Answer.1 (i).

Sweat equity shares are shares issued by a listed company to

its employees and directors in accordance with the Companies Act, 1956 and
SEBI Regulations.
Issue of sweat equity by a listed company
A company whose equity shares are listed on a recognized stock exchange
may issue sweat promoter equity shares, to its employees and directors in
accordance with the Companies Act, 1956 and SEBI Regulations. In case of
issue of sweat equity shares to promoters, approval by a simple majority of
the shareholders in a general meeting is required. The promoters to who
such sweat equity shares are to be issued cannot participate in such a
meeting.
The price of sweat equity shares cannot be less than the maximum value of
the average of the weekly high and low of the closing prices of the related
equity shares during the six months preceding the relevant date; or during
the two weeks preceding the relevant.
The amount of sweat equity shares issued will be treated as part of
managerial remuneration if the shares are issued to any director or manager
for non-cash consideration, which does not take the form of an asset that
can be shown in the balance sheet of the company.
Sweat equity shares have a lock-in period of three years from the date of
allotment. The sweat equity issued by a listed company will be eligible for
listing only if such issues are in accordance with SEBI regulations.
Answer.1 (ii). Real estate:-Buying property is an equally strenuous
investment decision. Real estate investment generally offers easy entry and
good hedge against inflation. But, during deflationary and recessionary
periods, the value of such investments may decline. Real estate investments
are classified as direct or indirect. In a direct investment, the investor holds
legal little to the property. Direct real estate investments include singlefamily dwellings, duplexes, apartments, land and commercial property.
In case of indirect investment, investors appoint a trustee to hold legal title
on behalf of all the investors in the group. The more affluent investors are
likely to be interested in the following types of real estate: agricultural land,
semi-urban land, and time-share in a holiday resort. The most important
asset for individual investors generally is a residential house or flat because
the capital appreciation of residential property is, in general, high. Moreover,
loans are available from various quarters for buying/constructing a
residential property. Interest on loans taken for buying/constructing a
residential house is tax-deductible within certain limits. Besides, ownership
of a residential property provides psychological satisfaction.
However, real estate may have the disadvantages of illiquidity, declining
values, lack of diversification, lack of tax shelter, a long depreciation period
and management problems.
Reasons for investing in real estate are given below:
High capital appreciation compared to gold or silver particularly in the urban
area. Availability of loans for the construction of houses. The 1999-2000
budgets provide huge incentives to the middle class to avail of housing

loans. Scheduled banks now have to disburse 3 per cent of their incremental
deposits in housing finance. Tax rebate is given to the interest paid on the
housing loan. Further Rs. 75,000 tax rebate on a loan up to Rs.5 lac which is
availed of after April 1999. If an investor invests in a house for about Rs. 6-7
lacs, he provides a seed capital of about Rs. 1-2 lakh. The Rs. 5 lakh loan,
which draws an interest rate of 15 percent, will work out to be less than 9.6
per cent because of the Rs. 75,000 exempted from tax annually. In assessing
the wealth tax, the value of the residential home is estimated at its historical
cost and not on its present market value. The possession of a house gives an
investor a psychologically secure feeling and a standing among his friends
and relatives.
With real estate being a part of the capital allocation decisions of both
institution and retail investors, there has been increasing development in
real estate funds. Due to the capital intensity of real estate investing, its
requirement for active management and the rise in global real estate
opportunities, institutions are gradually moving to real estate funds of
funds to allow for appropriate asset management.
The same is true for retail investors, who now have a much larger selection
of real estate mutual funds, allowing for efficient capital allocation and
diversification. Like any other investment sector, real estate has its benefits
and its disadvantages. However, real estate should be considered for most
investment portfolios, and real estate investment trusts (REITs) and real
estate mutual funds may be the best methods to fill that allocation.
Answer.1 (iii). Investors protection in the primary market:The investing public should be protected to ensure healthy growth of primary
market. The term investors protection has a wider meaning in the primary
market. The principal ingredients of investor protection are- (a) Provision of
all the relevant information; (b) Provision of accurate information; and (c)
Transparent allotment procedures without any bias. To provide the above
mentioned factors several steps have been taken. These are as follows:1. Project appraisal: - is the first step in the entire process of the
project. Technical and economic feasibility of the project is evaluated. If
the project itself is not technically feasible and economically viable,
whatever may be the other steps taken to protect the investors are
defeated. Appraisal shows whether the project is meaningful and can
be financed. The investors protection starts right from the protection
of the principal amount of investment. Based on the appraisal, the
project cost is finalized. The cost should be neither understated nor
overstated. The profitability of the project should be estimated and
given. To ensure fair project appraisal, SEBI has made it mandatory for
the project appraisal body to participate a certain amount in the
forthcoming issue.
2. Underwriting: - Once the issue is finalized the underwriting
procedure starts. Reputed institutions and agencies, providing
credibility to the issue normally underwrite the issue. If the lead

managers participate more than five per cent of the minimum

stipulated amount offered to the public, it would increase the
confidence of the public regarding the pricing and sale ability of the
issue.
3. Disclosures in the Prospectus: - SEBI has issued stringent norms
for the disclosure of information in the prospectus. It is the duty of the
lead manager to verify the accuracy of the data provided in the
prospectus. The pending litigation should be given clearly. The
promoters credibility in fulfilling the promises of the previous issues (if
any) should be stated. A clear version of the risk factors should be
given. Any adverse development that affects the normal functioning
and the profit of the company should be highlighted in the risk factor.
4. Clearance by the Stock Exchange: - The issue document has to be
cleared by the stock exchange on which the proposed listing is offered.
The stock exchanges verify the factors related with the smooth trading
of the shares. Any bottleneck in this area will be eliminated since the
transferability is the basic right of the shareholders. Trading of the
shares helps the investor to liquidate his share at any time. If the
issues are not traded in the secondary market at a good price, they
would dampen the spirit of the investor.
5. Signing by Board of Directors: - The Board of Directors should sign
the prospectus. A copy is also filed with the office to the Registrar of
the Companies. This along with the other material documents referred
to in the prospectus are available for inspection by the members of the
public. The minimum amount to be subscribed by the promoters and
maintained for a minimum number of years also safeguards the
interest of the investors.
6. SEBIs Role: - SEBI scrutinizes the various offer documents from the
view point of investors protection and full disclosure. It has the power
to delete the unsubstantiated claims and ask for additional information
wherever needed. This makes the lead managers to prepare the offer
document with due care and diligence. When the disclosure of the
information is complete, wide publicity has to be given in the
newspapers. In the allotment procedure to make sure of transparency,
SEBIs nominee is appointed apart from the stock exchange nominee in
the allotment committee. Inclusion of valid applications and rejection
of invalid applications are checked. The representative of the SEBIs
sees to it that undue preference is not given to certain group of
investors.
Factors Needed to Make the Investor Protection Effective: 1. Investors Awareness: -Even though many mechanisms exist in the
various stages of the issue, the investor awareness regarding the
mechanism is limited. To remove this, provision of information
regarding the status of an application and redressal of grievances
should be provided at all centers where applications are collected.

2. Strict norms for Premium Fixation: -The guidelines issued by SEBI

in Dec 1996 for justification of premium on the basis of Malegam
Committee recommendations still leave scope for fixation of relatively
high premiums. It is desirable to evolve a straight jacket formula on the
lines of erstwhile valuation guidelines under the Capital Issues Control
Act.
3. Safety Nets: - It is imperative to provide for safety nets at least in
respect of small investors holding shares up to 200 for at least one
year. The safety net has to be honored by the issuers, merchant
bankers and underwriters under a formula normally agreed upon. The
stipulation of safety net itself will result in the fixation of realistic
premium.
4. Punitive action: -The punitive action under the companies Act needs
to be stepped up, especially under section 62, 63 and 209 A. Sec 62
provide for compensation to investors for losses arising out of
misstatement in the prospectus. SEBI, stock exchanges and investors
association file the cases under this section because the individual
investor finds it impossible to institute cases under this section. In case
of successful prosecution and promoters being declared insolvency,
compensation should come from Investors Protection Fund.
5. Regarding the fly by night operators, the Department of company
Affairs should step up action under Sec 209 A of the Companies Act.
Powers under this section should be delegated to SEBI for effective
functioning.
6. Promoters Stake: -It is necessary to raise the promoters stake in
new issues which has been curtailed drastically from 60 per cent
earlier to 20 per cent now. It needs to be raised to at least 40 percent.
This reduces the scope for manipulation of prices.