STUDY MATERIAL (NFLAT)

Module 1: Money Matters

I . Functions of Money:

Money is anything which is generally accepted as a medium of exchange, measure of value, store of
value and means for standard of deferred payment(payments which are to be made in future).

a .Medium of exchange

When money is used to intermediate the exchange of goods and services, it is performing a function
as a medium of exchange. It thereby avoids the inefficiencies of a barter system, such as the
"coincidence of wants " problem.

b.Measure of value

Money acts as a common measure of value into which values of all goods and services are expressed
and compared.When we measure the value of a commodity in terms of money ,it is known as Price

c .Store of value

To act as a store of value, money must be able to be reliably saved, stored, and retrieved – and be
predictably usable as a medium of exchange when it is retrieved. The value of the money must also
remain stable over time.

d.Standard of deferred payments Deferred payments refer to those payments which are to be made
in future.Suppose you borrow a sum of Rs. 20,000 at 10 % p.a. interest for one year.It means you
promise to pay Rs.22,000 (Rs.20,000 as principal and Rs.2,000 as interest) after one year.Money
serves as a standard of such future payments.

II Types of money:-

a.Commodity Money

Commodity money is closely related to (and originates from) a barter system, where goods and
services are directly exchanged for other goods and services

b.Fiat Money

Fiat money gets its value from a government order (i.e., fiat). That means, the government declares
fiat money to be legal tender, which requires all people and firms within the country to accept it as a
means of payment. If they fail to do so, they may be fined or even put in prison. Unlike commodity
money, fiat money is not backed by any physical commodity. By definition, its intrinsic value is
significantly lower than its face value.

c.Full bodied money

Any unit of money, whose face value and intrinsic value are equal, is known as full bodied money, i.e.
Money Value = Commodity Value. For example, during the British period, one rupee coin was made
of silver and its value as money was same as its value as a commodity.

d.Legal tender money

Legal tender is the money that is recognised by the law of the land, as valid for payment of debt. ...

e.Fiduciary Money

The meaning of the word fiduciary is “involving trust”, and today’s monetary system is highly
fiduciary i.e. based upon trust. If a bank assures the customers payment in different types of money
and if the customer can also sell these promises (legal tenders) or transfer them to somebody else, it is
known as fiduciary money.
Generally gold, silver or paper money is generally used for payments as fiduciary money. Bank notes
and cheques also are the examples of fiduciary money as both of them are kind of tokens/legal tenders
which are used as money and carry the same value.

III. Security feature of a bank note

a) Watermark:

The Mahatma Gandhi Series of banknotes contain the Mahatma Gandhi watermark with a light and
shade effect and multi-directional lines in the watermark window.

b) Security Thread:

The security thread appears to the left of the Mahatma’s portrait. Security thread has a plain, non-
readable fully embedded security thread. The Rs.500 and Rs.100 notes have a security thread with
similar visible features and inscription ‘Bharat’ (in Hindi), and ‘RBI’. When held against the light, the
security thread on Rs.500 and Rs.100 can be seen as one continuous line. The Rs.5, Rs.10, Rs.20 and
Rs.50 notes contain a readable, fully embedded windowed security thread with the inscription
‘Bharat’ (in Hindi), and ‘RBI’.

c) Latent Image:

On the obverse side of Rs.2000, Rs.500, Rs.100, Rs.50 and Rs.20 notes, a vertical band on the right
side of the Mahatma Gandhi’s portrait contains a latent image showing the respective denominational
value in numeral. The latent image is visible only when the note is held horizontally at eye level.
d) Microlettering:

This feature appears between the vertical band and Mahatma Gandhi portrait. It contains the word
‘RBI’ in Rs.5 and Rs.10. The notes of Rs.20 and above also contain the denominational value of the
notes in microletters. This feature can be seen better under a magnifying glass.

e)Intaglio Printing:

The portrait of Mahatma Gandhi, the Reserve Bank seal, guarantee and promise clause, Ashoka Pillar
Emblem on the left, RBI Governor’s signature are printed in intaglio i.e. in raised prints, which can be
felt by touch, in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.2000 notes.

f) Identification Mark:

A special feature in intaglio has been introduced on the left of the watermark window on all notes
except Rs.10/- note. This feature is in different shapes for various denominations (Rs. 20-Vertical
Rectangle, Rs.50-Square, Rs.100-Triangle, Rs.500-Circle, Rs.2000-Horizontal Rectangle) and helps
the visually impaired to identify the denomination.

g)Fluorescence:

Number panels of the notes are printed in fluorescent ink. The notes also have optical fibres. Both can
be seen when the notes are exposed to ultra-violet lamp.

h) Optically Variable Ink:

The numeral digit 2000 and 500 on the obverse of Rs.2000 and Rs.500 notes respectively is printed in
optically variable ink viz., a colour-changing ink. The colour of the numeral 2000/500 appears green
when the note is held flat but would change to blue when the note is held at an angle.

i) See through Register:

The small floral design printed both on the front (hollow) and back (filled up) of the note in the
middle of the vertical band next to the Watermark has an accurate back to back registration. The
design will appear as one floral design when seen against the light.

IV Needs and Wants

Needs refers to an individual's basic requirement that must be fulfilled, in order to survive. For eg-
food, clothing, shelter.

Wants are described as the goods and services, which an individual like to have, as a part of his
caprices. For eg- to own a car, house etc.

V Income, Expenditure &Budgeting

Income is money (or some equivalent value) that an individual or business receives, usually in
exchange for providing a good or service or through investing capital. Income is used to fund day-to-
day expenditures. For individuals, income is most often received in the form of wages or salary.

An expenditure represents a payment with either cash or credit to purchase goods or services.
Budgeting is the process of creating a plan to spend your money. This spending plan is called a
budget. Creating this spending plan allows you to determine in advance whether you will have enough
money to do the things you need to do or would like to do. Budgeting is simply balancing your
expenses with your income.

VI Assets, liabilities & net worth

Net worth is the total assets minus total outside liabilities of an individual or a company. Net worth is
used when talking about the value of a company or in personal finance for an individual's net
economic position.

Liability describes an obligation.It refers to money owed to complete a transaction,debt that has yet to
be paid,or products or services that have been paid for but have not yet been rendered.

An asset represents value of ownership that can be converted into cash (although cash itself is also
considered an asset).

 Assets = Liabilities + Capital (where Capital for a corporation equals Owner's Equity)

VII Simple & Compound Interest

Interest is the cost of borrowing money, where the borrower pays a fee to the lender for the loan. The
interest, typically expressed as a percentage, can be either simple or compounded. Simple interest is
based on the principal amount of a loan or deposit. In contrast, compound interest is based on the
principal amount and the interest that accumulates on it in every period.

Simple Interest = P x r x n

Where: P = Principal amount r = Annual interest rate n = Term of loan, in years

Compound Interest = P x (1+r)ͭ - P

Where: P = Principal amount r = Annual interest rate t = Number of years interest is applied

VIII. Inflation and time value of money

Inflation increases the price of goods and services over time, effectively decreasing the number of
goods and services you can buy with a do Rupee in the future as opposed to a Rupee today. If wages
remain the same but inflation causes the prices of goods and services to increase over time, it will take
a larger percentage of your income to purchase the same good or service in the future.

For example, if an apple costs 1/- today, it's possible that it could cost 2/- for the same apple one year
from today. This effectively decreases the time value of money, since it will cost twice as much to
purchase the same product in the future. To mitigate this decrease in the time value of money, you can
invest the money available to you today at a rate equal to or higher than the rate of inflation.

IX Nominal and real rate of return

The nominal rate of return is the amount of money generated by an investment before factoring in
expenses such as taxes, investment fees, and inflation. If an investment generated a 10% return, the
nominal rate would equal 10%. After factoring in inflation during the investment period, the actual
(real) return would likely be lower.
Let's say an investor placed Rs 100,000 in a no-fee fund to be invested for one year. At the end of the
year, the investment was worth Rs 108,000, given the market price at the end of the same year

The nominal rate of return is calculated as:

𝑅𝑠 108 00 − 𝑅𝑠 100 000

= 0.08 = 8%
𝑅𝑠 100 000

 The nominal rate of return = 8%.

Real rate of return is the annual percentage of profit earned on an investment, adjusted for inflation.
Therefore, the real rate of return accurately indicates the actual purchasing power of a given amount
of money over time.

Assume you have saved Rs 100,000 to buy a car but decide to invest the money for a year before
buying to ensure you have a small cash cushion left over after getting the car. Earning 5% interest,
you have Rs 1,05,000 after 12 months. However, because prices increased by 3% during the same
period due to inflation, the same car now costs Rs 1,03,000.

Consequently, the amount of money that remains after you buy the car, which represents your
increase in purchasing power, is 2% of your initial investment. This is your real rate of return, as it
represents the amount you gained after accounting for the effects of inflation.

Interest rates can be expressed in two ways: as nominal rates or real rates. The difference is that
nominal rates are not adjusted for inflation, while real rates are adjusted. As a result, nominal rates are
almost always higher, except during those rare periods when deflation, or negative inflation, takes
hold.

X. Saving & Investment

Saving is setting aside money you don’t spend now for emergencies or for a future purchase.

Investing is buying assets such as stocks, bonds, mutual funds or real estate with the expectation that
your investment will make money for you. Investments usually are selected to achieve long-term
goals.

 Saving money typically means it is available when we need it and it has a low risk of losing
value.

 Investing typically carries a long-term horizon, such as our children’s college fund or
retirement it has high risk.

 The biggest and most influential difference between saving and investing is risk.

XI . Rule of 72, 115, 144

Rule of 72: This rule highlights the number of an investment will take to double in worth. The
formula to determine the Rule of 72 is, to divide 72 by the annual rate of return.

.The Rule of 72 is a simplified way to estimate the doubling of an investment's value, based on a
logarithmic formula. The Rule of 72 can be applied to investments, inflation or anything that grows,
such as GDP or population.
The formula is useful for understanding the effect of compound interest.
72
Time = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒

Where: Interest Rate = Rate of return on an investment

For instance, if a mutual fund scheme yields an annual return of 12%, it will take 72/12=6 years for
the money to double in terms of value

The Rule of 115 follows the Rule of 72. If doubling your money isn’t good enough, the Rule of 115
will show you how long it will take to triple your money. It's as simple as dividing your interest rate
by 115. The quotient is the amount of time it will take you to triple your money.

For example, if your money earns an 8 percent interest rate, it will triple in 14 years and 5 months
(115 divided by 8 equals 14.4)

The Rule of 144 will tell you how long it will take an investment to quadruple. For example, at 10%
an investment will quadruple in about 14.5 years (144 /10).

Rule of 144: This rule states how long it will take your money to quadruple or gain four times with a
fixed interest rate.

So, similar to the above-mentioned rules, the rule of 144 also applies the same formula.

The formula for the Rule of 144 is, 144 divided by the interest rate equal to the number of years it will
take to quadruple your money.

For instance: If you invest Rs 1,00,000 with a 12% annual expected return, then the time by which it
will gain four times is 144/12 = 12 years.

XII Setting up a SMART goal

Your financial goals should take a S-M-A-R-T approach, in that they are

S— specific, so you know exactly what your goals are so you can create a plan designed to achieve
those objectives.

M— measurable with a specific amount. For example, “Accumulate Rs. 5,000 in an investment fund
within three years” is more measurable than “Put money into an Investment fund.”

A— Achievable No one has ever built a billion-dollar business overnight. Dream big and aim for the
stars but keep one foot firmly based in reality.

R— realistic, involving goals based on your income and life situation. For example, it is probably not
realistic to expect to buy a new car each year if you are a full-time student.

T— time-based, indicating a time frame for achieving the goal, such as three years. This allows you to
measure your progress toward your financial goals.
 STUDY MATERIAL (NFLAT)
Module 2: Banking – Deposits, Credit and
Payments

FUNCTIONS OF A BANK

Banks are an organization which normally performs certain financial transactions. It

performs the twin task of accepting deposits from members of public and make
advances to needy and worthy people form the society.
Primary Functions of Banks ↓

1) Accepting Deposits
2) Granting loans and advances

ACCEPTING DEPOSITS
The bank collects deposits from the public, these deposits can be of different types :-

a. Saving Deposits- This type of deposits encourages saving habit among

the public. The rate of interest is low, this account is suitable to salary
and wage earners. This account can be opened in single name or in joint
names

b. Fixed Deposit- Lump sum amount is deposited at one time for a specific
period. Higher rate of interest is paid, which varies with the period of
deposit. Withdrawals are not allowed before the expiry of the period.
Those who have surplus funds go for fixed deposit
c. Current Deposits- This type of account is operated by businessmen.
Withdrawals are freely allowed. No interest is paid. In fact, there are
service charges. The account holders can get the benefit of overdraft
facility

d. Recurring Deposits- This type of account is operated by salaried

persons and petty traders. A certain sum of money is periodically
deposited into the bank. Withdrawals are permitted only after the
expiry of certain period. A higher rate of interest is paid.

GRANTING OF LOANS AND ADVANCES

The bank advances loans to the business community and other members of
the public. The rate charged is higher than what it pays on deposits. The
difference in the interest rates (lending rate and the deposit rate) is its profit.

The types of bank loans and advances are:-

a. Overdraft-This type of advances are given to current account holders. A certain

amount is sanctioned as overdraft which can be withdrawn within a certain period of
time say three months or so. Interest is charged on actual amount withdrawn. An
overdraft facility is granted against a collateral security. It is sanctioned to
businessman and firms.
b. Cash Credits-The client is allowed cash credit upto a specific limit fixed in advance.
It can be given to current account holders as well as to others who do not have an
account with bank. Separate cash credit account is maintained. Interest is charged on
the amount withdrawn in excess of limit. The cash credit is given against the security
of tangible assets and / or guarantees. The advance is given for a longer period and a
larger amount of loan is sanctioned than that of overdraft.
c. Loans- It is normally for short term say a period of one year or medium term
say a period of five years. Now- a-days, banks do lend money for long term.
Repayment of money can be in the form of installments spread over a period
of time or in a lumpsum amount. Interest is charged on the actual amount
sanctioned, whether withdrawn or not. The rate of interest may be slightly
lower than what is charged on overdrafts and cash credits. Loans are normally
secured against tangible assets of the company.

d. Discounting of Bill of Exchange-The bank can advance money by discounting or by

purchasing bills of exchange both domestic and foreign bills. The bank pays the bill
amount to the drawer or the beneficiary of the bill by deducting usual discount
charges. On maturity, the bill is presented to the drawee or acceptor of the bill and the
amount is collected.

Secondary Functions of Banks ↓

The bank performs a number of secondary functions, also called as non-

banking functions. These important secondary functions of banks are

explained below.
Agency Functions

The bank acts as an agent of its customers. The bank performs a

number of agency functions which includes:-

a. Transfer of Fund

The bank transfer funds from one branch to another or from one place to
another.

b. Collection of Cheques

The bank collects the money of the cheques through clearing section
of its customers. The bank also collects money of the bills of exchange.

c. Periodic Payments

On standing instructions of the client, the bank makes periodic

payments in respect of electricity bills, rent, etc.

d. Portfolio Management

The banks also undertakes to purchase and sell the shares and
debentures on behalf of the clients and accordingly debits or credits
the account. This facility is called portfolio management.

e. Periodic Collections

The bank collects salary, pension, dividend and such other periodic collections
on behalf of the client.

Other Agency Function

They act as trustees, executors, advisers and administrators on behalf of its
clients. They act as representatives of clients to deal with other banks and
institutions.
General Utility Functions

The bank also performs general utility functions, such as-

a. Issue of Drafts and Letter of Credits

Banks issue drafts for transferring money from one place to another. It
also issues letter of credit, especially in case of, import trade. It also
issues travellers’ cheques.

b. Locker Facility

The bank provides a locker facility for the safe custody of valuable
documents, gold ornaments and other valuables.

c. Underwriting of Shares

The bank underwrites shares and debentures through its merchant banking
division.

d. Dealing in Foreign Exchange

The commercial banks are allowed by RBI to deal in foreign exchange.

e. Project Reports

The bank may also undertake to prepare project reports on behalf of its clients.

f.Social Welfare Programmes

It undertakes social welfare programmes, such as adult literacy

programmes, public welfare campaigns, etc.

g. Other Utility Functions

It acts as a referee to financial standing of customers. It collects

creditworthiness information about clients of its customers. It
provides market information to its customers, etc. It provides
travellers' cheque facility.
II CURRENT AND SAVINGS ACCOUNT

Base Current Account Saving Account

Interest No Interest earned Earn Interest on
your savings
No. of Transactions Unlimited Limited number of
transactions transactions
Purpose Used for business Build emergency
funds
Required Balance High minimum Low minimum
required Balance required balance
Normally used for paying bills and for salary accounts
business
transactions
Suitable for Business People Individuals

III TERM AND RECURRING DEPOSITS

Term Deposits, popularly known as Fixed Deposit, is an investment

instrument in which a lump-sum sum amount is deposited at an
agreed rate of interest for a fixed period of time, ranging from 1 month
to 5 years.

Particulars Fixed Deposit (FD) Recurring Deposit

(RD)
Deposit Frequency Only once Monthly
Tenure 7 days to 10 years 6 months to 10 years
Minimum deposit Rs. 100 Rs. 1,000

Suitable for Salaried individuals and Housemakers, students

pensioners, etc. and freelancers, etc.
 Income Tax saving Available with 5 years of Not available
option the lock-in period
Deposit Insurance Covered Covered

IV LOANS AND COLLATERAL

A collateral loan is secured loan that allows the borrower to pledge an

asset for availing a loan. For this type of loan, the loan amount
depends on the value of the collateral. This type of loan is relatively
risk-free for the lender, as he has the option to liquidate the asset if in
case the borrower defaults. As a result, borrowers can avail a higher
loan amount at a lower interest rate than unsecured loans.

Collateral is something you own that the bank can take if you fail to
pay off your debt or loan. This can be any item of value that is
accepted as an alternate form of repayment in case of default. If loan
payments are not made, assets can be seized and sold by banks.

Some common assets that can be used as collateral include:

• Privatevehicles
• Commercial and residential property
• Machinery and equipment
• Investments such as fixed deposits, bonds, mutual funds, shares, ESOPs
• Insurance policies
• Valuables and collectibles
• Future payments from customers (receivables)

V CREDIT CARD AND DEBIT CARD

Issuer: A debit card is linked to your savings or current account. It can be only
issued by a bank where you have such an account. However, you can obtain a
credit card from a bank without opening an account.

Source of funds: The primary difference between credit card and debit card is
linked to the source of funds. Debit card transaction uses the funds available
in your current or savings account for making transactions. The amount is
debited from your account on a real-time basis. When you use a credit card,
the immediate payment is made by the card issuing company. The transaction
made is similar to a loan given to the user. The credit card holder has to repay
the amount to the credit card issuer at a later date.

Access to funds: A debit card only allows you access to the amount available

your current or savings account. If you have INR 10,000 in your account,
you can only make payments up to INR 10,000. Credit card holders can
access funds up to the pre-approved credit limit. Usually, a high credit
limit is offered to those with a high credit score or if the user has a
corporate account with the bank.

Interest: In case of a debit card, the funds are debited on a real-time basis. No
interest is payable. In contrast, delay in the payment of credit card amount
attracts penal interest.

Repayment: Since you do not need to take money on credit on your debit
card, there is no repayment required. However, credit card holder must repay
the outstanding amount either through revolving credit i.e. paying the
minimum due amount or paying more than the minimum due amount on the
credit card, but less than the actual outstanding amount. The card-holder
may also repay the entire outstanding amount by the due date.

Charges: To continue using your debit card, you have to pay an annual
maintenance fee, along with a joining fee (depending upon the bank) and
processing fee. While you must also pay the same fees to continue using your
credit card, you may also incur late payment fees, prepayment penalty and
foreclosure charges (in case of loans taken on credit card).

Monthly statements: No monthly statements are generated for a debit card.

You can check all your debits through your account statement. A monthly
statement or bill is provided for credit card. This is required since the
transaction amount is provided on credit.

Fees: In case of a debit card, annual fees and PIN regeneration fees are
applicable. In case of a credit card, a host of fees are payable. These include
late payment fee, annual fees, and joining fees.

Privileges: Typically, debit cards do not come with any privileges. However, a
credit card offers a number of them. Using a credit card, you can earn cash
backs, air miles, and reward points.

Lost card liability: If you lose or misplace your debit card, the liability of the
bank is minimal. However, a 100% liability protection is offered for credit
cards. You have no liability for any unauthorised transactions.

Credit period: A debit card does not have any credit period. The funds
available in the account are deducted instantly when a debit card is swiped.
Credit cards have a credit period. The transaction amount is lent to the user
on credit.

VI COMPARISON BETWEEN FIXED AND FLOATING INTEREST RATE

Fixed Interest Rate Floating Interest Rate

Higher Interest Rate Lower Interest Rate

Not affected by financial market Affected by changes in the financial

conditions market
Fixed EMIs EMIs change as per interest rate or
MCLR
Budget planning possible Difficult to budget or manage
financials
Sense of security Generates savings

Suitable for short/medium term (3- Suitable for long term (20-30 years)
10 years)
Lesser risk Higher risk
VI What Is an Equated Monthly Installment (EMI)?

An equated monthly installment (EMI) is a fixed payment amount made

by a borrower to a lender at a specified date each calendar month.
Equated monthly installments are used to pay off both interest and
principal each month so that over a specified number of years, the
loan is paid off in full. With most common types of loans—such as real
estate mortgages, auto loans, and student loans—the borrower makes
fixed periodic payments to the lender over the course of several years
with the goal of retiring the loan.

The EMI can be calculated using either the flat-rate method or the
reducing-balance method. The EMI flat-rate formula is calculated by
adding together the principal loan amount and the interest on the
principal and dividing the result by the number of periods multiplied
by the number of months.

The EMI reducing-balance method is calculated using the formula

shown below, in which P is the principal amount borrowed, I is the
annual interest rate, r is the periodic monthly interest rate, n is the
total number of monthly payments, and t is the number of months in a
year.

(P x I) x ((1 + r) n)/ (t x ((1 + r) n)- 1)

Small Savings Schemes:

1. Post office monthly

income scheme Salient

Features:

• Maturity period is 5 years.

• No Bonus on Maturity

• 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.

• 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.

National saving certificate

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

Public provident fund (PPF)

Salient Features:
• Interest rate of 8.7% per annum w.e.f. 01-04-2013.

• Minimum deposit is 500/- per annum. Maximum deposit is Rs. 1,50,000/- per
annum

• The scheme is for 15 years.

• Investment up to Rs 1,50,000/- per annum qualifies for Income Tax

Rebate under section 80C of IT Act.

• Interest is completely tax-free.

• Deposits can be made in lumpsum or in 12 installments.

• One deposit with a minimum amount of Rs 500/- is mandatory in each financial

year.

• Withdrawal is permissible from 6th financial year.

• Loan facility available from 3rd financial year upto 5th financial year.
The rate of interest charged on loan taken by the subscriber of a PPF
account on or after 01.12.2011 shall be 2%
p.a. However, the rate of interest of 1% p.a. shall continue to be
charged on the loans already taken or taken up to 30.11.2011.

• Free from court attachment.

• Non-Resident Indians (NRIs) not eligible.

• An individual cannot invest on behalf of HUF (Hindu Undivided Family)

or Association of persons.

• Ideal investment option for both salaried as well as self- employed classes.
Post office time deposit scheme

Salient Features:

• 1 year, 2 year, 3 year and 5 year time deposits can be opened

• Interest payable annually but compounded quarterly:

• Minimum amount of deposit is Rs 200/- and in multiples of Rs 200/-

thereafter. No maximum limit.

• Investment up to Rs 1,50,000/- per annum qualifies for Income Tax

Rebate under section 80C of IT Act.

• Interest income is taxable.

• Facility of redeposit on maturity of an account.

• In case of premature closure of 1 year, 2 Year, 3 Year or 5 Year account

on or after 01.12.2011 between 6 months to one year from the date of
deposit, simple interest at the rate applicable to from time to time to
post office savings account shall be payable

• 2 year, 3 year or 5 year accounts on or after 01.12.2011 if closed after

one year, interest on such deposits shall be calculated at a discount of
1% on the rate specified for respective period as mentioned in the
concerned table given under

• Account can be pledged as security against a loan to banks/ Government

institutions.

• Any individual (a single adult or two adults jointly) can open an account.

• Group Accounts, Institutional Accounts and Misc. account not permissible.

• Trust, Regimental Fund or Welfare Fund not permissible to invest.

Senior citizen saving scheme

Salient Features:

• Interest @ 9.2% per annum from the date of deposit on quarterly basis w.e.f.
01-04-2013

• Minimum deposit is Rs 1000 and multiples thereof. Maximum limit of 15 lakhs.

• Maturity period is 5 years and can be extended for a further period of 3 years.

• Age should be 60 years or more, and 55 years or more but less than 60
years who has retired under a Voluntary Retirement Scheme or a
Special Voluntary Retirement Scheme on the date of opening of the
account within three months from the date of retirement.

• No age limit for the retired personnel of Defence services provided they
fulfill other specified conditions.

• The account may be opened in individual capacity or jointly with spouse.

• TDS is deducted at source on interest if the interest amount is more

than Rs 10,000/- per annum.

• Investment up to Rs 1,50,000/- per annum qualifies for Income Tax

Rebate under section 80C of IT Act.

• Interest can be automatically credited to savings account provided both

the accounts stand in the same post office.

• Premature closure is allowed after one year on deduction of 1.5% of

the deposit and after 2 years on deduction of 1%.

• No withdrawal permitted before the expiry of a period of 5 years from

the date of opening of the account.

• Non-resident Indians (NRIs) and Hindu Undivided Family (HUF) are not
eligible to open an account.

Post office saving account

Salient Features:

• Rate of interest 4.0% per annum

• Minimum amount Rs 50/- in case of non-cheque account, Rs.500/- in case of

cheque account.

• Maximum balance permissible is Rs 1,00,000/- in a single account

and Rs 2,00,000/- in a joint account.

• Interest Tax Free.

• Any individual can open an account.

• Cheque facility available.

• Group Account, Institutional Account, other Accounts like Security

Deposit account & Official Capacity account are not permissible.

IX Importance of Credit Score

A credit score is a three-digit number that shows your creditworthiness. It is

the first thing that lenders check when you apply for a loan or a credit card. It
gives them the idea of whether you can repay the borrowed sum on time or
not. Hence, it is important to maintain a good credit score. You can maintain
your credit score by making all your payments on time, checking your credit
reports frequently, paying off existing debt on your credit cards and keeping
your credit utilization low below 30%.
Advantage of Credit Score

A good Credit score ensures that you get many advantages over those
having no Credit score or those having a lower score. You are entitled
to the following advantages if you have a good Credit score:

• Lower interest rates and better terms on credit products

One of the benefits of having a good credit score is that banks might
offer you loans and credit cards at a lower interest rate. You can also
get other benefits as well such as a discount on the processing fee and
eligibility to get a higher loan amount.

• Improve your chances for credit card and loan approval

Borrowers with an excellent credit score are considered as a low-risk

and therefore the chances of being approved for loans and credit
cards are higher.

• Access to the best rewarding credit cards

With a good credit score, you are also eligible to get access to the most
rewarding credit cards in the market, including those that offer the
lowest interest rates and the best rewards, such as cash cashback,
travel points, and other benefits.

• Get approved for a higher credit limit on your credit card

With a good credit score, you can also get approved for a higher credit
limit on your credit card. Creditors will likely lend you more money
because of your proven creditworthiness.

• Eligible for a pre-approved loan offer

Borrowers with a good credit score are also eligible for pre-approved
loan offers. Generally, a pre- approved loan offer is given by banks to
the existing customers who have a good credit history.
Therefore, it is crucial to maintain a good credit score if you want to
enjoy all the above-mentioned benefits.
X Payment Systems

a. Paper-based Payments

Use of paper-based instruments (like cheques, drafts, and the like)

accounts for nearly 60% of the volume of total non-cash transactions
in the country. In value terms, the share is presently around 11%. This
share has been steadily decreasing over a period of time and
electronic mode gained popularity due to the concerted efforts of
Reserve Bank of India to popularize the electronic payment products in
preference to cash and cheques.

b. Electronic Funds Transfer (EFT)

This retail funds transfer system introduced in the late 1990s enabled
an account holder of a bank to electronically transfer funds to another
account holder with any other participating bank. Available across 15
major centers in the country, this system is no longer available for use
by the general public, for whose benefit a feature-rich and more
efficient system is now in place, which is the National Electronic Funds
Transfer (NEFT) system.

c. National Electronic Funds Transfer (NEFT) System

In November 2005, a more secure system was introduced for

facilitating one-to-one funds transfer requirements of individuals /
corporates. Available across a longer time window, the NEFT system
provides for batch settlements at hourly intervals, thus enabling
near real-time transfer of funds.
Certain other unique features viz. accepting cash for originating
transactions, initiating transfer requests without any minimum or
maximum amount limitations, facilitating one-way transfers to Nepal,
receiving confirmation of the date / time of credit to the account of the
beneficiaries, etc., are available in the system.

d. Real Time Gross Settlement (RTGS)System

RTGS is a funds transfer systems where transfer of money takes place
from one bank to another on a "real time" and on "gross" basis.
Settlement in "real time" means payment transaction is not subjected
to any waiting period. "Gross settlement" means the transaction is
settled on one to one basis without bunching or netting with any other
transaction. Once processed, payments are final and irrevocable. This
was introduced in in 2004 and settles all inter-bank payments and
customer transactions above `2 lakh.

e. Mobile Banking System

Mobile phones as a medium for providing banking services have been

attaining increased importance. Reserve Bank brought out a set of
operating guidelines on mobile banking for banks in October 2008,
according to which only banks which are licensed and supervised in
India and have a physical presence in India are permitted to offer
mobile banking after obtaining necessary permission from Reserve
Bank. The guidelines focus on systems for security and inter-bank
transfer arrangements through Reserve Bank's authorized systems. On
the technology front the objective is to enable the development of
inter-operable standards so as to facilitate funds transfer from one
account to any other account in the same or any other bank on a real
time basis irrespective of the mobile network a customer has
subscribed to.
 f. ATMs / Point of Sale (POS) Terminals / Online Transactions

Presently, there are over 61,000 ATMs in India. Savings Bank customers
can withdraw cash from any bank terminal up to 5 times in a month
without being charged for the same. To address the customer service
issues arising out of failed ATM transactions where the customer's
account gets debited without actual disbursal of cash, the Reserve
Bank has mandated re-crediting of such failed transactions within 12
working day and mandated compensation for delays beyond the
stipulated period. Furthermore, a standardised template has been
prescribed for displaying at all ATM locations to facilitate lodging of
complaints by customers.
 Module 3: Insurance – Risk and Reward
I CONCEPT OF INSURANCE

• Insurance is a means of protection from financial loss.

• An entity which provides insurance is known as an insurer, insurance company, or insurance carrier.
• A person or entity who buys insurance is known as an insured or policyholder.
• The insurance transaction involves the insured assuming a guaranteed and known relatively small loss
in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in
the event of a covered loss.
• The loss may or may not be financial, but it must be reducible to financial terms, and must involve
something in which the insured has an insurable interest established by ownership, possession, or pre-
existing relationship.
• The insured receives a contract, called the insurance policy, which details the conditions and
circumstances under which the insured will be financially compensated.
• The amount of money charged by the insurer to the insured for the coverage set forth in the insurance
policy is called the premium.

II FUNDAMENTAL PRINCIPLES OF INSURANCE

1.The Principle of Utmost Good Faith

• Both parties involved in an insurance contract—the insured (policy holder) and the insurer
(the company)—should act in good faith towards each other.
• The insurer and the insured must provide clear and concise information regarding the terms
and conditions of the contract

2.The Principle of Insurable Interest

Insurable interest just means that the subject matter of the contract must provide some financial
gain by existing for the insured (or policyholder) and would lead to a financial loss if damaged,
destroyed, stolen, or lost.

• The insured must have an insurable interest in the subject matter of the insurance contract.
• The owner of the subject is said to have an insurable interest until s/he is no longer the owner.

3. The Principle of Indemnity

• Indemnity is a guarantee to restore the insured to the position he or she was in before
the uncertain incident that caused a loss for the insured. The insurer (provider) compensates
the insured (policyholder).
• The insurance company promises to compensate the policyholder for the amount of the loss
up to the amount agreed upon in the contract.

4 .The Principle of Contribution

• Contribution establishes a corollary among all the insurance contracts involved in an incident
or with the same subject.
• Contribution allows for the insured to claim indemnity to the extent of actual loss from all the
insurance contracts involved in his or her claim.

5.The Principle of Subrogation

This principle can be a little confusing, but the example should help make it clear. Subrogation is
substituting one creditor (the insurance company) for another (another insurance company
representing the person responsible for the loss).
 • After the insured (policyholder) has been compensated for the incurred loss on a piece of
property that was insured, the rights of ownership of this property go to the insurer.

6.The Principle of Proximate Cause

• The loss of insured property can be caused by more than one incident even in succession to
each other.
• Property may be insured against some but not all causes of loss.
• When a property is not insured against all causes, the nearest cause is to be found out.
• If the proximate cause is one in which the property is insured against, then the insurer must
pay compensation. If it is not a cause the property is insured against, then the insurer doesn’t
have to pay.
7.The Principle of Loss Minimization
• In an uncertain event, it is the insured’s responsibility to take all precautions to minimize the
loss on the insured property.
For an individual, a risk premium is the minimum amount of money by which the expected
return on a risky asset must exceed the known return on a risk-free asset in order to induce an
individual to hold the risky asset rather than the risk-free asset. It is positive if the person is risk
averse.
III INSURANCE PREMIUM & SUM ASSURED

The sum assured is the amount of money an insurance policy guarantees to pay up before any
bonuses are added. In other words, sum assured is the guaranteed amount the policyholder will receive.
This is also known as the cover or the coverage amount and is the total amount for which an individual
is insured.
The sum assured in insurance is determined at the time of policy purchase. It remains unchanged throughout the
policy period. When the insurer pays the sum assured to you or your nominee, the policy stands terminated.
The PREMIUMS you pay for the policy are decided against the sum assured value. An insurance premium
is the amount of money an individual or business must pay for an insurance policy. Insurance premiums
are paid for policies that cover healthcare, auto, home, and life insurance.

IV INSURANCE PRODUCTS AND SERVICES INSURANC PRODUCTS

Insurance products mean any product provided by an insurer in its insurance whereby such insurer
undertakes to indemnify the insured person as to loss from certain perils called risks which are
mentioned in the insurance contract or to pay a specified amount with or without a benefit.

• Home Insurance
• Landlord and Rental Properties
• Life Insurance
• Business Insurance
• Motorcycle Insurance
• Recreational Insurance
INSURANCE SERVICES
Insurance Services means any renewal, discontinuance or replacement of any insurance or reinsurance
 by, or handling self-insurance programs, insurance claims or other insurance administrative functions.

V IDENTIFYING RISK
Risk identification is the process of determining risks that could potentially prevent the program, enterprise,

or investment from achieving its objectives. It includes documenting and communicating the concern.

8 Ways to Identify Risks in Your Organization

1. Break down the big picture. When beginning the risk management process, identifying risks can be
overwhelming. ...
2. Be pessimistic. ...
3. Consult an expert. ...
4. Conduct internal research. ...
5. Conduct external research. ...
6. Seek employee feedback regularly. ...
7. Analyze customer complaints. ...
8. Use models or software.

VI PURE RISK and FINANCIAL RISK

• Pure risk is a type of risk that cannot be controlled and has two outcomes: complete loss or no
loss at all. There are no opportunities for gain or profit when pure risk is involved.
• Pure risk is generally prevalent in situations such as natural disasters, fires, or death.
• Pure risks are types of risk where no profit is possible and only full loss, partial loss or break-
even situation are probable outcomes.

• Types of pure risks are; (1) personal risks, (2) property risks, and (3) liability risk.

• Financial risk is the possibility of losing money on an investment or business venture.

• Some more common and distinct financial risks include credit risk, liquidity risk, and
operational risk.

• Financial risk is a type of danger that can result in the loss of capital to interested parties
VII RISK APPETITE

Risk appetite is the level of risk that an organization is prepared to accept in pursuit of its objectives,
before action is deemed necessary to reduce the risk. It represents a balance between the potential
benefits of innovation and the threats, that change inevitably brings.

VIII AVOID, IGNORE OR MANAGE RISK

1. Avoiding Risk
For example, if I want to avoid the possibility of having to pay for a stranger’s medical expenses due
to an auto accident, I could stop driving a car. So why not just avoid all risks? The problem is that
whenever we avoid a risk we also miss out on the benefits we could have received for participating in
the associated activity. In addition, not all risks can be completely avoided, such as the risks of illness
or natural disaster.
Avoidance may be appropriate for a limited number of risks that produce a high probability of loss,
such as gambling, but it is not a practical solution for most risks. In some cases we may even create
additional risks by trying to avoid a particular risk. For example, we may be tempted to keep all of our
savings in cash to avoid the risk of investment losses, but then we would be subjecting ourselves to
the potential risk of loss by inflation, which is practically guaranteed to significantly erode the value
of our cash over time.

2. Ignoring risk
When people do this dumb thing, ignoring risk, they do it selectively. ... The way it typically works is,
they take elaborate care to list and analyze and monitor all the minor risks (the ones they can hope to
counteract through managerial action) and only ignore the really ugly ones.

3. Managing risk
Risk management is the practice of using processes, methods and tools for managing these risks.
... Risk management focuses on identifying what could go wrong, evaluating which risks should be
dealt with and implementing strategies to deal with those risks.
IX BALANCING RISK AND REWARD

• When you invest in the stock market, you need to strike a balance between risk and reward. In
general, the more risk you are prepared to take, the higher your potential returns (or losses!),
however the beauty is that you can choose the level of risk you are comfortable with.

• All investments have risks. In order to figure out how to manage risk, you must first
understand it.

• There is also the risk of investing too conservatively – not getting a high enough return to
provide for your financial future.

• To effectively manage these elements of portfolio risk, you need to evaluate your personal
investment goals and match these goals to your portfolio risks. Factors such as your
investment time horizon and risk comfort level also must be considered. These will determine
what kinds of and how much risk you are willing to take.

X BEHAVIOURAL BIASES

• Behavioural biases are irrational beliefs or behaviours that can unconsciously influence our
decision-making process.

• They are generally considered to be split into two subtypes – emotional biases and
cognitive biases.

• Behavioral biases are wrong and potentially damaging behaviours caused by erroneous
decisions (or unfit reactions) - blunders. to use a more explicit word.

• Unless luck (or serendipity, or some corrective actions) saves the day, they bring usually
suboptimal and often negative / harmful - outcomes.
 Module 4: Investment – Stocks, Bonds and Mutual Funds
Investment Fundamentals
An investment is an asset or item acquired with the goal of generating income or
appreciation. Appreciation refers to an increase in the value of an asset over time. Investment
can include owing a home, owing a business, owing real estate or having money in bank
account etc.
There are several ways one can own investments, like:
a. Owning a share of stock is owning a portion of the company.
b. When you buy a bond, you are lending money to the company or institution issuing the
bond.
c. When you buy mutual funds, you are buying shares in a company that in turn owns stocks
in other companies or bonds issued by other companies.
Some common sense rules of investments:
a. Understanding that there are risks with investing
b. Be realistic in your expectations
c. Take a long approach
Assets Allocation strategies based on your age
Age Stock Bonds Cash
30’s 65% 25% 10%
40’s 60% 30% 10%
50’s 50% 40% 10%
60’s 30% 55% 15%

Information regarding investment in different assets:

Bonds:
 Bonds are issued to raise funds in the same way as an individual borrows funds from
banks.
 Bonds are used by companies, municipalities, states, and sovereign governments to
finance projects and operations.
 A bond certificate is a document that states the details of the bond including the bond
issuer’s name, the bond par value or face amount, the interest rate, and the maturity
date.
National Saving Certificate:

 The National Savings Certificate is a fixed income investment scheme that you can
open easily with any post office.
 NSC investments carry fixed interest rates and a 5-year lock-in period. Investments in
an NSC allows us to avail tax deductions of up to Rs. 1,50,000/year u/s 80C.
 The NSC offers guaranteed interest and complete capital protection, just like some
other fixed income instruments – Public Provident Fund and Post Office FDs.
 Individuals including minors and trusts can invest in NSCs.
 Minimum investment amount in a year is Rs. 1,000. There is no maximum limit of
investment.
  Current interest rate of NSC is 7.7% p.a. that compounded half yearly.
 The accumulated amount is paid on maturity.

Mutual Funds:

 Mutual funds pool funds from several investors and invest in a diversified portfolio of
securities.
 These professionally managed funds offer a way for individuals to invest in a variety
of assets, including stocks, bonds, and money market instruments.
 Mutual fund investing offers instant diversification and the fund’s holdings help
mitigate risks.
 In India, mutual funds are regulated, which makes them transparent and highly
popular with new and experienced investors.
 Mutual funds charge annual fees (called expense ratios) and, in some cases,
commissions, which can affect their overall returns.
 They help the clients to invest in SIPs. Since mutual funds allow investment in
numerous stocks, it enables investors to achieve broad diversification with an
investment as low as Rs. 500.
 A mutual fund can generate a capital gain for individual investors since the price at
which investors sell their shares can be higher than the price at which they purchase
their shares.
 However, the price of the mutual fund share may decline over time, which would
result in a capital loss.
 The mutual funds normally come out with a number of schemes with different
investment objectives which are launched from time to time.
 A mutual fund is required to be registered with Securities and Exchange Board of
India (SEBI) which regulates securities markets before it can collect funds from the
public.
CLASSIFICATION OF MUTUAL FUND:-

1. Schemes according to Maturity Period:

OPEN-ENDED FUND:-

 This scheme allows investors to buy or sell units at any point in time.
 There is no maturity period in open ended funds, which means that you can remain
invested in the scheme for as long as you want.
 Open-ended funds provide high liquidity and flexibility for investors.
 We can conveniently buy or sell your units at net asset value (“NAV”) related prices.
 The majority of mutual funds, 59% approximately are open-end funds.

CLOSE-ENDED FUND:-
 This type of scheme has a stipulated maturity period and investors can invest only
during the initial launch period known as the New Fund Offer (NFO).
 Once the offer closes, no new investments are permitted.
  The market price at the stock exchange could vary from the scheme’s Net Asset Value
(NAV), because of the demand and supply situation, unit holder’s expectations and
other market factors.
 SEBI Regulations ensure that at least one of the two exit routes is provided to the
investor.

2. Classification according to investment objectives:

1. Growth / Equity Oriented Scheme

2. Income / Debt Oriented Scheme

3. Balanced Fund

4. Money Market or Liquid Fund

A. Growth / Equity Oriented Scheme:-

a. The fundamental objective of growth funds is to provide capital growth or appreciation.
b. They tend to invest in schemes where the possibility of the principal amount growing is
high.
c. This makes them risky but capable of generating good returns.
B. Income / Debt Oriented Scheme:-
a. The basic aim of the income funds is to provide you with both, a regular income and long-
term capital growth.
b. This is why they enable investors to place their money in fixed income instruments like
bonds and debentures.
C. Balanced Fund:-

a. The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their offer
documents.

b. These are appropriate for investors looking for moderate growth. They generally invest 40-
60% in equity and debt instruments.
D. Money Market or Liquid Fund:-

a. Sole purpose of liquid funds is to provide a cover of liquidity to the investor.

b. With this as the goal, they invest in short-term investment instruments like treasury-bills or
government bonds.
c. They are safer as compared to growth funds but can only generate moderate returns.
NAV (Net Assets Value):
  Net Asset Value (NAV) is the market value of a mutual fund unit.
 The overall cost of a mutual fund depends on this market value per fund unit.
 If you add up the market value of all the shares in the fund and divide it by the
number of total mutual fund units, the resulting figure will be NAV.
 NAV is simply the price per share of the fund. Just like shares have a share price;
mutual funds have a net asset value.

Systematic Investment Plan (SIP):

 It is investment routes offered by Mutual Funds wherein one can invest a fixed
amount in a Mutual Fund scheme at regular intervals– say monthly or quarterly,
instead of making a lump-sum investment.
 The instalment amount could be as little as INR 500 a month and is similar to a
recurring deposit.
 It’s convenient as you can give your bank standing instructions to debit the amount
every month.
 SIP has been gaining popularity among Indian MF investors, as it helps in investing in
a disciplined manner without worrying about market volatility and timing of the
market.

Fixed Deposit:
 One of the oldest investment avenues in India is bank fixed deposit.
 It gives a return of 5%-7% p.a. depending on the tenure.
 It is a safe investment device for those who do not have a risk appetite and have
traditionally put their money in them.

Post Office Monthly Income Scheme:-

 Post Office Monthly Income Scheme, amongst others such as Post Office Savings
Account, Post Office Recurring Deposit, Post Office Time Deposit, is one of the
highest-earning schemes with an interest rate of 7.4%.
 The interest in this scheme, as the name suggests, is disbursed monthly.
 This scheme, like other post office schemes, is recognized and validated by The
Ministry of Finance.
PPF

 Public provident fund is a popular investment scheme among investors.

 It is a long-term investment scheme popular among individuals who want to earn high
but stable returns.
 Proper safekeeping of the principal amount is the prime target of individuals opening
a PPF account.
 The key characteristics of a public provident fund scheme can be listed as follows –

Investment tenure
 A PPF account has a lock-in period of 15 years on investment, before which funds
cannot be withdrawn completely. An investor can choose to extend this tenure by 5
years after lock-in period is over if required.
 Principal amount
 A minimum of Rs. 500 and a maximum of Rs. 1.5 Lakh can be invested in a provident
fund scheme annually. This investment can be undertaken in a lumpsum or
installment basis. However, an individual is eligible for only 12 yearly instalment
payments into a PPF account. Investment in a PPF account has to be made every year
to ensure that the account remains active.

Loan against investment

 Public provident funds provide the benefit of availing loans against the investment
amount. However, the loan will only be granted if it is taken at any time from the
beginning of 3rd year till the end of the 6th year from the date of activation of
account.

 The maximum tenure of such loans against PPF is 36 months. Only 25% or less of the
total amount available in the account can be claimed for this purpose.

Ponzi Schemes:

 A Ponzi scheme is an investment fraud that pays existing investors with funds collected
from new investors.
 Ponzi scheme organizers often promise to invest your money and generate high returns
with little or no risk.
 But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it
to pay those who invested earlier and may keep some for themselves.
 With little or no legitimate earnings, Ponzi schemes require a constant flow of new
money to survive. When it becomes hard to recruit new investors, or when large
numbers of existing investors cash out, these schemes tend to collapse.
 Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a
postage stamp speculation scheme.
Demat Account

It is also known as Dematerialisation Account.

It helps investors to holds financial securities in electronic format.
This account helps keep track of an investor's holdings in shares, exchange-traded funds,
bonds, and mutual funds in one place.

This makes it easy for you to check and manage your stock online, providing great
convenience.
You can access your Demat Account anytime, anywhere, thorough your smart phone or
laptop.
A Demat account also provides the nomination facilities as per the process describe by the
depository. In case of the Investor’s demise, the appointed nominee will receive the
shareholding in the Demat account.
In India Demat Accounts are maintained by depositories like NSDL (National Securities
Depository Limited) and CDSL (Central Depository Services Limited).
 Trading Account
A trading account is an investment account that allows individuals or entities to trade
securities such as stocks, bonds or futures and options. It serves as a gateway for conducting
transactions in the stock market.
A trading account is typically opened with a broking firm that provide access to the stock
exchange’s trading platform and facilitates the execution of trades on behalf of the investor.
How trading account works:
1. To open a trading account, an investor first need to select a broker who offers trading
services. After completing formalities, investor can deposit money in the trading account.
2. Investors can now place the order for buy and sell of stocks or other securities through the
trading platform provided by the broker. Broker will then execute the order on behalf of the
investor.
3. The trading account summarises the transactions carried out by the investors. It includes
details such as the stock purchase, the quantity and the price paid for it.

Role of Stock Exchange

1. Role of an Economic Barometer: Stock exchange serves as an economic barometer that

is indicative of the state of the economy. It records all the major and minor changes in the
share prices.
2. Valuation of Securities: Stock market helps in the valuation of securities based on the
factors of supply and demand. The securities offered by companies that are profitable and
growth-oriented tend to be valued higher.

3. Transactional Safety: Transactional safety is ensured as the securities that are traded in
the stock exchange are listed, and the listing of securities is done after verifying the
company’s position.

4. Contributor to Economic Growth: Stock exchange offers a platform for trading of

securities of the various companies. This process of trading involves continuous
disinvestment and reinvestment, which offers opportunities for capital formation and
subsequently, growth of the economy.

5. Offers scope for speculation: By permitting healthy speculation of the traded securities,
the stock exchange ensures demand and supply of securities and liquidity.

6. Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready
platform for the sale and purchase of securities.

IPO

An IPO is an initial public offering, in which shares of a private company are made available
to the public for the first time. Initial public offerings can be used to raise new equity capital
for companies, to monetize the investments of private shareholders

Primary Market
1. The primary market is the market where companies issue a new security to the public.
2. A company offers securities to the general public to raise funds to finance its long-term
goals.
3. The primary market may also be called the New Issue Market (NIM).

Secondary Market
1. It is the financial market in which previously issued financial instruments such
as stock, bonds, options, and futures are bought and sold.
2. All securities after the initial sale are sold in the secondary market.
3. The stock exchanges are the most visible example of secondary markets.
4. In the secondary market, securities are sold by and transferred from one buyer to another.

Diversify to manage risk

Diversification is a risk management technique that mitigates risk by allocating investments

across different financial instruments, industries, and several other categories. The purpose of
this technique is to maximize returns by investing in different areas that would yield higher
and long term returns.
Investors and fund managers usually diversify their investments across various asset classes
and evaluate what portion of the portfolio to allocate to each. These classes can include:
1. Stock Market – Publicly traded company’s shares or equity
2. Bonds – Government and corporate fixed-income debt instruments
3. Real Estate and Properties – Piece of land, Buildings, Natural resources, Livestock, and
water and mineral deposits
4. Exchange-traded funds (ETFs) – A collection of securities that follow an index,
commodity, or sector and listed on exchanges.
5. Commodities – Materials that are necessary for the manufacture of other products or
services.
6. Cash & Liquid securities: – Treasury bills, Certificate of deposit (CD) and other short-
term, low-risk investments

Diversification in Mutual Funds:

Mutual fund investment diversification means to diversify one’s investment into various
types of mutual funds after doing a careful study of the personal investor and risk profile.
There are multiple options in mutual funds for investors.
The broad categories are: Equity mutual funds, Debt mutual funds and Gold funds. These
broad categories have their risk levels:
Equity is riskier than Debt. Gold, at some level, carries the least risk of the lot.

Within the broad categories, there are subcategories also.

For example: In equity mutual funds: Large-cap funds are less risky than small and mid-cap
funds.
In debt funds: Corporate bonds might be riskier than those who have more exposure to
government securities.
 Module 5: Pension – Retirement Planning(RD)

I Life stages and Financial Goals:

Retirement is a stage in the life cycle of an individual when one stops behaving active and contributing
in the productive/ working population due to old age. There are many reasons why planning for
retirement is important like any other goals. Pension plans serve as a means of financial stability and
security after retirement.

A certain amount of one’s current income is transferred and stored for future.

Pension plan is important due to the following reasons:

1. Increase in life expectancy: Our generation will live longer than previous ones due to
improved medical and healthcare, implying the need to gather enough funds that can sustain longer life.
This also implies that the healthcare needs and expenses are likely to haunt us.

2. Shortfall in Employer Funded Pension/Pension Funds : The employer or

government

funded pension schemes are less likely to sustain the income needs post retirement. This is the reason

many individuals supplement their state or employer funded retirement plans with self-funding- i.e.

pension plans.

3. Change of social structures: In spite of family support, many retirees don’t prefer
depending on the relatives or children for meeting post retirement expenses. Maintaining independent
lifestyle is sustainable only when backed with a financial cushion.

4. Lack of social security system: There is very less no. of social security schemes in
our country. Hence one has to plan to build the entire corpus to help meet the regular income or any
contingency post retirement.

5. Rest and relaxation: After fulfilling all your responsibilities, you may want to build a
retirement corpus to go on holidays, to pursue a hobby etc.

II Securing your Financial Future: Planning for the purpose of achieving financial
independence after retirement. Retirement planning requires:

1. To determine how much annual income will be needed in each year after retirement.

2. To determine how much must be accumulated in retirement savings in order to fund the expenditure
during retired years.

3. To determine how much must be contributed to retirement savings in each remaining working years
in order to accumulate the required amount determined in step #2.

III No loan for Retirement Goal-

(i)It is advised that loan should be obtained in such a way that the return is not exceeding the working
life of an individual.
(ii) Loan pertaining to House, children’s education, for building emergency fund, for Health Insurance
etc., must not be raised near the retirement years.

(iii)The instalments of loan will be an adverse burden on the life of a person after Retirement.

(iv) Amount of pension will also get diminished due to burden of instalments and interest theron.

IV Defined Benefit and Contribution

Defined Benefit (DB)

Defined Benefit Pension plan is one in which a specified monthly benefit (payment) is available on
retirement. It is predetermined by a formula based on the employee’s earning history, tenure of service
and age

Defined Contribution (DC)

Defined Contribution Pension plan in which the pension amount is dependent upon the aggregated
retirement corpus which in turn is determined by the amount of individual contribution. Individual
contributes for her/his own pension & amp; parallel contribution can also come from employer/Central
or State Government in addition to individual contribution. The amount of contribution is
predetermined.

V Contribute to your Provident Fund- Employee Provident Fund (EPF) is a retirement

saving scheme that is available to all salaried employees in India. The scheme is administered by EPFO
(Employees’ Provident Fund Organisation) in people as employees in a government or private
organization, can create wealth through working. This amount earns interest and you can use it to
finance a part of post-retirement life or other goals. EPF is a collection of funds contributed by the
employer and his employee regularly on a monthly basis. The employee contributes 12 per cent of his
or her basic salary along with the Dearness Allowance every month to the EPF account. At the time of
your retirement, or two months after changing your job, you can claim the entire amount. In order to
check whether your employer is making contributions towards your EPF account or to see your account
balance, you can use your UAN and log into your EPF account on the EPFO member portal.

To use the services of UAN and EPFO PORTAL, one should activate UAN online when switching jobs.

VI The National Pension System (NPS)

The New Pension System is changed to National Pension System. NPS is made available to all Citizen
of India w.e.f 1.5.2009 on a voluntary basis and 16 Lakh State Government employees from 22 States
are covered under National Pension System (NPS).

 FEATURES AND ARCHITECTURE OF THE NATIONAL PENSION SYSTEM

Any Indian citizen between 18 and 60 years can join NPS.

It is a defined contribution pension system in which the contributions are invested in a mix of assets
and the retirement corpus is dependent on the returns from those assets.

The returns in NPS are market-linked. Under NPS, an investor can open two accounts, called Tier I and
Tier II account.

Some important points pertaining to NPS;

1. The National Pension System is based on defined contributions. Subscriber can open NPS account
through POP or Aggregator. NPS tier-1 Account is non-withdrawal account and there will be seamless
transfer of accumulations in case of change of Employment and/or location. It will also offer a basket
of investment choices and Fund managers.
2. NPS is mandatory for new recruits in the Central Government service (except the armed forces). The
monthly contribution would be 10 percent of the salary and DA to be paid by the employee and matched
by the Central Government.

3. National Securities Depository Service Limited (NSDL) has been appointed as the Central record
keeping agency (CRA) under NPS .The recordkeeping, administration and customer service functions
for all subscribers of the NPS shall be centralized and performed by the CRA.

4. Pension Fund Managers (PFMs) are appointed by PFRDA to manage the retirement savings of
subscribers.

5. Annuity Service Providers (ASPs) are appointed by PFRDA for delivering a regular monthly pension
to the subscriber for the rest of his/her life post retirement.

6. Individuals exit at attainting the age of 60 years from the NPS. At exit, the individual is required to
invest minimum 40 percent of pension wealth to purchase a pension from ASP. The individual would
receive a lump-sum of the remaining pension wealth, which she would be free to utilize in any manner;
individuals have the facility to invest more than the minimum prescribed 40% for receiving higher
pension. Individuals would have the flexibility to leave the NPS prior to age 60. However, in this case,
the mandatory annuitization would be 80% of the pension wealth.

(NPS can fetch 10-14% of returns but with market risks alongside)

VII Accumulation and Distribution Phase

Two phases of retirement :

Accumulation phase - This period begins when you enter the workforce and begin setting aside
funds for later years of your life, and ends when you actually retire. Basically, if you’re still working,
you’re still in the accumulation phase, building wealth to get you through retirement. It is during this
time that you’re building wealth and resources to provide an income source for your post retirement.

Distribution phase - When you actually retire and start collecting money from the retirement
income sources you set up during the accumulation phase of your life, you can be said to have entered
the distribution phase. for

VIII Impact of Inflation Benefits are generally not indexed inflation after retirement. Thus
an increase in the inflation rate would reduce the worker’s real benefits in the years .
Inflation Diminishes Retiree’s Buying Power

If you have a pension, find out if your payment will increase with inflation and modify your other
investments accordingly.

Here are seven ways to protect yourself against a rising tide of inflation:

1. Invest in stocks. Most people become more risk averse as they get older. You don’t want to gamble
away your nest’s egg in the years leading up to retirement. But the price of stocks generally keeps up
with inflation

2. Real estate. Since real estate tends to rise along with inflation, owning your own home is a hedge
against inflation. Rental property is another investment that typically pays off during inflationary
periods, since you have the ability to raise rents.

3. Bonds and annuities. These are relatively safe investments that certainly belong in any retirement
investment portfolio. But most bonds lose value if inflation increases. However, there are some bonds,
such as Treasury inflation-protected securities, that are guaranteed to keep up with inflation.
4. Pensions. Many pensions are not adjusted for inflation, but some are. If you have a pension, find out
if your payment will increase with inflation and modify your other investments accordingly.

5. Social Security. Social Security payments are adjusted each year to keep up with inflation.

6. Permanently downsize your expenses. If you downsize your house and move to a community with
lower taxes and a lower cost of living, you save money throughout retirement.

7. Cut other expenses as you go along. It is better to plan your own cutbacks, should they be needed,
than to have the cutbacks thrust upon you by rising prices. No one really knows whether inflation will
become a problem in the next few years,

IX Price of Procrastination

 The act or habit of procrastinating is putting off or delaying. Specially something requiring
immediate attention. Procrastination can cause missed deadlines, missed opportunities, and just
plain missing out.
 The best way to stop procrastinating. Just get started.
 Starting small will provide the momentum to finish.
 Unfinished tasks are uncomfortable for us. Once we get started, we have the drive to finish.
 A recent study suggests that procrastination is the outcome of present biased preferences, so it
is advised to start keeping money for post-retirement period well in advance.

X Reverse Mortgage Loan-

 Reverse Mortgage Loan provides an additional source of income for senior citizens of India,
who have a self-acquired or self-occupied home in India.
 The Bank makes payments to the borrower /borrowers (in case of living spouse),
against mortgage of his / their residential house property.
 When you have a regular mortgage, you pay the lender every month to buy your home
over time. In a reverse mortgage, you get a loan in which the lender pays you.
 Reverse mortgages take part of the equity in your home and convert it into payments to
you – a kind of advance payment on your home equity.
 The high costs of reverse mortgages are not worth it for most people. You better off
selling your home and moving to a cheaper place, keeping whatever equity you have in
your pocket rather than owing it to a reverse mortgage lender.
 The best way of getting out of a reverse mortgage is by repaying the loan balance in
full. If you have a large balance that you are unable to pay in cash, the most common
solution is to sell the home and use the proceeds to pay off the reverse mortgage.
Eligibility to avail reverse mortgage loan facility
o A borrower must be aged 60 years or above.
o The house should be owned by the applicant and carry a residual life of not less than
20 years.
o It should be the primary residence of the borrower
o The property should be free from any legal claims.
 FINANCIAL INCLUSION
Meaning: Financial inclusion refers to efforts to make financial products and services
accessible and affordable to all individuals and businesses, regardless of their personal net
worth or company size. Financial inclusion strives to remove the barriers that exclude people
from participating in the financial sector and using these services to improve their lives. It is
also called inclusive finance.

Key Takeaways

• Financial inclusion is an effort to make everyday financial services available to more of

the world's population at a reasonable cost.
• Financial inclusion may refer to geographical regions, consumers of a specific gender,
consumers of a specific age, or other marginalized groups.
• Financial inclusion may leads to greater overall innovation, economic growth, and
consumer knowledge.
• Advancements in fintech, such as digital transactions, are making financial inclusion
easier to achieve.

PRADHAN MANTRI JAN DHAN YOJANA

Introduction

➢ This financial inclusion program was launched by Government of India on 28/08/2014

➢ It is open to Indian citizens (minor of age 10 and older can also open an account with
guardian to manage it).
➢ It aims to expand affordable access to financial services such as bank accounts,
remittances, credit insurance and pensions.
➢ It is run by Finance ministry of India.
➢ Under this scheme 15 million bank accounts were opened on inauguration day .The
Guinness Book of World Records recognizes this achievement.

Documents Required

• Aadhaar card is required to open the account.

• If Aadhaar card is not available then any one of the following documents is required-
Voter iD card, PAN card, Passport or NREGA card.
• In PMJDY accounts are opened with Zero Balance. However if the account holder wishes
to get a cheque book then he/she will have to fulfill the minimum balance criteria.

Direct/Special benefits attached to the scheme are:

➢ Accounts can be opened with zero balance.

 ➢ Interest on deposit
➢ Accidental insurance cover of Rs 1.00 lac.
➢ Life insurance cover of Rs 30,000.
➢ After satisfactory operation of account for 6 months , overdraft facility of Rs 5,000 is
permitted in only one account per household.

PRADHAN MANTRI SURAKSHA BIMA YOJANA

INTRODUCTION

➢ It is a government backed Accident insurance scheme in India.

➢ It was launched by Government of India on 8th May, 2015.
➢ The GST is exempted on Pradhan Mantri Suraksha Bima Yojana.
➢ Its aim is to reach those people who are below the poverty line and insurance is an
unaffordable service for them.

Suraksha Bima Yojana Benefits

➢ In case of accidental death or full disability, the payment to the nominee will be Rs. 2
lakh and in case of partial permanent disability Rs. 1 lakh.
➢ Deaths due to suicide, alcohol, drug abuse, etc, are not covered in this scheme.

Suraksha Bima Yojana Premium

➢ The premium is just Rs 12 per annum for each member.

➢ This amount is autodebited from the policy holders savings bank account.

Suraksha Bima Yojana Eligibility

➢ Age limit- 18- 70 years

➢ Should have a savings Bank Account.
➢ Should give consent for auto debit facility.
➢ If the individual has multiple savings account then he/she would be eligible to get just
one insurance scheme attached to just one savings account.

Suraksha Bima Yojana Termination

➢ If the policy holder attains the age of 70 years.

➢ If the policy holder closes his savings account.
➢ If the policy holder is not able to continue with the premium paying process.
➢ If the policy holder is not able to maintain minimum balance in the savings account.

PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA

INTRODUCTION

➢ It is a government-backed Life insurance scheme in India.

➢ It was formally launched by Prime Minister Narendra Modi in Kolkata.
➢ It is available to people between 18 and 50 years of age with bank accounts.
➢ It has an annual premium of Rs 330, the GST is exempted.
➢ The amount will be automatically debited from the account. In case of death due to any
cause the payment to the nominee will be Rs 2 lakh.

Eligibility Conditions:

The savings bank account holders of the participating banks aged between 18 years
(completed) and 50 years (age nearer birthday) who give their consent to join / enable auto-
debit, as per the above modality, will be enrolled into the scheme.

Termination of Assurance:

The assurance on the life of the member shall terminate on any of the following events and no
benefit will become payable there under:

1) On attaining age 55 years (age near birth day) subject to annual renewal up to that date
(entry, however, will not be possible beyond the age of 50 years).

2) Closure of account with the Bank or insufficiency of balance to keep the insurance in force.

ATAL PENSION YOJANA:

INTRODUCTION

Atal Pension Yojana (APY) is an old age income security scheme for a savings account holder in
the age group of 18-40 years who is not an income tax-payee. The scheme helps in
addressing the longevity risks among the workers in the unorganized sector and encourages
the workers to voluntarily save for their retirement.

➢ Atal Pension Yojana is a government-backed pension scheme in India, primarily targeted

at the unorganised sector.
➢ The minimum eligible age for a person joining APY is 18 years and the maximum is 40
years.
➢ An enrolled person would start receiving pension on attaining the age of 60 years.
➢ Therefore, a minimum period of contribution by the subscriber under APY would be 20
years or more.

APY Subscriber Contribution Chart -

https://www.npscra.nsdl.co.in/nsdl/scheme-details/APY_Subscribers_Contribution_Chart_1.pdf
Upon exit on attaining 60 years

The subscriber shall receive the following three benefits on attaining the age of 60:
(i) Guaranteed minimum pension amount: Each subscriber under APY shall receive a
guaranteed minimum pension of Rs. 1000/- per month or Rs. 2000/- per month or Rs. 3000/-
per month or Rs. 4000/- per month or Rs. 5000/- per month, after the age of 60 years until
death.
(ii) Guaranteed minimum pension amount to the spouse: After the subscriber’s demise,
the spouse of the subscriber shall be entitled to receive the same pension amount as that of the
subscriber,until death.
(iii) Return of the pension wealth to the nominee of the subscriber: After the demise
of both the subscriber and the spouse, the nominee of the subscriber shall be entitled to receive
the pension wealth, as accumulated till the subscriber's age of 60 years.
Contributions to the Atal Pension Yojana (APY) are eligible for tax benefits similar to the
National Pension System (NPS) under section 80CCD(1).

Voluntary exit (Exit before 60 Years of age):

The subscriber shall be refunded only the contributions made by him to APY alongwith the net
actual accrued income earned on his contributions (after deducting the account maintenance
charges).
However, in case of subscribers who joined the scheme before 31st March 2016 and have
received the Government Co-Contribution, shall not receive the same including the accrued
income earned thereon.

For death before 60 years

Option 1: In case of death of the subscriber before 60 years, option will be available to the
spouse of the subscriber to continue contribution in the APY account of the subscriber, which
can be maintained in the spouse’s name, for the remaining vesting period, till the original
subscriber would have attained the age of 60 years.
The spouse of the subscriber shall be entitled to receive the same pension amount as the
subscriber until death of the spouse. Such APY account and pension amount would be in
addition even if the spouse has his/her APY account and pension amount in own name.
Option 2: The entire accumulated pension corpus till date under APY will be returned to the
spouse / nominee.

SUKANYA SAMRIDDHI ACCOUNT (GIRL CHILD PROSPERITY ACCOUNT)

INTRODUCTION

➢ It is a Government of India backed saving scheme targeted at the parents of girl

children.
➢ The scheme encourages parents to build a fund for the future education and marriage
expenses for their female child.
 ➢ The scheme was launched by Prime Minister Narendra Modi on 22 January 2015 as a
part of the Beti Bachao, Beti Padhao campaign.
➢ The scheme currently provides an interest rate of 8.4%[3] (for July-September 2019
quarter) and tax benefits. The account can be opened at any India Post office or branch
of authorized commercial banks.
➢ The account can be opened anytime between the birth of a girl child and the time she
attain 10 years age by the parent/guardian.
➢ The girl can operate her account after she reaches the age of 10. The account allows
50% withdrawal at the age of 18 for higher education purposes. The account reaches
maturity after time period of 21 years from date of opening it.

What are the documents needed to open an Sukanya Samriddhi Yojana Account?

To open an SSY account, you will need to provide the following:

➢ Filled Sukanya Samriddhi Registration Form

➢ Birth certificate of the girl child
➢ ID proof of the depositor
➢ Residential proof of the depositor.

What are the tax benefits of opening an SSY account?

A big draw of this deposit scheme is that it comes with multiple tax benefits.

➢ Deposits up to Rs.1,50,000 is eligible for a deduction under Section 80C of Income Tax
Act.
➢ The interest earned and the proceeds from maturity of the deposit is tax free. The
interest is compounded annually.

PRADHAN MANTRI VAYA VANDANA YOJANA (PMVVY)

INTRODUCTION

➢ It is a Pension Scheme announced by the Government of India exclusively for the senior

citizens aged 60 years and above which is available from 4th May, 2017 to 31st March, 2020.

➢ Scheme provides an assured return of 8% p.a. payable monthly (equivalent to 8.30%

p.a. effective) for 10 years.
➢ The scheme is exempted from Service Tax/ GST.
➢ The scheme also allows for premature exit for the treatment of any critical/ terminal
illness of self or spouse. On such premature exit, 98% of the Purchase Price shall be
refunded.
➢ On death of the pensioner during the policy term of 10 years, the Purchase Price shall
be paid to the beneficiary.
 ➢ Loan upto 75% of Purchase Price shall be allowed after 3 policy years

MUDRA LOANS

INTRODUCTION

As per NSSO survey (2013), there are around 5.77 crore small/micro units in the country,
engaging around 12 crore people, mostly individual proprietorship/Own Account Enterprises.
Over 60% of units are owned by persons belonging to Scheduled Caste, Scheduled Tribe or
Other Backward Classes. Most of these units are outside the formal banking system, and hence
are forced to borrow from informal sources or use their limited owned funds. MUDRA Loan
Scheme has been proposed to bridge this gap. MUDRA Loan Scheme will aim to increase the
confidence of the aspiring young person to become first generation entrepreneurs as also of
existing small businesses to expand their activities.

➢ The MUDRA loan is provided under the Pradhan Mantri MUDRA Yojana (PMMY) to non-

farming and non-corporate micro and small enterprises.

➢ These enterprises can avail loans up to Rs.10 Lakh under the MUDRA.

Features of the Pradhan Mantri Mudra Loan:

Upto to Rs 10 lakh in three categories viz. Shishu, Kishore and Tarun.

Loans upto Rs 50,000/- (Shishu)

Loans from Rs 50,001 to Rs 5 lakh (Kishore)

Loans from Rs 5,00,001/- to Rs 10 lakh (Tarun)

More focus would be given to Shishu.

e
 Module 7: Tax System in India (SMR)2024

Understanding the Tax Structure

 Tax Authorities
 Direct and Indirect Taxes
 Types of Taxes
 Goods and Services Tax
 CGST, SGST and IGST

I. Understanding the Tax Structure

Tax structure in India is a three-tier federal structure. The Central Government, State Government and Local Municipal bodies
make up this structure.

 Major Central Taxes: Income Tax, Custom Duty, CGST, IGST

 Major State Taxes: SGST, Stamp Duty and Registration

2. Tax Authorities in India

a) CBDT (The Central Board of Direct Taxes)

It is a part of the Department of Revenue under the Ministry of Finance. This body provides inputs for policy and planning of
direct taxes in India and is also responsible for administration of direct tax laws through the Income Tax Department.

The Central Board of Revenue as the apex body of the Department, charged with the administration of taxes, came into
existence as a result of the Central Board of Revenue Act,1924. Initially the Board was in charge of both direct and indirect
taxes. Later the Board was split up into two, namely the Central Board of Direct Taxes and Central Board of Excise and
Customs with effect from 1.1.1964.

The Central Board of Direct Taxes consists of a Chairman and following six Members: -

1. . Chairman 2. Member (Income Tax & Revenue) 3. Member (Legislation) 4. Member (Admn.)

5. Member (investigation) 6. Member (TPS & system) 7. Member (Audit & Judicial)

b) CBIC (Central Board of Indirect Taxes & Customs)

Under the GST regime, the CBEC has been renamed as the Central Board of Indirect Taxes & Customs (CBIC) post
legislative approval. The CBIC would supervise the work of all its field formations and directorates and assist the government in
policy making in relation to GST, continuing central excise levy and customs functions.

It is the nodal national agency responsible for administering Customs, GST, Central Excise, Service Tax & Narcotics in
India. The Customs & Central Excise department was established in the year 1855 by the then British Governor General of
India, to administer customs laws in India and collection of import duties / land revenue. Currently the Customs and Central
Excise / GST department comes under the Department of Revenue, Ministry of Finance, Government of India.The Central
Board of Indirect Taxes & Customs (CBIC) is headed by chairman and four members

1 Chairperson 2 Member (Customs, Investigation) 3. Member (Legal, CX, ST) 4. Member (Admin & Vigilance)
5.Member (GST, IT, Tax Policy)

3. Direct and Indirect Taxes

Taxes are classified under two categories namely direct and indirect taxes. The largest difference between these taxes is their
implementation.

Direct Taxes:
Direct taxes are levied on individuals and corporate entities and cannot be transferred to others. These include income tax,
wealth tax, and gift tax.

Income Tax:

Income tax in India is a tax paid by individuals or entities depending on the level of earnings or gains during a financial year.

Five different heads of Income on which income tax is charged:

1. Income for salary include wages, pension, annuity, gratuity, fees, commission, profits, leave encashment, annual accretion
and transferred balance in recognized Provident Fund (PF) and contribution to employees’ pension account.

2. Income from House Property Rental Income from properties owned by a person other than those which are occupied by him
are charged as income from house property. If property is vacant then a notional income is included under this head.

3. Income from business or profession includes profit/loss from a business entity or a profession, any interest, salary or bonus to
a partner of a firm.

4. Income from capital gains includes long term capital gains (LTCG) and short term capital gains (STCG) on sale of any capital
assets.

5. Income from other sources includes interest on bank deposits and securities, dividend, royalty income, winning on lotteries
and races and gifts received among others

Indirect Taxes

 Indirect taxes are not directly paid by the assessee (a person by whom tax is payable) to the government authorities.
These are levied on goods and services and collected by intermediaries (those who sell goods or offer services).
 In India, a consumer earlier paid several indirect taxes including sales tax, services tax, central excise duty, additional
customs duty, state-level value added tax and octroi tax, among others.
 With the implementation of the Goods and Services Tax (GST) from 1st July 2017, almost all the indirect taxes, have
been subsumed under GST. Now, all these taxes are paid as one tax called the GST.
 However, there are some indirect taxes which have not been brought under the radar of GST. Customs duty, security
transaction tax, building and welfare cess and electricity duty levied by local authorities and state governments are some
of them.

IV. Types of Taxes

Apart from two main types of taxes (Direct and Indirect Taxes) discussed above here are some types of taxes:

 Entertainment taxes: is any tax levied on any form of commercial entertainment, such as movie tickets, exhibitions,
sport events and more. The specific rules such as the tax rate of entertainment tax and cases of tax exemption are subject
to local authorities, as is their collection.
 Municipal Tax: (Property Tax) : Property tax is the annual amount paid by a land owner to the local government or the
municipal corporation of his area. The property includes all tangible real estate property, his house, office building and
the property he has rented to others. Central government properties and vacant property are generally exempted from
property tax. Property tax comprises taxes like lighting tax, water tax and drainage tax. In India, the municipal
corporation of a particular area assesses and imposes the property tax annually or semi-annually. The tax amount is
based on the area, construction, property size, building etc. The collected amount is mainly used for public services like
repairing roads construction, school buildings, sanitation etc.
 Capital Gains Tax: This is a type of Income Tax levied on the gains you make after the sale of an investment or
property. There are two types of Gains Tax – Long Term Capital Gains Tax and Short-Term Capital Gains Tax. The
former is applied when the holding period of the investment exceeds 36 months. The latter is applicable if the duration
of the investment is less than 36 months. Capital gains are the profits from the sale of an asset — shares of stock, a piece
of land, a business — and generally are considered taxable income. How much these gains are taxed depends a lot on
how long you held the asset before selling.
 Customs Duty : If you buy a product from a different country and import it to India, then you have to pay tax on it. This
tax is called Customs Duty.GST is applicable on all imports into India in the form of levy of IGST. IGST is levied on
the value of imported goods + any customs duty chargeable on the goods.
 Toll Tax:It is levied either by the state or central governments on roads and bridges. The purpose of the tax is to fund
road construction and maintenance activities. This tax is mandatory and is charged in toll plazas along the highways
across India, the rates vary because each toll plaza is accountable for a certain distance of the road. This taxation does is
exempted for certain people including VIPs in the country of certain officials.

VI. Goods and Service Tax

Goods and Services Tax (GST) is an indirect tax used in India on the supply of goods and services. It is a comprehensive,
multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes.
Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the
various stages of production other than the final consumer and as a destination-based tax, it is collected from point of
consumption and not point of origin like previous taxes.

Goods and services are divided into five different tax slabs for collection of tax - 0%, 5%, 12%, 18% and 28%.
However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the
individual state governments, as per the previous tax system.

There is a special rate of 0.25% on rough precious and semi- precious stones and 3% on gold. In addition a cess of 22% or other
rates on top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products. Pre-GST, the statutory tax
rate for most goods was about 26.5%, Post-GST, most goods are expected to be in the 18% tax range.

The tax came into effect from 1 July 2017 . The GST is levied on all transactions such as sale, transfer, purchase, barter, lease,
or import of goods and/or services.

India adopted a dual GST model, meaning that taxation is administered by both the Union and state governments. Transactions
made within a single state are levied with Central GST(CGST) by the Central Government and State GST (SGST) by the State
governments. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central
Government. GST is a consumption-based tax/destination-based tax, therefore, taxes are paid to the state where the goods or
services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by
disabling them from collecting the tax owed to them directly from the Central Government. Under the previous system, a state
would only have to deal with a single government in order to collect tax revenue.

UTGST full form and UTGST meaning:

The UTGST Act expands to Union Territory Goods and Service Tax.
UTGST, the short form of Union Territory Goods and Services Tax, is nothing but the GST applicable on the goods
and services supply that takes place in any of the five territories of India, including Andaman and Nicobar Islands,
Dadra and Nagar Haveli, Chandigarh, Lakshadweep and Daman and Diu called as Union territories of India. Union
Territory GST will be charged in addition to the Central GST (CGST).

What are the 3 types of GST possible after UTGST’s inception in GST

There could be the following combination of taxes applicable for any transaction:

 For Supply of goods and/or services within a state (Intra-State): CGST + SGST

 For Supply of goods and/or services within Union Territories (Intra - UT): CGST + UTGST

 For Supply of goods and/or services across States and/or Union Territories (Inter-State/ Inter-UT): IGST

Order of utilization of credits taking into account of UTGST in GST

In the case of utilization of Input Tax Credit of UTGST in an orderly manner, the treatment to be followed is the same as that of
SGST. To sum this up, Input Tax Credit of SGST or UTGST would first set off against SGST or UTGST respectively. Output
Tax liabilities and balance, if any, can be set off against IGST Credits available.

With the new rule, the IGST credit needs to be completely utilized before off-setting it with CGST or SGST. The order of
setting off ITC of IGST can be done in any proportion and any order towards setting off the CGST or SGST output after
utilizing the same for IGST output.

UTGST Rates
Union Territory GST contains same tax rates of 0%, 5%, 12%, 18% and 28%. Tax exemption criteria for goods and services
decided by the government for SGST will be the same for UTGST.

The GST rates in 2024

The following are some of the changes that were made-
HSN and SAC System:
All of the goods and services transacted in the country are classified under the HSN code system or the SAC code
system under GST. Goods are classified using the HSN Code, while services are classified using the SAC Code.
GST rates have been set in five slabs based on the HSN or SAC code, namely NIL, 5%, 12%, 18%, and 28%.

HSN System:
The World Customs Organization developed the HSN code, or Harmonized System Nomenclature code number, as
an internationally accepted commodity description and coding system. More than 200 countries use the HSN code as
the basis for their customs tariffs.
Currently, over 98% of international trade merchandise is classified using the HSN code. With the HSN code serving
as a universal classification for goods, the Government has decided to use the HSN code for GST classification and
levy.
The current version used in international trade transactions is the HSN Code 2017 Edition. Prior to the
implementation of the HSN Code-2017 Edition, all international trade transactions used the HSN Code-2012 Edition.
The HSN Codes are divided into sections and chapters, and each chapter contains the Harmonized System's six-digit
codes.

SAC System:
The Service Tax Department of India developed the SAC Code, or Services Accounting Code, as a classification
system for services. The General Service Tax rates for services are fixed in 5 slabs using the SAC code, namely
0%, 5%, 12%, 18%, and 28%. If a service is not GST exempt or the GST rates are not provided, the default GST
rate for services of 18% will apply.

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 Module 8: Consumer Protection

Content :

 Know Your Customer

 Unregulated Entities
 Reading the Fine Print
 Identity and Information Security
 Investment Scams and Frauds
 Phishing and Vishing
 Lottery and Email Scams
 Role of RBI, SEBI, IRDAI and PFRDA
 Grievance Redressal Mechanisms

Know your customer:

The know your customer or know your client (KYC) guidelines in financial services requires that professionals
make an effort to verify the identity, suitability, and risks involved with maintaining a business relationship.

KYC processes are also employed by companies of all sizes for the purpose of ensuring their proposed
customers, agents, consultants, or distributors are anti-bribery compliant, and are actually who they claim to
be. Banks, insurers, export creditors and other financial institutions are increasingly demanding that customers
provide detailed due diligence information.

The objective of KYC guidelines is to prevent businesses from being used by criminal elements for money
laundering. Related procedures also enable businesses to better understand their customers and their financial
dealings. This helps them manage their risks in a well-judged manner. Today, KYC principles apply to banks
as well as different online businesses. They usually frame their KYC policies incorporating the following four
key elements:

Customer
acceptance
policy

Customer
identification
procedures

Monitoring of Risk
transactions management

Unregulated Entities :
Unregulated entity means a member of the financial conglomerate that is not subject to solo or group
supervision.
A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from
more recent investors.

Ponzi scheme can maintain the illusion of a sustainable business as long as investors continue to contribute
new funds, and as long as most of the investors do not demand full repayment or lose faith in the non-existent
assets they are purported to own.
Reading the fine print :
You see examples of fine print in online advertisements, newspapers, magazines, credit card offers, contracts,
and even on TV. They‟re often footnotes at the bottom that explain or clarify the product deal. The fine print
holds the details, terms and conditions. The law requires “clear and conspicuous” disclosures—which means
that the important terms of the deal can‟t be hidden in tiny font.

It‟s important to read and understand the fine print. If you don‟t understand what it means, ask someone you
trust, like a family member, to read it with you. You can always ask the business what the fine print means, but
it‟s what‟s in writing that matters—not what someone tells you. If you‟re not satisfied with the business‟s
response, you may want to shop somewhere else

Identify and Information Security :

Information security, often referred to as InfoSec, refers to the processes and tools
designed and deployed to protect sensitive business information from modification,
disruption, destruction, and inspection.
 Investment scams and Fraud :
Identity theft happens when someone steals personal information : name, credit card information or bank
account number and uses the stolen information to impersonate the victim in order to commit fraud, theft or
other crimes. The most common type of identity theft was unauthorized use of an existing credit card or bank
account. What makes identity theft particularly dangerous is that the victim often only finds out about it after
the damage is done. By the time a victim is alerted to any problem, the identity thief may have already emptied
a bank account, taken out a loan, obtained and used a credit card, applied for government benefits, or otherwise
caused the victim some sort of financial, personal or professional harm. Such practices may ruin a victim‟s
credit score and cost thousands of rupees in illegal purchases.

Some of the common ways credit card fraud is committed include:

Lost or Stolen Card:

If your card is being used without permission, report it immediately. It is a costly

event for everyone involved.

Skimming:

Your data is skimmed from the magnetic strip on your card and then used to encode fake cards or make online
purchases. Restaurants, ATM machines and gas stations are popular skimming sites.

Phishing :
Computer hackers send malware to you via email. When you open the attachment or click on a link,
it instantly downloads a program that gives the thief access to all the information on your computer,
which could include every keystroke, including passwords.
:
 Fake Cards :

A card is created that appears to be a legitimate credit card, but has a bogus name and numbers
that are not associated with any credit card company.

ID Theft :

If a criminal gains access to your personal information (name, address, number, etc.) they could
use the information to open new accounts with it or take over existing accounts.

Change of Address :

A criminal could use your name and request a change of address for billing, then call the
credit card company and ask that a replacement credit card be sent to the fake address

:
Phishing and Vishing:
Pishing:
This is a technique for acquiring user names, passwords, PIN numbers and other credit-card details by
masquerading as someone trustworthy. For example, a consumer may receive an e-mail reporting a suspicious
transaction on his account. The consumer may be asked to confirm the account‟s card number so that the
“bank” can “investigate.” The information gathered can then be used to break into and compromise the user‟s
account. This scam also can be accomplished over the telephone.
How to Avoid Phishing: Never give out your account number(s) to anyone, especially over the internet.
Always contact your bank first to verify if the problem is real.

Vishing : The fraudulent practice of making phone calls or leaving voice messages purporting to be
from reputable companies in order to induce individuals to reveal personal information, such as bank
details and credit card numbers.
Lottery scam
A lottery scam is a type of advance-fee fraud which begins with an unexpected email notification,
phone call, or mailing (sometimes including a large check) explaining that "You have won!" a
large sum of money in a lottery. The recipient of the message—the target of the scam—is usually told to
keep the notice secret, "due to a mix-up in some of the names and numbers," and to contact a
"claimsagent." After contacting the agent, the target of the scam will be asked to pay
"processing fees" or "transfer charges" so that the winnings can be distributed, but will
never receive any lottery payment. Many email lottery scams use the names of legitimate lottery organizations
or other legitimate corporations/companies, but this does not mean the legitimate organizations are in any way
involved with the scams.

Role of RBI, SEBI, IRDAI and PFRDA:

Role and Functions of RBI

1. Monetary Authority: Formulates, implements and monitors the monetary policy for a. maintaining price
stability, keeping inflation in check ; b. ensuring adequate flow of credit to productive sectors.
2. Regulator and supervisor of the financial system: lays out parameters of banking operations within which
the country„s banking and financial system functions for :a. maintaining public confidence in the system,
b. protecting depositors‟ interest ; c. providing cost-effective banking services to the general public.
3. Regulator and supervisor of the payment systems: a. Authorizes setting up of payment systems; b. Lays
down standards for working of the payment system; c. lays down policies for encouraging the movement
from paper-based payment systems to electronic modes of payments. d. Setting up of the regulatory
framework of newer payment methods. e. Enhancement of customer convenience in payment systems.
f. Improving security and efficiency in modes of payment. g. Manager of Foreign Exchange: RBI manages
forex under the FEMA- Foreign Exchange
Management Act, 1999 in order to a. Facilitate external trade and payment b. promote the development of
foreign exchange market in India.
4. Issuer of currency: RBI issues and exchanges currency as well as destroys currency & coins not fit
for circulation to ensure that the public has an adequate quantity of supplies of currency notes and in good
quality.
5. Developmental role : RBI performs a wide range of promotional functions to support national objectives.
Under this it setup institutions like NABARD, IDBI, SIDBI, NHB, etc.
6. Banker to the Government: performs merchant banking function for the central and the state governments;
also acts as their banker.
7. Banker to banks: An important role and function of RBI is to maintain the banking accounts of all
scheduled banks and acts as the banker of last resort.
8. An agent of Government of India in the IMF.

2. Securities and Exchange Board of India : SEBI Act, 1992 : Securities and Exchange Board of India
(SEBI) was first established in the year 1988 as a non-statutory body for regulating the securities market. It
became an autonomous body in 1992 and more powers were given through an ordinance. Since then it
regulates the market through its independent powers.

3. Insurance Regulatory and Development Authority : The Insurance Regulatory and Development
Authority (IRDA) is a national agency of the Government of India and is based in Hyderabad (Andhra
Pradesh). It was formed by an Act of Indian Parliament known as IRDA Act 1999, which was amended in
2002 to incorporate some emerging requirements. Mission of IRDA as stated in the act is "to protect the
interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for
matters connected therewith or incidental thereto.&quot.

4. Pension Fund Regulatory and Development Aulthority : PFRDA was established by Government of
India on 23 rd August, 2003. The Government has, through an executive order dated 10 th October 2003,
mandated PFRDA to act as a regulator for the pension sector. The mandate of PFRDA is development and
regulation of pension sector in India.

Grievance Redressed Mechanism :

Grievance Redress Mechanism is part and parcel of the machinery of any administration. No administration
can claim to be accountable, responsive and user-friendly unless it has established an efficient and effective
grievance redress mechanism. In fact, the grievance redress mechanism of an organization is the gauge to
measure its efficiency and effectiveness as it provides important feedback on the working of the
administration.
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