Finly March 2019 by FINLY

FINLY| March 2019 | Finstreet | SIMSR

From the Editor’s Desk

Dear Readers,

We at Finstreet are proud to unveil the March edition of our monthly magazine FINLY for the academic year 2018-19. Our Cover Story analyses the interim budget and tries to estimate the implications for the economy . Next in line, is the Eco Section, which explains in detail about the recent RBI rate cut and its impact. In the Sector Analysis, the authors inspect the E-commerce sector, with an in-depth analysis of the latest disruptions in the industry, along with covering the leading industry players. This month's Fintech Funda covers the emerging trends in Regulatory Technology and how it may impact the future of Regulatory solutions. In the end, we have introduced a new section called “Know Your Finance”, which contains information, breaking down some useful concepts in Finance, which would help any aspiring finance student to take baby steps in building the concepts as well as confidence in the subject. I am thankful to Prof. (Dr.) Pankaj Trivedi (Course Coordinator, PGDM Core, and Faculty Coordinator, Finstreet) for providing the essential mentoring, support and backing to the Finly team. I would also like to thank our New Sponsors, White Knight Ventures, for an enriching collaboration. We hope to continue the partnership for a very long time. We have received an overwhelming response for this month's call for article competition, with some high-quality content from some of the best management colleges of the country and I thank each and every participant for their sincere efforts and participation. This month's winner's and runner-up articles are a recommended read. I thank all our readers and faculty members for their constant love and support. Your reviews and feedback are much appreciated. Team FINLY has always been a strong set of focused individuals who put in a lot of efforts and dedication to stitch together this magazine and I can't thank them enough for their constant support and initiative. HAPPY READING!!! R Prasanth, PGDM-FINANCE, 2017-2019, K.J. SIMSR

FINLY| JULY 2018 | Finstreet | SIMSR

INDEX

Editorial Team Finly

Cover Story

Article of the Month-Winner

Article of the Month-Runner Up

Fintech Funda

Sector Analysis

Know your ď&#x20AC; nance

Eco Section

Cover Story

The Union Budget 2019 was presented by Finance Minister Piyush Goyal on 1st February, 2019.This year being an election year, the budget presented was an interim one instead of the full budget. When the government is outgoing and does not have time to present the full budget mainly because of elections, it presents an interim budget which later gets approved or modified by the next government. The outgoing government announces an Interim Budget or Vote on Account in February which is followed by a full budget by the new government in a few months' time after the elections. A key point of difference between Interim Budget and a full-fledged Union budget is that the former is only valid for two months (until the new government presents its budget) while the latter is for a whole year. Several measures were announced mainly for the middle class and farmers because this is the last budget before the elections for the 16th

Lok Sabha. The Narendra Modi government has tried everything to please public across all sections of the society, not just the rural public in India. According to Finance Minister Piyush Goyal, “Reducing the middle-class tax burden has been a priority for the government”. Let us look at the new tax proposals for individuals for 2019-20 · The income tax slabs have remained the same for FY 2019-20. · Notional Rent on the second selfoccupied house under Income from House Property will also be considered for exemption. · Though the tax slab has remain unchanged, there will be no tax charged on income up to Rs 5 Lakh, the benefit will be available through rebates. The moment it exceeds Rs 5,00,000, tax will be

Cover Story

FINLY| March 2019 | Finstreet | SIMSR

charged as per the regular tax slabs as follows- Up to Rs 2,50,000–nil, Rs 2,50,000-5,00,000, @ 10% and above Rs 5,00,000 @ 20% and above Rs 10,00,000 @ 30%. Though no changes are proposed to the basic exemption limit and tax rates, individual tax payer who has only salary income of INR 825,000 will not pay any taxes (table below), if the proposal of the Finance Minister to allow for a rebate of INR 12,500 and increase in standard deduction by INR 10,000 is approved by both the house of the Parliament and the President of the India.

How's the Jobs? Low, Sir!!! In the budget of 2019, Finance Minister fails to address one of the major concerns of people i.e. deepening job crisis. Finance Minister seemed to seal his lips on creating job opportunities which seemed a little odd as creating 2 crore job opportunities every year was one of the major agenda of PM Narendra Modi during the 2014 elections. With the recent controversial revelation made by National Sample Survey Organization stating unemployment rate of 40-year high

6.1% in FY-18 and government rubbishing it, Finance Minister chose to remain silent and avoided heating up the controversy. Without giving any quantifiable number and being vague about it, he had thrown some light on how transportation, renewable energy, manufacturing and infrastructure sectors are going to create jobs in near future. Automobile industry The recommendations made by Society of Indian Automobile (SIAM) have been considered which will provide a boost to assembling Electric Vehicles and also lower the prices of these EVs by a significant amount. The government has drastically lowered the customs duty on vehicle parts and components imported for assembly from 15 to 30 percent to 10 to 15 percent. This will help manufacturers import goods at a price which will be almost half of what they paid earlier. Further, the Central Board of Indirect Taxes and Customs (CBIC) has removed customs duty exemption on battery packs on EVs, which is now 5% and doubled the same to 20% on battery packs of mobile phones. Lowered import duty on EV parts could mean tow-wheeler electric manufacturers would benefit from lowered expenses which would in turn benefit the end consumer as it will result in affordable electric two-wheelers. Infrastructure Union Finance Minister Piyush Goyal while presenting the interim Budget for 2019-20 in the Lok Sabha termed infrastructure as the “backbone” of any

Cover Story

FINLY| March 2019 | Finstreet | SIMSR

nation's development and the key announcements make on the infrastructure front are given below:1. Budget allocation for highways this year has increased to Rs 83,000 crore. 2. Domestic passenger traffic has doubled over the last 5 years leading to a high creation of employment opportunities. Source : union budget

3. Government's effort in the Sagarmala programme will be scaled up along with development of other inland waterways such as the container freight movement from Kolkata to Varanasi. 4. Projects to develop 1 lakh villages into digital villages over the next 5 years. 5. Construction/Development of rural roads has been tripled under the Pradhan Mantri Gram Sadak Yojana.

The Finance Minister who also holds the portfolio of the Railway ministry, claimed that the Operating Ratio is expected to improve from 98.4% in 2017-18 to 96.2% in 2018-19 and further to 95% in 201920. All unmanned level crossings have been eliminated which makes this year the safest for Indian Railways.

6. With the launching of Pakyong airport in Sikkim, number of operational airports has crossed 100 because of UDAAN. 7. India is now the fastest highway d e ve l o p e r i n t h e wo r l d w i t h 2 7 kilometres of highways built each day. Source : union budget

Railways Other Important Announcements Railways has been allocated with the highest ever budget allocation of Rs 1.58 lakh crore for its capital expenditure. Interestingly there has been no hike in Indian Railways' passenger fare and freight charges. Also, Capital support from the budget for Indian Railways is estimated at Rs.64,587 crore

A Scheme named Pradhan Mantri ShramYogi Maandhan is announced to provide benefits in the form of pension to at least 10 crore labourers and workers in the unorganized sector. The Finance Minister said that within the next five years it would be amongst one of the biggest pension schemes of the world. Allocation

Cover Story

of Rs. 500 crore is done for the scheme. The Finance Minister further said that inflation rates have been brought down to 4.6% over the last 5 years which is lower than the inflation during the tenure of any other government. Notably inflation was down to as low as 2.19% in December 2018. He further stressed that if inflation was not controlled, people would have been spending around 3540% more today on day to day expenditures. Also, the average rate of inflation during the previous government tenure was 10.1% during 2009-2014. The total expenditure will increase from Rs.24,57,235 crore in 2018-19 to Rs.27,84,200 crore in 2019-20. This increase of Rs.3,26,965 crore or 13% (approx) reflects a high increase considering low inflation. Moreover, the fiscal deficit of year 2019-20 is estimated to be 3.4% of India's GDP. The Finance Minister aims to bring this number down to 3% by the year 2020-21. Agriculture Apart from focusing on the middle class, the Interim Budget 2019 has bought a major boost to the Agricultural sector. The Finance Minister, has focused on the need of a structured income for the poor and marginal farmers. To facilitate this, a scheme named Pradhan Mantri Kisan Samman Nidhi has been announced. This would cost the government 75,000 crore and will be covering 12.5 crore farmers under its umbrella. Through this scheme, farmers who have land up to two hectares will be getting Rs 6,000 every year. Farmers will receive money in their accounts directly, in three instalments of

FINLY| August 2016 | Finstreet | SI

Rs.2000 each and would be funded completely by the central government. Since agriculture is the backbone of rural economy, this step would be a boon for farmers who have small and marginal land holding, getting low returns. Interest subsidy of 2% was declared for farmers affected by natural calamities. An additional 3% relaxation will be given for timely payment of loans. This scheme can also be enjoyed by farmers involved in animal husbandry and fishery related activities who are availing loans through Kisan credit cards. Rs.14000 crores has also been allocated to the Pradhan Mantri Fasal Bima Yojana or the crop insurance scheme for the year 2019-20. Rural Economy Rs.60, 000 crore has been earmarked for the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) for boosting the livelihood in the rural sector. The Finance Minister during his speech has also given the provision of providing more funds to the scheme if required. The construction of roads under the Pradhan Mantri Gram Sadak Yojana (PMGSY) has been tripled and allocation of funds has increased to Rs.19000 crore for 2019-20 against Rs.15500 crore in 2018-19. Pradhan Mantri Sahaj Bijli Har Ghar Yojana or the Saubhagya Scheme aims to provide electricity to all the willing households by March 2019. Education There has been no significant announcement in the education sector. In the budget speech, Mr Piyush Goyal announced Education to be a part of 10

Cover Story

IMSR

dimensions of vision 2030. There has been a 10% increase from the previous budget with a total allocation of Rs 93,847.64 crore for both school and higher education combined together, to be spent by the Ministry of Human Resource Development. The budget apportioned Rs 56,386 crore for the Department of School Education and Literacy, an increase from last year's Rs 50,000 crore, which was later changed to Rs 50,113.75 crore. Rs 37,461.01 crore was allocated to The Department of Higher Education which was later revised to Rs 33,512.11 crore. Even after announcing a 10 per cent economically weaker section (EWS) q u o ta i n t h e h i g h e r e d u c a t i o n institutions and after that ordering for an increase of 25 per cent seats in the central universities, the budget didn't have any significant change for these sectors. Health Similar to the education sector, the health sector also didn't see any new or significant scheme other than setting up of AIIMS in Punjab and setting up a centre for excellence for Artificial Intelligence. Rs 61,398 crore was earmarked for the health sector for the 2019-20, with Rs 6,400 crore allocated for the Centre's Ayushman Bharat Pradhan Mantri Jan Arogya Yojana health insurance scheme in the Interim budget. Allocation for National Health Mission was increased to Rs.31745 crore. Defence In the Union Budget 2019, Interim

F i n a n c e M i n i st e r P i y u s h G o ya l announced that defence budget has been increased to more than Rs 3 lakh crore for the financial year 2019-20 and more allocations will be made to the defence forces if needed. Mr. Goyal also said that Rs 35,000 crore has already been disbursed under 'One Rank, One Pension' for the armed forces.

Source : union budget

Budget Highlights 1. Income Tax Rebate – In a move aimed towards middle class, Mr. Piyush Goyal announced that individual taxpayers having annual income up to 5 lakh rupees will get full tax rebate. Also, individuals having an income of up to 6.5 lakh rupees would not have to pay any taxes if they invest in provident funds and prescribed equities. 2. Increase in the Defence Budget – The defence budget has also been enhanced beyond Rs. 3 lakh crores. Also, a sum of Rs. 35,000 crores have been disbursed for the soldiers under, the one rank one pension scheme in this budget. 3. Pension for Unorganized Sector – The Pradhan Mantri Shram Yogi Maan Dhan Yojana was announced, with the unorganized sector getting Rs. 3000 monthly pensions after the age of 60.

CONSEQUENCES OF AN INVERTED YIELD CURVE

Cover Story

FINLY| March 2019 | Finstreet | SIMSR

4. Direct Income support for Farmers – The Pradhan Mantri Kisaan Nidhi Yojana was also announced in the Budget. This scheme will help vulnerable farmers to get a direct income support of Rs. 6000 per year. This scheme is for farmers with less than two hectares of land holding. It was also announced that farmers severely affected by natural calamities will get a 2 percent subvention and an additional 3 percent subvention upon timely repayment. 5. Gratuity Limit Extended – For working professionals, the gratuity limit has been raised from Rs 10 lakh to Rs 20 lakh. Industry experts believe that with the

gratuity limit hike from Rs 10 lakh to Rs 20 lakh, along with other developments, there will be an impact on the total amount an average Indian manages to save every year, which will boost spending in the economy, driving growth further. 6. Interest Subvention on MSMES' Loans – The Finance Minister announced that GST-registered Micro, Small and Medium enterprises (MSMEs) units will get 2% interest subvention on a loan on 1 crore. 7. Simplifying Direct Tax System – Regarding the direct tax system, Mr. Piyush Goyal announced that the income

Cover Story

tax returns will be processed within 24 hours and the refunds will be paid immediately. In the next two years all assessment and verification of IT returns will be done electronically without any kinds of intervention by officials. 8. Standard Deduction raised – The Finance Minister has announced that the standard deduction for salaried persons has been raised from Rs. 40,000 per year to Rs. 50,000 per year. 9. Changes in TDS – The Budget 2019 states that there will be no TDS on house rent up to Rs. 4 lakh per year and no TDS on bank, post office interest up to Rs. 40,000, up from Rs. 10,000 prevailing in last year's budget. 10. Increase in Direct Tax collection – The Budget said that direct tax

collections have increased from Rs. 6.38 lakh crores in 2013-14 to almost 12 lakh crores currently. Also, the tax base is up from Rs. 3.79 crores to Rs. 6.85 crores. The budget this year has been a very populist budget keeping the elections in mind. It has been termed as the mother of all election budgets. An economist may not like it that much and might only give it 5 out of 10, but a politician who wants to win the elections will rate it very highly. The interest rates and inflation are definitely set to rise if policies announced in this budget are approved and implemented. The Sensex had also skyrocketed at the time of announcement but closed only 212 points higher indicating dampened enthusiasm in the market.

FINLY| JULY 2018 | Finstreet | SIMSR

FINLY| August 2016 | Finstreet | SI

Article of the Month - Winner

SCHEME ACROSS INDIA

Niyant Thakar KJ SIMSR

“The Chinese use two brush strokes to write the word crisis. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger — but recognize the opportunity.” ―John F. Kennedy On one hand we have agrarian distress since years, 1st due to droughts and ironically now due to surplus production, whereas on the other hand lies an opportunity to resolve this issue with permanent solutions similar to Rythu Bandhu Scheme. But as the old saying goes “Perfection is a moving target”, so when we talk about replicating such complex policy with multiple constraints across India there comes several challenges which needs to be anticipated well in advance & tackled to make sure

new policy implementation is near perfect for a diverse & mega country like India. Current Telangana based RBS It is an agricultural investment support scheme which grants Rs. 4000 per acre per farmer per season (Kharif/Rabi) for c ro p p ro d u c t i o n w h i c h i n c l u d e s purchasing of critical inputs, irrigation and hiring of farm labour. Telangana Govt. has allotted about Rs. 120 billion to target 5.83 million farmers under RBS in 2018-19. Regressive Nature of current RBS Any policy to tackle agrarian crisis should consist of following objectives:

IMSR

FINLY| March 2019 | Finstreet | SIMSR

Article of the Month - Winner

1. Must be agricultural or rural in its focus; 2. Must not be egregiously regressive; 3. Magnitude of the assistance must be meaningful; 4. Fiscally feasible; 5. Easy to implement administratively. Either we talk about RBS or Loan waiver or any other agricultural schemes in India we find one thing common, all of them are egregiously regressive. All these agricultural interventions are badly targeted social interventions and hence even after spending trillions small & marginal farmers are still not getting benefits. All these schemes consist of errors of inclusion (the rich-undeserving also get benefits) and exclusion (the deserving poor do not get the benefits). The aim of any well-targeted scheme is to minimize both the inclusion and especially exclusion errors. Charts below illustrates regressivity of farm loan wavier. It indicates that maximum institutional borrowing is done by large farmer and thus loan waiver benefits go to them is 4 times more compared to small & marginal farmers.

Similarly, even RBS is regressive in multiple aspects namely it has linked cash payments to land ownership, it has left out 2 highly vulnerable groups: agriculture workers & landless labourers and thirdly proportion of benefit is also regressive where payments are linked to size of landholdings, thus richer landlords receive larger payment benefits. One of the Report named â&#x20AC;&#x153;QUBRI: The way forwardâ&#x20AC;? by Harvard PhD student, lecturer & World Bank economist have illustrated this regressive nature by estimating beneficiaries if RBS is implemented in Bihar using data from the SECC(Socio-Economic Caste Census)

FINLY| March 2019 | Finstreet | SIMSR

CRYPTO-CURRENCY MARKET HITTING NEW LOWS

Article of the Month - Winner

are minuscule for states like Rajasthan, Bihar and Madhya Pradesh as per study by PRS legislative Research.

It clearly indicates that transfer is highly regressive under RB with payments to the top asset quintile being more than 15 times the transfer to the poorest quintile. This is not surprising since the average household in the top quintile owns 2.7 times the amount of land owned by its counterpart in the bottom quintile. This translates to an additional pay out of INR 13800 per annum for the richest households. Land Records India has poor land records currently and getting it corrected will be a nightmare. Telangana & Andhra Pradesh, digital records of rights (RORs) are almost available for all villages but t h ey a re n o t ava i l a b l e i n s a m e proportion in rest of India. In fact they

Also, less than 60% of the amount is released of Rs. 19.3 billion which was sanctioned for modernisation of land records and a third of this released amount remained unspent. Thus, identifying the landowner is a difficult task to achieve. Following table gives clear idea of percentage proportion of number of farmers & land owned in Telangana & overall in India.

Article of the Month - Winner

Fiscal Impact Estimates As per Ajay Vir Jakhar of Bharat Krishak Samaj, a farmer organisation the total cultivated area in India is around 159.4 million hectares and if we assume DBT of Rs. 20000 per hectare per year then it would turn out to Rs. 3.19 trillion. As per Ashok Gulati economist at Indian Council for Research on International Economic Relation (ICRIER) estimates it would be a burden of Rs. 4 trillion. And as per report by Soumya Kanti Ghosh, group chief economic advisor, State Bank of India it would cost around Rs. 2.7 trillion based on net sown area. So, to make RBS sustainable government will have to replace some or all other agricultural schemes like MSP, subsides on inputs (fertilizers, seeds, power and water). It will help eliminate corruption and administrative inefficiency as well from the system. As per one of the estimates eliminating the fertilizer and power subsidy in Punjab would finance an annual transfer of Rs. 92000 to every cultivator or Rs. 50000 to every agricultural worker in state where median agricultural household income is Rs. 150000 as per official 2013 estimates.

under cooperative federalism framework on 50-50% burden sharing basis between centre & state to avoid moral hazard and lack of efforts on the part of states. Also, the cash operation can use same channel/bank account used for transfer of MNREGA payments. It would help government avoid tedious task of making land titling records as entire Rural India will be included in scheme. Cash transfer should be not in 2 instalments but 4 instalments each pre & post-harvest for 2 agricultural seasons to prevent downside of 2 lumpy payment which is as we have learnt from behavioural economics that â&#x20AC;&#x153;Large windfalls lead to imprudent consumption.â&#x20AC;?

Way Forward Version of RBS for India should focus on entire Rural India which will make it i n c l u s i ve a s we l l a s b e e a sy to implement administratively as we would have to identify the excluded (about 20 to 40% urban population) instead of identifying the beneficiaries (which could be between 60-80% population). It must be implemented

FINLY| August 2016 RICHES TO RAGS : THE STORY OF| Finstreet | SI HYPER - INFLATED VENEZUELA

Article of the Month - Runner Up

FINLY| JULY 2018 | Finstreet | SIMSR

Mayank Jaiswal NMIMS, Mumbai

The background Venezuela is a small country at the northern-most tip of Latin America, with neighbours such as Columbia, Guyana and Brazil. Its population is 32 million (which is equal to the population of Delhi and Bengaluru combined). It was 1922 when the first oil well was found in Venezuela post which, things have never been the same for this nation. Within ten years of finding oil Venezuela became its largest exporter in the world. Till this date, being one of the most oil rich countries in the world, Venezuela relies very heavily on oil for its income. Nearly, 95% of its hard currency is earned through exporting oil. It enjoyed its oil dominance for good three decades till 1960's when there

was a huge dip in the oil prices. Subsequently, the OPEC was formed and this cartel pledged to regulate oil prices by controlling its supply across the globe. In 1970's the Arab OPEC countries got caught up in Arab Israeli war and cut supplies to US and other nations. As a result, this distant South American nation reaped benefits of this situation because of a surge in oil prices and increased demand from its neighbours. During 1980's Venezuela's incomes quadrupled before oil hitting another glut due to overproduction. This was an economic slowdown period globally due to which oil prices suffered and so did growth; until the turn of the millennium when oil prices started to rise again and the world witnessed an era of dot com. Venezuela stood the test of time, till early 2000s, but loosely till 2013 when

IMSR

Article of the Month - Runner Up

it's President Hugo Chavez died. Venezuela by now had invested heavily into abundant social welfare schemes as a part of its late President's populist agenda to remain in power.

estimated inflation rate in this struggling nation is more than 13,000% and it's said that prices of commodities over here are doubling every 26 days! This phenomena is generally known as Hyperinflation. The Indicators a) Gross Domestic Product: President Hugo Chavez was ruling Venezuela in 2008. His policies were indeed effective as it brought in growth and reduced economic disparity but increased the CAD. From 500 Billion in 2008 to 320 Billion USD in 2018. This fall in GDP is closely due to declining oil prices and meagre contribution of other sectors in the economy.

The Problem Owing to a series of bad economic decisions and strong dependence on a single sector, oil, which due to global market forces was very unpredictable, Venezuela could never see a long term economic stability. At the stem of this misery were political, social as well as economic reasons but the overwhelming factor was the volatile prices of oil. Venezuela was running into a huge Current Account Deficit (CAD) due to overspending in its welfare schemes, it also didn't diversif y its income generating sectors due to which agriculture and manufacturing took a major hit. The nation has seen continuous recessions and has faced steady and heavy inflation. The current

The graph shows a considerable 5% Year on year real GDP growth rate in 2008. But the economic crisis which originated from t h e U S , s h o o k t h e e nt i re wo r l d . Ve n e z u e l a n e c o n o m y r e g a i n e d momentum as the markets started to recover owing to demand from countries like India and China. 2008 growth: 5% and 2018 growth: -15%

Article of the Month - Runner Up

b) Inflation: While the average inflation rate in India is 3-4% YoY, the inflation rate in Venezuela in 2008 was 31.40% and this won't seem bad at all when we get to know that the current inflation rates in this country are above 13,000%. The reason being disastrous economic policies by current president Nicolas Maduro. When the government ran out of money to repay its debts, it started printing money.

This excessive printing led to the Venezuelan Bolivar losing its value in the markets due to excess supply and thus, finally resulting in the hyperinflation. The Situation

2018 is over and the troubles of Venezuela show no signs of ending. Its currency Bolivar grows weaker each day, its people stay hungry and live in dire poverty. Violent crimes and homicides don't seem to abate. Its people are millionaires (currency's value loss due to hyperinflation) but are devoid of basic commodities and healthcare. Turn towards its capital, and you'll find people adopting the barter system to trade, meat in exchange of milk. There is a mass exodus from the country, and it is estimated that over 2 million people have fled the country in search of better living. The Solution Burdened with enormous debt, low incomes and falling institutions, the Venezuelan president is all set to propose his new reforms. There are mainly 2 course of actions he intends to take: a) Introduction of a new currency: Prices are so high that denominations run into millions for essential commodities. There is a proposal to slash five 0's from the current Bolivar and make it into a new Sovereign Bolivar. If this is done, an item costing 100,000 Bolivar would become worth just 1 Sovereign Bolivar. b) Tax and wage reforms: To hike the minimum wages by more than 3000% and levy high corporate taxes and increase the highly subsidised oil prices in an attempt to negate unemployment and poverty. The opinion a) A Sovereign Bolivar seems redundant because removing zeros from the old would only make it easier to carry the

Article of the Month - Runner Up

FINLY| March 2019 | Finstreet | SIMSR

currency not improve its intrinsic value. The Bolivar needs to find its own true va l u e i n t h e m a r ket . B e ca u s e restructuring of the currency will not curb the inflation which has occurred due to over-printing of money thus, flooding the supply of it. The most vital step thus, to eradicate hyperinflation is to encourage manufacturing other goods and promote SMEs that would generate employment which shall provide people with more disposable income. Employment generation would lead to increase in demand of goods which will in-turn encourage production, thus completing a whole cycle. b) Tax and wage reforms will benefit no one if the dismantled institutions are not re-built. Again, increasing the m i n i m u m wa g e s b y 3 0 0 0 % w i l l effectively be similar to removing the zeroes in the currency. No tangible effect shall be reflected unless other sectors pick up. The government currently is not able to afford the imports, which can be dealt with by becoming self-sufficient in producing at least essential commodities like crops, m e a t a n d m i l k . S u b s e q u e n t l y, Venezuela can try to hedge its oil exports by the virtue of futures or forwards and sell it at safely hedged prices to counties that are in dire need of oil, examples can be emerging markets such as India.

FINLY| JULY 2018 | Finstreet | SIMSR

FINLY| August 2016 | Finstreet | SI

ECO Section

MONETARY POLICY HIGHLIGHTS

During the month of February, the Indian economy has witnessed certain profound developments. The fifteenth meeting of the Monetary Policy Committee (MPC) was convened in the first week of the month, from 5th February to 7th February,2019 in the office of the RBI. The meeting was attended by veterans in the industry and presided over by Dr. Viral Acharya, the Deputy Governor of RBI, in-charge of the Monetary Policy, along with, Mr. Shaktikanta Das, Governor of RBI. MPC is the body that scrutinizes the surveys carried out by RBI. These surveys are conducted on the lines of understanding consumption in different households, inflation-level expectations, performance of the corporate sector, outlook for different sectors â&#x20AC;&#x201C; manufacturing, services, and infrastructure.

With serious considerations given to the present and evolving conditions in the macro-economic space, MPC decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect. This is the first cut in 18 months. In its last bi-monthly monetary policy, RBI had kept the repo rate unchanged at 6.5% and the reverse repo rate at 6.25%. Under the new leadership of Governor Shaktikanta Das, the central bank voted 4-2 in favour of the rate cut. The Monetary policy stance was also changed from 'calibrated tightening' to 'neutral'. An easing stance, called 'dovish' means the MPC will have a preference for reduction of the policy rate, depending on the variables like GDP growth rate, currency exchange rate, global interest rate movement, etc. A tightening stance, called 'hawkish' means

ECO Section

IMSR

FINLY| March 2019 | Finstreet | SIMSR

the MPC will have a bias for rate hikes, depending mostly on inflation. A neutral policy rate stance implies that the MPC will change interest rates only when there is a compelling reason. All this has been undertaken with an aim to achieve of maintaining the Consumer Price Index (CPI) at around 4%, with a nominal fluctuation of plus and minus 2%. RBI also revises down headline inflation estimates to 2.8% in March quarter, 3.23.4 % in first half of next fiscal and 3.95% in Q3 of FY20. What goes in alignment with the call for such an action are the following: · Since the previous meeting held by the MPC, a slowdown in the overall, global economic activity, has been witnessed. · Reduction in repo rate will in future acts as boon for the real estate industry. Hoping bank will also pass on the benefits to the end consumer which will make them easier to make purchasing decisions. · As the repo rate is reduced by 25 basis points, assuming banks pass on the rate cut in a similar fashion, this is how your home loan EMI is likely to be impacted:

The interim budget earlier this month had scrapped the tax on notional rent on the second self-occupied property and enabled capital gains from the property sale to be invested in two houses instead of one. This would stir interest in real estate again. The common man will welcome the rate cut, especially the new investors and borrowers looking to invest their money. This move will help make their purchase decision easier. The RBI rate cut is likely to boost growth and stimulate private consumption. Reality sector too hopes for a revival in the sales. a. Existing home loan borrower - The banks must pass on the benefits of the revised rates to the end consumer of the loans. This can be done by reducing the MCLR. b. New home loan borrower – The RBI rate cut is likely to make loan more affordable for the common man. The new borrowers have two options. They can either take the home loan now, which is linked with the MCLR or they can wait till April to take a loan. Banks will no longer be able to set the interest rate benchmark internally such as the MCLR from April. They will be required to link all the loans to an external benchmark which may be one of the following: · Repo Rate · Government of India 91 days Treasury Bill yield produced by the Financial Benchmarks India Private Ltd (FBIL) · Government of India 182 days Treasury Bill yield produced by the FBIL · Any other benchmark interest rate

ECO Section

produced by FBIL

lenders.

c. This rate cut when transmitted should also reduce the borrowing costs of retail borrowers, MSMEs and corporates, thereby boosting both private capex and private consumption. This will help in achieving the interim budget's objective of stimulating private consumption and housing demand.

Our View

d. The rate cut and the neutral stance may also pave the way for a possibility of another round of repo rate cut of 25 basis points in the next policy in April. Many banks are recently going for an interest rate hike on their fixed deposits. Hence, locking up funds in FDs for a tenure of not more than 2 years may prove beneficial. e. The move could also increase consumption, encourage manufacturing and boost economic growth. This may also indicate an increased affordability and hence, increased expenditure on healthcare and education services. f. The rate cut has offered certain benefits in the form of raising the limit of collateral-free farm loans in the range of Rs. 1 lakh to Rs. 1.6 lakhs. This decision has been undertaken to counter the increase in the costs of agricultural inputs post 2010, when the present limit of farm loan was had been set, keeping in mind the inflationary trends. Another, more important benefit is the widespread inclusion of small and marginal farmers into the formal credit system, freeing them from the clutches of unscrupulous money-

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With these changes coming into effect can also have a downside if we make fresh investments in debt instruments as we will be doing it in a relatively lower rate. But lower interest rate cost will help the portfolio as equities are driven by better earnings prospects of companies. Netnet, the interest rate cuts in 2019, it would be better for home or car loans, but consumer prudence is always a key factor when it comes to financial planning. While the decision to initiate a rate cut has been taken with the view to pass on the benefits to the end consumer, it is too early to be able to predict how the public receives this benefit. There is heavy dependence on the deposits to fund the loans lent by banks, a change in the repo rate is not likely to trigger an immediate response that will affect the lending rate. Hence, for existing home loan borrowers, the path forward is slow. The decision of reducing the MCLR will be taken up in the next meeting of the MPC and this will then, hopefully, bring a favorable response from the consumers' end.

IMSR

Fintech Funda

What is RegTech? RegTech or Regulatory Technology can be defined as the use of the new technology for enabling the delivery of regulatory requirements. Deloitte is one of the important RegTech company and it defines it as, â&#x20AC;&#x153;nimble configurable, easy to integrate, reliable, secure and cost-effective regulatory solution.â&#x20AC;? It is used for handling regulatory challenges faced by the financial service industry by making use of technology and automation. A suitable example to understand RegTech is of the bank receiving a huge amount of data. It is expensive and time taking to go through the data and

determining potential risks and threats. A RegTech firm can make use of a tool such as predictive analysis and by drawing inferences from past data of failures and predict potential risk area that demands attention. The financial sector has seen a surge in usage of technology in recent times and prominence of fintech is increasing exponentially. Data privacy and security is now one of the key concerns as reliance on consumer data to produce digital products has led to the need for more laws. RegTech is companies which work to solve challenges arising due to a technologyd r i v e n e c o n o m y, b y t h e h e l p o f automation. Use of machine learning and big data, RegTech aims at identifying activities of fraudulent and money

Fintech Funda

l a u n d e r i n g a n d n o t i f i e s f i nte c h companies regarding same. RegTech tools are used to monitor transactions that take place online in real time so as to identify issues or irregularities occurring while doing digital transactions. In case any risk or threat is identified, they are minimized by the help of suitable actions. This helps in the reduction of fraud cases, loss of funds and data breach. Origin of RegTech At the governmental level concept of RegTech was defined as, RegTech is a sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities". After the financial crisis of 2008, regulations on financial services started to rise so as to ensure safety against risks and threats. The reasons triggering the growth of RegTech are the increased cost of regulation and compliance and competition among Fintech Companies leading to high revenues at risk. RegTech is been called as new Fintech, but it is just the beginning. These solutions are more important than ever as the number of regulatory changes rises along with increased use of technology and focus on data and reporting. Features & Applications of RegTech RegTech tools are applied in different areas. These include health check s e g m e n t l i ke s u r v e i l l a n c e a n d

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monitoring, customer identification and anti-money laundering (AML) compliance, regulatory intelligence, reporting and risk management, investor risk assessment etc. The most prominent features of RegTech are the scalable and sustainable solutions, which further provide flexible and growth dimension to an application. Additionally, RegTech uses various analytical tools to intelligently define the cluttered and intertwined data sets to check their true strength. Nowadays, the data needs to be aggregated from multiple sources. The efficiency of data aggregation and normalization is vital when we are dealing with different information. For example, in employee trading details, information needs to be clubbed from their retail brokerage accounts, the firm's transaction information from different multiple trading systems and consolidating electronic communications for record in database and reconstruction purposes. The reports configured using this data is generated quickly and can be further used for multiple primary and secondary types o f r e s e a r c h . R e g Te c h a p p l i e s a streamlined risk management process and also checks the cost of compliance. It follows an improved governance process and the methods involved in reporting are transparent and continuously regulated. The major RegTech players running in the world are Deloitte, Fenergo, Datarama, Cube, Message Automation, Cynopsis Solutions etc. Many RegTech companies also use predictive analysis methodology and big data to avoid regulatory failures and predict the potential future risks that different financial institutions should

Fintech Funda

IMSR

FINLY| March 2019 | Finstreet | SIMSR

consider for future needs. They also pick sensitive information from various projects reports, detect trends, patterns and correlate events as and when needed. They monitor and troubleshoot digital transactions occurring in real time and identify irregularities to curb risk events taking place. These risk can be money laundering, cyber hacking, and data breaching. Many vendors have started offering tools to record, monitor and analyse various forms of communications be it audio, video or digital. RegTech companies have now begun to use Block chain technology to improve their services. Machine learning, Biometrics and API's play a major role in making the result significant. Some tools also have the ability to understand multiple languages and decipher tone, slang, code language and emotional words to denote a strong reaction. By training algorithms to differentiate patterns and relationships, companies leverage to tackle some of their highest scale challenges and develop and insight for future prospects. These tools are still in their developmental stages, therefore many firms are running these tools in tandem with the traditional methods to supplement this automation with human feedbacks and to validate their effectiveness in diverse areas. These tools assist with regulatory intelligence to provide a proper format of regulatory requirements in a user friendly manner and these are updated on a timely basis with effective reminders to adhere to company t i m e l i n e . A d d i t i o n a l l y, t h e recommendations are provided to

investors in sync with changing market conditions and their risk profile and objectives for effective wealth utilization. Firms also benefit from developing appropriate training for compliance, supervisory and operational staff on the use of RegTech tools being adopted. Necessity of RegTech The financial sectors have always been full with rules and regulations for safe and sound functioning. In order to make the process easy and secure, more and financial institutions are looking for technology enhancements. With the increasing pressure from regulators, coming up with new and complex rules and regulations, organisations are having a hard time to keep up with the changes. However, the advent of Regulatory Technology (RegTech) ,within the FinTech ecosystem to overcome these issues and bringing in solutions that are targeted to new and complex regulations, litigation and regulatory remediation areas faced by financial institutions (FI), combined with overall reduction in cost compliance is a boon. There are more than 200 RegTech companies worldwide, which are providing a variety of solutions and services to support other businesses with their compliance needs. They also deal with regulatory reporting, risk management, identity management and control and transaction monitoring etc. However majority of these firms focus on compliance with regulations like PSD, PSD2, MiFID II, GDPR etc. and their solutions can be used through open APIs and SaaS models. The Main Technologies Backing RegTech

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Fintech Funda

transparent, and beneficial for everyone who creates, assembles, and consumes them. b) Compliance with regulations: The regulatory requirements imposed by the governing bodies can be efficiently complied with using these technology solutions. Adapting to new regulations can also be done easily. Client on boarding as well as identification of frauds are some other advantages.

The Advantages of RegTech With increasing pressure from regulators on data compliance as well as go ve r n a n c e , Re g Te c h a s a n i c h e subdivision within the FinTech system has gained significance lately. Financial Institutions face numerous challenges in the management of risks due to new addition of regulation, additional costs incurred due to penalty for noncompliance, obsolete technology etc. By associating with RegTechs, who have the necessary expertise, these uncertainties can be dealt with ease. Some of the advantages of RegTech are as follows: a) Simplification of Data: There has been an exponential growth of data in the recent years. Financial Institutions like banks have to deal with huge amount of data on a daily basis. The storage and analysis of this data requires massive computing power as well as compliance with vast governance and regulations from the governing bodies. To deal with this, RegTech solutions will make regulatory filings more well-organized,

c) Fraud and Risk Management: Risk management solutions alone assist in automated credit assessments to know optimal exposure and limitations. Whereas teaming up with RegTech solutions can provide cost savings, increased return of capital along with all the regulatory and compliance requirements. RegTech solutions in the areas of know your customer (KYC), real-time AML screening, AI/ML-based fraud prevention, and real-time compliance monitoring were highly chosen by banks. The Road Ahead Coming to India, the market today is prosperous, and investments and acquisitions are growing daily. But there are potentially severe consequences to being non-compliant, in terms of monetary loss, damaged reputation, and more. Due to this, it is critical for all the businesses irrespective of size to implement regulatory technologies, and in turn, be empowered to be in control of regulations, manage risks and do the dayto-day operations efficiently.

Fintech Funda

IMSR

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Majority of the RegTech companies are still in the start-up phase and are not older than 3-5 years. Also most of them focus on a specific problem like KYC requirements etc. Therefore there is a huge scope of improvement in the service front. However with majority financial institutions partnering with regulatory compliance firms or RegTechs to address compliance issues, has led to the enhancements in this new product of FinTech.

Sector Analysis 27

Ankit Kumar | MMS | 2018-2020 Mohak Shah | MMS | 2018-2020 Shreyas Vaidya | MMS | 2018-2020

Introduction India represents a highly aspirational consumer market, with a wealth of opportunities to offer the world. With an 'emerging middle class' population of more than 500 million and approximately 65% of the population aged 35 or below, India could potentially overtake the US and become the world's second-largest economy (in PPP terms) by 2050. India has the second largest Internet base, with the number of Internet users exceeding 450 million today. Of these, approximately 70 million people are estimated to have more than three to four years of online experience c u r r e n t l y, w h i c h m a k e s t h e m comfortable with engaging in ecommerce.

E-commerce in India comprising of major players such as Amazon, Flipkart, Snapdeal, Infibeam avenues, Paytm Mall, Big Basket, etc. will grow exponentially in 2019, with key trends including mobile commerce, third-party marketplaces and social media shopping all offering opportunities for brands. The major tailwinds for the sector being: Âˇ Tipped to be worth US$120 billion in 2020, the e-commerce industry in India is currently growing at an annual rate of 51%, according to research by ASSOCHAM-Forrester. Âˇ With mobile usage fueled largely by long commutes, the smartphone has become indispensable, not only for media consumption, but for purchases.

Sector Analysis

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Âˇ Brands need to increase their presence through their own websites, so that they can clearly communicate the product innovation, the design, etc.

165 million by 2021 from 42 million in 2 0 1 6 . T h e n ex t fa c to r b e i n g t h e improvement and growth in the logistics and warehousing sector in India.

Âˇ Social commerce is coming back because it is becoming increasingly visual and is best suited to impulse buys and low-cost categories.

Porter's 5 forces

Growth Drivers Growth Drivers for E-commerce Industry can be classified broadly into the following categories. The first is the government initiatives like Digital India which is constantly introducing people to o n l i n e m o d e s o f co m m e rc e , Favourable FDI policy is attracting key players, similarly the growing e-wallet brands due to government's encouragement to go cashless which has smoothened the process further. Digital payments will act as a game changer for the domestic E-commerce business and the current trend of the dominance of Cash-on-delivery. The next factor is the growing awareness. As the awareness of using the internet is increasing, more and more people are being drawn to E-commerce. Whether it be sellers, buyers, users or investors, people have started getting used to online mode or commerce. The next factor is the availability of the content in different languages for easy usage. Online retailers see this emergent segment as a new growth driver as the incremental growth in mobile subscribers can be credited mainly to people who are comfortable with languages other than English. E-tailing customers using Indian languages in place of English are expected to reach

Bargaining power of suppliers: In the case of E-commerce Industry, the b a rga i n i n g p owe r o f s u p p l i e rs i s considered low or close to moderate. This is because here the rules or the code of conduct required to be followed is normally set by the Brands rather than the suppliers. E-commerce companies are very careful when it comes to quality and labor. Even though the number of companies in this sector is increasing, only a few brands are seen performing s u sta i n a b l y a n d gett i n g p e o p l e ' s attention. Thus the suppliers have less number of options and hence have to abide by the rules set by the brands. However, there can be exceptions where the suppliers have better bargaining power due to size and quality.

Sector Analysis

Bargaining power of the buyers: In the e-commerce industry, the bargaining power of the buyers is considered to be moderately high. There are many other brand options available in the market around the world. Also, the switching cost for customers is very low. Thus, people normally switch to some other brand or company if they get a better deal somewhere. Brand loyalty is less and focus is given more on cheaper and better products. Moreover, the physical retail brands provide additional competition to the companies. The brands are thus spending heavily for retaining the customers with the help of attractive offers and discounts by investing for improvement in customer service and technology. Threat of substitute products: E-commerce brands experience two main types of threats. One being the competing e-retail brands available in the market, while the others are physical retailers. Brands try to achieve competitive advantage by providing cheap prices, higher quality of products and better customer experience. In the recent example where Amazon is receiving a joint threat from Walmart's offline stores as well as Flipkart's Online store after Walmart acquired Flipkart. Threat of new entrants: In the case of the E-commerce industry, the threat of new entrants is high. This is because there are no barriers to entry from the government perspective as well as from a technological

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perspective. The market for e-commerce is also very attractive to encourage new entrants. Also, by improving technology, it has become comparatively easier to create a website due to which we can see nowadays that many individuals are starting their own websites for sale of their products However for large scale e retail businesses the threat is low as there is a requirement for large investments in Marketing, human resources, technology etc. thus in such cases barriers to entry are quite high. Rivalry in the industry: In the case of the E-commerce Industry, The level of rivalry in the industry is high. The reason for high rivalry is mainly because of a large number of local as well as global brands available in the market. We see that in order to get a competitive advantage and increase the market share, the companies offer heavy discounts. Due to this, we see that most of the e-retail businesses are running in loss. To avoid this, some firms try to differentiate their brand and products through marketing, blogs, competitions, cash-backs etc. Investments The e-commerce industry in India has seen a continuous inflow of funds over the last few years, especially in the two major companies, i.e. Amazon & Flipkart. The year 2018 has seen a major M&A deal and several investments in the sector, The major ones are: Amazon, the world's largest online retailer has invested about $4 billion in the five years that it has operated in the country, even as it continues to battle local rival

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Sector Analysis

and market leader Flipkart. In 2018, it invested an additional Rs.2,700 crore ($386 million) in its Indian unit. US retail giant Walmart Inc which was eyeing the Indian market for a long time has picked up a 77% stake in India's largest online retailer Flipkart for $16 billion thereby successfully concluding more than 20 months of talks, in what h a s b e e n t h e co u nt r y ' s l a rge st acquisition and also the world's biggest purchase of an e-commerce company. It w i l l i n c l u d e $ 2 b i l l i o n o f f re s h investment as Walmart looks to take on rival Amazon's global expansion, taking the valuation of Flipkart to $22 billion. In April 2018, Paytm's biggest investor Alibaba, and Japan's SoftBank together pledged to invest a total of â&#x201A;š 3,000 crores ($450 million) into Paytm Mall. SoftBank plans to invest a total of â&#x201A;š 2,600 crores in Paytm Mall, with the rest coming from Alibaba. The deal values Paytm Mall (Paytm E-commerce Pvt. Ltd), between $1.6 billion and $2 billion. Reliance Industries is set to take on Amazon and Flipkart with a new ecommerce platform aimed at small retailers, a partnership between its Reliance Retail subsidiary and telecom unit Jio. Reliance would be investing close to Rs.10,000 crore in the ecommerce venture. Regulation Aspects In India, the legal issues and compliance related to e-commerce vary as per different business models. It is classified into models which are

discussed below: Inventory based model is an ecommerce activity where the inventory of goods and services is completely owned by the e-commerce entity and is sold to the consumers directly. Marketplace based model is an information technology platform on a digital & electronic network to act as an intermediary between buyer and seller. For example Flipkart, Amazon etc.

E x i st i n g F D I re g u l at i o n s fo r e commerce Foreign direct investment (FDI) is an investment made by an individual or a firm in a country into business interests located in another country. In India, FDI rules for e-commerce permit up to 100% under the automatic route in Business to Business (B2B) inventory based model firms but FDI in Business to Consumer (B2C) marketplace model firms are permitted only under certain circumstances. Additionally, companies should not have more than one vendor account for more than 25% of sales on their marketplace and should not directly or indirectly influence the price of goods being sold. The amendments to the existing FDI policy

Sector Analysis

Under the new guideline, a marketplace e-commerce firm can't sell its products through its own platforms. Also, they can't offer competition by offering cash backs. A related entity can no longer sell on a platform - affiliated sellers like Appario Retail and Cloudtail on Amazon, and RetailNet, SuperComNet, OmniTechRetail on Flipkart-Myntra. The marketplace firms cannot exercise ownership or control over the inventories of any other firm. The changes in e-commerce FDI norms clarify the rules which were already in existence and are no new restrictions. The amendments to the existing FDI policy would change the entire ecommerce business up to a certain level. From a very long time, offline traders have been complaining that ecommerce platforms with help of FDI were providing deep or heavy discounts and other incentives to the customers through related-party, which they were unable to match. The modifications will affect the elasticity that e-commerce platforms used to have in doing business, and will force them to be unbiased to all vendors. Exclusive launches and prime benefits such as faster delivery and heavy discounts will be a thing of the past and big online sale may lose allure. Brick-and-mortar retail will get a level playing field, smaller sellers will be seen more on the ecommerce platform, and the smaller ecommerce players could now compete with big boys. Impact of the decision The modifications to the existing FDI

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policy and rules will largely affect the ecommerce companies, such as Flipkart and Amazon which from last 8-9 years have been attracting customers with heavy discounts and exclusive offerings which will eventually affect the customer behavior. Many of the customers in India shop online for the discounts and special offerings, which may not be offered in offline stores or any other online trading platform and in turn will have an effect on the revenue and growth of e-commerce companies in India. The profitability target of such companies will now take a big hit in comparison to the offline traders. Conclusion The refurbished e-commerce norms or the amendments to the existing FDI policy are now relatively stricter in nature and will force online retailers or companies such as Flipkart, Myntra and Amazon etc. to review their business plans and to take the further steps with maximum care. The policy is aimed at filling the multiple loopholes that existed in earlier FDI regulations governing the e-commerce sectors. It will also tackle the anti-competitive behavior of e-commerce entities.

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LONG TERM CAPITAL GAIN

difference between the purchase price and the sale price of the instrument. For example, if we buy shares in 2010 worth $10,000 and sell those shares for 30000 in 2018 the difference of 20000 between the two prices is the long term capital gain. Capital gains have been further classified:

Long term capital gain or loss is the gain or loss originating from the sale of assets which have been held for more than 12 months. These assets include · Shares · Real Estate · Mutual funds · Other share oriented products The gain or loss amount is equal to the

Short Term Capital Gains (STCG) – gains on any capital assets other than shares/equities held by an individual for less than 3 years Long Term Capital Gains (LTCG) – gains on any capital assets other than shares/equities held for more than 3 years Long term refers to 12 months in case of equities. A lower tax rate is assigned to gains obtained from the sale of assets held for a long time than to gains made from the sale

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Know your Finance

of assets held for a lower time. The profit made on the investments held for more than a year is taxed. This refers to the LTCG tax. .According to the financial budget of 2018 gains in excess of Rs 1 lakh would be taxed at 10 percent. According to the financial budget of 2019, a person can get tax redemption from LTCG in excess of 1 crore obtained from the sale of one house by investing the proceeds in 2 houses instead of 1 house. Financial Regulatory Institutions in India:

in the financial markets, which in turn is essential to bring about economic growth. There are five major regulatory institutions in India namely – Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), Pension Fund Regulatory and Development Authority (PFRDA), Forward Market Commission (FMC). Reserve Bank of India (RBI): Reserve Bank of India is the most important monetary Institution of India. It is also known as the central bank of the country. It was established in 1935 in accordance with the Reserve Bank of India Act 1935. The prime objective of the Reserve Bank of India is to control inflation of the country and also maintain price stability. Functions of the Reserve Bank of India: · It acts as monetary authority of the country which formulates, implements and controls the monetary policy of India.

Financial regulation refers to the foundation of certain rules and policies that govern the financial system of a country and the efficient implementation of these rules. It is important to regulate financial activities and control financial stability in the co u nt r y. T h e s e i n st i t u t i o n s a re implemented in order to create a customer- friendly and fair environment

· It also acts as issuer of the currency. It has the right to issue notes and coins and also can destroy currency in case the currency is not fit for circulation. · It acts as banker to the government by helping it to raise money in the debt market through the issuance of Treasury Bills. It also performs all banking functions of State and Central Government. · It acts as banker to banks by accepting deposits, maintaining cash reserves and

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lending loans to all the banks. It also enables clearing and settlement of inter-bank transactions. · It acts as custodian of foreign exchange reserves. It buys and sells foreign currencies to maintain the exchange rate of foreign currencies with respect to Indian Rupees. · The Reserve Bank acts as a credit controller institution. It regulates and controls the volume and direction of credit by using quantitative and qualitative controls. Quantitative controls include activities such as the b a n k ra t e p o l i c y, o p e n m a r ke t operations, and the variable reserve ratio. Qualitative control, on the other hand, includes rationing of credit, margin requirements, direct action. Securities and Exchange Board of India (SEBI): Securities and Exchange Board of India was first established in 1988 as nonstatutory for the securities market and was given autonomous recognition in 1922 through the SEBI Act, 1922. The main objective of SEBI is to protect the investor's interest and to ensure a steady flow of funds in the market. Functions of Securities and Exchange Board of India: · To promote fair dealing of securities by the issuer and regulating the business on stock exchanges. · To regulate and develop a code of conduct for various financial intermediaries of stock exchange like

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stockbrokers, merchant bankers, share transfer agent, underwriters etc. · It also helps in prohibiting fraudulent and unfair trading practices in the securities market. · It also helps in prohibiting insider trading in the securities market. · It helps in promoting investor education and also training intermediaries of the securities market. Insurance Regulatory and Development Authority (IRDA): Insurance Regulatory and Development Authority (IRDA) is the primary agency which regulates, guides and formulates policies for insurance products. It is the regulator of all private sector insurance business and public sector insurance business in India. It was formed by Act called as IRDA Act 1999 which was later modified to accommodate some changes in 2002. Functions of the Insurance Regulatory and Development Authority (IRDA): · It protects the interest of policyholders. · It provides the license to insurance intermediaries such as agents and brokers after specifying the required qualifications and set norms for them. · It promotes and manages the professional organizations related to insurance business to promote efficiency in the insurance sector.

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FINLY| March 2019 | Finstreet | SIMSR

· It regulates and oversees the premium rates and terms of insurance covers.

· Establishing mechanisms for grievance redressal of the subscribers.

· It describes the various conditions and manners, according to which the insurance companies have to make their financial reports.

The main features of the National Pension System include:

· It manages the investment of policyholder's funds by insurance companies. · It also confirms the maintenance of the solvency margin (insurance company's ability to pay out claims) by insurance companies. Pension Fund Regulatory and Development Authority (PFRDA): Pension Fund Regulatory and Development Authority was established in the year 2003 by the Government of India. It helps in promoting income security of old age by controlling and developing pension funds.

· This account shall be transferable in case of change of employment. · Individual contributions are combined into a pension fund and are invested as per approved investment guidelines. Funds are generally invested in diversified portfolios comprising of government bonds, bills, corporate debentures, and shares, based on subscriber's choice. · At the time of exit, subscribers have an option, to purchase a life annuity by using accumulated pension fund. Forward Market Commission (FMC):

F u n c t i o n s o f t h e Pe n s i o n F u n d Regulatory and Development Authority (PFRDA):

Forward Market Commission is the chief regulator of the commodity of Indian Futures Market. It was established under the Forwards Contract Act in the year 1952.

· Regulating the National Pension System.

Functions of the Forward Market Commission:

· Educating the subscribers and the general public on issues relating to pension, and training of various intermediaries.

· To advise the Central Government for matters regarding recognition or withdrawal of the previously granted recognition from any of the registered association

· Settlement of disputes between intermediaries as well as between intermediaries and subscribers.

· Every subscriber is supposed to have an individual pension account.

· The entity also supervises the forward commodities market and exercises

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assigned discretionary powers that are in the interest and growth of the markets. · It collects and publishes information regarding the trading conditions of va r i o u s c o m m o d i t i e s i n c l u d i n g information regarding supply, demand, and prices, and submit this to the Central Government · It also submits periodical reports on the working of forward markets relating to such goods to Central Government · To inspect the accounts and other documents of any registered association or any member of such association whenever necessary. PERSONAL FINANCE Systematic Investment Plan In today's world where everybody is on their feet to organize their finances and take proactive measures to build their portfolio in order to have a comfortable future, we often hear people talking about investing in SIP. This article is intended to answer some basic questions concerning the same. What is the systematic investment plan (SIP)? Systematic investment plans are basically an avenue for investment offered by mutual funds to investors that allows them to invest small amounts periodically instead of lump sums. They have the liberty to invest as per their convenience in weekly

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monthly or quarterly installments. Why SIP? · Systematic Investing: When you make the investment a part of your monthly budget, with time it leads to discipline in your investment habits. Systematic investing has been time and again come across as the most effective discipline that makes investing easy.. Investing regularly in small amounts can often lead to better results than investing in a lump sum. · Benefits of Compounding: The power of compounding is unbeatable. The early you start saving, the maximum benefits you reap in terms of returns. SIP helps you build a portfolio as per your convenience of making an investment. By its very simplified structure, it helps you to invest at an early age as it has various plans for all ages and income groups. With SIP one can fulfill their long term and short term goals by opting for an appropriate plan. SIP helps average the cost per unit, reduces the effort of tracking the market as one invests regularly, and helps to multiply wealth through the power of compounding. · Ease of investing: The structure of SIP is has been kept very simple in order to promote investments by retail individuals. What are the steps to invest in SIP? · Ensure that you have the necessary documents:

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You only need basic documents to start a sip online: a Pan card, an address proof, a passport size photo, and a cheque book to provide your bank details. Âˇ Become a KYC compliant: You have to fulfill KYC norms before starting investment in SIP. This is only a one time process and you have to provide very basic details such as name, date of birth, mobile number, address etc. To fulfill these obligations you can access eKYC channel. Âˇ Start SIP online: After complying with the KYC norms you can visit the websites of the mutual funds you want to invest in register online following the instructions given therein. This will include filling up a simple form and givo9ng bank account details. Due to lower financial literacy rate in India, it has been a challenge to inculcate the investing habit amongst retail individuals. An investment avenue like SIP has altered the traditional ways of saving. One should be more and more aware of it to reap the maximum benefits.

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We welcome your valuable feedback Finstreet, The Finance Committee of K.J. S.I.M.S.R.

Email Us At : finstreet@somaiya.edu