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Thursday, December 14, 2017

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The Gilt-Edged Market In India

The Gilt-Edged Market In India:

The Gilt-edged market is the market for Government and semi-government securities, which carry fixed interest rates and backed by RBI. The securities traded in this market are stable in value and are much sought after by banks and other institutions.

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Wednesday, December 13, 2017

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Classification Of Capital Market In India

Classification Of Capital Market In India:

The capital market in India can be classified into

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• Gilt-edged Market on Government and Semi-government Securities;

• Industrial Securities Market;

• Development Financial Institutions (DFI), and

• Non-banking Financial Companies (NBFC)

The Industrial Securities Market comprises of the New Issues Market, Old Issues Market and the Stock Exchange.

The Development Financal Institutions comprises of the IFCI, ICICI, SFCs, IDBI, IIBI and the Unit Trust Of India (UTI).

The financial intermediaries consists of merchant banks, mutual funds, leasing companies, venture capital and other companies.

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Tuesday, December 12, 2017

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Capital Markets

Capital Market

Capital market may be defined as on organised mechanism for effective and efficient transfer of money-capital or financial recourses from the individuals or institutional savers to industrialist. The development of a effective capital market depends upon the availability of savings, well organised financial system and the entrepreneurship quantities of its people.

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Capital market is a market for long-term funds, just as the money market is the market for short-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending term funds (medium-term and long-term funds). It does not deal in capital for purpose of investment.

The demand for long-term money capital comes predominantly from private sector manufacturing industries and agriculture and from the government largely for the purpose of economic development. As the central and state governments investment are not only on economic overheads as transport, irrigation and power development but also on basic industries and some times, even consumer goods industries, they require substantial sums from the capital market. The supply of funds for the capital market comes largely from individual savers, corporate savings, banks, insurance companies, specialized financing agencies and government.

Among institutions, we may refer to the following:

1. Commercial banks are important investors, but are largely interested in government securities and, to a small extent, debentures of companies.

2. LIC and GIC are growing importance in the Indian capital market, though their major interest is still in government securities.

3. Provident funds constitute a major medium of savings but their investments are mostly in government securities.

4. Special institutions set up since Independence, viz. the IFCI, ICICI, IDBI, UTI etc., all these aim at providing long-term capital to the private sector.

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Monday, December 11, 2017

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Financial Markets

FINANCIAL MARKETS

Financial market deals in financial securities or instruments and financial services. It may be variously classified as primary and secondary, money markets and capital markets, organised and unorganised markets official and parallel markets, and foreign and domestic markets. Financial market provides money and capital supply to the industrial concern as well as promote the savings and investments habits of the public. In simple sense, financial market is a market which deals with various financial instruments (share, debenture, bonds, treasury bills, commercial bills etc.) and financial services (merchant banking, underwriting etc).

Financial markets may be divided into two major classifications:

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A. Capital market

B. Money market

Capital Market In India:

The capital market in India is made up of the primary market and the money market. The money market is made up of the stock market and the debt market. Also, the stock market comprises of the Over-The-Counter Exchange Of India (OTCEI), the Regional Stock Exchange (RSE) and the National Stock Exchange (NSE).

Money Market In India:

The money market in India is made up of the primary market and the secondary market.

The Primary market consists of the call-money market and the treasury bill market while the secondary market is made up of the commercial bills market and the short term loans market.

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Sunday, December 10, 2017

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Non-Banking Non-Financial Institutions

NON-BANKING NON-FINANCIAL INSTITUTIONS

Non-banking non–financial institutions are providing fee based services to the public, such as merchant banking, underwriting, counseling, etc. These institutions will not lending any financial assistance to public but they will provide financial services.

The main fee based services that falls under the Non-Banking Non-Financial Insitutions are as follows:

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(1). Merchant Banking

(2). Underwriting

(3). Credit Rating

(4). Consultancy

(5). Project Preparation

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Saturday, December 9, 2017

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Non-banking Finance Companies (NBFC)

Non-banking Finance Companies (NBFC)

The categories of NBFCs and the nature of their main activities currently being followed by the RBI, which are very similar to the ones discussed by the Shah Working Group, are as follows:

1. Equipment leasing company (ELC) means any company which is carrying on as its principal business, the activity of leasing of equipment or the financing of such activity.

2. Hire-purchase finance company (HPFC) means any company which is carrying on as its principal business, hire-purchase transactions or the financing of such transactions.

3. Housing finance company (HFC) means any company which is carrying on as its principal business, the financing of the acquisition or construction of houses including the acquisition or development of plots of land in connection therewith.

4. Investment company (IC) means any company which is carrying on as its principal business, the acquisition of securities.

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5. Loan company (LC) means any company which is carrying on as its principal business, the providing of finance whether by making loans or advances, or otherwise for any activity other than its own. This category does not include an equipment leasing company or a hire-purchase finance company or a housing finance company.

6. Mutual benefit financial company (MBFC) means any company which is notified by the Central Government under Section 620A of the Companies Act 1956 (1 of 1956).

7. Miscellaneous non-banking company (MNBC) means a company carrying on all or any of the following types of business :

(a) Managing, conducting or supervising as a promoter, foreman or agent of any transaction or arrangement by which the company enters into an agreement with a specified number of subscribers that every one of them shall subscribe a certain sum in installment over a definite period and that every one of such subscribers shall in his turn, as determines by lot or by auction or by tender or in such other manner as may be provided for in the agreement be entitled to the prize amount.

(b) Conducting any other form of chit or kuri which is different from the type of business referred to above. Undertaking or carrying on or engaging in or executing any other business similar to the business referred to above.

8. Residuary non-banking company (RNBC) means a company which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in installments by way of contributions or subscriptions or by sale of units or certificates or other instruments, or in any other manner and which according to the definitions contained in the Non-Banking Financial Companies (Reserve Bank) Directions, 1977 or as the case may be, the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977 is not an insurance company or a company belonging to one to seven at the previous page.

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Friday, December 8, 2017

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Financial Services In A Financial System

Financial Services In A Financial System

Financial Services are the another and unavoidable component of the financial system of the country. Normally financial services are provided by the non-banking financial companies and later it is called as non-banking financial service companies. Financial services are divided into two major categories such as:

Fund Based Financial Services

Fund based financial services such as leasing, venture capital, hire purchasing, insurance and mutual funds etc. Because, these services are related to the funds transfer from one place to another place and one person to another person.

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[Post Image Courtesy of Adamr at FreeDigitalPhotos.net]

Fee Based Financial Services

Fee based financial services such as merchant banking, underwriting, project counseling, credit rating etc., because, these services such as merchant banking, underwriting, project counseling, credit rating etc., because, these services are not related to any funds transfer activities.

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Thursday, December 7, 2017

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Venture Capital Funds (VCFs)

Venture Capital Funds (VCFs)

The Union Budget for 1999–2000 stressed the need for higher investment in venture capital activity (investment in economic activities where risk is high and there is considerable innovation involved e.g. in the knowledge based enterprises). As it is difficult to access capital market to raise funds for technology development/demonstration, especially for small and medium industries, VCF has a major role to play in this area.

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The National Venture Fund for Software and IT industry (NVFSIT) launched in the current financial year merits mention in this context. The Small Industry Development Bank of India (SIDBI) Venture Capital Ltd. (SVCL) manages NVFSIT, which is a wholly owned subsidiary of SIDBI. In the backdrop of these developments, SEBI initiated a process of interaction with industry participants and experts to identify the various issues and key areas for the development of the VCF industry in India.

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Wednesday, December 6, 2017

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Role of Life Insurance Corporation (LIC) In India

Role of Life Insurance Corporation (LIC) In India:

The activities of the LIC can be broadly classified into two categories. First, it mobilizes long-term contractual savings. Its policy-holders view the LIC as a trustee of their funds, a source of emergency fund to guard against any financial misfortune and a way to accumulates funds by the time of retirement from work. As an agency it is designed to the inculcation of savings for the sake of rainy days.

During the last forty years of its operations, there has been concentration of colossal funds in hands of this monolithic state owned corporation. The resources thus obtained by the LIC from policy-holders are invested in diverse ways for different purposes. Basically LIC is an investment institution. It is a big investor of funds in government marketable securities.

Since April, 1975 the amended Section 27A of the Insurance Act, 1938 the LIC is required to invest to not less than 50% of its accruals of premium income in government marketable securities. Of this not less than 25% in central government securities. Besides it has to give loans to approved authorities like electricity boards or state government for socially oriented schemes like electricity, housing, water supply etc. These loans and investments should not exceed 87.5 percent of accretion to the controlled fund of the LIC.

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[Post Image Courtesy of Kromkrathog at FreeDigitalPhotos.net]

The remaining 12.5 percent can be made to the private sector directly in the form of purchase of shares and debentures. Besides it grants loans to the private corporate sector and finances projects by subscribing shares and debentures of private industries. Its contribution to financing of industries in the private corporate sector is also indirect. The investment in the share capital and bonds of IFCI, SFCs, UTI and IDBI flow back to private sector in the form of direct loans. The LIC is also engaged in underwriting new issues.

The LIC plays an important role in the securities market in India. It purchases even when the market is dull (bearish) and prices are low in order to reap the benefit of future price appreciation. Nor does it usually sell shares from its stock when the market is at higher prices.

Although Income Tax concessions provide incentive to higher income groups through LIC policies, the insuring public does not get the real value of its long-term savings because of chronic inflation. Barring risk coverage, the rate of return offered by LIC is much lower compared to other savings media. It is true LIC has grown at a fast speed yet it can grow at a faster rate if it can make the message of life insurance more attractive by its operational efficiency and innovative attitude.

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Tuesday, December 5, 2017

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Life Insurance Corporation (LIC) Of India

LIFE INSURANCE CORPORATION OF INDIA

The Life Insurance Corporation of India (LIC) was set up in the year 1956 by nationalizing 245 insurance companies. The Primary objective of nationalization was to protect the interest of policy-holders against misuses and embezzlement of funds by private insurance companies.

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[Post Image Courtesy of Vichaya Kaitying-Angsulee at FreeDigitalPhotos.net]

Secondly, the object of nationalization was to direct investment of funds in government securities, leaving a meager part for the private sector.

What marks and distinguishes the LIC from other long-term financial institutions is this that it discharges the two fold function of mobilization of long-term savings and their effective channelisation as well. The other agencies are suppliers of fund obtained from government and the Reserve Bank of India.

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