GANDHI SECURITIES AND INVESTMENT PVT. LTD.

2009-10

BY PADMAJAKANTA MISHRA

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A Project Work

On

Role of SEBI in Regulation

Of

Indian Secondary Securities Market

With Reference

To

Gandhi Securities and Investment Pvt. Ltd.

By

PDMAJAKANTA MISHRA

Regn. No. 0906102079

Submitted to the

Faculty of Institute of Management and Information Technology

In partial fulfillment for the award of the degree

Of

MASTER OF BUSINESS ADMINISTRATION

BIJU PATTNAIK UNIVERSITY OF TCHNOLOGY

ROURKELA

November, 2010

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Bonafide Certificate

Certified that the Project report titled Role of SEBI in Regulation of Indian Secondary Securities Market With Reference To Gandhi Securities and Investment Pvt. Ltd. is the bonafide work of Mr. PADMAJAKANTA MISHRA, REG NO. 0906102079 who carried out the work under my supervision. Certified further that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of Supervisor Signature of HOD

Submitted to Project Viva Voce held on ……………….

Internal Examiner External Examiner

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Declaration

I hereby declare that the project work entitled “Role of SEBI in Regulation of Indian Secondary Securities Market” submitted in partial fulfillment of the requirement of the MBA program of Institute of Management and Information Technology is my original work and the project is not submitted as a project previously to any institution for the award of any degree, associate ship, fellowship or any other similar titles.

Place: Signature of the Student

Padmajakanta Mishra

Date:

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Abstract

I joined Gandhi Securities & Investment Private Limited for internship program (as a part of MBA) I only had a theoretical knowledge of related subjects, thanks to my Faculty guide and my Company mentor for giving me opportunity to implement my theoretical knowledge in practical aspect.

My Company mentor Mr. Arun kumar Sahoo has given me the project to observe the business activities of GSI and to bring any errors as per the rule and regulations of SEBI to the notice of the supervisors. I started this project by understanding the concept & technicalities of Securities Exchange Board of India and its authority over the Capital Market of India. I have collected the secondary data of different rules and guidelines of SEBI from different books, research papers, the internet and other sources to make my analysis more effective. For the analysis of services & overall quality of Gandhi Security I collected the Primary Data through Questions and Answers which provided by the company. It helped me a lot for my analysis. Interaction with the Assistant Manager and the Customer Relations Officer also helped me to gain more the concept & technicalities because these are the persons who have enough knowledge about the securities market and its behavior.

The final report includes the analysis of the whole data (primary and secondary) by putting in Tabular forms and pie charts. This analysis might be a Value Addition to all the clients of Gandhi Securities, other general investor, lay persons and other fellow students as well.

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Acknowledgement

I take this opportunity to express my deep sense of gratitude to all those who have contributed significantly by sharing their knowledge and experience in the completion of this project work.

I am greatly obliged to, for providing me with the right kind of opportunity and facilities to complete this venture.

My first word of gratitude is due to Mr. Arun Sahoo (Regional Head, Gandhi Securities & Investment Private Limited.) my corporate guide, for his kind help and support and his valuable guidance throughout my project. I am thankful to him for providing me with necessary insights and helping me out at every single step.

I am highly thankful to Professor Saroj Kumar Kanoongo – my internal faculty guide under whose able guidance this project work was carried out. I thank him for his continuous support and mentoring during the tenure of the project. Finally, I would also like to thank all my dear friends for their cooperation, advice and encouragement during the long arduous task of carrying out the project and preparing this report.

Padmajakanta Mishra

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Table of Contents

Page No.

List of Tables 8

List of Abbreviations 9

Chapter 1: Introduction 10-13

Chapter 2: Theoretical Perspective 14-32

Chapter 3: Organization Profile 33-36

Chapter 4: Rules and Regulations of SEBI

Followed by Gandhi Securities 37-51

Chapter 5: Regulatory Functions of SEBI for the 52-58

Financial Year 2007-08 With Reference to

Gandhi Securities and Investment Pvt. Ltd.

Chapter 6: Major Findings Based on the Study 59-60

Chapter 7: Questions and Answers used for

Data Collection during the Interview 61-68

Chapter 8: Conclusion of the Study 69-70

Bibliography 71

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List of Tables

Page No.

Table1: Departments of SEBI 21

Table 2: Mutual funds registered with SEBI 53

Table 3: Inspection of stock Brokers 54

Table 4: Investigations by SEBI 56

Table 5: Nature of investigations completed by SEBI 56

Table 6: Type of regulatory actions taken by SEBI 57

Table 7; Redressel of Governance 58

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List of Abbreviations

SEBI: Securities and Exchange Board of India

GSI; Gandhi Securities and Investment Pvt. Ltd.

MIRD: Market Intermediaries Registration and Supervision Department

MRD: Market Regulation Department

DNPD: Derivatives and New Products Department

FCD: Fully convertible Debenture

PCD: Partly convertible Debenture

NCD: Non-convertible Debenture

DRR: Debenture Redemption Reserve

IPO: Initial Public Offerings

PMS: Portfolio Management Software

CDSL: Central Depository Services Limited

NAV: Net Asset Value

AMC: Asset Management Company

SRO: Self Regulatory Organizations

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Chapter 1

Introduction

Executive Summary Objective of the Study Scope and need of the Study Research Methodology Limitations of the Study

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Executive Summary

With internationalization, and the entry of new entities, government controls become ineffective. The de-regulation movement of the eighties sought to make regulatory structures for capital markets similar across emerging market economies (EMEs) in order to encourage capital movements yet minimize regulatory arbitrage. . Capital markets provide effective intermediation of savings, allocation of investment, price discovery, volatility, and market manipulation. Therefore intervention is required to protect investors, increase market transparency, and reduce systemic risk. Rigid controls hamper beneficial functions of markets, but a hands-off policy makes market abuse possible.

Successful regulation follows general principles adapted to the specific market and context; this gives it the flexibility to work with the market and respond to changing particulars. The regulator has to be something like a policeman, but a smart one, who preserves market integrity through clear and self-enforcing rules of the game while encouraging the game itself. Efficient markets with low transaction costs improve incentives and broaden participation; transparency and better monitoring makes it easier to catch deviations. Both features encourage self-regulation over detailed government.

The Indian liberalization, reform of capital markets and setting up of a new regulator, Securities Exchange Board of India (SEBI), in the nineties, illustrates this process. The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.India had the advantage of being able to use cutting-edge technology, which facilitated rapid reform in market microstructure and in regulatory norms. Thus technology and better some protective capital controls were retained; major inter-sect oral spillovers were avoided.

Since the rate of financial innovation is high regulatory practices should retain flexibility, even at the cost of some regulatory uncertainty, as long as they satisfy general principles. Then they would be able to encourage market functions, while moderating market flaws. Regulatory practices also need to be attuned to country specific features. We turn next to see how far the Indian regulatory structure satisfies these conditions.

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In this project we have discussed some of the major guidelines issued by SEBI for the better regulation of the Indian Capital Market with relation to Gandhi Securities and Investment Pvt. Ltd. WE have also analyzed the acceptability of Gandhi Securities as an investment and trading Company as per the answers of the clients of this concern.

Objective the Study

Since this is a project on a topic of Finance with less mathematical applications after much discussion with my mentor I have formulated the following objectives for the Study.

1. To give the students as well as the outsiders of the management campus the necessary ideas about the regulation of Secondary Securities Market and the Role of the Apex Body SEBI in this on behalf the Government of India.

2. Today much of the common men are not well informed about the scopes in the investment market for earning purposes and even if they know, they cannot invest because of fear of losing money due to uncertainties in the capital market. So my project aims to make them feel secure while involving in the trading and investing activities with the necessary rules and regulations issued by SEBI on behalf of the Government of India.

3. To show the wide range of investment options available in the stock market like mutual funds, online trading through demat accounts etc.

4. To help the investors who may be a common man or a business concern in making a right decision while choosing one of the globally proven trading and investing instruments such as online trading with the demat accounts, mutual funds etc. From this point of view this project is mainly designed for the people who want to invest and trade in the stock market.

5. To help Gandhi Securities know the level of faith the customers have upon them.

Need of the Study

There is not any scope of argument if it is said that today’s world is the world of commerce. Even a layman who has no access to the capital market should be aware of the trends of the securities market now-a-days. It is very certain that those trends and the movement of capital market are full of uncertainties. But since it represents the overall economical state of the country we should know the rises and falls in the trends of the market. Besides that it provides an ample scope of money making through investment and trading. We can earn as a speculator or an investor by getting profits or dividends respectively. We may also think to invest in the mutual funds sector which is booming now more than anything in the market.

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To fulfill all those purposes we need to be well acquainted with the securities market of India and all its regulatory structure. In order to feel secure an investor or a trader must know what the apex body of the capital market is. We should get the knowledge of all the rules and regulations that governs the securities market so that we can hope to be secured for our hard earned monetary resources and discover an efficient way of making money. My main aim was to fulfill this common goal for the general investors and this is also the need of the project.

Scope of the Study

The study her e has been limited to the analysis of the rules and regulations of SEBI followed by the Gandhi Securities, their code of conduct, the annual report of regulation of SEBI for the financial year 2007-08, the answers provided by the employees and the customers of the company. In the process of analysis only theoretical interpretations of the tables and pie charts have been used.

Research Methodology

The research methodology involves of data from the employees of the organization as well as its clients and analyzing them theoretically with the help of pie charts and tables. The data collected for the project is basically from two sources, they are: -

1. Primary sources: Primary data was collected through Actual interview of the Assistant Manager and the Customer relations Officer in two different sessions. I also surveyed the clients’ remarks on Gandhi Securities through questions and answers.

2. Secondary sources: collection of data from internet, books, various research papers and annual reports

Limitations of the Study

In spite of much of hard work some limitations of the study can be found out in this research activity. The limitations are listed below.

1) The study is based mainly on the basis of secondary data available from various books, research papers, websites etc. because primary data was not possible to be collected in many cases.

2) The study only provides the in formations about the rights of the common investors but does not discuss the ways to invest in various companies.

3) The study only relates to the secondary market of India but does not tell much about the whole capital market of India.

4) I could only study those areas in which Gandhi Securities have their business activities due to lack of resources and access to the organization of study that is Securities exchange Board of India.

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Chapter 2

Theoretical Perspective

Understanding Financial Market of India Necessities for Setting up of SEBI Objectives of SEBI Functions of SEBI Powers for SEBI Organizations SEBI and the Central Govt.

SEBI Guidelines For

Secondary Market Foreign Institutional Investors Bonus Issues Rights Issue Debentures Protection of the Debenture Holders Underwriters Investor Protection New Issues Prohibition Of unfair Trade Practices Book Building Buyback of Shares

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Understanding the Financial Market of India

Generally speaking, there is no specific location place or location to indicate a financial market. Whenever a financial transaction takes place it is deemed to have been taken place in the financial market. Hence financial markets are pervasive in nature since financial transactions are themselves very pervasive throughout the economic system. However financial markets can be referred to as those centers and arrangements which facilitate buying and selling of financial assets, claims and services. In India the financial markets are divided into following;

1. Unorganized Markets2. Organized Markets

Organized markets can be further classified into money and capital market.

Money Market: Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.

 

Capital Market: Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

Finally capital market is again divided into three categories as follows;

1. Industrial Securities market2. Government securities Market3. Long term Issues Market

Industrial Securities Market is generally classified into two types. They are

1. Primary Market2. Secondary Market

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Secondary Market

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.

 

For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

Following are the main financial products/instruments dealt in the secondary market:

 

Equity:  The ownership interest in a company of holders of its common and preferred stock. The various kinds of equity shares are as follows:-

 

Equity Shares:

 

An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights.

 

Rights Issue / Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held.

 

Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

 

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Preferred Stock / Preference shares: Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company’s creditors, bondholders / debenture holders.

 

Cumulative Preference Shares:  A type of preference shares on which dividend accumulates if remains unpaid.  All arrears of preference dividend have to be paid out before paying dividend on equity shares.

 

Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid.  After a specified date, these shares will be converted into equity capital of the company.

 

Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid.  Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.

 

Security Receipts: Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation.

 

Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (up to twenty years).

Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured / charged against the asset of the company in favour of debenture holder.

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Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows-

 

            Zero Coupon Bond:  Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

 

            Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

 

Commercial Paper: A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary.  It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesn’t require any guarantee. Commercial paper is a money market instrument issued normally for tenure of 90 days.

 

Treasury Bills: Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.

Necessities for Setting up of SEBI

Stock market regulation was a pre-independence phenomenon in India. During the II World War period, in the Defense Rules of India, 1943, provisions were made to check the flow of capital into production of essential commodities. These rules, which were promulgated as a temporary measure continued after the war and culminated into the Capital Issues (Control) Act, 1947.

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This legislation had the following objectives:

1. To further the growth of companies with sound capital structure.2. To avoid undue congestion or overcrowding of public issues To ensure that

investment takes place in conformity with the objectives of Five Year Plan.3. To ensure orderly and healthy growth of capital markets with adequate protection

to investors.

Controller of Capital Issues (CCI)

For the purpose of achieving the above objectives, an office of the Controller of Capital Issues was set up. It was entrusted with the responsibility of regulating the capital issues in the country. The CCI was vested with the powers to the kind of instruments, size, timing and premium of issue.

Malpractices in Securities Market

With the growth of securities market, the number of malpractices also increased in both the primary and secondary markets. The malpractices were noticed in the case of companies, merchant bankers and broker who are all operating in the market.

A few examples of malpractices are follows:

1. Manipulation of Security Prices2. Price rigging3. Insider Trading4. Delay in settlement5. Delay in Listing & commencement of Trading

Deficiencies in the Market:

Besides, the Indian stock market is said to be deficient in the following respects:

1. Lack of Diversity in Financial Instrument2. Disclosure of Financial Information3. Preponderance of Speculative Trading4. Poor Liquidity5. Lack of Control over Brokers

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SECURITIES & EXCHANGE BOARD OF INDIA

Under these circumstances, the government felt the need for setting up of an apex body to develop and regulate the stock market in India. Eventually, the Securities and Exchange Board Of India (SEBI) was set up on April 12, 1988. To start with, SEBI was set up as a non-statutory body.

It took all most four years for the government to bring about a separate legislation called Securities & Exchange Board of India Act, 1992 . The Act, conferred SEBI comprehensive powers all aspects capital market operation.

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

Objectives

According to the preamble of the SEBI Act , the primary objects of the SEBI is to promote healthy and orderly growth of the securities market and secure investor protection . For this purpose, the SEBI monitors the activities of not only stock exchanges but also merchant bankers etc. The objectives of SEBI are as follows:

1. To protect the interest of investors so that there is a steady flow of savings in to the capital market.

2. To regulate the securities market & ensure fare practices by the issuers of securities so that they can raise resource at minimum cost.

3. To promote efficient services by brokers, merchant bankers & other intermediaries so that they become competitive and professional.

Functions

Section 11 of the SEBI Act specifies the functions as follows:

Regulatory Functions:a) Regulation of stock exchange and lf regulatory organizations.b) Registration and regulations of stock brokers, sub brokers, registrar to all all

issue Merchant Bankers, Underwriters, Portfolio Managers and such other intermediaries who are associated with securities market.

c) Registration and regulation of the working of the collective investment schemes including mutual funds.

d) Prohibition of fraudulent and unfair trade practices relating to securities market.e) Prohibition of insider trading in securitiesf) Calculating substantial acquisitions of shares and takeover of companies.

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Developmental Functions:

a) Promoting investors’ educationb) Training of intermediariesc) Conducting research and public information useful to all market participantsd) Promoting Self Regulatory Organizations

Powers

SEBI has been vested with the following powers

1. To call periodical returns from recognized stock exchanges.2. To call any information or explanations from recognized stock exchanges or

their members.3. To direct enquiries to be made in relation to affairs of stock exchanges of their

members.4. To grant approval to bye-laws of recognized stock exchanges.5. To make or amend bye-laws of recognized stock exchanges.6. To compel listing of securities by public companies.7. To control and regulate stock exchanges.8. To grant registration to market intermediaries.9. To levy fees or other charges for carrying out the purpose of regulation.10. To declare applicability of Section 17 of the securities contract

Organizations

The following departments of SEBI take care of the activities in the secondary market.

Table 1 Departments of SEBI

Srl.No. Name of the Department Major Activities1. Market Intermediaries

Registration and Supervision department (MIRSD)

Registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets viz. equity, equity derivatives, debt and debt related derivatives.  

2. Market Regulation Department (MRD)

Formulating new policies and supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as ‘Market SROs’.) 

3. Derivatives and New Products Departments (DNPD)

Supervising trading at derivatives segments of stock exchanges, introducing new products to be traded, and consequent policy changes

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SEBI and the Central Government:

The Central Government has the power to issue directions to the SEBI Board, to supersede the Board, if necessary and to call for returns and report etc. as and when necessary. The Central Government has also powers to give any guidelines or to make regulations and rules for SEBI and its operations.

The activities of SEBI are financed by grants from the Government in addition to fees, charges etc. collected by SEBI. The fund called the SEBI General Fund is set up to which all grants, fees, charges etc. are credited. The fund is used to meet the expenses of the board and to pay salaries of staff and remuneration to officers, members of the Board etc.

SEBI GUIDELINES:

SEBI has brought out a number of guidelines separately, from time to time, for primary market, secondary market, Mutual funds, merchant bankers, foreign institutional investors, investor protection etc. Her we consider only those re;lating to the secondary market of India. The guidelines are described below.

Secondary Market:

Stock exchange:

1. Board of directors of stock exchange has to be recognized so as to include non-members, public representatives, government representative to the extent of 50% of total no of members.

2. Capital adequacy norms have been laid down for members of various stock exchanges depending upon their turnover of trade and other factors.

3. Working hours for all stocks exchanges have been fixed uniformly.4. All the recognized stick exchanges will have to inform about the transaction

within 24 hours.5. Guidelines have been issued for introducing the system of market making in less

liquid scrip’s in a phased manner in all stock exchanges.

Brokers:

1. Registration of brokers and sub brokers is made compulsory.2. In order to ensure that brokers are professionally qualified and financially solvent,

capital adequacy norms for registration of brokers have been evolved.3. Compulsory audit of broker’s book and filing of audit report with SEBI have been

made mandatory.4. To bring about greater transparency and brokerage separately in the contract notes

issued to client.5. No broker is allowed to underwrite more than 5% of public issue.

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Foreign Institutional Investors (FII):

1. Foreign institutional investors have been allowed to invest in all securities traded in primary and secondary markets.

2. There would be no restriction on the volume of the purpose of entry of FIIs.

3. The holding of single FII in a company will not exceed the ceiling of 5% of the equity capital of a company.

4. Disinvestment will be allowed only through stock exchanges in India.

5. FIIs have to pay a concessional tax rate of 10% on large capital gain (more than one year) and 30% on short term capital gains. A tax rate of 20% on dividend and interest is prescribed.

Bonus Issue:

The guidelines relating to the issue of bonus shares have undergone several changes since 1969. The latest sets of guidelines announced by SEBI were made effective from April 13, 1994. At present, there are in all 10 guidelines laid down for bonus shares.

1. There should be provision in the Articles of Association of the Company for issue of bonus shares. If not, the company should pass a resolution at the General Body Meeting, marketing provision for capitalizations of profits. The proposal for bonus issues is recommended by the Board of Directors and then approved in the General Body Meeting.

2. The bonus is made out of free reserves built out of the genuine profits or share premium collected in cash only.

3. Reserves created by revaluation of fixed assets are not permitted to be capitalized.4. The declaration of bonus issue in lieu of dividend is not to be made.5. Bonus issues are not permitted unless the partly paid shares exiting are fully paid

up.6. No bonus issue will be permitted if there are sufficient reasons to believe that the

company has defaulted in respect of statutory dues to the employees such as provident fund, gratuity, bonus, etc. Further, no bonus issue is permitted if the company defaults in payment of principal or fixed deposits or on debentures.

7. No bonus issue can be made within 12 months of any public issue/ rights issue.8. A company which announces bonus issue after the approval of the Board of

directors must implement the proposals and shall not have the option of changing the decision.

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9. Consequent to the issue of bonus shares, if the subscribed and paid up capital exceed the authorized share capital, a resolution shall be passed by the company at its general body meeting for increasing the authorized capital.

10. Issue of bonus shares after any public/rights issue is subject to the condition that no bonus shall be made which will dilute the value or rights of a holders of debenture, convertible fully or partly.

Right Issue:

Section 81 of the Companies Act specifies the conditions to be satisfied by a public company for issuing rights shares. SEBI ha issued the following guidelines for the issue of rights share.

1. Composite Issue: A public and rights issue can be made at different prices where these two kinds of issues are made as a composite issue by exiting listed companies.

2. Appointment of Merchant bankers: Appointment of merchant bankers is not mandatory, if the size of rights issue by a listed company does not exceed Rs. 50 lakh. For issues of listed companies exceeding Rs. 50 lakh, the issue is to be managed by an authorized merchant banker.

3. Minimum Subscription: If the company dose not receive minimum subscription of 90% of the issue amount including development of underwriters within 120days from the date of opening of issue, the company has to refund the entire subscriptions within 128 days with interest at 15% p.a. for delay beyond 78 days from the date of closure of the issue.

4. Preferential Allotment: No preferential allotment shall be made along with the rights issue. If a company wants to make preferential allotment it should be made independent of rights issue by complying the provisions of the companies Act, 1956.

5. Underwriting: Underwriting of rights issue is not mandatory but as per SEBI (underwriter’s) Rules and Regulations, 1993, rights issue can be underwritten.

6. Right of FCD/PCD Holders: the proposed rights issue should not dilute the value or rights of fully or partly convertible debenture holders. If the conversion of FCDs/PCDs is due within a period of 12 months from the date of rights issue, reservation of shares out of rights issue is to be made for them in proportion to the convertible part of FCDs/PCDs.

7. Over Subscription not to be retained: The quantum rights issue should not exceed as specified in the letter of offer. The companies are not allowed to retain oversubscription under any circumstances through rights issue.

8. Promoter’s Contribution: If the promoter’s shareholding in the equity at the time of the rights issue is more than 20% of the issued capital, the promoters have to ensure that their equity holding don’t fall below 20% of the expanded capital.

9. Vetting of letter of Offer by SEBI: The letter of offer pertaining to right issue has to be vetted by SEBI clearance for the draft letter of offer before approaching stock exchange for fixing the record date for the proposed issue.

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10. Disclosure in the Letter of Offer: The letter of like the prospectus should conform to the disclosure prescribed in from 2A under Section 56(3) of the Companies Act, 1956. Full justification and parameters used for issue price should clearly mentioned in the letters of offer, opening date, closing date, etc. Such advertisement should be at least one week before the date of opening of the subscription list.

11. Compliance Report: Within 45days of closure of rights issue, a report in the prescribed form along with the compliance certificate from statutory auditory auditor/ practicing charted accountant / company secretary should be forwarded to SEBI by lead managers.

12. Advertisement in Newspaper: All listed companies making rights issue an advertisement in at least two all India newspapers about the dispatch of letters of offer, opening date, closing date etc. Such advertisement should be at least one week before the date of opening of the subscription list.

13. Applicability of SEBI Guidelines: The above guidelines with regard to right issue apply only to rights issue made by existing listed companies.

14. Revised Disclosure norms for listed Companies: To enable the listed companies to raise funds easily from the primary market, the SEBI has amended its Disclosure and Investor Protection Guidelines in March, 2006.

i. Listed companies going in for a rights issue can now fix and disclose any time prior to fixing the record date in consultation with the designed stock exchange.

ii. In the case of fixed price route, for the public issues of such companies, the price can be fixed before filing of the Registrar of companies.

iii. Further, companies making rights issues are now permitted to dispatch an abridge letter of offer, containing disclosures as required in the abridged prospectus. However, such companies may provide the detailed letter of offer to any shareholder upon request.

iv. Again, companies that have filed a draft offer document with full disclosures can now come out with further capital issues even before the shares pertaining to the documents are listed on the bourses.

These guidelines do not apply to rights issue by existing private companies/closely held or other unlisted companies. They have no comply with the requirements as laid down in the Companies Act.

Debentures:1. The amount of working capital debenture should not exceed 20% of the gross

current assets.

2. The debt equity ratio should not exceed 2:1.

3. The rate of interest can be decided by the company.

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4. Credit rating is compulsory for all debentures excepting issued by public sector companies, private placement of Non-Convertible Debentures (NCD) with financial institutions and banks.

5. Debentures are to be redeemed after the expiry of seven years from the date of allotment. NCD is permitted to be redeemed at 5% premium.

6. Normally debentures above seven years can not be issued.

7. Debentures issued to public have to be secured and registered.

8. A Debenture Redemption Reserve is to be set up out of profits of the company.

9. Debentures Trustee and Debenture Trust Deed are to be finalized within six months of the public offer.

Fully Convertible Debenture (FCD), Partly Convertible Debenture (PCD), Non Convertible Debentures (NCDs).

1. FCD/PCD/NCD issued for a period of more than 18 months are to be compulsorily credit rated.

2. The debentures converted within 18 months are treated as equity.

3. FCDs having conversion period more than 36 months will not be permitted.

4. The terms of issue should be predetermined and stated in the prospectus.

5. The interest rate can be determined by the issuer.

6. Conversion after 18 months from the date of allotment but before 36 months will be optional at the hand of the debenture holders.

7. Appointment of Debenture Trustees and Creation of Debenture Redemption Reserve are not necessary if the maturity period is 18 months or less.

8. The Debenture Trust Deed should be executed within six months of the closure of the issue.

9. The offer document should specify existing and future equity, long teem debt equity ratio, servicing of existing debentures, payment of interest on existing loans and debenture.

10.No objection for second or pari pasu charge.

11.In the case of rollover of NCD portion of debentures, the following conditions are to be complied with:

i. Six months before the date of redemption, fresh credit rating should be obtained and it should be communicated to debenture holders.

ii. The company must have obtained the positive consent of debenture holders.iii. SEBI should vet the role over and its terms and conditions.

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Guidelines for Protection of the Debenture Holders:

1. Servicing of Debentures:

A Debenture Redemption Reserve shall be created by companies issuing debentures on the following basis:

Existing companies need not create DRR up to the date of commercial production. DRR shall be created in equal installments for the remaining period.

For new companies, creation of DRR will commence from the year the company earns profit and it should be created in equal or in one or more installments for the remaining life of debentures.

In the case of PCDs, DRR should be created only for NCD portion.

DRR should be created up to 50% of the amount before redemption commences.

Withdrawal from DRR will be permitted only after 10% of the liability is actually redeemed.

DRR will be treated as part of general reserve for the purpose of bonus issue.

In the case of new companies, distribution of dividend shall require approval of trustees to the debenture issue and the lead institution, if any.

In the case of existing companies, prior permission of the lead institution for declaring dividend exceeding 20% or as per the loan covenants is necessary if the company dose not comply with institutional conditions regarding interest and the debt service coverage ratio.

2. Protection of Interest of Debenture Holders:

Trustees to the debenture issue shall be vested with the requisite powers for protecting the interest of debenture holders including a right to appoint a nominee director in the board of the Company in consultation with institutional debenture holder.

Leader institution/investment institutions will monitor the progress in respect of debentures for project finance, modernization, diversification etc. The lead bank for the company will monitor debentures raised for working capital funds.

The company shall file with SEBI, a certificate from their bankers that the assets on which security is to be created are free from encumbrances and necessary permissions mortgage the assets have been obtained or a no objection certificate from the financial institutions or banks for a second or pari pasu charge in case where assets are encumbered.

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The security should be created within six months from the date of issue of debentures. It can be created within 12 months provided 2% penal interest is paid to debenture holders.

If the security is not created even after 18 months, a meeting of the debenture holders shall be called within 21 days to explain the reasons thereof and the date by which the security would be created.

The trustees to the debenture holders will supervise the implementation of the conditions regarding creation of security for the debenture and debenture redemption reserve.

The trustees and institutional debenture holders should obtain a certificate from the company’s auditors in respect of utilization of funds during the implementation of period of projects and at the end at the end of each accounting year in the case of debentures for working capital.

Underwriters:1. No person can act as underwriter unless he holds certificate of registration granted

by SEBI.2. The certificate of registration is valid for a period of three years from the date of

issue.3. The total underwriting obligations should not exceed 20 times of his net worth.4. In the case of development, the underwriter should subscribe to securities within

30 days of the intimation from the company.5. The underwriter should furnish within a period of six months from the end of the

financial year a copy of the balance sheet, profit and loss account, the statement of capital adequacy requirement and such other documents as required by SEBI.

6. The books of accounts should be maintained for a period of five years.

Investor Protection:

Investor protection is the major responsibility of the SEBI. SEBI has taken various measures to protect the interests of investor.

New Issue:

The issuing company should provide faire and correct information.

Allotment process should be transparent and not trained by any bias.

The draft prospectus of the companies is scrutinized for full and fair disclosure.

No delay in refunds or dispatch of share certificates.

Underwriting obligations is necessary to inspire confidence of investors.

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Risk factors and highlights should be fairly stated without any bias in the prospectus.

Listing should be timely and transferability is ensured.

Both stock exchange and companies are responsible for investor protection in respect of free trading and transferability of shares.

The investor protection is to be ensured by not only the Director/Secretary of the company but by all the parties in the new issue process namely merchant bankers, Registrars, Collecting banks, stock exchange and SEBI.

Recently SEBI has instituted the system of appointing its representative to supervise the allotment process to ensure that no malpractices take place in allotment process.

Prohibition of Unfair Trade Practice:

Regulation of Insider Trading:

Insider trading takes place when insiders or any persons who by virtue of their position in office or otherwise, have access to unpublished price sensitive information relating to the affairs of the company and deal in the securities of such companies. SEBI regulates insider trading by imposing penalty up to Rs. 5.00 lakhs for those who indulge in insider trading.

Investor Education:

SEBI has issued a few investors guidance, advertisements and published a book on “Investor Grievances – Rights Remedies”. SEBI has also registered certain active Investor’s Association.

SEBI has issued Advertisement code for the issuers to ensure to that the advertisements are fair and do not contain statement to mislead the investors or vitiate their informed judgment.

Grievance Cell: An Investor Grievance Cell is set up to handle investor complaints.

Stock Invest:

Stock invest was designed by the SEBI in consultation with RBI and banks as an additional facility for making applications for new issues. The stock invest facility is available to individuals who can approach the bank with whom they maintain an account for issue of stock invest required denominations for payment of application for shares. The stock invest scheme envisages that the investor’s account gets debited only on the allotment of shares. The investor, therefore, has to part with his funds only when he is eligible to get allotment of shares. Till such time, the investor’s fund remain in his account and continues to earn interest, which is normally four months.

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New Measures:

SEBI has taken 3 new measures to protect investor interest on 21 March 2007.

1. Making rating compulsory for all initial public offerings.2. Insisting on great disclosure by real estate companies entering the market.3. Permitting short selling by institutional investors which will minimize volatility in

the market.

Book Building

SEBI Guidelines on Book-Building:

SEBI issued guidelines for new issues through book building so as to enable issuers to reap benefits arising out of price and demand discovery. The guidelines came into operational with effect from September 1997.

1. The option of 1005 book-building shall be available only to those issuer companies which propose to make an issue of capital of and above Rs. 100 crores.

2. Book-building shall be for the portion other than the promoters contribution and allocation made to permanent employees of the issuer company and shareholders of the promoting companies in case of a new company and shareholders of group companies in case of existing companies.

3. The issuing company shall appoint category I Merchant Banker as book runner(s) and their names shall be mentioned in the draft prospectus submitted to SEBI. The lead merchant banker shall act as the Lead Book runner may appoint ‘Syndicate Members’ who shall be from those intermediaries who are registered with SEBI who are permitted to carry on activity as the ‘underwriter’.

4. The draft prospectus shall be filed with SEBI by the Lead Merchant Bankers.5. The issuer companies, after receiving final observations, if any, on the offer

document from SEBI make an advertisement in newspapers. The information in the advertisement shall contain:

i. The date of opening and closing of the bidding.ii. The method and process of bidding.

iii. The names and address of the syndicate members as well as bidding terminals for accepting bids.

6. The Book runner’s and the company shall determine the issue price based on the bids received through syndicate members. On determination of the price, the number of securities to be offered shall be determined.

7. Once the final price is determined all those bidders whose bids have found to be successful shall become entitled for allotment of securities.

8. On determination of the entitlement, the information regarding the same shall be intimated immediately to the investors.

9. The offer shall remain open for subscription from public for a period of at least three working days after completing al requirement of advertisement and

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dispatch of issue material to Stock Exchanges. During the time when the offer is open, the investors who have received an intimation of entitlement of securities shall submit the application forms along with the application money.

10. Arrangement shall be made by the issuer for collection of the applications by appointing mandatory collection centers depending upon the size of the issue.

11. Allotment shall be made not later than 15 days from the closure of the issue failing which interest at the rate of 15% shall be paid to the investors.

12. A final book of demand showing the results of allocation process shall be maintained by the book runners.

13. SEBI shall have the right to carry out an inspection of the records, books and documents relating to the Book-Building process.

What is Buyback?

Buyback is a method of cancellation of share capital. It leads to reduction in the share capital of a company as opposed to issue of which results in an increase in share capital.

Why Buyback?

A company may go for buyback of its shares due to any one or more of the following reasons:

1. To reduce equity base thereby injecting much needed flexibility.2. To prevent takeover bids.3. To return surplus cash to shareholders.4. To increase the underlying share value.5. To support the share price during periods of temporary weakness.6. To maintain a target capital structure.

SEBI Guidelines:

The SEBI has been made as a regulatory authority of the license to the buyback shares by the Ordinance. The regulations of SEBI contain the following:1. The companies are permitted to buy back the shares through six moves:

i. Tender offersii. Open offers

iii. Dutch auctioniv. Repurchase of odd lotsv. Reverse rights issue

vi. Employee stock option

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Tender offers will specify the exact price and will have only one price to offer.

In the Dutch auction, shares offered at the lowest price would be given priority over others.

a. The companies are not permitted to buyback through negotiated deals, spot transactions and private placements.

b. Promoters have been debarred from participating if the company opts to buy back shares through stock exchange route.

c. Companies buying through stock exchanges must disclose purchase details daily.

d. The companies will have to specify the maximum price payable in the resolution seeking shareholders approval.

e. The buyback should be done only in cash and an escrow account will have to be maintained by the merchant bankers.

f. No company is allowed to withdraw in every offer for buy wherein announced.

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Chapter 3

Organization profile of

Gandhi securities & investment Pvt Ltd.

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Company Profile

Company profile of Gandhi Securities & Investment Pvt Ltd.

Gandhi Securities & Investment Pvt Ltd is a leading research and advisory based stock broking house of India. Gandhi Securities & Investment Pvt Ltd is a well diversified financial service group having business in securities, commodities, investment banking and venture capital. Gandhi Securities & Investment Pvt Ltd is well suited to handle your wealth creation and wealth management needs. The organization finds its strength in its team of young, talented and confident individuals. Qualified professionals carry out different function under the able leadership of its promoters, Mr. Dhanesti Gandhi (chairman), Mr.Ketan.D. Gandhi (CEO), Mr. Rajesh.C. Kansara. Stringent employee selection process, focus on continuous training and adoption of best management practices drive the quest to achieving its core purpose and values.

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The team of Gandhi Securities & Investment Pvt Ltd provides full fledged support to the client through

Deal Advisory Valuation Support Due Diligence Implementation support

The approach is characterized by high quality financial advice resulting in outstanding execution through

Understanding client’s businesses and needs and associated risk implications. Adding value in valuation assumption , structuring, negotiating, and Long term commitment and strong relationship.

Board of Directors

Chairman - Mr. Ketan.D. Gandhi

Director - Mr. Rajesh. C. Kansara

CEO- Mr. Ketan .D.Gandhi

Organization’s Performance

Gandhi Securities & Investment Pvt Ltd is the member of NSE and also a depository participant of CDSL. It was incorporated in 1974. (SEBI Registration No. INB230895535). It has its branches in Odisha in Cuttack and Bhubaneswar. It has its operations in the Cuttack branch since 1995. The Regional Head of Cuttack branch is Mr. Arun Kumar Sahoo.

Gandhi Securities & Investment Pvt Ltd deals mainly in Equities, Derivatives, Online trading, IPO, PMS, Mutual funds, Commodities, depository services .

Equities:- Equity research is an inherent strength of Gandhi Securities & Investment Pvt Ltd.

They believe in picking investment horizon, life stage, and return expectation and investment objectives. These are the sum of ways through which they give suggestion to their clients and they are:-

Client Profiling:- Portfolio takes into consideration issues like your attitude towards risk, investment horizon, life stage, and return expectation and investment objective.

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Investment and Trading:- Gandhi Securities & Investment Pvt Ltd equity advisor are experts in providing value based investment solution as well as advising you in portfolio trading, as per your profile.

Portfolio Tracking Software:- Your equity portfolio is continuously monitored using portfolio software.

Integrated Approach: - In this there is a combination of cash, derivatives, and other leverage products to help to reach investment goals.

Derivatives: - Derivatives instrument provide good leverage opportunity. It is a great tool for speculation. Their quality advisor will help you to maximize your gain from the existing corpus.

Online Trading (e-Broking) My broker is single screen cash and derivatives terminal with online research based advice. During the day they send our intra-day and delivery calls to help you to take informed investment decision.

IPO Book building and fixed price issue are two types of Initial Public Offering through which corporate can raise money in the capital market.

PMS Gandhi Securities & Investment Pvt Ltd Portfolio Management Service helps to earn the returns of equities, with maximum ease and comfort. They offer different approaches to managing your investment.

Mutual Funds It is one of the safest, easiest and convenient ways of successful investment making.Service offered: -

Need based advisory fully backed with solid research. Dedicated mutual fund advisors to understand your needs and building a prudent

portfolio. Monthly review of portfolios. Monthly fact sheets of analysis of various funds.

Commodities Gandhi Securities & Investment Pvt Ltd offers you an excellent opportunity to take calls on the movement of prices of commodities traded. Commodities are global in nature, less volatile, as liquid as equities thereby allowing you to achieve portfolio diversification.

Depository services:- Gandhi Securities & Investment Pvt Ltd efficient centralized depository assures you receive innovative value added reports with sectorised portfolio break-up and efficient services all time (online as well as off line). Gandhi Securities & Investment Pvt Ltd is the member of CDSL and the service is available at all its outlets in India.

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Chapter 4

Rules and Regulations of SEBI

Followed By Gandhi Securities

GSI code of Conduct Understanding Mutual Funds

SEBI Guidelines for

Benchmark Investors Right General Investments through Mutual Funds Understanding Depository Services SEBI (Depository and Participants) Regulation

Act;1996 Central Depository Services (India) Ltd. (CDSL)

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GSI Code of Conduct for Prevention of Insider Trading

The Securities & Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, was amended on 22nd February 2002 (hereinafter referred to as “Regulations”) in terms of which a Stock Broker is required, inter alia, to frame a Code of Conduct for Prevention of Insider Trading by Employees of a Stock Broker, including its Directors

In line with the said Regulations, the following Code of Conduct (hereinafter referred to as “the Code”) has been adopted by Gandhi Securities & Investment Pvt Ltd (hereinafter referred to as “GSI”), Member of the Stock Exchange, Mumbai

1      Director

1.1     GSI has a Compliance Officer reporting to the Managing Director

1.2     The Compliance Officer shall be responsible for setting forth Policies and Procedures and monitoring adherence to the Rules for the preservation of "Price Sensitive Information", pre-clearing of all Designated Employees and their Dependents Trades (directly or through respective Department heads as decided by the GSI), monitoring of Trades and the Implementation of the Code of Conduct under the overall Supervision of the Directors

1.3     The Compliance Officer shall also assist all the Employees / Directors in addressing any Clarifications regarding SEBI (Prohibition of Insider Trading) Regulations, 1992 and GSI’s Code

1.4     The Compliance Officer shall maintain a record of the Designated Employees and any Changes made in the List of Designated Employees

2      Prevention of “Price Sensitive Information”

2.1      Employees / Directors shall maintain the Confidentiality of all Price Sensitive Information. Employees / Directors must not pass on such Information directly or indirectly by way of making a Recommendation for the Purchase or Sale of Securities

2.2     Need to Know

2.2.1   Price Sensitive Information is to be handled on a "Need to Know" basis, ie Price Sensitive Information should be disclosed only to those within GSI, who need the Information to discharge their Duty and whose Possession of such Information will not give rise to a Conflict of Interest or Appearance of Misuse of the Information

2.3     Limited Access to Confidential Information

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2.3.1   Files containing Confidential Information shall be kept Secure. Computer Files must have Adequate Security of Login and Password, etc

2.4      Chinese Wall

2.4.1   To prevent the Misuse of Confidential Information, GSI shall adopt a "Chinese Wall" Policy which separates those Areas of GSI, which routinely have access to Confidential Information, considered "Inside Areas" from those Areas which deal with Sale / Marketing / Investment Advise or other Departments providing Support Services, considered "Public Areas"

2.4.2   The Employees in the Inside Area shall not communicate any Price Sensitive Information to anyone in Public Area

2.4.3   The Employees in Inside Area may be physically segregated from Employees in Public Area

2.4.4     Demarcation of the various Departments as Inside Area may be implemented by GSI

2.4.5   In Exceptional Circumstances, Employees from the Public Areas may be brought "Over the Wall" and given Confidential Information on the basis of "Need to Know" Criteria, under Intimation to the Compliance Officer

3      Prevention of Misuse of Price Sensitive Information

3.1      Employees / Directors shall not use Price Sensitive Information to Buy or Sell Securities of any sort, whether for their Own Account, their Relative’s Account, GSI’s Account or a Client's Account. The following Trading Restrictions shall apply for Trading in Securities

3.2     Pre-clearance of Trades

3.2.1   All Directors / Designated Employees of GSI, who intend to deal in the Securities of the Client Company (above a Minimum Threshold Limit to be determined by GSI) shall pre-clear the Transactions as per the pre-dealing Procedure as described hereunder

3.3.2   An Application may be made in such form as GSI may specify in this regard, to the Compliance Officer indicating the Name and Estimated Number of Securities that the Designated Employee / Director intends to deal in, the Details as to the Depository with which he has a Security Account, the Details as to the Securities in such Depository Mode and such other Details as may be required by any rule made by GSI in this behalf

3.3.4   An Undertaking shall be executed in favor of GSI by such Designated Employee / Directors incorporating, inter alia, the following Clauses, as may be applicable

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i That the designated Employee / Director does not have any Access or has not received any "Price Sensitive Information" upto the time of signing the Undertaking

ii That in case the designated employee / director/partner has access to or receives "Price Sensitive Information" after the signing of the undertaking but before the execution of the transaction he/she shall inform the Compliance officer of the change in his position and that he/she would completely refrain from dealing in the securities of the client company till the time such information becomes public.

iii That he / she has not contravened the Code of Conduct for prevention of Insider Trading as specified by GSI from time to time

          iv     That he / she has made a Full and True Disclosure in the matter

4      Restricted / Grey List

4.1     In order to monitor Chinese Wall Procedures and Trading in Client Securities based on Inside Information, GSI shall restrict Trading in certain Securities and designate such List as Restricted / Grey List

4.2      Security of a Listed Company shall be put on the Restricted / Grey List if GSI is handling any Assignment for the Listed Company or is preparing Appraisal Report or is handling Credit Rating Assignments and is Privy to Price Sensitive Information

4.3     Any Security, which is being purchased or sold or is being considered for Purchase or Sale by GSI on behalf of its Clients / Schemes of Mutual Funds, etc shall be put on the Restricted / Grey List

4.4     As the Restricted List itself is a Highly Confidential Information it shall not be communicated directly or indirectly to anyone outside GSI. The Restricted List shall be maintained by Compliance Officer

4.5     When any Securities are on the Restricted List, Trading in these Securities by Designated Employees / Directors may blocked or may be disallowed at the time of pre-clearance

5    Other Restrictions

5.1     All Directors / Designated Employees shall execute their Order within One Week after the approval of pre-clearance is given. If the Order is not executed within One Week after Approval is given, the Employee / Director must pre-clear the Transaction again

5.2     All Directors / Designated Employees shall hold their Investments for a Minimum Period of 30 Days in order to be considered as being held for Investment Purposes

5.3     The Holding Period shall also apply to Purchases in the Primary Market (IPOs). In the case of IPOs, the Holding Period would commence when the Securities are actually allotted

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5.4     In case the Sale of Securities is necessitated by Personal Emergency, the Holding Period may be waived by the Compliance Officer after recording in Writing his / her reasons in this regard

5.5      Analysts, if any, employed with GSI while preparing Research Reports of a Client Company(s) shall disclose their Share Holdings / Interest in such Company(s) to the Compliance Officer

5.6      Analysts, who prepare Research Report of a Listed Company shall not Trade in Securities of that Company for 30 Days from Preparation of such Report

6    Penalty for Contravention of the Code

6.1     Any Designated Employee / Director who trades in Securities or communicates any Information or counsels any Person Trading in Securities, in Contravention of the Code may be penalized and appropriate Action may be taken by GSI

6.2      Designated Employees / Directors of GSI, who violate the Code may also be subject to Disciplinary Action by the Company, which may include Wage Freeze, Suspension, etc

6.3     The Action by GSI shall not preclude SEBI from taking any Action in case of Violation of SEBI (Prohibition of Insider Trading) Regulations, 1992

7      Information to SEBI in case of Violation of SEBI (Prohibition of Insider Trading) Regulations

7.1     In case it is observed by GSI / it’s Compliance Officer that there has been a Violation of these Regulations, SEBI shall be informed by GSI

8    Listed Intermediaries to comply with both Part A and B of Schedule I

8.1     The Intermediaries such as Credit Rating Agencies, Asset Management Companies, or Broking Companies etc whose Securities are listed in Recognized Stock Exchange shall comply with both Part A and Part B of this Schedule in respect of its Own Securities and Client’s Securities

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Understanding Mutual Funds

Of late, mutual funds have become a hot favorite of millions of people all over the world. The driving force of mutual funds is the “safety of the principle guaranteed, plus the added advantage of capital appreciation together with the income earned in the form of interest and dividend. People prefer Mutual Funds than bank deposits, life insurance and even bonds because with a little money, they can get in to the investment game. One can own a string of blue chips like ITC, TISCO, and Reliance etc, through mutual funds. Thus, mutual funds act as a getaway to enter into big companies hitherto inaccessible to an ordinary investor with small investment.

What is a mutual fund?

To state in simple words, a mutual fund collects the saving from the small investors, invests them in government and corporate securities and earn income through interest and dividends, besides capital gain. It works on the principle of “a small drop of water makes a big ocean”.

Definition

The Securities and Exchange Board of India(Mutual Funds) regulations,1993 defines a mutual fund as ,”a fund established in the form of a trust by a sponsor ,to raise money by the trustees through the sale of units to the public , under one or more schemes , for investing in securities in accordance with these regulations”

Importance of Mutual Funds

Some of the importance of the mutual Funds is stated below.

a. Channelizing savings for investmentb. Offering wide portfolio investmentc. Providing Better yieldsd. Rendering expertise investment service at low coste. Providing research Servicef. Offering tax benefitsg. Introducing flexible investment scheduleh. Providing greater affordability and liquidityi. Simplified record keepingj. Supporting capital marketk. Promoting industrial developmentl. Acting as substitute for IPOsm. Reducing the market cost of new issuesn. Keeping the money market active

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Mutual funds are not free from risks. It is so because mutual funds also invest their funds in the stock market on shares which are volatile in nature and are not free from risks. The following are the risks associated with the mutual funds.

I. Market risksII. Scheme Risks

III. Investment risksIV. Business risksV. Political risks

The mutual funds registered to SEBI are given below.

Names:

1. AEGON Mutual fund2. Alliance Capital Mutual fund 3. AIG Global Investment Group Mutual fund4. Axis Mutual fund 5. Benchmark Mutual fund6. Baroda Pioneer Mutual fund7. Birla Sunlife Mutual fund 8. Bharti AXA Mutual fund9. Canara Robeco Mutual fund10. CRB Mutual fund (Suspended)11. Deutsche Mutual fund12. DSP Blackrock Mutual fund 13. Edelweiss Mutual fund14. Escorts Mutual fund15. Franklin Templeton Mutual fund16. Fidelity Mutual fund17. Goldman Sachs Mutual fund18. HDFC Mutual fund 19. HSBC Mutual fund 20. ICICI Securities Fund21. ING Mutual fund22. IDBI Mutual Fund23. I CICI Prudential Mutual fund24. IDFC Mutual fund25. ILF&F S mutual fund26. JM Financial Mutual fund27. JP Morgan Mutual fund28. Kotak Mahindra Mutual fund 29. KJMC Mutual fund30. LIC Mutual fund31. L&T Mutual fund32. Morgan Stanley Mutual fund33. Mirae Asset Mutual fund34. Motilal Oswal Mutual fund

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35. Peerless Mutual fund36. PNB mutual fund37. Pramerica Mutual fund38. Principal Mutual fund39. Quantum Mutual fund40. Reliance Mutual fund41. Religare AEGON Mutual fund42. Sahara Mutual fund43. SBI Mutual fund 44. Sun and Fc mutual fund45. Standard Charted mutual fund46. Shriram Mutual fund47. Sundaram BNP Paribas Mutual fund 48. Shinsei Mutual fund49. Taurus Mutual fund50. Tata Mutual fund51. UTI Mutual fund52. Zurich India mutual fund

The mutual funds underlined in the above list are dealt in Gandhi Securities and Investment Private Limited.

If the complaints mutual funds investors remain unresolved, the investors may approach SEBI for facilitating redressel of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned Mutual fund and follows up with it regularly.

PERFORMANCE EALUATION OF MUTUAL FUNDS

A fund manager’s performance can be assessed with the help of certain BENCHMARKS. Benchmarks are nothing but independent portfolios that are not managed by any fund manager. They are purely representative of the behavior in the market returns of selected securities.

SEBI Guidelines on use of Benchmarks for Performance Evaluation of Mutual Funds

The SEBI has laid down the following conditions for the use of benchmark:

i. Mutual funds should use only those benchmarks that reflect the asset allocation of the fund.

ii. The period of comparison of returns should be identical for the fund and the benchmark.

iii. If the scheme’s offer document indicates a benchmark for return comparisons, the same should used by the scheme.

iv. Growth funds with more than 60% in equity should always use any of the standards indices like Sensex, NSE, BSE 100 and Crisil 500. These indices should

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be used consistently throughout. Changes can happen only when asset allocation of the fund has changed significantly, and trustees approve the change.

v. Income funds with more than 69% in debt should use a bond market index on benchmark.

vi. Balanced Funds can make use of tailored benchmark that combine equity and bond index returns in the same proportion as in the asset allocation of the fund.

vii. Money market funds can made use of a money market instrument or such instruments as benchmarks.

INVESTORS RIGHTS:

The SEBI (ME) Regulations, 1993 contains specific provisions with regard to investor servicing. Certain rights have been guaranteed to the investors as per the above regulations. They are as follows:

i. Unit Certificates An investor has the right to receive his unit certificates on allotment within a

period of 10 weeks from the date of closure of subscription lists in the case of a close ended scheme and 6 weeks from the date of closure of the initial offer in the case of an open ended scheme.

ii. Transfer of Units An investor is entitled to get the unit certificates transferred within a period of 30 days from the date of lodgment of the certificates along with the relevant transfer forms.

iii. Refund of Application Money If a mutual is not able to collect the statutory minimum amount (close ended funds – Rs. 20 crores, open ended funds – Rs. 50 crores or 60% of the targeted amounts whichever is higher) it has to return the application money as refund within a period of 6 weeks from the date of closure of subscription lists. If the refund is delayed beyond this period, each applicant is entitled to get the refund with interest at the rate of 15% p.a. for the period of delay.

iv. Audited Annual Report Every mutual fund is under an obligation to its investors to publish the audited

annual report and unaudited half yearly report through prominent newspapers in respect of its schemes within 6 months and 3months respectively of the date of closure of accounts.

Net Asset Value

Again, every investor has the right to receive information about the NAV at intervals not exceeding 3 months in the case of open ended scheme and one month in the case of close ended funds. It must also be published at least in two daily newspapers.

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GENERAL GUIDELINES

For proper functioning of mutual funds and for ensuring investor protection, the following important guidelines have been framed by the Government of India:

A. General

i. Money market mutual funds would be regulated by the RBI while other mutual funds would be regulated by the Securities and exchange Board of India (SEBI).

ii. Mutual Fund shall be established in the form of Trusts under the Indian Trust Act and be authorized for business by the SEBI.

iii.Mutual funds shall be operated only by separately established Asset Management Companies (AMCs).

iv.At least 50% of the board of AMC must be independent directors who have no connections with the sponsoring organization. The directors must have professional experience of at least 10 years in the relevant fields such as portfolio management, financial administration etc.

v. The AMC should have a minimum net worth of Rs. 5 crores at all times.vi.The SEBI is given the power to withdraw the authorization given to any AMC if it is

found to be not serving the best interest of interest of investors as well as the capital market. It is not applicable to bank sponsored AMCs.

B. Business Activities

i. Both AMCs and trustees should be treated as two separate legal entities.ii. AMCs should not be permitted to undertake any other activity expect mutual funds.iii.One AMC cannot act as the AMC for another mutual fund.

C. Schemes

i. Each schemes of a mutual fund must be compulsorily registered with the SEBI before it is floated in the market.

ii. The minimum size of the fund should be Rs.20 crores in the case of each closed-end scheme and it is Rs.50 crores for each open-end scheme.

iii.Closed-end schemes should not be kept opened for subscription for more than 45 days. For open-end schemes, the first 45 days should be considered for determining the target figure or the minimum size.

iv.If the minimum amount or 60% of the targeted amount, whichever is higher, is not raised, then the entire subscription has to be refunded to the investors.

v. To provide continuous liquidity, closed-end schemes should be listed on stock exchanges. In the case of open-end schemes, mutual funds shall sell and re-purchase units at pre-determined prices should be published at least once in a week.

vi.For each scheme, there should be separate and responsible fund manager.

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D. Investment Norms

i. Mutual Funds should invest only in transferable securities either in the capital market or money market or securitized debt. It cannot exceed 10% in the case of growth funds and 40% in the case of income funds.

ii. The mutual fund should not invest more than 5% of the scheme in any one company’s shares.

iii.This list of 5% can be extended to 10% if all the schemes of a mutual fund are taken together.

iv.No mutual fund under all its scheme take together can invest more than 15% of the shares and debentures of any specific industry, expect in the case of those schemes which are specifically floated for investment in one more specified industries.

v. No scheme should investing other scheme under the same.

E. Expenses

i. The AMC may charge the mutual fund with Investment management and Advisory fees. Such fees should have been disclosed in the prospectus.

ii. The initial issue expenses, all other expenses to be charged to the fund should not exceed 3% of the weekly average net assets outstanding during the current year. It must be disclosed through advertisements, accounts etc.

iii.The initial expenses should not exceed 6% of the funds raised under each.

F. Income Distribution

All mutual funds must distribute a minimum of 90% of their profits in any given year.

G. Disclosure and Reporting

i. The SEBI is given wide powers to call for any information regarding the operation of mutual funds and of its schemes from the mutual fund or any person associated with it like the AMC, Trustee, and Sponsor etc.

ii. Every mutual fund is required to send its copies of audited annual statements of accounts, six monthly unaudited accounts, and quarterly statements of movements in net assets for each of its schemes to the SEBI.

iii.The SEBI shall also lay down a common advertising code for all mutual funds to comply with.

iv.The SEBI can lay down the accounting politics, the format and contents of financial statements and reports.

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H. Accounting Norm

i. All mutual funds should segregate their earnings as current income, short term capital gains and term capital gains.

ii. Accounting for all the schemes must be done for the same year ending.

I. Winding up

i. Each closed-end scheme should be wound up or extended with the permission of the SEBI as soon the pre-determined period is over.

ii. An open-end scheme shall be wound up, if the total number of units out standings after re-purchases at a point of time falls below 50% of the originally issued number of units.

J. Violation of Guidelines

The SEBI can, after due investigation, impose penalties on mutual funds for violating the guidelines as may be necessary.

Under standing Depository System

The term depository is defined as a central location for keeping securities on deposit. It is also defined as a facility for holding securities, either in certified or uncertified form to enable book entry transfer of securities.

It is understood from the two definitions that the depository is a place where securities are stored, recorded in the books on behalf of the investors.

Therefore a depository can be defined as an institution which transfers the ownership of securities in electronic mode on behalf its members.

OBJECTIVE OF DEPOSITORY:

A depository enables the capital market to achieve the following objectives:

1. Reduce the time for transfer of securities.2. Avoid the risk of settlement of securities.3. Enhance liquidity and efficiency.4. Reduce cost of transaction for the investor.5. Create a system for the central handling of the investor.6. Promote the country’s competitiveness by complying with global standards.7. Provide service infrastructure in a capital market.

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ACTIVITIES OF THE DEPOSITORY:

The main activities of the depository are as follows:

1. Accepting deposit of securities for custody.2. Making computerized book entry deliveries of securities which are immobilized in

its custody.3. Creating computerized book entry deliveries of securities in its custody.4. Providing for withdrawal of securities.5. Undertaking corporate actions like distribution of dividend and interest.6. Redemption of securities on maturity.

INTERACTING INSTITUTIONS:

There are three institutions that are interacting in a depository system.

1. The Central Depository.2. Share Register and Transfer Agent.3. Clearing and Settlement Corporation.

DEPOSITORY PROCESS:

I. Immobilization of Shares

Immobilization of shares is the first step in the depository process. In the immobilization process the share certificates are submitted to the depository which converts the physical certificates into electronic data and starts issuing statement of accounts the holdings of the investors or shareholders.

The immobilization process is illustrated in the following figure:

Share certificates Depository

Statement of accounts Book entry

II. Withdrawal of Shares

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DEPOSITORY SYSTEM IN INDIA:

The agenda for capital market reform was set in the government in the policy of economy liberalization. Modernization of stock exchanges and related system and procedures constituted an integral part of this programme. The stock exchanges in India were characterized by lack of transparency, complex trading procedure and age old settlement system resulting in inordinate delays and manifold risks.

Promulgation of the Depository Act, 1996 is one of the series of steps taken by the government for removing the shortcomings of the present system.

The depositories system aims at the manual system of share transfer, settlement of transactions and physical delivery of shares by a method of simple book entries. The system is envisaged to reduce the total time taken to complete a transaction and ensure greater liquidity.

SEBI (DEPOSITORY AND PARTICIPANT) REGULATION ACT; 1996

The Depository ordinance was promulgated in September, 1995. Following the issue of ordinance, the SEBI circulated a consultative paper seeking views from the public on the frame work of depository system. This was followed by issue of the SEBI (Depositories and Participants) Regulations which was promulgated by the government in May, 1996.

The features of the Act and Regulations are briefed under:

Scope of Art

The scope of the legislation extends to the issue of scripless trading, transfer of ownership by means of book entries through electronic media and holding of securities through depository system as also fungibility of shares.

Feature of the Art

Depository Institution: The Act provides for creation of more depositary institution registered under the Companies Act and predominantly owned by the market participants.

Depository Participants: The Act envisages that a depository will interface with the users through a set of depository participants (DP). The DP is a crucial link between the investor and the depository.

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Investors’ Choice: An investor is given the option between holding physical securities as at present and having a depository based ownership record. The investor will have also the freedom to switch from the depository mode to non-depository mode and vice versa.

Free transferability: The act has made free transferability of shares. The Act has taken away the right to use their discretion in effecting transfer of securities by deleting Sec. 22A from the Securities Contracts Regulation Act and inserting Sec. 111a.

Rights of Transferee: The act provides that the transferee of a security will be entitled to all the rights including voting rights associated with the security.

No Stamp Duty: The act has done away with stamp duty on secondary market transactions in the depositary mode. At the time of issue of securities, the issuer company shall pay stamp duty on the total amount of securities issued whether through a depository or direct to investor in the form of physical certificates.

Depository Records as Legal Evidence: The ownership records maintained by the depository or the participants will be accepted as prima facie evidence in legal proceeding. The depository records will receive the same treatment as available to banks under the Bankers’ Book Evidence Act.

Pledge or Hypothecation: A depository shall allow for the creation of pledge or hypothecation in respect of securities left in the depository mode.

CENTRAL DEPOSITORY SERVICES (INDIA) LTD (CDSL)

The CDSL has been set up by Bombay Stock Exchange and co-sponsored by SBI, Bank of Baroda and HDFC Bank. It commenced its operation on March 22, 1999.

Up to March 2000. 680 companies made available their shares for demat. The market value of dematerialized securities amounted to Rs. 8188 crore. The no. of beneficial owners stood at 28545.

As on April 2008 there were 422 depository participants with 5771 DP service centers. The no. of investors account was 5268932. 6063 companies made available their shares for demat as on April 2008. There companies made available their shares for demat as on April 2008. There were 422 depository participants with 5771 DP services centers.

Gandhi Securities and Investment Pvt. Ltd. is also a depository participant of CDSL. It has outlets all over the countries to provide depository services to all its clients. It also provides facilities of online trading for speculator who target short term profits and for general investors.

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Chapter 5

Regulatory Functions of SEBI for the Financial Year 2007-08

With Reference to

Gandhi Securities and Investment Pvt. Ltd.

Registration of Mutual Funds Supervision Market Surveillance Investigation Regulatory Action Regulatory Actions against Mutual Funds Redressel of Grievances

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Registration of Mutual Funds

As on March 31, 2008, 40 mutual funds were registered with SEBI, of which 35 were in the private sector and five (including UTI) were in the public sector. The Certificate of Registration granted to GIC Mutual Fund and PNB Mutual Fund was cancelled. Mirae Asset Mutual Fund and Bharti AXA Mutual Fund were registered with SEBI during 2007-08.

Table 2: Mutual Funds Registered with SEBI

Sectors 31 March 2007 31 March 2008Public Sector 7 5Private Sector 33 35Total 40 40

Supervision

Enforcement of the regulations requires effective supervision through on-site and off- site inspections, enforcement, enquiry against violations of rules and regulations, and prosecutions. SEBI conducts inspections either directly or through Self Regulatory Organizations (SROs) like stock exchanges, depositories, etc. Inspections on a periodic basis are conducted to verify the compliance levels of intermediaries. Specific/ limited purpose inspections were conducted on the basis of complaints, references, surveillance reports, specific concerns, etc. Stock exchanges and depositories were also directed by SEBI to carry out periodic/specific purpose inspections of their members/ participants.

Inspection of Market Intermediaries

Risk-based inspection was carried out by SEBI as per the revised inspection policy. Routine inspections of stock brokers/sub- brokers and depository participants were conducted by stock exchanges and depositories. The quality of such inspections was overseen by SEBI by calling for periodic reports on inspections conducted, violations observed and actions taken..

Inspection of Stock Brokers / Sub- brokers

As per section 11(2) of the SEBI Act 1992, SEBI shall register intermediaries and regulate their working. During 2007-08, regular inspections were completed of nine depository participants (inspection of one DP undertaken through both the depositories), one credit rating agency, four registrars to an issue & share transfer agent, two merchant bankers, one banker to an issue and one debentures trustee.

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Table 3: Inspection of Stock Brokers/Sub Brokers

Particulars 2006-07 2007-08Regular Inspections Completed-Stock Brokers

30 16

Regular Inspections Completed-Sub Brokers

Nil Nil

Surprise/Limited Purpose Inspections-Stock Brokers/Sub Brokers

37 47

Inspection of Stock Exchanges

During 2007-08, seven stock exchanges viz., Inter Connected Stock Exchange (ISE), Over- the-Counter Exchange of India (OTCEI), Bhubaneshwar Stock Exchange, Calcutta Stock Exchange, Cochin Stock Exchange, Bangalore Stock Exchange and Ludhiana Stock Exchange were inspected.

Inspection of Depositories

Inspection of National Securities Depositories Ltd. was carried out by SEBI during the 2007-08.

Market Surveillance

The Integrated Surveillance Department of SEBI is in charge of overall market surveillance and scope of its activities includes monitoring market movements and detecting potential breaches of Regulations, analyzing the trading pattern of scrips and indices and initiation of appropriate action wherever warranted. To enhance the efficacy of the surveillance function, SEBI has put in place a comprehensive Integrated Market Surveillance System (IMSS) which generates alerts arising out of unusual market movements. SEBI also keep a continuous vigil on the activities of the stock exchanges to promote an effective surveillance mechanism.

Investigation

Investigations are undertaken to examine alleged or suspected violations, to gather evidence, and to identify persons/ examine alleged or suspected violations, to viz., price manipulation, creation of artificial market, insider trading, primary issue related irregularities, takeover violations, non- compliance of disclosure requirements and any other misconduct.

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Trends in Investigation Cases

Since 1992-93, SEBI has undertaken 1,212 investigation cases. In 1,107 cases investigations have been completed. The experience gained during investigations had contributed significantly to evolution of policies and procedures in strengthening regulatory and enforcement environment. During 2007-08, 25 new cases were taken up for investigation and 169 cases were completed. The number of investigations completed had gone up substantially from 102 during 2006-07 to 169 in 2007-08.

Nature of Investigation Cases Taken Up

During 2007-08, about 50 per cent of the cases taken up for investigation pertain to market manipulation and price rigging, as against about 79 per cent of such cases in the previous year. Other cases pertain to insider trading, takeover violations, irregularities in capital issues, and other miscellaneous issues. Since, several investigation cases were taken up on the basis of multiple allegations of violations, strict classification under specific category becomes difficult. Such cases were classified on the basis of main charge/violations.

Nature of Investigation Cases Completed

During 2007-08, of the 169 cases in which investigation were completed about 68 per cent pertain to market manipulation and price rigging, misleading advertisement by the companies and unfair practices. Other cases in which investigation were completed pertain to insider trading, capital issue related irregularities, takeover violations, non- compliance of disclosure requirements etc. The number of cases in which investigation were taken up and completed is given in Table 5

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Table 4: Investigations by SEBI

Years Cases taken up for Investigation

Cases Completed

1992-93 2 21993-94 3 31994-95 2 21995-96 60 181996-97 122 551997-98 53 461998-99 55 601999-00 56 572000-01 68 462001-02 111 292002-03 125 1062003-04 121 1522004-05 130 1792005-06 159 812006-07 120 1022007-08 25 169

Total 12121107

Table 5: Nature of Investigations taken up and Completed by SEBI

Particulars Investigations Taken Up Investigations Completed2006-07 2007-08 2006-07 2007-08

Market manipulation and price rigging

95 12 77 115

Capital issue related manipulation

0 0 4 3

Insider Trading

18 7 10 28

Takeovers 2 2 3 2Miscellaneous 5 4 8 21Total 120 25 102 169

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Regulatory Action

After completion of investigation, further action was initiated as per the recommendations made in the investigation reports and as approved by the competent authority. Action was decided based on the principles of objectivity, consistency and evidence available. The action included issuing warning letters, initiating enquiry proceedings for registered intermediaries, initiating adjudication proceedings against levy of monetary penalties, passing directions under Section 11 of SEBI Act and initiating prosecution.

During 2007-08, 544 prohibitive directions were issued under Section 11 of SEBI Act against various entities as against 345 in the previous year. A total of 44 intermediaries were suspended during 2007-08.

Table 6: Type of Regulatory Actions Taken

Particulars No. of entities2006-07 2007-08

Suspension 52 44Warning issued 27 48Prohibitive Directions issued under Section 11 of SEBI Act

345 537

Total 424 629

Regulatory Actions against Mutual Funds

Warning and Deficiency Letters

During 2007-08, 13 warning letters were issued to ten mutual funds considering the magnitude and seriousness of violations of SEBI regulations/guidelines. Of the total, three warnings were issued for violating the advertising code. Nine deficiency letters were issued on the inspection report for the period from July 01, 2003 to June 30, 2005 to nine mutual funds to strengthen their systems and improve compliance standards.

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Payment of Penal Interest

SEBI has made it mandatory for mutual funds to pay interest at the rate of 15 per cent per annum for delays in the dispatch of repurchase/redemption proceeds to the unit holders. The mutual funds are required to report these cases of delays to SEBI on a bi- monthly basis. During 2007-08, 32 mutual funds paid Rs. 20.2 lakh to 3,644 investors for delay in dispatch as against Rs. 5.9 lakh paid to 1,530 investors in 2006-07.

SEBI Redressel of Governance

The report of redressel of grievances for the last 12 years is given below.

Table 7: Redressel of Governance by SEBI

Financial Year End March

GrievancesReceived

GrievancesResolved

Redressel Rate(percent)

1996-97 18794 4061 21.611997-98 129111 27007 20.921998-99 713773 366524 51.351999-00 1229853 718366 58.412000-01 1606331 1034018 64.372001-02 1823725 1465883 80.382002-03 2335232 2142438 91.742003-04 2434364 2269665 93.242004-05 2532969 2416218 95.392005-06 2629882 2501801 95.132006-07 2711482 2572129 94.862007-08 2748916 2611101 94.99

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Chapter 6

Major Findings Based on the Study

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Major Findings Based on the Study

After the study of the role of SEBI in Indian Secondary Securities Market the information derived are quite concrete and worthy of being called important. They are described below.

1. The regulation of Capital market was an old concept as it was since the British rule in India. But it became completely successful after the incorporation of SEBI as the governing body of the securities market.

2. The experts and advisory committee of finance along with Govt. of India has issued such rules and guidelines over the stock market that it is hard for any financial institutions to carry out business in its own profitable way.

3. The no. of investigations, inspections, market surveillance, done by SEBI shows that the team of SEBI have been able to retain the hope of Indian Govt. in regulating the secondary securities market of India.

4. The actions taken against mutual funds, brokers, sub brokers, depository bodies etc. reveals the transparency, ethical base, disciplinary motivation of SEBI with which it is working for the benefit of the country.

5. It also shows that in spite of all those rules and regulations put forth by SEBI still there are some kind of loopholes for stock market scams in India.

6. It was found that all the market intermediaries are liable to follow the guidelines prescribed by SEBI positively otherwise their licenses are prone to cancellation.

7. Gandhi Securities and Investment Pvt. Ltd. have been strictly following all the instructions laid by SEBI while involving in trading and investing activities.

8. The GSI code of conduct for insider trading which is separately chalked out by the team of GSI shows the organization cares for the equities of all its client companies.

9. The future of Mutual funds industry is very bright in India due to chance of getting ample scope of money making and satisfaction of being an investor.

10. Since the inception of online trading and allowing the investors to operate their accounts in the dematerialized form over the internet more and more people are heading towards investment in the stock market.

11. The accuracy of transactions has been increased due to the introduction of advanced technology.

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Chapter 7

Questions and Answers used for

Data Collection during the Interview

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Questions and Answers used for Data Collection

These are the questions formulated by me and used to collect primary data from the team of employees of GSI. I have conducted two different interviews with the Assistant Manager, GSI from 3 PM to 3.45 PM on 17.08.2010 and with the Customer Relations Officer, GSI from 3.30 PM to 4.30 PM on 26.08.2010. The answers I received are given as answer A and Answer B respectively.

Que.1: What are the main business activities of Gandhi Securities and Investment Pvt. Ltd.?

Answer A: Gandhi Securities & Investment Pvt Ltd is a leading research and advisory based stock broking house of India having business in securities, commodities, investment banking and venture capital. It is also well suited to handle the wealth creation and wealth management needs

Answer B: Gandhi Securities & Investment Pvt Ltd has its business activities in the sectors of equities, derivatives, online trading, IPO, PMS, Mutual funds and depository services.

Que.2: What is the organization to which GSI is registered in order to get the license to be involved in the investing and trading activities?

Answer A: In order to get the permission of the Govt. of India GSI is incorporated to the Securities and Exchanges Board of India with registration no. INB230895535

Answer B: Securities and Exchanges Board of India is the organization to which GSI is registered.

Que.3: What is SEBI and what is its role in Indian Capital Market?

Answer A: The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

Answer B: The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

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Que.4: How does SEBI regulate the secondary securities market of India?

Answer A: The SEBI regulates the securities market of India by issuing various rules and guidelines regarding the different instrument such equities, derivatives, debentures Govt. securities, mutual funds etc. All the financial intermediaries are bound to follow all these guidelines to survive in the market.

Answer B: SEBI has issued separate guidelines for all financial instruments, institutions and regulates the market by strictly applying them to the securities.

Que.5: What are the main areas in which the team of GSI is following the SEBI guidelines?

Answer A: Mutual funds, online trading, derivatives, equities are the prime areas in which GSI is following the guidelines issued by SEBI.

Answer B: We follow all the guidelines issued by SEBI which are relevant to the business activities of GSI.

Que.6: What are the mutual funds that are dealt in Gandhi Securities?

Answer A: The mutual funds dealt here are DSP Blackrock, HDFC Mutual Fund, HSBC Mutual Funds, Kotak Mahindra Mutual Fund, SBI Mutual Fund, and Sundaram BNP Paribas.

Answer B: The mutual funds investment companies who carry on their business through Gandhi Securities are the following.

a) DSP Blackrock Mutual Fundb) HDFC Mutual Fund, c) HSBC Mutual Fundd) Kotak Mahindra Mutual Fund e) SBI Mutual Fund f) Sundaram BNP Paribas Mutual Fund

Que.7: How is Gandhi Securities providing depository services?

Answer A: Gandhi Securities and Investment Pvt. Ltd. is the depository participant of Central Depository Services Of India Ltd..It has its outlets all over India.

Answer B: GSI is the member of the major depository body of India CDSL. It is providing depository services in all major cities of India through its outlets.

Report of survey among general customers

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I have conducted a survey among the general customers to study the satisfaction and faith level they have upon the company. I also studied their ideas and knowledge about the market regulation. The results obtained in this process are interpreted below with the help of pie charts.

Que. 1: Who is the stock market regulator of India?

In the survey nearly 80% of the sample customer space answered correctly. 13% gave wrong answers and nearly 2% remained silent. Rests could not answer this question. The result is shown in the pie chart below.

1234

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Que. 2: Do you believe that Gandhi Securities follows all the guidelines of SEBI correctly?

According to the opinion of 95.3% people the answer is ‘yes’. But 1.2% gave the negative answer and 2.3% said that they did not know. Rests remained neutral. The result of the survey is shown in the pie chart below.

1234

1. Yes2. No3. Did not know4. Neutral

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Que. 3: Are you satisfied with the services provided by Gandhi Securities and Investment Pvt. Ltd.?

90.5% of the total customer sample agrees that they are satisfied with the services whereas 5% gave negative answers and rests remained silent in the answer. The result is interpreted below.

123

1. Agreed 2. Not agreed3. Remained silent

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Que. 4: Do you think basic knowledge of the stock market regulation is necessary for the common investors?

In this survey nearly 89.7% people agreed to my opinion, 2% people said no, 5% could not answer and rests remained neutral. The result of the survey is depicted below.

1234

1. Yes2. No3. Could not answer4. Remained neutral

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Que. 5: Between speculative trading and mutual funds which is the better way of moneymaking?

About 30% people held speculative trading as the better way to earn and while astonishing me about 60% suggested mutual fund is the better option. 8% could not answer and 2% remained neutral. The result is shown below.

1234

1. Yes to speculative trading2. Yes to mutual funds3. Could not answer4. Remained neutral

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Chapter 8

Conclusion

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Conclusions and Suggestions

In every sector of business there must be an appropriate regulatory structure without which ethical business will be distant dream. The SEBI as the Apex regulatory body has given such a strong framework to the Capital Market of India. Principal based capital market regulation has been able to flexibly evolve with markets in India. . De-regulation of government controls was accompanied by continuous re-regulation, which allowed more economic freedoms and incentives but enforced strict rules and more transparency. Scams occurred in the transition period, but since some controls were retained, the scams did not spill over into other sectors.

There are some tips I may suggest with my limited knowledge and analysis for

the benefit of the capital market and Gandhi Securities.

A. So I suggest repairing the loopholes in the Stock Market especially in the sectors of speculative trading, insider trading, illegal trading, and stock market scams.

B. I also suggest the team of GSI to provide a booklet to all the customers who want to invest in mutual funds or trade over the internet depicting all the guidelines of SEBI which they follow. It will make them feel that the company is trust worthy.

C. And they should also explain the features of mutual fund and demat accounts to each customers and potential investors.

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Bibliography

Books Review

Financial Markets and Services by Gordon and Natarajan, Himalaya Publishing House

Research Papers Review

Regulation and deregulation

Indian Capital Markets

Websites Review

www.sebi.co.in

www.moneyindia.com

www.google.com

www.gsien.com

www.scibd.com