 Just as people need money, so do companies and governments.

A company needs funds to

expand into new markets, while governments need money for everything from
infrastructure to social programs. The problem large organizations run into is that they
typically need far more money than the average bank can provide. The solution is to raise
money by issuing bonds (or other debt instruments) to a public market. Thousands of
investors then each lend a portion of the capital needed. Really, a bond is nothing more than
a loan for which you are the lender. The organization that sells a bond is known as the
issuer. You can think of a bond as an IOU given by a borrower (the issuer) to a lender (the
investor).

BASIS FOR
STOCKS BONDS
COMPARISON
Stocks are the financial instrument that carries Bonds are the debt instrument issued by the
ownership interest, issued by the company in companies to raise capital with a promise to
Meaning exchange for cash. pay back the money after some time along
with interest.
Companies Government institutions, companies and
Issued by financial institutions, etc.

What is it? Equity instrument Debt instrument

Return Dividend Interest
Is the return No Yes
guaranteed?
Owners Stockholders Bondholders
Stockholders are the owners of the company. Bondholders are the lenders to the company.
Status of holders

Risk High Comparatively low

The holders get voting rights. The holders get preference at the time of
Add on benefits
repayment.
Market Centralized Over the Counter (OTC)
Face Value/Par Value:

 The face value (also known as the par value or principal) is the amount of money a holder
will get back once a bond matures. A newly issued bond usually sells at the par value.

 What confuses many people is that the par value is not the price of the bond. A bond's price
fluctuates throughout its life in response to a number of variables. When a bond trades at a
price above the face value, it is said to be selling at a premium. When a bond sells below
face value, it is said to be selling at a discount.

Coupon Rate:

 The coupon is the amount the bondholder will receive as interest payments. It's called a
"coupon" because in the past there were physical coupons on the bond that you tear off and
redeem for interest.
  The coupon is expressed as a percentage of the par value. If a bond pays a coupon of 10%
and its par value is Rs. 1,000, then it'll pay Rs. 100 of interest a year.

 A rate that stays as a fixed percentage of the par value is a fixed-rate bond. Another
possibility is an adjustable interest payment, known as a floating-rate bond. In this case the
interest rate is tied to market rates through an index.

Yield to Maturity (YTM):

 YTM is a more advanced yield calculation that shows the total return you will receive if you
hold the bond to maturity. It equals all the interest payments you will receive (and assumes
that you will reinvest the interest payment at the same rate as the current yield on the
bond) plus any gain (if you purchased at a discount) or loss (if you purchased at a premium).

 b. Infrastructure Finance:
 Infrastructure finance refers to investment in infrastructure that is beneficial to the
government, corporate, public everyone alike. It broadly includes the following sectors
like energy, logistics and transportation, telecommunication, urban and industrial
infrastructure, water and sanitation, schools, and hospitals.
 Infrastructure finance holds the utmost importance in developing countries like India
itself. For example, India has a population of 1.3 billion and people and about 200 million
people do not have access to electricity. People do not have access to adequate
sanitation and clean water. These problems are faced by people across the globe but the
developing countries face many challenges in developing infrastructure as compared to
the developed countries.
 Development of infrastructure will provide long term economic benefits like driving
growth, job creation, industrial development, reduction in poverty and hence it is of
utmost importance to invest in such projects.
 Infrastructure projects are capital intensive and there are a lot of risks involved in terms of
predictability of revenue generation. Also, revenue is realized over a very long duration
and hence it takes a lot of time to repay the debts.
 Challenges to infrastructure finance:
 1. Political Reforms:

 There can be a lot of difficulty in obtaining the necessary land, environmental permits.
These permits can be costly or might simply take a longer time period to obtain. There is
also a risk of changes in tariff regulations due to political reasons. If there are changes in
government regulation, the asset can become stranded at the time of asset transfer. Any
modification in the legal or regulatory environment which affects a particular industry will
pose a challenge for the company undertaking the project. Such changes are difficult to
anticipate and can cause serious troubles to cope with the project.
 It is very important to determine if the project will be socially accepted or not. If this factor
is not taken into account before taking up the project then it can lead to protests which
will in turn influence the political agendas and hence can delay the construction of the
project to an infinite amount of time.
 2. Business Reforms:
 There can be defaults in the payment from any party (suppliers, lenders, insurers) that is
part of the project. There is a difficulty in the availability of funding to perform feasibility
studies. This is very important because this is a sunk cost and cannot be recovered if the
decision is taken to not initiate the project. 
 There is also a risk that the company undertaking the project is not able to predict
correctly the revenue or demand that will be generated by the project. This will give rise
to a huge loss of the capital that has been invested in the project thereby burdening the
company.
 

 c. Financial Crime
 Financial crime means converting ownership of money or valuable assets through
disguise or use of deceptions or corruption. . Such crimes are usually committed to gain
economic or monetary benefits. It is a non-violent activity that will cause financial loss to
the victims.
 Financial crime may involve activities like frauds, theft, scam, market manipulation, tax
evasion, electronic crime, embezzlement,  counterfeiting or forgeries, money laundering,
terrorist financing.
 Financial crimes are usually committed by people employed in white-collar jobs and
these crimes take place in very small amounts. This is mainly because there is a lot of
financial pressure faced by the middle-class population. These might go unnoticed but
such criminals are not limited to white-collar jobholders. Big businessmen and corrupt
politicians also indulge in financial crimes mainly to evade taxes. 
 Ever since banking has become online there is a surge in online frauds. Although the
online transactions allow the customers to perform banking activities online using their
mobile phones and computers, there is a lot of sensitive information that is exposed, and
hence such people are prone to attacks by attackers who are in wait of such
opportunities.
 Stages of Money Laundering:
 Money Laundering is always present while committing financial crimes. It has three
stages namely placement, layering, and integration in that specific order.
 Stage 1: Placement: 
 Placement means moving the funds from its source. The funds are circulated through
legitimate financial institutions like casinos, shops, businesses both local and
abroad. The most common ways of placement of money are by smuggling them outside
the country or by purchasing assets where a bulk of the cash is converted to equally
valuable assets but less obvious.
 Stage 2: Layering: 
 The purpose of this stage is to make it difficult for the law agencies to trace the money. It
involves converting the cash into monetary instruments like drafts and money orders after
they are placed in the financial institutions. Also, if assets are bought using illegitimate
funds they are resold locally or abroad which makes it difficult to trace them.
 Stage 3: Integration:
 In this final stage of money laundering the money is introduced in the economy back
again and it seems like legitimate business earnings. There are certain activities like
property dealings where the criminal approaches the shell company to buy property and
then the proceeds from the sale are considered legitimate earnings hence introducing the
money back into the economy.

Major Principles of Insurance:

Insurance is a legal contract between an insurer and an insured whereby the insurer
compensates the pecuniary loss of the insured which is accidental in nature.
There are 6 major principles of insurance. They are as follows:
1. Principle of insurable interest
2. Principle of utmost good faith
3. Principle of proximate cause
4. Principle of Indemnity
5. Principle of Contribution
6. Principle of Subrogation

1. Principle of insurable interest:

According to this principle, the individual has the right to insure an object due to the relationship
of financial interest between the individual and the insured object. The individual must have an
insurable interest in the subject matter. Here, insurable interest means that the subject matter for
which an individual enters the contract must provide financial gain or financial loss if there is any
damage loss.
The followings are a few examples of its application: 
Motor vehicle, place of residence, or other valuable properties insured by the owner.
The head of the family or the main wage earner insures him or herself in life, health, or personal
accidental insurances for the sake of the family in case he or she may no longer be productive in
earning income.
A business person insures his or her commercial business.

2. Principle of utmost good faith:

Utmost good faith means that the individual or the owner of the insured object must submit facts
in regard to the insured objects that are important in nature and they need to be complete and
accurate. These facts should be submitted on demand or voluntarily.
If there are any material facts deliberately hidden, the insurer will consider it as fraudulent and
reserves the right to refuse to compensate in the event of a claim or to terminate the insurance
contract.
The following are a couple of examples of its application in insurance.

 Informing about a chronic or hereditary disease suffered when applying for health
insurance.
 Informing about the use of a motor vehicle, whether it is for personal or commercial use.

3. Principle of proximity clause:

This is the principle of the nearest cause. This principle means that when there is a loss and it
has occurred as a result of two or more causes then the insurance company will find the nearest
cause of loss to the property.
Example: Due to fire, a wall of a building was damaged. As the adjoining building was damaged,
the owner of the adjoining building claimed the loss under the fire policy. The court held that fire
is the nearest cause of loss to the adjoining building, and the claim is payable.

4. Principle of Indemnity:
Indemnity is an insurance principle that regulates the mechanism of compensation. This
mechanism ensures that the insurer cannot make out a profit from the insurance contract. This
means, in the event of a loss or claim, the insurer will give compensation according to the
financial loss suffered by the individual without being influenced by profit-seeking factors.
A couple of examples of its application in insurance:

 Renovation to a house damaged by fire. Renovation is done only to the parts of the
house which are affected by the fire.
  Compensation for a lost car maximized according to the insured value if the car is not
under-insured.

5. Principle of Contribution:
Contribution is a principle of insurance that applies if an insured object is insured by two or more
insurers. In this case, the loss incurred will be covered together according to the liability of each
insurer. All insurers will contribute a portion of the total loss if the property has been insured with
more than one insurer. This is not valid to a life insurance contract.
For example, a luxury car insured by three different insurance companies. The insurance
company with the biggest liability portion becomes the leader while the rest become the
members. The leader is responsible to collect the premiums from the members and to determine
whether to accept a claim and the amount of the compensation for the claim.

6. Principle of Subrogation:
Subrogation means one party stands in for another. As per this principle, after the insured, i.e.
the individual has been compensated for the incurred loss to him on the subject matter that was
insured, the rights of the ownership of that property goes to the insurer, i.e. the company.
Example – If Mr. A gets injured in a road accident, due to reckless driving of a third party, the
company with which Mr. A took the accidental insurance will compensate for the loss occurred to
Mr. A and will also sue the third party to recover the money paid as claim.