UNIT I

1. Classification of financial markets

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The classification of financial markets in India are classified as follows :

1. Unorganized Markets

In these unorganized markets there are a number of money lenders, indigenous bankers,
traders

(who lend and collect deposits from the public) private finance companies (Indigenous
bankers

are private firms or individuals who operate as banks and receive deposits and give loans),
Chit

funds etc whose activities are not controlled by the RBI.

The RBI has already taken some steps to bring private finance companies and chit funds
under

its strict control by issuing Non banking financial companies Reserve Bank Direction 1998.

2. Organised Markets

In the organized markets there are standardized rules and regulations governing their
financial

dealings. There is also a high degree of institutionalization and Instrumentalisation. These

markets are subject to strict supervision and control by the RBI or other regulatory bodies.

These organized markets can be further classified into two

Capital Market

Money Market

1) Capital Market –The capital market is a market for financial assets which have a long

maturity generally it deals with long term securities which have a maturity period of above

one year.

Capital Market may be further divided in to three namely

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 Industrial Securities Market

It is market for industrial securities namely

(i) Equity shares or ordinary shares

(ii) Preference shares

(iii) Debentures or bonds.

It can be further divided into two they are

(i) Primary market-is a market for new issues or new financial claims, hence it is called

issues markets. Three ways a company can raise capital in a primary market: 1. Public

issue 2. Right issue 3. Private placement

(ii) Secondary market-is a market for secondary sale of securities which have already

passed through the new issue market are traded in this market, such securities are

quoted in the stock exchange and it provides a continous and regular market for buying

and selling securities.

Government Securities Market

It is otherwise called Gilt- Edged Securities [High grade bonds issued by Government for

firm]. It is a market where Government securities are traded. In India there are many kinds

of Government Securities – short term and long term. Long term securities are traded in

this market while short term securities are traded in the money market.

Securities issued by the central Government, State Government., Semi- Government

authorities like City Corporations, Port trusts etc.

State Electricity Boards, all India and State level institutions and public sector enterprises

are dealt in this market.

The role of brokers in marketing these securities is practically limited and the major

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participant in this market is commercial banks.

The secondary market for these securities is very narrow since most of the investors tend

to retain these securities until maturity. Example -stock certificates, promissory notes,

Bearer bond.

Long Term Loans Market

Development banks and commercial banks play a significant role in this market by

supplying long term loans to corporate customers.

Long term loans market may further be classified into

Term Loans Market

Mortgage Market

Financial Guarantees Market

2) Money market

Money market is a market for dealing with financial assets and securities which have a
maturity

period of up to one year. It is a market for purely short term funds.

The money market may be out divided into four. They are:

Call Money Market- is a market extremely short period loans say one day to

fourteen days, therefore it is highly liquid. Call money market is for interbank

lending and borrowing.

Commercial Bills Market- it is a market for bill of exchange arising out of

genuine trade transactions. In case of credit sale, the seller may draw a bill of

exchange on the buyer. The buyer accepts such a bill promising to pay at a later

date specified in the bill.

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 Treasury bills Market- it is a market for treasury bills which have short term

maturity. A treasury bill is a promissory note or a finance bill issued by the

government. There are two types of treasury bills ordinary or regular and ad-hoc

treasury bills.

Short term loan Market- it is a market where short loans are given to corporate

customers for meeting their working capital requirements commercial banks play

a significant role in this market.

3) Foreign Exchange Market

The term foreign exchange refers to the process of converting home currencies into foreign

currencies. According to Paul Einzing,“ Foreign exchange is the system or process of

converting one national currency into another and of transferring money from one country

to another”.

2. Characteristics of Financial markets

FINANCIAL SERVICES - CHARACTERISITCS

Financial Services are characterized by the following:

Intangibility - The basic characteristics of financial services are tangible in nature. for
financial services to be successfully created and marketed the institutions providing them
must gain good and confidence of its clients. Quality and innovativeness of services are the
focal points for building credibility and gaining the trusts of the clients.

Customer Orientation - The institutions proving the financial services study the needs of the
customers in detail based on the results of the study they come out with innovative financial
strategies that give due regard to costs, liquidity and maturity considerations for various
financial products this way financial services are customer orientated.

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Inseparability - The functions of producing and supplying financial services have to be
carried out simultaneously their calls for a perfect understanding between the financial
services firms and their clients.

Perishability - Financial services have to be created and delivered to target clients they
cannot be stored. They have to be supplied according to the requirements of customers.
Hence it is imperative that the providers of financial services ensure a match between demand
and supply.

Dynamism - The financial services must be dynamic they have to be constantly redefined
and refined on the basis of socio-economic changes occurring in the economic such as
disposable income, standard living level of education are

Financial services institutions must be proactive in nature, and evolve new services by
visualizing the expectations of the market.

3. Credit Card and its features.

A credit card is a card made of plastic material, carrying a specimen of the holder’s signature
and have certain information embossed on it so that when it is pressed the information on it
are recorded on an invoice or other documents. Credit cards are designed to avoid the use of
either cash or cheque and also to give some measure of credit to the card holders. They can
be used only in those establishments which have agreed to accept them. They may be used
instead of making payment for cash for goods and services. The credit card organizer makes
the payment to the establishments concerned and once a month sends a statement to the credit
card holder for all his purchases in the previous month. A credit card is referred to as plastic
money.

Salient Features of a Credit Card

1. Use of the Card

a) The card is the property of the bank and must be surrendered to the

designated office of the bank on demand.

b) Use of the card to facilitate the purchase of goods or services will be

limited by the individual credit limit.

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If the card limit is exceeded the card member shall immediately reduce

the over limit debit balance.

c) The card should be kept in a safe place.

d) The card should not be allowed to use by any other individual.

e) The card member should sign the card immediately upon receipt.

f) The issue and use of card will be subject to RBI’s Regulations in force

2. Charges on the Card

1. Voluntary charges

a) The cost of any purchase of goods.

b) The amount of any cash advance provided

c) Any amount chargeable to the card account by virtue of a transaction

instruction.

2. Involuntary charges

a) Any fees charged by the bank as entrance, annual replacement renewal,

handling, late payment and other fees.

b) The bank’s finance charges

c) Commission on specific types of transactions

d) Any other payment of a charge paid by the bank.

3. Procedure for Billing and Payment

The billing and payment procedure involve three stages.

Making the purchases

Reimbursements to the establishment

Reimbursement to the bank.

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(i) At the Time of Purchases- Present the Card

When a person intends to make a purchase form a establishment using the

credit card, he has to present the card to the establishment.

Check the Validity - After that the establishment scrutinizes it and makes sure that its validity
period has not expired.

Compare the signature with card holder - Then the merchant will

compare the signature of the cardholder with the specimen signature.

Takes impression of the Card - The merchant takes the impression of the

card with the help of the imprinter and prepares a charge slip in triplicate.He

retains one copy for records, another copy is given to the customer and the

third copy to the bank for obtaining payment.

(ii)For Getting Reimbursements to the Establishment

On receipt of the copy of the charge slip and the summation sheet, the bank

reimburses the amount after deducting its commission.

(iii) For Getting Reimbursement to the Bank

The bank prepares a statement every month reflecting the transactions on

the card. The Cardholder has the following two option for settling the

amount due to the bank as per the statement prepared by the bank.

Charge :

If the total amount due as per the latest statement is paid in fullon or before

the payment due date, no finance charges are levied on the account.If the

cardholder maintains a savings current account with the bank he could pay

his credit card through the account. The cardholder can authorize the bank

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to directly debit his account.If the cardholder maintains a savings current

account with the bank he could pay his credit card through the account the

cardholder can authorize the bank to directly debit his account.

4. Privileges of the Credit Cardholders

1. Global acceptance- As the credit cards are most widely accepted for

making purchase anywhere in the world at any establishment.

2. Cash Advance- The credit cardholder is allowed to withdraw cash

from designated ATMs using the credit card. But the charges are levied

for this facility for transaction.

Global ATM Access- Within India, the card holders can have any time

cash with draw from the banks ATM in all major cities.

When travelling abroad the cardholder can access cash from any of the

ATM bearing logo VISA/Master Card.

4. Different types of Credit Card.

Based on Mode of Credit Recovery

1. Revolving Credit Card

A limit is set on the amount of money one can spend on the card for a
particular period. The card holder has to pay a minimus. Percentage of
outstanding credit at the end of a particular period with interest varying from
30 to 36 percent per annum is charged on the outstanding amount.

2. Charge Card

A charge card is not a credit instrument. It is a convenient mode of making

payment. This facility gives a consolidated bill for a specific period an bills

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 are payable in full on presentation. There is no liability and no limit.

Based on Status of Credit Card

1. Standard Card- Credit card that are regularly issued by all card issuing

banks are called Standard Cards.It is possible for a card holder to make

purchase without having to pay cash immediately. Some banks issue

standard cards under the brand name classic cards. These cards are generally

issued to salaried people.

2. Business Card- Business cards also known as Executive cards are issued

to small partnership firms, solicitors firms of chartered accountants, tax

consultants and others, for use by executive on their business trips.

This card enjoys higher credit limits and more privileges than the standard

cards.These cards are issued in the names of the executives of the firms.

Elite- most powerful, rich or talented people within a society.

3. Gold Card- The gold card offers high value credit for the elite. It offers

many additional benefits and facilities such as higher credit limits more cash

advance limits, etc that are not available with standard or executive cards.

Based on Geographical Validity

1. Domestic Card- Cards that are valid only in India and Nepal are called

domestic cards. All transactions will be in rupees. These cards are issued by

most of the banks in India.

2. International Card- Credit Cards that have international validity are

called international cards. They are issued to people who travel abroad

frequently. These cards are honored in every part of the world except India

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and Nepal.The cardholder can make purchases in foreign currencies subject

to RBI. Sanction and FEMA rules and regulations.

Based on franchise or tie-up

1. Proprietary cards- Cards that are issued by the bank themselves, without

any tie up are called proprietary cards.A bank issues such cards under it’s

own brand. Examples include SBI card, can card of Canara bank etc.

2. Master Card- This type of credit card issued under the umbrella of

‘Master Card’ International. The issuing bank has to obtain a franchise from

the master card corporation of U.S.A.The franchised cards will be honored in

the Master Card Network.

3. VISA Card- This is a type of credit card, which can be issued by a bank

having tie-up with VISA International USA. The banks that issue VISA

cards are said to have a franchise of VISA International.

4. Domestic Tie-Up Card- These are cards issued by a bank having a tie up

with domestic credit card brands such as Cancard and Indcard. For example, Indian overseas
bank has a tie up with Cancard.These banks issue cards to

users through the original banks. However they can have their bank name engrave on the
card.Credit is available on similar lines to the original card.

Based on the Issuer Category:

1.Individual cards- These are the non-corporate cards that are issued to

individuals. Generally all brands to credit cards issue individual cards.

2.Corporate Cards- These are credit cards issued to corporate and business

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firms. The executives and top officials of the firm use these cards. The card

bears the name of the firm and the bill are paid by the firm.

5. Smart Card and its features.

Smart Cards A smart card is a credit card sized plastic card with an embedded computers chip.
The chip allows the card to carry a much greater amount of information than a magnetic
card.The telecom industry was perhaps the pioneer in smart cards, the most prominent being
subscriber Identity Module (SIM) cards in the GSM digital calculator network using special
terminals designed to interact with the embedded chip the card can perform special functions
this is essentially in prepaid card.

Features

Like other computers, the smart card can be programmed to carry out any task

within its processing power and memory capacity.Following are the features

and practical applications of smart cards.

1. Data Carrier- Smart cards can be used as a convenient, portable and secure

means of storing information such as medical record equipment maintenance

records, driving license data, and Car maintenance records as an electronic

notepad etc.

2. Personal Identification- Smart cards serves as a safe medium of

identification of the holder.Important applications in the areas of identification

are protection of computer software, corporate cash management, Gaining

physical access to sports stadium, holiday complexes or hotel facilities. Satellite

television is another emerging opportunity for smart cards.The direct-to-home

service would be a pay television service and the smart card can be programmed

to unlock the television signal.

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 3. Financial usage- Smart cards can be used in such transactions replacements

for other instruments of payment etc.Some of the areas of applications are

paying for TV, Telephone/ electricity road tolls, ATM cash vending etc.

It is expected that financial credit cards and debit cards are likely to gradually

get converted to the more useful smart cards in the near future. Smart cards will

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help prevent the increasing number of frauds found in the traditional financial

cards.

Smart Card and its types.

Types of Smart Cards

The term ‘Smart Cards’ is often used in a broad sense to include cards with a

large memory an processing power and which are capable of being packaged in

the ISO format.There are three types of smart cards as described below.

1. Contact Smart Cards- Contact smart cards have microelectronic chips

embedded in the card. These chips have connections to metallic contact pads on

the surface of the card. The contact pads are used for reading and writing card.

2. Contactless card- A contactless card does not require the use of external

contacts and is used for transferring data between a smart card and a read write

device. The card is able to operate at a distance from the read / write unit.

3. Super Smart Card- the super smart card incorporates a keyboard and a

liquid crystal display (LCD). It functions more like a stand – alone terminal and does not
need a separate read/write unit.

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UNIT II

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1. SECURITIES MARKETS AND ITS COMPONENTS

Stock market or securities market is a market where securities issued by companies in the
form of shares, bonds and debentures can be bought and sold freely.
The components of stock market are:

1. Primary Market
2. Secondary Market

1. Primary Market: Primary market is a channel for the sale of new securities.
2. Secondary Market: Secondary market provides a platform for sale of the already issued and listed
securities.

2. PRIMARY MARKETS AND ITS FEATURES

 It is a market for a long –term capital where the securities are sold for the first time. Hence it
is also called new issue market (NIM).
 Funds are collected and securities are issued directly by the company to the investors.
 Primary issues are carried out by the companies for the purpose of inception and functioning
of business.

3. SECONDARY MARKETS AND ITS FEATURES

 Trading of securities in the secondary market does not provide any funds to the company.
 The investors as well as the speculators trade in securities.
 Securities of listed public limited companies are traded on a recognized stock-exchange.
 Secondary market provides liquidity to the investors.
 The market prices in the secondary market reflect the investors perceptions of a company
performance.

4. BENEFITS OF PRIMARY MARKET

 Company need not repay the money raised from the market.
 Money has to be repaid only in the case of winding up or buy back of shares.
 There is no financial burden because it does not involve interest payment if the company
earns profit dividend may be paid.
 Better performance of the company enhances the value for the shareholders.
 It enables trading and listing of securities at stock exchanges.
There is greater transparency in the corporate governance.
If the company performs well the image of the company brightens.

5. INTERMEDIARIES IN PRIMARY MARKET

1. Lead Managers - Merchant bankers are appointed to manage the issue and are called lead
managers to the issue. Depending on the size of the issue a company may appoint more than
one merchant Banker. The Pre-issue and post issue responsibilities of the merchant bankers

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are properly structured. The lead managers assist the company right from the preparation of
prospectus, to the listing of securities on stock exchanges.

2. Under writers - Under writing is an agreement with or without conditions to subscribe to

the securities of a body corporate in the event of non-subscription by the public. If there is
under-subscription(the amount received is less than the issue size) the underwriter subscribe
to the un-subscribed portion. The person who assures the sum is called an underwriting
commission.

A certificate of registration from SEBI has to be obtained by the agencies that wish to carry
out underwriting activities. After the selection of the underwriter the issuing company enters
into an agreement with the underwriter.

 The agreements contains the following

 The period during which the agreement will remain in force.
 The amount of the underwriting obligation.
 The maximum period within which the underwriter will have to subscribe to the offer
the company’s intimation.
 The rate and amount of commission or brokerage chargeable by the underwriter.

3. Bankers to the Issue - Banks which accept application forms and money on behalf of the public
are called bankers to the issue. The collected money is transferred to the escrow accounts as per the
provision of the companies Act. [An escrow account is a designated account in which the funds can
be utilized only for a specified purpose]

The bankers to the issue have to keep the funds in the escrow account on behalf of the holders. These
funds are not available to the company till the issue is completed and allocation is made commission
is paid to the bankers to the issue.

4. Registrar to the Issue - The Company appoints the registrars to the issue in consultation with the
lead manager some merchant bankers carry on the activities of the registrars to an issue as well as of
the share transfer agents.

Some carry on the activities of a registrar to an issue or those of a share transfer agent. Quotations
containing the details of the various functions that they would perform along with the expected
charges for the functions are called for selection. Suitable ones are selected from the applications
received.

If the number of applications in a public issue is expected to be large, the issuer company in
consultation with the lead merchant banker can appoint one or more registrars for the purpose of
collecting the application forms at different centers and forwarding the same to the designated
registrar to the issue, as mentioned in the offer document. The designated registrar is responsible for
all the activities related to issue.

5. Share Transfer Agents - They maintain the records of the holders of securities of the company for
and on behalf of the company. They also handle all matters related to transfer and redemption of
securities of the company.

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6. Stock-Brokers and Sub-Brokers - Appointing a broker is not compulsory but approval of the
stock exchange is mandatory. The names and address of the brokers to the issue should be given in the
prospectus. The brokers enhance the sale of issue.The issuing company pays brokerage according to
the provisions in the company Act and guidelines prescribed by the SEBI.

7. Depositories - They are the intermediaries who hold the securities in dematerialized form on behalf
of the shareholders.They enable transactions of securities by book entry.The depository system links
the issuers, depository participants, NSDL and clearing corporation houses of the stock exchanges.
Transfers are affected by means of account transfer.

6. ROLE OF SEBI IN PRIMARY MARKET AND SECONDARY MARKET

1. To file Draft offer document: A company making a public issue, or a value of more than Rs.50
lakhs is required to file a draft offer document with SEBI for its observation.The company can
proceed observations from SEBI.
The validity period of SEBI’s observation letter is three months only. i.e. the company has to open its
issue within three months period.

2. SEBI does not recommend any Issue: SEBI does not recommend any issue nor does it take
any responsibility either for the financial soundness of any scheme or the project for which
the issue is proposed to be made or for the correctness of the statements made or opinion
expressed in the offer document.

3. Submission of offer document not deemed to be approved: Submission of offer document to SEBI
cannot in any way be deemed or construed that the same has been cleared or approved by SEBI.

4. Lead Manager to certify: The lead manager certifies that the disclosures made in the offer
document are generally adequate and are in conformity with SEBI guidelines for disclosures and
investor protection in force for the time being. This requirement is to facilitate investors to take an
informed decision for making investment in proposed issue.

5. SEBI does not associate itself with any issue/issuer: SEBI does not associate itself with any
issue/issuer and should in no way be construed as a guarantee for the funds that the investor proposes
to invest through the issue.

6.SEBI guides investors to take action by themselves: The investors are expected to make an informed
decision purely by themselves based on the contents disclosed in the offer documents.

7. Investors to study all material facts: Investors are generally advised to study all the material fact
pertaining to the issue including the risk factors before considering any investment they are strongly
warned against any tips or news through unofficial means.

7. OFFER DOCUMENT

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Offer document means prospectus in case of a public issue or offer for sale and letter of offer in case
of a rights issue, which is filed with Registrar of Companies (ROC) and Stock Exchange.
An offer document covers all the relevant information to help an investor to make his/her investment
decision. SEBI issues press releases every were regarding the draft offer documents received and
observations issued during the period. The draft offer document are put upon the website under
reports.

Following are the features of the structure of the offer document :

1. Cover Page: The cover page of the offer document covers full contact details of the Issuer
Company, least managers and registrar the nature, number price and amount of instrument (securities)
offered and issue size and the particulars regarding listing. Other details such as credit rating, risks in
relation to the first issue etc. are disclosed if applicable.

2. Risk Factors: The issuers management gives its view on the internal and external risks faced by the
company. The company also makes a note on the forward looking statement. This information is
disclosed in the initial pages of the document and it is also clearly disclosed in the abridged
prospectus. It is generally advised that the investors should go through all the risk factors of the
company before making an investment decision.

3. Introduction: The introduction covers a summary of the industry and business of the issuer
company the offering details in brief. Summary of consolidated financials operating and other data.
General information about the company the merchant bankers / syndicate members to the issue, credit
rating, debenture trustees (in case of debt issue) monitoring agency, book building process in brief and
details of under writing agreements are given here.

4. Important details of capital structure: Objects of the offering, funds requirement funding plan,
schedule of implementation funds deployed and of funds already deployed and of the balance fund
requirement, interim use of funds, basic terms of issue, basis for issue price, tax benefits etc. are
covered.

5. About us: This section presents a review of the details of the business of the company business
strategy, competitive insurance, industry regulation (if applicable) history and corporate structure,
main objects subsidiary details, management and board of directors, compensation, corporate
governance exchange rates, currency of presentation, dividend policy, management discussion and
analysis of financial condition and results of operations.

6. Financial statements: Financial statement changes in accounting policies in the last three years and
difference between the accounting policies and the Indian Accounting Policies.

7. Legal and Other Information: Outstanding litigations and material developments, litigations
involving the company and its subsidiaries, promoters and group of companies are disclosed.

8. Mandatory disclosures: Under this heading the following information are covered. authority for the
issue prohibition by SEBI, eligibility of the company to enter the capital market, disclaimer, clause of
the stock exchange listing, impersonation, minimum subscription letters of allotment or refund orders,
consents expert opinion, changes in the auditors in the last three years, expenses of the issue, fees pay

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at to the lead managers, few payable to the issue mgt. team, fees payable to the registrars,
underwriting commission, brokerage and selling commission etc.

9. Offer Information: Under this heading, the following information is covered. terms of issue,
ranking of equity shares, mode of payment of dividend, face value and issue price, rights of equity
shareholder, market lot, nomination facility to investor, issue procedure, bid form, bidding process
escrow mechanism, announcement of statutory advertisement issuance of confirmation of allocation
note (CAN) payment instruction etc.

10. Other information: This covers description of equity shares and terms of the Articles of
Association, material contracts and documents for inspection declaration definition and abbreviations.

8. DUE DILIGENCE

1. Due Diligence is the act of lead managers to examine various documents including those relating to
litigation like commercial disputes, patent disputes, disputes with collaborates and other materials in
connection with the finalization of the offer document pertaining to the said issue.

2. Due diligence forms the basis of any such examination and the discussions which the dead manager
has with the company its directors and other officers and other agencies.

3.It also forms an independent verification of the statements concerning the objects of the issue
projected profitability price justification etc...

4.The objective of conducting due diligence is to ensure that they are in compliance with SEBI, the
Government and any other competent authority on this behalf.

5. The merchant bankers are the specialized intermediaries who are required to do due diligence and
ensure that all the requirements of DIP are compiled with while submitting the draft offer document to
SEBI.

6.Any non-compliances on their part attract penal action from SEBI in terms of SEBI (Merchant
Bankers) Regulations.

7.The draft offer document filed by Merchant Bankers is also placed on the web sites for public
comments.

8.Officials of SEBI at various levels examine the compliance with DIP Guide Lines and ensure that
all necessary material information is disclosed in the draft offer documents.

9. IPO

Initial public offering is a kind of public issue of securities, where an unlisted company
makes either a fresh issue of securities or an offer for sale of its existing securities or both for
the first time to the public. This paves way for listing and trading of the issuer securities.

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10. QIB

Mutual funds banks financial institutions like LIC and foreign investors, fall under the
category of QIB. Earlier QIB were not required to submit any money along with their bids
and this had led to some manipulative practices. However SEBI has recently changed the
provisions and now QIB’s have to pay margin not the full amount at the time of bidding in
the book building of an issue.

The following are specified as QIB’s by the SEBI public financial institutions defined in the
section 4 of the companies Act.

 Scheduled Commercial banks

 Mutual Funds
 Foreign Institutional investors registered with SEBI
 Multilateral and bilateral development financial institutions
 Venture capital fund registered with SEBI
 Foreign Venture capital investors registered with SEBI
 State industrial development corporations
 Insurance companies registered with the insurance regulatory and development
Authority (IRDA)
 Provident fund with a minimum carpus of Rs.25 crores.

11. DEPOSITORY AND ITS FUNCTIONS

A depository is an organization which maintains investors securities in electronic form. In simple

terms a depository is a bank for securities.

Function of Depository

 The principal function of a depository is to dematerialize the securities and enable their
transactions in book entry form.
 Dematerialization of securities occurs when securities issued in physical form are destroyed
and an equivalent number of securities are credited into the beneficiary owners account.
 A depository established under the depositaries act can provide any service connected with
recording of allotment of securities or transfer of ownership of securities in the recon of a
depository.
 A depository cannot directly open accounts and provide services to clients. Any person who is
willing to avail the services of the depository can do so by entering into an agreement with the
depository through any of its depository participants.

12. DEMATERIALIZATION AND ITS STEPS

Dematerialization is the process of conversion of shares or other securities held in physical form into
electronic form.The investor must approaching DP for dematerialization. The investor can demat the
shares of any company that has established connectivity with NSDL or CSDL.

Steps in Dematerialization
1. Demat Request Form - Investor must submit Demat Request Form (DRF) and share certificate to
DP

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2. Checking Securities - DP will check whether securities are available for Demat Investor must
deface the share certificate by stamping surrendered for dematerialization and DP will punch two
holes on the name of the comp and will draw two parallel lines across the face of the certificate.

3. Entry of Request - DP enters the demat request in their system to be sent to Depository. DP
dispatches the physical certificates along with the DRF to Registrar and Transfer Agents (RTA)/
company.

4. Recording Details- Depository records the details of the Electronic Request in the system and
forward the request to Registrar and Transfer Agent (RTA) or issuer (i.e., the company whose shares
are sought to be dematerialized).

5. Verification- RTA/Company on receiving the physical documents are in order, dematerialization of

the concerned securities is electronically confirmed to the depository.

6. Account crediting - Depository credits the dematerialized securities to the beneficiary account of
the investor and intimates the DP electronically. The DP issues a statement of transaction to the client.

7. Company Identification -Once the company is admitted in the depository system ISI No ( i.e.,
International securities Identification number)

8. Dematerialization of shares sent for transfer- Shares sent for transfer can be dematerialized if the
comp is providing simultaneous transfer cum- Dematerialization scheme.

13. REGULATORY AUTHORITIES OF SECONDARY MARKETS

Regulatory Authorities of Secondary Market

The capital market is regulated by the: 1) Ministry of Finance 2) The Securities and Exchange Board
of India (SEBI). MINISTRY OF FINANCE

In the ministry of Finance, the capital market is regulated by the capital markets division of the
department of economic affairs.

This division is responsible for formulating and development of the securities markets i.e. share, debt,
derivatives as well as protecting of the interests of the investors. In particular it is responsible for

 Institutional reforms in the securities market

 Building regulatory and market institution.
 Strengthening investor protection mechanism
 Providing efficient legislative framework for securities markets.

Ministry of Finance administers legislation such as securities and Exchange Board of India Act 1992
(SEBI Act 1992). Securities contracts (Regulation). Act 1956 and the Depositories Act 1996.

THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

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The SEBI was established under the SEBI Act 1992, as a regulatory authority of Securities market
with the objective to protect the interest of the investors in the securities market and promote the
development of the capital market.

 Regulates business in stock exchanges

 Supervises the working of stock brokers share transfer agents, merchant bankers,
underwriters, etc.
 Prohibits unfair trade practices in the Securities market.
 Administers mostly the Acts, rules and regulations related to the securities market.

The following departments of the SEBI regulate the secondary market :

1. Market Intermediaries Registration and Supervision Department (MIRSD): This

department takes care of the registration of all market intermediaries related to all segments
of the market namely the equity and derivative segments. It also supervises monitors and
inspects all the intermediaries.

2. Market Regulation Department(MRD): The main function of this department is to

formulate new policies except relating to derivatives for stock exchanges, their subsidiaries
and market institutions such as clearing and settlement organizations and Depositories. It also
supervises their functioning and operations

3. Derivatives and New Products Departments (DNPD): The function of this department is
mainly related to the supervision of derivatives segments of the stock exchanges and
introduction of new products to be traded. It also takes care of the consequent policy changes.

14. STOCK EXCHANGE AND ITS FUNCTIONS

Stock exchange are organized market places in which stock, shares and other securities are traded by
members of the exchange, acting as both agents (brokers and principals dealers or traders).

Functions of stock Exchange

1. Central Trading Place- They provide a central place, where the brokers and dealers regularly meet
and transact business.

2. Settlement of Transaction- They provide convenient arrangements for the settlement of

transactions.

3. Continuous market- These are the market for the existing securities. These are places for the
holders of securities to buy and sell their securities and for those who want to invest their savings. The
stock exchange thus provides liquidity to their investment.

4. Supply of Long – Term Funds- Since the securities can be negotiated and transfer through stock
exchanges, it becomes possible for the companies to raise long term funds from investors.In the stock
exchange, one investor is substituted by another when a security is transacted. Therefore the company
is assured of long-term availability of funds.

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5. Setting up of Rules and Regulations - Stock exchanges set up rules and regulations governing the
conduct and finance of their members. It ensures that a reasonable measure of safety is provided to
investors and the transactions take place under competitive conditions.

6. Evaluation of Securities- Stock exchanges help to evaluate the securities as they publish the prices
of securities regularly in newspapers. They also enable the holders of securities to know the worth of
their holdings at any time.

7. Control over Company Management- A Company which wants to get its shares listed in a stock
exchange has to follow the rules framed by the stock exchange. Through these rules and requirements,
the stock exchanges exercise some control on the mgt. of the company.

8. Helps capital Formation - Stock Exchange helps capital formation. The publicity given by the stock
exchanges about the different types of securities and their prices encourage even the disinterested
persons to save and invest in securities.

9. Facilities Speculation- Stock Exchange provides facilities for speculation and enables shrewd
business man to speculate in the market and make substantial profits.

10.Directs the flow of savings - A stock exchange directs the flow of savings of the community
between different types of competitive investments. It also helps to meet the investment needs of
entrepreneur.

15. BOOK BUILDING AND ITS CHARACTERISTICS

Book Building is a process by which Corporates determine the demand and price of a
proposed issue of securities through public bidding.

Characteristics of Book Building

Tendering process: Book Building involves inviting subscriptions to a public offer of

securities, essentially through a tendering process. Eligible investors are required to place
their bids for their number of shares to be issued and the price at which they are willing to
invest, with the lead manager running the book. At the end of the cut-off period, the lead
manager determines the response to the issue in terms of the quantum of shares and the
highest price at which the demand is sufficient to match the size of the issue.

Floor Price: Floor price is the minimum price set by the lead manager in consultation with the
issuer. This is the price at which the issue is open for subscription. Investors are free to place
a bid at any price higher than the floor price.

Price Band: The range of price (The Highest and the lowest price) at which offer for the
subscription of securities is made is known as price band. Investors are free to bid any price
within the Price band.

Bid: The Investor can place a bid with the authorized lead manager- merchant banker. In case
of equity shares usually several brokers in the stock exchange are also authorized by the lead

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manager. The investor fills up a bid-cum-application form, which gives a choice to bid upto
three optional prices. The price and demand options submitted by the bidder are treated as
optional demands and are not cumulated.

Allotment: The lead manager in consultation with the issuer, decides the price at which the issue will
be subscribed and proceeds to allot shares to the investors who have bid at or above the fixed price.
All investors are allotted shares at the same fixed price. For any allottee, therefore, the price will be
equal to or less than the price bid.

Participants: Generally, all investors including, eligible to invest in a particular issue of securities can
participate in the book building process. However, if the issue is restricted to qualified institutional
investors, as in the case of government securities, then only those eligible can participate.

16. SECURITIZATION AND THE REASON FOR PREFERRING IT

Asset securitization is the process of separating certain assets from the balance sheet and using them
as collateral for the issuance of securities.

Reason for preferring Securitized Financial Instrument

1.Helping small investor – Financial claims often involves sizeable sum of money, clearly outside the
reach of the small investor. The initial response to this was the development of financial
intermediation, where by an intermediary such as bank would pool together the resources of the small
investors and use the same for a larger investment need of the user.

2.Facilitating Liquidity – Small investors are typically not in the business of investments and hence
liquidity of investments is most critical for them. Marketable instruments provides the liquidity of
investments.

3.Utility of Instruments- Generally instruments are easily understood than financial transaction. An
instrument is a homogenous, usually made in a standard form and generally containing standard issuer
obligations. Besides an important part of investor information is the quality and price of the
instrument and both are easier in case of the instruments than in case of financial transactions.

17. UNDERWRITING AND ITS TYPES

a kind of guarantee given by a financial intermediary to take up whole or part of the issue of
securities not subscribed by the public is termed as underwriting.

Different Types of Underwriting

1. Firm underwriting: Firm underwriting takes place when the underwriter agrees to take up a certain
specified number of securities,irrespective of the securities being offered to the public.

2.Sub-underwriting: Sub-underwriting takes place when the underwriting of securities is contracted

out by the main underwriter to other underwriting intermediaries.

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3.Joint underwriting: It refers to a situation of issue of securities being underwritten by two or more
underwriting intermediaries jointly.

4.Syndicate underwriting: Syndicate of underwriters by means of an agreement, underwrites the issue

of securities collectively, it is called syndicate underwriting.

18. STOCK INVEST AND ITS FEATURES

Stock –invest is a non –negotiable instrument used for subscribing to capital issues in the primary
market.

Features of Stock-invest

Additional Mode: Stock-invest serves as an additional mode of payment of application money besides
the traditional modes such as cash, cheque or draft.

No Locking up of funds: By this mechanism ,making payment for the public issue of securities does
not involve any locking up of the investor funds.This way,the scheme ensures effective utilization of
investor funds.

Denominations: The instrument was issued in five denominations, with ceiling for drawing upto
Rs.250,Rs.500,Rs.2,500,Rs.5,000 and Rs.10,000.Later on stock-invests came to be issued with the
RBI directives upto a maximum it Rs.50,000.

Interest income: The scheme provided for the benefit of earning interest income for the investors by
allowing the money to remain with bank,which is highly advantageous.

Participation: All investor and banks may take part in the scheme and be benefited by its merits

Release of funds: Funds are released from the stock-invest account by the bank only in the event of
successful allotment of securities to the subscriber customer.

Nature: Stock-invest combines the characteristics of a guaranteed cheque and a letter of authority and
is therefore considered as good as cash.

Validity: The instrument of stock –invest has a validity of 4months from the date of issue by the bank
concerned

Bank Charges: Banks levy a charge to the extent of utilization of the money in the stock invest
account. This is to the tune of Rs.5 for every Rs.1,000.

Modus Operandi: The working mechanism of the stock-invest is outlined below:

Account: The prospective subscriber opens an account with a banker ,who operates the stock- invest
scheme. The account may be a savings bank account, , current account ,or FD account.

Request: An application requesting the banker to issue the facility of stock-invest for a certain amount
is made out in the prescribed form by the prospective applicant.

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Issue: Banks issue the facility of stock-invest for a certain amount is made out in the prescribed form
by the prospective applicant.

Enclosure: The prospective investor encloses the stock-invest form with the application made for
securities to companies and deposits the same with the collecting banker.The investor fills in
particulars such as company’s name,number and the value of shares applied for ,etc in stock-invest
form.

Collecting Banker: The collecting banker receives the share application forms along with the stock-
invest form.The amount is not credited to the account of the company making the public issue. The
banker gives credit to the account of the company only on successful allotment of securities.

Entitlement: The company and the Registrar to the issue present to the bank,the entitlement of the
investor in the stock-invest.The banker credits the account of the issuing company upon the
presentation of stock-invest.

Intimation: The issuing bank intimates the unsuccessful applicants about the non-allotment of shares .
The bank then lifts the lien on the account or males due payment from the account.This way the stock-
invest account is closed.

19.STAGES OF VENTURE CAPITAL FINANCING

Seed capital: This is an early stage financing. This stage involves primarily R&D financing.
The European Venture capital Association defines seed capital as the financing of the initial
product development or the capital provided to an entrepreneur to provide the feasibility of a
project and qualify for start-up capital.

Start – up financing: The European venture capital association defines start-up capital as
capital needed to finance the product development, initial marketing and the establishment of
product facilities.

Early –stage Financing: The European Venture capital association defines early stage finance
as finance provided to companies that have completed development stage and require further
funds to initiate commercial manufacturing and sales.

Follow on Financing: The European Venture capital association defines follow on financing
or second round finance as the provision of capital to a firm which has previously been in
receipt of external capital but whose financial needs have subsequently expanded.

Expansion Financing: The European Venture Capital Association defines expansion capital
or financing as the finance provided to fund the expansion or growth of a company which of
breaking even or trading at a small profit.

Replacement Financing: A later-stage financing method also known as money-out deal

whereby venture capitalists extend financing for the purchase of the existing shares from an
entrepreneur or their associates in order to reduce their holdings in the unlisted company is
known as replacement financing.

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Turnaround Financing: This is the type of financing provided by the venture capitalists in the
event of an enterprises becoming unprofitable after launch of commercial production.

Management Buy-outs: The European Venture Capital association of a company defines

management buy outs as the acquisition of a company (or the shares in that company) from
the owners by a team of existing management/ employees.

Management Buy–In: The European Venture Capital association defines management buy in
as funds provided to enable a manager or group of managers from outside the company to
buy in the company with the support of venture capital investors.

Mezzanine Finance: The last stage of equity related funding is known mezzanine financing. It
is often the last type of financing supplied to a private company in the final run up to a trade
sale or a public floatation.

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UNIT III

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 1. Credit rating and its features.

The process of assigning a symbol with specific reference to the instrument being rated that
acts as an indicator of the current opinion on relative capability on the issuer to service its
obligation in a timely fashion is known as credit rating.

Features of Credit Rating

Following are the characteristics features of credit rating

Specificity

The rating is specific to a debt instrument. It is intended as a grade and an analysis of the
credit risk associated with that particular instrument. Rating is neither a general-purpose
evaluation of the issuer, nor an overall assessment of the credit risk likely to be involved in
all the debts contracted by such an entity.

Relativity

The rating is based on the relative capability and willingness of the issuer of the instrument to
service debt obligations (both principal and interest) in accordance with the terms of the
contract.

Guidance

The rating primarily aims at furnishing guidance to investors/creditors in

determining a credit risk associated with a debt instrument /credit obligation.

Not a Recommendation

The rating does not provide any sort of recommendation to buy, hold or sell an

instrument since it does not take into consideration, factors such market prices,

personal risk preferences and other considerations which may influence an

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investment decision.

Broad Parameters

The rating process is based on certain broad parameters of information supplied

by the issuer and also collected from various other sources including personal

interactions with various entities.

No Guarantee

The rating furnished by the agency does not provide any guarantee for the

completeness or accuracy of the information on which the rating is based.

Quantitative and Qualitative

While determining the rating grade both quantitative as well as qualitative factors are
employed. The judgement is qualitative in nature and the role of quantitative analysis is
limited to assist in the making of the best possible overall judgement.

2. Credit rating agencies

Credit Rating Agencies

International credit rating agencies

International agencies are Moody’s Investor Services, S&P,Duff and Phelps

credit rating company, Japan credit rating agency etc.

Domestic credit rating agencies

Some of the domestic rating agencies include CRISIL,CARE,ICRA etc.

Investment Vs Speculative Grades

Investment and Speculative grades are two terms popularized by regulators. For

instance securities that are rated below BBB (S&P) or Baa (Moody’s) are called

non-investment grade, or speculative grade or junk bonds. Rating agencies

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however do not recommend or indicate the rating levels of instruments upto

which one should or taken up immediately. The grading is altered on the basis of the
changing debt servicing capability of the issuer.

Grade surveillance

Where any major deviation from the expected trends of the issuers business

occurs or where any event has taken place which may have an impact on the

debt servicing capability of the issuer, which could warrant a change in the

rating, the rating agency put such ratings under grade

surveillance. Grade surveillance listing may also specify positive or negative

outlooks.

Rating ceiling

While rating an issue outside the issuers country of domicile,international credit

rating agencies impose a ceiling which is equal to the sovereign rating assigned

to the country of domicile. Accordingly rating of an instrument of any issuer

domiciled in that country would be placed above the sovereign rating of the

country of domicile.

Evaluation of Line

Evaluation of bank line policy is an essential component of rating a commercial

paper. However it is not apart of the rating criteria and the rating decision itself

decision itself is not predicted on the strength of the amount of bank lines.

Ownership Considerations

It invariably happens that ownership by a strong enterprises enhances the credit

rating of an entity, unless there exists a barrier separating the activities of the

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parent and subsidiary. The important issues that are involved in deciding the

relationship are mutual dependence, legal relationship, the entity’s ability to

influence the business of other.

Grading Process

The process of Equity Grading is mandate from the issuer and involves the

following steps.

Mandate from the issuer

The agency initiates the job of equity analysis and grading on the basis of

instructions received from the issuer.

Assigning Team of Analysis

After obtaining the mandate from the issuer, the agency then proceeds to assign

technical teams to the issuing company in order to begin the analysis process.

Data Analysis

The data collected by the team of analysis is analyzed for inferences. The results

are then benchmarked against general business and financial parameters.

Discussions

Detailed and personal discussions are held with various managerial personnel.

In addition interactions are also held with bankers and auditors of the company.

Credit Report

On the basis of the discussions and meetings that are held and based on the data

analyzed, a report on the company is prepared. The report is then presented to

the Grading Committee, which in turn assigns the relevant grade.

Grade Communication

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The grade assigned by the grading committee is then communicated to the company. The
option of acceptance or non-acceptance rests with the company. The grade is made public
only if the company accepts it. In the event of non-acceptance the company is given one
chance to appeal and the analysts are provided with fresh inputs and clarifications.

3. Consumer finance and its types

The term consumer finance refers to the activities involved in granting credit to

consumers to enable them possess own goods meant for everyday use.

1.According to Seligman, an authority on consumer finance, the term

consumer credit refers to a transfer of wealth, the payment of which is deferred

on whole or in part to future and is liquidated piecemeal or in successive

fractions under a plan agreed upon at the time of the transfer.

2.Reavis Cox, an authority on economics of consumer credit defines consumer

credit as “Business procedure through which the consumers purchase semi-durables

and durables other than real estate in order to obtain from them a series

of payments extending over a period of three months to five years, and obtain

possession of them when only a fraction of the total price has been paid.

Types of consumer Finance

There are several types of credit facility available to consumers.They are briefly

discussed below:

Revolving Credit

An ongoing credit arrangement similar to a bank overdraft where by the

financier of a revolving basis, grants credit is called Revolving Credit. The

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consumer is entitled to avail credit to the extent sanctioned as the credit limit.

An ideal example of revolving credit is credit cards.

Fixed credit

It is like a term loan whereby the financier provides loan for a fixed period of

time. The credit has to be squared off within a stipulated period. Examples of

fixed credit include monthly instalment loan, hire purchase,etc.

Cash Loan

Under this type of credit banks and financial institutions provide money with

which the consumers buy articles for personal consumption. Here the lender and

the seller are different. The lender does not have the responsibilities of a seller.

Secured Finance

When the credit granted by a financial institutions is secured by a collateral, it

takes the form of secured finance. The collateral is taken by the creditor in order

to satisfy the debt in the event of default by the borrower. The collateral may be

in the form of personal property, real property or liquid assets.

Unsecured Finance

When there is no security offered by the consumer against which money is

granted by financial institution it takes the form of unsecured finance.

4. Hire purchase and its characteristics

Definition

The mode of acquiring ownership of consumer durables by individuals and

productive assets by manufacturers where by the payment for the product is

conveniently spread over a period of two or three years, is known as Hire

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purchase system. Hire purchase serves as a convenient tool of credit in

situations where it is difficult to save in advance to make the purchase of

expensive articles but find it easier to make regular payment, weekly or monthly

after they receive the article.

Characteristics of Hire Purchase System

Following are the characteristics features of hire purchase system

1.Popular Method

Hire purchase is the most popular method used for the sale of expensive and

durable goods on credit.

2.Retention of Right

In a hire purchase the seller sells on credit to buyers the security being the

sellers right to retain property rights on the goods sold.

3.Instalments

The Hire purchase is paid in instalments spread over a fixed period.

4.Ownership

The property rights in goods sold remains with the seller and the buyer gets

legal ownership of the article only after the payment of the last instalment.

5.Agreement

The hire purchase transaction takes place through a formal written agreement

signed by the seller and the buyer. The agreement provides for the payment of

the price in the form of fixed equitable instalments spread over a specified

period of time, the instalments being in the nature of rental payables on fixed

dates.

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6.Possession

The buyer is given possession of the goods on payment of the first rental

amount in cash known as the down payment.

7.Default

When the buyer defaults i.e fails to either pay the specified instalments or insure

the article in accordance with the terms of the contract, the seller has the right to

terminate the hire purchase agreement and take re-possession of the article. If

the agreement is terminated because of default, the hirer or buyer will have no

claim to the amount already paid since that amount is already paid, since that

amount is already treated as rental charges.

8.No Breach of Trust

Under the hire purchase agreement the buyer simply hires the article. The buyer

cannot commit any criminal breach of trust. If the buyer does so and managers

to sell the article the seller can recover the article from the sub-buyer, since

there is no transfer of ownership.

5. Leasing and its types

According to Meaning of Leasing the Institute of Chartered Accountants of India, a lease is
an agreement whereby the lessor conveys to the lessee, in return for rent the right to use an
asset in consideration of a payment of periodical rental, under a lease agreement. Lessee is a
person who obtains from the lessor, the right to use the asset for a periodical rental
payment for an agreed period of time.
Types of Lease
Lease is of different types. They are discussed below:
1.FinancialLease – A financial lease is a non–cancelable in nature. The lease
generally provides for the renewal of the lease on expiry of the lease contract.
Variants of financial lease include full payout lease and true lease.
153

37 | P a g e
(i).Full Payout Lease-In this type of lease, the lessor recovers the full value of
the leased asset within the period of the lease rentals and the residual value.
(ii)True Lease- In this type of lease, the typical tax-related benefits such as
investment tax credit, depreciation tax shields etc. are offered to the lessor.
2.Operating Lease– An operating lease is any other type of lease whereby the
asset is not fully amortized during the non-cancelable period of the lease and
where the lessor does not rely on the lease rentals for profits. It is a short-term
lease on a period –to –period basis, the period of lease being less than the useful
life of the asset.
The lease is cancellable at short notice by the lessee. The lessee has the option of
renewing the lease after the expiry of the lease period. It is the responsibility of
the lessor to ensure maintenance, insurance, etc. of the asset which is chargeable
by the lessor. It is a high-risk lease to the lessor since it could be cancelled at
any time.
3.Net Lease- A variant of operating lease is not lease. A type of lease where the
lessor is not concerned with the repairs and maintenance of the leased asset is
known as Net Lease. The only function of the lessor is to provide financial
service.
4.Conveyance-typeLease-Itisa very long tenure lease applicable to immovable
properties. The intention of the lease is to convey title in property. Such leases are
entered into for periods which may be as long as 99 years or 999 years.
5.Leveraged Lease- When a part or whole of the financial requirement
involved in a lease are arranged with the help of a financier, it takes the form of
leveraged lease. This type of lease is resorted to in cases where the value of the
leased asset is very high. In this type of lease the lessor who is also a financier
involves one more financier who may hold a charge over the leased asset over
and above a part of the lease rentals.
4.Sale and Lease Back-Under this type of lease the owner of an asset sells it to
the lessor and gets the asset back under the lease agreement.The ownership of the
asset changes hands from the original owner to the lessor who in turn leases out
the asset, back to the original owner. This paper exchange of title has the effect of
providing immediate free finance to the selling company, the lessee. The
transaction also helps the release of funds tied up in that particular asset.
5.Partial Pay-out Lease- It is a type of lease whereby the lessor obtains full

38 | P a g e
payment of the lease in several leases. This broadly falls under the category of
operating lease.
6.Consumer Leasing-Leasing of consumer durables such as televisions,
refrigerators etc is called consumer leasing.
7.Balloon Lease-A type of lease which has zero residual value at the end of the
lease period is called Balloon Lease. It also means a kind of a lease where
the lease rentals are low at the inception, high during the mid years and low
again during the end of the lease.
8.Close-End Leasing-A leasing arrangement whereby the asset leased out is
reverted to the lessor is known as close-end leasing. It is also called walk-way
lease.
9.Open-end Leasing- A term commonly used in automobile leasing in the
USA, it means a lease agreement where lessee guarantees that lessor will realize
a minimum value from the sale of the asset at the end of the lease period.
Under this arrangement if the assets residual value fetches less price than
Agreed, the lessee pays the difference to the lessor. In the same manner where
the assets residual value fetches more than the value agreed the lessor pays the
excess to the lessee. It is so called because the lessee does not know the actual
cost of the asset until it is sold at the end of the lease.
10.Swap Leasing-In swap leasing the lessee is allowed to exchange equipment
leased out whenever the original asset has to be sent to the lessor for repair or
maintenance.
11.Import Leasing-The leasing of imported capital goods is known as import
leasing. It is beneficial to the lessee because arranging any other source
off funding may take a long time, during which the prices of the importable item
as also the rates of exchange may change. Moreover, lenders don’t usually
finance the import duty which forms a sizable part of the acquisition of such
items.
12.Cross Border Leasing-A type of lease where the lessor in one country
leases out assets to another country is known as cross-border leasing.
13.Double Dip- According to the concept of double –dip, it is possible to have
advantage of depreciation tax benefits twice, depending on the prevelance of
differing tax laws in two different countries.
14.Triple Dip-Where the benefit of depreciation tax allowances is available in

39 | P a g e
three different jurisdiction for a single asset leased out, it is a case of Triple –
dip. Accordingly, benefits are available for hire purchases ,true lease and capital
lease.
15.International Leasing- When a leasing company operates in different
countries through its branches it is a case of international leasing.

40 | P a g e
UNIT IV

41 | P a g e
(Mutual Funds and its classification)

A trust that pools the savings of investor who share a common financial goal is known as a Mutual
Fund. The money thus collected is then invested in financial market instruments such as shares,
debentures and other securities like government paper. 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. Investments in securities are spread over a wide cross section of industries and
sectors, thus allowing risk reduction to take place.

A special type of institution that acts as an investment conduct is called a Mutual Fund. It is
essentially a mechanism of pooling together the savings of a larger number of investors for collective
investments with the objective of attractive yields and appreciation in their value. Mutual funds are an
important segment of the financial system. It is a non – depository financial intermediary. Mutual are
mobilizers of savings, particularly of the small and house hold sectors, for investment in the stock and
money market.

To state in simple words, a mutual funds collects the savings from small investors, invest them in
Government and other corporate securities and earn income through interest and dividends.

A mutual fund is nothing but a form of collective investment. It is formed by the number of investors
who transfer their surplus funds to a professionally qualified organization, to manage it. To get the
surplus funds from investors, the fund adopts a simple technique. Each fund is divided into a small
fraction called “units” of equal value .Each investor is allocated units in proportion to the size of his
investment. Thus every investor whether big or small will have a stake in the fund and enjoy the wide
portfolio of the investment held by the fund.

Investors have an option of choosing from a wide variety of schemes in a mutual fund, depending
upon their requirements. Following section presents a detailed classification of mutual funds.

Operational Classification

1.Open - ended scheme – When a fund is accepted and liquidated on a continuous basis by a mutual
fund manager, it is called open - ended scheme. The fund manager buys and sells units constantly on
demand by the investors.

Under this scheme the capitalization of the fund will constantly change ,since it is always open for the
investors to sell or buy their share units. The scheme provides an excellent liquidity facility to
investors, although the units of such scheme are not listed.

2.Close - Ended Scheme - When units of a scheme are liquidated (repurchased) only after the expiry

42 | P a g e
of a specified period it is known as a close - ended scheme. Under this scheme funds have fixed
capitalization and remain as a corpus with the mutual fund manager. Units of close - ended scheme
are to be quoted and therefore traded in the floors of a stock exchange in the secondary market. The
price is determined on the basis of demand and supply. Therefore there will be two prices ,one is
market determined and the other which is NAV - based. The market price may be either above or
below NAV.

3.Interval Scheme - It is a kind of close - ended scheme with a peculiar feature that it remains open
during a particular part of the year for the benefit o f investors, either to off - load their holdings or to
undertake purchase of units at the NAV. Under SEBI (MF) Regulations every mutual fund is free to
launch any or both types of schemes including interval scheme.

3.Return – Based Classification

Under this classification fall those mutual fund schemes that are designed to meet the diverse needs of
investors and to earn a good return. Returns expected are in the form of regular dividends or capital
appreciation or a combination of these two.

The four tier system of managing mutual funds

The four – tier system for managing mutual funds in India is as designed by the SEBI

The Sponsor

Any corporate body which initiates the launching of a mutual fund is referred to as the sponsor.The
agency which is expected to have a sound track record and experience in the relevant field of financial
service s for a minimum period of 5 years, ensures complying with the various formalities required in
establishing a mutual fund.

According to SEBI norms the sponsor should have professional competence, financial soundness and
a general reputation for fairness and integrity in business transactions. There must be a minimum
contribution by the sponsor to the tune of 40 percent of the net worth of the Asset Management
Company. The sponsor appoints trustees, as asset management company and custodians in
compliance with the regulations.

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The Trustees

Persons who hold the property of the mutual fund in trust for the benefit of the unit holders are called
trustees. Trustees look after the mutual fund, which is constituted as a trust under the provisions of the
Indian Trust Act. For this purpose a company or appointed as a trustee to manage with prior approval
from SEBI. A minimum of 75 percent of the trustees must be independent of the sponsors so as to
ensure fair dealings. The important functions of the Trustees:

1.Keep under its custody all the property of the mutual fund schemes administered by the mutual
fund.

2.Furnish information to unit holders as well as to about the mutual fund schemes.

3.Appoint an asset management company (AMC) for the purpose of floating the mutual funds
schemes.

4.Evolve an investment management agreement to be entered into with AMC.

5.Observe and ensuring that AMC of managing schemes in accordance with the trust deed.

6.Dismiss the AMC appointed by the Trustees.

7.Supervise the collection of any income due to be paid to the scheme.

8.Are paid compensation for their services in the form of trusteeship fee as specified in the provisions
of the trust deed. Trustees are to present an annual report to the investors.

The Custodians

An agency that keeps custody of the securities that are bought by the mutual fund managers under the
various schemes is called the custodians. They ensure

safe custody and ready availability of scrips. According to SEBI norms, the custodian who is so
appointed should in no way be associated with the AMC and cannot act as sponsor or trustee to any
mutual fund. A custodian is supposed to act for a single mutual fund unless otherwise approved by
SEBI. Some of the important functions of the custodians are:

1.Safe keeping of the securities.

2.Participation in any clearing system on behalf of the client to effect deliveries of the securities.

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3.Collecting income /dividends on the securities depending on the terms of agreement.

4.Ensuring delivery of scrips only on receipt of payment and payment only upon receipt of scrips.

5.Carrying out regular reconciliation of assets with accounting records.

Ensuring timely resolution of discrepancies and failures

6.Arranging for proper registration or recording of securities.

Asset Management Company (AMC)

The investment manager of a mutual fund is technically known as the Asset Management Company
and is appointed by the sponsor or the trustees. The AMC manages the affairs of the mutual fund. It is
responsible for operating all the schemes of the fund and can act as the AMC of only one mutual fund.
Only activities which are in the nature of management and advisory services to offshore funds,
pension funds, provident funds, venture capital funds, management of insurance funds, financial
consultancy and exchange of research on commercial basis can be undertaken by the AMC. With the
permission of SEBI it can also operate as an underwriter.

(Regulatory structure of mutual funds)

The regulatory structure for mutual funds as operating in India is as follows:

1.RBI Guidelines.

2.UTIs Own Guidelines.

3. SEBI(Mutual Fund) Regulations.

A brief description of the provisions and regulatory norms of the above authorities is given below

RBI Guidelines

Constitution and Management Guidelines

1.Trustees – Every mutual fund shall constitute a trust under the Indian Trust Act and the sponsoring
bank should appoint a Board of Trustees to manage it. The board of trustees should have at least two
outside trustees i.e those who are not connected with the sponsoring bank are person of ability and
integrity and have proven capacity to deal with problems relating to investment and investor

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protection.

The day to day management of the schemes under the fund as may be delegated by the Board of
Trustees should be looked after by a fulltime executive trustee who not be concurrently discharging
any other responsibility in the concerned bank.

2.Sponsor - The sponsor bank fund contribution to the corpus of the fund should be a minimum of
Rs.2 crores or such higher amount, as may be specified by the RBI. The corpus may be converted at a
later date into a subscription to any of the schemes of the fund with the approval of the Board of
Trustees of the fund. The sponsor bank should make no additional contribution to the corpus without
the approval of RBI. The sponsor bank should contribute and maintain its stake in each of the funds
scheme equivalent to the amount outstanding.

3.Mutual Fund banks - Banks should obtain RBI s prior approval before announcing any scheme of a
mutual fund, irrespective of whether it is identical or not to any of the earlier schemes approved by
RBI.

Investment Objectives and policies

1.Trust Deed – The investment objectives and policies of the mutual fund should be laid down in the
Trust Deed and every scheme to be launched by the fund must be in accordance with these broad
objectives and policies, rules, and regulations, framed in connection therewith. While inviting
subscription from the public, the mutual fund should make a clear statement of investment objectives
of the fund and its investment policies besides the term and conditions of the scheme.

2.Funds Deployment - The subscription amounts collected by mutual funds are primarily intended to
be channeled into capital market instruments like Government and other Trustees securities, share,
debentures of public limited companies bonds of public sector undertakings.

3.Nolending - The mutual funds should not undertake direct or indirect lending, portfolio fund
management, underwriting, bills discounting, money market operations etc. which are essentially
banking /merchant banking functions.

4.Inter - scheme - Mutual funds may invest in schemes in other money market instruments,
rediscounting of bills or bank deposits for periods not exceeding six months. The mutual funds also
invest their temporary surplus funds in similar instruments up to not more than 25 percent of their
total investable funds.

5.Prohibited avenues - Mutual funds shall not make short sale /purchase of securities to carry over the
transactions from one settlement period to the next settlement period. Similarly, no investment shall

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be made in any other unit trust, mutual fund or similar collective investment schemes. The funds
should also not invest in shares etc. of investment companies.

Prudential Exposure ceiling limits - Mutual funds shall not hold under any one scheme more than 5
percent of issued share capital or debenture stock of any company .In case more than one scheme is
operated by a fund, such holdings in respect of all its schemes put together, should not exceed 15
percent of the paid up capital or debenture stock of a company.

Pricing – The maximum spread between purchase and selling prices of units/shares of any scheme
should not be more than 5 percent.

Income Distrtibution

1.Cost - The total cost of managing any scheme under a fund inclusive management fees and other
administrative costs should be kept3 within 5 percent of the total income of thescheme.

2.Income Distribution - Income distribution by way of dividend or capitalization of gains should not
be made on the basis of revaluation of the stock holdings or unrealized capital appreciation.

Statement of accounts and disclosures

1.separate accounts - Mutual funds shall maintain separate accounts of each scheme launched by it
segregating the assets under each scheme.

2.Annual Statement - The Board of Trustees of mutual funds shall prepare an annual statements of
accounts for each of the schemes furnishing details such as statements of assets and liabilities ,
income and expenditure accounts duly audited by qualified auditors.

UTI Guidelines

Constitution and Management

1.Trust - The mutual fund shall be constituted as a trust with the investor as the beneficiary. The basic
structure should consist of 3 elements, viz the trustees the fund manager and the beneficiary. The
trustee could be the sponsor bank. The mutual fund should qualify to engage in the business of
investment and management of securities.

2.Board of Trustees – The management of the mutual fund shall vest in the Board of Trustees. The
board of trustees shall have not less than members and not more than 10 members. Day to day
management shall be the responsibility of the Board of trustees.

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3.Sponsor – shall contribute Rs.5crores to the corpus fund as non transeferable capital. The corpus
may be used to commence investment in schemes to be floated by the mutual fund.

4.Approval - UTI should obtain approval for its mutual fund schemes from the Ministry of finance.

Investment Objectives and Policies

1.Areas of Investment - The mutual fund can engage itself in activities such as holding or disposing of
securities, collecting and discounting of bills of exchange, purchasing and selling of participation
certificates in relation to any loan or advances granted by any public financial institution or scheduled
bank, make deposits with companies, formulate schemes in associations with LIC or GIC.

2.Granting advance – Mutual funds can grant advances to corporations or cooperative societies
engaged in industrial activities. Under this head shall not exceed 20 percent of the funds in any
scheme.

Investment Limits

Scheme limit - No schemes of a mutual fund should invest more than 5 percent of its assets on the
equity of the company. Investment in a company should not exceed 15 percent of the securities issued
by the company.

Pricing and Income Distribution -

1.Each mutual fund should clearly provide in the offer document, investment objectives of the scheme
and the manner of publication of NAV.

2.Where it is not possible to announce a general policy for the distribution of income, the mutual fund
should give due weightage to the principal objectives and the investment objectives of the scheme.

Account Statement and Disclosures

1.The mutual fund should maintain separate account for each scheme.

2.Books of account should be balanced and closed at least once each year.

3.Valuation of each scheme should be done at least once in a year.

4.Accounts should be audited every year.

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UNIT V

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34. Characteristics of Factoring

1.The Nature

The nature of the factoring contract is similar to that of abailment contract.Factoring is a specialized
activity where by a firm converts its receivables into cash by selling them to a factoring
organization.The factor assumes the risk associated with the collection of receivables and in the event
of non-payment by the customers/debtors,bears the risk of a bad debt loss.

2.The Form

Factoring takes the form of a typical invoice factoring since it covers only those receivables which are
not supported by negotiable instruments such as bills of exchange etc.This is because the firm resorts
to the practice of bill discounting with its bankers in the event of receivables being backed by
bills.Factoring of receivables helps the client do away with the credit department and the debtors of
the firm become the debtors of the factor.

3.The Assignment

Under factoring there is an assignment of debt in favour of the factor.This is the basic requirement for
theworking of a factoring service.

4.Fiduciary Position

The position of the factor is fiduciary in nature since it arises from the relationship with the client
firm.The factor is mainly responsible for better credit management.

5.Credit Realizations

Factor assist in realization of credit sales.They help in avoiding the risk of bad debtsloss,which might
arise otherwise.

6.Less Dependence

Factors help in reducing the dependence on bank finance towards working capital.This greatly
relieves the firm of the burden of finding financial facility.

7.Recourse Factoring

Factoring may be non-recourse in which case the factor will have no recourse to the supplier on non-
payment from the customer.Factoring may also be with recourse in which case the factor will have
recourse to the seller in the event of non-payment by the buyers.

8.Compensation

A factor works in return for a service charge calculated on the turnover.Factor pays the net amount
after deducting the necessary charges some of which may be special terms to handle the accounts of
certain customers.

35. Types of Factoring

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1. Domestic factoring

Factoring that arises from transactions relating to domestic sales is known as Domestic Factoring.
Domestic factoring may be of three types as described below.

1. Disclosed Factoring

In case of disclosed factoring the name of the proposed factor is mentioned on the face if the
invoice made out by the seller of goods. In this type of factoring the payment has to be made
by the buyer directly to the factor named in the invoice. The arrangement for factoring may
take the form of recourse whereby the supplier may continue to bear the risk of non-payment
by the buyer without passing it in the factor. In case of non-recourse factoring, factor assumes
the risk of bad debt from non-payment.

2. Undisclosed Factoring

Under undisclosed factoring the name of the proposed factor finds no mention on the invoice
made out by the seller of goods. Although the content of all monies remains with the factor,
the entire re4alization of the sales transaction is done in the name of the seller. This type of
factoring is quite popular in the U.K.

3. Discount Factoring

Discount factoring is a process where the factor discounts the invoices to the seller at a pre
agreed credit limit with the institutions providing finance. Book debts and receivables serves
as securities for obtaining financial accommodation.

2. Export Factoring

When the claims of an exporter are assigned to a banker or any financial institution and financial
assistance is obtained of the strength of export documents and guaranteed payments it is called export
factoring. An important feature of this type of factoring is that6 the factor bank is located in the
country of the exporter. If the importer does not honour claims, exporter has to make payment to the
factor. The factor bank admits a usual advance of 50 to 75 percent of the export claims as advance.

3.Cross Border Factoring

Cross Border Factoring involves the claims of an exporter which are assigned to a banker or any
financial institution the importers country and financial assistance is obtained on the strength to the
export documents and guaranteed payments. They handle exporters overseas sales on credit terms.
Complete protection is provided to the clients (exporters) against bad debt loss on credit approved
sales. The factors take requisite assistance and avail the facilities provided for export promotion by
the exporting country. When once documentation of complete and goods have been shipped the factor
becomes the sole debtor to the exporter.

4.Full – service Factoring

Full- service factoring also known as old line factoring is a type of factoring whereby the factor has
no recourse to the seller in the event of the failure of the buyers to make prompt payment to their dues
to the factor,which might result from financial inability/ insolvency/bankruptcy of the buyer. It is a
comprehensive form of factoring that combines the features of almost all factoring services specially

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those of non-recourse and advance factoring services, specially those of non-recourse and advance
factoring.

5.With Recourse Factoring

The salient features of this type of factoring arrangement are as follows

 The factor has recourse to the client firm in the event of the book debts purchased becoming
irrecoverable.
 The factor assumes no credit risks associated with the receivables.
 If the customer defaults in payment the resulting bad debt loss shall be met by the firm.
 The factor becomes entitled to recover dues from the amount paid in advance.

6. Without Recourse Factoring

The salient features of this type of factoring are as follows

 *No right with the factor to have recourse to the client.

 *The factor bears the loss arising out of irrecoverable receivables.
 *The factor charges higher commission called Del credere commission as a compensation for
the said loss.
 *The factor actively involves in the process of grant of credit and the extension of line of
credit to the customers of the client.

7. Advance and Maturity Factoring

The essential features of this type of factoring are as follows

 The factor makes an advance payment in the range of 70 to 80 percent of the receivables
factored ans approved from the client the balance amount being payable after collecting from
customers.
 The factor collects interest on the advance payment from the client.
 The factor considers such conditions as the prevailing short term rate, the financial standing
of their client and the volume of turnover while determining the rate of interest.

8.Bank participating Factoring

IT is variation of advance and maturity factoring. Under this type of factoring the factor arranges a
part of the advance to the clients through the banker. The net factor advance will be calculated as
follows:

(Factor Advance Percent x Bank Advance percent )

9.Collection/Maturity Factoring

Under this type of factoring, the factor makes no advancement of finance to the client. The factor
makes payment either on the guaranteed payment date or the date of collection, the guaranteed
payment date being fixed after taking into account the previous ledger experience of the client and the
date of collection being reckoned after the due date of the invoice.

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36. Forfaiting

Definition

A form of financing of receivables arising from international trade is known as Forfaiting. Within this
arrangement a bank /financial institution undertakes the purchase of trade bills/promissory notes
without recourse to the seller. Purchase is through discounting of the documents covering the entire
risk of non-payment at the time of collection. All the risk becomes the full responsibility of the
purchaser (forfeiter). Forfaiter pays cash to the seller after discounting the bills/notes.

Characteristics of Forfaiting

1. Forfaiting essentially involves non-recourse bill discounting in a modified way.

2. It aims at protecting the exporter from any default risk.

3. Under this arrangement ,the bills of exchange or promissory notes accepted by the importer and co-
accepted by a bank in favour of the forfaiting agency are exchanged for the discounted cash proceeds,
without recourse by the exporter.

4. The discount rates are charged as a percentage above the euro market interest rates.

5. Forfaiting to be successful it is imperative that there exists a successful secondary market. A

forfaiting may not be interested in holding the discounted bills or notes upto maturity because of
liquidity considerations.

6. In the secondary market forfeiters can buy or sell these bills like any other security. The reputation
of the forfaiting agency and the credit period are important in deciding the cost of forfaiting

37. DISTINCTION BETWEEN FACTORING AND FORFAITING

S.NO CHARACTERISTICS FACTORING FORFAITING

1 Suitability For transactions with For transactions with

short term maturity medium term maturity
period. period

2 Recourse Can be either with or Can be either without

without recourse recourse only

3 Risk Risk can be All risks are assumed

transferred to seller by the forfeiter

4 Cost Cost of factoring is Cost of forfeiting is

usually borne by the borne by the overseas
seller buyer (importer)

5 Coverage Covers a whole set of Structuring and

jobs at a pre- costing is done on a
determined price. case to case basis

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6 Extent of financing Only a certain percent Hundred percent
of receivables factored financed is available
is advanced

7 Basis of financing Financing depends on Financing depends on

the credit standing of the financial standing
the exporter of the availing bank

8 Services Besides financing, a It is a pure financing

factor also provides arrangement
other services such as
ledger administration
etc.,

9 Exchange fluctuations No security against A forfeiter guards

exchange rate against exchange rate
fluctuations fluctuations for a
premium charge

10 Contract Between seller and Between exporter and

factor forfaiter

38. Meaning of Merchant Bankers

A set of financial institution that are engaged in providing specialist services which generally include
the bills of exchange, corporate finance, portfolio management and other banking services are known
as merchant bankers. It is not necessary for a merchant banker to carry out all the above mentioned
activities. A merchant banker may specialize in one activity and take up other activities, which may
be complementary of supportive to the specialized activity.

Functions of Merchant Bankers

Merchant banking being a service oriented industry renders the same services in India as
merchant banks in UK and other European countries. In the U.S, investment bankers cater to the
needs of business enterprises carrying out merchant banking functions Merchant banks in India carry
out the following functions and services.

1.Corporate Counselling

2.Project Counselling

3.Pre-investment studies

4.Capital Restructuring

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5.Credit Syndication and project Finance

6.Issue Management and Underwriting

7.Portfolio Management

8.Working Capital Finance

9.Acceptance credit and Bill Discounting

10.Mergers,Amalgamations and Takeovers

11.Venture Capital

12.Lease Financing

13.Foreign Currency Finance

14.Fixed Deposit Broking

15.Mutual Funds

16.Relief to Sick Industries

17.Project Appraisal

A brief description of these functions is presented below:

Corporate Counselling

Corporate counselling refers to a set of activities that is undertaken to ensure efficient running of a
corporate enterprise at its maximum potential through effective management of finance. It aims at
rejuvenating old line companies and ailing units, and guiding existing units in locating areas/activities
of growth and diversification. A merchant banker, as a managerial economist, guides the client, on
aspects of organizational goals, locational factors, organization size and operational scale ,choice of
product and market survey, forecasting for a product, cost reduction, cost analysis, allocation of
resources, investment decisions, capital management and expenditure control, pricing methods and
marketing strategy.

Project counselling

Project counsellingis a part of corporate counselling and relates to project finance. It broadly covers
the study of the project, offering advisory assistance on the viability and procedural steps for its
implementation.

Pre-investment studies

Activities that are connected with making a detailed feasibility exploration to evaluate alternative
avenues of capital investment in terms of growth and profit prospects are called pre-investment
studies.

Capital Restructuring Services

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Activities that are carried out to assist projects in achieving their maximum potential through effective
capital structuring and to suggest various strategies to widen and restructure the capital base, diversify
operations and implementation schemes for amalgamation, merger or changes in business status are
collectively known as Capital Restructuring services.

Credit Syndication

Activities connected with credit procurement and project financing aimed at raising Indian and
foreign currency loans from banks and financial institutions, are collectively known as credit
syndication.

Issue Management and Underwriting

Issue management and underwriting connotes activities that are concerned with the management of
the public issues of corporate securities, viz equity shares, preference shares, and debentures or bonds
and aimed at mobilization of money from the capital market.

Portfolio Management

Making decisions relating to the investment of the cash resources of a corporate enterprise in
marketable securities by deciding the quantum ,timing and the type of security to be bought, is known
as portfolio Management. It involves making the right choice of investment, aimed at obtaining an
optimum investment mix, taking into account factors such as the objectives of the investment, tax
bracket of the investor, need for maximizing yield and capital appreciation etc.

Acceptance Credit and Bill Discounting

Activities relating to the acceptance and the discounting of bills of exchange, besides the advancement
of loans to business concerns on the strength of such instruments are collectively known as
Acceptance Credit and Bill discounting. Bill accepting and discounting are an integral part of a
developed money market.

Merger and Acquisition

This is a specialized service provided by the merchant banker who arranges for negotiating
acquisitions and mergers by offering expert valuation regarding the quantum and the nature of
consideration and other related matters. Merchant bankers provide advice on acquisition proposition
after careful examination of all aspects viz. Financial statements , articles of associations, provisions
of companies act, rules and guidance of trade chambers, the issuing house associations.

Venture Financing

A specially designed capital as a form of equity financing for funding high risk and high reward
projects is known as Venture Capital. Several private enterprises undertook the financing of high risk
and high reward projects. In India venture capital companies have largely contributed to the
technological and industrial revolution.

A large number of Indian and international companies are engaged a in venture capital funding for
high technology and high risk projects. A number of leading national development financial
institutions such as IFCI, IDBI, and ICICI are engaged in venture capital financing and have
developed a number of special schemes for this purpose.

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Lease Financing

A merchant banking activity where by financial facilities are provided to companies that undertakes
leasing is known as Lease Financing. Leasing involves letting out assets on lease for a particular time
period for use by the lessee. Leasing provides an important alternative source of financing capital
outlay. Lease financing benefits both lessor and the lessee.

Foreign Currency Financing

The finance provided to fund foreign trade transactions is called Foreign Currency Finance. The
provisions of foreign currency finance takes the form of export import trade finance, euro currency
loans, Indian joint ventures abroad and foreign collaborations.

Brokering Fixed Deposits

The services rendered by the merchant bankers in this regard are, computation of the amount that
could be raised by a company in the form of deposits from public and loans from shareholders,
Drafting of advertisement for inviting deposits, Filing a copy of advertisement with the Registrar of
Companies for registration, Drafting and printing of application forms, Making arrangements for the
collection of deposits at the bank branches. Submission of periodical statements to companies
concerned. Making arrangements for payment of interest amounts. Proper advice to the company on
the terms and conditions of fixed deposits and deciding on the appropriate rate of interest.

Mutual Funds

Institutions and agencies that are engaged in the mobilization of the savings of innumerable investors
for the purpose of channeling them into productive investments of a wide variety of corporate and
other securities are called Mutual Funds.UTI is the first and the largest mutual fund in the country.
The mutual funds industry has a large number of players both in the public as well as the private
sector Commercial banks are also making rapid strides in the realm of mutual funds business.

Relief to Sick Industries

Merchant bankers extend the following services as part of providing relief to sick industries:

*Rejuvenating old lines and ailing units by appraising their technology and process, assessing their
requirements and restructuring their capital base.

*Evolving rehabilitation packages which are acceptable to financial institutions and banks

*Exploring the possibilities of mergers/amalgamations.

Project Appraisal

The evaluation of industrial projects in terms of alternative variants in technology, raw materials,
productive capacity and location of plant is known as Project Appraisal.

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