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by : DR. T.K. JAIN AFTERSCHOOL centre for social entrepreneurship sivakamu veterinary hospital road
My words....
Ours is a great country with immense entrepreneurial potential. However, our legal system and taxation system is so cumbersome that our creativity and talent is wasted / unnecessarily diverted in these sectors. I wish that these are simplified so that an ordinary entrepreneur can understand these without help from any expert. Here I present an outline of Indian financial system for entrepreneurs. I wish that more people should become entrepreneurs. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation, but our systems and processes ...
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It is a negotiable money market instrument and is issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.
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This instrument covers both bonds which provide liquidity and an easy exit route to the investor by way of redemption or buy back where investors can get ready encashment in case of need to withdraw before maturity.
5 DECEMBER 09 www.afterschool.tk study material of PGPSE / CSE 8
What is futures?
It is contract to buy or sell an underlying financial instrument at a specified future date at a price when the contract is entered. Underlying assets for the purpose include equities, foreign exchange, interest bearing securities and commodities.
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Participatory notes are derivative instruments which are issued by FIIs to foreign investors. Underlying securities in participatory notes are Indian Stocks
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It is a mutual fund scheme, which invests in the schemes of same mutual funds or other mutual funds, instead of investing in securities. ICICI was the first to launch FoFs in 2003.
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What is the rating process - when a credit rating company rates a company / instrument ?
1. Company gives a mandate to rating agency 2. Information gathering/analysis 3. Meetings with Management 4. analysis and preparation of reports 5 preview meeting 6. credit rating meeting 7. communicate the ratings 8. acceptance / non-acceptance
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What are the main rules governing security contracts and matters incidental ?
SECURITIES CONTRACTS (REGULATION) (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 2005
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What are the various activities that a broker (member of a stock exchange) can do ?
A member can act as a Badla Financier, Commission Broker, Dealer in Odd lots, Dealer in Government Securities, Jobber, Market Maker or Underwriter.
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What is straddles?
It is a combination of one put and one call option with a common striking price and common expiry date.
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What are the two types of options with regard to flexibility of exercising option?
(i) European options system: On the expiry date and (ii) American option system: anytime before the expiry of specified time
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Capital Indexed Bonds are bonds where interest rate is a fixed percentage over the wholesale price index
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Banks, Primary Dealers and Financial Institutions can hold government securities with the Public Debt Office of Reserve Bank of India in dematerialized form which is known as Subsidiary General Ledger (SGL) Accounts.
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Income Tax benefit u/s 80L of the Income Tax Safe Highly liquid
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Can Indian stock exchanges open their terminals in other countries also ?
Yes Indian stock exchanges are permitted to set up their trading terminals overseas subject to regulatory requirements of the host countries.
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What is CDFL?
Corporate Filing and Dissemination System (CFDS) prepared jointly by BSE and NSE it is going to replace EDIFAR which was introduced by SEBI (online document submission system)
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to file deviations in the use of public issue proceeds and to appoint monitoring agency to monitor utilisation of proceeds etc.
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What is REMF?
REMF means a scheme of a mutual fund which has investment objective to invest directly or indirectly in real estate property
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Relative usage of debt and levels of debt appropriate to different types of businesses, utilisation of long and short term sources of funds, management of working capital.
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AAA = Highest safety AA =very safe A = Investment grade BBB=investment grade moderate safe BB=Inadequate safe B=high risk C=substantial risk D=default 5 DECEMBER 09 www.afterschool.tk
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Networth means the sum of paid-up capital and free reserves five crore rupees.
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To exercise due diligence, ensure proper care and exercise independent professional judgement
to make appropriate disclosure to the client
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comply with the rules, regulations and bye laws of the stock exchange
not be affiliated to more than one stock broker of one stock exchange.
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The higher of these two : The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date; The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks precedingwww.afterschool.tk the relevant date. 5 DECEMBER 09 76
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Conversion of Foreign Currency Convertible Bonds into shares does not give rise to any capital gains liable to incometax in India.
Transfers of Foreign Currency Convertible Bonds made outside India by a non-resident investor to another non-resident investor does not give rise to any capital gains liable to tax in India. 5 DECEMBER 09 www.afterschool.tk 77
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What is DR?
Depository Receipt (DR) is a negotiable instrument evidencing a fixed number of equity shares of the issuing company generally denominated in US dollars.
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What are the important documents that you have to prepare for DR?
(i) Subscription Agreement (ii) Depository Agreement (iii) Custodian Agreement (iv) Agency Agreement (v) Trust Deed
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What are the documents that you have to submit to go for DR?
special resolution under Section 81(1A) Form No. 23 Agreements (as discussed earlier )
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What powers have to be delegated to the sub-committee of board of directors for smoothagencies Appointment of functioning ?
Authority to make applications for seeking various approvals Authority to finalise and execute documents and agreements. Decisions about the timing, size and pricing of the issue Allotment of shares
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Research analysts team of lead manager/colead manager prepares research papers on the company before the issue. These papers are very important marketing tools as the international investors normally depend a lot on the information provided by the research analysts for making investment decisions.
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The research analysts along with the sales force of the syndicate members meet the prospective investors during pre marketing roadshows.
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ADR/GDR are reckoned as part of Foreign Direct Investment (FDI). Accordingly, such issue would need to confirm to the existing FDI Policy and only in areas where FDI is permissible.
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What are the requirements for fast track issues ? shareholding of average market capitalisation of public
the company is at least Rs. 10,000 crores for a period of one year The shares of the company listed on any stock exchange having nationwide terminals for a period of at least three years annualized turnover of the shares of the company during six months immediately preceding the month ofat least two per cent listing requirements complied and 95% investor grievances resolved 5 DECEMBER 09 www.afterschool.tk
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Is it required for a company to fix exact issue price before public issue ?
No , The issuer company can mention a price band of 20% in the offer documents filed with the Board and actual price can be determined at a later date before filing of the offer document with ROCs.
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What are the cases when lock in period requirements are waived ?
In case of issue of securities by a company listed on a stock exchange for at least 3 years and having a track record of dividend payment for at least 3 immediately preceding years promoters contribution shall not be subject to lock-in-period.
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Is underwriting compulsory ?
No, but practially yes The issuers have the option to have a public issue underwritten by the underwriter. In case the book-building option is availed of, underwriting is mandatory to the extent of the net offer to the public.
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What is the time limit for issue after deposit of offer document with SEBI?
The issue must open within 3 months from the date of issuance of the observation letter by SEBI, or within 3 months from 31st day from the date of filing of draft offer document with SEBI
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For how much time must the subscription list be kept open?
at least three working days and not more than 10 working days
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Is it necessary for investor to disclose a/c PNR number ? Yes, his bankhis and PNR numbers are
disclosed to company and also to depository. In respect of applications for a value of Rs. 50,000 or more, the applicant or in case of applications in joint names, each of the applicant must mention his/her permanent account number/GIR number and income tax circle, ward, district or the fact of nonallotment of PAN/GIR number as the case may be 5 DECEMBER 09 www.afterschool.tk 110
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Go abroad
the Reliance Industries acquired Flag Telcom Bermuda for US$ 212 million, and Trevira, Germany for US$ 95 million; Tata Motors acquired Daewoo, Korea for US$ 118 million; Tata Steel acquired Corus Group for US$ 12.2 billion; Infosys Technologies acquired Expert Information Services, Australia for US$ 3.1 million; Wockhardt acquired CP Pharmaceuticals UK for US$ 18 million; Cadila Health acquired Alpharma SAS France for US$ 5.7 million; Hindalco acquired Straits Ply, Australia for US$ 56.4 million; Wipro acquired Nerve Wire Inc. US for US$ 18.5 million; Aditya Birla acquired Doshiquiao Chem, China for US$ 8.5 million; Allanda based Novelis for US $ 6 billion and United Phasphorus acquired 5 DECEMBEROryzalin Hirbicide, US for US$ 21.3 million 09 www.afterschool.tk 111
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What are the norms regarding advertisements for accepting public deposits Section 58 A - no Company shall invite any
public deposits without issuing an advertisement in accordance with the Companies (Acceptance of Deposit) Rules, 1975.The company must indicate its financial position as also details about the Companys business, Board Directors etc. A copy of this has to be filed with the Registrar of Companies.
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What is the penalty for fraudulently inducing persons to invest money in shares etc. ?
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What is IDR ?
Indian Depository Receipt means any instrument in the form of a depository receipt created by Domestic Depository in India against the underlying equity shares of issuing company. Domestic Depository means custodian of securities registered with SEBI and authorised by the issuing company to issue Indian Depository Receipts.
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Domestic Depository is custodian of securities registered with SEBI and authorised by the issuing company to issue Indian Depository Receipts.
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Issue of IDRs are regulated by Companies (Issue of Indian Depository Receipts) Rules, 2004.
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How many clauses are there in the listing agreement relating to IDR?
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The size of an IDR issue shall not be less than Rs. 50 crores.
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If the company issuing the IDRs does not receive the minimum subscription of 90 per cent of the issued amount on the date of closure of the issue, or if the subscription level falls below 90 per cent after the closure of issue on account of cheques having being returned unpaid of withdrawal of applications, the company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest at the rate of 15 per cent per annum for the period of delay.
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Listing of IDRs
The IDRs issued should be listed on Stock Exchange(s) in India as specified and such IDRs may be purchased, possessed and freely transferred by a person resident in India.
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corporate securities market: consisting of FI bonds, PSU bonds, and Debentures/Corporate bonds.
Government securities form the major part of the market in terms of outstanding issues, market capitalization and trading value.
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Benchmarked Instruments : There are certain debt instruments wherein the fixed income earned is based on a benchmark. For instance, the Floating Interest rate Bonds are benchmarked to either the LIBOR, MIBOR etc.
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Inter bank market for deposits of maturity beyond 14 days and upto three months is referred to as the term money market.
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These instruments are not direct debt instruments. Instead they derive value from various debt instruments. Mortgage bonds, Pass Through Certificates, Securitised Debt Instruments etc. fall under this category.
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Buy-back means the purchase of its own shares or other specified securities by a company.
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not exceeding 25% of the total paid-up capital and free reserves of the company in one financial year [Section 77A(2)(b) and (c)].
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What are the sources of funds that can be used for buy back of shares ?
its free reserves the securities premium account the proceeds of issue of any shares or other specified securities.
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Yes, Buy-back may be made out of the proceeds of an issue of securities other than the same kind of securities as are proposed to be bought back.
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Past performance;
Book value per share; Previous buy-back undertaken, if any; Net worth of the company; Post buy-back scenario;
Industry outlook.
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from the existing securityholders from the open market from odd lots by purchasing securities which had been issued to employees
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THANKS....
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