Beginners Guide to Investments

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First steps to investing

A Beginner’s Guide

Save prudently…..Invest wisely

GOVERNMENT OF INDIA

MINISTRY OF CORPORATE AFFAIRS

(Under the aegis of Investor Education and Protection Fund)

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Editor

Prithvi Haldea

PRIME Database

Second Edition – June,2011

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First steps to investing

A Beginner’s Guide

TABLE OF CONTENTS

Chapter Topic Page No.

INVESTOR EDUCATION AND PROTECTION FUND 6

Investor Related Websites 6

iepf.gov.in 6

watchoutinvestors.com 6

investorhelpline.in 6

Become an Informed Investor 6

1 WHY IS INVESTING IMPORTANT? 7

Savings v/s Investing 7

Power of Compounding 7

What should be the investment objectives? 7

Investor Age and Asset Allocation 8

Individual Category and Selection Criteria 8

FIRST TIME INVESTING 9

2 CAPITAL MARKET 9

EQUITY SHARES 9

DEBENTURES/BONDS 9

Purchasing Securities in the Primary Market 10

Initial Public Offering (IPO) 10

Further Public Offering (FPO) 10

Dos for Investing in IPOs/FPOs 10

DON'Ts for investing in IPOs/FPOs 10

Purchasing Securities in the Secondary Market 10

DOs for investing in the secondary market 10

DON'Ts for investing in the secondary market 11

INDICES 11

DEPOSITORY SYSTEM 11

Process for becoming a capital market investor 11

Rights as a shareholder 12

Rights as a debentureholder 12

MUTUAL FUNDS 12

Some mutual fund schemes for the first-time investors 12

Purchasing mutual fund schemes 13

DOs for investing in mutual fund schemes 13

DON'Ts for investing in mutual fund schemes 14

3 COMPANY FIXED DEPOSITS 14

Rights of depositholders 14

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DOs for investing in company fixed deposits schemes 14

DON’Ts for investing in company fixed deposits schemes 14

4 PENSION PRODUCTS 15

New Pension System (NPS) 15

Annuity/Pension Policies/Funds 15

5 INSURANCE POLICIES 15

Term Life Insurance 15

Endowment Policies 15

Annuity / Pension Policies / Funds 15

Units Linked Insurance Policy (ULIP) 16

6 GOVERNMENT SCHEMES 16

National Savings Certificates (NSC) 16

Public Provident Fund (PPF) 16

Post Office Scheme (POS) 16

Infrastructure Bonds 16

Kisan Vikas Patra (KVP) 16

WHERE NOT TO INVEST

7 DON’T INVEST IN DUBIOUS SCHEMES 17

MONEY CIRCULATION SCHEMES (MCS) 17

MULTI-LEVEL MARKETING SCHEMES (MLM) 17

NETWORK MARKETING (NWM) 17

SELF EMPLOYMENT YOJANA (SEY) 17

CHIT FUNDS 17

DEPOSITS 17

PRIVATE PLACEMENTS 17

PLANTATION COMPANIES 17

Caution for the general public 17

8 EDITOR’S 20 MANTRAS TO WISE INVESTING 18

9 INVESTOR GRIEVANCE REDRESSAL 20

Ministry of Corporate Affairs 20

Securities and Exchange Board of India 20

Stock Exchanges 20

Reserve Bank of India 20

10 INVESTOR ASSOCIATIONS 20

Why become a member? 20

11 ENTITIES AND CONCERNED REGULATORY BODIES 21

MCA OFFICES FOR INVESTOR GRIEVANCES REDRESSAL 22

ACKNOWLEDGEMENTS & DISCLAIMER 24

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INVESTOR EDUCATION AND PROTECTION FUND

Investor Education and Protection Fund (IEPF),

managed by the Ministry of Corporate Affairs,

has been established under the Companies Act,

1956 for promotion of investors’ awareness and

protection of the interests of investors. Activities

undertaken by the IEPF include educating and

creating awareness among investors through

seminars and media and funding projects

pertaining to investor education awareness and

protection.

Investor Related Websites

IEPF has also sponsored three websites for the

purpose of investor education and protection:

iepf.gov.in

This website fulfils the need for an information

resource for small investors on all aspects of the

capital market and does it in the small investors’

language.

This website presently covers information on

IPO Investing, Mutual Fund Investing, Stock

Trading, Depository Account, Debt Market,

Derivatives, Indices, Index Funds, Investor

Grievances & Arbitration (Stock Exchanges),

Investor Rights & Obligations, Do’s and Don’ts

etc.

This website is now available in English, Hindi

and 11 major regional languages.

watchoutinvestors.com

The best defense against frauds is precaution.

This first-of-its-kind-in-the-world, free public

service arms the investors with a ‘precautionary’

tool to protect themselves from fraudulent/ noncompliant

companies, intermediaries and

individuals. This website is now a national webbased

registry of such entities.

watchoutinvestors.com enables investors to do a

fast, efficient and user-friendly search. It

provides investors information on such entities/

persons who have been indicted by various

regulators/ courts. This information can be used

by the investors/ prospective investors while

making investments and can also be used for

reviewing their portfolio vis-à-vis such entities.

As of 31st May 2011, the website had listed over

1,32,000 indicted/non-compliant/non-existent

entities covering more than 95,000 companies/

firms and over 37,000 individuals. These relate

to the orders passed by several regulatory

bodies, such as, BSE, CDSL, CLB, DRT, EPFO,

IRDA, MCA, NHB, NSDL, NSE, RBI, ROC, SEBI

etc.

investorhelpline.in

This is a dedicated, free of charge, portal to

handle investor grievances relating to various

authorities like Ministry of Corporate Affairs,

Registrar of Companies, Securities and

Exchange Board of India and Reserve Bank of

India. Complaints are taken up by the website

for redressal both with the companies and with

the concerned regulators.

Investors can log-in their grievances related to

the capital market and company deposits in

easy-to-fill forms and track progress of their

grievance redressal online.

Become an Informed Investor

Many investors, especially the small investors, do not often possess adequate expertise/ knowledge

to take informed investment decisions. Many of them are not aware of the risk-return profiles of

various investment products. A large number of investors are not fully aware of the precautions they

should take while dealing with the market intermediaries. Many are not familiar with the market

mechanisms and practices as well as with their rights and obligations. These are substantially fuelled

by the huge rewards that some investments have the potential to offer. At the same time, wrong

investment decisions can lead to huge losses too.

“Investors Beware” should be the watchword. As all investments have some risk element, this should

be borne in mind by the investors. If caution is thrown to the winds, they have only to blame

themselves. Investing well has a secret formula – having the right information, planning and making

good choices.

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Chapter 1

WHY IS INVESTING IMPORTANT?

Savings v/s Investing

1.1 Saving is the excess of your income over

your expenditure. Generally, this lies in the

savings bank account or in fixed deposits with a

bank. The money is very safe, earning a small

rate of interest and it can be in hand as and

when required (high liquidity). On the other

hand, this money could be invested for meeting

long term goals. While some investments may

rise or fall in value over time, prudent

investments would earn a lot more than the

banks savings account.

1.2 It is important to take into account the effects

of inflation on your investments. (Inflation is the

rise in prices of goods and services. As the

prices of these increases, the value of the rupee

goes down and one will not be able to purchase

as much with those rupees as one could have in

the last month or last year). Savings rarely beat

the inflation rate; investments can.

1.3 In essence, the difference between savings

and investment is that savings is simply idle

cash while investments help your funds to grow

over a period of time. One can meet his short

term needs with his savings but to meet his long

term goals, he needs to make investments.

Savings primarily help to protect the principal

while investments help to earn returns beyond

the inflation rate.

Power of Compounding

1.4 The most powerful tool for creating wealth

safely and surely is the magical ‘power of

compounding’. If you park your money in an

investment with a given return, and then reinvest

those earnings as you receive them, your

investment grows exponentially over time.

Illustratively, if you set aside a sum of say `

5,000 every month from the age of 25, earning

interest at the rate of 10% p.a., in 60 years you

will have with you funds worth more than Rs. 1

crore. However, if you start at 40 with the same

amount and rate of interest, the fund

accumulated will amount to only around Rs. 33

lakh. Hence, it is always advisable to start

savings early to enjoy the benefits of power of

compounding.

What should be the investment objectives?

1.5 There are primarily three investment

objectives: safety, returns and liquidity. In ideal

scenario, this means that one would like the

investment to be absolutely safe, while it

generates handsome returns and also provides

high liquidity. However, it is very difficult to

maximize all three objectives simultaneously.

Typically, one objective trades off against

another. For example, if one wants high returns,

one may have to take some risks; or if one

wants high liquidity, one may have to

compromise on returns.

1.6 Every person should prepare a statement of

financial goals covering as many requirements

as possible. This is the basis on which the

financial plan shall then be prepared. A person’s

financial needs depend on the age, stage in the

career path, size of the family, needs of the

other family members etc. Some of the needs

can be identified with precision while others can

only be determined tentatively. There may be

unanticipated needs as well for which provisions

will need to be made. If the financial capability

in terms of savings is found to be inadequate to

meet all the goals, these would need to be

prioritized. The financial plan is never static; it

has to be reviewed from time to time to account

for the changing circumstances.

1.7 There are investment opportunities that are

high on risk and there are investment

opportunities that are low on risk. Each is called

an asset class. An investor needs to allocate his

savings to one or more asset classes depending

upon his circumstances.

1.8 The indicative table below charts some

instruments vis-à-vis their features.

Investment Option Returns Liquidity Safety Active

Involvement

Amount

Required

Equity Shares Low to

High

Moderate to

High

Low Yes Medium

Debentures Moderate Low Moderate No Medium

PSU/FI Bonds Moderate Moderate High No Low

RBI Tax Free Bonds Moderate Moderate High No Low

Debt Mutual Funds Moderate High Moderate No Low

Equity Mutual Funds Low to

High

High Low No Low

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Investor Age and Asset Allocation

1.9 There are no magic tricks to find the perfect

asset allocation. Perfect asset allocation is not

the one which will make you rich but rather the

one that will fit your profile. One of the key

factors in determining your investing profile is

your age. While it is not the only factor to take

into consideration, you can manage your asset

allocation according to your age.

1.10 Younger investors should be better off with

a portfolio featuring more stocks with greater

growth opportunities. Older investors nearing or

already in retirement should prefer portfolios

with a greater percentage of bonds (or other

fixed income products) with their more reliable

revenue streams and a lower proportion of

stocks with their associated risks.

1.11 There are many ways to determine an

asset allocation, including several rules of

thumb. One common suggestion is to invest

your age in bonds. So, if you are 40 years old,

you may use a 40/60 (bond/equity) allocation. At

worst, by such investing according to age, the

asset allocation might be slightly more

conservative for the under-40 people and slightly

more risky than is advisable for those over 60.

1.12 However, if there was only age to manage,

things would be pretty easy. This is far from

being that simple. In fact, age is only a

mathematical data that doesn’t take into

consideration your risk tolerance. You might be

young enough to support a big market drop as

you will have time to play with you to gain it back

but if you are about to have a heart attack when

the market goes down by 5%, you won’t last

until your retirement!

1.13 Here is some general advice for various

age groups.

18 to 35 : While you should not be having much

money to invest during this period, this is where

you should risk the most. Technically, you

should not need the money you invest for

retirement for a good 30 years. This is the

perfect time horizon for an investor. As such, an

asset allocation with 90% to 100% in stocks

would be ideal. Unless you are good at building

your own stock portfolio, it is advisable to invest

through mutual funds or index ETFs. Why

should you select such an aggressive asset

allocation? Simply because it will be the type of

portfolio with the highest expected yield over

time. Investing in bonds at such early age will

minimize your profit expectancy for nothing.

36 to 50 : This is usually the time of your life

where you get a better job (therefore better

salary). Try to aim for an asset allocation of

about 75% of equity and 25% of bonds. At your

age, you still can afford a lot of risk and you

should not be shy to take them. The 25% in your

asset allocation will smooth your investment

returns during major crisis but would not slow

down too much.

51 to 65 : During this period, you can start

seeing your retirement. However, that should not

be the reason for you to secure your asset

allocation to the maximum either. Since you

would not be withdrawing much of your

investment at that age, you can still handle

some market fluctuations. Going from a growth

to a more balanced asset allocation seems

logical and as such, a 25%/75% asset allocation

approach would allow you to earn some decent

investment returns while not suffering too much

during market crashes.

66 and older : You will for sure be retired during

this period of your life. If you have been

investing throughout your whole life, you should

be sitting on a solid nest egg. There are no

reasons why you should now risk in the name of

higher returns. A more secure asset allocation

showing a 90% to 100% bond portfolio would be

advisable.

Individual Category and Selection Criteria

1.14 Are there any parameters one should look

at based upon his individual status. On a thumb

rule basis, the following could be the selection

criteria before making an investment for various

categories of individuals:

Students Salary

Earners-

Private

Salary

Earners-

Government

Professionals Traders House

wives

Retired

Persons

Returns VI VI I VI VI I I

Liquidity LI I I LI LI I I

Safety I I VI I I VI VI

Tax Savings LI VI I VI VI LI LI

VI: Very Important I:Important LI: Less Important

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FIRST TIME INVESTING

Chapter 2

CAPITAL MARKET

2.1 Among all investment options available,

capital market is considered the most

challenging as well as most rewarding. Capital

market is a market for securities (equity and

debt), where companies (and government) raise

long-term funds from the public investors, and

where investors can subsequently trade among

themselves in these securities.

EQUITY SHARES

2.2 Typically, personal savings of an

entrepreneur, and if required then contributions

from friends/relatives are the source of funds to

start a new business. For a large project,

however, as the fund requirements are large,

these will not only require term loans but go

even beyond that..Thus availability of capital is a

major input for setting up or expanding business

on a large scale There is a way to raise equity

beyond oneself or from a limited pool of a small

circle of friends and relatives. This is by way of

raising money from the public across the country

by selling shares of the company. For this

purpose, the promoter has to invite subscriptions

through an offer document which gives full

details about the promoters’ track record, the

company, the nature of the project, the business

model, the expected profitability etc. When an

individual is comfortable with such an

investment opportunity, he may apply in the

company’s public issue and upon allotment

become a shareholder of the company. This

way, through aggregation, even small amounts

available with a very large number of individuals

translate into usable capital for corporates. Your

small savings of, say, even Rs. 5,000 can

contribute in setting up, say, a Rs. 5,000 crore

telecom plant. This mechanism by which

companies raise money from the public is called

the primary market.

2.3 Importantly, when you, as a shareholder,

need your money back, you can sell these

shares to other or new investors. Such trades do

not reduce or alter the company’s capital. Stock

exchanges bring such sellers and buyers

together through stock brokers and facilitate

trading. As such, companies raising money from

the public are required to compulsorily list their

shares on a stock exchange which has nationwide

trading terminals.. This mechanism of

buying and selling shares through a stock

exchange is known as the secondary market.

2.4 As a shareholder, you are part owner of the

company and entitled to all the benefits of

ownership, including dividend (company’s profit

distributed to owners). Over the years if the

company performs well, other investors would

like to become owners of such a company by

buying its shares. This increase in demand for

the shares leads to increase in its price. You

then have the opportunity of selling your shares

at a higher price than at which you purchased it.

You can thus increase your wealth, provided you

make the right choice at the first instance of

buying shares of the right companies. The

reverse is also true! It is therefore important that

an investor makes an informed choice.

2.5 Equity is an appropriate investment avenue

for an investor who is prepared to take risks in

order to generate higher returns. Over the long

term, returns from equity shares at aggregated

levels have been historically higher than most

other avenues. (As on 31st March, 2011, the

BSE Sensex had generated a compounded

annualized return of 17.6 per cent over the last

10 years).

DEBENTURES/BONDS

2.6 There are primarily three types:

·  Non convertible debentures (NCD) – Total

amount is redeemed by the issuer at a

specified time

·  Partially convertible debentures (PCD) –

Part of the value is redeemed and the

remaining is converted to equity shares at a

specified price and time

·  Fully convertible debentures (FCD) – Full

value is converted into equity at a specified

price and time

2.7 Debentures/Bonds are contracts where one

party is the lender (investor) and the other party

is the borrower (company). This contract

specifies the rate of interest, the periodicity of

interest payments (monthly/quarterly/ annual),

and the maturity date for repayment of the

principal amount (like 3/5/7 years). The term

“bond” is used for the debt instrument issued by

the central and state governments and PSUs

while the term “debenture” is used for debt

issues from the private corporate sector. These

instruments are normally secured/charged

against the assets of the company, and are

required to be rated by credit rating agencies.

2.8 Debentures/Bonds are ideal for investors

seeking assured and regular income. These

instruments typically offer interest rates higher

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than bank fixed deposits. Some bonds offer tax

benefits to the investors.

Purchasing Securities in the Primary Market

2.9 Initial Public Offering (IPO) is when a

hitherto unlisted company makes either a fresh

issue of shares or some of its existing

shareholders make an offer to sell of part of their

existing shareholding for the first time to the

public. This paves the way for the listing and

trading of such shares. An IPO of fresh shares is

typically made by a company when it needs

money for growth-expansion or diversification or

acquisitions or even to meet its increasing

working capital requirements. In an IPO

involving an offer for sale, the proceeds go to

the selling shareholders.

2.10 Further Public Offering (FPO) is when an

already listed company makes either a fresh

issue of securities to the public or the existing

promoters make an offer for sale to the public.

An FPO, where fresh securities are issued, is

typically made by a company when it needs

money for growth-expansion or diversification or

acquisitions or even to meet its increasing

working capital requirements. An FPO is also

the preferred route (over a rights issue) when

the company wants to bring in new investorsboth

institutional as well as retail. It may be

pointed out that the FPO route is also being

utilized extensively by the Government for the

PSUs for the purpose of disinvestment of

government’s holdings.

2.11 Regarding price of shares offered in an IPO

or an FPO, SEBI does not play any role in price

fixation. The issuer company decides the price.

In support of this, it is required to give full

disclosures in the offer document and also justify

the issue price by parameters such as EPS, PE

multiples and return on net worth and

comparison of these parameters with peer group

companies. There are two types of issues. In

one, the company fixes a specified price (called

fixed price issues). In the other, the company

stipulates a floor price or a price band (within

20%) and invite bids from the market to then

determine the final price (called book building

issues). In the case of FPOs, the issue price is

normally at a discount to the current market

price. Some companies, and specifically PSUs,

offer a discount to the retail investors in both

IPOs and FPOs up to a maximum 10%.

Dos for Investing in IPOs/FPOs

ü Read the Prospectus/Abridged Prospectus

carefully, with special attention to:

-Risk factors

-Background of promoters

-Company history

-Outstanding litigations and defaults

-Financial statements

-Object of the issue

-Basis of Issue price

-Instructions for making an application

ü Use the ASBA process for applying (Under

this, the investor authorizes his bank to

block in his bank account an amount

equivalent to the application money. The

money remains in the bank. Upon

finalization of the basis of allotment, only the

amount equivalent to the allotment amount

is debited to the bank account, and the rest

is freed up).

ü In case of non-receipt , within due period,

the credit to demat account/refund of

application money, lodge a complaint with

compliance officer of the issuer and with

post-issue lead manager

DON’Ts for investing in IPOs/FPOs

× Don't be influenced by any implicit/explicit

promise made by the issuer or any one else

× Don't invest based only on the prevailing bull

run of the market index or of scrips of other

companies in the same industry or scrips of

the issuer company/group companies

× Don't expect the price of the shares of the

issuer company to necessarily go up upon

listing or forever

Purchasing Securities in the Secondary

Market

2.12 Secondary market refers to the market

where the issued shares and bonds/debentures

are sold and bought among investors through a

broker of a stock exchange.

DOs for investing in the secondary market

ü Before investing, check the credentials of

the company, its management,

fundamentals and recent announcements

made by them and other disclosures made.

The main sources of information are the

websites of the exchanges and companies,

databases of data vendors, business

newspapers and magazines

ü Adopt trading/investment strategies

commensurate with your risk-bearing

capacity as all investments carry some risk,

the degree of which varies according to the

investment strategy adopted

ü Transact only through SEBI-recognized

stock exchanges and deal only through

SEBI-registered brokers/sub-brokers

ü Give clear and unambiguous instructions to

your broker/sub-broker/DP

ü Insist on a contract note for each transaction

and verify details in the contract note,

immediately on receipt. If in doubt,

crosscheck details of your trade available

with the details on the exchange's website

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ü Ensure that the broker's name, trade time

and number, transaction price and

brokerage are shown distinctly on the

contract note

ü Issue cheques/ drafts only in the trade name

of the broker

ü Deliver the shares/depository slip in case of

sale and pay the money in case of purchase

within the prescribed time

ü Ensure receipt of payment/deliveries within

48 hours of payout

ü Insist on periodical statement of accounts

ü Scrutinize both the transactions and the

holding statements that you receive from

your DP

ü Handle Delivery Instruction Slips (DIS) Book

issued by the DP carefully. Insist that the

DIS numbers are pre-printed and your

account number (Client ID) is pre-stamped

ü In case you are not transacting frequently,

use the freezing facility in your demat

account

ü In case of disputes with the sub-broker,

inform the main broker immediately

DON'Ts for investing in the secondary

market

× Don't forget to take account of the potential

risks that are involved in investment in

shares

× Don't undertake off-market transactions

× Don't deal with unregistered intermediaries

× Don't fall prey to promises of unrealistic

returns or guaranteed returns

× Don't invest on the basis of hearsays,

rumors and tips

× Don't be influenced into buying into

fundamentally unsound companies (penny

stocks) based on sudden spurts in trading

volumes or “low” prices or favourable

articles/stories in the media

× Don't blindly follow investment advice given

on TV channels/ websites/ SMS

× Don't invest under peer pressure or blindly

imitate investment decisions of others who

may have profited from their investment

decisions

× Don't get misled by companies showing

approvals / registrations from Government

agencies as the approvals could be for

certain other purposes

× Don't get carried away with advertisements

about the financial performance of

companies

INDICES

2.13 A stock market index captures the

behaviour of the overall equity market. The ups

and downs of an index reflect the changing

expectations of the stock market about the

future profitability of India's corporate sector.

This is achieved by giving each stock a weight

proportional to its market capitalization. The

most important market index is the broad-market

index, consisting of the large, liquid stocks of the

country. In India, we have NIFTY 50 and

SENSEX as the major index.

DEPOSITORY SYSTEM

2.14 Earlier, there used to be physical share

certificates issued, which are now converted to

Electronic form. A depository holds securities

(like shares, debentures, bonds, mutual fund

units etc.) of investors in electronic form (demat

form) through a registered Depository

Participant (DP). It also provides services

related to transactions in securities. A DP is an

agent of the depository through which it

interfaces with the investor and provides

depository services. It is now compulsory for

every investor to open a beneficial owner (BO)

account to apply in IPOs/FPOs or to trade in the

stock exchange.

Benefits of availing depository services include:

·  A safe and convenient way to hold securities

·  Immediate transfer of securities

·  No stamp duty on transfer of securities

·  Elimination of risks associated with physical

certificates such as bad delivery, fake

securities, delays, thefts etc.

·  Reduction in paperwork involved in transfer

of securities

·  Reduction in transaction cost

·  No odd lot problem, even one share can be

traded

·  Nomination facility

·  Change in address recorded with DP gets

registered with all companies in which

investor holds securities electronically

eliminating the need to correspond with

each of them separately

·  Transmission of securities is done by DP

eliminating correspondence with companies

·  Automatic credit into demat account of

shares, arising out of bonus/split/merger etc.

·  Holding investments in equity and debt

instruments in a single account.

Process for becoming a capital market

investor

2.15 For investing in IPOs/FPOs

·  The first requirement is PAN

·  The second requirements is a bank account

·  The third requirement is demat account

(shares are credited/debited in an electronic

mode) which can be opened with a

registered Depository Participant. For more

details, visit the websites of the two

depositories: CDSL (www.cdslindia.com)

and NSDL (www.nsdl.co.in)

11

2.16 Additionally, for investing in the

secondary market

·  Select a broker, complete the KYC form and

enter into a broker-client agreement to open

a Trading Account

RIGHTS AS A SHAREHOLDER

2.17 All shareholders have certain rights.

Shareholders also need protection; not

protection for assured growth of their

investments but protection from malpractices

and frauds. SEBI regulates the capital market

and it has laid down guidelines for ensuring

rights of the shareholders. For this purpose, it

monitors all constituents of the capital marketfrom

issuers on one hand to stock exchanges on

the other hand and all other intermediaries like

stock brokers, merchant bankers and

underwriters. For more information, please visit

www.sebi.gov.in. Please also visit the websites

of the two national-level stock exchanges: BSEwww.

bseindia.com and NSEwww.

nseindia.com.

Rights as a shareholder

·  To receive the shares on allotment or

purchase within the stipulated time

·  To receive copies of the Annual Report of

the company

·  To receive dividends, if declared, in due time

·  To receive approved corporate benefits like

rights, bonus, etc.

·  To receive offer in case of takeover,

delisting or buyback

·  To participate/vote in general meetings

·  To inspect the statutory registers at the

registered office of the company

·  To inspect the minute books of the general

meetings and receive copies

·  To complain and seek redressal against

fraudulent and investor unfriendly

companies

·  To proceed against the company, if in

default, by way of civil or criminal

proceedings

·  To receive the residual proceeds in case of

winding up

Rights as a debentureholder

·  To receive interest/redemption in the

stipulated time

·  To receive a copy of the trust deed on

request

·  To apply before the CLB in case of default in

redemption of debentures on the date of

maturity

·  To apply for winding up of the company if

the company fails to pay its debt

·  To approach the Debenture Trustee for

grievances

MUTUAL FUNDS

2.18 Introduction

The capital market is highly complex. The risks

rise further for most individuals who neither have

the time, skills or resources to select the right

securities nor to monitor their investments

subsequently nor to take decisions on exits.

Selecting securities with growth and income

potential from the large number of listed

securities involves careful research and

monitoring of the market, which is not possible

for most small investors. Also, the key to

successful investing in the capital market is to

minimize risks which can be done by building a

diversified portfolio, which however requires

substantial capital.

2.19 Mutual Fund is a professional intermediary

between the investor and the capital market.

Mutual Fund is an entity which collects funds

from small investors, pools these funds together

and with the help of competent professionals

invest these into various equity and debt

instruments, in accordance with the scheme

objectives. Investors are issued units by a

mutual fund against their investments. For this,

the mutual funds charge a management fee.

The profits or losses made by the mutual fund

are shared with the investors in proportion to

their investments. Mutual Funds as such

mitigate to a large extent the shortcomings of

direct investing.

2.20 The performance of a particular scheme is

denoted by Net Asset Value (NAV). The NAV

per unit is the market value of securities of a

scheme divided by the total number of units of

the scheme on any particular date. Since market

value of securities changes every day, the NAV

of a scheme also changes accordingly. NAV is

required to be disclosed by the mutual funds on

a daily basis.

Some mutual fund schemes for the first-time

investors

2.21 Mutual Funds offer a wide range of

schemes to suit different needs of the investors.

An investor should select suitable schemes

matching his investment objective. One must

study the offer document of the scheme

carefully; due care must be given to sections

relating to main features of the scheme, risk

factors, initial expenses and recurring expenses

of the scheme, exit loads, sponsor’s track record

of the sponsor and of fund managers, past and

pending litigations/defaults. The past track

record of performance of the scheme or other

schemes of the same mutual fund is an

important input in the decision making. Though

past performance of a scheme is not an

indicator of its future performance and good

12

performance in the past may or may not be

sustained in the future, this still is one of the

important factors for making the investment

decision.

2.22 Many investors are tempted to invest in

schemes that are available at a low NAV.

Accordingly, they are even drawn towards

NFOs, which are made available at Rs. 10 per

unit. Investors should understand that in case of

mutual funds schemes, lower or higher NAVs of

similar type schemes of different mutual funds

have no relevance. At the entry point for the

investor in an existing scheme, the NAV reflects

the present value of the underlying assets, and a

higher NAV in fact shows a comparative high

quality of assets. In NFOs, the initial corpus shall

be first invested and the NAV shall then depend

upon the quality of investments.

2.23 Growth/Equity Oriented Schemes

normally invest a major part of their corpus in

equities, and as such carry higher risks/rewards.

Growth schemes are good for investors having a

long-term outlook. Such schemes could be

focused, for example, investing only in large cap

stocks or only in mid cap stocks etc.

2.24 Income/Debt Oriented Schemes aim to

provide regular and steady income to the

investors. As such, these schemes generally

invest in fixed income securities such as bonds,

corporate debentures, Government securities

and money market instruments. Such schemes

are less risky, but offer low returns.

2.25 Balanced Schemes offer the middle path

by combining both growth and income. As such,

these schemes invest both in equities and in

fixed income securities. These are appropriate

for investors who do not wish to take excessive

risk and at the same time are also looking for

some capital appreciation. Such schemes

generally invest 40-60% in equity and the

balance in debt instruments.

2.26 Sector Specific Funds/Schemes invest in

the securities of a pre-specified sector/industry

(like Pharmaceuticals, Software, FMCG, PSUs,

Banks). The returns in these funds are

significantly dependent on the performance of

the respective sector/industry. Such funds may

give higher returns, but they are also more risky.

2.27 Tax Saving Schemes offer tax rebates to

the investors under specific provisions of the

Income Tax Act. A good example of this is the

Equity Linked Savings Schemes (ELSS).

Pension schemes launched by mutual funds

also offer tax benefits. Such schemes are

growth oriented and invest pre-dominantly in

equities.

2.28 Capital Protection Oriented Schemes are

oriented towards protection of capital but not

with guaranteed returns. Such schemes typically

invest a part of their portfolio into AAA rated

bonds in such a way that on maturity, this

investment equals to 100 percent of the original

capital. The balance of portfolio is invested in

other assets which offer higher returns.

2.29 Systematic Investment Plans (SIP) is a

convenient option which offers disciplined

investing. Under SIP, an investor invests a fixed

amount regularly, say every month or quarter.

Such investments are made at the respective

prevailing NAVs. The investor can redeem his

units any time irrespective of whether he has

completed his minimum investment in that

scheme.

2.30 Index Funds replicate the portfolio of a

particular index such as the BSE Sensex or the

S&P NSE Nifty. These schemes invest in the

securities in the same weightage as in the index.

NAVs of such schemes rise or fall substantially

in accordance with the rise or fall of the index.

2.31 Exchange Traded Funds, popularly

known as ETFs, select a market index and make

investments in the basket of stocks drawn from

the constituents of that index. The fund may

invest in any or all of the stocks constituting that

index but not necessarily in the same proportion.

2.32 Gold ETFs are funds where the underlying

asset is standard gold bullion of 0.995 purity and

the investors’ holding is denoted in units, unlike

the equity mutual fund, where the underlying

asset is the stocks of various companies.

2.33 All Mutual Funds are regulated by SEBI.

For more information, visit www.sebi.gov.in

and www.amfiindia.com.

Purchasing mutual fund schemes

2.34 A new scheme launched by a mutual fund

to collect funds from the investors is called a

New Fund Offering (NFO). Launches of NFOs

are usually advertised in newspapers/TV.

Investors can also contact agents and

distributors of mutual funds for necessary

information and application forms. The units of

existing schemes can be purchased directly

from the fund itself or from

distributors/brokers/sub-brokers/agents.

DOs for investing in mutual fund schemes

ü Read the offer document carefully before

investing

ü Investments in mutual funds may be risky,

and do not necessarily result in gains

ü Invest in a scheme depending upon your

investment objective and risk appetite

13

ü Note that past performance of a scheme or

a fund is not indicative of the scheme's or

the fund's future performance. Past

performance may or may not be sustained in

the future

ü Keep regular track of the NAV of the

schemes in which you have invested

ü Ensure that you receive an account

statement for your investments/ redemptions

DON'Ts for investing in mutual fund

schemes

× Don't invest in a scheme just because

somebody is offering you a commission or

some other incentive, gift etc.

× Don't get carried away by the name of the

scheme/ mutual fund

× Don't be guided solely by the past

performance of a scheme/ fund

× Don't forget to take note of the risks involved

in the investment

× Don't hesitate to approach the proper

authorities for redressal of your doubts/

grievances.

× Don't deal with any agent/broker dealer who

is not registered with AMFI

Chapter 3

COMPANY FIXED DEPOSITS

3.1 Many companies accept Fixed Deposits

from investors, typically for short durations of 6

months to 3 years. These are similar to bank

fixed deposits but entail lesser liquidity and

usually carry higher risk and return. The

attractive returns on such deposits draw many

investors to channel their savings into such

deposits. This results in mobilization of

household savings for utilization in productive

purposes by the corporate sector.

3.2 Some key features of Company Fixed

Deposits are:

·  Fixed deposit scheme offered by a

company. Similar to a bank deposit

·  Used by companies to borrow from small

investors

·  The investment period must be selected

carefully as most FDs are not encashable

prior to their maturity

·  Not as safe as a bank deposit. Company

deposits are ‘unsecured’

·  Offer higher returns than bank FDs, since

they entail higher risks

·  Ratings can be a guide to their safety

Rights of depositholders

§ Right to receive periodic interest payments

on time.

§ Right to receive intimation regarding any

amendment to the terms of repayment of

deposits.

§ Right to receive the amount of matured

deposits on time.

§ Right to intimation regarding unclaimed

deposits before transfer to the IEPF.

§ Right to file complaint in the prescribed

format before Company Law Board (in the

office where the registered office of the

company is situated) in case of default in

repayment of deposits.

§ Right to alternatively file complaint in the

Consumer Forum under the Consumer

Protection Act, 1986.

DOs for investing in company fixed

deposits schemes

ü Do check the credit rating assigned by the

Credit Rating Agencies to the Fixed

Deposits being considered

ü Do ignore the unrated Fixed Deposit

schemes

ü Do understand the background and

credibility of the promoters

ü Do choose a company with a better track

record for similar rated companies

ü Do avoid investing in Fixed Deposits of

companies whose promoters have a

dubious record

ü Do realize while investing in Fixed Deposits

that if the company is unable to repay your

money, you may end up losing it, as

Deposits are unsecured

ü Do refer to the investor service standards of

the company

ü Do lodge a complaint with the concerned

regulator in case the company defaults in

repayment of deposits (For listed

companies, file complaint with SEBI; for

manufacturing companies, file complaint

with MCA; for banks and NBFCs, file

complaint with RBI)

ü Do state the name of the guardian in the

application, if the deposit is in the name of a

minor

ü Do always have a nominee for the deposits

made by you

DON’Ts for investing in company fixed

deposits schemes

× Don’t invest all or substantial part of your

savings in Fixed Deposits

14

× Don’t get lured by high interest rates

× Don’t forget to check on track record of the

company

× Don’t invest in companies that care little

about investor services

× Don’t hesitate to seek regulator’s assistance

for any grievance

Chapter 4

PENSION PRODUCTS

4.1 New Pension System (NPS): A person can

build his retirement corpus during his working

life by regularly contributing (the minimum

amount being Rs. 6,000 p.a.) to the NPS till the

age of 60. Such contributions are invested by

the Pension Fund Manager (PFM) the investor

chooses, in the investment option of his choice:

Active Choice

Ö  Asset Class E (Equity): Invests in index

funds (the maximum allowed is 50%, the

balance has to be in Asset Class G & C)

Ö  Asset Class G (Government securities):

Invests in central and state government

bonds

Ö  Asset Class C (non government debt):

Invests in liquid funds of Asset

Management Companies, bank fixed

deposits, rated bonds issued by

corporates, banks, financial institutions,

PSUs, Municipality and Infrastructure

entities.

Auto Choice (Life cycle fund)

Under this option, the contributions are

automatically allocated to the three asset

classes in a predefined manner depending on

the investor’s age.

4.2 Upon subscribing, the investor is allotted a

Permanent Pension Account Number (PPAN).

The PPAN will remain constant even if the

investor changes the PFM, his location or

employer. The returns earned on the

contributions would depend on the investment

option. Charges are applicable to the NPS

account as prescribed by the regulator-Pension

Fund Regulatory and Development Authority

(PFRDA). For further details, visit

www.pfrda.org.in

4.3 At the age of 60, a minimum of 40% of the

accumulated amount in the account has to be

used to buy a pension (annuity) scheme from

any insurance company from whom the investor

will receive monthly pension. The balance of

60% in the account can be withdrawn or be used

to buy annuity.

4.4 Annuity/Pension Policies/Funds are

products of the insurance companies and offer

guaranteed income either for life or for a certain

period without any insurance cover.

Chapter 5

INSURANCE POLICIES

5.1 Insurance, as the name suggests is an

insurance against future loss. Life insurance is

the most common insurance cover for an

individual. Life Insurance is a contract providing

for payment of a sum of money to the person

assured, or following him to the person entitled

to receive the same, on the happening of a

certain event. It is a good method to protect your

family financially, in case of death, by providing

funds for the loss of income.

Term Life Insurance

·  Lump sum is paid to the designated

beneficiary in case of the death of the

insured

·  Policies are usually for 5, 10, 15, 20 or 30

years

·  Low premium compared to other policies

·  Does not carry any cash value

Endowment Policies

·  Provide for periodic payment of premiums

and a lump sum amount either in the event

of death of the insured or on the date of

expiry of the policy, whichever occurs earlier

Annuity / Pension Policies / Funds

·  No life insurance cover but a guaranteed

income either for life or a certain period

·  Taken so as to get income after the

retirement

·  Premium can be paid as a single lump sum

or through installments paid over a certain

number of years

·  The insured receives back a specific sum

periodically from a specified date onwards

(can be monthly, half yearly or annual)

·  In case of the death, it also offers residual

benefit to the nominee.

15

Units Linked Insurance Policy (ULIP)

·  ULIP is a life insurance policy, providing a

combination of risk cover and investment.

·  The dynamics of the capital market have a

direct bearing on performance of ULIPs.

·  Most insurers offer a wide range of funds to

suit one’s investment objectives, risk profile

and time horizons. Different funds have

different risk profiles. The potential for

returns also varies from fund to fund

·  ULIPs offered by different insurers have

varying charge structures. Broadly the

different fees and charges include- Premium

allocation charges, Mortality charges, fund

management fees, policy/administration

charges and fund switching charges

DOs for an insurance policy

ü Do review your insurance coverage

ü Do consider how much life cover you need

and your affordability to pay premium

ü Do study details of various schemes

ü Select a policy that suits you in terms of your

requirement and premium outflows

ü Do get an advice from an insurance

professional who offers policies of different

insurance companies

ü Do go online to get the best quotes and

verify the same before choosing one

ü Do consider two single plans rather than

joint cover

ü Do disclose correct information in your

application

ü Do check and update your policy regularly

DON’Ts for an insurance policy

× Don’t purchase a policy unless you

understand the concept behind it

× Don’t buy life insurance unless you need it

× Don’t opt for the cheapest deal without

understanding the risk

× Don’t forget to check for terminal illness

benefits

× Don’t limit your choice to one insurer

× Don’t over-burden yourself with unaffordable

premium outflows

× Don’t blindly trust the information that is

available online

× Don’t lie in your medical exam

× Don't cancel any current insurance policy

until you receive a certificate

× Don't do anything to hinder an investigation

if you file a claim

× Don't default on your payments which may

lead to cancellation at the time of need

× Don't forget to report accidents and mishaps

to your insurance company, even if you

don't plan on filing a claim

Chapter 6

GOVERNMENT SCHEMES

6.1 The Government offers a wide variety of

savings/investment products:

National Savings Certificates (NSC)

·  Popular Income Tax Savings scheme,

available throughout the year

·  Interest rate of 8%

·  Minimum investment Rs. 100, no upper limit

·  Maturity period of 6 years

·  Transferable and a provision of loan

Public Provident Fund (PPF)

·  Interest rate of 8% p.a

·  Minimum investment limit is Rs. 500 and

maximum is Rs. 70,000

·  Maturity period of 15 years

·  The first loan can be taken in the third

financial year from the date of opening of the

account, or up to 25% of the amount at

credit at the end of the first financial year.

Loan amount can be returned in maximum

of 36 installments

·  A person can withdraw an amount (not more

than 50% of the balance) every year from

the 7th year onwards

Post Office Scheme (POS)

·  One of the best Tax Saving Schemes

·  It is available throughout the year

·  Post Office schemes depends upon the type

of investment and maturity period, which can

be divided into following categories: Monthly

Deposit/Saving Deposit/Time Deposit/

Recurring Deposit

Infrastructure Bonds

·  Lock in period of three years

·  Tax benefit U/S 88 on investments up to Rs.

20,000

·  Any redemption prior to maturity nullifies the

tax exemption

Kisan Vikas Patra (KVP)

·  Money invested in this scheme doubles in 8

years and 7 months

·  There is a minimum investment limitation of

Rs. 100 with no upper limit

·  This scheme is available throughout the

year

·  Currently, there is no tax benefit on

investment under this scheme

16

WHERE NOT TO INVEST

Chapter 7

DON’T INVEST IN DUBIOUS SCHEMES

Introduction

7.1 There are several dubious schemes

operating in the market. The promoters of such

schemes float companies with attractive names.

They start in a particular area and then, on

attaining saturation of member enrollments,

keep shifting over to new areas. While

promoting the schemes, they get film stars,

politicians, sportspersons etc. at grand functions

to impress the public. They engage persuasive

direct marketing agents, print attractive

brochures, release eye-catching advertisements

and hoardings and offer gifts to the investors.

They also use attractive slogans. They also

“honour” their members with titles like Silver

Member or Gold Member. Some of such

schemes that are designed to entrap the gullible

public by luring them with the promise of

becoming rich overnight are:

MONEY CIRCULATION SCHEMES (MCS)

MULTI-LEVEL MARKETING SCHEMES (MLM)

NETWORK MARKETING (NWM)

SELF EMPLOYMENT YOJANA (SEY)

7.2 By enrollment into such scheme, one gets

back some or full initial investment and then

keeps gaining financially by enrolling new

members. So also the second set of enrollers

keeps multiplying and gain financially, luring

every onlooker. Such a system of chain to work

endlessly to provide profit to everyone

concerned ultimately breaks down at some

stage, resulting in big financial losses to many.

When a person fails to get his required clients or

enrollers, the promoters of the scheme do not

tell about the non-viability of the scheme but

blame it as one’s personal failure. Many

companies have now disguised into the activity

of marketing goods, services, drugs and health

care products.

CHIT FUNDS

7.3 Chit fund is a kind of savings scheme under

which a person enters into an agreement with a

specified number of persons that every one of

them shall subscribe a certain sum of money by

way of periodical installments over a definite

period and that each such subscriber shall, in

his turn, as determined by lot or by auction or by

tender, be entitled to the prize amount.

However, there are many such schemes which

have been misused by their promoters and there

are many instances of the founders running

what is basically a Ponzi scheme and

absconding with their money.

DEPOSITS

7.4 Finance Companies take deposits from the

public, promising them unusually high returns.

Since high returns are unsustainable, ongoing

repayments of interest and deposit amounts

depend on continuous and uninterrupted flow of

fresh deposits. At some stage, when the flow of

deposits gets stifled, the payments to the

investors stop, leaving them high-and-dry.

PRIVATE PLACEMENTS

7.5 Many companies offer equity

shares/convertible debentures/preference

shares etc to the public through the private

placement route, often for a “a mega project’

and promise dream returns. By law, such

securities cannot be sold to more tan 49

persons, beyond which the Company is required

to come out with a Public Issue under the

guidelines of SEBI.

PLANTATION COMPANIES

7.6 Many companies offer schemes that multiply

money by investment into plantations. Most of

such companies are not registered with SEBI,

and typically have fled with the investors’

monies.

Caution for the general public

7.7 Remember that there is no free lunch and

that there is some catch when some one offers

to make money for you easily and quickly. So

any get rich quick scheme or high returns

schemes should be suspected. Remember also

that these schemes are unsecured, are illegal

and are not regulated by the Government. As

such, if you lose money, you will not be able to

seek any help from the Government.

17

Chapter 8

EDITOR’S 20 MANTRAS TO WISE INVESTING

Save prudently…..Invest even more wisely

·  You need to invest, otherwise your savings

will depreciate in value/purchasing power.

·  However, mindless or reckless investing is

hazardous to wealth; Please become an

investor… and not a trader or a gambler.

20 Mantras to Wise Investing

Mantra 1

Follow life-cycle investing

·  You can afford to take greater risks when

you are young.

·  As you cross 50, you should consider

gradually getting out of risk instruments.

·  By 60, you may exit risk instruments. (To

not lose your capital when you have stopped

earning new money). There are better things

to do than watch the ticker on TV!

Mantra 2

Read carefully, and take informed decisions

·  Do due diligence; take informed decisions.

·  Read about options and processes on

iepf.gov.in and visit mca.gov.in for more

information on companies

·  For example, for IPOs, read about the offer.

This is difficult, with the offer documents

now running into more than 1000 pages;

abridged prospectus too is difficult to read.

Yet, read you must, at least, the risk factors,

litigations, promoters, company track record,

issue objects and key financial data.

Mantra 3

Invest only in fundamentally strong

companies

·  Invest only in companies with strong

fundamentals; these are the ones that will

withstand market pressures, and perform

well in the long term.

·  Strong stocks are also liquid stocks.

·  Do not go for penny stocks; you may get

lured as these rise by 5-10% a day against

top stocks that rise 5-10% in a year; you will

typically enter at peak and then make

losses.

·  Remember, equity investments cannot be

sold back to the company/promoters.

Mantra 4

Consider investing in IPOs

·  IPOs have been a good entry point.

·  Decide whether you are investing in an IPO

as an IPO or in the IPO of a company.

·  During bull runs, almost all IPOs provide

positive returns on the listing day. If

investing in an IPO just because it is an IPO

during a bull phase, it may be advisable to

exit on the listing date, as you have invested

without due diligence.

·  However, most such investors put IPOs on a

pedestal and expect them to perform

forever. That will not happen as an IPO

becomes a listed stock on the listing date,

and will then behave like that; and only

some will be outstanding.

·  If an investor does not book profit on the

listing date, he is either greedy or takes a

wrong call on the company/industry/market.

He should then not fault the IPO price or

blame regular/issuer/merchant banker. In

any case, he invested in the IPO by choice;

it was not forced upon him.

·  However, if you invest in the IPO of a

company, with due diligence, then do not get

bothered by immediate post-listing

performance or volatility. Remain invested

as you would in a listed stock.

Mantra 5

PSU IPOs deserve special attention

·  PSU IPOs are typically from companies that

are profitable and have a significant track

record and market leadership; also very little

risk of fraud.

·  In almost all PSU IPOs, there is a discount

for the retail investors.

Mantra 6

Invest in mutual funds, but select the right

fund and scheme

·  Mutual funds are a better vehicle for the

small investors, most of whom have little

skills or time to manage a personal portfolio.

·  The problem is that there are too many

mutual funds, and there are too many

schemes. Spend time to select the right fund

manager and the right scheme/s.

·  And remember, mutual funds are subject not

just to market risks, and that investing in

these does not mean guaranteed returns.

Mantra 7

Beware of free advice

·  Too many people in the capital market offer

free advice; these come through TV, print

media, websites, emails and SMS.

·  Don’t act blindly on such advice; remember

free advice carries no accountability.

18

Mantra 8

Don’t get taken in by advertisements

·  Advertisements are to make you feel good.

·  Don't get carried away by attractive

headlines, appealing visuals/messages.

·  Don’t get carried away by upward arrows,

big percentages and deceptive numbers.

Mantra 9

Don't get overwhelmed by sectoral

frenzies/bull runs

·  Remember, you can not buy the shares of

the Indian economy or of India Inc. or of a

sector… ultimately you have to buy into a

specific company.

·  Also, sectoral frenzies keep changing.

·  All companies in a sector are not necessarily

outstanding. Each sector will have some

very good companies, some reasonably

good companies and many bad companies.

·  Be also careful about companies that

change their names to reflect current

sectoral fancy.

Mantra 10

Look at the credentials of the entity/person

·  Many scamsters are waiting to exploit your

greed; targeting gullible small investors.

·  Be careful about the entity seeking your

money; visit watchoutinvestorts.com before

investing.

Mantra 11

Be careful promoters issuing shares/

warrants to themselves

·  Many a times, preferential allotments to

promoters are for the benefit of the

promoters only, at the expense of minority

shareholders.

Mantra 12

”Cheap” shares are not necessarily worth

buying

·  Price of a share can be low (and therefore

appear cheap) because in reality the

company is not doing well; the hype about

the company/sector and comparison with

prices of good companies may induce you.

·  Worse, the price can become low because

the face value has been split (over 500

companies have split their shares); rationale

given is to make shares affordable to small

investors; not valid as one can buy even one

share; real purpose is to make shares

appear “cheap”

Mantra 13

Beware of guaranteed returns offers

·  Be extra careful before investing in any offer

which promises very high returns.

·  Remember the plantation companies many

of which promised phenomenal returns (in

some cases, 50% on Day 1)!

·  Let not greed make you an easy prey!

Mantra 14

Don’t borrow to invest

·  Interest mounts by the day; returns don’t

necessarily.

·  Invest within your means.

Mantra 15

Deal only with registered intermediaries

·  There are many unregistered operators in

the market who will lure you with promises

of high returns, and then vanish with your

money or they will mis-sell or they will

undertake unauthorized transactions.

·  Deal with registered intermediaries, it also

allows recourse to regulatory action.

Mantra 16

Don't over-depend upon 'comfort' factors like

·  IPO Grading

·  Independent Directors

·  Corporate Governance Awards

·  CSR Activities

Mantra 17

Don’t take decisions based just on summary

accounts

·  Read through the schedules as well as

qualifications and notes to the accounts.

·  Check out for “Other Income” and unusual

expenses

·  Look out especially for entries relating to

related party transactions, sundry debtors,

subsidiaries’ accounts, cash/bank balances.

Mantra 18

Learn to sell

·  Most investors buy and then just hold on

(Regrettably, most advice by experts on the

media is also to buy or hold, rarely to sell).

·  Profit is profit only when it is in your bank

(and not in your register or Excel sheet).

·  Don’t be greedy. Leave some profits for the

buyer too. Remember, you cannot maximize

the market’s profits.

·  Set a profit target and sell, unless you have

good reasons to hold on for very long term.

Mantra 19

If after all this, you do have a grievance...

·  Seek help of www.investorhelpline.in.

The final… Mantra 20

Be honest

·  Be honest as only then you can demand

honesty and fight for your rights.

19

Chapter 9

INVESTOR GRIEVANCE REDRESSAL

9.1 The capital market can grow only when

investors find it safe for them to invest and they

are assured that the rules governing the market

are fair and just for all the players. For this

purpose, there is an effective mechanism for

resolutions of disputes and grievances in place.

Ministry of Corporate Affairs

9.2 Ministry of Corporate Affairs (MCA) provides

an efficient and effective grievance redressal

framework to address and resolve the

grievances speedily. Investors can approach

any of the officers of the Registrar of

Companies, the Regional Directors as well as

the Headquarters of MCA with their grievances.

The complaints are taken up with the respective

companies. For complaints relating to areas not

in the charter of MCA, these are forwarded to

the relevant regulator and the investors are also

advised to approach the concerned regulator.

9.3 Investor Grievance Handling & Redressal

has acquired a special focus with the

implementation of MCA21 e-Governance portal,

which has a dedicated online facility for filing of

grievances on www.mca.gov.in. It also has

‘online status tracking’ facility to enable monitor

the progress.

9.4 MCA also operates an outsourced service

through www.investorhelpline.in. This is a

dedicated portal to handle investor grievances.

The service provider takes up the redressal of

the complaints both with the concerned

regulators as well as with the companies.

Securities and Exchange Board of India

9.5 In the event of capital market related

grievances not resolved by the concerned

company or the intermediary, investors can

approach SEBI at www.sebi.gov.in. The

following kinds of complaints can be filed:

Type-I: Refund Order/ Allotment Advise.

Type-II: Non-receipt of dividend.

Type-III: Non-receipt of share certificates after

transfer.

Type-IV: Debentures.

Type-V: Non-receipt of letter of offer for rights.

Type VI: Collective Investment Schemes

Type VII: Mutual Funds/ Venture Capital Funds/

Foreign Venture Capital Investors/ Foreign

Institutional Investors/ Portfolio Managers,

Custodians.

Type VIII: Brokers/ Securities Lending

Intermediaries/ Merchant Bankers/ Registrars

and Transfer Agents/ Debenture Trustees/

Bankers to Issue/ Underwriters/ Credit Rating

Agencies/ DP.

Type IX: Securities Exchanges/ Clearing and

Settlement Organizations/ Depositories.

Type X: Derivative Trading

Type XI: Corporate Governance/ Corporate

Restructuring/ Substantial Acquisition and

Takeovers/ Buyback / Delisting / Compliance

with Listing Conditions

Stock Exchanges

9.6 The following types of complaints should be

filed with the concerned stock exchange:

·  Complaints related to securities traded/listed

with the exchanges.

·  Complaints regarding trades effected in the

exchange with respect to the companies

listed on it.

·  Complaints against the brokers/sub-brokers

of the exchange.

Reserve Bank of India

9.7 The RBI website-www.rbi.org.in- has a

dedicated facility for investor grievances

handling and resolution. All complaints relating

to banks and company fixed deposits should be

filed with RBI.

Chapter 10

INVESTOR ASSOCIATIONS

10.1 Why become a member? It is often

difficult for an investor to fight for his rights at an

individual level. This can also include settling of

investor grievances. It is ideal for an investor to

become a member of an investor association,

who can take up causes on his behalf.

Moreover, many of the investor associations

regularly organize education seminars for their

members, in addition to organizing special talks

by eminent experts. The list of investor

associations/NGOs/voluntary agencies

registered with IEPF and SEBI is available on

www.iepf.gov.in and www.sebi.gov.in.

20

Chapter 11

ENTITIES AND CONCERNED REGULATORY BODIES

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

financial market. The names of the relevant bodies that regulate them and their website addresses

are given in the second and the third columns.

Type of Entity/Activity Regulatory body Website

Auditors ICAI/CAG www.icai.org

www.cag.gov.in

Banks RBI www.rbi.gov.in

Banks –Issue Collection SEBI www.sebi.gov.in

Chit Funds REG. OF CHIT FUNDS -

Collective Investment Schemes SEBI www.sebi.gov.in

Companies –All MCA/ROC www.mca.gov.in

Companies –Listed MCA/ROC/SEBI/SE www.mca.gov.in

www.sebi.gov.in

Company Secretaries ICSI www.icsi.edu

Competition CCI www.cci.gov.in

Co-operative Banks RBI www.rbi.gov.in

Cost Accountants ICWAI www.icwai.org

Credit Rating Agencies SEBI www.sebi.gov.in

Custodial Services SEBI www.sebi.gov.in

Debenture Trustees SEBI www.sebi.gov.in

Depositories SEBI www.sebi.gov.in

Depository Participants SEBI/NSDL/CDSL www.sebi.gov.in

www.nsdl.co.in

www.cdslindia.com

Foreign Investment Institutions SEBI www.sebi.gov.in

Housing Finance Companies NHB www.nhb.org.in

Insurance Brokers/ Agents IRDA www.irdaindia.org

Insurance Companies IRDA www.irdaindia.org

Investment Bankers SEBI www.sebi.gov.in

Investor Associations SEBI www.sebi.gov.in

Media(Print/Electronic MIB www.mib.nic.in

Mutual Funds SEBI www.sebi.gov.in

Mutual Fund Brokers/ Agents SEBI/AMFI www.sebi.gov.in

www.amfiindia.com

New Pension Scheme (NPS) PFRDA www.pfrda.org.in

Non-Banking Financial Companies RBI www.rbi.gov.in

Nidhi Companies MCA www.mca.gov.in

Plantation Companies SEBI www.sebi.gov.in

Portfolio Managers SEBI www.sebi.gov.in

Registrars/Share Transfer Agents SEBI www.sebi.gov.in

Serious Frauds SFIO www.sfio.nic.in

Stock Brokers SEBI/SE www.sebi.gov.in

Stock Exchanges SEBI www.sebi.gov.in

Sub-Brokers SEBI www.sebi.gov.in

Venture Capital Funds SEBI www.sebi.gov.in

21

MCA OFFICES FOR INVESTOR GRIEVANCES REDRESSAL

MAIN OFFICE

Mr.A.K.Srivastava,Jt. Secretary

Ministry of Corporate Affairs

5th Floor, A-Wing, Shastri Bhawan

New Delhi-110001

Phone: 23383180

Fax: 23386068

avinash.srivastava@mca.gov.in

NORTHERN REGION

Office of Regional Director

A-14,Sector-I , PDIL Bhavan

NOIDA

Office of Registrar of Companies

Hall Nos. 405-408,Bahu Plaza South

Block

Rail Head Complex

Jammu-180012

Office of Registrar of Companies

(Punjab, Chandigarh

& Himachal Pradesh)

Corporate Bhawan

Plot No. 4-B, Sector -27-B

Madhya Marg

Chandigarh-160019

Office of Registrar of Companies

(Delhi & Haryana)

4th Floor, IFCI Tower

Nehru Place

New Delhi-110019

Office of Registrar of Companies,

(Uttar Pradesh & Uttrakhand)

10/499-B Allenganj, Khalasi Lines

Kanpur-208002

WESTERN REGION

Office of Regional Director

Everest Building,5th floor

100 Marine Drive

Mumbai-400002

Office of Registrar of Companies

(Maharashtra)

Everest Building, 1tst Floor

100 Marine Drive

Mumbai-400002

Office of Registrar of Companies, Pune

PMT Building , 3rd Floor

Deccan Gymkhana

Pune-411004

Office of Registrar of Companies

(Goa , Daman & Diu)

Company Law Bhavan

EDC Complex, Plot No.21 ,Patto, Panaji

Goa-403001

EAST & NORTH EASTERN REGION

Office of Regional Director

(East & North Eastern Region)

Nizam Palace

2nd MSO Building,3rd Floor

234/4, A.J.C.B,.Road

Kolkata-700020

Office of Registrar of Companies

(West Bengal)

Nizam Palace

2nd MSO Building,2nd Floor

234/4,A.J.C.B.Road

Kolkata-700020

Office of Registrar of Companies

(Orissa)

2nd Floor, Chalchitra Bhawan

Buxi Bazar

Cuttack–753001

Office of Registrar of Companies

( Bihar & Jharkhand)

Maurya Lok Complex,Block A, West Wing

4th Floor,Dak Bunglow Road

Patna–800001

Office of Registrar of Companies

(NE Region)

Morello Building,Ground Floor

Kachery Road

Shillong–793001

NORTH-WESTERN REGION

Office of Regional Director

(North -Western Region)

Registrar of Companies Bhavan

Opp Rupal Park Society

Naranpura

Ahmedabad-380013

Office of Registrar of Companies

(Gujarat)

ROC Bhavan

Opp Rupal Park Society,Naranpura

Ahmedabad-380013

Office of Registrar of Companies

(Rajasthan)

Corporate Bhawan, 2nd Floor

G/6-7, Residency Area, Civil Lines

Jaipur-302001

Office of Registrar of Companies

(Madhya Pradesh & Chattisgarh)

3rd Floor, 'A' Block, Sanjay Complex

Jayendra Ganj ,Gwalior-474009

SOUTHERN REGION

Office of Regional Director

5th Floor Shastri Bhavan

26, Haddows Road

Chennai-600006

Office of Registrar of Companies

(Andhra Pradesh)

3-5-398,Kendriya Sadan, 2nd Floor

Sultan Bazar, Koti

Hyderabad-500095

Office of Registrar of Companies

(Kerala)

1st Floor, Corporate Law Bhawan

BMC Road,Trikkakara

Kochi-682021

Office of Registrar of Companies

(Karnataka)

2nd Floor, E Wing, Kendriya Sadan

Koramangala, Bangalore-560034

Office of Registrar of Companies

Tamil Nadu ( Coimbatore)

Stock Exchange Building,2nd Floor

683, Trichy Road,Singanallur

Coimbatore-641005

Office of Registrar of Companies

Tamil Nadu ( Chennai)

Block 6,B Wing, 2nd Floor, Shastri Bhavan

26, Haddows Road

Chennai-600006

ACKNOWLEDGEMENTS & DISCLAIMER

Acknowledgements

This Guide has been prepared/ compiled/

adapted primarily from the information available

on the websites of the Ministry of Corporate

Affairs (www.mca.gov.in), Investor Education

and Protection Fund (www.iepf.gov.in), SEBI

(www.sebi.gov.in), NSE (www.nseindia.com),

BSE (www.bseindia.com) and MCX-SX

(www.mcx-sx.com), from the reading material

provided by ICAI, ICSI and ICWAI, and inputs

from the Editor.

Disclaimer

Information provided herein is purely for

dissemination of information and creating

awareness among the investors about various

aspects of investing. Although due care and

diligence has been taken, MCA or Editor or

organizations distributing this reading material

shall not be responsible for any loss or damage

resulting from any action taken by a person on

the basis of the contents of this Guide. It may

also be noted that laws/regulations governing

the markets are continuously updated/ changed,

and hence an investor should familiarize himself

with the latest laws/ regulations by visiting the

relevant websites or contacting the relevant

regulatory body.