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Establishment of SEBI:
Many Indian and foreign commercial banks have set up their merchant
banking divisions in the last few years. These divisions provide
financial services such as underwriting facilities, issue organizing,
consultancy services, etc.
The growing of mutual funds in India has certainly helped the capital
market to grow. Public sector banks, foreign banks, financial
institutions and joint mutual funds between the Indian and foreign
firms have launched many new funds. A big diversification in terms of
schemes, maturity, etc. has taken place in mutual funds in India. It has
given a wide choice for the common investors to enter the capital
market.
Investor's Protection:
Under the purview of the SEBI the Central Government of India has set
up the Investors Education and Protection Fund (IEPF) in 2001. It
works in educating and guiding
Since June 2000, the NSE has introduced the derivatives trading in the
equities. In November 2001 it also introduced the future and options
transactions. These innovative products have given variety for the
investment leading to the expansion of the capital market.
Commodity Trading:
A range of factors affects the capital market. Some of the factors that
influence capital market are as follows: -
Environmental Factors: -
Global Cues: -
When the national income of the country increases and per capita
income of people increases it is said that the economy is growing.
Higher income also means higher
CHAPTER 2:
2.1Primary Market
Collection of money
Minimum subscription
Record keeping
Organization:
Deals with the origin of the new issue. The proposal is analyzed in
terms of the nature of the security, the size of the issued timings of
the issue and flotation method of the issue.
Underwriting:
Distribution:
Capital formation
Diversification
Reduction in cost
Prospectus containing all details about the securities are given to the
investors hence reducing the cost is searching and assessing the
individual securities.
Here company issues the securities directly to the investors and not
through any intermediaries.
On receiving the money from the new issues, the company will issue
the security certificates to the investors.
The amount obtained by the company after the new issues are
utilized for expansion of the present business or for setting up new
ventures.
Trading of securities
Risk management
Pricing of securities
Safety of transaction
Equity Shares
Bonus Shares
Bond
Convertible Bond
Debentures
Commercial Paper
Coupons
Treasury Bills
There are several major players in the primary market. These include
the merchant bankers, mutual funds, financial institutions, foreign
institutional investors (FIIs) and individual investors. In the secondary
market, there are the stock exchanges, stock brokers (who are
members of the stock exchanges), the mutual funds, financial
institutions, foreign institutional investors (FIIs), and individual
investors. Registrars and Transfer Agents, Custodians and
Depositories are capital market intermediaries that provide important
infrastructure services for both primary and secondary markets.
I. Custodians:
II. Depositories
V. Registrar:
The Registrar finalizes the list of eligible allottees after deleting the
invalid applications and ensures that the corporate action for crediting
of shares to the demat accounts of the applicants is done and the
dispatch of refund orders to those applicable aresent. The Lead
manager coordinates with the Registrar to ensure follow up so that
that the flow of applications from collecting bank branches,
processing of the applications and other matters till the basis of
allotment is finalized, dispatch security certificates and refund orders
completed and securities listed.
Bankers to the issue, as the name suggests, carries out all the
activities of ensuring that the funds are collected and transferred to
the Escrow accounts. The Lead Merchant Banker shall ensure that
Bankers to the Issue are appointed in all the mandatory collection
centers as specified in DIP Guidelines. The LM also ensures follow-up
with bankers to the issue to get quick estimates of collection and
advising the issuer about closure of the issue, based on the correct
figures.
VII. Underwriters:
X. Unit Trust:
A Unit Trust Scheme is a Fund into which small sums of monies from
individual investors are collected to form a pool for the purpose of
investing in stocks, shares and money market instrument by
professional fund managers on behalf of the contributors called unit
holders [subscribers]. By investing in a unit trust scheme, the unit
holders enjoy the benefits of diversification and professional
management of their fund at low cost.
Open-Ended:
This is a Fund that continuously creates issues and redeems units
after the initial public offering. The price is based on the Net Asset
Value (NAV), which is total asset of the fund minus liabilities as at
date of purchase or redemption.
Closed-Ended:
Fund raising
Real flow/investment
Monitoring/value enhancement
Exit stage.
XII. Foreign direct investment:
R&T Agents form an important link between the investors and issuers
in the securities market. A company, whose securities are issued and
traded in the market, is known as the Issuer. The R&T Agent is
appointed by the Issuer to act on its behalf to service the investors in
respect of all corporate actions like sending out notices and other
communications to the investors as well as despatch of dividends and
other non-cash benefits. R&T Agents perform an equally important role
in the depository system as well. These are described in detail in the
second section of this Workbook.
Credit union differs from commercial savings banks in that they are
not profit oriented company and restrict their business to the main
members only. They use most of their funds to provide loans to their
internal members.
DFIs play the significant role as the source of long-term funds mainly
for the corporate firms. They supply fixed capital to the investors for
investment in fixed capital expenditures.
CHAPTER 4:
A bond that sells at a significant discount from par value and has no
coupon rate or lower coupon rate than the prevailing rates of fixed-
income securities with a similar risk profile. They are designed to
meet the long term funds requirements of the issuer and investors who
are not looking for immediate return and can be sold with a long
maturity of 25-30 years at adept discount on the face value of
debentures.
V. Disaster Bonds:
IX. Derivatives:
5. INTRODUCTION
The bond market (also known as the debt, credit, or fixed income
market) is a financial market where participants buy and sell debt
securities, usually in the form of bonds.
There are various types of debt instruments available that one can find
in Indian debt market.
Government Securities:
Corporate Bonds:
These bonds come from PSUs and private corporations and are
offered for an extensive range of tenures up to 15 years. Comparing to
G-Secs, corporate bonds carry higher risks, which depend upon the
corporation, the industry where the corporation is currently operating,
the current market conditions, and the rating of the corporation.
However, these bonds also give higher returns than the G-Secs.
Certificate of Deposit:
There are short term securities with maturity of 7 to 365 days. CPs is
issued by corporate entities at a discount to face value.
In the recent past, the corporate debt market has seen a high growth
of innovative asset-backed securities. The servicing of debt and
related obligations for such instruments is backed by some sort of
financial assets and/or credit support from a third party. Over theyears
greater innovation has been witnessed in the corporate bond
issuances, like floating rate instruments, zero coupon bonds,
convertible bonds, callable (put-able) bonds and stepredemption
bonds.
As the returns here are risk free, those are not as high as the equities
market at the same time. So, at one hand we are getting assured
returns, but on the other hand, we are getting less return at the same
time. Retail participation is also very less here, though increased
recently.
Default Risk:
This can be defined as the risk that an issuer of a bond may be unable
to make timely payment of interest or principal on a debt security or to
otherwise comply with the provisions of a bond indenture and is also
referred to as credit risk.
Price Risk:
5.2.B. Trading