Investment Process Final
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Transcript of Investment Process Final
1. Prescribed Investment Pattern
As per the pattern prescribed by the Government of India, Ministry of Finance, the Corpus of the
Trust is required to be invested in Securities. The Trust usually invests in Government of India
Securities, State Government Securities, PSU’s Securities and Private Securities. There are
certain guidelines provided by the Government of India which defines the limits of investment in
each category. The current pattern of investment is as under:
A. Government of India Securities : - 25%
B. State Government and Government Guaranteed Securities : - 15%
C. PSU’s, Financial Institutions and Banks : - 30%
D. In any of the above three (Including 10% in Private Sector) : - 30%
A. Government of India Securities
Government of India Securities are those securities which are issued by the Central Government
and whose interest and the maturity amount are directly payable by the Reserve Bank of India.
Whenever the Central Government needs funding, it has the power to issue new securities. These
securities can be purchased in the primary as well as secondary market. These securities are
considered as riskless. Moreover, these securities also provide a reasonable return to the security
holder. Thus, Government of India Securities are considered as one of the best options for
investment.
The Government of India securities can be directly purchased in the primary market through
auctions/sales. Moreover, these securities can also be purchased in the secondary market.
Considering their riskless nature, one might think to invest all the money in these securities only
but the rate of interest needed to be given on Provident Fund is higher than the rate of return of
these securities and that is why the Trust invests in other options as well in order to increase its
returns.
B. State Government and Government Guaranteed Securities
State Government Securities are those securities which are issued by the State Government and
are also known as State Development Loans (SDLs). These securities are managed by the
Reserve Bank of India. These securities are issued by State whenever it needs funding for
development. As far as risk is considered, these securities are also riskless as these are
guaranteed by the Reserve Bank of India i.e. if State Government does not have enough money
to make repayments than in that case RBI has the power to make repayments out of the funds
allocated by the Central Government.
The State Government Securities can be purchased in the primary market through auction like
the Government Securities. Also, these can be purchased in the secondary market.
The coupon rates on Sate Government securities are slightly higher than those of Government
Securities which shows that the risk in investing in State Government is higher than that of the
Central Government.
C. PSU’s Securities
PSU’s Securities are medium or long term securities issued by Public Sector Undertakings. The
liability to make repayments i.e. interest and maturity are on the company itself. Although, some
of these securities are guaranteed by the Central Government while some are guaranteed by the
State Government.
These securities can be purchased in primary as well as secondary market.
Usually, PSU Securities are rated by some credit rating agencies in order to attract investors.
These securities are riskier than Central and State Government Securities thus these securities
offer high coupon rates. Thus, in order to achieve higher returns, the Trust usually invests a huge
amount in these PSU’s.
D. Private Sector Securities
Private Sector Securities are medium or long term securities issued by Private Sector Companies.
The proceeds of these securities are used by the company itself for its growth and expansion.
These securities are neither guaranteed by the Central Government nor by the State Government.
Thus, the liability to make repayments in the form of interest and maturity is solely of the
company.
These securities can be purchased in primary as well as secondary market.
These securities are much riskier and thus are not considered to be safe for investment. But
owing to their high rates of return, the Trust still invests sum of its amount in these securities in
order to achieve the overall required rate of return.
Now, considering the guidelines of the Government, 70% of the investments are strictly fixed
and needs to be invested in Central Government Securities (25%), State Government Securities
(15%) and PSU’s Securities (30%). The Trust has no control over this. But, 30% of the
remaining investments are free and the Trust has full control over that amount. The Trust can
invest this 30% in any of the above mentioned securities as well as Private Securities.
Considering the above mentioned securities, if the Trust wants to minimize the risk on its
investment then the preference should be given to Government of India Securities but if it does
so the returns would not be as high. This may result in shortage of payments to employees on
account of interest on Provident Fund.
On the other hand if the Trust wants to maximize its returns on its investment than it needs to
invest in Private Securities but in this case the risk involved would be very high which means
that the chances of default would be quite high. Under such a case, there would be chances that
the Trust may not get all its repayments on securities. Thus in this case also, the Trust would
suffer from losses.
Thus it becomes the responsibility of FCI CPF Trust to make a perfect balance between risk and
returns i.e. the Trust should select the securities while keeping in mind both the risk as well as
returns associated with it. The risk should be minimized such that the Trust gets ensured
repayments. Also, the returns should be enough so that the Trust meets its obligations of paying
interest on Provident Fund.
The monthly breakup of investment of FCI CPF Trust in various categories for the year 2011-12
is as under:
(Figures in Rs. Crores)
Month/
Category GOI State PSU Private
April 20.00 10.31 60.00 0.00
May 25.00 10.12 44.70 0.00
June 15.34 20.00 40.00 0.00
July 10.00 10.00 30.00 0.00
August 10.00 0.00 15.00 5.00
September 0.00 0.00 0.00 0.00
October 25.00 14.43 58.00 5.00
November 25.00 26.00 18.00 0.00
December 0.00 14.00 27.00 0.00
January 36.00 0.00 89.00 0.00
February 0.00 0.00 0.00 0.00
March 0.00 0.00 0.00 0.00
Total 166.34 104.86 381.70 10.00
%age Achieved 25.09 15.82 57.58 1.51
Prescribed %age 25-55 15-45 30-60 0-10
From the above figures it becomes clear that in case of Government and State Securities, the
Trust only maintains the required percentage. Also, the Trust doesn’t prefer to invest in Private
Securities but in case of PSU’s Securities, the Trust invests the maximum amount it can invest in
this category.
The Trust invests this extra 30% amount in PSU’s because these securities gives higher returns
as compared to Government and State Securities but are not as risky as the Private Securities. In
this way, the Trust without increasing the amount of risk too much maintains good returns on
their investment.
April
May
June Ju
ly
Augus
t
Septem
ber
Octobe
r
Novem
ber
Decem
ber
Janu
ary
Febru
ary
Marc
h0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
GOIPSUStatePrivate
From the above graph, it becomes clear that the investment in PSU’s securities is much higher as
compared to the investments in other securities. Also, the investment in Private securities is
approximately nil.
From the data, it becomes very clear that the preference of the Trust is to invest in PSU’s
securities.
2. Market for Investment
Investments by the Trust are made almost every month. These investments can be made in any of
the markets i.e. Primary Market as well as Secondary Market.
1. Primary Market
A Primary Market is that market which deals with the sale and purchase of new securities. When
a company issues new securities, it can be directly purchased from the company in the primary
market. The proceeds of the investments in securities are used by the company for its own
expansion. When the State Government issues new securities known as State Development
Loans, the proceeds of investments are used for the development of the State. Investments in the
primary market are made through:
A. Arrangers of the Securities
FCI CPF Trust has formed a panel of arrangers for the purpose of making investment of surplus
fund of the Trust. The Trust contacts these arrangers at the time of investment. The arrangers
provide quotations to the Trust for investment. The Trust, at the time of making investment,
contacts only those arrangers who are in the “Empanelment of Arrangers.” Those who wish to be
a part of empanelment of arrangers of the trust can apply to become an arranger for the Trust.
The list of arrangers includes Almondz Global Securities, Brics Securities Limited, Centrum
Capital Limited, etc.
B. Participation in the auction held by RBI
Whenever the Central government needs money, than instead of printing additional money the
Reserve Bank of India announces the auction of Government of India Securities. The Trust can
directly participate in the auctions to purchase Government Securities. Generally, there are two
types of auctions conducted by RBI i.e. Yield Based and Price Based.
Yield Based
In this type of auction, the RBI announces the total size and the tenure of the securities to be
auctioned. Bids are then invited in terms of yield i.e. the return on which an investor is ready to
purchase the security. If the bid is more than the cut-off yield, the bid is rejected otherwise it is
accepted.
Price Based
In this type of auction, the RBI announces the total size, tenure as well as the coupon rate of the
securities to be auctioned. Bids are then invited in terms of price i.e. the price at which the
investor is ready to purchase the security. If the bid is lower than the cut-off price, the bid is
rejected otherwise it is accepted.
2. Secondary Market:
A Secondary Market is that market which deals with the sale and purchase of old securities. In a
secondary market, securities are traded between investors rather than the corporation and an
investor. The market at present is very volatile and due to constantly changing market rates,
secondary market plays a very important role in trading securities. Investments in the Secondary
Market are made by purchasing securities from:
A. Primary Dealers
A Primary Dealer is one which directly buys securities from the Government and then sells these
securities in the market. This system was introduced by the RBI in 1995 in order to promote the
trading of Government Securities in the secondary market. Primary Dealers also do trading of
Government Securities by underwriting i.e. these dealers sell the securities on behalf of the
Government in the secondary market for some share.
Some of the primary dealers with which the Trust deal are ICICI Securities Primary Dealership
Limited, SBI DFHI (Discount and Finance House of India), etc.
B. Satellite Dealers
A Satellite Dealer just like a Primary Dealer deals with the sale and purchase of Government
Securities. But the satellite dealers unlike primary dealers do not solely deals in Government
Securities. The satellite dealers were formed to promote the trading of Government Securities at
the retail level. The satellite dealers by working in co-ordination with the primary dealers form
the second tier of trading in Government Securities.
Some of the satellite dealers at present are Tower Capital, Birla Global Finance, Dil Vikas
Finance and SREI International Securities.
C. Merchant Bankers
Merchant Bankers are those institutions which mostly deal in underwriting for companies. When
a company needs to issue securities, it approaches a merchant banker. The merchant banker co-
ordinates with the company and announces the issuance of the required amount of securities on
behalf of the company. The merchant bankers then finalize all the deals of the securities and in
turn get commission.
Some of the merchant bankers with which the Trust deals are A. K. Capital Services Limited,
ICICI Bank Limited, Axis Bank Limited, etc.
D. SEBI Registered Brokers
A SEBI registered broker is one whose name is registered with SEBI in the list of registered
brokers. A broker fills the gap between the investor and the corporation issuing securities. A
broker may also conduct a deal of security between two investors.
Some of the brokers registered with SEBI with which the Trust deals are Kotak Mahindra Bank
Limited, ICICI bank Limited, Axis bank Limited, etc.
3. Guidelines for Investment
Apart from the guidelines and pattern prescribed by the Government of India, Ministry of
Finance, the FCI CPF Trust follows certain other guidelines of its own for investments as well.
These guidelines are approved by the Board of Trustees and are continuously reviewed and
changed by them according to the prevailing market scenario. The original guidelines were
approved in the meeting held on 3rd September, 2002 and later in the meeting held on 12 th July,
2011. According to these guidelines, the investment decision broadly considers:
1. Pattern of Investment
The FCI CPF Trust follows the pattern of investment as prescribed by Ministry of Labour for
“Employee’s Provident Fund Organization” (EPFO). As stated earlier as well, the Trust invests
in Government of India Securities, State Government Securities, PSU’s Securities and Private
Securities with certain conditions and guidelines. The Trust cannot invest beyond the prescribed
percentage in any of the security.
The category-wise investment of FCI CPF Trust as on 31.03.2012 is as under:
(Figures in Rs. Crores)
Total Investment %age Achieved Prescribed %age
GOI 1,879.73 33.72 25-55
State 807.29 14.48 15-45
PSU 2,780.07 49.87 30-60
Private 107.00 1.92 0-10
From the above table, it becomes clear that the Trust strictly follows the investment pattern and
regularly maintains the prescribed percentage level of investment.
2. Required Inflow/Outflow of Fund
The quantum of investment is decided based on the availability of surplus fund on the date of
investment. The major source of fund is the contributions receivables from FCI every month.
Apart from this, the proceeds of interest and maturities also get added to the total funds.
The monthly breakup of inflow of FCI CPF Trust for the year 2011-12 is as under:
(Figures in Rs. Crores)
Bank Contributi
on Expect
edExpect
edAdju
st. Total
Balan
ce from FCIInteres
tMaturi
ty Fund
April 17.41 59.40 30.40 0.20 -16.38 91.03
May 3.17 66.25 7.12 9.00 7.53 93.07
June 1.97 45.50 5.83 10.57 28.93 92.80
July 0.59 50.00 12.00 0.00 6.41 69.00
August 0.39 50.50 22.55 2.10 11.28 86.82
Septemb
er - - - - - -
October 27.89 56.00 6.94 14.20 -0.03 105.00
Novemb
er 0.98 58.00 4.44 0.00 13.58 77.00
Decemb
er 1.00 58.00 4.24 0.00 -0.24 63.00
January 0.26 50.00 140.90 0.00 -0.31 190.85
Februar
y 0.26 50.00 11.70 0.00 0.00 61.96
March 1.58 60.00 6.70 2.75 0.91 71.94
The above table shows the monthly total funds available with the Trust for the period 2011-12.
From this, the expected liabilities are deducted and the surplus fund becomes available for
investment.
April
May
June Ju
ly
Augus
t
Septem
ber
Octobe
r
Novem
ber
Decem
ber
Janu
ary
Febru
ary
Marc
h0.00
50.00
100.00
150.00
200.00
250.00
Total Fund
From the above graph, we can see that the total monthly funds of the Trust ranges between Rs.
70-90 Crores.
The remaining amount after the deduction of liabilities becomes the surplus fund. The
investment committee then decides whether to invest that surplus fund or not.
3. Yield
The Trust invests in the securities having highest Yield to Maturity (YTM) in respective category
on monthly basis on the basis of quotations received. YTM is the expected rate of return from a
security assuming that the security would be held till maturity and all the repayments would be
made on time. The YTM calculates the return on the market value of the security and also takes
into account the compounding effect.
Thus, YTM is an efficient method of finding the exact returns from a security and is highly
considered by the Trust while making investment.
4. Tenure
The tenure/tenor of the security means the total time left for maturity of the security. At maturity,
the holder of the security gets the entire face value of the security back. As the Trust has
liabilities of paying temporary, part final payments and final payments towards Provident Fund
which requires huge amount, so the Trust while investing carefully observes the maturity date, so
that it regularly receives the maturity amount in order to pay off its liabilities.
In Government of India Securities, the Trust do not invest in 2040 paper. In PSU’s no investment
is made in a paper having tenure of less than five years.
5. Security Guarantee
While investing in a security, a guarantor is needed. A guarantor has the liability to make
repayments in case the issuer of security fails to do so.
The papers which are guaranteed by Central Government/State Government are preferred by the
Trust for investment.
6. Credit Rating
A credit rating tells about the ability of the issuers of the security to pay-off all its liabilities. The
credit rating is given by credit rating agencies. The credit rating agencies analyses the position of
the issuer of security and accordingly assigns them credit ratings. Credit ratings are helpful for
investors as from these credit ratings they can find out the risk involved in investing in the
securities.
Some of the credit rating agencies in India are FITCH Ratings India Private Limited, CRISIL
Limited, etc. The credit rating agencies assigns grades to various corporations. The various
grades with their implications are given below:
Grade Implications
AAA This rating is given to the best issuers and thus the issuers are considered as
completely riskless.
AA This rating is given to issuers whose financial conditions are closely similar to
those of the best issuers. Thus, these issuers are also considered to be very
safe for investment. .
A This rating is given to those issuers whose financial condition is generally
normal but a change in economic conditions may affect the timely
repayments. An investment with these issuers is advisable. Risk is very less.
BBB This rating is given to those issuers who involves a negligible risk under
normal conditions but are very much likely to affect with the change in
economic conditions. An investment with these issuers has a little risk.
BB This rating is given to those issuers whose financial conditions are just
sufficient to repay its debt but is more likely to affect under changes in
economic conditions. An investment can be made with these issuers but
certain risk occurs.
B This rating is given to those issuers who can pay off its debt at the moment
but still depends upon the economic conditions. An investment should be
avoided with these issuers.
C This rating is given to those issuers who solely depend upon favorable
economic conditions to re-pay its debt. Investments are very risky with these
issuers.
D This rating is given to those issuers who are in default at present. Investments
are not advisable with these issuers.
Between every two grades, “+” and “-” signs may be assigned to show a relative status between
the respective categories.
In PSU category, investment is made on a paper having rating of A(-) and above. In Private
category, investment is made in a paper having rating of ‘AA’ and above from atleast two rating
agencies. Rating is considered at the time of investment.
7. Exposure
Apart from the overall limits on investment in each category, there are some other limits
associated with each security. There are some upper limits set for each type of security beyond
which, the Trust cannot invest in that particular security. This limit is mainly for PSU’s
according to their guarantor. The exposure is more in the securities guaranteed by the Central
Government while the exposure is less in the securities guaranteed by the State Government.
In Central Government PSU’s, investment is made upto Rs. 150 Crores. In State PSU’s
investment is made upto Rs. 80 Crores.
8. Track Record
When making fresh investments in a corporation whose securities are also previously held by the
Trust, the corporation’s track record and repayment/payment of interest on due date is monitored
and is taken into account. The Trust does not prefer to invest in those corporations who do not
pay interest on time.
The Trust makes fresh investments only in those corporations from whom they have received
repayments on time.
9. Financial health of Issuer/ Guarantor
When investing in a corporation, the Trust sees to it that there is minimum risk of default. The
Trust wants to be sure of repayments of interest and maturities. For this, the Trust carefully
observes the financial health of both the issuer of the security as well as the guarantor of the
security. The Trust invests in a corporation only when it thinks that the issuer/guarantor will be
able to repay its debt.
The Trust do not make investment in a loss making company.
10. Availability of Put/ Call Option
At present, there are so many securities which come with call/put option. The yield of such
securities is not calculated in the same way as the yield is calculated for normal securities. So, a
careful analysis of such securities is needed to be done by the Trust before investing.
Call Option
A buyer of the call option gets the right to purchase the security at a certain price on a fixed date.
The decision to take call option depends upon the buyer of the call option. But if the buyer
decides to take the call option, then the seller of the call option must sell the security.
The investors usually buy call option when they think that the price of the security will rise in
future and thus by utilizing the call option they will be able to buy the security at a price lower
than the market price.
Put Option
A buyer of the put option gets the right to sell the security at a certain price on a fixed date. The
decision to take put option depends upon the buyer of this option. If the buyer of the option
decides to take the call option, then the seller of this option must buy back the security.
The investors usually buy put option when they think that the price of the security will depreciate
in future and thus by utilizing the put option they will be able to sell the security at a price higher
than the market price.
In case of put/call option, yield is calculated upto the date of put/call option and that yield is
considered for comparing with other options at the time of investment.
11. Media/Market Report
Any information available through media/market about the market conditions is also considered
for investment. The media may provide some important information which affects the
investment decision.
The Employee’s Provident Fund Organization (EPFO) has recently issued directions to all the PF
Trust to follow the Securities & Exchange Board of India (SEBI) Guidelines which states that:
1. All transactions in Corporate Bonds must be reported on authorized platform of Bombay
Stock Exchange (BSE)/ National Stock Exchange (NSE)/ Fixed Income Money Market &
Derivative Associations of India (FIMMDA).
2. Settlement of trade must be done through “National Securities Clearing Corporation Limited”
(NSCCL) or “Indian Clearing Corporation Limited” (ICCL).
Accordingly, all the transactions by the FCI CPF Trust in corporate bonds are being cleared and
settled through NSCCL since April 2010 onwards which is automatically reported to FIMMDA
by NSCCL. All transactions of Government Securities and State Development Loan (SDL) are
dealt through Negotiable Deal Settlement (NDS) of Reserve bank of India.
Fixed Income Money Market & Derivative Associations of India
The FIMMDA was formed as a regulating body for the derivatives market of India. The
FIMMDA forms the standardize guidelines for investors, settles any dispute between various
members, and works for the smooth functioning of this market.
National Securities Clearing Corporation Limited
The NSCCL was incorporated to carry the clearing and settlement of trades in securities. The
main aim of NSCCL is to bring confidence among the investors in the trading of securities. The
function of NSCCL is to clear and settle all the transactions made in securities.
The Government through these corporations monitors the working of derivative market of India
and makes changes in the guidelines for investors according to the market conditions.
4. Investment Proposal
Normally, investments are made during the first week of the month when monthly contributions
from FCI are received by the Trust. The monthly contribution from FCI usually ranges between
45-55 Crores. Apart from this amount, there are interest and maturity proceeds as well which the
Trust invests. Additional process of investment during the month is also taken up as and when
reasonable amount becomes available for investment on account of other receipts.
A statement is made during the last week of every month giving the details of the surplus fund
available for investment in the next month. The monthly statement includes the following
elements:
1. Bank Balance
The monthly statement indicates the bank balance of the Trust as on the date of investment
proposal.
2. Contributions receivables from FCI
The statement also tells the monthly contributions which would be receivable by the Trust from
FCI on account of Provident Fund.
3. Expected Interest & Maturity
An expected amount of interest and maturities receivable are calculated by the Trust from the
date of investment proposal upto the date of investment.
4. Liabilities
All the expected liabilities on account of retirement, temporary advances, etc. are calculated by
the Trust and are written in the statement.
5. Surplus Fund
All the expected liabilities are deducted from the total fund and the remaining surplus fund
becomes available for investment by the Trust.
The format of the monthly statement of surplus fund is shown below.
Position of surplus fund for investment for the month of August, 2011 is as under:-
Bank Balance as on 27th July, 2011:-
Axis Bank : - xx.xx Cr
IDBI Bank : - xx.xx Cr
Total (A) : - 00.39 Cr
Contribution receivable from FCI, Headquarters for the Month of July, 2011
: - 50.50 Cr
Expected Interest receivable between 28th July, 2011 to 06th August, 2011
: - 22.55 Cr
Maturity receivable up to 06th August, 2011 : - 02.10 Cr
Total (B) : - 75.15 Cr
Liabilities to be paid towards FCI, Headquarters
Approved : - xx.xx Cr
Unapproved : - xx.xx Cr
Total (C) : - 56.82 Cr
Surplus fund available for investment for the Month of August, 2011
(A) + (B) - (C) : - 18.72 Cr
At the end of every month, the statement shown above is made and is sent to the higher officials.
Based on the total surplus fund, a decision whether to invest or not is taken.
5. Investment Decision
The monthly investment of the Trust ranges between Rs 50-80 Crores. The investment
sometimes is even more. Securities in the primary market in the ratio fixed by the Finance
Ministry are not always available requiring the Trust to seek help from market players already
mentioned. The investment decision is taken through a step by step process stated as under:
1. Once the investment proposal reaches the members of the investment committee, they take a
decision, on the basis of available surplus fund, whether to invest this fund or keep it safe for
some other purposes.
2. Once the investment committee decides to invest the surplus fund, a date, usually in the first
week of the month, is fixed for investment.
3. The trust then informs all the members in the empanelment of arrangers about the investment
decision via telephone or e-mail and quotations are asked from them.
4. On the fixed date, the Investment Committee consisting of Manager, AGM, GM and CGM
analyses all the received quotations keeping in mind the guidelines to be followed by the Trust.
Usually, the investment decision is taken on account of “Yield to Maturity” (YTM).
5. The recommendations by the Investment Committee are then send to the High Level
Committee consisting of ED (F) and ED (P). Final investment decision lies in the hand of High
Level Committee.
6. The High Level Committee finalizes the securities in which investment is to be made. Based
on the availability of that security on the investment date, investment is done.
7. If the desired security is unavailable on the investment date, a decision to purchase the security
with next highest yield may be taken.
The breakup of the surplus fund available and the investment made during each month by FCI
CPF Trust for the year 2011-12 is as under:
(Figures in Rs. Crores)
Total Fund
Liabilit
y Surplus Fund
Investmen
t
Reserve
s
April 91.03 0.00 91.03 90.31 0.72
May 93.07 9.07 84.00 79.82 4.18
June 92.80 15.30 77.50 75.34 2.16
July 69.00 19.00 50.00 50.00 0.00
August 86.82 56.82 30.00 30.00 0.00
Septembe
r - - - - -
October 105.00 0.00 105.00 102.43 2.57
November 77.00 8.00 69.00 69.00 0.00
December 63.00 12.00 51.00 41.00 10.00
January 190.85 65.85 125.00 125.00 0.00
February 61.96 61.53 0.43 0.00 0.43
March 71.94 63.68 8.26 0.00 8.26
From the above table it is clear that the FCI CPF Trust makes investment almost every month.
However, in the month of February, no investment was made as there was not sufficient fund and
in the next month also no investment was made as there as a little surplus fund and that too was
used to clear the pending liabilities of the previous month. In the month of September, the
investment proposal was not made and thus the surplus fund during that month was not
calculated.
It can also be seen from the table that the Trust invest almost all the money in hand. In many
cases, the bank balance of the trust reached zero after investment which simply means that the
Trust calculates its expected liabilities accurately and doesn’t like to keep reserves after that.
The graph below shows the percentage distribution of the total funds in the form of investments
and liabilities.
April
May
June Ju
ly
Augus
t
Septem
ber
Octobe
r
Novem
ber
Decem
ber
Janu
ary
Febru
ary
Marc
h0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
99.2
1%
85.7
6%
81.1
9%
72.4
6%
34.5
5%
97.5
5%
89.6
1%
65.0
8%
65.5
0%
9.75
%
16.4
9%
27.5
4%
65.4
5%
10.3
9%
19.0
5%
34.5
0%
99.3
1%
88.5
2%
InvestmentLiability
From the graph it is clear that during the month of February and March, the liabilities were so
high that the Trust was not able to make nay investments during these months. But during other
months, liabilities took only a small portion of the total funds and the rest was invested.
From the table and the graph, we can observe that the Trust invests almost all the money in hand.
It doesn’t keep too much of reserves.
This is indeed a good policy as keeping reserves will not provide any returns to the Trust and
thus the money kept in reserves will be a waste. So, we can say that the Trust has choosen the
right option to invest all of its money.
6. Mode of Transactions
There are a large number of players in the market from which the Trust can buy securities. But in
order to prevent delays in investment decisions, the Trust only approaches a handful of players.
Apart from this, the market is very volatile. The securities offered today may not stand tomorrow
and thus on the spot decisions is the need of the hour. Once the decision is taken to purchase a
security, the final payment is needed to be paid immediately otherwise the deal might also get
cancelled. In order to make quick payments and online transfer of money, the Trust has opened
two types of accounts, i.e. CSGL Account for Central Government and State Government
Securities and Demat Account for Non-Government and PSU Securities.
A. Demat Account
A Demat account means an account in dematerialized form. With a demat account, securities can
be transferred online without any paperwork. The deal is considered to be final once the
transaction is completed. No physical possession of the security is required. This account
provides a fast and cheaper means of transactions to the Trust.
B. CSGL Account
CSGL Account stands for “Constituent’s Subsidiary General Ledger Account”. CSGL account
enables the Trust to hold Government Securities in dematerialized form which can be easily
converted to physical mode whenever required. The Trust receives periodical statement showing
the balance of securities in its account. This reduces the burden on the Trust to keep track of its
securities with the Government of India. Moreover, by opening this account, the Trust has made
itself eligible to participate in the auctions of Government Securities by RBI.
The trust is allowed to open a number of Demat and CSGL account as per their need. The
number of such accounts depends on the various facilities provided by the Merchant
Banker/Primary Dealer.
RTGS (Real Time Gross Settlement)
The trust also makes and receives payments through RTGS. With the RTGS system, the
transactions can be done in real time i.e. the transactions are immediately done once they are
processed. Also, through RTGS, transactions are taken on an individual basis rather than in
batches. This fast mean of transaction helps in avoiding losses due to delay in payments and
receipts.
Advantages
1. The Government and other securities are maintained in a dematerialized form through these
accounts which is an easy and convenient mode.
2. With the help of CSGL account, the Trust can participate in the auctions of Government
Securities thus enabling them to make direct dealings with RBI.
3. The Trust receives a periodical statement of its holding in the demat account from the bank.
This makes it easy for the Trust to keep a track on its current position of holdings of securities.
4. Moreover, the repayments of interests and maturities are also directly transferred to the Trust’s
demat account thus minimizing delays in payments.
5. These accounts provide a fast means of payment thus preventing any loss such as cancellation
of a deal, loss of interest due to delay in payments.
6. These accounts are cheaper to maintain as these accounts eliminates the need of physical
ownership by the Trust reducing the paper work needed.
7. With the physical possession of securities, there is a risk associated. This risk is eliminated
with the holding of securities in demat form.