Monday, January 24, 2011
KYC Forms
Dears, Please click on the links below to download the forms.
KYC form for Individual
KYC form for Non- Individual
KYC form for Individual
KYC form for Non- Individual
Financial Statement Analysis:
Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account.
There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.
Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements.
Tools and Techniques of Financial Statement Analysis:
Following are the most important tools and techniques of financial statement analysis:
Horizontal and Vertical Analysis
Ratios Analysis
1. Horizontal and Vertical Analysis:
Horizontal Analysis or Trend Analysis:
Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. Horizontal analysis is facilitated by showing changes between years in both dollar and percentage form.
Trend Percentage:
Horizontal analysis of financial statements can also be carried out by computing trend percentages. Trend percentage states several years' financial data in terms of a base year. The base year equals 100%, with all other years stated in some percentage of this base
Vertical Analysis:
Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in dollar form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size statements.
2. Ratios Analysis:
Accounting Ratios Definition, Advantages, Classification and Limitations:
The ratios analysis is the most powerful tool of financial statement analysis. Ratios simply means one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another.
Profitability Ratios:
Profitability ratios measure the results of business operations or overall performance and effectiveness of the firm. Some of the most popular profitability ratios are as under:
Gross profit ratio
Net profit ratio
Operating ratio
Expense ratio
Return on shareholders investment or net worth
Return on equity capital
Return on capital employed (ROCE) Ratio
Dividend yield ratio
Dividend payout ratio
Earnings Per Share (EPS) Ratio
Price earning ratio
Liquidity Ratios:
Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm's ability to meet its current obligations. Following are the most important liquidity ratios.
Current ratio
Liquid / Acid test / Quick ratio
Activity Ratios:
Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales. Following are the most important activity ratios:
Inventory / Stock turnover ratio
Debtors / Receivables turnover ratio
Average collection period
Creditors / Payable turnover ratio
Working capital turnover ratio
Fixed assets turnover ratio
Over and under trading
Long Term Solvency or Leverage Ratios:
Long term solvency or leverage ratios convey a firm's ability to meet the interest costs and payment schedules of its long term obligations. Following are some of the most important long term solvency or leverage ratios.
Debt-to-equity ratio
Proprietary or Equity ratio
Ratio of fixed assets to shareholders funds
Ratio of current assets to shareholders funds
Interest coverage ratio
Capital gearing ratio
Over and under capitalization
Financial-Accounting- Ratios Formulas:
A collection of financial ratios formulas which can help you calculate financial ratios in a given problem
Limitations of Financial Statement Analysis:
Although financial statement analysis is highly useful tool, it has two limitations. These two limitations involve the comparability of financial data between companies and the need to look beyond ratios.
Advantages of Financial Statement Analysis:
There are various advantages of financial statements analysis. The major benefit is that the investors get enough idea to decide about the investments of their funds in the specific company. Secondly, regulatory authorities like International Accounting Standards Board can ensure whether the company is following accounting standards or not. Thirdly, financial statements analysis can help the government agencies to analyze the taxation due to the company. Moreover, company can analyze its own performance over the period of time through financial statements analysis.
There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.
Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements.
Tools and Techniques of Financial Statement Analysis:
Following are the most important tools and techniques of financial statement analysis:
Horizontal and Vertical Analysis
Ratios Analysis
1. Horizontal and Vertical Analysis:
Horizontal Analysis or Trend Analysis:
Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. Horizontal analysis is facilitated by showing changes between years in both dollar and percentage form.
Trend Percentage:
Horizontal analysis of financial statements can also be carried out by computing trend percentages. Trend percentage states several years' financial data in terms of a base year. The base year equals 100%, with all other years stated in some percentage of this base
Vertical Analysis:
Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in dollar form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size statements.
2. Ratios Analysis:
Accounting Ratios Definition, Advantages, Classification and Limitations:
The ratios analysis is the most powerful tool of financial statement analysis. Ratios simply means one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another.
Profitability Ratios:
Profitability ratios measure the results of business operations or overall performance and effectiveness of the firm. Some of the most popular profitability ratios are as under:
Gross profit ratio
Net profit ratio
Operating ratio
Expense ratio
Return on shareholders investment or net worth
Return on equity capital
Return on capital employed (ROCE) Ratio
Dividend yield ratio
Dividend payout ratio
Earnings Per Share (EPS) Ratio
Price earning ratio
Liquidity Ratios:
Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm's ability to meet its current obligations. Following are the most important liquidity ratios.
Current ratio
Liquid / Acid test / Quick ratio
Activity Ratios:
Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales. Following are the most important activity ratios:
Inventory / Stock turnover ratio
Debtors / Receivables turnover ratio
Average collection period
Creditors / Payable turnover ratio
Working capital turnover ratio
Fixed assets turnover ratio
Over and under trading
Long Term Solvency or Leverage Ratios:
Long term solvency or leverage ratios convey a firm's ability to meet the interest costs and payment schedules of its long term obligations. Following are some of the most important long term solvency or leverage ratios.
Debt-to-equity ratio
Proprietary or Equity ratio
Ratio of fixed assets to shareholders funds
Ratio of current assets to shareholders funds
Interest coverage ratio
Capital gearing ratio
Over and under capitalization
Financial-Accounting- Ratios Formulas:
A collection of financial ratios formulas which can help you calculate financial ratios in a given problem
Limitations of Financial Statement Analysis:
Although financial statement analysis is highly useful tool, it has two limitations. These two limitations involve the comparability of financial data between companies and the need to look beyond ratios.
Advantages of Financial Statement Analysis:
There are various advantages of financial statements analysis. The major benefit is that the investors get enough idea to decide about the investments of their funds in the specific company. Secondly, regulatory authorities like International Accounting Standards Board can ensure whether the company is following accounting standards or not. Thirdly, financial statements analysis can help the government agencies to analyze the taxation due to the company. Moreover, company can analyze its own performance over the period of time through financial statements analysis.
CAPM - Capital Asset Pricing Model
CAPM FORMULA
The linear relationship between the return required on an investment (whether in stock market securities or in business operations) and its systematic risk is represented by the CAPM formula.
Formulae Sheet:
E(ri) = Rf + βi(E(rm) - Rf)
E(ri) = return required on financial asset i
Rf = risk-free rate of return
βi = beta value for financial asset i
E(rm) = average return on the capital market
The CAPM is an important area of financial management. In fact, it has even been suggested that finance only became ‘a fully-fledged, scientific discipline’ when William Sharpe published his derivation of the CAPM in 19861.
The linear relationship between the return required on an investment (whether in stock market securities or in business operations) and its systematic risk is represented by the CAPM formula.
Formulae Sheet:
E(ri) = Rf + βi(E(rm) - Rf)
E(ri) = return required on financial asset i
Rf = risk-free rate of return
βi = beta value for financial asset i
E(rm) = average return on the capital market
The CAPM is an important area of financial management. In fact, it has even been suggested that finance only became ‘a fully-fledged, scientific discipline’ when William Sharpe published his derivation of the CAPM in 19861.
IPO allotment status
BS Transcomm IPO Allotment Status
Commerecial Engineers & Body Builders Co Ltd.
Gravita India Ltd.
IDFC Limited Bonds
MOIL Limited
Please click on the link below:
http://mis.karvycomputershare.com/ipo/
Commerecial Engineers & Body Builders Co Ltd.
Gravita India Ltd.
IDFC Limited Bonds
MOIL Limited
Please click on the link below:
http://mis.karvycomputershare.com/ipo/
Sunday, January 23, 2011
EPF can make you a crorepati
Don't you hate it when you look at your salary slip and find that sundry deductions have pared it down. But believe us, you should actually feel happy about one of these deductions-the monthly contribution to the Employees' Provident Fund (EPF). The 12% of your basic salary that flows into the EPF every month has the potential to make you a crorepati when you retire.
Sounds unbelievable? After all, the investment seems too small and the interest rate offered doesn't seem too high. But don't forget that a matching contribution comes from your employer every month. Don't also underestimate the power of compounding and what it can do to your retirement savings over the long term. As the graphic above shows, the 8.5% interest earned on the EPF can help a person with a basic salary of Rs 25,000 a month accumulate a gargantuan Rs 1.65 crore in 35 years.
The Direct Taxes Code had initially proposed that new contributions to the EPF be taxed on withdrawal. However, the revised draft has once again made EPF fully exempt. This makes it the best debt option available in the market.
In fact, the EPF can single-handedly account for the debt portion of your financial portfolio. You need not invest in tax inefficient fixed deposits or worry about which debt fund to invest in. All you need to ensure is that you don't ever withdraw from your EPF account till you hang up your boots. If at any stage you find that your debt portion is lagging, you can add more through a voluntary increases in your contribution.
However, few people are able to reach even the Rs 1 crore milestone in their careers. EPF rules allow encashment of the accumulated corpus when a person quits a job and it's not uncommon for people to withdraw their PF at that stage.
This is despite the fact that the government discourages you from withdrawing the money. The withdrawals from the EPF within five years of joining are taxable. The tax will be minimal if the person is jobless and has no significant income from other sources but he won't completely escape the tax net. "When you withdraw you do not let the power of compounding to come into play," cautions Suresh Sadagopan, a Mumbai-based financial planner.
Transfer, don't withdraw - Instead of withdrawing money from the EPF on switching jobs, one should transfer the balance to the new account with the new employer. This does not happen automatically. You need to fill a ‘Form 13' and deposit it with the EPFO. Financial advisers recommend that you put this down among the list of priorities at the new workplace. "You should take up the matter with new organization as soon as you join. With passage of time you might get busy. Also, if your previous organization has lost the records, you could face a hard time looking for your PF details," adds Sadogapan.
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What if you don't transfer - Till now, there was no compelling reason to transfer the money from an old account to a new one. Even if you stopped putting money in your account, the balance kept earning interest till the time of withdrawal. This will stop from April 2011. After three years of inactivity, the balance will stop earning interest.
Even otherwise, multiple accounts can be a pain. They only add to your paperwork because you need to keep records of different accounts. Also, you will need to fill up separate forms to withdraw the money from the accounts. The process gets more cumbersome if accounts are located in different cities. "Transferring the balance not only makes it easy to transact, but also gives the subscriber a better idea of how much he has in his account.
In future the social security number, which is in progress, would make EPF portable. "Once this number is allotted to members, they need not switch the funds. The new employer would make the contributions into that account. It will be completely independent of the workplace," he adds
Sounds unbelievable? After all, the investment seems too small and the interest rate offered doesn't seem too high. But don't forget that a matching contribution comes from your employer every month. Don't also underestimate the power of compounding and what it can do to your retirement savings over the long term. As the graphic above shows, the 8.5% interest earned on the EPF can help a person with a basic salary of Rs 25,000 a month accumulate a gargantuan Rs 1.65 crore in 35 years.
The Direct Taxes Code had initially proposed that new contributions to the EPF be taxed on withdrawal. However, the revised draft has once again made EPF fully exempt. This makes it the best debt option available in the market.
In fact, the EPF can single-handedly account for the debt portion of your financial portfolio. You need not invest in tax inefficient fixed deposits or worry about which debt fund to invest in. All you need to ensure is that you don't ever withdraw from your EPF account till you hang up your boots. If at any stage you find that your debt portion is lagging, you can add more through a voluntary increases in your contribution.
However, few people are able to reach even the Rs 1 crore milestone in their careers. EPF rules allow encashment of the accumulated corpus when a person quits a job and it's not uncommon for people to withdraw their PF at that stage.
This is despite the fact that the government discourages you from withdrawing the money. The withdrawals from the EPF within five years of joining are taxable. The tax will be minimal if the person is jobless and has no significant income from other sources but he won't completely escape the tax net. "When you withdraw you do not let the power of compounding to come into play," cautions Suresh Sadagopan, a Mumbai-based financial planner.
Transfer, don't withdraw - Instead of withdrawing money from the EPF on switching jobs, one should transfer the balance to the new account with the new employer. This does not happen automatically. You need to fill a ‘Form 13' and deposit it with the EPFO. Financial advisers recommend that you put this down among the list of priorities at the new workplace. "You should take up the matter with new organization as soon as you join. With passage of time you might get busy. Also, if your previous organization has lost the records, you could face a hard time looking for your PF details," adds Sadogapan.
--------------------------------------------------------------------------------
What if you don't transfer - Till now, there was no compelling reason to transfer the money from an old account to a new one. Even if you stopped putting money in your account, the balance kept earning interest till the time of withdrawal. This will stop from April 2011. After three years of inactivity, the balance will stop earning interest.
Even otherwise, multiple accounts can be a pain. They only add to your paperwork because you need to keep records of different accounts. Also, you will need to fill up separate forms to withdraw the money from the accounts. The process gets more cumbersome if accounts are located in different cities. "Transferring the balance not only makes it easy to transact, but also gives the subscriber a better idea of how much he has in his account.
In future the social security number, which is in progress, would make EPF portable. "Once this number is allotted to members, they need not switch the funds. The new employer would make the contributions into that account. It will be completely independent of the workplace," he adds
Friday, January 21, 2011
Mutual Funds Performance
The performance of a Mutual Fund 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 unitholders 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
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 unitholders 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
Mutual Fund Offer Document -What to Look For ?
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 Mutual Fund is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a Mutual Fund scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the Mutual Fund, risk factors, initial issue expenses and recurring expenses to be charged to the Mutual Fund entry or exit loads, sponsor’s track record, educational qualification and work experience of key personnel including fund managers, performance of other Mutual Fund schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.
How To Invest in Mutual Funds ?
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.
Non-Resident Indians (NRI) can also invest in mutual funds. Normally, necessary details in this respect are given in the offer documents of the schemes.
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.
Non-Resident Indians (NRI) can also invest in mutual funds. Normally, necessary details in this respect are given in the offer documents of the schemes.
Types of Mutual Funds
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund
An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund
A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
Fund according to Investment Objective:
A scheme can also be classified as growth fund, income fund, or balanced fund 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:
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.
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund
An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund
A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
Fund according to Investment Objective:
A scheme can also be classified as growth fund, income fund, or balanced fund 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:
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.
Thursday, January 13, 2011
Follow-on Public Offer (FPO)
What is FPO?
A Follow-on Public Offer (FPO) is also called further public offer. When a listed company comes out with a fresh issue of shares or makes an offer for sale to the public to raise funds it is known as FPO. In other words, FPO is the consequent issue to the public after initial public offering (IPO). The word FPO came into news after the YES Bank announcement to raise Rs 2,000 crore through FPO and debt.
How is it different from an IPO?
As the name suggests initial public offering (IPO) is the first offer for purchase to public. This is a process when an unlisted company raises funds by offering its shares to the public and consequently gets listed on a stock exchange. A company can either issue fresh securities or offer its existing securities to public. However, if the same company comes out with another issue to the public, the second issue would be called an FPO. For instance, ICICI Bank was a listed entity but came out with FPO of around Rs 8,750-crore equity shares in July 2007. The issue remained open for subscription between July 19, 2007, and July 22, 2009. Similarly Bharat Earth Movers (BEML), which was listed in National Stock Exchange on November 5, 2003, came out with a public offer of 49 lakh shares in 2007. Shares of BEML were issued at Rs 1,075 after the closure of the FPO.
Under the Fast Track Issues (FTI), a listed company, which meets certain entry norms, can proceed further with FPOs by filling a copy of RHP to regulators. These companies don’t need to file a draft offer document. However, it is mandatory for a private company, which wants to come out with an IPO.
What are the other kinds of issues through which companies raise money?
Apart from IPO and FPO, a company can raise funds through a rights issue and private placement. A rights issue and bonus issue are made to the existing shareholders. However, a rights issue is also a way to raise funds but in a bonus issue new securities are issued to existing shareholders without any consideration.
What are the regulatory requirements?
In case, a company wants to come out with FPO and have changed its name within a year, at least 50% of the revenue of the last one-year must have come from the activities defined by the new name. The size of the issue should not be more than five times the pre-issue net worth of the company as mentioned in the balance sheet of the previous financial year.
Nevertheless, a group of companies - private and public sector banks - are exempt from these norms. Also, infrastructure companies whose projects have been appraised and financed by any public financial institution or companies such as IDFC and IL&FS do not need to comply with these norms. Also, the promoter must contribute at least 20% of the post-issue capital or 20% of the issue size.
A Follow-on Public Offer (FPO) is also called further public offer. When a listed company comes out with a fresh issue of shares or makes an offer for sale to the public to raise funds it is known as FPO. In other words, FPO is the consequent issue to the public after initial public offering (IPO). The word FPO came into news after the YES Bank announcement to raise Rs 2,000 crore through FPO and debt.
How is it different from an IPO?
As the name suggests initial public offering (IPO) is the first offer for purchase to public. This is a process when an unlisted company raises funds by offering its shares to the public and consequently gets listed on a stock exchange. A company can either issue fresh securities or offer its existing securities to public. However, if the same company comes out with another issue to the public, the second issue would be called an FPO. For instance, ICICI Bank was a listed entity but came out with FPO of around Rs 8,750-crore equity shares in July 2007. The issue remained open for subscription between July 19, 2007, and July 22, 2009. Similarly Bharat Earth Movers (BEML), which was listed in National Stock Exchange on November 5, 2003, came out with a public offer of 49 lakh shares in 2007. Shares of BEML were issued at Rs 1,075 after the closure of the FPO.
Under the Fast Track Issues (FTI), a listed company, which meets certain entry norms, can proceed further with FPOs by filling a copy of RHP to regulators. These companies don’t need to file a draft offer document. However, it is mandatory for a private company, which wants to come out with an IPO.
What are the other kinds of issues through which companies raise money?
Apart from IPO and FPO, a company can raise funds through a rights issue and private placement. A rights issue and bonus issue are made to the existing shareholders. However, a rights issue is also a way to raise funds but in a bonus issue new securities are issued to existing shareholders without any consideration.
What are the regulatory requirements?
In case, a company wants to come out with FPO and have changed its name within a year, at least 50% of the revenue of the last one-year must have come from the activities defined by the new name. The size of the issue should not be more than five times the pre-issue net worth of the company as mentioned in the balance sheet of the previous financial year.
Nevertheless, a group of companies - private and public sector banks - are exempt from these norms. Also, infrastructure companies whose projects have been appraised and financed by any public financial institution or companies such as IDFC and IL&FS do not need to comply with these norms. Also, the promoter must contribute at least 20% of the post-issue capital or 20% of the issue size.
Short Selling
Put simply, short selling involves the selling of financial assets or securities (stocks, bonds) that do not belong to the person selling it but have been borrowed generally from a broker or a brokerage firm. Short selling works on the premise of making money over the fall in the price of the asset. The process can be explained using the example of stocks. There are always certain stocks in the market, which are overvalued and overpriced owing to different reasons. A short seller predominantly looks out for such stocks, which are sooner or later, expected to see a fall in their prices. The short seller then borrows these stocks
from a lender and sells them when the prices are still high. The short seller then waits for the prices to dip after which he buys back the same stock and returns it to the lender. The short seller thus makes a profit as he manages to buy the stock back at a rate, which is lesser than what he makes out of the sale of the stock.
What are the regulations on short selling?
Depending on the country, there are strict regulations on short selling including restrictions regarding the type of assets that can be sold and the time period within which this trading activity needs to be performed. If there are any dividends or rights that come from the stock during the course of the loan, the short seller needs to pay these back to the lender.
You may also need to open a margin account to indulge in short selling. However, you will need to remember that in addition to being profitable, short selling is also very risky. While short sellers use many ratios to predict whether the price of the asset will fall, there is always the chance that prices may see a hike, which can bring considerable losses to the short seller. Why did the US recently ban short selling?
The Securities and Exchange Commission, which acts as a financial regulator in the US banned short selling of financial stocks on September 19 as they felt that it has contributed towards the fall in stock prices of the banks and could aggravate the financial crisis. This was as an attempt at boosting the confidence of investors in the securities market. However, the ban came to an end on October 8. Market regulators in countries like the UK and Australia have also introduced bans on short selling. Is short selling allowed in India?
Short selling was practiced in India till 2001 but was banned by SEBI, after the Ketan Parekh scam. It was revived early this year. In India, now both retail and institutional investors are allowed to indulge in short selling. Despite bans in different parts of the world, SEBI has declined the need for a ban on short selling in India.
from a lender and sells them when the prices are still high. The short seller then waits for the prices to dip after which he buys back the same stock and returns it to the lender. The short seller thus makes a profit as he manages to buy the stock back at a rate, which is lesser than what he makes out of the sale of the stock.
What are the regulations on short selling?
Depending on the country, there are strict regulations on short selling including restrictions regarding the type of assets that can be sold and the time period within which this trading activity needs to be performed. If there are any dividends or rights that come from the stock during the course of the loan, the short seller needs to pay these back to the lender.
You may also need to open a margin account to indulge in short selling. However, you will need to remember that in addition to being profitable, short selling is also very risky. While short sellers use many ratios to predict whether the price of the asset will fall, there is always the chance that prices may see a hike, which can bring considerable losses to the short seller. Why did the US recently ban short selling?
The Securities and Exchange Commission, which acts as a financial regulator in the US banned short selling of financial stocks on September 19 as they felt that it has contributed towards the fall in stock prices of the banks and could aggravate the financial crisis. This was as an attempt at boosting the confidence of investors in the securities market. However, the ban came to an end on October 8. Market regulators in countries like the UK and Australia have also introduced bans on short selling. Is short selling allowed in India?
Short selling was practiced in India till 2001 but was banned by SEBI, after the Ketan Parekh scam. It was revived early this year. In India, now both retail and institutional investors are allowed to indulge in short selling. Despite bans in different parts of the world, SEBI has declined the need for a ban on short selling in India.
What is a QIP?
Qualified institutional placement (QIP) is simply the means whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a Qualified Institutional Buyer (QIB). Apart from preferential allotment, this is the only other method of private placement whereby a listed company can issue shares or convertible securities to a select group of persons. However, it scores over other methods, as it does not involve many of the common procedural requirements such as the submission of pre-issue filings to the market regulator.
Why was it introduced?
The Securities and Exchange Board of India (Sebi) introduced the QIP process in 2006, to prevent listed companies in India from developing an excessive dependence on foreign capital. The complications associated with raising capital in the domestic markets had led many companies to look at tapping the overseas markets via Foreign Currency Convertible Bonds (FCCB) and Global Depository Receipts (GDR) to fulfil their needs. To keep a check on this process and to give a push to the domestic markets, QIPs were launched.
What are some of the regulations governing a QIP?
To be able to engage in a QIP, companies need to fulfil certain criteria such as being listed on an exchange which has trading terminals across the country and having the minimum public shareholding requirements which are specified in their listing agreement.
During the process of engaging in a QIP, the company needs to issue a minimum of 10% of the securities issued under the scheme to mutual funds. Moreover, it is mandatory for the company to ensure that there are at least two allottees, if the size of the issue is up to Rs 250 crore and at least five allottees if the company is issuing securities above Rs 250 crore. No individual allottee is allowed to have more than 50% of the total amount issued. Also no issue is allowed to a QIB who is related to the promoters of the company.
Why was it introduced?
The Securities and Exchange Board of India (Sebi) introduced the QIP process in 2006, to prevent listed companies in India from developing an excessive dependence on foreign capital. The complications associated with raising capital in the domestic markets had led many companies to look at tapping the overseas markets via Foreign Currency Convertible Bonds (FCCB) and Global Depository Receipts (GDR) to fulfil their needs. To keep a check on this process and to give a push to the domestic markets, QIPs were launched.
What are some of the regulations governing a QIP?
To be able to engage in a QIP, companies need to fulfil certain criteria such as being listed on an exchange which has trading terminals across the country and having the minimum public shareholding requirements which are specified in their listing agreement.
During the process of engaging in a QIP, the company needs to issue a minimum of 10% of the securities issued under the scheme to mutual funds. Moreover, it is mandatory for the company to ensure that there are at least two allottees, if the size of the issue is up to Rs 250 crore and at least five allottees if the company is issuing securities above Rs 250 crore. No individual allottee is allowed to have more than 50% of the total amount issued. Also no issue is allowed to a QIB who is related to the promoters of the company.
Fringe Benefit Tax (FBT)
What is fringe benefit tax & its exemptions?
Fringe Benefit Tax (FBT) is fundamentally a tax that an employer has to pay in lieu of the benefits that are given to his/her employees. It was an attempt to comprehensively levy tax on those benefits, which evaded the taxman. The list of benefits encompassed a wide range of privileges, services, facilities or amenities which were directly or indirectly given by an employer to current or former employees, be it something simple like telephone reimbursements, free or concession tickets or even contributions by the employer to a superannuation fund.
FBT was introduced as a part of the Finance Bill of 2005 and was set at 30% of the cost of the benefits given by the company, apart from the surcharge and education cess that also needed to be paid. This tax needed to be paid by the employer in addition to the income tax, irrespective of whether the company had an income-tax liability or not.
What are the exemptions?
Certain exemptions were also clearly laid out with regard to what came under the realm of fringe benefits. For instance, expenditure on food and beverages which an employer gave to his employees, fee paid for the participation of employees in conferences or any expenditure that the company incurred in the process of fulfilling mandatory obligations, laid down by the government, towards employees was left out of this scheme.
What are the changes that have come about in the recent years?
The Budget presented by the finance minister in July 2009, scrapped the FBT, giving sizeable relief to employers. However, companies are now waiting for a finance ministry notification on the abolition of the FBT and clarity on what exactly will be the mode of taxing perquisites.
If the government’s notification does not give a helping hand to the taxpayers, the entire list of perquisites could be added to the taxable income. This may include value of accommodation; leave travel concession (LTC), encashment of unveiled earned leave, medical reimbursement and so on. However, experts feel this could also mean a subsequent increase in the in-hand salary that will be given to employees.
Fringe Benefit Tax (FBT) is fundamentally a tax that an employer has to pay in lieu of the benefits that are given to his/her employees. It was an attempt to comprehensively levy tax on those benefits, which evaded the taxman. The list of benefits encompassed a wide range of privileges, services, facilities or amenities which were directly or indirectly given by an employer to current or former employees, be it something simple like telephone reimbursements, free or concession tickets or even contributions by the employer to a superannuation fund.
FBT was introduced as a part of the Finance Bill of 2005 and was set at 30% of the cost of the benefits given by the company, apart from the surcharge and education cess that also needed to be paid. This tax needed to be paid by the employer in addition to the income tax, irrespective of whether the company had an income-tax liability or not.
What are the exemptions?
Certain exemptions were also clearly laid out with regard to what came under the realm of fringe benefits. For instance, expenditure on food and beverages which an employer gave to his employees, fee paid for the participation of employees in conferences or any expenditure that the company incurred in the process of fulfilling mandatory obligations, laid down by the government, towards employees was left out of this scheme.
What are the changes that have come about in the recent years?
The Budget presented by the finance minister in July 2009, scrapped the FBT, giving sizeable relief to employers. However, companies are now waiting for a finance ministry notification on the abolition of the FBT and clarity on what exactly will be the mode of taxing perquisites.
If the government’s notification does not give a helping hand to the taxpayers, the entire list of perquisites could be added to the taxable income. This may include value of accommodation; leave travel concession (LTC), encashment of unveiled earned leave, medical reimbursement and so on. However, experts feel this could also mean a subsequent increase in the in-hand salary that will be given to employees.
What is Private Placement?
When a company issues financial securities such as shares and convertible securities to a particular group of investors (not more than 49 in numbers) it is known as private placement.
What are the different kinds of private placement?
There are mainly two kinds - preferential allotment and qualified institutional placement. Under the preferential allotment, a listed company issues securities to a select group of entities, which may be institutions or promoters, at a particular price. The eligibility of investors is as per Chapter XIII of SEBI (DIP) guidelines. Investors may have a lock-in period. Recently, the Sebi eased the norms of preferential allotment to help revive Satyam Computers. Usually for a preferential allotment, companies are required to take permission of shareholders. However, this norm was relaxed for Satyam Computers. Qualified institutional placement is another way to go for private placement under which a listed company issues shares or convertibles to institutional buyers only, as per the provisions mentioned in Chapter XIIIA of SEBI (DIP) guidelines. This process was introduced in 2006 to provide listed companies a new window to raise funds from the domestic market rather than going to foreign markets.
How is it different from a public offer?
While in case of private placement the number of investors can go up to 49 only, in a public issue there is no limit. The public issue can be of two types - initial public offer and follow-on public offer. When an unlisted company issues financial securities for the first time to public it is called as initial public offer, whereas, if a listed company comes out with new offer or offer for sale to be subscribed by public it is called a follow-on public offer.
What are the regulatory requirements for private placement?
To go for private placement, there are certain regulations and criteria that a company has to follow. The first thing is that the company has to be listed on a stock exchange. It must meet the requirement of minimum public shareholding as per the listing agreement. To come out with qualified institutional placement, the issuing company is required to issue at least 10% of the total issue to mutual funds.
What are the different kinds of private placement?
There are mainly two kinds - preferential allotment and qualified institutional placement. Under the preferential allotment, a listed company issues securities to a select group of entities, which may be institutions or promoters, at a particular price. The eligibility of investors is as per Chapter XIII of SEBI (DIP) guidelines. Investors may have a lock-in period. Recently, the Sebi eased the norms of preferential allotment to help revive Satyam Computers. Usually for a preferential allotment, companies are required to take permission of shareholders. However, this norm was relaxed for Satyam Computers. Qualified institutional placement is another way to go for private placement under which a listed company issues shares or convertibles to institutional buyers only, as per the provisions mentioned in Chapter XIIIA of SEBI (DIP) guidelines. This process was introduced in 2006 to provide listed companies a new window to raise funds from the domestic market rather than going to foreign markets.
How is it different from a public offer?
While in case of private placement the number of investors can go up to 49 only, in a public issue there is no limit. The public issue can be of two types - initial public offer and follow-on public offer. When an unlisted company issues financial securities for the first time to public it is called as initial public offer, whereas, if a listed company comes out with new offer or offer for sale to be subscribed by public it is called a follow-on public offer.
What are the regulatory requirements for private placement?
To go for private placement, there are certain regulations and criteria that a company has to follow. The first thing is that the company has to be listed on a stock exchange. It must meet the requirement of minimum public shareholding as per the listing agreement. To come out with qualified institutional placement, the issuing company is required to issue at least 10% of the total issue to mutual funds.
Transfer of securities
Transfer of securities mean that the company has recorded in its books, a change in the title of ownership of the securities effected either privately or through an exchange transaction.
To effect a transfer, the securities should be sent to the company along with a valid, duly executed and stamped transfer deed duly signed by or on behalf of the transferor (seller) and transferee (buyer). It would be a good idea to retain photocopies of the securities and the transfer deed when they are sent to the company for transfer. It is essential that you send them by registered post with acknowledgement due and watch out for the receipt of the acknowledgement card. If you do not receive the confirmation of receipt within a reasonable period, say within 2 months, you should immediately approach the postal authorities for confirmation. Please note that, postal authorities will be able to provide confirmation only if you approach them within 3 months.
Sometimes, for your own convenience, you may choose not to transfer the securities immediately. This may facilitate easy and quick selling of the securities. In that case you should take care that the transfer deed remains valid. However, in order to avail the corporate benefits like the dividends, bonus or rights from the company, it is essential that you get the securities transferred in your name.
On receipt of your request for transfer, the company proceeds to transfer, the securities as per provisions of the law. In case they cannot effect the transfer, the company returns back the securities giving the details of the grounds under which the transfer could not be effected. This is known as company objection.
When you happen to receive a company objection for transfer, you should proceed to get the errors/discrepancies corrected. You may have to contact the transferor (the seller) either directly or through your broker for rectification or replacement with good securities. Then you can resubmit the securities and the transfer deed to the company for effecting the transfer.
In case you are unable to get the errors rectified or get them replaced, you have recourse to the seller and his broker through the stock exchange to get back your money. However, if you had transacted directly with the seller originally, you have to settle the matter with the seller directly.
Sometimes, your securities may be lost or misplaced. You should immediately request the company to record a stop transfer of the securities and simultaneously apply for issue of duplicate securities. For effecting stop transfer, the company may require you to produce a court order or the copy of the First Information Report filed by you with the police. Further, to issue a duplicate securities to you, the company may require you to submit indemnity bonds, affidavit, sureties, etc., besides issue of public notice. You have to comply with these requirements in order to protect your own interest.
Sometimes, it may so happen that the securities are lost in transit either from you to the company or from the company to you. You have to be on your guard and write to the company within a month of your sending the securities to the company. The moment it comes to your notice that either the company has not received the securities that you sent or you did not receive the securities that the company claims to have sent to you, you should immediately request the company to record stop transfer and proceed to apply for duplicate securities.
To effect a transfer, the securities should be sent to the company along with a valid, duly executed and stamped transfer deed duly signed by or on behalf of the transferor (seller) and transferee (buyer). It would be a good idea to retain photocopies of the securities and the transfer deed when they are sent to the company for transfer. It is essential that you send them by registered post with acknowledgement due and watch out for the receipt of the acknowledgement card. If you do not receive the confirmation of receipt within a reasonable period, say within 2 months, you should immediately approach the postal authorities for confirmation. Please note that, postal authorities will be able to provide confirmation only if you approach them within 3 months.
Sometimes, for your own convenience, you may choose not to transfer the securities immediately. This may facilitate easy and quick selling of the securities. In that case you should take care that the transfer deed remains valid. However, in order to avail the corporate benefits like the dividends, bonus or rights from the company, it is essential that you get the securities transferred in your name.
On receipt of your request for transfer, the company proceeds to transfer, the securities as per provisions of the law. In case they cannot effect the transfer, the company returns back the securities giving the details of the grounds under which the transfer could not be effected. This is known as company objection.
When you happen to receive a company objection for transfer, you should proceed to get the errors/discrepancies corrected. You may have to contact the transferor (the seller) either directly or through your broker for rectification or replacement with good securities. Then you can resubmit the securities and the transfer deed to the company for effecting the transfer.
In case you are unable to get the errors rectified or get them replaced, you have recourse to the seller and his broker through the stock exchange to get back your money. However, if you had transacted directly with the seller originally, you have to settle the matter with the seller directly.
Sometimes, your securities may be lost or misplaced. You should immediately request the company to record a stop transfer of the securities and simultaneously apply for issue of duplicate securities. For effecting stop transfer, the company may require you to produce a court order or the copy of the First Information Report filed by you with the police. Further, to issue a duplicate securities to you, the company may require you to submit indemnity bonds, affidavit, sureties, etc., besides issue of public notice. You have to comply with these requirements in order to protect your own interest.
Sometimes, it may so happen that the securities are lost in transit either from you to the company or from the company to you. You have to be on your guard and write to the company within a month of your sending the securities to the company. The moment it comes to your notice that either the company has not received the securities that you sent or you did not receive the securities that the company claims to have sent to you, you should immediately request the company to record stop transfer and proceed to apply for duplicate securities.
Depository and Dematerialisation
Shares are traditionally held in physical or paper form. This method has its own inherent weaknesses like loss/theft of certificates, forged/fake certificates, cumbersome and time consuming procedure for transfer of shares etc. Therefore, to eliminate these weaknesses, a new system called Depository System has been established.
A depository is a system which holds your shares in the form of electronic accounts in the same way a bank holds your money in a savings account. Depository System provides the following advantages to an investor :
• Your shares cannot be lost or stolen or mutilated;
• You never need to doubt the genuineness of your shares i.e., whether they are forged or fake;
• Share transactions like transfer, transmission, etc., can be effected immediately;
• Transaction costs are usually lower than on the physical segment;
• There is no risk of bad delivery;
• Bonus/Rights share allotted to you will be immediately credited to your account; and
• You will receive the statement of accounts of your
transactions/holdings periodically. When you decide to have your shares in electronic form, you should approach a Depository Participant (DP) who is an agent of the depository and open an account. You should surrender your share certificates in physical form and your DP will arrange to have them sent to and verified by the company and on confirmation, credit your account with an equivalent number of shares. This process is known as de-materialisation. You can always reverse this process if you so desire and get your shares reconverted into paper format. This process is known as re-materialisation.
Share transactions (like sale or purchase and transfer/transmission, etc.) in the electronic form can be effected in a much simpler and faster way. All you need to do is that after confirmation of sales/purchase transaction by your broker, you should approach your DP with a request to debit/credit your account for the transaction. The depository will immediately arrange to complete the transaction by updating your account. There is no need for separate communication to the company to register the transfer.
A depository is a system which holds your shares in the form of electronic accounts in the same way a bank holds your money in a savings account. Depository System provides the following advantages to an investor :
• Your shares cannot be lost or stolen or mutilated;
• You never need to doubt the genuineness of your shares i.e., whether they are forged or fake;
• Share transactions like transfer, transmission, etc., can be effected immediately;
• Transaction costs are usually lower than on the physical segment;
• There is no risk of bad delivery;
• Bonus/Rights share allotted to you will be immediately credited to your account; and
• You will receive the statement of accounts of your
transactions/holdings periodically. When you decide to have your shares in electronic form, you should approach a Depository Participant (DP) who is an agent of the depository and open an account. You should surrender your share certificates in physical form and your DP will arrange to have them sent to and verified by the company and on confirmation, credit your account with an equivalent number of shares. This process is known as de-materialisation. You can always reverse this process if you so desire and get your shares reconverted into paper format. This process is known as re-materialisation.
Share transactions (like sale or purchase and transfer/transmission, etc.) in the electronic form can be effected in a much simpler and faster way. All you need to do is that after confirmation of sales/purchase transaction by your broker, you should approach your DP with a request to debit/credit your account for the transaction. The depository will immediately arrange to complete the transaction by updating your account. There is no need for separate communication to the company to register the transfer.
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