Insurance has become an integral aspect in everyone’s life today. It is a written contract of insurance that offers protection against future loss. The life insurance generally helps to insure the life of people. A definite compensation is provided by the insurer to the insured person. The non-life insurance provides financial support to people or companies and helps them to overcome the losses. The basic human trait is to be averse to the idea of taking risks. There is always an urge to minimize the risks and provide protection against possible failure. The risk includes fire, the perils of sea, death, accidents and burglary. Any risk may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance that provides reasonable degree of security and assurance that insured will be protected in the event of a calamity or failure of any sort. The Continue reading
Investment Management
Insurance – Definition, Principles and Functions
Life is a roller coaster ride and is full of twists and turns. Insurance policies are a safeguard against the uncertainties of life. As in all insurance, the insured transfers a risk to the insurer, receiving a policy and paying a premium in exchange. The risk assumed by the insurer is the risk of death of the insured in case of life insurance. Insurance policies cover the risk of life as well as other assets and valuables such as home, automobiles, jewelry etc. On the basis of the risk they cover, insurance policies can be classified into Life Insurance and General Insurance.  Life insurance products cover risk for the insurer against eventualities like death or disability. General insurance products cover risks against natural calamities, burglary, etc. Insurance is system by which the losses suffered by a few are spread over many, exposed to similar risks. With the help of Insurance, Continue reading
About the Investments in Mutual Funds
Mutual fund companies [also known as Asset Management Companies (AMCs)] collect funds from public (mainly from small investors) and invest such funds in market and distribute returns/surpluses in the form of dividends. Surpluses can also be reflected in higher Net Asset Value (NAV) of the scheme. In simple words, a mutual fund company collects savings of small investors (pool their money); the fund managers of the concern invest such pool of funds to market (securities); when returns are generated from such investment, passed back to the investors. This is how a mutual fund works. First an offer document (containing details of the scheme, its investment horizon and class(es) of securities it intends to invest etc.) is issued to the public. Then the collected money is pooled together to constitute a fund. This fund is managed by fund managers of AMC who take major investment decisions. A trust takes care that Continue reading
Risk and Return in Investments
There are different motives for investment. The most prominent among all is to earn a return on investment. However, selecting investments on the basis of return in not enough. The fact is that most investors invest their funds in more than one security suggest that there are other factors, besides return, and they must be considered. The investors not only like return but also dislike risk. So, what is required is: Clear understanding of what risk and return are, What creates them, and How can they be measured? Return: The return is the basic motivating force and the principal reward in the investment process. The return may be defined in terms of (i) realized return, i.e., the return which has been earned, and (ii) expected return, i.e., the return which the investor anticipates to earn over some future investment period. The expected return is a predicted or estimated return and Continue reading
Composition and Importance of Money Market
Composition of Money Market The money market is not a single homogeneous market. It consists of a number of sub-markets which collectively constitute the money market. There should be competition within each sub-market as well as between different sub-markets. The following are the main sub-markets of a money market: Call Money Market. Commercial Bills Market or Discount Market. Acceptance Market. Treasury bill Market. Indian money market was highly regulated and was characterized by limited number of participants. The limited variety and instruments were available. Interest rate on the instruments was under the regulation of Reserve Bank of India. The sincere efforts for developing the money market were made when the financial sector reforms were started by the government. Money markets are the markets for short-term, highly liquid debt securities. Examples of these include bankers’ acceptances, repos, negotiable certificates of deposit, and Treasury Bills with maturity of one year or less Continue reading
Characteristic features of a developed Money Market
In every country of the world, some type of money market exists. Some of them are highly developed while others are not well developed. Prof. S.N. Sen has described certain essential features of a developed money market. Highly organized banking system: The commercial banks are the nerve centre of the whole money market. They are principal suppliers of short-term funds. Their policies regarding loans and advances have impact on the entire money market. The commercial banks serve as vital link between the central bank and the various segments of the highly organized banking system co-exist. In an underdeveloped money market, the commercial banking system is not fully developed. Presence Of A Central Bank: The Central Bank acts as the banker’s bank. It keeps their cash reserves and provides them financial accommodation in difficulties by discounting their eligible securities. In other words, it enables the commercial banks and other institutions to Continue reading