Types of Financial System_Vaibhav

8/14/2019 Types of Financial System_Vaibhav

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a) Money market

b) Capital market


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Money market Money market is a market for dealing with

financial assets and securities which have amaturity period of up to one year. In otherwords,it is a market for purely short termfunds. The money market may be

subdivided into four. They are: Call money market Commercial bills marketTreasury bills market Short-term loan market


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The call money market is a market for extremelyshort period loans say one day to fourteen days.So, it is highly liquid. The loans are repayable ondemand at the option of either the lender or theborrower. In India, call money markets areassociated with the presence of stock exchangesand hence, they are located in major industrialtowns like Mumbai, Kolkata, Chennai, Delhi,Ahmadabad, etc. The special feature of this

market is that the interest rate varies from day-to-day and even from hour-to-hour and center-to-center. It is very sensitive to changes in demandand supply of call loans.


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It is a market for bills of exchange arising out ofgenuine trade transactions. In the case of creditsale, the seller may draw a bill of exchange on thebuyer. The buyer accepts such a bill promising topay at a later date the amount specified in the

bill.

In India the bill market is under-developed. TheRBI has taken many steps to develop a sound billmarket. The discount and finance house of India

was set up in 1988 to promote secondary marketin bills. In spite of all these, the growth of the billmarket is slow in India. There are no specializedagencies for discounting bills. The commercialbanks play a significant role in this market.


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It is a market for treasury bills whichhave short-term maturity. A treasurybill is a promissory note or a finance billissued by the government . It is highlyliquid because its repayment isguaranteed by the government. It is animportant instrument for short termborrowing by the government. There aretwo types of treasury bills namely:

(i) ordinary or regular and (ii) ad hoc treasury bills.


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It is a market where short term loans aregiven to corporate customers for meetingtheir working capital requirements.Commercial banks play a significant role in

this market. Commercial banks provideshort term loans in the form of cash creditand overdraft. Overdraft facility is mainlygiven to business people whereas cash

credit is given to industrialists.


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capital market

The capital market is a market for financialassets which have a long or indefinitematurity. Generally, it deals with long termsecurities which have a maturity period of

above one year. Capital market may befurther divided into three namely:

(i) Industrial securities market.

(ii) Government securities market and

(iii) Long term loans market.


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Primary market is a market for new issues ornew financial claims. Hence, it is also called newissue market. The primary market deals withthose securities which are issued to the public forthe first time. In the primary market, borrowersexchange new financial securities for long termfunds. Thus, primary market facilitates capitalformation.There are three ways by which a company may

raise capital in a primary market. They are:(iii) Public issue(iv) Rights issue(v) Private placement


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Secondary market is a market for secondary saleof securities . In other words, securities whichhave already passed through the new issuemarket are traded in this market. Generally, suchsecurities are quoted in the stock exchange and it

provides a continuous and regular market forbuying and selling of securities. This marketconsists of all stock exchanges recognized by thegovernment of India. The stock exchanges inIndia are regulated under the Securities Contracts(Regulations) Act, 1956. The Bombay stockexchange is the principal stock exchange in Indiawhich sets the tone of the other stock markets.


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It is a market where government securities aretraded. In India there are many kinds ofgovernment securities- short-term and long-term.Long term securities are traded in this marketwhile short term securities are traded in themoney market. Securities issued by the centralgovernment, state government, semi-government authorities like city corporations,

port trusts ,etc. improvement trusts, stateelectricity boards, all India and state levelfinancial institutions and public sector enterprisesare dealt in this market.


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Development banks and commercial banksplay a significant role in this market bysupplying long term loans to corporatecustomers. Long-term loans market mayfurther be classified into:

(i) Term loans market

(ii) Mortgages market

(iii) Financial guarantees market


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Money market 1. It is a market for short

term loan able funds for aperiod of not exceedingone year.

2. This market supplies

funds for financing currentbusiness operations,working capitalrequirements of industriesof the government.

3. The instruments thatare dealt in a moneymarket are bills ofexchange, treasury bills,commercial papers,certificate of deposit.

Capital market 1. It is a market for longterm funds exceeding aperiod one year.

2. This market suppliesfunds for financing the

fixed capitalrequirements of tradeand commerce as wellas the long termrequirements of thegovernment.

3. This market deals ininstruments like shares,debentures,government bonds.


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4. Each single moneymarket instrument is oflarge amount. A TB is ofminimum for one lakh.Each CD is for a

minimum of Rs.25 lakhs. 5. The central bank and

commercial banks arethe major institutions inthe money market.

6. Money marketinstruments generallydo not have secondarymarkets.

7. Transactions mostlytake place over the

phone and there is noformal place. 8. Transactions have to

be conducted withoutthe help of brokers.

4. Each single capitalmarket instrument is ofsmall amount. Eachshare value is Rs.10.

each debenture value isRs.100

5. Development banksand insurancecompanies play a

dominant role in thecapital market.

6. Capital marketinstruments generallyhave secondary

markets. 7. Transactions take

place at a formal placeviz., stock exchanges.

8. Transactions have to

be conducted onlythrough authorized


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BUYING AND SELLING OF SHARES

IN OUR STOCK MARKET MORE THAN13,766 STOCKS


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BSE(BOMBAY STOCT EXCHANGE )

NSE(NATIONAL STOCK EXCHANGE)


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Started in 1850 in front of Town-Hall in Bombaycurrently known as Horniman circle

Formed in 1875 as Bombay Stock Exchange In 1986 launched its first stock index named

SENSEX with base year 1978-79 Non-profit association & evolved as the

premier stock exchange Oldest stock exchange of Asia

Accounts for 75% of listed capital & 75% ofshares in terms of market capitalization Its turnover is 1/3rd of the total turnover in

securities in India


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Transactions are carried by TM on behalf oftheir clients Financial soundness, track record, experience,

infrastructure and manpower

TM must be registered and pay fee to BSE &Regulatory Authority

TMs play a role of brokers, sub-brokers,floor-brokers, agents, jobbers, dealers,Badla financiers, dealer in G-Sec andunderwriters


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BSE has A Board of 9 directors

Executive Director

3 Gov Nominees

A RBI Nominee 5 Public representatives

Executive Director is responsible for day-2-day functioning and administration of StockExchange


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Outcry System Interaction based trading & settlement If paid-up value= INR 10 & or 100 Sh. Trading lot

is 50 or 100 Sh.

Paid-up value > 100 INR, market lot of 10 Sh.

Settlement period 14 days or more Permission from board or president in

special cases Physical settlement by TM at the clearing

house


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NSE was started in April 1993 as acorporate body.

In July 2005, became the largest exchangein India.

Trades over 1500 equity, 800 debtinstrument with a corporate membership of980.

Companies are selected on the basis ofrecord, the profitability, paid-up capital,market capitalization and dividendpayment.


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1. 6.

2. 7.

3. 8.4. 9.

5. 10.


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1 (SENSEX 30 STOCKS)

2 (NIFIY 50 STOCKS)


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1. ACC 11.BHEL21. SBI

2. GRASIM 12.GUJ AMBUJA22.INFOSYS

3. HINDALCO 13.ICICI BANK23.DR.REDYS

4. HLL 14.RANBAXY24.SATYAM

5. ITC 15.REL25.CIPLA

6. L&T 16.R.COM26.AIRTEL

7. RIL 17.HDFC BANK


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1.ACC 11.GUJ AMBUJA21.JET AIRWAYS

2.BAJAJ AUTO 12.HCL22.ITC

3.BHEL 13.HDFC23.L&T

4.BPL 14.HDFC BANK24.MTNL

5.BHARTI AIRTEL 15.HERO HONDA25.M&M

6.CIPLA 16.HINDALCO26.MARUTI

7.DABUR 17.HLL


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31.NATIONAL ALUMINIUM 41.TATAMOTORS

32.RANBAXY 42.TATA

POWER33.R.COM

43.TATA STEEL

34.REL

44.WIPRO35.RIL 45.ZEE

36.SATYAM

46.VSNL


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1. BANKING SECTOR

2. CAPITAL GOODS SECTOR

3. CEMENT SECTOR

4. REAL ESTATE SECTOR

5. INFRASTRUCTURE SECTOR

6. POWER SECTOR

7. TELECOM SECTOR

8. AUTOMOBILES SECTOR

9. METAL SECTOR

10. INFORMATION TECHNOLOGY SECTOR


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1.(ASIXS BANK) 4. (PNB)

2.

(ICICI BANK) 5. (SBI)

3.

(HDFC BANK)


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1. 4.

2.

3. 5.


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1. 4.

2. 5.

3.


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1. 4.

2. 5.

3.


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1. 4.

2. 5.

3.


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1. 4.

2. 5.

3.


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1. 4.

2. 5.

3.


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1 4.

2. 5.

3.


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1. 4.

2.

3.


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1. 4.

2. 5.

3.


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3. INFLATION

4. MARKET TRENDS5. GLOBAL MARKETS

6. GOVT. POLICIES

7. FINANCIAL STATEMENT OF

COMPANIES


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INFLATION RATE CURRENT 0.57 MAIN FACTOR CRUDE earlier147$

BARRAL NOW CRUDE IS ON 49$ BARRAL


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1.BULL MARKET 2. BEAR MARKET


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PROFITS

LOSSES

GROWTH


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FINANCIAL STATEMENT OF COMPANIES GROWTH OF CONPANIES ORDER BOOK

MANAGEMENT LAND BANK POLICIES PLANS


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1. GDP GROWTH RATE2. ORDER BOOK OF INDIAN COMPANIES

3. Stock MARKET GROWTH

4. INDIA GORWING FASTER

5. FIIS INVESTING IN INDIA6. BIG FISHS GETTING BIGER

7. NUCLEAR DEAL

8. STRONG FUNDAMENTALS


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ORDER BOOKRs 85,000

CRORE INCOME GROWTH

26% NET PROFIT Rs

27,OOO CRORE

ORDER BOOKRs 52,683

CRORE INCOME

GROWTH 40% NET PROFIT

Rs 29,883

CRORE


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0

5000

10000

15000

20000

25000

1990 1994 1998 2002 2006

SENSEX


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INFR ASTRUC TURE POWERPROJECTS


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3. FOREGIN ECONOMY 2% GROWTH RATE DEVELOPED ECONOMY LESS EXPANSTION

2.INDIANECONOMY 8.5% GROWTH

RATE

DEVELOPINGECONPMY MORE EXPANSTION


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75000 MW

BY 2017

15000 MW

BY 2015


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POWER FOR INDUSTRYGROWTH OF POWER SECTOR

CHEAPER POWEROPPORTUNITY FOR COMPANIES


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1. DIRECTINVESTMENT

BY OPENING TRADING

ACCOUNT BY OPENING DEMAT ACCOUNT


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1. 4.

2. 5.

3.


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3. 2.


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2. MUTUAL FUNDS

FUND MANAGERSSAFeTY OF YOUR MONEY


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ESTABLISHMENT OF SEBI

The Securities and Exchange Board of India wasestablished on April 12, 1992 in accordance with

the provisions of theSecurities and Exchange Board of India Act, 1992.

Basic functions of the Securities and ExchangeBoard of India

..to protect the interests of investors insecurities and to promote the developmentof, and to regulate the securities market andfor matters connected there with or

incidental there to
http://www.sebi.gov.in/acts/act15ac.htmlhttp://www.sebi.gov.in/acts/act15ac.html


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As an important entity in the market itworks with following objectives:

1. It tries to develop the securities market.

2. Promotes Investors Interest.3. Makes rules and regulations for thesecurities market.


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1.1 Definition of Venture Capital Fund :The Venture Capital Fund is now defined asa fund established in the form of a Trust, acompany including a body corporate and

registered with SEBI which: has a dedicated pool of capital;

raised in the manner specified under theRegulations; and

to invest in Venture Capital Undertakings inaccordance with the Regulations."


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1.2 Definition of Venture CapitalUndertaking: Venture Capital Undertakingmeans a domestic company :- Whose shares are not listed on a recognised stock

exchange in India Which is engaged in business including providing

services, production or manufacture of articles orthings, or does not include such activities or

sectors which are specified in the negative list bythe Board with the approval of the CentralGovernment by notification in the Official Gazettein this behalf.


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1.3 Minimum contribution and fundsize : the minimum investment in a VentureCapital Fund from any investor will not beless than Rs. 5 lacs and the minimum

corpus of the fund before the fund can startactivities shall be atleast Rs. 5 crores.


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1.4 Investment Criteria : The earlierinvestment criteria has been substituted by

a new investment criteria which has thefollowing requirements : disclosure of investment strategy;

maximum investment in single venture capital

undertaking not to exceed 25% of the corpus ofthe fund;

Investment in the associated companies notpermitted;

atleast 75% of the investible funds to be investedin unlisted equity shares or equity linkedinstruments.

Not more than 25% of the investible funds may beinvested by way of:


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subscription to initial public offer of aventure capital undertaking whose shares

are proposed to be listed subject to lock-inperiod of one year; debt or debt instrument of a venture capital

undertaking in which the venture capital

fund has already made an investment byway of equity.

It has also been provided that VentureCapital Fund seeking to avail benefit under

the relevant provisions of the Income TaxAct will be required to divest from theinvestment within a period of one year fromthe listing of the Venture Capital

Undertaking.

1 5 Disclosure and Information to


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1.5 Disclosure and Information toInvestors: In order to simplify andexpedite the process of fund raising, the

requirement of filing the Placementmemorandum with SEBI is dispensed withand instead the fund will be required tosubmit a copy of Placement Memorandum/

copy of contribution agreement enteredwith the investors along with the details ofthe fund raised for information to SEBI.

2 QIB status for Venture Capital Funds


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2. QIB status for Venture Capital Funds: The venture capital funds will be eligible toparticipate in the IPO through book building

route as Qualified Institutional Buyer subjectto compliance with the SEBI (VentureCapital Fund) Regulations.

3. Relaxation in Takeover Code: The

acquisition of shares by the company or anyof the promoters from the Venture CapitalFund under the terms of agreement shall betreated on the same footing as that of

acquisition of sharesbypromoters/companies from the state levelfinancial institutions and shall be exemptfrom making an open offer to othershareholders.


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4. Investments by Mutual Funds inVenture Capital Funds: In order to

increase the resources for domestic venturecapital funds, mutual funds are permitted toinvest upto 5% of its corpus in the case ofopen ended schemes and upto 10% of its

corpus in the case of close ended schemes.Apart from raising the resources for VentureCapital Funds this would provide anopportunity to small investors to participate

in Venture Capital activities through mutualfunds.

5 Government of India Guidelines: The


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5. Government of India Guidelines: TheGovernment of India (MOF) Guidelines forOverseas Venture Capital Investment in India

dated September 20, 1995 will be repealedby the MOF on notification of SEBI VentureCapital Fund Regulations.

6. The following will be the salient features ofSEBI (Foreign Venture Capital Investors)Regulations, 2000 :

6.1 Definition of Foreign Venture Capital

Investor : any entity incorporated andestablished outside India and proposes tomake investment in Venture Capital Fund orVenture Capital Undertaking and registered

with SEBI.

6 2 Eli ibilit C it i tit


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6.2 Eligibility Criteria : entityincorporated and established outside Indiain the form of investment company, trust,partnership, pension fund, mutual fund,university fund, endowment fund, assetmanagement company, investmentmanager, investment managementcompany or other investment vehicleincorporated outside India would be eligiblefor seeking registration from SEBI. SEBI for

the purpose of registration shall considerwhether the applicant is regulated by anappropriate foreign regulatory authority; oris an income tax payer.

6 3 Investment Criteria :


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6.3 Investment Criteria : disclosure of investment strategy;

maximum investment in single venture capital

undertaking not to exceed 25% of the fundscommitted for investment to India however it caninvest its total fund committed in one venturecapital fund;

atleast 75% of the investible funds to be investedin unlisted equity shares or equity linkedinstruments.

Not more than 25% of the investible funds may beinvested by way of:

subscription to initial public offer of a venture capitalundertaking whose shares are proposed to be listedsubject to lock-in period of one year;

debt or debt instrument of a venture capitalundertaking in which the venture capital fund has

already made an investment by way of equity.

7. Hassle Free Entry and Exit : The


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7. Hassle Free Entry and Exit :TheForeign Venture Capital Investors proposingto make venture capital investment under

the Regulations would be grantedregistration by SEBI. SEBI registered ForeignVenture Capital Investors shall be permittedto make investment on an automatic route

within the overall sectoral ceiling of foreigninvestment under Annexure III of Statementof Industrial Policy without any approvalfrom FIPB.

8. Trading in unlisted equity : The Board


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8. Trading in unlisted equity :The Boardalso approved the proposal to permit OTCEIto develop a trading window for unlisted

securities where Qualified InstitutionalBuyers(QIB) would be permitted toparticipate.

S f h b f h B d f l h


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Some of the members of the Board felt thatthe mandated post listing exit time frame ofone year for availing tax pass through by adomestic Venture Capital Fund could bereconsidered by the Government in the lightof international experience and the need to

avoid operational restrictions and optimizeinflow of venture capital in the country. TheBoard also desired that a small Group withinSEBI could be set up to codify the

experience of the existing players,international experience including taxtreatment and potential areas for venturecapital funding


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PRESENTATION

BY--VAIBHAV BIRLA

MBA -II

Documents

Types of Financial System_Vaibhav