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    Financial Markets

    &Intermediaries

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    Financial Market..

    Market ..

    Products & Services

    Buyers / Sellers

    Supply / Demand

    Price / Payment Terms

    Middle-men

    Organised/Un-organised Brick & Mortar/On-line

    Regulations

    Financial Market ..

    Financial Products

    Supply / Demand Investors / Investees

    Price / Payment Terms

    Merchant Bankers etc.

    Organised/Un-organised

    Brick & Mortar/On-line

    Regulations

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    Mutual

    Funds

    DerivativesLease &

    Hire

    Purchase

    Loans

    Shares

    Financial

    Products

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    Financial System Financial Institutions / Intermediaries:

    Central Bank / Commercial Banks (Public Sector / PrivateSector Banks) / Co-operative Banks / Rural Banks

    Development Banks (Housing / Industrial / Agricultural)

    Insurance Companies / Specialist Financial Institutions

    Mutual Funds / AMC / Investment Companies Venture Capital Institutions

    Factoring Institutions

    Stock Eachanges, Brokerage Houses

    Credit Rating Agencies Governance Structure / Regulatory Framework

    Financial Services / Instruments / Derivatives Factoring / Futures / Options / Swaps

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    Financial Intermediaries in India

    Capital MarketIntermediaries

    NBFCs(Hire Purchase /

    Leasing / etc.

    Organised Sector

    Development

    Banks

    EXIM Bank

    UTI

    Insurance

    Companies

    Money MarketIntermediaries

    Govt.Treasury

    Bills

    R B I

    PO = Savings

    Co-Op

    Banks

    CommercialBanks

    Un-Organised Sector

    R B I

    CommercialBanks

    Co-Op

    Banks

    R B I

    CommercialBanks

    NSC/PO-Savings

    Co-Op

    Banks

    R B I

    CommercialBanks

    Traders /

    Landlords

    Indigenous Bank

    Money Lenders

    Pawn Brokers

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    Objectives of Financial System

    Additional

    Employment

    Result in

    Investment

    Channelise

    Savings

    Facilitate

    Savings

    Mobilise

    Savings

    Priority

    Sector

    Development

    Develop

    Production

    & Trade

    Plan /

    Governance

    Final Result :

    Accelerated Economic Development

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    Savings Avenues for Individuals

    Provident Fund / Public Provident Fund

    Life Insurance

    Units of UTI / U L I P

    Post Office Deposits NSC

    Bank Deposits / Company Deposits

    Bonds / Debentures Mutual Funds

    Shares

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    Role of Reserve Bank of IndiaRegulate the Operations of :

    Commercial Banks Indian / Foreign / PSU / Private Banks Financial Institutions / Mutual Funds

    LIC / GIC / UTI

    Development Institutions IDBI / EXIM / NABARD Co-operative Banks

    Central Co-op / State Co-op

    NBFCs Nidhi / Chitfund

    Ensure that Economic Development is achieved in line with the

    countrys priorities maintaining sufficient liquidity in the system

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    RBI - Functions

    Governments Banker

    Bankers Bank

    Issue of Bank Notes

    Forex Management & Control

    Monetary Authority of India

    Financial Policies, Guidelines

    Promotional & Development Activities

    RBI & SEBI regulate Capital Market

    Ensure Economic Development

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    Functions of Reserve Bank of India

    Regulatory Function Bankers Bank

    Supervision

    Regulating Stock Each. Monetary Controls

    Regulating Forex

    Direct Investment

    Inspection & Control

    Regulate Fraudulent &

    Unfair Practices

    Development Function Deposit Insurance

    Credit Guarantee

    Credit Information Research

    Promote Fair Practice

    Revival of Sick Units

    Investor Education

    Promote Self-Employ.

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    Role of Banks

    Commercial Banking Collect Deposits

    Pay Interest

    Lend to Borrowers Collect Interest

    Ensure that there is

    sufficient liquidity

    Investment Banking Under-write Securities

    Manage Issue of Shares

    Private Placement Trading in Securities

    Lending against Shares

    Banks which carry out both the above functions are called as

    Universal Banks

    They are generally influential banks and some are risky ones

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    Functions of Commercial Banks

    Primary Secondary

    Deposits:

    Fiaed

    RecurringOthers

    Loans:

    ODCCLoansGuaranteeB/E

    Agency:

    Rent, Ins.

    CollectionForeaTrustees

    Utility:Locker

    TransferTC / TTATMGift Chq.Credit Card

    Department Store of Finance

    Play a Very Important Role in Economic Development

    Heart of the Indian Financial System

    Link between availability of funds and requirement of funds

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    Banking in India DevelopmentsObjective : Stability & Efficiency of the System

    Strengthening Capital Adequacy Improve Operational Efficiency / Competition

    Deregulation of Interest Credibility Linked Interest

    Credit Appraisal Mechanism Stronger / Transparent

    Proper Classification of Assets / NPA / Provisions Robust Mechanism for Credit Management

    Development Banks becoming Universal Banks ( ICICI )

    Current Account Convertibility

    Automation Core Banking

    HR Development in Banking System

    Anywhere Banking/Net Banking/Phone Banking/ATMs

    Electronic clearing / RTGS / NEFT

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    Commercial Banks

    Term Loans : Mid Term (3-5 Years) Long Term (>5 Years)

    Working Capital : Clean Advance Eaport Finance ( Pre-Shipment / Post-Shipment ) Cash Credit (Pledge / Hypothecation) Overdraft Bills Discounting

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    Development Banks

    Sector Specific Development Catalyst for Development Schemes of Assistance :

    Direct Assistance Indirect Assistance Consortium Approach

    Refinance Bills Discounting Seed Capital Scheme Deferred Payment Schemes

    Development Assistance :

    Enterpreneurial Guidance Project Assistance

    Technical Assistance Project Consultancy Market Study

    Management Development

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    Development Banks

    Industrial : (Small / Medium / Large) SIDBI / SFC / IDBI / IFCI

    Export / Import : EXIM / ECGC

    Agriculture : NABARD / AFC

    Housing :

    HUDCO / HDFC / LICHFC Investment :

    LIC / UTI / GIC

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    Credit Rating

    Credit Rating Agencies in India :

    Credit Rating Information Services of India Ltd Invest Info & Credit Rating Agency of India Ltd

    Credit Analysis & Research Ltd

    Mandatory in India for :

    Public Issue of Bonds / Debentures > 18 Months Commercial Papers Fixed Deposits

    Credit Rating Methodology :

    Business Analysis :Industry/Market/Operational Financial Analysis :A/c Quality/Fleaibility/Future Management :Track Record/Strategies/Capability Regulatory / Fundamental

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    Credit Rating Current Opinion of the Rating Agency

    Future ability of the concern Relative Capability to discharge Obligation Timely & Specific Instrument Quantitative / Qualitative Parameters considered Only Guidance & Not Recommendation

    Process of Credit Rating

    Review of Public Info Questionnaire Basic Research Meeting with Client Draft Report

    Rating Meeting Assign Rating Rating & Rationale Publish Rating Periodic Surveillance

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    Capital / Revenue

    Capital Items Facilities / Assets

    Generally Expensive

    As and when Required

    Has Long Life

    Required for generation ofRevenue

    New / Additional Assets :Land, Building, Plant,Machineries, Vehicles,

    Computer (Hardware &Software), etc.

    Appears in the Balance sheetFixed Assets Gross Block

    Revenue Items Expenses / Costs

    Not Very Expensive

    Recurring in nature

    Short Life < 1 Year

    Integral part of cost, requiredfor using the assets

    Raw Materials, Salaries, Rent,Communication, Travel,Insurance, Power & Fuel,

    Interest, Depreciation etc. Charged to P/L A/C

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    Types of Requirement for Funds

    Short-Term

    Up to 1 Year

    Working Capital

    Business Credit

    Temporary

    Urgent / Liquid

    Long-Term

    More than 1 Year;

    New Business - Capital

    Eapansion

    More Permanent

    Mostly Secured

    Funding to match with the requirement

    Mis-Match not to be there

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    Money Market / Capital Market

    Money Market Short Term

    Working Capital / Business

    Credit

    B/E, TB, CP, Certificate ofDeposits

    High Value

    Reserve Bank of India /

    Commercial Banks No Secondary Market

    No formal place

    Mostly no Brokers

    Capital Market Long Term

    Capital Requirement - Fixed

    Capital

    Share Capital, Debentures,Term Loan

    Smaller Face Value

    General Public, Dev. Banks,

    Insurance Cos. Primary & Secondary Mkts.

    Stock Exchanges

    Involves Brokers also

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    Money Market Instruments

    Treasury Bill

    Promissory Note issued by RBI / Govt. of India Issued at a Discount for a particular Period Payment by Govt. to the Bearer of the Bill Low Interest : High Liquidity / Short Term

    Commercial Paper Un-secured Promissory Note issued by Companies RBI Clearance Subject to Norms Lower Transaction Cost / Cheaper for Companies Endorsement & Delivery Corporates, Banks, Individuals, NRIs,

    Certificate of Deposit Banks & Financial Institutions Issued at a Discount to Face Value Fiaed Date Pmt

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    Capital / Revenue Eapenditure

    Capital Items Facilities / Assets

    Generally Expensive

    As and when Required

    Has Long Life

    Required for generation ofRevenue

    New / Additional Assets :Land, Building, Plant,Machineries, Vehicles,

    Computer (Hardware &Software), etc.

    Appears in the Balance sheetFixed Assets Gross Block

    Revenue Items Expenses / Costs

    Not Very Expensive

    Recurring in nature

    Short Life < 1 Year

    Integral part of cost, requiredfor using the assets

    Raw Materials, Salaries, Rent,Communication, Travel,Insurance, Power & Fuel,

    Interest, Depreciation etc. Charged to P/L A/C

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    Types of Requirement for Funds

    Short-Term

    Revenue/Recurring Items

    Working Capital

    Business Credit

    Support Long-Term Req.

    Temporary

    Urgent / Liquid

    Long-Term

    Capital Items

    New Business

    Take-over / Consolidation

    Massive Expansion

    Automation

    Replacement of facilities

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    Long Term Funds

    Borrowings / Others

    Bonds

    Debentures

    Term Loans Leasing

    Euro Convertible Bonds

    Foreign Currency Loans

    Securitisation

    Shares

    Equity Fresh Issue Public Issue

    Rights Issue

    Placement Offer for Sale

    Venture Capital

    G D R / A D R

    Preference Shares

    Primary Markets

    Secondary Markets

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    Types of Markets

    Secondary

    Stock Exchanges

    Other than Fresh Issues

    Market Traded Securities

    No Additional Funds

    Primary

    Fresh Issues

    All kinds of Securities

    All Kinds of Issues

    Additional Capital / Funds

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    Short Term Funds

    OD / Cash Credit

    Fixed Deposits

    Commercial Paper

    Factoring

    Forfaiting

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    Underwriting

    Guarantee Sale of Specified Number of Securities

    Advantages to Issuing Companies :

    Expert Advice on Type / Size / Timing / Pricing of Issues

    Undertake specialised task of Distribution of Securities

    Assured Minimum Subscription on time Reputed Underwriters : Public confidence enhanced /

    Successful Issue

    Different types of Underwriting :

    Standing behind the issue Outright Purchase

    Consortium Approach

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    Underwriters .

    To hold Certificate of Registration granted by SEBI

    Total Obligation : Up to 20 times of Networth

    Devolvement : To subscribe within 30 days

    Within 6 months from end of Financial Year, info

    To maintain books of accounts for 5 years

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    Book-Building Process

    Normally, issue price is determined and notified This ignores the effect of Supply & Demand

    But, Book-Building takes care of the demand

    Issue Price is not indicated in the Issue Document

    Managers to the issue approach Institutional Investors

    Institutional Investors indicate the Price Band & No. ofshares

    If price is not agreeable, the issue is cancelled

    If Company / Managers agree to the offer, shares issued, tothe highest bidder(s)

    Trading can commence from the neat day

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    Definitions

    Retail Investor : Invest up to Rs. 1 lakh Qualified Institutional Buyer (QIB) : Financial

    Institution, Mutual Fund, FII, Venture Capital

    Offer Document : Prospectus / Letter of Offer

    Cap / Floor / Cut-off Price : Lower / Higher / Strike Price Red Herring Prospectus :Number / Price of Shares not

    indicated sought during Book Building Process

    Green Shoe Option : Option to Allot shares in eacess of

    shares floated as per the Offer Document

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    Secondary Market

    Most Important Intermediary Stock Exchanges

    Deals in Govt., Semi-Govt., Companies Securities

    Separate Section for Govt. / Semi Govt. : Gilt Edged

    Market

    All kinds of Shares / Debentures

    Functioning of Secondary Market :

    Recognition of Stock Exchanges

    Registration of Brokers

    Fix Rules for operation of the Exchange / Brokers

    Dealing in Securities

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    Stock Exchanges Recognition etc.

    By Central Govt., under SEBI (Recognition & Renewal)

    Either AOP or Companies Managed by Board of Directors elected by Member Brokers

    Membership in Stock-Eachanges

    Citizen of India > 21 Years of Age / Not adjudged as Insolvent

    Not convicted for any offence involving dishonesty

    Dealing in Securities

    Listing of Securities

    The process of admitting securities for trading in eachanges

    Compulsory for all Public Issues with Prospectus

    Subject to Regulatory Framework

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    Listing

    Advantages Facilitates easy Trading

    Ensures Liquidity

    Protects Investors

    Enables Borrowing

    Offers wide Publicity

    Disadvantages Leads to Speculation

    More Disclosure

    Volatile Price Moves

    Reputation : Fluctuating

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    Over The Counter Exchange of India - OTCEI

    Promoted by All India Financial Institutions

    (UTI, ICICI, IDBI, IFCI, LIC, GIC, SBI Caps, CANFIN)

    There is no activity in person in any stock exchanges Ring

    National Ringless and Computerised Exchange

    Transactions through Computer Networks Dealers quote, query and close deals

    Small/Mid Sized company(Rs.30 lakhsRs. 25 Crs.)

    Equity / Preference / Bonds / Debentures

    Company listed in any other Stock Exchange : Can nottrade in OTCEI

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    STOCK INDEX

    Barometer of movement in Share Prices listedIndicative of Movement of rest of Scrips / MarketWould greatly help the Investors to know the trend

    Otherwise, whole list of scrips need to be tracked

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    History of Stock Indices

    First Index : USA : 1896 : Dow Jones Index

    4 Indices : Industrial / Utilities / Transportation / Average

    DJIA : Still one of the Most Important Indices in the World

    Original : Sugar, Tobacco, Leather, Gas, Rubber, Coal

    Current : Retail, Oil, Tech, Pharmacy, Entertainment Only company which continues in list from 1896 : GE

    S & P : 1920 : Average of 500 Companies

    Most Accurate reflection of US Stock Exchange Prices

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    Nasdaq Indea

    National Association ofSecurities DealersAutomated Quotation System (Nasdaq) stock

    market

    Number of stocks on the Nasdaq has grown from100 to more than 5,500 today

    Indea includes many technology companies

    where market trends change quickly,

    This indea can be volatile

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    SENSEX ( BSE Sensitivity Index )

    Price Index of Shares of 30 Companies listed on BSE

    Sensex is dependant upon Market Price of these Shares

    Base Price : 1978-79 where the Sensea was : 100

    List of Shares included at Base level is different

    Composition of 30 Companies List keeps changing

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    SENSEX ( BSE Sensitivity Index )

    30 Companies - Criteria

    Listing History: On BSE for at least one year

    Good Track record: Physical / Financial

    Market capitalization:

    One of the Top 100 market capitalizations of BSE > 0.5% of total market capitalization of BSE index

    Frequency of Trading: Every day for the last one year

    Industrial representation: Should be a leader in the

    industry it represents.

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    SENSEX - Market Capitalisation /

    Free Float Market Capitalisation

    Market Value of All Shares issued by the Company

    No. of Shares issued a Market Price per share

    Free Float :No. of Shares available in the market for Trade

    Example : Total Number of Shares Issued: 10,000

    Held by Government : 5,000

    Held by Promoters : 3,000

    Balance Available for Trade : 2,000 : Free Float Market Price per Share : Rs.100

    Free Float Market Price : Rs.2,00,000/-

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    SENSEX : Market Capitalisation /

    Free Float Market Capitalisation

    BSE considers shares other than following asfree float (open market) shares

    Government holding shares as promoters

    Holdings by Directors/ Founders

    Holdings through the FDI route Stakes held by private corporate bodies or

    individuals.

    Any cross holdings i.e. equity held byassociate or group companies.

    Equity held by employee welfare trust.

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    SENSEX : Market Capitalisation /

    Free Float Market Capitalisation

    Calculation of the free float factor

    Every listed company has to submit holdings information

    Free Float factor for each company is calculated with this

    info

    Free float factor =

    No of shares available for trading in the open marketTotal No of outstanding shares of the company.

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    GDR (Global Depository Receipt)

    Indian Securities

    Denominated in USD

    Overseas, other than USA

    QIB / Institutional Investors

    Traded in Luxemburg Availability of US $

    International Regulations

    Deal

    Investors

    US$Depository

    Receipt

    Deposited withCustodian Bank

    Indian Companies

    Shares / Securities in Rupees

    Advantages of GDR Availability of US$ to Indian Companies

    Popularity of Indian Companies outside India

    Subject to International Regulatory Framework

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    ADR (American Depository Receipt)

    GDR issued in the USA - Negotiable Certificate Subject to American Listing Requirements - SEC

    Recast their accounts in line with US GAAP

    QIB / Institutional Investors / NRI

    Listed / Traded in NASDAQ / NYSE

    ADRs issued mostly by Private Placement

    American Laws / Listing requirements are severe

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    ECB ( Euro Convertible Bond )

    Un-secured Debt Securities / Bonds Issued for : Import of Capital Items / Retiring Debts /Capitalising Indian JVs abroad / 25% Working Capital

    Fixed Interest

    Generally Bearer Securities

    Call Option (by Issuer) / Put Option (by Investors)

    Interest / Redemption : In US $

    Can be converted into Depository Receipts / Shares At a Fixed Price after Minimum Lock-in Period

    Generally at Premium

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    Venture Capital

    Economic Growth : Development of Country

    Diversification / Eapansion :- Eaisting Companies

    - Track Record

    - Additional requirement of Funds : More Easy

    - Many modes Available : Shares / Bonds / GDR etc. New Business :

    - Generally First-Time Entrepreneurs

    - Technocrats Not much Business Eaperience

    - New Concept / New Product- Not Proven / Not Established

    - No Track-Record / Shortage of Funds

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    Venture Capital

    Need for support for such ventures

    Conventional Sources : May not be suitable Reasons :- No Balance Sheet : Credit Rating Difficult

    - No Proven Product : Extent of Risk Not Known

    - Conventional Norms : Un-suitable

    - Project Evaluation Techniques : Need to be different

    - Mostly Concepts : Mechanism for Evaluation ???

    Opportunity for High Networth Investors :

    - Pooled funds

    - Appointed specialists : Greenfield Industry knowledge

    - Assistance from 3rd Party Consultancy firms

    - Funding for Ideas !!

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    Venture Capital

    Types of Assistance :

    - Very High Risk : Uncertain Return- Managerial Assistance / Statutory Compliance

    - Provide Direction / Hand-holding / Nurturing

    - Formulate Policies

    - Partake in Operations

    - Seed Capital : Initial Capital for Infrastructure

    - Equity / Preference / Hybrid / Convertible Loan

    - Even Working Capital Funding

    - Concern becomes self-sufficient / Viable : Exit

    - Return :

    o Regular Return during involvement High %

    o Capital Appreciation on Exit Load

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    Venture Capital vis--vis Private Equity

    Mostly mean the same

    VC : New Ventures / PE for Existing Business Growth

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    Mutual Fund in India

    Company / Sponsor : Registered with SEBI Sound Track-Record / Reputation of Fairness / Integrity

    Operate under the Trust Act; Trust Deed is a must

    Registered under Indian Registration Act, 1908

    Contain names / details of Trustees (2/3 : Independent)

    An AMC with approval of SEBI appointed to manage

    Sponsors to hold at least 40% of Networth of AMC

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    Mutual Fund in India

    Scheme of Mutual Fund is decided Money Collected from Investors on such scheme ( Units )

    Scheme : Different Schemes

    Portfolio Managers : Invest in Shares as per Scheme

    Investors : Joint owners of Portfolio of Investment

    2 Kinds of returns : Capital Appreciation / Dividend

    Based upon the daily Market Value of the underlying

    shares, the Net Asset Value (NAV) of each unit of investment is arrived at

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    Mutual Fund in India Key Persons

    Responsible for Investment

    Formulate Schemes / Collect MoneyPromoter

    Portfolio Manager

    Fund ManagerSponsor

    Responsible for Audit of Transactions

    In whose name Documents are registered

    Place where Documents are kept

    Auditors

    Trustees

    Depositories

    Responsible for managing TransfersAdministrators

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    Mutual Fund in India-Advantages

    Professional Portfolio Managers involved

    Safety / Growth / Management of Fund ensured Even those with no info on Stock Market : Can Invest

    Minimum Amount of Investment : Rs. 500

    Systematic Investment Possible Monthly Investment

    Choice of Multiple Schemes :

    - Indian / Foreign

    - Equity / Loan

    - Industry Segment-wise- Growth / Yield / Re-investment

    - Gold / Exchange Traded Funds

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    Factoring Recent Tool in Receivable Management

    Short Term arrangement for Funds Takes care of Working Capital Requirement

    Receivables are Sold to Factor

    Factor pays money in exchange for Receivables

    Factor takes care of collection of Receivables

    Fees / Charges / Commission : 2 Major Kinds :

    Service Charges

    Finance Charges

    Other Services : Appropriate Charges

    There are different kinds of Factoring

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    Factoring Recent Tool in Receivable Management

    Short Term arrangement for Funds Takes care of Working Capital Requirement

    Receivables are Sold to Factor

    Factor pays money in exchange for Receivables

    Factor takes care of collection of Receivables

    Fees / Charges / Commission : 2 Major Kinds :

    Service Charges

    Finance Charges

    Other Services : Appropriate Charges

    There are different kinds of Factoring

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    Types of Factoring

    Full Service Factoring (Without Recourse)

    With Recourse (Re-factoring Charges)

    Maturity Factoring (No immediate funding)

    Disclosed / Notified / Bulk Factoring (Only Collection)

    Invoice / Undisclosed / Confidential Factoring

    (Funding on Invoices; No other activities by Factor)

    Agency Factoring (Only Funding & Credit Risk)

    International Factoring (Domestic : Extended) Limited (Only select Debtors)

    Buyer Based (Initiated by Customers / Buyers)

    Seller Based (Post Invoicing, all activities / Reputed Cust.)

    P j t

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    Projects New Business / Expansion / Automation / Replacement

    Funds Required Long Term Funds

    Project Report is required to be compiled :

    - Introduction / Description of the Project

    - Complete Details of Requirement

    - Location of Factory / Country / State Land / Building / Machineries / Facilities / Services

    Special Tools / Jigs & Fixtures

    Raw Material / Skill-sets of Employees

    Technologies / Level of Automation Market Potential / Competition

    Working Capital Requirement

    - Time-Bound Plan Financial Plan

    Assumptions Basis

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    Assumptions - Basis" Basis for Capital Items / Tooling Items

    " Basis for Capacity / Productivity Factor / Automation" Basis for Material Cost, Labour & Overheads (Hourly Rate)

    " Reason for Locating the Facilities in a particular country

    " Price Level EC Level

    " Foreign Currency Rupee Conversion Rate" Sourcing / Outsourcing Plans

    " Returns / Profits / Surplus

    " Financing Cost / Interest Rate & its effect

    " Market Potential / Basis / Firm Commitments / Competition

    " Commitment from Customers for Funding / Orders

    " Duties / Taxes / Exemptions & their effect

    "

    ToT Partner / Basis of identification

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    Activity Chart

    Y-1 Y-2 Y-3 Y-4 Y-5 Y-6 Y-7

    Construction of Factory

    Purchase of Machinery

    Erection & Commissioning

    Key Document for Project Planning /

    Monitoring / Management

    To Ensure Infrastructure is in place on time

    Cash-Flow Statement (Rs Lakhs)

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    Cash-Flow Statement (Rs. Lakhs)DETAILS Y-1 Y-2 Y-3 Y-4 Y-5 Total

    RECEIPTS:

    BORROWING 150 350 250 100 50 900

    SALES - - 100 200 250 550

    TOTAL 150 350 350 300 300 1450

    PAYMENTS:

    CAPITAL ITEMS 80 200 50 - 330

    DRE ITEMS 60 75 50 - 185

    RECURRING EaP. 5 50 100 200 250 605

    LOAN REPAYMENT 50 100 150

    TOTAL 145 325 200 250 350 1270

    BALANCE: 5 25 150 50 -50 180

    CUMULATIVE 5 30 180 230 180

    Fi i l E l ti

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    Financial Evaluation Match Cash flows : (Present and Proposed)

    - Type of Availability with Requirement- Time of Availability with Requirement

    Repayment with Surplus from New Project

    Timing of Cash Flows : Activity Chart

    To Ensure Money is fully utilised as planned

    Present Value of Money to be factored

    Requires Strict Monitoring / Control

    Credit Rating Methodology Data furnished for Credit Rating

    Industry Analysis

    Present Scenario : Global Trends

    C il ti / E l ti

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    Compilation / Evaluation Compilation : Primary responsibility of Company

    Credit Rating Agencies : Review and accord Rating

    Merchant Bankers : Co-ordinate (For Share Issue)

    Financial Institutions : Complete Review

    Consultants / Auditors : Provide Guidance

    Other Factors :

    International Business Trends

    National Trends

    Stock Market Movements

    Leasing / Hire Purchase

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    Leasing / Hire-Purchase

    Hiree LtdLessor LtdAsset Ownership

    Hiree LtdAs per ContractInsurance

    Hiree LtdLessee LtdClient

    Hirer LtdLessor LtdName

    Hire-PurchaseLeasingCriteria

    Hiree LtdLessor LtdDepreciation

    Not DeductibleTax DeductiblePeriodic Payment

    Hiree LtdAs per ContractMaintenance

    Asset Retention As per Contract Hiree Ltd

    Decision on Capital Structure

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    Decision on Capital Structure Quantum of Fund Requirement is Frozen Project Report

    Assets : Funding : Lease / Buy / Hire-Purchase Cash-flow in Project Report adopts funding pattern

    Options : Equity / Preference / Debentures / Bond / Loan

    o Many factors : National / International

    o Market Conditions / Sentiments / Govt. Guidelineso Promoter / Group Company Reputation

    o Gestation Period of the Project

    o New Project : Loan will be Difficult; Shares

    o Loan : Revenue / Surplus / Repayment / Interesto Pricing of Shares is another factor : Market / Timing

    o Bonds / ECBs / ADRs / GDRs / Loans

    Merchant/Investment Banker

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    Merchant/Investment Banker Earlier Role : Press Coverage, Applications, Subscriptions

    Current Role : Covers Lots of additional activities :o Corporate Advisory Services

    o Technical / Commercial Advice on Joint Ventures

    o Project Formulation / Promotion / Finance

    o Advice on Nature of Funding / Arrangement

    o New-Issues Management / Marketing / Underwriting

    o Syndication of Credit / Leasing / Hire-Purchase

    o Providing Venture Capital Assistanceo Bought-out Deals

    o Commercial Paper Issue / Management

    o Investment / Portfolio Management Services

    Merchant Bankers SEBI Guideline 7

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    Merchant Bankers SEBI Guideline - 7

    D

    D

    D

    D

    D

    D

    D

    D

    D

    D

    Rs. 5Crs

    I

    D

    D

    D

    D

    D

    Rs. 50Lakhs

    II

    D

    D

    D

    Rs. 20Lakhs

    III

    Portfolio Manager

    Underwriter

    Manager

    Consultant

    Advisor

    Final Allotment

    Tie-up of FinanciersDetermining Financial Structure

    Other info on Issue

    Preparation of Prospectus

    Networth Required

    Type of Merchant Bankers

    D

    D

    Nil

    IV

    T Bills / Call Mone

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    T-Bills / Call Money Treasury Bills (T-Bills): Short Term Central Govt. Securities

    Issued by RBI on behalf of Central Government Period : 91 days 364 days : Highly Liquid Instruments

    Issued through Auction RBIs Fixed Auction Calendar

    Competitive : Banks; Non-Competitive : PF etc.

    Issued at Discount & Redeemed at Par

    Call Money : Money Market : Day-to-Day Surplus invested

    Overnight Money; 1 14 Days; Interest Rate : Call Rate

    Call Rate Varies every day / Even within the day

    High rate : Low Liquidity; Low Rate : High Liquidity

    Used by Banks to meet the CRR requirement

    Commercial Paper

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    Commercial Paper Unsecured Debt Instrument

    Supported only by Promissary Note Directly to Investors

    Corporate Entities ( Companies / Banks )

    Highly Credit Worthy Entities

    Short Term Source ( 15 Days 1 Year ) Cheaper source of Funds

    SEBI Guidelines

    Interest is deducted up-front

    o Company A issues CP on 1st Dec 2009; for 365 Dayso Rs.10 Crs.; Rate of Interest : 10%

    o Rs. 9 Crs. will be collected

    o Rs.10 Crs. will have to be repaid on maturity

    Certificate of Deposit

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    Certificate of Deposit

    Issued by Banks Used for investing Surplus Funds

    Makes available to Bank Short Term Funds

    Individuals / Corporates

    RBI Guidelines

    Repayment with Interest

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    Money Market / Capital Market

    Money Market No Primary/Secondary

    Market

    Short Term Funds

    Call Money, Short TermDeposits, CP, T-Bills

    Participants : Banks, RBI,Financial Institutions,

    Government

    Capital Market Primary & Secondary

    Markets

    Long Term Funds

    Shares, Debentures Participants : Investors,Mutual Funds, FinancialInstitutions, Banks,Corporates

    Non Banking Financial Companies

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    Non Banking Financial Companies

    Companies / Other Entities

    Acceptance of Deposit / Invest as per Scheme Could be Investment / Lending

    Type of NBFCs :

    o Loan Companies

    o Investment Companies

    o Hire Purchase finance Companies

    o Leasing Companies

    o Housing finance companies

    o Mutual Benefit / Chit Fund Companies

    o Other Operations

    Regulated by RBI

    Bought Out Deals (Offer for Sale)

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    Bought-Out Deals (Offer for Sale)New Mechanism of Issuing Securities

    Securities first offered to Sponsors(Merchant Banker, Commercial Banker, Institutions) Wholesale of Securities by issuing company :

    o Company allots shares to Sponsoro Sponsor passes on consideration to Companyo After specified period as agreed, issued to Publico Issue to public could be at premiumo Shares then listed by Sponsor in Stock Exchangeso Listed companies cannot resort to thiso Private / Closely Held Public Companyo Lacks Transparencyo Premium : Not to company but to Sponsor

    Securitisation

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    Securitisation

    Cash

    Sell

    Create an

    S P VBundle / PackageEMIs together

    Regular Stream of

    EMIs / RepaymentsPortfolio of Loans

    (Home Loans / Car Loans)

    Securitisation

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    Securitisation Illiquid Assets re-cycled into Liquid Funds

    EMIs on Original Loan : Repaying Securitised Debt Additional Funds : More Loans / Growth in Business

    More Securitisation possible on additional loans EMIs

    Securitisation Propels Accelerated GrowthGrowth needs to be managed

    To be cautious against Over Trading

    LehmanBrothers

    Forex Rates

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    Forex Rates .

    Machine Imported : US $ 10 Million

    1st July 09 : US $ 1 = Rs. 42; Rs.42 Crs.

    Payable in 2 Annual Installments (1st Jan)

    Current Rate : US $ 1 = Rs. 45

    1st Jan 2010 & 2011 Rates : Unknown

    If increases : Additional Pay-out : Loss

    Forex Rates

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    Forex Rates .

    ECB : US $ 100 Million

    1st Jan 09 : US $ 1 = Rs. 40; Rs.400 Crs.

    Interest Payment : 1st July every year

    Repayable in 5 Annual Installments (1st Jan)

    Current Rate : US $ 1 = Rs. 45

    1st Jan 2010, 2011, 2012, 2013 Rates : Unknown

    If increases : Additional Pay-out : Loss

    Forex Rates

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    Forex Rates .

    Export : Collection in Forex

    Infosys : Software Maintenance : Euro 500 Million

    10 Year Contract : Annual Payout : Euro 50 M

    1st Jul 09 : Euro 1 = Rs. 54;

    Payment : 1st July every year

    Exchange Rate is Falling

    Current Rate : Euro 1 = Rs. 52 If decreases : Less Collection : Loss

    Hedging : Choices

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    Hedging : Choices . Natural Hedge

    Spot contract Forwards

    Futures

    Cross Currency Forward Cross Currency Roll-over

    Cross Currency Options

    Currency & Interest Rate Swaps Arbitrage

    Hedging : Forwards / Futures

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    Hedging : Forwards / FuturesHedging :

    To cover against risk / Insurance against future uncertainty Businesses are increasingly International

    Purchase / Sales / Funds : Forex .

    Forex Rates : Highly Volatile / Uncertain Future

    Competitive Price Pressures : Need for minimising Loss Tools : Forwards / Futures / Options ..

    Natural Hedging : Overseas Receivables & Payables Forwards : Any Future Date

    Futures : Specific Dates every week

    Forwards / Futures

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    Forwards / Futures

    Forwards : Delivery at Future date Any future date working day

    Exchange of Specific amount of 2 currencies

    Buy one and Sell another

    Can be combination of more than 2 currencies

    Rate of Exchange decided in advance

    Futures : Delivery at specific Future Dates

    Can be out of a range of Dates

    Transactions put through specific Exchanges

    Generally closed prior to maturity

    Forward / Futures Contracts

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    Forward / Futures Contracts

    Particulars Forward Futures

    Trading

    Personal :

    Telephone /otherwise

    Competitive

    Arena

    Size of Contract

    Individually

    tailored

    Standardised in

    terms ofQuantity /

    Amount

    Place of Dealing

    Over the

    Counter

    Market

    Organised

    Exchanges

    SettlementAt agreed

    dates Possible daily

    Delivery Date

    At agreed

    dates

    Fixed Dates /

    Cyclical Basis

    Transaction cost

    Bid - Ask

    Spread

    Brokerage on

    Buy / sellOrders

    Margins Not required

    Required-As

    decided byExchange

    Marking to Market Not done Done daily

    Particulars Forward Futures

    Trading Telephone / otherwise Competitive Arena

    Size of Contract Individually tailored Standardised Qty / Amount

    Place of Dealing Over the Counter Organised Exchanges

    Settlement At agreed dates Possible dailyDelivery Date At agreed dates Fixed Dates / Cyclical

    Transaction cost Bid - Ask Spread Brokerage on Buy / sell

    Margins Not required Required

    Marking to Mkt Not done Done daily

    Options

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    Options

    A Right to Enforce Contract Not an Obligation

    No Compulsion

    Depending upon market condition.. May enforce / May not enforce

    Types :

    American

    European

    Exotic

    Swaps

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    Swaps

    Exchange one financial instrument for another Popular Ones : Interest Rate Swaps

    Higher Interest Rate to Lower Rate

    Different Repayment Terms Exchange for Different Period

    Fixed Rate to Floating Rate

    Depending upon market condition

    Swap one currency obligation for another

    II Internal

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    II Internal

    Underwriting

    Mutual Funds

    Sensex / NASDAQ

    Cashflow Statement