero assurance. Forget the original amount invested. You will get your money back only according to the prices dictated by the stock market, which depend purely on the market forces of demand and supply. Also, in case the company goes in for liquidation, you will get your money back only after the company has paid off all its liabilities, i.e., if there is any money left with it by then. But then, it is the potential appreciation of investment that attracts people to shares. Assurance of Income No assurance since there is no compulsion on the company to pay dividends. Unique Risks to Investing in Shares Unless it is a well-established company, there is the risk of the promoter running away with your money, or of the company closing down and declaring itself bankrupt. In that case, you will be left holding worthless pieces of certificates. However, the Securities & Exchange Board of India (SEBI) has put in place several regulations to protect the interest of the small investor. Share prices can be affected by just about anything going on in the world. Investment decisions depend on the outlook of the investor. If you believe that the price of a share is going to go up, buy it, and sell if you have the opposite view.

Rated credit quality of Shares No, shares are not rated. Of course, there are plenty of brokers and other sources from where one gets hot tips or advice on what shares to buy and which ones to sell, but it is entirely up to you to decide how much to trust these sources. BUYING, SELLING, AND HOLDING Buying of Shares Shares can be purchased directly when a company issues them through an Initial Public Offering (IPO) or from the stock market through a stockbroker. The stockbroker charges a small percentage of your transaction as commission, or brokerage, to execute your orders of purchase


or sale. The most popular bourses in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Minimum Investment and the Range of Investment for Shares The minimum investment in buying shares varies, depending on the price and quantity of the shares you want to buy. Generally, in the primary market, when a company comes out with an IPO, approximately 50-100 shares at the face value of Rs.10 each are mandatory to be bought. Also, for physical trading in the secondary market, it is advisable to buy shares in marketable lots of 10, 50, or 100, depending on their price. However, with a lot of company opting for the demat route, it is getting increasingly possible to trade even single units of shares. Duration of Shares Shares have absolutely no timeframe. They exist as long as the company exists. Can Shares be sold in The Secondary Market Of course, shares can be bought and sold in the secondary market, also called the stock exchange. In fact, the sole purpose for the existence of the stock markets is trading in shares. Liquidity of Shares Shares are the most liquid financial instruments as long as there is a buyer for your shares on the stock exchange. Most shares belonging to the A Group on the BSE are among the most liquid. However, shares of some companies may not witness any trading for many days altogether. In such a case, you will not be able to sell your shares. So, the liquidity factor varies to a large extent.

Determination of Market Value of Shares The market price of a share is determined by just about anything and everything. One investor may feel that the market price is lower than its real value, and another might think exactly the opposite! This creates imbalance in the forces of demand and supply. So, the question is, what affects the investors perception? Performance of the company and the state of the industry and the economy are considered reliable factors. But what do you do when Infosys declares a jump in its profits and the share price plummets? Besides the returns, it is this unpredictability factor that makes investing in shares all the more exciting. Fluctuations in the share-prices make keeping track of them on a regular basis utmost important. All national and financial newspapers carry


the daily quotes of all companies listed on the BSE and the NSE, and also at some of the regional stock exchanges. Moreover, with the emergence of online trading, it is now possible to get almost live stock market quotes at the click of a mouse. Mode of Holding Shares Shares can be held in either physical or dematerialized (demat) form. In the demat form, instead of your holding physical share certificates, they are credited to your demat account with a depository participant. It is very much like holding cash at a bank. Some shares have come under the compulsory demat holding list, the list for which is available on the SEBI Websites: www.sebi.com or www.sebi.gov.nic.in. In fact, holding shares in demat form is much more convenient as it eliminates the issue of bad delivery, and also makes the delivery process quicker and easy to manage.

PRIMARY MARKETS Companies raise funds to finance their projects through various methods. The promoters can bring their own money of borrow from the financial institutions or mobilize capital by issuing securities. The funds may be raised through issue of fresh shares at par or premium, preferences shares, debentures or global depository receipts. The main objectives of a capital issue are given below: y y y y y To promote a new company To expand an existing company To diversify the production To meet the regular working capital requirements To capitalize the reserves

Stocks available for the first time are offered through primary market. The issuer may be a new company or an existing company. These issues may be of new type or the security used in the past. In the primary market the issuer can be considered as a manufacturer. The issuing houses, investment bankers and brokers act as the channel of distribution for the new issues. They take the responsibility of selling the stocks to the public. Page 59 KLESS INSTITUTE OF MANAGAMENT STUDIES AND RESEARCH

THE FUNCTION The main service functions of the primary market are origination, under writing and distribution. Origination deals with the origin of the new issue. The proposal is analyzed in terms of the nature of the security, the size of the issue, and timing of the issue and floatation method of the issue. Underwriting contract makes the share predictable and removes the element of uncertainty in the subscription (underwriting is given in the latter part of this chapter). Distribution refers to the sale of securities to the investors. This is carried out with the help of the lead managers and brokers to the issue.

THE RISE AND FALL OF PRIMARY MARKETS Only a few years back, any investor worth his salt thought that investing in primary issues was the easiest and simplest way to make money. He scoffed at other inferior options like mutual funds and bank deposits because they did not double or triple his money in a few months time! Believe it or not, primary markets did that precisely they posted near indecent returns like 300 to 400% just in two months time. When the common investor benchmarked all other investment options against these phenomenal returns, obviously they stood no chance. Returns apart, investing in primary issues appeared so simple and risk free! All that was required of investors to partake in the manna was to simply put as large an application as possible because the proportionate allotment rule worked to the favor of big investors (small investors were supposed to have gone to mutual funds) and pray for a large allotment. Once they received some shares on the large subscription, they just offloaded their holdings at the listed prices, which were at a hefty premium to the issue price not because of any good fundamentals of the issuing company but simply because demand was far greater than the supply and waited for the next IPO to make another killing.

As profit booking became so simple, money flowed from all directions, some legal and some not so legal the markets boomed and promoters, brokers and investors all made merry. Entrepreneurs of all sorts mushroomed to float companies with fancy projects and launched


IPOs with tall promises to give high earnings and dividends. But no one bothered to check the prospectuses or the credentials of these promoters because there was enough money to be made by everyone or so they thought, until the markets crashed like the proverbial nine pins. What drove the primary markets to these dizzy heights only to collapse later? Those were the early days of liberalization and the foreign institutional investors and mutual funds had no clue as to the levels of transparency or corporate governance absent in the Indian companies. They believed in the picture specially painted for them by the wily promoters, liked it and invested heavily believing in what was right in the West would be right in the East as well. They were rudely shaken when the promised projects failed to take off because of rampant diversion of money, plain incompetence and severe change in the economic climate. Then came, the ice winter of stock market gloom, which lasted for probably the longest period in the near history. As investors lost money and faith in the primary market, they punished all the issuers IPO after IPO failed to get the desired response from the markets it almost became impossible for any company to raise money from the stock markets. Genuine companies, which lined up on-going projects for funds to be raised from the market were driven to desperation and borrowed at usurious rates that broke the back of their balance sheets. The high cost of borrowing made debt servicing difficult and defaults occurred even from corporate organizations known for their high credit worthiness. The South Asian crisis further made life very difficult for Indian entrepreneurs as their exports failed to take off and money got locked up in huge inventories. This was the perfect recipe for disaster and doomsayers were busy writing the epitaph on the Indian economic revival. As the economy teetered on the verge of collapse, the outlook has changed slowly but surely software sector came to the rescue of the markets, a few robust companies lifted the market from their lowest depths to the present peaks of unprecedented highs.


Factors to be considered:

Promoters Credibility

Promoters past performance with reference to the companies promoted by them earlier.

The integrity of the promoters should be found out with enquiries and from financial magazines and newspapers.

y Efficiency of the Management

Their knowledge and experience in the related field.

y y

The managing directors background and experience in the field. The composition of the Board of Directors is to be studied to find out whether it is broad based and professionals are included.

Project Details

y y

The credibility of the appraising institution or agency. The stake of the appraising agency in the forthcoming issue.


y y y

Reliability of the demand and supply projections of the product. Competition faced in the market and the marketing strategy. If the product is export oriented, the tie-up with the foreign collaborator or agency for the purchase of products.

Financial Data

y y y

Accounting policy. Revaluation of the assets, if any. Analysis of the data related to capital, reserves, turnover, profit, dividend record and profitability ratio.


Pending litigations and their effect on the profitability of the company. Default in the payment of dues to the banks and financial institutions.


Risk Factors

A careful study of the general and specific risk factors should be carried out.

Auditors Report

A through reading of the auditors report is needed especially with reference to significant notes to accounts, qualifying remarks and changes in the accounting policy. In the case of letter of offer the investors have to look for the recently audited working result at the end of letter of offer.

Statutory Clearance

Investor should find out whether all the required statutory clearance has been obtained, if not, what is the current status. The clearances used to have a bearing on the completion of the project.

Investor Service

Promptness in replying to the enquiries of allocation of shares, refund of money, annual reports, dividends and share transfer should be assessed with the help of past record.

And the Bull Run began all over again. Markets are in frenzy with institutional buying and as the index zoomed to 14500 levels, the primary market issues were back with a bang. Do you see any red herrings here. Many analysts said investors were climbing up the same learning curve all over again. Some of the companies that came out with IPOs hardly had the right credentials or performance track record to justify the public offer. But the investors starved so long for good issues were merrily lapping up all of them. Happily so far, they all made money as the scripts listed above their issue prices posted handsome returns in very short term. But dont the happenings appear so disturbingly familiar. If you were a discerning investor, you would know speculation and serious investing are very different. As our discursion here deals with the second, we make an attempt to list the factors that an investors should consider as a checklist to guide your primary market investments.


FACTORS TO BE CONSIDERED BY THE INVESTORS The number of stocks, which has remained inactive, increased steadily over the past few years, irrespective of the overall market levels. Price rigging, indifferent usage of funds, vanishing companies, lack of transparency, the notion that equity is a cheap source of fund and the permitted free pricing of the issuers are leading to the prevailing primary market conditions. In this context, the investor has to be alert and careful in his investment. He has to analyze several factors. They are given below: INVESTORS PROTECTION IN THE PRIMARY MARKET To ensure healthy growth of primary market, the investing public should be protected. The term investors protection has a wider meaning in the primary market. The principal ingredients of investor protection are: y y y Provision of all the relevant information, Provision of accurate information and Transparent allotment procedures without any bias.

To provide the above-mentioned factors several steps have been taken. They are project appraisal, under writing, clearance of the issue document by the stock exchange and SEBIs scrutiny of the issue document.