Rights issue A rights issue is an issue of additional shares by a company to raise capital under a seasoned equity offering.

The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time. and Follow on Public Offer (FPO) The basic difference between Initial Public Offer (IPO) and Follow on Public Offer (FPO) is as the names suggest IPO is for the companies which have not listed on an exchange and FPO is for the companies which have already listed on exchange but want to raise funds by issuing some more equity shares. Companies usually go to debt market for raising their short term needs. Either they issue bonds or get loans. But if they have massive expansion plans they may not raise sufficient funds in the debt market and even if they could it costs more. Companies come up with follow on offer to restructure their business or to raise funds for new business or to expand the existing business. Similar to an IPO a price band is fixed (usually with the help of Investment banks) for the issue and interested investors can apply for it. Unlike the corporate actions (such as bonus, rights issue which are applicable only to the existing stake holders) FPO is open to all investors. The price band for the FPO depends on the market value of the existing company shares and the reason for raising funds. In an FPO shares are issued in any of the ways listed below. 1. Promoters dilute their stake by offering some of their shares to the public. 2. Company issue fresh shares. 3. A combination of the above two approaches.
bonus share. The term bonus means an extra dividend paid to shareholders in a joint stock company from surplus profits. When a company has accumulated a large fund out of profits - much beyond its needs, the directors may decide to distribute a part of it amongst the shareholders in the form of bonus. Bonus can be paid either in cash or in the form of shares. Cash bonus is paid by the company when it has large accumulated profits as well as cash to pay dividend. Many a time, a company is not in a position to pay bonus in cash in spite of sufficient profits because of unsatisfactory cash position or because of its adverse effects on theworking capital of the company. In such a position, the company pays a bonus to its shareholders in the form of shares; a free share thus issued is known as a bonus share.

What Does Private Placement Mean? The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance

companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market. Read more: http://www.investopedia.com/terms/p/privateplacement.asp#ixzz1UhbsDaSp Private placement (or non-public offering) is a funding round of securities which are sold without an initial public offering, usually to a small number of chosen private investors.

What is preferential allotment?

When a listed company doesn't want to go for further public issue and the objective is to raise huge capital by issuing bulk of shares to selected group of people, preferential allotment is a good option. A private placement is an issue of shares or of convertible securities by a company to a select group of persons under Section 81 of the Companies Act, 1956, which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. A private placement of shares or of convertible securities by a listed company is generally known by name of preferential allotment. A listed company going for preferential allotment has to comply with the requirements contained in Chapter XIII of SEBI (DIP) Guidelines, in addition to the requirements specified in the Companies Act. In short, preferential issue means allotment of equity to some selected people by a company which has its share already listed. A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. What Does Qualified Institutional Buyer QIB Mean? Primarily referring to institutions that manage at least $100 million in securities including banks, savings and loans institutions, insurance companies, investment companies, employee benefit plans, or an entity owned entirely by qualified investors. Also included are registered brokerdealers owning and investing, on a discretionary basis, $10 million in securities of non-affiliates

Capital market Capital market is that part of financial market in which trade of long term debts and securities are done by brokers and it includes share/stock market and bond market. The buyers are general public, middle investors , companies and brokers who are interested to invest their money for getting profit in the form of interest or dividend and profit from bargaining . Capital market is source long term funds for companies because any company who started his business can sell their shares in the primary market of capital and next time, this company is allowed to sell in secondary market. Buyers are also allowed to sell their bought shares in any time. Every country has made the control power for capital market. In USA, its name is Security exchange commission who control capital market. It established in 1934 but in India capital market controller name is Security exchange board of India which established in 1992 after Harshad Mehta Scam. Indias capital market is so wide and more than 30 millions investors have invested their money in Indian capital market. BSE and NSE are the famous stock exchanges in India like New York Stock exchange in USA . Introduction to share capital (equity)

Introduction What is equity? Equity is the term commonly used to describe the ordinary share capital of a business. Ordinary shares in the equity capital of a business entitle the holders to all distributed profits after the holders of debentures and preference shares have been paid. Ordinary ( equity) shares Ordinary shares are issued to the owners of a company. The ordinary shares of UK companies typically have a nominal or 'face' value (usually something like 1 or 5Op, but shares with a nominal value of 1p, 2p or 2Sp are not uncommon). However, it is important to understand that the market value of a company's shares has little (if any) relationship to their nominal or face value. The market value of a company's shares is determined by the price another investor is prepared to pay for them. In the case of publicly-quoted companies, this is reflected in the market value of the ordinary shares traded on the stock exchange (the "share price"). In the case of privately-owned companies, where there is unlikely to be much trading in shares, market value is often determined when the business is sold or when a minority shareholding is valued for taxation purposes. In your studies, you may also come across "Deferred ordinary shares". These are a form of ordinary shares, which are entitled to a dividend only after a certain date or only if profits rise above a certain amount. Voting rights might also differ from those attached to other ordinary shares. Why might a company issue ordinary shares? A new issue of shares might be made for several reasons: (1) The company might want to raise more cash For example might be needed for the expansion of a company's operations. If, for example, a company with 500,000 ordinary shares in issue decides to issue 125,000 new shares to raise cash, should it offer the new shares to existing shareholders, or should it sell them to new shareholders instead? - Where a company sells the new shares to existing shareholders in proportion to their existing shareholding in the company, this is known as a "rights issue". (2) The company might want to issue new shares partly to raise cash but more importantly to 'float' its shares on a stock market.

When a UK company is floated, it must make available a minimum proportion of its shares to the general investing public. (3) The company might issue new shares to the shareholders of another company, in order to take it over There are many examples of businesses that use their high share price as a way of making an offer for other businesses. The shareholders of the target business being acquired received shares in the buying business and perhaps also some cash. Sources of equity finance There are three main methods of raising equity: (1) Retained profits: i.e. retaining profits, rather than paying them out as dividends. This is the most important source of equity (2) Rights issues: i.e. an issue of new shares. After retained profits, rights issues are the next most important source (3) New issues of shares to the public: i.e. an issue of new shares to new shareholders. In total in the UK, this is the least important source of equity finance SHARES&DEBENTURE PREPARED BY:Ravi Ahuja AnuragGelani SheetalVerma AkankshaGoswami BhavinRathod 1 STUDENT OF BHILAI BUSINESS SCHOOL BHILAI CHATTISHGARH Introduction Meaning of shares & share capital Types of share & their advantages & disadvantages Issue of shares Meaning of debenture & its types Real Life IPO & FPO Example conclusion 2 CONTENTS 3 INTRODUCTION Companies (Private and Public) need capital either to increase their productivity or to increase their market reach or to diversify or to purchase latest modern equipments. Companies go in for IPO and if they have already gone for IPO then they go for FPO.

The only thing they do in either IPO or FPO is to sell the shares or debentures to investors. (the term investor here represents retail investors, financial institutions, government, high net worth individuals, banks etc). Whether they issue shares or debentures totally depends upon the concerned company. 4 MEANING OF SHARES & SHARE CAPITAL A share is one unit into which the total share capital is divided. Share capital of the company can be explained as a fund or sum with which a company is formed to carry on the business and which is raised by the issue of shares. Shares are the marketable instruments issued by the companies in order to raise the required capital. These are very popular investments which are traded every day in the stock market and the value of the share at the end of the day decides the value of the firm. 5 TYPES OF SHARES The shares which are issued by companies are of two types: Equity Shares Preference Shares 6 EQUITY SHARES Equity Shares are issued and are traded everyday in the stock market. Equity share holders only get dividend after preference shareholders & debenture holders. The returns on the equity shares are not at all fixed. It depends on the amount of profits made by the company. The board of directors decides on how much of the dividends will be given to equity share holders. Share holders can accept to it or reject the offer during the annual general meeting. Equity shareholders have the right to vote on any resolution placed before the company. 7 TYPES OF EQUITY SHARES The Equity share is a common name, some of the types of equity shares are: Blue Chip Shares Income Shares Growth shares Cyclical Shares Defensive shares Speculative shares 8 FURTHER CLASSIFICATION One more classification of shares is given by one of the most successful and respected investor all around the world Peter Lynch. According to him the shares can be classified into 6 types: Slow Growers Fast Growers

 Stalwarts Cyclical Turn-around Asset plays 9 ADVANTAGES High Return Easily Transferable. These can be easily liquidated. Right to vote Right to choose the board of directors. Equity share holders have the right to oppose any of the decisions taken by the board of directors. ( for e.g. This is what happened when Mr. Ramalingaraju tried to buy Maytas company) DISADVANTAGES High Risk In worst cases less privilege given to equity share holders. 10 PREFRENCE SHARE These are other type of shares. The preference shares are market instrument issued by the companies to raise the capital. Preference shares have the characteristics of both equity shares and debentures. Fixed rate of dividends are paid to the preference share holder as in case of debentures, irrespective of the profits earned company is liable to pay interest to preference share holders. 11 TYPES OF PREFERENCE SHARES Preference shares are divided into: Cumulative & Non cumulative shares Redeemable & Non-redeemable Convertible & Non-convertible shares Participating and non-participating 12 ADVANTAGES These yield fixed rate of returns Its a hybrid instrument having some of the characteristics of debentures and equity shares. DISADVANTAGES They do not provide the investor with any of the voting rights. If the company gets huge profits then they wont get any extra bonus. 13 ISSUE OF SHARES

Detail of a Company & Shares in Prospectus. 90 % application is necessary If access application received then company issue shares by pro rata basis

full amount can be called up by company at the time of application or it can be paid up in installments also (calls) share of the company may be issued in any of the following three ways:

At par; At premium; and At discount. Prospectus Application Allotment Repayment/ dividend 14 CONT.

Issue of shares for consideration other than cash

(For example: issue of shares to vendors, to promoters etc.)

Forfeiture of shares Buy Back of Shares Right Shares Redemption of preference shares/ Debenture

Instrument of debt executed by the company A certificate of loan Company pays pre specified percentage of interest Part of the company's capital structure Debentures are generally secured against the companys assets Convertible debentures can be either fully or partly converted into Shares Convertible debentures may carry a lower rate of interest 15 DEBENTURES 16 TYPES OF DEBENTURES

Security Point of View

Secured Debentures Unsecured Debentures

Tenure Point of View

Redeemable Debentures Perpetual Debentures

Mode of Redemption Point of View

Convertible Debentures Non-Convertible Debentures

Coupon Rate Point of View

17 ADVANTAGES 1. Control of company is not surrendered to debenture holders because they do not have any voting rights.2. Interest on debenture is an allowable expenditure under income tax act, hence incidence of tax on the company is decreased.3. Debenture can be redeemed when company has surplus funds.DISADVANTAGES 1. Cost of raising capital through debentures is high of high stamps duty.2. Common people cannot buy debenture as they are of high denominations.3. They are not meant for companies earning greater than the rate of interest which they are paying on the debentures. IPO EXAMPLE The Issue comprises a Fresh Issue and an Offer for Sale. The Proceeds of Fresh Issue The activities for which funds are being raised by our Company through this Issue, after deducting the proceeds from the Offer for Sale: (i) to partially finance the Yamuna Expressway Project; and (ii) general corporate purposes. (collectively referred to herein as the "Objects"). In addition, our Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges. 18 19 FPO EXAMPLE NTPC Limited (Company) enter market with FPO FPO opens on February 03' 10 Indias largest power generation company NTPC Limited (Company) will enter the capital markets on February 3, 2010 with its further public offer (FPO) of 412,273,220 equity shares of Rs 10 at prices to be determined through an alternative book building process under part D of Schedule XI of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. The FPO will close on February 5, 2010. 20 CONCLUSION No doubt equity shares have both advantages and disadvantages but the fact is that equity shares are the most sought financial instruments for both investment or for speculation.

Role of SEBI SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing hard work for protecting the interests of Indian investors. SEBI gets education from past cheating with naive investors of India. Now, SEBI is more strict with those who commit frauds in capital market.

The role of security exchange board of India (SEBI) in regulating Indian capital market is very important because government of India can only open or take decision to open new stock exchange in India after getting advice from SEBI. If SEBI thinks that it will be against its rules and regulations, SEBI can ban on any stock exchange to trade in shares and stocks. Now, we explain role of SEBI in regulating Indian Capital Market more deeply with following points: 1. Power to make rules for controlling stock exchange : SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI fixed the time of trading 9 AM and 5 PM in stock market. 2. To provide license to dealers and brokers : SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any financial product is of capital nature, then SEBI can also control to that product and its dealers. One of main example is ULIPs case. SEBI said, " It is just like mutual funds and all banks and financial and insurance companies who want to issue it, must take permission from SEBI." 3. To Stop fraud in Capital Market : SEBI has many powers for stopping fraud in capital market.

It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market. It can impose the penalties on capital market intermediaries if they involve in insider trading. 4. To Control the Merge, Acquisition and Takeover the companies : Many big companies in India want to create monopoly in capital market. So, these companies buy all other companies or deal of merging. SEBI sees whether this merge or acquisition is for development of business or to harm capital market. 5. To audit the performance of stock market : SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges.

6. To make new rules on carry - forward transactions :

Share trading transactions carry forward can not exceed 25% of broker's total transactions. 90 7. day To limit create for relationship carry with forward. ICAI :

ICAI is the authority for making new auditors of companies. SEBI creates good relationship with ICAI for bringing more transparency in the auditing work of company accounts because audited financial statements are mirror to see the real face of company and after this investors can decide to invest or not to invest. Moreover, investors of India can easily trust on audited financial reports. After Satyam Scam, SEBI is investigating with ICAI, whether CAs are doing their duty by ethical way or not. 8. Introduction of derivative contracts on Volatility Index :

For reducing the risk of investors, SEBI has now been decided to permit Stock Exchanges to introduce derivative contracts on Volatility Index, subject to the condition that; a. The underlying Volatility Index has a track record of at least one year. b. The Exchange has in place the appropriate risk management framework for such derivative contracts. 2. Before introduction of such contracts, the Stock Exchanges shall submit the following: i. ii. iii. iv. v. The Likely economic purpose it to is intended market to Position Contract and Exercise specifications Limits Margins serve

contribution

development

vi. The safeguards and the risk protection mechanism adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading.

vii. The infrastructure of the exchange and the surveillance system to effectively monitor trading in such contracts, and viii. Details of settlement procedures & systems

ix. Details of back testing of the margin calculation for a period of one year considering a call and a put option on the underlying with a delta of 0.25 & -0.25 respectively and actual value of the underlying. Link 9. To Require report of Portfolio Management Activities :

SEBI has also power to require report of portfolio management to check the capital market performance. Recently, SEBI sent the letter to all Registered Portfolio Managers of India for demanding report. 10. To educate the investors :

Time to time, SEBI arranges scheduled workshops to educate the investors. On 22 may 2010 SEBI imposed workshop. If you are investor, you can get education through SEBI leaders by getting update information on this page.