Chapter -1

Markets and Financial Instruments

In this Chapter, you will learn:
Investments
Why, When, How and Where to invest
Types of Short term and Long-term Investments
Stock Exchange
Securities
The different regulators in stock market and their roles
Participation in the Securities market

What is Investment?
The money you earn is partly spend and the rest is saved for meeting future expenses.
Instead of keeping the saving idle, you may like to use savings in order to get returns on it in
the future. This is called Investment.

Why should You Invest?

You need to invest to:

 earn return on your idle resources

 generate a specific sum of money for a specific goal in life
 make provision for uncertainties in future

One of the most important reasons why you need to invest wisely is to meet the cost of
inflation. Inflation is the rate at which the cost-of-living increases. the cost of living is simply
what it costs to buy the goods and services you need to live. Inflation causes money to lose
value it will not buy the same amount of a good or a service in the future as it does now or
did in the past. For, example if there was a 6% inflation rate for the next 20 years, a Rs. 100
purchase today would cost Rs. 321 in 20 years. This is why it is important to consider
inflation as a facete in any long-term strategy. Remember to look at an investment’s real rate
of return, which is the return after inflation. The aim of investments should be to provide a
return above the inflation rate to ensure that the investment does to decrease in value. For
example. if the annual inflation rate is 6% then the investments will need to earn more than
6% to ensure it is increasing in value. If the after-tax return on your investment is less than
the inflation rate, then your asset has actually decreased in value: that is, they won’t buy as
much today as they did last year.

Why you should invest and what’s the need to invest money? By Pushkar Raj Thakur

https://youtu.be/b0_CsTFjtus?si=6E0SvBS11ys-TJOl from start to 17:00

When to Start Investing ?

The sooner you start investing in the better it is. By investing early, you allow your
investments more time to grow, whereby the concept of Compounding increases your

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income, but accumulating the principle and the inset or dividend earned it, year after year.
Three golden rules for all investors are

 Invest early
 Invest Regularly
 Invest for long term and not short term

What care should you take while Investing?

Before making any investment, there are certain steps to ensure safety of investments. You
must make sure to

1. Obtain written documents explaining the investment

2. Read and Understand such documents
3. Verify the legitimacy of the investment
4. Find out the costs and benefits associated with the investment
5. Assess the risk return profile of the investment
6. Know the liquidity and safety aspects of the investment
7. Ascertain if it is appropriate for specific goals
8. Compare these details with other investments opportunities available
9. Examine if it fits in with other investments you are considering or you have already
made
10. Deal only through an authorized intermediary
11. Seek all clarifications about the intermediary and the investment and invest only if
you are comfortable. Refuse to invest if you are not convinced.
12. Explore the options available to you if something were to go wrong, and then, if
satisfied, Make the investment.

What is meant by interest?

When we borrow money, we are expected to pay for using it this is known as interest.
Interest is an amount charred to borrow for the privilege of using the lender’s money.
Interest is usually calculated as a percentage of the principal balance. The percentage may be
fixed for the life of a loan, or it may be variable, depending on the terms of the loan.

What factors determine interest rates?

There are different types of interest rates – rates that bank offer to their depositors, rates that
they lend to their borrowers, the rate at which the government borrows in the
bond/government securities market, rates offered to investors in small saving schemes like
NSC, PPF, rates at which companies issued fixed deposits, etc.

The factors which govern these interest rates are mostly economy related and re commonly
referred to as macroeconomic factors.

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  Demand for money
 Level of government borrowings
 Supply of money
 Inflation rate

The policies set by the Reserve Bank of India and the Government determines some of the
variables mentioned above.

What are various options available for investments?

You may invest in:

 Physical Assets like real estate, gold, jewelry, commodities etc., or

 Financial Assets such as fixed deposits with banks, small instruments with post
offices, insurance/provident/pension fund etc. or
 Securities market related instruments like shares, bonds, debentures, mutual funds,
etc.

Physical Assets Financial Assets Securities Market

Real Estate FDs in Bank Shares, Bonds
Gold jewelry Insurance Debentures
Commodities Pension funds Mutual funds

How to invest in your 20s to be rich ? by Pushkar Raj Thakur

https://youtu.be/I4Sve1qplLU?si=SrJ5wEoBU1YgWFh7

What are various Short term financial options available for Investment?
Broadly speaking, saving account, money market/liquid funds and Fixed deposits with banks
may be considered as short term financial investment options.

 Saving Bank Account is often the first banking product people use, which offers low
interest from 4% to 6p.a. making them only marginally better than fixed deposits.
 Money Market or Liquid Funds are specialized form of Mutual funds that invest in
extremely short term fixed income instruments and thereby provide easy liquidity.
Unlike most mutual funds, money market funds are primarily oriented towards
protecting your capital and then saving accounts, but lower than bank fixed deposits.
 Fixed deposits with Banks are also referred to as term deposits and minimum
investment period for bank FDs is 30 days. Fixed Deposits with banks are for investors
with low risk appetite, and may be considered for 6 to 12 months investment period
as normally interest on less than 6 month banks FDs is likely to be lower than money
market fund returns.

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What are various long term financial options available for investments?
There are several options available for long term instruments like Post office saving Schemes,
Public provident fund, Company Fixed Deposits, Bonds and Debentures, Mutual funds etc.

 Post Office Savings: Post office monthly income scheme is a low risk instrument,
which can be availed through any post office. It provides an interest of 8.4% per
annum, which is paid monthly. minimum amount, which can be invested is Rs. 1,000
and additional investment in multiples of 1,500/-. Maximum amount is Rs. 4,50,000 (if
single) or Rs. 9,00,000 (if held jointly) during a year. It has a maturity period of 6
years. A bonus of 10% is paid at the time of maturity. Premature withdrawal is
permitted if deposit is more than one year old. A deduction of 5% is levied form the
from the principal amount if withdrawn prematurely; the 10% bonus is also denied.
From 1st April 2020, interest rate is 6.6% per annum payable monthly.
 Public Provident Fund: A long term savings instrument with a maturity period of 15
years payable at 8.7% per annum compounded annually. A PPF account can be
opened through a nationalized bank at any time during the year and is open all
through the year for depositing money. Tax benefits can be availed for the amount
invested and interest accrued is tax free. A withdrawal is permissible every year form
the seventh financial year of the date of opening of the account and the amount of
withdrawal will be limited to 50 of balance at credit at the end of the 4 th year
immediately preceding the year in which the amount is withdrawn at the end of the
preceding year whichever is lower the amount of loan if any. From 1 st April 20202,
interest rate is 7.1% per annum (compounded yearly).
 Company Fixed deposits: There are short term (6months) to medium term (3 to 5
years) borrowings by companies at a fixed rate of interest which is payable monthly,
quarterly, semi-annually or annually. They ca be cumulative fixed deposits where the
entire principal along with the interest is paid at the end of the loan period. The Rate
of interest varies between 8 to 12% per annum for company FDs. The interest
received is after deduction of taxes.
 Bonds and Debentures: It is a fixed income(debt) instrument issued for a period of
more than one year with the purpose of raising capital. The central or state
government, corporations and similar institutions sell bonds. A bond is generally a
promise to repay the principal along with a fixed rate of interest on a specified date,
called the Maturity date. Debentures are instruments issued by companies similar to
bonds. These could be convertible, non-convertible or partly convertible.
Convertible Debentures can be fully converted to equity at the option of the

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 debenture holder in maturity. Non-convertible debentures are fully repaid on
maturity and Partly convertible debentures are partly repaid and partly convertible
on maturity, at the option of the debenture holder.
 Life Insurance Policies: Though not strictly investment avenues, life insurance policies
also can be considered so, based on the type of policy. Life Insurance is a contract
providing for payment of a sum of money to the person s=assured or, following him
to the entitled to receive the same, on the happening of a certain event. It is a good
method to protect your family financially, in case of death, by providing for the loss
of income. Types of policies include term life insurance, endowment policies,
annuities/pension policies and Unit Linked Insurance Plans (ULIPs). In Term life
policies, lumpsum is paid to designated beneficiary in case of death of the insured.
Endowment policies provide for periodic payment of premiums and a lumpsum
amount either in the event of death of the insured or on the date of expiry of the
policy, whichever accrues earlier. Annuities/pension policies give a guaranteed
income for life or for a certain period. In case of the death, or after fixed annuity
period expires for annuity payments, the invested annuity fund is refunded, usually
either some additional amounts as per the terms of the policy. a ULIP is a life
insurance policy which provides a combination of risk cover and investment.

What is meant by Stock Exchange?

The Securities Contract (Regulation) Act, 1956 (SCRA) defines ‘Stock Exchange’ as anybody of
individuals whether incorporated or not, constituted for the purpose of assisting, regulating
or controlling the business of buying, selling or dealing in securities. Stock exchange could
be a regional stock exchange whose area of operation is specified at the time of its
recognition, or national exchanges which are permitted to have nationwide trading since
inception. The National Stock Exchange of India Ltd. was incorporated as a national stock
exchange.

What is an Equity/Share?
The total equity capital of a company is divided into equal units of small denominations,
each called share. For example, in a company the total equity capital of Rs. 2,00,00,000 is
divided into 20,00,000 units of Rs.10 each. Each such unit of Rs. 10 is called a share. Thus, the
company is said to have 20,00,00 equity shares of Rs. 10 each. The holders of such shares
are members/owners of the company to the extent of shareholding and have voting rights.

What is a Debt Instrument?

Debt instrument represents a contract whereby one party lends money to another on pre-
determined terms with regards to rate and periodicity of interest, repayment of principal
amount by the borrower to the lender. In Indian securities market, the term bond is used for
debt instruments issued by the central and state governments and public sector

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organizations and the term debenture is used for instruments issued by private corporate
sector.

What is a Derivative?
Derivative is a product whose value is derived from the value of one or more basic variables,
called underlying. The underlying assets can be equity, index, foreign exchange (FOREX),
commodity or any other asset.

Derivative products initially emerged as hedging devices against fluctuations in commodity

prices and commodity linked derivatives remained the sole form of such products for almost
three hundred years. The financial derivatives came into spotlight in post 1970 period due to
growing instability in the financial markets. However, since their emergence these products
have become very popular and by 1990s, they accounted for about two-third of total
transactions in derivative products.

What is a Mutual fund?

A Mutual fund is body corporate registered with Securities and Exchange Board of India
(SEBI) that pools money from individuals/corporate investors and invests the same in a
variety of different financial instruments or securities such as equity shares, government
securities, bonds, debentures, etc. Mutual funds thus consider as financial intermediaries in
the investment business that collect funds from the public and invest in behalf of the
investors. Mutual funds issue units to the investors.

The appreciation of the portfolio or securities in which the mutual fund has invested the
money leads to an appreciation in the value of the units held by investors. The investment
objectives outlined by a Mutual fund in its prospectus are binding on the mutual fund
scheme. The investment objectives specify the class of securities a mutual fund can invest in.

Mutual funds invest in various assets classes like equity, bonds, debentures, commercial
paper and government securities. The schemes offered by mutual funds vary from fund to
fund. Some are pure equity schemes; others are a mix of equity and bonds. Investors are also
given the option of getting dividends, which are declared periodically by the mutual fund, or
to participate only in the capital appreciation of scheme.

What is an Index?
An Index shows how a specified portfolio of share prices is moving in order to give an
indication of market trends. It is a basket of security and the average price movement of the
basket of securities indicates the index movement, whether upwards or downwards. The
main index of the NSE is the NIFTY 50. The Nifty 50 is a well diversified 50 stock index
accounting for 23 sectors of the economy. It is used for a variety of purpose such as
benchmarking fund portfolios, index based derivatives and index funds.

What is a Depository?
A depository is like a bank wherein the deposits are securities(viz. shares, debentures, binds,
government securities, units etc.) in electronic form.

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What is Dematerialization ?
Dematerialization is the process by which physical certificates of an investor are converted to
an equivalent number of securities in electronic form and credited to the investor’s account
with his Depository Participant (DP).

What is meant by Securities?

The definition of Securities as per the Securities Contract Regulation Act (SCRA), 1956,
include instruments such as shares, bonds, scrips, stocks or other marketable securities of
similar nature in or of any incorporate company or body corporate, Government securities,
units of collective investment scheme, interest and rights in securities, security receipt or any
other instruments so declared by the Central Government.

What is the function of Securities Market?

Securities Market is a place where buyers and sellers of securities can enter into transactions
to purchase sell shares, bonds, debentures etc. Further, it performs an important role of
enabling corporates, entrepreneurs to raise resources for their companies and business
ventures through public issues. The Transfer of resources from those having idle resources
(investors) to others who have a need for them (corporates) is most efficiently achieved
through the securities market. Stated formally, securities markets provide channels for
reallocation of savings to investments and entrepreneurship. Savings are linked to
investments by variety of intermediaries, through a range of financial products, called
Securities.

Which are securities you can invest in?

 Shares
 Bonds and Debentures
 Government products
 Units of Mutual Funds
are some of the securities investors in the securities market can invest in.

Who are Regulators?

Why does Securities Market need regulators?

The absence of condition of perfect competition in the securities markets makes the role of
the Regulator extremely important. The regulator ensures that the market participants
behave in a desired manner so that securities market continues to be a major source of
finance for corporate and government and the interest of investors are protected.

Who regulates the Securities Market?

The responsibility for regulating the securities market is shared by Department of Economic
Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and
Securities and Exchange Board of India (SEBI).

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What is SEBI and what is its role?
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India
established under Section 3 of SEBI Act, 1992. This Act provides for establishment I of
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the
interests of investors in securities (b) promoting the development of the securities market
and (c) regulating the securities market, in addition to all intermediaries and persons
associated with securities market. SEBI has been obligated to perform the aforesaid functions
by such measures as it thinks fit. In particular, it has powers for:

 Regulating the business in stock exchanges and any other securities markets.
 Registering and regulating the working of stock brokers, sub brokers etc.
 Promoting and regulating self-regulatory organization
 Prohibiting fraudulent and unfair trade practices
 Calling for information from, undertaking inspection, conducting inquiries and audits
of the stock exchanges, intermediaries, self-regulatory organizations, mutual funds
and other persons associated with the securities.

Participants in Securities Market

Who are the Participants in the Securities market?

The securities market essentially has three categories of participants, namely, the issuers of
securities, investors in securities and the intermediaries, such as merchant bankers, broker
etc. While the corporate and government raise resources from the securities market to meet
their obligations, it is households and other corporates and financial institutions that invest
their savings in the securities market.

Is it necessary to transact through an intermediary ?

It is advisable to conduct transactions through an intermediary. For example, you need to
transact though a trading member of a stock exchange if you intend to buy or sell any
security on stock exchanges. This mandatory as per SCRA. You need to maintain an account
with a depository if you intend to hold securities in Demat form. You need to deposit money
with a banker to an issue if you are subscribing to public issues. If you are transacting
through an intermediary, choose a SEBI registered intermediary, as it is accountable for its
activities. The list of registered intermediaries is available with exchanges, industry
associations and also on the SEBI website, www.sebi.gov.in.

What are the segments of Securities Market?

The securities market has two interdependent segments: the primary (new issues) market
and the secondary market. The primary market provides the channel for sale of new
securities while the secondary market deals in securities previously issued.

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 End Chapter Material

Points to Remember
 Investing is the process of employing the savings made in order to make money from
the savings. There are certain precautions to be taken while investing. The investor
should be comfortable with the investments made. Earlier investments yield better
returns.
 The investment mantra is to start early to earn maximum. There are various short
term and long term options of investments including equity and debt. Interest is the
amount earned in debt. Equity represents ownership in the company and gives
returns in the form of dividends and capital appreciation.
 The purchase and sale of equity is governed by stock exchanges. The movements of
the market is represented by the index. Other products include derivatives which are
derived from equity, debt as underlying assets and mutual funds which invest
professionally in the markets. Almost all dealings on the stock exchange are through
dematerialized securities, which are financial securities in electronic from.
 Securities market comprise financial securities like shares, bonds and debentures,
mutual fund units, Government securities, derivatives. The securities market is a
means for buying and selling financial markets through intermediaries. It is regulated
by Department of Company Affairs, the Department of Economic Affairs, SEBI and
RBI. SEBI is the apex regulator responsible for primary regulation of securities
markets. Securities markets consist of primary markets – being market of first issue
and second markets being trading in listed securities.

Key words used in this chapter

Financial Markets = वित्तीय बाजार जहां सभी असेट्स से जुड़े व्यापार होते है, इसके अंदर कै पिटल
और स्टॉक मार्के ट दोनों आते है

PPF

Bonds

SEBI

Debenture

Fixed Deposits

Mutual funds

Life Insurance

Stock Exchange

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Equity

Debt Instruments

Derivatives

Nifty

Sensex

Securities

Brokers

Useful online content for various topics related to this chapter

Rule of 72 by Pushkar Raj Thakur

https://youtu.be/b0_CsTFjtus?si=1U27WpCWtkFvLOOH from 19:00 to 20:00

Investment in Gold by Pushkar Raj thakur

10 | P a g e
 Chapter -2
Primary and Secondary Markets

In this Chapter, you will learn:

Role of Primary and Secondary Market
Issue of shares, IPO, Prospectus
SEBI’s role in issue of shares
Foreign Capital Insurance
Stock Trading
Stock Split, Stock Consolation, Bonus Issues, Buy Back of shares
SEBI scores

What is the role of Primary Market?

The primary market provides the channel for sale of new securities. Primary market provides
opportunity to issue of securities: Government as well as corporates, to raise resources to
meet their requirements of investment and/or discharge some obligation. They may issue
the securities at face value, or at a discount/premium and these securities may take a variety
of forms such as equity, debt etc. They may issue the securities in domestic market or
international market.

What is meant by Face value of a share/debenture?

The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is
original cost of the stock shown on the certificate; for bonds, it is the amount paid to the
holder at maturity. It is also known as par value is usually a very small amount (Rs.5, Rs. 10)
and does not have much bearing on the price of the share, which may quote higher in the
market, at Rs.100 or Rs. 1000 or any other price as the market decides. For a debt security,
face value is the amount repaid to the investor when bond matures (usually, government
securities and corporate bonds have a face value of Rs.100. The price at which the security
trades depend on the fluctuations I the interest rates in the economy.

What do you mean by the term premium and Discount in a Security Market?
Securities are generally issued denominations of Rs.5, Rs. 10 or Rs. 100. This is known as the
Face value or Value of the security as discussed earlier. When a security is sold above its face
value, it is said to be issued at a Premium and if it is sold at less than its face value, then is
said to a be issued at a Discount. Normally, issues are made at premium. Discount issues are
rarely made.

Issue of Shares

Why do companies need to issue shares to the public?

Most companies are usually started privately by their promoter(s). However, the promoters’
capital and the borrowings from bank and financial institutions may not be sufficient for
setting up or running the business over a longs term, especially when the business grows

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and looks to expand. So, companies invite the public to contribute towards the equity and
issue shares to individuals’ investors. The way to invite share capital from the public is
through a ‘Public issue”. Simply stated, a public issue is an offer to the public to subscribe to
the share capital of a company. Once this is done, the company allots shares to the
applicants as per the prescribed rules and regulations laid down by SEBI.

What are the different kinds of issues?

Primarily, issues can be classified as a Pubic, Rights or Preferential issue (also known as
private placements). While public and rights issues involve a detailed procedure, private
placements or preferential issues are relatively simpler. The classification of issues is
illustrated as follows:

 Initial Public Offering (IPO) is when 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 the way for listing and trading of the issuer’s securities.
 A follow-on public offering (Further Issue) is when an already listed company makes
either fresh issue of securities to the public or an offer for sale to the public, through
an offer document.
 Rights Issue is when a listed company proposes to issue fresh securities to its existing
shareholders as on a record date. The rights ate normally offered in a particular ratio
to the number of securities held prior to the issue. For example, in a right issue of 1:1,
one new equity share is issued for every equity share held by the shareholders.
Hence, the shareholding of the investor doubles after rights issue. This route is best
suitable for companies who would loke to raise capital without diluting the stake of
its existing shareholders.
 A Preferential Issue is an issue of share or of convertible securities by listed
companies to select a group of persons under Section 62 of the Companies Act, 2013
which is neither a rights issue nor a public issue. This is faster way for a company to
raise equity capital. The issuer company has to comply with the Companies Act and
the requirements contained in the Chapter pertaining to preferential allotment in
SEBI which inter-alia include pricing, disclosures in notice, etc.

Classification of Issues

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 Issues

Rights Public Preferential

Initial Public Offering Follow-on Offering Offer for Sale

Fresh Issue Offer for Sale Fresh Issue

What is meant by Issue Price?

The price at which a company’s shares are offered initially in the primary market is called as
the Issue price. When they begin to be traded, the market price may be above or below the
Issue Price. You can follow traders of public issues in the NSE website to see whether the
security is being traded above or below the Issue Price.

What is meant by Market Capitalization?

The market value of a listed company, which is calculated by multiplying its current share
price (market price) by the number of shares in issue, is called market capitalization. For
Example, Company A is having 120 million shares in issue. The market price is Rs. 100. The
Market capitalization of Company A is Rs. 12,000 million.

Market Capitalization = Market price of share x No. of shares issued

What is the difference between Public issue and Private placement?

When an issue is not made to only a select set of people but is open to general public and
any other investor at large, it is a Public issue. But if the Issue is made to a select set of
people, it is called Private Placement. As per Companies Act, 2013, an Issue becomes public
if it results in allotment to 500 persons or more. This means an issue can be privately placed
where an allotment is made to less than 50 person excluding Qualified Institutional Buyers
and Employee Stock Options.

What is Initial Public Offering (IPO)?

An Initial Public Offering (IPO) is the selling of securities to the public in the primary market.
It is when 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’s securities can be either through book building or through normal
public issue.

Who decides the price of an issue?

Indian primary market ushered in an era of free pricing in 1992. Following this, the
guidelines have provided that the issuer in consultation with Merchant Banker shall decide
the price there is no price formula stipulated by SEBI. SEBI does not play any role in price
fixation. The company and merchant bankers are however required to give full disclosures of

13 | P a g e
the parameters which they had considered while deciding the issue price. There are two
types of Issues, one where company and Lead Merchant Banker fix a price, called Fixed
Price. and other where the company and the Lead Manager (LM) stipulate a Floor Price or a
base Price Band and leave it to market forces to determine the final price(price discovery
through Book Building process). Nowadays, all issues are normally done through the book-
builder route. However, the fixed price route has been kept open to allow small and medium
enterprises to offer shares on the SME platform of the Exchanges.

What does ‘Price Discovery through Book Building Process’ mean?

Book building is basically a process used in IPOs for efficient Price Discovery. It is a
mechanism where, during the period for which the IPO is open, bids are collected form
investors at various prices, which are above or equal to the floor price. The offer price is
determined after bid closing date.

What is the main difference between offer of shares through Book Building vs
normal public issue?
Price at which securities will be allotted is not known in case of offer of shares through Book
Building while in case of offer of through normal public issue, price is known in advance to
investor. Under Book Building, investors bid for shares at the floor price or above and after
the closure of the book building process the price is determined for allotment of shares.

In case if Book building, the demand can be known everyday as the book is being built. But
in case of the public issue the demand is known at the close of the issue.

What is Cut-off Price ?

In a Book Building Issue, the issuer is required to indicate either the price band or a floor in
the Prospectus. The actual discovered issue price can be any price band or any price above
the floor price. This issue price is called Cut-off price. The issuer and lead manager decides
this after considering the book and the investors; appetite for the stock.

What is the floor Price in case of Book Building?

Floor price is the minimum price at which bids can be made.

What is Price Band in Book-built IPO?

The Prospectus may contain either the Floor price for the securities or a Price Band within
which the investors can bid. The spread between the floor and the cap of the price band
shall not be more than 20%. In other words, it means the cap should not be more than
120% of the floor price. The price band can have a revision and such a revision in the price
band shall be widely disseminated by informing the stock exchanges, by issuing a press
release and also indicating the change on the relevant website and the terminals of the
trading members participating in the book building process. In case the price band is
revised, the bidding period shall be extended for a further period of three days, subject to
the total bidding period not exceeding ten days.

Who decides the Price Band?

It may be understood that the regulatory mechanism does no play a role in setting the price
for issues. It is up to the company to decide on the price or the price band, in consultation
with Merchant Bankers.

14 | P a g e
What is the minimum number of days for which a bid should remain open during Book
building?
The book building should remain open for a minimum of 3 days.

Can open outcry system be used for Book Building?

No. As per SEBI, only electronically linked transparent facility is allowed to be used in case of
book building. The bids are submitted online so that the total amount bid for is always
transparently known. This facility/platform is provided by the exchanges.

Can the individual investor use the Book Building facility to make an application? Yes.

How does one know if shares are allotted in an IPO/offer for sale? What is the
timeframe for getting refund if shares not allotted?
As per SEBI, (Issue of Capital and Disclosure Requirements) Regulations, 2009 the Basis of
Allotment should be completed with 4 working days from the issue close date. As soon as
the basis of allotment is completed, within a working day the details of credit to Demat
Account/ allotment advice and dispatch of refund order needs to be completed. SO, an
investor know in about 5 working days’ time form the closure of issue, whether shares are
allotted to him or not.

What is ASBA ?
ASBA means “Application Supported by Blocked Amount”. ASBA is an application containing
an authorization to block the application money in the bank account, for subscribing to an
issue. If an investor is applying through ASBA, his application money shall be debited from
the bank account only if his/her application is selected for allotment after the basis of
allotment in finalized, or the issue is withdrawn/failed.

Under ASBA facility, investors can apply in any public/rights issues by using their bank
account. Investor submits the ASBA form (available at the designated branches of the banks
acting as Self Certified Syndicated Banks (SCSBs)) after filling the details like name of the
applicant, OAN number, demate account number, bid quantity, bid price and other relevant
details, to their banking branch by giving an instruction to block the amount in their
account. In turn, the bank will upload the details of the application in the biding platform.
Investors shall ensure that the details that are filled in the ASBA form are correct otherwise
the form is liable to be rejected.

From 1st Jan 2016, it is mandatory that all public issues are subscribed through ASBA only.

How long does it take to get the shares listed issue?

It takes 6 working days after the closure of the Book Built Issue.

What is the role of a ‘Registrar’ to an Issue?

The registrar finalize the list of eligible allottees after deleting the invalid applications and
ensures that the corporate action for crediting of shares to Demat accounts of the applicants
is done and the dispatch of refund orders for crediting of shares to the Demat accounts of
the applicants is done and the dispatch of refund orders to those applicable are sent. The
Manger coordinates with Registrar to ensure follow up so that the flow of applicants from
collecting bank branches, processing of the applications and other matters till the basis of
allotment is finalized, dispatch security certificates and refund other matters till the basis of

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allotments is finalized, dispatch security certificates and refund orders completed and
securities listed.

Does NSE provide any facility for IPO?

Yes. NSE’s electronic trading network spans across the country providing to investors in
remote areas. NSE decided to offer this infrastructure for conducting online IPOs through
Book Building Process.

NSE operates a fully automated screen based bidding system, called NEAT IPO that enables
trading members to enter bids directly from their offices through a sophisticated
telecommunication network.

Book building through the NSE system offers several advantages:

 The NSE system offers a nationwide bidding facility in securities.

 It provides a fair, efficient and transparent method for collecting bids using the latest
electronic trading system.
 Costs involved in the issue are far less those In a normal IPO
 The system reduces the time taken form completion of the issue process
 The IPO market timings are from 10:00 a.m. to 5:00 p.m.

What is Prospectus?
A large number of new companies float Public Issues. While a large number of these
companies are genuine, a few may want to exploit the investors. Therefore, it is very
important that an investor before applying for any issue identifies future potential of a
company. A part of guidelines issued by SEBI (Securities and Exchange Board of India) is the
disclosure of information to the public. This disclosure includes information like the reason
for raising the money, the way money is proposed to be spent, the return expected on the
money etc. This information is in the form of “Prospectus” which also includes information
regarding the size of the issue, the current status of the company, its equity capital, its
current and past performance, the promoters, the project, cost of the project, means of
financing, product and capacity. etc. It also contains lots of mandatory information regarding
underwriting and statutory compliances. This helps investors to evaluate short term and long
term prospects of the company.

What does Draft Offer Document mean?

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 the Registrar of Companies (ROC) and Stock
Exchanges. An offer document covers all the relevant information to help an investor to
make his/her investment decision.

Draft Offer document means the offer document in draft stage. The draft offer documents
are filed with SEBI, at least 30 days ;prior to the registration of red herring prospectus or
prospectus with ROC. SEBI may specify changes, if any, in draft Offer document and the
issuer or the lead merchant banker shall carry out such changes in the draft offer document
before filling the Offer document with ROC. The Draft Offer document is available on the
SEBI website for public comments for a period of 21 days from the filling of the Draft Offer
Document with SEBI.

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Red Herring Prospectus is prospectus, which does not have any details of either price or
number of shares being offered, or the amount of issue. This means that in case price is not
disclosed, the number of shares and the upper and lower price bands are disclosed.

What is an Abridged Prospectus?

Abridged Prospectus is a shorter version of the Prospectus and contains all the salient
features of a Prospectus. It accompanies the application form of public issues.

Who prepares the Prospectus/ Offer Documents?

Generally, the public of companies are handled by the Merchant Bankers who are responsible
for getting the project appraised, finalizing the cost of the project, profitability estimates and
for preparing of Prospectus. The Prospectus is submitted to SEBI for its approval.

What does one mean by Lock-in?

Lock-in indicates a freeze on the sale of shares for certain period of time. SEBI guidelines
have stipulated lock-in requirements on shares of promoters mainly to ensure that the
promoters or main persons, who are controlling the company, shall continue to hold
minimum percentage in the company after public issue.

What is meant by Listing of Securities?

Listing means admission of securities of an issuer to trading privileges (dealings) on the
stock exchange through a formal agreement. The prime objective of admission to dealings
on the exchange is to provide liquidity and marketability to securities, as also to provide a
mechanism for effective control and supervision of trading. In other words, listed securities
can be traded on the stock exchanges where they are listed. After the allotment and on the
listing day, a listing ceremony is performed where the shares open for trading.

What is a Listing Agreement?

At the time of listing securities of a company on stock exchange, the company is required to
enter into a listing agreement with the exchange. The listing agreement specifies the terms
and conditions of listing and the disclosures that shall be made by a company on a
continuous basis to the exchange.

What does Delisting of Securities mean?

The term Delisting of Securities means permanent removal of securities of a listed company
form a stock exchange. As a consequence of delisting, the securities of that company would
no longer be traded at that stock exchange.

What is SEBI’s role in issue?

Any company making a public issue or a listed company making a right of value of more
than Rs. 50 lakhs is required to file a draft offer document with SEBI for its observations. The
company can proceed further on the issue only after getting observations from SEBI. The
validity period of SEBI’s observations are issued by SEBI. only the company has to open its
issue within three months period after observations are issued by SEBI.

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Does it mean that SEBI recommends an 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 made for
the correctness of the statements made or opinions expressed in the offer document. SEBI
mainly scrutinizes the issue for seeing that adequate disclosures made by the issuing
company in the prospectus or offer document.

Does SEBI tag make one’s money safe?

The investors should make an informed decision purely by themselves based on the contents
disclosed in the offer documents. SEBI does not associate itself with any issue/issuer and
should in no way be constructed as a guarantee for the funds that investors proposes to
invest through the issue. However, the investors are generally advised to study all the
material facts pertaining to invest through the issue including the risk factors before
considering any investment. They are strongly warned against relying on any tips or news
through unofficial means.

Foreign Capital Issuance

Can Companies in India raise foreign currency resources?
Yes. Indian companies are permitted to raise foreign currency resources through two main
sources:
a) issue of foreign currency convertible bonds more commonly known as FCCBs and
b) issue of ordinary shares through depository shares through receipts namely ‘Global
Depository Receipts (GDRs)/ American Depository Receipts (ADRs)’ to foreign
investors i.e., to the institutional investors or individual investors.

What is an American Depository Receipts?

An American Depository Receipt (ADR) is a physical certificate evidencing ownership of
American Depository Shares (ADSs) The term is often usd to refer to the ADSs themselves.

What is an ADS?
An American Depository Share (ADS) is a U.S. dollar dominated form of equity ownership in
a non-U.S. company. It represents the foreign shares of the company help on deposit by a
custodian bank in the company’s home country and carries the corporate and economic
rights of the foreign shares, subject ot the terms specifies on the ADR certificate. One or
several ADSs can be represented by a physical ADR certificate. The tersm ADR and ADS are
often used interchangeably.

ADS provide U.S. investors with a convenient way to invest in overseas securities and to trade
non-U.S. securities in the U.S. ADS are issued by a depository bank, such as JPMorgan
Chase bank. They are traded in the same manner as shares in U>S. companies, on the New
York Stock Exchange (NYSE) and the American Stock Exchange (AMEX) or quoted on
NASDAQ and the over-the-counter (OTC) market. Although ADS are U.S. dollar dominated
securitites and pay dividends in U.S. dollars, they do not eliminate the currency risk
associaoted with an investment in a non-US company.

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What is meant by Global Depository Receipts?
Global Depository Receipts (GDRs) may be defined as a global finance vehicle that allows an
issuer to raise capital simultaneously in two or markets through a global offering. GDR may
be used in public or private markets inside or outside the U.S. The term GDR, though
normally applies to issues outside the US. GDR, a negotiable certificate usually represents
company’s traded equity/debt. The underlying shares correspond to the GDRs in a fixed ratio
say 1 GDR = 10 shares.

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