23.Capital Market (Part - 2)

Question 1

What is a mutual fund?

Answer 1

A mutual fund is a fund that allows small investors to participate in the stock market and benefit from its growth without dealing with market complexities. It pools the savings of many investors and invests in stocks based on professional expertise.

Question 2

What are the investment choices offered by mutual funds?

Answer 2

Mutual funds offer three investment choices: debt funds, equity funds, and balanced funds. Investors can choose based on their preferences and risk tolerance.

Question 3

Which was the first mutual fund in India?

Answer 3

The first mutual fund in India was started by UTI (Unit Trust of India) under the name US64.

Question 4

Which is the largest mutual fund in India currently?

Answer 4

HDFC Bank is currently the largest mutual fund in India.

Question 5

What are Inflation Index Bonds (IIBs)?

Answer 5

Inflation Index Bonds (IIBs) are bonds where the principal amount is indexed to the inflation rate. They are designed to mitigate the risk of inflation on investments.

Question 6

When was the first IIB issued in India?

Answer 6

The first Inflation Index Bond (IIB) was issued in India in 1997.

Question 7

How are the interest rates on IIBs determined?

Answer 7

The government of India issues inflation-indexed national saving securities linked to CPI plus an additional 1.5% interest rate.

Question 8

When are IIBs typically issued?

Answer 8

IIBs are typically issued during periods of high inflation in the economy.

Question 9

How do IIBs protect investors from inflation risk?

Answer 9

IIBs guarantee a steady yield to investors regardless of the level of inflation in the economy by adjusting the principal amount for inflation.

Question 10

Are the interest rates and capital gains on IIBs taxable?

Answer 10

Yes, the interest rates and capital gains on Inflation Index Bonds (IIBs) are taxable.

Question 11

What are Masala Bonds?

Answer 11

Masala Bonds are offshore Rupee-denominated bonds issued by Indian firms in a foreign territory.

Question 12

Why are they called Masala Bonds?

Answer 12

They are called Masala Bonds because India is famous in the international market for the export of its spices.

Question 13

What is the purpose of Masala Bonds?

Answer 13

Masala Bonds are issued by Indian firms to raise funds from foreign investors.

Question 14

What is the key characteristic of Masala Bonds?

Answer 14

The risk in Masala Bonds is borne by the investor, meaning any depreciation in the exchange rate of the Indian Rupee has a negligible effect on the issuer of these bonds.

Question 15

What is the meaning of “hedge” in hedge funds?

Answer 15

“Hedge” in hedge funds refers to protecting against risk.

Question 16

Who are the investors in hedge funds?

Answer 16

Hedge funds collect funds from recognized investors such as wealthy individuals, corporations, and banks.

Question 17

How are hedge funds structured?

Answer 17

Hedge funds often function as overseas investment corporations or private investment partnerships.

Question 18

Do hedge funds need to be registered with SEBI (Securities and Exchange Board of India)?

Answer 18

Hedge funds do not need to be registered with SEBI.

Question 19

What assets can be found in a hedge fund portfolio?

Answer 19

A hedge fund portfolio can include assets such as equity shares, bonds, debentures, preference shares, and more.

Question 20

How are hedge funds managed?

Answer 20

Hedge funds are managed by professional fund managers who employ various strategies to generate returns for the limited partnership of private investors.

Question 21

What are Participatory Notes (P-Notes) also known as?

Answer 21

Participatory Notes are also known as overseas derivative instruments.

Question 22

When did SEBI allow the issuance of P-Notes?

Answer 22

SEBI allowed P-Notes in 2000.

Question 23

Who issues P-Notes and to whom are they issued?

Answer 23

P-Notes are issued by a registered Foreign Portfolio Investor (FPI) to overseas investors who want to invest in the Indian stock market without registering with SEBI.

Question 24

What is the purpose of P-Notes?

Answer 24

P-Notes provide an easy route for overseas investors to invest in India.

Question 25

How did P-Notes attract a significant amount of investment in India?

Answer 25

A large amount of money was invested in India through the P-Notes route.

Question 26

Why did SEBI introduce Know Your Customer (KYC) norms for P-Notes?

Answer 26

P-Notes were found to be used as a medium for investing black money in the economy, prompting SEBI to introduce KYC norms to regulate P-Note investments.

Question 27

What impact did the introduction of KYC norms have on P-Note investments?

Answer 27

The introduction of KYC norms made investment through P-Notes more difficult, leading to a decline in investment through this route.

Question 28

What are Venture Capital funds?

Answer 28

Venture Capital funds are funds raised by wealthy individuals to support new businesses.

Question 29

Who are Angel Investors?

Answer 29

Angel Investors are high net-worth individuals who provide funds to new or ongoing businesses for expansion purposes.

Question 30

What is Crowdfunding?

Answer 30

Crowdfunding is a method of raising capital through the collective effort of a large number of individual investors.

Question 31

What is the purpose of Venture Capital funds?

Answer 31

Venture Capital funds aim to support and finance new businesses.

Question 32

What is the purpose of Angel Investors?

Answer 32

Angel Investors provide funds to businesses for expansion and growth.

Question 33

What is the purpose of Crowdfunding?

Answer 33

Crowdfunding provides funds to businesses for their expansion and development.