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Questions and Answers
What is the primary focus of a Debt Fund as described in the text?
What is the primary focus of a Debt Fund as described in the text?
- Investing in debt instruments of listed and unlisted companies (correct)
- Investing in equity instruments of listed companies
- Enhancing operational performance of companies
- Providing loans to companies
How do LPs (Limited Partners) typically benefit from investments in a fund?
How do LPs (Limited Partners) typically benefit from investments in a fund?
- Sharing management fees with GPs
- Implementing growth strategies
- Receiving all earned profits (correct)
- Actively working with management teams
What triggers the GP (General Partner) to exit an investment according to the text?
What triggers the GP (General Partner) to exit an investment according to the text?
- When they think the investment has reached its maximum potential (correct)
- When management teams enhance operational performance
- When converting the investment into cash
- When LPs receive profits
How do GPs (General Partners) usually earn in a fund based on the text?
How do GPs (General Partners) usually earn in a fund based on the text?
What kind of companies are considered good investment options for Debt Fund investors?
What kind of companies are considered good investment options for Debt Fund investors?
How are Debt funds managed as per the text?
How are Debt funds managed as per the text?
What is the main characteristic of Category III funds?
What is the main characteristic of Category III funds?
What distinguishes Hedge Funds from mutual funds and other investment vehicles?
What distinguishes Hedge Funds from mutual funds and other investment vehicles?
What does a Private Investment in Public Equity Fund (PIPE) involve?
What does a Private Investment in Public Equity Fund (PIPE) involve?
Why do Hedge Funds take up leverage to a great extent?
Why do Hedge Funds take up leverage to a great extent?
What type of investors typically contribute to Hedge Funds?
What type of investors typically contribute to Hedge Funds?
How do Category III funds differ from other funds in terms of their trading strategies?
How do Category III funds differ from other funds in terms of their trading strategies?
What distinguishes revenue bonds from general obligation bonds?
What distinguishes revenue bonds from general obligation bonds?
What is a notable advantage of municipal bonds with a credit rating of BBB or higher?
What is a notable advantage of municipal bonds with a credit rating of BBB or higher?
What is a common disadvantage associated with retail bonds?
What is a common disadvantage associated with retail bonds?
Why are junk bonds also known as high-yield bonds?
Why are junk bonds also known as high-yield bonds?
What purpose do companies typically issue retail bonds for?
What purpose do companies typically issue retail bonds for?
What is the defining characteristic of revenue bonds regarding repayment?
What is the defining characteristic of revenue bonds regarding repayment?
What is one of the issues with the methodologies used by rating agencies highlighted in the text?
What is one of the issues with the methodologies used by rating agencies highlighted in the text?
Why does the government argue that rating assessments discriminate against developing countries?
Why does the government argue that rating assessments discriminate against developing countries?
What impact can the lack of transparency in assigning weights have on credit rating methodologies?
What impact can the lack of transparency in assigning weights have on credit rating methodologies?
What is one consequence of overreliance on qualitative factors in credit rating methodologies?
What is one consequence of overreliance on qualitative factors in credit rating methodologies?
Which factor contributes to the challenging quantification of the impact of qualitative factors on credit ratings?
Which factor contributes to the challenging quantification of the impact of qualitative factors on credit ratings?
What is the minimum allocation under the retail quota in the IPO application process?
What is the minimum allocation under the retail quota in the IPO application process?
In case of oversubscription, how are IPO shares allocated to retail investors?
In case of oversubscription, how are IPO shares allocated to retail investors?
Which investor category includes High Net-worth Individual (HNI) investors in the IPO application process?
Which investor category includes High Net-worth Individual (HNI) investors in the IPO application process?
What is the criteria that distinguishes Small NII (s-NII) from Big NII (b-NII) investors?
What is the criteria that distinguishes Small NII (s-NII) from Big NII (b-NII) investors?
Which entities are included in the NII reserved portion in the IPO application process?
Which entities are included in the NII reserved portion in the IPO application process?
When applying for an IPO, which category of investors would bid between Rs. 2 lakhs and Rs. 10 lakhs?
When applying for an IPO, which category of investors would bid between Rs. 2 lakhs and Rs. 10 lakhs?
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Study Notes
Private Equity Fund
- Evaluates and executes investments in various companies according to the fund's strategy
- Works actively with management teams to enhance operational performance, implement growth strategies, and improve the companies' overall value
- Exits the investment when it reaches its maximum potential, converting it into cash, and distributes profits to LPs
Debt Fund
- Invests in debt instruments of listed and unlisted companies
- Companies with low credit scores release high-yield debt securities with high risk
- Good investment option for debt fund investors are companies with high growth potential, good corporate practices, but facing a capital crunch
- Debt funds collect money from various investors and invest in fixed-income securities like debt mutual funds
Category III Funds
- Aims at short-term returns
- Employs complex and diverse trading strategies
- Includes Hedge Funds and Private Investment in Public Equity (PIPE) Funds
- Hedge Funds pool capital from institutional and accredited investors and invest in domestic and international markets
- Hedge Funds are relatively less regulated and expensive, charging 2% as the asset management fee and 20% of profits earned
Bond Valuation and Prices
- Revenue Bonds: focused on generating funds for specified projects, with repayment and interest processed via revenue generated by the projects
- Advantages: transparency, tax-free interest rates, minimal risk
- Disadvantages: 3-year lock-in period, low interest rates, hard to sell bonds of unpopular municipalities
Investment Options
- Retail Bonds: allow companies to raise capital by borrowing from investors at a fixed rate for a specific length of time
- Junk Bonds (High-Yield Bonds): below investment grade, with high yields but high risk
- Issues with credit rating agencies: discrimination against developing countries, non-transparent selection of experts, lack of transparency in assigning weights, and over-reliance on subjective assessments
Initial Public Offering (IPO)
- Process by which a privately held company gets listed on the stock exchange and sells its shares to investors
- Categories of investors in IPO application process: Retail Individual Investors, Institutional Bidders (NII)
- Allocation of IPO shares: Retail Individual Investors (minimum allocation of 35%), Institutional Bidders (further divided into NII, s-NII, and b-NII categories)
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