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• hird-Party Product # 1. Insurance Products:
• In our day-to-day life, we face different types of risks – both to our life and properties. We may meet with an accident which may cost our life or cause injury to our body. We may fall
sick and the medical treatment may cost substantial amount of money. Our properties may get damaged by fire, flood, earthquake, etc. Similarly, there are innumerable numbers of
risk, we have to live with. There is a risk of theft and burglary at our houses or workplaces.

• The best way of covering these risks is to take insurance policies issued by different insurance companies. The insurance business can be broadly classified into ‘Life’ and ‘General’
insurance. The life insurance companies insure people against death, while general insurance companies cover people against possible loss due to earthquake, fire, flood, theft, riot,
sickness, physical disease involving medical expenditure, etc. General insurance also covers accidents while travelling.

• ADVERTISEMENTS:

•
• The insurance companies come up with different types of policies which can be sold to the individuals and organisations who want to cover various types of risks they are exposed to.
The insurance companies charge a specific amount from the buyers of the policies to cover the risk and the said amount is called Premium’. Banks can have tie up with the insurance
companies to sell their insurance policy from the banks’ counter.

• The fees that the banks earn from the insurance company by selling their insurance policies are quite lucrative. A certain percentage of the premium paid by the buyer of the policy is
retained by the banks as their fees. Banks, with their wide network of branches and a large number of customer and workforce, are better placed to sell the insurance policies than
the insurance companies themselves.

• Generally, the life insurance policies for individuals, Mediclaim and other health insurance policies form the major part of the sale of the insurance policies by the banks. Life
Insurance companies introduce various attractive schemes that cover not only the risk of death, but also several other benefits like payment of monthly pensions, savings in various
forms, etc. In case the policy holder survives till the maturity of the policy, the life insurance company pays the maturity value together with bonus, if any, as survival benefit.
• hird-Party Product # 2. Mutual Funds:
• The growth of capital market has attracted the individual and institutional investors from all over the places to invest in the shares and securities issued
by the companies and corporate entities. However, many a time, the investors, particularly the individual investors are not in a position to analyse the
fundamentals of the companies and the future market risk for making an investment decision.

• ADVERTISEMENTS:
• Consequently, the investment decision, more often than not, is taken purely on the basis of investors’ hunch about the future movement of
the market. If the movement of the price of the share in the secondary market (Stock Exchange) is favourable, the investor makes a profit,
and on the other hand, if the price level goes down, there is a loss for the investor. Very few investors purchase shares and securities with
the intention to invest, so that they will hold the shares or the security for an indefinite period and the only earnings will come from
dividend declared by the companies.
• Moreover, dividend is paid on the nominal or face value of the stock, though the investors purchase them at the market price which is
higher than the face value. Most of the investors buy shares and securities with a speculative motive for making quick and windfall profit
from the movement of prices in the share market. However, the lack of knowledge about the company and its fundamentals as well as the
probable market scenario often stand in the way of making a prudent decision.
• To obviate this difficulty and to relieve the investors from the burden of collecting a vast amount of information about the companies and
corporates, the concept of Mutual Fund has been developed in all the countries having capitalist economy. Under this system, the mutual
fund companies raise funds from the potential investors for the purpose of investment in shares and securities.
• The company that raises and manages mutual funds is known as the Asset Management Company (AMC). The funds so raised are divided
into a specific number of units, normally with a value of Rs 10 each. The investors subscribe to purchase the units and the corpus built up
with sale of such units is channelled for purchase of shares and securities in both primary and secondary market.
• The Asset Management Company employs the analysts and experts for investment of
the corpus amount in shares and securities. Thus the responsibility of analysing the
company’s fundamental and other details about the market etc. is shifted from the
investors to the mutual fund company against a small fee called ‘management fee’
payable by the investors.
• An AMC can have several funds managed by it. The accounts of each fund are kept
separately and each fund will have a dedicated fund manager to ensure proper
management of the fund, as also protect the interests of the unit holders of the fund.
Mutual Funds generally invest in a large number of companies to avoid the risk of
concentration of investment in one or two companies. The corpus of a particular fund
can also be split between equity and debts. Investments are made in shares and bonds
in equal proportion so that the impact of market volatility is minimised.
• In a secondary market, units can be sold and purchased by the investors at the Net
Asset Value (NAV).
NAV is the market value of the assets of the fund less its liabilities. The shares and securities in which the fund has been invested are the assets of the fund.
NAV per unit is arrived at by dividing the aggregate value of the assets minus liabilities by the number of outstanding units. The trading in units of a
particular fund is done on the basis of the NAV-related prices. The NAV of a scheme is required to be declared at least once in a week.
ADVERTISEMENTS:
Open-ended Schemes:
Open-ended schemes do not have any fixed maturity period and the investors can buy or sell at a price related to the NAV on any business day. Open-ended
schemes are preferred for their liquidity as the investors can at any time exit from the fund by surrendering the units for redemption.
Close-ended Schemes:
Close-ended schemes have a fixed maturity period and the investors can buy the units of the fund during the period when it is opened during the initial issue
period. The units cannot be redeemed till the end of the maturity period. However, the investor can buy or sell units of the scheme on the stock exchange, if
they are listed.
• ADVERTISEMENTS:
• The benefits of investing in mutual funds include professional management of the investable
fund, diversification by way of investment in a broad range of shares and securities, small
investments by the individual investors, liquidity, etc.
• There are different types of mutual funds, and before investing, the investor should know the
exact nature of the fund and whether it suits his requirement. The different types of mutual
fund include Growth Funds, Tax Saving Funds, Specialty/Sector Funds, Index Funds, etc. The
corpus of all these funds is invested in equity shares of various companies.
• There may be an income fund which is invested in debt instruments where the income comes
from long-term growth of capital, as well as the current income by way of interest. There may be
a balanced (equity and debt) fund which aims to provide both growth and income.
• These funds are invested in both shares and fixed income securities in the proportion indicated
in their offer documents. Balanced funds are ideal for an investor who is looking for a
combination of income and moderate growth. There are fixed income funds which is invested in
corporate bonds or government-backed securities that have a fixed rate of return.
• ADVERTISEMENTS:
• Money Market Funds:
• The corpus of this fund is invested in highly liquid, almost risk free, short-term
debt securities of the government, banks and large corporations. Because of the
short-term nature of the investment, money market mutual funds is in a position
to keep, by and large, a constant unit price when only the yields fluctuate. These
funds are like alternative to bank accounts, though the yields are higher than the
yields on bank deposit. The fund offers a high degree of liquidity to the investors.
• Risk Profile:
• The investors should be aware that the investment in mutual funds also carry
some risks, viz., market risk, inflation risk, interest rate risk, exchange risk, etc.
and fortunes also fluctuate in tune with the volatility in the market.
• Banks as Seller of Mutual Funds:
• Banks, with their vast network of branches, are in an excellent position to market the mutual
funds to their potential investors and, therefore, they take the agency of the mutual funds or
asset management companies to sell their mutual fund units, against a certain percentage of
commission. Banks, with their large customer base, find it convenient to cross-sell the mutual
funds to their customers and thus can earn a substantial amount of fees by way of
commission.
• The bank’s role is limited to collecting the application form and the cheques from the
investors and transmits them to the mutual funds. The legal contract is between the mutual
fund and the investor and for any further clarification or service the investor has to approach
the mutual fund directly.
• Apart from the commission, the banks selling mutual fund get an annual fee from the mutual
fund company, as long as the investor holds the relative mutual fund units. Thus, by selling
mutual funds, the banks can earn both upfront commission as well as the trail commission on
a continuing basis.
• Third-Party Product # 3. Government Bonds:
• The Central Government and the State Government issue medium- and long- term
bonds to raise funds for financing various developmental projects and other activities.
Along with the Central Bank (Reserve Bank of India) of the country, the commercial
hanks are also appointed as agents to sell the bonds to the members of the public and
other institutional investors. Banks, with their network of branches, are in an
advantageous position to reach the potential investors who are scattered all over the
country. The banks earn a lucrative commission to sell the bonds to the investors.
• Third-Party Product # 4. Gold Coins:
• Purchasing gold in different forms, particularly in the form of gold coins is considered to
be one of the very safe avenues of investment. The investors generally repose more trust
on the banks, rather than the private dealers regarding the purity of the gold. The banks
import pure gold (24 carat) in the forms of bars, biscuits and coins and sell them to the
potential investors.
• Traditionally, it has been proved that investment in gold has
always given an excellent return in the long run. A study of the
price level of gold for the last 10 years reveals that the price of
gold has only soared year after year, with a slight fluctuation in
the short run. Gold coins and biscuits are easy to handle and,
hence, the banks found it very convenient to trade in gold coins
and biscuits and earn a considerable profit.