Organisation of IFS

Money market in India

For short term needs: 1 day to less than an year
T Bills
Commercial paper
Call money
Certificate of deposit
Repo
Interest rate swaps
Forward rate agreements
 Indian Economic Scenario:
1) http://www.firstpost.com/business/25-years-of-
liberalisation-a-glimpse-of-indias-growth-in-14-
charts-2877654.html
2) http://indiabefore91.in/1991-economic-reforms
3) http://economictimes.indiatimes.com/news/eco
nomy/indicators/how-the-indian-economy-
changed-in-1991-
2011/articleshow/9339258.cms
Regulatory Structure of IFS
Role of RBI
Monetary Policy of RBI
 Fiscal policy of RBI
Inflation check
Tax assessment
Revenue deficit information
Development role etc.
RBI Organizational Structure
RBI Organizational Structure
 SEBI Functions & Responsible to
Functions:
Quasi Legislative Regulatory
Quasi Judicial Protective
Quasi Executive Developmental
Responsible to:
Issuers of securities
Investors
Market Intermediaters
Structure of SEBI
 Insurance

Is a concept of hedging of RISK

Its a protection against a possible eventuality
Its an agreement by which a company or state
or government undertakes to provide a
guarantee of compensation for specified loss,
damage or illness or death in return for a
payment of a specified amount called premium.
Insurance
Types of Insurance Policies
Types of Life Insurance Policies
 Insurance Premium Calculation

Term Insurance Premium =

(Amount of Insurance) X (Probability of Death)
X (Present Value of 1 Rupee for the period funds
are held)
OR
Ip = I x Pd x PVIF
Group Insurance Premium Formula
General Insurance Policy Claim Calculation
 How much Insurance to Buy?

Estimated amount of Insurance to Buy

= (Total Debt + Total Financial Support
planned + Estimated cost of Death) Current
Savings & Assets Possess
 Functions of IRDA
Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders,
insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of
insurance;
Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and
agents
Specifying the code of conduct for surveyors and loss assessors;
Promoting efficiency in the conduct of insurance business;
Promoting and regulating professional organisations connected with the insurance and re-insurance business;
Levying fees and other charges for carrying out the purposes of this Act;
Calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the
insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business;
Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general
insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act,
1938 (4 of 1938);
Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered
by insurers and other insurance intermediaries;
Regulating investment of funds by insurance companies;
Regulating maintenance of margin of solvency;
Adjudication of disputes between insurers and intermediaries or insurance intermediaries;
Supervising the functioning of the Tariff Advisory Committee;
Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional
organisations referred to in clause (f);
Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the
rural or social sector; and
Exercising such other powers as may be prescribed
Reinsurance
Reinsurance
PFRDA
 Primary Markets
The financial market is a broad term describing any
marketplace where trading of securities including equities,
bonds, currencies and derivatives occurs. Although some
financial markets are very small with little activity, some
financial markets including the New York Stock Exchange
(NYSE) and the forex markets trade trillions of dollars of
securities daily.
Types of Financial Markets
Stock Markets
Over the Counter Market
Bond Market
Money Market
Derivative Market and
Forex or Currency Market
 Features of Primary Market
This is the market for new long term equity capital. The primary
market is the market where the securities are sold for the first time.
Therefore, it is also called the new issue market (NIM).
In a primary issue, the securities are issued by the company directly
to investors.
The company receives money and issues new security certificates to
the investors.
Primary issues are used by companies for the purpose of setting up
new business or for expanding or modernizing the existing business.
The primary market performs the crucial function of facilitating
capital formation in the economy.
The new issue market does not include certain other sources of new
long term external finance, such as loans from financial institutions.
Borrowers in the new issue market may be raising capital for
converting private capital into public capital; this is known as "going
public."
its share can be issued at face value, premium value & discount
value.
Means of raising capital through Primary Markets

Prospectus
Rights Issue
Private Placement
Bonus Issue
Listing Mechanism: Eligibility Criteria
Qualifications for listing Initial Public Offerings (IPO) are as below:
Paid up Capital

The paid up equity capital of the applicant shall not be less than 10 crores * and the capitalisation of the
applicant's equity shall not be less than 25 crores**

* Explanation 1

For this purpose, the post issue paid up equity capital for which listing is sought shall be taken into account.

** Explanation 2

For this purpose, capitalisation will be the product of the issue price and the post issue number of equity
shares. In respect of the requirement of paid-up capital and market capitalisation, the issuers shall be
required to include, in the disclaimer clause of the Exchange required to put in the offer document, that in
the event of the market capitalisation (Product of issue price and the post issue number of shares)
requirement of the Exchange not being met, the securities would not be listed on the Exchange.
Conditions Precedent to Listing:

The Issuer shall have adhered to conditions precedent to listing as emerging from inter-alia from Securities
Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange Board of India Act 1992,
any rules and/or regulations framed under foregoing statutes, as also any circular, clarifications, guidelines
issued by the appropriate authority under foregoing statutes.
Listing Mechanism: Eligibility Criteria
Atleast three years track record of either:
the applicant seeking listing; or
the promoters****/promoting company, incorporated in or outside India or
Partnership firm and subsequently converted into a Company (not in existence as a Company for three
years) and approaches the Exchange for listing. The Company subsequently formed would be
considered for listing only on fulfillment of conditions stipulated by SEBI in this regard.

For this purpose, the applicant or the promoting company shall submit annual reports of three preceding
financial years to NSE and also provide a certificate to the Exchange in respect of the following:

The company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).
The net worth of the company has not been wiped out by the accumulated losses resulting in a
negative net worth. (Provided this criteria shall not be applicable to companies whose proposed issue
size is not less than Rs.500 crores)
The company has not received any winding up petition admitted by a court.

****Promoters mean one or more persons with minimum 3 years of experience of each of them in the same
line of business and shall be holding at least 20% of the post issue equity share capital individually or
severally.
Listing Mechanism: Eligibility Criteria
The applicant desirous of listing its securities should satisfy the exchange on the following:
No disciplinary action by other stock exchanges and regulatory authorities in past three years

There shall be no material regulatory or disciplinary action by a stock exchange or regulatory

authority in the past three years against the applicant company. In respect of promoters/promoting
company(ies), group companies, companies promoted by the promoters/promoting company(ies) of
the applicant company, there shall be no material regulatory or disciplinary action by a stock exchange
or regulatory authority in the past one year.
Redressal Mechanism of Investor grievance

The points of consideration are:

The applicant, promoters/promoting company(ies), group companies, companies promoted by

the promoters/promoting company(ies) track record in redressal of investor grievances
The applicant's arrangements envisaged are in place for servicing its investor.
The applicant, promoters/promoting company(ies), group companies, companies promoted by
the promoters/promoting company(ies) general approach and philosophy to the issue of investor
service and protection
defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit
holders by the applicant, promoters/promoting company(ies), group companies, companies
promoted by the promoters/promoting company(ies) shall also be considered while evaluating a
company's application for listing. The auditor's certificate shall also be obtained in this regard. In
case of defaults in such payments the securities of the applicant company may not be listed till
such time it has cleared all pending obligations relating to the payment of interest and/or
principal.
Listing Mechanism: Eligibility Criteria
Distribution of shareholding

The applicant's/promoting company(ies) shareholding pattern on March 31 of last three calendar years
separately showing promoters and other groups' shareholding pattern should be as per the regulatory
requirements.
Details of Litigation

The applicant, promoters/promoting company(ies), group companies, companies promoted by the

promoters/promoting company(ies) litigation record, the nature of litigation, status of litigation during
the preceding three years period need to be clarified to the exchange.
Track Record of Director(s) of the Company

In respect of the track record of the directors, relevant disclosures may be insisted upon in the offer
document regarding the status of criminal cases filed or nature of the investigation being undertaken
with regard to alleged commission of any offence by any of its directors and its effect on the business
of the company, where all or any of the directors of issuer have or has been charge-sheeted with
serious crimes like murder, rape, forgery, economic offences etc.
Note:
a) In case a company approaches the Exchange for listing within six months of an IPO, the securities may
be considered as eligible for listing if they were otherwise eligible for listing at the time of the IPO. If the
company approaches the Exchange for listing after six months of an IPO, the norms for existing listed
companies may be applied and market capitalisation be computed based on the period from the IPO to the
time of listing.
Listing Mechanism:
https://www.nseindia.com/corporates/content/eli
gibility_criteria.htm
Process:
https://www.nseindia.com/corporates/content/list
ing_process.htm
Listing Fees:
https://www.nseindia.com/corporates/content/list
ing_fees.htm
Issues in Listing:
https://www.nseindia.com/corporates/content/cap
ital_market.htm
 Registrar or (Share) Transfer Agents
Definition: Registrar or transfer agents are the trusts or institutions that
register and maintain detailed records of the transactions of investors
for the convenience of Investment houses.
Description: Investors' transactions like buying, exchanges, processing
of mails and related information, changes in personal data etc. occur
frequently and have to be recorded. Registrar & transfer agents have
skilled expertise for maintenance of such data on a professional basis,
thereby contributing to saving costs and time involved in keeping
detailed accurate records of the investor transactions.
Their role also extends to providing information to the investors about
new offers, maturity dates and all other investor-friendly information at
one place for their reference. Some of the RTAs operating in India are
Computer Age Management Services (CAMS), Karvy, and Deutsche
Investor Services etc.
Reference: https://nse-
india.com/content/ncfm/Curriculum_NISM_IIA_RTACorp.pdf
 Secondary Markets - Intermediaries
Those institutions that act as a bridge between fund providers and
fund seekers is known as an intermediary.
Example: Commercial banks, Insurance Companies, Factoring
companies, leasing companies, non-banking financial institutions
etc.
Secondary Markets Intermediaries
Secondary Markets Stock Exchange
 Secondary Markets Role of
Technology in Markets
High frequency trading
Algorithmic trading

Refer: https://www.princeton.edu/~ota/disk3/1984/8411/841105.PDF
 Intermediaries
Those institutions that act as a bridge between
fund providers and fund seekers is known as
an intermediary.
Example: Commercial banks, Insurance
Companies, Factoring companies, leasing
companies, non-banking financial institutions
 Merchant Banking

Merchant banking is similar to Investment

banking (for reference purpose)
Dont accept deposits but help in mobilisation
of large sums of funds from market
Help issue letters of credit in export business
Are seen playing role in M&A process,
takeovers, loan syndication etc.
Takes part in underwriting process.
Rates of interest is higher than market
prevailing rates.
 Merchant Banking M&A

Types of Merger:
Vertical Horizontal Conglomirate
Market Extension Product Extension

Types of Acquisition:
Cross acquisitions and Cross Border
Acquisitions
Hostile (Forceful) acquisitions or takeover
Reverse takeover
Backflip takeover
 Credit syndication
Is a process of forming into a group to extend
loans of large volumes. Also when banks capacity
to extend loan amounts is insufficient as well.
Credit syndication is common to provide very
large scale loans and also helps in risk mitigation.
In the instances of mergers, acquisitions, buyouts
and large capital intensive projects, this procedure
is followed.
 Credit syndication process
Lead financial institution is selected to coordinate
the deal. The lead institution is called syndicate
agent.
Interest rates are higher than market rates of
interest
Additional fee is paid to the syndicate agent for
leading the whole process throughout.
 Mutual Funds
Definition: A mutual fund is a professionally-managed investment scheme, usually
run by an asset management company that brings together a group of people and
invests their money in stocks, bonds and other securities.

Open Ended schemes ---- Bought by the issuer only at NAV

Close Ended schemes ---- Issued only once and are traded in open money
market
Unit Investment Trusts ----- a type of Open ended funds issued only once and
with maturity period.
ETFs ----------- Two Types ------- Open Ended or Unit Investment Trust

NAV: the market price of the fund traded. It is closing price of previous days
price which remains constant through out the day unlike shares price.

NAV = (Current Market Value of a Fund's Holdings) (Fund's liabilities)

Equity Based Funds

Debt Based Funds
Hybrid Funds
 Types of Mutual Funds
Money Market or Liquid funds: Also called as liquid
funds. Fund manager invests money on CDs, CPs, short
term investments etc.
Fixed income funds
Asset allocation: shares, bonds and cash equivalent
composition is asset allocation funds
Fund of Funds: Fund investment on another fund
Gilt Funds: Highly secured government investment option
schemes.
Speciality: Debt or Equity specific
Index: Broad market exposure, low operating costs and
low portfolio turnover.
Hedge funds: Not sold to general public. Subject to
government regulations.
 Market capitalization
Mega cap - companies worth $200 billion or more
Big/large cap - companies worth between $10 billion
and $200 billion
Mid cap - companies worth between $2 billion and
$10 billion
Small cap - companies worth between $300 million
and $2 billion
Micro cap - companies worth between $50 million
and $300 million
Nano cap - companies worth less than $50 million
 Advantages
Increased diversification: A fund diversifies holding many securities,
this diversification decreases risk.
Daily liquidity: Shareholders of open-end funds and unit investment
trusts may sell their holdings back to the fund at regular intervals at a
price equal to the NAV of the fund's holdings. Most funds allow
investors to redeem in this way at the close of every trading day.
Professional investment management: Open-and closed-end funds hire
portfolio managers to supervise the fund's investments.
Ability to participate in investments that may be available only to larger
investors. For example, individual investors often find it difficult to
invest directly in foreign markets.
Service and convenience: Funds often provide services such as cheque
writing.
Government oversight: Mutual funds are regulated by a government
body.
Transparency and ease of comparison: All mutual funds are required to
report the same information to investors, which makes them easier to
compare
 Limitations
High fund management fee and distribution costs
Less control over timing of recognition of gains
Less predictable income
No opportunity to customize