Robert Frost(1916)
Two roads diverged in a yellow wood, And sorry I could not travel both And be one traveler, long I stood And looked down one as far as I could To where it bent in the undergrowth;
Then took the other, as just as fair, And having perhaps the better claim, Because it was grassy and wanted wear Though as for that the passing there Had worn them really about the same,
And both that morning equally lay In leaves no step had trodden black. Oh, I kept the first for another day! Yet knowing how way leads onto way, I doubted if I should ever come back.
I shall be telling this with a sigh Somewhere ages and ages hence; Two roads diverged in a wood, and I took the one less traveled by, And that has made all the difference.
Saturday, 30 June 2007
IRDA regulations for Microinsurance
Regulations by IRDA pertaining to Microinsurance as of July 2007
a) life insurance companies are required to sell 7%, 9%, 12%, 14% and 16% of their policies in rural areas in the first, second, third, fourth and fifth financial years, respectively.
b) Non-life insurers need to earn 5% of their gross written premium from rural areas after the third year of operation.
c) Both life and non-life insurers have to insure 20,000 lives from the social sector in the fifth year of operation.
The social sector includes the informal and unorganised sector, and economically vulnerable and backward classes from the rural and urban areas.
Proposals in the anvil
Rural products must offer minimum sum assured of Rs 5,000 for general and life insurance policies .
Health insurance for family and Personal accident per person will have to be a minimum of Rs 10,000 .
Social products can’t offer sum assured beyond Rs 30,000 for general insurance covers and health cover for individual and family floaters.
a) life insurance companies are required to sell 7%, 9%, 12%, 14% and 16% of their policies in rural areas in the first, second, third, fourth and fifth financial years, respectively.
b) Non-life insurers need to earn 5% of their gross written premium from rural areas after the third year of operation.
c) Both life and non-life insurers have to insure 20,000 lives from the social sector in the fifth year of operation.
The social sector includes the informal and unorganised sector, and economically vulnerable and backward classes from the rural and urban areas.
Proposals in the anvil
Rural products must offer minimum sum assured of Rs 5,000 for general and life insurance policies .
Health insurance for family and Personal accident per person will have to be a minimum of Rs 10,000 .
Social products can’t offer sum assured beyond Rs 30,000 for general insurance covers and health cover for individual and family floaters.
DICGC -Deposit Insurance and Credit Guarantee Corporation
Economic literature points out that deposit insurance is not insurance of deposits per se but insurance against instability in the system consequent upon the failure of one or more banks.
Insurance of bank deposits is intended to give a measure of protection to depositors, particularly the smaller depositors, from the risk of loss of their savings arising from bank failures. Such protection infuses confidence in the minds of the public and contributes to the growth of the banking system by assisting in development of banking habits and mobilization of resources by the bank. These resources in turn can be utilized for purposes which are accorded national priority. Establishment of the Deposit Insurance Corporation came in the wake of certain bank failures in fifties and early sixties and consequent efforts to restore the confidence of the depositing public in the banking system by safeguarding their interests.
The Indian Counterpart of US's FDIC ( Federal Deposit Insurance Corporation)
Deposit Insurance Scheme Institutional Coverage:
The deposit insurance scheme was introduced with effect from 1 January 1962. The Scheme provides automatic coverage for deposits of all commercial banks (including regional rural banks) received in India. Following an amendment to the Deposit Insurance and Credit Guarantee Corporation Act in 1968, similar coverage is also extended in respect of deposits with co-operative banks in such of the states, as have passed the enabling legislation amending their local co-operative societies Acts. In terms of geographical coverage, the benefit of deposit insurance now stands extended to the entire banking system leaving uncovered only 69 cooperative banks in such of the states as have yet to pass the necessary legislation.
Extent of Insurance cover:
Under the scheme, in the event of liquidation, reconstruction or amalgamation of an insured bank, every depositor of that bank is entitled to repayment of his deposits in all branches of that bank, held by him in the same capacity and right, subject to a monetary ceiling of Rs.1,00,000/-.
Insurance premium:
The consideration for extension of insurance coverage to banks is payment of an insurance premium at the rate of 5 paise per annum per hundred rupees. The premium is collected at half-yearly intervals. The banks are required to bear this fee so that the protection of insurance in available to the depositors free of cost. The corporation can levy a maximum premium of up to Rs. 0.15 per Rs. 100 per annum.
Payment of Insurance claims:
When a bank goes into liquidation, the corporation pays to every depositor, through the liquidator, the amount of deposits up to Rs.1,00,000/-. When bank is amalgamated with an other bank and the scheme of amalgamation does not entitle the depositor to get credit for the full amount of his deposit, the corporation pays to each depositor the difference between the full amount of the deposit (or Rs.1,00,000/- whichever is less) and the amount actually received by him under the scheme of amalgamation. After settling a claim, the liquidator/transferee bank is required to repay to the corporation, by virtue of such rights of subrogation, recoveries effected by it from out of the assets of the insured bank in liquidation/amalgamation.
The Head Office of the DICGC is located at:
Marshall Building Annexe, 3rd Floor, Shooraji Vallabhdas Marg, Mumbai – 400 001
e-mail: dicgc@rbi.org.in
URL: http://www.dicgc.org.in/index.htm
It has branch offices at Calcutta, Madras, New Delhi and Nagpur.
Insurance of bank deposits is intended to give a measure of protection to depositors, particularly the smaller depositors, from the risk of loss of their savings arising from bank failures. Such protection infuses confidence in the minds of the public and contributes to the growth of the banking system by assisting in development of banking habits and mobilization of resources by the bank. These resources in turn can be utilized for purposes which are accorded national priority. Establishment of the Deposit Insurance Corporation came in the wake of certain bank failures in fifties and early sixties and consequent efforts to restore the confidence of the depositing public in the banking system by safeguarding their interests.
The Indian Counterpart of US's FDIC ( Federal Deposit Insurance Corporation)
Deposit Insurance Scheme Institutional Coverage:
The deposit insurance scheme was introduced with effect from 1 January 1962. The Scheme provides automatic coverage for deposits of all commercial banks (including regional rural banks) received in India. Following an amendment to the Deposit Insurance and Credit Guarantee Corporation Act in 1968, similar coverage is also extended in respect of deposits with co-operative banks in such of the states, as have passed the enabling legislation amending their local co-operative societies Acts. In terms of geographical coverage, the benefit of deposit insurance now stands extended to the entire banking system leaving uncovered only 69 cooperative banks in such of the states as have yet to pass the necessary legislation.
Extent of Insurance cover:
Under the scheme, in the event of liquidation, reconstruction or amalgamation of an insured bank, every depositor of that bank is entitled to repayment of his deposits in all branches of that bank, held by him in the same capacity and right, subject to a monetary ceiling of Rs.1,00,000/-.
Insurance premium:
The consideration for extension of insurance coverage to banks is payment of an insurance premium at the rate of 5 paise per annum per hundred rupees. The premium is collected at half-yearly intervals. The banks are required to bear this fee so that the protection of insurance in available to the depositors free of cost. The corporation can levy a maximum premium of up to Rs. 0.15 per Rs. 100 per annum.
Payment of Insurance claims:
When a bank goes into liquidation, the corporation pays to every depositor, through the liquidator, the amount of deposits up to Rs.1,00,000/-. When bank is amalgamated with an other bank and the scheme of amalgamation does not entitle the depositor to get credit for the full amount of his deposit, the corporation pays to each depositor the difference between the full amount of the deposit (or Rs.1,00,000/- whichever is less) and the amount actually received by him under the scheme of amalgamation. After settling a claim, the liquidator/transferee bank is required to repay to the corporation, by virtue of such rights of subrogation, recoveries effected by it from out of the assets of the insured bank in liquidation/amalgamation.
The Head Office of the DICGC is located at:
Marshall Building Annexe, 3rd Floor, Shooraji Vallabhdas Marg, Mumbai – 400 001
e-mail: dicgc@rbi.org.in
URL: http://www.dicgc.org.in/index.htm
It has branch offices at Calcutta, Madras, New Delhi and Nagpur.
Subprime
Subprime – A term referring to borrowers with a less-than-perfect credit history, also called B&C credit.
BCG Matrix
The BCG Matrix was created by the The Boston Consulting Group (BCG) and it became on of the most well-known portfolio management Decision Making Tools in the early 1970's. It is based on the product life cycle theory, and it is used to prioritize the product portfolio in a company or department. There are two dimensions - market share and market growth. The basis premise in using the Matrix is that the higher the market share a product has, the higher the growth rate and the faster the market for that product grows.
The BCG Matrix was created in order to alleviate the standard one-size fits all in their time. It is useful to a company to achieve balance between the four categories of products a company produces. Market decisions are also well made by considering and using the Porter's Five Forces
Four segments in the BCG matrix:
1. Cash Cows (high market share, low growth) - Keep investments low, while keeping profits high. Profits and cash generation should be higher because of low growth.
2. Dogs (low market share, low growth) - Liquidate, if they are not delivering cash. Avoid and reduce the number of these an organization maintains. Keep an eye out for expensive revival strategies - a dog is typically always a dog.
3. Stars (high market share, high growth) - Invest further in these - they incur high costs, but they are market leaders and should also generate lots of cash. Stars may balance on net cash flow, but the organization should try to maintain market share on this would because rewards are likely
4. Question marks (low market share, but high growth) - These have poor cash inflow, but have high demands and low returns due to low market share. Efforts should be made to change market share. If this isn't possible, this will likely turn into a dog as growth slows.
Caution should be taken as high market share isn't the only consideration. High market share doesn't necessarily mean profit. Growth isn't necessarily the only valid measurement factor. Occasionally, dogs can earn more cash than cash cows.
The BCG Matrix was created in order to alleviate the standard one-size fits all in their time. It is useful to a company to achieve balance between the four categories of products a company produces. Market decisions are also well made by considering and using the Porter's Five Forces
Four segments in the BCG matrix:
1. Cash Cows (high market share, low growth) - Keep investments low, while keeping profits high. Profits and cash generation should be higher because of low growth.
2. Dogs (low market share, low growth) - Liquidate, if they are not delivering cash. Avoid and reduce the number of these an organization maintains. Keep an eye out for expensive revival strategies - a dog is typically always a dog.
3. Stars (high market share, high growth) - Invest further in these - they incur high costs, but they are market leaders and should also generate lots of cash. Stars may balance on net cash flow, but the organization should try to maintain market share on this would because rewards are likely
4. Question marks (low market share, but high growth) - These have poor cash inflow, but have high demands and low returns due to low market share. Efforts should be made to change market share. If this isn't possible, this will likely turn into a dog as growth slows.
Caution should be taken as high market share isn't the only consideration. High market share doesn't necessarily mean profit. Growth isn't necessarily the only valid measurement factor. Occasionally, dogs can earn more cash than cash cows.
law of diminishing returns
In economics, diminishing returns is also called diminishing marginal returns or the law of diminishing returns. According to this relationship, in a production system with fixed and variable inputs (say factory size and labor), beyond some point, each additional unit of variable input yields less and less additional output. Conversely, producing one more unit of output costs more and more in variable inputs. This concept is also known as the law of diminishing returns, law of increasing relative cost, or law of increasing opportunity cost. Although ostensibly a purely economic concept, diminishing marginal returns also implies a technological relationship. Diminishing marginal returns states that a firm's short run marginal cost curve will eventually increase. It is possibly among the best-known economic "laws."
A simple example
Suppose that one kilogram (kg) of seed applied to a plot of land of a fixed size produces one ton of harvestable crop. You might expect that an additional kilogram of seed would produce an additional ton of output. However, if there are diminishing marginal returns, that additional kilogram will produce less than one additional ton of harvestable crop (on the same land, during the same growing season, and with nothing else but the amount of seeds planted changing). For example, the second kilogram of seed may only produce a half ton of extra output. Diminishing marginal returns also implies that a third kilogram of seed will produce an additional crop that is even less than a half ton of additional output. Assume that it is one quarter of a ton.
A simple example
Suppose that one kilogram (kg) of seed applied to a plot of land of a fixed size produces one ton of harvestable crop. You might expect that an additional kilogram of seed would produce an additional ton of output. However, if there are diminishing marginal returns, that additional kilogram will produce less than one additional ton of harvestable crop (on the same land, during the same growing season, and with nothing else but the amount of seeds planted changing). For example, the second kilogram of seed may only produce a half ton of extra output. Diminishing marginal returns also implies that a third kilogram of seed will produce an additional crop that is even less than a half ton of additional output. Assume that it is one quarter of a ton.
Economies of scale
Economies of scale and diseconomies of scale refer to an economic property of production that affects cost if quantity of all input factors are increased by some amount. If costs increase proportionately, there are no economies of scale; if costs increase by a greater amount, there are diseconomies of scale; if costs increase by a lesser amount, there are positive economies of scale. When combined, economies of scale and diseconomies of scale lead to ideal firm size theory, which states that per-unit costs decrease until they reach a certain minimum, then increase as the firm size increases further.
Economies of scale refers to the decreased per unit cost as output increases.
Economies of scale refers to the decreased per unit cost as output increases.
Friday, 29 June 2007
Locality of reference - Comp Science
In computer science, locality of reference, sometimes also called the principle of locality, is a concept which deals with the process of accessing a single resource multiple times. There are three basic types of locality of reference: temporal, spatial and sequential:
Temporal locality
The concept that a resource that is referenced at one point in time will be referenced again sometime in the near future.
Spatial locality
The concept that the likelihood of referencing a resource is higher if a resource near it has been referenced.
Sequential locality
The concept that memory is accessed sequentially.
Locality can also be defined as the property of a program in execution causing it to reference pages that it has recently referenced. Locality is caused by loops in code that tend to reference arrays or other data structures by indices.
Temporal locality
The concept that a resource that is referenced at one point in time will be referenced again sometime in the near future.
Spatial locality
The concept that the likelihood of referencing a resource is higher if a resource near it has been referenced.
Sequential locality
The concept that memory is accessed sequentially.
Locality can also be defined as the property of a program in execution causing it to reference pages that it has recently referenced. Locality is caused by loops in code that tend to reference arrays or other data structures by indices.
EPS : Earning Per Share
The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability.
Calculated as:
( Net Income - Dividends on Preferred Stock )
----------------------------------------------
Average Outstanding Shares
In the EPS calculation, it is more accurate to use a weighted-average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.
Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component of the price-to-earnings valuation ratio. For example, assume that a company has a net income of $25 million. If the company paid out $1 million in preferred dividends and had 10 million shares for one half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million. Then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures.
Calculated as:
( Net Income - Dividends on Preferred Stock )
----------------------------------------------
Average Outstanding Shares
In the EPS calculation, it is more accurate to use a weighted-average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.
Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component of the price-to-earnings valuation ratio. For example, assume that a company has a net income of $25 million. If the company paid out $1 million in preferred dividends and had 10 million shares for one half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million. Then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures.
Stock market index
A stock market index is a listing of stock and a statistic reflecting the composite value of its components. It is used as a tool to represent the characteristics of its component stocks, all of which bear some commonality such as trading on the same stock market exchange, belonging to the same industry, or having similar market capitalizations.
Stock market indices may be classed in many ways :-
A broad-base index represents the performance of a whole stock market
Proxy, reflects investor sentiment on the state of the economy.
The most regularly quoted market indices are broad-base indices comprised of the stocks of large companies listed on a nation's largest stock exchanges.
Some of widely followed indices are :-
American Dow Jones Industrial Average and S&P 500 Index
British FTSE 100
the French CAC 40
the German DAX
Japanese Nikkei 225
Hong Kong Hang Seng Index
Indian Stock Market Indices :
a) SENSEX : This is a index for BSE ( Bombay Stock Exchange) comprising of 30 stocks
b) S&P CNX NIFTY ( Standard & Poor Crisil NSE indeX) : This is the index of stocks getting traded at NSE ( National Stock Exchange , Delhi) comprising of 50 stocks.
Stock market indices may be classed in many ways :-
A broad-base index represents the performance of a whole stock market
Proxy, reflects investor sentiment on the state of the economy.
The most regularly quoted market indices are broad-base indices comprised of the stocks of large companies listed on a nation's largest stock exchanges.
Some of widely followed indices are :-
American Dow Jones Industrial Average and S&P 500 Index
British FTSE 100
the French CAC 40
the German DAX
Japanese Nikkei 225
Hong Kong Hang Seng Index
Indian Stock Market Indices :
a) SENSEX : This is a index for BSE ( Bombay Stock Exchange) comprising of 30 stocks
b) S&P CNX NIFTY ( Standard & Poor Crisil NSE indeX) : This is the index of stocks getting traded at NSE ( National Stock Exchange , Delhi) comprising of 50 stocks.
Difference Between Merger & Acquisition
In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously separate firms into a single legal entity.
Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term.
The motivation to pursue a merger or acquisition can be considerable; a company that combines itself with another can experience boosted economies of scale, greater sales revenue and market share in its market, broadened diversification and increased tax efficiency.
However, the underlying business rationale and financing methodology for mergers and takeovers are substantially different. A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals". The combined business, through structural and operational advantages secured by the merger, can cut costs and increase profits, boosting shareholder values for both groups of shareholders.
A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity. For example, back in 1998, American Automaker, Chrysler Corp. merged with German Automaker, Daimler Benz to form DaimlerChrysler. This has all the makings of a merger of equals as the chairmen in both organizations became joint-leaders in the new organization. The merger was thought to be quite beneficial to both companies as it gave Chrysler an opportunity to reach more European markets and Daimler Benz would gain a greater presense in North America.
A takeover, or acquisition, on the other hand, is characterized by the purchase of a smaller company by a much larger one. This combination of "unequals" can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision. A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company's management. Unlike in a merger, in an acquisition, the acquiring firm usually offers a cash price per share to the target firm's shareholders or the acquiring firm's share's to the shareholders of the target firm according to a specified conversion ratio. Either way, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders.
An example of an acquisition would be how the Walt Disney Corporation bought Pixar Animation Studios in 2006. In this case, this takeover was friendly, as Pixar's shareholders all approved the decision to be acquired.Target companies can employ a number of tactics to defend themselves against an unwanted hostile takeovers, such as including covenants in their bond issues that force early debt repayment at premium prices if the firm is taken over.
Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term.
The motivation to pursue a merger or acquisition can be considerable; a company that combines itself with another can experience boosted economies of scale, greater sales revenue and market share in its market, broadened diversification and increased tax efficiency.
However, the underlying business rationale and financing methodology for mergers and takeovers are substantially different. A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals". The combined business, through structural and operational advantages secured by the merger, can cut costs and increase profits, boosting shareholder values for both groups of shareholders.
A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity. For example, back in 1998, American Automaker, Chrysler Corp. merged with German Automaker, Daimler Benz to form DaimlerChrysler. This has all the makings of a merger of equals as the chairmen in both organizations became joint-leaders in the new organization. The merger was thought to be quite beneficial to both companies as it gave Chrysler an opportunity to reach more European markets and Daimler Benz would gain a greater presense in North America.
A takeover, or acquisition, on the other hand, is characterized by the purchase of a smaller company by a much larger one. This combination of "unequals" can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision. A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company's management. Unlike in a merger, in an acquisition, the acquiring firm usually offers a cash price per share to the target firm's shareholders or the acquiring firm's share's to the shareholders of the target firm according to a specified conversion ratio. Either way, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders.
An example of an acquisition would be how the Walt Disney Corporation bought Pixar Animation Studios in 2006. In this case, this takeover was friendly, as Pixar's shareholders all approved the decision to be acquired.Target companies can employ a number of tactics to defend themselves against an unwanted hostile takeovers, such as including covenants in their bond issues that force early debt repayment at premium prices if the firm is taken over.
Public Offering of Securities Insurance (POSI)
Public Offering of Securities Insurance (POSI)
The Indian capital markets are witnessing an unprecedented boom and corporate India is all set to leverage this opportunity to raise funds and achieve their corporate objectives. However, this increased market exposure leads to increased stakeholder litigation and with this increase in litigation comes a growing awareness of the responsibilities incumbent on the directors and officers of companies.This is especially true when the company makes a public offering of its securities. Signatories of a public prospectus have a personal responsibility for its contents and could therefore be found personally liable for the losses of securities holders arising from misrepresentations within the prospectus. These potential liabilities arising out of the issue of a prospectus can be very large. Most securities actions are fuelled by unfulfilled investor expectations, so as well as being substantial, legal actions can also occur much after the transaction. IPO Insurance (also known as Public Offering of Securities Insurance - POSI) addresses these uncertainties by ring-fencing securities exposures in a single premium, transaction-specific policy.
Raising capital in a risky world
Investors and analysts have always scrutinized the prospectuses of companies raising capital for Stock exchange listings, mergers, expansions, etc. The scrutiny does not stop once the transaction has been completed. Shareholders and investors want to know how well their money has been invested and that also in an unforgiving environment. The need for specialist insurance protection for issuers of securities has never been greater, and yet an alarming number of public offerings go ahead without suitable protection for the issuing company and its directors, officers and employees.
What does POSI cover?
POSI protects the insureds against securities claims arising from an offering of a company’s securities
POSI can also cover liabilities arising from negotiations, discussions and decisions in connection with the offering
Cover includes punitive and exemplary damages
What are the benefits of POSI?
POSI gives companies the opportunity to ring-fence the significant and long-term
exposure presented by securities offerings
POSI being a transaction specific product ensures suitable coverage to the insureds and
protects the existing D&O contracts
Accounting rules may allow for the POSI premium to be capitalized against the offer
proceeds, without being considered as a bottom line deduction from the
company’s profit and loss account
POSI is a transaction specific product and the policy period can be customized to provide
protection for upto six years
Whom does the cover apply to?
The POSI policy covers to the company and its directors, officers and employees for securities claims brought against them in connection with the offering
Who can buy a POSI policy?
POSI is designed for any company that is raising capital through the publication of a prospectus. It can provide cover for introductory offerings (IPO), secondary offerings and can also cover private placements
Other related Coverages are :
Directors & Officers Liability Insurance Policy ( D & O )
Professional Indemnity Insurance (PI / E&O)
The Indian capital markets are witnessing an unprecedented boom and corporate India is all set to leverage this opportunity to raise funds and achieve their corporate objectives. However, this increased market exposure leads to increased stakeholder litigation and with this increase in litigation comes a growing awareness of the responsibilities incumbent on the directors and officers of companies.This is especially true when the company makes a public offering of its securities. Signatories of a public prospectus have a personal responsibility for its contents and could therefore be found personally liable for the losses of securities holders arising from misrepresentations within the prospectus. These potential liabilities arising out of the issue of a prospectus can be very large. Most securities actions are fuelled by unfulfilled investor expectations, so as well as being substantial, legal actions can also occur much after the transaction. IPO Insurance (also known as Public Offering of Securities Insurance - POSI) addresses these uncertainties by ring-fencing securities exposures in a single premium, transaction-specific policy.
Raising capital in a risky world
Investors and analysts have always scrutinized the prospectuses of companies raising capital for Stock exchange listings, mergers, expansions, etc. The scrutiny does not stop once the transaction has been completed. Shareholders and investors want to know how well their money has been invested and that also in an unforgiving environment. The need for specialist insurance protection for issuers of securities has never been greater, and yet an alarming number of public offerings go ahead without suitable protection for the issuing company and its directors, officers and employees.
What does POSI cover?
POSI protects the insureds against securities claims arising from an offering of a company’s securities
POSI can also cover liabilities arising from negotiations, discussions and decisions in connection with the offering
Cover includes punitive and exemplary damages
What are the benefits of POSI?
POSI gives companies the opportunity to ring-fence the significant and long-term
exposure presented by securities offerings
POSI being a transaction specific product ensures suitable coverage to the insureds and
protects the existing D&O contracts
Accounting rules may allow for the POSI premium to be capitalized against the offer
proceeds, without being considered as a bottom line deduction from the
company’s profit and loss account
POSI is a transaction specific product and the policy period can be customized to provide
protection for upto six years
Whom does the cover apply to?
The POSI policy covers to the company and its directors, officers and employees for securities claims brought against them in connection with the offering
Who can buy a POSI policy?
POSI is designed for any company that is raising capital through the publication of a prospectus. It can provide cover for introductory offerings (IPO), secondary offerings and can also cover private placements
Other related Coverages are :
Directors & Officers Liability Insurance Policy ( D & O )
Professional Indemnity Insurance (PI / E&O)
Thursday, 28 June 2007
Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, a risk-free profit. A person who engages in arbitrage is called an arbitrageur.
If the market prices do not allow for profitable arbitrage, the prices are said to constitute an arbitrage equilibrium or arbitrage free market. An arbitrage equilibrium is a precondition for a general economic equilibrium.
If the market prices do not allow for profitable arbitrage, the prices are said to constitute an arbitrage equilibrium or arbitrage free market. An arbitrage equilibrium is a precondition for a general economic equilibrium.
Portfolio Immunization
In finance, interest rate immunization is a strategy that ensures that a change in interest rates will not affect the value of a portfolio.
Interest rate immunization can be accomplished by several methods, including
a) cash flow matching
b) duration matching
c) volatility and convexity matching.
It can also be accomplished by trading in bond forwards, futures, or options.
Other types of financial risks, such as foreign exchange risk or stock market risk, can be immunized using similar strategies.
If the immunization is incomplete, these strategies are usually called hedging.
If the immunization is complete, these strategies are usually called arbitrage.
Interest rate immunization can be accomplished by several methods, including
a) cash flow matching
b) duration matching
c) volatility and convexity matching.
It can also be accomplished by trading in bond forwards, futures, or options.
Other types of financial risks, such as foreign exchange risk or stock market risk, can be immunized using similar strategies.
If the immunization is incomplete, these strategies are usually called hedging.
If the immunization is complete, these strategies are usually called arbitrage.
Prisoner's dilemma
The Prisoner's dilemma was originally framed by Merrill Flood and Melvin Dresher working at RAND in 1950. Albert W. Tucker formalized the game with prison sentence payoffs and gave it the "Prisoner's Dilemma" name (Poundstone, 1992).
The classical prisoner's dilemma (PD) is as follows:
Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?
The dilemma arises when one assumes that both prisoners only care about minimizing their own jail terms. Each prisoner has two options: to cooperate with his accomplice and stay quiet, or to defect from their implied pact and betray his accomplice in return for a lighter sentence. The outcome of each choice depends on the choice of the accomplice, but each prisoner must choose without knowing what his accomplice has chosen to do.
The classical prisoner's dilemma (PD) is as follows:
Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?
The dilemma arises when one assumes that both prisoners only care about minimizing their own jail terms. Each prisoner has two options: to cooperate with his accomplice and stay quiet, or to defect from their implied pact and betray his accomplice in return for a lighter sentence. The outcome of each choice depends on the choice of the accomplice, but each prisoner must choose without knowing what his accomplice has chosen to do.
CRISIL
CRISIL : Credit Rating Information Services of India Limited
CRISIL is India's leading Ratings, Research, Risk and Policy Advisory Company. CRISIL’s majority shareholder is Standard & Poor's, a division of The McGraw-Hill Companies and the world's foremost provider of financial market intelligence.
CRISIL offers domestic and international customers a unique combination of local insights and global perspectives, delivering independent information, opinions and solutions that help them make better informed business and investment decisions, improve the efficiency of markets and market participants, and help shape infrastructure policy and projects. Its integrated range of capabilities includes credit ratings and risk assessment; energy, infrastructure and corporate advisory; research on India's economy, industries and companies; global equity research; fund services; and risk management.
Other major Credit Rating Agencies in India:--
ICRA - Investment information & Credit Rating Agency of India
CARE - Credit Analysis & Research Limited
DCR India - Duff & Phelps Credit Rating India Private Ltd
ONICRA Credit Rating Agency of India Ltd
CRISIL is India's leading Ratings, Research, Risk and Policy Advisory Company. CRISIL’s majority shareholder is Standard & Poor's, a division of The McGraw-Hill Companies and the world's foremost provider of financial market intelligence.
CRISIL offers domestic and international customers a unique combination of local insights and global perspectives, delivering independent information, opinions and solutions that help them make better informed business and investment decisions, improve the efficiency of markets and market participants, and help shape infrastructure policy and projects. Its integrated range of capabilities includes credit ratings and risk assessment; energy, infrastructure and corporate advisory; research on India's economy, industries and companies; global equity research; fund services; and risk management.
Other major Credit Rating Agencies in India:--
ICRA - Investment information & Credit Rating Agency of India
CARE - Credit Analysis & Research Limited
DCR India - Duff & Phelps Credit Rating India Private Ltd
ONICRA Credit Rating Agency of India Ltd
Geographic region's Acronyms
ASPAC : ASia PACific
EAME : Europe Africa Middle East
EAFE : Europe Asia Far East
BRIC : Brazil Russia India China
EAME : Europe Africa Middle East
EAFE : Europe Asia Far East
BRIC : Brazil Russia India China
Tuesday, 26 June 2007
Duty of Best Execution - Trading
According to the Nasdaq Trader Manual
The duty of “best execution” arises from the common law duty of loyalty owed by a broker to its retail customers. The Securities and Exchange Commission (SEC) has stated that “when an agent acts on behalf of a customer in a transaction, the agent is under a duty to exercise reasonable care to obtain the most advantageous terms for the customer.” … The SEC has stated that, as a general manner, the duty of best execution refers to your duty to seek to
execute your customer’s order in the best available market.
The duty of “best execution” arises from the common law duty of loyalty owed by a broker to its retail customers. The Securities and Exchange Commission (SEC) has stated that “when an agent acts on behalf of a customer in a transaction, the agent is under a duty to exercise reasonable care to obtain the most advantageous terms for the customer.” … The SEC has stated that, as a general manner, the duty of best execution refers to your duty to seek to
execute your customer’s order in the best available market.
Monday, 25 June 2007
Capital expenditure
Capital expenditures ("capex") are expenditures used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings. In accounting, a capital expenditure is added to an asset account ("capitalized"), thus increasing the asset's basis (the cost or value of an asset as adjusted for tax purposes). Capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset.
Included in such amounts is spending on:
1) acquiring fixed assets
2) bringing them into business
3) legal costs of buying buildings
4) carriage inwards on machinery bought
5) any other cost needed for a fixed asset ready for use.
An ongoing question of the accounting of any company is whether certain expenses should be capitalized or expensed. Costs that are expensed in a particular month simply appear on the financial statement as a cost that was incurred that month. Costs that are capitalized, however, are amortized over multiple years. Capitalized expenses show up on the balance sheet. Most ordinary business expenses are clearly either expensable or capitalizable, but some expenses could be treated either way, according to the preference of the company.
The counterpart of capital expenditure is operational expenditure ("OpEx").
Operating expenditures (often abbreviated to OPEX) are the on-going costs for running a product, business, or system.
For example, the purchase of a photocopier is the CAPEX, and the annual paper and toner cost is the OPEX. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities.
Included in such amounts is spending on:
1) acquiring fixed assets
2) bringing them into business
3) legal costs of buying buildings
4) carriage inwards on machinery bought
5) any other cost needed for a fixed asset ready for use.
An ongoing question of the accounting of any company is whether certain expenses should be capitalized or expensed. Costs that are expensed in a particular month simply appear on the financial statement as a cost that was incurred that month. Costs that are capitalized, however, are amortized over multiple years. Capitalized expenses show up on the balance sheet. Most ordinary business expenses are clearly either expensable or capitalizable, but some expenses could be treated either way, according to the preference of the company.
The counterpart of capital expenditure is operational expenditure ("OpEx").
Operating expenditures (often abbreviated to OPEX) are the on-going costs for running a product, business, or system.
For example, the purchase of a photocopier is the CAPEX, and the annual paper and toner cost is the OPEX. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities.
Brief History of Insurance in India
INSURANCE IN INDIA
The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.
A brief history of the Insurance sector
The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta.
Some of the important milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in the
year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.
1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
Insurance sector reforms
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction.
The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector.
The reforms were aimed at “creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognising that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms…”
In 1994, the committee submitted the report and some of the key recommendations
included:
i) Structure
· Government stake in the insurance Companies to be brought down to 50%
· Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations
· All the insurance companies should be given greater freedom to operate
ii) Competition
· Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry
· No Company should deal in both Life and General Insurance through a single entity
· Foreign companies may be allowed to enter the industry in collaboration with the domestic companies
· Postal Life Insurance should be allowed to operate in the rural market
· Only one State Level Life Insurance Company should be allowed to operate in each state
iii) Regulatory Body
· The Insurance Act should be changed
· An Insurance Regulatory body should be set up
· Controller of Insurance (Currently a part from the Finance Ministry) should be made independent
iv) Investments
· Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%
· GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time)
v) Customer Service
· LIC should pay interest on delays in payments beyond 30 days
· Insurance companies must be encouraged to set up unit linked pension plans
· Computerisation of operations and updating of technology to be carried out in the insurance industry
The committee emphasised that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry.
Hence, it was decided to allow competition in a limited way by stipulating the minimum
capital requirement of Rs.100 crores. The committee felt the need to provide greater
autonomy to insurance companies in order to improve their performance and enable them
to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.
The Insurance Regulatory and Development Authority
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies.
The other decisions taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA’s online service for issue and renewal of licenses to agents.
The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year.
Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered.
The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.
A brief history of the Insurance sector
The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta.
Some of the important milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in the
year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.
1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
Insurance sector reforms
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction.
The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector.
The reforms were aimed at “creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognising that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms…”
In 1994, the committee submitted the report and some of the key recommendations
included:
i) Structure
· Government stake in the insurance Companies to be brought down to 50%
· Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations
· All the insurance companies should be given greater freedom to operate
ii) Competition
· Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry
· No Company should deal in both Life and General Insurance through a single entity
· Foreign companies may be allowed to enter the industry in collaboration with the domestic companies
· Postal Life Insurance should be allowed to operate in the rural market
· Only one State Level Life Insurance Company should be allowed to operate in each state
iii) Regulatory Body
· The Insurance Act should be changed
· An Insurance Regulatory body should be set up
· Controller of Insurance (Currently a part from the Finance Ministry) should be made independent
iv) Investments
· Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%
· GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time)
v) Customer Service
· LIC should pay interest on delays in payments beyond 30 days
· Insurance companies must be encouraged to set up unit linked pension plans
· Computerisation of operations and updating of technology to be carried out in the insurance industry
The committee emphasised that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry.
Hence, it was decided to allow competition in a limited way by stipulating the minimum
capital requirement of Rs.100 crores. The committee felt the need to provide greater
autonomy to insurance companies in order to improve their performance and enable them
to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.
The Insurance Regulatory and Development Authority
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies.
The other decisions taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA’s online service for issue and renewal of licenses to agents.
The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year.
Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered.
Insurance : Policy Surrender Options (Indian Context)
If you are wondering why and how to exit your policy, here’s what experts have to say on how to make the best out of your insurance plan even while exiting. Although of late some of the ULIPs are posting better returns than other investment options, it is always advisable to keep a tab on the market and invest in better options. But that does not necessarily mean that you lose all of what you have invested in an insurance plan.
First things first. The Insurance Act provides for a return to the policyholder of an amount that is representative of the reserve and this is referred to as the ‘surrender value’ or ‘cash value’. The Act also stipulates that every insurance policy shall acquire a guaranteed surrender value, if at least three years premiums have been paid. In case of term policies, generally, the policy lapses if the premium is not paid and no benefit could be availed by the individual. Therefore, before exiting, an investor should take note of what kind of policy he have.
“Many ULIP investors have exited in the recent past after realising that the policy doesn’t quite fit into their scheme of things. In such a scenario, the policy is considered to have lapsed. However, it should be understood that the policy is not necessarily forfeited i.e. the policy’s value doesn’t become nil. The Insurance Act does not allow for forfeiture as every policy acquires a reserve based on the premiums already paid,” says Ashish Kapur, CEO Invest Shoppe India.
WHY EXIT?
Ideally, one should continue with the insurance policy as the yield/ returns from the insurance policy come primarily towards the end of the policy — at the time of maturity. There can, however, be reasons for quitting such as financial constraints to pay the premium on a regular basis or better investment options. “One should look into factors like premium paid, bonus accumulated vis-a-vis the surrender value/ reduced benefits that one will get before deciding to discontinue a policy,” says Vikas Vasal, director, KPMG India. According to Manoj Agarwal, head, insurance advisory, SKP Securities, one should discontinue the existing ULIPs only if the fund is not performing well or the cost involved in the policy is too high — more than 20% of the premium. The other important reason to discontinue the policy can be mismatch in the expectation and delivery of the policy. “Many times policies are misrepresented by the agents. If it is a very high cost policy, then it is advisable to discontinue the policy,” says Mukesh Gupta, director, Wealthcare Securities.
EXIT ROUTES
This will depend on the specifics of each policy. However, in general, the exit routes are — surrender the policy, conversion into paid up and trading the policy.
a) Surrender the policy: If someone needs to discontinue the policy in the first five years, he should consider the surrender charges. The fund value of a ULIP in the initial years can be rather disappointing. In effect, the surrender value, which is a percentage of the fund value, can be even smaller. “The prime reason for this is that in the initial few years, a substantial proportion of the premium paid is utilised for servicing the various expenses related to the policy — as high as 25% in some cases. This means that the proportion of the premium used to provide for the surrender value is not the entire premium amount. Rather it is the premium net of expenses,” says Kapur. However, there is no maturity value in a term policy and therefore, whenever the policy is surrendered, one does not get back anything than the premium paid till date is forfeited. But in some term insurance plans, there is a refund of premium also at the end of the term (premium is higher in comparison to pure risk cover policy). In such cases, it is advisable to read the terms of the policy.
b) Making it paid-up: Apart from the option of surrendering your policy, insurers like LIC also provide other options like making a policy ‘paid-up’, whereby the policy remains in force with a reduced sum assured, depending upon the number of premiums paid. “Returns in the conventional products are dependent upon the overall performance of the company and the investment norms laid out by IRDA. So it is always advisable not to surrender the policy. Rather one can make his/ her policy paidup in such case,” reasons Agarwal.
c) Trading policy: As per a recent decision of the Mumbai High Court, trading of insurance policies has been held to be valid. In extreme cases, where funds are required immediately, this option may be looked into. “However, this option should be exercised with due care and only after studying all the pros and cons associated with it,” cautions Vasal.
Although it is not advisable to discontinue the policy if only few premiums are left, the option of exiting a policy can be exercised if the insurer requires money urgently and does not need life insurance protection. This is especially true in ULIP policies having a term of more than 10 years. There are no surrender charges left at this stage and the fund value can be used to meet any contingency.
Whatever be the reason for exiting your insurance plan, you should always keep in mind the adverse effects of discontinuing the cover as it may disturb your financial and risk management plans.
First things first. The Insurance Act provides for a return to the policyholder of an amount that is representative of the reserve and this is referred to as the ‘surrender value’ or ‘cash value’. The Act also stipulates that every insurance policy shall acquire a guaranteed surrender value, if at least three years premiums have been paid. In case of term policies, generally, the policy lapses if the premium is not paid and no benefit could be availed by the individual. Therefore, before exiting, an investor should take note of what kind of policy he have.
“Many ULIP investors have exited in the recent past after realising that the policy doesn’t quite fit into their scheme of things. In such a scenario, the policy is considered to have lapsed. However, it should be understood that the policy is not necessarily forfeited i.e. the policy’s value doesn’t become nil. The Insurance Act does not allow for forfeiture as every policy acquires a reserve based on the premiums already paid,” says Ashish Kapur, CEO Invest Shoppe India.
WHY EXIT?
Ideally, one should continue with the insurance policy as the yield/ returns from the insurance policy come primarily towards the end of the policy — at the time of maturity. There can, however, be reasons for quitting such as financial constraints to pay the premium on a regular basis or better investment options. “One should look into factors like premium paid, bonus accumulated vis-a-vis the surrender value/ reduced benefits that one will get before deciding to discontinue a policy,” says Vikas Vasal, director, KPMG India. According to Manoj Agarwal, head, insurance advisory, SKP Securities, one should discontinue the existing ULIPs only if the fund is not performing well or the cost involved in the policy is too high — more than 20% of the premium. The other important reason to discontinue the policy can be mismatch in the expectation and delivery of the policy. “Many times policies are misrepresented by the agents. If it is a very high cost policy, then it is advisable to discontinue the policy,” says Mukesh Gupta, director, Wealthcare Securities.
EXIT ROUTES
This will depend on the specifics of each policy. However, in general, the exit routes are — surrender the policy, conversion into paid up and trading the policy.
a) Surrender the policy: If someone needs to discontinue the policy in the first five years, he should consider the surrender charges. The fund value of a ULIP in the initial years can be rather disappointing. In effect, the surrender value, which is a percentage of the fund value, can be even smaller. “The prime reason for this is that in the initial few years, a substantial proportion of the premium paid is utilised for servicing the various expenses related to the policy — as high as 25% in some cases. This means that the proportion of the premium used to provide for the surrender value is not the entire premium amount. Rather it is the premium net of expenses,” says Kapur. However, there is no maturity value in a term policy and therefore, whenever the policy is surrendered, one does not get back anything than the premium paid till date is forfeited. But in some term insurance plans, there is a refund of premium also at the end of the term (premium is higher in comparison to pure risk cover policy). In such cases, it is advisable to read the terms of the policy.
b) Making it paid-up: Apart from the option of surrendering your policy, insurers like LIC also provide other options like making a policy ‘paid-up’, whereby the policy remains in force with a reduced sum assured, depending upon the number of premiums paid. “Returns in the conventional products are dependent upon the overall performance of the company and the investment norms laid out by IRDA. So it is always advisable not to surrender the policy. Rather one can make his/ her policy paidup in such case,” reasons Agarwal.
c) Trading policy: As per a recent decision of the Mumbai High Court, trading of insurance policies has been held to be valid. In extreme cases, where funds are required immediately, this option may be looked into. “However, this option should be exercised with due care and only after studying all the pros and cons associated with it,” cautions Vasal.
Although it is not advisable to discontinue the policy if only few premiums are left, the option of exiting a policy can be exercised if the insurer requires money urgently and does not need life insurance protection. This is especially true in ULIP policies having a term of more than 10 years. There are no surrender charges left at this stage and the fund value can be used to meet any contingency.
Whatever be the reason for exiting your insurance plan, you should always keep in mind the adverse effects of discontinuing the cover as it may disturb your financial and risk management plans.
ESOP
ESOP : Employee Stock OPtion
Under any Esop, a company first grants options to its employees. The option stays with employee as it is for some time. This is called the vesting period. Employee can exercise the option after the vesting period and acquire share against it. When an employee exercises an option, employer has to allot and transfer requisite number of shares in the company to employee. Employee cannot transfer or sell the option during vesting period. An employee can chooses not to exercise the option at all even after it has vested with him
Under any Esop, a company first grants options to its employees. The option stays with employee as it is for some time. This is called the vesting period. Employee can exercise the option after the vesting period and acquire share against it. When an employee exercises an option, employer has to allot and transfer requisite number of shares in the company to employee. Employee cannot transfer or sell the option during vesting period. An employee can chooses not to exercise the option at all even after it has vested with him
What is a FICO score?
A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable.
Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit. Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.
Credit scores analyze a borrower's credit history considering numerous factors such as:
a) Late payments
b) The amount of time credit has been established
c)The amount of credit used versus the amount of credit available
d) Length of time at present residence
e) Negative credit information such as bankruptcies, charge-offs, collections, etc.
There are really three FICO scores computed by data provided by each of the three bureaus––Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score.
Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit. Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.
Credit scores analyze a borrower's credit history considering numerous factors such as:
a) Late payments
b) The amount of time credit has been established
c)The amount of credit used versus the amount of credit available
d) Length of time at present residence
e) Negative credit information such as bankruptcies, charge-offs, collections, etc.
There are really three FICO scores computed by data provided by each of the three bureaus––Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score.
PIP - Price Interest Point
In forex markets, currency trading is done on some of the world's most powerful currencies. The major currencies traded are the U.S. dollar the Japanese yen, the euro, the British pound and the Canadian dollar.A currency pair such as EUR/USD, for example, represents a euro and U.S. dollar currency pair. The first currency is the base currency and the second currency is the quote currency. So, to buy EUR/USD at 1.1200 on a trade for 100,000 currency units, you would need to pay US$112,000 (100,000 * 1.12) for 100,000 euros.
Pips relate to the smallest price movement any exchange rate can make. Because currencies are usually quoted to four decimal places, the smallest change in a currency pair would be in the last digit. This would make one pip equal to 1/100th of a percent, or one basis point. For example, if the currency price we quoted earlier changed from 1.1200 to 1.1205, this would be a change of five pips.
To get the value of one pip in a currency pair, an investor has to divide one pip in decimal form (i.e. 0.0001) by the current exchange rate, and then multiply it by the notional amount of the trade.
Keeping with our earlier example for the EUR/USD currency pair, the value of one pip is 8.93 euros ((0.0001/1.1200) * 100,000). To convert the value of the pip to U.S. dollars, just multiply the value of the pip by the exchange rate, so the value in U.S. dollars is $10 (8.93 * 1.12). The value of one pip is always different between currency pairs because there are differences between the exchange rates of different currencies. A phenomenon does occur when the U.S. dollar is quoted as the quote currency. When this is the case, for a notional amount of 100,000 currency units, the value of the pip is always equal to US$10.
Pips relate to the smallest price movement any exchange rate can make. Because currencies are usually quoted to four decimal places, the smallest change in a currency pair would be in the last digit. This would make one pip equal to 1/100th of a percent, or one basis point. For example, if the currency price we quoted earlier changed from 1.1200 to 1.1205, this would be a change of five pips.
To get the value of one pip in a currency pair, an investor has to divide one pip in decimal form (i.e. 0.0001) by the current exchange rate, and then multiply it by the notional amount of the trade.
Keeping with our earlier example for the EUR/USD currency pair, the value of one pip is 8.93 euros ((0.0001/1.1200) * 100,000). To convert the value of the pip to U.S. dollars, just multiply the value of the pip by the exchange rate, so the value in U.S. dollars is $10 (8.93 * 1.12). The value of one pip is always different between currency pairs because there are differences between the exchange rates of different currencies. A phenomenon does occur when the U.S. dollar is quoted as the quote currency. When this is the case, for a notional amount of 100,000 currency units, the value of the pip is always equal to US$10.
uberrima fide & Insurance
Any Insurance Contract as such is based upon or governed by the concept of 'uberrima fide' ( 'Utmost Good Faith') which is in contrast to the doctrine followed by other business dealings caveat Emptor (Buyer be aware) ,dictum that professes the buyer is responsible for checking that the goods or services they purchase are satisfactory. The implication of caveat emptor is that the contract underlying the sale is at the purchaser's risk. Purchasers must satisfy themselves that the goods are complete, are in order, and that the vendor has title to them.
Takafol: An Islamic answer to insurance
The Islamic alternative to insurance, known as "Takafol" (in Arabic meaning Joint Guarantee) was first established in Sudan in 1979. Since then, Takafol companies have been established in several countries including Malaysia, Indonesia, Saudi Arabia, USA and the UAE. Today there are more than 30 registered Takafol companies worldwide.
Each takafol guarantees Shariah compatibility of its operations by subjecting itself to the dictates of a Shariah Supervisory Board, which are empowered to review the company's practices, contracts, transactions and operations.
Each takafol guarantees Shariah compatibility of its operations by subjecting itself to the dictates of a Shariah Supervisory Board, which are empowered to review the company's practices, contracts, transactions and operations.
Greenshoe Option
A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer. This would normally be done if the demand for a security issue proves higher than expected. Legally referred to as an over-allotment option.A greenshoe option can provide additional price stability to a security issue because the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges.
Greenshoe options typically allow underwriters to sell up to 15% more shares than the original number set by the issuer, if demand conditions warrant such action. However, some issuers prefer not to include greenshoe options in their underwriting agreements under certain circumstances, such as if the issuer wants to fund a specific project with a fixed amount of cost and does not want more capital than it originally sought.The term is derived from the fact that the Green Shoe Company was the first to issue this type of option.
Greenshoe options typically allow underwriters to sell up to 15% more shares than the original number set by the issuer, if demand conditions warrant such action. However, some issuers prefer not to include greenshoe options in their underwriting agreements under certain circumstances, such as if the issuer wants to fund a specific project with a fixed amount of cost and does not want more capital than it originally sought.The term is derived from the fact that the Green Shoe Company was the first to issue this type of option.
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