RBI phasing out old Rs 1,000, Rs 500 notes

New Delhi, Aug 28 (PTI) The Reserve Bank is phasing out old currency notes in the denomination of Rs 1,000 and Rs 500 of 1996 series and replacing them with new ones with added security features.RBI spokesperson Alpana Killawala from Mumbai told PTI that the public will not be put to inconvenience by the phasing out of these notes, which merely means that these currency notes would not be reissued after they are deposited with banks.These notes will be replaced with 2006, Mahatma Gandhi series notes, which have more security features, she said.Initially, only Rs 1,000 and Rs 500 are being phased out, which may be extended to other currency notes of old series as well.When asked whether these notes are being phased out because of the problem of counterfeiting, she said replacement of old currency notes with new ones is an exercise followed by central banks all over the world.The spokesperson made it clear that these notes are not being withdrawn, as is being speculated in some circles. Withdrawal of notes basically means that a currency note will no longer be a legal tender after a stipulated date.She said no target date has been put for phasing out of these notes, as it all depends on when they are deposited with banks.As such, notes which are not deposited with banks will continue to be legal tenders in the hands of the public. PTI

OPENINGS WITH E AND Y

JOB OPPORTUNITY FOR FRESHER CA'S AS WELL AS

EXPERIENCED CA'S

WITH ERNST AND YOUNG. AT CHANDIGARH... IN HOTEL PARK INN. SECTOR

35 C CHANDIGARH...


CANDIDATES WHO HAVE CLEARED THEIR FINAL EXAMS AND THEIR

ARTICLESHIP IS PENDING ARE ALSO ELIGIBLE FOE THE ABOVE....

ANY BODY INTERESTED MAY SEND ITS C.V TO JOB LINE CONSULTANTS AND E

MAIL ID IS RUCHI@JOBLINECONSULTANTS.COM

ICAI NEWS

In partial modification of the announcement dated 31st March, 2008 regarding submission of Form No. 112, it is hereby notified that articled assistants registered and undergoing graduation or any other course on or before 31st March, 2008 need not submit Form No.112. However, articled assistants registered on or after 1st April, 2008 and undergoing graduation or any other course shall be required to obtain specific permission by submitting Form No.112.

SEBI CIRCULAR ON INTERNAL AUDIT

DEPUTY GENERAL MANAGER
MARKET INTERMEDIARIES REGULATION &
SUPERVISION DEPARTMENT
DIVISION OF POLICY AND SUPERVISION - III
Tel: 26449261, Fax: 26449021
Email: manojk@sebi.gov.in
MIRSD/ DPSIII/ Cir-26/ 08
August 22, 2008

The Managing Director / Executive Director
of all Stock Exchanges

Dear Sir,

Sub: Internal Audit for stock brokers/clearing members

In continuation with the Circular No.F.1/5/SE/83 dated May 31, 1984 of Government
of India, Ministry of Finance, Department of Economics Affairs, Stock Exchange
Division, you are advised to direct your stock brokers/clearing members to carry out
complete internal audit on a half yearly basis by independent qualified Chartered
Accountants.

The scope of such audit shall cover, interalia, the existence, scope and efficiency of
the internal control system, compliance with the provisions of the SEBI Act, 1992,
Securities Contracts (Regulation) Act 1956, SEBI (Stock Brokers and Sub-Brokers)
Regulations, 1992, circulars issued by SEBI, agreements, KYC requirements, Bye
Laws of the Exchanges, data security and insurance in respect of the operations of
stock brokers/clearing members. The first such audit period should be from October
1, 2008 to March 31, 2009.

The exchanges shall ensure compliance of the above mandatory requirements by
all the stock brokers/clearing members.

The Stock Exchanges are advised to:

1. make necessary amendments to the relevant bye-laws, rules and
regulations for the implementation of the above decision immediately,

2. bring the provisions of this circular to the notice of the member brokers
/clearing members of the Exchange and also to disseminate the same on
the website, and

3. communicate to SEBI, the status of the implementation of the provisions of
this circular in the Monthly Development Report.

This circular is being issued in exercise of the powers conferred by Section 11 (1) of
Securities and Exchange Board of India Act, 1992 to protect the interest of
investors in securities and to promote the development of, and to regulate, the
securities market.


Yours faithfully,

MANOJ KUMAR

CONGRATULATIONS

HEARTIEST CONGRATULATIONS TO THOSE WHO HAVE

CLEARED CS FINAL IN CHANDIGARH

1. NITYA GUPTA (A.I.R 22)

2. AKHIL GUPTA

3.NEHA MENGI

4.NIPUN ARORA (3rd GROUP)

FOR FURTHER RESULT QUERY LOG ON TO:

http://www.icsi.edu/

GOLDEN WORDS OF HITLER

Golden Words of Hitler:

 

When u r in light, everything will follow u. But when u enter dark, even your own shadow
will not follow u
that is life

God made relatives. Thank God we can choose our friends

Money glitters, beauty sparkles, and intelligence shines.

Keep a very firm grasp on reality, so you can strangle it at any time.

Life is like a box of chocolates, you never know what you're getting.

People may not always believe what you say, but they will believe what you do.

I've always wanted to be somebody, but I should have been more specific.

You can't have everything - where would you put it?

Laugh and the world ignore you. Crying doesn't help either.

God is not moved or impressed with our worship until our hearts are moved and impressed by Him.

Life is like a mirror, if you frown at it, it frowns back; if you smile, it returns the greeting.

Never trust a person who isn't having at least one crisis.

Goodness is the only investment that never fails.

The only thing lazy people do fast is get tired.

Never deprive someone of hope; it may be all they have.

Silence is the only thing that can't be misquoted!

If we don't control our money, it will control us.

Life Insurance: A contract that keeps you poor all your life so that you can die rich..

Some drink at the fountain of knowledge. Others just gargle.

Everyone has a photographic memory. Some don't have film.

If you r living on the edge, make sure you're wearing your seat belt.

A classic is something that everybody wants to have read and nobody wants to read.

Minds, like parachutes, only function when they are open.

The shortest distance between two points is under construction.

Learn from other people's mistakes, life isn't long enough to make them all yourself.

On the road, never argue with a vehicle heavier than yours.

One thing you can give and still keep is your word.

Life is funny if you don't think about it.

Life is like a grammar lesson. You find the past perfect and the present tense.

There are two kinds of lawyers, those who know the law and those who know the judge.

More doors are opened with 'please' than with keys.
 

 

 

DIVYA SHARMA

--
CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

THOUGHT OF THE DAY:

 

 

 

. A ship is very much safe on the its harbour,but this is not what it is made for.

 

 

--
CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

DERIVATIVES

• What are Derivatives?

The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.

With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:-

A Derivative includes: -

1. a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;

2. a contract which derives its value from the prices, or index of prices, of underlying securities;

• What is a Futures Contract?

Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables the settlement of obligations arising out of the future/option contract in cash.

• What is an Option contract?

Options Contract is a type of Derivatives Contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer / holder of the option purchases the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc.

Under Securities Contracts (Regulations) Act,1956 options on securities has been defined as "option in securities" means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities;

An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price.

Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame.

As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract.

• What are Index Futures and Index Option Contracts?

Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index.

Similarly, the options contracts, which are based on some index, are known as Index options contract. However, unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date.

An index, in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy. Indices that represent the whole market are broad based indices and those that represent a particular sector are sectoral indices.

In the beginning futures and options were permitted only on S&P Nifty and BSE Sensex. Subsequently, sectoral indices were also permitted for derivatives trading subject to fulfilling the eligibility criteria. Derivative contracts may be permitted on an index if 80% of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index. The index is required to fulfill the eligibility criteria even after derivatives trading on the index has begun. If the index does not fulfill the criteria for 3 consecutive months, then derivative contracts on such index would be discontinued.

By its very nature, index cannot be delivered on maturity of the Index futures or Index option contracts therefore, these contracts are essentially cash settled on Expiry.

• What is the structure of Derivative Markets in India?

Derivative trading in India takes can place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organisation (SRO) and SEBI acts as the oversight regulator. The clearing & settlement of all trades on the Derivative Exchange/Segment would have to be through a Clearing Corporation/House, which is independent in governance and membership from the Derivative Exchange/Segment.

• What is the regulatory framework of Derivatives markets in India?

With the amendment in the definition of 'securities' under SC(R)A (to include derivative contracts in the definition of securities), derivatives trading takes place under the provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992.

Dr. L.C Gupta Committee

constituted by SEBI had laid down the regulatory framework for derivative trading in India. SEBI has also framed suggestive bye-law for Derivative Exchanges/Segments and their Clearing Corporation/House which lay's down the provisions for trading and settlement of derivative contracts. The Rules, Bye-laws & Regulations of the Derivative Segment of the Exchanges and their Clearing Corporation/House have to be framed in line with the suggestive Bye-laws. SEBI has also laid the eligibility conditions for Derivative Exchange/Segment and its Clearing Corporation/House. The eligibility conditions have been framed to ensure that Derivative Exchange/Segment & Clearing Corporation/House provide a transparent trading environment, safety & integrity and provide facilities for redressal of investor grievances. Some of the important eligibility conditions are-

• Derivative trading to take place through an on-line screen based Trading System.

• The Derivatives Exchange/Segment shall have on-line surveillance capability to monitor positions, prices, and volumes on a real time basis so as to deter market manipulation.

• The Derivatives Exchange/ Segment should have arrangements for dissemination of information about trades, quantities and quotes on a real time basis through atleast two information vending networks, which are easily accessible to investors across the country.

• The Derivatives Exchange/Segment should have arbitration and investor grievances redressal mechanism operative from all the four areas / regions of the country.

• The Derivatives Exchange/Segment should have satisfactory system of monitoring investor complaints and preventing irregularities in trading.

• The Derivative Segment of the Exchange would have a separate Investor Protection Fund.

• The Clearing Corporation/House shall perform full novation, i.e., the Clearing Corporation/House shall interpose itself between both legs of every trade, becoming the legal counterparty to both or alternatively should provide an unconditional guarantee for settlement of all trades.

• The Clearing Corporation/House shall have the capacity to monitor the overall position of Members across both derivatives market and the underlying securities market for those Members who are participating in both.

• The level of initial margin on Index Futures Contracts shall be related to the risk of loss on the position. The concept of value-at-risk shall be used in calculating required level of initial margins. The initial margins should be large enough to cover the one-day loss that can be encountered on the position on 99% of the days.

• The Clearing Corporation/House shall establish facilities for electronic funds transfer (EFT) for swift movement of margin payments.

• In the event of a Member defaulting in meeting its liabilities, the Clearing Corporation/House shall transfer client positions and assets to another solvent Member or close-out all open positions.

• The Clearing Corporation/House should have capabilities to segregate initial margins deposited by Clearing Members for trades on their own account and on account of his client. The Clearing Corporation/House shall hold the clients' margin money in trust for the client purposes only and should not allow its diversion for any other purpose.

• The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the trades executed on Derivative Exchange / Segment.

Presently, SEBI has permitted Derivative Trading on the Derivative Segment of BSE and the F&O Segment of NSE.

• What are the various membership categories in the derivatives market?

The various types of membership in the derivatives market are as follows:

• Trading Member (TM) – A TM is a member of the derivatives exchange and can trade on his own behalf and on behalf of his clients.

• Clearing Member (CM) –These members are permitted to settle their own trades as well as the trades of the other non-clearing members known as Trading Members who have agreed to settle the trades through them.

• Self-clearing Member (SCM) – A SCM are those clearing members who can clear and settle their own trades only.

• What are the requirements to be a member of the derivatives exchange/ clearing corporation?

• Balance Sheet Networth Requirements: SEBI has prescribed a networth requirement of Rs. 3 crores for clearing members. The clearing members are required to furnish an auditor's certificate for the networth every 6 months to the exchange. The networth requirement is Rs. 1 crore for a self-clearing member. SEBI has not specified any networth requirement for a trading member.

• Liquid Networth Requirements: Every clearing member (both clearing members and self-clearing members) has to maintain atleast Rs. 50 lakhs as Liquid Networth with the exchange / clearing corporation.

• Certification requirements: The Members are required to pass the certification programme approved by SEBI. Further, every trading member is required to appoint atleast two approved users who have passed the certification programme. Only the approved users are permitted to operate the derivatives trading terminal.

• What are requirements for a Member with regard to the conduct of his business?

The derivatives member is required to adhere to the code of conduct specified under the SEBI Broker Sub-Broker regulations. The following conditions stipulations have been laid by SEBI on the regulation of sales practices:

• Sales Personnel: The derivatives exchange recognizes the persons recommended by the Trading Member and only such persons are authorized to act as sales personnel of the TM. These persons who represent the TM are known as Authorised Persons.

• Know-your-client: The member is required to get the Know-your-client form filled by every one of client.

• Risk disclosure document: The derivatives member must educate his client on the risks of derivatives by providing a copy of the Risk disclosure document to the client.

• Member-client agreement: The Member is also required to enter into the Member-client agreement with all his clients.

 

 

TO BE CONTINUED TOMORROW.............................................................

 

--
CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

PERFORMANCE IN BANKING SECTOR

the performance of the banking sector is likely to remain under pressure and this euphoria is thus likely to be short-lived. No wonder, many analysts echo the same view, "there is some more pain left, before things improve for banks." They are not excited about the short-term (4-6 months) prospects of the banking sector with some suggesting that the RBI is likely to tighten the noose further, by raising repo rates and CRR. This anticipated move is expected to further increase the cost of funds for banks. Should that happen, banks could see further pressure on margins, perhaps higher customer defaults, higher losses on trading (bond) portfolio and a slowdown in business itself. The silver lining is that the prospects for the sector look good in the long run.

Margins: Under pressure The RBI has raised the repo rate (125 bps in last 12 months) and CRR, both of which are currently around 9 per cent levels. These moves have increased the cost of funds for banks. Since interest rates on deposits have also moved up to 10 per cent (one-year deposits), the highest in nearly over five years, there are high chances of customers moving their surplus current and savings (CASA) deposits to fixed (term) deposits, thereby further increasing the cost of funds for banks. Analysts say that in a rising interest rate scenario, banks with a high CASA ratio are better placed vis-à-vis those with a lower CASA metric. That's because, CASA deposits attract low interest rates (interest on current account balance is nil, while on savings account it is 3.5 per cent per annum). They estimate that an increase of 100 basis points in CASA can improve NIMs by 10 basis points; as cost of CASA deposits remains constant even as lending rate charged to customers rises.

On the other hand, while the banks have resorted to hiking their respective prime lending rates (PLR), analysts expect the pressure (though not significant) on the NIMs to continue in Q2 FY09. Thereafter, NIMs could stablise and perhaps improve from Q1FY10. Some of this pressure could also be offset considering that some banks have increased their deposit rates by alower margin, and thus provide a surprise (beat estimates).

Asset quality & treasury income: Under stress? The other area of apprehension is the threat of rising NPAs, which though will vary depending on the portfolio quality of individual banks. Says an economist, "In any downturn, the asset quality tends to deteriorate. But, unlike in the past, the recovery systems for banks (including debt recovery tribunal, implementation of SARFESI Act, etc) are much stronger." Adds Tridib Pathak, CIO, Lotus AMC, "In a slowdown, NPAs can increase, which is a cyclical risk. But, are there signs of any secular deterioration? Certainly not!" Economists explain that defaults are largely seen in non-collateral areas (mainly retail) like credit cards, personal loans, etc. Out of the retail assets, which form about 25 per cent (average) of total advances, about 18 per cent comprises housing loans, which are backed by assets. And, the remaining seven per cent comprises of auto loans (backed by vehicle as a security), credit cards, personal loans, etc. Thus, in a worse case scenario, the defaults will be within manageable limits. On the other hand, with interest rates on the rise and a good chance of RBI hiking rates further, banks may have to provide for the fall in bond values (held in available for sale (AFS) category), thus impacting profits over the next one-two quarters. But, the same would get reversed (since it is abook entry) thereafter, as interest rates decline.

Growth rates: Seen slowing down Higher interest rates mean lower affordability and hence, are expected to lead to slower growth in retail and corporate advance, which is already happening. Banks, too, have deliberately put some brakes on providing credit to the retail segment to keep a tab on credit quality.

With access to foreign funds (ECB, etc) not coming easily, and equity markets in the doldrums, demand from corporate India has however been healthy. Says Tridib, "Due to various reasons (including the fall in stock markets), the corporate finance activities have improved. This is on account of critical projects, including infrastructure and capex, where demand for credit is unlike to wane." Thus, overall credit growth is expected to slow down from over 25 per cent currently to around 18-20 per cent. Regards the fee-income, this too is likely to slow down over the next few quarters but still remain healthy between 15-25 per cent. Nonetheless, the overall income and profit growth for the industry should be at a respectable 15-25 per cent.

The silver lining Even as the outlook for the next six months remains subdued led by rising costs, asset quality concerns and higher provisions, the sector's medium-to long-term prospects continue to look good. Explains Tridib, "If you look at the last 15 years, the NIMs of banks have averaged around 3 per cent, which is across interest rate cycles.

This is because banks are a classic 'passthrough' mechanism. If you look at the recent hikes, banks have passed on the cost increase through PLR hikes. So, any pressure on margins will be temporary and over a period margins will remain stable and possibly inch up." Adds Karwa, "Margins should not correct from current levels, and are likely to be maintained as banks are also increasing lending rates." So, while it may take time for the clouds to clear off completely, the sector (stocks) is expected to see range bound trading. For instance, if the RBI hikes repo rates or CRR further then expect banking stocks to be hit in the interim. Likewise, in the current situation, any further upside is unlikely. Meanwhile, watch out for any surprises that could come up in the form of significant losses on account of forex exposure (arising from exposure to credit derivatives, as yields have hardened in international markets) and, on account of asset quality and NIMs over the next two quarters. Any spike in prices of crude oil or commodities to recent peaks (low probability as per experts) could prove to be dampeners, and cast their ominous shadow on the prospects of the banking sector.

Thus, any downward swing in market sentiments could be used as an opportunity to selectively buy banking stocks. Experts prefer banks with high CASA ratio, strong management and good liability (loan) profile. Among preferred picks include Axis Bank, HDFC Bank, Union Bank of India, Indian Bank, Federal Bank, South Indian Bank, PNB, SBI and ICICI Bank.

REALTY Grappling with low demand "Some of the real estate players are land bank rich, but cash poor," said a CEO of a large Bangalore-based realty firm referring to the liquidity problems being faced by real estate players. While the real estate players The Smart Investor spoke to believe that the liquidity crunch and rising costs are a short-term phenomenon, analysts are of the view that the pain is going to last for at least two quarters if not more going ahead.

The rise in interest rates, the spike in input costs and drying up of funding options has led to adip in prices, drop in profit margins and slowdown in development of construction projects. The high three digit year-on-year growth in sales, EBIDTA and net profit registered in every quarter over the last few quarters is passé and this is reflected in the June quarter results of the companies that constitute the BSE Realty index. Though some of it is due to a high base, the slowdown in demand has had its impact with sales and profit margins registering lower double digit growth. Unless the situation related to the high cost of capital, input costs and most importantly demand changes for the better, the sector could see worse days over the next three months.

--
CA. VIKAS KAPAHI
TREASURER
JAB WE MET CA
REDEFINING PROFESSIONALISM

BASICS OF MUTUAL FUND

Mutual Fund Basics

Investing is the process of growing your capital by putting it into securities, such as stocks, bonds, insurance etc. However most of us do not understand the intricacies of these. Also, lots of investments have huge minimum amounts as entry barriers. Mutual Funds allow a normal investor to benefit from the firm grasp of key concepts that experts have and grow his money in a steady, relatively safe manner.

What are Mutual Funds? Advantages of investing in Mutual Funds Types of Mutual Funds

What are Mutual Funds?

A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy). By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. You could make money from a mutual fund in three ways: Income is earned from dividends declared by mutual fund schemes from time to time. If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain. If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your mutual fund units for a profit. This is tantamount to a valuation gain.

top

Advantages of investing in Mutual Funds

Professional Management The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.   Diversification By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money.   Economies of Scale Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.   Liquidity Open-ended mutual funds are priced daily and are always willing to buy back units from investors. This mean that investors can sell their holdings in mutual fund investments anytime without worrying about finding a buyer at the right price. In the case of other investment avenues such as stocks and bonds, buyers are not necessarily available and therefore these investment avenues are less liquid compared to open-ended schemes of mutual funds.   Regulations All Mutual Funds are registered with SEBI and they function under strict guidelines designed to protect the interests of the Investor.   Tax benefits Equity Funds Currently, dividends are tax-free in the hands of the investor. There is no distribution tax payable by the Mutual Fund on dividends distributed. There is no tax deduction at source on dividends as well. Investments for over 12 months qualify for long term capital gains. Moreover for resident investors there is no TDS on redemption of the units. The recently introduced Securities Transaction Tax is applicable to equity fund investments. Debt Funds Currently, dividends are tax-free in the hands of the investor. However, there is distribution tax together with surcharge and education cess, as may be applicable, payable by the Mutual Fund on dividends distributed. There is no tax deduction at source on dividends as well. Investments for over 12 months qualify for long term capital gains. For resident investors there is no TDS on redemption of the units. top

Types of Mutual Funds

Schemes according to Maturity Period:A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.   Open-ended Fund/ Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices that are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

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CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

ITC tech arm to announce US buy Tuesday

BANGALORE: The information technology arm of ITC Ltd, top cigarette firm, will announce the acquisition of a US based technology firm around noon (0630 GMT) on Tuesday, a public relations firm said in a statement issued on behalf of ITC Infotech.

Further details of the announcement were not immediately available. Last month, ITC Chairman YC Deveshwar said that the company was in talks to acquire a US-based information technology firm and the acquisition would be made through ITC Infotech.

ITC, 31.7-per cent owned by British American Tobacco Plc, has interests in technology outsourcing, retail and packaging, and is expanding a range of foods and personal care products to cut its dependence on cigarettes.

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CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

INVESTOR'S PARADISE

Tuan Huynh, Director & CIO, Deutsche
Bank,PAM


Globally, there are clear signs of risk averseness and analysts worldwide are divided on whether the worst is over and what would be the economic outlook going forward. However, Tuan Huynh, director, chief investment officer — India and China, Deutsche Bank, PAM (private asset amangment) is of the view that investors investing in countries like India have not much to worry. Mr Huynh is of the view that returns would continue to be handsome, but the investment horizon may become a little longer. Based at Singapore, Mr Tuan was in India recently to take stock of the situation.

Wealth creation has taken a pause after years of secular growth. What is the strategy going forward?

The year witnessed a tough investment environment. Some asset classes gave negative returns. Markets were going up 40% every year and suddenly the meltdown occurred.

Clients are now raising questions as they are concerned about developments. We do believe that there are no clear answers but there is need to take a systematic approach to investing.

What are you advising your clients?

Our investment focus is India specific but for the purpose of diversification, we invest across different asset classes like equity mutual funds, real estate, structured products and commodity. To further diversify our client's portfolio from country specific risk, we are advising them to invest in overseas assets.

For instancee, investing in Latin America to benefit from high commodity prices. Further, there is a need for change in allocation on a continuous basis.

Given the prevalent scenario, what is the risk appetite among your clients?

The portfolios are managed on the basis of risk profile of different investors like having a conservative approach, moderate or balanced approach. At this point of time, we are largely neutral on equities and bullish on assets class like soft commodities and precious metals.

As an investment theme, we continue to believe that soft commodities like corn, soya would still giving good returns due to demand – supply factors. Apart from that, we believe that precious metals like gold would also generate good returns for investors in times to come.

Why do you think markets have not yet bottomed out?

Some of the reasons for our concern are the fate of global financial players. The brief rebound of global markets from mid-march happened due to the Bear Stearns bailout which somewhat took away the systemic risk.

But in June, concerns on financials continued with downgrading by S&P of Merrill Lynch, Morgan Stanley and Lehman Brothers.

What is your macroeconomic outlook on India?

Despite the strong reading for the first quarter, we still feel that the economy will slow due to a combination of rising inputs costs, tight monetary conditions and capacity constraints.

The manufacturing sector has been slowing for several quarters now. We think that RBI's shift to tightening money supply is not just a reaction to higher energy prices but necessary to bring domestic demand in line with a constrained supply-side.

Would this affect your investment decisions in India?

The kind of growth that India has witnessed is one of the best. Going forward there are some risks to economic growth, which would certainly slow the pace of growth.

We have downgraded our GDP target on India. But even then, it will continue to post better growth as compared to other countries. Typically, at this point of time, we are looking at higher returns on a longer investment horizon
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CA. VIKAS KAPAHI
TREASURER
JAB WE MET CA
REDEFINING PROFESSIONALISM

SOUTH INDIAN BANK DECLARES 30 PERCENT DIVIDEND

THIRUVANANTHAPURAM : The Annual General Meeting of Thrissur-based South Indian Bank (SIB) has declared the highest ever dividend of 30 per cent while approving the Board's proposal to come out with a bonus issue and employees stock option scheme.

This was the higest ever rate of dividend declared by the bank in its 79 years of service, an SIB release said here on Monday. The capital bse of the bank had been strengthened by various measures like the rights issue, public issue, follow-on public issue and qualified institutional placement.

The bonus share would be issued to existing shareholders in the ratio of 1:4 on the record date. The employees' stock option scheme would be implemented to reward existing employees who had put in long years of service and also to offer incentive to new staff members.

In the current financial year, the bank would strive to increase the net profit to Rs 190 crore from Rs 150 crore the previous year, SIB's CMD Dr V A Joseph informed the AGM. A total business target of Rs 30500 crore had been set for the current year.

Also, the bank was working to add five lakh new customers in Savings Bank accounts which would mark a three per cent incrase in Current Account and Savings Bank Accounts (CASA) of the bank.

As NRIs form a sizeable clientele group, the bank planned to conduct a one-month long "Pravasi Utsav" to promote its bouquet of proudcts and services to NRIs.

The AGM also re-elected Dr John Joseph, Dr C J Jose and Jose Alapatt to the Director Board.

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CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

change your thinking

It will take just 37 seconds to read this and change your thinking. Two men, both seriously ill, occupied the same hospital room. One man was allowed to sit up in his bed for an hour each afternoon to help drain the fluid from his lungs.His bed was next to the room's only window. The other man had to spend all his time flat on his back. The men talked for hours on end. They spoke of their wives and families, their homes, their jobs, their involvement in the military service, where they had been on vacation. Every afternoon, when the man in the bed by the window could sit up, he would pass the time by describing to his roommate all the things he could see outside the window. The man in the other bed began to live for those one hour periods where his world would be broadened and enlivened by all the activity and colour of the world outside. The window overlooked a park with a lovely lake. Ducks and swans played on the water while children sailed their model boats. Young lovers walked arm in arm amidst flowers of every colour and a fine view of the city skyline could be seen in the distance. As the man by the window described all this in exquisite details, the man on the other side of the room would close his eyes and imagine this picturesque scene.One warm afternoon, the man by the window described a parade passing by. Although the other man could not hear the band — he could see it in his mind's eye as the gentleman by the window portrayed it with descriptive words. Days, weeks and months passed. One morning, the day nurse arrived to bring water for their baths only to find the lifeless body of the man by the window, who had died peacefully in his sleep.She was saddened and called the hospital attendants to take the body away. As soon as it seemed appropriate, the other man asked if he could be moved next to the window. The nurse was happy to make the switch, and after making sure he was comfortable, she left him alone. Slowly, painfully, he propped himself up on one elbow to take his first look at the real world outside.He strained to slowly turn to look out the window besides the bed. It faced a blank wall. The man asked the nurse what could have compelled his deceased roommate who had described such wonderful things outside this window. The nurse responded that the man was blind and could not even see the wall. She said, 'Perhaps he just wanted to encourage you.' Epilogue: There is tremendous happiness in making others happy, despite our own situations. Shared grief is half the sorrow, but happiness when shared, is doubled. If you want to feel rich, just count all the things you have that money can't buy. 'Today is a gift, that is why it is called The Present,' The origin of this letter is unknown, but it brings good luck to everyone who passes it on. Do not keep this letter.
BY: CA DIVYA SHARMA

SEBI REDUCES TIME DURATION FOR RIGHT ISSUE TO 43 DAYS

MUMBAI: The Securities and Exchange Board of India (SEBI) on Wednesday reduced the time duration for a rights issue from 109 days to 43 days.

“The reduction in timelines would reduce the market risk faced by investors and issuers and would ensure faster turnaround of money for investors,” said C. B. Bhave, Chairman, SEBI, while addressing a press conference here after its board meeting.

The board also approved the proposal for prescribing and standardising the format for abridged scheme-wise annual report and reduction in time period for dispatching the annual report to mutual fund unit holders from six months to four months.

The new time limit for dispatching will be made applicable for the annual reports of 2008-09 onwards..

To reduce the time duration for a rights issue, SEBI has decided to amend the SEBI (DIP) guidelines and the listing agreement.

Reduction in timeline approved include: the number of days for the notice period for a board meeting will be reduced from seven days to two working days; the notice period for record date will be reduced from 15/21/30 days to seven working days for all scrips; issue period will be reduced from a minimum of 30 days to a minimum of 15 days with a maximum of 30 days and the time period for completion of post-issue activity will be reduced from 42 days to 15 days.QIP pricing norms

The SEBI board has decided to revise the pricing norms for QIP (qualified institutional placement) and preferential allotment: Floor price may be based on the two weeks average for making a QIP or for making preferential allotment to QIBs (qualified institutional buyers); and relevant date for QIP will be the date on which the board of the company or the committee of directors duly authorised by the board of the company meets to take the decision to open QIP.

Quarterly results

Further the SEBI board decided to amend Clause 41 of the listing agreement.
Accordingly, a listed entity in addition to submitting quarterly and year-to-date standalone financial results within one month of end of the quarter, may also submit consolidated financial results to the stock exchanges within two months from the end of the quarter.
“A listed entity opting to submit consolidated financial results in addition to standalone results to the stock exchanges will be required to publish consolidated financial results only.”

A listed entity would also be required to place the limited review report on unaudited financial results before its board of directors or committee before submission to stock exchanges only if the variation (as defined in present Clause 41) between unaudited financials and financials amended pursuant to limited review for the same period exceeds 10 per cent.

SEBI also decided that “where the listed entity chooses to submit unaudited financial results for the last quarter (instead of submitting audited financial results for the entire financial year within three months of end of the financial year), the limited review report will be submitted for the last quarter also.”Ahmedabad office

The board approved the opening of Western Regional Office of SEBI at Ahmedabad. This office will look after the regulatory aspects of investor protection and market regulation and supervision regarding issuers, investors and intermediaries.

PTI reports:

Belying expectations, the SEBI took no decision on restrictions on issue of Participatory Notes by foreign institutional investors (FIIs) but it gave an in-principle nod to the National Stock
Exchange for starting currency futures.

VANDE MATARAM
HAPPY INDEPENDENCE DAY TO ALL ON 61st ANNIVERSARY OF INDEPENDENCE
PROUD TO BE AN INDIAN
JAI HIND

CONGRATULATIONS

MADE INDIA PROUD

SEBI set to fine 7 i-bankers for shoddy work

MUMBAI: Capital market regulator SEBI is set to impose penalties on some of India's top investment bankers for what it considers "shoddy work" done by them while handling public offerings over the past few years. The regulator's Market Intermediaries Regulation and Supervision Department (MIRSD) has uncovered serious shortcomings in the due diligence process for initial public and rights offerings, besides open offers, carried out by seven investment bankers — Kotak, Enam, DSP Merrill Lynch, SBI Caps, HSBC, Keynote and Aryaman Financial.

A due diligence process relates to the examination and independent verification of material and financial facts and statements provided by companies seeking to raise capital. It is the responsibility of merchant bankers to ensure compliance with the norms laid down by the regulator and the government in the run-up to a flotation. They also have to ensure that allotment of shares and refunds to investors are done, post-issue.

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The regulator's investigation has revealed major lapses in the due diligence process relating to initial public offerings, rights issues and also open offers, according to an official close to the development. SEBI has set in motion adjudication proceedings for imposing a monetary penalty against all these bankers, the official said.

He added that arbitration proceedings against Enam and Kotak pertain to YES Bank and IDFC IPOs dating back to 2006. A SEBI probe had revealed a scam involving manipulation of retail category in these IPOs. DSP Merrill Lynch was also rapped by SEBI for the YES Bank IPO as the regulator's inspection showed that the details of the promoters as mentioned in the IPO document were different from the one filed with the Reserve Bank of India.

HSBC and SBI Caps were charged with failure in disclosing key details in open offers managed by them. In some cases, the regulator has found 10-15 lapses in the offer documents, the official said. In several cases, bankers have not followed the prescribed procedures while conducting due diligence, said SEBI officials. SEBI chairman CB Bhave had told ET, in an interview shortly after taking over, that one of the issues SEBI was actively looking at was to make merchant bankers more responsible, post-issue.

In some cases, the merchant banker had not even verified the plant and machinery of the companies, the issues of which they had managed. Besides, litigation against the company directors was not mentioned in the public issue documents. Errors were also noticed in financial details provided in the documents.

SEBI's inspection also found serious deficiencies in some IPOs. For instance, in one IPO, the regulator found out that the post-issue capital of the company was higher than its authorised capital — a clear indication of poor due diligence carried out by the issue's merchant banker. The same mistake was found in Weal Infotech IPO's case and the regulator has pulled up the merchant banker to the issue, Aryaman Financial.

SEBI has taken a grim view of the fact that merchant bankers, who are entrusted with the task of vetting a public issue, have failed to discharge their responsibilities fully, which is detrimental to the interest of investors. Five of the merchant banks who were served notice by SEBI declined to comment on the issue when ET contacted them. Keynote Financial said it had not received any notice from the regulator. Officials of Aryaman Financial were not available for comment.

It is not only in IPOs that serious lapses on the part of merchant bankers were detected. Even in case of open offers, SEBI has indicted merchant bankers. The market watchdog has taken HSBC to task on the Garware Offshore open offer. In this instance, SEBI found out that the open offer document did not furnish important details of the target company. The offer was made by India Star Mauritius and the financial details of the acquiring company were not given in the offer document.

Even the company's paid-up capital was wrongly mentioned in the financial data, officials said. SEBI has prescribed a standard letter of offer containing various financial and other parameters of the company. In fact, HSBC was given a warning by the regulator in an earlier case.

SEBI has moved against SBI Caps for the investment bank's failure to provide a vital piece of information about a company in the open offer document. The open offer was made by a company listed on a regional stock exchange, but the document did not mention the fact that the company would soon list on BSE. Many investors tendered their shares in the offer since they did not possess the requisite information

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CA. VIKAS KAPAHI
TREASURER
JAB WE MET CA
REDEFINING PROFESSIONALISM

SEBI STEPS UP MUTUAL FUND REFORMS

It’s now time for the Securities & Exchange Board of India (Sebi) to focus on key reforms in the mutual fund (MF) sector. Sebi will call a rare meeting of all MF trustees, possibly by the end of this month, to discuss their role in detail and areas of conflict, if any. The regulator sees the role of trustees as critical to the proper functioning of MFs.
Sebi has also appointed SA Dave, former chairman of Unit Trust of India and a highly regarded personality in the financial sector, as chairman of its mutual funds advisory committee. The panel will comprise leading names from the funds industry and investor associations. The first meeting of the panel will also be held soon, sources in Sebi said. The MF panel will be the third of Sebi’s advisory committees, after those for the primary and secondary markets.
The meeting between Sebi and the MF trustees is the latest step by Sebi chairman CB Bhave to push through further reform in the capital markets. In a volatile market environment, MFs are seen as critical to getting retail investors into the capital market.
The role of trustees is akin to that of independent directors on company boards, and Sebi regulations on MFs places enormous emphasis on trustees to ensure the proper and orderly functioning of asset management companies (AMCs). A trustee company and AMC are expected to be at arm’s length, and trust-ees are meant to keep close watch on the AMC’s functioning. Sebi’s MF regulations specify that trustees must be people of “ability, integrity and standing”.
However, of late, sections of the market and MF industry itself have said there are cases where the independence of trustees is being severely diluted and that they have been reduced to mere figureheads or rubber stamps, endangering the functioning of AMCs. Sebi sources admitted there were cases that needed to be examined. Even MF chiefs agree that in cases, trustees may not have discharged their duties properly.
UK Sinha, chairman of UTI Mutual Fund, which is owned by four state-run institutions, said: “In the case of some fund houses, the trustees have no role at all, and are there merely as a formality. In some cases, the AMC and trustee boards even hold joint meetings, which is wrong and undermines the role of the trustees. Trustees often clear the AMC’s plans without the necessary due diligence.”
However, AP Kurian, chairman of the Association...
of Mutual Funds in India, denied there were any problems relating to the role of trustees and said they were performing their role diligently. “Trustees meet once in two months, do their due diligence before signing off the reports. We see trustees as first-level regulators. Schemes are approved by them, and the AMCs report to them,” Kurian added.
Sebi’s MF regulations clearly lay down the eligibility criteria for trustees. According to regulations, trustees “shall have a right to obtain from the asset management company such information as is considered necessary by the trustees”. The trustees must also ensure that before any scheme is launched, the AMC has the necessary systems in place; appointed all key personnel, auditors, a compliance officer and registrars; as well as prepared a compliance manual and designed internal control & audit mechanisms. They are also expected to ensure that specified norms for the empanelment of brokers and marketing agents have been complied with.
“The trustees shall ensure that an asset management company has been diligent in empanelling the brokers, in monitoring securities transactions with brokers and avoiding undue concentration of business with any broker. The trustees shall ensure that the asset management company has not given any undue or unfair advantage to any associates or dealt with any of the associates of the asset management company in any manner detrimental to interest of the unit holders,” state the Sebi regulations. The trustees have to ensure that the AMC has managed the MF schemes independently of other activities and taken adequate steps to ensure that the interests of investors of one scheme are not compromised by those of any other scheme or by other activities of the AMC....

STOCKS IN BSE

 

 

LIST OF 30 STOCKS IN THE BOMBAY STOCK EXCHANGE

1. acc
2. bharti airtel
3. bhel
4. dlf
5. grasim
6. hdfc ltd
7. hdfc bank
8. hindalco
9. hul
10. icici bank
11. infosys
12. itc
13. jp associate
14. l&t
15. m&m
16. maruti suzuki
17. ntpc
18. ongc
19. ranbaxy
20. rcom
21. reliance industries
22. reliance infrastructure
23. satyam
24. sbi
25. sterlite
26. tata power
27. tata steel
28. tata motors
29. tcs
30. wipro

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CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

BE POSITIVE IN YOUR THINKING

just read the following story:
 
Father : "I want you to marry a girl of my choice"
Son : "I will choose my own bride!"
Father : "But the girl is Bill Gates's daughter."
Son : "Well, in that case...ok"
Next - Father approaches Bill Gates.
Father : "I have a husband for your daughter."
Bill Gates : "But my daughter is too young to marry!"
Father : "But this young man is a vice-president of the World Bank."
Bill Gates : "Ah, in that case...ok"
Finally Father goes to see the president of the World Bank.
Father : "I have a young man to be recommended as a vice-president."
President : "But I already have more vice- presidents than I need!"
Father : "But this young man is Bill Gates's son-in-law."
President : "Ah, in that case...ok"
This is how business is done!!

Moral: Even If you have nothing,You can get Anything. But your attitude
should be positive
Think +++++++ve

--
CA. VIKAS     KAPAHI
     TREASURER
   JAB WE MET CA
REDEFINING PROFESSIONALISM

ATTENTION CA/CS/ICWA STUDENTS..........

WANT MAY/JUNE 2008 FINAL AND INTER PAPERS


CLICK ON THE LINK BELOW::::


http://dateyvs.com/indexs.htm

PENSION REFORMS BILL LIKELY

NEW DELHI: Finance Ministry sources said The Pension Reforms Bill is likely to be adopted in the monsoon session. - PTI

PFRDA bill likely in monsoon session of Parliament

NEW DELHI: The pension reforms bill to set up a regulator and give more freedom to subscribers for investing their retirement money is likely to be tabled in the monsoon session of Parliament, Finance Ministry sources said on Tuesday.
“Amendments are ready. Hopefully, it would be tabled in the upcoming monsoon session of Parliament,” the sources said.

The Pension Fund Regulatory and Development Authority Bill (PFRDA) was introduced by the Finance Minister Mr P Chidambaram way back in 2005 to replace the ordinance promulgated in 2004 for setting up the regulator.

The bill was referred to the Parliamentary Standing Committee after the Left parties opposed the legislation. The standing committee recommended the bill with some modifications.

But the amended bill could not be tabled in Parliament due to persistent opposition from the Left. - PTI

SEBI OPENS ESOPS TO NOMINEE DIRECTORS

The Securities and Exchange Board of India (Sebi) on Tuesday made this amendment after it received several cases after a grey area in the regulation led to institutions forbidding nominee-directors from receiving Esops.


However, the joy of the nominee-directors could be short-lived as sources in Life Insurance Corporation (LIC) and General Insurance Corporation (GIC), which have a substantial shareholding in many large Indian companies, said they would not allow nominee-directors to accept Esops since they were government-owned bodies.


A GIC official said no government institution will allow nominee-directors to take Esops. “There will be a clamour to be on the boards of good companies if we allow this,” he said.


Before the amendment to the Sebi (Employee Stock Option Scheme and Employee Stock Purchase Scheme) guidelines, 1999, Esops were meant for whole-time directors, employees and officers of an organisation. Exempt categories were promoters or directors with over 10 per cent holding in the company.


Last year, there was a two-month face-off between LIC and GIC and their nominee directors, B P Deshmukh and Kranti Sinha, on the board of Larsen and Toubro (L&T) after the nominee-directors refused to return shares allotted to them by the construction major in spite of directions by both the institutions that its nominees should not accept any Esops. Sinha and Deshmukh held 20,000 and 30,000 L&T shares, the market price of which was Rs 3.5 crore and Rs 5 crore, respectively, at the time.


The two financial institutions moved the Bombay High Court to bar their nominee directors from dealing in these shares. Both directors lost their jobs on the L&T board. The matter was later settled out of court after the former directors returned their employee stock option shares to the company. After this, all financial institutions that hold equity stakes in various companies had written to them asking them not to issue Esops to their representatives to avoid a similar situation.


“Granting Esops is important for companies in terms of incentivising directors since companies are trying to create good governance on the board. Companies also need to look at shareholder interest and shareholder expectation. Obviously, the institution nominating the individual to the board should be comfortable with this,” said Jamil Khatri, executive director at KPMG.







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