Get your company listed on SME exchange

Small medium enterprises and Family-run businesses are the backbone of the Indian economy and employers to millions of people, have a huge potential to grow. The SME Exchange is an appropriate platform of raise capital for such high growth potential businesses.

With the immense potential of growth that most SME and family run businesses have in the coming decade, the biggest problem faced is access to appropriate timely availability of capital. With the emphasis of banks on collateral based lending, capital in form of equity is of essence for growth. The SME exchanges in India are an appropriate platform to raise this much needed equity growth capital.

The BSE SME exchange is leading the way in India in unleashing the growth potential for family-run businesses and SMEs in the last 10 years. With 400 companies listed on the BSE SME exchange of which 150 companies migrated to the Main Board of the stock exchange. With a market capitalization in excess of INR 58,000 crores and total amount raised in excess of INR 4,000 crores, family business should explore the listing option to raise growth capital to tap the appropriate growth opportunities.

The first step that a company needs to undertake is to appoint a Merchant Banker who helps and guides the company in the complete listing process. A Merchant Banker is an intermediary approved by SEBI that helps companies tap the capital market. The process starts with conducting a due diligence by the Merchant Banker, post which a DRHP (Draft Red Herring Prospectus) is prepared after conducting due diligence regarding the company i.e. checking the documentation including all the financial documents, material contracts, Government approvals, promoter details etc. and planning the IPO structure, share issuances and financial requirements.

An SME Exchange is a stock exchange dedicated for trading the shares/ securities of SMEs who otherwise find it difficult to get listed on the Main Board. The concept originated from the difficulties faced by SMEs in gaining visibility and attracting sufficient trading volumes when listed alongwith other stocks on the Main Board of Stock Exchanges. World over dedicated SME trading platforms or exchanges are prevalent, which are known by different names such as ‘Alternative Investment Markets’ or ‘Growth Enterprise Market’, ‘SME Board’ etc. Some of the known markets for SMEs are AIM (Alternative Investment Market) in UK, TSX Venture Exchange in Canada, GEM (Growth Enterprise Market) in Hong Kong, MOTHERS (Market of the high-growth and emerging stocks) in Japan, Catalist in Singapore and the latest initiative in China-ChiNext. As a matter of fact, NASDAQ also started as an SME exchange.

Eligibility Criteria

The Company shall be incorporated under the Companies Act, 1956 / 2013.

Financials

· Post Issue Paid-up Capital

The post issue paid up capital of the company (face value) shall not be more than INR 25 crores.

· Net worth

Positive net worth

· Tangible Asset

Net Tangible Assets should be of INR 1.5 crores.

· Track Record

The company or the partnership/proprietorship/LLP Firm or the firm which have been converted into the company should have combined track record of atleast 3 years.

Or

In case it has not completed its operation for three years then the company/partnership/proprietorship/LLP should have been funded by Banks or financial institutions or Central or State Government or the group company should be listed for atleast two years either on the Main Board or SME board of the Exchange.

The company or the firm which have been converted into the company should have combined positive cash accruals (earnings before depreciation and tax) in any of the year out of last three years and its net worth should be positive.

Benefits of SME Listing

· Access to Capital

With the Indian economy poised to grow at double digits in years to come and marching towards a USD 5 trillion economy and focus of the Government on helping and growing SME companies, the opportunities for growth for SME and family-run businesses is very high. The only constrain to super normal growth that most small business face is timely access to capital. With the constrains faced in terms of the collateral based system of lending of the banking system in India, access to equity funding is a must for overall growth of the company. The SME exchange provides a platform for appropriate funding.

· Enhanced Visibility and Prestige

The biggest aspect of a family-run business is the reputation, prestige and pride of the family members running the business across generations. In most cases the business is known in the city in which they operate or the state in which they are present depending upon the overall size of the business. Once listed on the stock exchange, which has a nationwide reach in terms of investors as well as brokers, the company is known at a national scale and thereby enhancing the overall visibility of the promoter family.

· Attain Appropriate Business Valuation

Valuation for most family-run businesses is valuation of the land and building. This is mainly for getting appropriate credit from the banks in India, wherein the loan amount depends upon valuation of the asset given as a security and as a secondary collateral. Once listed the share is traded on the SME exchange and thereby the valuation of the company will depend upon the financial performance of the company. If the company is doing very well and has a healthy order book and outlook, the share prices will go up. Over the last 10 years many companies listed in the SME exchange have given multifold returns due to the strong performance of the company.

· Liquidity and Exit for Friends and Family

Most family business is built of capital that is taken from close friends and family; the people that have trusted the promoters at a very early stage. When the company grows and becomes large, when the company is unlisted it becomes extremely difficult for the promoters to provide an exit to such investors. Once listed a partial or complete exit can be provided to such friends and family that have invested at a very early stage.

· Attract Talent

One of the biggest problems faced by most family business is attracting the right kind of talent. Once listed on the stock exchange, it gives the company appropriate visibility and growth prospects, wherein an appropriate ESOP scheme can be structured for the present and future employees to attract the right kind of talent.

· Appropriate Corporate Governance Standards

One of the biggest change that is required in a family business when it attains growth, is the standard of corporate governance. The attitude of owner knows it all and whatever he/she says is correct leads to an environment which is not congenial for growth. Once listed when the company has an appropriate Board of Directors and possibly a family council, it leads to a far better level of corporate governance resulting in growth for the company.

The SME exchange is the apt platform for most family-run business to raise capital, with relaxed listing norms and disclosers on getting listed. In these turbulent times the SME exchange is an apt platform to raise growth capital.

Five reasons to start investing early

Imagine if you had started preparing for exams early? If you had started reading early, learning early, started exercising early… you’d be at a much better place, wouldn’t you? So is the case with saving and investing your money. The sooner you start, the better off you’ll be down the road.

Though many people feel one should wait until they are older (in their 30s and 40s) to start investing, it’s not the best course of action. Here are five reasons why:

1. Take advantage of the magic of compounding
Albert Einstein, one of the most brilliant minds, knew the immense power of compounding. He had remarked: “Compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t, pays it.”

One of the biggest reasons to start investing early is the power of compounding. Compounding happens when you earn interest on your interest, which also includes your original investment. This has a snowball effect.

You’ll be shocked at how much money you will manage to save, even if you start investing a small amount each month.

Consider you started investing Rs 2,000 each month at the age of 25. If your investment earned 12 per cent annually, your investment of Rs 6 lakh would grow to Rs 37.95 lakh by the time you are 50.

If you keep investing the same amount for another ten years, your total investment of Rs 8.4 lakh will become a massive Rs 1.3 crore. You read that right, we haven’t added a zero by mistake.

That’s compounding working its miracle.

As you can see, the more time your money has to grow, the faster it will compound – and the more money you will ultimately have. By investing early, you can increase returns in the long run.

2. Even small amount of money can work wonders
Don’t worry if you’re just getting started and don’t have enough money to invest. You can start an SIP for as little as Rs 500 every month.

Investing a small amount slowly but steadily can lead to a bigger corpus over time, as you saw in the example provided in the first point.

You can always increase your contributions when your income increases over time.

The secret is to begin investing early and to do it diligently. However, if you continue to wait until you have amassed a substantial sum before investing, it might already be too late.

3. You’ll have more time to make up for any mistakes
One benefit of getting started early is that you will have plenty of time to correct any beginner’s mistakes. It can give you more time to educate yourself, experiment and find strategies that work best for you.

Assume something bad happens that causes you to lose money. You still have time to recover. You will learn to handle the risks of investing better.

However, if you wait until later in life to begin, you will need to be more cautious, and your ability to take risks will likely be more constrained due to increased life responsibilities.

Your twenties are the time to experiment and learn because time is on your side.

4. You can meet your financial goals sooner
When you start investing early, you reach your financial goals early, which can also include early retirement.

Early investing can assist you in achieving your goals quickly, whether you want to buy a home or a car.

Additionally, you’ll have more time to enjoy your money. If you wait until your thirties or forties to begin investing, you’ll be less likely to have enough time to let your money grow.

However, by starting young, you might not want to keep all your money in investments after retirement. Instead, you can use it to enjoy your golden years.

5. You’ll be better prepared for adversities
At some point, your finances may become unstable, but by investing early you’ll be prepared to face such low phases. Early investing can help you overcome such tough periods as you would have enough money to tackle tough phases.

As former US president John F Kennedy once said: “The time to repair the roof is when the sun is shining.” The same is true in the case of investing. So, start early and hit the road of financial freedom.

Source: Valueresearchonline

Shift idle funds from bank accounts to a liquid fund

As yields on 3-month treasury bills have increased to about 6.5%, popular fund manager Rajeev Thakkar of PPFAS Mutual Fund has suggested investors to shift idle funds from bank accounts to a liquid fund.

“In case you have not noticed, central banks the world over have been increasing their interest rates. In India, yields on 3-month treasury bills have increased from a low of about 2.7% in May 2020 to about 6.5% now,” Rajeev Thakkar, CIO & Director of PPFAS, said in a letter to unitholders.

“There was a time when it seemed futile to bother to move money out of the savings account to a liquid fund. In some cases, savings bank account interest rates were higher than the prevailing interest rates for treasury bills and commercial paper,” Thakkar said.

“It may no longer be profitable to be lethargic and let money lie idle in the savings bank account. You may consider shifting your idle funds in the savings and current account to a liquid fund,” he added.

India’s largest public sector lender SBI or State Bank of India offers a 2.70% interest rate on savings account deposits while small finance banks like Fincare Small Finance Bank and Jana Small Finance Bank offer the highest savings account deposit interest rate of 4.50%.

Source: Economic Times

From no savings to investing

Rich people stay rich by living like they are broke. Broke people stay broke by living like they are rich.

With convenient credit available, thanks to credit cards, EMIs and Buy Now Pay Later schemes, it is becoming increasingly easy to live like the rich and yet stay broke. Easy because it seems attractive to shop for shiny new things. Easy because we are living for today and not worrying about tomorrow.

But that’s dangerous. As Warren Buffett rightly said: “If you buy things you don’t need, soon you’ll have to sell things you need.” This is the mantra everyone must understand. One should reduce their spending and start investing for the future.

The importance of saving
So, how do you begin? Right off, you need to learn how to save. It is actually an art to keep aside money every month. This is how you can too: calculate your monthly fixed cost (your rent, travel cost, grocery, etc). Once you do that, check how much money is left with you and then decide to save aside a certain portion of the money.

But what if I end up using up that saved money too, you may ask? This is where investing comes in handy.

The importance of investing
Investing is a must if you want to a) protect the money you are saving and b) building your wealth. That’s right, investing can actually help you build wealth in the long run. Even if you are in the early stages of your career and the salary isn’t very high, investing can be a game changer for you.

And that’s because of the power of compounding. Compounding can grow your money manifolds even if the investment amount is small.

Therefore, developing this belief in saving and investing is important and it has nothing to do with the scale. There are a lot of people who earn well but they don’t invest, and there are a lot of people who don’t earn so well but are very disciplined about their savings and investments. So, it’s more a matter of attitude and habit and you should inculcate that habit as early as possible.

Where to invest
If you ask your parents, chances are they will nudge you to put money in bank fixed deposits. What you get out of fixed deposits is safe and guaranteed returns but this investment is not very desirable in terms of protecting you from inflation.

The best way to create wealth is to invest in equities. And historical data suggest that though equity may be risky over a short period of time, it is the fastest way to grow your money in the long run.

For starters, nothing beats the convenience of mutual funds if you want to invest in equity. Here, you can start investing with as low as Rs 500 per month. So, you don’t need a lot of money to start investing. With new technologies, getting started has become easier than ever. If you have a bank account and a mobile phone, you don’t even need to leave your house. Everything can be done online these days.

So, what are you waiting for? Just start, no matter how small it might look right now. This investing habit will help you gain experience and make you a wise investor over time. So, the next time you catch yourself splurging money, you should remember that it is better to be rich than broke.

Source: Valueresearchonline