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📍 MUTUAL FUND [PART 1]

#Indianfinancialmarket

💡 Of all investment options, mutual funds are touted to be the best tool for wealth creation over the long term.

💡 They are of several types, and the
risk varies with the kind of asset classes these funds invest in.

💡 As the name suggests, a mutual fund is a fund that is created when a large number of investors put in their money, and is managed by professionally qualifed persons with experience in investing in diferent asset classes—shares, bonds, money market instruments like call money, and other assets such as gold and property.

Their names usually give a good idea about what type of asset class a fund,
also called a scheme, will invest in.

For example, a diversifed equity fund will invest in a large number of stocks, while a gilt fund will invest in government securities, while a pharma fund will mainly invest in stocks of companies from the pharmaceutical and related industries.


SOURCE - Indian economy by Ramesh singh.

@upsc_economy_notes


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📍 CASH MANAGEMENT BILL

💡 The Government of India, in consultation with the RBI, decided to issue a new short-term instrument, known as Cash Management Bills, since August 2009 to meet the temporary cash fow mismatches of the government.

💡 The Cash Management Bills are non-standard and discounted instruments issued for maturities less than 91 days.

▪︎SOURCE - Indian economy by Ramesh singh.

▪︎
@upsc_economy_notes


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📍 REPOS and REVERSE REPOS

#Indianfinancialmarket

💡 In the era of economic reforms there developed two new instruments of money market— repo and reverse repo.

💡 Considered the most dynamic instruments of the Indian money market they have emerged the most favoured route to raise short-term funds in India.

💡 ‘Repo’ is basically an acronym of the rate of repurchase. The RBI in a span of four years, introduced these instruments—repo in December 1992 and reverse repo in November 1996.

💡 Repo allows the banks and other financial institutions to borrow money from the RBI for short-term (by selling government securities to the RBI).

💡 In reverse repo, the banks and financial institutions purchase government securities from the RBI (basically here the RBI is borrowing from the banks and the financial institutions).

💡 All government securities are dated and the interest for the repo or reverse repo transactions are announced by the RBI from time to time.


@upsc_economy_notes


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📍 MUTUAL FUND (MF)

#Indianfinancialmarket

💡 Popular as Mutual Funds (MFs) this money market instrument was introduced/organised in 1992 to provide short-term investment opportunity to individuals.

💡 The initial guidelines for the MF have been liberalised many times. Since March 2000, MFs have been brought under the preview of SEBI, besides the RBI.

💡 At present, a whole lot of financial institutions and firms are allowed to set up MFs, viz., commercial banks, public and private fnancial institutions and private sector companies.

💡 At present 42 MFs are operating in the country—managing a corpus of over Rs. 20.4 lakh crore (by March 2018).

◾SOURCE - Indian economy by Ramesh singh.

@upsc_economy_notes


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📍CALL MONEY MARKET (CMM)

#Indianfinancialmarket

💡 This is basically an inter-bank money market where funds are borrowed and lent, generally, for one day—that is why this is also known as over-night borrowing market (also called money at call).

💡 Fund can be borrowed/raised for a maximum period upto 14 days (called short notice).

💡 Borrowing in this market may take place against securities or without securities.

💡 Rate of interest in this market ‘glides’ with the ‘repo rate’ of the time the principle remains very simple—longer the period, higher the interest rate.

💡 Depending upon the availability and demand of fund in this market the real call rate revolves nearby the current repo rate.

💡 The scheduled commercial banks, co-operative banks operate in this market as both the borrowers and lenders while LIC, GIC, Mutual Funds, IDBI and NABARD are allowed to operate as only lenders in this market.

◾SOURCE - Indian economy by Ramesh singh.

@upsc_economy_notes


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📍COMMERCIAL PAPER

#Indianfinancialmarket

💡 Organised in 1990 it is used by the corporate houses in India (which should be a listed company with a working capital of not less than Rs.
5 crore).

💡 The CP issuing companies need to obtain a specifed credit rating from
an agency approved by the RBI (such as CRISIL, ICRA, etc).

◾SOURCE - Indian economy by Ramesh singh.

@upsc_economy_notes


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📍 CERTIFICATE OF DEPOSIT (CD)

#Indianfinancialmarket

💡 Organised in 1989, the CD is used by banks and issued to the depositors for a specifed period ranging less than one year—they are negotiable and tradable in the money market.

💡 Since 1993 the RBI allowed the financial institutions to operate in it— IFCI, IDBI, IRBI (IIBI since 1997) and the Exim Bank—they can issue CDs for the maturity periods above one year and upto three years.

◾SOURCE - Indian economy by Ramesh singh.

@upsc_economy_notes


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