Fixed Maturity Plan Launched by JP Morgan Asset Management

Recently, JP Morgan Asset Management, a house of Mutual fund announced the launch of a fixed maturity plan. The plan is aimed to fixed income securities.

An online news portal about business and economy – economictimes.indiatimes.com, quotes a statement of the company, “The fund — JP Morgan India Fixed Maturity Plan 400D Series 1 — is a close ended income scheme. The fund, which opened for subscription on Wednesday, closes on February 21.”

So, the fund is already closed now. It is known as JP Morgan India Fixed Maturity Plan 400D Series 1. It is known as a close ended income scheme.

Further the news portal writes about it, “The scheme is a 400 day FMP with March 28, 2012 as the maturity date. The fund will be benchmarked against the Crisil Short Term Bond Fund Index. The minimum application amount is Rs 5,000.”

So, the scheme is announced for a 400 day FMP with March 28, 2012 which is its maturity date. The fund begins with a minimum application amount which is Rs. 5000.

Further the statement elaborates, “The scheme aims to achieve growth of capital through investments made in a basket of debt/fixed income securities maturing on or before 400 days.”

Fixed Maturity Plan of JP Morgan Asset Management is aimed to achieve growth of capital through investments made in a basket of debt/fixed income securities maturing on or before 400 days.

The news portal quotes a statement of JP Morgan Asset Management Chief Investment Officer Nandkumar Surti also, “This fund can be an ideal vehicle for risk averse investors seeking stable returns over a fixed period and returns that are more tax-efficient compared to traditional deposits.”

Fixed Maturity Plan of JP Morgan Asset Management is being known as an ideal vehicle for risk averse for those investors who are seeking stable returns over a fixed period and returns like ING Uttam Jeevan and ING Uttam Jeevan SP of ING Life.

Ethical Issues in Finance and Financial Terms

Ethics in finance can be developed around three broad themes:

In financial markets
In financial services industry (including banking and insurance)
By financial people in organizations

Frauds in the financial sector

Legal authorities define fraud as a crime that “involves the use of dishonest or deceitful conduct in order to obtain some unjust advantage over someone else”.

Frauds include:

• Financial services sector, i.e., credit card fraud, cheque fraud and other types of identify-related fraud;
• Insurance fraud
• Telecommunication-related fraud
• Securities-related fraud
• Computer-related fraud

Types of bank frauds

• Unauthorized extension of credit facilities;
• Pledging of spurious goods;
• Hypothecating goods to more than one bank;
• Inflating the value of goods;
• Removing goods with the involvement or negligence of bank employees;
• Pledging of goods belonging to a third party;
• Accepting obsolete and inadequate stocks;
• Frauds in deposit accounts are opening of bogus accounts, forging signatures of introducers, and collecting through such stolen accounts or forged cheques or bank drafts.
• Frauds are also committed in the area of granting overdraft facility in the current accounts of customers
• Credit card fraud
• Phishing- Duplicate

Measures against bank frauds

Prevention of Money Laundering Act, 2002
Reporting of Cash and Suspicious Transactions
Types of Reports: Cash Transaction Reports (CTR), Suspicious Transaction Report (STR), Counterfeit Currency Report (CCR)
Reporting to RBI
Other guidelines are also given under the Act to curb the menace of money laundering
Compliance to Anti-Money Laundering Standards
The Banking Ombudsman Scheme, 2006

Frauds in insurance sector

We can identify three types of fraud in the insurance industry:

1. Internal fraud against the insurer committed by an employee;
2. Policy holder/claims fraud committed against the insurer, in the purchase and/or execution of an insurance product by obtaining wrongful coverage or payment; and
3. Intermediary fraud committed against the insurer or policy holders by intermediaries – independent broker/agent.

Frauds in insurance process

The possibility of fraud is prevalent during any one of the three stages in the insurance process:
a. Policy Proposal stage;
b. Policy Contract stage; and
c. Claim Process stage.
Frauds are seen in the both life and non-life insurance sector

Combating insurance fraud

The following measures can be adopted to combat fraud in the insurance sector:
1. Collection of proper evidence
2. Need for regulation
3. Regulation of allied services
4. Need for judicial co-operation
5. Insurers should aim at conviction
6. Need for transparency and fairplay
7. Insurers’ coalition
8. Building consumers’ awareness
9. Rewards for whistle-blowers
10. Effective legislation and judicial action

Role of ethics

Ethics plays an important role in finance and sources of ethical behaviour in finance and accounting can be from the following :-
– Code of Conduct for Accountants and Auditors
– Code of Conduct for Merchant Bankers
– Code of Conduct for Insurance Agent
– Code of Conduct for Bankers
– Code of Conduct for Brokers and Members
– Code of Conduct for CFO

Ethical issues in finance and financial terms are the biggest theory in financial sectors like shares and allotment of shares in capitalist market.

ING Uttam Jeevan and ING Uttam Jeevan SP Launched by ING Life

Recently, ING Life launched ING Uttam Jeevan and ING Uttam Jeevan SP, two new customer-centric unit linked products.

Mr. Rahul Agarwal who is the Chief Distribution Officer said about ING Uttam Jeevan and ING Uttam Jeevan SP, “I am delighted to announce the new ULIPs, Uttam Jeevan and Uttam Jeevan SP. Both these products have been designed keeping in mind our customers need for investment and protection. These are simple products, which will appeal to our customers across categories, especially for those who are new to the world of ULIP. They are easy to understand and buy.”

About ING Uttam Jeevan and ING Uttam Jeevan SP, an online news portal about business and economy – economictimes.indiatimes.com writes, “ING Life has launched two new customer-centric unit linked products which meet the investment and protection needs of customers. ING Uttam Jeevan and its single premium variant, ING Uttam Jeevan SP, meet the new IRDA guidelines.”

Further the news portal writes in the analysis of ING Uttam Jeevan and ING Uttam Jeevan SP, “Uttam Jeevan and Uttam Jeevan SP are targeted at all categories of customers, including those who are looking at ULIPs for the first time. The minimum annual premium for Uttam Jeevan is Rs 24,000, while that of Uttam Jeevan SP is Rs 48,000. Being non-medical insurance products, they are hassle free and easy to buy.

With the new guideline, the products enable a higher allocation of premium for investments, thus getting better returns. The product offers customers an automatic increase of 5 per cen in the base sum assured year-on-year, thus keeping up with the increased financial responsibility with age of the customer. It also has in-built accidental death benefit. The death benefit is Sum Assured plus Fund Value. The products offer flexibility to customers with charge free withdrawals as well as top ups. In case the policy lapses, customers can reinstate the policy within 45 days from the date of lapse free of charge. Customers also have the benefit of increasing their contribution by way of Top-Up, with a minimum top-up premium of Rs. 2,000. Four free switches are allowed every policy year, helping customer to manage their investments well.”

Registration and Incorporation of Company in Business World

Mode of forming Incorporated Company:

Any 7 or more persons (2 or more in case of a private company) associates for any lawful purpose may form an incorporated company with or without limited liability.

A company so formed may be:

A company limited by shares, or

A company limited by guarantee, or

An unlimited company

Documents to be filed with the Registrar:

Before a company is registered it is desirable to ascertain from the registrar of companies if the proposed name of the company is approved.

The following documents duly stamped together with the necessary fees are to be filled with the registrar:

The memorandum of association duly signed by the subscribers

The articles of association

Signed by the subscribers to the memorandum of association

The agreement, if any, which the company proposes to, enter into with any individual for appointment as its managing or whole-time director or manager

A list of the directors who have agreed to become the first directors of the company

A declaration stating that all the requirements of the companies act and other formalities relating to registration have been complied with. Such declaration shall be signed by any of the following persons:

An Advocate of the Supreme Court or of a High Court: or

An attorney or a pleader entitled to appear before a high court;

A secretary or a chartered accountant in whole-time practice in India, who is engaged in the formation of the company; or
A person named in the articles as a director, manager, a secretary of the company then within 30days of the date of registrar who shall record the same.

Effects of registration:

Three important consequences of registration:

The company becomes a distinct legal entity. Its life commences from the date mentioned in the certificate of incorporation.

The company acquires a perpetual succession. The members may come and go. But it goes on for ever, unless it is wound up.

The company’s property is not the property of the shareholders. The shareholders have a right to share in the profits of the company when realised and divided.

We already have discussed about kinds of companies in corporate world in the continuation of registration and incorporation of company in the business world.

Memorandum of Association and Contents of Memorandum

Memorandum of association is a fundamental document. It is the charter of the company and defines its reason for existence. It regulates the external affairs of the company in relation to outsiders. Its purpose is to enable shareholders to know what its permitted range of enterprise is. It is the area beyond which the actions of the company cannot go.

Purpose of memorandum:

The prospective shareholders shall know the field in, which their money is going to be used by the company and what risk they are undertaking in making investment. The outsiders dealing with the company shall know the objects of the company.

Printing and signing of memorandum:

The Memorandum of Association of a company shall be-

Printed

Divided into paragraphs numbered consecutively, and

Signed by 7 (2 incase of a private company) subscribers

Each subscriber shall sign (and add his address, description and occupation, if any) in the presence of at least l witness who shall attest the signature and shall likewise add his address, Description and occupation.

Form of Memorandum:

The Memorandum of Association of a company shall be in such one of the Forms in Tables B, C, D and E in Schedule I to the Companies Act, 1956.

Contents of Memorandum:

The Memorandum of every company shall contain the following clauses. The name of the company, with ‘Limited’ as the last word of the name in the case of a public limited company and with ‘private Limited’ as the last words of the name in the case of a private limited company. The state in which the registered office of the company is to be situated.

The objects of the company which shall be classified as-

The main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects; and

Other objects of the company not included in (a)

In the case of companies (other than trading corporations) with objects not confined to one state, state to whose territories the objects extend

Limited liability:

The Memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is limited.

Share capital:

In the case of a company having a share capital, each subscriber shall take at least one share and shall write opposite his name the number of shares his lakes. The Memorandum of a company limited by guarantee shall also state that each member undertakes to contribute a certain sum to the assets of the company.

Doctrine of Ultra Vires:

A company has the power to do all such things as are-

Authorized to be done by the Companies Act, 1956;

Essential to the attainment of its objects specified in the Memorandum;

Reasonably and fairly incidental to its objects

Everything else is ultra vires the company

‘Ultra’ means ‘beyond’ and ‘vires’ means ‘powers’

It means that the doing of the act is beyond the legal power and authority of the company.

The purpose of these restrictions is to protect-

Investors in the company so that they may know the objects in which their money is to be employed;

Creditors in the by ensuring that the company’s funds are not wasted in unauthorized activities

Ultra vires act is void

If an act is ultra vires the company, it does not create any legal relationship

It is not necessary that an act to be considered ultra vires must be illegal; it may or may not be

The main feature of the doctrine of ultra vires is that a company being a corporate person should not be (fined or punished) for its own acts or acts of its agents

Whether a particular act on the part of a company is within its powers is a question of fact and is decided on the construction of the terms of the Memorandum

Ultra vires the directors:

If an act transaction is ultra vires the directors (i.e., beyond their powers but within the powers of the company), the shareholders can ratify it by a resolution in a general meeting

If an act is within the powers of the company, any irregularities may be cured by the consent of the shareholders

Ultra vires the articles:

If an act or transaction is ultra vires the articles, the company can ratify it by altering the articles by a special resolution

Shares and Allotment of Shares in Capitalist Market

A share is the interest of a shareholder in a company. The capital of a company is divided into certain indivisible units of a fixed amount. ‘Share’ means share in the share capital of a company. A share is evidenced by a share certificate. A share certificate is issued by a company under its common seal. Each share in a company having share capital is distinguished by its appropriate number.

Types of shares:

Preference shares

Equity shares

Preference shares: Preference shares are those which have 2 characteristics:

They have a preferential right to be paid dividend during the lifetime of the company

They have a preferential right to the return of capital when the company goes into liquidation

Equity shares: Equity shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Equity shareholders are the last to be paid if the company is wound up.

Application and allotment of shares:

An application for shares is an offer by a prospective shareholder of a company to take shares. ‘Allotment’ is the acceptance by the company of that offer. Allotment results in a binding contract between the company and the applicant. The following provisions of the Act are applicable to ‘application’ for, and allotment of, shares:

Minimum subscription: No allotment shall be made of any share capital of a company offered to the public for subscription unless-

The amount stated in the prospectus as the minimum amount has been subscribed

The sum payable on application for such amount has been paid to and received by the company

Application money: The amount payable on application on each share shall not be less than 5 per cent of the nominal amount of the share. All moneys received from applicants for shares shall be deposited and kept deposited in a scheduled Bank-

Until the certificate to commence business is obtained

Until the entire amount payable on applications for shares in respect of the minimum of

90 per cent subscription has been received by the company.

If any such money is not repaid within 130 days after the issue of the prospectus, the directors of the company shall be jointly repay it with interest at the rate of 6 per annum

Opening of the subscription list:

Allotment can be made only after the beginning of the 5th day from the date of the issue of the prospectus or on such later day as may be specified in the prospectus. This beginning of the 5th day or the later day is known as ‘the opening of the subscription list’.

Shares and debentures to be listed:

Every company, intending to offer shares or debentures to the public for subscription shall make an application to more recognized stock exchanges permission for the listing of its shares or debentures.

Return as to allotments within 30 days of allotment of shares by a company, the company shall file with the Registrar a statement known as ‘return as to allotments’.

Share certificate:

Every person whose name is entered as a member in the register of members of a company has a right to receive a certificate of his shares. A share certificate shall be under the seal of the company, and shall specify-

The shares to which it relates

The amount paid up thereon

The name of the holder of the shares, the share certificate shall be signed by at least 2 directors and the secretary

Limitation of time for issue of share certificates:

The company shall deliver share certificates-

Within 3 months of the allotment of shares

Within 2 month after the application for registration of the transfer of any such shares.

Object of share certificate:

A share certificate under the seal of a company is prima facie evidence of the title of the member to the specified in the certificate.

Lost or defaced certificate: A certificate may be renewed or a duplicate of a certificate may be issued if such certificate-

Is proved to have been lost or destroyed

Having been defaced or torn is surrendered to the company

We already have discussed about article of association. Now, you can read about shares in this chapter.

Articles of Association and Contents of Articles in Business Memorandum

Articles of Association:

Articles are the rules, regulations and bye-laws for the internal management of the affairs of a company. They are framed with the object of carrying out the aims and objects as set out in the memorandum of Association. They are as such subordinate to, and controlled by, the Memorandum of Association.

Contents of articles:

Articles usually contain provisions relating to the following matters:

Share capital, rights of shareholders, variation of these rights, payment of commissions, share certificates

Calls on shares

Transfer of shares

Transmission of shares

Forfeiture of shares

Conversion of shares into stock

Share warrants

Alteration of capital

General meetings and proceedings there at

Voting rights of members, Voting and poll, proxies

Directors, their appointment, remuneration, qualifications, powers and proceedings of board of directors

Manager

Secretary

Dividends and reserves

Accounts, audit and borrowing powers

Capitalisation of profits

Winding up

Companies which must have their own Articles:

The following companies shall have their own articles, namely,

Unlimited companies,

Companies limited by guarantee,

Private companies limited by shares,

The Articles shall be signed by the subscribers of the Memorandum and registered along with the Memorandum,

A public company may have its own Articles of Association. If it does not have its own Articles, it may adopt Table A given in schedule I to the Act

Regulations required in case of an unlimited company, a company limited by guarantee and a private company

Unlimited company: In the case of an unlimited company, the Articles shall state-

The numbers with which the company is to be registered, and

If it has a share capital, the amount of share capital with which the company is to be registered

Company limited by guarantee: The case of a company limited by guarantee, the articles shall state the number of members with which the company is to be registered.

Private company: In the case of a private company having a share capital, the Articles shall contain provisions which-

Restrict the right to transfer shares,

Limit the number of its members to 50 (not including employee-members), and

Prohibit any invitation to the public to subscribe for any shares in, or debentures of, the company.

Form of Articles in the case of other companies:

The Articles of any company, not being a company limited by shares, shall be in such one of the Forms in Tables C,D, and E in schedule I to the Act

Such a company may include any additional matters in its Articles in so far as they are not inconsistent with the provisions

Form and signature of Articles:

Printed,

Divided into paragraphs, and

Signed by each subscriber of the Memorandum (who shall add his address, description and occupation, in the presence of at least l witness who will attest the signature and likewise add his address) description and occupation.

Kinds of Companies in Corporate World

Classifications On The Basis Of Incorporation:

Statutory companies:

The company which is created by a special Act of the legislature called statutory companies. For example – the Reserve Bank of India, the State Bank of India, the Life Insurance Corporation, the Industrial finance Corporation, the Unit Trust of India etc.

These are mostly concerned with public utilities.

Registered companies:

Companies registered under the Companies Act 1956 are known as registered companies. These are by far the most commonly found companies.

Classification On The Basis Of Liability:

On the basis of liability companies may be classified into:

Companies with liability:

Companies limited by shares:

Where the liability of the members of a company is limited to the amount unpaid on the shares, such a company is known as a company limited by shares.

Companies limited by guarantee:

Where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of the company in the event of its being wound up.

These are not formed for the purpose of profit but for the promotion of art, science, culture, charity, sports, commerce.

Unlimited companies:

(Section 12) specifies that any 7 or more persons (2 or more in case of a private company) may form an incorporated company with or without limited liability.

A company without limited liability is known as an unlimited company.

Every member is liable for the debts of the company in proportion to his interest in the company.

Classification On The Basis Of Number Of Members:

Private company:

A ‘private company’ means a company which has a minimum paid-up capital of Rs. 1,00,000 or such higher paid-up capital.

Restricts the right to transfer its shares.

Limits the number of its members to 50 not including its employee-members (present or past);

Prohibits any invitation to the public to subscribe for any shares in, or debentures of the company;.

Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Public company:

A public company- has a minimum paid-up capital of Rs. 5 lakh or such high paid-up capital; it is a private company which is a subsidiary of a company which is not a private company.

Classification On The Basis Of Control:

Holding company:

A company is known as the holding company of another company if it has control over that other company. According to sec. 4 (4), a company is “deemed to be the holding company of another if, that other is its subsidiary.”

Subsidiary company:

A company is known as a subsidiary of another company when control is exercised by the latter (called holding to company) over the former called a subsidiary company.

A company is deemed to be a subsidiary of another company in the following 3 cases:

Company controlling composition of board of directors.
Where a company (Company A) controls the composition of board of directors of another company (Company B), the latter (Company B) becomes the subsidiary of the former (Company A).

Holding of majority of shares:

Where a company (Company A) holds more than half in nominal value of equity share capital of another company (Company B) the latter (Company B) becomes the subsidiary of the former (Company A).

Subsidiary of anther subsidiary:

Where a company (Company B) is subsidiary of anther company (say Company A1) which is itself subsidiary of the controlling company (Company A), the former (Company B) becomes the subsidiary of the controlling company (Company A).

Classification On The Basis Of Ownership:

Government company, or

Non-government company

Government Company:

A Government company means any company in which not less than 51 per cent of the paid-up share capital is held by.
The central government, or
Any state government or governments, or
Partly by the central Government and partly by one or more state Governments.

Foreign Company:

It means any company incorporated outside India which has an established place of business in India.

Where a minimum of 50 per cent of the paid-up share capital of a foreign company is held by one or more citizens of India.

Marginal Efficiency of Capital and Business Expectation

MEC (Marginal Efficiency of Capital) depends on the businessmen’s expectations, which increases due to invention and goes down due to any threat to the returns on investment. It is also affected by the annual spirit of the entrepreneur. That is why investments are not always calculations but also irrational optimism. Business expectations are based on existing events and partly future facts. The investment decision is not done on actual investment but on the future yields.

Therefore, huge expenditure is required but actual returns start later. These two types of expectations – short term and long term are based on existing facts, whereas long term expectation is based on the future events.

Acceleration Principle:

The multiplier and Acceleration Principle are parallel concepts. This principle is also called Principle of Acceleration.

Multiplier shows the effect of consumption on investment.

Acceleration shows the effect of investment on consumption.

This is so because to produce the final goods, capital goods are also required. Therefore, if you want to increase the final product, the capital goods which are inputs for these final goods should also be increased. When consumption increases, the demand for factors of production will also increase.

There are certain practical limitations to this principle.

No excess capacity: If consumer goods sectors have excess capacity, induced investment will not increase. Only after the utilization of idle capacity, the principle will start operating.

Surplus capacity: Acceleration principle works on a very tough condition that there will be excess capacity in investment industry but not in the industry producing consumer goods. It is assumed that there is surplus capacity in investment goods industry, but if there is no excess capacity in machine making industries there will be postponed delivery and the acceleration will be low.

Availability of resources: When demand increase for capital goods that means increase in production, which again means more employment. So, there should be enough unemployed resources available. But only when the full employment level reached there is difficulty in expanding the production.

Nature of Demand: The demand for consumption goods should be more or less permanent for acceleration principle to work, because if the demand increase is temporary, then that will increase demand for capital goods as these goods are expensive.

The relationship between consumption, profit maximization and investment is shown by acceleration principle.

Macro Economics Ratios from Managerial Economics for Management of Business

There are only those ratios, which shall come across in the following chapters:

Consumption Income Ratio:

It is general income consumption relationship. It expresses the relationship between income (Y) and consumption (C). The relation is functional. We represent it as:

C = f (Y)
C – Consumption
Y – Income
f – Function

Saving Income Ratio:

Income is either spent or consumed. The saving function can be easily derived by subtracting consumption or spending from income.

S = Y-C

S – Saving

Y – Income

C – Consumption

Capital Output Ratio:

The number of units of capital required for each unit of output produced. More capital is required to produce more output for business and market. This ratio varies from firm to firm and industry to industry.

K = wY

K- Capital Stock

Y – Level of Output

W – Capital-Output Ratio

Capital Labour Ratio:

This ratio indicates factor proportion, the combination of labour and capital in the production process. It can be defined as:

K/L

K – Capital

L – Labour

Output-Labour Ratio:

It means the labour productivity. It can be written as

Y/L

Y – National Income

L – Employment.

Index Number:

Value in economy means value in exchange. The value of money is the buying capacity of money, which is expressed in terms of commodity and services you get in exchange.

If the price is high, then value of money decreases and vice-versa. They are reversely related to each other. Movement of price has two aspects: one is change in relative price and the other is change in overall price, which affects the purchasing power of money. Change in price is not uniform for all goods: for some goods it may decrease and for some goods it may increase. To bring the element of uniformity to the concept of general, price is used. This is done by index number.

Index number is statistical device which indicates relative changes of a variable over a period of time. It shows the general trend of prices. The value of money can be measured by means of price index numbers. We will discuss some types of prices indices. More specific price indices can be constructed which focuses on specific goods and services.