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Loan Company(LC

)
• The Loan Company is a financial
institution principally engaged in
the business of providing finance
to the public, whether by making
loans or advances or otherwise, for
any activity other than its own
(Excludes equipment leasing and
hire-purchase activities)

• The loan is a kind of an agreement wherein the
lender temporarily lends property, usually cash
to the borrower with a promise that the
borrower will return it along with the interest as
per the terms and conditions as agreed upon.

Few types of loans offered:
Demand loan, term loan, secured loan,
unsecured loan, industrial loan, commercial loan

Ex: Aditya Birla Finance Limited, HDB financial
services

INFRASTRUCTURE
FINANCE COMPANY (IFC)
IFC is a non-banking finance company which
provides finance and advisory services for
infrastructure projects.
Includes following infrastructure sectors:
Transport, Energy, Water and Sanitation,
Communication, and Social and Commercial
Infrastructure

According to RBI a company can be listed as an
IFC if:-
a)It deploys at least 75 per cent of its total
assets in infrastructure loans.
b)It has a minimum Net Owned Funds(NOF) of

• IFC can lend 25 % of owned funds to a
single borrower in infrastructure sector
compared to 20% of other NBFCs.

• It can raise capital through issuance of
infrastructure bonds at comparatively lower
yield as the holders of such bonds are
entitled to tax benefits.

• Ex: L&T Infra Finance

INFRASTRUCTURE DEBT Funds Infrastructure debt funds: • IDFs are investment vehicles which can be sponsored by commercial banks and NBFCs in India in which domestic/offshore institutional investors. thereby creating fresh headroom for banks to lend to fresh infrastructure projects. specially insurance and pension funds can invest through units and bonds issued by the IDFs. . • IDFs would essentially act as vehicles for refinancing existing debt of infrastructure companies.

. That infrastructure project company pays interest rate to IDF Company. 3. Thus you make profit on your investment. You invest money in an IDF company. (after cutting its commission). 4. IDF company lends your money in some Infrastructure project company (as Debt). IDF company gives that interest money to you. 2.• Mechanism of Infrastructure Debt Fund Infrastructure Debt Fund (IDF) essentially means that 1.

Money earned from IDF is exempt from income tax. Government cannot bring in the investment in infrastructure projects. Finance Minister has given two carrots 1. (for desi investors) Ex: L&T Infra Debt Fund Ltd . Government also needed to give some benefit (carrots) to lure the investors.Withholding Tax reduced from 20% to 5% (for foreign investors) 2.• Tax Policy for Attracting investors By merely allowing creation Infra Debt Funds.

As per RBI. •The IDF-NBFC must have a minimum credit rating of “A” of Crisil or equivalent to any other accredited rating agencies. •The company should have a minimum CRAR (Capital risk weighted asset ratio) at 15%. the company shall be recognized as an IDF only if it satisfies the following conditions: •A company must be a non-deposit accepting firm with a net owned fund of Rs 300 crore and more. . •It must invest only in the PPP (public-private partnerships) and infrastructure projects with post-commencement operations date (COD) which have satisfactorily completed a minimum one year of commercial operations and becomes the party to the tripartite agreement. and Tier-II Capital should not exceed the Tier-I capital.

NBFC .e. • The Factoring is a financial transaction wherein the company sells its bills receivables i. . invoices to a third party called as “factor” at a discount • The factoring is done so that business can receive cash quickly against the invoices rather than waiting for the time period (usually. 30 to 60 days) the customer makes the payment.FACTOR • The Non-Banking Financial Company-Factors (NBFC-Factors) is yet another financial company that deals in the principal business of Factoring.

• The financial assets in the factoring business should constitute at least 50 percent of its total assets and its income derived from factoring business should not be less than 50 percent of its gross income.According to RBI the company can be registered as an NBFC factor if:- • It has a minimum net owned fund(NOF) of 5 crores. .

Gold Loan NBFCs .

WHY GOLD LOAN? • The eligibility criteria and the due diligence for personal loans are much stricter because they are unsecured. both interest and principal have to be paid in monthly instalments.  • There are pre-payment charges that could be as high as 5 per cent of the outstanding loan amount. The limit is Rs 15-20 lakh depending on income and credit history. . • The loan amount depends on income. In case of default. Unlike in gold loans. the lender does not have the option of selling the borrower's assets.

  •  Aggressive structuring of gold loans resulting from the uncomplicated.• Over the years. undemanding and fast process of documentation along with the higher Loan to Value (LTV) ratio include some of the major factors that augment the growth of Gold loan NBFCs. gold loan NBFCs witnessed an upsurge in Indian financial market. . owing mainly to the recent period of appreciation in gold price and consequent increase in the demand for gold loan by all sections of society. especially the poor and middle class to make the both ends meet.

are offering gold loans at 14-16 per cent a year excluding the 1-2 per cent processing fee. 12-24 per cent. on the other hand.  • Banks have access to low-cost deposits in savings and current accounts. NBFCs cannot offer more than 60 per cent. • Banks. At present.   • NBFCs charge very high rates. It offers a maximum loan of Rs 50.NBFCs vs Banks • The RBI decides how much loan can be given as a proportion of the gold's value. .000 at 27 per cent for a tenure of three months . Muthoot Finance has a wide range.000 at 12 per cent and a maximum loan of Rs 25. NBFCs are not allowed to collect low-cost short-term deposits.

Banks do not offer this facility. especially public sector banks. Most NBFCs like Muthoot Finance allow prepayment without penalty. Gold loans by most banks.Why NBFCs for Gold loans? • Gold loans offered by NBFCs are hassle-free. though the rates are higher than bank gold loans or personal loans. easy to take and require little documentation. • Those who cannot fulfil the strict eligibility and documentation criteria of banks can tap this avenue. which means both interest and principal have to be paid regularly. • There is always a scope of negotiation with NBFC. If you need instant money for very short duration then NBFC is best option • They have easier repayment options and no processing fee. . are term loans. • NBFCs allow borrowers to repay just the interest regularly during the tenure of the loan and pay the principal at the end of the tenure.

Residuary Non-Banking Companies .

under any scheme or arrangement or in any other manner and not being investment. The functioning of these companies is different from those of NBFCs in terms of method of mobilisation of deposits and requirement of deployment of depositors' funds . loan company. asset financing.Residuary Non-Banking Company is a class of NBFC which is a company and has as its principal business the receiving of deposits.

• They can’t accept deposits for a period less than 12 months and not more than 84 months.e. they can’t open saving or current accounts. i.5% on daily deposits both compounded annually. • They can’t offer any gifts or incentives to solicit deposits from public. . • They can't accept deposits repayable on demand.• They offer a rate of interest of not less than 5% per annum on term deposits and 3..

or any interest. Central/State Government securities. • No Residuary Non-Banking Company shall forfeit any amount deposited by depositor. such companies are required to invest in a portfolio comprising of highly liquid and secured instruments viz. . fixed deposit of scheduled commercial banks (SCB).• There is no ceiling on raising of deposits by RNBCs but every RNBC has to ensure that the amounts deposited and investments made by the company are not less that the aggregate amount of liabilities to the depositors. premium. units of Mutual Funds. Certificate of deposits of SCB/FIs. bonus or other advantage accrued thereon. etc. • To secure the interest of depositor.

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.1. • It succeeded in inculcating the savings habit amongst the common man-middle/lower middle/lower class of the society with even a minimum daily deposit of Re.• SAHARA INDIA FINANCIAL CORPORATION LIMITED INDIA'S LARGEST RESIDUARY NON-BANKING COMPANY IN THE PRIVATE SECTOR WITH THE HIGHEST YEARLY DEPOSIT LEVEL.

money market instruments and similar assets. • NAV • Why are mutual funds subject to market risk? • Which government body regulates the mutual funds in India? . bonds. • Operated by Money Managers. • Working of a mutual fund.Mutual Funds • It’s an Investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks.

Small savings • Small savings can be divided into two groups • Post office deposits • Savings certificates and bonds • These assets represent medium to long term investment opportunities • These assets are as liquid as bank demand deposits • Some of the schemes also provide insurance cover to the investor • Small savings also carry excellent tax-benefits .

25 to 7.5% p.a – maturity less than 5 years – no tax benefits on investment – no limits on investment amount • Post Office Recurring Deposits (1970) – 12.25% p.5% p.no tax benefits on investment – matures in five years . – matures in 5. 10 or 15 years – tax benefits applicable • Post Office Time Deposits (1970) – 6.a – [Rs.50% p.a .Small savings schemes • Post Office Savings Bank Deposit (1896) – 3.20 to Rs. 1 lakh] – no tax benefits on investment • Post Office Cumulative Time Deposits (1959) – 6.a.

a – max.a – 7years 8 months maturity period – no investment limits – no tax benefits • National Savings Scheme (1987) – 11% p.a .tax benefits applicable .a – matures in 6 years – range (6000 to 3 lakh) .discontinued in 1999 • Kisan Vikas Patra (1988) – 10% p.40000 – tax benefits applicable • Post Office Monthly Income Scheme (1987) – 8%p.no limits on investment amount • Indira Vikas Patra (1986) – principle doubled every 5 and half years (? p. investment Rs.a) – transferable and no investment limits – no tax benefits .Small savings schemes • National Savings Certificates (1970) – 8% p.

Provident Funds • This is a way of saving mostly be people who earn their income in salaries • However. non-salaried earners can also save in the Public Provident Fund Scheme • The motive is individual and family welfare and not profits or capital growth • Schemes • Employees’ Provident Fund Scheme covering non-exempted (industrial) establishments • Provident Funds of exempted industrial establishments • Central and State Government Employees’ (non-industrial) Provident Fund • Coal Mines Provident Fund • Assam Tea Plantations Provident Fund • Public Provident Fund .

PPF and EPF • PPF was introduced in 1968 (operated through SBI and subsidiaries) and from 1979 also at head post offices • Self-employed persons. general public and salaried persons can take advantage of it • Maturity period of PPF is 15 years but in case of EPF it depends on age of the employee • Employer makes specific contribution in EPF but nothing like that in PPF • Both schemes enjoy tax benefits • In PPF contributions could be varied from year to year however in EPF it is more restricted .

Rules regarding investment of PFs • Funds mobilised through small savings and PF should be invested wholly or substantially in the Central and State government securities or securities guaranteed by these governments 1995-96 1996 onwards Investments in Central government securities 25% 25% State government securities (securities 15% 15% backed by govt) Special deposit schemes 30% 20% Bond/other securities of public sector 30% 40% financial institutions/companies/banks .

Factors promoting growth of PF • Statutory measures to make PF compulsory for industrial and other establishments • Increase in the number of establishments under statutory provisions • Expansion of industrial and service sector and number of salary earners • Introduction of PPF • Provision of tax benefits under PF schemes • Increase in minimum rates of contributions by the employees and employers • Changes in the pay structure and basic pay • Increase in level of money income in the economy .

Pension Funds • Powerful financial intermediary in developed countries but not in India • In India. first investment-based pension fund was proposed by UTI and approved by government in 1994 • This was meant for self-employed people in order to provide security in their old age • Anyone between age 18-52 can contribute and receive regular monthly income from 58 years onwards .

or an organisation.Pension plans • A pension plan is an arrangement to provide income to participants in the plan when they retire • PPs are generally sponsored by private employers. or an institution. or a trust that manages the assets and pays the benefits to the old and retirees is called a Pension Fund . government as an employer and labour unions • Funded Pension Plans • If benefits are secured by assets specifically dedicated for the purpose • Unfunded Pension Plans • IF benefits depend on general credit and not by any specific contribution • The financial intermediary.

jobs in India • Defined Contribution Pension Plan (For eg. and this along with state’s contribution goes to the older generation . • The employee gets a certain amount of the value of these investments and can purchase an annuity • Pay-As-You-Go Pension Plan (for eg. US) • The employee and the employer make a pre-determined contribution each year. For eg. France. India) • The final pension is pre-defined based on the final salary and the period of service. and these funds are invested till the retirement. Govt. Germany) • Current employees pay a percentage of their income to provide for the old.Classification of pension plans • Defined Benefits Pension Plan (For eg.

the pension market covers hardly 3% of the total population • EPF and PPF are the two major schemes • Govt employees benefit from defined benefit pension plan • Highly unorganised sectors in India makes pension funds difficult .Reforming the pension system • In developed countries the focus is to • Privatise pension systems and to replace pay-as-you-go pension plans with privately managed defined contribution pension plan • Greater involvement of private sector in managing investments and in administration relating to pensions • Improve regulation and bring business transparency including capital market reforms • In India.

Current pension schemes in india • Government employees pension scheme • Superannuation/retirement pension • Permanent total disability pension • Widow or widower’s pension • Orphan pension • Bank employees pension scheme • Insurance employees pension scheme • Privately administered superannuation fund • LIC • Varishta pension bima yojana • New jeevan akshay • New jeevan dhara • New jeevan suraksha .

three types of pension schemes should be floated • Taxation should be avoided and funds should be encouraged to earn higher real rate of return • Individuals can change fund managers if dissatisfied • The state government can choose to join the pension scheme • Funds can be invested in international markets . balance income and growth. Dave committee 1999) • Private pension funds should be set up • Pension fund should be invested in secondary markets for securities • Safe income.Pension reforms • Old Age Social Income Security (OASIS.

Insurance companies • Actual premium = pure premium + (administrative and marketing cost) • Pure premium is the present value of the expected cost of an insurance claim • Collection of premium builds the insurance reserves which is further invested in various activities and securities • Insurance companies (corporations or mutual associations) offer protection to the investors. health insurance. provide means for savings and investment to the government • Examples. general insurance (property insurance. fire insurance. life insurance. vehicle) .

calcutta • Phase II: 1956-2000. public-private sectors. nationalised and state monopoly with only one company • Life insurance corporation (LIC) 1956 • Phase III: 2000 . 12 major companies.Phases of development • Life insurance • Phase I: 1818-1956. monopoly or oligopoly of public sector . mixed ownership.. competitive market with 245 private sector companies • Oriental life insurance company 1818.

Phases of development • General insurance • Phase I: 1850-1972. 5 companies • National insurance company • New India assurance company • Oriental insurance company • United India insurance company • General insurance corporation • Phase III: 2000 . public-private sectors. state monopoly/oligopoly. calcutta • Phase II: 1972-2000. competitive market with 107 private sector companies • Tritan insurance company1850.. mixed ownership. 12 major companies. monopoly or oligopoly of public sector .

in recent times. respectively • Most investments are in govt securities. 23 LI companies. 24 GI companies • In the last 200 years. India opens for private insurance players • February 2011. insurance market has gone through a privatised era to nationalisation and to liberalisation • However. easing monetary policy . liberalisation is not comparable with competitive market as very few players dominate • Heavy concentration of business (one or two companies) • In 2001-02.Insurance sector reforms • Insurance Regulatory and Development Authority • IRDA became a statutory body in April 2000 • August 2000. of all investment by life and general insurance companies. the share of LIC was 99% and GIC 97%.

travel insurance. professional indemnity insurance and crop insurance are underdeveloped in India • Health insurance does not cover disability arising out of illness. accidents • How far MNCs be allowed to do insurance business in India • Is the low insurance coverage a reflection of social or community assurance or low purchasing power and knowledge or behaviour .Issues • Health insurance.

Life Insurance Corporation • LIC was set up in 1956 • Key Objectives • To spread and provide life insurance protection to masses at a reasonable cost • To mobilize savings through insurance linked savings schemes • To invest the funds to serve the best interests of policyholders and nation • To conduct business with maximum economy • To act as trustees of the policy holders and protect their interests • To ensure efficient and courteous service • To innovate and adapt to meet the changing needs of the community .

Government securities 25% 2. Approved investments as specified in schedule 1 Not less than 15% Infrastructure and social sector 4.Portfolio restrictions on life insurance. 2001-02 Type of investment Life insurance 1. Others to be governed by Exposure Norms Not exceeding 35% . Government securities or other approved securities Not less than 50% Including 1 3.

State govt. 2001-02 Type of investment General insurance 1. Housing and loans to state government 5% 4.Portfolio restrictions on General insurance. Investments in approved investments A) Infrastructure and social sector Not less than 10% B) Others to be governed by Exposure Norms Not exceeding 55% . securities and other guaranteed securities 30% 3. Central Government securities being not less than 20% 2.

UT cannot • In case of UT the value of the fund and the value of the assets are linked but this can differ in case of IT • Mutual savings banks are different from UT in terms of purpose and loans. retained . an IT cannot buy back its shares which has to traded in the stock market • IT can raise long-term debt and retain a part of its income. chequable services.Investment Trusts and Unit Trusts • Investment Trust is an investment-holding company incorporated under Companies Act as any other industrial or commercial company • Unit Trust is a trust at law • UT is obliged to buy back investments whenever an investor wants to sell them.

economically and profitable • The investors earn in proportion to their investments • Unlike shareholders in a company.Mutual Funds • Mutual Fund is pure intermediary which buys and sells securities on behalf of its unit-holders • Easily. investors can earn relatively higher rate of return than they otherwise would have earned • High return – Low risk . conveniently. shareholders in a MF do not have any voting rights • It helps small investors to hold a share in large and diversified portfolio of assets which reduces risks • With better professional management.

Advantages of Mutual Funds • Economies of scale of operations • Spread of risk • Expert and professional management • Diversification of portfolio • Low brokerage and transactions costs • Good portfolio performances • High return potential • Convenient administration • Liquidity • Flexibility • Wide choice of schemes • Tax benefits .

special purpose schemes. real estate funds. Board of Trustees or Trust Company • The Asset Management Company • The Custodian • The Unit holders • Type of Schemes • Open-ended funds – units are sold continuously • Closed-ended funds – fixed units are sold • Aggressive or pure or normal growth schemes. money market funds • Fund of Funds • Exchange traded funds • Index Funds . or balanced schemes. pure or regular or monthly or cumulative income schemes. sectoral schemes. growth and income.Mutual Funds • Organisation • The sponsor(s). tax saving plans • They are also named as per investment asset • Equity funds. bond funds.