Primary Markets

Free Pricing Regime * Before 1992, Regulator of new issues was CCI (Controller of Capital Issues) * Approval from CCI for raising funds in Primary markets was essential. * Timing, Quantum and Pricing of the issue was decided by the controller. * New Companies could issue shares only at par and the existing companies with substantial reserves could issue shares at premium. * Fixed Price mechanism results in under pricing of many issues. Thus after 1992, promoter and the merchant banker together decide the price of the issue. Mutual Funds

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A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. It is a diversified portfolio of financial instruments like equities, debentures / bonds or other instruments in which the funds can be deployed. Unit holders in proportion to their investment share income. How Mutual Funds Work? * A large number of people with money to invest buy shares in a mutual fund. * They pool their money for buying power. * The fund manager invests the money in a collection of stocks, bonds or other securities. * If the manager is successful in selecting good companies that grow, the fund will increase in value. Investors receive periodic distributions Advantages of Mutual Funds. * Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value. Professional Management: Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell. * Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud. * Liquidity: It’s easy to get your money out of a mutual fund. Write a check, make a call, and you’ve got the cash. * Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet. * Low cost: Mutual fund expenses are often no more than 1. 5 percent of your investment.

Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index. Types of Mutual Funds Money Market Funds Money market funds have relatively low risks, compared to other mutual funds (and most other investments). By law, they can invest in only certain high quality, short-term investments issued by the U. S. government, U. S. corporations, and state and local governments. Money market funds try to keep their net asset value (NAV) ? hat represents the value of one share in a fund? at a stable $1. 00 per share. But the NAV may fall below $1. 00 if the fund’s investments perform poorly. Investor losses have been rare, but they are possible. Money market funds pay dividends that generally reflect short-term interest rates, and historically the returns for money market funds have been lower than for either bond or stock funds. That’s why “inflation risk” ? the risk that inflation will outpace and erode investment returns over time ? can be a potential concern for investors in money market funds. Bond Funds

Bond funds generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields. Unlike money market funds, the SEC’s rules do not restrict bond funds to high-quality or short-term investments. Because there are many different types of bonds, bond funds can vary dramatically in their risks and rewards. Stock Funds Although a stock fund’s value can rise and fall quickly (and dramatically) over the short term, historically stocks have performed better over the long term than other types of investments including corporate bonds, government bonds, and treasury securities.

Banks and FI’s Participation in Public Issue * After 1991 banks and FI’s can also participate in Public Issues. * Initially the participation was slow (1. 7% of total amount raised in 91-92) but than raised to 46. 5% in 98-99. * Later on banks emerged as biggest class of issuer in 02-04. * In 1993 SBI entered into market at low price, which soon rise, and it also attracts other banks to trade in secondary and primary market.


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