GANDHI SECURITIES AND INVESTMENT PVT. LTD.

ROLE OF SEBI IN REGULATION OF INDIAN SECURITIES MARKET

WITH REFERENCE TO GANDHI SECURITIES AND INVESTMENT PRIVATE LIMITED
BY PADMAJAKANTA MISHRA

2009-10

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A
Project Work On Role of SEBI in Regulation Of Indian Secondary Securities Market With Reference To Gandhi Securities and Investment Pvt. Ltd. By PDMAJAKANTA MISHRA Regn. No. 0906102079 Submitted to the Faculty of Institute of Management and Information Technology In partial fulfillment for the award of the degree Of MASTER OF BUSINESS ADMINISTRATION BIJU PATTNAIK UNIVERSITY OF TCHNOLOGY ROURKELA November, 2010

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Bonafide Certificate
Certified that the Project report titled Role of SEBI in Regulation of Indian Secondary Securities Market With Reference To Gandhi Securities and Investment Pvt. Ltd. is the bonafide work of Mr. PADMAJAKANTA MISHRA, REG NO. 0906102079 who carried out the work under my supervision. Certified further that to the best of my knowledge the work reported herein does not for m part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of Supervisor

Signature of HOD

Submitted to Project Viva Voce held on .

Internal Examiner

External Examiner

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Declaration
I hereby declare that the project work entitled Role of SEBI in Regulation of Indian Secondary Securities Market submitted in partial fulfillment of the requirement of the MBA progra m of Institute of Management and Information Technology is my original work and the project is not submitted as a project previously to any institution for the a ward of any degree, associat e ship, fellowship or any other similar titles.

Place:

Signature of the Student

Padmajakanta Mishra Date:

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Abstract
I joined Gandhi Securities & Investment Private Limited for int ernship progra m (as a part of MBA) I only had a theoretical knowledge of relat ed subjects, thanks to my Faculty guide and my Compa ny mentor for giving me opportunity to implement my theoretical knowledge in practical aspect. My Company mentor Mr. Arun kumar Sahoo has given me the project to obs erve the business activities of GSI and to bring any errors as per the rule and regulations of SEBI to the notice of the supervisors. I started this project by understanding the concept & technicalities of Securities Excha nge Board of India and its authority over the Capital Market of India. I have collected the secondary data of different rules and guidelines of SEBI from different books, res earch papers, the internet and other sources to make my analysis more effective. For the analysis of services & overall quality of Gandhi Security I collected the Primary Data through Questions and Answers which provided by the company. It helped me a lot for my analysis. Interaction with the Assistant Manager and the Customer Relations Officer also helped me to gain more the concept & technicalities because thes e are the persons who have enough knowledge about the securities market and its beh avior. The final report includes the analysis of the whole data (primary and secondary) by putting in Tabular for ms and pie charts. This analysis might be a Valu e Addition to all the clients of Gandhi Securities, other general investor, lay persons and other fellow students as well.

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Acknowledgement

I take this opportunity to express my deep sense of gratitude to all thos e who have contributed significantly by sharing their knowledge and experience in the completion of this project work. I am greatly obliged to, for providing me with the right kind of opportunity and facilities to complete this venture. My first word of gratitude is due to Mr. Arun Sahoo (Regional Head, Gandhi S ecurities & Investment Private Limit ed.) my corporate guide, for his kind help and support and his valuable guida nce throughout my project. I a m thankful to him for providing me with necessary insights and helping me out at every single step. I a m highly thankful to Professor Saroj Kumar Kanoongo my interna l faculty guide under whos e able guidance this project work was carried out. I thank him for his continuous support and mentoring during the tenure of the project. Finally, I would also like to thank all my dear friends for their cooperation, advice and encouragement during the long arduous task of carrying out the project and preparing this report.

Padmajakanta Mishra

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Table of Contents
Page No.

List of Tables List of Abbreviations Chapter 1: Introduction Chapter 2: Theoretical Perspective Chapter 3: Organization Profile Chapter 4 : Rules and Regulations of SEBI Followed by Gandhi Securities Chapter 5: Regulatory Functions of SEBI for the Financial Year 2007-08 With Reference to Gandhi Securities and Investment Pvt. Ltd. Chapter 6: Major Findings Based on the Study Chapter 7: Questions and Answers used for Data Collection during the Interview Chapter 8: Conclusion of the Study

8 9 10-13 14-32 33-36

37-51 52-58

59-60

61-68 69-70

Bibliography

71

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List of Tables
Page No.

Table1: Departments of SEBI Table 2: Mutual funds registered with SEBI Table 3: Inspection of stock Brokers Table 4: Investigations by SEBI Table 5: Nature of investigations completed by SEBI Table 6: Type of regulatory actions taken by SEBI Table 7; Redressel of Governance

21 53 54 56 56 57 58

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List of Abbreviations
SEBI: Securities and Exchange Board of India GSI; Gandhi Securities and Investment Pvt. Ltd. MIRD: Market Intermediaries Registration and Supervision Department MRD: Market Regulation Department DNPD: Derivatives and New Products Department FCD: Fully convertible Debenture PCD: Partly convertible Debenture NCD: Non-convertible Debenture DRR: Debenture Redemption Reserve IPO: Initial Public Offerings PMS: Portfolio Management Software CDSL: Central Depository Services Limited NAV: Net Asset Value AMC: Asset Management Company SRO: Self Regulatory Organizations

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Chapter 1
Introduction
   
Executive Summary Objective of the Study Scope and need of the Study Research Methodology  Limitations of the Study

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Executive Summary
With internationalization, and the entry of new entities, government controls become ineffective. The de-regulation movement of the eighties sought to make regulatory structures for capital markets similar across emerging market economies (EMEs) in order to encourage capital movements yet minimize regulatory arbitrage. . Capital markets provide effective intermediation of savings, allocation of investment, price discovery, volatility, and market manipulation. Therefore intervention is required to protect investors, increase market transparency, and reduce systemic risk. Rigid controls ha mper beneficial functions of markets, but a hands-off policy makes market abuse possible. Successful regulation follows general principles adapted to the specific market a nd context; this gives it the flexibility to work with the market and respond to changing particulars. The regulator has to be something like a policeman, but a smart one, who preserves market integrity through clear and self-enforcing rules of the ga me while encouraging the game itself. Efficient markets with low transaction costs improve incentives and broaden participation; transparency and better monitoring makes it easier to catch deviations. Both features encourage self-regulation over detailed government. The Indian liberalization, reform of capital markets and setting up of a new regulator, Securities Exchange Board of India (SEBI), in the nineties, illustrates this process. The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promot e the development of, and to regulat e, the securities market and for matters connected therewith and incidental thereto.India had the advantage of being able to use cuttingedge technology, which facilitated rapid reform in market microstructure and in regulatory nor ms. Thus technology and better some protective capital controls were retained; major inter-sect oral spillovers were avoided. Since the rate of financial innovation is high regulatory practices sh ould retain flexibility, even at the cost of some regulatory uncertainty, as long as they satisfy general principles. Then they would be able to encourage market functions, while moderating market flaws. Regulatory practices also need to be attuned to coun tr y specific features. We turn next to see how far the Indian regulatory structure satisfies thes e conditions.

P a g e | 12 In this project we have discussed some of the major guidelines issued by SEBI for the better regulation of the Indian Capital Market with relation to Gandhi Securities and Investment Pvt. Ltd. WE have also analyzed the acceptability of Gandhi Securities as an investment and trading Company as per the answers of the clients of this concern.

Objective the Study

Since this is a project on a topic of Finance with less mathematical applications after much discussion with my mentor I have for mulated the following objectives for the Study. 1. To give the students as well as the outsiders of the ma nagement ca mpus the necessary ideas about the regulation of Secondary Securities Market and the Role of the Apex Body SEBI in this on behalf the Government of India. 2. Today much of the common men are not well informed about the scopes in the investment market for earning purpos es and even if they know, they cannot invest because of fear of losing money due to uncertainties in the capital market. So my project aims to make them feel secure while involving in the trading and investing activities with the necessary rules and regulations issued by SEBI on behalf of the Government of India. 3. To show the wide range of investment options available in the stock market like mutual funds, online trading through demat accounts etc. 4. To help the investors who may be a common man or a business concern in making a right decision while choosing one of the globally proven trading and investing instruments such as online trading with the demat accounts, mutual funds etc. From this point of view this project is mainly designed for the people who wa nt to invest and trade in the stock market. 5. To help Gandhi Securities know the level of faith the customers have upon them.

Need of the Study

There is not any scope of argument if it is said that toda ys world is the world of commerce. Even a layma n who has no access to the capital market should be aware of the trends of the securities market now-a-days. It is very certain that thos e trends and the movement of capital market are full of uncertainties. But since it repres ents the overall economical state of the country we should know the rises and falls in the trends of the market. Besides that it provides an ample scope of money making through investment and trading. We can earn as a speculator or an investor by getting profits or dividends respectively. We ma y also think to invest in the mutual funds sector which is booming now more tha n anything in the market.

P a g e | 13 To fulfill all those purposes we need to be well acquainted with the securities market of India and all its regulatory structure. In order to feel secure an investor or a trader must know what the apex body of the capital market is. We should get the knowledge of all the rules and regulations that governs the securities market so that we can hope to be secured for our hard earned monetary resources and discover an efficient way of making money. My main aim was to fulfill this common goal for the general investors and this is also the need of the project.

Scope of the Study

The study her e has been limited to the analysis of the rules and regulations of SEBI followed by the Gandhi Secu rities, their code of conduct, the annual report of regulation of SEBI for the financial year 2007-08, the answers provided by the employees and the customers of the company. In the process of analysis only theoretical interpretations of the tables and pie charts have been used.

Research Methodology
The res earch methodology involves of data from the employees of the organization as well as its clients and analyzing them theoretically with the help of pie charts and tables. The data collected for the project is basically from two sources, they are: 1. Primary sources: Primary data was collected through Actual interview of the Assistant Manager and the Customer relations Officer in two different sessions. I also surveyed the clients remarks on Gandhi Securities through questions and answers. 2. Secondary sources: collection of data from internet, books, various res earch papers and annual reports

Limitations of the Study

In spit e of much of hard work some limitations of the study can be found out in this res earch activity. The limitations are listed below. 1) The study is based mainly on the basis of secondary data available from various books, res earch papers, websites etc. because primary data was not possible to be collected in many cases. 2) The study only provides the in for mations about the rights of the common investors but does not discuss the ways to invest in var ious companies. 3) The study only relates to the secondary market of India but does not tell much about the whole capital market of India. 4) I could only study those areas in which Gandhi Securities have their business activities due to lack of resources and access to the organization of study that is Securities exchange Board of India.

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Chapter 2 Theoretical Perspective

      
Understanding Financial Market of India Necessities for Setting up of SEBI Objectives of SEBI Functions of SEBI Powers for SEBI Organizations SEBI and the Central Govt.

SEBI Guidelines For Secondary Market Foreign Institutional Investors Bonus Issues Rights Issue Debentures Protection of the Debenture Holders Underwriters Investor Protection New Issues Prohibition Of unfair Trade Practices Book Building  Buyback of Shares

          

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Understanding the Financial Market of India

Generally speaking, there is no specific location place or location to indicate a financial market. Whenever a financial transaction takes place it is deemed to have been taken place in the financial market. Hence financial markets are pervasive in nature since financial transactions are thems elves very pervasive throughout the economic system. However financial markets can be referred to as those centers and arrangements which facilitate buying and selling of financial assets, claims and services. In India the fina ncial markets are divided into following; 1. Unorganized Markets 2. Organized Markets Organized markets can be further classified into money and capital market. Money Market : Money market is a market for debt s ecurities that pay off in the short ter m usually less than one year, for exa mple the market for 90-da ys treasury bills. This market encompass es the trading and issuance of short ter m non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.

Capital Market: Capital market is a market for long-ter m debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued a nd traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

Finally capital market is again divided into three categories as follows; 1. Industrial Securities market 2. Government securities Market 3. Long ter m Issues Market Industrial Securities Market is generally classified into two types. They are 1. Primary Market 2. Secondary Market

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Secondary Market Secondary Market refers to a market where s ecurities are traded after being initially offered to the public in the primary market and/or list ed on the Stock Exchange. Majority of the trading is done in the s econdary market. Secondar y market compris es of equity markets and the debt markets.

For the general investor, the secondary market provides an efficient platfor m for trading of his securities. For the management of the company, Secondary equity markets s erve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating infor mation (via price discovery) that guides ma nagement decisions. Following are the main fina ncial products/instruments dealt in the secondar y market:

Equity: The ownership interest in a company of holders of its common and preferred stock. The various kinds of equity shares are as follows:-

Equity Shares:

An equity share, commonly referred to as ordinary share also repres ents the for m of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights.

Rights Issue / Rights Shares : The issue of new securities to existing shareholders at a ratio to those already held.

Bonus Shares : Shares issued by the companies to their shareholders free of cost by capitalization of accumulated res erves from the profits earned in the earlier years.

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y

Preferred Stock / Preference shares: Owners of thes e kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondholders / debenture holders.

Cumulative Preference Shares: A type of preference shares on whic h dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.

Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the sa me accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the qua ntum of dividend paid on the equity shares over and above a particular specified level.

Security Receipts: Security receipt mea ns a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or int erest in the financial ass et involved in s ecuritisation.

Government securities (G-Secs): Thes e are sovereign (credit risk-free) coupon bearing instruments which are issued by the Res erve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing progra mme. Thes e s ecurities have a fixed coupon that is paid on specific dates on half-yearly basis. Thes e securities are available in wide range of maturity dat es, from short dat ed (less than one year) to long dat ed (up to twenty years). Debentures: Bonds issued by a compa ny bearing a fixed rate of int erest usually payable half yearly on specific dat es and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured / charged against the asset of the company in favour of debenture holder.

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Bond : A negotiable certificate evidencing indebtedness. It is nor mally uns ecured. A debt s ecurity is generally issued by a compa ny, municipality or government agency. A bond investor lends money to the issuer and in excha nge, the issuer promis es to repay the loan a mount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows-

Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price repres ents the return to the holder. The buyer of thes e bonds receives only one payment, at the maturity of the bond.

Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

Commercial Paper: A short ter m promis e to repay a fixed a mount that is placed on the market either directly or through a specialized int er mediary. It is usually issued by companies with a high credit standing in the for m of a promissory note redeemable at par to the holder on maturity and therefore, doesnt require any guarant ee. Commercial paper is a money market instrument issued nor mally for tenure of 90 days.

Treasury Bills: Short-ter m (up to 91 days) bearer discount s ecurity issued by the Government as a mea ns of financing its cash requirements.

Necessities for Setting up of SEBI

Stock market regulation was a pre-independence phenomenon in India. During the II World War period, in the Defens e Rules of India, 1943, provisions were made to check the flow of capital into production of essential commodities. Thes e rules, which were promulgated as a temporary measure continued after the war and culminated into the Capital Issues (Control) Act, 1947.

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This legislation had the following objectives: 1. To further the growth of compa nies with sound capital structure. 2. To avoid undue congestion or overcrowding of public issues To ensure that investment takes place in confor mity with the objectives of Five Year Plan. 3. To ensure orderly and healthy growth of capital markets with adequate protection to investors.

Controller of Capital Issues (CCI)

For the purpos e of achieving the above objectives, an office of the Controller of Capital Issues was s et up. It was entrust ed with the responsibility of regulating the capital issues in the country. The CCI was vested with the powers to the kind of instruments, size, timing and premium of issue.

Malpractices in Securities Market

With the growth of securities market, the number of malpractices also increased in both the primary and s econdary markets. The malpractices were noticed in the case of companies, merchant bankers and broker who are all operating in the market. A few exa mples of malpractices are follows: 1. 2. 3. 4. 5. Manipulation of Security Prices Price rigging Insider Trading Delay in settlement Delay in Listing & commencement of Trading

Deficiencies in the Market:

Besides, the Indian stock market is said to be deficient in the following respects: 1. 2. 3. 4. 5. Lack of Diversity in Financial Instrument Disclosure of Financial Infor mation Preponderance of Speculative Trading Poor Liquidity Lack of Control over Brokers

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SECURITIES & EXCHANGE BOARD OF INDIA

Under these circumstances, the government felt the need for setting up of an apex body to develop and regulate the stock market in India. Eventually, the Securities and Exchange Board Of India (SEBI) was set up on April 12, 1988. To start with, SEBI was s et up as a non-statutory body. It took all most four years for the government to bring about a separate legislation called Securities & Excha nge Board of India Act, 1992 . The Act, conferred SEBI comprehensive powers all aspects capital market operation. The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promot e the development of, and to regulat e, the securities market and for matters connected therewith and incidental thereto.

Objectives
According to the prea mble of the SEBI Act , the primary objects of the SEBI is to promot e healthy and orderly growth of the securities market and secure investor protection . For this purpos e, the SEBI monitors the activities of not only stock excha nges but also merchant bankers etc. The objectives of SEBI are as follows: 1. To protect the interest of investors so that there is a steady flow of savings in to the capital market. 2. To regulate the securities market & ensure fare practices by the issuers of securities so that they can rais e resource at minimum cost. 3. To promot e efficient services by brokers, merchant bankers & other intermediaries so that they become competitive and professional.

Functions
Section 11 of the SEBI Act specifies the functions as follows: Regulatory Functions: a) Regulation of stock excha nge and lf regulatory organizations. b) Registration and regulations of stock brokers, sub brokers, registrar to all all issue Merchant Bankers, Underwriters, Portfolio Managers and such other intermediaries who are associated with s ecurities market. c) Registration and regulation of the working of the collective investment schemes including mutual funds. d) Prohibition of fraudulent and unfair trade practices relating to securities market. e) Prohibition of insider trading in securities f) Calculating substantial acquisitions of shares and takeover of companies.

P a g e | 21 Developmental Functions: a) b) c) d) Promoting investors education Training of inter mediaries Conducting research and public infor mation useful to all market participants Promoting Self Regulatory Organizations

Powers
SEBI has been vest ed with the following powers 1. To call periodical returns from recognized stock exchanges. 2. To call any infor mation or explanations from recognized stock exchanges or their members. 3. To direct enquiries to be made in relation to affairs of stock excha nges of their members. 4. To grant approval to bye-la ws of recognized stock exchanges. 5. To make or a mend bye-laws of recognized stock exchanges. 6. To compel listing of securities by public companies. 7. To control and regulate stock exchanges. 8. To grant registration to market int er mediaries. 9. To levy fees or other charges for carrying out the purpose of regulation. 10. To declare applicability of Section 17 of the securities contract Organizations The following departments of SEBI take care of the activities in the secondary market. Table 1 Departments of SEBI Srl.No. Na me of the Department 1. Market Int er mediaries Registration a nd Supervision department (MIRSD) 2. Major Activities Registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all s egments of the markets viz. equity, equity derivatives, debt and debt related derivatives. Market Regulation Formulating new policies and supervising the Department (MRD) functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as Market SROs.) Derivatives and New Supervising trading at derivatives segments of Products Departments stock exchanges, introducing new products to (DNPD) be traded, and cons equent policy changes

3.

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SEBI and the Central Government: The Central Government has the power to issue directions to the SEBI Board, to supersede the Board, if necessary and to call for returns and report etc. as and when necessary. The Central Government has also powers to give any guidelines or to make regulations and rules for SEBI and its operations. The activities of SEBI are financed by grants from the Government in addition to fees, charges etc. collected by SEBI. The fund called the SEBI General Fund is s et up to which all grants, fees, charges etc. are credit ed. The fund is used to meet the expens es of the board and to pay salaries of staff and remuneration to officers, members of the Board etc. SEBI GUIDELINES: SEBI has brought out a number of guidelines separately, from time to time, for primary market, secondary market, Mutual funds, merchant bankers, foreign institutional investors, investor protection etc. Her we consider only thos e re;lating to the secondary market of India. The guidelines are described below.

Secondary Market:
Stock exchange: 1. Board of directors of stock exchange has to be recognized so as to include nonmembers, public repres entatives, government repres entative to the ext ent of 50% of total no of members. 2. Capital adequacy nor ms have been laid down for members of various stock excha nges depending upon their turnover of trade and other factors. 3. Working hours for all stocks exchanges have been fixed unifor mly. 4. All the recognized stick exchanges will have to infor m about the transaction within 24 hours. 5. Guidelines have been issued for introducing the system of market making in less liquid scrips in a phased manner in all stock exchanges. Brokers: 1. Registration of brokers and sub brokers is made compulsory. 2. In order to ensure that brokers are professionally qualified and fina ncially solvent, capital adequacy norms for registration of brokers have been evolved. 3. Compulsory audit of brokers book and filing of audit report with SEBI have been made mandatory. 4. To bring about greater transparency and brokerage separately in the contract notes issued to client. 5. No broker is allowed to underwrite more than 5% of public issue.

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Foreign Institutional Investors (FII):

1. Foreign institutional investors have been allowed to invest in all securities traded 2. 3. 4. 5.
in primary and secondary markets. There would be no restriction on the volume of the purpos e of entry of FIIs. The holding of single FII in a company will not exceed the ceiling of 5% of the equity capital of a company. Disinvestment will be allowed only through stock excha nges in India. FIIs have to pay a concessional tax rate of 10% on large capital gain (more than one year) and 30% on short ter m capital gains. A tax rate of 20% on dividend and interest is prescribed.

Bonus Issue:
The guidelines relating to the issue of bonus shares have undergone s everal changes since 1969. The latest s ets of guidelines announced by SEBI were made effective from April 13, 1994. At pres ent, there are in all 10 guidelines laid down for bonus shares. 1. There should be provision in the Articles of Association of the Compa ny for issue of bonus shares. If not, the compa ny should pass a resolution at the General Body Meeting, marketing provision for capitalizations of profits. The proposal for bonus issues is recommended by the Board of Directors and then approved in the General Body Meeting. 2. The bonus is made out of free res erves built out of the genuine profits or share premium collected in cash only. 3. Reserves created by revaluation of fixed assets are not per mitted to be capitalized. 4. The declaration of bonus issue in lieu of dividend is not to be made. 5. Bonus issues are not per mitted unless the partly paid shares exiting are fully paid up. 6. No bonus issue will be per mitt ed if there are sufficient reasons to believe that the company has defaulted in respect of statutory dues to the employees such as provident fund, gratuity, bonus, etc. Further, no bonus issue is per mitted if the company defaults in payment of principal or fixed deposits or on debentures. 7. No bonus issue can be made within 12 months of any public issue/ rights issue. 8. A company which announces bonus issue after the approval of the Board of directors must implement the proposals and shall not have the option of cha nging the decision.

P a g e | 24 9. Cons equent to the issue of bonus shares, if the subscribed and paid up capital exceed the authorized share capital, a resolution shall be passed by the company at its general body meeting for increasing the authorized capital. 10. Issue of bonus shares after any public/rights issue is subject to the condition that no bonus shall be made which will dilut e the value or rights of a holders of debenture, convertible fully or partly.

Right Issue:
Section 81 of the Companies Act specifies the conditions to be satisfied by a public company for issuing rights shares. SEBI ha issued the following guidelines for the issue of rights share. 1. Composite Issue: A public and rights issue can be made at different prices where thes e two kinds of issues are made as a composite issue by exiting listed companies. 2. Appointment of Merchant bankers: Appointment of mercha nt bankers is not ma ndatory, if the size of rights issue by a listed company does not exceed Rs. 50 lakh. For issues of listed companies exceeding Rs. 50 lakh, the issue is to be ma naged by an authorized mercha nt banker. 3. Minimum Subscription: If the company dos e not receive minimum subscription of 90% of the issue a mount including development of under writers within 120days from the dat e of opening of issue, the company has to refund the entire subscriptions within 128 days with int erest at 15% p.a. for delay beyond 78 days from the dat e of closure of the issue. 4. Preferential Allotment: No preferential allotment shall be made along with the rights issue. If a company wants to make preferential allotment it should be made independent of rights issue by complying the provisions of the companies Act, 1956. 5. Underwriting: Underwriting of rights issue is not ma ndatory but as per SEBI (under writers) Rules and R egulations, 1993, rights issue can be underwritten. 6. Right of FCD/PCD Holders: the proposed rights issue should not dilut e the value or rights of fully or partly convertible debenture holders. If the conversion of FCDs/PCDs is due within a period of 12 months from the date of rights issue, reservation of shares out of rights issue is to be made for them in proportion to the convertible part of FCDs/PCDs. 7. Over Subscription not to be retained: The quantum rights issue should not exceed as specified in the letter of offer. The companies are not allowed to retain oversubscription under any circumstances through rights issue. 8. Promoters Contribution: If the promoters shareholding in the equity at the time of the rights issue is more than 20% of the issued capital, the promot ers have to ensure that their equity holding dont fall below 20% of the expanded capital. 9. Vetting of letter of Offer by SEBI: The letter of offer pertaining to right issue has to be vetted by SEBI clearance for the draft letter of offer before approaching stock excha nge for fixing the record date for the propos ed issue.

P a g e | 25 10. Disclosure in the Letter of Offer: The letter of like the prospectus should confor m to the disclosure prescribed in from 2A under Section 56(3) of the Companies Act, 1956. Full justification and para meters us ed for issue price should clearly mentioned in the letters of offer, opening date, closing date, etc. Such advertisement should be at least one week before the date of opening of the subscription list. 11. Compliance Report: Within 45da ys of closure of rights issue, a report in the prescribed for m along with the compliance certificate from statutory auditory auditor/ practicing charted accountant / compa ny secretary should be forwarded to SEBI by lead managers. 12. Advertisement in Newspaper: All listed companies making rights issue an advertisement in at least two all India newspapers about the dispatch of letters of offer, opening date, closing date etc. Such advertisement should be at least one week before the date of opening of the subscription list. 13. Applicability of SEBI Guidelines: The above guidelines with regard to right issue apply only to rights issue made by existing listed companies. 14. Revised Disclosure norms for listed Companies: To enable the listed companies to raise funds easily from the primary market, the SEBI has a mended its Disclosure and Investor Protection Guidelines in March, 2006. i. Listed companies going in for a rights issue can now fix and disclose any time prior to fixing the record date in consultation with the designed stock exchange. ii. In the case of fixed price route, for the public issues of such companies, the price can be fixed before filing of the Registrar of companies. iii. Further, companies making rights issues are now per mitted to dispatch an abridge letter of offer, containing disclosures as required in the abridged prospectus. However, such companies ma y provide the detailed letter of offer to any shareholder upon request. iv. Again, companies that have filed a draft offer document with full disclosures can now come out with further capital issues even before the shares pertaining to the documents are listed on the bourses. Thes e guidelines do not apply to rights issue by existing private companies/closely held or other unlisted companies. They have no comply with the requirements as laid down in the Companies Act.

Debentures: 1. The a mount of working capital debenture should not exceed 20% of the gross
current assets. 2. The debt equity ratio should not exceed 2:1. 3. The rate of interest can be decided by the company.

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4. Credit rating is compulsory for all debentures excepting issued by public sector
companies, privat e placement of Non-Convertible Debentures (NCD) with fina ncial institutions and banks. Debentures are to be redeemed after the expiry of seven years from the date of allotment. NCD is permitted to be redeemed at 5% premium. Nor mally debentures above s even years can not be issued. Debentures issued to public have to be secured and registered. A Debenture Redemption Reserve is to be set up out of profits of the compa ny. Debentures Trustee and Debenture Trust Deed are to be finalized within six months of the public offer.

5. 6. 7. 8. 9.

Fully Convertible Debenture (FCD), Partly Convertible Debenture (PCD), Non Convertible Debentures (NCDs).

1. FCD/PCD/NCD issued for a period of more tha n 18 months are to be compulsorily

credit rated. 2. The debentures converted within 18 months are treated as equity. 3. FCDs having conversion period more than 36 months will not be per mitted. 4. The ter ms of issue should be predeter mined and stated in the prospectus. 5. The interest rate can be deter mined by the issuer. 6. Conversion after 18 months from the date of allotment but before 36 months will be optional at the ha nd of the debenture holders. 7. Appointment of Debenture Trustees and Creation of Debenture Redemption Reserve are not necessary if the maturity period is 18 months or less. 8. The Debenture Trust Deed should be executed within six months of the closure of the issue. 9. The offer document should specify existing and future equity, long teem debt equity ratio, servicing of existing debentures, payment of interest on existing loans and debenture. 10. No objection for s econd or pari pasu charge.

11. In the case of rollover of NCD portion of debentures, the following conditions are to
be complied with: i. ii. iii. Six months before the date of redemption, fresh credit rating should be obtained and it should be communicated to debenture holders. The company must have obtained the positive consent of debenture holders. SEBI should vet the role over and its ter ms and conditions.

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Guidelines for Protection of the Debenture Holders:

1. Servicing of Debentures: A Debenture Redemption Reserve shall be creat ed by companies issuing debentures on the following basis: Existing companies need not create DRR up to the date of commercial production. DRR shall be created in equal installments for the remaining period. For new companies, creation of DRR will commence from the year the company earns profit and it should be created in equal or in one or more installments for the remaining life of debentures. In the case of PCDs, DRR should be created only for NCD portion. DRR should be created up to 50% of the a mount before redemption commences. Withdrawal from DRR will be per mitted only after 10% of the liability is actually redeemed. DRR will be treated as part of general reserve for the purpos e of bonus issue. In the case of new companies, distribution of dividend shall require approval of trustees to the debenture issue and the lead institution, if any. In the case of existing companies, prior per mission of the lead institution for declaring dividend exceeding 20% or as per the loan covenants is necessary if the company dose not comply with institutional conditions regarding interest and the debt service coverage ratio. 2. Protection of Interest of Debenture Holders: Trustees to the debenture issue shall be vested with the requisite powers for protecting the interest of debenture holders including a right to appoint a nominee director in the board of the Company in consultation with institutional debenture holder. Leader institution/investment institutions will monitor the progress in respect of debentures for project finance, modernization, diversification etc. The lead bank for the company will monitor debentures raised for working capital funds. The company shall file with SEBI, a certificate from their bankers that the assets on which security is to be creat ed are free from encumbrances and necessary per missions mortgage the assets have been obtained or a no objection certificate from the financial institutions or banks for a second or pari pasu charge in case where assets are encumbered.

P a g e | 28 The security should be created within six months from the date of issue of debentures. It can be created within 12 months provided 2% penal interest is paid to debenture holders. If the security is not created even after 18 months, a meeting of the debenture holders shall be called within 21 days to explain the reasons thereof and the dat e by which the security would be created. The trustees to the debenture holders will supervis e the implementation of the conditions regarding creation of security for the debenture and debenture redemption reserve. The trustees and institutional debenture holders should obtain a certificate from the companys auditors in respect of utilization of funds during the implementation of period of projects and at the end at the end of each accounting year in the case of debentures for working capital.

Underwriters:
1. No person can act as underwriter unless he holds certificate of registration granted by SEBI. 2. The certificate of registration is valid for a period of three years from the date of issue. 3. The total underwriting obligations should not exceed 20 times of his net worth. 4. In the case of development, the underwriter should subscribe to securities within 30 days of the intimation from the company. 5. The underwriter should furnish within a period of six months from the end of the financial year a copy of the balance sheet, profit and loss account, the statement of capital adequacy requirement and such other documents as required by SEBI. 6. The books of accounts should be maintained for a period of five years.

Investor Protection:
Investor protection is the major responsibility of the SEBI. SEBI has taken various measures to prot ect the interests of investor. New Issue: The issuing compa ny should provide faire and correct infor mation. Allotment process should be transparent and not trained by any bias. The draft prospectus of the companies is scrutinized for full and fair disclosure. No delay in refunds or dispatch of share certificates. Under writing obligations is necessary to inspire confidence of investors.

P a g e | 29 Risk factors and highlights should be fairly stated without any bias in the prospectus. Listing should be timely and transferability is ensured. Both stock exchange and companies are responsible for investor protection in respect of free trading and transferability of shares. The investor protection is to be ensured by not only the Director/Secretary of the company but by all the parties in the new issue process na mely mercha nt bankers, Registrars, Collecting banks, stock excha nge and SEBI. Recently SEBI has instituted the system of appointing its representative to supervise the allotment process to ensure that no malpractices take place in allotment process. Prohibition of Unfair Trade Practice: Regulation of Insider Trading: Insider trading takes place when insiders or any persons who by virtue of their position in office or otherwis e, have access to unpublished price sensitive infor mation relating to the affairs of the company and deal in the securities of such companies. SEBI regulates insider trading by imposing penalty up to Rs. 5.00 lakhs for those who indulge in insider trading. Investor Education: SEBI has issued a few investors guida nce, advertisements and published a book on Investor Grieva nces Rights Remedies. SEBI has also registered certain active Investors Association. SEBI has issued Advertisement code for the issuers to ensure to that the advertisements are fair and do not contain stat ement to mislead the investors or vitiate their infor med judgment. Grievance Cell: An Investor Grievance Cell is set up to ha ndle investor complaints. Stock Invest: Stock invest was designed by the SEBI in consultation with RBI and banks as an additional facility for making applications for new issues. The stock invest facility is available to individuals who can approach the bank with whom they maintain an account for issue of stock invest required denominations for payment of application for shares. The stock invest scheme envisages that the investors account gets debited only on the allotment of shares. The investor, therefore, has to part with his funds only when he is eligible to get allotment of shares. Till such time, the investors fund remain in his account and continues to earn interest, which is nor mally four months.

P a g e | 30 New Measures: SEBI has taken 3 new measures to prot ect investor int erest on 21 March 2007. 1. Making rating compulsory for all initial public offerings. 2. Insisting on great disclosure by real estat e companies entering the market. 3. Per mitting short selling by institutional investors which will minimize volatility in the market.

Book Building
SEBI Guidelines on Book-Building: SEBI issued guidelines for new issues through book building so as to enable issuers to reap benefits arising out of price and dema nd discovery. The guidelines ca me into operational with effect from September 1997. 1. The option of 1005 book -building shall be available only to thos e issuer companies which propose to make an issue of capital of and above Rs. 100 crores. 2. Book-building shall be for the portion other than the promoters contribution and allocation made to perma nent employees of the issuer compa ny and shareholders of the promoting companies in case of a new company and shareholders of group companies in cas e of existing companies. 3. The issuing compa ny shall appoint category I Merchant Banker as book runner(s) and their na mes shall be mentioned in the draft prospectus submitted to SEBI. The lead merchant banker shall act as the Lead Book runner may appoint Syndicate Members who shall be from those intermediaries who are registered with SEBI who are per mitted to carry on activity as the underwriter. 4. The draft prospectus shall be filed with SEBI by the Lead Merchant Bankers. 5. The issuer compa nies, after receiving final observations, if any, on the offer document from SEBI make an advertisement in newspapers. The infor mation in the advertisement shall contain: i. The date of opening and closing of the bidding. ii. The method and process of bidding. iii. The na mes and address of the syndicate members as well as bidding ter minals for accepting bids. 6. The Book runners and the compa ny shall deter mine the issue price based on the bids received through syndicate members. On determination of the price, the number of securities to be offered shall be deter mined. 7. Once the final price is deter mined all those bidders whose bids have found to be successful shall become entitled for allotment of securities. 8. On determination of the entitlement, the infor mation regarding the sa me shall be intimated immediately to the investors. 9. The offer shall remain open for subscription from public for a period of at least three working days after completing al requirement of advertisement and

P a g e | 31 dispatch of issue material to Stock Excha nges. During the time when the offer is open, the investors who ha ve received an intimation of entitlement of securities shall submit the application for ms along with the application money. 10. Arrangement shall be made by the issuer for collection of the applications by appointing mandatory collection cent ers depending upon the size of the issue. 11. Allotment shall be made not later than 15 days from the closure of the issue failing which int erest at the rate of 15% shall be paid to the investors. 12. A final book of dema nd showing the results of allocation process shall be maintained by the book runners. 13. SEBI shall have the right to carry out an inspection of the records, books and documents relating to the Book-Building process. What is Buyback? Buyback is a method of cancellation of share capital. It leads to reduction in the share capital of a company as oppos ed to issue of which results in an increas e in share capital. Why Buyback? A company may go for buyback of its shares due to any one or more of the following reasons: 1. 2. 3. 4. 5. 6. To reduce equity base thereby injecting much needed flexibility. To prevent takeover bids. To return surplus cash to shareholders. To increase the underlying share value. To support the share price during periods of temporary weakness. To maintain a target capital structure.

SEBI Guidelines: The SEBI has been made as a regulatory authority of the licens e to the buyback shares by the Ordinance. The regulations of SEBI contain the following: 1. The companies are per mitted to buy back the shares through six moves: i. Tender offers ii. Open offers iii. Dutch auction iv. Repurchase of odd lots v. Reverse rights issue vi. Employee stock option

P a g e | 32

Tender offers will specify the exact price and will have only one price to offer.

In the Dutch auction, shares offered at the lowest price would be given priority over others. a. The companies are not per mitted to buyback through negotiated deals, spot transactions and private placements. b. Promoters have been debarred from participating if the company opts to buy back shares through stock exchange route. c. Companies buying through stock exchanges must disclos e purchase details daily. d. The companies will have to specify the maximum price payable in the resolution seeking shareholders approval. e. The buyback should be done only in cash and an escrow account will have to be maintained by the merchant bankers. f. No company is allowed to withdraw in every offer for buy wherein announced.

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Chapter 3

Organization profile of
Gandhi securities & investment Pvt Ltd.

P a g e | 34

Company Profil

Company pr ofil of Gandhi Securities & Investment Pvt Ltd.

Gandhi Securities & Investment Pvt Ltd i a leadi g research and advisory based stock broking house of India. Gandhi Securities & Investment Pvt Ltd is a well diversified financial service group having business in secur ities, commodit ies, invest ment banking and venture capital. Gandhi Securities & Investment Pvt Ltd is well suited to handle your wealth creation and wealth management needs. The organi ation finds its strength in its team of young, talented and confident individuals. Qualified professionals carry out different function under the able leadership of its promot ers, Mr. Dhanesti Gandhi (chairman), Mr.Ketan.D. Gandhi (C ), Mr. Rajesh.C. Kansara. Stringent employee selection process, focus on continuous training and adoption of best management practices drive the quest to achieving its core purpose and va lues.

P a g e | 35

The tea m of Gandhi Securities & Invest ent Pvt Ltd provides full fledged support to the client through
y y y y

Deal Advisory Valuation Support Due Diligence Implementation support

The approach is characterized by high quality fina ncial advice resulting in outstanding execution through
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Understanding clients businesses and needs and associated risk implications. Adding value in valuation assumption , structuring, negotiating, and Long ter m commitment and strong relationship.

Board of Directors Chair man - Mr. Ketan.D. Gandhi Director - Mr. Rajesh. C. Kansara CEO- Mr. Ketan .D.Gandhi

Organizations Performance Gandhi Securities & Investent Pvt Ltd is the member of NSE and also a depository participant of CDSL. It was incorporated in 1974. (SEBI Registration No. INB230895535). It has its branches in Odisha in Cuttack and Bhubaneswar. It has its operations in the Cuttack branch since 1995. The Regional Head of Cuttack branch is Mr. Arun Kumar Sahoo.

Gandhi Securities & Investent Pvt Ltd deals mainly in Equities, Derivatives, Online trading, IPO, PMS, Mutual funds, Commodities, depository services .
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Equities:Equity research is an inherent strength of Gandhi Securities & Invest ent Pvt Ltd. They believe in picking investment horizon, life stage, and return expectation and investment objectives. Thes e are the sum of ways through which they give suggestion to their clients and they are:Client Profiling:- Portfolio takes into consideration issues like your attitude towards risk, investment horizon, life stage, and return expectation and investment objective.

P a g e | 36
y

y y y

Investment and Trading:- Gandhi Securities & Invest ent Pvt Ltd equity advisor are experts in providing value based investment solution as well as advising you in portfolio trading, as per your profile. Portfolio Tracking Software:- Your equity portfolio is continuously monitored using portfolio software. Integrated Approach: - In this there is a combina tion of cash, derivatives, and other leverage products to help to reach investment goals. Derivatives:- Derivatives instrument provide good leverage opportunity. It is a great tool for speculation. Their quality advisor will help you to maximize your gain from the existing corpus. Online Trading (e-Broking)My broker is single screen cash and derivatives ter minal with online research bas ed advice. During the day they send our intra-day and delivery calls to help you to take infor med investment decision. IPO Book building and fixed price issue are two types of Initial Public Offering through which corporate can raise money in the capital market. PMS Gandhi Securities & Investent Pvt Ltd Portfolio Management Service helps to earn the returns of equities, with maximum ease and comfort. They offer different approaches to managing your investment. Mutual Funds It is one of the safest, easiest and convenient ways of successful investment making. Service offered: Need based advisory fully backed with solid res earch. Dedicat ed mutual fund advisors to understand your needs and building a prudent portfolio. Monthly review of portfolios. Monthly fact sheets of analysis of various funds. Commodities Gandhi Securities & Investent Pvt Ltd offers you an excellent opportunity to take calls on the movement of prices of commodities traded. Commodities are global in nature, less volatile, as liquid as equities thereby allowing you to achieve portfolio diversification. Depository services:Gandhi Securities & Investent Pvt Ltd efficient centralized depository assures you receive innovative value added reports with sectorised portfolio break-up and efficient services all time (online as well as off line). Gandhi Securities & Investent Pvt Ltd is the member of CDSL and the service is available at all its outlets in India.

y y y y y

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Chapter 4
Rules and Regulations of SEBI Followed By Gandhi Securities
 GSI code of Conduct  Understanding Mutual Funds
SEBI Guidelines for Benchmark Investors Right General Investments through Mutual Funds Understanding Depository Services SEBI (Depository and Participants) Regulation Act;1996  Central Depository Services (India) Ltd. (CDSL)

    

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GSI Code of Conduct for Prevention of Insider Trading

The Securities & Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, was amended on 22nd February 2002 (hereinafter referred to as Regulations) in ter ms of which a Stock Broker is required, inter alia, to fra me a Code of Conduct for Prevention of Insider Trading by Employees of a Stock Broker, including its Directors In line with the said Regulations, the following Code of Conduct (hereinafter referred to as the Code) has been adopted by Gandhi Securities & Investment Pvt Lt d (hereinafter referred to as GSI), Member of the Stock Exchange, Mumbai 1 1.1 Director GSI has a Compliance Officer reporting to the Managing Director

1.2 The Compliance Officer shall be responsible for setting forth Policies a nd Procedures and monitoring adherence to the Rules for the pres ervation of "Price Sensitive Infor mation", pre-clearing of all Designated Employees and their Dependents Trades (directly or through respective Department heads as decided by the GSI), monitoring of Trades and the Implement ation of the Code of Conduct under the overall Supervision of the Directors 1.3 The Compliance Officer shall also assist all the Employees / Directors in addressing any Clarifications regarding SEBI (Prohibition of Insider Trading) Regulations, 1992 and GSIs Code 1.4 The Compliance Officer shall maintain a record of the Designated Employees and any Changes made in the List of Designated Employees 2 Prevention of Price Sensitive Information

2.1 Employees / Directors shall maintain the Confidentiality of all Price Sensitive Infor mation. Employees / Directors must not pass on such Information directly or indirectly by way of making a Recommendation for the Purchase or Sale of Securities 2.2 Need to Know

2.2.1 Price Sensitive Infor mation is to be handled on a "Need to Know" basis, ie Price Sensitive Infor mation should be disclos ed only to those within GSI, who need the Infor mation to discharge their Duty and whose Poss ession of such Infor mation will not give rise to a Conflict of Interest or Appearance of Misuse of the Infor mation 2.3 Limited Access to Confidential Information

P a g e | 39 2.3.1 Files containing Confidential Infor mation shall be kept Secure. Computer Files must have Adequate Security of Login and Password, etc 2.4 Chines e Wall

2.4.1 To prevent the Misuse of Confidential Information, GSI shall adopt a "Chines e Wall" Policy which separates thos e Areas of GSI, which routinely ha ve access to Confidential Infor mation, considered "Inside Areas" from those Areas which dea l with Sale / Marketing / Investment Advis e or other Departments providing Support Services, considered "Public Areas" 2.4.2 The Employees in the Inside Area shall not communicate any Price Sensitive Infor mation to anyone in Public Area 2.4.3 The Employees in Inside Area may be physically segregated from Employees in Public Area 2.4.4 Demarcation of the various Departments as Inside Area may be implement ed by GSI 2.4.5 In Exceptional Circumstances, Employees from the Public Areas may be brought "Over the Wall" and given Confidential Infor mation on the basis of "Need to Know" Criteria, under Intimation to the Compliance Officer 3 Prevention of Misuse of Price Sensitive Information

3.1 Employees / Directors shall not use Price Sensitive Infor mation to Buy or Sell Securities of any sort, whether for their Own Account, their Relatives Account, GSIs Account or a Client's Account. The following Trading Restrictions shall apply for Trading in Securities 3.2 Pre-clearance of Trades

3.2.1 All Directors / Designated Employees of GSI, who intend to deal in the Securities of the Client Company (above a Minimum Threshold Limit to be deter mined by GSI) shall pre-clear the Transactions as per the pre-dealing Procedure as described hereunder 3.3.2 An Application may be made in such for m as GSI may specify in this regard, to the Compliance Officer indicating the Na me and Estimated Number of Securities that the Designated Employee / Director intends to deal in, the Details as to the Depository with which he has a Security Account, the Details as to the Securities in such Depository Mode and such other Details as may be required by any rule made by GSI in this behalf 3.3.4 An Undertaking shall be executed in favor of GSI by such Designated Employee / Directors incorp orating, inter alia, the following Clauses, as may be applicable

P a g e | 40 i That the designated Employee / Director does not have any Access or has not received any "Price Sensitive Infor mation" upto the time of signing the Undertaking ii That in case the designat ed employee / director/partner has access to or receives "Price Sensitive Infor mation" after the signing of the undertaking but before the execution of the transaction he/she shall infor m the Compliance officer of the change in his position and that he/she woul d completely refrain from dealing in the securities of the client company till the time such infor mation becomes public. iii That he / she has not contravened the Code of Conduct for prevention of Insider Trading as specified by GSI from time to time iv 4 That he / she has made a Full and True Disclosure in the matter Restricted / Grey List

4.1 In order to monitor Chines e Wall Procedures and Trading in Client Securities based on Inside Infor mation, GSI shall restrict Trading in certain Securities and designate such List as Restrict ed / Grey List 4.2 Security of a Listed Company shall be put on the R estricted / Grey List if GSI is handling any Assignment for the Listed Company or is preparing Appraisal Report or is handling Credit Rating Assignments and is Privy to Price Sensitive Infor mation 4.3 Any Security, which is being purchased or sold or is being considered for Purchase or Sale by GSI on behalf of its Clients / Schemes of Mutual Funds, etc shall be put on the R estricted / Grey List 4.4 As the Restrict ed List itself is a Highly Confidential Infor mation it shall not b e communicated directly or indirectly to anyone outside GSI. The Restricted List shall be maintained by Compliance Officer 4.5 When any Securities are on the Restricted List, Trading in these Securities by Designated Employees / Directors ma y blocked or may be disallowed at the time of pre-clearance 5 Other Restrictions

5.1 All Directors / Designated Employees shall execute their Order within One Week after the approval of pre-clearance is given. If the Order is not execut ed within One Week after Approval is given, the Employee / Director must pre -clear the Transaction again 5.2 All Directors / Designated Employees shall hold their Investments for a Minimum Period of 30 Days in order to be considered as being held for Investment Purpos es 5.3 The Holding Period shall also apply to Purchases in the Primary Market (IPOs). In the case of IPOs, the Holding Period would commence when the S ecurities are actually allotted

P a g e | 41 5.4 In case the Sale of Securities is necessitated by Personal Emergency, the Holding Period may be waived by the Compliance Officer after recording in Writing his / her reasons in this regard 5.5 Analysts, if any, employed with GSI while preparing Research R eports of a Client Compa ny(s) shall disclos e their Share Holdings / Interest in such Company(s) to the Compliance Officer 5.6 Analysts, who prepare Res earch Report of a Listed Company shall not Trade in Securities of that Compa ny for 30 Days from Preparation of such Report 6 Penalty for Contravention of the Code

6.1 Any Designated Employee / Director who trades in Securities or communicates any Infor mation or counsels any Person Trading in Securities, in Contravention of the Code may be penalized and appropriate Action may be taken by GSI 6.2 Designated Employees / Directors of GSI, who violat e the Code may also be subject to Disciplinary Action by the Company, which may include Wage Freeze, Suspension, etc 6.3 The Action by GSI shall not preclude SEBI from taking any Action in case of Violation of SEBI (Prohibition of Insider Trading) Regulations, 1992 7 Infor mation to SEBI in case of Violation of SEBI (Prohibition of Insider Trading) Regulations 7.1 In case it is obs erved by GSI / its Compliance Officer that there has been a Violation of thes e Regulations, SEBI shall be informed by GSI 8 Listed Intermediaries to comply with both Part A and B of Schedule I

8.1 The Inter mediaries such as Credit Rating Agencies, Asset Management Companies, or Broking Companies etc whose Securities are listed in Recognized Stock Exchange shall comply with both Part A and Part B of this Schedule in respect of its Own Securities and Clients Securities

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Understanding Mutual Funds

Of late, mutual funds ha ve become a hot favorite of millions of people all over the world. The driving force of mutual funds is the safety of the principl e guaranteed, plus the added advantage of capital appreciation together with the income earned in the for m of interest and dividend. People prefer Mutual Funds than bank deposits, life insurance and even bonds becaus e with a little money, they can get in to the investment ga me. One can own a string of blue chips like ITC, TISCO, and Reliance etc, through mutual funds. Thus, mutual funds act as a getawa y to enter into big compa nies hitherto inaccessible to an ordinary investor with small investment. What is a mutual fund? To state in simple words, a mutual fund collects the saving from the small investors, invests them in government and corporate s ecurities and earn income through int erest and dividends, besides capital gain. It works on the principle of a small drop of water makes a big ocean. Definition The Securities and Exchange Board of India(Mutual Funds) regulations,1993 defines a mutual fund as ,a fund established in the for m of a trust by a sponsor ,to raise money by the trust ees through the sale of units to the public , under one or mo re schemes , for investing in securities in accordance with thes e regulations Importance of Mutual Funds Some of the importance of the mutual Funds is stated below. a. b. c. d. e. f. g. h. i. j. k. l. m. n. Channelizing savings for investment Offering wide portfolio investment Providing Better yields Rendering expertise investment service at low cost Providing research Service Offering tax benefits Introducing flexible investment schedule Providing greater affordability and liquidity Simplified record keeping Supporting capital market Promoting industrial development Acting as substitute for IPOs Reducing the market cost of new issues Keeping the money market active

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Mutual funds are not free from risks. It is so because mutual funds also invest their funds in the stock market on shares which are volatile in nature and are not free from risks. The following are the risks associated with the mutual funds. I. II. III. IV. V. Market risks Scheme Risks Investment risks Business risks Political risks

The mutual funds registered to SEBI are given below. Names: 1. AEGON Mutual fund 2. Alliance Capital Mutual fund 3. AIG Global Investment Group Mutual fund 4. Axis Mutual fund 5. Benchmark Mutual fund 6. Baroda Pioneer Mutual fund 7. Birla Sunlife Mutual fund 8. Bharti AXA Mutual fund 9. Canara Robeco Mutual fund 10. CRB Mutual fund (Suspended) 11. Deutsche Mutual fund 12. DSP Blackrock Mutual fund 13. Edelweiss Mutual fund 14. Escorts Mutual fund 15. Franklin Templeton Mutual fund 16. Fidelity Mutual fund 17. Goldma n Sachs Mutual fund 18. HDFC Mutual fund 19. HSBC Mutual fund 20. ICICI Securities Fund 21. ING Mutual fund 22. IDBI Mutual Fund 23. I CICI Prudential Mutual fund 24. IDFC Mutual fund 25. ILF&F S mutual fund 26. JM Financial Mutual fund 27. JP Morgan Mutual fund 28. Kotak Mahindra Mutual fund 29. KJMC Mutual fund 30. LIC Mutual fund 31. L&T Mutual fund 32. Morgan Stanley Mutual fund 33. Mirae Asset Mutual fund 34. Motilal Oswal Mutual fund

P a g e | 44 35. Peerless Mutual fund 36. PNB mutual fund 37. Pramerica Mutual fund 38. Principal Mutual fund 39. Quantum Mutual fund 40. Reliance Mutual fund 41. Religare AEGON Mutual fund 42. Sahara Mutual fund 43. SBI Mutual fund 44. Sun and Fc mutual fund 45. Standard Charted mutual fund 46. Shriram Mutual fund 47. Sundaram BNP Paribas Mutual fund 48. Shinsei Mutual fund 49. Taurus Mutual fund 50. Tata Mutual fund 51. UTI Mutual fund 52. Zurich India mutual fund The mutual funds underlined in the above list are dea lt in Gandhi Securities and Investment Private Limited. If the complaints mutual funds investors remain unresolved, the investors may approach SEBI for facilitating redressel of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned Mutual fund and follows up with it regularly.

PERFORMANCE EALUATION OF MUTUAL FUNDS A fund managers perfor mance can be assessed with the help of certain BENCHMARKS. Benchmarks are nothing but independent portfolios that are not ma naged by any fund manager. They are purely representative of the behavior in the market returns of selected securities. SEBI Guidelines on use of Benchmarks for Performance Evaluation of Mutual Funds The SEBI has laid down the following conditions for the us e of benchmark: i. ii. iii. iv. Mutual funds should use only those benchmarks that reflect the ass et allocation of the fund. The period of comparison of returns should be identical for the fund and the benchmark. If the schemes offer document indicates a benchmark for return comparisons, the sa me should us ed by the scheme. Growth funds with more than 60% in equity should always use any of the standards indices like Sens ex, NSE, BSE 100 and Crisil 500. Thes e indices should

P a g e | 45 be used consistently throughout. Changes can happen only when asset allocation of the fund has changed significantly, and trustees approve the change. Income funds with more than 69% in debt should us e a bond market index on benchmark. Balanced Funds can make use of tailored benchmark that combine equity and bond index returns in the sa me proportion as in the asset allocation of the fund. Money market funds can made use of a money market instrument or such instruments as benchmarks.

v. vi. vii.

INVESTORS RIGHTS:
The SEBI (ME) Regulations, 1993 contains specific provisions with regard to investor s ervicing. Certain rights have been guaranteed to the investors as per the above regulations. They are as follows: Unit Certificates An investor has the right to receive his unit certificates on allotment within a period of 10 weeks from the date of closure of subscription lists in the cas e of a clos e ended scheme and 6 weeks from the date of closure of the initial offer in the case of an open ended scheme. ii. Transfer of Units An investor is entitled to get the unit certificates transferred within a period of 30 days from the dat e of lodgment of the certificates along with the relevant transfer for ms. iii. Refund of Application Money If a mutual is not able to collect the statutory minimum amount (close ended funds Rs. 20 crores, open ended funds Rs. 50 crores or 60% of the targeted a mounts whichever is higher) it has to return the application money as refund within a period of 6 weeks from the date of closure of subscription lists. If the refund is delayed beyond this period, each applicant is entitled to get the refund with interest at the rate of 15% p.a. for the period of dela y. iv. Audited Annual Report Every mutual fund is under an obligation to its investors to publish the audited annual report and unaudited half yearly report through prominent newspapers in respect of its schemes within 6 months and 3months respectively of the dat e of closure of accounts. i.

Net Asset Value Again, every investor has the right to receive information about the NAV at intervals not exceeding 3 months in the case of open ended scheme and one month in the case of clos e ended funds. It must also be published at least in two daily newspapers.

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GENERAL GUIDELINES
For proper functioning of mutual funds and for ensuring investor protection, the following important guidelines have been fra med by the Government of India: A. General i. Money market mutual funds would be regulat ed by the RBI while other mutual funds would be regulated by the Securities and excha nge Board of India (SEBI). ii. Mutual Fund shall be established in the for m of Trusts under the Indian Trust Act and be authorized for business by the SEBI. iii. Mutual funds shall be operated only by separately established Asset Management Companies (AMCs). iv. At least 50% of the board of AMC must be independent directors who have no connections with the sponsoring organization. The directors must have professional experience of at least 10 years in the relevant fields such as portfolio management, financial administration etc. v. The AMC should ha ve a minimum net worth of Rs. 5 crores at all times. vi. The SEBI is given the power to withdraw the authorization given to any AMC if it is found to be not serving the best interest of int erest of investors as well as the capital market. It is not applicable to bank sponsored AMCs. B. Business Activities i. Both AMCs and trustees should be treated as two separate legal entities. ii. AMCs should not be permitted to undertake any other activity expect mutual funds. iii. One AMC cannot act as the AMC for another mutual fund. C. Schemes i. Each schemes of a mutual fund must be compulsorily regist ered with the SEBI before it is floated in the market. ii. The minimum size of the fund should be Rs.20 crores in the case of each closed-end scheme and it is Rs.50 crores for each open-end scheme. iii. Clos ed-end schemes should not be kept opened for subscription for more than 45 days. For open-end schemes, the first 45 days should be considered for deter mining the target figure or the minimum size. iv. If the minimum a mount or 60% of the targeted a mount, whichever is higher, is not raised, then the entire subscription has to be refunded to the investors. v. To provide continuous liquidity, closed-end schemes should be listed on stock excha nges. In the case of open-end schemes, mutual funds shall sell and re-purchase units at pre-deter mined prices should be published at least once in a week. vi. For each scheme, there should be separat e and responsible fund manager.

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D. Investment Norms i. Mutual Funds should invest only in transferable securities either in the capital market or money market or securitized debt. It cannot exceed 10% in the case of growth funds and 40% in the case of income funds. ii. The mutual fund should not invest more than 5% of the scheme in any one companys shares. iii. This list of 5% can be extended to 10% if all the schemes of a mutual fund are taken together. iv. No mutual fund under all its scheme take together can invest more than 15% of the shares and debentures of any specific industry, expect in the case of thos e schemes which are specifically floated for investment in one more specified industries. v. No scheme should investing other scheme under the sa me. E. Expenses i. The AMC may charge the mutual fund with Investment ma nagement and Advisory fees. Such fees should have been disclos ed in the prospectus. ii. The initial issue expens es, all other expens es to be charged to the fund should not exceed 3% of the weekly average net assets outstanding during the current year. It must be disclosed through advertisements, accounts etc. iii. The initial expenses should not exceed 6% of the funds raised under each. F. Income Distribution All mutual funds must distribute a minimum of 90% of their profits in any given year. G. Disclosure and Reporting i. The SEBI is given wide powers to call for any information regarding the operation of mutual funds and of its schemes from the mutual fund or any person associat ed with it like the AMC, Trustee, and Sponsor etc. ii. Every mutual fund is required to send its copies of audited annual statements of accounts, six monthly unaudited accounts, and quarterly statements of movements in net assets for each of its schemes to the SEBI. iii. The SEBI shall also lay down a common advertising code for all mutual funds to comply with. iv. The SEBI can lay down the accounting politics, the for mat and contents of financial statements and reports.

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H. Accounting Norm i. All mutual funds should segregate their earnings as current income, short ter m capital gains and ter m capital gains. ii. Accounting for all the schemes must be done for the sa me year ending. I. Winding up i. Each clos ed-end scheme should be wound up or extended with the permission of the SEBI as soon the pre-deter mined period is over. ii. An open-end scheme shall be wound up, if the total number of units out standings after re-purchases at a point of time falls below 50% of the originally issued number of units. J. Violation of Guidelines The SEBI can, after due investigation, impos e penalties on mutual funds for violating the guidelines as may be necessary.

Under standing Depository System

The ter m depository is defined as a central location for keeping s ecurities on deposit. It is also defined as a facility for holding securities, either in certified or uncertified for m to enable book entry transfer of s ecurities. It is understood from the two definitions that the depository is a place where securities are stored, recorded in the books on behalf of the investors. Therefore a depository can be defined as an institution which transfers the ownership of s ecurities in electronic mode on beha lf its members. OBJECTIVE OF DEPOSITORY: A depository enables the capital market to achieve the following objectives: 1. 2. 3. 4. 5. 6. 7. Reduce the time for transfer of securities. Avoid the risk of settlement of securities. Enhance liquidity and efficiency. Reduce cost of transaction for the investor. Create a syst em for the central handling of the investor. Promote the countrys competitiveness by complying with global standards. Provide s ervice infrastructure in a capital market.

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ACTIVITIES OF THE DEPOSITORY: The main activities of the depository are as follows: 1. Accepting deposit of s ecurities for custody. 2. Making computerized book entry deliveries of securities which are immobilized in its custody. 3. Creating computerized book entry deliveries of s ecurities in its custody. 4. Providing for withdrawal of s ecurities. 5. Undertaking corporate actions like distribution of dividend and interest. 6. Redemption of s ecurities on maturity.

INTERACTING INSTITUTIONS: There are three institutions that are interacting in a depository system. 1. The Central Depository. 2. Share Register and Transfer Agent. 3. Clearing and Settlement Corporation. DEPOSITORY PROCESS: I. Immobilization of Shares

Immobilization of shares is the first step in the depository process. In the immobilization process the share certificates are submitted to the depository which converts the physical certificates into electronic data and starts issuing statement of accounts the holdings of the investors or shareholders. The immobilization process is illustrated in the following figure: Share certificates Depository

Statement of accounts

Book entry

II.

Withdrawal of Shares

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DEPOSITORY SYSTEM IN INDIA:

The agenda for capital market refor m was set in the government in the policy of economy liberalization. Modernization of stock exchanges and related syst em and procedures constituted an integral part of this programme. The stock excha nges in India were characterized by lack of transparency, complex trading procedure and age old settlement system resulting in inordinate dela ys and ma nifold risks.

Promulgation of the Depository Act, 1996 is one of the series of steps taken by the government for removing the shortcomings of the present system. The depositories system aims at the manual system of share transfer, settlement of transactions and physical delivery of shares by a method of simple book entries. The system is envisaged to reduce the total time taken to complete a transaction and ensure greater liquidity. SEBI (DEPOSITORY AND PARTICIPANT) REGULATION ACT; 1996 The Depository ordinance was promulgated in September, 1995. Following the issue of ordinance, the SEBI circulated a consultative paper seeking views from the public on the frame work of depository system. This was followed by issue of the SEBI (Depositories and Participants) Regulations which was promulgated by the government in May, 1996. The features of the Act and R egulations are briefed under: Scope of Art The scope of the legislation extends to the issue of scripless trading, transfer of ownership by mea ns of book entries through electronic media and holding of securities through depository syst em as also fungibility of shares. Feature of the Art Depository Institution : The Act provides for creation of more depositary institution registered under the Companies Act and predominantly owned by the market participants. Depository Participants: The Act envisages that a depository will interface with the us ers through a s et of depository participants (DP). The DP is a crucial link between the investor and the depository.

P a g e | 51 Investors Choice: An investor is given the option between holding physical securities as at present and having a depository based ownership record. The investor will have also the freedom to switch from the depository mode to non-depository mode and vice versa. Free transferability: The act has made free transferability of shares. The Act has taken away the right to use their discretion in effecting transfer of securities by deleting Sec. 22A from the Securities Contracts Regulation Act and inserting Sec. 111a. Rights of Transferee: The act provides that the transferee of a security will be entitled to all the rights including voting rights associated with the security. No Stamp Duty: The act has done away with stamp duty on secondary market transactions in the depositary mode. At the time of issue of securities, the issuer company shall pay sta mp duty on the total amount of s ecurities issued whether through a depository or direct to investor in the for m of physical certificates. Depository Records as Legal Evidence: The ownership records maintained by the depository or the participants will be accepted as prima facie evidence in legal proceeding. The depository records will receive the sa me treatment as available to banks under the Bankers Book Evidence Act. Pledge or Hypothecation: A depository shall allow for the creation of pledge or hypothecation in respect of securities left in the depository mode.

CENTRAL DEPOSITORY SERVICES (INDIA) LTD (CDSL)

The CDSL has been set up by Bombay Stock Exchange and co-sponsored by SBI, Bank of Baroda and HDFC Bank. It commenced its operation on March 22, 1999. Up to March 2000. 680 compa nies made available their shares for demat. The market value of demat erialized s ecurities a mounted to Rs. 8188 crore. The no. of beneficial owners stood at 28545. As on April 2008 there were 422 depository participants with 5771 DP service centers. The no. of investors account was 5268932. 6063 companies made available their shares for demat as on April 2008. There companies made available their shares for demat as on April 2008. There were 422 depository participants with 5771 DP services centers. Gandhi Securities and Investment Pvt. Ltd. is also a depository participant of CDSL. It has outlets all over the countries to provide depository services to all its clients. It also provides facilities of online trading for speculator who target short ter m profits and for general investors.

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Chapter 5

Regulatory Functions of SEBI for the Financial Year 2007-08 With Reference to Gandhi Securities and Investment Pvt. Ltd.
       Registration of Mutual Funds Supervision Market Surveillance Investigation Regulatory Action Regulatory Actions against Mutual Funds Redressel of Grievances

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Registration of Mutual Funds

As on March 31, 2008, 40 mutual funds were registered with SEBI, of which 35 were in the private sector and five (including UTI) were in the public sector. The Certificate of Registration granted to GIC Mutual Fund and PNB Mutual Fund was cancelled. Mirae Asset Mutual Fund and Bharti AXA Mutual Fund were registered with SEBI during 2007-08. Table 2: Mutual Funds Registered with SEBI Sectors Public Sector Private Sector Total 31 March 2007 7 33 40 31 March 2008 5 35 40

Supervision
Enforcement of the regulations requires effective supervision through on-site and off- sit e inspections, enforcement, enquiry against violations of rules and regulations, and prosecutions. SEBI conducts inspections either directly or through Self Regulatory Organizations (SROs) like stock exchanges, depositories, etc. Inspections on a periodic basis are conducted to verify the compliance levels of intermediaries. Specific/ limited purpos e inspections were conducted on the basis of complaints, references, surveillance reports, specific concerns, etc. Stock exchanges and depositories were also directed by SEBI to carry out periodic/specific purpose inspections of their members/ participants.

Inspection of Market Intermediaries

Risk-based inspection was carried out by SEBI as per the revised inspection policy. Routine inspections of stock brokers/sub- brokers and depository participants were conducted by stock excha nges and depositories. The quality of such inspections was overseen by SEBI by calling for periodic reports on inspections conducted, violations observed and actions taken..

Inspection of Stock Brokers / Sub- brokers

As per section 11(2) of the SEBI Act 1992, SEBI shall register intermediaries and regulate their working. During 2007-08, regular inspections were completed of nine depository participants (inspection of one DP undertaken through both the depositories), one credit rating agency, four registrars to an issue & share transfer agent, two merchant bankers, one banker to an issue and one debentures trustee.

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Table 3: Inspection of Stock Brokers/Sub Brokers

Particulars Regular Inspections Completed-Stock Brokers Regular Inspections Completed-Sub Brokers Surprise/Limited Purpose Inspections-Stock Brokers/Sub Brokers

2006-07 30 Nil 37

2007-08 16 Nil 47

Inspection of Stock Exchanges

During 2007-08, seven stock excha nges viz., Inter Connected Stock Exchange (ISE), Over - the-Counter Exchange of India (OTCEI), Bhubaneshwar Stock Exchange, Calcutta Stock Exchange, Cochin Stock Exchange, Bangalore Stock Exchange and Ludhiana Stock Exchange were inspected.

Inspection of Depositories
Inspection of National Securities Depositories Ltd. was carried out by SEBI during the 2007-08.

Market Surveillance
The Integrated Surveillance Department of SEBI is in charge of overall market surveillance and scope of its activities includes monitoring market movements and detecting potential breaches of Regulations, analyzing the trading pattern of scrips and indices and initiation of appropriate action wherever warranted. To enhance the efficacy of the surveillance function, SEBI has put in place a comprehensive Integrated Market Surveillance System (IMSS) which generates alerts arising out of unusual market movements. SEBI also keep a continuous vigil on the activities of the stock exchanges to promote an effective surveillance mechanism.

Investigation
Investigations are undertaken to exa mine alleged or suspect ed violations, to gather evidence, and to identify persons/ exa mine alleged or suspected violations, to viz., price manipulation, creation of artificial market, insider trading, primary issue related irregularities, takeover violations, non- compliance of disclosure requirements and any other misconduct.

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Trends in Investigation Cases

Since 1992-93, SEBI has undertaken 1,212 investigation cases. In 1,107 cases investigations have been completed. The experience gained during investigations had contributed significantly to evolution of policies and procedures in strengthening regulatory and enforcement environment. During 2007-08, 25 new cases were taken up for investigation and 169 cases were completed. The number of investigations completed had gone up substantially from 102 during 2006-07 to 169 in 2007-08.

Nature of Investigation Cases Taken Up

During 2007-08, about 50 per cent of the cas es taken up for investigation pertain to market manipulation and price rigging, as against about 79 per cent of such cases in the previous year. Other cases pertain to insider trading, takeover violations, irregularities in capital issues, and other miscellaneous issues. Since, several investigation cases were taken up on the basis of multiple allegations of violations, strict classification under specific category becomes difficult. Such cases were classified on the basis of main charge/violations.

Nature of Investigation Cases Completed

During 2007-08, of the 169 cases in which investigation were completed about 68 per cent pertain to market manipulation and price rigging, misleading advertisement by the companies and unfair practices. Other cases in which investigation were completed pertain to insider trading, capital issue related irregularities, takeover violations, noncompliance of disclosure requirements etc. The number of cases in which investigation were taken up and completed is given in Table 5

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Table 4: Investigations by SEBI

Years 1992 -93 1993 -94 1994 -95 1995 -96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002 -03 2003 -04 2004 -05 2005 -06 2006-07 2007-08 Total 12121107

Cases taken up for Investigation 2 3 2 60 122 53 55 56 68 111 125 121 130 159 120 25

Cases Completed 2 3 2 18 55 46 60 57 46 29 106 152 179 81 102 169

Table 5: Nature of Investigations taken up and Completed by SEBI

Particulars Market manipulation and price rigging Capital issue related manipulation Insider Trading Takeovers Miscellaneous Total

Investigations Taken Up 2006-07 2007-08 95 12

Investigations Completed 2006-07 2007-08 77 115

18 2 5 120

7 2 4 25

10 3 8 102

28 2 21 169

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Regulatory Action
After completion of investigation, further action was initiated as per the recommendations made in the investigation reports and as approved by the competent authority. Action was decided based on the principles of objectivity, consistency and evidence available. The action included issuing warning letters, initiating enquiry proceedings for registered inter mediaries, initiating adjudication proceedings against levy of monetary penalties, passing directions under Section 11 of SEBI Act and initiating prosecution. During 2007-08, 544 prohibitive directions were issued under Section 11 of SEBI Act against various entities as against 345 in the previous year. A total of 44 inter mediaries were suspended during 2007-08.

Table 6: Type of Regulatory Actions Taken Particulars Suspension Warning issued Prohibitive Directions issued under Section 11 of SEBI Act Total No. of entities 2006-07 52 27 345 2007-08 44 48 537

424

629

Regulatory Actions against Mutual Funds

Warning and Deficiency Letters During 2007-08, 13 warning letters were issued to ten mutual funds considering the magnitude and seriousness of violations of SEBI regulations/guidelines. Of the total, three warnings were issued for violating the advertising code. Nine deficiency letters were issued on the inspection report for the period from July 01, 2003 to June 30, 2005 to nine mutual funds to strengthen their syst ems and improve compliance standards.

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Payment of Penal Interest SEBI has made it mandatory for mutual funds to pay int erest at the rate of 15 per cent per annum for delays in the dispatch of repurchas e/redemption proceeds to the unit holders. The mutual funds are required to report thes e cases of delays to SEBI on a bimonthly basis. During 2007-08, 32 mutual funds paid Rs. 20.2 lakh to 3,644 investors for delay in dispatch as against Rs. 5.9 lakh paid to 1,530 investors in 2006-07.

SEBI Redressel of Governance

The report of redressel of grievances for the last 12 years is given below. Table 7: Redressel of Governance by SEBI

Financial Year End March 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002 -03 2003 -04 2004 -05 2005 -06 2006-07 2007-08

Grievances Received 18794 129111 713773 1229853 1606331 1823725 2335232 2434364 2532969 2629882 2711482 2748916

Grievances Resolved 4061 27007 366524 718366 1034018 1465883 2142438 2269665 2416218 2501801 2572129 2611101

Redressel Rate (percent) 21.61 20.92 51.35 58.41 64.37 80.38 91.74 93.24 95.39 95.13 94.86 94.99

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Chapter 6
Major Findings Based on the Study

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Major Findings Based on the Study

After the study of the role of SEBI in Indian Secondary Securities Market the infor mation derived are quite concrete and worthy of being called important. They are described below. 1. The regulation of Capital market was an old concept as it was since the British rule in India. But it beca me complet ely successful after the incorporation of SEBI as the governing body of the securities market. 2. The experts and advisory committee of finance along with Govt. of India has issued such rules and guidelines over the stock market that it is hard for any financial institutions to carry out business in its own profitable wa y. 3. The no. of investigations, inspections, market surveillance, done by SEBI shows that the tea m of SEBI have been able to retain the hope of India n Govt. in regulating the secondary s ecurities market of India. 4. The actions taken against mutual funds, brokers, sub brokers, depository bodies etc. reveals the transparency, ethical base, disciplinary motivation of SEBI with which it is working for the benefit of the country. 5. It also shows that in spite of all those rules and regulations put forth by SEBI still there are some kind of loopholes for stock market sca ms in India. 6. It was found that all the market intermediaries are liable to follow the guidelines prescribed by SEBI positively other wise their licenses are prone to cancellation. 7. Gandhi Securities and Investment Pvt. Ltd. have been strictly following all the instructions laid by SEBI while involving in trading and investing activities. 8. The GSI code of conduct for insider trading which is separately chalked out by the tea m of GSI shows the organization cares for the equities of all its client companies. 9. The future of Mutual funds industry is very bright in India due to chance of getting ample scope of money making and satisfaction of being an investor. 10. Since the inception of online trading and allowing the investors to operate their accounts in the dematerialized for m over the int ernet more and more people are heading towards investment in the stock market. 11. The accuracy of transactions has been increased due to the introduction of advanced technology.

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Chapter 7
Questions and Answers used for Data Collection during the Interview

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Questions and Answers used for Data Collection

These are the questions formulat ed by me and us ed to collect primary data from the tea m of employees of GSI. I have conducted two different int erviews with the Assistant Manager, GSI from 3 PM to 3.45 PM on 17.08.2010 and with the Customer Relations Officer, GSI from 3.30 PM to 4.30 PM on 26.08.2010. The answers I received are given as answer A and Answer B respectively. Que.1: What are the main business activities of Gandhi Securities and Investment Pvt. Ltd.? Answer A: Gandhi Securities & Investment Pvt Ltd is a leading research and advisory based stock broking hous e of India having business in securities, commodities, investment banking and venture capital. It is also well suited to handle the wealth creation and wealth management needs Answer B: Gandhi Securities & Investment Pvt Ltd has its business activities in the sectors of equities, derivatives, online trading, IPO, PMS, Mutual funds and depository services. Que.2: What is the organization to which GSI is registered in order to get the license to be involved in the investing and trading activiti es? Answer A: In order to get the per mission of the Govt. of India GSI is incorporated to the Securities and Exchanges Board of India with registration no. INB230895535 Answer B: Securities and Exchanges Board of India is the organization to which GSI is registered. Que.3: What is SEBI and what is its role in Indian Capital Market?

Answer A: The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promot e the development of, and to regulat e, the securities market and for matters connected therewith and incidental thereto. Answer B: The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promot e the development of, and to regulat e, the securities market and for matters connected therewith and incidental thereto.

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Que.4: How does SEBI regulate the s econdary s ecurities market of India? Answer A: The SEBI regulat es the s ecurities market of India by issuing various rules and guidelines regarding the different instrument such equities, derivatives, debentures Govt. securities, mutual funds etc. All the financial inter mediaries are bound to follow all thes e guidelines to survive in the market. Answer B: SEBI has issued separate guidelines for all financial instruments, institutions and regulates the market by strictly applying them to the securities. Que.5: What are the main areas in which the tea m of GSI is following the SEBI guidelines? Answer A: Mutual funds, online trading, derivatives, equities are the prime areas in which GSI is following the guidelines issued by SEBI. Answer B: We follow all the guidelines issued by SEBI which are relevant to the business activities of GSI. Que.6: What are the mutual funds that are dealt in Gandhi Securities? Answer A: The mutual funds dealt here are DSP Blackrock, HDFC Mutual Fund, HSBC Mutual Funds, Kotak Mahindra Mutual Fund, SBI Mutual Fund, and Sundara m BNP Paribas. Answer B: The mutual funds investment companies who carry on their business through Gandhi Securities are the following. a) b) c) d) e) f) DSP Blackrock Mutual Fund HDFC Mutual Fund, HSBC Mutual Fund Kotak Mahindra Mutual Fund SBI Mutual Fund Sundara m BNP Paribas Mutual Fund

Que.7: How is Gandhi Securities providing depository services? Answer A: Gandhi Securities and Investment Pvt. Ltd. is the depository participant of Central Depository Services Of India Ltd..It has its outlets all over India. Answer B: GSI is the member of the major depository body of India CDSL. It is providing depository services in all major cities of India through its outlets.

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Report of survey among general customers I have conducted a survey among the general customersto study the satisfaction and faith level they have upon the company. I also studied their ideas and knowledge about the market regulation. The results obtained in this process are interpret ed below with the help of pie charts.

Que. 1: Who is the stock market regulator of India?

In the survey near ly 80% of the sample customer space answered correctly. 13% gave wrong answers and near ly 2% remained silent. Rests could not answer this question. The result is shown in the pie chart below.

2 3 4

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Que. 2: Do you believe that Gandhi Securities follows all the guidelines of SEBI correctly?

According to the opinion of 95.3% people the answer is yes. But 1.2% gave the negative answer and 2.3% sa id that they did not know. Rests remained neutral. The result of the survey is shown in the pie chart below.

1 2
3

1. 2. 3. 4.

Yes No Did not know Neutral

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Que. 3: Are you satisfied with the services provided by Gandhi Securities and Invest ment Pvt. Ltd.?

90.5% of the total customer sample agrees that they are satisfied with the services whereas 5% gave nega tive answers and rests remained silent in the answer. The result is interpreted below.

1
2 3

1. Agreed 2. Not agreed 3. Remained silent

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Que. 4: Do you think basic knowledge of the stock market regulation is necessa ry for the common investors?

In this survey near ly 89.7% people agreed to my opinion, 2% people said no, 5% could not answer and rests remained neutral. The result of the survey is depict ed below.

1 2

1. 2. 3. 4.

Yes No Could not answer Remained neutral

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Que. 5: Between speculative trading and mutual funds which is the better way of moneymaking?

About 30% people held speculative trading as the better way to earn and while astonishing me about 60% suggest ed mutual fund is the better opt ion. 8% could not answer and 2% remained neutral. The result is shown below.

1 2 3

1. 2. 3. 4.

Yes to speculative trading Yes to mutual funds Could not answer Remained neutral

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Chapter 8
Conclusion

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Conclusions and Suggestions

In every sector of business there must be an appropriate regulatory structure without which ethical business will be distant dream. The SEBI as the Apex regulatory body has given such a strong fra mework to the Capital Market of India. Principal based capital market regulation has been able to flexibly evolve with markets in India. . De-regulation of government controls was accompanied by continuous re-regulation, which allowed more economic freedoms and incentives but enforced strict rules and more transparency. Sca ms occurred in the transition period, but since some controls were retained, the sca ms did not spill over into other sectors. There are some tips I ma y suggest with my limited knowledge and analysis for the benefit of the capita l market and Gandhi Securities. A. So I suggest repairing the loopholes in the Stock Market especially in the sectors of speculative trading, insider trading, illegal trading, and stock market sca ms. B. I also suggest the tea m of GSI to provide a booklet to all the customers who want to invest in mutual funds or trade over the internet depicting all the guidelines of SEBI which they follow. It will make them feel that the company is trust worthy. C. And they should also explain the features of mutual fund and demat accounts to each customers and potential investors.

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Bibliography
Books Review
Financial Markets and Services by Gordon and Natarajan, Himalaya Publishing House

Research Papers Review

Regulation and deregulation Indian Capital Markets

Websites Review
www.sebi.co.in www. moneyindia.com www.google.com www.gsien.com www.scibd.com