Chapter: - 1

HISTORY OF COMPANY

1.1 History
1.2 Profile of Company
1.3 Mission of company
1.4 Firm’s services

1
 1.1 HISTORY
Peninsular Capital Market Ltd a dream project by a group of
professionals ,and it became a reality in 1995.

The company was promoted by a team of experts led by Mr. T S

Anantharaman who is one of the luminaries of the stock broking field in the
country. Peninsular started its operation in 1996 by taking membership in NSE.
It added a step to its growth by becoming a Depository Participant of NSDL in
the year 1999 and took up a clearing membership of the derivative segment of
NSE in 2001. It became member in BSE in the year 2000. Now Peninsular has
become one of the largest trading networks in the country with more than 220
branches.

Peninsular Capital Market Ltd has promoted a wholly owned

subsidiary named, Peninsular Multi Comex Services Ltd, for promoting
commodity trading, it began operation in 2003 and now has become a player
of considerable repute having membership on the country’s leading
commodity exchanges NCDEX, MCS, NMCE and IPSTA.

Peninsular Capital Market has opened five more branches in

December-2005, taking the total number to 256. All these branches offer
equity, derivative and commodity trading, IPO, mutual fund, portfolio
management and depository services.

The new branches are Kaipamangalam and Mala in Thrissur district,

Kozhenchery in Pathanamthitta, Shanthi Colony and Anna Nagar West in
Chennai and Vishweshwaraya Nagar in Belgaum.

2
 A press release issued here said that the company has taken
membership in Dubai Gold and Commodity Exchange and started
operations on November 22.

Peninsular Capital in expansion mode :-

Hyderabad: The Kochi-based, Peninsular Capital Market Ltd (PCML), a

leading investment and financial services plans to double customer base to
one lakh from 50,000 and up its trading branches to 500 from the existing
240 across the country in the next 16 months.

The PCML Chairman, T.S. Anantharaman, explained the expansion

plans to newspersons here on Saturday after opening the second trading
terminal in Hyderabad and 21st in Andhra Pradesh. It proposes to set up
another 50 trading branches in the State before March 2007, he said.

According to the PCML Managing Director, Akshay Agarwal, the

company has decided to move from a franchisee-supported organisation
towards a hybrid system by adding to its list both business associates and
direct branches. Of the proposed network of 500 trading branches by March
2007, the company plans to have at least 100 directly owned branches, he
said.

Anantharaman said the company has recently obtained approval from

the Securities and Exchange Board of India for offering portfolio
management services.

The company has set a target of managing around Rs. 100 crore of
funds under the PMS scheme by March 2007.

3
 To focus on commodity: Having obtained membership of the Dubai
Gold and Commodities Exchange recently, the company proposes to focus
on investors in West Asia for its PMS operations.

According to Anantharaman, the trading volumes of Indian commodities

market are expected to surpass those of the capital market in the near future.
The company is planning to increase its presence in the commodity markets
by setting up of branches in agricultural regions of the country. PCML
currently has membership in three of the national commodity exchanges.

To support customers to have access to funds to augment their trade

volumes, it is aiming to introduce margin-funding facility in a big manner.
The company is bullish on opportunities in the area of margin funding, he
said.

IPO route: To raise funds required for meeting its aggressive

expansion plans, the company proposes to tap the markets. As a part of this,
PCML proposes to initially go in for private placement of equity for raising
around Rs 20 crore in the next couple of months.

The company proposes to mobilise around Rs 200 crore through

initial public offering sometime next fiscal, Anantharaman said.

(SEBI Reg No: INB 230881431) (SEBI Reg No: INB

010881432), (NSE F & O SEBI Reg No. INF: 230881431),
(NSDL DP SEBI Reg No. IN-DP-NSDL 91-99)

4
 1.2 PROFILE OF THE COMPANY

1.) Name of the company:

“PENINSULAR CAPITAL MARKET LTD.”

2.) Registered office:

PENINSULAR CAPITAL MARKET LTD.
Veekshanam Road,
Cochin-682 035.

3.) Board of Directors:

Mr. Mr.T.S.Anantharaman Chairman
Mr. Mr.Akshay Agarwal M.D.
Mr. Mr. HARIHARAN Company President
4). Bankers:
ICICI Bank
HDFC Bank
UTI Bank

MANAGEMENT TEAM
NAME DESIGNATION

Mr. HARIHARAN COMPANY PRESIDENT

Mr. Joseph Lukose Manager – Administration
Smt. Girija Devi Manager – Operations
Mr. Sojan Chacko Manager – Finance & Delivery
Mr. V.P Menon Manager – Marketing
Mr. SanalKumar N Manager – Public Relation Training
Mr. Girish Kumar K.S Manager - Commodities
Mr. Deepak Dharmadev Manager - Systems
Mr. Harishankar Asst. Manager - DP

5
 1.3 MISSION OF COMPANY

Our mission is to offer clients the best combination of advanced

trading software with high technology, low costs and low margin
requirements, efficient and secure back office fund administration, and a
broad array of products with high profit potential.

6
 1.4 FIRM’S SERVICES
1. Mutual Fund:-
Peninsular Capital Market Ltd is aggressively marketing Mutual
Funds.
A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal. The money collected is
then invested in capital market instruments such as shares, debentures
and other securities. The income earned through these investments
and the capital appreciation realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual
Fund is one of the most suitable investments for the common man as
it offers an opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost. The flow chart
below describes broadly the working of a mutual fund.

7
 2. Equities & Derivatives :-

A Pioneer in the Indian capital markets, Peninsular Capital Market

Ltd. (PCML) launched its stock broking operations as a member of NSE
India in 1996, promoted by a group of professional and experienced
stockbrokers led by Mr. T.S. Anantharaman, eminent investment consultant
& financial columnist. Since then PCML has made tremendous strides,
making it one of the top trading and clearing members in NSE (both cash &
derivatives) and BSE.

Peninsular Capital Market Ltd. Benefited hugely from the Tech fueled
bull run of the late 90’s becoming one of the top five broking firms in India
as well as the one with the largest countrywide trading network through a
very successful franchisee business model.

Peninsular played a path-breaking role in the implementation and

popularization of CTCL (computer to computer Link) trading technology as
early as 2000. The facility currently on offer from Peninsular offers the end
user, the privilege of trading across 5 different markets ( NSE-Equity, NSE-
Derivatives, BSE-Equity, MCX & NCDEX) on a single screen.

With trading services from over 225 locations in India, having

representation in 11 states, PCML holds the distinction of one of India’s
largest trading networks. The company combines the experience of veterans

8
at the helm with the energy of a talented work force who leave no stone
unturned in their quest for “customer delight”.

• Membership of NSE-CM, NSE-FO & BSE.

• Trading on 5 different platforms (Commodity and Equity)
through a single screen.
• Web enabled service including statements and e-contract notes.
• One of the largest trading networks in India and spreading
further by the day.
• Own private VSAT network for CTCL trading.
• Choice of multiple internet trading systems.
• Extremely competitive tariff structure.

3. PMS:-

Throughout its existence Peninsular has been proactively assisting

its clientele with their investments. With its dedicated in house research
department and licensed portfolio management division, Peninsular is fully
geared to undertake active management services on behalf of its clients.
Drawing on its considerable experience, the division helps you to make
and keep track of investments in the increasingly volatile financial markets
through a value based investment approach. Investors of all creeds are
sure to benefit by availing the services offered by Peninsular in this regard.

9
 4. Depository:-

PCML’s depository division began operations as early as 1999, through

NSDL, India’s first depository. At present the service is well established
with a satisfied clientèle in excess of 25,000 all over the country. The
services of PCML- Depository fully facilitate convenient operations across
multiple exchanges and segments of the country’s financial markets.

• Large nationwide client base.

• Access over internet to statements and reports.
• Speed-E for online electronic transfers.
• 24 hour interactive voice response system. (0484-2362267)

The services offered :-

• About Depository
• Need for Demat Account
• Account Modification
• Pledging of Shares
• Initial Public Offer
• Transmission in Case of Death of the Holder
• DP Tariff
• Account Opening

10
 • Dematerilisation
• Rematerilisation
• List of Eligible shares for Demat in NSDL
• Demat Pending List more than 21 days
• Companies with Long Demat Pending
• Company Name Change List
• Address where DRF , Certificates to be sent

Just Dial – 0484-2362267 for 24 hour electronic checking of

depository balances.

5. Commodity: -
Peninsular Multi Comex Services Ltd. (PMCS) began operations in
2003, and is now a player of significant stature having membership on the
country’s leading exchanges NMCE, MCX, NCDEX & IPSTA. The surging
Commodity Markets are set to overtake the Equity markets in the near
future.
Trading on 5 different platforms (Commodity and Equity) through a single
screen.

Realizing the economic importance and accelerating trends of

Commodity Futures in the years ahead Peninsular Capital Market Ltd has set
up a wholly owned subsidiary company namely Peninsular Multi Comex
Services Limited in 2003 and became a member of all the Commodity
Exchange in India , it spreads its wings to the horizon of Commodity Futures
Trades.

11
 Chapter: - 2
INTROUDUCTION
OF
MUTUAL FUND & EQUITY
2.1 Introduction of Mutual fund
2.2 Types of Mutual fund
2.3 Importance of Mutual fund & Risk for Mutual fund
2.4 Introduction of Equity

12
 2.1 INTRODUCTION OF MUTUAL FUND

Meaning: -
To state in simple words, a mutual fund collects the saving from small
investors, invest them in government & other corporate, securities & earn
income through interest & dividends, besides capital gains. It works on the
principle of “ small drops of water make a very much on its own.

Definition: -
The securities &b exchange Board of India ( mutual fund )
Regulation, 1993 defines a mutual fund as “ a fund established in the from
of a trust by a sponsor to raise monies by the trustees through the sale of
units to the public, under one or more schemes, for investing in securities in
accordance with these regulation”.

Origin of the fund: -

The origin of the concept of mutual fund dates back to the very down
to commercial history. It is said that Egyptians & Phoenicians sold their
shares in vessels& caravans with a view to spreading the risk attached with
these risky ventures. The real credit of & colonial government trust of
London established in 1868. A large number of close – ended mutual funds
were formed in the U.S.A. in 1930’s. In India it began in the year 1964 with
the unit trust of India’ launching it first fund, the unit schemes 1964.

13
 2.2 TYPES OF FUNDS
In the investment market, one can find a variety of investors with
different needs, objectives & risk taking capacities. For instance, a
young businessman would like to get more capital appreciation for his
funds & he would be prepared to take greater risks than a person who is
just on the verge of his retiring age.

MUTUAL FUND

On the basis of on the basis of

Execution & operation yield & investment pattern

Close Open Income Growth Balance Specialized Money Taxation

Ended Ended Fund Fund Fund Mutual Market Fund
Fund

Close-ended fund: -
Under this scheme, the corpus of the fund & its duration are prefixed.
In other words, the corpus of the fund & the number of units are determined
in advance, once the subscription reaches the pro-determined level, the entry
of investors is closed.

14
Open-ended funds: -
It is just the opposite of close-ended fund. Under this scheme, the size
of the fund the period of the fund is not determined. The investors are free to
buy & sell any number of units at any point of time.

Income fund: -
As the very name suggests, this fund aims at generating &
distributing regular income to the members on a periodical basis.

Growth fund: -
Growth fund concentrate mainly on long run gains i.e., capital
appreciation. They do not offer regular income & aim at capital appreciation
in the long run.

Balanced fund: -
This is otherwise called “income-cum-growth” fund. It is nothing but
a combination of both income & growth fund. It aims at distributing regular
income as well as capital appreciation.

Specialized funds: -
Besides the above, a large number of specialized funds are in
existence aboard. The offer special scheme so as to meet the specific needs
of specific categories of people like pensioners, widows etc. it also open for
NRI people.

15
Money-Market Mutual fund: -
These fund are basically open ended mutual fund & as they have all
the features of the open ended fund But, they invest in highly liquid & safe
securities like commercial paper, banker’s acceptances, certificates of
deposits, treasury bills etc.

Taxation fund: -
A taxation fund is basically a growth-oriented fund. But, it offers tax
rebates to the investor’s either in the domestic or foreign capital market.

16
 2.3 IMPORTANCE OF MUTUAL FUNDS

Channelising savings 5 Promoting industrial development

Offering wide port folio 6. Keeping the money market active
Providing better yield 7. Supporting capital market.
Offering tax benefits 8. Flexible investment Schedule

Risks for mutual funds: -

1. Market Risks 4. Business Risk

2. Scheme Risks 5. Political Risk.
3. Investment Risks

17
 2.4 INTRODUCTION OF EQUITY

Equity shares may be regarded as the backbone of capital structure of

a company. Equity shares don not carry any special right in respect of
dividend or return of capital in the event of the winding up the company.
Equity shareholders are the real risk bearers of company’s business.

Definition: -
As Hoagland has put it “the equity share holders are the residual
claimants against the assets & income of the corporation”.
As Steven S.Anrever has remarked, ‘The risks are more than balanced
by the opportunity to have a larger voice in the operation of the company,
but by the chance to participate in profits through dividend & by the
prospects of appreciation in the value of the share hold by them’.

Advantages of equity shares to the company: -

1. No obligation to pay dividend
2. No charge on property
3. Refunding capital
4. Wide scope of marketability
5. High credit – worthiness

18
Disadvantages of Equity shares to the company: -
1. No trading on Equity
2. Over capitalization
3. Interference in management
4. Concentration of control
5. Speculation

Advantages of equity shares to investors: -

1. Higher dividends
2. Participation in management
3. Right shares
4. Benefits of coupons
5. Capital appreciation

Disadvantages of equity shares to investors: -

1. Uncertain return
2. Low market value
3. Lacks liquidity

19
 Chapter: - 3
INTROUDUCTION
OF
MUTUAL FUND – NFO
AND
EQUITY IPO
3.1 Introduction of MF – NFO
3.2 Key Elements of MF offer documents
3.3 Introduction of Equity IPO
3.4 Book Building
3.5 Process of Book Building

20
 3.1 INTRODUCTION OF MUTUAL FUND – NEW
FUND OFFER
The first step is to check the most important document in mutual fund
investing the offer document. New fund offer comes in market fist time by
any bank or financial institutions. Ex. SBI, UTI etc.
In NFO each & every important detail is given. NFO opens & closes
for limited time period. It will re-opens again after short time. After
allotment of units the sponsor of mutual fund investing the collected money
from investors. They invest these funds in different companies. For this they
prepare good portfolio for investment. The objective of mutual fund may be
different as per scheme, but most of common objective of NFO is to provide
money to companies as well as to five growth & dividend investors with
minimum risk.

In MF NFO offer document very important document. A mutual Fund offer

document is legal document that must adhere to standards set forth by the
Securities Exchange Board of India (SEBI),the regulatory agency that
oversees the Indian Mutual Fund industry.
The information contained in the prospectus is intended to help you
understand. What types of securities a fund invests in and the investment
philosophy that investment manager uses in selecting individual securities
for the fund. The offer document will also provide information one the funds
income and expenses a review of historical performance, information about
year ability to purchase or redeem your units. The offer documents will also
outline any loads sales charges that may apply to your investment
transaction.

21
Key Elements Of A Mutual Fund Offer Document:

The information contained in a mutual fund offer document is

presented in several sections.

• Date of issue
• Minimum Investment
• Investment objective
• Risk factors
• Fees and Expenses
• Tax information
• Investor Serious
Benchmark Index
• Dividend policy
• Fund manager
• Some other facilities

22
 3.2 INTRODUCTION OF EQUITY IPO

A corporate may raise capital in the primary market by way of an

initial public offer/ offering rights issue or private placement an initial public
offer is the selling of securities to the public in the primary market. It is the
largest sources of funds with long or indefinite maturity for the company.

The first public offering of equity shares of a company, which is

followed bye a listing of its shares on the stock market. Is called the initial
public sector (IPO)

What is book building?

Book Building is basically a capital issuance process used in Initial Public

Offer (IPO) which aids price and demand discovery. It is a process used for
marketing a public offer of equity shares of a company. It is a mechanism where,
during the period for which the book for the IPO is open, bids are collected from
investors at various prices, which are above or equal to the floor price. The process
aims at tapping both wholesale and retail investors. The offer/issue price is then
determined after the bid closing date based on certain evaluation criteria.

23
The Process:
• The Issuer who is planning an IPO nominates a lead merchant
banker as a 'book runner'.
• The Issuer specifies the number of securities to be issued and
the price band for orders.
• The Issuer also appoints syndicate members with whom orders
can be placed by the investors.
• Investors place their order with a syndicate member who inputs
the orders into the 'electronic book'. This process is called
'bidding' and is similar to open auction.
• A Book should remain open for a minimum of 5 days.
• Bids cannot be entered less than the floor price.
• Bids can be revised by the bidder before the issue closes.
• On the close of the book building period the 'book runner
evaluates the bids on the basis of the evaluation criteria which
may include -

• Price Aggression
• Investor quality
• Earliness of bids, etc.

• The book runner and the company conclude the final price at which it
is willing to issue the stock and allocation of securities.
• Generally, the number of shares are fixed, the issue size gets frozen
based on the price per share discovered through the book building
process.

24
 • Allocation of securities is made to the successful bidders.
• Book Building is a good concept and represents a capital market
which is in the process of maturing.

Corporate may raise capital in the primary market by way of an initial public
offer, rights issue or private placement. An Initial Public Offer (IPO) is the
selling of securities to the public in the primary market. This Initial Public
Offering can be made through the fixed price method, book building method
or a combination of both. In case the issuer chooses to issue securities
through the book building route then as per SEBI guidelines, an issuer
company can issue securities in the following manner:

• 100% of the net offer to the public through the book building route.
• 75% of the net offer to the public through the book building process
and 25% through the fixed price portion.
• Under the 90% scheme, this percentage would be 90 and 10
respectively.

25
 Chapter: - 4

MUTUAL FUND – NFO

V/s
EQUITY IPO

Basic facts between MF-NFO & Equity IPO

MF Offer Document & Red Herring
Prospectus
Registration Procedure
Risk Factors
Price of Issue
Load & Brokerage
Check List Points
Management Body

26
4.1 BASIC FACTS BETWEEN MF NFO & EQUITY
IPO

1. Basic difference between MF NFO & Equity IPO: -

Mutual fund NFO can’t come out with same name, with same
fundamental or with same scheme. But equity IPO can come out one
with once particular idea. In mutual fund it comes with same idea &
same way another MF can comes. While as equity IPO is promoted by
company which is registered under company’s act 1956. but MF is not
registered under company’s act. Equity IPO are brought by
companies, MFs are brought by mutual fund which are offer by
banks, companies etc.

2. Re-offer: -
Equity IPO can come twice, thrice also for public. Whenever they
come next time, 2nd or 3rd time price is always differ. Term IPO initial
public offer/offering always comes with different price. Whenever an
IPO comes second time the name is same which was already use 1st
time. But if you go in detail it is wrong concept, it is permitted to use
to use of name of an IPO. It is re-offer it should be another offer or
that type of nature instead of using same word, which is misguided to
people. People think that they it is an initial offer so it is available at
cheapest possible. We/ advisers are advising investors, business
investors, should provide the right detail so they are not be cheated.

27
3. Time Limit: -
Equity IPO is without time bound. In equity IPO there is no entry
and exist time limit. In mutual fund there are entry & exist restriction
time bound. Some are open ended & close-ended types of MFs are
there. There are again charges & commission of services for entry & exit
load.

4. Entry & exist load, other charges: -

MF can’t bargain & not negotiate the exist & re-entry load. In equity
IPO onetime an IPO allotment is done depends on exist & re-entry on
individual basis. In equity IPO investors have many options for entry &
exist at anytime. They can do it with the help of broker who is registered
by the stock exchanges having license by SEBI (security exchange Board
of India)

5. Prospectus: -
MF NFO’s prospectus does not specify the certain detail nor exactly
view where they are going to invest. Wide vision & many things are
uncovered & un notice. Equity IPO is clear company’s profile & perfect
vision for where individual putting them money so people are know the
risk
6. Return & Risk: -
In MFNFO return are limited in the sense over period of time. People
get better return. But it is not always good return. Equity IPO can

28
 have very good return, faster return & have faster depreciation, it is
risky than MF. But universal low is that, more risk, more return.
7. Advice & guidance: -
In equity IPO individual’s decision is there but in MF investors are
seeking advice & guidance from fund manager & from lead manager. In
MF people have not own idea but in IPO people have all rights & proper
guidelines.

8. Charges & brokerage: -

In MFs charges are different. Generally entry load is nil in MFNFO.
In IPO brokerage is there. In mutual fund exist load is there. In IPO
individual have to pay brokerage for out of shares. MF exist load is more
than the equity.

9. Effects: -
In MFNFO group of company in which MF is investing.
Immediate effects in MF like certain development climate, sector
change is take place but it is not affect the Mf too much. But in equity
all above causes take place and affects very much, because money is
invested in particular company & industry. And also such restrictions
are there Government’s policy & taxation having direct impaction
company.
10. Illegal use: -
Illegal use of MF is not done generally. But in foreign it took place
one time in past. In equity most of company use the fund for it is own

29
 purpose like expansion, diversification etc but into some level. But
illegal use of fund is possible in equity also.

11. Is there any difference between issue of a mutual fund and

an initial public offering (IPO) of a company?

Yes, there is a difference. IPOs of companies may open at lower or higher

price than the issue price depending on market sentiment and perception of
investors. However, in the case of mutual funds, the par value of the units
may not rise or fall immediately after allotment. A mutual fund scheme takes
some time to make investment in securities. NAV of the scheme depends on
the value of securities in which the funds have been deployed.

12. NAV v/s Price of an equity share

In case of companies, the price of its’ share is ‘as quoted on the stock
exchange’, which apart from the fundamentals, is also dependent on the
perception of the company’s future performance & the demand-supply
scenario. And hence the market price is generally different from its’ book
value.

There is no concept as market value for the MF unit. Therefore, when we

buy MF units at NAV, we are buying at book value. And since we are
buying at the book value, we are paying the right price of the assets whether
it be Rs 10 or Rs.100. There is no such thing as a higher or lower price.

30
 4.2 MUTUAL FUND OFFER DOCUMENT
Many people today find that they are deluged with information about
investing. News programs provide updates on the stock market several times
a day. Through the Internet, individuals can check on the performance of
their investments at the click of a mouse. But one of the key sources of
investment information, and one that some investors may be tempted to
overlook, is the Mutual Fund Offer Document.

A mutual fund offer document is a legal document that must adhere to

standards set forth by the Securities Exchange Board Of India (SEBI), the
regulatory agency that oversees the Indian Mutual Fund industry. The
information contained in the prospectus is intended to help you understand
what types of securities a fund invests in and the investment philosophy that
the Investment Manager uses in selecting individual securities for the fund.
The offer document will also provide information on the fund’s income and
expenses, a review of historical performance, and information about your
ability to purchase or redeem your units. In addition, the offer document will
also outline any loads/sales charges that may apply to your investment
transactions.

By law, mutual fund companies are required to provide you with an offer
document before you make an initial investment. Before investing, take the
time to read this important document.

31
Questions to ask before investing
A mutual fund offer document can help you answer the following questions:

• In what does this scheme invest?

• Is the scheme seeking income or capital growth?
• What has been the rate of return?
• What are the options available in the scheme (Growth / Dividend)?
• Is the scheme an open ended / close ended scheme and if there is a
lock-in period applicable?

Key Elements of a Mutual Fund Offer Document

The information contained in a mutual fund offer document is presented in
several sections. As you read through these sections, you’ll want to evaluate
how well the fund matches your investment objectives. Here’s a look at key
elements that are contained in an Offer Document.

• Date of issue - A prospectus must be updated at least once

in two years.
• Minimum investment - Mutual funds differ both in the
minimum initial investment required and the minimum for subsequent
investments.
• Investment objective - This section states the investment
goal of the fund, from income to long-term capital appreciation, and may

32
 state the types of investments that the scheme invests in, such as
government bonds or common stocks. Be sure the scheme’s objective
matches your investment goal.
• Investment policies - An offer document will outline the
general strategies the Investment Manager will use in selecting individual
securities. This section may provide further information about the
securities in which the scheme invests, such as ratings of bonds or the
types of companies considered appropriate for a fund.
• Risk factors - Every investment involves some level of risk.
The scheme offer document will describe the risks associated with
investments in the scheme.
• Fees and expenses - Sales and management fees associated
with a mutual fund must be clearly listed.
• Tax information – An Offer Document will include
information on the tax treatment of dividend and capital gains, including
information on deduction of tax at source
• Investor services - Unit holders may have access to certain
services, such as automatic reinvestment of dividends, systematic
investment plan (SIP), systematic withdrawal plans (SWP) and
systematic investment plan for corporate employees. This section of the
prospectus, usually near the back of the publication, will describe these
services and how you can take advantage of them.

An offer document generally ranges from 20 to 30 pages and includes a table

of contents. The scheme offer document may be amended from time to time
by attaching an addendum, which highlights the changes eg change in load
structure, introducing of a new facility etc. It is therefore important for

33
investors to read the offer document in detail to be able to understand the
features of the scheme and get the best out of the services offered by the
Investment Manager.

RED HERRING PROSPECTUS

"Red Herring Prospectus" is a prospectus which does not have details of
either price or number of shares being offered or the amount of issue. This
means that in case the price is not disclosed, the number of shares and the
upper and lower price bands are disclosed. On the other hand, an issuer can
state the issue size and the number of shares are determined later. An RHP
for and FPO can be filed with the RoC without the price band and the issuer,
in such a case will notify the floor price or a price band by way of an
advertisement one day prior to the opening of the issue. In the case of book-
built issues, it is a process of price discovery and the price cannot be
determined until the bidding process is completed. Hence, such details are
not shown in the Red Herring prospectus filed with the RoC in terms of the
provisions of the Companies Act.

Only on completion of the bidding process, the details of the final price are
included in the offer document. The offer document filed thereafter with
ROC is called a prospectus.

"Abridged Prospectus" means contains all the salient features of a

prospectus. It accompanies the application form of public issues.

What does one mean by `Lock-in'?

34
"Lock-in" indicates a freeze on the shares. SEBI Guidelines have stipulated
lock-in requirements on shares of promoters mainly to ensure that the
promoters or main persons who are controlling the company, shall continue
to hold some minimum percentage in the company after the public issue.
The requirements are detailed in Chapter IV of DIP guidelines.

How the word `Promoter' has been defined?

The promoter has been defined as a person or persons who are in over-all
control of the company, who are instrumental in the formulation of a plan or
programme pursuant to which the securities are offered to the public and
those named in the prospectus as promoters(s). It may be noted that a
director / officer of the issuer company or person, if they are acting as such
merely in their professional capacity are not be included in the definition of
a promoter.

`Promoter Group' includes the promoter, an immediate relative of the

promoter (i.e. spouse of that person, or any parent, brother, sister or child of
the person or of the spouse). In case promoter is a company, a subsidiary or
holding company of that company; any company in which the promoter
holds 10 per cent or more of the equity capital or which holds 10 per cent or
more of the equity capital of the promoter; any company in which a group of
individuals or companies or combinations thereof who holds 20 per cent or
more of the equity capital in that company also holds 20 per cent or more of
the equity capital of the issuer company.

35
 4.3 REGISTRATION PROCEDURE

REGISTRATION OF MUTUAL FUND:-

All mutual funds are required to register with the securities and
exchanges board of India. Registration is intended to provide adequate and
accurate disclosure of material facts concerning the mutual fund, SEBI
regulations has laid down, an eligibility criteria u/s 7 , for the purpose of
grant of certificate of registration with a view to ensure that players have a
sound track record and general reputation of fairness and integrity in all their
business transactions.

Regulation states that the AMC shall have a minimum net worth of
Rs. 10 crores this is to serve both as an entry barriers as well as to enable the
AMC to provide for its own infrastructure such as office space, personnel
and systems independent of the sponsor.

Any shortfall in the net worth would have to be made up by the

sponsor immediately. The initial contribution to the net worth should be in
the form of cash and all assets should be held in the name of the AMC. This
is necessary to bring about a complete arms-length relationship with the
sponsor and its affiliates. In case the AMC wants to carry out other fund

36
management business, it should satisfy the capital adequacy requirement for
each such business independently.

In case the AMC wishes to float assured return schemes or launch no

load funds, it should satisfy SEBI that its present net worth would be
adequate to meet any financial obligation which may arise and if required
the net worth should be increased.

What is the procedure for registering a mutual fund with

SEBI?

An applicant proposing to sponsor a mutual fund in India must submit an

application in form a along with a fee of Rs. 25,000. the application is
examined and once the sponsor satisfies certain conditions such as being in
the financial services business and processing positive net worth for the last
five years, having net profit in three out of the last five years and possessing
the general reputation of fairness and integrity in all business transactions, it
is required to complete the remaining formalities for setting up mutual fund.
These include inter alia, executing the trust deed and investment
management agreement, setting up a trustee company/board of trustees
comprising two thirds independent trustees, incorporating the Asset
Management Company (AMC) contributing to at least 40% of the net worth
of the AMC and appointing a custodian. Upon satisfying these conditions,
the registration certificate is issued subject to the payment of registration

37
fees of Rs 25.00 lacs for details; see the SEBI (Mutual Funds) Regulations,
1986.

38
REGISTRATION & ELIGIBILITY FOR AN IPO:-

A company can make a 100 percent retail issue provided it satisfied all of
the following conditions
• It has a net tangible assets of at least Rs 3 crore in each of
the proceeding 3 years.
• It has a track record of distribution profits for at least 3 out
of the immediately proceeding 5 years.
• It has a net worth of al least Rs 1 crore in each of the
proceeding 3 financial years.
• The issue size does not exceed five times the pre-issue net
worth.

In case an unlisted company does not satisfy any of the above conditions, it
can make an IPO of equity shares or convertibles only if it meets the
following two conditions
• The issue is made through the book building process, with at
least 50 percent of the issue size being allotted to the qualified
institutional buyers Failing which the full subscription monies shall be
refunded or the project has at least 15 percent participation by financial
institutions / scheduled banks and at least 10 percent of the issue size
shall be allotted to QIBs, failing which the full subscription monies
shall be refunded.
• The minimum post issue nominal value of equity capital of
the company shall be Rs 10 crore or there shall be a compulsory market

39
 making for at least 2 years from the date of listing of the shares subject
to certain conditions.

What are the eligibility norms for making these issues?

SEBI has laid down eligibility norms for entities accessing the primary
market through public issues. There is no eligibility norm for a listed
company making a rights issue as it is an offer made to the exiting
shareholders who are expected to know their company.

The main entry norms for companies making a public issue (IPO or FPO)
are summarized as under:

Entry Norm I (EN I):

The company shall meet the following requirements

• Net tangible assets of at least Rs 3. crores for 3 full years.

• Distributable profits in at least three years
• Net worth of al least Rs 1 crore in three years
• If change in name, al least 50 % revenue for preceding 1
year should be from the new activity.
• The issue size does not exceed 5 times the pre-issue net
worth to provide sufficient flexibility and also to ensure that genuine
companies do not suffer on account of rigidity of the parameters, SEBI
has provided two other alternative routes to company not satisfying any
of the above conditions, for accessing the primary market, as under:

40
Entry norm I (EN I):
• The company shall meet the following requirements
• Net Tangible Assets of at least Rs 3 crore for 3 full years
• Distributable profits in at least three years.
• Net worth of at least Rs 1 crore in three years.
• If changes in name, at least 50% revenue for preceding 1
years should be from the new activity.
• The issue size does not exceed 5 times the pre-issue net
worth.
• To provide sufficient flexibility and also to ensure that
genuine companies do not suffer on account of rigidity of the parameters,
SEBI has provided two other alternative routes to company not satisfying
any of the above conditions, for accessing the primary market, as under.

Entry norm 2 (EN 2)

• Issue shall be through book building route, with at least 50

% to be mandatory allotted to the qualified institutional buyers (QIBs).
• The minimum post-issue face value capital shall Rs 10 crore
or there shall be a compulsory market making for at least 2 years.

Entry norm 3 (EN 3)

41
 • The project is appraised and participated to the extent of
15% by FIs/Scheduled commercial banks of which at least 10 % comes
from the appraisers.
• The minimum post issue face value capital shall be Rs 10
crore or there shall be a compulsory market making for at least 2 years.
4.4 RISK FACTORS
RISKS FOR MUTUAL FUNDS:-
Mutual funds are not free from risks. It is also because basically the mutual
funds also invest their funds in the stock market on shares which are volatile
in nature and are not risk free, hence, the following risks are inherent in their
dealings
• Mutual Funds and securities investments are subject to market
risks and there is no assurance or guarantee that the objective of the
schemes will be achieved.

• As with any securities, the NAV of the units issued under the
schemes can go up or down depending on the factors and forces
affecting the capital market.

• Past performance of the sponsors, Asset Management

Company / Fund does not indicate future performance of the schemes
of the fund.

• The Sponsors are not responsible or liable for any loss

resulting from the operation of the schemes beyond the contribution of
an amount of Rs. 22.2 lacs collectively made by them towards setting
up the fund an such other corrections and addition to the corpus set up
by the Sponsors.

42
 • The Mutual Fund is not guaranteeing or assuring any dividend.
The Mutual Fund is also not assuring that it will make periodical
dividend distributions, though it has every intention of doing so. All
dividend distributions are subject to the investment performance of the
Scheme.

1. Market Risks:-
In general there are certain risks associated with every kind of
investment on shares. They are called market risks. These market risks can
be reduced but can not be completely eliminated even by a good investment
management. The prices of shares are subjects to wide price fluctuations
depending upon market conditions over which nobody has a control. More
ever every economy has to pass through a cycle Boom, recession, slump and
recovery the phase of the business cycle affects the market conditions to be
larger extent.
2. Scheme Risks:-
There are certain risks inherent in the scheme itself. It all
depends upon the nature of the scheme. For instance In a pure growth
scheme, risks are greater it is obvious because if one expects more returns as
in the case of a growth scheme, one has to take more risks.

3. Investment risk:-
Whether the mutual fund make money in shares or loses depends
upon the investment expertise of the Assets Management Company (AMC)

43
if the investment advice goes wrong, the fund has to suffer a lot. The
investment expertise of various funds are different and it is reflected on the
returns which they offer to investors.

4. Business Risk:-
The corpus of a mutual fund might have been invested in a company’s
shares, if the business of that company suffers any set back it can not declare
any dividend it may even go to the extent of winding up its business.
Though the mutual fund can withstand such a risk, its income paying
capacity is affected.

5. Political risk:-
Successive governments bring with them fancy new economic
ideologies and policies. It is often said that many economy decisions are
practically motivated. Changes in government bring in the risk of
uncertainty which every player in the financial services industry has to face.
So mutual funds are no exception to it.

44
PRIME RISK FACTORS FOR IPO:-

Internal Risk:-

The company has been made party to a criminal proceeding that is pending.
• The company’s failure to successfully manage its
geographically diverse operations could adversely affect its business.
• Inability to manage growth could disrupt the company’s
business and reduce its profitability.
• The company’s inability to qualify for and win large integrated
engineering construction contracts and the risks associated with the
execution of such contracts could adversely affect its margins and
results of operations.
• The company’s business is dependent on a continuing
relationship with its clients and strategic partners.
• On fixed price or turnkey contracts, the company is exposed to
significant construction risks that could cause it to incur losses.
• The company’s indebtedness and the conditions and restrictions
imposed by its financing agreements could adversely affect its ability to
conduct the business.
• The company has high working capital requirements.
• Insufficient cash flows to meet required payments on the
company’s debt and working capital requirements may have an adverse
effect on its results of operations.

45
• Sustained high equipment, materials or fuel costs may
adversely affect the company’s results of operations.
• The company faces significant competition in its business from
Indian and international engineering construction companies.
• The company’s operations are subject to hazards and other risks
and could expose it to material liabilities, loss in revenues and increased
expenses.
• The company’s inability to attract and retain skilled personnel
could adversely affect its business and results of operations.
• The company could be adversely affected if it fails to keep pace
with technical and technological developments in the engineering
construction industry.
• A significant part of the company’s business transactions are
with government entities or agencies.
• The company’s results of operations could be adversely
affected by any disputes with its employees.
• There are certain legal proceedings against the company’s
directors, promoters and group companies.
• The company has certain contingent liabilities, which may
adversely affect its financial condition.
• Certain of the company’s subsidiaries and promoter group
companies have incurred losses in recent periods.
• The company has in the last 12 months issued equity shares at a
price, which could be lower than the offer price.

46
External Risk:-
Demand for the company’s engineering construction services depends
primarily on the activity and expenditure levels in the energy and
infrastructure industries.
• Exchange rate movements may cause the company to incur
losses.
• The company’s revenues are subject to a significant number of
tax regimes and changes in them could adversely affect its results of
operations.
• Any failure on the part of the company to comply with
applicable environmental laws and regulations could have an adverse
effect on its consolidated financial condition.
• The company is subject to risks arising from interest rate
fluctuations, which could adversely affect its business, financial
condition and results of operations.
• The company’s operations are sensitive to weather conditions.
• The company may undertake strategic acquisitions or
investments, which may prove to be difficult to integrate and manage or
may not be successful.
• Terrorist attacks or war or conflicts involving India or other
countries could adversely affect business sentiment and the financial
markets and adversely affect the company’s business.
• The price of the company’s equity shares may be volatile, or an
active trading market for equity shares may not develop.
All above risk factors are differ from company to company

47
 4.5 PRICE OF ISSUE
NET ASSET VALUE:-
The repurchase price is always linked to the Net Asset Value (NAV). The
NAV is nothing but the market price of each unit of a particular scheme in
relation to all the assets of the scheme. It can otherwise be called "the
intrinsic value" of each unit. This value is a true indicator of the
performance of the fund. If the NAV is more than the face value of the unit,
it clearly indicates that the money invested on that unit has appreciated and
the Fund has performed well. .

Illustration
For instance, Fortune Mutual Fund has introduced a scheme called
Millionaire Scheme. The scheme size is 100 crores. The value of each unit
is Rs.10/-. It has invested all the funds in shares and debentures and the
market value of the investment comes to Rs.200 crores.

200 crores
Now NAV = x value of each unit
100 crores
= 2 x 10 = 20
Thus, the value of each unit of Rs.10/- is worth Rs.20.
Hence the NAV = Rs.20.
This NA V forms the basis for fixing the repurchase price and reissue
price.

48
 The investor can call up the Fund any time to find out the NAY. Some
MFs
Publish the NAV weekly in two or three leading daily newspapers.

Who decides the price of an issue for IPO?

Indian primary market ushered in an era of free pricing in 1992. Following
this, the guidelines have provided that the issuer in consultation with
Merchant Banker shall decide the price. There is no price formula stipulated
by SEBI. SEBI does not play any role in price fixation. The company and
merchant banker are however required to give full disclosures of the
parameters which they had considered while deciding the issue price. There
are two types of issues one where company and LM fix a price (called fixed
price) and other, where the company and LM stipulate a floor price or a
price band and leave it to market forces to determine the final price (price
discovery through book building process).

• What are Fixed Price offers?

An issuer company is allowed to freely price the issue. The basis of issue
price is disclosed in the offer document where the issuer discloses in detail
about the qualitative and quantitative factors justifying the issue price. The
Issuer company can mention a price band of 20% (cap in the price band
should not be more than 20% of the floor price) in the Draft offer documents
filed with SEBI and actual price can be determined at a later date before
filing of the final offer document with SEBI / ROCs.

49
 • b. What does “price discovery through book
building process” mean?
“Book Building” means a process undertaken by which a demand for the
securities proposed to be issued by a body corporate is elicited and built up
and the price for the securities is assessed on the basis of the bids obtained
for the quantum of securities offered for subscription by the issuer. This
method provides an opportunity to the market to discover price for
securities.

50
 4.6 LOAD AND BROKERAGE

This is a fee charged when you buy or sell the units of a fund.

Entry Load:-

When you buy the units of a fund, you pay a percentage of it as a fee. This is
known as the entry load.

Let's say you are investing Rs 10,000 and the entry load is 2%. That means
you pay Rs 200 as the entry load and Rs 9,800 is invested in the fund.

Exit Load:-

When you sale the units of a fund, you pay a percentage of it as a fee. This is
known as the exit load.

Now, let's assume you are selling the units of your fund. And the Rs 10,000
you invested initially is now Rs 15,000. Let's further assume that the exit
load is 2%. So you pay Rs 300 and get back Rs 14,700.

Generally, if funds charge an entry load, they will not charge an exit load. Or
vice versa. Only one of the loads is charged.

The load is a percentage of the NAV.

51
BROKERAGE & OTHER CHARGES:

52
 4.7 CHECK LIST POINTS
CHECK LIST POINTS OF NFO FOR INVESTORS:-

A mutual fund initial public offering/New Fund Offer (IPO/NFO) is

little different from a stock NFO. Both versions of NFOs require a certain
level of research and analysis. However, as opposed to a stock, investing in a
mutual fund can be slightly complex as it consists of a group of stocks that
move in different directions on a daily basis.

Unlike in the secondary market, investing in the primary market

involves 'a fear of the unknown', and this holds true even for mutual fund
NFOs. It is to dispel such fears that we have devised the Mutual Fund NFO
checklist.

In addition to verifying the credentials of the sponsors and the track

record of the asset management company (AMC) in fund management, an
investor needs to evaluate the mutual fund NFO based on some critical
criteria.

• Risk/Return equation:-

Every mutual fund scheme has a risk profile. Investors decide to invest in
the mutual fund after factoring in the risk with the hope of getting a return
that will outweigh the risk. For instance, diversified equity funds carry high
risk and have the potential to deliver high returns over the long-term (3-5
years). Sector funds have a higher risk profile vis-à-vis conventional
diversified equity funds as they do not diversify across sectors. Investors
should take to sector funds only if they understand the intricacies of the

53
sector and believe that such a high risk strategy will pay off commensurate
returns. At the lower end of the risk-return spectrum are balanced funds,
which have a lower risk profile due to the debt component.

Having assessed the risk profile of the mutual fund scheme, you must now
see if there is a fit with your own risk profile. If your risk profile matches
that of the mutual fund, then you can consider investing in the NFO.

• Asset Management Company:-

Mutual fund schemes are managed by the Asset Management Company

(AMC). Before you to consider investing in an NFO, look at the track record
of the AMC. Typically, the AMC must be backed by sponsors who have a
fair amount of experience in the financial services segment. Asset
management is serious business, because you are dealing with other people’s
hard-earned money. It calls for a certain level of integrity and responsibility.
If the AMC has been embroiled in a controversy in the past, then we suggest
you keep away from it, even if its schemes have put in a very good show.
Ultimately, track record of the AMC must be given its due and if does not
make the mark, then its not good enough to look after your money.

• Fund manager:-

If the AMC passes the litmus test in terms of integrity, track record and
performance, then you must look at the fund manager of the mutual fund
NFO. The fund manager needs to be put under the scanner for the same
reason and on the same parameters as the AMC. So integrity and track
record are of paramount importance. Don’t choose a fund manager because
of an exceptional performance during the last bull run. Almost all fund

54
managers do a great job during a rally. See if the fund manager did an
equally competent job during the last market slide. In other words, look for
consistency over market upswings and downturns and not mere flash-in-the-
pan performances. Admittedly, details on both – AMC and fund manager,
may not be easily available to an investor at ‘grassroot level’. For that, check
up with your mutual fund agent/consultant. And even if he does not know,
ask him why he is recommending the mutual fund NFO to you.

• Expenses and charges:-

Mutual fund schemes (including NFOs) levy expenses and charges on the
investor at two levels. One is at the time of investing (through an entry load),
which is earmarked to meet distribution/agency commission of your mutual
fund agent. (Remember your mutual fund agent makes money every time
you invest in a mutual fund scheme including NFOs, so he is an ‘interested’
party.). At the second level, mutual funds levy a string of charges like fund
management expenses, stock-trading expenses, administration expenses and
marketing expenses. These expenses are related to the working of the fund
and deducted from the net asset value (NAV) of the fund; so the NAV you
receive, is arrived at after subtracting these expenses. These expenses are
capped at 2.50% of the net assets and the AMC cannot levy a charge higher
than that level.

Often funds waive off entry load during the NFO to evoke higher investor
interest and response. In our view, that is not a good enough reason to invest
in an NFO. It is better to pay the entry load and go with a well-managed
fund than to invest in an average NFO minus the entry load.

55
 • Your existing portfolio:-

Assuming that the mutual fund NFO passes all the criteria outlined so far, it
still has to make it to your existing portfolio. For that, there should be a void
in your existing portfolio that the NFO can fill. Many investors take to an
NFO only because it has everything going for it, forgetting that the portfolio
already has many ‘look-alikes’. There is hardly any point in having a
bouquet of mutual fund schemes in your portfolio working towards the same
investment objective. There is an unavoidable overlap in your portfolio,
which goes against diversification and the size of your mutual fund portfolio
could get unmanageable.

56
CHECK LIST POINTS OF EQUITY IPO FOR INVESTORS:

The Initial Public Offering or IPO market as it is known, received a

new lease of life in FY99. With high profile issues like Hughes Software and
TV-18 opening at more than 3 and 10 times their issue price respectively,
investors are flocking to the IPO market like never before. Companies,
which had earlier shied away from the capital market, are now returning
with a vengeance to satiate the appetite of investors.

Some of the over-subscription details of recent IPOs are mind-

boggling: TV-18 by 51 times, Glenmark by 55 times and HCL technology
by 27 times. Other software issues like Hughes and Polaris Software have
been oversubscribed by 15-20 times. The reason for this enthusiasm can be
attributed to the software boom that markets have witnessed over a past year
or so.

But should one just jump for an IPO as soon as it is announced? Here an
attempt has been made to outline some issues that investors should look at
before they making investment decision.

Before investing in an IPO, investors are suggested to run a check on the

following factors:

57
 • Who are the Lead Managers to the issue? Do Lead
Managers act as an indicator of the quality of the issue?

The Lead Managers act as a catalyst as they attempt to bring in some

credibility to the offer and their accountability is also very high. Remember
that the lead managers’ credibility could act only as an indicator to the
proposed issue, but does not assure success. There have been poor issues
from good merchant bankers in the past.

For the purpose of security, one can look for category one lead managers for
judging the quality of the issue that includes DSP Merrill Lynch, HSBC
Securities and Kotak Mahindra among others.

• What is the promoter holding in the company? Is there any

participation from financial institutions or a venture capital firm?

Issues where post-issue promoters’ holding is more than 80% may indicate a
lack of liquidity in the stock since there are fewer shareholders trading fewer
shares.

Be careful of companies that have issued shares on a preferential basis to

promoters in high proportion, so as to increase their stake in the company.
Also find out if this is an offer for sale or a genuine Initial Public Offering.
In case of offer for sale, the issuing company may not benefit totally.

Look for companies in which venture capital firms or financial institutions

have participation or substantial interest. Also look for the shareholding
pattern. This would indicate the risk profile of the company and the

58
expectation of the institution from the company. In case of institution, look
for nationalized banks and all India level financial institution such as ICICI,
IFCI IDBI etc.

Be careful of companies whose cost of project and means of finance have

not been appraised by banks or financial institutions.

• Where is the company investing my money? Is it going to

give me good returns?

If the major portion of fund mobilized is being invested in land, buildings

(the so-called green field issues) be careful.

If the company is utilizing a portion of issue proceeds towards retiring high-

cost debts, it would benefit the company in terms of lower interest outflow
and therefore higher profitability. Also check the proportion of money that is
being invested in new projects that it is venturing into. This would give
some judgment on the estimated profitability of the company.

• Which sector does the company operate? What is the

growth prospect of the company vis-à-vis the sector?

The growth of the company in proportion to the growth of the market in

which it operates has to be seen. Also look out for its market share or the
projected market share vis-à-vis domestic competition. For example, figures
of global software market or Indian software market do not indicate the
exact future growth potential of the company since it is inclusive of all
products and services. Export projection of the sector need not necessarily

59
reflect the export potential of the company. See what the company is
exporting and export income as a percentage of sales.

Each sector has its own internal and external factors that influence the
operation of the company. For example, software sector is vulnerable to high
employee turnover.

• Do the promoters have enough experience?

Do the promoters have previous experience in transforming organizations

from the grass root level in the same industry to a successful business? What
is the experience they have in the sector the company is operating in or any
other sector. Promoter experience is very crucial.

Also check out the profitability of any subsidiary or affiliate company in

which promoters have a stake or substantial interest. This would enable us to
ascertain the management’s efficiency in terms of managing organizations.

Check for litigations against the promoters, nature of litigation and the
promoter’s extent of liability, if any.

• Will the money invested yield maximum returns? Are the

profit projections achievable?

Ask yourself these questions: -

• What is the sales growth projected by the company vis-à-vis

others in the sector and the industry growth rate? If the market is growing
at 20%, it does not mean that the company would grow by 20%. Let’s
take a hypothetical example. X Company manufactures paints. Assume

60
that the market is growing at 12% per annum. If sales of the company
grew by, let’s say 6%, it means that the company is growing at the rate of
0.5 x the industry growth. This would help you in ascertaining growth
potential of the company.
• Are the margins projected comparable with other companies in
the same sector?
• Is there any unusual costs or unusual rise in other income
(recurring/non-recurring)? Some companies show an unusual rise in their
sales and net profits by 5-10 times. Justify this by comparing the sales
growth figure.
• Check the competitive scenario of the industry. If the company
is claiming that it is competing with e-enabled service providers, check
out what type of e-enabling services they provide. Addressing
competition at a macro level may reflect the exact picture.

 How do I justify the price of the issue?

To justify pricing,

Compare: -

• The price to earnings ratio (this is price that the issue is

offered upon earnings per share) which would throw light on
the pricing of the issue.
• operating margins (this is the income from operation less
expenses from operation),
• Market capitalization (it is the number of share multiplied by
the price at which it is offered) with the current companies in
the sector that are listed in the market.

61
• Does the company enjoy tax benefits:-

Companies with foreign exchange earnings are entitled to certain

exemptions. If the company’s factory is in backward regions, they are
entitled for subsidies as well as some tax exemptions. Lower
incidence of tax benefits companies as their cash flows are increased
to that extent.

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 4.8 MANAGEMENT BODY
ORGANIZATION OF THE FUND:-

The structure of mutual fund operations in India envisages a three tier

establishment namely.

1. A sponsor institution to promote the fund

2. A team of trustees to oversee the operations and to provide checks for
the efficient, profitable and transparent operations of the fund and
3. An asset management company (AMC) to actually deal with the
funds.
• Sponsoring Institution:-

The company which sets up the mutual fund is called the sponsor. The
SEBI has laid down certain criteria to be met by the sponsor. These criteria
mainly deal with adequate experience, good past track record, net worth etc.
Trustees

Trustees are people with long experience and good integrity in their
respective fields. They carry the crucial responsibility of safeguarding the
interest of investors. For this purpose, they monitor the operations of the
different schemes. They have wide ranging powers and they can even
dismiss assets management companies with the approval of the SEBI.

• Asset management company (AMC)

The AMC actually manages the funds of the various schemes. The
AMC employs a larges and to do agent and investor servicing. Infect, the
success of any mutual fund depends upon the efficiency of this AMC. The

63
AMC submits a quarterly report on the functioning of the mutual fund to the
trustees who will guide and control the AMC.

• INTERMEDIARIES IN AN ISSUE:-

Merchant Bankers to the issue or Book Running Lead Managers (BRLM),

syndicate members, Registrars to the issue, Bankers to the issue, Auditors of
the company, Underwriters to the issue, Solicitors, etc. are the intermediaries
to an issue. The issuer discloses the addresses, telephone/fax numbers and
email addresses of these intermediaries. In addition to this, the issuer also
discloses the details of the compliance officer appointed by the company for
the purpose of the issue.

• What is the role of a Lead Manager? (pre and post

issue)
In the pre-issue process, the Lead Manager (LM) takes up the due diligence
of company’s operations/ management/ business plans/ legal etc. Other
activities of the LM include drafting and design of Offer documents,
Prospectus, statutory advertisements and memorandum containing salient
features of the Prospectus. The BRLMs shall ensure compliance with
stipulated requirements and completion of prescribed formalities with the
Stock Exchanges, RoC and SEBI including finalization of Prospectus and
RoC filing. Appointment of other intermediaries viz., Registrar(s), Printers,
Advertising Agency and Bankers to the Offer is also included in the pre-
issue processes. The LM also draws up the various marketing strategies for
the issue.

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The post issue activities including management of escrow accounts, co-
ordinate non-institutional allocation, intimation of allocation and dispatch of
refunds to bidders etc are performed by the LM. The post Offer activities for
the Offer will involve essential follow-up steps, which include the
finalization of trading and dealing of instruments and dispatch of certificates
and demat of delivery of shares, with the various agencies connected with
the work such as the Registrar(s) to the Offer and Bankers to the Offer and
the bank handling refund business. The merchant banker shall be responsible
for ensuring that these agencies fulfill their functions and enable it to
discharge this responsibility through suitable agreements with the Company.

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Chapter: - 5

FINDINGS

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 NFOs - Mutual Fund new kids are doing well:-
In the last one-year we have seen surge in the number of Equity IPOs &
Mutual Fund NFOs launched. This is because there is a significant jump in
profits of small & medium sized companies & so many loss-making
companies have been restructured and now making profits. These companies
are looking for expansion & to support their future plans these companies
are looking at IPO option. This has created good opportunity to invest in the
new companies, which are growing at fast rate. New Mutual Fund schemes
launched also got the more options to invest collected money in various old
as well as new companies. This year so many Mutual Fund NFOs have
collected money in excess of Rs1000Cr & some of them had even crossed
Rs2000Cr mark. Some of the existing schemes with highest AUMs are
looking small if we look at these collections by MF NFOs.

Collection of Mutual fund NFOs lunch in 2005 Rs. (in crore)

SBI magnum multi cap fund 2102
Franklin india flexi cap fund 1950
Reliance Equity opportunitiesRs.fund
(in crore) 1761
Fidelity Equity fund 1495
Prudential ICICI Infrastructure fund 1418
SBI m agnum multi cap fund
HDFC Premier1043 multi-cap fund 1328
2102 Franklin india flexi cap fund
Standard Chartered Classic equity
1328 fund 1043
Reliance Equity opportunities fund

Fidelity Equity fund

1950 Prudential ICICI Infrastructure fund

1418
HDFC Premier m ulti-cap fund
1495 1761
Standard Chartered Classic equity
67 fund
Floating a NFO at the right time when markets are in correction phase &
investing the collected money on correction is proved as very successful
strategy in the last one year. This is evident as newly launched Mutual Fund
NFOs have outperformed various indices & able to generate good returns.
The below table indicates good performance given by MF NFOs. Therefore
It’s a good idea to invest in NFO’s which could create wealth for investors
like you.

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Performance of NFOs launched in 2005:-

ABN Amro has given over 28% annualised returns followed by HSBC
Midcap Fund which has given 27% annualised returns. The third in this
category is Chola Multicap Fund, which has generated over 24% annualised
returns since inception.

Performance of NFOs launched in 2005

Annulised
NFO Corpus Returns Absolute %
Returns
Scheme Name NAV Date (Rs Cr) 3 Months 6 Months Since Inception
ABN AMRO Opportunities Fund 12.1 30-Mar-05 225.8 8.3 28.5 28.5
HSBC Midcap Equity Fund 12.7 03-May-05 398.1 7.0 - 27.0
Chola Multi Cap Fund 12.4 10-Jan-05 73.1 0.3 20.2 24.3
SBI Magnum Midcap Fund 12.3 17-Mar-05 417.0 4.8 20.4 23.8
Kotak Midcap Fund 12.6 28-Jan-05 345.6 3.3 21.4 23.7
Sundaram SMILE Fund 12.1 21-Jan-05 339.1 (1.6) 18.1 21.1
HDFC Premier Multi - Cap Fund 11.7 21-Mar-05 1242.3 0.5 17.9 19.4
Franklin India Flexi Cap Fund 11.9 09-Feb-05 2078.7 3.7 25.4 19.1
Fidelity Equity Fund 11.9 19-Apr-05 2543.9 (0.4) - 19.0
Reliance Index Fund - Sensex Plan 11.9 02-Feb-05 0.5 1.6 25.2 18.8
ING Vysya Midcap Fund 11.6 09-May-05 103.8 4.3 - 15.6
Reliance Equity Opportunities 11.5 07-Mar-05 1862.4 (2.1) 17.4 15.4
Fund
Tata Service Industries Fund 11.4 10-Mar-05 241.7 (0.4) 13.4 11.5
PRINCIPAL Focussed Advantage 10.7 22-Feb-05 133.4 0.8 14.8 7.1
Fund
LIC MF Opportunities Fund 10.6 21-Feb-05 38.8 0.7 16.4 6.5
Prudential ICICI Blended Plan 10.3 18-May-05 1050.6 1.8 - 3.1
NFO Average 1.1 19.7 7.3
S&P Nifty 2316.1 (0.1) 19.3

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 EQUITY IPOS – OPPORTUNITIES UNLIMITED:-
Indian companies, enthused by the strong growth in domestic demand as
well as increasing opportunities in the global marketplace, are increasingly
looking at the capital markets to fund their growth plans. In the years 2004 –
2005 more than 90% of the equity IPOs have given above average returns
compare to other investment products & secondary market. Year 2005
promises another good year for equity IPO’s with growing Indian economy
& increasing awareness towards Indian Equity’s among Indian & global
investors.

• Year 2004 generated Rs 30,511 crore, which is the highest-ever

in the history of the Indian capital market.
• The issues slated to hit the markets are across sectors - Oil &
gas, Telecom, Power, Chemicals, Banking, Technology, Finance,
Infrastructure and even Aviation.
• Public issues lined up to hit the markets in 2005 include follow-
on offers from PSUs like BHEL, Neyveli Lignite, ONGC, RCF and
SCI.
• As far as sectors go, the telecom sector will see lots of action in
2005. Telecom companies like BPL Comm., Hutch, Idea, Reliance Info
& Tata Tele are expected to come out with IPOs.
• Other issues are likely are AB Corp, Air Deccan, Yes Bank,
Fortis Healthcare, GE Capital International, IL&FS Investsmart, MTR
Foods, Shantha Biotech, Shoppers' Stop & Sify.
• The good news is tat 2005 promises to be equally good, if not
better.

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 EQUITY IPOS – OPPORTUNITIES UNLIMITED:-
Indian companies, enthused by the strong growth in domestic demand as
well as increasing opportunities in the global marketplace, are increasingly
looking at the capital markets to fund their growth plans. In the years 2004 –
2005 more than 90% of the equity IPOs have given above average returns
compare to other investment products & secondary market. Year 2005
promises another good year for equity IPO’s with growing Indian economy
& increasing awareness towards Indian Equity’s among Indian & global
investors.

• Year 2004 generated Rs 30,511 crore, which is the highest-

ever in the history of the Indian capital market.
• The issues slated to hit the markets are across sectors - Oil &
gas, Telecom, Power, Chemicals, Banking, Technology, Finance,
Infrastructure and even Aviation.
• Public issues lined up to hit the markets in 2005 include
follow-on offers from PSUs like BHEL, Neyveli Lignite, ONGC, RCF
and SCI.
• As far as sectors go, the telecom sector will see lots of action
in 2005. Telecom companies like BPL Comm., Hutch, Idea, Reliance
Info & Tata Tele are expected to come out with IPOs.
• Other issues are likely are AB Corp, Air Deccan, Yes Bank,
Fortis Healthcare, GE Capital International, IL&FS Investsmart, MTR
Foods, Shantha Biotech, Shoppers' Stop & Sify.

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 • The good news is that 2005 promises to be equally good, if
not better.

India
Bulls

( source :- www.indiainfoline.com)

India Bulls Performance after the IPO

What is your IPO strategy?

The dilemma for an IPO investor is to decide whether to buy the issue &
hold it for some time or go for listing gains. Experts say both strategies are
valid, but one should make up one's mind on whether one wants to invest in
a company for the long term or just want to participate for quick gains.
Considering the listing gains made by most stocks that got listed last year,
going for listing gains does make sense. Dishman Pharma (209% premium
on listing) and Power Trading Corp (179 %) are classic examples. But if you
had opted merely for listing gains, you would have missed out on the rest of
journey. At current market prices, Dishman Pharma is up 252% & PTC up

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298%. Indiabulls, for example, had a premium of 25% on listing but now its
price has gone up by 328%.

IPO’S PERFORMANCE SNAPSHOT

Company IPO Price (Rs) Latest Price (Rs) Listing Date Gain/(Loss) % Gain/(Loss) % (A)
Gateway Dist 72 123 31-Mar-05 71 2165
India Bulls 19 115 24-Sep-04 503 917
Bharti Shipyard 66 148 30-Dec-04 124 438
PTC 16 48 07-Apr-04 200 198
NDTV 70 182 19-May-04 160 178
Jet 1100 1251 14-Mar-05 14 173
Petronet LNG 15 42 26-Mar-04 179 171
TCS 850 1381 25-Aug-04 62 99
UTV 130 139 17-Mar-05 7 99
NTPC 62 85 11-Nov-04 37 89
Indoco Remedies 245 297 14-Jan-05 21 88
PCS 230 355 25-Feb-04 54 48
ICICI Bank 280 408 22-Apr-04 46 47
Bank of Maharashtra 23 33 12-Apr-04 45 45
Biocon 315 421 07-Apr-04 34 33
ONGC 713 885 08-Apr-04 24 24
GAIL 176 212 25-Mar-04 21 20
PNB 390 393 27-Mar-05 1 19

(ONGC, GAIL issue prices adjusted for the 5% discount to retail investors, A - Annualised)

In this scenario one cannot stay away from Equity IPOs. One should invest
regularly & hold as much as possible if the company’s fundamentals are
good.

(source:- www.indiainfoline.com)

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 Chapter: - 6

SUGGESTIONS

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 SUGGESTIONS

• If investors are safe player then mutual fund are good options
because they give good return compaire to bank deposit.
• In mutual fund balance scheme is there so it gives return.
• If you are short gainer then equity IPO is good.
• As long investors IPO is also good.
• In mutual fund electronic clearance is there so investors can
take his/her dividend by using ATM card. You can use this facility.
• Investors of mutual fund equity IPO first they have to read
check list point then invest.
• In mutual fund investors have to select fund & investment
money according return & risk time.
• First maintain flexible portfolio which good return with
minimum level of risk.
• Some time some IPO are mislead to investors so be aware form
it.
• Sometimes some IPO’s price band is low but when share is
listed in market it opens with high price, some times it opens with
discount
• In IPO, investors try to sale out share after listing of share to
take advantage of increase of price and try to earn profit

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• Invest your money in mutual fund or in equity share after
reading offer document as well as red herring prospectus for equity
share.

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 Chapter: - 7

BIBILOGRAPHY

77
BOOKS:-

• E. Gordon & Dr. K. Natarajan, Financial Markets & Services,

Himalaya Publication House, Second Revised Edition 2003.
• Prasanna Chandra, Financial Management Theory & Practice,
TATA McGraw- Hill Publication Company Ltd, 6th Edition

Websites:-

www.NSE.com

www.sebi.gov.in

www.indiainfoline.com

www.moneycontrol.com

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