BASICS OF EQUITY

1. What are Markets?

A stock market is a market for the trading of company stock/ shares, and derivatives. This includes securities listed

on a stock exchange as well as those only traded privately. Market is a place where buyers and sellers of securities

can enter into transactions to purchase and sell shares, bonds, debentures etc.

 1.1 Primary markets:

The primary market is that part of the capital markets that deals with the issuance of new securities.

The primary market is that part of the capital markets that deals with the issuance of new securities.

Companies, governments or public sector institutions can obtain funding through the sale of a new stock or

bond issue. This is typically done through a syndicate of securities dealers. The process of selling new

issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public

offering (IPO)

What are the types of issues in primary market?

Primary market Issues can be classified into four types.

a. Initial Public Offer

b. Follow on Offer

c. Rights Issue

d. Preferential Issue

Introduction to Primary Markets

Most listed companies are usually started privately by their promoter(s). However, the promoters’ capital and the

borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a

long term. So, companies invite the public to contribute towards the equity and issue shares to individual investors.

The way to invite the public to subscribe to the share capital of the company is through a ‘Public Issue’. Once this is

done, the company allots shares to the applicants as per the prescribed guidelines laid down by SEBI.

The Primary Market is, hence, the market that provides a channel for the sale of new securities to issuers, which may

can be the Government or corporates, to raise resources to meet their fund raising requirements. The securities may

be issued at face value, or at a discount/premium and may take a variety of forms such as equity, debt etc. They may

be issued in the domestic and/or international market.

Issue at Face Value:

The nominal value of the share, assigned to it by the issuer, is called the Face Value or Par Value. It is the original

cost shown on the share certificate and the extent to which the shareholder is liable to the company. In case of equity

shares, the value is generally quite small; for instance Rs 1, Rs 2, Rs 5, Rs 10 etc. Hence, if shares are offered at this

value then it is said they are being offered at Face Value or at Par.
Issue at a premium or at a discount:

When shares are offered at more than the Face Value, then it is said that the issue is at a premium. The premium is

the amount charged over the Face Value. Conversely, if shares are offered at a price lower than Face Value, then the

issue is at a discount. The difference between the Face Value and the Offer Price is the discount.

Initial Public Offer (IPO):

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, the issue is called as an Initial Public Offer.

Follow On Public Offer (FPO):

When an already listed company makes either a fresh issue of securities to the public or an offer for sale of existing

shares to the public, through an offer document, it is referred to as Follow on Offer (FPO).

Rights Issue:

When a listed company proposes to issue fresh securities to its existing shareholders, as on a record date, it is called

as a rights issue. 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.

A Preferential issue:

A Preferential Issue is an issue of shares or of convertible securities by listed companies to a select group of persons

under Section 81 of the Companies Act, 1956, that 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 the chapter, pertaining to preferential allotment in SEBI guidelines, which inter-alia include pricing,

disclosures in notice etc.

Who Are The Various Intermediaries In A Public Issue?

The Issuing Company has to appoint various intermediaries for the issue process. The various intermediaries

involved are:

 Book Running Lead Managers (BRLMs)

 Bankers to the Issue

 Underwriters

 Registrars to the Issue etc.

What Is The Role Of The Intermediaries?

Book Running Lead Managers:

The Company issuing shares appoints the BRLM or the Lead Merchant Bankers. The role of the BRLM can be

divided into two parts, viz., Pre Issue and Post Issue. The Pre Issue role includes compliance with the stipulated

requirements of the SEBI and other regulatory authorities, completion of formalities for listing on the Stock

Exchanges, appointing of various agencies such as advertising agencies, printers, underwriters, registrars, bankers

etc.

Post Issue activities include management of escrow accounts, deciding the final issue price, final allotment, ensuring

proper dispatch of refunds, allotment letters and ensuring that each agency is carrying out their part properly.

B Bankers to the Issue:

Bankers to the issue, as the name suggests, carry out all the activities of ensuring that the funds are collected and

transferred to the Escrow accounts.

Registrars to the Issue:

The Registrar finalizes the list of eligible allottees after deleting invalid applications and ensures that the corporate

action for crediting shares to the demat accounts of the applicants is done and the refund orders, where applicable,

are sent.

Underwriters to the Issue:

An investment banking firm enters into a contract with the issuer to distribute securities to the investing public. They

get an Underwriting Commission for their services. In case of under subscription, they have the obligation to

subscribe to the left over portion.

Underwriters to the Issue:

An investment banking firm enters into a contract with the issuer to distribute securities to the investing public. They

get an Underwriting Commission for their services. In case of under subscription, they have the obligation to

subscribe to the left over portion.

Benefits & Drawbacks of Investing in the Primary Market

Investing in the primary market has its own benefit and drawbacks. Some of the key benefits are:

 It is safer to invest in the primary markets than in the secondary markets as the scope for manipulation of

price is smaller.

 The investor does not have to pay any kind of brokerage or transaction fees or any tax such as service tax,

stamp duty and STT.

  No need to time the market as all investors will get the shares at the same price.

Some of the major drawbacks are as following:

 In case of over subscription, the shares are allotted in proportionate basis. Thus, small investors hardly get

any allotment in such a case.

 Money is locked for a long time and the shares are allotted after a few days where as in case of purchase

from the secondary market the shares are credited within three working days.

Classification of Issue

Procedure of arriving at the issue price:

 Fixed Price

 Book Building

Fixed Price:

Any IPO can be priced by two methods. Firstly, where the issuing company, in consultation with the BRLM, arrives at

a fixed price at which it offers the shares to the public. In the second method, the company and the BRLM fix a floor

and cap price for the issue. This range is called the price band. Investors are free to bid at any price in this range.

The final price is determined by market forces according to the demand for the issuing company’s shares. This is

called the Book Building Process.

Book Building:

In case of a book building IPO, the offer must be open for at least three days. The BRLM declares the issue price

before the allotment, which must be completed within 15 days from the closure of the IPO. The shares should get

credited to the respective bidders’ de-mat account within two working days from the date of allotment. The refund

orders are also dispatched within this time.

Category of investors who can invest in an IPO:

As far as the IPO is concerned, there are three categories of investors.

 Qualified Institutional Bidders.

 Non-Institutional Investors.

 Retail Investors.

Qualified Institutional Investors:

Under this head, financial institutions such as Banks, Mutual funds, Insurance companies, Foreign Institutional

investors etc. are permitted to bid for the shares. A maximum of 50% of the issue can be kept reserved for investors
falling under the QIB category. Out of the 50% shares, 5% are reserved for Mutual Funds.

Non-Institutional Investors:

Under this category, resident Indian individuals, HUFsS, companies, corporate bodies, NRIs, societies and trusts

whose application size in terms of value is more than Rs 1 lakh are allowed to bid. At least 15% of the total issue has

to be reserved for Non-Institutional Bidders.

Retail Investors:

Under this category, only Individuals, both Resident and NRIs along with HUFs are allowed to bid. At least 35% of the

issue has to be reserved for such investors. The size in terms of value should not exceed Rs 1 lakh if one wants to

apply under this category.

How are share prices determined?

The share prices, the prices at which the shares trade are determined by supply and demand. If there are more

buyers than sellers, then the price will rise and if there are more sellers than buyers it will fall. In turn that supply and

demand is determined by a number of other factors including:

General market sentiment

 Movements on international markets

 Economic events and Government decisions

 Company news and performances

 Interest rates

 Speculation and rumour

 1.2 Secondary markets:

The secondary market is the financial market for trading of securities that have already been issued in an

initial private or public offering. In the secondary market, securities are sold by and transferred from one

investor or speculator to another.

The secondary market is where you can purchase securities from the seller as opposed to the issuer of such

a security. Hence securities that are initially issued in the primary market by companies are traded on the

secondary market.

The secondary market comprises of broad segments such as Equity, Debt and Derivatives. Equity shares

are the most widely traded form of securities. There are various ways in which equity shares are issued such

as IPOs, rights issues and bonuses.

Who Are The Parties To The Transactions?

In the secondary market, there are basically three parties to a transaction. These are buyers, sellers and

intermediaries between them.

The first two categories consist of retail investors, high net worth individuals (HNIs), Mutual Fund Houses,

Corporates and Institutional Investors, Foreign Institutional Investors etc.

Retail investors are individual investors with limited access to funds. They park their surplus funds in equities

to earn returns. Equity investments as an investment option for retail investors are considered to be high risk

- high return proposals compared to other investment instruments like fixed deposits and post office

schemes.

The term ‘high net worth individual’ or HNI is used to refer to individuals and families that are affluent in their

wealth holding and consequently have a higher risk profile. It’s a relative term and its comprehension differs

in different financial markets and regions.

Mutual funds pool up money of several investors and invest in various asset classes including equities.

These returns are distributed among the investors in proportion of the Mutual Fund units held by them. This

investment mode has gained a lot of popularity across the world. It is most suitable for investors who lack

the skill and acumen to pick up good stocks.

Foreign Institutional Investors (FIIs) are venture capital funds, pension funds, hedge funds, mutual funds and

other institutions registered outside the country of the financial market in which they take an investment

exposure.

Mutual Funds and FIIs have gained a lot of importance as market participants as they have huge sums of

money in their kitty to manage and are often instrumental in giving direction to the stock markets in the short

term. Heavy buying or selling on their part plays a substantial part in market rise and fall.

Intermediaries such as stockbrokers, depositories, depository participants and banks facilitate payment of

money in share transactions.

Brokerages are entities registered as members with the concerned stock exchange. In turn you, the investor,

would be required to enroll with the broker. Brokers charge commission based fees for the services they

offer. Sub brokers appointed by main brokers also offer the same services for a fee.

Depositories hold shares for investors in electronic form. Previously shares were held in physical form
meaning that there were paper share certificates for shares held. This new system of holding shares through

depositories reduces paper work and time and also does away with risks associated with physical

certificates such as bad delivery, fake securities etc. There are two depositories in India, the National

Securities Depositories Limited (NSDL) and the Central Depositories Services Limited (CDSL). These two

depositories provide service to investors through their agents termed as Depository Participants (DPs). As

per SEBI regulations, Banks, Financial Institutions and SEBI registered trading members can become DPs.

How Does The Secondary Market Function?

In order to understand how the secondary markets function we must first be apprised of certain important

terms:

Price: - The price of a stock is totally guided by the forces of demand and supply. The share prices of liquid

stocks with wide participation keep changing throughout the trading hours They can be tracked continuously

on trading screens.

Circuit Filters: - Share prices can swing in a volatile manner on back of news or even due to rigging by

operators. It is important to protect the interest of investors and guard them against major losses due to such

volatile price movements. So stocks are subjected to an upper and a lower circuit. The price of the stock can

move within this range only on a particular trading day There are various slabs like 2%, 5%, 10% and 20%

circuit that different stocks are subjected to. The slabs are fixed depending on various factors like share

price, retail share holding etc.

Volume: - The term volume refers to the total number of shares traded during the day Volumes can be

calculated for a particular stock, an index or even for the entire exchange.

Derivatives (Derivatives Segment Of The Secondary Market)

A derivative is a financial instrument that derives its value from the value of an underlying asset. The

underlying asset can be equity, commodities or any other asset. For the purpose of this chapter, we would

restrict the scope to Equity derivatives only. Derivatives were introduced in the Indian stock market to enable

investors to hedge their investments against adverse volatile price movements. However they are now

commonly being used for taking speculative positions

Broadly, Futures and Options are the derivative instruments that are traded on the two main exchanges,

BSE and the NSE.

Futures: - To understand the term better, let’s take an example. Nifty is trading at the level of 4000. You can

buy or sell a lot of Nifty Futures. The lot size of Nifty futures is 100. You would be required to pay a margin of
10% of the contract value.

The margin money would work out as follows: -

Transaction value: 4000 × 100 (lot size) = Rs. 4, 00,000

Margin Amount: 10% of 4, 00,000 = Rs.40, 000

The lot size and margin money percentage vary for different scrips and contracts. We took the example of

Nifty, which is an index. You can take positions in various stocks which are listed for Futures trade. On NSE,

the last Thursday of every month is the expiry date. In our example, if the Nifty is trading at 4300 on the last

Thursday of the month and the position is not squared off then the purchaser of the Nifty futures contract at

4000 would be a gainer by Rs.20,000 (200 × lot size100). Similarly seller of Nifty futures contract would

stand to lose Rs. 20,000.

Options: Options are hedging/investment instruments, which allow the buyer the right but not the obligation

to buy/sell the underlying stock/ index. The buyer of the option incurs a charge for this right, which is referred

to as the “premium”. The option writer or seller is the other party to such a contract who earns the premium.

Call Option - Option to buy the stock at a specific price

e.g. Mr. A buys a Nifty Call option with a strike price of 4100 at a premium of Rs.100. Mr. B, the seller of the

option earns this premium of Rs.100 taking unlimited risk whereas Mr. A’s risk is limited to the premium

amount of Rs.100. If at the expiry date, Nifty is trading at 4350, then Mr. A would exercise his option and

earn a net amount of Rs.150. The strike price of the contract is 4100 and at the expiry, the Nifty is at 4350.

So he stands gainer by Rs.250 (4350 – 4100). He however has incurred a premium of Rs.100, so his net

earnings would be Rs.150 (Rs.250 – Rs.100).

Now, had the Nifty fallen to 3950, and then Mr. A would be a loser by only Rs.100, which is the premium

amount. His Call option would not exercise and Mr. would be a gainer by Rs.100.

Put Option - Option to sell the stock at a specified price

e.g. Mr. A buys a Nifty Put option with a strike price of 4100 at a premium of Rs.100. Mr. B, the seller/writer

of the option earns this premium of Rs.100 taking unlimited risk whereas Mr. A’s risk is limited to Rs.100. If

at the expiry date, Nifty is trading at 3850, then Mr. A would exercise his option and earn a net amount of

Rs.150. The strike price of the contract is 4100 and at the expiry, the Nifty is at 3850. So he stands gainer by

Rs.250 (4100 - 3850). He however has incurred a premium of Rs.100, so his net earnings would be Rs.150

(Rs.250 – Rs.100).

Now, had the Nifty risen to 4250, and then Mr. A would be a loser by only Rs.100, which is the premium

amount. His Put option would not exercise and Mr. would be a gainer by Rs.100.
 Spot Market Price – It is the price at which the stock is trading in the cash markets.

Strike Price - Specified Price at which the underlying may be purchased or sold when the option is

exercised.

Expiry Date - Last date for exercising the option by buyer--- Last Thursday of the relevant month on NSE.

Bonds
The debt segment of secondary market which mainly comprises of bonds.

Bond: - A bond is simply a form of loan borrowed by the government, the municipality or a company. A bond

purchaser who plays the role of a lender to such borrower institutions holds in return a negotiable certificate

that acknowledges indebtedness of the bond issuer. Such certificates are also termed as bonds. Bonds

normally are unsecured. The issuer pays the bond holder periodic interest ranging over the life of the loan.

The secondary market for bonds in India is an over the counter market whereas the market for equities is a

system-automated market. The buy orders and sell orders are electronically matched. We shall delve

deeper into this in the following chapters.

What Are The Various Types Of Bonds?

Zero Coupon Bond: These are issued at a discount to the face value and at the time of redemption the

bond holder is reimbursed with the face value of the bond.

The difference between the issue price and redemption price represents the return to the holder. The holder

of such bonds does not enjoy periodic interest payments.

Convertible Bond: These bonds offer the investor the option to convert the bond into equity at a fixed

conversion price

Treasury Bills: - T-bills are short-term securities issued by the Government. They mature in one year or

less time from their issue date.

2. What are shares?

A share is one of a finite number of equal portions in the capital of a company, entitling the owner to a proportion of

distributed, non-reinvested profits known as dividends and to a portion of the value of the company in case of

liquidation. Equity is a share in the ownership of a company. It represents a claim on the company’s assets and
earnings. As you acquire more stock, your ownership stake in the company increases. The terms share, equity and

stock mean the same thing and can be used interchangeably.

Types of shares

Shares can be voting or non-voting, meaning they either do or do not carry the right to vote on the board of

directors and corporate policy. Whether this right exists often affects the value of the share. Voting and Non-Voting

shares are also known as Class A and B shares.

The most common form of shares is ordinary (equity) shares. One can also buy preference shares, options and partly

paid shares.

There are a number of different types of shares such as ordinary or preference shares which have different

properties.

Preference shares are those shares in a company with rights in various ways superior to those of ordinary shares;

for example, priority to a fixed dividend and priority over ordinary shares in the event of the company being wound up.

When a share is issued, the person applying for it must pay to the company, in cash or equivalent value, the amount

of its nominal value together with any premium required by the company. Shares are fully paid when the whole

amount has been received by the company.

Shares may also be issued on the basis that only part of their price is to be paid initially, with the remainder being

required when called for by the company.

For more experienced investors, derivatives such as options and warrants provide further diversification. However,

when the majority of investors invest in shares, they buy ordinary shares.

3. What is a stock exchange?

A stock exchange, share market or bourse is a corporation or mutual organization which provides facilities for stock

brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the

issue and redemption of securities as well as other financial instruments and capital events including the payment of

income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts

and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to

be listed there.

The Bombay Stock Exchange Limited, or BSE has a nation-wide reach with a presence in 417 cities and towns of

India. Its index, or market indicator is known as the Sensex. It gives a general idea regarding the movement of the

stocks; whether they have gone up or have gone down. If the Sensex goes up, it means that the prices of the stocks

of most of the major companies on the BSE have gone up.

The S&P CNX Nifty, or simply Nifty, is the leading index for large companies on the National Stock Exchange of

India. It consists of 50 companies representing 24 sectors of the economy, and representing approximately 47% of

the traded value of all stocks on the National Stock Exchange of India

4. Who is a broker?

A stockbroker is person who is licensed to trade in shares. Brokers also have direct access to the share market and

can act as your agent in share transactions. For this service they charge a fee. They can also offer additional services

like advice on shares, debentures, government bonds and listed property trusts and non-listed investment options

(cash management trusts, property and equity trusts.

In addition a stock broker can plan, implement and monitor your investment portfolio, conduct research and help you

optimize your returns.

5. What is a Demat A/c?

Investors who wish to trade in the market need to have a dematerialized, or demat, account. In India, the government

has mandated two entities –National Securities Depository, or NSDL, and Central Depository Services (India), or

CDSL – to be the custodian of dematerialized securities.

 5.1 What do you mean by dematerialization?

Dematerialization is the process by which physical certificates of an investor are converted to an equivalent

number of securities in electronic form and credited in the investor's account with its DP.

 5.2 Can I dematerialize any share certificate?

You can dematerialize only those certificates that are already registered in your name and are in the list of

securities admitted for dematerialization.

 5.3 What is a depository?

A depository can be compared to a bank. A depository holds securities like shares, debentures, bonds,

government securities, and units, among others of investors in electronic form. A depository also provides

services related to transactions in securities.

 5.4 How can I avail the services of a depository?

A depository interfaces with the investors through its agents called depository participants, or DPs. If an

investor wants to avail of services offered by the depository, the investor has to open an account with a DP.

This is similar to opening an account with any branch of a bank in order to utilize the bank's services.

 5.5 What are the benefits of opening a demat account?

The benefits of opening a demat account are:

1. Immediate transfer of securities;

 2. No stamp duty on transfer of securities;

3. Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc.;

4. Reduction in paperwork involved in transfer of securities;

5. Reduction in transaction cost;

6. Nomination facility;

7. Change in address recorded with DP gets registered electronically with all companies in which

investor holds securities eliminating the need to correspond with each of them separately;

8. Transmission of securities is done by DP eliminating correspondence with companies;

9. Convenient method of consolidation of folios/accounts;

10. Holding investments in equity, debt instruments and government securities in a single account;

11. Automatic credits of shares into demat account, arising out of split/consolidation/merger etc.

 5.6 How do I select a DP?

A. You can select your DP to open a demat account just like you select a bank for opening a savings

account. Some of the important factors for selection of a DP can be:

B. Convenience - Proximity to the office/residence, business hours.

C. Comfort - Reputation of the DP, past association with the organization, whether the DP is in a

position to give the specific service you may need?

D. Cost - The service charges levied by DP and the service standards.

Opening a Demat Account

A. What are the documents that I will require?

Proof of identity (copy of any one proof):

 Passport

 Voter ID Card

 Driving license

 PAN card with photograph

 Identity card/document with applicant's photo, issued by

a. Central/State government and its departments,

b. Statutory/Regulatory Authorities,

c. Public sector undertakings,

d. Scheduled commercial banks,

e. Public financial institutions,

f. Colleges affiliated to universities (this is valid only till the time the applicant is a student),

g. Professional bodies such as ICAI, ICWAI, ICSI, Bar Council etc, to their members; and

h. Credit cards/debit cards issued by banks.

Proof of address (copy of any one proof):

1. Ration card

2. Passport

3. Voter ID card

4. Driving license

5. Bank passbook

6. Verified copies of electricity bills/ residence telephone bills (not more than two months old)/ Leave and

license agreement/ agreement for sale.

7. Self-declaration by High Court and Supreme Court judges,

8. Giving the new address in respect of their own accounts.

9. Identity card/document with address, issued by

a. Central/State government and its departments,

b. Statutory/Regulatory Authorities,

c. Public sector undertakings,

d. Scheduled commercial banks,

e. Public financial institutions,

f. Colleges affiliated to universities (this is valid only till the time the applicant is a student),

g. Professional bodies such as ICAI, ICWAI, ICSI, Bar Council etc, to their members; and

Passport-size photograph

Copy of PAN card

One must remember to take original documents to the DP for verification. Your DP will carry-out "in-person

verification" of account holder(s) at the time of opening your account.

B. Other Information

Q: How long does the dematerialization process take?

A: Dematerialization will normally take about 30 days.

Q: Can I dematerialize my debt instruments, mutual fund units, and government securities also in my demat

account?

A: You can dematerialize and hold all such investments in a single demat account.

Q: Can my electronic holdings be converted back into certificates?

A: If you wish to get back your securities in physical form, all you have to do is to request your DP for

rematerialisation of the same. 'Rematerialisation' is the term used for converting electronic holdings back into

certificates. Your DP will forward your request to the depository. After verifying whether you have the necessary

balance, the depository will intimate the registrar, who will print the certificates and dispatch the same to you.

6. Buying and selling of dematerialised securities

What is the procedure for selling dematerialized securities?

The procedure for selling dematerialized securities is very simple. After you have sold the securities, you would

instruct your DP to debit your account with the number of securities sold by you and credit your broker's clearing

account. This delivery instruction has to be given to your DP using the delivery instruction slips given to you by your

DP at the time of opening the account. Procedure for selling securities is given here below:

1. You sell securities in any of the stock exchanges through a broker;

2. You give instruction to your DP to debit your account and credit the broker's (clearing member) account

before the deadline time specified by your DP;

3. Before the pay-in day, your broker gives instruction to its DP for delivery to clearing corporation;

4. Your broker receives payment from the stock exchange (clearing corporation);

5. You receive payment from the broker for the sale of securities.

How can I purchase dematerialized securities?

For receiving demat securities you may give a one-time standing instruction to your DP. This standing instruction can

be given at the time of account opening or later. Alternatively, you may choose to give separate receipt instruction

every time some securities are to be received. The transactions relating to purchase of securities are summarized

below:

 You purchase securities through a broker;

 You make payment to your broker who arranges payment to clearing corporation on the pay-in day;

 Your broker receives credit of securities in its clearing account (clearing member account) on the pay-out

day;

 Your broker gives instructions to its DP to debit its clearing member account and credit your account;

 You receive shares into your account. However, if standing instructions are not given at the time of opening

the account, you will have to give 'Receipt Instructions' to your DP for receiving credit.

You should ensure that your broker transfers the securities from its clearing member account to your depository

account, before the book closure. If the securities remain in the clearing account of the broker, the company will give

corporate benefits (dividend or bonus) to the broker. In that case, you will have to collect the benefits from your

broker.
7. How to receive income from shares?

The income received from shares is called a dividend.

We invest in shares to make money – either through a share’s capital growth, i.e. the amount by which the share

price increases in value over time, or through the dividends it pays to its shareholders. Dividends are payments made

by companies to shareholders from their profits. Not all companies pay dividends. Dividends are usually paid twice a

year and are in effect the yield from your investment. Some growth companies plough most of their profits back into

generating more business rather than paying out dividends to investors.

How would I get my dividend/interest or other cash entitlements?

The concerned company obtains the details of beneficiary holders and their holdings from the depository. The

payment to the investors will be made by the company through the ECS, or Electronic Clearing Service, facility or by

issuing warrants on which your bank account details are printed. The bank account details will be those, which you

would have mentioned in your account opening, form or changed thereafter.

How would I get my bonus shares or other non-cash entitlements?

The concerned company obtains the details of beneficiary holders and their holdings from NSDL. Your entitlement

will be credited by the company directly in your depository account.

9. How to make investment decisions?

The stock market has, perhaps, the most exciting investment opportunities for the investor community. At the same

time, it could be unnerving and scary. In fact, equity investment has always remained a big challenge, not only for

retail but institutional investors, too. Moreover, investors’ discomfort generally increases with a rise in market volatility.

You will find many investors entering the market at high levels and making a quick exit as the market witnesses a

correction. Unfortunately, such investors seldom think of investing in stocks again. Thus, they ignore an excellent

opportunity to earn above average returns.

In short, investing in equities can be a difficult proposition for retail investors. However, equity must form a part of

every investor’s portfolio. The proportion could vary, depending on the investor’s age, monetary requirements, risk

appetite, etc.

To cope with volatility, it is important to have a disciplined and systematic approach to equity investment. Set your

own rules and more importantly, follow them religiously. Indeed, the mantra for successful equity investment is a well

thought-out, disciplined investment strategy.

 A long-term monetary commitment, adherence to discipline in investment and decisions based on company

fundamentals are essential ingredients for successful equity investment.

The Golden Rules For Investing In Equities

Zurich Axioms
The First Major Axiom: ON RISK
Worry is not a sickness but a sign of health. If you are not worried, you
are not risking enough.

The Second Major Axiom: ON GREED

Always take your profit too soon
The Third Major Axiom: ON HOPE
When the ship starts to sink, don't pray. Jump.
The Fourth Major Axiom: ON FORECASTS
Human behaviour cannot be predicted. Distrust anyone who claims to
know the future, however dimly.
The Fifth Major Axiom: ON PATTERNS
Chaos is not dangerous until it begins to look orderly.
The Sixth Major Axiom: ON MOBILITY
Avoid putting down roots. They impede motion.
The Seventh Major Axiom: ON INTUITION
A hunch can be trusted if it can be explained.
The Eighth Major Axiom: ON RELIGION AND THE OCCULT
It is unlikely that God's plan for the universe includes making you rich.
The Ninth Major Axiom: ON OPTIMISM AND PESSIMISM
Optimism means expecting the best, but confidence means knowing
how you will handle the worst. Never make a move if you are merely
optimistic.
The Tenth Major Axiom: ON CONSENSUS
Disregard the majority opinion. It is probably wrong
The Eleventh Major Axiom: ON STUBBORNNESS
If it doesn't pay off the first time, forget it.
The Twelfth Major Axiom: ON PLANNING
Long-range plans engender the dangerous belief that the future is under
control. It is important never to take your own long-range plans, or other
people's, seriously.

 FAQs
What is SEBI’s Role in an Issue?

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 i.e. the company has to open its issue within three months period.
 Where can I get a form for applying/ bidding for the shares?

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.

 Is it compulsory for me to have a Demat Account?

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.

 What are the dos and don’ts for bidding / applying in the issue?

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.

 How many days is the issue open?

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.

 Can I change/revise my bid?

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.

 Which are the reliable sources for me to get information about response to issues?

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.

 How do I know if I am allotted the shares? And by what timeframe will I get a refund if I am not

allotted?

The investor is entitled to receive a Confirmatory Allotment Note (CAN) in case he has been allotted shares

within 15 days from the date of closure of a book Built issue. The registrar has to ensure that the demat

credit or refund as applicable is completed within 15 days of the closure of the book built issue.
  How long will it take after the issue for the shares to get listed?

The listing on the stock exchanges is done within 7 days from the finalization of the issue. Ideally, it would

be around 3 weeks after the closure of the book built issue. In case of fixed price issue, it would be around

37 days after closure of the issue.

 What is the recourse available to the investor in case of issue complaints?

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.

 How will the investor confirm that bonus/rights entitlement is credited into the account?

An allotment advice will be sent by the issuer for bonus/rights entitlement. The transaction statement given

by the DP, will also show the bonus/rights credit into the account. The quantity shown in the advice and

transaction statement should match.

 What will happen if my DP goes bankrupt or stops operation?

In a rare event of your DP going bankrupt or closing its operations, the interests of the investors will be fully

protected. In such situation, the investor will be given an option of either transferring the securities to a new

DP or rematerialize the securities

IPO FAQs
 What is an Initial Public Offering?
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale
of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer’s
securities.
 
 What is a Follow on Public Offering?
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.
 
 What is a Rights Issue?
Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing shareholders as on
a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue.
This route is best suited for companies who would like to raise capital without diluting stake of its existing
shareholders unless they do not intend to subscribe to their entitlements.
 
 What is a Preferential Issue?
A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons
under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way
for a company to raise equity capital. The issuer
company has to comply with the Companies Act and the requirements contained in Chapter pertaining to preferential
allotment in SEBI (DIP) guidelines which inter-alia include pricing, disclosures in notice etc.
 
 
 What is SEBI’s Role in an Issue?
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 i.e. the
company has to open its issue within three months period.
 
 Does it mean that SEBI recommends an 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.
 
 Does SEBI approve the contents of the issue?
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.
 
 Does SEBI tag make my money safe?
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.
 
 What are Disclosures and Investor protection guidelines?
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.
 
 How does SEBI ensure compliance with Disclosures and Investor protection?
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.
 
 With the presence of the Central Listing Authority, what would be the role of SEBI in the processing of Offer
documents for an issue?
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.
 
 
 What is the difference between an offer document, Red Herring Prospectus, a prospectus and an abridged
prospectus? What does it mean when someone says “draft offer doc”?
“Offer document” means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights
issue, which is filed Registrar of Companies (ROC) and Stock Exchanges. An offer document covers all the relevant
information to help an investor to make his/her investment decision. “Draft Offer document” means the offer
document in draft stage. The draft offer documents are filed with SEBI, 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.
 
 What is a Red Herring Prospectus?
Red Herring Prospectus is a prospectus, which does not have details of either price or number of shares being
offered, or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper
and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares
are determined later. An RHP for and FPO can be filed with the RoC without the price band and the issuer, in such a
case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In
the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding
process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of
the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are
included in the offer document. The offer document filed thereafter with ROC is called a prospectus.
 
 What is an Abridged Prospectus?
Abridged Prospectus means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the
Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies the application form of
public issues.
 
 What does one mean by Lock-in?
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.
 
 How the word Promoter has been defined?
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".
 
 Who decides the price of an issue?
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the
issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by SEBI. SEBI
does not play any role in price fixation. The company and merchant banker are however required to give full
disclosures of the parameters which they had considered while deciding the issue price. There are two types of
issues one where company and LM fix a price (called fixed price) and other, where the company and LM stipulate a
floor price or a price band and leave it to market forces to determine the final price (price discovery through book
building process).
 
 What is Fixed Price offers?
An issuer company is allowed to freely price the issue. The basis of issue price is disclosed in the offer document
where the issuer discloses in detail about the qualitative and quantitative factors justifying the issue price. The Issuer
company can mention a price band of 20% (cap in the price band should not be more than 20% of the floor price) in
the Draft offer documents filed with SEBI and actual price can be determined at a later date before filing of the final
offer document with SEBI / ROCs.
 
 What does “price discovery through book building process” mean?
“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.
 
 
 How does Book Building work?
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.
 
 What is a price band?
The red herring prospectus may contain either the floor price for the securities or a price band within which the
investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. In other
words, it means that the cap should not be more than 120% of the floor price. The price band can have a revision and
such a revision in the price band shall be widely disseminated by informing the stock exchanges, by issuing press
release and also indicating the change on the relevant website and the terminals of the syndicate members. In case
the price band is revised, the bidding period shall be extended for a further period of three days, subject to the total
bidding period not exceeding thirteen days.
 
 Who decides the price band?
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.
 
 What is firm allotment?
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.
 
 What is reservation on competitive basis?
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.
 
 Is there any preference while doing the allotment?
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.
 
 Who is eligible for reservation and how much? (QIBs, NIIs, etc.,)
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.
 
 How is the Retail Investor defined as?
‘Retail individual investor’ means an investor who applies or bids for securities of or for a value of not more than
Rs.1,00,000.
 
 Can a retail investor also bid in a book-built issue?
Yes. He can bid in a book-built issue for a value not more than Rs.1,00,000. Any bid made in excess of this will be
considered in the HNI category.
 
 Where can I get a form for applying/ bidding for the shares?
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.
 
 What is the amount of faith that I can lay on the contents of the documents? And whom should I approach if there
are any lacunae?
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.
 
 Is it compulsory for me to have a Demat Account?
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.
 
What is the procedure for getting a demat account?
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.
 
 What are the dos and don’ts for bidding / applying in the issue?
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.
 
 How many days is the issue open?
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.
 
 Can I change/revise my bid?
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.
 
 What proof can bidder request from a trading member or a syndicate member for entering bids?
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.
 
 Can I know the number of shares that would be allotted to me?
In case of fixed price issues, the investor is intimated about the 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.
 
 Which are the reliable sources for me to get information about response to issues?
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.
 
 How do I know if I am allotted the shares? And by what timeframe will I get a refund if I am not allotted?
The investor is entitled to receive a Confirmatory Allotment Note (CAN) in case he has been allotted shares within 15
days from the date of closure of a book Built issue. The registrar has to ensure that the demat credit or refund as
applicable is completed within 15 days of the closure of the book built issue.
 
 How long will it take after the issue for the shares to get listed?
The listing on the stock exchanges is done within 7 days from the finalization of the issue. Ideally, it would be around
3 weeks after the closure of the book built issue. In case of fixed price issue, it would be around 37 days after closure
of the issue.
 
 How does one come to know about the issues on offer? And from where can I get copies of the draft offer
document?
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.
 
 
 Who are the intermediaries in an issue?
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.
 
 Who is eligible to be a BRLM?
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.
 
 What is the role of a Lead Manager? (pre and post issue)
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.
 
 What is the role of a registrar?
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.
 
 What is the role of bankers to the issue?
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.
 
 What is the recourse available to the investor in case of issue complaints?
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
 
 Where do I get data on primary issues? (issuer, total issues, issue size, the intermediaries, etc., during a given
period)
SEBI brings out a monthly bulletin that is available off the shelf at bookstores. A digital version of the same is
available on the SEBI website under the “News/Publications” section. The Bulletin contains all the relevant historical
figures of intermediary issue and intermediary particulars during the given period placed against historical figures.
 
 What are the relevant regulations and where do I find them?
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.
 
 
 What are Risk Factors?
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.
 
 What is an Introduction?
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.
 
 What is About us?
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.
 
 What is a Financial Statements?
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.
 
 What are Legal and other information?
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.
 
 
 What is a Green-shoe Option?
Green Shoe option means an option of allocating shares in excess of the shares included in the public issue and
operating a post-listing price stabilizing mechanism for a period not exceeding 30 days in accordance with the
provisions of Chapter 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.
 
 What is an e-IPO?
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.
 
 What is Safety Net?
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.
 
 Who is a Syndicate Member?
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.
 
 What is Open book/closed book?
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.
 
 What is Hard underwriting?
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.
 
 What is Soft underwriting?
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.
 
 What is a Cut Off Price?
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.
 
 What is Differential pricing?
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 security 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.
 
 What is Basis of Allocation/Basis of Allotment?
After the closure of the issue, the bids received are aggregated under different categories i.e., firm allotment,
Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs), Retail, etc. The oversubscription ratios are then
calculated for each of the categories as against the shares reserved for each of the categories in the offer document.
Within each of these categories, the bids are then segregated into different buckets based on the number of shares
applied for. The oversubscription ratio is then applied to the number of shares applied for and the number of shares
to be allotted for applicants in each of the buckets is determined. Then, the number of successful allottees is
determined. This process is followed in case of proportionate allotment. In
case of allotment for QIBs, it is subject to the discretion of the post issue lead manager.
 
 Who is Qualified Institutional Buyer (QIBs)?
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 the Companies 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.