Re-investment risk arises from the probability that income flows received from an investment may not be able to earn the same interest as the original interest rate. The risk is that intermediate cash flows may be reinvested at a lower return as compared to the original investment. The rate at which the re-investment of these periodic cash flows will affect the investment’s total returns.

Business risk is the risk inherent in the operations of a company. It is also known as an operating risk because it is caused by factors that affect the company’s operations. Common sources of business risk include the cost of raw materials, employee costs, introduction and position of competing products, and marketing and distribution costs.

Exchange rate risk is incurred due to changes in the exchange rate of a domestic currency relative to a foreign currency. When a domestic investor invests in foreign assets or a foreign investor invests in domestic assets, the investment is subject to exchange rate risk.

Interest rate risk refers to the risk that bond Costs will fall in response to rising interest rates and rise in response to declining interest rates. Bond investments are subject to volatility due to interest rate fluctuations. This risk also extends to debt funds, which primarily hold debt assets. The relationship between rates and bond Costs can be summed up as follows:

• If interest rates fall or are expected to fall, bond Costs increase.

• If interest rates rise or are expected to rise, bond costs decline.

The systematic risk or market risk refers to risks applicable to the entire financial market or a wide range of investments.

Unsystematic risk is the risk specific to individual securities or a small class of investments. Hence it can be diversified away by including other assets in the portfolio.

• CRISIL AAA – (Highest Safety)

• CRISIL AA – (High Safety)

• CRISIL A – (Adequate Safety)

• CRISIL BBB – (Moderate Safety)

• CRISIL BB – (Moderate Risk)

• CRISIL B – (High Risk)

• CRISIL C – (Very High Risk)

• CRISIL D – (Default)

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Instruments with this rating are considered to have a high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

Instruments with this rating are considered to have an adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

Instruments with this rating are considered to have a moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

Instruments with this rating are considered to have a moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

Instruments with this rating are considered to have a moderate risk of default regarding timely servicing of financial obligations.

Instruments with this rating are considered to have a high risk of default regarding timely servicing of financial obligation.

Instruments with this rating are considered to have a very high risk of default regarding timely servicing of financial obligation.

Instruments with this rating are in default or are expected to be in default soon.

• Equity Shares

• Debentures & Bonds

• Warrants and Convertible Warrants

• Indices

• Mutual Funds

• Exchange Traded Funds

• Hybrid and Structured Products

• Commodity & Metals

• Equity Instruments

• Fixed Income Instruments

• Real Estate

• Distressed Products

• Other Products

• Foreign Portfolio Investor

• P-Note Participants

• Mutual Funds

• Insurance Companies

• Pension Funds

• PE Firms

• Hedge Funds

• AIFs

• Investment Advisors

• Corporate Treasuries

• Clearing Banks

• Merchant Bankers

• Underwriters

• Foreign Portfolio Investors

• Institutional Clients

• Stock Exchanges

• Depositories

• Depository Participants

• Trading Members

• Authorized Persons

• Custodian

• Clearing Corporations

• Clearing Banks

• Merchant Bankers

• Underwriters

• Institutional Clients

• Stock Exchanges

• Depositories

• Depository Participants

• Trading Members

• Authorized Persons

• Custodian

• Clearing Corporations

• Clearing Banks

• Merchant Bankers

• Underwriters

• Institutional Clients

• Professional Investement Management

• Diversification

• Convenience

• Unit Holders account administration and services

• Reduction in transaction costs

• Regulatory Protection

• Product Variety

• Category I AIF: AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure, or other sectors or areas that the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds, and such other Alternative Investment Funds as may be specified.

• Category II AIF: AIFs that do not fall in Category I and III and do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012.

• Category II AIF: AIFs employ diverse or complex trading strategies and may employ leverage through investment in listed or unlisted derivatives.

• Equity Shares & Stock

• Differential Voting Rights

• Preferential Shares

• Depository Receipts

• Equity Warrants

Differential Voting Rights (DVR) shares are shares that are permitted to be issued with differential voting and differential dividend rights. DVR shares are different from ordinary shares in two distinct ways. Firstly, they offer lower voting rights compared to ordinary shares.

Preference shares, also commonly known as preferred stock, is a special type of share where dividends are paid to shareholders prior to the issuance of common stock dividends. For preference shareholders, the dividend is fixed; however, they don’t hold voting rights as opposed to common shareholders.

A depositary receipt is a negotiable instrument issued by a bank to represent shares in a foreign public company. The company is considered public since any interested investor can purchase company shares in the public exchange to become equity owners. This allows investors to trade in the global markets.

A stock warrant represents the right to purchase a company’s stock at specific Costs and on a specific date. A stock warrant is issued directly by a company to an investor. Stock options are typically traded between investors. A stock warrant represents future capital for a company.

• Financial Distributors / IFA / MFDs / Brokers

• SEBI Registered Investment Advisors

• Direct Channel

• Plain Vanilla Bonds

• Foreign Currency Convertible Bonds

• Equity Linked Debentures

• Commodity Linked Debentures

• Mortgage Based Securities

Portfolio Management Services or PMS is a High Conviction best idea basket of stocks built around time-tested investment philosophy and principle by an extremely talented and competent investment professional.

• Currency Derivative

• Equity

• Gold Derivative

• Government Securities

• Marketable Securities

• Silver Derivative

• Mortgage Debt

• Debt Paper

• Mutual Fund

• Initial Public Offer (IPO)

• Follow on Public Offer (FPO)

• Rights Issue

• Private Placement

• Preferential Issue

• Qualified Institutional Placement

• Bonus Issues

• On-Shore and Off-Shore Offerings

• Offer for Sale

• Employee Stock Ownership Plan

• FCCB (Foreign Currency Convertible Bond)

• Depository Receipts (ADR + GDR)

• Anchor Investor – 10crores & above

• Over-the-Counter Market

• Exchange Traded Markets

• Clearing & Settlement

• Risk Management

• Trading

Initial Public Offer (IPO): An initial public offering (IPO) is a company’s first stock sale. In other words, it’s when a business decides to start selling its shares to the public. The company will decide how many shares it wants to offer, and an investment bank will suggest an initial price for the stocks based on their predicted demand.

A Follow On Public Offer (FPO) is a type of public offering where the issuer of the securities already has outstanding shares registered. An FPO allows these shareholders to sell some or all of their holdings and any new investors who may purchase shares through the offer. An FPO can have several benefits for a company, including providing liquidity to shareholders and raising additional capital. It can also help to increase the market visibility and trading volume of a company’s shares.

In a rights issue – also called a rights offering – a company gives its shareholders the chance to buy additional shares, proportionate to the amount they already hold, and usually at a discounted rate compared to the current market price. The shareholders have a fixed time period to decide whether they want to ‘take up their rights.

The private placement is a term used specifically to denote a private investment in a company that is publicly held. Private equity firms that invest in publicly traded companies sometimes use the acronym PIPEs to describe the activity. Private placements do not have to be registered or limited to listed shares only because no public offering is involved. The limit is less than 50 per financial year and less than 200 in total placement.

Preference Shares are very typical and special shares / equity instruments with some of the common characteristics of debt and equity. They behave like Shares in the form of ownership, and their prices can climb over time as they are traded, but are similar to debt because they pay investors fixed returns in the form of dividends. Preference Shares are used by professional and private investors who prefer a medium risk and return.

This is a way for companies, usually in India, to raise money by issuing securities to qualified institutional buyers. It was designed to help Indian companies raise capital from the domestic market rather than overseas. SEBI has defined the eligibility criterion for corporates to be able to raise capital through QIP and other terms of issuance under QIP such as quantum and pricing etc.

A bonus issue definition is an issue of free shares distributed pro rata to existing stockholders instead of a dividend. The formal convention of declaring a Bonus is on a prorated basis like 2: 5 (2 bonus share for every 5 held).

While raising capital, issuers can use either issue securities in the domestic market and raise capital or approach investors outside the country. If capital is raised from the domestic market, it is called an onshore offering, and if capital is raised from investors outside the country, it is termed an offshore offering.

An ESOP is an employee ownership vehicle, allowing the company to provide employees with an ownership stake and benefit from its success. So they are typically Equity warrants that essentially convert into Equity/ownership on a specified date, and that date is called the Vesting Date. The rights may vest fully or partially over the vesting period.

An FCCB is issued as a fixed income instrument / bond by an Indian enterprise that is expressed in foreign currency. The principal and interest are also payable in denominated foreign currency. The maximum tenure of the bond is 5 years. Structurally, FCCB is a quasi-debt investment, which can be converted into equity shares at the choice of investors either immediately after issue, upon maturity, or during a set period, at a predetermined strike rate or a conversion price.

Depository Receipts is a negotiable and transferable instrument in the form of financial security t that is often traded on a local stock exchange. Still, it represents security, which is often an equity instrument that is issued by a foreign company listed on a foreign stock exchange. Thus it is an instrument that allows the investors to hold shares in the equity of other countries on a domestic exchange.

Anchor Investor is a new concept introduced by regulators recently. Anchor Investors belong to the Qualified Institutional Buyers (QIB) category. Hence, they are always in a better position to measure the fundamentals as well as the future prospects of a company. QIB includes foreign institutional investors (FII), mutual funds, banks, provident funds, and other market intermediaries. The minimum application size for each anchor investor is Rs 10 crore.

• OTC Markets – Fragmented Marketplace

• Exchange Markets – Centralized Marketplace

• Mutual funds

• Pension funds

• Insurance companies

• Alternative investment funds

• Foreign Portfolio Investor

• Investment Advisors

• EPFO (Employee Provident Fund Organisations)

• National Pension System

• Family Offices

• Corporate Treasuries

• Equity Shares

• Debentures & Bonds

• Warrants and Convertible Warrants

• Indices

• Mutual Funds

• Exchange Traded Funds

• Hybrid and Structured Products

• Commodity & Metals

A Mortgage-backed Security (MBS) is fixed income security that is collateralized by a mortgage or a collection of mortgages or loans. An MBS is asset-backed security traded on the secondary market, enabling investors to profit from the mortgage business without the need to buy or sell mortgages or loans directly. A mortgage contained in an MBS must have originated from an authorized financial institution.

Diversification of Correlated non-asset reduces risks in an investment, and it is also called Cross-sectional Risk Diversification. This is achieved by reducing risk by holding different equities in many different kinds of business at a certain point in time. This is also maximized when you hold uncorrelated equities for a long period of time. That is why it is called TIME IN MARKET is important and NOT the TIMINGS

• Market Risks

• Sector Specific Risks

• Company Specific Risks

• Liquidity Risks

• Fundamental Research

• Quantitative Research

• Technical Research

• Derivative Research

• Events & News Based Research

• Buy Side Research

• Sell-Side Research

• Independent Research

• Company Analysis

• Industry Analysis

• Economy Analysis

• Economic Analysis

• Industry Analysis

• Company Analysis

• National Income

• Savings and Investment

• Inflation

• Un-Employment Rate

• FDI (Foreign Direct Investment)

• Foreign Portfolio Investment

• Fiscal Policy

• Monetary Policy

• Balance of Trade

• Export & Import

• Exchange Rate

• Trade Deficit

• Michael Porter Five Force Model

• PESTLE Analysis

• BCG Matrix

• SCP Analysis

• Geographic Migration: Discovery of shell gas helped the US to score over OPEC

• Cross Industry Migration: Conventional banks were replaced by Digital and Internet banking, and now Neo-banking

• Value Chain Migration: Higher benefits than the lower value chain. A typical example of a telecom operator – JIO, which benefitted from Vodafone and others

• Cross Companies Migration: Economic value creation and superior technology or features scores over others – like Samsung and Apple score over other small mobile phone manufacturer.

• Cross Product Migration: Usage from serving to cloud computing is a typical example.

• Create products and services that have low-Income elasticity

• Minimum impact of economic cycles.

• Food, agriculture output and health care are typical examples.

• It grows when the economy experiences an expansionary phase and declines during when recessionary phase

• Consumer durability is a typical example. When people have money, they grow, and when people do not have money, it fails.

• When affected by the extreme effects of economic cycles. During the recession, production drops.

• During the economic recovery, it experiences massive growth in the early phase. Auto and real estate is the typical example.

• Both market and the market share of the company are growing rapidly

• SUV segment and Hyundai Creta.

• Smart home and Cera sanitary appliances

• The business segment is growing fast, but the company is unable to capture the growing market

• Tata motors cars /Bajaj pulsar bike

• Smart mobile and LG mobile phone decision to exit.

• Low growth market but the high market share of the company

• ITC classmate – slow growth, but the market growth of the company is increasing rapidly

• Edible Oil and Saffola Gold

• Low growth of the market along with a low market share of the company

• Digital Camera

• Step 1: Gross Sales – GST = Net Sales

• Step 2: Net Sales – Cost = EBITDA

• Step 3: EBIT (DA) – Interest (Debt + Equity) = Cash flow from operations (EBTDA)

• Step 4: Cash flow from Operations – Capex or Re-investment Expense = Free Cash flow to FIRM, also known as Profit Before tax (PBT)

• Step 5: Free Cash flow to FIRM – (Tax & Depreciation & Amortization) = Free Cash flow to EQUITY, also known as Profit Before tax (PBT)

• Price to Earnings Ratio (P/E Ratio)

• Price to Book Value Ratio (P/BV)

• Price to Sales Ratio (P/S Ratio)

• EVA and MVA

• Price to Earnings Growth (PEG Ratio)

• Enterprise Value to Sales (EV/S)

EVA or Economic Value Added is referred to as economic profit, as it attempts to capture the true economic profit of a company. This measure was devised by the management consulting firm Stern Value Management, originally incorporated as Stern Stewart & Co.

• Step 1: Gross Sales – GST = Net Sales

• Step 2: Net Sales – Cost = EBITDA

• Step 3: EBIT (DA) – Interest (Debt + Equity) = Cash flow from operations (EBTDA)

• Step 4: Cash flow from Operations – Capex or Re-investment Expense = Free Cash flow to FIRM, also known as Profit Before tax (PBT)

• Step 5: Free Cash flow to FIRM – (Tax & Depreciation & Amortization) = Free Cash flow to EQUITY, also known as Profit After tax (PAT)

Government Bond Market and Corporate Bond Market

• Government Securities

  • Central Govt.

  • State Govt.

• Public Sector Bonds

  • Government Agencies / Statutory Bodies

  • Public Sector Undertakings

• Private Sector Bonds

  • Corporates

  • Banks

  • Financial Institutions

Any fund established or incorporated in India that is a privately pooled investment vehicle that collects funds from sophisticated investors, whether Indian or foreign, for investing in accordance with a defined investment policy for the benefit of its investors is referred to as an Alternative Investment Fund or AIF. AIF does not include funds regulated by the SEBI (Mutual Funds) Laws, 1996, the SEBI (Collective Investment Schemes) Regulations, 1999, or any other Board regulations governing fund management. Furthermore, the AIF Regulations grant certain exemptions from registration to family trusts established for the benefit of relatives as defined by the Companies Act, 1956, employee welfare trusts or gratuity trusts established for the benefit of employees, ‘holding companies’ as defined by Section 4 of the Companies Act, 1956, and so on.

1. Category I AIF:

• Venture capital funds (Including Angel Funds)

• SME Funds

• Social Venture Funds

• Infrastructure funds

2. Category II AIF

3. Category III AIF

AIFs that invest in start-up or early-stage ventures, social ventures, infrastructure, SMEs, or other sectors or areas that the government or regulators deem to be socially or economically desirable, including venture capital funds, SME funds, social venture funds, infrastructure funds, and other Alternative Investment Funds that may be specified.

AIFs that are not classified as Category I or III and do not use leverage or borrow only to satisfy day-to-day operating needs, as approved by the SEBI (Alternative Investment Funds) Regulations, 2012. Real estate funds, private equity funds (PE funds), distressed asset funds, and other types of funds are all classified as Category II AIFs.

AIFs trade in a variety of ways and employ leverage, such as investing in listed or unlisted derivatives. Category III AIFs include hedge funds, PIPE Funds, and other types of funds.

Debt funds are Alternative Investment Funds (AIFs) that invest primarily in debt or debt securities of listed or unlisted investee firms in order to achieve the Fund’s stated goals. These funds are classified as Category II funds. It should be noted that because the Alternative Investment Fund is a privately pooled investment vehicle, the funds supplied by the investors will not be used to make loans.

“Angel Fund” is a sub-category of Venture Capital Fund under Category I alternative Investment Fund that obtains funds from angel investors and invests in compliance with AIF Regulations Chapter III-A. An angel fund will only be able to raise capital by selling units to angel investors. “Angel investor” refers to someone who wants to invest in an angel fund and meets one of the following criteria:

An individual investor with at least two crore rupees in net tangible assets, excluding the value of his primary dwelling, and who:

Has early-stage investment experience, or

Has experience as a serial entrepreneur, or

Is a senior management professional with at least ten years of experience.

A company with at least ten crore rupees in net value; or

A VCF registered under the SEBI (Venture Capital Funds) Laws, 1996, or an AIF registered under similar regulations.

Angel funds must take an investment of not less than ’25 lakh from an angel investor for a period of up to three years.

According to publicly accessible information, a fund of funds is an investment strategy that involves maintaining a portfolio of other investment funds rather than investing directly in stocks, bonds, or other assets. A Fund of Fund, in the context of AIFs, is an AIF that invests in another AIF.

An AIF scheme (other than an angel fund) may not have more than 1000 investors. (Please note that if the AIF is incorporated as a company, the requirements of the Companies Act, 1956 will apply.) No plan may have more than 49 angel investors in the case of an angel fund. An AIF, on the other hand, cannot invite the general public to subscribe to its units and can only receive capital from skilled investors through private placement.

Any individual who establishes the AIF is referred to as a “sponsor,” which includes the promoter in the case of a business and the designated partner in the case of a limited liability partnership.

An AIF can be founded or incorporated in the form of a trust, a company, a limited liability partnership, or a body corporate under the SEBI (Alternative Investment Funds) Regulations, 2012. The majority of SEBI-registered AIFs are in trust form.

The entire amount of funds committed to the AIF by way of a written contract or other similar agreement as of a specific date is referred to as the “corpus.”

Yes. The launch of schemes by an AIF is contingent on the submission of a placement memorandum with SEBI.

It should also be mentioned that an AIF must pay Rs. 1 lakh in scheme fees to SEBI prior to the commencement of the scheme while filing the placement memorandum. This charge must be paid at least 30 days prior to the start of the plan. Payment of scheme fees is not required in the case of the AIF’s first scheme (other than an angel fund) and angel funds.

No, any Alternative Investment Fund program (other than an angel fund) must have a minimum capital of twenty crore rupees. A corpus of at least ten crore rupees is required for an angel fund.

An AIF can attract money from any competent investor, including Indians, foreigners, and non-resident Indians, who are willing to take on the risk of investing in predominantly unlisted or illiquid securities. However, an AIF (other than an angel fund) will not take an investment of less than one crore rupee from an investor. The minimum investment amount for investors who are employees or directors of the AIF or employees, or directors of the Manager is twenty-five lakh rupees.

To ensure that the Manager/interests sponsors are aligned with those of the AIF’s investors, the AIF Regulations require that the sponsor/manager have an ongoing interest in the AIF, which cannot be achieved by the waiver of management fees. Such interest shall be not less than two and a half percent of the corpus or five crore rupees, whichever is less, for Category I and II AIFs, and not less than five percent of the corpus or ten crore rupees, whichever is less, for Category III AIFs. Angel funds must pay interest of at least two and a half percent of the corpus or fifty lakh rupees, whichever is lower.

No, Category I and II AIFs must be closed-ended and have a three-year minimum duration. AIFs under Category III might be open-ended or closed-ended.

The AIF Regulations include both general investment criteria that apply to all AIFs and specialized investment conditions that apply to a particular type or sub-category of AIFs. The AIF Regulations, Chapters III and III-A provide information on investment conditions.

All AIFs must comply with the general obligations, responsibilities, and transparency standards set out in Chapter IV of the AIF Regulations. Chapter IV outlines the AIF’s unique investor disclosure duties, including conflict of interest, information on fund investments, fees, different risks, valuation, and so on.

AIFs may also give additional information to investors in the placement memorandum, in addition to what is required by the AIF Regulations. What must information about fees and charges be mentioned in the placement memorandum? Every AIF must include as an annexure to its placement memorandum a thorough tabular example of how the fees and charges will be applied to the investor, including the distribution waterfall.

These modifications may include, but are not limited to:

The sponsor/manager has changed (not including an internal restructuring within the group)

Changes in the sponsor/control manager’s

Changes in the fee structure or hurdle rate that might result in increased costs for unitholders

However, in the event of major developments that have a significant impact on the investor’s choice to continue to participate in the AIF, the procedure outlined in Circular No. CIR/IMD/DF/14/2014, dated June 19, 2014, must be followed. The trustee of the AIF (in the case of a trust) or the sponsor (in the case of any other AIF) will be in charge of managing the process, ensuring compliance, and keeping SEBI up to date on developments.

The tenure of any AIF scheme is computed from the date of the plan’s final closure.

Overseas investments by AIFs are limited to 25% of the AIF’s investible funds, subject to a total maximum of USD 500 million (combined limit for AIFs and Venture Capital Funds registered under the SEBI (Venture Capital Funds) Regulations, 1996).

Investors can file complaints against AIFs using SEBI’s web-based centralized grievance resolution system, SEBI Complaint Redress System (SCORES), which can be found at http://scores.gov.in. Furthermore, the AIF, either directly or through the Manager or Sponsor, is required by the AIF Regulations to establish a procedure for resolving disputes between the investors, the AIF, the Manager, or the Sponsor through arbitration or any other mechanism mutually agreed upon by the investors and the AIF.

An AIF may accept the following individuals as joint partners for a minimum investment of one crore rupees:

• An investor and his/her spouse

• An investor and his/her parent

• An investor and his/her daughter/son

• In the case of the aforementioned investors, no more than two people may participate as joint investors in an AIF.

• In the case of any additional investors acting as joint investors, the minimum investment amount of one crore rupees would apply to each investor. The term “joint investors” refers to a situation in which each investor contributes to the AIF.

The AIF will have a 6-month time constraint to make allocated investments in offshore venture capital enterprises after receiving SEBI clearance. If the applicant does not use the given limitations within the time frame, SEBI may assign the unutilized limit to other applicants.