NEGOTIABLE INSTRUMENTS Bill of exchange: In order to fully grasp the transactions relating to bill of exchange we thoroughly learn the

procedure. The following example will make it clear. Suppose A sells goods to the value of $500 to B. The most ready means of closing the transaction will be cash payment by B to A. But payment of this nature is not many in actual practice. The greatest volume of business is done on credit. That being the case A will have to wait for some time to receive payment from B. A, merchant can hardly afford to be out of funds for long. Moreover, to sell goods on credit is rather a risky job. Therefore as soon as A sells goods to B, he will draw a bill for $500 on B and forward the same to him together with the goods with instructions to B to accept the bill and return the same to A. Upon receipt of the bill, B would write on the face of the bill" accepted" and put his signature below. It means that B approves the bill and also binds himself to pay the amount thereof when due. The bill is thus complete and comes back to A to remain in his possession till maturity or can be endorsed or discounted by him. On the due date the holder of the bill presents it before the acceptor and receives payment of the bill from the acceptor. Promissory Note: There is another method of payment similar to bill of exchange i.e. promissory note. In this method, in place of the seller drawing a bill of exchange on the purchaser, the purchaser himself makes a written promise to pay the amount to the seller. It is defined as an instrument in writing containing an unconditional promise, signed by the maker to pay on demand or at a fixed or determinable future time, a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. Cheques: Different types of cheques based on methods of issuing Open cheque or bearer cheque: The issuer of the cheque would just fill the name of the person to whom the cheque is issued, writes the amount and attaches his signature and nothing else. This type of issuing a cheque is also called bearer type cheque also known as open cheque or uncrossed cheque. The cheque is negotiable from the date of issue to three months. The issued cheque turns stale after the completion of three months. It has to be revalidated before presenting to the bank. A crossed cheque or an account payee cheque: It is written in the same as that of bearer cheque but issuer specifically specifies it as account payee on the left hand top corner or simply crosses it twice with two parallel lines on the right hand top corner. The bearer of the cheque

it is slowly slated to be removed with at par cheque type. If a given city’s local cheque is presented elsewhere shall attract some fixed banking charges. Although these type of cheques are still prevalent. The producer of the cheque in whose name it is issued can directly go to the designated bank and receive the money in the physical form. Gift cheque: This is another banking instrument introduced for gifting money to the loved ones instead of hard cash. To avoid such hurdles. The personal accountconnected cheques may bounce for want of funds in his account. It is equivalent to carrying cash but in a safe form without fear of losing it. fixed deposit receipts or for depositing money into other accounts held by him like recurring deposits and loan accounts. FDI vs FII: . Post dated cheque (PDC): A PDC is a form of a crossed or account payee bearer cheque but post dated to meet the said financial obligation at a future date. Banker’s cheque: It is a kind of cheque issued by the bank itself connected to its own funds. At par cheque is a cheque which is accepted at par at all its branches across the country. pay orders. At par cheque: With the computerisation and networking of bank branches with its headquarters. It is safest type of cheques.presenting it to the bank should have an account in the branch to which the written sum is deposited. Unlike local cheque it can be present across the country without attracting additional banking charges. It is a kind of assurance given by the issuer to the client to alley your fears. Travelers’ cheques: They are a kind of an open type bearer cheque issued by the bank which can be used by the user for withdrawal of money while touring. a variation to the local cheque has become common place in the name of at par cheque. the receiver seeks banker’s cheque. especially with nationalised banks. A self cheque: A self cheque is written by the account holder as pay self to receive the money in the physical form from the branch where he holds his account. Pay yourself cheque: The account holder issues this type of crossed cheque to the bank asking the bank deduct money from his account into bank’s own account for the purpose buying banking products like drafts. Various types of cheques based on their functionality Local Cheque: A local cheque is a type of cheque which is valid in the given city and a given branch in which the issuer has an account and to which it is connected. sometimes.

you have to mention the city in which it would be deposited. Demand drafts are city specific. It is a banker's check. Getting Started Before we move to explain what is mutual fund. the basic understanding of stocks and bonds. which is back over predetermined amounts of time. Bonds Bonds are basically the money which you lend to the government or a company. is for the investors who have not yet started investing in mutual funds. ONGC and Infosys. There are many other types of investments other than stocks and bonds (including annuities. Examples of public companies include Reliance. Stocks Stocks represent shares of ownership in a public company. FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. and precious metals). Is it possible to get a demand draft from one place and using it in other place without any charge? When you issue a DD. real estate. People believe banks more than individuals. Mutual Funds Basics of mutual funds The article mentioned below. but willing to explore the opportunity and also for those who want to clear their basics for what is mutual fund and how best it can serve as an investment tool. On the contrary. FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. What are all the advantages of Demand draft over Cheque? You can 100% trusts in a DD. Both are used for transfer the amount b/w two accounts of same or different banks. Stocks are considered to be the most common owned investment traded on the market. it’s very important to know the area in which mutual funds works. A check may be dishonoured for lack of funds a DD cannot. What is the difference b/w Cheque and Demand Draft? Cheque is written by an individual and Demand draft is issued by a bank.Both FDI and FII are related to investment in a foreign country. but the majority of mutual funds invest in stocks and/or bonds. Bonds are considered to be the most common lending investment traded on the market. Regulatory Authorities . and in return you can receive interest on your invested amount.

holds the securities of various schemes of the fund in its custody. Overview of existing schemes existed in mutual fund category: BY STRUCTURE 1. transparency etc. Custodian. . thus by pooling money together in a mutual fund.To protect the interest of the investors.Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. According to SEBI Regulations. investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. The key feature of open-end schemes is liquidity. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in. you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. mentioned below. Open . by minimizing risk & maximizing returns. What is a Mutual Fund? A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. risk tolerance and return expectations etc. Types of Mutual Funds Schemes in India Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position. Its objective is to increase public awareness of the mutual fund industry. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Being a collection of many stocks. It is easier to think of mutual funds in categories. SEBI formulates policies and regulates the mutual funds. disclosure. There are over hundreds of mutual funds scheme to choose from. registered with SEBI. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. When you invest in a mutual fund. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). an investors can go for picking a mutual fund might be easy. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. thus mutual funds has Variety of flavors. But the biggest advantage to mutual funds is diversification. two thirds of the directors of Trustee Company or board of trustees must be independent.

Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. expectations of unitholder and other market factors. The Equity Funds are sub-classified depending upon their investment objective. if an investors opt for bank FD. diversification. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices. however one cannot buy units and can only sell units during the liquidity window. The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. Overview of existing schemes existed in mutual fund category: BY NATURE 1. That doesn’t mean mutual fund investments risk free. Close . SEBI Regulations ensure that at least one of the two exit routes is provided to the investor. Debt funds: . which provide moderate return with minimal risk.Ended Schemes: These schemes have a pre-specified maturity period. as Mutual funds provide professional management. Alternatively some closeended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV. as follows:  Diversified Equity Funds  Mid-Cap Funds  Sector Specific Funds  Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon.2. One can invest directly in the scheme at the time of the initial issue. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation. which combines the features of open-ended and close-ended schemes. convenience and liquidity. Equity fund: These funds invest a maximum part of their corpus into equities holdings. 3. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. which would be satisfied by lower returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile. Thus investors choose mutual funds as their primary means of investing. Interval Schemes: Interval Schemes are that scheme. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. 2. thus Equity funds rank high on the riskreturn matrix. For example.

Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). CPs and CDs. popularly known as Government of India debt papers. which are in line with pre-defined investment objective of the scheme.The objective of these Funds is to invest in debt papers. The aim of these schemes is to provide regular and steady income to investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government. Some portion of the corpus is also invested in corporate debentures Liquid Funds: Also known as Money Market Schemes. By investing in debt instruments. corporate debentures and Government securities. These schemes are safer as they invest in papers backed by Government. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes invest in short-term instruments like Treasury Bills. private companies. They invest in both equities and fixed income securities. These Funds carry zero Default risk but are associated with Interest Rate risk. are a mix of both equity and debt funds. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. These funds provides easy liquidity and preservation of capital. 2. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. these funds ensure low risk and provide stable income to the investors. It gets benefit of both equity and debt market. The investor can align his own investment needs with the funds objective and invest accordingly By investment objective: Growth Schemes: Growth Schemes are also known as equity schemes. Each category of funds is backed by an investment philosophy. Income Funds: Invest a major portion into various debt instruments such as bonds. Government authorities. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation Income Schemes: Income Schemes are also known as debt schemes. Further the mutual funds can be broadly classified on the basis of investment parameter viz. which is pre-defined in the objectives of the fund. Balanced funds: As the name suggest they. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. interbank call money market. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes generally invest in fixed income securities such as bonds and corporate debentures. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. Capital appreciation in such schemes may be limited . banks and financial institutions are some of the major issuers of debt papers.

For example. and you know exactly what you will receive when that time is up.Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. as well as some small CDs.000 * 1. preservation of capital and moderate income.05). the development of new products or the opportunity to take over another company. Loaning out $10 deprives you of having that $10 to use now for whatever you wish. These schemes generally invest in safer. CDs for more than $100. the CD will have grown to $10.000 are called "large CDs" or "jumbo CDs". short-term instruments. Investment-grade bonds have a very low default risk (the chance that your friend will take your .000 are called "small CDs".no different than having a friend ask for $10 today and give you an IOU promising to pay $11 dollars tomorrow. Almost all large CDs. they are both fixed-income securities. short-term debt instrument issued by a corporation. you put your money into a CD or bond for a set period. Certificate of Deposit: A certificate of deposit is a promissory note issued by a bank. commercial paper and inter-bank call money. Although it is still possible to withdraw the money. let's say that you purchase a $10.000 CD with an interest rate of 5% compounded annually and a term of one year. typically for the financing of accounts receivable. Money Market Schemes: Money Market Schemes aim to provide easy liquidity. It is a time deposit that restricts holders from withdrawing funds on demand. are negotiable. Commercial Paper: An unsecured. inventories and meeting short-term liabilities. but here is how they differ: 1. Issuer: In the case of bonds. certificates of deposit. Simply put. Are certificates of deposit a kind of bond? There is a fair amount of overlap between certificates of deposit (CDs) and bonds. which you generally hold on to until maturity. the issuer is usually a company trying to raise funds for operations. They are both debt based. The interest ($1) is collected for the same reason that banks charge interest on loans: to compensate for delaying the ability to spend money. Maturities on commercial paper rarely range any longer than 270 days. such as treasury bills.500 ($10. meaning that you are the creditor . CDs of less than $100. These schemes invest in both shares and fixed income securities. this action will often incur a penalty. The debt is usually issued at a discount. At year's end. reflecting prevailing market interest rates. in the proportion indicated in their offer documents (normally 50:50). We now know why bonds and CDs fit under the same broad category.

2. but also the most significant point. The difference in time commitment for bonds and CDs is best expressed in terms of the investor's motives. We generally think of the term fixed income as being synonymous to bonds. These instruments are very liquid and considered extraordinarily safe. is typically less than bonds but a little better than a savings account. Retirement The money market is a subsection of the fixed income market. while a bond is technically a fixed-income security with a maturity of more than 10 years. interestpaying storage for capital until a more profitable investment can be found. CDs are similar to a savings account. CDs are generally considered short-term.$10 and never come back). Bonds are considered long-term vehicles for guaranteeing a profit and. and they overlap everywhere. Bonds are longerterm investments. The loose categorization is as follows (put an imaginary "generally" in front of each description): T-Bills . As previously mentioned. perhaps. The complication we run into now is that there are further distinctions or categories within the world of fixed-income debt securities. Because they are extremely conservative. they're basically a place to hold your money until you want to do something else with it. The return on CDs. low-risk. offsetting some of the risk an investor may face in higher-yield investments such as equities. a bond is just one type of fixed income security. Time/Maturity: This is the sticky part.mature between one and 10 years Bonds . however.mature after a decade or more In other words. The issuer of CDs is usually a bank because CDs are not issued with the same motives that underlie bonds. generally maturing in more than 10 years. One of the main differences between the money market and the stock market is that most money . Capital Market. people often use the term "bond" to refer to fixed-income securities in general . CDs mature in as little as one month and as much as five years. By contrast. Because bonds issued by a company are riskier. Money Market: What Is It? Filed Under » 401K.mature in less than one year Notes . Money market investments are also called cash investments because of their short maturities. Beginning Investor. they offer a favorable return to the people who buy them. but it can definitely happen. financial institutions and large corporations. The difference between the money market and the bond market is that the money market specializes in very short-term debt securities (debt thatmatures in less than one year). Money Market. In reality.even those securities with a maturity of less than 10 years. money market securities offer significantly lower returns than most other securities. Money market securities are essentially IOUs issued by governments.

Failing that. like Treasury bills. or just a portion of what you bid for. There are several different instruments in the money market. Beginning Investor. This differs from coupon bonds. Their popularity is mainly due to their simplicity. If you want to buy a T-bill. government.000. or sometimes through a money market bank account. In non-competitive bidding. you submit a bid that is prepared either noncompetitively or competitively.000. $25. your interest is the difference between the purchase price of the security and what you get at maturity. If the return you specify is too high. Capital Market. These accounts and funds pool together the assets of thousands of investors in order to buy the money market securities on their behalf. Deals are transacted over the phone or through electronic systems.000. $100. T-bills are short-term securities that mature in one year or less from their issue date. Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. offering different returns and different risks. For example.) The biggest reasons that T-Bills are so popular is that they are one of the few money market instruments that are affordable to the individual investors. In this tutorial. the money market is a dealer market.800 and held it until maturity. (More information on auctions is available at the TreasuryDirect website. but many other governments issue T-bills in a similar fashion. the government pays the holder the full par securities trade in very high denominations. The easiest way for us to gain access to the money market is with a money market mutual funds.000. Furthermore. Money Market. However. Another characteristic of a dealer market is the lack of a central trading floor or exchange.000 and $1 million. which pay interest semi-annually. when they mature. $50. Effectively. Retirement Treasury Bills (T-bills) are the most marketable money market security. if you bought a 90-day T-bill at $9. $5. six-month and one-year maturities. while the investor takes the risk of holding the stock. This limits access for the individual investor.S. Other . $10. you would earn $200 on your investment. Essentially. at their own risk. some money market instruments. you might not receive any securities. we'll take a look at the major money market instruments. Compare this to the stock market where a broker receives commission to acts as an agent. T-bills are purchased for a price that is less than their par (face) value. government to raise money from the public. which means that firms buy and sell securities in their own accounts.S. With competitive bidding. you have to specify the return that you would like to receive. Money Market: Treasury Bills (T-Bills) Filed Under » 401K. you'll receive the full amount of the security you want at the return determined at the auction. In the following sections.000. T-bills are usually issued in denominations of $1. may be purchased directly. we are referring to T-bills issued by the U. T-bills are a way for the U. They are issued with three-month. they can be acquired through other large financial institutions with direct access to these markets.

After six months. which over the next six months amounts to $ 0. in the U. how much money you invest. a specified interest rate. Retirement A certificate of deposit (CD) is a time deposit with a bank. Corporate bonds. the Federal Deposit Insurance Corporation guarantees your investment up to $100. For example. The $25 payment starts earning interest of its own. the yield gets higher.06. much like bonds.000 CD that pays 5% semi-annually. In fact. they are considered risk-free. They bear a specific maturity date (from three months to five years). see Why do commercial bills have higher yields than T-bills?) The only downside to T-bills is that you won't get a great return because Treasuries are exceptionally safe. without taking compounding into account. APY: How The Distinction Affects You. The main advantage of CDs is their relative safety and the ability to know your return ahead of time. the rates are rarely competitive. Furthermore. and you won't be at the mercy of the stock market. overall. the greater the yield will be. and can be issued in any denomination. certificates of deposit and money market funds will often give higher rates of interest. Of course. APR is simply the stated interest you earn in one year. It may not sound like a lot. say you purchase a one-year. (To learn more.000. the amount of interest you earn depends on a number of other factors such as the current interest rate environment. so it's important to shop around. the length of time and the particular bank you choose. its rate and yield are the same. Money Market.S. the rate on the CD is 5%. When an investment pays interest annually. The more frequently interest is calculated.S. . $1. the funds may not be withdrawn on demand like those in a checking account.000 x 5 % x . but compounding adds up over time. Capital Market.5 years). taking compound interest into account.5 years). What's more. the likelihood that a large bank will go broke is pretty slim. Plus. Like all time deposits.positives are that T-bills (and all Treasuries) are considered to be the safest investments in the world because the U.625 ($25 x 5% x . Beginning Investor. Here's where the magic of compounding starts. CDs offer a slightly higher yield than T-Bills because of the slightly higher default risk for a bank but. APY is the total amount of interest you earn in one year. but its yield is 5. Money Market: Certificate Of Deposit (CD) Filed Under » 401K. As a result. A fundamental concept to understand when buying a CD is the difference between annual percentage yield (APY) and annual percentage rate (APR). (For more on this. CDs are generally issued by commercial banks but they can be bought through brokerages. you'll receive an interest payment of $25 ($1. you might not get back all of your investment if you cash out before the maturity date.) The difference results from when interest is paid. While nearly every bank offers CDs. read APR vs. government backs them. But when interest is paid more frequently. You'll generally earn more than in a savings account. they are exempt from state and local taxes.

commercial paper is a very safe investment because the financial situation of a company can easily be predicted over a few months. Therefore.Despite the benefits. borrowing short-term money from banks is often a laborious and annoying task. your money is tied up for the length of the CD and you won't be able to get it out without paying a harsh penalty. there have only been a handful of cases where corporations have defaulted on their commercial paper repayment. short-term loan issued by a corporation. For the most part. Maturities on commercial paper are usually no longer than nine months. there are two main disadvantages to CDs.000 or more. the returns are paltry compared to many other investments. . Commercial paper is usually issued in denominations of $100. Over the past 40 years. typically for financing accounts receivable and inventories. Furthermore. reflecting current market interest rates. typically only companies with high credit ratings and credit worthiness issue commercial paper. (See Why do companies issue bonds instead of borrowing from the bank?) Commercial paper is an unsecured. Furthermore. The desire to avoid banks as much as possible has led to the widespread popularity of commercial paper. smaller investors can only invest in commercial paper indirectly through money market funds. First of all. Money Market: Commercial Paper For many corporations. with maturities of between one and two months being the average. It is usually issued at a discount.

but they are not asking for this) If you don’t have any of the above Certificates then you should write a letter of undertaking that you will submit the certificate within the duration of 30 days. Interview Call Letter sent by IBPS (you can download it from the website) Proof of Identity Proof of Date of Birth All Marks Sheets of your Education Provisional or Original Graduation Degree certificate Computer Knowledge certificate (if any) Caste certificate (as per format) Two Character Certificates (as per format) 2 Sets of Photostat Copies of all your Certificates with self attestation (actually they're asking for one set along with Character Certificate. No need to submit NOC if you work for Private Sector. here is the list of documents you should carry with you for IBPS PO Common Interviews. No need of the print out of Score Card (better to take. but its better to take two) No Objection Certificate (if you have experience in any Public Sector Bank or any Govt office). .Required Documents you Should Carry for IBPS Common Interviews Friends.

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