Investor Booklet English.pdf

7/29/2019 Investor Booklet English.pdf

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July 12-17, 2010

An initiative under the year long investor awareness programme

Published by

Ministry of Corporate AffairsGovernment of India

A Beginner's GuideTo The Capital Market


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Editor :

Prithvi Haldea

PRIME Database

Under the aegis of Investor Education and Protection Fund.


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July 12-17, 2010

An initiative under the year long investor awareness programme

Published by


A Beginner's GuideTo The Capital Market


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The Ministry of CorporateAffairs has decided to mainstream the investor awareness

programasanationalagenda during the current financial year. For this purpose,we

have partnered with a number of institutions who will be organizing more than

3,000 investor programmes throughout the country during the current financial

year. We are also organizing the 'India Investor Week' during July 2010 with the

theme 'Informed investor anAsset toCorporate India'. The Ministry is bringing outa comprehensive investor guide on this occasion which will help the aam aadmi

desirous of making investments to understand their rights and responsibilities as

well asvarious investment instrumentsalongwith theirassociated risks and returns.

I am sure that the publication of this Book will be a significant step in spreading

awareness on investor issues and will help in integrating the common man into the

corporateeconomyofthecountry.


Shastri Bhawan, New Delhi-110 001

Salman KhurshidMinister of State (I/C) for

Corporate Affairs

MESSAGE


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R. BandyopadhyaySecretary,

Ministry of Corporate Affairs

With a view to convert the investor education and awareness programme of the

Ministry into amass movement, it has been decided to upscale this initiative in a big

way and to bring a number of organizations as partners in this area. In order to

educate the investors in an easy to understand manner, the Ministry has decided to

bringout a book that provides lucid informationonvarious investment instruments

and the rights and responsibilities associated with each one of them. Thepublication of this book will help in encouraging a much larger number of common

people to participate in the corporate economy. This will be a small contribution by

the Ministry of CorporateAffairs towards the national agenda of inclusive growth. I

am sure that a large number of investors existing and potential will benefit from

thecontentofthisBookwhichhasbeeneditedbyShriPrithviHaldea,anotedexpert

onthesubject.


Shastri Bhawan, New Delhi-110 001

MESSAGE


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Investors being the backbone of the Capital Market, it becomes essential that they

are well informed about the various technicalities and are equally educated to

understand the nuances of Capital Market. It helps the investors in taking right

investmentdecisions and enable them toprotect their interest. This in turn helps in

better governanceof the CapitalMarket.

The year long initiative taken by the Ministry of Corporate Affairs for organising

Investor Awareness Programmes through out the country is a big step forwardtowards educating the investors. The Institute of Company Secretaries of India

(ICSI) as partner organisation in this initiative is making all efforts in organising

InvestorAwarenessProgrammesto make this initiativeagrandsuccess.

A Beginners's Guide to the Capital Market contains very important and valuable

information and I am sure, this will help in generating wide spread awareness

amongst the Investors about variousaspectsofCapitalMarket.

(VINAYAK S KHANVALKAR)PRESIDENT

MESSAGE


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One of the most importantcomponentsoforderly developmentofCapitalMarket is

educated and informed investor. The Investor Education and Awareness help

investors to make informed investment decisions thus creating a rational

investmentcultureand protecting the interest of investors.

In that context, the Institute ofCompany Secretaries of India (ICSI) feels privileged to

be associated with year long Investor Awareness Programme an initiative taken by

the Ministry of Corporate Affairs. The ICSI on its part is organising nation-wideInvestor Awareness Programmes through its various Regional Councils and

Chapters.

This booklet A Beginners'sGuide to the CapitalMarket will go a long way in helping

investors to get their queries clarified and to make well considered investment

decisions.

(N. K. JAIN)SECRETARY & CEO

MESSAGE


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CONTENTS1 INVESTOR EDUCATION AND PROTECTION FUND 1 2

2 EDITORS 20 MANTRAS 3 6

3 RIGHTS OF INVESTORS 7 8

4 DO'S AND DON'TS 9 15

5 PURCHASING PROCESS 16

6 WHO REGULATES WHICH TYPE OF ENTITY 17

7 ACKNOWLEDGEMENTS & DISCLAIMER 18


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01

INVESTOR EDUCATION

AND PROTECTION FUND

InvestorEducation and ProtectionFund (IEPF) has been establishedunder the Companies Act,

1956forpromotionofinvestorsawarenessandprotectionoftheinterestsofinvestors.

Activities undertaken by the IEPF includeeducating and creating awareness among investors

throughseminars andmediaand funding projectspertaining to investor educationawareness

andprotection.IEPFhasalsosponsoredthreewebsitesforthispurpose.

InvestorRelatedWebsitesofIEPF

iepf.gov.in

This website fulfils the need for an information resource for small investorson all aspects of the

capitalmarketanddoesitinthesmallinvestorslanguage.

This website presently covers information on IPO Investing, Mutual Fund Investing, Stock

Trading, Depository Account,Debt Market, Derivatives, Indices, Indices, Index Funds, Investor

Grievances&Arbitration(StockExchanges),InvestorRights&Obligations,DosandDontsetc.

This website is nowavailable in English and Hindi as well as 12 major regional languages.

watchoutinvestors.com

The best defense against frauds is self-defense. This first-of-its-kind-in-the-world, free public

service arms the investors with a self-defense tool toprotect themselves from fraudulent/non-

compliant companies, intermediaries and individuals. This website is now a national web-

basedregistryofsuchentities.

watchoutinvestors.com enables investors to do a fast, efficient and user-friendly search and

provides them with theinformation on such entities/persons which they can use before

makinganynewinvestmentsandforreviewingtheirportfoliovis--vissuchentities.

As of 31st May,2010, the website had listed over 1,06,000 indicted/non-compliant entities

covering 72,517 companies/ firms and 33,947 individuals. These relate to the orders passed by

several regulatory bodies including BSE, CDSL, CLB, DRT, EPFO, IRDA, MCA, NHB, NSDL, NSE,

RBI,ROCandSEBI.

watchoutinvestors.com isbeingusedbylakhsof investors (over27 lakhs ason 31stMay, 2010).

investorhelpline.in

This is a dedicated, freeof charge,portal to handle investorgrievancesunder one roof covering

areas related to various authorities like Ministry of Company Affairs, Registrar of Companies,


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Securities and Exchange Board of India and Reserve Bank of India. Complaints are taken up by

thewebsiteforredressalbothwiththecompaniesandwiththeconcernedregulators.

Investors can log-in their grievances related to the capital market and company deposits in

easy-to-fillformsandtrackprogressoftheirgrievanceredressalonline.

A largenumberofinvestorsareusing this facility.


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Saveprudently

Investevenmorewisely

Investing

Investingiscompulsory.

Youhave toinvestotherwiseyoursavingswilldepreciate invalue/purchasingpower.

However,mindlessorreckless investing ishazardous towealth.

20MantrastoWiseInvesting

Mantra1

Investonlyinfundamentallystrongcompanies

Do notgoformomentum or pennystocks.

Invest only in companies with strong fundamentals; these are the ones that will withstand

market pressures,andperform well in the long term.

Equityinvestments cannot besoldback tothe company/promoters.

Strong stocks arealso liquidstocks.

Mantra2

Readcarefully

Do notgamble away yourhard earned money.

Due diligence is a must.

Read about the offer.This isanadvice difficult topracticewithofferdocuments now running

into more than 1000 pages; abridged prospectus too is difficult to read.Yet, read you must,

at least sections on risk factors, litigations, promoters, company history, project, objects of

the issueand key financial data.

Mantra3

Followlife-cycleinvesting

You canaffordto take greaterriskswhen youareyoung.

As youcross50,startgetting outof risky instruments.

By 55/60, you should be totally out of equity. (You can't afford to lose your capital when you

have stopped earning new money).There are better things in life at that age than watch the

pricetickeronTV!

EDITOR'S 20 MANTRAS


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Mantra4

InvestinIPOs

IPOs area good entrypoint.

During bull runs,almost all IPOsprovidepositive, and inmanycaseshuge,returnson the listing

day. If an investor does not book profit, he is either greedy or takes a wrong call on the

company/ industry/market.Heshould thennot faultthe IPO price.Remember that

IPOs have tobebought; thesearenot forced upon theinvestors.

The problem is that we put IPOs on a pedestal and expect them to perform forever. An IPO

becomesa listed stockon the listingdate. Itwill thenbehave like that.

Decide whether you are investing in an IPO or in a company. If as an IPO, then exit on listing

date.Ifasacompany,thenremaininvestedasyouwouldinalistedstock.

Inanycase,investonly iftheQIB oversubscription ishealthy.

AndusetheASBAprocesstoinvest.

Mantra5

SurelyinvestineveryPSUIPO

IPOs areonly from verygoodandprofitable PSUs;also verylittle risk of fraud.

Therewouldalways be adiscount fortheretail investors.

Don't getbothered by thelistingprice;stay invested.

Mantra6

Investinmutualfunds,butselecttherightfundandscheme

In India, mutual funds aredominated by corporatemoney, and have little focuson the small

investors.

Still, mutualfundsarea better vehiclefor asmallinvestor.

Therearetoomanymutual funds, too many schemes; selectthe rightone.

Mantra7

Learntosell

Most investorsbuy and then just hold on (Most advice by experts on themedia is also to buy

orhold,rarelytosell).

Profit is profitonlywhen itis in your bank (and not in your register or Excelsheet).

Remember, youcannot maximizethemarket'sprofits so don'tbegreedy.

Seta profit target,andsell.

Mantra8

Dealonlywithregisteredintermediaries

Manyunauthorized operators in themarket whowill lure youwith promises of high returns,

andthenvanishwithyourmoney.

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Dealingwith registered intermediariesis saferandallows recourse toregulatoryaction.

Mantra9

Letnotgreedmakeyouaneasyprey!

Many scamsters areroamingaround, to exploit your greed. Most scamsrob small investors.

Be carefulabout theentity seeking your money.

Mantra10

Bewareofthemedia,especiallythestock-specificadviceonelectronicmedia

Toomanysaints inthe capitalmarket offering freeadvice!

In reality,many of theseadvisors have vested interests.

Also beware of theget-rich schemesbeing sold throughSMSandemails.

Mantra11

Don'tgettakeninbyadvertisements

Thejobof an advertisement is to make youfeel-good.

Don'tget carried awaybyattractiveheadlines,appealing visuals,catchymessages.

Mantra12

Bewareoffixed/guaranteedreturnsschemes

Anyonewho is offering a returnmuch greaterthan thebank lendingrate is suspicious.

Rememberplantationcompanies-promisedhuge returns (in somecases50% onDay1)!

Mantra13

Bewareofthegreymarketpremia

Theseareartificial andnormally createdby thepromoter himself.

Mantra14

Don'tgetoverwhelmedbysectoralfrenzies

The present sectoral frenzyis around Logistics and Infrastructure.

Remember, all companies in a sector are not good. Each sector will have some very good

companies,somereasonablygoodcompaniesandmanybadcompanies.

Bealsowary aboutcompanies that change theirnames toreflect the currentsectoral fancy.

Mantra15

Don'tover-dependupon'comfort'factorslike

IPOGrading

IndependentDirectors

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Mantra16

Don'tblindly takedecisions basedon accountsjustbecause theseareaudited

High incidence of fraudulent accounts and of mis-advertising of financial results. Satyam

caseisawakeupcall.

Read qualifications andnotesto theaccounts.

Look out especially for unusual entries-related party transactions, sundry debtors,

subsidiaries' accounts.

Mantra17

Cheapsharesarenotnecessarilyworthbuying

Do notchase price, chasevalue.

Price can be low because the company in fact is not doing well (but hype over thecompany/sectormayinduceyou).

Worse, the price canbe low because the face value has been split (over 500 companieshave

splittheir shares).

- Rationalegiven: make shares affordable tosmallinvestors

- Notvalid as in demat, onecan buyevenoneshare

- Real purpose: to make shares appearcheap

- Companieswith asharepriceof Rs.50havesplit1:10!

Mantra18

Bewaryofcompanieswherepromotersissueshares/warrantstothemselves

Preferential allotments to promoters are almost always made for the benefit of the

promoters only. (Thefairroute should berights issue).

Mantra19

Don'tbe fooledbyCorporateGovernanceAwards/CSR

There is ahigh incidenceof fraudulent companiesupping theirCG andCSRactivities.

ThelastMantra20

Behonest

Be honesttoyourself as only then youcandemand honesty.

We are veryweak investors/no strong investor associations/takeeverything lyingdown.

Need to form/join stronginvestorassociationsandfight forourrights.

Need to demand disgorgement.

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CapitalMarket

Acapital market is amarket for securities (equity and debt), wherecompanies and government

raise long-term funds, and the secondary capital market provides a trading platform for these

securities. Regulators, such as SEBI and RBI, regulate and oversee the capital market to ensure

anorderlydevelopmentofthemarketandprotectionofinvestors.

Shareholders are the real owners of a company. They benefit, through dividends and capital

appreciation,when the companyperforms well. On the otherhand, they carry the risk of losingpart or fullytheirinvestmentif the companyperformsbadly.

Rightsasashareholder

Toreceive theshares on allotmentor purchase within thestipulated time

To receive copies of the Annual Report containing Balance Sheet, Profit & Loss Account and

Auditor'sReport

Toreceive dividendsindue time

Toreceive approved corporatebenefits like rights, bonus, etc.

Toreceive offerin case of takeover,delistingor buyback

Toparticipate/vote in generalmeetings.

To inspect the statutory registers atthe registeredoffice ofthe company

Toinspect theminute booksof thegeneralmeetings and receivecopies.

Tocomplainand seek redressal against fraudulentand investorunfriendly companies

Toproceedagainst thecompany,if in default, by wayof civilor criminalproceedings

To receivethe residualproceeds in case of windingup

Rightsasadebentureholder

To receive interest/redemption inthe stipulated time

Toreceive acopyofthetrust deed on request

To apply before the CLB in case of default in redemption of debentures on the date of

maturity

Toapply forwindingup of thecompany if thecompanyfailstopayitsdebt

To approachtheDebentureTrustee for grievances

Rightsasabuyer/sellerofsecuritiestoget

Thebestprice

RIGHTS OF INVESTORS


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Proof of price/ brokeragecharged

Money/shares on time

Statementof accounts from thebroker,depositoryetc.

Obligationsasabuyer/sellerofsecurities

Enterintoproper agreements with thebroker,depository etc.

Possess a validcontract note

Tomake payment on time

Todeliver shares on time

Withrightsofredressalagainst

Fraudulentprices

Unfair brokerage

Delays in receiptofmoney or shares

Asaninvestor,yourresponsibilityis

Toremain informed

Tobevigilant

Toexercise your rights on yourownoras agroup

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Primary Market

DO's

ReadtheProspectus/ AbridgedProspectus carefully, with special attentionto:

Risk factors

Background ofpromoters

Companyhistory

Outstanding litigationsand defaults

Financialstatements

Objectoftheissue

BasisofIssueprice

Instructionsformakinganapplication

In case of any doubts/problems, contact the compliance officer named in the offer

document.

In case you do not receive, within due period, the credit to demat account or refund of

application money, lodge a complaint with the compliance officer of the issuer company

andwiththepost-issueleadmanager.

DON'Ts

Don'tbeinfluencedby any implicit/explicitpromisemadebythe issuer oranyone else.

Don't invest only based on the prevailing bull run of the market index or of scrips of other

companies in the same industry or scripsof the issuer company/groupcompanies. Don't expect the priceof the shares of the issuer company tonecessarilygoupupon listing,

andforever.

Secondary Market

DO's

Before investing, please check about the credentials of the company, its management,

fundamentals and recent announcements made by them and other disclosures madeundervariousregulations.Thesourcesofinformationarethewebsitesoftheexchangesand

companies,databasesofdatavendors,businessnewspapersandmagazinesetc.

Adopt trading/investment strategies commensurate with your risk-bearing capacity as all

investments carry some risk, the degree of which varies according to the investment

strategy adopted.

DO'S AND DON'TS


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Assess the risk-return profile of the investment as well as the liquidity and safety aspects

beforemakingyourinvestment decision.

Transactonly throughSEBI-recognizedstock exchanges.

DealonlythroughSEBI-registered brokers/sub-brokers.

Read carefully and completeall required formalities for opening anaccount with the broker(Client registration,Client-TradeMember agreement etc).

SigntheKnowYourClient Agreement.

Giveclear andunambiguous instructionstoyourbroker/sub-broker/DP.

Insist on a contract note for each transaction and verify details in the contract note,

immediately on receipt. If in doubt, crosscheck details of your trade available with the

detailsontheexchange'swebsite.

Pay the requiredmarginsin the prescribed time.

Deliver the shares/depository slip in case of sale and pay the money in case of purchase

withintheprescribedtime.

Paythebrokerage/payments/marginsetc.toanauthorizedpersononly.

Obtain receipt forcollateraldeposited towards margin.

Scrutinizeboththe transactions andtheholding statements thatyou receivefrom yourDP.

Handle Delivery Instruction Slips (DIS) Book issued by the DP carefully. Insist that the DIS

numbersarepre-printedandyouraccountnumber(ClientID)ispre-stamped.

In case you are not transacting frequently, make use of the freezing facility provided for in

yourdemataccount.

Keep copies of all investment documents. Ask all relevant questions and clear your doubts

beforetransacting.

DON'Ts

Don't forget to take accountofthepotential risks thatare involved inany investment.

Don'tundertakeoff-market transactions.

Don'tdealwithunregistered intermediaries.

Don'tfallpreytopromisesofunrealisticreturnsorguaranteedreturns.

Don'tinvestonthebasisofhearsays,rumorsandtips.

Don't be influenced into buying into fundamentally unsound companies (penny stocks)

based on sudden spurts in trading volumes or prices or favourable articles/stories in the

media.

Don'tfollowtheherdanddon'tplayonmomentum.

Don'tblindly follow investment advice given onTV channels/websites/SMS.

Don't invest underpeer pressure orblindly imitate investment decisionsof others who may

haveprofited fromtheir investment decisions.

Don'ttrytotimethemarket.


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Don't get misled by companies showing approvals / registrations from Government

agenciesasthe approvals couldbe for certain otherpurposes.

Don'tgetcarriedawaywithadvertisementsaboutthefinancialperformanceofcompanies.

Don't blindly follow media reports on corporate developments, as some of these could be

misleading.

Don't get misled by guarantees of repayment of your investments (and returns) through

post-datedcheques.

Don'thesitatetoapproachtheproperauthoritiesforredressalofyourdoubts/grievances.

Don't leave signedblank Delivery InstructionSlips(DIS)of your demataccount intheopen.

Don'tgivesignedblankDIStoyourDPortoyourbroker.

DealingwithBrokers&Sub-brokersDO'S

Deal only with SEBI registered brokers/sub-brokers and verify that the broker/sub-broker

hasavalidSEBIregistrationcertificate.

State clearly who will be placing orders on your behalf and give clear and unambiguous

instructionstoyourbroker/ sub-broker.

Insistonclientregistrationformtobesignedbythebrokerbeforecommencingoperations.

Enter into an agreement with your broker/ sub-broker setting out terms and conditionsclearly.

Ensurethatyoureadtheagreementandriskdisclosuredocumentcarefullybeforesigning.

Make sure that you sign on all the pages of the agreement and ensure that the broker or an

authorized representative, signs on all the pages of the agreement. Also the agreement

shouldbesignedbythewitnessesbygivingtheirnameandaddress.

Insist on a valid contract note/ confirmation memo for trades done within 24 hours of the

transaction.

Sign the duplicate contract note/ confirmation memo to be kept with the broker once you

receive theoriginal.

Insist ona bill for every settlement.

Ensure that the broker's name, trade time and number, transaction price and brokerage are

showndistinctlyonthecontractnote.

Insist onperiodical statementof accounts.

Issuecheques/draftsonly inthe tradenameofthebroker.

Ensurereceiptofpayment/deliverieswithin48hoursofpayout.

In case of disputes, file written complaint to intermediary/ stock exchange/SEBI within a

reasonabletime.

Incaseofdisputeswiththesub-broker,informthemainbrokerimmediately.

Familiarizeyourselfwiththerules,regulationsandcircularsissuedbystockexchanges/SEBI.


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Keeptrackofyourportfolioinyourdemataccountonaregularbasis.

Ensure that you havemoneybeforeyou buy.

Ensure that you are holding securitiesbefore you sell.

DON'TS

Don'tdealwithunregisteredbrokers/sub-brokersorotherunregisteredintermediaries.

Don't execute any document with any intermediary without fully understanding its terms

andconditions.

Don't leave the custodyofyourDematTransaction Slipbook in the handsofanybroker/sub-

broker.

Don't forgo obtaining all documents of transactions even if the broker/sub-broker is well

knowntoyou.

MutualFunds

DO's

Readtheoffer documentcarefullybeforeinvesting.

Note that investments inmutual fundsmay berisky, and donot necessarilyresult ingains.

Invest ina scheme depending uponyour investmentobjectiveand risk appetite.

Note that past performance of a scheme or a fund is not indicative of the scheme's or the

fund'sfutureperformance.Past performancemay ormay not besustained inthe future.

KeepregulartrackoftheNAVoftheschemesinwhichyouhaveinvested.

Ensure thatyou receiveanaccount statementfor your investments/redemptions.

DON'Ts

Don't invest ina scheme justbecause somebody isofferingyou a commission or someother

incentive,giftetc.

Don'tgetcarriedawaybythenameofthescheme/mutualfund.

Don't be guided solely by the past performance of a scheme/fund or be taken in by

promisesoffuturereturns.

Don'tforgettotakenoteoftherisksinvolvedintheinvestment.

Don'thesitatetoapproachtheproperauthoritiesforredressalofyourdoubts/grievances.

Don'tdealwithany agent/broker dealer who isnot registeredwithAMFI.

Buyback

DO's

Read the special resolution regarding the proposedbuybackin detail and thenvote for it.


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Compare the price offered in the buyback with the market price during last few months as

also with the company's Earning per Share, BookValue etc. and thendeterminewhether the

priceofferedisreasonable.

Readtheinstructionsformakingtheapplicationfortenderingofsharescarefully.

Ensurethatyourapplicationreachesthecollectioncentrewithintheprescribedtime.

Furnishall the documents askedfor in the letter ofoffer.

Send application through the mode (post/courier/hand delivery/ ordinary post etc.)

specifiedin the letter ofoffer.

Contact the Merchant Banker if no response is received from the company regarding

consideration forthe tenderedshares.

Contact the Compliance Officer mentioned in the letter of offer in case of any

grievance.

Contact the Registrarof Companies incase CompaniesAct has beenviolated.

DON'Ts

Don't submit multipleapplications.

Don't forget tofillup the application legibly.

Don'tmutilatetheapplicationform.

Don'tsendtheapplicationformtoawrongaddress.

Don't send the application formafter the closureof the offer.

Don'tforgettogivecompleteinformationintheapplicationform.

Don't forget tosign the applicationform.

Don'tgivewrong/contradictoryinformationintheapplicationform.

OpenOffers (underTakeoverRegulations)

DO's Ensure that you are aware of all competitive offers and revision of offer/offer price before

deciding onacceptingthe offer.

Refer to national dailies/ SEBI website for details of competitive offers or revisions of

offers.

Note that the offeris subject tostatutoryapprovalsasmentioned inthe letter ofoffer.

Checkwhether the offerwill result indelisting ofthe company.

In case of demat shares, ensure credit is received to the Special Depository Account before

theclosureoftheOffer.

Carefully note the timings/days for hand delivery of the documents mentioned in the letter

of offer.

Wait till the last date for Offer Revision (i.e. 7 working days prior to date of closing of offer)

beforetenderingyouracceptance.


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Submit the Form ofWithdrawal accompanying the letter of offer at any specified collection

center up to3 working days before date of closing of the offer in case you want to withdraw

thesharestendered.

Ensure that signatures on the Form of Acceptance, Transfer Deed, Depository Instruction

and Form of Withdrawal are the same and in the same order as those lodged with the

company.

In case of non receipt of the Offer Document, you can tender or withdraw from the Offer by

making an applicationona plain papergivingthe necessary details.

DON'Ts

Don'twait for the lastdateof the offerfor tendering youracceptance.

Don'tfillinthedetailsofthebuyer/transfereeinthetransferdeedtobesent.

Don't file an incomplete application form/invaliddocuments.

CollectiveInvestmentSchemes

DO's

Ensure that the entity is registeredwith SEBI.

Readtheoffer documentcarefully.

Readtheappraisalreportofthescheme.

Checktheviabilityoftheproject.

Check thebackground/expertiseof thepromoters.

Ensure clearand marketable titleoftheproperty/assetsofthe entity.

Ensure that the Collective Investment Management Company (CIMC) has the necessary

resources for implementationof thescheme.

Checkthecreditrating/tenureofthescheme.

Checkfor the promise vis--vis performanceofthe earlier schemes,if any.

Ensure that the CIMC sends you a copy of itsAnnual Report within two months from closure

ofeachfinancialyear.

Remember that SEBI does not guarantee returns or undertake repayment of money to the

investors.

DON'Ts

Don't invest ina CIS entity not registeredwith SEBI.

Don't get carried away by indicative or promised returns or by market rumours/

advertisements.


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Derivatives

DO's

Gothroughallrules,regulations,bye-lawsanddisclosuresmadebytheexchanges.

Tradeonly through a TradingMember (TM) registered with SEBI or authorized person of the

TM registeredwith the exchange.

While dealing with an authorized person, ensure that the contract note has been issued by

theTMortheauthorizedpersononly.

Pay thebrokerage/payments/marginsetc. to theTM only.

Ensure that forevery tradeyou receiveduly signed contractnote fromyourTM.

ObtainreceiptforcollateraldepositedwiththeTMtowardsmargin.

GothroughdetailsoftheClient-TMAgreement.

Knowyourrightsanddutiesvis--visthoseoftheTM.

Beaware ofthe risk associatedwithyour positionsin the market/margincalls.

Collect/paymark tomarketmarginsonyour futurespositionona dailybasisfrom/toTM.

DON'Ts

Don'tstarttradingbeforereadingandunderstandingtheRiskDisclosureDocuments.

Don't tradeon anyproduct without knowing the riskand rewardsassociatedwith it.


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Fromwheretopurchasetheproducts?

Brokers: Brokers offer several services like purchase/sale of equity, debt and derivative

products,mutualfundunits,IPOsetc.

Banks : Many banks offer facilities for purchase/sale of equity, debt and derivative

products, mutualfundunits, IPOsetc.physicallyaswellas through theirwebsites

Mutual Funds: Almost all Mutual Funds facilitate online and physical buying/selling of

mutual funds.

Stock Exchanges: Close ended mutual funds are traded on stock exchanges and can be

brought through brokers. Open ended mutual funds can also be bought/sold on the stock

exchangeplatform.

Stepsinvolvedforbecomingacapitalmarketinvestor

The first requirement is a PAN Card.This is mandatory for all investors.

The other requirements are a bank account and a demat account. The demat account is

normally linked to a bank account in order to facilitate paying in and out of funds and

securities.

The next step is to select a broker and fill a KYC form and enter into a broker-client

agreement.

Thebroker thenallocatesa unique client ID,which acts as the identification.

Youarenowreadytobuy/sellsecurities.

PURCHASING PROCESS


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Given below is a list of types of companies/ intermediaries/service providers in the financial

market.Thenamesof the relevantbodies that regulatethemare givenin the second column.

Typeof Entity Regulatorybody

Auditors ICAI/CAG

Banks RBI

Banks - Issue Collection SEBI

Chit Funds REGISTRAR OF CHIT FUNDSCollective Investment Schemes SEBI

Companies - All MCA/ROC

Companies - Listed MCA/ROC/SEBI/SE

Company Secretaries ICSI

Co-operative Banks RBI

CostAccountants ICWAI

Credit Rating Agencies SEBI

Custodial Services SEBIDebentureTrustees SEBI

Depositories SEBI

Depository Participants SEBI/NSDL/CDSL

Foreign Investment Institutions SEBI

Housing Finance Companies NHB

Insurance Brokers/ Agents IRDA

Insurance Companies IRDA

Investment Bankers (Merchant Bankers) SEBI

Investor Associations SEBI

Media ( Newspapers, Magazines,TV) MIB

Mutual Funds&AssetManagementCompanies SEBI

Mutual Fund Brokers/ Agents AMFI/SEBI

Non-Banking Financial Companies (NBFCs) RBI

Nidhi Companies MCA

Plantation Companies SEBI

Portfolio Managers SEBI

Registrars & ShareTransfer Agents SEBI

Stock Brokers SEBI/SE

Stock Exchanges SEBI

Sub-Brokers SEBI

Venture Capital Funds SEBI

WHO REGULATESWHICH TYPE OF ENTITY


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18

Acknowledgements

This reading material has been prepared/compiled/adapted primarily from the information

available on the websites of the Ministry of Corporate Affairs (www.mca.gov.in), Investor

Educat ion and Protection Fund (www.iepf.gov. in), SEBI (www.sebi.gov. in) , NSE

(www.nseindia.com), BSE (www.bseindia.com), MCX-SX (www.mcx-sx.com) and PRIME

Database (www.primedatabase.com) and from the reading material produced by ICAI, ICSI

andICWAI.

Disclaimer

The information provided herein is purely for dissemination of information and creating

awareness among the investors about various aspects of the capital market. Although due

care and diligence has been taken in the preparation/compilation of this reading material, the

Ministry of Corporate Affairs or the Editor or the organizations distributing this reading

material shall not be responsible for any loss or damage resulting fromany action or decisiontakenbyapersononthebasisofthecontentsofthisreadingmaterial.

It may also be noted that laws/regulations governing the capital market are continuously

updated/changed, and hence an investor should familiarize himself with the latest

laws/regulations byvisiting the relevantwebsitesor contactingthe relevantregulatory body.

ACKNOWLEDGEMENTS & DISCLAIMER


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