mfa -fancial and service mgt

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What DoesPrimary MarketMean?A market that issues new securities on an exchange. Companies, governments and othergroups obtain financing through debt or equity based securities. Primary markets arefacilitated by underwriting groups, which consist of investment banks that will set abeginning price range for a given security and then oversee its sale directly to investors.

What DoesSecondary MarketMean?A market where investors purchase securities or assets from other investors, rather thanfrom issuing companies themselves. The national exchanges - such as the New YorkStock Exchange and the NASDAQ are secondary markets.

Secondary markets exist for other securities as well, such as when funds, investmentbanks, or entities such as Fannie Mae purchase mortgages from issuing lenders. In anysecondary market trade, the cash proceeds go to an investor rather than to the underlyingcompany/entity directly.

What DoesMoney MarketMean?A segment of the financial market in which financial instruments with high liquidity andvery short maturities are traded. The money market is used by participants as a means forborrowing and lending in the short term, from several days to just under a year. Moneymarket securities consist of negotiable certificates of deposit (CDs), bankers acceptances,U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchaseagreements (repos).

What Does Venture CapitalMean?Financing for new businesses. In other words, money provided by investors to startup

firms and small businesses with perceived, long-term growth potential. This is a veryimportant source of funding for startups that do not have access to capital markets. Ittypically entails high risk for the investor, but it has the potential for above-averagereturns.

Stock exchange refer your book?

What DoesSpeculatorMean?A person who trades derivatives, commodities, bonds, equities or currencies with ahigher-than-average risk in return for a higher-than-average profit potential. Speculatorstake large risks, especially with respect to anticipating future price movements, in the

hope of making quick, large gains.

What DoesSpeculation Mean?The process of selecting investments with higher risk in order to profit from ananticipated price movement.


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Types of speculators?

Bull, Bears, Lame ducks, Stags

Dealers in stock exchange?

Brokers, Jobber, Authorized clerk, Remisiers, Tarvaniwalas

What Does Over-The-Counter Exchange Of India - OTCEIMean?An electronic stock exchange based in India that is comprised of small- and medium-sized firms looking to gain access to the capital markets. Like electronic exchanges in theU.S. such as the Nasdaq, there is no central place of exchange and all trading is donethrough electronic networks.

What Does Ordinary Shares Mean? Or equity share?Any shares that are not preferred shares and do not have any predetermined dividend

amounts. An ordinary share represents equity ownership in a company and entitles theowner to a vote in matters put before shareholders in proportion to their percentageownership in the company.

Ordinary shareholders are entitled to receive dividends if any are available afterdividends on preferred shares are paid. They are also entitled to their share of theresidual economic value of the company should the business unwind; however, they arelast in line after bondholders and preferred shareholders for receiving business proceeds.As such, ordinary shareholders are considered unsecured creditors

. What DoesReserve Bank Of India - RBIMean?

The central bank of India, which was established on April 1, 1935, under the ReserveBank of India Act. The RBI uses monetary policy to create financial stability in India andis charged with regulating the country's currency and credit systems.

What Does Commercial BankMean?A financial institution that provides services such as a accepting deposits and givingbusiness loans.

What DoesMerchant BankMean?A bank that deals mostly in (but is not limited to) international finance, long-term loansfor companies and underwriting. Merchant banks do not provide regular banking services

to the general public.

What DoesMutual FundMean?An investment vehicle that is made up of a pool of funds collected from many investorsfor the purpose of investing in securities such as stocks, bonds, moneymarket instruments and similar assets. Mutual funds are operated by money mangers,who invest the fund's capital and attempt to produce capital gains and income for the


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fund's investors. A mutual fund's portfolio is structured and maintained to match theinvestment objectives stated in its prospectus.

What DoesDebenture Mean?A type of debt instrument that is not secured by physical asset or collateral. Debentures

are backed only by the general creditworthiness and reputation of the issuer. Bothcorporations and governments frequently issue this type of bond in order to securecapital. Like other types of bonds, debentures are documented in an indenture.

What DoesBank Rate Mean?The rate at which central banks lend funds to national banks. A central bank adjusts thesupply of currency within national borders by adjusting the bank rate. When the centralbank reduces the bank rate, it increases the attractiveness for commercial banks toborrow, thus increasing the money supply. When the central bank increases the bank rate,it decreases the attractiveness for commercial banks to borrow, consequently decreasingthe money supply

Financial Intermediaries

A structural change was noticed in the Indian financial system with the establishment

of a

host of financial intermediaries during the second phase of evolution of the system.

Financial intermediaries comprises of public financial institutions, NBFCs, mutualfunds,commercial banks, housing bank etc.

BSE INDEX

Sensex Sensitivity Index is shortly called as Sensex. Sensex comprises of 30 actively

traded stocks from A group shares of different industries. The base year for sensex

is 1978-79. BSE National Index This index comprises of 100 actively tradingcompanies. The base year for this index is 1983-84. This comprises of all categories

of equity shares.

Function of RBI

Main Functions

Monetary Authority:

Formulates, implements and monitors the monetary policy.

Objective: maintaining price stability and ensuring adequate flow of credit toproductive sectors.

Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations within which the country's

banking and financial system functions.


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Objective: maintain public confidence in the system, protect depositors' interest

and provide cost-effective banking services to the public.

Manager of Foreign Exchange

Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly

development and maintenance of foreign exchange market in India.

Issuer of currency:

Issues and exchanges or destroys currency and coins not fit for circulation.

Objective: to give the public adequate quantity of supplies of currency notes and

coins and in good quality.

Developmental role

Performs a wide range of promotional functions to support national objectives.

Related Functions

Banker to the Government: performs merchant banking function for the central

and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks.

Financial market

Call money market

Call money market is that part of the national money market where the day to day surplusof funds, of banks and primary dealers, are traded in.Call/ Notice/ term money marketranges between one day to 15 days borrowing and considered as highly liquid. Other keyfeature is that the borrowings are unsecured and the interest rates are very volatiledepending on the demand and supply of the short term surplus/ defeciency amongst theinterbank players.

The average daily turnover in the call money market is around Rs. 12000-13000 cr everyday and the market is active between 9.30 to 2.30 every working day and 9.30to 12.30

every Saturday.

Features of call money market:

1. This market deals in very short period funds, ranging from one day to 15 days.2. this market is very sensitive to any changes in financial system

3. in case of call money market funds are borrowed or lent very quickly


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4. investment in call money market is quite profitable

5. interest charged in this market is called as call rates

6. call rates in call money market is very volatile

7. Call money market are mainly located in major commercial centers like Mumbai,Delhi, Chennai. Etc.

Main participants in call money market are

1. scheduled commercial banks2. non- scheduled commercial banks

3. state, district, and urban co-operative banks

4. foreign banks

5. discount and finance house of India

6. securities trading corporation of India

Treasury Bills: The Treasury bills are short-term money market instrument thatmature in a year or less than that. The purchase price is less than the face value. Atmaturity the government pays the Treasury Bill holder the full face value. The TreasuryBills are marketable, affordable and risk free. The security attached to the treasury billscomes at the cost of very low returns.

Types Of Treasury BillsThere are different types of Treasury bills based on the maturity periodand utility of the issuance like, ad-hoc Treasury bills, 3 months, 12months Treasury bills etc. InIndia, at present, the Treasury Bills are the 91-days and 364-days Treasury bills.

Benefits Of Investment In Treasury Bills

No tax deducted at source

Zero default risk being sovereign paper

Highly liquid money market instrument

Better returns especially in the short term

TransparencySimplified settlement

High degree of tradeability and active secondary market facilitates meetingunplanned fund requirements.


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Certificate of Deposit: The certificates of deposit are basically time deposits that areissued by the commercial banks with maturity periods ranging from 3 months to fiveyears. The return on the certificate of deposit is higher than the Treasury Bills because itassumes a higher level of risk.

Commercial Paper: Commercial Paper is short-term loan that is issued by acorporation use for financing accounts receivable and inventories. commercial paper isan unsecuredpromissory note with a fixed maturity of 1 to 270 days. Commercial Paperis a money-market securityissued (sold) by largebanksand corporations to get moneytomeet short term debt obligations (for example,payroll), and is only backed by an issuingbank or corporation's promise to pay the face amount on the maturity date specified onthe note. Since it is not backed by collateral, only firms with excellent credit ratings froma recognized rating agency will be able to sell their commercial paper at a reasonableprice. Commercial paper is usually sold at adiscountfrom face value, and carries shorterrepayment dates thanbonds. The longer the maturity on a note, the higher the interest ratethe issuing institution must pay. Interest rates fluctuate with market conditions, but are

typically lower than banks' rates.

Banker's Acceptance: It is a short-term credit investment. It is guaranteed by a bank tomake payments. The Banker's Acceptance is traded in the Secondary market. Thebanker's acceptance is mostly used to finance exports, imports and other transactions ingoods. The banker's acceptance need not be held till the maturity date but the holder hasthe option to sell it off in the secondary market whenever he finds it suitable.

Euro Dollars: The Eurodollars are basically dollar- denominated deposits that are held inbanks outside the United States. Since the Eurodollar market is free from any stringentregulations, the banks can operate at narrower margins as compared to the banks in U.S.The Eurodollars are traded at very high denominations and mature before six months.

The Eurodollar market is within the reach of large institutions only and individualinvestors can access it only through money market funds.

Repos: The Repo or the repurchase agreement is used by the government security holderwhen he sells the security to a lender and promises to repurchase from him overnight.Hence the Repos have terms raging from 1 night to 30 days. They are very safe duegovernment backing.

Gilt funds,as they are conveniently called, are mutual fund schemes floated by assetmanagement companies with exclusive investments in government securities. Theschemes are also referred to as mutual funds dedicated exclusively to investments in

government securities. Government securities mean and include central governmentdated securities, state government securities and treasury bills. The gilt funds provide tothe investors the safety of investments made in government securities and better returnsthan direct investments in these securities through investing in a variety of governmentsecurities yielding varying rate of returns gilt funds, however, do run the risk.. The firstgilt fund in India was set up in December 1998.

Discount market
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UK's short-termmoney market comprising ofbanks, discount houses, and money

brokers (called bill brokers) who discountbills ofexchange (including

treasury bills). Also called bill market, it is an important channel through

whichbank of Englandcontrolsthe amount of money in thefinancial system.

The NASDAQ Stock Market, known as NASDAQ, is an Americanstock exchange.The full form is National Association of Securities and Dealers Automated Quotation.It isthe largest electronic screen-based equity securitiestrading market in the United States.With approximately 3,700 companies and corporations, it has more trading volume perhour than any other stock exchange in the world

NSE

The National Stock Exchange (NSE) is India's leading stock exchange covering variouscities and towns across the country. NSE was set up by leading institutions to provide amodern, fully automated screen-based trading system with national reach. The Exchange

has brought about unparalleled transparency, speed & efficiency, safety and marketintegrity. It has set up facilities that serve as a model for the securities industry in termsof systems, practices and procedures.

NSE has played a catalytic role in reforming the Indian securities market in terms ofmicrostructure, market practices and trading volumes. The market today uses state-of-artinformation technology to provide an efficient and transparent trading, clearing andsettlement mechanism, and has witnessed several innovations in products & services viz.demutualisation of stock exchange governance, screen based trading, compression ofsettlement cycles, dematerialisation and electronic transfer of securities, securitieslending and borrowing, professionalisation of trading members, fine-tuned risk

management systems, emergence of clearing corporations to assume counterparty risks,market of debt and derivative instruments and intensive use of information technology.

Nifty

S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of theeconomy. It is used for a variety of purposes such as benchmarking fund portfolios, indexbased derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd.(IISL), which is a joint venture between NSE and CRISIL. IISL is India's first specialisedcompany focused upon the index as a core product. IISL has a Marketing and licensingagreement with Standard & Poor's (S&P), who are world leaders in index services.

The total traded value for the last six months of all Nifty stocks is approximately

54% of the traded value of all stocks on the NSE Nifty stocks represent about 62.50% of the Free Float Market Capitalization as on

Sept 30, 2009. Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16%
http://www.investorwords.com/4563/short_term.htmlhttp://www.investorwords.com/4563/short_term.htmlhttp://www.businessdictionary.com/definition/money-market.htmlhttp://www.businessdictionary.com/definition/bank.htmlhttp://www.businessdictionary.com/definition/discount-house.htmlhttp://www.businessdictionary.com/definition/money.htmlhttp://www.businessdictionary.com/definition/broker.htmlhttp://www.businessdictionary.com/definition/bill-broker.htmlhttp://www.businessdictionary.com/definition/discount.htmlhttp://www.businessdictionary.com/definition/bill.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/treasury-bill-T-bill.htmlhttp://www.businessdictionary.com/definition/bill-market.htmlhttp://www.businessdictionary.com/definition/channel.htmlhttp://www.businessdictionary.com/definition/Bank-of-England.htmlhttp://www.businessdictionary.com/definition/Bank-of-England.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.investorwords.com/205/amount.htmlhttp://www.businessdictionary.com/definition/financial-system.htmlhttp://www.businessdictionary.com/definition/financial-system.htmlhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Electronic_tradinghttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Stockhttp://www.nseindia.com/content/indices/ind_niftylist.csvhttp://www.nseindia.com/content/indices/ind_niftytrading.htmhttp://www.nseindia.com/content/indices/ind_niftytrading.htmhttp://www.nseindia.com/content/indices/ind_indexfunds.htmhttp://www.nseindia.com/content/indices/ind_iisl.htmhttp://www.nseindia.com/content/indices/ind_iisl.htmhttp://www.nseindia.com/content/indices/ind_ic_2007.csvhttp://www.investorwords.com/4563/short_term.htmlhttp://www.businessdictionary.com/definition/money-market.htmlhttp://www.businessdictionary.com/definition/bank.htmlhttp://www.businessdictionary.com/definition/discount-house.htmlhttp://www.businessdictionary.com/definition/money.htmlhttp://www.businessdictionary.com/definition/broker.htmlhttp://www.businessdictionary.com/definition/bill-broker.htmlhttp://www.businessdictionary.com/definition/discount.htmlhttp://www.businessdictionary.com/definition/bill.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/treasury-bill-T-bill.htmlhttp://www.businessdictionary.com/definition/bill-market.htmlhttp://www.businessdictionary.com/definition/channel.htmlhttp://www.businessdictionary.com/definition/Bank-of-England.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.investorwords.com/205/amount.htmlhttp://www.businessdictionary.com/definition/financial-system.htmlhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Electronic_tradinghttp://en.wikipedia.org/wiki/Stockhttp://www.nseindia.com/content/indices/ind_niftylist.csvhttp://www.nseindia.com/content/indices/ind_niftytrading.htmhttp://www.nseindia.com/content/indices/ind_niftytrading.htmhttp://www.nseindia.com/content/indices/ind_indexfunds.htmhttp://www.nseindia.com/content/indices/ind_iisl.htmhttp://www.nseindia.com/content/indices/ind_iisl.htmhttp://www.nseindia.com/content/indices/ind_ic_2007.csv


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S&P CNX Nifty isprofessionally maintained and is ideal for derivatives trading

From June 26, 2009, S&P CNX Nifty is computed based on free float

methodology.

Introduction OTCEI

Over The Counter Exchange of India was incorporated in the year 1990 and

became fully operational from September 1993 onwards. Regulated under Sec.25 of Companies Act, 1956. NASDAQ is the role model for

OTCEI. Sec.4 of SCRA (Securities Contracts Regulation Act) recognizes OTCEI as a

stock exchange. The main aim of bringing OTCEI is to eliminate the outcry trading system in

India and to bring in the international standards in the stock market operations.

Promoters of OTCEI(Capital Contribution)

UTI 20% ICICI 20%

IDBI 17% SBI CAP LTD 11%

IFCI 8% LIC 8%

Can Bank Fin. Services 8% Others 8%

Features of OTCEI

Trading through a network of computers of OTC dealers. A national level floor less exchange.

Screen based trading. Exclusive listing is a must.

Quicker liquidity. Fair market price.

Simplified process of trade.

Causes for Failure of OTCEI

Hectic Listing Procedure Vital failure point

- Exclusive listing made compulsory- Appointing a sponsor for listing- High listing fees.

Investors are not fully conversant with fully computerized trading system. Investors are not given proper education on OTCEI workings.

Comparative Study: RSE OTCEI - NSE
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FEATURE RSE OTCEI NSE

Membership All Only Corporate All

Method of Trading Floor Based Screen Based Screen Based

System of Trading Quote Driven Code Driven Order DrivenTransparency Nil Ensured 100%

Intermediaries Needed Limited Limited

Year of Start Since 1875 1991 1994

Trade Reach (India) Limited Anywhere Anywhere

DERIVATIVES @ FUNDASA Brief History of Derivatives

The history of derivatives is surprisingly longer than what most people think.Some texts even find the existence of the characteristics of derivative contracts inincidents of Mahabharata.

Traces of derivative contracts can even be found in incidents that date back to the

ages before Jesus Christ. In Genesis Chapter 29, believed to be about the year 1700 B.C., Jacob

purchased an option costing him seven years of labor that granted him the right tomarry Laban's daughter Rachel. His prospective father-in-law, however, reneged,perhaps making this not only the first derivative but the first default on aderivative.

A Brief History of Derivatives

Around 580 B.C., Thales the Milesian purchased options on olive presses andmade a fortune off of a bumper crop in olives.

However, the advent ofmodern day derivative contracts is attributed to theneed for farmers to protect themselves from any decline in the price of their

crops due to delayed monsoon, or overproduction. The first 'futures' contracts can be traced to the Yodoya rice market in

Osaka, Japan around 1650.

These were evidently standardised contracts, which made them much like today'sfutures.

The Chicago Board of Trade (CBOT), the largest derivative exchange in the

world, was established in 1848 where forward contracts on various commoditieswere standardised around 1865. From then on, futures contracts have remainedmore or less in the same form, as we know them today.

Trading in Stock Index Futures (SIF) contracts was introduced by the

Kansas City Board of Trade on February 24, 1982. In 1982 April, the Chicago Mercantile Exchange began trading a futures contract

based on the Standard and Poor's Index of 500 common stocks.


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The success of the first two contracts induced other major exchanges to introduce

similar instruments. NYSE Composite Stock Index, Value Line CompositeStock Index are among the popular stock index futures.

In India Derivatives was introduced in the year 2000

What is a derivative? Derivatives are defined as financial instruments whose value derived from the

prices of one or more other assets such as equity securities, fixed-incomesecurities, foreign currencies, or commodities.

A derivative is also a kind of contract between two counterparties to exchangepayments linked to the prices of underlying assets.

Derivative can also be defined as a financial instrument that does not constituteownership, but a promise to convey ownership.

TYPES OF DERIVATIVES

The following are the basic two types of derivatives:1. Financial Derivatives ( @ NSE & BSE)(a) Forwards(b) Futures(c) Options(d) Swaps

2. Commodities Derivatives (@ MCX & NCDEX)

PLAYERS IN DERIVATIVES MARKET

(a) Speculators(b) Hedgers(c) Arbitrageurs

(a) FORWARD CONTRACTS A forward contract is an agreement to buy or sell an asset on a specified date for a

specified price. One of the parties to the contract assumes a long position and agrees to buy the

underlying asset on a certain specified future date for a specified price. The other party assumes short position and agrees to sell the asset on the same

date for the same price. Other contract details like delivery date, price and quantity are negotiated

bilaterally by the parties to the contract. Forward contracts are normally traded outside the exchanges.

(b) FUTURES CONTRACTS

A future contract is an agreement between two parties to buy or sell an asset at acertain time in the future at a certain price. Future contracts are standardized and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies certain

standard features of the contract. Futures are standardized in terms of:

i. Quantity of the underlying assetii. Quality of the underlying asset


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iii. Date of deliveryiv. Units of price quotation and mini. price change.v. Location of settlement.

(c) OPTIONS - Concept

Options are contracts which provide the holder the right to sell or buy a specifiedquantity of an underlying asset at a fixed price on or before the expiration of theoption date.

The person who acquires the right is known as Option Holder (or) Buyer andthe person who grants this right is known as Option Writer (or) Seller.

The price payable for this right is known as the Premium and it depends upon

the underlying assets. The agreed price by the both the parties is called as the Strike Price The agreed date is technically called as the Expiration Date (or) Strike Date

OPTIONS - TYPES

Depending upon whether an option is for a right to buy or

Sell, the option can be classified into CALL and PUT: CALL OPTION

Call option provides to the holder a right to buy specified assets at specified price onor before a specified date.

(b) PUT OPTION

Put option provides to the holder a right to sell specified assets at specified price on orbefore a specified date.

EXPIRATION DATE KINDS

The expiration date can be either of

(a) American Option Style (On or before expiry date) OR(b) European Option Style. (Only on expiry date)

(Note: In India Stock Options are of American Style and Index options are ofEuropean Style)(d) SWAPS

Swaps are private agreements between two parties to exchange cash flows in the

future according to a pre arranged formula. Two commonly used swaps are

(a) Interest Rate Swaps These entail swapping only the interest related cashflows between the parties in the same currency.

(b) Currency Swaps These entail swapping both principal and interest betweenthe parties, with the cashflows in one direction being in a different currency than those inthe opposite direction.

(c) Swaptions Swaptions are options to buy or sell a swap that will becomeoperative at the expiry of the options. Thus a swaption is an option on a forward swap.Rather than have calls and puts, the swaptions market receiver swaptions and payerswaptions. A receiver swaption is an option to receive fixed and paying floating. A payerswaption is an option to pay fixed and receive floating.payer swaptions. A receiver swaption is an option to receive fixed and paying floating. Apayer swaption is an option to pay fixed and receive floating.


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PUBLIC ISSUES MANAGEMENT

INTRODUCTIONPublic Issues Management in India, quiet interesting and deliberative topic of theday. In general the following are the ways available in India as for as Public Issues areconcerned:

Public Offer through Prospectus Offer for Sale Private Placement Offer through Book Building Process Rights Issue

I. PUBLIC OFFER THROUGH PROSPECTUS

This method is the most common and popular method of issue of securities. The

securities are offered to the investors through a detailed statement of terms and conditionsknown as prospectus. The prospectus is also known as Offer DocumentContents of a Prospectus

The contents of a prospectus are as per the requirements given in the Chapter VIof SEBI Guidelines, 2000. These requirements, interalia, are in respect of:

Name of the company Board of Directors Existing and proposed activities of the issuer Authorised, Issued and Paid up capital Names of the Merchant Bankers, Lead Managers, Advisors,

Registrar, Bankers, Underwriters

Minimum Subscription Different disclaimer clauses Terms of the present issue Utilisation of issue proceeds Analysis of financial conditions & results of operations Financial Information of group companies Issues price and basis for that Risk Factors Other general and relevant financial information

When & Why to go for this type of Public Issue Offer by Prospectus?

The issue by prospectus method is adopted when the company wants to issuefixed number of securities at a fixed price (which may be equal to less than ormore than the face value).

The application forms together with the copy of prospectus are distributed amongthe public investors who offer to the company to buy a specific number ofsecurities.

In case of over-subscription, the securities are allotted to the investors, inconsultation with the stock exchange where the securities are proposed to belisted.


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What is the limitation of this method (Offer through prospectus)?

One of the shortcomings of this method is that it is an expensive method. High cost of advertisement, flotation, brokerage and underwriting are involved.

II. OFFER FOR SALE

It is also called as Bought out Deals. In certain cases, the companies do not offer the securities directly to the investors. Instead, the securities are issued to an issue house or a merchant banker who will

subsequently offer the securities for sale to the investors. If an existing company off-loads, a part of the promoters capital to a wholesaler

instead of making a public issue. Classical example of offer for sale disinvestment of shares in PSU by the

government is offer for sale.

Pricing is the essential element to be decided in a bought out deal. The difference between the issue price by the company and the offer price by the

issue house is one of the gains to the later.

Advantages of a Bought out DealHelps the promoters to realize the funds without any loss of time. A medium or smallsized company, which already facing working capital shortage, cannot afford to havelong lead-time before the funds could be mobilized from the public.The cost of raising funds is reduced. For issuing shares to the public the companyincurs heavy expenses, which may invariably be as high as 5%-10% of the cost of theproject.Helps the new entrepreneur to raise adequate capital from the market. Helps thepromoters who are not familiar with the capital market but have sound professionalknowledge to raise funds. Sponsors (issue houses) are mostly concerned with thepromoters background and government policies than about the past track record orfinancial projections.Limitation of a Bought out Deal

The major limitation of the bought out deal is, sponsor (issue house) are able tocreate a positive image about the shares and sell them at hefty premium.

Single investment banker gives scope formanipulation of the results. Insider trading and price rigging could be carried out, which is unhealthy to

the company.III. PRIVATE PLACEMENT

In this case, the issuing company does not offer the securities to investors ingeneral.

Instead, the securities are offered to select big institutional clients only. These institutions could be a financial institution, corporate bodies and high

networth individuals. The investors may be selected in conformity with the merchant banker. The stock is placed with the issue house client with the medium of placing letter

and other documents which taken together contribute a prospectus, giving theinformation regarding the issue.

The special feature of private placement is that there is no need for underwritingagreements since the placement itself amounts to underwriting.


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Private placement of securities could be any kind of security like, equity share,preference share, debentures or bonds.

Listed, unlisted or closely held companies all these are eligible for privateplacement.

In India private placement of securities witness a growth in terms of debt

securities with lot of innovation. The PSU has become a major user of private placements as its share in totalprivate placement rose from an already high level of 69.5% in 1995-96 to above80% in the recent past.

Benefits of Private Placement

Cost Effective Time Effective Structure Effective Access Effective

IV. OFFER OF SHARES THROUGH BOOK BUILDING

Book Building process in India was the outcome of the recommendations of

Malegam Committee in October, 1995. Originally Book building process was available only to companies issuing more

than Rs.100 crores; subsequently SEBI removes this restriction and opens thisfacility all companies for all sizes of issues.

In India M/s Nirma is set to be the first company to adopt the book building

mechanism 100 lakhs equity shares issue. (Note: This issue was suspended bySEBI)

What is Book Building? - SEBI Guidelines defines Book Building as a processundertaken by which a demand for the securities proposed to be issued by acorporate body is elicited and built up and the price for such securities is assessedfor the determination of the quantum of such securities to be issued by means of a

notice, circular, advertisement, document or information memoranda or offerdocument. It may be noted that the book building process may be used for issue ofsecurities, as well as for buy-back of shares.

FACTORING IN INDIA

What is factoring?

Factoring is a financial option for the management of receivables. In simpledefinition it is the conversion of credit sales into cash. In factoring, a financial institution(factor) buys the accounts receivable of a company (Client) and pays up to 80%(rarely up

to 90%) of the amount immediately on agreement. Factoring company pays theremaining amount (Balance 20%-finance cost-operating cost) to the client when thecustomer pays the debt. Collection of debt from the customer is done either by the factoror the client depending upon the type of factoring. We will see different types offactoring in this article. The account receivable in factoring can either be for a product orservice. Examples are factoring against goods purchased, factoring for constructionservices (usually for government contracts where the government body is capable ofpaying back the debt in the stipulated period of factoring. Contractors submit invoices to


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get cash instantly), factoring against medical insurance etc. Let us see how factoring isdone against an invoice of goods purchased.

Characteristics of factoring

1. Usually the period for factoring is 90 to 150 days. Some factoring companiesallow even more than 150 days.2. Factoring is considered to be a costly source of finance compared to other sources

of short term borrowings.

3. Factoring receivables is an ideal financial solution for new and emerging firmswithout strong financials. This is because credit worthiness is evaluated based onthe financial strength of the customer (debtor). Hence these companies canleverage on the financial strength of their customers.

4. Bad debts will not be considered for factoring.

5. Credit rating is not mandatory. But the factoring companies usually carry outcredit risk analysis before entering into the agreement.

6. Factoring is a method of off balance sheet financing.

7. Cost of factoring=finance cost + operating cost. Factoring cost vary according tothe transaction size, financial strength of the customer etc. The cost of factoring

Factor

ClientCustomer

Pays the amount (In recoursetype customer pays through

client)

credit sale ofgoods

Invoice

Submit invoicecopy

Payment up to80% initially

Pays thebalanceamount


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vary from 1.5% to 3% per month depending upon the financial strength of theclient's customer.

8. Indian firms offer factoring for invoices as low as 1000Rs

9. For delayed payments beyond the approved credit period, penal charge of around1-2% per month over and above the normal cost is charged (it varies like 1% forthe first month and 2% afterwards).

Different types of Factoring

1. Disclosed and Undisclosed2. Recourse and Non recourse

A single factoring company may not offer all these services.

Disclosed

In disclosed factoring client's customers are notified of the factoring agreement.Disclosed type can either be recourse or non recourse.

Undisclosed

In undisclosed factoring, client's customers are not notified of the factoring arrangement.Sales ledger administration and collection of debts are undertaken by the client himself.

Client has to pay the amount to the factor irrespective of whether customer has paid ornot. But in disclosed type factor may or may not be responsible for the collection of debtsdepending on whether it is recourse or non recourse.

Recourse factoring

In recourse factoring, client undertakes to collect the debts from the customer. If thecustomer don't pay the amount on maturity, factor will recover the amount from theclient. This is the most common type of factoring. Recourse factoring is offered at alower interest rate since the risk by the factor is low. Balance amount is paid to clientwhen the customer pays the factor.

Non recourse factoring

In non recourse factoring, factor undertakes to collect the debts from the customer.Balance amount is paid to client at the end of the credit period or when the customer paysthe factor whichever comes first. The advantage of non recourse factoring is thatcontinuous factoring will eliminate the need for credit and collection departments in theorganization.


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VENTURE CAPITAL

Venture capital (also known as VC orVenture) is a type ofprivate equity capitaltypically provided for early-stage, high-potential, growth companies in the interest ofgenerating a return through an eventual realization event such as an IPO ortrade sale of

the company. Venture capital investments are generally made as cash in exchange forshares in the invested company. It is typical for venture capital investors to identify andback companies in high technology industries such as biotechnology and ICT(information and communication technology).

Venture capital typically comes from institutional investors and high net worthindividuals and is pooled together by dedicated investment firms.

Venture capital firms typically comprise small teams with technology backgrounds(scientists, researchers) or those with business training or deep industry experience

Or

A venture capitalist (also known as a VC) is a person or investment firm that makesventure investments, and these venture capitalists are expected to bring managerial andtechnical expertise as well as capital to their investments. A venture capital fund refersto apooled investment vehicle (often an LP orLLC) that primarily invests the financialcapital of third-party investors in enterprises that are too risky for the standard capitalmarkets orbank loans.

Venture capital is also associated with job creation, the knowledge economy and used asa proxy measure of innovation within an economic sector or geography.

Structure of Venture Capital Firms

Venture capital firms are typically structured aspartnerships, the general partners ofwhich serve as the managers of the firm and will serve as investment advisors to theventure capital funds raised. Venture capital firms in the United States may also bestructured as limited liability companies, in which case the firm's managers are known asmanaging members. Investors in venture capital funds are known aslimited partners.This constituency comprises both high net worth individuals and institutions with largeamounts of available capital, such as state and privatepension funds, universityfinancialendowments, foundations, insurancecompanies, andpooled investmentvehicles, called

fund of funds ormutual funds.

Types of Venture Capital Firms

Depending on your business type, the venture capital firm you approach will differ.[17]For instance, if you're a startup internet company, funding requests from a moremanufacturing-focused firm will not be effective. Doing some initial research on which
http://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Growth_investinghttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Mergers_and_acquisitionshttp://en.wikipedia.org/wiki/Institutional_investorshttp://en.wikipedia.org/wiki/High_net_worth_individualshttp://en.wikipedia.org/wiki/High_net_worth_individualshttp://en.wikipedia.org/wiki/Pooled_investmenthttp://en.wikipedia.org/wiki/Limited_partnershiphttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Capital_marketshttp://en.wikipedia.org/wiki/Capital_marketshttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Partnershipshttp://en.wikipedia.org/wiki/Partnershipshttp://en.wikipedia.org/wiki/Partnershipshttp://en.wikipedia.org/wiki/General_partnerhttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/Limited_partnerhttp://en.wikipedia.org/wiki/Limited_partnerhttp://en.wikipedia.org/wiki/Limited_partnerhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Financial_endowmenthttp://en.wikipedia.org/wiki/Financial_endowmenthttp://en.wikipedia.org/wiki/Financial_endowmenthttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Pooled_investmenthttp://en.wikipedia.org/wiki/Pooled_investmenthttp://en.wikipedia.org/wiki/Mutual_fundshttp://en.wikipedia.org/wiki/Venture_capital#cite_note-16%23cite_note-16http://en.wikipedia.org/wiki/Venture_capital#cite_note-16%23cite_note-16http://en.wikipedia.org/wiki/Venture_capital#cite_note-16%23cite_note-16http://en.wikipedia.org/wiki/Startup_companyhttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Growth_investinghttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Mergers_and_acquisitionshttp://en.wikipedia.org/wiki/Institutional_investorshttp://en.wikipedia.org/wiki/High_net_worth_individualshttp://en.wikipedia.org/wiki/High_net_worth_individualshttp://en.wikipedia.org/wiki/Pooled_investmenthttp://en.wikipedia.org/wiki/Limited_partnershiphttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Capital_marketshttp://en.wikipedia.org/wiki/Capital_marketshttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Partnershipshttp://en.wikipedia.org/wiki/General_partnerhttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/Limited_partnerhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Financial_endowmenthttp://en.wikipedia.org/wiki/Financial_endowmenthttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Pooled_investmenthttp://en.wikipedia.org/wiki/Mutual_fundshttp://en.wikipedia.org/wiki/Venture_capital#cite_note-16%23cite_note-16http://en.wikipedia.org/wiki/Startup_company


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firms to approach will save time and effort. When approaching a VC firm, consider theirportfolio:

Business Cycle: Do they invest in budding or established businesses?

Industry: What is their industry focus?

Investment: Is their typical investment sufficient for your needs? Location: Are they regional, national or international?

Return: What is their expected return on investment?

Involvement: What is their involvement level?

Targeting specific types of firms will yield the best results when seeking VC financing.Wikipedia has a list of venture capital firmsthat can help you in your initial exploration.The National Venture Capital Association segments dozens of VC firms into ways thatmight assist you in your search.[18] It is important to note that many VC firms havediverse portfolios with a range of clients. If this is the case, finding gaps in their portfoliois one strategy that might succeed.

Roles within Venture Capital Firms

Within the venture capital industry, the general partners and other investmentprofessionals of the venture capital firm are often referred to as "venture capitalists" or"VCs". Typical career backgrounds vary, but broadly speaking venture capitalists comefrom either an operational or a finance background. Venture capitalists with anoperational background tend to be former founders or executives of companies similar tothose which the partnership finances or will have served as management consultants.Venture capitalists with finance backgrounds tend to have investment banking or othercorporate finance experience.

Although the titles are not entirely uniform from firm to firm, other positions at venturecapital firms include:

Venture partners - Venture partners are expected to source potential investment

opportunities ("bring in deals") and typically are compensated only for those dealswith which they are involved.

Entrepreneur-in-residence (EIR) - EIRs are experts in a particular domain and

perform due diligence on potential deals. EIRs are engaged by venture capitalfirms temporarily (six to 18 months) and are expected to develop and pitch startup

ideas to their host firm (although neither party is bound to work with each other).Some EIR's move on to executive positions within a portfolio company.

Principal - This is a mid-level investment professional position, and often

considered a "partner-track" position. Principals will have been promoted from asenior associate position or who have commensurate experience in another fieldsuch as investment bankingormanagement consulting.
http://en.wikipedia.org/wiki/List_of_venture_capital_firmshttp://en.wikipedia.org/wiki/List_of_venture_capital_firmshttp://en.wikipedia.org/wiki/Venture_capital#cite_note-17%23cite_note-17http://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Due_diligencehttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Management_consultinghttp://en.wikipedia.org/wiki/List_of_venture_capital_firmshttp://en.wikipedia.org/wiki/Venture_capital#cite_note-17%23cite_note-17http://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Due_diligencehttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Management_consulting


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Associate - This is typically the most junior apprentice position within a venture

capital firm. After a few successful years, an associate may move up to the"senior associate" position and potentially principal and beyond. Associates willoften have worked for 1-2 years in another field such as investment bankingormanagement consulting.

Structure of the funds

Most venture capital funds have a fixed life of 10 years, with the possibility of a fewyears of extensions to allow for private companies still seeking liquidity. The investingcycle for most funds is generally three to five years, after which the focus is managingand making follow-on investments in an existing portfolio. This model was pioneered bysuccessful funds in Silicon Valley through the 1980s to invest in technological trendsbroadly but only during their period of ascendance, and to cut exposure to managementand marketing risks of any individual firm or its product.

In such a fund, the investors have a fixed commitment to the fund that is initiallyunfunded and subsequently "called down" by the venture capital fund over time as thefund makes its investments. There are substantial penalties for a Limited Partner (orinvestor) that fails to participate in a capital call.

It can take anywhere from a month or so to several years for venture capitalists to raisemoney from limited partners for their fund. At the time when all of the money has beenraised, the fund is said to be closed and the 10 year lifetime begins. Some funds havepartial closes when one half (or some other amount) of the fund has been raised. "Vintageyear" generally refers to the year in which the fund was closed and may serve as a meansto stratify VC funds for comparison. This free database of venture capital funds shows

the difference between a venture capital fund management company and the venturecapital funds managed by them.

LEASE

Meaning 0f Lease Financing

A lease transaction is a commercial arrangement whereby an equipment owner orManufacturer conveys to the equipment user the right to use the equipment in returnfor a rental. In other words, lease is a contract between the owner of an asset (thelessor) and its user (the lessee) for the right to use the asset during a specified periodin return for a mutually agreed periodic payment (the lease rentals). The important

feature of a lease contract is separation of the ownership of the asset from its usage.Lease financing is based on the observation made by Donald B. Grant:Why own a cow when the milk is so cheap? All you really need is milk and not thecow.Importance 0f Lease Financing

Leasing industry plays an important role in the economic development of a country byproviding money incentives to lessee. The lessee does not have to pay the cost of assetat the time of signing the contract of leases. Leasing contracts are more flexible so
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lessees can structure the leasing contracts according to their needs for finance. Thelessee can also pass on the risk of obsolescence to the lessor by acquiring those229appliances, which have high technological obsolescence. To day, most of us arefamiliar with leases of houses, apartments, offices, etc.

Types Of Lease Agreements

Lease agreements are basically of two types. They are (a) Financial lease and (b)Operating lease. The other variations in lease agreements are (c) Sale and lease back d)Leveraged leasing and (e) Direct leasing

Hire purchase

Concept and meaning of hire Purchase

Hire purchase is a type of installment credit under which the hire purchaser, called thehirer, agrees to take the goods on hire at a stated rental, which is inclusive of therepayment of principal as well as interest, with an option to purchase. Under thistransaction, the hire purchaser acquires the property (goods) immediately on signingthe hire purchase agreement but the ownership or title of the same is transferred onlywhen the last instalment is paid. The hire purchase system is regulated by the HirePurchase Act 1972. This Act defines a hire purchase as an agreement under whichgoods are let on hire and under which the hirer has an option to purchase them inaccordance with the terms of the agreement and includes an agreement under which:1) The owner delivers possession of goods thereof to a person on condition thatsuch person pays the agreed amount in periodic instalments.2332) The property in the goods is to pass to such person on the payment of the last


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of such instalments, and3) Such person has a right to terminate the agreement at any time before theproperty so passes.Hire purchase should be distinguished from instalment sale wherein property passesto the purchaser with the payment of the first instalment. But in case of HP

(ownership remains with the seller until the last instalment is paid) buyer getsownership after paying the last instalment. HP also differs form leasing.

DIFFERENCE BETWEEN LEASE FINANCING AND HIRE PURCHASE

CONSUMER DURABLE LOANS

Banksare coming out with unique loans to attract more customers. Right from Refrigerator, tomusic system to washing machine, you can buy anything. The demand for such loanswitness a sharp rise during the festive season. 0% loans schemes are popular during thistime. This loan is however available only with nationalised banks.

Maximum Amount of Consumer Durable Loans Offered:
http://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.surfindia.com/finance/consumer-durable-loans.html


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The quantum of the loans varies from one bank to another. However, most banks offerloans between Rs 10,000 and Rs 100,000. For instance, Punjab National Bank offers upto 90 per cent of the cost of the article, subject to a maximum of Rs 100,000.

The minimum amount of loan offered is Rs 5,000. Syndicate Bank offers up to 80 per

cent of the invoice value of the products purchased or 10 months gross salary, whicheveris less, subject to a maximum of Rs 200,000.

The maximum limit is Rs 100,000 for pensioners. Then there is UTI Bank, where theminimum amount is Rs 25,000 and the maximum is Rs 200,000, provided it does notexceed 85 per cent of the cost of the product.

A loan can be taken for a maximum period of 60 months. UTI Bank, however, offers itfor a maximum period of 36 months. Under SBI's 'Festival Loans' scheme, money isoffered for only up to 12 months.

Interest Charged by Banks on Consumer Durable Loans:

The rate of interest on consumer durable loan is lower than the interest on a personalloan. So, taking this loan makes more sense. The rate of interest varies between banksand also depends on the prevailing market conditions.

Consumer Durable Loans Application Process:

Customers can obtain application form either in person from the bank or apply online.Banks charge a nominal 1% fee on the loan amount as processing charge. The processingtakes 3-5 days.

Documents Required for Approval of Consumer Durable Loans:

1. Proof of identity such as driving license or passport.2. Proof of income such as your latest salary slip or a copy of Form 16.3. Proof of residence such as your ration card, passport or latest electricity bill.4. Bank statement for the last six months. The loan takes between three to five

working days to be processed.

List of Some of Banks Offering Consumer Durable Loans:

Federal Bank- Loan For Consumer Goods

Bank of Baroda - Baroda Consumer Loans

United Bank of India - Loan For Household Items

HSBC Bank-Purchasing Consumer Durables

Andhra Bank- Purchase of New Consumer Durables

State Bank of Mysore -Happy Consumer Loan

Allahabad Bank- AllBank Saral Loan Scheme

Bharat Overseas Bank-Shakti Consumer Loan

Custodial Services
http://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.federalbank.co.in/cls.htmhttp://www.bankofbaroda.com/pfs/consumerdurablesloans.asphttp://www.unitedbankofindia.com/consumer-loan.asphttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.hsbc.co.in/in/personal/loans/personalloan.htmhttp://www.hsbc.co.in/in/personal/loans/personalloan.htmhttp://www.andhrabank-india.com/docs/loans1.htm#clhttp://www.mysorebank.com/happyhome.htmhttp://www.mysorebank.com/happyhome.htmhttp://www.allahabadbank.com/rl_saral_loan.htmhttp://www.bharatoverseasbank.com/loanshakti.asphttp://www.bharatoverseasbank.com/loanshakti.asphttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.federalbank.co.in/cls.htmhttp://www.bankofbaroda.com/pfs/consumerdurablesloans.asphttp://www.unitedbankofindia.com/consumer-loan.asphttp://www.surfindia.com/finance/consumer-durable-loans.htmlhttp://www.hsbc.co.in/in/personal/loans/personalloan.htmhttp://www.andhrabank-india.com/docs/loans1.htm#clhttp://www.mysorebank.com/happyhome.htmhttp://www.allahabadbank.com/rl_saral_loan.htmhttp://www.bharatoverseasbank.com/loanshakti.asp


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Custodial Services

Financial institution is a SEBI registered custodian under the

SEBI (Custodian of Securities) Regulations, 1996 and a

Depository Participant (DP) offering demat services to theForeign and Domestic institutions, Provident Funds, Mutual

Funds, Insurance Companies, Banks, Venture Capital Funds,

Private Equity Funds, Corporate Customers, Brokers, Retail

and High Net-worth Individuals. As a custodian, financial

institution offers full range of Custodial Services for primary

and secondary market operations pertaining to debt, equity

and money market instruments.

Services as a Custodianfinancial institution As a custodian, offers its expertise in the

area of Trade Settlement, Safe Keeping, Benefit Collection,

Reporting and Accounting.

Trade Settlement

Settlement of trades in equity and debt segment

through Clearing House as well as Delivery Versus Payment(DVP).

Settlement of trades for Money Market Instruments.

Processing of applications for subscriptions inprimary market.Processing of applications for subscriptions in respect

of Rights Issue, Buy Back & Open Offers, etc.Submission of Reports as per requirement.

Benefit Monitoring & Collection

Recording details of the corporate benefits declared

by the various companiesCalculation of entitlement benefits

Collection of benefits on due date

Reconciliation of benefits collected with the

entitlementFollow up for any shortfall in receipt of benefits

Safe Keeping

Safekeeping of securities held in the physical form as

well as demat formDematerialisation of Securities held in the physical

form


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Reconciliation of Stocks and Funds

Reporting & MIS

Holding Statement

Report on Saleable Securities

Report on Forthcoming Corporate Actions

Report on Benefit CollectionReport on receipt of securities and funds received in

pay outReport on settled trades

Fund Accounting

Investment accounting for purchases and salesValuation of securities held under custody

Income and expense accounting

Regulatory reporting

Depository Services

Introduction:

We have pleasure in informing you that the scripts of your company are amongst the firstten securities which have been notified by SEBI to be compulsorily traded in electronicform with effect from 4th January, 1999. We, therefore, feel that we should share with

you certain information regarding the Depository System so as to assist you in convertingyour physical holdings into electronic form.Need for Depository System :

The trading in physical segment is full of inefficiencies due to handling of large volumesofcertificates and also involves various other problems like delays in transfer, delay insettlement, loss in transit, forgerly certificates, stolen certificates, mutilation ofcertificates,postal losses, court cases, litigation etc. To overcome these deficiencies, a new systemof trading, viz. Depository system was introduced, which facilitates investor to holdsecurities in electronic form and to trade in these securities. The first depository set up in

India is National Securities Depository Limited (NSDL) and is promoted by IDBI, UTIandNSE.What is Depository?

Depository is an organization which holds your securities in electronic (also known asBook entry) form, in the same manner as a bank holds your money. Further, aDepository also transfers your securities without actually handling securities, in the sameDay as a bank transfers funds without actually handling cash.


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Benefits of Depository System:

1. No danger of loss of share certificates since the shares are credited to yourAccount.2. No possibility of bad deliveries.3. Elimination of all rise associated with physical certificates such as loss, theft,

Forgery, mutilation etc.4. No need to affix share transfer stamp as it is a paperless trading.5. No postal / courier charges.6. Less brokerage charges.7. After the settlement, pay in and pay out are on the same day for paperless tradingWhich means you get your securities and cash immediately.8. Scriptless trading helps allocate corporate benefits faster.9. Facilitates pledging and hypothecation of your securities.10. Eliminates the problem of odd lot shares.11. Facility to lock your account if you are abroad.Services offered by NSDL :

The following services are offered by NSDL to the investors, through its agents viz.Depository Participants.1. Holding the investors securities in electronic form.2. Dematerialisation and rematerialisation of securities.3. Settlement of trades in electronic form.4. Electronic credit of public offerings and non-cash corporate actions such asrights, bonus etc.Steps involved in joining depository system :

There are 3 steps in which an investor can covert his physical certificate into electronicform.1. Open an account with one of the participants of NSDL (A participant is a marketintermediary through whom NSDL interacts with the investors).2. Sign an Agreement with the participant.3. Submit Dematerialisation Request form along with share certificate to the Issuer.How do you open a depository account ?

Choose a participant from amongst the participants (a list of participants is given inAnnexure-A) offering depository services and registered with NSDL. Thereafter :a. Fill up an Account Opening Form available with the participant.b. Sign Participant-Client Agreement.c. Receive your account number which should be quoted in all yourcorrespondence.d. Your participant will provide you a statement of holdings and statement oftransactions (like a bank pass book) every fortnight giving details of your holdingsand transactions in your account.Dematerialisation Process :

Once the account is opened, your existing shares can be dematerialised and convertedinto Electronic Form. Dematerialisation is a process by which you can deposit (i.e.demat) shares of any company listed on NSDL which are registered in your name andconvert your physical holdings into electronic form. For this purpose, you have toa. Fill a Dematerialisation Request Form available with your participant.


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b. Submit your share certificates along with the above form. (Please writeSurrendered for Dematerialisation on the face of each certificate before yousubmit it for dematerialisation).c. Your account will be credited within 15 days.d. If you wish to convert your electronic shares back to physical shares at a later

stage, you may do so by applying for rematerialistion.

How do you trade in electronic shares :

Demat segment on the National Stock ExchangeWhen you wish to purchase shares from the secondary market, you can also buy themdirectly in the Electronic Form. For this purpose, there is a separate buying and sellingelectronic shares is just like buying and selling shares in physical segment. The followingprocedure be adopted for trading in electronic segment.1. If you desire to sell shares in electronic form, you place an order with your brokerunder the Demat segment and instruct your participant by way of a Delivery

Instruction (resembling a cheque) to debit your account with the number ofshares sold by you.2. If you wish to buy shares in electronic form, you must inform your broker aboutyour depository account number so that electronic shares bought by you arecredited into your account and instruct your participant by way of ReceiptInstruction to receive credit in your account.3. Payment for the shares bought or sold in depository mode is made in the samemanner as in the physical securities.4. The shares you have bought are transferred in your name the very next day ofpay out without any risk of bad deliveries. No formalities of filling transfer deed,affixing share transfer stamp etc. is required to be complied with.Depository Services - fee structure :

The charges for the services provided by the participant by the participant may vary fromparticipant to participant. The following statement indicates the fee structure of theparticipant1. Account opening - Nil - Rs.1,0002. Account closing - Nil - Rs.1,0003. Dematerialisation - Rs.2 per certificate-Rs.10 per certificate4. Rematerialisation - Rs.15 per certificate-Rs.25 per certificate5. Custody charges - 0.055% p.a. (since your company has paidone time custody charges to NSDL, custodycharges will be NIL)6. Transfer fee (buy) - 0.05% - 0.15% on value7. Transfer fee (sell) - 0.025% - 0.15% on value8. Off market transaction - 0.10% - 0.12%9. Annual charges - Rs.500 - Rs.10,000 (depending on value)

syndicated loan


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A syndicated loan is one that is provided by a group of lenders and is structured,arranged, and administered by one or several commercial orinvestment banks known asarrangers.

Starting with the large leveraged buyout loans of the mid-1980s, the syndicated loan

market has become the dominant way for issuers to tap banks and other institutionalcapital providers for loans.

At the most basic level, arrangers serve the investment-banking role of raising investorfunding for an issuer in need of capital. The issuer pays the arranger a fee for this service,and this fee increases with the complexity and risk factors of the loan. As a result, themost profitable loans are those to leveraged borrowersissuers whose credit ratingsarespeculative grade and who are paying spreads (premiums aboveLIBORor another baserate) sufficient to attract the interest of non-bank term loan investors. Though, thisthreshold moves up and down depending on market conditions.

Loan Market Overview

The retail market for a syndicated loan consists of banks and, in the case of leveragedtransactions, finance companies and institutional investors. Before formally launching aloan to these retail accounts, arrangers will often get a market read by informally pollingselect investors to gauge their appetite for the credit. After this market read, the arrangerswill launch the deal at a spread and fee that it thinks will clear the market. Until 1998,this would have been it. Once the pricing was set, it was set, except in the most extremecases. If the loans were undersubscribed, the arrangers could very well be left above theirdesired hold level. Since the Russian debt crisis roiled the market in 1998, however,arrangers have adopted market-flex language, which allows them to change the pricing of

the loan based on investor demandin some cases within a predetermined rangeaswell as shift amounts between various tranches of a loan, as a standard feature of loancommitment letters.

As a result of market flex, loan syndication functions as a book-building exercise, inbond-market parlance. A loan is originally launched to market at a target spread or, aswas increasingly common by 2008 with a range of spreads referred to as price talk (i.e., atarget spread of, say, LIBOR+250 to LIBOR+275). Investors then will makecommitments that in many cases are tiered by the spread. For example, an account mayput in for $25 million at LIBOR+275 or $15 million at LIBOR+250. At the end of theprocess, the arranger will total up the commitments and then make a call on where toprice the paper. Following the example above, if the paper is vastly oversubscribed atLIBOR+250, the arranger may slice the spread further. Conversely, if it isundersubscribed even at LIBOR+275, then the arranger will be forced to raise the spreadto bring more money to the table.

Types of Syndications
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There are three types of syndications: an underwritten deal, best-efforts syndication,and a club deal.

Underwritten deal

An underwritten deal is one for which the arrangers guarantee the entire commitment,then syndicate the loan. If the arrangers cannot fully subscribe the loan, they are forced toabsorb the difference, which they may later try to sell to investors. This is easy, of course,if market conditions, or the credits fundamentals, improve. If not, the arranger may beforced to sell at a discount and, potentially, even take a loss on the paper. Or the arrangermay just be left above its desired hold level of the credit.

Arrangers underwrite loans for several reasons. First, offering an underwritten loan canbe a competitive tool to win mandates. Second, underwritten loans usually require morelucrative fees because the agent is on the hook if potential lenders balk. Of course, withflex-language now common, underwriting a deal does not carry the same risk it once did

when the pricing was set in stone prior to syndication.

Best-efforts syndication

A best-efforts syndication is one for which the arranger group commits to underwrite lessthan the entire amount of the loan, leaving the credit to the vicissitudes of the market. Ifthe loan is undersubscribed, the credit may not closeor may need major surgery to clearthe market. Traditionally, best-efforts syndications were used for risky borrowers or forcomplex transactions. Since the late 1990s, however, the rapid acceptance of market-flexlanguage has made best-efforts loans the rule even for investment-grade transactions.

Club deal

A club deal is a smaller loanusually $25 million to $100 million, but as high as $150millionthat is premarketed to a group of relationship lenders. The arranger is generallya first among equals, and each lender gets a full cut, or nearly a full cut, of the fees.

The Syndication Process

Before awarding a mandate, an issuer might solicit bids from arrangers. The banks willoutline their syndication strategy and qualifications, as well as their view on the way theloan will price in market. Once the mandate is awarded, the syndication process starts.

The arranger will prepare an information memo (IM) describing the terms of thetransactions. The IM typically will include an executive summary, investmentconsiderations, a list of terms and conditions, an industry overview, and a financialmodel. Because loans are unregistered securities, this will be a confidential offering madeonly to qualified banks and accredited investors. If the issuer is speculative grade andseeking capital from nonblank investors, the arranger will often prepare a publicversion of the IM. This version will be stripped of all confidential material such asmanagement financial projections so that it can be viewed by accounts that operate on the
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public side of the wall or that want to preserve their ability to buy bonds or stock or otherpublic securities of the particular issuer (see the Public Versus Private section below).Naturally, investors that view materially nonpublic information of a company aredisqualified from buying the companys public securities for some period of time. As theIM (or bank book, in traditional market lingo) is being prepared, the syndicate desk

will solicit informal feedback from potential investors on what their appetite for the dealwill be and at what price they are willing to invest. Once this intelligence has beengathered, the agent will formally market the deal to potential investors.

The executive summary will include a description of the issuer, an overview of thetransaction and rationale, sources and uses, and key statistics on the financials.Investment considerations will be, basically, managements sales pitch for the deal.The list of terms and conditions will be a preliminary term sheet describing the pricing,structure, collateral, covenants, and other terms of the credit (covenants are usuallynegotiated in detail after the arranger receives investor feedback).

The industry overview will be a description of the companys industry and competitiveposition relative to its industry peers.

The financial model will be a detailed model of the issuers historical,pro forma, andprojected financials including managements high, low, and base case for the issuer.

Most new acquisition-related loans are kicked off at a bank meeting at which potentiallenders hear management and the sponsor group (if there is one) describe what the termsof the loan are and what transaction it backs. Management will provide its vision for thetransaction and, most important, tell why and how the lenders will be repaid on or aheadof schedule. In addition, investors will be briefed regarding the multiple exit strategies,

including second ways out via asset sales. (If it is a small deal or a refinancing instead ofa formal meeting, there may be a series of calls or one-on-one meetings with potentialinvestors.) Once the loan is closed, the final terms are then documented in detailed creditand security agreements. Subsequently, liens are perfected and collateral is attached.

Loans, by their nature, are flexible documents that can be revised and amended from timeto time. These amendments require different levels of approval. Amendments can rangefrom something as simple as a covenant waiver to something as complex as a change inthe collateral package or allowing the issuer to stretch out its payments or make anacquisition.

Loan Market Participants

There are three primary-investor consistencies: banks, finance companies, andinstitutional investors. Banks, in this case, can be either a commercial bank, a savings andloan institution, or a securities firm that usually provides investment-grade loans. Theseare typically large revolving credits that back commercial paper or are used for generalcorporate purposes or, in some cases, acquisitions. For leveraged loans, banks typicallyprovide unfunded revolving credits, LOCs, andalthough they are becoming
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increasingly less commonamortizing term loans, under a syndicated loan agreement.Finance companies have consistently represented less than 10% of the leveraged loanmarket, and tend to play in smaller deals$25 million to $200 million. These investorsoften seek asset-based loans that carry wide spreads and that often feature time-intensivecollateral monitoring.

Institutional investors in the loan market are principally structured vehicles known ascollateralized loan obligations (CLO) and loan participation mutual funds (known asprime funds because they were originally pitched to investors as a money-market-likefund that would approximate the prime rate). In addition, hedge funds,high-yield bondfunds,pension funds, insurance companies, and other proprietary investors do participateopportunistically in loans. Typically, however, they invest principally in wide-marginloans (referred to by some players as high-octane loans), with spreads of LIBOR+500or higher. During the first half of 2008, these players accounted for roughly a quarter ofoverall investment.

CLOs are special-purpose vehicles set up to hold and manage pools of leveraged loans.The special-purpose vehicle is financed with several tranches of debt (typically a AAArated tranche, a AA tranche, a BBB tranche, and a mezzanine tranche) that have rightsto the collateral and payment stream in descending order. In addition, there is an equitytranche, but the equity tranche is usually not rated. CLOs are created as arbitrage vehiclesthat generate equity returns through leverage, by issuing debt 10 to 11 times their equitycontribution. There are also market-value CLOs that are less leveragedtypically 3 to 5timesand allow managers more flexibility than more tightly structured arbitrage deals.CLOs are usually rated by two of the three major ratings agencies and impose a series ofcovenant tests on collateral managers, including minimum rating, industry diversification,and maximum defaultbasket. By 2007, CLOs had become the dominant form of

institutional investment in the leveraged loan market, taking a commanding 60% ofprimary activity by institutional investors. But when the structured finance marketcratered in late 2007, CLO issuance tumbled and by mid-2008, CLOs share had fallen to40%.

Retail investors can access the loan market through prime funds. Prime funds were firstintroduced in the late 1980s. Most of the original prime funds were continuously offeredfunds with quarterly tender periods. Managers then rolled true closed-end, exchange-traded funds in the early 1990s. It was not until the early 2000s that fund complexesintroduced open-ended funds that were redeemable each day. While quarterly redemptionfunds and closed-end funds remained the standard because the secondary loan marketdoes not offer the rich liquidity that is supportive of open-end funds, the open-end fundshad sufficiently raised their profile that by mid-2008 they accounted for 15% to 20% ofthe loan assets held by mutual funds.

Credit Facilities

Syndicated loans facilities(Credit Facilities) also known as type of loans are basicallyshort\long term financial assistance programs which is designed to help financial
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institutions and other institutional investors to draw notional amount as per therequirement.

In general there are four main types of syndicated loan facilities: a revolving credit; aterm loan; an LOC; an acquisition or equipment line (a delayed-draw term loan).

Regulatory frame work for financial markets and institutions

Broad classification of the regulatory framework relating to financial service sector inIndia is as:

1. Institutional regulations: also known as structural regulations which call for a

clear demarcation of activities of Financial institutions. It is to promote healthycompetition among players. Apex agencies like SEBI to regulate the MB, StockBroking Co. and RBI another structural entity prescribing the activities ofcommercial banking.

2. Prudential regulations: related to internal management of financial institutionsand other financial services org, regarding capital adequacy, liquidity andsolvency etc. Aims at preventing the entry of firms without adequate resources.(ex. Minimum net worth requirement for various financial service firms is fixedby the SEBI and RBI`s regulations relating to the NBFC`s)

3. Investors regulations: the role of SEBI is highlighted with periodic guidelines on

investor protection.

4. Legislative Regulations: brought out by Govt. for all round development offinancial services industry. They are, Banking Regulation Act, Securities ContractRegulation Act, meant for evolving rules, guidelines and regulations that governthe micro aspect and operational issues.

Self-regulations: this is addition to the above regulations that are self imposedregulations such as, Foreign Exchange Dealers association, and Merchant Bankersassociation in addition to SEBI regulation that governs their members.

The framework of regulations currently operating in India is elaborated as

banking and financial services

insurance services

investment services

Merchant Banking and Financial Services


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Framework for Banking and Financial services

regulated by the central government and RBI.

RBI through RBI ACT and the Banking regulation Act ensure the orderlyfunctioning of the institutions.

Regulations relating to banking institutions are about sanction of new branch,minimum capital, reserves, maintenance of minimum capital reserves and otherliquid assets.

Appointment of Chairman, CEO, and nominating of member to BOD.

Drawing and implementing the monetary and credit policies to effectivelyregulate the credit flows, CRR, SLR, and REPOS.

Implementing various credit control measures (qualitative and quantitative)

Regulating factoring, bill discounting and credit card services, etc.

Regulations relating to the non-banking financial companies (NBFC`s)

Regulated by RBI thru a host of measures such as Banking Laws Act, 1963,powers of regulation are exercised by RBI under the directives such as theNBFC`s Directions, 1997, 1987,etc.

The regulation of NBFC`s is in relation to reports, periodical statements for thefunctioning.

Prescribing eligibility to raise funds from the public its terms and conditions.

Norms related to investing a % of the deposits in the approved securities andmaintain funds, capital adequacy norms, accounting standards, formulation ofpolicy in relation to deployment of funds.

Punishing the NBFC`s by imposing penalties, canceling the license orregistration, and initiating appropriate actions against the management ofNBFC`s.

What is a Repo Rate?

Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rateis the rate at which our banks borrow rupees from RBI. A reduction in the repo rate willhelp banks to get money at a cheaper rate. When the repo rate increases borrowing fromRBI becomes more expensive.


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CRR Rate in India

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. IfRBI decides to increase the percent of this, the available amount with the banks comesdown. RBI is using this method (increase of CRR rate), to drain out the excessive money

from the banks.

Statutory Liquidity Ratio

Statutory Liquidity Ratio refers to the amount that the commercial banks require tomaintain in the form of cash, or gold or govt. approved securities before providing creditto the customers. Statutory Liquidity Ratio is determined and maintained by the ReserveBank of India in order to control the expansion of bank credit.Abbreviations used

BgSE Bangal