❓ Frequently Asked Questions

Yes. He can bid in a book-built issue for a value not more than Rs.2,00,000. Any bid made in excess of this will be considered in the HNI category.

As per the cyber rules of Government of India, this facility is not provided. Only in case of book building issues, the brokers can bid online on behalf of subscribers.

Yes. The investor can change or revise the quantity or price in the bid using the form for changing/revising the bid that is available along with the application form. However, the entire process of changing of revising the bids shall be completed within the date of closure of the issue.

In case of fixed price issues, the investor is intimated about the 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 of the issue. The listing on the stock exchanges is done within 7 days from the finalization of the issue.

SEBI does not recommend any issue nor does take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made or for the correctness of the statements made or opinions expressed in the offer document.

It is to be distinctly understood that submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. The Lead manager certifies that the disclosures made in the offer document are generally adequate and are in conformity with SEBI guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue.

The investors should make an informed decision purely by themselves based on the contents disclosed in the offer documents. SEBI does not associate itself with any issue/issuer and should in no way be construed as a guarantee for the funds that the investor proposes to invest through the issue. However, the investors are generally advised to study all the material facts pertaining to the issue including the risk factors before considering any investment. They are strongly warned against any 'tips' or news through unofficial means.

For a public issue, you can know the status by calling the registrar (you will know about the registrar on the Highlights Page of the issue) after 30 to 40 days from the closing date of the issue. However, in a book building issue, you can know the status by calling the registrar after 20 days from the closing date.

The grades are allocated on a 5-point scale, the lowest being Grade 1 and highest Grade 5.The meaning of these grades have been explained under Question 1 in this FAQ.

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.

Book building is a process of price discovery. Hence, the Red Herring prospectus does not contain a price. Instead, the red herring prospectus contains either the floor price of the securities offered through it or a price band along with the range within which the bids can move. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. Only the retail investors have the option of bidding at 'cut-off'. After the bidding process is complete, the 'cut-off' price is arrived at on the lines of Dutch auction. The basis of Allotment (Refer Q. 15.j) is then finalized and letters allotment/refund is undertaken. The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process.

SEBI issues press releases every week regarding the draft offer documents received and observations issued during the period. The draft offer documents are put up on the website under Reports/Documents section. The final offer documents that are filed with SEBI/ROC are also put up for information under the same section. Copies of the draft offer documents in hard copy form may be obtained from the office of SEBI, Mittal Court, 'A' wing, Ground Floor, 224, Nariman Point, Mumbai - 400021 on a payment of Rs.100 or from SES, LMs etc. The soft copies can be downloaded from the SEBI website under Reports/Documents section. Some LMs also make it available on their web sites for download. The final offer documents that are filed with SEBI/ROC can also be downloaded from the same section of the website.

The Merchant Banker are the specialized intermediaries who are required to do due diligence and ensure that all the requirements of DIP are complied with while submitting the draft offer document to SEBI. Any non compliance on their part, attract penal action from SEBI, in terms of SEBI (Merchant Bankers) Regulations. The draft offer document filed by Merchant Banker is also placed on the website for public comments. Officials of SEBI at various levels examine the compliance with DIP guidelines and ensure that all necessary material information is disclosed in the draft offer documents.

Retail individual investor' means an investor who applies or bids for securities of or for a value of not more than Rs.2,00,000.

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.

As per Clause 8.8.1, Subscription list for public issues shall be kept open for at least 3 working days and not more than 10 working days. In case of Book built issues, the minimum and maximum period for which bidding will be open is 3-7 working days extendable by 3 days in case of a revision in the price band. The public issue made by an infrastructure company, satisfying the requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for a maximum period of 21 working days. As per clause 8.8.2., Rights issues shall be kept open for at least 30 days and not more than 60 days.

The promoter has been defined as a person or persons who are in over-all control of the company, who are instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public and those named in the prospectus as promoters(s). It may be noted that a director / officer of the issuer company or person, if they are acting as such merely in their professional capacity are not be included in the definition of a promoter. 'Promoter Group' includes the promoter, an immediate relative of the promoter (i.e. any spouse of that person, or any parent, brother, sister or child of the person or of the spouse). In case promoter is a company, a subsidiary or holding company of that company; any company in which the promoter holds 10% or more of the equity capital or which holds 10% or more of the equity capital of the Promoter; any company in which a group of individuals or companies or combinations thereof who holds 20% or more of the equity capital in that company also holds 20% or more of the equity capital of the issuer company.

In case the promoter is an individual, any company in which 10% or more of the share capital is held by the promoter or an immediate relative of the promoter' or a firm or HUF in which the 'Promoter' or any one or more of his immediate relative is a member; any company in which a company specified in (i) above, holds 10% or more, of the share capital; any HUF or firm in which the aggregate share of the promoter and his immediate relatives is equal to or more than 10% of the total, and all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus "shareholding of the promoter group".

No, IPO grading is not optional. A company which has filed the draft offer document for its IPO with SEBI, on or after 1st May, 2007, is required to obtain a grade for the IPO from at least one CRA.

Yes. Filling up the form is necessary if you want to view more details about the IPOs as well as our investment perceptions and analysis.

As per the requirement, all the public issues of size in excess of Rs.10 crore, are to made compulsorily in the demat more. Thus, if an investor chooses to apply for an issue that is being made in a compulsory demat mode, he has to have a demat account and has the responsibility to put the correct DP ID and Client ID details in the bid/application forms.

No. The system automatically rejects the bids if price is less than floor price.

Yes.

The allotment to the Qualified Institutional Buyers (QIBs) is on a discretionary basis. The discretion is left to the Merchant Bankers who first disclose the parameters of judgment in the Red Herring Prospectus. There are no objective conditions stipulated as per the DIP Guidelines. The Merchant Bankers are free to set their criteria and mention the same in the Red Herring Prospectus.

The primary issuances are governed by SEBI in terms of SEBI (Disclosures and Investor protection) guidelines. SEBI framed its DIP guidelines in 1992. Many amendments have been carried out in the same in line with the market dynamics and requirements. In 2000, SEBI issued "Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000" which is compilation of all circulars organized in chapter forms. These guidelines and amendments thereon are issued by SEBI India under section 11 of the Securities and Exchange Board of India Act, 1992. SEBI (Disclosure and investor protection) guidelines 2000 are in short called DIP guidelines. It provides a comprehensive framework for issuances buy the companies.

Outstanding litigations and material developments, litigations involving the company and its subsidiaries, promoters and group companies are disclosed. Also material developments since the last balance sheet date, government approvals/licensing arrangements, investment approvals (FIPB/RBI etc.), all government and other approvals, technical approvals, indebtedness, etc. are disclosed.

Here, the issuer's management gives its view on the Internal and external risks faced by the company. Here, the company also makes a note on the forward-looking statements. This information is disclosed in the initial pages of the document and it is also clearly disclosed in the abridged prospectus. It is generally advised that the investors should go through all the risk factors of the company before making an investment decision.

The investors are generally advised to study all the material facts pertaining to the issue including the risk factors before considering any investment. They are strongly warned against any 'tips' or relying on news obtained through unofficial means.

The SEBI Manual is SEBI authorized publication that is a comprehensive databank of all relevant Acts, Rules, Regulations and Guidelines that are related to the functioning of the Board. The details pertaining to the Acts, Rules, Regulations, Guidelines and Circulars are placed on the SEBI website under the "Legal Framework" section. The periodic updates are uploaded onto the SEBI website regularly.

Lock-in indicates a freeze on the shares. SEBI (DIP) Guidelines have stipulated lock-in requirements on shares of promoters mainly to ensure that the promoters or main persons who are controlling the company, shall continue to hold some minimum percentage in the company after the public issue.

"Book Building" means 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 the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer. This method provides an opportunity to the market to discover price for securities.

In Book building issue, the issuer is required to indicate either the price band or a floor price in the red herring prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called "Cut off price". This is decided by the issuer and LM after considering the book and investors' appetite for the stock. SEBI (DIP) guidelines permit only retail individual investors to have an option of applying at cut off price.

A draft prospectus provides the information on the financials of the company, promoters, background, tentative issue price etc. It is filed by the Lead Managers with the Securities & Exchange Board of India (SEBI) to provide issue details. Overview of the draft prospectus can be seen on www.sebi.gov.in (SEBI's web site). The final prospectus is printed after obtaining the clearance from SEBI and the Registrar of Companies (ROC).

Financial statement, changes in accounting policies in the last three years and differences between the accounting policies and the Indian Accounting Policies (if the Company has presented its Financial Statements also as per Either US GAAP/IAS are presented.

A follow on public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.

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 VIIIA 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.

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.

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 thirteen days.

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.

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.

This presents a review of on the details of the business of the company, business strategy, competitive strengths, insurance, industry-regulation (if applicable), history and corporate structure, main objects, subsidiary details, management and board of directors, compensation, corporate governance, related party transactions, exchange rates, currency of presentation dividend policy and management's discussion and analysis of financial condition and results of operations are given.

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.

A company proposing to issue capital to public through the on-line system of the stock exchange for offer of securities can do so if it complies with the requirements under Chapter 11A of DIP Guidelines. The appointment of various intermediaries by the issuer includes a prerequisite that such members/registrars have the required facilities to accommodate such an online issue process.

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.

The introduction covers a summary of the industry and business of the issuer company, the offering details in brief, summary of consolidated financial, operating and other data. General Information about the company, the merchant bankers and their responsibilities, the details of brokers/syndicate members to the Issue, credit rating (in case of debt issue), debenture trustees (in case of debt issue), monitoring agency, book building process in brief and details of underwriting Agreements are given here. Important details of capital structure, objects of the offering, funds requirement, funding plan, schedule of implementation, funds deployed, sources of financing of funds already deployed, sources of financing for the balance fund requirement, interim use of funds, basic terms of issue, basis for issue price, tax benefits are covered.

An Initial Public Offer (IPO) is a means of collecting money from the public by a company for the first time in the market to fund its projects. In return, the company gives the share to the investors in the company.

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.

Pricing of an issue where one category is offered shares at a price different from the other category is called differential pricing. In DIP Guidelines differential pricing is allowed only if the securities to applicants in the firm allotment category is at a price higher than the price at which the net offer to the public is made. The net offer to the public means the offer made to the Indian public and does not include firm allotments or reservations or promoters' contributions.

A company making an issue to public can reserve some shares on "allotment on firm basis" for some categories as specified in DIP guidelines. Allotment on firm basis indicates that allotment to the investor is on firm basis. DIP guidelines provide for maximum % of shares, which can be reserved on firm basis. The shares to be allotted on "firm allotment category" can be issued at a price different from the price at which the net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which securities are offered to public.

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.

Hard underwriting is when an underwriter agrees to buy his commitment at its earliest stage. The underwriter guarantees a fixed amount to the issuer from the issue. Thus, in case the shares are not subscribed by investors, the issue is devolved on underwriters and they have to bring in the amount by subscribing to the shares. The underwriter bears a risk which is much higher in soft underwriting.

Book should remain open for minimum of 3 working days.

Presently, in issues made through book building, Issuers and merchant bankers are required to ensure online display of the demand and bids during the bidding period. This is the Open book system of book building. Here, the investor can be guided by the movements of the bids during the period in which the bid is kept open. Under closed book building, the book is not made public and the bidders will have to take a call on the price at which they intend to make a bid without having any information on the bids submitted by other bidders.

Reservation on Competitive Basis is when allotment of shares is made in proportion to the shares applied for by the concerned reserved categories. Reservation on competitive basis can be made in a public issue to the Employees of the company, Shareholders of the promoting companies in the case of a new company and shareholders of group companies in the case of an existing company, Indian Mutual Funds, Foreign Institutional Investors (including non resident Indians and overseas corporate bodies), Indian and Multilateral development Institutions and Scheduled Banks.

Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be finalized by an issuer company with the lead merchant banker in advance and disclosed in the prospectus. Such buy back or safety net arrangements shall be made available only to all original
resident individual allottees limited up to a maximum of 1000 shares per allottee and the offer is kept open for a period of 6 months from the last date of dispatch of securities. The details regarding Safety Net are covered under Clause 8.18 of DIP Guidelines.

Any company making a public issue or a listed company making a rights issue of value of more than Rs.50 lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further on the issue only after getting observations from SEBI. The validity period of SEBI's observation letter is three months only ie. the company has to open its issue within three months period.

Soft underwriting is when an underwriter agrees to buy the shares at later stages as soon as the pricing process is complete. He then, immediately places those shares with institutional players. The risk faced by the underwriter as such is reduced to a small window of time. Also, the soft underwriter has the option to invoke a force Majeure (acts of God) clause in case there are certain factors beyond the control that can affect the underwriter's ability to place the shares with the buyers.

The document is prepared by an independent specialized agency called Merchant Banker, which is registered with SEBI. They are required to do through due diligence while preparing an offer document. The draft offer document submitted to SEBI is put on website for public comments. In case, you have any information about the issuer or its directors or any other aspect of the issue, which in your view is not factually reflected, you may send your complaint to Lead Manager to the issue or to SEBI, Division of Issues and Listing.

"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, at least 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.

Block deal is a trade, with a minimum quantity of 5,00,000 shares or minimum value of Rs. 5 crores, executed through a single transaction, on the special "Block Deal window".
Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number of equity shares of the company.
The orders in a block deal are not shown to the people who trade from normal trade window. Bulk orders, on the other hand, are visible to everyone.
Source: sptulsian.com

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.

This differs from issue to issue. In a normal issue, the Lead managers decide the value and this would be notified on the form. In a book building issue, a price range is declared and the investors who quote higher value would be allotted. In Highlights page of any IPO these issues are explained in detail.

The FAQs relating to demat have been covered in the Investor Education section of the SEBI website in a separate head. They are available on the http://investor.sebi.gov.in/faq/dematfaq.html.

Most of the issue complaints pertain to non-receipt of refund or allotment, or delay in receipt of refund or allotment and payment of interest thereon. These complaints shall be made to the post issue Lead Manager, who in turn will take up the matter with registrar to redress the complaints. In case the investor does not receive any reply within a reasonable time, investor may complain to SEBI, Office of investors Assistance.

In the pre-issue process, the Lead Manager (LM) takes up the due diligence of company's operations/ management/ business plans/ legal etc. Other activities of the LM include drafting and design of Offer documents, Prospectus, statutory advertisements and memorandum containing salient features of the Prospectus. The BRLMs shall ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges, RoC and SEBI including finalisation of Prospectus and RoC filing. Appointment of other intermediaries viz., Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also included in the pre-issue processes.

The LM also draws up the various marketing strategies for the issue. The post issue activities including management of escrow accounts, coordinate non-institutional allocation, intimation of allocation and dispatch of refunds to bidders etc are performed by the LM. The post Offer activities for the Offer will involve essential follow-up steps, which include the finalization of trading and dealing of instruments and dispatch of certificates and demat of delivery of shares, with the various agencies connected with the work such as the Registrar(s) to the Offer and Bankers to the Offer and the bank handling refund business. The merchant banker shall be responsible for ensuring that these agencies fulfill their functions and enable it to discharge this responsibility through suitable agreements with the Company.

The Registrar finalizes the list of eligible allottees after deleting the invalid applications and ensures that the corporate action for crediting of shares to the demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent. The Lead manager coordinates with the Registrar to ensure follow up so that that the flow of applications from collecting bank branches, processing of the applications and other matters till the basis of allotment is finalized, dispatch security certificates and refund orders completed and securities listed.

Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed in all the mandatory collection centers as specified in DIP Guidelines. The LM also ensures follow-up with bankers to the issue to get quick estimates of collection and advising the issuer about closure of the issue, based on the correct figures.

SEBI does not play any role in the assessment made by the grading agency. The grading is intended to be an independent and unbiased opinion of that agency.

IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa as below.

IPO grade 1: Poor fundamentals

IPO grade 2: Below-average fundamentals

IPO grade 3: Average fundamentals

IPO grade 4: Above-average fundamentals

IPO grade 5: Strong fundamentals

IPO grading has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO

The syndicate member returns the counterfoil with the signature, date and stamp of the syndicate member. The investor can retain this as a sufficient proof that the bids have been taken into account.

The form for applying/bidding of shares is available with all syndicate members, collection centers, the brokers to the issue and the bankers to the issue.

In the case of book-built issues, the exchanges (BSE/NSE) display the data regarding the bids obtained (on a consolidated basis between both these exchanges). The data regarding the bids is also available category wise. After the price has been determined on the basis of bidding, the statutory public advertisement containing, inter alia, the price as well as a table showing the number of securities and the amount payable by an investor, based on the price determined, is issued.

In the case of book-built issues, the exchanges (BSE/NSE) display the data regarding the bids obtained (on a consolidated basis between both these exchanges). The data regarding the bids is also available category wise. After the price has been determined on the basis of bidding, the statutory public advertisement containing, inter alia, the price as well as a table showing the number of securities and the amount payable by an investor, based on the price determined, is issued.

Book Running Lead Manager appointed by the issuer will intimate to the exchange the list of members who are eligible to participate in the issue. These members will be allowed to enter the bids in the IPO.

Merchant Bankers to the issue or Book Running Lead Managers (BRLM), syndicate members, Registrars to the issue, Bankers to the issue, Auditors of the company, Underwriters to the issue, Solicitors, etc. are the intermediaries to an issue. The issuer discloses the addresses, telephone/fax numbers and email addresses of these intermediaries. In addition to this, the issuer also discloses the details of the compliance officer appointed by the company for the purpose of the issue.

It may be understood that the regulatory mechanism does not play a role in setting the price for issues. It is up to the company to decide on the price or the price band, in consultation with Merchant Bankers. The basis of issue price is disclosed in the offer document. The issuer is required to disclose in detail about the qualitative and quantitative factors justifying the issue price.

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 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).

The Book Runner(s) may appoint those intermediaries who are registered with the Board and who are permitted to carry on activity as an 'Underwriter' as syndicate members. The syndicate members are mainly appointed to collect and entire the bid forms in a book built issue.

In a book built issue allocation to Retail Individual Investors (RIIs), Non Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of 35: 15: 50 respectively. In case the book built issues are made pursuant to the requirement of mandatory allocation of 60% to QIBs in terms of Rule 19(2)(b) of SCRR, the respective figures are 30% for RIIs and 10% for NIIs. This is a transitory provision pending harmonization of the QIB allocation in terms of the aforesaid Rule with that specified in the guidelines.

A Merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant Bankers) Regulations, 1992 is eligible to act as a Book Running Lead Manager to an issue.

Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. In terms of clause 2.2.2B (v) of DIP Guidelines, a 'Qualified Institutional Buyer' shall mean:
a. Public financial institution as defined in section 4A of theCompanies Act, 1956;
b. Scheduled commercial banks;
c. Mutual funds;
d. Foreign institutional investor registered with SEBI;
e. Multilateral and bilateral development financial institutions;
f. Venture capital funds registered with SEBI.
g. Foreign Venture capital investors registered with SEBI.
h. State Industrial Development Corporations.
i. Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA).
j. Provident Funds with minimum corpus of Rs.25 crores
k. Pension Funds with minimum corpus of Rs. 25 crores)

These entities are not required to be registered with SEBI as QIBs. Any entities falling under the categories specified above are considered as QIBs for the purpose of participating in primary issuance process.

The Central Listing Authority's , CLA, functions have been detailed under Regulation 8 of SEBI (Central Listing Authority) Regulations, 2003 (CLA Regulations) issued on August 21, 2003 and amended up to October 14, 2003. In brief, it covers processing applications for letter precedent to listing from applicants; to make recommendations to the Board on issues pertaining to the protection of the interest of the investors in securities and development and regulation of the securities market, including the listing agreements, listing conditions and disclosures to be made in offer documents; and; to undertake any other functions as may be delegated to it by the Board from time to time. SEBI as the regulator of the securities market examines all the policy matters pertaining to issues and will continue to do so even during the existence of the CLA. Since the CLA is not yet operational, the reply to this question would be updated thereafter.

SME is a separate platform opened up by Stock Exchanges in India to help SMEs to raise fund through investors in stock market.

For SME stocks to get listed and being traded on exchange, company has to come up with an Initial Public Offer (IPO) at exchnage's SME platform. IPO is one of the popular way for companies to raise fund from investors and get listed on exchanges.

There are two exchanges, on which SME stocks can get listed.
1. Bombay Stock Exchange BSE, countries oldest stock exchange offers platform called 'BSE SME' for SMEs.
2. National Stock Exchange (NSE), the largest stock exchange in India offers platform called 'EMERGE' for SMEs.

1. For SME IPO the company should have a paid up capital of ?3 crore and the same should be the net worth as well as its net tangible assets.
2. Companies should have at distributable profits in terms of Section 124 of the Companies Act 2013, least two years of our immediately preceding three financial years (excluding extraordinary income).
3. For SME IPOs, as per SEBI guidelines minimum trading lot varies from 100 to 10000 depending upon the price band of the issue. Such lots are reviewed periodically and adjusted depending upon it s price movements, post listings.

Main IPOs
1. Minimum post issue paid up capital of 10 crores
2. Minimum number of allotees should be 1000
3. IPO Grading not compulsory
4. IPO Underwriting not compulsory (Under 50% compulsory subscription to QIB's)
5. Track record norms are stringent
6. Offer document verified by SEBI
7. Minimum lot value (Application Size) should be between ?10000 to ?15000.
8. Reporting is required at the end of every quarter

SME IPOs
1. Minimum post issue capital of 1 crore and maximum 25 crores
2. Minimum number of allotees should be 100
3. IPO Grading not compulsory
4. IPO Underwriting is compulsory (100% underwritten with Merchant Banker underwriting 15%)
5. Track record norms are relaxed
6. Offer document verified by respected Stock Exchanges
7. Minimum lot value (Application Size) should be ?100000
8. Reporting is required half yearly

The condition in respect of filing of Draft Red Herring Prospectus (DRHP), obtaining in-principle approval of SEBI, and issuing public notice are waived for listing of the SMEs. The Merchant Banker can file the RHP with due diligence certificate with Exchange and approval of Exchange is sufficient. A copy of the RHP has to be filed with SEBI for its information. The process of launching an IPO for listing on SME Platform may be completed within 2 to 3 months, compared to the time frame of about 5 to 6 months required for launching an IPO proposed to be listed on the Main Board.

SEBI has made amendments in the Issue of Capital and Disclosure Requirements (ICDR) Regulations, thereby simplifying the compliance norms for SMEs listed on the SME Platform. It introduced Chapter XB which states the Regulations for the SME Exchange/ Platform. The salient features are:
1. Financial results shall be submitted on half yearly basis instead of on quarterly basis.
2. Financial results not required to be published and the SMEs can make it available on their websites.
3. SMEs can send the shorten version of the annual report with the details of the profit & loss account and balance sheet to the shareholders instead of sending physical copies of the full annual report.

Yes, SME company can migrate to Main Board, if it fulfills all requirements of SEBI.

Besides helping the SME's in raising equity capital through primary market and the listing them on SME Platform, the Merchant Bankers will also have to handhold them by ensuring continuous market making in their scrips for three yea?

The other additional responsibility is that the issue should be 100% underwritten and the merchant banker has to do compulsory underwriting of 15% in its own accounts. There is need for syndication for the purpose of underwriting and the responsibility lies with the merchant banker. There is no such responsibility cast upon the merchant bankers while listing scrips on the Main Board.

Only the Member Brokers of the Stock Exchanges recognized by the SEBI can act as Market Make? The Member Brokers desirous of becoming Market Makers will have to get themselves registered as Market Maker with the Exchange by filing the registration form. These Member Brokers should be in existence for a minimum period of one year from the date of their registration and also have a net worth of minimum ? 1 crore. A new trading member, who is in existence for less than one year, should have a net worth of minimum ? 1 crore and its Director(s) should have at least three years' experience in capital market.

Market Making is an activity where the Member Brokers registered as Market Makers will undertake to support the scrip by providing two way quotes. All the Market Makers in scrip will provide two way quotes for 75% of the time during a trading day. The Market Makers will have to hold 5% of the specified security to be listed at the time of allotment in their inventory to do the Market Making. In addition to this, the Market Makers can also buy from, or sell to the nominated investors, the required shares for Market Making. The Merchant Banker and nominated investor need to enter into an agreement in this regard.

The tax benefits are immense. The unlisted shares will attract short term capital gains (STCG) tax upto 30% and long term capital gains tax (LTCG) of 20%. Whereas in listed securities, the STCG tax is 15% and LTCG tax is nil respectively, provided an investor has paid Securities transaction Tax.

The SME platform will have one time listing fee of ?50,000/-.

Annual Fees will be minimum ?25,000 or 0.01% of full Market Capitalization whichever is higher (max ?50,000). The basis of calculation of Market Capitalization will be average of price as on March 31 or last day of trading in the financial year.

A Qualified Institutional Buyer (QIB) or Private Equity (PE) Fund, who enters into an agreement with the Merchant Banker to subscribe to the issue in case of under-subscription or to receive or deliver the specified securities in the market-making process can be "Nominated Investors" as defined by SEBI (Regulation 106N[b] of SEBI [ICDR] Regulations)

1. Submission of Half Yearly Results instead of Quarterly Results.
2. No requirement of Publishing of Financial Results and notices of Board Meetings to adopt audited / unaudited results.

As per the ICDR Regulations, the Company desiring to come with the IPO has to offer a minimum of 25% of the post-issue, paid-up capital to the investo?

1. 100% underwriting of the issue.
2. Merchant Bankers need to underwrite 15% from their own account.
3. Merchant Bankers are required to undertake market making for a period of 3 years.

As SME companies are not well-known, so only the informed investors are expected to invest in SMEs.

SEBI has issued a circular vide dated 21st February, 2012 for standardized lot size for SME Exchange.
Odd lots may get created because of the corporate actions taken by companies from time to time, like issuing bonus shares, warrants and rights issues. The Regulations provides that the odd lots can be sold only to Market Makers and investor shall give the declaration that he is selling all the odd lot shares of a particular scrip by a single order. This is to minimize the odd lots in the system.

As per ICDR Regulations, grading is not mandatory for listing on the SME Platform.

Checklist for going to SME IPO as follow:
1. Keeping the Annual Reports on accounts ready.
2. Peer Review by Reputed Chartered Accountant firms (since its inception or last 3 years, whichever is shorter)
3. Detailed Disclosures about the Past Performance of the company.
4. Future Projections of the company (CMA Data) for at least next 3 years.
5. Conversion of private limited company to public limited company.
6. Full time company secretary (Compliance Officer) to be appointed.
7. Infusing 50% independent directors into the Board.
8. Due diligence on the applicability of various Regulations.
9. Due diligence (Legal) by reputed Legal firms.
10. Due Diligence on the various approvals required from Regulatory Bodies.
11. Detailed disclosures about the Risk Factors associated with the company.
12. Detailed disclosures about the External Environment effecting the company.
13. Detailed disclosures about the litigations, its magnitude and ramifications.
14. Detailed disclosures about the Business activity.
15. Documenting the Material Contracts and Agreements.
16. Detailed disclosures about the Promoters & Management.
17. Selection of Investment Banker, Registrar and Transfer Agent (RTA), Syndicate Member / Sub- Syndicate Members, electronic media and advertising agency, Escrow Bankers.
18. Website is mandatory for listing companies.

Companies may opt to migrate to SME Platform, subject to compliance of applicable provisions.

The provisions of the IPF for the Main Board apply to the SME Platform also.

The clearing and settlement of the SME Platform will be same as that of the Main Board which is at present settled on T+2 basis. The Settlement Guarantee Fund of the Main Board is extended to SME Segment. The existing clearing and settlement of the Equity (Cash) Segment will be extended to the SME Segment also.

Clause 52 of the Model SME Equity Listing Agreement on Corporate Governance will be applicable to the SME Segment. There has to be 50% independent directors on the Board of listed SMEs. They need to appoint various Committees as stipulated in Clause 52 of the Model SME Equity Listing Agreement.

The Risk Management will be applicable in the same way as that of the Main Board. The Mark to Market (M-to-M) Margins, Value at Risk (VAR) Margins, Extreme Loss Margin (ELM) and special margins as applicable to the Main Board will also apply to the SME Platform.

The suspended companies' scrips are not permitted for listing on BSE SME Exchange unless the suspension is revoked and the company is allowed to trade on the Main Board of BSE.

The Merchant Bankers have to do the financial and legal due diligence, before the SMEs are listed on the SME Platform

1. The Indian market regulations are disclosure-based and all the risk factors, litigations and their magnitude have to be disclosed in the offer documents
2. The Merchant Banker will ensure that the detailed disclosures are made at the time of listing and thereafter Management will continue to provide information regularly
3. There are stringent checks and balances in auditing the listed companies. The corporate governance norms as per Clause 52 of the Model SME Equity Listing 4. Agreement to be implemented and there have to be 50% independent directors on the board of the company.
5. BSE has been conducting various Investor Awareness Programs to educate the investors about investing in the capital market.
6. The investors are advised that SME platform is for informed investors and that they should read the offer document before investing in any SME
7. The general public planning to invest in the SMEs may also take the help of financial experts for the investing purpose.
8. If the listed companies are indulging in the fraudulent practices, the shareholders should check it. The shareholders' forums and shareholders will have to become active, if the fraudulent practices by the companies are to be effectively checked. As far as the exchange is concerned, it can suspend the company or move it to trade to trade group.
9. The exchange can recommend to the SEBI for taking action against the Company, if fraudulent practices come to the notice of the exchange. The investors are at liberty to bring to the notice of the Exchange, if they suspect of any fraudulent practices in listed SMEs.

All market makers for a scrip put together shall do market making for more than 75% of the market timings. If the market makers for a scrip fail to comply with these provisions, BSE has prescribed the monetary penalties in its Circular No. 20120309-32 dated 9th March, 2012. The penalty varies from ?2,000 to ?50,000 to temporary suspension depending upon the period of absence of market maker.

A Government security is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government's debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). Government securities carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. Government of India also issues savings instruments (Savings Bonds, National Saving Certificates (NSCs), etc.) or special securities (oil bonds, Food Corporation of India bonds, fertiliser bonds, power bonds, etc.). They are, usually not fully tradable and are, therefore, not eligible to be SLR securities.

Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury bill of Rs.100/- (face value) may be issued at say Rs. 98.20, that is, at a discount of say, Rs.1.80 and would be redeemed at the face value of Rs.100/-. The return to the investors is the difference between the maturity value or the face value (that is Rs.100) and the issue price (for calculation of yield on Treasury Bills please see answer to question no. 26). The Reserve Bank of India conducts auctions usually every Wednesday to issue T-bills. Payments for the T-bills purchased are made on the following Friday. The 91 day T-bills are auctioned on every Wednesday. The Treasury bills of 182 days and 364 days tenure are auctioned on alternate Wednesdays. T-bills of of 364 days tenure are auctioned on the Wednesday preceding the reporting Friday while 182 T-bills are auctioned on the Wednesday prior to a non-reporting Fridays. The Reserve Bank releases an annual calendar of T-bill issuances for a financial year in the last week of March of the previous financial year. The Reserve Bank of India announces the issue details of T-bills through a press release every week.

Government of India, in consultation with the Reserve Bank of India, has decided to issue a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days. Like T-bills, they are also issued at a discount and redeemed at face value at maturity. The tenure, notified amount and date of issue of the CMBs depends upon the temporary cash requirement of the Government. The announcement of their auction is made by Reserve Bank of India through a Press Release which will be issued one day prior to the date of auction. The settlement of the auction is on T+1 basis. The non-competitive bidding scheme (referred to in paragraph number 4.3 and 4.4 under question No. 4) has not been extended to the CMBs. However, these instruments are tradable and qualify for ready forward facility. Investment in CMBs is also reckoned as an eligible investment in Government securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949. First set of CMBs were issued on May 12, 2010.

Dated Government securities are long term securities and carry a fixed or floating coupon (interest rate) which is paid on the face value, payable at fixed time periods (usually half-yearly). The tenor of dated securities can be up to 30 years.
The Public Debt Office (PDO) of the Reserve Bank of India acts as the registry / depository of Government securities and deals with the issue, interest payment and repayment of principal at maturity. Most of the dated securities are fixed coupon securities.

1.7 State Governments also raise loans from the market. SDLs are dated securities issued through an auction similar to the auctions conducted for dated securities issued by the Central Government (see question 3 below). Interest is serviced at half-yearly intervals and the principal is repaid on the maturity date. Like dated securities issued by the Central Government, SDLs issued by the State Governments qualify for SLR. They are also eligible as collaterals for borrowing through market repo as well as borrowing by eligible entities from the RBI under the Liquidity Adjustment Facility (LAF).

Securities are financial instruments that represent a creditor relationship with a corporation or government. Generally they represent agreements to receive a certain amount depending on the terms contained within the agreement.

A fixed-income security is an investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance.

The different types of fixed income securities include government securities, corporate bonds, commercial paper, treasury bills, strips etc.

Holders of fixed-income securities are creditors of the issuer, not owners. Equity represents a share in the ownership of the issuer.

Fixed interest rate securities are those in which the interest payable is fixed beforehand. Floating interest rate securities are those in which the interest payable is reset from at pre-determined intervals according to a pre-determined benchmark.

Credit quality, yield, and maturity are key components of fixed-income securities.

Credit quality is a measure of an individual's or company's creditworthiness, which is ability to repay debt. The credit quality of fixed-income securities is usually assessed by independent rating agencies such as Standard & Poor's, Moody's in the U.S. and CRISIL in India.

Yield on a security is the implied interest offered by a security over its life, given its current market price.

Maturity indicates the life of the security i.e. the time over which interest flows will occur.

The annual interest rate paid on a bond, expressed as a percentage of the face value.
It is also referred to as the "coupon rate," "coupon percent rate" and "nominal yield."

Coupon payments are the cash flows that are offered by a particular security at fixed intervals. The coupon expressed as a percentage of the face value of the security gives the coupon rate.

Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured / charged against the asset of the company in favour of debenture holder.

A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows-
1. Zero Coupon Bond
2. Convertible Bond

Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary.It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesn't require any guarantee. Commercial paper is a money market instrument issued normally for tenure of 90 days.

Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.

The difference between coupon rate and yield arises because the market price of a security might be different from the face value of the security. Since coupon payments are calculated on the face value, the coupon rate is different from the implied yield.

Long-term securities typically offer more return than short-term securities because investors usually prefer to lend money for shorter terms. Hence money lent out for longer terms will have a higher yield.

Callable securities are those which can be called by the issuer at a predetermined time/times, by repaying the holder of the security a certain amount which is fixed under the terms of the security.

Prices and interest rates are inversely related.

The Debt Market is the market where fixed income securities of various types and features are issued and traded. Debt Markets are therefore, markets for fixed income securities issued by Central and State Governments, Municipal Corporations, Govt. bodies and commercial entities like Financial Institutions, Banks, Public Sector Units, Public Ltd. companies and also structured finance instruments.

1. Reduction in the borrowing cost of the Government and enable mobilization of resources at a reasonable cost.
2. Provide greater funding avenues to public-sector and private sector projects and reduce the pressure on institutional financing.
3. Enhanced mobilization of resources by unlocking illiquid retail investments like gold.
4. Development of heterogeneity of market participants.
5. Assist in development of a reliable yield curve and the term structure of interest rates.

The following are the risks associated with debt securities:
1. Default Risk
2. Interest Rate Risk
3. Reinvestment Rate Risk
4. Counter Party Risk
5. Price Risk

This can be defined as the risk that an issuer of a bond may be unable to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture and is also referred to as credit risk.

Can be defined as the risk emerging from an adverse change in the interest rate prevalent in the market so as to affect the yield on the existing instruments. A good case would be an upswing in the prevailing interest rate scenario leading to a situation where the investors' money is locked at lower rates whereas if he had waited and invested in the changed interest rate scenario, he would have earned more.

Can be defined as the probability of a fall in the interest rate resulting in a lack of options to invest the interest received at regular intervals at higher rates at comparable rates in the market.

Is the normal risk associated with any transaction and refers to the failure or inability of the opposite party to the contract to deliver either the promised security or the sale-value at the time of settlement.

Refers to the possibility of not being able to receive the expected price on any order due to a adverse movement in the prices.

The issue and trading of fixed income securities by each of these entities are regulated by different bodies in India. For eg: Government securities and issues by Banks, Institutions are regulated by the RBI. The issue of non-government securities comprising basically issues of Corporate Debt is regulated by SEBI.

The segments in the secondary debt market based on the characteristics of the investors and the structure of the market are:
1. Wholesale Debt Market - where the investors are mostly Banks, Financial Institutions, the RBI, Primary Dealers, Insurance companies, MFs, Corporate and FIIs.
2. Retail Debt Market - involving participation by individual investors, provident funds, pension funds, private trusts, NBFCs and other legal entities in addition to the wholesale investor classes.

The Commercial Banks and the Financial Institutions are the most prominent participants in the Wholesale Debt Market in India. During the past few years, the investor base has been widened to include Co-operative Banks, Investment Institutions, cash rich corporate, Non-Banking Finance companies, Mutual Funds and high net-worth individuals. FIIs have also been permitted to invest 100% of their funds in the debt market, which is a significant increase from the earlier limit of 30%. The government also allowed in 1998-99 the FIIs to invest in T-bills with a view towards broad basing the investor base of the same.

The following are the main investor segments who could participate in the Retail Debt Market:

- Mutual Funds
- Provident Funds
- Pension Funds
- Private Trusts
- Religious Trusts and charitable organizations having large investible corpus
- State Level and District Level Co-operative Banks
- Housing Finance Companies
- NBFCs and RNBCs
- Corporate Treasuries
- Hindu-Undivided Families (HUFs)
- Individual Investors

Derivative securities are those whose value depends on the value of another asset (called the underlying asset)

The different types of derivatives include forwards, futures, options, swaps etc.

The call money market is an integral part of the Indian Money Market, where the day-to-day surplus funds (mostly of banks) are traded. The loans are of short-term duration varying from 1 to 14 days. The money that is lent for one day in this market is known as "Call Money", and if it exceeds one day (but less than 15 days) it is referred to as "Notice Money". Term Money refers to Money lent for 15 days or more in the InterBank Market.

Banks borrow from call money market for the following purpose:
1. To fill the gaps or temporary mismatches in funds
2. To meet the CRR & SLR mandatory requirements as stipulated by the Central bank
3. To meet sudden demand for funds arising out of large outflows.
Thus call money usually serves the role of equilibrating the short-term liquidity position of banks

Call Money Market Participants :
1. Those who can both borrow as well as lend in the market - RBI (through LAF) Banks, PDs
2. Those who can only lend Financial institutions-LIC, UTI, GIC, IDBI, NABARD, ICICI and mutual funds etc.

Reserve Bank of India has framed a time schedule to phase out the second category out of Call Money Market and make Call Money market as exclusive market for Bank/s & PD/s.

1. Certificate of Deposit (CD)
2. Commercial Paper (C.P)
3. Inter Bank Participation Certificates
4. Inter Bank term Money
5. Treasury Bills
6. Bill Rediscounting
7. Call/ Notice/ Term Money

Investor should get all the relevant knowledge on the debt security like the coupon, maturity, interest payments, put and call options (if any), Yield To Maturity (at the particular price at which the trade is intended to be carried out) and the Duration of the Instrument.

A Debenture Trustee is a trustee of a Trust Deed for securing any issue of debentures of a body corporate

To act as debenture trustee, the entity should be registered with SEBI to act as a debenture trustee.

Yes, debentures are transferable.

Creation of security means mortgaging the property in favor of Debenture Trustee for the benefit of debenture-holders. This is an incidence of ownership of property and creation of security has to be done by the owner of the property. However, the debenture-holders are beneficiaries and they have no access to mortgaged property. The Debenture Trustee holds the secured property on behalf of Issuer Company and for benefit of debenture-holders. In the event of default by the issuer company, the Debenture Trustee will have the power and authority to bring the secured property to sale following the procedure under laws, and the proceeds of sale will have to be applied to redeem the debentures. It needs to be noted that Debenture Trustee is neither a guarantor nor a surety for the issuer or investor.

As per the provisions of Companies Act, appointment of Debenture Trustee is mandatory. However, issues of debentures/bonds with maturity of 18 months or less are exempt from the requirement of appointment of Trustee.

Debentures are divided into different categories on the basis of: (1)convertibility of the instrument (2) Security

Debentures can be classified on the basis of convertibility into:
1. Non Convertible Debentures (NCD)
2. Partly Convertible Debentures (PCD)
3. Fully convertible Debentures (FCD)
4. Optionally Convertible Debentures (OCD)

On basis of Security, debentures are classified into:
1. Secured Debentures
2. Unsecured Debentures

NCD are instruments, which retain the debt character and can not be converted in to equity shares.

A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription.

These are fully convertible into Equity shares at the issuer's notice. The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as ordinary shareholders of the company.

The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue.

These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors

These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor has to be along with other unsecured creditors of the company.

A debenture is a debt security issued by a corporation that is not secured by specific assets, but rather by the general credit of the corporation. Stated assets secure a corporate bond, unlike a debenture, but in India these are used interchangeably.

Bonds are lOUs between a borrower and a lender. The borrowers include public financial institutions and corporations. The lender is the bond fund, or an investor when an individual buys a bond. In return for the loan, the issuer of the bond agrees to pay a specified rate of interest over a specified period of time.

Typically bonds are issued by PSUs, public financial institutions and corporates. Another distinction is SLR (Statutory liquidity ratio) and non-SLR bonds. SLR bonds are those bonds which are approved securities by RBI which fall under the SLR limits of banks.

Secured refers to the security given by the issuer for the loan transaction represented by the debenture. This is usually in the form of a first mortgage or charge on the fixed assets of the company on a pari passu basis with other first charge holders like financial institutions etc. Sometimes, the charge can also be a second charge instead of a first charge. Most of the times the charge is created on behalf of the entire pool of debenture holders by a trustee specifically appointed for the purpose.
Redeemable refers to the process whereby the debenture is extinguished on payment of all the obligations due to the holder after the repayment of the last installment of the principal amount of the debenture.

Public Sector Undertaking Bonds (PSU Bonds) : These are Medium or long term debt instruments issued by Public Sector Undertakings (PSUs). The term usually denotes bonds issued by the central PSUs (ie PSUs funded by and under the administrative control of the Government of India).

Financial Institutions are allowed to issue bonds. They issue bonds in 2 ways :-

1) Through public issues targeted at retail investors and trusts
2) Through private placements to large institutional investors.

Securities are issued for a fixed period of time at the end of which the principal amount borrowed is repaid to the investors. The date on which the term ends and proceeds are paid out is known as the Maturity date. It is specified on the face of the instrument. In respect of Demat Debt instrument due date is known from ISIN Number of the security.

On reaching the date of maturity, the issuer repays the money borrowed from the investors. This is known as Redemption or Repayment of the bond/debenture.
If the redemption proceeds are more than the face value of the bond/debentures, the debentures are said to be redeemed at a premium. If one gets less than the face value, then they are redeemed at a discount and if one gets the same as their face value, then they are redeemed at par.

This is the yield or return derived by the investor on purchase of the instrument (yield related to purchase price)
It is calculated by dividing the coupon rate by the purchase price of the debenture. For e. g: If an investor buys a 15% Rs 100 debenture of ABC company at Rs 90, his current Yield on the instrument would be computed as:
Current Yield = (15%*100)/90 X 100 , That is 16.67% p.a.

The yield or the return on the instrument is held till its maturity is known as the Yield-to-maturity (YTM). It basically measures the total income earned by the investor over the entire life of the Security.

G-Sec/Bonds/Debentures keep changing hands in the secondary market. Issuer pays interest to the holders registered in its register on a certain date. Such date is known as record date. Securities are not transferred in the books of issuer during the period in which such records are updated for payment of interest etc. Such period is called as shut period. For G-Secs held in Demat form (SGL) shut period is 3 working days.

Cum-interest means the price of security is inclusive of the interest accrued for the interim period between last interest payment date and purchase date.
Security with ex-interest means the accrued interest has to be paid separately

Securities are generally issued in denominations of 10, 100 or 1000. This is known as the Face Value or Par Value of the security. When a security is sold above its face value, it is said to be issued at a Premium and if it is sold at less than its face value, then it is said to be issued at a Discount

1. Avoid: Issue price is very high and IPO may list below offer price.
2. Neutral: Company is good and price is as per other listed peers, so not much upside listing expected and it may open below issue price.
3. Subscribe: Issue is reasonably priced and it may list at 15-20% premium.
4. Recommended : Company is very good and more than 40% listing gain expected. One can keep for long term also.

GMP means Gray Market Premium. So if issue price is Rs X and GMP is Rs Y, then expected listing rate would be Rs (X + Y).

A Kostak rate is the premium one gets by selling his/her IPO application (in an off market transaction) to someone else before allotment or listing of the issue.

In case of QIBs, the authority to allot shares is at the discretion of the merchant banker. Shares are allotted proportionately to the applicants. So, if the shares are oversubscribed by 4 times, then an application of 10,00,000 shares will receive only 2,50,000 shares.

As far as the retail individual investors (RIIs) are concerned, the process of allocation of shares is different. The maximum amount which retail investors can apply per IPO is Rs. 2 lakh. In order to determine the total demand for shares in the retail investor category, all the applications are grouped together and the total number of applications are calculated. If the number of applications are more than the number of shares offered for retail investors, the maximum RIIs who are eligible for the allotment of the minium bid lot are determined.

The total number of equity shares available for allotment to RIIs is divided by the minimum bid lot. This gives the maximum number of RIIs who can be allotted the shares.

For example - If shares worth Rs. 20 lakh need to be allotted to the retail segment and the minimum lot size is Rs. 10,000, only a maximum of 200 applicants will be allotted the shares with the minimum lot of Rs. 10,000.

If the number of RIIs exceed the maximum RII allottees, the RIIs (in that category) who will be eligible for the minimum bid lot will be determined on the basis of draw of lots. This is a computerized process and hence there is no room for partiality.

Usually, HNIs invest a large amount of money in IPOs. Financial institutions provide funding to HNIs in order to invest in IPOs. It is not necessary that a HNI will be allotted the exact number of shares that he has applied for. If there is an over-subscription, the HNIs may be allotted less shares than what they must have applied for. For example : A particular HNI client has applied for 10 lakh shares and the HNI quota is over-subscribed by 150 times. The total shares that will be allotted to him will be 6666. This number arrives by dividing the total number of shares applied for by the number of times that it has been over-subscribed.

There are two types of Buyback.
1. Open Offer
2. Tender Offer

1. Firstly, to be eligible for the buyback the investor should have shares of the company in demat or physical form as on record date.

2. Once you have shares in demat, you can participate in the buyback process during the buyback period by selling your shares through your broker on NSE or BSE.

3. Then on the payment will be given to you for accepted shares and unaccepted shares will be returned to your demat account.

In this method of share Buyback, the company will be purchasing stocks from existing shareholders of the company directly from the market during the buyback period announced by company.

Example: "Company X" announces buyback plan of its shares up to value of Rs. 1000, it means that the company will be purchasing shares of "Company X" from the open market at a price not exceeding Rs. 1000 per share.
Scenario 1- If the share price is below Rs. 1000, in that case, the company will put buy order at Current Market Price and purchase shares.

Scenario 2- If the share price is above Rs. 1000, in that case, the company will put buy order at Rs. 1000 only and if someone is ready to sell at Rs. 1000 or less then only company will get back shares.