Basics of Capital Market

Categories of Alternative Investment Fund

As per the SEBI (Alternative Investment Funds) Regulations, 2012, SEBI has classified AIF into the following three broad categories:

Category 1 : Fund that invest in start-up or early stage ventures or social ventures or Small and Medium Enterprises (SMEs) or infrastructure or other sectors which the government or regulators consider as socially or economically desirable which include VCF, SME Funds, Social Venture Funds (SVF), Infra Funds and such other AIFs as may be specified in the AIF Regulations.

Category II : Funds that do not fall in Category I and III AIF and those that do not undertake leverage or borrowing other than to meet the permitted day to day operational requirement including Private Equity Funds or Debt Funds.

Category III : Funds that employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives for e.g. Hedge Funds, SEBI has allowed the Category-III Alternative Investment Funds (AIFs) to participate in the commodity derivatives market also.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(c) (Old syllabus).

As per Regulation 7(2) of the SEBI (Alternative Investment Funds) Regulations, 2012, an Alternative Investment Fund (AIF) which has been granted registration under a particular category cannot change its category subsequent to registration, except with the approval of the SEBI.

However, as per Circular No. CIR/IMD/DF/12/2013 dated 07th August, 2013, only AIFs who have not made any investments under the category in which they were registered earlier shall be allowed to make application for change in category. Such AIFs are required to make an application in Form A along with necessary supporting documents. Application fees of Rs. 1,00,000/- must be paid along with the application to SEBI. AIFs are not required to pay registration fees for such applications.

If the AIF has received commitments/ raised funds prior to application for change in category, the AIF shall be required to send letters/emails to all its investors providing them the option to withdraw their commitments/ funds raised without any penalties/charges. Any fees collected from investors seeking to withdraw commitments/ funds shall be returned to them. Partial withdrawal may be allowed subject to compliance with the minimum investment amount required under the AIF Regulations.

The AIF shall not make any investments other than in liquid funds/ banks deposits until approval for change in category is granted by SEBI.

On approval of the request from SEBI, the AIF is required to send a copy of the revised placement memorandum and other relevant information to all its investors.

Regulation 10(d) of the SEBI (Alternative Investment Funds) Regulations, 2012, envisage that in order to ensure that the interest of the Manager/Sponsor is aligned with the interest of the investors in the AIF, the sponsor/manager shall have a certain continuing interest in the AIF which shall not be through the waiver of management fees. For Category I and II AIFs, such interest must be not less than two and half percent of the corpus or five crore rupees, whichever is lesser and for Category III AIFs, the continuing interest must be not less than five percent of the corpus or ten crore rupees, whichever is lesser.

For angel funds, such continuing interest shall be not less than two and half percent of the corpus or fifty lakh rupees, whichever is lesser.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6A(iii) (Syllabus 2017).

As per SEBI Circular No. CIR/IMD/DF/12/2013 dated 7th August, 2013, only AIFs who have not made any investments under the category in which they were registered earlier shall be allowed to make application for change in category. Such AIFs are required to make an application in Form A along with necessary supporting documents. Application fees of Rs. 1, 00,000 must be paid along with the application to SEBI. AIFs are not required to pay registration fees for such applications.

If the AIF has received commitments/ raised funds prior to application for change in category, the AIF shall be required to send letters/ emails to all its investors providing them the option to withdraw their commitments/ fund raised without any penalties/ charges. Any fees collected from investors seeking to withdraw commitments/ funds shall be returned to them. Partial withdrawal may be allowed subject to compliance with the minimum investment amount required under the AIF regulations.

The AIF shall not make any investments till deployment of fund as per the scheme other than in liquid funds/ bank deposits until approval for change in category is granted by SEBI.

On approval of the request from SEBI, the AIF is required to send a copy of the revised placement memorandum and other relevant information to all its investors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(i) (Syllabus 2017).

Alternative Investment Funds (AIFs) refers to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP) which are not presently covered by any Regulation of SEBI governing fund management (like, Regulations governing Mutual Fund or Collective Investment Scheme) nor coming under the direct regulation of any other sectoral regulators in India- IRDA, PFRDA, RBI. Hence, in India, AIFs are private funds which are otherwise not coming under the jurisdiction of any regulatory agency in India.

Alternative Investment Funds (AIFs) are defined in Regulation 2(1)(b) of the SEBI (Alternative Investment Funds) Regulations, 2012. According to SEBI (Alternative Investment Funds) Regulations, 2012, “Alternative Investment Fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which,-

(i)is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and

(ii)is not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.

The following shall not be considered as an Alternative Investment Fund for the purpose of SEBI (Alternative Investment Funds) Regulations, 2012; -

i.Family trusts set up for the benefit of relatives' as defined under Companies Act, 2013.

ii.ESOP Trusts set up under the SEBI (Shares Based Employee Benefits) Regulations or as permitted under Companies Act, 2013.

iii.Employee welfare trusts or gratuity trusts set up for the benefit of employees.

iv.Holding companies within the meaning of Section 2(46) of the Companies Act, 2013.

v.Other special purpose vehicles not established by fund managers, including securitization trusts, regulated under a specific regulatory framework.

vi.Funds managed by securitisation company or reconstruction company which is registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

vii.Any such pool of funds which is directly regulated by any other regulator in India.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6A(i) (Syllabus 2017).

Shares with differential voting rights (“DVR”) refer to equity shares holding differential rights as to dividend and/ or voting. Section 43 (a) (ii) of the Companies Act, 2013 read with Rule 4 of Companies (Share Capital and Debenture) Rules, 2014 allows a company limited by shares to issue DVRs as part of its share capital.

However, following companies are not permitted to issue shares with DVR;

i)The Company which has defaulted in:

a)filing annual returns and financial statements for the last three financial years,

b)repayment of matured deposits or payment of declared dividend,

c)redemption of its preference shares/debentures which are due for redemption,

d)payment of interest on such deposits or debentures or payment of dividend on preference shares,

e)repayment of term loan taken from any public financial institution or state level financial institution or from a scheduled bank that has become due and payable,

f)payment of statutory dues of the employees of the company or default in crediting the amount in Investor Education and Protection Fund to the Central Government.

However, a Company may issue equity shares with differential rights upon expiry of 5 years form the end of the financial year in which such default was made good.

ii)The Company which has been penalized by Court or Tribunal during the last three years of any offence under the Reserve Bank of India Act, 1934, the Securities and Exchange Board of India Act, 1992, the Securities Contracts Regulation Act, 1956, the Foreign Exchange Management Act, 1999 or any other special Act, under which such companies being regulated by sectoral regulators.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2(b) (Syllabus 2022).

Shares with Differential Voting Rights (DVRs)

Section 43(a)(ii) of the Companies Act, 2013, authorized equity share capital with differential rights as to dividend, voting or otherwise in accordance with rule 4 of Companies (Share Capital and Debentures) Rules, 2014 which prescribes the following conditions for issue of DVRs :

a.the articles of association of the company authorizes the issue of shares with differential rights;

b.the issue of shares is authorized by ordinary resolution passed at a general meeting of the shareholders. Where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders through postal ballot at a general meeting;

c.the voting power in respect of shares with differential rights of the company shall not exceed seventy four per cent of total voting power including voting power in respect of equity shares with differential rights issued at any point of time;

d.the company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares;

e.the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend;

f.the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or state level financial institution or scheduled bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government. However, a company may issue equity shares with differential rights upon expiry of five years from the end of the financial year in which such default was made good;

g.the company has not been penalized by Court or Tribunal during the last three years of any offence under the Reserve Bank of India Act, 1934, Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, the Foreign Exchange Management Act, 1999 or any other special Act under which such companies being regulated by sectoral regulators;

h.The explanatory statement to be annexed to the notice of the general meeting in pursuance of section 102 or of a postal ballot in pursuance of section 110 of the Companies Act, 2013 shall contain the disclosures as mentioned in the rules;

i.The company shall not convert its existing share capital with voting rights into equity share capital carrying differential voting rights and vice-versa;

j.The Board of Directors shall disclose in the Board’s Report for the financial year in which the issue of equity shares with differential rights was completed, the details as mentioned in the rules;

k.The holders of the equity shares with differential rights shall enjoy all other rights such as bonus shares, rights shares etc., which the holders of equity shares are entitled to, subject to the differential rights with which such shares have been issued;

l.The register of members maintained under section 88 of the Companies Act, 2013, shall contain all the relevant particulars of the shares so issued along with details of the shareholders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(iii) (Syllabus 2017).

(i)Section 43(a)(ii) of the Companies Act, 2013, authorized equity share capital with differential rights as to dividend, voting or otherwise in accordance with rule 4 of Companies (Share Capital and Debentures) Rules, 2014 as may be prescribed.

(ii)Tata motors, Jain Irrigations, Gujarat NRE Coke and Pantaloons Retail India are companies that have issued DVR in India.

(iii)Rule 4 of Companies (Share Capital and Debentures) Rules, 2014 prescribes the following conditions for issue of DVRs :

a.the articles of association of the company authorizes the issue of shares with differential rights;

b.the issue of shares is authorized by ordinary resolution passed at a general meeting of the shareholders. Where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders through postal ballot at a general meeting;

c.the shares with differential rights shall not exceed twenty-six percent of the total post-issue paid up equity share capital including equity shares with differential rights issued at any point of time;

d.the company having consistent track record of distributable profit for the last three years;

e.the company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares;

f.the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend;

g.the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or state level financial institution or scheduled bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government.

However, a company may issue equity shares with differential rights upon expiry of five years from the end of the financial year in which such default was made good.

h.the company has not been penalized by Court or Tribunal during the last three years of any offence under any law/act as applicable.

i.the explanatory statement to be annexed to the notice of the general meeting should contain the disclosures as mentioned in the rules

j.the Board of Directors shall disclose in the Board’s Report for the financial year in which the issue of equity shares with differential rights was completed.

k.the company shall not convert its existing share capital with voting rights into equity share capital carrying differential voting rights and vice-versa.

l.The register of members maintained under section 88 of the Companies Act, 2013, shall contain all the relevant particulars of the shares so issued along with details of the shareholders.

Note: Following amendment has come in place of point (c) above.

“The voting power in respect of shares with differential rights of the company shall not exceed seventy four percent of total voting power including voting power in respect of equity shares with differential rights issued at any point of time.”

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(b) (Old syllabus).

Share Capital with Differential Voting Rights (DVRs)

Section 43(a)(ii) of the Companies Act, 2013, authorized equity share capital with differential rights as to dividend, voting or otherwise in accordance with rule 4 of Companies (Share Capital and Debentures) Rules, 2014 which prescribes the following conditions for issue of DVRs:

(a)the articles of association of the company authorizes the issue of shares with differential rights;

(b)the issue of shares is authorized by ordinary resolution passed at a general meeting of the shareholders. Where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders through postal ballot at a general meeting;

(c)the shares with differential rights shall not exceed twenty-six percent of the total post-issue paid up equity share capital including equity shares with differential rights issued at any point of time;

(d)the company having consistent track record of distributable profit for the last three years;

(e)the company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares;

(f)the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend;

(g)the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or state level financial institution or scheduled bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government.

However, a company may issue equity shares with differential rights upon expiry of five years from the end of the financial year in which such default was made good.

(h)the company has not been penalized by Court or Tribunal during the last three years of any offence under the Reserve Bank of India Act, 1934, Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, the Foreign Exchange Management Act, 1999 or any other special Act under which such companies being regulated by sectoral regulators.

(i)The explanatory statement to be annexed to the notice of the general meeting in pursuance of section 102 or of a postal ballot in pursuance of section 110 of the Companies Act, 2013 shall contain the disclosures as mentioned in the rules.

(j)The company shall not convert its existing share capital with voting rights into equity share capital carrying differential voting rights and vice-versa.

(k)The Board of Directors shall disclose in the Board’s Report for the financial year in which the issue of equity shares with differential rights was completed, the details as mentioned in the rules.

(l)The holders of the equity shares with differential rights shall enjoy all other rights such as bonus shares, rights shares etc., which the holders of equity shares are entitled to, subject to the differential rights with which such shares have been issued.

(m)The register of members maintained under section 88 of the Companies Act, 2013, shall contain all the relevant particulars of the shares so issued along with details of the shareholders.

Note: Following amendment has come in place of point (c) above.

“The voting power in respect of shares with differential rights of the company shall not exceed seventy four percent of total voting power including voting power in respect of equity shares with differential rights issued at any point of time.”

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(c) (Syllabus 2017).

To The Board of Directors XYZ Infrastructure Investment Trust

Sub: Delisting of Units and winding up of the InvIT

As per Regulation 17 of the SEBI (Infrastructure Investment Trust) Regulations, 2014, the investment manager shall apply for delisting of units of the InvIT to the Board and the designated stock exchanges if:

(a)the public holding falls below the specified limit under these regulations.

(b)the number of unit holders of the InvIT falls below the limit as prescribed in these regulations.

(c)if there are no projects or assets remaining under the InvIT for a period exceeding six months and InvIT does not propose to invest in any project in future.

(d)SEBI or the designated stock exchanges require such delisting for Violation of the listing agreement or these regulations or the Act;

(e)the trustee and investment manager requests such delisting and such request has been approved by unit holders in accordance with these regulations.

(f)the trustee and the Investment Manager of a privately placed and listed InvIT chooses to convert InvIT to a privately placed unlisted InvIT and such request has been approved by unit holders. However, exit shall be provided to dissenting unitholders.

(g)unit holders apply for such delisting in accordance with these regulations.

(h)SEBI or the designated stock exchanges require such delisting in the interest of the unit holders.

Note:

o In Clause (c), the period may be extended by further 6 months, with the approval of unit holders in the manner as prescribed in these regulations.

o if clause (a) or (b) is breached, the trustee may provide a period of six months to the investment manager to rectify the same, failing which shall apply for such delisting.

o In case of PPP projects, such delisting shall be subject to relevant Clauses in the concession agreement

o SEBI and the designated stock exchanges may consider such application for delisting for approval at rejection as may be appropriate in the interest of the unit holders.

(i)SEBI may, instead of delisting of the units, if it deems fit, provide additional time to the InvlT or parties to the InvIT to comply with above mentioned conditions.

(j)SEBI may reject the application for delisting and take any other action, as it deems fit, under these regulations or the Act for violation of the listing agreement or these regulations or the Act.

(k)The procedure tor delisting of units of InvlT including provision of exit option to the unit holders shall be in accordance with the listing agreement and in accordance with procedure as may be specified by SEBI and by the designated stock exchanges from time to time.

(l)After delisting of its units. the InviT shall surrender: its certificate of registration to SEBI and shall no longer undertake activity of an lnvlT.

(m)The Invlt and parties to the InvlT shall continue to be liable for all their acts of omissions and commissions with respect to activities of the invIT notwithstanding surrender of registration to SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(a) (Old syllabus).

Regulation 11 of SEBI (Real Estate Investment Trusts) Regulations, 2014, provides for the rights and responsibilities of the sponsor(s) which are as follows:

1.The sponsor(s) shall set up the Real Estate Investment Trusts (REIT) and appoint the Trustee of the REIT.

2.The sponsor(s) shall transfer or undertake to transfer, subject to a binding agreement and adequate disclosures in the initial offer document, their entire shareholding or interest and rights in the holdco (holding company) and/or Special Purpose Vehicle (SPV) or entire ownership of the real estate assets to the REIT prior to allotment of units of the REIT to the applicants.

However, this shall not apply to the extent of any mandatory holding of shares or interest and rights in the holdco and/or SPV by the sponsor(s) and sponsor group(s) as required under any Act or regulations or circulars or guidelines of government or regulatory authority as specified from time to time.

3.With respect to holding of units in the REIT,-

(a)the sponsor(s) shall collectively hold a minimum of twenty five percent of the total units of the REIT after initial offer on a post-issue basis :

However, the minimum sponsor(s) holding specified in this clause shall be held for a period of atleast three years from the date of listing of such units.

Further, any holding of the sponsor (s) exceeding the minimum holding as specified in this clause, shall be held for a period of atleast one year from the date of listing of such units.

(b)the sponsor(s) together hold not less than fifteen per cent of the outstanding units of the listed REIT at all times;

(c)each of the sponsor individually shall hold not less than five per cent of the outstanding units of the listed REIT at all times.

4.If the sponsor(s) propose(s) to sell its units below the limit specified in (b) or (c) of Point no. 3 as mentioned above:

a.Such unit shall be sold only after a period of 3 years from the date of listing of the units;

Prior to sale of such units, the sponsor(s) shall arrange for another person(s) or entity(ies) to act as the re-designated sponsor(s) where the re-designated sponsor shall satisfy the eligibility norms for the sponsor as specified under the SEBI REIT Regulations;

However, such units may also be sold to an existing sponsor;

c.The proposed redesignated sponsor shall obtain approval from the unit holders or provide option to exit to the unit holders in accordance with guidelines as may be specified.

However, this clause shall not apply where the units are proposed to be sold to an existing sponsor or member of sponsor group.

5.If re-designated sponsor(s) proposes to sell its units to any other person, condition specified in (a), (b) & (c) of point no. 4 as mentioned above, shall be complied with.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3(c) (Old syllabus).

Regulation 34 of the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008 provides the rights of investors in securities issued by special purpose distinct entity as follows –

-The trust deed or other instrument comprising the terms of issue of the securitised debt instruments issued by a special purpose distinct entity shall provide that investors holding such securitised debt instruments have such beneficial interest in the underlying debt or receivables as may have been conferred by the scheme.

-In the event of failure of the special purpose distinct entity to redeem any securitised debt instruments offered through an offer document or listed, within the time and in accordance with the conditions stated in the offer document or other terms of issue, the investors holding not less than ten per cent in nominal value of such securitised debt instruments shall be entitled to call a meeting of all such investors.

-In such meeting, the investors may move a motion to -

(a)call upon the trustee and the special purpose distinct entity to wind up the scheme and distribute the realisations;

(b)remove the trustee;

(c)appoint a new trustee in place of the one removed under clause (b):

However, any such decision shall be taken by means of a special resolution of the investors of the scheme and sections 109 and 114 of the Companies Act, 2013 shall mutatis mutandis apply to such special resolution. However, the new trustee appointed is registered with SEBI or is exempted from such registration.

In the given case, both the investors together are holding more than 10% of nominal value of securitised debt instruments. Hence both the investors shall be entitled to call a meeting of all such investors.

There will not be any difference in answer if the holdings are Rs. 3000 and Rs.7000 of the investors as the percentage of holding is equal to 10% and not less than 10%.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(a) (Old syllabus).

The alternative sources of arranging funds besides private equity are as under:

(i)Venture Capital Fund which means an Alternative Investment Fund which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund and migrated venture capital fund,

(ii)Angel fund refers to money pool created by high net worth individuals or companies (generally known as Angel Investor), for investing in start-up business. Angel fund is defined in SEBI (Alternative Investment Funds) Regulations, 2012 as a sub-category of Venture Capital Fund under Category I- Alternative Investment Fund that raises funds from angel investors and invests in accordance with regulations specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(a)(v) (Syllabus 2022).

In terms of the amendment to the SEBI (Alternative Investment Funds) Regulations, 2012, an accredited investor means any person who is granted a certificate of accreditation by an accreditation agency who,

(i)in case of an individual, Hindu Undivided Family, family trust or sole proprietorship has:

•annual income of at least two crore rupees; or

•net worth of at least seven crore fifty lakh rupees, out of which not less than three crores seventy-five lakh rupees is in the form of financial assets; or

•annual income of at least one crore rupees and minimum net worth of five crore rupees, out of which not less than two crore fifty lakh rupees is in the form of financial assets.

(ii)in case of a body corporate, has net worth of at least fifty crore rupees;

(iii)in case of a trust other than family trust, has net worth of at least fifty crore rupees;

(iv)in case of a partnership firm set up under the Indian Partnership Act, 1932, each partner independently meets the eligibility criteria for accreditation.

Provided that the Central Government and the State Governments, developmental agencies set up under the aegis of the Central Government or the State Governments, funds set up by the Central Government or the State Governments, qualified institutional buyers as defined under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, Category I foreign portfolio investors, sovereign wealth funds and multilateral agencies and any other entity as may be specified by the Board from time to time, shall deemed to be an accredited investor and may not be required to obtain a certificate of accreditation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(b) (Syllabus 2017).

Angel fund Angel fund refers to money pool created by high net worth individuals or companies (generally known as Angel Investors), for investing in start-up business. It is defined in the SEBI (Alternative Investment Funds) Regulations 2012 which means a sub-category of Venture Capital Fund under Category I- Alternative Investment Fund that raises funds from angel investors and invests in accordance with regulations as specified by SEBI.

Angel Investors provide capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors invest online through equity / debt funding or organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.

Angel investments are typically the earliest equity investments made in start-up companies. They commonly band together in investor networks. Often these networks are based on regional, industry investor or academic affiliation. Angel Investors are often former entrepreneurs themselves, and typically enjoy working with companies at the earliest stages of business formation.

The effective Angels help entrepreneurs to shape business models, create business plans and connect to resources - but without stepping into a controlling or operating role. Often Angels are entrepreneurs who have successfully built companies, or have spent a part of their career in coaching young companies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6(b) (Syllabus 2017).

Accredited Investor & Large Value Accredited Investor

As per SEBI (Alternative Investment Funds) Regulations, 2012, "Accredited investor" means any person who is granted a certificate of accreditation by an accreditation agency and who –

(i)in case of an individual, Hindu Undivided Family, family trust or sole proprietorship has:

(A)annual income of at least two crore rupees; or

(B)net worth of at least seven crore fifty lakh rupees, out of which not less than three crores seventy-five lakh rupees is in the form of financial assets; or

(C)annual income of at least one crore rupees and minimum net worth of five crore rupees, out of which not less than two crore fifty lakh rupees is in the form of financial assets.

(ii)in case of a body corporate, has net worth of at least fifty crore rupees;

(iii)in case of a trust other than family trust, has net worth of at least fifty crore rupees;

(iv)in case of a partnership firm set up under the Indian Partnership Act, 1932, each partner independently meets the eligibility criteria for accreditation.

“Large value fund for accredited investors” means an Alternative Investment Fund or scheme of an Alternative Investment Fund in which each investor (other than the Manager, Sponsor, employees or directors of the Alternative Investment Fund or employees or directors of the Manager) is an accredited investor and invests not less than seventy crore rupees.

Or (Alternate Answer)

As per SEBI (Portfolio Managers) Regulations, 2020, “Accredited Investor” means any person who fulfils the eligibility criteria as specified by the SEBI and is granted a certificate of accreditation by an accreditation agency.

“Large value accredited investor” means an accredited investor who has entered into an agreement with the portfolio manager for a minimum investment amount of ten crore rupees.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6(e) (Syllabus 2017).

As per SEBI (Alternative Investment Funds) Regulations, 2012, "Special situation fund" means a Category 1 Alternative Investment Fund that invests in special situation assets in accordance with its investment objectives and may act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016.

Investment in special situation funds

(1)Each scheme of a special situation fund shall have a corpus as may be specified by the SEBI.

(2)The special situation fund shall accept from an investor, an investment of such value as may be specified by the SEBI.

(3)The special situation fund shall not accept investments from any other Alternative Investment Fund other than a special situation fund.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6A(ii) (Syllabus 2017).

Alternative Investment Fund

Alternative investment funds (AIFs) are defined in Regulation 2(1)(b) of the SEBI (Alternative Investment Funds) Regulations, 2012. It refers to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP) which are not presently covered by any Regulation of SEBI governing fund management (like, Regulations governing Mutual Fund or Collective Investment Scheme) nor coming under the direct regulation of any other sectoral regulators in India-IRDA, PFRDA, RBI. Hence, in India, AIFs are private funds which are otherwise not coming under the jurisdiction of any regulatory agency in India.

According to SEBI (AIF) Regulations, 2012, “Alternative Investment Fund means any fund established or in operated in India in the form of a trust or a company or a limited liability partnership or a body corporate which,

(i)is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and

(ii)is not covered under the SEBI (Mutual Funds) Regulations. 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of SEBI to regulate fund management activities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6(e) (Syllabus 2017).

Placement Memorandum by Angel Fund

Alternative Investment Fund and Angel Fund shall raise funds through private placement by issue of information memorandum or placement memorandum, by whatever name called. Such information memorandum or placement memorandum must contain all material information about the Alternative Investment Fund and the Manager, background of key investment team of the Manager, targeted investors, fees and all other expenses proposed to be charged, tenure of the Alternative Investment Fund or scheme, conditions or limits on redemption, investment strategy, risk management tools and parameters employed, key service providers, terms of reference of the committee constituted for approving the decisions of the Alternative Investment Fund, conflict of interest and procedures to identify and address them, disciplinary history, the terms and conditions on which the Manager offers investment services, its affiliations with other intermediaries, manner of winding up of the Alternative Investment Fund or the scheme and such other information as may be necessary for the investor to take an informed decision on whether to invest in the Alternative Investment Fund.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(c) (Old syllabus).

SEBI has issued guidelines for Alternative Investment Funds (AIFs) to change their registration categories based on risk exposure. These guidelines describe the rules and procedure regarding changes from one category of AIF registration to another. Regulation 7(2) of AIF Regulations specifies that an AIF which has been granted registration under a particular category cannot change its category Subsequent to registration, except with the approval of SEBI.

•Only AIFs that have not made any investments under their existing category would be allowed to apply for changing their categories.

•Any AIF proposing to change its category is required to make an application to the SEBI for the same along with the application fees of Rs.1 lakh. Additionally, they need to intimate the rationale for the proposed change.

•In case the AIF has raised funds prior to the application for change in category, the AIF would be required to inform all its investors providing them the option to withdraw their funds garnered without any penalties. Any fees collected from investors seeking to withdraw commitments/funds shall be returned to them. Partial withdrawal may be allowed subject to compliance with the minimum investment amount required under the AIF Regulations.

•The AIF would not make any investments other than in liquid funds/banks deposits until approval for the change in category is granted by the SEBI.

•On approval of the request from SEBI, the AIF shall send a copy of the revised placement memorandum and other relevant information to all its investors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3(a) (Old syllabus).

Angel funds shall only raise funds by way of issue of units to angel investors. An angel fund shall have a corpus of at least five crore rupees. Angel funds shall accept, up to a maximum period of five years, an investment of not less than twenty five lakh rupees from an angel investor.

Angel fund shall raise funds through private placement by issue of information memorandum or placement memorandum, by whatever name called. However, the provisions of the Companies Act, 2013 shall apply to the Angel Fund, if it is formed as a company.

Investment by Angel Funds

(i)Angel funds shall invest in venture capital undertakings which:

(a)Complies with the criteria regarding the age of the venture capital undertaking/ start-up issued by the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry and such other Policy made in this regard which may be in force.

(b)have a turnover of less than twenty five crore rupees;

(c)are not promoted or sponsored by or related to an industrial group whose group turnover exceeds three hundred crore rupees; and

(d)are not companies with family connection with any of the angel investors who are investing in the company

(ii)Investment by an angel fund in any venture capital undertaking shall not be less than twenty five lakh rupees and shall not exceed ten crores rupees.

(iii)Investment by an angel fund in the venture capital undertaking shall be locked-in for a period of one year.

(iv)Angel fund shall not invest in associates.

(v)Angel funds shall not invest more than twenty-five per cent of the total investments under all its schemes in one venture capital undertaking.

(vi)An angel fund may also invest in the securities of companies incorporated outside India subject to such conditions or guidelines that may be stipulated or issued by the RBI and SEBI from time to time.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(i) (Old syllabus).

Investment in all categories of Alternative Investment Funds (AIFs) shall be subject to the following conditions:

(i)The Alternative Investment Fund may raise funds from any investor whether Indian, foreign or non-resident Indians by way of issues of units;

(ii)Each scheme of the Alternative Investment Fund shall have corpus of at least ₹20 crores;

(iii)The Alternative Investment Fund shall not accept from an investor, an investment of value less than ₹1 crore. In case of investors who are employees or directors of the Alternative Investment Funds or employees or directors of the Manager, the minimum value of investment shall be ₹25 lakhs;

(iv)The Manager or Sponsor shall have a continuing interest in the Alternative Investment Fund of not less than two and half percent of the corpus or ₹5 crores, whichever is lower, in the form of investment in the Alternative Investment Fund and such interest shall not be through the waiver of management fees. However, for category III Alternative Investment Fund, the continuing interest shall be not less than five percent of the corpus or ₹10 crores, whichever is lower;

(v)The Manager or Sponsor shall disclose their investment in the Alternative Investment Fund to the investors of the Alternative Investment Fund.

(vi)No scheme of the Alternative Investment Fund shall have more than 1000 investors;

(vii)The fund shall not solicit or collect funds except by way of private placement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(a) (Old syllabus).

Angel Investor

As per SEBI (Alternative Investment Funds) Regulations, 2012, Angel investor means any person who proposes to invest in an angel fund and satisfies one of the following conditions:

(a)an individual investor who has net tangible assets of at least two crore rupees excluding value of his principal residence, and who:

(i)has early stage investment experience, or

(ii)has experience as a serial entrepreneur, or

(iii)is a senior management professional with at least ten years of experience;

(b)a body corporate with a net worth of at least ten crore rupees; or

(c)an Alternative Investment Fund or a venture capital fund registered under SEBI (Venture Capital Fund) Regulations, 1996.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(d) (Old syllabus).

Angel Fund

An angel investor or angel (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a start-up business, usually in exchange for convertible debt or equity ownership. A small but increasing number of angel investors invest online through equity crowd funding or organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.

Angel investments are typically the earliest equity investments made in start-up companies. They commonly band together in investor networks. Often these networks are based on regional, industry in investor or academic affiliation. Angel Investors are often former entrepreneurs themselves, and typically enjoy working with companies at the earliest stages of business formation. As per the SEBI (Alternative Investment Fund) Regulations, 2012, angel fund is a sub-category of venture capital. Procurement of funds from angel investors of their further investment has to be conducted as per these regulations.

The effective Angels help entrepreneurs to shape business models, create business plans and assist in arranging resources - but without stepping into a controlling or operating role. Often Angels are entrepreneurs who have successfully built companies, or have spent a part of their career in coaching young companies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(d) (Syllabus 2017).

Venture Capital Undertaking : It means a domestic company:

i.which is not listed on a recognised stock exchange in India at the time of making investment;

ii.which is engaged in the business of providing services, production or manufacture of article or things and does not include following activities or sectors:

1.non-banking financial companies;

2.gold financing;

3.activities not permitted under industrial policy of Government of India;

4.any other activity which may be specified by SEBI in consultation with Government of India from time to time.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(c) (Old syllabus).

All alternative investment funds shall ensure transparency and disclosure of information to the investors as per the following details:

1.financial, risk management, operational portfolio, transactional information regarding fund investments shall be disclosed periodically;

2.any fees prescribed to the Manager or Sponsor; and any fees charged to the Alternative Investment Fund or any Investor Company by an associate of the Manager or Sponsor shall be disclosed periodically;

3.any enquiries, legal actions by legal or regulatory bodies in any jurisdiction, as and when occurred shall be disclosed;

4.any material liability arising during the Alternative Investment Fund's tenure shall be disclosed, as and when occurred;

5.any breach of a provision of the placement memorandum or agreement made with the investor or any other fund documents, if any, as and when occurred shall be disclosed;

6.Alternative Investment Fund shall provide at least on an annual basis, within 180 days from the year end, reports to investors including the following information, as may be applicable to the Alternative Investment Fund:-

A.Financial information of investee companies.

B.Material risks and how they are managed.

7.Category III Alternative Investment Fund shall provide quarterly reports to investors in respect of Clause (g) within 60 days of end of quarter.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3(b) (Old syllabus).

Bonds are the debt security where an issuer is bound to pay a specific rate of interest agreed as per the terms of payment and repay principal amount at a later time. The bond holders are generally like a creditor where a company is obliged to pay the amount. The amount is paid on the maturity of the bond period. Generally these bonds duration would be for 5 to 10 years.

In Indian Capital market there are four types of bonds are prevailing, namely:

(i)Government Bonds:

These are the bonds issued either directly by the Government of India or by the Public Sector Undertakings (PSU’s). These bonds are secured as they are backed up with security from Government. These are generally offered with low rate of interest compared to other types of bonds.

(ii)Corporate Bonds:

These are the bonds issued by the private corporate companies. Indian corporates issue secured or non-secured bonds. However, care to be taken to consider the credit rating given by Credit Rating Agencies before investing in these bonds.

(iii)Bank and other financial institutions bonds:

These bonds are issued by banks or any financial institutions. The financial market is well regulated and the majority of the bond markets are from this segment.

(iv)Tax Saving Bonds:

In India, the tax saving bonds are issued by the Government of India for providing benefits to investors in the form of tax savings. Along with getting normal interest, the bond holder would also get tax benefits. In India, all these bonds are listed in National Stock Exchange and Bombay Stock Exchange, hence they can be easily liquidated and sold in the open market.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2(a) (Syllabus 2022).

Issue Price per Bond is = Rs.2000/-

Coupon rate = 2%

Maturity period =2 years

Convertible into equity per share will be @ Rs. 100/

Option-I:

Y the investor has subscribed for 5 bonds. The total investment made by him will be Rs. 10,000/-He is entitled to get interest @2% p.a.

The interest will be Rs. 400 (Rs. 10,000*2% for 2 years)

Thus his total investment for 2 years period becomes Rs. 10,400/- and the conversion price of equity on maturity will be Rs. 100/-

Therefore, he will get 104 equity shares i.e. 10,400/100

Option-II:

If the Equity shares are quoted at Rs. 150/- per share on maturity date, then Y will get 104 x Rs. 150

= Rs. 15,600.

Therefore, Y can opt for conversion of Bonds in to Equity shares rather than accepting the maturity redemption value of Rs. 10,400/-

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 5(a) (Syllabus 2017).

Characteristics of Bond

1.Bond has a Fixed face value, which is the amount to be returned to the investor upon maturity.

2.Fixed maturity date, which can range from a few days to 20-30 years or even more.

3.All bonds repay the principal amount after the maturity date.

4.Provides regular payment of interest, semi-annually or annually.

5.Interest is calculated as a certain percentage of the face value known as a ‘coupon payment’.

6.Generally considered as less risky investment as compared to equity.

7.It helps to diversify and grow investor’s money.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(c) (Syllabus 2017).

Ivan purchased 20 bonds @ ₹1000 per bond

Total amount invested ₹20,000. He will get interest for 5 years on the date of maturity.

After five years, he has the following options:

i.He may claim redemption and get the bonds converted into fully paid equity shares@ 500 each.

Thus on conversion, he will get 40 equity shares (₹20000 / ₹500)

ii.As the equity shares are also traded in stock exchange, he may buy from market at the prevailing market price of ₹400. Therefore, from the maturity proceed of ₹20000, he can buy 50 equity shares (₹20000/₹400) from the market.

It is clear from the above two options; Ivan should choose option (ii) as he will get more equity share than conversion from company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(a) (Syllabus 2017).

Optionally Fully Convertible Debenture (OFCD)

As per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the “convertible security” means a security which is convertible into or exchangeable with equity shares of the issuer at a later date, with or without the option of the holder of such security and includes convertible debt instrument and convertible preference shares.

The Optionally Fully Convertible Debenture is a kind of debenture which can be converted into shares at the expiry of a certain period at a predetermined price, if the debt holder (investor) wishes to do so. The “securities” as defined u/s 2(81) of Companies Act, 2013 means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, and includes hybrids. Hence after analysing the above definitions of “OFCD”, “hybrid” and “securities” it could be rightly concluded that an OFCD being a hybrid security falls under the definition of “securities” as defined u/s 2 (h) of Securities Contract (Regulation) Act, 1956 and u/s 2(81) of Companies Act, 2013 as it inherits the characteristics of debentures initially and also that of the shares at a later stage if the option to convert the securities into shares being exercised by the security holder.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(a) (Syllabus 2017).

Clause 6 of the Depository Receipts Scheme, 2014 provides that the price of permissible securities issued to foreign depository for the purpose of issuing depository receipts shall not be less than price if such security issued to domestic investors.

Explanation 1 : A company listed or proposed to be listed on a recognised stock exchange shall not issue equity shares on preferential allotment to a foreign depository for the purpose of issue of depository receipts at a price less than the price applicable to preferential allotment of equity shares of the same class to investors under ICDR.

Explanation 2 : Likewise, where a listed company makes a qualified institutional placement of permissible securities to a foreign depository for the purpose of issue of depository receipts, the minimum pricing norms for such placement as applicable under the ICDR shall be complied with.

In the given case, Roshni Ltd, an unlisted company, proposed to be listed on BSE. As per the provisions stated above, it cannot issue shares at a price less than Rs. 80/- under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Hence it cannot issue at Rs. 60/- and therefore, minimum price regulation of SEBI (ICDR) Regulations, 2018 shall be complied with.

The answer will remain same as the price i.e. Rs. 70/- is still below Rs. 80/-. Therefore, in both the cases Roshni Ltd. cannot make issue.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(a) (Old syllabus).

Foreign Currency Convertible Bonds (FCCBs)

The FCCBs are unsecured instruments which carry a fixed rate of interest and an option for conversion into a fixed number of equity shares of the issuer company. Interest and redemption price (if conversion option is not exercised) is payable in dollars. FCCBs shall be denominated in any freely convertible Foreign Currency. However, it must be kept in mind that FCCB, issue proceeds need to conform to ECB end use requirements.

Foreign investors also prefer FCCBs because of the Dollar denominated servicing, the conversion option and, the arbitrage opportunities presented by conversion of the FCCBs into equity shares at a discount on prevailing Indian market price. In addition, 25% of the FCCB proceeds can be used for general corporate restructuring.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(c) (Syllabus 2017).

The following principal documents are involved:

(i)Subscription Agreement

Subscription agreement provides that Lead Managers and other managers agree with the company, to subscribe for GDRs at the offering price. It may provide that obligations of managers are subject to certain conditions precedent.

Subscription agreement may also provide that for certain period from the date of the issuance of GDR the issuing company will not

a.authorise the issuance of,

b.issue offer, accept subscription for, sell, contract to sell or otherwise dispose off, whether within or outside India; or

c.deposit into any depository receipt facility,

any securities of the company of the same class as the GDRs or the shares or any securities in the company convertible or exchangeable for securities in the company of the same class as the GDRs.

Subscription agreement also provides, an option to be exercisable within certain period after the date of offer circular, to the lead manager and other managers to purchase upto a certain prescribed number of additional GDRs solely to cover over-allotments, if any.

(ii)Depository Agreement

Depository agreement lays down the detailed arrangements entered into by the company with the Depository. It also sets forth the rights and duties of the depository.

In deposit agreement, the company agrees to indemnify the depository, the custodian and certain of their respective affiliates against any loss, liability, tax or expense of any kind which may arise out of or in connection with any offer, issuance, sale, resale, transfer, deposit or withdrawal of GDRs, or any offering document.

Copies of deposit agreement are to be kept at the principal office of Depository and the Depository is required to make available for inspection during its normal business hours, the copies of deposit agreement and any notices, reports or communications received from the company.

(iii)Custodian Agreement

Custodian works in co-ordination with the depository and has to observe all obligations imposed on it including those mentioned in the depository agreement. The custodian is responsible solely to the depository. In the case of the depository and the custodian being same legal entity, references to them separately in the depository agreement or otherwise may be made for convenience and the legal entity will be responsible for discharging both functions directly to the holders and the company.

(iv)Agency Agreement

In case of Foreign Currency Convertible Bonds (FCCBs), the company has to enter into an agency agreement with certain persons known as conversion agents. In terms of this agreement, these agents are required to make the principal and interest payments to the holders of FCCBs from the funds provided by the company. They will also liaise with the company at the time of conversion/ redemption option to be exercised by the investor at maturity.

(v)Trust Deed

In respect of FCCBs the company enters into Trust Deed with the Trustee for the holders of FCCBs, guaranteeing payment of principal and interest amount on such FCCBs and to comply with the obligations in respect of such FCCBs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(a) (Old syllabus).

The certificate to be granted to the foreign venture capital is subject to the conditions that:

(a)it should abide by the provisions of the SEBI Act,1992 and SEBI (Foreign Venture Capital Investors) Regulation 2000;

(b)it should appoint a domestic custodian for purpose of custody of securities;

(c)it should enter into arrangement with a designated bank for the purpose of operating a special non-resident rupee or foreign currency account;

(d)it should forthwith inform SEBI in writing if any information or particulars previously submitted to SEBI are found to be false or misleading in any material particular or if there is any change in the information already submitted.

Investment Criteria for Foreign Venture Capital Investor

All investments to be made by a foreign venture capital investors should be subject to the following conditions:

(a)It should disclose to SEBI its investment strategy.

(b)It can invest its total funds committed in one venture capital fund or alternative investment fund.

(c)It shall make investments as enumerated below:

i.atleast 66.67% of the investible funds should be invested in unlisted equity shares or equity linked instruments of venture capital undertaking or investee company.

ii.not more than 33.33% of the investible funds may be invested by way of :

(a)subscription to initial public offer of a venture capital undertaking or investee company whose shares are proposed to be listed;

(b)debt or debt instrument of a venture capital undertaking or investee company in which the foreign venture capital investor has already made an investment by way of equity.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(i) (Old syllabus).

Indian Depository Receipts

According to Section 2(48) of the Companies Act, 2013 “Indian Depository Receipt” means any instrument in the form of a depository receipt created by a domestic depository in India and authorised by a company incorporated outside India making an issue of such depository receipts.

An IDR is an instrument denominated in Indian Rupee in the form of a depository receipt created by a domestic depository (Custodian of securities registered with SEBI) against the underlying equity of issuing company to enable foreign companies to raise funds from Indian Securities Markets.

In an IDR, foreign companies would issue shares, to a domestic (Indian) depository, which would in turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian, which shall authorize the Indian depository to issue the IDRs. To that extent, IDRs are derivative instruments because they derive their value from the underlying shares

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(d) (Syllabus 2017).

The InvIT shall refund money:

(i)To all applicants in case it fails to collect subscription of at least 90 % of the fresh issue size as specified in the offer document.

(ii)To all applicants to the extent or over subscription in case the money received is in excess of the extent of over-subscription as specified in the final offer document, money shall be refunded to applicants to the extent of the oversubscription.

(iii)To all applicants in case the number of subscribers to the initial public offer forming part of the public is less than 20.

If the InviT, raises funds by way of public issue –

•it shall be by way of initial public offer ;

•any subsequent issue of units after initial public offer may be by way of follow-on offer, preferential allotment, qualified institutional placement, rights issue, bonus issue, offer for sale or any other mechanism and in the manner as may be specified by SEBI;

•minimum subscription from any investor in initial and follow-on offer shall be one lakh rupees;

•prior to initial public offer and follow-on offer, the merchant banker shall file the draft offer document along with the fee as specified in Schedule II, with the designated stock exchange(s) and SEBI not less than thirty working days before filing the offer document with the designated stock exchange and SEBI;

•the draft offer document filed with SEBI shall be made public, for comments, if any, by hosting it on the websites of SEBI, designated stock exchanges, InvIT and merchant bankers associated with the issue for a period of not less than twenty one days.

•SEBI may communicate its comments to the lead merchant banker and, in the interest of investors, may require the lead merchant banker to carry out such modifications in the draft offer document as it deems fit; the lead merchant banker shall ensure that all comments received from SEBI on the draft offer document are suitably addressed prior to the filing of the offer document with the designated stock exchanges;

•in case no observations are issued by SEBI in the draft offer document within twenty one working days from the date of receipt of satisfactory reply from the lead merchant bankers or manager, the InvIT may file the offer document or follow on offer document with SEBI and the exchange(s);

•the draft offer document and offer document shall be accompanied by a due diligence certificate signed by the lead merchant banker;

•the offer document shall be filed with the designated stock exchanges and SEBI not less than five working days before opening of the offer;

•the InvIT may open the initial public offer or follow-on offer or rights issue within a period of not more than one year from the date of issuance of observations by SEBI.

However, if the initial public offer or follow-on offer or rights issue is not made within the prescribed time period, a fresh draft offer document shall be filed.

•The InvIT may invite for subscriptions and allot units to any person, whether resident or foreign. However, in case of foreign investors, such investment shall be subject to guidelines as may be specified by RBI and the government from time to time.

•the application for subscription shall be accompanied by a statement containing the abridged version of the offer document detailing the risk factors and summary of the terms of issue;

•initial public offer and follow-on offer shall not be open for subscription for a period of more than thirty days;

•in case of over-subscriptions, the InvIT shall allot units to the applicants on a proportionate basis rounded off to the nearest integer subject to minimum subscription amount per subscriber;

•the InvIT shall allot units or refund application money, as the case may be, within twelve working days from the date of closing of the issue;

•the InvIT shall issue units in only in dematerialized form to all the applicants;

•the price of InvIT units issued by way of public issue shall be determined through the book building process or any other process in accordance with the guidelines issued by SEBI and in the manner as may be specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 4(b) (Old syllabus).

The following are guidelines issued by the SEBI under the SEBI (Infrastructure Investment Trusts) Regulations, 2014 for public issue of units of InvITs:

-The Investment Manager on behalf of the InvIT, shall appoint one or more merchant bankers, at least one of whom shall be a lead merchant banker and shall also appoint other intermediaries, in consultation with the lead merchant banker, to carry out the obligations relating to the issue.

(b)Final post issue report, within fifteen days of the date of finalization of basis of allotment or within fifteen days of refund of money in case of failure of issue.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(b) (Old syllabus).

The followings are the guidelines issued by SEBI for public issue of units of InvITs:-

—The Investment Manager on behalf of the InvIT, shall appoint one or more merchant bankers, at least one of whom shall be a lead merchant banker and shall also appoint other intermediaries, in consultation with the lead merchant banker, to carry out the obligations relating to the issue.

—After receipt of comments from public and observations from SEBI, the draft offer document shall be filed with SEBI and the designated stock exchanges. — In an issue made through the book building process or otherwise, the allocation in the public issue shall be as follows:

(a)not more than 75% to Institutional Investors

(b)not less than 25% to other investors

Investment manager on behalf of the InvIT, may allocate upto 60% of the portion available for allocation to Institutional Investors to anchor investors.

—The Investment Manager on behalf of the InvIT, shall deposit, before the opening of subscription, and keep deposited with the stock exchange(s), an amount calculated at the rate of 0.5% of the amount of units offered for subscription to the public or Rs. 5 crore, whichever is lower.

—A public issue shall be kept open for at least three working days but not more than thirty days.

—Where the InvIT desires to have the issue underwritten, it shall appoint the underwriters in accordance with SEBI (Underwriters) Regulations, 1993.

—The investment manager on behalf of the InvIT, may determine the price of units in consultation with the lead merchant banker or through the book building process.

—In all issues, the InvIT shall accept bids including using Applications Supported by Blocked Amount (ASBA) facility, if so opted.

—On receipt of the sum payable on application, the investment manager on behalf of the InvIT shall allot the units to the applicants.

—Records related to allocation process shall be maintained by the lead book runner and the book runner/s and other intermediaries associated in the book building process shall also maintain records of the book building prices.

—The lead merchant banker shall submit the following post-issue reports to SEBI:

(a)Initial post issue report, within three working days of closure of the issue.

(b)Final post issue report, within fifteen days of the date of finalization of basis of allotment or within fifteen days of refund of money in case of failure of issue.

—The lead merchant banker shall submit a due diligence certificate along with the final post issue report.

—Any public communication including advertisement, publicity material, research reports, etc. concerned with the issue shall not contain any matter extraneous to the contents of the offer document.

—The post-issue lead merchant banker shall regularly monitor redressal of investor grievances relating to post-issue activities such as allotment, refund, etc.

—The post-issue merchant banker shall ensure that advertisement giving details relating to oversubscription, basis of allotment, number, value and percentage of all applications, number, value and percentage of successful allottees for all applications, date of completion of dispatch of refund orders or instructions to Self Certified Syndicate Banks by the Registrar, date of dispatch of certificates and date of filing of listing application, etc. is released within ten days from the date of completion of the above activities on the website of the InvIT, sponsor,investment manager, stock exchanges and in all the newspapers in which the pre issue advertisement was released, if applicable.

—The lead merchant bankers shall exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents.

—The lead merchant banker shall ensure that the information contained in the offer document and the particulars as per audited financial statements in the offer document are not more than six months old from the issue opening date.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 4(b) (Old syllabus).

Trustees are the entities who invest in fixed income instruments:

i.Banks : Collectively all the banks put together are the largest investors in the debt market. They invest in all instruments ranging from T-Bills, CPs and CDs to GOISECs, private sector debentures etc. Banks lend to corporate sector directly by way of loans and advances and also invest in debentures issued by the private corporate sector and in PSU bonds.

ii.Insurance Companies : The second largest category of investors in the debt market are the insurance companies.

iii.Provident Funds : Provident funds are estimated to be the third largest investors in the debt market. Most of the provident funds are very safety oriented and tend to give much more weightage to investment in government securities although they have been considerable investors in PSU bonds as well as state government backed issues

iv.Mutual Funds : Mutual Funds represent an extremely important category of investors. World over, they have almost surpassed banks as the largest direct collector of primary savings from retail investors. Mutual Funds include UTI, the mutual funds set up by nationalized banks, and insurance companies and overseas mutual fund companies.

v.Trusts : Trusts include religious and charitable trusts as well as statutory trusts formed by the government and quasi-government bodies.

vi.Corporate Treasuries : These have become prominent investors in the recent past. The corporate treasuries can be public sector units or private sector companies or any other government bodies or agencies.

vii.Foreign Portfolio Investors : These investors have to be specifically and separately approved by SEBI for equity and debt. Each FPI is allocated a limit every year up to which it can invest in Indian debt securities,

viii.Retail Investors : Retail investors are permitted submit non-competitive bids at primary auction through any bank or primary dealers.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(ii) (Old syllabus).

HNIs or High Net worth Individuals is a class of individuals who are distinguished from other retail segment based on their net wealth, assets and investible surplus. While there is no standard put forth for the classification, the definition of HNIs varies with the geographical area as well as financial markets and institutions.

Though there is no specific definition, generally in the Indian context, individuals with over Rs. 2 crore investible surplus may be considered to be HNIs while those with investible wealth in the range of Rs. 25 lakhs to Rs. 2 crore may be deemed as Emerging HNIs.

If one is applying for an IPO of the equity shares in an Indian Company, generally, if one apply for amounts in excess of Rs. 2 lakhs, one falls under the HNI category. On the other hand, if one apply for amount under Rs. 2 lakhs, one is considered as a retail investor.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(d) (Syllabus 2017).

Treasury Bills are money market instruments issued by RBI to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price.

Treasury bills are presently issued in three tenors, namely, 91 days, 182 days and 364 days.

Maturity period, auction day and notified amount in 91 days, 182 days and 364 days Treasury Bills are given below:

a.The maturity period is 91 days. Its auction is on every Friday of every week. The notified amount for this auction is Rs.100 crores.

b.The maturity period is 182 days. Its auction is on every alternate Wednesday (which is not a reporting week). The notified amount for this auction is Rs. 100 crores.

c.The maturity period is 364 days. Its auction is on every alternate Wednesday (which is a reporting week). The notified amount for this auc?ion is Rs.500 crores.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(i) (Old syllabus).

The yield of a Treasury Bill is calculated as per the following formula:

Y= (100-P) x 365 x 100/P x D

Where, Y = Discounted Yield

P = Price

D = Days of maturity

The days of maturity of Treasury Bill are 60 days (October-21 days, November-30 days and December-9 days)

Hence, YTM = (₹100 - ₹98.543) x 365 x 100/(₹98.543 x 60)

YTM = 53,180.50/5,912.58 = 8.99%

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(a) (Old syllabus).

A company would be eligible to issue Commercial Paper provided:-

(a)The tangible net worth of the company, as per the latest audited balance sheet, is not less than 4 Crore

(b)The company has been sanctioned working capital limit by bank/s or Fls; and

(c)The borrowal account of the company is classified as a Standard Asset by the financing bank/ institution.

Calculation the cost of issuing Commercial Paper

Commercial Papers are redeemed at face value. Hence,

Amount received + Interest = Face Value

970 + 30 = 1000

Interest rate = Interest/Amount received x 100

Interest rate of 90 days = 30/970 x 100 = 3.093%

Interest rate for the year = 3.093 x 365/90 = 12.544%

Calculation of Total Cost of Funds*

*The figures are taken upto three digits after decimal and rounded off accordingly.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(b) (Old syllabus).

Money Market

The money market refers to the market where borrowers and lenders exchange short-term funds to meet their liquidity needs. Money market instruments are generally financial claims that have low default risk, maturities under one year and high marketability. Money market instruments are certificate of deposits, commercial papers, treasury bills etc. It is used by participants as a means for borrowing and lending in short term with maturities that usually range from overnight to just under a year. Money markets are essential for the maintaining liquidity in the economy. They can further be sub divided into-

—Treasury Bill Market

—Commercial Paper Market

—Certificate of Deposit Market

—Call money market

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(c) (Old syllabus).

(i)Treasury bills are money market instruments issued by RBI to finance the short term requirements of the Government of India. These securities are issued at a discounted value and redeemed at the face value at maturity. The return to the investor is the difference between the maturity value and issue price.

(ii)The days to maturity of T bill are :

16+31+11 = 58

100 - 99.30 365

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(b) (Old syllabus).

Certificate of Deposits : (CDs) is a negotiable money market instrument and issued in dematerialised form or as Usance Promissory Note, against funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time. CDs can be issued by:

—scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs).

—selected all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(a) (Old syllabus).

Municipal Bonds Municipal bonds are also referred to as "muni bonds’. In terms of SEBI regulations, municipal bonds can be issued by any Municipality or any Statutory Body or Board or Corporation, Authority, Trust or Agency established or notified by any Central or State Act or any Special Purpose Vehicle notified by the State Government or Central Government subject to the condition that it undertakes one or more functions that may be entrusted under Article 243W of the Constitution of India. A municipality means an institution of self-government constituted under Article 243Q of the Constitution of India.

Municipal bonds are issued when a government body wants to raise funds for projects such as infra-related, roads, airports, railway stations, schools and so on.

SEBI issued regulations in 2015 for the urban local bodies to raise funds by issuing municipal bonds. Municipal bonds exist in India since the year 1997. Bangalore Municipal Corporation was the first urban local body to issue municipal bonds in India. Ahmedabad followed Bangalore in the succeeding years. The municipal bonds lost the ground after the initial investors’ attraction it received and failed to raise the desired amount of funds. To revive the municipal bonds, SEBI came up with regulations for the issue of municipal bonds in 2015.

A Municipality should meet the following eligibility criteria to issue municipal bonds in India:

•The issuer must not have a negative net worth in each of the three previous years.

•The issuer must have no default in the repayment of debt securities and loans availed from the banks or non-banking financial companies in the last year.

•The issuer, promoter and directors must not be named in the list of the wilful defaulters.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6(d) (Syllabus 2017).

Atal Pension Yojana (APY) : Government of India (Gol) is concerned about the old age income security of the working poor and is focused on encouraging and enabling them to save for their retirement. To address the longevity risks among the workers in unorganized sector and to encourage the workers in unorganized sector to voluntarily save for their retirement, the Government of India (GoI) has announced a new scheme called Atal Pension Yojana (APY) in 2015-16 budget. The APY is focused on all citizens in the unorganized sector. The scheme is administered by the Pension Fund Regulatory and Development Authority (PFRDA) through NPS architecture. Under the APY, there is guaranteed minimum monthly pension for the subscribers ranging between Rs. 1000 and Rs. 5000 per month. The benefit of minimum pension would be guaranteed by the GoI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6(d) (Syllabus 2017).

Pension Fund

Pension Fund means a fund established by an employer to facilitate and organize the investment of employees’ retirement funds which is contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement. Pension funds are commonly run by some sort of financial intermediary for the company and its employees like N.P.S. scheme is managed by UTIAMC (Retirement Solutions), although or some larger corporations operate their pension funds in-house. Pension funds control relatively large amounts of capital and represent the largest institutional investors in many nations. Pension funds play a huge role in development of the economy and it play active role in the Indian equity market. This pension fund ensures a change in their investment attitudes and in the regulatory climate, encouraging them to increase their investment levels in equities and would have a massive impact on capital market and on the economy as a whole.

Pensions broadly divided into two sectors:

A.Formal sector Pensions

B.Informal sector Pensions

Pensions in India can be divided into three categories such as pensions under an Act or Statute, Government pensions and voluntary pensions.

Government Pension

Government pensions in India are referred under the Directive Principles of State Policy and are therefore not covered under a Statute. The Government amended the regulations to put in place the new pension system. The old scheme continues for the existing employees (i.e. those who joined service prior to January 1, 2004). Pensions for government employees would include employees of the central as well as the state governments. (A) Central Government Pensions like Civil servants pensions, Defences, Railways and Posts (B) State Government Pensions, Bank pensions like Reserve Bank of India (RBI), Public Sector Banks, National Bank for Agriculture and Rural Development (NABARD) and other banks pensions.

Legislations governing pension in India

There are following three Acts for pensions in India.

1.Pensions under the Employees Provident Fund & Miscellaneous Provisions Act 1952 (EPF&MP) : These include the Employees Provident Fund, Employees Pension Scheme, and Employees Deposit Linked Insurance Scheme.

2.Pensions under the Coal mines Provident Fund & Miscellaneous Provisions Act 1948 : These include Coal mines provident fund, Coal mines pension scheme & Coal mines linked insurance scheme.

3.Gratuity under the Payment of Gratuity Act, 1972 : There are other provident funds in India like Assam Tea Plantations Provident Fund, J&K Provident Fund, and Seamens Provident Fund etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(iii) (Syllabus 2017).

Pension Fund means a fund established by an employer to facilitate and organise the investment of employees' retirement funds which is contributed by the employer and employee. The Pension Fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working here and commence retirement. Pension funds are commonly run by some sort of financial intermediaries for the company and its employees like NPS scheme is managed by UTIAMC (Retirement Solutions), although some larger corporations operate their pension funds in-house. Pensions are broadly divided into two sectors:

(i)Formal sector pensions

(ii)Informal sector pensions

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(e) (Syllabus 2017).

Private equity is a type of equity (finance) and one of the asset classes who takes securities and debt in operating companies that are not publicly traded on a stock exchange. Private equity is essentially a way to invest in some assets that isn’t publicly traded, or to invest in a publicly traded asset with the intention of taking it private.

As per the definition of Private Equity as defined in SEBI (Alternative Investment Funds) Regulations, 2012, private equity fund means an Alternative Investment Fund which invests primarily in equity or equity linked instruments or partnership interests of investee companies according to the stated objective of the fund.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(a)(i) (Syllabus 2022).

Private equity has following three characteristics:

a)Leverage,

b)Participation in Equity or Ownership, and

c)High Risk oriented.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(a)(ii) (Syllabus 2022).

Private equity investments can be divided into following different categories:

a)Leveraged Buyout (LBO): This refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these types of transactions that are typically more mature and generate operating cash flows.

b)Venture Capital: It is a broad sub-category of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business.

c)Growth Capital: This refers to equity investments, mostly minority investments, in the companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(a)(iii) (Syllabus 2022).

Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet. The major of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.

As a source of investment capital, private equity comes from High Net-worth Individuals (HNI) and firms that purchase stakes in private companies or acquire control of public companies with plans to make them private & consequently delist from the stock exchange.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(a)(iv) (Syllabus 2022).

Private equity

Private equity is a type of equity (finance) and one of the asset classes who takes securities and debt in operating companies that are not publicly traded on a stock exchange. Private equity is essentially a way to invest in some assets that is not publicly traded, or to invest in a publicly traded asset with the intention of taking it private. As a source of investment capital, private equity comes from High Net-worth Individuals (HNI) & firms that purchase stakes in private companies or acquire control of public companies with plans to make them private & consequently delist from the stock exchange. Unlike stocks, mutual funds, and bonds, private equity funds usually invest in more illiquid assets companies.

High Net-worth individuals

HNIs or high net worth individuals is a class of individuals who are distinguished from other retail segment based on their net wealth, assets and investible surplus. While there is no standard put forth for the classification, the definition of HNIs varies with the geographical area as well as financial markets and institutions.

Types of private equity

Private equity investments can be divided into the following categories:

•Leveraged Buyout (LBO) : This refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these type of transactions that are typically more mature and generate operating cash flows.

•Venture Capital : It is a broad sub-category of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business.

•Growth Capital : This refers to equity investments, mostly minority investments, in the companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2A(i) (Syllabus 2022).

Types of Private Equity

Private equity investments can be divided into the following categories:

1.Leveraged Buyout (LBO) : This refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these type of transactions that are typically more mature and generate operating cash flows.

2.Venture Capital : It is a broad sub-category of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business.

3.Growth Capital : This refers to equity investments, mostly minority investments, in the companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6(c) (Syllabus 2017).

Leveraged Buyout (LBO)

This refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these type of transactions that are typically more mature and generate operating cash flows.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(a) (Syllabus 2017).

Private equity is a type of equity (finance) and one of the asset classes who takes securities and debt in operating companies that are not publicly traded on stock exchange. Private equity is essentially a way to invest in some assets that aren’t publicly traded, or to invest in a publicly traded asset with the intention of taking it private. Unlike stocks, mutual funds and bonds, private equity funds usually invest in more illiquid assets, i.e. companies. By purchasing companies, the firms gain access to those assets and revenue sources of the company, which can lead to a very high return on investments. Another feature of private equity transactions is their extensive use of debt in the form of high-yield bonds.

By using debt to finance acquisitions, private equity firms can substantially increase their financial returns.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(a) (Syllabus 2017).

A Real Estate Investment Trust (“REIT”) is a collective investment scheme that owns, operates or finances income producing real estate. REITs provide all investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive, and revitalize.

REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF). The stockholders of a REIT earn a share of the income produced through real estate investment without buying any finance property. Benefits of REITs include:

•Less Capital Intensive: Direct investment in real estate property is very capital intensive. But each shares of REITs will be comparatively more affordable (it will not require large capital outflows).

•Suitable for small Investors: Investing through REITs will eliminate dealing with builders, thereby avoiding potential exposure to big builders.

•Transparency: REITs stocks are listed in stock market, hence details will be available on public domain.

•Assured Dividends: REITs generates income in form of dividend. REITs dividend payment is relatively assured as most of their income is in the form of rental (lease) income.

•Tax Free: Dividend earned by the investors of REIT will be tax free.

•Fast Capital Appreciation: Capital appreciation can be phenomenal.

•Easy to buy: Investment in REITS is easier than investment in Real Estate properties.

REITs are similar to mutual funds and shares and they provide income by way of dividend to its shareholders and capital appreciation as REITs stocks are listed on stock exchanges.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(b) (Syllabus 2022).

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a collective investment scheme that owns, operates or finances income- producing real estate. REITs provide all investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive, and revitalize.

REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF). The stockholders of a REIT earn a share of income produced through real estate investment-without buying any finance property.

Infrastructure Investment Trusts (InvITs)

Whereas, considering the importance of infrastructure sector with an aim to provide a suitable platform for financing/refinancing infrastructure projects and allow the investors to participate in growth story of infrastructure, the Government introduced a new investment vehicle named Infrastructure Investment Trusts (InvITs) in 2014.

The primary objective of InvITs is to promote the infrastructure sector of India by encouraging more individuals to invest in it. Typically, such a tool is designed to pool money from several investors to be invested in income- generating assets. The cash flow thus generated is distributed among investors as dividend income. When compared to Real Estate Investment Trust or REITs, the structure and operation of both are quite similar. An InvITs is established as a trust and is registered with the SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(d) (Syllabus 2017).

A real estate investment trust (REIT) is a collective investment scheme that owns, operates or finances income-producing real estate. REITs provide all investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive, and revitalize.

REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF). The stockholders of a REIT earn a share of the income produced through real estate investment without buying any finance property.

REITs are similar to mutual funds and shares and they provide income by way of dividend to its shareholders and capital appreciation as REIT stocks are listed in BSE and NSE.

Benefits of REITs include

•Less Capital Intensive: Direct investment in real estate property is very capital intensive. But each shares of REITs will be comparatively more affordable. (it will not require large capital outflows)

•Suitable for small Investors: Investing through REITs will eliminate dealing with builders, thereby avoiding potential exposure to big builders.

•Transparency: REITs stocks are listed in stock market, hence details will be available on public domain.

•Assured Dividends: REITs generates income in form of dividend. REITs dividend payment is relatively assured as most of their income is in the form of rental (lease) income.

•Tax Free: Dividend earned by the investors of REIT will be tax free.

•Fast Capital Appreciation: Capital appreciation can be phenomenal.

•Easy to buy: investment in REITS easier than investment in Real Estate properties.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6A(i) (Syllabus 2017).

Benefits of REITs include:

1.Less Capital Intensive : Direct investment in real estate property is very capital intensive. But each shares of REITs will be comparatively more affordable (it will not require large capital outflows).

2.Suitable for small Investors : Investing through REITs will eliminate dealing with builders, thereby avoiding potential exposure to big builders.

3.Transparency : REITs stocks are listed in stock market, hence details will be available on public domain.

4.Assured Dividends : REITs generates income in form of dividend. REITs dividend payment is relatively assured as most of their income is in the form of rental (lease) income.

5.Tax Free : Dividend earned by the investors of REIT will be tax free.

6.Fast Capital Appreciation : Capital appreciation can be phenomenal.

7.Easy to buy : Investment in REITS easier than investment in Real Estate properties.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6(a) (Syllabus 2017).

Real Estate Investment Trust

“REIT” or “Real Estate Investment Trust” shall mean a trust registered as such under SEBI (Real Estate Investment Trust) Regulations, 2014. The Regulations provide a positive push to the Indian Capital Markets and Real Estate & Infrastructure sectors. It also creates liquidity to some extent for Real Estate and Infrastructure players. Further, it intends to provide investors an opportunity to invest in Indian stabilized assets through an Indian listed platform. It has parties such as trustees, sponsors and managers. The REIT can raise funds through an initial offer.

Infrastructure Investment Trust

The activities of the Infrastructure Investment Trusts in the Indian capital market are regulated by SEBI (Infrastructure Investment Trusts) Regulations, 2014. “InvIT” or ‘Infrastructure Investment Trust’ shall mean the trust registered as such under these regulations. The regulations intend to encourage and invest in intra structure project only directly or through special purpose vehicle. It has parties such as trustees, sponsors, investment managers. The infrastructure investment trust can raise capital from both domestic and foreign investors. The investment manager is required to submit valuations reports to the designated stock exchange within 15 days from the receipt of such valuation reports.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(b) (Old syllabus).

The important legislations governing the Capital Markets in India are:

(i)SEBI Act, 1992

SEBI Act, 1992 establishes SEBI with statutory powers for:

(a)protecting the interests of investors in securities

(b)promoting the development of the securities market

(c)regulating the securities market

(d)Conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act.

(ii)Securities Contracts (Regulation) Act, 1956

It provides for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges and aims to prevent undesirable transactions in securities.

(iii)Depositories Act, 1996

It provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by (a) making securities of public limited companies freely transferable subject to certain exceptions, (b) dematerializing the securities in the depository mode,

(c)providing for maintenance of ownership records in a book entry form.

(iv)Companies Act, 2013

It envisages to strengthen the existing regulatory framework on Corporate Governance. It deals with issue, allotment and transfer of securities and various aspects relating to company management. It regulates underwriting, the use of premium and discounts on issues, rights and bonus issues, payment of interest and dividends, supply of annual report and other information.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(b) (Old syllabus).

Key risk in investing in Securities market

•Market risk or Systematic Risk: It means that an investor may experience losses due to factors affecting the overall performance of financial markets and general economy of the country.

•Unsystematic Risk: Unsystematic risk can be described as the uncertainty attached with a particular company or industry.

•Inflation risk: Inflation risk is also called as purchasing power risk. It is defined as a chance that the cash flows from an investment would lose their value in future because of a decline in its purchasing power due to inflation.

•Liquidity risk: Liquidity risk arises when an investment cannot be brought or sold quickly enough.

•Business risk: It refers to the risk that a business of a company might be affected or may stop its operations due to any unfavourable operational, market or financial situation.

•Volatility risk: Volatility risk arises as the companies’ stock prices may fluctuate over time.

•Currency risk: It refers to potential risk of loss from fluctuate foreign exchange rates that an investor may face when he has invested in foreign currency or made foreign currency-traded investments.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(d) (Syllabus 2017).

Investment in securities market involves following risks —

•Market risk or Systematic Risk: It means that an investor may experience losses due to factors affecting the overall performance of financial markets and general economy of the country.

•Unsystematic Risk: Unsystematic risk can be described as the uncertainty attached with a particular company or industry.

•Inflation risk: Inflation risk is also called as purchasing power risk. It is defined as the chance that the cash flows from an investment would lose their value in future because of a decline in its purchasing power due to inflation.

•Liquidity risk: Liquidity risk arises when an investment cannot be bought or sold quickly enough.

•Business Risk: It refers to the risk that a business of a company might be affected or may stop its operations due to any unfavourable operational, market or financial situation.

•Volatility Risk: Volatility risk arises as the Companies’ stock prices may fluctuate over time.

•Currency Risk: It refers to the potential risk of loss from fluctuating foreign exchange rates that an investor may face when he has invested in foreign currency or made foreign currency-traded investments.

Therefore, an investor should analyze and assess the above risks while making investment in the securities market.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(c) (Syllabus 2017).

Securitized Debt Instrument : It means any certificate or instrument, by whatever name called, issued to an investor by any issuer who is a special purpose distinct entity possessing any debt or receivable, including mortgage debt assigned to such entity, and acknowledging the beneficial interest of the investor in such debt or receivable, including mortgage debt, as the case maybe. Securitized debt instruments are regulated by the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008, for listing on stock exchanges and the Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(e) (Old syllabus).

The Securities Market, refers to the markets for those financial instruments/claims/ obligations that are commonly and readily transferable by sale. The Securities Market has two inter-dependent and inseparable segments, the new issues (primary) market and the stock (secondary) market.

A well-functioning securities market is conducive to sustained economic growth. There have been a number of studies, starting from World Bank and IMF to various scholars, which have established robust relationship not only one way, but both ways, between the development in the securities market and the economic growth.

The securities market fosters economic growth to the extent that it-

(a)augments the quantities of real savings and capital formation from any given level of national income;

(b)increases net capital inflow from abroad;

(c)raises the productivity of investment by improving allocation of investible funds; and

(d)reduces the cost of capital.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2A(i) (Old syllabus).

Venture Capital is one of the innovative financing resource for a company in which the promoter has to give up some level of ownership and control of business in exchange for capital for a limited period, say, 3-5 years. Venture Capital is generally equity investments made by Venture Capital funds, at an early stage in privately held companies, having potential to provide a high rate of return on their investments. It is a resource for supporting innovation, knowledge based ideas and technology and human capital intensive enterprises.

“Venture Capital Fund” means an Alternative Investment Fund which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund.

Essentially, a venture capital company is a group of investors who pool investments focused within certain parameters. The participants in venture capital firms can be institutional investors like pension funds, insurance companies, foundations, corporations or individuals but these are high risk investments which may give high returns or high loss.

Areas of Investment

Different venture groups prefer different types of investments. Some specialize in seed capital and early expansion while others focus on exit financing. Biotechnology, medical services, communications, electronic components and software companies seem to be the most likely attraction of may venture firms and receiving the most financing. Venture capital firms finance both early and later stage investments to maintain a balance between risk and profitability.

In India, software sector has been attracting a lot of venture finance. Besides media, health and pharmaceuticals, agri-business and retailing are the other areas that are favoured by a lot of venture companies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(iii) (Syllabus 2017).

Venture Capital is one of the innovative financing resource for a company in which the promoter has to give up some level of ownership and control of business in exchange for capital for a limited period, say, 3-5 years. Venture Capital is generally equity investments made by Venture Capital funds at an early stage in privately held companies, having potential to provide a high rate of return on their investments. It is a resource for supporting innovation, knowledge based ideas and technology and human capital-intensive enterprises.

Different Venture groups prefer different types of Investments. Some specialize in seed capital and early expansion while others focus on exit financing. Biotechnology, medical services, communications, electronic components and software companies seem to be the most likely attraction of venture firms and receiving the most financing. Venture capital firms finance both early and later stage investments to maintain a balance between risk and profitability.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(d) (Syllabus 2017).

Minimum price of Warrant = (Current Market Price of equity share - Exercise Price of Warrant)

= (Rs.: 80-Rs.70) i.e. Rs. 10

Warrant Premium

= (Market Value of Warrant - Value of Warrant)

= Rs. 18- Rs. 10 = Rs. 8

For 200 Warrants of S, since Ratio is 1:1, the premium would be = 200 x Rs. 8 = Rs. 16000

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(c)(i) (Syllabus 2017).