term5 fin an markets instruments

8/8/2019 Term5 Fin an Markets Instruments

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FINANCIAL MARKETS AND INSTRUMENTS

CONTENTS..

CHAPTER 1INTRODUCTION TO FINANCIAL

SYSTEM

2 RESERVE BANK OF INDIA

3.MONEY MARKET,STRUCTURE,

OPERATIONS

4.S. E .B. I. GUIDELINES

5.CAPITAL MARKET ..OPERATIONS

6.MERCHANT BANKING ..ACTIVITY..7 .. NBFCSTRUCTURE AND SERVICES

8 .LEASING

9 HIRE PURCHASE

10 CREDIT RATING

11.... MUTUAL FUNDS.

12.... FACTORING

13. FORFAITING

14 VENTURE CAPITAL

15. PRIVATE EQUITY16. WEALTH MANAGEMENT

17. . OTHER FINANCIAL INSTITUTIONS

18.. PENSION FUND.

19. SECURITISATION

20..TERMINOLOGIES.

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OBJECTIVE.

To understand our Financial system, acquire knowledge of various

financial products, services , Institutions and use it for Corporate /

Individual requirements .

WHY TO STUDY

This subject covers the entire domestic financial system ,functions.

Various financial services provided in the system . A finance

professional should have basic knowledge of day to day happenings in

the financial system to take decision whether it is investment ,

borrowings or fund raising.

HOW TO STUDY.

1. Read Financial papers.articles by eminent finance

Professionals.

2. Understand the terminologies used in the process and their

meaning .

3. There is no comprehensive text book covering the syllabus.

4. Notes given has covered all as per syllabus.

5. Read the notes and come to the class so that the doubts can be

minimized.

WHAT ARE WE DISCUSSING

Financial markets..

Financial institutions..

Structure..operations.Regulatory authority.products

procedureshow to use the services


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CHAPTER..1INTRODUCTION..

FINANCIAL SYSTEM COMPRISES OF ..

FINANCIAL.

a. MARKETS

b. PRODUCTS.INSTRUMENTS

c. INTERMEDIARIES.

d. INVESTORS.

e. INSTITUTIONS.

f. BENEFICIARIES.

REGULATORY AUTHORITIES.

1. RESERVE BANK OF INDIA.1934

2. S E B I 1992

3. I R D A.1999

4. PENSION FUND REGULATORYAND DEVELOPMENT

AUTHORITY 2008

SAVE..INVESTRAISE FUNDS..BORROW

CREATE ASSETS PERFORM..PROFITGROWTH..

INCREASE WEALTH..

PAY BACK THE LOANS..TAKE MORE.PERFORM

BETTER..GROWTH.

BOTH THESE OPPORTUNITIES ARE AVAILABLE IN THE

MARKETS AND ALSO WITH THE INSTITUTIONS.

INVESTORS SHOULD PUT THE SURPLUS MONEY

AVAILABLE ..TO PROPER USE.


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BENEFICIARIES WOULD CREATE ASSETS WHICH WILL

GROW GENERATE SURPLUS.

System will have required Financial product for both with different

qualities.

MAIN OBJECTIVE IN THE SYSTEM WILL BE ECONOMIC

DEVELOPMENT

REGULATORY AUTHORITIES ..FORMULATES THE

GUIDELINES FOR THE ACTIVITIES TO BE TAKEN UP BY

ALL THE PLAYERS IN THIS INVESTMENT OR FUND

RAISING GAME.

INVESTOR ALWAYS LOOKS AT..

SAFETY

LIQUIDITY

RETURN

BENEFICIARY ALWAYS LOOKS AT..

CHEAP SOURCE..

COST OF FUNDS.

SIMPLE FORMALITIES..

THE SYSTEM SHOULD ENSURE CREATION OF

INFRASTRUCTURE FOR INVESTMENT ACTIVITY andFUND RASING ACTIVITY.

FINANCE FIELD IS EVER GREEN.

CHANGES HAPPENS ..


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DUE TO EXTERNAL FACTORS..

INTERNAL FACTORS..

TO UNDERSTAND THE SUBJECT OF FINANCE AND THE

OPERATIONS

KEEP UPDATED WITH THE MARKET KNOWLEDGE ..

CONTINUOUS FOLLOW UP.

MANY FACTORS AFFECTING THE CHANGE.

( READ FINANCIAL PAPERS DAILY )

R B I ..REGULATESMONEY MARKET.BANKING

SYSTEM..GOVERNMENT OPERATIONS

SEBI.REGULATES .CAPITAL MARKET

OPERATIONS.RELATED INSTITUTIONS

IRDA.REGULATES.INSURANCE SECTOR.

PFRDA..PESNION FUND MANAGEMENT

IMPORTANT ACTIVITIES HAPPENS IN THE SYSTEM FOR THE

OPERATIONS.

1. ECONOMIC SURVEY

2. UNION BUDGET

3. RBI`SMONETARY AND CREDIT POLICY

4. FOREIGN TRADE POLICY.

THESE ARE THE TOOLS FOR ECONOMIC DEVELOPMENT AND

FUNCTIONING OF VARIOUS PLAYERS IN THE SYSTEM.

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CHAPTER2...

RESERVE BANK OF INDIA.

AS A REGULATORY AUTHORITY

Has 26 departmentsonly four departments have been discussed.

Established under RBI act 1934 and commenced functioning from

1.4.1935.

Central bank of country

MAKES POLICIES .

CREATES GUIDELINES.. BRINGS REGULATIONS .

MONITORS THE IMPLEMENTATION.

SUPERVISES THE OPERATIONS

PROMOTES THE SYSTEM

BRINGS IN REFORMS .

PREAMBLE OF THE ACT..

Where as it is expedient to constitute a Reserve Bank for India to

regulate the issue of bank notes and keeping the reserves operate the

currency and credit system with a view of securing monetary stability in

India and generally to of the country to its advantage .

FUNCTIONS OF CENTRAL BANK

The structure of Central bank may vary from country to country

the basic functions are..

Issuance of notes and regulation of volume of currency.

Act as a Banker to the Government.


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Acts as a Banker to Banks.

Custodian of Country`s reserves.

Lender of last resort.

Controller of credit.

Supervises Bank`s and Money market activities. Ensure economic development of the country.

FUNCTIONS CAN BE CLASSIFIED..

Traditional.

Promotional.

Supervisory.

RESPONSIBILITY

Ensure Monetary stability.

Ensure stable payment system

Ensure development of Financial infrastructure of markets and

systems.

Ensure Credit allocation according to national economic priorities

and social concerns.

IMPORTANT DEPARTMENTS..

MONETARY POLICY DEPARTMENT.

RBI Governor announces the Monetary and credit policy every yearafter the Union budget is presented.

The policy outlines the plan of action for the markets, institutions and

guidelines for functioning of our financial system for economic

development.


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The guidelines covers the Economic scenario, domestic scenario,

international economic situation and guides the market and institutions

with new policy , product, reforms to be implemented during the

financial year.

From 2005 RBI will review the policy guidelines quarterly .

BANKERS TO THE GOVERNMENT..

On behalf of Central government , State government and State

PSU`s assists in mobilizing funds from market.

Manages the Government accounts.

Manages the Public debt.

ROLE OF R.B.I. IN FINANCIAL SYSTEM..

Development of financial sector.

Strengthen the financial system. Achieve the objective of economic development.

Creation of institutions in respective field.

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CHAPTER..3.. MONEY MARKET.

It is a market for short term Money and Financial assets that are close

substitute for Money.

Assets that are converted to Money with minimum cost.

Also known as debt market.

Debt securities are tradable loans.

FEATURES..

Not a visible market.

Transactions with Oral contract

Large volume.

Quick transactions.

Structured Primary and Secondary market.

OBJECTIVES

Market enables to meet the short term deficit with short term

surpluses.

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

INSTRUMENTS.PRODUCTS..SERVICES.

1. CALL AND NOTICE MONEY

2. COMMERCIAL BILLS


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INSTRUMENTS AND PRODUCTS.

3. TREASURY BILLS

4. COMMERCIAL PAPER

5. CERTIFICATE OF DEPOSITS

6. GOVERNMENT SECURITIES

7. REPOS.

CHARACTERISTICS.

INSTRUMENTS ISSUED AT A DISCOUNT TRADED AT ADISCOUNT AND REEDEEMED AT PAR

Assured Safety..

Highly liquid.

Reasonable return.

Short duration.

Reasonable cost of transactions.

Normally Large volumes of transactions.

ISSUERS OF SECURITIESBENEFICIARIES..

Central Government

State Government.

Government organizationsStatutory bodies.

Commercial banks.

Corporates.

INTERMEDIARIES

Registered Primary dealersmay be IndividualCommercial

banksCorporates.


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Should have a minimum net worth of Rs 50.00 crs. Most of the

Commercial banks have established P.D.

To be licensed from RBI.

INVESTORS.

Those who have surplus funds to invest for a short term duration

Commercial banks,

Financial institutions.

Other Major institutions.

Trusts

Corporates.

Individuals.

1. CALL AND NOTICE MONEY

BORROWING AND LENDING ACTIVITY BETWEEN

BANKS.

CALL MONEY MARKET DEALS WITH OVERNIGHT

FUNDS.

MORE THAN ONE DAY UPTO 14 DAYS IT IS NOTICE

MONEY.

IT IS A INTERBANK MARKET.

CALL RATE IS THE INTEREST PAID ON CALL LOANS.

FROM 6.8.2005 ALL NON BANK PARTICIPANTS EXCEPT

PD`S WOULD BE PHASED OUT .


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PRUDENTIAL LIMITS ON EXPOSURE IN THIS MARKET

LINKED TO CAPITAL FUNDS.

SCREEN BASED QUOTE BASED APPROACH IS PROPOSED.

NEED FOR USE OF SUCH PRODUCT.

TO MEET C R R REQUIREMENTS.

ILLIQUIDITY IN THE MARKET.

SUDDEN WITHDRAWALS OF FUNDS.

2. COMMERCIAL BILLS..

REPRESENTS GENUINE TRADE TRANSACTIONS.

BILLS ROUTED THROUGH COMMERCIAL BANKS.

BANKS DISCOUNT THESE BILLS.

BILLS.MAY BEDEMANDUSANCE.

BANKS CREATS ASSETS IN THE FORM BILLS

DISCOUNTING .APPROACHES R B I FOR

REDISCOUNTING TO MEET ITS LIQUIDITY.

IT IS AN ON GOING FACILITY FOR THE BANKS WITH

R B I .

THIS ALSO HAPPENS ONLY BETWEEN BANKS AND R B I .

R B I charges certain interest for this lending which is known as Bank

rate .


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3GOVERNMENT SECURITIES

G .O. I SECURITIES ARE SOVEREIGN DEBT OBLIGATIONS

INSTRUMENTS.

TO FINANCE DEFICIT AND ASSIST PUBLIC SECTOR

DEVELOPMENT PROGRAMMES.

TENOR.2 YRS TO 30 YEARS.

COUPON EITHER PRE DETERMINED OR BIDDING

PROCESS.

GOI SECURITIES ARE APPROVED SECURITIES FOR S. L. R

REQUIREMENTS OF BANKS.

STATE GOVERNMENT SECURITIES.

AGENCY BONDS ARE ISSUED BY PSU`S GUARANTEED BY

GOVERNMENT.

CG..RS10.000/-

SG.RS.1,000/-

AGENCYRS 5,000/-

PUBLIC DEBT OFFICE A DEPARTMENT OF

R B I MANAGES THIS FUNCTION.

4TREASURY BI LLS.

KNOWN AS T-BILLS

ISSUED BY CENTRAL GOVERNMENT.

R .B. I ISSUES ON BEHALF OF GOVERNMENT FOR A

TENOR OF 91 DAYS AND 364 DAYS.


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ROUTE FOR BORROWING PROGRAMME OF THE

GOVERNMENT .

ISSUED A T A DISCOUNT AND REDEEMED AT PAR.,

ISSUED THROUGH AUCTION PROCESS.

DENOMINATION.91 DAYSRS.25000/- 364 DAYS FORRS.1,00,000/

UNIFORM PRICE AUCTION FOR 91 DAYS PAPER

CUT OFF PRICE METHOD.

MULTIPLE PRICE AUCTION FOR 364 DAYS PAPER.

RETAIL INVESTORS .THROUGH NON COMPETITIVE

BIDDING .

T-BILLS ARE FREELY TRANSFERABLE AND TRADED.OVER THE COUNTER OR THROUGH N .S.E.

SECONDARY MARKET IS VERY ACTIVE..QUOTES ARE

READILY AVAILABLE

5REPOS.

REPO MEANS AN INSTRUMENT FOR BORROWING FUNDS BYSELLING SECURITIES WITH AN AGREEMENT TO

REPURCHASE THE SAME SECURITIES ON AMUTUALLY

AGREE FUTURE DATE AT AN AGREED PRICE WHICH

INCLUDES INTEREST FOR THE FUNDS BORROWED.

SALE AND REPURC HASE OF SAME SECURITY ..BETWEEN

TWO PARTIES..

SELLER SELLS SPECIFIC SECURITY WITH AN AGREEMENTTO REPURCHASE. THE SAME AT A DECIDED FUTURE

DATE AND PRICE

( REPO)


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R B I ------ RELEASES SECURITIES TO BANKS UNDER THIS

SCHEMEMOBILISES THE FUNDS FOR THE GOVERNMENT

( REVERSE REPO)

REVERSE REPO IS AN INSTRUMENT FOR LENDING FUNDS BY

PURCHASING SECURITIES WITH ANAGREEMENT TO RESELL

THE SAME SECURITIES ON A MUTUALLY AGREED FUTURE

DATE AT AN AGREED PRICE WHICH INCLUDES INTEREST

FOR THE FUNDS LENT .

R B I ..LENDS AGAINST THE SECURITIES SOLD BYTHE

BANK WITH A REPURCHASE AGREEMENT.

SOURCE OF FUNDS FOR BANK.THIS THE RATE AT WHICH

BANKS BORROW . REPO RATE

DEPENDS UPON THE PARTY INITIATED THE TRANSACTION.

MAJOR PLAYERS ARE BANKS.

REPO RATES ARE IN LINE WITH ONGOING MARKET RATES.


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6.CERTIFICATE OF DEPOSITS..

CD`S ARE NEGOTIABLE MONEY MARKET INSTRUMENT.

INTRODUCED IN JUNE 1989.

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

SECURED SHORT TERM INSTRUMENT.

Banks can issue for any amount.FI`s have limit fixed by RBI.

ISSUED AT A DISCOUNTDISOCUNT RATE IS MARKET

DETERMINED.

FREELY TRANSFERABLE.

ISSUED IN DEMAT FORMAT.

SUBSCRIBERIndividulas, Corporates, Trusts, >.NRI on non

repatriation basisNRI should hold it till maturity.

TENOR.15 DAYS TO ONE YEAR.

FI`s can issue from 1 yr to 3 years.

CD`s issued attracts CRR and SLR as per issue price.

MIN F.V.RS.1 LAKH AND MULTIPLES.

Banks and FI`s cannot give loan against the CD`s

7. .COMMERCIAL PAPER

AN UNSECURED MONEY MARKET INSTRUMENT. ISSUED IN THE FORM OF PROMISSORY NOTE.

INTRODUCED IN 1990.

ALTERNATIVE SOURCE FOR HIGHLY RATED

CORPORATES TO RAISE FUNDS FOR SHORT TERM

REQUIREMENTS.


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ISSUERS..

CORPORATES.

PRIMARY DEALERS

FI`S AS PER R B I GUIDELINES.

ELIGIBILITY.. CORPORATES..

T .N .W AS PER LAST AUDITED BALANCE SHEET NOT

LESS THAN RS.4 CRS.

SHOULD HAVE SACTIONED WORKING CAPITAL LIMIT.

ASSET SHOULD BE CLASSIFIED AS STANDARD ASSET.

FEATURES OF THE INSTRUMENT.

TO BE RATEDBY CRA`S

.MUST HAVE MINIMUM P2 OF CRISIL OR

EQUIVALENT . SHOULD BE CURRENT NOT DUE FOR

REVIEW.

ISSUED FOR A PERIOD OF MIN..7 DAYS TO

MAXIMUM 365 DAYS.

ISSUED IN THE DENOMINATIONS OF

RS.5.LAKHS

CAN BE ISSUED AS A STAND ALONE

PRODUCT.

AMOUNT OF FUNDS TO BE RAISED LIMITSTO BOARD OF DIRECTOR APPROVALOR AS

INDICATED BY C R A AS PER RATING

MUST BE COMPLETED WITH IN TWO WEEKS

FROM ISSUE OPENING .

CAN BE ISSUED EITHER IN PHYSICAL OR

DEMAT FORMAT.


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APPOINT A INTERMEDIARYMAY BE MERCHANT

BANKER.FOR MARKETING.

GET THE INSTRUMENT RATED.

GET THE FUNDS BY SALE OF C.P.

ON DUE DATE WHO EVER IS THE HOLDER OF C.P. WILL

GET THE REPAYMENT .

I P A SHOULD REPORT TO R B I THE C.P. ISSUE.

ISSUER SHOULD DISCLOSE IN THEIR ANNUAL REPORT

THE FUNDS RAISED THORUGH THIS ROUTE.

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OPERATIONAL ASPECTS OF MONEY MARKET..

REGULATORY AUTHORITYRESERVE BANK OF

INDIA..

PUBLIC DEBT ACT 1944.FIXED INCOME MONEY MARKET AND DERIVATIVES

ASSOCIATION OF INDIA (FIMMDA)..S.R.O.

RECOMMENDS

HEALTHY BUSINESS PRACTICES..

EHTICAL CODE OF CONDUCT

PRINCIPLES AND PRACTICES

In the year 2000Government clearly delineated the areas of

responsibility

R B I .CONTROLS..G sec tradesGold related securities

Money market securities


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SEBI controls the MF, and other operations on Stock exchange.. trading

mechanism..etc.

LIQUIDITY ADJUSTMENT FACILITY

Introduced in 1999. as a Banking sector reforms.

Management of short term liquidity .

RBI infuses funds..takes away the funds depends upon the situation..operates through Repos and

reverse repo operations..rate for the transactions represents the

interest rate at which RBI does the transactions.

French auction..

Multiple price allotment.all bids below cut off price will be rejected.

Allotment will be made to the highest bidder balance with any givento next highest bidder..

MULTIPLE PRICE AUCTION.FRENCH AUCTION

Cut off yield 6.20%

BANK YIELD

A 5.80%.......rs.400.00 crs

B 6.25%.......rs.300.00C 6.35%.......rs1000.00

D 6.50%.......rs2000.00

E 5.95%......rs. 800.00

F 6.00%......rs1200.00

Higher than 6.20% is rejected.


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Lowest yield first priority

Second lowest second.

A will get first priority

E will get second

F gets last priority

In this auction the government will be benefited by issuing at different

yield as per bid.

The cost of funds will be better.

RBI IS LOOKING AT COST OF FUNDS.

INVESTOR IS LOOKING AT THE RETURNS/YIELD

Dutch auction

Uniform price allotment.

The bidders at lower than cut off price are rejected.

Allotment will be made at a uniform price to all those who have bid

above cut off price at the same price.

Those bids at higher than cut off will be given priority.

UNIFROM PRICE AUCTION..DUTCH AUCTION

BANK YIELD

A 5.80%

B 6.25%

C 6.35%

D 6.50%

E 5.95%

F 6.00%

The cut off yield is set at 6.10%.

All banks which have yields not exceeding 6.10% namely A, E, and F

will get the securities with 6.10% yield .

From April 2009 RBI will auction the Govt securities under Uniform

price auction.


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EXAMPLE

1)

X purchased a T bill of Rs1000/- for Rs 987, 90 days before maturity

What is the yield on this T bill ?

Yield(Face value-Price) X365 x100

-----------------------------------------

Price x no of days of maturity

5.342%

2)

A is offered a T bill of Rs 1000/- for rs 968, 182 days before the date ofmaturity,

A expects an yield of 6.25%.Would A buy the T bill offered?

6.629%

.

RECENT CHANGES..

R B I has phased out non banking entities from call money market.

Introduction of R T G S..Real time gross settlement ( faster settlement

in case of banks) has been introduced.

COLLATERISED BORROWING AND LENDING

OBLIGATIONCBLO..

CBLOis a negotiable instrument developed by CCILplatform

for borrowing /lending.no credit risk associated.CCILProvides

guarantee against default.to be trade on CCIL Platform..(clearing

corporation of India ltd).


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BENCHMARK RATES..

Are prices of instruments that are traded in the market. which are used

for pricing other instruments.

Internationally accepted benchmark is LIBOR ( London inter bank

offer rate)

National stock exchange developed Bench mark rate for Indian

markets

MIBID..MUMBAI INTER BANK BID RATE

MIBOR.MUMBAI INTER BANK OFFER RATE

Both these are used for short term and medium term in Money market.

FIMMDAFIXED INCOME MONEY MARKET AND DERAVITIVE

ASSOCIATION

CREATES BENCHMARK RATES WHICH CAN BE USED BY THE

MARKET PLAYERS.

Computation is based on the data collected. Computation should be

done on a day to day basis on a time bound schedule. .

GOVERNMENT SECURITIES INDICES..

Index provides a benchmark for a portfolio management .

FOUR INDICES ARE THERE FOR GOVERNMENT SECURITIES

MARKET.

IBEX PUBLISHED BY ICICI SECURITIES.GOVERNMENT SECURITIES INDEX BYN S E

JP MORGAN`S INDIA GOVENRMENT BOND INDEX.

SBI-GILT INDEX..

SECONDARY MARKET..


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FIXED INCOME DERIVATIVES

An investor in the Fixed income market is exposed to various risks

including Interest risk.

Income may be from.Interest payments..capital gains/loss

reinvestment income.

Inverse relation to the price of Bond and interest rates.

These are hedged by Interest rate derivatives

Interest rate swaps

Forward rate agreements are popular ..

INTEREST RATE SWAPS

Two parties agreed to exchange a stream of interest payments for a

notional principal amount.

The transactionsmay be between

Fixed to floating rate.

Floating rate to fixed rate.

One floating rate to other floating rate

Outflow will be only Interest payment

DISOCUNT AND FINANCE HOUSE OF INDIA LTD..

SET UP IN 1988 AS PER THE VAGHUL COMMITTEE

RECOMMENDATIONS.

PROMOTED BY R B I AND CB`S AND FI`S .

A LEADING PRIMARY DEALER.

TO MANAGE THE LIQUIDITY IMBALANCE IN MONEYMARKET.

TO BE AN ACTIVE TRADER IN THE SECONDARY MARKET OF

MONEY MARKET.

PROVIDE SAFE AND RISK FREE INVESTMENT AVENUES.

GREATER LIQUIDITY.

IN JUNE 2004 SBI GILTS LTD MERGED WITH DFHI .


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^^^^^^^^^^^^^^^^^^^^^^^^^

CHAPTER4

SEBI GUIDELINES..

S E B ISECURITY EXCHANGE BOARD OF INDIA .

Concept of SEBI is based on SEC of US.

1990 ..started functioningunderstudy to C C I .

1991..CCI abolished ..

1992SEBI act was passed.it became the regulatory authority

for capital market operations.

Objectives..

1. To protect the interest of the investors.

2. Bring in Disclosure norms

3. To promote, regulate and develop the securities market and its

operations.

REFORMS (CHANGES) IN CAPITAL MARKET


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SEBIAS A REGULATORY AUTHORITY.

Identification of Intermediaries.

Registration of intermediaries.( Mandatory) Capital adequacy./Code of conduct

Norms for all intermediaries.

Eligibility criteria for issuers.

Free pricingjustification of pricing

Disclosure norms.( Various changes brought in )

High lights

Risk factors/management perception.

Due diligence certificate

M.O.U. Inter se allocation of responsibilities.

Under writing (optional.)

Lock in period

Share holding pattern

Rating of debt instruments.

Book building process.

Reduction of time in post issue activities.

Refund of subscription in case of no underwriting.

Guidelines for Debt issue. Penalty points for MB`s

Guidelines to Bonus issue.

Acquisition ./ Take over guidelines.

Buy back of shares.

Guidelines on Insider trading .

Creation of MF as a separate entity

Creation of AMC for MF

Concept of Promoters contribution In Equity issue, Debt issue,

Rights issues

Indian company to access International capital market.( ADR

GDR)

ESOP

Introduction of new investors

Guidelines for private placement.


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Stock exchange under SEBI guidelines.

Setting up of OTCEI

Setting up of NSE

SETTING UP OF I.C.S.E.

Setting up of Inter connected stock exchange. Introduction of Demat system

Introduction 1% deposit with Stock exchanges by issuer.

Release of 90 % of the amount subscribed in Rights issue to

Issuer.

No need to approach ROC for Public issue clearances.

All activities have reporting system.

Removal of Badla.

Derivatives trading.( futures and options)

Introduction INDO NEXT platform for MID CAP stocks trading.( YET TO FINALISE)

Demutualisation Of stock exchanges

Guidelines for IPO through Debt instruments..

Introduction ASBA FACILITY.

SEBI will change the guidelines as per the changes required in

the financial system by amending the existing guidelines which

will be circulated to the respective intermediaries and also any

one have access through website of SEBI.

ACTIVITIES OF CAPITAL MARKET GOVERNED BY SEBI

GUIDELINES.

ISSUER OF SECURITIES.

PUBLIC ISSUE

RIGHTS ISSUE

BONUS ISSUE.

BOOK BUILDING PROCESS.

DRAFTING OF OFFER DOCUMENTS.MERCHANT BANKER.

REGISTRAR TO ISSUE/SHARE TRANSFER AGENCY

BANKER TO ISSUE

BROKERS TO ISSUE

UNDERWRITERS TO ISSUE

DEBENTURE TRUSTEE


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CREDIT RATING

DEPOSITORIES.

CUSTODIAL SERVICES.

OPERATIONS OF STOCK EXCHANGE.

PORTFOLIO MANAGERS

FOREIGN INSTITUTIONAL INVESTORS.

VENTURE CAPITAL.

MUTUAL FUNDS

ADR/GDR ISSUES

SUBSTANTIAL ACQUISITION /TAKE OVERS

BUY BACK OF SECURITIES.

ISSUE OF SWEAT EQUITY.

COLLECTIVE INVESTMENT SCHEME.

PRICING OF AN ISSUE.

DISCLOSURE AND INVESTOR PROTECTION.

OFFER DOCUMENTS.PROSPECTUS.SEBI

GUIDELINES

DISCLOSURES TO BE MADE..

STRUCTURE AND CONTENTS DEFINED..

HIGHLIGHTS

RISKFACTORSMANAGEMENT PERCEPTION..

GOVERNMENT APPROVALS

SEBI DISCLAIMER CLAUSE

STOCK EXCHANGE DISCLAIMER CLAUSE..LISTING.

MINIMUM SUBSCRIPTION

RATING AND DEBENTURE TRUSTEE (IN CASE OF DEBT ISSUE)

ISSUE MANAGEMENT TEAM

CAPITAL STRUCTURE LOCK IN PERIODBUILD UP OF

CAPITAL

SHAREHOLDING PATTERN.TERMS OF THE ISSUE.

INSTRUCTIONS TO APPLICANTS.

INFORMATION ABOUT DEPOSITORY.

STOCK INVEST PROCEDURE.

TAX BENEFITS.

OBJECTS OF THE ISSUE.


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COMPANY PROFILE.

PROMOTERS BACK GROUND.

GROUP COMPANIES.

BOARD OF DIRECTORSOTHER DIRECTORSHIP

PROJECT DETAILS.

INDUSTRY PROFILE.

BUSINESS PROFILE.

OUTSTANDING LITIGATIONS.

JUSTIFICATION PRICINGQUALITATIVEQUANTITATIVE.

( ISSUE WITH PREMIUM)

FINANCIALSAUDIT REPORT.

MAIN PROVISIONS OF ARTICLES.

MATERIAL CONTRACTS ..DOCUMENTS

PROJECTIONS ..VS..PERFORMANCE. ( INCASE OF COMPANY

GOING FOR 2nd TIME THROUGH PUBLIC ISSUE).

For Offer document of Rights issue.Letter Of offerinformation

is kept at minimum as the existing share holders knows more about the

company..normally statutory clauses will be furnished.

SCHEDULE I(Clause 5.3.1.2)

MEMORANDUM OF UNDERSTANDING BETWEEN THE LEAD

MERCHANT

BANKER TO THE ISSUE AND THE ISSUER COMPANY

THIS MEMORANDUM OF UNDERSTANDING MADE

BETWEEN....... (name of the


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issuing company), A COMPANY WITHIN THE MEANING OF THE

COMPANIES ACT,

1956 AND HAVING ITS REGISTERED OFFICE AT ......... (registered

office address of

the issuing company) (HEREINAFTER REFERRED TO AS the

Company) AND........

a Company registered under the Companies Act 1956, and having its

registered office

at...................... with the branch office at (hereinafter referred to as the

Lead Merchant

Banker).

WHEREAS:

1. The Company is taking steps for issue of...................... (particulars of

the issue)

to the public / existing shareholders of the Company; the said issue ofshares/debentures is hereinafter referred to as the issue; AND

2. The company has approached the Lead Merchant Banker to manage

the issue

and the Lead Merchant Banker has accepted the engagement inter-alia

subject

to the company entering into memorandum of understanding for the

purpose

being these presents;

NOW, THEREFORE, the Company and the Lead Merchant Banker do

hereby agree

as follows:

1. Besides the Lead Merchant Banker, .........., ............, and .................,

would be

acting as the co-managers to the issue.

2. The Company hereby declares that it has complied with or agrees to

comply

with all the statutory formalities under the Companies Act, Guidelines

for

Disclosure and Investor Protection issued by the Securities andExchange

Board of India (hereinafter referred to as the Board) and other

relevant statutes

to enable it to make the issue and in particular in respect of the

following

matters:


32/95

KNG/MERU

(Give details and particulars of statutory compliances which the

company has to

fulfil before making the issue)

Consent of the general body has been obtained vide........... (details of the

resolution) and in accordance to the terms of the Resolution passed by

the

General Meeting held on .............. (date of the meeting).

3. The company undertakes and declares that any information made

available to

the Lead Merchant Banker or any statement made in the Offer

Documents shall

(Updated till June 10, 2007)

Page 247 of 348

be complete in all respects and shall be true and correct and that under

nocircumstances it shall give or withhold any information or statement

which is

likely to mislead the investors.

4. The Company also undertakes to furnish complete audited annual

report(s),

other relevant documents, papers, information relating to pending

litigations, etc.

to enable the Lead Merchant Banker to corroborate the information

and

statements given in the Offer Documents.

5. The Company shall, if so required, extend such facilities as may be

called for by

the Lead Merchant Banker/(s) to enable him to visit the plant site, office

of the

Company or such other place/(s) to ascertain for himself the true state

of affairs

of the company including the progress made in respect of the project

implementation, status and other facts relevant to the issue.

6. The Company shall extend all necessary facilities to the LeadMerchant Banker

to interact on any matter relevant to the Issue with the solicitors / legal

advisors,

auditors, co-managers, consultants, advisors to the Issue, the financial

institutions, banks, or any other organisation, and also with any other

intermediaries who may be associated with the issue in any capacity


33/95

KNG/MERU

whatsoever.

7. The Company shall ensure that all advertisements prepared and

released by the

Advertising Agency or otherwise in connection with the Issue conform

to

regulations, guidelines etc. issued by the Board and instructions given

by the

Lead Merchant Banker/(s) from time to time and that it shall not make

any

misleading, incorrect statement in the advertisements, press releases, or

in any

material relating to the Issue or at any Press / Brokers / Investors

Conferences.

8. The Company shall not, without prior approval of the Lead

Merchant Banker,appoint other intermediaries or other persons such as Registrars to the

Issue,

Bankers to the Issue, Refund Bankers, Advertising Agencies, Printers

for

printing application forms, allotment advices / allotment letters, share

certificates/

debenture certificates, refund orders or any other instruments,

circulars, or

advices.

9. In consultation with the Lead Merchant Banker, the company shall,

whenever

required, enter into a Memorandum of Understanding with the

concerned

intermediary associated with the issue, clearly setting forth their mutual

rights,

responsibilities and obligations. A certified true copy of such

Memorandum shall

be furnished to the Lead Merchant Banker.

10. The Company shall take such steps as are necessary to ensure thecompletion

of allotment and despatch of letters of allotment and refund orders to

the

applicants including NRIs soon after the basis of allotment has been

approved


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KNG/MERU

by the stock exchanges and in any case not later than the statutory time

limit

and in the event of failure to do so pay interest to the applicants as

provided

under the Companies Act, 1956.


Page 248 of 348

11. The Company shall take steps to pay the underwriting commission

and

brokerage to the underwriters and stock brokers, etc. within the time

specified in

any agreement with such underwriters or within a reasonable time.

12. The Company undertakes to furnish such information and

particulars regarding

the issue as may be required by the Lead Merchant Banker to enablehim to file

a report with the Board in respect of the issue.

13. The company shall keep the Lead Merchant Banker informed if it

encounters

any problems due to dislocation of communication system or any other

material

adverse circumstance which is likely to prevent or which has prevented

the

Company from complying with its obligations, whether statutory or

contractual, in

respect of the matters pertaining to allotment, despatch of refund orders

/ share

certificates / debenture certificates etc.

14. The company shall not resort to any legal proceedings in respect of

any matter

having a bearing on the issue except in consultation with and after

receipt of the

advice from the Lead Merchant Banker.

15. The company shall not access the money raised in the issue tillfinalisation of

basis of allotment or completion of offer formalities.

16. The company shall refund the money raised in the issue to the

applicants if

required to do so for any reason such as failing to get listing permission

or under


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KNG/MERU

any direction or order of SEBI. The company shall pay requisite

interest amount

if so required under the laws or direction or order of SEBI.

17. Clauses relating to rights of Lead Merchant Banker vis--vis the

issuer shall be

inserted.

18. Consequences of breach.

In Witness whereof the parties hereto have set their hands on the day

and the year

hereinabove written.


Page 249 of 348

SCHEDULE II

(Clause 5.3.2.1)

INTERSE ALLOCATION OF RESPONSIBILITIES

I. The Lead Merchant Bankers shall make interse allocation of the

activities / sub

activities.

II. The lead merchant banker shall ensure that activity wise allocation is

properly

delineated and that the Board is advised the name of the Lead Merchant

Banker

responsible for each set of activities / sub-activities, well before opening

of issue.

This advice must be signed by all Lead Merchant Bankers to issue.

III. Where the circumstances warrant joint and several responsibility of

Lead

Merchant Bankers for a particular activity, a co-ordinator designated

from

among the Lead Merchant Bankers shall furnish to the Board, whencalled for,

with information, report, comments etc. on matters relating to the

activity (of joint

and several responsibility).

IV. The activities / sub-activities may be grouped on the following lines:


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KNG/MERU

(a) Capital structuring with the relative components and formalities

such as

composition of debt and equity, type of instruments.

(b) Drafting and Design of the offer document and of advertisement /

publicity

material including newspaper advertisements and brochure /

memorandum

containing salient features of the offer document.

The designated Lead Merchant Banker shall ensure compliance with

the

Guidelines for Disclosure and Investor Protection and other stipulated

requirements and completion of prescribed formalities with Stock

Exchange,

Registrar of Companies and SEBI.

(d) Marketing of the issue, which will cover, inter alia, formulatingmarketing

strategies, preparation of publicity budget, arrangements for selection

of (i)

ad-media, (ii) centres of holding conferences of brokers, investors etc.

(iii)

bankers to issue, (iv) collection centres (v) brokers to issue and (vi)

underwriters and the underwriting arrangement, distribution of

publicity and

issue material including application form, prospectus and brochure, and

deciding on the quantum of issue material.

(e) Selection of various agencies connected with issue, namely Registrars

to

Issue, printers and advertising agencies.

(f) Follow-up with bankers to the issue to get quick estimates of

collection and

advising the issuer about closure of the issue, based on the correct

figures.


Page 250 of 348(g) The post-issue activities will involve essential follow-up steps, which

must

include finalisation of basis of allotment / weeding out of multiple

applications, listing of instruments and despatch of certificates and

refunds,


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KNG/MERU

with the various agencies connected with the work such as registrars to

the

issue, bankers to the issue, and the bank handling refund business.

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

intermediaries, the designated Lead Merchant Banker shall be

responsible

for ensuring that these agencies fulfil their functions and enable him to

discharge this responsibility through suitable agreements with the issuer

company.

(i) Ordinarily, one Lead Merchant Banker shall be responsible for post

issue

activities.


Page 251 of 348

354(SCHEDULE III)354

Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14,

2003 for the following:

SCHEDULE III

(Clause 5.3.3.1)

FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY

LEADMERCHANT BANKER(S) ALONGWITH DRAFT OFFER

DOCUMENT

To,SECURITIES AND EXCHANGE BOARD OF INDIA

Dear Sirs,

SUB.: ISSUE OF ____________________ BY _______________LTD.

We, the under noted Lead Merchant Banker (s) to the above mentioned

forthcoming issue state as follows :


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KNG/MERU

1. We have examined various documents including those relating to

litigation like commercial disputes, patent

disputes, disputes with collaborators etc. and other materials more

particularly referred to in the Annexure

hereto in connection with the finalisation of the draft prospectus/letter

of offer pertaining to the said issue;

(2) On the basis of such examination and the discussions with the

company, its directors and other officers,

other agencies, independent verification of the statements concerning

the objects of the issue, projected

profitability, price justification and the contents of the documents

mentioned in the Annexure and other

papers furnished by the company, WE CONFIRM that:

(a) the draft prospectus/letter of offer forwarded to the Board is in

conformity with the documents, materialsand papers relevant to the issue;

(b) all the legal requirements connected with the said issue as also the

guidelines, instructions, etc. issued by

the Board, the Government and any other competent authority in this

behalf have been duly complied

with; and

the disclosures made in the draft prospectus / letter of offer are true,

fair and adequate to enable the

investors to make a well informed decision as to the investment in the

proposed issue.

(3) We confirm that besides ourselves, all the intermediaries named in

the prospectus/letter of offer are

registered with the Board and that till date such registration is valid.

(4) We have satisfied ourselves about the worth of the underwriters to

fulfil their underwriting commitments.

(5) We certify that written consent from shareholders has been obtained

for inclusion of their securities as

part of promoters contribution subject to lock-in and the securities

proposed to form part of promoterscontribution subject to lock-in, will not be disposed / sold / transferred

by the promoters during the period

starting from the date of filing the draft prospectus with the Board till

the date of commencement of lock-in

period as stated in the draft prospectus.

PLACE: LEAD MERCHANT BANKER(S) TO THE ISSUE


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KNG/MERU

DATE: WITH HIS/ THEIR SEAL (S)

ANNEXURE TO THE DUE DILIGENCE CERTIFICATE FOR THE

ISSUE OF _______________________

BY ______________________________LIMITED

1. Memorandum and Articles of Association of the Company.

2. Letter of Intent/SIA Registration/Foreign Collaboration

Approval/Approval for import of plant and

machinery, if applicable.

3. Necessary clearance from governmental, statutory, municipal

authorities etc. for implementation of the

project, wherever applicable.

4. Documents in support of the track record and experience of the

promoters and their professional

competence.

5. Listing agreement of the Company for existing securities on the StockExchanges.

6. Consent letters from Companys auditors, Bankers to issue, Bankers

to the Company, Lead Merchant

Bankers, Brokers and where applicable, Proposed Trustees.

7. Applications made by the company to the financial institutions/banks

for financial assistance as per object

of the Issue and copies of relative sanction letters.

8. Underwriting letters from the proposed underwriters to the issue.

9. Audited Balance Sheets of the Company/Promoter companies for

relevant periods.

10. Auditors certificate regarding tax-benefits available to the

Company, Shareholders and Debenture

holders.


Page 252 of 348

(Clause 5.3.3.1)

FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY

LEAD MERCHANTBANKER(S) ALONGWITH DRAFT OFFERDOCUMENT

To,

SECURITIES AND EXCHANGE BOARD OF INDIA

Dear Sirs,

SUB.: ISSUE OF ____________________ BY _______________LTD.


40/95

KNG/MERU

We, the under noted Lead Merchant Banker (s) to the above mentioned

forthcoming

issue state as follows:

1. We have examined various documents including those relating to

litigation like

commercial disputes, patent disputes, disputes with collaborators etc.

and other

materials more particularly referred to in the Annexure hereto in

connection with

the finalisation of the draft prospectus/letter of offer pertaining to the

said issue;

2. On the basis of such examination and the discussions with the

company, its

directors and other officers, other agencies, independent verification of

thestatements concerning the objects of the issue, projected profitability,

price

justification and the contents of the documents mentioned in the

Annexure and

other papers furnished by the company, WE CONFIRM that:

11. Certificate from Architects or any other competent authority on

project implementation schedule furnished

by the company, if applicable.

12. Reports from Government agencies / expert agencies / consultants /

company regarding market demand

and supply for the product, industry scenario, standing of the foreign

collaborators, etc.

13. Documents in support of the infrastructural facilities, raw material

availability, etc.

14. Auditors Report indicating summary of audited accounts for the

period including that of subsidiaries of the

company.

15. Stock Exchange quotations of the last 3 years duly certified by

regional stock exchange in case of anexisting company.

16. Applications to RBI and approval thereof for allotment of shares to

non-residents, if any, as also for

collaboration terms and conditions.

17. Minutes of Board and General Body meetings of the company for

matters which are in the prospectus.


41/95

KNG/MERU

18. Declaration in Form 32 from Directors (for particulars of

Directorship) or the Company Secretarys

certificate in this regard.

19. Revaluation certificate of companys assets given by Government

Valuer or any other approved Valuer.

20. Environmental clearance as given by Pollution Control Board of the

State Government or the Central

Government as applicable.

21. Certificate from companys solicitors in regard to compliance of

legal provisions of the Prospectus as also

applicability of FERA/MRTP provisions to the company.

22. Other documents, reports etc. as are relevant / necessary for true,

fair and adequate disclosures in the

draft prospectus / letter of offer (to give details).

23. True copy of the Board resolution passed by the issuer authorising arepresentative of the Registrar to act

on its behalf in relation to handling of stockinvests.

PLACE: LEAD MERCHANT BANKER (S) TO THE ISSUE

DATE: WITH HIS / THEIR SEAL (S)


Page 253 of 348

(a) the draft prospectus/letter of offer forwarded to the Board is in

conformity

with the documents, materials and papers relevant to the issue;

(b) all the legal requirements connected with the said issue as also the

guidelines, instructions, etc. issued by the Board, the Government and

any

other competent authority in this behalf have been duly complied with;

and

the disclosures made in the draft prospectus / letter of offer are true,

fair and

adequate to enable the investors to make a well informed decision as to

the

investment in the proposed issue.3. We confirm that besides ourselves, all the intermediaries named in

the

prospectus/letter of offer are registered with the Board and that till date

such

registration is valid.


42/95

KNG/MERU

4. We have satisfied ourselves about the worth of the underwriters to

fulfil their

underwriting commitments.

5. We certify that written consent from shareholders has been obtained

for

inclusion of their securities as part of promoters contribution subject to

lock-in

and the securities proposed to form part of promoters contribution

subject to

lock-in, will not be disposed / sold / transferred by the promoters during

the

period starting from the date of filing the draft prospectus with the

Board till the

date of commencement of lock-in period as stated in the draft

prospectus.PLACE: LEAD MERCHANT BANKER(S) TO THE ISSUE

DATE: WITH HIS/ THEIR SEAL (S)


Page 254 of 348

ANNEXURE TO THE DUE DILIGENCE CERTIFICATE FOR THE

ISSUE OF

_______________________ BY

______________________________LIMITED

1. Memorandum and Articles of Association of the Company.

2. Letter of Intent/SIA Registration/Foreign Collaboration

Approval/Approval for

import of plant and machinery, if applicable.

3. Necessary clearance from governmental, statutory, municipal

authorities etc. for

implementation of the project, wherever applicable.

4. Documents in support of the track record and experience of the

promoters and

their professional competence.5. Listing agreement of the Company for existing securities on the Stock

Exchanges.

6. Consent letters from Companys auditors, Bankers to issue, Bankers

to the

Company, Lead Merchant Bankers, Brokers and where applicable,

Proposed


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KNG/MERU

Trustees.

7. Applications made by the company to the financial institutions/banks

for financial

assistance as per object of the Issue and copies of relative sanction

letters.

8. Underwriting letters from the proposed underwriters to the issue.

9. Audited Balance Sheets of the Company/Promoter companies for

relevant

periods.

10. Auditors certificate regarding tax-benefits available to the

Company,

Shareholders and Debenture holders.

11. Certificate from Architects or any other competent authority on

project

implementation schedule furnished by the company, if applicable.12. Reports from Government agencies / expert agencies / consultants /

company

regarding market demand and supply for the product, industry

scenario,

standing of the foreign collaborators, etc.

13. Documents in support of the infrastructural facilities, raw material

availability,

etc.

14. Auditors Report indicating summary of audited accounts for the

period including

that of subsidiaries of the company.

15. Stock Exchange quotations of the last 3 years duly certified by

designated stock

exchange in case of an existing company.


Page 255 of 348

16. Applications to RBI and approval thereof for allotment of shares to

nonresidents,

if any, as also for collaboration terms and conditions.17. Minutes of Board and General Body meetings of the company for

matters which

are in the prospectus.

18. Declaration in Form 32 from Directors (for particulars of

Directorship) or the

Company Secretarys certificate in this regard.


44/95

KNG/MERU

19. Revaluation certificate of companys assets given by Government

Valuer or any

other approved Valuer.

20. Environmental clearance as given by Pollution Control Board of the

State

Government or the Central Government as applicable.

21. Certificate from companys solicitors in regard to compliance of

legal provisions

of the Prospectus as also applicability of FERA/MRTP provisions to the

company.

22. Other documents, reports etc. as are relevant / necessary for true,

fair and

adequate disclosures in the draft prospectus / letter of offer (to give

details).

23. 355(Deleted)PLACE: LEAD MERCHANT BANKER (S) TO THE

DATE: ISSUE WITH HIS / THEIR SEAL (S)

355 Omitted the following clause vide SEBI Circular No.

SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25,

2005:

True copy of the Board resolution passed by the issuer authorising a

representative of the Registrar to act on its

behalf in relation to handling of stockinvests.


Page 256 of 348

CHAPTER5

CAPITAL MARKET

Market for Long term funding

Market more for retail investors .

Also called as speculative market.

Volatile market.

Capital market comprises of .

I..1..ISSUERS


45/95

KNG/MERU

CORPORATES.

COMMERCIAL BANKS,FINANCIAL INSTITUTIONS.

I..2. INSTRUMENTS..( PRODUCTS)

EQUITY SHARES..

PREFERENCE SHARES.

DEBT FAMILY.

DEBENTURES

.FULLY CONVERTIBLE ,

PARTLY CONVERTIBLE ,

NON CONVERTIBLE,

BONDS..CONVERTIBLE, REDEEMABLE

I3.. INTERMEDIARIES..

MERCHANT BANKER.

REGISTRAR TO ISSUE.

BANKERS TO ISSUE.

UNDERWRITERS

BROKERS.

DEBENTURE TRUSTEE.

I..4.. INSTITUTIONS..

STOCK EXCHANGES.

DEPOSITORIES.

CUSTODIANS.

CREDIT RATING AGENCY.

I..5.. INVESTORS.

INDIVIDUALS.

HUF

TRUSTS.


46/95

KNG/MERU

CORPORATES.

COMMERCIAL BANKS.

FINANCIAL INSTITUTIONS.

FOREIGN INSTITUIONAL INVESTORS.

NRI..

NRI (NR)

FUND RAISING ROUTES.

INITIAL PUBLIC OFFER.( I P O )

FURTHER PUBLIC OFFER.

BOTH THE ABOVE CAN BE ..FIXED PRICE ROUTE

PREMIUM WITH A FIXED PRICE OR BOOK BUILDING

ROUTE

RIGHTS ISSUE.

PRIVATE PLACEMENT

OFFER DOCUMENTS..

FOR A PUBLIC ISSUE..PROSPECTUS.

FOR A BOOK BUILDING ISSUE..RED HERRING RPOSPECTUS.

FOR A RIGHTS ISSUE.LETTER OF OFFER

FOR PRIVATE PLACEMENT.INFORMATION MEMORANDUM.

FUND RAISING EXERCISE


47/95

KNG/MERU

ISSUER SELECTS AN INSTRUMENT

AND

TAKES THE ASSISTANCE OF THE INTERMEDIARIES

AND

AVAIL THE SERVICES OF THE INSTITUTIONS

AND

OFFER THE SAME TO THE INVESTORS

FOR MOBILISING FUNDS FROM THE INVSTORS.

SEBI GUIDELINES WILL BE FOLLOWED .

MERCHANT BANKER IS THE IMPORTANT

INTERMEDIARY IN CARRYING OUT THIS

EXERCISE WITH A PROPER PLANNING AND

COORDINATION.

INVESTORS CAN SUBSCRIBE TO THE ISSUE OR

MAKEA BID FOR THE ISSUE DEPENDING UPON

THE NATURE OF ROUTE TAKEN BY THE

ISSUER.

SEBI HAS GIVEN GUIDELINES FOR THE

PLAYERS IN THE CAPITAL MARKET

CHAPTER..6

MERCHANT BANKING


48/95

KNG/MERU

NECESSITY OF SUCH SERVICES..

CHANGE IN INDUSTRIAL SCENARIO..

GROWTH IN CORPORATE SECTOR

NEW SOURCES OF FUNDS. LACK OF PROFESSIONAL SERVICES

PROPER CAPITAL STRUCTURING.

COMPLEXITY IN CAPITAL /MONEY MARKET

PRODUCTS.

IDENTIFYING APPROPRIATE SOURCE.

ACTIVITIES

PROJECT COUNSELLING

PROJECT APPRAISAL SERVICES

LOAN SYNDICATION

ISSUE MANAGEMENT.

TREASURY MANAGEMENT SERVICES.

INTERNATIONAL FINANCE.

ADVISORY SERVICES..

ROLE AND RESPONSIBILITIES OF MERCHANT BANKER.

MERCHANT BANKERSELF

A PROFESSIONAL IN THE FINANCE FIELD.

A WELL ORGANISED FINANCE PROFESSIONAL.

IDENTIFIED AS A CORPORATE FRIEND.

A WELL INFORMED INTERMEDIARY.

QUALITIES

GOOD LISTENER.

PLANNER.


49/95

KNG/MERU

ORGANISER.

COORDINATOR.

RELATIONSHIP MANAGER.

INDUSTRY/MARKET KNOWLEDGE.

ANALYTICAL SKILLS.

ISSUE ASSIGNMENT...MERCHANT BANKER

LEAD THE TEAM

CORRECT GUIDANCE PROPER PRICING

PROFESSIONAL WORK.

SUCCESS.

MERCHANT BANKER

Should ..

Be good at Due diligence work.

Understand the Disclosure concept.

Do Proper pricing of the securities.

Market the securities effectively.

ISSUE MANAGEMENT From ..Merchant Bankers view

ONLY ACTIVITY ..VISIBILITY OF M. B.

PLAN THE ACTIVITY.

ACTIVITY CHART AND RESPONSIBILITY.

GOOD RELATION WITH OTHER INTERMEDIARIES .

UNDERSTAND THE MARKET

PRICE THE ISSUE PROPERLY.

EACH ASSIGNMENT IS DIFFERENT.

DRAFTING OF THE OFFER DOCUMENT AND CAPITAL

STRUCTURE IS VERY IMPORTANT.

MARKETING .MERCHANT BANKER


50/95

KNG/MERU

PROPER PRESENTATION TO INVESTORS.

IDENTIFY PROPER SOURCES.

NOT A SECONDARY MARKET MAN

RESPONSIBILITIES.

COMMITTMENT TO ISSUER.

COMMITTMENT TO INVESTORS. ( DISCLOSURE )

FOLLOW THE ETHICS.

NO COMPROMISES.

GOALSUCCESS

FOLLOW UP. RELATION BASED.

CONTINUITY IN SERVICES.

BUILDING UP SELF IMAGE

MORE PROFESSIONAL APPROACH.

kng

CASE STUDY FOR A MERCHANT BANKING ACTIVITY..

COST OF THE PROJECT HAS BEEN GIVEN FOR TWO

DIFFERENT SITUATIONS.

HOW A MERCHANT BANKER ADVISES HIS CLIENT ABOUT

THE FURTHER PLAN OF ACTION FOR FUNDING .

RS IN LAKHS

I II

NEW UNIT 6 YEARS OLD

LAND 20.00 50.00

LAND DEVELOPMENT 5.00 10.00

BUILDING

FACTORY 75.00 250.00OFFICE 20.00 100.00

QUARTERS 50.00 150.00

PLANT AND

MACHINERY . 300.00 900.00

MISC


51/95

KNG/MERU

FIXED ASSETS 75.00 200.00

PRELIM AND

PREOP EXP 50.00 150.00

CONTINGENCIES.. 35.00 140.00

TECHNOLOGY

TRANSFER.. 00.00 300.00

WORKING CAPITAL

MARGIN. 20.00 150.00

TOTAL 650.00 2400.00

SOURCES OF FUNDS..

GROUP1

TERM LOAN ..FROM BANKS, FIS, SFCS

AND NBFCS

FOREIGN CURRENCY LOAN ..FROM CBS AND FIS

D.P.G ...FROM CBS

LEASING FINANCE FROM .NBFCELCO..

HIREPURCHASE..FROM ..NBFC.HP CO.

GROUP2.

PUBLIC ISSUE. EQUITY AT PAR

PUBLIC ISSUEDEBT

PUBLIC ISSUE OF DEBT AND EQUITY

PUBLIC ISSUE OF EQUITY AT PREMIUM.


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KNG/MERU

RIGHTS ISSUE AT PAR AND PUBLIC ISSUE AT PREMIUM

RIGHTS ISSUE AT LOWER PREMIUM AND PUBLIC ISSUE AT

HIGHER PREMIUM.

PRIVATE PLACEMENT .

INVESTMENT FROM VCS

PRIVATE EQUITY

INVESTMENT FROM MFS.

INTERNATIONAL CAPITAL MARKET..ADRS AND GDRS.

GROUP.3

WORKING CAPITAL FINANCE FROM COMMERCIAL BANKS.

BILLS DISCOUNTING

FACTORING.

COMMERCIAL PAPER.

GROUP.4

PROMOTERS CONTRIBUTION

INTERNAL ACCRUALS.

FIXED DEPOSITS.

UNSECURED LONG TERM LOANS.

JOINT VENTURE. (Financial)

F.D.I..FC.C.B.

E.C.B..FOREIGN CURRENCY BORROWINGS

ANY OTHER SOURCES OF FUNDS AVAILABLE.ADD TO THE

LIST.

EXTERNAL COMMERCIAL BORROWINGS

ECB`s includes..

Commercial bank loans

Buyer`s credit Supplier`s credit

From Foreign Financial Institutions.

Securitised instruments


53/95

KNG/MERU

Credit from official export credit agencies.

Borrowings from Multilateral FI`sADB,CDC,IFC.

Indian borrowers have routes to avail , then maturity period according

to the amount.The interest rates are fixed interms of basic rate of LIBOR plus other

charges.

FEMA guidelines are to be followed .

Merchant banking

REFER TO THE PROJECT GIVEN.

Project1.

Rs..650.00 Lakhs

Funded.

Rs 325.00 .Promoters contributionwill be equity.

Rs 325.00.term loan

AS A NEW PROJECT THE CHANCE OF RAISING FUNDS IS

RESTRICITED TO FEW SOURES IN THE SYSTEM

AFTER SIX YEARS..

THE UNIT WILL BE ELIGIBLE TO TRY ANY OR ALL THE FOUR

GROUPS OF FUNDING .

Main objective is to help the promoters to bring in lower amount for the

project and still holds the management position with out any difficulty.

Merchant banker should structure the Capital funding appropriately.


54/95

KNG/MERU

CAPITAL MARKET II..

RIGHTS ISSUE..

Fresh securities offered to the existing share holders.

Ratio to be offered and the price to be finalised.

This is a source of funds .

Record date to be fixed.Book closure to be announced.

Trading will go on either in Cum rights or Ex rights.

An existing share holders may or maynot exercise option of subscribing,

He can ask for split forms to be given to more members ( Max 3)

He can renounce his rights .

Original holder can apply for more than his entitlement.

Rights kept open for min 30 daysmax 60 days.

Offer document is Letter of offer.

Composite application form.The issue can be at par or premium.

The fresh securities will be listed on exchanges .

Merchant banker services are a must along with RTI and BTI.

BONUS ISSUE..

Existing shareholders will get the fresh securities free of cost.

This is known as Capitalisation of reserves.

1994SEBI has given clear instruction regarding capitalization ofreserves

Certain eligibility criteria has to be followed.

Ratio in which it has to be given has to be finalized.

Once company decided this has to be completed before six months.

Record date has to be fixedBook closure to be announced.

Trading continues either Cum bonus or ex bonus.


55/95

KNG/MERU

The new securities has to be listed .

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

OF AN ISSUE.RECOMMENDATIONS ..VISIT SEBI WEBSITE

AND READ THE OFFER DOCUMENTS UNDERSTAND THE

CAPITAL STRUCTURE.LOCK IN PERIOD..DUE DILIGENCE

DONE BY THE MB`S..READ THE ALLOTMENT ADVT TO

UNDERSTAND THE CONCEPT OF BASIS OF ALLOTMENT .)

DEBT SECURITIES LISTING

SEBI HAS COME OUT WITH THE GUIDELINES REGARDING

PUBLIC OFFER AND LISTING OF DEBT SECURITIES DURING

May 2008..

The guidelines are clear onpromoters contribution, disclosures

,Debenture trustee etc

TRADING..SECONDARY MARKET OPERATIONS.

Trading means buying and selling of securities that are listed onthe stock exchanges.

The trading has to be done through an authorised broker who is

a member of stock exchange and registered with SEBI..

The client should have a contract signed with a specified broker to

do the transactions.

To day because of online trading the settlement and transparency

of the transactions can nbe understood by the client.

There are basically three types of Investors

..speculative.short term long term ..

`Secondary market facilitates but does not ensure liquidity.


56/95

KNG/MERU

Prices of the quoted securities changes depending upon the

various factors.

An investor should have a proper knowledge of the marketoperations.

BSE and NSE are the major exchanges in the Indian capital

market facilitates trading.

Companies are grouped according to the size , performance and

other factors.

SEBI keeps a watch on the movement of price and volatility of

the market.

Sensitivity index of the capital market in India are BSE sensex

(30) and NIFTY.(50).

To understand the performance of companies in the industry

there are certain index related to industry.

For secondary market operations one has to use the services of

Depository and custodians.and stock exchange.

Settlement happens now with in two days of the transactions.

Stock exchange follows the listing guidelines vis a vis companies

listed for following the guidelines.

Volume is one which is important. With out adequate volume the

liquidity will be affected.

Various factors affect the markets regularly.

Since past two years Capital market has introduced Derivative

trading, in the form of Options and futures.


57/95

KNG/MERU

51 Companies have been identified which can be considered

under this scheme.

This market is yet to develop.

All the operations are technology driven.

The secondary market transactions (trading)in demat format

only,.

*********************

STOCK EXCHANGEstatutorily defined as any body of individuals

whether incorporated or not constituted for the purpose of assisting or

controlling the business of selling or dealing in securities,.

Securities contract( Regulations ) act 1956

IMPORTANCE..

SUPPORT FOR JOINT STOCK ENTERPRISES.

FACILITY TO DEAL IN SECURITIES.

LIQUIFY THE CAPITAL IN AN ENTERPRISES BY AN

INVESTOR.

WITHOUT STOCK EXCHANGE THE CAPITAL WOULDHAVE BECOME IMMOBILISED.

Stock exchanges are subject to primary regulations..


58/95

KNG/MERU

The Securities and contract regulation act 1956..to regulate

undesirable transactions in securities

21 regional stock exchanges ..

CLOSURE OF SOME EXCHANGES

OTCEI.OVER THE COUNTER EXCHANGE OF INDIA.

( can be considered as 22 nd exchange)

Commenced operations in 1991.

Modelled on the NASDAQ ( National association of Securities dealers

and automated quotations) of USA.

OBJECTIVETO PROVIDE SMALL AND MEDIUM

COMPANIES EASY ACCESS TO CAPITAL MARKET TO RAISECAPITAL IN COST EFFECTIVE MANNER.

Commenced operations in 1992.

A ringless scripless.exchangemechanized trading national net

work.

NATIONAL STOCK EXCHANGE.

A fully automated screen based trading system. Commenced operations

in 1994.

( CAN BE CONSIDERED AS 23 rd EXCHANGE)

Transparency of operations.enjoy quick and efficient settlements

system..

Operated on satellite based communication net work.


59/95

KNG/MERU

Has two segments..

WDMWHOLE SALE DEBT MARKET SEGMENT..

To enable Institutions and Corporates to deal in Govt securities,

treasury bills, PSU bonds, CP`s, CD`setc..

CAPITAL MARKET SEGMENT..

COVERS TRADING IN EQUITIES,NCD`sretail trade..

INTERCONNECTED STOCK EXCHANGE OF INDIA

15 participating exchanges promoted thisCommenced due to the fact

that the business of

regional exchanges reduced due to expansion of BSE and NSE.

ISE provides a national forum for trading in respect of all the regionally

listed securities.

Ensures liquidity of sparsely traded securities.

Commenced operations in Feb.1999.

DEMUTUALISATION IS THE NEW CONCEPT BEING BROUGHT

IN BY SEBI TO CORPORATISE THE STOCK EXCHANGE BY

REVAMPING THE BOARD WITH PROFESSIONALS

INDONEXT IS THE NEW CONCEPT INTRODUCED BY SEBI FORTRADING IN MID CAP SECURITIES LISTED ON STOCK

EXCHANGES.


60/95

KNG/MERU

DEPOSITORY SYSTEM

The system commenced operations by virtue of Depositories act 1996.

HOLDING THE SECURITIES IN ELECTRONIC FORM.

FOUR PARTIES..

THE INVESTOR

THE ISSUER OF SECURITIES

PARTICIPANTS OR AGENTS.

DEPOSITORY OF SECURITIES.

NSDL AND CSD(I)L ARE THE TWO APEX LEVEL

INSTITUTIONS.

COMMERCIAL BANKS, FINANCIAL SERVICE INSTITUTIONS

ARE THE DEPOSITORY PARTICIPANTS .

SEBI.THE REGULATORY AUTHORITY HAS MADE

SECONDARY MARKET OPERATIONS MANDATORY THROUGH

DEMAT OPERATIONS.

FOR BOOK BUILDING PROCESS THE SUBSCRIPTION HAS TO

BE MADE ONLY BY THE DEMAT ACCOUNT HOLDERS.

CUSTODIAL SERVICES.

Relating to securities means ..safe keeping of securities of a client and

providing incidental services..

Maintaining of accounts.

Collection of benefits.

Reconciling the records.


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KNG/MERU

DERIVATIVES

Are instruments whose value is derived from the value of one or more

underlying exposures.

Commonly known derivativesare.FORWARDS..FUTURES..

OPTIONS.SWAPS.

FUTURES.BASED ON INDICESARE .INDEX FUTURES.

BASED ON STOCKS..ARE..STOCK FUTURES.

ON THE SAME LINES THE OPTIONS ARE DEFINED..

FORWARDS..

A FORWARD CONTRACT IS A CONTRACT TO BUY/SELL THE

UNDERLYING ON A FUTURE DATE AT A PRICE THAT IS

DETERMINED TODAY.

NEGOTIATED BETWEEN TWO PARTIES

OUTSIDE THE FRAME WORK OF STOCK EXCHANGE

THE CONTRCTS ARE ILLIQUID.

RE NEGOTIATE WITH MUTUAL CONSENT..

FUTURES

ARE LIKE FORWARDS , EXCEPT THAT THEY ARE TRADE INSTOCK EXCHANGE. ON THE BASIS OF STANDARD

CONTRACTS

The trades guaranteed by Stock exchanges.

Negotiation is on the price.

Positions are liquid.


62/95

KNG/MERU

Regulations permits futures upto 12 months.

Launched upto 3 months.

Future pricing depend upon the current demand and supply

OPTIONS.

One party ( Option buyer)..has the right , but not the obligation to the

terms of the contract.

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

Contract lapse on expiration date.

Option premium has to be paid by the option buyer.

An option to buy is called Call option..

An option to sell Put option

An American option can be exercised anytime before maturity. Stock

option

An European option can be exercised only on

maturity.Index options.

SWAP..

A swap is an arrangement between two parties to exchange streams of

payments calculated on different bases.

*****************

MARGINS..

In the Capital market secondary market operations ..there is concept of

having adequate capital for the proposed transactions in the form of

Margins.


63/95

KNG/MERU

Stock exchange insists that Brokers should built up margins in

different forms. This is a precaution to avoid payment crisis.

GROSS EXPOSURE MARGIN..

SECURITY IN THE FORM OF CASH, BANK GUARANTEE,

SHARES ON DAILY OUTSTANDINGS.

DAILY /INITIAL MARGIN

BROKERS HAVE TOCOLLECT MARGIN FROM HIS TWO WAY

CLIENTS ON THE OPEN POSITION

SPECIAL MARGIN..

BASED ON THE ABNORMAL MOVEMENT OF THE PRICES OFSCRIPS THE EXCHANGE INSISTS FOR THIS.

MARK TO MARK MARGIN..HAPPENS IN F & O SEGMENT

IN CASE OF FALL OR RISE OF TRANSSACTION PRICES.

VOLATALITY MARGINTO CHECK ABNORMAL

FLUCTUATIONS IN THE INTRADAY DEALINGS.

ADHOC MARGINS.ARE IMPOSED ON THE BROKERS

CARRYING OVER ALL POSTION OF ILLIQUID STOCKS WHICH

ARE LOW PRICED.

ASBAapplication supported by blocked amount.In an IPO the applicant`s

money remains in the account till the allotment is made.

SEBI introduced for retail investors in 2008 and for HNI and Corporate investors

in 2010.

EQUITY ANALYST RECOMMENDATIONS

BUY

ACCUMALATE

SELL

BOOK PROFITS

HOLD . EARLIER BUY RECOMMENDATIONS..SAYS HOLD MEANS IT

HAS BEEN DOWN GRADED.

OVERWEIGHT


64/95

KNG/MERU

OUTPERFORMER

UNDERWEIGHT

UNDERPERFORMER

INTERNATIONAL FINANCIAL REPORTING STANDARDS..

Accounting standards developed by the International accounting standards boards

which is global standards for preparation of financial statements .

In India from April 2011..to be followed by companies listed on BSE and NSE ,

other than net worth of rs 500 crs.

Banks and insurance companies will converge from April 2013.

In India it needs training , implementing IT support,internal infrastructure

India needs to amend SEBI< Insurance and RBI regulations.

STOCK MARKET INDEX..

It is a number measuring the relative value of a group of stocks.

Value of the group changes while they are traded.

It is the historical comparison of of returns on money invested in stock market.

It reality reflects the mood of the market.

For a layman it is the pulse of the economy.

Market Index are constructed by way of value weighted method.

Worked based on base index rate.

VARIOUS ANALYTICAL APPROACH FOR VALUATION OF STOCKS..

Fundamental analysis.

Process of looking at a company`s business from investment point of

view.

Analysis of Company`s management capabilities,competitive

advantage , key ratios of business,

Technical Analysis


65/95

KNG/MERU

Future value of share, volume traded, does not look at financial or

fundamentals Shar price movement technical indicators, chart

patterns.

Quantitative analysis.

Process of determining quantitative analysis by using complex

mathematical and statistical modelling , value of the securitybuy and

sell decisions .

All these different analytical tools have different uses.

I PO GRADING..

IPO grading is a service aimed at facilitating the assessment of equityshares offered to public. It is a relative assessment of fundamentals .

Grading assigned on five point scale.

IPO grading do not take cognisense of the price of the security. It is not

an investment recommendations. Grading becomes one of the inputs

for the decision to be made by the investors.

Credit rating agencies have to do it. The grade will not have any

ongoing validity.

Grade1.Poor fundamentals.

Grade2.Below average

Grade..3..AVERAGE

Grade..4..Above average

Grade..5..Strong

WEF from May2007, all issuer has to get grading done fro the proposed

issue.

INDIAN DEPOSITORY RECEIPTS..

Any instrument in the form of depository receipt created by Domestic

depository in India against the underlying equity shares of issuing

company.


66/95

KNG/MERU

Depository receipt is a document indicating ownership of a commodity

stored in a bank or other depository

Companies wants to issue will have to follow the eligibility norms.

QIB` s are the only investors.

SHORT SELLING..

Is defined as selling a stock which the seller does not own at the time of

trade.

All classes of investors are permitted to short sell.

No naked short selling ie at the time of settlement the securities must be

delivered.No intraday trading by Institutions.

F &O segment can also be traded under this .

QIB`S..QUALIFIED INSTITUTIONAL BUYERS.

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

Scheduled Commercial banks. Mutual funds

FII `s registered with SEBI

Multilateral.bilateral DFI`s

VC registered with SEBI

INSTITUTIONS EXTEND VARIOUS FINANCIAL SERVICES

IDENTIFIED AS LENDING ACTIVITY.

Major institutions..

D F I

SFC

Commercial banks


67/95


68/95

KNG/MERU

Cap on interest to offered.

Cap on brokerage to be given.

Reporting system.

Only difference between a commercial bank and NBFC`S

is PAYMENT MECHANISM..

CHAPTER9

LEASING..

An activity to acquire fixed assets. This has become popular in

equipment financing.

The activity is confined to EQUIPMENT LEASING COMPANY

LICENSED AS N.B.F.C.

Big ticket leasing pertaining to Infrastructure financing is normally

done by Banks also.

However Industrial leasing activity is confined to N B F C .

This is one of the sources of funding in the industrial activity.

CHARACTERISTICS

Contract between two parties not governed by any act..

Based on certain assumptions.

Terms defined in the contract.

One who offers the service is .LESSOR.

One who takes the benefit is LESSEE

Lessor owns the Asset.

Lessee uses the asset and pays rentals.

Lessor recovers the cost of the assets and charges during the

Lease period.

Maximum period of leasing .eight years.


69/95

KNG/MERU

First five years ..Primary periodagreed rentals.

Next three yearsSecondary periodnominal rentals.

Rentals are quoted asRs..per thousand per month/quarter. In

adv /in arrears.( Rs/1000/ permonth/perquarter in advance or

arrears As Lessor owns the Assets .. Books depreciation .

Lesse charges the Lease rentals to Profit and Loss account and

reduces the profit and the Tax incidence.

LEASE FINANCE

100% FINANCE FOR LESSEE UNLESS HE GIVES

LEASE DEPOSIT.

AN OFF BALANCE SHEET FINANCE.

QUICK SANCTION AND DISBURSAL.

RENTAL CAN BE FLEXIBLE.

LOWER COST FOR CASH RICH COMPANIES.

LESSOR CONSIDERS

RATE OF DEPRECIATION ON EACH TRANSACTION,

EFFECTIVE TAX RATE .

TAX SHELTER.

COST OF CAPITAL I.R.R. ON EACH TRANSACTION

TRACK RECORD OF LESSEE.

FUTURE CASH FLOW.

SERVICING CAPAPCITY OF THE LESSEE.

AVOIDS SMALLSICK AND TURN AROUND CASES.

LEASES IDENTIFIABLEMOVABLE, RETRIEVABLE

ASSETS. PREFERS MIX OF DEPRECIATION ASSETS.

QUOTES THE RENTALS BASED ON I.R.R.

FOR LESSEE

A SOURCE FOR ACQUIRING ASSETS.


70/95

KNG/MERU

FLEXIBILITY OF RENTALS.

LOW COST FUNDING.

OFF BALANCE SHEET ITEM.

SHOULD MAINTAIN THE ASSETS AS THEY HE OWNS IT.

OTHER SIMILAR PRODUCTS..

TERM LOAN FROM CB`S ,,FI`S ----SFC`S

D.P.G. FROM CB`S

HIRE PURCHASE.

( PREPARE A MATRIX ON DEIFFERENT PARAMETERS TO

UNDER SATND MORE ON LEASE FINANC E.HIRE

PURCHASETERM LOAND.P.G.)

(KNOW THE DIFFERENCE BETWEEN FINANCIAL LEASE

AND OPERATING LEASE).

&&&&&&&&&&&&&&&&&&&&

CHAPTER.10

HIRE PURCHASE

MODE OF FUNDING THE GOODS TO BE PURCHASED AT A

FUTURE DATE.

INITIALLY LET ON HIRE..HIRER HAS AN OPTION TO

PURCHASEPAYMENT OF INSTALMENTS FOR A

SPECIFIC PERIOD .

TRANSACTIONS THROUGH A CONTRACT.

PROPERTY PASSES TO HIRER ON PAYMENT OF LAST

INSTALMENT.

EACH INSTALMENT IS TREATED AS HIRE CHARGES.


71/95

KNG/MERU

HIRER CHARGES THE DEPRECIATION TILL HE USES

THE ASSETS.

IT IS A BALANCE SHEET ITEM.

HIREE HAS A RIGHT TO TAKE BACK THE ASSET IN CASE

THE INSTALMENT IS NOT PAID. SIMILAR TO BANK TERM LOAN.

MARGIN IS STIPULATED.

RATES WILL BE QUOTED AS FLAT RATE.

THE EMI PAID WILL BE BIFURCATED AS PRINCIPAL

AND INTEREST FOR ACCOUNTING PURPOSE.

NORMALLY THIS WILL BE USED TO ACQUIRE

MOVABLE OR SMALL EQUIPMENTS.

MORE POPULAR IN VEHICLE FINANCING.

BOTH HIRER AND HIREE HAVE DUTIES,RESPONSIBILITIES AS DEFINED IN THE AGREEMENT.

THE APPRAISAL IS SAME AS BANK TERM LOAN.

CREDIT RATING

S E B I IS THE REGULATORY AUTHORITY.

MEANS ESTIMATING WORTH OR VALUE OF OR ASSIGN

VALUE TO..

THIS IS ONLY FOR INDUSTRIAL SECURITIES

RATING EXPRESSES THE CREDIT QUALITY OF THE

SECURITY USING SYMBOLS. RATES THE SECURITY NOT THE ISSUER.

NOT A RECOMMENDATION BY THE RATING AGENCY.

PROCESS EVALUATES THE RISK ASOCIATED WITH THE

INSTRUMENT.

DONE FOR DEBT INSTRUMENTSFIXED DEPOSITS.


72/95

KNG/MERU

RATING INSTITUTIONS

1. CRISIL.1988PROMOTED BY I C I C I .

2. ICRA1990..PROMOTED BY I F C I

3. CARE1993..PROMTED BY I D B I

4. FITCHPRIVATE SECTOR.

NEED..

GROWING CASES OF DEFAULT BY COMPANIES.

JUDGING THE DEBT OBLIGATION.

INVESTOR SHOULD UNDERSTAND THE RISK.

BENEFITS

INVESTORS.

RECOGNITION OF RISKS CREDIBILITY OF THE ISSUER.

SYMBOLS EASY TO UNDERSTAND.

INVESTMENT DECISION.INDEPENDENTLY DONE.

SELECTION INSTRUMENTS FOR INVESTMENTS.

ISSUER..

RATING AS A MARKETING TOOL.

LOWER COST OF FUNDS. REACH MORE INVESTORS.

SELF DISCIPLINE BY ISSUERS.

GOOD RATED INSTURMENTSIMPROVES ..GOOD WILL.

REPUTATION.


73/95

KNG/MERU

ADVANTAGES IN GENERAL.

SOURCE OF RELIABLE INFORMATION.

STRENGTHS AND WEAK NESSES IDENTIFIED.

INVESTMENT MARKET ..WILL BE STRONGER.

SYMBOLS

HIGHEST SAFETY.. +AAA

HIGH SAFETY. AAA

ADEQUATE SAFETY ..AA

MODERATE SAFETYA

INADEQUATE SAFETYBBB

HIGHRISKBBSUBSTANTIAL RISK..B

DEFAULT.C

RATING PROCESS.

MANUFACTURING COMPANY..

1. BUSINESS ANALYSIS.

2. INDUSTRY RISK.MARKET.3. OPERATING EFFICIENCY.

4. MANAGEMENT ANALYSISPOLICIES

STRATEGIES.SWOT..PHILOSOPHY

DISCUSSION WITH KEY PERSONNEL.

5. FINANCIAL ANALYSIS..ACCOUNTING QUALITY

EARNINGSCASH

FLOWS

FINANCIAL SERVICES COMPANY.

1. CAPITAL ADEQAUCY.

2. ASSET`S QUALITY

3. LIQUIDITY

4. PROFITABILITY

5. FUNDAMENTAL ANALYSIS

6. REGULATORY ENVIRONMENT.


74/95

KNG/MERU

LOT OF REFORMS HAS BEEN DONE IN THE SYSTEM. TWO

AGENCIES RATING IS A MUST.

THE RESPONSIBILITY OF THE RATING AGENCIES IS YET TO

BE LOOKED INTO.

*********************

MUTUAL FUNDS..

A type of Financial intermediary that pools the funds of investors who

seek the same general investment objective and invests in different

financial products.

The investors are the Unit holders.

STRUCTURE OF MUTUAL FUNDS IN INDIA..

1. SPONSOROR

2. TRUSTEES.

3. A.M.C.

4. CUSTODIANS

5. AGENTS.

6. R T I

7. BANKS

SPONSOROR ESTABLISHES FUND.

REGISTRATION WITH S E B I .

APPOINTS BOARD OF TRUSTEES.


75/95

KNG/MERU

TRUST DEED DEFINES THE OBJECTIVE EACH

SCHEMES.

TRUSTEES HOLD ASSETS ON BEHALF OFUNITHOLDERS.

APPOINTS ASSET MANAGEMENT COMPANY.

APPOINTS CUSTODIAN OF THE FUND.

A M C`S FLOATS THE SCHEMES AND MANAGES

THEM ACCORDING TO THE SEBI REGULATIONS.

CUSTODIAN HOLDS THE SECURITIES IN SAFE

KEEPING.

REGISTRAR MAINTAINS THE UNIT HOLDER`S

ACCOUNTS.

SCHEMES DRAWN UP WITH A PURPOSE .THE NAME

INDICATES THE CATEGORY

GROWTH FUNDS.

BOND FUNDS.

MONEY MARKET FUNDS.

EQUITY INCOME FUNDS.

SECTOR FUNDS.

TWO TYPES OF FUNDS ARE THERE..

1. OPEN ENDED FUNDS..

These types of schemes are open for a specific period in the initial

offer .


76/95

KNG/MERU

Any investor can enter or exit in this scheme as the Secondary

market is open .

The secondary market operates on NAV concept.

2. CLOSE ENDED FUNDS.

These are funds open for a specific purpose .mainly tax benefit

schemes where the funds invested by the unit holder is locked in for

three years or more . Some schemes are listed on stock exchange for

secondary operations .

N A V .NET ASSET VALUE

Market value of investments + Receivables + Other accrued income

+other assets_ Accrued expenses- other payables-other liabilities

_____________________________________________________________

_________

No of units out standings as on NAV date.

Calculation of NAV is an intensive process that takes place in a short

time frame at the end of each business day.

The sale or re

purchase of units are based on NAV price.

EXIT LOAD.

Some schemes with an intention of making the investors not to redeem

quickly to ensure the scheme to perform.

Choosing a MF..

Risk appetite

Investment tenure..risky investments must not be held for long. It will

take time to recover.

Investment goals


77/95

KNG/MERU

Performance.

CRISIL HAS composite performance ranking methodology..ranking

of mutual fund schemestwo year NAV history 100% portfolo

disclosure on ranking date.

AMFI. Apex body of all registered AMC`s objective of the

AMFI is to promote investor`s interest by defining and maintaining

high ethical and professional standards.

S E B I is the regulatory authority ..

MUTUAL FUNDS INVESTMENT..

The following are the area of investment

ADR`S/GDR`S issued by Indian or foreign companies.

Equity of overseas companies listed on recognized Stock

exchanges.

Foreign debt instruments fully convertible ..with investment

grading.

Derivatives traded on stock exchanges.

**********************

FACTORING

Sri C.S. Kalyana Sundaram committee studied the scope of such

services and recommended to RBI .

Introduced in the system in 1989.

To be done by a subsidiary.

Still a popular services

Supports working capital. Facilities.

DEFINITION..


78/95

KNG/MERU

Factoring is a continuous arrangement between a financial

institution ( FACTORS)

And a business concern ( THE CLIENT ) selling goods or services to

trade customers(THE CUSTOMERS) where by the factors

purchases the client`s account receivables /book debts either with or

without recourse to the client and in relation thereto controls the

credit extended to the customers and administers the sales ledger.

Small and medium scale units needs such services.

Collection of receivables on time.

Delay leads more complication.

FACTORS DOES..

Arrangement of collection debts.

Administration of sales ledger.

Covering credit risk involved.

Advisory services by the market information.

FACTORS.does with recourse factoringin India.

FOR A CLIENT

OFF BALANCE SHEET ITEM.

INSTITUIONS FOLLOWS UP.

MORE TIME FOR BUSINESS DEVELOPMENT

IMPROVE RETURN.

CAN AVOPID RISKY CUSTOMER.

COMFORTABLE CASH FLOW.

GOOD REPUTATION IN MARKET.

COMPARED TO BILLS DISOCUNTING(BANKS).

Package of services.

No upfront fee.


79/95

KNG/MERU

Easy procedures.

Maximum fund available.

Lessor cost of funds.

Structure for each customer.

Off balance sheet item. Identification of good customers.

As of now Factors have also introduced purchase bills factoring where

in purchases made on credits will be financed.

88888888888888888888888888888888888888

FORFAITING

Financing receivables ..international trade.

Pure financing arrangement.

Wi