MANAGEMENT PRODUCTION AND FINANCE

COMMERCE: IV-MDDULE: III

Q1)Explain the Structure of Indian Financial system

The Indian financial market is a complex system that facilitates the

exchange of financial instruments, services, and funds between various
entities, including individuals, institutions, and the government.

It plays a major role in the country's economic development by

efficiently allocating resources and providing a platform for
investment and savings.

Structure of the Indian Financial Market

The Indian financial market is broadly divided into two main segments:

MONEY MARKET : It is regulated by Reserve bank of India and

SEBI

A. Organised Money Market: This segment deals with short-term

funds and financial instruments that have maturities of one year or
less. It provides liquidity for the financial system and includes
instruments such as:

1. Treasury Bills: Short-term government securities with

maturities ranging from 91 to 364 days. It is the debt instruments
issued by the govt to raise money. When you buy a T-Bill you
are lending money to the govt.
2. Commercial Papers: Unsecured promissory notes (Shorterm
debt) issued by corporations with maturities up to one year for
the payment of liabilities and inventories.
3. Certificates of Deposit: Negotiable time deposits issued by
banks& Financial institutions. ( 7days to 3 years)In this the
investors have to deposit their money for a specified term to earn
premium interest rates. It is like banks term deposit. It is issued
by commercial banks and all India financial institutions.
4. Call Money Market: Market for extremely short-term funds,
typically overnight to a fortnight. It is used for inter-bank

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 transactions. Normally funds are transacted for the period
between 2 days and 14 days. This money market is essential for
maintaining liquidity in the economy and allows for the efficient
management of short-term funding needs.

B. Unorganized money market refers to the informal sector of

financial markets where transactions are carried out without
regulation or oversight by financial authorities. These markets
typically cater to individuals and businesses excluded from formal
banking systems. The key types of unorganized money markets
include:

1.Indigenous Bankers (Shroffs, Seths, and Mahajans)

Indigenous bankers are traditional moneylenders who provide

loans to individuals, traders, and businesses. They operate based
on personal trust and community reputation. Interest rates can be
high and are often determined by mutual agreement.

2. Moneylenders

a. Professional Moneylenders: Specialize in lending money as

their primary occupation.
b. Non-professional Moneylenders: Include landlords, traders, and
farmers who lend as a secondary activity.They are prevalent in
rural areas, offering quick loans but often at exploitative rates.

3. Chit Funds

These are savings and credit schemes where members contribute

a fixed amount periodically. A lump sum is auctioned or allocated
to one member in each period. Operate without formal regulatory
mechanisms and are based on mutual trust.

4. Nidhis

Nidhis are mutual benefit societies found mainly in South

India.They pool funds from members and provide loans, often on
favorable terms. Their operations are semi-organized but lack
stringent regulatory oversight.
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 5. Pawn Brokers

Offer short-term loans secured against personal assets like gold,

jewelry, or other valuables.The loan amount is usually a fraction
of the pledged asset's value.Interest rates can be high, but
borrowers often rely on them for immediate liquidity.

6. Private Finance Companies

These companies provide loans outside the banking system. They

operate with limited oversight, often charging higher interest
rates. They cater to individuals and small businesses who cannot
access formal loans.

Characteristics of Unorganized Money Markets

1. Lack of Regulation: No oversight by central banking authorities

like the Reserve Bank of India.
2. High Interest Rates: Lenders often charge exorbitant rates due
to the absence of formal competition.
3. Personalized Transactions: Relationships and trust play a
significant role in lending.
4. Exploitation Risks: Borrowers, particularly in rural areas, may
face exploitative terms or coercive recovery practices.

CAPITAL MARKET

Capital Market: This market handles long-term securities and is

crucial for raising capital for companies, corporations and the
government. It is further divided into:

o 1.Primary Market: Also known as the new issue market, it is

where new securities are issued and sold for the first time.
Companies raise fresh capital through Initial Public Offerings
(IPOs) in this market.
o 2.Secondary Market: This is where existing securities are traded
among investors. The major stock exchanges in India, such as the
Bombay Stock Exchange (BSE) and the National Stock Exchange
(NSE), facilitate these transactions.

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 The capital market is vital for the mobilization of long-term
funds and provides investors with avenues for investment and
companies with access to capital for expansion.

Regulatory Framework

The Indian financial market operates under a robust regulatory

framework to ensure stability, transparency, and investor
protection. The key regulatory bodies include:

• Reserve Bank of India (RBI): The central bank of India, which

regulates the money market and oversees monetary policy.
• Securities and Exchange Board of India (SEBI): The regulator
for the securities market, responsible for protecting investor
interests and promoting fair practices.
• Insurance Regulatory and Development Authority of India
(IRDAI): Regulates the insurance sector in India.
• Pension Fund Regulatory and Development Authority
(PFRDA): Regulates pension funds in India.

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Q2)Explain the functions and importance of Stock market

Definition of Stock Market

The stock market is a marketplace where shares of publicly listed

companies are bought and sold. It provides a platform for investors
to trade equity securities and for companies to raise capital through the
issuance of stocks.

It functions as an organized market for facilitating investment, trading,

and the valuation of businesses.

Importance of the Stock Market

1. Capital Formation:
The stock market enables companies to raise funds for
expansion and operations by issuing shares to the public.
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 2. Wealth Creation:
It provides opportunities for individuals and institutional
investors to grow their wealth by investing in stocks with long-
term growth potential.
3. Economic Growth:
The stock market reflects the health of an economy. By
facilitating investment and business growth, it directly
contributes to economic development.
4. Liquidity:
It ensures that stocks can be quickly bought and sold, providing
investors with an opportunity to convert their investments into
cash when needed.
5. Market Transparency:
Stock exchanges regulate and ensure fair practices, enhancing
investor confidence and maintaining market stability.
6. Job Creation:
By helping companies grow, the stock market indirectly
contributes to job creation in various sectors.

Functions of the Stock Market

1. Price Discovery:
The stock market determines the price of securities through the
forces of demand and supply.
2. Providing a Platform for Trading:
It facilitates a regulated and transparent environment for
investors to trade securities.
3. Capital Allocation:
Resources are directed toward the most promising businesses,
enabling efficient utilization of capital.
4. Risk Diversification:
Investors can diversify their portfolios across various sectors,
industries, and regions to minimize risks.
5. Monitoring Corporate Performance:
Publicly traded companies are required to disclose their

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 financial performance, allowing investors to assess their
investments.
6. Encouraging Savings and Investment:
The stock market promotes savings by offering attractive
investment opportunities with potential returns.

Active Stock Exchanges in India:

1. Mumbai
o Bombay Stock Exchange (BSE): Established in 1875, it's
Asia's oldest stock exchange.
o National Stock Exchange (NSE): Established in 1992, it's

one of the world's leading stock exchanges.

2. Ahmedabad
o India International Exchange (India INX): Located at
GIFT City, it is an international stock exchange established
in 2017.

Q3)Explain the Role of Depositories: NSDL and CDSL

Depositories play a crucial role in the Indian securities market by

providing a safe and efficient platform for holding and transferring
securities electronically. The two primary depositories in India are the
National Securities Depository Limited (NSDL) and the Central
Depository Services (India) Limited (CDSL). Their roles and
responsibilities include:

1. Dematerialization of Securities

• Converting physical share certificates into electronic form to

minimize risks associated with physical certificates (e.g., theft,
damage, or loss).
• Facilitating seamless and secure record-keeping of investors’
securities.

2. Holding Securities

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 • Acting as a central repository for storing securities such as equity
shares, bonds, mutual funds, and government securities in
electronic format.

3. Facilitating Transactions

• Enabling the transfer and settlement of securities in the stock

market in a faster and more efficient manner.
• Assisting in the settlement of trades through the Delivery vs.
Payment (DvP) mechanism to ensure smooth transactions.

4. Pledging and Hypothecation

• Allowing investors to pledge securities as collateral for loans or

other credit facilities.
• Maintaining a record of securities pledged or hypothecated.

5. Corporate Actions

• Facilitating corporate actions like dividend payments, interest

payments, bonus issues, rights issues, stock splits, and mergers
on behalf of companies.
• Ensuring timely credit of benefits to the investors’ accounts.

6. Nomination and Succession

• Allowing investors to nominate individuals to inherit securities in

case of unforeseen events, ensuring smooth transfer of ownership.

7. Reduction of Risk

• Eliminating risks associated with handling physical certificates,

such as forgery or loss.
• Enhancing transparency and security in securities trading and
holding.

8. Account Statements

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 • Providing investors with regular statements of holdings and
transactions.
• Offering consolidated account statements for better portfolio
management.

9. Services to Investors

• Providing value-added services such as e-voting, instant account

access through online platforms, and reminders for renewals of
financial products.

Q4) What is Dematerialization of shares? Explain the process

involved in Dematerialisation of shares
Dematerialization is the process of converting your physical shares and
securities into digital or electronic form. The basic agenda is to smoothen the
process of buying, selling, transferring and holding shares and also about
making it cost-effective and foolproof. All your securities are stored in an
electronic form instead of physical certificates. Let us delve deeper into the
topic of dematerialization.
Two depositories called Central Depository Services India Limited (CDSL),
and National Securities Depository Limited (NSDL) is registered with the
Securities and Exchange Board Of India also known as SEBI.

Process of Dematerialization
The Dematerialization starts with opening a Demat account. So, let’s first see
how to create an account.
Select a depository participant (DP): Most financial institutions and brokerage
service firms are referred to as Depository Participants.
Fill an account opening form: You need to fill an account opening form to open
a Demat account. This includes basic contact information.
Submit documents for verification: You need to submit a copy of your income
proof, identity proof, address proof, active bank account proof and one
passport-sized photograph for verification. All copies of documents need to
be duly attested.

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Sign a standardized agreement with the DP: A standardized agreement will
contain the rules and regulations, charges you will incur and the terms and
conditions of the agreement between you and the depository participant.
Verification of documents: A staff member from the DP will verify all the
documents that you have submitted in your application.
Demat account number and ID are generated: Once all your documents have
been verified, your Demat account number and ID will be generated. You can
use this information to access your online Demat account.

Benefits of Dematerialisation
1.Easy and Convenient
A Demat account provides you the facility to carry out the transactions
electronically. There is no need for you to be physically present at the broker’s
place to settle a transaction. Moreover, the investor can have access to the
Demat account using a computer or smartphone. In addition, you can convert
your physical holdings into electronic format to become the legal owner of
your shares.
2.Fund Transfer
By linking your Demat account with the bank account you can easily transfer
funds electronically. This saves you from the hassles of drawing a cheque or
transferring the funds manually.
3.Safe and Secure
Demat account is the most secure and safest way to carry out transactions by
electronic means. All the risks like theft, damage, loss of share certificates,
etc. that were associated with holding shares in physical form are completely
eliminated.
4.Nomination Facility
Demat account provides you the facility to grant the right to operate your
Demat account to the nominee in your absence. With this facility, you can
carry out transactions in your Demat account with the help of a nominee when
you are not in a situation to do it yourself.
5.Paperless
One of the main benefits of using a Demat account is that it excludes the need
for paper. Since the Demat account is about holding shares or securities in
electronic form, the need for the paper is almost zero. In addition, the Demat
account has also proved to be very useful for the companies in reducing their
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administrative costs and hassles. Furthermore, cutting down paper usage is
also good for the environment.
6.Avail Loan Facility
The Demat account helps you in availing loans against the holdings in
dematerialized form. The securities and shares held in Demat account can be
kept as collateral and loan can be taken against them.
7.Easily Traceable
With the help of a Demat account, you can monitor your portfolio from your
home, office or anywhere across the globe. The flexibility to be able to monitor
the portfolio performance enhances the chances of you making more profits
because of the increase in participation and interest.
8.Ease In Receiving Corporate Benefits
Demat account eases the process of receiving various corporate benefits like
dividends, interest, refunds, etc. All the benefit amount gets directly credited
into the Demat account. Moreover, other benefits like stock splits, bonus
shares, rights shares, etc. get directly updated into the Demat account.
9.Multiple Purposes
In the Demat account, you can not only hold shares or equities but also debt
instruments. You can even purchase, hold and sell mutual fund units through
the Demat account. In fact, you can even purchase government bonds,
exchange-traded funds, etc. in the Demat account

Q5) Discuss the functions and advantages of Credit Ratings of

Securities
Meaning of Credit Rating
A credit rating is a quantified assessment of the creditworthiness of a
borrower in general terms or with respect to a particular debt or
financial obligation. A credit rating can be assigned to any entity that
seeks to borrow money—an individual, corporation, state or
provincial authority, or sovereign government.

Definition: Credit rating is an analysis of the credit risks associated

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with a financial instrument or a financial entity. It is a rating given to a
particular entity based on the credentials and the extent to which the
financial statements of the entity are sound, in terms of borrowing
and lending that has been done in the past.

Credit Rating Agency: A credit rating agency is a company that looks at

the credit worthiness of a large-scale borrower, such as a company or
country. It effectively ranks the

FUNCTIONS/IMPORTANCE OF CREDIT RATING

1.It provides unbiased opinion to investors.

Opinion of good credit rating agency is unbiased because it has no
vested interest in the rated company.

2.Provide quality and dependable information. Credit rating agencies

employ highly qualified, trained, and experienced staff to assess risks
and they have access to vital and important information and therefore
can provide accurate information about creditworthiness of the
borrowing company.

3.Provide information in easy-to-understand language. Credit rating

agencies gather information, analyse, and interpret it and present their
findings in easy-to-understand language that is in symbols like AAA, BB,
C and not in technical language or in the form of lengthy reports.
4.Provide information free of cost or at nominal cost. Credit ratings of
instruments are published in financial newspapers and
advertisements of the rated companies
5.Helps investors in taking investment decisions. Credit ratings help
investors in assessing risks and taking investment decision.
6.Disciplines corporate borrowers. When a borrower gets higher
credit rating, it increases its goodwill and other companies also do not
want to lag behind in ratings and inculcate financial discipline in their
working.
7.Formation of public policy on investment. When the debt

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instruments have been rated by credit rating agencies, policies can be
laid down by regulatory authorities (SEBI, RBI) about eligibility of
securities in which funds can be invested.

BENEFITS TO INVESTORS
1.Assessment of risk. The investor through credit rating can assess risk
involved in an investment. A small individual investor does not have
the skills, time and resources to undertake detailed risk evaluation
himself.
2.Information at low cost. Credit ratings are published in financial
newspapers and are available from rating agencies at nominal fees.
This way the investors get credit information about borrowers at no
or little cost.
3.Advantage of continuous monitoring. Credit rating agencies do not
normally undertake rating of securities only once. They continuously
monitor them and upgrade and downgrade the ratings depending
upon changed circumstances.
4.Provides the investors a choice of Investment. Credit ratings
agencies helps the investors to gather information about
creditworthiness of different companies. So, investors have a choice
to invest in one company or the other.
5.Ratings by credit rating agencies is dependable. A rating agency has
no vested interest in a security to be rated and has no business links
with the management of the issuer company. Hence ratings by them
are unbiased and credible.
BENEFITS TO THE RATED COMPANY
1.Ease in borrowings. If a company gets high credit rating for its
securities, it can raise funds with more ease in the capital market.
2.Borrowing at cheaper rates. A favorably rated company enjoys the
confidence of investors and therefore, could borrow at lower rate of
interest.
3.Facilitates growth. Encouraged by favorable rating, promoters are
motivated to go in for plans of expansion, diversification and growth.
Moreover, highly rated companies find it easy to raise funds from
public through issue of ownership or credit securities in future. They

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find it easy to borrow from banks.
4.Recognition of lesser-known companies. Favorable credit rating of
instruments of lesser known or unknown companies provides them
credibility and recognition in the eyes of the investing public.
5.Adds to the goodwill of the rated company. If a company is rated
high by rating agencies it will automatically increase its goodwill in the
market.
6.Imposes financial discipline on borrowers. Borrowing companies
know that they will get high credit rating only when they manage their
finances in a disciplined manner i.e., they maintain good operating
efficiency, appropriate liquidity, good quality assets etc. This develops
a sense of financial discipline among companies who want to borrow.
7.Greater information disclosure. To get credit rating from an
accredited agency, companies have to disclose a lot of information
about their operations to them. It encourages greater information
disclosures, better accounting standards and improved financial
information which in turn help in the protection of the investors.

Q6) Explain any two Credit Rating Agencies in India

There are 6 credit rating agencies which are registered with SEBI. These
are CRISIL, ICRA, CARE, Fitch India, Brickwork Ratings, and SMERA.

I. Credit Rating and Information Services of India Limited (CRISIL)

It is India’s first credit rating agency which was incorporated and
promoted by the erstwhile ICICI Ltd, along with UTI and other financial
institutions in 1987.
After 1 year, i.e. in 1988 it commenced its operations It has its head
office in Mumbai.
It is India’s foremost provider of ratings, data and research, analytics
and solutions, with a strong track record of growth and innovation.
It delivers independent opinions and efficient solutions.
CRISIL’s businesses operate from 8 countries including USA, Argentina,
Poland, UK, India, China, Hong Kong, and Singapore.
CRISIL’s majority shareholder is Standard & Poor’s.
It also works with governments and policy-makers in India and other

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emerging markets in the infrastructure domain.
II.Investment Information and Credit rating agency (ICRA)
The second credit rating agency incorporated in India was ICRA in 1991.
It was set up by leading financial/investment institutions, commercial
banks and financial services companies as an independent and
professional investment Information and Credit Rating Agency.
It is a public limited company.
It has its head office in New Delhi.
ICRA’s majority shareholder is Moody’s.
Credit Analysis & Research Ltd. (CARE)

III.CARE-CREDIT ANALYSIS AND RESEARCH LIMITED

The next credit rating agency to be set up was CARE in 1993.
It is the second-largest credit rating agency in India.
It has its head office in Mumbai.
CARE Ratings is one of the 5 partners of an international rating agency
called ARC Ratings.
ONICRA
It is a private sector agency set up by Onida Finance.
It has its head office in Gurgaon.
It provides ratings, risk assessment and analytical solutions to
Individuals, MSMEs and Corporates.
It is one of only 7 agencies licensed by NSIC (National Small Industries
Corporation) to rate SMEs.They have Pan India Presence with offices
over 125 locations.
Q7) Explain the Steps involved in the Initial Public offering
Procedure(IPO).
Introduction
Initial Public Offering (IPO) is a process for a company to raise capital by offering shares to
the public for the first time. A company must adhere to these steps before listing its shares
on a stock exchange, such as the Bombay Stock Exchange (BSE) or the National Stock Exchange
(NSE).
Understanding the IPO process steps in India is essential if you want to invest in an IPO. It can
offer insights into how companies transition from privately held to publicly traded entities.
For example, the LIC IPO offered investors a unique opportunity to participate in the
company’s growth journey from its inception as a government entity to a publicly listed
corporation.

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Why is an IPO Process Important:
The IPO route allows any privately held company to become publicly traded in India.
Generally, companies use the IPO route to raise capital for various reasons such as expansion
plans, improving liquidity, etc. This process allows companies to offer their shares or stocks
to the public.
IPO Steps in India
Taking a company public through an Initial Public Offering (IPO) involves several steps and
requires careful planning and execution. Let’s delve into the details of the IPO procedure in
India:
Step 1: Appointment of Merchant Banker
The first crucial step in the IPO process is selecting an investment bank, also known as the
underwriter. This bank will guide the company through the IPO journey. Companies may
choose banks based on factors such as their reputation, industry experience, and size.
For instance, Zomato selected Kotak Mahindra Capital, Morgan Stanley, Bank of America,
and Citi as the investment banks for its IPO back in 2021.
Step 2: Approval from SEBI / Exchange on Draft Offer Documents
Once a company has selected an investment bank, it must undergo due diligence. Here, the
investment bank scrutinises the company’s financial health, business model, and
operational strategies to ensure everything is in order.
The company then prepares and files necessary documents with the Securities and Exchange
Board of India (SEBI).
Simultaneously, the IPO-bound company must also seek in-principal approval from the stock
exchange, such as BSE or NSE. This step ensures that the company meets all listing
requirements and regulations.
The exchange reviews the company's details and gives a preliminary nod, which is essential
before the final approval.
Step 3: Filing of Offer Documents with Exchange/s
The prospectus is a critical document in the IPO process. Initially, a preliminary prospectus,
the Draft Red Herring Prospectus (DRHP), is issued. In this document, the company outlines
its operations, financial status, and the purpose of the IPO.
The DRHP is filed with SEBI, where it undergoes a thorough review process. SEBI examines
the DRHP to ensure that all regulatory requirements are met and the information provided
is accurate and comprehensive. Once SEBI reviews and approves the DRHP, the final
prospectus is prepared, which includes all the necessary details.
Step 4: IPO Road Shows
Marketing the IPO involves a roadshow where the company’s management and underwriters
present the investment opportunity to potential investors.
They conduct these presentations in major cities and financial hubs to attract interest from
institutional and retail investors. The management team explains the company's business
model, financial health, and growth prospects.
For example, if an Indian startup plans an IPO, it might hold sessions in major cities,
showcasing its pitch to large investors like mutual funds and insurance companies. The
startup might also leverage digital platforms for virtual presentations and engage with
financial analysts to publish favourable reports, increasing its visibility and credibility among

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potential investors.
Step 5: Price Determination
Based on the feedback from the roadshow, the company and its underwriters decide on the
final price of the shares. If demand is high, the shares might be priced at the higher end; if
demand is low, the price could be set at the lower end.
Companies use different pricing methods in their IPO process, such as fixed price and book
building. In a fixed-price IPO, the price is set in advance. In a book-building IPO, you bid within
a provided price range, and the final price is determined by these bids.
Example: If a company sets a book-building price range of ₹100 to ₹120, and demand is high,
the final price might be ₹120. If demand is low, the price might be ₹100. In a fixed-price IPO,
the company may set the price at ₹110, for instance. This means you will know exactly what
you will pay per share while applying for the IPO.

Step 6: IPO Bidding Period and Allotment of Shares

After finalising the pricing, the company opens the IPO bidding period, usually 3-5 days.
During this time, you can place your bid for a certain number of shares within the price
range set by the company.
Once the bidding period ends, the company allocates shares to investors. It ensures a
balanced distribution of shares between institutional and retail investors to maintain a stable
share price post-listing.
Companies generally reserve a portion of shares for different categories of investors, such as
Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs), and Retail Individual
Investors (RIIs).
Step 7: Listing of Shares
The next step is the IPO listing process in India. Once the shares are allocated, they are listed
on stock exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange
(NSE). On the listing day, the shares start trading, and their prices can fluctuate based on
market demand and supply. For instance, if a company like Zomato goes public, its shares
will begin trading on the BSE and NSE, allowing investors to buy and sell shares in the open
market.
Listing Timelines:
The Securities and Exchange Board of India (SEBI) has recently reduced the timeline for listing
shares in a public issue from T+6 days to T+3 days. This means the shares must be listed and
start trading within three working days after the IPO closes.
Step 8: Post-IPO Documentation
After the IPO, the company must comply with regulatory requirements and disclosures. This
includes regular financial reporting and adhering to governance standards set by SEBI. There
may also be lock-up periods, during which promoters and other key shareholders are
restricted from selling their shares for a specified period to prevent a sudden drop in share
prices.
For instance, when Zomato went public, its promoters had a lock-up period of one year,
which helped maintain stability and build investor confidence during the initial months.

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Q 8) What is SEBI. Explain the functions of SEBI

The Securities and Exchange Board of India (SEBI) was founded as the
regulating authority for the Indian securities market on April 12, 1992, by the
SEBI Act 1992. SEBI is essentially a statutory body of the Indian Government
that was established on the 12th of April in 1992. It was introduced to promote
transparency in the Indian investment market. Besides its headquarters in
Mumbai, the establishment has several regional offices nationwide, including
New Delhi, Ahmedabad, Kolkata and Chennai.

Functions of SEBI

1. Regulating the Stock Market

• SEBI creates guidelines to protect investors, monitor trading activities, and ensure
transparency in the securities market. It establishes rules for all market participants,
including brokers, portfolio managers, and other intermediaries.

2. Investor Protection

• SEBI works to protect investors by addressing issues such as unfair trade practices,
fraud, and manipulation. It provides education to investors and ensures fair practices
in securities dealings to maintain investor trust.

3. Development of the Capital Market

• SEBI promotes the development of a secure and transparent capital market in India. It
introduces new financial products, encourages modernization, and facilitates
investment to enhance market growth.

4. Ensuring Fair Issuance of IPOs

• SEBI regulates the process of issuing Initial Public Offerings (IPOs) by companies to
ensure fairness and prevent fraudulent activities. Companies must disclose adequate
information and meet SEBI’s requirements before going public.

5. Regulation of Market Intermediaries

• SEBI licenses and monitors intermediaries like brokers, underwriters, depositories,

and others in the securities market. This regulation ensures fair conduct and adherence
to the rules.

6. Prohibiting Insider Trading

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 • SEBI strictly monitors and takes action against insider trading, where individuals with
non-public, material information on a company buy or sell its shares for personal
gain. It enforces strict penalties on those involved in such activities.

7. Conducting Market Surveillance and Inspections

• SEBI oversees market activities and conducts regular inspections of stock exchanges,
brokers, and other market participants. This helps prevent market manipulation and
ensures compliance with SEBI guidelines.

8. Investor Education and Training

• To increase financial literacy, SEBI runs various investor awareness programs and
training initiatives. It promotes safe and informed investing and educates the public
on risks and market opportunities.

9. Enforcement of Securities Law

• SEBI enforces laws, regulations, and policies for securities market participants. It can
investigate and impose fines or other penalties for violations, maintaining the integrity
of the market.

10. Fostering Fair Competition

• SEBI promotes fair competition within the securities markets to ensure a level playing
field. This helps to enhance market efficiency and innovation.

Q 9) Explain the Investor Protection Measures By SEBI

The Securities and Exchange Board of India (SEBI) has implemented several measures to
protect investors and ensure fair practices in the securities market. These initiatives aim to
safeguard investors from fraud, manipulation, and misconduct by market participants. Here
are some key investor protection measures by SEBI:

1. Establishing Regulatory Frameworks and Guidelines

• SEBI issues guidelines and regulations for various market participants, including
brokers, mutual funds, portfolio managers, and listed companies. This framework is
designed to ensure fair practices, protect investors, and maintain transparency.

2. Prevention of Insider Trading

• SEBI enforces strict laws to prevent insider trading, which involves the misuse of
non-public, price-sensitive information for unfair gains. It has introduced insider
trading regulations and requires companies to disclose sensitive information publicly,
ensuring a level playing field for all investors.

3. Grievance Redressal System

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 • SEBI has established a centralized grievance redressal platform called SCORES
(SEBI Complaints Redress System) to help investors lodge complaints against
companies and intermediaries. SCORES enables efficient and transparent resolution
of complaints and helps SEBI monitor grievances.

4. Investor Education and Awareness Programs

• SEBI conducts regular investor awareness programs, workshops, and campaigns

across the country. These programs educate investors on market risks, investment
options, and their rights, helping them make informed financial decisions.

5. Disclosure and Transparency Requirements

• SEBI mandates companies and other market entities to disclose significant financial
and operational information. Public disclosures help investors make informed
decisions and avoid potential financial scams.

6. Strict IPO Regulations

• SEBI regulates the issuance of Initial Public Offerings (IPOs) to protect retail
investors. It requires companies to meet specific criteria, disclose financial
information, and follow fair pricing norms, ensuring that IPOs are conducted
transparently.

7. Prohibition of Fraudulent and Unfair Trade Practices

• SEBI’s regulations on Prohibition of Fraudulent and Unfair Trade Practices in the

stock market prevent manipulative and deceptive activities. SEBI enforces strict
penalties for entities that engage in price manipulation or other fraudulent practices.

8. Whistleblower Protection and Reward Policies

• SEBI encourages whistleblowers to report any unfair practices or misconduct they

observe in the market. It provides protection to informants and offers rewards under
certain circumstances, which deters misconduct by market participants.

9. Monitoring Mutual Funds and Portfolio Managers

• SEBI regulates mutual funds and portfolio managers, ensuring that fund managers
disclose portfolio information, investment risks, and charges associated with funds.
This transparency helps investors understand where and how their money is invested.

10. Risk-based Supervision

• SEBI uses a risk-based approach to supervise and monitor activities of market

intermediaries. This approach helps SEBI focus on areas with higher risk of investor
harm, ensuring better protection for investors.

11. Online Investment Protections and Cybersecurity Initiatives

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 • SEBI has established cybersecurity guidelines for intermediaries to protect investors
from cyber fraud. These initiatives address risks associated with online trading and
digital transactions, ensuring safe investment environments.

12. Education on Ponzi and Pyramid Schemes

• SEBI warns investors about Ponzi schemes and unregistered entities that promise high
returns. SEBI publishes lists of blacklisted entities and advises the public to avoid
unauthorized investment schemes.

13. Periodic Inspections and Audits

• SEBI conducts periodic inspections and audits of stock exchanges, brokers, and
market intermediaries to ensure they comply with regulations. This proactive
monitoring reduces the chances of malpractices and protects investors.

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