Professional Documents
Culture Documents
Banking Financial Services and Insurance
Banking Financial Services and Insurance
Handbook
Table of Content
Session
Topic
Day - 1
Page No.
1
D1S1
Ice Breaker
D1S2
D1S3
Financial Inclusion: relevance for Rural development, various initiatives by Govt and
Non Govt agencies
D1S4
D1S5
D1S6
D1S7
Other functions of bank, (practice of account opening form of deposit accounts), About
KYC forms and KYC Submission
D1S8
D1S9
D1S10
Learning Confirmation - 1
Day - 2
15
D2S1
Recap
D2S2
D2S3
D2S4
Nomination of CSP
D2S5
D2S6
D2S7
D2S8
Learning Confirmation - 2
Participant Handbook
Day - 4
21
D4S1
Relationship Management, Customer Satisfaction, Principles of Effective, Communication, Setting Goals, Case Study: Group Discussions
D4S2
Micro Finance: Delivery models; SHGs: Role, structure, composition and functions
D4S3
D4S4
D4S5
D4S6
Cash Flow and Cash, Budgeting Techniques, How to identify fake notes
D4S7
D4S8
Learning Confirmation - 4
D1S1
Dear Participant,
Welcome to this specialized training program for Business Facilitators/Business Correspondents.
Why are we here?
1.
2.
To learn and practice from each other the best methods used
Name
Background
2.
e must prepare a Demand Draft in the name of IIBF, Mumbai this is the exam fee. Who will
W
pay this examination fee?
3.
We must fill in the Registration Form. What are the rules for the examination?
4.
We must practise and sit for the Examination according to dates given by IIBF.
5.
6.
T he internal assessment carries 40 marks which must be completed at the end of the training
itself. After the internal assessment the Final test also will be administered by IIBF for 60 marks
as per the requirement of the training institution.
7.
2.
3.
Right approach towards understanding and appreciating the need for financial inclusion in rural areas
4.
Participant Handbook
D1S2
Assessment Profile of participants
In the table below, tick off the items in which you have good knowledge. Mark the items which you
would like more information or need practice.
Item
Topic
Interpersonal skills
10
11
12
13
14
15
16
Asset classification
17
Need
Good
Need
knowledge Practice Information
18
19
20
21
22
23
D1S3
What is financial inclusion?
Financial services being made available to the low-income group at a low cost is known as Financial
Inclusion. Banks engage intermediaries to provide such financial services/products through the use of
BF and BC. Majority of poor people live in rural India. They do not get banking services. These poor
people are excluded from these opportunities.
Reasons for financial exclusion
In India there are still vast rural areas where there are no bank branches. The main reasons are listed
below:
Poor credit discipline: The borrowers in rural areas cannot clearly distinguish between
Grants provided by the Government and credit. It so happens that the poor gets bank
loans for purposes for which they have no training or skills or without any capacity to
handle the amount. This makes monitoring of borrower accounts more difficult.
Adequacy of manpower in the rural branches: There are very few takers for rural postings
in banks. This leads to low motivational level in the staff.
Difficulty to relate: The poor in the rural areas too find it difficult to relate to the urbanoriented staff of the bank branches in their area.
Bank branches at distant locations: The customers have to travel a long distance to reach
a bank branch and also incur out-of-pocket expenses to reach there.
Cooperative societies not efficient: Most of the cooperatives are either defunct or
inefficient and financially not strong enough to handle large credit disbursement.
These have increased the service/product cost of both banks and borrowers and banks are reluctant
towards their objective of financial inclusion in villages.
Various financial institutions have taken initiatives to overcome the problems of financial exclusion.
1.
Introduction of basic no-frills savings account either with nil or very low balances.
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2.
Introduction of pilot project for 100 per cent financial inclusion in one district each in all
states and union territories
A committee on Financial Sector Plan has been set up for North-Eastern Region
Relaxation of Know Your Customer (KYC) norms followed by banks for opening of accounts
Each rural bank branch have been asked to cover 100 new borrowers every year
Initiatives of NABARD
The most significant contribution of NABARD is the SHG-bank linkage programme. NABARD is
providing supports to the intermediaries in extending financial credit to this section of people.
3.
4.
5.
D1S4
What are Business Facilitator (BF) model and Business Correspondent (BC) model?
Business Facilitator Model (BF): Under this model banks use intermediaries [such as, NGOs,
cooperatives, panchayats etc] to provide banking services to the unbanked areas [areas with no banks
branches].
Business Correspondent Model (BC): Under this model banks use intermediaries to provide banking
services to the unbanked areas outside the bank premises.
Difference between BF and BC
The scope of activities of a BC will include all that is done by a BF and also the following:
recovery of loan
collection of interest
2.
Institutions:
If registered, should have authority to work as BF. This should be as per the objective
clause in case of Non-Banking Financial Company (NBFC)
The credentials of the promoters and the employees of the organisation should be checked
Should not be attached as Business Facilitator in more than one bank and should sign an
agreement stating they would not join any other organisation during the period they work
for the Bank
In case of registered organisations, the latest audit report/balance sheet may also be
checked
Individuals:
Aged between 21 and 50 years (In deserving cases like teachers, ex-bank employees etc,
the age criteria may be flexible)
Societies registered under Mutually Aided Cooperative Societies Act or the Cooperative
Societies Acts of States.
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Post offices
TT
They should have authority to work as business correspondents in the objective clause
TT
TT
The institution and/or its office bearers should not be the defaulters to any bank/financial
institution
TT
In case of registered institutions, the latest audit report/balance sheet may also be checked
Individuals like retired bank/government employees and ex-servicemen can be appointed as Business
Correspondents.
Role of a Business Facilitator/Business Correspondent
Following are the major roles of BF/BC in rural development:
TT
TT
TT
TT
Has to counsel customer on financial needs and educate customers on products and services
available from the Bank
TT
Should not overlook or hide any vital and material information to the customer
TT
Should give to the farmers and others complete, factual and truthful Information about the Bank
TT
TT
TT
TT
TT
Determining suitability of the activities chosen by them and advising the branch thereof
TT
Educating the prospective borrowers on the loan and savings product suitable for them
TT
Helping the prospective borrowers/customers in filling loan, deposit, account opening and
document forms
TT
TT
TT
TT
TT
Post sanction and pre and post disbursement verification and monitoring
TT
TT
Giving inputs to farmers and villagers on skill development and micro enterprises
TT
TT
TT
Receipt and delivery of small value remittances, other payment instruments, balance enquiry
and outstanding loan enquiry etc.
D1S5
Lending giving loans and advances
Banks also give LOANS and ADVANCES. Part of the funds that the bank gets from deposits are given
out by a bank as loans and advances. The DEBTORS pay Interest on the money borrowed. This interest
collected by the bank is much higher than what is paid out to the Depositors.
Transfer of Funds
People do not have to mail cash through the postal system. Banks have branch networks spread across
cities, regions and states in the country and arrangements with banks in other countries as well. The
banks send their customers funds (remit) by mail, telegraphic or electronic funds transfer or by issuing
bank drafts. Banks charge fees for this service.
Other Services
Banks give other services for which they charge commission or fees. This is called non-interest income
or FEE-BASED INCOME. Some of these services are safe deposit lockers, safe custody of valuables,
issuing of travelers cheques, letters of credit and guarantee, collection off out-station cheques, giving
opinion reports on their customers, agency services for government business, etc.
Quick Questions
How does a bank earn profit?
TT
The funds that the bank gets from deposits are given out by a bank as loans and advances.
TT
The bank earns interest that the debtors pay on this loan or advance.
TT
So, the bank earns profits from the difference of the interest it takes from the debtors and that
TT
it gives to the depositor. The interest income from these forms a large part of a banks profit.
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TT
Nationalised Banks
TT
The State Bank Group and Nationalized banks: This group of 27 banks has the largest number of
branches in metro/ urban/rural areas throughout the country. The group contributes to about 75% of
the total deposits and about 70% of total advances of all commercial banks in India.
Private Sector banks
Foreign Banks: These are the banks incorporated abroad but granted license by RBI to do banking
business in India through their Indian branches.
Indian Private Sector banks: These are incorporated in India and their shareholdings are with the
public and large business houses.
Regional Rural Banks (RRBs): These are also scheduled banks, but, they are small localized banks
operating in rural areas of some districts. RRBs are owned jointly by State Govt, Central Govt and
sponsoring Public Sector Bank.
Cooperative Bank
TT
TT
government (Central government if the branches of the bank is in more than one state. Its
small in size than any Asset/ Commercial bank.)
Assets and debtors of cooperative bank are lesser than commercial banks Cooperative
banks work of policy of cooperation and profit and un-profit policy
Types of Accounts
TT
Cheque book facility is provided to each current account. All current accounts are non-interest
bearing.
TT
Overdraft is a facility whereby banks honour cheques drawn by current account customers even
when the balance in the account is less than the amount of the cheques. Regular Overdraft
(permanent) facility is given as per agreement made beforehand. In this case the bank honours
cheques drawn in more than the credit balance but not more than the overdraft limit. The bank
charges agreed interest on the overdraft portion of drawings.
TT
The account holder gets periodically from the bank branch statements of accounts for
reconciliation and record.
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Savings bank accounts are intended for keeping savings of individuals and small businesses for meeting
their future money needs. Interest is given by banks on these accounts with a view to encourage saving
habit in the community. The Savings bank accounts are of two types:
a.
Cheque book facility accounts in which withdrawals are permitted by cheques drawn in favour
of self or other parties.
b.
Non-cheque book facility accounts where withdrawals are permitted to the account holders only
at the bank branch which has the account by filling up a withdrawal form or letter along with the
account passbook.
TT
Banks put some restrictions on the number of withdrawals per month/ quarter, amount of
withdrawal per day, minimum balance to be maintained in the account on all days, etc. and levy
fee/ penalty for violations of these rules.
TT
The bank pays interest on the minimum balance maintained in the account during the specified
period of every month, example, from 10th to the last day of the month.
TT
Interest on savings bank account continues to be regulated by the Reserve Bank of India.
TT
TT
Most banks provide to savings bank account holder a passbook where date-wise debit/credit
transactions and credit balances are shown as per the customers ledger account maintained by
the bank.
Call Deposit
An investment account offered through banks which allow investors instant access to their accounts.
Withdrawals and deposits can be made any time. Rules and benefits differ depending upon the bank
offering the account.
What are the different types of Term Deposits?
Fixed Deposits:
10
TT
These are repaid on the fixed maturity date with the principal and agreed interest rate for the
period and no operations are allowed against the deposit. The main features are as follows:
TT
Fixed deposits are for specified periods at specified interest rates and cannot be changed even
though the interest rate changes.
TT
Banks offer varying interest rates for different maturities as decided by their Boards.
TT
Those term deposits which are held for periods of 6 months and less are called Short Term
TT
TT
A deposit receipt is issued by the bank branch accepting the fixed deposit- mentioning the
depositors name, principal amount, maturity period and interest rate, dates of the deposit and
its maturity etc.
TT
Many banks prepay fixed deposits, if they decide to accommodate customers request.
TT
Banks calculate and credit the interest payable on the deposits on a quarterly basis. However, for
the convenience of the depositors banks pay interest at different desired intervals.
Recurring Deposits:
The main features are:
TT
The customer deposits into the account a fixed sum at pre-fixed frequency
TT
The interest rate payable on recurring deposits is pre-fixed and it is generally a little lower than
the fixed deposit rate for the same period.
TT
The total amount deposited along with the interest is repaid on the maturity date. The depositor
may be allowed to take advance against the deposits or to have the deposit pre- paid before the
maturity.
Only one savings/ current account is opened and the term deposits issued under the scheme are
only on the banks books as no term deposit receipts are issued to the customer. Once deposits
in savings/current account cross a pre-agreed level, such surplus amount is automatically
transferred to term deposit.
The customer opens only one account (savings or current) under the scheme
TT
Exercise: Write down one advantage and one disadvantage of each of the types of deposits.
Deposit Type
Advantage
Disadvantage
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Interest Calculation
What is Interest?
Interest is the price that someone pays for the temporary use of others funds. Its value is calculated
as a percentage of some amounts. Banks charge interest on Loans and also pay interest on some types
of Deposits.
Why do banks charge interest?
Without interest, lenders would not be willing to lend and depositors would be less willing to save. To
repay a loan, a debtor has to pay interest, as well as the principal, the amount originally borrowed.
Similarly, a bank pays interest at agreed rated to the deposits accepted by it to encourage people to
leave their money at the bank.
Types of Interest calculations:
Simple interest: Simple interest is a fixed percentage of the amount borrowed for a period. The interest
calculated on a principal sum, not on earned interest.
Rahul has deposited Rs. 10,000 for 2 years and the rate of simple interest is 10% per annum. After 2
years, the interest he will get is,
Interest = Rs. 10,000 x 10/100 x 2 years = Rs. 2,000
Compound interest: Interest which is calculated not only on the initial principal but also on the added
interest of previous periods. So, the interest gets compounded along with the principal.
In the next case, Rahul has deposited the same amount of Rs. 10,000 in a fixed deposit account for two
years where the bank will pay compound interest of 10% per annum.
After the first year, the interest he will get is, Interest = Rs. 10,000 x 10/100 x 1 year = Rs. 1,000
Now, his principal amount becomes Rs. 10, 000 + Rs. 1,000 = Rs. 11,000
After the second year, the interest he will get is, Interest = Rs. 11,000 x 10/100 x 1 year = Rs. 1,100
Total interest he gets is Rs. 1,000 + Rs. 1,100 = Rs. 2,100
Fixed and floating interest rates: In fixed rate, the rate of interest, once fixed, will not change during
the entire period of loan. In floating rate, the rate of interest changes, depending upon the market
condition. This is decided at the time of making the loan agreement.
Front ended interest: In this case, the interest (flat rate) is collected in the beginning and the customer
gets net amount.
Jaya takes a loan of Rs 1000 @ 10% interest.
The Bank disburses only Rs 900 since they take out the 10% in the beginning.
Flat rate of interest: In this case, the bank will calculate interest on the original amount lent. The
interest will not be calculated on the reducing amount even though the debtor repays in installments.
Usually the EMIs are calculated as though the principal is also being paid back.
Closing or Stopping Accounts
When can the bank close or stop a deposit account?
12
TT
Closure at customers request: A customer can close a deposit account if he/ she is not satisfied
with the services of the bank or for any other reason e.g. transfer to another place.
TT
Closure of accounts by bank: A banker may close account or stop operation on a customers
deposit account when
A joint account may also be closed on the death of any one of the account holders and fresh
account opened in the names of the surviving account holders, to avoid legal problems.
Stopping of operations:
Garnishee order or order of courts: If a bank receives order of a court, a garnishee order, or by Income
Tax department, the bank would immediately note a caution in the account and stop payment
of cheques or debits to the account, until the order is lifted in writing. The account operations are
stopped for temporary period of the court order and it is not closed.
Instruments of Transacting
What are the instruments of transacting?
TT
Cheques A cheque is a bill of exchange drawn on a specific banker and not payable unless
demanded. This is exclusive to the banking system and no other institution can operate this
system. A cheque has three parties, the drawer the account holder signing the cheque, the
drawee always the bank and the payee who will receive the amount
TT
Drafts A cheque drawn by one bank against funds deposited into its account at another bank,
authorizing the second bank to make payment to the individual named in the draft. It can also
be from one branch to another branch of bank.
TT
Pay Order Pay Order, or Bankers Cheque is payable at the same centre/branch from which it
was issued. Issuing branch [drawer branch] and paying branch [drawee branch] is one and same.
What is a Cheque?
A cheque is a bill of exchange drawn on a specific banker and not payable unless demanded. This
is exclusive to banking system and no other institution can operate this system. A cheque has three
parties, the drawer, is the account holder signing the cheque, drawee is always the bank and the payee
who will receive the amount
Types of transactions
Clearing: when the cheque is presented locally, the transfer of funds is done across the banks
immediately.
Collection: when the cheque is sent to another city or town, the receiving bank has to verify by sending
the cheque to the original bank; then the money is transferred. Nowadays, with some of the technologyenabled banks, this can be done very fast as the banks have networks across all cities and towns.
What are the features of a cheque?
TT
TT
Drawers signature: The cheque has to be signed in ink, by the account holder, as per the
specimen signature. If the signature does not match the cheque may be returned by the bank to
protect the customer from possible forgery.
TT
Date of cheque: A cheque has to be dated. A cheque is paid on or within 6 months of the date
mentioned.
TT
Amount of cheque: There are two spaces for writing the amount of the cheque, in figure and also
in words. Generally, both these should be filled up and should not differ.
TT
General Crossing: A cheque may be crossed by the drawer and holder by drawing on its face
two parallel transverse lines simply, either with or without words not negotiable or account
payee. In these cases, the drawee bank shall not pay it otherwise than to a banker. The effect of
such a crossing is that the cheque will not be payable in cash but through the bank by credit to
the account of the payee
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TT
Special Crossing: It consists of an addition of the name of the banker across the face of the
cheque with or without two parallel transverse lines. In this case the drawee bank shall not pay
the cheque otherwise than to the banker to whom it is crossed or his agent.
TT
Endorsements: A cheque, payable to order, can be negotiated only by endorsement and delivery.
Endorsement is made on the back of the instrument or by attaching a slip of paper if the space
on the instrument is not enough.
Which features of a cheque a BF/BC should always check when collecting cheques for loan recovery?
Tick the ones which you always check yourself.
TT
The cheque should be drawn on local banks. Out-station cheques can be taken only when the
TT
TT
TT
TT
The Banks name and the debtors account number should be clearly mentioned.
TT
In case of Credit Card dues, the Card Issuing Banks name and the Credit Card number should be
mentioned clearly.
TT
No third party cheques like the cheques endorsed in favour of the borrower can be accepted.
TT
The date should be filled up. If it is dated a few days before the date of receiving the cheque it
can be overlooked but post dated cheques should not be accepted.
TT
TT
D1S6
What are basic Functions of banks?
It has been discussed what are basic functions of bank. The basic functions of banks are:
a.
b.
Lends money to individuals & to the other entities like partnership firms / companies for their
business
2.
3.
14
4.
Fund/Money transfers
Customers can transfer their fund to any other place and customers. Fund is immediately
transferred through NEFT (National Electronic Fund Transfer) and RTGS (Real Time Gross
Settlement) systems of banks. Banks also provide service in collection of cheques, bills etc. on
behalf of the customers.
5.
6.
Demat account
Through this account the customers can transact their stocks. They can purchase and sell their
Shares, securities and other stocks.
7.
Safe Custody
The customers deposit certain valuables, bonds, securities or other documents with the bank for
their safe custody. Bank is a custodian of the valuables, bonds etc. of the customers.
Key Words
Clearing
Collection
Cheques
Drawers
signature
crossing of cheque
Endorsement
Customer
Drafts
Bearer
Pay Order
Account Payee
Nationalised
Banks
Scheduled
Banks
Public Sector
banks
Foreign Banks
Cooperative
Banks
Private sector
banks
Regional Rural
Banks
Funds
Remittance
Deposit-taking
Lending
Electronic
Banking
Fee-based
income
Advances/
Loans
Term Deposits
Recurring
Deposits
Demand
Deposits
Fixed and
floating
interest rates
Savings Bank
Current Accounts
Accounts
Hybrid Deposits or
Call money
deposit
Simple interest
Compound
interest
Front ended
interest
Flat rate of
interest
NPA
Flexi Deposits
Principal
D2S3
Who is a customer?
Anyone conducting a banking transaction with a bank is a bank customer. It could be an individual,
a group, a firm, a company, a trust, an institution or a government/semi-government/local selfgovernment organization.
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Relationship
Customer
Debtor - Creditor
Debtor
Creditor
Creditor - Debtor
Creditor
When the bank lends money to the customer, the customer is the
borrower and the bank is the lender. The relationship, therefore,
is that of a Creditor and Debtor. The Customer/Borrower executes
documents and offers security to the Bank before utilising
the loans.
Debtor
Bailee - Bailor
Bailee
Bailor
Agent - Principal
Agent
Principal
Lessor - Lessee
Lessor
The banks provide safe deposit lockers to the customers who hire
them on lease basis. The relationship, therefore, is that of lessor and
lessee.
Lessee
Trustee - Beneficiary
When a trust is created appointing the bank as a trustee, the
relationship is that of a trustee and a beneficiary
Trustee
16
Beneficiary
When a person opens an account in a bank he has an assurance that all the information about
his account remains between the banker and account holder. It is one of the main duties of the
banker to maintain complete secrecy about his customers account. This duty continues even
after the customers account is closed.
TT
However, there are some situations in which the banker is needed to make disclosures about a
customers account. Examples, when
Needed under legal acts like Income Tax Act, Companies Act, Reserve Bank of India Act,
etc.
In the banking business it is common courtesy among the bankers that whenever a bank
asks another about proposed sureties or acceptors such information is shared.
A banker can disclose information when it is essential to protect his own interest, legally.
Banker may be required to make disclosure in the interest of the nation and public at large.
Key Words
Bailor
Bailee
Debtor
Creditor
Agent
Principal
Trustee
Beneficiary
Lessor
Lessee
Opening an Account: KYC
1.
A person who wants to open a deposit account has to fill up and sign the account opening or application
form as given by the bank and submit:
TT
TT
TT
TT
2.
3.
4.
Participant Handbook
b.
c.
d.
Specimen signature [Purpose of this? When is the specimen signature taken - always in the
presence of the banker?]
e.
Individuals, Joint, Minor, Illiterate Persons, Nominees [Who are these? Get the participants to
state in clear terms that these are.]
f.
Or
B.
5.
i.
Election ID card
ii.
Government ID car
iii. Driving License
iv. Employers ID card
v.
Passport
vi. Certification by Head of Village Council/VDB
Why is a Specimen Signature kept by the bank?
A customer is recognized mainly by his/ her signature on the cheques/ vouchers and these are
compared with the specimen signature on record to verify the genuineness of the customers
signature.
6.
7.
8.
18
Placement: refers to the initial point of entry for funds derived from criminal activities.
10.
L ayering: refers to creating complex networks of transactions which attempt to obscure the link
between the initial entry point, and the end of the transaction cycle.
11.
Integration: refers to the return of funds to the lawful economy for later withdrawal.
Purpose: The purpose is to route the moneys so generated through the banking systems of various
countries so that the same can be transferred to various people legally and moneys can be invested in
legitimate activities. By routing the money through the banking system it becomes clean white (gets
laundered).
Danger: This has become a danger to the humanity because of usage of this by terrorists.
What is the role of banks in preventing money-laundering?
Banks should take steps to prevent the first stage itself which means do not accept funds the sources
of which are not satisfactorily explained.
This can be done only if banks know the financial details of the customer. That is why these are called
KNOW YOUR CUSTOMER (KYC) guidelines. Banks are required to know the actual identity and also his/
her financial background before accepting as a customer.
Important elements of KYC guidelines are
TT
TT
TT
Monitoring of transactions
TT
Risk management
While banks should try not to inconvenience the customers in general, they are required to divide
the customers in to various risk categorise and specify criteria for each group for accepting them as
customers.
Customer identification should be generally from reliable independent source documents. The
documents which are proof of identity are to the bank:
TT
Passport
TT
TT
TT
Driving license
TT
For proof of home address copy of latest Telephone bill, electricity bill or statement of a bank account
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are accepted.
Banks should monitor the transactions in the accounts and report any suspicious transactions to the
authority.
20
TT
Banks are required to monitor the transactions in new accounts at least for a period of six months
and report any suspicious transactions to the designated authority.
TT
In the case of other accounts banks should monitor the transactions and if there is any suspicion
about any account being used for money laundering activity it should be reported to the
Government without alerting the customer.
TT
Any cash transaction valued more than Rs 10 lacs is required to be reported to the RBI on a
fortnightly basis.
D4S1
What is Communication?
Communication is the process of exchanging information, ideas and thoughts etc. between at least two
persons in order to create common understanding. In recovery process communication takes place
between the debtor and the debt recovery agent. Communication is of two types:
TT
TT
Non-verbal communication e.g. face language (facial expressions, eye contact), voice language
(voice tone, voice pitch), and body language (body position, body movement): All or any of these
communicate some message (whether intended or unintended) to the receiver.
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TT
If communication is effective
Verbal
Make your point clearly, use the exact words you mean
Demonstrate wherever you can using bodily gestures
Use simple language, not jargon the other person must understand
Listen to the speaker not only the words but also the hidden meaning
Do not assume you know what he is going to say
TT
Vocal
Listen to the persons tone of voice; is there some other meaning? Is he getting upset? Is he losing
hope?
TT
Visual
Written
22
Listening
Listening Effectiveness Checklist
Please go through the checklist, and choose one or two items, where you need to sharpen your listening
skills to achieve greater personal effectiveness.
Rate these items by using a rating scale 1 to 5 in the relevant box under the rating column where
1 = NEVER, 2 = RARELY, 3 = OFTEN, 4 = MOSTLY 5 = ALWAYS.
Sr.No.
Item
1.
When others are talking, I genuinely make efforts to understand the ideas
and feelings that the other person is trying to communicate.
2.
While someone is talking to me, I focus on what the other person is saying
and avoid doing anything else (answering the phone, starting another
conversation, thinking about other issues etc.).
3.
4.
I consciously try to pay attention to the other persons words to learn more
about how he feels about the situation he is describing.
5.
6.
7.
8.
During conversations, I repeat back to the other person what has been
said in my own words to ensure that I have understood correctly.
9.
I always ensure that I dont interrupt the speaker while he is in the middle
of his message. I always allow the other person to complete his message
before I respond to what he has said
10.
Rating
Score
The higher your score, the better the listener you are likely to be. Which of these items are most
important for your job as Debt Recovery Agent? Tick the items that are most important for you.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Listening Skills
A good recovery agent should be a good listener also. A good listener is one who is attentive while
receiving the communication with positive facial and body expressions.
Who is a good listener? Tick the ones which you do well.
Hear correctly what the debtor is saying.
Listen patiently to the debtor
Do not show anger or disapproval at what the debtor is saying.
Normally allow the debtor to complete his point of view and do not interrupt unless it is very
essential.
Such interruption is always by saying words like Excuse me or May I ?
What are the importances of good listening?
Good listening improves flow of communication, creates better understanding and facilitates
smooth recovery.
It also helps to create better relations between the recovery agent and the debtor.
Body language
Body language starts with the way we are dressed creates an impression on the mind of the customer
(including agents who are over-dressed). Dressing should be appropriate to the situation simple,
clean.
What is grooming? Why should you be well groomed?
What are the behaviours that give a good impression? Tick the ones which you do well.
Smile, even if the person is being rude, your smile can make him feel better.
Lean towards the person, give full eye contact when listening.
Do not use strong, hurried gestures or show you are upset.
Offer to keep notes, refer to documents (this gives the impression that you are interested in solving
the problem, based on facts).
Keep your voice low dont let the person feel you are telling the neighbours about his problem.
This will help him to build confidence.
Never threaten or use force of any type.
24
Interpersonal skills
Interpersonal skills are what are demonstrated when interacting with people. It shows acceptance by
the other person and willingness to talk and solve problems.
For debt recovery agents good inter-personal relationship is as important as good communication and
effective listening skill. To be successful in his job a recovery agent should show the following:
TT
TT
Show empathy and respect to the other party, in spite of the fact that he/ she is a debtor.
TT
Do not make the debtor feel anxious, insecure or threatened by your communication- verbal or
non-verbal. On the contrary, try to remove such uneasiness.
TT
Give all the information the debtor wants in connection with the debt and its repayment.
What are the differences in the following types of behaviour: Passive, Aggressive, Assertive?
Aggressive Behaviour
Assertive
Behaviour
Is inappropriately honest,
puts others down,
ignores rights of others,
dominates, chooses
for others, attacks and
blames, overreacts in
situations, uses loaded
and superior words, is
sarcastic, loud, makes
rigid demands, points
finger
Is appropriately
honest, expresses
wants and feelings
directly, chooses for
himself, is empathic,
evaluates and acts,
is spontaneous,
exercises his
personal rights
and respects rights
of others, uses
objective words,
listens, makes direct
eye contact, has firm
and warm voice,
uses I statements
Reasons
To express hostility
and anger, to achieve
objectives (in the short run
at least)
To achieve
objectives, to have
positive feelings
about himself
Feelings about
self that
accompany
this behaviour
Self-respect,
confident,
self- sufficient,
powerful, relaxed
Passive Behaviour
Characteristics
25
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Feelings of
others when
a person
engages in this
behaviour
Body language
that indicates
this behaviour
slumped shoulders,
wringing hands, looking
at the floor, giggling,
whispering, apologetic
expression
Hurt, humiliated,
defensive, vengeful, and
angry
Respectful,
respected,
threatened
(occasionally)
threatening posture,
pointing finger, yelling or
loud voice, demeaning
posture, staring or glaring
D4S2
What is Micro Finance?
Micro Finance, as defined by Dr. Md. Yunus, Nobel Prize winner, is the availability of loans to rural
people without obtaining collateral for income generating purposes in order to reduce the poverty
level. It is a comprehensive financial service to rural people for their empowerment.
What is Micro Credit?
Micro credit is a small amount of money lent to a poor person. It is also termed as collateral free loans.
Scenario
In India nearly 4 out of 10 Indian live below poverty line. The banks have not been able to bring vast
segments of the population into the fold of basic banking services. There is growing need to evolve a
system to target these people living below poverty line. To fill this gap Micro finance institutions (MFI)
have emerged as key providers of financial services for the poor through Microfinance delivery models.
What is Micro Finance Delivery Model?
Micro Finance institutions are using various finance/credit lending methods for the poor people. These
could be categorized as under:
a.
Group Model: Individual poor people coming together voluntarily for their common
purpose of income generation. The group models basic approach lies in the fact that
the collective responsibility and security overcome shortcomings and weaknesses of the
individual level.
b.
Individual Model: It is a model wherein micro credits/loans are directly lent to the
individual/borrower. It does not include the formation of group or generating peer
pressures to ensure repayment.
c.
Intermediaries: In this model there is an organization between the lenders and borrowers.
The intermediary plays an important role of generating awareness, educating and
counseling the borrowers about savings, credit etc.
26
1.
2.
Micro enterprise
3.
4.
Individuals
Non-Government Organisations (NGOs) have emerged as key players in the field of microfinance.
TT
TT
TT
TT
TT
roup members must consist of 5 to 20 persons from the financial, social, religious and ethnic
G
homogeneous families.
TT
T hrift Fund at some fixed rate per month/week per member is to be collected and deposited
with the Bank.
TT
The group shall not consist of more than one member from the same family.
TT
TT
The group should devise a code of conduct (Group Management Norms) to bind itself.
TT
T he group should develop financial management norms covering the loan sanctioning procedure,
repayment schedule and interest rates.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
TT
TT
T he group should have an account in the name of the group. It should preferably be in the service
area bank branch. The amount left after disbursing loan and regular collection of repayment and
thrift fund contribution should be deposited in this account.
TT
1.
Minutes Book
2.
Attendance Register
3.
Loan Ledger
4.
5.
General Ledger
6.
Cash Book
7.
8.
To open a Savings Bank account in the name of the group as per resolution. The group leader
TT
President, Secretary and Treasurer are to operate the account jointly (normally by any two)
TT
To mobilize the resource of individual members for their collective economic development
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
To build up teamwork
TT
TT
28
1.
The group should evolve rules and regulations to develop a well-managed Self Help Group. These
groups are adopted after discussions with all members for compliance in full.
2.
The group should meet regularly, preferably weekly. Their discussions should have the following
points:
collection of contributions
repayment of installments
3.
The SHG has to pass a resolution in the meeting signed by all members indicating their decision
taken in the groups meeting.
4.
Simple and clear accounts and books for all transactions have to be maintained and kept up to
date. Generally all registers, books of accounts resolution are to be written during the course of
the meetings.
TT
TT
The Bye-laws NGO/Trust must provide for borrowing for SHG activities. This should be supported
by a resolution to borrow from bank and a statement of credit required by SHG.
Key Words
Microfinance
Micro credit
Bank Linkage
Thrift Fund
Entrepreneurship
Development
Below Poverty
Line (BPL)
Above Poverty
Line (APL)
Financial Inclusion
Self-Help Group
Team Work
Skill development
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
D4S4
What is Financial Literacy?
Financial literacy is the ability to understand the money matters or financial services that are most
suitable for ones need.
What is Financial Education?
Financial education is giving knowledge of inputs on finance and money and its products which help
people to take decision.
Who needs financial education and why?
It is estimated that nearly 45% of the adult population, majority of which are in rural India, have no
access to modern financial and banking services from formal financial institutions and banks. This large
area remains excluded from financial services.
The rural people are poor and illiterate and they do not have any idea or knowledge about banking
services. The people of this area need awareness of the banking services and products. To extend
financial services/products to these people or to include them into the financial fold of the banks is
termed as Financial inclusion. Financial inclusion is nothing but making available financial services/
products to the poor who remains excluded from financial services of banks.
These poor and rural people need financial education. Without the knowledge on financial products it
will not be possible for them to use various financial services and products according to their suitability
and need.
What is the scope of Financial Education?
The delivery of financial education includes three key areas.
TT
TT
TT
Building Skills
Knowledge of numeracy
Increasing Knowledge
Developing understanding
TT
I nterviewing: It is the communication most often between two persons with a predetermined
and specific purpose, usually involving questions and answers, to gather meaningful information.
TT
TT
dvising: The counselor is to hear clients first in order to completely understand their situation
A
and assess their goals, and then to advise and explain what alternatives or options are available.
TT
E thical Behavior: It is also effective way of communication to earn and maintain trust then to
develop a reputation for ethical and professional behavior.
What are the Roles of BF/BC in Financial Education and Financial Counseling?
TT
To earn the trust of the customers and villagers and maintain it.
TT
To provide financial information and products and where they are available.
TT
To counsel the stressed borrower and provide suitable way to reduce his difficulties.
TT
S elling of multiple products of financial products of financial institutions including interest rates
and other changes.
TT
To identify the prospective deposit customers and counsel them to invest in suitable schemes.
TT
T o assist the customers in filling of different types of account opening, loan application and
document forms.
TT
T o identify the prospective borrowers and determine the suitability of the activities chosen by
them for bank finance.
TT
To meet their total financial requirements of the customers for their different activities.
TT
TT
To counsel the customers and help to prepare Cash Flow working and cash budget for customers
future operation.
TT
TT
TT
Key Words
communication
TT
Financial
Financial
(credit)
(credit)
counselor
counseling
financial
advising
cash flow
Financial
Financial
Literacy
Education
cash budget
To help in preparing budget, planning and investment of the customers especially of SHGs.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
D4S6
What is the meaning of Cash Flow?
The actual inflow (income) and outflow (expenditure) of CASH is known as Cash Flow. Total inflows and
outflows of cash during a period is called a cash flow statement of the activity(ies)
What is Budgeting Technique?
TT
TT
T his technique of Cash Flow workings is used to ascertain the actual cash requirements of an
enterprise for farming, manufacturing or service oriented. This technique is also called debt
management.
o enterprise or economic activity can sustain itself for long if its cash inflows are less than the
N
cash outflows for a reasonably long period.
TT
The Cash Flow statement is a reliable indicator of the profit earning capacity of an enterprise.
TT
T he Cash Flow is of great significance for a micro/small enterprise or a farmer. Negative cash
flows can seriously cause its capacity to continue the working capital cycle, i.e., purchase of
inputs, processing or cultivating as the case maybe.
TT
ash flows are also very important for a bank. Cash flow statement of an enterprise helps banks
C
in fixing loans, rescheduling of payment of interests and installments.
TT
ash flow analysis is used to ascertain the actual cash requirements of the enterprise. It helps
C
the entrepreneur and banker to take credit and credit-related decisions by predicting and
determining the peak borrowing levels of the enterprise.
TT
statement of negative Cash flow also helps an enterprise to take appropriate measures to
A
improve its cash flows and prepare proper budget for its future operations.
TT
S ales Micro/small enterprises sell their output on cash basis. Sometimes they may have to sell
some portion of their output on credit. It increases the required working capital.
TT
I nventory/Raw material For running the business/farming activity, building an inventory may
be necessary.
TT
ther Expenses It may be necessary to have cash for recurring expenditures like labour,
O
electricity, transport, repair charges etc.
TT
apital expenditure - Capital expenditure is the expenditure on fixed assets like machinery, shed,
C
irrigation equipment, wells, live stock etc. Normally such expenditure is incurred by arranging
long term funds.
TT
ank Loan Receipt of loan is inflow of cash while the repayment of loan and payment of interest
B
are outflows.
Example:
TT
32
A farmer, owning 5 acres of land, approached the bank for purchasing a pump set and agricultural
inputs like seeds, fertilizers, pesticides etc. After discussing with the farmer and basing on the
market enquiries, the data was prepared
Further time taken to sell the produce and realize the amount: 1 month
Monthly expenses for family sustenance: Rs. 1000. There are no other sources of income.
The field officer, while preparing the cash flow statement, provided for both the term loan and working
capital (crop loan) and prepared the following cash flow statement.
Inflows
1.
2.
3.
4.
Term loan
Sales
Working capital loan
5000
10000
2000
2000
2000
4000
40000
-
1000
1000
1000
Outflows
1. Capital expenditure
2.
Purchase of inputs
5000
7000
3.
2000
3000
4.
Household expenses
1000
1000
1000
1000
1000
1000
5.
1000
6.
7.
installment
1000
8.
20000
17000
Closing balance
TT
[Note: The initial working capital requirements were estimated by providing an amount equal to
or slightly more than the difference between cash outflows and inflows.]
Participant Handbook
of deposit amount with RBI in the form of CASH & SECURITIES. So, the banker while lending should
follow sound principles of lending and should assess the importance of finance to be lent on the basis
of accepted norms.
Principles of Lending
A.
Cardinal Principles of lending: The business of lending is not without certain inherent risks,
especially when the lending banks depend largely on borrowed funds. The cardinal principles of
lending are therefore as follows:
TT
Safety
Safety of fund is the most important principle of good lending. When a banker lends, he has
to ensure that the advance is safe and that the money lent will come back. The banker is a
custodian of public funds which is to be repaid in accordance with the tenure of the deposit.
The repayment of loan depends upon the borrowers:
i.
ii.
iii.
apacity to pay
C
Willingness to pay
Income generation
The banker must therefore take utmost care in ensuring that the business for which a loan is
sought is a sound one and the borrower is capable of taking collateral securities for the loans.
TT
Liquidity
It is to be seen that money lent is not going to be locked up for a long time. The money should
return to the bank as per the repayment schedule.
TT
Profitability
A fair return on investment is essential in the case of lending by banks. It is, therefore, advisable
to have a customer profitability analysis (CAP) done when the banker is engaged in more than
one service or business for a customer.
TT
Productive purposes
Loans for non-productive purposes cannot be granted. Although the earnings on non- productive
business may be higher, even then bank cannot resort to non-productive loans being contrary to
the National interests.
TT
Diversification of risks
By diversification of risk it is meant that the banker should not grant advances to only a few
borrowers or few activities undertaken in an area. Diversification will help avoid concentration
of advances in the hands of few people, or purposes or a limited geographical area.
TT
Security
The security offered against the loans may consist of a large variety of items. It may be a piece of
land, building, gold ornaments, insurance policies etc. The security is only a cushion to fall back
upon in case of need. Collateral security alone should not form the sole consideration for judging
the suitability of a loan. The security, if accepted, must be adequate and readily marketable, easy
to handle and free from encumbrances.
B.
Types of Loans and Advances: The types of loans that a borrower needs will depend upon the
need of the borrower for meeting day to day expenses or for investment in plant and machinery.
TT
Term Loans
The investment loans are utilized for establishing expanding or modernizing farming and service
enterprise by acquisition of fixes assets.
34
Term loans usually are of medium or long term duration and are repayable in quarterly or half
yearly installments over an agreed period of time.
Term loans are secured by mortgage or hypothecation of plant and machinery etc.
TT
Credit Appraisal
A banker has to ensure that the money lent is repaid or recovered and interest is paid regularly by the
borrower which depends on the cash flow of the borrower, appropriateness of the terms of credit,
adequacy of collateral etc. the process of evaluating before giving the loan is known as credit appraisal.
In the credit appraisal process, the banker makes an attempt to find the answer to the following
questions:
TT
TT
TT
What are the income levels of the borrower before and after the credit disbursal?
TT
TT
What are the chances that the loan will become an NPA?
ii.
iii.
Retail Trade:
It includes retail traders/private retail traders dealing in essential commodities (fair price shops)
and consumer cooperative stores.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
iv.
Micro Credit:
Provision of credit and other financial services and products of very small amounts not exceeding
Rs. 50000 per borrower, either directly or through a SHG/JLG mechanism or to NBFC/MFI/NGO
on lending up to Rs. 50000 per borrower, will constitute micro credit.
v.
E ducational Loans:
Education loans include loans and advances granted to individuals for educational purposes, up
to Rs. 10 lacs for studies in India and Rs. 20 lacs for studies abroad.
vi.
Housing Loans:
Loans up to Rs. 20 lacs to individuals for purchase/construction of a dwelling unit per family
(excluding loans granted by banks to their own employees) and loans given for repairs to
damaged dwelling units of families up to Rs. 1 lac in rural and semi-urban areas and up to Rs. 2
lacs in urban and metropolitan areas.
36
TT
S mall and marginal farmers with land holding of 5 acres and less, landless labourers, tenant
farmers and share croppers.
TT
Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50000
TT
TT
TT
TT
TT
TT
TT
L oans to the distressed poor to prepay their debt to informal sector, against appropriate collateral
or group security.
Agricultural Finance
Types of loan
Purpose
Eligibility
Period
Crop loan/
working
capital loan
Agriculturists,
tenant
farmers
and share
croppers
who actually
cultivate the
lands
Normal
period of
loan may
not exceed
one year.
Sugarcane
crop loans are
for 18 months
Kisan Credit
Card (KCC)
Owner,
cultivators,
or those
engaged
in allied
activities
are eligible
for kisan
credit cards.
Farmers
cultivating on
authorized
leased lands
are also
eligible.
Documents/
security
Short-term loans:
a.
b.
Demand
Promissory
Note, Loan
agreement,
Hypothecation
of crops, Crop
Insurance.
Demand
Promissory
Note, Loan
agreement,
Card is
normally valid
for 3 years
subject to
annual review
Crop Insurance.
Submission
of land records.
It could be
hypothecation
of standing
crops and/
or mortgage/
charge of land
37
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Demand
Promissory
Term Loans
Agricultural term
loans are provided
for the purchase of
assets and creation of
assets connected with
rural activities under
agricultural and allied
activities
All
categories of
farmers and
agricultural
laborers are
eligible for
term loans
Repayable
over a period
of time
exceeding 3
years
Note, Loan
agreement,
Crop Insurance.
Land records,
hypothecation
of the assets
created,
insurance of the
assets
Demand
Promissory
Land Development
Loans
All farmers
owning
agricultural
land are
eligible
Repayable
over a period
of time
exceeding 3
years
Note, Loan
agreement,
Crop Insurance.
Borrower has
to produce a
report on the
estimated cost
by an engineer
Demand
Promissory
Note, Loan
agreement,
Minor Irrigation
38
All those
farmers who
are having
known source
of water
unstable for
irrigation
purpose
Crop Insurance.
Repayable
over a period
of time
exceeding 3
years
Estimate for
the civil works,
quotations for
the assets to be
purchased,
land records,
geologist
certificate,
feasibility
certificate from
electricity board
Farm
Mechanisation
Farmers
owning a
minimum of
5 to 8 acres
of perennially
irrigated lands
are eligible for
loan
Demand
Promissory
Repayable
over a period
of time
exceeding 3
years
Note, Loan
agreement,
Crop Insurance.
Land records,
quotations,
Hypothecation of
assets
Demand
Promissory
Note, Loan
agreement, Crop
Insurance.
Loans for
Horticultural Loan
Land Purchase
Loan
development of fruit
orchards
All farmers
having
cultivable
lands
Small/
marginal
farmers,
tenants, share
croppers
subject to
land holding
criteria
Repayable
over a period
of time
exceeding 3
years
Demand
Promissory
Repayable
over a period
of 10 years
Note, Loan
agreement,
Crop Insurance.
Mortgage of land
to be purchased
39
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
40
Debt Recovery
Table of Content
15
Page No.
Module
35
1
Confidential
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Module
Page No.
53
79
Introduction
Introduction
Your Name :
Dear Participant,
Welcome to this specialized training program for Recovery Agents.
Why are we here?
1. To meet the requirements of the Reserve Bank and the IIBF Certification Process.
2. To learn and practice from each other the best methods used in debt recovery
Who has created this program?
IL&FS ETS, training specialists, have studied the general profiles of the participants and
created a program that is participatory, enjoyable, easily understood and provides plenty of
room for practice. It is based on the syllabus given by IIBF in their Handbook on Debt
Recovery available from Taxmann publications.
Who are your trainers?
Your trainers for this batch are
Name
Background
1
Module 1 Notes
M1-1
2011 IL&FS Skills Development
Corporation Limited
Participant Handbook
Good
knowledge
Item
Topic
Interpersonal skills
10
11
12
13
14
15
Asset classification
16
17
18
19
20
21
22
23
24
Module 1 Notes
M1-2
Need Practice
Need
Information
1.3
Personal Effectiveness
Personal Effectiveness
Do you think these things are worth learning? Why or why not?
__________________________________________________________________________
__________________________________________________________________________
Module 1 Notes
M1-3
Participant Handbook
What is Communication?
Communication is the process of exchanging information, ideas and thoughts etc. between at
least two persons in order to create common understanding. In recovery process communication
takes place between the debtor and the debt recovery agent. Communication is of two types:
Non-verbal communication e.g. face language (facial expressions, eye contact), voice
language (voice tone, voice pitch), and body language (body position, body movement):
All or any of these communicate some message (whether intended or unintended) to the
receiver.
debtor.
What are the traits of a good communicator? Tick the items which you are doing well.
One who speaks slowly and clearly
One who looks the receiver in the eye when speaking
One who does not use too much jargon or technical terms
One who waits to confirm that the receiver has understood
One whose body language and tone of voice is friendly even when conveying
What are the traits of a poor communicator? Tick the items which apply to you.
one who assumes to know what the other party means
one who does not clarify a message
one who does not ask when he has not understood
one who does not analyse the information received
Module 1 Notes
M1-4
If communication is effective
-
Verbal
Make your point clearly, use the exact words you mean
Demonstrate wherever you can using bodily gestures
Use simple language, not jargon the other person must understand
Listen to the speaker not only the words but also the hidden meaning
Do not assume you know what he is going to say
Vocal
Listen to the persons tone of voice; is there some other meaning? Is he getting
Visual
Maintain eye contact and have a pleasant expression
Be aware of your body language. You may just say something simple but if
Written
Be sure you understand what is written, especially in collection information
If you write something be careful about the wording it may be used against
you.
Copy down addresses and numbers carefully and check back to see if you have
copied correctly.
5
Module 1 Notes
Participant Handbook
Listening
2.3
Listening
Item
Rating
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
The higher your score, the better the listener you are likely to be. Which of these items are most
important for your job as Debt Recovery Agent? Tick the items that are most important for you.
Module 1 Notes
M1-6
Listening Skills
A good recovery agent should be a good listener also. A good listener is one who is attentive while
receiving the communication with positive facial and body expressions.
Who is a good listener? Tick the ones which you do well.
Hear correctly what the debtor is saying.
Listen patiently to the debtor
Do not show anger or disapproval at what the debtor is saying.
Normally allow the debtor to complete his point of view and do not interrupt unless it is
very essential.
Good listening improves flow of communication, creates better understanding and facilitates
smooth recovery.
It also helps to create better relations between the recovery agent and the debtor.
3.1
Body language
Body language starts with the way we are dressed creates an impression on the mind of the customer
(including agents who are over-dressed). Dressing should be appropriate to the situation simple, clean.
What is grooming? Why should you be well groomed? ____________________________________
___________________________________________________________________________________
What are the behaviours that give a good impression? Tick the ones which you do well.
Smile, even if the person is being rude, your smile can make him feel better.
Lean towards the person, give full eye contact when listening.
Do not use strong, hurried gestures or show you are upset.
Offer to keep notes, refer to documents (this gives the impression that you are interested
Keep your voice low dont let the person feel you are telling the neighbours about his
Module 1 Notes
M1-7
smooth recovery.
3.1
It also helps to create better relations between the recovery agent and the debtor.
Body Language
Body language
Body language starts with the way we are dressed creates an impression on the mind of the customer
(including agents who are over-dressed). Dressing should be appropriate to the situation simple, clean.
What is grooming? Why should you be well groomed? ____________________________________
___________________________________________________________________________________
What are the behaviours that give a good impression? Tick the ones which you do well.
Smile, even if the person is being rude, your smile can make him feel better.
Lean towards the person, give full eye contact when listening.
Do not use strong, hurried gestures or show you are upset.
Offer to keep notes, refer to documents (this gives the impression that you are interested
Keep your voice low dont let the person feel you are telling the neighbours about his
Module 1 Notes
M1-7
Interpersonal skills
3.3
Interpersonal skills
Interpersonal skills are what are demonstrated when interacting with people. It shows acceptance by the
other person and willingness to talk and solve problems.
For debt recovery agents good inter-personal relationship is as important as good communication and
effective listening skill. To be successful in his job a recovery agent should show the following:
Show empathy and respect to the other party, in spite of the fact that he/ she is a debtor.
Do not make the debtor feel anxious, insecure or threatened by your communication- verbal or
non-verbal. On the contrary, try to remove such uneasiness.
Give all the information the debtor wants in connection with the debt and its repayment.
What are the differences in the following types of behaviour: Passive, Aggressive, Assertive?
Passive Behaviour
Aggressive Behaviour
Assertive Behaviour
Characteristics
Is inappropriately honest,
puts others down, ignores
rights of others, dominates,
chooses for others, attacks
and blames, overreacts in
situations, uses loaded and
superior words, is sarcastic,
loud, makes rigid demands,
points finger
Is appropriately honest,
expresses wants and feelings
directly, chooses for himself,
is empathic, evaluates and
acts, is spontaneous,
exercises his personal rights
and respects rights of others,
uses objective words, listens,
makes direct eye contact, has
firm and warm voice, uses I
statements
Reasons
To achieve objectives, to
have positive feelings about
himself
Feelings about
self that
accompany this
behaviour
Feelings of others
when a person
engages in this
behaviour
Respectful, respected,
threatened (occasionally)
Body language
that indicates this
behaviour
Module 1 Notes
M1-8
Participant Handbook
4.1
DebtRecovery
RecoveryAgent
Agent
Debt
What are the meanings of the terms Debt, Recovery and Agent?
Debt: It refers to a sum of money that the debtor owes to the creditor. Thus there are two parties to a
debt debtor who receives money by way of a debt; and creditor who lends money to the debtor.
Example: Ram takes a loan of Rs. 3 lacs from a bank for purchasing a car, Ram becomes the debtor (or
borrower), the bank is the creditor (or lender) and the loan of Rs 3 lacs is the debt (principal). Ram
would be required to repay the loan in equated monthly installment (EMI), comprising the principal and
interest, spread over the repayment period of, say, 3 years (debt tenor).
Recovery: It means collection of money from the debtor by, or on behalf of the creditor, after it has
become due for payment in accordance with the debt terms agreed between the creditor and the debtor.
In the above example, if Ram (debtor) fails to pay the agreed installment (EMI) on the due date, the bank
may send him notice to remind him to pay the agreed amount within a stipulated period. It is to be noted
here that a debt becomes payable by the debtor only on or after the due date, but not before that date.
Agent: A person employed to do any act for another, or to represent another, in dealings with third
person is an agent. The person for whom such acts are done, or who is represented, is called the
Principal. An agent has thus an authority to do acts on behalf of the principal within the limits of the
authority.
Why the need of Recovery Agent is increasing?
Banks, Debt Recovery & Role of Debt Recovery Agents
Banks collect funds (deposits) from the members of public and pay interest to them and lend these funds
(deposits) to different class of people as loans and advances and charge interest on these funds.
The rate of interest charged on advances is higher than the rate of interest applied to the depositors and
the difference between these rates brings major income for the banks. While banks pay interest to its
depositors on due dates there is no guarantee that all its borrowers will repay the loan installments and
interest on due dates on their own.
This has been happening in the retail segment where number of accounts as also the volume of loans is
ever increasing giving rise to more number of NPAs.
This necessitates stepping up of recovery process.
And because these retail segment borrowers are not maintaining their accounts with lender banks and are
widely dispersed banks find it more feasible to outsource the debt collection function and deploy their
experienced staff for productive activities. This is how the debt recovery agent comes into picture.
Who are the Debt Recovery Agents (DRAs)?
Debt Collection Agencies work for the banks by charging flat fee or a percentage of amount recovered.
They are governed by the terms and conditions of the Agency Agreement.
These Agencies appoint individuals for recovery of debts who are called Debt Recovery Agents.
These Debt Recovery Agents recover the outstanding debts from the borrowers who have not paid loan
installments.
Module 1 Notes
10
M1-9
Example: Raju has taken a car loan. The Bank engages Agency X for collecting dues from Karan (and
other debtors) after they remain unpaid on due dates. Agency X employs Agent Y to follow up with
Karan. Here, Car loan is a debt, Karan is a Debtor, Bank is a creditor and Y is a Debt Recovery Agent.
Please note the full forms of,
DCA - Debt Collection Agencies
DRA - Debt Recovery Agents
What are the basic personal attributes required to be a successful DRA?
The personal attributes necessary for a successful DRA are,
DRA Qualities
Polite
Understanding
Well dressed
Helpful
Friendly
Trustworthy
Firm
DRA Skills
Listens Carefully
Encourages
Explains
Persuades
Speaks well
Negotiate
Follows rules
Debt
DCA
Defaulters
4.2
Recovery
Agent
Collection
Work of DRA
Telephone calls
Letters
Module 1 Notes
Personal visits
M1-10
11
time without any reminder and initial process of reminders etc. In general recovery starts once the
efforts of collection of dues have not been fruitful and the debt has become overdue.
Key Words
Participant
Handbook
DCA
4.2
Debt
Recovery
Agent
Collection
Defaulters
WorkofofDRA
DRA
Work
Debt Recovery
Agents
Having failed in their attempts to collect the overdues
by means of
normalCertificate
reminders theTraining
job is assigned
to the DRAs who normally follow the below mentioned steps:
Telephone calls
Personal visits
The above methods prove fruitful where borrowers could be reached at their residential addresses and
in
Letters
coaxed
to making payment. But there is a category of hardcore borrowers who could neither be traced
nor coaxed, if traced , in to making payment. Then what? Certain debt collection agencies have that
expertise.
Module
1 Notes
M1-10
4.3
Functions
ofDRA
DRA11
Functions of
There are two classes of functions that DRAs perform : Normal Functions and Specialized functions.
The Specialized functions will be done later in this course.
What are the Normal Functions of a DRA? Tick the ones you are familiar with.
Collecting dues receivable
Remitting collected funds
Book-keeping
Documenting and reporting
Repayment obligation of the debtor to repay the loan/advance, in part or whole, to the Bank, as
per the agreement.
The required particulars of the debtors and receivables to be collected from them are provided by the
bank to the agency, along with copies of the relative loan agreements.
Thus the DRA is legally entitled to collect the specified receivables from the debtors on behalf of the
principal (creditor bank), in terms of:
12
The Debt Recovery Agent should periodically remit the funds collected (cheques/drafts/cash)
along with duplicate statement of date wise collections to the principal (bank) as per the agency
arrangement.
DRA should retain acknowledged copy of such statement for his record/future reference and
also for claiming his agreed fees or commission from the principal (bank).
4.4
Functions of DRA 2
Functions of DRA 2
Record of lists of debtors received from the principal (bank) as well as details of collections
remitted to the principal (bank) should be properly maintained date wise.
Though the principal (bank) is supposed to give copy of loan agreement between the debtor and
the bank to the DRA for the purpose of collection of dues, in terms of legal provisions and as
also in terms of Code of banks commitment to customers under the (BCSBI) bank has to
maintain secrecy and confidentiality about customers accounts s and records. Hence DRA
should take all the precautions in this regard.
Record of conversations the DRAs have with the customers during recovery process.
Account statement showing dues receivable, amount collected and remitted and balance yet to
be collected debtor-wise.
Key Words
Communication
Interpersonal Skill
Customer
Debtor
Personal
effectiveness
Body language
Assertive behaviour
Aggressive
behaviour
Passive Behaviour
Listening skills
Empathy
Grooming
Dressing
Collections
Remitting funds
Book keeping
Documenting
Module 1 Notes
M1-12
Etiquette
Reporting
13
Paperwork
required?
Who is a DRA?
Guidelines for
process
Module 1 Notes
14
M1-13
Deposit Taking
Lending
Funds Remittance
Deposit-taking
A bank accepts money from its customers. Customers trust the bank to pay back the money
when it is needed or when demanded (these deposits are also called Demand Deposits).
The funds may be kept in the SAVINGS ACCOUNTS. A small percentage of interest is
paid.
Depositors can also keep their money for a fixed time in TERM DEPOSITS (such as Fixed
Deposits, Recurring Deposits). In Term Deposits the amount invested is repayable after the
fixed time period is over.
Deposits form the largest portion of a banks funds. The advantages to the customers are safety,
ease of access, interest earning, Income Tax rebates, records and statements of account
maintained by the bank, cheque book facility.
Lending giving loans and advances
Banks also give LOANS and ADVANCES. Part of the funds that the bank gets from deposits
are given out by a bank as loans and advances. The DEBTORS pay Interest on the money
borrowed. This interest collected by the bank is much higher than what is paid out to the
Depositors.
Funds Remittance
People do not have to mail cash through the postal system. Banks have branch networks spread
across cities, regions and states in the country and arrangements with banks overseas as well.
The banks send (remit) funds of their customers by mail, telegraphic or electronic funds transfer
or by issuing bank drafts. Banks charge fees for this service.
Other Services
Banks give other services for which they charge commission or fees. This is called non-interest
income or FEE-BASED INCOME. Some of these services are safe deposit lockers, safe
custody of valuables, issuing of travelers cheques, letters of credit and guarantee, collection of
out-station cheques, giving opinion reports on their customers, agency services for government
business, etc.
Quick Questions
How does a bank earn profit?
The funds that the bank gets from deposits are given out by a bank as loans and
advances.
15
2011 IL&FS Skills Development Corporation Limited
Module 2 Notes
M2-1
Participant Handbook
The bank earns interest that the debtors pay on this loan or advance.
So, the bank earns profits from the difference of the interest it takes from the debtors and
that it gives to the depositor. The interest income from these forms a large part of a
banks profit.
Deposit-taking
Lending
Funds Remittance
interest
Electronic Banking
Debtor
Loans
Advances
fee-based income
NPA
BANKS
IN
INDIA
Commercial
banks
Public sector
banks
Private
sector banks
Regional
Rural
banks
Co-op
banks
Local
Area banks
Urban
Co op
banks
Agri
Co op banks
Land
development
banks
Nationalised Banks
The State Bank Group and Nationalized banks: This group of 27 banks has the largest
number of branches in metro/ urban/rural areas throughout the country. The group contributes
to about 75% of the total deposits and about 70% of total advances of all commercial banks in
India.
Private Sector banks
Foreign Banks: These are the banks incorporated abroad but granted license by RBI to do
banking business in India through their Indian branches.
16
Module 2 Notes
M2-2
Cooperative banks are registered under the Registrar of Cooperatives and their
main regulator is the State government (or Central government in cases of the
cooperative banks operating in more than one State).
Key Words
Scheduled Banks
Nationalised Banks
Foreign Banks
Cooperative Banks
17
Module 2 Notes
Participant Handbook
5.3
Deposits
Demand
Deposits
Repayable on
demand by the
customers
Call Money
Deposit
Current account
Deposits
Term Deposits
Repayable on
maturity dates as
agreed between
customers and
banker
Savings Bank
Deposits
Fixed Deposits
Hybrid Deposits
Combine the
features of
demand and
term deposits
Recurring
Deposits
Chequebook facility is provided to each current account. All current accounts are noninterest bearing.
The account holder gets periodically from the bank branch statements of accounts for
reconciliation and record.
18
Module 2 Notes
M2-4
Banks put some restrictions on the number of withdrawals per month/ quarter, amount
of withdrawal per day, minimum balance to be maintained in the account on all days,
etc. and levy fee/ penalty for violations of these rules.
The bank pays interest on the minimum balance maintained in the account during the
specified period of every month, example, from 10th to the last day of the month.
Most banks provide to savings bank account holder a passbook where date-wise
debit/credit transactions and credit balances are shown as per the customers ledger
account maintained by the bank.
Call Deposit
An investment account offered through banks which allow investors instant access to their
accounts. Withdrawals and deposits can be made any time. Rules and benefits differ depending
upon the bank offering the account.
What are the different types of Term Deposits?
Fixed Deposits:
These are repaid on the fixed maturity date with the principal and agreed interest rate for the
period and no operations are allowed against the deposit. The main features are as follows:
Fixed deposits are for specified periods at specified interest rates and cannot be
changed even though the interest rate changes.
Banks offer varying interest rates for different maturities as decided by their Boards.
Those term deposits which are held for periods of 6 months and less are called Short
Term Deposits or Short Deposits.
A deposit receipt is issued by the bank branch accepting the fixed deposit- mentioning
the depositors name, principal amount, maturity period and interest rate, dates of the
deposit and its maturity etc.
Many banks prepay fixed deposits, if they decide to accommodate customers request.
Banks calculate and credit the interest payable on the deposits on a quarterly basis.
However, for the convenience of the depositors banks pay interest at different desired
intervals.
19
Module 2 Notes
Participant Handbook
The customer deposits into the account a fixed sum at pre-fixed frequency
The interest rate payable on recurring deposits is pre-fixed and it is generally a little
lower than the fixed deposit rate for the same period.
The total amount deposited along with the interest is repaid on the maturity date. The
depositor may be allowed to take advance against the deposits or to have the deposit
pre-paid before the maturity.
Only one savings/ current account is opened and the term deposits issued under the
scheme are only on the banks books as no term deposit receipts are issued to the
customer. Once deposits in savings/current account cross a pre-agreed level, such
surplus amount is automatically transferred to term deposit.
The customer opens only one account (savings or current) under the scheme
Exercise: Write down one advantage and one disadvantage of each of the types of deposits.
Deposit Type
Advantage
Disadvantage
Key Words
Demand Deposits
Current Accounts
Savings Bank
Accounts
Recurring Deposits
Fixed Deposits
Hybrid Deposits or
Flexi Deposits
20
Module 2 Notes
M2-6
Term Deposits
5.4
21
Module 2 Notes
Participant Handbook
Key Words
Introduction
Specimen Signature
Key Words
Power of Attorney
Introduction
Nomination
Specimen Signature
Illiterate persons
Power of Attorney
Nomination
Illiterate persons
6.3
6.3
Know Your
Customer
(KYC)
Know Your
Identity and
residence
proof
Identity and
Customer
(KYC)
Photo Identity
residence proof
Photo Identity
Interest Calculation
InterestCalculation
Calculation
Interest
What is Interest?
What
InterestisisInterest?
the price that someone pays for the temporary use of others funds. Its value is
calculated
as aprice
percentage
of somepays
amount.
chargeuse
interest
on Loans
Interest
is the
that someone
for theBanks
temporary
of others
funds.and
Its also
valuepay
is
interest on as
some
types of Deposits.
calculated
a percentage
of some amount. Banks charge interest on Loans and also pay
interest
somecharge
types ofinterest?
Deposits.
Why doon
banks
Why
do interest,
banks charge
Without
lendersinterest?
would not be willing to lend and depositors would be less willing to
save.
To
repay
a
loan,
a
debtor
interest,
as well
the principal,
Without interest, lenders wouldhas
notto
bepay
willing
to lend
and as
depositors
wouldthe
beamount
less willing to
originally
borrowed.
a bank
pays
interest
agreed
rated
to the deposits
accepted by
save.
To repay
a loan,Similarly,
a debtor has
to pay
interest,
asatwell
as the
principal,
the amount
it
to
encourage
people
to
leave
their
money
at
the
bank.
originally borrowed. Similarly, a bank pays interest at agreed rated to the deposits accepted by
it
to encourage
people
to leave their money at the bank.
Types
of Interest
calculations:
Types
InterestSimple
calculations:
Simpleofinterest:
interest is a fixed percentage of the amount borrowed for a period. The
interest
on a principal
not on
earned interest.
Simple calculated
interest: Simple
interest sum,
is a fixed
percentage
of the amount borrowed for a period. The
interest calculated
on a principal
sum,
onand
earned
interest.
Rahul has deposited
Rs. 10,000
for 2not
years
the rate
of simple interest is 10% per annum. After
2Rahul
years,
thedeposited
interest he
get is,for 2 years and the rate of simple interest is 10% per annum. After
has
Rs.will
10,000
Interest
=
Rs.
10,000
x
10/100
2 years, the interest he will get xis,2 years = Rs. 2,000
Interest
= Rs. 10,000
x 10/100
x 2 years
= Rs. 2,000
Compound
interest:
Interest
which
is calculated
not only on the initial principal but also on the
added
interest
of
previous
periods.
So,
the
interest
getsonly
compounded
with but
the principal.
Compound interest: Interest which is calculated not
on the initialalong
principal
also on the
added interest
of
previous
periods.
So,
the
interest
gets
compounded
along
with
the
principal.
In the next case, Rahul has deposited the same amount of Rs. 10,000 in a fixed deposit account
for
twonext
yearscase,
where
the bank
will pay compound
annum.
In the
Rahul
has deposited
the sameinterest
amountofof10%
Rs.per
10,000
in a fixed deposit account
After
theyears
first year,
hepay
will compound
get is,
for two
wherethe
theinterest
bank will
interest of 10% per annum.
Interest
Rs.year,
10,000
10/100 he
x 1will
yearget= is,
Rs. 1,000
After
the=first
thexinterest
Now,
his
principal
amount
becomes
Rs.
10,
+ Rs. 1,000 = Rs. 11,000
Interest = Rs. 10,000 x 10/100 x 1 year = Rs.000
1,000
After the
the interest
will10,
get000
is, + Rs. 1,000 = Rs. 11,000
Now,
his second
principalyear,
amount
becomesheRs.
Interest
Rs. 11,000
10/100
x 1 he
yearwill= get
Rs. is,
1,100
After
the=second
year,xthe
interest
Total
interest
he
gets
is
Rs.
1,000
+
Rs.
1,100
= Rs. 2,100
Interest = Rs. 11,000 x 10/100 x 1 year = Rs. 1,100
22
Totalfloating
interest he
gets is Rs.
1,000In+ Rs.
1,100
= Rs.
Fixed and
interest
rates:
fixed
rate,
the2,100
rate of interest, once fixed, will not change
duringand
the entire
period
of loan.
In floating
depending
the
Fixed
floating
interest
rates:
In fixed rate,
rate, the
the rate
rate of
of interest
interest,changes,
once fixed,
will notupon
change
market
condition.
This
is
decided
at
the
time
of
making
the
loan
agreement.
during the entire period of loan. In floating rate, the rate of interest changes, depending upon the
market condition. This is decided at the time of making the loan agreement.
Module 2 Notes
M2-8
Module 2 Notes
M2-8
Front ended interest: In this case, the interest (flat rate) is collected in the beginning and the
customer gets net amount.
Front ended
interest:
InRs
this
case,
the interest.
interest (flat rate) is collected in the beginning and the
Jaya takes
a loan of
1000
@ 10%
customerThe
gets
netdisburses
amount.only Rs 900 since they take out the 10% in the beginning.
Bank
takes a loanInofthis
Rs 1000
10%bank
interest.
Flat rateJaya
of interest:
case,@the
will calculate interest on the original amount lent.
The Bank
only Rs 900on
since
take outamount
the 10% even
in the beginning.
The interest
will disburses
not be calculated
thethey
reducing
though the debtor repays in
instalments.
Usually the
EMIs
arethe
calculated
as calculate
though the
principal
is also
beingamount
paid back.
Flat
rate of interest:
In this
case,
bank will
interest
on the
original
lent.
The interest will not be calculated on the reducing amount even though the debtor repays in
instalments. Usually the EMIs are calculated as though the principal is also being paid back.
6.4
6.4
place.
Closure at customers request: A customer can close a deposit account if he/ she is not
satisfied
with
the services
of the
ormay
for any
other
reason
to another
Closure of
accounts
by bank:
A bank
banker
close
account
or e.g.
stoptransfer
operation
on a
place.
customers deposit account when
Closure
of accounts
bank:ofAdeath
banker may close account or stop operation on a
- On
receipt ofbynotice
customers deposit account when
A joint account may also be closed on the death of any one of the account
- holders
On receipt
notice account
of death opened in the names of the surviving account
andof fresh
avoid legal
- holders,
A joint to
account
may problems.
also be closed on the death of any one of the account
holders and fresh account opened in the names of the surviving account
Stopping of operations:
holders, to avoid legal problems.
Garnishee order or order of courts: If a bank receives order of a court, a garnishee order, or
Stopping
operations:
by IncomeofTax
department, the bank would immediately note a caution in the account and
stop
payment order
of cheques
or debits
to the
until theorder
orderof
is alifted
in awriting.
Theorder,
account
Garnishee
or order
of courts:
If account,
a bank receives
court,
garnishee
or
operations
for temporary
the court order
it is not closed.
by
Income are
Taxstopped
department,
the bank period
would of
immediately
noteand
a caution
in the account and
stop payment of cheques or debits to the account, until the order is lifted in writing. The account
operations are stopped for temporary period of the court order and it is not closed.
Key Words
Simple interest
Compound interest
FlatKey
rateWords
of interest
Principal
Simple
interest
Rate of interest
Compound
interest
Principal
Rate of interest
23
Module 2 Notes
Participant Handbook
Practice examples
6.5
Practice examples
Case 2
A
Case 3
A
24
Module 2 Notes
M2-10
Case 4
A
Case 5
A
Case 6
A
25
Module 2 Notes
Participant Handbook
26
Module 2 Notes
M2-12
7.1
Banker-Customer
Banker-CustomerRelationships
Relationships
Who is a customer?
Anyone conducting a banking transaction with a bank is a bank customer. It could be an
individual, a group, a firm, a company, a trust, an institution or a government/semigovernment/local self-government organization.
Different types of Banker-Customer Relationship
Bank
Debtor
Creditor
Bailee
Agent
Relationship
Debtor - Creditor
When a customer deposits money with the bank, the customer
becomes a lender and the bank becomes borrower. The
relationship is that of a Debtor and Creditor
Creditor - Debtor
When the bank lends money to the customer, the customer is
the borrower and the bank is the lender. The relationship,
therefore, is that of a Creditor and Debtor. The
Customer/Borrower executes documents and offers security to
the Bank before utilising the loans.
Bailee - Bailor
When a customer deposits certain valuables, bonds, securities
or other documents with the bank, for their safe custody, the
bank besides becoming a trustee , also becomes a bailee and
the customer is the bailor.
Agent - Principal
One of the additional services rendered by the bank is
remittances, collection of cheques, bills, etc., on behalf of the
customers. It further undertakes to pay regularly electricity
bills, telephone bills, insurance premia, club fees, etc. In all
such cases, the bank acts as an agent, his principal being the
customer.
Customer
Creditor
Debtor
Bailor
Principal
Lessor - Lessee
The banks provide safe deposit lockers to the customers who
hire them on lease basis. The relationship, therefore, is that of
lessor and lessee.
Lessee
Lessor
Trustee - Beneficiary
When a trust is created appointing the bank as a trustee, the
relationship is that of a trustee and a beneficiary
Beneficiary
Trustee
27
Module 2 Notes
M2-13
2011 IL&FS Skills Development
Corporation Limited
Participant Handbook
Debt Secrecy
Recovery
Agents
Certificate Training
Banks
Obligation
Accounts
Banks
ObligationtotoMaintain
Maintain
Secrecyof
of
Accounts
Banks Obligation to Maintain Secrecy of Accounts
When a person opens an account in a bank he has an assurance that all the information
aboutthe
hisBank
account
remains
between
the banker
and account holder. It is one of the main
Why should
keep
accounts
information
secret?
duties of the banker to maintain complete secrecy about his customers account. This
When a person opens an account in a bank he has an assurance that all the information
duty continues even after the customers account is closed.
about his account remains between the banker and account holder. It is one of the main
duties
However,
there
are some
situations
in which
the banker
needed
to make
disclosures
of the
banker
to maintain
complete
secrecy
aboutishis
customers
account.
This
aboutcontinues
a customers
duty
evenaccount.
after theExamples,
customerswhen
account is closed.
- Needed
under
legal
acts like in
Income
Companies
Reserve
Bank of
However,
there are
some
situations
whichTax
the Act,
banker
is neededAct,
to make
disclosures
India Act, etc.
about a customers
account. Examples, when
-
7.3
7.3
If
a customer
thislike
information
canAct,
be disclosed.
Needed
underallows,
legal acts
Income Tax
Companies Act, Reserve Bank of
India
Act,
etc.
In the banking business it is common courtesy among the bankers that
whenever
a bank
about
sureties or acceptors such
If
a customer
allows,asks
this another
information
canproposed
be disclosed.
information is shared.
In the banking business it is common courtesy among the bankers that
A banker can
disclose
when
it is essential
his such
own
whenever
a bank
asks information
another about
proposed
sureties toor protect
acceptors
interest, legally.
information
is shared.
Banker
may
requiredinformation
to make disclosure
interesttoofprotect
the nation
and
A
banker
canbedisclose
when it inis the
essential
his own
public atlegally.
large.
interest,
- Banker mayof
be Transacting
required to make disclosure in the interest of the nation and
Instruments
public at large.
Instruments
InstrumentsofofTransacting
Transacting
Cheques A cheque is a bill of exchange drawn on a specific banker and not payable
unless
demanded. This
is exclusive to the banking system and no other institution can
What are
the instruments
of transacting?
operate this system. A cheque has three parties, the drawer the account holder
Cheques A cheque is a bill of exchange drawn on a specific banker and not payable
signing the cheque, the drawee always the bank and the payee who will receive the
unless demanded. This is exclusive to the banking system and no other institution can
amount
operate this system. A cheque has three parties, the drawer the account holder
Drafts
cheque the
drawn
by one
bankthe
against
funds
intowill
its receive
accountthe
at
signing -theA cheque,
drawee
always
bank and
thedeposited
payee who
another
amount bank, authorizing the second bank to make payment to the individual named in
the draft. It can also be from one branch to another branch of bank.
Drafts - A cheque drawn by one bank against funds deposited into its account at
Pay
Order
Pay
Order, or
payable
at thetosame
centre/branch
from
another
bank,
authorizing
theBankers
second Cheque
bank to is
make
payment
the individual
named
in
which
it was
issued.
Issuing
[drawer
branch]branch
and paying
branch [drawee branch]
the
draft.
It can
also be
from branch
one branch
to another
of bank.
is one and same.
Pay Order Pay Order, or Bankers Cheque is payable at the same centre/branch from
What iswhich
a Cheque?
it was issued. Issuing branch [drawer branch] and paying branch [drawee branch]
is
one
and
A cheque is a bill same.
of exchange drawn on a specific banker and not payable unless demanded.
28
This isisexclusive
to banking system and no other institution can operate this system. A cheque
What
a Cheque?
has three parties, the drawer, is the account holder signing the cheque, drawee is always the
A cheque is a bill of exchange drawn on a specific banker and not payable unless demanded.
bank and the payee who will receive the amount
This is exclusive to banking system and no other institution can operate this system. A cheque
has three parties, the drawer, is the account holder signing the cheque, drawee is always the
bank and the payee who will receive the amount
Module 2 Notes
M2-14
Drawers signature: The cheque has to be signed in ink, by the account holder, as per
the specimen signature. If the signature does not match the cheque may be returned by
the bank to protect the customer from possible forgery.
Amount of cheque: There are two spaces for writing the amount of the cheque, in
figure and also in words. Generally, both these should be filled up and should not
differ.
General Crossing: A cheque may be crossed by the drawer and holder by drawing on
its face two parallel transverse lines simply, either with or without words not
negotiable or account payee. In these cases, the drawee bank shall not pay it
otherwise than to a banker. The effect of such a crossing is that the cheque will not be
payable in cash but through the bank by credit to the account of the payee
Special Crossing: It consists of an addition of the name of the banker across the face of
the cheque with or without two parallel transverse lines. In this case the drawee bank
shall not pay the cheque otherwise than to the banker to whom it is crossed or his agent.
Which features of a cheque a DRA should always check when collecting cheques for loan
recovery? Tick the ones which you always check yourself.
The cheque should be drawn on local banks. Out-station cheques can be taken only
when the Banks branches are networked under CBS.
The Banks name and the debtors account number should be clearly mentioned.
In case of Credit Card dues, the Card Issuing Banks name and the Credit Card number
should be mentioned clearly.
No third party cheques like the cheques endorsed in favour of the borrower can be
accepted.
The date should be filled up. If it is dated a few days before the date of receiving the
cheque it can be overlooked but post dated cheques should not be accepted.
29
Module 2 Notes
Participant Handbook
Key Words
Key Words
crossing of cheque
crossing of cheque
Bailee
Bailee
Lesee
Lesee
Pay Order
Pay Order
8.1
8.1
Clearing
Clearing
endorsement
endorsement
Bailor
Bailor
Trustee
Trustee
Account Payee
Account Payee
Collection
Collection
Customer
Customer
Agent
Agent
Beneficiary
Beneficiary
Bearer
Bearer
Date of cheque
Date of cheque
Debtor
Debtor
Principal
Principal
Cheques
Cheques
Drawers signature
Drawers signature
Creditor
Creditor
Lessor
Lessor
Drafts
Drafts
e-banking: Banking through internet can help transaction in the following cases,
e-banking: Banking through internet can help transaction in the following cases,
- Electronic bill presentment and payment
- Electronic bill presentment and payment
- Funds transfer between a customer's own checking and savings accounts, or to
- Funds
between
a customer's own checking and savings accounts, or to
anothertransfer
customer's
account
another customer's account
- During purchase or sale
- During purchase or sale
- Loan applications and transactions, such as repayments
- Loan applications and transactions, such as repayments
Mobile banking: Mobile banking (also known as M-Banking, mbanking, SMS Banking
Mobile
Mobile
banking (also
known
as M-Banking,
mbanking,
SMS Banking
etc.)
is abanking:
term used
for performing
account
transactions,
payments
via a mobile
device
etc.)
used
for performing account transactions, payments via a mobile device
such is
as aa term
mobile
phone.
such as a mobile phone.
Phone Banking It is a service provided by a bank which allows its customers to
Phone
It is
a service
providedMost
by atelephone
bank which
allowsuse
its an
customers
to
performBanking
transactions
over
the telephone.
banking
automated
performanswering
transactions
overwith
thephone
telephone.
Most
telephone
banking the
use customer
an automated
phone
system
keypad
response.
For security,
must
phone
answering
system
with
phone
keypad
response.
For
security,
the
customer
must
first authenticate identity. It offers services like account balance information and list
of
first
identity.
It offers
like funds
accounttransfers
balance between
information
and list of
latestauthenticate
transactions,
electronic
billservices
payments,
a customer's
latest
transactions,
electronic bill payments, funds transfers between a customer's
accounts,
etc.
accounts, etc.
Customers can also speak to a live representative. Phone banking can also help in loan
Customers caninvestment
also speakpurchases
to a live representative.
Phone
banking
canorders,
also help
in loan
applications,
and redemptions,
cheque
book
debit
card
applications,
investment
purchases
and
redemptions,
cheque
book
orders,
debit
card
replacements, change of address, etc.
replacements, change of address, etc.
ATM An automated teller machine (ATM) is a computerized telecommunications
ATM
An provides
automated
machine
is ainstitution
computerized
devicethat
theteller
customers
of (ATM)
a financial
withtelecommunications
access to financial
device
that
provides
the
customers
of
a
financial
institution
with
financial
transactions in a public space without the need for a human clerk access
or banktoteller.
On
transactions
a public
without
the need
a human
clerk ATM
or bank
teller. On
most moderninATMs,
the space
customer
is identified
byfor
inserting
a plastic
card.
most modern ATMs, the customer is identified by inserting a plastic ATM card.
Debit Card - A debit card is a plastic card which provides an alternative payment
Debit
- A debit
is a purchases.
plastic cardInwhich
provides
an alternative
methodCard
to cash
when card
making
this card
is that
the accountpayment
of the
method
to iscash
when
making
purchases.
In this
card is that the account of the
cardholder
debited
as soon
as each
transaction
is made
cardholder is debited as soon as each transaction is made
Key Words
Key Words
ATM
ATM
Cheques
Cheques
Debit Card
Debit Card
e-banking
e-banking
30
Module 2 Notes
Module 2 Notes
M2-16
M2-16
Mobile banking
Mobile banking
Phone Banking
Phone Banking
Anti
Money Laundering
Anti Money Laundering
Monitoring of transactions
Risk management
While banks should try not to inconvenience the customers in general, they are required to
divide the customers in to various risk categorise and specify criteria for each group for
accepting them as customers.
Customer identification should be generally from reliable independent source documents. The
documents which are proof of identity are
Passport
Driving license
Module 2 Notes
31
Participant Handbook
money laundering
KYC
Key Words
Layering
money laundering
Integration
KYC
Layering
Integration
8.4
8.4
identification
Customer
identification
Placement
Placement
AML
AMLCase
CaseStudies
Studies
1. The Great Indian Bank received a customer account opening form for processing. There
was introduction from another existing customer of the bank as address proof, as the
1. The Great Indian Bank received a customer account opening form for processing. There
customer did not have any address proof. The introducer has a savings account. Customer
was introduction from another existing customer of the bank as address proof, as the
has provided driving license with photograph which did not match with current photograph.
customer did not have any address proof. The introducer has a savings account. Customer
The introducers savings account has huge cash turnover and he has introduced many
has provided driving license with photograph which did not match with current photograph.
account holders.
The introducers savings account has huge cash turnover and he has introduced many
Should
the Bank open the account?
account
holders.
Is there the
anyBank
possibility
of money
laundering in this case?
Should
open the
account?
32
Module 2 Notes
M2-18
Module 2 Notes
M2-18
3. ABC, a customer approaches you for opening a Savings Account. He produces voters ID
Card and ration card as KYC documents. He mentions that monthly credit in the account
will be mostly in cash and he would withdraw most of the money for expenses. You inform
him of the banks QAB (Quarterly Average Balance) requirement and also ask him for the
source of his funds. ABC refuses to divulge the source of funds and expresses his inability
to open account on the ground of inability to maintain the QAB.
33
Module 2 Notes
Participant Handbook
34
Module 2 Notes
M2-20
10.2
The members of public and trading concerns keep money in the Bank for safety,
liquidity and interest.
The funds that the Bank gets from deposits are given out by a Bank as loans and
advances at a higher rate of interest.
The Bank earns interest that the debtors pay on this loan or advance.
So, the Bank earns from the difference of the interest it takes from the debtors and what
it gives to the depositor. The interest income from these forms a large part of a Banks
profit.
Net Interest Income (NII) = (Interest earned on Loans Interest paid on Deposits).
This NII goes towards costs of running the Bank and the excess is recorded as the profit
of the Bank.
10.3
10.2
Customer Segments
Customer
Segments
How do Banks Earn Money?
This
goes
towards costs
of running
the Bank
andclass
the excess
is through
recordedreceivables.
as the profit
CreditNII
card
receivables.
Target
the growing
middle
and earn
of
the Bank.
Credit
card companies are mostly subsidiaries or affiliates of the banks.
Home loans to salaried and self-employed professionals. Home loans account for about
half of total retail loans.
Auto loans (car and two wheelers) to salaried and self-employed professionals. This
sub-segment accounts for about one third of total retail loans.
Loans / advances against shares to high net worth individuals (HNIs), businessmen
(includes business women) and traders,
3Personal
salaried,
self-employed
andLimited
traders/ businessmen. These
Module
Notes loans to
M3-1 professionals
2011
IL&FS
Skills Development
Corporation
loans, for consumption needs and unsecured (i.e. without ant tangible security), are
granted on the basis of income flows or net worth of the individual borrowers.
35
Customers
Customers
Retail
Retail
SEG-Small Enterprises
SEG-SmallGroup
Enterprises
Group
Professionals
Non-professionals
Professionals
This
segment generally
takessegment
loans like generally
Office and
This
loan etc
Medical
Equipment
takes
loans
like Office
and
Non-professionals
This segment
generally
takesThis
tradesegment
loans etc generally
10.4
Corporate
Corporate
How
are
Loans
repaid?
How
are
Loans
repaid?
What is Equated Monthly Instalment (EMI)?
This is the most common method of repaying loans. An equal amount repaid periodically
comprising interest and Principal over the period of the loan or debt. The composition of
What is
Equated Monthly Instalment (EMI)?
interest (decreasing) and instalment of Principal (increasing) changes while the amount remains
This is the
thesame.
most common method of repaying loans. An equal amount repaid periodically
Example:
Ajay has
a housing
loanthe
for Rs.
10 Lacs
interest
of 10.5%
per annum
comprising
interest
andtaken
Principal
over
period
of at
theanloan
orrate
debt.
The composition
of
in 15 years.
EMI is going
to be Rs. 11,054
for (15x12)changes
=180 months.
interestrepayable
(decreasing)
and His
instalment
of Principal
(increasing)
while the amount remains
EMI are used to pay off both interest and Principal each month, so, when Ajay is paying this
the same.
amount every month, he is paying back a part of the 10 Lacs Principal as well as the interest
Example:
Ajay has taken a housing loan for Rs. 10 Lacs at an interest rate of 10.5% per annum
generated.
repayable
inis15
years.
His EMI
is going
toInbefixed
Rs.rate,
11,054
forof(15x12)
=180
months.
What
fixed
and floating
interest
rates?
the rate
interest, once
fixed,
will
not change during the entire period of loan. In floating rate, the rate of interest changes,
EMI are
used to pay off both interest and Principal each month, so, when Ajay is paying this
depending upon the market condition. Home Loans may follow either method depending on the
amountagreement.
every month, he is paying back a part of the 10 Lacs Principal as well as the interest
generated.
What is front ended interest? In this case, the interest (flat rate) is collected in the beginning
and the customer gets net amount. Example: If a person takes a loan of Rs 100 at 10%, the bank
What is
fixed and floating interest rates? In fixed rate, the rate of interest, once fixed, will
takes out Rs 10 and loans Rs 90. The person has to pay back Rs 100 on the Rs 90 loaned.
not change during the entire period of loan. In floating rate, the rate of interest changes,
What is flat rate of interest? In this case, the Bank will calculate interest on the original
depending upon the market condition. Home Loans may follow either method depending on the
amount lent. The interest will not be calculated on the reducing amount even though the debtor
agreement.
repays in instalments. Example: if a loan of Rs 10,000 is taken for a period of 1 year at a flat
interest of 10% - the total repayable is Rs 11,000.
What is front ended interest? In this case, the interest (flat rate) is collected in the beginning
is Reducing
Balance?
HereExample:
the interest isIfcalculated
on the
amount
and theWhat
customer
gets net
amount.
a persononly
takes
a loan
ofofRsPrincipal
100 at 10%, the bank
remaining. Example: if a loan of Rs 10,000 is taken for a period of a year at 10% on reducing
takes out
Rs 10
and quarter
loans Rs
90. The
person
pay calculation
back Rs 100
on2.5%
the on
Rs 90 loaned.
balance
.. every
the person
repays
2500.has
The to
interest
will be
whatever sum is remaining. So, the interest will be 2.5% of 10000 + 2.5% of 7500 + 2.5% of
What is
flat rate of interest? In this case, the Bank will calculate interest on the original
5000 + 2.5% of 2500 by the end of the year.
amount lent. The interest will not be calculated on the reducing amount even though the debtor
Module 3 Notes
M3-2
repays in instalments. Example: if a loan of Rs 10,000 is taken for a period of 1 year at a flat
interest of 10% - the total repayable is Rs 11,000.
What is Reducing Balance? Here the interest is calculated only on the amount of Principal
remaining. Example: if a loan of Rs 10,000 is taken for a period of a year at 10% on reducing
balance .. every quarter the person repays 2500. The interest calculation will be 2.5% on
whatever sum is remaining. So, the interest will be 2.5% of 10000 + 2.5% of 7500 + 2.5% of
5000 + 2.5% of 2500 by the end of the year.
Module 3 Notes
36
M3-2
11.2
11.2
What
are
Retail
Loans?
What
are
Retail
Loans?
Retail loans are those loans issued to individuals for meeting needs such as housing, education,
11.2
What
are Retail
Loans?
buying
consumer
durables
(like TV,
refrigerator, washing machine, music system etc.) and
meeting personal needs.
Retail loans are those loans issued to individuals for meeting needs such as housing, education,
Retail
loanstypes
aredurables
those
loans
issued
to individuals
for meeting
such asmusic
housing,system
education,
What
are
the
of Retail
Loans?
buying
consumer
(like
TV,
refrigerator,
washingneeds
machine,
etc.) and
buying
consumer
durables (like TV, refrigerator, washing machine, music system etc.) and
meeting
personal
needs.
meeting personal needs.
WhatWhat
are the
types of Retail Loans?
are the types of Retail Loans?
Retail
Loans
Retail
Retail
Loans
Loans
Housing
Loans
Housing
Vehicle
Loans
Vehicle
Housing
Loans
Vehicle
Loans
Loans
Loans
Loans for
Personal/
Overdrafts
Education
Credit
purchase
Loans for of
ConsumptiEducationloansOverdrafts
Card dues
consumer
Personal/
Credit
purchase
of
Loans
for Consumpti
Card dues
on Loans loans
consumer
durables
Overdrafts
Education
Credit
Loans
purchase
durables of on Personal/
Consumpti
Card
dues
loans
consumer
on
Loans
durables
Housing
Loans:
These
givenforfor
purchase
ofhouse
flat, house
and construction
of
Housing
Loans:
Theseare
arethe
the loans
loans given
purchase
of flat,
and construction
of
Loans
also
givenfor
for repairing
repairing oror
making
changes
in thein
oldthe
residence.
house.house.
Loans
are are
also
given
making
changes
old residence.
Vehicle Loans: Auto loans for car, two/three wheeler come under this division. Vehicles
Vehicle
Loans:
loans
for loans
car, two/three
come
under
thisand
division.
Vehicles
Housing
Loans:Auto
These
are the
given forwheeler
purchase
of flat,
house
construction
of
bought for commercial use like taxis or trucks come under Commercial Vehicle Loan.
bought Loans
for commercial
use like
or trucks
come changes
under Commercial
Vehicle Loan.
house.
are also given
for taxis
repairing
or making
in the old residence.
Loans for purchase of consumer durables: These loans are for purchase of consumer
Loansdurables
for
purchase
ofloans
consumer
durables:
These
loans
areunder
for purchase
of of
consumer
Vehicle
Loans:
for car,machine,
two/three
wheeler
come
this
Vehicles
like Auto
refrigerator,
washing
music
system,
kitchen
gadget
etc. division.
In case
the
term
loans
the goods are
hypothecated
in trucks
the favour
of system,
the
Bank.Commercial
durables
like
refrigerator,
machine,
music
kitchen gadget
etc. InLoan.
case of the
bought
for
commercial
usewashing
like taxis
or
come
under
Vehicle
term loans the goods
are hypothecated
the are
favour
of the which
Bank.are not specific.
(Personal)
Loans: Thesein
loans
for purposes
LoansConsumption
for purchase
of consumer
durables:
These
loans are
for purchase of consumer
Generally the purpose does not include purchase or goods or property. These are generally
Consumption
(Personal)
Loans:
loans
are for
purposes
are
not
durables
likeany
refrigerator,
washing
machine,
music
system,
kitchen
gadget
etc.specific.
In case of the
without
tangible security,
they These
are
granted
to
people
with
good
netwhich
worth.
Examples:
Generally
the
purpose
does
not
include
purchase
or
goods
or
property.
These
are
generally
term
loans
the
goods
are
hypothecated
in
the
favour
of
the
Bank.
marriage expenses, vacations, medicals, emergencies.
without
any tangible
security,
they are
granted
to people
with good
net worth.
Examples:
Education (Personal)
loans: LoansLoans:
offered to
students
to help
in payment
the costs
professional
Consumption
These
loans
are for
purposesof which
areofnot
specific.
marriage
expenses,
vacations,
medicals,
emergencies.
education.
These loans
usually
a lower
interestor
rategoods
than other
loans.
Generally
the purpose
does
not carry
include
purchase
or property.
These are generally
Overdrafts:
Overdrafts
are
given
the
Current accounts.
this
facility,
the the
customer
can
Education
Loans
offered
students
to people
help By
inwith
payment
of
costs
of professional
without
any loans:
tangible
security,
theyinto
are
granted
good net
worth.
Examples:
over-draw
(i.e.
in
excess
of
the
credit
balance)
up
to
a
specific
limit.
Interest
is
charged
only
on
education.expenses,
These loans
usuallymedicals,
carry a lower
interest rate than other loans.
marriage
vacations,
emergencies.
the debit balances, generally on daily balance basis. The interest rate is highest in retail loans
Overdrafts:
Overdrafts
areoffered
given in
the
Current
By and
thisearn
facility,
the
customer
can
segment.loans:
It allows
traders/business
people
to use money
in advance
backcosts
in time.
Education
Loans
to
students
to accounts.
help
in payment
ofitthe
of professional
over-draw
(i.e.
in
excess
of
the
credit
balance)
up
to
a
specific
limit.
Interest
is
charged
only
on
education.
These
loans
usually
carry
a
lower
interest
rate
than
other
loans.
Credit Card dues: Credit cards are cards that may be used repeatedly to borrow money or buy
the debit
balances,
generally
on daily
basis.
The
rate isStatement
highestdate
in retail loans
products
and services
on credit.
Credit balance
card allows
certain
freeinterest
credit period.
Overdrafts: Overdrafts are given in the Current accounts. By this facility, the customer can
(monthly)
is fixed.
It shows particulars
of all to
purchases
made in
viaadvance
the credit and
card earn
duringitthe
segment.
It allows
traders/business
people
use money
back in time.
over-draw
(i.e.
in excess
ofpayments
the credit
balance)
to a payable.
specificItlimit.
is to
charged
only on
previous
monthly
period,
made
and the up
balance
allowsInterest
individuals
buy
Credit
Card
dues:
Credit
cards
are
cards
that
may
be
used
repeatedly
to
borrow
money
or buy
the
debit
balances,
generally
on
daily
balance
basis.
The
interest
rate
is
highest
in
retail
loans
now and pay later or to pay back with interest later. Credit Card dues become loans only when
they and
are
overdue.
products
services
on credit. Credit
cardtoallows
certaininfree
creditand
period.
date
segment.
It allows
traders/business
people
use money
advance
earn Statement
it back in time.
(monthly)
is
fixed.
It
shows
particulars
of
all
purchases
made
via
the
credit
card
during
the
Module
Notes Credit cards are cards that
M3-3may be used repeatedly to borrow money or buy
Credit
Card3 dues:
previous monthly period, payments made and the balance payable. It allows individuals to buy
products and services on credit. Credit card allows certain free credit period. Statement date
now and pay later or to pay back with interest later. Credit Card dues become loans only when
(monthly) is fixed. It shows particulars of all purchases made via the credit card during the
they are overdue.
previous monthly period, payments made and the balance payable. It allows individuals to buy
now
and3pay
later or to pay back with interest
later. Credit Card dues become loans only when
Module
Notes
M3-3
they are overdue.
Module 3 Notes
M3-3
2011 IL&FS Skills Development Corporation Limited
37
Participant Handbook
38
Type
Housing loan
Purpose
Period of
Loan/Term
Interest
Security
Registration
Guarantee
Taken in cases where margin is low or net worth of the borrowers is assessed
as inadequate
Repayment and
Remarks
Type
Vehicle Loans
Purpose
Period of
Loan/Term
3-5 years generally, depending on the estimated cash flows and nature/ cost
of vehicle
Interest
Security
Registration
Guarantee
Repayment and
Remarks
Type
Purpose
Period of
Loan/Term
18- 48 months, depending on the cost/ nature of the product and cash flows of
the borrower
Interest
Security
Registration
Not applicable
Guarantee
Generally not required, unless cash flow of the borrower is not adequate
Repayment and
Remarks
Module 3 Notes
M3-4
Type
Purpose
Period of
Loan/Term
Interest
Floating basis. The rate is higher than other loans in retail segment
Security
No tangible security, but it may be asked for in cases where the net worth/
cash flows are not adequate
Registration
Not applicable
Guarantee
Required, if net worth / cash flows are not adequate and tangible security is
not available
Repayment and
Remarks
Type
Education loans
Purpose
Period of
Loan/Term
Medium
Interest
Choice between fixed and floating rate. Private or Foreign Banks charge fixed
interest rate.
Security
Unsecured
Registration
Not applicable
Guarantee
Not applicable
Repayment and
Remarks
Type
Overdrafts
Purpose
Period of
Loan/Term
Interest
Security
Unsecured. But liquid security (e.g. fixed deposit receipts, bonds) is asked for
in cases of large sum/ long period requirements, etc.
Registration
Not applicable
Module 3 Notes
M3-5
2011 IL&FS Skills Development Corporation Limited
39
Participant Handbook
Guarantee
Repayment and
Remarks
Remarks: Documentation is very easy and quick for existing account holders
Type
Purpose
Period of
Loan/Term
Free credit period: Up to 45-60 days from purchase date (depending on the
billing cycle).
Interest
Security
Unsecured
Registration
Not applicable
Guarantee
Not applicable
Repayment and
Remarks
Understanding
Retail
Loans
Exercise
Understanding
Retail
Loans
Exercise Understanding Retail Loans
For each of the following cases fill in the cell on the right with information
For each of the following cases fill in the cell on the right with information
What kind of loan can be given to this person for this purpose?
What kind of loan can be given to this person for this purpose?
What are the types of interest that might be charged high, low, EMI?
What are the types of interest that might be charged high, low, EMI?
What kind of guarantee is required who can be a guarantor?
What kind of guarantee is required who can be a guarantor?
1. Rohan is getting married he
1. Rohan is getting married he
needs money to spend a large
needs money to spend a large
amount on the wedding
amount on the wedding
reception.
reception.
2. Lakhan Lakhpatis son has
2. Lakhan Lakhpatis son has
managed to get admission into a
managed to get admission into a
prestigious management college
prestigious management college
but he has to pay a years fee in
but he has to pay a years fee in
advance.
advance.
3. Satish wants to purchase a
3. Satish wants to purchase a
computer for his family.
computer for his family.
40
M3-6
Module 3 Notes
of year profits.
41
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
11.3
Growth
of of
Retail
Loans
Growth
Retail
Loans
Assets
Definition: The Banks
classify recoverable loans as
Assets of different types
according to how they are
being paid back.
Other (Fee-based)
Definition: The services that
the Banks render in exchange
of a certain amount of fee.
Deposits
Loans
Credit Cards
Borrowings
Advances
Remittances
Mortgages, Hypothecations
Mutual Funds
Insurances
Services
More surplus cash: Fast growing population of earning members, more working
women, rising income levels of middle and higher classes.
Growing consumerism: more need for vehicles, housing, consumer goods and
willingness to take loans for these.
Joint family is becoming nuclear: rapid growth in the number of nuclear families has
given rise to consumer needs.
Growth in credit cards usage: it is easy to carry and offers credit period plus loans for
repayment of credit dues.
42
Module 3 Notes
M3-9
11.4
Credit Cards
Credit
Cards
Card Holder: The person on whose name the card has been issued.
Card Issuing Bank: This is the Bank which identifies the customer and issues the card.
This Bank raises a bill on the customer according to the billing schedule. The customer
does not need to have a savings account with the Bank.
Merchant: is the person or concern who/which has accepted payment through credit
card.
Merchant Bank and Acquiring Bank: Once the card is swiped in the shop, the merchant
will seek credit from his/her Bank. The Bank which reimburses the merchant is known
as the merchant Bank.
Collecting Bank: The Merchant Bank will claim the payment from the card issuing
Bank called the collecting Bank.
Companies like VISA and Master Card run credit card operations and they capture all
deals and settle the dues among the different parties in the chain.
M3-10
2011 IL&FS Skills Development Corporation Limited
43
Companies like VISA and Master Card run credit card operations and they capture all
deals and settle the dues among the different parties in the chain.
Participant
What areHandbook
the other types of cards?
Charge card: In such cards transactions are added over a period of time generally a month
and the total amount charged, i.e. debited to the account
Debit card: Debit cards are same as the credit
cards.
The onlyAgents
difference
in this cardTraining
is that
Debt
Recovery
Certificate
the account of the cardholder is debited as soon as each transaction is made. The
cardholder has an existing account with the issuing Bank.
Module 3 Notes
M3-10
Key Words
vehicle loan
personal loan
consumer durable
loan
education loan
housing loan
mortgage
hypothecation
secured loan
unsecured loan
EMI
interest
terms of payment
security
guarantee
credit cards
MAD
TAD
Net Interest
Income
Retail loans
Asset
Acquiring
Bankthe Credit
Collecting
Understanding
Card Bank
Member card
Liability
Delinquency
Merchant Bank
Charge card
Debit card
Smart card
Recovery
Agents Training
Certificate
DebtDebt
Recovery
Agents Certificate
44
Training
ProgramTraining
in Debt Recovery
Debt Recovery AgentsCertificate
Certificate
12.2
Loans-Types
of of
Security
Creations
Loans-Types
Security
Creation
Basic checks like identity proof, residence proof should be taken to prove how genuine
the borrower is.
Cash flow is examined. Loan should be granted after checking the applicants capacity
to repay the loan.
He should make sure that all applicable taxes, duties, any government levies, charges
are paid time to time.
The debtor should ensure that the asset is insured (if insurable), especially in case of
motor vehicles. He should also ensure to renew the insurance once the policy has
lapsed. These clauses are mentioned in the agreement.
The creditor upon serving a notice has the right to inspect the asset anytime.
Upon loss theft or damage of the asset the debtor should inform the creditor about the
same.
Module 3 Notes
M3-14
2011 IL&FS Skills Development Corporation Limited
45
Types of Security
Types of Security
Security
Types of Security
Security
Security
Securing the
loan
Securing the
loan
Creating
Security
Securing the
loan
Creating
Security
Creating
Security
done
Can
done
CanCan
be be
done
Canbebedone
done Can be
Can
be done
Hypothecatio Hypothecatio
Pledge
by
by
by
by
by
by Mortgage Mortgage
n
Checking
Checking
taking a
n
Checking
Checking
taking a
Credit
cash
flow
Guarantor
CanCredit
be done
Can
be
done
Can
be
done
cash flow
Guarantor
What
an immovable property
to a lender as a Hypothecatio
Mortgage
by is Mortgage? Pledging
by of the documents of by
security for a loan.
n as a
Checking
Checkingof the documents
taking of
a an immovable property to a lender
What
is Mortgage? Pledging
forIt ais loan.
a transfercash
of charge,
from the owner
to the mortgage lender, on the condition that
Credit
flow
Guarantor
security
this will be returned to the owner of the real estate when the loan is repaid.
It is
a Debtor
transfer
ofand
charge,
from
the owneroftoanthe
mortgageproperty
lender, on
condition
The
owns
uses
property.
What is Mortgage?
Pledging
of the
the
documents
immovable
to the
a lender
as a that
this
will
to the owner of the real estate when the loan is repaid.
What
is aHypothecation?
Right of ownership of assets as guarantee to secure a loan without
security
for
loan.be returned
transfer of Debtor
possession to theand
Bank.
thethe
property.
ItThe
is a transferowns
of charge,uses
from
owner to the mortgage lender, on the condition that
The borrower retains legal ownership of the asset and can use it but provides the lender
this
willa be
returned
toover
thethe
owner
ofuntil
the the
real
estate
when
the loantoissecure
repaid.a loan without
What is
Hypothecation?
Right
of
ownership
ofdebt
assets
as
guarantee
with
security
interest
property
is paid
off.
transfer
of
possession
to
the
Bank.
The
registration
the property
is in
the name of the Bank
The
Debtor
ownsofand
uses the
property.
Lakhan
Lakhpati
gets legal
loan from
Bank for of
buying
aasset
lorry.and
hypothecated
the lorry
borrower
retains
can use to
it but
provides
thewithout
lender
WhatExample:
is The
Hypothecation?
Right
of ownership
ownership
ofthe
assets
as He
guarantee
secure
a loan
to thewith
Bankaassecurity
security. interest over the property until the debt is paid off.
transfer of possession to the Bank.
What is Pledge? Something delivered as security for the payment of a debt or fulfilment of a
Theand
registration
of the
property
inorthe
name
of and
the Bank
subject to
forfeiture
on
failure
tois
pay
the
promise.
promise,
The
borrower
retains
legal
ownership
offulfill
the
asset
can use it but provides the lender
with
a security
interest
over
the
property
debt aislorry.
paid off.
Lakhan
There
is physical
transfer
of the
charge.
Example:
Lakhpati
gets
loan
from
Bankuntil
for the
buying
He hypothecated the lorry
to the
Bank
as
security.
loan availed by pledging gold.
Example:
The registration
of the property is in the name of the Bank
What
is the difference
betweendelivered
Mortgage, Hypothecation
andthe
Pledge?
What
is Pledge?
Something
as Bank
security
of ahypothecated
debt or fulfilment
of a
Example:
Lakhan Lakhpati
gets loan from
forfor
buyingpayment
a lorry. He
the lorry
there
is
transfer
of
interest
in
the
immovable
property
till
the
re-payment
In
a
mortgage
subject
to forfeiture on failure to pay or fulfill the promise.
topromise,
the Bankand
asthe
security.
of
loan. The ownership papers of the property are kept with the Bank till repayment
is made.
There
is physical
transfer
of theascharge.
What is Pledge?
Something
delivered
security for the payment of a debt or fulfilment of a
promise,
and
subject
to forfeiture
on gold.
failure to pay or fulfill the promise.
Example:
loan
availed
by pledging
Module 3 Notes
M3-15
isThere
is physicalbetween
transfer of
the charge.
What
the difference
Mortgage,
Hypothecation and Pledge?
Example:
availed by
pledging
gold.of interest in the immovable property till the re-payment
there
is transfer
Inloan
a mortgage
of
the
loan.
The
ownership
papers ofHypothecation
the property areand
keptPledge?
with the Bank till repayment
What is the difference between Mortgage,
is made.
In a mortgage there is transfer of interest in the immovable property till the re-payment
of the loan. The ownership papers of the property are kept with the Bank till repayment
Module 3 Notes
M3-15
is made.
46
Module 3 Notes
M3-15
Pledge
Pledge
13.2
Asset
Classification
Asset
Classification
Banks classify recoverable loans as Assets of different types according to how they are being
paid back.
Banks classify recoverable loans as Assets of different types according to how they are being
Assets
or loans into four types:
paid back.
or
Standard
Assets
Assets
loans into
four types:
Substandard
Assets
Standard Assets
Doubtful
Assets
Substandard
Assets
Loss
Assets
Doubtful
Assets
An
either NPA (Non- Performing Asset) or non-NPA. While the Standard Assets are
asset
Lossis Assets
not NPAs, all three remaining assets are grouped under NPA category. In other words, NPA
An asset
either
NPA (Non- Performing
Asset)
or non-NPA.
category
hasisthree
sub-categories:
Substandard,
Doubtful
and LossWhile
assets.the Standard Assets are
not NPAs, all three remaining assets are grouped under NPA category. In other words, NPA
category has three sub-categories: Substandard, Doubtful and Loss assets.
Type of Asset
Due for
Features
Type of Asset
Standard Assets
Standard Assets
Due for
Paid back
regularly
Paid back
regularly
What is an NPA?
A
loanisthat
not producing its stated Principal and interest payments and so an asset which is
What
an is
NPA?
not producing income is called a Non-performing Asset (NPA).
A loan that is not producing its stated Principal and interest payments and so an asset which is
If
EMIs remaining
one after
another,
not3 producing
income unpaid
is calledcontinuously
a Non-performing
Asset
(NPA).then their loan would fall in the
category of NPA (over-dues for more than 90 days). The following three NPA categories of
If 3 EMIs
remaining
continuously
one afterinanother,
their
loan would
fall due
in the
debtors
is marked
by unpaid
delay/ avoidance/
resistance
paymentthen
of the
overdue
amount,
to
category
of
NPA
(over-dues
for
more
than
90
days).
The
following
three
NPA
categories
of
their financial difficulty or as they are not interested to pay or other reasons.
debtors is marked by delay/ avoidance/ resistance in payment of the overdue amount, due to
their financial difficulty or as they are not interested to pay or other reasons.
Module 3 Notes
Module 3 Notes
M3-16
2011 IL&FS Skills Development Corporation Limited
M3-16
47
Participant Handbook
Type of Asset
Due for
Substandard
Assets
It is considered NPA
Doubtful Assets
Sub-standard
category for a
period of 12
months
It is considered NPA
Called doubtful, since their recovery seems doubtful
on the basis of the facts, condition and values of the
security for the loan
Considerable
period of time
It is considered NPA
Loss has been identified by the Bank or auditors, or
the RBI inspection
The amount has not been written off wholly.
Loss assets are considered not collectable.
Loss Assets
Features
13.3 TheThe
Bucket
System
Bucket
System
What are Buckets in Loan Recovery?
Time bucket classification could vary from bank to bank. Generally, the first bucket
includes those accounts which are overdue for a period of less than 91 days. As and
when the default period increase the banks will move the dues to next bucket. It is often
said that the account has slipped into the next bucket or roll forward
The classification into time buckets is for the purpose of focusing on recovery and to
ensure that the accounts do not go into higher buckets. The accounts in higher buckets
call for different collection strategies than those which are in a lower bucket.
48
Roll Forward: A delinquent account rolls forward to a higher bucket in the current month from
a lower bucket in the previous month. This happens when no payment is made during that time
frame.
Module 3 Notes
M3-17
Debt
Debt Recovery
Recovery Agents
Agents Certificate
Certificate Training
Training
Normalisation:
Normalisation: When
When all
all outstanding
outstanding EMIs
EMIs are
are paid
paid by
by the
the customer
customer in
in aa particular
particular bucket
bucket the
the
case
is
said
to
have
normalised.
case is said to have normalised.
Stabilisation:
Stabilisation: When
When the
the delinquent
delinquent account
account remains
remains in
in the
the same
same bucket
bucket in
in two
two consecutive
consecutive
months
(the
delinquent
customer
pays
one
instalment)
then
the
account
is
said
to
months (the delinquent customer pays one instalment) then the account is said to stabilize.
stabilize.
Key
Key Words
Words
Sub
Sub standard
standard
asset
asset
loss
loss asset
asset
doubtful
doubtful asset
asset
standard
standard asset
asset
NPA
NPA
bucket
bucket
Secured
Secured loan
loan
Unsecured
Unsecured loan
loan
Mortgage
Mortgage
Hypothecation
Hypothecation
Pledge
Pledge
Collateral
Collateral
Asset
Asset
NPA
NPA
Roll
Roll back
back
Roll
Roll Forward
Forward
Normalisation
Normalisation
Stabilisation
Stabilisation
13.4
13.4
Case
Studies
Case
Studies
Case
Studies
Situations
Situations for
for discussion:
discussion:
Case
Case 11
Ismail
Ismail had
had taken
taken aa loan
loan for
for his
his sisters
sisters wedding
wedding
back.
But,
due
to
some
problems
about
two
years
about two years back. But, due to some problems
he
he is
is not
not being
being able
able to
to give
give the
the refund
refund instalments
instalments
for
last
1
year
4
months.
What
kind
of
asset
for last 1 year 4 months. What kind of asset is
is this
this
to
the
bank?
to the bank?
Is
Is there
there any
any role
role of
of aa DRA
DRA in
in this
this case?
case?
Is
Is this
this loan
loan secured?
secured?
Case
Case 22
Mohan
Mohan had
had taken
taken aa loan
loan about
about 33 years
years back
back for
for
For
more
than
last
two
years
his
business.
he is
is
his business. For more than last two years he
not
being
able
to
give
his
instalments
as
his
not being able to give his instalments as his
business
business has
has suffered
suffered loss
loss and
and is
is almost
almost closed
closed
down.
If
the
person
cannot
pay
the
loan
down. If the person cannot pay the loan at
at all
all
what
kind
of
asset
is
it
for
the
Bank?
what kind of asset is it for the Bank?
How
How is
is the
the class
class of
of Asset
Asset determined
determined in
in this
this
case?
case?
Case
Case 33
Ramchand
Ramchand has
has taken
taken housing
housing loan
loan from
from aa Bank
Bank
and
his
EMI
is
Rs.
15,000/-.
He
pays
this
and his EMI is Rs. 15,000/-. He pays this EMI
EMI
every
every month
month regularly
regularly in
in the
the first
first week
week of
of the
the
month
as
soon
as
he
gets
his
salary.
What
kind
month as soon as he gets his salary. What kind of
of
asset
asset is
is his
his loan
loan to
to the
the Bank?
Bank?
49
Module
Module 3
3 Notes
Notes
Participant Handbook
50
Module 3 Notes
M3-19
51
Module 3 Notes
Module 3 Notes
Participant Handbook
Module 3 Notes
52
M3-20
Growing NPAs
Growing NPAS
Please fill up the space provided with the most common reasons of default for specific types of
loans
Type of Loan
Housing Loan
Vehicle Loan
Personal Loan
Loans for
Consumer
Durable
Education
Loan
Overdrafts
Credit Cards
Dues
53
Module 4 Notes
Participant Handbook
15.2
Need
for agency
Need for agency
Paperwork
required?
Who is a DRA?
Duties &
Functions
Guidelines for
process
54
Module 4 Notes
M4-2
By assigning debt recovery function to DCAs banks can utilize their staff for
What are
the advantages
of Debt Collection
Agencies (DCAs)?
developing
more remunerative
new business.
By
assigning
debt recovery
function
DCAs banks can utilize their staff for
DCAs
being specialists
bring
in moretorecoveries
developing more remunerative new business.
Skillfully negotiated debt recovery can save on litigation costs
DCAs being specialists bring in more recoveries
There are few disadvantages such as cost involvement and bank loosing potential customers
Skillfully
negotiated
debt recovery can save on litigation costs
due to bad
behavior
of the DCAs.
There are few disadvantages such as cost involvement and bank loosing potential customers
Debt Recovery
Debt Collection
dueKey
to bad
behavior of the DCAs.
NPA
Words
Agents
Agencies
Key Words
15.3
15.3
Debt Recovery
Agents
Debt Collection
Agencies
NPA
Do you think if you know and follow the rules, regulations and the process you will be a
successful DRA?
Do
thinkhelp
if you
know
and follow
rules,effectiveness
regulations and
process
you
will isbe a
No,you
the rules
in the
process
but thethe
personal
and the
the skill
of the
DRA
successful
DRA? Therefore success in recovery will depend on compliance of norms as well
equally important.
as
arepersonal
complimentary
to each
other
and will
bring
good
No,collection
the rules skills
help inand
thestrategy.
process Both
but the
effectiveness
and
the skill
of the
DRA
is
recoveryimportant.
by a goodTherefore
combination
of these
two. will depend on compliance of norms as well
equally
success
in recovery
as
collection
skillsinclude:
and strategy. Both are complimentary to each other and will bring good
Collection
Skills
recovery by a good combination of these two.
Communication skill
Collection Skills include:
Listening skill
Communication skill
Inter-personal skill
Listening skill
Persuasive skill and
Inter-personal skill
Negotiation skill
Persuasive skill and
Negotiation skill
55
Module 4 Notes
Module 4 Notes
M4-3
2011 IL&FS Skills Development Corporation Limited
M4-3
Participant Handbook
Case Study
Case Study
Cash-Safe Bank had granted a personal loan of Rs. 80,000 to Anil, a lower middle class
individual, for consumption needs. The loan was to be repaid in installments by Anil. The loan
was without any tangible security and also without any third party guarantee. The borrower
Anil could not repay some installments in time and therefore the loan became overdue.
The Cash-Safe Bank gave Anils case to recovery agent, Raja, along with some other overdue
loans for recovery. Raja called Anil a couple of times and also visited him at his residence. As
Anil was not able to repay the amount in default, Raja used abusive and harsh language in front
of his wife and daughters. During one of the visits Raja and his colleagues forcibly took away
some of the belongings at Anils house in front of his family and also used threatening language
for payment of the dues. The neighbours too became aware of this as the rowdy group of Raja
and his friends visited Anils place frequently. Anil felt very humiliated and also depressed.
Raja refused to even listen to his explanation.
One day, seeing that he was unable to repay the dues, Anil committed suicide. He left a suicide
note, blaming Raja for harassing him endlessly. He mentioned the insults and abuses he had
suffered at the hands of Raja and his friends in front of his wife and daughters. He also
mentioned the threat Raja gave that he would suffer dire consequences if he failed to repay the
overdue amount by that date.
Following the suicide death of Anil, the local police arrested Raja and his colleagues (who used
to accompany Raja during his visits) on charges of abetment of suicide. A case was also filed
against the Cash-Safe Bank, which had to pay an ex-gratia payment of Rs 15 lacs to Anils
family. The Bank has also been questioned by the Reserve Bank of India and the Banking
Codes and Standard Board of India about its recovery practices and due diligence norms in
engaging recovery agents. The incident has also been published in the press and has damaged
the Banks reputation in the public eye.
Questions to be discussed by your group:
a. Was the recovery process used by Raja the correct way to proceed?
b. What do you think could be wrong with the methods used?
c. Do you think that Anil was able to pay the debt?
d. Why did he commit suicide?
e. Could this have been avoided?
f.
What was the damage caused to each of the parties in this case? Anil, his
family, Raja, his friends, the Cash-Safe Bank?
g. What measures should Cash-Safe Bank take to avoid these kinds of damages?
56
Module 4 Notes
M4-4
16.1
Difficult debtors
Difficult debtors
They would avoid responding to the calls of the recovery agents on one pretext or
another.
They would avoid meeting the recovery agent, by canceling the appointment at the last
hour and repeat this avoidance.
Record the responses of the debtor during calls and personal visits with the knowledge
of the debtor.
Send letters by email/ registered post giving full details of dues and efforts made to
contact him by calls, visits which proved futile.
In spite of the above efforts if the borrower does not respond positively a legal notice should be
sent to him directing him to pay the dues within a specified period failing which a suit would be
filed to recover the dues with higher interest and the legal costs.
This may bring pressure on the debtor but if he still fails to repay the dues then the steps should
be take to repossess the security if any or a suit should be filed to recover the dues.
Case Study
Shravan receives a phone call at 8:00 p.m. from a person who identifies himself as a recovery
agent for ABC Bank. "I've had a difficult time locating you, Mr. Shravan" he says, "I'm calling
you about the money you own to ABC Bank. You must pay or we will be forced to take strong
action against you."
Shravan objects, stating he has never purchased anything through the credit card.
Analyse the situation and suggest what the DRA is required to do at this point?
a. Is this a case of a difficult debtor? Could it be true that Shravan knows nothing about
the dues? How can you find out?
b. Should the DRA inform Shravan about the previous efforts to locate or contact him?
c. What else can the DRA do over the phone? [Request a meeting to discuss the evidence
and offer to help resolve the problem.]
57
Module 4 Notes
Participant Handbook
16.2
Persuasive Skill
The debt recovery agent who has good communication skill and good listening skill is able to
persuade a debtor to repay the dues by establishing a good rapport and winning the trust of the
debtor.
Following are some of the elements of persuasion a debt recovery agent may follow in
persuading the debtor to pay the dues and should:
Explain that the bank lends money out of the deposits collected from the public and the
repayments of the loans by the particular debtor and others as per the loans terms
would enable the bank to pay the deposits when demanded by the depositors.
Explain your duty of collection of dues on behalf of the principal and that you have no
authority to waive/ reduce or postpone the recovery, which only the principal can do.
Show interest / concern for the debtor by understanding his/ her problems and say that
you would try to give assistance to the extent possible.
Explain that non-payment may adversely impact the debtors credit history, which may
make his/ her future borrowing with any bank costlier and difficult. This should induce
the debtor to pay.
Also explain the debtor politely that non payment of dues will not only amount to
breach of loan agreement but would result in higher rate of interest, penalties, legal
action and repossession of security.
Negotiation Skill
Banks may delegate powers of compromise to the recovery agents who have proven expertise
in negotiating and recovering a large portion of the doubtful debts, described as follows:
Where assets charged to the bank have deteriorated in quantity and quality and do not
cover fully the outstanding dues in the debtor/s account.
In such cases the recovery agent is granted specific power to negotiate with the debtor in terms
of the agency agreement and may relate to reduction of interest or principal or both and its
percentage to total dues. Before finalizing the deal the agent may seek final approval by the
principal, then sign the negotiated settlement and effect the recovery for a fee which is higher
than in normal recovery cases.
Key Words
DCA
Communication
skill
Persuasive skill
Negotiation skill
difficult debtors
58
Module 4 Notes
M4-6
Listening skill
Inter-personal
skill
16.3
Case
CaseStudies
Studies
Case 2
A
59
Module 4 Notes
Participant Handbook
Case 4
A
60
Module 4 Notes
M4-8
Case 6
A
Module 4 Notes
61
Participant Handbook
1.
Case 8
A
62
Module 4 Notes
M4-10
Case 10
A
63
Module 4 Notes
Participant Handbook
Case 12
A
64
Module 4 Notes
M4-12
17.1
Regulations
Regulations
What are the Essential Features and Legal Aspects of Debt Recovery Arrangement?
Debt recovery arrangement (or agreement) between bank and the debt recovery agent is a
contract of agency.
There are two parties in a contract of Agency viz. Principal & Agent
In such contract of agency there is an express agreement in writing mentioning all the
terms and conditions of the arrangement. This agreement requires acceptance by the
Principal as well as the Agent.
In the absence of such express agreement, the relationship between the principal and the
agent is ascertained by facts and circumstances of the case.
Such contract is called implied agency contract. There is also an agency contract called
agency by ratification.
In case of Debt Recovery Agents Bank is the Principal. DRA acts on behalf of the
Principal while dealing with third party
Both the Principal and the Agent should be major and of sound mind.
As per the contract of Agency DRA receives commission or fees for the services he
renders to the principal.
All the authorized lawful acts of the agent are binding on the principal. These acts
should be in conformity with the regulatory guidelines of the Reserve Bank of India.
Example: Karan has taken a vehicle loan from the bank but failed to pay 4 EMIs. Bank
appointed agency X for collecting dues from Karan. Agency X employs Agent Rajeev to collect
dues from Karan. Agent Rajeev calls up Karan takes his appointment and visits him at
appointed time to collect the dues. He behaves rudely on the phone and also during his visit.
In this case Rajeev has legally done the right thing by giving a call and fixing up an
appointment but his rude behaviour is not legally correct and is excess of the authority. This
will not bind the bank and the responsibility for the consequences will be on the agent
exclusively.
Legal and Regulatory Framework for Debt Recovery
RBI is the regulatory authority for banks and NBFCs. They issue the guidelines on DRAs from
time to time and the banks / NBFCs and also by their recovery agents have to comply it. RBI
takes a serious view of the violations of its directives and can impose ban / penalties on the
violating bodies.
Discuss the Legal Aspects of Agency Contract
Agency forms the legal basis of the relationship between the DRA and the financial . We may
explain the basic legal aspects of an agency contract with reference to Indian Contract Act.
Agency is a relationship that exists between two persons. One is called Principal and the other
Agent. The Principal (Bank) allows the agent to represent him or act on his behalf. The agent
also consents to represent the principal and to act on his behalf. Any person other than the
principal and the agent is referred as third party, who is affected by the acts of the agent done
on behalf of the principal.
Module 4 Notes
65
Participant Handbook
In a contract of agency, both the parties to the contract, namely the Principal and the
agent, have to be major (above 18 years of age) and of sound mind.
Most agency contracts contain a remuneration clause on the basis of which the recovery
agent will receive his fee for the services.
In respect of the acts, which the Principal consents that he shall do, the agent is said to
have authority to act. This authority constitutes a power to affect the Principals legal
relations with third parties.
An agent, has authority to do every lawful thing which is necessary in order to do such
act.
In cases where there is no express agreement, the relationship between the principal and
agent is ascertained by facts and circumstances of the case (implied agency).
In some cases, the agents work done on behalf of the principal and with full knowledge
of the principal may not have been initially authorized by the principal. If the principal
subsequently ratifies the actions, such post-facto ratification will bind the parties
concerned (agency by ratification).
c) The debt recovery agreement, like any other contract, requires acceptance by the principal
and agent. The accepted agreement is legally binding on both the parties.
d) The objective and tasks of the recovery agents will be generally mentioned in the debt
recovery agreement. These must be lawful, i.e. in accordance with the laws of the country
and regulations of the industry.
e) The acts of an agent performed within the authority delegated by the agency agreement will
be legally binding between the principal and the third parties. However, the actions of an
agent outside the authority, or in excess of the authority, will not bind the principal and the
responsibility for the consequences will be on the agent exclusively. This aspect will be
further explained in a subsequent unit dealing with rights and duties of agents.
The agency agreement regarding debt recovery contains the main terms and conditions agreed
by the principal (say, a bank) and the agent. These may be called as the main elements of the
debt recovery arrangement and would generally include:
1. Specific tasks to be done e.g. the amount to be recovered in default and the broad time
frame.
66
Module 4 Notes
M4-14
3. Code
of Conduct
in recovery
process:of
this
include dress code, verbal and written
2.
Debt Recovery
Policy
and Procedure
themay
bank
communication rules.
3. Code of Conduct in recovery process: this may include dress code, verbal and written
4. Duties
of the agent.
communication
rules.
5.
of the
the agent,
4. Rights
Duties of
agent. including the commission/ fees payable by the principal to the agent for
the recovery of debt / other services.
5. Rights of the agent, including the commission/ fees payable by the principal to the agent for
The
Recovery
and
Code of Conduct will be according to the guidelines of the
the Debt
recovery
of debtPolicy
/ other
services.
RBI. If, these are not incorporated, one should ask for clarification from the principal, as
The Debt
Policy
and Code of
will
betheir
according
following
theRecovery
regulations
is compulsory
forConduct
the banks
and
DRAs.to the guidelines of the
RBI. If, these are not incorporated, one should ask for clarification from the principal, as
The Debt Recovery
Agreement
serves asfor
thethe
contractual
following
the regulations
is compulsory
banks andarrangement
their DRAs.that is legally binding on
both. This may vary from bank to bank in details. The agreement should be strictly followed.
The Debt Recovery Agreement serves as the contractual arrangement that is legally binding on
both. This may vary from
to bank in details. The agreement should be strictly followed.
Debt bank
Recovery
Principal
Agent
Code of Conduct
Key Words
Arrangement
Debt Recovery
Principal
Agent
Code of Conduct
KeyRecovery
Words
Debt
Arrangement
Policy and
Debt
Recovery
Procedure
Policy and
Procedure
17.2
17.2
Debt
DebtRecovery
RecoveryProcesses
Processes
Debt recovery processes (or methods) can be typically of following kinds, each involving
different procedure:
Debt recovery processes (or methods) can be typically of following kinds, each involving
Normal
different recovery
procedure:process: The debtors are willing to pay the dues smoothly without resistance:
Difficultrecovery
recoveryprocess:
process:The
Thedebtors
debtorsare
arewilling
not willing
to the
paydues
(i.e. smoothly
recalcitrant
defaulters)
and
Normal
to pay
without
resistance:
who intentionally resist or avoid recovery efforts: the recovery agent would need to apply
Difficult
recovery
process:against
The debtors
are not willing
to payin(i.e.
recalcitrant
defaulters)
special
process
of recovery
the recalcitrant
defaulters,
consultation
with
the bank.and
who intentionally resist or avoid recovery efforts: the recovery agent would need to apply
Assets
process: Ifagainst
the recalcitrant
debtors
do not eventually
pay thewith
dues,
special possession
process of recovery
the recalcitrant
defaulters,
in consultation
thethe
bank.
movable assets charged to the bank by way of hypothecation or pledge, can be possessed by the
Assets
process:
If thethereafter
recalcitrant
debtorsordootherwise
not eventually
the dues,
the
bank orpossession
the recovery
agent and
auctioned
sold topay
recover
the dues.
movable assets charged to the bank by way of hypothecation or pledge, can be possessed by the
Legal
process:
Theand
intervention
of the courtorisotherwise
required sold
to possess
mortgaged
bank orrecovery
the recovery
agent
thereafter auctioned
to recover
the dues.
immovable property by the bank or its recovery agent. Also if the charged assets do not exist, or
Legal
recovery
process:
intervention
is required
mortgaged
the debt
is unsecured,
theThe
debtor
will haveoftothe
be court
sued for
recoverytoofpossess
the dues
by the bank/
immovable
property
by
the
bank
or
its
recovery
agent.
Also
if
the
charged
assets
do not exist, or
recovery agent.
the debt is unsecured, the debtor will have to be sued for recovery of the dues by the bank/
Normal
Procedure
recoveryRecovery
agent.
As
mentioned
above,
this procedure will generally apply to the debtors who are willing to pay
Normal
Recovery
Procedure
the dues with normal recovery process.
As mentioned above, this procedure will generally apply to the debtors who are willing to pay
Thedues
recovery
been authorized
the
with agent
normalhas
recovery
process. by the bank to collect the past due debt from the
particular customer
The recovery agent has been authorized by the bank to collect the past due debt from the
The
customer
has been notified by the bank of the details (name, telephone number etc) of the
particular
customer
recovery agent for collection of the past-due debt.
The customer has been notified by the bank of the details (name, telephone number etc) of the
recovery agent for collection of the past-due debt.
Module 4 Notes
67
Participant Handbook
68
Module 4 Notes
M4-16
17.3
Guidelinesfor
for Behaviour
Behaviour during
during Visits
Visits
Guidelines
a. During visit, the agent should have a proper dress and appearance, or wear the dress
prescribed by the principal and follow the timing and place of the visit as per the principals
or RBI / IBA code.
b. On meeting, the agent should greet the customer (like good morning/ eveningsir/ madam
etc). The agent should thereafter show his ID card and authority given by the principal for
debt collection from the debtor. Only after these initial formalities, the conversation
regarding debt collection should start.
c. The time of visiting the customer will be generally during 0700 hours to 2100 hours. Visits
earlier or later than the prescribed time may be made only under the following conditions:
When attempts to contact the customer have resulted in information that the customer is
normally only available outside these hours and no alternate telephone number to
contact him / her.
When due to nature of the customers employment i.e. working in shifts e.g. call centre,
hotel, he/she is usually available outside these hours.
During interactions with the debtor, the agent must not use threats verbally or by body
language. Under no circumstances, any physical violence be used in debt collection process.
g. Conversation with the debtor should be recorded (audio/ video) as per the principals policy
regarding documentation, particularly when the debtor disputes the dues or does not show
proper conduct. This would provide safeguard to the agent against false accusation by
mischievous / recalcitrant debtors.
17.4
69
Module 4 Notes
M4-17
2011 IL&FS Skills Development
Corporation Limited
language. Under no circumstances, any physical violence be used in debt collection process.
g. Conversation with the debtor should be recorded (audio/ video) as per the principals policy
regarding
documentation, particularly when the debtor disputes the dues or does not show
Participant
Handbook
proper conduct. This would provide safeguard to the agent against false accusation by
mischievous / recalcitrant debtors.
17.4
Dosand
andDonts
Don'tsof
ofDebt
Debt Recovery
Recovery
Dos
Module
Notes the customers requests to avoid
M4-17calls at a particular time or at a particular
10. 4Honour
place.
11. Dont make calls/visits in the inappropriate occasions such as bereavement in the
family or illness.
12. DRA should document all calls or visits where the customer becomes abusive or
threatening
13. Answer the Customers questions in full
14. Leave a message with an adult member of family if the customer is not available during
a few calls made by the agent
15. Before making call DRA should know about history of customers payment record,
reasons for delay or non payment, customers grievance/dispute or cash flow problem
faced by the customer
16. Follow up progressively
17. During visit, the agent should have a proper dress and appearance, or wear the dress
prescribed by the principal
18. On meeting, the agent should greet the customer, show his ID card and authority given
by the principal for debt collection from the debtor before the discussion starts
19. The time of visiting the customer will be generally during 0700 hours to 2100 hours.
Visits earlier or later than the prescribed time may be made only if the customer is not
available and has agreed to meet at a different time
What are the 10 important Donts for debt recovery?
1. Dont violate the recovery policy, procedure etc prescribed by the principal.
2. Dont exceed the authority given in the recovery arrangement
3. Dont make a call to the debtor before 0700 hours or after 2100 hours.
70
4. Dont make anonymous calls or bunched calls to the debtor, which may be perceived as
harassment.
5. Dont conceal your identity during calls and visits or other interaction with the debtor.
6. Dont show uncivil / indecent / dirty behavior or language during calls and visits to the
18. On meeting, the agent should greet the customer, show his ID card and authority given
by the principal for debt collection from the debtor before the discussion starts
19. The time of visiting the customer will be generally during 0700 hours to 2100 hours.
Visits earlier or later than the prescribed time may be made only if the customer is not
available and has agreed to meet at a different time
What are the 10 important Donts for debt recovery?
1. Dont violate the recovery policy, procedure etc prescribed by the principal.
2. Dont exceed the authority given in the recovery arrangement
3. Dont make a call to the debtor before 0700 hours or after 2100 hours.
4. Dont make anonymous calls or bunched calls to the debtor, which may be perceived as
harassment.
5. Dont conceal your identity during calls and visits or other interaction with the debtor.
6. Dont show uncivil / indecent / dirty behavior or language during calls and visits to the
debtor.
7. Dont harass / humiliate / threaten the debtor verbally or physically.
8. Dont intrude into the privacy of the debtors family members, friends / colleagues.
9. Dont disclose the customers debts/ dues / account information to unauthorized
persons.
10. Dont forget that the debtor is a human
being
and has to Agents
be treatedCertificate
with fairness
and
Debt
Recovery
Training
courtesy, despite the fact that he/ she is a debtor.
Example:
Rajnath has not paid 4 EMIs. The bank has entered into an express agreement with Agent X
stating terms and conditions of the recovery policy of the bank within the regulatory guidelines
of RBI & IBA.
If Agent X
Module 4 Notes
M4-18
Makes calls from the same number as advised by the bank to the customer.
All the above acts of DRA are in accordance to the agency agreement as also regulatory
guidelines of RBI and IBA and hence the Bank, RBI and IBA cannot take action against the
DRA.
On the other hand, if Agent X
Says he is the officer of the local police station while calling Rajnath
Forces his way into Rajnaths house in his absence and threatens his family members
and also loudly discusses about Rajnaths dues with relatives who were visiting
Rajnaths seriously ill daughter.
All the above acts of DRA are against the agency agreement as also regulatory guidelines of
RBI and IBA and hence the Bank, RBI and IBA can take action against Agent X (DRA).
71
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
18.1
Recoverystrategies
strategies
Recovery
The RBI directives on recovery of debts, including recovery agents engaged by the
bank
Recovery agents must carry appropriate authorization letter issued by the bank and
must show it to the customer on demand.
Privacy and confidentiality of the customers dues and other records should be
maintained
Debt recovery agents should read, understand and abide by the policy guidelines
prior to beginning collections on debts owed by the customers.
Normal debtors, i.e. who can pay and will pay if reminded or / and persuaded to
pay.
Difficult debtors, i.e. those who can pay, but will not pay
Doubtful debtors, i.e. those who can pay the reduced amount as negotiated with
them.
72
Module 4 Notes
M4-20
communication/listening
and persuasive
resulting
into good inter-personal
Good
rapport should be established
with skill
the debtor
by good
relationship.
communication/listening and persuasive skill resulting into good inter-personal
relationship.
KYC norms should be followed strictly
KYC
be followed
strictlyabout agency/loan agreement as well as
Agentnorms
shouldshould
have detailed
knowledge
debtor.should have detailed knowledge about agency/loan agreement as well as
Agent
debtor.
4. Date record
of efforts made for recovery should be maintained so that it can be:
4. Date record
of efforts
made forinrecovery
should
Produced
as evidence
court where
suitbeismaintained
to be filed so that it can be:
18.2
18.2
Produced
as evidence in
where suit is to be filed
Reported periodically
to court
the principal.
Reported periodically to the principal.
Getting paid on time by customers / debtors is an important component in the success of any
recovery
agent.
calls pay/ debtors
import role
If handled
effectively
thesuccess
task ofofrecovery
Getting paid
on Telephone
time by customers
is anhere.
important
component
in the
any
agent
becomes
easy. Following
are the role
important
to remember
handling
the
recovery
agent.very
Telephone
calls pay import
here. Ifpoints
handled
effectivelywhile
the task
of recovery
debtor
through
telephone
calls:
agent becomes very easy. Following are the important points to remember while handling the
debtor
through
telephoneBefore
calls: a call is made agent must know history of customers payment
Know your
customer:
record,
reasons
for delayBefore
or nonapayment,
customers
grievance/dispute
cash flowpayment
problem
Know your
customer:
call is made
agent must
know history oforcustomers
faced
by
the
customer.
This
will
help
recovery
agent
to
devise
a
suitable
recovery
strategy.
record, reasons for delay or non payment, customers grievance/dispute or cash flow problem
faced
the customer.
ThisGood
will communication
help recovery agent
devise
suitable
strategy.
Have by
a positive
attitude:
skillto
will
helpathe
agent recovery
to be positive
and
more assertive
persuading
the communication
debtor to listen to
himwill
andhelp
understanding
to pay
Have
a positiveinattitude:
Good
skill
the agent tothe
be need
positive
andthe
dues.
more assertive in persuading the debtor to listen to him and understanding the need to pay the
dues.
Be an active listener: This is yet another good quality of the agent that will create
understanding
in the mind
that
thequality
agent isofempathetic
to his
problem
Be
an active listener:
Thisofisthe
yetdebtor
another
good
the agent that
will
create
understanding
in the mindQuestions
of the debtor
theyou
agent
is empathetic
to histo-day?
problem or will you
Ask the right questions:
likethat
will
be mailing
the cheque
be
payment
this week?
willlike
elicit
positive
response
the time
frame. or will you
Asksending
the right
questions:
Questions
will
you be
mailingabout
the cheque
to-day?
be
sending
payment this week?
will elicit call
positive
about
the have
time aframe.
Follow
up progressively:
Each collection
to theresponse
customer
should
theme. Example:
Follow
progressively:
Each
collectionsome
call to
the customer
should
theme. the
Example:
Call
#1.up
Benefit
of the doubt.
Remember
customers
/ debtors
willhave
pay abecause
recovery
agent brought
the matter
to theirsome
attention.
Call
#1. Benefit
of the doubt.
Remember
customers / debtors will pay because the
recovery
agentand
brought
the matter
to their
attention.
Call #2. Firm
assertive.
If the first
style
doesnt work, the next call will be designed to
cause
theFirm
customer
to pay you
to get
offdoesnt
their back.
Call #2.
and assertive.
If the
firstyou
style
work, the next call will be designed to
cause
the
customer
to
pay
you
to
get
you
off
their
back.
Call #3. Tell them their future. Some customers / debtors will only pay when the consequence
of nonpayment
is explained
to them.
recovery /agent
have
toonly
makepay
a third
a past due
Call
#3. Tell them
their future.
Some Ifcustomers
debtors
will
whencall
theabout
consequence
bill,
that
is
the
time
to
apply
this
kind
of
pressure.
of nonpayment is explained to them. If recovery agent have to make a third call about a past due
bill,
thatkeep
is theyour
time word:
to apply
this kind
Always
Agent
mustof
atpressure.
all times maintain what he tells the customer and must
act
accordingly.
By word:
doing so
agent
willatensure
thatmaintain
customerwhat
will he
nottells
takethe
him
for granted.
Always
keep your
Agent
must
all times
customer
and must
act
accordingly.
doing
so if
agent
will ensure
that customer
will notortake
him forasgranted.
Always
remain By
calm:
Even
the customer
becomes
angry, hostile
offensive,
some times
he
will, agent
must
always
polite
and fairangry,
but firm
and or
stay
focused as
andsome
theretimes
will
Always
remain
calm:
Evenremain
if the calm,
customer
becomes
hostile
offensive,
be will,
positive
result.
he
agent
must always remain calm, polite and fair but firm and stay focused and there will
be positive result.
Module 4 Notes
Module 4 Notes
M4-21
73
Participant Handbook
Normal recovery
process
Difficult recovery
process
Guidelines for
Behaviour
dress and
appearance
time of visiting
Privacy
Courtesy
Follow-up
Strategy for
Recovery
Normal debtors
Difficult debtors
Doubtful debtors
Date record
18.3
Telephone
Practice Collection Calls
74
You probably should not have taken the vacation or indulged in so much of luxury if
you couldn't afford to pay the bill.
Notify the bank as soon as you realize you cannot repay as agreed (before you receive
the bill, if possible).
Indicate to the bank the reason for your bill-paying problem, your intention to repay,
and when they can expect repayment.
Module
Notes
M4-22 card until your payments are up to date.
4Do
not make additional purchases through
You probably should not have taken the vacation or indulged in so much of luxury if
you couldn't afford to pay the bill.
Notify the bank as soon as you realize you cannot repay as agreed (before you receive
the bill, if possible).
Indicate to the bank the reason for your bill-paying problem, your intention to repay,
and when they can expect repayment.
Do not make additional purchases through card until your payments are up to date.
If the agent cannot or will not re-negotiate then you must reduce your living expenses
and make a repayment schedule you could try to get EMIs.
You may be violating the Fair Practices and be subject to legal penalties if you harass,
abuse, or otherwise treat a consumer unfairly.
You may threaten the debtor only with consequences that you or the bank usually take
if payment is not received.
The intention is to keep the customer and also maintain a good image of the bank.
If the customer notifies you of a bill-paying problem, see if you can renegotiate
payment terms.
Training
If the problem seems to be temporaryDebt
and ifRecovery
the customerAgents
has paidCertificate
previous bills
on
time, eventual payment is likely.
Debt Recovery Agents Certificate Training
By accepting a smaller or later payment, you will be helping your customer and at the
same time maintaining his/her goodwill.
Module 4
M4-23
ByNotes
accepting a smaller or later payment,
you will be helping your customer and at the
same
Since time
the borrower
is paying
interest on the credit, your loss will not be much.
maintaining
his/heryou
goodwill.
18.4
18.4
Since the borrower is paying you interest on the credit, your loss will not be much.
Code of Conduct
Code
of Conduct
Code of Conduct
The BCSBIs Code of Banks Commitment to Customers (CBCC) governs all the banks that
are members of the board. The CBCC seeks:
The BCSBIs Code of Banks Commitment to Customers (CBCC) governs all the banks that
To promote
good and
banking
practices by setting minimum standards in dealing
are members
of the board.
Thefair
CBCC
seeks:
with customers.
To promote good and fair banking practices by setting minimum standards in dealing
To
transparency so that customers can have a better understanding of what to
withincrease
customers.
reasonably expect from the banks services.
To increase transparency so that customers can have a better understanding of what to
To
promoteexpect
fair and
cordial
relationship
between the customer and the bank.
reasonably
from
the banks
services.
To
customers
informationbetween
as private
confidential.
To keep
promote
fair and personal
cordial relationship
theand
customer
and the bank.
To keep
followcustomers
defined process
in accordance
the laws
the land for recovery of over
To
personal
informationwith
as private
andofconfidential.
dues when customer fails to repay the overdue loans which will include sending
reminders/notices/personal
To follow defined process invisits
accordance
with the laws
of the land for recovery of over
and repossessing
of security
dues when customer fails to repay the overdue loans which will include sending
What are
the important provisions
of the
reminders/notices/personal
visits
andCBCC?
repossessing of security
are
When
customer fails
to adhereoftothe
repayment
What
the important
provisions
CBCC? schedule a defined process in accordance
with the laws of the land will be followed for recovery of dues.
When customer fails to adhere to repayment schedule a defined process in accordance
IL&FS
Development
Corporation
Limited
The
involve
reminding
the customer
by sending
him notice or by making
withprocess
the lawswill
of2011
the
land
will Skills
be followed
for recovery
of dues.
personal visits and /or repossession of security if any.
The process will involve reminding the customer by sending him notice or by making
75
To promote fair and cordial relationship between the customer and the bank.
Participant Handbook
To follow defined process in accordance with the laws of the land for recovery of over
dues when customer fails to repay the overdue loans which will include sending
reminders/notices/personal visits and repossessing of security
The process will involve reminding the customer by sending him notice or by making
personal visits and /or repossession of security if any.
All the members of the staff of the bank or any person authorized to represent bank in collection
or/and security repossession would follow the following guidelines:
Customer would be contacted at the place of his choice and in the absence of any
specified place at the place of his residence and if he is unavailable at place of his
residence, at the place of business/occupation.
Identity and authority to represent would be made known to the customer at the first
instance.
Normally banks representatives will contact customers between 0700 hrs and 1900 hrs,
unless the special circumstances of customers business or occupation require
otherwise.
During visits to customers place for dues collection, decency and decorum would be
M4-24
maintained.
Banks will follow a security repossession policy in consonance with the law. A copy of
the policy will be made available on request.
Module 4 Notes
Key Words
BCSBI
CBCC
76
maintained.
Banks will follow a security repossession policy in consonance with the law. A copy of
the policy will be made available on request.
Key Words
BCSBI
CBCC
Module 4 Notes
M4-25
77
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Module 3 Notes
78
M3-20
Legal aspects
19.3
Legal aspects
Legal aspects
All agreements between Banks and their Agencies are based on two documents
All agreements
Banks
and30.11.2007
their Agencies
based
on two documents
The RBIbetween
Guidelines
(Draft
and are
Final
24.04.2008).
The
Guidelines
(Draft 30.11.2007
and Final
24.04.2008).
CodeRBI
of Banks
Commitment
to Customers
(CBCC)
published by Banking
Codes
Standards
Board oftoIndia
(July 2006).
Code ofand
Banks
Commitment
Customers
(CBCC) published by Banking
Codes and
Standards
Board
of Indiais(July
2006).
Some features
of each
of these
documents
included
here:
Some
of each of these documents is included here:
RBIsfeatures
Guidelines
RBIs
Guidelines
due diligence for engagement of recovery agents
due
diligence
forthe
engagement
of recovery
agents
proper
training to
recovery agents
to handle
with care and sensitivity, their
responsibilities
as
also
the
hours
of
calling,
privacy
customer
information
etc.
proper training to the recovery agents to handle withofcare
and sensitivity,
their
responsibilities
as also
the hours
of calling,
of employees
customer information
100
hours training
to recovery
agents
as wellprivacy
as to the
engaged byetc.
service
providers.
100 hours
training to recovery agents as well as to the employees engaged by
service
providers.
Recovery
methods practiced by recovery agents should be in conformity with
the
code
of
collection
of the Banking
Codes
and should
Standards
Board
of India.
Recovery methods
practiced
by recovery
agents
be in
conformity
with
the
code
collection
of the to
Banking
Codeswhile
and Standards
Board
India.
Legal
andofproper
procedure
be followed
re-possessing
theofproperty
hypothecated
or mortgaged
bank
Legal and proper
procedure to
to the
be followed
while re-possessing the property
hypothecated
or mortgaged
the bank
Bank should provide
copy oftonotice
sent earlier to the defaulting borrower, to
the
agent
Bank should provide copy of notice sent earlier to the defaulting borrower, to
the
agent
There
should proper mechanism at each bank to attend to customers complaints
regarding
recovery
There should
properprocess
mechanism at each bank to attend to customers complaints
regarding
process of its directives RBI may impose ban on the bank
In cases ofrecovery
serious violations
in
recruiting
recovery
agents partially
or fully.RBI may impose ban on the bank
In cases of serious violations
of its directives
19.4 in recruiting
Practice recovery agents partially or fully.
19.4
Practice
Practice
Cash-Safe Bank asks a recovery agent Rocky to recover the dues of Rs. 2 lacs from a debtor
Mr.
Aiyer by
using
or muscle
declinestheto dues
pay by
certain
agent
Cash-Safe
Bank
asksthreats
a recovery
agentpower,
Rockyiftoherecover
of aRs.
2 lacsdate.
fromThe
a debtor
Rocky
does
recover
the
dues
in
full,
but
by
using
muscle
power
against
Mr.
Aiyer,
who
suffers
Mr. Aiyer by using threats or muscle power, if he declines to pay by a certain date. The agent
physical
injury
and the
mental
of recovery.
Aiyer
a case
Rocky does
recover
duestrauma
in full,inbutthebyprocess
using muscle
power Mr.
against
Mr.files
Aiyer,
who against
suffers
Rocky
for
damages
on
account
of
the
injury
and
mental
torture
suffered
by
him
and
caused
by
physical injury and mental trauma in the process of recovery. Mr. Aiyer files a case against
Rocky.
Thedamages
court awards
damages
of Rs
4 lacs
to mental
Mr. Aiyer
against
Rocky,
pay itby
to
Rocky for
on account
of the
injury
and
torture
suffered
by who
him has
andtocaused
Mr.
Aiyer.
Rocky. The court awards damages of Rs 4 lacs to Mr. Aiyer against Rocky, who has to pay it to
Mr.
AfterAiyer.
carefully going through the case study, answer the following, giving reasons for your
answers,
including
the through
provisions
the law:
After carefully
going
theofcase
study, answer the following, giving reasons for your
answers,
the provisions
law:threats and muscle power against Mr. Aiyer, and, if
a) including
Whether Rocky
was rightofinthe
using
not,
why?
a) Whether Rocky was right in using threats and muscle power against Mr. Aiyer, and, if
not, why?Rocky is entitled to be indemnified by Cash-Safe Bank for Rs 2 lacs
b) Whether
plusislegal
expenses
by Rocky
the case? Bank for Rs 2 lacs
b) damages
Whether paid
Rocky
entitled
to beincurred
indemnified
by in
Cash-Safe
damages paid plus legal expenses incurred by Rocky in the case?
79
Module 5 Notes
Module 5 Notes
M5-1
Participant Handbook
Possible responses
80
M5-2
20.1
20.1
Additionalfunctions
functions of
of the
the DRA
DRA
Additional
81
Module 5 Notes
Module 5 Notes
Participant Handbook
Rajeshwar should list all his debts, ranking them according to the rate of interest. He
should concentrate on paying off the higher interest debts first. Once the highest-rate
debt is paid off, add the total he was paying on this debt, to the next one on his list.
This way, he will have more to pay off each debt on his list, with the benefit that
these payments are already built into his budget.
Be sure to continue to pay the minimum amount owing on his remaining debts.
Talk to bank
Most banks would rather find a suitable repayment plan for the borrower, than have
his payments overdue or worse, lose his debt altogether. If he cant make his
payments or are struggling to make the payments on time, it is important that he
contact the bank..
Explain to the bank that he wants to pay in full, but that he need more time to pay.
Provide full details of his situation, and emphasize the positives. Explain that he is
taking steps to reduce his spending, and show his budget plus a suggested
repayment plan showing a specific amount allocated to repaying each bank.
It is likely that bank will revise his repayments and/or extend the time he has to pay.
Debt consolidation involves combining all his debts into one loan. This can have
many advantages including reducing his minimum monthly repayment, establishing
a payment structure that will see the loan paid off in a structured way, setting a fixed
monthly payment that helps with budgeting.
Key Words
RBI Guidelines
Opinion reports
Rephasement
CBCC
82
Module 5 Notes
M5-4
due diligence
Credit
Counseling
Re-possession
Re-possession
20.2
Re-possessing Security
Depending on the types of loans , creditworthiness of the borrowers and the rules of the banks
loans are granted against certain types of securities viz.
Hypothecation
Pledge
Mortgage
In case of hypothecation goods (movable) remain in the possession of the debtor (customer)
who creates a legal charge on them in favour of the creditor (bank) for securing the loan
granted. This facility is given to valued customers only. In case the customer fails or refuses to
repay the overdue loan bank can take possession of the security hypothecated after complying
legal provisions and sell the goods to recover its dues.
Similarly in case of pledge though the possession of goods (movable) is with the bank, legal
provisions are required to be followed for selling the goods pledged to recover its dues.
In both the above cases re-possession of the security can be taken without intervention of the
court.
Where security is by way of mortgage (of immovable properties only) courts intervention is
must for re-possession and sale of mortgaged property to recover banks dues.
Compiling Opinion Reports
Where the borrower is not willing to repay the loan despite vigorous follow-up DRAs can find
out from their own sources information about the availability of the realizable assets belonging
to him as well as to his guarantors.
Initiating Legal Action
DRA can also recommend initiation of legal action and bank can avail of DRAs services in
initiating legal action against the borrower/guarantor thereby saving time and money involved
in pursuing such cases by banks themselves.
Tracing Debtors
Some times defaulters are either missing or not traceable. In such cases banks can engage
services of debt collection agencies that have nation wide presence large resources and
computerized data base to track such missing debtors. This can save considerable money and
time for the banks.
83
Module 5 Notes
Participant Handbook
21.1
Rightsand
and Duties
Duties of
of Recovery
Recovery Agents
Agents
Rights
Rights and duties of agents are governed by the Contract Act. Recovery Agents act
as agents for and on the authority of the Principal (bank or other institution).
The rights and duties of Recovery Agents is of an agent. and governed by the
Contract Act provisions and also the regulatory guidelines of RBI and IBA.
These can be modified by an agreement between the Principal and Recovery Agent
to the extent which the law allows.
Right to remuneration
Right to retainer
Right to compensation
Right to indemnity
Right to remuneration:
In terms of agency agreement an agent is entitled to a fixed amount of fee or percentage of the
amount as his remuneration. This will further depend on the type of cases handled by an agent.
The Contract Act does not give this as a right.
Right to retainer:
In terms of the Contract Act a recovery agent has to remit the entire amount collected to the
principal with the right to retain any portion of the amount so collected as his expenses and
fees/remuneration unless otherwise provided for in the agency agreement.
Right to compensation:
If an agent suffers injury due to neglect of the Principal he has the right to get compensated.
This is not usually applicable in case of debt recovery agents and banks.
Right to indemnity:
When agent has acted lawfully within the scope of authority granted to him by the principal and
such act has taken place during the course of agency business the agent is entitled to be
indemnified by the principal for the loss if any suffered by the agent.
What are the Duties of DRAs?
Duty to Communicate
Duty of Confidentiality
84
Module 5 Notes
M5-6
The agent cannot be held responsible by the principal for not carrying out such
unlawful instructions.
If the agent acts contrary to the lawful instructions/directions of the principal, he may
be held liable to the principal for the loss suffered by the principal due to such
actions of the agent.
Re-possession
Opinion Reports
85
Module 5 Notes
Participant Handbook
Description
Right / Duty
10
11
12
86
Module 5 Notes
M5-8
International Best
Best Practices
Practices in
in Recovery
Recovery
International
Countries in the West have been involved in debt collection for a longer time than we have.
There are some agencies that specialize in different types of debts. The practices are well
established and conducted professionally one reason is that the borrowers are protected by
consumer associations who can take action against any breach of law or regulations.
PRACTICES IN USA
The Fair Debt Collection Practices Act (FDCPA) is a Federal Act, which seeks to promote fair
debt collection practices by trying to eliminate abusive practices in the collection of consumer
debts. The Act has:
Prescribes penalties and remedies for violations of the provisions of the Act.
FDCPA allows aggrieved consumers to file private lawsuits against a collection agency that
violates the Act. Alternately, Federal Trade Commission or the State Attorney General may
take action against a non-compliant collection agency. Fines can be levied and the agencys
operations can be restricted or even closed by FDCPA.
WHAT DEBT COLLECTORS CANNOT DO
Below is an illustrative list of prohibited acts for debt collectors in USA (source Wikipedia).
Debt collectors are NOT allowed to do the following:
Hours for phone contact: contacting consumers by telephone outside of the hours of
8:00 a.m. to 9:00 p.m.
Contact after being asked to stop: contacting consumers in any way (other than
litigation) after receiving written notice that said consumer wishes no further contact
or refuses to pay the alleged debt, with certain exceptions, including advising that
collection efforts are being terminated or that the collector intends to file a lawsuit or
pursue other remedies where permitted.
Contacting consumers at their place of employment after having been told verbally
or in writing that this is not acceptable.
Contacting consumer after request for validation: contacting the consumer or the
pursuing collection efforts by the debt collector after receipt of a consumer's written
request for verification of a debt (or for the name and address of the original creditor
on a debt) and before the debt collector mails the consumer the requested verification
or original creditor's name and address.
Seeking unjustified amounts, which would include demanding any amounts not
permitted under an applicable contract or as provided under applicable law.
87
Module 5 Notes
Participant Handbook
Threatening arrest or legal action that is either not permitted or not actually
contemplated.
Abusive, profane language used in the course of communication related to the debt.
Contact with third parties: revealing or discussing the nature of debts with third
parties (other than the consumer's spouse or attorney) or threatening such action.
Identify themselves and notify the consumer, in every communication, that the
communication is from a debt collector, and that information received will be used to
effect collection of the debt
Give the name and address of the original creditor (company to which the debt was
originally payable) upon the consumer's written request made within 30 days of
receipt of the validation notice;
Notify the consumer of their right to dispute the debt, in part or in full, with the debt
collector.
Provide verification of the debt If a consumer sends a written dispute or request for
verification within 30 days of receiving the validation notice, then the debt collector
must either mail the consumer the requested validation information or cease
collection efforts altogether. Such asserted disputes must also be reported by the
creditor to a credit bureau that reports the debt.
File a suit in a proper venue - a debt collector may file a lawsuit, if at all, only in a
Recovery
Agents Certificate Training
place where the consumer lives or Debt
has signed
the contract.
PRACTICES IN UK
In UK, debt collection agencies are licensed and regulated by the Office of Fair Trading (OFT).
OFT has set out guidelines on how debt collection agencies can operate. The guidelines are not
law, but are based on interpretations of the legal cases.
OFT also lists examples of unfair practices in debt collections. These include:
88
falsely claiming that a court judgment has been obtained when it has not.
Abusive and deceptive conduct. These have been also listed by OFT
The debt collectors do the job of collecting receivables of banks, credit card companies, other
financial companies and also manufacturing companies. Certain debt collection agencies do
consulting jobs in difficult cases and also the specialized jobs mentioned below:
Module
5 Notes
M5-10
Legal proceedings
in cases where the debtor
is unwilling to pay or refuses to pay the over-due
debt. These include filing suits, making legal appearance in courts, bankruptcy and winding-up
unearthed
and advised to
theinformation
principal foron
recovery
action. These services
are done viability
nationwide,
Credit Referencing:
The
the credit-worthiness
and financial
of
based
on their
nationwide
database
network. furnished from the in-house database and past
individuals
/ firms/
companies
can and
be promptly
records.
Credit Referencing: The information on the credit-worthiness and financial viability of
individuals
/ firms/ companies
can be promptly
furnished
from the
21.3
Various
Codes Governing
Debt
Collection
inin-house
India database and past
records.
Various
in India
India
Various Codes
Codes Governing
Governing Debt
Debt Collection
Collection in
21.3
The Fair Practice code for Lenders.Debt Recovery Agents Certificate Training
Introduction:
The debt collection policy of the bank is built around dignity and respect to customers.
Bank will not follow policies that are unduly coercive in collection of dues.
Module 5
Notes
The
policy is built on courtesy, fair M5-11
treatment and persuasion. The bank believes in
following fair practices with regard to collection of dues and repossession of security
and
thereby fostering customer confidence
Module 5
Notes
M5-11 and long-term relationship.
The repayment schedule for any loan sanctioned by the bank will be fixed taking into
account paying capacity and cash flow pattern of the borrower. The bank will explain to
the customer upfront the method of calculation of interest and how the Equated
Monthly Installments (EMI) or payments through any other mode of repayment will be
appropriated against interest and principal due from the customers. The bank would
expect the customers to adhere to the repayment schedule agreed to and approach the
bank for assistance and guidance in case of genuine difficulty in meeting repayment
obligations.
Banks Security Repossession Policy aims at recovery of dues in the event of default
and is not aimed at whimsical deprivation of the property. The policy recognizes
fairness and transparency in repossession, valuation and realization of security. All the
2011 IL&FS Skills Development Corporation Limited
practices adopted by the bank for follow up and recovery of dues and repossession of
security will be inconsonance with the law.
89
the customer upfront the method of calculation of interest and how the Equated
Monthly Installments (EMI) or payments through any other mode of repayment will be
appropriated against interest and principal due from the customers. The bank would
Participant Handbook
expect the customers to adhere to the repayment schedule agreed to and approach the
bank for assistance and guidance in case of genuine difficulty in meeting repayment
obligations.
Banks Security Repossession Policy aims at recovery of dues in the event of default
and is not aimed at whimsical deprivation of the property. The policy recognizes
fairness and transparency in repossession, valuation and realization of security. All the
practices adopted by the bank for follow up and recovery of dues and repossession of
security will be inconsonance with the law.
2.
General Guidelines:
All the members of the staff or any person authorized to represent our bank in
collection or/and security repossession would follow the guidelines set out below:
a.
The customer would be contacted ordinarily at the place of his/her choice and in
the absence of any specified place, at the place of his/her residence and if
unavailable at his/her residence, at the place of business/occupation.
b.
Identity and authority of persons authorized to represent bank for follow up and
recovery of dues would be made known to the borrowers at the first instance. The
bank staff or any person authorized to represent the bank in collection of dues
or/and security repossession will identify himself / herself and display the
authority letter issued by the bank upon request.
c.
d.
The bank is committed to ensure that all written and verbal communication with
its borrowers will be in simple business language and bank will adopt civil
manners for interaction with borrowers.
e.
Normally the banks representatives will contact the borrower between 0700 hrs
and 1900 hrs, unless the special circumstance of his/her business or occupation
requires the bank to contact at a different time.
f.
g.
h.
4.
Repossession of Security
Repossession of security is aimed at recovery of dues and not to deprive the borrower
of the property. The recovery process through repossession of security will involve
repossession, valuation of security and realization of security through appropriate
means. All these would be carried out in a fair and transparent manner. Repossession
will be done only after issuing the notice as detailed above. Due process of law will be
followed while taking repossession of the property. The bank will take all reasonable
care for ensuring the safety and security of the property after taking custody, in the
ordinary course of the business.
90
5.
3.
h.
i.
4.
Repossession of Security
Repossession of security is aimed at recovery of dues and not to deprive the borrower
of the property. The recovery process through repossession of security will involve
repossession, valuation of security and realization of security through appropriate
means. All these would be carried out in a fair and transparent manner. Repossession
will be done only after issuing the notice as detailed above. Due process of law will be
followed while taking repossession of the property. The bank will take all reasonable
care for ensuring the safety and security of the property after taking custody, in the
ordinary course of the business.
5.
6.
Module 5 Notes
M5-13
91
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
22.1
Code
Agents
Code of
of Conduct
Conduct for
for Debt
Debt Recovery
Recovery Agents
Introduction
The Code of Conduct for Debt Recovery Agents ( DRAs) of Banks (hereinafter referred to as
the Code) is built around THE dignity and respect to customers. All customers (including
customers who are late in paying or in default) must be treated with respect, dignity, courtesy
and fairness in debt collection efforts.
It is imperative that all persons involved in collection related activities follow this Code. All
Debt Recovery Agents must agree to abide by this Code of Conduct.
This Code applies to all DRAs who may be engaged to collect customer debts on behalf of
banks All the practices adopted by the bank for follow up and recovery of dues and
repossession of security will be in consonance with the law.
1. General Guidelines
i.
The DRA must identify himself / herself as a representative of the Bank and should
always inform to the customer or his appointed representative or blood relatives at the
beginning of every interaction.
ii. Customers are to be treated with dignity. DRAs should always remain professional
during telephone conversations and visits.
iii. The DRA is strictly prohibited from making telephone calls without meaningful
disclosure of the callers identity. No written or verbal threats, abuse or rudeness is
permitted. Collection staff / Agent should use only acceptable business language, even
if the other party does not follow the same..
iv. DRA, being responsible persons, deserves to be treated with dignity. They may refer
the customer to management, or end calls when a customer becomes abusive or
threatening. Customers should be informed prior to termination of such calls. All calls
where the customer becomes abusive or threatening should be appropriately
documented.
v. The customer should be contacted at the address registered with the Bank or at his/her
business / occupation address or place of residence. Only if the customer is unavailable
at any of such places, then he/she should be contacted at such places and at such times
as the customer is actually present / available or can be traced to.
vi. DRA should, as far as possible, use the language which the customer is comfortable
with.
vii. Customers are entitled to privacy and the DRA should respect this right.
viii.DRA should ensure that that all written and verbal communication with its borrowers
will be in simple language understandable to them..
ix. Customers should be called between 10:00 Hrs and 17:00 Hrs unless the special
circumstance of borrowers business or occupation or other engagements requires the
bank to contact him/her at a different time. Customer requests to avoid calls at a
particular time or at a particular place should be honoured as far as possible.
92
Module 5 Notes
M5-14
ii. Mislead the customer about their true business or organization name, or falsely
represent or imply that the Collection staff / Agent is an attorney (lawyer), government
official, officer of any court etc.;
iii. Threaten with imprisonment or even mention imprisonment unless legal action planned
or currently underway could result in imprisonment;
iv. Threaten with arrest/detention by the police unless, prima facie, the customers actions
indicate criminal intent that could lead the police to arrest/detain for example, if a
customer has sold the automobile financed or has falsified documents at the time of
application, the customer may be prosecuted leading to arrest/detention.
3. Gifts or bribes
A DRA should not accept gifts from customers or bribes of any kind. Any DRA offered a bribe
or payment of any kind by a customer must report the offer to his/her management.
4. Precautions to be taken on visits
i.
ii. Not enter the customers residence against his/her wishes or when they are told the
customer is not at home;
iii. Not to restrict the customers movement or restrain him/her from entering or leaving
the house/room;
iv. Not remain in the customers house if he/she were to leave for any reason including to
collect money from a bank/elsewhere;
v. Respect the customers privacy do not embarrass the customer in the presence of
his/her neighbors;
vi. If the customer is not present and only minors/elderly/infirm are present at the time of
the visit, the Collection Staff / Agent should end the visit with a request that the
customer call back. He should not enter the house unless invited. He should not wait for
Module 5 Notes
93
Participant Handbook
If the customer declines to pay, the consequences of such a decision are to be explained
to him/her: Respect personal space - maintain adequate distance from the prospect. This
may include
ii. Should the customer refuse to pay on the account, such accounts must be referred to the
Supervisor. The Supervisor shall, after discussing with the Agency Manager allocate
the account appropriately. Further calls on the customer who communicates in writing
his/her refusal to pay may follow an escalation matrix as below:
Agency Manager
Branch Manager
Zonal office
Head Office
Key Words
FDCPA
OFT
94
Module 5 Notes
M5-16
IBA
22.2
Fair
FairPractice
Practice Code
Code for
for Credit
Credit Card
Card Operations
Operations
This is a voluntary code adopted by the Credit Card issuing member banks/institutions or their
associates which is expected to provide a benchmark for service standards in their dealings with
individual customers. The code details the obligations the card issuers undertake while issuing
credit cards and is also expected to help the credit card users in knowing their rights and also
measures they should take to protect their interests. The card issuers who adopt this code will
place the same on their website and also give a copy to card users when demanded.
This code will supplement and not replace the fair practice code recommended by IBA.
Unless stated otherwise , all parts of this code apply to all the credit card products and services
whether the card issuers provide them across the counter, over the phone, on internet or by any
other method and the standards of the code are governed by the following key commitments of
the card issuers:
(In the code you denotes the credit card customer and we the credit card issuer.)
Key commitments:
We promise to:
1. Act fairly and reasonably in all our dealings with you by:
Meeting the commitments and standards in this code, for the products and services
we offer, and in the procedures and practices our staff/agents follow.
Making sure our products and services meet relevant laws and regulations
Ensuring that our dealings with you will rest on ethical principles of integrity and
transparency.
2. Help you to understand how our credit card products and services work by giving you the
following information in a simple language:
Whom you can contact for addressing your queries and how.
3. Deal quickly and effectively with your queries and complaints by:
Telling you how to take your complaint forward if you are not satisfied with the
response
95
Module 5 Notes
Participant Handbook
When you apply for credit card we will give you the details of requirements,
documentation (KYC), fees and charges.
We will verify your details through phone or physical visits before issuing you a
credit card.
When we decide to issue you credit card we will give you a user manual as also the
details of credit cards working and various charges including annual fee that we
will charge. We will give you more details if you disown any transaction shown in
your credit card bill. We will also tell you the possible loss on your card if it is
lost/misused.
Tariff (fees/charges/interest):
We will give you all the details of fees/charges/interest when we issue you a credit card.
Marketing ethics/Telemarketing/collection of dues/confidentiality of account etc. will be
governed by the provisions of RBI/IBA guidelines discussed earlier.
Account Operations
You will regularly receive an account statement every month. Notice of any
changes in fees and charges will be sent at least a month in advance. Please get in
touch with us in case the statement/information is not received.
We will advise you about precautions to be taken to protect your credit card and
PIN.
We have a grievance redressal cell to attend to your complaints and if your not
satisfied with our decision we will guide you to approach Banking Ombudsman.
Lastly if you want to terminate your credit card you can do so by giving notice to
that effect to us and following the procedure laid down by us in our service guide.
We also may terminate your credit card if in our opinion, you are in breach of
cardholder agreement.
96
Module 5 Notes
M5-18
22.3
FairPractice
Practice Code
Code for
for Lenders
Lenders
Fair
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act enacted by Government of India in 2002 allows banks to take possession of assets of
defaulting borrowers charged to the banks, without intervention of the court. The Reserve Bank
of India in consultation with Government of India and some banks and financial institutions
finalized the fair practice code. Accordingly all banks have framed their own set of Fair
Practices Code and implemented it from 01/11/2003. The details are as under:
Applications for loans to priority sector upto Rs. 2-lacs should give details of:
Processing fees/charges
Acknowledgement for receipt of such loan applications should also give time
frame for disposal of such loan applications
Credit limit and terms and conditions thereof should be conveyed to the borrower.
A copy of loan agreement along with all enclosures mentioned in loan agreement
should be given to the borrower.
Discretionary powers such as reduction in drawing limit return of cheque issued for
non business purpose drawings within sanctioned limit only, account subject to
periodical review, and disallowance of operation in the account due to non
compliance of terms of sanction should be clearly mentioned in loan agreement.
Change in terms and conditions of sanction such as interest rate, service charges
should be notified to the lender and effected prospectively.
It should be constructive and should take care of genuine difficulty of the borrower.
97
Module 5 Notes
Participant Handbook
All securities charged to the bank should be released unless there is other claim or
right of set of to be exercised of course with prior notice to the borrower.
Key Words
KYC
98
Module 5 Notes
M5-20
Table of Content
Welcome Note . ........................................................................................................................... 1
General Instructions...................................................................................................................... 3
Weightage of chapters as per NISM............................................................................................... 5
NISM Examination........................................................................................................................ 7
1.
2.
3.
4.
Offer Document..................................................................................................................75
5.
6.
3
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
7.
8.
9.
Welcome Note
Dear Participant,
Welcome to the certificate programme in Mutual Fund distribution. After completing this programme,
you will join the Banking and Insurance industry as a Mutual Fund Distributor. You will primarily sell
mutual fund investments to various investors and handle investors queries. To be a good mutual fund
distributor you have to be well informed about the market and as well as the client requirements.
To ensure that you have the required knowledge to be a Mutual Fund Distributor, you have to undergo
the NISM examination. Each topic covered in this training programme comply with the NISM syllabus.
Read each module carefully, log your key learnings and attempt the worksheet questions in the end.
The knowledge you acquire from this training programme is essential as it will help you in clearing the
exam.
All the best!
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
General Instructions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Greet your Trainer and the other participants when you enter class.
Be regular. Candidates who fall short of the required attendance will not be certified.
Inform your Trainer if, for any reason, you need to miss class.
Always be punctual for every class.
Pay attention to what your instructor is saying or showing.
If you do not understand, put up your hand and seek clarification.
Make sure you do all the exercises given at the end of each module. It will help you understand
the concept better.
Practise new skills you have learnt as many times as possible. Seek the help of your Trainer or
fellow participants.
Take all necessary safety precautions, as instructed by your Trainer, while working with electricity
and with tools.
Make sure you are neatly attired and presentable at all times.
Participate actively in all the activities, discussions and games during training.
Take bath daily. Wear clean clothes and comb your hair before you come to class.
The three most important words you must always remember and use in your daily conversations
are PLEASE, THANK YOU and SORRY.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Meaning
Time
Objectives
Pre-requisite Knowledge
Module Overview
Theory
Procedure
Key Learnings
Worksheets
Tips
Notes
4
Weightage
10
Offer Document
10
12
10
10
Financial Planning
5
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
NISM Examination
After completing this module, you will be able to:
TT
TT
Session Plan
1
Module Overview
About NISM
Rules of NISM
Important Tips
Key Learnings
Worksheet
Module Overview
Today there are a great number of mutual fund services being offered to the public by individuals
and company employees. It is important to ensure that all these distributers have a minimum level of
mutual fund knowledge. The NISM examination tests all individuals and employees and certifies that
they are equipped to sell and distribute mutual funds.
In this module, you will learn about the NISM examination and the rules to keep in mind before taking it.
About NISM
Rohit Sharma is very eager to learn. He wants to be a mutual funds distributor and he knows he cannot
be one without taking the NISM examination. But what is the need for the exam? He asks his friend
Puneet who took the exam last year.
Rohit: Why do I need to take an exam to sell and distribute mutual funds? Why cant I just go and sell
them to people?
Puneet: Rohit, there are so many people who want to sell mutual funds! Not all of them know enough
about mutual funds to sell them to investors. The NISM exam checks that all mutual fund distributors
have a certain level of knowledge of mutual funds.
Rohit: Ohh, I see now. So the NISM exam helps to protect investors by making sure that the distributors
have the necessary knowledge.
Puneet: Thats right! This way we can also make sure that a certain quality is maintained when mutual
fund services are provided.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Now that Rohit knows why the NISM exam is so important, he is eager to get back to studying for it!
Take a quick look at what the NISM exam is about:
TT
TT
I t ensures that all those seeking to sell mutual funds have the same common benchmark of
knowledge.
TT
Rules of NISM
Rohit was busy studying for the NISM exam, when he realised that he didnt know any of the exam
rules! How many questions does this exam have? Are there any other rules that he should know about?
Luckily, Puneet is able to help him out!
Puneet: Here are the rules for the NISM examination Rohit. All the rules are very simple. Take a look.
TT
TT
TT
TT
TT
TT
TT
TT
TT
I ncorrect answers lead to negative markings (25% of the marks to be deducted for each incorrect
answer)
TT
Rohit felt very relieved after reading these rules. They are so simple to understand! Now that he is
prepared with the rules, he can focus on studying for the exam.
Important Tips
Puneet: So, the NISM is like any other examination. The general test taking rules apply here too! So
remember:
TT
TT
TT
ont waste time on questions that you are unsure of. Leave them for the time being and
D
continue with the rest of the questions. You can come back to the unanswered question later.
You can also change the answer before you finally submit the paper.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
9
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Worksheet
1.
Read the following questions. Tick on the correct option given below.
a.
b.
c.
ii.
iii.
iv.
ii.
iii.
iv.
100%
ii.
75%
iii.
50%
iv.
25%
Notes
10
11
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
12
Question Number
Answer
TT
Session Plan
1
Module Overview
Key Learnings
Worksheet
Module Overview
The mutual fund industry has grown much larger in recent years. Today there are a large number
of individuals involved in the selling of different mutual fund schemes, and a very large number of
individuals who want to invest in them. Before distributing or investing in mutual funds, it is important
to understand what such funds are about.
In this module, you will learn the concept and role of a mutual fund, and get a better understanding of
this investment product.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Puneet: Relax Rohit! These words may sound big but they have a very simple meaning. An investment
vehicle is just a product that investors use to get a return. After all, the whole point of a mutual fund is
for investors to make money by investing in different securities.
Rohit: Oh I see. So several investors collectively pool in money. Then what happens? What is a mutual
fund scheme?
Puneet: That is nothing but the common pool of money. The money that has been collected by the
investors is called the mutual fund scheme.
Rohit: Oh! And predetermined objectives? What are they?
Puneet: That means objectives that have been decided in advance. The investors decide what type
of securities they want to invest in, before investing in the mutual fund. Once the money has been
collected, the AMC invests it in whatever they had all agreed upon.
Rohit: Oho! Now this makes sense! I am going to write down what I just learned.
Rohit realised that mutual funds are very simple to understand. Take a look at what he understood
about mutual funds:
Aim of a Mutual Fund: To help investors earn an income through various opportunities in the security
markets
Meaning of a Mutual Fund:
TT
TT
TT
T he common pool of money, called a mutual fund scheme, invests in securities that were
disclosed in advance.
Rohit: I have another question Puneet. It says that a mutual fund requires a group of investors. So if I,
along with two of my friends decide to invest in a certain mutual fund scheme, can just the three of us
invest in it?
Puneet: No Rohit, a mutual fund requires at least twenty investors. This is one of the rules of a mutual
fund. There are certain other rules that must also be followed for mutual funds. Take a look at some of
these rules:
Rules of a Mutual Fund:
TT
TT
I t requires a minimum of twenty investors and none of the investors can hold more than 25% of
the total investments.
TT
TT
TT
TT
TT
TT
Rohit: Puneet, I just realised that mutual funds are very easy to understand, once we know the meaning
of the different terms used.
14
Puneet: Thats right Rohit. There are many terms that are used quite commonly when referring
to mutual funds. In fact, while I was studying for the mutual funds exam, I made a list of the most
commonly used terms and wrote down their meanings. I still have that list...here you go.
There are a number of terms that are commonly used with regards to mutual funds. Puneet gave Rohit
a list of commonly used terminology, which turned out to be really helpful. Why dont you take a look
at the list too!
Mutual Fund Terminology:
TT
TT
This is the value of number of units into the face value. It varies
according to the nature of the fund. The unit capital is also reffered
to as the corpus of the fund.
Portfolio
TT
Marking to Market
TT
Unrealised Gain or
Unrealised Loss
TT
The gain or loss in the value of a security, before it is sold (on paper
only).
TT
TT
Total Assets
TT
Assets Under
Management (AUM)
TT
TT
The sum of total assets plus current assets plus accrued income
after subtracting current liabilities and accrued expenses.
TT
This is the value per unit at the current market price. It can be
calculated by dividing net assets by the units outstanding. The net
assets may increase and decrease depending on:
Unit Capital
Valuation gains/losses
Net Assets
15
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
TT
Profitability Metric
Investors
Pool their
money with
Passed Back to
Returns
Fund Manager
Invest in
Generates
Securities
Stages of a mutual fund operation:
16
Stage 1
A group of investors pool their money together for the purpose of investment.
Stage 2
Stage 3
Stage 4
The returns are given back to the investors as dividend and capital
appreciation.
Advantages
Professional Management
Affordable Portfolio
Diversification
TT
TT
TT
TT
Economies of Scale
Liquidity
TT
Tax Deferral
TT
TT
TT
TT
TT
Tax Benefits
Convenient Options
17
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
TT
Convenient Options
Investment Comfort
TT
TT
TT
Regulatory Comfort
Systematic Approach to
Investments
Disadvantages
Lack of Portfolio Customisation
TT
TT
TT
Choice Overload
18
TT
Mutual Funds are a vehicle to mobilize moneys from investors, to invest in diferent markets and
securities
TT
The primary role of mutual funds is o assist investors in earning an income or building their
wealth, by participating in the opportunities available in the securities markets.
TT
In order to accommodate investor preferences, mutual funds mobilize different pools of money.
Each such pool of money is called a mutual fund scheme. Mutual funds address diffential
expectations between investors witjin a scheme, by ofering various options, such as dividend
payout option, dividend reinvestment option and growth option. An investor buying into a
scheme gets to select the preffered option also.
TT
The investments that an investor makes in a scheme is translated into a certain number of
Units in the scheme. The number of units multiplied by its face value (Rs. 10) is the capital of
the scheme - its Unit Capital.
TT
When the portability metric is positive, the true worth of a unit, also called Net Asset Value
(NAV) goes up.
TT
When a scheme is first made available for investmet, it is called a New Fund Offer (NFO).
TT
The money mobilized from investors is invested by the scheme as per the investment objective
commited. Profits or losses, as the case might be, belong to the investors. The investor does not
however bear a loss higher than he amount invested by him.
TT
The relative size of mutual fund companies is assessed by their assets under management (AUM).
The AUM captures the impact os the profitability metric and the flow of unit-holder money to
or from the scheme.
TT
Investor benefits from mutual funds include professional management, portfolio diversification,
economies of scale. liquidity, tax deferral, tax benefits, convenient options, investment comfort,
regulatory comfort and systematic approach to investing.
TT
Limitations of mutual funds are lack of portfolio customization and an overload of schemes and
scheme variants.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
19
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Worksheet
1.
Read the following questions. Tick on the correct option given below.
a.
2.
3.
Provide two reasons that can lead to an increase or decrease in net assets.
b.
c.
A scheme that is made available to investors for investment purposes, for the first time is
called
.
is a collection of securities.
Net Assets
i.
b.
Unit Capital
ii.
c.
Assets Under
Management
iii.
d.
iv.
Notes
20
21
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Answer
a.
22
a.
Total assets
b.
Portfolio
c.
a.
iii
b.
iv
c.
ii
d.
TT
Session Plan
1
Module Overview
By Structure
By Nature
By Investment Objective
Key Learnings
Worksheet
Module Overview
Mutual funds are financial products used by investors for the purpose of making positive returns. There
are numerous mutual fund schemes available for investment purposes. These schemes are categorised
into types on the basis of structure, nature and investment objective.
In this module, you will learn about the types of mutual funds by structure, nature and investment
objective.
23
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Puneet: It all depends on your requirements. Are you looking for something stable? If so, then you
should invest in debt securities like bonds or government securities, as they are quite safe.
And if you are okay with some risk, for the chance of getting higher returns, then you should look at
investing in equity. Your choice of fund also depends on whether you are looking for a long term or
short term investment.
Rohit: I see! So thats why there are so many different mutual fund schemes. They each cater to
different risk appetites and investment objectives.
Puneet: Thats right Rohit! There are 1309 mutual fund schemes by 44 AMCs. Thats why they have
been categorised into types in the following way:
By
Structure
Mutual
Funds
By
Investments
Objectives
By
Nature
Puneet: Each of these three categories contains its own type of mutual funds. Lets learn more about
these types.
By Structure
Puneet: There are three types of mutual funds by structure.
Mutual Funds
by Structure
Open-Ended
Funds
Closed
Ended Funds
Interval Funds
24
Puneet: Both open-ended funds and closed-ended funds have different investment objectives in terms
of liquidity and maturity period. Take a look at the features of open-ended funds:
Open - Ended Funds
TT
TT
TT
Can be easily bought and sold at Net Asset Value (NAV) price.
TT
Extremely liquid.
TT
TT
When existing investors buy additional units or new investors buy units of the open-ended
scheme, it is called a purchase transaction. It happens at a price, which is equal to the NAV.
Note: SEBI has abolished entry load since 1st August 2009 from all mutual fund schemes. Prior to that
date, the purchase transactions were happening at a price linked to the NAV.
TT
When investors choose to return any of their units to the scheme and get back their equivalent
value, it is called a re-purchase transaction. This happens at a re-purchase price that is linked
to the NAV.
TT
TT
After initial public issue, units can be bought and sold on the stock exchange.
TT
TT
TT
TT
TT
As per revised SEBI regulations, specified transaction period must be for a minimum of 2
working days.
Rohit: I see! Now I understand the difference between these types of funds. Can you tell me about the
other types of funds too?
Puneet: Sure! Lets take a look at the next type mutual funds by nature.
25
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
By Nature
Puneet: The following are mutual funds by nature
Mutual Funds
by Nature
Equity Funds
Debt Funds
Balace Funds
Gold Funds
Real Estate
Mutual Funds
Active Funds
Passive Funds
Puneet: Lets take a closer look at each of these funds. Lets start with equity funds.
Rohit: Let me guess! Equity funds invest in equity!
Puneet: Haha, yes you have guessed correctly! People who are willing to take risks, and have long term
objectives, invest in equity funds. Take a look at the features of equity funds:
Equity Funds
TT
TT
The fund structure depends on the type of scheme and the fund managers perception of
different stocks.
26
Diversified
Equity
Funds
Sector
Funds
Arbitrage
Funds
Examples
of Equity
funds
Equity Income
/Dividend Yield
Schemes
Thematic
Funds
Equity Linked
Saving Schemes
Puneet: Here are some of the most important features of each of them!
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Sector Funds
Thematic Funds
Equity Linked Savings
Scheme (ELSS)
Equity Income/Dividend
Yield Schemes
Arbitrage Funds
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Puneet: Mutual funds do not invest only in equity. There are also funds that invest in debt securities.
These are known as debt funds. The main debt paper issuers are government authorities, private
companies, banks and financial institutions.
Those with limited or no risks and short term objectives, invest in debt funds. Take a look at the features
of debt funds:
Debt Funds
TT
TT
Puneet: There are a number of schemes that fall under this type of fund.
Gift Funds
Liquid
Funds
Income
Funds
Examples
of Debt
Funds
Short Term
Plan
MIPs
Puneet: Here are the most important features of each of these funds!
Gilt Funds
Income Funds
TT
TT
TT
TT
TT
TT
TT
TT
MIPs
28
Liquid Funds
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Puneet: Hybrid Funds have a very popular category called Balanced Funds. Take a look at the main
features of these funds:
Balance Funds
TT
TT
Aim is to provide investors with the benefits of equity and debt: equity provides growth and
debt provides stability.
TT
TT
Allocation information and details of the investment style can be found in the Scheme
Information Document.
Rohit: What about Capital Protected Schemes? Can you tell me about them?
Puneet: Capital Protected Schemes are close-ended schemes. They are designed in a way that investors
will get back their principal, no matter what happens in the market. Take a look at the main features
of these funds:
29
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Close-ended schemes.
TT
Designed to ensure that investors get back their principal, regardless of market outcome.
TT
Investments are usually made in Zero Coupon Government Securities whose maturity is
aligned to the schemes maturity.
Puneet: The next type of fund is gold funds. Gold is one of the most important asset classes. There are
two types of gold funds:
Gold Funds
Gold Exchange
Traded Funds
Gold Sector
Funds
Rohit: How do these funds work? Do investors actually buy and sell gold?
Puneet: No Rohit. There is no physical delivery of gold involved in such funds. For instance, in the case
of Gold Exchange Traded Funds, the units of the funds are backed by gold, which is the underlying
asset. The investors purchase and sell gold by trading ETFs on a stock exchange.
Rohit: I get it! So investors can take part in the gold bullion market without gold actually changing
hands!
Puneet: Thats right! Gold fund investment is easier and more affordable than investment in bullion,
gold coins, gold futures or jewellery.
Take a look at the important features of Gold Exchange Traded Funds:
Gold Exchange Traded Funds
TT
TT
TT
TT
TT
Rohit: Got it! Now tell me about Real Estate Mutual Funds!
Puneet: Just like their name suggests, Real Estate Mutual Funds invest in real estate! These funds must
30
follow two conditions set by SEBI. Take a look at the features of this type of fund:
Real Estate Mutual Funds
TT
TT
Fund manager can select the investment portfolio within the broad framework of the schemes
investment objective.
TT
Fund manager has a greater role which leads to increased fund expenses.
TT
Puneet: Passive funds are also called index schemes. These funds invest on the basis of a specified
index, whose performance it wants to monitor. Take a look at the features of this type of fund:
Passive Funds
TT
Passive Funds invest on the basis of a specified index, whose performance it wants to monitor.
TT
Each share in the schemes portfolio is in the same proportion as the share weightage in the
specified index.
TT
Passive Fund performance is usually the same as the performance of the specified index.
TT
Fund Manager has no role in deciding investments which leads to low running costs.
Value Funds
Fund of Funds
Rohit: The first type is growth funds. What do these funds invest in?
31
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Puneet: Growth funds are one of the main types of mutual funds. They invest in companies that are in
the expansion phase. Because of this, they have no dividend payout expectation. These companies also
have an above-average growth in earnings. The earnings are reinvested into expansion, acquisitions,
research and development. So these funds generate reasonable returns.
Take a look at the main features of these funds:
Growth Funds
TT
TT
TT
TT
Equity funds.
TT
Mainly hold undervalued stocks that have a high chance of paying dividends.
TT
The focus is not always on stocks with low price/ earning ration. This is more likely to happen
in the case if an undervalued company.
Puneet: The last type of fund by investment objective is Fund of Funds. These funds invest in....
Rohit: I know, I know! Mutual funds!
Puneet: Well done! Thats absolutely right! The aim of mutual funds is to provide investors with a
diversified portfolio of stocks and debt, thereby reducing long-term risk. The Fund of Funds go one step
further by investing in mutual funds. Take a look at the important features of these funds:
Fund of Funds
TT
TT
Commodity Funds
Commodities, as an asset class, include:
TT
TT
TT
TT
TT
TT
The investment objective of commodity funds would specify which of these commodities it proposes
to invest in. In India, mutual fund schemes are not permitted to invest in commodities other than Gold
32
International Funds
Funds that invest outside the country. For instance, a mutual fund may offer a scheme to investors
in India , with an investment objective to invest abroad.
Puneet: Next, Let us learn more about Exchange Traded Funds
Exchange Traded Funds
Exchange Traded funds (ETF) are open-ended funds, whose units are traded in a stock exchange.
it allows investors to buy and sell units from the mutual fund, is made available only to very large
investors in an ETF. In order to facilitate such transactions in the stock market, the muual fund
appoints some intermediaries as market makers, whose job is to offer a price quote for buying and
selling units at all times.
Fund of Funds
TT
TT
Puneet: As of 31 March, 2012, the AUM of the industry has reached Rs. 5,87,217 from 1,309 schemes
offered by 44 mutual funds. Take a look at how these were distributed. (Source: www.amfiindia.com)
Open End
Closed End
Interval Fund
TOTAL
% to Total
Income
1,47,772
1,35,099
7,973
2,90,844
50
Equity
1,58,403
29
1,58,432
87
Balance
16,250
11
16,261
Liquid/Money
Market
80,354
80,354
14
Gilt
3,659
3,659
<1%
ELSS - Equity
21,149
2,495
23,644
Gold ETF
9,886
9,886
Other ETFs
1,607
1,607
<1%
Fund of Funds
Investing Overseas
2,530
2,530
<1%
4,41,610
1,37,634
7,973
5,87,217
100
Total
(In Rs Crore)
Puneet: In certain advanced countries, mutual fund AUM is a multiple of bank deposits. However
in India, the mutual fund AUM is not even 10% of bank deposits. This points to the countrys huge
potential for growth.
Rohit: Now I know all about the different types of mutual funds! Im going to go pen down all the
important things that I just learned. Thanks for all your help Puneet!
33
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
34
TT
Open-ended funds are open for investors to enter or exit at any time and do not have a fixed
maturity. Investors can acquire new units from the scheme through a sale transaction at their sale
price, which is linked to the NAV of the scheme. Investors can cell their units to the scheme through
the a re-purchase transaction at their re-purchase price, which again is linked to the NAV.
TT
Close-ended funds have a fixed maturity and can be bought and sold in a stock exchange.
TT
TT
Actively manage funds invest on the basis of a specified index, whose performance it seeks to track.
TT
TT
Diversified debt funds on the other hand, invest in a mix of government and non-government
debt securities
TT
Junk bond schemes or high yield bond schemes invest in companies that are of poor credit quality.
TT
Fixed maturity plans are a kind of debt fund where the investment portfolio is closely aligned to
the maturity of the scheme.
TT
TT
Liquid schemes or money market schemes are a variant of debt schemes that invest only in debt
securities of less than 61-days maturity.
TT
Diversified equity funds invest in a diverse mix of securities that cut across sectors.
TT
TT
Thematic funds invest in line with an investment theme. The investment is more broad-based
than a sector fund; but narrower than a diversified equity fund.
TT
TT
Equity income/Divedend Yield Schemes invest in shares that fluctuate less, and therefore
dividends represent a significant part of the returns of those shares.
TT
TT
Capital Protected Schemes are close-ended schemes, which are structured to ensure that
investors get their principal back, irrespective of what happens to the market.
TT
Gold funds invest in Gold and Gold related securities. They can be structured as Gold Sector
Funds and Gold ETF Schemes.
TT
TT
Commodity funds invest in asset classes like food crops, spices, fibres, industrial metals, energy
products or precious metals as may be permitted by their investment charter.
TT
international funds invest in securities abroad. They are often structured as feeder funds linked
to a host fund.
TT
TT
Exchange Traded Funds are open-end funds that trade in the stock exchange.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
Note down one SEBI regulation for real estate mutual funds.
4.
5.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Worksheet
1.
Read the following questions. Tick on the correct option given below.
a.
b.
and
By Structure
By Nature
Open-Ended Funds
By Investment Objective
Growth Funds
Balance Funds
Gold Funds
2.
Units of
i.
ii.
iii.
iv.
b.
36
True
False
e.
True
False
d.
Sector funds
Arbitrage funds
Close ended funds
Liquid funds
Open-ended schemes generally offer exit option to investors through a stock exchange.
i.
ii.
c.
True
False
Scheme
Option
Plan
SIP
Notes
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Answer
a.
i.
ii.
iii.
iv.
v.
Equity, debt
Mutual funds
Undervalued
Capital appreciation, dividend
35%
b.
1
By Structure
By Nature
Open-Ended Funds
Equity Funds
Growth Funds
Closed-Ended Funds
Debt Funds
Value Funds
Balance Funds
Fund of Funds
Gold Funds
Real Estate Mutual
Funds
38
By Investment
Objective
a.
iii
b.
ii
c.
ii
d.
e.
TT
Session Plan
1
Module Overview
Sponsor
Trustee
AMC
Custodian
Key Learnings
Worksheet
Module Overview
A mutual fund is an investment vehicle used by groups of investors to make returns. The investors
pool money collectively and the AMC invests in certain securities. All mutual funds follow a certain
structure. This structure is regulated by SEBI (Mutual Fund) Regulations, 1996.
In this module, you will learn about the fund structure. You will also learn about the (intermediaries)
constituents of a mutual fund.
Participant Handbook
Structure of a Mutual
Fund
Sponsor
Trustee
Asset Management
Company
Custodian
RTA
Rohit: I see. So these entities form the structure of a mutual fund.
Puneet: Thats right. And each of these entities has its own role and functions. Lets take a look at each
of these in detail. This Example will help you understand better.
Mutual Fund Trust
Sponsor
Trustee
AMC
Custodian
RTA
40
Sponsor
Puneet: The sponsor is the promoter of the mutual fund. The sponsor can be a bank, a financial
institution or a corporate.
Rohit: Can any bank, financial institute or corporate become a promoter?
Puneet: Good question Rohit! And the answer is yes, if they fulfil certain prerequisites then they can
become sponsors like SBI, PNB, Fidelity etc. Take a look at these prerequisites!
Sponsors Must.....
TT
TT
Have made a profit in at least three of those five years, including the last year.
TT
TT
Latest net worth should be more than the amount that the sponsor contributes to the capital
of the AMC.
TT
The sponsor should have earned profits, after providing for depreciation and interest, in three
of the previous five years, including the latest year.
Rohit: So without fulfilling these requirements, an entity cannot become a sponsor. But if these
requirements are fulfilled, what does a sponsor do?
Puneet: A sponsor is responsible for performing certain very important functions. Here are some of the
most important functions of a sponsor.
The sponsor...
TT
Creates a Public Trust, which falls under the Indian Trust Act, 1882.
TT
TT
TT
Creates an Asset Management Company, which falls under the Companies Act, 1956.
TT
Trustee
Puneet: The sponsor, along with SEBI approval, appoints a board of trustees. Trustees are appointed in
a fiduciary capacity.
Rohit: What does that mean?
Puneet: It means their role is to protect the interests of the investors or unit holders of the fund. The
trustees ensure that the trust funds are invested in accordance with the mandate and objective of the
investors. They are legal guardians.
Rohit: That sounds like a very important job!
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Puneet: It is! Thats why no major decisions can be made without trustee approval. Trustees also
perform many other important functions. Take a look!
Trustees ensure that...
TT
All mutual fund activities are as per SEBI (Mutual Fund) regulations, 1996.
TT
The systems and procedures of the Asset Management Company should be followed.
TT
TT
The net worth of the Asset Management Company follows SEBI norms.
TT
The activities of the Asset Management Company are provided to SEBI every six months.
TT
TT
The Asset Management Company exercises the required due diligence when appointing the
constituents and business associates.
Puneet: For proper functioning of the trustees, certain rules must be followed at all times.
Rules for Trustees
TT
TT
TT
A person convicted of any economic offence or violation of any securities laws cannot be
appointed as trustee.
TT
At least four trustees, two-thirds of whom must belong to the board of trustees, must remain
independent, i.e. not associated with the sponsor.
TT
The same trustee cannot be appointed to more than one mutual fund.
TT
A trust must be executed in favour of the trustees, by the fund sponsor. The trust is created
through a document referred to as the Trust Deed.
Bank Sponsored
Institutions
Private Sector
Manage the trust funds. They receive a fee for handling the funds as per with the investors
requirements.
TT
TT
Appoint other constituents such as the custodian, registrar, transfer agent, bankers, security
dealers, fund accountants etc.
Puneet: Just like trustees, AMCs must also follow certain rules.
Rules for Asset Management Companies
TT
The directors of the assets management company need to be persons having adequate
professional experience in finance and financial services related field.
TT
The directors as well as key personnel of the AMC should not have ben found guilty of moral
turpitude or convicted of any economic offence or violation of any securities laws.
TT
Key personnel of the AMC should not have worked for any asset management company or
mutual fund or any intermediary during the period when its registration was suspended or
cancelled at any time by SEBI.
TT
Prior approval of the trustees is required, before a person is appointed as director on the
board of the AMC.
TT
An AMC cannot invest in its own schemes, unless the intention to invest is disclosed in the
Offer Document. Further, the AMC cannot charge any fees for the investment.
TT
TT
The net worth of an AMC must be minimum Rs. 10 crores at all times.
TT
TT
TT
TT
The same AMC cannot be the trustee or AMC of other mutual funds.
TT
TT
AMCs are only allowed to be engaged in the portfolio advisory and management business.
Puneet: Operations of AMCs are headed by a Managing Director, Executive Director or Chief Executive
oficer. Some of the other business heads are:
Chief Investment Officer (CIO), who is responsible for overall investment of the fund. Fund managers
assist the CIO. As per SEBI regulations, every scheme requires a fund manager, though the same fund
manager may manage multiple schemes.
Securities Analysts support the fund managers through their research inputs. These analysts come from
two streams, Fundamental Analysis and Technical Analysis. Some mutual funds also have an economist
to analyse the economy.
Secirities Dealers help in puting the transactions though in the market.
Chief Marketing Officer (CMO), who is responsible for mobilizing money under various schemes. Direct
Sales Team (who generally focus on large investors), Channel Managers (who manage the distributors)
and Advertising and Sales Promotion team support the CMO.
2011 IL&FS Skills Development Corporation Limited
43
Participant Handbook
Custodian
Puneet: Another service provider is the custodian. The custodian has a very important role. It is
responsible for the safety of the securities that are in material form so it safeguards the funds and
assets of the investors. Besides this, it also performs a number of other functions.
Take a look at some of these functions!
Functions of Custodians
TT
They take delivery of the securities and ensure that the securities are transferred in the name
of the mutual fund.
TT
TT
They collect, and also account for, the dividends and interest receivables on mutual fund
investments.
TT
They keep the accounts, transactions and balance sheets of the securities portfolio up to date.
TT
They monitor numerous corporate actions such as bonus and right issue, stock split, buy back,
open offers and more.
Auditors
44
TT
TT
TT
TT
TT
TT
TT
TT
Fund Accountants
Distributors
Collecting Bankers
KYC Registration
Agencies
TT
TT
TT
TT
TT
TT
TT
They look after the bank accounts containing the investors money.
TT
TT
TT
All new investors, joint holders, PoW holders etc must comply with
the latest KYC guidelines.
Rohit: Now I know the structure of a mutual fund as well as a little bit about its constituents! Thanks
for all your help Puneet!
Mutual Funds in India are govened by SEBI (Mutual Fund) Regulations, 1996, as amended till
date.
TT
Thhe regulations permit mutual funds to invest in securities includung money market instruments,
of gold or gold related insstruments or real estate assets.
TT
Mutual funds are constituted as Trusts. The mutual fund trust is created by one or more sponsors,
who are the main persons behind invest in various schemes of the mutual fund operation.
TT
Every trust has beneficiaries, in the case of mutual fund trust, are the investors who invest in
various schemes of the mutual fund.
TT
In order to perform the trusteeship role, either individuals may be appointed as trustees or a
Trustee company may be appointed. When indivisuals are appointed trustees, they are jointly
referred to as Board of trustees. A trustee company functions through its Board of Directors.
TT
Day to day management of the schemes is handled by an AMC. The AMC is appointed by the
Sponsor or the Trustees.
TT
Investors invest in various scheme of the mutual fund. The record of investors and their unitholding may be maintened by the AMC itself, or it can appoint a Registrar & Transfer Agent (RTA).
TT
The sponsors needs to have a minimum 40% share holding in the capital of the AMC.
TT
The sponsor has to appoint at least 4 trustees - atleast two third of them need to be independent.
Prior approval of SEBI needs to be taken, before a person is appointed as Trustee.
TT
AMC should have networth of at least Rs 10 crore. At least 50% of the directors should be
independent directors. Prior approval of the trustees is required, before a person is appointed as
director on the Board of the AMC.
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2011 IL&FS Skills Development Corporation Limited
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Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
46
1.
2.
3.
4.
5.
Worksheet
1.
Read the following questions. Tick on the correct option given below.
a.
b.
c.
2.
3.
Sponsors must have a track record of minimum how many years in financial services?
i.
ii.
iii.
iv.
How often should the activities of the Asset Management Company be provided to SEBI?
i.
ii.
iii.
iv.
What is the minimum percentage of the AMC capital that must be sponsor contributed?
i.
10%
ii.
25%
iii.
40%
iv.
55%
b.
c.
d.
of the investors.
AMC
Trustees
Custodian
Registrar
47
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
b.
c.
d.
True
False
e.
Rs. 10crore
Rs. 5crore
Rs. 4crore
Rs. 2crore
Trustees
Registrar
Custodian
Fund Accountant
True
False
Notes
48
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
50
Answer
a.
iv.
b.
ii.
c.
iii.
a.
Promoter
b.
Fiduciary
c.
Trust funds
d.
Funds, assets
a.
iii
b.
c.
d.
ii
e.
ii
TT
TT
TT
TT
Session Plan
1
Module Overview
Regulatory Agencies
Self-Regulatory Organisations
Role of AMFI
AGNI
Key Learnings
10
Worksheet
Module Overview
In order to ensure the safety of the public with regards to financial dealings, a number of regulatory
agencies have been created. The job of such agencies is to monitor and regulate the activities of
different financial institutions, and thus ensure that the standards for good practices are followed at
all times.
In this module, you will learn about these different regulatory agencies, specifically the mutual fund
industry body AMFI.
Regulatory Agencies
Rohit Sharma is making a note of the regulatory agencies in India. He sees that one of the most
important regulatory bodies in India is SEBI. Rohit knows that SEBI regulates mutual funds.
51
2011 IL&FS Skills Development Corporation Limited
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He also finds that besides SEBI there are a number of other important regulatory agencies. Take a look!
TT
TT
TT
TT
Regulated by SEBI
TT
Have their own listing, trading and margining rules, i.e., NSE,
BSE
TT
TT
MOF
TT
TT
TT
TT
TT
TT
TT
Public Trustees
TT
Charity Commissioner
TT
SEBI
Stock Exchanges
RBI
Department of Company
Affairs
Rohit has finally finished his list of regulatory agencies! He shows this information to Puneet, his friend
who distributes mutual funds.
Puneet: Great work Rohit! But what about the second tier regulatory mechanisms?
Rohit: Second tier? What do you mean?
Puneet: Besides these regulatory agencies, we also have second tier regulatory mechanisms called
self-regulatory organisations (SRO). Let me tell you a little about them...
52
Powers of
Registered SROs
Enforce Rules
Seek
Information
Conduct
Inspections
Award
Penalties
TT
TT
TT
TT
All stock exchanges are SROs and are supervised by SEBI (like NSE, BSE etc.)
TT
TT
Puneet: Thats right! Let me tell you a little more about AMFI.
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2011 IL&FS Skills Development Corporation Limited
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Role of AMFI
Puneet: As I mentioned earlier, AMFI is not a self-regulated organisation. It is an industry association.
It is governed by a Board of Directors made up of mutual fund members.
The Association of Mutual Funds has to perform certain roles.
Role of AMFI
TT
TT
Interacts with SEBI, RBI, the Government and Regulators regarding mutual fund related
matters
TT
Sets ethical and professional standards for all mutual fund related operations
TT
TT
Promotes best business practices and the code of conduct for all those engaged in mutual
fund and AMC activity
TT
Implements certification programs for intermediaries and those engaged in the selling of
mutual funds and AMFI Registration Number (ARN)
TT
TT
Rohit: Wow! AMFI has some very important roles! No wonder it is such an important entity.
Puneet: Yes, it certainly is important. But Rohit, these roles are not the only important function of
AMFI. AMFI also lays down a code of ethics! Let me tell you about this code.
Due Diligence
54
TT
TT
TT
TT
embers must have and utilise resources and procedures that are
M
capable of effectively carrying out Asset Management activities.
Disclosures
TT
embers must provide all unit holders with timely, accurate and easy
M
to understand information.
TT
TT
embers must not use any unethical practices to sell investors any
M
products or schemes.
TT
TT
Professional Selling
Practices
TT
Investment Practices
TT
TT
TT
TT
TT
Operations
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Reporting Practices
TT
TT
TT
embers must not make statements/carry out any actions that may
M
harm, or be disadvantageous to the interests of other members with
regards to market players or investors, when competing for funds to
invest in.
TT
embers must follow the word and spirit stated in the Statutes, Rules
M
and Regulations.
TT
embers must distribute the AMFI Code to all the people who fall
M
under it.
TT
TT
embers must ensure that all officers and employees sign a statement
M
declaring that they have received and read a copy of the code.
TT
ertain terms have been defined in the code, and these terms should
C
be used as per the definitions laid down, unless stated otherwise.
Unfair Competition
Observance of
Statutes, Rules and
Regulations
Enforcement
Definitions
Rohit: This code has listed some very important ethical standards.
Puneet: Thats right Rohit. That is why it is so important that all the AMCs follow this code of ethics in
their operations, as well as in their dealings with investors, intermediaries and the public.
56
TT
Take required steps to ensure that the interest of the clients comes first.
TT
E nsure that the SEBI Mutual Fund Regulations and guidelines for selling, distribution and
advertising practices are followed.
TT
TT
ring to attention a schemes risks, do not misrepresent or exaggerate facts, and urge investors
B
to make informed investment decisions by reading SID/KIM.
TT
TT
Avoid guaranteeing or indicating the returns of any scheme, unless stated in the SID.
TT
Maintain the infrastructure required for AMCs to provide investors with high service standards.
TT
void conspiring with clients to carry out wrong business practices and avoid malpractices for
A
the purpose of commission.
roper internal codes of conduct and controls should be laid down by market intermediaries
P
registered by SEBI.
TT
ccess to blogs/chat sites/ messenger sites and so on should either be restricted or should not
A
be allowed.
TT
L ogs of blogs/chat sites/ messenger sites etc should be viewed as records and should be saved in
the manner specified by the regulation governing the concerned intermediary.
TT
E mployees should be informed that they can only forward market related news once the news
has been seen and approved by the Compliance Officer of the concerned intermediary.
TT
AUM raised above Rs. 100 crores across the industry, including high networth individuals (HNIs)
TT
TT
Commission of over Rs. 50 lakh p.a. received, from a single Mutual Fund
Puneet: The due diligence process deals with satisfying fit and proper criteria that incorporates factors
like:
TT
TT
ecords of regulatory/statutory levies, fines and penalities, legal suits, compensations made to
R
customers, causes and results of corrective action
TT
TT
rganisational controls that make sure that there is a separation between the sales and
O
relationship management personnel and the following processes:
Participant Handbook
Execution Only - in case of transactions that are not booked as advisory, it shall
still require:
The distributor has information to believe that the transaction is not
appropriate for the customer, a written communication be made to the
investor regarding the unsuitability of the product.
A customer confirmation to the effect that the transaction is execution only
notwithstanding the advice of in-appropriateness from that distributor be
obtained prior to the execution of the transaction.
That on all such execution only transactions, the customer is not required to
play the distributor anything other than the standard flat transaction charge.
SEBI regulates mutual funds, depositories, custodians and registrars & transfer agents in the
country.
TT
TT
The AMFI Code of Ethics sets out the standards of good practices to be followed by the Asset
Management Companies in their operations and in their dealings with investors, intermediaries
and the public.
TT
AMFI has framed AGNI, a set of guidelines and code of conduct for intermediaries, consisting
of individual agents, brokers, distribution houses and banks engaged in selling of mutual fund
products.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
58
2.
3.
4.
Worksheet
1.
Read the following questions. Tick on the correct option given below.
a.
b.
SEBI
ii.
Stock Exchange
iii.
AMFI
iv.
What is AMFI?
i.
Self-regulated organisation
ii.
Financial institutions
iii.
Industry association
iv.
Government body
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2011 IL&FS Skills Development Corporation Limited
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2.
3.
AMFI is governed by
b.
c.
SROs are
funds.
regulatory mechanisms.
SROs
i.
b.
SEBI
ii.
c.
AMFI
iii.
d.
RBI
iv.
e.
ACE
v.
Notes
60
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
62
Answer
a.
ii.
b.
iii.
a.
A board of directors
b.
Offshore
c.
Second tier
a.
iii
b.
c.
d.
ii
e.
iv
Session Plan
1
Module Overview
Investors Rights
Investors Obligations
Unclaimed Amounts
Key Learnings
10
Worksheet
Module Overview
Ignorance is never bliss, a fact that holds true even when it comes to mutual fund investments. Before
investing in mutual funds, all potential investors should protect themselves by knowing their rights.
Along with rights, investors also have certain obligations, and it is equally important for investors to
know about both.
In this module you will learn about the rights, as well as the obligations, of investors.
Investors Rights
Rohit Sharma was at home reading about mutual funds when he heard the door bell ring. He opened
the door to find his friend Sheetal looking extremely distraught.
Sheetal: Oh Rohit! Im in a real fix!
Rohit: What happened Sheetal?
Sheetal: I need to file my statement of returns in the next 10 days and I completely forgot about it! I
have just asked for my statements to be sent to me today! How will I ever file them in time!
Rohit: Dont worry Sheetal! As an investor, you have the right to receive the statement of accounts
within five working days of your request!
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2011 IL&FS Skills Development Corporation Limited
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Sheetal: Really?? Thats great! But...do you have any idea how much they cost? I hope they are not too
expensive...
Rohit: They are totally free! You have the right to receive the statements free of charge! And this is not
your only right....
You see Sheetal, investors have many rights when it comes to mutual funds. Broadly speaking, investors
rights can categorised in the following manner:
Right to
Terminate the
AMC
Right to
Proportionate
Beneficial
Ownership
Right to
Timely
Service
Investors
Rights
Right to
Wind Up a
Scheme
Right to
Information
Right to
Approve change in
Fundamental
Attributes
Situation
Investors Right
64
Investors Right
Sheetal is amazed at the rights that investors have! But Rohit has not finished yet!
Rohit: We also have rights with respect to the management of the fund. This gives us a lot of rights with
regards to winding up schemes, terminating the AMC, approving changes in the fundamental attributes
and more.
Investor Rights
Investors have a right to know about this change,
which should be informed to them in writing.
Investors also have the right to exit the scheme,
without any exit load, for minimum 30 days after
the change being declared.
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2011 IL&FS Skills Development Corporation Limited
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NAV
Details of portfolios
Portfolio summary
Rohit: Investors also have the right to inspect key documents. This does not include investment strategy
documents. Take a look at these key documents.
Key
Documents
Trust Deed
R & T Agent
Agreement
Investment
Management
Agreement
Custodial Services
Agreement
Memorandum and
Articals of Association
of the AMC
66
TT
TT
TT
TT
TT
TT
TT
Sheetal: Incredible! I think I should find out more about my rights before I make any more investments.!
Rohit: Thats a good idea Sheetal! It is always wise to know your rights.! But dont forget...along with
power comes responsibility.! These rights go hand in hand with certain obligations. It is our duty to
recognise these obligations and abide by them.
Investors Obligations
Rohit: Investors have certain obligations that they must adhere to.
Investors Obligations
TT
TT
TT
Monitor their investments - this responsibility lies solely with the investor
TT
TT
Sheetal: You know Rohit, all these obligations are actually in our best interests.
Rohit: You are absolutely correct Sheetal! Thats why we must take these obligations seriously. So
remember be aware of your rights as well as your obligations. They are both equally important.
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2011 IL&FS Skills Development Corporation Limited
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Unclaimed Amounts
Sheetal: I have a question Rohit. What happens if a mutual fund has dividends that unclaimed?
Rohit: All unclaimed dividend and redemption amounts must be redistributed in the money market by
the mutual fund. The AMC can recover expenses like investment management and advisory fees on the
management of the unclaimed amounts, at a maximum rate of 0.50% p.a.
The way for an investor to recover unclaimed amounts depends on when the investor makes the claim.
The investor claims the money
within 3 years
The investors claims the money
after 3 years
TT
TT
I f the amounts are considerable and recovered within 2 years, then the amount must be paid to
the old investors.
TT
I n other cases the amount must be transferred to the Investor Education Fund managed by each
mutual fund.
TT
Investor can ask for a Unit Certificate for a Unit Holding. This is different from a Statement of
Account.
TT
TT
NAV and Re-purchase Price is to be updated in the website of AMFI and the mutual fund.
TT
The investor/s can appoint a nominee, who will be entitles to the Units in the event of the
demise of the investor/s.
TT
The investor can also pledge the units. This is normally done to offer security to a financier.
TT
TT
TT
Unit-holders have proportionate right to the beneficial ownership of the assets of the scheme.
TT
Invetsors can choose to change their distributor or go direct. In such cases, AMCs will need to
comply, without insisting on No Objection Certificate from the existing distributor.
TT
Investors can choose to hold he units in dematerialised form. The mutual fund / AMC is bound
to co-ordinate with the RTA and Depository to facilitate this.
TT
In the case of unit-holding in demat form, the demat statement given by the Depository
participant would be treated as compliance with the requirement of Statement of Account.
TT
The mutual fund has to publish a complete statement of the scheme portfolio and the unaudited
financial results, within 1 month from the close of each half year. In lieu of the advrtisement, the
mutual fund may choose to send the portfolio statement to all Unit-holders.
TT
Debt - oriented, close-ended / interval, schemes plants need to disclose their portfolio in their
website every month, by the 3rd working day of the succeeding month.
TT
Scheme-wise Annual Report to an abridged summary has to be mailed to all unit-holders within
6 months of the close of the financial year.
TT
The Annual Report of AMC has to be displayed on the website of the mutual fund. The Schemewise Annual Report will mention that Unit-holders can ask for a copy of the AMCs Annual
Report.
TT
The trustees / AMC cannot make any change in the fundamental atributes of a scheme, unless
the requisite processes have been cmplied. This includes option to dissenting unit-holders to exit
at the prevaling Net Asset Value, without any exit load. This exit window has to be open for at
least 30 days.
TT
The appointment of the AMC for a mutual fund can be terminated by a majority of the trustees
or by 75% of the Unit-holders (in practice, units-holding) of the Scheme.
TT
75% of the Unit-holders (in practice, units-holding) can pass a resoution to wind-up a scheme.
TT
If an investor feels that the trustees have not fulfilled their obligations, then he can file a suit
against the trustees for breach of trust.
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2011 IL&FS Skills Development Corporation Limited
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TT
Under the law, a trust is a notional entity. Therefore, investors cannot sue the trust (but they can
file suits against trustees).
TT
The principal of caveat emptor (let the buyer beware)applies to mutual fund investments.
TT
The investor can claim his money from the scheme within 3 years . Payment will be based on
prevaling NAV. If the investor claims the money after 3 years, then payment is based on the NAV
at the end of 3 years
TT
If a security that was written off earlier is now recovered, within 2 years of closure of the scheme,
and if the amounts are substantial, then the amount is to be paid to the old investors. In other
cases, the amount is to be transferrd to the Investor Education Fund maintained by each mutual
fund.
TT
PAN No. and KYC documentation is compulsory for mutual fund investments. Only exception is
micro-SIPs.
TT
Investors need to give their bank account details along with the redemption request.
TT
Adequate safeguards exits to protect the investors from the possibility of a scheme going bust.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
70
1.
2.
3.
4.
5.
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2011 IL&FS Skills Development Corporation Limited
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Worksheet
1.
Read the following questions. Tick on the correct option given below.
a.
b.
2.
3.
I nvestors can terminate a scheme, provided a resolution is passed by those holding what
percentage of the unit-holding of the scheme?
i.
25%
ii.
55%
iii.
75%
iv.
95%
T he NAV, sale price and re-purchase price must be updated on the AMFI and AMC websites
by what time?
i.
6 p.m.
ii.
9 p.m.
iii.
8 a.m.
iv.
11 a.m.
b.
c.
d.
SEBI regulates
i.
ii.
iii.
iv.
b.
Mutual Funds
Depositories
Registrar & Transfer Agents
All the above
72
their investments.
True
False
working
.
.
c.
d.
e.
3
5
7
15
Within
i.
ii.
iii.
iv.
7
10
15
30
True
False
Notes
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
74
Answer
a.
iii.
b.
ii.
a.
30.
b.
c.
d.
Monitor
a.
iv
b.
c.
ii
d.
iv
e.
Offer Document
After completing this module, you will be able to:
TT
TT
TT
Session Plan
1
Module Overview
Update of SID
Key Learnings
Worksheet
Module Overview
Before making an investment decision, all investors should be aware of the important facts relating to
the scheme in question. All the information regarding the scheme is laid out in the mutual fund Offer
Document. It is very important that investors read this document carefully, so that they can make an
informed decision at the time of investment.
In this module, you will learn the meaning of an Offer Document. You will also learn about the
information contained in an Offer Document.
TT
TT
Participant Handbook
These are called the fundamental attributes of the scheme. The AMC cannot change these attributes
without going through certain legal processes. The AMC also needs the permission of the investors.
Rohit: So the Offer Document provides all the important information relating to the scheme, so that
investors can make an informed decision. I can see why it is so important! I hope all investors read this
document before investing.
Puneet: Actually, reading the Offer Document is compulsory for all those investing for the first time.
In fact, all investors have to sign a form declaring that they have read and understood this document.
So now you have a good idea of what the offer document is all about. Take a look at its main points!
Features of an Offer Document
TT
TT
It is issued by the AMC on behalf of the trustees and duly examined by SEBI
TT
TT
TT
First time investors must read the offer document before investing
TT
Investors must sign a form stating that they have read and understood the offer document
TT
Note: Close-ended Scheme have an NFO Open Date and NFO Close Date. But, they have no Scheme
Re-Opening Date, because the scheme does not sell or re-purchase units.
Unde the SEBI guidelines, NFOs other than ELSS can remain open for a maximum of 15 days.
Allotment of units or refund of moneys, as the case may be, should be done within 5 business days
of closure of the scheme.
Puneet: The Offer Document has two parts.
Mutual Fund Offer Document
Scheme Information
Document ( SID )
Statement of Additional
Information ( SAI )
Puneet: Both these documents are prepared as per formats set by SEBI, and then submitted to SEBI.
Lets look at the Scheme Information Document in detail.
76
TT
Scheme Name
TT
Scheme Type
TT
TT
TT
TT
TT
Mandatory Statement
TT
Standard Clauses
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2011 IL&FS Skills Development Corporation Limited
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Other Content
TT
Table of Contents
TT
Highlights
TT
Introduction
TT
Risk Factors
Standard
TT
Scheme-specific
TT
TT
TT
TT
Rights of Unit-holders
TT
TT
TT
TT
Update of SID
Regular
If a scheme is launched in the first 6 months of the financial year (say, April 2010), then the first update
of the SID is due within 3 months of the end of the financial year (i.e. by June 2011).
If a scheme is launched in the seond 6 months of the financial year(say, October 2010), then the first
update of the SID is due within 3 months of the end of the next financial year (i.e by June 2012).
Thereafter, SID is to be updated every year.
Need-based
In case of change in the fundamental attributes, the SID has to be updated immediately after the lapse
of the time period given to existing investors to exit the scheme.
In case of any other changes
TT
78
It will be printed on a separate piece of paper (addendum) and distributed along with the SID,
until the SID is updated.
TT
If a change is superseded by a further change (for instance, change in load), then addenda is
not are rquired for thesuperseded change i.e. addenda is only required to disclose the latest
position.
TT
TT
TT
Condensed financial information for schemes launched in the last 3 financial years
TT
How to apply
TT
TT
TT
Puneet: Investors can download the SAI from the mutual fund websites. The AMFI website allows
investors to access the SAI of all the mutual funds. Investors also have the right to ask for a printed
copy of the SAI.
Regular update is to be done by the end of 3 months of every financial year.
Material changes have to be updated on an ongoing basis and uploaded on the websites of the mutual
fund and AMFI.
Now let me tell you about another important document - The Key Information Memorandum.
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2011 IL&FS Skills Development Corporation Limited
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TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Puneet: The scheme/plan must have minimum 20 investors. No single investor should account for
more than 25% of the corpus of the scheme/plan.
KIM is to be updated at least once a year.
As in the case of SID, KIM is to be revised in the case of change in fundamental attributes. Other
changes can be disclosed through addenda attached to the KIM.
Rohit: These documents contain so much valuable data! Thanks for showing these to me Puneet!
80
TT
Under the SEBI guidelines, NFOs other than ELSS can remain open for a maximum of 15 days.
Allotment of units or refund of moneys, as the case may be, should be done within 5 business
days of closure of the scheme. Further, open-ended schemes have to re-open for sale / repurchase within 5 business days of the allotment.
TT
Investors get to know the details of any NFO through the Offer Document, which is one of the
most important sources of information about the scheme for investors. investments by the
visitors are governed by the principle of caveat emptor i. e. let the buyer beware.
TT
Mutual Fund Offer Documents have two parts: (a) Scheme Information Document (SID), Which
has details of the scheme (b) Statement of Additional Information (SAI), which has statutory
information about the mutual fund that is offering the scheme.
TT
In practice, SID and SAI are two separate documents, though the legal technicality is that SAI is
part of the SID. Both documents need to be updated regularly.
TT
Offer Documents in the market are vetted by SEBI, though SEBI does not formally approve
them.
TT
KIM is essentially a summary of the SID and SAi. It is more easily widely distributed in the market.
As per SEBI regulations, every applications form is to be accompanied by the KIM.
TT
Debt funds have to make additional disclosures related to credit evaluation policy, sectors and
types of investments (within specified limits)
TT
Mutual Funds/AMCs ned to disclose portfolio (along wih ISIN) as on the last day of the month for
all their schemes on their website, in a user-friendly and downloadable format, on or before the
tenth day of the succeeding month.
TT
Mutual funds/AMCs are to make half yearly disclosures of their unaudited financial results on
their respective website in a user-friendly and downloadable format.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Worksheet
1.
2.
3.
b.
The
c.
d.
e.
and
and
Offer Document
i.
b.
ii.
c.
iii.
b.
c.
e.
True
False
d.
7 days
10 days
15 days
30 days
82
of the scheme.
True
False
SID
ii.
SAI
iii.
KIM
iv.
True
ii.
False
Notes
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
84
Answer
a.
Details
b.
c.
Legal, SEBI
d.
Read, Understood
e.
a.
ii
b.
c.
iii
a.
iii
b.
c.
ii
d.
iii
e.
ii
TT
Session Plan
1
Module Overview
Key Learnings
Worksheet
Module Overview
In order to be a distributer of mutual funds, one must be aware of who is allowed to invest in these
funds. Investing in mutual funds has become a very common practice these days. However, it may
surprise you to know that in India, certain individuals and entities are not allowed to invest in mutual
funds.
In this module, you will learn who can invest in mutual funds. You will also learn about the role of the
distribution channel.
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2011 IL&FS Skills Development Corporation Limited
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Puneet: No Rohit. Only certain individuals and entities can invest in these funds. They fall under three
categories:
Mutual Fund
Investors
Categories
Residents
Non Residents
Foreign Entities
Puneet: Take a look at the individuals and entities allowed to make mutual fund investments in India.
Residents
TT
Resident Individuals/HUF
TT
Indian Companies
TT
Partnership Firms
TT
TT
Insurance Companies
TT
Banks
TT
Financial Institutions
TT
NBFCs
TT
Provident Funds
TT
Mutual Funds
Non Residents
TT
TT
Foreign Entities
TT
Rohit: I see! Looks like I have a lot to learn before I become a mutual funds distributer.
Puneet: Dont worry Rohit, all in good time! Becoming a distributor requires hard work...but it is worth
it. The distribution channel, of which you will someday be a part, plays such an important role in mutual
fund investment.
Rohit: Really? Can you tell me more about this role?
Puneet: Sure!
86
Distribution
Channels
Traditional Distribution
Channels
Newer Distribution
Channels
Individual
Internet
Institutional
Channels
Stock Exchanges
Individual
TT
TT
TT
TT
The agents collected the signed application forms and cheques from
the investors.
TT
There was a close relationship between the individual agent and the
investor; investors usually considered their agents to be part of the
family.
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2011 IL&FS Skills Development Corporation Limited
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TT
Due to the start of many new insurance and mutual fund companies,
the creation of more investment products, the increased product
knowledge and awareness of investors and new technologies, newer
distribution methods were required.
TT
TT
TT
TT
TT
Institutional Channels
TT
T his has led to much easier transactions for investors, who no longer
have to deal with paperwork or go through distributors.
TT
TT
TT
S tock exchanges are able to reach investors all over India with their
large network of brokers and trading terminals.
TT
T his approach is cost effective, and results in high volumes and low
margins which benefits the country.
TT
ecently, SEBI has made it easier for mutual fund units to be bought
R
and sold through stock exchanges.
Internet
Stock Exchanges
Rohit: How interesting! The distribution channels have really changed over the years! Thank you for
telling me about this!
Puneet: I have some more interesting information to share with you Rohit! Have you heard about KYD
requirements?
88
TT
AMFI has started the KYC process to verify the accuracy of the information given in the registration
documents and to verify the ARN holders. The process verifies documents and also has a biometric process. The process takes place in the following stages:
Submission of Documents
Bio-Metric Process
Acknowledgement
TT
TT
The impression of the right hand index finger of the ARN holder
must be taken.
TT
TT
TT
TT
TT
Puneet: After passing the examination and completing KYD requirement, the next stage is to
register with AMFI. On registration, AMFI allots an AMFI Registration Number (ARN). Individuals
from the exempted category desribed above can obtain the ARN without passing the Certifiying
Examination, provided they have attended the prescibed refresher course.
TT
Armed with the ARN No., the IFA / distributor / stock exchange broker can get empanelled with
any number of AMCs. Alternatively, they can become agents of a distrubutor who is already
empanelled with AMCs. Empanelment with the AMC, or enrolment as an agent of an empanelled
distributor is compulsory to be able to sell mutual fund schemes and earn the commissions.
Institutions that are into distribution of mutual fund need to register with AMFI. Besides, all their
employees who are into selling mutual funds need to have an ARN.
Personal Information of applicant - Name of person, age, Trade Name, Contact Information, ARN,
PAN, Income tax category (such as Resident Individual, Company, Non-Resident Indian, Foreign
Company)
TT
Names and contact information of key people handling sales and operations
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2011 IL&FS Skills Development Corporation Limited
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TT
Business details, such as office area, number of branches, number of employees, geographical
area covered, years of experience, number of investors, number of agents / sub-brokers, fund
houses already empanelled in, size of AUM etc.
TT
Bank details and preferences regarding Direct Credit of brokrage in the bank account
TT
TT
Nominee
TT
The applicant also needs to sign a declaration, which provides for the following:
90
TT
The changing competitive context has led to the emergence of institutional channels of
distribution, to supplement the individuals who distribute mutual funds. Institutional channels
build their reach through employees, agents and sub-brokers.
TT
AMC keep exploring newer channels of distribution to increase the size of assets managed.
TT
The internet has inceased the expectations of advice that investors have from their distributiors.
TT
The stock exchange brokers have become a new channel for distribution of mutual funds. These
brokers too need to pass the prescribed test, get the AMFI Registration No. and get themselves
empanelled with AMCs whose schemes they want to distribute.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
Name four types of residents that can invest in mutual funds in India.
2.
3.
Give an example of a non resident that can invest in mutual funds in India.
4.
Give an example of a foreign entity that can invest in mutual funds in India.
Worksheet
1.
2.
b.
In India,
level.
Resident
i.
b.
Non Resident
ii.
c.
Foreign Entity
iii.
Charitable Institution
91
Participant Handbook
Notes
92
Answer
a.
Retail
b.
Foreign citizens
a.
iii
b.
c.
ii
Session Plan
1
Module Overview
Key Learnings
Worksheet
Module Overview
Today, the mutual fund industry has become increasingly widespread. This has necessitated the
emergence of various channels of distribution, for the purpose of helping individual distributers provide
mutual funds to investors.
In this module, you will learn about the management practices that must be followed by these
distribution channels.
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2011 IL&FS Skills Development Corporation Limited
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Types of Commission
Initial or Upfront
Commission
Trail Commission
Trail Commission
SEBI has mandated Mutual Funds / AMCs to disclose on their respective websites the total commission
and expenses paid to distributiors who satisfy one or more of the following conditions with respect to
non-institutional (retail and HNI) investors:
i.
ii.
iii.
iv.
Mutual Funds / AMCs shall also submit the above data to AMFI. AMFi shall disclose the conslidated
data in this regard on its website.
Puneet: The agents and sub-brokers work under large distributors. This creates a multi-level distribution
channel. There are also practices that are followed regarding such channels.
Practices Followed for Multi-Level Distribution Channels
TT
The distributors are responsible for the actions of the agents and sub-brokers
TT
The AMC is not bound by the actions of the distributors, their agents or sub-brokers
TT
All those selling mutual fund units must abide by ACE and AGNI
Rohit: I also read that SEBI has regulated certain sales practices. Can you tell me about these practices?
Puneet: Of course!
SEBI Regulated Sales Practices
TT
Distributors can only claim commission for clients investments, not on their own investments
TT
TT
Entry load is not allowed (it has been banned since August 1, 2009)
TT
Puneet: Besides these regulations, SEBI has also laid down a code that must be followed with regards
to advertising.
94
TT
TT
TT
Advertisements must advise the public to read the offer documents before investing
TT
T he disclosure to read the offer document carefully should be present for minimum five seconds
in all advertisements
TT
oardings/posters must contain the statement Mutual Fund investments are subject to market
H
risks, read the offer document carefully before investing. The statement should be displayed in
black letters, on a white background. The words should be minimum 8 inches in height, or should
cover 10% of the display area.
TT
TT
TT
Puneet: The distribution channels also have to follow certain practices when it comes to performance
advertisements.
Practices for Performance Advertisements
TT
For schemes lasting over a year, the compounded annualised yields must be advertised
TT
fter a scheme is launched, the yields must be declared in the first, third and fifth year and since
A
inception
TT
For schemes that are under a year, no annualisation of returns are required
TT
In the case of comparisons, appropriate benchmarks and identical time periods must be used
TT
TT
TT
The declared dividend must be shown as rupees per unit, along with the current NAV
TT
F or schemes that have been in existence for less than a year, past performance will not be
provided
Puneet: So you see Rohit, distribution channels have to follow quite a few practices. And all these
practices are important for effective management.
The scheme application forms carry a suitable disclosure to the effect that the upfront commission
to distributors to will be paid by th investor directly to the distributor, based on his assessment of
various factors including the service rendered by the distributor.
TT
AMCs pay a trail commission for the period the investment is held in the scheme.
TT
Since trail commission is calculated as a percentage on AUM, distributors get the benefit of
valuation gains in the market.
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2011 IL&FS Skills Development Corporation Limited
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Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
Worksheet
1.
2.
b.
c.
d.
96
Distributor
AMC
SEBI
Client
investments.
before investing.
3.
b.
The maximum intial commission that an AMC can pay to distributor is:
i.
ii.
iii.
iv.
c.
True
False
Stock exchange brokers are permitted to distribute mutual funds without the rquirement
of passing the certifying test
i.
ii.
e.
Nil
0.05%
1%
2%
d.
Employees
Agents
Sub-brokers
Any of the above
True
Flase
True
False
Notes
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
98
Answer
a.
a.
b.
Clients
c.
Tombstone
d.
Offer documents
a.
iv
b.
c.
d.
ii
e.
Accounting
After completing this module, you will be able to:
TT
Session Plan
1
Module Overview
NAV
Load
Transaction Charges
10
Key Learnings
11
Worksheet
Module Overview
To properly understand a schemes performance, mutual fund investors and distributors must be
familiar with some commonly used accounting terms. They must also understand the basics of mutual
fund accounting policies and requirements.
In this module, you will learn about some important accounting terms and what they mean in relation
to a mutual fund.
NAV
Rohit takes a look at some of the papers in front of Puneet.
Rohit: Puneet, a lot of these papers mention something called NAV. What is that?
Puneet: NAV stands for Net Asset Value.
Rohit: Oh I see. How is the NAV calculated?
Puneet: Before you learn to calculate the NAV, you need to know the meaning of three terms:
99
2011 IL&FS Skills Development Corporation Limited
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TT
Assets
TT
Liabilities
TT
Net Assets
Assets
Liabilities
Net Assets
Puneet: To find the NAV, simply calculate the net assets of the scheme and divide it by the number of
units outstanding.
NAV =
28,00,000 - 8,00,000
2,00,000
NAV = Rs. 10
Rohit: That is really simple! Tell me more about the NAV!
Mark to Market
The process of valuing each security in the investment portfolio of the scheme at its market value is
called mark to market i.e. marking the securities to their market value.
The NAV is meant to reflect to true worth of each unit of the scheme, because investors buy or sell units
on the basis of the information contained in the NAV. If the investments are not marked to market,
then the investment portfolio will end up being valued at the cost at which wach security was bought.
Valuing shares of a company at their acquisition cost, say Rs 15, is meaningless, if those shares have
appreciated to say Rs. 50. If schemes were to sell the shares at the same time, it would recover Rs. 15
to Rs. 50, then it is meaningful for the investors.
100
Purchase
& Sales of
Investment
Securities
Increase or
Decrease in
Market Price of
Assests
Re-Purchase &
Sale of Units
Cannot impact
the NAV by>2%
Cannot impact
the NAV by>2%
Valuation of
Assets
Includes all
investments
Actual of
Income &
Expense
Cannot impact
the NAV by>1%
Puneet: Sometimes the NAV needs to be adjusted to arrive at the final price. This adjustment is called
load. Let me tell you more about load.
Load
Puneet: Load is an amount that is charged to investors to compensate for all the sales and distribution
related expenses of the units.
Earlier investors were charged an entry load when they bought units. However, as on August 1, 2009,
entry load has been stopped. Now investors are only charged an exit load. Lets take a look at what exit
loads are about.
Exit Load:
TT
TT
TT
TT
TT
Puneet: Remember, exit loads should be equal for all investors regardless of their investment value.
However, some exit loads may differ depending on the holding period of the investor.
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2011 IL&FS Skills Development Corporation Limited
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Transaction Charges
Puneet: Rohit, did you know that SEBI has made certain allowances to help spread mutual fund
products in urban areas and smaller towns? It allows a transaction charge to be paid to mutual fund
distributors for every subscription that is above Rs. 10,000. This allowance also helps people with small
savings potential.
Rohit: I had no idea! Tell me more about transaction charges.
Puneet: Well, SEBI does not allow transaction charges on direct investments. If there is any transaction
charge, it has to be deducted from the subscription amount by the AMC and paid to the distributor.
Rohit: And what if there is any balance amount?
Puneet: If there is a balance amount, it must be invested.
Rohit: How much are the transaction charges?
Puneet: The transaction charges depend on the type of investor.
Type of Investor
Rs. 150/-
Rs. 100/-
I f the investor submits the purchase/subscription at the assigned collection centres or via the
AMCs website, which do not go through any distributor.
TT
If the purchase/subscription is made through a distributor for an amount under Rs. 10,000.
TT
I f the transactions are Switches, STPs etc where there is no extra cash flow at a Mutual Fund level
similar to a purchse/subscription.
TT
102
Time Period
Maximum CDSC
Year 1
4%
Year 2
3%
Year 3
2%
Year 4
1%
Year 5
Nil
Rohit: I see! So in year 1, which is the shortest time period, the CDSC is the highest at 4%. And as the
years increase, the CDSC gets lower till it eventually becomes nil!
Recurring Expenses
TT
New issue expenses must be borne by the AMC, not the investor
TT
Recurring Expenses
TT
TT
TT
TT
Puneet: SEBI has imposed the certain annual limits on recurring expenses (including management fees)
for schemes other than index funds. Take a look at these limits.
Net Assets (Rs. Crore)
Equity Schemes
Debt Schemes
2.50 %
2.25 %
2.25 %
2.00 %
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2011 IL&FS Skills Development Corporation Limited
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2.00 %
1.75 %
1.75 %
1.50 %
Puneet: Rohit, can you think of any other mutual fund expenses?
Rohit: Yes I can.! In fact, I have made a list.! Take a look.!
Expenses incurred by Mutual Funds
TT
TT
Custodian Fees
TT
Trustee Fees
TT
TT
Audit Fee
TT
Legal Fee
TT
TT
TT
TT
TT
TT
Rohit: Looks like mutual funds have to incur every kind of expense.
Puneet: Actually Rohit, there are certain expenses that cannot be charged to mutual funds.
Mutual Funds Cannot be Charged...
TT
TT
TT
Legal, marketing and publication expenses that dont relate to any scheme
TT
TT
TT
TT
Rohit: So mutual funds are responsible for certain fees and costs, but at the same time they are also
protected from certain expenses.
104
T reat all the profits earned as available for distribution. The profits earned are based on the
accrual of income and expenses.
TT
Ignore the valuation gains. However, make sure you adjust all valuation losses against the profits.
TT
eep in mind that the portion of sale price on new units which is attributable to valuation gains
K
is not considered a distributable reserve.
Rohit: I can see that this is a conservative approach to calculating distributable reserves.
Puneet: You are absolutely correct Rohit. Following such a conservative approach ensures that the
dividend is paid out of actual profits, after accounting for all possible losses.
The accounts of the scheme need to be maintained distinct from the accounts of the AMC. The
auditor for the AMC has to be different from that of the scheme.
TT
Norms are prescribed on when interest, dividend, bonus issues, right issues etc. should be
reflected for in accounts.
TT
NAV is to be calculated upto 4 decimal places in the case of index funds, liquid funds and other
debt funds.
TT
NAV for equity and balanced funds is to be calculated upto at least 2 decimal places.
TT
Investors can hold their units even in a fraction of 1 unit; however, current stock exchange trading
systems may restrict transaction on the exchange to whole units.
The unit holders funds in the scheme are commonly referred to as net assets.
TT
Net assets includes the amount originally invested, the profits booked in the scheme, as well
as appreciation in the investment portfolio. It goes up when the market goes up, even if the
investments have not been sold.
TT
A scheme cannot show better profits by delaying payments. While calculating profits, all the
expenses that relate to a period need to be considered, irrespective of whether or not the
expense has been paid. This is known as accrual principle.
TT
In the market, when people talk of NAV, they refer to the value of each unit of the scheme. Higher
the interest, dividend and capital gain earned by the scheme, higher would be the NAV. Higher
the appreciation in the investment portfolio, higher would be the NAV. Lower the expenses,
higher would be the NAV.
TT
The difference between the NAV and repurchase price is called exit load.
TT
Schemes can also calibrate the load when investors offer their units for repurchase. Investors
would be incentivized to hold their units longer, by reducing the load as the unit holding period
increased. Such structures of loads are called Contingent Deferred Sales Charge (CDSC).
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2011 IL&FS Skills Development Corporation Limited
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TT
TT
AMCs can deduct Transaction Charges from subscriptions/purchases over Rs.10,000 in case of
distributors who have opted to receive transaction charges.
TT
Initial issue expenses need to be met by the AMC. There are limits to the recurring expenses that
can be charges to the scheme. These are linked to the nature of the schemes and its net assets.
TT
TT
NAV is to be calculated upto 4 decimal places in the case of index funds, liquid funds and other
debt funds.
TT
NAV for equity and balanced funds is to be calculated upto at least 2 decimal place.
TT
Investors can hold their units even in a fraction of 1 unit. However, current stock exchange trading
systems may restrict transacting on the exchange to whole units.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
106
1.
2.
What is load?
3.
4.
Worksheet
1.
Read the following questions. Tick on the correct option given below.
a.
b.
2.
3.
4.
SEBI
ii.
RBI
iii.
AMC
iv.
AMFI
AMFI
ii.
GOI
iii.
RBI
iv.
SEBI
b.
c.
expenses and
units.
Net Assets
i.
b.
ii.
c.
Assets
iii.
d.
Liabilities
iv.
True
False
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2011 IL&FS Skills Development Corporation Limited
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b.
c.
d.
4
3
2
1
True
False
Wealth tax is payable at the applicable rates on equity mutual fund units.
i.
ii.
True
False
Notes
108
decimals
e.
Entry load
Exit load
Expense
Dividend stripping
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Answers: Accounting
Question Number
1
110
Answer
a.
iii.
b.
iv.
a.
Equal, Investment
b.
c.
Redeem
a.
iii
b.
c.
iv
d.
ii
a.
ii
b.
ii
c.
d.
e.
ii
Valuation
After completing this module, you will be able to:
TT
Session Plan
1
Module Overview
Reporting Requirements
Accounting Policies
Specific Disclosures
Key Learnings
Worksheet
Module Overview
The valuation of a portfolio is one of the most important factors that drives the NAV. However, the
valuation of securities is subjective, which makes it difficult to compare NAVs across schemes. In order
to decrease the level of subjectivity, and make it easier to compare the NAVs of different schemes,
certain guidelines have been laid down with respect to valuation.
In this module, you will learn about the various guidelines that have been laid down to valuate different
securities.
Traded
Securities
Non Traded
Securities
Thinly Traded
Securities
111
Participant Handbook
Traded securities are valued at their last closing price (Mark to Market) on the stock exchange
TT
S ecurities that are not being traded are valued at the last quoted traded price on the stock
exchange (Price must not be older than 30 days before the valuation)
Rohit: And what about securities that are not traded or thinly traded? How are they valued?
Puneet: Non traded or thinly securities are valued differently from traded securities. Take a look:
Valuation of Non Traded/Thinly Traded Securities:
TT
If equity securities are non traded or thinly traded, a formula is used to valuate the shares
TT
Puneet: Now you know how equity securities are valued. But do you know how debt securities are
valued? Let me tell you about them!
Other Securities
Government
Securities
Corporate Bonds
Puneet: Lets take a look at how non traded debt securities valued.
112
Non traded debt securities are valued as per the yield matrix
TT
TT
T he yield matrix provides an approximate yield for different types of debt securities. This
approximation is based on:
Coupon Rate
Purchase Price
Period to
Maturity
Reporting Requirements
Rohit: Are there any requirements to be followed?
Puneet: Yes, there are some important reporting requirements that must be followed.
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2011 IL&FS Skills Development Corporation Limited
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Reporting Requirements:
TT
TT
T he unaudited, abridged accounts must be published within 30 days of the close of the halfyear
TT
Puneet: Another requirement is that certain documents must be filed with SEBI.
6 Monthly Unaudited
Reports
Quarterly Movement of
the Funds Net Assets
and Quarterly Portfolio
Statements
Accounting Policies
Puneet: There are also certain accounting policies that must be followed. These policies are:
TT
TT
TT
TT
TT
TT
rokerage and stamp duties must be capitalised and added to the acquisition cost or sales
B
proceeds
Puneet: Besides these requirements, there are also certain disclosures that must be made.
Specific Disclosures
Puneet: Take a look at the specific disclosures that must be made:
Specific Disclosures:
114
TT
T he entire portfolio must be disclosed every 6 months (As per industry practice, this is disclosed
monthly)
TT
TT
The number of investors holding unit capital in excess of 25% must be disclosed
TT
Non Performing Assets, their percentage of the total assets, and provisioning must be disclosed
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
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2011 IL&FS Skills Development Corporation Limited
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Worksheet
1.
2.
b.
c.
d.
e.
and/or
.
must be
Government
Security
i.
b.
Corporate Bonds
ii.
c.
iii.
d.
Thinly Traded
Equities
iv.
e.
v.
Notes
116
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Answers: Accounting
Question Number
118
Answer
a.
Yield to Maturity
b.
c.
Marked to Market
d.
25%
e.
a.
iii
b.
c.
iv
d.
ii
e.
Taxation
After completing this module, you will be able to:
explain how taxation is done for mutual funds
TT
Session Plan
1
Module Overview
Wealth Tax
Key Learnings
10
Worksheet
Module Overview
Mutual funds are pass through vehicles. Investors are the real owners. This is why investors have to pay
taxes on different slabs and different situations.
In this module, you will learn about the treatments and provisions for taxation on mutual funds.
Participant Handbook
I n such schemes minimum 65% of the assets are invested in equity shares, belonging to domestic
companies.
TT
alculating the average of the opening and closing percentage on a monthly basis
C
Averaging the value for all 12 months of the financial year
Such schemes are in accordance with the SEBI definition for income tax
TT
T his means the schemes are formed with the aim that they will only invest in money market
instruments (short term debt securities).
Securities Transaction
Tax (STT - This is a tax on
the value of transaction
in equity shares,
derivates and equity
mutual fund units.)
On purchase - 0.125%
On sale - 0.125%
On sales of future & options 0.017%
0.125%
0.125%
0.250%
Puneet: Lets take a look at how non traded debt securities valued.
120
Nil
Dividend
Investor
Tax Free
DDT
Short Term
Long Term
15%
Nil
Tax Free
Dividend
Investor
Tax Free
Capital Gain
DDT
Short Term
As Per
Tax Slab
long Team
Option 1
10% + education cess
Option 2
20% + educaion cess
After Indexation
This additonal tax on income distributed is not payable on dividend distrubuted by equity - oriented
mutual funds.
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2011 IL&FS Skills Development Corporation Limited
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The nature of the investor: Whether the investors is Indian, Foreign and Individual or Institutional
TT
TT
Rohit: What about the Double Taxation Avoidance Agreements that the Government of India has
entered into with a number of countries? Can you tell me what that agreement is about?
Puneet: The Double Taxation Avoidance Agreements (DTAA) also lay down rates for withholding tax.
For non-resident investors, the withholding tax applicable is the tax that is lowest between the tax
specified in the income tax regulations and the tax specified in the DTAA of the investors country of
residence. However, the investor must prove to the mutual fund that he is eligible to the concessional
rate that is listed in the DTAA.
Wealth Tax
Rohit: And what about wealth tax?
Puneet: Investments made in mutual fund units are not subject to wealth tax.
Would pay STT on the value of the transactions of the sale (0.125%) and purchase (0.125%) of
units in the stock exchange; or on re purchase (0.25%)
TT
Would be exempt from capital gains tax, if the units were held for 1 year or less
TT
Would pay capital gains tax at 15 %, if the units were held for 1 year or less
TT
Will receive any dividend free of tax; the scheme too will not incur any tax on the dividend
distribution
122
TT
TT
Would bear a tax on long term capital gains at the lower of 20% with indexation or 10% without
indexation
TT
Would wear a tax on short term capital gains, as per the investors tax slab
TT
Will receive any dividend free tax, but scheme would have paid a tax on dividend distribution.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
hat are the requirements for long term capital gains to be exempt from tax for
W
equity?
2.
hat are the requirements for short term capital gains to be exempt from tax for
W
equity?
3.
4.
What is the taxation on long term capital gains from debt mutual funds?
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2011 IL&FS Skills Development Corporation Limited
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Worksheet
1.
2.
b.
c.
d.
e.
% and
b.
True
False
True
False
Notes
124
% on purchase
% tax after
is called long term
125
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Answers: Taxation
Question Number
126
Answer
a.
Wealth tax
b.
c.
0.125, 0.17
d.
20
e.
a.
b.
ii
Investor Services
After completing this module you will be able to:
TT
TT
TT
Session Plan
1
Module Overview
Eligibility to Invest
Uniform Know Your Client (KYC) Requirements for the Securities Markets
Demat Account
10
Key Learnings
11
Worksheet
Module Overview
Today, lots of people are interested in investing in mutual funds. However, in order to invest in these
funds, it is necessary for distributors as well as potential investors to be aware of who all are eligible to
invest in mutual funds in India. Distributors and investors should also be aware of the documentation
process as well as the process for sales and purchase of mutual funds.
In this module, you will learn about who can invest in mutual funds in India. You will also learn about
the documents required to purchase mutual funds and the process for selling or purchasing mutual
funds in India.
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2011 IL&FS Skills Development Corporation Limited
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Eligibility to Invest
Rohit: Puneet, I thought I would revise some of the information that I have recently learned. Can you
go through some of the information with me?
Puneet: Sure Rohit. What would you like to start with?
Rohit: Let me start be seeing if I can recall who can invest in mutual funds in India. I know eligible
mutual fund investors in India fall under two categories.
Eligible Investors
Individual Investors
Non-Individual
Investors
Rohit: Individual investors invest for their own benefit, or for the benefit of their family. Non-individual
investors on the other hand invest on behalf of the company that they represent.
Puneet: Thats right. Can you give me examples of individual and non-individual investors?
Rohit: Yes. I have listed some eligible investors under each of these categories. Lets take a look at it.
Individual Investors
TT
TT
TT
128
TT
Non-Resident
(NRIs)
Indians
TT
TT
Foreign investors
Non-Individual Investors
TT
TT
TT
TT
TT
TT
TT
Banks
TT
Financial/Investment institutions
TT
TT
TT
TT
Army
TT
Navy
TT
Air force
TT
TT
TT
Puneet: Excellent work Rohit! Did you know that certain individuals and entities were not allowed to
invest in mutual funds in India until quite recently?
Rohit: I didnt know that! Which are these investors and entities?
Puneet: The following were not allowed to invest in India till recently:
TT
Individuals who are foreign nationals (exception being NRIs/PIOs/OCI card holders).
TT
Entities that are not Indian residents as per FEMA (exception being entities registered as FIIs with
SEBI, or having sub-accounts with SEBI-registered FIIs)
TT
Qualified Foreign Investors (QFIs) who meet KYC requirements can now invest in equity and debt
mutual fund schemes through direct and indirect routes
Certain gilt schemes have specific plans that only allow Provident Funds, Superannuation and
Gratuity Funds, Pension Funds, Religious and Charitable Trusts and Private Trusts to invest.
TT
Exchange Traded Funds only allow authorised participants and large investors to invest in them.
TT
The stock exchange allows all eligible investors to buy units of the ETF.
TT
Non-Resident Indians
TT
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Puneet: SEBI is trying to ensure that AMCs can carry out all financial and non-financial investor
transactions. Thats why SEBI has made it a rule that:
TT
All new folios/accounts can be opened only after all investor related documents like account
opening documents, PAN, KYC, PoA (if applicable) and specimen signature is available with
AMCs/RTAs rather than only with the distributor.
TT
For existing folios, it is the responsibility of the AMC to update all investor related documents like
account opening documents, PAN, KYC, PoA (if applicable) and specimen signature.
TT
TT
TT
TT
ll original documents along with a copy must be submitted by the client to an identified service
A
provider, like CSDL Ventures Ltd (CVL)
TT
TT
I nvestor and the Power of Attorney (POA) holder, in cases where the investment is made by
Power of Attorney
Puneet: KYC is also available for NRIs. However, it is not available for HUFs, non individuals and PIOs.
130
TT
Depository Participants
TT
Mutual Funds
TT
Portfolio Managers
TT
TT
Puneet: All extra information gathered by the market intermediaries will be added to Part II of the
form which is prescribed by Depositories for their depository participants and by AMFI for all mutual
funds. The Portfolio Managers, Venture Capital Funds and Collective Investment Schemes will gather
all required extra information relating to their area of activities.
These new measures have introduced the concept of In-Person Verification (IPV), which is now
compulsory for mutual fund investments.
TT
Driving Licence
TT
TT
Passport
TT
TT
TT
TT
TT
TT
TT
Cards issued by universities/deemed universities or institutes under statutes like ICAI, ICWA and
ICSI
TT
Permanent Retirement Account No (PRAN) card issued to New Pension System (NPS) subscribers
by CRA (NSDL)
TT
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2011 IL&FS Skills Development Corporation Limited
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TT
The document copy must be self attested by the investor or attested by the ARN holder
mentioning the ARN number.
TT
Investor declarations must be provided stating that they do not have any existing Micro-SIPs that
add up to investments of more than Rs. 50,000 in a year.
TT
This relaxation in documents for Micro-SIPs is only available for NRIs. It cannot be availed of by
PIOs, HUFs and non-individuals.
TT
TT
TT
TT
Puneet: These additional documents must be provided by institutional investors, along with the
required KYC documents.
Demat Account
Rohit: I have heard the word dematerialisation very often but I dont know what it means.
Puneet: Dematerialisation is a process in which investments that are held by investors in the physical
form, i.e, paper, are converted into the digital form.
Rohit: Why does this process take place?
Puneet: Because when investments are in demat form, the investors purchases and sales of investments
can be automatically added and subtracted from their investment demat account. This removes the
need for carrying out huge amounts of paperwork. There are many more advantages for carrying out
dematerialisation.
132
L ess paperwork with regards to buying and selling units. This also holds true for accepting or
delivering the units.
TT
onus and rights units that the investors are entitled to are directly credited into the investors
B
demat accounts.
TT
hanges in address and other information only need to be provided to the Depository Participant.
C
It does not need to be given separately to every company or mutual fund that the investors have
invested in.
Puneet: Today, most stock exchange transactions have to be settled in demat form.
Rohit: Who initiates the demat facility?
Puneet: Usually the mutual fund initiates the demat facility. It ties up with a Depository like National
Securities Depository Ltd or Central Depository Securities Ltd. Investors can approach a Depository
Participant, usually a bank or a broking house and demat their investment holding. In order to do this,
an investor has to compulsorily open a demat account, for which they will have to provide the required
KYC documentation.
Rohit: What happens if investors want to change the demat units back into the physical form?
Puneet: Investors have the option to convert demat units into the physical form if they so wish. This
process is called re-materialisation.
Time
stamping
Cut-off time
Fresh
purchase
Additional
purchases
Transactions
with Mutual
Funds
Payment
mechanism
for repurchase
of units
Repurchase
of units
Allotment
of units
to the
investor
Online
transactions
Payment
mechanism
for purchase/
additional
purchase
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2011 IL&FS Skills Development Corporation Limited
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TT
Application forms can also be downloaded from the concerned AMCs websites.
TT
T he regular application form which also contains the KIM is created specifically for fresh
purchases, i.e., cases when the investor does not have an investment account (folio) with that
particular mutual fund.
TT
t the time of investing, investors must confirm that their investment amount is above the
A
minimum investment limit set by the mutual fund for the scheme.
Additional Purchases:
TT
I nvestors that have an existing folio with a mutual fund do not have to provide the full application
form and documentation for additional purchases.
TT
They only need to fill the transaction slip and submit it with the requisite payment.
TT
T he transaction slip can be used to make changes in information, for example, changes in the
investors address.
TT
ost mutual funds send a transaction slip with the investors folio number pre-printed on it,
M
along with the Statement of Account.
TT
lank transaction slips (without the pre-printed folio number) are provided by branches of the
B
AMC, distributors and ISCs. Such slips can also be downloaded from the net.
Online Transactions:
TT
TT
I nvestors must fill the required details in an application form, after which the registrar allots a
user name and password.
TT
T he investor uses the user name and password to make additional purchases of mutual fund
units or to request re-purchase of units held in the mutual fund.
TT
Certain distributors provide online transaction facilities to investors, through their websites.
TT
TT
utual funds usually do not accept cash, but an exception was recently made by SEBI in order
M
to spread the reach of mutual fund products for small investors (these investors may not be tax
payers or have PAN/bank accounts).
TT
S mall investors like farmers, small traders/businessmen/workers are now allowed to make cash
payments of up to Rs. 20,000 in mutual fund transactions, per investor, per mutual fund per
financial year.
TT
epayment of such investments is through redemptions, dividends etc, and all such payments
R
must be made through banking channels.
TT
In all other cases, application money should come through normal banking channels via:
134
heque
C
Demand draft
Real Time Gross Settlement (RTGS)
National Electronic Funds Transfer (NEFT)
S WIFT transfer
Electronic Clearing Service (ECS)
Standing Instructions
Application Supported Block Amount This is a facility where the investment application
is accompanied by an authorization to the bank to block the amount of application money
in the investors bank account. The benefit of ASBA is that the money goes out of the
investors bank account only on allotment.
T he investment amount divided by the sales price gives the number of units bought by the
investor.
TT
T his means if an investor has invested Rs. 20,000 in a scheme where the applicable sales price is
Rs. 2, the investor will be allotted 10,000 units (20,000 2).
TT
I n a rights issue the rights price is clear at the time of investment. The investment amount divided
by the rights price equals to the number of units bought by the investor. It should however be
kept in mind that rights issues are common for shares but are not very applicable for mutual fund
scheme units.
TT
I n a bonus issue the investor does not make any payment. New units are allotted by the fund for
free.
Re-Purchase of Units:
TT
Open-ended scheme investors can offer the mutual fund units for re-purchase.
TT
TT
Investors can fix the re-purchase amount or the number of units offered for re-purchase.
TT
The re-purchase price is the applicable NAV minus the exit load.
TT
I f the investor has specified the re-purchase amount, then that amount divided by the repurchase price would equal to the number of units that would be reduced from his folio.
TT
I f the investor has specified the re-purchase units, then those many units would be reduced
from his folio. To get the payment amount, the number of units re-purchased would have to be
multiplied by the re-purchase price.
TT
hile carrying out the re-purchase, if the investment holding in the portfolio is less than the
W
minimum limit set by the mutual fund for the scheme, then all the units may be re-purchased.
The investment folio of the investor would then be closed.
I nvestors can receive money due to them from the scheme on re-purchase of units through a
number of methods like:
TT
TT
heque
C
Direct credit
For non-resident investors, the AMC makes the payment in rupees.
I f the investment has been made on a repatriable basis, and the investor wants to transfer money
abroad, then the costs resulting from converting rupees into any foreign currency would be paid
by the investor.
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2011 IL&FS Skills Development Corporation Limited
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Cut-Off Time:
TT
The sales and re-purchase prices are a function of the applicable NAV.
TT
T o remain fair to investors, SEBI has recommended a cut-off timing to determine the applicable
NAV. These provisions are applied uniformly across all mutual funds.
Transaction
TT
Applicable NAV
Same day NAV if received
before cut-off time.
Purchases
3:00 pm
Switch in
Purchases
2:00 pm
Liquid Fund
Cut-Off
Time
Switch in
Redemptions
Switch out
Purchases
Switch in
T he NAV applicable for switch-in transactions to liquid funds is the NAV of the day preceding the
day of the application, provided:
TT
Time Stamping:
TT
ut-off timings will only work if there is a fool proof method of capturing the exact time at which
C
the sales and re-purchase applications are received. This is ensured in the following ways:
136
utual funds disclose the official Points of Acceptance (PoAs) and their address in the SID
M
and their websites.
Individual and non-individual investors are permitted to invest in mutual funds in India. Foreign
nationals, foreign entities and OCBs are now permitted to invest.
TT
All investments need to meet uniform KYC guidelines given by SEBI, effective January 1, 2012
TT
Besides KYC, non individual investors need to provide additional documentation to support their
investment.
TT
TT
Full application form is to be filled for a first time investment in a mutual fund through the off line
route. Thereafter, additional investments in the same mutual fund are simpler. Only transaction
slip would need to be filled.
TT
Investors can pay for their Unit purchases through cheque/DD, net based remittances, ECS /
Standing Instructions or ASBA. M Banking is likely to increase in importance in the coming days.
TT
Transaction slip can be used for re- purchase. Investors can indicate the amount to re-pirchase or
the number of units to be re-purchased.
TT
Cut-off timings have been specified for different types of schemes and different contexts to
determine the applicable NAV for sale and re purchase transactions.
TT
Time Stamping is a mechanism to ensure that the cut off timing is strictly followed.
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2011 IL&FS Skills Development Corporation Limited
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Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
138
1.
2.
3.
What is dematerialisation?
4.
Worksheet
1.
2.
b.
c.
d.
e.
The facility of
,
.
.
b.
PAN Card is not required for mutual investment below Rs. 20,000, where payment is in
cash
i.
ii.
c.
True
False
d.
True
False
Cheque/DD
Remittance
ASBA
Any if the above
NFOs
International funds
Both the above
None of the above
Notes
139
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
140
Answer
a.
b.
a.
Offer document
b.
c.
d.
e.
Salient features
a.
ii
b.
c.
iv
d.
e.
Session Plan
1
Module Overview
Key Learnings
Worksheet
Module Overview
Mutual funds offer many different investment plans and services. With the variety of investment plans
being offered, it is guaranteed that there is a scheme that will interest every kind of investor. In order
for investors to select the best scheme for themselves, and for distributors to suggest the best scheme
to investors, it is important for both to know what these different types of investment plans are, and
what they are about.
In this module, you will learn about the different kinds of investment plans being offered by mutual
funds. You will also learn about the other services offered by them.
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2011 IL&FS Skills Development Corporation Limited
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Amit: What are the other features of this plan? Also, I dont want the hassle of writing a cheque or
going to the bank to deposit money for the investment every month. So is there a way to transfer the
money automatically for this plan?
Rohit: Actually Amit, there is! In a SIP, you can directly debit the amount from your salary account or
any bank account! Its really convenient!
Puneet: Rohit is right Amit! The SIP fits all your requirements! Take a look at the features of this plan.
Features of a Systematic Investment Plan:
TT
TT
TT
mount can be transferred through Post-Dated Cheques (PDCs), ECS or even via direct debit
A
from the investors salary or bank account.
TT
TT
Investors are not forced to make all their investments when the market is at its highest.
TT
TT
142
TT
Reduces the risk of redeeming all the units at the time of a market trough.
TT
TT
TT
TT
TT
Investors are provided with the amount, periodicity (normally monthly) and period of their plan.
TT
TT
TT
TT
The amount is transferred by selling units of one scheme and buying units of another scheme.
TT
TT
TT
TT
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2011 IL&FS Skills Development Corporation Limited
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Triggers
TT
Pledging
TT
Funds can be borrowed from Banks, NBFCs, etc by pledging mutual fund
units
TT
TT
As per SEBI regulations, funds must send investors their annual financial
statements within six months of the end of the accounting year
TT
Available for open and close-ended funds that are not listed on the stock
exchange
TT
The nominee gets the benefit on the death of the unit holder
TT
TT
TT
TT
TT
TT
TT
TT
Internet/E-mail transactions
Periodic
Statements
Nomination
Facility
Consolidate
Account
Statements (CAS)
Other Services
144
TT
A constant amount is regularly invested in SIP, withdrawn in SWP and transferred between
schemes in STP. These minimize the risk of timing the decisions wrongly.
TT
TT
Nomination and Pledge options are available for mutual fund investors.ss
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
145
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Worksheet
1.
2.
ii.
iii.
Weighted Average
iv.
b.
c.
d.
Notes
146
at the
of one
from the
147
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
148
Answer
a.
iv.
a.
Reinvested, Ex-dividend
b.
Redemption of units
c.
d.
Direct debit
TT
TT
Session Plan
1
Module Overview
Gold Scheme
10
Key Learnings
11
Worksheet
Module Overview
Equity portfolio management involves the selection of different equities, or stocks, for an investment
portfolio. In order to create a stable equity portfolio for an investor, with maximum growth and
minimum risk, a portfolio manager must have a good understanding of stocks, the stock market and
the strategies followed to beat the market.
In this module, you will learn how to create a sound equity investment strategy.
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2011 IL&FS Skills Development Corporation Limited
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Quantitative Approaches
to Securities Analysis
Fundemental
Analysis
Technical
Analysis
Puneet: Before learning about these approaches, you must know there are two ways a fund is managed
Active and Passive.
Fund Management
Style
Active
TT
TT
TT
TT
Passive
Puneet: Now that you the difference between active and passive funds let us discuss the approaches to
securities analysis in detail. A passive fund maintains a portfolio that is in line with the index it mirrors.
Therefore, a passive fund manager does not need to go through this process of securities analysis but
securities analysis is an important aspect of actively managed scheme.
Fundamental Analysis It entails review of the companys fundamentals viz. financial statements,
quality management, competitive position in its product / service market etc.
The analyst sets price targets, based on financial parameters like:
Earnings per Share (EPS): Net profit after tax / No. of equity shares
This tells investors how much the company earned for each equity share that they own.
Price to Earnings Ratio (P/E Ratio): Marked Price/EPS
When investors buy shares of a company, they are essentially buying into its future earnings. P/E ratio
indicates how much investors in the share market are prepared to pay, in relation to the companys
earnings. This ratio is normally calculated based on a projected EPS for a future period (also called
forward EPS).
A simplistic view is that low P/E means that a share is cheap and therefore should be bought; the
corollary being that high P/E means that a share is expensive and therefore should be sold.
Book Value per Share: Net Worth/ No. of equity shares
This is an indicator of how much each share is worth, as per the companys own books of accounts.
The accounts represent perspective, and are a function of various accounting policies adopted by the
company.
150
T he portfolio manager selects the distribution of the investible corpus between countries and
sectors.
TT
Next, the good stocks within the specified sectors are identified for investment.
TT
Country-allocation and sector-allocation are not given too much importance in this approach.
TT
S tocks that are identified as good are selected for investment. This is why this approach is also
known as stock picking.
TT
I n this approach stock selection is of prime importance. The stock selection decisions lead to
sector allocation.
Participant Handbook
TT
The top-down approach reduces the risk of being stuck with a large exposure in a poor sector.
TT
T he bottom-down approach makes certain that good stocks are picked, regardless of how well
the sectors are doing.
Puneet: So you see, the most important thing to keep in mind is that the chosen approach should be
carried out in a professional manner.
Liquid
Securities
Money Market
Securities
Debt
Securities
TT
TT
TT
TT
TT
E xamples: Commercial papers (CPs), certificates of deposits (CDs), treasury bills, call money and
repos.
Debt Securities:
152
TT
TT
TT
TT
TT
Examples: Government securities, PSU bonds, FI bonds, bank bonds, corporate debentures.
The return that an investor earns or is likely to earn on a debt security is called its yield. The
yield would be a combination of interest paid by the issuer and capital gain or capital loss.
Debt securities may be issued by Central Government, State Government, Banks, Financial
Institutions, etc.
TT
Securities issued by the Government are called Government Securities or G Sec or Gilt.
TT
Treasury Bills are short term debt instruments issued by Reserve Bank of India on behalf of the
Government of India.
TT
Certificate of Deposit
TT
Commercial papers
TT
Bond/ Debentures
Credit Risk
Interest Risk
Puneet: Credit risk is also known as default risk. This risk occurs when the issuer of the bond is unable
to repay the principal amount or pay the interest amount.
Credit Risk:
TT
TT
I t is the risk that the issuer of the bond will be unable to repay the principal and/or interest
amount.
TT
The higher the credit risk of the issuer, the lower the price and the higher the bond yield.
TT
Certain companies provide credit ratings based on the quality and safety of the issuers finances.
TT
I nvestors interested in purchasing debt securities should refer to the credit rating of those
securities, before making investment decisions.
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2011 IL&FS Skills Development Corporation Limited
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TT
TT
The longer the duration of a bond, the greater the interest rate risk.
The yield
TT
TT
Measures of Yield
TT
Current yield
TT
Yield to maturity
TT
Additional
G-sec yield
over
TT
TT
TT
TT
Gold Scheme
Puneet: Gold is a truly international asset, whose quality can be objectively measured. The value of
gold in India depends on the international price of gold, the exchange rate for converting the currency
into Indian rupees and any duties on the import of gold.
Global Price of Gold
Gold is seen as a safe asset class. Therefore, whenever there is political or economic turmoil, gold
prices shoot up.
Most countries hold a part of their foreign currency reserves in gold. Similarly, institutions like the
International Monetary Fund have large reserves of gold. When they come to the market to sell, gold
prices weaken. Purchases of gold by large countries tend to push up the price of gold.
154
Strength of Rupee
Economic research into inflation and foreign currency flows helps analysts anticipate the likely trend of
foreign currency rate.
When the rupee becomes stronger, the same foreign currency can be bought for fewer rupees.
Therefore, the same gold price, translates into a lower rupee value for gold portfolio. This pushes down
the returns in the gold fund. A weaker rupee, on the other hand, pushes up the rupee value of the gold
portfolio and consequently the returns in gold would be higher.
T he portfolio is the main driver of returns in a mutual fund scheme. The underlying factors are
different for each asset class.
TT
F undamental Analysis and Technical Analysis are two disciplines of securities analysis.
Fundamental Analysis entails review of the companys fundamentals viz. financial statement,
quality of management, competitive position in its product/ service market, etc. technical
analysts study price volume charts of the companys share prices.
TT
I t is generally agreed that longer term investment decisions are best taken through a fundamental
analysis approach, while technical analysis comes in handy for shorter term speculative decisions,
including intra day trading. Even where a fundamental analysis-based decision has been taken
on a stock, technical analysis might help decide when to implement the decision i.e. the timing.
TT
rowth investment style entails investing in high growth stocks. Value investment style entails
G
investing in high growth stocks. Value investment style is an approach of picking up stocks, which
are valued lower, based on fundamental analysis.
TT
The returns in a debt portfolio are largely driven by interest rates and yield spreads.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
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2011 IL&FS Skills Development Corporation Limited
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3.
4.
5.
Worksheet
1.
What is the yield spread for a corporate bond of 15% versus a G-sec of 10%?
i.
ii.
iii.
iv.
b.
c.
156
5%
2
5%
150%
1.5%
d.
e.
f.
T rue
False
2.
T rue
False
eal Estate
R
Equity
Debt
Gold
Yield is the
on an investment.
b.
c.
Notes
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2011 IL&FS Skills Development Corporation Limited
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158
Answer
a.
ii
b.
iv
c.
iii
d.
ii
e.
f.
iv
a.
Income return
b.
Lower, Higher
c.
Computing Returns
After completing this module, you will be able to:
TT
Session Plan
1
Module Overview
Simple Return
Annualised Return
Compounded Return
Key Learnings
Worksheet
Module Overview
Investment performances are evaluated on the basis of their returns or losses. There are many different
types of investments and many different ways to calculate returns.
In this module, you will learn how to compute returns. You will also learn about the most common
methods of computing and when to use them.
Simple Return
Rohits father has made a number of investments over the years. Rohit wants to calculate the returns for
some of these investments, but he has a problem. There are so many methods of computing returns!
Which one should he use? Luckily, Puneet is there to help him out!
Rohit: My father invested in a growth option when its NAV was Rs. 20. Now 7 months later its NAV is
Rs. 24. How do I find the return on this investment?
Puneet: Since this is a growth option, you can find out by using Simple Return! As per SEBI, Simple
Returns must be used to represent returns for periods less than one year for all funds except Liquid
Funds.
Rohit: I see. How do I calculate it?
Puneet: We can calculate it using the following formula:
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Simple Return =
(20)
s per SEBI, Absolute Returns must be used to represent returns for periods less than one
A
year
TT
TT
Annualised Return
Rohit: My father has invested in two growth options. He has held the first option for 8 months and the
second option for 6 months. The first option has given a return of 7% so far and the second option has
given a return of 5% so far. How do I compare these returns?
Puneet: These are growth options so you can compare them by using Annualised Return. Annualisation
is used to compare the returns of two different time periods. SEBI permits the annualisation of returns
from Liquid Funds, for periods less than a year.
Rohit: Can you show me how to calculate it?
Puneet: Sure! It can be calculated using the following formula:
Annualised Return = Absolute Return x the Annualising Factor 365/n or 12/n
After putting in the values we get:
Investment 1
Investment 2
7% x 12
5% x 12
= 10.5%
= 10%
Puneet: So you have Annualised Returns of 10.5% and 10%! Take a look at the features of Annualised
Return.
Annualised Return:
160
TT
TT
SEBI permits the annualisation of returns from Liquid Funds, for periods less than a year
TT
Compounded Return
Rohit: Lets look at my fathers next investment. He invested Rs. 2,000 in a growth option and reinvested
the returns. In 2 years time, this investment has grown to Rs. 8,000. How do I calculate the return?
Puneet: Since it is a growth option, you can calculate the returns using Compounded Returns. It is used
for calculating returns that have been reinvested.
Rohit: What is the formula for calculating it?
Puneet: Compounded Return can be calculated using the following formula:
( )
1/n
Compounded Return = LV - 1
IV
Where:
LV
IV
1/2
TT
()
1/n
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Where:
V1
V0
Holding period
sed for calculating returns when its assumed that the dividends were reinvested at the exU
dividend NAV
TT
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
162
2.
3.
List the computing methods that can be used only for growth options.
Worksheet
1.
2.
b.
c.
SEBI permits the annualisation of returns from Liquid Funds for periods
d.
e.
.
.
.
options.
a.
Absolute Return
i.
b.
Annualised Return
ii.
(LV/IV)1/n-1
c.
Compounded Return
iii.
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Notes
164
Answer
a.
b.
Liquid Funds
c.
d.
Reinvested
e.
Growth
a.
b.
iii
c.
ii
Risk
After completing this module, you will be able to:
TT
Session Plan
1
Module Overview
Key Learnings
Worksheet
Module Overview
All mutual fund schemes face a certain amount of risk. Some schemes may be riskier and some may be
safer, but there is an element of risk in all investments.
In this module, you will learn about the different types of risks faced by mutual fund schemes.
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Portfolio Risk
Market Risk
Interest Rate
Risk
Liquidity Risk
Credit Risk
Liquid Assets
in Scheme
Liability in
Scheme
TT
TT
Liquidity Risk
TT
Credit Risk
TT
TT
Market Risk
TT
166
TT
TT
TT
TT
TT
Diversified Funds
TT
TT
TT
TT
TT
Invest in mid-caps funds which are not very liquid and not well
researched.
TT
TT
TT
These are equity funds with the lowest risk offering returns.
TT
They are more in line with money market returns than equity market
returns.
Thematic Funds
Mid-Cap Funds
Contra Funds
Arbitrage Funds
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Portfolio Specific
Short Maturity
Securities
TT
TT
Liquid Schemes
TT
TT
TT
TT
No default risk.
TT
Capital Protection
Oriented Schemes
TT
TT
SEBI does not allow these schemes as there is a limit on the amount
of investment in unrated or below investment grade bonds.
Gilt Schemes
Balanced Funds
Gold Funds
Puneet: These other schemes face risks as well. Lets take a look at these schemes and the level of risk
faced by them.
TT
168
TT
TT
Investors should be aware of the difference between Gold Sector Fund and ETF Gold.
TT
TT
TT
Derivatives
Rohit: What are derivatives Puneet?
Puneet: Derivatives are instruments that get their value from the value of one or more underlying
exposures.
Rohit: What do you mean by underlying exposures?
Puneet: Underlying exposures could be shares, exchange rates, interest rates, commodities, precious
metals etc.
Puneet: Take a look at some commonly used derivatives.
Commonly Used
Derivatives
Forwards
Futures
Option
Swap
TT
Participant Handbook
Puneet: There is! Investors can exercise greater care when it comes to schemes with not very diverse
unit holdings. Also, SEBI has laid down the 20:25 rule to protect investors.
Rohit: What is the 20:25 rule?
Puneet: The 20:25 rule states that every scheme must have minimum 20 investors, and no investor
should be allowed to represent more than 25% of a schemes net assets.
Rohit: That is a good rule! Im glad SEBI is around to help out investors!
TT
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
170
1.
2.
3.
4.
Worksheet
1.
2.
and
is unable to take
b.
c.
d.
e.
High yield bond schemes are not allowed by SEBI as there is a limit on the amount of
investment in
or
grade bonds.
risk.
risk.
risk offering returns.
Liquid Schemes
i.
b.
ii.
c.
Mid-Cap Funds
iii.
d.
Gold Funds
iv.
Notes
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2011 IL&FS Skills Development Corporation Limited
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Answers: Risk
Question Number
172
Answer
a.
Buying, Selling
b.
Concentration
c.
Credit
d.
Lowest
e.
a.
iv
b.
ii
c.
d.
iii
Measures of Risk
After completing this module, you will be able to:
TT
Session Plan
1
Module Overview
Measures of Risk
Key Learnings
10
Worksheet
Module Overview
All mutual funds have risk, but this risk can be measured with the help of certain instruments.
In this module, you will learn how mutual fund risk is measured.
Measures of Risk
Rohit: Puneet, I know that all mutual fund schemes have risk. But is there any way to measure such
risk?
Puneet: Yes Rohit, there is a way! Risk means the possibility of fluctuation in returns. These fluctuations
are used to measure risk. This is done by working out periodic returns and measuring their fluctuations.
Rohit: So you mean we have find out returns on a daily, weekly, fortnightly, monthly, etc basis and then
measure their fluctuations?
Puneet: Correct! After that, the fluctuation is gauged against itself, or against another index. There are
a number of risk measures that are used frequently.
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Measures of
Risk
Variance
Standard
Daviation
Beta
Modified
Duration
Weighted Average
Maturity
5%, 4%,
5%, 6%
Average = 5%
Scheme II:
Average = 5%
Puneet: Though both schemes have the same average return, variance also looks at the stability in the
returns of each scheme.
Puneet: Lets take a closer look at each of these risks.
Rohit: Ah, I get it! Here the returns of scheme I are clearly more stable than the returns of scheme II.
So Scheme I with its stable returns is less risky than Scheme II which has high variances.
Puneet: You got it! Take a look at some important points for variance.
Variance:
TT
easures the fluctuations found in the periodic returns of scheme, in comparison to its own
M
average return.
TT
TT
174
TT
easures the fluctuations in periodic returns of a scheme in comparison to its own average
M
return.
TT
TT
T he higher the standard deviation, the greater the volatility in the returns, and therefore the
greater the risk.
TT
Standard Deviation is used as a risk measure for debt as well as equity funds.
Beta > 1
TT
TT
TT
TT
TT
TT
TT
TT
Beta measures the market risk, or the systematic risk of an equity fund.
TT
It measures how sensitive a funds returns are, to changes in the market index.
TT
odified Duration is used to measure the interest rate risk in debt funds in consideration of
M
market factors.
TT
It measures how sensitive the value of a Debt Fund is to changes in interest rates.
TT
The higher the Modified Duration, the greater the market risk of the Debt Fund and vice versa.
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2011 IL&FS Skills Development Corporation Limited
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TT
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
176
1.
2.
3.
4.
Worksheet
1.
2.
b.
c.
d.
e.
, or the
of an equity fund.
Gilt Fund
i.
b.
Debt Fund
ii.
c.
CRISIL
iii.
d.
NSE
iv.
Notes
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2011 IL&FS Skills Development Corporation Limited
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178
Answer
a.
Stability
b.
Greater
c.
Not as volatile as
d.
e.
a.
iii
b.
c.
iiii
d.
ii
Session Plan
1
Module Overview
SEBI Guidelines
Key Learnings
Worksheet
Module Overview
Mutual fund investors must be aware of the performance of mutual funds, as well the performance of
mutual fund managers. The performance of mutual fund managers is measured against returns, while
benchmarks are used to measure the performance of mutual funds.
In this module, you will learn how to measure the performance of fund managers. You will also find out
how the performance of mutual funds is tracked.
SEBI Guidelines
Rohit read the following line in his mutual funds book: Benchmarks are standards used to measure the
performance of mutual funds. Now that Rohit has a basic idea of what benchmarks are, he would like
to learn more about them.
Rohit: Hey Puneet! I just came across benchmarks in my book. Can you tell me more about them?
Puneet: Sure Rohit! Benchmarks are used to measure mutual fund performance. These benchmarks
must follow certain SEBI guidelines.
Rohit: Can you tell me a little about these SEBI guidelines?
Puneet: Sure! Take a look!
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2011 IL&FS Skills Development Corporation Limited
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TT
Benchmarks used should be the same as those stated in the offer document.
TT
TT
TT
TT
Liquid Funds must use money market benchmarks like MIBOR etc.
Scheme Type
Index
Sectoral Indices like:
Sector Funds
TT
BSE Bankex
TT
TT
TT
Diversified Funds
TT
BSE Sensex
TT
TT
BSE 200
TT
BSE 500
TT
CNX 100
TT
Index
Mid-Cap Indices like:
180
TT
CNX Midcap
TT
Nifty Midcap 50
TT
BSE Midcap
TT
TT
Choice of Portfolio
Concentration
Index
Narrow Indices like:
TT
BSE Sensex
TT
NSE Nifty
TT
TT
TT
Underlying Exposure
Index
Arbitrage Fund
TT
TT
TT
CRISIL
TT
TT
Si-Bex (1 3 years)
TT
Mi-Bex (3 7 years)
TT
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TT
TT
NSE
Composite
1 3 years
3 8 years
8 plus years
Treasury Bills index
TT
Gold ETF
TT
TT
TT
These real estate indices have shorter histories and are not yet as widely
accepted as equity indices.
TT
The benchmark for such funds depends on where the scheme invests.
TT
International
Funds
182
TT
TT
Choice of benchmark depends on scheme type, choice of investment universe, choice of portfolio
concentration and the underlying exposure.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
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2011 IL&FS Skills Development Corporation Limited
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Worksheet
1.
2.
b.
c.
d.
The principle of risk adjusted return is that returns should be in proportion to the
.
e.
Notes
184
.
.
and ranks the
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2011 IL&FS Skills Development Corporation Limited
Participant Handbook
186
Answer
a.
a.
Outperformed
b.
Asset allocation
c.
d.
e.
Performance Measurement
After completing this module, you will be able to:
TT
Session Plan
1
Module Overview
Key Learnings
Worksheet
Module Overview
Measuring fund performance is important to make the right investment decisions. Performance
measures can be used easily for all types of funds.
In this module, you will learn how to measure the performance of a fund.
Relative returns
Absolute returns
Relative returns
The schemes returns are compared with the returns of:
TT
Benchmark
TT
Peer group
TT
Participant Handbook
Rohit: I read that AMCs and Trustees must conduct periodic reviews of relative returns in line with the
SEBI guidelines.
Puneet: Thats correct! There is also a relationship between the schemes returns and the fund
managers performance.
Schemes Returns
Puneet: Remember, the out performance or under performance must be validated by conducting
deeper performance reviews.
Rohit: I got it! Lets take a quick look at what we just covered!
TT
TT
TT
T o find the relative returns, the schemes returns are compared with the benchmark, peer
group or other such financial products returns.
TT
MCs and trustees must conduct periodic reviews of relative returns in line with the SEBI
A
guidelines.
TT
TT
Lower returns as compared to the benchmark mean the fund manager has underperformed.
188
Measures of
Risk-Adjusted
Returns
Treynor
Ratio
Sharp Ratio
Alpha
Puneet: So if the risk free return is 5%, and a scheme with a standard deviation of 0.5 earns a return of
7%, the Sharpe Ratio will be calculated as:
Sharpe Ratio = (7% - 5%) / 0.5
Sharpe Ratio = 4%
Puneet: Remember, the higher the Sharpe Ratio, the better the scheme performance.
Sharpe Ratio:
TT
TT
TT
Participant Handbook
TT
TT
TT
TT
190
TT
Sharpe ratio, Treynor ratio and Alpha are bases to evaluate a fund managers performance based
on risk adjusted returns.
TT
Quantitative measures are based on historical performance, which may or may not be replicated
in future. Scheme evaluation is an art, not science.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
What can measurement of fund performance be used for? Give three examples.
2.
3.
4.
Worksheet
1.
b.
c.
d.
The
e.
f.
schemes.
.
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2011 IL&FS Skills Development Corporation Limited
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Notes
192
Answer
a.
b.
c.
a.
Income return
b.
Lower, Higher
c.
Session Plan
1
Module Overview
Key Learnings
Worksheet
Module Overview
With so many schemes available for investment, investors today are quite confused as to which scheme
should be selected. This is where the role of a mutual funds distributor comes in. Distributors of mutual
funds must be aware of how to guide investors towards selecting the best scheme for themselves.
In this module, you will learn how to select an appropriate scheme for a client.
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2011 IL&FS Skills Development Corporation Limited
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Debt
Funds
Equity
Funds
Hybrid
Funds
Sector Funds
Growth
Funds
Diversified Equity Funds
194
Returns
Index Funds
Value Funds
Equity Income Funds/Dividend Yield Funds
Puneet: Lets look at the different schemes under equity funds first. When investing in equity, it is
important to keep in mind that the markets are more predictable in the long run, than in the short run.
So we should look at equity funds only when we have a suitably long investment horizon.
Rohit: What is a suitably long investment horizon?
Puneet: I would say at least three years. A five year horizon or more would be best as such a long term
period would give the investor at least one chance to sell at good profits. So, the longer the time period,
the lower the risk of loss. Similarly, if the investment period is short, say below two years, investing in
equities is not a good idea.
Rohit: I see. So now that I know about the riskreturn of equity schemes, what comes next?
Puneet: Next, we look at several broad, equity scheme categories. Each of these categories has a role
to play in the selection of an investors portfolio.
Open-Ended or
Closed-Ended
Diversified, Sector or
Thematic
Features
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Growth Funds usually offer good returns at the start of a bull run.
TT
TT
When the market goes down, the rate of decline in Growth Funds is
much more than that of Value Funds and vice versa.
TT
TT
Fund Size
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2011 IL&FS Skills Development Corporation Limited
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Portfolio Turnover
Arbitrage Funds
Domestic Equity
versus International
Equity Funds
TT
Portfolios that are churned often have increased broking costs and
are a sign of unstable investment management.
TT
TT
TT
TT
TT
TT
TT
Puneet: Now lets take a look at debt funds. Debt funds are not as risky as equity funds. These funds
can be structured in different ways to meet the needs of investors. Just like with equity funds, even
debt funds have a number of categories which play a role in the selection of an investors portfolio.
Features
Regular Debt Funds have no equity exposure.
MIPs have slight equity exposure.
Open-Ended Funds are best for investors who could require their
funds at any given time.
Diversified Debt Funds that are able to manage their credit risk
properly can generate better returns than those of Gilt Funds.
Long-Term Debt Funds fluctuate more and therefore have more
volatile NAVs than Short-Term Debt Funds.
196
TT
TT
TT
Lower returns.
TT
TT
TT
Rohit: Lastly we have balanced funds and gold funds. I can tell you about these funds! Balance funds
are especially for investors who want to invest in equity as well as debt securities! where as gold funds
are for investors who want to invest in gold shares of gold mining and other gold processing companies.
Puneet: Thats exactly right! Such investments are simpler as there are limited decisions to be made
regarding scheme selection. At the same time, schemes that are structured as flexible asset allocation
scemes can be very risky, so investors need to be a little cautious.
Rohit: How are such funds taxed?
Puneet: The tax depends entirely on the investment portfolio of the scheme. It could be taxed as a debt
scheme or an equity scheme.
Step 2: Select a scheme within the category
Puneet: The next step is to select a scheme within the category. In order to do this, we need to consider
some very important parameters.
Parameter
TT
TT
Fund Age
TT
TT
Tracking Error
TT
TT
TT
TT
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2011 IL&FS Skills Development Corporation Limited
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TT
Dividend payout
TT
Dividend reinvestment
TT
Growth option
TT
TT
Puneet: Since this option depends on whether there is enough surplus for dividend declaration, a
better option would be to invest in a SWP for the same amount, rather than opt for the dividend payout
option. However, keep in mind that selling units under SWP may be subject to STT in equity schemes,
and capital gains tax in equity and debt schemes, though it does not have any dividend distribution tax
on the repurchase proceeds.
Dividend Reinvestment:
TT
TT
Does not allow money to grow in the fund without annual taxation.
TT
S ubject to STT.
No distribution tax.
Puneet: Therefore, depending on the set-off benefit, it may be wiser for investors to receive money in
the form of dividends for equity schemes, instead of by re-purchasing units.
Growth Option:
TT
Puneet: So you see, in order to make a selection, we need to focus on the investors taxation and
liquidity needs. Only then can the correct decision be made!
Rohit: I get it now! Selecting a scheme for a client is really quite simple once you understand the
process! Thanks again Puneet!
TT
198
TT
I n an actively managed diversified fund, the fund manager performs the role of ensuring higher
exposure to the better performing sectors or stocks. An investor, investing or taking money out
of a sector fund has effectively taken up the role of making the sector choices.
TT
I t can be risky to invest in mid cap/ small cap funds during periods of economic turmoil. As
the economy recovers, and investors start investing in the market, the valuations in front line
stocks turn expensive. At this stage, the mid cap/ small cap funds offer attractive investment
opportunities. Over longer periods, some of the mid/ small cap companies have the potential to
become large cap companies thus rewarding investors.
TT
rbitrage funds are not meant for equity risk exposure, but to lock into a better risk return
A
relationship than liquid funds and ride on the tax benefits that equity schemes offer.
TT
T he comparable for a liquid scheme in the case of retail investors is a savings bank account.
Switching some of the saving bank deposits into liquid schemes can improve the returns for him.
Businesses, which in any case do not earn a return on their current account, can transfer some
of the surpluses to liquid schemes.
TT
alanced schemes offer the benefit of diversity of asset classes within the scheme. A single
B
investment gives exposure to both debt and equity.
TT
Investors need to understand the structure of the gold schemes more closely, before investing.
TT
E quity investors would like to convince themselves that the sectors and companies where the
scheme has taken higher exposure are sectors/ companies that are indeed promising.
TT
ebt investors would ensure that the weighted average maturity of the portfolio is in line with
D
their view on interest rates.
TT
I nvestors in non gilt debt schemes will keep an eye on credit quality of the portfolio and watch
out for sector concentration in the portfolio, even if the securities have a high credit rating.
TT
ny cost is a drag on investors returns. Investors need to be particularly careful about the cost
A
structure of debt schemes.
TT
mong index schemes, tracking error is a basis to select the better scheme. Lower the tracking
A
error, the better it is. Similarly, Gold ETFs need to be selected based on how well they track gold
prices.
TT
S eeking to be invested in the best fund in every category in every quarter is neither an ideal
objective, nor a feasible target proposition. Indeed, the costs associated with switching between
schemes are likely to severely impact the investors returns.
TT
T he underlying returns in a scheme, arising out of its portfolio and cost economics, is what is
available for investors in its various option viz. Dividend payout, dividend re-investment and
growth options.
TT
ividend payout option has the benefit of money flow to the investor; growth option has the
D
benefit of letting the money grow in the fund on gross basis. Dividend reinvestment option
neither gives cash flows nor allows the money to grow in the fund on gross basis.
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Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
Worksheet
1.
200
years
5
2 years
1 year
A few months
b.
2.
E quity
Debt
Equity and debt
Debt and gold
Funds with
b.
3.
c.
sectors.
d.
Long-Term Debt Funds should be chosen when interest rates are expected to
.
e.
Dividend Reinvestment does not allow money to grow in the fund without
.
b.
c.
E quity scheme
Balanced scheme
Gilt fund
Saving bank account
Which of the following aspects of portfolio would an investor in a debt scheme give most
importance?
i.
ii.
iii.
iv.
e.
T rue
False
d.
T rue
False
S ector selection
Stock selection
Weighted average maturity
Number of securities in portfolio
T rue
False
201
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Notes
202
Answer
a.
b.
iii
a.
Lower
b.
Liquid
c.
Multiple
d.
Fall
e.
Annual taxation
a.
b.
ii
c.
iv
d.
iii
e.
ii
Session Plan
1
Module Overview
Physical Assets
Financial Assets
Key Learnings
Worksheet
Module Overview
Investors can invest in physical as well as financial assets. It is the role of distributors and financial
advisors to educate investors on both these types, and help them make the right investment choice.
In this module, you will learn the difference between physical and financial assets. You will also learn
about various investment alternatives in the context of mutual funds.
Physical Assets
Rohit has saved up a lot of money and wants to invest it. He had decided to invest it all in mutual funds,
when he overheard a very interesting conversation between his mother and his grandmother.
Grandmother: Did you hear about the Sanghvi family next door?! They are moving to a penthouse in
that new complex at Jamshed Baug!
Mother: Flats in that complex are really expensive! And Mr. Sanghvi is retired. How are they able to
afford it?
Grandmother: I heard their son made some investments in property a few years ago. Looks like the
investments paid off!
Rohit was amazed. He had not even considered investing in property! Were property investments
better than mutual fund investments? He had to ask Puneet and find out!
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2011 IL&FS Skills Development Corporation Limited
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Rohit: Puneet, I just heard about someone who invested in property. Can you tell me more about such
investments? How are they different from mutual fund investments?
Puneet: Well, Rohit, unlike mutual funds, property is a physical asset.
Rohit: What is a physical asset?
Puneet: A physical asset has value. It can be touched, felt and used.
Features of Physical Assets:
TT
TT
TT
Puneet: Though gold and real estate are physical assets, they can be invested through funds.
Rohit: How do you feel about investing in gold as a physical asset?
Puneet: It is not very safe to hold gold in its physical form. There is always the fear that it will be stolen.
Take a look at some factors that one should consider before investing in physical gold.
Gold as a Physical Asset:
TT
TT
TT
TT
TT
TT
TT
TT
Financial Assets
Rohit: Puneet, you said earlier that unlike mutual funds, property is a physical asset. So what type of
asset is a mutual fund?
Puneet: Mutual funds are financial assets! Financial assets are assets that provide investors with
intangible benefits.
204
TT
They are investments for the purpose of future cash flows and capital gain.
TT
TT
TT
TT
Examples Shares, debentures, fixed deposits, bank accounts, mutual fund schemes etc.
Rohit: Puneet, you had said that gold and real estate can also be invested through funds.
Puneet: Yes, thats right. Gold can be invested through Gold ETFs, Gold Futures and Gold Sector Funds,
while real estate can be invested through real estate funds. Lets take a look at their features.
Gold ETFs
TT
TT
Gold Futures:
TT
TT
Gold Sector Funds invest in shares of companies engaged in gold mining and processing.
TT
S hare prices depend more on the profitability and gold reserves of the companies, than on gold
prices.
TT
TT
TT
TT
T here is a possibility of higher returns in mutual funds. Keep in mind that even a G-sec can
provide a return ranging from 15% to 20% when interest rates fall.
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2011 IL&FS Skills Development Corporation Limited
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TT
TT
Mutual funds have the facility to switch across different mutual fund schemes.
Investment Nature
TT
haracteristics
C
Benefits
Risks
Current performance and suitability
T axability
Age
Risk profile
TT
TT
Rohit: You have convinced me! I am going to go ahead and invest my money in mutual funds! See you
later!
206
TT
TT
TT
TT
Asset Class C
TT
TT
TT
Puneet: Investors can also choose to invest in a life-cycle fund. In this case, the system will select a mix
of investments between the three asset classes, depending on the investors age.
Rohit: Who manages the asset class options?
Puneet: All three asset class options are managed by six Pension Fund Managers (PFMs). The money of
the investors can therefore be distributed between 3 portfolios x 6 PFMs = 18 alternatives.
Rohit: How are the New Pension Scheme choices as compared to mutual funds?
Puneet: The New Pension Scheme does not provide as many choices as mutual funds. However,
the advantage of the New Pension Scheme is that it provides the convenience of a single Personal
Retirement Account Number (PRAN). This can be applied across all the PFMs that are holding the
investors investments. Also, the POPs provide services related to the money invested with any of the
PFMs.
hysical asset like land, building and gold have value and can be touched, felt and used. Financial
P
assets have value, but cannot be touched, felt or used as part of their core value. Shares,
debentures, fixed deposits, bank accounts and mutual fund schemes are all examples of financial
assets that investors normally invest in.
TT
T he difference in comfort is perhaps a reason why nearly half the wealth of Indians is locked in
physical assets.
TT
T here are four financial asset alternative to holding. However, mutual fund schemes and gold
deposit schemes are exempted from wealth tax.
TT
eal estate in physical form has several disadvantages. Therefore, investors worldwide prefer
R
financial assets as a form of real estate investment.
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2011 IL&FS Skills Development Corporation Limited
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TT
Bank deposits and mutual fund debt schemes have their respective merits and demerits.
TT
ension Funds Regulatory and Development Authority (PFRDA) is the regulator for New Pension
P
Scheme. Two kinds of pension accounts are envisaged: Tier I, is non withdrawal. Tier II is
withdrawal to meet financial contingencies. An active Tier account is a pre-requisite for opening
a Tier II account.
TT
T he NPS offers fewer portfolio choices than mutual funds. However, NPS offers the convenience
of a single Personal Retirement Account Number (PRAN), which is applicable across all the PFMs
where the investors money is invested. Further, the POPs offer services to money invested with
any of the PFMs.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
208
1.
2.
3.
4.
Provide two reasons why mutual funds are the best option.
Worksheet
1.
b.
2.
3.
Bank accounts
Debentures
Paintings
Shares
4 lacs
3 lacs
2 lacs
1 lac
b.
months.
c.
d.
e.
Gold futures are superior to ETF Gold as a vehicle for life long investment in gold.
i.
ii.
b.
c.
T rue
False
d.
T rue
False
S EBI
IRDA
PFRDA
AMFIs
An investor under the new pension scheme can choose which of the following asset
classes.
i.
ii.
iii.
iv.
E quities
Corporate debt
Government securities
Any of the above
2011 IL&FS Skills Development Corporation Limited
209
Participant Handbook
Notes
210
Answer
a.
iii
b.
iv
a.
Economy
b.
Three
c.
d.
e.
Tangible
a.
ii
b.
c.
iii
d.
iv
Financial Planning
After completing this module, you will be able to:
TT
Session Plan
1
Module Overview
10
11
12
13
Key Learnings
14
Worksheet
Module Overview
All individuals have their own hopes and dreams. For most of these wishes to turn into reality, certain
financial commitments need to be made and seen through. This requires effective financial planning.
In this module, you will understand the importance of financial planning. You will also learn how to
carry out financial planning.
Participant Handbook
TT
Converting the needs and dreams into monetary goals at various times in the future
TT
lanning financial investments in such a way that they satisfy the future financial needs, thus
P
achieving the individuals different goals at the right time
Rohit: This sounds great...but I dont know how to go about doing all this! Honestly, it sounds quite
overwhelming!
Puneet: That is where I come in! As a mutual fund distributor, Im just the person to help you out!
Financial planning is not meant to be undertaken by investors on their own...they are supposed to be
assisted by fund distributers.
Financial planning by a fund distributor is important because:
TT
TT
TT
Investors may require guidance regarding how to invest and where to invest.
TT
Investors require advice on the best source of borrowing and for investing.
TT
TT
Investors may need help for their retirement and real estate financial planning.
TT
Investors may need help creating a goal-oriented financial plan. This is a financial plan for a
specific goal related to a particular aspiration.
There are alternate financial planning approaches too. An alternate approach is a comprehensive
financial plan where all the financial goals of a person are taken together and the investment strategies
are worked out on that basis.
Puneet: So dont worry Rohit! I will be your financial planner!
212
Childhood
Young Unmarried
Young Married
Equity
Debt
Married with
Young Children
Married with
Older Children
Pre-Retierment
Retierment
As age increases investment in debt increases and in equity decreases.
Puneet: Lets take a look at these stages in more detail.
Stages
Financial Needs
TT
TT
Stage 1:
Childhood
Investment Preferences
TT
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2011 IL&FS Skills Development Corporation Limited
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Stage 2:
Young Unmarried
TT
TT
TT
TT
i.
Stage 3:
Young Married
ii.
TT
Stage 4:
Married with
Young Children
Stage 5:
Married with
Older Children
Stage 6:
Pre-Retirement
Stage 7:
Retirement
214
TT
TT
TT
TT
TT
TT
ii.
TT
Investments should
be made to cover
education expenses from
pre-school to higher
education.
TT
Previous investments in
growth assets like shares
and real estate would
come in use now.
TT
TT
There should be
investments of some
portion in growth assets
like shares to safeguard
against inflation.
Accumulation
Transition
Inter-Generation
Transfer
Reaping/
Distribution
Sudden
Wealth
Stages
Stage 1:Accumulation
Stage 2:Transition
Stage 3:
Inter-Generational
Transfer
Investment
Preferences
Financial Needs
TT
TT
TT
TT
TT
TT
TT
TT
Individuals
should opt for
investing in
growth funds.
TT
Investors
should invest in
balanced funds.
TT
Investments
should be in
growth funds.
TT
Depends upon
the beneficiaries
financial stage.
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2011 IL&FS Skills Development Corporation Limited
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Stage 4:
Reaping/Distribution
Stage 5:Sudden
Wealth
TT
TT
TT
TT
Investments
should be in
liquid and debt
funds.
TT
It is advisable
to first block
the money by
investing it in a
liquid scheme.
TT
TT
TT
TT
TT
TT
216
TT
TT
TT
TT
TT
TT
TT
TT
F inancial planning results in an awareness of the current tax rates which leads to tax efficient
financial plans.
TT
TT
I t explains to investors how each of their financial decisions has an impact on other parts of their
finances.
Participant Handbook
TT
S tarting early
Ensuring expectations are realistic
Investing regularly
Investors should also follow effective and useful strategies like:
upee Cost Averaging: This is a system of investing in which money is regularly reinvested
R
into the same fund.
Value Averaging: In this system, investors set a monthly target growth rate or target amount
on their portfolios. The contribution for the next month is then adjusted depending on the
gain or loss made in the previous month.
Jacobs Rebalancing Strategy:
Grahams 50:50 Rebalancing Strategy
F inancial planning is a planned and systematic approach to provide for the financial goals that
will help people realize their aspirations and feel happy.
TT
T he costs related to financial goals, in todays terms, need to be translated into the rupee
requirement in future. This is done using the formula A = P x (1 + i)n .
TT
T he objective of financial planning is also to let the investor know in advance, if some financial
goal is not likely to be fulfilled.
TT
T he process of financial planning helps in understanding the investor better, and cementing
the relationship with the investors family. This becomes the basis for a long term relationship
between the investor and financial planner.
TT
goal oriented financial plan is a financial plan for a specific goal. An alternate approach is a
A
comprehensive financial plan where all the financial goals of a person are taken together, and
the investment strategies worked out on that basis.
TT
T he Certified Financial Planning Board of Standard (USA) proposes the following sequence of
steps for a comprehensive financial plan.
TT
218
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
219
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Worksheet
1.
2.
b.
I n the married with young children stage, investments should be made to cover which
expenses?
i.
ii.
iii.
iv.
3.
F ood
Education
Clothing
Housing
220
rowth
G
Balanced
Debt
Liquid
a.
Accumulation
i.
b.
Transition
ii.
Growth Funds
c.
Reaping/Distribution
iii.
Liquid Funds
d.
Sudden Wealth
iv.
Balanced Funds
Notes
221
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
222
Answer
a.
b.
c.
d.
e.
f.
a.
b.
a.
ii
b.
iv
c.
d.
iii
TT
TT
Session Plan
1
Module Overview
Asset Allocation
Key Learnings
Worksheet
Module Overview
One of the most important aspects of financial planning is understanding the risk profile of investors.
The risk profile is critical for determining the type of funds an investor should invest in.
Investors portfolios can be distributed across different asset classes such as equity, debt, gold, real
estate etc. This distribution across various asset classes is known as asset allocation.
Investors also have different risk appetites. This means that there is no single portfolio that can be
used for all investors. For this reason, model portfolios have been created which showcase the most
appropriate asset allocation mix for various levels of risk.
In this module, you will learn how to identify the risk profile of investors. You will also learn about asset
allocation for different investors, based on their profiles as well as how to build a model portfolio for
investors.
Participant Handbook
he thinks he is comfortable with? As mutual fund advisors, shouldnt financial distributors ensure that
investors are taking the right amount of risk? Rohit decides to visit Puneet and get an answer to his
question. Lets see what Puneet says.
Puneet: You are absolutely right Rohit. As you know, fund distributors help investors with their financial
planning. Part of this role means distributors must ensure that the risk investors are willing to take, is
also the same level of risk that they should be taking.
This means that distributors must understand the risk appetite of investors. This is known as risk
profiling, and it is very important. In fact, if an investors risk appetite has not been profiled, no
investment advice should be given!
Investment advice can only be given to an investor after:
TT
TT
The risk level of the investment options has been taken into consideration.
Family Information
Personal
Information
Financial
Information
224
Life expectancy
The longer the life expectancy, the higher the risk appetite.
Personal Information
Factor
Age
The lower the age, the higher the acceptable level of risk.
Employability
The more qualified and skilled the employee, the higher the acceptable level
of risk.
Nature of Job
The greater the job stability, the higher the acceptable level of risk.
Psyche
The more daring and adventurous the personality of an individual, the better
the ability to accept the consequences of risk.
Financial Information
Factor
Capital Base
The higher the capital base, the greater the ability to take a higher amount
of risk.
Regularity of Income
The more regular the income, the higher the acceptable amount of risk.
Asset Allocation
Rohit is now reading about asset allocation. He reads The distribution of an investors portfolio between
various asset classes is called asset allocation.
This brings Rohit to a big question - Why do so many investors choose to invest in a mix of different
assets instead of investing in any one asset class? He decides to ask his friend Puneet.
Puneet: The answer to that is simple Rohit! Have you ever heard the proverb Dont put all your eggs in
one basket? It is the same principle! If an investor invests everything in one asset class, and that asset
class doesnt perform well, then the investor stands to make a huge loss. Therefore, it is important to
invest in different asset class. This distribution of an investors portfolio between different asset class
is known as asset allocation.
Rohit: I see. While if the assets are allocated and one asset does badly, the investor has other assets to
make up for that one loss.
Puneet: Exactly! This is called balancing. Balanced funds that adopt such stable asset allocation policies
are said to be operating within a fixed asset allocation framework.
At an individual level, difference is made between Strategic and Tactical Assets Allocation.
Strategic Asset Allocation is the ideal that comes out of the risk profile of the individual. Risk profiling
is key to declining on the strategic asset allocation. The most simplistic risk profiling thumb rule is to
have as much debt in the portfolio, as the number of years of age. As the person grows older, the debt
component of the portfolio keeps increasing. This is a example of strategic asset allocation.
Tactical Asset Allocation is the decision that comes out of calls on the likely behavior of the market.
An investor who decides to go overweight on equities i.e. take higher exposure to equities, because of
expectations of buoyancy in industry and share markets, is taking a tactical asset allocation call.
Rohit: So how do we allocate assets for investors?
Puneet: Allocating assets depends on the investor class. Take a look at this model portfolio. It will give
you a good idea of how assets should be allocated.
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2011 IL&FS Skills Development Corporation Limited
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Investor Class
Diversified
Equity
Schemes
Sector
Funds
Gold
ETF
Diversified
Debt
Funds
Liquid
Schemes
20%
10%
10%
10%
35%
10%
15%
30%
10%
35%
15%
15%
20%
15%
15%
10%
30%
15%
30%
Gilt
Funds
hat is the management and scheme performance track record of the mutual fund house in the
W
last couple of years?
TT
Will the mutual fund house be able to provide efficient, prompt and personalised service?
TT
oes the mutual fund house have transparent operations? Does it disclose the performance of
D
its schemes frequently and clearly?
226
TT
TT
TT
TT
TT
Concentration in portfolio
TT
TT
Portfolio turnover
TT
Risk Statistics
eta
B
Ex-Marks
Gross dividend yield
Funds with low beta, high ex-marks and high gross dividend yield is preferable
Selection Criteria for Debt Funds
TT
TT
TT
TT
TT
Average maturity
TT
TT
Modified duration
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2011 IL&FS Skills Development Corporation Limited
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nalyse and confirm the funds available for investment after all commitments have been
A
handled.
TT
TT
TT
The investor or client must honestly answer the attached investor profile questionnaire.
TT
T his determines the risk profile which is required to carry out asset allocation and build a
customised portfolio.
Consider the different investment options and select specific mutual fund schemes.
TT
The schemes should fit the clients investment style and the suggested asset allocation.
TT
Reviews can take place on a quarterly, half yearly, annual etc basis.
T he portfolio may need to be rebalanced if certain investments do not provide expected returns
as per the benchmark.
TT
T his could occur due to reasons like market conditions, diversification, sectoral demand and
other such factors.
Rohit: Puneet, thank you for all you help. Thanks to your explanations and guidance, I now feel confident
enough to take the NISM examination!
Puneet: Anytime Rohit! All the best for the exam. Im sure you will be an excellent mutual funds
distributor very soon!
228
There are differences between investors with respect to the levels of risk they are comfortable with.
TT
Risk profiling is an approach to understand the risk appetite of investors an essential pre
requisite to advice investors on their investments. Risk profilers have their limitations.
TT
Risk profile is influence by personal information, family information and financial information.
TT
Spreading ones exposure across different asset classes (equity, debt, gold, real estate etc.)
TT
Some international researches suggests that asset allocation and investment policy can better
explain portfolio performance, a compared to being exposed to the right asset classes is a more
critical driver of portfolio profitability than selection of securities within an asset class (stock
selection) and investment timing.
TT
Strategic asset allocation is the ideal that comes out of the risk profile of the individual. Tactical
asset allocation is the decision that comes out of calls on likely behavior of the market.
TT
Financial planners often work with model portfolios the asset allocation mix that is most
appropriate for different risk appetite levels. The financial planner would have a model portfolio
for every distinct client profile.
Key Learnings
Summarise your learnings here. Write your answers in the spaces provided.
1.
2.
3.
4.
Note down two questions that should be asked to select the right mutual fund.
5.
List the five steps that should be taken for portfolio build up.
229
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
Worksheet
1.
b.
The
c.
d.
The
e.
f.
The more
g.
h.
2.
should be considered
.
i.
j.
as this
should be kept in mind.
b.
c.
isk appetizers
R
Asset allocators
Risk profilers
Financial plan
T rue
False
The asset allocation that is worked out for an investor based on risk profiling is called
i.
ii.
iii.
iv.
230
d.
e.
T rue
False
How much equity would you suggests for a young well settled unmarried individual?
i.
ii.
iii.
iv.
00%
1
80%
60%
40%
Notes
231
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
232
Answer
a.
Increases
b.
Longer
c.
Higher
d.
Lower
e.
Better
f.
Regular
g.
h.
i.
j.
Tax perspectives
a.
iii
b.
c.
iv
d.
ii
e.
ii
Net Assets Rs.500cr. Total transaction value is Rs. 1000cr. What is portfolio Turnover Ratio?
1,000
500
= 2 Times
Total Transaction
Net Assets
2.
3.
In a balanced fund with Net Assets of Rs.750cr. What is the expenses that can be charged.
100 X 2.5% = 2.500
300 X 2.25% = 6.750
300 X 2.00% = 6.000
50 X 1.75 % = 0.875
16.125
4.
A Scheme portfolios market value is Rs.152cr, dividend accrued but not received =Rs.8cr
Liabilities = Rs.2cr. Total No. of standing out units = 75 lakhs Calculate NAV.
(152+8)-2= 158cr
NAV = Net Assets
No. of Units
= 158
0.75
= 210.66
5.
An investor invests Rs.100000 in 365 days FMP and got Rs. 107750. What would be the capital
gain in this case?
Capital Gain = (Maturity Amount-Amount Invested)
= Rs. 107750-100000
= Rs. 7750
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2011 IL&FS Skills Development Corporation Limited
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6.
An investor plans to invest Rs 12000 in a scheme whose NAV is Rs.12. How many Units he will
be allotted?
No. of Units = Investment Amount
NAV
= 12000/12
= 1000
7.
What would be the redemption value of a unit whose NAV is Rs 15 and Exit load is 1%?
Redemption value = NAV-Exit Load
Exit Load = (1% of NAV)
= 15 X 1/100
= 0.15
= 15-0.15
= 14.85
8.
Mr. A holds 2000 Units the scheme declares bonus 1:4. How many units will A get, if one New
Unit is given for every 4 Existing Units?
2000 X New Units/Old Units
= 2000 X
= 500
9.
If the post Tax return on An Investor is 8% and the inflation rate is 6%. What is the real rate of
return.
Real Rate of Return = [(1+ Post Tax Return)/(1+Inflow)]-1
= [(1+0.8)/(1+0.6)]-1
= 1.0188679-1
= 0.188 X 100
= 1.88%
10. If absolute return is 2.4% over 50 days Annualized Return would be____
Annualized Return = Simple Return X 365 / No. of Days Returning
= 2.4% X 365/50
= 0.24 X 365/50
= 0.1752
11. What are the recurring expenses on first Rs.100cr of Equity Scheme?
Rs.2.5cr
12. A Company has issued Rs.10cr. Equity shares. It earns profits of Rs.105cr on which it has paid Tax
of Rs. 5cr and Distributed Dividend of Rs.20cr. What is EPS?
234
Rs.100cr
13. A person Requires Rs.100000 for a specific goal after 3 years we want to know what he needs to
invest @5% Return. The formula would be
PV = FV/(1+i)n
= 100000 / (1+0.05)3
235
2011 IL&FS Skills Development Corporation Limited
Participant Handbook
236
Business Correspondence
1.0
10th Pass
Version No.
Pre-requisites to Training
Training Outcomes
NSDC
Name of Client
TT
17-01-2013
Meet the requirement of IIBF certification process required for Business Correspondent and Business
Facilitator.
Program Name
Ice Breaker
Program
Objectives,
Expectations,
Career Progression
Relevance
for Rural
development,
Various initiatives
by Government
and Non
Government
Agencies
Program
Objectives and
Expectations
Financial
Inclusions
Session
Ice Breaker
Module
Sr. No.
Session Plan
TT
TT
TT
TT
TT
TT
TT
TT
TT
Day 1
To introduce themselves
To share their profiles,
work in groups and
communicate properly
Objectives
TT
TT
TT
Trainer-led
discussion
Trainer-led
discussion
Acivity
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Flex chart
Class cards
Participant handbook
Trainers Guide
Flex Chart
Participant handbook
Trainers Guide
Tools
60 minutes
15 minutes
15 minutes
Duration
Introduction to
BFBC Model
Roles and
Responsibility of a
BC, Compensation
Details of the BCs;
Documentation
required from
a BC for their
own enrolment
& Benefits of
Certification
Program
Principles of
Banking, Functions
of Banks
Roles and
Responsibilities of
BFBC in Financial
Inclusion
Introduction to
Banking
Session
Module
Sr. No.
TT
TT
TT
TT
TT
TT
Trainer-led
discussion
Activity
Trainer-led
discussion
Activity
Trainer-led
discussion
Role Play
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Flex chart
Marker (4 different
colours)
Participant Handbook
Trainers Guide
Flex charts
Class cards
Participant handbook
Trainers Guide
Flex chart
Class card
A4 Sheet
Participant handbook
Trainers Guide
Tools
60 minutes
60 minutes
45 minutes
Duration
Recap
Introduction
of Enrolment
software
Banker-Customer
relationship,
Principles and
AML(Anti-money
laundering),
Submission
and Uploading
documents and
data
Evaluation
Recap
Enrolment
software
BankerCustomer
relationship
10
Learning
Confirmation - I
Performance
Reporting
Planning
and Time
Management
Question and
Answers Session
Session
Other functions of
Bank and KYC
Module
Sr. No.
Session Plan
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
banker-customer
relationship.
secrecy of customers
identity
KYC principles
meaning of AML
practice with help of case
and forms
Day 2
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
Trainer-led
discussion
Activity
Trainer-led
discussion
Trainer-led
discussion
Theory
Question
Paper
Trainer-led
discussion
Activity
Trainer-led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Flex charts
Class Cards
Participant handbook
Trainers Guide
Flex chart
Trainers Guide
Trainers Guide
Question Paper
Trainers Guide
Trainers Guide
Trainers Guide
Flex charts
Trainers Guide
Tools
60 minutes
120
minutes
15 minutes
30 minutes
60 minutes
15 minutes
60 minutes
Duration
Recap
POS Machine
Enrolment
process flow
Software Training
Practice Session - II
POS Machine
Recap
Enrolment process
flow
Question and
Answers Session
Session
Nomination of CSP
Module
Sr. No.
Day 3
TT
TT
TT
TT
TT
TT
Practical
Trainer-led
discussion
Trainer-led
discussion
Trainer-led
discussion
Activity
Trainer-led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Flex charts
Trainers Guide
Participant handbook
Trainers Guide
Flex charts
Trainers Guide
Trainers Guide
Flex charts
Trainers Guide
Tools
120
minutes
180
minutes
15 minutes
60 minutes
15 minutes
60 minutes
Duration
10
Learning
confirmation - III
Relationship
management,
customer
satisfaction,
Principles
of Effective
Communication,
Setting Goals,
Evaluation
Relationship
management
Live Demo
of Banking
Transactions
by Technology
Provider
Doubt Clarification
Live Demo
of Banking
Transactions
by Technology
Provider
Session
Module
Sr. No.
Session Plan
TT
TT
TT
TT
TT
TT
TT
TT
Day 4
Objectives
TT
TT
TT
TT
TT
Case Study:
Group
Discussion
Role Play
Theory
Question
Paper
Trainer-led
discussion
Demonstration
Methodology
TT
TT
TT
TT
TT
TT
TT
Class Card
Participant handbook
Trainers Guide
Question Paper
Trainers Guide
Trainers Guide
Trainers Guide
Tools
90 minutes
30 minutes
15 minutes
60 minutes
Duration
Financial
Education
and Financial
Counselling
Micro Finance
Module
Sr. No.
Role Play
in Financial
Counselling
Roles of BF/
BC in Financial
Counselling
Question and
Answers Session
Delivery models
Session
counsel on different
products
TT
TT
TT
TT
Role Play
Case Study:
Group
Discussion
Activity
Trainer-led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Class card
Trainers Guide
Participant handbook
Trainers Guide
Participant handbook
Trainers Guide
Participant handbook
Trainers Guide
Flex charts
Case study
Tools
60 minutes
60 minutes
15 minutes
45 minutes
Duration
11
12
Agriculture and
other priority
sector advances in
Banks
Software Training
Practice Session
- IV
Principles of
Lending
Software
Training
Doubt Clarification
Session
Module
Sr. No.
Session Plan
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Day 5
Objectives
TT
TT
TT
TT
TT
Trainer-led
discussion
Practical
Trainer-led
discussion
Trainer-led
discussion
Trainer-led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainers Guide
Class card
Flex charts
Trainers Guide
Flex charts
Trainers Guide
Worksheet
Participant handbook
Trainers Guide
Tools
15 minutes
60 minutes
60 minutes
30 minutes
60 minutes
Duration
Debt Recovery
1.0
12th Pass
Version No.
Pre-requisites to Training
Training Outcomes
NSDC
Name of Client
17-01-2013
Meet the requirements of the Reserve Bank and IIBF Certification Process
Program Name
15
16
Module 1
Module
Session Plan
Introduction to Soft
Skills and Need for
Training
What is Personal
Effectiveness
Who am I? Why am I
here?
Introduction, General
Guidelines
Session
TT
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
Trainer-led
discussion
Activity
Trainer-led
discussion
Trainer-led
discussion
Trainer-led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
Flipchart
Trainer Guide
Handouts M1 - 3
Trainer Guide
Handouts M1 - 2
Chart 1.1.
Trainer guide
Tools
60 minutes
60 minutes
60 minutes
60 minutes
Duration
Module 3
Module 2
Module
Practice Session
Interpersonal Skills
Practice Session
Body language
Practice Session
Listening
Practice Session
Communication and
presentation
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Role Play
Trainer-led
discussion
Activity
Trainer-led
discussion
Activity
Trainer-led
discussion
Activity
Trainer-led
discussion
Activity
Methodology
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
Duration
HB 10.4
Trainer Guide
Trainer Guide
Trainer Guide
Class Cards
Trainer Guide
Worksheet
HD 10.3
Trainer Guide
Class Cards
Trainer Guide
Tools
17
18
Module 4
Module
Session Plan
Functions of DRA 2
Functions of DRA I
Work of DRA
Session
TT
TT
TT
TT
Functions: Book-keeping,
documenting and reporting
TT
TT
TT
TT
Objectives
Group
activity
Role Play
Activity
Activity
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
60 minutes
60 minutes
Blank sheets
Sample documents
Trainer Guide
60 minutes
Mind map
Trainer Guide
Role Cards
Trainer Guide
60 minutes
Duration
Tools
Module 5
Module
Opening an Account:
KYC
Types of Accounts,
Types of Customers
TT
TT
TT
TT
TT
Role play
Trainer-led
discussion
Test
Methodology
TT
TT
TT
Learning Confirmation
TT
Objectives
Session
TT
TT
TT
TT
TT
TT
TT
TT
Class card
Trainer Guide
Role Cards
Trainer Guide
60 minutes
60 minutes
60 minutes
60 minutes
Test paper
Trainer Guide
Handouts
Trainer Guide
Duration
Tools
19
20
Module 6
Module
Session Plan
Practice examples
Closing or Stopping
Accounts
Interest Calculation
Other Deposits
Review of Rank
Operations, Accounts
and KYC
Session
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
Trainer-led
discussion
Case studies
Trainer-led
discussion
Trainer-led
discussion
Activity
Trainer-led
discussion
Role Play
Trainer-led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Cases
Trainer Guide
Situations
Handouts
Trainer Guide
Trainer Guide
Charts
Class Cards
Trainer Guide
Charts
Trainer Guide
Tools
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
Duration
Module 7
Module
DRA Functions
Revisited
Payment and
Settlement Functions,
funds remittance
Banks obligation
secrecy of accounts
Banker-Customer
Relationship
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer-led
discussion
Trainer-led
discussion
Activity
Trainer-led
discussion
Role play
Trainer-led
discussion
Activity
Methodology
Objectives
TT
TT
TT
TT
TT
TT
TT
Trainer Guide
Sample Cheques
Trainer Guide
Class cards
Trainer Guide
Flip chart
Trainer Guide
Tools
60 minutes
60 minutes
60 minutes
60 minutes
Duration
21
22
Module 9
Module 8
Module
Session Plan
Loan Functions of a
Bank an intro
Real Stories-successes
and failures
Assessment of Module
2
Cases
Banks Responsibility
AML Act
Anti Moneylaundering
Customer Interface,
various channels
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer-led
discussion
Trainer-led
discussion
Role play
Trainer-led
discussion
Test
Trainer-led
discussion
Case studies
Trainer-led
discussion
Role play
Trainer-led
discussion
Role play
Activity
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer Guide
Trainer Guide
60 minutes
60 minutes
60 minutes
60 minutes
Test paper
Trainer Guide
Answer sheet for facilitator
Trainer Guide
60 minutes
60 minutes
Mock Test paper
Trainer Guide
Handouts
Trainer Guide
60 minutes
60 minutes
Story
Class cards
Trainer Guide
Class cards
Trainer Guide
60 minutes
Duration
Class cards
Trainer Guide
Tools
Module 11
Module 10
Module
Preview of Session 12
Retail Loans
Review of Session on
Loans
Customer Segments
Keyword Activity
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer-led
discussion
Trainer-led
discussion
Activity
Role Play
Role play
Case studies
Group
discussion
Quiz
Trainer-led
discussion
Trainer-led
discussion
Activity
Trainer-led
discussion
Activity
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer Guide
Class cards
Trainer Guide
Class cards
Trainer Guide
15 minutes
60 minutes
60 minutes
60 minutes
60 minutes
Quiz questions
Trainer Guide
Trainer Guide
60 minutes
60 minutes
60 minutes
60 minutes
Duration
Handout Notes
Trainer Guide
Class Card
Trainer Guide
Class card
Trainer Guide
Trainer Guide
Trainer-led
discussion
Activity
TT
Tools
Methodology
Objectives
23
24
Module 13
Module 12
Module
Session Plan
Quiz
Case Studies
Asset Classification
Review of Sessions on
Loans
Role Plays
Understanding Loans
and Security
Types of Security
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
Activity
Trainer-led
discussion
Quiz
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer-led
discussion
Group
discussion
Trainer-led
discussion
Role play
Activity
Trainer-led
discussion
Role Plays
Trainer-led
discussion
Methodology
60 minutes
60 minutes
Trainer Guide
Quiz cards
60 minutes
Trainer Guide
Trainer Guide
60 minutes
60 minutes
Flipchart
Trainer Guide
Class card
Trainer Guide
60 minutes
60 minutes
60 minutes
60 minutes
Duration
Trainer Guide
Trainer Guide
Trainer Guide
Trainer Guide
Tools
Module 15
Module 14
Module
Case studies
Default in Retail
Loans, Growing
NPAs and need for
understanding
Revision of Functions
of DRA, Personal
Effectiveness
Expectations of
Module 4
Assessment
Written Test on
Module 3
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Case study
Role play
Trainer-led
discussion
Trainer-led
discussion
Role Plays
Trainer-led
discussion
Trainer-led
discussion
Trainer-led
discussion
Test
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
Learning Confirmation
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer Guide
Trainer Guide
Trainer Guide
Trainer Guide
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
Test paper
Trainer Guide
Answer sheet
Trainer Guide
Duration
Tools
25
26
Module 18
Module 17
Module 16
Module
Session Plan
Code of Banks
commitment
Practice
Phone Strategies
Recovery strategies
Policies, processes,
procedures
Regulations
Case studies
Soft skills
Difficult debtors
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Objectives
TT
TT
Trainer led
discussion
Activity
TT
Trainer led
discussion
Role plays
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer led
discussion
Trainer led
discussion
Role play
Trainer led
discussion
Trainer led
discussion
Case study
Role play
Case study
Methodology
60 minutes
Chart
Blank paper
Trainer Guide
Trainer Guide
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
Role cards
Trainer Guide
Trainer Guide
60 minutes
60 minutes
Trainer Guide
Trainer Guide
60 minutes
60 minutes
Trainer Guide
Role card
Trainer Guide
60 minutes
Duration
Trainer Guide
Tools
Module 20
Module 19
Module
Revision
Re-possession
Practice
Legal aspects
Discussion of answers
Written Test on
Module 4
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer led
discussion
Trainer led
discussion
TT
TT
TT
TT
TT
Trainer led
discussion
Activity
Trainer led
discussion
Activity
TT
TT
TT
TT
TT
TT
Case study
Group
discussion
Role play
Trainer led
discussion
Test
Methodology
Clarification of concepts
Objectives
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
60 minutes
Trainer Guide
Test paper
Trainer Guide Answer
sheet for facilitator
Duration
Tools
27
28
Module
22-25
Module 22
Module 21
Module
Session Plan
TT
Written Test on
Module 5
Open Quiz
TT
TT
TT
TT
TT
TT
TT
TT
International Best
Practices
Session
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
TT
Test
Test
Quiz
Trainer led
discussion
Trainer led
discussion
Trainer led
discussion
Trainer led
discussion
Trainer led
discussion
Trainer led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Trainer Guide
Test papers
Trainer Guide
Test paper
Trainer Guide
Quiz card
Trainer Guide
Trainer Guide
Tools
60 minutes
60 minutes
60 minutes
60 minutes
Duration
29
30
Session Plan
Minimum qualification 12th Pass from any stream / Graduates from any stream
Pre-requisites to Training
Training Outcomes
1.0
Version No.
17-01-2013
NSDC
Name of Client
TT
TT
TT
TT
Program Name
31
32
ILFS Skills
Set Expectations
Programme
Objectives
NISM Examination
Icebreaker
Icebreaker
Rules of NISM
About NISM
Introductions
Introduction
Session
Module
Sr.
No.
Session Plan
TT
TT
TT
TT
TT
TT
TT
TT
TT
To familiarize the
participants about ILFS
skills
Day 1
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
Activity
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Trainer led
discussion
Trainer led
discussion
Activity
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
20
minutes
Power Point
Presentation
Participant
Handbook
Trainers Guide
Interactive
Game
30
minutes
30
minutes
20
minutes
Participant
Handbook
Trainer Guide
Power Point
Presentation
Power Point
Presentation
Participant
Handbook
Trainers Guide
Annexure - 1
Multimedia
15
minutes
20
minutes
Time
Trainers Guide
Paper
Pencil
Trainers Guide
Tools
Formative
Assessment -1
Types of Mutual
Funds
Module
Fund Structure
and Constituents
Sr.
No.
Formative Assessment
Custodian
AMC
Trustee
Sponsor
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
Formative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Methodology
Session
TT
TT
TT
TT
TT
TT
TT
Assessment
Guide
Power Point
Presentation
Participant
Handbook
Trainers Guide
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
20
minutes
30
minutes
45
minutes
Time
33
34
Module
Legal and
Regulatory
Environment Role o Regulators
in India
Formative
Assessment - 2
Offer Document
Sr.
No.
10
11
12
13
Session Plan
What is the OD
Formative Assessment
Investors Obligations
Investors Rights
Regulatory Agencies
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
To identify the
importance of an offer
document.
To name the parts of an
offer document
To discuss the contents
of an offer document
Objectives
TT
TT
TT
TT
TT
TT
TT
Multimedia
driven lesson
Trainer led
discussion
Formative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Power Point
Presentation
Participant
Handbook
Trainers Guide
Annexure -2, 3, 4
Assessment
Guide
Power Point
Presentation
Power Point
Presentation
Participant
Handbook
Trainers Guide
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
45
minutes
20
minutes
30
minutes
40
minutes
Time
Formative Assessment
Channel
Management
Practices
Formative
Assessment - 4
16
17
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
TT
Formative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Formative
evaluation
Methodology
Fund Distribution
- Distribution
Channels
15
Formative Assessment
Session
Formative
Assessment - 3
Module
14
Sr.
No.
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
30
minutes
Power Point
Presentation
Participant
Handbook
Trainers Guide
Assessment
Guide
Power Point
Presentation
20
minutes
30
minutes
20
minutes
Assessment
Guide
Power Point
Presentation
Power Point
Presentation
Participant
Handbook
Trainers Guide
Time
Tools
35
36
Accounting
Valuation
Module
Sr.
No.
Session Plan
Accounting Policies
Specific Disclosures
Reporting Requirements
Load
NAV
Importance of Accounting
Session
TT
TT
To explain how
securities are valued
Day 2
Objectives
TT
TT
TT
TT
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Methodology
TT
TT
TT
TT
TT
TT
Power Point
Presentation
Participant
Handbook
Trainers Guide
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
25
minutes
25
minutes
Time
Taxation
Formative
Assessment - 5
Investor Services
Investment Plans
and Services
Module
Sr.
No.
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
TT
TT
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Formative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Methodology
Formative Assessment
MF Taxation
Session
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Power Point
Presentation
Participant
Handbook
Trainers Guide
Power Point
Presentation
Participant
Handbook
Trainers Guide
Multimedia
Annexure - 5, 6
Assessment
Guide
Power Point
Presentation
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
20
minutes
20
minutes
20
minutes
30
minutes
Time
37
38
Formative
Assessment - 6
Drivers of Return
in a Equity and
Debt Scheme
Computing
Returns
Risk
10
Module
Sr.
No.
Session Plan
Compounded Return
Annualized Return
Absolute Return
Debt Scheme
Investment Style
TT
TT
TT
TT
Equity Scheme
TT
Formative Assessment
Session
Calculate different
types of returns on
mutual funds
Objectives
TT
TT
TT
TT
TT
TT
TT
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Formative
evaluation
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
Power Point
Presentation
Participant
Handbook
Trainers Guide
Power Point
Presentation
Participant
Handbook
Trainers Guide
30
minutes
30
minutes
1 hour
20
minutes
Assessment
Guide
Power Point
Presentation
Participant
Handbook
Trainers Guide
Time
Tools
Module
Measures of Risk
Benchmarks and
Performance
Sr.
No.
11
12
TT
TT
To benchmark
performance of MFs
Objectives
TT
TT
TT
TT
Multimedia
driven lesson
Trainer led
discussion
Multimedia
driven lesson
Trainer led
discussion
Methodology
SEBI Guidelines
Modified Duration
Beta
Modified Duration
Beta
Standard Deviation
Variance
Measures of Risk:
Session
TT
TT
TT
TT
TT
TT
Power Point
Presentation
Participant
Handbook
Trainers Guide
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
30
minutes
30
minutes
Time
39
40
Formative Assessment
Formative Assessment
Performance
Measurement
Formative
Assessment - 7
Scheme Selection
for a Client
Formative
Assessment - 8
14
15
16
P/E Ratio
Alpha
Treynor Ratio
Sharpe Ratio
Different Performance
Measures:
13
Session
Module
Sr.
No.
Session Plan
TT
TT
TT
TT
Explain how to
help clients select
appropriate schemes
Objectives
TT
TT
TT
TT
TT
TT
Formative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Formative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
TT
TT
20
minutes
30
minutes
Power Point
Presentation
Participant
Handbook
Trainers Guide
Assessment
Guide
Power Point
Presentation
20
minutes
30
minutes
Time
Assessment
Guide
Power Point
Presentation
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
Types of Assets
Formative
Assessment - 9
18
Module
17
Sr.
No.
Formative Assessment
TT
TT
Objectives
TT
TT
TT
Formative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Methodology
Financial Assets
Physical Assets
Session
TT
TT
TT
TT
TT
Assessment
Guide
Power Point
Presentation
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
20
minutes
20
minutes
Time
41
42
Module
Financial Planning
(FP)
Formative
Assessment - 10
Sr.
No.
Session Plan
Case Studies
Asset Allocation
Six Steps of FP
Benefits of FP
Why FP
What is FP
Session
TT
TT
To explain the
importance of FP
Day 3
Objectives
TT
TT
TT
Formative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Methodology
TT
TT
TT
TT
TT
Assessment
Guide
Power Point
Presentation
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
20
minutes
20
minutes
Time
Module
Formative
Assessment - 11
Summative
Assessment - 1
Summative
Assessment - 2
Summative
Assessment - 3
Discussion Time
Sr.
No.
Discussion Time
Model Protfolio
Assets Allocation
Risk Profiling
Session
TT
TT
TT
TT
TT
TT
TT
Teach back
session
Summative
evaluation
Summative
evaluation
Summative
evaluation
Summative
evaluation
Multimedia
driven lesson
Trainer led
discussion
Methodology
TT
TT
TT
TT
TT
TT
TT
TT
Objectives
TT
TT
TT
TT
TT
TT
TT
TT
TT
Assessment
Guide answer
keys
Assessment
Guide
Assessment
Guide
Assessment
Guide
Assessment
Guide
Power Point
Presentation
Power Point
Presentation
Participant
Handbook
Trainers Guide
Tools
15
minutes
2 hours
2 hours
2 hours
20
minutes
45
minutes
Time
43
44
Session Plan