Finly August by FINLY

FINLY| August 2017 | Finstreet | SIMSR

From the Editor’s Desk

Dear Readers, Team finly is back with the latest edition of your beloved magazine FINLY. The placement season has arrived and we are ready with all the latest happenings in the world and an indepth coverage of the important financial concepts to help you prepare for the placements. In the August edition, our cover story introduces you with the mutual funds. The Eco section tries to cover the economics behind the player transfers in the premier leagues around the world. From this month, we are adding a new section called “Fintech” where we update you with the disruptions in the financial industry because of technological advancements. In the Alumni Section, Mr MihirBabaria shares his experience of how giving a little extra helped him accomplishing his dream of making a successful career in Finance. Also, we have the News buzz and trivia to give you a quick summary of important events that took place over the last one month which you must not miss. I sincerely thank Prof. Dr PankajTrivedi for being a guiding light to the entire finly&Finstreet team. I would also like to extend my gratitude to the finacue team & finance department of KJ SIMSR for their unwavering support. I extend my gratitude to our Alumnus Mr MihirBabaria for taking out time from his busy schedule and writing for finly. I would also like to thank Miss AlokaChattani and Miss Vidisha Singh for sharing their experience in the Internship diaries section. I would also like to acknowledge the entire finlyteam for taking our magazine to greater heights. It gives me immense pleasure to declare Mr.PrateekMalhotra from IMI, New Delhi as winner and Anurag Ajay Gupta from IMI, New Delhi as runner up for the “Call for Article” Competition. We wish you a great luck in all your future endeavours.

-Madhur Saxena Editor-in-Chief, Finly PGDM 2016-18 KJ SIMSR

Team FINLY

FINLY| July 2017 | Finstreet | SIMSR

Table of Contents

FINLY| August 2017 | Finstreet | SIMSR

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FINLY| August 2017 | Finstreet | SIMSR

By Amey Patale (PGDM B 2017-19) Sitharthan K (PGDM B 2017-19) Introduction What is a Mutual Fund? A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets The income earned through these investments is shared by its investors in proportion to the number of units owned by them. Thus, a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost The Mutual Fund Industry in India The mutual fund industry in India started in 1963 with the formation of Unit Trust of India (UTI) with the

initiative of the Reserve Bank of India (RBI) and the Government of India. The objective then was to attract small investors and introduce them to market investments. From 1964 to 87, UTI was the only entity offering mutual funds in India. From 1987 to 93, Public Sector Funds like SBI Mutual Fund, Canara bank Mutual Fund, LIC Mutual Fund, GIC Mutual Fund and PNB Mutual Fund made an entry in the market in which UTI had monopoly. From a period of 1987-88 to 1992-93, the AUM increased nearly seven fold. With growth in the mutual fund industry, a need for regulation aroused. A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996. From 1999 to 2005 marked the beginning of a new phase in the history of the mutual fund industry in India.

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FINLY| August 2017 | Finstreet | SIMSR (b) In the case of an existing mutual fund, such fund is in the form of a trust and the trust deed has been approved by the Board; (c) The sponsor has contributed or contributes at least 40% to the net worth of the asset management company

The size of the industry has doubled in terms of AUM which have gone from above Rs 68,000 crores to over Rs 1, 50,000 crores. Âˇ Post 2004, the industry has witnessed a spate of mergers and acquisitions and steady rise in the penetration of Mutual Fund in India. Mutual Funds in India follow a 3 â&#x20AC;&#x201C; Tier system 1)The Tier 1 comprises of a Sponsor who thinks of starting a mutual fund. The Sponsor approaches SEBI (Securities and Exchange Board of India), which is a market regulator and also the regulator of Mutual Funds. 2)Not everyone can start a fund, SEBI (Mutual Funds) Regulations, 1996 specifies the following criteria in this regard, (a) The sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions;

(d) The sponsor or any of its directors or the principal officer to be employed by the mutual fund should not have been guilty of fraud or has not been convicted of an offense involving moral turpitude or has not been found guilty of any economic offence. 3)Once SEBI is convinced, the sponsor creates a Public Trust (Tier 2) as per the Indian Trusts Act, 1882. 4)Once the trust is formed, it is registered with SEBI, after which this trust is known as mutual fund. Trusts do not have a legal identity in India, hence cannot enter into any contracts. The Trustees are the people authorized to act on behalf of the Trust. The role of trustees is not to manage the money their job is to ensure that the money is managed as per the stated objectives. Thus, the trustees act as an internal regulator of a mutual fund 6)Entity that manages money in a mutual fund is the Asset Management Company (AMC) (Third Tier).

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Other key entities The trustees appoint AMC. The AMC charges a fee for the services it provides which is borne by the investors as it is deducted from the money collected. AMC The AMC consists of Chief Investment Officer, Fund Manager, Analysts, Compliance officer etc路If any Fund Manager, analyst intends to buy or sell securities, the permission of compliance officer is required When a fund intends to launch a new scheme, it has to submit a Draft Offer Document to SEBI.After approval from SEBI it becomes Offer Document.路The Offer Document is a legal document and the investors can rely on the information provided in the OD before investing in a mutual fund. The Compliance officer has to sign the Due Diligence Certificate in the OD. This ensures that there is accountability and someone is held responsible to what has been written in OD. Custodian The Custodian is appointed by the trustees.路Custodian is responsible for holding the physical securities and keeping a check on the corporate announcements like dividends, bonus shares, rights shares declared by the companies in which the fund has invested.

Regulations require the trustees to ensure that AMC has proper process in place and have appointed key constituents like Registrar and Transfer Agents, brokers, distributors etc. Registrar and Transfer Agents Since all mutual funds work in the same way, these entities provide services to all mutual funds as it is more economical and cost effective for all the AMCs. The services include Processing investors' application Keeping a record of investors' details Sending out account statements to the investor Sending out periodic reports Processing the payouts of the dividends Updating the investor details i.e. adding new members and removing those who have withdrawn from the fund. CAMS Karvy, Sundaram, Templeton, etc are some of the well-known RTAs in India( essentially KYC services) Auditor Mutual funds are required to maintain separate books for each scheme and separate annual reports. Each AMC hires an independent auditor to analyse the books so as to keep their transparency and integrity intact.

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AMFI

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Brokers Brokers are registered members of the stock exchange whose services are utilized by AMCs to buy and sell securities on the stock exchanges.

Brokers also provide research reports on performance of various companies, sector and marke toutlook and investment recoomendation etc There are some restrictions regarding the involvement of broker with AMC ,ĂźIf a broker is related to the sponsor or its associate, then the AMC shall not purchase or sell securities through that broker in excess of 5% of the aggregate of purchase and sale of securities made by the mutual fund in all its schemes For transactions through any other broker the AMC can exceed the limit of 5% provided it has recorded justification in writing and report of such exceeding has been sent to the trustee on a quarterly basis Distributors At the grass root level, the entity responsible for the actual sale of a MF to customer is the distributor. Distributors thus play a very important role in promoting sales of mutual funds. It is therefore vital that those engaged in selling mutual funds should have the highest standard of knowledge and ethics. AMFI has introduced a certification test as AMFI Registered Mutual Fund Advisors (ARMFA), thus creating a standard of knowledge and ethics. It also allots a unique code â&#x20AC;&#x201C; AMFI Registration Number (ARN) along with an identity card.

The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protectin and promoting the interests of mutual funds and their unit holders AMFI Objectives To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry. To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry To undertake nationwide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds To take regulate conduct of distributors including disciplinary actions (cancellation of ARN) for violations of Code of Conduct To protect the interest of investors/unit holders.

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New Fund Offer (NFO) AMC launches new schemes, under the name of the trust, after getting approval from Trustees, SEBI. The launch of new scheme is called as NFO. It is an invitation to the investors to put their money in the mutual fund schemes. The process to invest is as follows, the investor approaches the distributor, fills the form. The investor must read the OD (offer document) or at least the KIM (Key Information Memorandum)

before investing. Once the form is filled and the cheque is given to the distributor, he forwards both these documents to the RTA. The RTA captures all the information, forwards the form to a location where all the forms are stored and forwards the cheques to bank. Once the cheque is cleared, units are allocated to the investor

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FINLY| August 2017 | Finstreet | SIMSR

Types of Mutual Fund by Structure Open Ended: This type of mutual fund provides entry and exit at any convenient time i.e. you can purchase and sell unit of this mutual fund at any time. Close Ended: This type of mutual funds can be bought only during the NFO (New Fund Offering). Once the NFO closes the investors cannot buy and sell the units, until the mutual fund terms come an end. However, to provide the investor entry and exit, the close ended mutual funds are listed on the stock market. Also, buy back by the owners is another option for the investor to exit in a close ended mutual fund. Interval Fund: These are non â&#x20AC;&#x201C; conventional close ended mutual fund that periodically offers a buy back of the outstanding shares. The holders are not required to sell their units back to the fund. The periodic buy back occurs at a frequency of a month, 3, 6, 12 months as mentioned in the fund's prospectus and annual report. Types of Mutual Fund by Investment Options Equity Mutual Funds: These mutual funds primarily invest in equities. Depending upon the market capitalization these funds are further classified in Small Cap/ Mid Cap/ Large Cap / Multi Cap. Depending upon how proactive the fund manager is, these mutual funds are further classified into passive (Index funds) and active funds. When fund manager allocates money in companies belonging to a single sector (Sectoral Funds).

Large Cap/ Mid Cap/ Small Cap/ Multi Cap: These are actively managed funds. The Large Cap mutual funds are relatively less risky, as they invest in a company that have a good management, stable growth, is a market leader. Mid Cap mutual funds are riskier than large cap but less risky than Small Cap funds. Multi Cap funds invest in companies which are relatively stable and risky. Index Fund: These are passively managed funds, i.e. the fund manager invests in the equities in the index, in the same proportion. The fund manager invests in the 50 equities present in Nifty 50 index. Sectoral Fund: In this the fund manager invests in companies belonging to a single sector, like IT Funds, Pharma Funds, etc. Risk is high. Debt Fund: Debt funds are those which invest in fixed income securities like bonds, treasury bills. They are less risky and generate fewer returns than equity funds. Depending on the type of bond they invest in or investment strategy, there are different types, Gilt, Income, Short â&#x20AC;&#x201C; term funds etc. Gilt Fund: They invest only in government securities. Government securities are highly rated schemes and don't come with a credit risk.

Balanced Fund: In these funds the fund manager invests in both equities and debt. Balanced fund need not mean a ratio of 1:1. Monthly Income Plan: In this 70-80 percent of the corpus is invested in debt instruments like debentures, government securities. The remaining part is invested in equities. The objective is to provide a regular and an additional income above what they are earning on Banks FDs. ELSS: Equity Linked Savings Schemes are equity schemes that also provide tax benefits of ₹ 100,000 under section 80C of Income tax act. These are open ended schemes and have a lock in period of three years. Fund of Funds: These are mutual funds that invest in other mutual fund units rather than directly investing in equities or debts. Liquid Funds: These funds invest in highly liquid money-market instruments and provide easy liquidity. They invest in securities with a residual maturity of not more than 91 days. Investors can park money in them for a short period of, say, a few days to a few months. AUM (Asset under Management) ·It is amount of money that a mutual fund scheme manages. The AUM of all the schemes combined gives the AUM of the fund house. AUM is calculated by multiplying the NAV and the number of units issue by

the scheme. AUM falls due to, üDecrease in NAV. üReduction in the number of units sold. Net Asset Value (NAV) NAV measures the value of a fund's assets, minus its liabilities ·The formula for NAV is: NAV = (Market Value of All Securities Held by Fund + Cash and Equivalent Holdings - Fund Liabilities) / Total Fund Shares Outstanding Since, mutual funds depend on stock markets, they are usually declared after the closing hours of the exchange. All Mutual Funds are required to publish their NAV at every business day as per SEBI guidelines. Net asset values are like stock prices in that they measure the value of one share of a fund. Also, they give investors a way to compare a fund's performance with market or industry benchmarkAlso, NAV is obtained after subtracting the expense ratio of a fund Expense Ratio It is the ratio of money incurred as expense to the Average Weekly Net Assets. It means how much of investors money is going for expenses and how much is actually invested. Expense Ratio ideally should be as low as possible.

FINLY|Portfolio August 2017 | Finstreet | SIMSR Turnover

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It is the measure of how much a portfolio changes in a year. Âˇ It indicates the trading activity done by the fund manager . Portfolio Turnover ratio is defined as the Assets bought or sold/ Net Assets.

A scheme with 100cr Net Assets decides

to sell 10cr of its investments, the portfolio turnover rate would be 10%

of investment is Monthly, Weekly etc. SIP brings in a discipline in investing habit and inculcates an investing habit. 2.Systematic Transfer Plan(STP) When an investor has a lump sum to invest they start with STP. An STP helps spread investments over a period of time to average the purchase cost and rule out the risk of getting into the market at its peak.

Exit Loads

Exit loads are paid by the investors in a mutual fund scheme, if they exit a scheme before a specified period of time. Not all schemes have exit loads, some schemes have Contingent Deferred Sales Charge (CDSC), which is nothing but a modified version of Exit load, wherein the investor has to pay different exit loads depending upon the investment period

Exit Loads and CDSC are present to discourage the investors from making early exits. Systematic Methods of Investing

In this an investor can invest lump sum in a debt scheme(Better returns than a savings account) and periodically transfer a fixed amount to another scheme(mostly an equity scheme) 3.Systematic Withdrawal Plan(SWP) SWP is the reverse of SIP. In SIP we accumulate the corpus by making payments over specific intervals, whereas in SWP fixed amounts are withdrawn over specific intervals The frequency for withdrawals can be monthly, quarterly or annual frequency at the discretion of the investor

1.Systematic Investment Plan(SIP) SIP helps an investor invest small amounts of money over specific intervals to build a large corpus. By spreading the investment over larger intervals it helps the investor to average the cost by minimising the risk of investing the entire amount in a lump sum when the NAV is very high The frequency

SIP's lower the market risk at the time of investment whereas, SWP's lower the market risk at the time of redemption

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FINLY| July 2017 | Finstreet | SIMSR

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FINLY| August 2017 | Finstreet | SIMSR

Well Regulated - All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interest of investors.

While exiting a scheme an individual will attract a STT @ 0.25% of the value of selling price.

Taxation in Mfs There are two types of taxes in MFs, capital gains tax and securities transaction tax (STT). Equity and debt mutual funds are taxed differently. The taxation also depends on the time of holding those funds.

Current Scenario of Indian Mutual Fund Industry

"Indian Mutual Fund industry is going through a very exciting growth phase and advertising campaigns started by Securities Exchange Board of India (SEBI) and Association of Mutual Funds in India (AMFI) have helped in increasing penetration of Mutual Funds." Vidya Bala, Head of MF Research at Fundsindia.com

FINLY| August 2017 | Finstreet | SIMSR

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Growth vs. Dividend Payout vs. Dividend Advantages of Investing in Mutual Fund Reinvestment Diversification Benefits - Diversified Growth Option: investment improves the risk return This option is for investors looking for capital profile of the portfolio. appreciation. If an investor invests₹1, 00,000 in a growth scheme which had net returns of Low Transaction Costs- Mutual fund 15% for that year, then the investment would transactions are generally very large. grow to ₹1, 50,000. Consider the NAV at the These large volumes attract lower time of investment to be₹100; theNAV would brokerage commissions and other costs then grow to ₹115 at the end of the year. The as these costs spread over a large number of units i.e. 1000 would remain the volume. same, just the NAV would increase to indicate gains. Availability of Various Schemes Equity funds concentrate their investments in Dividend Payout Option: stocks; debt funds invest in bonds and other securities. Money market funds If the investor has opted for dividend payout are referred to as short-term funds that option, then after one year he will receive generally mature in about one year or ₹15 per unit as a dividend. Due to this cash less. Mutual funds generally offer a flow the NAV ₹100 and the investment ₹1, number of schemes to suit the 00,000 would be the same, as the investor requirement of the investors. receives ₹ (15*1000) dividend. The investor is therefore not able to enjoy the benefits of Professional Management - Mutual funds compounding. are managed by fund managers ge n e ra l l y w i t h k n o w l e d ge a n d Dividend Reinvestment Option: experience whose time is solely devoted to tracking and updating the portfolio. I f t h e i nve sto r o p t s fo r D i v i d e n d Reinvestment Option, then after one year the Returns - In India, dividend received by investor receives a dividend of ₹15,000 investors is tax-free. Also in case of long(15*1000). As the investor receives dividend, term capital gains, the investor benefits the NAV comes back to ₹100. The dividend from lower capital gain tax accrued at the end of the year, is invested back into the fund at NAV ₹100. Thus, the Flexibility - Regular investment plan, investor gets ₹15,000/ 100 = 150 additional regular withdrawal plans and dividend units and the NAV still remains 0. reinvestment plan allows investors to systematically invest or withdraw funds according to the needs and convenience

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FINLY| August 2017 | Finstreet | SIMSR

As per the data from Association of Mutual Funds in India, In the past 10 years, the Asset Under Management (AUM) of Indian Mutual Fund Industry jumped from Rs 3.26 lakh crores on 2007 to Rs 19.97 lakh crores at the end ofJuly, this month, thus it increased by more than six-fold. The Average Asset Under Management (AAUM) of the Industry for the month of July 2017 stood at Rs 20.42 lakh crores The increase in the AUM is mainly driven by fresh inflows in equity and debt segments. Overall inflow in Mutual Fund schemes stood at Rs 63,504 crores last month. Out of this, income funds which invest in a combination of government securities saw inflow of more than Rs 60,000 crores. Further, equity and equity-linked saving scheme (ELSS) saw an infusion of Rs 12,727 crores. inflow in Mutual Fund schemes stood at Rs 63,504 crores last month. Out of this, income funds which invest in a combination of government securities saw inflow of more than Rs 60,000 crores. Further, equity and equity-linked saving scheme (ELSS) saw an infusion of Rs 12,727 crores. However, the liquid funds (investments in cash assets such as treasury bills, certificates of deposit and commercial paper) witnessed a pull out of over Rs 19,500 crores.

SIP have been the preferred route for many investors to invest in Mutual Funds. The number of SIP accounts increased to 1.45 crores in June 2017 from 68 lakh three years ago. In FY17, of the total mutual fund flow of Rs 43,921 crores, 72 per cent was collected through SIPs. Industry experts attributed the monthly rise in AUM to inflows in income and equity categories mutual funds. Besides, buoyant investor sentiment and phenomenal growth in systematic investment plans (SIPs) helped in the growth of assets under management. The increase can be attributed to the following factors like A global movement of retail investors to mutual funds because of their f l e x i b i l i t y, d i v e r s i f i c a t i o n , professional management and low fees Initiatives by AMFI to increase retail investors interest in mutual fund Growing popularity to the SIP as a convenient investment option Initiatives by SEBI to boost the mutual fund industry In the last few years, SEBI has introduced two measures to improve the investor's experience,

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1)Direct Mutual Funds: Every mutual fund is now also offered in a “direct” version. Direct mutual funds cut out the sales and distribution commission from the fund's expense ratio. This can lead to savings of 60-80% in fees each year. 2)Registered Investment Advisers (RIA): RIAs are obliged to act in the best interests of their clients by providing advisory functions, to help you create a personalized portfolio according to your needs. They will charge you a nominal fee for their adviceand they aren'tpaid commission for selling mutual fund policies. These measures will increase transparency in the industry and further boost investors' interest and trust in mutual funds.

So, for debt mutual funds, with drop in the interest rates, older bonds begin trading at premium and the NAV jumps significantly. The recent repo rate cut by 25 basis points from 6.25% to 6% by the RBI can have a positive impact on debt mutual funds.

2.Demonetisation After demonetization, most of the banks reduced the interest rates of Fixed Deposits by 25 – 50 basis points as they had excess of funds. This increased the attractiveness of debt mutual fundsand theInvestors parked around Rs 52,000 crores in debt oriented mutual funds during the first three months of 2017. 3.Goods &Service Tax (GST)

Impacts of Recent Changes to the Mutual Fund Industry 1.Fall in Interest Rate The change in interest rates has a major impact especially in debt mutual funds. The interest rate and bond prices are inversely proportional. When the interest rate rises, the value of previously issued bonds with lower rate decreases as compared to the newly issued bonds.

Under GST regime, financial services have been set to 18% tax rate as opposed to the previous 15% rate. This means the mutual fund distributors have to pay more taxes, which would result in drawing more commissions from the fund. This would in turn increase the expense ratio, thus reducing the amount of customer capital invested and hence lesser returns.

So to incentivize investors to buy lower rate bonds, they are sold at a discount and vice versa.

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Future Prospects of Mutual Fund "I think inflows into mutual funds are quite sustainable. In the next four to five years, a large part of financial savings invested in gold and real estate may shift to financial asset class." A Balasubramanian, CEO, Birla Sunlife Mutual Fund The total AUM of domestic mutual funds is 12 per cent of the GDP as compared to the global average of 55 per cent. The penetration level is even lower for equity fund. Equity AUM to GDP ratio in India is 4 per cent compare with the global average of 29 per cent.

A study conducted on the pattern of inflows in mutual funds shows that the past 18 months rolling returns of mutual fund schemes are positive. CLSA, an MNC broker, estimates that the share of equity in total AUM may rise to 45 per cent from the current 35 per cent in the next five years. Another brokerage, Morgan Stanley in a note released in May 2017 said that domestic mutual funds will be the largest contributor to a coming boom in equity savings, at $216 billion (Rs 14 lakh crores) compared with $ 45 billion over the past 10 years. Especially in the recent times, the penetration of Mutual Fund in the domestic market is drastically increasing due it's low risk, good returns and diversified features along with the fact that the post-tax returns from real estate and gold are becoming unprofitable. Hence, mutual funds provide a good alternative to investors. However, its diversified nature leads to dilution in which increase in the value of a single

security doesn't necessarily reflect in the value of the mutual fund. Also, returns on a mutual fund are by no means guaranteed and a growing number of critics now question whether or not the professional money managers are more knowledgeable than an average investor. Hence, the investors should be well informed before deciding which mutual fund to invest in. Of course, the established industry of agents and brokers is also fighting to yield good returns, and so let's hope the interests of the common investor prevails!

Article of the Month - Winner

Doklam Standoff:China`s eye on the chicken`s neck

Prateek Mehrotra International Management Institute, New Delhi 2016-201 “You can change friends but not neighbours” – AtalBihari Vajpayee Trade and Commerce are essentials that bind two neighboring countries. Historically, Doklam served the same purpose of trade between India and China; from Leh to Lhasa and Lhasa to Kalimpong. Being neighbors, they not only have had their share of good relations but also fights, The two nations fought a war in 1962. In some areas, disputes still remain unsolved which causes tension from time to time. Recently, the standoff between India and China has gained a lot of attention all over the world. For seven weeks, there has been tension along part of their 3,500 km (2,174-mile) boundary. Some even fear war.

INTRODUCTION The Doklam standoff started in MidJune when China started constructing a road in the disputed territory of Doklam plateau, Bhutan. The Royal Bhutan Army raised objection against it which China flatly brushed aside. As the disputed territory was near the Siliguri corridor, India had to get involved in the dispute. The Bhutan government allowed Indian troops in this area to resist the Chinese, initiating the standoff.India asked China to move its troops back by 250 meters. Instead of giving a positive response, China retaliated by claiming the area as its own territory and India was asked to remove two bunkers set up in the areas. Later, these bunkers were destroyed by China.Amidst all the chaos, the holy pilgrimage to KailashMansarovar in Tibet was cancelled when China sent back Indian pilgrims from the Nathu-la border post.

Article of the Month - Winner

DOKLAM: THAT IMPORTANT, IS IT? Doklam (or Donglang) is a narrow strip of land between China's Chumbi Valley, India's Sikkim and Bhutan's Ha Valley. It has been a disputed territory between China and Bhutan for many years. The region is of humongous strategic importance to both India and China. For India, it is close to the Siliguri Corridor, which is known as Chicken's neck and it acts as a crucial link between India's mainland and its north eastern region. The prime rail and road networks run through it. If this link is severed by China, the supplies and reinforcements for the Indian Armed Forces present in the area would be cut off. For China, the road being constructed would link Yadong (in China) to Doklam. This would allow China to transport ammunition and troops at India's doorstep easily. This will also give China an access to some important Indian infrastructures including the hydroelectric project on Jaldhaka river in Jhalong. If China manages to capture Doklam, it would cut off north-east from the rest of India. This would make the area vulnerable. There will be a lack of supplies and connectivity. The conflicts in the region would rise, causing further distractions for the Indian armed forces there. China is also undertaking construction activities in the region including building dams over the mighty Brahmaputra. As

India and Bangladesh are heavily dependent on the water from the river, these dams have the potency to turn water into a weapon in case of a conflict. BHUTAN'S STAND Bhutan's stand is straightforward from the beginning. It is against Chinese interference in its contours. It claims that there is a direct violation of the agreements. Bhutan has further said that the boundary talks between Bhutan and China were already underway and the two countries had signed the agreements in 1988 and 1998. Bhutan hopes that the status quo in the Doklam area would be maintained by China as before 16 June 2017. THE ECONOMIC IMPACT Future of the Asian economic structure significantly relies on the behavior of these two big powers. The standoff at Doklam not only increases tension between the two countries, but also raises concerns for the economic wellbeing of both the nations as well as the other Asian economies. China has an economy five times the size of India. India has an approximate bilateral trade of $70 billion with China, making it India's number one trading partner. This bilateral trade is largely in favour of China as India has only $10 billion exports. Such a huge disparity brings India at a disadvantage when the Economic front is considered.

Article of the Month - Winner

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However, the caution is for both the countries. The Doklam standoff can put Beijing's Belt & Road Initiative (BRI) at a critical position. BRI is an initiative by Chinese President Xi Jinping which aims to build trade routes between China and countries in Central Asia, Europe and other IndoPacific coastal regions. It includes a land based belt called “Silk Road Economic Belt” and a sea based route called “Maritime Silk Road”. Due to India's geographical location, India is at the center of BRI. This would be seriously hindered if the standoff continues. CONCLUSION This current military stand-off at Doklam will test adequacy of changing foreign policy orientation in both India and China. Both Prime Minister Narendra Modi and Chinese President Xi Jinping like to be depicted as strong leaders to their citizens, neither one of the sides is probably going to back

down from the present standoff in a rush.The conduct of both enormous forces is going to shape the advancing Asian economic and security architecture.

Despite the many complex issues in the past, India-China have kept up their relations sensibly till this point. With more such cooperation and coordination, both the countries can make the 21st century a truly Asian century. Otherwise conflicting Asian powers will open the doors for the West to continue its hegemony for some more decades.

FINLY| August 2017 | Finstreet | SIMSR

Article of the Month - Runner Up

Anurag Ajay Gupta IMI New Delhi PGDM 2017-19

The Finance Minister of India, Mr. Arun Jaitley announced a new ETF under the name Bharat 22 ETF on the 4TH of August, 2017. Before we get into the heart of the matter, let's first try and understand what an ETF is. In order to understand ETFs, it is crucial for us to understand mutual funds and index funds which are supersets of an ETF. A mutual fund can be loosely defined as a basket of debt and equity instruments. Investors in a mutual fund do not need to keep a track of the changes in the market. This is because mutual funds are generally managed by professional companies or experts who have the time as well as the resources to thoroughly study the market. They charge a nominal fee for these services. Usually in stock funds, which are mutual funds comprised entirely of shares, the portfolio manager selects the holdings, which he feels are poised to perform well and invests in them.

The index fund differs from mutual fund in its strategy implemented for picking stocks. Instead of picking those stocks which the portfolio manager feels are going to do well, an index fund buys all the shares that form a particular index. The logic behind index fund is that when you own all the stocks that make up a market, you are bound to earn average returns of all those stocks. Moreover, the fee associated with an index fund is minimal since the portfolio manager doesn't really study the market trends. The index funds are of two types: 1) Traditional index mutual funds and 2) ETF. In case of traditional index funds, one can buy and sell shares directly with Fund Company. The company lets one trade shares only once a day, based on the closing price on that day. ETFs, on the other hand, aren't directly sold by the fund company.

Article of the Month - Runner Up

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The Bharat 22 ETF, holding true to its name, is made up of the stocks of 22 companies, including Central Public Sector Enterprises, Public Sector Banks and other strategic holdings of the Indian Government. These 22 stocks belong to companies from six major sectors. The following are the sectors along with the respective companies included and their relative share in the Bharat 22 ETF: Basic materials segment occupies 4.4% and National Aluminium Co Ltd (NALCO) is the only company from this sector. The Energy segment covers a total of 17.5% and it includes Oil And Natural Gas Corp Ltd, Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Coal India Ltd with shares of 5.3%, 4.4%, 4.4% and 3.3% respectively. The banking and financial sector is the third one with a total of 20.3% .The company-wise distribution is as follows: State Bank Of India – 8.6%, Axis Bank Ltd – 7.7%, Bank Of Baroda – 1.4%, Rural Electrification Corp Ltd – 1.3%, Power Finance Corp Ltd-1% and Indian Bank 0.2%. Next is the FMCG sector covering 15.2% with ITC Ltd being the only representative. The Industrial segment covers a total of 22.6% with Larsen & Toubro Ltd being the major contributor from this sector with 17.1% share. Others include Bharat Electronics Ltd with 3.3%, Engineers India Ltd with 1.5% and NBCC Ltd with 0.6% share.

Utilities is the last sector with a total share of 20%. The following is the break-up: Power Grid Corp Of India Ltd leads the way with 7.9% share. It is followed by NTPC Ltd with 6.7% share, Gail India Ltd with 3.7%, NHPC Ltd with 1.2%, NLC India Ltd with 0.3% and SJVN Ltd with 0.2%. Bharat 22 ETF is only the second ETF by the Government of India, the first one being CPSE ETF. Bharat 22 ETF will be managed by ICICI Prudential. The major reason behind launching the Bharat 22 ETF was to speed up the disinvestment process in the country. The government had set a target of Rs 72500 crores for disinvestment in 2017-18. So far, approximately Rs 9500 crores have been garnered. The tremendous success achieved by the CPSE ETF is one of the major reasons for the launch of Bharat 22 ETF. Bharat 22 ETF is expected to be launched in tranches, just as in the case of CPSE ETF, whose 3 tranches have been able to raise an amount in excess of Rs 9000 crores. The government has not yet announced the launch date for the ETF. The Bharat 22 ETF may be among the most comprehensive ETFs in the market when it is launched, but that does not guarantee success in any way. This is because the top 5 stocks may account for over 50% of the portfolio and there are always the sector-specific risks. Well, all-in-all, only time will tell whether Bharat 22 ETF is worth all the hype surrounding it.

Economics of Football

ECO Section

Introduction Recently, Brazilian national football team's Talisman and former FC Barcelona Winger, Neymar Jr, completed a staggering £198 million move from Barcelona to Ligue1 giants, Paris Saint Germain – a new world record transfer fee for any football player. This was quite an eye-popping move as Barcelona is the kind of a team where players like to move t o, e s p e c i a l l y w h e n t h e y h av e accomplished everything they possibly can, at their respective clubs. For Neymar to move out of Barca, poses a pertinent question: How did PSG pull off the “Transfer of the Century”? But before we could understand the Neymar transfer, we should examine and understand how football player transfer works and some widely held myths related to the same needs to be busted right away.

By Deepanshi Agarwal (PGA 17-19) R Prasanth (PGB 17-19) Overview of the Transfer Market A transfer in football is basically the movement of a player or players to a club from another in exchange for something else, either in form of cash, or another player or sometimes both. It obviously involves a contractual agreement and a decision is made on the basis of negotiations put forward by both parties. There are a lot of factors that affect the dynamics of a player transfer, which include the players, clubs, player agents and third party ownership and also implicit factors like agent-player relationships, scouting for options and relationship between clubs Most of the focus happens only on big player transfers, as they make up the significant chunk of the transfer spending and the limelight is more during the January transfer window as it is a midseason scenario and any transfer could be a potential make or break for one

ECO Section

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or more teams. At the same time, if a player is traded for free, their morale can be drastically affected. Smaller and small player transfers have little impact on the overall transfer spending, barring the exceptions of seasoned veterans, who are past their prime but cannot be discounted for their “Big Game” Impact. Coming back to the concept of free transfers, the famous Bosman rule, completely changed the way players c o u l d c h o o s e t h e i r p r e fe r r e d destination. The ruling allowed players to leave their current club once their contract had expired, which was not the norm a few decades ago. In summary, popularly known players influence the total value of the transfer, just as market dynamics do. Clubs have a big impact on how the player transfer system works. Big name clubs like Manchester United and Real Madrid, who fall in the top 10 clubs in the world, be it in terms of fan base or year on year earnings, do not shy from splurging money to get the best in the business, with Real Madrid alone setting the record for 5 of the biggest transfers in the history of the game.On the other hand, there is a classic example of clubs like Porto, Valencia, and Wolfsburg who groom their players and sell them for massive fees. For most teams, the approach is to find either young stars or under-appreciated talented players and then mould them into world class legends.

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Agents have become very powerful, sincea the Bosman ruling. Agents may sometimes be parents or a close relation and fundamentally act as an intermediary between the club and the transfer target. An agent takes care of contract negotiations and typically help the players establish whether the player should consider joining a club and the associated terms and conditions. Agents also act as translators, both linguistically and culturally and largely benefit from transfers by taking a cut from the income of the player and also in some cases, a portion of the transfer fee which facilitated the transfer of the player. The Paul Pogba transfer to Manchester United netted Dutchman Mino Raiola – one of football's so-called “super agents” – a reported commission of £41 million. Third party ownership (TPO) also plays a crucial role on how a club performs. In this case individuals, companies or funds own parts of a player's economic rights. They are usually lobbied by clubs to get the target players they want and at the same time. TPO uses this opportunity to take a cut in the transfer fees and sometimes loan out some money to the clubs at nominal interest rates. FIFA had once stated that “TPO has harmful effects on football and its essential values, thereby undermining the overall integrity of the game” Now that the factors broadly affecting the transfer market are laid out, we will now some of the myths that need to be busted -:

ECO Section

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Player's transfer fees are not recouped through shirt sales

Big name Kit Suppliers like Adidas, Nike and Puma along with other players get 8590% of the shirt sale revenue. Contrary to popular notion, clubs get a very paltry cut of 10-15% or even less. We must understand here that, for instance, Manchester United's 10-year kit deal with Adidas of worth £750m should be seen as a licensing package and not purely a marketing opportunity for Adidas. Most of the big clubs don't have the facilities to manufacture and distribute kits, and Adidas mainly does this job. Even the logistics are outsourced most of the times. Clubs get paid a royalty for each additional shirt sold only after a threshold of sales is reached, the cumulative revenue of which may not be helpful in recovering player's transfer fees.

Fax machines are not responsible for failed transfer deals The case of Manchester United's No.1, David de Gea's failed transfer to Real Madrid in 2015, was not due to, as people may believe, a faulty fax machine. Each club has a Transfer Matching System (TMS) manager who is trained to ensure that transfers are processed correctly. In the case of de Gea, the TMS did not ensure the transfer went through effectively and was linked as the possible reason for the failed transfer. Clubs do not have a transfer budget Clubs may show they have a particular

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budget for a season to spend. But it is unknown as to how do clubs arrive at that number. They often do not include agent fees and image rights payments or sometimes even player wages. They have more money in their kitty than we are made to believe and there is a lot more to player costs than just transfer fees. “Net Spend” is not relevant for calculating player costs As we have understood by now, there are a lot of factors involved in player costs, then just transfer fees and net spending is not the right way to calculate the overall profit or loss a club incurs on the sale or purchase of a player. Net Spend of a club does not take into account the player's wages and misunderstands the way clubs actually account for player costs. Let us further examine this in Financial Fair Play rules and Player Amortisation. Financial Fair Play & Player Amortisation In 2010, UEFA introduced Financial Fair Play (FFP) rules. The rules essentially aim to keep clubs from spending themselves into financial difficulties and in UEFA's words to “improve the overall financial health of European Football”. Due to several legal challenges brought against UEFA, the severity of the penalties for clubs failing to comply with the rules are subject to change.

ECO Section

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But as a broad summary, the rules state that the football clubs must balance their books over a period of three years. The penalties for failing to do so include, temporary expulsions from European competitions, hefty fines, and transfer embargos. With Financial Fair Play rules coming into effect since the 2011/12 season, football clubs use the concept of player amortisation to continue complying with FFP rules and avoiding sanctions, despite the increasing transfer fees, agent fees and player wages. In accounting , we use the word amortisation to mean the systematic allocation of a balance sheet item to expense (or revenue) on the income statement. In simple terms, it is similar to depreciation and depletion. Player amortisation can be understood with the help of an example. Angel Di Maria, the then British Record Signing, cost Manchester United £59.7m in 2015.When he was sold a year later to PSG for £44m, the net spend method would show a loss of £15.7m.Rather than showing a cost of £59.7m in their accounts in the year they bought Di Maria, the club would amortise his cost. Di Maria signed a 5-year contract, so United spread his transfer fees over a period of 5 years, thus his Annual Total Cost including wages came up to £26.5m, due to the Amortised transfer fee. When he was sold a year later, the club had accounted only for a fifth of his transfer fee, leaving the 4/5ths on the books, which is mostly accounted by the £44m paid by PSG,

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thus effectively leaving United showing a loss of £3.76m on the deal. But after the sale of the player, the club is no longer required to pay Di Maria's cost and hence it makes an annual profit improvement of £22.7m. Neymar's transfer and did it comply with FFP? Addressing the initial question of how did PSG account for Neymar's staggering world record transfer, we must understand how Spanish laws work in respect to player contracts. The £198m paid by PSG was actually the buy-out clause in the contract of Neymar. Buy-out clauses are common in Spain. It is a compulsory part of most Spanish contracts and is usually set at a price which is higher than the market value of a player. The player has to pay the stipulated amount of the buy-out clause, though, in reality, it is the interested club who pays the amount via the player. On top of this, Neymar will earn £500,000 a week after tax, making him the highest paid footballer. So did PSG comply with FFP? Make no mistake, but the club has all the money, thanks to its backing by Qatar Sports Investment (QSI) and the Qatari owners had enough money to push through this deal. At the same time, FFP states that all clubs in Europe must show that they do not have losses of more than €30m over 3 years. UEFA as of now believes that PSG does comply with FFP and will look in this transfer negotiation in depth for any non-compliance.

ECO Section

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PSG will also effectively look to sell players to balance its books. So it is still not very safe to assume that PSG did comply with FFP in this deal, but in summary, PSG has enough earnings and will be able to balance its books.What does the Neymar transfer imply for future of player transfers? A closer look at the following chart as generated by The Economist shows the share of revenue spent on a single transfer fee. It is interesting to see that only Luis Figo and Zinedine Zidane are above Neymar as far as spending on player transfers is concerned as a percentage of total revenue share (estimated for the following season).But the bigger question is: the financial impact on player transfers in general, by crazily inflating player market, as predicted by pundits for over a decade now is whether modern football is a bubble and will it really burst?

How does Football Inflation Index compare to Cost Inflation Index of India? In order to further understand as to how money has been flowing into the sale of players and how football clubs are getting richer by the day, which in turn, has an impact on player valuations, we have compared the Football Inflation Index with the increasing Cost Inflation Index of India (CII). Here, Football index is calculated by adjusting the value in accordance with the Cost Index of 1997. As per the graph* generated below, taking the base year as 1997^, we can observe that the Football Inflation has historically been double the CII, and after the Neymar transfer, it has increased by more than double (Estimates is based on previous year growth for CII relative to Neymar's transfer).

ECO Section

*Taking the Base Year as 1997 ^Graph generated based on High Profile Signings which have, at the same time, shown significant spread over the period of 20 years.

whirlwind rate, but only time will tell as to whether clubs can sustain with inflated player valuations and still balance its books.

This gives us a clear indication that the transfer market of the â&#x20AC;&#x153;Beautiful Gameâ&#x20AC;? in itself is growing at a

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CryptoMoney

Fintech Section

By:Aarzoo Doshi (PGDM 2017-19) Vaibhav Bhanushali ((PGDM 2017-19)

Decrypting the Cryptomoney At a Financial Action Task Force (FATF) plenary meeting, Christine Lagarde talked broadly about how her organization is seeking to combat money laundering and terrorist financing, noting that block chain innovations could be both a defense against these issues, as well as a tool that enables them. She also told audience:

“Crytpocurrency and Distributed ledger technology is less vulnerable to a single point of failure and could prove resilient to cyber attacks because the ledger – or record of transactions – exists in multiple

What is cryptocurrency: Crypto means concealed, cryptocurrency is concealed digital virtual currency. The defining feature of cyptocurrency is its organic nature, its origin which is most arguable. It is not issued by any central bodies or authority, one of reason to immunity of government interference. One cannot call it a physical object or a digital file

but sequence of addresses. There are only records of transactions between different addresses, with balances that increase and decrease. Every transaction that ever took place is stored in a vast public ledger called the block chain. In order that people can use cryptocurrency, many exchanges have flourished. Some of popular exchanges are: US based coinbase, cryptsy, bitfinex China based BTCChina Solvenia based Bitstamp Zebpay in India Let's have a look at popular cryptocurrency which are in use. Bitcoin:The first cryptocurrency to capture the public imagination was Bitcoin, which was launched in 2009 by an individual or group known under the pseudonym Satoshi Nakamoto. It is the most popular cryptocurrency. Anything to qualify as currency, it should be scarce in nature. Hence, maximum bitcoins that can be made available are 84 million.

Fintech Section

Litecoin:It was launched in 2011 by Charlie Lee, a former Google employee. It was the first cryptocurrency to adopt Segregated Witness technology in blockchain which decreased the block generation time to 2.5 minutes. As a result, transaction processing using Litecoin is much faster than Bitcoin. Maximum Litecoins that can be made available are 84 million. Ether of Ethereum : Ethereum has the goal of using a blockchain to replace internet third parties â&#x20AC;&#x201D; those that store data, transfer mortgages and keep track of complex financial instruments. Ethereum is a decentralized software platform that enables smart contracts and allows Decentralised apps to be built and avoid downtime fraud control and interference from a third party. Etheruem Classic: DAO aka Decentralized Autonomous Organisation was a complex smart contract made on top of Ethereum. It was basically going to be a decentralized venture capital fund. Within 28 days of its formation, it accumulated over $150 million worth of ether in a crowdsale. Hacker found the loophole in DAO and stole ether worth $ 50 million. Following this, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC).

Bitcoin cash: It is the youngest cryptocurrency which came into existence on August 1 2017. As the number of bitcoin users started increasing, scaling and processing speed became a major challenge. It takes around 10 minutes to process a transaction and at a time it can process 7 transactions/second.In comparison, credit card Company like Visa processes 1700 transactions/second.

There were 2 approaches to solve these problems. One was to increase the size of the block used for recording transactions. Other was to 'Segregated Witness' in Bitcoin blockchain which would reduce the amount of data to be verified in each block. Bitcoin community was divided over both the approaches.The ones in the favor of first solution created a new currency named 'Bitcoin Cash'. Some of the exchanges like coinbase are skeptical about the future of 'Bitcoin cash' and they have restricted the trading of Bitcoin cash. How and where to use cryptocurrency Cryptocurrency can be used with the wallet provided by the exchanges. It is similar to digital wallets like Paytm where in transfer of money takes place using Bitcoin address. Apart from purchasing hem from exchanges, various companies like Microsoft, Dell,Expedia etc. have started taking payments with cryptocurrency I US.There are around 800 Bitcoin ATMS in US and Canada which allow you to withdraw cash using your Bitcoin wallets. These ATMS have been set up by various cryptocurrency exchanges. In India, Zebpay is allowing users to use their wallet by asking PAN card as a proof. You need to set 4 digit PIN and then wallet is ready to use. With zebpay wallet, users can recharge or pay bill for mobile phone tariff plans.

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Fintech Section

News events that scare cryptocurrency users include geopolitical events and statements by government officials. Unlike Bitcoin and Litecoin, maximum number of etheruem coins is infinite. When etherurm was launched, there were around 60 million in total. Every year around 15.6 million on ether tokens are mined In future number of new ethers mined will be very less as compared to total count which eventually make ether inflation proof

Malpractice with cryptocurrencies There have been many scams with cyptocurriency apart from Mt.Gox hack and DAO attack. Let's see some of them:

Ransom Attack- In May 2017, there was a worldwide cyber-attack with Wa n n a C r y c r y p t o w o r m w h i c h targeted computers running Microsoft Windows Operating System by encrypting data and demanding ransom in the Bitcoin cryptocurrency. Since the Bitcoin account cannot be traced, attackers are still unknown to the world.

downloaded, user starts using it. It works for a while but amount stored reaches certain threshold, wallet becomes empty. Bitcoin Investment Schemes- These are Ponzi schemes which promise returns on the funds invested. Initially they pay out small daily returns until one day all the payments stop and scammer runs off Phishing scams- In this scam, users receive an email that they have won bitcoins but to collect their coins; they are required to log onto their wallets through a link in the email body. Once this happens, the user puts his or her wallet username and password onto the fake wallet site and, thereby, loses access to their wallet and the bitcoin held therein as his login information gets stolen by the scammers. ÂˇBitcoin Donation Scam- After the Orlando terror attack, for example, a fake donation page was set up that urged users to send the cryptocurrency to help the attackâ&#x20AC;&#x2122;s survivors.

Fake Bitcoin Wallets- Some fake wallets have crept onto the Apple and Android stores masquerading as genuine wallets with names similar to co i n b a s e . O n c e t h e wa l l et i s

Facts

Bitcoin

Litecoin

Ethereum

Total Number till August 12017

21million 52 million 92million

Price

2735USD 42.45USD 226.65USD

Market Capitalization till August 1 2017

71billion 2 billion

28billion

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Fintech Section

Bitcoin price variations since last year

Ether price variations since last year

Litecoin price variations since last year

Ÿ It is evident from the facts table that

number of cryptocurrencies and market capitalization is very high and from price variation graph, it is evident that these cryptocurrencies are very volatile. Ÿ Price of these cryptocurrencies work on the economic principle of demand and supply. If more number of users are buying these currencies, then it's price may rise and if there is more selling activity, then it's price

may decrease. Investor perception plays a very big role. Ÿ Events of security breaches like the one in Tokyo based exchange Mt.Gox because of which bitcoins worth 460 million USD were stolen led to drastic fall in the price of Bitcoins. Ethereum's price was badly affected during DAO attack

Fintech Section

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Regulations for Crypto Currency: Regulating cryptocurrency is difficult as it works on principle of anonymity. But still many countries have embraced the idea of cryptocurrency and have placed some regulations United States: Various Institutions like Financial Crimes Enforcement Network (FinCEN), United States Department of the Treasury, Global Advisors Bitcoin Investment Fund (GABI), New York State Department of Financial Services (NYSDFS) have stepped up to regulate the cryptocurrency. European Union: European Union's top court, European Court of Justice, ruled that exchanging bitcoin should be exempt from valueadded tax in the same way as traditional money. Japan: Japan has officially recognized bitcoin and digital currencies as money w.e.f April 1, 2017. Japan has a new law that will make bitcoins usable as legal tender. India: In India, it is not illegal to trade in Bitcoin but RBI does not provide any security. But however, there are exchanges in India like zebpay, remitano etc. which are helping in Bitcoin trading Concluding Paragraph: Cryptocurrency does not require complex infrastructure like banks but a complex device operating on virtual complex unregulated network like smartphone. It can facilitate financial

inclusion in developing countries like India. Unless it gets proper regulation and maintenance guidelines this asset class remains highly risky for investors. Also, some caution is required due to increase in scams. Since ages, there have been changes in the financial system and this time Cryptocurrency can be the pioneer for the next change.

Internship Diaries

FINLY| July 2017 | Finstreet | SIMSR

Abhinav Kulkarni PGDM-Finance Company Name – JP Morgan Services India Ltd. Department – Asset Management Role – OADP Summer Intern in Tax Cost Team What did you actually do? The role was process mapping and a u t o m a t i o n fo r t h e a c t i v i t i e s undertaken by Tax Cost Team. The internship starts with the understanding of the business case. To understand the same, interns require understand the standard process documents of the related team. In many cases, inputs from other teams are required to be taken. Understanding of the case is followed by data analysis, finding out area of improvement, proposal of solution and the development of solution. Solutions are mainly in form of process optimization and automation

Apart from manager, a buddy is assigned to each intern throughout the project. This helps a lot while overcoming difficulties and understanding the activities in depth.Apart from BAU activities, training/interactive sessions with VPs, EDs, MDs are organized. These sessions give a decent overview of overall business and do motivate to strive for the best. The HR team also organizes a case study competition for summer interns where they need to solve a realtime problem, which is another aspect of learning.

Key skills required – Analytical skills, Problem solving approach, Communication skills, Team player, basic knowledge about financial markets.

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some daily reports in Excel using feeds from the system. Around noon the P&L numbers can be worked upon. Evenings can be utilized to do online trainings on Morgan Stanley's portal if vast online resources. A lot of classroom trainings are also conducted by people from different departments/people visiting from abroad.

Organizational Culture â&#x20AC;&#x201C; JP Morgan is one of the best organizations on this parameter. Organizational culture is very open & free. Every kind of diversity can be found out here. The management ensures continuous learning through mandatory trainings, project related trainings and skill development initiatives. HR team continuously seeks feedback from interns over progress. Supportive and approachable colleagues, Work-life balance through intra-team fun activities, summer intern's outing etc.

Key skills required - communication skills, being a team player is a must, understanding financial products especially the product you as a controller will work upon (eg CDS, equities etc, distressed credit products etc) ( online trainings on the portal will be assigned to you), presentation skills, analytical skills, Excel skills.

Internship Diaries

Exposure/Experience gained â&#x20AC;&#x201C; Understanding of business in Asset and Wealth Management, Understanding of Trade lifecycle, Basics of Tax reporting, Hands on over excel macros, Best practices in documentation being followed by the industry, Interaction with Top management (VPs, EDs and MDs) and networking opportunities

Aloka Chattani PGDM-Finance Company - Morgan Stanley Department - Financial Control Group Role - Product Control What did you actually do? Reconcile the P&L between 2 systems, the trader flashes a P&L which can be seen in his system and also the product controller's system shows a P&L of previous day's trades. Both should match, if not, you investigate why it is not matching. Ultimately what the controller publishes are final P&L numbers which are used as inputs by other teams A typical day would start with making

Exposure gained - understanding the complex hierarchy of an investment bank, meeting with key top people in the organization, understanding what lies beneath the tip of the iceberg i.e what happens after a trade is made, understanding the functions of various teams in FCG, good volunteering opportunities and access to an online portal with rich resources Work culture - very open office environment, can walk up to anyone and ask for their time, everybody interested in your learning as an intern, skill development and trainings are taken very seriously, company has a lot of employee friendly policies

Internship Diaries

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Neha Swaroop PGDM FS Company – Ernst & Young LLP Department – Business Valuation & Financial modeling Role – Valuation of business units as per requirements, Audit of Purchase price allocation reports What did you actually do? The role was to assist the analysts and associates with business valuation projects. My project was divided in two main parts – The first part dealt with Purchase Price Allocation (PPA) wherein the purchase consideration for an acquisition had to be allocated between tangibles acquired and liabilities assumed, Intangible assets and the remaining part was allotted to goodwill or else a case of bargain purchase. An overview on valuation of intangible assets was introduced a part of this training program. Opportunity to work on PPA assignments involved data search on previous transactions. Basic knowledge of PPA was gained as a part of audit and research involved in these assignments. Introduction to various f i n a n c i a l t o o l s l i ke C a p i ta l I Q , Capitalline, etc was a part of learning.

who assigned the relevant work for the day. Key skills required - Communication skills, team player, grasp of financial state m e nt s , exc e l s k i l l s , b a s i c understanding of valuation techniques. Exposure/Experience gained - The experience of the two month internship at Ernst & Young LLP has been an extremely enriching one .Interaction with Top management and Promoters, understanding of various valuation practices, industry insights of audit companies, First hand industry experience. Work culture – Challenging work environment, enjoyable (though still hard work), supportive colleagues, meeting the deadlines was customary, extensive training and skill development, lot of learning scope.

The second part of my project was to analyze a case study on valuation of hospital subsidiary and to present a valuation report of the same. The case study acquainted us with different valuation approaches and also the various assumptions that play an important part of valuation. A t y p i c a l d ay w o u l d s ta r t b y approaching associates and analysts

Internship Diaries

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Vidisha Singh PGDM FS Company - CRISIL Ltd Department - Domestic Research BD - Capital Market Role - Generating a business model for Investment Research Agencies What did you actually do? The objective was to analyse the business models of investment research agencies across the globe and develop a generic benchmark level. The same would also help in identifying possible opportunities for CRISIL in similar areas of operations.

The approach we pursued was to decide the scope of our project by shortlisting markets all round the world that were either similar to Indian or comparatively more developed (Germany, US, UK, UAE, Brazil, China, Australia etc.). Further we listed independent research agencies in these countries and shortlisted them on the basis of their market size, niche value and regulatory backing. We classified firms with similar operations together (REITs research, Fixed Income Research, Indices, Insurance Research etc.) and collated information about their models. Then developed a benchmark based on these observations, also listed points for CRISIL's growth opportunities in relevance to Indian market. markets.

Key skills required - Knowledge about the independent finance research domain, Analytical and presentation skills. E x p o s u re /ex p e r i e n c e ga i n e d Understanding about domains like REITs, Fixed Income, Insurance etc. and their current status and future in Indian markets. Interaction with senior level management across verticals within the company to comprehend the departments and their current offering better (indices, rating, research etc)

Work Culture Flat hierarchy, approachable seniors, Lot of learning opportunities, Independence and autonomy at employee level, Helpful and cooperative employees, senior level management guidance.

ALUMNI SECTION

Mihir Babaria CFA – Level 3, MMS 2013-15 Manager, Debt Capital Markets, L&T infra Markets, a period when Sensex almost Giving a Little “More” doubled from ~12,000 to 20,000 in a year. That's when equities and financial ”Whatever the mind of man can markets grabbed my attention and I conceive and believe, it can achieve” decided to pursue a career in this field. This quote by Napoleon Hill in the book Think and Grow Rich has been my Post my BMS, I pursued MMS from mantra which I have been following SIMSR. First day at SIMSR was like a new since the beginning of my higher adventure as a 20 year old in an MBA education. class. But the next 2 years brought the most wonderful memories and an I completed my MBA from SIMSR in enriching experience. Not only with my 2015 and have been working with L&T classmates, but the rapport with the Financial Services in the Debt Capital professors was also very cordial. Today I Markets division since the past 2 years. I am writing this article because I am still recently cleared my CFA level 3 (USA). in touch with my professors at SIMSR. I would like to use this opportunity to provide insights on how my experiences has been so far and how pre-defined goal setting helps in defining a direction to your career I used to follow the stock markets since 2007 i.e. when I was in 9th grade. It was the golden year for Indian Equity

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First stage: MBA – Trying to do a little 'more’

Alumni Section

After starting MBA, there's a sense of relief post clearing all the mind drenching entrance exams and the real pressure starts building up with the start of placement season. Today the objective of MBA has become getting a job. We need to understand that the Institute is a place to acquire knowledge and learn from experiences of our peers and not a Placement Agency . My objective was always to learn in depth about the Industry I wanted to get into. The financial world is an ocean and there are tremendous amount of opportunities available. Derivatives and Portfolio Management were my favourite subjects and I used to trade in the markets using the concepts taught in the lecture. Also, I felt that there is a lot to learn in the Investment management industry; hence I decided to pursue CFA

It is very difficult to study for another course along with MBA which is extensive. But “whatever the mind of a man can conceive and believe, it can achieve”. Start your “little mores” by small activities like reading business newspapers, tracking the latest trends in your field of specialization, reading management and business books and developing a view on the economic and political situation prevalent. The material available at SIMSR library is brilliant if someone uses even 1% of it effectively, he'll be better off than 99% of his competition. Here's a tip for excelling in Group

Discussions: The most powerful tool to grab the attention of the moderator is to throw facts and figures citing the source of the data. It can never be challenged and shows how aware you are of the current business environment If you give a “little more” for your personal growth, you are bound to gain a lot more in the future. So you need to decide if you want to work hard these 2 years and enjoy its benefits for the rest of your life or if you want enjoy these 2 years and work hard for the rest of your life. Final Stage: The Real Challenge called Life The real exam starts once the MBA exams get over i.e. when you start working. Once you enter the real world, your mistakes aren't ignored anymore and each action has its consequences. That's why excellent preparation in the first stage helps to keep you secured during the final stage. Started working at L&T Financial Services in May 2015 in Debt Capital Markets division. Our department was set up in 2014 and has been growing at exponential pace since then. The team is segmented into 2 sub teams: Origination and Placement I am currently a part of the placements team and manage the end to end execution of all Corporate Bonds selldown which includes fixed income valuations, pricing of securities and execution of trade.

FINLY| July 2017 | Finstreet | SIMSR

Alumni section

Currently our book size is ~Rs.3500 Cr Also I manage the entire MIS of the desk which provides details of Modified Duration, PAT, IRR and RoNW. Hence, the work environment is extremely fast paced and challenging. So preparing for CFA level 2 & 3 along with this work pressure required focused approach and effective utilisation of time especially during weekends and post office hours. Today, all the hours spent on the preparation are a set of wonderful memories utilised on fulfilling a dream. To conclude, I would just wish everyone all the happiness and success in personal as well as professional life and hope you all achieve great accomplishments in all your future endeavours!

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by Aman Singh PGDM (FS) 2017-19 Shalini Balakrishna PGDM 2017-19

Sector Analysis

The hospitality and tourism industry has established itself as one of prime drivers of growth in the spirally growing services sector in the world. In India, the scope and potential of tourism is enormous, owing to the cultural and historical heritage, wide variety in ecology, landscapes, and locales of natural beauty, that are spread across the nation. Hospitality and tourism is not only a significantly large employment generator but also contributes to a large quantum of the country's foreign exchange reserves. These very reasons have proven to be incentives for young millennials in large numbers to consider shaping their careers in the domain of hospitality and tourism.

Throwing light on the numerical data associated with the sector, India stands 3rd among 184 countries in terms of the overall (total) contribution of the sector to the GDP, in 2016, at USD 47 billion. The direct contribution, as per the estimated trend for the decade 2015-2025, is expected to grow at the rate of 7.2% per

annum (Compounded Annual Growth Rate (CAGR) of 10.1%), with the increase expected to approximately reach USD 160.2 billion by 2026. By 2025, the total contribution of the sector to the Indian GDP is expected to increase to USD 280.5 billion, the CAGR being 4.97%. The Indian Hospitality and Tourism sector has undergone evolution in multiple stages. Beginning with the Pre-1990 era, the Liberalization, Privatization, Globalization (LPG) phase of 1991, and moving on to the 2000s, notable progress has been witnessed in the sector. During the Pre-1990 era, the National Tourism Policy was formulated in the year 1982, followed by a comprehensive plan framed by the Government of India to enhance and promote tourism. With the establishment of the LPG Policy In 1991, several Indian states declared tourism as an industry, with the government emphasizing on privatepublic partnership in the sector. Government policies went on to provide a

Sector Analysis

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I.In the early 2000s, there was an introduction of a national policy on tourism that focused largely on the development of a robust infrastructure. Domestic tourism got incentivized by way of the introduction of online portals and low cost aircraft carriers. Post 2005, significant development has been observedin 2008, the Ministry of Tourism opened its 1st tourist center in Beijing and 14th overseas. In April 2016, the revenues earned from domestic tourism accounted for approximately 83% of the total tourism revenues. Between January & June 2017, 4.9 million foreign tourists visited India, as compared to 4.2 million foreign tourists between January & June 2016, clearly indicating an upward trend in the sector. Now let us now look into the Key Segments of the Hospitality & Tourism sector. A.Accommodation and Catering Accommodation includes a gamut of services, essentially for boarding & lodging, such as hotels, motels, lodges, bed & breakfast apartments, camps, cabins guest houses, house boats, resorts, and hostels.

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In addition to these, one can also easily use the catering facilities of local restaurants, roadside joints, cafeterias and retail outlets. B.Transportation â&#x20AC;&#x201C; Transportation includes various airline carriers, cruise liners, railways, car rentals and others. A person's choice of mode of transport predominantly depends on the budget allotted, destination & time, purpose of the travel&convenience experience from the source to the point of destination. C.Attractionsâ&#x20AC;&#x201C;The component of attractions plays a crucial role in adding to the benefits attached with this sector.They are broadly classified into man-made concepts and artificial concepts.Man-made concepts include theme & amusement parks, whereas natural concepts include scenic locales,landscapes,events,cultural &educational causes, monuments, & medical,social or professional undertakings.

Sector Analysis

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D.Travel Agents – The hospitality and tourism sector thrives on the enthusiasm and participation shown by a number of independent travel agents, in addition to many online businesses. They alsospecialize in andundertake the sale of related products such as insurance, car hire and foreign exchange. Corporate travel agencies specialize in making travel and accommodation arrangements for corporate travelers, and promoting conference trades. E.Tour Operators – Tour operators focus on providing customized tours with respect to travel, accommodation, and sightseeing. They work towards having a repeat customer base. Government Initiatives & Policy– The Ministry of Environment is planning to revise India's coastal regulation norms aimed at opening up the 7500 km long coastline for development activities like tourism and real estate. Unique tourism experience of visiting the open coal mine of Gondegaon and underground coal mine of Saoner are taken up by Maharastra Tourism Development Corporation (MTDC). They are also using unique marketing strategies to boost the sector. For example, The Goa Tourism Development Corporation is planning to organize familarisation trips or fam trips for international tour operators to showcase Goa as a tourist destination. It has also planned to promote Goa in international markets through print and electronic media. Benefits such as priority reservation and Indian rail pass for train travel are also being extended to foreign tourists. Indian government has also released a fresh category of visa – the medical visa or M visa to encourage medical tourism in India. The government oRs f India allocated 1840.77

crore for the tourism industry. Approximately 412 crore rupees have been provided for promotion and publicity of tourism ministry's various programmes. Drivers contributing to the growth of theHospitality and Tourism Sector Infrastructure – About two-third of the budget allocated by the Ministry of Tourism is utilized for funding the development of circuits, large scale (mega) projects as well as infrastructure projects in the domain of rural tourism. Growing Demand – Owing to the rising income of households, there is an expectation of a considerable increase in the domestic expenditure on tourism. The demand is likely to step up owing to several niche offerings in the existing hospitality and tourism sector such as medical tourism, eco-tourism, pilgrimage tourism, adventure tourism, luxury tourism and heritage tourism. Rising FDI– The cumulative FDI inflows in the hospitality and tourism sector for FY 16 and FY 17 is around USD 12.7 billion. Top international hotel brands, such as Carlson, are targeting the growing Indian market, with the aim of increasing the number of hotels. Popular hospitality brands enter into collaborations to garner higher market share. Policy Support – Campaigns such as Athithi Devo Bhava and Incredible India had been introduced to tap the potential of the tourism sector. Subject to applicable laws and regulations, there is 100% FDI allowed under the automatic route in hospitality and tourism, as well as in tourism construction projects.

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Sector Analysis

Major Companies across Segments

Pioneers in the Private Sector: makemytrip.com The idea of designing the m a ke m y t r i p . c o m w e b s i t e w a s conceptualized by Deep Kalra in 2000. Makemytrip.com offers a wide range of services including airplane bookings, domestic and international packages, hotel accommodations, bus tickets, visa on arrival assistance, travel insurance and currency exchange. In 2016, the company's revenues aggregated to USD 297 million, and in 2017, it reached a new high of USD 336 million. During the period of FY 2012-2017, the revenues grew at a CAGR of 12.10%. Boost to the Airline Industry The growth in the hospitality and tourism sector has given a boost to the Airline Industry. The activated usage of low-cost airlines is expected to reduce tourism costs, and increase domestic spending on tourism. The market competitiveness is bound to improve owing to the participation of a number of international flight operators that are expected to offer better services to customers. By 2020, the Airports Authority of India (AAI) aims to establish 250 airports PAN India, which will surpass the current number of 95 airports. It is estimated that the passenger traffic will increase to 450

million people by 2020, as compared to the last year's figures of 224 million. The Road Ahead As a business destination, India is ranked reasonably high owing to the economic growth. It qualifies as a highly price competitive market. The introduction of visa on arrival along with the changes in the visa norms is expected to encourage significant international arrivals. India has a vast potential to derive benefits out of reforms and initiatives taken by the government in terms of infrastructural projects. Greater importance needs to be given to significant areas such as health and hygiene, security and safety

News Buzz

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Gradual Elimination of Kerosene Subsidy The Government of India has ordered state oil companies to keep raising prices of subsidized kerosene by 25 paise every fortnight until the subsidy is eliminated.

Kerosene subsidy has been the worst subsidy. In most cities, subsidized kerosene retails at around Rs 23 per litre. The openmarket price of kerosene (used for commercial purposes) is much higher, being around Rs 57 per litre. Subsidy on kerosene has led to a number of problems. Studies have revealed that up to 40% of subsidized kerosene is diverted for adulteration of diesel. Diesel costs approximately twice that of subsidized kerosene. Adulterated diesel produces massive pollution, much more than ordinary diesel. The additional truck fumes sicken and kill poor people living on road sides. In cities, shopkeepers and industries use diesel generators to overcome power shortages, thus polluting the air. Villages using diesel for tractors and pumps also suffer.

The kerosene subsidy will soon be down to zero. The large amount of money freed in the process can be instead spent on improving infrastructure, health and skills. The elimination of kerosene subsidy will not adversely affect the poor sections of the society. This is because the demand for kerosene has already been falling sharply. The rapid electrification of villages and the supply of cooking gas connections to crores of poor people have led to the fall in the kerosene demand. The government has been aggressively discouraging subsidized kerosene, which is primarily used by poor people for lighting and cooking and instead encouraging people to switch over to cleaner Liquefied Petroleum Gas (LPG). In 2014, Delhi was declared kerosene free- all sales, subsidies or not, was banned with consumers having to shift to cooking gas. Chandigarh became kerosene free in 2016. Haryana has just become kerosene-free last April. All such areas have reduced pollution and hit adulterators, without causing much distress to the poor. Thus ending the kerosene subsidy is a step forward and a welcome initiative by the central government.

News Buzz

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SoftBank Acquires 20% stake in Flipkart The Japanese company SoftBank, which is also the world's largest technology investment firm, has bought a fifth of India's most valuable startup -Flipkart for a mammoth $2.5 billion. This deal marks the biggest private investment in the country's consumer technology sector. The latest announcement comes just days after SoftBank failed to merge Snapdeal, where it was the largest investor, with Flipkart.

Key Points to note: 路The investment from SoftBank's $100billion Vision Fund consists of primary investment which is a mix of direct funding to the ecommerce company, and the secondary investment which is a purchase of shares from existing shareholders. 路The deal will provide a partial exit to Tiger Global, the New York-based investment firm, which until now was the largest and most influential investor in Flipkart. Tiger Global will own about 18% stake

in the company now while South African media giant Naspers along with Chinese Internet conglomerate Tencent will hold another 20% stake. 路This secondary transaction, which is estimated to have valued the company at $7-8 billion, will also provide partial exits to the two cofounders, employees as well as Flipkart's first investor venture fund Accel Partners. 路This deal will take SoftBank's total investment in India to over $6 billion. It recently pumped in $1.4 billion in digital payments and commerce firm Paytm at a valuation of over $7 billion and is the biggest shareholder in India's largest ride hailing application Ola. Flipkart's cash reserves cross $4 billion, with this investment , and this investment is expected to further step up Flipkart's game against global rival Amazon in the country. Sebi's crackdown on the Shell Companies In a move to curb tax evasion and money laundering practices in the country the Securities and Exchange Board of India (SEBI) directed the stock exchanges to take action against 331 companies and ban them from trading. Following SEBI's diktat, BSE and NSE moved 162 and 48 companies , respectively, into Stage-VI of the Graded Surveillance Measure (GSM), implying these stocks would not be available for active trading. The shares of the suspected shell companies will be traded only once a month until stock exchanges ascertains whether these are genuine or structures meant for fund diversion and tax evasion.

News Buzz

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SEBI has asked exchanges to verify fundamentals of suspect companies by appointing an independent auditor. If exchanges do not find appropriate fundamentals about existence of the company, the stock can be de-listed. These companies are also under the scanner of Enforcement Directorate and Serious Fraud Investigation Office (SIFCO) to tackle the black money. There is no clear definition of shell companies in India. However, according to US securities act a shell firm is one that has no or nominal operations and assets. In other words, a shell company should not have active business operations or assets. There could be legitimate as well as illegitimate reasons behind this. While the legitimate reasons include formation of a company to raise funds for start-ups or that the company had operated in the past but had gone out of business owing to purely economic reasons, the illegitimate reason involves tax evasion scheme by showing bogus transactions and other kind of money laundering practices. The abuse of shell companies started during 1991 to the extent that these shell companies only existed for the purpose of manoeuvring financial transaction.

purpose of manoeuvring financial transaction. Kolkata being the hub of parallel banking or informal trade financing since the historical times,around 145 of the 331 companies declared shell by the securities market regulator on Monday are registered in the city. Many among them are so called jama-kharchi companies, or ones used to launder money and adjust tax liabilities. However, in the current scenario with no established definition for Shell Company not every company can be termed as involved into dubious activity. The current action by SEBI has met with criticism by the corporate sector. The regulator made the decision based on the list provided by the ministry of corporate affairs. However, the process behind this is still not mentioned. Out of the 162 BSE companies only 23 have reported nil net sales for FY17 and about a fifth have a notable turnover of around 100 crore and above.Some companies even moved to Securities Appellate Tribunal (SAT) against the decision and got some relief, as in the case of Parsavnath Developers and Kavit Industries wherein active trading of their shares has been granted permission by the tribunal but the probe will still be conducted on them by MCA, Sebi and stock exchanges. Hence, it is important for the government to consider the impact of this decision on the common shareholders and the investors' sentiment before taking any step further.

Trivia

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Graded Surveillance Measure (GSM) The GSM is a system designed by SEBI to keep a check on shares which see an abnormal price rise not commensurate with the financial health. These companies are often illiquid and have low market capitalization. The regulator may suspect that shares of these companies are being bid up and used for money laundering. Thus, SEBI's intention is to identify and protect investors from dealing in such shares at an early stage. Once a company is identified, it enters into one of the 6 stages of GSM and attracts corresponding surveillance action. GSM was introduced in February this year and since then over 700 companies have come under it.

Escrow Accounts Escrow account is held by third party on behalf of two other parties that are in the process of completing a transaction. This is a temporary account held by the escrow agent operates till the completion of the transaction process, which is implemented after all the conditions between the buyer and the seller are settled. Any kind of financial instrument such as money, securities, funds and other assets can be held in the escrow accounts.

This is a temporary account held by the escrow agent operates till the completion of the transaction process, which is implemented after all the conditions between the buyer and the seller are settled. Any kind of financial instrument such as money, securities, funds and other assets can be held in the escrow accounts. It is a commonly used term in the real estate industry, where the fund flows for the development of the project from any source is kept in the escrow account and the funds utilised and funds utilised for the same are also generated from the escrow accounts. Contra Funds Contra funds are based on the style of investing against the market trends. The manager of the contra funds will pick up under performing stocks or sectors, likely to perform well in the long run, at cheap valuations. The underlying assumption is that the value of an asset will stabilise in the long run hence it is lucrative to buy asset at a lower cost than its intrinsic value.

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FINLY| August 2017 | Finstreet | SIMSR