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Friday, November 30, 2007

Amendments in SEBI DIP Guidelines

Dear All,

The SEBI has made certain amendments in SEBI (Disclosure and Investor Protection) Guidelines, 2000 vide Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated 29 th November 2007 (Today). The gist of amendments is;

1. Introduction of Fast Track Issues (FTIs).

As per existing SEBI (DIP) Guidelines, if existing listed Company wants raise funds from the public either through rights issue or follow on public issue, it needs to comply with procedural formalities as in the case of Initial Public Offering (IPO). The SEBI has come out with Press Release relating FTIs, as it is felt that there is a need to enable well established and compliant listed companies to access Indian primary market in a time effective manner through follow-on public offerings and rights issues. Accordingly, it has been decided to enable listed companies satisfying certain specified requirements to make Fast Track Issues (FTIs).

The amendments made vide this circular to enable well established listed Companies to proceed with follow-on public offering / rights issue by filing a copy of the Red Herring Prospectus (in case of book built issue) / Prospectus (in case of fixed price issue) registered with the Registrar of Companies or the letter of offer filed with Designated Stock Exchange, as the case may be, with SEBI and stock exchanges. Such companies are not required to file draft offer document with SEBI and stock exchanges.

2. Amendments regarding Issue of Indian Depository receipts (IDRs).

As per existing provisions only QIP can apply in an IPO of IDRs. Now, vide this amendment it has been decided to allow all categories of investors to apply in IDR issues, subject to the condition that;

  • at least 50% of the issue being subscribed by QIBs, and
  • the balance being made available for subscription to other categories of investors at the discretion of the issuer, which shall be disclosed in the prospectus. Further, it has been decided to reduce the minimum application value in IDR from Rs. 2,00,000/- to Rs. 20,000/- and to carry out certain consequential amendments to SEBI (DIP) Guidelines pursuant to amendments to IDR rules by the Ministry of Corporate Affairs.

3. Quoting of PAN mandatory:

Presently, as per SEBI (DIP) Guidelines, all applicants in public and rights issues are required to disclose their PAN/GIR in the application form if they are making an application for a value exceeding Rs. 50,000/-. It has been decided to extend the requirement of quoting PAN in application forms to all applicants, irrespective of the application value.

4. Discount in issue price for retail investors / retail shareholders:

Presently, SEBI (DIP) Guidelines do not provide for issuance of shares at differential price to investors within the net public offer category. SEBI has been receiving requests to permit issuance of shares to retail individual investors / retail individual shareholders at a price lower than that being offered to other categories. It has now been decided to introduce a provision in SEBI (DIP) Guidelines, permitting companies making public issues to issue securities to retail individual investors / retail individual shareholders at a discounted price, provided that such discount does not exceed 10% of the price at which securities are issued to other categories of public.

5. Definition of "Retail individual shareholder" for listed companies:

Presently, listed companies making public issues can make reservation on competitive basis for its existing shareholders who, as on the record date, are holding shares worth up to Rs. 50,000/-. However, no limit has been set on the value of the application that can be made by such shareholders. It has now been decided to define the term "Retail Individual Shareholder" to mean a shareholder whose shareholding is of value not exceeding Rs. 1,00,000/- as on the day immediately preceding the record date, and who makes application or bids in a public issue for value not exceeding Rs 1,00,000/-.

6. Clarification on the term CEO / CFO:

SEBI (DIP) Guidelines requires all directors, CEO and CFO of the issuer company to certify that disclosures made in the offer document are true and correct. It is now clarified that the terms "CEO" and "CFO" in SEBI (DIP) Guidelines shall have the same meaning as assigned to them in clause 49 of the Equity Listing Agreement.

7. Deletion of the chapter on "Guidelines for Issue of Capital by Designated Financial Institutions (DFIs)":

SEBI had introduced separate guidelines in 1992 for primary issuances by DFIs, to place companies / corporations / institutions engaged mainly in financing of developmental activities and playing a catalytic role in the infrastructure development of the country on a different footing. compete on equal footing with private entities and it is felt that DFIs, as a concept, may have outlived its utility. It has therefore been decided to remove the special dispensations given to DFIs by deleting the chapter on "Guidelines for Issue of Capital by DFIs" from SEBI (DIP) Guidelines.

8. Monitoring of issue proceeds:

Presently, as per SEBI (DIP) Guidelines, every issuer making an issue of more than Rs. 500 crores is required to appoint a monitoring agency, which is required to file a monitoring report with SEBI for record purpose. It has been decided that this provision shall not apply to (i) issues by banks and public financial institutions and (ii) offers for sale. Further, it has been decided that the

monitoring agency shall henceforth be required to file the monitoring report with the issuer company and not with SEBI, so as to enable the company to place the report before its Audit committee.

9. Amendments to Guidelines for Preferential Issues:

It has been decided that listed companies intending to make preferential allotment shall be required to obtain PAN of each of the applicants of the preferential issue before making the preferential allotment.

10. Miscellaneous amendments:

· SEBI issues standard observations as a supplement to issue-specific observations on each and every draft offer document filed with SEBI. These standard observations are being rationalised / reviewed. Accordingly, it has been decided to amend SEBI (DIP) Guidelines to incorporate certain clauses from the standard observations, essentially those pertaining to confirmations, undertakings, documents, information, etc., to be submitted by the Lead Manager/s to the Issue while filing an offer document with SEBI. Lead Managers shall also be required to file as an annexure to the due diligence certificate, a detailed check list indicating compliance of each of the clauses of the relevant chapters of SEBI (DIP) Guidelines.

· SEBI (DIP) Guidelines contain certain provisions, which have become redundant or need to be aligned with other provisions of SEBI (DIP) Guidelines / the Companies Act, 1956 or in respect of which, there have been requests for exemption on regular basis. Consequently, it has been decided to fine-tune the guidelines by modifying such clauses.

Thanks & Regards
Karvy Investor Services Limited

Wednesday, November 28, 2007

Corporate Governance Award (ICSI)


The Corporate Governance Award 2007 by the Institute of Company Secretaries of India (ICSI) to Tata Consultancy Services (TCS), Kansai Nerolac Paints & Shri N Voghul of ICICI Bank.

Get the details in

Thank you

Tuesday, November 27, 2007


Kindly follow this link to get all the Question Papers of ICSI Final & Inter exams,

Thank you,

Enjoy Passing....Company Secretary exams ! All the Best !

Friday, November 23, 2007

Schedule VI Amendment

NOTIFICATION NO. G.S.R. 719(E), DATED 16-11-2007

In exercise of the powers conferred by sub-section (1) of section 641 of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following further alterations in Schedule VI to the said Act, namely:—

1. In the said Schedule, in “Part I Form of Balance-Sheet, under heading-A. Horizontal Form”,—

(1) in the first column relating to “Instructions in accordance with which liabilities should be made out”, for the second paragraph appearing against the sub-heading “CURRENT LIABILITIES AND PROVISIONS”, occurring in the second column, the following paragraph shall be substituted, namely:—
“The following shall be disclosed under notes to the accounts:—
(a) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
(b) the amount of interest paid by the buyer in terms of section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;
(c) the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under the Micro, Small and Medium Enterprises Development Act, 2006;
(d) the amount of interest accrued and remaining unpaid at the end of each accounting year; and
(e) the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.
(2) in the second column, relating to “Liabilities”, under the heading “current liabilities and provisions”, after item (2), the following sub-items shall be substituted, namely:—
(a) total outstanding dues of micro enterprises and small enterprises; and
(b) total outstanding dues of creditors other than micro enterprises and small enterprises.
(3) In the “Notes” embodying General Instructions for preparation of balance sheet, for item (q), the following shall be substituted, namely:—
(q) the terms ‘appointed day’, ‘buyer’, ‘enterprise’, ‘micro enterprise’, ‘small enterprise’ and ‘supplier’, shall be as defined under clauses (b), (d), (e), (h), (m) and (n) respectively of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006.

2. This notification shall come into force on the date of its publication in the Official Gazette.

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Tuesday, November 20, 2007

Micro, Small and Medium Enterprises Development Act, 2006

Thanks to my Guru V.S. Datey for this article on MSMED Act,
Micro and small enterprises

As per section 7 of Micro, Small and Medium Enterprises Development Act, 2006 (which is effective from 2-10-2006) read with notification No. SO 1642(E) dated 29-9-2006, enterprises are classified as follows –


Investment in plant and machinery in case of enterprise engaged in manufacture or production of goods

Investment in equipment in case of enterprise engaged in providing or rendering of service

Micro Enterprise

Does not exceed Rs 25 lakh Rupees

Does not exceed Rs 10 lakh Rupees

Small Enterprise

More than Rs 25 lakhs but does not exceed Rs five crores

More than Rs 10 lakhs but does not exceed Rs two crores

Medium Enterprise

More than Rs 5 crore but does not exceed Rs 10 crores

More than Rs 2 crore but does not exceed Rs five crores

The enterprise may be proprietorship, HUF, AOP, cooperative society, partnership or undertaking or any other legal entity - Notification No. SO 1642(E) dated 29-9-2006.

While calculating value of plant and machinery, cost of pollution control, research and development, industrial safety devices and other items as may be specified by notification, shall be excluded. Mode of calculation of value of plant and machinery has been specified in notification No. S.O. 1722(E) dated 5-10-2006, issued by Ministry of SSI. Broadly, cost of toolings, erection and commissioning charges, electrical installations etc. is to be excluded. Second hand machinery is to be valued at price of new machinery.
It is clarified that section 29B of IDRA (which provides for reservation for small industries) will be applicable to enterprise engaged in manufacture, where investment is upto Rs five crores.
As per section 8 of Micro, Small and Medium Enterprises Development Act, 2006 (which is effective from 2-10-2006), micro or small enterprises may, at his discretion file a memorandum with authority prescribed by State Government. A medium enterprise engaged in manufacture or production of goods specified in industry specified in first schedule to IDRA shall file memorandum with authority as specified by Central Government.
The memorandum shall be filed by a medium enterprise engaged in production of goods with General Manager, District industries Centre or any District Level officer of equivalent rank in the department of State Government dealing with Micro, Small and Medium Enterprises (SO No. 1636(E) dated 29-9-2006).

National Board for Micro, Small and Medium Enterprises has been formed vide notification No. GSR 596(E) dated 26-9-2006. Advisory committee for classification of enterprises has been formed vide notification No. SO 1622(E) dated 27-9-2006.

Reservation for small industries – The list of industries reserved for SSI is being pruned. Items reserved for SSI as on 13-3-2007 were 114. Mostly there are low technology items and very few may be of interest to large industries. List is available on following website -

Also find the Act's Financial Implications in

Note on MSMED Act

Format of letter to be recieved from Suppliers

Valuable SME Toolkit avail in

Government site

Yes, this will help you in Company Secretary Final & Inter preparations and other professionals.


All about Mutual Funds - Credit to Mr. KK Kapoor of CS Mysore

What is a mutual fund?
A mutual fund is a pool of money contributed by individuals who have similar financial goals. The money collected is then invested in various securities such as equities, debentures/bonds and/or money market instruments.
What is a fund house/family?
A group of funds managed under one umbrella. The most basic fund family would include a stock, bond and money market-portfolio, although many funds have variants like sector funds, balanced funds.
For instance, Zurich India Mutual Fund is a fund house with several funds under it.
What is the Net asset value (NAV)?
The price or value of one unit of a fund. It is calculated by summing the current market values of all securities held by the fund, adding in cash and any accrued income, then subtracting liabilities and dividing the result by the number of units outstanding. Most open-ended funds companies compute NAVs once a day based on closing market prices.
What are a fund�s net assets?
The total value of a fund's cash and securities less its liabilities or obligations.
What is a fund portfolio?
A group of securities held by the mutual fund. A portfolio could be a mixture of stocks, bonds and cash.
What is the portfolio turnover of a fund supposed to mean?
A measure of the amount of buying and selling activity in a fund.Turnover is defined as the lesser of securities sold or purchased during a year divided by the average of monthly net assets. A turnover of 100 percent, for example, implies positions are held on average for about a year.
How are mutual funds classified?
Mutual Funds can be classified into the following 3 broad categories:
1. Portfolio classification
2. Functional classification
3. Geographical classification
How are mutual funds classified based on their portfolios?
Portfolio classification of mutual funds is done on the following basis:
Growth Funds
Investment objective: Capital appreciation of equity shares
Investment avenue: Equity shares of companies with high growth potential
For e.g.. Morgan Stanley Growth Fund
Income Funds
Investment objective: Providing safety of investments and regular income
Investment avenue: Bonds, debentures and other debt related instruments as well as equity shares of companies with high dividend payouts.
There are 2 aspects of income funds viz. Low investment risk with constant income and high investment risk generating high income.
For e.g.. Templeton Income Fund
Balanced Funds
Investment objective: Modest risk of investment and reasonable rate of return Investment avenue: Judicious mix of equity shares, preference shares as well as bonds, debentures and other debt related instruments.
For e.g.. GIC Balanced Fund
Money Market Mutual Funds (MMMFs)
Investment objective: To take advantage of the volatility in interest rates in the money market Investment Avenue: Certificate of deposits (CDs), call money market, commercial papers. Investors can participate indirectly in the money market through MMMFs.
For e.g.. IDBI-PRINCIPAL Money Market Fund 1997
Specialised Funds
Investment Objective: To take advantage of conditions in a particular sector or a specific income producing security
Investment Avenue: Specialised investments in securities of companies in certain sectors or specific income producing securities
For e.g.. Kothari Pioneer's Internet Opportunities
Leveraged Funds
Investment objective: To increase the value of the portfolio and benefit the shareholders by gains exceeding the cost of borrowed funds
Investment avenue: Speculative and risky investments, like short sales to take advantage of declining market.
Not common in India
Index Funds
Investment Objective: To increase the value of the portfolio in line with the benchmark index (for e.g.. BSE Sensex, SP CNX 50)
Investment Avenue: Investments only in those shares that form a part of the benchmark index, in exactly the same proportion, so that the value of the index fund varies in proportion with the benchmark index.
For e.g. UTI Nifty Index Fund
Hedge Funds
Investment Objective: To hedge risks in order to increase the value of the portfolio
Investment Avenue: Employ speculative trading principles - buy rising shares and sell shares whose prices are likely to fall.
Not common in India
How are mutual funds classified functionally?
Functional classification of mutual funds is done on the following basis:
Open ended scheme
Investors under this scheme are free to join the fund or withdraw from the fund at any time after an initial lock-in period. Such funds announce sale and repurchase prices from time to time. In an open-ended scheme, investors can resell units in the fund to the issuing mutual fund at the net asset value (NAV) of the units. This is because open-ended schemes are permitted to buy/sell their own units. For e.g. Alliance Capital 1995 Fund
Close-ended scheme
Unlike the open-ended schemes, close-ended schemes do not issue units for repurchase redemption on a periodic basis. Its units can be redeemed only on termination of the scheme, or through dealings in the secondary market. In such schemes, the period of the scheme is specified at the outset. They have a definite target amount for the funds and cannot sell more after initial offering. For eg. UTI Mastergain 1986
How are mutual funds classified geographically?
Mutual funds can be classified geographically on the following basis:
Domestic funds
Domestic fund houses launch funds, which mobilise savings of the nationals within the country. These schemes could fall under any of the categories mentioned under portfolio classification and functional classification. Schemes launched by Indian MFs like GIC MF, UTI LIC MF, SBI MF, Canbank MF, Bank of Baroda MF, Bank of India MF, Morgan Stanley, Templeton, Alliance.
Offshore Funds
Offshore funds can invest in securities of foreign companies, after requisite permission from RBI. The objective behind launching offshore funds is to attract foreign capital for investment in the country of the issuing company. These funds facilitate cross border fund flow, which is a direct route for getting foreign currency. From the investment point of view, Offshore funds open up domestic capital markets to the international investors and global portfolio investments.
What are the different plans that mutual funds offer?
Mutual Funds in order to cater to a range of investors, have various investment plans. Some of the important investment plans include:
Growth Plan
Under the Growth Plan, the investor realises only the capital appreciation on the investment (by an increase in NAV) and does not get any income in the form of dividend.
Income Plan
Under the Income Plan, the investor realises income in the form of dividend. However his NAV will fall to the extent of the dividend.
Dividend Re-investment Plan
Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same.
Systematic Investment Plan (SIP)
Here the investor is given the option of preparing a pre-determined number of post-dated cheques in favour of the fund. He will get units on the date of the cheque at the existing NAV. For instance, if on 25th March, he has given a post-dated cheque for June 25th, he will get units on 25th June at existing NAV.
Systematic Withdrawal Plan
As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor the facility to withdraw a pre-determined amount/units from his fund at a pre-determined interval. The investor�s units will be redeemed at the existing NAV as on that day.
Retirement Pension Plan
Some schemes are linked with retirement pension. Individuals participate in these plans for themselves, and corporates for their employees.
Insurance Plan
Some schemes launched by UTI and LIC offer insurance cover to investors.
What is a 401(k) plan?
A popular contribution program in the USA, available through many employers. Within these tax-sheltered plans, participants often can choose mutual funds as one or more of the investment choices.
This plan (or even a variant) is yet to be introduced in India.
What are the advantages of investing in a mutual fund?
Mutual funds are superior to other comparable investment avenues because of the following reasons:
Investors are exposed to reduced investment risk due to portfolio diversification, economies of scale in transaction cost and professional management.
Limited Risk
Investors are exposed to reduced investment risk due to portfolio diversification, economies of scale in transaction cost and professional management.
Diversified investment
Small investors can participate in larger basket of securities and share the benefits of efficiently managed portfolio by experts, and are freed from maintaining records of company share certificates, and tracking tax rules. Mutual fund investments are less risky due to portfolio diversification, which is possible mainly due to large funds available at their disposal. Small investors can never spread their risks across such a wide portfolio, as can mutual funds.
Freedom from tracking investments
Investors do not have to track their investments regularly, as the tracking is done by experts who buy and sell securities for them. Investors are only required to track the performance of the mutual fund.
Professional management
Mutual funds are run by professionals, with experience in portfolio management. Analysts employed by mutual funds analayse data and information available in a manner that cannot be matched by the lay investor.
Tax benefits
Income tax benefits are granted to investors in mutual funds, making it more tax efficient as compared to other comparable investment avenues.
Who is a custodian?
The custodian, an independent organisation, has the physical possession of all securities purchased by the mutual fund, and undertakes responsibility for its handling and safekeeping. For instance, the Stock Holding Corporation of India Ltd (SCHIL) is the custodian for most fund houses in the country.
What is an Asset Management Company (AMC)?
A highly regulated organisation that pools money from many people into a portfolio structured to achieve certain objectives. Hence it is termed as an Asset Management Company. Typically an AMC manages several funds - open-end /closed-end across several categories - growth, income, balanced. Every mutual fund has an AMC associated with it.
For instance, Alliance Capital Mutual Fund is associated with Alliance Capital Asset Management Company Ltd.
What is load?
It is a charge collected by a mutual fund when it sells units. It can be either front-end load (i.e., the charge is collected when an investor buys the units) or back-end load (i.e, the charge collected when the investor sells back the units). Some schemes do not charge any load and are called No Load Schemes
What is an ex-dividend date?
Normally, one business day after the record date. Investors purchasing unit on or after the ex-dividend date are not entitled to collect dividends or bonus units. The NAV falls by the amount of the dividend distributed and/or bonus issued. The terms ex-bonus and ex-dividend often are used synonymously.
For instance, if the record date for dividend is October 15th, then investors who don't have their names in the list of unitholders as on that day, will not receive dividend. This works very similar to dividend and bonus declarations in the case of stocks.
How does one calculate the expense ratio for a fund?
The expense ratio for a fund is the annual expenses of a fund (at the end of the financial year), including the management fee, administrative costs, divided by the number of units on that day.
How relevant is the expense ratio?
As is evident from the definition, a lower expense ratio underlines the efficiency of a fund. This is a yardstick that investors need to apply to gauge the efficiency (or lack of it) between funds.
What is cheque-writing facility?
A service enabling investors to write cheques against their mutual fund account balances. Cheques usually must meet a certain minimum amount and the service is restricted to money-market funds.
What is a contingent deferred sales charge (or CDSC)?
A back-end load imposed on an investor if he exits from the fund before a pre-determined period (say 6 months). The charges decline the longer an investor stays invested with a fund.
What is a daily dividend fund?
A fund (money-market or bond) that calculates dividends daily, paying out or reinvesting the same.
What are derivatives?
Financial instruments based on some primary underlying asset or index such as a stock, bond, commodity, or a benchmark of stock prices. Derivative securities fluctuate up and down in tandem with the primary security. Derivatives often are leveraged, making them more volatile. They can be used to speculate as well as to reduce or control an unwanted risk. Options and futures are standardised derivatives. Others are customised to meet specific needs.
What is an Initial public offering (IPO)?
The sale of a company's shares or a fund house�s mutual fund to investors for the first time.
What is an asset management fee?
The fee charged by the asset management company (AMC) for portfolio management. The fee charged on an annual basis is calculated as percentage of net assets under management.
What is growth investing ?
A popular investment style whereby fund managers identify companies showing promise of above-average earnings. Stocks are held primarily for price appreciation as opposed to dividend income. Growth investors (or managers) are willing to pay a premium to acquire a stock if they feel it has the right prospects. Growth investing is an alternative to value investing.
For instance, buying an over-valued software stock would be the part of a growth manager�s investment strategy.
What is value investing?
As opposed to growth investors, value investors (or managers) focus on identifying under-priced stocks. Value investors look out for stocks selling at low prices, but which have the potential to give attractive returns in future.
What is hedging?
A general term used to describe any of several risk-reduction strategies. A fund manager might partially hedge against a market decline simply by moving a larger fraction of the portfolio into cash. Alternatively, the manager could sell stock-index futures contracts. If the market falls, the gains on the shorted futures would more or less offset the decline in the portfolio's value.
What is passive investing?
This is the investment style espoused by index fund managers who simply invest by benchmarking their portfolio to a common stockmarket index like the BSE-30 or the SP CNX-50. The fund manager only invests in stocks in the index in exactly the same proportion. There is no attempt to beat the benchmark index, but to simply replicate it, and therefore it is called as passive investing. The index fund will never outperform the benchmark index, nor does it attempt to.
FAQs on taxation
What tax benefits are available to those who invest in mutual funds? Please mention the tax benefits on equity-oriented and debt-oriented funds separately.
Dividends declared by debt-oriented mutual funds (i.e. mutual funds with less than 65% of assets in equities), are tax-free in the hands of the investor. However, a dividend distribution tax of 14.03% (including surcharge) is to be paid by the mutual fund on the dividends declared. Long-term debt funds, government securities funds (gsec/gilt funds), monthtly income plans (MIPs) are examples of debt-oriented funds.
Dividends declared by equity-oriented funds (i.e. mutual funds with more than 65% of assets in equities) are tax-free in the hands of investor. There is also no dividend distribution tax applicable on these funds. Diversified equity funds, sector funds, balanced funds (with more than 65% of net assets in equities) are examples of equity-oriented funds.
Amount invested in tax-saving funds (ELSS) would be eligible for deduction under Section 80C, however the aggregate amount deductible under the said section cannot exceed Rs 100,000.
How are equity-oriented funds defined?
A mutual fund must have at least 65% of its net assets in equities/stocks to qualify as an equity-oriented mutual fund
Do equity/balanced funds have to maintain a daily, minimum 65% equity allocation?
Not really, the equity allocation is calculated based on the weekly average net assets in equities. If this average is below 65%, the fund stands to forfeit its equity-oriented status.
Do balanced funds qualify as equity-oriented funds?
If balanced funds maintain a minimum (average) 65% equity allocation, they do qualify as equity-oriented funds.
Is a capital gain on sale/transfer of units of mutual fund liable to tax? If yes, at what rate?
Section 2(42A): Under Section 2(42A) of the Act, a unit of a mutual fund is treated as short-term capital asset if the same is held for less than 12 months. The units held for more than twelve months are treated as long-term capital asset.
Section 10(38): Under Section 10(38) of the Act, long term capital gains arising from transfer of a unit of mutual fund is exempt from tax if the said transaction is undertaken after October 1, 2004 and the securities transaction tax is paid to the appropriate authority. This makes long-term capital gains on equity-oriented funds exempt from tax from assessment year 2005-06.
Short term capital gains on equity-oriented funds is chargeable to tax @10% (plus education cess, applicable surcharge). However, such securities transaction tax will be allowed as rebate under Section 88E of the Act, if the transaction constitutes business income.
Long-term capital gains on debt-oriented funds are subject to tax @20% of capital gain after allowing indexation benefit or at 10% flat without indexation benefit, whichever is less.
Short-term capital gains on debt-oriented funds are subject to tax at the tax bracket applicable (marginal tax rate) to the investor.
Section 112: Under Section 112 of the Act, capital gains, not covered by the exemption under Section 10(38), chargeable on transfer of long-term capital assets are subject to following rates of tax:
Resident Individual & HUF - 20% plus surcharge, education cess.
Partnership Firms & Indian Companies - 20% plus surcharge.
Foreign Companies - 20% (no surcharge)
Capital gains will be computed after taking into account the cost of acquisition as adjusted by Cost Inflation Index, notified by the Central Government.
"Units" are included in the proviso to the sub-section (1) to Section 112 of the Act and hence, unit holders can opt for being taxed at 10% (plus applicable surcharge, education cess) without the cost inflation index benefit or 20% (plus applicable surcharge) with the cost inflation index benefit, whichever is beneficial.
Under Section 115AB of the Income Tax Act, 1961, long term capital gains in respect of units, purchased in foreign currency by an overseas financial, held for a period of more than 12 months, will be chargeable at the rate of 10%. Such gains will be calculated without indexation of cost of acquisition. No surcharge is applicable for taxes under section 115AB, in respect of corporate bodies.
Is it possible to offset the capital loss on a mutual fund investment after a dividend declaration?
This is a practice that is popularly referred to as 'dividend stripping'. The capital loss from a dividend declaration can be offset if you have remained invested in the mutual fund 3 months before and 9 months after the dividend declaration. If you haven't adhered to this guideline then you cannot offset the capital loss arising from a dividend declaration.
What is the tax implication of a bonus/rights issue on mutual fund units?
Under Section 55(2) (AA), bonus on mutual fund units has a zero (nil) cost of acquisition. The holding period is calculated from the date of allotment of mutual fund units. The net sales proceeds are treated as the capital gain. The period of holding of such issue is reckoned from the date of the allotment of such issue.
The cost of acquisition of the rights issue on mutual fund units is the amount actually paid for acquiring such right, according to Section 55(2) (AA) (iii). The holding period is reckoned from the date of allotment.
Where there is a transfer of these rights, the cost of acquisition of such rights is to be taken as 'Nil' according to Section 55(2) (AA) (ii). Sale price of such transferred rights will be taken as capital gain.
The period of holding in the hands of the transferor is computed from the date of offer, made by the company to the date of renouncement.
What are the tax benefits for the foreign investors?
Section 115E: Under Section 115E of the Act, capital gains, chargeable on transfer of long-term capital assets of an Non-Resident Indians (NRIs) are subject to following rates of tax:
Investment income:
Long term capital gains:
Subject to surcharge and education cess.
Section 10(23D): Under provisions of section 10(23D) of the Act, any income received by the Mutual Fund is exempt from tax.
Section 115R: Under Section 115R, the Income distributed to a unit holder of a Mutual Fund shall be charged to following rates of tax to be payable by the Mutual Fund.
Amounts distributed to individual or HUF:
12.5% + SC, EC
Amounts distributed to others:
20.0% + SC, EC
However, the above distribution tax will be exempted for an open-ended Equity-Oriented Funds (funds, investing more than 50% in equity or equity related instruments).
Is wealth tax applicable to mutual fund investments?
No. Units, held under the Scheme of the Fund, are not treated as assets within the meaning of Section 2(EA) of the Wealth Tax Act, 1957 and are, therefore, not liable to Wealth-Tax.
Is gift tax applicable to mutual funds investments?
No. Units of the mutual fund may be given as a gift and no gift tax will be payable, either by the donor or the donee.
How can I avoid payment of capital gains on mutual fund investments?
The capital gain, which is not exempt from tax as explained above, can be invested in the specified asset, mentioned below, within 6 months of the sale.
Specified asset means any bond redeemable after 3 years:
Issued on or after April 1, 2000 by NABARD (National Bank for Agriculture and Rural Development or NHA (National Highways Authority of India
Issued on or after April 1, 2001 by the Rural Electrification Corporation Ltd.
Issued on or after April 1, 2002 by the National Housing Bank or by the Small Industries Development Bank of India.
Such capital gains can also be invested in any residential house property in accordance with Section 54F of the Act and one can claim exemption from capital gains.

Monday, November 19, 2007

Stamp Duty on sale registration (SC)

The Supreme Court has held that the stamp duty on property has to be paid according to its market value on the date of registration of the sale deed.

In a ruling with wide ramifications for property buyers, a bench comprising Justices A K Mathur and Markandey Katju held that if a property is in litigation for a long time and during the pendency, if prices of the property have shot up, the buyer shall have to pay stamp duty at the enhanced market value of the property.

The bench, in its judgement dated November 16, while setting aside the judgement of the Rajasthan High Court noted, '' it is true that no one should suffer on account of the pendency of the matter, but this consideration does not affect the principles of interpretation of a taxing statute. A taxing statute has to be construed as it is in all these contingencies that the matter was under litigation and the value of the property which by that time shot up cannot be taken into account for interpreting the provisions of a taxing statute. If a taxing statute has to be construed strictly, then the plea that the incumbent took a long time to get a decree for execution against the vendor cannot weigh with the court for interpreting the provisions of taxing statutes. In this case, Khandaka Jain, jewellers in Jaipur, had purchased a property from a seller and paid an advance of Rs 20,000. The total value of the property was Rs 1,40,000. The property vendor did not execute the documents including the sale deed which prompted the buyers to file a suit for specific performance of the contract. In 1991, the suit was filed by the buyer and decreed in his favour ]on February 2, 1994. The buyer also deposited Rs 40,000 as per the directions of the court but even then, the seller did not execute the sale deed. Later, the collector issued orders making demand of additional stamp duty in view of the increased market value of the property. Jain Jewellers moved the High Court against the order of the district collector and their petition was allowed by the court holding that stamp duty was liable to be paid on the date of agreement to sale and the buyer could not be penalised for the time taken in the litigation.

The apex court, however, has taken a different view and directed the respondents, namely Jain jewellers, to pay stamp duty and surcharge as per the market value of the property determined by the collector as per the provisions of the Stamp Duty Act and allowed the appeal of the State of Rajasthan.

Competition Act with Amendments

Yes, This is inspired from the Article by my Guru Shri. V.S. Datey.

Yes, it gives an idea about the new Competition Act & Yes, its made very interesting with various charts.

Please read in & do comment your experiences.

Thank you,

Form1A(60d) & Form1AR(30d)

MCA Update !

Please be informed that wef 18th November, 2007, validity period of name approval (through Form 1A) and renewal of name (through Form 1AR) will stand reduced to 60 days and 30 days respectively, as against 6 months earlier.

Fee for name renewal will also get reduced to Rs. 250 only.

However, Names approved/ renewed prior to 18th November, 07 will remain valid for 6 months, as earlier.

Find relevant notification in

Thanks & Regards,
R.Satheeshkumar, Manager,
MCA21- PFONo.79,
Second Floor of Axis Bank (UTI Bank) Building,
G.N.Chetty Road, (Near VANI MAGAL) T.Nagar,
Chennai-600 017.
Ph.No.044-2815 2455, 6450 6000, 098843 21960

New ESOP Valuation Opinion

ESOP Valuation Query by Mr. Alagar:

Everyone is aware of that the Income Tax Department has Implemented ESOP Valaution rules for FBT on ESOP. This rules is applicable for vesting of options on or after 1st April 2007. My query is 4500 options were granted in year 2002 and all those options are vested by the employees before April 2007, but those options not yet exercised, it may be exercised now ( I e after implementing valuation rules). So, if options are exercised now, then it is subject to the FBT as FBT on ESOP has been implemented w.e.f 1st April 2007 vide Finance Act, 2007 and tax liability is at the time of exercise of options. Now, my question is that how to arrive value of those 4500 options for purpose of FBT.
My understanding
Valuation rules for FBT on ESOP has been implemented w.e.f 1st April 2007 vide Notification dated 23-10-2007. According to this valuation rules, the category I Merchant Banker has to give valuation certificate as on date of vesting or any date earlier than the date of the vesting of the option, not being a date which is more than 180 days earlier than the date of the vesting. But, in this particular case the vesting is already taken place, so that I understand that this valuation rules shall not be applicable for those 4500 options. If this valaution rules is not applicable, How can we arrive value for those 4500 options.
please guide me.
Relevant rules can be found in

Mr. Sukamal & his Expert Opinion

Vesing date is relevant only for valuation of shares allotted under ESOP and not for deciding from when the rule 40C of Income Tax Rules will become applicable

With regard to the query regarding ESOP I like to share with you some points which I have learnt from this issue:

1. In case of ESOP, FBT comes into the picture only when the employee exercised the option vested since the employee derived the benefits from ESOP only when he exercised such option.

2.Clause (ba) of the Section 115WC(1) of the Income Tax Act (the Act) which provides for the value of fringe benefits in respect of equity shares allotted under any ESOP, is applicable w.e.f. 1-4-2008 i.e. from the assesment year 2008-09. Accordingly Rule 40C (which provides for guidelines for computing fair market value of the shares allotted under ESOP.....) is also applicable from the same assessment year.

3. Rule 40C is applicable in case the options (already vested) exercised from and after the year 07/08 in relation to the assessment year 08/09 and subsequent years. Hence, the option exercised in the year 07/08 is subjected to FBT in the assessment year 08/09.

4. For computation of FBT, one need to know the fair market value of the equity shares allotted under ESOP and there the vesting date becomes relevant which may be a day before 1st April, 2007.

5.Hence, the applicability of the Rules does not depend upon the vesting date whereas it depends upon the exercise date which should be in the year 07/08 and thereafter.

6. Further for listed company the rule clearly guides the valuation method where the merchant bankers certificate may not be required.

7. However for unlisted company the said valuation shall be done by a merchant banker in terms of rule 40C(1),(3) AND (4)(e).

8. In terms of Section 115WB(1)(d) and 115WC(1)(ba) the value of fringe benefits for shareallotted under ESOP is the fair market value of the shares allotted under ESOP as reduced by the price paid by the concerned employee.

9. Rule 40C provides for guidilenes for computing the fair market value of shares allotted under ESOP or sweat equity for listed company as well as unlisted company.

10. In your case it is not clear whether it is a listed company or unlisted company.

11. For listed company the guidelines for computing fair market value as provided in the above rules are very specific i.e. the average of the opening price and the closing price of the shares on the vesting date............................................ (please refer rule 40C(2)

12. For unlisted company, the valuation has to be done by a merchant banker applying any recognised valuation method as on specified date which may the vesting date or any day not later than 180 days prior to the vesting date (please refer rule 40C(3).

-- Regards
Sukamal Datta
Deputy Manager - Secretarial
Bombay Stock Exchange Limited
Mobile 9920018714

Thursday, November 15, 2007

RBI launches Financial Education Site

Reserve Bank of India (RBI) & its initiative on Financial Education
Press Release : 2007-2008/663
To commemorate Children's day, the Reserve Bank of India today launched a financial education site. Mainly aimed at teaching basics of banking, finance and central banking to children in different age groups, the site will soon also have information useful to other target groups, such as, women, rural and urban poor, defence personnel and senior citizens.
To explain complexities of banking, finance and central banking in a simple and interesting way, the Reserve Bank has used comic books format for children. It has created two special created characters for this purpose – 'Raju' who learns all about banking and 'Money Kumar' who explains subjects dealt with by the Reserve Bank of India, such as monetary policy, bank regulations and currency notes. Two comic books are already available on this site – 'Raju and the Money Tree' explains basic banking and 'Money Kumar and Monetary Policy!' explains the role and relevance of the Reserve Bank's monetary policy for the common person.
The site has films on security features of currency notes of different denominations and an educative film to persuade citizens to not to staple notes. Interestingly, the site also has games section. This section aims at educating children through entertainment. The games currently on display have been especially designed to familiarise school children with India's various currency notes.
The site will soon be available in Hindi as well as in 11 regional languages.
The site can be accessed at or from the quick link provided on the home page of the main RBI website at

SEBI Order - Ketan Parekh

PR No.295/2007
Order against Shri Ketan V. Parekh and his associated entities by Securities and Exchange Board of India (SEBI)

SEBI conducted investigations into the buying, selling and dealings in the scrips of Himachal Futuristic Communications Limited, Zee Telefilms Limited, Adani Exports Limited, Global Tele-Systems Limited, Ranbaxy Laboratories Limited, Shri Adhikari Brothers Television Network Limited, Shonkh Technologies International Limited, Padmini Technologies Limited and Aftek Infosys Limited during the period October 1999 to March 2001.

The investigations revealed that Shri Ketan V. Parekh and 17 other entities who were directly/indirectly related/associated to him were involved in market manipulation in the aforesaid scrips in violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 and/or SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The modus operandi adopted by all the above mentioned entities in manipulating various scrips was, by and large, the same and Shri Ketan V. Parekh was found to be the master mind behind all the acts of omission or commissions by these entities.

In view of the above, Dr. T.C. Nair, Whole Time Member, SEBI, has passed an order dated November 12, 2007:

a. Restraining Shri Ketan V. Parekh and his 10 associates namely Shri Kartik K. Parekh, Classic Credit Ltd., Panther Fincap and Management Services Ltd., Luminant Investment Pvt. Ltd., Chitrakut Computers Pvt. Ltd., Saimangal Investrade Ltd., Classic Infin Ltd., Panther Investrade Ltd., Goldfish Computers Pvt. Ltd., and Nakashtra Software Pvt. Ltd. from accessing the securities market and also prohibiting them from buying, selling or otherwise dealing or associating with the securities market in any manner whatsoever, whether directly or indirectly, for a period of fourteen years.

b. Restraining Shri Navinchandra N. Parekh, Shri Kirtikumar N. Parekh, Shri Jayant N. Parekh and Shri Vipul D. Parekh, from accessing the securities market and also prohibiting them from buying, selling or otherwise dealing or associating with the securities market in any manner whatsoever, whether directly or indirectly, for a period of one year.

c. Restraining Triumph International Finance India Ltd., Triumph Securities Ltd., and NH Securities Ltd. from accessing the securities market and also prohibiting them from buying, selling or otherwise dealing or associating with the securities market in any manner whatsoever, whether directly or indirectly, for a period of five years.

In regard to the entities namely, Shri Ketan V. Parekh, Shri Kartik K. Parekh, Classic Credit Ltd., Panther Fincap and Management Services Ltd., Luminant Investment Pvt. Ltd., Chitrakut Computers Pvt. Ltd., Saimangal Investrade Ltd., Classic Infin Ltd. and Panther Investrade Ltd., which were covered under SEBI order dated December 12, 2003 (debarring them from securities market), this order shall run concurrently and shall be deemed to be effective from December 12, 2003.

As regards the remaining entities, the order shall come into effect from the date of the order.

Full order in

Wednesday, November 14, 2007

Insurance & its Concepts

The PRINCIPLES of Insurance include,

1. UGF – Utmost Good Faith: A duty to disclose accurately & fully ALL material facts whether requested or not. It is a Reciprocal Duty;
2. II – Insurable Interest arises out of LEGAL/FINANCIAL relationship; The striking feature being,

- BENEFIT (from existence) from safety, well being, freedom from liability;

- PREJUDICED (by loss) by damage or existence of liability;

LI: Uberrima Fidei i.e., Utmost Good Faith & Insurable Interest;

GI: UGF + II + Indemnity & Proximate clause.


  • EXIST @ the time of taking policy;
  • CONTINUE during the currency (period) of policy;
  • EXIST @ the time of loss for a valid claim;


  • ONLY @ the time of loss.


  • EXIST @ the time of taking policy;
  • EXIST @ time of loss.
INDEMNITY: To place the insured after a loss in the Same Financial Position as far as possible as he occupied immediately before loss, Neither better Nor worse. The measurement of Indemnity based on Intrinsic Market Value of property @ the time & place of damage/loss;

SUBROGATION – Corollary to Indemnity: "The transfer of rights & remedies of insured to insurer who has indemnified the insured in respect of loss". Insured does not receive more than actual amount of loss & any recovery effected from III-party goes to insurer.

CONTRIBUTION – Corollary to Indemnity: NOT for personal/accident insurance. Using "several insurance", to make profit out of loss. It is the right of insurers who have paid a loss under a policy, to recover a proportionate amount from other insurers, who are liable for the same loss. The pre-requisites include,

1. Common Peril (all policies) 2. Common interest & insured

3. Policy in force 4. Policy is legally enforceable.

PROXIMATE CAUSE: To provide indemnity for such losses as are caused by insured perils. The loss may be the result of two or more causes acting simultaneously or one after other; the most important, the most effective, the most powerful cause that has brought the loss. Otherwise, it will be a remote cause


A Policy Document as an evidence of contract. The policy document has,

1. Preamble: Proposal & declaration form part of policy.

WARRANTY = Truth of Statement.

2. Operative Clause: Mutual Obligation; Pay Premium & Pay Benefits.

3. Provisio: Subject to conditions (printed on back of the policy).

4. Schedule: Identifies the proposal referred in Preamble. Have contents like FPR.

5. Attestation: @ the end of first page – the signature & date.

6. Condition & Privileges: Explanatory/Restrictive/Privileges/Benefits.

RIDERS – Additional Covers: Helps to increase the clarity of policy; It defines the fate of policy in case of certain defined circumstance.

NOMINATION: (advisable)

1. Nominee does derive a right to sue only after Policy Proceeds become payable.

2. One can change nominee without consulting previous nominee/insurer.

3. Liable to legal heirs of deceased having proof of right to claim.


  1. Guarantee additions: Sum Assured get enhanced each year.
  2. Guaranteed Surrender Value (SV): On payment of premium for 3 full years, Minimum SV = 30%[Premium paid (-) 1 st year Premium (+) Bonus additions].

ASSIGNMENT = Legal Transference – "passing interest in policy": Assignment cannot be altered; Assignee has the right to sue only after giving Notice to Insurer & receiving acknowledgement. It may be,

  1. By endorsing Policy Document which is exempt from Stamp duty;
  2. By separate Assignment Deed which is liable to be stamped.






Fire & Marine Insurance

ONLY with the consent of Insurer & subject to conditions.


Marine Cargo

Freely assignable.


Marine Hill or Motor Policy

With the Consent of Insurers.

I think this will help Company Secretary, CS Final, friends when preparing for their Banking & Insurance paper (BILP).

Monday, November 12, 2007


Objective of the minimum wages act - To provide for fixing of minimum rates of wages

WAGES = all remuneration capable of being expressed in money & INCLUDES HRA but DOES NOT INCLUDE supply of light, amenity, etc… excluded by order, contribution to PF, expenditure in the nature of employment, & gratuity on discharge.

S-3 à Fixing Minimum Wages (an administrative act) by the Appropriate Government following prescribed procedure & revised periodically based on time/piece work and ensures a guaranteed rate; also gives overtime rates;

It may be based on hour/day/month/larger period; It will be different for different scheduled employment or class of work or adults/adolescents/child/apprentice.

S-4 à RATE: Consist of Basic Wages +/- Allowances based on ‘cost of living index number’ or an all-inclusive rate can be fixed.

STEP1: Appoint Committee;
STEP2: Publish proposals as by means of Notification;
STEP3: Give opportunity of being HEARD;
STEP4: Notify Minimum Wages > 3 months.
MAY NOT be in Scheduled Employment, if < wage =" mean">They can't ask anything more than this in IR. Be thorough with everything in this. Prepare the Notes this way for all subjects of Company Secretary exam study, u can win easily. See, this is the only act in Industrial Relations, that u r studying new, the rest is all what u did in CS Inter.
Enjoy Passin...

DGFT Toll Free

Direct Receipt of Import Bills / Documents - Liberalisation

RBI/2007-08/181 A.P. (DIR Series) Circular No.18

Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to item i.a. of A.P. (DIR Series) Circular No.66 dated February 6, 2004 in terms of which AD Category - I banks are permitted to make remittances for imports, where the import bills / documents have been received directly by the importer from the overseas supplier and the value of import bill does not exceed USD 100,000. Further, in terms of i.c. of the Annex to the aforementioned circular, status holder exporters, as defined under the Foreign Trade Policy are permitted to receive import bills / documents directly from the overseas supplier irrespective of the value of the import.

Continued in

Monday, November 5, 2007

Fit and proper criteria for elected directors on the boards of nationalised banks

Fit and proper criteria for elected directors on the boards of nationalised banks
RBI/2007-08/178DBOD. No. BC.No.47/29.39.001/2007-08

'Fit and proper' criteria for elected directorson the boards of nationalised banks
It has been decided to lay down specific 'fit and proper' criteria to be fulfilled by the persons being elected as directors on the Boards of the nationalised banks under the provisions of Section 9(3)(i) of Banking Companies (Acquisition and Transfer of undertakings) Act 1970/80. The authority, manner/procedure and criteria for deciding the 'fit and proper' status etc. are as under

Thanks & Regards
-- Alagar

CS Updatin...

See Yes -> Yes, ACS

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