7/31/2019 Long Tern Source of Fund

1/16

PREPARED BY:-Sumit Kumar 1135

Yash Deliwala 1141

Sourbha Deshpande 1128Awasf Khan 1116

Nadeem Khan 1119

1

7/31/2019 Long Tern Source of Fund

2/16

2

Need for long term Finance

For modernization, expansion,diversification

Huge quantities reqd., irreversibledecision

7/31/2019 Long Tern Source of Fund

3/16

3

Equity Shares are issued and are traded everyday in the stock

market.

Equity share holders only get dividend after preference

shareholders & debenture holders.

The returns on the equity shares are not at all fixed. It depends

on the amount of profits made by the company.

The board of directors decides on how much of the dividends

will be given to equity share holders. Share holders can accept

to it or reject the offer during the annual general meeting.

Equity shareholders have the right to vote on any resolution

placed before the company.

EQUITY SHARES

7/31/2019 Long Tern Source of Fund

4/16

4

ADVANTAGES

High Return Easily Transferable.

These can be easily liquidated.

Right to vote

Right to choose the board of directors.

Equity share holders have the right to oppose any of the decisions taken

by the board of directors.

DISADVANTAGES

High Risk In worst cases less privilege given to equity share holders.

7/31/2019 Long Tern Source of Fund

5/16

5

These are other type of shares. The

preference shares are market instrument

issued by the companies to raise the capital.Preference shares have the characteristics

of both equity shares and debentures.

Fixed rate of dividends are paid to the

preference share holder as in case of

debentures, irrespective of the profits earned

company is liable to pay interest to

preference share holders.

PREFRENCE SHARE

7/31/2019 Long Tern Source of Fund

6/16

6

Preference shares are divided into:

Cumulative & Non cumulative shares

Redeemable & Non-redeemable

Convertible & Non-convertible shares

Participating and non-participating

TYPES OF PREFERENCE SHARES

7/31/2019 Long Tern Source of Fund

7/167

ADVANTAGES

These yield fixed rate of returns Its a hybrid instrument having some of the characteristics of

debentures and equity shares.

DISADVANTAGES They do not provide the investor with any of the voting

rights.

If the company gets huge profits then they wont get any

extra bonus.

7/31/2019 Long Tern Source of Fund

8/168

ISSUE OF SHARES

Prospectus

Application

Repayment/dividend

Allotment

Detail of a Company & Shares in Prospectus.

90 % application is necessary

If excess application received then company issue

shares by pro rata basis

full amount can be called up by company at the

time of application or it can be paid up in

installments also (calls)

share of the company may be issued in any of the

following three ways:

1. At par;

2. At premium; and

3. At discount.

7/31/2019 Long Tern Source of Fund

9/16

Instrument of debt executed by the company

A certificate of loan

Company pays pre specified percentage of

interest Part of the company's capital structure

Debentures are generally secured against thecompanys assets

Convertible debentures can be either fully orpartly converted into Shares

Convertible debentures may carry a lowerrate of interest

9

DEBENTURES

7/31/2019 Long Tern Source of Fund

10/1610

Security Point of Viewi. Secured Debentures

ii. Unsecured Debentures

Tenure Point of Viewi. Redeemable Debentures

ii. Perpetual Debentures

Mode of Redemption Point of View

i. Convertible Debenturesii. Non-Convertible Debentures

TYPES OF DEBENTURES

7/31/2019 Long Tern Source of Fund

11/1611

ADVANTAGES

1. Control of company is not surrendered to debenture holders becausethey do not have any voting rights.

2. Interest on debenture is an allowable expenditure under income tax

act, hence incidence of tax on the company is decreased.

3. Debenture can be redeemed when company has surplus funds.

DISADVANTAGES

1. Cost of raising capital through debentures is high of high stamps duty.

2. Common people cannot buy debenture as they are of high

denominations.3. They are not meant for companies earning greater than the rate of

interest which they are paying on the debentures.

7/31/2019 Long Tern Source of Fund

12/1612

ECB

External Commercial Borrowings

(ECB) refer to commercial loansavailed from non-resident lenderswith minimum average maturity of 3

years.ECB can be accessed under two routes

Automatic Route outlined in

Paragraph I (A)Approval Route outlined inparagraph I (B).

7/31/2019 Long Tern Source of Fund

13/1613

Automated route

Eligible borrowerscorporate and Units in SEZtrusts and non profitmaking org. not eligible

Amount and maturityECB up to USD 20 million or equivalent in a financial

year with minimum average maturity of three years.ECB above USD 20 million and upto USD 500 millionor equivalent with a minimum average maturityaverage maturity of five years.ECB upto USD 20 million can have call / put optionprovided the minimum average maturity of threeyears is complied with before exercising call / putoption.

7/31/2019 Long Tern Source of Fund

14/1614

Approval route

Eligible BorrowerFinancial institution dealing in infrastructure andexport financeBanks & Financial institution (in textile and steel)Corporate (industrial or infrastructure)

NGO engaged in micro finance activitiesAmount & maturity

Corporate can avail of ECB of an additional amountof $250 million with average maturity of more than10 yearsCorporate in infrastructure can avail ECB up to $100million and Corporate in industrial sector can availECB up to USD 50 millionNGOs engaged in micro fnance activities can raise

ECB up to USD 5 million during a financial year

7/31/2019 Long Tern Source of Fund

15/1615

Commodity BondsA commodity-backed bond is an investment term referring to a type

of bond whose value is directly related to the price of a specifiedcommodity.

Most bonds have a fixed value determined at the time of purchase. Acommodity-backed bond, however, can experience fluctuations invalue because its value is tied to the value of its underlying

commodity.

Commodity-backed bonds are frequently used to hedge againstinflation and other economic variables.

Also called gold bonds, commodity-backed bonds carry more riskthan traditional bonds because the value of the underlyingcommodity is not guaranteed.

There is the possibility, however, of achieving higher returns with a

commodity-backed bond versus a traditional bond.

7/31/2019 Long Tern Source of Fund

16/1616