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. TYPES OF CAPITAL MARKET PRIMARY CAPITAL MARKET SECONDARY CAPITAL MARKET PRIMARY CAPITAL MARKET Primary Market of Equities is concerned with the issue of Shares by a new company or an old company to raise Capital from the market. When a company needs capital either in the beginning or additional, it issues Shares in the public for the desired capital amount. Mainly this is done through IPOs (Initial Public Offering). Not only Equity shares but Primary market also comprises of Debentures Convertible Debentures Warranted Shares etc. To know the structure and information about the primary market in detail we will discuss the above points: Entry Norms Who can come out with a public issue Procedures for the public issue Prospectus Reservations and Firm Allotment Role of SEBI Regulatory Body Entry Norms Who can come out with a public issue: Entry norms for the public issues are governed by the SEBI guidelines, SEBI (Disclosure for Investor and Protection), Guidelines, 2000. SEBI, keeping in view the objective of greater transparency, investor protection and development of capital market, has from time to time amended the entry norms for companies to come out with the public issue. Entry norms are categorized into the following: Unlisted Companies Listed Companies Unlisted Companies Unlisted companies are those public limited companies which are presently not listed at any of the recognized stock exchanges in India. The shares of such companies are therefore not traded at any of the Stock Exchanges in India. Presently, there are two options available for the unlisted companies to come out with public issue: 1st Option It should have a track record of distributable profits for at least 3 out of immediately preceding 5 years and The pre-issue net worth (i.e. net worth before the issue) should be at least Rs 1 crore in 3 out of 5 years, with the minimum net worth in the immediately preceding 2 years. The issue size (includes offer to public, firm allotment, promoters contribution through offer document) should not exceed 5 times its pre-issue net worth as per the last available audited accounts 2nd Option With the recent guidelines amended on August 04, 2000 SEBI has amended the second option available for an unlisted companies. Earlier the guidelines stated that if the company is not able to satisfy the 1st option as mentioned above, the company can come out with the public issue

provided the project is appraised by any bank or public financial institution with at least 10% of the project cost financed by such appraiser. As per the recent guideline, if the company is unable to satisfy the 1st option or if the issue size is more than 5 times its pre-issue net worth, then the second option to come out with the issue is through the book building process only. The issue can come out through book building process provided 60% of the issue size is allotted to the Qualified Institutional Buyers (QIB). If the company fails to allot 60% of the issue size to QIB the entire money so received shall be refunded. "Three years out of immediately preceding five years" means 3 years audited accounts for a period of at least 36 months are available for computation of the minimum track record of 3 years of distributable profits. Listed Companies Listed Companies are those which are presently listed on any one or more recognized Stock Exchanges in India. The securities of such companies are traded on such stock exchanges where they are listed. All listed companies can come out with further public issue provided the net worth of the company after the proposed issue is less than 5 times the net worth prior to the issue. In case the net worth is more than 5 times the net worth prior to the issue, the company should comply with any of the options as available for unlisted companies. Procedures for the Public Issue: In short, if the company has satisfied the entry norms it should approach a merchant banker with whom Memorandum of Understanding (MOU) has to be executed. The Merchant Banker shall carry due diligence for all the information provided in the prospectus. The obligations are divided into pre-issue and post issue which are as follows:Pre-Issue Obligations (i.e. before the opening of issue) Board Resolution for approving the draft prospectus and related resolutions Shareholder's Resolution pursuant to Section 81(1A) of the Companies Act, 1956. Filing of form 23 with ROC for passing special resolution for issuing shares as above. Appointment of intermediaries and entering into MOU with them Due diligence by a merchant banker Submission of all required papers/documents with merchant bankers. Preparation of draft prospectus in consultation with the merchant banker and submitting the same with SEBI along with the fees & other requirements and submitting the same with stock exchanges as per guidelines. Receipt of queries from SEBI / stock exchanges, if any and make changes in prospectus, if required. Reply to SEBI /stock exchanges in connection with changes in prospectus. Obtaining in-principle approval from stock exchanges File final prospectus with SEBI / stock exchanges / ROC Statutory Advertisements Submission of 1% Security Deposit with the Regional Stock Exchange. Depositing Promoter's Contribution in the issue in a separate bank account. Post-Issue Obligations (i.e. after the closure of issue) Collection of Application forms and processing the same at the Registrar & Share Transfer Agent in consultation with the merchant banker. Separate account to be opened for the applications received from public Submitting 3-day post issue monitoring report with SEBI by merchant banker. Basis of allotment in consultation with the regional stock exchange.

Post Issue Advertisement Dispatch of share certificates / refund orders

File Form No. 2 for Return of Allotment with ROC Entering into an listing agreement Obtaining permission from Stock Exchanges for listing & trading of securities Commencement of trading of securities 78-day post issue monitoring report to be submitted by merchant banker with SEBI. Readdressal of Investors Grievances Application to SEBI/Stock Exchange for refund of security deposit. Some important issues pertaining to public issues Companies can freely price its securities Company cannot come out with public issue unless all its existing partly paid up shares, if any, are made fully paid up. Before filing the final prospectus, the company can keep a price band of maximum 20%. It means that if the company is not sure of the issue price, it may keep a floor price with a price band of 20%. Companies are now free to determine the denomination of shares. Net offer to public should be at least 25% of the issue size. Public Issue should be opened for at least 3 working days and not more than 10 working days. The minimum amount to be received from each investor should be Rs. 2,000/-. Promoters may at its discretion arrange for buy back facility or safety net facility in the prospectus subject to the maximum 1000 shares per allotted. The validity of such scheme, if any shall be for at least 6 months from the date of dispatch of share certificates. Company can come out with an issue within 365 days from the date of the observation letter received from SEBI or where such letter is not received, issue can come out within 365 days from the 22nd day of the date of filing of the prospectus with SEBI. Company is required to appoint Compliance Officer to directly liaise with SEBI/Stock Exchanges to comply with various laws and investor's complaints related matters. Trading of securities of all new public issues will be in dematerialized form only.

The refund orders, Demat credit, allotment and submission of listing documents to stock exchanges should be completed within 2 working days of finalization of the basis of allotment. Concept of Dematerialization Keeping in mind the risks involved on account of fake / forged certificates, bad delivery and delays in transfer SEBI has made recent changes by which all the public issues shall be in dematerialized form only. It means that no physical share certificate will be given to the

shareholders. The shares shall be electronically be transferred to the shareholders account opened its Depository Participant Prospectus: `Prospectus is the most important document for the company to come out with a public issue. Pursuant to Section 2(36) of the Act, `Prospectus means any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate. Prospectus is a document by way of which the investor gets all the information pertaining to the company in which they are going to invest. It gives the detailed information about the Company, Promoter / Directors, group companies, Capital Structure, Terms of the present issue, details of proposed project, particulars of the issue etc. There are certain mandatory disclosures which have to be made in the prospectus. The mandatory disclosures to be made in the prospectus includes in Schedule II of the Companies Act, 1956. SEBI has issued guidelines, SEBI (Disclosure for Investor and Protection), Guidelines, 2000 which gives details about the contents of prospectus. Vetting by SEBI/Stock Exchanges A company cannot come out with public issue unless draft prospectus is filed with SEBI. A company cannot file prospectus directly with SEBI. It has to be filed through a merchant banker. After the preparation of prospectus, the merchant banker along with the due diligence certificates and other compliances sends the same to SEBI for vetting. SEBI on receiving the same, scrutinizes it and may suggest changes within 21 days of receipt of prospectus. (Earlier, the situation was that the company was required to obtain Acknowledgement Card from SEBI). However, now the concept of obtaining acknowledgement card has been removed and the company can come out with a public issue any time within 365 days from the date of the letter from SEBI or if no letter is received from SEBI, within 365 days from the date of expiry of 21 days of submission of prospectus with SEBI. If the issue size is upto Rs. 20 crores then the merchant bankers are required to file prospectus with the regional office of SEBI falling under the jurisdiction in which registered office of the company is situated. If the issue size is more than Rs. 20 crores, merchant bankers are required to file prospectus at SEBI, Mumbai office. Prospectus is also required to be filed with the concerned stock exchanges along with the application for listing its securities. Presently, companies approaching the stock exchange for public issues should obtain in-principal approval from such stock exchanges. Date of Prospectus and ROC Card After making changes, if any made by SEBI / Stock Exchanges, the final Prospectus duly signed by all the Directors (or by Authorized Representatives through its Power of Attorney) must be filed with the Registrar of Companies (ROC) along with the copy of all material documents. The ROC may suggest changes which should also be reported to SEBI / Stock Exchanges. The date on which ROC Card is obtained is the date of the prospectus. Reservations and Firm Allotment

Public Issue should be at least 25% of the post issue capital (in case of a unlisted company)

Public Issue should be at least 25% of the issue size (in case of a listed company) The above is relaxed in case of a public issue of unlisted companies in information technology sector where at least 10% of the securities may be offered to public subject to (i) 20 lacs securities are offered to public and (ii) issue size is minimum Rs. 50 crores. The company can reserve shares in the issue on competitive basis wherein allotment of shares is made in proportion to the shares applied for by the concerned reserved categories which can be categorized as follows :Permanent Employees including working directors and in case of new company the permanent employees of the promoting company. Shareholders of the promoting companies in case of new company and shareholders of group companies in case of existing company Indian Mutual Funds FIIs including NRIs and OCB. Indian and multilateral development institutions Scheduled banks. Company is allowed to make firm allotment to the following :Indian and Multilateral Development Financial Institutions Indian Mutual Funds FII Permanent / regular employees of the company Scheduled Banks Merchant Bankers (subject to 5% of the issue size) The aggregate of reservations and firm allotment for employees cannot exceed 10% of the issue size. For shareholders, it cannot exceed 10% of the issue size.

Role of SEBI Regulatory Body Upto 1992, the capital primary market was controlled by the Controller of Capital Issue (CCI) formed under the Capital Issues Control Act. During that period, the pricing of capital issues was controlled by CCI. The premium on issue of equity shares issued through the primary markets was done in accordance with the Capital Issues Control Act. The CCI guidelines were abolished with the introduction of Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the prime objective of protecting the interests of investors in securities, promoting the development of, and regulating, the securities market and for matters connected therewith or incidental thereto. The SEBI Act came into force on 30th January, 1992 and with its establishment, all public issues are governed by the rules & regulations issued by SEBI. SEBI was formed to promote fair dealing in issue of securities and to ensure that the capital markets function efficiently, transparently and economically in the better interests of both the issuers and the investors. The promoters should be able to raise funds at a relatively low cost. At the same time, investors must be protected from unethical practices and their rights must be safeguarded so that there is a steady flow of savings into the market. There must be proper regulation and code of conduct and fair practice by intermediaries to make them competitive and professional. Since, its formation, SEBI has been instrumental in bringing greater transparency in capital issues. Under the umbrella of SEBI, companies issuing shares are free to fix the premium provided adequate disclosure is made in the offer documents. Focus being the greater investor protection, SEBI has become a vigilant watchdog.

Role of Intermediaries Many intermediaries are involved in connection with the public issue. Following are the intermediaries who have to be registered with SEBI and must have valid certificate from SEBI to act as an intermediaries: Merchant Bankers Registrar and Share Transfer Agents Bankers to the Issue Underwriters Stock Brokers and Sub Brokers Depositories Merchant Bankers play the most vital role amongst all intermediaries. They assist the company right from preparing prospectus to the listing of securities at the stock exchanges. Merchant Bankers have to satisfy themselves about the correctness and propriety of all the information provided in the prospectus. It is mandatory for them to carry due diligence for all the information provided in the prospectus and they must issue a certificate to this effect to SEBI. A Company may appoint more than one Merchant Banker provided Inter-Se Allocation of Responsibilities between the Merchant Bankers are properly structured. Underwriters are those intermediaries who underwrite the securities offered to the public. In case there is under subscription (in short, the company does not receive good response from public and amount received from is less than the issue size), underwriters subscribe to the unsubscribed amount so that the issue is successful. Registrar & Share Transfer Agents processes all applications received from the public and prepare the basis of allotment. The despatches of share certificates / refund orders are handled by them. Bankers to the Issue are banks which accept application from the public on behalf of the company. These applications are then forwarded to Registrar & Share Transfer Agent for further processing. Stock Brokers & Sub-Brokers are those intermediaries who through their contacts / sources invite the public for subscribing shares for which they get commission. Depositories are the intermediaries who hold securities in dematerialized form on behalf of the shareholders. SECONDARY CAPITAL 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 conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

2. Equity Share Secondary Market. :

Introduction The Secondary Market of the Equities consists of a key institution called Stock Exchange. It provides facilities for the issue and sale of various securities. It is a pivot around which every activity of the capital market revolves. In the absence of the Stock Exchange, the people with savings would hardly invest in the corporate securities for which there would be no liquidity (ease of converting into money or buying or selling facility). Corporate Investment from general public would have been thus lower.

Stock Exchange thus represents the market place for buying and selling of securities and ensuring liquidity to them in the interest of the investor. The Stock Exchanges are virtually the nerve center of the Capital Market and reflect the health of the countrys economy as a whole. Secondary Market is related to such Stock Exchanges where investor can trade (i.e. Buy or Sell) in the shares of those companies which are listed in that particular Stock Exchange. The number of Stock exchanges has to 23 from 11 in 1990 The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April - August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9, 21,500 crore (Rs 9215-bln). The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore (Rs 9680-bln). Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE On Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency. The scrips traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which are in the carry forward system (Badla). The 'F' group represents the debt market (fixed income securities) segment. The 'Z' group scrips are the blacklisted companies. The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd. Functioning of Stock Exchanges: Prior to computerization of exchanges, the members of exchange assembled on the floor of the stock exchange known as the ring for trading shares and debentures of the companies. The trading was confines to about three hours in the most Stock exchanges. Through a system of bidding, the purchase or sale of securities were done by the members either on their own behalf or on behalf of their clients. Securities are traded in three different ways in Stock Exchanges ring namely- settlement basis, spot basis and cash basis. Share of companies most frequently traded belong to settlement category. Trading in these is carried on settlement basis or forward basis these are called A category shares or specified list shares. Shares of companies which are not in the spot list are known as cash shares Equity shares have always dominated the Indian Stock Market, the massive changes in the past recent years like Computerization, Online Trading, and Dematerialization etc. These noticeable changes have awarded investor with more profound, deep and in-depth knowledge and skills. More and more people are aware of it and it has given rise to many of the new service oriented sectors. There are two ways of earning profit from Equity Shares: One Dividends declared by the companies on equities at the end of the year (sometimes in mid year too) and Secondly by profit or surplus earned by trading.

The economical availability of Shares depends on the number of trades done in it. If the share is active in trading then the investor can easily earn by buying or selling in it. If the share is inactive in trading then the economical unavailability becomes a big hurdle. Technically we can buy any number of shares from the market in dematerialized form or we can buy in lots of 50 or 100 so that investment target can be reduced. Equity shares are highly volatile in nature thus it is better option of investment for that investor who is willing to take risks. Equity shares can make ones fortune or can also ruin what he has. Thus investment in Equities can be considered when your risk profile is good. An interesting fact is that the profit earned from long term investment in equities is comparatively much higher that any other instruments. ROLE OF SEBI The SEBI is the regulatory authority in India established under Section 3 of SEBI Act 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. PRODUCTS DEALT IN SECODARY MARKET 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 member of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend etc. 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. Preferred Stock/ Preference shares: Owners of this kind 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 companys 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. 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. 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 favor of debenture holder 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 form of a promissory note redeemable at par to the holder on maturity and therefore doesnt require any guarantee. Commercial paper is a money market instrument issued for the tenure of 90 days. Coupons: Tokens for payment of interest attached to bearer securities. Treasury Bills: Short-term (up to one year) bearer discount security issued by government as a means of financing their cash requirements.

Some Frequently Asked Questions about Secondary Market What are the various types of financial markets? The financial markets can broadly be divided 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. What is the SEBI and what is its role? The SEBI is the regulatory authority in India established under Section 3 of SEBI Act 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. What are the products dealt in the secondary markets? 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 member of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend etc. 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. Preferred Stock/ Preference shares: Owners of this kind 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 companys 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. 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. 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 favor of debenture holder 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 form of a promissory note redeemable at par to the holder on maturity and therefore doesnt require any guarantee. Commercial paper is a money market instrument issued for the tenure of 90 days. Coupons: Tokens for payment of interest attached to bearer securities. Treasury Bills: Short-term (up to one year) bearer discount security issued by government as a means of financing their cash requirements. Whom should I contact for my Stock Market related transactions? You can contact a broker or a sub broker registered with SEBI for carrying out your transactions pertaining to the capital market.

Who is a broker? A broker is a member of a recognized stock exchange, who is permitted to do trades on the floor of the exchange. He is enrolled as a member with the concerned exchange and is registered with SEBI. Who is a sub broker? A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange. How do I know if the broker or sub broker is registered? You can confirm it by verifying the registration certificate issued by SEBI. A broker's registration number begins with the letters "INB" and that of a sub broker with the letters INS". Am I required to sign any agreement with the broker or sub-broker? Yes. You have to sign the Member - Client agreement/ Sub broker - Client Agreement for the purpose of engaging a broker to execute trades on your behalf from time to time and furnish details relating to yourself for enabling the member to maintain client registration form. The Model Agreement between broker-client /Sub Broker client and Know your Client Form can be viewed

from SEBI Website at www.sebi.gov.in. The Model Agreement has to be executed on the nonjudicial stamp paper. The Agreement contains clauses defining the rights and responsibility of Client vis a vis broker/ sub broker. The Broker/Sub broker can also add further clauses in the Model Agreement as per their requirement. What is Member Client agreement form? This form is an agreement entered between client and broker in presence of witness where the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through the broker after being satisfied of brokers capabilities to deal in securities. The member, on the other hand agrees to be satisfied by the genuineness and financial soundness of the client and making client aware of his(brokers) liability for the business to be conducted. What kind of details do I have to provide in Client Registration form? The brokers have to maintain a database of their clients, for which you have to fill client registration form. In case of individual client registration, you have to broadly provide following information: o Your name, address, educational qualifications, occupation, residential status(Resident Indian/ NRI/others) o Particulars of bank account o Income tax no (PAN/GIR) which also serves as unique client code. o If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number. o Proof of identity submitted either as Passport number/Driving license/Ration card/Voters identity card. Each client has to use one registration form. Incase of joint names /family members, a separate form has to be submitted form each person. Incase of Corporate Client, following information has to be provided: o Name , address of the Company/Firm o Date of incorporation and date of commencement of business. o Copy of Memorandum and articles of Association/Partnership deed. o Details of Promoters/Partners/Key managerial Personnel the Company/Firm in specified format. o Copies of annual report of last three years. o Net worth pf the Company o Particulars of the Bank Account. o Income tax number of the company o Annual income in last three years and market value of portfolio o If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number. What is meant by Unique Client Code? In order to facilitate maintaining database of their clients, it is mandatory for all brokers to use unique client code which will act as an exclusive identification for the client. For this purpose, PAN number/passport number/driving License/voters ID number/ ration card number coupled with the frequently used bank account number and the depository beneficiary account can be used for identification, in the given order, based on availability. How do I place my orders with the broker or sub broker? You can either go to the brokers /sub brokers office or place an order on the phone /internet or as defined in the Model Agreement given above. How do I know whether my order is placed? The Stock Exchanges assign a Unique Order Code Number to each transaction, which is intimated by broker to his client and once the order is executed, this order code number is printed on the contract note. The broker member has to also maintain the record of time when the client has placed order and reflect the same in the contract note along with the time of execution of the

order. What documents should be obtained from broker on execution of trade? You have to ensure receipt of the following documents for any trade executed on the Exchange: a. Contract note in Form A to be given within stipulated time. b. Purchase /sale note or confirmation memo in the case of a sub broker. It is the contract note/purchase or sale note (confirmation memo) that gives rise to contractual rights and obligations of parties of the trade. Hence you should insist on contract note from stock broker and purchase/sale note (confirmation memo) from sub broker. The contract note displays the order number, order time and unique trade number. The quantity and the price of the trade executed at the exchange can be verified by the Exchange. The contract note also contains arbitration clause for raising dispute with the Arbitrators as per the byelaws of the Exchange. What details are required to be mentioned on the Contract note issued by the Stock Broker? A broker has to issue a contract note to clients for all transactions in the form specified by the stock exchange. The contract note inter-alia should have following : o Name, address and SEBI Registration number of the Member broker. o Name of partner /proprietor /Authorsied Signatory. o Dealing Office Address/Tel No/Fax no, Code number of the member given by the Exchange. o Contract number, date of issue of contract note, settlement number and time period for settlement. o Constituent (Client) name/Code Number. o Order number and order time corresponding to the trades. o Trade number and Trade time. o Quantity and Kind of Security brought/sold by the client. o Brokerage and Purchase /Sale rate are given separately . o Service tax rates and any other charges levied by the broker. o Appropriate stamps have to be affixed on the original contract note or it is mentioned that the consolidated stamp duty is paid. o Signature of the Stock broker/Authorized Signatory. Incase of purchase and sale note provided by the sub broker, following additional information is provided: o Name and SEBI Registration no of Sub broker. o Name of affiliating trading member. o Purchase/sale note number . o Corresponding contract note issued by the broker for relevant trade number along with the date of contract. Both contract note and purchase / sale note provide for the recourse to the system of arbitrators for settlement of disputes arising out of transactions. What is the pay-in day and pay- out day? Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Since settlement cycle has been reduced from T+3 rolling settlement to T+2 w.e.f. April 01, 2003, the exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out. How long it takes to receive my money for a sale transaction and my shares for a buy transaction? Brokers were required to make payment or give delivery within two working days of the pay - out day. However, as settlement cycle has been reduced from T+3 rolling settlement to T+2 w.e.f. April 01, 2003, the pay out of funds and securities to the clients by the broker will be within 24 hours of the payout.

Is there any provision where I can get faster delivery of shares in my account? The investors/clients can get direct delivery of shares in their beneficiary accounts. To avail this facility, you have to give details of your beneficiary account and the DP-ID of your DP to your broker along with the Standing Instructions for Delivery-In to your Depository participant for accepting shares in your beneficiary account. Given these details, the Clearing Corporation/Clearing House shall send pay out instructions to the depositories so that you receive pay out of securities directly into the beneficiary account. In case of purchase of shares, when do I make payment to the broker? The payment for the shares purchased is required to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange. In case of sale of shares, when should the shares be given to the broker? The delivery of shares has to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange and agreed with the broker/sub broker in writing. What is the maximum brokerage that a broker/sub broker can charge? The maximum brokerage that can be charged by a broker is decided by the Stock Exchanges as per the Exchange Regulations. The SEBI (Stock brokers and Sub brokers), 1992 stipulates that sub broker cannot charge from his clients a commission which is more than 1.5% of the value mentioned in the respective purchase or sale note . What are the charges that can be levied on the investor by a stock broker/sub Broker? The trading member can charge: 1. Brokerage charged by member broker. 2. Penalties arising on specific default on behalf of client (investor) 3. Service tax as stipulated The brokerage and service tax is indicated separately in the contract note. What happens if I could not make the payment of money or deliver shares on the pay-in day? In case of purchase on your behalf, the member broker has the liberty to close out transactions by selling securities in case you fail to make full payment to the broker for the execution of contract before pay in day as fixed by Stock Exchange for the concerned settlement period unless you already have an equivalent credit with the Broker. Similarly, in case of sale of shares on your behalf, the member broker has the liberty to close out the contract by effecting purchases if you fail to deliver the securities sold with valid transfer documents, if any before delivery day as fixed by Stock Exchange for the concerned settlement period. In both the cases, any loss in transactions will be deductible from the margin money paid by you. The shortages are met through auction process and the difference in price indicated in contract note and price received through auction is paid by member to the Exchange, which is then liable to be recovered from the client. What happens if the shares are not bought in the auction? If the shares could not be bought in the auction i.e. if shares are not offered for sale in the auction, the transactions are closed out as per SEBI guidelines. The guidelines stipulate that the close out Price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and upto the date of auction/close out OR 20% above the official closing price on the exchange on the day on which auction offers are called for (and in the event of there being no such closing price on that day, then the official closing price on the immediately preceding trading day on which there was an official closing price), whichever is higher.

Since in the rolling settlement the auction and the close out takes place during trading hours, hence the reference price in the rolling settlement for close out procedures would be taken as the previous days closing price. What happens if I do not get my money or share on the due date? In case a broker fails to deliver to you in timely and proper payment of money /shares or you have complaint against conduct of the stock broker, you can file a complaint with the respective stock exchange. The exchange is required to resolve all the complaints. To resolve the dispute, the complainant can also resort arbitration as provided on the reverse of contract note /purchase or sale note. However, if the complaint is not addressed by the Stock Exchanges or is unduly delayed, then the complaints along with supporting documents may be forwarded to Secondary Market Department of SEBI. Your complaint would be followed up with the exchanges for expeditious redressal. In case of complaint against a sub broker, the complaint may be forwarded to the concerned broker with whom the sub broker is affiliated for redressal. What recourses are available to me for redressing my grievances? You have following recourses available: 1. Office of Investor Assistance and Education: You can lodge complaint with OIAE Cell of SEBI against companies for delay, non-receipt of shares, refund orders etc and with Stock Exchanges against brokers on certain trade disputes or non receipt of payment/securities. 2. Arbitration: If no amicable settlement could be reached, then you can make application for reference to Arbitration under the Bye Laws of concerned Stock exchange. 3. Court of Law What is Arbitration? Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange. What is the process for preferring arbitration? The byelaws of the exchange provide procedure for Arbitration .You can procure a form for filing arbitration from the concerned stock exchange. The arbitral tribunal has to make the arbitral award within 3 months from the date of entering upon the reference. The time taken to make an award cannot be extended beyond three times up to maximum period of three months. Who appoints the arbitrators? Every exchange maintains a panel of arbitrators. Investors may choose the arbitrator of their choice from the panel. The broker also has an option to choose an arbitrator. The name(s) would be forwarded to the member for acceptance. In case of disagreement, the exchange shall decide upon the name of arbitrators. What happens if I am aggrieved by the award of the arbitrator? In case you are aggrieved by the arbitration award, you can take recourse to the appeal provisions as given in the bye-laws of the Exchange. MUTUAL FUNDS

Introduction The small investors who generally lack expertise to invest on their own in the securities market have reinforced the saying Put not your trust in money, put your money in trust. They prefer some kind of collective investment vehicle like Mutual Funds, which pool their marginal

resources, invest in securities and distribute the returns there from among them on cooperative principles. The investors benefit in terms of reduced risks and higher returns arising from professional expertise of fund managers employed by the MFs. This approach was conceived in the US in 1930s. In developed financial markets, MFs have almost over taken Bank deposits and total assets of insurance funds. Experiment with MFs in India began in 1964 with the establishment of Unit Trust of India (UTI), which became very popular and working fine till now. Now days we have many MF companies like Standard Chartered Mutual Fund, ICICI Prudential Mutual Fund etc. The history of Mutual Funds in India and role of SEBI in mutual funds industry Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. Some advantages of Mutual Funds:

Management by Professionals: Mutual Funds are backed by a dedicated investment

research team which analyses the performance and prospects of companies and select suitable investment to achieve the objective of the scheme. Liquidity: in open ended schemes, investors can get their money back promptly at net asset value related prices from the mutual fund itself. With close ended schemes, investors can sell their units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase at net asset value. Diversification: Mutual funds invest in a number of companies across a broad cross selection of industries and sectors. This diversification reduces the risk because its very few that all stocks decline at the same time and in the same proportion. Convenient administration: Investing in Mutual Funds reduces paper work and help investors to avoid many problems, such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save investors time and make investing easy and convenient. Return potential: Over a medium to long term, MFs have a potential to provide higher returns as they invest in a diversified basket of selected securities.

 Low Cost: Mutual Funds are relatively less expensive way to invest compared to directly
investing in Capital Markets because of the benefits of scale in brokerage, custodial and other fees translate into lower cost for investors. Transparency: Investors get regular information on the value of their investment in addition to disclosure on the specific investments made by scheme, the proportion invested in each class of assets and the fund managers investment strategy and outlook.

Various Schemes of Mutual Funds The MFs in India offer wide array of schemes that cater to different needs suitable to any age, financial position, risk taking capability and return expectations. These include Open Ended Schemes, which provides easy liquidity; Close Ended Schemes, which provide capital appreciation over medium to long term and many more schemes which we are going to discuss briefly:

(i)

(ii)

Open Ended Mutual Funds: An open ended mutual funds is a fund with a nonfixed number of outstanding shares/units that stands ready at any time to redeem them on demand. The fund itself buys back the shares. Generally the transaction takes place at the Net Asset Value which is calculated on a periodical basis. The Net Asset Value (Net Asset Value per share is the value of the funds total net assets after liabilities divided by the total number of shares outstanding on a given day) of the mutual funds rises of falls as a result of the performance of securities in the portfolio and the stock exchange. Close Ended Mutual Funds: It is the fund where mutual fund management sells a limited number of shares and does not stand ready to redeem them. Primary example of such mutual fund is UTIs Master Share. The shares of such mutual funds are traded in the secondary markets. The requirement for listing is laid down to grant liquidity to the investors who have invested with the mutual fund. Therefore, close ended mutual funds are more like equity shares. (iii) Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Income Oriented Schemes: the fund primarily offer frxed income to investors.
Naturally enough the main securities in which investment are made by such funds are the fixed income yielding ones like bonds. Growth Oriented Schemes: these funds offer growth potentialities associated with investment in capital market namely: (1) high source of income by way of dividend and (2) rapid capital appreciation both from holding from good quality scrips. Hybrid Schemes: these funds cater to both the investment needs of the prospective investor- namely fixed income as well as growth orientation. Therefore investment targets of these mutual funds are judicious mix of both the fixed income securities like bonds and debentures and also sound equity scrips. So these funds are also known as Balanced Funds. Growth / Equity Oriented Scheme: The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth

schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Income / Debt Oriented Scheme: The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Balanced Fund: The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund: These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Gilt Fund: These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Index Funds : Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. Sector specific funds/schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme. Load or no-load Fund: A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be

payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units. Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the offer documents? Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to amend their offer documents so that the new investors are aware of loads at the time of investments. Sales or repurchase/redemption price The price or NAV a unit holder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable. Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unit holders. It may include exit load, if applicable. Assured return scheme Assured return schemes are those schemes that assure a specific return to the unit holders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year. How to invest in a scheme of a mutual fund? Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors. Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.

What should an investor look into an offer document? An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsors track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc How to know the performance of a mutual fund scheme? The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unit holders at the end of the year. Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds. Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme. Calculation of Net Asset Value Mutual Funds raise money by selling their shares to public and redeeming them at current net asset value. Net Asset Value is the value of assets of the each unit of the scheme. Thus is the NAV is more than the face value of Rs 10, there is an appreciation for the investment. If the NAV is less than the face value, it indicates the depreciation of the investment. NAV also includes dividends, interest accruals and reduction of liabilities and expenses apart from market value of investment. Every Mutual Fund shall compute the NAV of each scheme by dividing the net asset of the scheme by the number of units of that scheme outstanding on the date of the valuation and public the same at least in two daily newspapers at intervals not exceeding one week. However, the NAV of any scheme for special target segment or any monthly scheme which are not

mandatory required to be listed in the stock exchange may publish the NAV at monthly or quarterly intervals as permitted by SEBI. Wound up of Scheme and Impact on Investor of Scheme In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unit holders are entitled to receive a report on winding up from the mutual funds which gives all necessary details. How can the investors redress their complaints? Investors would find the name of contact person in the offer document of the mutual fund scheme whom they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of Asset Management Company and trustees are also given in the offer documents. Investors can also approach SEBI for readdressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved. Investors may send their complaints to: Securities and Exchange Board of India Mutual Funds Department Mittal Court B wing, First Floor, 224, Nariman Point, Mumbai 400 021. Phone: 2850451-56, 2880962-70

10 pointers for Investing in MFs Mutual funds as an investment avenue for the retail investor have gained immense popularity over the years. That is not to say that investors have become adept at selecting mutual funds with ease and accuracy. We have noted down 10 pointers for investors who find the exercise of selecting and evaluating mutual funds a tedious one. 1. A fund sponsor with integrity An investor must check the sponsor's (promoter) record in the financial services arena. Apart from a consistent and clean record in financial services, sponsor(s) should have requisite experience and background in managing mutual funds be it in India or overseas. 2. An experienced fund manager The fund manager must be experienced, which is best reflected in the returns he has generated on funds previously/currently managed by him. 3. A suitable investment philosophy

Every fund manager has his own individual style and investment philosophy. While some managers are aggressive, others are passive. The investor must choose the fund that best reflects and matches his own investment philosophy. 4. The correct fund by nature Funds are either open-ended or close-ended. Open-ended funds: An open-end fund is available for subscription throughout the year. Investors have the flexibility to buy or sell any part of their investment at any time at a price linked to the funds - Net Asset Value (NAV) Close-ended funds: A close-end fund begins with a fixed corpus and operates for a fixed duration. The fund is open for subscription only during a specified period. When the period terminates, investors can redeem their units. Close-ended funds may be listed on the stock exchanges to impart liquidity to the investment. 5. The correct fund category Mutual funds offer different categories. These can be classified as: Debt funds They seek to provide a regular source of income by investing in fixed income securities like debentures and bonds. Equity Funds They aim to grow money over time (i.e. capital appreciation). Here the investment focus is mainly on stocks/shares. Historically, stocks have outperformed other asset classes like bonds, fixed deposits, gold, real estate over the long term - 10 years. Balanced funds The fund attempts to maintain a balance between fixed income securities and equities in a pre-determined ratio like 60:40 equity - debt for instance. The investor must invest in mutual fund categories, which meet his criteria in terms of need for regular income, capital appreciation, and safety of principal. 6. Fees and charges Asset management companies (AMC) charge a fee for managing investor monies. In other words, your mutual fund deducts charges and fees from the net asset value (NAV) of the fund. As an investor you must be aware of the fees and charges of the AMC. Two schemes with more or less similar performances would generate different returns if one of the two schemes charges higher fees.

7. The load An investor may be required to pay a load either at the time of buying the units or at the time of selling the units. Again, the returns of two similar performing schemes may vary depending on the load charged by the scheme to the investor. 8. The tax implications The investor needs to understand the tax implications before investing in mutual fund schemes. Investments in mutual funds have varying tax implications depending on whether you exit from the fund before or after 12 months from the investment date. Tax-saving funds in particular make attractive investments from a tax perspective as they offer tax relief under Section 88. 9. Investor service and transparency Services offered by mutual funds (MFs) vary across funds. Some MFs are more investor friendly than others, and offer information at regular intervals. For instance, some funds disclose the expense ratios, an important criterion for fund selection, once a year, some disclose it once every 3 months, while a few disclose it every month. 10. Fund performance Every fund is benchmarked against an index like the BSE Sensex, Nifty, BSE 200, CNX 500. The investor must track the fund's performance against the benchmark index. He must also compare its performance with other funds from the same category. He should also see the fund's calendar year performances over the years. Impact of Information Technology on Securities Market (Global Perspective) The growth in technology and communications has impacted every aspect of our business in some or the other form. These effects are enduring and have changed the very way in which business is carried out. The stock market is one such institution whose very existence has been challenged by the growth in information technology. IT has turned the very idea of a stock market on its head. Initially we should start with an assessment of the impact of dematerialization on the stock markets. Dematerialization is perhaps the single most important factor that has changed every aspect of working of a stock market. Next we examine the impact IT has on the revenue and cost models of the stock exchange. Introduction Technology has impacted the working of stock markets in every sense. However, a useful starting point for this study would be the study of dematerialization, or demat as it is popularly known as. This is simply because demat has changed the way stocks are held and traded and therefore has effect on every other function of the market. Dematerialization Dematerialization in simple terms means the conversion of shares from physical to electronic form.

Demat, enabled by the use of technology is probably is single most important factor which has repercussions on every aspect of the stock markets. Demat in India started with the creation of NSDL (National stock depository limited) in 1996. UTI, was one of the first institutions to use demat when it decided to dematerialize 50% of its holdings in 1997. SEBI gave a boost to demat, with compulsory trading on shares in demat form in specified scrips by institutional investors from Jan 15, 1998. The exhibit below shows the percentage of demat shares in the total value of shares traded at NSE over a period of 6 years. Table 2- % of trade in demat form Timeline April 1998 December 1999 Since 2003 Percentage of trade in demat form 2.5% 79.3% 99%

Dematerialization has benefited the market and the market players in more than one way. Demat is instrumental in -

Abolition of market lots Introduction of rolling settlements Enhancing liquidity Bringing stamp duty to zero Reducing chances of bad delivery Increased lending by banks and other FIs

SEBI extended demat to IPOs during capital reforms in capital markets in 2002. The premise being elimination of problems due to loss of allotment letters, share certificates etc., encouraging shareholders to opt for demat credit of allotments, trading compulsorily in demat form with an option of holding shares in physical form for retail investors. Floor-to-screen-to-home BSE, the first exchange to be set up in India, started as a floor-based exchange. However, NSE, setup as an alternative to BSE, was an electronic (computerized) exchange. With advancements in technology, both these exchanges moved to SBTS (Screen Based Trading System) in 1997. While NSE introduced NEAT (NSEs Online Trading System) in May 1997, BSE introduced BOLT (BSEs Online Trading System) in September 1997 in Mumbai. The outcome has phenomenal with respect to the number of trades taking place on these two exchanges.

Table 2 - NSE / BSE vis--vis other stock exchanges NSE Ranking Year Transactions per year ( millions) ( largest exchanges over the world ) 3 3 3 Transactions year (millions) per ( largest exchanges over the world ) 5 7 6 BSE Ranking

2003 2002 2001

336 233 172

180 148 133

Further, trading in stocks has reached retail investors home via the Internet. In 1999-2000, SEBI proposed Internet based trading under ORS (Order Routing System) Trading via Internet was an instant hit, with 18 members being granted licenses in 2000-2001 and trades touching 767 Cr. during the first six months itself. Currently, many Indian websites, prominent among them, www.icicidirect.com , www.sharekhan.com allow investors to trade at conveniently on their home PCs. A person only needs an Internet connection to log-in to secure portals, obtain real-time quotes and instantly buy-sell shares. Although security concerns still exist regarding the safety of data transfer over the Internet, companies like VERISIGN and RSA, who specialize in security algorithms and data encryption ensure high degree of authenticity and trust in trades. Information Flow Any trading system disseminates data to market constituents, in other words, information is freely available. This has two disadvantages It makes easier for off-exchange transactions to occur because of availability of information. It makes off-exchange transactions attractive due to absence of trading costs.

Alternative trading mechanisms The creation of alternative trading mechanisms is facilitated if the exchange is required to disseminate full information about prices and quotes. However experience indicates that although alternative trading mechanisms have been setup, exchanges still remain the primary source of data e.g. - In both USA and the UK, quote-matching systems have been established, such as Madroff Securities and TRADE, on which quotes originating on the primary market for a particular security, the NYSE and LSE respectively, are used as a basis for small execution of trades. Revenue from sale of information

New communications and computer technology has revolutionized the way information about price and quotes are disseminated. Increasing revenues for an exchange have also accompanied this by sale of information. Services revenues (i.e. revenues generated from clearing and settlement, depository and computer services, membership fees and provision of market information) were the second largest source of revenues and saw steady growth between 1995 and 2001. The dissemination of market data and information revenues, which accounted for 42% of the total services revenues in 2000, explained part of the growth. Also, with growing advances in computer and data transmission means market participants can take in financial information in real-time cheaply and manipulate the data to add value to it. The derived-data thus produced can be redistributed to other market participants. This has led to creation of a more "open" flow of information and loss of relevance of contractual obligations that prohibit redistribution of data. World-over, exchanges, realize that with the growing use of IT, enforcing data dissemination contracts can be counter-productive. Most of them have preferred to seek some form of commercial gain by requesting the relevant participants to pay for the re-distribution of data. One of the first exchanges to develop a new information charging policy in response to changing technology was CBT (Chicago Board of Trade). Charges for accessing the data were fixed as follows Table 3-Access Charges (Source: What is an exchange - Ruben Lee) Controlled Environment Open Environment

Monthly $50 monthly Charge $50 monthly

Device Charge

$10 per device

$10 per device

Between 11 100 devices Surcharge NIL More than devices

and 100

$100 per month $250 per month

Conflicting interests Open systems have led to similar dilemma for other market participants. On one hand they do not want to be constrained with respect to the information that they receive from exchanges, on the other hand, they want to restrict the further re-distribution of their derived-information. A classic

case in point is that of Reuters who as a data-vendor Reuters complained to the EU about the constrained information it received from Brussels Stock exchange. While, as also a trading system owner wanted to prevent its value-added information from being redistributed. Dwindling Costs Setting up an exchange incurred high fixed costs and consequently, larger exchanges were able to lower fees per transaction than exchanges with lower volumes. However, advances in IT, have reduced costs of setting up the system. This has reduced cost advantage for the larger exchanges. Linkages with other Exchanges Exchanges may set up links with other exchanges to 1. 2. 3. 4. Reduce costs Offer its members products offered on other exchanges Realize economies of scale More liquidity may also be possible by combining order flows.

The older floor-based systems precluded the possibility of linkage with other exchanges due to limitations of space. The development of screen-based systems has enabled linkages to be established between exchanges. However, even with the present day screen-based systems, problems with establishing linkages do exist due to incompatible systems or development of competing linkages. Experience with linkages Many attempts have been made at cooperation between exchanges but only few have succeeded. Case studies Linkage Reason for linkage Success/ Failure IDIS Disseminate share Prices between floor of various stock exchanges in Europe EuroQuote AMEXTSE Reduced costs of information, enhance quality of information, provide a global window for the European markets Trading in different currencies ( American dollar and Canadian dollar ), access best prices in either country, greater liquidity Failure Differences of opinion among participants, emergence of EWM and Eurolist, viewed by individual constituents as a source of competition Majority trade occurred only in one direction, high costs involved Failure Absence of computer-assisted trading Reasons for failure/success

Failure

BSE-ME

Allow flow of marketable-orders to ME in Canadian stocks listed on BSE

Success

Savings because brokers were bypassed, rapid turnaround and reduced errors in cross-border trades

RTGS (Real time Gross Settlement) RTGS - The continuous settlement of payments on an individual order basis without netting debits with credits across the books of a central bank. Basically, this is a system for large-value interbank funds transfers. This system lessens settlement risk because interbank settlement happens throughout the day, rather than just at the end of the day. RTGS now has been implemented in major countries all over the world. A look at the RTGS systems in place around the world indicates that these systems have been responsible for reduction in systematic risks and increased trading in the financial markets including stock markets. RTGS Success stories RTGSplus (Germany) combines the benefits of secure gross settlement with the advantages of liquidity-saving processing. Its innovative approach is guaranteed to make payment processing fast and liquidity-efficient with early finality. Every payment is checked for cover in real-time and executed immediately in case sufficient liquidity is available; offsetting payment flows are also used as cover. In almost all cases, payments are finally settled within a matter of a few seconds.. On the first business day of January 2001, the Bank of Japan introduced the new RTGS system, making real-time gross settlement (RTGS) the only mode for its settlement system for funds and Japanese government securities (JGSs) and abolishing designated-time net settlement. Since the start of the RTGS system, the Bank's settlement system (the BOJ-NET) has been operating stably, and funds and JGS settlement between financial institutions has taken place smoothly. The Bank's changeover to the RTGS system for funds and JGS settlement has taken place smoothly, successfully reducing systemic risk as planned. The changeover to the RTGS system is an important factor contributing to more active trading in Japan's financial markets. Back home in India, spurred by similar systems all over the world and partly by the BASEL-II regulations, RBI went live with the RTGS system in March 2004. Starting with State Bank of India, HDFC Bank, Standard Chartered Bank, and Saraswat Co-operative bank the system now includes 23 banks. India is already ahead of the world in terms of being at T+2 settlement. For example, in New York, T+3 settlement is used, which means that they have to wait one extra day (compared to India) in order to get money for shares sold. One major factor, which has held back the move to T+1, is the weak banking system. In August 2004, The Reserve Bank of India (RBI) enabled RTGS for straight through processing (STP). The measure is expected to pave the way for T+1 settlement for stock exchanges and lead to settlement of securities one day after the day of trade. VOLATILITY On the other hand rapid flow of information has also meant increased volatility in the markets. In financial terms, volatility is: The degree to which the price of a security, commodity, or market rises or falls within a shortterm period. An obvious reason for market volatility is technology. This includes more timely

information dissemination, improved technology to make trades and more kinds of financial instruments. The faster information is disseminated, the quicker markets can react to both negative and positive news. Improved trading technology makes it easier to take advantage of arbitrage opportunities, and the resulting price alignment arbitrage causes. Finally, more kinds of financial instruments allow investors more opportunity to move their money to more kinds of investment positions when conditions change. Adverse impacts of IT on stock markets Some other interesting observations about impact of technology on stock markets

1. The vintage capital model teaches us that technological change destroys old capital. We
have gone further and argued that major technological changelike the IT revolution destroys old firms. It does so by making machines, workers, and managers obsolete. Product-market entry of new firms and new capital takes time, and their stock-market entry takes even longer. In the meantime, the stock market declines. We have argued that aggregate valuation can fall below the present value of dividends because capital may "disappear" right after a major technological shift, as new capital forms in small, private companies. Later, these companies are IPOd, and only then does their value become a part of stock-market capitalization. Indeed, the innovation may, at first, reduce the markets value because some firms, usually large or old, will cling to old technologies that have lost their momentum. (a) the market declined in the late 1960s because it felt that the old technologies either had lost their momentum or would give way to IT, and that (b) IT innovators boosted the stock markets value only in the 1980s.

2.

Conclusion To sum up, we can say that computerization and automation are not to be avoided. Technology has been able to make the stock markets accessible to every individual. It has also led to positive developments in terms of reduced costs and fewer errors. But, as some experiences have indicated, IT cannot be applied as a panacea for all problems. Regulation and knowledge dissemination are still important. The use of technology should be preceded by a detailed study and assessment of all other alternatives. The key to successful use to technology is the appreciation of its constraints.

Role of NSEIL in Indian Securities Market Introduction National Stock exchange of India Ltd (NSE) was given recognition as a stock exchange in April 1993. NSE was setup with the objective of (a) establishing a nationwide trading facility for all types of securities. (b) Ensure equal access to all investors all over the country through an appropriate communication network. (c) providing fair, efficient and transparent securities market using electronic trading system (d) enabling shorter settlement cycles and book entry settlements and (e) meeting the international benchmarks and standards. Within short span of life, above objectives have been realized and the exchange has played a leading role as a change agent in transforming the Indian Capital Markets to its present form. NSE has set up an infrastructure that serves as the role model for the securities industry in terms of trading systems, clearing and settlement practices and procedures. The standard set by NSE in terms of market practices, products, technology and service standards have become industry benchmarks and are being replicated by other market participants. It provides screen based automated trading system with higher degree of transparency and equal access to

investors irrespective of geographical locations. The high level of information dissemination through online system has helped in integrating retail investors on a nation wide basis. The exchange currently operates in three market segments namely Capital Market Segment, wholesale Debt Market Segment and Futures and Options Segment. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualisation of stock exchange governance, screen based trading, compression of settlement cycles, dematerialisation and electronic transfer of securities, securities lending and borrowing, professionalisation of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology.

NSE Milestones November 1992 April 1993 May 1993 June 1994 November 1994 March 1995 April 1995 June 1995 July 1995 October 1995 April 1996 April 1996 June 1996 November 1996 November 1996 December 1996 December 1996 December 1996 February 1997 November 1997 May 1998 May 1998 July 1998 August 1998 Incorporation Recognition as a stock exchange Formulation of business plan Wholesale Debt Market segment goes live Capital Market (Equities) segment goes live Establishment of Investor Grievance Cell Establishment of NSCCL, the first Clearing Corporation Introduction of centralised insurance cover for all trading members Establishment of Investor Protection Fund Became largest stock exchange in the country Commencement of clearing and settlement by NSCCL Launch of S&P CNX Nifty Establishment of Settlement Guarantee Fund Setting up of National Securities Depository Limited, first depository in India, co-promoted by NSE Best IT Usage award by Computer Society of India Commencement of trading/settlement in dematerialised securities Dataquest award for Top IT User Launch of CNX Nifty Junior Regional clearing facility goes live Best IT Usage award by Computer Society of India Promotion of joint venture, India Index Services & Products Limited (IISL) Launch of NSE's Web-site: www.nse.co.in Launch of NSE's Certification Programme in Financial Market CYBER CORPORATE OF THE YEAR 1998 award

February 1999 April 1999 October 1999 January 2000 February 2000 June 2000 September 2000 November 2000 December 2000 June 2001 July 2001 November 2001 December 2001 January 2002 May 2002 October 2002 January 2003 June 2003 August 2003 AT A GLANCE:

Launch of Automated Lending and Borrowing Mechanism CHIP Web Award by CHIP magazine Setting up of NSE.IT Launch of NSE Research Initiative Commencement of Internet Trading Commencement of Derivatives Trading (Index Futures) Launch of 'Zero Coupon Yield Curve' Launch ofBroker Plaza by Dotex International, a joint venture between NSE.IT Ltd. and i-flex Solutions Ltd. Commencement of WAP trading Commencement of trading in Index Options Commencement of trading in Options on Individual Securities Commencement of trading in Futures on Individual Securities Launch of NSE VaR for Government Securities Launch of Exchange Traded Funds (ETFs) NSE wins the Wharton-Infosys Business Transformation Award in the Organization-wide Transformation category Launch of NSE Government Securities Index Commencement of trading in Retail Debt Market Launch of Interest Rate Futures Launch of Futures & options in CNXIT Index

CAPITAL MARKET (EQUITIES) SEGMENT Number of VSATs Number of cities covered Settlement Guarantee Fund Investor Protection Fund (CM and F&O) Number of securities available for trading September 30, 2004 September 30, 2004 March 31, 2004 September 30, 2004 September 30, 2004 2,880 360 Rs. 1,550.90 crores Rs. 130.91 crores 1,368

Record number of trades Record daily turnover (quantity) Record daily turnover (value) Record market capitalisation Record value of S&P CNX Nifty Index Record value of CNX Nifty Junior Index Funds Pay-in/Pay-out Securities Pay-in/Pay-out (Value) Securities Pay-in/Pay-out (Quantity) *Settlement Date DERIVATIVES (F&O) SEGMENT No. of cities covered Settlement Guarantee Fund Record daily turnover (value)

July 08, 2004 August 19, 2003 February 28, 2001 October 09, 2004 January 09, 2004 February 23, 2000 February 05, 2004* January 13, 2004* August 21, 2003*

25,45,755 6,493 lakhs Rs.10,366.52 crores Rs.12,78,361 crores 2,014.65 5,365.90 Rs. 685.76 crores Rs. 1884.09 crores 1470.14 lakhs

Record Pay-in/Pay-out (Rolling Settlement):

September 30, 2004 March 31, 2004 January 28, 2004

323 Rs. 4,356.85 crores Rs. 21,921.34 crores

WHOLESALE DEBT SEGMENT Number of securities available for trading Record daily turnover (value) Technology at NSE Across the globe, developments in information, communication and network technologies have created paradigm shifts in the securities market operations. Technology has enabled organizations to build new sources of competitive advantage, bring about innovations in products and services, and to provide for new business opportunities. Stock exchanges all over the world have realized the potential of IT and have moved over to electronic trading systems, which are cheaper, have wider reach and provide a better mechanism for trade and post trade execution. NSE believes that technology will continue to provide the necessary impetus for the organization to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE's IT set-up is the largest by any company in India. It uses satellite communication technology to energise participation from around 400 cities spread all over the country. In the recent past, capacity enhancement measures were taken up in regard to the trading systems so as to effectively meet the requirements of increased users and associated September 30, 2004 August 25, 2003 2,883 Rs.13,911.57 crores

trading loads. With upgradation of trading hardware, NSE can handle up to 1 million trades per day. NSE has also put in place NIBIS (NSE's Internet Based Information System) for on-line realtime dissemination of trading information over the internet. In order to capitalise on in-house expertise in technology, NSE set up a separate company, NSE.IT, in October 1999. This is expected to provide a platform for taking up new IT assignments both within and outside India and attaining global exposure. NEAT is a state-of-the-art client server based application. At the server end, all trading information is stored in an in-memory database to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault tolerant STRATUS main frame computer while the client software runs under Windows on PCs. The telecommunications network uses X.25 protocol and is the backbone of the automated trading system. Each trading member trades on the NSE with other members through a PC located in the trading member's office, anywhere in India. The trading members on the Wholesale Debt Market segment are linked to the central computer at the NSE through dedicated 64Kbps leased lines and VSAT terminals. These leased lines are multiplexed using dedicated 2 Mbps, optical-fiber links. The WDM participants connect to the trading system through dial-up links. The Exchange uses powerful RISC -based UNIX servers, procured from Digital and HP for the back office processing. The latest software platforms like ORACLE 7 RDBMS, GUPTA SQL/ORACLE FORMS 4.5 Front - Ends, etc. have been used for the Exchange applications. The Exchange currently manages its data centre operations, system and database administration, design and development of in-house systems and design and implementation of telecommunication solutions. NSE is one of the largest interactive VSAT based stock exchanges in the world. Today it supports more than 3000 VSATs and is expected to grow to more than 4000 VSATs in the next year. The NSE- network is the largest private wide area network in the country and the first extended CBand VSAT network in the world. Currently more than 9000 users are trading on the real timeonline NSE application. There are over 15 large computer systems which include non-stop faulttolerant computers and high end UNIX servers, operational under one roof to support the NSE applications. This coupled with the nation wide VSAT network makes NSE the country's largest Information Technology user. In an ongoing effort to improve NSE's infrastructure, a corporate network has been implemented, connecting all the offices at Mumbai, Delhi, Calcutta and Chennai. This corporate network enables speedy inter-office communications and data and voice connectivity between offices. In keeping with the current trend, NSE has gone online on the Internet. Apart from having a 2mbps link to VSNL and our own domain for internal browsing and e-mail purposes, we have also set up our own Web site. Currently, NSE is displaying its live stock quotes on the web site (www.nseindia.com) which are updated online.

NSE Group

NSCCL

NSE.IT

IISL

NSDL

DotEx Intl. Ltd.

NSCCL National Securities Clearing Corporation Ltd. (NSCCL) The National Securities Clearing Corporation Ltd. (NSCCL), a wholly owned subsidiary of NSE, was incorporated in August 1995. It was set up to bring and sustain confidence in clearing and settlement of securities; to promote and maintain, short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system. NSCCL commenced clearing operations in April 1996. NSCCL carries out the clearing and settlement of the trades executed in the Equities and Derivatives segments and operates Subsidiary General Ledger (SGL) for settlement of trades in

government securities. It assumes the counter-party risk of each member and guarantees financial settlement. It also undertakes settlement of transactions on other stock exchanges like, the Over the Counter Exchange of India. NSCCL has successfully brought about an up-gradation of the clearing and settlement procedures and has brought Indian financial markets in line with international markets NSCCL, the Organization The National Securities Clearing Corporation Ltd. (NSCCL), a wholly owned subsidiary of NSE, was incorporated in August 1995. It was the first clearing corporation to be established in the country and also the first clearing corporation in the country to introduce settlement guarantee. It was set up with the following objectives: to bring and sustain confidence in clearing and settlement of securities; to promote and maintain, short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system.

NSCCL commenced clearing operations in April 1996. It has since completed more than 1150 settlements (equities segment) without delays or disruptions.

India Index Services & Products Ltd. (IISL) India Index Services and Products Limited (IISL), a joint venture between NSE and Credit Rating Information Services of India Limited (CRISIL), was set up in May 1998 to provide a variety of indices and index related services and products for the Indian capital markets. It has a consulting and licensing agreement with Standard and Poor's (S&P), the world's leading provider of investible equity indices, for co-branding equity indices. IISL provides a broad range of services, products and professional index services. It maintains over 80 equity indices comprising broad-based benchmark indices, sectoral indices and customized indices. Many investment and risk management products based on IISL indices have

been developed in the recent past, within India and abroad. These include index based derivatives traded on NSE and Singapore Exchange (SIMEX) and a number of index funds. India Index Services & Products Ltd. (IISL) India Index Services & Products Ltd. (IISL) is a joint venture between the National Stock Exchange of India Ltd. (NSE) and CRISIL Ltd. (formerly the Credit Rating Information Services of India Limited). IISL has been formed with the objective of providing a variety of indices and index related services and products for the markets.

capital

IISL has a consulting and licensing agreement with Standard and Poor's (S&P), the world's leading provider of investable equity indices, for co-branding IISL's equity indices.

National Securities Depository Ltd. (NSDL) In order to solve the myriad problems associated with trading in physical securities, NSE joined hands with the Industrial Development Bank of India (IDBI) and the Unit Trust of India (UTI) to promote dematerialization of securities. Together they set up National Securities Depository Limited (NSDL), the first depository in India. NSDL commenced operations in November 1996 and has since established a national infrastructure of international standard to handle trading and settlement in dematerialized form and thus completely eliminated the risks to investors associated with fake/bad/stolen paper.

NSE.IT Ltd. NSE.IT, a 100% subsidiary of National Stock Exchange of India Limited (NSE), is the information technology arm of the largest stock exchange of the country. A leading edge technology user, NSE houses state-of-the-art infrastructure and skills. NSE.IT possesses the wealth of expertise acquired in the last six years by running the trading and clearing infrastructure of largest stock exchange of the country. NSE.IT is uniquely positioned to provide products, services and solutions for the securities industry. There has been a long felt need for top-of-the-line products, services and solutions in the area of trading, broker front-end and back-office, clearing and settlement, web-based trading, risk management, treasury management, asset liability

management, banking, insurance etc. NSE.IT's expertise in these areas is the primary focus. The company also plans to provide consultancy and implementation services in the areas of Data Warehousing, Business Continuity Plans, Stratus Mainframe Facility Management, Site Maintenance and Backups, Real Time Market Analysis & Financial News over NSE-Net, etc. NSE.IT is an Export Oriented Unit with STP and plans to go global for various IT services in due course. In the near future the company plans to release new products for Broker Back-office Operations and enhance NeatXS / Neat iXS to support Straight Through Processing on the net.

DotEx International Limited DotEx was formed to provide a world-class internet trading platform which allows members of NSE to offer online trading facilities to their customers. Members of NSE can service a larger clientele by using the automated risk management features and thus increase volumes. Investors get comprehensive and updated information necessary to trade, along with a single-click convenience to fulfil their obligations. The initial offering of DotEx is DotEx Plaza where multiple market participants such as members of NSE, depository participants and banks can offer webbased services to their customers. As a neutral aggregator and infrastructure provider, DotEx offers choice and convenience to investors. DotEx was a joint venture between i-flex Solutions Ltd. and NSE.IT Ltd. Recently NSE has taken over the shareholding and management of DotEx. DotEx products may be classified under the following broad categories: Equity Trading Module F&O Trading Module

Bombay Stock Exchange BSE

Introduction The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the

premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures readdressal of their grievances whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by conducting investor education programmes and making available to them necessary informative inputs. A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire ever year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive Officer and a Chief Operating Officer. The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange and he is assisted by the Chief Operating Officer and other Heads of Departments. The Exchange has inserted new Rule No.126 A in its Rules, Bye-laws & Regulations pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting of three elected directors, three SEBI nominees or public representatives, Executive Director & CEO and Chief Operating Officer has been constituted. The Committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member-brokers, declaration of a member-broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the memberbrokers to the Exchange, etc. Turnover on the Exchange The average daily turnover of the Exchange during the financial year 2000-2001 (AprilMarch), was Rs.3984.19 crores and the average number of daily trades was 5.69 lakhs. The average daily turnover of the Exchange in the subsequent two financial years, i.e., 2001-02 & 2002-03, has declined considerably to Rs. 1248.15 crores and Rs. 1251.29 crores respectively. The average number of daily trades recorded during 2001-02 and 2002-03 numbered 5.17 lakhs and 5.63 lakhs respectively.

The average daily turnover and average number of daily trades during the quarter April-June 2003 were Rs. 1101.05 crores and 5.70 lakhs respectively. Dos and Donts Issue of Securities Always Read the detailed/short Prospectus carefully and keep in mind some of the following things:1. Risk factors related to the issue. 2. Any legal proceedings and defaults against the company (if any). 3. Financial information about the issuer. 4. The Objective of the issue.

5. Background of the company. 6. Background and History of the companys promoters. 7. Any instructions before applications. For any queries/problems related to the issue contact the compliance officer whose name is stated on the offer document. If you dont get physical certificates of the share/if shares are not credited into your Demat a/c or if you fail to get refund on the application, then you can contact compliance officer of the issuer company in the stated form and you can also contact and file a complaint to Post Issue Lead Managers. Never..

Become a victim of market rumors. Believe the promises made by issuing company or any other. Do not invest in the shares of the same sectors of the company or the share indices at the times of Bull Run. Do not expect that the prices of the shares of the issuing company will rise quickly.

Trading with Brokers & Sub Brokers. Always..

Trade with those intermediaries which are registered with SEBI. Confirm the valid Registration Certificate with the intermediaries. Confirm that the intermediary has the necessary permission to trade in the market. Clarify that who is going to order from your side. Obtain the Signature of the intermediary on the customer registration form before trading. Enter into and Agreement with your broker or Sub-Broker in which there is a clear indication
of rules and regulations.

Obtain the Contract Note/Confirmation Memo for the daily transactions. Obtain the bill of every settlement from your Broker or Sub-Broker. Confirm that there is a clear indication of the Name of the broker or Sub-Broker, time and
number of transaction, the last price of the transactions and brokerage is clearly mentioned.

Obtain statements of the transactions from time to time. Issue Cheque/Draft in the trading name of your Broker or Sub-Broker. Make sure that you get receipt/delivery within the 48 hours of the payment. In case of any dispute complain to Intermediary/Stock Exchange/SEBI within reasonable
time.

In case of dispute with sub broker inform the main broker within 6 months.

 Keep yourself updated with the rules and announcements by the Issuer/Stock
Exchange/SEBI before trading. Never..

Always..

Transact with the intermediaries which are not registered. Never pay brokerage which is more than approved. Never Transact with outsiders always transact with registered Brokers only. Never forget to get the written form of those high value orders which are given on telephone. At the time of conforming to the delivery related obligations of securities never sign the slips/DIS without filling it properly. Never accept the unsigned or unauthorized signed copy of Contract Note/Confirmation Memo. Never delay in the Payment/Delivery of securities to your Broker/Sub-Broker. Never believe any advertisements which are falsely encouraging. Never believe in any market rumors and never trade falsely.

Trading in Securities

Trade with the authorized Stock Exchanges only. Trade through only those intermediaries which are registered with SEBI. Complete fairly all formalities required to open an account (Customer registration, Customer
Agreement etc.

Ask for Know Your Client Agreement and sign it. Read and understand carefully the risk factors involved in investing in Securities/Derivatives
before investing.

Before arriving to any decision regarding investment always evaluate the Liquidity and
Security factors regarding the investment.

Before Trading consult you Broker and clear all your doubts and queries. Evaluate all Basic and General Information and then arrive to any decision about investing. Give CLEAR instructions to your Broker/Sub-Broker/Depository Participant. Stay Alert regarding your Trading. Make sure to obtain a contract note regarding your trading. Verify all the details of the mentioned in the Contract Note as soon as you receive it. Match your details of the trading with the details on the web site of the exchange. Verify deeply the details provided by your Depository Participant regarding your Holdings and
Trading.

 Always preserve the copies of the documents related to your investments. Keep the DIS (Delivery Instruction Slip) issued by your Depository Participant safe and
secure.

Keep in mind that the serial number of the DIS is pre printed and your account
number/Customer Identification number is pre stamped.

If you are not a usual trader then you can use the Freezing facility available with your Demat
account.

Pay in time the payable margins. At the time of selling deliver the shares in time and at the time of buying pay the money in
time.

Attend the General Meeting personally/ Proxy and vote. Know you Rights and Duties clearly. For readdressal of any dispute contact the relevant authorities.
Never..

Never trade the securities outside the market. Never trade with those intermediaries which are not registered. Never believe the false promises regarding Profits. Never invest on the basis of Market rumors and sayings investing. Never ignore the risk factors involved in the investment. Never be misguided due to market rumors. Never invest in such small stocks which are not strong fundamentally and have just shown recent unnatural rise due to unauthorized favoring statements. Never follow what others do and never show over enthusiasm it could be harmful for you. Never try to forecast market regarding time. Never feel shy to contact authorities for readdressal of your problems, queries and doubts. Never leave signed blank DIS of your demat account lying around carelessly or with anyone even with your broker or Depository Particiapant. always verify them before

Investing in Mutual Funds Always..

Read the offer document carefully before investing. Keep in mind that investment in Mutual Funds may be risky.

 Mention your Bank Account number in the application form. Invest in a scheme depending upon your investment objective and risk appetite. Note that the Net Asset Value of a scheme is subject to change depending upon market
conditions.

Insist for a copy of the offer document / key information memorandum before investing. Note that past performance of a scheme is not indicative of the future performance. Past performance of a scheme may or may not be sustained in the future. Keep track of Net Asset value of a scheme, where you have invested, on a regular basis. Ensure that you receive an account statement for the money that you have invested. Update yourself on the performance of the scheme on a regular basis.
Never..

Do not invest in a scheme because somebody is offering you a commission. Do not get carried away by the name of the scheme / Mutual Fund. Do not fall prey to promises of unrealistic returns. Do not forget to take note of risk involved in the investment. Do not hesitate to approach concerned persons and then the appropriate authorities for solution of any problem. Do not deal with any agent or broker dealer who is not registered with Association of Mutual Funds in India (AMFI).

Buy-Back of Securities Always:

Read the Special resolution regarding the proposed buyback in detail and then vote for it. Compare the price offered in buyback with market price during last few months earning per share,
book value etc.

Determine whether the price offered in reasonable. Read the instructions for making the application for tendering of shares carefully and follow them. Ensure that your application reaches the collection center well within time. If you dont get the letter of offer within reasonable period, contact merchant banker. Mention all details as required in the letter of offer legibly. Furnish all the documents asked for in the letter of offer. Send applications through the mode specified in the letter of offer (by registered post, courier,
ordinary post, hand delivery etc.)

Contact

Merchant Banker if no response is received from company or MB regarding consideration for tendered shares within stipulated time.

 Contact Compliance Officer mentioned in the letter of offer in case of any grievance against the
company.

Contact registrar of companies in case you feel that provision of the companies act has been
violated.

Contact the Merchant Banker in case

buyback. Never:

of any grievance against the procedure followed in the

Do not submit multiple applications. Do not forget to fill up the application legibly. Do not mutilate the application form. Do not cross/ cut in the application form. Do not send the application at wrong address. Do not send application after the close of the offer. Do not forget to give complete information in the application form. Do not forget to sign on the application form. Do not give wrong / contradictory information on the application form. Credit rating Introduction Credit rating, in general sense, is the evaluation of credit worthiness of an individual or of a business concern or of an instrument of a business based on relevant factors indicating ability and willingness to pay obligations as well as net worth. Encyclopedia of Banking and Finance by Charles J. Woelfel states that A Credit Rating is a letter or number used by a mercantile or other agency in reports and credit rating books to denote the ability and disposition of various businesses (individual, proprietorship, partnership or corporation) to meet their financial obligations it also states that ratings are used as a guide to the investment quality of bonds and stocks based on security of principal and interest (or dividends), earning power, mortgage positions, market history and marketability. Thus, we can say that Credit Rating establishes a link between risk and return. An investor or any other interested person uses the rating to asses the risk level and compares the offered rate of return with his expected rate of return. Importance Credit Rating is extremely important as it not only plays a role in investor protection but also benefits the industry as a whole in terms of direct mobilization of savings from individuals. Rating also provide a marketing tool to the company and its investment bankers in placing companys debt obligations with a investor base that is aware of and comfortable with the level of risk. Rating also encourage decipline amongst corporate borrowers to improve their financial structures and operating risk to obtaina better rating for their debt obligations and therby lower the cost of borrowing. Companies those get a lower rating are forewarned, as it were and have a freedom, if they desire, to take steps on their financial or business risks and thereby improve their standing in the market. Various types of Credit Rating

Credit Rating

Financial Instrument Rating

Customer Rating

Borrower Rating

Bond Rating

Equity Rating

Short Term Instrument Rating

Sovereign Rating

Some FAQs regarding Credit Rating What is Credit Rating? Credit Rating is a simple and easy to understand symbolic indicator of the opinion of a credit rating agency about the risk involved in a borrowing programme of an issuer with reference to the capability of the issuer to repay the debt as per terms of issue. This is neither a general purpose evaluation of the company nor a recommendation to buy, hold or sell a debt instrument. How does a rating help an Investor? Credit ratings provide an investor with critical information to enable him to take an informed investment decision based on his risk-return preferences. These also help investors to select the appropriate investment opportunities from a large range of options available. How are credit ratings done? Credit ratings are based on an in-depth study of the industry as also an evaluation of the strengths and weaknesses of the company. The inherent protective factors, marketing strategies, competitive edge, level of technological development, operational efficiency, competence and effectiveness of management, hedging of risks, cash flow trends and potential, liquidity, financial flexibility, government policies, past record of debt servicing, sensitivity to possible changes in business/economic circumstances are looked into.

How long does a rating remain valid? Once a rating has been accepted by the company, Credit Rating Agency continuously monitors the corporate and the rating is monitored till the life of the instrument. This process is known as surveillance. During the surveillance period, all changes affecting the company are taken into account and the rating, if necessary, is changed, upwards or downwards. In other words, a rating is valid during the life of the instrument unless it is changed. What does the suffix + or - with the rating mean? The suffix + or - may be used with the rating symbol to indicate the comparative position of the instrument within the group covered by the symbol. Thus MAA- lies one notch above MA+. How does Credit Rating Agency ensure dependability of ratings? Credit Rating Agency maintains absolute independence from market participants to provide unbiased opinions. The ratings are a result of collective judgment of committee members. Credit Rating Agencys in-house research and data base ensure that opinions are supported by objective benchmarks and peer comparison. What service does Credit Rating Agency offer for the equity Investor? For the equity investor, ICRA introduced the Earnings Prospects and Risk Analysis (EPRA) range of services offering Equity Grading and Equity Assessment. The services provide authentic information on the relative quality of equity in diverse corporates with respect to the earnings prospects and the risks inherent in these earnings prospects. Specifically, the quality, level and growth in earnings are examined carefully. Equity Grading is in the form of a symbolic indicator and is kept under surveillance once the company accepts and uses the equity grade. On the other hand, Equity Assessment is in the form of a report and is a one time exercise. What factors are taken into account while doing an Equity Grading/Assessment? A host of factors are looked into which can be broadly classified as management quality, industry outlook, corporate operations and competitive character, and financial strength (both past and future). In other words, all relevant factors affecting the corporates' earnings prospects and inherent risks are looked into. Grades are comments on the fundamentals and do not forecast the future market price or comment upon the compliance or violation of statutory guidelines relates to issues. How does Credit Rating Agency ensure dependability of Equity Grades/Assessment? Credit Rating Agency maintains absolute independence from market participants to provide unbiased opinions as it does not buy or sell equity. The Gradings are a result of deliberations of the committee members. Benchmarks set up by Credit Rating Agency in-house research ensure that gradings are consistent. How does equity grading help the investors? Equity Grading gives investors timely access to independent, unbiased and dependable opinions on a company's fundamental strengths and weaknesses in form of the earnings prospects and the associated risks and, therefore, help investors design their portfolios by choosing investment options according to their risk and return preferences.

Give an example of an Equity Grade? The equity grades range from ER1A to ER6C. To illustrate, an equity grade of ER3B indicates Good Earnings Prospects: Moderate Risk-Indicated fundamentally on above average position. The level, growth and quality of earnings over the medium term are of a high grade. However, changes in business/economic circumstances, as may be visualised, may moderately impair the likely earnings and underlying fundamentals. What is Asset Securitisation? Asset securitisation is the process by which non-tradable assets are converted into tradable securities. Illiquid assets such as mortgage loans, auto loan receivables, cash credit receivables etc. on the balance sheet of the originator (such as Housing Finance Companies, Financial Institutions, Banks etc.) are packaged, underwritten and sold in the form of securities to investors through a carefully structured process. These securities could be in the form of Commercial Paper, Participation Certificates, Notes or any other form of security permissible under the legal framework of the country. In a securitisation process, the underlying assets are used both as collateral and also to generate the income to pay the principal and interest to the investors of the asset backed securities. How does asset securitization help an Investor? The main benefit to an investor is that he gets a security which is backed by adequate collateral and has credit enhancement. Most of such securities are rated by credit rating agencies. Hence, it becomes relatively easier for an investor to compare the risk-return profile of asset backed securities with other investible instruments and make an informed choice. Also, in a securitisation exercise, the credit risk is shifted partially, or even completely from the issuer of securities to the securitised assets and/or third parties depending on the structure of the transaction. The security, thus, is insulated from the other risks associated with the originator or the issuer. How does an Asset Securitisation/Structured Obligation mechanism work? The originator, who is the entity owning the assets, identifies a pool of homogenous assets which it desires to securities. This pool of assets is then transferred to a different entity, commonly known as a special purpose vehicle (SPV). SPV is incorporated in conformity with the prevailing laws and regulation. Usually, with the limited purpose of acting as a trustee in the whole transaction. The SPV, then issues the securities backed by the pool of assets clearly indicating the liability for the cash consideration received from the investors. This consideration is passed by the SPV to the originator, which then replaces the securitised assets from its balance with the consideration received. The role of the SPV is to make the timely payment to the investors by ensuring that the originator collects and passes the cash flows arising out of securitised assets to it. What is the role of Credit Rating in a Securitization/Structured Obligation? Credit rating of an asset backed security or a structured obligation involves an assessment of the risk of default in meeting the contractual obligation to the investors. The main thrust in the evaluation of an asset backed transaction is to estimate the adequacy of the future cash flows from the securitisation assets and the robustness of the structure in meeting the committed payments to the investors even in a 'worst-case' scenario. A key point to be kept in mind is that in rating of a structured obligation, only the risks associated with the transaction is assessed and that the rating assigned to a structured obligation may not necessarily be the same as the rating assigned to a structured obligation may not necessarily be the same as the rating assigned to the

other debt issued of either the originator or the issuer and to highlight this fact a suffix '(SO)' is attached to the credit rating symbol assigned to a securitization/structured obligation.

Information about Two Major Credit Rating Agencies

CRISIL Ltd. The Credit Rating Information Services of India Limited CRISIL offers a comprehensive range of integrated product and service offerings --real time news, analyzed data, incisive insights and opinion, and expert advice -- to enable investors, issuers, policy makers de-risk their business and financial decision making, take informed investment decisions and develop workable solutions. CRISIL helps to precisely understand measure and calibrate myriad risks -- financial and credit risks, price and market risks, exchange and liquidity risks, operational, strategic and regulatory risks. At the core of CRISIL are its unimpeachable credibility and unmatched analytical rigour.

Company History

1987 1987-88 1988-89 1989-90

Year of Incorporation Commences rating of corporates Publishes CRISIL - IDBI Bond Yield Tables Starts CRISIL Credit Assessment Service for Banks. Launches CRISIL Rating Scan to announce new and current ratings and disseminate CRISIL rating rationale. Establishes Information Services Group and started CRISILCARD Service. Provides technical assistance and training to Rating agency Malaysia Berhard. and MAALOT, The Israeli Securities Rating Company Ltd. Develops methodology and framework for rating Structure Obligations and Asset Securitisation Programmes. Evolves methodology and framework of bank ratings. Introduces CRISIL 'RatingSet-Debentures' and CRISIL 'RatingSet-Fixed Deposits' Publishes CRISIL 'RatingDigest' Makes public offer of 20,00,000 equity shares of Rs. 10 each at a premium of Rs. 40 per share. The offer was over subscribed by 2.47 times. Crosses the mark of 1000 debt instruments rated. Launches CRISIL BanCard Service.

1990-91 1991-92

1992-93

1993-94

 Sets up the Advisory Services Group. 1994-95 Introduces new products like Ratings on real estate developers' projects, Assessing credit quality of State Electricity Boards and State Governments, CRISIL EcoScan, CRISILVIEW. Sets up a separate department for securitisation. Enters into a strategic Alliance with Standard & Poors' Ratings Group, New York. Tie-ups with International Information Vendors for Dissemination of CRISIL Ratings. Introduces ratings on municipal bonds and on Liquified Petroleum Gas (LPG) and Superior Kerosene Oil (SKO. Launches CRISIL ~ 500 Equity Index launched. Launches CRISIL SECTORVIEW reports for industry research. Launches ratings on mutual funds, bank loan ratings, public finance ratings. Standard & Poors' acquisition of interest in CRISIL by acquiring 9.68% of shareholding in the Company. Develops and launches Municipal Bond ratings. Launches financial strength rating for Insurance companies. Introduces CRISERVICE, a retainership service for research. Introduces CRISIL MNC Index and CRISIL Indian Business Groups Index Sets up IISL, a Joint-venture between CRISIL and National Stock Exchange for carrying out index business and related activities. The new Company enters into consultancy and Licence Agreement with Standard & Poors', New York. Develops and launches a framework for rating debt obligations supported by credit enhancements based on overseas guarantees called Foreign Structured Obligations. Launches the Risk Assesment Model (RAM) as a user-friendly software package. Launches website www.crisil.com Launches information products viz. CRISILCard500, CRISIL DebtBase, CRISIL BondValuer, CRISIL DebtView, CRISIL EcoView and CRISIL GOI benchmarks were launched. Ties up with S&P MMS and S&P Platts to market their products in India. Develops new product on ratings of real estate developers in association with National Real Estate Development Council (NAREDCO). Introduces new products viz. CRISIL Gilt-X (GOI Index), CRISIL AAA Corporate Bond Index - the country's first corporate bond index, CRISIL Gilt Base - database on GoI securities and two business publications - CRISIL Insight and CRISIL Alert. Launches a web-based subscription service CRISIL Millennium Offer Acquires the business of Information Products and Research Services (India) Pvt. Ltd. alongwith its brand INFAC CRISIL is granted Certificate of Registration under SEBI (Credit Rating Agencies) Regulations, 1999. Strategic alliance with National Economic Research Associates (NERA), a unit of Mercer Consulting Group and a subsidiary of Marsh and Mclennan Companies Inc., USA, to get international expertise in the area of regulations and regulatory reforms. CRISIL FundScan, an in-house development of comprehensive mutual fund

1995-96

1996-97

1997-98

1998-99

1999-2000

2000-01

tracking and query product for internet launched. Launches mutual fund ranking service for the domestic mutual fund market. Sets up subsidiary for conducting online web business named Crisil.Com Ltd., now renamed CRIS-Risk & Information Solutions Co. Ltd. (CRIS-RISC), in line with its businesses of capital markets research, information and news. Launches CRISIL-NAREDCO ratings initiative for the real estate sector The first ever Mortgage Backed Securities (MBS) issue originated by HDFC and LIC Housing Finance Limited rated by CRISIL. Successfully rates an innovative structure of the Single Risk Collateralised Bond Obligations (CBO) transaction, backed by rated bonds. Sets up a subsidiary "Global Data Services of India Limited"for collecting data relating to companies, trade and industry 2001-02 Launches grading of healthcare institutions launched. First rates debt transaction for an acquisition. First rates take-out cum guarantee facility by an infrastructure development financial institution. Launches new rating and grading services for stock brokers, construction industry entities, SMEs and B2B exchanges. Sets up CRISIL Investment & Risk Management Services (CIRM) Launches new website www.crisilratings.com Launches CRISIL MarketWire, a real-time financial news service Launches Mutual Fund Composite Performance Rankings (CRISIL CPRs), Fund Risk Analytics Model and CRISIL Mutual Funds Portfolio Tracker Launch of CRISIL Governance and Value Creation (GVC) ratings. Introduction of evaluation services for film and TV software producers. Rating of the first sales tax receivables securitisation transaction and of the first personal loan securitisation transaction. Investment and Risk Management Services, a new initiative, was set up as a division of CRISIL.

2002-03

ICRA Ltd (Investment Information and Credit Rating Agency of India). ICRA was incorporated on January 16, 1991 and launched its services on August 31, 1991. ICRA is an independent and professional company providing investment information and credit rating services. ICRAs major shareholders include Moody's Investors Service and leading Indian financial institutions and banks. As the growth and globalisation of Indian Capital markets have led to an exponential surge in demand for professional credit risk analysis, ICRA has actively responded to this need by executing assignments including credit ratings, equity gradings, and mandated studies spanning diverse industrial sectors. In addition to being a leading credit rating agency with expertise in virtually every sector of the Indian economy, ICRA has broad-based its services to the corporate and financial sectors, both in India and overseas, and presently offers its services under three banners namely Rating Services Information Services Advisory Services

ICRAs History January 1991 Incorporation

Promoted by leading financial institutions and banks of India, Investment Information and Credit Rating Agency of India Limited was incorporated on 16th January 1991.

September 1991 Launched Rating Services Launching of Credit Rating Services on 1st September 1991. March 1993 Launched Investment Information Service & Research Publications Launching of Investment Information Service & Research Publications. April 1995 Launched EPRA (Earnings Prospects and Risk Analysis) range of services EPRA (Earnings Prospects and Risk Analysis) Launched, Information Service for the Equity Investor. December 1995 Launched credit assessment for small and medium scale industry Credit Assessment for Small & Medium Scale Industry (under CII Cluster Approach)

March 1996 Signed agreement with Financial Proformas Inc., a Moodys company (now called Moodys Risk Management Services ) Signed agreement with Financial Proformas Inc., a Moody's company (FPI), to provide credit education, risk management software, credit research and consulting services to commercial banks, financial and investment institutions, financial services companies and mutual funds in India. February 1997 Launched Money & Finance Money & Finance was launched. Money & Finance is a research programme (in the form of a quarterly publication) directed at analysis of contemporary developments that characterise Indian money and finance with the ultimate objective of developing analytical models which can explain the inter-related movements of the principal macro-variables defining the monetary and financial sector of the Indian economy. July 1998 Introduced Rating methodology for the Claims paying ability of General Insurance companies in India Introduced a rating methodology for the claims paying ability of general insurance companies in India. The rating of insurance companies enables purchasers of insurance policies and investors access timely, authentic and dependable information about the fundamental capacity of the insurance company to service claims and obligations. Simultaneously, it helps the insurance company widen its market as name recognition is complemented by the objective opinion of ICRA. December 1998 Moody's Investors Service and ICRA Limited announce their joint agreement to Moodys taking up minority stake in the equity capital of ICRA. The US -based international credit rating agency Moody's Investors Service and ICRA Limited announced their mutual agreement to Moody's picking up a minority stake in the equity capital of

ICRA. Significantly, this is a rare occasion where Moody's has agreed to a minority stake in a venture in a developing market. January 1999 Launched ICRA Corporate Review Introduced the first edition of its corporate analysis report titled ICRA Corporate Review (ICR) which is a bi-annual publication by ICRA Information Services, a division of ICRA, tailored to meet the information needs of both the retail and wholesale investor. Specifically, ICR is conceived and designed to act as a "first level" information resource for investors, asset managers, creditors, term lenders, bankers, merger & acquisition specialists, treasury managers, regulators and academicians, among others. February 1999 ICRA becomes the first Indian rating company to rate all non Life Insurance Companies ICRA became the first Indian rating agency to rate all non-life insurance companies in the country. ICRA's latest feat follows its 1998 initiative in introducing a rating methodology for the claims paying ability of general insurance companies in India February 1999 Launched Rating services for Debt Funds of Indian Mutual Funds Launched its Rating Services for the Debt Funds of Indian Mutual Funds. This extension of rating service to cover such funds is aimed at addressing the perceived need among investors countrywide to have an informed, reliable and independent opinion on the risks associated with investing in individual Mutual Funds. March 1999 Launched Grading services for construction entities Launched grading services for entities involved in construction projects including contractors, consultants, project owners and the project itself. The grading system, evolved in collaboration with CIDC, is an objective system designed to provide lenders and others with an independent opinion on the quality of the entity being examined. August 1999 Moody's and ICRA Announce Final Equity Agreement Moody's Investors Service and ICRA Limited announced the final agreement for Moody's to make an equity investment and provide technical services to ICRA. The signing of the agreement follows the December 08, 1998 endorsement of a memorandum of understanding (MoU) between the two rating agencies. December 1999 ICRA launches ICRA Interactive ICRA launched its new corporate website making all its research publications available through the internet in the electronic format. The new site offers many new and useful features including a powerful on-site search engine, electronic subscription lists and customised e-mail update services. June 2001 ICRA launches Corporate Governance Ratings ICRA launched its Corporate Governance Ratings (CGR) for the Indian Market with a focus on corporates business practices and quality of disclosure standards with respect to the requirements of regulators and interests of its financial stakeholders i.e. its shareholders, lenders and creditors. ICRA believes that this rating service would assist the corporates to develop a credible opinion on its management quality and responsiveness towards the interest of all its financial stakeholders.

July 2001 ICRA and NAREDCO launch a grading system for Real Estate Developers ICRA Limited and the National Real Estate Development Council (Naredco) jointly launched the ICRA-Naredco grading system for real estate developers and projects designed to make investorsthe buyers of propertyaware of the risks associated with the developers ability to deliver in accordance with the terms, and the quality and safety standards stipulated. The ICRANaredco Developer Ability Grading and Project Ability Grading will also provide an objective and independent opinion to lenders (banks and financial institutions) on their bankability. September 2001 Moodys Investment Company India (Pvt) Limited becomes the largest shareholder in ICRA Moodys Investment Company India (Pvt) Limited became the largest shareholder in ICRA by acquiring an additional 9% stake