Quantitative aspect:Primarily various books on merchant banking were read to know

various features and principle used in working of the industry. Moreover, various magazines were read to know about the latest happening in this field. Websites were visited and information regarding different aspect, to get a better knowledge on the topic was collected. Various websites were visited so as to study the important of merchant banking in the ever rising competition in today’s world.

Qualitative aspect:MR. NAVNEET (Anand rathi) was approached and interviewed, and

implementation and scope of merchant banking was understood through his expertise in the field. Some analysis was done for different cases so as to understand different strategies in different situation, MR. Kotiyal (share khan) was also approached to give an insight on the future of merchant banking in India and the current scenario

Merchant banking an overview:Company raises capital by issuing securities in market. Merchant bankers at as intermediaries between the issuer of capital and the ultimate investor who purchase these securities. Merchant banking……. is the financial intermediation that matches the entities that need capital and those that have capital? It is function that facilitates the flow of capital in the market.

Scope of merchant banking activities:Merchant banking activities helps: • • • In channel sing the financial surplus of the general public into productive investment avenues. To coordinate the activities of various intermediaries to the share issue such the registrar, banker, advertising agency, printers, underwriters, brokers etc. To ensure the compliance with rules and registration governing the securities market.

Functions of a merchant banker…..
The following comprise the main functions of a merchant banker:

Management of debt and equity offerings:This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The main areas of work in this regard includes : instrument designing, pricing the issue, registration exchanges. of the offer document, underwriting support, and marketing of the issue, allotment and refund, listing on stock


Placement and distribution:the merchant banker helps in distributing various securities like equity shares ,debt instrument, mutual fund product, fixed deposit, insurance products, commercial paper to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. the institutional network consist of mutual fund, foreign institutional investor, private equity funds, pension fund, financial institution etc. the size of such a network represents the wholesale reach of the merchant banker. The retail network depends on networking with investors.


Corporate advisory services:Merchant bankers offer customized solutions to their client’s financial problems. The following are the main areas in which their advice is sought.


Financial structuring:-

They assist them in conceptualizing the project idea in the initial stage. In case of sick units. based on which the terms of borrowing can be defined. 5. Another area of advice is habilitation and turnaround management. Then the merchant banker prepares a detailed loan memorandum. they conduct feasibility studies to examine the viability of the proposed project. Risk management is another area where advice from a merchant banker is sought. This take place in a series of step. Firstly they analyze the pattern of the clients cash flows. 6.Includes determining the debt-equity ratio and gearing ratio for the client: the appropriate capital structure theory is also framed. Loan syndication:Merchant banker arranges to tie up loans for their clients. He advice the client on different hedging strategies and suggest the appropriate strategy. which is circulate to various banks and financial institution and they are invited to participate in the syndicate. Once the idea is formed. Merchant banker also explores the refinancing alternatives of the client and evaluate cheaper source of fund. merchant banker may design a revival package in coordination with banks and financial institution. They also assist the client in preparing different document like the detail project report. Project advisory service:Merchant banker help their clients in various stage of project undertaken by the clients. . The banks then negotiate the terms of lending on the basis of witch the final allocation is done.

group company.Registration of merchant banker…. • The applicant should have a minimum net worth of Rs. • The applicant should not have been involved in any securities scam or proved guilt for any offence. subsidiary or interconnected company of the applicant should not have been a registered merchant banker. Registration with SEBI is mandatory to carry out the business of merchant banking in India. manpower etc. • The applicant must have at least two employees with prior experience in merchant banking.5 cores Introduction . An application should comply with the following norms: • • The applicant should be a body corporate. • Any associate company. • The applicant should have necessary infrastructure like office space. equipment. The applicant should not carry on business other than those connected with the securities market.

They had followed strategy of assuming different roles according to the need of need of time to maintain their existence in the business environment.The history of origin and growth of merchant banking throughout the world. the fact that the role of the merchant banker had never been determined. These organizations are sometimes banks which are not merchants and sometimes merchants who are not banks and . Some of the definitions are discussed below to locate the practical meaning of the term “merchant banking”. grown and sustain in European land. has established. This is well convinced definition that could be given to any service oriented industry. This is one of the reasons that no fixed definition cold be ascribed to “MERCHANT BANKING”. beyond doubts. The survey of the existing literature in the foregoing pages reveals that merchant banking is a non-banking financial activity resembling banking originated. The definition given by different authors explaining the meaning of merchant banking revolved around the role played by merchant banks. There role and scope of such role have enlarged with the passage of time. Very commonly. the merchant banking has been defined as to what a merchant banker does. got enriched under American patronage and now being rendered throughout the world by both banking and non-banking institution. Dictionary meaning of merchant banking hints at merchant banks as an organization that underwriters securities for operation advises such clients on mergers and is involved in the ownership of commercial venture. Dictionary meaning of merchant banking hints at merchant banks as an organization that underwrites securities that underwrites securities for corporations. as discussed in the forgoing paragraphs.

portfolio management and other banking services. In financial history of Western Europe. This was done in various ways viz. Charles P Kindle Berger writes about merchant banking as the development of banking from commerce frequently encountered a prolonged intermediate stage known in England original as merchant banking. Again. For example. Merchant Banks. are financial institution providing specialist services which generally include the acceptance of bill of exchanges. corporate finance. There name lent creditability involving the other people money. thus. These definition reflects the historical formation of the merchant banking profession as such. in which the merchants had assume banking role and subsequently banks assume the merchant roles. one merchant bank may specialized in one activity only. It is not necessary that a merchant banker should do all such activities to be called a merchant bankers. The merchant banker was a banker was a merchant who lent his credit to others. the firm . by issuing letters of credit under which merchants could draw bills of exchange created by trade. firms in England which are engaged in the business of acceptance of bills are known as merchant bankers. making advance to produces before goods were sold. which may be complimentary or supportive to specialized activity. either the goods entrusted to merchant on commission for sale abroad or received on consignment from abroad. the original label of ‘merchants and bankers was replaced by merchant banker’s. Most merchant banks drifted from generalized commerce into specified commerce and from specialized commerce into finance. Paul ferries rightly states this phenomenon. and take up other activities also. in essence.sometimes houses which are neither merchants nor banks.

Merchant banking is a result oriented profession commanding high degree of skills and dexterity and in solving business problems. consultant. Merchant Banking is an emerging concept in the area of financial services in India. . Thus. assisting in in investments financial decision making. money markets & international financial system. Merchant’s banker’s with the confidence of investors and general public command high reputation for passing on accurate. adequate and timely information which helps and facilities in the functioning of capital markets.which are members of the issue House Committee in England (not necessarily be engaged in the former activity) are also merchant banks. The profession of Merchant Banking is dedicated to fulfill the needs of trade and industries by acting as an intermediary. Merchant Bankers observe their skill as personal possession for their comparative strengths in the profession. assessing capital needs and helping in producing the owed as well as borrowed funds for achieving balanced capital structure of the client corporate un its. merchant banks despite specialization in one activity have different roles to play in different economic situation. liaison man and financer too. assisting laying corporate strategies.

advisor or rendering corporate advisory service in relation to such issue management. this organization may be bank corporate body. etc. “portfolio management” and mergers and amalgamation of corporate firm. A merchant banker has been defined under the securities and exchange board of India [merchant banker] rules.Definition “ A merchant bank is a defined as a financial institution or an organization that underwrites corporate securities and advice such clients on issue like corporate mergers etc involved in the ownership of commercial venture. a firm or a priority concern” Merchant banking in India started with management of public issues and loan syndication and has been slowly and gradually covering activities like “project counseling”. buying or subscribing securities as manager.1992 as “any person who is engaged in the business of issue management either by making arrangements regarding selling. consultant. .

borne exchange risk in the absence of any international medium of exchange in addition to the security risk in financing the king.very often . Riccardi of Lucca . For this reason .denouncements of obligations by debtors . These firms had acted as the bankers to the kings of European status. Fugger banker had to suffer in 1650 when Habsburg Emperors Maximillan and Charles.similarly.V deflated in payments. the highly risky venture . with heavy losses . and then the existing merchant banker . they had to suffer . monarchs and the state government engaged in the continental wars. closed down for reasons of denial of .For example . credits losses and confiscations of their properties by the kings they financed . the Medici bank of Florence was liquidate in 1494. Medici and fogger. Economic literature available on international trade and finance contains lucid information on the evolution of merchant banking and make a fascinating reading that provides the historical background of origin of merchant banking. During 13 th century a few families owned and managed firms engaged in coastal trade and finance were spread throughout the European continent.In turn .the Italian merchant banker. The first known such firms were Ricardo of Lucca.merchant bankers used to charge rate of return for financing . repayments .Origin of Merchant Banking The origin of merchant banking is traceable with the development of inters a national trade and finance. financing costal trade amongst European nation. The motivation behind their banking activity was profit maximization and to achieve this aim they invested their funds were they expected higher return despite high degree of risk. There are numerous instances likewise where. These firms besides their commercial activity involving sale and purchase of commodities were engaged in banking activity also. had opened an office in England to serve the English Government of Edward-I of England and had to succumb to closure when kings confiscate its properties on its refusal to finance the war in 1924.

Thus. the richest merchant of Europe. survived and continued during thirteen and sixteen centuries. The important service they rendered including handling of the costal trade and for their masters goods on commission basis. with all the odds. Many European states Including Germany. The main borrowers of their funds were crowns. This gives a fillip to merchant banking activities and involves them in acts of lending in addition to doing the jobs on commission basis. upon the expertise of merchant banker. had financed the germane prince: jaws of Kassel and Frankfurt made loans to the rulers in the name of. merchant banking. During Napoleonic war. Russia and Sweden had borrowed in Amsterdam such huge sums during beginning of the 18th century. emperors and state government. the Dutch trader and banker lent heavily to finance continental wars. The main trading center for world trade and during the above period had remained in Amsterdam where the Dutch trader relied. despite the suffering. During the 17 th centuries also. then knows as “commission agent”. to whom these merchant banker continued lending for reasons of patronage. as started earlier. at their hands and by their fellow trader. on the finance of trade. banker. William of England borrowed huge sums in Amsterdam to fight the continental wars. margrave of hassle. recognition and higher expectation. These commission agents did big business by making small investment in the goods manufactured by the sellers and thus accumulated huge wealth. financing the owners or suppliers of the goods and the shipping agencies by expounding their payment obligations by accepting credit in addition to the direct financing. . This risky investment was made with the sole objective of profit maximization by the merchant banker. leave the activity or started another activity or started the same activity after strengthening the financing background.had to collapse.

In Frankfurt. These prominent merchants were requested to lend their name to the lesser known traders by accepting a bills they guaranteed that the holder of bill will receive the full value on the date of payment. The founders of the several of the present day merchant banks who started the business having the 18th century and early 19th century were the merchants who traded overseas and earned reputation with their name. along with the British manufactures. were bankers in 18th century and at the same time engaged in trading of all commodities they could sell at a profit. john & co. This acceptance business has grown with the expansion of the trade through the European nations and continuous today the banks most activity engaged in it are the number of the acceptance house committee of London. in Amsterdam. tobacco. That is the North America and other continents. developing colonies of the European nation in other continents and bringing raw material from other nations and colonies to Europe. The merchant banker traded for centuries and retained their names and activities in different nations by expanding their activities. . Meyer mashes Rothschild traded coffee. and to finance such trade. sugar. Many more persons and firms were attracted to take up the merchant banking activities particularly to transship the machine made goods from European nations to other nations.The industrial revolution in England gave further boost to the merchant banking activity with the growth of the home industry made goods like linen and paper. The scope of international trade and expanded to the colonies of the new world. For example.

The growth in merchant banking business during the early seventies was to forcing exchange regulation act 1973 [ FERA] where in large number of forcing companies operating in India were required to dilute their foreign holdings In order to continue business in the country his result in . Other forcing bank like city bank. the largest foreign bank in the country. financial institutions. at the time. The main service offer to the corporate enterprises by the merchant bank includes management public issue and financial consultancy. broker firms entering in to the field of merchant banking. both emerged as leader in merchant banking with significance business during the period of 1974-1985 in comparison to forcing banks. Mid seventies witnessed a growth of merchant banking organization in the country with various commercial banks.Growth of merchant banking in India Merchant baking activities in India originated in 1969 with the merchant banking division set up by the grind lay bank. chartered bank also assumed the merchant banking activity in India. State bank of India started merchant banking in 1973 followed by the ICICI in1974.

All India financial institution had experienced constrain of resources to meet ever increasing demands for demands for funds frame corporate sector enterprises. exerting excess demand on the sources of fund for ever expanding industries and trade. Till the end of 1990. Growing demand for funds put pressure on capital market that enthused commercial banks. various private sectors merchant bankers have emerged and some of them having international reputation. Various existing corporate entities and non-banking finance companies have also focused their activities in merchant banking business. This sector has traditionally been dominated by financial institution. Importance and need of Merchant Banking in India Importance reasons for the growth of merchant banks has been development activities throughout the country.expansion in the capital markets providing enough opportunities to merchant bankers to established themselves. however since 1991 considerable number of private merchant banker have emerged on same. Before 1990 there were less than 40 merchant banking concerns while in 199 this number has exceeded to more than 400 firms. The change in Indian economy opened new doors for merchant banking business enter in diversified area of activities. the merchant banking sector was almost monopoly public sector institution and commercial banks. Now. share brokers and financial consultancy firms to . but at the same time this brought competition in merchant banking sector. In such circumstances corporate sector had the only alternative to avail of the capital market service for meeting their long term financial requirement through capital issue of equity shares and debentures. banks and their subsidiaries. thus leaving a widening gap unabridged between the supply and demand of invisible funds.

Finance is the backbone of business activities. rules and regulation. safety and expectation for higher yields. Merchant bank advice the investors of the incentives available in the form of tax relief. In view of multitude of enactment. modernization and diversification of the existing enterprises. Merchant . This reinforces the need for a vigorous role to be played by merchant banking. securities contracts corporate laws and regulations. foreign exchange regulation act. good return on investment and capital appreciation in such investment to motivate them to invest their savings securities of the corporate sector. With growth of merchant banking profession corporate enterprises in both private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirement for funds for establishing new enterprises.enter into the field of merchant banking and share the growing capital market. income tax act. gridlines and offshoot press release instructions brought out the government from time to time imposing statutory obligations upon the corporate sector to comply with those entire requirement prescribed there in the need of a skilled agency existed which could provide counseling in these matters in a package form. other statutory relaxation. Thus merchant banks help industries and trade to rise and the investors to invest their saved money in sound and healthy concern with confidence. A merchant banker with their skills updated information and knowledge provide this service to the corporate units and advice them on such requirement to be complied with for raising funds from the capital market under different enactment viz. companies act. Need for merchant banking is felt in the wake of huge public saving lying untapped. As a result all the commercial banks in nationalized and public sector as well as in private sector including foreign banks in India have opened their merchant banking windows and competing in this field. Merchant banker can play highly significant role in mobilizing funds of savers to invisible channels assuring promising returns on investment and thus can assist in meeting the widening demand for invisible funds for economic activity. undertaking expansion.

Growing industrialization and increase of technologically advanced industries. SEBI will grant certificate to Merchant banker if it follows the following condition: Merchant banker should be a body corporate and should not be non banking finance company  They must have a necessary infrastructure for maintaining an office . Most of the financial institution in India is in public sector and therefore such setup plays a role on the lines of governmental priorities and policies. 5. Need for encouragement of small and medium industrialists. who require specialist services. 4. Growing complexity in rules and procedures of the government. Where merchant banks function as an independent wing or as subsidiary of various private/central governments/ state government financial institution. 6. 3.banker make available finance for business enterprises acting as intermediaries between them raising demand for funds and the supplies of funds besides rendering various other services. REGISTRATION PROCESS OF MERCHANT BANKING MERCHANT BANKER without holding a certificate of registration granted by the Securities and Exchange Board of India cannot act as a merchant banker. Need to develop backward areas and states which require different criteria. 2. The following are some of the reasons why specialist merchant bank have a crucial role to play in India. Promoting the role of new issue market in mobilizing saving from. 1. Exploring the possibility of joint ventures abroad and foreign market.

Procedure for getting registration Failing to pay registration fees Cancellation of certificate  CAPITAL STRUCTURE DECISION:The capital requirement depends upon the category. They must have employed a minimum of 2 persons with experience in merchant banking business.  They should not be connected with any company directly or indirectly. The minimum net worth requirement for acting as merchant banker is given below:  Category I – Rs. 5 crores .

underwriter. consultant. portfolio manager. underwriter.   Category II – Rs. adviser or consultant to an issue Category IV – to act only as adviser or consultant to an issue Obligations and responsibilities  Code of conduct:- .to act as underwriter. Category II . portfolio manager. act as adviser.   Category III .  consultant. 20 lakhs Category IV – Nil The categories for which registration may be granted are given below  Category I – to carry on the activity of issue management and to act as adviser. 50 lakhs Category III – Rs. manager.

the possible sources of conflict of duties and interest. He cannot made any statement or become privy to any act. ensure proper care and exercise independent professional judgment. while competing for. . and 2) Deal in the securities of any client company without making disclosure to the SEBI as per the regulations and also the Board of Directors of the client company. to the client either about his qualification or his capability to other clients. any assignment. press or any other party any other party confidential information about his client. disclose to his clients. which has come to his knowledge.Every merchant banker has to abide by the code of conduct as specified below. wherever necessary. while providing services. and 2) Ensure that all professional dealing are affected in prompt. practice unfair competition. He should not make any exaggerated statement. A merchant banker in the conduct of his business has to observe standards of integrity and fairness of all his dealings with the clients and other merchant bankers. which is likely to be harmful to interest of other merchant bankers or is likely to place such other merchant banker in a disadvantageous position in relation to him. efficient and cost effective manner  He should not:1) Divulge to other clients. exercise due diligence. and his own professional skill. whether oral or written. He has to. or executing. A merchant banker always to endeavors to: 1) Render the best possible advice to the clients regarding clients the needs and requirements. He ought to render at all times high standards of service.

and are made aware of attendant risks before any investment decision is taken by them. he has to avoid by the provisions of the SEBI Act. a merchant banker who is registered with RBI as a Primary Dealer/Satellite Dealer may carry on such business as may be permitted by RBI with effect from November 1999. . and c) Passing of price sensitive information to brokers. its rules and regulations which may be applicable and relevant to the activities carried on by the merchant banker. other than a bank/public financial institution (PFI) is permitted to carryon business other than that just in the securities market with effect from December 9. b) Price rigging or manipulations. However. 2) The copies of prospectus. 1997. and A merchant banker should not generally and particularly in respect of the issue of any securities be part to a) Creation of false market. members of stock exchanges and other players in the capital market or take any other action which is unethical or unfair to the investors. Finally. memorandum and related literature are made available to the investors 3) Adequate steps are taken for the fair allotment of securities and refund of application money without delay. He should endeavor to ensure that:1) The investors are provided with true and adequate information without making any misguided or exaggerated claims.  Restriction on Business:No merchant banker.

 Due Diligence certificate:The lead manager is responsible far the verification of the content of a prospectus/letter of offer in respect of an issue and the . A statement specifying these is to be furnished to SEBI at least one month before the opening of the issue for subscription. It is necessary for a lead manager to accept a minimum underwriting obligation of 5% of the total underwriting commitment or Rs. equal amount by a merchant banker associated with that issue under intimation to SEBI.  Responsibilities of Merchant Banker:Every lead manager has to enter into an agreement with the issuing companies setting out their mutual rights.400 crore respectively. the maximum permissible lead managers are three and four respectively. the statement of has to provide details about their respective responsibilities. and obligation relating to issue and in particular to disclosures.200 corer and above Rs. A company can appoint five and five or more (as approved by the SEBI) lead managers in case of issues between Rs. two managers are appointed. If he is unable to do so.50 crore to Rs. allotment and refund. For size groups of Rs.100 crore and Rs. In case of more than onelead manager/Merchant banker.50 crore. Maximum Number of Lead Managers :The maximum number of lead manager is related to the size of the issue.25 lakh whichever is less.100 corer to Rs. For an issue of size less than Rs. He can also not associate with a merchant banker who does not hold a certificate of registration with the SEBI. A lead merchant banker cannot manage an issue if the issuing company is its associate. he has to make arrangements for an underwriting of an.200 crore. liabilities.

Rs 50 corer Rs 10 crore. He has to submit to the SEBI at least two weeks before the opening of the issue far subscription a due diligence certificate to the effect that a) The prospectus/letter of after is in conformity with the documents/materials and papers relevant to the issue.Rs 10 crore Rs 50 crore. They have to ensure that the modifications/suggestion made by it with respect to the information to be given to the investors is duly incorporated.reasonableness of the views expressed in them. b) All legal requirements connected with the issue have been fully complied with. draft prospectus/letter other literature circulated investors/shareholders.000 Rs 50. Submit at two weeks of before offer. and c) The disclosure is true. The draft prospectus/draft letter of offer should be submitted to the SEBI along with the prescribed fee specified below:- Issue size including premium and intended retention oversubscription Up to Rs.000 Rs 15.Rs 100 corer Rs 10.5 crore Rs 5 crore. the date of filing to with be the registrar to of the companies/regional stock exchange or both particulars of the issue. and so an to the SEBI.  least Submission of Documents:The lead managers(s) to an issue has (have) to.000 Rs 25. fair and adequate to enable the investors to make a well-informed decision as to the investment in the proposed issue.000 Fee per document .

00. The particulars relating to breach of capital adequacy requirements and . a merchant banker has to disclose to the SEBI: I) II) His responsibilities with regard to the management of the issue.Rs 500 corer More than Rs 500 corer Rs 2.000 Rs 5. Acquisition of shares a merchant banker is prohibited from acquiring securities of any company on the basis of unpublished price sensitive information obtained during the course of any professional assignment either from the client or otherwise. Any changes in the information/particulars previously furnished which have a bearing and the certificate of registrations granted to it.50.Rs 100 crore. He has to submit to the SEBI the complete particulars of any acquisition of securities of a company whose issue is being managed by him within 15 days from the date of the transaction.  Disclosures to SEBI:As and when required.000 They have to continue to be associated with the issue till the subscribers have received the share debentures certificate or the refund of excess application money. III) IV) The names of the companies whose issues he has managed or has been associated with.

 Procedure for Inspection:The SEBI can undertake the inspection of the books of accounts. and documents of a merchant banker to ensure that the books are maintained in the manner required. under writer. consultant or adviser to an issue. and to investigate complaints from investors/other merchant bankers/any other person or any matter having a bearing on his activities. allow a reasonable access to the premises. The merchant banker has an obligation to furnish all the information called for. extend reasonable facility for the examination of books/records/documents/computer data and provide copies of the some and give all assistance to the inspecting authority in connection with the inspection. the SEBI can all upon the merchant banker to take such measures as it deems fit in the interest of the securities market and for due compliance with the provisions of the SEBI can appoint a qualified auditor with the above powers of the inspection committee to investigate into the books of accounts or the affairs and obligations of the merchant banker.V) Information relating to his activities as manager.  Action in Case of Default:A merchant banker who fails to comply with any conditions subject to which the certificate of registration has been granted has been granted. the provision of the SEBI Act. records. . rules and regulations are being camp lied with. as a merchant banker and suo moto in the interest of securities business/investors interest into the affairs of the merchant banker. On the basis of the inspection report and after giving him an opportunity to make an explanation.

2) (a) Fails to furnish any information relating to his activity as Merchant banker as require (b) Furnishes wrong or false information. rules or regulations. 4) Indulges in manipulating or price rigging or cornering activities. 5) Is guilty of misconduct or improper or unbusiness like or unprofessional conducted which is not in accordance with the code of conduct under the regulations. and 9) Does not carry out his obligations-as specified in the regulation . rules or regulations. 8) Violates the conditions of registration. 3) Fails to resolve the complaints of the investors or fails to give a satisfactory reply to the SEBI in this behalf. 6) Fails to maintain the capital adequacy requirement in accordance with the provisions of the regulations. is liable to any of the two penalties: a) Suspension of registration or b) Cancellation of registration  Suspension of Registration:A penalty of suspension of registration of merchant banker maybe imposed where the merchant banker 1) violates the provisions of the SEBI the SEBI and/or contravenes any of the provisions of the SEBI Act. (d) Does not cooperate in any enquiry conducted by the SEBI. (c) Does not submit periodical returns as required by the SEBI. 7) Fails to pay the fees.

The financial position of the merchant banker deteriorates to such an extent that SEBI is of the opinion that his continuance as merchant banker is not in the interest of investors 3. The defaults are categorized into (a) General. he ceases to carryon any activity as a merchant banker. The order of suspension of cancellation of certificate is published in at least two daily newspapers by the SEBI. The merchant banker indulges in deliberate manipulation or price rigging or cornering activities affecting the securities market and the investor’s interest 2. Cancellation of Registration:A penalty of cancellation of registration of a merchant banker may be imposed where: 1. On and from the date of suspension and cancellation of registration of the merchant banker. or is convicted of a criminal offence and 4. The merchant banker is guilty of fraud.  Default by Merchant Bankers and Penalty Points:The SEBI imposes penalties for non-compliance for registration and contravention of the regulations on the basis of which registration is suspended/cancelled. . In case of repeated defaults of the nature leading to suspension of registration provided that the SEBI flourish reasons for cancellation in writing. (b) Minor.

(c) Major and (d) Serious. c. filing of listing application by the issuer. broker’s conference or other such conference/meet prior to the issue for marketing of the issue for marketing of the issue arranged/participated by the merchant banker. Violation of regulations relating to advertisement on capital issues. brochure. Advertisement. Exaggerated information or information extraneous to the prospectus is given by issuer or associated merchant baker in any press conference. 3) Non-receipt of due diligence certificate in the prescribed manner by SEBI. . General defaults for the purpose of penalty points. Failure to substantiate matters contained in highlights to the prospectus. circular. a. 1) Non-receipt of draft prospectus/letter of offer from the lead manager by SEBI. 5) Failure to ensure expediting of dispatch of refund orders. before opening of the issue. investor’s conference. before filing with the registrar of companies/stock exchange 2) Non-receipt of interse allocation of responsibilities of lead managers in an issue by SEBI prior to the opening of issue. the following activities are classified under general defaults and attract one penalty point. shares/debentures certificate. 4) Failure to ensue the submission of certificate of minimum 90% subscription to the issue. b. d.  Minor Defaults:- The following activities are categorized under minor defaults and attract two penalty points. press release and other issue related materials not being in conformity with the contents of prospectus.

In the event of joint responsibility. f. Failure to exercise due diligence in verifying the contents of prospectus letter of offer. the maximum penalty points awarded in a single issue managed by a merchant banker are restricted to four. h.  Serious Defaults:The following activities are categorized under serious defaults and attract four penalty points: 1) Unethical practice by a merchant banker and/or violation of Code of conduct. In the absence of receipt of . Failure to provide adequate and fair disclosure to investors and objective information about risk factors in the prospectus and other issue literature. the same penalty point is awarded to all lead managers. Non-handling of investors grievances promptly  Major Defaults:The following activities are categorized under major defaults and attract three penalty points. documents. To enable a merchant banker to take corrective action. A merchant banker on reaching cumulative penalty points of eight attracts action from SEBI in terms of suspension/cancellation of authorization. c) Association of unauthorized merchant banker in an issue.e. evidence as may be called for. Delay in refund/allurement of securities. 2) Non-cooperation with SEBI in furnishing desired Information. a) Mandatory underwriting not takes up by the managers b) Excess number of lead managers than permissible. g.

 Defaults in Prospectus:In the highlights are provided. I. if stated in highlights attracts a negative point of -0. . the prospectus falls in category C  General Negative Marks:If all highlights are provided in an issue a) Risk factors should from part of highlights.-otherwise it attracts a negative points of-1 b) Listing details. Absence of risk factors II. Absence of listing III. if stated The maximum grading points of prospectus can be 10 and prospectuses scoring greater than or equal to 8 points are categorized as A+. those with 6 or less than 8 points as A. the following deficiencies attract negative points. otherwise it attracts a negative point of-OS c) Any matter extraneous to the contents of the prospectus.5.inter se allocation of responsibilities. Extraneous contents to prospectus. all lead managers to the issue are awarded the penalty points. those with 4 or less than 6 points as B and those with score of less than 4 points. should form of part of highlights.

. Punjab National Bank. Most of the financial institutions in India are in public sector and therefore such set up plays a role on the lines of governmental priorities and policies. The parent banks are either nationalized commercial banks or the foreign banks operating in India. etc. Securities and exchanges Board of India has divided the merchant bankers into four categories based on their capital adequacy. Each category is authorized to perform certain functions. From the point of Organizational set up India’s merchant banking organizations can be categorized into 4 group on the basis of their linkage with parent activity. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market. Bank of India.Organizational set up of Merchant Bankers in India In India a common organizational set up of merchant bankers to operate is in the form of divisions of Indian and Foreign banks and Financial institutions. Canada Bank. b) Banker Base:These merchant bankers function as division/ subsidiary of banking organization. subsidiary companies established by bankers like SBI. some firms are also organized by financial and technical consultants and professionals. They are: a) Institutional Base:Where merchant banks function as an independent wing or as subsidiary of various Private/ Central Governments/State Governments Financial institutions.

partnership. These brokers undertake merchant baking related operating also like providing investment and portfolio management services. Some foreign merchant bankers are also entering either independently or through some collaboration with their Indian counterparts. Many of these firms were in existence for quite some time before they added a new activity in the form of merchant banking services by opening new division on the lines of commercial banks and All India Financial Institution (AIFI). d) Private Base:These merchant banking firms are originated in private sectors. .c) Broker Base:In the recent past there has been an inflow of Qualified and professionally skilled brokers in various Stock Exchanges of India. private limited or public limited companies. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill oriented specialized services to their clients. Private Sectors merchant banking firms have come up either as sole proprietorship.

The services rendered by merchant banks to the corporate client in India are more or less the same which are.A by the investment bankers to carter to the needs of the business enterprises. Project Counseling 3. Dealing In Secondary Market 6. a mark of distinction is apt to be noted in the nature and the type of services being offered by the merchant banks in India. Following services provide by the merchant bankers in India:1. Loan Syndication 4. Mergers / Amalgamations . being rendered traditionally in U. In view of these circumstances. Underwriters 9. Mutual Funds 7.K and other European countries by the merchant banks in U.Scope of merchant banking services in India Merchant banking is a service oriented industry. Portfolio Management 8. India’s economy is in the state of transition facing an entirely different environment than that faced by the developed nations of the world.S. Management Of Capital Issues 5. Corporate Counseling 2.

The scope of corporate counseling. public issue management. portfolio management and the full range of financial engineering includes venture capital. However counseling is limited to only opinions and suggestions and any detailed analysis would form part of a specific service. steady growth through good working and appreciation in market value of its equity shares. working capital. . An academic analysis of corporate counseling present a different picture than that transpires from the literature of the merchant bankers Firstly corporate counseling is the beginning of the merchant banking service which every clients whether new or existing has got to avail a different matter whether a merchant bank charges its client separately for rendering the corporate counseling service or includes the element of fee in the other heads of services but fro the angle of priority. Corporate counseling is first in line of the services which a merchant banker offers and than other services. The scope of corporate counseling is restricted to the explanations of concepts. procedures and laws to be observed by the client company. Requirement of any action to be taken or compliance of statutory formalities to be made for implementation of those suggestions would mean the demand for a specific type of service other than corporate counseling being offered by the merchant bankers. and loan syndication. fixed deposit. lease financing. acceptance credit.Corporate Counseling:Corporate counseling denotes the advice provided by the Merchant Banking to the corporate unit to ensure better corporate performance in terms of image building among investors. etc. capital restructuring and.

banks and the general pubic in the form of loan. Its coverage ranges from the managerial economies. choice of product and market survey. locations factors. investment decisions.Secondly the scope of the corporate counseling is very vast. evaluating financial alternatives. project measurements. cost reduction and cost analysis. forecasting of product. Reorganization. besides covered. working capital management. As financial and liivestment experts. pricing methods and marketing strategy. are the areas to be . mergers and acquisitions. a merchant banker has to guide the corporate clients in areas covering financial reporting. etc. rate of returns and cost of capital corporate financial rearrangement. allocation of resources. capital management and expenditure control. organizational size and operational scale. investments and financial management to Corporate Laws and the related legal aspects of the organizational goals. Corporate laws should basically cover the legal aspects including the various legal formalities involved in areas of corporate finance being raised from the financial institutions. new issues of equity or debentures respectively basic financial requirements changes and of the sources of finance. etc.

industrial license and DGTD registration and government approval for foreign collaboration. the facility providing guidance to Indian entrepreneurs for making investment projects in India and in Indian joint ventures overseas is also covered under this activity. it relates to project finance and broadly covers the study of the project and offering advisory assistance on the project viability and procedural steps for its implementation broadly including following aspects:. In addition to above. preparing project report form financial angle. review of technical feasibility of the project on the basis of the report prepared by own experts r by the outside consultants. or review of the project reports or market survey report prepared by the TCO.PROJECT COUNSELLING:Project counseling services may be rendered independently or maybe. and advice and act on various procedural steps including obtaining government consents for implementation of projects.general review of he project ideas/ project profile. agencies viz. . This assistance can include obtaining of the following approvals/licenses/permission/grants etc form the govt. letter of intent. advice on procedural aspects of project implementation. selecting Technical consultancy Organization (TCO) for preparing project reports and market survey.

project counseling may include identification of potential investments avenues.Besides the above services. seeking approvals form the government of India for foreign technical and financial collaboration agreements. arranging and negotiating foreign collaborations. financial study of the project and preparation of viability reports. financial and economic aspects of the project from the point of view of their acceptance by the financial institutions and banks. supplies. Such a study would assess the financial and economic viability of a given project and help the clients to identify and short list those projects that are built upon his inherent strength son as to accentuate corporate profitability and growth in long run. Grind lays bank has specialization in pre investment studies and it conducts such studies for foreign companies’ whishing to participate in joint ventures in India and offers a package of services including advice on . mergers and takeover. amalgamations. assistance in the preparation of project profiles and feasibility studies based on preliminary project ideas in order to indicate the potential. precise capital structuring shaping the pattern of financing. These reports would cover the technical. Pre-investment studies are directed mainly for the prospective investor. industrial license and DGTD registrations etc. location of raw material. demand projections and financial requirements. to advice on the framework of institutional guidelines and laws governing corporate finance. guidance on investment opportunities for entrepreneurs coming to India. advising and assisting clients in preparing the applications for obtaining letters of intent. These are the objective and detailed feasibility explanation of which the principal aim is to arm the clients with the sound foundation of facts and figures to evaluate the alternative avenues open for capital investments form the pint of view of growth and profit prospects. Some of the critical issues that a study of this genre deals will include an in-depth investigation of environment and regulatory factors.

government agencies and underwriters. (a) (b) Estimating the total costs Drawing a financing plan for the total project cost-conforming to the requirements of the promoters and their collaborators. the credit syndications include the following acts. The main task involved in credit syndication is to raise to rupee and foreign currency loans with the banks and financial institutions both in India and abroad. . government regulatory factors and an environmental scan of particular industries in India LOAN SYNDICATION:Credit syndication also known as credit procurement and project finance services. (c) Preparing loan application for financial assistance from term lenders/financial institutions/banks and monitoring their progress including the pre-sanction negotiations. Financial institutions and banks. It also arranges the bridge finance and the resources for cost escalations or cost Overruns. Broadly.the extent of participation.

bankers. Management OF Capital ISSUES:The capital issue are managed are category-1 merchant banker and constitutes the most important aspects of their services. If proper coordination is not done..e. Preparing the necessary application for a successful issue management the close liaison and coordination with the various constituents of the public issue is an essential condition that warrants full cooperation of all the parties affecting the cost and prospects f the issue.(d) (e) Selecting the institutions and banks for participation in financing. legal advisers. Follow-up of the term loan application with the financial institutions and banks and obtaining the satisfaction for their respective share of participation. (f) (g) Arranging bridge finance. accountants certification. broker’s and banks charges. Assisting in completion of formalities for drawl of term finance sanctioned by institution expediting legal documentation formalities drawing up interse agreements etc. printers’ charges and advertising and publicity expenses and coordinates with syndicated merchant bankers and principal brokers. auditors. The responsibility for all this rests upon the merchant banker. acting as ‘Manager’ to the issue has to settle the fee for Advocate/solicitors’ advice. prescribed by the participating financial institutions and banks. The public issue of corporate securities involves marketing of capital issues of new and existing companies. (h) Assessing the working capital requirements. printers. additional issues of existing companies including rights issue and dilution of shares by letter of offer. stock exchanges. underwriters. advertising agency. Merchant banks. the success of the issue may be rendered unassured. etc. underwriters’ commission. brokers. . The public issues are managed by the involvement of various agencies i.

Taking action as per SEBI guide lines Finalizing the appointments of the following agencies: • • • • • • (4) (5) (6) (7) Co-manager/Advisers to the issue Underwriters to the issue Brokers to the issue Bankers to the issue and refund Banker Advertising agency Printers and Registrar to the issue Advise the company to appoint auditors.registrar to the issue and merchant bankers providing specialized services to make the issue of the success. (A) (B) (A) Pre-issue management Post-issue management Pre-Issue Management:- Steps required to be taken to manage pre-issue activity is as follows:(1) (2) (3) Obtaining stock exchange approvals to memorandum and articles of associations. coordinate and control the entire issue activity and direct different agencies to contribute to the successful marketing of securities. legal advisers and broad base Board of Directors Drafting of prospectus Obtaining approvals of draft prospectus from the company’s legal advisers. However merchant banker is the agency at the apex level than that plan. . viz. underwriting financial institutions/Banks Obtaining consent from parties and agencies acting for the issue to be enclosed with the prospectus. The procedure of the managing a public issue by a merchant banker is divided into two phases.

Filing of the prospectus with Registrar of Companies. advisers etc. 0. with copy of the prospectus.25crores.25 crores 0. (10) Making an application for enlistment with Stock Exchange along. if more than one Merchant bankers are managing the issue.5% of the amount of public issues up to Rs.(8) (9) Approval of prospectus from Securities and Exchange Board of India. allotment letters / certificates within the prescribed time limit of10 weeks after the closure of subscription list (4) (5) (6) To report periodically to SEBI about the progress in the matters related to allotment and refunds To ensure he listing of securities at Stock Exchanges. (11) Publicity of the issue with advertisement and conferences. MUTUAL FUNDS .2% of the amount exceeding Rs. (B) (1) Post-issue Management:Steps involved in post-issue management are:To verify and confirm that the issue is subscribed to the extent of 90% including devolvement from underwriters in case of under subscription (2) (3) To supervise and co-ordinate the allotment procedure of registrar to the issue as per prescribed Stock Exchange guidelines To ensure issue of refund order. This fee is to be shared by all lead managers. To attend the investors grievances regarding the public issue The Merchant Bankers for managing public issue can negotiate a fee subject to a ceiling. (12) Open subscription list.

It is very difficult for a lay person to keep track of various investments. Money collected by the investors is invested in various issues of primary and secondary markets in order to gain profits on such investments It is a Trust.A Mutual Fund is a special type of investment institution which collects or pools the savings of the community and invests large funds in variety of Blue-chip Companies which are selected from a wide range of industries with the objects of maximizing returns/incomes on investments. E. Mutual Funds are basically a trust which mobilize savings from the people and invest them in a mix of corporate and government securities. and the market dealing with the other assets have now reached a stage where a minimal information affect the markets. Morgan Stanley Growth Fund (foreign mutual fund). derivatives. . At present. Unit Trust of India (UTI). and capital appreciation. interests. This is distributed to the various investors in the proportion of their contribution to the pool funds. The Trust issues units to the investors in the proportion of their investments. brokerages etc. and analyse different equities. securities or any other investments opportunities that are available in the market. transactions. Ordinary investors. neither understand the complexities of financial markets nor have the time to watch. research. Besides this. In the present scenario mutual funds are some of the most efficient financial instruments as it offers above services like managing investments at a very low cost. all the markets viz.g. etc. real estates. which provide returns in the form of dividends. the economy has opened up and global events influence their performance. which combines the investments of various investors having similar financial goals. A fund manager then invests these funds in different types of assets. the money market. who want to invest their savings. the debt market. the equity market. Sri Ram Mutual Fund.

If the shares were not traded in any stock exchange the previous day. Calculation of NAV = Net Asset Value of the fund sum of market value of shares/debentures + Liquid assets/cash Dividends/interest accrued – All liabilities Net asset value per unit =NAV of the fund / Outstanding number of units Market value of the shares and debentures is calculated by multiplying the number of shares/units by the closing price of the shares/debentures. comparable company approach. the value has to be determined by the other methods such as Book Value. then the closing price of the shares of any other stock exchange is taken where the shares were traded. Value of the illiquid bond is estimated on the basis of yields of comparable liquid bonds. NAV reflects the Fund that will be available to the shareholders if the Fund is liquidated and all the liabilities are paid. . The closing price will be of the previous day of the stock exchange from where the shares have been purchased. etc. It shows the performance of the Fund. then the closing price of the shares when they were last traded is taken. In the mutual fund industry NAV refers to Net Asset Value per unit holder. If the shares were not traded in the previous day in that stock exchange. For untraded shares. which NAV of the Fund divided by the outstanding number of the units.What is NAV? NAV of the Fund is the market value of all the assets of the Fund subtracting the Liabilities.

transactions and investments. who research before investing. If their values go down. ( called diversifying the risk ). Investors get this diversification by investing a small amount in Mutual Funds. predict the impact they will have on the investments and take quick decision regarding the adjustments to be made in the portfolio. 2) Low costs of Investments:Due to the large amount of funds manages. which he can invest only in a few securities and faces a great risk. These professional constantly keep track of the market changes and news.Benefits of Investing in Mutual Funds 1) Professional management of the investments:Each Mutual fund appoints an experienced and professional funds manager and several research analyst. thus adding value to the common investor. Since Mutual Funds have huge amounts of funds to invest. Mutual fund achieves economics of scales in research. the Fund manager invests in the securities of many industries and sectors. 3) Diversification :A common investor has limited money. It lowers the cost of brokerage. This diversification reduces the risk involved because all the sectors and industries will never go down at the same time. the investor loses all his money. custodial and other charges. . very low costs accrue per investor.

4) Convenient record keeping and administration: Mutual funds take care of all record keeping including paperwork. 8) Enables investing in high value stocks: the individual investors have less money to invest and cannot invest in high value stocks such as Infosys. debt Funds. With Rs 12000 an investors can purchase only 2 shares of infosis. and the type of return the wants. therefore the portfolio gets diversified. the risk he is willing to take. growth plan. 6) Flexibility: mutual funds offers various schemes. The benefits from this high value stock can pass on to all the investors. 5) Various types of Schemes:Mutual Funds offer various types of schemes such as regular income plan. 7) Scope for good return: mutual fund invest in various industries and sectors. which is like putting all his eggs in one basket. resulting in mutual funds generating equitable return. broker’s commission etc. So an investors can select a plan according to his needs. Mutual funds have huge amount of funds and can invest in these high value stocks. and balanced Funds. giving the investor the option to shift from one scheme to another at various times depending on his needs. equity funds. It also deals with the problem of bad deliveries. .

cost to be incurred. This is to safeguard the interests of investor. 10) Tax benefits: there are certain schemes that offer tax benefits o the customers. In the case of open-ended scheme units can be purchased/sold at NAV from/to the mutual fund on any day. 12) Regulated by SEBI: just like equities. or the investors can repurchase the units from the mutual fund at the prevailing NAV related prices. sponsors. mutual funds are also regulated by the SEBI. During the launch of the mutual fund the offer document provides information on the objective of the funds. & detail about the fund mariners. So the investor also tax benefits from mutual fund. members of trust etc.9) Easy liquidity: mutual fund provides easy liquidity. In the case of closed-ended funds units are traded on the stock exchange at the market prices. . risk associated with the funds. entry/exist load to be charged to the investor. 11) Provides transparency: mutual funds keep the customers informed about the competition of all the investments in various asset classes from time to time.

in pursuance of a contract with client. The SEBI regulation applicable to portfolio manager. a certificate of registration from SEBI is mandatory. They have. advise/ direct undertake on their behalf the management/ administration of portfolio of securities/ funds of clients. But for category 1 and 2 merchant banker a separate registration is not required to act as a portfolio manager. however. The portfolio management can be… • Discretionary: the first type of portfolio management permits the exercise of discretion in regard to investment/ management of the portfolio of the securities /funds. To carry on the portfolio management activity within the framework of SEBI regulations applicable to portfolio managers. In order to carry on portfolio management services. The term portfolio means the total holding of securities belonging to any person. • Non-discretionary: the non-discretionary portfolio manager should manage the funds in accordance with the direction of client. The SEBI is authorized to grant .Portfolio manager portfolio managers are defined as persons who.

nature. 5 lakh respectively. and other particular of complaints and abide by its rules and regulations. The annual registration fee payable to SEBI was Rs 2. the registration fee and renewal fee after every three years in Rs. 1 lakh for the third year. equipment and manpower to discharge his activities. The portfolio manager is also to give an undertaking to take adequate steps for the redresses of grievance of clients within one month of the receipt of complaint. After November 1999. the SEBI takes into accounts all matters relevant to the activities relating to portfolio manger and in particular.000 per annum. A certificate/ renewal of registration is valid for three years. c) A person directly/ indirectly connected with the applicant.and renew certificate of registration as a prior permission to portfolio managers on the payment of the requisite registration/renewal fee.5 lakh for the first two year and Rs. b) Has in employment a minimum of two persons with experience to conduct portfolio management business. . An application for renewal must be made three months before the expiry of the validity of the certificate. keep SEBI informed about the number. a) Necessary infrastructure like adequate office staff. associated/subsidiary/inter-connected pr Group Company has not been granted registration. Procedure for Registration While considering the application for registration made in the prescribed form. that is. The renewal fee was rs 75.

He must disclose to the client. ensure proper-care and exercise independent professional judgment. A portfolio manager has to render at all times high standards of services. while .d) Capital adequacy of not less than net worth of Rs. in the conduct of business. and h) Grant of certificate is in the interest of the investors. e) The applicant/ partner/ director/principal officer has not been convicted for nay offence involving moral turpitude/ guilty of any economic offence. observe high standards of integrity and fairness in all his dealing with his clients and other portfolio managers. possible sources of conflict of duties and interest. He should either avoid any conflict of interest in his investment or disinvestment decision. g) The applicant has professional qualification in finance/law/accounting/business management. ensure fair treatment of all his customers. or where any conflict of interest arises. 50 lakh in term of capital plus free reserves. The money received by him from a client for an investment purpose should be deployed as soon as possible and money due and payable to a client should be paid forthwith. exercise due diligence. f) The applicant/partner/director/partner/ principal officer is not involved in any litigation connected with the securities market. General Obligations and Responsibilities  Code of Conduct:A portfolio manger has to.

providing unbiased services. A portfolio manger should not place his interest above those of his clients. He should not make any statement or become privy to any act, practice or unfair competition, which i! Likely to be harmful to the interest of other portfolio mangers or is likely to place them in a advantageous position in relation to the portfolio manager himself, while competing for or executing any assignment. Any exaggerated statement, whether oral or written, should not be made ‘by him to client other about the qualification or the capability torender certain services or his achievements in regards to services n rendered to the other clients. At the time of entering into contract, he should been in writing from the clients his interest in various corporate bodies which enable him to obtain unpublished price-sensitive information of the, body corporate. A portfolio manger should not disclose to any clients or press any confidential information about his clients, which has come in his knowledge. Where necessary and in the interest of the clients, he should take adequate’ steps for the registration of the transfer of the clients’ securities and for claiming and receiving dividends, interest payment and other right accruing to the client. He must also make necessary action for the conversion of securities and subscription/ renunciation of/or rights in accordance with the clients’ instruction.

• A portfolio manger has to endeavor to:a) Ensure that the investors are provided with true and adequate information without making any misguiding or exaggerated claims and are made aware of attendant risks before any investment decision is taken by them;

b) Render the best possible advice to the client having regards to the client’s needs and the environment and his own professional skills; c) Ensure that all professional dealing are affected in prompt, efficient and cost effective manager.

• A portfolio manger should not be party to:a) Creation of false market in securities; b) Price rigging or manipulation of securities; c) Passing of price sensitive information to brokers, members of the stock COI exchanges and any other intermediaries in the capital market or take any other action which in prejudicial to the interest of the investors. No portfolio manager or any of its directors, partners or managers should either on their respective accounts or through their associates or family members, relatives enter into any transaction in securities of the companies on the basis of published price sensitive information obtained by them during the course of any professional assignment.

• Contract with Clients:Every portfolio manger is required, before taking up an assignment of management of portfolio on behalf of a client, is enter into an agreement with such client clearly defining the inter se relationship, and setting out their mutual rights, liabilities and obligation relating to the management of the portfolio of the client. The contract should, inter alias, contain. i. The investment objectives and the services to be provided


Areas of investment and restrictions, if any, imposed by the client with regards to investment in a particular company or industry;

iii. iv. v. vi.

Attendant risks involved in the management of the portfolio; Period of the contract and provision of early termination, if any; Amount to be invested; Procedure of setting the client’s accounts including the form of repayment on maturity or early termination of contract;

vii. viii.

Fee payable to the portfolio manger; Custody of securities. The funds of all clients must be placed by the portfolio manger in a separates accounts to be maintained by him in a scheduled commercial bank. He can charges an agreed fee from the client for rendering portfolio management services without guaranteeing or assuring, either directly or indirectly, any return and such fee should be independent of the returns to the clients and should not be on return sharing basis.

 General Responsibilities;The discretionary portfolio manager should individually and independently manage the funds of each client in accordance with the need of the client in a manner, which does not partake the character of a mutual fund, whereas the non-discretionary portfolio manager should manage the funds in accordance with the direction of client. He should act in a fiduciary capacity with regard to the client funds and transact in

Suspension or termination of registration of portfolio manager by the SEBI. The portfolio manager can invest funds of his clients in money market instrument or as specified in the contract. • • • • Voluntary or compulsory termination of portfolio management service by the portfolio manager.securities in within the limitation placed by the client himself with regard to dealing to securities under the provisions of the reserve bank of India act. Any renewal of portfolio funds the maturity of the indicial period is deemed as a fresh placement for a minimum period of one year. The portfolio funds can be withdrawn or taken back by the portfolio client at his risk before the maturity date of the contract under the following circumstances. Permanent disability. He should not derive any direct or indirect benefit out of the client funds or securities. Bankruptcy or liquidation in case the portfolio manager is a body corporate. he cannot pledge or give on loan securities held on behalf of client to a third person. without obtaining a written permission from his client.. While dealing with clients funds. lunacy or insolvency in case the portfolio manager is an individual. He should ensure proper timely handling of complaints from his client and take appropriate action immediately. he should not indulge in speculative transaction. but not in bill discounting. bedlam financing or for the purpose of lending or placement with corporate or non-corporate bodies. not enter into any transaction for the purchase or sale . that is.  Investment of clients money:The portfolio manager should not accept money of securities from his client from his client for a period of less than one year. 1934.

He may enter into transaction on behalf of the client for the specific purpose of meeting margin requirements only if the contract so provides and the client is made aware of. A statement of financial position and .  Maintenance of book of accounts / records: Every portfolio manager must keep am maintain the following book of accounts. Any transaction of purchase or sale including that between the portfolio managers own account and client accounts or between two clients account should at the prevailing market price. A copy of the auditor report on the account for each accounting period. The portfolio manager should not keep any position open in respect of allocation of sales or purchase affected in a day. inter se allocation should be done on a pro rata basis and at weighted average price of the days transaction. the attendant risk of such transaction. records and documents. • • • • A copy of balance sheet at the and of each accounting period. A copy of the profit and loss account for each accounting period. in the event of aggregation of purchase or sales for economy of scale. However. He may hold the belonging to the portfolio account in his own name on behalf of his client’s only if. He should ordinarily purchase all sell securities separately for each client.of any securities in which transaction is periodically or ultimately settled otherwise than by actual delivery or transfer of security. He should segregate each clients fund and portfolio securities and keep them separately from his own funds and securities and be responsible for the safekeeping of clients fund and securities. the contract so provides and in such an event his record and reports to the client should clearly indicate that the securities are held by him on behalf of the portfolio account.

• • • • Particulars regarding the management of a portfolio.• Record in support of every investment transaction or recommendation which indicate the data. copies of the balance sheet. subscribed. After the end of each accounting period. Are appointed by the issuing companies in . The name of the clients whose portfolio he has managed and Particulars relating to the capital adequacy requirement Disclosure to SEBI : Underwriters Another important intermediary in the new issue/primary market is the underwriters to the issues of capital who agree to take u securities which are not fully. Any information or particulars previously furnished. profit and loss account and such other documents for any other preceding five accounting year when required must be submitted to the SEBI.  A portfolio manager must disclose to SEBI a and when required the following information. Half yearly unedited financial result. its organization is an important element of the primary market. Through underwriting is not mandatory after April 1995. when required with a view to monitor the capital adequacy have to be submitted to the SEBI the books of account and other record and document must be preserved for a minimum period off five years. They make a commitment to get the issue subscribed either by other or by them. which have a bearing on the certificate granted to him. fact and opinion leading to that investment decision.

had to. d. the underwriters asset are adequate to meet their obligation should be incorporated in the prospectus certificate. Fee underwriters. To keep the registration in force. renewal fee of Rs 1 lakh. for grant or renewal of registration.consultation with the lead manager/ merchant banker to the issues. Capital adequacy requirement of not less than the net worth ( CAPITAL + free reserve) of Rs. a certificate of registration must be obtained from the SEBI in granting the registration. A statement to the effect that in the opinion of the lead manager.  Registration To act as underwriter. Any person directly/ indirectly connect with the applicant is not registered with the SEBI as underwriter or previous application of any such person has been rejected or any disciplinary action has been taken against such person under the SEBI act/rules/regulation. .000 was payable every year to keep the certificate in force or for its renewal. the SEBI considers all matters relevant relating to the underwriting and in particular. A fee of Rs 20. Failure to pay the fee would result in the suspension of the certificate of registration. Rs 2 lakh for the first and second year and Rs 1 lakh for the third year. Since 1999 the registration fee has been raised to Rs 5 lakh. a. The necessary infrastructural like adequate office space. The applicant/ director/ principle officer/ partner has been convicted of offence involving moral turpitude or found guilty of any economic offence. Past experience in underwriting/ employment of at least two persons with experience in underwriting: c. pay a fee to the SEBI from the date of initial grant of certificate. 20 lakh: and e. Every three years from the forth year the date of initial registration is payable. equipment and manpower to effectively discharged the activity: b.

He must not make any written or oral statement to misrepresent… • • The service that he to be capable of performing for the issuer/ or has rendered to other issuer or He underwriting commitment He should not divulge to other issuer/ any party any confidence information about his issuer. ensure proper care and exercise independent professional judgment. An underwriter should not willfully . dignity and fairness in all his dealings with his clients and. He must disclose to the issuer his possible source/ potential areas of conflict of duties and interest of disadvantageous position other underwriters to place them in a in relation to him while competing for/carrying out any assignment. An underwriter has to rendered high standard of service exercise due diligence.General obligations and responsibilities: 1) Code of conduct : Every underwriter has at all time to abide by a code of conduct. other underwriters in the conduct of his business. He has to ensure that he and his personal act in an ethical manner in all dealing with the issuers of capital. he has to maintain high standard of integrity. which forms the come to his knowledge and deal in securities of any issuer without disclosing to the SEBI or to the board of director of the issuer.

make untrue statement/suppress material fact in any document. reports. c) Inspection and disciplinary proceedings: The framework of the SEBI right to undertake the inspection of the book of account. papers or information furnished to the SEBI. The maximum obligation under all writing agreements of an underwriter cannot exceed 20 times his net worth. If any . other record documents of the underwriters. the amount of commission/ brokerage. provides for the period during which the agreement is in for amount of underwriting obligations. The agreement. b) General responsibilities : An underwriter cannot derive any direct or indirect benefit from underwriting the issue other than by the underwriting commission. the period within which the underwriter has to subscribe to the after being intimated by/on behalf of the issue. made by the underwriter for fulfilling the underwriting obligations. underwriters have to subscribe for securities under the agreement within 45 days of the receipt of intimation from he issuer. and detail of arrangement. a) Agreement with clients: Every underwriter has to enter into an agreement with the issuing company. the procedure for inspection and obligation of the underwriters is on the same pattern as applicable to the lead manager d) Action in case of default : The liability for action in case of default arising out of . among others.

The income tax act . And amalgamation is an arrangement in which the asset/liability of to or more firm to form a new entity or absorption of one/more firm with another.namely. MERGERS /AMALGAMATION: The terms merger and amalgamation are used interchangeably as a form of business organization to seek external growth of business. its asset/ liabilities being taken over by surviving firm.• • Non-compliance with any conditions subject to which registration Contravention of any provision of the SEBI act/rules/ regulation was granted. stipulates to pre-requisite for amalgamation through which the amalgeted company seeks to avail the benefit of set of / carry forward of losses and unabsorbed depreciation of the amalgamating company against its future profits u/s 72A . it does not defined this term. The out come of this arrangement is that the amalgamating firm is dissolved/wound-up and losses it identity and its shareholders become shareholders of the amalgeted firm. Although the merger/amalgamation of firm in India is governed by he provision of the companies act. underwriter involves the suspension/cancellation of registration: the effect of suspension/ cancellation on the lines followed by the SEBI in case of lead manager. A merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist. 1961. 1956. .

the courts and law and there are well-laid down procedure for valuation of share and right of investor. The terms merger and amalgamation on the one hand and acquisition and takeover on the other are treated here synonymously. The acquisition/takeover bids fall under the purview of SEBI. Although the economic consideration in terms of motive and effect of these are similar. there is a discernible trend among promoters and established corporate group towards consolidation of market share and diversification into new areas through acquisition/takeover of companies but in a more pronounced manner through mergers/amalgamation. The regulatory framework governing acquisition/takeover is described in section two. Following the economic reforms in India in the post-1991 period. The scheme of merger.1. All the property and liabilities of the amalgamated company / companies immediately before amalgamation should vest with/ become the liabilities of the amalgamated company and 2. The merger and amalgamation of corporate constitute a subject matter of the companies act. income tax implications of amalgamation and financial evaluation are discussed in the section. . The shareholders other than amalgamated company/its subsidiary holding at list 90% value of shares/ voting power in the amalgamating company should become shareholders of the amalgamated company by virtue of amalgamation. the legal procedure involved are difficult. Section one of the chapter covers the framework of merger/amalgamation including financial evaluation.

The acquiring company should prepare the scheme in consultation with its merchant banker/ financial consultant. covering . The main contents of a model scheme. the main terms. Their authorized. are listed below • • • Description of the transfer and the transfer company and the business of transferor.Scheme of merger/amalgamation: Whenever two or more companies agree to merge with each other. of the scheme in self’-contained paragraph on the recommendation of valuation report. issue and subscribed/ paid-up capital Basis of scheme. they have to prepare a scheme of amalgamation.

reduction or consolidation of capital. object clause and accounting year . It should be ensured that the scheme is just and equitable to the shareholders. reports of the charter accountant engaged for financial analysis and fixation of exchange ratio.transfer of asset/liabilities. • • • • • • • Change of name. employees of each of the amalgamating company and to the public. application to financial institution as lead institution for permission and so on. Protection of employment Dividend position and prospectus Management: board of director banking their number and participation and transfer company’s director on the board Application under section 391and 394 of the companies act. The operation of a merchant bank is influenced by the personality. Their qualities are: 1) Leadership:In order to interact with their clients and communicate effectively merchant bankers should possess all relevant skills and update knowledge. traits of its merchant bankers. The scheme should be prepared on the basis of the values report. . effective date of amalgamation The basis of merger/ amalgamation in the scheme should be the report of the value’s of asset of both the merger partner companies. Qualities of a Good Merchant Banker Merchant Bankers are individual’s experts who organize and manage the merchant banks. transfer date. report of auditors and audited account of both the companies prepared up to the appointed date. 1956. to obtain high course approval Expenses of amalgamation Condition of the scheme to become effective and operative.

. (e) Printers. On locating a business opportunity and after obtaining the assignment from the clients. (d) Promoters/Directors/Owners/Chief Executives of the public and private enterprises. (c) Financial Institutions. 4) Contacts:A merchant banking business mainly depends upon the sociable nature and wider contacts. 3) Co-operation and Friendliness:Co-operation and friendliness coupled with persuasiveness must flow as natural traits in the merchant banker in order to win over the trust of their clients just like a doctor or a lawyer who retains their clients permanently. A good merchant banker is one who does not allow his clients to think anything outside except what has been advised and thus holding the clients interest for the present as well as for the future. The scope of contact of a merchant banker covers: (a) His own organization (b) Central and State Government Offices (c) Banks.2) Aggressive action:Merchant bankers always looking for new business opportunities. (f) Advertising Agencies. A good merchant banker has to share the thoughts of his clients with sympathetic gestures and offer suggestions without any greed or favors. a merchant banker has to be prompt in grasping the client’s problems and to provide a better choice amongst alternative solutions.

6) Inquisitiveness for acquiring new skills. A merchant the viewpoints of others. Merchant bankers have to widen the contacts and continue to maintain them by meeting people in personal. in special gatherings and through writing to them.(g) Brokers and Stock Exchange Dealers. 5) Attitude towards problem solving:A good quality of a merchant banker is to be skilled in human relations particularly in the adverse circumstances and inter-personal behavior. etc. information and knowledge:Merchant bankers survive by providing the information required by their needy clients. Therefore they must keep themselves updated with the latest information in the area of the service product which they market. (h) Advocates and Solicitors (i) Members of the press. . Effective banker should have a positive approach to understand the difficulties. communication and proper feedback are the pre-requisites for creating a positive attitude towards problem solving which could be gained partly through the learning process and partly as an inborn personality trait.

But most of these firms are not well developed to show stage of maturity. or professional manager in management Formal organization with professional.Development stages of Merchant Banking firms In the merchant banking organization in the following chart. This is easily dissemble from the following projection of the development stages Principal financing source Unit Stages in development of merchant banking Organizational setup Very loose organization. the firm of merchant banker and individual stock broker have been included as they have been contributing jointly to the growth of the profession of merchant banking. founders and associates involved in the management Emerging formal organization. founders. Most of them are still in the start-up and early growth stages. manager or founder Complex organization with professional manager Multilayer complex management organization 1 Start-up Own investment 2 Early growth Individual investment 3 Accelerating growth Firms investment with banks backing in terms of loan Corporate finance from bank plus equity funds from public Matching finance available from all possible sources 4 Sustaining growth 5 maturity Market potential of merchant banking services .

Merchant bankers were seldom held accountable for the correctness of the information disclosed in the prospectus & letter of offer but with issuance of comprehensive guidelines for free market pricing. but in future they may play major role by their increasing participation as managers/lead managers. at the initial stage the Indian merchant banker have played supportive role has almost all of the euro issue have been laid managed by foreign merchant banker.Merchant banking in the country has come to be primarily associated with the capital markets. With deregulation of Indian markets there are several new sectors open to private investment which have consequently created an opportunity for private financing. by SEBI role of merchant bankers has considerably increased. The need for this banking is not currently met. Merchant bankers in particular have been assigned a greater responsibility in the fixation of issue price & premium. An outstanding development in history of Indian capital market was opening up in 1992 by allowing financial institutions to invest in the primary & secondary markets & also permitting Indian companies to directly tape foreign capital markets through Euro Issues. It was estimated that this figure may go up to $35-$40 billion by the turn of the century. if any. This gap can be met through capital markets or a range of finance products and hence a good scope exists for the various services offered by a merchant banker. Foreign direct . There were also no disclosure norms. code of conduct for merchant bankers. The result was so encouraging that within less than 2 years to march 1994 the total inflow of foreign capital through these routes reached to about $5 billion. Though. The establishment of SEBI and the abolition of the office of Controller of Capital Issues (CCI) in 1992 heralded in area of free market pricing of equity shares. by their commercial banks or the financial institutions and hence there is a huge gap which needs to be filled. In the CCI regime merchant bankers had restricted role to play in that regard. The role was confined mainly to getting clearance from the CCI & to ensuring the success of capital issue through marketing efforts. etc.

Merchant Bankers. Recently. a good portion may be raised through debt instruments. This has further extended the role of Merchant bankers as market makers for these instruments. etc.investment (FDI) has also investments by NRI have risen considerably due to number of incentives offered to them. suction rated bonds. Experts feel that the estimated capital issues of Rs. secured premium notes. Further increasing investments in joint ventures abroad by Indian corporations also require expert service of merchant banker. For the first time in India the concept of debt market has set to work through NSE & OTCI. zero coupon bonds. . They need the service of merchant bankers to advice them for their investments in India. Indian Capital Market has also witnessed innovations in the financial instruments such as non-convertible debentures with detachable warrants.4000 crores in 1994-95. The development of debt market will offer tremendous opportunity to. cumulative convertible preference shares.

Level of Competition The rapid growth in the primary capital market has led to an even greater proliferation of Merchant Bankers. This had led to corporate restructuring including mergers. The number of Merchant Bankers has increased from only 33 in the year 1989-90 to 405 in 1993-94. The high level of competition in Merchant Banking business especially issue management is evident from the fact that out of 140 Category-I merchant Bankers in 199293 only 66 were able to manage an issue. also offers good opportunity to Merchant Bankers to extend the area of operations. the number of Merchant Bankers in different categories registered with SEBI is 501 (August 1994). structures and functioning. Considering a total number of public issues in the year 1994-95. Therefore a tough competition exists in the line off issue management. high-purchase. competition in corporate sector is becoming intense. . For their survival and growth. Presently. divestments and financial restructuring. their survival dependent on innovative capital issue structuring and other income generating activities like leasing. splits. companies are reviewing their strategies. As a result of liberalization and globalization. Merchant Banking business is handled by a few established players and for the others there is a heavy competition. investments and dealings in secondary market operations.5 issues. Therefore. acquisitions. a Merchant Banker on average viedlor 3. This area of corporate advisory services which is largely in the hands of private consultancy firms.

Environmental factors affecting merchant banking services Schematic view of environmental factors Affecting Merchant Banking Services ENVIRONMENTAL FACTORS -Open for changeMerchant Banking Services THE USERS OF SERVICES General Economic Conditions Technology Scientific Innovations Legal Aspect Law & Regulations Demand for Services THE MERCHANT BANKERS -Open for entry- .

the technological development also helps the system to use information processing and communication techniques to overcome limitations or restrictions of time and space. (I. The merchant banking professionalism requires new response in education and training conforming to the dynamics of the change. Besides complying to various legal formalities the merchant bankers exist the legal framework. prevailing in the country presenting an economics environment.e. These economic conditions assimilate the boom and prosperity. Professional development . (4) Demand for merchant banking services is one of the environmental factors that affect the merchant banking functioning in two respects viz. affects the functioning of every economic or social organization. the government) and public interest. Besides. particularly under the influence of technological development taking place. Demand will change subject to changes in others environment factors. Both creation of law and regulation of law is the network within which the government and merchant bankers have to abide by the legal norms which have the characteristics of change depending upon the moods of the public system. (3) The ‘law and regulations’ affect the functioning and relationship with users of the services of the organization. (2) The technology and scientific innovations are responsible for onward shifting of the entire developmental process to a state of higher development.The merchant bankers are a part of economics structure of the nation and they function in an environment which is influenced inter alias by the following important factors: (1) The general economics condition. The coverage of rural areas and small business is the present day need of environmental through geared professionalism. the depression and recessionary impacts on industry trade and commerce. and provide better services. the competitive forces exist for merchant banking units and there remains a demand for the quality service to be provided to the users.

Merchant banking is an activity initially undertaken by a few large commercial banks in India. Conclusion The merchant banking business has increased over a short period of time and with continued economic reforms. a stiff competition exists in this line and survival will depend upon the financial skills and spectrum of financial services and instruments offered by the Merchant Banker. However. Merchant Banking Service is taking shape for turbulent times.programs have got be reshaped to suggest merchant banks to render more specialized services. and it is now being adopted or undertaken by a few large commercial . Hence.

The range of activities covered under merchant banking very wide indeed. character. their activities are now primarily non-fund based. Merchant banking is usually international in Mandar . Therefore. and it is now being adopted or undertaken by practically every commercial bank through its Merchant Banking Department.banks in India. they do not require much capital. One of the basic requirements of merchant banking is a highly professional staff and worldwide contacts. The merchant banks offer a package of financial services. Unlike in the past.

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