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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
Ministry of Corporate AffairsGovernment of India
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.
Ministry of Corporate AffairsGovernment of India
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.
Ministry of Corporate AffairsGovernment of India
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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03
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
08
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09
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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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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Printed at Samrat Offset Works/1,000/July 2010