Page 1 :
SECURITIES AND SHARE MARKET, SECURITIES, Securities are financial instruments (receipts/slips) which promises return, (payment) in future and which are tradable., Securities can be broadly categorized into two categories viz. equity and debt., Security, , Equity, , Debt, , 1. Equity security (stock/ shares):, It represents ownership held by shareholders (owners) in a company/, corporation. Holders of equity security receive profit/ dividend and capital gains, (share price appreciation)., 2. Debt security:, It represents money that is borrowed and must be repaid with terms that define, the amount borrowed, interest rate and maturity date. Holders of debt security, receive interest and repayment of the principal., Investors are investing/putting money in the company in the following two, ways:, • Debt security : at a particular/fixed interest rate, • Equity security: at profit or loss and becomes owner, , Equity: Share certificate, , Debt: Bond / Debenture, , Holder gets dividend from the, profits of the company. If no profit,, then no dividend., , Holder gets interest & principal, irrespective of whether company, makes profit or not., , Attractive in boom period, , Attractive in slowdown period

Page 2 :
Government Securities, A Government Security (G-Sec) is a tradable instrument issued by the Central, Government or the State Governments. G-Secs carry practically no risk of, default and, hence, are called risk-free gilt-edged instruments., Govt. issues only debt securities., G-Secs are issued through auctions conducted by RBI. Auctions are conducted, on the electronic platform called the E-Kuber, the Core Banking Solution (CBS), platform of RBI. Commercial banks, scheduled Urban Cooperative Banks, (UCBs), Primary Dealers (PD), insurance companies are members of this, platform. Foreign Portfolio Investors (FPIs) also participate in this market., Individuals (retail investors) can also participate directly in the Govt. securities, market., Government Securities (G-Sec), , Treasury Bills, , Cash Management Bills, , Dated Securities, , State Dev. Loans, , 1. Treasury bills or T-bills: These are short term debt instruments issued by, the Government of India for a maturity of less than one year. Treasury bills are, zero coupon securities and pay no interest. Instead, they are issued at a discount, and redeemed at the face value at maturity. For example, a Treasury bill of, ₹100/- (face value) may be issued at say ₹ 97, that is, at a discount of say, ₹3, and would be redeemed at the face value of ₹100/-. (Treasury bills are traded in, money market)., Based on the maturity period, treasury bills may be of 91 days, 182 days, and 364 days., 2. Cash Management Bills (CMB): In 2010, Government of India, in, consultation with RBI introduced a new short-term instrument, known as Cash, Management Bills (CMBs), to meet the temporary mismatches in the cash flow, of the Government of India. The CMBs have the generic character of T-bills but, are issued for maturities of up to 90 days.

Page 3 :
3. Dated Securities: Dated central government securities have a tenor of more, than one year up to 40 years., 4. State Development Loans (SDL): State Governments also raise loans from, the market which are called SDLs with maturity more than one year. SDLs, issued by the State Governments also qualify for SLR., , FINANCIAL MARKETS, A financial market is a market that brings buyers and sellers together to trade in, financial securities or assets such as stocks, bonds, derivatives, currencies etc., Financial markets are broadly of two types., , Financial Market, , Capital Market, , Primary Market, , Money Market, , Secondary Market, , 1. CAPITAL MARKET: Financial markets for buying and selling debt and, equity securities. In this market securities of medium and long term of more, than one year are bought and sold. Capital markets are of two types:, (i) Primary Market: It refers to the capital market where securities are created., It is in this market that companies sell new shares and bonds for the first time, (Initial Public Offering, IPO). This market transaction is between the issuer, (company) of security and the investor., (ii) Secondary Market: Once the securities have been issued by the issuer in, the primary market, it gets traded in the secondary market among the investors., In this market, investors trade the previously issued securities among, themselves without the involvement of the issuer of security (company)., CAPITAL MARKET IS REGULATED BY SEBI

Page 4 :
2. MONEY MARKET: A segment of the financial market in which financial, instruments with high liquidity and very short maturities (less than one year) are, traded. Money market instruments are basically debt instruments and include, Call money, Treasury Bills, Cash Management Bills, Commercial Paper etc., The players who can trade in the money market are financial institutions,, commercial banks, central banks and highly rated corporate/companies. These, markets are less risky. Money Market can also be classified as primary and, secondary., MONEY MARKET IS REGULATED BY RBI., , TYPES OF COMPANY, , COMPANY, , Government, , Private, , Non-government, , Public, , Unlisted, , Listed, , Private, , Public, , Unlisted, , Listed, , GOVERNMENT COMPANY means any company in which not less than 51%, shares are held by the Central government or by any state government or, governments or partly by the Central government and partly by one or more, state governments., NON-GOVERNMENT COMPANIES are those which are not government, companies and defined as those companies where government ownership is less, than 49% and majority of the ownership lies with private individuals/, companies.

Page 5 :
A PRIVATE COMPANY OR CLOSE CORPORATION is a company where, the number of members is limited to 200 and there is restriction on the transfer, of shares. The shares are not available to the general public but rather, owned, and exchanged privately., PUBLIC COMPANY is a company which is not private., UNLISTED PUBLIC COMPANY means a public company whose securities, are not traded on any stock exchange, LISTED PUBLIC COMPANY means a company which has any of its securities, (shares/bonds) are listed on any recognized stock exchange. But in India, listed, is in reference to shares/equity securities., A private company might become a publicly listed company by conducting an, initial public offering (IPO), under which the company offers its shares for the, first time to the general public through a stock exchange for trading purpose., , METHODS OF ISSUING SHARES, Share have printed price on the certificate called Face Value or Par Value. If, they’re sold at higher price than face value, it’s called “Premium Value”- that, usually happens when investor is confident of getting high dividend/return on, his investment.

Page 6 :
Initial public offer (IPO), , Follow on public offer, (FPO), , • Company hires an underwriter, (usually, a merchant bank,, investment bank) for a fee., • Underwriter drafts Red Herring, Prospectus for SEBI approval., • Then, Underwriter invites, application from public & sells, them shares at face value or higher., If less subscription, then, underwriter will buy the unsold, securities by himself., , •, If company had already issued, shares previously, and now again issuing, more shares to obtain more capital→ it is, called FPO., •, Rights issue: Company issues, additional shares but gives first right to, existing shareholders to buy them, if they, refuse then offered to outsiders., , STOCK EXCHANGES / SECONDARY MARKET, , Shares are issued through IPO at Primary market. Then, they can be resold at, secondary market, commonly known as Share market or Stock Exchange., • World’s Oldest: Amsterdam Stock exchange, Netherlands (1602), • Asia’s Oldest: Bombay Stock Exchange (1875), • India’s stock exchanges chronology: BSE → A’bad → Calcutta →…., →NSE

Page 7 :
• Stock exchanges have their electronic platforms for trading. E.g. BOLT, (BSE's On-line Trading System) and NEAT (National Exchange for, Automated Trading)., ISIN Number:, • International Securities Identification Number (ISIN) is a Unique 12, characters, consisting of both letters and numbers., • It’s a serial code to identify securities e.g. Reliance Industries Limited, Shares ISIN: INE002A01018; Infosys Shares: INE009A01021., • Prevents mistakes in buying/selling shares/bonds of companies with, similar sounding names. Facilitates the digital transactions through, DEMAT account., , NOTABLE INDICES, ● SENSEX: Sensitive Index: It is the weighted average of Free Float Market, Capitalization (FFMC) of 30 companies., ● NIFTY: NSE index of 50 companies., SENSEX/NIFTY – when does it, go up, , when does it goes down, , RBI’s expansionary monetary, Contractionary monetary policy., policy → cheap loan & credit cards, → consumers to spend more →, more profit to company → more, dividend : investor thinks “better I, buy more shares to get more, dividend”: Bullish, Peace, Economic boom /, prosperity, Political Stability, , War, recession, political instability, → Bearish market., , When govt. hikes foreign, investment limits, , Inverse., , Merger-Acquisition, New product, launched, Environmental clearance, , CEO/MD arrest/FIR, Courts, slapping fine, media exposing

Page 8 :
given to factory, , scandal…, , DEMAT Account:, If shares and bonds are traded in paper-form, then transactions are slow & prone, to the risk of theft, forgery and fire., • Depositary is an organization that stores the physical securities in its vault, and allows investors to trade them in electronic (=DEMATERIALIZED), form. E.g. CDSL (Central Depositories Services India Ltd.) and NSDL, (National Securities Depository Ltd.), • Customer must open a “Demat” account in a depository-partner (DP), which can be a bank or an NBFC., • SEBI regulates them under the Depositories Act 1996. Notable examples, are Central Depository services Limited (CDSL) and National securities, depository Limited (NSDL)., , TYPES OF DEBT INSTRUMENTS, Borrower, Govt., , Short term debt instrument, 1. State govt’s treasury bills (14, days). But stopped since 2001., 2. Union govt’s treasury bills (91,, 182 and 364 days) & Cash, Management bills (CMB: upto 90, days, started in 2009)., 3. WMA (ways and means, advances): it’s the mechanism, through which RBI lends money to, Govt, for temporary short term, needs when there is mismatch in, receipt and expenditure of Govt., This WMA is not counted in Fiscal, Deficit formula.

Page 9 :
Company, - Bill of Exchange, Commercial, Papers, Promissory Notes., - Side note: Currency Note is a, ‘Promissory Note’ issued by RBI, Governor however, he’s not bound, to pay any interest. Just promises to, exchange it with other currency, notes and coins of equal face value., Merchant to bank, Banks / NBFC, Call Money, , Notice Money, LIBOR, , MIBOR, , CBLO, , Repo, , TReDS, , Commercial Bill., Certificate of Deposits., It’s the interest rate when Financial, Intermediaries (Banks/NonBanks), borrow for ONE DAY among, themselves., Same as above but for 2 to 14, days., London Inter - Bank Offered Rate, (LIBOR) is the average interest, rate at which banks in London, give short term loans to each other., It serves a benchmark, using which, Global banks decide their call, money /notice money rates., In LIBOR definition, replace the, word “London” → “Mumbai” and, “Global” → “Indian”, and you’ll, know what MIBOR is!, Collateralized Borrowing and, Lending Obligation., Clearing Corporation of India Ltd, (CCIL) helps Financial, Intermediaries (FI) to get short, term loans through this instrument., Repo and Reverse Repo- already, covered in Monetary Policy, handout., Trade Receivables Electronic, Discounting System (TReDS): an, online mechanism. MSME sellers, pledge their (unpaid) invoices

Page 10 :
made to corporates → MSME, receive (short-term) finance from, Banks and NBFCs. (Full) Budget2019: we’ll make amendments in, Factoring Regulation Act, 2011 to, allow all NBFCs to directly, participate on the TReDS platform., , LONG TERM DEBT INSTRUMENTS:, Colonial era Govt. to borrow money:, 1. Coupon Bonds: Contain detachable coupons. Coupons are presented to the, issuer to claim the interest. Therefore, bond interest rate is also called ‘coupon, rate’., 2. Zero Coupon Bonds: Are sold on discount and repurchased at face value, do, not have any coupons., 3. Bearer Bonds: Not linked to a PAN card, Aadhar card or passport, voter, card or social security number. Anyone who presents it to the issuer, will get, interest and principal. Usually issued during the war time., Modern day Government to borrow money:, Government securities, Dated securities, Sovereign bonds, Kisan Vikas Patra, etc., Bonds by Modern day Govt. to curb Gold Consumption:, Real Interest Rate = Nominal Interest minus Inflation., When Real Interest is negative, purchasing power decreases despite increase in, money quantity in bank account. Then people prefer to park money in gold/real, estate- which is not very beneficial to economy. So, the following bonds are, introduced., 1. Inflation Indexed Bonds: Bonds where the principal is indexed to inflation or, deflation on a daily basis.

Page 11 :
2. Sovereign Gold Bond: They are denominated in gold grams. Annual interest, 2.5-2.75% per annum (depending on which year’s ‘batch’ you bought) payable, semi-annual, and after 8 years you get the amount equivalent to prevailing gold, prices at that time., Sovereign gold bonds are issued by the RBI on behalf of the government. They, are government securities denominated in grams of gold. They are substitutes, for holding physical gold., Long term debt instruments by Companies, 1) Bonds (British Term), Debentures (American Term): Internal difference not, important., 2) If the company has high risk of default on repayment, the Credit Rating, Company will rate“BB to D” Grade. Such company will have to offer a very, high interest rate when issuing bonds next time., 3) Redeemable Bonds: will repay regular interest and will return principal on, maturity. Irredeemable Bonds: will pay only interest but no principal returned., Sometimes issued by PSB to meet BASEL-capital requirements. Although in, reality they offer ‘redemption’ after 5-10 years when holder has ‘option’ to, redeem principal & exit., 4) Non-convertible Bond/Debenture = can’t be converted into shares., 5) Hybrid instruments: Issued as “Bond” but can be converted into Share., Long Term Debt Instruments: Masala, Maharaja, Panda Bond, Masala Bonds: These are Rupee denominated bonds issued outside India, to, borrow money for Indian companies. World Bank’s sister agency International, Financial Corporation (IFC) launched ‘Masala Bonds’ to help Indian public, sector and private sector companies., • 2015: RBI allowed Indian entities to launch such Masala Bonds., • 2017: National Highways Authority of India (NHAI) also issued Masala, Bonds in London Stock Exchange to mobilize money for Indian Highway, projects., • 2019-May: Kerala became the first state to issue Masala Bonds. Its, Kerala Infrastructure Investment Fund Board (KIIFB) issued Masala, Bond at the London Stock Exchange.

Page 12 :
Issuer, Non-Chinese, Non-Australian, Non-Indian, , Borrowing from, In currency, China, Renminbi, (=yuan), Australia, Australian dollar, India, Rupee, , Is called, Panda Bonds, Kangaroo Bonds, Maharaja Bonds, , Long Term Debt Instruments: Other Special purpose Bonds, 1. Elephant Bonds (Proposed):, 2019-May: Commerce ministry’s Dr. Surjit S. Bhalla Committee ‘to improve, India’s share in global trade’ suggested ‘Elephant Bonds’., An Elephant Bond is a Rupee denominated bond with 25 years maturity; and its, fund is to be used exclusively for infrastructure., People declaring undisclosed income will be required to invest 50% of this, income to be used only for infrastructure projects., 2. Green bonds:, For renewable energy, pollution control, environment friendly projects., - World’s first Green Bond launched by World Bank (2007), - India’s first Green Bond launched by Yes Bank (2015), - BRICS Bank (New Development Bank) issued Yuan- denominated green, Bonds (2016), - Indian Renewable Energy Development Agency (IREDA) launched India’s, first Masala Green Bond at London Stock Exchange (2018)., 3. Blue Bond:, A sub-type of green bond, where money borrowed for climate resilient water /, marine / fisheries projects., 4. Catastrophe Bond:, Govt. / Insurance company issues such bond. Investor is promised with high, annual interest rate. But, if a natural disaster happens, his principal will not be, returned. If disaster doesn’t happen then principal will be returned.

Page 13 :
Electoral bonds:, Announce in Budget 2017, Only SBI can issue at present, and in multiples of Rs.1,000, Rs.10,000,, Rs.1,00,000, Rs.10,00,000 and Rs.1,00,00,000., • When? For ten days at the start of each quarter. (January, April, July and, October). However, during Lok Sabha election year, can sell for another, 30 days., • Who can buy? Only an Indian citizen or Company registered in India →, deposit money in their bank account → use that money to buy Electoral, Bond, after giving certain KYC-documents. So, Electoral Bond can’t be, bought anonymously or directly with cash., • Electoral Bonds can be donated only to a political party registered under, Representation of the People Act (RPA), 1951 and which has secured not, less than 1% of the votes polled in last Lok Sabha or Vidhan Sabha, elections., • Validity? Only 15 days from date of purchase. Within that time, buyer, must donate, and political party must deposit in its SBI (current) bank, account. No interest payable., • Characteristics? Paper / Physical format (not DEMAT / electronic, format). Bearer instrument (Donor or Recipient’s name not mentioned),, Promissory Note (promises to transfer money in bank account) and an, Interest Free banking instrument (zero interest payable to anyone). Can’t, sell it to third party, can’t pledge it for loans., • Benefits? Transparency in political funding, Reducing influence of cash, and black money in election, Confidentiality to donor because he can give, to any political party without his wife, staff, CA, Lawyers, journalists etc., knowing the name of recipient political party.

Page 14 :
EQUITY INSTRUMENTS, Equity holders are called owners / proprietors of the company., If company makes profit → they get dividend., Keywords, Ordinary shares, , Preferential Shares, , Sweet Equity, , Penny stocks, , Blue Chip stocks, , Venture capital funds (VCF), , Angel Investors, , Corporate Strategic Investor, , RGESS, Started in 2012, , Share Pledging, , Features, Have voting power in the meetings, of shareholders. Last during, liquidation., During liquidation, these investors, will be given money before the, ordinary shareholders., Shares given @discount to directors, & employees for their value addition, to company., Shares whose market price remain, excessively low compared to its face, value. Such pathetic companies give, zero or little dividend., Shares of a nationally recognized,, well-established and financially, sound company with a history of, generating good dividend., Professional firms helping startup, companies with seed capital. (could, be debt / equity / hybrid), Rich person helping startup, companies out of his hobby, passion,, profit motive or time pass. e.g Ratan, Tata in Urban Ladder app. (could be, debt / equity / hybrid)., Invests in startup company with goal, of acquiring the company or its, technology at later date., Rajiv Gandhi Equity Savings, Scheme= Govt. gives income tax, benefit to people who invest in the, share market for the first time., Discontinued by Budget-2017, When promoter of a company e.g., Mukesh A. of Reliance or Subhash, Chandra of Zeegroup pledges his

Page 15 :
shares as collateral to borrow loans, from a bank / NBFC., Types of Investors: Depending on Buying Capacity, 1. Qualified Institutional Buyers (QIB): Investors with expertise and financial, muscle to make large investments in capital markets. E.g. Mutual Funds,, Insurance Company, Foreign Venture Capital Funds etc. SEBI has separate, registration norms for them., a. Anchor investors: They’re sub-type of QIBs who are offered shares before, IPO-launch. This gives confidence to other investors to subscribe the given IPO., 2. Retail investor: An individual investor who is not a QIB., Underwriter will keep quota for each category of investors, as per SEBI norms., Types of Investors: Depending on Buying Behaviour, 1. Jobbers: Full time engaged in buying / selling securities using money from, their own pockets. (Whereas brokers / commission agents buy/sell using, money/shares of their clients)., 2. STAG (Male Deer): He buys newly issued securities from primary market &, sells them in secondary market for quick profit., 3. Bull: Optimistic speculator who hopes share prices will rise, so purchases (to, sell them later at much higher price). Just like a bull tends to throw his victim, up in the air, the bull speculator stimulates the price to rise., 4. Bear: A pessimistic speculator who fears prices will fall so, he sells. A bear, usually presses its victim down to ground. Similarly, the bear speculator tends, to force down the prices of securities., 5. Day trading / Intra-day trading: Individuals buy and sell shares over the, Internet over a period of a single day's trading, with the speculative intention of, profiting from small price fluctuations., Initial Coin Offering (ICO), • Suppose, a company wants to raise investors’ money for launching new, cryptocurrency, or service/app related to an existing cryptocurrency.

Page 16 :
• Then, it’ll issue Initial Coin Offering (ICO) → Investor subscribes to it,, and receives ‘tokens’ (and not SHARES). Investors can use the ‘tokens’, to buy companies coins/services or may sell it to a third party., • RBI has cautioned Indians not to invest in such instruments, because of, the dangers., SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI), • Formed in 1988 by an executive order → Became Statutory Body in 1992, → powers increased through amendments in 1999 & 2014. Now it can, order search and seizure, attachment of properties, arrest and detention., • SEBI Board Composition: Chairman + 1 officer from RBI + 2 officers, from Union Government + 5 members appointed by Union Government., • Chairman: upto 5 years / 65 years of age. Reappointment possible. Ajay, Tyagi (IAS) initially given 3 years term in 2017, could be extended in, future., • Regulates Process of issuing securities (Bonds, Shares, IPO, ETF, ReIT,, INVITs, etc.) using the Securities Contracts Regulation Act, 1956., • Regulates Places (Depositories, Stock exchanges, Commodity Exchanges, etc.), • Regulates Persons (Investors, Brokers, Fund Managers, Public Limited, companies etc.), • Regulates any Collective Investment Scheme (CIS) of ₹ 100 cr. or more., • Further appeal: Securities Appellate Tribunal (SAT) → Supreme Court., Same SAT also hears appeals against the orders passed by Insurance, Regulatory Development Authority of India (IRDAI) and Pension Fund, Regulatory and Development Authority (PFRDA)., • “SCORES” - online portal for complaint., SEBI has to protect the investors & increase their participation because:, • Share market scams erode publics’ hard-earned savings → alcoholism,, depression, suicide and other social ills., • Investors will shy away from share market & they may invest in gold /, real estate = not very beneficial to economy., • If households don’t participate in capital market → corporate companies, will have to approach the banks to get more loans. But banks’ lending, capacity is limited by CRR, SLR, PSL, NPA, PCA.

Page 17 :
• If more retail investors participate in capital market = “Deepening of the, capital market” → factory expansion, job creation, and economic growth., , SEBI Reforms to boost investors’ confidence, Harshad Mehta (1992), Ketan Parekh (2001) arranged money from banks, used, it for rigging the share prices to make windfall gains during Bull-runs by other, investors. Once the prices crashed, small investors suffered. To prevent such, scams, SEBI introduced Circuit Breaker System, wherein if fluctuation in the, share prices is more than “x%” than previous day then stock exchange must, stop trading for “y minutes / hrs”., Badla System/Carry forward system: Buying of shares using borrowed, money & making promises to carry forward the settlement for upto72 days., scamsters misused, so SEBI discontinued it (2001) & introduced (T+2) rolling, settlement system i.e. after trade is conducted, the parties must settle it within, two working days (= buyer pays money, seller deliver shares/bonds/securities)., Rupal Panchal (2005) opened multiple fake DEMAT accounts to increase the, chances of getting share allocations in IPO. Then she’d sell such shares in, stock-exchange for higher prices. Subsequently, SEBI made PAN Card (issued, by Income Tax Dept.) compulsory for opening DEMAT Accounts. SEBI also, introduced ASBA (Application Supported By Blocked Amount)- it allows the, underwriter to block the amount in IPO-investor-applicant’s bank account, but, only if shares allotted to the applicant, his bank money will be deducted., ASBA-Benefits:, (1) only serious investors with sufficient bank balance can apply., (2) investor continues to earn bank interest on his blocked amount until the, process of IPO-share allotment is over., Dabba Trading / Bucketing / Box Trading: While share trade occurs at stock, exchange linked with DEMAT accounts, the Dabba Trades occur in the, unofficial books/ledgers of an unscrupulous broker. He may or may not execute, those orders in actual DEMAT account. Investor prone to scam, govt. deprived, of taxes. So, SEBI declared it illegal.

Page 18 :
Insider Trading: Whenever company launches new products, wins unique, patents, or undergoes merger and acquisition- its share prices will increase. If a, person associated with company uses such confidential information for, buying/selling shares to make windfall gains. Such insider trading is illegal., Algo Trading: Some large brokers / companies use algorithmic trading, computer programmes to automatically buy / sell securities at a speed and, frequency that is impossible for a human trader. This can be misused for, manipulating the share prices. While SEBI has not banned it, but issued, technical measures e.g. a single broker / investor can’t place more than 100, online orders per second., Budget 2019: measures to increase retail investors’ participation:, • SEBI to raise minimum public shareholding in listed companies (other, than PSUs) from 25% to 35%., • For all the listed PSUs, Government will strive for minimum 25% public, shareholding., • We’ll give the ELSS (Equity Linked Saving Schemes) income tax, benefits to CPSE-ETF (Central Public Sector Enterprises Exchange, Traded Fund) investors as well., • RBI promised to work on mechanism wherein retail investors give money, to stock exchange → stock exchange invests it in G-sec/T-bill., COMMODITY MARKET, FMC, SEBI MERGER, A commodity market / exchange is a place where buyers and sellers trade goods, in bulk such as food grains, cotton, precious metals or energy resources (oil /, gas), , Farmer, (100 kg grains), , 𝑫𝒆𝒑𝒐𝒔𝒊𝒕𝒔 𝒕𝒉𝒆 𝒈𝒓𝒂𝒊𝒏, , →, , Warehouse, , Receipt, , Use as collateral to get bank loans, , or, , Can be listed in Commodity Market

Page 19 :
Commodity exchanges were under a statutory regulator, Forward Market, Commission (FMC) under the Ministry of Consumer Affairs and Public, Distribution. But Jignesh Shah generated fake receipts without any commodities, in the warehouses & traded at NSEL-commodity exchange. FMC failed to, prevent scam. So, FMC is merged with SEBI (2015)., RELATED BODIES WITH SIMILAR SOUNDING NAMES, FSDC (2010), - Financial Stability & Development, Council: Chairman – Finance, Minister. Other members – 1. RBI, Governor 2. SEBI chief 3. IRDAI, chief 4. PFRDA chief 5. IBBI chief, & govt officials, - Functions? Supervision of the, economy & large financial, conglomerates, coordination among, the financial regulators, financial, literacy and financial inclusion., - Secretariat assistance by: Dept. of, Economic Affairs., , FSB (2009), HQ: BASEL, , - Financial Stability Board is a, brainchild of G20., - Function? Financial monitoring at, global level, Coordination between, national financial regulators bodies., - India has 3 seats in FSB: 1), Secretary of Department of, Economic Affairs (IAS) 2) Dy., Governor of RBI 3) SEBI chairman

Page 20 :
FATF (1989), HQ: Paris, , - Financial Action Task Force is a, brainchild of G7 . India became, member in 2010., - Function? Combating Money, laundering and terror finance., , IOSCO, - International Organization of, Securities Commissions (IOSCO) is, the international body of world's, securities regulators. SEBI is a, member., - It’s known for its IOSCO, Guidelines for Investors Protection, and systematic risk in global, economy.

Page 21 :
INVESTMENT FUNDS, 1. MUTUAL FUND:, , • It is an Asset Management Company (AMC-NBFC) that pools savings of, (retail) investors and gives them “Units”., • MF Manager parks this money in securities & builds his ‘portfolio’., • Whatever dividend/ interest is generated from the portfolio, it is, distributed among investors in the proportion of their units., • Investor has to pay Entry Load (= fees for joining) and Exit Load (= fees, while quitting). SEBI regulates these fees., • Due to low deposit rates in banks, people invested money in mutual funds, however post-IL&FS crisis, charm declining because mutual funds are, subject to such market risks.

Page 22 :
•, , •, •, •, •, , •, •, , “Side pocketing”: SEBI’s technical guidelines to help MFs to separate, their IL&FS type stressed/toxic assets from their standard assets. Helps, protecting the investors., Net Asset Value (NAV): It is the portfolio’s value. It may increase or, decrease depending on the underlying assets., Traditional Mutual Fund: Client invests the entire amount at once., Systematic Investment Plan (SIP): Client deposits small fixed amounts at, fixed interval., Equity Linked Savings Scheme (ELSS): It is a type of mutual fund where, money is locked in for 3 years and invested in equities (shares). It’s, eligible for certain benefits in Income Tax., Unit Linked Insurance Policy (ULIP): Client invests in a scheme wherein, some amount goes to mutual fund and some to insurance policy., Riskometer: SEBI has made it mandatory for all mutual fund houses to, display a riskometer depicting the five levels of risk effective July 1,, 2015, , 2. HEDGE FUND: Mutual fund for rich people, • Special type of Mutual Fund meant for HNI (High Networth Individual), who wants high risk high return. SEBI norms: Minimum investment per, person is ₹1 crore.

Page 23 :
• Hedge Fund manager will invest their money in Junk Bonds, Risky assets;, he’ll do risky trading activities to generate maximum return., • SEBI norms are tighter., 3. REITs / InvITs: for rich people, REITs: Real Estate, Investment Trust, Who can invest? HNI / institutions: Min., ₹50000 investment per, ASBA application (Initially, Min. ₹2 lakh), Manager parks, the money in?, , In real estate projects that, are soon to complete. He’ll, earn income from rent /, sale., , Example, , Blackstone-Embassy group, , InvITs: Intrastucture, Investment Trust, ₹1 lakh, ASBA (SEBI, reduced Minimum, limits from ₹10 lakhs, in 2019 to attract more, investors), In airport, highway,, thermal plants, gas, grid etc. He’ll earn, from toll collection at, highways, services, fees at airports etc., IRB, India-grid, , Benefits of REITs and InvITs:, Stressed developer gets new finance to finish the project while HNI gets new, opportunity to invest his money, and he may also sell the units to third party via, stock exchange., SEBI permitted these instruments in 2014., 4. CPSE-Exchange Traded Funds (ETF), Disinvestment: government sells it shares from Central Public Sector, Enterprises (CPSE) but does not reduce its shareholding below 51%. If Govt’s, shareholding reduced below 51%, then it is called Privatization., 2014: Government wanted to disinvest 10 CPSE (ONGC, GAIL ltd etc). If govt., tried to sell the individual company-wise shares, it would be more time, consuming, and govt. may not get good prices for each company., So, Govt. gave CPSE-shares to a fund manager Goldman Sachs - who created, new securities out of it, called “Exchange Traded Funds (ETF)”, and made a

Page 24 :
“New Fund Offer (NFO)” to the public to subscribe to these securities at ₹ 10, per unit., If an investor holds the ETF → he will get returns from the dividend generated, by those CPSE-companies. He may also sell these ETF to a third party via stock, exchange, hence called Exchange Traded Funds., , BHARAT-22: Another CPSE-ETF when Govt. wanted to disinvest shares from, 22 companies including CPSE, PSBs and UTI using ICICI Prudential as fund, manager (2017-18). However, PSB-NPA problem → poor dividends →, BHARAT-22 not giving good returns, so, investor’s response was initially, lukewarm., Later govt. announced, “We’ll give the ELSS income tax benefits to CPSEETF-investors as well” to attract investors., 5. Bharat Bond (Debt) ETF (2019-Dec), • Fund Manager (Edelweiss Asset Management Ltd.) → It will issue, Bharat Bond-ETF., • Maturity: 3 years and 10 years, • Unit Size: ₹1000 each. So even middle-class investors buy these BondETFs., • Fund managers will invest this ₹₹ into a basket of bonds issued by, Central Public Sector Enterprises, Central Public Financial Institutions, (CPFIs such as public sector bank and insurance companies) and other, Government organizations. (“AAA” rated bonds)

Page 25 :
• Can be sold to 3rd part in stock exchanges., Bharat bond ETF: Benefits?, • For Government companies = Easier and more efficient to borrow ₹₹, instead of individually launching their bonds in the market., • For Investors = safety because of assured return on bonds, irrespective of, Government company’s profit., • Enhanced retail participation → deepening bond markets, • In future, more fund managers may be selected, and even non-AAA rated, public sector bonds may also be included., Budget-2020: given success of Bharat bond ETF, we are planning to launch, another debt-ETF containing G-sec. This will help the retail investors to invest, in G-sec., Gold-ETF: Investors give money → manager buys gold for safekeeping and, trades it depending on price movements → returns are divided among the unitholders. In between, the investor may sell his Gold-ETF to third party via Stock, Exchange therefore they’re also Exchange Traded Funds. (Not so important for, your exam.), 6. SOVEREIGN WEALTH FUND:, State owned investment fund, wherein central bank, finance ministry and other, public sector financial intermediaries park their surplus fund. →money used for, investment. E.g. Singapore's GIC sovereign wealth fund, Abu Dhabi Investment, Authority (ADIA)’s funds, Qatar Investment Authority (QIA) etc., 7. Alternative Investment Funds (AIF):, It is a technical classification of investment funds by SEBI., AIF Category I: They generate positive spillover effects on the economy., Example: Venture Capital Funds, Angel investors fund, SME Funds, social, venture fund, Infrastructure funds., SEBI keeps relaxed / lighter norms on them., AIF Category II: Neither in Cat-1 nor in Cat-3 E.g. Private Equity or Debt, Fund.

Page 26 :
AIF Category III: They undertake excessive risk to generate high returns in, short period of time. E.g. Hedge funds., SEBI norms are stricter/heavier on them, because otherwise they may, destabilize the capital market., Govt’s AIF for Real Estate Sector (2019), • 2019-Nov: Govt. to setup an alternative investment fund (AIF CategoryII) using ₹₹ of govt., SBI and LIC. (Total 25,000 cr), • AIF Fund manager: SBI Cap ventures ltd., • AIF Fund manager will give ₹ (as Debt finance) to builders with, unfinished housing projects → demand for steel, cement, construction, workers= economic growth., DERIVATIVES & SWAPS, A derivative is a contract whose value is derived from the value of another, underlying asset which could be a share, bond, commodity or currency. They’re, usually generated by the process of ‘securitization’. E.g. NHB taking loan, papers from banks, using them to generate new Mortgage Backed Securities., SWAP: is derivative instrument to swap one financial asset with another, financial asset (usually) to reduce the risk e.g. Currency Swap Agreement, between two countries to protect themselves against dollar volatility., Similarly, there are Credit Default Swap (CDS) agreement against the risk of, default, Interest swap agreement to protect against volatility in interest rates., Participatory notes (P-Notes):, A foreigner wishes to invest his money in India but does not want to go through, the hassles of registering with SEBI, getting PAN card number, opening a, DEMAT account etc. So, he will approach a SEBI registered foreign, institutional investor (FII) / foreign portfolio investor (FPI) such as Morgan, Stanley, Citigroup or Goldman Sachs. He’ll pay them & instruct them to, purchase particular shares and bonds and store them in their Demat account., Then FII will give him P-Notes, and he’ll receive interest and dividend, accordingly. He may also sell those P-notes to a third party., P-Notes are derivatives that derive the value from the underlying Indian shares, and bonds.

Page 27 :
P-Notes are harmful for Indian economy because:, • P-note investors are not directly registered with SEBI, the identity of the, actual investor and source of funds remain disguised= chances of terror, finance., • If P-Note owner sells his P-Notes to another foreign investor,, Government of India may be deprived of taxes. (Compared to a scenario, where Indian share owner is selling his shares to another Indian investor, at profit, then government gets securities transaction tax and capital gains, tax on his profit, & he can’t dodge it because DEMAT accounts linked, with PAN card., Therefore, SEBI is tightening the control of P-Notes., Q. Which of the following is issued by registered foreign portfolio, investors to overseas investors who want to be part of the Indian stock, market without registering themselves directly? (Pre19-SetA Q67), (a) Certificate of Deposit (b) Commercial Paper (c) Promissory Note (d), Participatory Note.

Page 28 :
COMPANY TYPES, 1. Company types based on incorporation:, Chartered Companies, , Statutory Companies, , Registered Companies, , Setup by a charter given by a king, / queen. E.g. East India Company, in 1600, Setup by special acts of, Parliament or State legislature., E.g. RBI, LIC, SBI., Registered under the Companies, Act, 1956 (and later 2013) e.g., Tata Motors, Infosys., , 2. Company types based on Company’s Act:, Private ltd., Members, , Min. 2 to Max. 200, , Invite, Cannot, public to, buy its, shares and, bonds, , Public Ltd. Company, (Companies Act 2013), Min. 7 to Max. unlimited number, (depending on how many shares, issued & purchased by the, people), A public ltd. company can invite, public to subscribe to its shares, and bonds., If their shares are listed on a, stock exchange (BSE, NSE etc),, it is called a ‘Listed Public, Limited Company’ (e.g., Reliance), else it is an ‘Unlisted, Public Limited Company’ (e.g., India Post Payment Bank, IPPB)

Page 29 :
3. Company types based on Ownership:, Government / Public Sector, When Government owns more than, 51% shares. Examples: Steel, Authority of India (SAIL), India, Post Payment Bank (IPPB), Holding Company, A company that owns majority, shares in another company. E.g., Tata Sons ltd. holds majority shares, of Tata Consultancy Services, (TSC), Tata Steel, Tata Sky etc., , Private Sector, When private parties own more, than 51% shares. E.g. Reliance,, Tata, Adani, Subsidiary Company, A company that is controlled by a, parent holding company. E.g TCS,, Tata Steel, Tata Sky are subsidiary, co of Tata Sons., , Company Types: Misc., Under Companies Act, One Person Company: special, type of private ltd company having, only one member., Not for Profit Company: e.g., NPCI, GSTN etc. their profit is reinvested in business expansion., They get certain tax benefits &, relief in how frequently they’ve to, submit data to MCA., Dormant Companies: A) setup to, start business in future, B) setup to store intellectual, property like patents. Eg. Alphabet., C) not filed annual returns for two, consecutive years., Under LLP Act 2008, Limited Liability Partnership (LLP), Company is formed by minimum 2, or more partners., Individual partners are shielded, from joint liability created by, another partner's wrongful business, decisions or misconduct. E.g.

Page 30 :
Under Indian Partnership Act, 1932, , The Joint-stock Companies Act,, 1857, , Vajiram and Ravi IAS Study, Centre LLP, LLP’s registration fees,, auditing/reporting norms, tax, liabilities, winding up process etc., are more flexible than a public or, pvt ltd., A Partnership firm is formed by, minimum 2 or more partners., Each partner is liable jointly with, all the other partners for losses,, wrongful business decisions and, misconduct., A joint-stock company is a business, owned by its investors., The liability of shareholders is, Limited., , CORPORATE GOVERNANCE:, It is a way of directing the company to protect the interest of all stakeholders,, and ensure three types of compliance:, Compliance, Legal-Regulatory, , Example(s), Company obtaining Legal Entity, Identifier (LEI) number as, mandated by RBI., Company setting up ‘Internal, Complaints Committee’ as, mandated by Sexual Harassment of, Women at Workplace (Prevention,, Prohibition and Redressal) Act,, 2013 / “POSH Act”, , Technical, Companies keeping balance sheets, as per the Indian accounting, standards., Automobile company producing car, engines as per BHARAT-Stage, emission norms.

Page 31 :
Moral-Ethical, , Gillette scrapping the ad-contract, with cricketer Hardik Pandya for, his sexist comments against women, on Koffee with Karan Show., , Absence of Corporate Governance leads to fraud, embezzlement, erosion of, investors’ confidence. E.g. Satyam Computer Scandal (Chairman Ramalinga, Raju manipulated account books), Boardroom battles at Tata Group (Cyrus, Mistry vs Ratan Tata) and Infosys Group (Narayana Murthy vs Vishal Sikka, fighting, 2019: whistle-blower complaint about financial irregularities), ICICI, (Boss Chanda Kochhar gave ₹3000 crore loan to Videocon company without, due-diligence, which turned NPA.), Therefore, Companies Act 2013 mandates companies to impose term limits on, directors, appoint independent directors ( not a founder, no economic interest in, the company), one person can’t become director in more than “X” number of, companies, one CA can’t audit more than “Y” number of companies, Company, has to setup whistle-blower protection mechanism, Company can’t give loan to, its directors and so forth., In a public limited company, one director must be an Indian resident (182 days, in India), one director must be a women and 1/3rd of the directors must be, independent., An auditor is an authorised personnel that verifies the accuracy of financial, records. Their primary objective is to protect businesses from fraud. Companies, Act → Companies Auditor’s Report Order (CARO) = Auditors have to annually, submit reports to the Ministry of Corporate Affairs (MCA)., Notable committees for improving corporate governance in India: Kumar, Mangalam Birla (1999), Narayana Murthy (2003), Adi Godrej (2012), Uday, Kotak (2017)., Further, SEBI too can issue directives to Public Limited Companies in the, interest of investors, beyond what is required under Companies Act. Such as:, SEBI implemented Uday Kotak committee’s suggestions:

Page 32 :
• Split CEO/MD and Chairman. One person can’t occupy both positions in, his company., • Companies Act requires min.3 directors in Public Listed company, but, SEBI mandated to have min. 6 directors., • Companies Act doesn’t prescribe gender of independent director but, SEBI mandated at least one independent woman director., • One person can serve as director in how many companies? (Companies, Act: Max.10, SEBI also tightened norms related to salaries to directors, ‘related party, transactions’, CSR: CORPORATE SOCIAL RESPONSIBILITY:, • Mandated under Companies Act 2013: Last 3 years' average profit →, spend 2% of that on CSR (education, environment, public health,, sanitation, disaster management etc.), • Applicable on both public ltd and private ltd. with very huge profit /, turnover / networth., • Ministry of Corporate Affairs (MCA) gives National CSR Awards to, companies.