Financial Markets - Overview, Structure, and Types

Financial Markets - Overview, Structure, and Types

What is Financial Market?

A market is defined as a place where goods and services are bought and sold. Along similar lines, a financial market is one where financial products and services are bought and sold regularly. Financial markets deal in the purchase and sale of different types of investments, loans, financial services, etc. The demand and supply of financial instruments determine their price, and the price is, therefore, quite dynamic.

Financial markets form a bridge between investors and borrowers. It brings together individuals and entities that have surplus funds and those who are in a deficit of funds so that funds can be transferred between them. This transfer of funds is done through different types of financial instruments that operate in the financial markets.

Structure of the Indian financial market

The Indian financial market is divided into two main types – the money market and capital market. The capital market is further sub-divided into different types of financial markets. Let's understand –

Financial Market


Let’s understand each type of financial market in details –

Money market

The money market is a marketplace for short-term borrowing and lending. Securities that have a maturity period of less than a year are traded on money markets. The assets traded in money markets are usually risk-free and are very liquid. Since the maturity period is low, the risk of volatility is low, and the returns are also low. Money market instruments are debt oriented instruments with fixed returns. Some common examples of money market instruments include Treasury Bills, Certificates of Deposits, Commercial Papers, etc.

Capital market

Contrary to the money market is the capital market, which deals in long-term securities. Securities whose maturity period is more than a year are traded on the capital market. Capital market trades in both debt and equity-oriented securities. Individuals, companies, financial institutions, NRIs, foreign institutional investors, etc. are participants of the capital market. The capital market is divided into two sub-categories which are as follows –

  • Primary market

Also called the New Issue Market, the primary market is that part of the capital market, which is engaged in the issuance of new securities. The newly issued securities are then purchased from the issuer of such securities directly. For instance, if a company offers an IPO (Initial Public Offering) and sells its shares to the public, it forms a part of the primary capital market. Investors directly buy the shares from the company, and no middlemen are involved. Similarly, if an already listed company issues more shares, called Follow-on Public Offerings (FPO), such shares can be bought by investors directly from the company.

  • Secondary market

The secondary capital market is where the securities bought in the primary capital market are traded between buyers and sellers. Stock trading is a very common example of a secondary capital market wherein investors sell their owned stocks to interested buyers for a profit. A secondary market is characterised by an intermediary and the trading of securities takes place with the help of such intermediary. While securities in the primary market can be traded only once, securities in the secondary market can be traded any number of times. The stock exchange is a part of the secondary market wherein you can trade in stocks of different companies that have already been offered by the company at an earlier date.

Other types of financial markets

Besides the above-mentioned types of financial markets, there are other types of financial markets operating in India. These include the following –

  • Commodity market

This market deals in the trading of a commodity like gold, silver, metals, grains, pulses, oil, etc.

  • Derivatives market

Derivative markets are those where futures and options are traded.

  • Foreign exchange market

Under a foreign exchange market, currencies of different countries are traded. This is the most liquid financial market since currencies can be easily sold and bought. The rate fluctuations of currencies make them favourable for traders who look to book profits by buying at a lower rate and selling at a higher one.

  • Bond market

Bond market deals in trading of Government and corporate bonds, which are offered by Governments and companies to raise capital. Bonds are debt instruments that have a fixed rate of return. Moreover, bonds also have a specific tenure, and the bond market is, thus, not very liquid.

  • Banking market

The banking market consists of banks and non-banking financial companies which provide banking services to individuals like the collection of deposits, the opening of bank accounts, offering loans, etc.

Financial market and services

The services offered by financial markets today are as follows –

  • They provide a platform for buyers and sellers to trade on financial products
  • The financial market determines the price of financial instruments traded on it. This price is based on the demand and supply mechanism of the instrument and can move up and down frequently
  • The market provides liquidity to investors when they need to sell off their investments for funds
  • The market provides funds to borrowers when they need financial assistance
  • The Indian financial market is influential in the economic growth of India as a whole
  • The financial market helps in mobilization of funds from investors to borrowers

Thus, the financial market and its services are varied, and that makes the financial market an important component of the Indian economy.

Regulators of financial markets

Financial markets and services offered by them should be regulated so that the participants of the market follow the laws of trading. As such, there are different regulators of the market that ensure that all participants trade fairly. These regulators are as follows –

  • Reserve Bank of India

RBI is the regulator for banks and non-banking financial companies. It is the central bank of India entrusted with the formulation of monetary policies, credit policies, and foreign exchange policies, among others. Banks and financial institutions have to abide by RBI's rules and regulations to work in the financial market.

  • Securities and Exchange Board of India

SEBI is the primary regulator of the capital market, which consists of both the primary as well as the secondary capital market. Trading done in the capital market is governed under SEBI's rules and laws.

  • Insurance Regulatory and Development Authority

IRDA governs the rules and regulations which are to be followed by insurance companies and their intermediaries. Thus, IRDA is a regulator of the insurance market, both life, and general insurance market.

Financial markets today have evolved and have become quite competitive with the participation of multiple players. They directly play a part in the growth of India's economy and allows investors and borrowers to trade in financial products and services in an easy and smooth manner. To take advantage of the Financial markets and varied investing opportunities, consider the team at IndiaNivesh, which is well-versed with types of markets and regulatory bodies.


Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.


Cost Inflation Index - Meaning, Calculation & Benefits

Inflation is an economic term and referred to the continuous rise in the price of goods and services, thereby reducing the purchasing power of the money. The pinch of inflation is felt by all sections of the economy, be it, the consumers, investors, and the government.  And, even though it increases the cost of living, inflation is a necessary evil and desirable for the growth and development of the economy. For the reason of inflation, it is only fair to pay more for your goods like comb and brush over the years due to an increase in the price. For the same reason, it is unfair to pay capital gains tax on your assets without taking into account the impact of inflation on the value of the asset. Cost Inflation Index(CII) is the index to calculate the increase in the price of assets year-on-year due to the impact of inflation. What is the Cost Inflation Index? Cost Inflation Index or CII is an essential tool for determining the increase in the price of an asset on account of inflation and is useful at the time of calculating the long-term capital gains on the sale of capital assets. It is fixed by the central government and released in its gazetted offices by the Ministry of Finance every year. Capital gains are the profits arising from the sale of assets like real estate, financial investment, jewellery, etc. The cost price of the asset is adjusted taking into account the Cost Inflation Index of the year of purchase and the year in which the asset is sold, and the entire process is known as Indexation. Cost Inflation Index Calculation The cost inflation index calculation is done by the government to match the inflation rate for the year and calculated using the Consumer Price Index (CPI). Cost Inflation Index India for the financial year 2019-20 has been set at 289. Change of the base year for the Cost Inflation Index The cost inflation index base year was changed in the Union Budget 2017 from 1881 to 2001. The base year was changed by the government to enable accurate and faster calculations of the properties purchased before April 1, 1981, as taxpayers started to face problems with valuations of older properties. The base year has an index value of 100, and the index of the following years is compared to the index value in the base year to determine the increase in inflation. With the change in the base year, the capital gains and tax burden has reduced significantly for the taxpayers as it now reflects the inflated price of the asset realistically. The current Cost Inflation Index Chart for each year is as under- How is the Cost Inflation Index (CII) used in calculating capital gains To calculate the capital gains on your assets the purchase price of the asset is indexed by the cost Inflation Index using the formula below- Indexed cost of the asset at the time of acquisition = (CII for the year of sale/ CII for the year of purchase or base year (whichever is later))*actual cost of acquisition If suppose you purchased a flat in December 2010 for Rs 42 lacs and sold in Jan 2019 for Rs 85 lacs. Your capital gain from the sale of the flat is Rs 43 lacs. The CII in the year in which the flat was purchased is 148, and the CII in the year the flat was sold in is 280. The purchase price of the flat after taking into account the Cost Inflation Index is = (280/148)*Rs42 lacs= Rs 79. 46 lacs  This is the indexed cost of acquisition. Your long-term capital gain after taking indexation into account is Rs 85,00,000- Rs 79,45,946 = Rs.5,54,054. Long-term capital gains on the sale of property are taxed at 20% with indexation benefit. So, your tax liability, in this case, would be- 20% of Rs 5, 54, 054= Rs 1,10,810 Without indexation benefit, the capital gains are taxed at 10%. In this case, the capital gains would be- Sale price of the flat - purchase price of the flat = Rs 85,00,000 – Rs42,00,000 = Rs.43,00,000.  The capital gains tax without indexation benefit will be 10% X Rs 43,00,000 = Rs.4,30,000. Thus, indexation helps reduce the long-term capital gains and reduce the overall tax burden for the taxpayer considerably. Indexation benefit can be used for investments in mutual funds, real estate, gold, FMPs, etc. but is not applied for fixed income instruments like FDs, recurring deposits, NSC, etc. Few important tips to remember about the Cost Inflation Index- If you receive an asset as a part of the will, then in such the CCI for the year in which it was transferred will be considered and not the CCI of the purchase of the asset Indexation benefit for the cost of improvement of the asset is the same as the cost of improvement of the asset. Cost of improvement incurred before 1981 to be ignored. CONCLUSION Cost Inflation Index is an important parameter to be considered at the time of selling long-term assets as it is beneficial for the investors. Reach out to our experts at IndiaNivesh for any queries about capital gains arising from the sale of assets for correct guidance.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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Internal Rate of Return (IRR) – Meaning, Calculation & Advantages

In the world of finance and investments, very often you hear the term IRR or internal rate of return. Many a time, company officials make announcements of going ahead with a project because it is financially viable. A company uses a variety of financial tools and metrics to evaluate the commercial attractiveness of a project to make its operating and investing decision. One of such vital parameters to determine the attractiveness of the project and whether or not a company should invest its resources in it is by calculating the internal rate of return, or IRR of the project.   What is the Internal Rate of Return (IRR)? Internal rate of return (IRR) is a capital budgeting technique to gauge the performance of an investment and the help determine its profitability. IRR is expressed as a percentage, and it is the discount rate at which the net present value of an investment or project becomes zero. IRR takes into account the time value of money and capital inflows and outflows over the life of the investment. As the full form of IRR suggests, it is the internal rate of return and does not take into account external factors like inflation, state of the economy, etc. at the time of calculating returns. In simple terms, IRR is the breakeven rate of a project. If the IRR of a project is high and exceeds the required rate of return, then the company will go ahead and invest in the project, but if the IRR is low and below the required rate of return, then the company will not go ahead with it. It also helps analyze and compare between different projects and how to prioritize projects based on their IRR. How is IRR calculated? Calculating the IRR of a project is not a straightforward calculation. It requires trial and error as we try to arrive at a percentage wherein the net present value of the investment will become zero.  IRR of a project can be easily calculated through financial calculators or using the IRR function in excel. The formula for IRR is    0= P0 P1(1 IRR) P2/(1 RR)2 P3/(1 IRR)3 P4/(1 IRR)4 ...   Pn/(1 IRR)n Where P0, P1 ... Pn are the cash flows in the period 1, 2, .., n, respectively and IRR is the internal rate of return of the investment. Here is an example to show how to calculate IRR- A company is considering the purchase of machinery to increase its sales, whose cost is Rs 3,00,000. This new machinery has a life of three years, and it will help the company generate an additional profit of Rs 1,50,000 per annum in the three years, and the scrap value, in the end,  is Rs 10000. The company’s rate of return from investing the cash in other investments will fetch a return of 15%. Now, if we want to find out if buying the machinery is a better option or not, we have to calculate IRR.  0 = -Rs 300,000 (Rs150, 000)/(1 .243) (Rs150,000)/(1 .2431)2  (Rs 150,000)/(1 .2431)3  Rs10,000/(1 .2431)4 The net present value of the investment becomes zero when the IRR assumed is 24.31% which is much higher than the required rate of return of 15%. Thus, the company must purchase the machinery.   What are the advantages of using IRR in investments? There are many advantages of using IRR technique at the time of analyzing investments and include- Time Value of Money is considered One of the significant benefits of using the IRR technique is that it takes into account the time value of money at the time of calculating the returns from an investment.  This makes IRR credible and accurate to determine the future earning potential of the money A simple technique for analysis Using the IRR technique to assess the profitability of the project is straightforward. If the project IRR is higher than the cost of capital or required rate of return, then it is advisable to go ahead otherwise not. Helps rank and compare projects from an investment perspective When you have to make a comparison between two or more projects, IRR is useful in comparing and ranking projects depending on the yield. The project with a higher IRR is preferred. Limitations of IRR technique Even though IRR is an important financial metric in capital budgeting, it has its limitations. The major drawbacks of using IRR technique are- Project duration, size, etc. not considered One of the most significant disadvantages of IRR is that it does not take into account important aspects such as the scale of the project, time taken for completion, etc. into account at the time of comparing projects, which can be misleading. The assumption about the reinvestment rate Another limitation of using the IRR technique is that it assumes the same reinvestment rate for all the future cash flows throughout the tenure of the project, which is not practical as not all the future cash flows may have the same reinvestment opportunity. One of the best ways to overcome the limitations of IRR is that one should not use IRR in isolation but use the NPV method and IRR together in capital budgeting to understand the profitability of the project.  Another option is to use the MIRR, which is the modified internal rate of return, which helps overcome the assumption of reinvestment at the same rate.  Conclusion IRR plays an important role in determining the return from your investments, and if you want to use IRR in practice, then open a Demat account with IndiaNivesh and get the correct guidance from our experts to get desirable returns on your investments.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • SIP – Different Types of Systematic Investment Plans in India

    Mutual funds now are a household name and building a mutual fund portfolio is synonymous with wealth creation. As the mutual fund industry continues to grow leaps and bounds, SIPs are considered one of the key growth drivers for this industry. SIPs help the investors to invest in a systematic and disciplined manners. Online SIP investments starting with Rs 500 per month (for few schemes min SIP amount is as low as Rs. 100 per month); digital distribution and hassle-free onboarding of investors, all have resulted in making an investment for SIPs most favoured investment option. To stay relevant with times and improvise their offerings, AMCs now offer many different types of SIP so that investors can choose the most suitable type of SIP for investment best suited to their individual needs and profile. Here are the different types of SIP investment available for investors- 1. Regular SIP One of the simplest and easiest forms of SIP investment is a regular SIP, wherein you invest a fixed amount at regular intervals. The time interval can be monthly, bi-monthly, quarterly or semi-annually. You can also choose daily or weekly SIPs, though it is not recommended in most cases. When you make your first SIP payment, you are required to choose your desired time interval, amount of the SIP and the tenure of the SIP. In a regular SIP, you cannot change the amount during the tenure of the investment. If you are a salaried employee, choosing a monthly SIP, usually in the first ten days of the month, once your salary is credited to your bank account is highly recommended. 2. Step-up SIP Without a doubt, SIPs help brings about financial discipline in your life. Over time, as your earnings increase, it is important to increase your investments as well so as to keep them aligned with your income level and financial goals. A step-up SIP, also termed as a top-up SIP, is an automated solution to increase your SIP contribution either by a fixed amount or a fixed percentage after a specific time. Using Step-up SIPs will help you reach achieve your goals faster and also help in long-term wealth creation. 3. Flexible SIP For investors with irregular income, even after being well aware of the benefits of SIPs, the biggest reason for not starting a SIP is not being able to keep up with the fixed periodic investments. A flexible SIP is a perfect solution for such investors as it gives the flexibility to start, pause, decrease or increase your SIP. Depending on your flow of funds, you can change the SIP amount seven days before the SIP date. In case, there is no intimation of change, then the default amount entered is deducted for the SIP. 4. Perpetual SIP Normally, when you choose a regular SIP, it has a fixed tenure, with a starting date and an end date. But, if you are unsure about how long you want to continue the SIP, you can opt for a perpetual SIP. In case of a perpetual SIP, you leave the end date column blank and you can redeem your SIP once you have reached your financial goal. If you opt for a perpetual SIP, then it is important that you monitor the returns of your investment, to keep a track of the fund’s performance over time. 5. Trigger SIP A trigger SIP is for seasoned investors, who have sound knowledge of the financial markets and are accustomed to tracking the market performance daily. Using a trigger SIP, an investor can choose an index level, a particular event or NAV to start the SIP. An investor can set trigger points for upside and downside conditions and can redeem the amount on achieving the pre-specified target. Investors can oscillate their investments between debt and equity schemes within the same fund house. A trigger SIP is recommended only for investors who have a thorough understanding of financial markets. 6. SIP with Insurance Insurance is an important part of financial planning. In order to make mutual fund offerings more lucrative, certain fund houses offer free insurance cover if you opt for SIPs with a longer duration. The initial cover is usually ten times the first SIP and gradually increases over time. This feature is only for equity mutual fund schemes. The term insurance offered is just an add-on feature and does not impact the performance of the fund. 7. Multi SIP The multi-SIP enables starting SIP investment in multiple schemes of a fund house through a single instrument. This facility can help investors to build a diversified portfolio. Investors can start SIP in various schemes using a single form and payment instruction, thereby reducing the paperwork involved.   CONCLUSION Over the last few years, SIP returns have earned investor confidence and are the most preferred investment option of retail investors. If you are unsure on how to choose the right SIP for you and want correct guidance, then consult our expert financial advisors at IndiaNivesh for best-suited SIPs for investments.

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  • Know What is Pre-Market Trading & How it Works in Share Market

    Most of us are aware that trading takes place on the stock exchange between 9.15am and 3.30pm. But what if we told you that it is only partially correct. Some trading (though low in volume) also takes place during the extended trading hour periods. Read on to know about more about this additional trading window and its significance. What is Pre-Market Trading Pre-market Trading is a global phenomenon and refers to trading that takes place before the usual trading hours. The usual trading hours for Indian stock markets is 9:15 am to 3:30 pm. Pre-open market stock trading is a special trading window of 15 minutes prior to the start of the working hours for the stock markets. Hence, the time frame between 9:00 am and 9:15 am is considered as the pre-open market session. This feature was first introduced by NSE and BSE in October 2010. The objective behind a pre-market trading It was observed that there was tremendous volatility in the first couple of minutes of trading hours. The core objective behind having a pre-market trading session is to stabilise the market especially when heavy volatility is expected due to some overnight major events or corporate announcements. These could be election results, reforms or new economic policies, declaration of mergers and acquisitions, delisting of shares, open offers, change (especially downgrading) in credit ratings, debt-restructuring, market rumours etc. The additional 15 minutes allows the stock markets to arrive at the right premarket stock price and not get carried away by external events or announcements. In India, premarket future or options trading is not permitted. Pre-market Trading Session – Breakdown of the 15 minutes The premarket trading period can be further bifurcated into three slots:Order Entry or CollectionThe Order Entry session starts at 9:00 am and lasts for eight minutes. The following activities are undertaken during this timeframe Placing of orders for purchase or selling of stocks Changes or modification in orders Cancellation of orders After 9:08am (i.e. completion of order entry session), orders are not accepted by the stock markets Order MatchThe Order Matching session starts at 9:08am and continues for the next four minutes. The following activities are undertaken during this timeframe Confirmation of orders placed during the Order Entry session Order Matching Calculation of stock opening price for the regular session that starts at 9:15am During the Order Match session, one cannot buy, modify, cancel or sell their orders. Limit orders (i.e. order quantity and price is specified) are given priority over the market orders (order quantity and price are not specified) during the execution time. Buffer TimeThe last three minutes of the premarket trading session (i.e. 9:12 am to 9:15 am) is considered as buffer time. This period is used to ensure a seamless transition to regular trading hours. Any abnormalities from the previous two slots are addressed during this time.   Calculation of Opening price during the pre-market stock trading session The opening price of the stock during this session is determined during the second phase i.e. Order Match session. It is done with the help of a specific methodology. This calculation method is referred to as the call auction methodology or the equilibrium price. The stock price which corresponds to the maximum quantity of tradable shares is known as the equilibrium price. It is a factor of demand and supply. The orders placed during the first eight minutes are matched at the equilibrium price and then traded accordingly. Some scenarios: If the highest tradable quantity corresponds to two different stock prices, then the stock price with the lower unmatched orders is taken as the equilibrium price. For example:   Stock Price Order (Buy) Order (Sell) Demand Supply Max Tradable Quantity Size Unmatched Orders (Demand minus supply) 105 1275 1160 25000 20000 20000 5000 99 2000 8000 20000 30000 20000 -10000   Though the maximum tradable quantity is same in both the cases, the equilibrium price will be considered as 105 as it has a minimum unmatched order size If the values of the highest tradable quantity and unmatched orders are same or equidistant, but they correspond to two different stock price, then the above methodology cannot be applied. In this case, the equilibrium price is taken as the stock price which is closer in value to the closing price of the previous day. For example, Stock Price Order (Buy) Order (Sell) Demand Supply Max Tradable Quantity Size Unmatched Orders (Demand minus supply) 105 1275 1160 25000 20000 20000 5000 99 2000 8000 20000 25000 20000 -5000 Assuming the closing price on the previous day was Rs. 110, then the equilibrium price in the above example will be Rs. 105.   What about orders that remain unmatched or are not traded in the pre-open session? Orders that are not traded or remain unmatched are carried forward to the general trading session. The opening price of these orders is determined in the following manner: Limit Orders i.e. orders wherein the price and quantity are already specified are carried forward at the same mentioned price Market Orders i.e. orders wherein the price and quantity are not specified are carried forward at: If the opening price was ascertained during the pre-open trading session but order not traded, then at the determined price If the opening price was not discovered, then they are carried forward at the previous day’s closing price   Stock Markets tend to be overwhelming for many investors. The concept of premarket trading can further compound the complexity level. However, as an investor, you should always remember that help is just around the corner. Professional experts like IndiaNivesh can help to simplify and demystify the entire process. The team at IndiaNivesh keeps a close eye on this Pre-market session to comprehend the mood and strength of the stock market. They track the pre-market stock prices and take the best decisions for your portfolio basis the market sentiments. Moreover, since they offer a wide range of services (broking, mutual funds, institutional equities, private equity, strategic investments, corporate advisory, etc.) they have a holistic view of the market and the economy. Their expert opinion can help you to amp up your investment game. You can read more about their offerings, vision and accomplishments on their website "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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  • SME IPO – Meaning, Procedure & Benefits of SME IPO Listings

    All over the world, the SME sector is playing an important role in the social and economic development of a country. Growth of the SME sector is crucial for the growth of our country to curb the problems of poverty, income inequalities, unemployment, and regional imbalances. In India the SME sector contributes a high proportion in the national income and is witnessing rapid growth and more and more efforts are being taken in the development and promotion of this segment. Various government initiatives such as Skill India, Make in India, Start-up India, Pradhan Mantri MUDRA Yojana, Public Procurement Policy to encourage growth and innovation in the SME sector has led to favourable  growth in the agricultural, manufacturing and service industry. Even though the SME sector contributes significantly to the GDP of our country, numerous challenges that impede the growth of the SME sector which include- Inadequate funds and timely access to credit is one of the biggest hurdles in the growth of SMEs. Lack of resources and infrastructure Lack of skilled manpower Inability to market their products/services Technological and digital barriers All these challenges create a serious problem for the growth and development of the SME sector in India to its full potential. All the above challenges are more or less due to a lack of capital and access to raise money from the public like the bigger companies. To overcome this challenge, SME platforms BSE-SME and NSE Emerge were launched by the BSE and NSE respectively, to allow small and medium enterprises to fulfil their dreams of growth and expansion by raising capital from the public. Meaning of SME IPO: BSE SME exchange platform is a trading platform dedicated especially for the trading of shares of small and medium enterprises. In order to get listed on the exchange, the companies have to come out with their IPO. The eligibility criteria and norms of the SME IPOs are different from that of the main board of BSE and NSE. The listing requirements for BSE SME IPO It must be a public limited company. Proprietorships, Partnership Firms, Private Limited Companies need to change to convert to a public limited company. The company’s net worth in the latest audited financial results should be at least 3 crores. The company’s net tangible assets in the latest audited financial results should be at least Rs 3 crores. The companies post paid-up capital should be at least Rs 3 crores and not more than Rs 25 crores. If the paid-up capital is more than Rs 25 crores then it has to be listed on the main board. Distributable profits for at least two years out of the immediately preceding three years. The company must have its own website with financial statements of 3 years. It must enter into an agreement with both depositories and mandatorily facilitate DEMAT trading of securities. There should be no winding-up petition by the applicant company which has been admitted by the court. The issue should be a 100% underwritten issue and 15% of the issue must be underwritten by the Merchant Banker in his own account. A minimum of 50 allottees is needed by the company at the time of listing through IPO. The minimum lot size for trading and application is Rs. 1,00,000. The company has not been referred to BIFR( Board for Industrial and Financial Reconstruction). The listing criteria for EMERGE- NSE SME IPO The applicant must be registered as a company under the Companies Act 1956 or Companies Act 2013. The companies post paid-up capital should not be more than Rs 25 crores. Distributable profits for at least two years out of the immediately preceding three years. It must have certified copies of the annual report for 3 years. A business plan of 5 years along with balance sheets and profit and loss statements. The promoters must have relevant experience of 3 years in the same field. It must enter into an agreement with both depositories and mandatorily facilitate DEMAT trading of securities. There should be no winding-up petition by the applicant company which has been admitted by the court. An auditors certificate stating there is no default in payment of interest by the promoter or by the promoter’s holding companies.  If there is any litigation case filed against the applicant, promoter or promoter held companies then it must be disclosed along with the nature and status of the litigation. If there are any criminal cases filed against the director or directors then the nature and status of such investigations which can have a direct impact on the business must be disclosed. A minimum of 50 allottees is needed by the company at the time of listing through IPO. Procedure for listing on the SME IPO exchange Appointment of a Merchant Banker for advisory and consultation. The Merchant Banker is then required to conduct due diligence and documentation check of the company. It must check all financial documents, details of promoters, requisite government approvals, material contracts, etc. The documentation should also include share issuances, IPO structure and other financial documents. On completion of due diligence and documentation by the Merchant Banker, a draft prospectus and DHRP have to be submitted by the company in accordance with the SEBI guidelines. The BSE will verify the documents and on finding those satisfactory will process it. A site visit is also conducted by officials at the company’s site. The promoters will be called for an interview with the Listing Committee on satisfactory completion of documentation and site visit and issue an in-principal approval. The Merchant Banker can then file the prospectus with the ROC along with the opening and closing date of the issue. On approval from ROC, the company will intimate the exchange with the required documents and opening date of the issue. As per the schedule, the IPO will be opened and closed to the public for allotment. The company will then submit the documents to the exchange for allotment. Once the allotment is over, the notice of listing and trading of the shares will be issued How can the companies benefit from SME IPO listing? The SME Capital Markets have helped many companies scale up their business. The SME IPO listings have increased manifold since the introduction in 2012 and at present the BSE SME platform has over 300 companies listed on it and the NSE Emerge has over 180 companies listed on it. With relaxed listing norms and minimal cost for listing when compared to the main board, the SME platforms are ideal for companies who wish to raise capital to meet their growth requirements. Support from exchange boards, increase in the number of SME stocks on exchange and good results is encouraging more and more investors to invest in the SME  segment.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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