The document summarizes key concepts related to banking in India. It discusses the three phases of development of the Indian banking sector: the early phase from 1770-1969, the nationalization phase from 1969-1991, and the liberalization phase from 1991 onward. It also defines banking and the basic roles of banks. The primary functions of banks include accepting deposits and granting advances. Deposit accounts discussed include savings deposits, fixed deposits, current deposits, and recurring deposits. The document provides an overview of the historical development and functioning of the banking sector in India.

1. Principles and
Practises of
Banking and
Insurance
FYBBI SEM-II

2. Module I Introduction
to Banking
CHAPTER 1 INTRODUCTION TO BANKING

3. Introduction
A strongest banking industry is important in every country and plays a significant role in supporting
economic development through efficient financial services.
Banks provides financial services to the people, business and industries different types of bank differs
from each other in terms of operations, efficiency, productivity, profitability and credit efficiency.
Banking sector plays a vital role in growth and development of Indian Economy.
The process of liberalization and globalization has strongly influenced the Indian Banking Sector.

5. The banking sector development can be divided into three phases:
Phase I: The Early Phase which lasted from 1770 to 1969
Phase II: The Nationalization Phase which lasted from 1969 to 1991
Phase III: The Liberalization or the Banking Sector Reforms Phase which began in 1991 and continues
to flourish till date

6. Pre Independence Period (1786-1947)
The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the then Indian capital, Calcutta. However, this bank
failed to work and ceased operations in 1832.
During the Pre Independence period over 600 banks had been registered in the country, but only a few managed to survive.
Following the path of Bank of Hindustan, various other banks were established in India. They were:
•The General Bank of India (1786-1791)
•Oudh Commercial Bank (1881-1958)
•Bank of Bengal (1809)
•Bank of Bombay (1840)
•Bank of Madras (1843)
During the British rule in India, The East India Company had established three banks: Bank of Bengal, Bank of Bombay and Bank of Madras
and called them the Presidential Banks. These three banks were later merged into one single bank in 1921, which was called the “Imperial Bank
of India.”. Then Reserve Bank of India was established in the year 1935.
The Imperial Bank of India was later nationalised in 1955 and was named The State Bank of India, which is currently the largest Public sector
Bank.

7. Post Independence Period (1947-1991)
At the time when India got independence, all the major banks of the country were led privately which was a cause of
concern as the people belonging to rural areas were still dependent on money lenders for financial assistance.
With an aim to solve this problem, the then Government decided to nationalize the Banks. These banks were
nationalized under the Banking Regulation Act, 1949. Whereas, the Reserve Bank of India was nationalized in 1949.
Following it was the formation of State Bank of India in 1955 and the other 14 banks were nationalized between the
time duration of 1969 to 1991. These were the banks whose national deposits were more than 50 crores.

8. Liberalization Period (1991-Till Date)
Once the banks were established in the country, regular monitoring and regulations need to be followed to continue the profits
provided by the banking sector. The last phase or the ongoing phase of the banking sector development plays a hugely significant
role.
To provide stability and profitability to the Nationalised Public sector Banks, the Government decided to set up a committee
under the leadership of Shri. M Narasimham to manage the various reforms in the Indian banking industry.
The biggest development was the introduction of Private sector banks in India. RBI gave license to 10 Private sector banks to
establish themselves in the country. These banks included:
Global Trust Bank
ICICI Bank
HDFC Bank
Axis Bank
Bank of Punjab
IndusInd Bank
Centurion Bank
IDBI Bank
Times Bank
Development Credit Bank

9. Basic Concept of Banking
It is necessary to understand the basic concepts used in banking. These are as under:
(a) Banking: Banking has been defined as "Accepting for the purpose of lending and investment, of
deposits of money from the public, repayable on demand, order or otherwise and withdrawable by
cheque, draft or otherwise."
(b) Banker: Banker is a person who accepts deposits, money on current accounts, issue and pay
cheques and collects cheques for his customers.
(c) Customer. A customer is a person who has an account with the bank, performs, at least a transaction
of a banking activity nature.
(d) Banking Company: Banking company means any company, which transacts the business of
banking in India.

10. DEFINITION OF BANKING
According to Prof. Kinley, "A bank is an establishment which makes to individuals such
advances of money as may be required and safely made, and to which individuals, entrust
money when not required by them for use".
According to Walter Leaf, "A bank is a person or corporation which holds itself out to
receive from the public, deposits payable on demand by cheque".
According to Horace White "a bank is a manufacturer of credit, and a machine for
facilitating exchange".
The Banking Companies Act 1949 of India defines Bank as, "A Bank is a financial
institution which accepts money from the public for the purpose of lending or investment
repayable on demand or otherwise withdrawable by cheques, drafts or order or otherwise".

11. Role of Indian Banking
Indian banking has a big role in the growth of the economy of India. Every country’s economy lies in the banking
system. When the bank functions well, only then it benefits in nation-building.
•Business Growth: When it comes to business growth, the Indian banking sector helps a lot. It establishes
different branches to develop strong ties with foreign countries. That helps in the major growth of the economy.
In addition to this, Indian banks facilitate trade and commerce. It offers payment facilities to various local and
international business houses.
•Financial Stability: The banking sector provides financial stability to the Indian economy. It also offers safe
and secure financial services to help people. The services count money orders, cash deposits, and cash card
services. People can take advantage of these perks to help their businesses grow.

12. •Cash Management: Cash management plays an essential role in the growth of the economy of India. It permits banks
to provide money transfers and quick cash. That’s how they help people with different services. Many business houses
ask for money from the banks to help their business. It helps banks handle the money transfer carried out for many
industrial units and various business houses. And it makes the whole method smooth.
•Advancement of Credit: Every bank provides loans to people to expand their businesses. The Indian banking sector is
one of the most active sectors that provide loans to individuals and institutions. The Indian economy has a huge impact
on active loans. It is crucial in providing funds to different priority sectors like small-scale industries, agriculture,
trading enterprises, real estate, etc.
•Financial Security: The Indian banking system provides people with financial security for their funds. It is done by
offering loans at competitive rates, paying reliable remittance services, etc. That’s how people can save their money.
They also invest in financial tools like government securities, long-term bonds, etc. Thus, it plays an essential role in the
context of financial security.
•Manage Assets: Banks handle money and precious items such as gold, silver, diamonds, etc. People rely on banks to
keep their valuable items safe and sound. They make loans and accept deposits and payments from their clients. They
also provide credit cards, debit cards, checkbooks, etc. They can count as a reliability factor for their assets.

13. Functions
of Banks
Primary
Functions
Accepting
Deposits
Granting
Advances
Secondary
Functions
Agency
Functions
Utility
Functions

14. A. Primary Functions of Banks
The primary functions of a bank includes the function of accepting deposits and granting advances
i.e. accepting deposits of money from the public for the purpose of lending or investment where the
depositor can demand for repay through cheque, draft, order or otherwise. These are also known as
Quantitative functions of a bank.
I. Accepting Deposits
II. Granting Advances

15. (I)Accepting Deposits
1.Saving Deposits: encourages saving habits among the public. It is suitable for salary and wage earners. The rate of interest is low. There
is no restriction on the number and amount of withdrawals. The account for saving deposits can be opened in a single name or in joint
names. The depositors just need to maintain minimum balance which varies across different banks. Also, Bank provides ATM cum debit
card, cheque book, and Internet banking facility. Candidates can know about the Types of Cheques at the linked page.
2.Fixed Deposits: Also known as Term Deposits. Money is deposited for a fixed tenure. No withdrawal money during this period allowed.
In case depositors withdraw before maturity, banks levy a penalty for premature withdrawal. As a lump-sum amount is paid at one time
for a specific period, the rate of interest is high but varies with the period of deposit.
3.Current Deposits: They are opened by businessmen. The account holders get an overdraft facility on this account. These deposits act as
a short term loan to meet urgent needs. Bank charges a high-interest rate along with the charges for overdraft facility in order to maintain
a reserve for unknown demands for the overdraft.
4.Recurring Deposits: A certain sum of money is deposited in the bank at a regular interval. Money can be withdrawn only after the
expiry of a certain period. A higher rate of interest is paid on recurring deposits as it provides a benefit of compounded rate of interest and
enables depositors to collect a big sum of money. This type of account is operated by salaried persons and petty traders.
5. NRI Accounts: NRI accounts are maintained by banks in rupees as well as in foreign currency. Four types of Rupees accounts can be
open in terms of NRI. The account can be open normally in Dollar, Pound, Steeling and Euro. The accounts of NRIs are Indian
Millennium deposit, resident foreign currency, housing finance scheme for NRI investment schemes.

16. (II) Granting Advances
1.Bank Overdraft: This facility is for current account holders. It allows holders to withdraw money anytime more than
available in bank balance but up to the provided limit. An overdraft facility is granted against collateral security. The
interest for overdraft is paid only on the borrowed amount for the period for which the loan is taken.
2.Cash Credits: a short term loan facility up to a specific limit fixed in advance. Banks allow the customer to take a loan
against a mortgage of certain property (tangible assets and / guarantees). Cash credit is given to any type of account
holders and also to those who do not have an account with a bank. Interest is charged on the amount withdrawn in excess
of the limit. Through cash credit, a larger amount of loan is sanctioned than that of overdraft for a longer period.
3.Loans: Banks lend money to the customer for short term or medium periods of say 1 to 5 years against tangible
assets. Nowadays, banks do lend money for the long term. The borrower repays the money either in a lump-sum amount
or in the form of instalments spread over a pre-decided time period. Bank charges interest on the actual amount of loan
sanctioned, whether withdrawn or not. The interest rate is lower than overdrafts and cash credits facilities.
4.Discounting the Bill of Exchange: It is a type of short term loan, where the seller discounts the bill from the bank for
some fees. The bank advances money by discounting or purchasing the bills of exchange. It pays the bill amount to the
drawer(seller) on behalf of the drawee (buyer) by deducting usual discount charges. On maturity, the bank presents the
bill to the drawee or acceptor to collect the bill amount.

17. 5.Loan syndication: Loan syndication is an arrangement where a group of banks participate to provide funds for a single loan.
In a loan syndication, a group of banks comprising 10 to 30 banks participate to provide funds wherein one of the banks is the
lead manager. This lead bank is decided by the corporate enterprises, depending on confidence in the lead manager.
A single bank cannot give a huge loan. Hence a number of banks join together and form a syndicate. This is known as loan
syndication.
6.Lien: The term lien plays an important role in the financial world and hence it is important to understand. Whenever you
borrow a loan for buying an asset such as a car or a house, the institution from which the loan has been borrowed will place
a lien on the asset. In simple terms you can say that if you buy a car on loan, the bank that you borrowed the loan from will
grant a lien on that car. But what does this lien mean? Well to make it simple for you to understand you can say that it gives
your lender the legal right to take away the asset for which you have borrowed the loan in case you fail to repay the loan amount
in the given time period.( Interest Free)
Mortgage: A mortgage is a type of loan used to purchase or maintain a home, plot of land, or other types of real estate. The
borrower agrees to pay the lender over time, typically in a series of regular payments that are divided into principal and interest.
The property then serves as collateral to secure the loan. A borrower must apply for a mortgage through their preferred lender
and ensure that they meet several requirements, including minimum credit scores and down payments. Mortgage applications
go through a rigorous underwriting process before they reach the closing phase. Mortgage types, such as conventional or fixed-
rate loans, vary based on the needs of the borrower.
Hypothecation:
Assignment

18. B. Secondary Functions
Secondary functions include issuing letters of credit, safekeeping valuables, providing consumer financing,
and educational loans. The secondary functions of a bank includes the agent function which refers to the
banking function of transferring money, Purchase and sale of securities, Consultancy business etc. and
general utility services which includes locker facility, letter of credit etc. These are also called Qualitative
services of a bank.
I. Agency Functions: Banks provide certain services to their customers in return for some commission,
these are called agency functions.
II. Utility Functions: Utility Functions are also called as Social development functions. In some areas, the
banks will help you with all the transactions that you will have to do during a course of time. For example,
you will be able to pay your phone, electricity and other utility bills from a center that is run by the banks.
This sums up the functions of the banks.

19. I Agency Functions
1. Transfer of funds: Banks are helping business and society for transfer of money from place to place or person to
person. For this purpose, Demand Draft, Pay Orders, Telegraphic transfer, Mail transfer, Credit cards etc. type methods
are used.
2. Merchant Banking: Merchant banking is basically a service banking, concerned with providing non-fund based
services of arranging funds rather than providing them. The merchant banker merely acts as an intermediary. Its main
job is to transfer capital from those who own it to those who need it. Today, merchant banker acts as an institution which
understands the requirements of the promoters on the one hand and financial institutions, banks, stock exchange and
money markets on the other. SEBI (Merchant Bankers) Rule, 1992 has defined a merchant banker as, “any person who
is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing
to securities or acting as manager, consultant, advisor, or rendering corporate advisory services in relation to such issue
management”.
3. Portfolio Management: Portfolio management is a secondary function of a bank. The banks also undertakes to
purchase and sell the shares and debentures on behalf of the clients and accordingly debits or credits the account. This
facility is called portfolio management.

20. 4. Leasing: A lease is an agreement under which a firm acquires a right to make use of a capital asset like machinery
etc. on payment of an agreed fee called lease rentals. The person (or the company) which acquires the right is known
as lessee. He does not get the ownership of the asset. He acquires only the right to use the asset. The person (or the
company) who gives the right is known as lessor.
5. Housing Finance: Housing finance refers to finance provided to individuals or group of individuals for
purchasing/building a house. RBI has given a free rein to banks to decide on the age of dwelling, repayment
schedule, margin and security with the approval of their board.

21. 6.Factoring: Factoring in finance is a source of immediate capital. It is acquired in exchange for accounts receivable. Hence, it is a
financial arrangement between a financial institution (factor) and a small or medium-sized firm (client). A factor purchases trade debts
or receivables from a client firm at a discounted price. Factoring involves three parties—a factor, a client, and a debtor. The factor is
the financial institution that offers finance to a client (in exchange for receivables).
The client is the firm that sells its receivables;
The debtor is the party who owes the trade debt. The debtor, therefore, ends up paying the factor instead of the original business.
Example: Let us assume that ABC Corp. is a growing company. ABC sells goods to XYZ Ltd. worth Rs.16000 on credit. The amount
will be encashed within 45 days.
During this period, however, ABC Corp. runs out of working capital. Therefore, ABC approaches RS Funding Ltd. to avail factoring in
finance. RS Funding agrees to buy accounts receivables at a 10% discount. Therefore, ABC opts for a recourse factoring.
Based on the given details, determine what will happen if XYZ Ltd. defaults on its payment.
Solution: Given-
Unpaid Invoice = Rs.16000
Discount Rate = 10% of Rs.16000 = Rs.1600
Money Financed = Unpaid Invoice – Discount Rate
Money Financed = Rs.16000 – Rs.1600 = Rs.14400
Hence, RS Funding Ltd. lends Rs.14400 to ABC Corp. On the due date, if XYZ Ltd. fails to pay the invoice amount to RS Funding
Ltd., then ABC Corp. is liable to pay an outstanding sum of Rs.16000 to the factor.

22. II. Utility Functions
1. Cheque/Drafts: A cheque is a document you can issue to your bank, directing it to pay the specified sum mentioned
in digits as well as words to the person whose name is borne on the cheque. Cheques are also called negotiable
instruments. In banking terms, a negotiable instrument is a document that promises its bearer a payment of the
specified amount either on furnishing the document to the banker or by a given date. We offer a variety of
current/cheque accounts, fixed deposits and savings account designed to suit your personal banking needs. The
issuing party is called the drawer of the cheque, and the one it is issued to or put simply, whose name is mentioned on
the cheque is the drawee.
2. Lockers: Safe Deposit Locker facility is one of the value added services provided by the Bank to its customers. Bank
provides specially designed lockers purchased from reputed manufactures which are kept at specially built strong
rooms at branches for keeping the valuable of hirers.
3. Underwriters: Underwriters in the banking sector perform the critical operation of appraising the credit worthiness
of a potential customer and whether or not to offer it a loan. They appraise the credit history of the customer through
their past financial record, statements, and value of collaterals provided, among other parameters.
4. Social Welfare Programmes: It undertakes social welfare programmes, such as literacy programmes, public welfare
campaigns etc.

23. 5. ATM Services:ATM stands for Automated Teller Machine which is a self-service banking outlet. You can withdraw
money, check your balance, or even transfer funds at an ATM. Different banks provide their ATM services by installing
cash machines in different parts of the country. You can withdraw money from any of these machines irrespective of
whether or not you are an account holder in the same bank. ATM transactions are either free or bear a nominal charge
depending upon the banks. Banks usually do not charge for the first 3-5 ATM transactions in a month. Once you cross the
limit of free transactions, you may have to pay a nominal charge. Also, some banks levy charges if you withdraw money
from the ATM of another bank of which you are not an account holder.
6. Tele Banking: Telephone banking is a service provided by a bank or other financial institution that enables customers
to perform over the telephone a range of financial transactions that do not involve cash or financial instruments (such as
checks) without the need to visit a bank branch or ATM.
7. Internet Banking: Internet banking, also known as online banking, e-banking or virtual banking, is an electronic
payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions
through the financial institution's website.
8. Insurance Products: Insurance is a contract, represented by a policy, in which a policyholder receives financial
protection or reimbursement against losses from an insurance company.
9. Microfinancing: Microfinance refers to the financial services provided to low-income individuals or groups who are
typically excluded from traditional banking. Most microfinance institutions focus on offering credit in the form of small
working capital loans, sometimes called microloans or microcredit.

24. Credit Cards
A credit card is a type of credit facility, provided by banks that allow customers to borrow funds within a
pre-approved credit limit. It enables customers to make purchase transactions on goods and services. The
credit card limit is determined by the credit card issuer based on factors such as income and credit score,
which also decides the credit limit.
A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company
that allows cardholders to borrow funds with which to pay for goods and services with merchants that
accept cards for payment. Credit cards impose the condition that cardholders pay back the borrowed money,
plus any applicable interest, as well as any additional agreed-upon charges, either in full by the billing date
or over time.

25. Types of Credit Cards
Standard Credit Cards: These are the most common type of credit card allowing an individual to have a
revolving balance up to a certain credit limit. Credit is used up when one makes purchase with the use of this card
and this limit is made available again once a payment is been made. A finance charge is applied to outstanding
balances at the end of each month. Credit cards have a minimum payment that must be paid by a certain due date
to avoid late-payment penalties.
Premium Credit Cards: These cards offer incentives and benefits further than that of a regular credit card.
Examples of premium credit cards are Gold and Platinum cards that offer cash back, reward points, travel
upgrades, and other rewards to cardholders. Premium cards usually charge higher fees and have minimum income
and credit score requirements. Both standard credit cards and premium credit cards have specific types of credit
cards. Student credit cards, zero percent interest cards, and travel cards are just a few types available in the market.
Charge Cards: Charge cards do not have a credit limit. The balance on a charge card must be paid in full at the
end of each month. Charge cards typically do not have a finance charge or minimum payment since the balance is
to be paid in full. Late payments are subject to a fee, charge restrictions, or card cancellation depending on the
individual's card agreement.

26. Limited Purpose Cards: Limited purpose credit cards, as name suggest it could be used only for some specific
purposes at specific locations, Limited purpose cards are used like credit cards with a minimum payment and finance
charge. Store credit cards and gas credit cards are examples of limited purpose credit cards.
Secured Credit Cards: Secured credit cards act as an opportunity for those without a credit history or those with
imperfect credit. Secured cards require a security deposit to be placed on the card. The credit limit on a secured credit
card is equal to the amount of the deposit made. Secured credit cards have rotating balances depending on the
purchases and payments made.
Prepaid Credit Cards: Prepaid credit cards require the cardholder to load money onto the card before the card can be
used. Purchases are withdrawn from the card's balance. The credit limit does not renew itself till more money is
loaded onto the card. Prepaid cards do not have finance charges or minimum payments since the balance is withdrawn
from the deposit. Prepaid cards are similar to debit cards, except the feature of checking account balance.
Business Credit Cards: Business credit cards are designed explicitly for business use. They offer business owners
with an easy method of keeping business and personal transactions separate. There are standard business credit and
charge cards available in the financial market.

27. Advantages Credit Cards
1. Easy Access to Credit: The first benefit that distinguishes credit cards is the ability to obtain credit quickly. When making a
purchase, you can use your credit card to make a quick and easy payment. The bank makes the payment on your behalf, and
you can pay the balance when your credit card bill arrives.
2. EMI Option: Credit cards are excellent for purchasing goods and services with a low monthly EMI. This alleviates the
burden of having to pay the money in one lump sum. Furthermore, EMI payments via credit cards may be more convenient
than obtaining a personal loan.
3. Record of Expenses: Every purchase made with a credit card is recorded. Each month, your credit card statement will
include a list of your purchases. This is especially useful for keeping track of your budget and expenses.
4. Exciting Offers and Cashbacks: Most banks offer credit cards with a variety of offers, cashbacks, and rewards. These
offers and rewards are available whenever you make an online or offline purchase. You can also get cheaper air tickets, train
tickets, hotel reservations, grocery shopping, and so on.
5. Protection of Purchase: Credit cards provide extra security in the form of insurance for card purchases that are lost,
damaged, or stolen. If you want to file a claim, you can use the credit card statement to back it up.
6. Improving Credit Score: Credit cards allow you to build up a credit line. This is critical because it allows banks to view an
active credit history based on your card repayments and card usage. Banks and financial institutions frequently use credit card
usage to assess a potential loan applicant’s creditworthiness, making your credit card important for future loan or rental
applications.

28. Disadvantages Credit Cards
1. Habit of Overspending: Although credit cards provide you with adequate credit for a long time, you must be prudent when spending the
money. Spending too much money on unnecessary purchases may lead to a severe debt trap in the future. So, determine your affordability and
avoid the habit of overspending.
2. High Rate of Interest: If you do not pay your credit card bill on time, the bank will charge you interest. The interest rates on these cards
are typically high, with a 3% average monthly rate. However, if the monthly rates are added together, the annual rate rises to 36%.
3. Deception: Your credit card can be susceptible to fraudulent transactions. Thieves or impostors can even steal the details from your credit
card and misuse it for carrying out unauthorized transactions. Your credit card details falling in the wrong hands can lead to serious financial
troubles.
4. Hidden Costs: Credit cards may appear easy and straightforward initially, but they comprise numerous hidden costs that can increase the
expense amount by a high margin. These extra charges can come in the form of late payment costs, renewal fees, processing fees etc.
Nevertheless, if you miss any payment, it can cause a penalty and diminish your credit history.
5. Restricted Drawings: Credit cards, unlike debit cards, do not offer as many benefits when it comes to cash withdrawals. This is due to the
fact that some credit cards charge an additional fee in addition to an annual interest rate of approximately 40%.
6. Minimum Due: The most significant disadvantage of a credit card is the minimum due amount displayed at the top of a bill statement.
Many credit card holders are misled into believing that the minimum amount is the total amount owed, when in fact it is the minimum
amount that the company expects you to pay in order to continue receiving credit facilities. As a result, customers assume their bill is low and
spend even more, accruing interest on their outstanding balance, which can quickly add up to a large and unmanageable sum.

29. Debit cards
Debit cards are modes of withdrawals and transactions whereby cardholders can withdraw money from
ATMs or perform online transactions. They perfectly substitute carrying physical cash or checks for
purchases.
Debit cards have purchase and withdrawal limits beyond which daily transaction is barred. Users can
access their debit cards with a PIN, and a small fixed charge might be levied on transactions from ATMs of
different issuers.

30. Advantages & Disadvantages Debit cards
Benefits of Debit Cards
1.Convenience: Debit cards directly deduct money from one’s bank account. Debit cards can easily substitute cash payments and
enable faster transactions.
2.Emergency Fund: Debit cards serve as emergency funds if there is a cash shortage. Plus, one can easily use his/her debit cards to get
reward points on transactions.
3.Protection: One can access debit cards with a four-digit PIN. Entering a PIN is essential for the completion of any transaction. This
ensures protection from theft or fraudulent activities. In case of loss, one can easily block the card and get a new one.
4.Easy to Obtain and Budget: Any nationalized or private bank operating under the RBI’s guidelines can issue a debit card to an
account holder. Since debit cards do not allow transacting more than what is available in his/her bank account, it is completely risk-
free.
Disadvantages of Debit Cards
1.No Credit Allowed: An inherent problem of debit cards is that they do not allow credits. They are directly connected to one’s bank
account, and transactions debit amounts from it.
2.Difficult to Dispute: Despite debit cards being fool-proof, it is difficult to detect and dispute illegal transactions. Any illegal access
to one’s debit card details can allegedly lead to illegitimate transactions without being detected.
3.Additional Fees: Most debit card issuers charge an additional fee for cash withdrawals from any other ATMs. In addition, there is a
small limit to free withdrawals beyond which users are liable to pay a fee.

31. Mutual funds
Mutual funds are financial intermediaries which mobilize savings from the people and invest them in a mix of
corporate and government securities. The mutual fund operators actively manage this portfolio of securities and earn
income through dividend, interest and capital gains. The incomes are eventually passed on to mutual fund
shareholders.
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks,
bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy
shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.

32. Advantages of Mutual Funds
1. Potential to Generate Higher Returns: Mutual funds, in general, offer higher returns than pure fixed-income options such as fixed
deposits and bonds. Investing in mutual funds could help investors generate inflation-beating returns.
2. Diversification: Mutual funds allow investors to diversify their portfolio by investing in a basket of stocks and securities. This helps in
spreading out risk and potentially reduces volatility in the portfolio.
3. Professional Management: Mutual funds are managed by professional fund managers who have the expertise and resources to conduct in-
depth research and make informed investment decisions.
4. Affordability: Mutual funds are accessible to a wide range of investors, as they can be purchased with relatively small amounts of money.
You can invest with just Rs.10 with fund houses like Navi Mutual Fund.
5. Tax Benefits: For ELSS (Equity-Linked Savings Scheme) investments, you can claim tax benefits up to Rs.1.5 lakh under Section 80C of
the income tax act.
6. Convenience: Mutual funds provide a convenient way for investors to save for long-term goals, such as retirement, as they can be set up to
automatically invest a set amount on a regular basis.
7. Liquidity Options: As an investor, you can easily liquidate or redeem units of open-ended mutual funds on any business day to fulfil your
financial requirements. After redemption, the amount will be directly credited to your bank account within 3-4 working days.
8. Suitable for Every Financial Goal: Each mutual fund scheme has a specific investment objective. This leaves you with a lot of
investment options based on your investment horizon, financial goals and risk appetite.

33. Disadvantages of Mutual Funds
Individuals must also keep in mind the limitations of mutual funds before proceeding with an investment.
1. High Cost of Managing Funds : Asset Management Companies (AMCs) charge an annual fee for effective portfolio
management. This is called the expense ratio and can vary across fund schemes. Mutual funds, particularly actively
managed ones, come with high expense ratios since they require the continuous efforts of a fund manager to be
profitable.
2. Fluctuating Returns: Although mutual funds have the potential to offer higher returns, they do not guarantee profits.
Investment units are subject to market risks, and their values keep changing depending on various factors.
3. Exit Load: Several fund houses charge an additional cost when investors sell units before a specific period. This is
called exit load, and it adds to the burden of investment costs.
4. Diversification and Dilution : It is true that diversification mitigates the risks present in a scheme, but over-
diversification can lead to dilution which is a disadvantage. For example, if a particular security in a scheme doubles in
value, the value of the overall fund would not improve as the security constitutes only a small part of it.
5. Dependence on Fund Manager:For actively managed funds, the performance of the fund is heavily dependent on
the skill of the fund manager. A fund manager with mediocre skills could be detrimental for investors.

34. e-wallet
An electronic wallet, sometimes called a “digital wallet” or “e-wallet,” is an electronic version of a payment card which
is authorized to conduct transactions on your behalf. These wallets are usually on a mobile device, such as a
smartphone, though desktops and laptops can hold an electronic as well.
Electronic wallets must be linked to specific debit or credit cards to operate properly. There may be a requirement to
link the e-wallet to a bank account as well. Then, through the use of information and software, consumers can use their
electronic wallet to pay for items instead of carrying a physical wallet to pay with a card.

35. Advantages of E-Wallets
Improved comfort: Having all the necessary cards and other important data in an app, there is no need for keeping dozens of cards and papers
inside of a wallet, purse or backpack as well as for wasting time searching for them. Everything you need is close at hand, easily managed, and
easy to use.
Time-saving: Such an app allows the queues in the stores to move faster since the payment is done in less than a minute. In case of online
shopping, the digital wallet saves time on entering the credit card details and identification because everything is already confirmed within the
app.
Better expenses tracking: The information about all the transactions you do is stored inside the app which allows you to analyze it after each
week or month in order to control the expenses better. If it is hard for you to stay in a budget, you can set up the limits for particular categories
of expenses that will prevent you from wasting too large sums of money.
Enhanced security: All the data you have in the app is encrypted and never sent to third-party organizations. So, the online market you shop at
will never know the details of your payment. Moreover, the transactions have to be confirmed by you (fingerprint, password) and the digital
card wallet is additionally protected by your device’s security system (Face ID, fingerprints, passwords). It means that if someone steals or finds
your smartphone, it would be hard to get access to your money (unlike in case of losing your wallet with all the cards and money).
Special rewards: Some of the digital wallet platforms provide users with additional bonuses and special offers in order to stimulate the
utilization of their app. It means you not only get a chance to pay for your purchases faster and simpler but also get pleasant perks.
Lower costs: This benefit refers mainly to companies like stores that hire people to complete sales and take the customers’ money. The growth
of the digital wallet market will possibly eliminate the need for cashiers at the checkouts saving companies a lot of money each month.

36. Disadvantages of E-Wallets
Time and money investments: In order to allow the customers to pay with digital wallets, the companies have to get special
hardware or software facilitating those operations. Those companies that want to develop their own digital wallet solution
need to find software engineers with relevant experience and spend money and time on the development.
Limited merchants: Due to the reasons we mentioned in the previous point, not all the merchants support digital wallets.
The adoption of digital wallets by consumers and businesses also depends on the popularity of particular applications: one
will likely be able to pay via Apple Pay than Chase Pay.
Dependency on a device: It is very convenient to have everything you need inside of a smartphone unless it gets out of
charge, breaks down or has problems with the network connection. If the device turns off right before the checkout, you
would better have a credit card or paper money in the pocket.
Reckless spendings: Even though digital money has been around for a while, some people still tend to spend more when
they cannot see and touch real money. It means that regardless of the ability to monitor and analyze their spendings within the
digital wallet application or in an online banking account, it might be challenging to control your budget.
Security: We have already mentioned security as a benefit of digital wallets but there are more things to consider. Since the
app’s security is supported by the devices, it is crucial to ensure your smartphone’s strong protection. Otherwise, it will not be
difficult to use your digital wallet account in case your smartphone is lost or stolen. Another significant moment here is to
pay attention to the digital wallet provider — it has to be trustworthy