PREPARED BY : MR.ROSHAN DHUNGEL

Regulation of the capital market

Security Valuation and

Risk Analysis

Regulation of the capital market

Legislation Governing The Securities Market

SEBI Act ,1992

Depositories Act,1996

Securities contract (Regulation ) Act,1956

SEBI (Securities and Exchange Board of India) is a centrally controlled body that is entrusted with the task of protecting the interest of investors in securities and promoting the growth of securities market by implementing suitable rules and norms.

It was officially established by The Government of India in the year of 1992 with SEBI Act 1992, being passed by the Indian Parliament.

Roles and Functions of SEBI

Regulating the business in stock exchanges and any other securities market.

Registering and regulating the working of intermediaries and player in the securities market.

Registering and regulating the working of collective investment schemes, e.g. –mutual funds.

Prohibiting fraudulent activities in the securities market.

Prohibiting insiders trading in securities.

Promoting investors education.

SEBI has regulated

Primary Market

Secondary Market

Mutual Funds and

Foreign Institutional Investments

Regulations of over the counter exchange of india (OTCEI)

Criteria for admission of members

Criteria for Admission of liscence Dealers

Criteria for listing of companies

MUTUAL FUNDS AND SEBI

For the smooth conduct and regulation of the mutual fund

several guidelines have been issued by SEBI regarding the investment, disclosure, accountability distribution of its profits to its member and the asset management companies. SEBI has issued regulation and code of conduct in 1993, that provide a basic legal frame work for the functioning of the mutual fund.

SECURITY VALUATION AND RISK ANALYSIS

Fundamental Approach to Valuation

•The Basic Valuation Model•Value-Price Relationship•Valuation of Fixed Income Securities - Bond - Debenture•Valuation of Preference Shares•Shares valuation

Risk : It’s type and it’s measurement

Debentures

Debenture or Bond is a creditor ship security with a fixed rate of return, fixed maturity period, perfect income certainty and low capital uncertainty.

Types of Debentures include: Registered, Bearer, Redeemable, Perpetual, Convertible, Non Convertible, Partially Convertible, Callable etc.

Bond

Features of bond• Indenture , Maturities , Interest payments , Call Feature

Bond Valuation

The intrinsic value of bond or debenture is equal to the present value of its expected cash flows.

n C C

PV = ---------- + ---------- t=1 (1+r)t (1+r)n

Where,

Pv =Present value of security today

C =Coupons or interest payments per time period

T = Terminal value repayable at maturity

r =Appropriate discount rate or market yield

n =Number of years to maturity

Preference Shares

These shares carry a fixed return in the form of dividend.

They have preference over equity shareholders on payment of dividend and on repayment of Capital.

Valuation of Preference shares

Vp = D Kps

Where,Vp=value of perpetuityD=Preference dividendKps=Require rate of return

Share Valuation

Earnings valuation

Revenues valuation

Cash flow valuation

Asset valuation

Yield valuation

Member valuation

RISK

Types of Investment Risk Systematic Risk Non-systematic Risk

On the basis of Systematic and Non-systematic Risk, there are various risk , They are :-

-Market Risk - Management Risk-Interest Rate Risk - Default Risk -Purchasing Power Risk -International Risk -Regulation Risk - Industry Risk -Business Risk -Political Risk-Reinvestment Risk-Bull-Bear Market Risk

Measurement of Risk

Volatility

Standard Deviation

Probability Distribution

Beta

Refrences

Investopedia , Google pictures , Self Instruction Material (SIM)