Initial Public Offering (IPO) and Categories of Investors Quiz

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Questions and Answers

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?

  • 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?

  • 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?

<p>By charging a management fee (C)</p> Signup and view all the answers

What kind of companies are considered good investment options for Debt Fund investors?

<p>Companies facing capital crunch despite high growth potential and good corporate practices (A)</p> Signup and view all the answers

How are Debt funds managed as per the text?

<p>By collecting money and investing in fixed income securities (B)</p> Signup and view all the answers

What is the main characteristic of Category III funds?

<p>They employ diverse trading strategies for short-term returns (A)</p> Signup and view all the answers

What distinguishes Hedge Funds from mutual funds and other investment vehicles?

<p>Higher management fees (B)</p> Signup and view all the answers

What does a Private Investment in Public Equity Fund (PIPE) involve?

<p>Buying shares of publicly traded stock at a discounted price (D)</p> Signup and view all the answers

Why do Hedge Funds take up leverage to a great extent?

<p>To generate high returns (D)</p> Signup and view all the answers

What type of investors typically contribute to Hedge Funds?

<p>Institutional and accredited investors (A)</p> Signup and view all the answers

How do Category III funds differ from other funds in terms of their trading strategies?

<p>They use diverse strategies for short-term capital growth (A)</p> Signup and view all the answers

What distinguishes revenue bonds from general obligation bonds?

<p>They have extended maturity periods. (C)</p> Signup and view all the answers

What is a notable advantage of municipal bonds with a credit rating of BBB or higher?

<p>No taxes on the interest earned (D)</p> Signup and view all the answers

What is a common disadvantage associated with retail bonds?

<p>Limited trading flexibility (C)</p> Signup and view all the answers

Why are junk bonds also known as high-yield bonds?

<p>For falling below investment grade (B)</p> Signup and view all the answers

What purpose do companies typically issue retail bonds for?

<p>To fund specific projects or expand business (D)</p> Signup and view all the answers

What is the defining characteristic of revenue bonds regarding repayment?

<p>Repayment is made from revenue generated by specified projects (B)</p> Signup and view all the answers

What is one of the issues with the methodologies used by rating agencies highlighted in the text?

<p>Neglecting the impact of public sector banks in developing countries (A)</p> Signup and view all the answers

Why does the government argue that rating assessments discriminate against developing countries?

<p>Because of non-transparent selection of experts for assessment (C)</p> Signup and view all the answers

What impact can the lack of transparency in assigning weights have on credit rating methodologies?

<p>Leading to difficulties in quantifying the impact of qualitative factors (A)</p> Signup and view all the answers

What is one consequence of overreliance on qualitative factors in credit rating methodologies?

<p>Cascading effects and cognitive biases (B)</p> Signup and view all the answers

Which factor contributes to the challenging quantification of the impact of qualitative factors on credit ratings?

<p>Opaqueness in assigning weights by rating agencies (A)</p> Signup and view all the answers

What is the minimum allocation under the retail quota in the IPO application process?

<p>35% (A)</p> Signup and view all the answers

In case of oversubscription, how are IPO shares allocated to retail investors?

<p>Randomly using a lottery system (C)</p> Signup and view all the answers

Which investor category includes High Net-worth Individual (HNI) investors in the IPO application process?

<p>Institutional Bidders (NII) (A)</p> Signup and view all the answers

What is the criteria that distinguishes Small NII (s-NII) from Big NII (b-NII) investors?

<p>Amount of shares bid for by the investor (C)</p> Signup and view all the answers

Which entities are included in the NII reserved portion in the IPO application process?

<p>Companies, NRIs, HUFs, FPIs, and Trusts (B)</p> Signup and view all the answers

When applying for an IPO, which category of investors would bid between Rs. 2 lakhs and Rs. 10 lakhs?

<p>Small NII (s-NII) (D)</p> Signup and view all the answers

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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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