What is a Mutual Fund?
Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Each scheme of a mutual fund can have different character and objectives. Mutual funds issue units to the investors, which represent an equitable right in the assets of the mutual fund.

What is the Regulatory Body for Mutual Funds?
Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds mentioned above. All the mutual funds must get registered with SEBI. The only exception is the UTI, since it is a corporation formed under a separate Act of Parliament.

What is an Asset Management Company?
An Asset Management Company (AMC) is a highly regulated organisation that pools money from investors and invests the same in a portfolio. They charge a small management fee, which is normally 1.5 per cent of the total funds managed.

What is NAV?
NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. NAV is calculated as follows:

NAV=Market value of the fund's investments +Receivables +Accrued Income- Liabilities-Accrued Expenses / Number of Outstanding units

What does Net Asset Value (NAV) of a scheme signify and what is the basis of its calculation?
Net asset value on a particular date reflects the realizable value that the investor will get for each unit that he his holding if the scheme is liquidated on that date. It is calculated by deducting all liabilities (except unit capital) of the fund from the realizable value of all assets and dividing by number of units outstanding.

How often is the NAV declared?
The NAV of a scheme has to be declared at least once a week. However many Mutual Fund declare NAV for their schemes on a daily basis. As per SEBI Regulations, the NAV of a scheme shall be calculated and published at least in two daily newspapers at intervals not exceeding one week. However, NAV of a close-ended scheme targeted to a specific segment or any monthly income scheme (which is not mandatory requirement to be listed on a stock exchange) may be published at monthly or quarterly intervals.

What is the difference between an open ended and close ended scheme?
Open ended funds can issue and redeem units any time during the life of the scheme while close ended funds can not issue new units except in case of bonus or rights issue. Hence, unit capital of open ended funds can fluctuate on daily basis while that is not the case for close ended schemes. Other way of explaining the difference is that new investors can join the scheme by directly applying to the mutual fund at applicable net asset value related prices in case of open ended schemes while that is not the case in case of close ended schemes. New investors can buy the units from secondary market only. .

How are mutual funds different from portfolio management schemes?
In case of mutual funds, the investments of different investors are pooled to form a common investible corpus and gain/loss to all investors during a given period are same for all investors while in case of portfolio management scheme, the investments of a particular investor remains identifiable to him. Here the gain or loss of all the investors will be different from each other.

Can I get fixed monthly income by investing in mutual fund units?
Yes, there are a number of mutual fund schemes which give you fixed monthly income. Further, you can also get monthly income by making a single investment in an open ended scheme and redeeming fix value of units at regular intervals.

Are there any risks involved in investing in Mutual Funds?
Mutual Funds do not provide assured returns. Their returns are linked to their performance. They invest in shares, debentures and deposits. All these investments involve an element of risk. The unit value may vary depending upon the performance of the company and companies may default in payment of interest/principal on their debentures/bonds/deposits. Besides this, the government may come up with new regulation which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds.

What should an investor look into an offer document?
An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor’s track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.

As mutual fund schemes invest in stock markets only, are they suitable for a small investor like me?
Mutual funds are meant only for a small investor like you. The prime reason is that successful investments in stock markets require careful analysis of scrips which is not possible for a small investor. Mutual funds are usually fully equipped to carry out thorough analysis and can provide superior returns.

What are the benefits of investing in Mutual Funds?

• Qualified and experienced professionals manage Mutual Funds. Generally, investors, by themselves, may have reasonable capability, but to assess a financial instrument a professional analytical approach is required in addition to access to research and information and time and methodology to make sound investment decisions and keep monitoring them.
• Since Mutual Funds make investments in a number of stocks, the resultant diversification reduces risk. They provide the small investors with an opportunity to invest in a larger basket of securities.
• The investor is spared the time and effort of tracking investments, collecting income, etc. from various issuers, etc.
• It is possible to invest in small amounts as and when the investor has surplus funds to invest.
• Mutual Funds are registered with SEBI. SEBI monitors the activities of Mutual Funds.
• In case of open-ended funds, the investment is very liquid as it can be redeemed at any time with the fund unlike direct investment in stocks/bonds.

What are the parameters on which a Mutual Fund scheme should be evaluated?
Performance indicators like total returns given by the fund on different schemes, the returns on competing funds, the objective of the fund and the promoter’s image are some of the key factors to be considered while taking an investment decision regarding mutual funds.

What are the different plans that Mutual Funds offer?
Growth Plan and Dividend Plan:
A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realizes capital appreciation on the investment. This plan appeals to investors in the high income bracket. Under the dividend plan, income is distributed from time to time. This plan is ideal to those investors requiring regular income.

Dividend Reinvestment Plan:
Dividend plans of schemes carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested on behalf of the investor, thus increasing the number of units held by the investors.

Systematic Investment Plan:
Under the Systematic Investment Plan (SIP) also called Automatic Investment Plan (AIP), the investor is given the option for investing in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment. AIP allows the investors to plan their savings through a structured regular monthly savings program.

Automatic Withdrawal Plan :
Under the Automatic Withdrawal Plan (AWP) also called Systematic Withdrawal Plan (SWP), a facility is provided to the investor to withdraw a pre-determined amount from his fund at a pre-determined interval.

What is Entry Load?
The non refundable fee paid to the Asset Management Company at the time of purchase of mutual fund units is termed as Entry Load. Entry Load is added to the NAV (purchase price) when you are purchasing Mutual Fund units.

What is Exit Load?
The non refundable fee paid to the Asset Management Company at the time of redemption/ transfer of units between schemes of mutual funds is termed as exit load. It is deducted from the NAV (selling price) at the time of such redemption/ transfer.

What is Purchase price?
urchase price is the price paid by you to purchase a unit of a mutual fund scheme. If the fund levies an entry load, then the purchase price would be equal to the sum of the NAV and the entry load levied.

What is redemption price?
Redemption price is the price received on selling units of open-ended scheme. If the fund does not levy an exit load, the redemption price will be same as the NAV. The redemption price will be lower than the NAV in case the fund levies an exit load.

What is repurchase price?
Repurchase price is the price at which a close-ended scheme repurchases its units. Repurchase can either be at NAV or can have an exit load.

Do I have to pay any entry load for mutual fund purchases made after August 01, 2009?
No. Prior to the implementation of the SEBI guideline, an entry load of 2.25% was charged on all Mutual fund purchases. As per the new guidelines issued by SEBI, with effect from August 1, 2009, entry load will not be charged on purchases in existing mutual fund schemes or on schemes launched thereafter. However, any investment made by you in an NFO which was launched prior to August 1, 2009 will continue to attract entry load and other charges as specified in the offer document.

What exit load will I have to pay as on date?
Exit Load varies for different schemes and is generally charged as a percentage of NAV. The Exit load normally varies from 0.25% to 2% of the redemption value. Some mutual funds however do not charge any exit load. Such mutual funds are referred to as 'No Load Funds'.

How do the new SEBI Guidelines impact my mutual fund transactions?
SEBI Guidelines stipulate that with effect from August 1, 2009, there shall be no entry load for any Mutual Fund scheme whether existing or new. SEBI Guidelines further stipulate that investors will be required to pay upfront commission directly to distributors. This means that earlier if you invested Rs.1000/- in a mutual fund, your total invested amount was reduced to the extent of entry load charged i.e. Rs.22.5 (@ 2.25%) thereby making your actual investment Rs977.5/-. However, w.e.f August 1, 2009, the entire Rs1000/- invested by you would be your investment in the mutual fund. However, while you will not be charged any entry load, you will have to pay 'Transaction charges' directly to your distributor as per the applicable fee structure.

Can I modify /cancel my transactions?
Yes, while placing any mutual fund order, modify or cancel option would be available to you till the final confirmation of the order is placed by you. Once you click on Final Confirmation you cannot modify or cancel the order placed by you. You can only modify/cancel any Systematic Investment Plan (SIP) / Systematic Withdrawal Plan (SWP) order placed by you.

Will I get an online confirmation of my transactions?
As soon as you confirm your order you can view the details of your transaction in the order book. Also an email will be sent to your email address.

Can I download the application form directly from the RRfinance.com?
Yes. For the benefit of our valued investors, we are putting up downloadable application forms on the Home Page – Form Download. Just print the form fill it up and submit it as advised.

How do I purchase from your web site?

1. Register through Our Website/ visit the nearest Branch, along with Rs.250/- cheque in the name of –“RR Equity Brokers Pvt. Ltd.

2. Get Login Id and Password

3. Log on to the Website- www.rrfinance.com

4. Start Purchase and Redemption of Mutual Funds Online.

How do I get the information regarding the forthcoming schemes of different mutual funds?
We have regular updates about the forthcoming and ongoing Fund offers on our website. An investor can go to the Mutual Fund page for the Latest updates.

Can an investor redeem part of the units?
Yes. One can redeem part units also.

NOTE:  
This FAQ is only meant to clarify certain basic questions on Mutual Funds. The information given is included only for general purpose and the investors should be aware that the relevant rules, regulations, or their interpretation might change. We strongly advise investors to contact our Call Centre/RR Financial Consultants Ltd branches/Registrar for any additional information/clarifications. Please read the terms & conditions, financial statements & Declarations available on www.rrfinance.com before investing in Mutual Funds. Mutual Fund Investments are subject to market risks, read the offer document carefully before investing.

What is the difference between Cumulative Deposits and Non- Cumulative deposits?
In a Cumulative Deposits Scheme, interest is payable at the time of maturity along with the principal. This Scheme is suitable for the people who do not require periodic interest payment. This is also called – Money Multiplier Scheme. In a Non-Cumulative Deposit Scheme interest is paid on periodical basis.

What is the minimum tenure for a fixed deposit?
6 Months.

Do I get the facility of crediting my interest earned to another account when I place a fixed deposit?
Yes, you get to choose between placing a cumulative or non-cumulative deposit at the time of account opening. In a non-cumulative deposit, the interest earned will be paid on a periodical basis whereas in a cumulative deposit the interest earned will be ploughed back with the principal deposit amount.

What is compounding in FD?
In case of deposit with Cumulative option, interest accrued is added to the existing deposit amount at the end of every year on 31st March. Cumulative scheme of FD is compounded annually.

Who can buy an FD?
Following entities can buy an FD:

Any individual who comes under definition of ''Person of Indian Origin' as defined by the Government of India/Reserve Bank of India, from time to time. 

Any Non - Resident Indian

Non-individual resident legal entities like Hindu Undivided Family, Trust, Association of Persons, Societies, Firms, Companies, etc.

Will my deposit get automatically renewed?
No. The Customer will be asked for renewal on Maturity of Deposit.

What is Company Fixed Deposit?
Company Fixed Deposit is the deposit placed by investors with companies for a fixed term carrying a prescribed rate of interest for prescribed time period.

How is interest payments made?
Interest is paid on monthly/quarterly/half yearly/yearly or on maturity basis and is sent either through cheque or ECS facility.

When is TDS deducted on the interest from Company Fixed Deposits?
TDS is deducted if the interest on fixed deposit exceeds Rs.5000/- in a financial year.

Is there any scope of appreciation of principal?
At the end of deposit period principal plus interest is returned to the deposit holder.

How to choose a good company deposit scheme?

• Ignore the unrated Company Deposit Schemes. Ignore deposit schemes of little known manufacturing companies. For NBFC’s, RBI has made it mandatory to have an ‘A’ rating to be eligible to accept public deposits, one should go further and look at only AA or AAA schemes.
• Within a given rating grade, choose the company with a better reputation.
• Once you decide on a company, next choose the schemes that have given a better return. Unless you need income regularly, you should prefer cumulative to regular income option since the interest earned automatically gets reinvested at the same coupon rate giving upon better yields. It also gives you a lump-sum amount at one go.
• It is better to make shorter deposit of around 1 year to 3 years.  This way you not only can keep a watch on the company’s rating and servicing but can also plan to have your money back in case of emergency.
• Check on the servicing standards of the company.  You should not oblige companies that care little about investor services like promptly sending interest warrants or the principal cheque.

Which companies can accept Deposit?
Companies registered under Companies Act 1956, such as:

• Manufacturing Companies.
• Non-Banking Finance Companies.
• Housing Finance Companies.
• Financial Institutions.
• Government Companies.
  

Upto what limits can a company accept deposit?
A Non-Banking Non-Finance Company (Manufacturing Company) can accept deposit subject to following limits:

• Upto 10% of aggregate of paid-up share capital and free reserves if the deposits are from shareholders or guaranteed by directors.
• Otherwise upto 25% of aggregate of paid-up share capital and free reserves.

A Non-Banking Finance Company can accept deposits upto following limits:

• Equipment Leasing Company can accept four times of its net owned fund.
• Loan or Investment Company can accept deposit upto one and half time of its net owned funds.

What is the period of the deposit?
Company Fixed Deposits can be accepted by a Manufacturing Company having duration from 6 months to 3 years.  Non-Banking Finance Company can accept deposit from 1 year to 5 years period.  A Housing Finance Company can accept deposit from 1 year to 7 years.

Where not to invest?

• Companies which offer interest higher than 15%.
• Companies which are not paying regular dividends to the shareholder.
• Companies whose Balance Sheet shows losses.
• Companies which are below investment grade (A or under) rating.

What is 'nomination'?
Through nomination facility, the depositor may nominate a person to whom FD should pay the deposit amount in case of death of the depositor. For availing this facility, you should fill the nomination form while applying for the Fixed Deposit.

What is the mode of getting payment on redemption/interest?
The redemption/interest payment varies from company to company; it can be given through PDCs or credited to your Bank Account directly.

Is FD transferable?
No, FD is non- transferable.

Can a loan be obtained against the security of the FD?
Yes, but it varies from company to company. It can be upto 75% of the FD amount.

How can a depositor change the address etc. during the term of deposit?
An application requesting to update the address etc. may be submitted to the concerned company along with the proof of such change, like new residence proof'. The account holders should sign the application.

When do I become liable for TDS?
If the aggregate interest income that you are likely to earn for all your deposits is greater than Rs.5, 000/- in a financial year, you become liable for TDS, subject to submission of Form 15G (For entities other than Companies/Firms)/15H (For Senior Citizen who is of the age of 65 years or more) or a certificate for lower/nil deduction of TDS issued by Income Tax Authorities u/s 197 of the Income Tax Act, 1961.

Who is considered Senior citizen?
Citizens above the age of 60 years are considered as senior citizens.

Do senior citizens get any extra benefit on the FD?
Yes, they do get extra benefits in the form of special interest rates that may vary from scheme to scheme.

What documentation is required to open a senior citizen FD?
While opening thesenior citizen fixed deposit account, the customer needs to provide proof of age - to ensure that account holder is a senior citizen. He can provide either of the following:

• Secondary School Leaving Certificate (Class 10)
• LIC Policy
• Voters Identity Card
• Pension Payment Order
• Birth Certificate issued by the competent authority
• Passport / Defence ID Card / Govt. ID Card (Provided they have the cardholder's photo, signature and date of birth)
• PSU issued ID Cards
• Senior Citizen Cards 
  

NOTE:  
This FAQ is only meant to clarify certain basic questions on Fixed Deposit scheme. The information given is included only for general purpose and the depositors should be aware that the relevant rules, regulations, or their interpretation might change. We strongly advise depositors to contact our Call Centre/RR Financial Consultants Ltd branches/Registrar for any additional information/clarifications. Please read the terms & conditions, financial statements & Declarations available on www.rrfinance.com before investing in FD.

What are the different kinds of issues which can be made by an Indian company in India?
Primarily, issues made by an Indian company can be classified as –

• Public Issue
• Rights Issue
• Bonus
• Private Placement

The classification of issues is as illustrated below:

• Public Issue
  • Initial Public offer (IPO)
  • Further public offer (FPO)
• Rights issue
• Bonus issue
• Private placement
  • Preferential issue
  • Qualified institutional placement

What is Public Issue?
Public issue: When an issue / offer of securities is made to new investors for becoming part of shareholders’ family of the issuer3 it is called a public issue. Public issue can be further classified into Initial public offer (IPO) and Further public offer (FPO). The significant features of each type of public issue are illustrated below:

• Initial public offer (IPO): When an unlisted company makes either a fresh issue of Securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer’s securities in the Stock Exchanges.
• Further public offer (FPO) or Follow on offer: When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a FPO.

What is Rights Issue?
When an issue of securities is made by an issuer to its shareholders existing as on a particular date fixed by the issuer (i.e. record date), it is called a rights issue. The rights are offered in a particular ratio to the number of securities held as on the record date.

What is Bonus Issue?
When an issuer makes an issue of securities to its existing shareholders as on a record date, without any consideration from them, it is called a bonus issue. The shares are issued out of the Company’s free reserve or share premium account in a particular ratio to the number of securities held on a record date.

What is Private Placement?
When an issuer makes an issue of securities to a select group of persons not exceeding 49, and which is neither a rights issue nor a public issue, it is called a private placement. Private placement of shares or convertible securities by listed issuer can be of two types:

• Preferential allotment: When a listed issuer issues shares or convertible securities, to a select group of persons in terms of provisions of Chapter XIII of SEBI (DIP) guidelines, it is called a preferential allotment. The issuer is required to comply with various provisions which inter alia include pricing, disclosures in the notice, lock-in etc, in addition to the requirements specified in the Companies Act. 
• Qualified institutions placement (QIP): When a listed issuer issues equity shares or securities convertible in to equity shares to Qualified Institutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP) guidelines, it is called a QIP.

What is an offer document?
‘Offer document’ is a document which contains all the relevant information about the company, promoters, projects, financial details, objects of raising the money, terms of the issue etc and is used for inviting subscription to the issue being made by the issuer. ‘Offer Document’ is called “Prospectus” in case of a public issue or offer for sale and “Letter of Offer” in case of a rights issue.

What is a Draft offer document?
Draft offer document is an offer document filed with SEBI for specifying changes, if any, in it, before it is filed with the Registrar of companies (ROCs). Draft offer document is made available in public domain including SEBI website, for enabling public to give comments, if any, on the draft offer document..

What is a Red herring prospectus?
Red herring prospectus is an offer document used in case of a book built public issue. It contains all the relevant details except that of price or number of shares being offered. It is filed with RoC before the issue opens.

What is a Prospectus?
Prospectus is an offer document in case of a public issue, which has all relevant details including price and number of shares being offered. This document is registered with RoC before the issue opens in case of a fixed price issue and after the closure of the issue in case of a book built issue.

What is a Letter of offer?
Letter of offer is an offer document in case of a Rights issue and is filed with Stock exchanges before the issue opens.

What is an abridged prospectus?
Abridged prospectus is an abridged version of offer document in public issue and is issued along with the application form of a public issue. It contains all the salient features of a prospectus.

What is a Placement document?
Placement document is an offer document for the purpose of Qualified Institutional Placement and contains all the relevant and material disclosures.

Who fixes the price of securities in an issue?
Indian primary market ushered in an era of free pricing in 1992. SEBI does not play any role in price fixation. The issuer in consultation with the merchant banker on the basis of market demand decides the price. The offer document contains full disclosures of the parameters which are taken in to account by merchant Banker and the issuer for deciding the price. The Parameters include EPS, PE multiple, return on net worth and comparison of these parameters with peer group companies.

What is the difference between “Fixed price issue” and “Book Built issue”?
On the basis of Pricing, an issue can be further classified into Fixed Price issue or Book Built issue.

• Fixed Price Issue: When the issuer at the outset decides the issue price and mentions it in the Offer Document, it is commonly known as “Fixed price issue”.
• Book built Issue: When the price of an issue is discovered on the basis of demand received from the prospective investors at various price levels, it is called “Book Built issue”.

What is book Building?
Book building is a process of price discovery. The issuer discloses a price band or floor price before opening of the issue of the securities offered. On the basis of the demands received at various price levels within the price band specified by the issuer, Book Running Lead Manager (BRLM) in close consultation with the issuer arrives at a price at which the security offered by the issuer, can be issued.

What is a price band?
The price band is a band of price within which investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. The price band can be revised. If revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding thirteen days.

How does Book Building work?
Book building is a process of price discovery. A floor price or price band within which the bids can move is disclosed at least two working days before opening of the issue in case of an IPO and at least one day before opening of the issue in case of an FPO. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. After the bidding process is complete, the ‘cut-off’ price is arrived at based on the demand of securities. The basis of Allotment is then finalized and allotment/refund is undertaken. The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process. Only the retail investors have the option of bidding at ‘cut-off’.

How does “cut-off” option works for investors?
“Cut-off” option is available for only retail individual investors i.e investors who are applying for securities worth up to Rs1,00,000/- only. Such investors are required to tick the cut off option which indicates their willingness to subscribe to shares at any price discovered within the price band. Unlike price bids (where a specific price is indicated) which can be invalid, if price indicated by applicant is lower than the price discovered, the cut-off bids always remain valid for the purpose of allotment

Can I change/revise my bid?
Yes, you can change or revise the quantity or price in the bid using the form for changing /revising the bid that is available along with the application form. However, the entire process of changing or revising the bids shall be completed within the date of closure of the issue.

Can I cancel my Bid?
Yes, you can cancel your bid anytime before the finalization of the basis of allotment by approaching/ writing/ making an application to the registrar to the issue.

Is it compulsory for me to have a Demat Account?
As per the requirement, all the public issues of size in excess of Rs.10crore, are to made compulsorily in demat mode. Thus, if you intend to apply for an issue that is being made in a compulsory demat mode, you are required to have a demat account and also have the responsibility to put the correct DP ID and Client ID details in the bid/application forms. You can also refer to FAQs relating to demat available in the URL http://investor.sebi.gov.in/faq/dematfaq.html in the Investor Education section of the SEBI website.

Is it compulsory to have PAN?
Yes, it is compulsory to have PAN. Any investor who wants to invest in an issue should have a PAN which is required to be mentioned in the application form. It is to be distinctly understood that the photocopy of the PAN is not required to be attached along with the application form at the time of making an application.

For how many days an issue is required to be kept open?
The period for which an issue is required to be kept open is:

• For Fixed price public issues : 3-10 working days
• For Book built public issues : 3-7 working days extendable by 3 days in case of a revision in the price band
• For Rights issues : 15-30 days.

When do I get the allotment/ refund of shares?

• For Fixed price public issues : 30 days of the closure of the issue
• For Book built public issues : 15 days of the closure of the issue
• For Rights issues : 15 days of the closure of the issue

How will I get my refund in an issue?
You can get refunds in an issue through various modes viz. registered/ordinary post, Direct Credit, RTGS (Real Time Gross Settlement), ECS (Electronic Clearing Service) and NEFT (National Electronic Funds Transfer). As stated above, if you are residing in one of the 68 centers as specified by Reserve Bank of India, then you will get refunds through ECS only except where you are otherwise disclosed eligible under Direct Credit and RTGS. If you are residing at any other center, then you will continue to get refunds through registered/ordinary post. You are therefore advised to read the instructions given in the prospectus/ abridged prospectus/ application form about centers.

When will the shares allotted to me get listed?
In book built public issue the listing of shares will be done within 3 weeks after the closure of the issue. In case of fixed price public issue, it will be done within 37 days after closure of the issue.

What is a Green-shoe Option?
Green Shoe Option is a price stabilizing mechanism in which shares are issued in excess of the issue size, by a maximum of 15%. From an investor’s perspective, an issue with green shoe option provides more probability of getting shares and also that post listing price may show relatively more stability as compared to market volatility.

What is a Safety Net?
In a safety net scheme or a buy back arrangement the issuer company in consultation with the lead merchant banker discloses in the RHP that if the price of the shares of the company post listing goes below a certain level the issuer will purchase back a limited number of shares at a pre specified price from each allottee.

What is Open book/closed book?
In an open book building system the merchant banker along with the issuer ensures that the demand for the securities is displayed online on the website of the Stock Exchanges. Here, the investor can be guided by the movements of the bids during the period in which the bid is kept open. Indian Book building process provides for an open book system. In the closed book building system, the book is not made public and the bidders will have to take a call on the price at which they intend to make a bid without having any information on the bids submitted by other bidders.

What is Differential pricing?
When one category of investors is offered shares at a price different from the other category it is called differential pricing. An issuer company can allot the shares to retail individual investors at a discount of maximum 10% to the price at which the shares are offered to other categories of public.

What is Basis of Allocation/Basis of Allotment?
After the closure of the issue, for example, a book built public issue, the bids received are aggregated under different categories i.e., firm allotment, Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs), Retail, etc. The oversubscription ratios are then calculated for each of the categories as against the shares reserved for each of the categories in the offer document. Within each of these categories, the bids are then segregated into different buckets based on the number of shares applied for. The oversubscription ratio is then applied to the number of shares applied for and the number of shares to be allotted for applicants in each of the buckets is determined. Then, the number of successful allottees is determined. This process is followed in case of proportionate allotment. Thus allotment to each investor is done based on proportionate basis in both book built and fixed price public issue.

Where do I get data on primary issues? (issuer, total issues, issue size, the intermediaries, etc., during a given period)
You can get all the information about the Forthcoming IPO from our website - www.rrfinance.com Our research team also provides a detailed analysis of the IPO which helps the investor in taking decisions.