Investment and Banking Products
Why This Chapter Matters
Understanding investment products and banking services is essential for finance careers, CA Foundation, BBA/MBA finance, and personal wealth management.
Banking Products
1. Types of Deposits
Savings Account: General-purpose. Interest ~3-4% p.a. Liquid. Minimum balance required.
Current Account: For businesses. Higher limits. Usually no interest. Overdraft facility.
Fixed Deposit (FD): Lump sum for fixed period. Higher interest (5-8%). Penalty for premature withdrawal. Can pledge as collateral. TDS deducted on interest.
Recurring Deposit (RD): Fixed monthly deposit for fixed period. Good for regular savers.
CASA Ratio: (Current Account + Savings Account deposits) / Total deposits. Higher CASA = cheaper funding for bank.
2. Types of Loans
Home Loan: Secured (property as collateral). Long tenure (15-30 years). Tax benefit on interest (Section 24b) and principal (Section 80C).
Car Loan: Secured (car as collateral). 3-7 years.
Personal Loan: Unsecured. Higher interest rate (12-20%). No collateral. Quick disbursement.
Education Loan: For higher education. Government subsidy schemes.
Gold Loan: Secured (gold as collateral). Quick, short-term.
Microfinance/SHG Loan: Small loans to poor (especially women). Through NABARD, MFIs.
CIBIL Score / Credit Score: 300-900 scale. Above 750 = good creditworthiness. Used by banks to assess loan risk. Maintained by credit bureaus (CIBIL, Experian, Equifax, CRIF HighMark).
3. Key Banking Services
NEFT: National Electronic Funds Transfer. Batch processing. Used for regular transfers.
RTGS: Real Time Gross Settlement. Instant settlement. Minimum Rs 2 lakh.
IMPS: Immediate Payment Service. 24/7/365. Up to Rs 5 lakh.
UPI: Unified Payments Interface. Virtual Payment Address (VPA). NPCI manages. Instant. No minimum/maximum (set by NPCI — currently Rs 1 lakh per transaction, Rs 2 lakh for verified merchants).
Investment Products
4. Equity (Stocks)
Direct equity: Buy shares of companies.
Returns: Capital appreciation + Dividends.
Risk: High. Value can go to zero.
Regulated by: SEBI. Traded on: BSE, NSE.
Long-term capital gains (LTCG) on equity: 10% above Rs 1 lakh gain (held >1 year).
Short-term capital gains (STCG): 15% (held <1 year).
5. Mutual Funds
Pool money from multiple investors → professional fund manager invests.
Types by asset class:
Equity funds: Invest in stocks. Higher risk, higher return.
Debt funds: Invest in bonds, government securities. Lower risk.
Hybrid/Balanced: Mix of equity and debt.
Liquid funds: Very short-term debt. Low risk, high liquidity (park money temporarily).
Types by management:
Active funds: Fund manager picks stocks. Higher expense ratio (1-2%).
Passive/Index funds: Track index (Nifty 50). Low expense ratio (0.1-0.5%).
ETF (Exchange Traded Fund): Like index fund but traded on exchange like shares.
SIP (Systematic Investment Plan): Invest fixed amount monthly. Rupee cost averaging.
NAV (Net Asset Value): Price of one unit of mutual fund = (Total assets - Liabilities)/Units.
Regulated by SEBI. Distributed by AMCs (Asset Management Companies).
6. Fixed Income Instruments
Government Securities (G-Secs): Issued by Central government. Risk-free (sovereign). Long-term (5-40 years). Traded on RBI's NDS-OM.
Treasury Bills (T-Bills): Short-term (91, 182, 364 days). Issued at discount, redeemed at face value.
Corporate Bonds/Debentures: Issued by companies. Higher yield than G-Secs but higher risk. Credit rated by CRISIL, ICRA, CARE.
Fixed Deposits: See banking products above.
PPF (Public Provident Fund): 15-year tenure. Currently 7.1% interest (tax-free). Section 80C deduction. Backed by government. Safe.
NSC (National Savings Certificate): 5 years. Post office scheme. Section 80C.
Sukanya Samriddhi Yojana: For girl child. Age 0-10. Highest interest rate among small savings.
7. Insurance Products
Life Insurance:
Term insurance: Pure risk cover. No maturity benefit. Cheapest. Pure protection.
Endowment: Risk cover + savings. Higher premium. Maturity benefit.
ULIP (Unit Linked Insurance Plan): Insurance + investment in market. Higher charges.
Regulated by IRDAI.
General Insurance:
Health insurance: Cashless claims at network hospitals. Critical illness cover.
Motor insurance: Third-party (mandatory) + Own damage.
Travel insurance: Trip cancellation, medical emergency abroad.
Regulated by IRDAI.
8. Retirement Products
NPS (National Pension System):
Government-backed. Tier 1 (retirement, locked) + Tier 2 (voluntary, liquid).
60% withdrawal at 60 tax-free, 40% must buy annuity.
Regulated by PFRDA. Additional Rs 50,000 deduction under Section 80CCD(1B).
EPF (Employee Provident Fund):
Mandatory for employees earning above Rs 15,000/month (>20 employees in organisation).
12% employer + 12% employee contribution.
8.15% interest (FY 2022-23). Tax-free on withdrawal after 5 years continuous service.
Gratuity: For employees after 5 years of continuous service. Formula: Last salary × 15/26 × years of service.