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MUTUAL FUNDS

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They generally mobilize small savings from large number of investors for investing in various companies, projects etc. They help the investors in parking their funds when they may not be knowing when and where to invest. They also help them through their professional teams having expert knowledge of the market by enabling the investors to get maximum returns, high liquidity, safety etc. As per SEBI guidelines, the transactions have to be transparent which also guarantees the investors about the type of investments that the MF makes.

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There are TWO KINDS OF SCHEMES: OPEN ENDED Scheme: It means the investment is always open and the refund can be claimed always from the Mutual Fund itself . It is not listed. The refund is only based on NAV. The corpus is variable CLOSE ENDED Scheme: It means the investment can be done only during the offer period and the refund can be taken from secondary market or from the Mutual Fund itself subject to certain conditions. It is always listed. The refund amount may be based on NAV or based on market price. It has a fixed corpus and any excess received will have to be refunded.

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CLASSIFICATION OF SCHEMES: INCOME ORIENTED SCHEME GROWTH ORIENTED SCHEME HYBRID SCHEME TAX SAVING SCHEME MONEY MARKET MUTUAL FUND SPECIAL SCHEMES like specific Index schemes, specific sector schemes etc. LEVERAGE FUNDS FUND OF FUNDS EQUITY FUNDS

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STRATEGIES OF INVESTMENTS: TOP DOWN INVESTMENT: In this, MF analyses the global economy, the economy of the country where investment is to take place, the position of the industry, the performance of the company in the past and its potential etc. BOTTOM UP INVESTMENT: In this, MF first evaluates the companys performance and then its prospects in the industry, in the economy etc. based on countrys economic policy.

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NET ASSET VALUE: The mutual fund makes investments of the money collected and those investments form the assets of the mutual fund. Therefore, if the value of investments fluctuates, the value of assets of mutual fund also fluctuates in direct proportion. The value of the investments depends on the performance of the company where the money is invested. Since MF invests the funds of the investors and it acts as a trustee for the investors, whenever the investor wants refund of his investment, the mutual fund repays proportionate asset value after deducting the permissible expenses. To maintain transparency and also to enable the investor to decide whether he should offload the units, NAV should be regularly published in daily newspapers.
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MUTUAL FUND COSTS: OPERATING EXPENSES: It covers audit fees, trustee fees, custodian fees, advisory fees to investment manager etc. These expenses have to be disclosed in the offer document itself and they are permitted up to prescribed limits and will be borne indirectly by the investors. Any expense beyond the limit will be borne by AMC. SALES CHARGES: It covers certain expenses incurred by MFs towards sale of units like agents commission, marketing expenses etc. These expenses are directly paid by the investors to the distributors. CONTINGENT DEFERRED SALES CHARGES: It is a combination of front and back end charges which can also be taken in a structured manner like if refund is obtained within a particular period, it will be charged etc. Support: 022-33097600|support@gols.in

TRANSACTION COST: Sometimes, MF may permit specific kind of transaction like switching over from one scheme to another. In such case, it may charge the nominal amount from the investor as transaction cost. ROLL OVER OF A SCHEME: Whenever the mutual fund gives the option to the investors to renew or extend the investment instead of taking back the money, it is roll over and SEBI guidelines are to be followed. ANNUALISED RETURN: Sometimes, MF may offer short term returns and to find out the effectiveness of any scheme which offers returns for less than a year, it must be calculated on annual basis to find out as to how the scheme is effective in comparison to other schemes which offer annual returns.
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RISK INVOLVED IN MUTUAL FUND: -If the MF acts negligently, only the investors lose and MFs are not responsible in any way. -To sustain the competition, they may invest in diversified instruments or sectors which may lead to risk in return. -Alternatively, if they invest only in blue chip companies, then safety may be assured but returns may not be there. EFFICIENCY OF A MUTUAL FUND can be judged by way of certain factors like whether the mutual fund is listed, whether the NAV is constantly increasing, whether the investments are as per the objectives stated in the offer document etc.
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SEBI ( ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS ) REGULATIONS, 2009

DEFINITIONS ANCHOR INVESTOR: It means a Qualified Institutional Buyer who applies for a value of Rs. 10 Crore or more in a public issue made through book building APPLICATION SUPPORTED BY BLOCKED AMOUNT (ASBA): It means an application for subscribing to public issue or right issue, along with an authorization to Self Certified Syndicate Bank, to block the application money in bank account. SELF CERTIFIED SYNDICATE BANK: It means the banker to issue which offers the facility of ASBA COMPOSITE ISSUE: It means issue by a listed company on public cum rights basis in which allotment is made simultaneously
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DESIGNATED STOCK EXCHANGE: It means a recognized stock exchange in which a company proposes to list its shares and it is chosen by the company as designated stock exchange for a particular issue. However if the stock exchanges where listing is proposed comprise of NSE or BSE, then one of them must be chosen as designated stock exchange OFFER DOCUMENT: It means red herring prospectus, prospectus and letter of offer

QUALIFIED INSTITUTIONAL BUYER: it means Mutual Fund, Alternate Investment Fund, FII, Public Financial Institution, Scheduled Commercial bank, Insurance Company etc.
RETAIL INDIVIDUAL INVESTOR: It means any share holder of a listed company who applies or bids for securities for a value of not more than Rs. 2 Lakhs These regulations apply for a public issue, bonus issue, 022-33097600|support@gols.in preferential issueSupport: and right issue of Rs. 50 lakhs or more

A company shall not make public or right issue if


-any promoter or director has been prohibited from accessing capital market -the issue is a convertible debt instrument and the company is in the list of willful defaulters published by RBI or it has defaulted in repaying deposits/ interest etc for more than 6 months -it has not applied to any stock exchange for listing -it has not entered into any agreement with depository for dematerialization of shares -its existing partly paid shares have not been made fully paid up or forfeited etc.

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ELIGIBILITY FOR MAKING IPO: The public company should fulfill all the following conditions: It has net tangible assets of minimum Rs. 3 crores in each of the previous three full years of which not more than 50 % is held as monetary assets. However, if the issuer has more than 50 % in monetary assets, it should have already given firm commitment of such assets for any project Minimum average pre tax operating profits of Rs. 15 crores in the three most profitable years in the last five years Net worth of at least Rs. One Crore in each of the preceding three full years Support: 022-33097600|support@gols.in

Aggregate of proposed issue and all previous issues made in the same financial year does not exceed five the pre issue net worth as per audited balance sheet of the preceding financial year If it has changed its name within last one year, minimum 50 % of the revenue of the previous full year should have been from the activity suggested by the new name In case, the company does not fulfill any of the above conditions, it can make IPO only if it is through book building and the company undertakes to allot at least 75 % of net offer to public to QIB and if not so allotted, all the money received should be refunded The company shall allot to at least 1000 allottees in an IPO
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ELIGIBILITY FOR MAKING FURTHER PUBLIC OFFER: A listed company need not make all the five conditions to make any fresh issue but if there is a breach of last two conditions, it should fulfill the additional condition as given above STEPS IN MAKING AN ISSUE AFTER FULFILLING THE ABOVE CONDITIONS: APPOINTMENT of merchant banker and other intermediaries APPLICATION to those recognized stock exchanges in which listing is proposed for in principle approval
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Merchant banker should prepare draft offer documents and file with SEBI for comments and observations. He should also submit some documents like agreement of the company with merchant banker, a due diligence certificate by CS in prescribed form etc. Contents of draft offer document to be made public in the website of the company, the Stock Exchanges and SEBI for at least 21 days to get public comments SEBI may specify any changes which the company should incorporate

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The company should file actual prospectus with ROC or actual letter of offer with designated stock exchange The merchant banker should dispatch application form along with abridged prospectus to banker to issue, stock exchange, investor associations, underwriters etc Underwriting is optional

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FAST TRACK ISSUE


The issuer need not submit draft documents to SEBI for its comments but instead can actually file prospectus or letter of offer for the issue with copy to SEBI. For this purpose, the company should fulfill certain conditions like

-it is listed for at least preceding three years -average market capitalization is at least Rs. 3000 crores -it has redressed at least 95 % of investor grievances -it has complied with listing conditions for last three preceding years -SEBI has not issued any show cause notice or initiated any proceedings against the company etc.
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PROMOTER CONTRIBUTION: In every public issue, the following is the promoters minimum contribution: -In case of IPO, it must be 20 % of post issue capital -In case of fresh public issue, it should be either 20 % of proposed issue or to the extent of 20 % of post issue capital -In case of composite issue, it should be either 20 % of proposed issue or to the extent of 20 % of post issue capital excluding the right issue component

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While computing promoter contribution, any shares acquired by a promoter during last three years by way of bonus or by revaluation of assets will not be considered

Promoters contribution provisions do not apply to: -Rights issue -Any issue by a company whose shares are listed for at least previous three years, shares are well traded and the company has been paying divided for last three years and -If the company does not have identifiable promoter.

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LOCK IN PERIOD: Minimum Promoter Contribution to be locked in for three years from the date of allotment or from the date of commencement of commercial production, whichever is later Excess Promoter Contribution to be locked in for one year During lock in period securities cannot be transferred except among promoters or by way of pledge to a bank as per the terms of loan, if any. Minimum Promoter Contribution to be brought in at least one day before opening of the issue and be kept in an escrow account Support: 022-33097600|support@gols.in

MINIMUM OFFER TO PUBLIC, RESERVATION ETC: -In every public issue, minimum offer to public shall be 25 % of total issue and in case of infrastructure companies, 10 % of the total issue

Reservation on competitive basis is as follows: -It must be for an amount excluding PC and net offer to public -Employees Maximum 5 % of post issue capital (In case of IPO, permanent employees of promoting companies)
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-Share holders Maximum 10 % of issue amount (In case of IPO, it is shareholders of listed promoting company and in case of fresh issue, it is shareholders of listed group companies ) -For business associates like depositors, bond holders etc Maximum 5 % of issue size -Inter se adjustment among the categories and intra se with net offer to public is possible

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MINIMUM SUBSCRIPTION: It should be not less than 90 % of the offer amount and it should be received within 60 days of closure of issue including devolvement on underwriters, if the issue is underwritten If not so received, the entire amount received should be refunded not later than -15 days of closure, if the issue is not underwritten and -70 days of closure, if the issue is underwritten

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OVER SUBSCRIPTION:
-Excess amount cannot be retained more than 10 % of net offer to public to make allotment in minimum lots

Issue must be kept open for minimum three working days and maximum ten working days

ALLOTMENT: -It must be made and excess application money should be refunded within 15 days from closure and if not so done, the issuer to pay interest for the delay as prescribed Support: 022-33097600|support@gols.in

CALL MONEY: Issue must be made fully paid up within 12 months from allotment. If any calls are not paid, the shares must be forfeited. However if the issue is for more than Rs. 500 Crores, it need not made fully paid up within 12 months and the company has to appoint a monitoring agency which will monitor the utilization of proceeds of the issue

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PRICING OF THE ISSUE:


The issue may be at par or at premium (in which case, the premium is to be justified) or at discount ( maximum 10 % as prescribed in the Act) Differential pricing is also possible for retail individual investors/shareholders and employees who apply for a maximum value of Rs. 2 lakhs under reservation. Similarly in a composite issue, pricing can be different for rights issue and public issue and the difference should be justified

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PRICE BAND: The difference between floor price and cap price should not be more than 20 % The floor price cannot be less than the face value FACE VALUE OF EQUITY SHARES: If the issue price is Rs. 500 or more, the face value can be less than Rs. 10 but not less than Re. 1 If the issue price is less than Rs. 500, the face value shall be Rs. 10

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MINIMUM APPLICATION VALUE: -Minimum application size shall fall within the range of minimum application value of Rs. 10000 to Rs. 15000 -Applications shall be invited only in multiples of minimum application value -Minimum sum payable on application shall be 25 % of issue price

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An issue may be -Fixed Price issue in which case, the issuer fixes the price or -Book Building issue:

-Book Building is a process undertaken by the issuer to find out demand and to assess the price to determine the quantity of securities to be issued.

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ALLOCATION PROCESS: In case of IPO when all conditions are fulfilled, allocation out of net offer to public shall be -Minimum 35 % to retail individual investors -Minimum 15 % to non institutional investors and -Maximum 50 % to QIBs, minimum 5 % of which to Mutual Funds In case of IPO, when any basic conditions are breached, allocation out of net offer to public shall be -Maximum 10 % to retail individual investors -Maximum 15 % to non-institutional investors and -Minimum 75 % to QIBs, minimum 5 % of which to Mutual Funds
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SAFETY NET ARRANGEMENT:


-The promoters or large shareholders may agree to offer such facility and merchant banker should verify their financial status and disclose in the prospectus. -Under such arrangement, they offer to buy maximum 1000 specified securities per original resident retail individual allottee within 6 months from the last date of dispatch of securities or credit to demat account

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ADVERTISEMENT: A listed company making a public issue should issue advertisement giving details of over subscription, basis of allotment, date of dispatch of security certificates/credit to demat account, dispatch of refund orders etc. As per SEBI guidelines, it should be at least in one English national daily, one Hindi national daily and one regional language daily, all having wide circulation

ANNUAL UPDATION OF OFFER DOCUMENT SHALL BE MADE in red herring prospectus in case of IPO issue

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BONUS ISSUE It must be authorised by AOA

The company should not have defaulted in repaying deposits/debentures or paying interest on them
Partly paid up shares should be made fully paid up The company cannot make bonus issue unless it has reserved for any outstanding compulsorily convertible debentures

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It must be made out of free reserves created by bonafide profits and not by revaluation of fixed assets

It should not be in lieu of dividends


It must be fully paid up Once the decision to make bonus issue is announced it cannot be withdrawn

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RIGHTS ISSUE The company should announce record date to determine the eligible shareholders No company can make rights issue unless it has reserved for pending convertible debenture holders The company should send letter of offer and application form to eligible existing shareholders at least three days before opening of issue The company should publish an advertisement giving details of dispatch of form and also the matters to be given in case of application on plain paper
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If any shareholder does not receive the printed form, he can apply in plain paper but he cannot renounce in plain paper form. If he submits the printed as well as plain paper form, both may be rejected The rights issue will remain open for minimum 15 days and maximum 30 days

The company may make reservation for employees also in the right issue on the condition that allotment to any employee shall not exceed Rs. 2 lakhs
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