M. Com. Semester -Il FINANCIAL MARKETS For Regular & External Students Latest EditionNew Syllabus of Guj. Uni. & Other Uni. M.Com.-I @ (Semester - II) @ FINANCIAL MARKETS [In Force From June - 2018] ——) Unit - 1 Jnit - 2 Init - 3 Init - 4 ‘eferen: Financial Markets : An Introduction : Meaning, Nature and Role of Financial System; Financial Markets as a component of Financial System; Financial system and Economic Growth; Financial System Desings : Bank - based and Market - based. Money Market : Meaning, Characteristics and Functions of Money Market; Role of the Reserve Bank in the Money Market; Intermediaries in the Money Market; Development of Money Market in India; Money Market Instruments. Treasury Bills, Commercial Paper, Certificate of Deposit; Commercial Bills, Collateralized Borrowing and Lending Obligation; Call Money Market and Term Money Market. Capital Market : Meaning, Function and Types of Capital Market; Reforms in the Capital Market; Intermediaries; Issue Mechanisms; Types af Primary Issue; Public, Rights and Private Placement; Resource Mobilization from International Capital Markets : ADRs, GDRs and ECBs; Primary Market Scenario in India; Debt Market : Private Corporate. Role of SEBI in the Capital Market. Secondary Capital Market : Function of the Secondary Market; Post Reforms Stock Market Scenario; Organization, Management and Membership of Stock Exchanges; Listing of Securities; Trading Arrangements; Stock Market Index; Stock Exchanges in India, Derivatives Market in India : A conceptual ideas of Futures and Options. ces : Pathak Bharati V., “Indian Financial System”, Pearson Education, 4rd Edition. M.Y.Khan, “Indian Financial System”, Mc Graw Hill, 6th Edition. Machiraju, H.R. “Indian Financial System”, Economic Times.Contents PARTICULARS 1, Financial Market : Meaning and Characteristics 2. Structure of India Financial Market... 3. Scope of Financial Market 4, Types of Financial Market ... 5. Financial System : Pre and Post Liberalization.......... 15 (6) Major Components of OF Indian Financial System... (7.) Functions of Financial System (8.) Role of Financial System..... (9) Recent Development of Indian Financial System... 10. Weaknesses of Indian Financial System > Self study oc... > Objective Section (at the end of this book) PAGE. NO. N INTRODUCTION [EERE] woney marxer. 1. Money Market : Meaning and Characteristics HZ. Objectives of Money Market (3) Functions of Money Market 4. Constituents of Organised Money Market... 5. Players of Oranised Market .. 6. Money Market Instruments LY Treasury Bills ... U2yCerntificate of Deposit. (3) Commercial Papers .. 4x Commercial Bills \5yCBLO... : {6+Call / Notice Money Market... 52 (7) Inter-Bank Participation Certificate .. CAPITAL MARKET 1. Capital Market : Meaning & Characteristics @.) Functions of Capital Market 3. History of Indian Capital Marke’ A. Structure of Capital Market a 6. Type of Capital Market ‘7. Share issue Mechanism - (8) Repo Instrument... (9) Bankers Acceptance... A440) Gilf-edged Securities .. 7. Money Market Index...... 8. Money Market Intermediary . 9. The Discount and Finance House of Indi dnsie (money Market Mutual Funds 11. Recent Development in Money Market : ifference between Money Market and Capital Market... : > Self study ... > Objective Section {at the end of this book) New issue Mechanism - Book Building... 9. Types of New Issue (1) Public Issue (2) Right Issue (3) Bonus Issue (4) Private Placement (5) Preferential Allotment .. 59 . 61 6210. Equity Share ; Meaning & Foatures Advantage: Equity Share 12. Sweat Equity Share 13, Preference Share : Meaning and Feature ......c0.-.c0--. 2) Typos of Preference Share 15, Advantages and Limitations of Preference Share... 16, Debenture : Meaning & Features ind Limitation of : oe ANT Typos of Debentures . 119 Regulatory Provisions for ~ Issue of Debonture sone 120 19. Different Instruments of Debts .... 121” 20. Reform of Capital Market in India .. 21. International Capital Market & Indian Companies ...... ‘ 22. New Financial Instruments.......... (W)-6DRs (2) ADRs \3)-ECBs (4) FCCBs 23. Corporate Debt Market in India ..134 h @4)Role of SEBI in Capital Market ..196 * Self study ...... 40 > Objective Section , (at the end of this book) e 1, Secondary Market > Meaning and Characteristics ...... 140 (2.) Functions of Secondary Market... 144 |. Role of Secondary Market......... 145 ») Stock Exchange : Meaning and Characteristics ...... 147 >) Membership and Management of “ Stock EXChAnge .....c.s-ssesercreeeeeees 150 6. Development of Stock Exchange in India...... 7, Listing of Securities : Meaning, Objectives and Types .. > Advantages of Listing of Securities ...... 9, Procedure of Listing .. 60 10. Trading of Securities 62 11, Stock Exchange Index . 164 @yrypes of Stock Exchange Index ..... 13! Ditterence Between New Issue Makret and Secondary Market .... Objective Section TUBE CEE > Mode! Exam. Papers... > — Guj. Uni, Exam, Paper .. [CUREZY seconpany capita marxer. . Difference Between NSC and OTCEl..... . Difference Between BSE and OTCE! Difference Between NSE and BSE... 17. Limitations of Indian A Stock Market..... a ypes of Stock Exchanges c in India . (())BSE (2) NSE (3) OTCE! leaning and Characteristics of Derviatives 20. Types / Classification of Derivative Instrument .. ifference between Options and Futures > Self study ..FINANCIAL MARKETS : An Introduction Financial Market : Meaning and Characteristics Structure of India Financial Market Scope of Financial Market Types of Financial Market Financial System : Pre and Post Liberalization Major Components of Indian Financial System ween Functions of Financial System Role of Financial System Recent Development of Indian Financial System Weaknesses ot Indian Financial System Self study Objective Study (at the end of this book) 1. Financial Markets : Meaning and Characteristics + In a broad sense finance refers to funds or monetary resources needed by individuals, business houses and the government. The economic development of a naticn is reflected by the progress of the various business units, which includes corporate sector, government and housc!iold sector. Today we have seen various developments in many sectors of the world. The countries have adopted policies of Globalization, Liberalization and Modemization. Due to structural changes in the country, the growth is enhanced. and with the advancement in the technology, world is becoming smaller day by day. During the course of reforms the country has opened its economy for outsider, this becomes the reason for the and with industrial expansion new employment opportunities are created and it Q. Market in which Financial assets are created or tansferred is a Market.” ~ Explain. inancial KPe18—19“ein tan to eee rnnce- Duet varius reforms inthe td con Dae tasty without i ees The : reals pon no meaning and productive investment, es ‘ver perso inthe economy requires finance for ssid oie fds basal 0 meet thei ure eps fraying ast. Where tthe same time cckahop nants fnds fr paying wages and salren There are areas or people with surplus funds vs eal temo ancl er Meaning of Financial Markets : A. ons, tk, eulion ane +s/ioas and claims and liabilities, " ~ Finacial Make can be ©” ranserred. As gaia coo ere J asset Fimametat 1m of mong vss that reflect supply and oe precious meta "hs financial system of ‘hc clemand fo and the supply the governmentmat al Bre oagh P . yee sack of popes facia i erie cin eager eon oe meat Sida te ete tte ‘ocr nhc mart, pus wong oer ‘ulin, Replat’ ext is pre equ in 7 sentol decides the bevel of perfomance of ‘ino r ain components of Seal Sck Exchange (Function; The min ition of nh potve mesenent. Ther ae aa with dt tn the Sinead ‘emanates the fof fed ‘css mare acts chanel which mails hes "omic development. The Inia all tf India trowgh egere ian ana stu wm cpl marist, While etn aie the funds promptly and at low est. ae Organised Sytem : The organized system of the fi tos nts wich re propery organized and nde contol 10) Unorganized System In case of Unorganized 2. Types of Financial Market: (1) Money Market = Money market ha ae nay ont The money market isthe global fnapeia ct lig The money market subsection of @). Cap ysl tem of any aunty. ong teem east Most he conto (0) "ores Market: ost bythe : "sone exchange ate {are mae ara S|= ccnsny ies ance or dren purpose I 2 Feo, bancaly to meet thie current requirements or a rauie fends basically eects, Where atthe some time a business unit St coe nd i for Big Oa ee opang the od onset tthe Same ine T Sg oth te op owes aap ns thse SSE re cc eg Tn from the areas of * nrmedianes the cope of nail market becomes wider The nenneurc play an nportn role in development of financial system. the stor bout ter investner ison ad enoourge the fr ivesinen iiermaiiary oa change depending upon types of market, Various anced scope of Taal system. The investors and issver ar ous regulators has rete faith in the investors and thereby they iain E 2. Scope of Financial System ‘Financial Intermediaries Fimameial Markets 4 1 Is Banks Stock Exchange Insurance Companies Money Market Pension Funds Bond Matkat Mutual Fund(Ze process toraise money fom the apt market. While cut of his procedure gt reduced and one can ase the he Mnuncll marti farther vied ito (A) Organised co thove markets whi tue properly organized and under Th oxgansed sector provides legitimate platform system becomes the important souree of raising tod ren manner. The following athe components Of the scr an ruse the funds pers rguirement Follow the organized marke (1) The mares composed of various (2) The market is governed by various The markt is under the control of one HB Money Market: Money market is @ aoe close substitute for money, aia Secondary market The money matket isthe global finaneial Themoney mate ia section of the 'Snary people tht he en ed between them A bond is js singed fem toad tn ters det secu sed y the ter ete matt foe ‘und ar eval i mart is dona Tollowings are the isthe mare fe The market °) The insrament of is ” (antes Sa ) The market is las ay‘erica Depo GDRs ar sued 1 BE 1 cvss i Arircan Math ee gn cin comer bd (RCC a oer poe ny fr ssuing othe investors al tl nares divided ito two pars, New Ise Mash TEA. New tue Market Here in new nse madket the ns or nce provides the chamel forsale of new securities vice br mventment sells seers in the New Issue Market This ‘etme aned secs. provides access to various unissued i vn nom make The varius soures of this maket areas follows Public Ise Publi Is means to raise the funds compa nits the public at aege subscribe their shares and i conan sources of rising find and afer development of 1) ght Isue + Right shares means share offered by fg share bldes on proposnae basis. As pe the “uy shud heap hei exiing share ‘oun Share : Bonus share mean capitalization voy shareholder the shares on proposnate bas "erate any eash inflow fo the company mans Proste Placement In this type of fand Tl Seedeny Sa “7 i aa cnaa mary ranges from 1 year 1059 tom mr, nance for ie long 80, serves ss le Sa Nae reer te section of instruments depends upon the tanning Srey, the two broad sources of fina TELESIS ads and loan fonds. Shareholders funds come out capi and retained enesings and secondary in the re LE funds come in variety of ways like debenture ‘here cetit fined deposit and working capital advances est market company ean also raise the funds by bo ‘here a o main pes of de nancing First one is ong tm ae Generally, sort er dt hs responsi sss ha ne yea rm the dae on hich the funds were of “gem Set consi of obligations tha ae ‘om Ser sre des. Tong er det is alo elle ca nena tres rates than longterm Joan.ind services working together 10 vers. financial institutions, nancial «leit in an economy 10 sumption”: SS ccoonaes the above aay besa that the prima fae mobilization ment and stn comic growth ‘The Indian Soanial shay wag In those days financial seetor was before 1980s interest ote. Financial 3. Pre-beraiz chang financial system of pre i pent, Followin [Low Interest Rate on Government ment of the goverment, aleseeing te iyo ne ken by RBL “spelt an optim for public dep "linked ered ratng by an approved ain stn 199095 the aes sealer ofaian ramen: iui nstraments Oe Paty mead secondary Thelin egal shares ‘oe saclay mkt fhe vied : ts Sou of he ro nel ova Fan Bonds Foreign Bonds Fly yo eign cure ops, > Dita Gani lstraments of dilferea Nae Mare lerameat # The oma oir ual att hat nay ed po oe ee Te Bok Te Mame Market tostruments: The "oe than og year "reference share in the db Tastran meas: Hyde ing= — Finca sitions obi vient which ae bing bur such wieredit allocation press “sunt flows de ofnagcial & trae berlizaion hing an we of new Baia instrument in ress units, which can be broadly classified ‘ouschal seston: These unit wil be placed i ‘evelopment ofthe economy and sciety a "pone hlps he se and inves od i promply mama. “Industrial development and improved nomic development, Business rogue vc may be shorten a longterm sess Generally money marke is f Unit - 02 a ea rking capital et 2: What is Money Market ? : Money markers ei tener for short-term borrowing and lending. The we : Boorse market, There is belief among many people thatthe wre sno fe Bests Sime, however ther is difference between them, A tong) eo" lie money market specializes in very shor trm debt secures tn 82 th ah SoTL OF Ta OMT PS abe ean Be According 1 Crowther: “The mony mre ice : ficatiercAcct he seriou fms and insane ded ar Money Market Index ts synonym of liquidity . Neney Marfa trodory By Hore prt of font! meres wer Be Prien House SM very shore term maturities exist Money Maret Mutual Furie ive ' pee Som ies maturities. These instruments of money marie oe say hana Honey Mercer Asley at so conservative, money mart sewiee ee vio Difernce Between Money Mark: le sures. Neony Nak en es Ne a fn antl at imate! Secures tade in very high dense an = ioe Hed aces fo them. The easen vay tr ese eon > Objective Study (at the end of this book! Money Market mutual funds ; 3. Characteristics of Money Market: Thc are a uni Money Market : Mesning and Gharacterisice HB) Stowe Term Regurements #1 poids pion shor a aa | Ot ste imponnt spent of nan fancies Ker and ores Tu cre Serelly have maturity period of one year oles. Te Sorporte ean be satisfied though various instrameia of (2) Regulated by RBI : The money market and their fu is $3 RBL tis one ofthe most important tol for RBI to marae iy ne mah Ato control te iflatonary or deflationary sitio i the econ (@) Short Maturity Period : Most of the moncy markt ines ‘maturity period of less than one year and that is the reason why it is considered s.Fegulated by RBI. This 48 market for ‘meeting short term requirement, the market. Major player ° (4) Brokers : Unlike stock market the — fetive with or without the help ot brokers Sra. 5Pieneeies torr, eeaeeer mae consies 0 ‘requines the funds for money, certificate os requirement of the bore (0) BPI 10 itnnews inthe economy, The balanced i tuples or ei of liq becomes frets the problem of in Seonoey st such both ab Speen te liny nthe ccna Pe cerPapeastsiammetsteny meta Hewererindvidn! ovesiors 1, G7 ta Wi te ely of various money marc: ess access as noney market securities trade in very high denominations (A) To provide short term fund at G0) te Rhy Th lores i mey mkt ace considered av, ile emance fo users of shrterm fon ; compared to other investment opportunity ax most of them are debt instrurncsy lequetely at reasonable cost, Money market provides platform from w eae eee ee nc as tend en it fn iy no as tse pups at bran fle Bests umes fed money Jo buy tachineic. he grows of ts economy nod ths rok ok eon yy cs Sere sr a ot onan ern fee rssh em Govern nds money to provide products and ser sytem, The money mart by providing appears to pope and forse development of country. Money markt i alvays onthe BB opr develope ov ccarey mad aon ° oe inal need fa the eae he oe ig novel evap of ean td tn kets the clad system of economy o noid eee Money Market Dates edly come wih ah and eve pron he . RIES estore ‘Of the society and develomen of ene sounty depends 0 ces emcee meri ren ie erin’ 2 Futons of Money Market ser robe of ination supply of money crests ds sats the short term financial requirement of peopl isnot ony the Sas ai, Tn oh erie. Only money mae arn elon many mare As sh flowing ae he vans cn tareey wads : ‘Obl liquidity in the county (Economie Development + Indistial development and improved line Fae mf f Money Market : Following are the diferent objectives of S0dard Is the pre-requisite for economic development. For this purpose mone) ts essential. Busines requires the fund to meet their various requirements which may be Bort term or long term. Depending upon requirement the source of fund ch Geneliy mone markets sonidered a source of meting working cpl ee forking capital is required for continuing the operations of business, ad ts rested frshort term. This ean be met by various instruments of money market. The developed indisry plays an important role in improvement of living standard by crcatne ermployment opportunity, satisying ned of society, and ccating heathy, safe atmo Sphere. Money market plays a crucial role in development of economy stl FS Se variows Junctions of Money Marker. erea : fy rules and regulation and without the ‘ofany authority is called unorganised market But moncy macro ce ‘components and that is why itis cuasidered as organised morcce (@)_ Participants: There should be large number of participants in the money gtso that the market becomes unbiased and governed by market force, This sce from unfair trading The large mumbers of players inthe market, ‘of fraud and reduce dominance of particular investor | @)_Diversified Instruments : There should be well diveniticd and m gy market instruments which suits different requirements of parscipacts ‘enhance the scope of money market The need of invesor and differs from investor to investor and borrower to borrower. So in ae mony eet ne re orn hit Braker: Tey act sintered sees and bs “eee 2 nerds between the sles and b __Dier Players: Individuals, firms, companies, corporate bodies.‘ fac the ay bl Comme Papers ie. C+ Money Market 6 Money Wwarket instruments The money market instruments ate the way through which investme {nthe market. I provides the tools by which one can operate inthe Money isthe precequisite of the market tat ready sccepubl instunens ae ontencon anailabe the most important aspect ofthe efficient money mses he sala proper istrumen' The isrments in he mare ar of such nature whic the requremer: of both issuer and investor Atte same tine i shal be ste at riht ime at esonale cox and cas, There ae may insuments saa Bs eck ert is erences of fife renee Ts Setesion of Iran depends upon vriou eres of ramet an the eso ath paris, The various instruments cary the itis enue whch males instunentatractabls. The instrument ae as follows (0) Tessry bills 2). Cerne of depo {). Commercial papers (8) Commercial il {5}. Callatratzed Boroning and Lending Obligation (BLO) (8) Money at call and short noice in he cal loan market (Interbank Patio crises. (8) Repo instument/ Repurchase agcement (9) Bankers Acceptance (U0) Gilded seers Markt Hh Treasury Bis 1, Introduction: Individual involved in business and indus wits ob Inns capital fom diferent sources and varied secures heping in mid thei sess Feauremen. Government also needs capil to ran is edminsration, One of the important instruments fo obtain capital sling Treasury Bills ‘A Treasury Bilis usualy an imporantinsirumen othe Goverment of nia to aise mone for ashore perod by way of oa, Treasury Bills (Til) se he most marketable Money markt security. These ae ised by Government of Info net is hon erm requirement. Bills are isud by RBI on behalf of Government of nia ‘Their popularity is mainly due to their simplicity. There has been gradual nse of Acepanee of treasury bill as marketable treasury scutes. Ths (@)_ They have avery shor maturity pecod (@) They are easier to issue and hence less expensive for the Treasury (©) There is no pre-determined irs ate the ex2s bition Tremuy Bs srr itn government io finance government activites. These are common eferel Eilts. They are usually issued im maturities of one, three. or six months ain the meaning and Characters of Trewsary BlFinancier gonay Market “Gh Treasury Bills for 192 days + According to the recom smmittee appointed in 1985. the Government om dn view of te money market became an impor 2 jthat they don't pay owt ee Le ieee arent i yw ae | ot a hrm marae serie! ted x) a ll wh ma hick ix determined by competitive bili 1G) 364 days Treasury Bills: r the price of ‘axa rather than of De. My rough these actions, however, athe sen : 1992 A Setion. Their amount was not declared in advance. Net rt Tclltyby the Reserv Bank For this reason, these bi ‘Purchase can be dome Trac ihe ils com be Bought and sold fom trade tem to a8 TBIls are issued by Governmen: oven i eg A i tor redution fn the lending by Reserve Bank tothe govern Is became more popular because of good retura on “Government had issued the eae bills were sold (every f ci si ton borin ihm aig est tem with tries ranging ts ee Wire discountto-face value. For example , v8 measuny bY sp ey aed ecu, Due 1 them, he sizeof the Mode ect ans began 1 ar pong in 2 sey bos Few 364 dys All hee ae sed 1 ee onde sale omed for € 9 which wl be redemed x eg frente t€ 100.0, fe vale) 2 998 the Treasry Bill re auctioned mo se sso con tevest ln Tresvary Bl : Banks, Primary Dealers, Si) £4 Day Intermediate Treasury Bile Ae bs Sener cones Meet Fons Fnac Isttitoas, Insurance Comps, NDC: egy Bills whieh were meant for monster) como 14 Das. Tes, Be inves in -Bill a Pas opion in 1996-1997, Since, those bills are oa-trasferable, they an returned atthe exiginal price. ‘is as per prescribed norms), NRIs & OCB Joes not hive ary tered in hooks and ar 1 1) 28 Day Treasury Dils These Bills wore issued in 1998, but now “A The Characteristics of Treasury Bi coupon rate o interest rt, they ae traded a discount and redeemed a pa. "Db No coupon and trade ata discount, meaning thatthe investor isnot ri mde dscountable raise of he avesiment bot taste the scurty iso» Distrbstion - Auction of Treasury ime a era ekecsesaty Law ios tim ils ve pinay ord cond acm, Dose ng oem, amu Billa, Merchants quote their price after interal discussion emong them. {Fancy bills sued in sceondary market are sold by banks, financial insttions a od when te security reaches maturity, the investor is paid face sa 2) Ineest on this bil be the difference between the issue price and par vi ec bis. This difference is considered a3 the return to investor. Tu funds, in secondary marke, the prices of the treasury bills depeod {lngountavalable on thew: etees of both parties the are estimated. On the bas ‘sow discount available on both the purchase as well asthe sale. Ths 3 set ene tne sce! er oy. eee oo thee read ataiperaad tuted pee of the Income from dicount is usualy greater than the real price income Fear dheount. Thi shows the internal ratio of the prices. The transactions of the Tunis of deals though deliberation. These 2:30 hours on Wednesday. If a ‘on Tuesday ‘Treasury Bills mature on Thursdays. However incase Thursday is boli” eagury ills are usually made on the | ations ae submited to the goverment belo, I that is converte! day falls on Wednesday, the bills are presented to the goverment Treasury bills are given at a cost price of € 100. ee A easy bills are available for & minimum amount of then they mature on the next business day. “Treaty Bills ave quoted and traded ona discount £25,000 o o ep es ene os mont ht ws ” {0 a bond equivalent yield. (®) They are issued to meet the short term requirements of | “ ements of government Tray ifr 9 dys Be sn in utes of 25.00 N days : Before 1965 weasury bills were issucd 0" Merits of Treasury Bills: (1). Toills are considered as one of the safest investments for investor ramets that means the fund will not be ted up in relay bas odo of 23 6 a pet ea Bate ss chang wns" ie dane of pnt he sat one isis ot) SST ins ad tytn Mr oy ee zl Secon Moreover) Tels ean be el to ati o it can bole ov, wih ome ‘ess dull. Bank used them as a parking fund for a short period of one ‘other T-bill purchases, or can be sold at any time when investor w 44) Some times T-bills offer higher rate of interest compared to comme srcial 90 days, Polo and Liao of Weary Bl tanks and other financial insiations imme «{GS CDs are fsued with Minimum povod oF 15 ye (Minium Amount of CDs shouldbe ® I lakh and in maliples of 1th {G) CDs ate transferable by endorsement a they are nepal asramee {6 CDs are required to be stamped : from banks and). EDS may be issued at discount ora face value (8) Interest calculations are mostly based upon a standard 360 days in year called stul/360 but some are ctual’36s (9) The Investment in CDs is dependent only upon the credit worth of the banks. 3. Advantages of Certificate of Deposi {itis considered as safe insiraments because in CDs, oe can know the Reet crn} returns from before renee wil be sckan® —@)_ leis benecal investment compared to depositing money in Saving Bank ee Treasuries are exces Account Caen otic @) The Feder Insurance Corporation guarantees the investments in the cenifiate of deposit (CDs offer maximum liquidity as they ae transferable by endorsement ad delivery. (6) This is ideal instruments fr banks with shor tenm surps fund to invest at atractve rate 4. Disadvantages of Certificate of Deposit: G@) As compared to other investments the returns sles. {@) tis ot liquid investment opportunity so the money is Fixed fr long ime Huge penalties ae paid if one gets ut of it before maturity “@) Investors can redeem bank-iasued CDs prior to maturity. However, they faze required to pay charges for premature withdrawal ‘The interest on CDs is chargeable to tax under State and Local taxes. CDs are fully taxable atthe sae, local and federal levels “The investment is locked in st aspecific rate even if interest rates increase so investor losses opportunities to aves in high retur offering secures, Guideline for issuing Certificate of Deposit, Eligibility : CDs can be issued by ‘Scheduled commercial banks excluding Repional Rural Banks (RRBs); ‘Local Area Banks (LABs); and "Select all-India Financial Institutions that have been permitted by RBL “Aezregate Amount : Banks are fice to issue CDs depending on thet © generating protecting Your inc. term of the inves| « Financial ts, Gy Minimem Sar of lnwe and Denominations : Minimum amount head be C1 RE and inthe mttples of € 1 lakh thereafter. (CDs scan be iscond individuals, corporations, companies, russ, seecianoen oH “Maturity For the CDs iaoed by bank it should be not less than 15 at aot Sam moe than one year. "Fer CDs issund by Snuncial instinations it should be not less than 1 yes: shall nat exceed 3 ye % "S) DisceuntCeapes Rate : CDs may be issued at discount on face (© SLR al CLR requirement : As per the Reserve Bank's Requin ‘Runs should have to ssunein the Cash Reserve Ratio (CRR) and Statutory Lig. [Ratio (SLR). on the inee price of the CDs (@) Transferability : Piysical CDs are freely transferable by endorses 28 Sever {Format of CDs : Banks Fis should issue CDs only in the dematers - (fem. However, irvesers Inve the pion 1 obtain or demand cerifiate in physical (G) Payment of Certificate : The physical certificate may be presents: (pevmcst by Se ins bolder Ht deieabic dat banks take necesery precaution = ‘ake peymeat only by a cross cheque. “0) Trades in CDs = All OTC tates in CDs shall be reported with sinus of the ende on the FIMMDA reporting platforn. ‘ity Lonas / Bey-Backs : Banks / Fis cannot grant loan against CDs. T=: ‘cannet bey-iggh their own CDs before mati. of te Vaghel ‘he Reserve Bank, sanction was given for 1 are made in hese suggested guides 360 papers have become befiting insu ‘Commercial paper a ya shor period has ‘hor term debs Thee ‘added IME commersial popes fon 2 fixed future date. but no assen Tis strength to crest income in ac fo is requirements isucs comm hrough barks oF merchant banks Hnvestor can ear sboot 18.85% interes (unsecured obligation isrued byw corporation or BR each a ecconncs rece ond tne fa wide range of denominations, can DReelty Rave a narrow or absent seconde jabtain ereditraings before issuing CPs hich “Commercial paper is an snsscired and discounted p the shortterm credit needs of large sstinton feed foreign governments commonly ate tis pe unsecured, shor-ierm dee insrument sod by 2 fof accounts recetvabe,iventones and meet Sh ered. This tural feed flects prevailing markt ines rates Commercial Paper i sho is issued by a corporation use for frac eivable tod TT has higher denominations than Treasery Bills a the Cerio of maturity period of Commercial Papers isa maximum of 9 mov fof Commercial Papers: According the sources of purchase of they can be classified into t%0 STE rs: When corpany with and sells commercials pe nts Papers Here. te company am0008¢8 tom diferent dats. Invesors purchase panes ic! fare said to be Dealers C ‘fall purchase these panes ng commission and sell ter i he achi Financial erg se FEST PPE Fete olor Fe a mpnies and fom the viewpoint of teres ey remap of Cuma Pi Se cet coy sTieiss snp msn 1 See eae Sear dtd Boron drome = pee ee wees Ce ee Se eee oe ters ke ee a eee peas ae eer cts ke in Bete pe a cise caret Se aes cee ton ae eteeny SSRN gre Se anes nee na al cS isgeldareanerge geometries (© Intracorporate Fund : Duc to commercial papers, companies can hi } ‘or dematerialized form after November, ee en i eit ee ee pee ‘Regarding guarantee : A company can issue commercial papers at a to guidelines of the Vaghul Committe, it is essential to make proper planning ‘original price i. ‘a discount, but no authority can be given for eee ee a ene eepieeg nescence pases De ee ene ele caer cre ae ns oe Beeeirgeem tinea votes cast rer am acer ae ren om tee ge Ss OS Ctl tava of Si froduction : Commercial bills are basically negotiable instruments lo Beene Pyrenees peesEes eee “a ers for goods or services obtained by them on credit. These bills are Ss ample ils of exchange and can be held upto date of maturity or can be al ere ee SET eNgiara at rere esordios °° “ find party or can be discounted with banks of financial institutions tere ie one come ne occa Tl sac x2), Orrin Capa Limi: The compan ering att Be ee tee oe ee ete aires of, Hone te 1902 a We inner Te gS Sc core = on So) SE eral ome ae se ee eae ne Dette ones . = 5 of Certificate of Deposit Definite Rating Necessary : The company should have P-2 definite ©" advantages and dsodrantees of Ce ty; like CRISIL LTD. for example and ICRA LTD., COREL!" tes ort a corpo 22 poe ee era Gieperding Date of Matariy Ticcaome gy than that approved by the credit ring eee tat Cos, eee smc0 0S fly aly for one thing. Since, itis for independent poupoen tae vets conten should not be one papers are flexible be. purpose, bank ot tinuously available woe “Regarding Addition fo Total Issue Amount : Company tht wans to Stoal amount ofthe issued papers should make such sion win two issue of the papers Renewal of Commercial Papers Ell Be consicercd axa fake Tavestor ‘Any individual, bank, company, NRI ot foreign 1, commercial papers to he ryan ssocition oi wp fr lending purpose. As te = ks con sour fds aguinet advance without actually isting =< 13) Gensaly banks having highest Jans 10 total assets ratio 208 1 ‘Sd can sane the suai By suing IP. (08) Wiss neti or ender banks st provide an oppor sect 3m sls Cand avible in scued invent | (5) them er tral not redeemable before mary. (18) However, IDF fas not become very poplar because of lack of sly sd ne ofthe wpe iit on ites ft. Fster. th . oney Maret s Br Banks ac allow io ve paricipanis under “with Hak” casicaion for o the advance classified under Health cde-t status. However total ofthis participation should not exceed 4% of oustanding inthe account athe fime of issue (8) The period for parcipation can be extended for 30 day (6). tBPs are not wanstrable ‘The rte of interest at which participation banks ae lending shovld not exceed 0.5 of interest rate at which issuing banks have lent 1 is borrower 3. Advantages ‘This scheme is beneficial compare to consortium tie up at it provides access to funds agsnst advances fast compare to consortium process Ti provides opportunity to cam more profits on surplus funds {G) It frites banks to france laree project 4 Disadvantages {The IRPe ate not They eaanot be redeemed bet: ssturity The interest rate are resricied inthe séance thatthe rate of inerst at which participation banks are lending sbould not exceed 0.5 of interest, fate at which issuing banks have lent to its borrower. ED Pepe instrument / Repurchase agreement 1, Definition of Re-Parchare of Shares © “Repo isa transaction in which ‘wo partes ogres 10 sell and repurchase the same security Under such an agreement the seller sels specified securities with an agreement t0 repurchase the same ot @ mately decided future date and a price” From the definition it is very clear that 1G). Repo stands for Repurchase {@) Its the arrangement whereby the borower pars the securities tothe Tender withthe condition to repurchase the same at predetermined price afer the specific period “itis the deal where cligble partis enters into contract to lend borrow ‘money at pre determined rate against collateral of eligible securities with stipulated condition for repurchase the samme” Feature of REPO : G) Is this arrangement the financial instruments place some securities with buyers and borrow certain amount of money “The transaction is reserved afer the pre decided period gets expired. In these arrangement legal titles of securities does change ‘After the specified period gets over the borrower repurchate the security At predetermined price. “Complet= note om “Repo Tstramen € thort note on “Repurchase of Shares Agreement.” on 6 ay “338Baan ty 0 tee Financia ton, s diflxence between the Original p, wonet Mate $= paar aaa * eo El Bantars Recepiancs Fors prices aad repurchase Price Rate” (6) Thr con 0 te tore cel Ae ihich is purchased 0 a a ina he ae wil ep ‘tara yf ed te ot spor pce 60 pte emesis heaps hn boro Oe cn wed om sli of fd poi “rene Re ; (00) So ae caateaion as wht he tamaction $8 elle Src te tees po be paris soe point iim te ronan . (0 Wen yt er te es inthe money ma: 5. Typ ot Reprcane Rereements a) Overnight repurchase agreements : These are the arrangemcn' Mo the bonower 21500, i difference mature he nxt day. # means the borower parts its security for one day and rep ‘be sme om sex dy at pre determined rte. (0) Open repurchase agreements : These types of repo artangemen > ndefiel matares The rates ae variable or ston daily bass. They roll or 70° the request of either pary. “1 (Term eprchse agreements These me the arangements hich b= (ind meng tae hod en yg (A Advantages of Repo = (Ke ek ive en cath lie wth sem Bi ep of ten arngements many eam good returns wih 2) helps the borrower o 1 sn Ang SUUCRR pote sdancuy serra 1 Neiity adjustment inthe system. They : 2 Rema eer etme ete pe only. ss - . ed shld be sligible securities. At present the cl" : mem securities, Treasury bills, Public << aod orginal purchase price of 5000. Oy de tor time draft whichis accepted and guaranteed by a bank and dreen -_ at the bank ison, Then this aangement i called. guages import oF export transactions They represent a hank s promise and 2iliy ‘ehy the Jace 0” principal amouni on the bankers" acceptance om the sipulated BA short-term credit inveximent created by « non-financial firm and snteed by 4 bank “A banker's acceptance (BA) is a time draft drawn on « bank, pplealy oe fammebian imtermationol transaction where one party Is umviling 10 offer hele goods on services on credit Banker's acceptance date back to the 2th century when arly forms of the instruments were used to finance trade stars as «time draft drawn on a bank deposit by a bank’'s customer to pay nome ata future date, (Accepis payment 0 the holder of the daft. The draft drawn by customer is big but similar to post: epost with overdraft protection v's Acceptance (HA) : acceptance isthe shor-term credit investment {@) Wis guaranice given by bank to make payment @) The Banker's Acceptance is traded in the, Secondary market, @) this a shor-term credit investment. Iti uaraneed by a bank to make payments. (9) This is mosty wed o nance exports, imports and other transaction in goods (9) Weed not be held ull tho maturity date but the holder has the option to | sell it off in the secondary market whenever he finds it suitablee ‘the amount of money, the date, and the person to othich the becomes an unconditional lisilty of the bank raft can exchange it for consideration ®) The customer wil be indebted the face value ofthe BA tothe bank before ‘the BA it will be redeemed by the seller | 00) They are used widely in international trade for payments that are due for jy future shipment of goods and services, 11) eatlows the transaction between two panies who do not know each other 2 for that who owes the payment | hh Featares of Banker's Acceptance.* Fabieawestomer To 5s the bn,” meomp eat Tay Basa a ars ae ‘aki r za Fate ing investment Scion over nels = ‘ating to fnoce tr wamsctins 2 oS See ad her invest money marie Br his heips investor by providing in (13) This fs mostly wsed Jn the transaction ransact ‘rites most ofthe ime do not know each other thos 2. Methods of identity coreabade ors ere —.. iene * ice pater ofthe money marke smn Ft tanta metre. OM See SB hey } oa i rs indade dt olgions 0 gover gape weet. This cp emg ha pee | Oe caliper ve "SM ana Nps Na se era eas ae Samed cx Qype es erie tae nay ma aed St _ inane nt me ena Eh investment in Gilt securities: tanks borrow funds from other banks. nas ey hs eae ee tn ee at astm rec Pica barca 3 “ 1 ee to megie mp These securi ony oe {he paris to transactions i isuer and investor. This is also beneficial for small so conn RL tats impemetinfFinal ao v mations ic me ; uty RB ats ingle of al) OF tion a hese increta ees ives i het dein y ‘sevuitog is €10, 000 and muliple thercof. providing advices regarding investment. This also provides the benefit of experts Bey eth Te earn petal Pet et scties to see ne oe nas ‘which otherwise becomes costly for small Ie rng fo 2 31 ya Tova ta shot it provides acl an incident serves for development and ee le te a tem of otpe ening etch Ye dened by RO. Magentis sor Bee halal Gee | __ 8. The Discount and Finance House of India cnn. «1 MMMNR RS DIET weston Al 178 fe Reve Da ih ne iss ee available eerie « and aetna ms i has commenced its eof hor term mature. Keeping in mi =: ons fom uly 28, eerie ce ce pep: NRIs a iat tock company in for which int ore be of such nature which satisfies the requirement of bot! ©! Bank, public sector banks and all-India financial institutions who have _contbued tos pap capital of ® 150 core Tie Discount and Finance Howse of Tela70. Money Werke Walaa Funds 4 Whenever he need of igh ari would be Mut Find. The contri ten eounties. MMMFS industry is ven wel deren, of capital matt which eundet mec DMatual Funds. n ital fd he Mutat 2d pools te amount wish sine ins se fete beef fom cot snes, het of pat Tigh rate of return al ofthis may not be posse in investing a Tnsmoney matt there re mary nse svalewich e investor MMM a xsi spe em opal ft mane in he USA loped in USA, Ris de by individual and other bodies for investment ‘money market special type of Mutual fund Pxtarket Mutual Funds (MMMFe) were introdoced in Api 1991 10 ‘Additional short-term avenue for investnent. impossible forthe individual inves 1 Treasury Bills etc, To elve this problem the concer of ‘was introduced. it money market investment within the rach of individuals exclusively in money market instruments small individual investons and the inverts ther fo Imobilizing savings from smal investors and i fnstramens or money market instruments pono rey market ise f portfolio consists of shorter money nan pervho invest in MMMEs get yield cove 10 sh tigi which tat the aves ‘of Money Market Mutual Funds made infor of nego ne made in psc sett Duty under Stamp DY AC ble instruments and oft ievxmet hl ransfer ae subject 1 jet ok i Pat He th naan of cia an, Ae tis fd ae delivery based tSeee a ae Hurdles Tw Money Market Mutual Pands = iy The units ofthis fund atract stamp dy. 8) There s compulsory lock in prod inthis te of mua fonts Ganved from action. Thus the market is lowed to dec basis of market force. ee fe also provided in rediscounting of bill. Various steps fave by the scope market A In onder to provide opportunity to lrg individu iavesos feeds Generally the mutual fund i the concept of capital markt o © it becomes difficult ata investor fe investment. 111. Recent Developments In Money Market |. Introduction : The money market plays an important roe in deveoe rc: ‘of economy and country at age In his context te extent of growth of eco. Sipe on the eficient funcning of money market. Performance of mai: ericsct of eficieny. In India there is structural change in | Grin money market to enlarge the scope of the market In m indivi Samy instruments available which are out of reach 0 fe them opportnity to ia ers of bencis. In mutual fund the Mural fand collects m measured fo aaron lot few years Governent has take various steps to ence th " aa a evry market and 1 make it more eficint. Many suggestions have | Gadividoals and pools the amount whichis invested in varieties of ‘of them are smmarized are as rolls Istors grt the benefit from low cost of iavestent, benefit of exp Be ighrete of return al ofthis may not be posible in ivesent i Poration of DFII: DFHHI was established in 1988 to ed promote the secondary market fo money mask insane Raker tn tony market. The DFHI was setup in April 1988 by Piss objective of deepening and activating the money markt. It has fations from July 28, 1988. It helps the corporate nies, banks fons to raise short-term money ani foes ole In creating the market for money market it re instruments: tis tbe pr ‘continuously available of proper instumens. The ani The process already ben started by the government by enhancing the ‘SFreplotor, Many unorganized sectors are covered under the net of reps invest shore sr tions of new attract ly acceptable instruments are t money market i the availability Tiaret are of such nature which satistics the “@) Enhancement of scope of call money market : Call money del. veenieht funds, While notice money means deals in funds for 12 1 15 days. Mo I short sie i for a maturity of oF up 10 14 days. However call money m°\ ‘uters trom many hurdles which need to be removed for the deve se me =z : a sor “se ea -| Nonder to enlarge the scope of market and 1 ‘attract more investors : : cpa i, Wyarious new instruments are introduced i ‘the market depending -— (9h the investor, The RBI has also developed eae Ee fs issued in money make! ee Soreyultd by SEDI a ove not suey doe tof Safety of investment is esky faicre of company cate of flare of compar. Market ? Explain is Characteristics "Objectives of Money Market functions of Money Market for an efficient Money Market. ‘on Players of Organised Moocy Market ‘and Characteristics of Treasury Bill, and Limitations of Treasury Bills ‘of Deposit? Point out its Charteris. rand disadvantges of Certificate of Deposit. for issuing Cenifiate of Deposit. Commercial Papers and disadvantages of Cerifiate of Deposit for issuing Certificate of Deposit ‘and features of Commercial Bil ‘per of Commercial Bil von Collatcrlized Borrowing snd Lending Obligation (CBLO) Yor Collateralized Borrowing and Lending Obligationee eee na ‘Types of Preference Share Advatages ard Litton of Preerence Share Devertre Meaning & Features ‘Advariages and Uiitatons of eben Types of Dsbentures Regulatory Provisions fr {seve of Deberture Diteret Instruments of Debts Fetorm of Captal Maret in Ina International Captal Maret & Indian Comparios Now Finca instuments (1) GoAs (9) FCOBS (2) ADRS (4) FOB Corporate Debt Martin cia Role of SEBI in Capital MartPo tee fo make market more cf a 7 and the long term funds which are required (o- a an Speen tena cyanate ES eee — Lita ne ie les cn cet rennet of partipants in he mare! whichis seats fo eftcnn sana em toogh 0 WoT his di ’ srt indice comibution whereby investor invest the fund wth.) ‘a series ant nmi intermedia invest he fir in nds Ks, ‘Cavan mid om requirements fds, May participant play an inprant c, rt lines investor ad fancial interesianes. " 2 Meaning of Capital Market : Capital Market is wider than eS. Maret ant acludesal os of ening and rowing, wheter ono ns > "Capital marke may be defied as @ markt for borrowing Jog term epi and ered by usines enterprises. see The Capt Maret eA mate for mana emvesents ‘init elims to capital” Te Capel Marker comprises the compler of instintons ont ‘isms which provide inermediae term funds and long erm funds 10% government and individuals.” > “Copal Marke represent al the facies andthe instatonal ar. for borrowing and lending medium and Tong term fd" Fhe Capa Markt alo having the process by which secur erased" Tis composed of those who demand funds ond tose who supply fi Cepia market ofers an idea! sure of externa finance ‘Gorement has provide reasonable opportunites and protection touch sears inthe Capital Market o get ne ivestments rom the publi andthe Iso nd to core their iii, ‘S Charactrsi or Feature of Capital Market: (Long term Source: The Cpa Make proves the nance for mest and mile term nod of business. ll he instrament under this market hav ln ‘aunty and mor of tem re given a capital contribution. Tis market pois fn ‘pansion an development of plans which el em in nature. Geary he secures se inthis market ar log 2 investor who want fo invest for og = ies in tus act _ Q)_ Participants : There are many participants in the capital market. The p"'s putin the capital market includes financial intermediaries like insurance con _imestnet companies, pension fnds te onfinncal business entrees, hows" Ne is always beneficial and desirable 0 have ee erate sn ae ee li east ehatecaeit sees anna See et I Markets Instruments: In aptl mathe varios instrument ie and depositaries are deat with, General these instrament ac of from this it als includes various Government secures lo. Th through which fund shouldbe raised depends up varius a the projec, management intention repaing ownership per, tx to instruments, et: In nda, capital markets eulted by SEBI (Secures exchange formulates varios rules and elation onthe se eating tcp Bidelines for investor protections and compan ‘instruments are governed by various provision of Companies Management Act, and other applicable laws ser needs sions applicable o bee for suing cuss. the development and effective functioning of caital mark ole, Broker helps in completing the transaction smoothly for their services and itis the revenve generating ol fr th, to SEBI guidelines. SBI controls the broker. Bakes ng the brokerage services. og market is wel developed. tis working under begin posto ae desi is ike shares, debenture, bonds and tT eee’ a:n Financi 2. Function of Capital Market He} 1, Introduetion: In he capital markt underwriters, lead bank and ni, provide sefil services to companies those who want to obtain capital from they {rokers and their authorised clerks provide the services to those investors why, porchase or sal their secures. Apart from this there are many other function ‘market 3% History of indian Capita anger ~ tes ofthis company were trade in a time Bombay was the main centre of a a Civil War trating of coton sippy ua & 2. Function of Capital Maret: Main fenetions areas under (1) Allocation function : Capital market provide platform fr chan, ofthe saving ofinmumerabe investor into vious rducive vestments. TWisisen portant fonction ofeapital market It allots fands by @ sytem of incenis, nes The find loan boost the instil gow and which ukimatl re, conomic growth and development of ration {Q)_ Indicative funtion: A capital market at 5a nator which sto. ‘al the growth of the company, but aso the exanomics a a woe trough pice mn ‘of secures, Ihe price movements sly Based on the performance of th pif ‘company and indus at larg. The esl fthe company is imately ected hy of secures of that company 1G) Liquidity fanetion : Capital market provides platform wher 6. and sllers can trade securities at mutually acceptable prices. This makes sn Tigi hat ae traded. The iui i the most important characteristic of sn which make the searityatractive. This helps in development of capital ms tnore investors are encouraged to invest in securities which enance the ‘market (4) Saving and investment function Ia capital market lng term ins are quickly converted into qui fonds, thereby it generates confidenes investors and speeding up the process of savings and investments, It encous> investor who posses unused saving to inves inthe securities of companics a eaten ne net iin we 2 ‘angble en intangible, among individual economies units or group. I ‘Sra et sce eaty wite lp et vais capa mare (6) Merger funtion : - 2 er Capital marke encourages take-over mechan ° Ponte stock exchanges. There was sit contol or he publ markets were known a Speculation Malet ie. Safa Baza. Ta ing, Century Textile, Kohinoor Mil, National Rayon, Calico Mil dive securities of speculators Central Goverament enacted the (Regulation) Act in 1956 to contol the stock markets In te State Financial Corporations and Financ Instutios were xb trends : Because of war with China and Pakiston, fine jr part of the county resulted in b Bala trading was started, Badla meas carry forward the asaton Parrangement for fture clearing ofthat transaction. n 1964 the fist Unit Trust of India came into existence U.TL, LLC, and OC prominent investor. Delivery Contract : It was stared during the decades of 1970 st tout in July 1974 government enforced te restrition on dividend mcompany can distribute the dividend ether 12% of te ie ‘hid of the profits ae computed under the Seton 36 vers lower. Because ofthis isticion capitalization eres ish tend in the @f Tadian Capital Marie2 > Typ7s + Under Foreign Exchange Regi a A were fed eased majority ofthe stock of Indian “Multinational Companies - ie igure el phan wt othe sok akc. Hin v Grccaratanatti ears ne tis Finan Fanci iermeirie ee ree yas bt roe ao ‘ ite roe , =a , Moral Fundy, Mercan chest et gromt of Capital Market: Dig the decade of 1980. ee on ee Fy Market : Tis mr isn iavenmen is mae investors eotered in the stock market. It was the result of favourable go..." policy. An idea of convertible debentures, public sector bonds and megs isc. ET (Lasen and Tubro) and Reliance Petro mobilized the primary capita), During this period number of listed companies and their capitalizations > Scandal in Capital Market : Many scandals took place in eapts y, uring the decade of 1990, As a result many small investors leave away the sts ny, ‘Many brokers and bankers were involved inthe seandala of Harsed meta, Sis. many other scandsles damaged the confidence of investors. As a result the proces. publicise iterated. > Listing of LT. Companies: In the last 1990s, Information Test. companies lke ipr, Satyam and Infosys played an important rote inthe Is Capital Market etre economy of India Even today all teleeommunicaton sn “ris are very favourite. > Well organised and Global Indian Capital Market: Inthe esis ‘ofthe swe fist centiry scan of Ketan Parekh again disturbed the Caps | Government has started the legal procedure (1) Bada trading was prohibited 200 2 Roling stderent ws inode in al serps) In Febrary 2000 | ‘trading was permitted. (4) From June 2000 Trading of future transactivo: ‘emit. (5) In Febrnry 2002 bi disinvestment of VSNL took place (6) Io 2 _sovermcat had decided to privatise ol PSUs feedstock pices (7) Foreign insti eae ees ‘Indian Capital Market. (8) Nations! ‘| ‘Exchange became more stronger thin Bombay tock Exchange inthe context o i" ot tie cons Ty Indian Cpt Mat egal "| fy eoxport. It includes equity shares, tonds ee This mares sone ew issue market and secondary marker Srsueet Assue Market: In new isue maret the newly isued seers ae fet provides the channel for sale of new actunts, Tig none at fssue market is subject to gudcines of SEBI and provisions of 9956. New issue market helps the corporat 1 raise the tnd fon ndary Market : While i secondary matist the secures which are fare dealt. The issuer of securities sells the secures inthe pimary funds for investment. And the secondary make dels in securities ‘The secondary market provides ligidty to the securities isued in This enhances the scope of capital market and makes the scutes ‘market more atactive, rt, Securities market isthe place from where the corporate can poll the Finance. Financial Institutions + Apart from various small investors ions like LIC, GIC, IDB, UT, ee. bso inves huge sour in capital et snot only for small investors thee exist ome big plays also, tom encourages the investor troup thee various schemes to ines thie tthe money from the publi, polled and finance the longterm projet s5. They act as channel which collet the money and inves the same thie various scheme introduced by LIC or UTI people invest in those scheme return from thes institutions while these institutions invest monies various securities offered by corporate in capital market. ial Intermediary : The various financial intermediaries play an lopment ofeapital market It helps and guides the investor about sion and encourage them for investment, Various financial inter wal finds, merchant banks; venture capital plays an crcial role fo financial institution helps in conducting the ransaction in smoth by providing various services 10 both the partis 10x Freer, mcions 12 lass and lave le Benet for small inves ‘Enermcdiaris belp investor their investment decison By roving adic ftvetment This aso provide the Bett of exper porto MANET 1 smal (wich eters Becomes cost fr sal ime: copa market Copia mate ntermediis ae Wil ink between the el. mem 1,__tetrodutin nin Pina antsy aie As B= toy maring wemendous prot in een yearin mane OF EREPARICS EIS ono te ae, vale orginal compasesin agree natn] Prodi | Sf sharchoers As such indus roman development of SOMO Capial market of ie coumeye i ‘2 Role of Capital Market m India tan be Potted 04! 3: os (i)_As Creator of Capital: Growth ofthe nation depends upon r indostil Gance is requires ny ile saving and wibo need the. ot there it would be «5. Bis subject 1 FEMA (Foreign foes time to time This as reserve ofthe county etl fe antec Ia et ay ayo ied nprovmes nits veg on re eect at oe nl Seen ce slew pee lnaepee entail Recetas cee Ee pert tytn tore ctocesteees erie wt povac voc rion tran them to invest. ay 6. Types of Capital Maret icp’ sheer Saale ‘The Indian Copitel Markt The Industri Series Makst ‘New issue market Secondary marketgoverment ae del wih, ray nednrn Marketa his make he secures ised by Varin, xe dealt it ; , “Tn lsifetion oes of capital markt i explained in ett aw. ‘Government Securities Market : Goverament required funds ‘pnet ind for economic growth ofthe county. The requirement of fs ‘son based on the objective for which fond i required. tay be shor cr, te long tem, Government issues various securities inthe market t0 mec "Govemment securities markt isthe market for governme gvemment securities. The most important feature of the securitis tr ‘Rittet i thar hey are constant in valve and are much popular aft: 1 {eponis. They are considered as safe investment. The government scours» tle divided ino two parts namely: "New Irae Market: Herein new isue market the newly issued ec “deat his market provides the chanel for sale of new secutiis. Issuer, 0 {br investment, sels securities inthe new issue market. This provides pl-, Tt provides access to various unissued instramest > oe the secondary market deals in securities previous!) mate! provide platform for tose who hold securities to ler he» 1 changes in his Stesment of ik and return. They alo sl!» fr cas to ect thc iguiity requirement. Soe Feature of Goverament Securities: ies trae ie ‘is redecred at Face Valve dedoctible incase of G-securies te safle secre athe probability of in "securities into cash, (6) Toe interest is pid at ied rate on the Face Value of security sh of every six month. - (). Government securities arto be taken ito account for calculation» (8). i maybe held in physical form or in dematerlized frm (9) Bema ae me oot ptm! eo aeceena =" — ited by Goverment of nn ace Serna tan errant igecurities. This is because they Samus yo Tork lopichmaetet Pte three. or stx mor tbe ‘them at a discount to their par value anc lpr a et tre mln sweek. The notified amount for this au: is Friday of every week. The notified amount for this auction in. The pop Tren ‘Thill-maturity is in 182 days. The on every ales (hich is not a reporting week). The notified amount fr his pis € 100 crores fematurity isin 364 days. They actioned on every alierote (wich is a reporting weck). The notified amount 2.500 crores. il kindly refer chapter: money market) ment Securities fare generally fixed matuity and fixed coupon secures ary semi-annual coupoo rt. fealled dated securities because these are iden ‘and the coupon rate, eg, 11.03%. GOI 2012 is a Central Goverment securiy whi chal yal ‘arres & coupon rate of 11.05% pa of these securities are: issued at fve valve. Fei fincd atthe time of suance, and wilnani “oT tine pid of he sear alo Ted : : be (@) Interest is paid on a half yearly basis on its face valve. iuigh the benchmark a {©)_Atimatrisy the security is edeemed a face vale. Bena Moret Goverment of ln at ss vis Yr trary Oe “ is pal on Face Valen aca tg 1 ie ands: hope fbn ht fies ede ll bene a ae | ‘maturity remains fixed during te lifetime of bonds: Most of the bonds isu: cei These pe of bonds es Tre of this type The return forthe Svestor i the interest that hy ebm ae tke no sso SL ‘uring the tenure of security plus redemption price in ease it redeemed 81 pron, nich er aT Te mais gr anit for which twas geese Far omy fase of Sardar Sarovar project i) They ae ed ale Meat oi tee ted te ine fens On ct al zone png inet — riot a sitet stew ek coset re ofthe security i also fixed td fom is wil These boeds: were frat isued on January 19, 199 and were followed ty | subsequent issues in 1994-95 and 1995-96 respectively. Features : ds with Call or Put option: Many ines Goverment (iy Thy are aed a ont Rote corona pannse mortars (2) te an fe wih tel nn (he ae ht cay ay ew eee iaeteenren. G@). The diference between the issue price and face value i the rears eh nlicktectcn ee 9 rig el en ae, a a re at fits Beat or witb cent oly ter ety ie revised from time to time at pre determined date. This bso. “J ‘bonds. Sorvee Pong - act pe see Eee ey anor tan of ope oon on Deeb #195 Barat cy cal orp cpin cn i esas ofbots re spe of wc mone chro tine assessed Tac gente om ise 9 Berend tor itt hi be period reised the right if it is beneficial to them os ee * ieee at the te fhe tenure the interest is paid at pre determined Pet Bondes nose pe fod ei Fae reset Woe Pn fa amet 97 . eeaoe React fo pach shar opy re rsh ade i ved ded nase (Big Form: sin ony psa te sandr Form mas cont hei infancy esting © dened dares ach ws recs, wi of of ares Big frm haves tl mater iad sei urs a ist nh frm a Bid deine mcd hes ote dcp! Gr mnbor els Fome bro meted yw mre fing Forms are given in duplicates, on one of which there is BE the investor and is countersigned by a syndicate member! foam is forthe investor while its duplicate is forthe period, itis required everyday a he end to show the form and a graph in terminal. The identity of te Inthe form should not be known Everyday athe end fos to infor the Registrar ofthe isueRepsvatcae aT proms cr NY iin . See ee ‘In addition, the have only in treed thers ofllorent an Z as = fa he ality 0 iclosus i ie wigan eee cece od rset stingendiclonu nom p07 SEBL in conformity ogo eee : = ce etpino Pies! e Bete ent ooh pare tie aio ete tatent the vo. of Bin des shot te mat perception or ne ner et svesent ad ao mention er share favestmece «a Pie etd of ppg incivioainyenc suse ee TH mcr be rae fags i the TPO process and (b) under-pricing of irene mh ‘mention Tet thom alloenet is made applications of applicants thei reser, sree tr swe, tne linit of forwarding of refund orders are inevitable ‘8. New issue Mechanisim ~ Book Building 1k Intredueton : To Keep pace with the glotalization and bral the goverment of nda was very Ken bring the capital markt in ine wi. ‘postcs tout adsl deregultin ofthe economy. I edo liberalization. ‘Petite couoty with more expectations fom primary market tect ic} ‘defor and for investment in trade and industry. Therefor, there was 3 renga the capital market which i fe could only be acieved troughs. mechan and instruments, and by ting tps or ‘he irs ofthe investors trough more disclosures and transparency. \s ‘raporant mechanism named 3s Book building in the system of initial p< (90s was recognized by SEBI in nda fcr having the recommendation of hs: ier the chairmanship of Y. H. Malegam in October, 1995. SEBI guidelins ‘bok bul as an atetive mechanism of pricing. Under his approach pr inves eered for insttaional and corporat investors SEBI guidlines, 1995 tiling as “a process undertaken by which a demand forthe securities pp smd by By corporat is elicited and built up andthe price for such ses for the determination of the quantum of such securities 10 be isis ‘fa mace, creator. advertisement document or information menor! documen. "Book bldg process is a common practice used in most develops. '= ‘marketing a public oer of equity shares of a company. However, book bl! transparent and flexible price discovery method af inital publi offerings UP! ie of acres is ined by he issuer compary alongwith the Book Rung =! {BRLM) onthe basis of fedhack recived from investors as well as mark! == ing a ceain pid. 2 Need of Book Building : The abolition ofthe Capital Issue Co | 1947 bas rghit new ra in the primary capital markets in lca. Controls on of the isues, designing and tenure of the capital issucs were abol*!~ “xed price method are either under proc) seh bs of price discovery and tip hese pok Building mechanism, a new process of price dunes ee inot receive 90% of the total subscription, In Book Buil eukiea se ar coy as eae Dae es et IPOs, tget sce of fads p ee co ts of public issue fim book built transactions asin this process thee foe the completion ofthe entire process are uch lese thant Book Building the pice is determined onthe basis of dem Above or equal othe floor price whereas in fixed price option the fitst and then the securities ar offered to the investors. In case Process book is built by Book Runner Lead Marager(BRLM) 10 idemand whereas incase of fixed price of public sues, the demand ofthe issue.Sea = ao Ruainer Lead Manav, i, lye sree ay Bibowes th price and receipts of achnowiedgrmert co tra san jaccounts for collection of applica mae in... ra ements Seine w+ ro placement portions tose rie ofthe ss “Te BRIM seq ane na janice hn IIIs nto! tere te screener ie oa yes nd hetero he pe ta losin IRE re re prin al te mae o's JBRLM condi! TRG pve plceneeprton uty w ronaed Bieiiigo resnir te pa rte ar pe ig ety epercne iy, the SEB has the right to inspect such eons and books wich a I er ltrces vere! be Boo Dig pce SESHEBI regarding Book Dug BG SEs orm of usin, cad Beenie oc octng noe sk & The summary includes a mode time frame for hook-building. AM er ‘on the basis of bidding.statutory public advertisements for & Fogel pce as el ete showing banker Ban pvehe yer iveor edo te re Semin Sle etien the vec and ise oeing dnt shoud 3 he peice tad within be within he ec FoF prospectus to be circulated stint being offered fr subscription. The bits hae 10 Ml fan clecvonicaly- kd tansparc xii is wt A fix a minimum bi size. Anna id can be chang orthgst € 50,000 earlier. Fo" cane who applies § a possibilty of price rigging onli eld ice Wing TT ed i ili aon idl more est frie compe oie Bie tehesd ope a feced ogre an option Tne scsi dln fomn/abvidged prospectus curent practice oro diclos theres ‘one day before bid opening. sages vo snd the guts to improve cones and ene oon the webs ofthe sch enchngs The date i ater period ofthe days arts clone of ie Wasa, EBook Bulding Meche Reta nvr ae ote Beep 10 lettin iavenrs tr Bok Baling i ree dnsrey mechan: Bio fn mes IR et on) ft meee ents es to Mo the Indlan conte and th cononspeving i te nan frOs through te Book Building rove, f would be ditto Mikio tat pt of avers: The tok bling sytem hat of them area follows ing i oppopine o mea secs ony. ath ca of he poi Micon can wt th ain ofthe fer coring esa the penal ives. may no pole in ig rte ctr preference ofthe nvenors cao be existed ‘company should be fundamentally strong and well known 1 Coiling system works very cffcemly in matured matt In such circumstumces, etn ofthe varios pruners afftng the make pre fe Bu such codons te not commonly found in acs. ing ts promotes my 8) te moms Boo Buln proces ims a i wig of he ue eles nad oy vrous invests Oe guesin at thei Tu cng over) nIPOS? THE ea rye inc ft Bok Bing tl pug Dok Bling P= i8 gre sould ot ay Be Se ark daha wot reached he tf eatin hk DSissue of from frie te TPO (Inia! Po compar 1 con public nes Tos pecs wo pas Pap he Issuer and pure for whch fase enor abl ie oven by SEDI (eof Cat nd m0 3 of Companies Act, 1986 This ‘of Primary Public Otter: & company which an sell ofits shares to he gener gabe al asics ofthe company in pevios 3 yea amount 3 cree oust have made rots fora leas 3 yeas ot Of he 5 years te company in last 3 nancial years mus be coe inthe rice must oot be 5 tines, the pce of sae of ompany cannot fll the above conditions, then for making (of shares, i should {ul the following we condtions for public iss should be hep according to book vale ibe alloted Yo institutional investors of good standing. In Fwill have to refund te full amount received. Or thee must be institutions scheduled bank upto mioimum 15 percent in Hof the total issue should be alloted to good financial of Equity Share Capital fer he sue should be 10 crores. pedtions, for a minimum of 2 years from the, date of Ist be compulsory forthe companies waning t0 rise essential legally abide by the mates mentioned above. changes in these conditions according to requiemens fof Primary Public Issue : Raising capital through public hares by prospectus is very long process. I includes the he Board of Decors: Fit of lhe comes lari tow ncn epsig rg ct o 8 alo ough averse. Maccolnn cso wring company Sas Une be Secon 1-8) camper aes nf a Se pte ig oon fr on ot conan ea Bak a ne Ta orm advertisementFran Or Bank wc ich . fadversement relating on tsement I most be cons a below opening oF ima daly newspaper jon Forms : The Lead Man ff short sdvertiscment to of investors, the Ise hs for new share Demaen Open: Th shares i ep ope pa ‘8 maximum of 21 days, hues. The exons 10 SERI rules: When, the nse i shares according to SERI rules, Jn Demat Account in a fixed time: Incas of New Shas, {shares credited into de-mat account within two dye othe |de-mat accounts ofthe investors within 7 doys, Otherwise 1d moneys ae set to the applicnts © Forwards Pincd te markt, 19 SEDI the Lead itis enema the ‘various functions of puble ste, for Public Issue : ieria For Unlisted Companies : An used company hs fa to be eligible to make a pud rth of the company should not be less than C1 crore in ding thre years an: id have good track record of distributable profits for at ‘Out of immediately prveding five years an should net tangible asets of at lest € 3 coves in ech of fly preceding 3 yea. fall issued made during the same financial year should fof pre issue net worth of the company a per las audited gy had changed its name during the Iss one year st tue for the preceding ove full year is eamed by the ‘the activity suggested by the new name for a Listed Compan eae Hesved made during the same fnacil yar should rot Jotprefsue net worth of the company 2 er ast aaRe Ser ne Sn ae ag te shold etwas 50% ofthe revenue forthe preceding I fll year is armed bo fleet of alr from the activity sugested bythe new name. eax ‘An tssoee not satisfying any ofthe conditions stipulated above n,, ved in Public Ofer ‘initial public offer if: company has at last 1000 prospective allotces a. vith the requirements of isibitty conn (a) (@) The issue is made through the book building process ang , prospectus: one ‘er cent allotment is made to qualified institutional buyers OR (i) at “ various intermediaries i.e merch bane, ‘roject shoul he appraised and participated by schedule hank and finan ‘at of which atleast 10% sould come fom appraisers. imprincipe approval fis wh sack exch {@)() the minimum postssue face value capital of the issuer documents with vrousauborites rupees OR i) The issuer undertakes provide market making for aca Popes and colic! te sae nicatans sete ee ee eee ‘of shares. Other Public sue: of Lead Manager Regarding Pubic ve: The cal Mager o Sbsrtion ist shoud be hep pen for at eas 3 working Svery important role for issue of new shares. Lend Monspe more than 10 working days. for success.or failure of the entire share iswe. The kad ‘The lloimets have tbe mae within 30 days from the clos following tasks forthe succes of anew is Company should receive minimum 90% of issue as minimum su, ‘a structure for the neirissue : The Lead Mar with in specified pcod Incase they fit aise minimus. new iss, keeping in min sachfacors theo thence cnt el edd pened vk crs ine ee tus: With the intention of trating the investors a Sora MMII Lact tangs: pupan't sey arate 2 a fe ee he ne re of tn bts provisions of he Company Law and ws SED city shall be € 10 case issue ps iting Agreements: The Len! Naoger peo be ko fgrcrcns with he nancial sitions, commercial bcs ed Pare issue is fly subcibd within be given ie pe Relating to Prospect lore giving fal fo Tend Manger caries on hk of deibeaton wih he Sh ctor and ote x7. é ion of Various Tasks: is oth tak oft Lel Manage Gonsof the people ie bok, bunks, rg, ea Had ters whose series ae to be eepnded upon fr be ts0e fsb, th Different Parties inn fis welcomed by te markt the Lead Brmnil stan nk ines sini the Information : The Leat M0 pie Ho SEBL, to goverment. Meaning of Underwriters: An underwriter an tmportant ns: for new issues and the primary market. An underwriter is one who gives gust ‘purchase the remaining share when the issue has not been subscribed p provision. They guarantee that public issue shall be fully subscribed ther 1 ‘hem or through others. Though, of course, after April, 1995, under ‘mandatory, ts involvement is important for primary market. The company. - | ‘pubic offer of share, Keeping in mind the suggestions of its lead manscc ‘erchaot bankers forthe issu, appoints underwriters. The lead managers 3 he assets of underwriters are adequate to fulfil the responsibilities and infor- this effect is also given in the advertisements information statement > Registration of Underwriters: To cary on the role of waders" 4s inevitable for them to obtain a certificate of registration from SEBL At the ‘isuing such a certificate, SEBI takes in consideration all maters invol! 9 = Pertaining to underwriting. And, specially itis indicated that anybody playin "°" (Of an underwriter must have the following: A). Essential infrastructure facilities like office, office space. equins"' “staff capable of performing effective duties. @) Prior experience as underwriter and appointment of two cre ‘Persons in underwriting institution. = se Underwriters in relation to Public Issue =i a le sof minimum capital of 20 athe conn Fiona sto ry 200 ey From the year 199, nr ‘Application forms sen tivoush © re be post (8) Expense 5 of advertisement set thous Sarl Kids of expenses to Be iced for ohnee csi eg lhe sare nen (5) THe capes of “ ey nha floret has ot en made (6) Expenses of se, 1 Advertisement Psp @)Expenses of Advers public about the investors. "Oy Fees of Listing of Shares: The fees to be ido Stock Exch ‘Snares sh tem scaled foes for Listing of Shares. This includes 60 fe) {grimy sting fe, and (2) An isting ee My "stamp Duty Expense : This intodes the Stamp Duty to be pn hare canines given bythe company. This duty is levied by the Slate Gove SR Sop une Government has is own standards for collecting this du Ty ane tha the expenses of Public Issue remain under some conte! some limits ae places as follows: Limit on Expenses Expenses according t0 provisions © 5 pereent. [Expenses according to provisions 2 percent. Expenses according to Law * 2 [Expenses according to provision 1 percent include underiing co" ity expenses as perl “upper limits for 7 Vand there is instability. But as the product of ‘and its financial position also becomes s0¥"S | farts thinking of new plans for which it has (0 © "Where a company isues shares with a position ight to parchase shares ofthe ne iShares. A special provision has been ppce within specified period fs Nmeas share ffred eng Bet hare offer by exising compan ‘As pe the provisions of Companies Ac oseenn shareoer foe sbscriing shares bs SEBI (Issue of Capita an Deposiary Recip) esa Gvalue of specified seurtis aferedis iy lhope oon Hex Aci.1956. Company specifics the ine pod aegis by shareholder, ifthe sharchlir Jes acco he spony pany ofer this shares to outsides This is aires offered by company Wo exiting src at re oes tan lie forsurcholde, ty an cir excep seen exercise the ight ring yges of Right issue : ‘in case of right issye is minimum as there is no undersiin expense : fepimake equitable distibution of share o existing sharcholds mst recs hs Nma oe the Company Law regarding Right Shares: The Company following provisions fr isue of Rivht Shares JExisting Shareholders: The Rh tae shoul be offered the fn proportion to the shares held by them onthe dat fis. fs company issue shares ?: A Public Limited Company cn iss corporation or one yea afer issuance ofthe sare for gue such shares ta date which is eaclier of hist Special Resolution is made : In case the shareholders ofthe on inthe general meting o be effec, the company can oft on in place of such existing shareholders {company should send a notice tothe shares Inotice, the company must specify how many fiuhow many days should the shareholders scep the of JOffer: When shareholders donot buy shares feed" esi the notice, it shall be aken a ejection of oft Py atthe tine of hares offered FTne company must give a minimum of 14 dys tine 9 of right shares.