Sebi was established in 1988 by the Government of India and the power was given on 30th Jan 1992.

Objective

• prevent trading malpractice
• protect rights and interest of investors
• regulate and develop a code of conduct
• regulate Stock Exchange

Functions of SEBI

1. Protective functions

• Prohibits fraudulent and unfair trade practice
• Promotion of Fair practice and code of conduct
• Undertaking steps for investor protection
• Controlling insider trading and imposing penalties and search malpractices

2. Developmental functions

• Ensuring training of intermediaries of stock market
• Protecting interest of investors
• Facilitating flexibility in working of capital market

3. Regulatory function

• Registration and regulation of brokers and sub brokers
• Registration of collective investment scheme and mutual fund
• Conducting enquiries and audit of Stock Exchange and intermediaries
• Regulation of portfolio exchange underwriter and dealing in Stock Exchange
• Regulation to takeover bid by the competitors

This is a little insight to what SEBI does and what areas are under its jurisdiction.

Why was SEBI established?

With the growth in the dealings of stock markets, a lot of malpractices also started in stock markets such as price rigging, ‘unofficial premium’ on new issues, and delay in delivery of shares, violation of rules and regulations of stock exchange and listing requirements. Due to these malpractices the customers started losing confidence and faith in the stock exchange. So, the government of India decided to set up an agency or regulatory body known as Securities Exchange Board of India (SEBI).

SEBI went from being a toothless tiger to strong as a lion after the government saw the real need to bring regulatory intervention in the capital market following events in the 1990s. SEBI was tasked with being a watchdog for the capital market in India. Over the years it has made the Indian capital market a much safer place for investors to participate. It has surely increased investors’ trust in Indian markets by taking firm actions on the fraudulent activity by any and all participants of capital markets from investors to stock exchanges. Building the trust in the capital market for HNIs to Retail investors is a very crucial task for free flow and working of capital in India.

List of effective changes Introduced by SEBI in capital market

• T+2 trading settlement system.
• Dematerialization of share certificates (1999).
• Banned entry loads for mutual fund schemes in 2009
• The task of giving approvals to FII registrations was handed over to SEBI in 2003. In order to discourage FII investments made through P-notes, Securities and Exchange Board of India has imposed sufficient checks and balances to avoid the flow of black money into the Indian markets.
• Strict vigil on usage of IPO 1ssue proceeds, greater disclosure by companies and their bankers and allotment of a minimum number of shares to retail investors.
• SEBI has also introduced e-IP0 procedure for electronic bidding in public offers to help investors bid for shares in a cost-effective manner.
• In 1996-97, Securities and Exchange Board of India directed all exchanges to fix the daily price band at 10% and a weekly overall limit of 25% to curb undesirable volatility. To bring about a coordinated trading halt in all equity and derivatives markets nationwide, Securities and Exchange Board of India introduced an index-based circuit breaker system applicable at 10%, 15% and 20% movement either way.
• Securities and Exchange Board of India has a web-based centralized grievance redress system called SEBI Complaints Redress System SCORES for assisting investors to lodge their complaints in a structured way.
• NB: International Organization of Securities Commissions- IOSCO under its Financial Sector Assessment Program -FSAP acknowledged that the comprehensive risk management framework prescribed by SEBI is one of the pillars of the Indian securities settlement system.
• Securities and Exchange Board of India distinguishes itself from other regulators in India as it is a financially independent regulator with its own sources of revenue.

Over the years SEBI as a regulator has issued numerous regulations to create checks and balances over all the participants of the capital market. These regulations on: Merchant bankers, Stock brokers, Debenture trustees, Share transfer agent, Bank to an issue, Custodian, Mutual fund, Collective investment scheme, Credit rating agencies, Foreign venture capital investors, Associated person to securities market, Intermediaries, Securitised debt instrument, Alternate investment funds, Investment advisor, Infrastructure investment trust, Real estate investment trust, Research analyst, Stock exchange and clearing corporation, Foreign portfolio investors, Portfolio manager, Underwriter, Vault manager.

SEBI has also issued regulations regarding the functioning of a listed entity and its function. These are as follows:

1. Procedure for board meeting
2. Employee services
3. Key your customer (KYC)
4. Listing obligation and disclosure requirements
5. Buy-back securities
6. Issue of capital and disclosure requirement
7. Settlement procedure
8. Delisting of equity shares
9. Issue of non-convertible securities

All these regulations have a reason and a story behind it, to protect the market participants from illegal and fraudulent activities. All the regulations are welcomed by each and every party.

Why should SEBI regulation be welcomed?

The whole system works on trust between parties. These regulations are from a common sense approach to effective and efficient function of the capital market and which return increases confidence in the investors. Without regulations there have been instances which destroyed investors’ wealth. We can see what has happened to the cryptocurrency market in 2022 due to no regulations in the market. It has caused chaos and welcomed fraudulent schemes blowing up and destroying investors capital and which has discouraged people from getting into the market again. SEBI has welcomed new products and made rules and regulations according to the main function of SEBI in the center to encourage innovation in financial products as well as protecting investors at large.

Now retail investors have access to a lot of products which were not in reach due to barriers to entry. Due to SEBIs intervention resulted in access to those products at the same time making it safer for the retail investors.

When there is growth in the wealth of a family and managing money that has crossed a certain threshold it becomes a difficult task to DIY and might result in loss of wealth and serious injury to family financial health. Let’s see how the Family wealth office provides a solution to managing wealth creation and preservation.

How does a family wealth office function?

1. Family offices are wealth management advisory firms that serve ultra-high net worth investors and provide complete financial advice and solutions.
2. Family offices provide clients with legal, insurance, investment, estate, business, tax, lifestyle, and even philanthropy-related advice.
3. Family offices are either a single-family office run by a family member or an appointed CFO who looks after one family’s wealth or multi-family offices run by professionals who serve more than one family.
4. It is important that the objective of the family office is defined clearly and resonates with the entire family for it to function smoothly.
5. Typically, the decisions of the family office are approved by a family council before execution and this process is followed to ensure trust and transparency.

Reason why someone should select a family office:

1. It is personal and tailored to the need of the Individual family.
2. It serves a privacy purpose. All the necessary data and information of the family is safe and secured at one location. Serves as gatekeeper and guardian to the family’s financial life.
3. It just doesn’t serve the single purpose but over purpose of family for perpetuity.
4. Serves the purpose of wealth creation for the next generation of family and at the same time current financial needs of the family. Overall prosperity is provided by the family office.
5. Family office consists of experts and people with specific skills and competencies. Family office involves professionalism.

By looking at the reasons it is a good choice to go for the wealth management solution by the Family wealth office as mentioned above.

Creating and managing a family office may seem a daunting task. After all, it is another organization that needs staffing and oversight. Compared with the status quo—which is often the delegation of wealth management to various banks and asset managers combined with a lack of attention to other important family matters—a family office is considered an additional layer of complexity and cost. Given the various financial and non-financial benefits, however, with increasing wealth and complexity, not having a family office is often more costly than having one in the medium- to long-term.

Factors that are important for the family while selecting a Family Wealth office.

The best place to start when considering a family office is to articulate the family office’s goals and vision—whether that is value creation, achieving long-term strategic objectives for the family, or other combinations. Consider what the family actually needs—right now and over the next 5–10 years. Avoid making these directional decisions in isolation among only one or two people; instead, use this as an opportunity to have family-wide conversations about the family’s future.

A family doesn’t need to build its own wealth management firm or provide all of the services.

Get in touch with UpperCrust Wealth to start your Family wealth journey.

We all saw what happened to the Crypto market in 2022. It got slashed by 70-80% of its value. There were numerous reasons for this like the Fall of Algo-stable coins (Terra-Luna), Small Token which was an elaborate scam, Pump and dump schemes, and other financial factors like Interest Rate hikes, Glooming recession, etc but there is a lesser-known reason which is Leverage. This was very evident in the Financial crisis of 2008 where Big institutions were negligent towards the use of Leverage. They used it like it was a brilliant shortcut to wealth creation and crashed the world’s financial markets.

So let us understand what Leverage is.

Financial leverage results from using borrowed capital as a funding source when investing to expand the firm’s asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment.

You have 100 Rupees of investment capital and your broker gives 2x or 3x leverage which means you have 300 rupees to invest or trade with. If the investment gives you a 50 rupee return you will have an effective return of 50% and not 16.67% Seems a good deal, right? Yes, it is very good as it helps to maintain and expand businesses to grow and flourish and also gives a better return to equity investors. But if the investment goes below 200 rupees you will have to liquidate the asset and your whole investment capital would be wiped out.

Leverage has to be used very carefully. Surely it will give you tremendous growth and help you expand quickly. But at a cost and if that cost is not calculated it can be a very risky bet on the whole business. Leverage has killed more successful businesses than any other factor. Leverage is very important in the financial industry.

There are various types of leverage:

Leverage used in Business

As we discussed, business uses the Long term, and short-term debt to do various activities such as undertake new projects, increase production, create new assets, etc. Various types of debt: Debentures, Term Loans, Credit lines, etc.
It is calculated as compared to shareholders’ or owners’ capital and is known as Financial leverage whereas Operating leverage is calculated as compared to its fixed asset, turnover.

Leverage used in Personal Life

Leverage is used in personal life as well as much used in business. It is in the form of loans for cars, homes, studies, etc.

Leverage used in investing

As we discussed earlier with an example we use the leverage provided to maximize the return by investors. A few examples of leverage are Margin, Debt, etc.

Leverage used in trading

Professional traders use leverage like coffee to jack up their returns and use risk management and use the margin given to them by brokers.

There are various ratios to calculate leverage:

• Debt-to-equity Ratio: Total Debt / Total Assets
• Debt-to-EBITDA = Total Debt / Earnings Before Interest, Taxes, Depreciation, and Amortization
• Equity Multiplier = Total Assets / Total Equity
• Degree of Financial Leverage = % Change in Earnings Per Share / % Change in Earning Before Interest and Taxes
• Consumer Leverage = Total Household Debt / Disposable Income

Few of the real-life examples of leverage-caused disasters:

• Arches Capital Management collapse was given an 8 to 1 ratio by prime lenders with which they gambled in the capital market.
• Lehman Brothers/ Merrill Lynch (Lehman’s ratio was 30.7 to 1 & Merrill Lynch’s Ratio was 26.9 to 1 at one point in time.
• Crypto exchanges gave 60 to 1, 80 to 1, 100 to 1, and some 125 to 1 leverage, this was followed by an extremely high rate of liquidation of traders all over in the recent sell-off.

Conclusion

Use this Double-edged sword wisely it will fetch what you want or might tear down whatever you have.

Interest in ESG has never been higher and pressure is on investment organizations to move towards the sustainable investing model as the world shifts from ESG as an Idea to Reality. From Institutional investors to retail investors ESG is on top of the mind and growing. 90% of investment professionals expect their firm’s commitment to ESG will increase, citing the need to manage risk and respond to client demand.

So the question is what exactly is ESG? How does it dictate the investing method?

ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these nonfinancial factors to their analysis process to identify material risks and growth opportunities. ESG metrics are not a mandatory part of Financial reporting, though companies are increasingly making disclosures in their annual or standalone sustainability reports. Numerous institutions, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are working to form standards and define materiality to facilitate the incorporation of these factors into the investment process.

Due to the growing focus of companies and investors on ESG, the Indian government is also giving importance to being at the forefront of ESG focus metrics reporting. SEBI recently replaced the Business Responsibility Report (BRR) with the new Business Responsibility and Sustainability Report (BRSR). BRSR is applicable to the top 1000 listed companies by market capitalization and is mandatory for the financial year 2022-23 i.e., from 1st April 2022.

ESG investing involves analyzing these 3 considerations into financial models. These are done in 2 ways:

1. Negative screening/Exclusionary investing: It means removing companies from the list of the universe of stock of investing based on certain traits which investors looking to avoid, firearms, alcohol, and gambling, or other time it involves removing companies that are showing red flags like those with the history of human rights violations, committed fraud.
2. Positive Screening/Inclusionary investing: It means being proactive more proactive and looking to invest in companies that are actively benefiting or supporting positive initiatives while operating their business this includes renewable or green investing where investors put their money behind wind solar and other sustainable energy companies as well as investing in companies with more equal opportunity employment practices.
3. Impact Investing: Invests in a company that attempts to deliver a measurable social or environmental impact alongside Financial Returns.

There are other styles of investing which are used in ESG that are: Best in class, Thematic investing, and Goal-based Investing. In India, 100% of respondents expressed interest or were already using ESG strategies—up from 96% in 2018 which was top of all the countries followed by China and UAE.

All these factors mentioned above are taken together and it evaluates ‘Is the business worth investing in?’ But investors should also keep in mind that it is able to perform financially too or else it will be like pouring money into charity.

Other strategies for socially conscious investing

While ESG offers one strategy for aligning your investments with your values, it’s not the only approach.

Socially Responsible Investing (SRI)

Socially responsible investing (SRI) is a strategy that also helps investors align their choices with their personal values. SRI presents a framework for investing in companies that agree with your social and environmental values.

Whereas ESG investing takes into account how a company’s practices and policies impact profitability and future returns, SRI is more tightly focused on whether an investment is more precisely in line with an individual investor’s values. ESG factors in corporate performance while SRI solely focuses on the investor’s values.

For example, if health and well-being are key values for you, one possible SRI strategy would be to completely avoid investments in companies that make alcoholic beverages or tobacco products. An ESG strategy might be fine with investing in tobacco or alcohol manufacturers so long as the companies’ social and management policies met high standards, and their environmental record was strong.

Impact Investing

Impact investing is less focused on returns and more focused on intent. With impact investing, investors make investments in market segments dedicated to solving pressing problems around the globe. These sectors could include those making advancements in green and renewable energy, housing equity, healthcare access and affordability, and more.

The Global Impact Investing Network (GINN) has four published guidelines for impact investments:

• Intentionality. Investments are made with the intention to affect positive social or environmental change.
• Investment with return expectations. Of course, investments should generate a return of capital at a minimum.
• Range of return expectations and asset classes. Different investment areas should have aligned expectations about returns. Sometimes these returns are below market rate.
• Impact measurement. Investments should have an exceptional level of transparency so investors can assess how their dollars help to achieve meaningful change.

Compared to ESG, impact investing may generate lower returns depending on the sector invested in due to concessions investors make to support earlier-stage ventures in less developed markets. However, for investors with a sincere interest in effecting social equity, impact investing offers a more direct approach to affecting change with highly focused investments.

Conscious Capitalism

Created by Raj Sisodia, a marketing professor, and John Mackey, the co-founder of Whole Foods, conscious capitalism is the belief that companies should act with the utmost ethics while pursuing profits.

The four guiding principles of the movement, as defined by Conscious Capitalism, are:

• Higher purpose. Profit for these companies is a reward for a well-built conscious company, not the end-all, be-all. They strive toward a higher purpose and more significant impact on the world beyond money and market share.
• Stakeholder orientation. A company and its leaders should develop an ecosystem that balances the needs of all stakeholders equally, not overweighting shareholder returns at the expense of other stakeholders.
• Conscious leadership. Leaders should work towards developing an inclusive culture and weigh equally the interests of all stakeholders in the business—from employees to shareholders to customers.
• Conscious culture. Companies should intentionally create a culture within their businesses that promote their values and purpose.

Conscious capitalism is strikingly similar to ESG—with one notable difference. The principles of conscious capitalism are typically embodied by the leader of a company, which often leads to them running a company with a high ESG score. Thus, when investors practice an ESG-guided investment strategy, they’re likely to choose companies that embody conscious capitalism principles.

So, to conclude, ESG investing is very important for an emerging economy like India as it provides an opportunity for all stakeholders to build an economy that is financially inclusive and measured by parameters beyond financial metrics. SEBI is indeed a visionary to facilitate the achievement of the United Nations Sustainable Development Goals and the Paris Agreement on Climate Change by way of mandatorily requiring ESG reporting by Indian companies. One hopes that the applicability of the BRSR reporting is extended to all listed companies and large unlisted companies.

Investing in startup companies is a very risky business, but it can be very rewarding if and when the investments do pay off.

Why invest in start-ups?

1. Early investment

Startup investing gives investors an opportunity to come in early and reap the reward of being patient and investing in early stages. Investing in early stages of a startup gives an immense growth potential in various industries.

2. Diversification

There are a lot of industries in which start-up investing is done and a lot of them are future-based and various options let the investor diversify their portfolio sector-wise as well as the type of investments.

3. High Risk and Reward

Investing in a start-up that has not proved viability or achieved profitability involves high risk, with this high-risk results in high return. The type of return that not any other asset class can generate.

4. Impact investing

Investing in start-ups is directly contributing toward innovation in which socially conscious investors want to have crucial changes like ESG, climate change reversal, food scarcity, etc. This opportunity is available while investing in start-ups as they have an influence on start-ups.

5. Buy-outs

Start-ups investing are not just preferred by individuals, they are seen as very attractive investments by corporations for various reasons. This gives an exit opportunity for investors who have invested in the start-ups when product development stages or early stages.

How to invest in startups?

How to identify and evaluate a startup worth investing in? There is no exact science behind how to evaluate the startup but there are techniques through which successful angel investors have made their best investment in any start-up. One of these techniques is the T5 model:

1. Total Addressable Market
2. Team
3. Traction
4. Timing
5. Technology

1. Total addressable market

TAM refers to the total market demand for a product or service. It’s the maximum amount of revenue a business can possibly generate by selling its product or service in a specific market.

TAM is a metric that is a key component of a business plan, particularly for a startup to craft its marketing and sales strategy, set realistic revenue goals, and choose to enter the markets that are worth their time and resources. When we are assessing a startup its first essential is to know and measure the TAM and our of that how much they can service in current growth and how much they aim to with the current state. It is calculated by bottom-up analysis of the business.

Numbers of customers in the market X Average annual revenue of the customer

This is used to measure the exact market value that a startup is aiming to do business in a given period of time for a given situation. Due to limitations(Geographical, etc) now the whole TAM can be addressed by the startup and it is carved out to SAM(Serviceable Addressable Market) and which is in turn carved into SOM(Serviceable Obtainable Market) which is the value of the customer they can convince to buy the given product or service.

2. Team

If a business is a human body then a team of the business is the organs of the body. There is a huge amount of focus on the business team for the success of any start-up. The way they function individually and together determines how business development takes place. To evaluate a team there are a few parameters that are very important to look at. These are as follows :

• Hunger for win
• Business acumen
• Intelligence
• Perseverance

All the four given parameters are interlinked with all the factors of the T5 model.

3. Traction

Business traction is the initial progress and momentum a startup builds as it grows. Traction indicates that the products and services your business is offering are viable.
It is the stage where the startup takes off. It helps us to understand where business is headed and how we navigate to reach the destination. It also shows that what you’re providing has achieved market fit, and the brand is growing, for you are attracting attention from the right audience. It is also to understand how visible the product or service is and what demographics they are serving and aims to serve. Profitability is not a single metric of traction. There are various metrics such as monthly signups, clicks, churn rate, etc. these can be widely segregated into the following metrics:

• Revenues
• Profitability
• Clients and Partnerships
• Active Users
• Stakeholders’ Engagement

4. Timing

Market timing is a critical element in the growth and success of any business. Timing can be defined as launching the product or service at the right time in the right place. If your startup arrives too early, you may not get the expected traction. If it enters the market late, there are already competitors and entry barriers to fend off, and your startup may end up being a case of ‘me-too’.So, let’s assume that your idea is fantastic, you have a strong team in place and even there is sufficient funding at your disposal to scale it. However, if the market is not ready to buy your product, nothing else matters or works. There are preconditions to get the correct timing of the business:

• Enabling technology
• Economic Impetus
• Cultural Buy-in

5. Technology

Now, this is a time when all the new businesses will be Technology-based startups or Technology-enabled startups. There is no other type of startup which are going to succeed.

Technology-based startup: Also known as a tech company, it is a firm focusing on the development and manufacturing that uses leading-edge scientific and technological knowledge systematically and continuously to produce new goods or services with high added value.

tech-enabled startups use existing technology to improve the efficiency or performance of a product the market already uses. Tech-enabled companies aren’t building the internet, mobile devices, or social media platforms; they’re using those technologies. To understand the startup it is very crucial to understand the product and service that the business is offering and which type of tech they are relying on: making a tech or using a tech.

Before you invest

First-time investors need to understand the pros and cons of investing in start-ups very carefully and assess the start-ups accordingly. It takes time to evaluate on their own. New startup investors can join investor groups like angel investor groups or platforms which provide an opportunity to invest in start-ups that are SEBI registered and over the period of time investors can start using experience and metrics to evaluate start-ups.