Indian Financial and Investment Industry – Basic Concepts

A comprehensive set of practice flashcards covering the key concepts from the Indian financial and investment industry notes.

What is the Indian financial and investment industry?

A network of institutions, markets, instruments, and regulatory bodies that mobilize savings, allocate capital, manage risks, and facilitate investments in India; it includes banking, insurance, capital markets, mutual funds, NBFCs, pension funds, venture capital, and regulatory frameworks.

Who are the primary regulators of the Indian financial system?

RBI, SEBI, IRDAI, and PFRDA.

What does the 'Dual Structure' of the Indian financial system comprise?

Financial institutions (banks, NBFCs, insurance firms) and financial markets (money, capital, derivatives, forex).

Name some key financial instruments in India.

Shares, debentures, bonds, derivatives, insurance policies, mutual funds.

What technology trends are driving growth in India's financial sector?

Fintech, digital wallets (UPI), and online trading platforms.

What role does the financial system play in risk management?

Provides hedging instruments such as derivatives and insurance.

What happened to India's financial markets after liberalization in 1991?

Greater integration with global markets and increased foreign investment participation (FDI and FII).

How is financial inclusion promoted in India?

Through initiatives like Jan Dhan Yojana, UPI, and other inclusion measures.

What is the impact of the 1991 liberalization on the Indian financial system?

Post-liberalization growth, globalization, and privatization; greater global integration.

What ensures stability in the Indian financial system?

A regulated environment with regulators such as RBI, SEBI, IRDAI, and PFRDA.

What are the main features of the Indian financial system?

Dual structure; diverse instruments; a regulated environment; technology-driven growth; risk management; global integration; financial inclusion.

ROI formula

ROI = ((Gain from Investment − Cost of Investment) / Cost of Investment) × 100.

CAGR formula

CAGR = ((Final Value / Initial Value)^(1/n)) − 1, where n is the number of years.

NPV formula

NPV = ∑ (Ct / (1 + r)^t) − C0, where Ct is cash inflow at time t, r is the discount rate, and C0 is the initial investment.

Advantage: Mobilizes savings into productive investments

The financial system channels savings into productive investments, supporting economic growth.

Advantage: Enhances economic growth and employment

Helps drive economic growth and create jobs.

Advantage: Provides liquidity through secondary markets

Offers liquidity to investors via secondary markets.

Advantage: Provides risk management tools

Offers hedging instruments like derivatives and insurance.

Advantage: Promotes financial inclusion and wealth creation

Expands access to financial services and enables wealth creation.

Advantage: Attracts foreign investments

Draws FDI and FII, boosting forex reserves.

Disadvantage: High volatility in capital markets

Capital markets can be highly volatile with price swings.

Disadvantage: Risk of mismanagement or fraud

Possibility of mismanagement or fraud in financial institutions.

Disadvantage: Regulatory overlap and complexity

Complex regulatory environment with potential overlaps.

Disadvantage: Unequal financial inclusion

Urban-rural divide in access to financial services.

Disadvantage: Dependency on global economic conditions

Global economic conditions can affect the Indian financial system.

Applications in Corporate Finance

Raising funds through IPOs, debentures, and bonds.

Applications in Personal Finance

Investments in mutual funds, insurance, and fixed deposits.

Applications in Government Finance

Raising capital via bonds and treasury bills.

Applications in Risk Hedging

Use of derivatives to minimize risks.

Applications in Wealth Management

Portfolio diversification for investors.

Efficient Market Hypothesis (EMH) in Indian markets

Indian stock markets exhibit semi-strong efficiency; information is partly reflected in stock prices.

Modern Portfolio Theory (MPT)

Basis for mutual fund and portfolio diversification.

CAPM (Capital Asset Pricing Model)

Explains the risk–return relationship; used in Indian equity market analysis.

Money Market vs Capital Market

Money Market = short-term funds (

Banks vs NBFCs

Banks accept deposits and lend; NBFCs cannot accept demand deposits but provide credit and investments.

Big picture takeaway

Savings mobilized into funds → investments → drives economic growth.