INDIAN FINANCIAL SYSTEM (IFS) – 3RD ASSIGNMENT 1. WHAT ARE MUTUAL FUNDS?
-Mutual funds are investment strategies that allow you to pool your money together with other investors to purchase a collection of stocks, bonds, or other securities that might be difficult to recreate on your own. This is often referred to as a portfolio. The price of the mutual fund, also known as its net asset value (NAV), is determined by the total value of the securities in the portfolio, divided by the number of the fund’s outstanding shares. This price fluctuates based on the value of the securities held by the portfolio at the end of each business day. Mutual fund investors do not actually own the securities in which the fund invests; they only own shares in the fund itself.
In the case of actively managed mutual funds, the decisions to buy and sell securities are made by one or more portfolio managers, supported by teams of researchers.

2. SEBI REGULATIONS FOR MUTUAL FUNDS?
- Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are:-to protect the interest of investors in securities and to promote the development of and to regulate the securities market.
As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.
All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. 3. CLASSIFICATION OF MUTUAL FUNDS IN INDIA?
- I. Open-Ended - This scheme allows investors to buy or sell units at any point in time. This does not have a fixed maturity date.

1. Debt/ Income - In a debt/income scheme, a major part of the investable fund are channelized towards debentures, government securities, and other debt instruments.
2. Money Market/ Liquid - This is ideal for investors looking to utilize their surplus funds in short term instruments while awaiting better options
3. Equity/ Growth - Equities are a popular mutual fund category amongst retail investors. Although it could be a high-risk investment in the short term, investors can expect capital appreciation in the long run.

3. i. Index Scheme - Index schemes follow a passive investment strategy where your investments replicate the movements of benchmark indices like Nifty, Sensex, etc.

3. ii. Sectorial Scheme - Sectorial funds are invested in a specific sector like infrastructure, IT, pharmaceuticals, etc. or segments of the capital market like large caps, mid-caps, etc. This scheme provides a relatively high risk-high return opportunity within the equity space.

3. iii. Tax Saving - As the name suggests, this scheme offers tax benefits to its investors. The funds are invested in equities thereby offering long-term growth opportunities.

4. Balanced - This scheme allows investors to enjoy growth and income at regular intervals. Funds are invested in both equities and fixed income securities; the proportion is pre-determined and disclosed in the scheme related offer document.

II. Closed-Ended - In India, this type of scheme has a stipulated maturity period and investors can invest only during the initial launch period known as the NFO (New Fund Offer) period.

1. Capital Protection - The primary objective of this scheme is to safeguard the principal amount while trying to deliver reasonable returns. These invest in high-quality fixed income securities with marginal exposure to equities and mature along with the maturity period of the scheme.

2. Fixed Maturity Plans (FMPs) - FMPs, as the name suggests, are mutual fund schemes with a defined maturity period. These schemes normally comprise of debt instruments which mature in line with the maturity of the scheme, thereby earning through the interest component (also called coupons) of the securities in the portfolio

III. Interval - Operating as a combination of open and closed ended schemes, it allows investors to trade units at pre-defined intervals.

4. SATYAM COMPUTERS SCAN/SCANDAL?
- This was perhaps India's biggest corporate fraud case where M/s Satyam Computer Services Limited (M/s SCSL) caused loss to the investors to the tune of Rs.14,162 crore. The company head, Ramalinga Raju and members of his family secured illegal gains to the tune of about Rs.2,743 crore by various tricks. The fraud was perpetrated by inflating the revenue of the company through false sales invoices and showing corresponding gains by forging the bank statements with the connivance of the Statutory and Internal Auditors of the company. The annual financial statements of the company with inflated revenue were published for several years and this lead to higher price of the scrip in the market. In the process, innocent investors were lured to invest in the company. Attempts were made to conceal the fraud by acquiring the companies of kith and kin.
Like several other cases of this type, the Satyam case also came to the CBI as soon as the country got wind of it. The CBI constituted a Multi-Disciplinary Investigation Team (MDIT) to investigate the case. The team worked hard, burnt midnight oil and achieved success in a record time of 45 days when it filed its first charge sheet against the accused for offences of criminal conspiracy, cheating, forgery and falsification of accounts. 5. WASHINGTON MUTUAL FUNDS SCAN/SCANDAL?
- The mutual fund scandal of 2003 was the result of the discovery of illegal late trading and market timing practices on the part of certain hedge fund and mutual fund companies.
On September 3, 2003, New York Attorney General Eliot Spitzer announced the issuance of a complaint against New Jersey hedge fund company Canary Capital Partners LLC, charging that they had engaged in "late trading" in collusion with Bank of America's Nations Funds. Bank of America is charged with permitting Canary to purchase mutual fund shares, after the markets had closed, at the closing price for that day. Spitzer's investigation was initiated after his office received a ten-minute June 2003 phone call from a Wall Street worker alerting them to an instance of the late trading problem.
In the United States, mutual fund prices are set once daily at 4:00 p.m. Eastern time. "Late trading" occurs when traders are allowed to purchase fund shares after 4:00 p.m. at that day's closing price. Under law, most mutual fund trades received after 4:00 p.m. must be executed at the following day's closing price, but because some orders placed before 4:00 p.m. cannot be executed until after 4:00 p.m., brokers can collude with investors and submit post-4:00 p.m. trades as if they had been placed before 4:00 p.m.
Such trades can be made with information about after-hours market developments in other countries, for example. Traders would buy in at the previous day's close, and sell at the next day's close for a likely profit. This practice hurt long-term buy-and-hold investors in the mutual fund, who experienced a continued drain in the fund's net asset value.

6. ROYAL BANK OF SCOTLAND SCAN/SCANDAL?
- The Royal Bank of Scotland has faced more controversy during the past five years than in the previous 280 years of its existence.
In February 2013 RBS suffered a major blow to its reputation when U.S. and British regulators announced that the bank would pay a total of $612 million to settle charges that it was involved in the manipulation of the LIBOR interest rate index. To resolve the criminal component of the case, RBS paid penalties of $150 million and agreed to have a Japanese subsidiary plead guilty to wire fraud and admit its role in the Japanese Yen portion of the LIBOR scandal. The civil components included a $325 million penalty imposed by the U.S. Commodities Futures Trading Commission and an £87.5 million fine imposed by the Financial Services Authority.
Currency Manipulation-
In November 2014 RBS was fined $290 million by the U.S Commodity Futures Trading Commission and $344 million by Britain's Financial Conduct Authority as part of a settlement of charges that it and other major banks manipulated the foreign exchange market.
Mortgage-backed Securities-
In November 2013 the SEC announced that RBS would pay $153 million to settle charges that it misled investors in a 2007 offering of subprime residential mortgage-back securities. The agency had accused the bank of failing to carry out adequate due diligence about the loans on which the securities were based. 7. LEHMAN BROTHERS SCAN/SCANDAL?
- On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman's bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron. Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide. Lehman's demise also made it the largest victim, of the U.S. subprime mortgage-induced financial crisis that swept through global financial markets in 2008. Lehman's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in October 2008, the biggest monthly decline on record at the time.
Lehman's collapse roiled global financial markets for weeks, given the size of the company and its status as a major player in the U.S. and internationally. Many questioned the U.S. government's decision to let Lehman fail, as compared to its tacit support for Bear Stearns (which was acquired by JPMorgan Chase) in March 2008. Lehman's bankruptcy led to more than $46 billion of its market value being wiped out. Its collapse also served as the catalyst for the purchase of Merrill Lynch by Bank of America in an emergency deal that was also announced on September 15. 8. ANGLO IRISH BANK SCAN/SCANDAL?
- Both chairman and chief executive resigned over the affair in December but last week saw the turn of William McAteer, the bank’s finance director and chief risk officer, to fall on his sword, leaving his second in command, Matt Moran, as the FD designate.
Moran finds himself with a sudden promotion after it emerged late last year that Anglo Irish’s former chairman, Sean Fitzpatrick, had taken loans from the bank to the tune of e80m (£72m), but they were never disclosed to shareholders. It’s not illegal, but has not been seen as best practice on transparency from the company’s most senior board member.
Fitzpatrick resigned and so did CEO David Drumm. The bank had already gone through the ignominy of being recapitalized by the Irish government, but the scandal has undermined its reputation still further. 9. KINGFINSHER AIRLINES?
- Kingfisher Airlines Limited was an airline group based in India. Its head office was in Andheri (East), Mumbai and registered office in UB City, Bengaluru. Kingfisher Airlines, through its parent company United Breweries Group, had a 50% stake in low-cost carrier Kingfisher Red. Until December 2011, Kingfisher Airlines had the second largest share in India's domestic air travel market. However, the airline had been facing financial issues for many years, and due to a severe financial crisis faced by the airline at the beginning of 2012, this share dropped to the lowest in the market in April 2012.

The airline had shut down its operations and locked out its employees for several days when on 20 October 2012 the DGCA suspended its flight certificate. The suspension resulted from the airline's failure to give an effective response to the show-cause notice issued by the DGCA. On 25 October 2012, its employees agreed to return to work. However, in February 2013 the Indian government announced the withdrawal of both domestic and international flight entitlements allocated to the airline. The CEO quit on 17 February 2014. Bharat Petroleum Corporation Ltd has sued Vijay Mallya-
On June 25, 2009, Oil refiner, Bharat Petroleum Corporation Ltd has sued Vijay Mallya promoted Kingfisher Airlines in the Bombay High Court to get back its dues worth Rs 300 crore. The oil company filed an arbitration petition in the Bombay High Court last week after all its attempts to get KFA to repay its dues failed, a source in the oil company said. The oil company has also asked KFA to lift fuel only after it pays cash at the time of delivery and withdrawn the credit facility, the source said. 10. LIST OF PUBLIC SECTOR AND PRIVATE SECTOR BANK IN INDIA?
-Public Sector Banks in India-
Banks such as State Bank of India, Bank of Baroda, Syndicate Bank and Canara Bank are known as Public sector banks. Public sector banks are controlled and managed by the Government of India. Public sector banks have been serving the nation for over centuries and are well known for their affordable and quality services.
The banking sector in India is mostly dominated by the Public sector banks. The Public sector banks in India alone account for about 75 percent of the total advances in the Indian banking industry. Public sector banks have shown remarkable growth over the last five four decades.
List of Public Sector Banks in India- * Bank of Baroda * Allahabad Bank * State Bank of Saurashtra * Central Bank of India * State Bank of Patiala * Andhra Bank * Canara Bank * State Bank of Hyderabad * Oriental Bank of Commerce * Dena Bank * State Bank of Mysore * State Bank of Indore * UCO Bank * Vijaya Bank * Syndicate Bank * State Bank of India * Bank of India * Corporation Bank * Indian Bank * Union Bank of India * Punjab National Bank- * State Bank of Bikaner and Jaipur * State Bank of Travancore

Private sector banks in India-
Private Banks are banks like HDFC bank, ICICI Bank, UTI bank and IDBI bank. The concept of private banking was introduced about 15 years ago. These are the banks that do not have any government stakes.
Private Banks have gained quite a strong foothold in the Indian banking industry over the last few years especially because of optimum use of technology. The Private Banks are accountable for a share of 18.2 percent of the Indian banking industry.

List of Private sector banks in India- * Bank of Rajasthan * Catholic Syrian Bank * Bank of Punjab * Dhanlakshmi Bank * HDFC Bank * Karur Vysya Bank * ING Vysya Bank * Laxmi Vilas Bank * Karnataka Bank * South Indian Bank * United Western Bank * UTI Bank * Centurion Bank * City Union Bank * Development Credit Bank * Federal Bank * ICICI Bank * IndusInd Bank * Jammu & Kashmir Bank