Bank Jobs in India, IBPS Exam, IBPS Results 2013, Page 69

0

GSecs for Retail Investors

Retailing the G-Secs means taking the G-Secs market to retail investors. Today, the G-Secs market in the country is predominantly inhabited by wholesale players like Banks, Financial Institutions, Primary Dealers, FIIs, Mutual Funds, Insurance Companies, Brokers, Pension Funds, etc. For vibrant G-Secs market, it is necessary to attract retail investors so that they can participate in the market that will bring them a reasonable return with no credit risk. Recently, with the introduction of Government Securities Act, 2006 and the Government Securities Regulations, 2007 (See Postings on the homepage of our website), Government Securities have become more investor friendly while giving attractive returns for a longer duration to investors.

Government Securities can also be held in demat form. CSGL facility was started with this objective so that any person or a body corporate, etc. could hold their portfolio of Government Securities with RBI through an intermediary like Bank or a Primary Dealer. Now they can also be held through a D.P.

To safeguard the interest of small investors who may not have the sophistication in bidding in auction and to save them from ‘winner’s curse’, RBI has also introduced a non-competitive bidding facility for retail investors in G-Secs. Through this non-competitive bids are accepted up to 5 percent of the notified amount in the specified auctions of dated securities. Retail investors when they bid through this system get assured allotment (may be partial) at the weighted average price of the winning bids.

: Gsecs
: , , , , ,
1

Certificate of Deposit in India

CDs are negotiable money market instrument issued in demat form or as a Usance Promissory Notes. CDs issued by banks should not have the maturity less than seven days and not more than one year. Financial Institutions are allowed to issue CDs for a period between 1 year and up to 3 years.

CDs are like bank term deposits but unlike traditional time deposits these are freely negotiable and are often referred to as Negotiable Certificates of Deposit. CDs normally give a higher return than Bank term deposit. CDs are rated by approved rating agencies (e.g. CARE, ICRA, CRISIL, and FITCH) which considerably enhance their tradability in the secondary market, depending upon demand. SBI DFHI is an active player in secondary market of CDs.

Features of CD

  • All scheduled banks (except RRBs and Co-operative banks) are eligible to issue CDs.
  • They can be issued to individuals, corporations, trusts, funds and associations.
  • NRIs can also subscribe to CDs, but on non-repatriable basis only. In secondary market such CDs cannot be endorsed to another NRI.
  • They are issued at a discount rate freely determined by the issuer and the market/investors.
  • CDs issued in physical form are freely transferable by endorsement and delivery. Procedure of transfer of dematted CDs is similar to that of any other demat securities.
  • For CDs there is no lock-in period.

CDs are issued in denominations of Rs.1 Lac and in the multiples of Rs. 1 Lac thereafter. Discount/Coupon rate of CD is determined by the issuing bank/FI.Loans cannot be granted against CDs and Banks/FIs cannot buy back their own CDs before maturity.

: Banking System, FAQ, Financial Planning
: ,
1

Primary Dealers for Government Securities in India

The system of Primary Dealers (PDs) in the Government Securities Market was introduced by Reserve Bank of India in 1995 to strengthen the market infrastructure of Government Securities and put in place an improved, efficient secondary market trading system. This was to encourage holding of Government Securities on large scale and make the market more vibrant and liquid. In 2006-07, RBI gave Banks the option to undertake Primary Dealership business departmentally.

DFHI was set up by RBI along with public sector banks and financial institutions in March 1988 to activate the Money Market. It got the status of Primary Dealer in February 1996. Over a period of time, RBI divested its stake and DFHI became a subsidiary of State Bank of India (SBI). SBI had also set up a subsidiary in 1996 for doing PD business namely SBI Gilts Limited. Both these companies were merged in 2004 to become the largest Primary Dealer in the country in terms of net worth (Rs. 1,059 crores as on March 31, 2008)

Primary Dealers can also be referred to as Merchant Bankers to Government of India as only they are allowed to underwrite primary issues of government securities other than RBI who have since shed this role.

Stand-alone PDs are allowed the following activities as core activities:

  • Dealing and underwriting in Government securities.
  • Dealing in Interest Rate Derivatives.
  • Providing broking services in Government securities.
  • Dealing and underwriting in Corporate / PSU / FI bonds/ debentures.
  • Lending in Call/ Notice/ Term/ Repo/ CBLO market.
  • Investment in Commercial Papers.
  • Investment in Certificates of Deposit.
  • Investment in Security Receipts issued by Securitization Companies/ Reconstruction Companies, Asset Backed Securities (ABS), Mortgage Backed Securities (MBS).
  • Investment in debt mutual funds where entire corpus is invested in debt securities.

PDs are permitted to undertake the following activities under non-core activities:

a) Activities, which are expected to consume capital, such as:

  1. Investment / trading in equity and equity derivatives market
  2. Investment in units of equity oriented mutual funds
  3. Underwriting public issues of equity

b) Services which do not consume capital or require insignificant capital outlay, such as:

  1. Professional Clearing Services
  2. Portfolio Management Services
  3. Issue Management Services
  4. Merger & Acquisition Advisory Services
  5. Private Equity Management Services
  6. Project Appraisal Services
  7. Loan Syndication Services
  8. Debt restructuring services
  9. Consultancy Services
  10. Distribution of mutual fund units
  11. Distribution of insurance products

PDs are not allowed to undertake broking in equity, trading / broking in commodities, gold and foreign exchange. Their total investment pattern should include minimum 50% in Government Securities.

PDs are permitted to borrow, lend and trade in the money market including call money market, CBLO of CCIL and participate in Repos. They are eligible for memberships of electronic dealing, trading and settlement systems (NDS platforms / INFINET / RTGS / CCIL). Stand-alone PDs can also open CSGL accounts to enable customers to hold government securities in demat form.

: Gsecs
: , , , , , ,
0

G-Secs Auctions by RBI

G-Secs are issued by the Reserve Bank of India on behalf of the Government of India. These form a part of the borrowing program approved by the parliament in the ‘union budget’. G-Secs are normally issued in dematerialized form (SGL) but can be issued in the physical form (in the form of Stock Certificate) on request. When issued in physical form or otherwise, they are issued in the multiples of Rs. 10,000/-. Dated Government Securities (along with SDLs) are Securities usually bearing a fixed interest rate with interest payable semi-annually and principal as per schedule on due date of redemption. The tenor of these instruments can extend upto 30 years.

Government securities are normally sold through an auction process although they can also be sold on tap or through OMO (Open Market Operations). Auction is a process of calling of bids with an objective of arriving at the market price. It is basically a price discovery mechanism. There are several variants of auction. Auction can be price based or yield based. RBI conducts auction of Government Securities. In securities market, we come across below mentioned auction methods.

French Auction System : All auctions under the competitive bidding are multiple price or multiple yield auctions, with scrips being allotted to the highest bidder downwards in terms of price, or lowest yield upwards in terms of yields, whichever is applicable, upto the pre-determined notified amounts.

Dutch Auction Price : This is identical to the French auction system as defined above. The only difference being that the concept of premium does not exist. This means that all winning bids are at cut-off price / yield and successful bidders need not pay any premium. This type of auction is also known as Uniform Price Auction.

Private Placement : If on account of some special circumstances the Government/ Reserve Bank of India decide to issue a new security, or further issue an existing security to expand the outstanding quantum, the government can privately place the security with RBI. The RBI in turn may sell these securities at a later date through their open market window albeit at a different yield.

On-tap issue : Under this scheme of arrangements after the initial primary placement of a security, the issue remains open to yet further subscriptions. The period for which the issue remains open may be sometimes time specific or volume specific. Actually, even the primary issue can be on tap.

RBI also has a non-competitive bidding facility for retail investors for purchasing Dated Government Securities. Non-competitive bids are accepted upto 5 per cent of the notified amount in the specified auctions of dated securities. RBI announces a half yearly auction calendar for auctions of G-Secs, which is also available on their website.

: Gsecs
: , ,
5

Post Office Monthly Income Scheme (POMIS)

The Post Office Monthly Income Scheme (PO MIS) is a small investment and savings scheme.

Main Features/ Rules -

  • This scheme provides a regular monthly income to the depositors and has a term of 6 years.
  • Minimum amount of investment is Rs.1500/-, and maximum amount in case of single account is Rs.4,50,000/-, and in case of joint account is Rs.9,00,000/-.
  • Interest rate is 8% p.a. payable monthly with a bonus of 5% payable on maturity.
  • Nomination facility is available.
  • Rebate under section 80 C is NOT admissible.
  • Most suitable scheme for senior citizens and for those who need regular monthly income.
  • Deposits are exempt from Wealth Tax.
  • No TDS
  • Premature withdrawal / encashment / closure and Penalty – Premature withdrawal of the invested amount is allowed after 1 year of opening the account.
    1. If the account is closed between 1 and 3 years of opening, 2% of the deposited amount is deducted as penalty.
    2. If it is closed after 3 years of opening, 1% of the deposited amount is charged as penalty.
    3. The bonus amount is forfeited when you close the account early.
: Financial Planning, Post Office Schemes
: , ,
1

Senior Citizen Savings Scheme

Senior Citizen Savings Scheme is an investment instrument directed towards Senior Citizens.

Eligibility is 60 years of age or above, on the date of opening the account. Proof of age and a photograph of account holder are required. The age limit is reduced to 55 years in case of an individual retiring on superannuation or otherwise, or under VRS or special VRS, provided the account is opened within one month of date of receipt of retirement benefits. The retired personnel of Defence Services, excluding Civilian Defence Employees, shall be eligible irrespective of age limit.

Main Features and Rules –

  • The interest rate is 9% p.a. payable quarterly. Annualized equivalent is 9.31% p.a. assuming the interest component is re-invested. The benefit of section 80C is available on investment but interest is fully taxable.
  • The term for the scheme is 5 years. A onetime extension of three years is allowed, if applied within one year of its maturity.
  • NRIs, PIOs and HUF are not eligible to invest in this scheme.
  • Maximum limit is Rs.15,00,000/-(Rupees fifteen Lac only), however in case of retirees before the age of 60 years the limit is restricted to retirement benefits or Rs15 Lac whichever is less.
  • Any Post Office in India doing savings bank work, or an office or banking company or institution authorized by Central Government can operate this scheme. An investor can open more than one account subject to the condition, that amount in all accounts taken together does not at any point of time exceed Rs.15 Lac. At the same accounts office, two or more accounts cannot be opened during one month. Some offices insist on a gap of 30 days.
  • The investment is non transferable and non tradable.
  • Premature closure is allowed after expiry of one year subject to following conditions – After expiry of one year but before 2 years, 1.50 % of deposit shall be deducted. After expiry of 2 years, 1% of the deposit shall be deducted. No deduction is made in case of closure of account due to the death of the account holder.
  • Nomination facility is available even in case of joint account.
: Financial Planning, Post Office Schemes
: ,
6

National Savings Certificate (NSC)

National Savings Certificate, also popularly known as NSC is a tax saving investment instrument with a maturity of 6 years.

Features and Details -

  • Minimum investment Rs. 500/- No maximum limit.
  • Rate of interest 8% compounded half yearly.
  • Rs. 1000/- grow to Rs. 1601/- in six years.
  • Two adults, Individuals, and minor through guardian can purchase.
  • Companies, Trusts, Societies and any other Institutions not eligible to purchase.
  • Non-resident Indian/HUF can not purchase.
  • No pre-mature encashment.
  • Annual interest earned is deemed to be reinvested and qualifies for tax rebate for first 5 years under section 80 C of Income Tax Act.
  • Maturity proceeds not drawn are eligible to Post Office Savings account interest for a maximum period of two years.
  • Facility of reinvestment on maturity.
  • Certificate can be pledged as security against a loan to banks/ Govt. Institutions.
  • Facility of encashment of certificates through banks.
  • Certificates are encashable any Post office in India before maturity by way of transfer to desired post office.
  • Certificates are transferable from one Post office to any Post office.
  • Certificates are transferable from one person to another person before maturity.
  • Duplicate Certificate can be issued for lost, stolen, destroyed, mutilated or defaced certificate.
  • Nomination facility available.
  • Facility of purchase/payment to the holder of Power of attorney.
  • Tax Saving instrument – Rebate admissible under section 80 C of Income Tax Act.
  • Interest income is taxable but no TDS
  • Deposits are exempt from Wealth tax.

 

: Financial Planning, Post Office Schemes
: , ,
0

Kisan Vikas Patra

Kisan Vikas Patra, also popularly known as KVP is one of a very good investment scheme with high interest rates. KVP has the following main features -

  • Money doubles in 8 years and 7 months.
  • Rate of interest 8.40% compounded annually.
  • Minimum Investment Rs. 500/- No maximum limit.
  • Two adults, Individuals and minor through guardian can purchase.
  • Companies, Trusts, Societies and any other Institution not eligible to purchase.
  • Non-Resident Indian/HUF are not eligible to purchase.
  • Facility of encashment from 2 ½ years.
  • Maturity proceeds not drawn are eligible to Post office Savings account interest for a
    maximum period of two years.
  • Facility of reinvestment on maturity.
  • Patras can be pledged as security against a loan to Banks/Govt. Institutions.
  • Patras are encashable at any Post office before maturity by way of transfer to desired
    Post office.
  • Patras are transferable to any Post office in India.
  • Patras are transferable from one person to another person before maturity
  • Duplicate can be issued for lost, stolen, destroyed, mutilated and defaced patras.
  • Nomination facility available.
  • Facility of purchase/payment of Kisan vikas Patras to the holder of Power of attorney.
  • Rebate under section 80 C not admissible.
  • Interest income taxable but no TDS
  • Deposits are exempt from Wealth tax.

Facility for premature encashment as per the table given below (for the KVP purchased on or after 1st March 2003)

Maturity value for Rs. 1,000/- denomination 

After Amount Payable
2 years 6 months or more but less than 3 years 1170.51
3 years more but less than 3 years 6 months 1207.95
3 years 6 months or more but less than 4 years 1267.19
4 years or more but less than 4 years 6 months 1310.80
4 years 6 months or more but less than 5 years 1355.90
5 years or more but less than 5 years 6 months 1435.63
5 years 6 months or more but less than 6 years 1488.49
6 years or more but less than 6 years 6 months 1543.30
6 years 6 months or more but less than 7 years 1649.13
7 years or more but less than 7 years 6 months 1713.82
7 years 6 months or more but less than 8 years 1781.06
8 years or more but less than 8 years 7 months 1850.93

Tax Liability on KVP – Interest accrued on yearly basis will be considered as income  for Income Tax purposes.

: Financial Planning, Post Office Schemes
: , , ,
1

List of ASBA Banks

SEBI has introduced a supplementary process for applying in IPOs (Initial Public Offerings) through ASBA (Applications Supported by Blocked Amount) process which is now mandatory process for Non-Retail applications. If you are looking on how to apply for IPO using ASBA then you can visit here for step wise application process.

Meaning of ASBA: ASBA is an application for subscribing to an issue, containing an authorisation to block the application money in a bank account.
Self Certified Syndicate Bank (SCSB): SCSB is a bank which offers the facility of applying through the ASBA process.

List of SCSB or ASBA Banks - For details of designated branches click on respective banks below:

: Banking News
: , ,