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M i n i s t r y o f C o r p o r a t e A f f a i r sG o v e r n m e n t o f I n d i a
INVESTORS GUIDETO THE
CAPITAL MARKET
EditorPrithvi HaldeaPRIME Database
Under the aegis of Invest r Ed!"ati n and Pr te"ti n #!nd
June, 2010
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Salman KhurshidMinister of State (Independent Charge)
Ministry of Corporate Affairs, Government of India
MESSAGE
The Indian economy has expanded at a rapid rate during the current decade andthe corporate sector has emerged as the biggest contributors in this gro th story!"ot on#y has India itnessed #arge inf#o of foreign investments during this periodbut has a#so seen the emergence of Indian mu#tinationa#s on the g#oba# corporatescene! The capita# mar$et and its expansion has been an important factor in givinga boost to the gro th of the corporate sector during the current decade! %ith thisgro th of the capita# mar$et, some of the Indian companies are no en&oyingmar$et capita#i'ations and are amongst the top companies in the ho#e or#d!
o ever, re#ative#y #o participation of retai# investors in the corporate economycontinues to be a cause of concern! It has been ascertained that the tota# numberof retai# investors is much #ess than * of the tota# Indian popu#ation!
%hi#e on one hand, the number of retai# investors is #o , on the other handsubstantia# amount of househo#d savings are avai#ab#e hich can be channe#i'ed inthe corporate economy through various investment schemes! This can enab#e thecommon peop#e to derive higher returns from their investments and #in$ the
gro th of corporate sector to the gro th of income of these househo#ds! Thisre+uires an effective outreach initiative to the common peop#e here they can beeducated as e## as encouraged to ta$e informed investment decisions in thecorporate economy in order to get higher returns!
Ta$ing note of this, the Ministry of Corporate Affairs has decided to mainstreamthe investor a areness program as a nationa# agenda during the current year! orthis purpose, e have partnered ith a number of institutions ho i## be
organi'ing more than -,... investor programmes throughout the country this year!%e are a#so organi'ing the /India Investor %ee$0 during 1u#y 2. . ith the themeInformed Investor an Asset to Corporate India !
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The Ministry is bringing out a comprehensive investor guide on this occasionhich i## he#p the /aam aadmi0 desirous of ma$ing investments to understand
their rights and responsibi#ities as e## as various investment instruments a#ong
ith their associated ris$s and returns! I am sure that the pub#ication of this 3oo$i## be a significant step in spreading a areness on investor issues and i## he#p in
integrating the common man into the corporate economy of the country!
Sa#man 4hurshid
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R.Band opadh aSecretary
Ministry of Corporate Affairs,Government of India
FOREWORD
3uoyant and participative financia# and capita# mar$ets are not on#y one of themost important re+uirements for gro th of corporate economy, but are a#so animportant instrument of financia# inc#usion! The buoyancy in these mar$ets is asmuch dependent on the performance of the corporate sector as is on theparticipation of informed investors in the mar$et operations! %ith the t inob&ectives to bring more peop#e into the corporate economy by ay of investmentof their surp#us incomes and to ma$e them informed investors, the Ministry ofCorporate Affairs has underta$en various initiatives under the aegis of Investor5ducation and 6rotection und! These inc#ude media campaigns and organi'inginvestor a areness programmes ith the he#p of investor associations and some ofthe institutions or$ing in this fie#d! As a part of this initiative, the Ministry hasa#so made avai#ab#e educationa# content in different regiona# #anguages at its
ebsite! or redressa# of the investor grievances, the Ministry has made avai#ab#ethe services through an investor he#p#ine!
%ith a vie to convert the investor education and a areness programme ofthe Ministry into a mass movement, it has been decided to upsca#e this initiative ina big ay and to bring a number of organi'ations as partners in this area! I amhappy to announce that the three professiona# institutes, the ma&or trade andindustry chambers, the stoc$ exchanges a#ong ith the 7eserve 3an$ of India, S53Iand 8epartment of 6ub#ic 5nterprises have come together to ta$e up a very #argenumber of investor a areness programmes throughout the country! %e expect thenumber of these programmes to go beyond -,... during the current financia# year!
In order to educate the investors for ta$ing informed investment decisions, theMinistry has decided to bring out an easy to understand boo$ that provides #ucid
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information on various investment instruments and the rights and responsibi#itiesassociated ith each one of them! This Investor0s Guide has been edited by Shri6rithvi a#dea, a noted expert on the sub&ect! 9a#uab#e materia# has a#so beenprovided by S53I, 73I, Stoc$ 5xchanges and the 6rofessiona# Institutes in this
regard! The pub#ication of this boo$, hich i## a#so be avai#ab#e short#y in other#anguages, i## he#p in encouraging a much #arger number of common peop#e toparticipate in the corporate economy! This i## be a sma## contribution by theMinistry of Corporate Affairs to ards the nationa# agenda of inc#usive gro th and Iam sure that a #arge number of investors : existing and potentia# : i## benefitfrom the contents of this 3oo$!
The Ministry appreciates the contribution made by Shri 6rithvi a#dea and theorgani'ations that have partnered ith the Ministry in this initiative of nationbui#ding and hopes that the investors i## be encouraged for greater participationin the capita# mar$et in an informed and ise manner!
7!3andyopadhyay
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EDITORS NOTEInvestments by households in India have in reasingly moved either to ris!"free, fi#ed"return, lo$"
yielding instruments or to non"finan ial assets% &o$ !no$ledge among households of finan ial
on e'ts and 'rodu ts has a dire t im'a t on utili(ation by households of the finan ial mar!ets%)inan ial litera y also 'lays a signifi ant role in effi ient allo ation of household savings and the
ability of individuals to meet their finan ial goals% Investors tend to use thumb rules or see! advi e
from friends and relatives, $hi h are often 'oor a''ro#imations om'ared to those that follo$ from a
s ientifi analysis% *hey $ill tend to ma!e bad hoi es, ontribute insuffi iently, begin saving late, stay
a$ay from modern finan e, or fall 'rey to fraud or mis"selling% If they get bad advi e, the out omes
$ill be 'oor, and they $ill lose faith in the system% +istory sho$s that most investors allo$ others to
destroy their $ealth%
mall investors have al$ays 'layed a ru ial role in the a'ital mar!et% *here is, ho$ever, anin reasing need for their larger role% &ess than 1 - of our 'o'ulation invests dire tly in the mar!et
$ith another 2 to . - oming through the mutual funds% /orse, less than 2 'er ent of the household
savings go to the a'ital mar!et% Every earner is a 'otential saver every saver is a 'otential investor
and every investor ought to be finan ially literate% Unless the ommon 'erson be omes a $iser
investor, and is 'rote ted from $rongdoings, $ealth reation for the investor $ill remain a distant
dream% /e need to onvert a nation of savers into a nation of investors%
Individuals need to be em'o$ered so that they an ma!e informed de isions% Im'arting finan ial
!no$ledge to 'eo'le is a 'ubli good% *he government, regulators and the finan ial servi es industry
need to ome together to initiate a tion to im'rove finan ial litera y and deliver a urate information
in sim'le formats%
*his Investors uide is a humble beginning in this dire tion%
*he three institutions"I34I, I3 I and I3/4I had 're'ared Investors +andboo!s% +o$ever, these had
different overage and fo us% *his 'resent Investors uide to the 3a'ital Mar!et is a om'ilation of
the best materials a''earing in these handboo!s, u'dating the various se tions $ith the hanges in
the mar!et5la$s5guidelines, re$riting several se tions to ma!e them investor"friendly and adding a
large number of ne$ se tions% *he format of 'resentation has also been made more a''ealing%
*he Editor $ould li!e to a''re iate the ommitment of hri alman 6hurshid, Minister of tate
7Inde'endent 3harge8 ,Ministry of 3or'orate 4ffairs and hri R%9andyo'adhyay, e retary,
Ministry of 3or'orate 4ffairs to em'o$er the investors and $ould li!e to than! them for
'roviding the o''ortunity of $riting this uide%
Prithvi +aldea1st June, 2010
1
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INVESTORS GUIDE TO THE CAPITAL MARKET
TA$LE O# CONTENTS
Cha%ter S!&'e"t Pa(e N )1 I:;E *
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- Demateriali(ation
-
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Cha%ter *
INVESTOR EDUCATION AND PROTECTION #UND
A& !t IEP#
Investor Edu ation and Prote tion )und 7IEP)8has been established under e tion 20>3 of the
3om'anies 4 t, 1A>? by $ay 3om'anies
74mendment8 4 t, 1AAA for 'romotion of
investors a$areness and 'rote tion of the
interests of investors%
A"tivities !nderta+en &, IEP#
Investor Edu ation and Prote tion )und
74$areness and Prote tion of Investors8 Rules,2001 sti'ulate the a tivities related to investors
edu ation, a$areness and 'rote tion for $hi h
the finan ial san tion an be 'rovided under
IEP)%
7i8 4 tivities sti'ulated under Rules Edu ation 'rogramme through Media
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INVESTOR RELATED -E$SITES O# IEP#
ie%.)( v)in
Created and Maintained by
PRIME Database 7PR4 I 8
info ie'f%gov%in
)inan ial litera y allo$s the investors to fully
a''re iate o''ortunities and asso iated ris!s,
ta!e informed de isions and 'arti i'ate a tively
in the e onomi gro$th story of the ountry by
onverting savings into investments%
4s a ste' to$ards a hieving this obFe tive, the
M34 laun hed a $ebsite ///)ie%.)( v)in in
e'tember, 200 ) 9esides 'roviding information
about IEP) and the various a tivities that have
been underta!en5 funded by it, this $ebsite
fulfils the need for an information resour e for
small investors on all as'e ts of the a'ital
mar!et and do it in the small investors
language%
*his $ebsite 'resently overs information on
IP< Investing, Mutual )und Investing, to !
*rading, De'ository 4 ount, Debt Mar!et,
Derivatives, Indi es, Indi es 73omi tri'8,
Inde# )unds, Investor rievan es C 4rbitration
7 to ! E# hanges8, Investor Rights C
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- $hen dealing $ith su h entities
in any manner
-h, this /e&site2
3onsider the follo$ingL
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In fa t, this $ebsite is easier to sear h and
navigate than the offi ial $ebsites of the very
regulatory agen ies $hose a tions have been
tra !ed and listed by it%
Over *3453444 entities are alread, listed
n this /e&site
4s of .1 st May,2010, the $ebsite had listed over
1,0?,000 entities overingL
3om'anies5)irms L 2,>1
Individuals L ..,AB
Re(!lat rs " vered
*he $ebsite overs the orders 'assed by severalregulatory bodies, in luding the follo$ingL
- 9ombay to ! E# hange &td%
- 3entral De'ository ervi es
7India8 &td%
- 3om'any &a$ 9oard
- Debt Re overy *ribunals
- Em'loyees Provident )und
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administrator has been made online to ma!e
it user friendly%
- 'e ifi )orms for Different
ty'es of rievan es%
GRIEVANCE T7PES
- :on Re ei't of Refund
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Cha%ter 0
EDITORS 04 MANTRASSave %r!dentl,8
Invest even 1 re /isel,
Investin( Investing is om'ulsory%
ou have to invest other$ise your savings
$ill de're iate in value5'ur hasing 'o$er% +o$ever, mindless or re !less investing is
ha(ardous to $ealth%
04 Mantras t -ise Investin(
Mantra *
Invest nl, in .!nda1entall, str n(
" 1%anies Do not go for momentum or 'enny sto !s%
Invest only in om'anies $ith strong
fundamentals these are the ones that $ill
$ithstand mar!et 'ressures, and 'erform $ell in the long term%
EKuity investments annot be sold ba ! to
the om'any5'romoters% trong sto !s are also liKuid sto !s%
Mantra 0
Read "are.!ll, Do not gamble a$ay your hard earned
money% Due diligen e is a must%
Read about the offer% *his is an advi e
diffi ult to 'ra ti e $ith offer do uments
no$ running into more than 1000 'ages
abridged 'ros'e tus too is diffi ult to read%
et, read you must, at least se tions on ris!
fa tors, litigations, 'romoters, om'any
history, 'roFe t, obFe ts of the issue and !eyfinan ial data%
Mantra 9
# ll / li.e:","le investin( ou an afford to ta!e greater ris!s $hen
you are young% 4s you ross >0, start getting out of ris!y
instruments% 9y >>5?0, you should be totally out of
eKuity% 7 ou an t afford to lose your a'ital
$hen you have sto''ed earning ne$
money8% *here are better things in life atthat age than $at h the 'ri e ti !er on *;N
Mantra ;
Invest in IPOs IP
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Mantra 0- revenue for the
're eding 1 year should be from
the a tivity suggested by the
ne$ name%
7e8 *he issue si(e does not e# eed >
times the 're"issue net $orth as'er the audited balan e sheet of
the last finan ial year
*o 'rovide suffi ient fle#ibility and also
to ensure that genuine om'anies do not
suffer on a ount of rigidity of the entry
norm 'arameters, E9I has 'rovided
t$o other alternative routes to
om'anies not satisfying any of the
above onditions, as underL
Entr, N r1 II F" 11 nl,
+n /n as the I$ R !te
7a8 *he issue shall be through the
boo! building route, $ith at
least >0- of the issue amount to
be mandatory allotted to the
ualified Institutional 9uyers
7 I9s8%
7b8 *he minimum 'ost"issue fa e
value a'ital shall be Rs% 10
rore or there shall be a
om'ulsory mar!et"ma!ing for
at least 2 years after the listing
date%
Entr, N r1 III F" 11 nl,
+n /n as the A%%raisal R !te
7a8 *he G'roFe tH shall be a''raised
and shall have 'arti i'ation to
the e#tent of 1>- by )inan ial
Institutions 5 heduled
3ommer ial 9an!s of $hi h atleast 10- shall ome from the
a''raiser7s8%
7b8 *he minimum 'ost"issue fa e
value a'ital shall be Rs% 10 rore
or there shall be a om'ulsory
mar!et"ma!ing for at least 2
years after the listing date%
In addition to satisfying the aforesaidentry norms, the om'any shall also
satisfy the riteria of having at least 1000
allottees in its issue%
#POs .r 1 Listed C 1%anies
4 listed om'any ma!ing a 'ubli issue 7i%e% an
)P
times the 're" issue net $orth as
'er the audited balan e sheet of
the last finan ial year
4ny listed om'any not fulfilling these
onditions shall be eligible to ma!e a
'ubli issue by om'lying $ith the I9
Route or the 4''raisal Route as
s'e ified for IP
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7b8 Publi se tor ban!s
7 8 4n infrastru ture om'any
$hose 'roFe t has been
a''raised by a Publi )inan ial
Institution or ID)3 or I&C) ora ban! $hi h $as earlier a P)I
and not less than >- of the
'roFe t ost is finan ed by any of
these institutions%
Ri(hts Iss!es
*here are no entry norms for a listed om'any
ma!ing a rights issue
OTHER ENTR7 PROVISIONS 4 om'any ma!ing a 'ubli issue is reKuired to
inter"alia om'ly $ith the follo$ing 'rovisionsL
"inimum #romoter$s %ontribution and &ock-in L
In a 'ubli issue by an unlisted om'any, the
'romoters shall ontribute not less than 20- of
the 'ost issue a'ital $hi h should be lo !ed in
for a 'eriod of . years% G&o !"inH indi ates a
free(e on the shares% *he remaining 're"issue
a'ital should also be lo !ed in for a 'eriod of 1
year from the date of listing% In ase of 'ubli
issue by a listed issuer 7i%e% )P
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allotments and IPs% )or IPs, ho$ever, the
mer hant ban!er handling the issue has to file a
o'y of the draft do ument $ith the sto !
e# hanges $here the om'any s se urities are
listed and also file the final 'la ement do ument $ith E9I after allotment for re ord 'ur'ose%
#ast Tra"+ Iss!es F#TI
E9I has introdu ed )*I in order to enable $ell"
established and om'liant listed om'anies
satisfying ertain s'e ifi entry
norms5 onditions to a ess Indian Primary
Mar!et in a time effe tive manner% u h
om'anies an 'ro eed $ith )P- of the
net 'rofit5 loss after ta# of the om'any for
the res'e tive years%
7vii8 :o 'rose ution 'ro eedings or sho$ ause
noti es issued by the 9oard are 'ending
against the om'any or its 'romoters or
$hole time dire tors as on the referen e
date and
7viii8 *he entire shareholding of the 'romoter
grou' is held in demateriali(ed form as on
the referen e date%
D es SE$I re" 11end an, iss!e2
It should be distin tly understood that E9I does
not re ommend any issue nor does it ta!e any
res'onsibility either for the finan ial soundness
of any s heme or the 'roFe t for $hi h the issue is
'ro'osed to be made or for the dis losures made
in the offer do ument%
D es SE$I a%%r ve the " ntents . the
..er d "!1ent2
ubmission of offer do ument to E9I should not
in any $ay be deemed or onstrued that the same
has been leared or a''roved by E9I% *hemer hant ban!er ertifies that the dis losures
B?
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made in the offer do ument are adeKuate and
are in onformity $ith E9I guidelines%
I. SE$I has iss!ed &servati ns n the
..er d "!1ent3 d es it 1ean that theinvest1ent is sa.e2
Investors should ma!e an informed de ision
based on the dis losures made in the offer
do uments% E9I does not asso iate itself $ith
any issue5issuer and its role should in no $ay be
onstrued as a guarantee for the funds that the
investor 'ro'oses to invest in an issue%
O##ER DOCUMENTSB
PROSPECTUS B LETTERS
O# O##ER 'ffer document means Pros'e tus in ase of a
'ubli issue or 'ubli offer for sale and &etter of
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bridged &etter of 'ffer means the abridged
version of a &etter of
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)inan ial statement, hanges in a ounting
'oli ies in the last three years and differen es
bet$een the a ounting 'oli ies and the Indian
4 ounting Poli ies 7if the 3om'any has
'resented its )inan ial tatements also as 'ereither U 44P5I4 are 'resented%
Le(al and ther in. r1ati n
&itigations involving the om'any and its
subsidiaries, 'romoters and grou' om'anies
are dis losed% 4lso material develo'ments sin e
the last balan e sheet date, government
a''rovals5li ensing arrangements, investment
a''rovals 7)IP95R9I et %8, other governmentindebtedness, et % are also dis losed%
Other re(!lat r, and stat!t r,
dis"l s!res
Under this head, the information in ludes
authority for the issue, 'rohibition by E9I if
any, eligibility of the om'any to enter the
a'ital mar!et, general dis laimer lause,
dis laimer in res'e t of Furisdi tion, dis laimer
lause of the sto ! e# hanges, listing, minimum
subs ri'tion, letters of allotment5refunds, e#'ert
o'inion, hanges, if any, in the auditors in the
last . years, e#'enses of the issue, fees 'ayable
to the issue management team, under$riting
ommission, bro!erage and selling ommission,
'revious rights and 'ubli issues, 'revious issues
for ash, issues other$ise than for ash,
outstanding debentures or bonds, outstanding
'referen e shares, ommission and bro!erage on
'revious issues, a'itali(ation of reserves or
'rofits, o'tion to subs ribe in the issue,
'ur hase of 'ro'erty, revaluation of assets,
lasses of shares, sto ! mar!et data for eKuity
shares of the om'any, 'romise vis" "vis
'erforman e in the 'ast issues and me hanism
for redressal of investor grievan es%
O..erin( in. r1ati n
Information in ludes terms of the issue, ran!ing
of eKuity shares, mode of 'ayment of dividend,
fa e value and issue 'ri e, rights of the eKuity
shareholders, mar!et lot, nomination fa ility toinvestors, issue 'ro edure, boo! building
'ro edure if a''li able, bid form, $ho an bid,
ma#imum and minimum bid si(e, bidding
'ro ess, bidding at different 'ri e levels, es ro$
me hanism, terms of 'ayment and 'ayment into
the es ro$ olle tion a ount, ele troni
registration of bids, build u' of the boo! and
revision of bids, 'ri e dis overy and allo ation,
signing of under$riting agreement and filing of'ros'e tus $ith E9I5R
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Mer hant ban!ers are reKuired to do thorough
due diligen e $hile 're'aring an offer
do ument%
-h 1 sh !ld an invest r a%%r a"h i.there are an, %r &le1s /ith the
dis"l s!res2
*he draft offer do ument submitted to E9I is
'ut out by it on it $ebsite for 'ubli omments%
In ase a 'erson has any information about the
issuer or its dire tors or any other as'e t of the
om'any $hi h is material but has not been
dis losed or some information has been
dis losed in orre tly, he an notify E9I aboutthe same%
IPO GRADINGIP< grading has been introdu ed as an endeavor
to ma!e additional information available to the
investors to fa ilitate better de ision ma!ing
before investing in an IP
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- 9usiness Pros'e ts and
3om'etitive Position
7a8 Industry Pros'e ts
7b8 3om'any Pros'e ts
- )inan ial Position
- Management uality
- 3or'orate overnan e
Pra ti es
- 3om'lian e and
&itigation +istory
- :e$ ProFe tsSRis!s
and Pros'e ts
D es IPO (radin( " nsider the %ri"e at
/hi"h the shares /ill &e ..ered in the
IPO2
:o% IP< grading is done $ithout ta!ing into
a ount the 'ri e at $hi h the se urity $ill be
offered in the IP
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'ros'e tus, abridged 'ros'e tus, issue
advertisements et % *he rading &etter of the
3R4 $hi h ontains the detailed rationale for
assigning a 'arti ular grade is available as a
Material Do ument for ins'e tion at theregistered offi e of the om'any%
CATEGOR7 O# INVESTORSInvestors are lassified by E9I under the
follo$ing . ategories"L
7i8 Retail Individual Investor 7RIIs8 means an
investor $ho a''lies or bids for se urities
for a value of not more than Rs% 1,00,000%
7ii8 ualified Institutional 9uyers 7 I9s8 means
7a8 Publi finan ial institution as defined
in se tion B4 of the 3om'anies 4 t,
1A>?
7b8 heduled ommer ial ban!s
7 8 Mutual funds
7d8 )oreign institutional investor
registered $ith E9I
7e8 Multilateral and bilateral develo'ment
finan ial institutions
7f8 ;enture a'ital funds registered $ith
E9I
7g8 )oreign venture a'ital investors
registered $ith E9I
7h8 tate Industrial Develo'ment
3or'orations
7i8 Insuran e om'anies registered $iththe Insuran e Regulatory and
Develo'ment 4uthority 7IRD48
7F8 Provident funds $ith minimum
or'us of Rs% 2> rore
7!8 Pension funds $ith minimum or'us
of Rs% 2> rore
7l8 :ational Investment )und set u' by
resolution )% :o%25.5200>"DD"II
dated :ovember 2., 200> of
overnment of India 'ublished in the
a(ette of India%H
7iii8 :on"Institutional Investors 7:IIs8 means
investors $ho do not fall $ithin the definition
of the above t$o ategories%
ALLOTMENTS 4llotment in a 'ubli issue to various investor
ategories is as follo$sL
!n case of book-built issues
1% In ase an issuer om'any ma!es an issue of
100- of the net offer to 'ubli through 100-
boo! building 'ro essS
7a8 :ot less than .>- of the net offer to retail
individual investors
7b8 :ot less than 1>- of the net offer to non"
institutional investors
7 8 :ot more than >0- of the net offer to
ualified Institutional 9uyersL
2% In ase of om'ulsory boo!"built issues, at least
>0- of the net offer should be allotted toualified Institutional 9uyers, failing $hi h
the issue $ill be de lared as invalid and all
subs ri'tion monies shall need to be
refunded%
.% In boo!"built issues made 'ursuant to the
reKuirement of mandatory allo ation of ?0-
to I9s in terms of Rule 1A728 7b8 of
e urities 3ontra t 7Regulation8 Rules, 1A> ,
the res'e tive figures are .0- for RIIs and10- for :IIs%
*here is no dis retion 'ermitted in the allotment
'ro ess% 4ll investors are allotted shares on a
'ro'ortionate basis $ithin their res'e tive
investor ategories%
!n case of fi ed price issues
*he 'ro'ortionate allotment of se urities to
different investor ategories is as follo$sL
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1% 4 minimum >0- of the net offer shall initially
be made available for allotment to retail
individual investors%
2% *he balan e net offer shall be made available
for allotment toLa% Individual a''li ants other than retail
individual investors, and
b%
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obtained% *he issuer an sti'ulate a 'ri e band of
20- 7 a' in the 'ri e band should not be more
than 20- of the floor 'ri e8 %*his method
'rovides an o''ortunity to the mar!et to
dis over 'ri e for the se urities, though $ithin a band of 20-%
Di..erential Pri"in(
Pri ing of an issue $here one ategory is offered
shares at a 'ri e different from the other
ategory is alled differential 'ri ing% In I3DR
Regulations, differential 'ri ing is allo$ed only
if the se urities allotted to an a''li ant are at a
'ri e higher than the 'ri e at $hi h the net offerto the 'ubli is made%
Dis" !nt t Retail
4n issuer om'any an allot shares to retail
individual investors at a dis ount of ma#imum
10- to the 'ri e at $hi h the shares are offered
to the other ategories%
UNDERSTANDING $OOK
$UILDING
-hat is & + &!ildin(2
9oo! building is a 'ro ess of 'ri e dis overy%
*he a''li ants bid for the shares Kuoting the
'ri e and the Kuantity that they $ould li!e to bid
at% *he bids have to be made $ithin the 'ri e
band s'e ified by the issuer% Retail investors alsohave the o'tion of not bidding at a 'arti ular
'ri e but rather using the ut"off o'tion% 4fter
the bidding 'ro ess is om'lete, the ut"off
'ri e i%e% the final issue 'ri e is arrived at by the
issuer de'ending u'on the bids re eived at
various 'ri es% *hough an issuer an sti'ulate
the final 'ri e to be any 'ri e in luding the
highest 'ri e of the 'ri e band in ase the entire
Kuantity of shares 'ro'osed to be sold are bid for
at that 'ri e, he an also hoose any lo$er 'ri e
'oint $ithin the band% 4ll a''li ants $ho have
bid at or above the ut off 'ri e are then eligible
for allotment and are allotted shares at the same
ut off 'ri e even if they had bid at a higher 'ri e
7Dut h au tion 'ro ess8% *he basis of allotment isthen finali(ed and allotment5refund is
underta!en%
-hat is a %ri"e &and2
*he red herring 'ros'e tus may ontain either
the floor 'ri e for the se urities or a 'ri e band
$ithin $hi h the investors an bid% *he s'read
bet$een the floor and the a' of the 'ri e band
annot be more than 20-% *his means that thea' should not be more than 120- of the floor
'ri e%
*he 'ri e band an be revised after the issue has
o'ened% u h revision has to be notified to the
sto ! e# hanges, by issuing 'ress release and
advertisements and also dis'laying the same on
the terminals of the syndi ate members%
Moreover, the bidding 'eriod has to be e#tended
for a further 'eriod of three days, subFe t to the
total bidding 'eriod not e# eeding ten days%
-h de"ides the %ri"e &and2
It is u' to the om'any to de ide on the 'ri e or
the 'ri e band in onsultation $ith its mer hant
ban!ers%
H / d es the "!t: .. %ti n / r+ . r the
retail invest rs2
G3ut"offH o'tion is available only for the retail
individual investors i%e% investors $ho are
a''lying for se urities $orth u' to Rs% 1,00,000%
u h investors are reKuired to ti ! the ut"off
o'tion $hi h indi ates their $illingness to
subs ribe to shares at the 'ri e finally dis overed
and de ided by the issuer% Unli!e s'e ifi 'ri e bids $hi h be ome invalid if the bid 'ri e is lo$er
than the final 'ri e, bids re eived under the ut"
>B
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off o'tion remain valid for onsideration for
allotment
ISSUE PROCESS
H / d es ne " 1e t +n / a& !t the
. rth" 1in( iss!es2 And .r 1 /here "an
ne (et " %ies . the dra.t ..er
d "!1ent2
E9I issues 'ress releases every $ee! regarding
the draft offer do uments re eived and
observations issued during the 'eriod% *he draft
offer do uments are 'ut u' on its $ebsite% *he
final offer do uments that are filed $ith
E9I5R
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Can the invest r "han(eBrevise his &id2
es% 4n investor an hange or revise the
Kuantity or 'ri e of his bid by using the form for
hanging5revising the bid that is available along
$ith the a''li ation form% +o$ever, this has to be done before the losure of the issue%
Can an invest r "an"el his &id2
es% 4n investor an an el his bid anytime
before the finali(ation of the basis of allotment
by ma!ing an a''li ation to the registrar to the
issue%
-hat %r . "an an invest r re !est .r 1a s,ndi"ate 1e1&er that his &id has &een
entered int the s,ste12
*he syndi ate member is reKuired to return the
ounterfoil $ith the signature, date and stam' of
the syndi ate member% *he investor should
retain this as a 'roof that his bid $as a e'ted in
the system%
-hat is &asis . all "ati nB&asis .
all t1ent2
4fter the losure of the issue, the bids re eived
are aggregated under different ategories i%e%,
firm allotments, ualified Institutional 9uyers
7 I9s8, :on"Institutional 9uyers 7:I9s8, Retail,
et % *he oversubs ri'tion ratios are then
al ulated for ea h of the ategories as against
the shares reserved for ea h of the ategories in
the offer do ument% /ithin ea h of these
ategories, the bids are then segregated into
different bu !ets based on the number of shares
a''lied for% *he oversubs ri'tion ratio is then
a''lied to the number of shares a''lied for and
the number of shares to be allotted for
a''li ants in ea h of the bu !ets is determined%
ubseKuently, the number of su essful allottees
is determined%
4ll allotments, in luding in fi#ed 'ri e issues, are
done on a 'ro'ortionate allotment basis%
H / and /ithin h / 1!"h ti1e d es an
invest r (et se"!rities in his de1ata"" !nt andB r a re.!nd in "ase . n n:
all t1ent . shares2
*he 3om'any, after losing of the issue, finali(es
the basis of allotment% 9ased u'on this, advi e is
sent to the De'ository for redit of shares to the
demat a ounts of the su essful allottees%
Refunds are made through various modes vi(%registered5ordinary 'ost, Dire t 3redit, R*
7Real *ime ross ettlement8, E3 7Ele troni
3learing ervi e8 and :E)* 7:ational Ele troni
)unds *ransfer8%
If an investor is residing in one of the ?@ enters
as s'e ified by the Reserve 9an! of India, he $ill
get ele troni refunds through E3 e# e't $here
the investor has dis losed eligibility under Dire t
3redit and R* % 7see se tion on E3 8%
If an investor is residing at any other entre, he
$ill get refunds through registered5ordinary 'ost%
H / d es ne +n / i. he has &een all tted
an, shares2
*he issuer is reKuired to 'ublish an
advertisement giving details of the basis of
allotment%
*he investor is entitled to re eive an allotment
advi e $ithin 1> days from the date of losure of a
boo!"built issue and the demat redit or refund
should ta!e 'la e $ithin this 'eriod%
>?
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H / l n( d es it ta+e a.ter the iss!e . r
the shares t (et listed2
*he listing on the sto ! e# hanges is done $ithin
days from the finali(ation of the basis of
allotment% *his ty'i ally is 1>"1@ days after thelosure of the boo! built issue% In ase of fi#ed
'ri e issue, it is about .> days after losure of the
issue%
APPLICATIONS SUPPORTED $7
$LOCKED AMOUNT FAS$A
$a"+(r !nd
Until 200@, a retail investor $as reKuired to
atta h a heKue5demand draft overing the full
amount of his a''li ation% Details of su h
heKues $ere first entered by the yndi ate
Member, then the heKues $ere sent to the
ban!ers for learing, $hi h again reKuired
entering of the a''li ant s data and finally the
leared a''li ations $ere sent to the Registrar
$ho again 'ro essed the data% *his 'ro essaused delays and errors%
)urthermore, in issues that $ere oversubs ribed,
the Registrar then had to 'ro ess the refund
$arrants5refund instru tions% :early a month
after the a''li ation $as made, the investor
$ould re eive the refund% In highly
oversubs ribed issues, the volume of refund"
related $or! obviously be ame huge%3om'ounding this $as the 'roblem of refund
$arrants getting mis'la ed5lost in transit% &ittle
$onder, the largest number of om'laints in
IP
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7v8 *he investor deals $ith a !no$n
intermediary i%e% his o$n ban!%
Is it 1andat r, . r invest rs t a%%l,
thr !(h AS$A nl,2:o% 4n investor has the o'tion of ma!ing
a''li ation through 4 94 or through the
e#isting 'ro ess of a''lying $ith heKue%
-hat is a Sel. "erti.ied S,ndi"ate $an+
FSCS$ 2
9an!s $hi h have been authori(ed by E9I to
a e't 4 94 a''li ations alled elf 3ertified
yndi ate 9an!s 7 3 9s8%
Is an iss!er re !ired t %r vide AS$A
1 de . r all iss!es2
*he issuer is reKuired to 'rovide 4 94 mode in
all 'ubli issues though boo! building $here a
uniform 'ayment o'tion is being offered to the
retail investors%
Is it 1andat r, . r all SCS$s t ..er the
AS$A %r "ess in all iss!es2
It is mandatory for all issuers and all 3 9s to
offer the 4 94 'ro ess in the boo!built issues%
-here "an ne s!&1it the AS$A
a%%li"ati n . r1s2
4t 'resent, not all the ban!s are 'arti i'ating in
the 4 94 'ro ess% Even ban!s $ho are
'arti i'ating are not offering this fa ility in all
their bran hes% +o$ever, the a e'tan e entres
are in reasing by the day% *he list of 3 9s and
their bran hes $here 4 94 a''li ation forms
are being a e'ted is available on the $ebsite of
E9I 7$$$%sebi%gov%in8%
Can ne !se the e istin( a%%li"ati n . r1
. r %!&li" iss!es . r a%%l,in( thr !(h AS$A2
:o% *he a''li ation form for 4 94 is different
from the regular a''li ation form for 'ubli
issues% *he 4 94 a''li ation forms are available
$ith the designated bran hes of 3 9%
Can ne /ithdra/ the &id 1ade thr !(h AS$A2
es, the 4 94"su''orted bids an be $ithdra$n
during the bidding 'eriod% )or this, the ban! to
$hi h the bid $as submitted has to be reKuested
for $ithdra$al through a duly signed letter% *he
blo !ed amount $ill be unblo !ed immediately%
4fter the bid losure 'eriod, one an send the
$ithdra$al reKuest to the Registrars, $ho $illan el the bid and instru t the 3 9 to unblo !
the a''li ation money in the ban! a ount, but
only after the finali(ation of the basis of
allotment%
-h sh !ld ne a%%r a"h i. it is . !nd
that all details in the AS$A . r1
/ere " rre"t3 ,et the a%%li"ati n /as
re'e"ted &, "itin( the reas n .
/r n( data2
*he relevant 3 9 should be onta ted% If not
resolved, one should $rite to E9I%
D es an invest r ne"essaril, need t have
a DP a"" !nt /ith the sa1e SCS$ /here
AS$A a%%li"ati n is &ein( s!&1itted2
:o%
Can ne a%%l, in the sa1e iss!e & th
thr !(h AS$A %r "ess and thr !(h the
e istin( s,ste1 . %a,1ent thr !(h
"he !e2
:o% 4n investor an a''ly only through one of the
routes%
Is there an, di..erent treat1ent inall t1ent . r AS$A and n n:AS$A . r1s2
>@
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:o% 4 94 forms are treated at 'ar $ith the non"
4 94 forms
D es an invest r (et an a"+n /led(e1ent
. r AS$A a%%li"ati ns2
es% *he 339 is reKuired to give ana !no$ledgement%
-h is res% nsi&le . r err rs in the data
!%l aded in the ele"tr ni" &iddin(
s,ste12
In ase there is an error by the investor in
entering the data in the a''li ation form, the
investor shall be res'onsible% In ase there is an
error by 3 9 in entering the data in theele troni bidding system of the sto !
e# hanges, the 3 9 shall be res'onsible%
-hat ha%%ens /hen an iss!e .ailsB is
/ithdra/n2
In ase an issue fails or is $ithdra$n, the 3 9
shall unblo ! the a''li ation money u'on
re eiving instru tions from the Registrar%
ELECTRONIC CLEARING SCHEME
FECS #OR RE#UNDS
E9I mandated in 200? the use of E3 forrefunds in 'ubli issues% 4''li ants residing in ?@
enters, as 'rovided by R9I, no$ get refunds
through E3 7in addition $ith other modes of
ma!ing refunds ele troni ally li!e R* , Dire t
redit and :E)*8% 4''li ants in other enters
ho$ever get refunds through the normal 'ra ti e
of registered 5 ordinary 'ost%
Under E3 , the ban! a ount details of theinvestors are ta!en dire tly from the de'ositories
databases and the amounts are ele troni ally
redited to the investor s a ounts% 4n investor
should ensure that his ban! details in luding
MI3R ode 7a A digit ode $hi h a''ears in the
heKue leaf8 are 'rovided to the DP, and is
u'dated $henever ne essary%
*he list of the ?@ entres is 'rovided belo$L
1 4gra
2 4hmedabad
. 4llahabad
B 4mritsar
> 4urangabad
? 9angalore
9hil$ara
@ 9ho'al
A 9hubanes$ar
10 9urd$an7non"MI3R811 3handigarh
12 3hennai
1. 3oimbatore
1B Dehradun
1> Dhanbad7non"MI3R8
1? Durga'ur 7non"MI3R8
1 Erode
1@ ora!h'ur
1A u$ahati
20 $alior
21 +aldia 7:on" MI3R822 +ubli
2. +yderabad
2B Indore
2> Jabal'ur
2? Jai'ur
2 Jalandhar
2@ Jammu
2A Jamshed'ur
.0 Jodh'ur
.1 6a!inada 7non"MI3R8
.2 6an'ur
.. 6o hi5Erna!ulam
.B 6olha'ur
.> 6ol!ata
.? 6o(hi!ode
. &u !no$
.@ &udhiana
.A Madurai
B0 Mangalore
B1 Mumbai
B2 Mysore
B. :ag'ur
BB :ashi! B> :ellore 7non"MI3R8
B? :e$ Delhi
B PanaFi
B@ Patna
BA Pondi herry
>0 Pune
>1 Rai'ur
>2 RaF!ot
>. Ran hi
>B alem
>> himla 7non"MI3R8
>? hola'ur> iliguri 7non"MI3R8
>@ urat
>A *hiruvanantha'uram
?0 *iru hira'alli
?1 *iru'ati7non"MI3R8
?2 *iru'ur
?. *ri hur
?B Udai'ur
?> ;adodara
?? ;aranasi
? ;iFay$ada?@ ;isa!ha'atnam
>A
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INTERMEDIARIES INVOLVED IN
THE ISSUE PROCESS*he !ey intermediaries $ho are involved in the
issue 'ro ess, and are all registered $ith E9I,are Mer hant 9an!ers to the issue 7!no$n as
9oo! Running &ead Managers "9R&M" in ase of
boo! built 'ubli issues8, Registrars to the issue,
9an!ers to the issue Under$riters and yndi ate
Members%
Mer"hant $an+ers
4 Mer hant 9an!er does the due diligen e to
're'are the offer do ument% *hey are also
res'onsible for ensuring om'lian e $ith all
la$s5regulations and for mar!eting of the issue%
In the 're"issue 'ro ess, the &ead Manager 7&M8
ta!es u' the due diligen e of the om'any s
o'erations5 management5 business 'lans5 legal
et % before in luding this information in the
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SOME TERMS AND CONCEPTS
Green:sh e O%ti n
4 reen hoe o'tion means an o'tion of
allo ating shares in e# ess of the shares in ludedin a 'ubli issue and o'erating a 'ost"listing
'ri e stabili(ing me hanism for a 'eriod not
e# eeding .0 days in a ordan e $ith the
'rovisions of E9I 7I3DR8 Regulations $hi h is
granted to a om'any to be e#er ised through a
tabili(ing 4gent% *his is an arrangement
$herein the issue $ould be over allotted to the
e#tent of a ma#imum of 1>- of the issue si(e%
)rom an investor s 'ers'e tive, an issue $ith
green shoe o'tion 'rovides a higher 'robability
of getting shares and also that 'ost listing 'ri e
may sho$ relatively more stability%
Sa.et, Net
4 safety net s heme is a s heme under $hi h a
buy ba ! shall be done of the shares allotted in
an issue only from the original resident
individual allottees limited u' to a ma#imum of
1000 shares 'er allottee and su h offer is !e't
o'en for a 'eriod of ? months from the date
listing% *his s heme has to be finali(ed in
advan e and dis losed in the 'ros'e tus%
L "+:In
G&o !"inH indi ates a free(e on the shares% E9I
7I3DR Regulations8 uidelines have sti'ulatedlo !"in reKuirements on shares of 'romoters
mainly to ensure that the 'romoters or main
'ersons, $ho are ontrolling the om'any, shall
ontinue to hold some minimum 'er entage in
the om'any after the 'ubli issue% *he
reKuirements are detailed in 'art I; of 3ha'ter
III of E9I 7I3DR8 Regulations%
*here is lo !"in on the shares held before IP12 3D &8 are registered $ith E9I% *hese
olle tively have 1@@B2 entres s'read all a ross
the ountry%
*hese om'rise ban!s, bro!ers, registrars and
other finan ial se tor 'arti i'ants%
DEMATERIALISATION
-hat is de1ateriali ati n2
Demateriali(ation is the 'ro ess by $hi h
'hysi al share ertifi ates held by an investor are
onverted into an eKuivalent number of se urities
in ele troni form and redited into the investor s
a ount%
?B
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-hat are the &ene.its .
de1ateriali ati n2
- 4 safe, onvenient $ay to hold se urities
- Immediate transfer of se urities
- :o stam' duty on transfer of se urities
- Elimination of ris!s asso iated $ith
'hysi al ertifi ates su h as bad
delivery, fa!e se urities, delays, thefts
et %
- Redu tion in 'a'er$or! involved in
transfer of se urities
- Redu tion in transa tion ost
- :o odd lot 'roblem, even one share an
be sold
- :omination fa ility
- 3hange in address re orded $ith DP
gets registered $ith all om'anies in
$hi h investor holds se urities
ele troni ally eliminating the need to
orres'ond $ith ea h of them
se'arately- *ransmission of se urities is done by DP
eliminating orres'onden e $ith
om'anies
- 4utomati redit into demat a ount of
shares, arising out"of bonus5 s'lit5
onsolidation5merger et %
- +olding investments in eKuity and debt
instruments in a single a ount
H / d es ne " nvert %h,si"al shares
int ele"tr ni" h ldin( Fh / "an ne
de1ateriali e the se"!rities 2
In order to demateriali(e 'hysi al 7'a'er8
se urities, one has to fill in a DR) 7Demat
ReKuest )orm8 $hi h is available $ith the DP
and submit the same along $ith 'hysi al
ertifi ates that are to be demateriali(ed%e'arate DR) has to be filled for ea h I I:% *he
om'lete 'ro ess of demateriali(ation is outlined
belo$L urrender ertifi ates for
demateriali(ation to the DP%
DP intimates to the De'ository regardingthe reKuest for demateriali(ation through
the system% DP submits the ertifi ates to the R*4 of
the 3om'any% R*4 onfirms the demateriali(ation
reKuest from the de'ository%
4fter demateriali(ing the ertifi ates, the
R*4 u'dates t he a ounts andinforms the de'ository regarding
om'letion of demateriali(ation% De'ository u'dates its a ounts and
informs the DP% DP u'dates the demat a ount of the
investor%
-hat is an ISIN2I I: 7International e urities Identifi ation
:umber8 is a uniKue 12 digit al'ha"numeri
identifi ation number allotted for ea h se urity
7e%g% I:[email protected]@8% I I: is not assigned to a
om'any in fa t, for even eKuity shares issued by
a om'any of different ty'es li!e eKuity"fully 'aid
u', eKuity"'artly 'aid u', eKuity $ith differential
voting 5dividend rights issued by the same issuer
$ill have different I I:s%
D de1ateriali ed shares have distin"tive
n!1&ers2
Unli!e 'hysi al shares, demateriali(ed shares do
not have any distin tive numbers% *hese shares
are fungible, $hi h means that all the holdings of
a 'arti ular se urity are identi al and
inter hangeable%
?>
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Can dd l t shares &e de1ateriali ed2
es% 00 shares, irres'e tive of their
value" in 'hysi al mode the sto ! e# hanges
'rovide a se'arate trading $indo$ $hi h gives
the fa ility for small investors to sell 'hysi al
shares% +o$ever, this segment has been near"
dormant for many years no$, 'lagued as it is
$ith la ! of liKuidity and huge dis ounts on the
mar!et 'ri e that need to be offered8%
OPENING A DEMAT ACCOUNT
H / "an an invest r avail the servi"es .
a de% sit r,2
*o avail the servi es of a de'ository, an investor
is reKuired to o'en a 9enefi ial
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-h, is an invest r re !ired t (ive his
&an+ a"" !nt details at the ti1e .
a"" !nt %enin(2
9an! a ount details are ne essary for the
'rote tion of interest of the investors% /hen anyash or non ash or'orate benefits su h as
rights or bonus or dividend is announ ed for a
'arti ular s ri', the de'ositories 'rovide to the
on erned om'any5 R*4, the details of the
investors and their ele troni holdings as on
re ord 5 boo! losure date for re !oning the
entitlement of or'orate benefit% *he
disbursement of ash benefits su h as dividend
is redited dire tly by the om'any5 R*4 to the benefi iary o$ner through the E3 7Ele troni
3learing ervi e8 fa ility $herever available or
by issuing $arrants on $hi h the ban! a ount
details are 'rinted for the to$ns $here the E3
fa ility is not available% *he 'rinting of the ban!
a ount number on the dividend $arrant
'revents any fraudulent misuse%
Can 1!lti%le a"" !nts &e %ened &, a
%ers n2
es% 4n investor an o'en more than one
a ount in the same name $ith the same DP and
also $ith different DPs, and $ith one or both the
de'ositories%
Is it ne"essar, t have a"" !nt /ith the
sa1e DP as the invest rs &r +er has2
:o% De'ository 5 DP an be hosen by the
investor as 'er his onvenien e%
Can an invest r %en a sin(le a"" !nt . r
se"!rities /ned in di..erent /nershi%
%atterns s!"h as se"!rities /ned
individ!all, and se"!rities /ned ' intl,
/ith thers2
:o% *he de'ository a ount must be o'ened inthe same o$nershi' 'attern in $hi h the
se urities are held in the 'hysi al form% )or
e#am'le, if a share ertifi ate is in the individual
name and another ertifi ate is held Fointly $ith
some one, t$o different a ounts $ould need to
be o'ened%
-hat is re !ired t &e d ne i. ne has
%h,si"al "erti.i"ates /ith the sa1e
1!lti%le na1es3 &!t the se !en"e .
na1es is di..erent i)e) s 1e "erti.i"ates
/ith A as .irst h lder and $ as se" nd
h lder and ther set . "erti.i"ates /ith $
as the .irst h lder and A as the se" nd
h lder2
In this ase, the investor may o'en only onea ount $ith 4 C 9 as the a ount holders and
lodge the se urity ertifi ates $ith different order
of names for demateriali(ation in the same
a ount% 4n additional form alled G*rans'osition
um Demat )ormW $ill have to be filled in $hi h
$ill allo$ hange in the order of names%
Can an invest r %erate a ' int a"" !nt n
either r s!rviv r &asis '!st li+e a &an+
a"" !nt2
:o% *he demat a ount annot be o'erated on
Geither or survivorH basis li!e a ban! a ount%
Can s 1e ne else %erate the a"" !nt n
&ehal. . the $O n the &asis . a % /er .
att rne,2
es% If the 9< authori(es a 'erson to o'erate the
a ount by e#e uting a 'o$er of attorney and
submits it to the DP, that 'erson an o'erate the
a ount on behalf of the 9
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7names8 and the se urities then need to be
transferred to the ne$ly o'ened a ount, and the
old a ount may be losed%
Can an invest r "l se his de1at a"" !nt /ith ne DP and trans.er all se"!rities t
an ther a"" !nt /ith an ther DP2
es% *he investor an submit a ount losure
reKuest to his DP in the 'res ribed form% *he DP
$ill transfer all the se urities lying in the
a ount, as 'er the instru tion, and lose the
demat a ount%
Can an invest r .ree e r l "+ hisa"" !ntFs 2
4n investor an free(e or lo ! his a ount and5or
I I: and5or s'e ifi number of se urities under
an I I: for any given 'eriod of time as 'er
a''li able Regulations of E9I and 9ye &a$s of
the res'e tive de'ository% 4 ounts an be
fro(en for debits 7'reventing transfer of
se urities out of a ounts8 or for redits
7'reventing any movements of hindran es into
a ounts8 or for both%
D es the invest r have t +ee% an,
1ini1!1 &alan"e . se"!rities in his
a"" !nt2
:o%
DEPOSITOR7 CHARGES
-hat are the vari !s "har(es an invest r
has t %a, . r %enin(3 1aintenan"e and
"l s!re . a $O a"" !nt2
)or the benefit of the investors, E9I has
mandated removal of a ount o'ening harges,
transa tion harges 7for redit or buy
transa tions of se urities8, ustody harges and
a ount losing harges 73ustody harges areno$ 'aid by the issuer om'anies%8
*he investors are reKuired to 'ay only the
follo$ing hargesL *ransa tions fees 7only for sell
transa tions8
4nnual a ount maintenan e harges Demateriali(ation and demateriali(ation
of se urities
)le#ibility is 'rovided by the de'ositories and
E9I to fi# the above harges 7*he DP may revise
the harges any time but has to 'rovide a .0 days
noti e to all its a ount holders8%
E9I reKuires all DPs to submit to their
De'ository their harge stru ture every year
7latest by .0 th 4'ril8% *he de'ository in turn is
reKuired to 'ut all these harge stru tures on its
$ebsite to enable the investors to get a
om'arative overvie$%
INTRA:DEPOSITOR7 AND INTER:
DEPOSITOR7TRANS#ERS
I. a $O h lds an a"" !nt /ith NSDLBCDSL3
"an he re"eive se"!rities .r 1 an a"" !nt
in CDSLBNSDL2
Inter de'ository transfers are 'ossible $ithout
any additional osts%
:o harges are levied by a de'ository on DP and
onseKuently by a DP on a 9< $hen a 9>0.> 2 0 > ?>B0 1A2@ BB? .A. .A.
3o hin ?> 2AB . 1@ 2 0 0 0 0 0
3oimbatore 2 102? .A> 0 0 0 0 0 0 0
Delhi B1. 120A@ >1 >A @.@ 1 >@2@ 11 . 0 0 0
auhati BB. B>2 .0 0 0 0 0 0 0 0
+yderabad ? ? A@B 12 ? A @ B1 > 2 0 0 0
I E " " 1 2.. >> ?> 0 0 0 0
Jai'ur 2A? ?1? ?> 0 0 0 0 0 0 0
&udhiana 10>0 1?20 >A @ A .2 @> 0 0 0 0 0
Madhya Pradesh .>? 1.B 1 2 1? 0 0 0 0 0
Madras .B0 22AA . 0 10A 2B 0 101 0 0 0
Magadh " 1A.@ 0 2 0 1 0 0 0 0
Mangalore 12 10 11 0 0 0 0 0 0 0
: E " " B1B.@. 1..A>11 >1.1? ?1 A@A 10AA>.B .>>10.@ 2 >202. .@>1 @
2 .B>A B>. ?1 1 11 1 2 0 0 0 06 E 2?> .02 0 0 0 0 0 0 0 0
Uttar Pradesh >>0@ ?@@A 1@?2 2B B 2>2. 1B ?. 11 >1 B > @A 2>
;adodara 1?@1 2AA 1 BA 1 10 . 0 0 0 0
TOTAL ?0;5* 049=4= *4099>0 0>>4>4< >?*> ?5>?** *504;?= *5 9>
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or the losure of a fa tory, et %8 or ne$s about
the ountry 7e%g% nu lear bombs, or a budget
announ ement, et %8% *he Fob of an inde# is to
'urely a'ture the se ond 'art, the movements
of the sto ! mar!et as a $hole 7i%e% ne$s aboutthe ountry8% *his is a hieved by averaging% Ea h
sto ! ontains a mi#ture of these t$o elements "
sto ! ne$s and inde# ne$s% /hen $e ta!e an
average of returns on many sto !s, the
individual sto ! ne$s tends to an el out% - to the
first and >- $eight to the se ond% If $e form a
'ortfolio of the t$o sto !s, $ith a $eight of 2>-
on the first and >- on the se ond, then the
'ortfolio returns $ill eKual the inde# returns% o
if you $ant to buy Rs%1 la!h of this t$o"sto !inde#, you $ould buy Rs%2>,000 of the first and
Rs% >,000 of the se ond this 'ortfolio $ould
e#a tly mimi the t$o"sto ! inde#% 4 sto !
mar!et inde# is hen e Fust li!e other 'ri e indi es
in sho$ing $hat is ha''ening on the overall
indi es "" the $holesale 'ri e inde# is a
om'arable e#am'le% In addition, the sto !mar!et inde# is attainable as a 'ortfolio%
*raditionally, indi es have been used as
information sour es% 9y loo!ing at an inde# $e
!no$ ho$ the mar!et is faring% *his information
as'e t also figures in myriad a''li ations of sto !
mar!et indi es in e onomi resear h% *his is
'arti ularly valuable $hen an inde# refle ts
highly u' to date information 7a entral issue $hi h is dis ussed in detail ahead8 and the
'ortfolio of an investor ontains illiKuid se urities
" in this ase, the inde# is a lead indi ator of ho$
the overall 'ortfolio $ill fare%
In re ent years, indi es have ome to the fore
o$ing to dire t a''li ations in finan e, in the
form of inde# funds and inde# derivatives% Inde#
funds are funds $hi h 'assively Zinvest in the
inde#Q% Inde# derivatives allo$ 'eo'le to hea'ly
alter their ris! e#'osure to an inde# 7this is alled
hedging8 and to im'lement fore asts about inde#
movements 7this is alled s'e ulation8% +edging
using inde# derivatives has be ome a entral 'art
of ris! management in the modern e onomy%
*hese a''li ations are no$ a multi"trillion dollar
industry $orld$ide, and they are riti ally lin!ed
u' to mar!et indi es%
)inally, indi es serve as a ben hmar! for
measuring the 'erforman e of fund managers% 4n
all"eKuity fund should obtain returns li!e the
overall sto ! mar!et inde#% 4 >0L>0 debtL eKuity
fund should obtain returns lose to those
obtained by an investment of >0- in the inde#
and >0- in fi#ed in ome% 4 $ell"s'e ifiedrelationshi' bet$een an investor and a fund
manager should e#'li itly define the ben hmar!
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against $hi h the fund manager $ill be
om'ared, and in $hat fashion%
*he most im'ortant ty'e of mar!et inde# is the
broad"mar!et inde#, onsisting of the large,liKuid sto !s of the ountry% In most ountries, a
single maFor inde# dominates ben hmar!ing,
inde# funds, inde# derivatives and resear h
a''li ations% In India, $e have NI#T7
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Maintenan e of money of lients in a
se'arate a ount and their o$n money
in a se'arate a ount Issue of daily statement of ollateral
utili(ation to lients 4''ointment of om'lian e offi er
Issue of ontra t note to his lient $ithin
2Bhrs of the e#e ution of the ontra t Delivery 5 Payment to be made to the
lient $ithin 2B hrs of 'ay=out and
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Pass'ort
;oter ID
Driving &i ense
9an! Passboo!
Rent 4greement
Ration 3ard
)lat Maintenan e 9ill
*ele'hone 9ill
Ele tri ity 9ill
3ertifi ate issued by em'loyer registered
under M4PI: Insuran e Poli y
Ea h lient has to use one registration form% In
ase of Foint names 5family members, a se'arate
form has to be submitted for ea h 'erson%
In ase of 3or'orate 3lient, follo$ing
information has to be 'rovidedL :ame, address of the 3om'any5)irm%
UniKue Identifi ation :umber
7$herever a''li able8% Date of in or'oration and date of
ommen ement of business% Registration number 7$ith R- or more, either dire tly or indire tly,
in the shareholding of the om'any and
of 'ersons authori(ed to deal in
se urities% If registered $ith any other bro!er, then
the name of bro!er and on erned to !
e# hange and 3lient 3ode :umber%
-hat is 1eant &, Uni !e Client C de2In order to fa ilitate maintaining database of their
lients, it is mandatory for all bro!ers to use
uniKue lient ode $hi h $ill a t as an e# lusive
identifi ation for the lient% )or this 'ur'ose,
P4: number5'ass'ort number5driving
li ense5voters ID number5 ration ard number
ou'led $ith the freKuently used ban! a ount
number and the de'ository benefi iary a ount
an be used for identifi ation, in the given order, based on availability%
-hat is a ris+ dis"l s!re d "!1ent2
In order to a Kuaint the investors in the mar!ets
of the various ris!s involved in trading in the
sto ! mar!et, the members of the e# hange have
been reKuired to sign a ris! dis losure do ument
$ith their lients, informing them of the various
ris!s li!e ris! of volatility, ris!s of lo$er liKuidity,
@0
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ris!s of higher s'reads, ris!s of ne$
announ ements, ris!s of rumours et %
H / d es ne %la"e rders /ith the
&r +er r s!& &r +er2 4n investor an either go to the bro!er s 5sub
bro!er s offi e or 'la e an order over the
'hone 5internet or as defined in the Model
4greement%
H / d es an invest r +n / /hether his
rder has &een %la"ed2
*he to ! E# hanges assign a UniKue
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arising out of transa tions% - bro!erage from his lients% *his
ma#imum bro!erage is in lusive of the
bro!erage harged by the sub"bro!er% )urther,
E9I 7 to ! bro!ers and ub bro!ers8Regulations, 1AA2 sti'ulates that sub bro!er
annot harge from his lients, a ommission
$hi h is more than 1%>- of the value mentioned
in the res'e tive 'ur hase or sale note%
-hat are the "har(es that "an &e levied
n the invest r &, a st "+ &r +erBs!&
&r +er2
*he trading member an hargeL
1% 9ro!erage harged by member bro!er%
2% Penalties arising on s'e ifi default on
behalf of lient 7investor8
.% ervi e ta# as sti'ulated%
B% e urities *ransa tion *a# 7 **8 as
a''li able%
*he bro!erage, servi e ta# and ** are indi ated
se'arately in the ontra t note%
-hat is STT2
e urities *ransa tion *a# 7 **8 is a ta# being
levied on all transa tions done on the sto !
e# hanges at rates 'res ribed by the 3entral
overnment from time to time% Pursuant to the
ena tment of the )inan e 7:o%28 4 t, 200B, the
overnment of India notified the e urities*ransa tion *a# Rules, 200B and ** ame into
effe t from < tober 1, 200B%
H / d es tradin( ta+es %la"e and /hat is
the %r "ess . tradin(2
*he normal ourse of online trading in the Indian
mar!et onte#t is 'la ed belo$LSte% *) Investor 5 trader de ides to trade
Ste% 0) Pla es order $ith a bro!er to buy 5 sell
the reKuired Kuantity of res'e tive
se urities
Ste% 9) 9est 'ri ed order mat hes based on
'ri e"time 'riority
Ste% ;)
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-hat is a R llin( Settle1ent2
In a Rolling ettlement trades e#e uted during
the day are settled based on the net obligations
for the day%Presently the trades 'ertaining to the rolling
settlement are settled on a *Y2 day basis $here
* stands for the trade day% +en e, trades
e#e uted on a Monday are ty'i ally settled on
the follo$ing /ednesday 7 onsidering 2 $or!ing
days from the trade day8%
*he funds and se urities 'ay"in and 'ay"out are
arried out on *Y2 day%
-hat is the %a,:in da, and %a,: !t da,2
Pay in day is the day $hen the bro!ers shall ma!e
'ayment or delivery of se urities to the e# hange%
Pay out day is the day $hen the e# hange ma!es
'ayment or delivery of se urities to the bro!er%ettlement y le is on *Y2 rolling settlement
basis $%e%f% 4'ril 01, 200.% *he e# hanges have to
ensure that the 'ay out of funds and se urities to
the lients is done by the bro!er $ithin 2B hours
of the 'ayout% *he E# hanges $ill have to issue
'ress release immediately after 'ay out%
-hat are the %res"ri&ed %a,:in and %a,:
!t da,s . r .!nds and se"!rities . rN r1al Settle1ent2
*he 'ay"in and 'ay"out days for funds and
se urities are 'res ribed as 'er the ettlement
3y le% 4 ty'i al ettlement 3y le of :ormal
ettlement is given belo$L
A"tivit, Da,
*rading Rolling ettlement *rading *
3learing 3ustodial 3onfirmation *Y1 $or!ing days
Delivery eneration *Y1 $or!ing days
ettlement e urities and )unds 'ay in *Y2 $or!ing days
e urities and )unds 'ay out *Y2 $or!ing days
Post ettlement ;aluation Debit *Y2 $or!ing days 4u tion *Y. $or!ing days9ad Delivery Re'orting *YB $or!ing days 4u tion settlement *Y> $or!ing days3lose out *Y> $or!ing days
Re tified bad delivery 'ay"in and 'ay"out *Y? $or!ing daysRe"bad delivery re'orting and 'i !u' *Y@ $or!ing days3lose out of re"bad delivery *YA $or!ing days
N te6 *he above is a ty'i al settlement y le for normal 7regular8 mar!et segment% *he days
'res ribed for the above a tivities may hange in ase of fa tors li!e holidays, ban! losing et % 4n
investor may refer to s heduled dates of 'ay"in5'ay"out notified by the E# hange for ea h settlement
from time"to"time%
@.
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In "ase . %!r"hase . shares3 /hen d es
an invest r have t 1a+e %a,1ent t
the &r +er2
*he 'ayment for the shares 'ur hased isreKuired to be done 'rior to the 'ay in date for
the relevant settlement or as other$ise 'rovided
in the Rules and Regulations of the E# hange%
It is advisable to ma!e 'ayment by $ay of
a ount 'ayee heKue in the name of the
bro!er5sub"bro!er only% 4 'ro'er re ei't should
be olle ted from the intermediary% ou should
re eive 'ayment for se urities $ithin B@ hours of
de laration of 'ay"out by the res'e tive sto !e# hange%
In "ase . sale . shares3 /hen sh !ld the
shares &e (iven t the &r +er2
*he delivery of shares has to be done 'rior to the
'ay in date for the relevant settlement or as
other$ise 'rovided in the Rules and Regulations
of the E# hange and agreed $ith the bro!er5sub
bro!er in $riting%
-hat 1ar(ins r de% sits are re !ired &,
the &r +er2
*he regulations do not mandate any
reKuirement for the investor to !ee' a de'osit
$ith the bro!er% It de'ends on your
understanding $ith the bro!er5sub" bro!er% ou
are, ho$ever, reKuired to 'ay u'front margin to
the bro!er before the trade is e#e uted%
E# hanges generally 'res ribe higher levels of
margins to be olle ted from lients as u'front
de'ending on the liKuidity of the se urity%
H / l n( it ta+es t re"eive 1 ne, . r a
sale transa"ti n and shares . r a &!,
transa"ti n2
9ro!ers $ere reKuired to ma!e 'ayment or give
delivery $ithin t$o $or!ing days of the 'ay " out
day% +o$ever, as settlement y le has been
redu ed from*Y. rolling settlement to *Y2 $%e%f%
4'ril 01, 200., the 'ay out of funds and se urities
to the lients by the bro!er $ill be $ithin 2Bhours of the 'ayout%
Is there an, %r visi n /here an invest r
"an (et .aster deliver, . shares in his
a"" !nt2
*he investors5 lients an get dire t delivery of
shares in their benefi iary a ounts% *o avail this
fa ility, you have to give details of your
benefi iary a ount and the DP"ID of your DP to your bro!er along $ith the tanding Instru tions
for Delivery"In to your De'ository Parti i'ant
for a e'ting shares in your benefi iary a ount%
iven these details, the 3learing
3or'oration53learing +ouse shall send 'ay out
instru tions to the de'ositories so that you
re eive 'ay out of se urities dire tly into your
benefi iary a ount%
-hat is da, tradin(2
Day trading refers to buying and selling of
se urities $ithin the same trading day su h that
all 'ositions $ill be losed before the mar!et lose
of the trading day% In the Indian se urities
mar!et, only retail investors are allo$ed to day
trade%
Are all the invest rs 1andated t " 1%l,
/ith PAN re !ire1ent2
es% /ith effe t from July 02, 200 , P4: has
been made mandatory for all the investors
'arti i'ating in the se urities mar!et% In order to
strengthen the 6no$ our 3lient 76 38 norms
and identify every 'arti i'ant in the se urities
mar!et $ith their res'e tive P4: to ensure sound
audit trail of all the transa tions, E9I hasmandated P4: as the sole identifi ation number
for all 'ersons transa ting in the se urities
@B
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mar!et, irres'e tive of the amount of
transa tion%
-hat is Trade . r Trade Se(1ent2
In a *rade for *rade segment, settlement of
trades is done on the basis of gross obligationsfor the day% :o netting is allo$ed and every
trade is being settled se'arately%
-hat is Dire"t Mar+et A""ess FDMA 2
Dire t Mar!et 4 ess 7DM48 is a fa ility $hi h
allo$s bro!ers to offer lients dire t a ess
to the e# hange trading system through the
bro!er s infrastru ture $ithout manual
intervention by the bro!er% ome of theadvantages offered by DM4 are dire t
ontrol of lients over orders, faster
e#e ution of lient orders, redu ed ris! of
errors asso iated $ith manual order entry,
greater trans'aren y, in reased liKuidity,
lo$er im'a t osts for large orders, better
audit trails and better use of hedging and
arbitrage o''ortunities through the use of
de ision su''ort tools 5 algorithms for
trading% Presently, DM4 fa ility is available
for institutional investors
-hat is an A!"ti n2
*he sto ! e# hange 'ur hases the reKuisite
Kuantity in the 4u tion Mar!et and gives them
to the buying trading member% *he shortages are
met through au tion 'ro ess and the differen e
in 'ri e indi ated in ontra t note and 'ri e
re eived through au tion is 'aid by member to
the e# hange, $hi h is then liable to be
re overed from the lient%
-hat ha%%ens i. the shares are n t
& !(ht in the a!"ti n2
If the shares ould not be bought in the au tion
i%e% if shares are not offered for sale in theau tion, the transa tions are losed out as 'er
E9I guidelines%
*he guidelines sti'ulate that Gthe lose out Pri e
$ill be the highest 'ri e re orded in that s ri' on
the e# hange in the settlement in $hi h the
on erned ontra t $as entered into and u'to thedate of au tion5 lose out
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*he fa ility of margin trading is available for
rou' 1 se urities and those se urities $hi h are
offered in the initial 'ubli offers and meet the
onditions for in lusion in the derivatives
segment of the sto ! e# hanges%
)or 'roviding the margin trading fa ility, a
bro!er may use his o$n funds or borro$ from
s heduled ommer ial ban!s or :9)3s
regulated by the R9I% 4 bro!er is not allo$ed to
borro$ funds from any other sour e%
*he Wtotal e#'osureW of the bro!er to$ards the
margin trading fa ility should not e# eed the borro$ed funds and >0 'er ent of his Wnet
$orthW% /hile 'roviding the margin trading
fa ility, the bro!er has to ensure that the
e#'osure to a single lient does not e# eed 10
'er ent of the Wtotal e#'osureW of the bro!er%
Initial margin has been 'res ribed as >0- and
the maintenan e margin has been 'res ribed as
B0-%
If the bro!er has borro$ed funds for the 'ur'ose
of 'roviding margin trading fa ility, the name of
the lender and amount borro$ed should be
dis losed latest by the ne#t day%
*he sto ! e# hange, in turn, has to dis lose the
s ri'"$ise gross outstanding in margin a ounts
$ith all bro!ers to the mar!et% u h dis losure
regarding margin"trading done on any day shall
be made available after the trading hours on the
follo$ing day%
*he arbitration me hanism of the e# hange
$ould not be available for settlement of
dis'utes, if any, bet$een the lient and bro!er,
arising out of the margin trading fa ility%+o$ever, all transa tions done on the e# hange,
$hether normal or through margin trading
fa ility, shall be overed under the arbitration
me hanism of the e# hange%
-hat is Se"!rities Lendin( S"he1e2
e urities &ending and 9orro$ing is a s heme $hi h enables lending of idle se urities by the
investors to the learing or'oration and earning
a return through the same% )or se urities
borro$ing and lending system, learing
or'orations of the sto ! e# hange $ould be the
nodal agen y and be registered as the G4''roved
IntermediariesH 74Is8% *he learing or'oration
an borro$, on behalf of the members, se urities
for the 'ur'ose of meeting shortfalls% *hedefaulter selling bro!er may ma!e the delivery
$ithin the 'eriod s'e ified by the learing
or'oration% In the event of the defaulted selling
bro!er failing to ma!e the delivery $ithin the
s'e ified 'eriod, the learing or'oration has to
buy the se urities from the o'en mar!et and
return the same to the lender $ithin seven
trading days% In ase of an inability to 'ur hase
the se urities from the mar!et, the transa tion
shall be losed out%
TRANS#ER O# SECURITIES IN PH7SICAL
MODE
H / d es trans.er . se"!rities ta+e %la"e
in %h,si"al 1 de2
*o effe t a transfer in the 'hysi al mode the
se urities should be sent to the om'any along
$ith a valid, duly e#e uted and stam'ed transfer
deed duly signed by or on behalf of the transferor
7seller8 and transferee 7buyer8% It $ould be a good
idea to retain 'hoto" o'ies of the se urities and
the transfer deed $hen they are sent to the
om'any for transfer% It is essential that these are
sent by registered 'ost $ith a !no$ledgement
due and $at h out for the re ei't of thea !no$ledgement ard% If one does not re eive
the onfirmation of re ei't $ithin a reasonable
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'eriod, he should immediately a''roa h the
'ostal authorities for onfirmation%
ometimes, for onvenien e, one may hoose
not to transfer the se urities immediately% *hismay fa ilitate easy and Kui ! selling of the
se urities% In that ase one should ta!e are that
the transfer deed remains valid other$ise he $ill
have revalidate the transfer deed $ith on erned
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Cha%ter *;CONTINUING DISCLOSURES $7 LISTED
COMPANIESInvestors are the 'rimary users of finan ial
statements% *hese are used to assess the 'resent
and the future business and 'rofitability of an
enter'rise as the investors 'rimary interest is in
the future gro$th of a om'anyQs sto ! 'ri e
and5or the li!elihood of the om'any 'aying
dividends%
)inan ial re'orting onsisting of 9alan e heet, Profit
C &oss 4 ount, :otes to 4 ounts, 3ash )lo$
tatement, 4uditor Re'ort and Dire tors Re'ort are
some of the im'ortant dis losures made by listed
om'anies, and are in luded as a 'art of the
om'any s annual re'ort%
4'art from this, the &isting 4greement reKuires
om'anies to ma!e dis losure under various lauses%
ome of the lauses reKuiring dis losures areL
3lause B1L )inan ial Results
3lause .>L hareholding Pattern
3lause BAL 3or'orate overnan e Re'ort
In addition, the &isting 4greement reKuires
immediate intimation to the e# hange on
o urren e of any material event 7i%e% dividend
de laration, finan ial statements dis losure,
bonus shares, rights issue, ta!eover, insider
trading, 'ledging et %8
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Cha%ter * A 1>,.BB .11, 1> >1EKuity 1>B,?? 1A,1> 2.0 1 B,0>B 2@9alan ed 1,?2@ 1,?2@ " 1 ,2B? .&iKuid5Money Mar!et @,0AB " " @,0AB 1.
ilt .,.A> " " .,.A> 1E& "EKuity 20,A11 .,1>> " 2B,0?? B
old E*) 1,>A0 " " 1,>A0 " " A>)und of )undsInvesting 5 *
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*he trustees of the mutual fund are assigned the
res'onsibility of 'rote ting the interests of the
unitholders and are vested $ith the general
'o$er of su'erintenden e and dire tion over the 4M3% *hey monitor the 'erforman e and
om'lian e of E9I Regulations by the mutual
fund% E9I Regulations reKuire that at least t$o
thirds of the dire tors of the trustee om'any
must be inde'endent i%e% they should not be
asso iated $ith the s'onsors%
*he 4M3 manages the funds by ma!ing
investments in various ty'es of se urities% E9IRegulations reKuire that at least >0- of the
dire tors of the 4M3 must be inde'endent i%e%
they should not be asso iated $ith the s'onsors%
*he 3ustodian holds the se urities of various
s hemes of the fund in its ustody%
MUTUAL #UND SCHEMES
Mutual funds offer a very large variety of
o'tions, to suit the investors needs% /hile
some of the s hemes are a tively managed
by the mutual fund, some s hemes are
'assive s hemes%
ACTIVE #UNDS
S"he1es a"" rdin( t the Mat!rit, Peri d
4 mutual fund s heme an be lassified into an
o'en"ended s heme or a lose"ended s heme%
Open ended Fund! Sche"e
4n o'en"ended fund or s heme is one that is
available for subs ri'tion and re'ur hase on a
ontinuous basis% *hese s hemes do not have a
fi#ed maturity 'eriod% Investors an buy and sellthe units of the s heme at the :et 4sset ;alue
7:4;8 related 'ri es $hi h are de lared on a
daily basis% *he !ey feature of o'en"ended
s hemes is liKuidity%
Cl#se ended Fund! Sche"e
4 lose"ended fund or s heme has a sti'ulatedmaturity 'eriod 7e#am'le > years or years8% *he
s heme is o'en for subs ri'tion only during a
s'e ified 'eriod at the time of laun h of the
s heme% ubseKuently, investors an buy or sell
the units of the s heme on the sto ! e# hanges
$here the units are listed% In order to 'rovide an
e#it route to the investors, some lose"ended
funds give an o'tion of selling ba ! the units to
the mutual fund through 'eriodi re'ur hase at:4; related 'ri es% *hese s hemes normally
dis lose their :4;s on a $ee!ly basis%
S"he1es a"" rdin( t the Invest1ent
O&'e"tive
4 s heme an also be lassified as gro$th s heme,
in ome s heme or balan ed s heme based u'on
its investment obFe tive% u h s hemes may be
o'en"ended or lose"ended s hemes% u h
s hemes an be broadly lassified as follo$sL
$r#%th ! &'uity Oriented Sche"e
*he aim of gro$th funds is to 'rovide a'ital
a''re iation over the medium to long" term% u h
s hemes normally invest a maFor 'art of their
or'us in eKuities, and as su h arry higher
ris!s5re$ards% ro$th s hemes are good for
investors having a long"term outloo!% *hese
s hemes further offer three o'tions" ro$th,
Dividend Payout and Dividend Re"invest% Under
the gro$th o'tion, no dividend is 'aid out and the
:4; of the unit refle ts the u'"to" date a'ital
a''re iation% Under the dividend 'ayout o'tion,
investors re eive dividend if there is distributable
sur'lus available and after 'ayout of the dividend,
the :4; of the s heme falls by the amount 'aidout 'er unit% *his dividend is ta# free in hands of
investors% Under the dividend re"invest o'tion,
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the dividend, instead of being 'aid out, is
reinvested su h that the number of units held
in reases%
Inc#"e ! Debt Oriented Sche"e*he aim of the in ome s hemes is to 'rovide
regular and steady in ome to the investors% 4s
su h, these s hemes generally invest in fi#ed
in ome se urities su h as bonds, or'orate
debentures, overnment se urities and money
mar!et instruments% u h funds offer lo$
returns and are less ris!y% *he :4;s of su h
funds get affe ted 'rimarily be ause of hanges
in interest rates% If the interest rates fall, the:4;s of su h s hemes are li!ely to in rease in
the short run and vi e versa%
alanced Sche"e
9alan ed funds offer the middle 'ath by
ombining both gro$th and in ome% 4s su h,
these s hemes invest both in eKuities and in
fi#ed in ome se urities% *hese are a''ro'riate
for investors $ho do not $ish to ta!e e# essive
ris! and at the same time are also loo!ing for
some a'ital a''re iation% u h s hemes
generally invest B0"?0- in eKuity and the
balan e in debt instruments%
M#ney Mar et #r *i'uid Sche"es
*hese s hemes are 'rimarily li!e in ome
s hemes, $ith features of easy liKuidity,
'reservation of a'ital and moderate in ome%
*hese s hemes invest e# lusively in safe short"
term instruments su h as treasury bills,
ertifi ates of de'osit, ommer ial 'a'er and
inter"ban! all money, government se urities
et % *hese s hemes are normally used by
or'orate and individual investors for 'ar!ing
sur'lus funds on a short term basis% In ome
re eived from su h s hemes is ta#"free%
$ilt Fund
*hese funds invest e# lusively in government
se urities, $hi h have no default ris!% :4;s of
these s hemes flu tuate due to the hanges in
interest rates and other e onomi fa tors%
Sect#r Specific Funds!Sche"es
*hese s hemes invest in the se urities of a 're"
s'e ified se tor5industry 7as dis losed in their
offer do ument8% E#am'les of su h se tors
in lude Pharma euti als, oft$are, )ast Moving
3onsumer oods 7)M3 8, Petroleum, Publi
e tor et % *he returns in these funds are
signifi antly de'endent on the 'erforman e of theres'e tive se tor5industry% /hile these funds
may give higher returns, they are also more ris!y%
Ta+ Sa,ing Sche"es
*hese s hemes offer ta# rebates to the investors
under s'e ifi 'rovisions of the In ome *a# 4 t%
4 good e#am'le of this is the EKuity &in!ed
avings hemes 7E& 8% Pension s hemes
laun hed by mutual funds also offer ta# benefits%
u h s hemes are gro$th oriented and invest 're"
dominantly in eKuities%
Capital Pr#tecti#n Oriented Sche"es
3a'ital Prote tion
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'eriod of the s heme or only for a ertain 'eriod,
irres'e tive of the 'erforman e of the s heme%
u h returns are reKuired to be fully guaranteed
by the s'onsor or the 4M3% *y'i ally, su h
assured returns are on the lo$er side%
Syste"atic In,est"ent Plans (SIP)/
Syste"atic 0ithdra%al Plans (S0P)
and Syste"atic Transfer Plans (STP)
ystemati Investment Plan 7 IP8 is a
onvenient o'tion $hi h offers dis i'lined
saving and investing% Under IP, an investor
invests a fi#ed amount regularly, say every
month or Kuarter% u h investments are made atthe res'e tive 'revailing :4;s% *he investor an
redeem his units any time irres'e tive of
$hether he has om'leted his minimum
investment in that s heme%
Under the ystemati /ithdra$al Plan 7 /P8,
the unitholder may redeem a fi#ed number of
units on a monthly, Kuarterly or annual basis%
Under the ystemati *ransfer Plan 7 *P8, an
investor in one s heme an !ee' transferring
funds to another s heme, de'ending u'on his
outloo! of the mar!et% *he investor may transfer
a fi#ed sum of money on a 'eriodi basis% 4
transfer is treated as redem'tion of units from
the e#isting s heme at a''li able :4; and a
fresh investment in units of the ne$ s heme%
PASSIVE #UNDS
Inde# )unds, E# hange *raded )unds and )und
of )unds are largely 'assive investment funds%
Instead of hurning 'ortfolio in sear h of good
o'tions5se urities, the fund is e#'e ted to
'erform along $ith the s'e ified
inde#5ben hmar! by staying invested% In vie$ of
this, the total re urring e#'enses are also lo$erthan a tively managed funds%
Inde+ Funds
Inde# )unds re'li ate the 'ortfolio of a 'arti ular
inde# su h as the 9 E ense# or the CP : E
:ifty% *hese s hemes invest in the se urities in
the same $eightage as in the inde#% :4;s of su hs hemes rise or fall in a ordan e $ith the rise or
fall of the inde#, though not e#a tly by the same
'er entage due to the Gtra !ing errorH%
&+change Traded Funds
4n Inde# fund sele ts a mar!et inde# and ma!es
investments in the bas!et of sto !s dra$n from
the onstituents of that inde#% *he fund may
invest in any or all of the sto !s onstituting thatinde# but not ne essarily in the same 'ro'ortion%
E# hange *raded )unds, 'o'ularly !no$n as
E*)s also ma!e investments based on a mar!et
inde# or ommodity but in a fi#ed number of
units, say 1000 units% *his is alled a reation
bas!et% E*)s are listed on a sto ! e# hange for
trading of units% &isting 'rovides liKuidity to units
in less than reation si(e% *hus lots of less than
1000 E*) units an be traded by retail investors
at the sto ! e# hanges% In an E*) that is based on
a mar!et inde#, reation bas!ets $ill have sto !s
of that inde# in the same 'ro'ortion as the inde#
and hen e the ben hmar! $ill be that 'arti ular
inde#%
$#ld based &TFs
old based E*)s $ere introdu ed in 200 % Just
li!e in the ase of an eKuity mutual fund, the
underlying asset is the sto !s of various
om'anies, in the ase of E*), the underlying
asset is standard gold bullion of 0%AA> 'urity% *he
investors holding is denoted in units, $hi h gets
listed on a sto ! e# hange%
Fund #f Funds
4 s heme that invests 'rimarily in the s hemes ofthe same mutual fund or of other mutual funds,
and not dire tly in any se urity, is !no$n as a
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)und of )und 7)o)8% *he :4; of the )o)
de'ends u'on the :4;s of the s hemes in $hi h
it invests% 4n )o) s heme enables the investors
to a hieve greater diversifi ation%
LOADSBE PENSES
E9I had earlier abolished initial issue e#'enses
and mutual fund s hemes $ere allo$ed to
re over e#'enses onne ted $ith sales and
distribution through entry load only% )urther,
investors ma!ing dire t a''li ations to the
mutual funds $ere e#em'ted from entry load%
Earlier, though the investor 'aid for the servi es
rendered by the mutual fund distributors, the
distributors $ere remunerated by the 4M3s
from the loads dedu ted from the invested
amounts or from the redem'tion 'ro eeds% E9I
also 'ermitted 4M3s to harge the s heme
7under the annual re urring e#'ense8 for
mar!eting and selling e#'enses in luding
distributor s ommission%
Moreover, all loads in luding 3ontingent
Deferred ales 3harge 73D 38 for the s heme
$ere maintained in a se'arate a ount and this
amount $as used by the 4M3s to 'ay
ommissions to the distributors and to ta!e are
of other mar!eting and selling e#'enses% It had
been left to the 4M3s to redit any sur'lus inthis a ount to the s heme, $henever felt
a''ro'riate% In order to in entivi(e long term
investors it $as onsidered ne essary that e#it
loads53D 3s $hi h are beyond reasonable levels
are redited to the s heme immediately%
In order to em'o$er the investors in de iding
the ommission 'aid to distributors in
a ordan e $ith the level of servi e re eived, to bring about more trans'a