Author's Post-Graduation Project report

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Bharti is looking to exit completely from its mutual fund joint venture with AXA by December 2009. CNBC-TV18 learns that AXA is now scouting for public sector banks to partner for the venture. Priyal Guliani reports. Below is a verbatim transcript of Priyal Guliani's report on CNBC-TV18. Also watch the accompanying video. CNBC-TV18 had reported first on March 31, 2009 that Bharti is looking to exit from its venture with Bharti-AXA for its mutual fund venture. Now it is learnt that Bharti is looking at this exit to be completed by December 2009. We understand that the other partner—AXA is looking and scouting for public sector undertaking (PSU) banks to partner with it for its mutual fund venture essentially to have distribution model in place where they would get distribution support from the PSU banks. It is learnt that the process has already started. Also, there are about nine banks that have been short listed according to sources. Some of these shortlisted banks by AXA include Bank of India, Allahabad Bank , Central Bank and ndian Overseas Bank. We also understand that at this point of time the valuations are really cheap considering the fact that Bharti AXA has been into business for just about a year. They have a paid up capital of about Rs 80 crore and with an asset under management (AUM) of Rs 283 crore as of August 2009, the base is really small. Also considering it is a new venture the valuations are also cheap at this point in time but as to who will be the final contender—the timeline set for that is about December 2009. The company is yet to respond to our email query in this matter.

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ICICI Pru MF launches FMP Series 49 3 Years Plan A

ICICI Pru MF launches FMP Series 49 3 Years Plan A:

"ICICI Prudential Mutual Fund has launched Fixed Maturity Plan Series 49 – Three Years Plan A, a closedended debt scheme, seeks to generate regular returns by investing in a portfolio of fixed income securities / debt instruments which mature on or before the date of maturity of the plan/scheme."

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Initial Public Offer - Introduction

Introduction

Public issues can be classified into Initial Public Offering and further public offerings. In a public offering, the issuer makes an offer for new investors to enter its shareholding family. The issuer company makes detailed disclosures as per the DIP guidelines in its offer document and offers it for subscription. 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.

IPO is New shares Offered to the public in the Primary Market .The first time the company is traded on the stock exchange. A prospectus is issued to read about its risk before investing. IPO is A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. Sometimes, Just before the IPO is launched, Existing share Holders get a very liberal bonus issues as a reward for their faith in risking money when the project was new

How to apply to a public issue ?

When a company floats a public issue or IPO, it prints forms for application to be filled by the investors. Public issues are open for a few days only. As per law, any public issue should be kept open for a minimum of 3days and a maximum of 21 days. For issues, which are underwritten by financial institutions, the offer should be kept open for a minimum of 3 days and a maximum of 21 days. For issues, which are underwritten by all India financial institutions, the offer should be kept open for a maximum of 10 days. Generally, issues are kept open for only 3 to 4 days. The duly complete application from, accompanied by cash, cheque, DD or stock invest should be deposited before the closing date as per the instruction on the from. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers.

Before applying for any IPO , analyse the following factors:

1. Who are the Promoters ? What is their credibility and track record ?

2. What is the company manufacturing or providing services - Product, its potential

3. Does the Company have any Technology tie-up ? if yes , What is the reputation of the collaborators

4. What has been the past performance of the Company offering the IPO ?

5. What is the Project cost, What are the means of financing and profitability projections ?

6. What are the Risk factors involved ?

7. Who has appraised the Project ? In India Projects apprised by IDBI and ICICI have more credibility than small Merchant Bankers

Criterias:

The main criterias to be considered before investing in an IPO are:

1. Liquidity,

2. Safety,

3. Returns,

4. Involvement and

5. Amount of investment.

1. Liquidity:

For investing in an IPO the investor has to keep in mind that he has applied for shares of an organisation and that has to be approved by that company. There is a time gap between the date he has applied and date the company approves his application. The company allots shares in his name, either the full quantity of shares he applied and reduced units of shares.

Some of the companies which opened offer and listed last year are given in the table below.

Company Name	IPO opening	Listing from	Credit rating
Future capital holdings Ltd.	January 11th 2008	February 1th 2008	Grade - 3/5
Reliance Power Ltd.	January 15th 2008	February 11th 2008	Grade - 4/5
J. Kumar Infraprojects Limited	January 18th, 2008	February 12th, 2008	Grade - 2/5
OnMobile Global Limited	January 24th, 2008	February 19th, 2008	Grade - 4/5
IRB Infrastructure Developers Limited	January 31th, 2008	February 25th, 2008	Grade - 4/5

There fore in all the above cases the time gap between the IPO opening and listing in secondary market is on an average of 20 - 25 days. The investor has to keep this in mind that his investment will locked in the name of shares in the company and that can be released only on the date of listing. That is for about 25 days his investment will be locked in.

There is another case where the investors can trade the shares alloted in his name in the gray market. Even though this kind of trading the stocks is illegal, the trading of shares continues to happen.

2. Safety:

If the money invested by the investor is secured enough which will fetch back in a considerable period of time is said to be a safer investment. The invested money in the IPO will be taken back only after it is being listed in the secondary market. Not only it should be fetched back, the money invested should come back with some profit because it is been locked up for a particular period of time. And only if the credit rating of the company is good, the value of the shares of the company will gain some interest with the investors and the share value will rise and the investor can get back his investment.

3. Returns:

The returns criteria is a worrying thing only for the investors who expect it within a short period. If the investor cares about the returns then he should invest for a particular period of time. And that too in this scenario of economic conditions the investor may not be getting back his investment. This situation may not be happening for all the companies. Only those companies which fails to attract the investors, which are not finding business and able to make profits, will disappoint the investors from getting back money invested.

Name	Issue price (Rs.)	Listing day prices (BSE/NSE) (Rs.)	Current market price (Rs.) as on 28.Feb.2009
Future capital holding Ltd.	765.00	1044.00 / 1081.00	120.35 / 120.70
Reliance power Ltd.	450.00	547.80 / 530.00	99.70 / 99.95
J. Kumar Infraprojects Ltd.	110.00	100.00 / 109.00	55.05 / 55.00
OnMobile global Ltd.	440.00	440.00 / 440.00	235.35 / 230.00
IRB Infrastructure Developers Limited	185.00	170.05 / 194.90	99.70 / 99.90

The companies in the above listed table, have fetched only losses in the long term. This is because of the financial crises and the deep fall in stocks. So this clearly tells that the that the money invested by the investors are not safer enough to get back the money invested.

4. Involvement:

The involvement needed before investing into the IPO is very much based on the experts view. If the company is already existing then its financial statements can be used to compute the worth of the company. If the company is relatively new then the credit rating for the company and the view of experts on the company, company's future prospects are to be analysed before investing.

5. Amount of investment:

There is a maximum limit fixed by the company up to which the individual investors can invest in. Even if the investor is willing to invest more amount, he cannot invest because of the regulations fixed by the registrar.

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Mutual funds

Introduction:

Simply put, a mutual fund pools together money from many investors just like you to make up a large lump sum. The money collected is invested either in stocks, bonds and other securities, or in a combination of the three. As an investor, you are issued units in proportion to the money you have invested.

The Asset Management Company(AMC) will collect the funds from the investors through New Fund Offer (NFO). Each NFO pertains to a specific scheme of mutual funds. Each scheme will be having a predefined portfolio. The funds of each investors will be invested as per the portfolio.

Benefits of investing in Mutual funds:

1. An expert on your side:
When you invest in a mutual fund, the analysis and strategic thinking that goes into investing is not your worry. That's what a fund manager does for you.

2. Limited risk:
Mutual funds are diversification in action and hence do not rely on the performance of a single entity.

3. More for less:
Your money can probably afford just a handful of stocks, but by investing in just one fund, you could get yourself a number of units across a spread of companies and industries!

4. Easy investing:
You can invest in a mutual fund with as little as Rs. 5,000. Salaried individuals also have the option of investing a little every month in a SIP or Systematic Investment Plan.

5. Convenience:
You can invest directly with a fund house, or through your financial adviser, or even over the Internet.

6. Quick access to your money:
Should you need your money at short notice, you can usually get it in four working days.

7. Transparency:
As an investor, you get updates on the value of your units, information on specific investments made by the mutual fund and the fund manager's strategy and outlook.

8. Low transaction costs:
A mutual fund, by the sheer scale of its investments is able to carry out cost-effective brokerage transactions.

9. Tax benefits:
Over the years, tax policies on mutual funds have been favourable to investors and continue to be so.

10. Investor protection:
A mutual fund in India is registered with The Securities and Exchange Board of India or SEBI, which also monitors the operations of mutual funds to protect your interests.

Limitations of Mutual funds:

• Costs Despite Negative Returns — Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares.
  
  
  
• Lack of Control — Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.
  
  
  
• Price Uncertainty — With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock's price changes from hour to hour — or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund's NAV, which the fund might not calculate until many hours after you've placed your order. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close.

Types of Mutual Funds Scheme in India

Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

• By Structure
  
  • Open - Ended Schemes
  • Close - Ended Schemes
  • Interval Schemes
    
    
    
• By Investment Objective
  
  • Growth Schemes
  • Income Schemes
  • Balanced Schemes
  • Money Market Schemes
    
    
    
• Other Schemes
  
  • Tax Saving Schemes
• Special Schemes
  
  • Index Schemes
  • Sector Specfic Schemes
  
  
  Criterias of Mutual funds:
  
  

  1. Liquidity:

  An advantage of mutual funds is the ability to get in and out with relative ease. In general, you are able to sell your mutual funds in a short period of time without there being much difference between the sale price and the most current market value. However, it is important to watch out for any fees associated with selling, including back-end load fees. Also, unlike stocks and exchange-traded funds (ETFs), which trade any time during market hours, mutual funds mutual funds transact only once per day after the fund's net asset value(NAV) is calculated.
  

  
  

  2. Safety:

  Unlike equity investment, the amount we invest in the mutual funds are are diversified. If one stock goes into red, the others may lift the value of the fund with its increase in market value. The safety of the invested money in mutual fund is on a higher side than the money invested in equity. More over, while investing in equity shares, we have to track the movement of stock and foresee the shares prices in order to gain through the sale of stocks. Failing which, our money in the equity shares are not safer. But in the case of mutual fund investments, the Asset Management Company will regularly track and forecast the share prices of the shares in the fund portfolio. The will make our money more safer. And also the AMC being professional trackers, our investment will be valued more.
  

  
  

  3. Returns:

  As explained earlier the funds can be classified as Growth, Income, Balanced and Money market schemes.
  

  The portfolio of the Growth funds will be concentrating more on the investing in equity market. The concept behind this is even though if the short term earnings will be uncertain, the longterm scenario may be positive and can also fetch an increased income. More risk is involved in the growth fund of the mutual funds.
  

  The portfolio of the dividend scheme of the funds will concentrate more on the debt over equity. As the debt market is lot more safer than the equity market. The returns from the dividend schemes, may be litter less when compared to the growth scheme because of the added risk carried by the growth scheme as more weightage is given to the equity than debt.
  

  Balanced funds have a fair share of equities and fixed income securities in their asset allocation. The proportion is indicated in their offer documents. These are appropriate for investors looking for moderate growth. NAVs of these funds are likely to be less volatile compared to pure equity funds.
  

  Primary objective of these schemes is to provide liquidity and moderate income. These invest exclusively in short-term instruments such as treasury bills, short term debt securities etc. These funds are appropriate for individuals and corporate as a means to park their surplus funds for short periods.
  

  
  

  4. Tax saving:

  A person who wants to save taxes as well as invest in stock market to take advantage of the high growth potential of investments in equities can go for ELSS offered by any of the mutual funds. ELSS is an instrument sold by mutual funds for the specific purpose of enabling taxpayers to save their taxes. The proceeds from ELSS are mostly invested in the stock market so that investors get the benefits of appreciation in stock prices, thereby marketing the stock market work for investors. The tax deduction for ELSS is available under section 82C of the Income Tax Act 1961 and the maximum amount invested in ELSS which will qualify for the tax deduction is Rs.1,00,000/-. Investing in NFO of any ELSS scheme may be risky because of the risk uncertainty of under performance of the fund. So it is wise to invest in the already issued NFO which are performing better in the market.

  The unit price of the performing fund may be high because naturally good performing funds will be high, but the fact that their performance has been good enough should give enough confidence that they would continue to perform better than the rest.
  

  
  

  5. Involvement:
  

  The involvement by the investor in selecting and tracking the fund should be effective in different senses. While selecting the Fund the investor has to study about the performance of the fund and while selecting the NFO the investor has to study the portfolio of the fund in which the AMC invests the funds of the investor.

  Whereas after investing in either the existing fund or NFO, the involvement towards the investment shifts from the investor to the AMC. The investor is now relieved from tracking and analysing the investment. Even though the investor should update his knowledge on the performance of the fund, his contribution towards the analysing will be less because the experts in the name of AMC will take care of the analysis and diversification part of it.
  

  
  

  6. Amount of Investment:

  There is no limitations on how much one should invest and for how many days of minimum investment he should have and all. The amount you invest in the fund the returns you get.Recent innovation to the mutual fund industry is, Systamatic Investment Plan. In SIP the investor is allowed to invest in the mutual funds not in the traditional fashion of paying the full amount and getting the units alloted to his name. Instead the investor can invest in the mutual fund like Recurring deposits. Like making a recurring deposit, the investor can invest in the SIP monthly in a particular fund, the investor then gets the allocation of units in his name based on the NAV of the particular fund at the particular date of payment of amount. Like this by paying the amount in monthly installments he will be benefited out of mutual fund in a simple way.

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Equity

Introduction:

Investment in shares of companies is investing in equities. Stocks can be bought/sold from the exchanges (secondary market) or via IPOs – Initial Public Offerings (primary market). Stocks are the best long-term investment options wherein the market volatility and the resultant risk of losses, if given enough time, is mitigated by the general upward momentum of the economy. There are two streams of revenue generation from this form of investment.

Criterias:

The main criterias to be considered before investing in the Equity market are:

1. Liquidity,

2. Safety,

3. Returns,

4. Involvement and

5. Amount of investment.

Liquidity:

The major advantage of Indian equity market is the nature of the liquidity of the equities which are floated in the market. Any investor can buy shares of any company and sell it at the end of the day. But the returns are not assured. This process is called Short Selling. The settlement process of equity is T+2, which means traded day plus two days. If u sell the stocks today the actual money u get will be day after tomorrow. But you will be debited with the amount as soon as the sale is made in the Demat account you maintain.

There is a regulation regarding the short selling issue, short selling means, selling the shares in one's name without being taking the possession of the shares. For those who are day traders, they buy the shares in the morning and with taking the possession they will sell it in the evening. so the liquidity is more in the case of short selling.

Safety:

The investment is Indian Equity market is more volatile in the recent past. All this is because of the quitting of the FIIs. In order to be safer without loosing so much of you money, the wise idea is to hold the stocks which will bring good returns once the crises settles and also the amount invested will be safer.

“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Returns:

The returns on investments from the Indian equity market is not so encouraging at this time. But with the good inflows of FII the equity market will yield good returns in all terms. At the time of good market conditions, the returns form the equity investments will be good for you. but at the time of crisis like at present, your returns will be ruined.

Involvement:

The involvement needed before and after investing in the Equities should be immense. No one can judge the future of Indian equity market. It is totally dependent on the foreign market. So the equity market investment involves immense involvement if u want to gain profit in short term. If u like to invest for long term, the only involvement u need is to purchase the stocks which will has a good future prospects.

Amount of investment:

You can enter into the trading with a minimum amount. There is no minimum amount to invest in equity market. If you have more money you can purchase more shares and vice-versa.

There is some thing called as trading leverage given by the DP where we maintain our demat account. Leverage means the excess amount provided by our DP to us for trading in the stock market. If we have 1000 rupees credit balance in our account, and if the DP gives us 4 times or 5 times leverage, then we can trade for 4000 or 5000 rupees respectively. It is good if we gain out of it. And if we incur any loss, say about 2500 rupees loss in the 5 times leverage, then we will be having a debit balance of 1500 rupees. which not easy for us to repay.

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Basics of Capital Market

Let us start a ride on the elements of Capital Market

Basically speaking Capital Market in any country has two markets,
they are:

1. Primary Market,
2. Secondary market

It is only one point where the shares have been flowing in, that is during the Initial Public Offer (IPO), that is the Primary Market. After the IPO issues the shares of that company takes time to get itself listed in the Secondary Market.

In the later stage, after it is being listed in the secondary market, the shares take different form and it is delivered to the investors.
Some of such kinds of forms are
1. Mutual Funds,
2. Futures,
3. Options,
4. Systamatic Investment Plan

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