6. Cont.
⢠Mutual Funds
â It is financial intermediary that collect savings from
investors
â Different types of investment
â Pool of funds from investors
â Advantages of mutual funds are reduction in
risk, expert professional mgt., liquidity of investment
& tax benefits
â SEBI (Mutual Funds) Regulation, 1993
7. Cont.
⢠Non-banking Financial Intuitions [NBCI/NBFC]
⢠According to RBI,
â NBFC means;
i. a financial institution which is a co.;
ii. a non-banking inst. whiz a co. & has, as its principal
business, the receiving of deposits under the scheme
or mgt. or any other manner or lending in any manner;
iii. such other non-banking institution or class of such inst.
as the bank may with the previous approval of the
Central Govt. specify
8. Cont.
⢠NBFC are Categorized into:
â An equipment leasing co. [EL]
â A hire-purchase co. [HP]
â A housing finance co. [HFC]
â An investment co. [IC]
â A loan co. [LC]
â A mutual benefit co. [MBFC] i.e Nidhi Companies
â A miscellaneous non-banking co. i.e Chit fund co.
9. Money Market
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Introduction
It is a whole sale market
No need of place
Transactions generally settled in daily basis
Important Segment
Market for monetary assets of a shot-term nature
Money market instruments have the characteristic of
liquidity
10. Money Market instruments
1. Treasury Bills
â One of the safest instruments
â Short term borrowing instruments of Central Govt.
issued byâŚ
â Zero Risk instruments henceâŚ
â Short term securities that will mature...
â Issued at discounted rate and with promise to pay
full face vale on maturity
â Generally available in minimum of 25K & in
multiples thereof
11. Cont.
⢠Currently, T-bills are generally available in
â 91-Day T-bills
- auctioned every Friday
â 182- Day T-bills
- auctioned every alternate Wed.
â 364-Day
⢠Types of T-bills
â On Tap Bills
â Ad-hoc Bills
â Auctioned Bills
12. Cont.
2. Commercial Paper [CP]
â It is an unsecured short term promissory note issued
by creditworthy corporate, primary dealers & all
financial inst.
â basically negotiable & transferrable byâŚ
â Fixed maturity period
â Issued to meet w.c requirements of the firms
â Also known as Finance Paper, Industrial Paper or
Corporate Paper
13. Cont.
â RBI introduced commercial papers in 1990
â CP can be issued to banks, individuals, companies &
other registered bodies
â It can also be issued to NRI butâŚ
â FII are also permitted to subscribe but to a certain
limit fixed by SEBI
14. Cont.
3. Commercial Bills
â CB are negotiable instruments drawn by the seller on
the buyer which, are in turn, accepted & discounted
by Commercial Banks
â These are basically called trade bills & when these
bills are accepted by commercial banks, they called..
â Bank accepts the bill from the seller & pays the
amount of the bill after charging some discount.
â after expiry of the bill collected from the buyer...
15. Cont.
â Meanwhile, if the bank requires fund then it can also
re-discount the same with RBI,UTI,LIC,ICICI etc.
â Maturity period varies from 30 to 180 days.
â Example:
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Bill Amt. â rs. 10000
Discount - 2%
Payment made by Bank to seller â 9800
Payment received by bank from buyer â rs.10000
Commission earned by bank â rs. 200
17. Cont.
⢠Major Types of Commercial Bills
I. Demand Bill v/s Usance Bill
II. Inland Bill v/s Foreign Bill
III. Export Bill v/s Import Bill
18. Cont.
4. Call/ Notice Money:
⢠Call Money Market
â It is a short term funds market with maturity period 1
day to 2 weeks
â Call money
â Notice money
â Main aim of growth of this instrument is due to
commercial banks requirements
19. Cont.
â To fulfill mandatory requirements of RBI
commercial banks borrow money from the other
banks & institutions
â The interest rate paid on the call/notice money loan
is called âCALL RATEâ
20. Cont.
5. Certificate of Deposit
â It was introduced in 1989
â CDs are unsecured, negotiable, short term
instruments in bearer form issued by commercial
banks & financial institutions
â Generally CD are time deposits (FD)
â CD are transferable & tradable while FD are not.
â It can be issued to all even to NRI.
21. Capital Market
⢠To achieve growth in various sectors
⢠To meet the requirements of various investors, borrower
& entrepreneurs
⢠A platform for investors to get greater returns
⢠Provide funds to the Organization to get developed
⢠Buying and selling of long-term debt or equitybacked securities
⢠Provides effective & efficient way to support exchange
of various financial instruments for mutual benefit.
26. Cont.
⢠Secondary market popularly known as stock market
⢠Where outstanding or existing securities are purchased
& sold on a continuous basis
⢠Unlike primary markets it facilitates changing of hands
(ownership)
⢠Securities issued in primary market are traded
⢠Like ordinary market where there is buyer & seller
⢠Likewise the prices will be determined by the demand
& supply forces
27. Cont.
⢠Distinguishing feature
⢠In India Secondary market functions as a recognized
stock exchanges operating under certain rules &
regulations duly approved by the government.
⢠Thus, these stock exchanges constitute an organized
mechanism under which various public & private
securities are traded.
28. Functions of Secondary market
1.
2.
3.
4.
5.
Marketability
Safety
Performance check
Valuation
Promotion & development
29. Nature & Role Of Financial System
⢠Mobilizing funds to productivity
⢠Provides excellent mechanism for exchange of goods
&services
⢠Establishment of different institutions
⢠Crucial role in reducing risk