Alternative Investment Funds (AIF) are a privately pooled investment vehicle, set up as a separate entity, which collects funds from its investors for investing it in accordance with a defined investment policy for the benefit of its investors. Alternative Investment Funds raise funds from investors by way of issue of units. An…

A Hedge Fund is an Alternative Investment Fund that pools funds from a limited number of private investors and employs aggressive investment strategies; including investment in domestic and offshore derivative products, to maximise returns for its investors. Hedge Funds typically are subject to less stringent regulatory control and disclosure requirements than other…

Factoring is an arrangement under which a business house outsources the collection of its book debts to an external entity (a factor) against the payment of a fee. The concept Business houses sell goods and services both in cash and on credit. Under credit sales, a credit period is offered to the…

To have an understanding of Alpha, an understanding of the concept of Stock Beta is important. The Beta of a stock is the measure of non-diversifiable risk that the stock incorporates. It is calculated as follows: Beta = Cov (jm) / σ 2m Where, Cov(jm) = Covariance between the daily return of…

A Reverse Stock Split, as the name indicates, is the opposite of a stock-split. It is the act of consolidating of two or more shares of a company whereby the number of shares outstanding is reduced. A reverse stock split brings about an increase in the Face Value of a share.  Recommended…

Deep Discount Bonds are similar to Zero Coupon Bonds. They do not carry any coupon rate i.e investors of Deep Discount Bonds do not receive regular interest payments. Deep Discount Bonds are generally issued at a discount (i.e at a price lower than the face value) and redeemed at par value. It…

Zero Coupon Bonds (ZCBs) are bonds that carry a ‘zero’ coupon rate. Therefore Zero Coupon Bonds do not pay interest to the investors. ZCBs are issued at par value and redeemed at a premium. It is this difference between the purchase price of the bonds and its redemption value i.e the premium…

A stock split is a term used to denote a situation where a company increases the number of its shares outstanding by reducing the face value of its shares. The concept of stock split can be better understood with an example: Let us assume that the shares of QR Ltd are currently…

Dematerialisation is the process by which physical shares are converted and maintained in an electronic format.  A ‘depository participant’ plays a key role in the dematerialisation process. The process of dematerialisation is captured in the following steps: 1. The client opens a demat with a depository participant (DP) and surrenders his/her physical…

Shares of a company which are readily available for trading in the stock markets are termed as ‘Free Float’ Shares. To compute the Free-float shares of a company, subtract the following from the total shares issued by the company: Shares held by promoter/promoter groups. Shares held by the Government. Shares held by…

Bonus shares are additional shares that are issued to existing shareholders of a company at no additional cost. The existing shareholders are simply allocated additional shares in proportion to the number of shares currently held by them. The common trend is to indicate bonus shares as a proportion. For example, if a…

Companies resort to Right Issue is a means of raising finance by issuing additional shares to the existing shareholders of the company. Under a right issue, new shares are often issued at a discount to the current market price of such shares and the ‘existing’ shareholders of the company are given a…