DATE: 20.10.2013
Repo
rate is the rate at which the central bank of a country (RBI in case of India)
lends money to commercial banks in the event of any shortfall of funds.
Definition: Repo rate is the rate at which the central
bank of a country (Reserve Bank of India in case of India) lends money to
commercial banks in the event of any shortfall of funds. Repo rate is used by
monetary authorities to control inflation.
Description: In the event of inflation, central banks increase repo
rate as this acts as a disincentive for banks to borrow from the central bank.
This ultimately reduces the money supply in the economy and thus helps in
arresting inflation.The central bank takes the contrary position in the event
of a fall in inflationary pressures. Repo and reverse repo rates form a part of
the liquidity adjustment facility.
What is Repo Rate?
Repo or repurchase option is a means of short-term borrowing, wherein banks sell approved government securities to RBI and get funds in exchange- — In other words, in a repo transaction, RBI repurchases government securities from banks, depending on the level of money supply it decides to maintain in the country's monetary system.
- — Repo rate is the discount rate at which banks borrow from RBI. Reduction in repo rate will help banks to get money at a cheaper rate, while increase in repo rate will make bank borrowings from RBI more expensive.
- — If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.
Purpose of Repo Rate:
— Repo rate is an important tool used by the RBI to control the supply of money in the banking system. If the rate is increased, the banks will find it difficult to borrow from RBI and the cost offund will increase.
- — This will result in an increase in interest rate in the system. By reducing the Repo rate RBI can reduce the cost of borrowing and there by the interest rate in the system.
The banks will decide the interest rates based on their cost of funds.
Repo Rate will affect the rate of interest charged by banks on various loans
like Home Loan, Personal Loan, car loan etc. As customers of various
loans, all of us will be affected by these rates indirectly
Conclusion:
Repo Rate which is a very well-known term in our economy plays a vital
role in it. From affecting the inflation directly to influencing the foreign
exchange rate, repo rate plays a central role in the money supply of an economy.
Date: 04-10-2013
SHARE MARKET BASICS
What
are the basics of financial instruments?
Let
us understand the two fundamental types of investments, namely bonds and stocks
with an example. Eg. Imagine you want to start your own grocery store. You will
need a capital amount to get started. You acquire the requisite funds from a
friend and write down a receipt of this loan ' I owe you Rs 1, 00,000 and
will repay you the principal loan amount plus 5% interest'. Your friend has
just bought a bond (IOU) by lending money to your company.
Thus
a bond is a means of investing money by lending money to others. When you
invest in bonds, the bond you buy will show the amount of money being borrowed
(face value), the interest rate (coupon rate or yield) that the borrower has to
pay, the interest payments (coupon payments), and the deadline for paying the
money back (maturity dates).
There are several Pro's and Con's to investing in bonds
Pro's
Ø Bonds give higher interest rates compared to short-term investments.
Ø Bonds are less risky when compared to stocks.
Con's
Ø Selling bonds before they're due, may result in a loss, known as a discount.
Ø If the issuer of the bond declares bankruptcy, you may lose your money. Hence
you must critically evaluate the credibility of the issuer of the bond,
ensuring that he has the capability to repay the bond amount.
Now,
let us continue with the same example. To accrue more capital for your new
grocery store, you sell half your company to your brother for Rs 50,000. You
put this transaction in writing 'my new company will issue 100 shares of stock.
My brother will buy 50 shares for Rs 50,000.' Thus, your brother has just
bought 50% of the shares of stock of your company.
Stocks:
Stocks,
also known as Equities, are shares in a company. It is the certificate of
ownership of a corporation. In simple terms, when you invest in a company's
stock or buy its shares, you own part of a company. Thus, as a stockholder, you
share a portion of the profit the company may make, as well as a portion of the
loss a company may take. As the company keeps doing better, your stocks will
increase in value and yield higher dividends.
Dividend:
A
sum of money, determined by a company's directors, paid to shareholders of a
corporation out of its earnings.
This example covers the 2 major types of investments: bonds and stocks Rewinding
back to the Stock Market Trading history of India
In
the earlier days, stockbrokers kept scouting for 'natural' sites to conduct
their trading activities, shifting from one set of Banyan trees to another. As
the number of brokers kept increasing and the streets kept overflowing, they
simply had no choice but to relocate from one place to another.
Finally
in 1854, trading in India found a permanent address, Dalal Street, now
synonymous with the oldest stock Exchange in Asia, The Bombay Stock Exchange.
With a heritage that goes back to over 130 years, BSE was the first stock
exchange in the country to be granted permanent recognition under the
Securities Contract Regulation Act, 1956.
The
exchange has played a pioneering role in the development of the Indian
Securities Market - one of the oldest in the world. After India gained
independence, the BSE formulated a comprehensive set of guidelines adopted by
the Indian Capital markets. Even today, the BSE Sensex remains one of the
parameters against which the robustness of the Indian Economy and finance is
measured.
The
trading scenario in India then underwent a paradigm shift in 1993, when NSE or
National Stock Exchange was recognized as a Stock Exchange. Within just a few
years, trading on both the exchanges shifted from an open outcry system
to an automated trading environment.
Today,
the Indian Securities market successfully keeps pace with its global
counterparts through the use of modern day technology.
Stock
market milestones
1875 BSE
established as 'the native Share and Stock Brokers Association'
1956 BSE became the first stock
exchange to be recognized under the Securities Contract Act.
1993 NSE recognized as a stock
exchange.
2000 Commencement of Internet
trading at NSE.
2000 NSE commences derivatives
trading (Index futures)
2001 BSE commences derivatives
trading
Primary
and Secondary Markets
Primary
Market
An
Issuer/Company enters the Primary markets to raise capital. They issues new
securities in Exchange for cash from an investor (buyer). If the Issuer is
selling securities for the first time, these are referred to as Initial Public Offers (IPO's). Summing up, Primary Market
is the means by which companies float shares to the general public in an
Initial Public Offering to raise capital.
Eg. If the promoters of a private company, say XYZ makes its shares available
to investors, company XYZ is said to have entered the primary market.
Secondary Markets
Once
new securities have been sold in the Primary Market, an efficient mechanism must
exist for their resale, if investors are to view securities as attractive
opportunities. Secondary Market transactions are referred to those transactions
where one investor buys shares from another investor at the prevailing market
price or at whatever price both the buyer and seller agree upon. The Secondary
Market or the Stock Exchanges are regulated by the regulatory authority. In
India, the Secondary and Primary Markets are governed by the Security and
Exchange Board of India (SEBI).
For eg. If one of the investors who had invested in the shares of company XYZ
sold it to another at an agreed upon price, a Secondary Market transaction is
said to have taken place. Normally investors transact in securities using an
intermediary such as a broker who facilitates the process
SEBI:
The
Government of India established the Securities and Exchange Board of India, the
regulatory body of stock markets in 1988. Within a short period of time, SEBI
became an autonomous body through the SEBI Act passed in 1992, with defined
responsibilities that cover both development & regulation of the market
while also giving the board independent powers. Comprehensive regulatory
measures introduced by SEBI ensured that end investors benefited from safe and
transparent dealings in securities.
The basic objectives of the Board were identified as:
To protect the interests of investors in
securities
To promote the development of
Securities Market
To regulate the Securities
Market
SEBI
has contributed to the improvement of the Securities Market by introducing
measures like capitalization requirements, margining and establishment of
clearing corporations that reduced the risk of credit
Today,
the board continues on its two-fold mission of integrating the Securities
Market at the National level and also diversifying the trading products to
increase the number of traders (including banks, financial institutions,
insurance companies, Mutual Funds, primary dealers etc) transacting through the
Exchanges. In this context the introduction of derivatives trading through
Indian Stock Exchanges permitted by SEBI in 2000 AD has been a real landmark.
What
are Stock Exchanges?
A
Stock Exchange is a place that provides facilities to stock brokers to trade
company stocks and other securities. A stock may be bought or sold only if it
is listed on an exchange. Thus it is the meeting place of the stock buyers and
sellers. India's premier Stock Exchanges are the Bombay Stock Exchange and the
National Stock Exchange.
Dino
Submitted by
Dino
***************************************************************************************************************************
Date: 30-09-2013
MARKET
DISCIPLINE:
Buyers and sellers in a market are said to be constrained by market
discipline in setting prices because they have strong incentives to generate revenues and
avoid bankruptcy.
This means, in order to meet economic necessity, buyers must avoid prices that
will drive them into bankruptcy and sellers must find prices that will generate
revenue (or suffer the same fate).
Market discipline is
a topic of particular concern because of banking deposit insurance laws. Most governments offer deposit insurance for
people making deposits with banks. Normally, bank managers have strong
incentives to this constitutes a loss of market discipline. In order to
counteract this loss of market discipline, governments introduce regulations
aimed at preventing bank managers from taking excessive risk. Today market
discipline is introduced into the Basel II Capital Accord as a pillar of
prudential banking regulation.
The efficacy of
regulations aimed at introducing market discipline is questionable. Financial
bailouts provide implicit insurance schemes like too-big-to-fail, where regulators in central agencies feel obliged to
rescue a troubled bank for fear of financial contagion. It can be argued that depositors would not bother to
monitor bank activities under these favorable circumstances. Numerous academic
studies on this subject. The findings at first had mixed and somewhat
discouraging results where market discipline did not appear to be an essential
feature in banking.
Introduction:
Since 1990's
there is an increase of interest among policymakers and academics for enhancing
the environment for market discipline. The reason being: Financial engineering
and technological improvements enabled financial intermediaries to be involved
in overly complex and advanced financial operations.
These
activities become more and more costly to monitor and supervise from the
regulatory agency perspective. This is precisely why regulators support the
idea of including market discipline as another channel to complement regulatory
policies. In a study reported to the Congress in 1983 by the FDIC, the
challenge to the possibility of restructuring financial markets is stressed
quite nicely:
"We
must seek new ways, in the absence of rigid government controls on competition,
to limit destructive competition and excessive risk-taking. There are only two
alternatives. We can promulgate countless new regulations governing every
aspect of bank behavior and hire thousands of addition a examiners to enforce
them.
This approach would undercut the benefits
sought through deregulation, would favor the unregulated at the expense of the
regulated, and would ultimately fail. The FDIC much prefers the other
alternative: seeking ways to impose a greater degree of marketplace discipline
on the system to replace outmoded government controls".
Therefore,
making the relevant financial data publicly available in a timely fashion will,
supposedly, help investors to better evaluate bank condition by themselves and as such this will relieve the
pressure of regulators and put it on the shoulders of the market investors and
depositors.
The right amount of information release is
essential. With too little information, there is no discipline. Too much
information, on the other hand, may cause a bank run which
might have devastating consequences. A timely, balanced amount of information
is critical for the desired results.
At the
Conference of Bank Structure and Competition on May 8, 2003, the then FED
Chairman Alan Greenspan noted that transparency is not the same as disclosure.
Relevant data shall be disclosed in a timely fashion for enhanced transparency:
"Transparency
challenges market participants not only to provide information, but also to
place that information in a context that makes it meaningful."
Base
II:
Basel II is a banking supervision accord in its final version
as of 2006. It describes and recommends the necessary minimum capital
requirements necessary to keep the bank safe and sound. It consists of three
pillars to this aim:
1.
Minimum (risk weighted) capital
requirements
2.
Supervisory review process
3.
Disclosure requirements
The third pillar requires the bank activities
to be transparent to the general public. For this, the bank is supposed to
release relevant financial data (financial statements etc.) in a timely fashion
to the public, for example, through its webpage.
This might enable depositors to better
evaluate bank condition (i.e. bank probability of failure) and diversify their
portfolio accordingly. As such this pillar by itself is believed will enhance
the role of market discipline in financial markets.
Deposit
safety nets:
Deposit
insurance in the U.S. was instituted in 1934 to restore depositor trust into
the financial markets following the devastation of the Great Depression. It
worked quite well for many decades in terms of preventing a major bank run
and systemic risk.
In the last couple
of decades there has been increased criticism about its benefits. Concerning
market discipline, one can easily say that mispriced deposit insurance distorts
the incentives of depositors to monitor bank risk taking activities. For example,
100% of deposits are under government guarantee (up to $100,000) in the U.S.
compared to only 70% in England. Obviously, the depositors in England, knowing
that they will lose money when the bank they are investing in fails, will be
more cautious than U.S. depositors and will monitor bank activities with
vigilance.
Submitted by
Mahara Jothi
******************************************************************************************************
Date: 12.04.2013
FOREX MARKET
Do away with ignorance about the forex
market:
Did you recently take the decision of trading the forex market in order
to boost your monthly income?
Well, with the spurring debt obligations within
the nation, almost all consumers are looking for ways to augment their monthly
income so that they have enough money to pay back their liabilities.
Are you
too wondering about the prospects of taking a plunge in the forex bandwagon in
order to become debt free? If answered yes, you should clear your doubts about
this particular market so that you don't base any of your decisions on wrong
information about the currency market.
Here is a list of the most common
questions that hover around the minds of the investors when they're new to the
trade. Check them out to boost your knowledge and thereby take better informed
decisions.
What is the difference between the forex
and the other markets?
Currency trading basically doesn't take place
on a regulated exchange and is neither controlled by any government body. The
members or the investors trade here with each other based on the credit
agreements and their business usually depends on their metaphorical handshakes.
The traders who participate in the forex market cooperate and compete with each
other and this builds enough profits. It is certainly different from all the
other markets as there is no fixed rule as there is in the stock market. There
is nothing called insider trading in the forex market. It is also traded 24 hrs
throughout the entire week.
What is a pip in the forex market?
A pip is nothing but the smallest percentage increase of trade in the
forex market and it stands for a "percentage in point". Usually in
the forex market, the prices are quoted to the 4th decimal point and if there's
any change within that decimal point, it is known as 1 pip which is equivalent
to 1/100th of 1%.
Is there any possibility of commission in
the forex trading?
If you're a trader, this is rather good news for you that there are no
commissions in the forex market. The entire forex market is a "principal-only"
firm and all the forex firms are not brokers but dealers.
They make money
through the bid-ask spread and they don't need to charge commissions for making
profits. Once the cost of the spread is cleared by the price, every penny that
you gain means pure profit for the trader or the investor.
Which currencies are usually traded in the
currency exchange market?
It certainly
goes without saying that majority of the traders will trade the most liquid
currencies in the market and they're only capable of making better profits.
There are the most popular 7 pairs that account for almost 95% of the entire
speculative trading.
The most common currencies are EUR/USD, USD/JPY, GBP/USD,
USD/CHF, USD/CAD, AUD/USD and NZD/USD.
Therefore, if you wish to try your luck in
the forex market, you have to ensure clearing all your doubts before taking any
step. Take into account the answers mentioned above so that you don't end up
taking wrong decisions.
Submitted by
J.Parthiban
*****************************************************************************************************
Date: 05.04.2013
RETURN ON INVESTMENT
Meaning:
(ROI) is a performance measure used to
evaluate the efficiency of an investment or to compare the efficiency of a
number of different investments It
is one way of considering profits in relation to capital invested.
Purpose:
The purpose of the "return on
investment" metric is to measure, per period, rates of return on money
invested in an economic entity in order to decide whether or not to undertake
an investment.
ROI and related metrics provide a
snapshot of profitability, adjusted for the size of the investment assets tied
up in the enterprise. ROI is often compared to expected (or required) on money invested.
Marketing decisions have obvious
potential connection to the numerator of ROI (profits), but these same
decisions often influence assets usage and capital requirements (for example,
receivables and inventories).
Marketers should understand the position of their
company and the returns expected.
In a survey of nearly 200 senior
marketing managers, 77 percent responded that they found the "return on
investment" metric very useful.
Calculation:
For a single-period review divide
the return (net profit) by the resources that were committed (investment
return on investment (%) = Net profit / Investment × 100
or
return on investment = (gain from investment - cost of investment) / cost of
investment
Problems in Calculating ROI:
Property
purchase
Complications in calculating ROI can
occur when a real estate property is refinanced, or a second mortgage is taken
out. Interest on a second, or refinanced, loan may increase, and loan fees may
be charged, both of which can reduce the ROI, when the new numbers are used in
the ROI equation.
There may also be an increase in maintenance costs and
property taxes, and an increase in utility rates if the owner of a residential
rental or commercial property pays these expenses.
Complex calculations may also be
required for property bought with an adjustable rate mortgage (ARM) with a
variable escalating rate charged annually through the duration of the loan. (To
know more about ARM, check out: Mortgages: Fixed-Rate Versus Adjustable-Rate.
Submitted by
D.Priya
****************************************************************************************************
Date: 01.04.2013
MONEY MARKET
Meaning:
As
money became a commodity, the money market became a component of the
financial markets for assets involved in short-term borrowing, lending, buying
and selling with original maturities of one year or less.
Trading in the money
markets is done over the counter, is wholesale. Various instruments exist, such
as Treasury
bills, commercial paper, bankers'
acceptances, deposits, certificates of deposit,
bills of exchange, repurchase
agreements,
federal funds, and short-lived mortgage-, and asset-backed
securities.
It provides liquidity funding for the global
financial system.
Money markets and capital markets are parts of financial markets. The instruments bear
differing maturities, currencies, credit risks, and structure. Therefore they
may be used to distribute the exposure.
Definition:
According to the RBI, "The money market is
the centre for dealing mainly of short character, in monetary assets; it meets
the short term requirements of borrowers and provides liquidity or cash to the
lenders.
It is a place where short term surplus investible funds at the
disposal of financial and other institutions and individuals are bid by
borrowers, again comprising institutions and individuals and also by the
government."
History:
The money market
developed because parties had surplus funds, while others needed cash. Today it
comprises cash instruments as well.
Participants:
The
money market consists of financial institutions and dealers in money or credit
who wish to either borrow or lend.
Participants borrow and lend for short
periods of time, typically up to thirteen months. Money market trades in
short-term financial
instruments
commonly called "paper." This contrasts with the capital market for longer-term funding,
which is supplied by bonds and equity.
The
core of the money market consists of interbank
lending--banks
borrowing and lending to each other using commercial paper, repurchase
agreements
and similar instruments. These instruments are often benchmarked to (i.e.
priced by reference to) the London Interbank Offered Rate (LIBOR) for the
appropriate term and currency.
Finance
companies typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by
the pledge of eligible assets into an
ABCP conduit. Examples of eligible assets include auto loans, credit card
receivables, residential/commercial mortgage loans, mortgage-backed
securities
and similar financial assets.
Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on
their own credit. Other large corporations arrange for banks to issue
commercial paper on their behalf via commercial paper lines.
In
the United States, federal, state and local governments all issue paper to meet
funding needs. States and local governments issue municipal paper, while the US Treasury issues Treasury
bills to
fund the US
public debt.
- Trading companies often
purchase bankers'
acceptances to be
tendered for payment to overseas suppliers.
- Retail and institutional money
market funds
- Banks
- Central banks
- Cash management programs
- Merchant Banks
Functions of the money market:
Money
market is an important part of the economy. It plays very significant
functions. As mentioned above it is basically a market for short term monetary
transactions. Thus it has to provide facility for adjusting liquidity to the
banks, business corporations, non-banking financial institutions (NBFs) and
other financial institutions along with investors.
The
major functions of money market are given below:-
- To maintain monetary
equilibrium. It means to keep a balance between the demand for and supply
of money for short term monetary transactions.
- To promote economic growth.
Money market can do this by making funds available to various units in the
economy such as agriculture, small scale industries, etc.
- To provide help to Trade and
Industry. Money market provides adequate finance to trade and industry.
Similarly it also provides facility of discounting bills of exchange for
trade and industry.
- To help in implementing
Monetary Policy. It provides a mechanism for an effective implementation
of the monetary policy.
- To help in Capital Formation.
Money market makes available investment avenues for short term period. It
helps in generating savings and investments in the economy.
- Money market provides
non-inflationary sources of finance to government. It is possible by
issuing treasury bills in order to raise short loans. However this does
not leads to increases in the prices.
Apart
from those, money market is an arrangement which accommodates banks and
financial institutions dealing in short term monetary activities such as the
demand for and supply of money.
Money market instruments:
- Certificate
of deposit - Time
deposit, commonly offered to consumers by banks, thrift institutions, and
credit unions.
- Repurchase
agreements -
Short-term loans—normally for less than two weeks and frequently for one
day—arranged by selling securities to an investor with an agreement to
repurchase them at a fixed price on a fixed date.
- Commercial
paper - short term usage promissory
notes issued by company at discount to face value and redeemed at face
value
- Eurodollar
deposit - Deposits made in U.S.
dollars at a bank or bank branch located outside the United States.
- Federal agency short-term
securities - (in the U.S.). Short-term securities issued by government sponsored enterprises such as the Farm
Credit System, the Federal
Home Loan Banks and the Federal National Mortgage Association.
- Federal
funds - (in the U.S.).
Interest-bearing deposits held by banks and other depository institutions
at the Federal
Reserve; these are immediately
available funds that institutions borrow or lend, usually on an overnight
basis. They are lent for the federal
funds rate.
- Municipal
notes - (in the U.S.). Short-term
notes issued by municipalities in anticipation of tax receipts or other
revenues.
- Treasury
bills - Short-term debt obligations
of a national government that are issued to mature in three to twelve
months.
- Money
funds - Pooled short maturity, high
quality investments which buy money market securities on behalf of retail
or institutional investors.
- Foreign
Exchange Swaps -
Exchanging a set of currencies in spot date and the reversal of the
exchange of currencies at a predetermined time in the future.
- Short-lived mortgage-
and asset-backed
securities
Discounts and accrual instruments:
There are two types of
instruments in the fixed income market that pay the interest at maturity,
instead of paying it as coupons.
Discount instruments, like repurchase
agreements, are issued at a discount of the face value, and their maturity
value is the face value. Accrual instruments are issued at the face
value and mature at the face value plus interest.
Submitted by
A.Thaiyalnayaki
***************************************************************************************************
Date: 29.03.2013
EXCLUSIVE UNION
BUDGET 2013-2014 IMPACT REPORT ON BANKING
The
target for agricultural credit which is a major driver of agricultural
production is expected to increase to Rs 7 trillion in FY14 from Rs 5.75
trillion in FY13. The interest subvention scheme for short-term crop loans is
to be continued and a farmer repaying the loan on time will be able to get
credit at 4% p.a.
Before
the end of FY13, the Finance Ministry shall provide Rs 125.2 bn as an
additional capital infusion for 13 PSU banks. This is set to increase to Rs 140
bn in FY14. The government is committed that these banks will meet Basel III
norms and when they come to force in a phased manner.
However, PSU banks have been seeing major
asset quality stresses and have written off a number of non - performing assets
(NPAs), thus eroding capital.
Taxpayer
money is thus being used to fund the NPAs of these banks especially accounts
like Kingfisher Airlines.We believe that this constant recapitalization of PSU
banks may just be a case of throwing good money after bad.
The
Finance Minister also proposed to set up India’s first Women’s Bank which will
be a public sector bank. Rs 10 bn will be granted by the government as initial
capital and necessary approvals, including the banking license is expected to
be set in place by October, 2013.
While we appreciate the FMs efforts on gender
issues, we don’t believe that such a bank has anything new to offer in India’s
crowded banking space. In consultation with RBI, the finance minister proposes
to provide Rs 60 bn to the Rural Housing Fund in 2013-14.
The Rural Housing Fund set up through the
National Housing Bank is used to refinance lending institutions, including
Regional Rural Banks that extend loans for rural housing.
A
fund for urban housing is proposed to be set up in order to mitigate the
shortage of houses in urban areas. The finance ministry proposes to ask
National Housing Bank to set up the Urban Housing Fund and, in consultation
with RBI, and proposes to provide Rs 20 bn to the Fund in 2013-14.
Banks
will be permitted to act as insurance brokers so that the entire network of
bank branches will be utilized to increase insurance penetration, which is
relatively low in India. Banking correspondents will also be allowed to sell
micro-insurance products.
Submitted by
S.Thivyha
*************************************************************************************************
Date: 25.03.2013
DEBENTURES
The issue
of debentures by public limited companies is regulated by Companies Act
1956. Debenture is a document, which either creates a debt or acknowledges it. Debentures are issued through a prospectus. A debenture is
issued by a company and is usually in the form of a certificate, which is an
acknowledgement of indebtedness. They are issued under the company's seal.
Debentures are one of a series issued to a number of lenders.
The date of repayment is invariably specified in the
debenture. Generally Debentures are issued against a charge on the assets
of the company. Debentures may, however, be issued without any such
charge. Debenture Holders have no right to vote in the meetings of the
company.
Kinds of Debentures
1. Bearer Debentures: They are registered and are payable to its
bearer. They are negotiable instruments and are transferable by delivery.
2. Registered Debentures: They are payable to the registered holder
whose Name appears both on debenture and in the register of
debentureHolders maintained by the company.
Registered
debentures can be Transferred but have to be registered again. Registered
debentures are not negotiable instruments. PI registered debenture
contains a Commitment to pay the principal sum and interest.
It
also has a description of the charge and a statement that it is issued
subject to the
conditions endorsed therein.
3. Secured Debentures: Debentures which create a charge on the
assets of the company, which may be fixed or floating, are known as
secured debentures.
4. Unsecured or Naked Debentures: Debentures, which are issued without any
charge on assets, are unsecured or naked debentures, the holders are like
unsecured creditors and may sue the company for recovery of debt.
5. Redeemable Debentures: Normally debentures are issued on
the condition that they shall be redeemed after a certain period. They
can, However, be reissued after redemption under Section 121 of
Companies Act 1956.
6. Perpetual Debentures: When debentures are irredeemable they
are Called Perpetual.
7. Convertible Debentures: If an option is given to convert debentures
into equity shares at stated rate of exchange after a specified period
they are called convertible debentures. In our country the
convertible debentures are very popular.
On
conversion, the holders cease to be lenders and become owners. Debentures
are usually issued in a series with a pari
passu (at the same rate)
clause which entitles them to be discharged rate ably though issued at
different times.
New series
of debentures cannot rank pari
passu with old series unless
the old series
provides so.
8. New debt instruments: Issued
by public limited companies are participating debentures, convertible
debentures with options, third party convertible debentures, and
convertible debentures redeemable at premium, debt equity swaps and zero
coupon convertible notes.
9. Participating Debentures: They are unsecured
corporate debt securities, which participate in the profits of the
company. They might find investors if issued by existing dividend paying
companies.
10. Convertible Debentures with
Options: They are
a derivative of convertible debentures with an embedded option, providing
flexibility to the issuer as well as the investor to exit from the terms
of the issue. The coupon rate is specified at the time of issue.
11. Third Party convertible
Debentures: They are
debt with a warrant allowing the investor to subscribe to the equity of a
third firm at a preferential vis-à-vis the market price. Interest rate on
third party convertible debentures is lower than pure debt on account of
the conversion option.
12. Convertible Debentures
Redeemable at a premium: Convertible Debentures
are issued at face value with an option entitling investors to later sell
the bond to the issuer at a premium. They are basically similar to
convertible debentures but embody less risk.
Submitted by
E.Vidhya
***********************************************************************************************
Date: 22.03.2013
RANDOM WALK THEORY
Random walk theory gained popularity
in 1973 when Burton Malkiel wrote "A Random Walk Down Wall Street", a
book that is now regarded as an investment classic. Random walk is a stock
market theory that states that the past movement or direction of the price of a
stock or overall market cannot be used to predict its future movement.
Originally
examined by Maurice Kendall in 1953, the theory states that stock price
fluctuations are independent of each other and have the same probability
distribution, but that over a period of time, prices maintain an upward
trend.
In short, random walk says that stocks take a random and unpredictable
path. The chance of a stock's future price going up is the same as it going
down. A follower of random walk believes it is impossible to outperform the
market without assuming additional risk.
In his book,
Malkiel preaches that both technical analysis and fundamental
analysis are largely a waste of time and are still unproven in
outperforming the markets.
Malkiel constantly states that a
long-term buy-and-hold strategy is the best and that individuals
should not attempt to time the markets. Attempts based on technical,
fundamental, or any other analysis are futile. He backs this up with statistics
showing that most mutual funds fail to beat benchmark averages like
the S&P 500.
While many still follow the preaching of Malkiel, others believe that the
investing landscape is very different than it was when Malkiel wrote his book
nearly 30 years ago. Today, everyone has easy and fast access to relevant news
and stock quotes.
Investing is no
longer a game for the privileged. Random walk has never been a popular concept
with those on Wall Street, probably because it condemns the concepts on
which it is based such as analysis and stock picking.
It's hard to say how much truth there is to this theory; there is
evidence that supports both sides of the debate. Our suggestion is to pick up a
copy of Malkiel's book and draw your own conclusions.
The random walk hypothesis is a financial theory stating
that stock market prices evolve according to a random
walk and thus the prices of the stock market cannot be predicted. It is
consistent with the efficient-market hypothesis.
The concept can be traced to French broker Jules
Regnault who published a book in 1863, and then to French
mathematician Louis Bachelier whose Ph.D. dissertation titled
"The Theory of Speculation" (1900) included some remarkable insights
and commentary.
Same ideas were later developed by MIT Sloan School of
Management professor Paul Cootner in his 1964 book The
Random Character of Stock Market Prices.
The term was popularized by the 1973 book, A Random Walk
Down Wall Street, by Burton Malkiel, a Professor of Economics
at Princeton University, and was used earlier in Eugene Fama's
1965 article "Random Walks In Stock Market Prices", which was a
less technical version of his Ph.D. thesis.
The theory that stock prices move randomly was earlier proposed by Maurice
Kendall in his 1953 paper,The Analytics of Economic Time Series, Part
1: Prices.
Submitted by
S.Praveen Anand
***********************************************************************************************
Date: 19.03.2013
DOLLAR COST AVERAGING
If
you ask any professional investor what the hardest investment task is, he or
she will likely tell you that it is picking bottoms and tops in the market.
Trying to time the market is a very tricky strategy. Buying at the absolute low
and selling at the peak is nearly impossible in practice. This is why so many
professionals preach about dollar cost averaging (DCA).
Although
the term might imply a complex concept, DCA is actually a fairly simple and
extremely useful technique. Dollar cost averaging is the process of buying,
regardless of the share price, a fixed dollar amount of a particular investment
on a regular schedule. More shares are purchased when prices are low, and fewer
shares are purchased when prices are high. The cost per share over time eventually
averages out. This reduces the risk of investing a large amount in a single
investment at the wrong time.
Let's
analyze this with an example. Suppose you recently got a bonus for your
previously unrecognized excellence (just imagine!), and now you have $10,000 to
invest. Instead of investing the lump sum into a mutual fund or stock, with
DCA, you'd spread the investment out over several months. Investing $2,000 a
month for the next five months, "averages" the price over five
months. So one month you might buy high, and the next month you might buy more
shares because the price is lower, and so on.
This
plan is also applicable to the investor who doesn't have that big lump sum at
the start, but can invest small amounts regularly. This way you can contribute
as little as $25-50 a month to an investment like an index fund. Keep in mind
that dollar cost averaging doesn't prevent a loss in a steadily declining
market, but it is quite effective in taking advantage of growth over the long
term.
Dollar
cost averaging (DCA) is an investment strategy that may be used with any
currency. It takes the form of investing equal monetary amounts regularly and
periodically over specific time periods (such as $100 monthly for 10 months) in
a particular investment or portfolio. By doing so, more shares are purchased
when prices are low and fewer shares are purchased when prices are high. The
point of this is to lower the total average cost per share of the investment,
giving the investor a lower overall cost for the shares purchased over time.
Dollar
cost averaging is also called the constant dollar plan (in the US), pound-cost
averaging (in the UK), and, irrespective of currency, as unit cost averaging or
the cost average effect
Parameters:
In
dollar cost averaging, the investor decides on three parameters: the fixed
amount of money invested each time, the investment frequency, and the time
horizon over which all of the investments are made. With a shorter time
horizon, the strategy behaves more like lump sum investing. One study has found
that the best time horizons when investing in the stock market in terms of
balancing return and risk have been 6 or 12 months.
One
key component to maximizing profits is to include the strategy of buying during
a downtrending market, using a scaled formula to buy more as the price falls.
Then, as the trend shifts to a higher priced market, use a scaled plan to sell.
Using this strategy, one can profit from the relationship between the value of
a currency and a commodity or stock.
Submitted by
C.Senthil Kumar
*********************************************************************************************
Date: 28.02.2013
TARGET COSTING
Target costing:
Target
costing is a pricing method used by firms.
Definition:
It is defined as "a cost management tool for reducing
the overall cost of a product over its entire life-cycle with the
help of production, engineering, research and design".
Target costing in firm:
A target cost is the maximum amount of cost that can be incurred on a
product and with it the firm can still earn the required profit margin from
that product at a particular selling price.
In the traditional cost-plus
pricing method materials, labor and overhead costs are measured and a
desired profit is added to determine the selling price.
Target costing principal concept:
The products should be
based on an accurate assessment of the wants and needs of
customers in different market segments, and cost targets
should be what result after a sustainable profit margin is subtracted from what
customers are willing to pay at the time of product introduction and afterwards
Target costing steps:
These concepts are
supported by the four basic steps of target costing:
(1) Define the product
(2) Set the price and cost targets
(3) Achieve the targets
(4) Maintain competitive costs.
To compete effectively,
organizations must continually redesign their products (or services) in order
to shorten product life cycles.
The planning,
development and design stage of a product is therefore critical to an
organization's cost management process.
Considering possible cost reduction at this
stage of a product's life cycle (rather than during the production process) is
now one of the most important issues facing management accountants in industry.
This formula
calculated the target cost:
Target cost gap = estimated product
cost – target cost
Target costing in service organisations:
i. Target costing is as relevant to the
service sector as the manufacturing sector.
ii. Key issues are similar in both:
1.The needs of the market need to be
identified and understood as well as its customers and
users
2.Financial performance at a given cost or
price (which does not exceed the target cost when
resources are limited) needs to be ensured.
For example:
if a firm of accountants was asked to bid for a new client contract, the
partners or managers would probably have an idea of what kind of price is
likely to win the contract. If staff costs are billed out at twice their hourly
salary cost, say, this would help to determine a staff budget for the contract.
It would then be necessary to work out the hours needed and play around with
the mix of juniors / senior staff to get to that target cost.
There are ways in which target costing can be applied to service-oriented
businesses, and the focus of target costing shifts from the product to the
service delivery system.
Submitted by
P.Maria Nisha
*******************************************************************
Date ; 5.8.2011
INTERIM BUDGET - AT A GLANCE
ITEMS
|
2009-2010
Accounts
|
2010-2011
Budget
Estimate
|
2010-2011
Revised
Estimate
|
2011-2012
Budget
Estimate
|
CONSOLIDATED FUND
Revenue Receipts
Expenditure met from Revenue
Surplus or Deficit on Revenue
Account
PUBLIC DEBT – Receipts
PUBLIC DEBT – Repayment
PUBLIC DEBT (Net)
Expenditure met from Capital Account
Loans and Advances (Net)
Capital Expenditure including Loans &Advances (Net ) and excluding Public Debt
Deficit or Surplus on Capital Account
Total-I. Consolidated Fund (Net)
CONTINGENCY FUND (Net)
PUBLIC ACCOUNT (Net)
TOTAL TRANSACTIONS [I+II+III]
Opening Balance
Closing Balance
|
[Rs in crores]
55,844.13
59,375.35
|
[Rs in crores]
63,091.74
66,488.19
|
[Rs in crores]
72,413.82
75,542.61
|
[Rs in crores]
79,413.26
78,974.48
|
-3,531.22
|
-3,396.45
|
-3,128.79
|
438.78
| |
15,556.84
2,511.81
|
13,621.10
3,415.36
|
15,079.38
3,497.97
|
20,015.89
3,710.88
| |
13,045.03
|
10,205.74
|
11,581.41
|
16,305.01
| |
8,572.59
-296.55
|
12,284.69
540.99
|
13,575.32
903.60
|
13,131.49
814.13
| |
8,276.04
|
12,825.68
|
14,478.92
|
13,945.62
| |
4,768.99
|
-2,619.94
|
-2,897.51
|
2,359.39
| |
1,237.77
|
-6,016.39
|
-6,026.30
|
2,798.17
| |
0.51
-1,523.60
|
6,013.80
-2.59
|
5,742.98
-283.32
|
3,702.10
6,500.27
| |
-285.32
|
-2.59
|
-283.32
|
6,500.27
| |
-120.08
-405.40
|
-5.25
-7.84
|
-405.40
-688.72
|
-688.72
5,811.55
|
The estimates assume that there will be no carry over of unpaid bills as arrears into the next financial year.
· The AIADMK government in Tamil Nadu today presented its first budget for 2011-12 since coming to power in May, unveiling new schemes and additional benefits worth over Rs 8,900 crore.
· Presenting the budget with a "marginal revenue surplus" of a little over Rs 173 crore amid a DMK walkout over "foisting" of land grab cases against them, Finance Minister O Panneerselvam said the overall outstanding debt at the end of 2011-12 was expected to be around Rs 1,18,610 crore.
· Projecting the outstanding debt at the end of 2011-12 at Rs 1,18,610 crore, he said that borrowing proposed in the current year was "unavoidable," as the state had to keep up the pace of its developmental activities. It started the year with outstanding debt of Rs 1,01,349 crore, he said.
· However, the oustanding debt will not exceed 13th Finance Commission norms of 24.50 per cent of GSDP as at the end of 2011-12, as this ratio (for Tamil Nadu) will be only 20.39 per cent, he said describing it as a "redeeming feature."
· "The total revenue receipt for the Revised Budget Estimates 2011-12 is at Rs 85,685 crore. The state's own revenue is projected at Rs 59,787 crore and Non tax Revenue is projected at Rs 5,015 crore. The share of Union taxes and grant-in-aid from Government of India is projected at Rs 13,111 crore and Rs 7,772 crore, respectively.
--------------------------------------------------------------------------------------------------
Date: 28-07-2011
Mutual Fund Types and Investment Tips!!!
Additionally, investors are provided with expanded portfolio with mutual investment as mutual fund houses invest the collective amount in several sectors and diversified businesses. Mutual funds are the best option for the person who has just started his share market activity. Even if you don’t know a thing about Stock market, mutual funds offers you a safer side. Your investment is less vulnerable of market crash due to use of your money in different companies. Even few of those companies dip due to market crash; the rest investment will save you or minimize your loss.
Likewise share market, the performance of your mutual fund largely depends on the company’s stock market performance. So before barging into investment, get the insight of the companies for which your funds are being used. Basically,
Three types of mutual funds
(a) Small Cap Mutual Fund
(b) Mid Cap Mutual Fund
(c) Large Cap Mutual Fund
Here cap stands for capitalization and many of the fund houses offered mutual funds in all these three categories. Cap means total shares’ market evaluation of the company. One can calculate the market cap by multiplying the total count of shares by its latest market price. As obvious by its name, small-cap funds are invested in companies having smaller market capitalization. All these small, mid and large caps are closer terms. The investment houses decide the investment limit for them.
You must figure out which funds will be productive for you. But again this entirely based on the risk you cover and the present market situation. Small-caps and somehow mid-caps are considered to be more risky as compared to large-caps mutual funds. This is generally because the small caps and may caps investment is made into startups and smaller companies whereas large caps are invested in blue chip and reputed companies.
As greater risk offers greater return, so is the case with small and mid-caps. Small and startup companies possess greater chances of rapid growth and so is the case with a small and mid-caps. The growth and higher returns are unpredictable in these investments. On the other hand, large companies are established and their growth pattern can be predicted. But large caps are interested in well rooted companies and so offer slow but definite profit. These are less vulnerable at the time of economic crisis. Choose wisely among these available mutual funds to increase your investment returns.
Best mutual funds for investment in India:
Small-cap Mutual Funds:
• BNP Sundaram Paribas
• HSBC Small Cap Fund
Mid-cap Mutual Funds:
• Sundaram BNP Paribas Select Midcap
• Kotak Indian Mid Cap Fund
• HSBC Midcap Equity Fund
Large-cap Mutual Funds:
• HDFC Top 200
• Kotak 30
• Reliance Growth Fund
• UTI Large Cap Fund
******************************************
******************************************
DATE: 27-07-2011
Smart Way For Taking a Loan “Top-Up Loans against Your Home Loans”!
Banks are becoming buddies of their clients with the help of different types of concept. They are offering quick loan mainly know as top-up loan for which customers don’t need to provide any security or mortgage paper.
Top-up loan:
Top-up loan is the type of loan when a customer satisfies its bank by repaying its debt (home loan installments) on time gets eligible to for top-up. It is second loan against the existing home loan which have little higher interest rate than first one normally 1percent to 2 percent.
So, this facility allows a customer to apply for any type of loan whether it is an education loan, personal loan, marriage purpose etc. Contract of this loan will be ending with the contract of home loan. So, this loan helps customers to decrease their cash expenditure.
Eligibility and limit for borrowers:
If you are repaying your loan amount on regular basis, at least 6 installments, you will be eligible to apply for top-up loan. This is just an extension of limit of your home loan and banker is not concern about how you are going to employ your money. Bankers will just look for your repayment ability and if your installments are coming without any blockage no matters in issuing of top-up loan but if the installments are not been paid on regular basis, then bankers might not get ready to provide this loan.
Secondly, if your property gets high value in the market you will be able to apply for higher loan amount and the ability of the customer to repay his loan and loan amount till now exhausted also taken into valuation of your next credit limit. Although it’s all up to the banks or financial institutes to determine the amount you will be eligible for your top-up.
Few financial institutes have taken a decision to put limit on the top-up loan amount on the basis of loan amount (original home loan amount) while few of them have decided to go with the market value of the assets, ability of the customer to pay back the amount, remaining balance of first loan amount etc.
These loans are separate loans and do not entitle for any tax benefits whereas home loan on the basis of which this loan has been issued gets tax benefits. This type of loan is good to take when there is need of any long term financial necessity. This is very flexible and helps you to save your hard earned money.
******************************************************
Credit Cards Pros and Cons!
Agencies like bank, financial institute are offering their clients to opt for another credit card even if they already have, to generate more business by them. Customers are also trying to get as many cards so that they will be able to have more credit limit. But the question is having a lot of card is good option for the customers or will it create future problems to their users. Let’s figure it out by discussing the pros and cons of having many cards.
Pros:
If a customer have many cards then it is very obvious he’ll have good credit limit if he required on the time of uncertainty. But need of number of cards required only at the time when your card don’t have sufficient limit. So if you repaying your debt on time it will enhance you credit reputation. Banks may extend your card limit so you don’t need number of cards with increase in high interest rate.
As we all know we use cards mainly for the purpose of shopping and online ordering. Often we have seen that different shops and site required different company’s cards. So customers with single card may face problems during the time of purchasing and option of multiple cards provides back up support to the customer at the time of technical defaults.
With the different card option, cyber-crime or e fraud can be protected. Customers can impose limit restriction on their card limit so if anything happened like hacking it will not exceed the limit.
Different companies offer different and unique proposals to their customers like free movie ticket, % discount on shopping, paying their bills etc. So holders can enjoy the free or discounted facility provided by the companies.
Cons:
Customers with several cards frequently face problems like maintaining their bills. CIBIL is agency which keeps track of all records of customers for the proper payment. If you miss one single payment it will impact your repayment of debts reputation. So be very accountable if you have more credit card.
With more credit cards gives you more purchasing power. It can cause a lot of wasteful expenditures directly impact to your credibility. So you might not be able to pay your installments on a regularly basis cause lower rating by the companies and as well as it needs a lot effort by your end to manage all details of your cards likes repayment date, cards limit, interest charge by banks or companies.
So, it is not yet decided how much number of cards is required to fulfill the needs of the customer. It’s all depends upon the requirement of the clients. But before going for multiple card option you should analyze and calculate all the risk and benefits involve in it.
********************************************************
******************************************************
Few Steps for The Right Kind Of Insurance Policy!
Selecting the correct insurance policy not just insure you about the safe and planned future but also true value of your investments. Rightly selected insurance policies have different types of benefits like returns on investment, wealth management, payback time, insurance cover etc. Appropriate investment provides the financial backup to the family of policy holder at the stage of any disaster.
Insurance policy should be based on the income capability of the investors, capacity to pay periodical payment, age factor, health, future earning etc. All the above factors are related to the credibility of the customers and needs of them. Selection of policy depends upon the requirements of the customer.
Few things must be taken care by the investor like Cost benefit, cover. Cost benefit is something like whatever the investments has been made by investor provides full justification to the investment. You must very carefully analyze the cost of insurance policy so that it will fulfill the requirements and cover is something which will confirm that policy is covering the entire prospect and covers most of the medical related problems.
Now the most important things which must be taken care by the investor, types of the policies. Basically there are four types of policies which are preferred by investors are:
1) Term Insurance – It is a type of policy that facilitates the holder for the limited period of time. As it’s been understood by the name of the policy it is a term policy like 10 20 or 30 years. So if an investor seeking for the limited period investment this is the policy for them.
2) Endowment Policy- It is the policy for the payment of lump sum on the time of its maturity or if any prior death occurred. General maturities are ten to twenty years of time period, subjected to a definite age limit. Some endowment policies facilitate to pay at the time of critical illness.
3) ULIPs- ULIPs are goal-directed financial key that join the wealth formation opportunities with safety of insurance cover. This is the policy (Unit Linked Insurance Plans) which varies time to time as per the cost of the underlying assets.
4) Money Back Policy- It is a different type of policy from the other endowment policies where they pay at the time of maturity only but this insurance policy provides timely payment during the period of policy.
It is up to you to select right kind of policy as per your requirement and it is very essential to know your credibility and financial condition so that it will help you to choose appropriate policy satisfying your needs. So make sure that you have analyzed all the factors and compare all the available plans and then go for the policy which will fulfill your needs.
*********************************************************
India Income Tax Slab Rates!
FY – 2011-12:-
For General Tax Payers
|
For Women Tax Payers
|
For Senior Citizens
| |||
Tax Slab(In Rs.)
|
Tax (In %)
|
Tax Slab (In Rs.)
|
Tax (In %)
|
Tax Slab (In Rs.)
|
Tax (In %)
|
0-1,80,000
|
No Tax
|
0-1,90,000
|
No Tax
|
0-2,50,000
|
No Tax
|
1,80,001-5,00,000
|
10%
|
1,90,001-5,00,000
|
10%
|
2,50,001-5,00,000
|
10%
|
5,00,001 – 8,00,000
|
20%
|
5,00,001 – 8,00,000
|
20%
|
5,00,001 – 8,00,000
|
20%
|
Above 8,00,000
|
30%
|
Above 8,00,000
|
30%
|
Above 8,00,000
|
30%
|
FY – 2010-11:-
For General Tax Payers
|
For Women Tax Payers
|
For Senior Citizens
| |||
Tax Slab(In Rs.)
|
Tax (In %)
|
Tax Slab (In Rs.)
|
Tax (In %)
|
Tax Slab (In Rs.)
|
Tax (In %)
|
0-1,60,000
|
No Tax
|
0-1,90,000
|
No Tax
|
0-2,40,000
|
No Tax
|
1,60,001-5,00,000
|
10%
|
1,90,001-5,00,000
|
10%
|
2,40,001-5,00,000
|
10%
|
5,00,001 – 8,00,000
|
20%
|
5,00,001 – 8,00,000
|
20%
|
5,00,001 – 8,00,000
|
20%
|
Above 8,00,000
|
30%
|
Above 8,00,000
|
30%
|
Above 8,00,000
|
30%
|
FY – 2009-10:-
For General Tax Payers
|
For Women Tax Payers
|
For Senior Citizens
| |||
Tax Slab(In Rs.)
|
Tax (In %)
|
Tax Slab (In Rs.)
|
Tax (In %)
|
Tax Slab (In Rs.)
|
Tax (In %)
|
0-1,60,000
|
No Tax
|
0-1,90,000
|
No Tax
|
0-2,40,000
|
No Tax
|
1,60,001-5,00,000
|
10%
|
1,90,001-5,00,000
|
10%
|
2,40,001-5,00,000
|
10%
|
5,00,001 – 8,00,000
|
20%
|
5,00,001 – 8,00,000
|
20%
|
5,00,001 – 8,00,000
|
20%
|
Above 8,00,000
|
30%
|
Above 8,00,000
|
30%
|
Above 8,00,000
|
30%
|
FY – 2008-09:-
For General Tax Payers
|
For Women Tax Payers
|
For Senior Citizens
| |||
Tax Slab(In Rs.)
|
Tax (In %)
|
Tax Slab (In Rs.)
|
Tax (In %)
|
Tax Slab (In Rs.)
|
Tax (In %)
|
0-1,50,000
|
No Tax
|
0-1,80,000
|
No Tax
|
0-2,25,000
|
No Tax
|
1,50,001-3,00,000
|
10%
|
1,80,001-3,00,000
|
10%
|
2,25,001-3,00,000
|
10%
|
3,00,001 – 5,00,000
|
20%
|
3,00,001 – 5,00,000
|
20%
|
3,00,001 – 5,00,000
|
20%
|
Above 5,00,000
|
30%
|
Above 5,00,000
|
30%
|
Above 5,00,000
|
30%
|
******************************************************
The 2011 India Auto Insurance Customer Satisfaction Index Study conducted by J D Power indicates that customer satisfaction has seen a decline amongst auto insurance customers.
The study, in its third year, examines auto insurance policyholder experiences with their primary insurer. Customer satisfaction is measured across six factors: interaction; claims; product/policy offerings; renewal/purchase process; billing and payment process; and premium/price for coverage offered.
Overall satisfaction averages 796 (on a 1,000-point scale) in 2011, eight points lower than in 2010. The interaction factor declines most notably, decreasing by 28 points from 2010. Within this factor, satisfaction with branch office interactions has declined the most, followed by interactions with independent agents and brokers.
The study finds that the proportion of customers who visited their insurer’s branch office has nearly doubled in 2011, compared with 2010. In 2011, 46 percent of customers indicate renewing or purchasing their policies from branch offices. In contrast, fewer than one-fourth of customers in 2010 (24%) said the same.
“The service channels of insurers are adapting to the growth in the India auto insurance market,” said Mohit Arora, executive director at J.D. Power Asia Pacific, Singapore. “One of the changes observed during the past few years is an increase in the number of branch offices, as well as their visibility. Therefore, it becomes particularly important for insurers to ensure better customer management at branch offices, especially in terms of understanding needs and requirements, providing clear explanations of policy coverage, and courtesy and friendliness.”
This study does come a wake up call for the BFSI industry, which is uniformly moving towards online interaction and sales. The customer still gives a lot of weightage to personal interaction and the human touch. There needs to be a happy balance between the cost advantages that selling and servicing online offers and retaining customers with more personalised service.
