Collective Investment Schemes - As per Indian Companies and SEBI Act.
Collective Investment Schemes: According to sub section 2 of section 11AA of SEBI Act, Collective Investment Scheme means ?Any scheme or arrangement made or offered by any company under which the contributions, or payments made by the investors, are pooled and utilized with a view to receive profits, income, produce or property, and is managed on behalf of the investors is a CIS. Investors do not have day to day control over the management and operation of such scheme or arrangement?.
In the following article, we are going to learn more about ?Collective Investment Schemes? and ?Collective Investment Management Companies?.
Features of Collective Investment Scheme:
1. In collective investment scheme, the contribution made by the investors are pooled and used in different schemes
2. The purpose of contribution by the investors is earn some profit, income, property i.e. movable or immovable from
3. Funds are managed by CIS instead of investor
4. Investors have no control on the management of funds
The Credit Rating Agency : ICAR
ICRA : Investment Information and Credit Rating Agency of India Ltd. Now it is known as ICRA Limited.
According to ICRA, ?Ratings are opinions on the relative capability of timely servicing of corporate debt and obligations. These are not recommendations to buy or sell ? neither the accuracy nor the completeness of the information is guaranteed.?
ICRA was set up by Industrial Finance Corporation of India on 16th January, 1991. It is a public limited company with an authorized share capital of 101 crores. The initial paid ? off capital of Rs. 3.50 crores is subscribed by IFCI, UTI, LIC, GIC, SBI and 17 other banks. ICRA started its operation from 15th March, 1991. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA).
Rating symbols of ICRA as per the different types of investment: Below ratings are comparatively value is decreasing from AAA to D:
Basics of depository and depository participant
Depository is an organization where the securities of the shareholders are held in electronic form at the request of the shareholder through the medium of a Depository Participant. In the following article we are going to learn more about depository and depository participant.
Definition of Depository: Depository means a company formed and registered under the companies act, 1956 and it has been granted a certificate of registration under section 12(1A) of SEBI Act, 1992.
Two Depositories are regulated in India:
1. National Securities Depository limited (NSDL)
2. The Central Depository Services (India) Limited (CDS)
CREDIT RATING AGENCIES - CRISIL
In previous article we discussed about credit rating , different kinds of rating, users of credit rating and rating process for different concern. Lets discuss more about credit rating and the different agencies and their ratings. Below is the brief discussion about CRISIL ( the rating agency).
CRISIL : Credit rating information services of India Ltd.
According to CRISIL, ? Credit Rating is an unbiased and independent opinion as to issuer?s capacity to meet its financial obligations. Its doesn't constitute a recommendation to buy/sell or hold a particular security?.
CRISIL , the first credit rating agency was started on January 1, 1988. It was started jointly by ICICI bank and UTI bank with an equity capital of Rs. 4 crores. The main objective of CRISIL is to rate debt obligation of Indian Companies. CRISIL commences rating as per the request of the companies.
Meaning of Credit Rating : Credit rating is the ranking provided on the basis of financial analysis of an individual or of a business concern from there financial history by the cerdit agencies. This rating shows the ability to meet debt obligations of the business entity. Investors can use this information to decide whether to invest or not.
Credit rating is the instrument which help an investor to differenciate between different debt instruments. It is easy to understand as it is expressed in alphabetical or numerical form.Credit rating not only applies for debt obligation but also for other purposes. There are various kinds of credit rating :
1. Financial Instruments Rating
(a) Bond Rating
(b) Equity Rating
(c) Short term instruments Rating
2. Customer Rating
3. Borrower Rating
A credit rating agency collects the information from the issuer and the analysts from different sources. But doesn?t do any real audit, hence it doesn?t guarantee the accuracy of the information.
Capital Market Tools
1. Disaster Bonds: are issued to share the risk and increase the capital to link the investor return. The bigger the losses, the smaller the returns and vice versa. The principal and interest rate is decided by the occurrence of disaster or by the possibility of borrower?s default.
2. Options Bonds: covers the cumulative and non ? cumulative bonds where interest is payable on maturity or periodically and the redemption of premium is offered to attract investors.
3. Easy Exit Bonds: is such a bond which can easily provide liquidity and an easy exit way for the redemption of bonds . In this bond, investor can encash the bonds whenever he wants, before maturity also.
4. Pay in kind Bonds: In this bonds interest for the first three to five years is paid through issue of additional bonds. So it is called as baby bonds as it is came from parent bonds.
5. Split Coupon Debentures: is issued at discounted price and interest accrues in the first two years for subsequent payment in cash. This helps better management of cash outflows in a new project depending upon cash generating capacity.
CAPITAL MARKET INSTRUMENT
Following are the terminology of capital market:
1. Pure Instrument: Equity shares, Preference shares and debenture or bonds which are issued with the basic charterstics without mixing the instruments are called Pure Instrument.
2. Hybrid Instrument : Those instrument which are created by combining the features of equity with bond, preference or equity shares is called as Hybrid Instrument. This is created in order to fulfill the needs of investors. For example: Convertible Preference Shares, Partial convertible debentures etc.
3. Derivative: are those instrument whose value is determined from the reference of other financial instruments. For example: future and option
4. Equity Shares: are those shares which refer to a part of ownership as a shareholder . These type of shareholder undertakes the maximum entrepreneurial risk associate with the business.
5. Preference shares: Sec. 85(1) of the Companies Act defines preference shares as those shares which carry preferential rights as the payment of dividend at a fixed rate and as to repayment of capital in case of winding up of the company. Thus, both the preferential rights include (a) preference in payment of dividend and (b) preference in repayment of capital in case of winding up of the company, must attach to preference shares.
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