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1. MANAGING MONEY – INDIAN FINANCIAL TREASURES FOR ENTREPRENEURS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE / CSE PARTICIPANTS mobile : 91+9414430763

2. My words.... Ours is a great country with immense entrepreneurial potential. However, our legal system and taxation system is so cumbersome that our creativity and talent is wasted / unnecessarily diverted in these sectors. I wish that these are simplified so that an ordinary entrepreneur can understand these without help from any expert. Here I present an outline of Indian financial system for entrepreneurs. I wish that more people should become entrepreneurs. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation, but our systems and processes ...

3. How do SEBI ensure that the company has someone to implement all the rules and regulations ? Every company making a public issue is required to appoint a compliance officer and intimate the name of the compliance officer to SEBI. The compliance office will ensure that all the laws are implemented

4. What is the difference between book building and market making ? Book Building means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is build up and a ‘Fair Price’ and ‘Quantum’ of securities to be issued is finally determined. Book building is done at the time of issue. Market making starts after the issue has been subscribed by people. In market making, the market maker tries to stabilise the market prices by giving 2 quotes

5. When do stock exchanges delist shares ? where trading has been suspended for a minimum period of 6 months as per the norms provided in Schedule III of Delisting Guidelines on representations received from aggrieved persons before delisting they will give a time period of 15 days within which representation may be made by aggreived before delisting they will issue public notice through newspapers / website

6. What is the composition of the committee constituted to study the issue of delisting ? Two directors/officers of the stock Exchange (one director to be a public representative) One representative of the investors One representative from the Central Government (Department of Company Affairs)/Regional Director/Registrar of Companies Executive Director/Secretary of the stock Exchange.

7. What is the exit route of shareholder in case of delisting? the promoter of the company shall be liable to compensate the security-holders of the company by paying them the fair value of the securities held by security-holders and acquiring their securities.

8. How can a promotor apply for delisting ? The promotor should obtain prior approval of shareholders of the company by a special resolution the promotor should give a public announcement the promotor should make an application to the stock exchange The promotor should make an application to the stock exchange the promotor should open an escrow account promotor should give advertisement with contents as per information specified in Schedule I to the Delisting Guidelines, 2003.

9. How does promotor decide delisting price (exit route)? By book building as per Schedule III of delisting guidelines 2003 or the average of 26 weeks traded price quoted on the stock exchange where the shares of the company are most frequently traded during preceding 26 weeks from the date of the public announcement and without any ceiling of maximum price.

11. What is the minimum standard for a company for going for IPO ? net tangible assets of atleast Rs. 3 crore in each of the preceeding 3 full years of which not more than 50% is held in monetary assets distributable profits in terms of Section 205 of the Companies Act, 1956 for atleast three out of immediately preceeding five years. net worth of atleast Rs. 1 crore in each of the preceding 3 full years issues made in the same financial year in terms of size should not exceed five times its pre-issue net worth

12. Can a company which doesnt fulfill any one conditions still go for IPO? YES it will have to issue only through book building route It must allot 50% of the issue size to the Qualified Institutional Buyers (QIBs) minimum post-issue face value capital of the company must be Rs. 10 crore OR there should be a compulsory market-making for at least 2 years

13. What are the requirements, if a company wants to have denomination of its shares other than 10 or 100? the shares shall not be issued in the denomination of decimal of a rupee the denomination of the existing shares shall not be altered to a denomination of decimal of a rupee at any given time there shall be only one denomination for the shares of the company the companies seeking to change the standard denomination may do so after amending the Memorandum and Articles of Association, if required; the company shall adhere to the disclosure and accounting norms specified by SEBI from time to time.

14. How are retail investors encouraged in public issues in case of oversubscription? A minimum 50% of the net offer must be made available for allotment to retail individual investors The balance net offer of securities to the public shall be made available for allotment to a individual applicants other than retail individual investors, and b other investors including Corporate bodies/institutions irrespective of the number of shares, debentures, etc. applied for; The unsubscribed portion of the net offer may be made available for allotment to applicants in the other category

15. What are the due dates for submission of post issue monitoring reports? 3rd day from the date of allocation in the book built portion or one day prior to the opening of the fixed price portion whichever is earlier. OR 3rd day from the date of closure of the issue.

16. Rules relating to allotment of shares? allotment to the public must be made within 30 days of the closure of public issue. interest @15% per annum has to be paid if the allotment letters/ refund orders are not despatched to the applicants

17. In how much time should the company send allotment letters after allotment ? despatch of share certificates/ refund orders and demat credit and submission of the allotment and listing documents (to the stock exchanges) should be completed within 2 working days of the date of allotment.

18. What are commercial papers? It is an unsecured money market instrument issued in the form of a promissory note. It is a privately placed instrument. It was introduced in India in 1990 to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

19. What is Certificate of deposit ? It is a negotiable money market instrument and is issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.

20. What are the methods of issue of government securities ? (a) Auctions (b) On-tap issue (sale of securities already issued by RBI – for those who couldng buy in auction) (c) Fixed coupon issue(d) Private Placement(e) Open Market Operations (OMO) (sale / purchase by RBI to control liquidity in the market)

21. What are long term instruments in Indian capital market ? Pure Instruments: Equity shares, preference shares and debentures/bonds which were issued with their basic characteristics in tact without mixing features of other classes of instruments. Hybrid instruments : those instruments which are created by combining the features of equity with bond /preference Examples : Convertible preference shares derivatives: Futures and options which derive their value from other instruments

22. What is tracking stock ? Dr. J.J. Irani Expert Committee recommended ‘Tracking Stocks’. A Tracking stock is a type of common stock that “tracks” or depends on the financial performance of a specific business unit or operating division of a company, rather than the operations of the company as a whole.

23. What is Easy Exit Bond? This instrument covers both bonds which provide liquidity and an easy exit route to the investor by way of redemption or buy back where investors can get ready encashment in case of need to withdraw before maturity.

24. What is Participating Preference Share? These shares will have the right to fully participate in the profits of the company and also be eligible for bonus shares. These are irredeemable so they are not allowed at present. As per sec. 80 only redeemable preference shares can be issued.

25. What are Participating Debentures? These debentures are profit sharing debentures which are unsecured with a right to participate in the profits of companies. These debentures can be issued upto a maximum of 50% of the voting equity shares. They shall have a maturity period of 3-10 years, and shall be listed separately on the stock exchanges.

26. What is futures? It is contract to buy or sell an underlying financial instrument at a specified future date at a price when the contract is entered. Underlying assets for the purpose include equities, foreign exchange, interest bearing securities and commodities.

27. What are the various types of futures ? Interest Rate Futures Treasury Bill Futures Euro-Dollar Futures Treasury Bond Futures Stock Index Futures Currency Futures.

28. What is an option contract ? It conveys the right to buy or sell a specific security or commodity at specified price within a specified period of time. The right to buy is referred to as a call option whereas the right to sell is known as a put option. An option contract comprises of its type a put or call, underlying security or commodity expiry date, strike price at which it may be exercised. Options are generally described by the nature of underlying commodity. An option on common stock is said to be stock option

29. When is a put out of money ? A put option is said to be out of the money when the commodity price exceed the exercise price. Suppose on 1/1/10 you buy a put to sell Reliance at 1000 after 3 months. On 1/4/10 reliance is at 1100, you are out of money – as you will not get any benefit if you exercise your put. If Reliance is 900 on this day, you are in the money, because you can buy from market at 900 and sell at 1000 (by put).

30. WHAT ARE PARTICIPATORY NOTES? Participatory notes are derivative instruments which are issued by FIIs to foreign investors. Underlying securities in participatory notes are Indian Stocks

31. What is Fund of Funds (FoFs)? It is a mutual fund scheme, which invests in the schemes of same mutual funds or other mutual funds, instead of investing in securities . ICICI was the first to launch FoFs in 2003.

32. What is the rating process - when a credit rating company rates a company / instrument ? 1. Company gives a mandate to rating agency 2. Information gathering/analysis 3. Meetings with Management 4. analysis and preparation of reports 5 preview meeting 6. credit rating meeting 7. communicate the ratings 8. acceptance / non-acceptance

33. Which company can become a member of a stock exchange ? a majority of the directors of this company are shareholders of this company and also members of that stock exchange; and the directors of this company, who are members of that stock exchange, have ultimate liability in such company

34. What are the main rules governing security contracts and matters incidental ? SECURITIES CONTRACTS (REGULATION) (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 2005

35. What are the various activities that a broker (member of a stock exchange) can do ? A member can act as a Badla Financier, Commission Broker, Dealer in Odd lots, Dealer in Government Securities, Jobber, Market Maker or Underwriter.

36. What are cash shares? Shares of companies which are not in the spot list are known as ‘cash’ shares or ‘B’ Category shares. They are traded on cash basis or delivery basis and cannot be traded on settlement basis. The actual delivery of securities and payment has to be made on or before the settlement date fixed in the case of cash basis trading.

37. What is the delivery period in the case of spot delivery? 48 hours of the contract

38. Which is the clearing company for NSE? National Securities Clearing Corporation Limited was incorporated as a wholly owned subsidiary of the National Stock Exchange of India Limited to carry out clearing and settlement of the trades executed in the capital market segment of National Stock Exchange.

39. What is ‘straddles’? It is a combination of one put and one call option with a common striking price and common expiry date.

40. What are the two types of options with regard to flexibility of exercising option? (i) European options system: On the expiry date and (ii) American option system: anytime before the expiry of specified time

41. What is the meaning of premium in option trading ? It is the price the buyer pays to the writer for an option contract at the time of buying the option. The term ‘premium’ is often synonymous with the word ‘price’ in option transactions.

42. What are the advantages of options ? It is a tool to manage their risk under volatile conditions. There is no default because clearing house is counter-party to all transactions and guarantor for payment and deliveries. There is opportunity to maintain position without margin calls. realistic forecast of prices estimation in advance of total risk in future transactions. integration of the Indian capital market with the developed capital markets.

43. What are the means to establish a good options market ? Standardised terms of contract Careful selection of underlying securities. Appointment of market-makers options clearing house central market with regulation, surveillance and price dissemination.

44. What are Floating Rate Bonds? These are bonds with variable interest rate with a fixed percentage over a benchmark rate they are issued at face value, in comparison to deep discount bonds, which are issued at a discount in comparison to face value.

45. What are Bonds with Call/Put Option? that holder of these bond can sell back (put option) bond to bond issuer after specified duration the bond issuer can buy back (call option) bond from holder at a specified time before maturity

46. What are Capital Indexed Bonds? Capital Indexed Bonds are bonds where interest rate is a fixed percentage over the wholesale price index

47. What is SGL account ? Banks, Primary Dealers and Financial Institutions can hold government securities with the Public Debt Office of Reserve Bank of India in dematerialized form which is known as Subsidiary General Ledger (SGL) Accounts.

48. What is the minimum investment required in government securities ? government dated securities can be purchased for a minimum amount of Rs. 10,000/-.Treasury bills can be purchased for a minimum amount of Rs. 25,000/- and in multiples thereof. State Government Securities can be purchased for a minimum amount of Rs 1,000/- .

49. Why do banks invest their idle money in government securities? There are many benefits, some are : SLR requirements No tax deducted at source Zero default risk being sovereign paper Highly liquid

50. Why do individuals invest in government securities ? Income Tax benefit u/s 80L of the Income Tax Safe Highly liquid

51. What is the difference in French and Dutch auction system ? French Auction: It is also called Multiple Price Based auction, Under this method, all bids equal to or above the cut-off price are accepted. However, the bidder has to obtain the security at the price quoted by him. Dutch Auction: it is also called Uniform Price Based auction. Under this system, all the bids equal to or above the cut-off price are accepted at the cut- off level. The bidder obtains the treasury bills at the cut-off price and not the price quoted by him

52. Which committee gave suggestions regarding ESOP? ESOP = employee stock option plan (where employee can purchase shares of the company at low rates) J.R. Verma Committee was constituted by SEBI to formulate the Guidelines for Employee Stock Options Plan and Employee Stock Purchase Scheme

53. What is the minimum ceiling for book building ? In order to reduce issue cost and time for making public issues and to simplify procedures, the ceiling of issue size has be been brought down to Rs.25 crore (from 100 crores earlier) .

54. What are profit norms for companies going for IPO ? distributable profits at least three out of five preceding years.

55. Is credit rating compulsory for debentures ? Yes credit rating by approved credit rating agencies is mandatory for all public and rights issues of debt instruments irrespective of their maturity or conversion period

56. Are negotiated deals also shown on screen based trading? Yes all negotiated deals result in delivery and deals of value of Rs.25 lakh or volume of 10,000 shares are reported on the screens within 15 minutes of transaction

57. Can Indian stock exchanges open their terminals in other countries also ? Yes Indian stock exchanges are permitted to set up their trading terminals overseas subject to regulatory requirements of the host countries.

58. What are the major risk management moves by stock exchanges ? To ensure that settlements take place without failure and to reduce counter party risk, stock exchanges have set up trade / settlement guarantee funds they have also set up Stock Watch System to monitor the market fluctuations

59. Which committee gave recommendations on takeovers ? The Committee under the chairmanship of Justice P.N. Bhagwati

60. What is the threshold limit for mandatory public offer ? 15 per cent of the voting rights of a company.

61. What decision was taken on the recommendations of Committee on Market Making ? Brokers are now allowed to undertake market making activity in shares of a company where the average number of trades is more than 50 and the value of trade on daily basis is more than Rs.10 lakh.

62. What is the limit for investment of mutual funds in a single company ? equity shares or equity related instruments of a single company in a single scheme up to 10 per cent of the NAV of the scheme and investment in index schemes to 15 per cent of NAV of the scheme of mutual fund (with permission from AMC, it can be upto 25%)

63. What is CFDS? Corporate Filing and Dissemination System (CFDS) has been prepared jointly by BSE and NSE it is going to replace EDIFAR which was introduced by SEBI (online document submission system)

64. What is purpose of clause 43A of listing agreement? to file deviations in the use of public issue proceeds and to appoint monitoring agency to monitor utilisation of proceeds etc.

65. What is the investment limit for FIIs in Government Securities ? $ 2.6 billion (this is fixed and revised by RBI).

66. What is REMF? REMF means a scheme of a mutual fund which has investment objective to invest directly or indirectly in real estate property

67. Are mutual funds required to send statement of account to investors ? Yes they have to send statement of accounts to the unit holders under Systematic Investment Plan (SIP) / Systematic Transfer Plan (STP) / Systematic Withdrawal Plan (SWP) once every quarter ending March, June, September and December, within 10 working days of the end of the respective quarter.

68. What are speculative grades in credit rating ? below ‘BBB’ (S & P), ‘Baa’ (Moody’s)

69. What is financial leverage ? Relative usage of debt and levels of debt appropriate to different types of businesses, utilisation of long and short term sources of funds, management of working capital.

70. What are CRISIL's symbols for debenture ratings ? AAA = Highest safety AA =very safe A = Investment grade BBB=investment grade – moderate safe BB=Inadequate safe B=high risk C=substantial risk D=default

71. What are CRISIL's symbols for fixed deposit ratings ? FAAA = Highest safety FAA =very safe FA = Investment grade FB=inadequate risk FC=high risk FD=default

72. What are the roles of merchant bankers ? Managing of public issue of securities; Underwriting & Corporate advisory services Managing / advising GDR, ADR, etc. Private placement of securities; Primary or satellite dealership of government securities; advising on takeovers, acquisition and disinvestment; Stock broking/Advisory services for projects; Syndication of rupee term loans; International financial advisory services.

73. What is minimum networth of merchant banker ? ‘Networth’ means the sum of paid-up capital and free reserves five crore rupees.

74. What are the main contents in code of conduct of merchant bankers? to protect the interests of investors. To exercise due diligence, ensure proper care and exercise independent professional judgement to make appropriate disclosure to the client to not indulge in any unfair competition Not to suppress any material fact in any documents, Not to give any investment advice

75. What do you understand from due diligence by merchant banker ? To be responsible for verification of the contents of a prospectus or the letter of offer To examine various documents including those relating to litigation like commercial disputes, patent disputes To ensure that every draft offer document submitted to SEBI shall be accompanied by undertakings and certificates from CEO / other responsible officers to ensure that the disclaimer clause and the risk factors are printed prominently (regulation. 23)

76. Can merchant banker buy shares of its clients? No no merchant banker or any of its directors, can either on their own account or through their associates or relatives, enter into any transaction in securities of bodies corporate on the basis of unpublished price sensitive information obtained by them during the course of any professional assignment either from the clients or otherwise. (regulation26)

77. What are the activities performed by banker to issue? Banker to issue is a scheduled bank. It fulfills the following : Acceptance of application and application monies; Acceptance of allotment or call monies; Refund of application monies Payment of dividend or interest warrants

78. What records must be maintained by a Banker to issue? the number of applications received, the names of the investors, the dates on which the applications were received and the amounts so received from the investors the time within which the applications received from the investors were forwarded to the body corporate or registrar to an issue as the case may be the dates and amount of the refund monies paid to the investors dates, names and amount of dividend/interest warrant paid to the investors.

79. What is the procedure for registration of debenture trustee? Application should be made in Form A accompanied by a non-refundable application fee

80. What is disqualification for debenture trustee? Regulation 13A : being an associate of the body corporate; or it has lent and the loan is not yet fully repaid or is proposing to lend money to the body corporate.

81. What are duties of a debenture trustee? call for periodical reports from the body corporate; take possession of trust property in accordance with the provisions of the trust deed; enforce security in the interest of the debenture holders do such acts as necessary in the event the security becomes enforceable;

82. What are minimum requirements of a sub-broker ? the applicant is not less than 21 years of age the applicant has not been convicted of any offence involving fraud or dishonesty; at least passed 12th standard equivalent examination from an Institution recognised by the Government. the applicant is a fit and proper person.

83. What are duties of a subbroker? pay the fees as per Schedule III; abide by the Code of Conduct specified in Schedule II enter into an agreement with the stock broker for specifying the scope of his authority and responsibilities comply with the rules, regulations and bye laws of the stock exchange not be affiliated to more than one stock broker of one stock exchange.

84. How does SEBI grant approval to a sub broker? SEBI grants a certificate in Form-E

85. What is Overseas Depository Bank? This is the bank authorised by the issuing company to issue global Depository receipts against issue of Foreign Currency Convertible Bonds or ordinary shares of the issuing company;

86. What is global depository receipt ? It is an instrument in the form of a Depository receipt or certificate created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company;

87. What is domestic custodian bank ? It is a banking company which acts as a custodian for the ordinary shares or foreign currency convertible bonds of an Indian Company which are issued by it against global Depository receipts or certificates;

88. What is the minimum issue price of GDR? The higher of these two : The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date; The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date.

89. What is the tax income from GDR Interest payments on the bonds, until the conversion option is exercised, are subject to deduction of tax at source at the rate of ten per cent. Tax on dividend on the converted portion of the bond is subject to deduction of tax at source at the rate of ten per cent. Conversion of Foreign Currency Convertible Bonds into shares does not give rise to any capital gains liable to income-tax in India. Transfers of Foreign Currency Convertible Bonds made outside India by a non-resident investor to another non-resident investor does not give rise to any capital gains liable to tax in India.

90. What is DR? Depository Receipt (DR) is a negotiable instrument evidencing a fixed number of equity shares of the issuing company generally denominated in US dollars.

91. What are the steps in DR issue? Get Approval of Board of Directors Get Approval of Shareholders Get Approval of Shareholders Get Approval of Department of Company Affairs Get Approval of Reserve Bank of India Get consent of Stock Exchanges for listing of underlying shares Get consent of Financial Institutions

92. What are the intermediaries that have to be appointed for DR ? Appoint (i) Lead Manager (ii) Co-Lead/Co-Manager (iii) Overseas Depository Bank (iv) Domestic Custodian Banks (v) Listing Agent (vi) Legal Advisors (vii) Printers (viii) Auditors (ix) Underwriter

93. What are the important documents that you have to prepare for DR? (i) Subscription Agreement (ii) Depository Agreement (iii) Custodian Agreement (iv) Agency Agreement (v) Trust Deed

94. What are the documents that you have to submit to go for DR? special resolution under Section 81(1A) Form No. 23 Agreements (as discussed earlier )

95. What are the important steps from prelaunch to launch of DR? (i) Constitution of a Board Sub-Committee; (ii) Selection of Syndicate Members; (iii) Constitution of a task force for due diligence; (iv) Listing; (v) Offering Circular; (vi) Research papers; (vii) Pre-marketing; (viii) Timing, pricing and size of the issue; (ix) Roadshows; (x) Book building and pricing of the issue;

96. What powers have to be delegated to the sub-committee of board of directors for smooth functioning ? Appointment of agencies Authority to make applications for seeking various approvals Authority to finalise and execute documents and agreements. Decisions about the timing, size and pricing of the issue Allotment of shares

97. What are the contents of offering circular? Background of the company and its promoters past performance, future plans, etc. Capital structure Deployment of issue proceeds. Financial data indicating track record Group investments and their performance Description of shares. Terms and conditions Reports of Auditors / accounting policies

98. What are Research Papers? Research analysts team of lead manager/co-lead manager prepares research papers on the company before the issue. These papers are very important marketing tools as the international investors normally depend a lot on the information provided by the research analysts for making investment decisions.

99. How is pre-marketing done for DR? The research analysts along with the sales force of the syndicate members meet the prospective investors during pre marketing roadshows.

100. How should timing and price of DR be decided ? The timing should also not clash with some other major issues of the Indian as well as other country companies. The decision regarding the pricing of issue is inversely linked with the size i.e. larger the size, the comparatively lower the price

101. Can DR be converted into shares? An investor has an option to convert the DR into a fixed number of equity shares of issuer company after a cooling period. He can do so by advising the depository. The depository, in turn, will instruct the custodian about cancellation of DR and release the corresponding shares in favour of the non-resident investor,

102. Do DR carry voting right ? they carry no voting rights

103. Are DR within FDI? ADR/GDR are reckoned as part of Foreign Direct Investment (FDI). Accordingly, such issue would need to confirm to the existing FDI Policy and only in areas where FDI is permissible.

104. Where are DR listed? Depository Receipts issued under the scheme may be listed on any of the Overseas Stock Exchanges, or Over the Counter Exchanges or through Book Entry Transfer Systems prevalent abroad and they may be purchased, possessed and freely transferable by a person who is a non-resident

105. How are DR transferred? Transfer of GDRs is effected through the mechanism of international clearing systems (Euroclear and Cedel). GDRs issued to Qualified Institutional Buyers in the United States of America are to be settled through a Depository Trust Company in New York.

106. How can OCBs invest in Indian companies without prior approval? they can subscribe : Foreign Currency Convertible Bonds and Ordinary Shares through Global Depositary Receipts under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993.

107. Should FCCB be only in $? No The Foreign Currency Convertible Bonds shall be denominated in any freely convertible foreign currency and the ordinary shares of an issuing company shall be denominated in Indian rupees.

108. What is fast track issue? The listed companies satisfying certain specified requirements are now able to proceed with follow-on public offering/rights issue by filing a copy of the Red Herring Prospectus. They are not required to file draft offer document with SEBI and stock exchanges.

109. What are the requirements for fast track issues ? average market capitalisation of public shareholding of the company is at least Rs. 10,000 crores for a period of one year The shares of the company listed on any stock exchange having nationwide terminals for a period of at least three years annualized turnover of the shares of the company during six months immediately preceding the month ofat least two per cent listing requirements complied and 95% investor grievances resolved

110. Is it required for a company to fix exact issue price before public issue ? No , The issuer company can mention a price band of 20% in the offer documents filed with the Board and actual price can be determined at a later date before filing of the offer document with ROCs.

111. What can be the minimum face value of a share ? if the issue price is Rs. 500/- or more, the issuer company shall have a discretion to fix the face value below Rs. 10/- per share subject to the condition that the face value shall in no case be less than Re. 1 per share. if issue price is less than Rs. 500 per share, the face value shall be Rs. 10/- per share.

112. What % of the issue the promoters should contribute as minimum contribution? The promoters should contribute not less than 20% of post-issue capital, in case of a public issue by an unlisted company. There is also a requirement of lock-in-period of 3 years from the date of commencement of commercial production or date of allotment in the public issue whichever is later.

113. What are the cases when lock in period requirements are waived ? In case of issue of securities by a company listed on a stock exchange for at least 3 years and having a track record of dividend payment for at least 3 immediately preceding years promoter’s contribution shall not be subject to lock-in-period.

114. Is there any lock in period requirement on pre-issue capital of a company? Yes The entire pre-issue share capital, other than that locked-in as minimum promoters’ contribution, shall be locked-in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later.

115. What are the cases when lock in period is not required? capital held by Venture Capital Funds and Foreign Venture Capital Investors government company, statutory authority or corporation or any special purpose vehicle in infrastructure sector shares held by employees other than promoters, which were issued under employee stock option

116. Is underwriting compulsory ? No, but practially yes The issuers have the option to have a public issue underwritten by the underwriter. In case the book-building option is availed of, underwriting is mandatory to the extent of the net offer to the public.

117. Is underwriter required to bring money for underwritten shares in advance ? Depends, Book Runner has an option of requiring the underwriters to the net offer to the public to pay in advance all monies required to be paid in respect of their underwriting commitment.

118. What should be the minimum offer to public ? For unlisted company : at least 10% or 25% of the post issue capital should be offered to the public for a listed company: at least 10% or 25% of the issue size to the public. However this condition will not apply to Infrastructure company fulfilling some requirements

119. What is the time limit for issue after deposit of offer document with SEBI? The issue must open within 3 months from the date of issuance of the observation letter by SEBI, or within 3 months from 31st day from the date of filing of draft offer document with SEBI

120. For how much time must the subscription list be kept open? at least three working days and not more than 10 working days

121. Is it necessary for investor to disclose his PNR number ? Yes, his bank a/c and PNR numbers are disclosed to company and also to depository. In respect of applications for a value of Rs. 50,000 or more, the applicant or in case of applications in joint names, each of the applicant must mention his/her permanent account number/GIR number and income tax circle, ward, district or the fact of non-allotment of PAN/GIR number as the case may be

122. Go abroad the Reliance Industries acquired Flag Telcom Bermuda for US$ 212 million, and Trevira, Germany for US$ 95 million; Tata Motors acquired Daewoo, Korea for US$ 118 million; Tata Steel acquired Corus Group for US$ 12.2 billion; Infosys Technologies acquired Expert Information Services, Australia for US$ 3.1 million; Wockhardt acquired CP Pharmaceuticals UK for US$ 18 million; Cadila Health acquired Alpharma SAS France for US$ 5.7 million; Hindalco acquired Straits Ply, Australia for US$ 56.4 million; Wipro acquired Nerve Wire Inc. US for US$ 18.5 million; Aditya Birla acquired Doshiquiao Chem, China for US$ 8.5 million; Allanda based Novelis for US $ 6 billion and United Phasphorus acquired Oryzalin Hirbicide, US for US$ 21.3 million

123. What are the norms regarding advertisements for accepting public deposits Section 58 A - no Company shall invite any public deposits without issuing an advertisement in accordance with the Companies (Acceptance of Deposit) Rules, 1975.The company must indicate its financial position as also details about the Company’s business, Board Directors etc. A copy of this has to be filed with the Registrar of Companies.

124. What is done to protect small investors ? Section 58AA: small depositor means a depositor who has deposited in a financial year a sum not exceeding Rs. 20,000/- in a company In case of any default made by a company in the re-payment of such deposits, intimation within 60 days of default must be submitted to the Company Law Board (CLB) & no more deposits can be accepted until payment.

125. What is the penalty in case of misstatement in prospectus? Section 63: This Section deals with criminal liability for misstatement in prospectus issued by a company. For such misstatements, the section provides for imprisonment upto 2 years which and fine which may extend to Rs. 50,000/- or with both

126. What is the penalty for fraudulently inducing persons to invest money in shares etc. ? Section 68: imprisonment upto 5 years or fine upto Rs. 1 lakh.

127. What is the time for payment of dividend ? Section 205: a company which has declared a dividend for any financial year must deposit the amount of such dividend (including interim dividend, if any) in separate bank account within 5 days

128. What is IDR ? Indian Depository Receipt means any instrument in the form of a depository receipt created by Domestic Depository in India against the underlying equity shares of issuing company. “Domestic Depository” means custodian of securities registered with SEBI and authorised by the issuing company to issue Indian Depository Receipts.

129. What is the role depository in IDR? Domestic Depository is custodian of securities registered with SEBI and authorised by the issuing company to issue Indian Depository Receipts.

130. What is the main regulation on IDR? Issue of IDRs are regulated by Companies (Issue of Indian Depository Receipts) Rules, 2004.

131. How many clauses are there in the listing agreement relating to IDR? 24 clauses (the last clause is on corporate governance)

132. What is the Minimum issue size of IDR The size of an IDR issue shall not be less than Rs. 50 crores.

133. What are the requirements regarding minimum subscription of IDR? If the company issuing the IDRs does not receive the minimum subscription of 90 per cent of the issued amount on the date of closure of the issue, or if the subscription level falls below 90 per cent after the closure of issue on account of cheques having being returned unpaid of withdrawal of applications, the company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest at the rate of 15 per cent per annum for the period of delay.

134. Listing of IDRs The IDRs issued should be listed on Stock Exchange(s) in India as specified and such IDRs may be purchased, possessed and freely transferred by a person resident in India.

135. What are the main instruments in debt market in India ? Government securities market :consisting of Central and State Governments securities, Zero Coupon Bonds (ZCBs), Floating Rate Bonds (FRBs), T-Bills corporate securities market: consisting of FI bonds, PSU bonds, and Debentures/Corporate bonds. Government securities form the major part of the market in terms of outstanding issues, market capitalization and trading value.

136. What are the main types of debentures ? — Non Convertible Debentures (NCDs) — Partly Convertible Debentures (PCDs) — Fully convertible Debentures (FCDs) — Optionally Convertible Debentures (OCDs) — Secured Debentures — Unsecured Debentures

137. Are the deposits accepted by NBFCs insured ? No, The deposits offered by NBFCs are not insured whereas the deposits accepted by most banks are insured upto a maximum of Rs.1,00,000.

138. What are Mortgage Bonds? Mortgage backed bonds are collateralized term-debt offering. Every issue of such bonds is backed by a pledged collateral. Property that can be pledged as security for mortgage bonds is called eligible collateral. The terms of these bonds are like the bonds floated in the capital market, semi-annual or quarterly payments of interest and final bullet payment of principal.

139. What are benchmark instruments? Benchmarked Instruments : There are certain debt instruments wherein the fixed income earned is based on a benchmark. For instance, the Floating Interest rate Bonds are benchmarked to either the LIBOR, MIBOR etc.

140. What is inflation linked bond ? In these bonds, the payments on the instrument are indexed by reference to the change in the value of a general price or wage index over the term of the instrument. The options are that either the interest payments are adjusted for inflation or the principal repayment or both.

141. What is call money market ? Call money : Call/Notice money is an amount borrowed or lent on demand for a very short period. If the period is more than one day and upto 14 days it is called ‘Notice money’ otherwise the amount is known as Call money’. No collateral security is required

142. What is Term Money Market ? Inter bank market for deposits of maturity beyond 14 days and upto three months is referred to as the term money market.

143. What are Certificates of Deposits? After treasury bills, the next lowest risk category investment option is the certificate of deposit (CD) issued by banks and Financial Institutions. Allowed in 1989, a CD is a negotiable promissory note, secure and short term in nature i.e. upto one year. A CD is issued at a discount to the face value.

144. What are derived instruments ? These instruments are not direct debt instruments. Instead they derive value from various debt instruments. Mortgage bonds, Pass Through Certificates, Securitised Debt Instruments etc. fall under this category.

145. What are Pass Through Certificates ? :When mortgages are pooled together and undivided interest in the pool are sold, pass-through securities are created. The pass-through securities promise that the cash flow from the underlying mortgages would be passed through to the holders of the securities in the form of monthly payments of interest and principal.

146. What are Participation Certificates ? These are strictly inter-bank instruments confined to the Scheduled Commercial Banks. This instrument is a money market instrument with a tenure not exceeding 90 days. The interests on such participation certificate are determined by the two contracting banks.

147. What are Floating Interest Rate? Floating rate of interest simply means that the rate of interest is variable. Periodically the interest rate payable for the next period is set with reference to a benchmark market rate agreed upon by both the lender and the borrower. The benchmark market rate is the State Bank of India Prime Lending Rate in domestic markets and LIBOR or US Treasury Bill Rate in the overseas markets.

148. What are trade bills? Bills of exchange are negotiable instruments drawn by the seller of the goods on the buyer of the goods for the value of the goods delivered. These billls can be discounted with banks. These bills are called trade bills. It is also called bil discounting / commercial bills.

149. What is the Procedure for launching of Collective Investment schemes Collective Investment scheme should be launched by the Collective Investment Management Company approval by the Trustees and after obtaining rating from a credit rating agency and appraisal by an appraising agency & then issue offer document.

150. What is buy- back ? “Buy-back” means the purchase of its own shares or other specified securities by a company.

151. Why do companies go for buy back? to improve earnings per share to improve return on capital and to enhance the long-term shareholder value to provide an additional exit route to shareholders to enhance consolidation of stake in the company to prevent unwelcome takeover bids to return surplus cash to shareholders to achieve optimum capital structure to support share price during periods of recession to service the equity more efficiently.

152. What is escrow account? “Escrow Account” means an account opened by a company with a scheduled commercial bank by way of a security for discharging its obligation and shall consist either of cash or bank guarantee in favour of a merchant banker or deposit of acceptable securities with appropriate margin with a merchant banker or any combination thereof for the purpose of buy-back of securities.

153. How much buy back is permitted ? not exceeding 25% of the total paid-up capital and free reserves of the company in one financial year [Section 77A(2)(b) and (c)].

154. What are the sources of funds that can be used for buy back of shares ? its free reserves the securities premium account the proceeds of issue of any shares or other specified securities.

155. Can we use capital redemption reserve for buy back of shares? No Capital redemption reserve, revaluation reserve, investment allowance reserve, profit on re-issue of forfeited shares, profits earned prior to incorporation of the company and any other specific reserve which is not available for distribution as dividend cannot be used for buy back of shares

156. Can we buy back securities from fresh issues? Yes, Buy-back may be made out of the proceeds of an issue of securities other than the same kind of securities as are proposed to be bought back.

157. Can loans from banks be used for buy back of shares? No Further, if any approval is required to be obtained from banks/financial institutions, such approval should be obtained before passing the Board resolution for buy-back of securities.

158. What is the time limit for completing buy back of shares? Buy-back should be completed within 12 months from the date of passing of the Board resolution or the special resolution or where the resolution is passed through postal ballot, the date of the declaration of result of the postal ballot, as the case may be. [Section 77A(4)].

159. How is the price for buy back decided ? Earnings per share; Prices of securities quoted on the stock exchange Past performance; Book value per share; Previous buy-back undertaken, if any; Net worth of the company; Post buy-back scenario; Industry outlook.

160. What are the shares that cant be baught back? Securities in lock-in period Non-transferable securities Disputed securities kept in abeyance

161. How can buy back be carried out ? from the existing securityholders from the open market from odd lots by purchasing securities which had been issued to employees

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