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Financial Glossary

Submitted in partial fulfilment of the requirements for Post Graduate Diploma in Management (PGDM)

By Anchit Agrawal Class of 2010

Bharatiya Vidya Bhavans Usha & Lakshmi Mittal Institute of Management Copernicus Lane, Kasturba Gandhi Marg New Delhi

Jan 2012

Annuity An investment, that gives a fixed annual payment for the investor until his or her death. Over the years the basic format has also been refined to include the following types. Joint annuity. The benefit continues throughout the lifetime of two people and continues until both are dead. Deferred annuity. The regular payments are delayed until after a certain specified period. Perpetual annuity. The payments go on forever. Arbitrage The buying and selling of financial instruments on different markets in order to take advantage of different prices between the markets For example, a trader might swap euros for dollars and lock in a gain by selling the dollars forward in the futures market. A similar trade could involve buying and selling interest-rate contracts for one or more currencies. An investor could also profit by buying a block of shares in one market and repackaging them for sale in another. In theory, as information travels more quickly, the opportunities for arbitrage should diminish because markets operate more efficiently. In practice, however, the growing diversity of financial instruments (particularly derivatives of one sort or another) is increasing the opportunity for arbitrage, especially for sophisticated investors. Basis point A unit of measure used to express small movements in the rate of interest, foreign-exchange rates, or bond yields. One basis point is one-hundredth of a percentage point. So the differential between a bond yield of 5.38% and 5.79% is 41 basis points. Bearer security It is a bond or share certificate that is not registered in the name of its owner. Whoever holds (or bears) the certificate can collect the interest or dividend due, usually by detaching a coupon. A bearer security can be bought or sold without being endorsed; it is as liquid as cash and equally vulnerable to theft. A eurobond is a bearer bond. Bearer bonds have the great advantage of being more easily kept out of the eye of the tax authorities than bonds that must be registered. Bid-offer spread It is the difference between the lowest price at which a seller will offer goods, services or a financial instrument and the highest price that a bidder will pay for them. In the foreign-exchange markets, banks quote two prices: the highest price that the bank (as a buyer) will offer for a particular currency; and the lowest price it will accept for it (as a seller). So if a companys shares are bid at $35 each and offered at $37, the spread will be $2. If the shares fall out of favour, the spread could widen to $3 if the bid drops to $33 and the offer is $36

Bill of exchange It is a written instruction to a buyer (an importer) to pay a seller (an exporter) a defined amount of money before a certain date. Call premium It is the price of acquiring a call option. A call option gives the holder the right (but not the obligation) to purchase, say, 100 shares of a security at a fixed price before a specified date in the future. For this

right, the buyer of the call option pays the seller, called the writer, a fee, called a premium, which is forfeited if the buyer fails to exercise the right within the agreed period. Capital The money used to build a business. Capital is raised by issuing shares and/or long-term debt instruments. The balance of a companys ordinary shares, preference shares and long-term debt constitutes its capital structure. Together with its retained profit, these make up the companys capital employed. The key relationship between debt and equity is known as gearing or leverage. For financial institutions, capital is a safety net against sudden losses arising from bad debt, bad management or skulduggery and fraud. Depreciation It is the effect of the passage of time (wear and tear or technical obsolescence, for example) on the value of tangible assets such as machinery; recognition that the value of an asset at one end of an accounting year is different from its value at the other end. Accountants deduct an amount from a companys annual profit to take account of depreciation. There are three ways of calculating depreciation for the purposes of a companys books. The straight-line method. An estimated scrap value of an asset at the end of its life is subtracted from the original cost. This is then divided by the number of years of useful life that the asset is supposed to have. The reducing balance method. A fixed percentage of the value of an asset last year is set aside out of profit each year. The inflation-adjusted method. This tries to take account of the fact (ignored by other methods) that the cost of replacing the asset will usually be greater (if only because of inflation) than its original cost. An amount adjusted for the rate of inflation during the year is set aside out of profit each year. All these methods ignore the fact that in a fast-changing technological world most assets are unlikely to be replaced with anything like them. In some cases (computers or telecommunications) for instance, the cost of replacement maybe considerably less than the original cost, inflation notwithstanding. Derivatives It is a general term for financial assets that are derived from other financial assets. For example, an option to buy a Treasury bond: the option is derived from the. The value of the option depends on the performance of the bond. This can be taken a stage further. For example, the value of an option on a futures contract depends on the performance of the futures contract, which, in turn, will vary with the value of the underlying contract or security. Derivatives exist for assets (like equities or bonds) as well as for interest rates, currency exchange rates and stock market indices. The main advantage of derivatives is that they give investors leverage in the market in which they are trading. This can either enhance their returns or help to hedge risks. Earnings before interest, taxes, depreciation and amortisation A measure of a companys financial performance (arrived at by taking income minus expenses, excluding tax, interest, depreciation and amortisation). ebitda, as it is usually known, came into favour

during the 1980s when bankers supporting leveraged buy-outs needed a measure that showed a companys ability to service its debt. Because it eliminates the effects of financing and depreciation, ebitda can be a useful way of comparing companies in different industries. Hence ebitdas popularity during the internet boom, when investors used it to compare the performance of technology companies in different industries or sectors. Because it is relatively easy to calculate, ebitda is too often used instead of measures relying on operating cash flow. It can be dangerous to rely too heavily on ebitda and ignore changes in a companys working capital

Efficient market theory The theory that excess returns from the stockmarket for a given level of risk are always arbitraged away (that is, equalised), so investors can only make what the market allows. At its crudest, the efficient market theory says that the prices of securities quickly reflect all the available information about them and that prices will automatically adjust to this information. This is true to a point when markets are big enough and liquid enough for no single investor (or group of investors) to have an effect on prices. Factoring It is the business of collecting someone elses debts on their behalf. A company sells its receivables (that is, its unpaid invoices) to a factor (often the subsidiary of a bank) at a discount. The factor then sets out to collect the money owed. Its profit comes when it has collected more than the discounted price that it pays for the debts. A company that sells its debts to a factor gets a helpful boost to its cash flow, does not have to worry about bad debts and should be able to spend less on its inhouse accounts function. Factoring may also include any or all of the following: maintaining the companys sales ledger; managing the companys credit control, that is, making sure that it does not give customers excessively long periods to repay; the actual collection of unpaid debt; insurance cover against bad debt. Factoring is divided into disclosed and undisclosed. Disclosed factoring, in which the factor lets the debtors know that that it is collecting payments on behalf of the client, is increasingly common. Undisclosed factoring (also known as confidential invoice discounting) allows the client to conceal the fact that it has employed a factor. Foreign exchange It is the means through which payments are made between one country and another. Banks and their customers are the mainstay of the foreign-exchange (forex) markets. The markets started out as the servants of trade but, during the past 20 years or so, they have undoubtedly become one of its masters. Every day in the forex markets traders place buy-and-sell orders worth more than $2 trillion, most of them in pursuit of short term (that is, overnight) gain. This is more than the value of all the cars, wheat, oil and other products bought and sold in the real economy every day. As well as dealing in physical currency (for example, from dollars to yen or vice versa), traders routinely use derivatives (futures, options and the like) to give them extra leverage or to hedge against the risk of possible losses. This gives the markets power not just to influence events but sometimes also to profit from them. Gearing

The indebtedness of a company expressed as a percentage of its equity capital. A highly leveraged company is one with a lot of borrowings compared with its equity. The more long-term debt that a company has, the greater is the financial gearing. Shareholders benefit to the extent that the return on the borrowed money exceeds the interest cost. In theory, the shares should rise correspondingly in value. Guarantee It is an undertaking by a third party to be responsible for a liability (a loan from a bank, for instance) should the party to the liability be unable or unwilling to meet the liability on time. To be legally binding, a guarantee must be in writing. A guarantee differs from an indemnity in the nature of the undertaking. With an indemnity a guarantor takes on collateral responsibility; that is, the same degree of responsibility as the person he or she is guaranteeing. Should the person die, then so does the guarantors responsibility.

Hedge It is something that reduces the risk of loss from future price movements. During times of high inflation, property is the traditional hedge. Gold too is a popular hedge, but it has not been a reliable store of value in recent years. Derivatives (futures, options and the like) provide opportunities for investors and financial institutions to hedge their risks. For example, banks can lay off part of the risk of their loans becoming duff by selling interest contracts in the futures market. A perfect hedge is one which completely eliminates the risk of future losses but at the expense of any possible gain. Holding company A company set up to hold the shares of other companies. These would become subsidiaries if the holding company owned 51% or more of them. Holding companies are often set up in jurisdictions where taxes are lower or regulations are more lax. Such tactics are frowned upon in the United States, even though corporations there often establish holding companies in states that are friendly to business. Inflation It is a systemic rise in the price of goods and services over time. Economists still differ in their views of what causes inflation. There are two main theories. Cost push, which asserts that increases in the cost of the factors of production are the main cause. This includes the prices of raw materials and any rise in property rents. More importantly, it includes rises in wage costs. As a result, employers argue that any rise above the rate of inflation is itself inflationary. Demand pull, which asserts that consumers are demanding more of a product or service than is being produced and are thus pushing up prices. They can only do this if the amount of money in the economy exceeds the growth in production plus the rate of inflation. Institutional investor

An institution (such as an insurance company, pension fund or investment trust) that makes substantial investments by gathering together the small savings of others and acting collectively on their behalf. Institutional investors are usually divided into those that specialise in retail money, running mutual funds and other investment vehicles aimed at individual investors, and those that specialise in institutional money, such as large companies pension funds. The fees for managing the former are, by and large, higher partly because it costs more to look after lots of individual savers. Junk bond A bond issued by a US company or institution whose credit rating is below investment grade, a ranking provided by the two largest rating agencies: Moodys Investors Service and Standard & Poors. Because their issuer is rated below investment grade, junk (or high yield) bonds offer a higher rate of interest to compensate the holder for the extra risk of a default. Bonds that lose their status as investment grade are called fallen angels; those that travel in the opposite direction are rising stars. Leasing It is the hiring of capital goods or equipment by manufacturing companies in order to avoid the all-atonce cost of purchasing them. A financial institution buys the capital goods, sets the capital cost off against its taxable income and leases the goods to the manufacturer. Much of the tax benefit to the leasing institution is passed on to the lessee in the form of lower charges. Leasing is particularly attractive when: the lessee has used up all its available capital allowances (because of its own heavy expenditure on capital risks); the lessee does not have the cash to make a capital purchase; the lessee does not want to be burdened with the responsibilities of ownership. Liquidity The degree to which an asset or security can be bought or sold without affecting its price. A highly liquid share is one in which there is a lot of trading (both buying and selling). An illiquid share is one in which a large order to buy or sell will quickly affect the price. As a result, investors trading in illiquid securities must do so with caution, otherwise the price will move up or down against them. The risk of illiquid stocks is that the price will tumble before investors can sell them. Management buy-out It is a takeover of a company by a group of its own managers or, in rare cases, by a team of managers from outside. The managers set up a new company, which buys the old one with money borrowed from a mixture of banks and private equity firms. The banks use the assets of the company as collateral for their loan. A management buy-out (mbo) invariably raises a companys debt and reduces its equity. As a result, it is often called a leveraged buy-out. This makes it doubly vulnerable to any rise in the rate of interest: first, because such a rise is likely to damage its business; and second, because it adds to the cost of servicing the debt. Net asset value There are two main meanings.

1 The market value of a unit in a unit trust or mutual fund. Most funds calculate the net asset value (nav) at the close of trading each day by adding the market value of all the securities owned, plus any other assets (such as cash on deposit), and dividing by the total number of units outstanding. Since open-ended unit trusts or mutual funds issue or redeem new units according to demand, this figure may vary from day to day. With unit trusts or mutual funds that carry no load (that is, charge no upfront fee), the nav and offer price for each unit is usually the same. 2 The book value of a companys various classes of securities. Put option It is an option that gives the right to sell a fixed number of securities at a specified price (the strike price) within a specified period of time. In return for this right, the buyer of a put option pays a premium. If the holder fails to exercise the option by the due date, it expires worthless. Buyers of put options generally hope that the price of the underlying security will drop in price. They will then be able to sell the security to the seller, or writer, of the put option for the agreed price and then pocket the difference between this price and what it costs to buy. Contrast with call option. Return A measure of the reward flowing from a business during a specified period, usually the reward as measured by the profit generated. For investors, return (or, more particularly, total return) is used to refer to the sum of the profit (that is, the flow of income) together with the capital gain to have accrued from an investment over a specified period. A return in the abstract has little meaning, so it is usually expressed as a ratio by relating it to something else, as follows. Return on equity (roe). This has become an important measure of the performance of companies in general and of banks in particular. It relates return to the amount of shareholders equity used to obtain that return. Return on assets (roa). This relates return to the total assets being employed to obtain that return. Since the assets in question are the sort that are valued in balance sheets (fixed assets not human ones), roa is not as useful in comparing one company with another. For example, a service business (such as a designer of semiconductors) will have fewer assets than a shipowner. So the formers roa will be far higher than the latters. Return on sales (ros). This is a measure of how much of each unit of sales ends up as reward to the providers of capital. It may well be that increasing sales reduces the ros. This could lead to a conflict of interest between a companys shareholders and its sales force, which is paid (partly at least) on commission. Capital Market: The capital market is broadly classified into two Primary market and secondary market. Primary market consists of public issue of shares by new entrants and existing companies to expand their capital base. It includes IPOs and private placement. Secondary market is where the actual buying and selling of Securities take place. Private Placement: Instead of public issues of securities, a company may offer it share privately to some investor, only to few investor, that is less than 50 in number. This is referred to as the private placement.

Why Private placement? Private placement of securities is subject to less compliance than public securities. Private placement is cost effective as compared to public issues. Private placement is time effective as deal can be easily and directly negotiated with few investors. Private placement help to tailoring the issues according to need of companies. Book Building: Book building is alternative to traditional fixed price method of security. In book building issue price is not fixed. Book building is a process of offering the security at various bid price from investor. There is a price band with the floor price and the ceiling price. The demand for the security is assessed and price is discovered based on bid made by investor. Price discover depends upon the demand for share at different price. In this issuing company indicate the floor price but not ceiling price. Book building involves following steps The company plans an IPO via book building route. It appoints issue manager usually a merchant banker as book runner. It issues a draft prospectus containing all requirement disclouser. The draft prospectus is filed with SEBI. The issue manager appoint syndicate member and other registered intermediaries to garner subscription. Price discovery begins through bidding process. At the close of bidding, book runner and company decide upon the allocation and allotments. Dematerialization Of shares: It is a process of changing the paper certificate of securities into electronic form and recording in computer by depository. A depository holds the share in dematerialized form maintain ownership records also facilitates transfer of ownership. In India there are two depository NSDL & CDSL. Features- no stamp duty. Fall in settlement and other charges. Increased growth in turnover. Decreased transaction cost. Rolling Settlement : In rolling settlement the trading period is one day ( T).with effect from 1st April 2003, the obligation have to be netted and settled on the 2nd working day (T+2). For example trade done on Monday need to be settled on Tuesday. Every day is a settlement day in rolling scheme. Circuit breaker: Extreme volatility in stock market is not considered as healthy. The circuit breaker helps to control extreme volatility.

The three stages of the market movement are 10% , 20%, 30%, whenever these are breached, depending upon extent of breach stock market will halt for specified time.

Types of Prospectus:1) Offer document:- prospectus in case of public issue or offer for sale & letter for sale in case of right issue which is filed with registrar of companies and stock exchange.. an offer prospectus contain all information to help investor to take investment decision 2) Draft offer document:- means offer document in draft states. The draft offer documents are filed with SEBI at least 21 days prior to filling of offer document with ROC/SE. SEBI may specify changes. 3) Red herring prospectus:- is a prospectus which dont have any details of amount of issue or number of shares being issued or either price. This means if price is not disclosed, the number of shares and upper and lower band are disclosed. on other hand an issuer can state the issue price and number of shares are determined later. An RHP can filed with ROC without the price band. Floor price will notify one day prior to opening of issue by way of advertisement. RHP will not contain details of book building since it is a process of price discovery and price cant determined until biding is completed. On completion of bidding process final price details are included in the offer documents which is filed with ROC. 4) Abridged Prospectus- means the memorandum as prescribed in Form 2A Under section 56 of companies act of India. It contain salient features of a prospectus. It accompanies the application form of public issue. 5) Shelf prospectus :- any financial institution or bank can file shelf prospectus covering one or more issue of security or class of securities specified in prospectus with the ROC. The advantage of issuing the shelf prospectus is issuing institution need not to file a fresh prospectus at every stage of an offer with in validity of shelf prospectus. Normally validity is 1 year.

Bonus issue:- A bonus share is the free share of stock given to current share holder of company, based on the shares that shareholder already own. While issue of bonus share Increases the total number of shares issued and owned, it doesnt increases the value of company. Although the total number of shares issued increased but the ratio of number of shares held by each shareholder remains same. Right issues :- means the existing equity shareholder of the company have the right to buy the new share of the company. The company issue the new shares to general public only if existing shareholder dont want to buy. A right issue offered to existing shareholder may be completely accepted or rejected or partial acceptance or rejection. Sweat Equity:- it is a term used to describe the contribution made to the project by people who contributed their time and efforts. i.e. company issued shares it gives to there employees at discounted rates. It is also referred to a the stock for service or equity compensation.

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Buy back of shares: - Share repurchased by the company. When company feels that its shares are undervalued or it faces the threat to takeover , it repurchases its share from general public. Generally company purchases its shares at a premium from public. Subordinate debt:Subordinate debts are those which in case of liquation are given very less preference. They are very risky. They are payable after all the debts are payable. Therefore interest offered on these debts are very high. Debenture vs bonds: Debentures are long term loan taken by the companies from general public to finance their operation. Debentures are unsecured loan whereas bond are secured loan. In case of liquidation bond holders are given much preference than debenture holder. Rate of interest on debenture are high than on bonds. BONDS AND TYPE OF BONDS:Bonds are debt instruments that are issued by companies, municipalities and governments to raise funds for financing their capital expenditure. By purchasing a bond, an investor loans money for a fixed period of time at a predetermined interest rate. While the interest is paid to the bond holder at regular intervals, the principal amount is repaid at a later date, known as the maturity date. While both bonds and stocks are securities, the principle difference between the two is that bond holders are lenders, while stockholders are the owners of the organization. Types of bonds:Zero coupon bonds:-Make no periodic interest payments (coupon rate = 0%) The entire yield-to-maturity comes from the difference between the purchase price and the par value. Cannot sell for more than par value .Sometimes called zeroes, deep discount bonds, or original issue discount bonds (OIDs).Treasury Bills and principal-only Treasury strips are good examples of zeroes Floating- rate bonds Coupon rate floats depending on some index value. Examples adjustable rate mortgages and inflation-linked Treasuries. There is less price risk with floating rate bonds .The coupon floats, so it is less likely to differ substantially from the yield-to-maturity. Coupons may have a collar the rate cannot go above a specified ceiling or below a specified floor. Junk Bonds:- In finance a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade. These bonds have a higher risk of default or other adverse credit events but typically pay higher yields than better quality bonds in order to make them attractive to investors Registered bonds :-A bond whose owner is registered with the bond's issuer The owner's name and contact information is recorded and kept on file with the company, allowing it to pay the bond's coupon payment to the appropriate person. If the bond is in physical form, the owner's name is printed on the certificate. Most registered bonds are now tracked electronically, using computers to record owners' information.

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Bearer bonds:fixed-income instrument that is owned by whoever is holding it, rather than having a registered owner. Coupons representing interest payments are likely to be physically attached to the security and it is the bondholder's responsibility to submit the coupons for payment. As with registered bonds, bearer bonds are negotiable instruments with a stated maturity date and coupon interest rate. Callable bond is a type of bond that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity. In other words, on the call date(s), the issuer has the right, but not the obligation, to buy back the bonds from the bond holders at a defined call price. Technically speaking, the bonds are not really bought and held by the issuer but are instead cancelled immediately .The call price will usually exceed the par or issue price Puttable bond :-is a bond with an embedded put option. The holder of the puttable bond has the right, but not the obligation, to demand early repayment of the principal. The put option is exercisable on one or more specified dates. This type of bond protects investors: if interest rates rise after bond purchase, the future value of coupon payments will become less valuable. Therefore, investors sell bonds back to the issuer and may lend proceeds elsewhere at a higher rate. Bondholders are ready to pay for such protection by accepting a lower yield relative to that of a straight bond

Financial Leverage: The use of the fixed charges source of fund such as debt and preference capital along with owners Equity in the capital Structure is called as financial leverage. It is also called as financial leverage or gearing or trading on equity. Measures of Financial Leverage: Debt ratio ie . L1 = D/ D+E Debt- Equity ratio L2 = D/E Interest Coverage L3= EBIT/ Interest.

The first two measures of financial leverage are capital gearing, they show borrowing position of company at any point of time. The third measures is called as income gearing, indicate capacity of company to meet fixed financial charges.

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EPS:- (Earning per share) It is calculated by dividing profit after tax with number of shares outstanding. P/E Ratio. The P/E ratio is the ratio of a stocks price relative to its earnings; this ratio facilitates the comparison of firms. It indicates the amount that the market is willing to pay for each rupee of earnings. Example: A P/E of 12 means that the stock is selling for 12 times the firms earnings. Generally firms in the same industry tend to have similar P/E.

ULIP :- (United Linked Insurance Plan) These are the hybrid instrument which combines investment with insurance. It allows protection and flexibility in investment, which are not present in other types of life insurance such as whole life policies. The premium paid is used to purchase units in investment assets chosen by the policyholder. Governed by insurance Regulatory and development authority. Income tax Rebate under section 80c. Charges includes : fund management fee, Mortality, Policy Administration, Premium Allocation.

Mutual Funds: A Mutual Fund is a trust that pools the savings of a number of investors who share a common investment objective. Governed By SEBI. Difference between Mutual fund and ULIP: ULIP include insurance, mutual fund doesnt include insurance. ULIPs generally come with a huge entry load. For different schemes, this can vary between 5 to 40% of the first years premium. MFs do not have any entry load. ULIPs generally come with a maturity of 5 to 20 years. That what ever money you put in, most of it will be locked-in till the maturity. Tax saving MF ( Popularly called as Equity Linked Saving Scheme or ELSS) come with a lock-in period of 3 years. Other MFs dont have a lock-in period.

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ULIPs would generally make you pay at least first three premiums. MFs dont have any compulsion on future investments ULIP will get redeemed on maturing. Premature redemption is allowed with some penalty. In MF Premature redemption is not allowed. For a open ended scheme one can redeem the MF anytime after maturity. ULIPs give you both moderate and aggressive exposure to equity market Debt and Liquid MF invest with low risk, but dont give you tax benefit

Difference between ELSS Plans and Other Mutual Funds There are 2 major features that make ELSS plans different from other mutual funds: 1. Income Tax Benefit: Investments made in ELSS plans are eligible for deduction from the taxable income under Section 80C of the Income Tax Act. 2. 3 Year Lock-in Period: Investments made in ELSS plans have a lock-in period of 3 years. Features of an ELSS Plan 1. Money collected under ELSS plan is mainly invested in equity and equity related instruments. 2. This financial product is more suited to those investors who are willing to take high risk and looking for high returns. 3. There is no upper limit on investments that can be made in ELSS. However investments upto INR 1,00,000 made in ELSS in a financial year qualify for deduction from taxable income under Section 80C of the Income Tax Act. 4. ELSS comes with a 3 year lock-in period. 5. Long term capital gains earned on investments from ELSS are tax free. 6. Also dividends earned from ELSS plan are tax free in the hands of the investor. Systematic investment plan:A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help you save regularly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund. The minimum amount to be invested can be as small as Rs 100 and the frequency of investment is usually monthly or quarterly.

Net Asset Value (NAV) of a Mutual Fund. The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).

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Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme

Schemes according to Maturity Period: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-ended Fund/ Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme

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The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though

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not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. sector specific funds/schemes These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. Fund of Funds (FoF) scheme A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. An FoF scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe.

What is a Load or no-load Fund? A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units. Assets management companies .Roles of AMC. Asset Management Companies: are individuals or entities that raise funds from public (individuals/entities) and manage it on their behalf by investing in a variety of securities. They invest in public debt and public equity, commodities, currency, gold, bonds etc. The choice of securities depends on the objective of the vehicle through which such funds are raised. Also known as Money Managers they provide structured wealth management services to its client in exchange of fees

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Role of assets management company:1) Floats various MF Schemes. 2) Manages MFs in accordance with SEBI regulation 3) Carries out asset management activities 4) Charges fee within the ceilings prescribed under SEBI regulation. 5)establishes Collective investment institution ( CII); 6)places CII securities; engages agents that place securities among the investors; 7)exercises management of CII assets; after the money has been transferred to the CII's account, the AMC directs them to the purchase of assets with the aim to create the portfolio with the structure of the given CII specified in its Investment Declaration; 8)specialists of its analytical department analyze the markets of securities, real estate and other assets, the instruments of which form a part of the CII's assets;

Insurance: Insurance provides people with a reasonable degree of security and assurance that they will be protected in the event of a any uncertain event. For the same cover, cost of insurance is greater in ULIP than in Term insurance.

Reinsurer In insurance, the insured transfers his risk to the insurer. This primary insurer transfers a part or all of the risks he has insured to another insurer to reduce his own liability. This is known as reinsurance. Reinsurance is primarily an insurance of risks assumed by the primary insurer known as the ceding company. This risk is shifted to another insurer known as the reinsurer.The amount of the insurance retained by the ceding company for its own account is called the retention.The amount of the risk ceded to the reinsurer is known as the cession Venture Capital:Venture capital refers to equity investments made for the launch, early development, or expansion of a business.It can be defined as the long term equity investments in business which display potential for significant growth and financial return.

Factoring:-

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Factoring is the Sale of Book Debts by a firm (Client) to a financial institution (Factor) on the understanding that the Factor will pay for the Book Debts as and when they are collected or on a guaranteed payment date. The Factor makes a part payment (usually upto 80%) immediately after the debts are purchased thereby providing immediate liquidity to the Client.

Forfeiting:Forfaiting is a mechanism by which the right for export receivables of an exporter (Client) is purchased by a Financial Intermediary (Forfaiter) without recourse to him.Without recourse means that the forfeiter cannot go back to the exporter for the recovery of the money which the importer may not pay to him.It is a technique to help the exporter sell his goods in credit and yet receive the cash well before the due date.

Credit Rating: Credit Rating is the assessment of a borrower's credit quality.It assist the investors in their investment decisions by assessing the creditworthiness of the borrowers It performs the credit risk evaluation reflecting the borrowers expected capability to repay the debt as per terms of issue. Credit rating is an opinion of the relative capacity of a borrowing entity to service its debt obligations within a specified time period and with particular reference to the debt instrument being rated.Credit Rating is not a recommendation to buy, hold or sell. It is a well informed opinion made available to the public.Higher the credit rating, greater is the probability that the borrower will make timely payment of principal and interest and vice versa.

Mergers : It basically refers to the mutual decision of combining up of two or more companies to become one. It is generally done by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. In mergers , the smaller company gets merged into the bigger one & at the end only one (bigger) company is left. Example : Merger of Bank of Rajasthan into ICICI Merger of Tata Steel & corus.

Takeovers :

It is a corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.

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Takeovers are generally unwilling known as hostile takeovers. Also sometimes they are favourable known as friendly takeovers. A welcome takeover is usually referring to a favorable and friendly takeover. This type of takeovers generally go smoothly because both companies consider it a positive situation. Example : Takeover of Cadbury by Kraft foods in 2010. This takeover spread and produced a negative effect for Kraft. Kraft had to borrow over $7billion to fund the takeover and this increased its already unstable debt problems. A major reason for the takeover was for Kraft to increase its brand range and acquire the Cadbury chocolate brand. Joint Venture : It is a contractual agreement that joins together two or more parties for the purpose of executing a specific task for a specific period of time. In a joint venture all parties agree to share in the profits and losses of the enterprise. Under JV two firms join and form a separate legal entity and operate ar per partnership Act. JVs can be between individuals or corporations. Example : Virgin Mobile India Limited It is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group. Currently, the company uses Tata's CDMA network to offer its services under the brand name of Virgin Mobile, and it has also started GSM services in some states. Holding Company : A holding company is a company that owns enough voting stock in another company to control its management & operations by influencing or electing its board of directors. It is a type of business organization that allows the parent company & its directors to control or influence its subsidiaries. Example : Berkshire Hathaway (U.S.) It is one of the largest publicly-traded holding companies. It owns numerous insurance companies, manufacturing businesses, retailers, and other companies. Strategic Alliance : It is an agreement for cooperation between two or more independent firms to work together towards the achievement of common objectives. In a strategic alliance firms do not form a new entity but collaborate while remaining apart and distinct. It is basically an agreement between two or more individuals or entities stating that the involved parties will act in a certain way in order to attain a common goal. Strategic alliances generally useful when the parties involved have complementary strengths.

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Examples : JPMorgan, the investment banking unit of JPMorgan Chase & Co (NYSE: JPM) and Fidelity Brokerage Company, one of the nation's leading brokerage firms, formed a strategic alliance . Through this strategic alliance, JPMorgan will become the primary provider of new issue equity and fixed-income products to Fidelity's brokerage clients. This alliance gives JPMorgan and its clients access to Fidelity's extensive distribution network. Sell off or Hive off : It basically refers to the intensified selling in a declining market spurred by fear that prices will decline in near future. It includes the rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the value of the security. Example : There is a constant decline in the share prices of a company say, RIL. Also there are certain strong rumours being spread about the companys financial situation & there is no hope of improvement in its share value, then the holders of the shares of this company will sell off their shares at the current price out of the fear that if they will wait, they will lose even that amount what they are getting today. Demerger or Spin off : Demerger refers to the act of splitting off a part of an existing company to become a new company, which operates completely separate from the original company. The shareholders of the original company are usually given an equivalent stake of ownership in the new company. A demerger is often done to help each of the segments operate more smoothly, as they can focus now on a specific task. It is basically the separation of a large company into two or more smaller organizations, particularly as the dissolution of an earlier merger. Example : Demerger of the Reliance group. RIL has proposed the demerger in order to enable distinct focus of investors to invest in some of the key businesses and to lend greater focus to the operation of each of its diverse businesses. The split in the group led to the formation of the two independent entities Reliance Industries ltd. led by Mr. Mukesh Ambani and the Anil dhirubhai Ambani Group led by the younger brother Mr. Anil Ambani.

Slump Sale : It basically means the transfer of one or more business undertakings as a result of the sale for a lump-sum consideration without assigning values to individual assets and liabilities. The law expressly clarifies that that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes is not to be regarded as assigning of values to individual assets or liabilities.

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Thus, if value is assigned to land for stamp duty purposes, the transaction will not cease to be a slump sale.

Example : Suppose a person wants to settle down (alongwith his business) in some other country, then in order to shift sooner he will try to sell all his property at whatever the readily available price he gets, without any severe negotiations. Management Buy Out : MBO refers to a situation where in the managers or the executives of a company purchase controlling interest in a company from the existing shareholders.

It simply means purchase of a firm or one of its divisions by the existing management, usually with outside financing. MBOs generally occur where the firm is under threat of closure, or when the parent firm wants to divest a subsidiary. If all employees participate in the purchase, it is also called employee buy out. In most of the cases, management teams up with a venture capitalist to acquire the business because it's a complicated process that requires significant capital. Example : Management buyout of Virgin Interactive from Viacom which was led by Mark Dyne. The Virgin Group has undergone several management buyouts in recent years. On September 24, 2008, another part of the Virgin group, Virgin Comics underwent a management buyout and changed its name to Liquid Comics. In UK & Ireland, Virgin Radio also underwent a similar process and became Absolute Radio.

Levereged Buy Out : It refers to the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital. In an LBO, there is usually a ratio of 90% debt to 10% equity.

Example : Acquisition of HCA Inc. in 2006 by Kohlberg Kravis Roberts & Co. (KKR), Bain & Co., and Merrill Lynch. The three companies paid around $33 billion for the acquisition.

Liquidation : It is the process of winding up of a firm by selling off its un-pledged assets to convert them into cash to pay the firm's unsecured creditors. Any remaining amount is distributed among the shareholders in proportion to their shareholdings.

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Liquidation process is initiated either by the shareholders called voluntary liquidation or by the creditors after obtaining court's permission known as compulsory liquidation. In simple terms it refers to the conversion of securities, such as stock to cash.

Odd lot is a transaction in fewer shares than is normally permitted on a market. The minimum permitted amount is usually 100 shares. It costs more to trade in odd lots than in larger amounts because of the inconvenience for brokers who charge a commission for each transaction. The difference in price is called the odd-lot differential. Annual General Meeting (AGM) - All companies are required by law to hold a meeting of shareholders at least once each year. The business of the AGM typically includes the declaration of dividends, adoption of the company annual accounts and the election of directors Australian Securities and Investments Commission (ASIC): a Commonwealth statutory body that is the market regulator and consumer protection body. Australian Stock Exchange Limited (ASX): the national organisation, now demutualised and itself a listed company, which runs the Australian sharemarket. Bank bills - bank issued debt securities, generally for terms of less than 12 months, and traded in the money market. Bear Market - a stock market condition in which share prices are falling and expected to continue falling. A bear 'claws' market prices down. The opposite of a bull market. Blue chip - companies which are reckoned to be well-managed, established and reliable and whose shares are good performers on the stock market. These tend to be the largest companies listed on the stock market, with household names. Investors should remember however that the status of 'blue chip' is not necessarily a permanent feature for any company. Bonds - debt securities, mainly government, of terms of one year or more. Bonus issue: so-called free shares issued to shareholders in proportion to their holdings, either in addition to or in place of dividends B effectively a share split. Does not affect the proportion of a company held or the underlying value of the parcel. Books Closing Date: see ex dividend

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Brokerage - brokers are agents who buy and sell securities on behalf of their clients i.e. the investors. Brokerage is the fee charged by the broker for this service. Broking facilities were traditionally provided by 'stockbroking' firms but other organisations such as banks will now buy and sell shares on behalf of investors. Note that, while strictly speaking, brokerage is the fee charged for buying and selling shares etc., stockbrokers also provide investment advice to their clients as part of the overall service. Competitive brokerage is now charged by organisations operating on the internet. Bull market - a market in which stock prices are rising and expected to continue rising. A bull 'tosses' market prices up. The opposite of a bear market. Chess: Clearing House Electronic Subregister System, for recording share-holdings in companies listed on the exchange without using scrip certificates. Closing price - the last actual recorded sale price of the stock on a particular trading day, adjusted for any higher buying quote or lower selling quote. Compliance Listing B When a private company already has the required number of shareholders (minimum of 500) then the company is able to list n the ASX to provide liquidity to current shareholders. The company does not need to issue a prospectus because it is not raising any capital. It only needs to issue an Explanatory Memorandum that explains what the company does. Consolidation: the combining of a company=s shares into a smaller number of shares, each with a correspondingly higher market value. The opposite of share split. The total value of any investor=s holdings is not affected by the consolidation. Convertible note - a fixed interest bearing security, not charged on any of the borrowing company=s assets, which is convertible, at a future date, into ordinary shares in the company. Conversion takes place under specified conditions on the basis of a predetermined ratio. Coupon rate - the nominal rate of interest, printed on the debt security, and paid at regular intervals on the security's face value. Cum Dividend (CD): see ex dividend. Debentures - debt securities issued by corporations and finance companies for terms of more than one year, and with a stated face value and coupon rate of interest. Debt security - any investment whereby you provide a capital sum and earn interest for the borrower's use of your money. Derivative - a financial instrument, the value of which is derived from the price of another more basic instrument or product. Examples of derivative securities are futures contracts, options, swaps and warrants.

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Discount security - a debt security on which no coupon rate of interest is payable. The interest earned by the investor is the difference between the buying and selling price of the security. Examples of discount securities are treasury notes, bank bills and promissory notes. Dividend - the amount of a company=s profits which is paid out to the shareholders. Companies paying dividends normally make both an interim and a final dividend payment each year. Dividend Cover - the number of times that the profit after tax covers the dividend amount. Also know as >times covered.= Dividend Payable Date: see ex dividend. Dividend per Share (DPS): the annual dividend expressed in cents per share. Dividend yield - The dividend return from an investment in a particular share. The dividend is expressed as a percentage of the share price. For example, a dividend of 6 cents on a share which is trading at $1.20 represents a dividend yield of [6/120] x 100 = 5%. Dow Jones Industrial Average (DJIA): an index which is often used as a proxy for the United States equity market, although it is not as broadly based as our All Ordinaries Index. The Dow covers only 30 stocks listed on the New York Stock Exchange and its construction (based on an unweighted average of the individual share prices rather than the market capitalisation of the companies concerned) leaves a lot to be desired. Earnings: consolidated net operating profit. Earnings per share - the company's net profit divided by the total number of shares in the company. Usually expressed as cents per share. Earnings Yield: the return from an investment in ordinary shares if all earnings (net of preference dividends) were paid out as ordinary dividends, a figure obtained by dividing a company=s earnings (in cents per share) by the current market price (also expressed in cents) and multiplying by 100. See also price earnings ratio. Equity - this means 'ownership.' An equity investment in a company usually means ownership of ordinary shares in the company. Ex Dividend (XD): dividend announcements involve two dates B the Abooks closing date@ (which determines who is entitled to the payment, namely, holders on the company=s register) and a Adividend payable date@ some weeks later, when the actual cheques are posted or electronic credits are put through. For securities listed on the stock exchange a third date is also used. Five working days before the books closing date the stocks go Aex dividend@, meaning that sellers of shares rather than purchasers become entitled to the payment. Before that the stock is traded on a Acum dividend@ (cd) basis, meaning the reverse. Face value - the capital sum initially borrowed, printed on the debt security and repaid at maturity.

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Fixed Interest Security: an investment involving a defined and guaranteed periodical return, as distinct from an investment known as an equity which involves a variable and performance based return. Examples include bonds, debentures, notes, deposits, mortgages and most preference shares. Franked Dividend: see imputation. Franking Rebate: see imputation. Imputation: the system under which shareholders receive credit for the income tax (currently 36 per cent) paid by companies, ensuring that corporate profits are not taxed twice. Dividends paid out of profits that have borne such company tax are known as Afranked dividends@ and carry with them an associated Aimputation credit@ (currently being 36/64 of the amount of franked dividend). Shareholders pay tax on unfranked dividends in the normal way. They also pay tax on the total of their franked dividends and the associated imputation credits, but the latter are treated as a prepayment of tax (Afranking rebate@) usable to cover all or part of the shareholders= total tax liability for the year concerned (other than the Medicare levy), but not refundable in cash, or applicable to any other tax year (although this is to change from July 1, 2000). Income Securities: see perpetual floating rate notes. Liquidity - a measure of how easily you can sell your investment. Market Capitalisation: the worth of a company as set by the stockmarket. It is calculated by multiplying the number of shares on issue by the price per share. Net Tangible Asset Backing (NTA): the net worth of a share, the theoretical value of the net assets attributable to each ordinary share on issue. It is calculated by dividing the company=s total shareholders= funds, net of any minority interests, preference share capital and intangible assets, by the number of ordinary shares on issue. Option: a security which gives its holder the right but not the obligation to acquire a share in a company at a specified price (called the exercise price) on a stipulated date (called the exercise date) or, sometimes, at any time up to a maximum date. An option that is not exercised by the latest possible exercise date lapses and becomes worthless. Options are usually transferable and can be themselves traded. Ordinary Shares: shares forming the bulk of a company=s capital. All companies listed on the stock exchange must have ordinary shares. They may or may not have other classes of shares as well B for example, preference shares. In the event of liquidation, ordinary shares rank after everything else. They may be fully paid or contributing.

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Perpetual Floating Rate Notes: income securities offering a variable interest rate, usually defined as the 90-day bank bill rate each quarter plus a specified margin, and often with a guaranteed minimum rate for a specified initial period B for example, one year. These notes have no fixed maturity trade but the issuing company usually reserves the right to redeem them at par plus accrued interest at a time of its choosing as from some specified date. Until redeemed they can be traded on the stock exchange. Their market value will fluctuate. The notes are unsecured but they rank ahead of ordinary and preference shares. Preference Shares: shares with a fixed rate of return and with priority over ordinary shares in regard to dividends and the company=s assets in the event of a wind-up. They rank after all the company=s liabilities and can take various forms B for example, with or without cumulative dividend entitlements; with or without participating or partial participating rights. They can be redeemable or irredeemable; convertible or non-convertible; voting or nonvoting. Price Earnings Ratio: a figure obtained by dividing the earnings per share (in cents per share) into the current market price of the share (also expressed in cents); 100 divided by the earnings yield. The PE ratio shows the number of times the market price covers earnings and is a valuable tool for comparing profit performance relative to price. It should, however, be noted that dividing a historical earnings figure into a current market price can be misleading. The PE ratio can be an indicator of the market=s anticipation of future earnings and the quality of the company=s management and performance. See also earnings yield. Prospectus - a legal document which all companies which offer shares for sale to the public must prepare. The prospectus must contain certain information regarding the terms of issue of the new securities. Right: an entitlement given to existing ordinary shareholders to take up new shares at a specific price and by a specific date. Rights are issued pro rata to existing shareholdings and may be either renounceable or non-renounceable. Renounceable rights can be traded on the exchange in the same way as shares but only during a limited period governed by the terms of the issue. Rights issue - if a company requires additional funds it may issue new shares. When the new shares are offered, at a discount to the current market price, to existing shareholders in proportion to their existing shareholdings, the issue is called a 'rights issue.' The entitlement to these new shares being offered are known as 'rights', and shareholders may have the right to either buy these shares or to sell the rights on the share market. Secondary bond market - the trading of second-hand bonds by brokers.

Security - a financial asset on which the investor will expect to earn future cash flows. (examples: debt securities, shares, bank deposit, units in a unit trust, options etc.) Share: one of the parts into which a company=s share capital is divided, entitling each holder, as a part owner of the enterprise, to a proportion of the profits and to a proportion of the net assets after satisfying the creditors in the event of a wind-up. The shareholders

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collectively control the company. All the shares in any one class of shares rank equally. Most shares are either ordinary or preference. A company can also have deferred shares. Share Split: the subdivision of a company=s shares into a larger number of shares, each with a correspondingly lower market value. The opposite of consolidation. The total value of any investor=s holdings is not affected by the split. Spread - the difference between the buy and sell prices of a security. Stag - an investor who applies to buy shares in a company when the shares are being issued by the company for the first time. The stag has no intention of investing in the company on a long-term basis and hopes to make a quick profit by selling the new shares immediately they start trading on the stock market, for a price higher than what was paid to the company for them. Takeover: an offer to all the shareholders of a company to buy all or part of their shareholdings for a specified consideration (or for a choice between two or more alternative considerations). The consideration may be cash; or shares, options or loan securities in the bidding company or a related company; or some combination of these. Takeovers may be of two sorts, an offmarket or an on-market bid. Off-market bids involve the offeror sending a Part A statement to the company setting our details of the bid and how it will be financed, etc. Directors of the offeree company respond with a Part B statement which sets out their recommendation to shareholders. The offer documents are then sent to shareholders. The offer may be conditional upon minimum acceptances or other constraints. In an on-market bid the offeror must stand in the market at a fixed price for a fixed time. Both off-market and on-market bids can take place simultaneously. Underwriter - when a company makes an issue of shares for the first time there is a risk that not all the shares on offer will be bought by investors and the company might find itself short of the funds necessary for expansion. The company can arrange with an underwriter, usually a bank or other financial organisation, to 'underwrite' the issue. In return for a fee the underwriter will agree to buy any shares remaining unsold. Yield - the 'actual' rate of return you are getting on your investment.

Yield to maturity - a debt security's internal rate of return i.e. the discount rate which will discount the future interest payments and capital repayment to a present value equal to the security's current market price.