Frequently Asked Questions PMS

A portfolio manager is a legal entity that, under the terms of a contract with a client, advises, directs, or conducts the management or administration of the client’s portfolio of securities, assets, or money (whether as a discretionary portfolio manager or otherwise).

In a discretionary portfolio management service, the portfolio manager handles each client’s assets and securities separately and independently, according to the client’s needs. The portfolio manager in the non-discretionary portfolio management service administers the money according to the client’s instructions.

To become a portfolio manager, an applicant must submit an online application through the SEBI Intermediaries Portal and pay a non-refundable application fee of INR1,00,000/- by direct deposit into SEBI’s bank account via NEFT/RTGS/IMPS or any other mechanism permitted by RBI. Alternatively, the application fee can be paid by demand draft payable to ‘Securities and Exchange Board of India’ and payable in Mumbai or the location of the appropriate regional office.

 

Anyone interested in becoming a Portfolio Manager under the PMS Regulations must submit an application in Form A using the online system at https://siportal.sebi.gov.in.

The portfolio manager must have a net worth of at least INR 5 crore.

According to the SEBI (Portfolio Managers) Regulations, 2020, the portfolio manager must charge a fee for portfolio management services based on the agreement with the customer. The cost may be a set sum, a performance-based fee, or a combination of the two. The portfolio manager may not charge the customers any advance fees, either directly or indirectly.

The agreement between the portfolio manager and the client must specify, among other things, the amount and manner of fees due by the client for each activity for which the portfolio manager provides services directly or indirectly.

Portfolio Managers must invest funds of their clients in securities listed or traded on a recognized stock exchange, money market instruments, units of Mutual Funds through the direct plan, and other securities as specified by the Board from time to time under the Discretionary Portfolio Management Service (DPMS). Portfolio Managers can invest up to 25% of a client’s AUM in unlisted stocks under the Non-Discretionary Portfolio Management Service (NDPMS), in addition to the securities allowed for discretionary portfolio management.

Units of Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), debt securities, shares, warrants, and other securities not listed on any recognized stock exchanges in India are considered “unlisted securities” for investment by Portfolio Managers

No.

Noncompliance is defined as an active violation caused by investor activity in response to corporate acts such as a subscription to rights issues, which leads to a breach of the 25% restriction applicable to NonDiscretionary portfolios. A passive violation caused by business acts such as bonuses based on the value of unlisted securities, on the other hand, will not be considered non-compliance.

The portfolio manager must take a minimum of INR 50 lacs from the customer, or securities with a minimum value of INR 50 lacs.

Clients of Portfolio Managers who were onboarded before January 21, 2020, must comply with the new minimum investment amount requirement and top up their accounts to a minimum of INR 50 Lacs.

In line with the provisions of the client’s agreement with the Portfolio Manager, the customer may withdraw partial sums from his portfolio. The value of the portfolio’s investment following such withdrawal, however, must not be less than the required minimum investment amount.

No.

Charges for all transactions through self or associates in a financial year (broking, Demat, custody, etc.) should be capped at 20% by value per associate (including self) per service. Such restrictions will apply to DEMAT services, custodian services, and other related services. Furthermore, any fees charged to self/associates must not be higher than those charged to non-associated for the identical service. In the case of Broking services, for example, the total amount paid to the associate Stock Broker during the year cannot exceed 20% of the total brokerage paid for trades on behalf of its clients.

If Portfolio Manager has multiple associate Stock Brokers, each transaction through each associate Stock Broker is limited to 20% of the total brokerage paid for trades on behalf of the Portfolio Manager’s clients during the year.

The number of non-associated Stock Brokers, Depository Participants, or Custodians that a Portfolio Manager can work with is unrestricted. For example, the Portfolio Manager may use a single non-associated Stock Broker to execute 100 per cent of its customers’ trades.

A discretionary portfolio manager’s performance is measured using the time-weighted rate of return (TWRR) technique over the previous three years or duration of operation, whichever is shorter. SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/26, dated February 13, 2020, includes information on portfolio manager performance reporting as well as a client reporting format that includes information on the client account’s performance, portfolio manager’s performance, and the appropriate benchmark.

The time-weighted rate of return divides the return on an investment portfolio into distinct intervals based on whether money was added to or taken out of the fund. Annexure 1 has a full computation and an example illustration in this respect.

Annexure 2 is an example of how to calculate the performance fee based on the high watermark approach.

• The portfolio manager should provide the client with a report on a regular basis, according to the agreement, but not more than once every three months and such report shall include the following information: –
• The portfolio’s composition and value, a description of the securities and commodities, the number of securities, the value of each security held in the portfolio, the units of goods, the value of goods, the cash balance, and the portfolio’s aggregate value as of the date of the report;
• Transactions made throughout the reporting period, including the date of the transaction and the specifics of the purchases and sales;
• Beneficial interest was obtained in the form of interest, dividends, bonus shares, rights shares, and so on throughout that time period;
• Expenses incurred in maintaining the client’s portfolio;
• Specifics of risk anticipated by the portfolio manager, as well as the risk associated with assets suggested for investment or disinvestment by the portfolio manager;
• Default in coupon payments or any other payment default in the underlying debt instrument, and, if applicable, downgrade to default rating by rating agencies;
• Information of the commission paid to the distributor(s) for this client

Prior to entering into an agreement with the client, the portfolio manager gives the client the Disclosure Document. The Disclosure Document includes the amount and method of payment of fees due by the client for each activity, portfolio risks, complete disclosures regarding transactions with related parties, the portfolio manager’s performance, and the portfolio manager’s audited financial statements for the previous three years.

No, SEBI has not given its approval to any of the Portfolio Manager’s services. An investor must invest in the services based on the disclosure document’s terms and conditions as well as the portfolio manager’s agreement with the investor.

No, SEBI does not vouch for the correctness or completeness of the Disclosure Document’s contents.

The agreement between the portfolio manager and the investor governs the portfolio manager’s services. The contract should include the minimum information required by the SEBI Portfolio Manager Regulations. Additional conditions might, however, be set by the Portfolio Manager in the client agreement. As a result, an investor should thoroughly examine the agreement before signing it.

Portfolio managers are unable to enforce a lock-in on their customers’ investments. However, according to the provisions of SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/26, a portfolio manager might charge the client appropriate exit costs for an early withdrawal as specified in the agreement.

No.

For information on SEBI regulations and circulars relevant to portfolio managers, investors may visit the SEBI website at www.sebi.gov.in. The SEBI website also has the addresses of the registered portfolio managers. Information on monthly reports submitted by Portfolio Managers to SEBI can be accessed at https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doPmr=yes.

Investors may discover the name, address, and phone number of the portfolio manager’s investor relations officer (who handles investor questions and complaints) in the Disclosure Document. The Disclosure Document also mentions the grievance resolution and dispute procedure. Investors can approach SEBI for a redress of their grievances if the Portfolio Manager does not address their concerns. Investors can file complaints via SCORES (SEBI Complaints Redress System – https://scores.gov.in/scores/Welcome.html) or by writing to the address shown below.

• Office of Investor Assistance and Education,

Securities and Exchange Board of India,

SEBI Bhavan II

Plot No. C7, ‘G’ Block,

Bandra-Kurla Complex, Bandra (E),

Mumbai – 400 051

• Begin with the current market value at the start of the term.
• Make your way to the end of the period by moving ahead in time.
• Calculate the portfolio’s market value immediately before contributing to or withdrawing from it.
• Calculate a sub-period return for the time interval between the valuation dates, i.e. the contribution and/or withdrawal dates, using the formula:

(Ending Market Value – Beginning Market Value – Contribution + Withdrawal) ÷ (Beginning Market Value + Contribution – Withdrawal)

• Steps 3 and 4 should be repeated for each contribution and/or withdrawal.
• Calculate a subperiod return for the last period until the end of the period market value when there are no more contributions and/or withdrawals.
• Take the product of (1+sub-period returns) to compound the sub-period returns. Geometric linking or chain connecting of sub-period returns is what this is termed.
• Subtract one from the product value calculated in step seven.
• To calculate the TWRR for the time period under consideration, multiply the result by a percentage as shown in step 8 above.

The examination seeks to create a common minimum knowledge benchmark for distributors of Portfolio Management Services (PMS). The certification aims to enhance the PMS’s quality distribution and related support services.

The examination consists of 80 multiple choice questions and 3 case-based questions. The assessment structure is as follows:

Multiple Choice Question (80*1 Mark Each) – 80 Marks

3 Case-Based Questions

• 2 Cases (5 Questions * 1 Marks Each) – 10 Marks
• 1 Case (5 Questions * 2 Marks Each) – 10 Marks

The exam should be completed in 2 hours. The passing score for the examination is 60%. There shall be a negative marking of 25% of the marks assigned to a question.

35% is about knowledge and concept, and the rest 65% is about experience.

40% will be Theory with sums, 35% will be theory only, and 25% will sum only questions.

There are 12 Chapters to study.

• Chapter 1 – 5%
• Chapter 2 – 3%
• Chapter 3 – 5%
• Chapter 4 – 5%
• Chapter 5 – 6%
• Chapter 6 – 7%
• Chapter 7 – 10%
• Chapter 8 – 12%
• Chapter 9 – 12%
• Chapter 10 – 15%
• Chapter 11 – 5%
• Chapter 12 – 15%

1 * Only Subjective case study

2 * Only Numerical case study

3 * Both numerical and subjective case study

• They will see 15+ such questions at the end of the course
• They will not attempt to so sample questions in between the course

• Investment Basics
• Securities Markets
• Investing in Stocks
• Investing in Fixed Income
• Derivative
• Mutual Funds
• Role of Portfolio Managers
• Operational Aspects of PMS
• Portfolio Management Process
• Performance Measurement and Evaluation of PMS
• Taxation
• Regulatory Governance & Ethics

Savings is just the difference between Money Earned and Money Spent.

Investment is the current commitment of savings with an expectation of receiving a higher amount of committed savings. Investment involves some specific time period. It is the process of making the savings work to generate a return.

The Dictionary meaning of the term speculation is “the forming of a theory or conjecture without firm evidence.”

Inflation represents the rate the cost of goods and services increases over a period of time.

• When demand for goods or services exceeds production capacity
• When production costs increase, prices
• When prices rise, wages rise too, in order to maintain living costs.

When you buy, the valuation of the company present is determined by the discounting method.

Discounted cash flow formula = CFt/(1+r)^t

Weighted average cost of Capital (WACC) = (D/D+E)*𝑲_𝒅*(1-t) + (E/D+E)* 𝑲_𝒆

When you INVEST, the Compounding Method determines the valuation of the investment in the FUTURE.

FV = PV (1+r)^n

The nominal rate of return is the amount of money generated by an investment before factoring in expenses such as taxes, investment fees, and inflation. If an investment generated a 10% return, the nominal rate would equal 10%. After factoring in inflation during the investment period, the actual (“real”) return would likely be lower.

Nominal Rate of Return = Present Market Value – Original Market Value / Original Investment Value.

Risk is any uncertainty with respect to your investments that has the potential to affect your financial welfare negatively. For example, your investment value might rise or fall because of market conditions.

• Macro Risk – Systematic Risk
• Industry Risk – Systematic Risk
• Company Risk – Un-Systematic Risk

• Inflation Risk
• Credit Risk
• Business Risk
• Market Risk
• Country Risk
• Geo-Political Risk
• Liquidity Risk
• Re-Investment Risk

Inflation risk represents the risk that the money received on an investment may be worth less when adjusted for inflation. Inflation risk is also known as purchasing power risk. It is a risk that arises from the decline in the value of the security’s future cash flows.

Default risk or credit risk refers to the probability that borrowers will not be able to meet their commitment to paying interest and principal as scheduled. Debt instruments are subject to default risk as they have pre-committed payouts. The ability of the issuer of the debt instrument to service the debt may change over time, creating default risk for the investor.

Liquidity or marketability refers to the ease with which an investment can be bought or sold in the market. Liquidity risk refers to an absence of liquidity in an investment. Thus, liquidity risk implies that the investor may not be able to sell his investment when desired, or it has to be sold below its intrinsic value, or there are high costs to carrying out transactions. All of this affects the realizable value of the investment.

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

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

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

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

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

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

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

• CRISIL AAA – (Highest Safety)
• CRISIL AA – (High Safety)
• CRISIL A – (Adequate Safety)
• CRISIL BBB – (Moderate Safety)
• CRISIL BB – (Moderate Risk)
• CRISIL B – (High Risk)
• CRISIL C – (Very High Risk)
• CRISIL D – (Default)

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

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

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

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

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

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

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

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

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

• Equity Shares
• Debentures & Bonds
• Warrants and Convertible Warrants
• Indices
• Mutual Funds
• Exchange Traded Funds
• Hybrid and Structured Products
• Commodity & Metals
• Equity Instruments
• Fixed Income Instruments
• Real Estate
• Distressed Products
• Other Products

• Foreign Portfolio Investor
• P-Note Participants
• Mutual Funds
• Insurance Companies
• Pension Funds
• PE Firms
• Hedge Funds
• AIFs
• Investment Advisors
• Corporate Treasuries
• Clearing Banks
• Merchant Bankers
• Underwriters
• Foreign Portfolio Investors
• Institutional Clients

• Stock Exchanges
• Depositories
• Depository Participants
• Trading Members
• Authorized Persons
• Custodian
• Clearing Corporations
• Clearing Banks
• Merchant Bankers
• Underwriters
• Institutional Clients

• Stock Exchanges
• Depositories
• Depository Participants
• Trading Members
• Authorized Persons
• Custodian
• Clearing Corporations
• Clearing Banks
• Merchant Bankers
• Underwriters
• Institutional Clients

• Professional Investement Management
• Diversification
• Convenience
• Unit Holders account administration and services
• Reduction in transaction costs
• Regulatory Protection
• Product Variety

• Category I AIF: AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure, or other sectors or areas that the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds, and such other Alternative Investment Funds as may be specified. 
• Category II AIF: AIFs that do not fall in Category I and III and do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012. 
• Category II AIF: AIFs employ diverse or complex trading strategies and may employ leverage through investment in listed or unlisted derivatives.

• Equity Shares & Stock
• Differential Voting Rights
• Preferential Shares
• Depository Receipts
• Equity Warrants

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

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

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

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

• Financial Distributors / IFA / MFDs / Brokers
• SEBI Registered Investment Advisors
• Direct Channel

• Plain Vanilla Bonds
• Foreign Currency Convertible Bonds
• Equity Linked Debentures
• Commodity Linked Debentures
• Mortgage Based Securities

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

• Currency Derivative
• Equity
• Gold Derivative
• Government Securities
• Marketable Securities
• Silver Derivative
• Mortgage Debt
• Debt Paper
• Mutual Fund

• Initial Public Offer (IPO)
• Follow on Public Offer (FPO)
• Rights Issue
• Private Placement
• Preferential Issue
• Qualified Institutional Placement
• Bonus Issues
• On-Shore and Off-Shore Offerings
• Offer for Sale
• Employee Stock Ownership Plan
• FCCB (Foreign Currency Convertible Bond)
• Depository Receipts (ADR + GDR)
• Anchor Investor – 10crores & above

• Over-the-Counter Market
• Exchange Traded Markets
• Clearing & Settlement
• Risk Management
• Trading

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

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

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

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

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

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

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

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

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

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

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

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

OTC Markets – Fragmented Marketplace

Exchange Markets – Centralized Marketplace

• Mutual funds
• Pension funds
• Insurance companies
• Alternative investment funds
• Foreign Portfolio Investor
• Investment Advisors
• EPFO (Employee Provident Fund Organisations)
• National Pension System
• Family Offices
• Corporate Treasuries

• Equity Shares
• Debentures & Bonds
• Warrants and Convertible Warrants
• Indices
• Mutual Funds
• Exchange Traded Funds
• Hybrid and Structured Products
• Commodity & Metals

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

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

• Market Risks
• Sector Specific Risks
• Company Specific Risks
• Liquidity Risks

• Fundamental Research
• Quantitative Research
• Technical Research
• Derivative Research
• Events & News Based Research

• Buy Side Research
• Sell-Side Research
• Independent Research

• Company Analysis
• Industry Analysis
• Economy Analysis

• Economic Analysis
• Industry Analysis
• Company Analysis

• National Income
• Savings and Investment
• Inflation
• Un-Employment Rate
• FDI (Foreign Direct Investment)
• Foreign Portfolio Investment
• Fiscal Policy
• Monetary Policy
• Balance of Trade
• Export & Import
• Exchange Rate
• Trade Deficit

• Michael Porter Five Force Model
• PESTLE Analysis
• BCG Matrix
• SCP Analysis

• Geographic Migration: Discovery of shell gas helped the US to score over OPEC
• Cross Industry Migration: Conventional banks were replaced by Digital and Internet banking, and now Neo-banking
• Value Chain Migration: Higher benefits than the lower value chain. A typical example of a telecom operator – JIO, which benefitted from Vodafone and others
• Cross Companies Migration: Economic value creation and superior technology or features scores over others – like Samsung and Apple score over other small mobile phone manufacturer.
• Cross Product Migration: Usage from serving to cloud computing is a typical example.

• Create products and services that have low-Income elasticity
• Minimum impact of economic cycles.
• Food, agriculture output and health care are typical examples.

• It grows when the economy experiences an expansionary phase and declines during when recessionary phase
• Consumer durability is a typical example. When people have money, they grow, and when people do not have money, it fails.

• When affected by the extreme effects of economic cycles. During the recession, production drops.
• During the economic recovery, it experiences massive growth in the early phase. Auto and real estate is the typical example.

• Both market and the market share of the company are growing rapidly
• SUV segment and Hyundai Creta.
• Smart home and Cera sanitary appliances

• The business segment is growing fast, but the company is unable to capture the growing market
• Tata motors cars /Bajaj pulsar bike
• Smart mobile and LG mobile phone decision to exit.

• Low growth market but the high market share of the company
• ITC classmate – slow growth, but the market growth of the company is increasing rapidly
• Edible Oil and Saffola Gold

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

• Step 1: Gross Sales – GST = Net Sales
• Step 2: Net Sales – Cost = EBITDA
• Step 3: EBIT (DA) – Interest (Debt + Equity) = Cash flow from operations (EBTDA)
• Step 4: Cash flow from Operations – Capex or Re-investment Expense = Free Cash flow to FIRM, also known as Profit Before tax (PBT)
• Step 5: Free Cash flow to FIRM – (Tax & Depreciation & Amortization) = Free Cash flow to EQUITY, also known as Profit Before tax (PBT)

• Price to Earnings Ratio (P/E Ratio)
• Price to Book Value Ratio (P/BV)
• Price to Sales Ratio (P/S Ratio)
• EVA and MVA
• Price to Earnings Growth (PEG Ratio)
• Enterprise Value to Sales (EV/S)

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

• Step 1: Gross Sales – GST = Net Sales
• Step 2: Net Sales – Cost = EBITDA
• Step 3: EBIT (DA) – Interest (Debt + Equity) = Cash flow from operations (EBTDA)
• Step 4: Cash flow from Operations – Capex or Re-investment Expense = Free Cash flow to FIRM, also known as Profit Before tax (PBT)
• Step 5: Free Cash flow to FIRM – (Tax & Depreciation & Amortization) = Free Cash flow to EQUITY, also known as Profit After tax (PAT)

Government Bond Market and Corporate Bond Market

• Government Securities
  • Central Govt.
  • State Govt.
• Public Sector Bonds
  • Government Agencies / Statutory Bodies
  • Public Sector Undertakings
• Private Sector Bonds
  • Corporates
  • Banks
  • Financial Institutions

It’s a fund that the issuer can redeem all or part of before the specified maturity date.

It’s a fund where the Holder can sell the Bonds back to the issuer before maturity at pre-determined Costs on specified dates.

A portfolio manager is a legal entity that, under the terms of a contract with a client, advises, directs, or conducts the management or administration of the client’s portfolio of securities, assets, or money (whether as a discretionary portfolio manager or otherwise).

In a discretionary portfolio management service, the portfolio manager handles each client’s assets and securities separately and independently, according to the client’s needs. The portfolio manager in the non-discretionary portfolio management service administers the money according to the client’s instructions.

To become a portfolio manager, an applicant must submit an online application through the SEBI Intermediaries Portal and pay a non-refundable application fee of INR1,00,000/- by direct deposit into SEBI’s bank account via NEFT/RTGS/IMPS or any other mechanism permitted by RBI. Alternatively, the application fee can be paid by demand draft payable to ‘Securities and Exchange Board of India’ and payable in Mumbai or the location of the appropriate regional office.

 

Anyone interested in becoming a Portfolio Manager under the PMS Regulations must submit an application in Form A using the online system at https://siportal.sebi.gov.in.

The portfolio manager must have a net worth of at least INR 5 crore.

According to the SEBI (Portfolio Managers) Regulations, 2020, the portfolio manager must charge a fee for portfolio management services based on the agreement with the customer. The cost may be a set sum, a performance-based fee, or a combination of the two. The portfolio manager may not charge the customers any advance fees, either directly or indirectly.

The agreement between the portfolio manager and the client must specify, among other things, the amount and manner of fees due by the client for each activity for which the portfolio manager provides services directly or indirectly.

Portfolio Managers must invest funds of their clients in securities listed or traded on a recognized stock exchange, money market instruments, units of Mutual Funds through the direct plan, and other securities as specified by the Board from time to time under the Discretionary Portfolio Management Service (DPMS). Portfolio Managers can invest up to 25% of a client’s AUM in unlisted stocks under the Non-Discretionary Portfolio Management Service (NDPMS), in addition to the securities allowed for discretionary portfolio management.

Units of Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), debt securities, shares, warrants, and other securities not listed on any recognized stock exchanges in India are considered “unlisted securities” for investment by Portfolio Managers

No.

Noncompliance is defined as an active violation caused by investor activity in response to corporate acts such as a subscription to rights issues, which leads to a breach of the 25% restriction applicable to NonDiscretionary portfolios. A passive violation caused by business acts such as bonuses based on the value of unlisted securities, on the other hand, will not be considered non-compliance.

The portfolio manager must take a minimum of INR 50 lacs from the customer, or securities with a minimum value of INR 50 lacs.

Clients of Portfolio Managers who were onboarded before January 21, 2020, must comply with the new minimum investment amount requirement and top up their accounts to a minimum of INR 50 Lacs.

In line with the provisions of the client’s agreement with the Portfolio Manager, the customer may withdraw partial sums from his portfolio. The value of the portfolio’s investment following such withdrawal, however, must not be less than the required minimum investment amount.

No.

Charges for all transactions through self or associates in a financial year (broking, Demat, custody, etc.) should be capped at 20% by value per associate (including self) per service. Such restrictions will apply to DEMAT services, custodian services, and other related services. Furthermore, any fees charged to self/associates must not be higher than those charged to non-associated for the identical service. In the case of Broking services, for example, the total amount paid to the associate Stock Broker during the year cannot exceed 20% of the total brokerage paid for trades on behalf of its clients.

If Portfolio Manager has multiple associate Stock Brokers, each transaction through each associate Stock Broker is limited to 20% of the total brokerage paid for trades on behalf of the Portfolio Manager’s clients during the year.

The number of non-associated Stock Brokers, Depository Participants, or Custodians that a Portfolio Manager can work with is unrestricted. For example, the Portfolio Manager may use a single non-associated Stock Broker to execute 100 per cent of its customers’ trades.

A discretionary portfolio manager’s performance is measured using the time-weighted rate of return (TWRR) technique over the previous three years or duration of operation, whichever is shorter. SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/26, dated February 13, 2020, includes information on portfolio manager performance reporting as well as a client reporting format that includes information on the client account’s performance, portfolio manager’s performance, and the appropriate benchmark.

The time-weighted rate of return divides the return on an investment portfolio into distinct intervals based on whether money was added to or taken out of the fund. Annexure 1 has a full computation and an example illustration in this respect.

Annexure 2 is an example of how to calculate the performance fee based on the high watermark approach.

• The portfolio manager should provide the client with a report on a regular basis, according to the agreement, but not more than once every three months and such report shall include the following information: –
• The portfolio’s composition and value, a description of the securities and commodities, the number of securities, the value of each security held in the portfolio, the units of goods, the value of goods, the cash balance, and the portfolio’s aggregate value as of the date of the report;
• Transactions made throughout the reporting period, including the date of the transaction and the specifics of the purchases and sales;
• Beneficial interest was obtained in the form of interest, dividends, bonus shares, rights shares, and so on throughout that time period;
• Expenses incurred in maintaining the client’s portfolio;
• Specifics of risk anticipated by the portfolio manager, as well as the risk associated with assets suggested for investment or disinvestment by the portfolio manager;
• Default in coupon payments or any other payment default in the underlying debt instrument, and, if applicable, downgrade to default rating by rating agencies;
• Information of the commission paid to the distributor(s) for this client

Prior to entering into an agreement with the client, the portfolio manager gives the client the Disclosure Document. The Disclosure Document includes the amount and method of payment of fees due by the client for each activity, portfolio risks, complete disclosures regarding transactions with related parties, the portfolio manager’s performance, and the portfolio manager’s audited financial statements for the previous three years.

No, SEBI has not given its approval to any of the Portfolio Manager’s services. An investor must invest in the services based on the disclosure document’s terms and conditions as well as the portfolio manager’s agreement with the investor.

No, SEBI does not vouch for the correctness or completeness of the Disclosure Document’s contents.

The agreement between the portfolio manager and the investor governs the portfolio manager’s services. The contract should include the minimum information required by the SEBI Portfolio Manager Regulations. Additional conditions might, however, be set by the Portfolio Manager in the client agreement. As a result, an investor should thoroughly examine the agreement before signing it.

Portfolio managers are unable to enforce a lock-in on their customers’ investments. However, according to the provisions of SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/26, a portfolio manager might charge the client appropriate exit costs for an early withdrawal as specified in the agreement.

No.

For information on SEBI regulations and circulars relevant to portfolio managers, investors may visit the SEBI website at www.sebi.gov.in. The SEBI website also has the addresses of the registered portfolio managers. Information on monthly reports submitted by Portfolio Managers to SEBI can be accessed at https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doPmr=yes.

Investors may discover the name, address, and phone number of the portfolio manager’s investor relations officer (who handles investor questions and complaints) in the Disclosure Document. The Disclosure Document also mentions the grievance resolution and dispute procedure. Investors can approach SEBI for a redress of their grievances if the Portfolio Manager does not address their concerns. Investors can file complaints via SCORES (SEBI Complaints Redress System – https://scores.gov.in/scores/Welcome.html) or by writing to the address shown below.

• Office of Investor Assistance and Education,

Securities and Exchange Board of India,

SEBI Bhavan II

Plot No. C7, ‘G’ Block,

Bandra-Kurla Complex, Bandra (E),

Mumbai – 400 051

• Begin with the current market value at the start of the term.
• Make your way to the end of the period by moving ahead in time.
• Calculate the portfolio’s market value immediately before contributing to or withdrawing from it.
• Calculate a sub-period return for the time interval between the valuation dates, i.e. the contribution and/or withdrawal dates, using the formula:

(Ending Market Value – Beginning Market Value – Contribution + Withdrawal) ÷ (Beginning Market Value + Contribution – Withdrawal)

• Steps 3 and 4 should be repeated for each contribution and/or withdrawal.
• Calculate a subperiod return for the last period until the end of the period market value when there are no more contributions and/or withdrawals.
• Take the product of (1+sub-period returns) to compound the sub-period returns. Geometric linking or chain connecting of sub-period returns is what this is termed.
• Subtract one from the product value calculated in step seven.
• To calculate the TWRR for the time period under consideration, multiply the result by a percentage as shown in step 8 above.

The examination seeks to create a common minimum knowledge benchmark for distributors of Portfolio Management Services (PMS). The certification aims to enhance the PMS’s quality distribution and related support services.

The examination consists of 80 multiple choice questions and 3 case-based questions. The assessment structure is as follows:

Multiple Choice Question (80*1 Mark Each) – 80 Marks

3 Case-Based Questions

• 2 Cases (5 Questions * 1 Marks Each) – 10 Marks
• 1 Case (5 Questions * 2 Marks Each) – 10 Marks

The exam should be completed in 2 hours. The passing score for the examination is 60%. There shall be a negative marking of 25% of the marks assigned to a question.

35% is about knowledge and concept, and the rest 65% is about experience.

40% will be Theory with sums, 35% will be theory only, and 25% will sum only questions.

There are 12 Chapters to study.

• Chapter 1 – 5%
• Chapter 2 – 3%
• Chapter 3 – 5%
• Chapter 4 – 5%
• Chapter 5 – 6%
• Chapter 6 – 7%
• Chapter 7 – 10%
• Chapter 8 – 12%
• Chapter 9 – 12%
• Chapter 10 – 15%
• Chapter 11 – 5%
• Chapter 12 – 15%

1 * Only Subjective case study

2 * Only Numerical case study

3 * Both numerical and subjective case study

• They will see 15+ such questions at the end of the course
• They will not attempt to so sample questions in between the course

• Investment Basics
• Securities Markets
• Investing in Stocks
• Investing in Fixed Income
• Derivative
• Mutual Funds
• Role of Portfolio Managers
• Operational Aspects of PMS
• Portfolio Management Process
• Performance Measurement and Evaluation of PMS
• Taxation
• Regulatory Governance & Ethics

Savings is just the difference between Money Earned and Money Spent.

Investment is the current commitment of savings with an expectation of receiving a higher amount of committed savings. Investment involves some specific time period. It is the process of making the savings work to generate a return.

The Dictionary meaning of the term speculation is “the forming of a theory or conjecture without firm evidence.”

Inflation represents the rate the cost of goods and services increases over a period of time.

• When demand for goods or services exceeds production capacity
• When production costs increase, prices
• When prices rise, wages rise too, in order to maintain living costs.

When you buy, the valuation of the company present is determined by the discounting method.

Discounted cash flow formula = CFt/(1+r)^t

Weighted average cost of Capital (WACC) = (D/D+E)*𝑲_𝒅*(1-t) + (E/D+E)* 𝑲_𝒆

When you INVEST, the Compounding Method determines the valuation of the investment in the FUTURE.

FV = PV (1+r)^n

The nominal rate of return is the amount of money generated by an investment before factoring in expenses such as taxes, investment fees, and inflation. If an investment generated a 10% return, the nominal rate would equal 10%. After factoring in inflation during the investment period, the actual (“real”) return would likely be lower.

Nominal Rate of Return = Present Market Value – Original Market Value / Original Investment Value.

Risk is any uncertainty with respect to your investments that has the potential to affect your financial welfare negatively. For example, your investment value might rise or fall because of market conditions.

• Macro Risk – Systematic Risk
• Industry Risk – Systematic Risk
• Company Risk – Un-Systematic Risk

• Inflation Risk
• Credit Risk
• Business Risk
• Market Risk
• Country Risk
• Geo-Political Risk
• Liquidity Risk
• Re-Investment Risk

Inflation risk represents the risk that the money received on an investment may be worth less when adjusted for inflation. Inflation risk is also known as purchasing power risk. It is a risk that arises from the decline in the value of the security’s future cash flows.

Default risk or credit risk refers to the probability that borrowers will not be able to meet their commitment to paying interest and principal as scheduled. Debt instruments are subject to default risk as they have pre-committed payouts. The ability of the issuer of the debt instrument to service the debt may change over time, creating default risk for the investor.

Liquidity or marketability refers to the ease with which an investment can be bought or sold in the market. Liquidity risk refers to an absence of liquidity in an investment. Thus, liquidity risk implies that the investor may not be able to sell his investment when desired, or it has to be sold below its intrinsic value, or there are high costs to carrying out transactions. All of this affects the realizable value of the investment.

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

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

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

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

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

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

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

• CRISIL AAA – (Highest Safety)
• CRISIL AA – (High Safety)
• CRISIL A – (Adequate Safety)
• CRISIL BBB – (Moderate Safety)
• CRISIL BB – (Moderate Risk)
• CRISIL B – (High Risk)
• CRISIL C – (Very High Risk)
• CRISIL D – (Default)

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

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

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

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

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

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

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

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

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

• Equity Shares
• Debentures & Bonds
• Warrants and Convertible Warrants
• Indices
• Mutual Funds
• Exchange Traded Funds
• Hybrid and Structured Products
• Commodity & Metals
• Equity Instruments
• Fixed Income Instruments
• Real Estate
• Distressed Products
• Other Products

• Foreign Portfolio Investor
• P-Note Participants
• Mutual Funds
• Insurance Companies
• Pension Funds
• PE Firms
• Hedge Funds
• AIFs
• Investment Advisors
• Corporate Treasuries
• Clearing Banks
• Merchant Bankers
• Underwriters
• Foreign Portfolio Investors
• Institutional Clients

• Stock Exchanges
• Depositories
• Depository Participants
• Trading Members
• Authorized Persons
• Custodian
• Clearing Corporations
• Clearing Banks
• Merchant Bankers
• Underwriters
• Institutional Clients

• Stock Exchanges
• Depositories
• Depository Participants
• Trading Members
• Authorized Persons
• Custodian
• Clearing Corporations
• Clearing Banks
• Merchant Bankers
• Underwriters
• Institutional Clients

• Professional Investement Management
• Diversification
• Convenience
• Unit Holders account administration and services
• Reduction in transaction costs
• Regulatory Protection
• Product Variety

• Category I AIF: AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure, or other sectors or areas that the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds, and such other Alternative Investment Funds as may be specified. 
• Category II AIF: AIFs that do not fall in Category I and III and do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012. 
• Category II AIF: AIFs employ diverse or complex trading strategies and may employ leverage through investment in listed or unlisted derivatives.

• Equity Shares & Stock
• Differential Voting Rights
• Preferential Shares
• Depository Receipts
• Equity Warrants

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

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

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

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

• Financial Distributors / IFA / MFDs / Brokers
• SEBI Registered Investment Advisors
• Direct Channel

• Plain Vanilla Bonds
• Foreign Currency Convertible Bonds
• Equity Linked Debentures
• Commodity Linked Debentures
• Mortgage Based Securities

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

• Currency Derivative
• Equity
• Gold Derivative
• Government Securities
• Marketable Securities
• Silver Derivative
• Mortgage Debt
• Debt Paper
• Mutual Fund

• Initial Public Offer (IPO)
• Follow on Public Offer (FPO)
• Rights Issue
• Private Placement
• Preferential Issue
• Qualified Institutional Placement
• Bonus Issues
• On-Shore and Off-Shore Offerings
• Offer for Sale
• Employee Stock Ownership Plan
• FCCB (Foreign Currency Convertible Bond)
• Depository Receipts (ADR + GDR)
• Anchor Investor – 10crores & above

• Over-the-Counter Market
• Exchange Traded Markets
• Clearing & Settlement
• Risk Management
• Trading

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

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

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

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

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

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

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

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

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

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

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

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

OTC Markets – Fragmented Marketplace

Exchange Markets – Centralized Marketplace

• Mutual funds
• Pension funds
• Insurance companies
• Alternative investment funds
• Foreign Portfolio Investor
• Investment Advisors
• EPFO (Employee Provident Fund Organisations)
• National Pension System
• Family Offices
• Corporate Treasuries

• Equity Shares
• Debentures & Bonds
• Warrants and Convertible Warrants
• Indices
• Mutual Funds
• Exchange Traded Funds
• Hybrid and Structured Products
• Commodity & Metals

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

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

• Market Risks
• Sector Specific Risks
• Company Specific Risks
• Liquidity Risks

• Fundamental Research
• Quantitative Research
• Technical Research
• Derivative Research
• Events & News Based Research

• Buy Side Research
• Sell-Side Research
• Independent Research

• Company Analysis
• Industry Analysis
• Economy Analysis

• Economic Analysis
• Industry Analysis
• Company Analysis

• National Income
• Savings and Investment
• Inflation
• Un-Employment Rate
• FDI (Foreign Direct Investment)
• Foreign Portfolio Investment
• Fiscal Policy
• Monetary Policy
• Balance of Trade
• Export & Import
• Exchange Rate
• Trade Deficit

• Michael Porter Five Force Model
• PESTLE Analysis
• BCG Matrix
• SCP Analysis

• Geographic Migration: Discovery of shell gas helped the US to score over OPEC
• Cross Industry Migration: Conventional banks were replaced by Digital and Internet banking, and now Neo-banking
• Value Chain Migration: Higher benefits than the lower value chain. A typical example of a telecom operator – JIO, which benefitted from Vodafone and others
• Cross Companies Migration: Economic value creation and superior technology or features scores over others – like Samsung and Apple score over other small mobile phone manufacturer.
• Cross Product Migration: Usage from serving to cloud computing is a typical example.

• Create products and services that have low-Income elasticity
• Minimum impact of economic cycles.
• Food, agriculture output and health care are typical examples.

• It grows when the economy experiences an expansionary phase and declines during when recessionary phase
• Consumer durability is a typical example. When people have money, they grow, and when people do not have money, it fails.

• When affected by the extreme effects of economic cycles. During the recession, production drops.
• During the economic recovery, it experiences massive growth in the early phase. Auto and real estate is the typical example.

• Both market and the market share of the company are growing rapidly
• SUV segment and Hyundai Creta.
• Smart home and Cera sanitary appliances

• The business segment is growing fast, but the company is unable to capture the growing market
• Tata motors cars /Bajaj pulsar bike
• Smart mobile and LG mobile phone decision to exit.

• Low growth market but the high market share of the company
• ITC classmate – slow growth, but the market growth of the company is increasing rapidly
• Edible Oil and Saffola Gold

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

• Step 1: Gross Sales – GST = Net Sales
• Step 2: Net Sales – Cost = EBITDA
• Step 3: EBIT (DA) – Interest (Debt + Equity) = Cash flow from operations (EBTDA)
• Step 4: Cash flow from Operations – Capex or Re-investment Expense = Free Cash flow to FIRM, also known as Profit Before tax (PBT)
• Step 5: Free Cash flow to FIRM – (Tax & Depreciation & Amortization) = Free Cash flow to EQUITY, also known as Profit Before tax (PBT)

• Price to Earnings Ratio (P/E Ratio)
• Price to Book Value Ratio (P/BV)
• Price to Sales Ratio (P/S Ratio)
• EVA and MVA
• Price to Earnings Growth (PEG Ratio)
• Enterprise Value to Sales (EV/S)

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

• Step 1: Gross Sales – GST = Net Sales
• Step 2: Net Sales – Cost = EBITDA
• Step 3: EBIT (DA) – Interest (Debt + Equity) = Cash flow from operations (EBTDA)
• Step 4: Cash flow from Operations – Capex or Re-investment Expense = Free Cash flow to FIRM, also known as Profit Before tax (PBT)
• Step 5: Free Cash flow to FIRM – (Tax & Depreciation & Amortization) = Free Cash flow to EQUITY, also known as Profit After tax (PAT)

Government Bond Market and Corporate Bond Market

• Government Securities
  • Central Govt.
  • State Govt.
• Public Sector Bonds
  • Government Agencies / Statutory Bodies
  • Public Sector Undertakings
• Private Sector Bonds
  • Corporates
  • Banks
  • Financial Institutions

It’s a fund that the issuer can redeem all or part of before the specified maturity date.

It’s a fund where the Holder can sell the Bonds back to the issuer before maturity at pre-determined Costs on specified dates.

A convertible bond Converts the Bonds with equity at a predetermined rate and number.

Instruments with this rating are considered to have a very strong degree of safety regarding the timely payment of financial obligations. Such instruments carry the lowest credit risk.

Instruments with this rating are considered to have a strong degree of safety regarding the timely payment of financial obligations. Such instruments carry low credit risk.

Instruments with this rating are considered to have a moderate degree of safety regarding the timely payment of financial obligations. Such instruments carry higher credit risk than instruments rated in the two higher categories.

Instruments with this rating are considered to have minimal safety regarding the timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.

Instruments with this rating are in default or expected to default on maturity.

• Zero Coupon Bond
• Floating Rate Bond
• Convertible Bond
• Amortisation Bond
• Payment in Kind Bond
• Principal Protected Note

Any debt instrument can only be completely explained by answering how much borrowing it represents, how long the money has been lent, and the interest rate on the same. The first question is answered by the term Face Value, which represents how much that particular debt paper represents the loan. This is the nominal or par value of the debt paper, and interest, throughout the term of the paper, is paid as a percentage of this amount. The face value may be Rs.100 or Rs.1000 or any other denomination.

This is the amount of borrowing of the issuer represented by the security. An investor makes this initial investment when the bond is issued and is represented by face value. On redemption, this entire principal is returned to the investor. As the bond starts trading in the market, the price at which it is purchased and sold may be different from the stated face value. Irrespective of the price at which debt security is bought in the secondary market, the issuer is liable to repay only the principal, represented by the face value, on maturity.

Bonds which do not pay coupons in their entire term are known as Zero Coupon Bonds or simply ‘Zeroes’. Such bonds are issued at a discount to their face values and are redeemed at par. Thus, the return on these bonds is not in the form of periodic interest payments but in the difference between the issue price and redemption value.

A convertible bond or debenture is generally issued as a debt instrument with the option to investors to convert the amount invested into the equity of the issuer company later. This security has features of both debt and equity. The issuer specifies the conversion details when making the issue Itself. 

A corporate deposit or company fixed deposits are term deposits wherein you put your money for a fixed tenure at a fixed interest rate. They are offered by non-banking financial companies (NBFCs) and other financial institutions.

Commercial paper, also called CP, is a short-term debt instrument issued by companies to raise funds generally for up to one year. It is an unsecured money market instrument issued as a promissory note and was introduced in India for the first time in 1990.

A Eurobond or External Bond is an international bond denominated in a currency not native to the country where it is issued. They are also called external bonds. They are usually categorised according to the currency in which they are issued.

A portfolio manager is a legal entity that, under the terms of a contract with a client, advises, directs, or conducts the management or administration of the client’s portfolio of securities, assets, or money (whether as a discretionary portfolio manager or otherwise).

In a discretionary portfolio management service, the portfolio manager handles each client’s assets and securities separately and independently, according to the client’s needs. The portfolio manager in the non-discretionary portfolio management service administers the money according to the client’s instructions.

To become a portfolio manager, an applicant must submit an online application through the SEBI Intermediaries Portal and pay a non-refundable application fee of INR1,00,000/- by direct deposit into SEBI’s bank account via NEFT/RTGS/IMPS or any other mechanism permitted by RBI. Alternatively, the application fee can be paid by demand draft payable to ‘Securities and Exchange Board of India’ and payable in Mumbai or the location of the appropriate regional office.

 

Anyone interested in becoming a Portfolio Manager under the PMS Regulations must submit an application in Form A using the online system at https://siportal.sebi.gov.in.

The portfolio manager must have a net worth of at least INR 5 crore.

According to the SEBI (Portfolio Managers) Regulations, 2020, the portfolio manager must charge a fee for portfolio management services based on the agreement with the customer. The cost may be a set sum, a performance-based fee, or a combination of the two. The portfolio manager may not charge the customers any advance fees, either directly or indirectly.

The agreement between the portfolio manager and the client must specify, among other things, the amount and manner of fees due by the client for each activity for which the portfolio manager provides services directly or indirectly.

Portfolio Managers must invest funds of their clients in securities listed or traded on a recognized stock exchange, money market instruments, units of Mutual Funds through the direct plan, and other securities as specified by the Board from time to time under the Discretionary Portfolio Management Service (DPMS). Portfolio Managers can invest up to 25% of a client’s AUM in unlisted stocks under the Non-Discretionary Portfolio Management Service (NDPMS), in addition to the securities allowed for discretionary portfolio management.

Units of Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), debt securities, shares, warrants, and other securities not listed on any recognized stock exchanges in India are considered “unlisted securities” for investment by Portfolio Managers

No.

Noncompliance is defined as an active violation caused by investor activity in response to corporate acts such as a subscription to rights issues, which leads to a breach of the 25% restriction applicable to NonDiscretionary portfolios. A passive violation caused by business acts such as bonuses based on the value of unlisted securities, on the other hand, will not be considered non-compliance.

The portfolio manager must take a minimum of INR 50 lacs from the customer, or securities with a minimum value of INR 50 lacs.

Clients of Portfolio Managers who were onboarded before January 21, 2020, must comply with the new minimum investment amount requirement and top up their accounts to a minimum of INR 50 Lacs.

In line with the provisions of the client’s agreement with the Portfolio Manager, the customer may withdraw partial sums from his portfolio. The value of the portfolio’s investment following such withdrawal, however, must not be less than the required minimum investment amount.

No.

Charges for all transactions through self or associates in a financial year (broking, Demat, custody, etc.) should be capped at 20% by value per associate (including self) per service. Such restrictions will apply to DEMAT services, custodian services, and other related services. Furthermore, any fees charged to self/associates must not be higher than those charged to non-associated for the identical service. In the case of Broking services, for example, the total amount paid to the associate Stock Broker during the year cannot exceed 20% of the total brokerage paid for trades on behalf of its clients.

If Portfolio Manager has multiple associate Stock Brokers, each transaction through each associate Stock Broker is limited to 20% of the total brokerage paid for trades on behalf of the Portfolio Manager’s clients during the year.

The number of non-associated Stock Brokers, Depository Participants, or Custodians that a Portfolio Manager can work with is unrestricted. For example, the Portfolio Manager may use a single non-associated Stock Broker to execute 100 per cent of its customers’ trades.

A discretionary portfolio manager’s performance is measured using the time-weighted rate of return (TWRR) technique over the previous three years or duration of operation, whichever is shorter. SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/26, dated February 13, 2020, includes information on portfolio manager performance reporting as well as a client reporting format that includes information on the client account’s performance, portfolio manager’s performance, and the appropriate benchmark.

The time-weighted rate of return divides the return on an investment portfolio into distinct intervals based on whether money was added to or taken out of the fund. Annexure 1 has a full computation and an example illustration in this respect.

Annexure 2 is an example of how to calculate the performance fee based on the high watermark approach.

• The portfolio manager should provide the client with a report on a regular basis, according to the agreement, but not more than once every three months and such report shall include the following information: –
• The portfolio’s composition and value, a description of the securities and commodities, the number of securities, the value of each security held in the portfolio, the units of goods, the value of goods, the cash balance, and the portfolio’s aggregate value as of the date of the report;
• Transactions made throughout the reporting period, including the date of the transaction and the specifics of the purchases and sales;
• Beneficial interest was obtained in the form of interest, dividends, bonus shares, rights shares, and so on throughout that time period;
• Expenses incurred in maintaining the client’s portfolio;
• Specifics of risk anticipated by the portfolio manager, as well as the risk associated with assets suggested for investment or disinvestment by the portfolio manager;
• Default in coupon payments or any other payment default in the underlying debt instrument, and, if applicable, downgrade to default rating by rating agencies;
• Information of the commission paid to the distributor(s) for this client

Prior to entering into an agreement with the client, the portfolio manager gives the client the Disclosure Document. The Disclosure Document includes the amount and method of payment of fees due by the client for each activity, portfolio risks, complete disclosures regarding transactions with related parties, the portfolio manager’s performance, and the portfolio manager’s audited financial statements for the previous three years.

No, SEBI has not given its approval to any of the Portfolio Manager’s services. An investor must invest in the services based on the disclosure document’s terms and conditions as well as the portfolio manager’s agreement with the investor.

No, SEBI does not vouch for the correctness or completeness of the Disclosure Document’s contents.

The agreement between the portfolio manager and the investor governs the portfolio manager’s services. The contract should include the minimum information required by the SEBI Portfolio Manager Regulations. Additional conditions might, however, be set by the Portfolio Manager in the client agreement. As a result, an investor should thoroughly examine the agreement before signing it.

Portfolio managers are unable to enforce a lock-in on their customers’ investments. However, according to the provisions of SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/26, a portfolio manager might charge the client appropriate exit costs for an early withdrawal as specified in the agreement.

No.

For information on SEBI regulations and circulars relevant to portfolio managers, investors may visit the SEBI website at www.sebi.gov.in. The SEBI website also has the addresses of the registered portfolio managers. Information on monthly reports submitted by Portfolio Managers to SEBI can be accessed at https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doPmr=yes.

Investors may discover the name, address, and phone number of the portfolio manager’s investor relations officer (who handles investor questions and complaints) in the Disclosure Document. The Disclosure Document also mentions the grievance resolution and dispute procedure. Investors can approach SEBI for a redress of their grievances if the Portfolio Manager does not address their concerns. Investors can file complaints via SCORES (SEBI Complaints Redress System – https://scores.gov.in/scores/Welcome.html) or by writing to the address shown below.

• Office of Investor Assistance and Education,

Securities and Exchange Board of India,

SEBI Bhavan II

Plot No. C7, ‘G’ Block,

Bandra-Kurla Complex, Bandra (E),

Mumbai – 400 051

• Begin with the current market value at the start of the term.
• Make your way to the end of the period by moving ahead in time.
• Calculate the portfolio’s market value immediately before contributing to or withdrawing from it.
• Calculate a sub-period return for the time interval between the valuation dates, i.e. the contribution and/or withdrawal dates, using the formula:

(Ending Market Value – Beginning Market Value – Contribution + Withdrawal) ÷ (Beginning Market Value + Contribution – Withdrawal)

• Steps 3 and 4 should be repeated for each contribution and/or withdrawal.
• Calculate a subperiod return for the last period until the end of the period market value when there are no more contributions and/or withdrawals.
• Take the product of (1+sub-period returns) to compound the sub-period returns. Geometric linking or chain connecting of sub-period returns is what this is termed.
• Subtract one from the product value calculated in step seven.
• To calculate the TWRR for the time period under consideration, multiply the result by a percentage as shown in step 8 above.

The examination seeks to create a common minimum knowledge benchmark for distributors of Portfolio Management Services (PMS). The certification aims to enhance the PMS’s quality distribution and related support services.

The examination consists of 80 multiple choice questions and 3 case-based questions. The assessment structure is as follows:

Multiple Choice Question (80*1 Mark Each) – 80 Marks

3 Case-Based Questions

• 2 Cases (5 Questions * 1 Marks Each) – 10 Marks
• 1 Case (5 Questions * 2 Marks Each) – 10 Marks

The exam should be completed in 2 hours. The passing score for the examination is 60%. There shall be a negative marking of 25% of the marks assigned to a question.

35% is about knowledge and concept, and the rest 65% is about experience.

40% will be Theory with sums, 35% will be theory only, and 25% will sum only questions.

There are 12 Chapters to study.

• Chapter 1 – 5%
• Chapter 2 – 3%
• Chapter 3 – 5%
• Chapter 4 – 5%
• Chapter 5 – 6%
• Chapter 6 – 7%
• Chapter 7 – 10%
• Chapter 8 – 12%
• Chapter 9 – 12%
• Chapter 10 – 15%
• Chapter 11 – 5%
• Chapter 12 – 15%

1 * Only Subjective case study

2 * Only Numerical case study

3 * Both numerical and subjective case study

• They will see 15+ such questions at the end of the course
• They will not attempt to so sample questions in between the course

• Investment Basics
• Securities Markets
• Investing in Stocks
• Investing in Fixed Income
• Derivative
• Mutual Funds
• Role of Portfolio Managers
• Operational Aspects of PMS
• Portfolio Management Process
• Performance Measurement and Evaluation of PMS
• Taxation
• Regulatory Governance & Ethics

Savings is just the difference between Money Earned and Money Spent.

Investment is the current commitment of savings with an expectation of receiving a higher amount of committed savings. Investment involves some specific time period. It is the process of making the savings work to generate a return.

The Dictionary meaning of the term speculation is “the forming of a theory or conjecture without firm evidence.”

Inflation represents the rate the cost of goods and services increases over a period of time.

• When demand for goods or services exceeds production capacity
• When production costs increase, prices
• When prices rise, wages rise too, in order to maintain living costs.

When you buy, the valuation of the company present is determined by the discounting method.

Discounted cash flow formula = CFt/(1+r)^t

Weighted average cost of Capital (WACC) = (D/D+E)*𝑲_𝒅*(1-t) + (E/D+E)* 𝑲_𝒆

When you INVEST, the Compounding Method determines the valuation of the investment in the FUTURE.

FV = PV (1+r)^n

The nominal rate of return is the amount of money generated by an investment before factoring in expenses such as taxes, investment fees, and inflation. If an investment generated a 10% return, the nominal rate would equal 10%. After factoring in inflation during the investment period, the actual (“real”) return would likely be lower.

Nominal Rate of Return = Present Market Value – Original Market Value / Original Investment Value.

Risk is any uncertainty with respect to your investments that has the potential to affect your financial welfare negatively. For example, your investment value might rise or fall because of market conditions.

• Macro Risk – Systematic Risk
• Industry Risk – Systematic Risk
• Company Risk – Un-Systematic Risk

• Inflation Risk
• Credit Risk
• Business Risk
• Market Risk
• Country Risk
• Geo-Political Risk
• Liquidity Risk
• Re-Investment Risk

Inflation risk represents the risk that the money received on an investment may be worth less when adjusted for inflation. Inflation risk is also known as purchasing power risk. It is a risk that arises from the decline in the value of the security’s future cash flows.

Default risk or credit risk refers to the probability that borrowers will not be able to meet their commitment to paying interest and principal as scheduled. Debt instruments are subject to default risk as they have pre-committed payouts. The ability of the issuer of the debt instrument to service the debt may change over time, creating default risk for the investor.

Liquidity or marketability refers to the ease with which an investment can be bought or sold in the market. Liquidity risk refers to an absence of liquidity in an investment. Thus, liquidity risk implies that the investor may not be able to sell his investment when desired, or it has to be sold below its intrinsic value, or there are high costs to carrying out transactions. All of this affects the realizable value of the investment.

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

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

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

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

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

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

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

• CRISIL AAA – (Highest Safety)
• CRISIL AA – (High Safety)
• CRISIL A – (Adequate Safety)
• CRISIL BBB – (Moderate Safety)
• CRISIL BB – (Moderate Risk)
• CRISIL B – (High Risk)
• CRISIL C – (Very High Risk)
• CRISIL D – (Default)

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

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

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

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

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

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

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

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

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

• Equity Shares
• Debentures & Bonds
• Warrants and Convertible Warrants
• Indices
• Mutual Funds
• Exchange Traded Funds
• Hybrid and Structured Products
• Commodity & Metals
• Equity Instruments
• Fixed Income Instruments
• Real Estate
• Distressed Products
• Other Products

• Foreign Portfolio Investor
• P-Note Participants
• Mutual Funds
• Insurance Companies
• Pension Funds
• PE Firms
• Hedge Funds
• AIFs
• Investment Advisors
• Corporate Treasuries
• Clearing Banks
• Merchant Bankers
• Underwriters
• Foreign Portfolio Investors
• Institutional Clients

• Stock Exchanges
• Depositories
• Depository Participants
• Trading Members
• Authorized Persons
• Custodian
• Clearing Corporations
• Clearing Banks
• Merchant Bankers
• Underwriters
• Institutional Clients

• Stock Exchanges
• Depositories
• Depository Participants
• Trading Members
• Authorized Persons
• Custodian
• Clearing Corporations
• Clearing Banks
• Merchant Bankers
• Underwriters
• Institutional Clients

• Professional Investement Management
• Diversification
• Convenience
• Unit Holders account administration and services
• Reduction in transaction costs
• Regulatory Protection
• Product Variety

• Category I AIF: AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure, or other sectors or areas that the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds, and such other Alternative Investment Funds as may be specified. 
• Category II AIF: AIFs that do not fall in Category I and III and do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012. 
• Category II AIF: AIFs employ diverse or complex trading strategies and may employ leverage through investment in listed or unlisted derivatives.

• Equity Shares & Stock
• Differential Voting Rights
• Preferential Shares
• Depository Receipts
• Equity Warrants

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

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

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

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

• Financial Distributors / IFA / MFDs / Brokers
• SEBI Registered Investment Advisors
• Direct Channel

• Plain Vanilla Bonds
• Foreign Currency Convertible Bonds
• Equity Linked Debentures
• Commodity Linked Debentures
• Mortgage Based Securities

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

• Currency Derivative
• Equity
• Gold Derivative
• Government Securities
• Marketable Securities
• Silver Derivative
• Mortgage Debt
• Debt Paper
• Mutual Fund

• Initial Public Offer (IPO)
• Follow on Public Offer (FPO)
• Rights Issue
• Private Placement
• Preferential Issue
• Qualified Institutional Placement
• Bonus Issues
• On-Shore and Off-Shore Offerings
• Offer for Sale
• Employee Stock Ownership Plan
• FCCB (Foreign Currency Convertible Bond)
• Depository Receipts (ADR + GDR)
• Anchor Investor – 10crores & above

• Over-the-Counter Market
• Exchange Traded Markets
• Clearing & Settlement
• Risk Management
• Trading

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

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

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

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

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

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

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

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

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

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

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

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

OTC Markets – Fragmented Marketplace

Exchange Markets – Centralized Marketplace

• Mutual funds
• Pension funds
• Insurance companies
• Alternative investment funds
• Foreign Portfolio Investor
• Investment Advisors
• EPFO (Employee Provident Fund Organisations)
• National Pension System
• Family Offices
• Corporate Treasuries

• Equity Shares
• Debentures & Bonds
• Warrants and Convertible Warrants
• Indices
• Mutual Funds
• Exchange Traded Funds
• Hybrid and Structured Products
• Commodity & Metals

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

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

• Market Risks
• Sector Specific Risks
• Company Specific Risks
• Liquidity Risks

• Fundamental Research
• Quantitative Research
• Technical Research
• Derivative Research
• Events & News Based Research

• Buy Side Research
• Sell-Side Research
• Independent Research

• Company Analysis
• Industry Analysis
• Economy Analysis

• Economic Analysis
• Industry Analysis
• Company Analysis

• National Income
• Savings and Investment
• Inflation
• Un-Employment Rate
• FDI (Foreign Direct Investment)
• Foreign Portfolio Investment
• Fiscal Policy
• Monetary Policy
• Balance of Trade
• Export & Import
• Exchange Rate
• Trade Deficit

• Michael Porter Five Force Model
• PESTLE Analysis
• BCG Matrix
• SCP Analysis

• Geographic Migration: Discovery of shell gas helped the US to score over OPEC
• Cross Industry Migration: Conventional banks were replaced by Digital and Internet banking, and now Neo-banking
• Value Chain Migration: Higher benefits than the lower value chain. A typical example of a telecom operator – JIO, which benefitted from Vodafone and others
• Cross Companies Migration: Economic value creation and superior technology or features scores over others – like Samsung and Apple score over other small mobile phone manufacturer.
• Cross Product Migration: Usage from serving to cloud computing is a typical example.

• Create products and services that have low-Income elasticity
• Minimum impact of economic cycles.
• Food, agriculture output and health care are typical examples.

• It grows when the economy experiences an expansionary phase and declines during when recessionary phase
• Consumer durability is a typical example. When people have money, they grow, and when people do not have money, it fails.

• When affected by the extreme effects of economic cycles. During the recession, production drops.
• During the economic recovery, it experiences massive growth in the early phase. Auto and real estate is the typical example.

• Both market and the market share of the company are growing rapidly
• SUV segment and Hyundai Creta.
• Smart home and Cera sanitary appliances

• The business segment is growing fast, but the company is unable to capture the growing market
• Tata motors cars /Bajaj pulsar bike
• Smart mobile and LG mobile phone decision to exit.

• Low growth market but the high market share of the company
• ITC classmate – slow growth, but the market growth of the company is increasing rapidly
• Edible Oil and Saffola Gold

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

• Step 1: Gross Sales – GST = Net Sales
• Step 2: Net Sales – Cost = EBITDA
• Step 3: EBIT (DA) – Interest (Debt + Equity) = Cash flow from operations (EBTDA)
• Step 4: Cash flow from Operations – Capex or Re-investment Expense = Free Cash flow to FIRM, also known as Profit Before tax (PBT)
• Step 5: Free Cash flow to FIRM – (Tax & Depreciation & Amortization) = Free Cash flow to EQUITY, also known as Profit Before tax (PBT)

• Price to Earnings Ratio (P/E Ratio)
• Price to Book Value Ratio (P/BV)
• Price to Sales Ratio (P/S Ratio)
• EVA and MVA
• Price to Earnings Growth (PEG Ratio)
• Enterprise Value to Sales (EV/S)

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

• Step 1: Gross Sales – GST = Net Sales
• Step 2: Net Sales – Cost = EBITDA
• Step 3: EBIT (DA) – Interest (Debt + Equity) = Cash flow from operations (EBTDA)
• Step 4: Cash flow from Operations – Capex or Re-investment Expense = Free Cash flow to FIRM, also known as Profit Before tax (PBT)
• Step 5: Free Cash flow to FIRM – (Tax & Depreciation & Amortization) = Free Cash flow to EQUITY, also known as Profit After tax (PAT)

Government Bond Market and Corporate Bond Market

• Government Securities
  • Central Govt.
  • State Govt.
• Public Sector Bonds
  • Government Agencies / Statutory Bodies
  • Public Sector Undertakings
• Private Sector Bonds
  • Corporates
  • Banks
  • Financial Institutions

It’s a fund that the issuer can redeem all or part of before the specified maturity date.

It’s a fund where the Holder can sell the Bonds back to the issuer before maturity at pre-determined Costs on specified dates.

A convertible bond Converts the Bonds with equity at a predetermined rate and number.

Instruments with this rating are considered to have a very strong degree of safety regarding the timely payment of financial obligations. Such instruments carry the lowest credit risk.

Instruments with this rating are considered to have a strong degree of safety regarding the timely payment of financial obligations. Such instruments carry low credit risk.

Instruments with this rating are considered to have a moderate degree of safety regarding the timely payment of financial obligations. Such instruments carry higher credit risk than instruments rated in the two higher categories.

Instruments with this rating are considered to have minimal safety regarding the timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.

Instruments with this rating are in default or expected to default on maturity.

• Zero Coupon Bond
• Floating Rate Bond
• Convertible Bond
• Amortisation Bond
• Payment in Kind Bond
• Principal Protected Note

Any debt instrument can only be completely explained by answering how much borrowing it represents, how long the money has been lent, and the interest rate on the same. The first question is answered by the term Face Value, which represents how much that particular debt paper represents the loan. This is the nominal or par value of the debt paper, and interest, throughout the term of the paper, is paid as a percentage of this amount. The face value may be Rs.100 or Rs.1000 or any other denomination.

This is the amount of borrowing of the issuer represented by the security. An investor makes this initial investment when the bond is issued and is represented by face value. On redemption, this entire principal is returned to the investor. As the bond starts trading in the market, the price at which it is purchased and sold may be different from the stated face value. Irrespective of the price at which debt security is bought in the secondary market, the issuer is liable to repay only the principal, represented by the face value, on maturity.

Bonds which do not pay coupons in their entire term are known as Zero Coupon Bonds or simply ‘Zeroes’. Such bonds are issued at a discount to their face values and are redeemed at par. Thus, the return on these bonds is not in the form of periodic interest payments but in the difference between the issue price and redemption value.

A convertible bond or debenture is generally issued as a debt instrument with the option to investors to convert the amount invested into the equity of the issuer company later. This security has features of both debt and equity. The issuer specifies the conversion details when making the issue Itself. 

A corporate deposit or company fixed deposits are term deposits wherein you put your money for a fixed tenure at a fixed interest rate. They are offered by non-banking financial companies (NBFCs) and other financial institutions.

Commercial paper, also called CP, is a short-term debt instrument issued by companies to raise funds generally for up to one year. It is an unsecured money market instrument issued as a promissory note and was introduced in India for the first time in 1990.

A Eurobond or External Bond is an international bond denominated in a currency not native to the country where it is issued. They are also called external bonds. They are usually categorised according to the currency in which they are issued.

Plain vanilla is the most basic or standard version of a financial instrument, usually options, bonds, futures, and swaps. It is the opposite of an exotic instrument, which alters the components of a traditional financial instrument, resulting in more complex security.

These are bonds whose coupon is not fixed, as in the case of vanilla bonds but is reset periodically concerning a defined benchmark. This could be the inflation index, inter-bank rates, call rates, or another relevant benchmark. 

A perpetual bond, also known as a “consol bond” or “prep,” is a fixed-income security with no maturity date. This type of bond is often considered a type of equity rather than debt. One major drawback to these types of bonds is that they are not redeemable. However, their major benefit is that they pay a steady stream of interest payments forever.

Measures the bond costs’ sensitivity to a change in the market interest rates. So if a bond has a duration of 3, it means that if the interest rate changes by 1%, the Costs of the bond will decrease by 3% as the relationship between the interest rate change and the bond Costs is Negative.

Macaulay Duration approach explains and illustrates the relationship between the Costs of the bond and the interest rate change – the negative slope linearity.

A derivative is a financial instrument whose value is derived from the value of one or more underlying, that can be commodities, precious metals, currency, bonds, stocks, stocks indices, etc. The four most common examples of derivative instruments are 

• Forwards, 
• Futures, 
• Options and 
• Swaps

In the Indian context the Securities Contracts (Regulation) Act, 1956 [SC(R)A] defines “derivative” to include-

• A security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security.
• A contract derives Its value from the Costs, or index of Costs, of underlying securities.

A zero-sum game is a situation where one party benefits at the equal cost of another. If we add gains and losses, the net benefit will always be zero.

Settlement is the equilibrium price determined by the buyer and seller. In Derivative trading, Settlement can be done through cash or the underlying asset like a commodity. 

Asymmetric information leading to trading opportunities due to differences in prices in different markets is called Arbitrage. Commonly used in the securities market, Arbitrage is the basis of Derivative trading and is often used by investors to make a profit.

Margin is a hedged amount that is often collateralised through funds or securities and paid to the broker to ensure derivative trade is executed without default. The concept of margin protects financial commitments in an open trade that is often offset within a period.

Open interest can be described as the number of trades that is open or outstanding derivatives contracts for a particular market. A derivatives contract is deemed “open” until the other side decides to close it, and the market’s open interest represents the sum of all the contracts from “opened” trades minus the closed or settled contracts. The higher the open interest, the higher the volatility.

Some derivative contracts are settled between counterparties on terms mutually agreed upon between them. These are called over-the-counter (OTC) derivatives. They are nonstandard and depend on the trust between counterparties to meet their commitment as promised. These are prevalent only between institutions which are comfortable dealing with each other.

Exchange-traded derivatives are standard contracts defined by an exchange and usually settled through a clearing house. The buyers and sellers maintain margins with the clearing corporations, which enables players that do not know one another (anonymous) to enter into contracts on the strength of the settlement process of the clearing house. Forwards are OTC derivatives; futures are exchange-traded derivatives.

• Forward Contracts
• Futures Contract
• SWAP Contract
• Option Contract

A forward contract is a customised contract between two parties to buy or sell an asset at a specified Cost on a future date. A forward contract can be used for hedging or speculation, although Its non-standardised nature makes it particularly apt for hedging, and it reduces the risks of unknown Costs to both the buyers and Sellers.

Counterparty risk is the risk of losing money due to the failure of commitment of either party in a trading scenario. This may happen if a buyer fails to pay and the seller fails to deliver the asset / underlying, which happens when the notional values can far exceed the size of the underlying securities.

When some insufficient buyers and sellers can facilitate the transaction of selling or Buying a trading contract, we refer to that situation as a Liquidity issue. Liquidity risk happens due to a lack of buyers and sellers of a particular security.

Futures are financial derivative contracts that obligate the parties to transact an asset at a predetermined future date and cost. Here, the buyer must purchase or the seller must sell the underlying asset at the set Costs, regardless of the current market Costs at the expiration date.

Futures are financial derivative contracts that obligate the parties to transact an asset at a predetermined future date and cost. Here, the buyer must purchase or the seller must sell the underlying asset at the set Costs, regardless of the current market Costs at the expiration date.

There are many types of futures in both the financial and commodity segments. Some financial futures include stock, index, currency and interest futures. There are also futures for various commodities, like agricultural products, gold, oil, cotton, oilseed, etc.

Futures are widely used in various markets to hedge against Costs volatility and by speculators who want to take advantage of Costs movements. A futures contract gives a buyer or seller the right to buy or sell a particular asset at a specific future Cost.

Futures Contracts are extremely legalised and monitored by Stock Exchanges. The clearing corporation also monitors them to avoid any Default in the payment obligation – by either party as per the terms and conditions of the contract.

Futures Contracts, like Forward contracts, are hedged by the exchanges who control the transaction – the exchanges set up underlying processes and policies. Hence the risk is reduced to a great extent. 

The transaction happens on a Contract basis, and No MONEY or ASSET changes hands when the contract is signed between the BUYER and SELLER.

Futures contracts work by tracking the spot price of an underlying market and taking other factors into account, such as volatility, the time until delivery, interest rates and the costs of maintaining a position – known as the cost of carrying.

Futures prices are often higher than the spot price as it adds in all these factors. In this circumstance, the market is said to be in contango. Alternatively, the market is backward when futures prices are lower than the spot price. When a futures contract expires, it will equal the spot price.

You can trade futures contracts via a broker’s execution platform. You’ll need to analyse the market and decide which futures contract you want to trade and at which expiry date. Many speculators will use the nearest expiry date, as although it’s often the most expensive, it is also the most actively traded and liquid.

Once you’ve entered a futures contract, you’ll be obliged to uphold your side of the deal – buying or selling the underlying asset. At expiry, you’d either settle or rollover your contract. You could choose to roll your contract and continue to hold the position at expiry. Otherwise, you would have to settle your futures contract using one of two methods: physical or cash settlement.

An option is a derivative, a contract that gives the buyer the right, but not the obligation, to buy or sell the underlying asset by a certain date (also called expiration date) at a specified Cost, also called strike Costs. There are two types of options: calls and puts. American-style options can be exercised at any time before their expiration. European-style options can only be exercised on the expiration date.