Project on Investment in Securities Market
Financial Planing
(Source: SEBI Website - Securities Market Awareness Campaign
Empowering Investors Through Education)

How to transact in securities?
Factors that should be taken into account:

You should consider the diversification, investment horizon, regularity of income, growth opportunities, the quality of the issuer, etc. with regard to the security opted and take into account the following factors before investing:

1. whether there is a regulatory framework in place in respect of the security and you are protected in case of any eventuality;

2. whether the offer of the security is in compliance with the due process of law;

3. whether the security has any counter party risk

4. whether the security can be liquidated to cash easily so that you can meet your liquidity needs;

5. whether the security generates returns compatible with its risk; and

6. whether the security fits into your investment portfolio and meets your investment goals

You can convert a security to cash if it is listed and traded actively on stock exchanges. You can sell securities on an exchange and get cash as per the settlement cycle of the exchange.. Since transactions on stock exchanges enjoy settlement guarantee, you will invariably get cash in time. If you do not get cash for whatsoever reason, there is an institutional arrangement to settle your claims. However, all securities are not listed on exchanges and not all listed securities are actively traded. If liquidity is of paramount importance to you, you should look at the history of trading of that particular security

You can acquire securities by subscribing to issues made by corporate/government/mutual funds in the primary market or by purchasing them from the secondary market. You have the option to subscribe to public issues of securities at the price fixed by the issuer or at the price as may be determined by investors through the book building/auction. You may also subscribe to rights issues offered by the company. You also acquire securities issued by the company as a bonus. Before acquiring the security/units of mutual funds, you must fully understand the issue documents, specifically the risk aspects. You can also buy or sell securities on a stock exchange through a SEBI registered broker/sub-broker.

You have the right to receive documents regarding your investment.. You have the right to demand and verify the genuineness of the certificate of registration of the intermediary through whom you intend to transact. You must receive the securities on allotment or on transfer on time. If your security makes you a shareholder, you should receive dividends on time and other corporate benefits like rights, bonus etc. You have a right to participate and vote in general meetings. , receive copies of the Annual Report, apply for winding up of a company, etc. If you are a debenture holder, you have the right to receive interest/redemption on time and apply for winding up of the company if the company fails to pay its debt. If you are trading on an exchange, you should get the best price at that point of time and receive money and securities on time

Your general obligations are to remain vigilant about the company/intermediary and securities you are dealing with/in, to pay/deliver securities as and when called upon and to exercise rights conferred on you.

A large variety of intermediaries such as brokers, merchant bankers, depositories, mutual funds, intermediate between issuers of securities and investors and between investors. Most of the intermediaries in the securities market are registered and regulated by SEBI. A code of conduct has been prescribed for each intermediary certain intermediaries like agents of mutual funds are indirectly regulated by SEBI through mutual funds.

Certain transactions require you to transact through an intermediary. For example, you need to transact through a broker/sub-broker if you intend to buy/sell any security on stock exchanges. You need to maintain an account with a depository if you intend to hold securities in demat form. You need to deposit money with a banker to an issue if you are subscribing to public issues. You get guidance if you are transacting through an intermediary. Choose a SEBI registered intermediary, as he is accountable for its activities. The list of registered intermediaries is available with SEBI, exchanges, industry associations.

You should transact through that intermediary who is subject to regulatory discipline of SEBI. . The intermediary must be registered with SEBI and you should verify this from the registration certificate displayed at the office of the intermediary. While selecting an intermediary, you should also take into account

1. the cost of services,

2. the quality of services,

3. track record of the intermediary, and

4. the location and your convenience.

You can know the general reputation of an intermediary from its existing clients. Besides, SEBI issues a press release as and when it punishes an intermediary for violation of any regulation, including code of conduct. The exchanges also issue press releases when they suspend a broker. In case the intermediary does not act professionally, you should take up the matter with SEBI and with the self-regulatory organisation/industry association with which the intermediary is associated. In addition, you can also file complaints in the court of law.

Primary market is the place for issue of new securities. The companies issue new securities to raise funds for investment and/or discharge some obligation. They do so either through public issues, rights issues or offer for sale. It is a public issue if anybody and everybody can subscribe for the securities. It is a rights issue if the offer is made only to existing shareholders. However if the issue is made to select few people, it is called a private placement. It may be noted that private placement of securities does not come under the regulatory purview of SEBI. The issuers, who satisfy eligibility criteria, can issue securities after complying with SEBI guidelines and the provisions of the Companies Act, 1956. If you are interested to buy securities from the primary market, you must still be mindful of the twelve steps to investing mentioned earlier.

The company issuing securities issues a prospectus or a statement in lieu of prospectus detailing the term of issue, including price or mode of price determination, utilisation of issue proceeds, the risk factors, management, a variety of disclosures, and the modus operandi of subscription for and allotment of securities to investors. This document is submitted to SEBI and Registrar of Companies. An abridged form is issued in the newspapers. However, if you wish to subscribe for any issue of securities, you must obtain a copy of the full prospectus and understand its contents

t is important for you to assess the risk associated with investing in equity securities on your own. Prior to making your investment decision, you must definitely read the sections relating to risk factors, business of the company, management's discussion and analysis of the financial statements of the company, basis of issue price, and important financial ratios, such as, Price to Earnings, Price to Cash flow and relative attractiveness of the issuer company vis-à-vis comparable companies in that

It is important for you to assess the risk associated with investing in debt securities on your own. In particular, you should consider the credit rating and nature of security being offered. Issuer companies are mandatorily required to obtain ratings from at least one rating agency. They are required to disclose all credit ratings that they have obtained during the last three years preceding the pubic or rights issue of the debt instrument. . It is also mandatory for companies making debt issues in the primary market to create a security for the debt securities. In the event of any default by the company for servicing the debt securities, the debenture trustee can liquidate the secured assets to repay the outstanding to the debenture holders. You must therefore carefully analyse the type of security being offered by the company against the debt borrowings, as it will ensure repayment of your money, in case the company becomes insolvent.

Though the company is under obligation to offer the securities in both physical and demat mode, you have the choice to receive the securities in either mode. If you wish to have securities in demat mode, you need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application. It is, however, desirable that you hold securities in demat form as physical securities carry the risk of being fake, forged or stolen.

The securities are issued at a price fixed by the issuer (fixed price issue) or at the price as may be determined by investors through the process of book building. In a fixed price issue, you do not have any say in the price of the security being issued, while in a book built issue, you have a say in the determination of the price of the security being issued

In the book building process, the Book is typically open for a minimum period of five days, when you can submit your bid and also revise it. During the period when the Book is open, a graphical display (updated every half hour) of demand at various prices can be seen at the bidding terminals of the syndicate members. You can make a bid at any price at or above the floor price by submitting a completed Bid-cum-Application Form and the Bid amount ) at any of the Bid Collection Centres of the syndicate members. The Book Running Lead Manager or the syndicate members enter each option into the electronic bidding system as a separate bid and generate a Transaction Registration Slip for each price and demand option and give the same to you.

For Fixed-price issues, you are required to submit the amount payable on making the application along with your application form to the collecting Bank. For Book-built issues, you are required to submit the amount payable on making the Bid (by the retail category) along with your Bid-cum-Application Form to the syndicate member.