FINANCIAL SECTORS

By
S. Divya Prabha
TSM
 DEFINITION
• The financial sector is a section of the
economy made up of firms and institutions that
provide financial services to commercial and
retail customers. 
• This sector comprises a broad range of
industries including banks, investment
companies, insurance companies, and real estate
firms.
 PPF
• PPF scheme was launched in 1968 by the Finance
Ministry’s National Savings Institute.
• The main objective of PPF scheme is to help
individuals make small savings and provide returns
on the savings.
• The PPF scheme offers an attractive rate of interest
and no tax is required to be paid on the returns that
are generated from the interest rates.
• Currently, PPF interest rate has been reduced from
7.9% to 7.1% and it is compounded on an annual
basis.
 ADVANTAGES
• It generates guaranteed returns.
• It is backed by Central Government.
• It is very flexible, that means you can invest in instalments as well as lumpsum. The
minimum subscription amount is also minimal which is just Rs 500/- per year.
• It can be opened in the name of minor along with guardian.
 DISADVANTAGES
• It cannot be opened by NRIs, Trust etc.
• It has a big lock-in period of 15 years.
• There is a capping of Rs 1.5 lakh per annum on deposit of amount in a PPF account.
• PPF account cannot be closed prematurely(except in case of death)
• Joint account is not permissible.
 BANK
• “A bank is a financial institution licensed to
receive deposits and make loans”.
• By definition, banks provide services of
deposits and loans. In addition to these,
commercial banks provide many other services
such as – credit cards, net banking, investment
instruments (certificate of deposits, etc.),
purchase and sale of gold coins, and sometimes
insurance as well.
 ADVANTAGES

• Safety of Public Wealth

• Availability of Cheap Loans

• Propellant of Economy

• Economies of Large Scale

• Development in Rural Areas

 DISADVANTAGES

• Chances of Bank going Bankrupt

• Risk of Fraud and Robberies

• Risk of Public Debt

 SHARE MARKET

•  Share market is where buying and selling of share happens.

• Share represents a unit of ownership of the company from where you bought it.
 ADVANTAGES

• Probability of high returns over the short-term

• Ownership stake in the company

• High liquidity 

• Tax benefits

• Rights are well protected by SEBI

 DISADVANTAGES

• Volatility

• Risk

• Stockholders are paid last

• Emotional Roller Coaster

 MUTUAL FUNDS

• It is an investment programme funded by

shareholders that trades in diversified
holdings and is professionally managed.
 ADVANTAGES

• Portfolio diversification

• Risk management

• Liquidity

• Transparency

• Well regulated
 DISADVANTAGES

• No control over cost

• Dilution

• Managing a portfolio of funds

 INSURANCE

• It is an arrangement by which a company or the

state undertakes to provide a guarantee of
compensation for specified loss, damage,
illness, or death in return for payment of a
specified premium.
 ADVANTAGES

• Economic Protection

• Shares risks

• Maintains standard of living

• Encourages saving

• Grants loan
 DISADVANTAGES

• It does not compensate all types of losses which caused biasness to insured by insurance
company.

• It takes more time to provide financial compensation because lengthy legal formalities.

• Although insurance encourages savings, it does not provide the facilities that are provided
by bank.
 REAL ESTATE

• Real estate refers to land, as well as any

physical property or improvements affixed to
the land, including houses, buildings,
landscaping, fencing, wells, etc.
 ADVANTAGES

• Easier to Understand

• Improvable

• Properties Exist in an Inefficient Market

• Financed and Leveraged

 DISADVANTAGES

• Higher Transaction Costs

• Low Liquidity

• Significant Inefficiencies

• Requires Management and Maintenance

 GOLD

• A yellow precious metal, the chemical element of atomic number 79, used
especially in jewellery and decoration and to guarantee the value of currencies.
 ADVANTAGES

• There is strong global market demand for gold

• Gold is an ideal hedge for financial market risks

• Diversification with gold offsets inflation

• Gold is a highly liquid asset

 DISADVANTAGES

• Gold appears to have no yield

• Large amounts of bullion may incur some storage fees

• Gold ETFs may incur brokerage fees (like shares)

• Gold can be volatile on a short-term basis (again, like shares)

 POST OFFICE

• The public department or corporation responsible

for postal services and (in some countries)
telecommunications.
 ADVANTAGES
• Assured and speedy delivery of goods is possible with the help of speed post service.
• Addressee receives the parcels at his doorstep. He doesn’t have to travel too far in search of
his parcels.
• Such a convenient mode of transport can be used when quantity is small and volume is low.
• Parcels can be easily dispatched because post offices are located mostly near market places.
 DISADVANTAGES
• It is more expensive to send large quantities of goods by parcel post.
• It is not possible to send heavy and bulky goods by parcel post because the maximum weight
of a parcel permitted is 20 kg. Packages should just be one meter long.
• Speed post service is said to be very expensive and one cannot find it everywhere. It is
available at selected places only.