What is an Equity Share?
Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs 1,00,00,000 is divided into 10,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is said to have 10,00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.

What is a Stock Exchange?
It is a common platform where buyers and sellers come together to transact in stocks and shares. It may be a physical entity where brokers trade on a physical trading floor via an "open outcry" system or a virtual environment.

What are the functions of the Capital Market?
Capital Market enhances capital formation in the economy and comprises of – a) Primary Market –The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation. b) Secondary Market – This is a market where securities are traded after being initially offered to the public in the Primary Market and/or listed on the Stock Exchange. Majority of trading is done in this market, which comprises of equity and debt market.

How does the Stock Exchange function?
The stock exchanges in India, under the overall supervision of the regulatory authority, the Securities and Exchange Board of India (SEBI), provide a trading platform, where buyers and sellers can meet to transact in securities. The trading platform provided by NSE & BSE is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade. They can trade through the computerized trading screens available with the trading members or the internet based trading facility provided by the trading members.

What is electronic/internet trading?
Electronic trading eliminates the need for physical trading floors. Brokers can trade from their offices, using fully automated screen-based processes. Their workstations are connected to a Stock Exchange's central computer via satellite using Very Small Aperture Terminus (VSATs). The orders placed by brokers reach the Exchange's central computer and are matched electronically.

How many Exchanges are there in India?
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the country's two leading Exchanges. There are 17 other regional Exchanges recognized by SEBI, connected via the Inter-Connected Stock Exchange (ICSE). The BSE and NSE allow nationwide trading via their VSAT systems.

What is an Index?
An index is a stock-market indicator created as a statistical measure of the performance of an entire market or segment of a market based on a sample of securities from the market. An index is thus a means to evaluate the overall performance of a market or of a segment of the market. An index measures aggregate market movements. Apart from being a general market indicator, indices are used as a benchmark to evaluate individual portfolio performance. An Index comprises stocks that have large liquidity and market capitalization. Each stock is given a weightage in the Index equivalent to its market capitalization. We have 2 renowned indices viz. (a) BSE Sensitive (BSE Sensex) and (b) S&P Nifty 50 (Nifty)

Which shares can I buy?
You can buy the shares that are listed on any of the recognized Stock Exchanges.

Whom should I contact for my Stock Market related transactions?
To be able to buy or sell shares in the stock markets a client would need to be registered with a stockbroker like standardcharteredtrade who holds membership in stock exchanges and who is registered with SEBI.

Am I required to sign any agreement with the broker or sub-broker?
Yes, you have to sign the “Member-Client agreement” for the purpose of engaging a broker to execute trades on your behalf from time to time and furnish details relating to yourself to enable the member to maintain Client Registration Form.

Why does one need a broker?
As per SEBI (Securities and Exchange Board of India.) regulations, only registered members can operate in the stock market. One can trade by executing a deal only through a registered broker of a recognized Stock Exchange or through a SEBI-registered sub-broker.

What is a Member–Client Agreement form?
This form is an agreement entered into between client and broker in the presence of witnesses wherein the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through the broker after being satisfied of broker’s capabilities to deal in the same.

How to execute an order?
Select a broker of your choice and enter into a broker-client agreement and fill in the client registration form. Place your order with your broker preferably in writing. Get a trade confirmation slip on the day the trade is executed and ask for the contract note at the end of the trade date.

What is Buying and Selling?
There are several types of orders that you can dictate to a broker. The most common type, which is a regular buy or sell order, is called a market order. Another type of order is a limit order wherein you ask the broker to trade only if the price reaches a specific level. In a stop loss order, you tell the broker to sell your shares if the price drops to a certain level to prevent significant loss because if it drops to that level it is likely to drop further and your losses are likely to increase.

What is meant by bullish and bearish trend?
When the market goes up it is called a bullish trend and when the market goes down it is called a bearish trend.

What is taking a position?
When you act upon a stock and buy into it, you are taking a position. A position is an amount of money committed to an investment in anticipation of favorable price movements. There are two kinds of positions : - a) Long positions are what most people do. When you buy long, that means you are anticipating an upward movement in the price, and that is how you profit. People usually buy stocks at prices expecting to sell them later at higher prices and hence make profits. b) Short positions are the tricky ones. When you buy short, you are anticipating a fall in the price and the fall is the source of your profits. The shares will be sold and when the price falls they will be repurchased and given back and the difference is the where the investor profits. Of course, the investor who borrowed the shares carries the risk of not having the price move as anticipated, in which case he may lose money in repurchasing the stocks.

What is a contract note?
Contract Note is a confirmation of trades done on a particular day on behalf of the client. It establishes a legally enforceable relationship between the client and standardcharteredtrade with respect to the settlement of the trades. The Contract Note would show settlement number, order number, trade number, time of trade, quantity and price of the trades, brokerage charged, etc and it would be signed by an authorised person of standardcharteredtrade. These are made in duplicate and the member and the client both keep a copy each. A client should receive the contract note within 24 hours of the executed trade.

What are the additional charges other than brokerage that can be levied on
the investor? The trading member can charge: 1. Securities Transaction Tax. 2. Service tax as applicable. 3. Transaction charges levied by exchange, Stamp duty and other charges directly attributable to the transaction. Note : The brokerage and service tax is indicated separately in the contract note.

What is a book-closure/record date?
Book closure and record date help a company determine exactly the shareholders of a company as on a given date. Book closure refers to the closing of register of the names or investors in the records of a company. Companies announce book closure dates from time to time. The benefits of dividends, bonus issues, rights issue accruing to investors whose name appears on the company's records as on a given date, is known as the record date.

What is the difference between book closure and record date?
In case of a record date, the company does not close its register of security holders. Record date is the cut off date for determining the number of registered members who are eligible for the corporate benefits. In case of book closure, shares cannot be sold on an Exchange bearing a date on the transfer deed earlier than the book closure. This does not hold good for the record date.

What is a no-delivery period?
Whenever a company announces a book closure or record date, the Exchange sets up a no-delivery (ND) period for that security. During this period only trading is permitted in the security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for the corporate benefit is clearly determined.

What is an ex-dividend date?
The date on or after which a security begins trading without the dividend (cash or stock) included in the contract price.

What is an ex-date?
The first day of the no-delivery period is the ex-date. If there are any corporate benefits such as rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the shares on or after the ex-date will not be eligible for the benefits.

What is Earnings Per Share?
Earnings Per Share (EPS) is the net profit earned per share of the company. It can be obtained by dividing the Profit after Tax (PAT) by the outstanding equity shares of the company. EPS indicates the profitability of the company in relation to its share capital.

What is a Bonus Issue?
While investing in shares the motive is not only capital gains but also a proportionate share of surplus generated from the operations once all other stakeholders have been paid. But the distribution of this surplus to shareholders seldom happens. Instead, this is transferred to the reserves and surplus account. If the reserves and surplus amount becomes large, the company may transfer some amount from the reserves account to the share capital account by a mere book entry. This is done by increasing the number of shares outstanding and every shareholder is given bonus shares in a ratio called the bonus ratio and such an issue is called bonus issue. If the bonus ratio is 1:2, it means that for every two shares held, the shareholder is entitled to one extra share. So if a shareholder holds two shares, post bonus he will hold three. However, one should note that the price of the share may adjust downwards once it becomes ex-bonus.

What is a Split?
A Split is book entry wherein the face value of the share is altered to create a greater number of shares outstanding without calling for fresh capital or altering the share capital account. For example, if a company announces a two-way split, it means that a share of the face value of Rs 10 is split into two shares of face value of Rs 5 each and a person holding one share now holds two shares.

What is a Buy Back?
It is a process by which a company can buy back its shares from shareholders. A company may buy back its shares in various ways: from existing shareholders on a proportionate basis; through a tender offer from open market; through a book-building process; from the Stock Exchange; or from odd lot holders. A company cannot buy back through negotiated deals on or off the Stock Exchange, through spot transactions or through any private arrangement.

What is Book Value?
Book Value is also called as Net Asset Value per share. It indicates the assets backing per share of the company. The ratio can be computed as follows: Book Value = (Paid-up Equity Capital + Reserves & Surplus - Fictitious Assets)/ Number of Equity Shares Outstanding Book Value can be regarded as the liquidation value of the share. In case the company is liquidated immediately, the book value is the amount likely to be available per share (unless all the assets and liabilities are not stated at their realizable value in the balance sheet),which is often the case.

What is a settlement cycle?
Settlement cycle is the accounting period for the securities traded on the exchange.

Settlement Cycle on the BSE
The settlement cycle on the BSE is Trade plus two days, or T+2, as per a Sebi directive implementing this new cycle from April 1, 2003. Under rolling settlement, trades done on one day are settled after a certain number of days. So, T+2 will mean that the final settlement of transactions done on the Trade day, will be settled by exchange of money and securities on the second business day (excluding Saturday, Sundays, Bank and Exchange Trading Holidays). Pay-in and Pay-out for 'A', 'B1', 'B2', ‘T’, ‘S’, ‘TS’, 'C', "F", "G" & 'Z' group of securities Settlement is done on a T+2 basis. The pay-in/pay-out process will be settled on the T+2 day.

Summary of the Settlement Cycle

Day	Activity
T	Trading on BOLT and daily downloading of statements showing details of transactions and margins at the end of each trading day. Downloading of provisional securities and funds obligation statements by member-brokers. 6A/7A* entry by the member-brokers/ confirmation by the custodians.
T+1	Confirmation of 6A/7A data by the Custodians upto 11:00 a.m. Downloading of final securities and funds obligation statements by members.
T+2	Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securities by 1:30 p.m. The member-brokers are required to submit the pay-in instructions for funds and securities to banks and depositories respectively by 10: 30 a.m.
T+3	Auction on BOLT at 11.00 a.m.
T+4	Auction pay-in and pay-out of funds and securities by 12:00 noon and 1:30 p.m. respectively.

Source : www.bseindia.com

NSE Settlement Cycle

The NSE too follows a rolling settlement cycle of T+2.

The stock exchange sends to NSCCL the details of trades at the end of the trading day. The clearing corporation determines the total obligations of each member and transfers the data to clearing members (CM). All the trades done during a particular trading session are clubbed together and settled. NSCCL then determines the net obligations of members in terms of deliveries of securities and funds, and the settlement is completed when the funds and securities are paid out.

On the securities pay-in day, members bring in securities to NSCCL whereas on the pay out day, securities are delivered to members. If there is a shortfall in securities, then an auction is conducted to meet it.

This table makes the process clearer :

	Activity	Day
Trading	Rolling Settlement Trading	T
Clearing	Custodial Confirmation Delivery Generation	T+1 working days T+1 working day
Settlement	Securities and Funds pay in Securities and Funds pay out Valuation Debit	T+2 working day T+2 working day T+2 working day
Post Settlement	Auction Bad Delivery Reporting Auction settlement Rectified bad delivery pay-in and pay-out Re-bad delivery reporting and pickup Close out of re-bad delivery and funds pay-in & pay-out	T+3 working day T+4 working day T+5 working day T+6 working day T+8 working day T+9 working day

Source : www.nseindia.com

What is a rolling settlement?
Under rolling settlement all open positions at the end of the day mandatorily result in payment/ delivery ‘n’ days later. Currently trades in rolling settlement are settled on T+2 basis where T is the trade day. For example, a trade executed on Monday is mandatorily settled by Wednesday (considering two working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 days.

When does one deliver the shares and pay the money to broker?
As a seller, in order to ensure smooth settlement you should deliver the shares to your broker immediately after getting the contract note for sale but in any case before the pay-in day. Similarly, as a buyer, one should pay immediately on the receipt of the contract note for purchase but in any case before the pay-in day.

What is short selling?
Short selling is a legitimate trading strategy. It is a sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers take the risk that they will be able to buy the stock at a more favorable price than the price at which they "sold short."

What is an auction?
An auction is conducted for those securities that members fail to deliver/short deliver during pay-in. Three factors primarily give rise to an auction: short deliveries, un-rectified bad deliveries, un-rectified company objections.

Is there a separate market for auctions?
The buy/sell auction for a capital market security is managed through the auction market. As opposed to the normal market where trade matching is an on-going process, the trade matching process for auction starts after the auction period is over.

What happens if the shares are not bought in the auction?
If the shares are not bought at the auction i.e. if the shares are not offered for sale, the Exchange squares up the transaction as per SEBI guidelines. The transaction is squared up at the highest price from the relevant trading period till the auction day or at 20 per cent above the last available Closing price whichever is higher. The pay-in and pay-out of funds for auction square up is held along with the pay-out for the relevant auction.

What is bad delivery?
SEBI has formulated uniform guidelines for good and bad delivery of documents. Bad delivery may pertain to a transfer deed being torn, mutilated, overwritten, defaced, or if there are spelling mistakes in the name of the company or the transfer. Bad delivery exists only when shares are transferred physically. In "Demat" bad delivery does not exist.

What are company objections?
A list documenting reasons by a company for not transferring a share in the name of an investor is called company objections. Rejection occurs due to a signature difference, or fake shares, or forgery, or if there is a court injunction preventing the transfer of the shares.

What should one do with company objections?
The broker must immediately be notified. Company objection cases should be reported within 12 months from the date of issue of the memo for the original quantity of share under objection.

Who has to replace the shares in case of company objections?
The member who has sold the shares first on the Exchange is responsible for replacing the shares within 21 days of the Exchange being informed. Company objection cases that are not rectified or replaced are normally auctioned.

How does transfer of physical shares take place?
After a sale, the share certificate along with a proper transfer deed duly stamped and complete in all respects is sent to the company for transfer in the name of the buyer. Once the transfer is registered in the share transfer register maintained by the company, the process of transfer is complete.

What are the rights of the investor?
The right to get - Proof of price/brokerage charged, Money/shares on time, Statement of Accounts and Contract Note from trading member.

What are the obligations of the investor?
The obligation to - Sign a proper Member-Constituent Agreement Possess a valid contract or purchase/sale note Deliver securities & make payment on time Provide Margin before trade.

What are the tax implications of investing in Indian equities?
Tax rates on investments gains are categorized as long term & short term capital gains. (a) Long term capital gains Long Term investments that are held for more than 12 months are termed as long term capital assets. Profit on sale of such assets is termed as long term capital gain (LTCG). (b) Short term capital gains Shares that are held for less than 12 months are classified as short term capital assets.

What is an Initial Public Offering?
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer’s securities.

What is a Rights Issue?
Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements.

What is a Preferential Issue?
A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirements contained in Chapter pertaining to preferential allotment in SEBI (DIP) guidelines which inter-alia include pricing, disclosures in notice etc.

What is the difference between an offer document, Red a prospectus and a“draft offer doc”?
“Offer document” means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue, which is filed Registrar of Companies (ROC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision. “Draft Offer document” means the offer document in draft stage. The draft offer documents are filed with SEBI, atleast 21 days prior to the filing of the Offer Document with ROC/ SEs. SEBI may specifies changes, if any, in the draft Offer Document and the issuer or the Lead Merchant banker shall carry out such changes in the draft offer document before filing the Offer Document with ROC/ SEs. The Draft Offer document is available on the SEBI website for public comments for a period of 21 days from the filing of the Draft Offer Document with SEBI.

What is a Red Herring Prospectus?
Red Herring Prospectus is a prospectus, which does not have details of either price or number of shares being offered, or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. An RHP for and FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus.

What is an Abridged Prospectus?
Abridged Prospectus means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies the application form of public issues.

What is a Green-shoe Option?
Green Shoe option means an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism for a period not exceeding 30 days in accordance with the provisions of Chapter VIII A of DIP Guidelines, which is granted to a company to be exercised through a Stabilizing Agent. This is an arrangement wherein the issue would be over allotted to the extent of a maximum of 15% of the issue size. From an investor’s perspective, an issue with green shoe option provides more probability of getting shares and also that post-listing price may show relatively more stability as compared to market.

Who decides the price of an issue?
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters, which they had considered while deciding the issue price. There are two types of issues one where company and Lead Manager (LM) fix a price (called fixed price) and other, where the company and LM stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process).

What is Fixed Price offer?
An issuer company is allowed to freely price the issue. The basis of issue price is disclosed in the offer document where the issuer discloses in detail about the qualitative and quantitative factors justifying the issue price. The Issuer company can mention a price band of 20% (cap in the price band should not be more than 20% of the floor price) in the Draft offer documents filed with SEBI and actual price can be determined at a later date before filing of the final offer document with SEBI / ROCs.

What is book building?
Securities and Exchange Board of India (SEBI) guidelines define book building as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document". Book building is basically a process used in Public Issue for efficient price discovery. It is a mechanism where, during the period for which the Public Issue is open, bids are collected from investors at various prices within a Price Band. The offer price is determined after the bid closing date.

What is the main difference between offer of shares through book building and offer of shares through normal public issue?
Price at which securities will be allotted is not known in case of offer of shares through book building while in case of offer of shares through normal public issue, price is known in advance to investor. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

What is the number of days for which bid remains open in book building?
Book remains open for a minimum three days in the book building process.

What is a price band?
The red herring prospectus may contain either the floor price for the securities or a price band within which the investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. In other words, it means that the cap should not be more than 120% of the floor price. The price band can have a revision and such a revision in the price band shall be widely disseminated by informing the stock exchanges, by issuing press release and also indicating the change on the relevant website and the terminals of the syndicate members. In case the price band is revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding ten days.

What are floor and ceiling prices in book building?
When a company offers shares to the public through the book building process, it fixes a price band, which sets the minimum and maximum price limits at which the bids can be made by the investors for acquiring the shares of the company. While the floor price symbolizes the minimum price at which the investors can bid for the shares, ceiling price is the maximum price at which the investor can make bids.

What is 'Cut-Off' price?
The Cut-off option is an option given only to the Retail Individual Bidders indicating their agreement to bid and purchase at the final Issue Price as determined at the end of the Book Building Process.

How is the Retail Investor defined as?
‘Retail individual investor’ means an investor who applies or bids for securities of or for a value of not more than Rs.1, 00,000.

How is the Non Institutional Bidder defined as?
If in case your investment exceeds Rs.1, 00,000/- you will need to make an application as Non Institutional Bidder .

Can a retail investor also bid in a book-built issue?
Yes. He can bid in a book-built issue for a value not more than Rs.1,00,000. Any bid made in excess of this will be considered in the HNI category.

Can investor make multiple applications?
No. You can make only one application under one given demat account for a given IPO .

What is Basis of Allocation/Basis of Allotment?
After the closure of the issue, the bids received are aggregated under different categories i.e., firm allotment, Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs), Retail, etc. The oversubscription ratios are then calculated for each of the categories as against the shares reserved for each of the categories in the offer document. Within each of these categories, the bids are then segregated into different buckets based on the number of shares applied for. The oversubscription ratio is then applied to the number of shares applied for and the number of shares to be allotted for applicants in each of the buckets is determined. Then, the number of successful allottees is determined. This process is followed in case of proportionate allotment. In case of allotment for QIBs, it is subject to the discretion of the post issue lead manager.

Can I know the number of shares that would be allotted to me?
In case of fixed price issues, the investor is intimated about the Confirmatory Allotment Note (CAN)/Refund order within 30 days of the closure of the issue. In case of book built issues, the basis of allotment is finalized by the Book Running lead Managers within 2 weeks from the date of closure of the issue. The registrar then ensures that the demat credit or refund as applicable is completed within 15 days of the closure .

How do I know if I am allotted the shares? And by what timeframe will I get a refund if I am not allotted?
The investor is entitled to receive a Confirmatory Allotment Note (CAN) in case he has been allotted shares within 15 days from the date of closure of a book Built issue. The registrar has to ensure that the demat credit or refund as applicable is completed within 15 days of the closure of the book built issue.

How long will it take after the issue for the shares to get listed?
The listing on the stock exchanges is done within 7 days from the finalization of the issue. Ideally, it would be around 3 weeks after the closure of the book built issue. In case of fixed price issue, it would be around 37 days after closure of the issue.



 

What is an Asset Management Company?
A firm that invests the pooled funds of retail investors in securities in line with the stated investment objectives. For a fee, the investment company provides more diversification, liquidity, and professional management service than is normally available to individual investors.

What is a Mutual Fund?
Mutual Fund is a investment company that pools money from shareholders and invests in a variety of securities, such as stocks, bonds and money market instruments. In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.

What is NAV?
The Term Net Asset Value (NAV) is used by AMCs to measure net assets. It is calculated by subtracting liabilities from the value of a fund's securities and other items of value and dividing this by the number of outstanding units. Net asset value is popularly used in newspaper mutual fund tables to designate the price per unit for the fund. Calculating NAVs - Calculating mutual fund net asset values is easy. Simply take the current market value of the fund's net assets (securities held by the fund minus any liabilities) and divide by the number of units outstanding. So if a fund had net assets of Rs.50 lakh and there are one lakh units of the fund, then the price per share (or NAV) is Rs.50.00.

How often is the NAV declared?
The NAV of a scheme has to be declared at least once a week. However many Mutual Fund declare NAV for their schemes on a daily basis. As per SEBI Regulations, the NAV of a scheme shall be calculated and published at least in two daily newspapers at intervals not exceeding one week. However, NAV of a close-ended scheme targeted to a specific segment or any monthly income scheme (which are not mandatory required to be listed on a stock exchange) may be published at monthly or quarterly intervals.

What are the benefits of investing in Mutual Funds?

The advantages of investing in a Mutual Fund are:

1. Professional Management: You avail of the services of experienced and skilled professionals who are backed by a dedicated investment research team, which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

2. Diversification: Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

3. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

4. Return Potential: Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

5. Low Costs: Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

6. Liquidity: In open-ended schemes, you can get your money back promptly at net asset value related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase at NAV related prices which some close-ended and interval schemes offer you periodically.

7. Transparency: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

8. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

9. Choice of Schemes: Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

10. Well Regulated: All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of 'investors. The operations of Mutual Funds are regularly monitored by SEBI.

Are there any risks involved in investing in Mutual Funds?
All investments whether in shares, debentures or deposits involve risk: share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy; generally, however, longer the term, lesser the risk; companies may default in payment of interest/ principal on their debentures/bonds/ deposits; the rate of interest on an investment may fall short of the rate of inflation reducing the purchasing power. While risk cannot be eliminated, skillful management can minimise risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio that minimises risk and maximises returns.

TYPES OF MUTUAL FUNDS - On the basis of Objective

Equity Funds/ Growth Funds
Funds that invest in equity shares are called equity funds. They carry the principal objective of capital appreciation of the investment over the medium to long-term. The returns in such funds are volatile since they are directly linked to the stock markets. They are best suited for investors who are seeking capital appreciation. There are different types of equity funds such as Diversified funds, Sector specific funds and Index based funds.

Diversified funds
These funds invest in companies spread across sectors. These funds are generally meant for risk-taking investors who are not bullish about any particular sector.

Sector funds
These funds invest primarily in equity shares of companies in a particular business sector or industry. These funds are targeted at investors who are extremely bullish about a particular sector.

Index funds
These funds invest in the same pattern as popular market indices like S&P 500 and BSE Index. The value of the index fund varies in proportion to the benchmark index.

Tax Saving Funds
These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided under this scheme are in the form of tax rebates U/s 88 as well saving in Capital Gains U/s 54EA and 54EB. They are best suited for investors seeking tax concessions.

Debt / Income Funds
These Funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide regular income and safety to the investor.

Liquid Funds / Money Market Funds
These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns. These funds are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods.

Gilt Funds
These funds invest in Central and State Government securities. Since they are Government backed bonds they give a secured return and also ensure safety of the principal amount. They are best suited for the medium to long-term investors who are averse to risk.

Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some proportion. They provide a steady return and reduce the volatility of the fund while providing some upside for capital appreciation. They are ideal for medium- to long-term investors willing to take moderate risks.

Hedge Funds
These funds adopt highly speculative trading strategies. They hedge risks in order to increase the value of the portfolio.

TYPES OF MUTUAL FUNDS - On the basis of Flexibility

Open-ended Funds
These funds do not have a fixed date of redemption. Generally they are open for subscription and redemption throughout the year. Their prices are linked to the daily net asset value (NAV). From the investors' perspective, they are much more liquid than closed-ended funds. Investors are permitted to join or withdraw from the fund after an initial lock-in period.

Close-ended Funds
These funds are open initially for entry during the Initial Public Offering (IPO) and thereafter closed for entry as well as exit. These funds have a fixed date of redemption. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but the discount narrows as maturity nears. These funds are open for subscription only once and can be redeemed only on the fixed date of redemption. The units of these funds are listed (with certain exceptions), are tradable and the subscribers to the fund would be able to exit from the fund at any time through the secondary market.

Interval funds
These funds combine the features of both open–ended and close-ended funds wherein the fund is close-ended for the first couple of years and open-ended thereafter. Some funds allow fresh subscriptions and redemption at fixed times every year (say every six months) in order to reduce the administrative aspects of daily entry or exit, yet providing reasonable liquidity.

TYPES OF MUTUAL FUNDS - On the basis of geographic location Domestic funds
These funds mobilise the savings of nationals within the country.

Offshore Funds
These funds facilitate cross border fund flow. They invest in securities of foreign companies. They attract foreign capital for investment.

What are the different plans that Mutual Funds offer?


Growth Plan and Dividend Plan
A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realises capital appreciation on the investment. This plan appeals to investors in the high income bracket. Under the dividend plan, income is distributed from time to time. This plan is ideal to those investors requiring regular income.

Dividend Reinvestment Plan
Dividend plans of schemes carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested on behalf of the investor, thus increasing the number of units held by the investors.

Automatic Investment Plan
Under the Automatic Investment Plan (AIP) also called Systematic Investment Plan (SIP), the investor is given the option for investing in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment. AIP allows the investors to plan their savings through a structured regular monthly savings program.

Automatic Withdrawal Plan
Under the Automatic Withdrawal Plan (AWP) also called Systematic Withdrawal Plan (SWP), a facility is provided to the investor to withdraw a pre-determined amount from his fund at a pre-determined interval.

What is Entry/Exit Load?
A Load is a charge, which the AMC may collect on entry and/or exit from a fund. A load is levied to cover the up-front cost incurred by the AMC for selling the fund. It also covers one time processing costs. Some funds do not charge any entry or exit load. These funds are referred to as ‘No Load Fund’.

Funds usually charge an entry load ranging between 1.00% and 2.00%. Exit loads vary between 0.25% and 2.00%. For eg. Let us assume an investor invests Rs. 10,000/- and the current NAV is Rs.13/-. If the entry load levied is 1.00%, the price at which the investor invests is Rs.13.13 per unit. The investor receives 10000/13.13 = 761.6146 units. (Note that units are allotted to an investor based on the amount invested and not on the basis of no. of units purchased). Let us now assume that the same investor decides to redeem his 761.6146 units. Let us also assume that the NAV is Rs 15/- and the exit load is 0.50%. Therefore the redemption price per unit works out to Rs. 14.925. The investor therefore receives 761.6146 x 14.925 = Rs.11367.10.

What is Sales/Purchase price?
Sales/Purchase price is the price paid to purchase a unit of the fund. If the fund has no entry load, then the sales price is the same as the NAV. If the fund levies an entry load, then the sales price would be higher than the NAV to the extent of the entry load levied.

What is redemption price?
Redemption price is the price received on selling units of open-ended scheme. If the fund does not levy an exit load, the redemption price will be same as the NAV. The redemption price will be lower than the NAV in case the fund levies an exit load.

What is repurchase price?
Repurchase price is the price at which a close-ended scheme repurchases its units. Repurchase can either be at NAV or can have an exit load.

What is a Switch?
Some Mutual Funds provide the investor with an option to shift his investment from one scheme to another within that fund. For this option the fund may levy a switching fee. Switching allows the Investor to alter the allocation of their investment among the schemes in order to meet their changed investment needs, risk profiles or changing circumstances during their lifetime.

What is Shut-Out Period?
After the closure of the Initial Offer Period, on an ongoing basis, the Trustee reserves a right to declare Shut-Out period not exceeding 5 days at the end of each month/quarter/half-year, as the case may be, for the investors opting for payment of dividend under the respective Dividends Plans. The declaration of the Shut-Out period is envisaged to facilitate the AMC/the Registrar to determine the Units of the unitholders eligible for receipt of dividend under the various Dividend Options. Further, the Shut-Out period will also help in expeditious processing and dispatch of dividend warrants.

During the Shut-Out period investors may make purchases into the Scheme but the Purchase Price for subscription of units will be calculated using the NAV as at the end of the first Business Day in the following month/quarter/half-year as the case may be, depending on the Dividend Plan chosen by the investor. Therefore, if investments are made during the Shut –Out period, Units to the credit of the Unitholder’s account will be created only on the first Business Day of the following month/ quarter/half year, as the case may be, depending on the dividend plan chosen by the investor. The Shut-Out period applies to new investors in the Scheme as well as to Unitholders making additional purchases of Units into an existing folio. The Trustee reserves the right to change the Shut-Out period and prescribe new Shut- Out period, from time to time.

What are the factors that influence the performance of Mutual Funds?
The performances of Mutual funds are influenced by the performance of the stock market as well as the economy as a whole. Equity Funds are influenced to a large extent by the stock market. The stock market in turn is influenced by the performance of the companies as well as the economy as a whole. The performance of the sector funds depends to a large extent on the companies within that sector. Bond-funds are influenced by interest rates and credit quality. As interest rates rise, bond prices fall, and vice versa. Similarly, bond funds with higher credit ratings are less influenced by changes in the economy.

Who are the issuers of Mutual funds in India?
Unit Trust of India(UTI) was the first mutual fund which began operations in 1964. Other issuers of Mutual funds are Public sector banks like SBI, Institutions like HDFC & ICICI, Foreign Institutions like Fidelity, ABN Amro, Deutsche and Private financial companies like DSP Merrill Lynch, Sundaram, Kotak Mahindra, Cholamandalam etc.

As a new investor how do I invest in Mutual Funds?

1.Identify your investment needs : Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses among many other factors. Therefore, the first step is to assess your needs.

2.Choose the right Mutual Fund : Once you have a clear strategy in mind, you now have to choose which Mutual Fund and scheme you want to invest in.The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are:

• the track record of performance over the last few years in relation to the appropriate yardstick and similar funds in the same category. • how well the Mutual Fund is organised to provide efficient, prompt and personalised service. • degree of transparency as reflected in frequency and quality of their communications.

3.Select the ideal mix of Schemes : Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals.

4.Invest regularly : For most of US,the approach that works best is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. With many open-ended schemes offering systematic investment plans, this regular investing habit is made easy for you.

5.Keep your taxes in mind : As per the current tax laws, Dividend/Income Distribution made by mutual funds is exempt from Income Tax in the hands of investor. Further, there are other benefits available for investment in Mutual Funds under the provisions of the prevailing tax laws. You may therefore consult your tax advisor or Chartered Accountant for specific advice to achieve maximum tax efficiency by investing in Mutual Funds.

6.Start early : It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.

7. The final step : All you need to do now is to get in touch with a Mutual Fund or your agent/broker and start investing. Reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor-whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking.

What are the rights that are available to a Mutual Fund holder?
As a unitholder in a Mutual Fund scheme coming under the SEBI (Mutual Funds) Regulations, you are entitled to: 1. Receive unit certificates or statements of accounts confirming your title within 30 days from the date of closure of the subscription under open-end schemes or within 6 weeks from the date your request for a unit certificate is received by the Mutual Fund

2. Receive information about the investment policies, investment objectives, financial position and general affairs of the scheme;

3. Receive dividend within 30 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase

4. Vote in accordance with the Regulations to:

a. change the Asset Management Company; b. wind up the schemes.

5. To receive communication from the Trustee about change in the fundamental attributes of any scheme or any other changes which would modify the scheme and affect the interest of the unitholders and to have option to exit at prevailing Net Asset Value without any exit load in such cases.

It is very often said that Mutual Funds have performed badly. Please explain?
The performance of Mutual Funds is evaluated on the basis of absolute increase or decrease in its Net Asset Value (NAV). However a fund’s performance should be evaluated on the basis of a comparison with the relevant indices and alternative instruments. The NAV varies from fund to fund. Therefore this argument is not entirely true. However some funds have performed poorly with their NAV quoting well below their original NFO price.

What is forward and historical pricing?
Forward pricing is the price arrived at after the closing hours of a Working day, which the Investor is not aware of. Historical pricing is a price which an Investor knows before transacting, typically transactions allowed on the basis of the previous day’s NAV.

How are monies transferred in the event of Unit holder’s death ?
The following procedure needs to be adopted in case of transmission and in the absence of any nomination:-

A. In case of Joint-holding and demise of the First holder :-

§ Original / Attested ( in original ) Death Certificate

§ Letter from any of the other holders requesting the change in the ownership of holding

§ Units are transferred to the joint-holder’s name

B. In case of Joint-holding and demise of the joint-holder :-

§ Original / Attested ( in original ) Death Certificate

§ Letter from First / Joint-holder requesting us to change according to the Mode of holding

§ Deletion of deceased person’s name

C. In case of Single Holding :-

§ Original / Attested ( in original ) Death Certificate

§ Request letter for Transmission of Units to the legal heir.

§ List of legal heirs of the deceased person, if more than one.

§ No objection letter from other legal heirs, in favour of the named legal heir in the request.

§ Letter of Indemnity from all legal heirs Notarized Affidavit by the Successor(s), if required.

What is an Account Statement?
An Account Statement is a non-transferable document that serves as a record of transactions between the fund and the investor. It contains details of the investor, the units allotted or redeemed and the date of transaction. The Account Statement is issued every time any transaction takes place.

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The Bonds may be held by -


(i) An individual, not being a Non-Resident Indian -

(a) in his or her individual capacity, or

(b) in individual capacity on joint basis, or

(c) in individual capacity on anyone or survivor basis, or

(d) On behalf of a minor as father/mother/legal guardian

(ii) a Hindu Undivided Family.

(iii) 'Charitable Institution' to mean a Company registered under Section 25 of the Indian Companies Act 1956 or

an institution which has obtained a Certificate of Registration as a charitable institution in accordance with a law in force; or

any institution which has obtained a certificate from an Income Tax Authority for the purposes of Section 80G of the Income Tax Act, 1961.

(iv) "University" means a university established or incorporated by a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a university for the purposes of that Act.

Limit of Investment

There will be no maximum limit for investment in the Bonds.

Tax Treatment

(i) Income-tax : Interest on the Bonds is taxable under the Income-tax Act, 1961 as applicable according to the relevant tax status of the Bonds holder.

(ii) Wealth tax : The Bonds are exempt from Wealth-tax under the Wealth tax Act, 1957.

Tax Deduction at source

Tax will be deducted at source while making payment of interest on the non-cumulative Bonds from time to time and credited to Government Account. Tax on the interest portion of the maturity value will be deducted at source at the time of payment of the maturity proceeds on the cumulative Bonds and credited to Government Account.

1. What is a Currency future?

Currency futures are standardized foreign exchange contracts traded on NSE to buy or sell one currency against another on a specified future date, at a price specified on the purchase or sale date.

2. Basics of Currency futures

The forex market is where one currency is traded for another.The average daily turnover is in global forex and related markets is in trillions of US dollars.The spot exchange rate refers to the current prevailing exchange rate at which a currency can be bought or sold for another. Forward exchange rates are those quoted and traded for future delivery of underlying currencies and payment.

The forward rates are different from spot rates depending on market sentiments and expected future conditions. the pricing of a currency forward contract is determined by the prevailing spot rate and interest rates differential of the respective countries for a specified date in future.

The forward contracts are customized bilateral agreements between two counterparties agreeing to buy or sell the underlying on a specified rate.

Currency futures are standardized foreign exchange contracts traded on NSE to buy or sell one currency against another on a specified future date, at a price specified on the purchase or sale date.The exchanges clearing house acts as a central counterparty for all trades and thus, undertakes the responsibility of performance guarantee.

Currency futures can be bought/sold on the NSE through members of the exchange, after opening a trading account and depositing requite margin amount with the trading member.

3. What is a Currency futures contract?

This is a standardized version of forward contract that is traded on a regulated exchange. It is an agreement to buy or sell a specified quantity of an underlying currency on a specified date in future at a specified rate

4. What are the currencies traded on NSECD?

Currenctly, USD-INR is allowed for trading.

5. What are the trading hours?/

Trading is allowed in currency futures from Monday to Friday between 9.00 a.m to 5.00 p.m

6. When will the Currency futures contract expire every month?

The last trading day for a near month futures contract will be two working days prior to the last working day (excluding Saturdays) of the month. The settlement price will be RBI mandated reference rate on the last trading day.

7. Participants of a Currency Futures Market

NSE provides a host of benefits to a wide range of financial market participants, including hedgers, investors /traders and arbitrageurs.

Hedgers: NSE aims to provide a high liquidity platform for hedging against the effects of unfavorable fluctuations in the foreign exchange markets.Banks, Importers, Exporters, and Corporates can hedge on NSE at low entry and exit.

Investors/Traders: Anybody interested in taking a view on appreciation/depreciation of exchange rate in the long and short term can participate in the NSE currency futures.

Arbitrageurs: They get opportunity to trade in the fluctuations of currency in between exchanges.

8. What are the factors that affect the exchange rate of currency?

It is affected by the supply and demand for the country’s currency in the international foreign exchange markets. Interest rates, Inflation, trade balance and economic & political scenarios in the country also affect the exchange rate.

9. Why do we need Currency futures?

This is required if our business if its influenced by fluctuations in currency exchange rates.E.g if you are exporting something and the value of the INR has gone up, you earn less in terms of Rupees that you had anticipated. Currency futures help you hedge against these exchange rate risks.

10. How will it help small retail traders?

The minimum size of the USD/INR futures contract is USD1000 or Rs 49000(approx in INR).This is well within the reach of most small traders. All transactions on the exchange are anonymous and are executed on a price time priority ensuring that the best price is available to all categories of participants.

11. What are the risks involved in Currency futures?

Risks in currency futures pertain to movements in the exchange rate. There is no a confirmed formula to determine whether the currency rate will fall or rise. A judgment on this is the domain of experts with knowledge and understanding of variables that affect currency rates.

12. What are the contract specifications for Currency futures contracts?

Symbol	USDINR
Instrument Type	FUTCUR
Unit of trading	1 (1 unit denotes 1000 USD)
Underlying	The exchange rate in Indian Rupees for a US Dollar
Tick size	Rs.0.25 paise or INR 0.0025
Trading hours	Monday to Friday 9:00 a.m. to 5:00 p.m.
Contract trading cycle	12 month trading cycle.
Last trading day	Two working days prior to the last business day of the expiry month at 12 noon.
Final settlement day	Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai.
Minimum initial margin(exchange stipulated)	1.75% on day 1, 1% thereafter
Settlement	Daily settlement : T + 1 Final settlement : T + 2
Mode of settlement	Cash settled in Indian Rupees
Daily settlement price (DSP)	Calculated on the basis of the last half an hour weighted average price.
Final settlement price (FSP)	RBI reference rate