Year: 2020

Product design as a verb is to create a new product to be sold by a business to its customers. A very broad coefficient and effective generation and development of ideas through a process that leads to new products. Thus, it is a major aspect of new product development.

Due to the absence of a consensually accepted definition that reflects the breadth of the topic sufficiently, two discrete, yet interdependent, definitions are needed: one that explicitly defines product design in reference to the artifact, the other that defines the product design process in relation to this artifact.

Product design as a noun: the set of properties of an artifact, consisting of the discrete properties of the form (i.e., the aesthetics of the tangible good or service) and the function (i.e. its capabilities) together with the holistic properties of the integrated form and function.

Product design process: the set of strategic and tactical activities, from idea generation to commercialization, used to create a product design. In a systematic approach, product designers conceptualize and evaluate ideas, turning them into tangible inventions and products. The product designer’s role is to combine art, science, and technology to create new products that people can use. Their evolving role has been facilitated by digital tools that now allow designers to do things that include communicate, visualize, analyze, 3D modeling and actually produce tangible ideas in a way that would have taken greater manpower in the past.

Product design is sometimes confused with (and certainly overlaps with) industrial design, and has recently become a broad term inclusive of service, software, and physical product design. Industrial design is concerned with bringing artistic form and usability, usually associated with craft design and ergonomics, together in order to mass-produce goods. Other aspects of product design and industrial design include engineering design, particularly when matters of functionality or utility (e.g. problem-solving) are at issue, though such boundaries are not always clear.

An adjustment in one or more of a product’s characteristics. It is most likely to be employed in the maturity stage of the product life cycle to give a brand a competitive advantage. Product line extensions represent new sizes, flavors, or packaging. This approach to altering a product mix entails less risk than developing a new product.

There are three major ways of product modification, i.e. quality modifications, functional modifications, and style modifications.

1. Quality modifications

These are changes that relate to a product’s dependability and durability and usually are executed by alterations in the materials or production process employed. Reducing a product’s quality may allow an organization to lower the price and direct the item at a larger target market.

The quality of a product may give a firm an advantage over competing brands and may allow the firm to charge a higher price because of increased quality. Or the firm may be forced to charge more because of higher costs to achieve the increased quality.

2. Functional modifications

Changes that affect a product’s versatility, effectiveness, convenience, or safety are called functional modifications. They usually require redesigning the product.

Functional modifications can make a product useful to more people, which enlarges the market for it. This type of change can place a product in a favorable competitive position by providing benefits not offered by competing items. Functional modifications can also help an organization to achieve and maintain a progressive image.

3. Style modifications

Style modifications are directed at changing the sensory appeal of a product by altering its taste, texture, sound, smell, or visual characteristics. Since a buyer’s purchase decision is affected by how the product looks, smells, tastes, feels, or sounds, a style modification may have a definite impact on purchases.

Through style modifications a firm can differentiate its product from competing brands and perhaps gain a sizable market share for this unique product. The major drawback in using style modifications is that their value is determined subjectively. Although a firm may modify a product to improve the product’s style, customers may find the modified product to be less appealing.

A rural marketing strategy refers to the planning of adequate supply of consumer goods and agricultural input to the villages at an affordable price to fulfil the needs of the consumers residing in these rural areas. Rural markets have a high potential and can generate huge sales volume for the companies which manufacture cost-efficient products and have active supply chain management.

For Example; In rural markets, most of the selling products belong to spurious brands. These with a name similar to those of well-known brands have penetrated the Indian rural markets due to the product’s look-alike feature (copy of branded products) and cheap prices.

A brand named ‘Vinovo’ (often misunderstood as ‘Lenovo’ which is a renowned smartphone brand) is selling budget mobile phones to the rural consumers, that look identical to the Lenovo handsets.

However, brands like GlaxoSmithKline (GSK), a UK based multinational FMCG launched a product, Asha-milk food drink for rural consumers. The product was 40% cheaper than the outcomes of well-known brands like Horlicks. It gained popularity due to its excellent pricing strategy.

Rural Marketing Strategies

When we talk about 4 P’s of marketing mix of a product, the first thing that strikes us is the combination of product, price, place and promotion. This is what we will be discussing under rural marketing strategies.

Four components of the marketing mix concerning the product being introduced in the rural market

1. Product Strategies

The company first needs to analyze the requirements and demand of the rural consumers. Since whatever products are being sold in the urban areas may not be acceptable in the villages also.

Following are some of the factors which are taken into consideration while framing the product strategies:

• Product Launch: The rural consumers earn a lump sum amount two times a year according to the crop cycle. Therefore the product must be launched only in these harvesting seasons, i.e., rabi and kharif.
• New Product Design: The product design for an urban market may not perform well in the rural market too. Thus, the company must plan for a robust model of the product (especially of durable goods) while launching it for rural consumers.
• Brand Name: Brands are gaining significance in the rural markets as the people are becoming aware and informed. However, in these markets, brands are recognized by the simplicity of their name, visual logos, taste and colour of the products.
• Small Unit Low Price Packaging: Considering the daily wage earners who have less disposable income; the product should be packed in small units with a minimal price to serve the requirements of the rural consumers.

2. Pricing Strategies

In rural markets, consumers are less brand conscious and more responsive to the price of the products. The company’s pricing decision is dependant upon the consumers’ occupation and income pattern.

Various strategies followed by marketers while planning for the product pricing in rural markets:

• Differential Pricing: The pricing strategy for the rural markets should be different from that in urban markets. The product should be priced slightly cheaper to grab the attention of rural consumers.
• Psychological Pricing: The psychological pricing is a tactic used to make the deal appealing to the consumers. A product is priced at odd amounts like ₹9, ₹59, ₹99, etc. which seems less than ₹10, ₹60 and ₹100 respectively. It is a fruitful strategy in rural marketing.
• Create Value for Money: The rural consumers are more concerned about the durability of the products, i.e., the value it generates to the customer. They tend to pay a slightly higher amount for a better product with additional features.
• Pricing on Special Events: In the rural areas, occasions and festival are highly valued and celebrated. Therefore, companies make use of these special events to attract rural consumers by giving them various offers and discounts.
• Simple Packing: Rural consumers have a basic living standard. They don’t like to spend much on the products which have fancy packaging; instead, they look for the utility of the product. So it would be a waste of time and money if the brand spends on sophisticated product packaging.
• Low Price Points: A consumer belonging to the rural area have limited resources out of which he or she needs to buy various daily utility products. Therefore, a product must be priced quite low to make it affordable for such consumers.
• Schemes for Retailers: Rural retailers are the most significant medium of sales in the village. The companies must come up with cash discounts, gift schemes, offers and quantity discounts to build the loyalty of such retailers towards the brand and increase product sales.
• Bundle Pricing: A bundle is a mix of different products in a single pack available to the consumer for a reasonable price. The marketers must plan for a product bundle pricing to make the offer appealing to the consumers and survive in the competitive rural market.

3. Distribution Strategies

To create a regular demand for the product, the marketer must ensure the uninterrupted supply of the goods in the rural markets. The product availability can be achieved by implementing the following strategies:

• Local Markets: In rural areas, local markets exist in the form of fares, farmers’ market, Sunday market and feeder market. Here, rural people gather to buy goods and communicate with each other.
• Company Depots: The company owns warehouses and depots in some major rural areas to make the goods readily available to the native consumers and that of nearby cities.
• Public Distribution System: The government runs fair price shops in the villages to sell the daily utility and durable products at a nominal price. In India, one such PDS is the ration shops.
• Retailers: The most straightforward way a rural consumer can acquire a product is through a retail shop located in the village. Therefore, companies must plan their supply chain management in such a way that the goods are regularly made available to these retailers.
• Redistribution Stockists and Clearing Agents: The redistribution stockists and the clearing agents are the intermediaries between the companies and rural consumers. They supply goods to the retailers from where it reaches the consumers.
• Delivery Vans, Traders, Sales Person, NGO: The company must run its van for delivering goods in the remote areas where there is lack of proper transportation facility.

4. Promotion Strategies

Promotion is the stage where the product is introduced in the market. In rural markets, the promotion mix should be planned in such a way that rural consumers can easily understand the product features.

Following promotional strategies are used by the marketers:

• Mass Media: The villages have limited means of entertainment which include tv, radio, press and cinema. The companies advertise their products through these popular mass media.
• Personalised Media: It can be seen as hiring a salesperson for performing door to door sales and collecting information and queries related to the product and the brand.
• Local Media: As we have already discussed in the distribution strategy, local media includes audiovisual vans, animal parades, fares, folk programmes, etc. Displaying advertisements, video clippings, short films, posters and paintings at these places is also useful promotional activity.
• Hiring Models and Actors for Promotion: Rural people are fascinated by the television actors and models and consider them as their role models. Therefore the marketers must engage famous faces in their tv commercials to promote the brand.
• Advertise Through Paintings: The rural consumers are attracted towards the bright colours and the pictorial representation of the products; hence, wall paintings are a good idea in the rural markets.

Other Marketing Strategies to Conquer Rural Markets

The rural markets function diversely from the urban markets. Therefore, marketers need to customize a whole set of different strategies to penetrate the rural market.

Being updated with the traditions and values of the rural consumers and planning the marketing strategies accordingly, like a promotion campaign targeting a festival is another suitable option.

Rural marketing should not be used as a means of demoting under-performing managers. Instead, an enthusiastic person belonging to the rural background having the willingness to work in villages must be appointed.

The marketers can introduce new business models and programmes with a social concern like promoting education or empowering women for overall growth.

To understand the market in a better way, the company can hire a rural marketing specialist agency which has prior knowledge and experience in the field and is well-versed with the regional language.

To estimate the feasibility of expenditure in rural marketing, the organization should determine its per capita sales in advance. The company must time the marketing cycle of products by the sowing, growing and harvesting seasons of the crops.

Rural consumers are slowly upgrading to technology with the help of smartphones and computers. The companies must make use of simple and easy to access technological means to create awareness about the products in rural areas.

As a means of digital marketing in the villages, marketers can opt for mobile messaging, internet ads, applications and interactive voice response to promote their products.

The companies must invest in rural marketing with a long-term perspective and should have the patience to achieve the desired results.

To develop a sharp brand image and loyalty in a rural market, the best way is the word of mouth publicity by the locals.

Rural marketing is now a two-way marketing process. There is inflow of products into rural markets for production or consumption and there is also outflow of products to urban areas. The urban to rural flow consists of agricultural inputs, fast-moving consumer goods (FMCG) such as soaps, detergents, cosmetics, textiles, and so on. The rural to urban flow consists of agricultural produce such as rice, wheat, sugar, and cotton. There is also a movement of rural products within rural areas for consumption.

Rural marketing can be described as any marketing activity in which a dominant participant will be from a rural area which implies that it consists of two things that is marketing of inputs to the rural in addition to that marketing of outputs from the rural markets to other geographical area. Rural areas are those areas which are not urbanized and low population density and much of the land is devoted to agriculture. Rural Marketing is growing at a much faster rate than its urban counterpart. Indian Rural Market is becoming the powerhouse of the country. 12 % of the world population is residing in rural areas witnessing enormous growth in their incomes and crucial shift in consumer behaviour.

Facts that strengthen the rural India is given below:

• Rural India accounts for a total of 55% of the manufacturing GDP. They were host to nearly 75% of new factories built in the last decade.
• Rural consumption per person has increased by 38% yearly between 2019 and 2020.

Degrees of Segmentation:

1. Mass Marketing

In this all consumers are being treated the same. It allows the company to target the maximum number of consumers. For example HUL has offered only one detergent that is “Surf” to all consumers but Nirma entered the market and grabbed a sizeable market share because of which HUL woke up and introduced wheel.

2. Segment Marketing

Marketers determines the potential of consumers segments which are substanial enough to target and respond by offering low-priced sachets and products that are designed appropriatley.

Segmenting the rural market

There are various dimensions on basis of which the rural market can be segmented these dimensions include geographic, demographic, psychographic and behavioural. The rural areas can be also classified on the basis of socioeconomic classes bases on the occupation and the type of house in which they live. The consumers are classified into four classes which are as follows:-

1. SEC R1

This section consists of the landlord farmers, people who are exposed to urban areas like if their children studying in the nearby towns, who lifestyle as of the urban people, those who own consumer durable goods like refrigerator, two wheeler etc.

2. SEC R2

They include the rich farmers, who themselves are not educated but want their children to be educated, own some of the consumer durable products like television, tractor etc.

3. SEC R3

They include those who have their children studying in the villages, those who are conservative in adopting technology and have some consumer durable products.

4. SEC R4

These include low income labours, agricultural farmers and uneducated people of labour class.

Characteristics of the Rural Market

Few characteristics which are unique to the rural market these are:-

• Level of literacy
• Family structure
• Pattern of occupation
• Household settlements distribution

There are few features that have importance in the rural market, these are:-

• Demographic features of the rural India
• Unique characteristics of the rural economy
• Cultural and social behavior
• Consumer response in the rural market
• Marketing in rural areas

The market structure in the rural areas is different from that of the urban areas. There are different means to reach the rural consumers unlike the urban consumers who have retail stores, supermarkets etc. The rural consumers can be reached through periodic markets in the village known as haats, agricultural markets known as mandis and fairs in the rural areas known as melas.

Rural market is said to be heterogeneous market where there are many variations in income, population, density, socio- cultural aspects, literacy level, consuming habits, tastes, preferences which influence the response of the consumers to a greater extent.

The concept of “marketing mix” was introduced over 60 years ago. In 1953, Neil Borden mentioned it in his presidential address to the American Marketing Association (AMA).

In general terms, marketing mix is a variety of different factors that can influence a consumer’s decision to purchase a product or use a service. It most commonly refers to the 4Ps of marketing product, price, promotion and place.

These four factors can be controlled by a business to a certain extent. When “mixed” or blended strategically, they can produce desired behaviors from your target audiences (i.e. signing up as a subscriber or making a purchase).

It can also help businesses further understand their product and service offerings and the best ways to plan for a successful launch and marketing strategy.

The 4Ps were created by marketing professor E. Jerome McCarthy in 1960, seven years after Borden’s speech. They are a framework that marketers and businesses can use when designing strategies and campaigns to promote their products and services.

Instead of leaving it up to chance and hoping that people will do what you want, you can increase your conversions by using a framework. Each P stands for a different element that influences a consumer’s decision-making process.

1. Product

Product refers to the physical goods or the intangible services that you offer, but there’s more to it than that. It’s also about the experience that users and customers have with your product. What makes customers choose your product over others? What problem does it solve? What attracts people to your products or services?

They may be attracted to the product packaging, features, ease-of-use, name, quality, design or support. The transaction may be for the physical product. But, the purchase is influenced by the entire buying experience.

All of the four elements are centered around the customer. It is important to know who your audience is and what they care about. Create buyer personas. Conduct customer research. Learn as much about your current or potential customer base as you can. This will help you make decisions that are more likely to resonate and appeal to your target audiences.

2. Price

It is critical to choose the right price for your product or service. If your product is underpriced, consumers may question its effectiveness or think that it’s “too good to be true”. On the other hand, if you price your product too high, consumers may see it as overpriced and unnecessary. Unless you are an established luxury brand like Coach or Chanel, you’ll find it hard to make a sell.

There are a number of pricing strategies that businesses employ. Some models are: bundle, subscription, competitive, economy, discount, and psychological pricing.

At grocery stores, generic food brands are priced lower than name-brands. This is an example of economy pricing. In department stores, prices with odd decimals like “53.99” or “3.97” are psychological pricing. People tend to perceive it as less expensive than an even “$54.00” or “4.00”. It’s also a common practice in auto sales.

The strategy that you choose should be based on the value of your product, the production and distribution costs, consumer demand and competitive landscape.

Price is also heavily influenced by your consumers. Of course, you need to price to make a profit. However, if your target market is in the middle-income bracket, charging $900+ for a handbag is unrealistic.

3. Promotion

How are you going to tell people about your products and services? Promotion covers all of the communication tactics that you will use to spread the word.

Note that promotion isn’t synonymous with marketing. Promotion focuses on how you will communicate your product to people. It doesn’t only encompass the entire marketing function. It also addresses the sales process and other areas such as public relations and advertising.

Also, the purpose of promotion isn’t to simply sell your products and services. (Yes, that would be an ideal result.) Before you can jump to the transaction part, you need to let people know what your products and services are, what they offer customers, and why they are worth buying.

Promotion lets people know that your product solves a specific need. In the promotion stage, your message should be clear and geared towards your target audiences. Tell them why they need your product and how it will benefit them. What makes your business different from the competitors? Is it a lower-price? Higher quality? Faster service? More flexibility?

Identify what sets you apart from everyone else. It is key to include those differentiators into your promotional messages. When selecting which channels to use for promotion, remember that your audience is the focus. What types of content do they consume on a daily basis? Where are they located? What times are they most actively consuming content?

Some channels that you may use for promotion are: word-of-mouth, podcasts, radio, social media, email, press releases, public relations, print, television ads, and pay-per-click (PPC) ads.

4. Place or Distribution

Place refers to the distribution of your product. How will customers find and purchase what you’re trying to sell? Will it be sold in retail stores or exclusively online? Two of the most common distribution channels are: direct sales and wholesalers.

If you run a local retail business, you will likely use direct sales at your location. You may also offer certain items through an online store. Whether in-store or online, you are the primary contact managing and shaping the customer experience.

Another option for businesses is to sell through an intermediary a wholesaler or reseller. If you sell through Walmart or Amazon, you would fit into this category. The advantage of working with a wholesaler is that they tend to have a wider distribution network and larger customer-base.

Although it makes it possible to reach more customers, you lose some of that customer connection that is associated with direct sales. It can also be extremely difficult and lengthy process to land a deal with big name wholesalers like Walmart.

If your business doesn’t have a year-round consistent supply of products, it is not an ideal fit for intermediary sales. If your sales are more seasonal or available for a limited-time only, then direct sales are a more suitable option.

There’s a difference between knowing the framework and actually putting it into practice in your strategy. Below, we’ll take you through the process step by step with examples.

Primary market

Primary market is that market where the debt instruments are issued for the first time. Which can be issued as follows:

Public prospectus: invites public to buy

Private placement: Invites few selected individuals, as the cost of public issuing is quite a large

Rights issue: to the already exciting members, but they can refer to their beneficiaries in case of unwillingness to buy

However, the issuer has to inform the exchanges in case of issuing debts. To notify the investors, about associated risk changes

Secondary market

Secondary market is where the debt instruments can be traded. It can take place by the following two ways based on the characteristics of the investors and the structure of the market are :

Wholesale debt market segment of NSE & Over the counter of BSE : Where the investors are mostly Banks , Financial Institutions , RBI , Primary dealers , Insurance companies , Provident Funds , MFs , Corporates and FIIs .

Retail debt Market: involves participation by individual investors, small trusts and other legal entities in addition to the wholesale investor’s classes.

Types of debt Instruments

Government Securities

• It is the Reserve Bank of India that issues Government Securities or G-Secs on behalf of the Government of India.
• These securities have a maturity period of 1 to 30 years. G-Secs offer fixed interest rate, where interests are payable semi-annually.
• For shorter term, there are Treasury Bills or T-Bills, which are issued by the RBI for 91 days, 182 days and 364 days

Corporate Bonds

• These bonds come from PSUs and private corporations and are offered for an extensive range of tenures up to 15 years.
• Comparing to Government Securities, corporate bonds carry higher risks, which depend upon the corporation, the industry where the corporation is currently operating, the current market conditions, and the rating of the corporation

Certificate of Deposit

• Certificate of Deposits (CDs), which usually offer higher returns than Bank term deposits, are issued in Demat form
• Banks can offer CDs which have maturity between 7 days and 1 year.
• CDs from financial institutions have maturity between 1 and 3 years

Commercial Papers

• There are short term securities with maturity of 7 to 365 days.

Structured Debt

• Structured debt is some type of debt instrument that the lender has created and adapted to fit the needs and circumstances of the borrower.
• A debt package of this type usually includes one or more incentives that encourage the debtor to do business with the lender, rather than seeking to develop a working relationship with other lenders.
• While the overall structure of the debt is adapted to the needs of the borrower, the terms also benefit the lender in the long term.
• The main goal of structured debt is to create a debt situation that provides the debtor with as many benefits as possible, while also keeping the overall debt load as low as possible
• At the same time, the lender receives an equitable return for the structured debt arrangement

Types	Issuers	Instruments
Government Securities	Central Government: State Government:	1. Zero Coupon bonds 2. Coupon bearing bonds 3. Treasury bills 4. Floating rate bonds 5. STRIPs 1. Coupon bearing bond
Public sectors bonds	Government agencies, statutory bodies, public sector undertakings	1. Debentures 2. Government guaranteed bonds 3. Commercial papers 4. PSU bonds
Private sector bonds	Corporates:  Bank: Financial Institutions:	1. Debentures 2. Commercial papers 3. Fixed floating rate 4. Zero coupon bonds 5. Inter-corporate deposits 1. Certificate of debentures 2. Debentures 3. Bonds 1. Certificate of deposits 2. Bonds

The Indian debt market has traditionally been a wholesale market with participation restricted to few institutional players mainly banks. The banks were the major participants in the government securities market due to statutory requirements. The turnover in the debt market
too was quite low a few hundred crores till the early 1990s. The debt market was fairly underdeveloped due to the administrated interest rate regime and the availability of investment avenues which gave a higher rate of return to investors.

In the early 1990s, the government needed a large amount of money for investment in development and infrastructure projects. The government realized the need of a vibrant, efficient and healthy debt market and undertook reform measures. The Reserve Bank put in substantial efforts to develop the government securities market but its two segments, the private corporate debt market and public sector undertaking bond market, have not yet fully developed in terms of volume and liquidity.

It is debt market which can provide returns commensurate to the risk, a variety of instruments to match the risk and liquidity preferences of investors, greater safety and lower volatility. Hence the debt market has a lot of potential for growth in the future. The debt market is critical to the development of a developing country like India which requires a large amount of capital for achieving industrial and infrastructure growth.

Regulation of Debt Market: The Reserve Bank of India regulates the government securities market and money market while the corporate debt market comes under the purview of the Securities Exchange and Board of India (SEBI).

In order to promote an orderly development of the market, the government issued a notification on March 2, 2000 delineating the areas of responsibility between the Reserve Bank and SEBI. The contracts for sale and purchase of government securities, gold related securities, Money market securities and securities derived from these securities and ready forward contracts in debt securities shall be regulated by the Reserve Bank. Such contracts, if executed on the stock exchanges shall, however, be regulated by SEBI in manner that is consistent with the guidelines issued by the Reserve Bank.

Link between Money Market and Debt Market:

The money market is market dealing in short term debt instruments (up to one year) while the debt market is a market for long term instruments (more than one year) The money market supports the long term debt market by increasing the liquidity of securities. A developed money market is a prerequisite of the development of a debt market.

Characteristics of Debt Market:

The characteristics of an efficient debt market are a competitive market structure, low transaction costs, a strong and safe market infrastructure and a high level of heterogeneity among market participants.

There are different kinds of Debt Instruments available in India such as;
Below given are the important debt instruments available in India:

• Bonds
• Certificates of Deposit
• Commercial Papers
• Debentures
• FD
• G – Secs (Government Securities)
• National savings Certificate (NSC)

Bonds

A Bond is simply an ‘IOU’ in which an investor agrees to lend money to a company or government in exchange for a predetermined interest rate. If a business wants to expand, one of its options is to borrow money from individual investors. The company issues bonds at different interest rates and sells them to the public. Investors purchase them with the understanding that the company will pay back their original principal with some interest that is due by a set date (this is known as the “maturity”). The interest a bondholder earns depends on the strength of the corporation.

For example, a blue chip is more stable and has a lower risk of defaulting on its debt. Sometimes some big companies issue bonds and they may only pay 7% interest, but some other small companies may pay you 10%. A general rule of thumb when investing in bonds is that “the higher the interest rate, the riskier the bond.”

Following are allowed to issue bonds

1. Governments
2. Municipalities
3. Variety of institutions
4. Corporations

There are many types of bonds, each having diverse features and characteristics. Bonds and stocks are both securities, but the major difference between the two is that stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders). Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.

Returns in Bonds Returns is depends on the nature of the bonds that have been purchased by the investor. Bonds may be secured or unsecured. Firstly, always check up the credit rating of the issuing company before purchasing the bond. This gives you a working knowledge of the company’s financial health and an idea about the risk considerations of the instrument itself. Interest payments depend on the health and credit rating of the issuer. Therefore, it is essential to check the credit rating and financial health of the issuer before loosening up the bond. If you do invest in bonds issued by the top-rated Corporates, there is no guarantee that you will receive your payments on time.

Risks in Bonds In certain cases, the issuer has a call option mentioned in the prospectus. This means that after a certain period, the issuer has the choice of redeeming the bonds before their maturity. In that case, while you will receive your principal and the interest accrued till that date, you might lose out on the interest that would have accrued on your sum in the future had the bond not been redeemed. Always remember that if interest rates go up, bond prices go down and vice-versa.

Buying and Holding of Bonds Investors can subscribe to primary issues of Corporates and Financial Institutions (FIs). It is common practice for FIs and corporates to raise funds for asset financing or capital expenditure through primary bond issues. Some bonds are also available in the secondary market. The minimum investment for bonds can either be Rs 5,000 or Rs 10,000. However, this amount varies from issue to issue. There is no prescribed upper limit to your investment. The duration of a bond issue usually varies between 5 and 7 years.

Selling of Bonds Selling bonds in the secondary market has its own drawbacks. First, there is a liquidity problem which means that it is a tough job to find a buyer. Second, even if you find a buyer, the prices may be at a sharp discount to its intrinsic value. Third, you are subject to market forces and, hence, market risk. If interest rates are running high, bond prices will be down and you may well end up incurring losses. On the other hand, Debentures are always secured.

Liquidity of a Bond: Selling in the debt market is an obvious option. Some issues also offer Put and Call option.

• In Put option, the investor has the option to approach the issuing entity after a specified period (say, three years), and sell back the bond to the issuer.
• In Call option, the company has the right to recall its debt obligation after a particular time frame.

Debenture

A debenture is similar to a bond except the securitization conditions are different. A debenture is generally unsecured in the sense that there are no liens or pledges on specific assets. It is defined as a certificate of agreement of loans which is given under the company’s stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures.

In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. The advantage of debentures to the issuer is they leave specific assets burden free, and thereby leave them open for subsequent financing. Debentures are generally freely transferrable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit.

Debentures vs. Bonds

Debentures and bonds are similar except for one difference bonds are more secure than debentures. In case of both, you are paid a guaranteed interest that does not change in value irrespective of the fortunes of the company. However, bonds are more secure than debentures, but carry a lower interest rate. The company provides collateral for the loan. Moreover, in case of liquidation, bondholders will be paid off before debenture holders.

A debenture is more secure than a stock, but not as secure as a bond. In case of bankruptcy, you have no collateral you can claim from the company. To compensate for this, companies pay higher interest rates to debenture holders. All investment, including stocks bonds or debentures carry an element of risk.

Commercial Papers

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990 with a view to enable highly rated corporate borrowers/ to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Subsequently, primary dealers and satellite dealers were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations. CP can be issued in denominations of Rs.5 lakh or multiples thereof. Amount invested by a single investor should not be less than Rs.5 lakh (face value). It will be issued foe a duration of 30/45/60/90/120/180/270/364 days. Only a scheduled bank can act as an Issuing and Paying Agent IPA for issuance of CP.

Features of Commercial Papers

Following are the important features of commercial papers

• They are unsecured debts of corporates and are issued in the form of promissory notes, redeemable at par to the holder at maturity.
• Only corporates who get an investment grade rating can issue CPs, as per RBI rules.
• It is issued at a discount to face value
• Attracts issuance stamp duty in primary issue
• Has to be mandatorily rated by one of the credit rating agencies
• It is issued as per RBI guidelines
• It is held in Demat form
• CP can be issued in denominations of Rs.5 lakh or multiples thereof. Amount invested by a single investor should not be less than Rs.5 lakh (face value).
• Issued at discount to face value as may be determined by the issuer.
• Bank and FI’s are prohibited from issuance and underwriting of CP’s.
• Can be issued for a maturity for a minimum of 15 days and a maximum upto one year from the date of issue.

Indian equity culture is a notorious concoction of temptation, noise, and information scarcity.

India is indeed a statistical marvel! A country of over a billion people with a $1 trillion plus economy, a middle class population of between 300 million-500 million, around 117 million Smartphone users, and a stock market that boasts capitalization of over a $1 trillion. It’s a country that for some time now has been a data hub to the world owing to its burgeoning BPO, KPO, and IT analytics establishments.

It wouldn’t be an exaggeration then if we call India a land of hopes and promise largely because of her compelling statistics and vast body of data about her economics, consumers, and demographic trends. Ironically, a country washed over by such great proportion of data points has failed brilliantly so far in arming her citizens with actionable information on a wide range of matters. One such class of citizens is the ever vulnerable retail investors and the matter here is about building an equity culture.

The market regulatory bodies SEBI, AMFI have worked hard with the market participants like brokerage and fund houses to push the envelope on investor education since the last two decades. Interestingly, SEBI over the past few years have incentivized the equity culture through a slew of benefits like IPO quotas, price discounts, and tax breaks et al. Nevertheless, the success of these initiatives is highly debatable at best.

Investor Awareness Programs – Temptation or Education?
The brokerage, fund houses, and financial media in India are but dubious stakeholders in the grand project of building equity culture in India. Building an equity culture is an idea and not a trend. Retail investors are often flooded with NFOs and MF schemes when much of the milk has already been skimmed by the fat cats, namely FIIs and HNIs. Recall, not many schemes and NFOs were launched between 2009-2013, when the valuations were cheap and upside price opportunities for long-term retail investors were immense.

Unsurprisingly, during these years Sensex rose over 100% where as retail investors participation grew by just 33%. Come 2014 we have been flooded by a plethora of NFOs and MF schemes when many stocks already have gained, on an average, by well over 30%-60%. Of course, there is immense potential for India’s economy to grow in the next 5 years but isn’t investing supposed to be independent of fads, trends, and upturns?

Building a culture of investing is about being disciplined and regularity. The stakeholders intending to build a robust Indian equity culture must focus on values that are totally independent of market fads and trends. Importantly, investor education is not about tempting gullible investors into overbought and overvalued markets, which has sadly been the only form of education imparted by the equity culture stakeholders.

Financial Media: Noise or News

Indian financial news media (print and TV) has done little in terms helping retail investors understand markets better. Much of what is spoken on business TVs and print media is about events with great importance to the momentum driven portfolios of FIIs than the long-term retail investors. The brilliant case in point is turbulence in Iraq. While oil import risk arising out of the deadly humanitarian crisis in Iraq could potentially affect inflation levels, but the risk to the Indian economy is overblown.

Geopolitical developments are akin to arbitrage opportunities as in they last for a very short duration of time. Investors with flamboyant investment styles are most likely to be affected by such short-term developments than the long-term retail investors. Moreover, not many media or publishing houses aid retail investors by conducting studies on long-term performance of different investment styles, MF schemes (hybrid, capital protection, and arbitrage et al) that could possibly serve as a reference point for small investors for making informed investment decisions.

On the other hand, major data releases like economic indicators, industrial production, Sensex/Nifty movements, and market outlook are expressed in a technical parlance about which much of the retail investors are oblivious. The fact that a major chunk of retail investors make their investment decisions based on tips, advice, and suggestions from a heterogeneous group of brokers, friends, and family members talks a lot about the ineffectiveness of the Indian financial media companies.

As the things stands now the nexus of brokerage, fund houses and financial news companies have succeeded in luring retail investors into yet another Indian bull rally. As I wrap this article the Indian equity culture is a notorious concoction of temptation, noise, and information scarcity!

Broad Constituents in the Indian Capital Markets

Quick summary with stories

Fund Raisers

Fund Raisers are companies that raise funds from domestic and foreign sources, both public and private. The following sources help companies raise funds.

Fund Providers

Fund Providers are the entities that invest in the capital markets. These can be categorized as domestic and foreign investors, institutional and retail investors. The list includes subscribers to primary market issues, investors who buy in the secondary market, traders, speculators, FIIs/ sub-accounts, mutual funds, venture capital funds, NRIs, ADR/GDR investors, etc.

Intermediaries

Intermediaries are service providers in the market, including stock brokers, sub-brokers, financiers, merchant bankers, underwriters, depository participants, registrar and transfer agents, FIIs/ sub-accounts, mutual Funds, venture capital funds, portfolio managers, custodians, etc.

Organizations

Organizations include various entities such as MCX-SX, BSE, NSE, other regional stock exchanges, and the two depositories National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CSDL).

Market Regulators

Market Regulators include the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Department of Company Affairs (DCA).

Role and Importance Of Capital Market In India

The capital market has a crucial significance to capital formation. For a speedy economic development, the adequate capital formation is necessary. The significance of capital market in economic development is explained below:

Mobilization of Savings And Acceleration Of Capital Formation:

In developing countries like India, the importance of capital market is self-evident. In this market, various types of securities help to mobilize savings from various sectors of the population. The twin features of reasonable return and liquidity in stock exchange are definite incentives to the people to invest in securities. This accelerates the capital formation in the country.

Raising Long-Term Capital

The existence of a stock exchange enables companies to raise permanent capital. The investors cannot commit their funds for a permanent period but companies require funds permanently. The stock exchange resolves this dash of interests by offering an opportunity to investors to buy or sell their securities, while permanent capital with the company remains unaffected.

Promotion Of Industrial Growth

The stock exchange is a central market through which resources are transferred to the industrial sector of the economy. The existence of such an institution encourages people to invest in productive channels. Thus it stimulates industrial growth and economic development of the country by mobilizing funds for investment in the corporate securities.

Ready And Continuous Market

The stock exchange provides a central convenient place where buyers and sellers can easily purchase and sell securities. Easy marketability makes an investment in securities more liquid as compared to other assets.

Technical Assistance

An important shortage faced by entrepreneurs in developing countries is technical assistance. By offering advisory services relating to the preparation of feasibility reports, identifying growth potential and training entrepreneurs in project management, the financial intermediaries in capital market play an important role.

Reliable Guide to Performance

The capital market serves as a reliable guide to the performance and financial position of corporate, and thereby promotes efficiency.

Proper Channelization of Funds

The prevailing market price of a security and relative yield are the guiding factors for the people to channelize their funds in a particular company. This ensures effective utilization of funds in the public interest.

Provision of Variety Of Services:

The financial institutions functioning in the capital market provide a variety of services such as a grant of long-term and medium-term loans to entrepreneurs, provision of underwriting facilities, assistance in the promotion of companies, participation in equity capital, giving expert advice etc.

Development of Backward Areas

Capital Markets provide funds for projects in backward areas. This facilitates economic development of backward areas. Long-term funds are also provided for development projects in backward and rural areas.

Foreign Capital

Capital markets make possible to generate foreign capital. Indian firms are able to generate capital funds from overseas markets by way of bonds and other securities. The government has liberalized Foreign Direct Investment (FDI) in the country. This not only brings in the foreign capital but also foreign technology which is important for economic development of the country.

Easy Liquidity

With the help of secondary market, investors can sell off their holdings and convert them into liquid cash. Commercial banks also allow investors to withdraw their deposits, as and when they are in need of funds.

Divorce between Ownership and Control

Divorce between ownership and control refers to a situation where the owners of a company or corporation (i.e., the shareholders) do not have direct control over the day-to-day operations and decision-making of the company. This can occur when shareholders elect a board of directors to oversee the company’s management and make decisions on their behalf.

The separation of ownership and control is often seen in large corporations where there are numerous shareholders who are not actively involved in the company’s operations. In these cases, the board of directors is responsible for hiring the management team, setting strategic direction, and making decisions on behalf of the shareholders.

While this separation can lead to more efficient decision-making and a greater focus on long-term goals, it can also create conflicts of interest between shareholders and management. For example, managers may prioritize their own interests over those of the shareholders, leading to a misalignment of incentives. Additionally, the board of directors may not always act in the best interests of the shareholders, leading to concerns about corporate governance and accountability.

Ownership and Control of a Business

Ownership and control of a business refer to two different aspects of the management and decision-making of a company. Ownership refers to the legal right to control a business or property and to reap its benefits, usually represented by ownership of shares or equity in the company. Control, on the other hand, refers to the power to manage and direct the day-to-day operations of the business.

In a small business, the owner(s) typically have both ownership and control, making all major decisions and managing the operations of the business. However, in larger companies, ownership and control may be separated. In such cases, the owners of a business are the shareholders, while the management team, led by the CEO or other top executives, exercises control over the company’s operations and decision-making.

The relationship between ownership and control is often a balancing act, as shareholders seek to maximize the value of their investments while the management team aims to grow the business and make decisions that benefit the company as a whole. This can sometimes lead to conflicts of interest, particularly when there is a misalignment of incentives or when shareholders believe that management is not acting in their best interests.

Effective corporate governance mechanisms, such as a board of directors, can help to mitigate these conflicts and ensure that the interests of shareholders and management are aligned. Ultimately, the success of a business depends on finding the right balance between ownership and control and creating a culture of trust and transparency between shareholders and management.

The Principal Agent Problem

The principal-agent problem is a common issue that arises when one person or entity (the principal) hires another person or entity (the agent) to act on their behalf, and the interests of the principal and agent are not perfectly aligned. This problem can occur in various contexts, including corporate governance, public policy, and even personal relationships.

In corporate governance, for example, shareholders (the principals) elect a board of directors to oversee the company’s management and make decisions on their behalf. However, the board of directors (the agents) may not always act in the best interests of the shareholders. Instead, they may prioritize their own interests, such as maintaining their position on the board or pursuing personal gain, over maximizing shareholder value.

The principal-agent problem can also arise in public policy, where elected officials (the principals) hire bureaucrats and other government officials (the agents) to implement policies on their behalf. In this case, the agents may prioritize their own interests or those of special interest groups over the interests of the public.

To mitigate the principal-agent problem, various mechanisms can be put in place, such as performance-based compensation, transparency, and accountability mechanisms. These mechanisms aim to align the interests of the principal and agent and ensure that the agent acts in the best interests of the principal. However, it is often difficult to fully eliminate the principal-agent problem, and it remains an ongoing challenge in many areas of decision-making.

Dealing with the Divorce between Ownership & Control

Dealing with the divorce between ownership and control can be challenging, as it requires finding a way to align the interests of shareholders and management to ensure that the company is being run in the best interests of all stakeholders. Here are some ways that companies can mitigate the issues associated with the separation of ownership and control:

• Strong Corporate Governance: Having a strong board of directors, including independent directors who are not involved in day-to-day operations, can help to ensure that management is held accountable and that decisions are made in the best interests of shareholders.
• Performance-Based Compensation: Tying executive compensation to performance metrics that align with shareholder interests can incentivize management to act in the best interests of shareholders.
• Shareholder Activism: Shareholders can exercise their rights by engaging in proxy contests or shareholder proposals, which can help to influence decision-making by the board and management.
• Transparency and Disclosure: Companies can be transparent about their operations and decision-making, providing regular updates to shareholders about financial performance, strategic direction, and key decisions.
• Social Responsibility: Emphasizing social responsibility and environmental, social, and governance (ESG) considerations can help to align the interests of shareholders and management around long-term sustainability and value creation.

Activist Shareholders

Activist shareholders are individuals or groups of investors who use their ownership stake in a company to advocate for changes that they believe will improve the company’s performance or align it with their values. They typically have a more active approach to investing than passive investors, who simply hold shares of a company without seeking to influence its direction.

Activist shareholders may push for a range of changes, such as board or management changes, strategic shifts, asset sales, share buybacks, or dividend increases. They may also seek to influence a company’s environmental, social, or governance (ESG) practices, such as by advocating for more sustainable or ethical business practices.

Activist shareholders may take a variety of actions to push for change, such as filing shareholder proposals, engaging in public campaigns or media outreach, or even seeking to replace board members through proxy battles. Some activist shareholders may be viewed as aggressive or disruptive by management and other stakeholders, while others may be seen as constructive partners in driving long-term value creation.

Mark Twain once divided the world into two kinds of people:

those who have seen the famous Indian monument, the Taj Mahal, and those who haven’t. The same could be said about investors.

There are two kinds of investors: those who know about the investment opportunities in India and those who don’t. India may look like a small dot to someone in the U.S., but upon closer inspection, you will find the same things you would expect from any promising market. Here we’ll provide an overview of the Indian stock market and how interested investors can gain exposure.

The BSE and NSE

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in 1994. However, both exchanges follow the same trading mechanism, trading hours, settlement process, etc. At the last count, the BSE had about 4,700 listed firms, whereas the rival NSE had about 1,200. Out of all the listed firms on the BSE, only about 500 firms constitute more than 90% of its market capitalization; the rest of the crowd consists of highly illiquid shares.

Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a dominant share in spot trading, with about 70% of the market share, as of 2009, and almost a complete monopoly in derivatives trading, with about a 98% share in this market, also as of 2009. Both exchanges compete for the order flow that leads to reduced costs, market efficiency and innovation. The presence of arbitrageurs keeps the prices on the two stock exchanges within a very tight range. 

Trading Mechanism

Trading at both the exchanges takes place through an open electronic limit order book, in which order matching is done by the trading computer. There are no market makers or specialists and the entire process is order-driven, which means that market orders placed by investors are automatically matched with the best limit orders. As a result, buyers and sellers remain anonymous. The advantage of an order driven market is that it brings more transparency, by displaying all buy and sell orders in the trading system. However, in the absence of market makers, there is no guarantee that orders will be executed.

All orders in the trading system need to be placed through brokers, many of which provide online trading facility to retail customers. Institutional investors can also take advantage of the direct market access (DMA) option, in which they use trading terminals provided by brokers for placing orders directly into the stock market trading system.

Settlement Cycle and Trading Hours

Equity spot markets follow a T+2 rolling settlement. This means that any trade taking place on Monday, gets settled by Wednesday. All trading on stock exchanges takes place between 9:55 am and 3:30 pm, Indian Standard Time (+ 5.5 hours GMT), Monday through Friday. Delivery of shares must be made in dematerialized form, and each exchange has its own clearing house, which assumes all settlement risk, by serving as a central counterparty.

Market Indexes

The two prominent Indian market indexes are Sensex and Nifty. Sensex is the oldest market index for equities; it includes shares of 30 firms listed on the BSE, which represent about 45% of the index’s free-float market capitalization. It was created in 1986 and provides time series data from April 1979, onward.

Another index is the S&P CNX Nifty; it includes 50 shares listed on the NSE, which represent about 62% of its free-float market capitalization. It was created in 1996 and provides time series data from July 1990, onward.

Market Regulation

The overall responsibility of development, regulation and supervision of the stock market rests with the Securities & Exchange Board of India (SEBI), which was formed in 1992 as an independent authority. Since then, SEBI has consistently tried to lay down market rules in line with the best market practices. It enjoys vast powers of imposing penalties on market participants, in case of a breach.

Primary and Secondary Market

Primary Market

Primary market is the place where new shares or bonds are issued. Hence primary market is also called as new issue market. In primary market company sells the shares to investors to generate the fund. In primary market the trading is directly between investors and company. Here the price of share is decided by company and is fixed. In primary market investors can only buy shares, they cannot sell them. Shares purchased in primary market are sold in secondary market. In primary market company can raise the fund by three types that is public issue, private placement or right issue.

Secondary Market

Secondary market is also called as After market. Stock exchange is the secondary market. The stock exchange is the medium through which the exchange of shares, Equities takes place between the seller and the buyer. Secondary market is the place where most of the trading takes place. The trading of shares and capital in secondary market takes place between the buyer and the seller, company is not involved in transactions. The price of share is decided by demand and supply of the shares and price keeps on fluctuating. In secondary market no new stocks are issued, only trading of stocks is there.

Equity Shares

Equity shares are the main source of finance of a firm. It is issued to the general public. Equity share­holders do not enjoy any preferential rights with regard to repayment of capital and dividend. They are entitled to residual income of the company, but they enjoy the right to control the affairs of the business and all the shareholders collectively are the owners of the company.

Features of Equity Shares

1. They are permanent in nature.
2. Equity shareholders are the actual owners of the company and they bear the highest risk.
3. Equity shares are transferable, i.e. ownership of equity shares can be transferred with or without consideration to other person.
4. Dividend payable to equity shareholders is an appropriation of profit.
5. Equity shareholders do not get fixed rate of dividend.
6. Equity shareholders have the right to control the affairs of the company.
7. The liability of equity shareholders is limited to the extent of their investment.

Advantages of Equity Shares

Equity shares are amongst the most important sources of capital and have certain advantages which are mentioned below:

1. Advantages from the Shareholders’ Point of View

(a) Equity shares are very liquid and can be easily sold in the capital market.

(b) In case of high profit, they get dividend at higher rate.

(c) Equity shareholders have the right to control the management of the company.

(d) The equity shareholders get benefit in two ways, yearly dividend and appreciation in the value of their investment.

1. Advantages from the Company’s Point of View:

(a) They are a permanent source of capital and as such; do not involve any repayment liability.

(b) They do not have any obligation regarding payment of dividend.

(c) Larger equity capital base increases the creditworthiness of the company among the creditors and investors.

Disadvantages of Equity Shares:

Despite their many advantages, equity shares suffer from certain limitations. These are:

1. Disadvantages from the Shareholders’ Point of View:

(a) Equity shareholders get dividend only if there remains any profit after paying debenture interest, tax and preference dividend. Thus, getting dividend on equity shares is uncertain every year.

(b) Equity shareholders are scattered and unorganized, and hence they are unable to exercise any effective control over the affairs of the company.

(c) Equity shareholders bear the highest degree of risk of the company.

(d) Market price of equity shares fluctuate very widely which, in most occasions, erode the value of investment.

(e) Issue of fresh shares reduces the earnings of existing shareholders.

1. Disadvantage from the Company’s Point of View:

(a) Cost of equity is the highest among all the sources of finance.

(b) Payment of dividend on equity shares is not tax deductible expenditure.

(c) As compared to other sources of finance, issue of equity shares involves higher floatation expenses of brokerage, underwriting commission, etc.

Different Types of Equity Issues:

Equity shares are the main source of long-term finance of a joint stock company. It is issued by the company to the general public. Equity shares may be issued by a company in different ways but in all cases the actual cash inflow may not arise (like bonus issue).

The different types of equity issues have been discussed below:

1. New Issue:

A company issues a prospectus inviting the general public to subscribe its shares. Generally, in case of new issues, money is collected by the company in more than one installment— known as allotment and calls. The prospectus contains details regarding the date of payment and amount of money payable on such allotment and calls. A company can offer to the public up to its authorized capital. Right issue requires the filing of prospectus with the Registrar of Companies and with the Securities and Exchange Board of India (SEBI) through eligible registered merchant bankers.

2. Bonus Issue:

Bonus in the general sense means getting something extra in addition to normal. In business, bonus shares are the shares issued free of cost, by a company to its existing shareholders. As per SEBI guidelines, if a company has sufficient profits/reserves it can issue bonus shares to its existing shareholders in proportion to the number of equity shares held out of accumulated profits/ reserves in order to capitalize the profit/reserves. Bonus shares can be issued only if the Articles of Association of the company permits it to do so.

Advantage of Bonus Issues:

From the company’s point of view, as bonus issues do not involve any outflow of cash, it will not affect the liquidity position of the company. Shareholders, on the other hand, get bonus shares free of cost; their stake in the company increases.

Disadvantages of Bonus Issues:

Issue of bonus shares decreases the existing rate of return and thereby reduces the market price of shares of the company. The issue of bonus shares decreases the earnings per share.

Rights Issue:

According to Section 81 of The Company’s Act, 1956, rights issue is the subsequent issue of shares by an existing company to its existing shareholders in proportion to their holding. Right shares can be issued by a company only if the Articles of Association of the company permits. Rights shares are generally offered to the existing shareholders at a price below the current market price, i.e. at a concessional rate, and they have the options either to exercise the right or to sell the right to another person. Issue of rights shares is governed by the guidelines of SEBI and the central government.

Rights shares provide some monetary benefits to the existing shareholders as they get shares at a concessional rate—this is known as value of right which can be computed as:

Value of right = Cum right market price of a share – Issue price of a new share / Number of old shares + 1

Advantages of Rights Issue:

Rights issues do not affect the controlling power of existing share­holders. Floatation costs, brokerage and commission expenses are not incurred by the company unlike in the public issue. Shareholders get some monetary benefits as shares are issued to them at concessional rates.

Disadvantages of Rights Issue:

If a shareholder fails to exercise his rights within the stipulated time, his wealth will decline. The company loses cash as shares are issued at concessional rate.

Sweat Issue:

According to Section 79A of The Company’s Act, 1956, shares issued by a company to its employees or directors at a discount or for consideration other than cash are known as sweat issue. The purpose of sweat issue is to retain the intellectual property and knowhow of the company. Sweat issue can be made if it is authorized in a general meeting by special resolution. It is also governed by Issue of Sweet Equity Regulations, 2002, of the SEBI.

Advantages of Sweat Issue:

Sweat equity shares cannot be transferred within 3 years from the date of their allotment. It does not involve floatation costs and brokerage.

Disadvantage of Sweat Issue:

As sweat equity shares are issued at concessional rates, the com­pany loses financially.

Regulations are very important for the growth of capital markets all through the world. The development of a market economy is dependent on the growth of the capital market. The regulation of a capital market encompasses the regulation of securities. These rules enable the capital market to function more competently and fairly.

A well regulated market has the prospective to boost additional investors to participate, and contribute in, promoting the development of the economy.

Capital Market Regulatory Authorities Worldwide: The chief capital market regulatory authorities worldwide are as follows:

• Securities and Exchange Board of India
• U.S. Securities and Exchange Commission
• Canadian Securities Administrators, Canada
• Australian Securities and Investments Commission
• Securities and Exchange Commission, Pakistan
• Securities and Exchange Commission, Bangladesh
• Securities and Exchange Surveillance Commission
• Securities and Futures Commission, Hong Kong
• Financial Supervision Authority, Finland
• Financial Supervision Commission, Bulgaria
• Financial Services Authority, UK
• Commission Nacional del Mercado de Valores, Spain
• Authority of Financial Markets

It has been well established that there is a growing network of financial intermediaries that operate in a highly competitive environment while being directed by strict norms. India has one of the most refined new equity issuance markets. Disclosure requirements and the accounting policies followed by listed companies to offer financial information are comparable to the best systems in the world. In Indian scenario, the securities market is regulated by various agencies such as department of economic affairs, department of company affairs, and the reserve bank of India. The capital markets and protection of investor’s interest is now primarily the responsibility of the Securities and Exchange Board of India (SEBI), which is located in Bombay. The activities of these agencies are coordinated by high level committee on capital and financial market. The high level coordinated committee for financial market discusses various policy level issues which require inter regularity coordination between the regulators in financial market such as RBI, SEBI, insurance, regulatory and development authority (IRDA) and pension regulatory and development authority. The committee is chaired by Governor, RBI, secretary minister of finance, chairman SEBI, chairman IRDA, and chairman, PRDA are members of committee.

The capital market is market of equity and debt securities is regulated by Securities and Exchange Board of India (SEBI). Securities and Exchange Board of India (SEBI) has full autonomy and authority to regulate and develop capital market. The government has framed rules under securities controls act, the SEBI act and depositories act.

SEBI’s functions include:

1. Regulating the business in stock exchange and any other securities markets.
2. Registering and regulating the working of collective investment schemes, including mutual funds.
3. Barring fraudulent and unfair trade practices relating to securities markets.
4. Promoting investor’s education and training of intermediaries of securities markets.
5. Prohibiting insider trading in securities, with the imposition of monetary penalties, on erring market intermediaries.
6. Regulating substantial acquisition of shares and takeover of companies.
7. Calling for information from, carrying out inspection, conducting inquiries and audits of the stock exchanges and intermediaries and self-regulatory organizations in the securities market.

To summarize, Capital market is controlled by financial supervisors and their own governance organization. Major grounds of regulation are to keep investors away from scam and deception. Financial regulatory organizations are also charged with decreasing the losing rate of financial, providing licenses to financial service providers, and executing applicable regulations.