terminologies

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sangita

sangita (Querist)
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19 January 2009 HII

PL explain the foll terms

1.Hedge funds
2. Pledging of shares

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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20 January 2009 ‘To hedge’ means to minimize risk or insulate oneself. Conventionally the term 'hedge fund'is used to refer to a type of private investment vehicle that invests all or most of its assets in
publicly traded securities and hedges the investors’ risk from market exposure. These
investment vehicles are commonly structured as limited partnerships in which the investment manager, or the investment manager's capital management company, acts as the general partner while the investors act as the limited partners. These funds are alternative investment vehicles and are generally available to high net worth individuals and institutional investors. For the investors who make up the fund, there is usually little or no market liquidity. In fact they usually have a minimum lock in period ranging from one to three years.

What is a Pledge?

If you wish to take a loan from a Bank against the security of your physical share, the certificate must be physically lodged with the Bank.This action is called a Pledge.In electronic holding also you can pledge the shares by making a request with your DP in favour of any Bank.

Where can the shares be pledged?

You can pledge your shares in a bank which is a DP or a client of a DP.

What are the rules for Pledge Of Locked-in Securities?

Locked-in shares can be pledged with a Lendor (such as a Bank) for a loan.However, the pledge cannot be closed or invoked before the lock-in release date.

How can we Pledge / Hypothecate Shares?

First of all the Bank granting the loan should be a DP or a Client of a DP.You may submit the written Pledge instruction to your DP.The Pledged quantity is blocked in your DP Account by the Bank electronically.The loan is now available for use by you.

Can we dematerialize shares which are Pledged with a Bank if the Bank is also a DP?

Yes. It may be, with the permission of the Bank.

How to revoke pledged/hypothecated shares?

To revoke pledged/hypothecate shares, you need to submit a pledge revocation form to the DP asking for the revocation of your pledged securities.

What happens after the closure of the loan with the Bank in case of a Pledge?

Upon closure of the loan with the Bank, the Pledge is closed in DP account by the Bank directly.Those released shares in DP account are once again available to as free balances.

What is Pledge Invocation?

When a pledgee does not repay the loan amount the shares pledged with the Bank can be transferred in their favour. This is similar to the physical shares being transferred in the name of the lendor in the event of a default.Who will receive the corporate actions like dividends, bonus etc in Pledged shares . You continue to remain the beneficial holder of pledged shares. You will continue to receive the Dividends, Bonus and all other Corporate actions.

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