SATISH DELHI UNIVERSITY SERIES Choice Based Credit System (CBCS) Applicable for students registered with Regular Colleges, Non-Collegiate Women's Education Board and School of Open Learning { B.Com. III Year SEMESTER-VI Financial Markets And Institutions Paper BC 6.1(e) 2021 ATS ag Latest Syllabus Question Papers DTU) Scanned with CamScannerSEMESTER-VI [CBCs] B.Com. (Pass)/II Year — 2018 Paper BC 6.1 (e) : Financial Markets and Institutions Duration : 3 Hours Code No. 7892 All questions are compulsory, Alll questions carry equal marks, ‘inancial system of any count . ” itry and its economic d interdependent.” Do you agree with this statement? eB evelopment Ge Or Maximum Marks :75 Do you agree that Indian financial sector is a well developed financial system? Explain. Ans. See Q. 6, Page 8. Or See Q. 1, Page 5. Q. 2, Explain the various financial instruments used in Indian capital markets. 15 Or “Primary markets are of vital importance in Indian Equity markets.” Discuss. 15 Ans. Broadly speaking, the capital market is classified into two categories. They are the Primary market (New Issues Market) and the Secondary market (Old (Existing) Issues Market). This classification is done on the basis of the nature of the instrument brought in the market. However, on the basis of the types of institutions involved in capital market, it can be classified into various categories such as the Government Securities Market or Gilt-edged Market, Industrial Securities Market, Development Financial Institutions (DFls) and . Financial Intermediaries. The structure of the Indian capital market has its Capital Market in India nag dete Government Securities Industrial Securities Development Financial (Gilt-edged market) Market Institutions (DFLs) New Issues Market Od Issues Market (Stock Exchange) IFcl ICCl SFCs Scanned with CamScanner(Pass) Il Year (SEME: TER-VI) [CBCS] 5 of the capital market help to deyej, i The primary market h many dimensions. . ; Bernie Ty dhe secondary market, the buying ang st instruments takes place 66 SATISH: B.Com. distinct features. These different segment the institution of capital m to raise fresh capital in the ™ ing (trading) of capital mark F Ge Sling ang) oni meme Seeatn Nake Gg market refers tothe market for government and semi-government secures which carry fixed rat interest. RBI plays an important ic oe (2) Industrial Securities Market: It is a market for indus curtis, market for shares and debentures of the existing and "Um corporate fig Buying and selling of such instruments take place in this marke thal sub-divided into two. They are: (a) The New Issues Market or Primary Market ondary Market or Stock (b) The Old (Existing) Issues Market or Se Exchange (a) The New Issues Market or Primary Market: In the Primary market fresh capital is raised by companies by issuing new shares, bonds, units of mutual funds and debentures, The main function of the new issue market is to facilitate the transfer of resources from savers to entrepreneurs to establish new enterprises through a complex network of financial institutions. There are three ways by which company may raise capital in a primary market. They are: () Public Issue: The most common method of raising capital by new companies is through sale of securities to the public. It is called public issues. (ii) Private Placement: A private company limited by shares is prohibited from inviting the public for subscription of shares or debentures. Hence, it issues shares privately to a small number of persons known to the promoter or related to them by family connections. a Right Issue: When an existing company wants to raise additional capital, securities are first offered to the existing sharehol re-empti\ basis. It is called right issue. . pec SE “4 () Secondary Market; Secondary Market is a n secondary sal securities, i. securities which ae already pi a abe Sooo al market are traded in this market. Generally, st r Stock Exchange and it provide a continuous selling of securities. This market consists o: Scanned with CamScannerPaper BC 6.1 (e) : Financial Markets and Institutions— 2018 67 companies and other financial institutions, Or See Q. 9, Page 34, See Q. 10, Page 35. Q. 3. “Non-banking financial fi ; part of Indiani financial industry curreULYD Beolalnny ri eae sohperay Or __WHBriefly outline the role of commercial banks in working capital finance in India, Do commercial banks provide finance too? ™% (b) Give brief summary of life insurance sector in India. ™ Ans. Financial intermediaries are that institution which link lenders and borrowers. : The process of transferring saving from savers to investors is known as financial intermediation. Commercial banks and cooperative credit societies are called “finance corporations”, or “finance companies”. These finance companies with very little capital have been mobilizing deposits by offering attractive interest rates and incentives and advance loans to wholesale and retail traders, small industries and self-employed persons. They grant unsecured loans at very low rates of interest. These are non-banking companies performing the functions of financial intermediaries. They cannot be called banks. \ A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares, securities, leasing, hire-purchase, insurance business, and chit business. Non-Banking Financial Corporations provide range of financial services to their clients. Types of services under non-banking finance services include the following: 1. Hire Purchase Services 2. Leasing Services 3. Housing Finance Services 4, Asset Management Services 5, Venture Capital Services 1. Hire Purchase Services Hire purchase the lege Scanned with CamScannerSTER-V1) [CBCS] SATISH: B.Com. (Pass) Ill Year (SEMESTER-VI) [ ; ets to other companies ray obtain license to e includes the leasing CC ce lease. An I F 5: or finance hey shall not hold, deal or trade in real fet s period ‘of lease for less than 3 years in the xcept in case of computers and other IT property. Leasing servic either on operating lease commence leasing services su estate business and shall not fix the jease agreement & case of any finance Te ancl case scorien, First Century Leasing Company Ltd., Sundar: some of the Leasing companies in India Finance Services pe a es related to development ervic rvices means financial ser ied commercial properties. An Housing Finance National Housing Bank may undertake the ng term finance for the purpose of 2 managing public or elopment sector and ICICI Home Finance housing finance Housing Finance § and construction of residential Company approved by the services) activities such as providing lor constructing, purchasing or renovating any property, private sector projects in the housing and urban dev financing against existing property by way of mortgage. Ltd., LIC Housing Finance Co. Ltd., HDFC is some of the companies in our country. 4, Asset Management Services ‘Asset Management Company is managing and investing the pooled funds of retail investors in securities in line with the stated investment objectives and provides more diversification, liquidity, and professional management service to the individual investors. Mutual Funds are comes under this category. Most of the financial institutions having their subsidiaries as Asset Management Company like SBI, BOB, UTI and many others. 5. Venture Capital Services Venture capital finance is a unique form of financing activity that is undertaken on the belief of high-risk-high-return. Vent those risky projects or companies (ventures) that ha could promise sufficient return to justify such gambl only provides finance but also often provides manag to venture projects. In India, venture capitals con finance for high technology and for research an Credit and Investment Corporation \ the first venture capital org _of private of options to insurers s ent position o Scanned with CamScannerPaper BC 6.1 (e) : Financial Markets and Institutions— 2018 69 Liberalisation and Privatisation— India's ec nt made i most lucrative insurance market in the world. Before the ybitsi959 has monopoly state run LIC transacting life business and the General Ineeanas Corporation of India with its four subsidiaries transacting the rest. In the wake of reform process and passing Insurance Regulatory and Devel (RDA) Act through Indian parliament in 1999, Ine private companies, ‘onomie develo lopment Authority ian insurance was opened for Liberalisation on the insurance sectors has allowed the foreign players to enter the market with their Indian partners, Insurance industry had ten and six entrants in life and non-life sector respectively in the year 2000-2001. At present, there are fourteen companies each in Life and General Insurance. The funds earlier generated by the state owned insurers have been diversified with other new insurers. We should wait and see how the new to boost up our economy. players are going Competition — Private and foreign entrants in the insurance industry made others difficult to retain their market. Higher customer aspirations lead to new expectations and compel him to move towards the insurer who provides him the best service in time. It becomes less viable for them even to maintain the functional networks or competitive standards and services. Information Technology — Insurers are the earlier adopters of technology. Because of the information revolution, customers are free to choose from a wide range of new and innovative products. The insurance companies are utilizing the information technology applications for better customer service, cost reduction, new product design and development and many more. New technology gives the policy holders / insured better, wider and faster access to products and services. The real evolution is however emerged out of Internet boom. The Internet has provided brand new distribution insurers. The technology has enabled the insurer to innovate new pr f track claims on-line, entertaining on-line enrollmen reporting, and billing and electronic fund transfer | Scanned with CamScannerS _ BCS) 70 SATISH: B.Com. (Pass) HII Year (GEMESTER-VD) [CBCS] nk ‘assurance, e-insurance, cooperative i channels, which can be tapped by the Moreover, they attract the Corporate agency, brokerage, ba s are some of tl societies and panchayats ee insurers to reach the appropriate market segmen's \d mobile also customers through telephone an\ a 6 Pere mer Education and Services — In the present competitive scenario, a key differentiator is the professional customer service In terms e quality of advice on product choice along with policy servicing. Servicing focus is on enhancing the customer's experience and maximizing his convenience. This calls the effective CRM system, which eventually creates sustainable competitive advantage and enable to build long lasting relationship. 4. Mutual funds have become important part of Indian financial system during the past few years. Explain. 15 ‘Ans. See Q. 12, Page 59. § Q. 5. Write short notes on any two of the following : 7%, Th (a) SEBI (0) RBI (LIC (@ IRDA. Ans. (a) SEBI—See Q. 11, Page 21. Reserve Bank of India (RBI) ACT, 1934— The country had no central bank prior to the establishment of the RBI. The RBI is the supreme monetary and banking authority in the country and controls the banking system in India. It is called then Reserve Bank as it keeps the reserves of all commercial banks. Scanned with CamScanner‘aper BC 6.1 (e) : Financial Markets and Institutions 2018 7 salient Features of RBI The following are the salient features of the Reserve : 1. [thas regularized the issue of Bank Nag Coen See eee ee 2 It has exe monetary stability in the country. The issue of currency em es 'y assets in the form of gold bullion, gold coins, foreign 3. Securities to such an aggregate amount as is not less than the total liabilities of the Issue Department, 4. Itis a lender of the last resort. The Reserve Bank is the Bankers’ Bank. 5. It is a banker to the Government. It manages public debts. It acts as an adviser to the Government in regard to the floating of loans, etc. The Reserve Bank may lend at a lower than the prevailing Bank Rate to improve agriculture, Weapons of Reserve Bank ‘The important monetary weapons of the Reserve Bank of India are— (i) Bank Rate - A rate at which Reserve Bank of India lends to various institutions; (ii) Open Market Operations; (iii) Variable Cash Reserves; (iv) Selected Credit Control or Directions. Quantitative Measures : The quantitative measures of credit control are— 1. Bank Rate Policy— The bank rate is the official interest rate at which RBI re-discounts the approved bills held by commercial banks. For controlling the credit, inflation and money supply, RBI increases the bank rate. Current Bank Rate is 6%. ; 2. Open Market Operations— ‘The Open Market Operations refer to direct sales and purchase of securities and bills in the open market by Reserve Bank of India. The main aim is to control volume of credit. ; 3, Cash Reserve Ratio— Cash Reserve Ratio refers to that portion deposits in Commercial Bank which it has to keep with RBI as cash re: current Cash Reserve be is 6%. rirsters vd that Portia 4, Statutory Liquidity Ratio— It refers to t po banks ae area to ha ‘with itself as liquid assets (Gold, ap securities etc.). The current SLR is 25%. 5. Repo and Reverse Repo Rate— Repo is a trans are sold by the RBI and simultane p d price is determined in context te Scanned with CamScannerte SEMESTER-VI [CBCS] B.Com. (Pass)/III Year - 2018 ublic, Thus, it enables company to raise funds from the general public through of shares. It helps in transfer of resources from savers to entrepreneurs stablishing new companies. It helps in raising resources for expansion and/or iiversification of a of existing companies. The sale of shares is made at a alue predetermined by the firm issuing the security. The price at which the curity is sold to the public is the known as offer price or the issue price. The e price could be equal to or greater than the face value. When the issue price is reater than the face value, the shares are said to be sold at a premium, When the wo prices are equal, the offer is at par. Since, shares are directly sold to the public «hich constitute new equity shares of the company, it is also known as new issue satket, The shares which are issued in primary market have a face value. The face alue represents the denomination of the shares. For exampie, 10, or €100. The amount of dividend paid depends on the face value of the tares. For example, if a company declares dividend of 25% and the face value is 10,the shareholder would get 2.50 for every share held by him. Secondary Market face value of Re. 1, When the shares are transacted among two investors, the transaction is said vtoke place in secondary market. The secondary market deals with exchange of surities that have been listed through the primary market. Unlike the case of ry market, where the price of share is predetermined, the price in xondary market is determined on the basis of demand and supply besides er number of factors. Secondary market provides liquidity and tradability to. «shares issued by a company to general public. In no case, the number s being traded in the secondary market be greater the number of s ugh the primary market. The investors buy and sell share in the aket through sub-broker and brokers who are member of reco; ange and registered with SEBI. The secondary market may be. “ided into the spot market and derivative market. | hig , 2.5. One of your friends wants to start new bu: “required capital, rr “tterm and long term Ans, The Money Scanned with CamScannersos) Il Yeat/(GEMESTER-V9 (CBCS] 92 SATISH : B.Com. (F are cash to er sa geared toward long-term investing, ¢ bond aise money to grow their b sm to share in that growth. so otoas risky than the capital market while y more rewarding. The returns are modes sp The capital mar issue stocks and Ompani Sines bonds to fa Investors buy the The money markel capital market is potential o risks are low. a SL Saviat money markets include deposits, collaer The instruments } bills of exchange. Institutions operating in the mon, ‘ commercial banks, and acceptance houses short-term debt, it’s usually to cover i tances, ani clude the Federal Reserve, any or government issues loans, ac markets When a comp: ; b routine operating expenses or supply working capital, not for capi mprovements or large-scale projects About Liquidity The money market plays a key role in ensuring that banks, other companies and governments maintain the appropriate level of liquidity on a daily basis, without falling short and needing a more expensive loan and without hoarding cash that isn’t earning interest. Individual investors may use the money markets to invest their savings ina safe and accessible place. Many choices are available, including mutual funds focus on state money market funds, municipal funds, and U.S. Treasury funds. Many of the government funds are tax-free. A money market fund also be opened at most banks. - The Capital Market The capital market is where stocks and bonds m hour to hour are constantly monitored and anal ¢ economy at large, the status of every industry short-term future. i a nate ae ue -ferm pury down to expanding their businesses andar ‘A by issuing stock shares and by sellinj 1 18 Corporate bon. Primary and Secondary Market tale Scanned with CamScannerPaper BC 6.1 (e) : Financial Markets and Institutions—; Difference between Money Money Market Definit 2020 93 Market and Capital Market Capital Market tion ndom course of fina s, bill brokers, mor banks, ete, wherein dealing on short- term financial tools are being settled is referred to as Money Market. vy dealers, Market Nature A kind of financial market where the company or government securities are generated and patronised for the intention of establishing long-term finance to coincide with the capital necessary is called as Capital Market. | Money markets are informal in nature. (Capital markets are formal in nature. Instruments Involved Commercial Papers, Treasury Certificate of Deposit Bills, Trade Credit, etc. Bonds, Debentures, Shares, Asset Secularisation, Retained Earnings, Euro Issues, etc. I Investor Types Commercial banks, non-financial institutions, central bank, chit funds etc. Stockbrokers, insurance companies, commercial banks, underwriters etc. Market Li iquidity Money markets are highly liquid (Capital markets are comparatively ess liquid. Risk Involved Money markets have low risk. Capital markets are Scanned with CamScanner4 SATISH : B.Com. (Pass) HIT Year/(SEMESTER-VI) [CBCS] ive i NBEC. One of your ¢f are a finance executive in an client coe atta far short term as well a5 Tong, Fm fOr a project Wk Shall be your safeguards for these landings whic yo aking finan company shall provide for the project? Explain. Ans. See Q. 6, Page 52. SS Scanned with CamScannerSEMESTER-VI [CBCS] B.Com. (Pass)/III Year—2021 FINANCIAL MARKETS AND INSTITUTIONS Duration :2 Hours Paper Code: 52417605 Maximum Marks = 75 Attempt Four questions only. All qui tions carry equal mai Q. 1. What are the major chan, year 1991? Discuss the weaknesses. ges in the Indian financial system since the Present structure of the Indian Financial system and its ‘Ans. Financial institutions exist to improve the efficiency of the financial markets. If savers and investors, buyers and sellers, could locate each other efficiently, ase and sell assets cost lessly and make their decisions with Seely available perfect information then financial institutions would have little Scone for replacing or mediating direct transactions. However, this is not the real world. They may actively discover, underwrite and se own resources, or merely act as agent for the with them to obtain some of these same services. In'the letter case, investors assemble their portfolios from securities brought to them by these same firms. Financial system is a set of complex and closely connected or inter-linked institutions, agents, practices, market, transactions, claims and Tiabilities in the economy. India has a financial system that is regulated by independent re the sectors of banking, insurance, capital markets, competitio service sectors. In a number of sectors, government plays the role nistry of Finance, Government of India, looks after the fina India. There are Commercial banks, Co-operative banks and banks, There are areas of people with surplus funds and there deficit. A financial system or financial sector functions as an i facilitates the flow of funds from the areas ial system is a comy ition ‘Ws, practices, money manager, ané Flow of Funds in the Fina ‘The word “system” rvice investment made using their market participants who contract Scanned with CamScanner,Com. (Pass) IIT Year/(SEMESTER-V1) [CBCS) sATISH 98 Flow of Funds (Savings) — Supplier of — d funds fram oes KN Frow of Financial Services (mainly housshoijs ent) a ee eae Incomes and Financial Claims FINANCIAL SYSTEM AND ITS COMPONENTS Commercial Barina Banks Cooperative Core NBFCs Developent inane Farell non Insurance Com Non-Banking tual aa co's fet aee Commercial Paper Call Money Commercial Bill Financial =i erates Treasury Bill Market, aed Capital eal Primary Market ‘Secondary Market, Franca _ PS. Merchant Banking = Services Credit Rating Factoring Forfetting Underwriting Central Bank (RBI) Scanned with CamScannerTr Paper BC 6.1 (e) : Financial Markets and Institutions —2021 99 ven though Indian financial system is more developed today, it suffers from tuinweaknesses, These may be briefly stated below: cer 1, Lack of co-ordination among financial institutions: There are a large number of financial intermediaries. Most of the financial institutions are owned by the government. At the same time, the government is also the controlling authority of these institutions. As there is multiplicity of institutions in the Indian financial system, there is lack of co-ordination in the working of these institutions. Dominance of development banks in industrial finance: The industrial financing in India today is largely through the financial institutions set up by the government. They get most of their funds from their sponsors. They act as distributive agencies only. Hence, they fail to mobilise the savings of the public. This stands in the way of growth of an’efficient financial system in the country. Inactive and erratic capital market: In India, the corporate customers are able to raise finance through development banks. So, they need Rot go to capital market. Moreover, they do not resort to capital market because it is erratic and inactive. Investors too prefer investments in physical assets to investments in financial assets, Unhealthy financial practices: The dominance of development banks has developed unhealthy financial practices among corporate customers. The develo ; borrowing enterprises uneven 3nd lopsided. When these enterprises face financial cist, the financial ions permit a greater use of di 4 is wi make mottos ait Breaker use of debt than is warranted, This will Monopolistic market : Scanned with CamScannerYear/(SEMESTER-VI) [CBCS] SATISH : B.Com. (Pass) I 100 rve Bank of India with reference to the Rese e Q. 10, Page 15 Page 84 perspective Ans. S See Q stween the Primary Mar 4. Elucidate the relationship peter secondary markets it Q. xplain the function: ets in the Secondary Market. Also, exP! ne orderly growth of capital for ion. itnssSee A e | Institutions (DFIs) have no role ; Development Financia 3 hs in on pment there is a robust commercial banking network Comtante an econ atoment, highlighting the importance of DFls in the sancay’ “fevelopment. Also, highlight important points of difference between the commercial banks and DFIs. : ‘Ans. Development financial institutions provide long-term credit for capital- intensive investments spread over a long period and low yielding rates of return, such as urban infrastructure, mining and heavy industry, and irrigation systems. They act as critical intermediaries for channelling long-term finance required for infrastructure and realising higher economic growth. 3 In India, after the 1991 reforms, major DFIs were converted into commercial banks. However, after these there were few institutions in the country which could take care of industrial or infrastructure development. Therefore, in order to plug the infrastructure deficit, the government has taken a positive step by making a proposal to re-establish the DFls in India, DFI: Background and Present Status Development banks are different from commercial banks, which mobilize short- to medium-term deposits and lend for similar maturities to avoid a maturity mismatch, : © In India, the first DFT was operationalized in 1948 with the of the Industral Finance Corporation (IFC) s in India like Industrial Developm Industrial Credit and Investment cae ot ind IFC! did play a significant role in aiding industrial devel past with the best of the resources made available to * However, after 1991 reforms, the concessional fund getting from Reserve Bank of India (RBI) and th longer available in the subsequent yaars, oa As f cevencensequence, IDBI andICICI had to conve Scanned with CamScannerPaper BC 6.1 (¢) : Financ jal Markets and Institutions—2021 101 lizing nearly 100 lakh crore for the peline of the level of development, p development banks to finance For instance, the overnment envisages mobi ebitious National Infrastructure Pi >, intemational Precedent: Irrespecti countries across the world have set uj Key infrastructure and manufacturing projects. European Investment Bank (EIB) acts like a DFI for Europe. 3, Lack of Finance for Infrastructure: Although India has a longterm debt market for the government securities and corporate bonds cut, it re till out of reach of retail investors and unable to meet the large infrastructure financing needs. 4, Economic Crisis Triggered By pandemic has exacerbated unemployment, and the economy’s T infrastructure building through DFTs can help in quick economic recovery Key Differences Between Commercial and D The difference between commercial and on the following grounds: 1. Commercial banks are the banks which are established to undertake basic banking services, for the general public. On the other hand. Development Banks are the financial institutions, set up to provide funds to new and budding companies and projects related to economic, agricultural and industrial development. i In India, the commercial bank is established as a joint-stock ‘company, called a banking company. On the flip side, Development Banks are set up under specialised act, passed by the parliament. A development bank is proactive in nature, as it plays an active role in promoting projects and to develop budding companies. As against, commercial banks are reactive in terms of business enhanc because it requires bankability, after the entrepreneur's decision is taken, thereafter the idea is taken into consideration, am Commercial banks raise func epti Conversely, Development government grants and selli Commercial banks offers I Covid-19 Pandemic: The Covid-19 inequality, the poverty gap, slowing down. Thus, evelopment Bank development bank can be drawn medium and long term loa Commercial banks are pr Development Banks are e nercial banks pr tigation service ar promotion of the e mmercial banks dea hile the development Scanned with CamScannersass) III Year/(SEMESTER-VI) [CBCS} SATISH : B. Com. (Pass, emic has highli 6 The present pandemic has high'ig mete What is its importance se aed Differentiate between life and nom ife ins tet eaenaue ‘eedon of amount ac cumulated against total pooled risks risk by contributing 2 Tore exposed to similar perils. In India, insurance jg of similar nature by PreP jeogtaphical, natural, infrastructural and social necessitated due te ae sopulous country, second largest in the world which is istics, India is a pop f total population of the world ‘on a 102 } ighted the importance of hayjn idual as well as for an econo more than. sixteen percent 0: i ig e : graphical area of below three percent. The increasing population along with hhas increased the demand of various essentials goods like, nomic prog! 5 _ i tonne progress has incensed th a large bul eares acta Of collision. ‘The accelerated growth of this sector and burden on roads also enhance the chances of likelihood of collision. To tackle such losses, one needs dental insurance, as well as liability or third party insurance. India is known as young country in substantial population age is below forty. But twenty years down the line suspects encumber of old age security, medical expenses, post-retirement pension etc. Insurance may help if appropriate measures are taken on time in the form of medical or health insurance, retirement pension plans, money back policies ete. Increasing economic growth rate indicates amplifying business transactions which in turns raising contractual obligations. As per Global Insurance Review, 2015, India is the sixth largest liability market in Asia and has potential to grow with high speed as demand of professionals is increasing to indemnify losses, and requisite of reformative economy. Such indications also Jay down the ne of insurance in the coming future, : esides, India is vulnerable, in varying degre number of disasters as well. More than 586 per cent of the eae i oa r of moderate to very high intensity. Over 40 million hectares (12%) prone to floods and river erosion. Around 5,700 kms, out of the 7, Coastline is prone to cyclones and tsunamis, Nea 68% of ite sy vulnerable to droughts, and, its hilly areas are at riek fone avalanches. Moreover, India i vile Radiological and Nuclear (CORR) ee REDE Ch Yarious schemes on insurance, lke Adare acner mai launcher i ef desired pends) asia Disaster risks in India are related to changing demog urbanization, and : degradation, climate Scanned with CamScannerPaper BC 6.1 (¢) : Financial Markets and Institutions—2021 103 the policies of the chosen plan. There are different types of life insurance policies available in the market based on various requirements 1, Term life insurance plan : This type of insurance is the most preferred it is affordable and offers decent coverage. The policy offers death policy as the form of lump-sum assured, which is provided to the beneficiary if benefit in the policyholder has a sudden demise. There is also one more variant of term insurance that provides maturity benefit along with death benefit. It is known as Term insurance with Return of Premium. As compared to the traditional plan, TROP is much expensive in terms of premium. 2. Endowment Plans : Those seeking investment and insurance benefits in a single policy choose to invest in endowment plans. Some part of the premium is used for sum assured, while the rest amount is used for investments. In case of policyholder's death, the nominee receives the sum assured as a death benefit. If the policyholder survives, he/she gets both maturity amount as well as the accumulated bonus. 3. Money Back Plans : This type of insurance works like an endowment plan, but the only difference is that Money Back Plans pay a certain amount at intervals. For instance, if you have purchased a policy with a term period of 15 years. As per the terms of the policy, you receive a certain amount at the end of the 5th and 10th year. You get the sum assured and accumulated bonus at the end of the policy. 4. ULIP (Unit Linked Insurance Plan) : Under ULIPs, the premium: you pay is half invested in insurance coverage, and the rest amount is invested in market securities. Based on your risk factor, the insurer diversifies your fund in equity, debt, or hybrid assets. ULIPs have a lock-in period of 5 years. It allows partial withdrawal. It offers the benefit of life cover and the opportunity to create a significant corpus for your future. 5. Whole Life Insurance Plan : As the name suggests, Whole Life Insurance Plan offers life cover to the policyholder for their entire life until the premium i paid. If the insured person passes away, the beneficiary receives maturity benefit. Those who want to rei ‘inst Scanned with CamScanner404 SEMESTER-VI [CBCS] B.Com. (Pass)/III Year—2021 FINANCIAL MARKETS AND INSTITUTIONS 2. Motot Insurance : Whether you own a two-wheeler or a four-wheeler | vehicle, you must have at least third-party insurance as per the Motor Vehicles Act. This is one-type of Motor insurance; there is another policy known as Comprehensive Motor insurance. As against the third party that provides only the liability cover and compensates for third-party loss, a comprehensive policy covers right from safeguarding your vehicle, your hospitalization costs, and 7 |-party coverage. al "Home insurance’ yh type of insurance protects your homie and its belongings against damages or loss due to man-made or natural calamities. Some insurance policies also cover temporary living expenses if your home is undergoing renovation. : 4. Travel Insurance : Whether you're a frequent traveller or love to go on an international trip once in a year, you should always think of buying travel insurance. It offers a host of coverage and benefits such as compensation in case of loss of baggage, valuables, loss of passport, missed flight, trip cancellation, medical expenses, etc. Differences Between Life Insurance and General Insurance 1. Benefits of maturity: Life insurance can be seen as an inve: apart from insurance as it offers maturity benefits after tenures. General insurance, mostly, doesn’t give any maturity but just promises a payout amount in case of any unavoidable circumstances, Premium payments: In case of life insurance, ge amount is to be paid annually, for a specific tenure like For genera! insurance, mostly the entire premium is when you are buying the policy. Policy duration: The duration of life insurance poli¢ long-term, whereas that of general insurance is short ter Role in planning finances: Life insurance can be avenue for different financial goals such as mon education, retirement corpus, ete. General insurance jt valuables against any crisis Pr Claim of insurance amount: In case of life insurance, is paic either on the de s insured person o Scanned with CamScanner