BANKING CONCEPTS & PRACTICES

1. Give the abbreviation of following terms: FDI, FPI, SEBI, and AUM & HDFC.

 FDI: Foreign Direct Investment

 FPI: Foreign Portfolio Investment

 SEBI: Securities and Exchange Board of India

 AUM: Assets Under Management

 HDFC: Housing Development Finance Corporation

2. What do you understand by the sectoral and large cap mutual fund scheme?

Sectoral mutual fund schemes invest primarily in the stocks of companies belonging to a particular
sector or industry, such as banking, technology, healthcare, etc. The primary objective of these
funds is to achieve higher returns by investing in companies that are expected to perform well in
that particular sector or industry. However, sectoral funds are considered riskier than diversified
mutual funds as they are more susceptible to industry-specific risks and market volatility.

Large Cap mutual fund schemes invest predominantly in the stocks of large companies with a
market capitalization of more than Rs. 10,000 crores. These companies are usually well-
established and are considered to be market leaders in their respective industries. Large Cap funds
are considered less risky than mid-cap or small-cap funds as they invest in companies that are
financially stable and have a proven track record. The objective of large-cap mutual funds is to
provide relatively stable returns over a long-term investment horizon.

3. Explain the following: Term loans, Demand Drafts, Cheque & Fixed Deposits.

Term Loans: A term loan is a type of loan that is borrowed for a fixed period and is repaid in
installments over the loan tenure. Term loans are usually used to finance long-term investments in
a business, such as the purchase of machinery, expansion of operations, or to finance working
capital requirements. The interest rate and repayment schedule for term loans are fixed at the
time of loan sanction, and the borrower must repay the loan as per the schedule.

Demand Drafts: A demand draft is a negotiable instrument issued by a bank, on behalf of its
customer, to make a payment to a third party. It is a prepaid instrument, which means that the
amount of the draft is paid in advance by the customer to the bank. The demand draft can be
issued for any amount, and it is considered a safe mode of payment as the payment is made only
when the draft is presented and cleared by the bank.

Cheque: A cheque is a written instrument that directs a bank to pay a specific sum of money from
the account of the person who issues the cheque to the person named on the cheque. It is a
widely used form of payment for various transactions, including the payment of bills, purchase of
goods and services, and the settlement of loans. Cheques can be of different types, such as bearer
cheques, order cheques, post-dated cheques, and crossed cheques, and they are processed by the
bank as per the instructions mentioned on them.
Fixed Deposits: A fixed deposit (FD) is a type of investment offered by banks and other financial
institutions that provides a fixed rate of interest for a fixed period of time. It is a low-risk
investment option, where the investor deposits a certain amount of money with the bank or
financial institution for a specified period, ranging from a few months to several years. The
interest rate offered on FDs is usually higher than that offered on savings accounts, and the
interest earned on the FD is taxable. The investor can withdraw the amount of the FD after the
maturity period or can renew the FD for another term.

4. What are the different types of risks involved in financial markets? Give relevant examples.

Financial markets are subject to various types of risks, and understanding these risks is essential
for investors to make informed investment decisions. Here are some of the common types of risks
associated with financial markets:

1. Market Risk: Market risk is the risk of loss arising from changes in market prices or market
conditions. This risk affects all types of investments and is caused by factors such as
economic events, political events, natural disasters, and changes in interest rates. For
example, if there is a sudden increase in interest rates, it could cause a decline in the value
of bonds, resulting in losses for bondholders.

2. Credit Risk: Credit risk is the risk of loss arising from the failure of a borrower to repay
their debt. This risk is more significant for investments in bonds or loans issued by
companies or governments. For example, if a company defaults on its bond payments,
bondholders may not receive their interest payments or may even lose their principal
amount.

3. Liquidity Risk: Liquidity risk is the risk of not being able to sell an investment quickly or at a
fair price. This risk is more significant for investments that are not traded frequently or
have limited buyers in the market. For example, if an investor holds a large number of
shares in a company that is not traded frequently, they may face difficulties in selling
those shares quickly or at a fair price.

4. Inflation Risk: Inflation risk is the risk of loss arising from the decrease in the purchasing
power of money due to inflation. This risk affects all types of investments and is caused by
factors such as changes in government policies, supply and demand imbalances, and
global events. For example, if the inflation rate exceeds the interest rate on fixed-income
investments such as bonds or fixed deposits, the investor may suffer a loss in real terms.

5. Operational Risk: Operational risk is the risk of loss arising from the failure of internal
systems, processes, or people. This risk affects financial institutions and is caused by
factors such as human error, fraud, technology failures, and natural disasters. For
example, if a bank's internal systems are hacked, customer data may be compromised,
resulting in financial losses for the bank and its customers.

5. Explain Value and Growth investing

Value investing and growth investing are two common investment styles that investors can choose
from, depending on their investment objectives and risk tolerance.
Value Investing: Value investing is an investment style that focuses on investing in stocks that are
considered undervalued by the market. The underlying principle of value investing is to find stocks
that are trading at a discount to their intrinsic value, or the actual value of the underlying
company. Value investors typically look for stocks with low price-to-earnings (P/E) ratios, low
price-to-book (P/B) ratios, and high dividend yields. These stocks are often from companies that
are experiencing temporary setbacks or are not well-understood by the market. The objective of
value investing is to invest in these undervalued stocks and wait for the market to recognize their
true value, resulting in higher returns over the long term.

Growth Investing: Growth investing, on the other hand, is an investment style that focuses on
investing in stocks of companies that are expected to grow at a faster rate than the overall market
or their industry peers. Growth investors typically look for stocks with high earnings growth rates,
high revenue growth rates, and high price-to-earnings (P/E) ratios. These stocks are often from
companies that are in their early stages of growth or are operating in emerging markets. The
objective of growth investing is to invest in these high-growth stocks and benefit from the
potential appreciation in stock prices as the company grows and expands its operations.

Both value and growth investing have their own set of advantages and risks, and investors need to
choose the investment style that aligns with their investment goals and risk tolerance. While value
investing is considered a more conservative investment style with a focus on undervalued stocks,
growth investing is considered a more aggressive investment style with a focus on high-growth
stocks.

6. List the advantages of investing in mutual funds.

Investing in mutual funds offers several advantages, including:

1. Diversification: Mutual funds invest in a diverse range of securities, which helps to spread
out the risk and reduces the impact of market volatility on the overall portfolio.

2. Professional Management: Mutual funds are managed by professional fund managers who
have expertise in selecting and managing the portfolio of securities. This helps investors to
benefit from the experience and knowledge of the fund managers.

3. Easy Access: Mutual funds are easily accessible to investors, and the minimum investment
amount is usually low, making it easier for small investors to participate in the market.

4. Transparency: Mutual funds provide regular reports to investors, including information

about the fund's holdings, performance, and expenses. This transparency helps investors
to make informed investment decisions.

5. Cost-effective: Mutual funds have lower transaction costs compared to direct investments
in individual securities, as the costs are spread across a larger number of investors.

6. Flexibility: Mutual funds offer investors the flexibility to buy and sell their units at any
time, providing liquidity and allowing investors to adjust their portfolio according to
changing market conditions.
 7. Tax Efficiency: Mutual funds are more tax-efficient than direct investments in individual
securities, as gains on mutual funds are taxed only at the time of redemption or sale, and
losses can be offset against gains.

Overall, investing in mutual funds provides an opportunity for investors to participate in the
financial markets with the help of professional management, diversification, and easy accessibility,
among other benefits.

7. Give a detail account on Mutual funds and it’s their classification.

A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in
a diversified portfolio of securities such as stocks, bonds, and money market instruments. The
fund is managed by a professional fund manager, who invests the pooled money into various
securities with the objective of generating returns for the investors.

Mutual funds are classified based on several factors such as investment objective, asset class,
investment style, and geographic location. Here are some of the common types of mutual funds:

1. Equity Funds: Equity funds invest primarily in stocks or equity securities. These funds are
suitable for investors who are looking for long-term capital appreciation and can tolerate
higher levels of risk.

2. Debt Funds: Debt funds invest in fixed-income securities such as bonds, government
securities, and money market instruments. These funds are suitable for investors who are
looking for regular income with a lower level of risk.

3. Balanced Funds: Balanced funds invest in both equity and debt securities in a
predetermined proportion. These funds are suitable for investors who are looking for a
balanced approach between capital appreciation and regular income.

4. Index Funds: Index funds track a specific index such as the S&P 500 or the Nifty 50 and
invest in the same securities as the index. These funds are suitable for investors who are
looking for a low-cost investment option that closely mirrors the performance of the
index.

5. Sectoral Funds: Sectoral funds invest in stocks of companies that operate in a specific
sector such as technology, healthcare, or banking. These funds are suitable for investors
who want to take exposure to a particular sector or industry.

6. International Funds: International funds invest in securities of companies outside the

home country of the investor. These funds are suitable for investors who want to diversify
their portfolio by investing in companies located in other countries.

7. Tax-saving Funds: Tax-saving funds, also known as Equity Linked Saving Schemes (ELSS),
invest in equity securities and offer tax benefits under Section 80C of the Income Tax Act.
These funds are suitable for investors who want to save taxes and generate long-term
capital appreciation.

These are some of the common types of mutual funds available to investors. It is important for
investors to consider their investment objectives, risk tolerance, and investment horizon before
investing in any mutual fund. Additionally, investors should also consider the past performance,
expenses, and management quality of the fund before making an investment decision.

8. Write a brief on different types of international banks.

International banks are financial institutions that operate across national borders, providing a
wide range of financial services to individuals, businesses, and governments. Here are some of the
common types of international banks:

1. Global Banks: Global banks are large, multinational banks that offer a wide range of
financial services to clients across the world. These banks have a presence in multiple
countries and operate through a network of branches and subsidiaries.

2. Regional Banks: Regional banks are banks that operate within a specific region, such as
Europe or Asia. These banks have a more focused presence than global banks but offer a
range of financial services to clients within their regions.

3. Investment Banks: Investment banks provide financial advisory and underwriting services
to companies and governments. These banks help clients to raise capital through initial
public offerings (IPOs), debt issuances, and mergers and acquisitions.

4. Development Banks: Development banks provide financial assistance to developing

countries to support economic growth and development. These banks offer loans, grants,
and technical assistance to support infrastructure projects, environmental initiatives, and
poverty reduction programs.

5. Private Banks: Private banks offer personalized financial services to high-net-worth

individuals (HNIs) and families. These banks provide investment management, wealth
planning, and trust services to help HNIs manage their wealth.

6. Correspondent Banks: Correspondent banks are banks that maintain accounts with other
banks to facilitate cross-border transactions. These banks act as intermediaries between
banks in different countries to facilitate the transfer of funds and other financial
transactions.

These are some of the common types of international banks. International banks play an
important role in facilitating cross-border trade and investment, providing access to finance, and
supporting economic growth and development.
9. With the help of proper flowchart explain the structure of Indian Banking System?

1. Reserve Bank of India (RBI): The Reserve Bank of India is the apex institution in the Indian
banking system. It is the central bank of the country and is responsible for formulating and
implementing monetary policies, supervising banks, and regulating the banking system.

2. Scheduled Commercial Banks: Scheduled commercial banks are banks that are included in
the Second Schedule of the Reserve Bank of India Act, 1934. These banks are divided into
two categories:

a) Public Sector Banks: Public sector banks are banks that are owned and operated by the
government. They play a key role in the socio-economic development of the country and provide
banking services to all sections of society.

b) Private Sector Banks: Private sector banks are banks that are owned and operated by private
individuals or companies. These banks operate on a profit-making basis and provide a range of
banking services to their customers.

3. Regional Rural Banks: Regional Rural Banks (RRBs) are banks that provide banking services
in rural areas. They were established with the objective of promoting rural development
and providing credit to small and marginal farmers, rural artisans, and other rural
entrepreneurs.

4. Cooperative Banks: Cooperative banks are banks that are owned and operated by
cooperative societies. They provide banking services to their members and are mainly
concentrated in rural areas.

5. Development Banks: Development banks are institutions that provide long-term financing
for industrial and infrastructure projects. These banks play a critical role in promoting
industrialization and economic growth.

6. Non-Banking Financial Companies: Non-Banking Financial Companies (NBFCs) are

institutions that provide financial services such as loans, credit facilities, and investment
advice, but are not licensed as banks. They are an important source of credit for small
businesses and individuals who may not have access to traditional banking services.
This is the basic structure of the Indian banking system. Each of these institutions plays a critical
role in providing financial services and promoting economic growth and development in the
country.

10. Explain in detail the steps to open a bank account.

Opening a bank account is a simple process that involves a few steps. Here are the general steps to
open a bank account in India:

1. Choose the bank and account type: The first step is to choose the bank where you want to
open an account and the type of account you want to open. Different banks offer different
types of accounts, such as savings accounts, current accounts, and fixed deposit accounts.

2. Visit the bank branch: Visit the nearest bank branch with your identity and address proof
documents. Some banks also offer the facility to open an account online.

3. Fill out the application form: Fill out the account opening form provided by the bank. The
form will require you to provide personal details such as name, address, contact
information, occupation, and other relevant information.

4. Provide KYC documents: You will need to provide Know Your Customer (KYC) documents
such as Aadhaar Card, Passport, Driving License, Voter ID, PAN Card, or any other
document as specified by the bank. You will also need to provide a recent passport-size
photograph.

5. Choose the account type and mode of operation: Choose the account type you want to
open, such as a savings account, current account, or fixed deposit account. You will also
need to choose the mode of operation, such as single or joint account, and the mode of
transaction such as ATM/Debit Card, online banking, or cheque book.

6. Deposit the initial amount: Some banks require an initial deposit to open the account.
Deposit the required amount in cash, cheque or online transfer, as per the bank's
instructions.

7. Submit the application form: After filling out the application form and providing the
required documents, submit the form along with the initial deposit amount to the bank
representative.

8. Collect the account documents: Once your account is opened, the bank will provide you
with the account documents such as the passbook, ATM/Debit Card, cheque book, and
other relevant documents.

It is important to note that the process of opening a bank account may vary slightly depending on
the bank and type of account. It is always a good idea to check the bank's website or visit the
branch to get more information about the account opening process.

11. Give a detail account on Mutual funds and it’s their classification.

Mutual funds are investment vehicles that pool money from multiple investors to invest in a
variety of financial instruments such as stocks, bonds, money market instruments, and other
assets. The investments are managed by professional fund managers who use their expertise to
create a diversified portfolio that aligns with the investment objectives of the fund.

Classification of Mutual Funds: Mutual funds are classified based on various criteria such as
investment objective, asset allocation, investment strategy, and other factors. Here are some of
the commonly used classification criteria:

1. Based on Investment Objective: Mutual funds are classified based on their investment
objective. The main categories are:

a) Equity Funds: These funds invest in stocks of companies across sectors and market
capitalization.

b) Debt Funds: These funds invest in fixed income securities such as bonds, treasury bills, and
other debt instruments.

c) Hybrid Funds: These funds invest in a combination of equity and debt instruments.

d) Solution-oriented Funds: These funds are designed to meet specific goals such as retirement
planning, education planning, and other long-term goals.

2. Based on Asset Allocation: Mutual funds are classified based on their asset allocation
strategy. The main categories are:

a) Equity-oriented Funds: These funds invest a minimum of 65% of their assets in equities.

b) Debt-oriented Funds: These funds invest a minimum of 65% of their assets in fixed income
securities.

c) Balanced Funds: These funds maintain a balance between equity and debt investments.

3. Based on Investment Strategy: Mutual funds are classified based on their investment
strategy. The main categories are:

a) Index Funds: These funds invest in stocks that are part of an index such as Nifty, Sensex, or
other benchmark indices.

b) Sectoral Funds: These funds invest in stocks of companies in a specific sector such as banking,
pharmaceuticals, or information technology.

c) Thematic Funds: These funds invest in stocks of companies that are part of a specific theme
such as infrastructure, consumption, or sustainability.

4. Based on Structure: Mutual funds are classified based on their structure. The main
categories are:

a) Open-ended Funds: These funds do not have a fixed maturity date and can be bought or sold at
any time.

b) Close-ended Funds: These funds have a fixed maturity date and cannot be redeemed before
maturity.

c) Interval Funds: These funds combine features of open-ended and close-ended funds.
These are some of the commonly used classification criteria for mutual funds. It is important to
understand the different types of mutual funds and their features before investing in them.

12. Write a brief account on National Housing Banks.

National Housing Bank (NHB) is a statutory organization that was established in 1988 as a wholly-
owned subsidiary of the Reserve Bank of India (RBI). Its primary objective is to promote housing
finance institutions and provide financial and other support to such institutions. The headquarters
of NHB is located in New Delhi, India.

Functions of National Housing Bank:

1. Regulation and supervision of Housing Finance Companies (HFCs): NHB regulates and
supervises HFCs to ensure that they comply with the regulatory guidelines and maintain
financial stability.

2. Refinance to Housing Finance Institutions: NHB provides refinance assistance to HFCs to

help them meet their long-term funding requirements.

3. Promotion of housing finance: NHB promotes housing finance in the country by providing
financial and technical assistance to various institutions involved in the housing finance
sector.

4. Research and Development: NHB conducts research and development activities related to
housing finance to improve the efficiency and effectiveness of the housing finance system.

5. Capacity Building: NHB provides training and capacity building programs for the personnel
of HFCs and other institutions involved in the housing finance sector.

6. Policy advocacy: NHB provides inputs and recommendations to the government on

policies related to housing finance and other related areas.

National Housing Bank plays a crucial role in promoting the housing finance sector in India. Its
initiatives have helped to improve access to housing finance and increase home ownership in the
country.

13. What are the various functions of the bank?

Banks perform a variety of functions to meet the financial needs of individuals, businesses, and the
economy as a whole. Here are some of the functions of banks:

1. Accepting Deposits: Banks accept deposits from customers and hold the funds in savings
accounts, current accounts, fixed deposits, and other types of deposit accounts. Deposits
are a major source of funds for banks.

2. Lending: Banks provide loans and credit facilities to individuals, businesses, and other
organizations. Loans can be in the form of personal loans, business loans, home loans, and
other types of loans.
 3. Payment Services: Banks provide various payment services such as issuing credit cards,
debit cards, and other payment instruments. They also provide electronic funds transfer
services and online banking facilities.

4. Investment Services: Banks provide investment services such as mutual fund investment,
equity investments, and other investment options to customers.

5. Foreign Exchange Services: Banks provide foreign exchange services to facilitate

international trade and investment. They buy and sell foreign currency, provide foreign
exchange services to customers traveling abroad, and offer other foreign exchange-related
services.

6. Treasury Management: Banks manage their own funds and also manage the funds of their
clients. They provide services such as cash management, investment management, and
other treasury-related services.

7. Insurance Services: Some banks provide insurance services such as life insurance, health
insurance, and other types of insurance policies.

8. Advisory Services: Banks provide advisory services to customers on various financial

matters such as investment, financial planning, and wealth management.

These are some of the functions of banks. The exact functions and services offered by banks may
vary depending on the type of bank and the country in which it operates.

14. Give the abbreviation of following terms: SIP, SEBI, NAV, AMFI & NHB.

SIP: Systematic Investment Plan

SEBI: Securities and Exchange Board of India

NAV: Net Asset Value

AMFI: Association of Mutual Funds in India

NHB: National Housing Bank

15. What do you understand by the Multi cap and large cap mutual fund scheme?

A Large-Cap mutual fund scheme invests in the stocks of large companies that have a high market
capitalization. These companies are typically well-established and have a proven track record. The
objective of a large-cap mutual fund scheme is to provide steady returns over the long term. These
funds are considered less risky than mid-cap and small-cap funds as they invest in well-established
companies with a strong financial position. Investors who are looking for long-term capital
appreciation with moderate risk may consider investing in large-cap mutual fund schemes.

On the other hand, a multi-Cap mutual fund scheme invests in stocks across different market
capitalization categories - large-cap, mid-cap, and small-cap. The fund manager has the flexibility
to invest in companies of different sizes based on their investment outlook and market conditions.
The objective of a multi-Cap mutual fund scheme is to provide diversification across different
market segments and generate long-term capital appreciation. These funds are considered to be
more volatile than large-cap funds as they invest in a wider range of companies, including small
and mid-sized companies, which are more volatile and riskier.

16. Explain the following: Remittance, International banking, Cheque & Fixed Deposits.

Remittance: Remittance is the transfer of money from one individual or entity to another, typically
across borders. Remittances can be sent through various channels such as wire transfer, electronic
transfer, or through money transfer agents. Remittances play an important role in the global
economy as they support the financial needs of families and businesses across different countries.

International Banking: International banking refers to banking activities that involve cross-border
transactions. It includes services such as international money transfers, foreign exchange services,
trade finance, and offshore banking. International banking allows individuals and businesses to
conduct financial transactions across different countries and currencies.

Cheque: A cheque is a written instrument that orders a bank to pay a specific amount of money to
the person or entity named on the cheque. Cheques are a commonly used payment instrument for
transactions such as payment of bills, rent, or other financial obligations. Cheques are typically
processed through the banking system and can be deposited or cashed by the recipient.

Fixed Deposits: A fixed deposit is a financial instrument offered by banks and other financial
institutions, where a depositor can invest a lump sum of money for a fixed period of time and earn
a fixed rate of interest. The interest rate offered on fixed deposits is generally higher than that of
savings accounts, making it an attractive investment option for individuals who want to earn a
higher return on their savings. Fixed deposits are considered to be low-risk investments as the
interest rate is fixed and the principal amount is guaranteed by the bank. However, in some cases,
withdrawing the money before the maturity date may result in a penalty or loss of interest.

17. What do you understand by market risk & currency risk? Give relevant examples

Market risk and currency risk are two important types of financial risks that investors face in the
financial markets.

Market risk refers to the risk of losses due to changes in the market value of an investment. It is
caused by various factors such as economic conditions, geopolitical events, and changes in the
supply and demand of securities. For example, a decline in the stock market due to a recession can
lead to a decrease in the value of an investor's stock portfolio, resulting in a loss.

Currency risk, on the other hand, refers to the risk of losses due to changes in exchange rates
between two currencies. It affects investors who hold investments denominated in foreign
currencies. Currency risk can arise due to various factors such as changes in interest rates, inflation
rates, and geopolitical events. For example, if an investor in the United States holds investments
denominated in Euros and the Euro depreciates against the US Dollar, the investor may incur
losses when converting the Euros back to US Dollars.

Both market risk and currency risk are important considerations for investors when making
investment decisions. A well-diversified portfolio can help mitigate market risk by spreading
investments across different asset classes and sectors. Similarly, investors can use various
strategies such as hedging and diversification to mitigate currency risk. However, it's important to
note that these strategies also come with their own set of risks and may not always be effective in
mitigating all types of risk.

18. What do you understand by NFO?

NFO stands for New Fund Offer. It is a process by which a mutual fund company offers a new
mutual fund scheme to the public for the first time. During an NFO, investors can subscribe to the
new scheme and become its unit holders.

An NFO is similar to an Initial Public Offering (IPO) in the equity markets, where a company offers
its shares to the public for the first time. During an NFO, the mutual fund company typically sets a
subscription period during which investors can subscribe to the new scheme. The subscription
period can last for a few days or weeks, depending on the company's discretion.

Investors can subscribe to the new scheme by filling out the application form and submitting it
along with the required documents and payment. Once the subscription period ends, the mutual
fund company will allot units to the investors based on the amount they have subscribed and the
prevailing Net Asset Value (NAV) of the scheme.

NFOs are typically used by mutual fund companies to launch new schemes with different
investment objectives, asset classes, and investment strategies. It provides investors with the
opportunity to invest in a new scheme from its inception and potentially earn higher returns over
the long term. However, like any other investment, investors should carefully evaluate the risks
and potential returns of the new scheme before investing.

19. Banking is large part of economic prosperity. Elaborate.

Banking is an essential part of any economy, and it plays a crucial role in driving economic growth
and prosperity. Here are some ways in which banking contributes to economic prosperity:

1. Facilitates financial transactions: Banks provide a range of financial services, including

deposit accounts, loans, and credit facilities, which enable individuals and businesses to
conduct financial transactions efficiently. These transactions support economic activity
and contribute to economic growth.

2. Promotes savings and investment: Banks provide safe and secure options for people to
save their money and earn interest. These savings can then be channeled into productive
investments, such as infrastructure, businesses, and other productive assets, which
stimulate economic growth and create jobs.

3. Provides credit facilities: Banks provide credit facilities, such as loans and credit lines,
which enable individuals and businesses to invest in new projects, expand their
operations, and create jobs. This credit can be critical for economic growth, as it provides
the necessary funding for businesses to grow and thrive.

4. Supports international trade: Banks facilitate international trade by providing a range of

services such as foreign currency exchange, letters of credit, and export financing. These
services make it easier for businesses to trade with partners in other countries, promoting
economic growth and prosperity.
 5. Promotes financial stability: Banks play a critical role in maintaining financial stability by
providing a range of risk management services, such as insurance and hedging. These
services help individuals and businesses manage financial risks, reducing the likelihood of
financial crises and promoting economic stability.

20. Write an account of black money

Black money refers to income that is not reported to the government, often obtained through
illegal means, such as bribery, corruption, tax evasion, and money laundering. Black money is a
significant problem for many countries, as it undermines the integrity of their tax system and
contributes to income inequality and social injustice.

The existence of black money can have a range of negative consequences for an economy. First, it
can reduce the tax revenue collected by the government, leading to a decrease in public spending
on essential services such as healthcare, education, and infrastructure. Second, it can create an
uneven playing field, where businesses that report their income and pay taxes are at a
disadvantage compared to those that operate in the informal economy and evade taxes. Third, it
can contribute to the widening of income inequality, as those who evade taxes and accumulate
black money are often wealthier individuals and businesses.

Governments use a range of measures to combat black money, including enforcing stricter tax
laws, increasing penalties for tax evasion, improving the transparency of financial transactions,
and increasing the use of technology to track financial transactions. International cooperation is
also essential, as black money is often transferred across borders through illicit channels.

21. List down the primary and secondary function of Commercial banks.

The primary functions of commercial banks are as follows:

1. Accepting deposits: Commercial banks accept various types of deposits from their
customers, such as savings deposits, current deposits, and fixed deposits.

2. Lending money: Commercial banks lend money to individuals and businesses for various
purposes, such as buying a house, starting a business, or purchasing inventory.

3. Issuing credit cards: Commercial banks issue credit cards to their customers, allowing
them to make purchases on credit and pay back the amount due over time.

4. Providing overdraft facilities: Commercial banks offer overdraft facilities to their

customers, allowing them to withdraw more money than they have in their account, up to
a certain limit.

5. Remittance of funds: Commercial banks facilitate the transfer of money from one account
to another, both domestically and internationally.

The secondary functions of commercial banks are as follows:

1. Providing locker facility: Commercial banks provide locker facilities to their customers for
safekeeping of their valuable documents and items.
 2. Providing investment advisory services: Commercial banks offer investment advisory
services to their customers, helping them to make informed decisions about their
investments.

3. Underwriting securities: Commercial banks act as underwriters for securities issued by

companies, helping them to raise funds from the capital markets.

4. Bill discounting: Commercial banks discount bills of exchange, allowing their customers to
receive payment for their invoices before the due date.

5. Providing forex services: Commercial banks provide forex services to their customers,
helping them to buy and sell foreign currencies for various purposes.

22. Remittances serves a great purpose of economic stability of the country. Elaborate.

Remittances are funds transferred by individuals who live and work abroad to their families and
friends in their home country. These funds are an important source of income for many
households in developing countries, and they have significant economic impacts on both the
sending and receiving countries.

In the context of the receiving country, remittances can provide a stable source of income for
families, which can help to reduce poverty and improve living standards. Remittances can also
contribute to economic growth by providing a source of investment capital for small businesses
and stimulating consumer spending.

Remittances can also have positive impacts on the sending country's economy. They can help to
reduce unemployment and brain drain by providing opportunities for individuals to earn income in
other countries and send money back home. Remittances can also contribute to foreign exchange
reserves, which can help to stabilize the country's currency and make it less vulnerable to external
shocks.

In addition, remittances can also have social benefits, such as strengthening family ties and
supporting education and healthcare.

23. Whether ITC stocks is value or growth investment. Comment.

ITC is a diversified conglomerate with interests in various sectors such as cigarettes, hotels,
paperboards, packaging, and agri-business. It is important to note that a company cannot be
categorized as either purely value or purely growth. The categorization depends on the investor's
perception and the company's financial metrics.

If we look at ITC's financial metrics, it has a relatively low price-to-earnings ratio (P/E ratio)
compared to its peers in the FMCG sector. This indicates that the company's stock is currently
undervalued in the market, making it a value investment option.

However, if we look at ITC's focus on diversification and innovation in various sectors, it suggests
that the company is positioning itself for long-term growth, making it a growth investment option.

Therefore, whether ITC stocks are considered a value or growth investment depends on the
investor's perception and investment strategy.
24. Give an account on SEBI.

SEBI (Securities and Exchange Board of India) is the regulatory body for the securities market in
India. It was established in 1988 as a non-statutory body and later became a statutory body in
1992 with the passage of the SEBI Act.

The main objective of SEBI is to protect the interests of investors and promote the development of
the securities market in India. It regulates the functioning of the stock exchanges, brokers,
merchant bankers, underwriters, registrars, and other intermediaries in the securities market.

SEBI's functions include:

1. Regulating the securities market: SEBI regulates the functioning of the stock exchanges,
brokers, and other intermediaries in the securities market to ensure fair and transparent
trading practices.

2. Protecting investors' interests: SEBI protects investors' interests by regulating the

functioning of the securities market and ensuring that companies disclose all necessary
information to investors.

3. Promoting development of the securities market: SEBI promotes the development of the
securities market by introducing new regulations and guidelines that encourage
transparency and attract more investors to the market.

4. Regulating takeover of companies: SEBI regulates the takeover of companies to ensure

that the interests of the shareholders and other stakeholders are protected.

5. Prohibiting insider trading: SEBI prohibits insider trading in securities to ensure a level
playing field for all investors.

SEBI has played a significant role in the development of the securities market in India by
introducing various measures to protect investors and promote transparency in the market. Its
efforts have led to increased investor confidence in the securities market, making it an attractive
avenue for investments.

25. Give an account on Small cap mutual funds.

Small cap mutual funds are a type of mutual fund that invests in the stocks of small-cap
companies. Small-cap companies are those whose market capitalization is less than that of large-
cap and mid-cap companies. In India, companies with a market capitalization of less than Rs. 5000
crore are considered small-cap companies.

Small cap mutual funds aim to provide high returns by investing in the stocks of small-cap
companies that have the potential for growth. Since small-cap companies are relatively unknown
and have a smaller market capitalization, their stocks are often undervalued and offer higher
returns than larger companies.

Investing in small cap mutual funds can be risky as small-cap companies are more susceptible to
economic downturns and other risks such as regulatory changes, market volatility, and liquidity
issues. However, small cap mutual funds are also known to provide higher returns in the long run,
making them an attractive investment option for investors with a high risk appetite.

It is important to note that small cap mutual funds are suitable for investors who have a long-term
investment horizon and are willing to take on a higher level of risk. Investors should also carefully
evaluate the fund manager's track record, investment strategy, and portfolio composition before
investing in a small cap mutual fund.

26. Can minor be the nominee in the bank account? If yes, Why.

Yes, a minor can be the nominee in a bank account. The reason is that a nominee in a bank
account is only a custodian of the account in case of the account holder's death. The nominee is
not the legal owner of the account, but only holds the account on behalf of the legal heirs of the
deceased account holder.

As per the Indian law, any person, including a minor, can be a nominee for a bank account.
However, in case of a minor nominee, the account holder must appoint a guardian who will
manage the account until the minor nominee attains the age of 18 years. Once the minor nominee
reaches the age of 18, they can claim the account in their own name.

It is important to note that while a minor can be appointed as a nominee, they cannot operate the
account until they attain the age of 18 years. The guardian appointed by the account holder will
have the authority to operate the account until the minor nominee becomes a major.

27. What do you understand by balanced mutual fund?

A balanced mutual fund, also known as a hybrid mutual fund, is a type of mutual fund that invests
in both equities (stocks) and fixed income securities (bonds) in a balanced proportion to achieve a
balance between risk and return. The fund manager invests in a mix of equity and debt
instruments, typically with a 60:40 or 70:30 ratio, depending on the investment objective of the
fund.

The equity component of the fund provides the potential for capital appreciation, while the debt
component provides a steady stream of income and acts as a cushion during market volatility.
Balanced mutual funds are suitable for investors who want to invest in a mix of asset classes but
are not comfortable with high levels of risk associated with pure equity funds.

There are three types of balanced mutual funds:

1. Conservative balanced funds: These funds invest in a higher proportion of fixed income
securities and a lower proportion of equities, typically with a 25-40% allocation to equities.
These funds are suitable for investors who want to balance safety and returns.

2. Balanced funds: These funds invest in a balanced proportion of equities and fixed income
securities, typically with a 40-60% allocation to equities. These funds are suitable for
investors who want moderate growth with some safety.

3. Aggressive balanced funds: These funds invest in a higher proportion of equities and a
lower proportion of fixed income securities, typically with a 60-75% allocation to equities.
 These funds are suitable for investors who want higher growth potential and can tolerate
higher risk.

28. What are equity and debt mutual funds? Discuss with examples

Equity and debt mutual funds are two main categories of mutual funds that differ in their
investment strategy and risk-return profile.

Equity mutual funds: Equity mutual funds invest in stocks or equity shares of companies listed on
the stock market. The objective of equity mutual funds is to generate capital appreciation by
investing in high-growth companies that have the potential to deliver above-average returns over
the long term. The returns on equity mutual funds are directly linked to the performance of the
underlying stocks. Equity mutual funds carry a higher risk compared to debt mutual funds but have
the potential to offer higher returns.

Examples of equity mutual funds are:

1. Large Cap Funds: These funds invest in the stocks of large-cap companies, which are well-
established and have a proven track record. These funds have lower risk and are suitable
for investors looking for stable returns over the long term.

2. Mid Cap Funds: These funds invest in the stocks of mid-cap companies, which are growing
companies with high potential. These funds have a higher risk compared to large-cap
funds but have the potential to offer higher returns.

3. Small Cap Funds: These funds invest in the stocks of small-cap companies, which are
relatively unknown and have a higher risk. These funds have the potential to offer the
highest returns, but the risk is also the highest.

Debt mutual funds: Debt mutual funds invest in fixed income securities such as bonds, debentures,
government securities, and money market instruments. The objective of debt mutual funds is to
provide a steady stream of income by investing in low-risk securities. Debt mutual funds carry
lower risk compared to equity mutual funds but have the potential to offer lower returns.

Examples of debt mutual funds are:

1. Liquid Funds: These funds invest in very short-term debt instruments with a maturity of up
to 91 days. They are ideal for investors looking for a low-risk, low-return investment
option.

2. Income Funds: These funds invest in long-term debt instruments with a maturity of more
than 3 years. They are suitable for investors looking for a steady stream of income.

3. Gilt Funds: These funds invest in government securities with a fixed maturity. They are
suitable for investors looking for a low-risk, low-return investment option.

In summary, equity mutual funds are suitable for investors who want higher returns and are
willing to take on higher risk, while debt mutual funds are suitable for investors who want lower
risk and a steady stream of income.

29. What are the components of debt mutual funds?

Debt mutual funds are investment vehicles that primarily invest in fixed income securities such as
bonds, debentures, and government securities. The components of debt mutual funds are as
follows:

1. Bond and Debentures: These are issued by corporations and governments to raise money.
They are fixed income instruments that provide regular interest payments and are repaid
at maturity.

2. Government Securities: These are issued by the government and are considered to be low-
risk investments. They are fixed income instruments that provide regular interest
payments and are repaid at maturity.

3. Money Market Instruments: These are short-term debt instruments such as treasury bills,
commercial papers, and certificates of deposit. They have a maturity period of up to one
year.

4. Corporate Bonds: These are issued by corporations to raise money. They are fixed income
instruments that provide regular interest payments and are repaid at maturity.

5. Credit Risk: The credit risk component of a debt mutual fund refers to the risk of default by
the issuer of the security. Higher credit risk securities typically offer higher returns, but
also carry a higher risk of default.

6. Interest Rate Risk: The interest rate risk component of a debt mutual fund refers to the
risk of changes in interest rates. When interest rates rise, the value of fixed income
securities typically falls, and vice versa.

By combining these components in different proportions, debt mutual funds offer investors the
opportunity to invest in a diversified portfolio of fixed income securities, with different risk and
return characteristics.

30. Mutual fund industry is growing at a phenomenal rate. Comment.

Yes, it is true that the mutual fund industry has been growing at a phenomenal rate in recent
years. This growth can be attributed to several factors such as increasing financial literacy among
investors, growing awareness about mutual funds as an investment option, and the convenience
and flexibility offered by mutual funds.

One of the major drivers of growth in the mutual fund industry is the ease of investment. Mutual
funds allow investors to invest in a diversified portfolio of assets with small amounts of money,
thereby making it accessible to a wide range of investors. Additionally, the introduction of
systematic investment plans (SIPs) has made it even easier for investors to invest regularly in
mutual funds, thus helping them to achieve their long-term financial goals.

Another reason for the growth of the mutual fund industry is the increasing trust of investors in
mutual funds as a reliable investment option. Mutual funds are managed by professional fund
managers who have the expertise to make investment decisions on behalf of investors. This gives
investors the confidence that their investments are being managed by experts who have access to
research and analysis that may not be available to individual investors.
Furthermore, the regulatory environment in India has been supportive of the growth of the
mutual fund industry. The Securities and Exchange Board of India (SEBI) has introduced several
measures to protect the interests of investors and ensure transparency in the operations of
mutual funds. This has helped to build trust and confidence in the mutual fund industry, which has
further fueled its growth.

In conclusion, the mutual fund industry in India has been growing at a phenomenal rate, and is
expected to continue to do so in the coming years. With the increasing awareness and popularity
of mutual funds, and the supportive regulatory environment, the mutual fund industry is likely to
remain a key investment option for investors in India.