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Mutual Funds and its Types A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. They are professionally managed in a way that when people invest in the mutual funds, they get the services of a team of professionals. By investing in mutual fund, one can gain the services of professional fund managers, who would otherwise be costly for an individual investor. Professional fund managers can assess the risk profile of the investments. Without investing a large amount of money, one can enjoy the services. Since many investors are investing small amounts in a single mutual fund, risk (if any) gets divided among all of them, so mutual funds are better options for investments. Investments in a stock market go up or down with the change in prices of the stocks, so the biggest risk in investing in Mutual Funds is the market risk because of the economic alterations.  An investment in mutual fund follows the following...

Important Terms related to Mutual Funds in India 1. Arbitrage Fund Definition: Arbitrage fund is a type of mutual fund that leverages the price differential in the cash and derivatives market to generate returns. The returns are dependent on the volatility of the asset. These funds are hybrid in nature as they have the provision of investing a sizeable portion of the portfolio in debt markets. Description: Arbitrage funds are the panacea for low risk taking investors. In a situation of high and persistent volatility, arbitrage funds provide investors a safe avenue to park their hard earned money. These funds capitalize on the market inefficiencies and generate profits for the investors. As these funds invest predominantly in equities, their tax treatment is at par with equity funds. 2. Benchmark Definition: A benchmark is an unmanaged group of securities which are considered as a benchmark to measure a ...

Inflation The general rise in the price level of goods and services. It is estimated as the percentage rate of change in price index over the reference time-period. Currently in India inflation rate is measured with the help of Consumer Price Index- combined (Base year- 2012). Till April 2014, Inflation rate was measured with the help of WPI (Wholesale Price Index). Rate of Inflation= (Current period price index-Reference period price index)/(Reference Period Price Index)×100 Type of Inflation Based on rate of rising in Inflation 1. Creeping Inflation Price rise at very small rate (< 3 %) It is considered safe and essential for the economy. 2. Walking or Trotting Inflation Price rise at moderate rate (3 % < Inflation < 10 %) Inflation at this rate is a warning signal for the Economy. 3. Running Inflation Price rise at high rate (10 % < Inflation < 20 %) It affects economy adversely. 4. Hyperinfla...

Price Indices in India Various weighted price indices are calculated in India. These are- 1. Wholesale Price Index (WPI) 2. Old Consumer Price Index (a) Consumer Price Index for Industrial Workers (CPI- IW) (b) Consumer Price Index for Urban Non- Manual Employees (CPI- UNME) (c) Consumer Price Index for Agriculture Labourers (CPI-AL) (d) Consumer Price Index for Rural Labourers (CPI- RL) 3. New Consumer Price Index (Introduced in February 2011) (a) CPI (Rural) (b) CPI (Urban) (c) CPI (Combined) 4. Consumer Food Price Index Till April 2014, the Inflation rate was measured with the help of WPI (Wholesale Price Index). Currently, in India inflation rate is measured with the help of Consumer Price Index- combined. 1. Wholesale Price Index- It measures the change in the price of commodities traded in the wholesale market. It is also known as  headline inflation . Current base year- 2011-12. The index basket of the current series has a tot...

RBI (Reserve Bank of India) RBI was established in April 1935 under Reserve Bank of India, 1934. On the recommendation of Hilton-Young Commission. Central Bank of India which was nationalized in 1949. Central office initial was established in Calcutta and later moved to Mumbai in 1937. Official Directors-  Governors and not more than  four deputy governors. Currently following persons are on following posts- Governor - Dr Urjit R. Patel RBI performs his function under the guidance of the Board of financial supervision. Board for Financial Supervision (BFS)- Constituted in November 1994.The Board is constituted by co-opting four Directors from the Central Board and is chaired by the Governor. Important Acts Administered by RBI- (i) Reserve Bank of India Act, 1934 (ii) Public Debt Act, 1944/Government Securities Act, 2006 (iii) Government Securities Regulations, 2007 (iv) Banking Regulation Act, 1949 (v) Foreign Exchange Management Act, 1999...

Unemployment It is a situation in which people are ready and willing to work at the existing rate of wages but still, they cannot get work. Measurement unemployment and employment are done by NSSO (National Sample Survey Organization) in India. NSSO divide people into the following three categories - (a) Working people (engaged in an economic activity) (b) Not working (looking for work) (c) Neither working nor looking for workPeople in category (a) are called  People in category (a) are called  workforce. People in category (b) are called  unemployed. People in categories (a) and (b) are called  Labour force. People in category (c) are called  not in the Labour force. Number of unemployed = Labour force – Workforce Unemployment data in India are kept under the Ministry of Labour and Employment. Types of Unemployment- Structural Unemployment- Caused by structural change. Example- technological change, growing popul...

In India, Taxes are divided into the following Six Groups/भारत में, करों को निम्नलिखित छह समूहों में विभाजित किया गया है:- India is a Federal state. Power is divided between the Union and the states. The functions have been classified as exclusively for the centre, exclusively for the state and both for the centre and the states. भारत एक संघीय राज्य है। सत्ता, संघ और राज्यों के बीच विभाजित ह...

Banking System and its Structures Money Market In this borrowing and lending of funds take place up to 1 years. It is used for short-term credit. It includes Reserve Bank of India, Commercial Banks, Cooperative Banks, Regional Rural Banks, Some NBFC’s etc. The composition of Money Market Indian Money market consists of  organised sector  and  unorganised sector . 1. Organised Sector- It is also divided into two categories-          a. Banking b. Sub Markets a. Banking- In this, we include Commercial Banks, Regional Rural Banks, and Cooperative Banks. Commercial Banks- Regulated under Banking Regulation act 1949. They can accept deposits, can provide loans and other financial services to earn profit. Commercial Banks consists of - Public Sector Banks and  Private Sector Banks . (i) Public Sector Banks- In these Banks majority of shares (more than 50 %)...

Payments Banks (a).  What exactly is a Payment Bank? Payment Bank is basically a new model of banks that has been conceptualized by RBI. Now, many of you may further ask, how it is different from a regular banks? How is it different from a regular bank ? Payment Banks operate on a smaller scale as compared to the commercial banks of the country. Payment Banks do not have any credit risk involved with them as they cannot issue loans and credit cards. Payment Banks can accept demand deposits up to Rs 1 lakh only. Why were the Payment Banks required? The primary aim of payments bank is to expand the availability of financial services to unbanked entities,  for instance,  small businesses, households with low income, migrant labour force etc. i.e. to achieve financial inclusion as well as to provide financial services to every citizen concentrating more to the rural India. (b). History of Payment banks Reserve Bank of India (RBI), on...