Depository vs.
Depository Participant
Depository
 Depository is like a bank which keeps
the café custody of the securities.
 Depository is a link between customer
and company.
 There are only two depositories in India,
1. NSDL and 2. CDSL
 Depository is governed by Depository
Act, 1996
Primary Market vs. Secondary Market
Primary Market
 When shares are first time issued in the
market, these are issued in the Primary
Market.
 This is company to investors market.
 First hand securities are dealt in this
market.
 Merchant Bankers play lead role in this
market.
Credit Rating vs. Grading
Credit Rating
 Credit Rating, is the evaluation of the
credit worthiness of an individual or of
a business concern or of an instrument of
a business based on relevant factors
indicating ability and willingness to pay
obligations as well as net worth.
 When the debt securities are rated, it is
called credit rating.
 Different symbols are used for different
kinds of debt instruments.
Hedge Funds vs. Mutual Funds
Hedge Funds
Depository Participant (DP)
 Depository Participant is the agent of the
depository.
 Depository is link between customer,
depository and company.
 There are various numbers of DPs in
India.
 DPs are governed by SEBI (Depositories
and Participant) Regulations, 1996.
(2008-D)
Secondary Market
 When the shares are purchased and sold
between investors, these dealings are
done in the secondary market.
 This is investor to investor market.
 Second hand securities are dealt in this
market.
 Stock brokers and sub brokers play lead
role in this market.
Grading
 The grade indicates an assessment of
business fundamentals and market
conditions in comparison to other listed
equities at the time of the issuance. IPO
Grading is now optional.
 When different forms of IPOs are rated,
it is called grading.
 Grading is done on a five point scale
basis.
Mutual Funds
 Private investment vehicle
 May use leverage extensively
 May engage in short selling
 Restricted from advertising
 Offered by private placement memo
 Liquidity varies from monthly to
annually
 May use derivatives
 Manager compensated on performance
 Manager invests own capital
 Flexibility in investment strategies
 Usually aim for absolute return objective
 Examples: HFG India Continuum Fund,
Avatar Investment Management, India
Deep Value Fund, Fair Value, India
Capital Fund.
 Public investment vehicle.
 Limited use of leverage
 Maximum 30% of profits from short-
sales
 may freely advertise and promote
 Offered by prospectus
 Daily liquidity and redemption
 Can not use derivatives
 Manager paid a salary and bonus
 Manager typically does not invest own
capital
 Relatively inflexible
 Aim to outperform known market
benchmark
 Examples: UTI Asset Management
Company Ltd., Reliance Capital Asset
Management Ltd., Kotak Mahindra
Asset Management Company Ltd.

Offshore Hedge Funds vs. Domestic Hedge Funds

Offshore Hedge Funds Domestic Hedge Funds

Offshore funds are typically more liquid than Domestic Hedge Funds are less liquid than
domestic funds. Offshore Hedge Funds.

Offshore hedge funds are usually structured Domestic Hedge Funds are usually formed
as corporations, not as limited partnerships. as Limited Liability Partnerships.

Offshore hedge funds are valued as NAV Domestic Hedge Funds are valued as
(net asset value), account balances.

Call option vs. Put option

Basis of Difference Call option Put option

Definition Buyer has the right, but is not Buyer has the right, but is not
required, to buy an agreed required, to sell an agreed
quantity by a certain date for a quantity by a certain date for
certain price (the strike price). the strike price.

Costs Premium paid by Buyer Premium paid by Buyer

Obligations Seller obligated to sell Seller obligated to buy

Value Increases as value of the asset Increases as value of the
increases asset decreases

Analogies Security deposit – allowed to Insurance – protected against

take something at a certain price a loss in value
if you choose.

Future vs. Option

Basis of difference Future Option

Transaction Yes; the buyer and seller are both
mandatory obligated to complete the
transaction on the specified date
at the price set in the contract.
No; the buyer has the option
but not the obligation to
complete the transaction.
The seller is obliged to
transact if the buyer of the
option chooses. The price at
which the transaction will
occur is set in the option
contract.

Transaction date The date specified in the contract Any time before the expiry
date specified in the contract

Standardized contract Yes Yes

Daily settlement Yes Yes

Margin account Yes Yes

required

Bull vs. Bear

Bull Bear

The bulls are a type of share traders, who Bulls do not buy the shares, rather sell the
operate in the share market. They are called shares in anticipation of fall in prices of
bulls as, they always buy shares in shares. A bear who is not able to fulfil his
anticipation of rise in the prices of shares. commitment is called Lame Duck.

Nifty vs. Sensex

Nifty Sensex
It is the index of NSE (National Stock It is the index of BSE (Bombay Stock
Exchange). Exchange)

It contains 50 shares from different sectors
on the basis of capitalisation. The rise and
fall of the Nifty is reflected through the
movement of the prices of these 50 index
stocks.
It contains 30 shares from different sectors
on the basis of their capitalisation. The rise
and fall of the Sensex depends on the price
movement of the shares

Leverage Funds vs. Hedge Funds (2007-J)

Basis of Difference Leverage Funds Hedge Funds

Meaning These are also known as These are not borrowed funds,
borrowed funds. these are used for speculative
purpose.

Risk involved Leverage funds are less risky. Hedge funds are more risky.

Role in the Portfolio Leverage funds increase the Hedge funds do not increase
size of portfolio. the size of portfolio or its
value.

Trading Leverage funds tend to They use their funds for

indulge in speculative trading
and risky investments.
speculative trading i.e. for
selling shares whose prices
are likely to fall and for the
buying of the shares, whose
price are likely to rise.

Growth Oriented Scheme vs. Income Oriented Scheme

Basis of Difference Growth Oriented Scheme Income Oriented Scheme

Aim of the scheme Growth Schemes aims to These schemes aim at

provide capital appreciation providing regular and steady
over the medium to long term. income to investors.

Investment Under this scheme funds are They generally invest in

invested in the equities. fixed income securities such
as bonds and corporate
debentures.

Suitability This scheme is suitable for These schemes are suitable

investor, having a long term for investors seeking regular
outlook seeking growth over income or needing their
 period of time. money back in the short term.

IPO vs. FPO

IPO FPO

 Full form of the IPO is Initial Public
Offering.
 A company makes an IPO for compiling
money.
 IPO is the first sale of securities by the
issuing company.
 IPOs are risky investments as an
individual investor cannot predict what
will happen to the initial trading in the
coming days
 Full form of FPO is Further or Follow on
Public Offering.
 FPO for adding to the initial public
offerings.
 FPO is the second sale for expanding
businesses by the issuing company.
 In the case of FPOs, the risk is lower as
an investor already has an idea about the
investment and future growth of the
company.

Right Issue vs. Bonus Issue

Basis of Difference Right Issue Bonus Issue
1. Authorization Issue of right shares does not Articles must contain a
require any authorization in the specific power empowering
articles. the company to issue bonus
shares.

2. Consideration When right shares are allotted, When shares are allotted, the
the company receives the issue company does not receive
price of shares. anything from the
shareholders.

3. Shares already held to For issue of right shares, it is not Bonus shares must always be
be fully paid up a precondition that the shares fully paid up.
held by the existing
shareholders should be fully
paid up.

4. New shares to be Consideration for right shares, Bonus hares must always be
fully paid up like any other issue of shares, is fully paid up.
generally paid in installments,
i.e. by way of calls, thus right
shares need not necessarily be
fully paid up.

5. Requirement for Money received by issue of Since no money is received

keeping money in right shares must be kept in a by the company by issue of
 separate bank account separate bank account. bonus shares, there is no
requirement of a separate
bank account.

6. Right to renounce The existing shareholders have a There is no such right.

right to renounce the shares
offered to him.

NSDL vs. CDSL

NSDL CDSL
Full form of NSDL is National Securities Full form of CDSL is Central Depository
Depository Limited Securities Ltd

Trades done on NSE (National Stock Trades done on BSE (Bombay Stock
Exchange) are linked directly to NSDL. Exchange) are linked directly to CDSL.

FII vs. FDI

Basis of Distinction FII FDI

Full Form Foreign Institutional Investor Foreign Direct Investment.

Meaning FII is an investment made by an FDI is an investment that a

investor in the markets of a parent company makes in a
foreign nation. foreign country.

Registration In FII, the companies only need They do not need registration
to get registered in the stock with the Stock Exchanges.
exchange to make investments.

Hot money Money invested by the FIIs is
known as hot money, because
money once invested can be
taken back by the investors any
time by selling off the securities.
In FDI, there is a lock in period
of investment. So once invested
cannot be taken back by the
investors during a lock in period.

Advantage to the It is comparatively less It is comparatively more

country advantageous, since there is no advantageous, because money
lock in period. invested under FDI stays in
India for a lock in period.
 Rolling Settlement vs. Trade to Trade Settlement
Rolling Settlement Trade to Trade Settlement

Intra-day trading is allowed. Intra-day trading is not allowed i.e securities

bought on a day cannot be sold on the same
day.

Netting is allowed. Netting is not allowed.

Settlement can be made by netting basis. Delivery is mandatory.

ADR vs. GDR

Basis of ADR GDR
distinction

Full Form American Depository Receipts Global Depository Receipts

Issued at Stock Exchange of America i.e Dow Jones Stock Exchange of London
i.e Luxemberg Stock
Exchange

Voting Rights Available Not Available

Denomination Always in American Currency Normally in American

currency

Investors Only American Investors Anyone in world can invest

Examples of
companies who
have issued.

IDRs vs. GDRs

Basis of IDR GDR
distinction

Full form Indian Depository Receipts Global Depository Receipts

Issuing Any Foreign Company Indian Company

company
Capital flows From India to outside India From foreign country to
India

Denominations In Indian Rs. Normally in American $

Voting rights Available Not available

Issued against Foreign company’s equity shares Indian company’s equity

shares

Examples of Standard Chartered Bank

companies
who issued

Commercial Bill vs. Commercial Paper (2010-J)

Commercial Bill Commercial Paper

These are basically the negotiable Commercial Paper is a money market

instruments drawn by the seller on the buyer. security issued (sold) by large corporations
to get money to meet short term obligations.

The most common practice is that the seller Commercial paper is usually sold at
who gets the accepted bills of exchange a discount from face value, and carries
discounts it with the Bank or financial higher interest repayment rates than bonds.
institution or a bill discounting house and
collects the money (less the interest charged
for the discounting).

It can be issued by any seller. only firms with excellent credit rating are
able to sell their commercial paper at a
reasonable price.

Securities Market vs. Money Market (2002-D)

Basis of Securities Market Money Market
distinction
Meaning It is a place where securities are Money market refers to the
traded for raising long term funds market where borrowers and
as a means of finance. lenders exchange short-term
funds to solve their liquidity
needs.
Entities involved SEBI, stock exchanges, stock RBI, banks, financial
brokers & investors etc. institutions like DFHI
(Discount & Finance House
of India), etc.

Regulated by SEBI RBI

Examples Shares, debentures, bonds, etc. T-Bills, Certificate of

Deposits, Commercial Papers,
Call money, Notice Money
etc.

Disaster Bonds and Dual Convertible Bonds (2008-D) (2010-D)

Basis of Disaster Bonds Dual Convertible Bonds
Distinction
Meaning These are issued by companies A dual convertible bond is
and institutions to share the risk convertible into equity shares or
and expand the capital to link debentures/ preference shares,
investors return with the size of at the option of the investor.
insurer losses. The bigger the
losses, the smaller the return
and vice- versa.

Principle & coupon The coupon rate and the Principle and coupon rate is
rate principal of the bonds are already fixed.
decided by the occurrence of
the casualty of disaster and by
the possibility of borrower
defaults.

Pure vs. Hybrid Instruments (2004-D)

Basis of Pure Instruments Hybrid Instruments
Distinction
Meaning The instruments which are The instruments which were
created by combining the issued with their basic
features of equity with bond, characteristics in tact without
preference and equity etc. are mixing features of other classes
called Hybrid instruments. of instruments are called Pure
instruments.
Examples Convertible preference shares, Equity shares, Preference shares
non convertible debentures with etc.
equity warrants, partly
convertible debentures,
Optionally convertible
debenture, secured premium
notes with warrants etc.

Merchant Banker vs. Portfolio Manager (2010-J)

Basis of Merchant Banker Portfolio Manager
Distinction
Meaning Any person engaged in the Portfolio manager means any
business of issue management person who pursuant to
by making arrangements contract or arrangement with
regarding selling buying or the client, advises or directs or
subscribing to securities or undertakes on behalf of the
acting as client (whether as a
manager/consultant/advisor or discretionary portfolio
rendering corporate advisory manager or otherwise) the
services in relation to such management or administration
issue management is called of a portfolio of securities or
Merchant Banker. the funds of the clients as the
case may be.

Services rendered Merchant banks are rendering A portfolio manager is

diverse services and functions. responsible for designing
These include organising and customized investment
extending finance for
solutions for the clients
investment in projects,
assistance in financial according to their financial
management, raising needs.
Eurodollar loans and issue of
foreign currency bonds.
Different merchant bankers
specialise in different services.

Governed by SEBI (Merchant Bankers) SEBI (Portfolio Manager),

Regulations, 1992 Regulations, 1993

Networth required as Rs. 5 crores Rs. 50 lacs

per SEBI regulations
 Open ended vs. close ended mutual funds (2008-D)
Basis of Open ended mutual fund Close ended mutual fund
distinction
1. Corpus In this case because of no fixed In this case, there is only one
number of units, there are various corpus.
corpuses.

2. Listing There is no listing on stock For buying and selling of

exchanges; transactions are done shares, these funds are listed on
directly with the fund. the stock exchange.

3. Values There is availability of only one There is availability of two

value namely Net Asset Value values namely: NAV and
(NAV) Market value.

4. Liquidity These are highly liquid. These are mostly liquid.

Public Issue vs. Right Issue (2002-D)

Basis of distinction Public Issue Right Issue
offered to whom To general public Firstly to existing
shareholders, if they deny,
then to general public.

Minimum promoter Promoters have to comply There is no such provision.

contribution with the provision of
promoter’s contribution as
specified in the SEBI (ICDR)
Regulations, 2009.

Right to renounce No such provision Investor has the facility to

renounce his right in favour
of someone else.

Offer document Prospectus Letter of offer