Professional Documents
Culture Documents
GDP
GDP measures the monetary value of final goods and services—that is,
those that are bought by the final user—produced in a country in a given
period of time (say a quarter or a year). It counts all of the output generated
within the borders of a country. GDP is composed of goods and services
produced for sale in the market and also includes some nonmarket
production, such as defense or education services provided by the
government. An alternative concept, gross national product, or GNP,
counts all the output of the residents of a country. So if a German-owned
company has a factory in the United States, the output of this factory would
be included in U.S. GDP, but in German GNP.
Not all productive activity is included in GDP. For example, unpaid work
(such as that performed in the home or by volunteers) and black-market
activities are not included because they are difficult to measure and value
accurately. That means, for example, that a baker who produces a loaf of
bread for a customer would contribute to GDP, but would not contribute to
GDP if he baked the same loaf for his family (although the ingredients he
purchased would be counted).
A comparison of the services performance of the top 15 countries for the 11 year
period from 2001 to 2011 shows that the increase in share of services in GDP is
the highest for India with 8.1 percentage points. These 15 top countries include
major developed countries alongwith Brazil, Russia, India and China. While
China’s highest services compound annual growth rate (CAGR) stood at 11.1%,
India’s very high CAGR of 9.2% was second highest and also accompanied by
highest change in its share. This is a reflection of the fact that India’s growth has
been powered mainly by the services sector.
BANKING PRODUCTS
There are mainly 4 types of account that a bank may offer to its customers, they
are:-
1. Savings Bank A/c
2. Current Bank A/c
3. Recurring Bank A/c
4. Fixed Deposit A/c
5.Flexideposit A/c
1) Savings Bank A/c : This is the most common account of all that a bank may
provide. The amount deposited in savings bank A/c is the income left after
spending for the customers expenses. The customer receives an interest which is
calculated on daily basis and credited on half yearly basis. The interest rate vary
bank to bank.
2) Current Bank A/c: Current bank A/c is an Account whose customers are
businessmen, it may include companies, enterprises, firms etc. In current bank
A/c unlimited number of transaction could be performed on a day. Banks charge
for the service provided to its customers and usually no interest is paid on
current bank A/c savings, but some bank are now even providing interest on it
due to competition.
3) Recurring Bank A/c: Recurring bank A/c is specially for salaried people where
one may deposit only on a particular day and the interest rates are slightly
higher than that of savings bank A/c.
4) Fixed Deposit A/c: In fixed deposit A/c an amount is deposited for fixed time
period and the interest rate is higher compared to all the other bank A/cs'. Fixed
deposits may be for short term, medium term and long term.
5) Flexi Deposit A/c: As the name suggests these bank accounts are flexible in the
sense they give you the higher interest of a fixed deposit and the liquidity of a
savings account. Your flexi account will allow you to meet your regular cash
needs based on which you could set your limits and transfer the remaining
amount to your term deposit and get higher interest. And guess what all this
happens automatically once you set the rules.
For example, in a flexi account of Rs 100,000 for a year your flexi deposit will
have Rs 70,000 earning you a 5 per cent interest or Rs 3,500 every year. The
remaining Rs 30,000 would remain in your savings account waiting to meet your
everyday needs and at the same time earning 3.5 per cent interest or Rs 1,050.
And if you issue a cheque for Rs 35,000 the excess amount of Rs 5,000 would be
transferred into your savings account from your flexi deposit with no charge
which depends on your bank terms.
TAX IMPLICATIONS OF INTEREST INCOME:
The savings account and fixed deposits in our bank earn us interest income. Most
of the time we remain oblivion about the interest earned on our fixed deposits,
savings accounts and recurring deposits. This interest income needs to be
disclosed in the income tax return too. Hence, it is important to know the
taxability of these incomes:
A tax deduction with a maximum amount of Rs 10,000 per year is allowed under
section 80TTA as interest from a savings account. For calculating the exemption
limit of Rs 10,000, the interest income earned from all the savings accounts is
taken into account. This interest saving is allowed for a savings account with
bank, post offices and co-operative banks. The interest earned above Rs 10,000 is
taxable as per the income tax slab rates. Moreover, TDS is not deducted on
interest income, unlike fixed deposit and term deposits.
Tax on interest income from fixed deposits
Interest earned from fixed deposits is liable to be taxed on an accrual basis at the
applicable slab rates. Interest is fully taxable at the slab rates applicable to the
person. The deduction of Rs 10,000 is not applicable as it is allowed in the
savings account interest. TDS is deducted from the interest credited as soon as
the amount paid or credited exceeds Rs 10,000. This TDS rate is 10 per cent on
residents, 20% rate in absence of PAN and 30.90 per cent to non-resident Indians.
TDS is deducted on the recurring deposits @10% under section 194A. The interest
earned on recurring deposit is not allowed as a deduction and full interest
amount is taxed unlike the interest earned on savings account on which a
deduction of Rs 10,000 is allowed.
Exemption on TDS can be claimed on submitting form 15G ( for age less than 60
years) and form 15H (for age above 60 years). In order to claim exemption from
TDS, the total interest income for the year should be less than the basic
exemption limit of the financial year. For the Financial year 2017-18, the amount
is Rs 2,50,000.
Interest earned on Public Provident Fund is fully exempt from tax. PPF enjoys
the EEE status, which means the deposits, interest earned and withdrawal
amount is taxfree. The interest earned is compounded annually and calculation is
done every month.
KYC:
KYC means “Know Your Customer”. It is a process by which banks obtain
information about the identity and address of the customers. This process helps
to ensure that banks’ services are not misused. The KYC procedure is to be
completed by the banks while opening accounts and also periodically update the
same.
To open a bank account, one needs to submit a ‘proof of identity and proof of
address’ together with a recent photograph.
CREDIT CARDS:
Secured loans are loans that are backed by an asset, like a house in the case of a
mortgage loan or a car with an auto loan. This piece of property is collateral for
the loan. When you agree to the loan, you agree that the lender can repossess the
collateral if you don't repay the loan as agreed.
With secured loans, the lender takes possession of the asset when you default on
the loan. The same isn't true for an unsecured loan. With an unsecured loan, the
lender can't automatically seize your property as payment for the loan. Lenders
can (and do) report late payments and loan default to the credit bureaus with
both secured loans and unsecured loans.
Even though lenders repossess property for defaulted secured loans, you could
still end up owing money on the loan if you default. When lenders repossess
property, they sell it and use the proceeds to pay off the loan. If the property
doesn't sell for enough money to completely cover the loan, you will be
responsible for paying the difference.
People sometimes choose secured loans because their credit history will not
allow them to get approved for an unsecured loan. Because secured loans are
backed by assets, lenders have lower risk in extending a loan to you.
Secured loans also allow borrowers to get approved for higher loan limits. Even
though you may qualify for a larger loan, you still must be careful to choose a
loan that you can afford. When you’re choosing secured loans, make sure you
pay attention to the interest rate, repayment period, and monthly payment
amount.
MORTGAGE VS HYPOTHECATION
Mortgages and hypothecation are terms that are frequently used to explain loans
that are taken out by individuals for the purpose of financing various assets. The
similarity between the two is that in order for the loan to be granted an asset
must be pledged to the bank; however, the ownership of the asset pledged will
remain in the hands of the borrower. Due to the similarities between the two,
many confuse them to be the same
Mortgage
Mortgage is a contract between the lender and the borrower that allows an
individual to borrow money from a lender for the purchase of housing.
Mortgages apply for property that is immovable such as buildings, land, and
anything that is permanently attached to the ground (this means that crops are
not included in this category). A mortgage is also an assurance to the lender
which promises that the lender can recover the loan amount even if the borrower
defaults. The home that is being purchased is pledged as the security for the
loan; which will in the event of default, be seized and sold by the lender who will
use sales proceeds to recover the loan amount. The possession of the property
remains with the borrowers (as they will usually reside in their home). The
mortgage will come to an end once in either two circumstances; if the loan
obligations are met, or if the property is seized. Mortgages have become the
widely used method for purchasing real estate assets without having to pay the
total amount at once.
Hypothecation
Hypothecation is a charge that is created for assets that are moveable such as
vehicles, stocks, debtors, etc. In a hypothecation, the asset will remain in the
possession of the borrower and, in case the borrower is unable to make due
payments, the lender will first have to take action to possess these assets before
they can be sold off to recover losses. A very common example of hypothecation
is car loans. The car or vehicle that is being hypothecated to the bank will be the
property of the borrower, and in case the borrower defaults on the loan the bank
will obtain the vehicle and dispose it off to recover the unpaid loan amount.
Loans against stocks and debtors are also hypothecated to the bank, and the
borrower needs to maintain the right value in stock for the amount of the loan
taken out.
The full form of PPF is Public Provident Fund Scheme. It is a scheme of the
Central Government, framed under the PPF Act of 1968. Thus we can say PPF
is a government backed, long term small savings scheme, which was initially
started by the Government to provide retirement security to self employed
individuals and workers in the unorganized sector. However, at present it is
considered as the best tax saving scheme across all sections of the people who
needs to invest to save some tax.
LETTER OF CREDIT
Letters of credit are financing tools designed to decrease the risks inherent in
international trade. The reality of completing a sale by parties located in different
countries is that one or the other has to absorb an unreasonable level of risk,
under ordinary circumstances. The distance involved and the differences in
financial systems would require the exporter, or seller, to send goods with
payment made upon receipt, or for the importer, or buyer, to pay for goods in
advance of shipping. In either scenario, one party is at a heightened risk of being
defrauded.
Revocable credits may be modified or even canceled by the buyer without notice
to the seller. Therefore, they are generally unacceptable to the seller.
This is the most common form of credit used in international trade. Irrevocable
credits may not be modified or canceled by the buyer. The buyer's issuing bank
must follow through with payment to the seller so long as the seller complies
with the conditions listed in the letter of credit. Changes in the credit must be
approved by both the buyer and the seller. If the documentary letter of credit
does not mention whether it is revocable or irrevocable, it automatically defaults
to irrevocable. See Credit Administration, Sample Procedure for Administration
of a Documentary Irrevocable Letters of Credit for a systematic procedure for
establishing an irrevocable letter of credit.
BANK GUARANTEE:
Bank Guarantee is an instrument issued by the Bank in which the Bank agrees to
stand guarantee against the non-performance of some action/performance of a
party. The quantum of guarantee is called the 'guarantee amount'. The guarantee
is issued upon receipt of a request from 'applicant' for some purpose/transaction
in favour of a 'Beneficiary'. The 'issuing bank' will pay the guarantee amount to
the 'beneficiary' of the guarantee upon receipt of the 'claim' from the beneficiary.
Used for EMD,Performance Security , Security for Advance Payment etc.
MIS:
Salient Features:
Interest rate of 8.4% per annum payable monthly w.e.f. 01-04-2013
Maturity period is 5 years.
No Bonus on Maturity w.e.f. 01.12.2011.
No tax deduction at source (TDS).
No tax rebate is applicable.
Minimum investment amount is Rs.1500/- or in multiple thereafter.
Maximum amount is Rs. 4.50 lakhs in a single account and Rs.9 lakhs in a joint
account.
Auto credit facility of monthly interest to saving account if accounts are at the
same post office.
Account can be opened by an individual, two/three adults jointly, and a minor
through a guardian.
Non-Resident Indian / HUF cannot open an Account.
Minors have a separate limit of investment of Rs. 3 lakhs and the same is not
clubbed with the limit of guardian.
Facility of premature closure of account after 1 year but on or before 3 years @
2.00% discount.
Deduction of 1% if account is closed prematurely at any time after three years.
Suitable scheme for retired employees/ senior citizens and for those who need
regular monthly income.
RDA:
A post office recurring deposit account (RDA) is similar to a recurring deposit in
a bank, where you can invest a fixed amount on a monthly basis. The postal RDA
has a fixed tenure of five years.
These deposits accumulate money at an annual fixed rate of interest of 8 per
cent. The interest is compounded on a quarterly basis. The minimum investment
in a post office RDA is Rs 10 and there is no prescribed upper limit. For example,
if you invest Rs 100 every month in 60 instalments, you will earn a sum of Rs
7,289 after 5 years.
Banks, however, offer a flexible time period on their recurring deposits. You can
open an RDA for a minimum period of 6 months, and thereafter in multiples of 3
months up to a maximum period of 10 years.
NSC:
Salient Features:
NSC VIII Issue (5 years) – Interest rate of 8.5% per annum w.e.f. 01-04-2013
NSC IX Issue (10 years) - Interest rate of 8.8% per annum w.e.f. 01-04-2013
Minimum investment Rs. 100/-. No maximum limit for investment.
No tax deduction at source.
Investment up to Rs 1,50,000/- per annum qualifies for Income Tax Rebate under
NSC - section 80C of IT Act.
Certificates can be kept as collateral security to get loan from banks.
Trust and HUF cannot invest.
A single holder type certificate can be purchased by an adult for himself or on
behalf of a minor or to a minor.
The interest accruing annually but deemed to be reinvested will also qualify for
deduction under NSC - section 80C of IT Act.
KVP:
1) The amount invested in Kisan Vikas Patra would get doubled in 100
months or eight years and four months. This means KVPs would be giving
a return of 8.7 per cent annually. This is in line with 8.70 per cent per
annum interest rate offered by another popular savings instrument public
provident fund (PPF).
2) However, investors would not get any tax benefit for their investment in
Kisan Vikas Patra unlike in PPF.
5) Kisan Vikas Patra certificates can be issued in single or joint names and
can be transferred from one person to any other person/persons, multiple
times.
6) The facility of transfer from one post office to another anywhere in India
and of nomination will be available.
LEASING:
There are many types of leasing but, fundamentally, all fit one of two categories:
direct lease. You identify the asset (and negotiate the price) and arrange for
the leasing company to buy it from the manufacturer (if new) or the
previous owner (if used) to lease it to you.
sale-and-leaseback (also called purchase leaseback). You sell an asset you
already own to the leasing company for fair market value or book written
down value (whichever is less) and then lease it back.
In both cases, the lessor owns the asset, not you, and leases it to you. As with any
other lease agreement, you return the asset at the end of the lease to the lessor.
Some leases grant you an end-of-lease option to renew the lease at a minimal cost
(secondary period) or to gain title of the equipment for an agreed amount.
Often equipment manufacturers themselves act as lessors or have an affiliated
leasing company. This allows them to more easily help their customers finance
transactions. The other two groups of lessors are banks and independent leasing
companies.
In a typical factoring arrangement, the client (you) makes a sale, delivers the
product or service and generates an invoice. The factor (the funding source) buys
the right to collect on that invoice by agreeing to pay you the invoice's face value
less a discount--typically 2 to 6 percent. The factor pays 75 percent to 80 percent
of the face value immediately and forwards the remainder (less the discount)
when your customer pays.
Because factors extend credit not to their clients but to their clients' customers,
they are more concerned about the customers' ability to pay than the client's
financial status. That means a company with creditworthy customers may be
able to factor even if it can't qualify for a loan.
MUTUAL FUNDS:
One of the main advantages of mutual funds is that they give small investors
access to professionally managed, diversified portfolios of equities, bonds and
other securities, which would be quite difficult (if not impossible) to create with a
small amount of capital. Each shareholder participates proportionally in the gain
or loss of the fund. Mutual fund units, or shares, are issued and can typically be
purchased or redeemed as needed at the fund's current net asset value (NAV)
per share, which is sometimes expressed as NAVPS.
MERCHANT BANKING
Merchant banks invest their own money into their clients.Merchant banks invest
their own capital into corporate clients. A merchant bank will assess the value of
a company and invest its money into it, sometimes taking a very large ownership
interest in the company. Merchant banks specialize in international finance.
Multinational corporations use this expertise to facilitate their international
transactions.
INVESTMENT BANKING
INSURANCE:
Life Insurance
Term Insurance
This type of life insurance policy is a contract between the insured and the life
insurance company to pay the persons/s he has given entitlement to receive the
money, in the case of his/her death, after a certain period of time. These policies
can be taken for 5, 10, 15, 20 or 30 years.
Endowment Policy
This policy offers the payment of partial survival benefits (money back), as is
determined in the insurance contract, while the insured is still alive. In case the
insured dies during the period of the policy, the beneficiary gets the full sum
insured without the deduction of the money back amount given so far.
This is when a group of people have been named under a single life insurance
policy. It is popular for an employer or a company to add employees under the
same policy. Each member of the group has a certificate as legal evidence of
insurance.
ULIPs (Unit Linked Insurance Plan) offer the insured the double benefit of
protection from risk and investment opportunities. ULIPs are linked to the
market where the insured’s money is invested to help earn additional monetary
benefits.
General Insurance
Insurance other than ‘Life Insurance’ falls under the category of General
Insurance. General Insurance comprises of insurance of property against fire,
burglary etc, personal insurance such as Accident and Health Insurance, and
liability insurance which covers legal liabilities. There are also other covers such
as Errors and Omissions insurance for professionals, credit insurance etc.
Non-life insurance companies have products that cover property against Fire and
allied perils, flood storm and inundation, earthquake and so on. There are
products that cover property against burglary, theft etc. The non-life companies
also offer policies covering machinery against breakdown,there are policies that
cover the hull of ships and so on. A Marine Cargo policy covers goods in transit
including by sea, air and road. Further, insurance of motor vehicles against
damages and theft forms a major chunk of non-life insurance business.
In respect of insurance of property, it is important that the cover is taken for the
actual value of the property to avoid being imposed a penalty should there be a
claim. Where a property is undervalued for the purposes of insurance, the
insured will have to bear a rateable proportion of the loss. For instance if the
value of a property is Rs.100 and it is insured for Rs.50/-, in the event of a loss to
the extent of say Rs.50/-, the maximum claim amount payable would be
Rs.25/- ( 50% of the loss being borne by the insured for underinsuring the
property by 50% ). This concept is quite often not understood by most insureds.
Personal insurance covers include policies for Accident, Health etc. Products
offering Personal Accident cover are benefit policies. Health insurance covers
offered by non-life insurers are mainly hospitalization covers either on
reimbursement or cashless basis. The cashless service is offered through Third
Party Administrators who have arrangements with various service providers,
i.e., hospitals. The Third Party Administrators also provide service for
reimbursement claims. Sometimes the insurers themselves process
reimbursement claims.
Accident and health insurance policies are available for individuals as well as
groups. A group could be a group of employees of an organization or holders of
credit cards or deposit holders in a bank etc. Normally when a group is covered,
insurers offer group discounts.
Liability insurance covers such as Motor Third Party Liability Insurance,
Workmen’s Compensation Policy etc offer cover against legal liabilities that may
arise under the respective statutes— Motor Vehicles Act, The Workmen’s
Compensation Act etc. Some of the covers such as the foregoing (Motor Third
Party and Workmen’s Compensationpolicy ) are compulsory by statute. Liability
Insurance not compulsory by statute is also gaining popularity these days. Many
industries insure against Public liability. There are liability covers available for
Products as well.
There are general insurance products that are in the nature of package policies
offering a combination of the covers mentioned above. For instance, there are
package policies available for householders, shop keepers and also for
professionals such as doctors, chartered accountants etc. Apart from offering
standard covers, insurers also offer customized or tailor-made ones.
Suitable general Insurance covers are necessary for every family. It is important
to protect one’s property, which one might have acquired from one’s hard
earned income. A loss or damage to one’s property can leave one shattered.
Losses created by catastrophes such as the tsunami, earthquakes, cyclones etc
have left many homeless and penniless. Such losses can be devastating but
insurance could help mitigate them. Property can be covered, so also the people
against Personal Accident. A Health Insurance policy can provide financial relief
to a person undergoing medical treatment whether due to a disease or an injury.
Industries also need to protect themselves by obtaining insurance covers to
protect their building, machinery, stocks etc. They need to cover their liabilities
as well. Financiers insist on insurance. So, most industries or businesses that are
financed by banks and other institutions do obtain covers. But are they obtaining
the right covers? And are they insuring adequately are questions that need to be
given some thought. Also organizations or industries that are self-financed
should ensure that they are protected by insurance.
Most general insurance covers are annual contracts. However, there are few
products that are long-term.
It is important for proposers to read and understand the terms and conditions of
a policy before they enter into an insurance contract. The proposal form needs to
be filled in completely and correctly by a proposer to ensure that the cover is
adequate and the right one.
You can get almost anything and everything insured. But there are five key types
available:
1. Health Insurance
2. Motor Insurance
3. Travel Insurance
4. Home Insurance
5. Fire Insurance
Health Insurance
This type of general insurance covers the cost of medical care. It pays for or
reimburses the amount you pay towards the treatment of any injury or illness.
It usually covers:
Hospitalisation
The treatment of critical illnesses
Medical bills prior to or post hospitalisation
Day care procedures like Cataract operations
You can also opt for add-on benefits like:
Maternity cover: Your health insurance covers you for the costs related to
childbirth. This includes pre-delivery check-ups, hospitalisation during delivery,
and post-natal care.
Pre-existing diseases cover: Your health insurance takes care of the treatment of
diseases you may have before buying the health insurance policy.
Accident cover: Your health insurance can pay for the medical treatment of
injuries caused due to accidents and mishaps.
Your health insurance can also help you save tax. Your premium payment can
reduce your taxable income.
Motor Insurance
Motor insurance is for your car or bike what health insurance is for your health.
You can also get motor insurance for your commercial vehicles.
1. Car Insurance
It’s precious—your car. You paid lakhs of rupees to buy that beauty. Even a
single scratch can be painful, forget about bigger damages. What the insurer will
pay for depends on the type of car insurance plan you purchase
2. Two-wheeler Insurance
This is your bike’s guardian angel. It’s similar to Car insurance. You cannot ride
a bike or scooter in India without insurance. As with car insurance, what the
insurer will pay depends on the type of insurance and what it covers.
Travel insurance
A travel insurance compensates you or pays for any financial liabilities arising
out of medical and non-medical emergencies during your travel abroad or within
the country.
Single Trip Policy - It covers you during a trip that lasts under 180 days
Annual Multi Trip - It covers you for several trips you take within a year.
Loss of baggage
Emergency medical expenses
Loss of passport
Hijacking
Delayed flights
Accidental death
Home Insurance
Home insurance is a cover that pays or compensates you for damage to your
home due to natural calamities, man-made disasters or other threats.
It covers liabilities due to fire, burglary, theft, flood, earthquakes, and sabotage. It
not only offers financial protection to your home, but also takes care of the
valuables inside the property.
In addition to these, it takes care of the expenses of those whose livelihood has
been affected due to fire.
WHO IS ELIGIBLE: Anybody who has a savings account in the banks that offer
this scheme.
WHO SHOULD OPT FOR IT: Although it is for everybody, this scheme
especially suits drivers, security guards, newspaper vendors, vegetable vendors
and others who are exposed to the risk of accidental death or disability.
WHO IS ELIGIBLE: Anybody in the age band of 18-70 years who has a savings
account in a bank that offers this scheme.
WHO SHOULD OPT FOR IT: This is a must for any member of your staff who is
the sole breadwinner in his or her family.
3)Pradhan Mantri Jan Dhan Yojana
WHO SHOULD OPT FOR IT: All those working in the unorganised sector. You
can transfer salaries directly into the accounts of your domestic staff to inculcate
a banking habit in them.
SECURITIZATION:
A pooled group of financial assets that together create a new security, which is
then marketed and sold to investors. The value and cash flows of the new
security are based off of the underlying value and cash flows of the assets used in
the securitization process. Companies will securitize illiquid assets into liquid
assets in order to increase their overall liquidity and generate immediate
proceeds from their assets.
The originator will have received some proceeds from the securitization, which
can be used for its ongoing operations or other business uses. During the
securitization process, the SPV will often get a rating agency to assign the assets
a rating based on the ability of the assets to meet the principal and interest
payments on the new securities being sold by the SPV. The SPV may also use
credit enhancements to lower the risks of the securities being sold off to make
them more attractive to investors.