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regular stocks. It is similar to a GDR except that it can be issued only to American citizens and can be
listed and traded on a stock exchange of USA.

(c) Indian Depository Receipt (IDRs): An Indian Depository Receipt is a financial instrument
denominated in Indian Rupees in the form of a Depository Receipt. It is created by an Indian
Depository to enable a foreign company to raise funds from the Indian securities market. The
IDR is a specific Indian version of the similar global depository receipts. The foreign company
issuing IDR deposits shares to an Indian Depository (custodian of securities registered with the
Securities and Exchange Board of India). In turn, the depository issues receipts to investors in
India against these shares. The benefits of the underlying shares (like bonus, dividends, etc.)
accrue to the IDR holders in India. According to SEBI guidelines, IDRs are issued to Indian
residents in the same way as domestic shares are issued. The issuer company makes a public

offer in India, and residents can bid in exactly the same format and method as they bid for
Indian shares. ‘Standard Chartered PLC’ was the first company that issued Indian Depository
Receipt in Indian securities market in June 2010.

(d) Foreign Currency Convertible Bonds (FCCBs): Foreign currency convertible bonds are equity
linked debt securities that are to be converted into equity or depository receipts after a specific
period. Thus, a holder of FCCB has the option of either converting them into equity shares at a
predetermined price or exchange rate, or retaining the bonds. The FCCB’s are issued in a

foreign currency and carry a fixed interest rate which is lower than the rate of any other similar
nonconvertible debt instrument. FCCB’s are listed and traded in foreign stock exchanges.
FCCB’s are very similar to the convertible debentures issued in India.

Retained Earnings

A company generally does not distribute all its earnings amongst the shareholders as dividends.
A portion of the net earnings may be retained in the business for use in the future. This is

known as retained earnings. It is a source of internal financing or self-financing or ‘ploughing
back of profits’. The profit available for ploughing back in an organisation depends on many
factors like net profits, dividend policy and age of the organisation.

Merits of Retained Earnings

The merits of retained earnings as a source of finance are as follows:
(i) Retained earnings is a permanent source of funds available to an organisation;
(ii) It does not involve any explicit cost in the form of interest, dividend or floatation cost;
(iii) As the funds are generated internally, there is a greater degree of operational freedom and

flexibility;