SEMCOM, a constituent college of CVM University

TYB.Com/BBA/ ITM
Course Title: Indian Financial System (IFS), Course Code: 203000518
Unit-3 Financial Institutions
• Types of Banking and Non-Banking Financial Institutions
• Constitution, Objectives & Functions of: IDBI, SFCs, SIDCs, LIC, EXIM
Bank
• Investment Institutions —UTI and Other Mutual Funds
• Insurance Organization- Life Insurance Corporation of India

Types of Banking and Non-Banking Financial Institutions_Banking Institution

Banking refers to the system of financial institutions, such as banks and credit
unions, that provide various financial services to individuals, businesses, and
governments. Banking services mainly include accepting deposits, lending money,
facilitating transactions, and offering various financial products like savings accounts,
loans, and credit cards.
Banking plays a crucial role in the economy by facilitating the flow of money and
enabling economic activities.
The Banking System in India is divided into several types, each serving specific
functions and purposes. The table below represents the different types of banks in
India and how it is further divided:
Banking Classification in India
Types of Banks Sub-types
Central Bank -
a) Private Sector Banks
b) Public Sector Banks
Commercial Banks
c) Regional Rural Banks
d) Foreign Banks
a) State Co-operative Banks
Co-operative Banks b) Urban Co-operative Banks

Payment Banks -
Small Finance Banks -
Scheduled Banks -
Non-scheduled Banks -
1) Central Bank: The Reserve Bank of India (RBI) serves as the Central Bank of
India and is responsible for regulating and controlling the monetary and banking
system in the country.

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2) Commercial Banks: These are the most common types of banks and include
public sector banks, private sector banks, and foreign banks. They provide various
services like savings and current accounts, loans, and investments.
These are the most common types of banks and include public sector banks, private
sector banks, and foreign banks. They provide various services like savings and
current accounts, loans, and investments.
a) Public Sector Banks: Owned and operated by the government, examples
include State Bank of India (SBI), Punjab National Bank (PNB), and Bank of
Baroda (BOB).
b) Private Sector Banks: These are privately owned and managed banks, such
as HDFC Bank, ICICI Bank, and Axis Bank.
c) Foreign Banks: These banks have branches in India and are headquartered in
foreign countries. Some examples are Citibank, Standard Chartered, and
HSBC.
d) Regional Rural Banks (RRBs): These banks cater to rural and semi-urban
areas and are owned by the government, commercial banks, and state
governments.
Public Sector Banks Private Sector Banks Foreign Banks

• Bank of • I.C.I.C.I. Bank • Australia and New Zealand

Maharashtra • R.B.L. Bank Banking Group Ltd.
• Indian Bank • I.D.F.C. Bank • National Australia Bank
• Bank of Baroda • South Indian Bank • Westpac Banking
• Canara Bank • IDBI Bank Corporation
• State Bank of India • YES Bank • Bank of Bahrain & Kuwait
• Axis Bank BSC
• Bandhan Bank • AB Bank Ltd.

3) Cooperative Banks: A Co-operative Bank is registered under the Co-operative

Societies Act of 1912 and is run by an elected managing committee. It works on a
non-profit, no-loss basis and mainly serves entrepreneurs, small businesses, self-
employment, and more in urban areas.
In rural areas, it mainly functions to finance agriculture-based activities like farming,
livestock, and hatcheries. There are mainly two types of Co-operative Banks:

Types of Cooperative
Description
Bank

A State Co-operative Bank is a federation of the central Co-operative

State Co-operative Banks banks that will act as a custodian of the Co-operative banking structure
in the State.

The Urban Co-operative Bank is the primary Co-operative bank located

in urban and semi-urban areas. The banks essentially lent to smaller
Urban Co-operative Banks
borrowers, and businesses centred around a community, locality, and
more.

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4) Payment Banks: The payment banks are a relatively new banking model in the
country that has been conceptualised by the RBI. This bank is allowed to accept a
restricted deposit. This amount is limited to Rs. 1 lakh for a customer. The bank also
offers services such as ATM cards, net banking and more.
5) Small Finance Banks: These banks primarily serve the unserved and
underserved sections of the population, including small businesses and low-income
individuals. This type of bank is licensed under Section 22 of the Banking Regulation
Act 1949, and it is governed by the Provisions Act of 1934.
Here are a few examples of Small Finance Banks in India:
• AU Small Finance Bank Ltd.
• Utkarsh Small Finance Bank Ltd.
• Fincare Small Finance Bank Ltd.
• Ujjivan Small Finance Bank Ltd.
6) Scheduled Banks: These banks are covered under the 2nd Schedule of RBI Act
1934, and they need to have a paid-up capital of Rs. 5 lahks or more.
7) Non-Scheduled Banks: The non-scheduled banks are local area banks that are
not listed in the 2nd Schedule of the RBI Act 1934.
(https://groww.in/banking)

Types of Banking and Non-Banking Financial Institutions_ Non-Banking

Financial Institutions

Non-Banking Financial Companies (NBFCs) provide financial and banking services

but are not legally defined as banks. They are governed by the Reserve Bank of
India’s banking laws and offer banking services such as loans, retirement planning,
credit facilities, investing, etc.
Non-Banking Financial Companies (NBFCs) are broadly classified into three types:

• NBFCs that accept public deposits;

• NBFCs that do not accept/hold public deposits; and
• Core investment companies (i.e., those that acquire shares/ securities of their
group/holding/subsidiary companies to the extent of not less than 90% of total
assets and do not accept public deposits)
In India, Financial Institutions (FIs) are grouped into three main groups based on the
primary activity they do.

• Term-lending institutions, whose primary activity is direct lending through term

loans and investments;
• Refinance institutions, such as the National Bank for Agriculture and Rural
Development (NABARD), the Small Industries Development Bank of India
(SIDBI), and the National Housing Bank (NHB), primarily extend refinance to
banks and non-banking financial institutions.

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• Investment firms such as Life Insurance Corporation (LIC) invest mostly in
marketable securities. Another different type is state/regional level institutions.
In recent years, the Reserve Bank of India has undertaken a number of steps to
gradually bring Financial Institutions’ (FI) regulatory rules into line with those of the
rest of the financial industry. Among them are the following:

• SIDBI’s (Small Industries Development Bank of India) exposure to State Finance

Corporations accounts for a sizable share of its total exposure (SFCs). The bad
financial health of SFCs has a knock-on impact on SIDBI’s financial health.
The non – banking institutions may be categorized broadly into two groups:
(a) Organised Non – Banking Financial Institutions.
(b) Unorganised Non – Banking Financial Institutions.
(a) Organised Non – Banking Financial Institutions
The organised non - banking financial institutions include:
1. Development Finance Institutions. These include: The institutions like IDBT,
ICICI, IFCI, IIBI, IRDC at all India level. The State Finance Corporations (SFCs),
State Industrial Development Corporations (SIDCs) at the state level. Agriculture
Development Finance Institutions as NABARD, LDBS etc. Development banks
provide medium- and long-term finance to the corporate and industrial sector and
also take up promotional activities for economic development
2. Investment Institutions. These include those financial institutions which mobilise
savings at the public at large through various schemes and invest these funds in
corporate and government securities. These include LIC, GIC, LTT, and mutual
funds.
(b) Unorganised Non - Banking Financial Institutions
The unorganised non - banking financial institutions include number of non - banking
financial companies (NBFCs) providing whole range of financial services. These
include hire - purchase 300 consumer finance companies, leasing companies,
housing finance companies, factoring companies, Credit rating agencies, merchant
banking companies etc. NBFCs mobilise public funds and provide loanable funds.

Constitution, Objectives & Functions of: IDBI, SFCs, SIDCs, LIC, EXIM Bank

CONSTITUTION, OBJECTIVES & FUNCTIONS OF IDBI

Constitution of IDBI
The IDBI was constituted as a wholly owned subsidiary of the RBI in July 1964 under
the IDBI Act, 1964 as a Development Financial Institution. Later on, in the year 1975
it was taken over by the Central Government under the Public Financial Institutions
Law (Amendment) Act, 1975. The Central Government de-invested around 28% of
its holding in the year 1995 by selling the shares to the public. Presently about 72%
of the share capital of the IDBI is held by the Government. IDBI served as a
Development Financial Institution (DFI) for 40 years and in the year 2004, the IDBI
was transformed into a Bank through forming a new company called Industrial

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Development Bank of India Limited (IDBI Ltd.,) as a wholly owned subsidiary of IDBI
under the Companies Act, 1956. The company was incorporated on September 27,
2004 and the undertaking of IDBI was transferred and vested in IDBI Ltd., with effect
from October 1, 2004. IDBI took over the business of United Western Bank Ltd., in
the year 2006 and the merger came into effect from October 3, 2006. Effective from
May 7, 2008 the name of IDBI Ltd., was changed to IDBI Bank Ltd., and presently
the bank is functioning in the same name.
Role of IDBI
1. The primary role of IDBI is to act as the principal financial institution for
coordinating the activities of various financial institutions that are engaged in the
financing, promoting and developing of various industries.
2. It plans, promotes and develops industries keeping in mind the national priorities.
3. It also provides technical and administrative assistance for promotion,
management, expansion activities of the industry.
4. It undertakes market and investment research and surveys and techno-economic
studies to contribute to the development of the industry and attempts to bring a
balanced growth of the industries in all corners of the country.
Objectives of IDBI
1. Coordination, regulation and supervision of the working of other financial
institutions such as IFCI, ICICI, UTI, LIC, Commercial Banks and SFCs.
2. Supplementing the resources of other financial institutions and thereby widening
the scope of their assistance.
3. Planning, promotion and development of key industries and diversification of
industrial growth.
4. Developing and enforcing a system of industrial growth that conforms to national
priorities.
Functions of IDBI
1. IDBI provides direct as well as indirect financial assistance to industrial
enterprises like IFCI, SFCs or any other financial institution by way of refinancing.
The IDBI grants loans and advances to industrial concerns. There is no restriction on
the upper or lower limits for assistance to any concern itself. The bank guarantees
loans raised by industrial concerns in the open market from the State Co-operative
Banks, the Scheduled Banks, the Industrial Finance Corporation of India (IFCI) and
other ‘notified’ financial institutions. It also refinances the term loans to industrial
concerns repayable within 3 to 25 years given by the IFCI, the State Financial
Corporation and some other financial institutions and to SIDCs (State Industrial
Development Corporations), Commercial banks and Cooperative banks which
extend term loans not exceeding 10 years to industrial concerns. IDBI subscribes to
the shares and bonds of the financial institutions and thereby provide supplementary
resources
2. It promotes institutions engaged in industrial development. In fulfillment of its
developmental role, the bank performs a wide range of promotional activities relating
to developmental programs for new entrepreneurs, consultancy services for small
and medium enterprises and programs designed for accredited voluntary agencies

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for the economic upliftment of the underprivileged. These include entrepreneurship
development, self-employment and wage employment in the industrial sector for the
weaker sections of society through voluntary agencies, support to Science and
Technology Entrepreneurs’ Parks, Energy Conservation, Common Quality Testing
Centers for small industries.
3. It provides technical and administrative assistance for promotion,
management or expansion of industry. With a view to making available at a
reasonable cost, consultancy and advisory services to entrepreneurs, particularly to
new and small entrepreneurs, IDBI, in collaboration with other All-India Financial
Institutions, has set up a network of Technical Consultancy Organizations (TCOs)
covering the entire country. TCOs offer diversified services to small and medium
enterprises in the selection, formulation and appraisal of projects, their
implementation and review. Realizing that entrepreneurship development is the key
to industrial development, IDBI played a prime role in setting up of the
Entrepreneurship Development Institute of India for fostering entrepreneurship in the
country. It has also established similar institutes in Bihar, Orissa, Madhya Pradesh
and Uttar Pradesh.
4. It undertakes market and investment research and surveys in connection
with development of industry. IDBI also extends financial support to various
organizations in conducting studies or surveys of relevance to industrial
development.
5. It also performs other functions like, discounting or rediscount bills of
industrial concerns, underwriting or subscribing to shares or debentures of
industrial concerns, subscribing to or purchasing stock, shares, bonds and
debentures of other financial institutions, granting a line of credit or loans and
advances to other financial institutions such as IFCI, SFCs, etc., guaranteeing
deferred payment due from any industrial concern, guaranteeing loans raised by
industrial concerns in the market or from institutions, providing consultancy and
merchant banking services in or outside India, debenture trusteeship, forex services,
depository participant service, establishment of subsidiaries, etc.

CONSTITUTION, OBJECTIVES & FUNCTIONS OF SFCS

Constitution of SFCs
In order to meet the financial requirements of small scale and medium-sized
industries, there was a need of special financial institutions. With this view, the
Central Government passed the State Financial Corporation Act of 28th September,
1951 which empowered the state government to establish financial corporation to
operate within the state. State Financial Corporations are constituted under the State
Financial Corporation Act, 1951 through a notification in the Official Gazette. A
minimum of 75% of the share capital of these corporations shall be held by the State
Government, RBI, Scheduled Banks, Insurance Companies, Investment Trusts, Co-
operative banks and other financial institutions. Remaining 25% of the share capital
may be issued to the general public.

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Objectives of SFCs
1. To establish uniformity in regional industries
2. To provide incentive to new industries
3. To bring efficiency in regional industrial units
4. To provide finance to small-scale, medium
5. To develop regional financial resources.
Functions of SFCs
1. The SFCs grant loans for a period not exceeding 20 years to industrial units
mainly for acquisition of fixed assets like land, building, plant and machinery, etc.,
2. The SFCs provide financial assistance to industrial units whose paid-up capital
and reserves do not exceed Rs. 3 crore (or such higher limit up to Rs. 30 crore as
may be specified by the central government)
3. The SFCs underwrite new stocks, shares, debentures etc., of industrial concerns
for a period not exceeding 20 years
4. The SFCs provide guarantee loans raised in the capital market by scheduled
banks, industrial concerns, and state co-operative banks to be repayable within 20
years.
5. SFCs also perform various other functions like appraisal of investment projects,
credit syndication, project documentation, placement of debt, industry research, legal
advisory services, etc., to small and medium sized industries.

CONSTITUTION, OBJECTIVES & FUNCTIONS OF SIDCS

State Industrial Development Corporations are constituted by the respective States
as a wholly owned Government Company under the Companies Act, 1956.
Objectives of SIDCs
1. To act as catalyst for promoting industrial growth in the State, especially in the
medium and large sector by identifying industrial opportunities, providing guidance
and advice to prospective entrepreneurs, providing necessary financial assistance
and other related services to realize these opportunities.
2. To act as the designated agency of the Government to plan and formulate
proposals for industrial infrastructure development projects after assessing the need
in different sectors/areas;
and monitor the specified mega projects during implementation as the nodal agency.
Functions of SIDCs
1. SIDCs provide term loans like normal term loan, equipment finance, lease finance,
corporate loan, bill discounting, subscription to non-convertible debentures, bridge
loans, rehabilitation loans, deferred payment guarantees, etc., to small, medium and
large scale sectors, including sectors like health care , hospitals, hotels, tourism,
etc.,
2. They render various financial services like pubic issue management, rights issue
management, bought out deals, project consultancy, project appraisal, credit
syndication, underwriting of shares, management advisory services, etc.,
3. They perform industrial promotional activities like project identification,
identification and selection of suitable entrepreneurs, assistance in securing statutory
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and government approvals and clearances, direct participation in equity, promotion
of joint sector projects, providing of escort services, acting as a nodal agency of the
respective state government for specified major/mega projects, attracting industrial
investment including direct foreign investment and NRI investment, arranging
meetings of the industrialists and other related bodies, conducting industrial
promotion campaigns within and outside the respective state, organizing visits of
delegation of industrialists to overseas countries, inviting delegations and trade
bodies from overseas countries, etc.,
4. They perform various developmental activities like development of industrial
parks, industrial townships, industrial growth centres, international standard airports,
minor sea ports, etc.,

CONSTITUTION, OBJECTIVES & FUNCTIONS OF EXIM BANK

Constitution of EXIM Bank
Export Import Bank of India (EXIM Bank) is the premier export finance institution in
India, established in 1982 under the Export Import Bank of India Act, 1981. The
EXIM Bank has a 17-member Board of Directors, with Chairman and Managing
Director as the chief executive and full-time director. The Board of Directors consists
of the representative of the Government of India, RBI, IDBI, ECGC, commercial
banks and the exporting community. The authorized capital of EXIM Bank is Rs. 200
crores, of which Rs. 75 crores is paid up. The bank has secured a long-term loan of
Rs. 20 crores from the Government of India. It can also borrow from the RBI. It is
also empowered to raise resources in the domestic and international markets.
Role of EXIM Bank
EXIM Bank is primarily established to act as a catalyst and a key player in the
promotion of cross border trade and investment. Its primary role is to enable Indian
industries, particularly the Small and Medium Enterprises (SMEs) to enter global
market by offering a wide range of products and services at all stages of the
business cycle starting from import of technology to export of products. It helps
SMEs in areas like import of technology, product development for export purpose,
export marketing, pre shipment, post shipment and overseas investment.
Objectives of EXIM Bank
1. To provide financial assistance to exporters and importers
2. To function as the principal financial institution for coordinating the working of
institutions engaged in the financing of export and import of goods and services
3. To provide refinance facilities to commercial banks and financial institutions
against their export-import financing activities
4. To promote the country’s international trade
5. To ensure an integrated and coordinated approach in solving the allied problems
encountered by exporters in India.
6. To pay specific attention to the exports of capital goods
7. To help in the field of export projection
8. To facilitate and encourage joint ventures and export of technical services and
international and merchant banking
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9. To extend buyers’ credit and lines of credit
10. To tap domestic and foreign markets for resources for undertaking development
and financial activities in the export sector.
Functions of EXIM Bank
Functions of EXIM Bank
The first and core function of Export Import bank of India is to address India’s Import
and Export Industry requirements.
The institution finances the various types of export-import machinery for lease and
hires purposes as well.
Financing the goods and services imported from other countries than India.
With the purpose of foreign trade, EXIM refinances financial transactions of the
banks and other financial institutions.
In addition to financial institutions and banks also assist the newbie business and
joint venture businesses in foreign countries that want to grow in this particular
industry.
Besides the financial assistance, EXIM banks also offer professional technical
guidance to the administrative matters connected to the import-export community.
The companies engaged to the foreign trade EXIM Bank as an underwriter of the
stocks, shares, and debentures.
Apart from underwriting, it also provides short-term credit loans to the companies
engaged with foreign trades.
Apart from all the services, EXIM Bank is considered a trusted institution for offering
rational business advisory services to the Indian Importers for multiple projects.
EXIM bank monitors the trades happening in the domestic region and across the
international borders and analyses how it can impact the Indian economy.
Apart from the functions mentioned above, EXIM banks also can raise money from
the central government, RBI, and the market through the issue of debentures and
bonds. Moreover, it also offers financial facilities to the financial institutions and
banks against their financial services.

Unit Trust of India (UTI)

Unit Trust of India was first Set up in 1st February 1964 under the Unit Trust
of India Act, 1963. It is a statutory public sector investment institution having the main
objective to encourage and mobilize the savings of the community and canalize them
into productive corporate investment.
A unit trust is an investment plan in which the funds are pooled together and then
invested. The fund which is pooled is then unitized and the investor who is one party
to the unit trust is called a unitholder, holding a certain number of units.
A second party i.e the manager is responsible for the day-to-day running of the trust
and for investing the funds.
The trustee, governed by the Trust Companies Act 1967, is the third party, and their
role is to monitor the manager’s performance against the trust’s deed.

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The deed outlines the objectives and vital information about the trust. Also,
the assets of the trust are held in the name of the trustee and then they are held “in
trust” for the unitholders.
Objectives of Unit Trust of India (UTI)
Unit Trust of India Provides to the investor a safe return of the investment whenever
they require funds. An investor who wants to make an investment may purchase his
units at this time of the year and receive the lowest offer price for the units.
The basic objective of the UTI is to offer both small and large investors the means of
acquiring shares in the properties resulting from the steady, industrial growth of the
country.
Primary Objectives of UTI
to promote and pool the small savings from the lower and middle-income persons
who cannot have direct access to the stock exchange, and
to provide them with an opportunity to share the benefits of prosperity resulting from
rapid industrialization in India.
Functions of UTI
1. Mobilize the saving of the relatively small investors.
2. Channelize these small savings into productive investments.
3. Distribute the large-scale economies among small income groups.
4. Encourage savings of lower and middle-class people.
5. Sell nits to investors in different parts of the country.
6. Convert the small savings into industrial finance.
7. To give investors an opportunity to share the benefits and fruits of
industrialization in the country.
8. Provide liquidity to units.
9. Accept discount, purchase or sell bills of exchange, warehouse receipt,
documents of title to goods etc.,
10. To grant loans and advances to investors.
11. To provide merchant banking and investment advisory service to investors.
12. Provide leasing and hire purchase business.
13. To extend portfolio management service to persons residing in other countries.
14. To buy or sell or deal in foreign currency.
15. Formulate a unit scheme or insurance plan in association with GIC.
16. Invest in any security floated by the RBI or foreign bank.

MUTUAL FUNDS
Meaning of mutual funds
mutual fund is a pool of money managed by a professional Fund Manager. It is a
trust that collects money from a number of investors who share a common
investment objective and invests the same in equities, bonds, money market
instruments and/or other securities. And the income / gains generated from this
collective investment is distributed proportionately amongst the investors after
deducting applicable expenses and levies, by calculating a scheme’s “Net Asset

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Value” or NAV. Simply put, the money pooled in by a large number of investors is
what makes up a Mutual Fund.
Definition of mutual funds According to Securities and Exchange Board of India
(Mutual Funds) Regulation Act, 1996, “mutual fund is a fund established in the form
of a trust to raise money through the sale of units to the public or a section of the
public under one or more schemes for investing in securities, including money
market instruments or gold or gold related instruments or real estate assets”

Just like an equity share has a traded price, a mutual fund unit has Net Asset Value
per Unit. The NAV is the combined market value of the shares, bonds and securities
held by a fund on any particular day (as reduced by permitted expenses and
charges). NAV per Unit represents the market value of all the Units in a mutual fund
scheme on a given day, net of all expenses and liabilities plus income accrued,
divided by the outstanding number of Units in the scheme.
Features of mutual funds
1. Mutual funds are the companies that mobilize the savings of individuals in the
form of units.
2. Each person who contributes his savings into mutual funds is allocated units of
mutual fund
3. These savings are invested in the securities, bonds, money market instruments
and other assets.
4. The portfolio of investments is planned and managed by financial experts
5. The income earned in the form of dividend on shares, interest on securities and
capital gain that arise on account of trading of securities by the mutual fund
companies is distributed to the unit holders
Types of Mutual Funds
1. Money Market Funds: The funds that invest in short term fixed income securities
like government bonds, treasury bills, bankers’ acceptances, commercial papers,
certificate of deposits, etc., are called as Money Market Funds. They are
generally safer investments but the yield potential is lower when compared to
other types of mutual funds.
2. Fixed Income Funds: The funds that invest in fixed & regular interest yielding
investments like government bonds, debentures, etc., are called as Fixed Income
Funds. The government bonds are safer but the rate of interest is lower. The
corporate bonds, i.e., debentures are riskier but the rate of interest is generally
higher.
3. Equity Funds: The funds that invest in equity shares and stocks of joint stock
companies are called as Equity Funds. These funds aim to grow faster than
money market or fixed income funds. They provide the benefit of capital
appreciation besides regular dividend. Generally they are riskier when compared
to other funds.
4. Balanced Funds: The funds that invest in a mix of equities and fixed income
securities are called as Balanced Funds. They try to balance the aim of achieving
higher return and safety of funds.

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5. Index Funds: The funds that invest in investments in accordance with the
specific index such as S&P are called as Index Funds. The value of such
investments will go up or down as the index goes up or down. In case of
investment in index funds, the portfolio manager is relieved of doing much
research on his investment decisions.
6. Specialty Funds: The funds that invest in specialized areas like real estate,
commodities, environment protection companies, etc., are called as Specialty
Funds.
7. Fund of Funds: The funds that invest in other mutual funds are called as Fund of
Funds. They aim to reap the benefit of research and analysis done by other
funds.
Advantages of investing in mutual funds
1. Professional Management — Investors may not have the time or the required
knowledge and resources to conduct their research and purchase individual stocks
or bonds. A mutual fund is managed by full-time, professional money managers who
have the expertise, experience and resources to actively buy, sell, and monitor
investments.
2. Risk Diversification — Buying shares in a mutual fund is an easy way to diversify
your investments across many securities and asset categories such as equity, debt
and gold, which helps in spreading the risk - so you won't have all your eggs in one
basket. This proves to be beneficial when an underlying security of a given mutual
fund scheme experiences market headwinds. Thus, risk diversification is one of the
most prominent advantages of investing in mutual funds.
3. Affordability & Convenience (Invest Small Amounts) — For many investors, it
could be more costly to directly purchase all of the individual securities held by a
single mutual fund. By contrast, the minimum initial investments for most mutual
funds are more affordable.
4. Liquidity — You can easily redeem (liquidate) units of open-ended mutual fund
schemes to meet your financial needs on any business day (when the stock markets
and/or banks are open), so you have easy access to your money. Upon redemption,
the redemption amount is credited in your bank account.
5. Low Cost — An important advantage of mutual funds is their low cost. Due to
huge economies of scale, mutual funds schemes have a low expense ratio. Expense
ratio represents the annual fund operating expenses of a scheme, expressed as a
percentage of the fund’s daily net assets.
6. Well-Regulated — Mutual Funds are regulated by the capital markets regulator,
Securities and Exchange Board of India (SEBI) under SEBI (Mutual Funds)
Regulations, 1996. SEBI has laid down stringent rules and regulations keeping
investor protection, transparency with appropriate risk mitigation framework and fair
valuation principles.
7. Tax Benefits —Investment in ELSS up to ₹1,50,000 qualifies for tax benefit under
section 80C of the Income Tax Act, 1961. Mutual Fund investments when held for a
longer term are tax efficient.

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Life Insurance Corporation of India (LIC)
The full form of LIC is Life Insurance Corporation of India. LIC is a government-
owned insurance and investment company arising from the Life Insurance Act of
India. It is a statutory body, established in 1956.The HQ is at Mumbai. LIC is fully
owned by the government.
Its aim is to provide citizens with a higher return on economic security through
services and products than most other investment players on the market, thereby
helping them build a particular quality of life and providing economic development.
LIC is a government-owned insurance and investment company arising from the Life
Insurance Act of India, which put the life insurance industry under the control of the
government by nationalisation, thereby establishing LIC in 1956.
History of LIC
• The first company in Pre-independent India to offer life insurance services was
the Oriental Life Insurance Company, which concentrated more on the European
population here and forced Indians to pay more premiums.
• Post that, Surendranath Tagore started the Hindustan Insurance Society, . Until
1956, several other companies sprang up in this area, but in 1956, the Parliament
approved the act of nationalising the industry due to growing fraud in the industry.
• The Industrial Policy Resolution entered into effect in 1956 in the time frame,
which nationalised various services, one of which was the insurance industry.
The insurance sector’s 245 private players were taken over by the government
and nationalised. The LIC of India was created by the LIC Act, 1956.
Main Objective of LIC
• LIC assist in reaching the country’s rural areas to provide insurance to the
most significant number of people at a reasonable cost for protection against
unfortunate death.
• Maximise mobilisation of revenue in order to make insurance-linked savings
attractive.
• The funds collected by such schemes are spent in the best interests of
policyholders and in the sectors of national significance to comply with the
country’s objectives.
• Act as trustees for those who are insured.
• Meet the changing needs for insurance due to changing social and economic
environment.
Functions of LIC

1. The Main function of LIC is to collect the savings of the people through a life
insurance policy and invest that money in various financial markets.
2. One of the main functions of LIC is to invest fund into government securities
so as to protect the capital of the people who have given their money of LIC.
3. LIC has to issue an insurance policy at affordable rates to people.

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 4. LIC provides direct loans to industries at lower interest rates. The rate of
interest is as low as 12% for the entire tenure.
5. It is one of the major stakeholders in many of the blue-chip companies in the
Indian stock market.
6. It also provides refinancing activities through SFCs in different states and
cities.
7. It also invests in the various corporates via bonds and securities, thus
supports corporate funding in an indirect way.
8. It also gives loan to the various national projects which are important for
economic growth.
9. It provides financial supports to socially-oriented projects like electrification,
sewage, and water channelizing, etc.
10. It also gives a housing loan at reasonable rates.
11. It is the main channel between saving and investment for the people in India.
List of LIC product line
It provides different product lines, including life insurance policies, savings, and
investment products. Below are some of the famous LIC products or plans:
• LIC Bima Jyoti
• LIC Jeevan Labh
• LIC Jeevan Amar
• LIC Jeevan Shanti.

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