SECONDARY OPTIONS

Another approach to the problem of identifying promising SMEs is to involve venture capitalists, private equity funds and other investment institutions. These providers of equity support are risking their own money, are knowledgeable and can be expected to be shrewd investors. The involvement of such investors is an indirect way of ensuring good selection of SMEs.Firstly, in order to make shares of SMEs reasonably attractive as an investment, the investors need to be assured that they will not be ‘locked in’. That is , liquidity has to be provided by a system of market-makers who are prepared to buy as well as sell SME shares. Only then will investors be willing to invest in SMEs, many of which may be innovative fast- growing companies. Some of them may turn out to be highly successful future stars. Secondly, genuine investors need to be assured that the managements of the SMEs are honest and competent. There should be some system for screening the SMEs from the view point of ensuring that they are reasonably sound enterprises with honest managements.

NOMADS IN BUSINESS

The alternative investment market, which is an offshoot of the London stock exchange but quite distinct, achieved great success. The AIM was launched in 1995. It has been described by the chide executive of the London stock exchange in the following words:

“The core mission AIM is to provide a market for small and medium sized companies that are ambitious to grow and need capital for expansion”. The AIM requires every company seeking listing on it to have a nominated advisor (called Nomad). The nomad is responsible for ensuring that the company is suitable for listing on the AIM. The nomad keeps track of the company’s performance and behavior. If a company ceases to have a Nomad, it will be delisted form AIM. The nomad system ensures the genuineness of the companies coming to AIM. Nomads are usually professional firms comprising chartered accountants, legal practitioners, etc. The nomad system is unique to London.

BUY AND SELL QUOTES

In the case of thinly traded shares, there has to be a system of market makers who provide two-way quotes, a quote at which they are prepared to buy and another quote at which they are prepared to sell. Such a system is called quote-driven system as against order-matching system which prevails for the heavily traded shares of large and well knows companies. Both London and New York stock exchanges had strictly regulated systems of market-makers, known as ‘jobbers’ in London and ‘specialists’ in New York. In India, the Bombay stock exchange also used to have jobbers who gave two-way quotes but they were not all regulated and the spread between the buying and selling quotes of these jobbers was so wide that they were nicknamed as robbers. So far as SMEs are concerned, a market-making system is absolutely indispensable. NASDAQ, which was originally created in the US for SMEs, requires every company seeking listing on it to have at least three market-makers all the time.

PERIODIC REVIEW IS NECESSARY

Equity model portfolio management is an incomplete exercise without a periodic review. Every security should be subject to severe scrutiny and a case made out for its continuation or disposal. The frequency of review will depend on the size, amount involved and the kind of securities held in the portfolio. Here, we can see corporations present three model portfolios viz. conservative portfolio, moderate portfolio, and the aggressive portfolio. These portfolios have been designed keeping in mind various key parameters like the time horizon of investment, returns expected, the indices to which they are benchmarked, etc. Many leading companies have included the intervals at which the performance of each portfolio which will come handy at the time of your investment.

It is pertinent to recognize in this context that trading in shares of SMEs is inherently thin and infrequent. Hence, routine matching of buying and selling orders is rendered extremely difficult. A purely order matching system cannot work smoothly in this situation.

MARKET MAKERS – THE REAL FACTOR

Market-makers need to be supported by providing them facilities for borrowing/lending of shares as well as of money. Suppose, a person holding some shares in a small company places an order with his broker to sell the shares but no buyers is available immediately. The market-maker can fill this gap by buying the shares and holding them for the time being till some other buyer can be found. The market-maker should be provided the facility to borrow money. Similarly, the market-maker will also need to be provided the facility to borrow shares so that the facility to borrow shares so that he can sell shares to fill an investor’s order even if the market-maker does not possess the shares at that moment. Almost a decade ago, SEBI in India had constituted a committee on market making. The committee had made several useful suggestions. They remain unimplemented.

INSTANT INSURANCE

One could always choose appropriate insurance policies according to his needs. Getting in touch with an insurance agent or contacting the call centre of the insurance company would be a wise idea. The fast paced urban lifestyle calls for services that customers can avail of at the click of a button, from the convenience of their homes, workplaces or when on the move. Today, new channels for buying of insurance products, life as well as non-life, and availing of insurance services have emerged. You can also buy an instant insurance policy online. The process is similar to buying a train ticket online. A digitally signed e-policy is issued immediately and the hard copy couriered the next day. An online account is created with a secure login id and password through which the customer can view, print, renew and extend his/her policies. You can keep track of your transaction details and claims status online as well.

POWER OF A BUDGET

Typically in this recession scenario, one of the effective ways which will keep you going on is managing your finances. Create a budget; allocate amounts for essential versus luxury expenses like entertainment, clothes and travel. Always keep an eye for smart deals and try to save from your daily expenses. You can also invest in your children’s education as well as in commodities like gold and silver, which are returning high profits. Check your bank account on a regular basis and maintain a statement of cash flows coming in and going out. Plan for the long as well as short term and execute with discipline. Plan your portfolio in such a manner that recession does not affect your plans to form a corpus for your retirement