Investor Guide Book1

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M i n i s t r y o f C o r p o r a t e A f f a i r sG o v e r n m e n t o f I n d i a

INVESTORS GUIDETO THE

CAPITAL MARKET

EditorPrithvi HaldeaPRIME Database

Under the aegis of Invest r Ed!"ati n and Pr te"ti n #!nd

June, 2010


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Salman KhurshidMinister of State (Independent Charge)

Ministry of Corporate Affairs, Government of India

MESSAGE

The Indian economy has expanded at a rapid rate during the current decade andthe corporate sector has emerged as the biggest contributors in this gro th story!"ot on#y has India itnessed #arge inf#o of foreign investments during this periodbut has a#so seen the emergence of Indian mu#tinationa#s on the g#oba# corporatescene! The capita# mar$et and its expansion has been an important factor in givinga boost to the gro th of the corporate sector during the current decade! %ith thisgro th of the capita# mar$et, some of the Indian companies are no en&oyingmar$et capita#i'ations and are amongst the top companies in the ho#e or#d!

o ever, re#ative#y #o participation of retai# investors in the corporate economycontinues to be a cause of concern! It has been ascertained that the tota# numberof retai# investors is much #ess than * of the tota# Indian popu#ation!

%hi#e on one hand, the number of retai# investors is #o , on the other handsubstantia# amount of househo#d savings are avai#ab#e hich can be channe#i'ed inthe corporate economy through various investment schemes! This can enab#e thecommon peop#e to derive higher returns from their investments and #in$ the

gro th of corporate sector to the gro th of income of these househo#ds! Thisre+uires an effective outreach initiative to the common peop#e here they can beeducated as e## as encouraged to ta$e informed investment decisions in thecorporate economy in order to get higher returns!

Ta$ing note of this, the Ministry of Corporate Affairs has decided to mainstreamthe investor a areness program as a nationa# agenda during the current year! orthis purpose, e have partnered ith a number of institutions ho i## be

organi'ing more than -,... investor programmes throughout the country this year!%e are a#so organi'ing the /India Investor %ee$0 during 1u#y 2. . ith the themeInformed Investor an Asset to Corporate India !


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The Ministry is bringing out a comprehensive investor guide on this occasionhich i## he#p the /aam aadmi0 desirous of ma$ing investments to understand

their rights and responsibi#ities as e## as various investment instruments a#ong

ith their associated ris$s and returns! I am sure that the pub#ication of this 3oo$i## be a significant step in spreading a areness on investor issues and i## he#p in

integrating the common man into the corporate economy of the country!

Sa#man 4hurshid


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R.Band opadh aSecretary

Ministry of Corporate Affairs,Government of India

FOREWORD

3uoyant and participative financia# and capita# mar$ets are not on#y one of themost important re+uirements for gro th of corporate economy, but are a#so animportant instrument of financia# inc#usion! The buoyancy in these mar$ets is asmuch dependent on the performance of the corporate sector as is on theparticipation of informed investors in the mar$et operations! %ith the t inob&ectives to bring more peop#e into the corporate economy by ay of investmentof their surp#us incomes and to ma$e them informed investors, the Ministry ofCorporate Affairs has underta$en various initiatives under the aegis of Investor5ducation and 6rotection und! These inc#ude media campaigns and organi'inginvestor a areness programmes ith the he#p of investor associations and some ofthe institutions or$ing in this fie#d! As a part of this initiative, the Ministry hasa#so made avai#ab#e educationa# content in different regiona# #anguages at its

ebsite! or redressa# of the investor grievances, the Ministry has made avai#ab#ethe services through an investor he#p#ine!

%ith a vie to convert the investor education and a areness programme ofthe Ministry into a mass movement, it has been decided to upsca#e this initiative ina big ay and to bring a number of organi'ations as partners in this area! I amhappy to announce that the three professiona# institutes, the ma&or trade andindustry chambers, the stoc$ exchanges a#ong ith the 7eserve 3an$ of India, S53Iand 8epartment of 6ub#ic 5nterprises have come together to ta$e up a very #argenumber of investor a areness programmes throughout the country! %e expect thenumber of these programmes to go beyond -,... during the current financia# year!

In order to educate the investors for ta$ing informed investment decisions, theMinistry has decided to bring out an easy to understand boo$ that provides #ucid


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information on various investment instruments and the rights and responsibi#itiesassociated ith each one of them! This Investor0s Guide has been edited by Shri6rithvi a#dea, a noted expert on the sub&ect! 9a#uab#e materia# has a#so beenprovided by S53I, 73I, Stoc$ 5xchanges and the 6rofessiona# Institutes in this

regard! The pub#ication of this boo$, hich i## a#so be avai#ab#e short#y in other#anguages, i## he#p in encouraging a much #arger number of common peop#e toparticipate in the corporate economy! This i## be a sma## contribution by theMinistry of Corporate Affairs to ards the nationa# agenda of inc#usive gro th and Iam sure that a #arge number of investors : existing and potentia# : i## benefitfrom the contents of this 3oo$!

The Ministry appreciates the contribution made by Shri 6rithvi a#dea and theorgani'ations that have partnered ith the Ministry in this initiative of nationbui#ding and hopes that the investors i## be encouraged for greater participationin the capita# mar$et in an informed and ise manner!

7!3andyopadhyay


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EDITORS NOTEInvestments by households in India have in reasingly moved either to ris!"free, fi#ed"return, lo$"

yielding instruments or to non"finan ial assets% &o$ !no$ledge among households of finan ial

on e'ts and 'rodu ts has a dire t im'a t on utili(ation by households of the finan ial mar!ets%)inan ial litera y also 'lays a signifi ant role in effi ient allo ation of household savings and the

ability of individuals to meet their finan ial goals% Investors tend to use thumb rules or see! advi e

from friends and relatives, $hi h are often 'oor a''ro#imations om'ared to those that follo$ from a

s ientifi analysis% *hey $ill tend to ma!e bad hoi es, ontribute insuffi iently, begin saving late, stay

a$ay from modern finan e, or fall 'rey to fraud or mis"selling% If they get bad advi e, the out omes

$ill be 'oor, and they $ill lose faith in the system% +istory sho$s that most investors allo$ others to

destroy their $ealth%

mall investors have al$ays 'layed a ru ial role in the a'ital mar!et% *here is, ho$ever, anin reasing need for their larger role% &ess than 1 - of our 'o'ulation invests dire tly in the mar!et

$ith another 2 to . - oming through the mutual funds% /orse, less than 2 'er ent of the household

savings go to the a'ital mar!et% Every earner is a 'otential saver every saver is a 'otential investor

and every investor ought to be finan ially literate% Unless the ommon 'erson be omes a $iser

investor, and is 'rote ted from $rongdoings, $ealth reation for the investor $ill remain a distant

dream% /e need to onvert a nation of savers into a nation of investors%

Individuals need to be em'o$ered so that they an ma!e informed de isions% Im'arting finan ial

!no$ledge to 'eo'le is a 'ubli good% *he government, regulators and the finan ial servi es industry

need to ome together to initiate a tion to im'rove finan ial litera y and deliver a urate information

in sim'le formats%

*his Investors uide is a humble beginning in this dire tion%

*he three institutions"I34I, I3 I and I3/4I had 're'ared Investors +andboo!s% +o$ever, these had

different overage and fo us% *his 'resent Investors uide to the 3a'ital Mar!et is a om'ilation of

the best materials a''earing in these handboo!s, u'dating the various se tions $ith the hanges in

the mar!et5la$s5guidelines, re$riting several se tions to ma!e them investor"friendly and adding a

large number of ne$ se tions% *he format of 'resentation has also been made more a''ealing%

*he Editor $ould li!e to a''re iate the ommitment of hri alman 6hurshid, Minister of tate

7Inde'endent 3harge8 ,Ministry of 3or'orate 4ffairs and hri R%9andyo'adhyay, e retary,

Ministry of 3or'orate 4ffairs to em'o$er the investors and $ould li!e to than! them for

'roviding the o''ortunity of $riting this uide%

Prithvi +aldea1st June, 2010

1


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INVESTORS GUIDE TO THE CAPITAL MARKET

TA$LE O# CONTENTS

Cha%ter S!&'e"t Pa(e N )1 I:;E *


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- Demateriali(ation

-


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Cha%ter *

INVESTOR EDUCATION AND PROTECTION #UND

A& !t IEP#

Investor Edu ation and Prote tion )und 7IEP)8has been established under e tion 20>3 of the

3om'anies 4 t, 1A>? by $ay 3om'anies

74mendment8 4 t, 1AAA for 'romotion of

investors a$areness and 'rote tion of the

interests of investors%

A"tivities !nderta+en &, IEP#

Investor Edu ation and Prote tion )und

74$areness and Prote tion of Investors8 Rules,2001 sti'ulate the a tivities related to investors

edu ation, a$areness and 'rote tion for $hi h

the finan ial san tion an be 'rovided under

IEP)%

7i8 4 tivities sti'ulated under Rules Edu ation 'rogramme through Media


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INVESTOR RELATED -E$SITES O# IEP#

ie%.)( v)in

Created and Maintained by

PRIME Database 7PR4 I 8

info ie'f%gov%in

)inan ial litera y allo$s the investors to fully

a''re iate o''ortunities and asso iated ris!s,

ta!e informed de isions and 'arti i'ate a tively

in the e onomi gro$th story of the ountry by

onverting savings into investments%

4s a ste' to$ards a hieving this obFe tive, the

M34 laun hed a $ebsite ///)ie%.)( v)in in

e'tember, 200 ) 9esides 'roviding information

about IEP) and the various a tivities that have

been underta!en5 funded by it, this $ebsite

fulfils the need for an information resour e for

small investors on all as'e ts of the a'ital

mar!et and do it in the small investors

language%

*his $ebsite 'resently overs information on

IP< Investing, Mutual )und Investing, to !

*rading, De'ository 4 ount, Debt Mar!et,

Derivatives, Indi es, Indi es 73omi tri'8,

Inde# )unds, Investor rievan es C 4rbitration

7 to ! E# hanges8, Investor Rights C


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- $hen dealing $ith su h entities

in any manner

-h, this /e&site2

3onsider the follo$ingL


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In fa t, this $ebsite is easier to sear h and

navigate than the offi ial $ebsites of the very

regulatory agen ies $hose a tions have been

tra !ed and listed by it%

Over *3453444 entities are alread, listed

n this /e&site

4s of .1 st May,2010, the $ebsite had listed over

1,0?,000 entities overingL

3om'anies5)irms L 2,>1

Individuals L ..,AB

Re(!lat rs " vered

*he $ebsite overs the orders 'assed by severalregulatory bodies, in luding the follo$ingL

- 9ombay to ! E# hange &td%

- 3entral De'ository ervi es

7India8 &td%

- 3om'any &a$ 9oard

- Debt Re overy *ribunals

- Em'loyees Provident )und


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administrator has been made online to ma!e

it user friendly%

- 'e ifi )orms for Different

ty'es of rievan es%

GRIEVANCE T7PES

- :on Re ei't of Refund


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Cha%ter 0

EDITORS 04 MANTRASSave %r!dentl,8

Invest even 1 re /isel,

Investin( Investing is om'ulsory%

ou have to invest other$ise your savings

$ill de're iate in value5'ur hasing 'o$er% +o$ever, mindless or re !less investing is

ha(ardous to $ealth%

04 Mantras t -ise Investin(

Mantra *

Invest nl, in .!nda1entall, str n(

" 1%anies Do not go for momentum or 'enny sto !s%

Invest only in om'anies $ith strong

fundamentals these are the ones that $ill

$ithstand mar!et 'ressures, and 'erform $ell in the long term%

EKuity investments annot be sold ba ! to

the om'any5'romoters% trong sto !s are also liKuid sto !s%

Mantra 0

Read "are.!ll, Do not gamble a$ay your hard earned

money% Due diligen e is a must%

Read about the offer% *his is an advi e

diffi ult to 'ra ti e $ith offer do uments

no$ running into more than 1000 'ages

abridged 'ros'e tus too is diffi ult to read%

et, read you must, at least se tions on ris!

fa tors, litigations, 'romoters, om'any

history, 'roFe t, obFe ts of the issue and !eyfinan ial data%

Mantra 9

# ll / li.e:","le investin( ou an afford to ta!e greater ris!s $hen

you are young% 4s you ross >0, start getting out of ris!y

instruments% 9y >>5?0, you should be totally out of

eKuity% 7 ou an t afford to lose your a'ital

$hen you have sto''ed earning ne$

money8% *here are better things in life atthat age than $at h the 'ri e ti !er on *;N

Mantra ;

Invest in IPOs IP


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Mantra 0- revenue for the

're eding 1 year should be from

the a tivity suggested by the

ne$ name%

7e8 *he issue si(e does not e# eed >

times the 're"issue net $orth as'er the audited balan e sheet of

the last finan ial year

*o 'rovide suffi ient fle#ibility and also

to ensure that genuine om'anies do not

suffer on a ount of rigidity of the entry

norm 'arameters, E9I has 'rovided

t$o other alternative routes to

om'anies not satisfying any of the

above onditions, as underL

Entr, N r1 II F" 11 nl,

+n /n as the I$ R !te

7a8 *he issue shall be through the

boo! building route, $ith at

least >0- of the issue amount to

be mandatory allotted to the

ualified Institutional 9uyers

7 I9s8%

7b8 *he minimum 'ost"issue fa e

value a'ital shall be Rs% 10

rore or there shall be a

om'ulsory mar!et"ma!ing for

at least 2 years after the listing

date%

Entr, N r1 III F" 11 nl,

+n /n as the A%%raisal R !te

7a8 *he G'roFe tH shall be a''raised

and shall have 'arti i'ation to

the e#tent of 1>- by )inan ial

Institutions 5 heduled

3ommer ial 9an!s of $hi h atleast 10- shall ome from the

a''raiser7s8%

7b8 *he minimum 'ost"issue fa e

value a'ital shall be Rs% 10 rore

or there shall be a om'ulsory

mar!et"ma!ing for at least 2

years after the listing date%

In addition to satisfying the aforesaidentry norms, the om'any shall also

satisfy the riteria of having at least 1000

allottees in its issue%

#POs .r 1 Listed C 1%anies

4 listed om'any ma!ing a 'ubli issue 7i%e% an

)P

times the 're" issue net $orth as

'er the audited balan e sheet of

the last finan ial year

4ny listed om'any not fulfilling these

onditions shall be eligible to ma!e a

'ubli issue by om'lying $ith the I9

Route or the 4''raisal Route as

s'e ified for IP


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7b8 Publi se tor ban!s

7 8 4n infrastru ture om'any

$hose 'roFe t has been

a''raised by a Publi )inan ial

Institution or ID)3 or I&C) ora ban! $hi h $as earlier a P)I

and not less than >- of the

'roFe t ost is finan ed by any of

these institutions%

Ri(hts Iss!es

*here are no entry norms for a listed om'any

ma!ing a rights issue

OTHER ENTR7 PROVISIONS 4 om'any ma!ing a 'ubli issue is reKuired to

inter"alia om'ly $ith the follo$ing 'rovisionsL

"inimum #romoter$s %ontribution and &ock-in L

In a 'ubli issue by an unlisted om'any, the

'romoters shall ontribute not less than 20- of

the 'ost issue a'ital $hi h should be lo !ed in

for a 'eriod of . years% G&o !"inH indi ates a

free(e on the shares% *he remaining 're"issue

a'ital should also be lo !ed in for a 'eriod of 1

year from the date of listing% In ase of 'ubli

issue by a listed issuer 7i%e% )P


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allotments and IPs% )or IPs, ho$ever, the

mer hant ban!er handling the issue has to file a

o'y of the draft do ument $ith the sto !

e# hanges $here the om'any s se urities are

listed and also file the final 'la ement do ument $ith E9I after allotment for re ord 'ur'ose%

#ast Tra"+ Iss!es F#TI

E9I has introdu ed )*I in order to enable $ell"

established and om'liant listed om'anies

satisfying ertain s'e ifi entry

norms5 onditions to a ess Indian Primary

Mar!et in a time effe tive manner% u h

om'anies an 'ro eed $ith )P- of the

net 'rofit5 loss after ta# of the om'any for

the res'e tive years%

7vii8 :o 'rose ution 'ro eedings or sho$ ause

noti es issued by the 9oard are 'ending

against the om'any or its 'romoters or

$hole time dire tors as on the referen e

date and

7viii8 *he entire shareholding of the 'romoter

grou' is held in demateriali(ed form as on

the referen e date%

D es SE$I re" 11end an, iss!e2

It should be distin tly understood that E9I does

not re ommend any issue nor does it ta!e any

res'onsibility either for the finan ial soundness

of any s heme or the 'roFe t for $hi h the issue is

'ro'osed to be made or for the dis losures made

in the offer do ument%

D es SE$I a%%r ve the " ntents . the

..er d "!1ent2

ubmission of offer do ument to E9I should not

in any $ay be deemed or onstrued that the same

has been leared or a''roved by E9I% *hemer hant ban!er ertifies that the dis losures

B?


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made in the offer do ument are adeKuate and

are in onformity $ith E9I guidelines%

I. SE$I has iss!ed &servati ns n the

..er d "!1ent3 d es it 1ean that theinvest1ent is sa.e2

Investors should ma!e an informed de ision

based on the dis losures made in the offer

do uments% E9I does not asso iate itself $ith

any issue5issuer and its role should in no $ay be

onstrued as a guarantee for the funds that the

investor 'ro'oses to invest in an issue%

O##ER DOCUMENTSB

PROSPECTUS B LETTERS

O# O##ER 'ffer document means Pros'e tus in ase of a

'ubli issue or 'ubli offer for sale and &etter of


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bridged &etter of 'ffer means the abridged

version of a &etter of


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)inan ial statement, hanges in a ounting

'oli ies in the last three years and differen es

bet$een the a ounting 'oli ies and the Indian

4 ounting Poli ies 7if the 3om'any has

'resented its )inan ial tatements also as 'ereither U 44P5I4 are 'resented%

Le(al and ther in. r1ati n

&itigations involving the om'any and its

subsidiaries, 'romoters and grou' om'anies

are dis losed% 4lso material develo'ments sin e

the last balan e sheet date, government

a''rovals5li ensing arrangements, investment

a''rovals 7)IP95R9I et %8, other governmentindebtedness, et % are also dis losed%

Other re(!lat r, and stat!t r,

dis"l s!res

Under this head, the information in ludes

authority for the issue, 'rohibition by E9I if

any, eligibility of the om'any to enter the

a'ital mar!et, general dis laimer lause,

dis laimer in res'e t of Furisdi tion, dis laimer

lause of the sto ! e# hanges, listing, minimum

subs ri'tion, letters of allotment5refunds, e#'ert

o'inion, hanges, if any, in the auditors in the

last . years, e#'enses of the issue, fees 'ayable

to the issue management team, under$riting

ommission, bro!erage and selling ommission,

'revious rights and 'ubli issues, 'revious issues

for ash, issues other$ise than for ash,

outstanding debentures or bonds, outstanding

'referen e shares, ommission and bro!erage on

'revious issues, a'itali(ation of reserves or

'rofits, o'tion to subs ribe in the issue,

'ur hase of 'ro'erty, revaluation of assets,

lasses of shares, sto ! mar!et data for eKuity

shares of the om'any, 'romise vis" "vis

'erforman e in the 'ast issues and me hanism

for redressal of investor grievan es%

O..erin( in. r1ati n

Information in ludes terms of the issue, ran!ing

of eKuity shares, mode of 'ayment of dividend,

fa e value and issue 'ri e, rights of the eKuity

shareholders, mar!et lot, nomination fa ility toinvestors, issue 'ro edure, boo! building

'ro edure if a''li able, bid form, $ho an bid,

ma#imum and minimum bid si(e, bidding

'ro ess, bidding at different 'ri e levels, es ro$

me hanism, terms of 'ayment and 'ayment into

the es ro$ olle tion a ount, ele troni

registration of bids, build u' of the boo! and

revision of bids, 'ri e dis overy and allo ation,

signing of under$riting agreement and filing of'ros'e tus $ith E9I5R


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Mer hant ban!ers are reKuired to do thorough

due diligen e $hile 're'aring an offer

do ument%

-h 1 sh !ld an invest r a%%r a"h i.there are an, %r &le1s /ith the

dis"l s!res2

*he draft offer do ument submitted to E9I is

'ut out by it on it $ebsite for 'ubli omments%

In ase a 'erson has any information about the

issuer or its dire tors or any other as'e t of the

om'any $hi h is material but has not been

dis losed or some information has been

dis losed in orre tly, he an notify E9I aboutthe same%

IPO GRADINGIP< grading has been introdu ed as an endeavor

to ma!e additional information available to the

investors to fa ilitate better de ision ma!ing

before investing in an IP


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- 9usiness Pros'e ts and

3om'etitive Position

7a8 Industry Pros'e ts

7b8 3om'any Pros'e ts

- )inan ial Position

- Management uality

- 3or'orate overnan e

Pra ti es

- 3om'lian e and

&itigation +istory

- :e$ ProFe tsSRis!s

and Pros'e ts

D es IPO (radin( " nsider the %ri"e at

/hi"h the shares /ill &e ..ered in the

IPO2

:o% IP< grading is done $ithout ta!ing into

a ount the 'ri e at $hi h the se urity $ill be

offered in the IP


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'ros'e tus, abridged 'ros'e tus, issue

advertisements et % *he rading &etter of the

3R4 $hi h ontains the detailed rationale for

assigning a 'arti ular grade is available as a

Material Do ument for ins'e tion at theregistered offi e of the om'any%

CATEGOR7 O# INVESTORSInvestors are lassified by E9I under the

follo$ing . ategories"L

7i8 Retail Individual Investor 7RIIs8 means an

investor $ho a''lies or bids for se urities

for a value of not more than Rs% 1,00,000%

7ii8 ualified Institutional 9uyers 7 I9s8 means

7a8 Publi finan ial institution as defined

in se tion B4 of the 3om'anies 4 t,

1A>?

7b8 heduled ommer ial ban!s

7 8 Mutual funds

7d8 )oreign institutional investor

registered $ith E9I

7e8 Multilateral and bilateral develo'ment

finan ial institutions

7f8 ;enture a'ital funds registered $ith

E9I

7g8 )oreign venture a'ital investors

registered $ith E9I

7h8 tate Industrial Develo'ment

3or'orations

7i8 Insuran e om'anies registered $iththe Insuran e Regulatory and

Develo'ment 4uthority 7IRD48

7F8 Provident funds $ith minimum

or'us of Rs% 2> rore

7!8 Pension funds $ith minimum or'us

of Rs% 2> rore

7l8 :ational Investment )und set u' by

resolution )% :o%25.5200>"DD"II

dated :ovember 2., 200> of

overnment of India 'ublished in the

a(ette of India%H

7iii8 :on"Institutional Investors 7:IIs8 means

investors $ho do not fall $ithin the definition

of the above t$o ategories%

ALLOTMENTS 4llotment in a 'ubli issue to various investor

ategories is as follo$sL

!n case of book-built issues

1% In ase an issuer om'any ma!es an issue of

100- of the net offer to 'ubli through 100-

boo! building 'ro essS

7a8 :ot less than .>- of the net offer to retail

individual investors

7b8 :ot less than 1>- of the net offer to non"

institutional investors

7 8 :ot more than >0- of the net offer to

ualified Institutional 9uyersL

2% In ase of om'ulsory boo!"built issues, at least

>0- of the net offer should be allotted toualified Institutional 9uyers, failing $hi h

the issue $ill be de lared as invalid and all

subs ri'tion monies shall need to be

refunded%

.% In boo!"built issues made 'ursuant to the

reKuirement of mandatory allo ation of ?0-

to I9s in terms of Rule 1A728 7b8 of

e urities 3ontra t 7Regulation8 Rules, 1A> ,

the res'e tive figures are .0- for RIIs and10- for :IIs%

*here is no dis retion 'ermitted in the allotment

'ro ess% 4ll investors are allotted shares on a

'ro'ortionate basis $ithin their res'e tive

investor ategories%

!n case of fi ed price issues

*he 'ro'ortionate allotment of se urities to

different investor ategories is as follo$sL

>2


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1% 4 minimum >0- of the net offer shall initially

be made available for allotment to retail

individual investors%

2% *he balan e net offer shall be made available

for allotment toLa% Individual a''li ants other than retail

individual investors, and

b%


65/169

obtained% *he issuer an sti'ulate a 'ri e band of

20- 7 a' in the 'ri e band should not be more

than 20- of the floor 'ri e8 %*his method

'rovides an o''ortunity to the mar!et to

dis over 'ri e for the se urities, though $ithin a band of 20-%

Di..erential Pri"in(

Pri ing of an issue $here one ategory is offered

shares at a 'ri e different from the other

ategory is alled differential 'ri ing% In I3DR

Regulations, differential 'ri ing is allo$ed only

if the se urities allotted to an a''li ant are at a

'ri e higher than the 'ri e at $hi h the net offerto the 'ubli is made%

Dis" !nt t Retail

4n issuer om'any an allot shares to retail

individual investors at a dis ount of ma#imum

10- to the 'ri e at $hi h the shares are offered

to the other ategories%

UNDERSTANDING $OOK

$UILDING

-hat is & + &!ildin(2

9oo! building is a 'ro ess of 'ri e dis overy%

*he a''li ants bid for the shares Kuoting the

'ri e and the Kuantity that they $ould li!e to bid

at% *he bids have to be made $ithin the 'ri e

band s'e ified by the issuer% Retail investors alsohave the o'tion of not bidding at a 'arti ular

'ri e but rather using the ut"off o'tion% 4fter

the bidding 'ro ess is om'lete, the ut"off

'ri e i%e% the final issue 'ri e is arrived at by the

issuer de'ending u'on the bids re eived at

various 'ri es% *hough an issuer an sti'ulate

the final 'ri e to be any 'ri e in luding the

highest 'ri e of the 'ri e band in ase the entire

Kuantity of shares 'ro'osed to be sold are bid for

at that 'ri e, he an also hoose any lo$er 'ri e

'oint $ithin the band% 4ll a''li ants $ho have

bid at or above the ut off 'ri e are then eligible

for allotment and are allotted shares at the same

ut off 'ri e even if they had bid at a higher 'ri e

7Dut h au tion 'ro ess8% *he basis of allotment isthen finali(ed and allotment5refund is

underta!en%

-hat is a %ri"e &and2

*he red herring 'ros'e tus may ontain either

the floor 'ri e for the se urities or a 'ri e band

$ithin $hi h the investors an bid% *he s'read

bet$een the floor and the a' of the 'ri e band

annot be more than 20-% *his means that thea' should not be more than 120- of the floor

'ri e%

*he 'ri e band an be revised after the issue has

o'ened% u h revision has to be notified to the

sto ! e# hanges, by issuing 'ress release and

advertisements and also dis'laying the same on

the terminals of the syndi ate members%

Moreover, the bidding 'eriod has to be e#tended

for a further 'eriod of three days, subFe t to the

total bidding 'eriod not e# eeding ten days%

-h de"ides the %ri"e &and2

It is u' to the om'any to de ide on the 'ri e or

the 'ri e band in onsultation $ith its mer hant

ban!ers%

H / d es the "!t: .. %ti n / r+ . r the

retail invest rs2

G3ut"offH o'tion is available only for the retail

individual investors i%e% investors $ho are

a''lying for se urities $orth u' to Rs% 1,00,000%

u h investors are reKuired to ti ! the ut"off

o'tion $hi h indi ates their $illingness to

subs ribe to shares at the 'ri e finally dis overed

and de ided by the issuer% Unli!e s'e ifi 'ri e bids $hi h be ome invalid if the bid 'ri e is lo$er

than the final 'ri e, bids re eived under the ut"

>B


66/169

off o'tion remain valid for onsideration for

allotment

ISSUE PROCESS

H / d es ne " 1e t +n / a& !t the

. rth" 1in( iss!es2 And .r 1 /here "an

ne (et " %ies . the dra.t ..er

d "!1ent2

E9I issues 'ress releases every $ee! regarding

the draft offer do uments re eived and

observations issued during the 'eriod% *he draft

offer do uments are 'ut u' on its $ebsite% *he

final offer do uments that are filed $ith

E9I5R


67/169

Can the invest r "han(eBrevise his &id2

es% 4n investor an hange or revise the

Kuantity or 'ri e of his bid by using the form for

hanging5revising the bid that is available along

$ith the a''li ation form% +o$ever, this has to be done before the losure of the issue%

Can an invest r "an"el his &id2

es% 4n investor an an el his bid anytime

before the finali(ation of the basis of allotment

by ma!ing an a''li ation to the registrar to the

issue%

-hat %r . "an an invest r re !est .r 1a s,ndi"ate 1e1&er that his &id has &een

entered int the s,ste12

*he syndi ate member is reKuired to return the

ounterfoil $ith the signature, date and stam' of

the syndi ate member% *he investor should

retain this as a 'roof that his bid $as a e'ted in

the system%

-hat is &asis . all "ati nB&asis .

all t1ent2

4fter the losure of the issue, the bids re eived

are aggregated under different ategories i%e%,

firm allotments, ualified Institutional 9uyers

7 I9s8, :on"Institutional 9uyers 7:I9s8, Retail,

et % *he oversubs ri'tion ratios are then

al ulated for ea h of the ategories as against

the shares reserved for ea h of the ategories in

the offer do ument% /ithin ea h of these

ategories, the bids are then segregated into

different bu !ets based on the number of shares

a''lied for% *he oversubs ri'tion ratio is then

a''lied to the number of shares a''lied for and

the number of shares to be allotted for

a''li ants in ea h of the bu !ets is determined%

ubseKuently, the number of su essful allottees

is determined%

4ll allotments, in luding in fi#ed 'ri e issues, are

done on a 'ro'ortionate allotment basis%

H / and /ithin h / 1!"h ti1e d es an

invest r (et se"!rities in his de1ata"" !nt andB r a re.!nd in "ase . n n:

all t1ent . shares2

*he 3om'any, after losing of the issue, finali(es

the basis of allotment% 9ased u'on this, advi e is

sent to the De'ository for redit of shares to the

demat a ounts of the su essful allottees%

Refunds are made through various modes vi(%registered5ordinary 'ost, Dire t 3redit, R*

7Real *ime ross ettlement8, E3 7Ele troni

3learing ervi e8 and :E)* 7:ational Ele troni

)unds *ransfer8%

If an investor is residing in one of the ?@ enters

as s'e ified by the Reserve 9an! of India, he $ill

get ele troni refunds through E3 e# e't $here

the investor has dis losed eligibility under Dire t

3redit and R* % 7see se tion on E3 8%

If an investor is residing at any other entre, he

$ill get refunds through registered5ordinary 'ost%

H / d es ne +n / i. he has &een all tted

an, shares2

*he issuer is reKuired to 'ublish an

advertisement giving details of the basis of

allotment%

*he investor is entitled to re eive an allotment

advi e $ithin 1> days from the date of losure of a

boo!"built issue and the demat redit or refund

should ta!e 'la e $ithin this 'eriod%

>?


68/169

H / l n( d es it ta+e a.ter the iss!e . r

the shares t (et listed2

*he listing on the sto ! e# hanges is done $ithin

days from the finali(ation of the basis of

allotment% *his ty'i ally is 1>"1@ days after thelosure of the boo! built issue% In ase of fi#ed

'ri e issue, it is about .> days after losure of the

issue%

APPLICATIONS SUPPORTED $7

$LOCKED AMOUNT FAS$A

$a"+(r !nd

Until 200@, a retail investor $as reKuired to

atta h a heKue5demand draft overing the full

amount of his a''li ation% Details of su h

heKues $ere first entered by the yndi ate

Member, then the heKues $ere sent to the

ban!ers for learing, $hi h again reKuired

entering of the a''li ant s data and finally the

leared a''li ations $ere sent to the Registrar

$ho again 'ro essed the data% *his 'ro essaused delays and errors%

)urthermore, in issues that $ere oversubs ribed,

the Registrar then had to 'ro ess the refund

$arrants5refund instru tions% :early a month

after the a''li ation $as made, the investor

$ould re eive the refund% In highly

oversubs ribed issues, the volume of refund"

related $or! obviously be ame huge%3om'ounding this $as the 'roblem of refund

$arrants getting mis'la ed5lost in transit% &ittle

$onder, the largest number of om'laints in

IP


69/169

7v8 *he investor deals $ith a !no$n

intermediary i%e% his o$n ban!%

Is it 1andat r, . r invest rs t a%%l,

thr !(h AS$A nl,2:o% 4n investor has the o'tion of ma!ing

a''li ation through 4 94 or through the

e#isting 'ro ess of a''lying $ith heKue%

-hat is a Sel. "erti.ied S,ndi"ate $an+

FSCS$ 2

9an!s $hi h have been authori(ed by E9I to

a e't 4 94 a''li ations alled elf 3ertified

yndi ate 9an!s 7 3 9s8%

Is an iss!er re !ired t %r vide AS$A

1 de . r all iss!es2

*he issuer is reKuired to 'rovide 4 94 mode in

all 'ubli issues though boo! building $here a

uniform 'ayment o'tion is being offered to the

retail investors%

Is it 1andat r, . r all SCS$s t ..er the

AS$A %r "ess in all iss!es2

It is mandatory for all issuers and all 3 9s to

offer the 4 94 'ro ess in the boo!built issues%

-here "an ne s!&1it the AS$A

a%%li"ati n . r1s2

4t 'resent, not all the ban!s are 'arti i'ating in

the 4 94 'ro ess% Even ban!s $ho are

'arti i'ating are not offering this fa ility in all

their bran hes% +o$ever, the a e'tan e entres

are in reasing by the day% *he list of 3 9s and

their bran hes $here 4 94 a''li ation forms

are being a e'ted is available on the $ebsite of

E9I 7$$$%sebi%gov%in8%

Can ne !se the e istin( a%%li"ati n . r1

. r %!&li" iss!es . r a%%l,in( thr !(h AS$A2

:o% *he a''li ation form for 4 94 is different

from the regular a''li ation form for 'ubli

issues% *he 4 94 a''li ation forms are available

$ith the designated bran hes of 3 9%

Can ne /ithdra/ the &id 1ade thr !(h AS$A2

es, the 4 94"su''orted bids an be $ithdra$n

during the bidding 'eriod% )or this, the ban! to

$hi h the bid $as submitted has to be reKuested

for $ithdra$al through a duly signed letter% *he

blo !ed amount $ill be unblo !ed immediately%

4fter the bid losure 'eriod, one an send the

$ithdra$al reKuest to the Registrars, $ho $illan el the bid and instru t the 3 9 to unblo !

the a''li ation money in the ban! a ount, but

only after the finali(ation of the basis of

allotment%

-h sh !ld ne a%%r a"h i. it is . !nd

that all details in the AS$A . r1

/ere " rre"t3 ,et the a%%li"ati n /as

re'e"ted &, "itin( the reas n .

/r n( data2

*he relevant 3 9 should be onta ted% If not

resolved, one should $rite to E9I%

D es an invest r ne"essaril, need t have

a DP a"" !nt /ith the sa1e SCS$ /here

AS$A a%%li"ati n is &ein( s!&1itted2

:o%

Can ne a%%l, in the sa1e iss!e & th

thr !(h AS$A %r "ess and thr !(h the

e istin( s,ste1 . %a,1ent thr !(h

"he !e2

:o% 4n investor an a''ly only through one of the

routes%

Is there an, di..erent treat1ent inall t1ent . r AS$A and n n:AS$A . r1s2

>@


70/169

:o% 4 94 forms are treated at 'ar $ith the non"

4 94 forms

D es an invest r (et an a"+n /led(e1ent

. r AS$A a%%li"ati ns2

es% *he 339 is reKuired to give ana !no$ledgement%

-h is res% nsi&le . r err rs in the data

!%l aded in the ele"tr ni" &iddin(

s,ste12

In ase there is an error by the investor in

entering the data in the a''li ation form, the

investor shall be res'onsible% In ase there is an

error by 3 9 in entering the data in theele troni bidding system of the sto !

e# hanges, the 3 9 shall be res'onsible%

-hat ha%%ens /hen an iss!e .ailsB is

/ithdra/n2

In ase an issue fails or is $ithdra$n, the 3 9

shall unblo ! the a''li ation money u'on

re eiving instru tions from the Registrar%

ELECTRONIC CLEARING SCHEME

FECS #OR RE#UNDS

E9I mandated in 200? the use of E3 forrefunds in 'ubli issues% 4''li ants residing in ?@

enters, as 'rovided by R9I, no$ get refunds

through E3 7in addition $ith other modes of

ma!ing refunds ele troni ally li!e R* , Dire t

redit and :E)*8% 4''li ants in other enters

ho$ever get refunds through the normal 'ra ti e

of registered 5 ordinary 'ost%

Under E3 , the ban! a ount details of theinvestors are ta!en dire tly from the de'ositories

databases and the amounts are ele troni ally

redited to the investor s a ounts% 4n investor

should ensure that his ban! details in luding

MI3R ode 7a A digit ode $hi h a''ears in the

heKue leaf8 are 'rovided to the DP, and is

u'dated $henever ne essary%

*he list of the ?@ entres is 'rovided belo$L

1 4gra

2 4hmedabad

. 4llahabad

B 4mritsar

> 4urangabad

? 9angalore

9hil$ara

@ 9ho'al

A 9hubanes$ar

10 9urd$an7non"MI3R811 3handigarh

12 3hennai

1. 3oimbatore

1B Dehradun

1> Dhanbad7non"MI3R8

1? Durga'ur 7non"MI3R8

1 Erode

1@ ora!h'ur

1A u$ahati

20 $alior

21 +aldia 7:on" MI3R822 +ubli

2. +yderabad

2B Indore

2> Jabal'ur

2? Jai'ur

2 Jalandhar

2@ Jammu

2A Jamshed'ur

.0 Jodh'ur

.1 6a!inada 7non"MI3R8

.2 6an'ur

.. 6o hi5Erna!ulam

.B 6olha'ur

.> 6ol!ata

.? 6o(hi!ode

. &u !no$

.@ &udhiana

.A Madurai

B0 Mangalore

B1 Mumbai

B2 Mysore

B. :ag'ur

BB :ashi! B> :ellore 7non"MI3R8

B? :e$ Delhi

B PanaFi

B@ Patna

BA Pondi herry

>0 Pune

>1 Rai'ur

>2 RaF!ot

>. Ran hi

>B alem

>> himla 7non"MI3R8

>? hola'ur> iliguri 7non"MI3R8

>@ urat

>A *hiruvanantha'uram

?0 *iru hira'alli

?1 *iru'ati7non"MI3R8

?2 *iru'ur

?. *ri hur

?B Udai'ur

?> ;adodara

?? ;aranasi

? ;iFay$ada?@ ;isa!ha'atnam

>A


71/169

INTERMEDIARIES INVOLVED IN

THE ISSUE PROCESS*he !ey intermediaries $ho are involved in the

issue 'ro ess, and are all registered $ith E9I,are Mer hant 9an!ers to the issue 7!no$n as

9oo! Running &ead Managers "9R&M" in ase of

boo! built 'ubli issues8, Registrars to the issue,

9an!ers to the issue Under$riters and yndi ate

Members%

Mer"hant $an+ers

4 Mer hant 9an!er does the due diligen e to

're'are the offer do ument% *hey are also

res'onsible for ensuring om'lian e $ith all

la$s5regulations and for mar!eting of the issue%

In the 're"issue 'ro ess, the &ead Manager 7&M8

ta!es u' the due diligen e of the om'any s

o'erations5 management5 business 'lans5 legal

et % before in luding this information in the


72/169

SOME TERMS AND CONCEPTS

Green:sh e O%ti n

4 reen hoe o'tion means an o'tion of

allo ating shares in e# ess of the shares in ludedin a 'ubli issue and o'erating a 'ost"listing

'ri e stabili(ing me hanism for a 'eriod not

e# eeding .0 days in a ordan e $ith the

'rovisions of E9I 7I3DR8 Regulations $hi h is

granted to a om'any to be e#er ised through a

tabili(ing 4gent% *his is an arrangement

$herein the issue $ould be over allotted to the

e#tent of a ma#imum of 1>- of the issue si(e%

)rom an investor s 'ers'e tive, an issue $ith

green shoe o'tion 'rovides a higher 'robability

of getting shares and also that 'ost listing 'ri e

may sho$ relatively more stability%

Sa.et, Net

4 safety net s heme is a s heme under $hi h a

buy ba ! shall be done of the shares allotted in

an issue only from the original resident

individual allottees limited u' to a ma#imum of

1000 shares 'er allottee and su h offer is !e't

o'en for a 'eriod of ? months from the date

listing% *his s heme has to be finali(ed in

advan e and dis losed in the 'ros'e tus%

L "+:In

G&o !"inH indi ates a free(e on the shares% E9I

7I3DR Regulations8 uidelines have sti'ulatedlo !"in reKuirements on shares of 'romoters

mainly to ensure that the 'romoters or main

'ersons, $ho are ontrolling the om'any, shall

ontinue to hold some minimum 'er entage in

the om'any after the 'ubli issue% *he

reKuirements are detailed in 'art I; of 3ha'ter

III of E9I 7I3DR8 Regulations%

*here is lo !"in on the shares held before IP12 3D &8 are registered $ith E9I% *hese

olle tively have 1@@B2 entres s'read all a ross

the ountry%

*hese om'rise ban!s, bro!ers, registrars and

other finan ial se tor 'arti i'ants%

DEMATERIALISATION

-hat is de1ateriali ati n2

Demateriali(ation is the 'ro ess by $hi h

'hysi al share ertifi ates held by an investor are

onverted into an eKuivalent number of se urities

in ele troni form and redited into the investor s

a ount%

?B


76/169

-hat are the &ene.its .

de1ateriali ati n2

- 4 safe, onvenient $ay to hold se urities

- Immediate transfer of se urities

- :o stam' duty on transfer of se urities

- Elimination of ris!s asso iated $ith

'hysi al ertifi ates su h as bad

delivery, fa!e se urities, delays, thefts

et %

- Redu tion in 'a'er$or! involved in

transfer of se urities

- Redu tion in transa tion ost

- :o odd lot 'roblem, even one share an

be sold

- :omination fa ility

- 3hange in address re orded $ith DP

gets registered $ith all om'anies in

$hi h investor holds se urities

ele troni ally eliminating the need to

orres'ond $ith ea h of them

se'arately- *ransmission of se urities is done by DP

eliminating orres'onden e $ith

om'anies

- 4utomati redit into demat a ount of

shares, arising out"of bonus5 s'lit5

onsolidation5merger et %

- +olding investments in eKuity and debt

instruments in a single a ount

H / d es ne " nvert %h,si"al shares

int ele"tr ni" h ldin( Fh / "an ne

de1ateriali e the se"!rities 2

In order to demateriali(e 'hysi al 7'a'er8

se urities, one has to fill in a DR) 7Demat

ReKuest )orm8 $hi h is available $ith the DP

and submit the same along $ith 'hysi al

ertifi ates that are to be demateriali(ed%e'arate DR) has to be filled for ea h I I:% *he

om'lete 'ro ess of demateriali(ation is outlined

belo$L urrender ertifi ates for

demateriali(ation to the DP%

DP intimates to the De'ository regardingthe reKuest for demateriali(ation through

the system% DP submits the ertifi ates to the R*4 of

the 3om'any% R*4 onfirms the demateriali(ation

reKuest from the de'ository%

4fter demateriali(ing the ertifi ates, the

R*4 u'dates t he a ounts andinforms the de'ository regarding

om'letion of demateriali(ation% De'ository u'dates its a ounts and

informs the DP% DP u'dates the demat a ount of the

investor%

-hat is an ISIN2I I: 7International e urities Identifi ation

:umber8 is a uniKue 12 digit al'ha"numeri

identifi ation number allotted for ea h se urity

7e%g% I:[email protected]@8% I I: is not assigned to a

om'any in fa t, for even eKuity shares issued by

a om'any of different ty'es li!e eKuity"fully 'aid

u', eKuity"'artly 'aid u', eKuity $ith differential

voting 5dividend rights issued by the same issuer

$ill have different I I:s%

D de1ateriali ed shares have distin"tive

n!1&ers2

Unli!e 'hysi al shares, demateriali(ed shares do

not have any distin tive numbers% *hese shares

are fungible, $hi h means that all the holdings of

a 'arti ular se urity are identi al and

inter hangeable%

?>


77/169

Can dd l t shares &e de1ateriali ed2

es% 00 shares, irres'e tive of their

value" in 'hysi al mode the sto ! e# hanges

'rovide a se'arate trading $indo$ $hi h gives

the fa ility for small investors to sell 'hysi al

shares% +o$ever, this segment has been near"

dormant for many years no$, 'lagued as it is

$ith la ! of liKuidity and huge dis ounts on the

mar!et 'ri e that need to be offered8%

OPENING A DEMAT ACCOUNT

H / "an an invest r avail the servi"es .

a de% sit r,2

*o avail the servi es of a de'ository, an investor

is reKuired to o'en a 9enefi ial


78/169

-h, is an invest r re !ired t (ive his

&an+ a"" !nt details at the ti1e .

a"" !nt %enin(2

9an! a ount details are ne essary for the

'rote tion of interest of the investors% /hen anyash or non ash or'orate benefits su h as

rights or bonus or dividend is announ ed for a

'arti ular s ri', the de'ositories 'rovide to the

on erned om'any5 R*4, the details of the

investors and their ele troni holdings as on

re ord 5 boo! losure date for re !oning the

entitlement of or'orate benefit% *he

disbursement of ash benefits su h as dividend

is redited dire tly by the om'any5 R*4 to the benefi iary o$ner through the E3 7Ele troni

3learing ervi e8 fa ility $herever available or

by issuing $arrants on $hi h the ban! a ount

details are 'rinted for the to$ns $here the E3

fa ility is not available% *he 'rinting of the ban!

a ount number on the dividend $arrant

'revents any fraudulent misuse%

Can 1!lti%le a"" !nts &e %ened &, a

%ers n2

es% 4n investor an o'en more than one

a ount in the same name $ith the same DP and

also $ith different DPs, and $ith one or both the

de'ositories%

Is it ne"essar, t have a"" !nt /ith the

sa1e DP as the invest rs &r +er has2

:o% De'ository 5 DP an be hosen by the

investor as 'er his onvenien e%

Can an invest r %en a sin(le a"" !nt . r

se"!rities /ned in di..erent /nershi%

%atterns s!"h as se"!rities /ned

individ!all, and se"!rities /ned ' intl,

/ith thers2

:o% *he de'ository a ount must be o'ened inthe same o$nershi' 'attern in $hi h the

se urities are held in the 'hysi al form% )or

e#am'le, if a share ertifi ate is in the individual

name and another ertifi ate is held Fointly $ith

some one, t$o different a ounts $ould need to

be o'ened%

-hat is re !ired t &e d ne i. ne has

%h,si"al "erti.i"ates /ith the sa1e

1!lti%le na1es3 &!t the se !en"e .

na1es is di..erent i)e) s 1e "erti.i"ates

/ith A as .irst h lder and $ as se" nd

h lder and ther set . "erti.i"ates /ith $

as the .irst h lder and A as the se" nd

h lder2

In this ase, the investor may o'en only onea ount $ith 4 C 9 as the a ount holders and

lodge the se urity ertifi ates $ith different order

of names for demateriali(ation in the same

a ount% 4n additional form alled G*rans'osition

um Demat )ormW $ill have to be filled in $hi h

$ill allo$ hange in the order of names%

Can an invest r %erate a ' int a"" !nt n

either r s!rviv r &asis '!st li+e a &an+

a"" !nt2

:o% *he demat a ount annot be o'erated on

Geither or survivorH basis li!e a ban! a ount%

Can s 1e ne else %erate the a"" !nt n

&ehal. . the $O n the &asis . a % /er .

att rne,2

es% If the 9< authori(es a 'erson to o'erate the

a ount by e#e uting a 'o$er of attorney and

submits it to the DP, that 'erson an o'erate the

a ount on behalf of the 9


79/169

7names8 and the se urities then need to be

transferred to the ne$ly o'ened a ount, and the

old a ount may be losed%

Can an invest r "l se his de1at a"" !nt /ith ne DP and trans.er all se"!rities t

an ther a"" !nt /ith an ther DP2

es% *he investor an submit a ount losure

reKuest to his DP in the 'res ribed form% *he DP

$ill transfer all the se urities lying in the

a ount, as 'er the instru tion, and lose the

demat a ount%

Can an invest r .ree e r l "+ hisa"" !ntFs 2

4n investor an free(e or lo ! his a ount and5or

I I: and5or s'e ifi number of se urities under

an I I: for any given 'eriod of time as 'er

a''li able Regulations of E9I and 9ye &a$s of

the res'e tive de'ository% 4 ounts an be

fro(en for debits 7'reventing transfer of

se urities out of a ounts8 or for redits

7'reventing any movements of hindran es into

a ounts8 or for both%

D es the invest r have t +ee% an,

1ini1!1 &alan"e . se"!rities in his

a"" !nt2

:o%

DEPOSITOR7 CHARGES

-hat are the vari !s "har(es an invest r

has t %a, . r %enin(3 1aintenan"e and

"l s!re . a $O a"" !nt2

)or the benefit of the investors, E9I has

mandated removal of a ount o'ening harges,

transa tion harges 7for redit or buy

transa tions of se urities8, ustody harges and

a ount losing harges 73ustody harges areno$ 'aid by the issuer om'anies%8

*he investors are reKuired to 'ay only the

follo$ing hargesL *ransa tions fees 7only for sell

transa tions8

4nnual a ount maintenan e harges Demateriali(ation and demateriali(ation

of se urities

)le#ibility is 'rovided by the de'ositories and

E9I to fi# the above harges 7*he DP may revise

the harges any time but has to 'rovide a .0 days

noti e to all its a ount holders8%

E9I reKuires all DPs to submit to their

De'ository their harge stru ture every year

7latest by .0 th 4'ril8% *he de'ository in turn is

reKuired to 'ut all these harge stru tures on its

$ebsite to enable the investors to get a

om'arative overvie$%

INTRA:DEPOSITOR7 AND INTER:

DEPOSITOR7TRANS#ERS

I. a $O h lds an a"" !nt /ith NSDLBCDSL3

"an he re"eive se"!rities .r 1 an a"" !nt

in CDSLBNSDL2

Inter de'ository transfers are 'ossible $ithout

any additional osts%

:o harges are levied by a de'ository on DP and

onseKuently by a DP on a 9< $hen a 9>0.> 2 0 > ?>B0 1A2@ BB? .A. .A.

3o hin ?> 2AB . 1@ 2 0 0 0 0 0

3oimbatore 2 102? .A> 0 0 0 0 0 0 0

Delhi B1. 120A@ >1 >A @.@ 1 >@2@ 11 . 0 0 0

auhati BB. B>2 .0 0 0 0 0 0 0 0

+yderabad ? ? A@B 12 ? A @ B1 > 2 0 0 0

I E " " 1 2.. >> ?> 0 0 0 0

Jai'ur 2A? ?1? ?> 0 0 0 0 0 0 0

&udhiana 10>0 1?20 >A @ A .2 @> 0 0 0 0 0

Madhya Pradesh .>? 1.B 1 2 1? 0 0 0 0 0

Madras .B0 22AA . 0 10A 2B 0 101 0 0 0

Magadh " 1A.@ 0 2 0 1 0 0 0 0

Mangalore 12 10 11 0 0 0 0 0 0 0

: E " " B1B.@. 1..A>11 >1.1? ?1 A@A 10AA>.B .>>10.@ 2 >202. .@>1 @

2 .B>A B>. ?1 1 11 1 2 0 0 0 06 E 2?> .02 0 0 0 0 0 0 0 0

Uttar Pradesh >>0@ ?@@A 1@?2 2B B 2>2. 1B ?. 11 >1 B > @A 2>

;adodara 1?@1 2AA 1 BA 1 10 . 0 0 0 0

TOTAL ?0;5* 049=4= *4099>0 0>>4>4< >?*> ?5>?** *504;?= *5 9>


88/169

or the losure of a fa tory, et %8 or ne$s about

the ountry 7e%g% nu lear bombs, or a budget

announ ement, et %8% *he Fob of an inde# is to

'urely a'ture the se ond 'art, the movements

of the sto ! mar!et as a $hole 7i%e% ne$s aboutthe ountry8% *his is a hieved by averaging% Ea h

sto ! ontains a mi#ture of these t$o elements "

sto ! ne$s and inde# ne$s% /hen $e ta!e an

average of returns on many sto !s, the

individual sto ! ne$s tends to an el out% - to the

first and >- $eight to the se ond% If $e form a

'ortfolio of the t$o sto !s, $ith a $eight of 2>-

on the first and >- on the se ond, then the

'ortfolio returns $ill eKual the inde# returns% o

if you $ant to buy Rs%1 la!h of this t$o"sto !inde#, you $ould buy Rs%2>,000 of the first and

Rs% >,000 of the se ond this 'ortfolio $ould

e#a tly mimi the t$o"sto ! inde#% 4 sto !

mar!et inde# is hen e Fust li!e other 'ri e indi es

in sho$ing $hat is ha''ening on the overall

indi es "" the $holesale 'ri e inde# is a

om'arable e#am'le% In addition, the sto !mar!et inde# is attainable as a 'ortfolio%

*raditionally, indi es have been used as

information sour es% 9y loo!ing at an inde# $e

!no$ ho$ the mar!et is faring% *his information

as'e t also figures in myriad a''li ations of sto !

mar!et indi es in e onomi resear h% *his is

'arti ularly valuable $hen an inde# refle ts

highly u' to date information 7a entral issue $hi h is dis ussed in detail ahead8 and the

'ortfolio of an investor ontains illiKuid se urities

" in this ase, the inde# is a lead indi ator of ho$

the overall 'ortfolio $ill fare%

In re ent years, indi es have ome to the fore

o$ing to dire t a''li ations in finan e, in the

form of inde# funds and inde# derivatives% Inde#

funds are funds $hi h 'assively Zinvest in the

inde#Q% Inde# derivatives allo$ 'eo'le to hea'ly

alter their ris! e#'osure to an inde# 7this is alled

hedging8 and to im'lement fore asts about inde#

movements 7this is alled s'e ulation8% +edging

using inde# derivatives has be ome a entral 'art

of ris! management in the modern e onomy%

*hese a''li ations are no$ a multi"trillion dollar

industry $orld$ide, and they are riti ally lin!ed

u' to mar!et indi es%

)inally, indi es serve as a ben hmar! for

measuring the 'erforman e of fund managers% 4n

all"eKuity fund should obtain returns li!e the

overall sto ! mar!et inde#% 4 >0L>0 debtL eKuity

fund should obtain returns lose to those

obtained by an investment of >0- in the inde#

and >0- in fi#ed in ome% 4 $ell"s'e ifiedrelationshi' bet$een an investor and a fund

manager should e#'li itly define the ben hmar!


89/169

against $hi h the fund manager $ill be

om'ared, and in $hat fashion%

*he most im'ortant ty'e of mar!et inde# is the

broad"mar!et inde#, onsisting of the large,liKuid sto !s of the ountry% In most ountries, a

single maFor inde# dominates ben hmar!ing,

inde# funds, inde# derivatives and resear h

a''li ations% In India, $e have NI#T7


90/169

Maintenan e of money of lients in a

se'arate a ount and their o$n money

in a se'arate a ount Issue of daily statement of ollateral

utili(ation to lients 4''ointment of om'lian e offi er

Issue of ontra t note to his lient $ithin

2Bhrs of the e#e ution of the ontra t Delivery 5 Payment to be made to the

lient $ithin 2B hrs of 'ay=out and


91/169

Pass'ort

;oter ID

Driving &i ense

9an! Passboo!

Rent 4greement

Ration 3ard

)lat Maintenan e 9ill

*ele'hone 9ill

Ele tri ity 9ill

3ertifi ate issued by em'loyer registered

under M4PI: Insuran e Poli y

Ea h lient has to use one registration form% In

ase of Foint names 5family members, a se'arate

form has to be submitted for ea h 'erson%

In ase of 3or'orate 3lient, follo$ing

information has to be 'rovidedL :ame, address of the 3om'any5)irm%

UniKue Identifi ation :umber

7$herever a''li able8% Date of in or'oration and date of

ommen ement of business% Registration number 7$ith R- or more, either dire tly or indire tly,

in the shareholding of the om'any and

of 'ersons authori(ed to deal in

se urities% If registered $ith any other bro!er, then

the name of bro!er and on erned to !

e# hange and 3lient 3ode :umber%

-hat is 1eant &, Uni !e Client C de2In order to fa ilitate maintaining database of their

lients, it is mandatory for all bro!ers to use

uniKue lient ode $hi h $ill a t as an e# lusive

identifi ation for the lient% )or this 'ur'ose,

P4: number5'ass'ort number5driving

li ense5voters ID number5 ration ard number

ou'led $ith the freKuently used ban! a ount

number and the de'ository benefi iary a ount

an be used for identifi ation, in the given order, based on availability%

-hat is a ris+ dis"l s!re d "!1ent2

In order to a Kuaint the investors in the mar!ets

of the various ris!s involved in trading in the

sto ! mar!et, the members of the e# hange have

been reKuired to sign a ris! dis losure do ument

$ith their lients, informing them of the various

ris!s li!e ris! of volatility, ris!s of lo$er liKuidity,

@0


92/169

ris!s of higher s'reads, ris!s of ne$

announ ements, ris!s of rumours et %

H / d es ne %la"e rders /ith the

&r +er r s!& &r +er2 4n investor an either go to the bro!er s 5sub

bro!er s offi e or 'la e an order over the

'hone 5internet or as defined in the Model

4greement%

H / d es an invest r +n / /hether his

rder has &een %la"ed2

*he to ! E# hanges assign a UniKue


93/169

arising out of transa tions% - bro!erage from his lients% *his

ma#imum bro!erage is in lusive of the

bro!erage harged by the sub"bro!er% )urther,

E9I 7 to ! bro!ers and ub bro!ers8Regulations, 1AA2 sti'ulates that sub bro!er

annot harge from his lients, a ommission

$hi h is more than 1%>- of the value mentioned

in the res'e tive 'ur hase or sale note%

-hat are the "har(es that "an &e levied

n the invest r &, a st "+ &r +erBs!&

&r +er2

*he trading member an hargeL

1% 9ro!erage harged by member bro!er%

2% Penalties arising on s'e ifi default on

behalf of lient 7investor8

.% ervi e ta# as sti'ulated%

B% e urities *ransa tion *a# 7 **8 as

a''li able%

*he bro!erage, servi e ta# and ** are indi ated

se'arately in the ontra t note%

-hat is STT2

e urities *ransa tion *a# 7 **8 is a ta# being

levied on all transa tions done on the sto !

e# hanges at rates 'res ribed by the 3entral

overnment from time to time% Pursuant to the

ena tment of the )inan e 7:o%28 4 t, 200B, the

overnment of India notified the e urities*ransa tion *a# Rules, 200B and ** ame into

effe t from < tober 1, 200B%

H / d es tradin( ta+es %la"e and /hat is

the %r "ess . tradin(2

*he normal ourse of online trading in the Indian

mar!et onte#t is 'la ed belo$LSte% *) Investor 5 trader de ides to trade

Ste% 0) Pla es order $ith a bro!er to buy 5 sell

the reKuired Kuantity of res'e tive

se urities

Ste% 9) 9est 'ri ed order mat hes based on

'ri e"time 'riority

Ste% ;)


94/169

-hat is a R llin( Settle1ent2

In a Rolling ettlement trades e#e uted during

the day are settled based on the net obligations

for the day%Presently the trades 'ertaining to the rolling

settlement are settled on a *Y2 day basis $here

* stands for the trade day% +en e, trades

e#e uted on a Monday are ty'i ally settled on

the follo$ing /ednesday 7 onsidering 2 $or!ing

days from the trade day8%

*he funds and se urities 'ay"in and 'ay"out are

arried out on *Y2 day%

-hat is the %a,:in da, and %a,: !t da,2

Pay in day is the day $hen the bro!ers shall ma!e

'ayment or delivery of se urities to the e# hange%

Pay out day is the day $hen the e# hange ma!es

'ayment or delivery of se urities to the bro!er%ettlement y le is on *Y2 rolling settlement

basis $%e%f% 4'ril 01, 200.% *he e# hanges have to

ensure that the 'ay out of funds and se urities to

the lients is done by the bro!er $ithin 2B hours

of the 'ayout% *he E# hanges $ill have to issue

'ress release immediately after 'ay out%

-hat are the %res"ri&ed %a,:in and %a,:

!t da,s . r .!nds and se"!rities . rN r1al Settle1ent2

*he 'ay"in and 'ay"out days for funds and

se urities are 'res ribed as 'er the ettlement

3y le% 4 ty'i al ettlement 3y le of :ormal

ettlement is given belo$L

A"tivit, Da,

*rading Rolling ettlement *rading *

3learing 3ustodial 3onfirmation *Y1 $or!ing days

Delivery eneration *Y1 $or!ing days

ettlement e urities and )unds 'ay in *Y2 $or!ing days

e urities and )unds 'ay out *Y2 $or!ing days

Post ettlement ;aluation Debit *Y2 $or!ing days 4u tion *Y. $or!ing days9ad Delivery Re'orting *YB $or!ing days 4u tion settlement *Y> $or!ing days3lose out *Y> $or!ing days

Re tified bad delivery 'ay"in and 'ay"out *Y? $or!ing daysRe"bad delivery re'orting and 'i !u' *Y@ $or!ing days3lose out of re"bad delivery *YA $or!ing days

N te6 *he above is a ty'i al settlement y le for normal 7regular8 mar!et segment% *he days

'res ribed for the above a tivities may hange in ase of fa tors li!e holidays, ban! losing et % 4n

investor may refer to s heduled dates of 'ay"in5'ay"out notified by the E# hange for ea h settlement

from time"to"time%

@.


95/169

In "ase . %!r"hase . shares3 /hen d es

an invest r have t 1a+e %a,1ent t

the &r +er2

*he 'ayment for the shares 'ur hased isreKuired to be done 'rior to the 'ay in date for

the relevant settlement or as other$ise 'rovided

in the Rules and Regulations of the E# hange%

It is advisable to ma!e 'ayment by $ay of

a ount 'ayee heKue in the name of the

bro!er5sub"bro!er only% 4 'ro'er re ei't should

be olle ted from the intermediary% ou should

re eive 'ayment for se urities $ithin B@ hours of

de laration of 'ay"out by the res'e tive sto !e# hange%

In "ase . sale . shares3 /hen sh !ld the

shares &e (iven t the &r +er2

*he delivery of shares has to be done 'rior to the

'ay in date for the relevant settlement or as

other$ise 'rovided in the Rules and Regulations

of the E# hange and agreed $ith the bro!er5sub

bro!er in $riting%

-hat 1ar(ins r de% sits are re !ired &,

the &r +er2

*he regulations do not mandate any

reKuirement for the investor to !ee' a de'osit

$ith the bro!er% It de'ends on your

understanding $ith the bro!er5sub" bro!er% ou

are, ho$ever, reKuired to 'ay u'front margin to

the bro!er before the trade is e#e uted%

E# hanges generally 'res ribe higher levels of

margins to be olle ted from lients as u'front

de'ending on the liKuidity of the se urity%

H / l n( it ta+es t re"eive 1 ne, . r a

sale transa"ti n and shares . r a &!,

transa"ti n2

9ro!ers $ere reKuired to ma!e 'ayment or give

delivery $ithin t$o $or!ing days of the 'ay " out

day% +o$ever, as settlement y le has been

redu ed from*Y. rolling settlement to *Y2 $%e%f%

4'ril 01, 200., the 'ay out of funds and se urities

to the lients by the bro!er $ill be $ithin 2Bhours of the 'ayout%

Is there an, %r visi n /here an invest r

"an (et .aster deliver, . shares in his

a"" !nt2

*he investors5 lients an get dire t delivery of

shares in their benefi iary a ounts% *o avail this

fa ility, you have to give details of your

benefi iary a ount and the DP"ID of your DP to your bro!er along $ith the tanding Instru tions

for Delivery"In to your De'ository Parti i'ant

for a e'ting shares in your benefi iary a ount%

iven these details, the 3learing

3or'oration53learing +ouse shall send 'ay out

instru tions to the de'ositories so that you

re eive 'ay out of se urities dire tly into your

benefi iary a ount%

-hat is da, tradin(2

Day trading refers to buying and selling of

se urities $ithin the same trading day su h that

all 'ositions $ill be losed before the mar!et lose

of the trading day% In the Indian se urities

mar!et, only retail investors are allo$ed to day

trade%

Are all the invest rs 1andated t " 1%l,

/ith PAN re !ire1ent2

es% /ith effe t from July 02, 200 , P4: has

been made mandatory for all the investors

'arti i'ating in the se urities mar!et% In order to

strengthen the 6no$ our 3lient 76 38 norms

and identify every 'arti i'ant in the se urities

mar!et $ith their res'e tive P4: to ensure sound

audit trail of all the transa tions, E9I hasmandated P4: as the sole identifi ation number

for all 'ersons transa ting in the se urities

@B


96/169

mar!et, irres'e tive of the amount of

transa tion%

-hat is Trade . r Trade Se(1ent2

In a *rade for *rade segment, settlement of

trades is done on the basis of gross obligationsfor the day% :o netting is allo$ed and every

trade is being settled se'arately%

-hat is Dire"t Mar+et A""ess FDMA 2

Dire t Mar!et 4 ess 7DM48 is a fa ility $hi h

allo$s bro!ers to offer lients dire t a ess

to the e# hange trading system through the

bro!er s infrastru ture $ithout manual

intervention by the bro!er% ome of theadvantages offered by DM4 are dire t

ontrol of lients over orders, faster

e#e ution of lient orders, redu ed ris! of

errors asso iated $ith manual order entry,

greater trans'aren y, in reased liKuidity,

lo$er im'a t osts for large orders, better

audit trails and better use of hedging and

arbitrage o''ortunities through the use of

de ision su''ort tools 5 algorithms for

trading% Presently, DM4 fa ility is available

for institutional investors

-hat is an A!"ti n2

*he sto ! e# hange 'ur hases the reKuisite

Kuantity in the 4u tion Mar!et and gives them

to the buying trading member% *he shortages are

met through au tion 'ro ess and the differen e

in 'ri e indi ated in ontra t note and 'ri e

re eived through au tion is 'aid by member to

the e# hange, $hi h is then liable to be

re overed from the lient%

-hat ha%%ens i. the shares are n t

& !(ht in the a!"ti n2

If the shares ould not be bought in the au tion

i%e% if shares are not offered for sale in theau tion, the transa tions are losed out as 'er

E9I guidelines%

*he guidelines sti'ulate that Gthe lose out Pri e

$ill be the highest 'ri e re orded in that s ri' on

the e# hange in the settlement in $hi h the

on erned ontra t $as entered into and u'to thedate of au tion5 lose out


97/169

*he fa ility of margin trading is available for

rou' 1 se urities and those se urities $hi h are

offered in the initial 'ubli offers and meet the

onditions for in lusion in the derivatives

segment of the sto ! e# hanges%

)or 'roviding the margin trading fa ility, a

bro!er may use his o$n funds or borro$ from

s heduled ommer ial ban!s or :9)3s

regulated by the R9I% 4 bro!er is not allo$ed to

borro$ funds from any other sour e%

*he Wtotal e#'osureW of the bro!er to$ards the

margin trading fa ility should not e# eed the borro$ed funds and >0 'er ent of his Wnet

$orthW% /hile 'roviding the margin trading

fa ility, the bro!er has to ensure that the

e#'osure to a single lient does not e# eed 10

'er ent of the Wtotal e#'osureW of the bro!er%

Initial margin has been 'res ribed as >0- and

the maintenan e margin has been 'res ribed as

B0-%

If the bro!er has borro$ed funds for the 'ur'ose

of 'roviding margin trading fa ility, the name of

the lender and amount borro$ed should be

dis losed latest by the ne#t day%

*he sto ! e# hange, in turn, has to dis lose the

s ri'"$ise gross outstanding in margin a ounts

$ith all bro!ers to the mar!et% u h dis losure

regarding margin"trading done on any day shall

be made available after the trading hours on the

follo$ing day%

*he arbitration me hanism of the e# hange

$ould not be available for settlement of

dis'utes, if any, bet$een the lient and bro!er,

arising out of the margin trading fa ility%+o$ever, all transa tions done on the e# hange,

$hether normal or through margin trading

fa ility, shall be overed under the arbitration

me hanism of the e# hange%

-hat is Se"!rities Lendin( S"he1e2

e urities &ending and 9orro$ing is a s heme $hi h enables lending of idle se urities by the

investors to the learing or'oration and earning

a return through the same% )or se urities

borro$ing and lending system, learing

or'orations of the sto ! e# hange $ould be the

nodal agen y and be registered as the G4''roved

IntermediariesH 74Is8% *he learing or'oration

an borro$, on behalf of the members, se urities

for the 'ur'ose of meeting shortfalls% *hedefaulter selling bro!er may ma!e the delivery

$ithin the 'eriod s'e ified by the learing

or'oration% In the event of the defaulted selling

bro!er failing to ma!e the delivery $ithin the

s'e ified 'eriod, the learing or'oration has to

buy the se urities from the o'en mar!et and

return the same to the lender $ithin seven

trading days% In ase of an inability to 'ur hase

the se urities from the mar!et, the transa tion

shall be losed out%

TRANS#ER O# SECURITIES IN PH7SICAL

MODE

H / d es trans.er . se"!rities ta+e %la"e

in %h,si"al 1 de2

*o effe t a transfer in the 'hysi al mode the

se urities should be sent to the om'any along

$ith a valid, duly e#e uted and stam'ed transfer

deed duly signed by or on behalf of the transferor

7seller8 and transferee 7buyer8% It $ould be a good

idea to retain 'hoto" o'ies of the se urities and

the transfer deed $hen they are sent to the

om'any for transfer% It is essential that these are

sent by registered 'ost $ith a !no$ledgement

due and $at h out for the re ei't of thea !no$ledgement ard% If one does not re eive

the onfirmation of re ei't $ithin a reasonable

@?


98/169

'eriod, he should immediately a''roa h the

'ostal authorities for onfirmation%

ometimes, for onvenien e, one may hoose

not to transfer the se urities immediately% *hismay fa ilitate easy and Kui ! selling of the

se urities% In that ase one should ta!e are that

the transfer deed remains valid other$ise he $ill

have revalidate the transfer deed $ith on erned

R


99/169

Cha%ter *;CONTINUING DISCLOSURES $7 LISTED

COMPANIESInvestors are the 'rimary users of finan ial

statements% *hese are used to assess the 'resent

and the future business and 'rofitability of an

enter'rise as the investors 'rimary interest is in

the future gro$th of a om'anyQs sto ! 'ri e

and5or the li!elihood of the om'any 'aying

dividends%

)inan ial re'orting onsisting of 9alan e heet, Profit

C &oss 4 ount, :otes to 4 ounts, 3ash )lo$

tatement, 4uditor Re'ort and Dire tors Re'ort are

some of the im'ortant dis losures made by listed

om'anies, and are in luded as a 'art of the

om'any s annual re'ort%

4'art from this, the &isting 4greement reKuires

om'anies to ma!e dis losure under various lauses%

ome of the lauses reKuiring dis losures areL

3lause B1L )inan ial Results

3lause .>L hareholding Pattern

3lause BAL 3or'orate overnan e Re'ort

In addition, the &isting 4greement reKuires

immediate intimation to the e# hange on

o urren e of any material event 7i%e% dividend

de laration, finan ial statements dis losure,

bonus shares, rights issue, ta!eover, insider

trading, 'ledging et %8

@@


100/169

Cha%ter * A 1>,.BB .11, 1> >1EKuity 1>B,?? 1A,1> 2.0 1 B,0>B 2@9alan ed 1,?2@ 1,?2@ " 1 ,2B? .&iKuid5Money Mar!et @,0AB " " @,0AB 1.

ilt .,.A> " " .,.A> 1E& "EKuity 20,A11 .,1>> " 2B,0?? B

old E*) 1,>A0 " " 1,>A0 " " A>)und of )undsInvesting 5 *


102/169

*he trustees of the mutual fund are assigned the

res'onsibility of 'rote ting the interests of the

unitholders and are vested $ith the general

'o$er of su'erintenden e and dire tion over the 4M3% *hey monitor the 'erforman e and

om'lian e of E9I Regulations by the mutual

fund% E9I Regulations reKuire that at least t$o

thirds of the dire tors of the trustee om'any

must be inde'endent i%e% they should not be

asso iated $ith the s'onsors%

*he 4M3 manages the funds by ma!ing

investments in various ty'es of se urities% E9IRegulations reKuire that at least >0- of the

dire tors of the 4M3 must be inde'endent i%e%

they should not be asso iated $ith the s'onsors%

*he 3ustodian holds the se urities of various

s hemes of the fund in its ustody%

MUTUAL #UND SCHEMES

Mutual funds offer a very large variety of

o'tions, to suit the investors needs% /hile

some of the s hemes are a tively managed

by the mutual fund, some s hemes are

'assive s hemes%

ACTIVE #UNDS

S"he1es a"" rdin( t the Mat!rit, Peri d

4 mutual fund s heme an be lassified into an

o'en"ended s heme or a lose"ended s heme%

Open ended Fund! Sche"e

4n o'en"ended fund or s heme is one that is

available for subs ri'tion and re'ur hase on a

ontinuous basis% *hese s hemes do not have a

fi#ed maturity 'eriod% Investors an buy and sellthe units of the s heme at the :et 4sset ;alue

7:4;8 related 'ri es $hi h are de lared on a

daily basis% *he !ey feature of o'en"ended

s hemes is liKuidity%

Cl#se ended Fund! Sche"e

4 lose"ended fund or s heme has a sti'ulatedmaturity 'eriod 7e#am'le > years or years8% *he

s heme is o'en for subs ri'tion only during a

s'e ified 'eriod at the time of laun h of the

s heme% ubseKuently, investors an buy or sell

the units of the s heme on the sto ! e# hanges

$here the units are listed% In order to 'rovide an

e#it route to the investors, some lose"ended

funds give an o'tion of selling ba ! the units to

the mutual fund through 'eriodi re'ur hase at:4; related 'ri es% *hese s hemes normally

dis lose their :4;s on a $ee!ly basis%

S"he1es a"" rdin( t the Invest1ent

O&'e"tive

4 s heme an also be lassified as gro$th s heme,

in ome s heme or balan ed s heme based u'on

its investment obFe tive% u h s hemes may be

o'en"ended or lose"ended s hemes% u h

s hemes an be broadly lassified as follo$sL

$r#%th ! &'uity Oriented Sche"e

*he aim of gro$th funds is to 'rovide a'ital

a''re iation over the medium to long" term% u h

s hemes normally invest a maFor 'art of their

or'us in eKuities, and as su h arry higher

ris!s5re$ards% ro$th s hemes are good for

investors having a long"term outloo!% *hese

s hemes further offer three o'tions" ro$th,

Dividend Payout and Dividend Re"invest% Under

the gro$th o'tion, no dividend is 'aid out and the

:4; of the unit refle ts the u'"to" date a'ital

a''re iation% Under the dividend 'ayout o'tion,

investors re eive dividend if there is distributable

sur'lus available and after 'ayout of the dividend,

the :4; of the s heme falls by the amount 'aidout 'er unit% *his dividend is ta# free in hands of

investors% Under the dividend re"invest o'tion,

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103/169

the dividend, instead of being 'aid out, is

reinvested su h that the number of units held

in reases%

Inc#"e ! Debt Oriented Sche"e*he aim of the in ome s hemes is to 'rovide

regular and steady in ome to the investors% 4s

su h, these s hemes generally invest in fi#ed

in ome se urities su h as bonds, or'orate

debentures, overnment se urities and money

mar!et instruments% u h funds offer lo$

returns and are less ris!y% *he :4;s of su h

funds get affe ted 'rimarily be ause of hanges

in interest rates% If the interest rates fall, the:4;s of su h s hemes are li!ely to in rease in

the short run and vi e versa%

alanced Sche"e

9alan ed funds offer the middle 'ath by

ombining both gro$th and in ome% 4s su h,

these s hemes invest both in eKuities and in

fi#ed in ome se urities% *hese are a''ro'riate

for investors $ho do not $ish to ta!e e# essive

ris! and at the same time are also loo!ing for

some a'ital a''re iation% u h s hemes

generally invest B0"?0- in eKuity and the

balan e in debt instruments%

M#ney Mar et #r *i'uid Sche"es

*hese s hemes are 'rimarily li!e in ome

s hemes, $ith features of easy liKuidity,

'reservation of a'ital and moderate in ome%

*hese s hemes invest e# lusively in safe short"

term instruments su h as treasury bills,

ertifi ates of de'osit, ommer ial 'a'er and

inter"ban! all money, government se urities

et % *hese s hemes are normally used by

or'orate and individual investors for 'ar!ing

sur'lus funds on a short term basis% In ome

re eived from su h s hemes is ta#"free%

$ilt Fund

*hese funds invest e# lusively in government

se urities, $hi h have no default ris!% :4;s of

these s hemes flu tuate due to the hanges in

interest rates and other e onomi fa tors%

Sect#r Specific Funds!Sche"es

*hese s hemes invest in the se urities of a 're"

s'e ified se tor5industry 7as dis losed in their

offer do ument8% E#am'les of su h se tors

in lude Pharma euti als, oft$are, )ast Moving

3onsumer oods 7)M3 8, Petroleum, Publi

e tor et % *he returns in these funds are

signifi antly de'endent on the 'erforman e of theres'e tive se tor5industry% /hile these funds

may give higher returns, they are also more ris!y%

Ta+ Sa,ing Sche"es

*hese s hemes offer ta# rebates to the investors

under s'e ifi 'rovisions of the In ome *a# 4 t%

4 good e#am'le of this is the EKuity &in!ed

avings hemes 7E& 8% Pension s hemes

laun hed by mutual funds also offer ta# benefits%

u h s hemes are gro$th oriented and invest 're"

dominantly in eKuities%

Capital Pr#tecti#n Oriented Sche"es

3a'ital Prote tion


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'eriod of the s heme or only for a ertain 'eriod,

irres'e tive of the 'erforman e of the s heme%

u h returns are reKuired to be fully guaranteed

by the s'onsor or the 4M3% *y'i ally, su h

assured returns are on the lo$er side%

Syste"atic In,est"ent Plans (SIP)/

Syste"atic 0ithdra%al Plans (S0P)

and Syste"atic Transfer Plans (STP)

ystemati Investment Plan 7 IP8 is a

onvenient o'tion $hi h offers dis i'lined

saving and investing% Under IP, an investor

invests a fi#ed amount regularly, say every

month or Kuarter% u h investments are made atthe res'e tive 'revailing :4;s% *he investor an

redeem his units any time irres'e tive of

$hether he has om'leted his minimum

investment in that s heme%

Under the ystemati /ithdra$al Plan 7 /P8,

the unitholder may redeem a fi#ed number of

units on a monthly, Kuarterly or annual basis%

Under the ystemati *ransfer Plan 7 *P8, an

investor in one s heme an !ee' transferring

funds to another s heme, de'ending u'on his

outloo! of the mar!et% *he investor may transfer

a fi#ed sum of money on a 'eriodi basis% 4

transfer is treated as redem'tion of units from

the e#isting s heme at a''li able :4; and a

fresh investment in units of the ne$ s heme%

PASSIVE #UNDS

Inde# )unds, E# hange *raded )unds and )und

of )unds are largely 'assive investment funds%

Instead of hurning 'ortfolio in sear h of good

o'tions5se urities, the fund is e#'e ted to

'erform along $ith the s'e ified

inde#5ben hmar! by staying invested% In vie$ of

this, the total re urring e#'enses are also lo$erthan a tively managed funds%

Inde+ Funds

Inde# )unds re'li ate the 'ortfolio of a 'arti ular

inde# su h as the 9 E ense# or the CP : E

:ifty% *hese s hemes invest in the se urities in

the same $eightage as in the inde#% :4;s of su hs hemes rise or fall in a ordan e $ith the rise or

fall of the inde#, though not e#a tly by the same

'er entage due to the Gtra !ing errorH%

&+change Traded Funds

4n Inde# fund sele ts a mar!et inde# and ma!es

investments in the bas!et of sto !s dra$n from

the onstituents of that inde#% *he fund may

invest in any or all of the sto !s onstituting thatinde# but not ne essarily in the same 'ro'ortion%

E# hange *raded )unds, 'o'ularly !no$n as

E*)s also ma!e investments based on a mar!et

inde# or ommodity but in a fi#ed number of

units, say 1000 units% *his is alled a reation

bas!et% E*)s are listed on a sto ! e# hange for

trading of units% &isting 'rovides liKuidity to units

in less than reation si(e% *hus lots of less than

1000 E*) units an be traded by retail investors

at the sto ! e# hanges% In an E*) that is based on

a mar!et inde#, reation bas!ets $ill have sto !s

of that inde# in the same 'ro'ortion as the inde#

and hen e the ben hmar! $ill be that 'arti ular

inde#%

$#ld based &TFs

old based E*)s $ere introdu ed in 200 % Just

li!e in the ase of an eKuity mutual fund, the

underlying asset is the sto !s of various

om'anies, in the ase of E*), the underlying

asset is standard gold bullion of 0%AA> 'urity% *he

investors holding is denoted in units, $hi h gets

listed on a sto ! e# hange%

Fund #f Funds

4 s heme that invests 'rimarily in the s hemes ofthe same mutual fund or of other mutual funds,

and not dire tly in any se urity, is !no$n as a

A.


105/169

)und of )und 7)o)8% *he :4; of the )o)

de'ends u'on the :4;s of the s hemes in $hi h

it invests% 4n )o) s heme enables the investors

to a hieve greater diversifi ation%

LOADSBE PENSES

E9I had earlier abolished initial issue e#'enses

and mutual fund s hemes $ere allo$ed to

re over e#'enses onne ted $ith sales and

distribution through entry load only% )urther,

investors ma!ing dire t a''li ations to the

mutual funds $ere e#em'ted from entry load%

Earlier, though the investor 'aid for the servi es

rendered by the mutual fund distributors, the

distributors $ere remunerated by the 4M3s

from the loads dedu ted from the invested

amounts or from the redem'tion 'ro eeds% E9I

also 'ermitted 4M3s to harge the s heme

7under the annual re urring e#'ense8 for

mar!eting and selling e#'enses in luding

distributor s ommission%

Moreover, all loads in luding 3ontingent

Deferred ales 3harge 73D 38 for the s heme

$ere maintained in a se'arate a ount and this

amount $as used by the 4M3s to 'ay

ommissions to the distributors and to ta!e are

of other mar!eting and selling e#'enses% It had

been left to the 4M3s to redit any sur'lus inthis a ount to the s heme, $henever felt

a''ro'riate% In order to in entivi(e long term

investors it $as onsidered ne essary that e#it

loads53D 3s $hi h are beyond reasonable levels

are redited to the s heme immediately%

In order to em'o$er the investors in de iding

the ommission 'aid to distributors in

a ordan e $ith the level of servi e re eived, to bring about more trans'a

Documents

Investor Guide Book1