NOTES IFM
CLASS X
CH 10 RATIO ANALYSIS
To extract the information from the financial statements, a number of tools are used to analyse such
statements. The most popular tool is the Ratio Analysis.
Financial ratios can be broadly classified into three groups:
(I) Liquidity ratios,
(II) Leverage/ Capital structure ratio, and
(III) Profitability ratios.
Liquidity refers to the ability of a firm to meet its financial obligations in the short-term which is less
than a year.
the liquidity of a firm, are (i) Current Ratio, (ii) Acid Test Ratio, (iii) Turnover Ratios. It is based upon
the relationship between current assets and current liabilities.
(i) Current Ratio = Current Assets/ Current liability
The current ratio measures the ability of the firm to meet its current liabilities from the current
assets. Higher the current ratio, greater the short-term solvency (i.e. larger is the amount of rupees
available per rupee of liability).
(ii) Acid-test Ratio = Quick assets/current liability
Quick assets are defined as current assets excluding inventories and prepaid expenses.
The acid-test ratio is a measurement of firm’s ability to convert its current assets quickly into cash in
order to meet its current liabilities.
Generally speaking 1:1 ratio is considered to be satisfactory.
(iii) Turnover Ratios: Turnover ratios measure how quickly certain current assets are converted into
cash or how efficiently the assets are employed by a firm.
Leverage/Capital structure Ratios:
Long term financial strength or soundness of a firm is measured in terms of its ability to pay interest
regularly or repay principal on due dates or at the time of maturity.
Debt-Equity Ratio reflects relative contributions of creditors and owners to finance the business.
Debt-Equity Ratio = Total Debt/Total Equity
The desirable/ideal proportion of the two components (high or low ratio) varies from industry to
industry.
(ii) Debt-Asset Ratio:
Total debt comprises of long term debt plus current liabilities. The total assets comprise of
permanent capital plus current liabilities.
Debt-Asset Ratio = Total Debt/ Total Asset
Profitability and operating/management efficiency of a firm is judged mainly by the following
profitability ratios:
(i) Gross Profit Ratio (%) = Gross profit/Net sales* 100
(ii) Net Profit Ratio (%) = Net profit/Net sales * 100
EPS measures the profit available to the equity shareholders per share, that is, the amount that they
can get on every share held
EPS = Net Profit Available to the Shareholder /Number of Ordinary Shares Outstanding Net Profit
P/E RATIO = Market price per Share/EPS
CH 9 CONCEPTS AND MODES OF ANALYSIS
Simple Interest: Simple Interest is the interest paid only on the principal amount borrowed. No
interest is paid on the interest accrued during the term of the loan.
There are three components to calculate simple interest: principal, interest rate and time. Formula
for calculating simple interest: I = Prt Where, I = interest P = principal r = interest rate (per year) t =
time (in years or fraction of a year)
Compound Interest: Compound interest means that, the interest will include interest calculated on
interest. The interest accrued on a principal amount is added back to the principal sum, and the
whole amount is then treated as new principal, for the calculation of the interest for the next period.
Compounding plays a very important role in investment since earning a simple interest and earning
an interest on interest makes the amount received at the end of the period for the two cases
significantly different
Money has time value.
The idea behind time value of money is that a rupee now is worth more than rupee in the future.
The relationship between value of a rupee today and value of a rupee in future is known as ‘Time
Value of Money’.
A rupee received now can earn interest in future.
An amount invested today has more value than the same amount invested at a later date because it
can utilize the power of compounding.
modification of the above equation: Original equation: (Rs.10,000 x 0.050) + Rs.10,000 = Rs.10,500
Modified formula: Rs.10,000 x [(1 x 0.050) + 1] = Rs.10,500 Final equation: Rs. 10,000 x (0.050 + 1) =
Rs. 10,500 0 1 2 3 Years Future Value Present Value Option A : Rs. 10,000 Rs. 10,000 + Interest Option
B : Rs. 10,000 Rs. 10,000 Introduction to Financial Markets 53 Which can also be written as: S = P (r+
1) Where, S = amount received at the end of period P = principal amount r = interest rate (per year)
This formula denotes the future value (S) of an amount invested (P) at a simple interest of (r) for a
period of 1 year. The time value of money may be computed in the following circumstances:
1. Future value of a single cash flow
2. Future value of an annuity
3. Present value of a single cash flow PV = FV / (1+r)
4. Present value of an annuity
1. Future Value of a Single Cash Flow For a given present value (PV) of money, future value of money
(FV) after a period M:’ for which compounding is done at an interest rate of V, is given by the
equation t FV = PV (1+r)
This assumes that compounding is done at discrete intervals. However, in case of continuous
compounding, the future value is determined using the formula rt FV = PV * e Where ‘e’ is a
mathematical function called ‘exponential’ the value of exponential (e) = 2.7183. The compounding.
The future value (FVA) of a uniform cash flow (CF) made at the end of each period till the time of
maturity ‘t’ for which compounding is done at the rate V is calculated as follows: How is time value of
money computed? t–1 t–2 1 FVA = CF* (1+r) + CF* (1+r) + ... + CF* (1+r)+ CF = CF t (1+r) –1 r 54
amount after a certain period, to know how much to save annually to reach the targeted amount, to
know the interest rate etc.
In case of discrete discounting: Example 1: What is the present value of Rs.5,000 payable 3 years
hence, if the interest rate is 10 % p.a. 3 _rt PV = 5000/ (1.10) i.e. = Rs.3756.57
In case of continuous discounting: PV = FV * e Example 2: What is the present value of Rs. 10,000
receivable after 2 years at a discount rate of 10% under continuous discounting? Present Value =
10,000/(exp ^(0.1*2)) = Rs. 8187.297 4.
What is Effective Annual return?
the effective annual return accounts for intra-year compounding and the stated annual return does
not. The difference between these two measures is best illustrated with an example. Suppose the
stated annual interest rate on a savings account is 10%, and say you put Rs 1,000 into this savings
account. After one year, your money would grow to Rs 1,100. But, if the account has a quarterly
compounding feature, your effective rate of return will be higher than 10%. After the first quarter, or
first three months, your savings would grow to Rs 1,025.
How to go about systematically analyzing a company?
Investment analysts call this as Industry Analysis.
Corporate Analysis: How has the company been faring over the past few years? Seek information on
its current operations, managerial capabilities, growth plans, its past performance vis-a-vis its
competitors etc. This is known as Corporate Analysis.
Financial Analysis: If performance of an industry as well as of the company seems good, then check if
at the current price, the share is a good buy. For this look at the financial performance of the
company and certain key financial parameters like Earnings Per Share (EPS), P/E ratio, current size of
equity etc. for arriving at the estimated future price. This is termed as Financial Analysis.
What is an Annual Report?
An annual report is a formal financial statement issued yearly by a corporate. The annual report
shows assets, liabilities, revenues, expenses and earnings - how the company stood at the close of
the business year, how it fared profit-wise during the year, as well as other information of interest to
shareholders.
Which features of an Annual Report should one read carefully?
One must read an Annual Report with emphasis on the following:
1. Director’s Report and Chairman’s statement which are related to the current and future
operational performance of a company.
2. Auditors’ Report (including Annexure to the Auditors Report)
3. Profit and Loss Account.
4. Balance Sheet.
5. Notes to accounts attached to the Balance Sheet.
The Balance sheet of a company shows the financial position of the company at a particular point of
time. The balance sheet of a company/firm, according to the Companies Act, 1956 should be either
in the account form or the report form. Balance Sheet: Account Form Liabilities Assets Share Capital
Fixed Assets Reserves and Surplus Investments Secured loans Current Assets, loans and advances
Unsecured loans Miscellaneous expenditure Current liabilities and provisions Balance Sheet: Report
Form
I. Sources of Funds
1. Shareholders’ Funds (a) Share Capital
(b) Reserves & surplus
Loan Funds (a) Secured loans (b) Unsecured loans
II. Application of Funds
(a) Fixed Assets (b) Investments (c) Current Assets, loans and advances Less: Current liabilities and
provisions Net current assets (d) Miscellaneous expenditure and losses
What is a Balance Sheet and a Profit and Loss Account Statement?
What is the difference between Balance Sheet and Profit and Loss Account Statements of a
company?
The Profit and Loss account (Income Statement), on the other hand, shows the financial performance
of the company/firm over a period of time. It indicates the revenues and expenses during particular
period of time.
The period of time is an accounting period/year, April-March.
The accounting report summarizes the revenue items, the expense items, and the difference
between them (net income) for an accounting period.
There are two sources of funds: (a) Shareholders’ Fund (also known as Net Worth) is the fund coming
from the owners of the company; and
(b) Loan Fund is the fund borrowed from outsiders. When a company/firm starts operations, its
owners, called shareholders, contribute funds called Share Capital.
The shareholders being the owners, share part of the profit of the company, as dividend. Share
capital has been further divided into equity capital and preference capital. Equity capital does not
have fixed rate of dividend.
The preference capital represents contribution of preference shareholders and has fixed rate of
dividend. After distributing dividends, a part of the profit is retained by the company for meeting.
Authorized capital is the maximum capital that a company is authorized to raise.
Issued capital is that part of the authorized capital which is offered by the company for being
subscribed by members of the public or anybody.
Subscribed capital is that part of the issued capital which is subscribed (accepted) by the public.
Called up capital is a part of subscribed capital which has been called up by the company for
payment.
Paid up capital refers to that part of the called up capital which has been actually paid by the
shareholders.. It is assumed that every year the worth of an asset falls due to usage. This reduction in
value is called ‘Depreciation’. The Companies
types of assets and different methods calculating depreciation, namely,
Straight Line Method
Written Down Value Method (depreciation rate decreases over a period of time).
The worth of the fixed assets after providing for depreciation is called ‘Net Block’.
A company may also accept advances from the customer. The company thus has a liability to pay
though the payment is deferred. These are known as “Current Liabilities’.
Similarly the company may have to provide for certain other expenses (though not required to be
paid immediately) like dividend to shareholders, payment of tax etc. These are called ‘Provisions’.
In short, Current Liabilities and Provisions are amounts due to the suppliers of goods and services
brought on credit, advances payments received, accrued expenses, unclaimed dividend, provisions
for taxes, dividends, gratuity, pensions, etc. Current Liabilities and Provisions, therefore, reduce the
burden of day-today expenditure on current assets by deferring some of the payments. For daily
operations the company requires funds equal to the current assets less the current liabilities.
How is balance sheet summarized?
balance sheet indicates matching of sources of funds with application of funds. In case of the XYZ
Company Ltd., Total Funds Employed’ to the tune of Rs. 1066.31 cr. are from the said two Sources of
Funds-Shareholders Funds and Loan Funds.
What does a Profit and Loss Account statement consists of? What should one look for in a Profit and
Loss account?
A Profit and Loss Account shows how much profit or loss has been incurred by a company from its
income after providing for all its expenditure within a financial year. One may also know how the
profit available for appropriation is arrived at by using profit after tax as well as portion of reserves
Also check for the increase of all expenditure items viz. raw material consumption, manpower cost
and manufacturing, administrative and selling expenses. See whether the increases in these costs are
more than the increase in sales.
Evaluate whether the company could make profit from its operations alone. For this you should
calculate the profits of the company, after ignoring all other income except sales.
If the profit so obtained is positive, the company is operationally profitable, which is a healthy sign.
Scrutinize the depreciation as well as interest for any abnormal increase.
The increase in depreciation is attributed to higher addition of fixed assets, which is good for long
term operations of the company.
High depreciation may suppress the net profits, but it’s good for the cash flow. So instead of looking
out for the net profits, check the cash profits and compare whether it has risen.
CH 8 MISCELLANEOUS
What are Corporate Actions?
Corporate actions are typically agreed upon by a company’s Board of Directors and authorized by the
shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc. Returns
received by investors in equities come in two forms a) growth in the value (market price) of the share
and b) dividends.
What is meant by ‘Dividend’ declared by companies?
Dividend is distribution of part of a company’s earnings to shareholders, usually twice a year in the
form of a final dividend and an interim dividend. Dividend is therefore a source of income for the
shareholder.
What is meant by Dividend yield?
Dividend yield: 2.77% (10/360) Dividend/share price.
A high dividend yield is considered to be evidence that a stock is underpriced,
A stock split is a corporate action which splits the existing shares of a particular face value into
smaller denominations so that the number of shares increase, however, the market capitalization or
the value of shares held by the investors post split remains the same as that before the split. For e.g.
If a company has issued 1,00,00,000 shares with a face value of Rs.10 and the current market price
being Rs.100, a 2-for-l stock split would reduce the face value of the shares to 5 and increase the
number of the company’s outstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). Consequently,
the share price would also halve to Rs.50 so that the market capitalization or the value shares held by
an investor remains unchanged.
what motivates a company to split its stock?
Though there are no theoretical reasons in financial literature to indicate the need for a stock split,
generally,
there are mainly two important reasons. As the price of a security gets higher and higher, some
investors may feel the price is too high for them to buy, or small investors may feel it is unaffordable.
Splitting the stock brings the share price down to a more “attractive” level.
A buyback can be seen as a method for company to invest in itself by buying shares from other
investors in the market. Buybacks reduce the number of shares outstanding in the market. Buy back
is done by the company with the purpose to improve the liquidity in its shares and enhance the
shareholders’ wealth.
Under the SEBI (Buy Back of Securities) Regulation, 1998, a company is permitted to buy back its
share from: a) Existing shareholders on a proportionate basis through the offer document.
b) Open market through stock exchanges using book building process.
c) Shareholders holding odd lot shares. The company has to disclose the pre and post-buyback
holding of the promoters.
CNX Nifty (Nifty), is a scientifically developed, 50 stock index, reflecting accurately the market
movement of the Indian markets.
It comprises of some of the largest and most liquid stocks traded on the NSE.
It is maintained by India Index Services & Products Ltd. (IISL) which is a group company of NSE. Nifty
is the barometer of the Indian markets.
A Clearing Corporation is a part of an exchange or a separate entity and performs three functions,
namely, it clears and settles all transactions, i.e. completes the process of receiving and delivering
shares/funds to the buyers and sellers in the market, it provides financial guarantee for all
transactions executed on the exchange and provides risk management functions.
National Securities Clearing Corporation Limited (NSCCL), a 100% subsidiary of NSE, performs the
role of a Clearing Corporation for transactions executed on the NSE.
Under rolling settlement all open positions at the end of the day mandatorily result in payment/
delivery ‘n’ days later. Currently trades in rolling settlement are settled on T+2 basis where T is the
trade day.
Clearing & Settlement and Redressal (considering two working days from the trade day).
The funds and securities pay-in and pay-out are carried out on T+2 days. Pay-in day is the day when
the securities sold are delivered to the exchange by the sellers and funds for the securities purchased
are made available to the exchange by the buyers.
Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the
securities sold are given to the sellers by the exchange.
At present the pay-in and pay-out happens on the 2nd working day after the trade is executed on
the stock exchange.
On account of non-delivery of securities by the trading member on the pay-in day, the securities are
put up for auction by the Exchange. This ensures that the buying trading member receives the
securities. The Exchange purchases the requisite quantity in auction market and gives them to the
buying trading member.
Book closure and record date help a company determine exactly the shareholders of a company as
on a given date.
closure refers to the closing of the register of the names of investors in the records of a company.
Companies announce book closure dates from time to time.
The benefits of dividends, bonus issues, rights issue accrue to investors whose name appears on the
company’s records as on a given date which is known as the record date and is declared in advance
by the company so that buyers have enough time to buy the shares, get them registered in the books
of the company and become entitled for the benefits such as bonus, rights, dividends etc.
Whenever a company announces a book closure or record date, the exchange sets up a no delivery
period for that security.
During this period only trading is permitted in the security. However, these trades are settled only
after the no-delivery period is over. This is done to ensure that investor’s entitlement for the
corporate benefit is clearly determined.
The date on or after which a security begins trading without the dividend included in the price, i.e.
buyers of the shares will no longer be entitled for the dividend which has been declared recently by
the company, in case they buy on or after the ex-dividend date.
The first day of the no-delivery period is the ex-date
What recourses are available to investor/client for redressing his grievances?
You can lodge complaint with the Investor Grievances Cell (IGC) of the Exchange against brokers on
certain trade disputes or non-receipt of payment/securities. IGC takes up complaints in respect of
trades executed on the NSE, through the NSE trading member or SEBI registered sub-broker of a NSE
trading member and trades pertaining to companies traded on NSE
What is Arbitration?
Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving
disputes between the trading members and their clients in respect of trades done on the exchange.
If no amicable settlement could be reached through the normal grievance redressal mechanism of
the stock exchange, then you can make application for reference to Arbitration under the Bye-Laws
of the concerned stock exchange.
Investor Protection Fund (IPF) is maintained by NSE to make good investor claims, which may arise
out of non-settlement of obligations by the trading member, who has been declared a defaulter, in
respect of trades executed on the Exchange.
What is an Investor Protection Fund? The IPF is utilised to settle claims of such investors where the
trading member through whom the investor has dealt has been declared a defaulter.
Payments out of the IPF may include claims arising of non payment/non receipt of securities by the
investor from the trading member who has been declared a defaulter.
The maximum amount of claim payable from the IPF to the investor (where the trading member
through whom the investor has dealt is declared a defaulter) is Rs.10 lakh.
Auction
In stock markets, auctions may be conducted when there is a default in delivering securities. The
exchange arranges an auction to purchase the required shares and deliver them to the rightful buyer,
ensuring smooth functioning of the market.
4. Arbitration
Arbitration is a dispute resolution mechanism used in stock markets. If investors have disputes with
brokers or trading members, the case can be taken to arbitration panels set up by exchanges. This
provides a fast and cost-effective solution compared to court cases.
5. Investor Protection Fund (IPF)
The Investor Protection Fund provides compensation to investors in case of defaults by brokers or
trading members. It safeguards small investors and builds trust in the financial system.
6. Investor Grievance Cell
The Investor Grievance Cell handles complaints from investors regarding brokers, trading members,
or companies. It ensures that complaints are resolved fairly and quickly, thereby protecting investors’
rights.
CH 7 MUTUAL FUNDS
What is the Regulatory Body for Mutual Funds?
Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds.
All the mutual funds must get registered with SEBI.
What are the benefits of investing in Mutual Funds?
There are several benefits from investing in a Mutual Fund:
Small investments: Mutual funds help you to reap the benefit of returns by a portfolio spread across
a wide spectrum of companies with small investments.
Transparency: Mutual Funds regularly provide investors with information on the value of their
investments. Mutual Funds also provide complete portfolio disclosure of the investments made by
various schemes and also the proportion invested in each asset type.
Choice: The large amount of Mutual Funds offer the investor a wide variety to choose from. An
investor can pick up a scheme depending upon his risk/return profile.
Regulations: All the mutual funds are registered with SEBI and they function within the provisions of
strict regulation designed to protect the interests of the investor.
What is NAV? NAV or Net Asset Value of the fund is the cumulative market value of the assets of the
fund net of its liabilities.
NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and
selling into funds is done on the basis of NAV-related prices.
Are there any risks involved in investing in Mutual Funds?
Some of the Risk to which Mutual Funds are exposed to is given below:
Market risk: If the overall stock or bond markets fall on account of overall economic factors, the
value of stock or bond holdings in the fund’s portfolio can drop, thereby impacting the fund
performance.
Non-market risk: Bad news about an individual company can pull down its stock price, which can
negatively affect fund holdings.
Interest rate risk Bond prices and interest rates move in opposite directions. When interest rates rise,
bond prices fall and this decline in underlying securities affects the fund negatively.
Credit risk Bonds are debt obligations. So when the funds invest in corporate bonds, they run the risk
of the corporate defaulting on their interest and principal payment obligations and when that risk
crystallizes, it leads to a fall in the value of the bond causing the NAV of the fund to take a beating
What are the different types of Mutual funds?
All these factors influence the performance of Mutual Funds.. Mutual funds are classified in the
following manner:
(a) On the basis of Objective
Equity Funds/ Growth Funds - Funds that invest in equity shares are called equity funds. They carry
the principal objective of capital appreciation of the investment over the medium to long-term.
There are different types of equity funds such as Diversified funds, Sector specific funds and Index
based funds.
Diversified Funds These funds invest in companies spread across sectors. These funds are generally
meant for risk-averse investors who want a diversified portfolio across sectors.
Sector Funds These funds invest primarily in equity shares of companies in a particular business
sector or industry.
Index Funds These funds invest in the same pattern as popular market indices like S&P CNX Nifty or
S&P CNX 500.
Tax Saving Funds These funds offer tax benefits to investors under the Income Tax Act. Opportunities
provided under this scheme are in the form of tax rebates under the Income Tax act.
Debt/Income Funds These funds invest predominantly in high-rated fixed-income-bearing
instruments like bonds, debentures, government securities, commercial paper and other money
market instruments
Liquid Funds/Money Market Funds These funds invest in highly liquid money market instruments.
The period of investment could be as short as a day.
Gilt Funds These funds invest in Central and State Government securities. Since they are Government
backed bonds they give a secured return and also ensure safety of the principal amount.
Balanced Funds These funds invest both in equity shares and fixed-income-bearing instruments
(debt) in some proportion.
(b) On the basis of Flexibility
Open-ended Funds These funds do not have a fixed date of redemption. Generally they are open for
subscription and redemption throughout the year.
Their prices are linked to the daily net asset value (NAV). From the investors’ perspective, they are
much more liquid than closed ended funds.
Close-ended Funds These funds are open initially for entry during the Initial Public Offering (IPO) and
thereafter closed for entry as well as exit.
These funds have a fixed date of redemption. One of the characteristics of the close-ended schemes
is that they are generally traded at a discount to NAV; but the discount narrows as maturity nears.
The term ‘investment plans’ generally refers to the services that the funds provide to investors
offering different ways to invest or reinvest.
The different investment plans are an important consideration in the investment decision, because
they determine the flexibility available to the investor. Some of the investment plans offered by
mutual funds in India are:
Growth Plan and Dividend Plan A growth plan is a plan under a scheme wherein the returns from
investments are reinvested and very few income distributions, if any, are made. The investor thus
only realizes capital appreciation on the investment. Under the dividend plan, income is distributed
from time to time. This plan is ideal to those investors requiring regular income.
Dividend Reinvestment Plan Dividend plans of schemes carry an additional option for reinvestment
of income distribution. This is referred to as the dividend reinvestment plan
As per SEBI Regulations on Mutual Funds, an investor is entitled to:
1. Receive Unit certificates or statements of accounts confirming your title within 6 weeks from the
date your request for a unit certificate is received by the Mutual Fund.
2. Receive information about the investment policies, investment objectives, financial position and
general affairs of the scheme.
3. Receive dividend within 30 days of their declaration and receive the redemption or repurchase
proceeds within 10 days from the date of redemption or repurchase.
4. The trustees shall be bound to make such disclosures to the unit holders as are essential in order
to keep them informed about any information, which may have an adverse bearing on their
investments.
A Fund Offer Document is a document that offers you all the information you could possibly need
about a particular scheme and the fund launching that scheme.
Two basic investment styles prevalent among the mutual funds are Growth Investing and Value
Investing: Growth Investing Style The primary objective of equity investment is to obtain capital
appreciation.
A growth manager looks for companies that are expected to give above average earnings growth,
where the manager feels that the earning prospects and therefore the stock prices in future will be
even higher. Identifying such growth sectors is the challenge before the growth investment manager.
Value Investment Style A Value Manager looks to buy companies that they believe are currently
undervalued in the market, but whose worth they estimate will be recognized in the market
valuations eventually.
The fund manager is the decision-maker as to which company or instrument to invest in.
Index Funds hold a diversified basket of securities which represents the index while at the same time
since there is not much active turnover of the portfolio the cost of managing the fund also remains
low.
This gives a dual advantage to the investor of having a diversified portfolio while at the same time
having low expenses in fund.
ETF represents a basket of stocks that reflect an index such as the Nifty.
An ETF, however, isn’t a mutual fund; it trades just like any other company on a stock exchange.
Unlike a mutual fund that has its net-asset value (NAV) calculated at the end of each trading day, an
ETF’s price changes throughout the day, fluctuating with supply and demand.
It is important to remember that while ETFs attempt to replicate the return on indexes, there is no
guarantee that they will do so exactly.
CH 6 DEPOSITORY
Which are the depositories in India?
There are two depositories in India which provide dematerialization of securities. The National
Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
What are the benefits of participation in a depository?
The benefits of participation in a depository are:
Immediate transfer of securities
No stamp duty on transfer of securities
Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc.
Reduction in paperwork involved in transfer of securities Reduction in transaction cost
Who is a Depository Participant (DP)?
The Depository provides its services to investors through its agents called depository participants
(DPs). These agents are appointed by the depository with the approval of SEBI. According to SEBI
regulations, amongst others, three categories of entities, i.e. Banks, Financial Institutions and SEBI
registered trading members can become DPs.
Does one need to keep any minimum balance of securities in his account with his DP?
The depository has not prescribed any minimum balance. You can have zero balance in your account.
What is an ISIN?
ISIN (International Securities Identification Number) is a unique identification number for a security.
What is a Custodian?
A Custodian is basically an organisation, which helps register and safeguard the securities of its
clients.
Besides safeguarding securities, a custodian also keeps track of corporate actions on behalf of its
clients: Maintaining a client’s securities account Collecting the benefits or rights accruing to the client
in respect of securities Keeping the client informed of the actions taken or to be taken by the issue of
securities, having a bearing on the benefits or rights accruing to the client
How can one convert physical holding into electronic holding i.e. how can one dematerialise
securities?
In order to dematerialise physical securities one has to fill in a Demat Request Form (DRF) which is
available with the DP and submit the same along with physical certificates one wishes to
dematerialise
Do dematerialised shares have distinctive numbers?
lot share certificates can also be dematerialised. Dematerialised shares do not have any distinctive
numbers.
These shares are fungible, which means that all the holdings of a particular security will be identical
and interchangeable.
Can electronic holdings be converted into Physical certificates?
Separate DRF has to be filled for each ISIN number. Can odd lot shares be dematerialised? Yes, odd
Yes. The process is called Rematerialisation. If one wishes to get back your securities in the physical
form one has to fill in the Remat Request Form (RRF) and request your DP for rematerialisation of the
balances in your securities account.