This refers to the story on loans (The New Rules of Borrowing, May 2010). Investing in IPOs with borrowed money is not the only risk associated with them. The market value of several IPOs drops below their issue price in a short span of time, resulting in huge losses for investors. Has the Securities and Exchange Board of India (Sebi) framed any safeguards to prevent this? Shouldn't only the firms that have been in business for a certain number of years be allowed to issue shares at prices higher than their face values?
Mahesh Sharma, Mangalore
There has been a lot of debate on the pricing of IPOs, with recent offerings inviting poor investor participation because their price bands were perceived to be too high. However, one must remember that stocks are inherently risky and investors should subscribe to IPOs only if they believe in the company. On the other hand, buying and selling opportunities crop up only if there is a rise and fall in stock prices, which results in gains.
Still, Sebi has been working towards higher market transparency and has given companies the option to provide different closing dates to QIBs and retail investors. This is aimed at helping investors gauge the demand before participating in the public issue. Sebi has also asked the rating companies to disclose more information on the manner in which public issues are rated. These measures should help investors take an informed decision on IPOs.
The story on debt investments (The Best Debt Options for you, April 2010) recommended short-term debt funds for an investment horizon of 6-8 months. Which are the instruments that these funds invest in and how does this make them more suitable for short tenures?
Firoza Daruwalla, Panaji
Short-term funds invest in fixed-income instruments that mature in less than three years. These include debentures, certificates of deposit (CDs), commercial papers (CPs), and cash and call money markets. Currently, the maturity period for short-term funds ranges from six months to one-and-a-half years. As these funds do not invest for the long term, they are less susceptible to interest rate fluctuations. This makes them a good investment option during periods of rising interest rates.
In the story on studying abroad (How to Fund a Foreign Degree, May 2010), you mentioned that a student must start repaying an education loan one year after finishing the course or six months after acquiring a job. What if I do not get a job even after a year of completing my studies? Can the repayment period be extended?
Naerayan Ramaswamy, Nashik
As the policy on repayment varies for different banks, you will have to ask your bank if it is willing to provide an extension. Typically, banks base this decision on the reason for not finding a job within a year. If it is due to an unavoidable situation, such as an accident, the bank may extend the period by a few months. It can also approach the guarantor/coborrower (third-party guarantor if the loan is above Rs 4 lakh) to initiate the EMI payment.
