Role of SEBI

SEBI has necessary powers concerning with various aspects of capital market such as

(g) calling for information, undertaking inspection, conducting inquiries and audit of stock exchanges, and intermediaries and self regulation organisations in the stock market.
(h) performing such functions and exercising such powers under the provisions of the Capital Issues (Control) Act, 1947 and the Securities Contracts (Regulation) Act, 1956 as may be delegated to it by the Central Government.

Depository participants enable investors to hold and trade securities in dematerialized form through exchanges. NSDL and CDSL, the two depositories in India, securely hold financial securities such as shares and bonds on behalf of customers.

Custodians, including clearing members, clearing banks, depositories, and professional clearing members, collaborate with institutional investors. They handle the safekeeping of securities and manage bank accounts for these investors. Custodians oversee the transaction process, ensuring the smooth delivery of securities and funds after a trade is executed through a broker. While they are clearing members, they do not engage in direct trading activities.

Stock brokers are authorized trading members of stock exchanges, facilitating the buying and selling of stocks, securities, ETFs, and derivatives on behalf of investors. They conduct transactions on stock exchanges, acting in the best interest of their clients.

Investment banks engage in advisory financial transactions for individuals, corporations, and governments, including services like business expansions, project financing, mergers and acquisitions, investment valuation, and new issue management. On the other hand, commercial banks focus on traditional banking services, such as accepting deposits, providing credit, and facilitating payment services. Commercial banks also play a crucial role in efficient cash management for businesses. Investment bankers interact with clients, present their services, conduct financial projections based on research, and contribute to client acquisition.

Insurance companies offer services to insure against unexpected financial losses related to life, property, health, and income. People opt for insurance to mitigate financial uncertainties and manage accidental losses effectively. Life insurance focuses on insuring individuals’ lives, while general insurance covers health, motor, fire, travel, and other areas where sudden substantial expenses could impact household or business finances. Insurance companies utilize various channels, including individual agents, corporate agents, brokers, and banks, to sell their products. Premiums collected by insurance companies serve as a crucial source of long-term funding for government projects and contribute to overall business development in the country.

Insurance Market Structure : In India, the insurance industry is broadly divided into life insurance and non-life insurance business. Life Insurance Corporation of India (LIC) manages life insurance business, while General Insurance Corporation (GIC) and its four subsidiaries handle non-life insurance business. Following financial liberalization in 1994, the Malhotra Committee recommended opening up the insurance sector to private participation and establishing a separate regulatory authority. The Insurance Regulatory and Development Authority of India (IRDAI) was formed under the IRDAI Act 1999, serving as a statutory body for the overall supervision and development of the insurance sector. The sector is now open to private participation, and life insurance premiums in India reached approximately USD 110 billion in 2023.

The IRDA Act of 1999 permits private participation, including foreign equity participation of up to 26% of the paid-up capital, specifically for investments and service obligations in the less-lucrative rural sector. Banks and NBFCs meeting the prescribed criteria have already been granted permission to enter the insurance business with prior approval from the Reserve Bank. In the Union Budget 2021-22, Nirmala Sitharaman announced the government’s plan to amend the Insurance Act, 1938, aiming to increase the permissible FDI limit from 49% to 74%, allowing foreign ownership and control with safeguards.

Pension funds are built from the savings of eligible individuals during their working years. These funds are invested based on contributors’ preferences to generate a retirement corpus. Pension funds offer various investment options, including debt, equity, or a combination of both in specific proportions. Contributors choose the fund type that aligns with their financial goals, as these funds are designed for long-term retirement planning.

Indian Pension Market : A significant portion of the Indian population lacks formal retirement benefits from the government and associated organizations. The number of companies covered under the Employees Provident Fund Organisation (EPFO) is still lower compared to developed nations. Some private companies offer Superannuation plans and privately sponsored pension plans to their employees. Various retirement or pension funds available include the Employee Provident Fund (EPF), Public Provident Fund (PPF), and National Pension Scheme (NPS).

[a] Employee Provident Fund (EPF) involves equal contributions from both you and your employer. Administered by the Employees’ Provident Fund Organisation (EPFO), the organization determines the interest rate on the investment. Upon retirement, you receive the total funds along with accumulated interest.

“[b] Public Provident Fund (PPF) is a long-term investment scheme with a 15-year tenure, resulting in significant compounding impact, especially in the latter part of the term.

[c] The National Pension Scheme (NPS) is a government initiative serving as a financial safety net for retirees, primarily applicable to government employees. Both the employee and the government make matching contributions to a fund chosen by the employee, managed by licensed fund managers. Contributions continue until the age of 60, and after retirement, individuals can withdraw 60% of their savings.

Asset Management Companies (AMCs) and Portfolio Managers are investment experts responsible for managing investor funds and investing in various asset classes, including securities and bonds. They take on the task of maintaining a diversified portfolio on behalf of their clients. Portfolio managers serve as decision-makers, creating and implementing investment strategies aligned with client goals and constraints. AMCs issue units or manage PMS accounts to generate wealth over the investment horizon based on these portfolios.

Investment Advisers and distributors assist investors in selecting securities by conducting thorough research on client needs, time horizon, return expectations, and risk tolerance. The goal is to contribute to a long-term financial plan. Mutual Fund distributors primarily focus on Mutual Fund products, while investment advisers concentrate on a broader range of products and services.

Follow-on public offer (FPO) a secondary offering refers to the additional issuance of shares by a company after the initial public offering (IPO).

Offer for sale (OFS) a simpler method for listed companies to sell shares through the stock exchange platform is known as a follow-on offering.

Private placement is offering unregistered securities to pre-selected investors, institutions, and high-net-worth individuals is referred to as a private placement. A preferential issue is when listed companies offer shares or convertible securities to a select group of individuals. In the event of company failure or bankruptcy, preference stockholders are given priority over other types of shareholders.

A Qualified Institutional Placement (QIP) is a method for listed companies in India to raise capital by issuing equity shares, fully or partly convertible debentures, or any securities (excluding warrants) to institutional investors. This process allows companies to raise funds from the domestic market without the requirement of submitting pre-issue filings to market regulators.