P1 Set 1.20-1.21

What is a financial institution?

An intermediary that stands between savers and borrowers.

What is the basic function of financial institutions in the economy?

They channel funds from savers to borrowers and support the allocation of financial resources.

What does Section 1.20 of the PDF provide?

An overview of major financial institutions, their functions and their regulators.

What is a mutual fund?

A trust that pools money from many investors and invests it in shares, bonds, money-market instruments or other assets according to a stated objective.

What does an investor receive when investing in a mutual fund?

Units in proportion to the amount invested.

How can mutual funds benefit small investors?

They provide diversification and professional investment management, even to investors contributing small amounts such as ₹500 per month.

Which regulator governs mutual funds in India, according to the PDF?

The Securities and Exchange Board of India (SEBI).

Which regulations does the PDF identify as governing mutual funds?

The SEBI (Mutual Funds) Regulations, 1996.

What are the four key parties in the structure of an Indian mutual fund described in the PDF?

Sponsor, trustees, asset management company (AMC) and custodian.

Who is a mutual fund sponsor?

The promoter who establishes the fund and contributes part of the capital of the asset management company.

What is the role of mutual fund trustees?

They hold the fund's assets on behalf of unit holders and supervise the asset management company.

What is the role of an asset management company (AMC)?

It manages the money, makes investment decisions and operates the mutual fund schemes.

What is the role of a mutual fund custodian?

It holds the fund's securities in safe custody.

Who keeps records of mutual fund unit holders?

A registrar and transfer agent (RTA).

What is net asset value (NAV)?

The price of one mutual fund unit, calculated by dividing the scheme's net assets by the number of units outstanding.

What is the formula for mutual fund NAV?

NAV = (Market value of scheme assets − Liabilities) ÷ Number of units outstanding.

A mutual fund scheme holds assets worth ₹1,050 crore and owes ₹50 crore. What are its net assets?

₹1,050 crore − ₹50 crore = ₹1,000 crore.

If a scheme has net assets of ₹1,000 crore and 50 crore units outstanding, what is its NAV?

₹1,000 crore ÷ 50 crore = ₹20 per unit.

At an NAV of ₹20, how many units does an investment of ₹10,000 purchase, ignoring any applicable charges?

₹10,000 ÷ ₹20 = 500 units.

If a mutual fund's NAV rises from ₹20 to ₹22, what is the percentage increase?

10%.

If an investor holds 500 units and the NAV rises from ₹20 to ₹22, what is the investment worth after the rise?

500 × ₹22 = ₹11,000.

What are open-ended mutual funds?

Funds whose units can be bought and redeemed with the fund every day at NAV, subject to the scheme's terms.

What are closed-ended mutual funds?

Funds whose units are issued once for a fixed term and are traded on stock exchanges, as described in the PDF.

How are mutual funds classified by structure in the PDF?

Open-ended and closed-ended.

Which five scheme categories does the PDF attribute to SEBI's 2017 categorisation by assets?

Equity, debt, hybrid, solution-oriented and other schemes.

What are examples of solution-oriented mutual fund schemes in the PDF?

Retirement funds and children's funds.

What examples of other mutual fund schemes are given in the PDF?

Index funds, exchange-traded funds (ETFs) and funds of funds.

What is an exchange-traded fund (ETF)?

A fund whose units trade on a stock exchange like shares and which usually tracks an index.

What is a systematic investment plan (SIP)?

An arrangement under which a fixed sum is invested at regular intervals, typically every month.

What happens to the number of mutual fund units bought through a fixed-amount SIP when prices fall?

The fixed contribution buys more units.

What happens to the number of mutual fund units bought through a fixed-amount SIP when prices rise?

The fixed contribution buys fewer units.

What is rupee cost averaging?

The effect whereby regular fixed-amount investments buy more units at lower prices and fewer units at higher prices, potentially lowering the average cost per unit compared with the average market price over the period.

Which institution was India's first mutual fund, according to the PDF?

The Unit Trust of India (UTI), established in 1964.

From which year were public-sector banks and insurers allowed to set up mutual funds, according to the PDF?

1987.

From which year were private-sector mutual funds allowed, according to the PDF?

1993.

What is AMFI?

The Association of Mutual Funds in India, the mutual fund industry's body.

What mutual fund industry assets under management does the PDF report at the end of September 2026?

About ₹82.6 lakh crore.

What monthly SIP contribution figure does the PDF report at the end of September 2026?

A record ₹32,490 crore.

What SIP assets figure does the PDF report at the end of September 2026?

About ₹17.9 lakh crore.

What is insurance?

A contract under which an insurer promises to compensate the insured for a specified loss in return for a premium.

What is the principle of pooling in insurance?

Many people pay relatively small premiums, and those who suffer covered losses receive payments from the pooled funds.

Why are insurers important long-term investors?

Long-term policies, especially life insurance policies, create funds that insurers invest in assets such as government securities and infrastructure.

What does life insurance cover?

It pays a sum on the death of the insured or on maturity of the policy, depending on the policy terms.

What does term insurance generally pay for?

The death of the insured during the policy term; the PDF describes it as the cheapest form of life insurance.

How do endowment and unit-linked life insurance plans differ from pure term insurance in the PDF's description?

They combine insurance with savings.

What is general or non-life insurance?

Insurance covering risks such as property, motor vehicles, crops, travel and liability, usually for one year at a time.

What does health insurance cover?

Hospital and medical expenses.

Who sells health insurance in India, according to the PDF?

General insurers and specialised standalone health insurers.

What is reinsurance?

Insurance for insurers, enabling them to pass on part of very large risks.

Which organisation does the PDF identify as India's national reinsurer?

The General Insurance Corporation of India (GIC Re).

When was life insurance nationalised in India, according to the PDF?

1956.

Approximately how many companies were merged into LIC during life-insurance nationalisation, according to the PDF?

About 245 companies.

When was general insurance nationalised, according to the PDF?

1972–73.

When was the Malhotra Committee set up, and when did it submit its report?

It was set up in 1993 and submitted its report in 1994.

What role did the IRDA Act, 1999 play in India's insurance sector?

It created an independent insurance regulator and reopened the sector to private companies.

What foreign-investment limit in Indian insurance does the PDF say was permitted initially after the sector reopened?

26%.

To what level did the insurance foreign-investment limit rise in 2015, according to the PDF?

49%.

To what level did the insurance foreign-investment limit rise in 2021, according to the PDF?

74%.

Which 2025 legislation does the PDF identify as allowing up to 100% foreign investment in Indian insurers?

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025.

When did Parliament pass the insurance-law amendment described in the PDF?

December 2025.

On what date does the PDF say the President assented to the insurance-law amendment?

20 December 2025.

From what date does the PDF say most provisions of the insurance-law amendment took effect?

5 February 2026.

Which Acts does the PDF say the 2025 insurance-law amendment changed?

The Insurance Act, 1938; the LIC Act, 1956; and the IRDA Act, 1999.

What condition relating to senior management does the PDF mention for insurers with up to 100% foreign investment?

At least one of the chairperson, managing director or chief executive officer must be an Indian citizen.

What is insurance penetration?

Insurance premiums expressed as a share of GDP; it measures how widely insurance is used.

What insurance penetration figure for India does the PDF report?

About 3.7% of GDP.

What global insurance penetration figure does the PDF give for comparison?

About 7%.

What conclusion does the PDF draw from India's insurance penetration figure?

Most Indian households remain under-insured.

What is IRDAI's stated goal for insurance coverage, according to the PDF?

“Insurance for All by 2047.”

What is the purpose of a pension system?

To help people save during their working lives so that they have income in old age.

What is a defined-contribution pension scheme?

A scheme in which pension benefits depend on contributions made and the performance of the investments.

What is a defined-benefit pension scheme?

A scheme in which the pension is determined by a specified benefit formula rather than solely by investment performance.

What is the National Pension System (NPS)?

A defined-contribution pension scheme in which retirement benefits depend on contributions and investment performance.

Which regulator oversees NPS fund managers, according to the PDF?

The Pension Fund Regulatory and Development Authority (PFRDA).

For which Central Government employees did NPS replace the old defined-benefit pension, according to the PDF?

New Central Government employees, other than the armed forces, joining on or after 1 January 2004.

From which date was NPS opened to all citizens, according to the PDF?

1 May 2009.

Which broad asset classes can NPS subscribers choose for their investments, according to the PDF?

Equity, corporate bonds and government securities.

What is an annuity in the pension context?

A financial product that pays a regular income, such as a pension.

What minimum portion of the NPS corpus does the PDF say government employees must use to buy an annuity at retirement?

At least 40%, according to the PDF.

When was Atal Pension Yojana (APY) launched, according to the PDF?

9 May 2015.

Which workers does APY target in the PDF's description?

Workers in the unorganised sector aged 18 to 40.

What monthly pension range does APY guarantee from age 60, according to the PDF?

₹1,000 to ₹5,000, depending on the contribution.

What is the Unified Pension Scheme (UPS), according to the PDF?

An option within NPS for Central Government employees.

From what date does the PDF say UPS has been in force?

1 April 2025.

What pension does UPS assure to employees with at least 25 years of service, according to the PDF?

50% of the average basic pay of the last 12 months.

How does the UPS pension described in the PDF change for employees with shorter service?

A smaller pension is provided.

When was NPS Vatsalya launched, according to the PDF?

September 2024.

What does NPS Vatsalya allow parents to do?

Open an NPS account for a child.

What happens to an NPS Vatsalya account when the child turns 18, according to the PDF?

It converts into a regular NPS account.

What is the Employees' Provident Fund (EPF)?

A compulsory retirement savings scheme for employees of covered establishments.

What establishment-size threshold does the PDF give for compulsory EPF coverage?

Establishments with 20 or more workers.

Which organisation administers the Employees' Provident Fund?

The Employees' Provident Fund Organisation (EPFO), under the Ministry of Labour.

Is EPF regulated by PFRDA, according to the PDF?

No. The PDF identifies EPFO under the Ministry of Labour as the administering organisation.

Under a defined-benefit pension example, a government clerk retires with a last basic pay of ₹60,000 per month and receives 50% as pension. What is the monthly pension?

₹30,000 per month.

In the PDF's old-pension example, who bears the pension risk when the promised benefit does not depend on market performance?

The Government.

Under the PDF's NPS example, what corpus accumulates for the clerk?

₹80 lakh.

If the NPS corpus is ₹80 lakh and 40% must buy an annuity, how much is used to purchase the annuity?

₹32 lakh.

At a 7% annuity rate, what approximate monthly pension does the PDF's NPS example produce from a ₹32 lakh annuity purchase?

About ₹18,700 per month.

Under the PDF's NPS example, what happens if investment returns are higher or lower?

Higher returns produce a larger pension and lower returns a smaller pension; the employee bears the investment risk.