FINANCIAL MARKETS AND INSTRUMENTS

CONTENTS
CHAPTER 1INTRODUCTION TO FINANCIAL
SYSTEM
2 RESERVE BANK OF INDIA
3.MONEY MARKET,STRUCTURE,
OPERATIONS
4.S. E .B. I. GUIDELINES
5.CAPITAL MARKET ..OPERATIONS
6.MERCHANT BANKING ..ACTIVITY..
7 .. NBFCSTRUCTURE AND SERVICES
8 .LEASING
9 HIRE PURCHASE
10 CREDIT RATING
11.... MUTUAL FUNDS.
12.... FACTORING
13. FORFAITING
14 VENTURE CAPITAL
15. PRIVATE EQUITY
16. WEALTH MANAGEMENT
17. . OTHER FINANCIAL INSTITUTIONS
18.. PENSION FUND.
19. SECURITISATION
20..TERMINOLOGIES.
OBJECTIVE
To understand our Financial system, acquire knowledge of various financial products, services , Institutions
and use it for Corporate / Individual requirements .
WHY TO STUDY
This subject covers the entire domestic financial system ,functions.
Various financial services provided in the system . A finance professional should have basic knowledge of
day to day happenings in the financial system to take decision whether it is investment , borrowings or fund
raising.
HOW TO STUDY
1. Read Financial papers.articles by eminent finance Professionals.
2. Understand the terminologies used in the process and their meaning .
3. There is no comprehensive text book covering the syllabus.
4. Notes given has covered all as per syllabus.
5. Read the notes and come to the class so that the doubts can be minimized.
WHAT ARE WE DISCUSSING
Financial markets
Financial institutions
Structure..operations.Regulatory authority.productsprocedureshow to use the
services

CHAPTER..1INTRODUCTION..
FINANCIAL SYSTEM COMPRISES OF ..
FINANCIAL.
a.
b.
c.
d.
e.
f.

MARKETS
PRODUCTS.INSTRUMENTS
INTERMEDIARIES.
INVESTORS.
INSTITUTIONS.
BENEFICIARIES.

REGULATORY AUTHORITIES.
1.
2.
3.
4.

RESERVE BANK OF INDIA.1934

S E B I 1992
I R D A.1999
PENSION FUND REGULATORYAND DEVELOPMENT AUTHORITY 2008

SAVE..INVESTRAISE FUNDS..BORROW
CREATE ASSETS PERFORM..PROFITGROWTH..
INCREASE WEALTH..
PAY BACK THE LOANS..TAKE MORE.PERFORM BETTER..GROWTH.

BOTH THESE OPPORTUNITIES ARE AVAILABLE IN THE MARKETS AND ALSO WITH
THE INSTITUTIONS.

INVESTORS SHOULD PUT THE SURPLUS MONEY AVAILABLE

USE.

BENEFICIARIES WOULD CREATE ASSETS WHICH WILL GROW GENERATE

SURPLUS.

..TO PROPER

System will have required Financial product for both with different qualities.

MAIN OBJECTIVE IN THE SYSTEM WILL BE ECONOMIC DEVELOPMENT

REGULATORY AUTHORITIES ..FORMULATES THE GUIDELINES FOR THE

ACTIVITIES TO BE TAKEN UP BY ALL THE PLAYERS IN THIS INVESTMENT OR
FUND RAISING GAME.

INVESTOR ALWAYS LOOKS AT..

SAFETY
LIQUIDITY
RETURN

BENEFICIARY ALWAYS LOOKS AT..

CHEAP SOURCE..
COST OF FUNDS.
SIMPLE FORMALITIES..

THE SYSTEM SHOULD ENSURE CREATION OF INFRASTRUCTURE

INVESTMENT ACTIVITY and FUND RASING ACTIVITY.

FOR

FINANCE FIELD IS EVER GREEN.

CHANGES HAPPENS ..
DUE TO EXTERNAL FACTORS..
INTERNAL FACTORS..
TO UNDERSTAND THE SUBJECT OF FINANCE AND THE OPERATIONS
KEEP UPDATED WITH THE MARKET KNOWLEDGE ..
CONTINUOUS FOLLOW UP.
MANY FACTORS AFFECTING THE CHANGE.
( READ FINANCIAL PAPERS DAILY )
R B I ..REGULATESMONEY MARKET.BANKING SYSTEM..GOVERNMENT
OPERATIONS
SEBI.REGULATES .CAPITAL MARKET OPERATIONS.RELATED INSTITUTIONS
IRDA.REGULATES.INSURANCE SECTOR.
PFRDA..PESNION FUND MANAGEMENT
IMPORTANT ACTIVITIES HAPPENS IN THE SYSTEM FOR THE OPERATIONS.
1.
2.
3.
4.

ECONOMIC SURVEY
UNION BUDGET
RBI`SMONETARY AND CREDIT POLICY
FOREIGN TRADE POLICY.

THESE ARE THE TOOLS FOR ECONOMIC DEVELOPMENT AND FUNCTIONING OF

VARIOUS PLAYERS IN THE SYSTEM.
************

CHAPTER2...
RESERVE BANK OF INDIA.
AS A REGULATORY AUTHORITY
Has 26 departmentsonly four departments have been discussed.
Established under RBI act 1934 and commenced functioning from 1.4.1935.
Central bank of country
MAKES POLICIES .
CREATES GUIDELINES..
BRINGS REGULATIONS .
MONITORS THE IMPLEMENTATION.
SUPERVISES THE OPERATIONS
PROMOTES THE SYSTEM
BRINGS IN REFORMS .
PREAMBLE OF THE ACT..
Where as it is expedient to constitute a Reserve Bank for India to regulate the issue of bank notes
and keeping the reserves operate the currency and credit system with a view of securing monetary
stability in India and generally to of the country to its advantage .
FUNCTIONS OF CENTRAL BANK
The structure of Central bank may vary from country to country
the basic functions are..

Issuance of notes and regulation of volume of currency.

Act as a Banker to the Government.
Acts as a Banker to Banks.
Custodian of Country`s reserves.
Lender of last resort.
Controller of credit.
Supervises Bank`s and Money market activities.
Ensure economic development of the country.

FUNCTIONS CAN BE CLASSIFIED..

Traditional.
Promotional.
Supervisory.
RESPONSIBILITY

Ensure Monetary stability.

Ensure stable payment system
Ensure development of Financial infrastructure of markets and systems.
Ensure Credit allocation according to national economic priorities and social concerns.

IMPORTANT DEPARTMENTS..
MONETARY POLICY DEPARTMENT.
RBI Governor announces the Monetary and credit policy every year after the Union budget is
presented.
The policy outlines the plan of action for the markets, institutions and guidelines for functioning of
our financial system for economic development.
The guidelines covers the Economic scenario, domestic scenario, international economic situation and
guides the market and institutions with new policy , product, reforms to be implemented during the
financial year.
From 2005 RBI will review the policy guidelines quarterly .
BANKERS TO THE GOVERNMENT..
On behalf of Central government , State government and State PSU`s assists in mobilizing
funds from market.
Manages the Government accounts.
Manages the Public debt.
ROLE OF R.B.I. IN FINANCIAL SYSTEM..
Development of financial sector.
Strengthen the financial system.
Achieve the objective of economic development.
Creation of institutions in respective field.
*************************
CHAPTER..3.. MONEY MARKET.
It is a market for short term Money and Financial assets that are close substitute for Money.
Assets that are converted to Money with minimum cost.

Also known as debt market.

Debt securities are tradable loans.

FEATURES..

Not a visible market.

Transactions with Oral contract
Large volume.
Quick transactions.
Structured Primary and Secondary market.

OBJECTIVES
Market enables to meet the short term deficit with short term surpluses.

 Short term users to have access to funds at a realistic price.

INSTRUMENTS.PRODUCTS..SERVICES.
1. CALL AND NOTICE MONEY
2. COMMERCIAL BILLS
3. TREASURY BILLS
4. COMMERCIAL PAPER
5. CERTIFICATE OF DEPOSITS
6. GOVERNMENT SECURITIES
7. REPOS.
CHARACTERISTICS.

INSTRUMENTS ISSUED AT A DISCOUNT TRADED AT A DISCOUNT

REEDEEMED AT PAR
Assured Safety..
Highly liquid.
Reasonable return.
Short duration.
Reasonable cost of transactions.
Normally Large volumes of transactions.

AND

ISSUERS OF SECURITIESBENEFICIARIES..

Central Government
State Government.
Government organizationsStatutory bodies.
Commercial banks.
Corporates.

INTERMEDIARIES
Registered Primary dealersmay be IndividualCommercial banksCorporates.
Should have a minimum net worth of Rs 50.00 crs. Most of the Commercial banks have
established P.D.
To be licensed from RBI.
INVESTORS.
Those who have surplus funds to invest for a short term duration
Commercial banks,
Financial institutions.
Other Major institutions.
Trusts
Corporates.
Individuals.
1. CALL AND NOTICE MONEY
BORROWING AND LENDING ACTIVITY BETWEEN BANKS.
CALL MONEY MARKET DEALS WITH OVERNIGHT FUNDS.
MORE THAN ONE DAY UPTO 14 DAYS IT IS NOTICE MONEY.
IT IS A INTERBANK MARKET.
CALL RATE IS THE INTEREST PAID ON CALL LOANS.

FROM 6.8.2005 ALL NON BANK PARTICIPANTS EXCEPT PD`S WOULD BE PHASED
OUT .

PRUDENTIAL LIMITS ON EXPOSURE IN THIS MARKET LINKED TO CAPITAL

FUNDS.
SCREEN BASED QUOTE BASED APPROACH IS PROPOSED.

NEED FOR USE OF SUCH PRODUCT.

TO MEET C R R REQUIREMENTS.
ILLIQUIDITY IN THE MARKET.
SUDDEN WITHDRAWALS OF FUNDS.
2. COMMERCIAL BILLS
REPRESENTS GENUINE TRADE TRANSACTIONS.
BILLS ROUTED THROUGH COMMERCIAL BANKS.
BANKS DISCOUNT THESE BILLS.
BILLS.MAY BEDEMANDUSANCE.
BANKS CREATS ASSETS IN THE FORM BILLS DISCOUNTING .APPROACHES R
B I FOR REDISCOUNTING TO MEET ITS LIQUIDITY.
IT IS AN ON GOING FACILITY FOR THE BANKS WITH
RBI.

THIS ALSO HAPPENS ONLY BETWEEN BANKS AND R B I .

R B I charges certain interest for this lending which is known as Bank rate .
3GOVERNMENT SECURITIES

G .O. I SECURITIES ARE SOVEREIGN DEBT OBLIGATIONS INSTRUMENTS.

TO FINANCE DEFICIT AND ASSIST PUBLIC SECTOR DEVELOPMENT
PROGRAMMES.
TENOR.2 YRS TO 30 YEARS.
COUPON EITHER PRE DETERMINED OR BIDDING PROCESS.
GOI SECURITIES ARE APPROVED SECURITIES FOR S. L. R REQUIREMENTS OF
BANKS.
STATE GOVERNMENT SECURITIES.
AGENCY BONDS ARE ISSUED BY PSU`S GUARANTEED BY GOVERNMENT.
CG..RS10.000/SG.RS.1,000/AGENCYRS 5,000/-

PUBLIC DEBT OFFICE A DEPARTMENT OF

R B I MANAGES THIS FUNCTION.
4TREASURY BI LLS
KNOWN AS T-BILLS
ISSUED BY CENTRAL GOVERNMENT.
R .B. I ISSUES ON BEHALF OF GOVERNMENT FOR A TENOR OF 91 DAYS AND 364
DAYS.

ROUTE FOR BORROWING PROGRAMME OF THE GOVERNMENT .

ISSUED A T A DISCOUNT AND REDEEMED AT PAR.,
ISSUED THROUGH AUCTION PROCESS.
DENOMINATION.91 DAYSRS.25000/- 364 DAYS FOR RS.1,00,000/
UNIFORM PRICE AUCTION FOR 91 DAYS PAPER
CUT OFF PRICE METHOD.
MULTIPLE PRICE AUCTION FOR 364 DAYS PAPER.

RETAIL INVESTORS .THROUGH NON COMPETITIVE BIDDING .

T-BILLS ARE FREELY TRANSFERABLE AND TRADED.
OVER THE COUNTER OR THROUGH N .S.E.
SECONDARY MARKET IS VERY ACTIVE..QUOTES ARE READILY AVAILABLE
5. REPOS
REPO MEANS AN INSTRUMENT FOR BORROWING FUNDS BY SELLING SECURITIES
WITH AN AGREEMENT TO REPURCHASE THE SAME SECURITIES ON AMUTUALLY
AGREE FUTURE DATE AT AN AGREED PRICE WHICH INCLUDES INTEREST FOR THE
FUNDS BORROWED.
SALE AND REPURC HASE OF SAME SECURITY ..BETWEEN TWO PARTIES..
SELLER SELLS SPECIFIC SECURITY WITH AN AGREEMENT TO REPURCHASE. THE
SAME AT A DECIDED FUTURE DATE AND PRICE
( REPO)
R B I ------ RELEASES SECURITIES TO BANKS UNDER THIS SCHEMEMOBILISES THE
FUNDS FOR THE GOVERNMENT
( REVERSE REPO)
REVERSE REPO IS AN INSTRUMENT FOR LENDING FUNDS BY PURCHASING SECURITIES
WITH ANAGREEMENT TO RESELL THE SAME SECURITIES ON A MUTUALLY AGREED
FUTURE DATE AT AN AGREED PRICE WHICH INCLUDES INTEREST FOR THE FUNDS
LENT .
R B I ..LENDS AGAINST THE SECURITIES SOLD BYTHE
REPURCHASE AGREEMENT.

BANK WITH A

SOURCE OF FUNDS FOR BANK.THIS THE RATE AT WHICH BANKS BORROW . REPO
RATE
DEPENDS UPON THE PARTY INITIATED THE TRANSACTION.
MAJOR PLAYERS ARE BANKS.
REPO RATES ARE IN LINE WITH ONGOING MARKET RATES.
6.CERTIFICATE OF DEPOSITS
CD`S ARE NEGOTIABLE MONEY MARKET INSTRUMENT.
INTRODUCED IN JUNE 1989.

ISSUED BY COMMERCIAL BANKS AND F.I.`S..not by RRB`s

SECURED SHORT TERM INSTRUMENT.
Banks can issue for any amount.FI`s have limit fixed by RBI.
ISSUED AT A DISCOUNTDISOCUNT RATE IS MARKET DETERMINED.
FREELY TRANSFERABLE.
ISSUED IN DEMAT FORMAT.
SUBSCRIBERIndividulas, Corporates, Trusts, >.NRI on non repatriation basisNRI
should hold it till maturity.
TENOR.15 DAYS TO ONE YEAR.
FI`s can issue from 1 yr to 3 years.
CD`s issued attracts CRR and SLR as per issue price.
MIN F.V.RS.1 LAKH AND MULTIPLES.
Banks and FI`s cannot give loan against the CD`s

7. .COMMERCIAL PAPER

AN UNSECURED MONEY MARKET INSTRUMENT.

ISSUED IN THE FORM OF PROMISSORY NOTE.
INTRODUCED IN 1990.
ALTERNATIVE SOURCE FOR HIGHLY RATED CORPORATES TO RAISE FUNDS FOR
SHORT TERM REQUIREMENTS.

ISSUERS..
CORPORATES.
PRIMARY DEALERS
FI`S AS PER R B I GUIDELINES.
ELIGIBILITY.. CORPORATES..
T .N .W AS PER LAST AUDITED BALANCE SHEET NOT LESS THAN RS.4 CRS.
SHOULD HAVE SACTIONED WORKING CAPITAL LIMIT.
ASSET SHOULD BE CLASSIFIED AS STANDARD ASSET.
FEATURES OF THE INSTRUMENT.
TO BE RATEDBY CRA`S
.MUST HAVE MINIMUM P2 OF CRISIL OR EQUIVALENT .
SHOULD BE CURRENT NOT DUE FOR REVIEW.
ISSUED FOR A PERIOD OF MIN..7 DAYS TO MAXIMUM 365 DAYS.
ISSUED IN THE DENOMINATIONS OF RS.5.LAKHS
CAN BE ISSUED AS A STAND ALONE PRODUCT.
AMOUNT OF FUNDS TO BE RAISED LIMITS TO BOARD OF DIRECTOR
APPROVALOR AS INDICATED BY C R A AS PER RATING
MUST BE COMPLETED WITH IN TWO WEEKS FROM ISSUE OPENING
CAN BE ISSUED EITHER IN PHYSICAL OR DEMAT FORMAT.
ISSUED AT A DISCOUNT ON THE FACE VALUEDECIDED BY THE
ISSUER..
NO UNDERWRITING
ISSUING AND PAYING AGENT :
- ONLY SCHEDULED COMMERCIAL BANK CAN ACT AS I P A FOR THE ISSUE OF C .P.
- ON ISSUE IPA COLLECTS THE FUNDSON MATURITY IPA MAKES PAYMENT.

INVESTORS :
INDIVIDUALS.
BANKS.
CORPORATES.
TRUSTS.
NRI`S
FII`S
PROCEDURE

APPOINT.I P A
I P A ISSUE CERTIFICATE AFTER CHECKING ALL THE DOCUMENTS.
APPOINT A INTERMEDIARYMAY BE MERCHANT BANKER.FOR MARKETING.
GET THE INSTRUMENT RATED.
GET THE FUNDS BY SALE OF C.P.
ON DUE DATE WHO EVER IS THE HOLDER OF C.P. WILL GET THE REPAYMENT .
I P A SHOULD REPORT TO R B I THE C.P. ISSUE.
ISSUER SHOULD DISCLOSE IN THEIR ANNUAL REPORT THE FUNDS RAISED
THORUGH THIS ROUTE.
***********************

OPERATIONAL ASPECTS OF MONEY MARKET..

REGULATORY AUTHORITYRESERVE BANK OF INDIA..
PUBLIC DEBT ACT 1944.
FIXED INCOME MONEY MARKET AND DERIVATIVES ASSOCIATION OF INDIA (FIMMDA)
..S.R.O.
RECOMMENDS
HEALTHY BUSINESS PRACTICES..
EHTICAL CODE OF CONDUCT
PRINCIPLES AND PRACTICES
In the year 2000Government clearly delineated the areas of responsibility
R B I .CONTROLS..G sec tradesGold related securitiesMoney market securities
SEBI controls the MF, and other operations on Stock exchange.. trading mechanism..etc.
LIQUIDITY ADJUSTMENT FACILITY
Introduced in 1999. as a Banking sector reforms.
Management of short term liquidity .
RBI infuses funds..takes away the funds
depends upon the situation..operates through Repos and reverse repo operations..rate for
the transactions represents the interest rate at which RBI does the transactions.
French auction..
Multiple price allotment.all bids below cut off price will be rejected. Allotment will be made to the
highest bidder balance with any given to next highest bidder..

MULTIPLE PRICE AUCTION.FRENCH AUCTION

Cut off yield 6.20%
BANK
YIELD
A
5.80%.......rs.400.00 crs
B
6.25%.......rs.300.00
C
6.35%.......rs1000.00
D
6.50%.......rs2000.00
E
5.95%......rs. 800.00
F
6.00%......rs1200.00
Higher than 6.20% is rejected.
Lowest yield first priority
Second lowest second.
A will get first priority
E will get second
F gets last priority
In this auction the government will be benefited by issuing at different yield as per bid.
The cost of funds will be better.
RBI IS LOOKING AT COST OF FUNDS.
INVESTOR IS LOOKING AT THE RETURNS/YIELD
Dutch auction
Uniform price allotment.
The bidders at lower than cut off price are rejected.
Allotment will be made at a uniform price to all those who have bid above cut off price at the same
price.
Those bids at higher than cut off will be given priority.
UNIFROM PRICE AUCTION..DUTCH AUCTION
BANK
A
B
C
D
E
F

YIELD
5.80%
6.25%
6.35%
6.50%
5.95%
6.00%

The cut off yield is set at 6.10%.

All banks which have yields not exceeding 6.10% namely A, E, and F will get the securities with 6.10%
yield .
From April 2009 RBI will auction the Govt securities under Uniform price auction.
EXAMPLE
1) X purchased a T bill of Rs1000/- for Rs 987, 90 days before maturity
What is the yield on this T bill ?
Yield(Face value-Price) X365 x100
-----------------------------------------

Price x no of days of maturity

5.342%
2) A is offered a T bill of Rs 1000/- for rs 968, 182 days before the date of maturity,
A expects an yield of 6.25%.Would A buy the T bill offered?
6.629%
RECENT CHANGES
R B I has phased out non banking entities from call money market.
Introduction of R T G S..Real time gross settlement ( faster settlement in case of banks) has been
introduced.
COLLATERISED BORROWING AND LENDING OBLIGATIONCBLO..
CBLOis a negotiable instrument developed by CCILplatform for borrowing /lending.no
credit risk associated.CCILProvides guarantee against default.to be trade on CCIL
Platform..(clearing corporation of India ltd).
BENCHMARK RATES..
Are prices of instruments that are traded in the market. which are used for pricing other instruments.
Internationally accepted benchmark is LIBOR ( London inter bank offer rate)
National stock exchange developed Bench mark rate for Indian markets
MIBID..MUMBAI INTER BANK BID RATE
MIBOR.MUMBAI INTER BANK OFFER RATE
Both these are used for short term and medium term in Money market.
FIMMDAFIXED INCOME MONEY MARKET AND DERAVITIVE ASSOCIATION
CREATES BENCHMARK RATES WHICH CAN BE USED BY THE MARKET PLAYERS.
Computation is based on the data collected. Computation should be done on a day to day basis on a
time bound schedule. .
GOVERNMENT SECURITIES INDICES
Index provides a benchmark for a portfolio management .
FOUR INDICES ARE THERE FOR GOVERNMENT SECURITIES MARKET.
IBEX PUBLISHED BY ICICI SECURITIES.
GOVERNMENT SECURITIES INDEX BYN S E
JP MORGAN`S INDIA GOVENRMENT BOND INDEX.
SBI-GILT INDEX..
SECONDARY MARKET

PLAT FORM FOR TRADING.

Trading in Government securities , T bills, Bonds, other fixed income securities ..
W .D. M SEGMENT OF N. .S .E.
GILT SEGMENT OF B S E
DIRECT NEGOTIATIONS.
WDM segment of N S E commenced operations in June 1994.
Formal screen based trading facility for debt market in the country.
NEAT.(National exchange for automated trading )system provides trading and reporting for
G.sec.
All debt instruments are included.
Trading is order drivenmatching.
NEGOTIATED DEALING SYSTEM (NDS).. COMMENCED OPERATIONS IN FEB.2002.
An electronic dealing system for facilitating dealing Gsec.Online bidding facility. Transparency of
trade and electronic settlement.
CLEARING CORPORATION OF INDIA LTD.(CCIL)
Promoted by Banks and institutions was incorporated in April 2001 to support and facilitate clearing
and settlement of trades. In G.secs.
Objective..
Settlement of G.sec transactions on DVP basis(.delivery versus payment )
FIXED INCOME DERIVATIVES
An investor in the Fixed income market is exposed to various risks including Interest risk.
Income may be from.Interest payments..capital gains/lossreinvestment income.
Inverse relation to the price of Bond and interest rates.
These are hedged by Interest rate derivatives
Interest rate swaps
Forward rate agreements are popular ..
INTEREST RATE SWAPS
Two parties agreed to exchange a stream of interest payments for a notional principal amount.
The transactionsmay be between
Fixed to floating rate.
Floating rate to fixed rate.
One floating rate to other floating rate
Outflow will be only Interest payment
DISOCUNT AND FINANCE HOUSE OF INDIA LTD..

SET UP IN 1988 AS PER THE VAGHUL COMMITTEE RECOMMENDATIONS.

PROMOTED BY R B I AND CB`S AND FI`S .
A LEADING PRIMARY DEALER.
TO MANAGE THE LIQUIDITY IMBALANCE IN MONEY MARKET.
TO BE AN ACTIVE TRADER IN THE SECONDARY MARKET OF MONEY MARKET.
PROVIDE SAFE AND RISK FREE INVESTMENT AVENUES.
GREATER LIQUIDITY.
IN JUNE 2004 SBI GILTS LTD MERGED WITH DFHI .
^^^^^^^^^^^^^^^^^^^^^^^^^
CHAPTER4
SEBI GUIDELINES..
S E B ISECURITY EXCHANGE BOARD OF INDIA .
Concept of SEBI is based on SEC of US.
1990 ..started functioningunderstudy to C C I .
1991..CCI abolished ..
1992SEBI act was passed.it became the regulatory authority for capital market
operations.
Objectives..
1. To protect the interest of the investors.
2. Bring in Disclosure norms
3. To promote, regulate and develop the securities market and its operations.
REFORMS (CHANGES) IN CAPITAL MARKET
SEBIAS A REGULATORY AUTHORITY.

Identification of Intermediaries.
Registration of intermediaries.( Mandatory)
Capital adequacy./Code of conduct
Norms for all intermediaries.
Eligibility criteria for issuers.
Free pricingjustification of pricing
Disclosure norms.( Various changes brought in )
High lights
Risk factors/management perception.
Due diligence certificate
M.O.U.
Inter se allocation of responsibilities.
Under writing (optional.)
Lock in period
Share holding pattern
Rating of debt instruments.
Book building process.
Reduction of time in post issue activities.
Refund of subscription in case of no underwriting.
Guidelines for Debt issue.
Penalty points for MB`s

Guidelines to Bonus issue.

Acquisition ./ Take over guidelines.
Buy back of shares.
Guidelines on Insider trading .
Creation of MF as a separate entity
Creation of AMC for MF
Concept of Promoters contribution In Equity issue, Debt issue, Rights issues
Indian company to access International capital market.( ADR GDR)
ESOP
Introduction of new investors
Guidelines for private placement.
Stock exchange under SEBI guidelines.
Setting up of OTCEI
Setting up of NSE
SETTING UP OF I.C.S.E.
Setting up of Inter connected stock exchange.
Introduction of Demat system
Introduction 1% deposit with Stock exchanges by issuer.
Release of 90 % of the amount subscribed in Rights issue to Issuer.
No need to approach ROC for Public issue clearances.
All activities have reporting system.
Removal of Badla.
Derivatives trading.( futures and options)
Introduction INDO NEXT platform for MID CAP stocks trading.( YET TO FINALISE)
Demutualisation Of stock exchanges
Guidelines for IPO through Debt instruments..
Introduction ASBA FACILITY.
SEBI will change the guidelines as per the changes required in the financial system by
amending the existing guidelines which will be circulated to the respective intermediaries and
also any one have access through website of SEBI.

ACTIVITIES OF CAPITAL MARKET GOVERNED BY SEBI GUIDELINES.

ISSUER OF SECURITIES.
PUBLIC ISSUE
RIGHTS ISSUE
BONUS ISSUE.
BOOK BUILDING PROCESS.
DRAFTING OF OFFER DOCUMENTS.
MERCHANT BANKER.
REGISTRAR TO ISSUE/SHARE TRANSFER AGENCY
BANKER TO ISSUE
BROKERS TO ISSUE
UNDERWRITERS TO ISSUE
DEBENTURE TRUSTEE
CREDIT RATING
DEPOSITORIES.
CUSTODIAL SERVICES.
OPERATIONS OF STOCK EXCHANGE.
PORTFOLIO MANAGERS
FOREIGN INSTITUTIONAL INVESTORS.

VENTURE CAPITAL.
MUTUAL FUNDS
ADR/GDR ISSUES
SUBSTANTIAL ACQUISITION /TAKE OVERS
BUY BACK OF SECURITIES.
ISSUE OF SWEAT EQUITY.
COLLECTIVE INVESTMENT SCHEME.
PRICING OF AN ISSUE.
DISCLOSURE AND INVESTOR PROTECTION.

OFFER DOCUMENTS.PROSPECTUS.SEBI GUIDELINES

DISCLOSURES TO BE MADE..
STRUCTURE AND CONTENTS DEFINED..
HIGHLIGHTS
RISKFACTORSMANAGEMENT PERCEPTION..
GOVERNMENT APPROVALS
SEBI DISCLAIMER CLAUSE
STOCK EXCHANGE DISCLAIMER CLAUSE..LISTING.
MINIMUM SUBSCRIPTION
RATING AND DEBENTURE TRUSTEE (IN CASE OF DEBT ISSUE)
ISSUE MANAGEMENT TEAM
CAPITAL STRUCTURE LOCK IN PERIODBUILD UP OF CAPITAL
SHAREHOLDING PATTERN.
TERMS OF THE ISSUE.
INSTRUCTIONS TO APPLICANTS.
INFORMATION ABOUT DEPOSITORY.
STOCK INVEST PROCEDURE.
TAX BENEFITS.
OBJECTS OF THE ISSUE.
COMPANY PROFILE.
PROMOTERS BACK GROUND.
GROUP COMPANIES.
BOARD OF DIRECTORSOTHER DIRECTORSHIP
PROJECT DETAILS.
INDUSTRY PROFILE.
BUSINESS PROFILE.
OUTSTANDING LITIGATIONS.
JUSTIFICATION PRICINGQUALITATIVEQUANTITATIVE. ( ISSUE WITH PREMIUM)
FINANCIALSAUDIT REPORT.
MAIN PROVISIONS OF ARTICLES.
MATERIAL CONTRACTS ..DOCUMENTS
PROJECTIONS ..VS..PERFORMANCE. ( INCASE OF COMPANY GOING FOR 2nd TIME
THROUGH PUBLIC ISSUE).
For Offer document of Rights issue.Letter Of offerinformation is kept at minimum as the
existing share holders knows more about the company..normally statutory clauses will be
furnished.

SCHEDULE I
(Clause 5.3.1.2)
MEMORANDUM OF UNDERSTANDING BETWEEN THE LEAD MERCHANT
BANKER TO THE ISSUE AND THE ISSUER COMPANY
THIS MEMORANDUM OF UNDERSTANDING MADE BETWEEN....... (name of the
issuing company), A COMPANY WITHIN THE MEANING OF THE COMPANIES ACT,
1956 AND HAVING ITS REGISTERED OFFICE AT ......... (registered office address of
the issuing company) (HEREINAFTER REFERRED TO AS the Company) AND........
a Company registered under the Companies Act 1956, and having its registered office
at...................... with the branch office at (hereinafter referred to as the Lead Merchant
Banker).
WHEREAS:
1. The Company is taking steps for issue of...................... (particulars of the issue)
to the public / existing shareholders of the Company; the said issue of
shares/debentures is hereinafter referred to as the issue; AND
2. The company has approached the Lead Merchant Banker to manage the issue
and the Lead Merchant Banker has accepted the engagement inter-alia subject
to the company entering into memorandum of understanding for the purpose
being these presents;
NOW, THEREFORE, the Company and the Lead Merchant Banker do hereby agree
as follows:
1. Besides the Lead Merchant Banker, .........., ............, and ................., would be
acting as the co-managers to the issue.
2. The Company hereby declares that it has complied with or agrees to comply
with all the statutory formalities under the Companies Act, Guidelines for
Disclosure and Investor Protection issued by the Securities and Exchange
Board of India (hereinafter referred to as the Board) and other relevant statutes
to enable it to make the issue and in particular in respect of the following
matters:
(Give details and particulars of statutory compliances which the company has to
fulfil before making the issue)
Consent of the general body has been obtained vide........... (details of the
resolution) and in accordance to the terms of the Resolution passed by the
General Meeting held on .............. (date of the meeting).
3. The company undertakes and declares that any information made available to
the Lead Merchant Banker or any statement made in the Offer Documents shall
(Updated till June 10, 2007)
Page 247 of 348
be complete in all respects and shall be true and correct and that under no
circumstances it shall give or withhold any information or statement which is
likely to mislead the investors.
4. The Company also undertakes to furnish complete audited annual report(s),

other relevant documents, papers, information relating to pending litigations, etc.

to enable the Lead Merchant Banker to corroborate the information and
statements given in the Offer Documents.
5. The Company shall, if so required, extend such facilities as may be called for by
the Lead Merchant Banker/(s) to enable him to visit the plant site, office of the
Company or such other place/(s) to ascertain for himself the true state of affairs
of the company including the progress made in respect of the project
implementation, status and other facts relevant to the issue.
6. The Company shall extend all necessary facilities to the Lead Merchant Banker
to interact on any matter relevant to the Issue with the solicitors / legal advisors,
auditors, co-managers, consultants, advisors to the Issue, the financial
institutions, banks, or any other organisation, and also with any other
intermediaries who may be associated with the issue in any capacity
whatsoever.
7. The Company shall ensure that all advertisements prepared and released by the
Advertising Agency or otherwise in connection with the Issue conform to
regulations, guidelines etc. issued by the Board and instructions given by the
Lead Merchant Banker/(s) from time to time and that it shall not make any
misleading, incorrect statement in the advertisements, press releases, or in any
material relating to the Issue or at any Press / Brokers / Investors Conferences.
8. The Company shall not, without prior approval of the Lead Merchant Banker,
appoint other intermediaries or other persons such as Registrars to the Issue,
Bankers to the Issue, Refund Bankers, Advertising Agencies, Printers for
printing application forms, allotment advices / allotment letters, share certificates/
debenture certificates, refund orders or any other instruments, circulars, or
advices.
9. In consultation with the Lead Merchant Banker, the company shall, whenever
required, enter into a Memorandum of Understanding with the concerned
intermediary associated with the issue, clearly setting forth their mutual rights,
responsibilities and obligations. A certified true copy of such Memorandum shall
be furnished to the Lead Merchant Banker.
10. The Company shall take such steps as are necessary to ensure the completion
of allotment and despatch of letters of allotment and refund orders to the
applicants including NRIs soon after the basis of allotment has been approved
by the stock exchanges and in any case not later than the statutory time limit
and in the event of failure to do so pay interest to the applicants as provided
under the Companies Act, 1956.
(Updated till June 10, 2007)
Page 248 of 348
11. The Company shall take steps to pay the underwriting commission and
brokerage to the underwriters and stock brokers, etc. within the time specified in
any agreement with such underwriters or within a reasonable time.
12. The Company undertakes to furnish such information and particulars regarding
the issue as may be required by the Lead Merchant Banker to enable him to file
a report with the Board in respect of the issue.
13. The company shall keep the Lead Merchant Banker informed if it encounters
any problems due to dislocation of communication system or any other material
adverse circumstance which is likely to prevent or which has prevented the
Company from complying with its obligations, whether statutory or contractual, in
respect of the matters pertaining to allotment, despatch of refund orders / share
certificates / debenture certificates etc.
14. The company shall not resort to any legal proceedings in respect of any matter
having a bearing on the issue except in consultation with and after receipt of the
advice from the Lead Merchant Banker.
15. The company shall not access the money raised in the issue till finalisation of

basis of allotment or completion of offer formalities.

16. The company shall refund the money raised in the issue to the applicants if
required to do so for any reason such as failing to get listing permission or under
any direction or order of SEBI. The company shall pay requisite interest amount
if so required under the laws or direction or order of SEBI.
17. Clauses relating to rights of Lead Merchant Banker vis--vis the issuer shall be
inserted.
18. Consequences of breach.
In Witness whereof the parties hereto have set their hands on the day and the year
hereinabove written.
(Updated till June 10, 2007)
Page 249 of 348
SCHEDULE II
(Clause 5.3.2.1)
INTERSE ALLOCATION OF RESPONSIBILITIES
I. The Lead Merchant Bankers shall make interse allocation of the activities / sub
activities.
II. The lead merchant banker shall ensure that activity wise allocation is properly
delineated and that the Board is advised the name of the Lead Merchant Banker
responsible for each set of activities / sub-activities, well before opening of issue.
This advice must be signed by all Lead Merchant Bankers to issue.
III. Where the circumstances warrant joint and several responsibility of Lead
Merchant Bankers for a particular activity, a co-ordinator designated from
among the Lead Merchant Bankers shall furnish to the Board, when called for,
with information, report, comments etc. on matters relating to the activity (of joint
and several responsibility).
IV. The activities / sub-activities may be grouped on the following lines:
(a) Capital structuring with the relative components and formalities such as
composition of debt and equity, type of instruments.
(b) Drafting and Design of the offer document and of advertisement / publicity
material including newspaper advertisements and brochure / memorandum
containing salient features of the offer document.
The designated Lead Merchant Banker shall ensure compliance with the
Guidelines for Disclosure and Investor Protection and other stipulated
requirements and completion of prescribed formalities with Stock Exchange,
Registrar of Companies and SEBI.
(d) Marketing of the issue, which will cover, inter alia, formulating marketing
strategies, preparation of publicity budget, arrangements for selection of (i)
ad-media, (ii) centres of holding conferences of brokers, investors etc. (iii)
bankers to issue, (iv) collection centres (v) brokers to issue and (vi)
underwriters and the underwriting arrangement, distribution of publicity and
issue material including application form, prospectus and brochure, and
deciding on the quantum of issue material.
(e) Selection of various agencies connected with issue, namely Registrars to
Issue, printers and advertising agencies.
(f) Follow-up with bankers to the issue to get quick estimates of collection and
advising the issuer about closure of the issue, based on the correct figures.
(Updated till June 10, 2007)
Page 250 of 348
(g) The post-issue activities will involve essential follow-up steps, which must
include finalisation of basis of allotment / weeding out of multiple
applications, listing of instruments and despatch of certificates and refunds,
with the various agencies connected with the work such as registrars to the
issue, bankers to the issue, and the bank handling refund business.

(h) Even if many of these post-issue activities would be handled by other

intermediaries, the designated Lead Merchant Banker shall be responsible
for ensuring that these agencies fulfil their functions and enable him to
discharge this responsibility through suitable agreements with the issuer
company.
(i) Ordinarily, one Lead Merchant Banker shall be responsible for post issue
activities.
(Updated till June 10, 2007)
Page 251 of 348

354(SCHEDULE III)
354 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following:
SCHEDULE III
(Clause 5.3.3.1)
FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY LEADMERCHANT
BANKER(S) ALONGWITH DRAFT OFFER DOCUMENT
To,
SECURITIES AND EXCHANGE BOARD OF INDIA
Dear Sirs,
SUB.: ISSUE OF ____________________ BY _______________LTD.
We, the under noted Lead Merchant Banker (s) to the above mentioned forthcoming issue state as
follows :
1. We have examined various documents including those relating to litigation like commercial
disputes, patent
disputes, disputes with collaborators etc. and other materials more particularly referred to in the
Annexure
hereto in connection with the finalisation of the draft prospectus/letter of offer pertaining to the said
issue;
(2) On the basis of such examination and the discussions with the company, its directors and other
officers,
other agencies, independent verification of the statements concerning the objects of the issue,
projected
profitability, price justification and the contents of the documents mentioned in the Annexure and
other
papers furnished by the company, WE CONFIRM that:
(a) the draft prospectus/letter of offer forwarded to the Board is in conformity with the documents,
materials
and papers relevant to the issue;
(b) all the legal requirements connected with the said issue as also the guidelines, instructions, etc.
issued by
the Board, the Government and any other competent authority in this behalf have been duly complied
with; and
the disclosures made in the draft prospectus / letter of offer are true, fair and adequate to enable the
investors to make a well informed decision as to the investment in the proposed issue.
(3) We confirm that besides ourselves, all the intermediaries named in the prospectus/letter of offer
are
registered with the Board and that till date such registration is valid.
(4) We have satisfied ourselves about the worth of the underwriters to fulfil their underwriting
commitments.
(5) We certify that written consent from shareholders has been obtained for inclusion of their
securities as

part of promoters contribution subject to lock-in and the securities proposed to form part of
promoters
contribution subject to lock-in, will not be disposed / sold / transferred by the promoters during the
period
starting from the date of filing the draft prospectus with the Board till the date of commencement of
lock-in
period as stated in the draft prospectus.
PLACE: LEAD MERCHANT BANKER(S) TO THE ISSUE
DATE:
WITH HIS/ THEIR SEAL (S)
ANNEXURE TO THE DUE DILIGENCE CERTIFICATE FOR THE ISSUE OF
_______________________
BY ______________________________LIMITED
1. Memorandum and Articles of Association of the Company.
2. Letter of Intent/SIA Registration/Foreign Collaboration Approval/Approval for import of plant and
machinery, if applicable.
3. Necessary clearance from governmental, statutory, municipal authorities etc. for implementation of
the
project, wherever applicable.
4. Documents in support of the track record and experience of the promoters and their professional
competence.
5. Listing agreement of the Company for existing securities on the Stock Exchanges.
6. Consent letters from Companys auditors, Bankers to issue, Bankers to the Company, Lead
Merchant
Bankers, Brokers and where applicable, Proposed Trustees.
7. Applications made by the company to the financial institutions/banks for financial assistance as per
object
of the Issue and copies of relative sanction letters.
8. Underwriting letters from the proposed underwriters to the issue.
9. Audited Balance Sheets of the Company/Promoter companies for relevant periods.
10. Auditors certificate regarding tax-benefits available to the Company, Shareholders and Debenture
holders.
(Updated till June 10, 2007)
Page 252 of 348
(Clause 5.3.3.1)
FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY LEAD
MERCHANTBANKER(S) ALONGWITH DRAFT OFFER DOCUMENT
To,
SECURITIES AND EXCHANGE BOARD OF INDIA
Dear Sirs,
SUB.: ISSUE OF ____________________ BY _______________LTD.
We, the under noted Lead Merchant Banker (s) to the above mentioned forthcoming
issue state as follows:
1. We have examined various documents including those relating to litigation like
commercial disputes, patent disputes, disputes with collaborators etc. and other
materials more particularly referred to in the Annexure hereto in connection with
the finalisation of the draft prospectus/letter of offer pertaining to the said issue;
2. On the basis of such examination and the discussions with the company, its
directors and other officers, other agencies, independent verification of the
statements concerning the objects of the issue, projected profitability, price
justification and the contents of the documents mentioned in the Annexure and
other papers furnished by the company, WE CONFIRM that:
11. Certificate from Architects or any other competent authority on project implementation schedule
furnished
by the company, if applicable.

12. Reports from Government agencies / expert agencies / consultants / company regarding market
demand
and supply for the product, industry scenario, standing of the foreign collaborators, etc.
13. Documents in support of the infrastructural facilities, raw material availability, etc.
14. Auditors Report indicating summary of audited accounts for the period including that of
subsidiaries of the
company.
15. Stock Exchange quotations of the last 3 years duly certified by regional stock exchange in case of
an
existing company.
16. Applications to RBI and approval thereof for allotment of shares to non-residents, if any, as also
for
collaboration terms and conditions.
17. Minutes of Board and General Body meetings of the company for matters which are in the
prospectus.
18. Declaration in Form 32 from Directors (for particulars of Directorship) or the Company
Secretarys
certificate in this regard.
19. Revaluation certificate of companys assets given by Government Valuer or any other approved
Valuer.
20. Environmental clearance as given by Pollution Control Board of the State Government or the
Central
Government as applicable.
21. Certificate from companys solicitors in regard to compliance of legal provisions of the Prospectus
as also
applicability of FERA/MRTP provisions to the company.
22. Other documents, reports etc. as are relevant / necessary for true, fair and adequate disclosures in
the
draft prospectus / letter of offer (to give details).
23. True copy of the Board resolution passed by the issuer authorising a representative of the
Registrar to act
on its behalf in relation to handling of stockinvests.
PLACE: LEAD MERCHANT BANKER (S) TO THE ISSUE
DATE:
WITH HIS / THEIR SEAL (S)
(Updated till June 10, 2007)
Page 253 of 348
(a) the draft prospectus/letter of offer forwarded to the Board is in conformity
with the documents, materials and papers relevant to the issue;
(b) all the legal requirements connected with the said issue as also the
guidelines, instructions, etc. issued by the Board, the Government and any
other competent authority in this behalf have been duly complied with; and
the disclosures made in the draft prospectus / letter of offer are true, fair and
adequate to enable the investors to make a well informed decision as to the
investment in the proposed issue.
3. We confirm that besides ourselves, all the intermediaries named in the
prospectus/letter of offer are registered with the Board and that till date such
registration is valid.
4. We have satisfied ourselves about the worth of the underwriters to fulfil their
underwriting commitments.
5. We certify that written consent from shareholders has been obtained for
inclusion of their securities as part of promoters contribution subject to lock-in
and the securities proposed to form part of promoters contribution subject to
lock-in, will not be disposed / sold / transferred by the promoters during the
period starting from the date of filing the draft prospectus with the Board till the
date of commencement of lock-in period as stated in the draft prospectus.

PLACE: LEAD MERCHANT BANKER(S) TO THE ISSUE

DATE:
WITH HIS/ THEIR SEAL (S)
(Updated till June 10, 2007)
Page 254 of 348
ANNEXURE TO THE DUE DILIGENCE CERTIFICATE FOR THE ISSUE OF
_______________________ BY ______________________________LIMITED
1. Memorandum and Articles of Association of the Company.
2. Letter of Intent/SIA Registration/Foreign Collaboration Approval/Approval for
import of plant and machinery, if applicable.
3. Necessary clearance from governmental, statutory, municipal authorities etc. for
implementation of the project, wherever applicable.
4. Documents in support of the track record and experience of the promoters and
their professional competence.
5. Listing agreement of the Company for existing securities on the Stock
Exchanges.
6. Consent letters from Companys auditors, Bankers to issue, Bankers to the
Company, Lead Merchant Bankers, Brokers and where applicable, Proposed
Trustees.
7. Applications made by the company to the financial institutions/banks for financial
assistance as per object of the Issue and copies of relative sanction letters.
8. Underwriting letters from the proposed underwriters to the issue.
9. Audited Balance Sheets of the Company/Promoter companies for relevant
periods.
10. Auditors certificate regarding tax-benefits available to the Company,
Shareholders and Debenture holders.
11. Certificate from Architects or any other competent authority on project
implementation schedule furnished by the company, if applicable.
12. Reports from Government agencies / expert agencies / consultants / company
regarding market demand and supply for the product, industry scenario,
standing of the foreign collaborators, etc.
13. Documents in support of the infrastructural facilities, raw material availability,
etc.
14. Auditors Report indicating summary of audited accounts for the period including
that of subsidiaries of the company.
15. Stock Exchange quotations of the last 3 years duly certified by designated stock
exchange in case of an existing company.
(Updated till June 10, 2007)
Page 255 of 348
16. Applications to RBI and approval thereof for allotment of shares to nonresidents,
if any, as also for collaboration terms and conditions.
17. Minutes of Board and General Body meetings of the company for matters which
are in the prospectus.
18. Declaration in Form 32 from Directors (for particulars of Directorship) or the
Company Secretarys certificate in this regard.
19. Revaluation certificate of companys assets given by Government Valuer or any
other approved Valuer.
20. Environmental clearance as given by Pollution Control Board of the State
Government or the Central Government as applicable.
21. Certificate from companys solicitors in regard to compliance of legal provisions
of the Prospectus as also applicability of FERA/MRTP provisions to the
company.
22. Other documents, reports etc. as are relevant / necessary for true, fair and
adequate disclosures in the draft prospectus / letter of offer (to give details).
23. 355(Deleted)

PLACE: LEAD MERCHANT BANKER (S) TO THE

DATE:
ISSUE WITH HIS / THEIR SEAL (S)
355 Omitted the following clause vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated
January 25,
2005:
True copy of the Board resolution passed by the issuer authorising a representative of the Registrar
to act on its
behalf in relation to handling of stockinvests.
(Updated till June 10, 2007)
Page 256 of 348
CHAPTER5
CAPITAL MARKET

Market for Long term funding

Market more for retail investors .
Also called as speculative market.
Volatile market.

Capital market comprises of .

I..1..ISSUERS
CORPORATES.
COMMERCIAL BANKS,FINANCIAL INSTITUTIONS.
I..2.

INSTRUMENTS..( PRODUCTS)

EQUITY SHARES..
PREFERENCE SHARES.
DEBT FAMILY.
DEBENTURES
.FULLY CONVERTIBLE ,
PARTLY CONVERTIBLE ,
NON CONVERTIBLE,
BONDS..CONVERTIBLE, REDEEMABLE
I3.. INTERMEDIARIES..
MERCHANT BANKER.
REGISTRAR TO ISSUE.
BANKERS TO ISSUE.
UNDERWRITERS
BROKERS.
DEBENTURE TRUSTEE.
I..4.. INSTITUTIONS..
STOCK EXCHANGES.
DEPOSITORIES.
CUSTODIANS.
CREDIT RATING AGENCY.

I..5.. INVESTORS.
INDIVIDUALS.
HUF
TRUSTS.
CORPORATES.
COMMERCIAL BANKS.
FINANCIAL INSTITUTIONS.
FOREIGN INSTITUIONAL INVESTORS.
NRI..
NRI (NR)
FUND RAISING ROUTES.
INITIAL PUBLIC OFFER.( I P O )
FURTHER PUBLIC OFFER.
BOTH THE ABOVE CAN BE ..FIXED PRICE ROUTE
PREMIUM WITH A FIXED PRICE OR BOOK BUILDING ROUTE

RIGHTS ISSUE.
PRIVATE PLACEMENT
OFFER DOCUMENTS..
FOR A PUBLIC ISSUE..PROSPECTUS.
FOR A BOOK BUILDING ISSUE..RED HERRING RPOSPECTUS.
FOR A RIGHTS ISSUE.LETTER OF OFFER
FOR PRIVATE PLACEMENT.INFORMATION MEMORANDUM.
FUND RAISING EXERCISE
ISSUER SELECTS AN INSTRUMENT
AND
TAKES THE ASSISTANCE OF THE INTERMEDIARIES
AND
AVAIL THE SERVICES OF THE INSTITUTIONS
AND
OFFER THE SAME TO THE INVESTORS
FOR MOBILISING FUNDS FROM THE INVSTORS.

SEBI GUIDELINES WILL BE FOLLOWED .

MERCHANT BANKER IS THE IMPORTANT INTERMEDIARY IN
CARRYING OUT THIS EXERCISE WITH A PROPER PLANNING AND
COORDINATION.
INVESTORS CAN SUBSCRIBE TO THE ISSUE OR MAKEA BID FOR THE
ISSUE DEPENDING UPON THE NATURE OF ROUTE TAKEN BY THE
ISSUER.
SEBI HAS GIVEN GUIDELINES FOR THE PLAYERS IN THE CAPITAL
MARKET
CHAPTER..6
MERCHANT BANKING
NECESSITY OF SUCH SERVICES..
CHANGE IN INDUSTRIAL SCENARIO..
GROWTH IN CORPORATE SECTOR
NEW SOURCES OF FUNDS.
LACK OF PROFESSIONAL SERVICES
PROPER CAPITAL STRUCTURING.
COMPLEXITY IN CAPITAL /MONEY MARKET PRODUCTS.
IDENTIFYING APPROPRIATE SOURCE.

ACTIVITIES
PROJECT COUNSELLING
PROJECT APPRAISAL SERVICES
LOAN SYNDICATION
ISSUE MANAGEMENT.
TREASURY MANAGEMENT SERVICES.
INTERNATIONAL FINANCE.
ADVISORY SERVICES..
ROLE AND RESPONSIBILITIES OF MERCHANT BANKER.
MERCHANT BANKERSELF
A PROFESSIONAL IN THE FINANCE FIELD.
A WELL ORGANISED FINANCE PROFESSIONAL.
IDENTIFIED AS A CORPORATE FRIEND.
A WELL INFORMED INTERMEDIARY.
QUALITIES
GOOD LISTENER.
PLANNER.
ORGANISER.
COORDINATOR.

RELATIONSHIP MANAGER.
INDUSTRY/MARKET KNOWLEDGE.
ANALYTICAL SKILLS.
ISSUE ASSIGNMENT...MERCHANT BANKER
LEAD THE TEAM
CORRECT GUIDANCE PROPER PRICING
PROFESSIONAL WORK.
SUCCESS.
MERCHANT BANKER
Should ..
Be good at Due diligence work.
Understand the Disclosure concept.
Do Proper pricing of the securities.
Market the securities effectively.
ISSUE MANAGEMENT
From ..Merchant Bankers view
ONLY ACTIVITY ..VISIBILITY OF M. B.
PLAN THE ACTIVITY.
ACTIVITY CHART AND RESPONSIBILITY.
GOOD RELATION WITH OTHER INTERMEDIARIES .
UNDERSTAND THE MARKET
PRICE THE ISSUE PROPERLY.
EACH ASSIGNMENT IS DIFFERENT.
DRAFTING OF THE OFFER DOCUMENT AND CAPITAL STRUCTURE IS VERY IMPORTANT.
MARKETING .MERCHANT BANKER
PROPER PRESENTATION TO INVESTORS.
IDENTIFY PROPER SOURCES.
NOT A SECONDARY MARKET MAN
RESPONSIBILITIES.
COMMITTMENT TO ISSUER.
COMMITTMENT TO INVESTORS. ( DISCLOSURE )
FOLLOW THE ETHICS.
NO COMPROMISES.
GOALSUCCESS
FOLLOW UP. RELATION BASED.
CONTINUITY IN SERVICES.
BUILDING UP SELF IMAGE
MORE PROFESSIONAL APPROACH.

CASE STUDY FOR A MERCHANT BANKING ACTIVITY..

COST OF THE PROJECT HAS BEEN GIVEN FOR TWO DIFFERENT SITUATIONS.
HOW A MERCHANT BANKER ADVISES HIS CLIENT ABOUT THE FURTHER PLAN OF
ACTION FOR FUNDING .
RS IN LAKHS
I
NEW UNIT
LAND
20.00
LAND DEVELOPMENT 5.00
BUILDING
FACTORY
75.00
OFFICE
20.00
QUARTERS
50.00
PLANT AND
MACHINERY .
MISC
FIXED ASSETS
PRELIM AND
PREOP EXP
CONTINGENCIES..
TECHNOLOGY
TRANSFER..
WORKING CAPITAL
MARGIN.
TOTAL

II
6 YEARS OLD
50.00
10.00
250.00
100.00
150.00

300.00

900.00

75.00

200.00

50.00

150.00

35.00

140.00

00.00

300.00

20.00

150.00

650.00

2400.00

SOURCES OF FUNDS..
GROUP1
TERM LOAN ..FROM BANKS, FIS, SFCS AND NBFCS
FOREIGN CURRENCY LOAN ..FROM CBS AND FIS
D.P.G ...FROM CBS
LEASING FINANCE FROM .NBFCELCO..
HIREPURCHASE..FROM ..NBFC.HP CO.

GROUP2.
PUBLIC ISSUE. EQUITY AT PAR
PUBLIC ISSUEDEBT
PUBLIC ISSUE OF DEBT AND EQUITY
PUBLIC ISSUE OF EQUITY AT PREMIUM.
RIGHTS ISSUE AT PAR AND PUBLIC ISSUE AT PREMIUM
RIGHTS ISSUE AT LOWER PREMIUM AND PUBLIC ISSUE AT HIGHER PREMIUM.
PRIVATE PLACEMENT .
INVESTMENT FROM VCS
PRIVATE EQUITY
INVESTMENT FROM MFS.
INTERNATIONAL CAPITAL MARKET..ADRS AND GDRS.
GROUP.3
WORKING CAPITAL FINANCE FROM COMMERCIAL BANKS.
BILLS DISCOUNTING
FACTORING.
COMMERCIAL PAPER.
GROUP.4
PROMOTERS CONTRIBUTION
INTERNAL ACCRUALS.
FIXED DEPOSITS.
UNSECURED LONG TERM LOANS.
JOINT VENTURE. (Financial)
F.D.I..FC.C.B.
E.C.B..FOREIGN CURRENCY BORROWINGS
ANY OTHER SOURCES OF FUNDS AVAILABLE.ADD TO THE LIST.
EXTERNAL COMMERCIAL BORROWINGS
ECB`s includes..

Commercial bank loans

Buyer`s credit
Supplier`s credit

From Foreign Financial Institutions.

Securitised instruments
Credit from official export credit agencies.
Borrowings from Multilateral FI`sADB,CDC,IFC.

Indian borrowers have routes to avail , then maturity period according to the amount.
The interest rates are fixed interms of basic rate of LIBOR plus other charges.
FEMA guidelines are to be followed .
Merchant banking
REFER TO THE PROJECT GIVEN.

Project1.
Rs..650.00 Lakhs
Funded.
Rs 325.00 .Promoters contributionwill be equity.
Rs 325.00.term loan
AS A NEW PROJECT THE CHANCE OF RAISING FUNDS IS RESTRICITED TO FEW SOURES
IN THE SYSTEM
AFTER SIX YEARS..
THE UNIT WILL BE ELIGIBLE TO TRY ANY OR ALL THE FOUR GROUPS OF FUNDING .
Main objective is to help the promoters to bring in lower amount for the project and still holds the
management position with out any difficulty.
Merchant banker should structure the Capital funding appropriately.
CAPITAL MARKET II..
RIGHTS ISSUE..
Fresh securities offered to the existing share holders.
Ratio to be offered and the price to be finalised.
This is a source of funds .
Record date to be fixed.
Book closure to be announced.
Trading will go on either in Cum rights or Ex rights.
An existing share holders may or maynot exercise option of subscribing,
He can ask for split forms to be given to more members ( Max 3)
He can renounce his rights .
Original holder can apply for more than his entitlement.
Rights kept open for min 30 daysmax 60 days.
Offer document is Letter of offer.
Composite application form.
The issue can be at par or premium.
The fresh securities will be listed on exchanges .
Merchant banker services are a must along with RTI and BTI.
BONUS ISSUE..
Existing shareholders will get the fresh securities free of cost.
This is known as Capitalisation of reserves.
1994SEBI has given clear instruction regarding capitalization of reserves
Certain eligibility criteria has to be followed.
Ratio in which it has to be given has to be finalized.
Once company decided this has to be completed before six months.
Record date has to be fixedBook closure to be announced.
Trading continues either Cum bonus or ex bonus.
The new securities has to be listed .

( to know more about the activities ..READ THE ADVERTISEMNT OF AN

ISSUE.RECOMMENDATIONS ..VISIT SEBI WEBSITE AND READ THE OFFER
DOCUMENTS UNDERSTAND THE CAPITAL STRUCTURE.LOCK IN PERIOD..DUE
DILIGENCE DONE BY THE MB`S..READ THE ALLOTMENT ADVT TO UNDERSTAND THE
CONCEPT OF BASIS OF ALLOTMENT .)
DEBT SECURITIES LISTING
SEBI HAS COME OUT WITH THE GUIDELINES REGARDING PUBLIC OFFER AND LISTING
OF DEBT SECURITIES DURING May 2008..
The guidelines are clear onpromoters contribution, disclosures ,Debenture trustee etc
TRADING..SECONDARY MARKET OPERATIONS.
Trading means buying and selling of securities that are listed on the stock exchanges.
The trading has to be done through an authorised broker who is a member of stock exchange
and registered with SEBI..
The client should have a contract signed with a specified broker to do the transactions.
To day because of online trading the settlement and transparency of the transactions can nbe
understood by the client.
There are basically three types of Investors ..speculative.short term long term ..
`Secondary market facilitates but does not ensure liquidity.
Prices of the quoted securities changes depending upon the various factors.
An investor should have a proper knowledge of the market operations.
BSE and NSE are the major exchanges in the Indian capital market facilitates trading.
Companies are grouped according to the size , performance and other factors.
SEBI keeps a watch on the movement of price and volatility of the market.
Sensitivity index of the capital market in India are BSE sensex (30) and NIFTY.(50).
To understand the performance of companies in the industry there are certain index related to
industry.
For secondary market operations one has to use the services of Depository and custodians.and
stock exchange.
Settlement happens now with in two days of the transactions.
Stock exchange follows the listing guidelines vis a vis companies listed for following the
guidelines.
Volume is one which is important. With out adequate volume the liquidity will be affected.

 Various factors affect the markets regularly.

Since past two years Capital market has introduced Derivative trading, in the form of Options
and futures.
51 Companies have been identified which can be considered under this scheme.
This market is yet to develop.
All the operations are technology driven.
The secondary market transactions (trading)in demat format only,.
*********************
STOCK EXCHANGEstatutorily defined as any body of individuals whether incorporated or not
constituted for the purpose of assisting or controlling the business of selling or dealing in securities,.
Securities contract( Regulations ) act 1956
IMPORTANCE..

SUPPORT FOR JOINT STOCK ENTERPRISES.

FACILITY TO DEAL IN SECURITIES.
LIQUIFY THE CAPITAL IN AN ENTERPRISES BY AN INVESTOR.
WITHOUT STOCK EXCHANGE THE CAPITAL WOULD
IMMOBILISED.

HAVE

BECOME

Stock exchanges are subject to primary regulations..

The Securities and contract regulation act 1956..to regulate undesirable transactions in securities

21 regional stock exchanges ..

CLOSURE OF SOME EXCHANGES
OTCEI.OVER THE COUNTER EXCHANGE OF INDIA.
( can be considered as 22 nd exchange)
Commenced operations in 1991.
Modelled on the NASDAQ ( National association of Securities dealers and automated quotations) of
USA.
OBJECTIVETO PROVIDE SMALL AND MEDIUM COMPANIES EASY ACCESS TO
CAPITAL MARKET TO RAISE CAPITAL IN COST EFFECTIVE MANNER.
Commenced operations in 1992.
A ringless scripless.exchangemechanized trading national net work.
NATIONAL STOCK EXCHANGE.
A fully automated screen based trading system. Commenced operations in 1994.
( CAN BE CONSIDERED AS 23 rd EXCHANGE)

Transparency of operations.enjoy quick and efficient settlements system..

Operated on satellite based communication net work.
Has two segments..
WDMWHOLE SALE DEBT MARKET SEGMENT..
To enable Institutions and Corporates to deal in Govt securities, treasury bills, PSU bonds, CP`s,
CD`setc..
CAPITAL MARKET SEGMENT..
COVERS TRADING IN EQUITIES,NCD`sretail trade..
INTERCONNECTED STOCK EXCHANGE OF INDIA
15 participating exchanges promoted thisCommenced due to the fact that the business of
regional exchanges reduced due to expansion of BSE and NSE.
ISE provides a national forum for trading in respect of all the regionally listed securities.
Ensures liquidity of sparsely traded securities.
Commenced operations in Feb.1999.
DEMUTUALISATION IS THE NEW CONCEPT BEING BROUGHT IN BY SEBI TO
CORPORATISE THE STOCK EXCHANGE BY REVAMPING THE
BOARD WITH
PROFESSIONALS
INDONEXT IS THE NEW CONCEPT INTRODUCED BY SEBI FOR TRADING IN MID CAP
SECURITIES LISTED ON STOCK EXCHANGES.
DEPOSITORY SYSTEM
The system commenced operations by virtue of Depositories act 1996.
HOLDING THE SECURITIES IN ELECTRONIC FORM.
FOUR PARTIES..
THE INVESTOR
THE ISSUER OF SECURITIES
PARTICIPANTS OR AGENTS.
DEPOSITORY OF SECURITIES.
NSDL AND CSD(I)L ARE THE TWO APEX LEVEL INSTITUTIONS.
COMMERCIAL BANKS,
PARTICIPANTS .

FINANCIAL SERVICE INSTITUTIONS ARE THE DEPOSITORY

SEBI.THE REGULATORY AUTHORITY HAS MADE SECONDARY MARKET OPERATIONS

MANDATORY THROUGH DEMAT OPERATIONS.

FOR BOOK BUILDING PROCESS THE SUBSCRIPTION HAS TO BE MADE ONLY BY THE
DEMAT ACCOUNT HOLDERS.
CUSTODIAL SERVICES.
Relating to securities means ..safe keeping of securities of a client and providing incidental services..
Maintaining of accounts.
Collection of benefits.
Reconciling the records.

DERIVATIVES
Are instruments whose value is derived from the value of one or more underlying exposures.
Commonly known derivativesare.FORWARDS..FUTURES..
OPTIONS.SWAPS.
FUTURES.BASED ON INDICESARE .INDEX FUTURES.
BASED ON STOCKS..ARE..STOCK FUTURES.
ON THE SAME LINES THE OPTIONS ARE DEFINED..
FORWARDS..
A FORWARD CONTRACT IS A CONTRACT TO BUY/SELL THE UNDERLYING ON A FUTURE
DATE AT A PRICE THAT IS DETERMINED TODAY.
NEGOTIATED BETWEEN TWO PARTIES
OUTSIDE THE FRAME WORK OF STOCK EXCHANGE
THE CONTRCTS ARE ILLIQUID.
RE NEGOTIATE WITH MUTUAL CONSENT..
FUTURES
ARE LIKE FORWARDS , EXCEPT THAT THEY ARE TRADE IN STOCK EXCHANGE. ON
THE BASIS OF STANDARD CONTRACTS
The trades guaranteed by Stock exchanges.
Negotiation is on the price.
Positions are liquid.
Regulations permits futures upto 12 months.
Launched upto 3 months.
Future pricing depend upon the current demand and supply
OPTIONS.
One party ( Option buyer)..has the right , but not the obligation to the terms of the contract.

Other party( Option writer) is obliged to the terms of the contract.

Contract lapse on expiration date.
Option premium has to be paid by the option buyer.
An option to buy is called Call option..
An option to sell
Put option
An American option can be exercised anytime before maturity. Stock option
An European option can be exercised only on maturity.Index options.
SWAP..
A swap is an arrangement between two parties to exchange streams of payments calculated on
different bases.
*****************
MARGINS..
In the Capital market secondary market operations ..there is concept of having adequate capital for
the proposed transactions in the form of Margins.
Stock exchange insists that Brokers should built up margins in different forms. This is a precaution to
avoid payment crisis.
GROSS EXPOSURE MARGIN..
SECURITY IN THE FORM OF CASH, BANK GUARANTEE,
OUTSTANDINGS.

SHARES ON DAILY

DAILY /INITIAL MARGIN

BROKERS HAVE TOCOLLECT MARGIN FROM HIS TWO WAY CLIENTS ON THE OPEN
POSITION
SPECIAL MARGIN..
BASED ON THE ABNORMAL MOVEMENT OF THE PRICES OF SCRIPS THE EXCHANGE
INSISTS FOR THIS.
MARK TO MARK MARGIN..HAPPENS IN F & O SEGMENT IN CASE OF FALL OR RISE
OF TRANSSACTION PRICES.
VOLATALITY
DEALINGS.

MARGINTO CHECK ABNORMAL FLUCTUATIONS IN THE INTRADAY

ADHOC MARGINS.ARE IMPOSED ON THE BROKERS CARRYING OVER ALL POSTION

OF ILLIQUID STOCKS WHICH ARE LOW PRICED.
ASBAapplication supported by blocked amount.In an IPO the applicant`s money remains in
the account till the allotment is made.
SEBI introduced for retail investors in 2008 and for HNI and Corporate investors in 2010.
EQUITY ANALYST RECOMMENDATIONS
BUY

ACCUMALATE
SELL
BOOK PROFITS
HOLD . EARLIER BUY RECOMMENDATIONS..SAYS HOLD MEANS IT HAS BEEN DOWN
GRADED.
OVERWEIGHT
OUTPERFORMER
UNDERWEIGHT
UNDERPERFORMER
INTERNATIONAL FINANCIAL REPORTING STANDARDS..
Accounting standards developed by the International accounting standards boards which is global
standards for preparation of financial statements .
In India from April 2011..to be followed by companies listed on BSE and NSE , other than net worth
of rs 500 crs.
Banks and insurance companies will converge from April 2013.
In India it needs training , implementing IT support,internal infrastructure
India needs to amend SEBI< Insurance and RBI regulations.
STOCK MARKET INDEX..
It is a number measuring the relative value of a group of stocks.
Value of the group changes while they are traded.
It is the historical comparison of of returns on money invested in stock market.
It reality reflects the mood of the market.
For a layman it is the pulse of the economy.
Market Index are constructed by way of value weighted method. Worked based on base index rate.
VARIOUS ANALYTICAL APPROACH FOR VALUATION OF STOCKS..
Fundamental analysis.
Process of looking at a company`s business from investment point of view.
Analysis of Company`s management capabilities,competitive advantage , key ratios of business,
Technical Analysis
Future value of share, volume traded, does not look at financial or fundamentals Shar price
movement technical indicators, chart patterns.
Quantitative analysis.
Process of determining quantitative analysis by using complex mathematical and statistical modelling
, value of the securitybuy and sell decisions .
All these different analytical tools have different uses.

I PO GRADING..
IPO grading is a service aimed at facilitating the assessment of equity shares offered to public. It is a
relative assessment of fundamentals . Grading assigned on five point scale.
IPO grading do not take cognisense of the price of the security. It is not an investment
recommendations. Grading becomes one of the inputs for the decision to be made by the investors.
Credit rating agencies have to do it. The grade will not have any ongoing validity.
Grade1.Poor fundamentals.
Grade2.Below average
Grade..3..AVERAGE
Grade..4..Above average
Grade..5..Strong
WEF from May2007, all issuer has to get grading done fro the proposed issue.
INDIAN DEPOSITORY RECEIPTS..
Any instrument in the form of depository receipt created by Domestic depository in India against the
underlying equity shares of issuing company.
Depository receipt is a document indicating ownership of a commodity stored in a bank or other
depository
Companies wants to issue will have to follow the eligibility norms.
QIB` s are the only investors.
SHORT SELLING..
Is defined as selling a stock which the seller does not own at the time of trade.
All classes of investors are permitted to short sell.
No naked short selling ie at the time of settlement the securities must be delivered.
No intraday trading by Institutions.
F &O segment can also be traded under this .
QIB`S..QUALIFIED INSTITUTIONAL BUYERS.

Public financial institutions as per sec 4A of companies act.

Scheduled Commercial banks.
Mutual funds
FII `s registered with SEBI
Multilateral.bilateral DFI`s
VC registered with SEBI

INSTITUTIONS EXTEND VARIOUS FINANCIAL SERVICES IDENTIFIED AS LENDING

ACTIVITY.
Major institutions..

DFI
SFC
Commercial banks
Co operative banks
NBFC`S

SECTION.8
NON BANKING FINANCIAL COMPANIES..( NBFC)
These are the institutions with out a proper definition . They can accept deposits and lend in any
manner.
These institutes were doing parallel Banking . RBI became their regulatory authority in 1997.
In the midterm review of Monetary policy of 2006 2007 at the request of the representatives of
NBFC`s , a separate classification was made.
All NBFC`s engaged in financing real /physical assets for productive / economic activity will be
classified as
.Asset Finance company.
..Investment company
Loan company
Registration has to be .NBFC-D.AFC or NBFC- ND-AFC
Registration has to be specific
R B I MAJOR GUIDELINES..

All NBFC`s must be incorporated.

Must be licensed from RBI.
Activity must be identified.
N.O.F must be minimum rs 200.00 lakhs
Statutory reserves requirements and reserve to be created out of the profits.
Cap on interest to offered.
Cap on brokerage to be given.
Reporting system.
Only difference between a commercial bank and NBFC`S is
MECHANISM..

PAYMENT

CHAPTER9
LEASING..
An activity to acquire fixed assets. This has become popular in equipment financing.
The activity is confined to EQUIPMENT LEASING COMPANY LICENSED AS N.B.F.C.
Big ticket leasing pertaining to Infrastructure financing is normally done by Banks also.
However Industrial leasing activity is confined to N B F C .
This is one of the sources of funding in the industrial activity.
CHARACTERISTICS

Contract between two parties not governed by any act..

Based on certain assumptions.
Terms defined in the contract.
One who offers the service is .LESSOR.
One who takes the benefit is LESSEE
Lessor owns the Asset.

Lessee uses the asset and pays rentals.

Lessor recovers the cost of the assets and charges during the Lease period.
Maximum period of leasing .eight years.
First five years ..Primary periodagreed rentals.
Next three yearsSecondary periodnominal rentals.
Rentals are quoted asRs..per thousand per month/quarter. In adv /in arrears.( Rs/1000/
permonth/perquarter in advance or arrears
As Lessor owns the Assets .. Books depreciation .
Lesse charges the Lease rentals to Profit and Loss account and reduces the profit and the Tax
incidence.

LEASE FINANCE
100% FINANCE FOR LESSEE UNLESS HE GIVES LEASE DEPOSIT.
AN OFF BALANCE SHEET FINANCE.
QUICK SANCTION AND DISBURSAL.
RENTAL CAN BE FLEXIBLE.
LOWER COST FOR CASH RICH COMPANIES.
LESSOR CONSIDERS

RATE OF DEPRECIATION ON EACH TRANSACTION,

EFFECTIVE TAX RATE .
TAX SHELTER.
COST OF CAPITAL I.R.R. ON EACH TRANSACTION
TRACK RECORD OF LESSEE.
FUTURE CASH FLOW.
SERVICING CAPAPCITY OF THE LESSEE.
AVOIDS SMALLSICK AND TURN AROUND CASES.
LEASES IDENTIFIABLEMOVABLE, RETRIEVABLE ASSETS.
PREFERS MIX OF DEPRECIATION ASSETS.
QUOTES THE RENTALS BASED ON I.R.R.

FOR LESSEE

A SOURCE FOR ACQUIRING ASSETS.

FLEXIBILITY OF RENTALS.
LOW COST FUNDING.
OFF BALANCE SHEET ITEM.
SHOULD MAINTAIN THE ASSETS AS THEY HE OWNS IT.

OTHER SIMILAR PRODUCTS..

TERM LOAN FROM CB`S ,,FI`S ----SFC`S
D.P.G. FROM CB`S
HIRE PURCHASE.
( PREPARE A MATRIX ON DEIFFERENT PARAMETERS TO UNDER SATND MORE ON
LEASE FINANC E.HIRE PURCHASETERM LOAND.P.G.)
(KNOW THE DIFFERENCE BETWEEN FINANCIAL LEASE AND OPERATING LEASE).
&&&&&&&&&&&&&&&&&&&&
CHAPTER.10

HIRE PURCHASE
MODE OF FUNDING THE GOODS TO BE PURCHASED AT A FUTURE DATE.
INITIALLY LET ON HIRE..HIRER HAS AN OPTION TO PURCHASEPAYMENT OF
INSTALMENTS FOR A SPECIFIC PERIOD .
TRANSACTIONS THROUGH A CONTRACT.
PROPERTY PASSES TO HIRER ON PAYMENT OF LAST INSTALMENT.
EACH INSTALMENT IS TREATED AS HIRE CHARGES.
HIRER CHARGES THE DEPRECIATION TILL HE USES THE ASSETS.
IT IS A BALANCE SHEET ITEM.
HIREE HAS A RIGHT TO TAKE BACK THE ASSET IN CASE THE INSTALMENT IS NOT
PAID.
SIMILAR TO BANK TERM LOAN.
MARGIN IS STIPULATED.
RATES WILL BE QUOTED AS FLAT RATE.
THE EMI PAID WILL BE BIFURCATED AS PRINCIPAL AND INTEREST FOR
ACCOUNTING PURPOSE.
NORMALLY THIS
WILL BE USED TO ACQUIRE MOVABLE OR SMALL
EQUIPMENTS.
MORE POPULAR IN VEHICLE FINANCING.
BOTH HIRER AND HIREE HAVE DUTIES, RESPONSIBILITIES AS DEFINED IN THE
AGREEMENT.
THE APPRAISAL IS SAME AS BANK TERM LOAN.
CREDIT RATING
SEBI

IS THE REGULATORY AUTHORITY.

MEANS ESTIMATING WORTH OR VALUE OF OR ASSIGN VALUE TO..

THIS IS ONLY FOR INDUSTRIAL SECURITIES

RATING EXPRESSES THE CREDIT QUALITY OF THE SECURITY USING SYMBOLS.
RATES THE SECURITY NOT THE ISSUER.
NOT A RECOMMENDATION BY THE RATING AGENCY.
PROCESS EVALUATES THE RISK ASOCIATED WITH THE INSTRUMENT.
DONE FOR DEBT INSTRUMENTSFIXED DEPOSITS.

RATING INSTITUTIONS
1.
2.
3.
4.

CRISIL.1988PROMOTED BY I C I C I .
ICRA1990..PROMOTED BY I F C I
CARE1993..PROMTED BY
IDBI
FITCHPRIVATE SECTOR.

NEED..
GROWING CASES OF DEFAULT BY COMPANIES.
JUDGING THE DEBT OBLIGATION.
INVESTOR SHOULD UNDERSTAND THE RISK.

BENEFITS
INVESTORS.

RECOGNITION OF RISKS
CREDIBILITY OF THE ISSUER.
SYMBOLS EASY TO UNDERSTAND.
INVESTMENT DECISION.INDEPENDENTLY DONE.
SELECTION INSTRUMENTS FOR INVESTMENTS.

ISSUER..

RATING AS A MARKETING TOOL.

LOWER COST OF FUNDS.
REACH MORE INVESTORS.
SELF DISCIPLINE BY ISSUERS.
GOOD RATED INSTURMENTSIMPROVES ..GOOD WILL. REPUTATION.

ADVANTAGES IN GENERAL.
SOURCE OF RELIABLE INFORMATION.
STRENGTHS AND WEAK NESSES IDENTIFIED.
INVESTMENT MARKET ..WILL BE STRONGER.
SYMBOLS
HIGHEST SAFETY.. +AAA
HIGH SAFETY. AAA
ADEQUATE SAFETY ..AA
MODERATE SAFETYA
INADEQUATE SAFETYBBB
HIGHRISKBB
SUBSTANTIAL RISK..B
DEFAULT.C
RATING PROCESS.
MANUFACTURING COMPANY..
1.
2.
3.
4.

BUSINESS ANALYSIS.
INDUSTRY RISK.MARKET.
OPERATING EFFICIENCY.
MANAGEMENT ANALYSISPOLICIESSTRATEGIES.SWOT..PHILOSOPHY
DISCUSSION WITH KEY PERSONNEL.
5. FINANCIAL ANALYSIS..ACCOUNTING QUALITYEARNINGSCASH
FLOWS
FINANCIAL SERVICES COMPANY.

1.
2.
3.
4.
5.
6.

CAPITAL ADEQAUCY.
ASSET`S QUALITY
LIQUIDITY
PROFITABILITY
FUNDAMENTAL ANALYSIS
REGULATORY ENVIRONMENT.

LOT OF REFORMS HAS BEEN DONE IN THE SYSTEM. TWO AGENCIES RATING IS A
MUST.
THE RESPONSIBILITY OF THE RATING AGENCIES IS YET TO BE LOOKED INTO.
*********************

MUTUAL FUNDS..
A type of Financial intermediary that pools the funds of investors who seek the same general
investment objective and invests in different financial products.
The investors are the Unit holders.
STRUCTURE OF MUTUAL FUNDS IN INDIA..
1.
2.
3.
4.
5.
6.
7.

SPONSOROR
TRUSTEES.
A.M.C.
CUSTODIANS
AGENTS.
RTI
BANKS
SPONSOROR ESTABLISHES FUND.
REGISTRATION WITH S E B I .
APPOINTS BOARD OF TRUSTEES.
TRUST DEED DEFINES THE OBJECTIVE EACH SCHEMES.
TRUSTEES HOLD ASSETS ON BEHALF OF UNITHOLDERS.
APPOINTS ASSET MANAGEMENT COMPANY.
APPOINTS CUSTODIAN OF THE FUND.

 A M C`S FLOATS THE SCHEMES AND MANAGES THEM ACCORDING TO THE

SEBI REGULATIONS.
CUSTODIAN HOLDS THE SECURITIES IN SAFE KEEPING.
REGISTRAR MAINTAINS THE UNIT HOLDER`S ACCOUNTS.
SCHEMES DRAWN UP WITH A PURPOSE .THE NAME INDICATES THE CATEGORY

GROWTH FUNDS.
BOND FUNDS.
MONEY MARKET FUNDS.
EQUITY INCOME FUNDS.
SECTOR FUNDS.

TWO TYPES OF FUNDS ARE THERE..

1. OPEN ENDED FUNDS..
These types of schemes are open for a specific period in the initial offer .
Any investor can enter or exit in this scheme as the Secondary market is open .
The secondary market operates on NAV concept.
2. CLOSE ENDED FUNDS.
These are funds open for a specific purpose .mainly tax benefit schemes where the funds
invested by the unit holder is locked in for three years or more . Some schemes are listed on stock
exchange for secondary operations .
N A V .NET ASSET VALUE
Market value of investments + Receivables + Other accrued income +other assets
_ Accrued expenses- other payables-other liabilities
______________________________________________________________________
No of units out standings as on NAV date.
Calculation of NAV is an intensive process that takes place in a short time frame at the end of each
business day.
The sale or re
purchase of units are based on NAV price.
EXIT LOAD.
Some schemes with an intention of making the investors not to redeem quickly to ensure the scheme to
perform.
Choosing a MF..

Risk appetite
Investment tenure..risky investments must not be held for long. It will take time to recover.
Investment goals
Performance.
CRISIL HAS composite performance ranking methodology..ranking of mutual fund schemestwo
year NAV history 100% portfolo disclosure on ranking date.
AMFI. Apex body of all registered AMC`s objective of the AMFI is to promote investor`s
interest by defining and maintaining high ethical and professional standards.
S E B I is the regulatory authority ..
MUTUAL FUNDS INVESTMENT..
The following are the area of investment
ADR`S/GDR`S issued by Indian or foreign companies.
Equity of overseas companies listed on recognized Stock exchanges.
Foreign debt instruments fully convertible ..with investment grading.
Derivatives traded on stock exchanges.
**********************
FACTORING
Sri C.S. Kalyana Sundaram committee studied the scope of such services and recommended to
RBI .
Introduced in the system in 1989.
To be done by a subsidiary.
Still a popular services
Supports working capital. Facilities.
DEFINITION..
Factoring is a continuous arrangement between a financial institution ( FACTORS)
And a business concern ( THE CLIENT ) selling goods or services to trade customers(THE
CUSTOMERS) where by the factors purchases the client`s account receivables /book debts either
with or without recourse to the client and in relation thereto controls the credit extended to the
customers and administers the sales ledger.
Small and medium scale units needs such services.
Collection of receivables on time.
Delay leads more complication.
FACTORS DOES..

Arrangement of collection debts.

Administration of sales ledger.
Covering credit risk involved.
Advisory services by the market information.

FACTORS.does with recourse factoringin India.

FOR A CLIENT
OFF BALANCE SHEET ITEM.

INSTITUIONS FOLLOWS UP.

MORE TIME FOR BUSINESS DEVELOPMENT
IMPROVE RETURN.
CAN AVOPID RISKY CUSTOMER.
COMFORTABLE CASH FLOW.
GOOD REPUTATION IN MARKET.

COMPARED TO BILLS DISOCUNTING(BANKS).

Package of services.
No upfront fee.
Easy procedures.
Maximum fund available.
Lessor cost of funds.
Structure for each customer.
Off balance sheet item.
Identification of good customers.
As of now Factors have also introduced purchase bills factoring where in purchases made on credits
will be financed.
88888888888888888888888888888888888888
FORFEITING

Financing receivables ..international trade.

Pure financing arrangement.
With out recourse.
All risk covered.
Activity spread over 3 to 5 years.

Exporter sells to importer on deferred payment basis.

Bills drawn by exporter will be accepted by Importer.
Promissory note in guaranteed by endorsement by the importer`s bank.( AVAL)
Exporter enters into an arrangement with FORFEITER to sell the avalled notes at a
discount with out recourse.

DISCOUNTING OF THESE GUARANTEED NOTESPRICING DEPENDS UPON.

TERMS OF THE NOTES.
RATING OF THE GUARANTOR .
MARGIN TO COVER THE RISK
DAYS OF GRACE,
COMMITMENT CHARGES
RATE OF INTEREST.
FORFEITOR CAN HOLD THESE TILL MATURITY OR ELSE CAN SELL IT AS HIGHLY
SECURED PAPER
Important thing here is the financial position of the bank which gives guarantee.

88888888888888888888888888
VENTURE CAPITAL
CONCEPT FUNDING..INNOVATION.ENTERPRISE.

FOCUSSES ON GROWTH.TESTING THE REALITY OF THE CONCEPT.

LONG WAIT FOR RETURNS.
HIGH GROWTH HIGH RISK..
INVESTMENT
IN
THE
FORM.EQUITY.QUASI
EQUITY
DEBT..CONDITIONAL LOAN.
INVESTMENT IN UNTRIED TECHNOLOGY.
AT SEEDEARLY STAGE OF FINANCINGSUPORT THE CONCEPTR&D
SUPPORTSTART
UPS.GROWTH
STAGEFINANCING
FULL
SCALE
PRODUCTION.
ALSO FUNBDS TAKE OVER ..ACQUISITION..BUY OUT ..
VC
HAS
QUALITY OF A COMMERCIAL BANKER..STOCK
MARKET
INVESTOR.ENTREPRENEUR.

GROWTH OF THE INDUSTRY.

1985 SAW DEVELOPMENT FUNDS. SET UP BY D F I `S
1990 INDIA SAW SPONSORED VC`S AND PRIVATE VC`S
21 VC`S ARE OPERATING.WITH FUNDS
DRAW BACKS.
PRIORITISATION OF THRUST AREAS.
LACK OF REGIONAL FOCUS.
LACK OF FOCUS ON ENTREPRENEURIAL DEVELOPMENT.
SUCCESS OF VC`S..
IDENTIFICATION
OF
PROPER
PERSON
BEHIND
THE
PROJECT.ENTREPRENEURIAL SKILLS.PROFESSIONAL APPROACHABILITY
TO INNOVATEPERSUEINTEGRITY
TECHNOLOGY..
GROWTH PROSPECTS.
SHOULD BE IN APOSITION TO DISTINGUISH BETWEEN..POTENTIAL
PERFORMER.NON STARTER..NON PERFORMER.
EXIT ROUTE..OR DISINVESTMENT.
PROMOTERS BUY BACK
IPO
ALTERNATIVE INVESTOR.

VC`S SHOULD LOOK INTO SMALL AND MEDIUM ENTERPRISES FOR SUCCESS.
GOVERNMENT POLICY GIVING INCENTIVES WILL HELP TO IMPROVE THIS
INDUSTRY.
S E B I IS THE REGULATORY AUTHORITY.APPROVAL AND LICENSE FROM S E B I IS
A MUST (SEBI ( VENTURE CAPITAL FUND) REGULATIONS 1996.)
..
PRIVATE EQUITY

Not defined in any financial literature

More known as a Private placement .

Can be looked into as later stage financing.
Can finance Acquisition, Strategic sale, LBO)
In existence in India since 1990
With Dot com boom it became popular.
Invests in Specific /non specific industry.
As a long term investment
Normally at the expansion stage.
Has an interest in management.
Investment if for 4 to 5 years .

GENERAL.
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.

PE entities are formed as partnerships/ Pvt ltd co.

Fund corpus is created out of investor funds.
Entity acts as General partner.
Investors are limited partners.
Protects investor`s interest.
Has diversified sectoral investment .hedges its risk.
Almost all industry segment it has presence.
Ensure improvement in Company`s profitability.
Viable return on fund`s investment.
GP makes an exit at an appropriate time and distribute the profits as IRR.

SUCCESS..
In 2005, 17 PE backed companies came out with IPO`s raising Rs 5000 crs.
Western market PE has been institutionalized..with Banks, PF, MF Trust fund
participating.
Scouting for lucrative propositions.
Slow down in Chinense market.
Indian industries has ample scope and potential for development.
More scope for growth, expand, merge,buy outs.
AREA OF INTEREST OF PEE..
Green field airports.
Telecom
Hotels
Real estate.
Distillation and brewing potable alcohol.
Whole sale and export trading.
Setting up SEZ.`s
REGULATORY PARAMETERS
There is no regulatory frame work for PEE.
SEBI has for
VC`s
MF`s
FDI/FII

Collective investment scheme.

PE can be part of VC. But need not submit any report under SEBI guidelines.
FEMA takeover code and insidertrading applies.
PE `s are mostly Pvt ltd companies
The players in the Indian market.
INTERNATIONAL.
i.
ii.
iii.
iv.
v.

Krolbert Kravis Roberts..KKR..Largest PE entity

Blackstone
Carlyle
General atlantic partners
Warburg pincus

DOMESTIC..
ICICI VENTURE FUND
GW CAPITAL
HDFC
KOTAK
INDIAN SCENARIO.
Most of the companies has varied levels of funds requirement the following three levels of PE
funding is popular.
Early stage
Very limited deals are done in thi .
Growth capital.
PE funds listed companies Most of the deals are done through this route.
Buy out.
PE may acquire substantial and
market.

uncontrolled stake. This route is yet to mature as in Western

Raising equity through Private placement

a.
b.
c.
d.

Through VC funding
Private equity in later stage financing ..unlisted companies.
Private equity in listed companies.
Qualified Institutional placements.Listed companies approaching QIB`s as per SEBI
guidelines.
e. Preferential allotments .to strategic investors, business collaborators and joint venture
partners not with an intention of fund raising but facilitate investors to join the business.

In each of these case the valuation of the Company and pricing of the equity becomes important .
SOME STATISTICS..

PE investment in India could grow to around $20 billion in 2010.

May exceed the traditional FDI .
2007Rs5730 crs was invested through PE.
As of 2008 has seen 40 % down fall.
PEE will come in for 4 to 5 years ..as the growth is about 7%.

LEGAL ASPECTS.
For PE FUNDS there is no specific regulations compared to MF,VC,
C I S,.
There is a need for certain regulatory framemwork, after giving a clarity on terms like funds,
investors, section of public.
******************

OTHER FINANCIAL INSTITUTIONS

D.F.I
NBFC
SFC
CO OPERATIVE BANKS
R.R.Bs
CIBIL
CCIL
DICGC
ECGC
DEPOSITORIES
CUSTODIANS
BROKING FIRMS
STOCK EXCHANGES
NABARD
EXIM BANK
SIDBI
NHB
PENSION FUND .
PFRDA Regulatory authority wasdformed and started functioning from 1.4.2009 to manage
pension funds.
Open to Public for unorganized and private sector .
Thre Institutions have been identified to do manage the pension funds.
AS PER SUPREME COURT
Pension paid is neither a bounty nor a matter of grace depending upon the management (GOVT)

Amount paid is in the nature of a deferred payment compounding for the services rendered.
There should be a change in attitude towards pensioners who should be treated as a respected senior
citizen of the country.
Management provides ( Means ) so that a person will be able to give a decent , independent , self
respect and attain standard equivalent to pre retirement level.
SECURITISATION( Mortagage backed securities)
Securitisation is process by which the forecast future income of an entity is transformed and sold as
debt instruments .
Suitable repackaging the future Cash flowswhich can be put to productive use in the business.
ORIGIN..
1970 in USA.
Most of the developed countries started a market for securitised assets.
1991 . First transaction took place in India.
ASSET SECURITISATION ..is defined as a carefully structured process whereby loans and other
receivables are packaged , underwritten and sold in the form of asset backed securities.
It is a process by which an illiquid, non negotiable and high value financial asset is converted into
securities of small value which are tradeable and transferable.
WHAT CAN BE SECURITISED ..

Term loans repayment from reputed companies.

Receivables from Govt depts.
Lease rentals receivables.
HP instalment receivables.
Housing loans receivables.
Credit card receivables.

STEPS IN THE PROCESS

The institution to raise funds through this route identifies the assets to be securitised.
( Originator)
Another institution called a Special purpose vehicle..( SPV) normally investment banker .
SPV creates a special security .
On completion of transaction ie ..transfer of assets for value consideration the assets stands
removed from the Balance sheet of the Originator.
SPV sells the securities to investors.
These securities are Pass through certificates.
Repayments received by the originator ..passed on to the SPV.
SPV works as trust.
Rating required for the securities.
PTC `s are tradeable in secondary Market.
Securitisation is risk management tool..source of liquidity and improves capital adequacy.
Investors are safe with such investment as they are backed by assets.

LEGAL PROVISIONS TO BE AMENDED

STRONG SECONDARY MARKET TO BE SET UP.
WEALTH MANAGEMENT
Managing of wealth with an intention of wealth maximization on an on going basis, with proper
financial planning.
This service is basically now required by RETAIL SEGEMENT investor with growth of this segment.
Now this has become a Profession for Finance specialists with growing opportunities.
BACK GROUND..

Banks and Financial institutions have their Treasury operations .

Corporates have their Treasury operations.
Individuals ..can use their own strategy to investment or seek assistance .
Area of investment and option was limited prior to 1985.
Investor education was limited Banks than market exposure.
Understanding of Risk was a complex one for Individuals.
Depended on Brokers or Primary dealers for market exposures.

OBJECTIVES
Cardinal Principles.of Investment
Safety
Liquidity
Return.
NEED TO UNDERSTAND
PERIODSHORT TERM, MEDIUM TERM, LONG TERM
QUANTUM..HOW MUCH TO INVEST?
HOW LONG TO INVEST?
WHEN TO DISINVEST ?
HOW MUCH TO DISINVEST?
RETURN ON INVESTMENT .
TAX ASPECT.

Investment creates assets.

Tangible assets easy to handle .
Wealth is identified by assets created.
Assets suppose to grow.
Assessed by market value.
Assets value should be enhanced.
Wealth maximization.

 Protecting the assets.

Wealth management is a recent concept.

Structured assisted programme.
More popular in retail segment .
Take care of Complete investment.

Independent investment solutions.

Each individual. needs and objectives.
Long term investment strategy.
Investment advisory
manager..

servicesInvest

bankingportfolio

NEED OF SUCH SERVICES

Growth in H N W I.
Diverse basket of products.
Concept of Financial planning.
Customised investment solutions.
Investment parameter determination.
Proper asset allocation.
Asset management.
Ensure timely returns.
Proper tax planning.

WHO ARE THESE PROFESSIONALS..

Industry experience/exposure.
Domain knowledge.
High degree of ethics.
Analytical skills.
Independent decision making .

ACTION.

Time spent on assessing the client`s requirement

Asset allocation
Security selection.
Market timing .
Understanding the returns.

AREAS COVERED
MONEY MARKET INSTRUMENTS
CAPITAL MARKET INSTURMENTS
DERIVATIVE PRODUCTS
BANK DEPOSITS
MUTUAL FUNDS.
INSURANCE PRODUCTS
REAL ESTATE.

managers..Wealth

COMMODITY MARKET .
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ADDITIONAL NOTES.
FOREIGN INVESTMENTS IN INDIA ..
Any investment flowing from one country to another is foreign investment .
Indian Government has classified as under..

Foreign direct investment

Foreign institutional investment
Non resident Indian
Person of Indian origin

WHY.?
Creation of additional economic activity
Generation employment
Flow of technology
Foreign Investment in India is governed by the FDI policy announced by GOI in the provisions of
FEMA 1999.
FDIis a direct investment to the specific enterprises.
FIIInvestment in secondary market.
FDI is more stable than FII..
FDI can enter certain sectors .with ceilings.
FII can buy and sell ..cannot have more than 10% of the paid up capital of the company.
Under FDI investments can be made by non residents in shares and convertible debentures of an
Indian company under two routes.
Automatic route
Government route .FIPB approval is required.
Some areas are prohibited to have FDI.
The policy has clearly given the investment limits for various industry segment.
HEDGE FUNDS
HEDGE FUNDS HAVE NOT ARRIVED IN Indian market. Through FDI route they have entered
Indian market.
They are typically private investment funds and invests in different classes of assets. They meet the
speculative requirement of wealthy private investors.
Hedging is a mechanism by which the participants in the physical /cash markets can cover their price
risk.
COMMODITY MARKET
Commodity refers to every kind of movable property other than actionable claims, money,and
securities.
Commodity market where the commodities are exchanged through a broker.
The commodities traded are.Gold, Coffee, Cardamom, Sugar,Silver, Natural gas,

Forward market commission as commodity exchange regulator encouraged setting up of Commodity

exchange.
MCX.Multi commodity exchange of India
NCDEXNational commodity and derivative exchange ltd.
NMCENational multi commodity exchange
******************************

TERMINOLOGIES
PRIMARY MARKET
SECONDARY MARKET.
TRADING
YIELD
COST OF FUNDS
RETURN ON INVESTMENT
SECURITY
SECURITIES
SECURITISATION
DERIVATIVES.
IPO
FPO
REDEEM
LISTING
QUOTATIONS.
FRENCH AUCTION
DUTCH AUCTION
ASBA
LOCK IN PERIOD
GREEN SHOE OPTION
UNDERWRITING
DEVOLVEMENT
DEPOSITORIES
D.P.
DEMAT

BASIS OF ALLOTMENT
MOU
DDC
INTERSE ALLOCATION
PREMIUM
OFFER PRICE.
PROMOTERS CONTRIBUTION
PROMOTERS HOLDING
LEASE RENTALS.
FINANCIAL LEASE
OPERATIONAL LEASE.
RTI/STA
CUSTODIANS
NAV
RECORD DATE
BOOK CLOSURE
EX RIGHTS/EX BONUS
CUM RIGHTS /CUM BONUS
RENOUNCING THE RIGHTS.
DELISTING
PRIMARY PERIOD
SECONDARY PERIOD
RESIDUAL VALUE
EXIT ROUTE
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