The merchant bankers undertake the following activities:

-          Managing of public issue of securities
-          Underwriting connected with the aforesaid public issue management business
-          Managing/advising on international offerings of debt/equity i.e., GDR, ADR, BONDS and other instruments
-          Private placement of securities
-          Primary or satellite dealership of government securities
-          Corporate advisory services related securities market including takeovers, acquisition and disinvestment
-          Stock broking
-          Advisory services for projects
-          Syndication of rupee term loans
-          International financial advisory services


-          These funds are the institutions, which provide small investors with avenues of investment in the capital market.


-          Professional management
-         Diversification
-         Convenient administration
-         Return potential
-         Low costs
-         Liquidity
-         Transparency


Open ended mutual funds:

-         Is a fund with a non-fixed number of out standing shares, that stands ready at any time to redeem shares on demand

-         The fund itself buys back the shares surrendered and is ready to sell new shares.

-         Generally the transaction takes place at the net asset value which is calculated on a periodical basis

Close-ended funds:

-         It is the fund where mutual fund management sells a limited number of shares and does not stand ready to redeem them.

-         The shares of such funds are traded in the secondary markets.

-         The requirement for listing is laid down to grant liquidity to the investors who have invested with the mutual fund.

-         These funds more like equity shares.


-          Is a form of equity financing, which is specially designed for funding high risk and high reward projects

-         It is direct investment in securities of new and unseasoned enterprises by way of private placement.

-         Is the capital that is invested in equity or debt securities (with equity conversion terms) of young unseasoned companies promoted by technocrats who attempts to break new path.

-         It is a source of finance for new or relatively new, high risk, high profit potential products as the projects belong to untried segments or technologies.

Venture capital generally provides following services:

-          Finance new and rapidly growing companies
-         Typically knowledge-based, sustainable, up scalable companies
-         Purchase equity/ quasi-equity securities
-         Assist in the development of new products or services
-         Add value to the company through active participation
-         Take higher risks with the expectation of higher rewards
-         Have a long term orientation

Problem areas facing the industry are:

-          There is insufficient understanding of venture capital as a commercial activity
-         The support to the venture capital industry, by the government is in inadequate
-         The exit options available to the venture capitalist are limited
-         Market limitations hinder the growth of venture capital; and
-         The inadequacy of the legal framework for venture capital industry.


-          Arrange/ procure finance on request for the projects that come up for counseling.
-         A pre-requisite would require arrangement of funds that would involve,
o       Assessing the quantum and nature of funds required
o       Locating the various sources of finance
o       Approaching these sources with loan application forms and complying with other formalities etc.

-          Estimating capital requirements:
o       Preliminary expenses
o       Cost of fixed assets
o       Cost of current assets
o       Cost of acquiring know how
o       Provisions for contingencies
o       Cost of financing, brokerage, underwriting etc.
o       Any other element of cost likely to be incurred.

-          An important aspect of loan syndication, which would include preparation of loan application, filing and following up the loan application with the financial institution and arranging the disbursal of the same.


-          Refers to the rating (or assessment and gradation) of creditor-ship securities or debt-instruments, particularly with regard to the probability of timely discharge of payment of interest and repayment of principal obligations.

The objectives:
§        To provide superior information to the investors at allow cost
§        To provide a sound basis for proper risk-return structure
§        To subject borrowers to a healthy discipline and
§        To assist in the framing of public policy guidelines on institutional investment

The approaches:

§        Implicit judgmental approach- wherein broad range of factors concerning promoter, project, environment and instrument characteristics are considered generally.

§        Explicit judgmental approach- involves identification and measurement of the factors critical to an objective assessment of credit score or index.

§        Statistical approach- assignment of weights to each of the factors and obtaining the overall credit rating score with a view to doing away with personal bias inherent in both explicit and implicit judgement.


-          Is a type of financial service which involves an outright sale of the receivables of a firm to a financial institution called the factor which specialises in the management of trade credit.
-         A factor collects the accounts on the due dates, effects payments to the firm on these dates (irrespective of whether the customers have paid or not) and also assumes the credit risks associated with the collection of the accounts.
-         Fundamental to the functioning of factoring:
§         Assumption of credit and collection function
§         Credit protection
§         Encashing of receivables
§        Collateral functions

-          Factoring  v/s Accounts Recivables Loans:
§        AR is simply a loan secured by a firm’s accounts receivable by way of hypothecation or assignment of such receivables with the power to collect the debts under a power of attorney.

-          Factoring v/s Bill Discounting:
§        The drawer undertakes the responsibility of collecting the bills and remitting the proceeds to the financing agency.
§        It is always with recourse whereas factoring can be either with recourse or without recourse.
Mechanics of Factoring:

-          seller (client)negotiates with the factor for establishing factoring relationship
-         seller requests credit check on buyer(client)
-         factor checks credit credentials and approves buyer. For each approved buyer a credit limit and period of credit are fixed.
-         Seller sells goods to buyer
-         Seller sends invoice to factor. The invoice is accounted in the buyers account in the factor’s sales ledger.
-         Factor sends copy of the invoice to buyer
-         Factor advices the amount to which seller is entitled  after retaining a margin. Say 20%, the residual amount paid later.
-         On expiry of the agreed credit period, buyer makes payment of invoice to the factor
-         Factor pays the residual amount to seller.


-          Is a special type of transaction-contractual arrangement under which the owner of the asset (movable or immovable) allows its exclusive use by another party (lessee) over a certain period of time for some consideration (rentals)


-          Is a rental agreement where the lessee is committed to pay more than the original cost of equipment during contractual period.
-         It provides for maintenances expenses and taxes by lessor.
-         Leasing company assumes risk of obsolescence
-         Contract period ranges from intermediate to short-run
-         Contract under this category are usually cancelable from either party is lessor or the lessee
-         The financial commitment is restricted to regular rental payment


-          Is like an instalment loan.
-         It is a legal commitment to pay for the entire cost of equipment plus interest over a specified period of time.
-         The lessee commits to a series of payments which in total exceeds the original cost of the equipment.
-         It excludes the provisions for maintenance or taxes which are paid separately by the lessee.
-         Lessee assumes the risk of obsolescence
-         Contract period ranges from medium to long run
-         Contract under this category are cancelable.
-         The lease involves a financial commitment similar to loan by a leasing company. It places the lessee in a position of borrower.
-         The lessor financial function


-          Mortgages are adapted to different types of real estate and vary according to the repayment plan and the purpose of the mortgage.

-         Term mortgage provides for periodic interest payments and the principal is repaid at the end of the term.

-         If the principal is not repaid, at the end of the term, the lender might elect to grant another mortgages provide for the repayment of the principal over the term of the mortgage. Here the interest is paid on the reducing balances of the principal.

-         Partially amortized mortgages also termed as ‘baloon mortgage’ provide for principal repayment down to a given amount and then required a lump sum payment for the balance of the principal.


-          In a mortgage transaction a lender makes a loan to the borrower against the transfer of an interest in an immovable property, collects re-payment of interest and principal.

-          In this event of default the lender seeks to take possession of the property.

-          Thus, lender’s interest in the mortgage generally is confined to the collection of interest and eventual collection of the principal amount lent and as such mortgage is an asset which he has to hold for, generally, a long period of time against which no ‘liquidity’ is available.

-         In securitization the loan itself is not another lender but rather a security instrument is created backed by the principal and interest payments on the loan.


-          In the depository system, share certificates belonging to the investors are to be dematerialised and their names are required to be entered in the records of depository as beneficial owners.

-          Consequent to these changes, the investors’ names in the companies register are replaced by the name of depository as the registered owner of the securities.

-          The depository however does not have any voting rights or other economic rights in respect of the securities held by a depository.


-          Immobilization: where physical share certificates are kept in vaults with the depository for safe custody.

-          Dematerialisation: is a process by which the physical certificates of an investor are taken back by the company and an equivalent number of securities are credited his account in electronic form at the request of the investor.


-          Account opening
-          Dematerialisation
-          Rematerialisation
-          Settlement
-          Initial public offers
-          Pledging


-          Is the representative (agent) of the investor in the depository system providing the link between the company and investor through the depository.

-          The depository participant maintains securities account balances and intimate the status of holding to the account holder from time to time.

-           Dematerialisation of shares is optional and an investor can still hold shares in physical form.


-          Acts as an agent of depository
-          Customer interface of depository
-          Functions like securities bank
-          Account opening
-          Facilities of Dematerialisation.


-          Investor opens account with DP
-          Fills Dematerialisation request form (DRF) for registered shares
-          Investor lodges DRF and certificates with DP
-          DP intimates the depository
-          Depository intimates register/issuer
-          DP sends certificates and DRF/issuer
-          Registrar/issuer confirms demat to depository
-          Depository credits investor a/c


-          Client submits RRF to DP
-          DP intimates depository
-          Depository intimates the registrar/issuer
-          DP sends RRF to the registrar/issuer
-          Registrar/issuer prints certificates and sends to investor
-          Look-in should be retained
-          Registrar/ issuer confirms remat to depository
-          Investor’s account with DP debited.


-          Elimination of bad deliveries

-          Elimination of all risks associated with physical certificates

-          Immediate transfer and registration of securities

-          Faster disbursement of non-cash corporate benefits like rights, bonus, etc.

-          Reduction in brokerage by many brokers for trading in dematerialised securities

-          Reduction in handling of huge volumes of paper and periodic status reports to investors on their holdings and transactions, leading to better controls

-          Elimination of problems related to change of address of investor, transmission, etc.
-          Elimination of problems related to selling securities on behalf of a minor.