Presentation on : ONSORE INSTRUMENTS

Presented by : Deep Kamal (10) Gauri Manukar (38) Prashant Gharat

MEANING OF SHARES & SHARE CAPITAL

A share is one unit into which the total share capital is divided. Share capital of the company can be explained as a fund or sum with which a company is formed to carry on the business and which is raised by the issue of shares. Shares are the marketable instruments issued by the companies in order to raise the required capital. These are very popular investments which are traded every day in the stock market and the value of the share at the end of the day decides the value of the firm.
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TYPES OF SHARES
The shares which are issued by companies are of two types:

Equity Shares Preference Shares

EQUITY SHARES
Equity Shares are issued and are traded everyday in the stock market. Equity share holders only get dividend after preference shareholders & debenture holders. The returns on the equity shares are not at all fixed. It depends on the amount of profits made by the company.

The board of directors decides on how much of the dividends will be given to equity share holders. Share holders can accept to it or reject the offer during the annual general meeting. Equity shareholders have the right to vote on any resolution placed before the company. 4

1.They don't have no preferential right in respect of payment of dividend or in the repayment of capital at the time of winding of the company.
2.Equtiy shares are risk bearing shares because they are the actual owners of the company when ever company run into losses they have to bear the losses. 3.Equity share holders enjoys voting right whenever there is a meeting they will enjoy their voting power, enjoys voting power in electing board of directors. 4.Equity capital is the permanent capital for the company . The company need not to return capital . Company has to repay the capital only at the time of winding up. 5.Equity shares are easily transfer from one person to another at the stock exchange according to the procedure laid down in the article of association of the company. 6.Eompany gives the bonus shares to the equity shareholders at a free cost on account of reserves . Undistributed profits and accumulated profit 7.Equity shareholder are give first priority when ever company want to raised fresh capital

ADVANTAGES
High Return Easily Transferable. These can be easily liquidated. Right to vote Right to choose the board of directors. Equity share holders have the right to oppose any of the decisions taken by the board of directors. ( for e.g. This is what happened when Mr. Ramalinga raju tried to buy Maytas company)

DISADVANTAGES
High Risk In worst cases less privilege given to equity share holders.

ISSUE OF SHARES
Prospectus

Detail of a Company & Shares in Prospectus.

90 % application is necessary
Application

If access application received then company issue shares by pro rata basis

Allotment

full amount can be called up by company at the time of application or it can be paid up in installments also (calls)
share of the company may be issued in any of the following three ways: 1. At par; 2. At premium; and 3. At discount.
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Repayment/ dividend

PREFRENCE SHARE
These are other type of shares. The preference shares are market instrument issued by the companies to raise the capital. Preference shares have the characteristics of both equity shares and debentures. Fixed rate of dividends are paid to the preference share holder as in case of debentures, irrespective of the profits earned company is liable to pay interest to preference share holders.

1) Return on Investment : It is in the form of dividend and rate of dividend is prefixed and pre communicated to the investors.
2) Not Owners : Investors in preference shares are not the owners of the company. 3) Return of Capital : Capital raised by the company by way of preference shares are required to be repaid during the existence of the company.

4) Non participation in management : Preference shareholders do not participate in the affairs of the company.
5) Risk: The risk is more on the part of the company.
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ADVANTAGES
These yield fixed rate of returns Its a hybrid instrument having some of the characteristics of debentures and equity shares.

DISADVANTAGES
They do not provide the investor with any of the voting rights. If the company gets huge profits then they wont get any extra bonus.

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DEBENTURES
Instrument

of debt executed by the company A certificate of loan Company pays pre specified percentage of interest Part of the company's capital structure Debentures are generally secured against the companys assets Convertible debentures can be either fully or partly converted into Shares Convertible debentures may carry a lower rate of interest
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1) Debenture holders of the company are the creditors of the company and not the owners of the company.
2) Capital raised by way of debentures is required to be repaid during the life time of the company at the time stipulated by the company. Thus, it is not a source of permanent capital.

3) Debentures are generally secured.

4) Return paid by the company is in the form of interest which is predetermined. 5) Debentures are very risky from companys point of view for raising long term funds. 6) Risk on the part of debenture holders is very less. 7) Debenture holders do not carry any voting rights. 8) Debentures are a cheap source of funds from the companys point of view.
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ADVANTAGES
1. Control of company is not surrendered to debenture holders because they do not have any voting rights. 2. Interest on debenture is an allowable expenditure under income tax act, hence incidence of tax on the company is decreased. 3. Debenture can be redeemed when company has surplus funds.

DISADVANTAGES
1. Cost of raising capital through debentures is high of high stamps duty. 2. Common people cannot buy debenture as they are of high denominations. 3. They are not meant for companies earning greater than the rate of interest which they are paying on the debentures.

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A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing . The Federal government, states, cities, corporations, and many other types of institutions sell bonds.
Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, but all bonds require a repayment of principal. When an investor buys a bond, he/she becomes a creditor of the issuer.
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Face value A bond's face value or denomination, which is stated on the front of the bond. This is usually a round figure.
Redemption date The date on which the loan will be repaid is called the redemption date or the maturity date. Coupon rate The coupon rate or bond rate is the rate at which the bond pays interest on its face value at regular time intervals until the redemption date. Redemption value A bond's redemption value or maturity value is the amount that the issuer promises to pay on the redemption date. In most cases the redemption value is the same as the face value: if so, the bond is redeemed at par.
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ADVANTAGES
Diversification - Bonds tend to be less volatile than stocks and can therefore stabilize the value of your portfolio during times when the stock market struggles. Stability - If investors know they will need access to large sums of money in the near future-for example, to pay for college, a home, etc. then it does not make sense to place that money in a highly volatile investment like stocks. Consistent Income - Unlike stock dividends, coupon payments are consistently distributed at regular intervals. Taxes - Payments from some bonds are exempt from federal taxes . For individuals in high tax brackets, these investments are often an excellent vehicle for their portfolio

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DISADVANTAGES OF BONDS
Bonds are also subject to various other risks such as call and prepayment risk, credit risk, reinvestment risk, liquidity risk, event risk, exchange rate risk, volatility risk, inflation risk, sovereign risk, and yield curve risk. Price changes in a bond will immediately affect mutual funds that hold these bonds. If the value of the bonds in a trading portfolio falls, the value of the portfolio also falls. This can be damaging for professional investors such as banks, insurance companies, pension funds, and asset managers If there is any chance a holder of individual bonds may need to sell his bonds and cash out, the interest rate risk could become a real problem.

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IPO EXAMPLE
Jaypee Infratech Ltd. Sector 128, , District Gautam Budh Nagar , Noida , Uttar Pradesh - 201304 Phone: 4609000 Fax: 4609783 Public Issue of 224799496 Equity Shares of Rs 10 each for Cash at a Premium of Rs 92 per share.
Issue Open Date 29/04/2010 Issue Closing Date 04/05/2010 Application Money 102 Allotment Money -

Object of the issue

.

The Issue comprises a Fresh Issue and an Offer for Sale. The Proceeds of Fresh Issue The activities for which funds are being raised by our Company through this Issue, after deducting the proceeds from the Offer for Sale: (i) to partially finance the Yamuna Expressway Project; and (ii) general corporate purposes. (collectively referred to herein as the "Objects"). In addition, our Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges.
Listed at BSE, NSE
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THANK YOU

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