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Study On The Definition Of UK Banks

Bank is not someone or a group of person who lends and collects the money and interest back. According to United Kingdom court of appeal bank is a person who has these three elements in it.

History of United Kingdom Banks  

 As we all know the financial heart of the United Kingdom, from several millennia international banking and finance is dominated by the Square Mile. While the unknown fact is that where the business derived its origin from and how it evolved over the years.

United Kingdom can trace its origin from the days of the Roman conquest. During that time the Roman conducted two different types of banking business the first one was called Argentarii which was of professional nature and the second one was Feneratores which was of an amateur nature which was run by the elite nobles of the Roman Empire. The institution was known as two fold services 1) Receiving Deposit and 2) Advancing Credit. Nonetheless, the importance of United Kingdom banking during the times of the Romans can still be seen today. After all, modern United Kingdom banks also categorize themselves on providing two fundamental services – receiving deposits and advancing credit. However, today’s United Kingdom banks also offer far more services than simply these.


Unit 400 years ago, during 1600s, London really started to cement its position as a financial hub of importance when goldsmith bankers started to emerge


Although United Kingdom banks began to expand nationally during this period, the services they (did and could) offered did not. Consequently, it was also around this time that another division in United Kingdom  banks began to emerge; namely the formation of the Big Three banking sectors:

1. Clearing “High Street” Banks – even as recently as 1900 there were a reported 250 private and joint stock banks operating in the United Kingdom;

2. Merchant Banks; and

3. Other financial institutions.



       United Kingdom Banks today

Entering the 21 century United Kingdom banks appear to be at their strongest for decades. The banks today are more competitive, offer more services, and are more client friendly than at any time throughout the long and distinguished history of United Kingdom banks. With prudent management and regulation, there should be no reason why United Kingdom banks don’t continue to go from strength-to-strength. Underlying all of this development in United Kingdom banks is, however, still the old Roman concept of banking:

“to receive deposits and advance credit"

History of Indian Banks


Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors.

For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process.

The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or to dial a pizza. Money have become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

•       Early phase from 1786 to 1969 of Indian Banks

•       Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

•       New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.

Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority.

During those days public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.

Phase II

Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalized.

Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.

The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:

•       1949: Enactment of Banking Regulation Act.

•       1955: Nationalization of State Bank of India.

•       1959: Nationalization of SBI subsidiaries.

•       1961: Insurance cover extended to deposits.

•       1969: Nationalization of 14 major banks.

•       1971: Creation of credit guarantee corporation.

•       1975: Creation of regional rural banks.

•       1980: Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.

Phase III

This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.


Banking sector in both countries has developed gradually. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. Entering the 21 century United Kingdom banks appear to be at their strongest for decades. The banks today are more competitive, offer more services, and are more client friendly than at any time throughout the long and distinguished history of United Kingdom banks. Further in the next part of the thesis we will see the Literature review i.e.




Literature Review:

Strategy used for Investment Banking in United Kingdom and India.

Recent evaluation for Investment Banking in both United Kingdom and India.

Types of investment banking for both United Kingdom and India.

Guidelines for Investment Banking.

At a very macro level, ‘Investment Banking’ as term suggests, is concerned with the primary function of assisting the capital market in its function of capital intermediation, i.e., the movement of financial resources from those who have them (the Investors), to those who need to make use of them for generating GDP (the Issuers). Banking and financial institution on the one hand and the capital market on the other are the two broad platforms of institutional that investment for capital flows in economy. Therefore, it could be inferred that investment banks are those institutions that are counterparts of banks in the capital markets in the function of intermediation in the resource allocation. Nevertheless, it would be unfair to conclude so, as that would confine investment banking to very narrow sphere of its activities in the modern world of high finance. Over the decades, backed by evolution and also fuelled by recent technologies developments, an investment banking has transformed repeatedly to suit the needs of the finance community and thus become one of the most vibrant and exciting segment of financial services. Investment bankers have always enjoyed celebrity status, but at times, they have paid the price for the price for excessive flamboyance as well.

To continue from the above words of John F. Marshall and M.E. Eills, ‘investment banking is what investment banks do’. This definition can be explained in the context of how investment banks have evolved in their functionality and how history and regulatory intervention have shaped such an evolution. Much of investment banking in its present form, thus owes its origins to the financial markets in USA, due o which, American investment banks have banks have been leaders in the American and Euro markets as well. Therefore, the term ‘investment banking’ can arguably be said to be of American origin. Their counterparts in UK were termed as ‘merchant banks’ since they had confined themselves to capital market intermediation until the US investments banks entered the UK and European markets and extended the scope of such businesses.

Investment banks help companies and governments and their agencies to raise money by issuing and selling securities in the primary market. They assist public and private corporations in raising funds in the capital markets (both equity and debt), as well as in providing strategic advisory services for mergers, acquisitions and other types of financial transactions.

More commonly used today to characterize what was traditionally termed” investment banking” is “sells side." This is trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e. underwriting, research, etc.).

The "buy side" constitutes the pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell-side in order to maximize their return on investment. Many firms have both buy and sell side components.


An individual or institution, which acts as an underwriter or agent for corporations and municipalities issuing securities. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. Investment banks also have a large role in facilitating mergers and acquisitions, private equity placements and corporate restructuring. Unlike traditional banks, investment banks do not accept deposits from and provide loans to individuals. Also called investment banker.

Strategy used for Investment banking in India

India has achieved impressive GDP growth of over 7% per annum in the last few years.

However, sustaining growth at over 8% per annum will require a significant increase in

investment levels in the economy - from approximately 30% of GDP to about 34% of GDP

1. Over the next 5 years, this translates to a cumulative investment of over $ 1.5 trillion. The report undertakes to define a strategy that could enable India to achieve this investment goal. While expansion of domestic investment is essential to achieve this goal, FDI, which has been stagnant at about $ 5 billion

2. In the past, also needs to be increased significantly - the Investment Commission has set itself the goal to increase the level of FDI to $ 15 billion by 2007-08. To this end, 25 key sectors spanning Infrastructure, Manufacturing, Services, Natural Resources and the Knowledge Economy have been studied. They represent a significant part of the economy, and between them would require an aggregate investment of $ 525 – $ 550 billion over the next 5 years. The sector studies also identified past investment levels, plans/ forecasts for future investment, as currently visible, and identification of the deterrents to investment.

Extensive investor interactions have provided key insights on policy and other impediments faced by investors. The Commission has interacted with industry bodies, associations, Ministries at the Centre and State level, business delegations and companies. Interactions also included meetings with business delegations from the US, UK, Italy, Japan and the Scandinavian countries with over 130 companies represented, altogether. Direct investor interactions (mostly personal meetings) were undertaken with an additional 64 international anddomestic investors.

Arising out of these interactions, projects were identified for facilitation/ support totaling to a likely investment of about $ 30 billion. Representations on policy/ procedures or other impediments were either resolved through reference to the Finance Ministry or have been incorporated in the recommendations in this report.

The major impediments to investment that span multiple sectors have been identified as:

1. Investment restrictions and/ or entry route barriers in several sectors of significant investment potential/ investor interest.

2. Absence of long-term policies, non-implementation / reversal of policy and breach of contract.

3. Lack of level playing field - especially in sectors with PSU dominance.

4. Inflexible labor laws.

5. Many agencies engaged in doing the same or similar activities relating to FDI.

6. Bureaucratic delays, discretionary interpretation, vested interest, bias and subjective practices (In particular, approvals from Ministry of Environment & Forests seen as a major impediment in terms of inordinate delay).

7. Centre-State divergence on investment related policies.

8. High cost of entry, transactions and exit; ineffective dispute resolution.

9. Poor infrastructure.

10. Priority Sectors are not clearly identified/ specified.

Based on the investment goals and the identified impediments, a set of broad recommendations have been made which could facilitate and improve the investment climate.

These are listed below:

1. Remove/ reduce restrictions on sector caps and entry route on all sectors other than those

considered “strategic”. Permit “automatic route” for all investments within the sector cap.

2. Provide labor flexibility by removing the requirement of State Government approval from

Chapter V-B and permitting Contract Labor in all areas.

3. Promote SEZs for key sectors. Redefine norms on the basis of scale, investment quantum/ levels and sector focus. Separate the Developer of the SEZ from the Occupants.

4. Provide a level playing field in sectors with PSU dominance - establish an Independent

Central Regulatory Commission headed by a Chief Commissioner appointed by the President or the Prime Minister with independent Regulators for each regulated sector.

5. Provide long term visibility and consistency of policy.

6. Improve business environment – reduce number of procedures and approvals; make all approvals time bound and non-discretionary.

7. Eliminate scope for discretionary interpretation to stem corruption – update key laws and statutes using Study Groups or Committees (with Government and Industry participation) to reflect this.

8. Establish effective mechanisms to resolve centre-state issues – establish an Empowered Committee framework (as done for VAT implementation) for implementation of key policies that require Centre-State cooperation such as Power sector reform, Labor law reform, Urban Land reforms (including ULC Act), APMC amendment.

9. Other Recommendations:

Create a special high level fast track mechanism for priority sector projects Investment Commission.

Enhance availability of skilled manpower for sectors like Biotechnology, Automotive Engineering, Textile Engineering, IT – establish new private educational institutes with international collaborators.

Facilitate up gradation of urban infrastructure by having a directly elected Mayor in key cities - as is the case with major cities in China and the USA.

Establish a single point contact at the Centre to implement policies and procedures to enhance investment as well as facilitate high value projects across Ministries and Departments.

In addition, recommendations have also been made for specific sectors - Energy, Civil Aviation, Telecom, Metals and Mining, Textiles and Garments, Auto and Auto components, Food and

Agro processing, Financial Services, Real Estate & Construction, Tourism and IT / ITES. As the next phase of taking investment levels to a higher plane,

The Investment Commission recommends:

1. The creation of National Thrust Areas – where the Government removes all impediments and provides special incentives for a pre-determined time period in order to achieve a specified growth. These could include Tourism, Power, Textiles and Agro-processing.

2. The hosting of Mega Events which will focus the country’s attention on infrastructure development while also building national pride. Some ideas are: 2010 Commonwealth Games, 2020 Olympics, Football World Cup, Formula One Racing etc.

Strategy used for investment Banking In United Kingdom

It is not always possible to accurately predict how a particular investment will do, but an effective investing strategy can help you maximize the chances of profit, while minimizing risk. Essentially an investing strategy takes various aspects into account, from profits and risk to market factors and forces of demand. It bears long term investment goals in mind, and directs the process of investment towards the maximum possible profits. The main consideration when it comes to an investing strategy is, however, the relationship between the risk involved in the investment and the profits likely to accrue from it.

Calculating Your Investing Strategy

You can use this mathematical expression to calculate the possible returns on a particular investment, and thus formulate a sound investing strategy. You need to calculate the value Vf/Vi - 1 where VF refers to the final value of your investment, and VI refers to the value of your initial investment. Your ROI or return on investment will be considered advantageous when If/Vi - 1 > 0. This is very useful when you want to create an effective investing strategy. 

Types of Investing Strategy:

Investment strategies can be categorized in different ways. One way of looking at an investing strategy is to classify it as a passive investing strategy or an active investing strategy. An active investing strategy is an offensive tactic where risks are higher, as are the rewards for investment. There are a lot more decisions to be made here, such as when to buy or sell. This is not the case with a passive investing strategy, which is also known as a buy and hold investing strategy. A passive investing strategy is a defensive strategy with less risk and lower rewards than active investment. Small investors are generally better off with a passive investing strategy.

Investing strategy can also be classified on the duration of time involved. How soon will your investment yield returns? It depends on whether your investment is a short term or medium term one. Different investing strategies are used for short term and medium term investments, and they can be applied appropriately when you are planning your investments.

Planning Your Investing Strategy:

It is important to ensure that your investing strategy is directed towards the creation of a stable investment portfolio. There should be enough passive investment that acts as a firm foundation for profits. 

Diversification is also an important investing strategy, whose effectiveness has been proved over the years. Allocating all your resources to one type of investment or investing in a single enterprise does not make financial sense, when you consider the risks involved. So a profitable investment portfolio is one where investments are diverse, and well balanced.

How to Enhance Your Investing Strategy:

There is always room for improvement as far as an investing strategy is concerned, and you will find the following suggestions useful in creating a better investing strategy that results in good dividends.

One sensible investing strategy concentrates on planning for the future. You will not work all your life, and you must have a retirement fund that will see you comfortably through your later years. This needs to be planned carefully, after establishing your investment goals. Your actions should be directed towards the achievement of these goals, and you will need to modify your investing strategy as and when necessary.

Another effective investing strategy is to invest in areas that you are familiar with. For instance, if you know how a particular business works, and understand factors such as market forces involved, the competition, marketing and so on, it makes sense to invest in such a business.

It is always better to err on the side of caution, and your investing strategy should take this into consideration. Do ensure that you do not invest more than you can comfortably afford.

Recent evaluation for Investment banking in both United Kingdom and India.

New products

Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. Throughout the history of investment banking, many have theorized that all investment banking products and services would be commoditized. New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets. However, since these can usually not be patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins.

For example, trading bonds and equities for customers is not a commodity business but structuring and trading derivatives is highly profitable .Each OTC contract has to be uniquely structured and could involve complex pay-off and risk profiles. Listed option contracts are traded through major exchanges, such as the CBOE, and are almost as commoditized as general equity securities.

In addition, while many products have been commoditized, an increasing amount of profit within investment banks has come from proprietary trading, where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about the market flow, allowing it to theoretically make better trades and pass on better guidance to clients).

Possible conflicts of interest

Potential conflicts of interest may arise between different parts of a bank, creating the potential for financial movements that could be market manipulation. Authorities that regulate investment banking (the FSA in the United Kingdom and the SEC in the United States) require that banks impose a Chinese wall which prohibits communication between investment banking on one side and research and equities on the other.

Some of the conflicts of interest that can be found in investment banking are listed here:

Historically, equity research firms were founded and owned by investment banks. One common practice is for equity analysts to initiate coverage on a company in order to develop relationships that lead to highly profitable investment banking business. In the 1990s, many equity researchers allegedly traded positive stock ratings directly for investment banking business. On the flip side of the coin: companies would threaten to divert investment banking business to competitors unless their stock was rated favorably. Politicians acted to pass laws to criminalize such acts. Increased pressure from regulators and a series of lawsuits, settlements, and prosecutions curbed this business to a large extent following the 2001 stock market tumble

Many investment banks also own retail brokerages. Also during the 1990s, some retail brokerages sold consumers securities which did not meet their stated risk profile. This behavior may have led to investment banking business or even sales of surplus shares during a public offering to keep public perception of the stock favorable.

Since investment banks engage heavily in trading for their own account, there is always the temptation or possibility that they might engage in some form of front running.

Types of investment banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital markets activities such as mergers and acquisitions.

Merchant banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike Venture capital firms, they tend not to invest in new companies.

Investment banks provide four primary types of services:

Raising capital, advising in mergers and acquisitions, executing securities sales and trading, and performing general advisory services. Most of the major Wall Street firms are active in each of these categories. Smaller investment banks may specialize in two or three of these categories.

Raising Capital

An investment bank can assist a firm in raising funds to achieve a variety of objectives, such as to acquire another company, reduce its debt load, expand existing operations, or for specific project financing. Capital can include some combination of debt, common equity, preferred equity, and hybrid securities such as convertible debt or debt with warrants. Although many people associate raising capital with public stock offerings, a great deal of capital is actually raised through private placements with institutions, specialized investment funds, and private individuals. The investment bank will work with the client to structure the transaction to meet specific objectives while being attractive to investors.

Mergers and Acquisitions

Investment banks often represent firms in mergers, acquisitions, and divestitures. Example projects include the acquisition of a specific firm, the sale of a company or a subsidiary of the company, and assistance in identifying, structuring, and executing a merger or joint venture. In each case, the investment bank should provide a thorough analysis of the entity bought or sold, as well as a valuation range and recommended structure.

Sales and Trading

These services are primarily relevant only to publicly traded firms, or firms, which plan to go public in the near future. Specific functions include making a market in a stock, placing new offerings, and publishing research reports.

General Advisory Services:

Advisory services include assignments such as strategic planning, business valuations, assisting in financial restructurings, and providing an opinion as to the fairness of a proposed transaction.

Terms Related To Investment Bank:

Buying and Selling


Deciding on the proper time to purchase a security that you would like to add to your holdings can be a daunting task. If the price drops immediately after you buy, it may seem as if you missed out on a better buying opportunity. If the price jumps right before you make your move, you may feel as if you paid too much. As it turns out, you should not let these small fluctuations influence your decision too much. As long as the fundamentals that led you to decide on the purchase have not changed, a few points in either direction should not have a large impact on the long-term value of your investment.

Similarly, the fact that an investment has been increasing in value of late is not a sufficient reason for you to purchase it. Momentum can be very fickle, and recent movement is not necessarily an indicator of future movement. Therefore, buying decisions should be based on sound and thorough research geared toward discerning the future value of a security relative to its current price. This analysis will probably not touch upon price movement in the very recent past. As you learn more about investing you'll get better at deciding when to buy, but most experts recommend that beginners avoid trying to time the market, and just get in as soon as they can and stay in for the long haul.

The proper time to buy a security is quite simply when it is available for less than its actual value. These undervalued securities are actually not as rare as they sound. However, the problem is simply that they are never sure bets. The value of a security includes estimates of the future performance of factors underlying the value of the security. For stocks, these factors include things like earnings growth and market share. Changes can be predicted to a degree, but they are subject to fluctuation due to forces both within and beyond the control of the company.

The overall economic climate, changes in the industry or even bad decisions by management can all cause a security poised to ascend in value to become an under performer. Therefore, it is essential to practice your analysis before putting your money into action. Make some mock purchases based on your personal analysis technique and track the results. Not all of your decisions will lead to the results you were expecting, but if most of your choices turn out to be good and there are mitigating factors that you can learn from to explain your missteps, then you may be ready to put your analysis technique and investing strategy into action.

At this point, the need to continuously monitor your investments does not disappear. Both under performers and overachievers should be studied carefully to fine-tune your strategy. You should also regularly look at your securities to make sure that the fundamentals for success that led you to buy in the first place are intact. If not, you may need to prepare to cash in and start looking for the next opportunity.

One way to avoid the hassles of deciding when to buy altogether is to practice dollar-cost averaging. This strategy advocates investing a fixed dollar amount at regular intervals. The price when you first invest is relatively unimportant (as long as the fundamentals are sound) because you will be purchasing shares at a different price each time you buy. The success of your investment then lies not with short-term fluctuations, but with the long-term movement of the value of the security.


There comes a time when investments must be liquidated and converted back into cash. In a perfect world, selling would only be necessary when investment goals have been reached or time horizons have expired, but, in reality, decisions about selling can be much more difficult. For one thing, it can be just as hard to decide when to sell as it can be to decide when to buy. No one wishes to miss out on gains by selling too soon, but, at the same time, no one wishes to watch an investment peak in value and then begin to decline.

Investors often seek to sell investments that have dropped in value in the short-term. However, if conditions have not changed significantly, drops in price may actually represent an opportunity to buy at a better price. If the initial research, which led to the purchase, was sound, a temporary decline does not preclude the success that was originally predicted. Of course, things change, and if the security no longer meets the criteria that led to its purchase, selling may in fact be the best option.

Selling may also become necessary if investment goals change over time. You may need to reduce the amount of risk in your portfolio or you may have the opportunity to seek out greater returns. Additionally, a security may have increased in value to the point that it is overvalued. This creates an excellent opportunity to cash in and seek out new undervalued investments. Often you will need to make this type of sale in the course of rebalancing a portfolio necessitated by gains and losses in different areas.

Selling can be especially difficult when an underperforming stock must be dumped. Some investors let their emotions dictate their actions and hold on to stocks that have fallen in value rather than to sell, thinking that selling at a loss is like admitting that they made a mistake. However, realizing the loss and moving on to better investments is often preferable to continuing to hold onto a loser in the hopes that it will somehow rebound.

When considering any sale, you must factor in the costs of the sale itself. Fees and taxes will eat into profits, so they must be subtracted from any increases in value to understand the true impact of the transaction. Capital gains taxes are higher for gains on investments held less than one year, so it's often wise to invest for the long term rather than to buy and sell quickly. On the other hand, it can be dangerous to hold an investment longer than you want to, simply to reduce the tax burden.

It is essential to remember that just because an investment increases in value after it has been sold does not necessarily mean that it was sold prematurely. Managing risk and diversification are often more important than capitalizing on short-term gains in a particular security. Keeping in mind the initial goals for the investment and adjusting them to fit your present goals will allow you to make smarter decisions about selling.

SEBI Guidelines

The Government has setup Securities Exchange Board of India (SEBI) in April 1988. For more than three years, it had no statutory powers. Its interim functions during the period were:

To collect information and advise the Government on matters relating to Stock and Capital Markets.

Licensing and regulatory and Merchant Banks, Mutual Fund, etc...

To prepare the legal drafts for regulatory and developmental role of SEBI and

To perform any other functions as may be entrusted to it by Government.

The need for setting up independent Government agency to regulate and develop the Stock and Capital Market in India as in many developed countries was recognized since the Seventh Five Year was launched (1985) when some major industrial policy changes like opening up of the economy to outside the world and greater role to the Private Sector were initiated. The rampant malpractices noticed in the Stock and Capital Markets stood in the way of infusing confidence of investors, which is necessary for mobilization of large quantity of funds from the public, and help the growth of the industry.

The malpractices were noticed in the case of companies, Merchant Bankers and Brokers who are all operating in Capital Markets. The need to curb the malpractices and to promote healthy Capital Market in India was felt. The security industry in India has to develop on the right lines for which a competent Government agency as in UK (SIB) or in USA (SEC) is needed.

As referred to earlier, malpractices have been reported in both the primary market and secondary market. A few examples of malpractices in the primary market are as follows:

Too many self styled Investment Advisers and Consultants.

Grey Market or unofficial premiums on the new issues.

Manipulation of markets before new issues is floated.

Delay in allotment letters or refund orders or in dispatch of Share Certificates

Delay in listing and commencement of trading in shares.

A few examples of malpractices in the Secondary Market are as follows:

Lack of transparency in the trading operations and prices charged to clients.

Poor service due to delay in passing contract notes or not passing contracts notes, at all.

Delay in making payments to clients or in giving delivery of shares.

Persistence of odd lots and refusal of companies to stop this practice of allotting shares in odd lots, which disappeared with the introduction of D-mat form of trading.

Insider trading by agents of companies or brokers rigging and manipulating prices.

Takeover bids to destabilize management.


The SEBI has been entrusted with both the regulatory and development function. The objectives of SEBI are as follows:

Investor protection, so that there is a steady flow of savings into the Capital Markets.

Ensuring the fair practices by the issuers of securities, namely, companies so that they can raise resources at least cost.

Promotion of efficient services by brokers, merchant bankers and others intermediaries so that they become competitive and professional.


With the repeat of Capital Issuers Control Act of 1947 in May 1992, the SEBI issued fresh guidelines for new Capital issues from June 11, 1992. Pricing of Shares expect in case of new companies with no track record is left to free market forces. The new Companies have to issues shares at par only. The existing unlisted companies if they desire listing can make public issue up to 20% of equity and price can be determined by free market forces, as determined by the issuer or the lead manager. Similarly, an existing listed company can also fix the price of issue depending on the markets forces. In all these cases, the reasons for such price fixation, transparency and proper disclosers are insisted upon by the SEBI. The draft letter of offer to the public is to be vetted by SEBI, which was delegated to lead merchant bankers by SEBI after 1996.

As per SEBI guidelines, 12 months should elapse between bonus issue and public or rights issue. A private placement of promoters’ quota is not permitted. Merchant bankers held responsible for ensuring that prospectus is fair and disclosures are full and correct and that highlights and risk factors are slept out in all issues. Although free pricing is permitted, the rationale of such fixation is to be provided to the SEBI when it examines the drafts letter of offer.


The SEBI powers on stock exchanges and their member brokers and sub brokers were exercised under SEBI (stock brokers and sub brokers) Regulations of October 23 1992. These relate to registration, licensing, code of conduct, and inspection of books accounts, etc. These powers were exercised under Section 12 of SEBI Act.

SEBI was delegated more powers of administration of SC (R) Act in respect of many provisions including recognition of stocks exchanges (Sec.3, 4&5) and control and regulation of stocks exchanges under Sections 7, 13, 18, 22 and 28 etc., These were concurrent powers wielded by both Government and SEBI, effective from September1993.

Subsequently, by an ordinance in January 1995, the SEBI was given further powers to impose penalties on insider trading and capital markets intermediaries for violation of SEBI regulations and companies for not complying with listing agreement. In particular penalties can be imposed in monetary terms, for failure to furnish books of accounts, failure to enter into agreements with clients, failure to redress investor grievances, defaults in case of mutual funds, and non-disclosures of acquisition of shares and take over etc.

Venture capital funds like mutual funds were brought under the control of SEBI. Earlier to that, the SEBI has started licensing and regulations the underwriters, debenture trustees, collecting bankers, and all intermediaries in the capital market.

SEBI in the New Millennium:

SEBI has got all the needed powers to regulate the Capital Market including all affairs of listed Companies, Venture Funds, MMMFs, etc. Already it has been regulating the foreign agencies or a body operating in the capital market and it has announced guidelines for all players in markets, including a code of conduct.

Institutional Agencies:

All the FIIs together can invest up to 24-30% of the company’s paid up capital, of which a limit of 50% is allowed to foreign individuals and corporate investing in India through FIIs; this limit of 30% was raised to 40% by the Central Budget for 2000-01.

The SEBI has also allowed the domestic Mutual Funds to invest in foreign listed securities and to manage foreign portfolios. According to some amendments to Mutual Fund regulations of SEBI, the Mutual Funds are required to send a complete statement of their portfolios to all unit holders within one month from the close of each half-year. In order to deter mutual funds from delay in dispatch of redemption warrants, SEBI has directed mutual funds to provide for payment of interest to the unit holders on this delayed payment, wherever applicable.

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