KCC TUTORIALS Capital Market

Investors

Capital Market Investors

Financial System/Sector
Financial system/Sector is the system that allows the transfer of money between savers
(investors) and borrowers. Every modern economy is based on a sound financial system which
helps in production, capital requirements and economic growth by encouraging savings habits,
mobilising savings from households and other segments and allocating them into productive usage
such as trade, commerce, manufacture etc. A financial system can operate on a global, regional or
firm specific level. Financial system comprising “a set of complex and closely interconnected
financial institutions, markets, instruments, services, practices, and transactions”

Functions performed by a financial system are:

 Saving function: Public saving find their way into the hands of those in production through
the financial system. Financial claims are issued in the money and capital markets which
promise future income flows. The funds with the producers result in production of goods

(By Jagdeep Arora (B.Com, CA, CS & CMA)

and services thereby increasing society living standards.
 Liquidity function: The financial markets provide the investor with the opportunity to
liquidate investments like stocks bonds debentures whenever they need the fund.
 Payment function: The financial system offers a very convenient mode for payment of
goods and services. Cheque system, credit card system etc are the easiest methods of
payments. The cost and time of transactions are drastically reduced.
 Risk function: The financial markets provide protection against life, health and income
risks. These are accomplished through the sale of life and health insurance and property
insurance policies. The financial markets provide immense opportunities for the investor to
hedge himself against or reduce the possible risks involved in various investments.
 Policy function: The government intervenes in the financial system to influence
macroeconomic variables like interest rates or inflation so if country needs more money,
government would cut rate of interest through various financial instruments and if inflation
is high and too much money is there in the system then government would increase rate of
interest.

Components of Financial System;

 Financial Market i.e Money Market and Capital Market
 Financial Products i.e Shares, Debentures, Bonds etc.
 Financial Institutions and Intermediaries; i.e Institutional and Non-Institutional Investors

A. CAPITAL MARKET INVESTMENT INSTITUTIONS

Meaning and Role - In any economy, financial Institutions play an important role because all
the financial dealings and matters are handled and monitored by such Institutions. The major
components of financial Institutions are banks, insurance companies, investment companies,
consumer finance companies, and other specialized financial institutes. These institutions
provide a variety of financial products and services to fulfil the varied needs of the
commercial sector. Besides, they provide assistance to new enterprises, small and medium
scale enterprises as well as industries established in backward areas. Thus, they have helped
in reducing regional disparities by inducing widespread industrial development.
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The Government of India, in order to provide adequate supply of credit to various sectors of
the economy, has evolved a well-developed structure of financial institutions in the country.
These financial institutions can be broadly categorised into All India institutions and State
level institutions, depending upon the geographical coverage of their operations. At the
national level, they provide long and medium term loans at reasonable rates of interest.

They subscribe to the debenture of the companies, underwrite public issue of shares,
guarantee loans and deferred payments, etc. Though, the State level institutions are mainly
concerned with the development of medium and small scale enterprises, but they provide the
same type of financial assistance as the national level institutions.

NATIONAL LEVEL INSTITUTIONS

A wide variety of financial institutions have been set up at the national level. These
institutions cater to the diverse financial requirements of the entrepreneurs. They include

(By Jagdeep Arora (B.Com, CA, CS & CMA)

development banks like IDBI, SIDBI, FIs like IFCI, IIBI; TFCI and Insurance Companies
like LIC, GIC, UTI; etc.

1) All-India Development Banks (AIDBs):- Includes those development banks which provide
institutional credit not only to large and medium scale enterprises but also help in promotion
and development of small scale industrial units.

Following are the banks which caters to the need for the growth of different sectors on
India :

– Industrial Development Bank of India (IDBI):- It caters to the diversified needs

of medium and large scale industries in the form of financial assistance, both directly
and indirectly. Direct assistance is provided by way of project loans, underwriting of
and direct subscription to industrial securities, soft loans, technical refund loans, etc.
Indirect assistance is provided in the form of refinance facilities to industrial
concerns.

– Industrial Finance Corporation of India (IFCI):- It aims to provide financial

assistance to industry by way of rupee and foreign currency loans,
underwrites/subscribes the issue of stocks, shares, bonds and debentures of
industrial concerns, etc. It has also diversified its activities in the field of merchant
banking, syndication of loans, formulation of rehabilitation programmes, assignments
relating to amalgamations and mergers, etc.

– Small Industries Development Bank of India (SIDBI):- It was set up by the

Government of India in April 1990, as a wholly owned subsidiary of IDBI. It is the
principal financial institution for promotion, financing and development of small scale
industries in the economy. It aims to empower the Micro, Small and Medium
Enterprises (MSME) sector with a view to contributing to the process of economic
growth, employment generation and balanced regional development.

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Website: www.sidbi.in

– Industrial Investment Bank of India Ltd (IIBI):- It was set up in 1985 under the
Industrial reconstruction Bank of India Act, 1984, as the principal credit and
reconstruction agency for sick industrial units.
It was converted into IIBI on March 17, 1997, as a full-fledged development
financial institution. It assists industry mainly in medium and large sector through wide
ranging products and services. Besides project finance, IIBI also provides short
duration non-project asset-backed financing in the form of underwriting/direct
subscription, deferred payment guarantees and working capital/ other short-term loans
to companies to meet their fund requirements.

Note: IIBI was closed down by the Indian Government in 2012.

(By Jagdeep Arora (B.Com, CA, CS & CMA)

2)Specialised Financial Institutions (SFIs):- These are the institutions which have been set
up to serve the increasing financial needs of trade and commerce in the area of venture
capital, credit rating and leasing, etc.

Following institutions are considered as SFIs in our country:

– IFCI Venture Capital Funds Ltd (IVCF):- IVCF is a subsidiary of IFCI. IVCF formerly
known as Risk Capital & Technology Finance Corporation Ltd (RCTC), is a subsidiary of
IFCI Ltd. It was promoted with the objective of broadening entrepreneurial base in the
country by facilitating funding to ventures involving innovative product/
process/technology. Initially, it started providing financial assistance by way of soft
loans to promoters under its ‘Risk Capital Scheme’.

Since 1988, it also started providing finance under ‘Technology Finance and Development
Scheme’ to projects for commercialisation of indigenous technology for new processes,
products, market or services. Over the years, it has acquired great deal of experience in
investing in technology-oriented projects.

Website: http://www.ifciventure.com/

– ICICI Venture Funds Ltd:- Formerly known as Technology Development & Information
Company of India Limited (TDICI), it was founded in 1988 as a joint venture with the Unit
Trust of India. Subsequently, it became a fully owned subsidiary of ICICI.

It is a technology venture finance company, set up to sanction project finance for new
technology ventures. The industrial units assisted by it are in the fields of computer,
chemicals/polymers, drugs, diagnostics and vaccines, biotechnology, environmental
engineering, etc.
Website: http://www.iciciventure.com/
– Tourism Finance Corporation of India Ltd. (TFCI):- It is a specialised financial
institution set up by the Government of India for promotion and growth of tourist
industry in the country. Apart from conventional tourism projects, it provides financial
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assistance for non-conventional tourism projects like amusement parks, ropeways, car
rental services, ferries for inland water transport, etc.
Website: http://www.tfciltd.com/

3) Investment Institutions:- These are the most popular form of financial intermediaries,
which particularly catering to the needs of small savers and investors. They deploy their
assets largely in marketable securities. Following are the Investment Institutions established
by the Government :
– Life Insurance Corporation of India (LIC):- It was established in 1956 as a wholly-
owned corporation of the Government of India. It was formed by the Life Insurance
Corporation Act, 1956, with the objective of spreading life insurance much more widely
and in particular to the rural area. It also extends assistance for development of
infrastructure facilities like housing, rural electrification, water supply, sewerage, etc. In
addition, it extends resource support to other financial institutions through subscription

(By Jagdeep Arora (B.Com, CA, CS & CMA)

to their shares and bonds, etc.
– Unit Trust of India (UTI):- It was set up as a body corporate under the UTI Act, 1963,
with a view to encourage savings and investment. It mobilises savings of small investors
through sale of units and channelises them into corporate investments mainly by way of
secondary capital market operations.
For more than two decades it remained the sole vehicle for investment in the capital
market by the Indian citizens. Thus, its primary objective is to stimulate and pool the
savings of the middle and low income groups and enable them to share the benefits of the
rapidly growing industrialisation in the country.
In December 2002, the UTI Act, 1963 was repealed with the passage of Unit Trust of
India (Transfer of Undertaking and Repeal) Act, 2002, paving the way for the bifurcation
of UTI into 2 entities, UTI-I and UTI-II with effect from 1st February 2003.

- General Insurance Corporation of India (GIC):- It was formed by the enactment of the General
Insurance Business (Nationalisation) Act, 1972(GIBNA), for the purpose of superintending,
controlling and carrying on the business of general insurance or non-life insurance.
Initially, GIC had four subsidiary branches, namely, National Insurance Company Ltd ,The New
India Assurance Company Ltd , The Oriental Insurance Company Ltd and United India Insurance
Company Ltd . But these branches were delinked from GIC in 2000 to form an association known as
‘GIPSA’ (General Insurance Public Sector Association).

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STATE LEVEL INSTITUTIONS

Several financial institutions have been set up at the State level which supplement the
financial assistance provided by the all India institutions. They act as a catalyst for promotion
of
investment and industrial development in the respective States.

They broadly consist of ‘State financial corporations’ and ‘State industrial development
corporations’.

State Financial Corporations (SFCs):- These are the State-level financial institutions
which play a crucial role in the development of small and medium enterprises in the
concerned States.
They provide financial assistance in the form of term loans, direct subscription to
equity/debentures, guarantees, discounting of bills of exchange and seed/ special capital,
etc.

(By Jagdeep Arora (B.Com, CA, CS & CMA)

SFCs have been set up with the objective of catalysing higher investment, generating
greater employment and widening the ownership base of industries. They have also started
providing assistance to newer types of business activities like floriculture, tissue culture,
poultry farming, commercial complexes and services related to engineering, marketing, etc.
There are around 18 State Financial Corporations (SFCs) in the country.

Various important functions of State Finance Corporations:

a) The SFCs provides loans mainly for the acquisition of fixed assets like land, building,
plant, and machinery.
b) The SFCs help financial assistance to industrial units whose paid-up capital and
reserves do not exceed Rs. 3 crore (or such higher limit up to Rs. 30 crores as may be
notified by the central government).
c) The SFCs underwrite new stocks, shares, debentures etc., of industrial units.
d) The SFCs grant guarantee loans raised in the capital market by scheduled banks,
industrial concerns, and state co-operative banks to be repayable within 20 years.

– State Industrial Development Corporations (SIDCs) :- These corporations have been

established under the erstwhile Companies Act, 1956, as wholly-owned undertakings of
State Governments.
Example: Punjab State Industrial Development Corporation (https://pbindustries.gov.in/)

Functions of SIDCs
a) They have been set up with the objectives of promoting industrial development in the
respective States and providing financial assistance to small entrepreneurs.
b) They are also involved in setting up of medium and large industrial projects in the joint
sector/assisted sector in collaboration with private entrepreneurs or wholly-owned
subsidiaries.
c) They undertake a variety of promotional activities such as preparation of feasibility
reports; conducting industrial potential surveys; entrepreneurship training and
development programmes; as well as developing industrial areas and industrial estates.
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QUALIFIED INSTITUTIONAL BUYERS

QIBs are investment institutions who buy the shares of a company on a large scale. Qualified
Institutional Buyers are those Institutional investors who are generally perceived to possess
expertise and the financial proficiency to evaluate and to invest in the Capital Markets.

According to Regulation 2(1)(zd) of Securities and Exchange Board of India (Issue of Capital
and Disclosure Requirements) Regulations, 2018, Qualified Institutional Investors comprises of
—
(i) a mutual fund, venture capital fund, Alternative Investment Fund and foreign venture
capital investor registered with SEBI;
(ii) a foreign portfolio investor other than Category III foreign portfolio investor,
registered with SEBI;
(iii) a public financial institution as defined under Section 2(72) of the Comspanies Act,

(By Jagdeep Arora (B.Com, CA, CS & CMA)

2013 ;
(iv) a scheduled commercial bank;
(v) a multilateral and bilateral development financial institution;
(vi) a state industrial development corporation;
(vii) an insurance company registered with the Insurance Regulatory and Development
Authority;
(viii) a provident fund with minimum corpus of twenty five crore rupees;
(ix) a pension fund with minimum corpus of twenty five crore rupees;
(x) National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated
November 23, 2005 of the Government of India published in the Gazette of India;
(xi) insurance funds set up and managed by army, navy or air force of the Union of India;
(xii) insurance funds set up and managed by the Department of Posts, India;
(xiii) systemically important non-banking financial companies.

SEBI has laid down certain criteria in SEBI (ICDR) Regulations, 2018, under which a QIB is
entitled to get the shares up to 50% of the issue if the issue is in accordance SEBI (ICDR)
Regulation 2018 or at least 75% of the issue if the issue is in accordance with QIB Route of
SEBI (ICDR) Regulation 2018. QIBs are allocated shares in proportionate basis.

QIBs can also act as an anchor investor in Initial Public Offers of the companies.

For Example:
Company a proposed to issue 7,000 equity shares as a fresh issue pursuant to their Initial
Public Offer. If the issue is in accordance with regulation 26(1) of SEBI (ICDR) Regulation,
2009 then the company can issue upto 3500 shares to QIB. If the said issue is in accordance
with regulation 26(2) of SEBI (ICDR) Regulation 2009 then the company has to issue at least
5250 shares to QIBs.

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FOREIGN PORTFOLIO INVESTOR

Foreign Portfolio Investor (FPI) means a person who satisfies the eligibility criteria
prescribed under SEBI (Foreign Portfolio Investors) Regulations, 2014 and has been
registered under Chapter II of these regulations, which shall be deemed to be an
intermediary in terms of the provisions of the SEBI Act, 1992.

All existing Foreign Institutional Investors (FIIs) and QFIs are to be merged into one
category called FPI.

Categories of FPI

• Category I FPIs include:

Government and Government-related investors such as central banks, Governmental agencies,
sovereign wealth funds and international or multilateral organisations or agencies.

• Category II FPIs include:

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– appropriately regulated broad based funds such as mutual funds, investment trusts,
insurance/ reinsurance companies;
– appropriately regulated persons such as banks, asset management companies,
investment managers/ advisors, portfolio managers;
– broad based funds that are not appropriately regulated but whose investment
manager is appropriately regulated. However, the investment manager of such broad
based fund should be registered as a Category II FPI and should undertake that it
shall be responsible and liable for all acts of commission and omission of all its
underlying broad based funds and other deeds and things done by such broad based
funds under these regulations.
– university funds and pension funds; and
– university-related endowments already registered with SEBI as FIIs or subaccounts.
–
• Category III FPIs include:
– It includes all other FPIs which not eligible under Category I and II of FPIs such as
endowments, charitable societies, charitable trusts, foundations, corporate bodies,
trusts, individuals and family offices.

ALTERNATIVE INVESTMENT FUNDS

Alternative investment funds (AIFs) are defined in Regulation 2(1)(b) of SEBI (Alternative
Investment Funds) Regulations, 2012.

It refers to any privately pooled investment fund, (whether from Indian or foreign sources),
in the form of a trust or a company or a body corporate or a Limited Liability Partnership
(LLP) which are not presently covered by any Regulation of SEBI governing fund management
(like, Regulations governing Mutual Fund or Collective Investment Scheme) nor coming under
the direct regulation of any other sectoral regulators in India-IRDA, PFRDA, RBI. Hence, in
India, AIFs are private funds which are otherwise not coming under the jurisdiction of any
regulatory agency in India.
According to SEBI (AIF) Regulations, 2012, “Alternative Investment Fund” means any fund
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established or incorporated in India in the form of a trust or a company or a limited liability

partnership or a body corporate which,-
(i) is a privately pooled investment vehicle which collects funds from investors, whether
Indian or foreign, for investing it in accordance with a defined investment policy for the
benefit of its investors; and

(ii) is not covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective
Investment Schemes) Regulations, 1999 or any other regulations of SEBI to regulate
fund management activities.
Funds not covered under AIF
However, the following shall not be considered as Alternative Investment Fund for the purpose
of these regulations, –
(i) Family trusts set up for the benefit of ‘relatives’ as defined under Companies Act,
2013.
(ii) ESOP Trusts set up under the SEBI (Employee Stock Option Scheme and Employee

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Stock Purchase Scheme), Guidelines, 1999 or as permitted under Companies Act, 2013.
(iii) Employee welfare trusts or gratuity trusts set up for the benefit of employees.
(iv) Holding companies within the meaning of Section 2(46) of the Companies Act, 2013.
(v) Other special purpose vehicles not established by fund managers, including
securitization trusts, regulated under a specific regulatory framework.
(vi) Funds managed by securitisation company or reconstruction company which is
registered with the Reserve Bank of India under Section 3 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
(vii) Any such pool of funds which is directly regulated by any other regulator in India;
Thus, the definition of AIFs includes venture Capital Fund, hedge funds, private
equity funds, commodity funds, Debt Funds, infrastructure funds, etc., while, it
excludes Mutual funds or collective investment Schemes, family trusts, Employee
Stock Option / purchase Schemes, employee welfare trusts or gratuity trusts,
‘holding companies’ within the meaning of Section 2(46) of the Companies Act, 2013,
securitization trusts regulated under a specific regulatory framework, and funds
managed by securitization company or reconstruction company which is registered
with the RBI under Section 3 of the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002.
(viii) One AIF can float several schemes. Investors in these funds are large institutions,
high net worth individuals and corporates. In India AIF is regulated by SEBI
(Alternative Investment Funds) Regulations, 2012.

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Categories of Alternative Investment Fund (AIF)

Category I Category II Category III
It covers Funds that invest in  Funds that do not fall in  Funds that employ
 start-up or early stage Category I and III AIF diverse or complex
ventures or and trading strategies and
 social ventures or  those that do not
 Small Medium Enterprises undertake leverage or  may employ leverage
(SMEs) or borrowing other than to including through
 infrastructure or meet the permitted day to investment in listed or
 other sectors day operational unlisted derivatives.
 which the government or requirement including e.g. Hedge Funds.
regulators consider as Private Equity Funds or
socially or economically Debt Funds.
desirable
 which include VCF, SME

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Funds, Social Venture Funds
(SVF), Infra Funds and
 such other AIFs as may be
specified in the AIF
Regulations.

PRIVATE EQUITY
Private equity is a type of equity (finance) and one of the asset classes who takes securities
and debt in operating companies that are not publicly traded on a stock exchange. Private
equity is essentially a way to invest in some assets that is not publicly traded, or to invest in
a publicly traded asset with the intention of taking it private. Unlike stocks, mutual funds,
and bonds, private equity funds usually invest in more illiquid assets, i.e. companies. By
purchasing companies, the firms gain access to those assets and revenue sources of the
company, which can lead to very high returns on investments. Another feature of private
equity transactions is their extensive use of debt in the form of high-yield bonds. By using
debt to finance acquisitions, private equity firms can substantially increase their financial
returns.

Private equity consists of investors and funds that make investments directly into private
companies or conduct buyouts of public companies. Capital for private equity is raised from
retail and institutional investors, and can be used to fund new technologies, expand working
capital within an owned company, make acquisitions, or to strengthen a balance sheet. The
major of private equity consists of institutional investors and accredited investors who can
commit large sums of money for long periods of time.

Private equity investments often demand long holding periods to allow for a turn around of a
distressed company or a liquidity event such as IPO or sale to a public company. Generally, the
private equity fund raise money from investors like Angel investors, Institutions with
diversified investment portfolio like – pension funds, insurance companies, banks, funds of
funds etc.

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Types of Private Equity

Private equity investments can be divided into the following categories:

– Leveraged Buyout (LBO): This refers to a strategy of making equity investments as

part of a transaction in which a company, business unit or business assets is acquired
from the current shareholders typically with the use of financial leverage . The
companies involved in these types of transactions that are typically more mature and
generate operating cash flows.
– Venture Capital: It is a broad sub-category of private equity that refers to equity
investments made, typically in less mature companies, for the launch, early development,
or expansion of a business.
– Growth Capital: This refers to equity investments, mostly minority investments, in the
companies that are looking for capital to expand or restructure operations, enter new
markets or finance a major acquisition without a change of control of the business.

(By Jagdeep Arora (B.Com, CA, CS & CMA)

ANGEL FUND
An angel investor or angel (also known as a business angel, informal investor, angel funder,
private investor, or seed investor) is an affluent individual who provides capital for a
business start-up, usually in exchange for convertible debt or ownership equity. A small but
increasing number of angel investors invest online through equity crowd funding or organize
themselves into angel groups or angel networks to share research and pool their investment
capital, as well as to provide advice to their portfolio companies.
Angel investments are typically the earliest equity investments made in start-up companies.
They commonly band together in investor networks. Often these networks are based on
regional, industry in investor or academic affiliation. Angel Investors are often former
entrepreneurs themselves, and typically enjoy working with companies at the earliest stages
of business formation.

As per SEBI (Alternative Investment Fund) Regulations, 2012, angel fund is a sub-category
of venture capital. Procurement of funds from angel investors of their further investment
has to be conducted as per these regulations.

The effective Angels help entrepreneurs to shape, business models, create business plans and
connect to resources - but without stepping into a controlling or operating role. Often Angels
are entrepreneurs who have successfully built companies, or have spent a part of their career
in coaching young companies.

HIGH NET WORTH INDIVIDUALS

HNIs or high net worth individuals is a class of individuals who are distinguished from other
retail segment based on their net wealth, assets and investible surplus. While there is no
standard put forth for the classification, the definition of HNIs varies with the geographical
area as well as financial markets and institutions.

Though there is no specific definition, generally in the Indian context, individuals with over
Rs. 2 crore investible surplus may be considered to be HNIs while those with investible wealth
in the range of Rs. 25 lac - Rs. 2 crore may be deemed as Emerging HNIs.
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As per SEBI Regulations - If you are applying for a IPO of equity shares in an Indian
company, generally, if you apply for amounts in excess of Rs. 2 lakhs, you fall under the HNI
category. On the other hand, if you apply for amounts under Rs. 2 lakhs, you are considered as
a retail investor.

VENTURE CAPITAL
Venture Capital is one of the innovative financing resource for a company in which the
promoter has to give up some level of ownership and control of business in exchange for
capital for a limited period, say, 3-5 years. Venture Capital is generally equity investments
made by Venture Capital funds, at an early stage in privately held companies, having potential
to provide a high rate of return on their investments. It is a resource for supporting
innovation, knowledge based ideas and technology and human capital intensive enterprises.

Essentially, a venture capital company is a group of investors who pool investments focused
within certain parameters. The participants in venture capital firms can be institutional

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investors like pension funds, insurance companies, foundations, corporations or individuals but
these are high risk investments which may give high returns or high loss.

Areas of Investment
Different venture groups prefer different types of investments. Some specialize in seed
capital and early expansion while others focus on exit financing. Biotechnology, medical
services, communications, electronic components and software companies seem to be the most
likely attraction of may venture firms and receiving the most financing. Venture capital firms
finance both early and later stage investments to maintain a balance between risk and
profitability.

In India, software sector has been attracting a lot of venture finance. Besides media, health
and pharmaceuticals, agri-business and retailing are the other areas that are favoured by a lot
of venture companies.

PENSION FUND
Pension Fund means a fund established by an employer to facilitate and organize the
investment of employees’ retirement funds which is contributed by the employer and employees.
The pension fund is a common asset pool meant to generate stable growth over the long term,
and provide pensions for employees when they reach the end of their working years and
commence retirement. Pension funds are commonly run by some sort of financial intermediary
for the company and its employees like N.P.S. scheme is managed by UTIAMC (Retirement
Solutions), although some larger corporations operate their pension funds in-house. Pension
funds control relatively large amounts of capital and represent the largest institutional
investors in many nations.
Pension funds play a huge role in development of the economy and it play active role in the
Indian equity market. This pension fund ensures a change in their investment attitudes and in
the regulatory climate, encouraging them to increase their investment levels in equities and
would have a massive impact on capital market and on the economy as a whole.

Pensions broadly divided into two sector:

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A-Formal sector Pensions

B-Informal sector Pensions

A. Formal Sector Pensions

Formal sector pensions in India can be divided into three categories; viz pensions under an Act
or Statute, Government pensions and voluntary pensions.

Legislations
There are three defining Acts for pensions in India.

1. Pensions under the EPF & MP Act 1952: These include the Employees Provident
Fund, Employees Pension Scheme, and Employees Deposit Linked Insurance Scheme,

2. Pensions under the Coal mines PF & MP Act 1948: These include Coal mines
provident fund, Coal mines pension scheme & Coal mines linked insurance scheme.

(By Jagdeep Arora (B.Com, CA, CS & CMA)

3. Gratuity under the Payment of Gratuity Act, 1972: There are other provident
funds in India like Assam Tea Plantations PF, J&K PF, and Seamens PF etc.

Government Pension
Government pensions in India are referred under the Directive Principles of State Policy and
are therefore not covered under a Statute. The Government amended the regulations to put
in place the new pension system.
The old scheme continues for the existing employees (i.e. those who joined service prior to
January 1, 2004). Pensions for government employees would include employees of the central
as well as the state governments.
(A) Central Government Pensions like Civil servants pensions, Defences, Railways, Posts.

(B) State Government Pensions, Bank pensions like Reserve Bank of India (RBI), Public
Sector Banks, National Bank for Agriculture and Rural Development (NABARD) and
other banks pensions.
Superannuation schemes are also sold in the market. These are typically the retirement plans
sold by Mutual funds and Insurance companies (Life Insurance & Postal Life Insurance).

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