Question

Give reasons for the following statements (4 – 5 lines)

1. Underwriting is not compulsory; despite this, a number of reputed companies for their public issue go in for at least partial underwriting

2. While the percentage allotment for non-retail investors in a book-built issue is the maximum, the % allotted to retail investors is the minimum

3. Any VCF wants to exercise exit option say after 5 years of funding

4. VCF does not do angel funding or incubation funding in India whereas this is being done regularly by them in foreign countries

5. A sharebroker is the only common service intermediary between the primary and secondary markets; his role is different. What are his roles in these two segments?

Answer 1

1. An underwriter undertakes to buy a guaranteed number of shares of the company from the company in case the minimum number of shares needed to be subscribed is not met or falls short by certain number of shares, underwriter buys those shares. Underwriting is done though not complusory to protect the IPO from falling short minimum subscription for a successful IPO

2. SEBI wants greater role of non retail institutional investor for public issue they excerise much greater due diligence before investing into the company ,are less vulnerable compared to retail investor for facing any fraud. And they buy the shares in bulk so SEBI wants greater liquidity and subcription of shares in stock market.

3. VCF generally keep their holding for shorter duration of years so they can exit based on agreement of investment or when they will apprppriate.

4. Angel funding is done by sucessfull individuals to a startup or growing company, whereas venture capital investment is done by institution known as venture capital firms or companies who pool money and invest it into startups or growing companies So they both are separate, This followed wordwide and not specific to India.your question is not fully appropriate.

5. Share broker traditional role is to buy or sell shares on behalf of his client. Apart from that he also advices client on which share to buy or sell shares in secondary market based on his research and also in primary market he informs his clients about the new IPO being launched and also gives details about it for giving him sufficient information on buying .