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JAIIB Paper-4 RBWM Module-D Wealth

Management
No. of Unit Unit Name
Unit 1 Important of Wealth
Management
Unit 2 Investment Management
Unit 3 Tax Planning
Unit 4 Other Financial Services
Provided by Banks

JAIIB RBWM Module D Unit 1 Importance of Wealth

Management
Wealth Management- An Introduction

Wealth management is an investment advisory service that combines other financial

services to address the needs of affluent clients. Using a consultative process, the
advisor gleans information about the client’s wants and specific situation, then tailors a
personalized strategy that uses a range of financial products and services.
In brief Wealth Management Services can be summarized in three stages,

• Wealth management is an investment advisory service that combines other

financial services to address the needs of affluent clients.
• A wealth management advisor is a high-level professional who manages an
affluent client’s wealth holistically, typically for one set fee.
• This service is usually appropriate for wealthy individuals with a broad array of
diverse needs.
Wealth Management – Broad View

Wealth management is not just investment advice rather more than that. It can
encompass all parts of a person’s financial life. Instead of attempting to integrate pieces
of advice and various products from multiple professionals, high net worth individuals
may be more likely to benefit from an integrated approach. In this method, a wealth
manager coordinates the services needed to manage their clients’ assets, along with
creating a strategic plan for their current and future needs—whether it is will and trust
services or business succession plans.
Following are some of the important aspects of wealth management:

• Understanding Investment needs: Clarity of the investment needs should be of

the utmost priority to set the direction.

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• Products and Services: Knowing the right products and services suitable for you
will enable you to take the right decision to achieve your financial goal.
• Advisory Services: Involving the professionals will enable you to take advantage
of their professional experience and expertise.
• Estate Planning: Estate Planning is also a very essential part of your wealth
management as it ensures and preserves wealth for a longer term.

Wealth Management Process

Wealth Management process involves the following steps:

• Assessing the current financial situation of the client.
• Identifying financial goals.
• Designing a customized solution to achieve the goals.
• Implementing the financial strategies into the plan.
• Monitoring the results and reviewing the plans.

Wealth management provides direct and dynamic Customer Services. Wealth

management deals in Asset Allocation Management, Tactical Management, and
Diversified Management.

• Asset Allocation management: The Asset allocation management is an

investment advisory fully dedicated to managing investment portfolios with the
only focus on initiating the income generation. It aims to balance the risk by
moving among investment categories.
• Tactical Management: Tactical management helps in selecting the appropriate
ways to achieve financial strategies by choosing the best alternatives and tactics.
• Diversified Management: Diversifier management team help its clients in
providing a flexible model which helps in meeting the need of the client.

Wealth Management Products and Services

There are so many wealth products and services in the market. Traditionally, customers
have been investing large amount of money in bank deposits owing to convenience and
safety. we shall discuss here a few important and common products and services which
are generally offered by wealth management professionals.

• Alternative Asset
• Bonds, Corporate Fixed Deposits, Fixed Maturity Plan & Debentures
• Insurance
• Mutual Funds
• Systematic Investment Plan
• Portfolio Management Services
• Real Estate Services
• Retirement planning
• Strategic Business Strategy

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• Will Writing

Wealth Management Products and Services

There are so many wealth products and services in the market. Traditionally, customers
have been investing large amount of money in bank deposits owing to convenience and
safety. we shall discuss here a few important and common products and services which
are generally offered by wealth management professionals.
• Alternative Asset
• Bonds, Corporate Fixed Deposits, Fixed Maturity Plan & Debentures
• Insurance
• Mutual Funds
• Systematic Investment Plan
• Portfolio Management Services
• Real Estate Services
• Retirement planning
• Strategic Business Strategy
• Will Writing

Alternative Asset

It is any non-traditional asset with potential economic value that would not be found in
a standard investment portfolio. Due to the unconventional nature of alternative assets,
valuation of some of these assets can be difficult for most people, examples of
alternative assets would include:
• Art and Antiques
• Precious Metals
• Fine Wines
• Rare Stamps
• Coins
• Sports Cards
• Other Collectibles

BOND

Bonds are fixed-income instruments derived from a loan forwarded by an

investor to a borrower. In case of a bond, the issuer promises to pay a specific interest
for the life of the bond and the principal amount or the face value at maturity to the
investor. Bonds are generally issued by governments, corporations, municipalities and
other sovereign bodies. Just like securities, bonds are tradeable.
Bond Market and Types

Convertible bond
A convertible bond gives the purchaser a right or an obligation to convert the bond into
shares of the issuing company. The quantum of shares and the value of the shares are

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usually predetermined by the issuing company. However, an investor can convert the
bond into stock only at certain specified times during the bond’ stenure. It features a
fixed tenure and pays out interest payments periodically at predetermined intervals.
Convertible bonds can be further classified as:
• Regular convertible bonds - Regular convertible bonds come with a fixed
maturity date and a predetermined conversion price but they give the investor
merely the right, and not an obligation, to convert. Companies generally prefer to
issue these types of convertible bonds to the public.
• Mandatory convertible bonds - Unlike regular convertible bonds, these bonds
obligate the investor to convert them into equity shares of the issuing company
upon maturity. Since investors are essentially forced to convert their bonds,
companies usually offer a higher rate of interest on mandatory convertible
bonds. Reverse convertible bonds - With reverse convertible bonds, the issuing
company holds the right to convert them into equity shares upon maturity at a
predetermined conversion price.
Government Bonds
Bonds are issued by the Central as well as state governments of the country in order to
tide its liquidity crisis which can be used to develop infrastructure. Serving as long-
term investment tools they can be issued for periods that range from 5 to 40 years.
Types of Government Bonds
• Fixed-rate bonds – The interest rate applicable on these government bonds is
fixed for the entire tenure of the investment regardless of fluctuating market
rates. The lock-in period for such bonds is usually one to five years.
• Floating rate bonds (FRBs) – These bonds have variable interest rates based on
periodic changes experienced by the rate of returns. The intervals within which
these changes occur are made clear prior to the bonds being issued. These bonds
can also exist with the rate of interest being split into a base rate and a fixed
spread. This spread is determined via auction and remains stable right up to
maturity.
• Sovereign Gold Bonds (SGBs) – Under this scheme, entities are allowed to
invest in digitized forms of gold for an extended period of time without having to
avail of gold in its physical form. Interest generated via these bonds is tax-free.
• Inflation-Indexed Bonds – the principal and interest earned on such bonds are
in accordance with the inflation. Ordinarily, these bonds are issued for retail
investors and are indexed in accordance with the consumer price index (or CPI)
or wholesale price index (or WPI).
• Zero-Coupon Bonds – These bonds don’t earn interest. Instead, investors accrue
returns via the difference that exists between the issuance price and the
redemption value. They aren’t issued via auction but are created via existing
securities.
Municipal Bonds

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Municipal bonds are debt instruments that are issued on behalf of municipal
corporations or bodies associated with them across the country aimed at socio-
economic development. Municipal bonds can be purchased with a maturity period that
amounts to three years.
Types of Municipal Bonds in India
• General Obligation Bonds – These bonds generate finance for various projects
in general and therefore their repayments are made from the general revenues
of the municipality.
• Revenue Bonds – These bonds are focused on generating funds for specified
projects and the repayment and interest issued to bondholders are processed via
revenue explicitly generated via the projects declared in the bonds. They have
extended maturity periods of upto 30 years and higher returns than GO bonds.
Retail bonds

• A retail bond offering allows a company to raise additional capital by borrowing

at a fixed rate from an investor for a specific length of time. Companies typically
issue retail bonds to expand their business, pay off debt, or fund a specific
project, as with any capital raising. Retail bonds are typically listed and can thus
be bought and sold during regular market hours, allowing investors more
flexibility.

Insurance

• Protecting or safeguarding loss is done through Insurance. Insurance is a policy

representing a contract in which an individual or entity receives financial
protection from the insurance company against any losses.
• An insurer, or insurance carrier, is a company selling the insurance; the insured,
or policyholder, is the person or entity buying the insurance policy. The amount
of money to be charged for a certain amount of insurance coverage is called the
premium.
• The insured receives a contract, called the insurance policy, which details the
conditions and circumstances under which the insured will be financially
compensated.

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Types of Insurance Policies:

• Life insurance protects our family in unforeseen situations like death or

accidental death.
• Term life insurance is one of the types of life insurance for financial safety which
provides a lumpsum benefit to the nominee of the insured person after the death
of the insured.
• Health insurance facilitates a person to insure coverage against surgical and
medical expense.
• Disability insurance will insure a person for coverage against physical disability
for longer period with no productive work.
• Auto insurance facilities you to cover car or any vehicle against damages or
accidents.
• Home insurance will protect one’s house against any damages like structural
damage, fire, earthquake, etc.
Insurance provides protection against the following:
• Protecting family from loss of income from premature death.
• Ensuring obligation repayment after death.
• Covering unforeseen liability losses.
• Protecting business against the loss or disability of a critical employee.
• Buying out a partner or co-shareholder after his or her demise.
• Income protection insure from one’s job, business against unforeseen business
stoppage.
• Protecting one against unforeseeable medical, health or hospital expenses.
• Protect one’s property from fire, thief, or any other natural calamities like flood,
etc.
• Protecting assets against employee lawsuits.
• Protecting oneself in the event of disability.
• Protecting one’s car against theft or losses incurred because of accidents.

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• And many more types of risk.

Mutual Fund

Mutual Funds are the funds created with the mutual requirement needs of the
investors. It is a basket created with varieties of investment options. similar to basket
of shares, bonds, money market or a mixture of all instruments or a basket of shares
based on sectors like Bank, IT, Infrastructure, FMCG, etc. or basket of diversified shares.
Types of Mutual Funds

In India, Mutual Funds are categorized based on various fundamentals like investment
objectives and structure. Based on investment objectives, mutual funds are categorized
into, Equity

• Mutual Fund: It will invest money in the stock markets. The investments under
this category of mutual funds in primarily in stock markets and returns on
investments are purely based on stock performance of the fund. These funds are
off the record best type of mutual fund in long run.
• Debt Mutual Funds: It will invest money in debt instruments like Treasury bills,
Government Bonds, etc. These investments ensure you fixed rate of returns.
• Balanced Mutual Funds: It will invest money partially into equities and
partially into debts. Investor prefers this sort of investment when they want to
minimize the equity investment risk.
• Sectorial Funds: It will invest your money as per selected sector like IT, Banks,
FMCG, Pharma, etc.
• ELSS or Equity Linked Savings Schemes: These are commonly known as Tax
saving funds. Investment made towards ELSS funds are exempted from Income
tax under section 80 C. However, ELSS funds have 3 years of lock-in period.
Further, on the basis of structure, mutual funds are classified into,
• Open Ended Fund: These are funds that allow you to invest money and redeem
anytime as per one’s needs and one’s strategies regardless of any time
circumstances.
• Close ended Funds: These are funds allowing a person to invest with some lock-
in period, mostly within 1 to 3 years; before that one cannot redeem the fund
since there is a time-bound investment horizon involved with it.
Systematic Investment Plan (SIP)
• Systematic Investment Plan, most popularly known as SIP is a disciplined way of
investing offered by mutual funds, where one invests a fixed amounts at a
regular frequency (say, every month). It allows an investor to invest a fixed sum
of money in a selected scheme of mutual fund at pre-defined intervals like
monthly, quarterly, etc.
Systematic Withdrawal Plan (SWP)
• A Systematic Withdrawal Plan (SWP) is a facility which allows an investor to
withdraw a fixed amount at pre-determined intervals. One can choose the

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amount and frequency of withdrawal also. At the set date, units from the
portfolio are sold and the funds are transferred to your account.
• Portfolio Management Services (PMS) It is a tailor-made professional service
offered to cater the investment objectives of different investor classes. The
investment solutions provided by PMS caters to a niche segment of our clients.

Private Banking

Private banking involves providing banking, investment, tax management, and

other financial services to high-net-worth individuals (HNWIs). Unlike mass-
market retail banking, private banking focuses on providing more personalized financial
services to its clients, through banking personnel specifically dedicated to providing
such individual services.

Benefits Of Wealth Management

Function on a relationship-based approach

Wealth manager is constantly thinking of our financial well-being which is why, when
the need arises, they level with us like a friend would. They are not interested in
impressing us with financial jargons but rather invest their time to help us navigate
through troubled financial waters. They also help us to make better investment
decisions. Wealth managers use this relationship based approach through which we can
have a healthy exchange of ideas and perceptions and formulate various financial
strategies.

• Creation of a financial plan: Wealth management services help investors

calculatedly and systematically create their corpus. Wealth managers come
armed with the skills that help them understand client requirement and financial
goals. These are taken into account when financial strategies are formulated.
Wealth manager puts in a lot of time to comprehend our needs and helps us to
meet as many of your financial goals as possible.
• Elimination of financial stress: Wealth advisors have a deep understanding of
financial uncertainties. They have expertise in the field of taking critical financial
decisions for us, should the need arise. Wealth advisors can help us to manage
our finances during the roughest market conditions, which can often lead to
stress. They help us to prioritize our financial decisions based on a timeline.
Wealth advisor takes all our financial considerations in account while creating
our goals and also helps us to organize our funds from time to time.
• Personalized services: Wealth managers understand that there is no “one size
fits all” formula when it comes to wealth management. As such, every individual
client gets personalized services of a dedicated wealth manager.

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JAIIB RBWM Module D Unit 2: Investment Management

Investment Management

All of us whether individuals or organizations earn money by different economic

activities and spend it for satisfying our wants. Sometimes, Income of people is more
than their expenditure and other times, their expenditure on goods and services is more
than income, these differences result into saving and borrowing of money respectively.
When income is more than consumption people incline to save (surplus money).
It can be understood in the form of equation also.
Saving = Income – expenditure.

Element Of Investment

The characteristics or elements of investment can be understood in terms of return,

risk, safety and liquidity.
• Return: The prime objective of any type of investment is to drive return. The
expected return may be regular income (interest, dividend, rent, etc.) or increase
in the value of investment/ capital appreciation, i.e. difference between the
selling price and buying price of assets. The nature of investment (risky, less
risky, non- risky) is the deciding factor of required return from it.
• Risk: Risk is the basic attribute of investment. Risk means variability in return
because of loss of capital or non-payment of income what so ever reason. More
the risk, normally more is the expected return and vice versa.
• Safety: Safety rule of investment states that investors get back their original
principal on maturity with no loss in value and hindrance. Liquidity: It means an
investor can sell his investment in market as need arise without incurring much
transaction costs, less energy and time.
• Objectives of Investment: The basic objectives of any investment is maximizing
the return and minimizing the risk. In addition to the basic objectives other
objectives of investment are safety, liquidity, hedging against the inflation etc.

Basics Of Investment Management

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Professional investment management aims to meet particular investment goals for the
benefit of clients whose money they have the responsibility of overseeing. These clients
may be individual investors or institutional investors such as pension funds, retirement
plans, governments, educational institutions, and insurance companies.
In short, Investment management may be summarized as follows:
• Investment management refers to the handling of financial assets and other
investments by professionals for clients.
• Clients of investment managers can be either individual or institutional
investors.
• Investment management includes devising strategies and executing trades
within a financial portfolio.
Steps In Investment Management

• Deciding investment goals

• Analysis of Securities
• Construction of portfolio
• Evaluating performance of Portfolio
• Revision of portfolio

Investment Banking

Investment banking is a specific division of banking or financial institution that serves

Governments, corporations, and institutions by providing underwriting (capital raising)
and mergers and acquisitions (M&A) advisory services. Investment banks act as
intermediaries between investors (who have money to invest) and corporations (who
require capital to grow and run their businesses).
Role of Investment Banking

• Investment banking deals primarily with the creation of capital for other
companies, governments, and other entities.
• Investment banking activities include underwriting new debt and equity
securities for all types of corporations, aiding in the sale of securities, and
helping to facilitate mergers and acquisitions, reorganizations, and broker
trades for both institutions and private investors.
• Investment bankers help corporations, governments, and other groups plan and
manage the financial aspects of large projects.
• Broadly speaking, investment banks assist in large, complicated financial
transactions. They may provide advice on how much a company is worth and
how best to structure a deal if the investment banker’s client is considering an
acquisition, merger, or sale.

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Services Being Offered By Full-Service Investment Banks

Full Service Investment Bank offer the following services:

• Underwriting – Capital raising and underwriting groups work between
investors and companies that want to raise money or go public via the IPO
process. This function serves the primary market or “new capital”.
• Mergers & Acquisitions (M&A) – Advisory roles for both buyers and sellers of
businesses, managing the M&A process start to finish.
• Sales & Trading – Matching up buyers and sellers of securities in the secondary
market. Sales and trading groups in investment banking act as agents for clients
and also can trade the firm’s own capital.
• Equity Research – The equity research group research, or “coverage”, of
securities helps investors make investment decisions and supports trading of
stocks.
• Asset Management – Managing investments for a wide range of investors
including institutions and individuals, across a wide range of investment styles.

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Underwriting Services in Investment Banking

Underwriting is the process of raising capital through selling stocks or bonds to

investors (e.g., an initial public offering IPO) on behalf of corporations or other entities.
Firm Commitment – The underwriter agrees to buy the entire issue and assume full
financial responsibility for any unsold shares.
Best Efforts – Underwriter commits to selling as much of the issue as possible at the
agreed upon offering price but can return any unsold sharesto the issuer without
financial responsibility.
All-or-None – If the entire issue cannot be sold at the offering price, the deal is called off
and the issuing company receives nothing.
Once the bank has started marketing the offering, the following book-building steps are
taken to price and complete the deal (Book building process):
• Prospects with price range
• Institutional investor commitment @firm price
• Book demand Built
• Price is set to ensure clearing
• Allocation

Investment Bank Organizational Structure

Investment banks are split up into three main offices - front office, middle office, and
back office.

• Front Office – The revenue for an Investment Bank is generated by the front
office. It consists of three primary divisions: investment banking, sales & trading,
and research. Sales and trading department involves Buying and selling
products. The research department comes up with various research reports on
the firms or industry.
• Middle Office – The main function of the middle office is to ensure that the
investment bank doesn’t engage in activities that can be detrimental to the
bank’s health. It includes functions like risk management, financial control,
corporate treasury, corporate strategy, and compliance.
• Back Office – Back office basically provides supporting activities like operations
and technology to the front office so that it can do the jobs needed to make
money for the investment bank.

Investment Management Vs Investment Banking

Investment managers help clients reach their investment goals by managing their
money. Clients of investment managers can include individual investors as well as
institutional investors such as educational institutions, insurance companies, pension
funds, retirement plans, and governments. Investment managers can work with
equities, bonds, and commodities, including precious metals like gold and silver.

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Investment managers can have varied roles and responsibilities, depending on the firm,
which can include:
• Financial statement analysis
• Portfolio allocation such as a proper mix of bonds and stocks
• Equity research and buy and sell recommendations
• Financial planning and advising
• Estate and retirement planning as well as asset distribution
Investment bankers help with corporate finance needs, such as raising funds or
capital. Companies and governments hire investment bankers to facilitate
complicated financial transactions, including:
• Debt issuance such as a bond offering
• New securities underwriting
• Mergers and acquisitions
Initial public offerings (IPOs) Investment banking can involve equity and security
research and making buy, sell, and hold recommendations. Investment banking firms
are also market makers, which provide liquidity or connect buyers and sellers to
“make” the market.

Portfolio Management

What is Portfolio Management?

In a layman’s language, the art of managing an individual’s investment is called as

portfolio management. Portfolio management is the art and science of selecting and
overseeing a group of investments that meet the long-term financial objectives and risk
tolerance of a client, a company, or an institution. It is managing an individual’s
investments in the form of bonds, shares, cash, mutual funds, etc.

Who is a Portfolio Manager?

An individual who understands the client’s financial needs and designs a suitable
investment plan as per his income and risk taking abilities is called a portfolio
manager.

Objectives Of Portfolio Management

The fundamental objective of portfolio management is to help select best investment

options as per one’s income, age, time horizon and risk appetite. Some of the core
objectives of portfolio management are as follows:
• Capital appreciation
• Maximising returns on investment
• To improve the overall proficiency of the portfolio
• Risk optimization
• Allocating resources optimally
• Ensuring flexibility of portfolio

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• Protecting earnings against market risks

Who Should Opt for Portfolio Management?

The following should consider portfolio management:

• Investors who intend to invest across different investment avenues like bonds,
stocks, funds, commodities, etc. but do not possess enough knowledge about the
entire process.
• Those who have limited knowledge about the investment market.
• Investors who do not know how market forces influence returns on investment.
• Investors who do not have enough time to track their investments or rebalance
their investment portfolio.
Key Elements of Portfolio Management

• Asset Allocation
• Diversification
• Rebalancing

Portfolio Management Vs Investment Banking

• Portfolio Management refers to the management of the portfolio of assets of the

client whereas, investment banking refers to the various different type of
function performed by the investment banker in the economy by offering
different financial services to their clients by mainly dealing in the purchase and
sale of the stock and helping in raising the capital.
• Portfolio Management (Asset management) is all about managing clients’
investments whereas Investment Banking is all about raising the capital for
clients.
• So, the basic difference between these two is in case of Portfolio
Management or Asset management, clients already have the money which
portfolio manager need to manage whereas, in the case of investment banking,
clients don’t have the money and investment banking professional need to raise
capital to support your clients. Let’s take an example to illustrate the difference
between the two. We will take two scenarios and will try to understand how this
works.
Scenario#1
In the first scenario, Client A hires Bank B to help them with investing their money in
different areas. Client A tells Bank B – “Take my money and invest in portfolios where
you think our money will grow better and will make us wealthier.” Bank B then takes
the money and invests to get better returns on the portfolios they rely upon. This is
portfolio management. In this case, clients have money; your job as a portfolio manager
is to manage the investment ad try to maximize the client’s wealth.
Scenario#2

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In this scenario, Client A wants someone to invest in their business. An investment

banker will search for the investor; look for capital raising opportunities in the equity
market or via debt or run IPOs or advises companies on Merger & Acquisition deals. So,
in this case, the client doesn’t have money; investment banking professional helps the
client get the money via capital raising opportunities. In finance parlance, asset
management is also known as buy-side and investment banking is termed as sell-side.
So, the outlook for these two are different. This is why investment banking needs more
inputs as it needs to bring the business whereas portfolio management requires skill
and knowledge about investment.
Role of Portfolio managers

Portfolio managers are investment decision-makers. They devise and implement

investment strategies and processes to meet client goals and constraints, construct and
manage portfolios, make decisions on what and when to buy and sell investments.

Portfolio Management Service Vs Mutual Funds (Mfs)

The following attributes distinguish between PMS and MF:

• Customization: PMS offers a higher degree of customization tailored
specifically to the goals of an investor. Mutual funds, on the other hand, offer
customization to the extent of the classification and diversity of the fund.
• Engagement: PMS is personalized promoting a dialogue between the portfolio
manager and investor. An investor can convey any changes in the risk profile or
personal situations to maximize returns. MFs offer low engagement with the
investor limited to fact sheets. Portfolio managers for PMS are also directly
accountable to the investors.
• Fee structures: MFs charge a fixed fee attributed to the entry and exit of
investments as well as annual expenses for maintenance (known as the expense
ratio). PMS demands a share in the profit over a particular rate of return (known
as hurdle rate) in addition to the annual maintenance fee. The alignment of
incentives is highly preferred in the case of PMS so that the portfolio manager
takes responsible decisions in an attempt to attain supernormal returns.
• Asset ownership: Under PMS, the investor retains direct ownership of shares of
the company. However, MFs offer units in the form of investment.
• Investment size: MFs entertain any amount of capital. However, PMS demand a
capital investment which must be over the minimum limit of ₹50/- Lakh as
per Securities and Exchange Board of India (SEBI) guidelines.
Types Of Portfolio Management Services

• Active Portfolio Management: The aim of the active portfolio manager is to

make better returns than what the market dictates. Those who follow this
method of investing are usually contrarian in their approach. Active managers
buy stocks when they are undervalued and start selling when they climb above
the norm

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• Passive Portfolio Management: At the opposite end of active management

comes the passive investing strategy. Those who subscribe to this theory believe
in the efficient market hypothesis. The claim is that the fundamentals of a
company will always be reflected in the price of the stock. Therefore, the passive
manager prefers to dabble in index funds which have a low turnover, but good
long-term worth.
• Discretionary Portfolio Management: A discretionary manager is given full
leeway to make decisions for the investor. While the individual goals and time-
frame are taken into account, the manager adopts whichever strategy he thinks
best.
• Non-Discretionary Portfolio Management: The non-discretionary manager is
simply a financial counselor. He advises the investor in which routes are best to
take. While the pros and cons are clearly outlined, it is up to the investor to
choose his own path. Only once the manager has been given the go ahead, does
he make a move on the investor's behalf.
Processes of Portfolio Management

Advantages of Portfolio Management

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• Makes Right Investment Choice: Portfolio management is a tool that helps the
investor in choosing the right portfolio of assets. It enables in making more
informed decisions regarding investment plans in accordance with the goals and
objectives.
• Maximizes Return: Maximizing the return is one of the important roles played
by portfolio investment. It provides a structured framework for analyses and
selecting the best class of assets. Investors are able to earn high returns with
limited funds.
• Avoids Disaster: Portfolio management avoids the disaster of facing huge risks
by investors. It guides in investing among different classes of assets instead of
investing only in one type of asset. If an investor invests in only one type of
security and supposes it fails, then the investor will suffer huge losses which
could be avoided if he might have invested among different assets.
• Track Performance: Portfolio management helps management in tracking the
performance of their portfolio of investments. A consolidated investment held
within the portfolio can be evaluated in a better way and any of its failures can
be easily detected.
• Manages Liquidity: Portfolio management enables investors in arranging their
investment in a systematic manner. Investors can choose assets in such a pattern
where they can sell some of them easily whenever they need funds.
• Avoids Risk: Investment in securities is quite risky due to the volatility of the
security market which increases the chance of losses. Portfolio management
helps in reducing the risk through diversification of risk among large peoples.
• Improves Financial Understanding: It helps in improving the financial
knowledge of investors. While managing their portfolio they came across
numerous financial concepts and learn how a financial market works which will
enhance the overall financial understanding.
Disadvantages of Portfolio Management

• Risk Of Over Diversification: Sometimes portfolio managers invest funds

among large categories of assets whose control becomes impossible. In his
efforts to diversify the risk it goes beyond the limit to manage efficiently. Loss
arising in such situations is quite high and can bring serious repercussions.
• No Downside Protection: Portfolio management only reduces the risk through
diversification but does not provide full protection. At times of market crash, the
concept of portfolio management becomes obsolete.
• Faulty Forecasting: Portfolio management uses historical data for evaluating
the returns of securities for investment purposes. Sometimes the historical data
collected is incorrect or unreliable which leads to wrong forecasts.

JAIIB RMWM Module D Unit 3 Tax Planning

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Taxation

Taxation is the means by which a government or the taxing authority imposes or levies
a tax on its citizens and business entities. From income tax to goods and services tax
(GST), taxation applies to all levels.
Classification Of Tax Structure In India

The tax structure in India can be classified into two main categories:
• Direct Tax
• Indirect Tax

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• Direct Tax: It is defined as the tax imposed directly on a taxpayer and is

required to be paid to the government. Also, an individual cannot pass or assign
another person to pay the taxes on his behalf.
• Indirect Tax: It is defined as the tax levied not on the income, profit or revenue
but the goods and services rendered by the taxpayer. Unlike direct taxes, indirect
taxes can be shifted from one individual to another. Earlier, the list of indirect
taxes imposed on taxpayers included service tax, sales tax, value added tax
(VAT), central excise duty and customs duty. However, with the implementation
of goods and services tax (GST) regime from 01 July 2017, it has replaced all
forms of indirect tax imposed on goods and services by the state and central
governments.
Taxes
Direct Taxes Indirect Taxes Other Taxes
Income Tax Sales Tax Property Tax
Wealth Tax Goods & Services Tax (GST) Professional Tax
Gift Tax Value Added Tax (VAT) Entertainment Tax
Capital Gains Tax Custom Duty Education Cess
Securities Transaction Tax Coctroi Duty Toll Tax
Corporate Tax Service Tax Registration Fees

Financial Year and Assessment Year

What is Financial Year?

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• A Financial Year (FY) is the period between 1 April and 31 March – the
accounting year in which you earn an income.

What is Assessment Year?

• The assessment year (AY) is the year that comes after the FY. This is the time in
which the income earned during FY is assessed and taxed. Both FY and AY start
on 1 April and end on 31 March. For instance, for FY 2020-21, the assessment
year is AY 2021-22.
The difference between Financial year and Assessment year

Previous Year

In simple language, for the purpose of income tax or income tax return, terms financial
year and previous year are used interchangeably. So, the financial year (FY) 2020-21
can also be termed as the preceding (previous) year (PY) 2020-21 & the income of such
year will become taxable in assessment year (AY) 2021-22. As per Sec.2(34) of
Income Tax Act, 1961, unless the context otherwise requires, the term ‘previous year’
means the previous year as defined in section 3. In view of above, we need to visit
Section 3 of Income Tax Act, 1961, which defines the term previous year as under:
“For the purposes of this Act, “previous year” means the financial year immediately
preceding the assessment year:
Provided that, in the case of a business or profession newly set up, or a source of income
newly coming into existence, in the said financial year, the previous year shall be the
period beginning with the date of setting up of the business or profession or, as the case
may be, the date on which the source of income newly comes into existence and ending
with the said financial year.”
In such cases income of the previous year is subject to charge of tax in the same
previous year, wherein previous year and assessment year are considered as the same
in the case of certain assessee to avoid situations of income escaping assessment:

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• Income from Shipping business in India in the case of non-residents (Section

172)
• Assessment of persons leaving India permanently or for longer duration
(Section 174)
• Assessment of association of persons (AOP) or body of individuals (BOI) or
artificial juridical person (AJP), which are formed for a particular short period of
time/ event/ purpose, i.e. which are dissolved within the same previous year
(Section 174A)
• Assessment of persons suspected to transfer their property to avoid tax liability
(Section 175) and
• Assessment of income from a business which has been discontinued during the
previous year (Section 176).
• Finance Bill (Finance Budget) is presented, discussed in Parliament, passed and
executed as per Financial Year. Financial year can be classified into two
categories (Sec. 3):
i)Year in which Income is earned;
ii)Year of paying taxes on income earned or deemed to be earned on advance basis.

Residential Status For Income Tax

The individual taxability of a person depends upon the residency status as per Income
Tax Act and it is not to be confused with an individual’s citizenship in India. An
individual may be citizen of the country but will be considered at non-resident as per
tax guidelines and vice versa.
How to determine residential status?

For the purpose of income tax in India, the income tax laws in India classifies taxable
persons as:
• A resident
• A resident not ordinarily resident (RNOR)
• A non-resident (NR)
The taxability differs for each of the above categories of taxpayers. Before we get into
taxability, let us first understand how a taxpayer becomes a resident, an RNOR or an NR.
Resident

A taxpayer would qualify as a resident of India if he satisfies one of the following 2

conditions:
• Stay in India for a year is 182 days or more or
• Stay in India for the immediately 4 preceding years is 365 days or more and 60
days or more in the relevant financial year

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In the event an individual who is a citizen of India or person of Indian origin leaves India
for employment during an FY, he will qualify as a resident of India only if he stays in
India for 182 days or more. Such individuals are allowed a longer time greater than 60
days and less than 182 days to stay in India. However, from the financial year 2020-21,
the period is reduced to 120 days or more for such an individual whose total income
(other than foreign sources) exceeds Rs 15 lakh.
In another significant amendment from FY 2020-21, an individual who is a citizen of
India who is not liable to tax in any other country will be deemed to be a resident in
India. The condition for deemed residential status applies only if the total income (other
than foreign sources) exceeds Rs 15 lakh and nil tax liability in other countries or
territories by reason of his domicile or residence or any other criteria of similar nature.

Non-resident

• An individual satisfying neither of the conditions stated in (a) or (b) above would
be an NR for the year.
Taxability

• Resident: A resident will be charged to tax in India on his global income i.e.
income earned in India as well as income earned outside India.
• NR and RNOR: Their tax liability in India is restricted to the income they earn in
India. They need not pay any tax in India on their foreign income. Also note that
in a case of double taxation of income where the same income is getting taxed in
India as well as abroad, one may resort to the Double Taxation Avoidance
Agreement (DTAA) that India would have entered into with the other country in
order to eliminate the possibility of paying taxes twice.

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A Few Important Terms In Income Tax

Assessee: As per Income Tax Act 1961 section 2(7), an assessee is a person who is
liable to pay the taxes under any provision of the Income Tax Act 1961. Assessee can
also be a person with respect to whom any proceedings have been initiated or whose
income has been assessed under the Income Tax Act 1961.Assessee is any person who is
deemed assessee under any of the provisions of this act or an assessee in default under
any provisions of this Act.
Person: As per Sec 2(31) of the Income Tax Act, 1961, a person would be anyone who is
• An Individual
• A HUF (Hindu Undivided Family)
• A Company
• A Firm
• An association of person or body of individuals
• A local authority
• Every artificial or juridical person who is not included in any of the above-
mentioned categories
PAN Number: PAN stands for Permanent Account Number which is a ten-digit unique
alphanumeric number issued by the Income Tax Department as a unique identification
ID. The PAN is applicable whether an Individual, HUF, Company, Firm, or any other
assessee. The PAN number is a prerequisite for filing ITR and also, the tax department
can trace all communications, returns, refunds, and other activities relating to Income
Tax through it.
TAN Number: TAN refers to Tax Deduction Number which is a 10-digit alphanumeric
number allotted to those who are liable to deduct TDS by the Income Tax Department.
Tax Deducted at Source (TDS): The option of Tax Deducted at Source (TDS) was
introduced in order to collect tax from the very source of income. As per the guideline, a
person (deductor) who is liable to make payment of specified nature to any other
person (deductee) shall deduct tax at source and remit the same into the account of the
Central Government. The deductee from whose income tax has been deducted at source
would be entitled to get credit of the amount so deducted on the basis of Form 26AS or
TDS certificate issued by the deductor.

Covered Under TDS Under The Income Tax Act, 1961

• Salaries- Section 192

• Interest in securities- Section 193
• Payment of interest, other than interest of securities- Section 194A
• Payment to contractors or sub- contractors- 194C
• Payment of brokerage and commission- Section 194H
• Payment by way of rent- Section 1941
• Payment of professional and technical fees- Section 194J

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• Payment to non-resident- Section 195

Taxpayers and Income Tax Slabs
Taxpayers in India, for the purpose of income tax includes:

• Individuals, Hindu Undivided Family (HUF), Association of Persons (AOP) and

Body of Individuals (BOI)
• Firms
• Companies

New tax slabs

Income of Rs 0-3 lakh is nil.

• Income above Rs 3 lakh and up to Rs 6 lakh to be taxed at 5% under new regime.

• Income of above Rs 6 lakh and up to Rs 9 lakh to be taxed at 10% under new
regime.
• Income of above Rs 9 lakh and up to Rs 12 lakh to be taxed at 15% under new
regime
• Income above Rs 12 lakh and up to Rs 15 lakh to be taxed at 20% under new
regime.
• Income above Rs 15 lakh to be taxed at Rs 30%.

Means

• Pay 5% tax between 3-6=15k tax

• pay 10% tax between 6-7 lacs= 10k
total Tax paid=25k
Govt will refund 25k

Old tax slabs

• Income up to ₹2.5 is exempt from taxation under both regimes

• Income between ₹2.5 to ₹5 lakh is taxed at the rate of 5 per cent under the old as
well as the new tax regime.
• Personal income from ₹5 lakh to ₹7.5 lakh is taxed at a rate of 15 per cent under
the old regime
• Income between ₹7.5 lakh to ₹10 lakh is taxed at a rate of 20 per cent in the old
regime

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• Under the old regime personal income above ₹10 lakh is taxed at a rate of 30 per
cent.

JAIIB RMWM Module D Unit 4: Other Financial Services

Provided by Banks

Banks are permitted to undertake certain eligible financial services or para

banking activities either departmentally or by setting up subsidiaries. Para
banking activities, including bancassurance, depository service, insurance, MFs, credit
and debit cards, etc, have helped increase the reach of the banks and brought a vast
segment of the population into the fold of basic financial services.

Mutual Fund Business

A mutual fund pools money from many investors and invests the money in stocks,
bonds, short-terms money-market instruments, other securities or assets, or
some combination of these investments. The combined holdings the mutual fund
owns are known as its portfolio. Each unit represents an investor’s proportionate
ownership of the fund's holdings and the income those holdings generate.

The function of Mutual Fund can be easily understood by the diagram given
below.

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Salient Features of Mutual Funds

• Professional Management - Money is invested through fund managers.

• Diversification – Diversification is an investing strategy that can be neatly summed
up as “Don’t put all your eggs in one basket". By owning shares in a mutual fund
instead of owning individual or bonds, the risk is spread out.
• Economies of Scale – Because a mutual fund buys and sells large amounts of
securities at a time its transaction costs are lower than what an individual would pay
for securities transactions
• Liquidity – Just like individual shares, mutual fund units are convertible into money
by way of sale in the market.
• Simplicity – Buying a mutual fund unit is simple. Any bank has its own line of
mutual funds, and the minimum investment amount is small.
• Investors should examine each of the above features carefully before investing in
mutual funds.

Types of Mutual Funds

Each fund has a predetermined investment objective that tailors the fund's assets,
regions of investments and investment strategies. At the fundamental level, there are
three varieties of mutual funds:

• Equity funds (stocks)

• Fixed-income funds (bonds)
• Money market funds

All mutual funds are variants of these three asset classes. For example, while equity
funds that invest in fast-growing companies are known as growth funds, equity funds
that invest only in companies of the same sector or region are known as specialty funds.

Mutual Funds can also be classified as open-ended or closed-ended, depending on the

maturity date of the fund.

Closed – ended Funds

• Closed-end funds run for a specific period.

• On the specified maturity date, all units are redeemed and the scheme comes to a close.

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• The units shall be listed on a stock exchange to provide liquidity.

• Investors buy and sell the units among themselves, at the price prevailing in the stock
market.

Categorization of mutual fund schemes

In order to bring the desired uniformity in the practice, across Mutual Funds and to
standardize the scheme categories and characteristics of each category, SEBI advised to
categorize the open-ended MF schemes s given below.

The Schemes would be broadly classified into following groups:

• Equity Schemes
• Debt Schemes
• Hybrid Schemes
• Solution Oriented Schemes
• Other Scheme

Equity Schemes

Invest in shares and stocks:

• Represent the largest category of mutual funds.

• Investment objective is long-term capital growth with some income.
• Many different types of equity funds because of the different types of investment
objective.

In equity schemes, a company is referred based on its market capitalization. Market

capitalisation is the value of the stock that you arrive at by multiplying the stock price by the
company's outstanding number of equity shares. There are three main classifications, viz.,
Large Cap, Mid Cap and Small Cap.

• Large Cap: 1st – 100th company in terms of full market capitalization

• Mid Cap: 101st – 250th company in terms of full market capitalization
• Small Cap: 251st – company onwards in terms of full market capitalization

Debt Scheme

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Invest in debt instrument of different maturities. This ensures regular income.

Hybrid Schemes

Invest in Equity and debt instruments depending on the objectives of the schemes.

Solution Oriented Schemes

In case of Solution oriented schemes, there will be specified period of lock in. Examples of
fund in the scheme are:

• Retirement fund scheme: An open ended retirement solution oriented scheme

having a lock-in of 5 years or till retirement age (whichever is earlier).
• Children's Fund: An open ended fund for investment for children having a lock-in for
atleast 5 years or till the child attains age of majority (whichever is earlier).

Other Schemes: Examples of this Schemes are Index fund schemes and ETF.

RBI guidelines on mutual fund business

• Banks shall not undertake mutual fund business with risk participation except
through a subsidiary joint venture set up for the purpose.
• Where a sponsoring bank undertaking the mutual fund business lends its name to
the bank sponsored mutual fund, a suitable disclaimer clause shall be inserted while
publicising new schemes to the effect that the bank is not liable or responsible for
any loss or shortfall resulting from the operations of the scheme.
• Banks shall undertake agency business of mutual fund companies departmentally
subject compliance of the following additional conditions:
o The investors' applications for purchase/sale of mutual fund units shall be
forwarded to the mutual funds/registrars/transfer agents.
o The purchase of units shall be at the customers' risk without the bank
guaranteeing any assured return.
o No mutual fund units shall be acquired from the secondary market or bought
back from a customer for selling it to other customers.
o Extension of credit facility to individuals against the security of mutual fund units
shall be in accordance with the Master Directions on Credit Management.

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o A bank holding custody of mutual fund units on behalf of its customers shall keep
the investments of the customers distinct from its own investments.

Insurance Business

Insurance is a financial risk management tool in which the insured transfer a risk of
potential financial loss to the insurance company that mitigates it in exchange for
monetary compensation known as the premium.

Insurance policies are of different types depending on the risk they mitigate. Broad
categories include:

• Health Insurance
• Life Insurance
• Asset Insurance

Health Insurance

Health insurance is a contract between the insurance company and the insured
person to cover the medical cost that might arise from illness, accidental injuries,
surgeries and other medical complications. The Liberalization of the insurance
sector as well as the increasing demand for health insurance covers. specially from the
middle class, have given a fillip to the growth of health insurance and today the sector is
emerging as fastest growing segment in the non-life insurance industry. These
insurance companies provide individual as well as floater policies. Group insurance are
also in vogue.

Present players in Health Insurance Industry:

We can divide them into THREE categories.

• Standalone health insurance companies

• Health Insurance from General insurance companies
• Health Insurance from Life Insurance Companies.

Life Insurance Products

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There are different Life insurance products offerings catering to the investment needs
and objectives of different kinds of investors. The broad categories of life insurance
products are:

• Endowment Policies: An endowment policy is the life insurance agreement that

is mapped out to pay the lump sum after a specified term that is on maturity or
upon death. The typical maturities are 10, 15 or 20 years up to a specified age
limit. Moreover, in the case of any critical illness, the endowment policy also pays
out.
• Term Insurance Policy: Term life insurance or term assurance is life insurance
that provides coverage at a fixed rate of payments for a limited period of time,
the relevant term.
• Money Back Policies
• Pension Plans

Asset insurance

Many movable and immovable assets can be insured. It is the need of any bank to
protect the assets charged to it. These assets are to be safeguarded by covering
under insurance. Insurance on vehicles, machinery, livestock insurance etc. are
some of the examples. The Insurance Regulatory and Development Authority, an agency
of the Government of India, is the regulatory body for the insurance sector's supervision
and development in India.

Cross Selling

Cross-selling is the action or practice of selling an additional product or service to an

existing customer. In practice, businesses define cross-selling in many different ways.

Strategies for Effective Cross Selling

• A robust customer database is foremost for effective cross-selling. The database

is the core on which the entire cross-selling strategy is built.
• Based on the customer relationship history and the cross-selling model, a broad
mapping of the customer profile and retail products to be cross sold has to be
done.

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• The mapped data has to be sliced and diced to develop specific asset related
cross-selling information.
• The cross-selling information has to be put in place for staff (internal customers)
to view and communicate to the target customer group.
• The internal customers should be trained to effectively cross sell and convert the
initiatives into business.
• Cross-selling is a team effort and success depends on the attitude and
involvement of all the staff concerned.
• The success of cross-selling depends on offering at the right time, the relevant
product to customer. It will be a futile exercise to cross sell a product which is
not needed or relevant for the customer.
• The strategy has to percolate from the corporate to the branch level based on
customer database across geographies.
• Dynamic feedback from the line level should be taken cognizance of for fine-
tuning/re-tuning the strategies.
• Selecting the target customer group is essential for cross-selling success. Selling
the right product to the right customer improves the relationship.
• Cross-selling is more relationship- than transaction-based. At any point of time,
the cross-selling initiative by the line staff should not be an irritant for the
customer.

Depository Services by Banks

With a view to adding value to banking services and making available the numerous
benefits of depository system to clients, some banks have been offering
DEMAT/Depository services through both the Depositories viz., National Securities
Depository Limited (NSDL) and Central Depository Services (India) Ltd. (CDSL).

A “Depository" is a provider of the facility for holding and/or transacting securities

(like shares, debentures, bonds, government securities, mutual fund units, etc.) in, book
entry form.

Depository Participant

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Depository Participant (DP) is an agent of the depository who is authorized to offer

depository services to investors and is registered as a DP with SEBI. Financial
institutions, banks, custodians, stockbrokers and other types of intermediaries specified
under SEBI (Depositories and Participants) Regulations, 1996, complying with the
requirements prescribed by SEBI/Depositories can be registered as DP. An investor will
always interact with a DP for the services and cannot directly approach the depository
for any services except for Redressal of Grievances.

A Depository provides following services to investors through a DP:

• Opening a demat account.

• Dematerialization.
• Rematerialization.
• To maintain record of holdings in the electronic form.
• Facilitate settlement of trades by exchanges/Clearing corporations by
delivering/receiving underlying securities from/in Beneficial Owner (BO)
accounts.
• Facilitate transfer of securities between BOs.
• Receiving electronic credit in respect of securities allotted by issuers under IPO
or otherwise.
• Receiving non-cash corporate benefits, such as, allotment of bonus and rights
shares or any other non-cash corporate benefits given by the issuers in
electronic.
• Facilitate pledging of dematerialized securities.
• Freezing of the demat account for debits, credits or both.
• Subscription/Redemption of mutual fund units in demat form.

Demat Account

What is a Dematerialisation (Demat) Account?

Investing in equity shares in physical form entails a lengthy procedure, lot of paperwork
and risk of getting fake shares. In order to keep the entire experience easy and
streamlined, a demat account is required. While trading online, demat account is used to
hold shares and securities in dematerialised/electronic format.

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Facilities offered by a Demat Account

• Transfer of shares
• Loan facility
• Dematerialization & rematerialization
• Multiple access options
• Corporate actions
• Freezing Demat accounts
• Speed E-Facility

How to open a Demat Account?

You can open a Demat Account by following these easy steps:

• Firstly choose a Depository Participant (DP) with whom you would like to open a
Demat Account.
• Afterwards, fill an account opening form and attach a passport-sized photograph
along with photocopies of the required documents stating proof of address and
identity. You should have a PAN card unless otherwise exempted. Remember to
carry the original documents along for verification.
• The DP will give you a copy of the rules and regulations, the terms of the
agreement and necessary charges that you need to pay.
• During an In-Person Verification, a representative of the DP would contact you to
verify the details provided in the account opening form.
• After processing of the application, you will get an account number/ client ID
from the DP. These details will be required to access Demat Account online.
• When you become a demat account holder, you would be required to pay an
annual maintenance fee for maintenance of your account. Additionally, you
would be charged a transaction fee for conducting buying/selling transaction via
the Demat Account. In case your shares are in physical form, the DP may charge
you a separate fee for dematerialisation of the shares.
• You can open a Demat Account without having any shareholdings. Moreover,
there’s no mandate to maintain a minimum balance.

Some Social Security Insurance Schemes

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PM Jeevan Jyoti Bima Yojana Scheme

• As mentioned earlier, this scheme is a one-year Insurance Scheme, and it offers

life insurance cover for death due to any reason. The plan would be
offered/administered through LIC (Life Insurance Corporation of India) and
other Life Insurance companies willing to provide the product on similar terms
with the required approvals and tie-ups with Banks for this purpose.
• PMJJBY can be availed by the people who fall under the age group of 18 to 50
years ( life covers up to age 55) and have a savings bank account. Interested
people who give their consent to join and enable auto-debit can avail of the
benefits of this scheme.
• A life cover of Rs. 2 lakhs is available under the PMJJBY scheme, at a
premium of Rs.330 per annum per member, and is renewable every year. If
someone has a joint account, all the account holders can join the scheme,
provided they meet its eligibility criteria and agree to pay the premium at the
rate of Rs.330 per person.
• Benefits: ₹2 lakh is payable on member’s death due to any cause.
• Premium: ₹ 436/- per annum per member.

Appropriation of Premium:

• Insurance Premium to LIC/insurance company: ₹289/- per annum per member

• Reimbursement of Expenses to BC/Micro/Corporate/Agent: ₹30/- per annum
per member.
• Reimbursement of Administrative expenses to participating Bank: ₹11/- per
annum per member

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

Pradhan Mantri Suraksha Bima Yojana is a government scheme launched on 9th May
2015 by PM Narendra Modi. It intends to provide an affordable insurance scheme for
the poor and underprivileged people in the age group of 18 to 70 years with a bank
account at a premium of Rs.12 per annum; risk coverage of Rs.2 lakh for accidental
death and full disability and Rs.1 lakh for partial disability.
Benefits of Pradhan Mantri Suraksha Bima Yojana
Pradhan Mantri Suraksha Bima Yojana (PMSBY) provides an insurance policy to the
people belonging to the underprivileged sections of society. The scheme is administered

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by insurance companies from both the private and public sectors. Some of the benefits
provided by the scheme are mentioned below:

• The Pradhan Mantri Suraksha Bima Yojana offers a life cover of Rs. 2 lakhs for
one year to all its account holders. This life cover is provided in case of accidental
death or permanent disability.
• A life cover of Rs. 1 lakh is provided to the beneficiary in case of partial disability.
• This scheme can be availed by any individual aged between 18 years to 70 years.
• In case of the death of the account holder, the benefits of the scheme can be
availed by his/her nominee.
• The scheme provides an annual premium of Rs. 12 per annum per member. This
premium is auto-debited in one instalment on or before 1st June of every year.
Eligibility for Pradhan Mantri Suraksha Bima Yojana
Any individual must follow the below-mentioned criteria to be eligible for the Pradhan
Mantri Suraksha Bima Yojana:
• Any individual aged between 18 years to 70 years are eligible to apply for the
scheme.
• He/she must have a bank account along with their phone number linked to the
account.
• The individual should submit their Aadhaar details while applying for the
scheme. This Aadhaar details will be linked with their bank account.
• If any individual has multiple bank accounts of one or different banks, then
he/she will be eligible to join the scheme through one bank account only. In the
case of a joint account, the scheme benefits can be availed by all the bank account
holders.
• In the case of an NRI beneficiary, the claim benefits will only be provided to the
nominee in Indian currency.

Factoring

Factoring implies a financial arrangement between the factor and client, in which
the firm (client) gets advances in return for receivables, from a financial institution
(factor). It is a financing technique, in which there is an outright selling of trade debts by
a firm to a third party, i.e. factor, at discounted prices.
Type of Factoring

Recourse and Non-recourse Factoring: In this type of arrangement, the financial

institution, can resort to the firm, when the debts are not recoverable. So, the credit risk
associated with the trade debts are not assumed by the factor.
On the other hand, in non-recourse factoring, the factor cannot recourse to the firm, in
case the debt turn out to be irrecoverable.

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Disclosed and Undisclosed Factoring: The factoring in which the factor’s name is
indicated in the invoice by the supplier of the goods or services asking the purchaser to
pay the factor, is called disclosed factoring.
Conversely, the form of factoring in which the name of the factor is not mentioned in the
invoice issued by the manufacturer. In such a case, the factor maintains sales ledger of
the client and the debt is realized in the name of the firm. However, the control is in the
hands of the factor.
Domestic and Export Factoring: When the three parties to factoring, i.e. customer,
client, and factor, reside in the same country, then this is called as domestic factoring.
Export factoring, or otherwise known as cross-border factoring is one in which there
are four parties involved, i.e. exporter (client), the importer (customer), export factor
and import factor. This is also termed as the two-factor system.
Advance and Maturity Factoring: In advance factoring, the factor gives an advance to
the client, against the uncollected receivables.
In maturity factoring, the factoring agency does not provide any advance to the firm.
Instead, the bank collects the sum from the customer and pays to the firm, either on the
date on which the amount is collected from the customers or on a guaranteed payment
date.

Procedure of Factoring

Atal Pension Yojana (APY)

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The Government of India has announced a new scheme called Atal Pension Yojana
(APY). APY is a guaranteed pension scheme and is administered by the Pension Fund
Regulatory and Development Authority (PFRDA).
There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs 4000,
or Rs 5000 on attaining an age of 60. The pension will be determined based on the
individual’s age and the contribution amount. The contributor’s spouse can claim the
pension upon the contributor’s death, and upon the death of both the contributor and
his/her spouse, the nominee will receive the accumulated corpus. However, if the
contributor dies before completing 60 years of age, the spouse can either exit the
scheme and claim the corpus or continue the scheme for the balance period.

APY Features

Guaranteed monthly pension for subscribers, ranging from Rs. 1,000 to Rs. 5,000
per month.
• Government of India (GoI) will also co-contribute 50% of the subscriber’s
contribution or Rs. 1,000 per annum, whichever is lower. The Government co-
contribution is available for those who are not covered by any Statutory Social
Security Schemes and is not an Income Tax payer
• GoI will co-contribute to each eligible subscriber for a period of 5 years, who
joined the scheme during the period Jun 1, 2015 to Mar 31, 2016. The benefit of
five years of Government co-contribution under APY would not exceed 5 years
for all subscribers, including the migrated Swavalamban beneficiaries.
Eligibility

• APY is applicable to all citizens of India aged between 18 - 40 years

• KYC compliant Bank account is mandatory for this product
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JAIIB RMWM Module D Unit 4: Other Financial Services

Provided by Banks

Banks are permitted to undertake certain eligible financial services or para

banking activities either departmentally or by setting up subsidiaries. Para
banking activities, including bancassurance, depository service, insurance, MFs, credit

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and debit cards, etc, have helped increase the reach of the banks and brought a vast
segment of the population into the fold of basic financial services.

Mutual Fund Business

A mutual fund pools money from many investors and invests the money in stocks,
bonds, short-terms money-market instruments, other securities or assets, or
some combination of these investments. The combined holdings the mutual fund
owns are known as its portfolio. Each unit represents an investor’s proportionate
ownership of the fund's holdings and the income those holdings generate.

The function of Mutual Fund can be easily understood by the diagram given
below.

Salient Features of Mutual Funds

• Professional Management - Money is invested through fund managers.

• Diversification – Diversification is an investing strategy that can be neatly summed
up as “Don’t put all your eggs in one basket". By owning shares in a mutual fund
instead of owning individual or bonds, the risk is spread out.
• Economies of Scale – Because a mutual fund buys and sells large amounts of
securities at a time its transaction costs are lower than what an individual would pay
for securities transactions
• Liquidity – Just like individual shares, mutual fund units are convertible into money
by way of sale in the market.

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• Simplicity – Buying a mutual fund unit is simple. Any bank has its own line of
mutual funds, and the minimum investment amount is small.
• Investors should examine each of the above features carefully before investing in
mutual funds.

Types of Mutual Funds

Each fund has a predetermined investment objective that tailors the fund's assets,
regions of investments and investment strategies. At the fundamental level, there are
three varieties of mutual funds:

• Equity funds (stocks)

• Fixed-income funds (bonds)
• Money market funds

All mutual funds are variants of these three asset classes. For example, while equity
funds that invest in fast-growing companies are known as growth funds, equity funds
that invest only in companies of the same sector or region are known as specialty funds.

Mutual Funds can also be classified as open-ended or closed-ended, depending on the

maturity date of the fund.

Closed – ended Funds

• Closed-end funds run for a specific period.

• On the specified maturity date, all units are redeemed and the scheme comes to a close.
• The units shall be listed on a stock exchange to provide liquidity.
• Investors buy and sell the units among themselves, at the price prevailing in the stock
market.

Categorization of mutual fund schemes

In order to bring the desired uniformity in the practice, across Mutual Funds and to
standardize the scheme categories and characteristics of each category, SEBI advised to
categorize the open-ended MF schemes s given below.

The Schemes would be broadly classified into following groups:

• Equity Schemes

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• Debt Schemes
• Hybrid Schemes
• Solution Oriented Schemes
• Other Scheme

Equity Schemes

Invest in shares and stocks:

• Represent the largest category of mutual funds.

• Investment objective is long-term capital growth with some income.
• Many different types of equity funds because of the different types of investment
objective.

In equity schemes, a company is referred based on its market capitalization. Market

capitalisation is the value of the stock that you arrive at by multiplying the stock price by the
company's outstanding number of equity shares. There are three main classifications, viz.,
Large Cap, Mid Cap and Small Cap.

• Large Cap: 1st – 100th company in terms of full market capitalization

• Mid Cap: 101st – 250th company in terms of full market capitalization
• Small Cap: 251st – company onwards in terms of full market capitalization

Debt Scheme

Invest in debt instrument of different maturities. This ensures regular income.

Hybrid Schemes

Invest in Equity and debt instruments depending on the objectives of the schemes.

Solution Oriented Schemes

In case of Solution oriented schemes, there will be specified period of lock in. Examples of
fund in the scheme are:

• Retirement fund scheme: An open ended retirement solution oriented scheme

having a lock-in of 5 years or till retirement age (whichever is earlier).

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• Children's Fund: An open ended fund for investment for children having a lock-in for
atleast 5 years or till the child attains age of majority (whichever is earlier).

Other Schemes: Examples of this Schemes are Index fund schemes and ETF.

RBI guidelines on mutual fund business

• Banks shall not undertake mutual fund business with risk participation except
through a subsidiary joint venture set up for the purpose.
• Where a sponsoring bank undertaking the mutual fund business lends its name to
the bank sponsored mutual fund, a suitable disclaimer clause shall be inserted while
publicising new schemes to the effect that the bank is not liable or responsible for
any loss or shortfall resulting from the operations of the scheme.
• Banks shall undertake agency business of mutual fund companies departmentally
subject compliance of the following additional conditions:
o The investors' applications for purchase/sale of mutual fund units shall be
forwarded to the mutual funds/registrars/transfer agents.
o The purchase of units shall be at the customers' risk without the bank
guaranteeing any assured return.
o No mutual fund units shall be acquired from the secondary market or bought
back from a customer for selling it to other customers.
o Extension of credit facility to individuals against the security of mutual fund units
shall be in accordance with the Master Directions on Credit Management.
o A bank holding custody of mutual fund units on behalf of its customers shall keep
the investments of the customers distinct from its own investments.

Insurance Business

Insurance is a financial risk management tool in which the insured transfer a risk of
potential financial loss to the insurance company that mitigates it in exchange for
monetary compensation known as the premium.

Insurance policies are of different types depending on the risk they mitigate. Broad
categories include:

• Health Insurance

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• Life Insurance
• Asset Insurance

Health Insurance

Health insurance is a contract between the insurance company and the insured
person to cover the medical cost that might arise from illness, accidental injuries,
surgeries and other medical complications. The Liberalization of the insurance
sector as well as the increasing demand for health insurance covers. specially from the
middle class, have given a fillip to the growth of health insurance and today the sector is
emerging as fastest growing segment in the non-life insurance industry. These
insurance companies provide individual as well as floater policies. Group insurance are
also in vogue.

Present players in Health Insurance Industry:

We can divide them into THREE categories.

• Standalone health insurance companies

• Health Insurance from General insurance companies
• Health Insurance from Life Insurance Companies.

Life Insurance Products

There are different Life insurance products offerings catering to the investment needs
and objectives of different kinds of investors. The broad categories of life insurance
products are:

• Endowment Policies: An endowment policy is the life insurance agreement that

is mapped out to pay the lump sum after a specified term that is on maturity or
upon death. The typical maturities are 10, 15 or 20 years up to a specified age
limit. Moreover, in the case of any critical illness, the endowment policy also pays
out.
• Term Insurance Policy: Term life insurance or term assurance is life insurance
that provides coverage at a fixed rate of payments for a limited period of time,
the relevant term.
• Money Back Policies

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• Pension Plans

Asset insurance

Many movable and immovable assets can be insured. It is the need of any bank to
protect the assets charged to it. These assets are to be safeguarded by covering
under insurance. Insurance on vehicles, machinery, livestock insurance etc. are
some of the examples. The Insurance Regulatory and Development Authority, an agency
of the Government of India, is the regulatory body for the insurance sector's supervision
and development in India.

Cross Selling

Cross-selling is the action or practice of selling an additional product or service to an

existing customer. In practice, businesses define cross-selling in many different ways.

Strategies for Effective Cross Selling

• A robust customer database is foremost for effective cross-selling. The database

is the core on which the entire cross-selling strategy is built.
• Based on the customer relationship history and the cross-selling model, a broad
mapping of the customer profile and retail products to be cross sold has to be
done.
• The mapped data has to be sliced and diced to develop specific asset related
cross-selling information.
• The cross-selling information has to be put in place for staff (internal customers)
to view and communicate to the target customer group.
• The internal customers should be trained to effectively cross sell and convert the
initiatives into business.
• Cross-selling is a team effort and success depends on the attitude and
involvement of all the staff concerned.
• The success of cross-selling depends on offering at the right time, the relevant
product to customer. It will be a futile exercise to cross sell a product which is
not needed or relevant for the customer.
• The strategy has to percolate from the corporate to the branch level based on
customer database across geographies.

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• Dynamic feedback from the line level should be taken cognizance of for fine-
tuning/re-tuning the strategies.
• Selecting the target customer group is essential for cross-selling success. Selling
the right product to the right customer improves the relationship.
• Cross-selling is more relationship- than transaction-based. At any point of time,
the cross-selling initiative by the line staff should not be an irritant for the
customer.

Depository Services by Banks

With a view to adding value to banking services and making available the numerous
benefits of depository system to clients, some banks have been offering
DEMAT/Depository services through both the Depositories viz., National Securities
Depository Limited (NSDL) and Central Depository Services (India) Ltd. (CDSL).

A “Depository" is a provider of the facility for holding and/or transacting securities

(like shares, debentures, bonds, government securities, mutual fund units, etc.) in, book
entry form.

Depository Participant

Depository Participant (DP) is an agent of the depository who is authorized to offer

depository services to investors and is registered as a DP with SEBI. Financial
institutions, banks, custodians, stockbrokers and other types of intermediaries specified
under SEBI (Depositories and Participants) Regulations, 1996, complying with the
requirements prescribed by SEBI/Depositories can be registered as DP. An investor will
always interact with a DP for the services and cannot directly approach the depository
for any services except for Redressal of Grievances.

A Depository provides following services to investors through a DP:

• Opening a demat account.

• Dematerialization.
• Rematerialization.
• To maintain record of holdings in the electronic form.

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• Facilitate settlement of trades by exchanges/Clearing corporations by

delivering/receiving underlying securities from/in Beneficial Owner (BO)
accounts.
• Facilitate transfer of securities between BOs.
• Receiving electronic credit in respect of securities allotted by issuers under IPO
or otherwise.
• Receiving non-cash corporate benefits, such as, allotment of bonus and rights
shares or any other non-cash corporate benefits given by the issuers in
electronic.
• Facilitate pledging of dematerialized securities.
• Freezing of the demat account for debits, credits or both.
• Subscription/Redemption of mutual fund units in demat form.

Demat Account

What is a Dematerialisation (Demat) Account?

Investing in equity shares in physical form entails a lengthy procedure, lot of paperwork
and risk of getting fake shares. In order to keep the entire experience easy and
streamlined, a demat account is required. While trading online, demat account is used to
hold shares and securities in dematerialised/electronic format.

Facilities offered by a Demat Account

• Transfer of shares
• Loan facility
• Dematerialization & rematerialization
• Multiple access options
• Corporate actions
• Freezing Demat accounts
• Speed E-Facility

How to open a Demat Account?

You can open a Demat Account by following these easy steps:

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• Firstly choose a Depository Participant (DP) with whom you would like to open a
Demat Account.
• Afterwards, fill an account opening form and attach a passport-sized photograph
along with photocopies of the required documents stating proof of address and
identity. You should have a PAN card unless otherwise exempted. Remember to
carry the original documents along for verification.
• The DP will give you a copy of the rules and regulations, the terms of the
agreement and necessary charges that you need to pay.
• During an In-Person Verification, a representative of the DP would contact you to
verify the details provided in the account opening form.
• After processing of the application, you will get an account number/ client ID
from the DP. These details will be required to access Demat Account online.
• When you become a demat account holder, you would be required to pay an
annual maintenance fee for maintenance of your account. Additionally, you
would be charged a transaction fee for conducting buying/selling transaction via
the Demat Account. In case your shares are in physical form, the DP may charge
you a separate fee for dematerialisation of the shares.
• You can open a Demat Account without having any shareholdings. Moreover,
there’s no mandate to maintain a minimum balance.

Some Social Security Insurance Schemes

PM Jeevan Jyoti Bima Yojana Scheme

• As mentioned earlier, this scheme is a one-year Insurance Scheme, and it offers

life insurance cover for death due to any reason. The plan would be
offered/administered through LIC (Life Insurance Corporation of India) and
other Life Insurance companies willing to provide the product on similar terms
with the required approvals and tie-ups with Banks for this purpose.
• PMJJBY can be availed by the people who fall under the age group of 18 to 50
years ( life covers up to age 55) and have a savings bank account. Interested
people who give their consent to join and enable auto-debit can avail of the
benefits of this scheme.

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• A life cover of Rs. 2 lakhs is available under the PMJJBY scheme, at a

premium of Rs.330 per annum per member, and is renewable every year. If
someone has a joint account, all the account holders can join the scheme,
provided they meet its eligibility criteria and agree to pay the premium at the
rate of Rs.330 per person.
• Benefits: ₹2 lakh is payable on member’s death due to any cause.
• Premium: ₹ 436/- per annum per member.

Appropriation of Premium:

• Insurance Premium to LIC/insurance company: ₹289/- per annum per member

• Reimbursement of Expenses to BC/Micro/Corporate/Agent: ₹30/- per annum
per member.
• Reimbursement of Administrative expenses to participating Bank: ₹11/- per
annum per member

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

Pradhan Mantri Suraksha Bima Yojana is a government scheme launched on 9th May
2015 by PM Narendra Modi. It intends to provide an affordable insurance scheme for
the poor and underprivileged people in the age group of 18 to 70 years with a bank
account at a premium of Rs.12 per annum; risk coverage of Rs.2 lakh for accidental
death and full disability and Rs.1 lakh for partial disability.
Benefits of Pradhan Mantri Suraksha Bima Yojana
Pradhan Mantri Suraksha Bima Yojana (PMSBY) provides an insurance policy to the
people belonging to the underprivileged sections of society. The scheme is administered
by insurance companies from both the private and public sectors. Some of the benefits
provided by the scheme are mentioned below:

• The Pradhan Mantri Suraksha Bima Yojana offers a life cover of Rs. 2 lakhs for
one year to all its account holders. This life cover is provided in case of accidental
death or permanent disability.
• A life cover of Rs. 1 lakh is provided to the beneficiary in case of partial disability.
• This scheme can be availed by any individual aged between 18 years to 70 years.
• In case of the death of the account holder, the benefits of the scheme can be
availed by his/her nominee.
• The scheme provides an annual premium of Rs. 12 per annum per member. This
premium is auto-debited in one instalment on or before 1st June of every year.
Eligibility for Pradhan Mantri Suraksha Bima Yojana

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Any individual must follow the below-mentioned criteria to be eligible for the Pradhan
Mantri Suraksha Bima Yojana:
• Any individual aged between 18 years to 70 years are eligible to apply for the
scheme.
• He/she must have a bank account along with their phone number linked to the
account.
• The individual should submit their Aadhaar details while applying for the
scheme. This Aadhaar details will be linked with their bank account.
• If any individual has multiple bank accounts of one or different banks, then
he/she will be eligible to join the scheme through one bank account only. In the
case of a joint account, the scheme benefits can be availed by all the bank account
holders.
• In the case of an NRI beneficiary, the claim benefits will only be provided to the
nominee in Indian currency.

Factoring

Factoring implies a financial arrangement between the factor and client, in which
the firm (client) gets advances in return for receivables, from a financial institution
(factor). It is a financing technique, in which there is an outright selling of trade debts by
a firm to a third party, i.e. factor, at discounted prices.
Type of Factoring

Recourse and Non-recourse Factoring: In this type of arrangement, the financial

institution, can resort to the firm, when the debts are not recoverable. So, the credit risk
associated with the trade debts are not assumed by the factor.
On the other hand, in non-recourse factoring, the factor cannot recourse to the firm, in
case the debt turn out to be irrecoverable.
Disclosed and Undisclosed Factoring: The factoring in which the factor’s name is
indicated in the invoice by the supplier of the goods or services asking the purchaser to
pay the factor, is called disclosed factoring.
Conversely, the form of factoring in which the name of the factor is not mentioned in the
invoice issued by the manufacturer. In such a case, the factor maintains sales ledger of
the client and the debt is realized in the name of the firm. However, the control is in the
hands of the factor.
Domestic and Export Factoring: When the three parties to factoring, i.e. customer,
client, and factor, reside in the same country, then this is called as domestic factoring.
Export factoring, or otherwise known as cross-border factoring is one in which there
are four parties involved, i.e. exporter (client), the importer (customer), export factor
and import factor. This is also termed as the two-factor system.
Advance and Maturity Factoring: In advance factoring, the factor gives an advance to
the client, against the uncollected receivables.

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In maturity factoring, the factoring agency does not provide any advance to the firm.
Instead, the bank collects the sum from the customer and pays to the firm, either on the
date on which the amount is collected from the customers or on a guaranteed payment
date.

Procedure of Factoring

Atal Pension Yojana (APY)

The Government of India has announced a new scheme called Atal Pension Yojana
(APY). APY is a guaranteed pension scheme and is administered by the Pension Fund
Regulatory and Development Authority (PFRDA).
There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs 4000,
or Rs 5000 on attaining an age of 60. The pension will be determined based on the
individual’s age and the contribution amount. The contributor’s spouse can claim the
pension upon the contributor’s death, and upon the death of both the contributor and
his/her spouse, the nominee will receive the accumulated corpus. However, if the
contributor dies before completing 60 years of age, the spouse can either exit the
scheme and claim the corpus or continue the scheme for the balance period.
APY Features

Guaranteed monthly pension for subscribers, ranging from Rs. 1,000 to Rs. 5,000
per month.

• Government of India (GoI) will also co-contribute 50% of the subscriber’s

contribution or Rs. 1,000 per annum, whichever is lower. The Government co-
contribution is available for those who are not covered by any Statutory Social
Security Schemes and is not an Income Tax payer

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• GoI will co-contribute to each eligible subscriber for a period of 5 years, who
joined the scheme during the period Jun 1, 2015 to Mar 31, 2016. The benefit of
five years of Government co-contribution under APY would not exceed 5 years
for all subscribers, including the migrated Swavalamban beneficiaries.
Eligibility

• APY is applicable to all citizens of India aged between 18 - 40 years

• KYC compliant Bank account is mandatory for this product
• Join Telegram Group
• For Mock test and Video Course Visit: test.ambitiousbaba.com
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