FIMMDAI

The Fixed Income Money Market and Derivatives Association of India (FIMMDA), an
association of Scheduled Commercial Banks, Public Financial Institutions, Primary Dealers and
Insurance Companies was incorporated as a Company under section 25 of the Companies Act,
1956 on May 4th, 1998. FIMMDA is a voluntary market body for the bond, money and
derivatives markets.

FIMMDA has members representing all major institutional segments of the market. The
membership includes Nationalized Banks such as State Bank of India, its associate banks and
other nationalized banks; Private sector banks such as ICICI Bank, HDFC Bank, IDBI Bank;
Foreign Banks such as Bank of America, ABN Amro, Citibank, Financial institutions such as
IDFC, EXIM Bank, NABARD, Insurance Companies like Life Insurance Corporation of India
(LIC), ICICI Prudential Life Insurance Company and all Primary Dealers.

Criteria
FIMMDA membership is open to scheduled commercial banks, financial institutions, primary dealers and
insurance companies.

Membership Charges
The FIMMDA membership fee is Rs. 200000 /- annually with a onetime registration fee of Rs. 200000 /-
Membership Base

The 112 member strong representative body for the bond, money and derivatives markets in India
constitutes of:

1. Public Sector Banks (27 in number)

2. Private Banks (23 in number)
3. Foreign Banks (34 in number)
4. Primary Dealers (07 in number)
5. Financial Institutions (06 in number)
6. Insurance Companies (15 in number)

Role of FIMMDA

1. Functions as the principal interface with Regulators (like Reserve Bank of India, Securities
Exchange Board of India, Ministry of Finance - Government of India, International Monetary
Fund, World Bank)
2. Mandated by the Reserve Bank of India for valuation of Government Bonds, Corporate Bonds
and Securitized Papers for valuation of investment portfolios of Banks and Primary Dealers
3. Undertakes developmental activities such as introduction of benchmarks and new products (e.g.
Mumbai Inter-bank Offered Rate, Commercial Papers, Securitized Asset, Overnight Indexed
Swaps)
4. Suggests Legal and Regulatory framework for the development of new products
5. Training and Development Support to the Debt & Derivatives Market
6. Standardization of market practices
WHAT IS A 'FIXED-INCOME SECURITY'?

A fixed income security is an investment that provides a return in the form of fixed periodic
payments and the eventual return of principal at maturity. Unlike a variable-income security,
where payments change based on some underlying measure such as short-term interest rates, the
payments of a fixed-income security are known in advance.

BREAKING DOWN 'Fixed-Income Security'. As the name suggests, a fixed income security is a
debt instrument that generates fixed returns in the form of interest payments to investors. Firms
raise capital from issuing fixed income products to lenders who are compensated with interest
payments. The issuer promises to repay the principal on an agreed date in the future.

TYPES OF FIXED-INCOME SECURITIES - BONDS

The most common type of fixed income securities are bonds. A bond is an investment product
that is issued by corporate and governmental entities to raise capital to finance and expand their
operations and projects. The borrower, or issuer, promises to pay interest, called the coupon, on
an annual or semi-annual basis until a set date. The issuer returns the principal amount, also
called the face or par value, to the investor on the maturity date.

Bonds can be broken down into corporate bonds and government bonds. Corporate bonds are
issued by companies and can either be investment grade on non-investment grade bonds.
Investment grade bonds are issued by stable companies with a low risk of default and, therefore,
have lower interest rates than non-investment grade bonds. Non-investment grade bonds, also
known as junk bonds or high-yield bonds, have very low credit ratings due to a high probability
of the corporate issuer defaulting on its interest payments. For this reason, investors in high-yield
bonds typically require a higher rate of interest for taking on the higher risk posed by these debt
securities. Corporate bonds trade on major exchanges, and have $1,000 par values.

The municipal bond is an example of a government bond. Municipal bonds are issued by states,
cities, and counties to fund capital projects, such as building roads, schools, and hospitals. The
interest earned from these bonds are tax exempt from federal income tax. In addition, a muni
bond investor may also have his interest earned exempt from state and local taxes if he resides in
the state where the bond is issued. The muni bond has several maturity dates in which a portion
of the principal comes due on a separate date until the entire principal is repaid. Munis have par
values of $5,000 and trade over-the-counter.

Another type of government bond is the Treasury bond (T-bond) which has maturity dates of
more than 20 years. The interest payment and principal repayment of T-bonds are backed by the
full faith and credit of the US government which issues these bonds to fund its debts. Treasury
bonds typically have par values of $10,000, and are sold on auction on Treasury Direct.

Other types of fixed income securities include Treasury bills, Treasury notes, certificates of
deposit (CD), and preferred stock. The Treasury bills (T-bills) and Treasury notes (T-notes) are
similar to the T-bond in that they are sold by the US government. The T-bill is a short-term fixed
income security that matures within one year from issuance, and typically sells at a discount to
par. The Treasury notes have maturity dates of 10 years or less, and like Treasury bonds, can be
issued at a discount, at a premium, or at par.

A certificate of deposit (CD) is issued by a bank. In return for saving money with the bank for a
predetermined period of time which could range from a month to 5 years, the bank pays interest
to the account holder. CDs typically offer lower rates than bonds, but higher rates than traditional
savings accounts.

Preferred stocks are issued by companies, and provide investors with a fixed dividend, set as a
dollar amount or percentage of share value on a predetermined schedule. The price of preferred
shares is influenced by interest rates and inflation, and these shares have higher yields than most
bonds due to their longer duration.

PRIMARY DEALERS

Primary dealers are registered entities with the RBI who have the license to purchase and sell
government securities. They are entities who buys government securities directly from the RBI
(the RBI issues government securities on behalf of the government), aiming to resell them to
other buyers. In this way, the Primary Dealers create a market for government securities.

The Primary Dealers system in the government securities market was introduced by the RBI in
1995.

The PDs are thus created to promote transactions in government securities market. A facilitating
arrangement is essential for selling of government securities as government is the single largest
borrower in the market who borrows through the issue of its securities – treasury bills and bonds.

The RBI instructs PDs to have a minimum turnover ratio, bidding ratio, underwriting ratio,
secondary market participation etc. to ensure that they are active in supporting the trade in
government securities. PDs are active in the stock market also for enhancing the trading of
government securities.

Eligibility Conditions for PDs

a. Subsidiary of scheduled commercial bank/s and All India Financial Institutions

b. Subsidiaries/ joint ventures set up in India by entities incorporated abroad.

c. Company incorporated under the Companies Act, 1956 and does not fall under (a) or (b).

The applicant for PD should register as an NBFC for at least one year prior to the submission of
application. Other conditions like net owned fund etc. are mentioned by the RBI.
The decision to authorize PDs will be taken by RBI based on its perception of market needs,
suitability of the applicant and the likely value addition to the system. Some other functions
besides trading in government securities are also assigned to them.

Role and Functions of Primary Dealers

The role of Primary Dealers is to:

(I) commit participation as Principals in Government of India issues through bidding in auctions

(ii) Provide underwriting services

(iii) Offer firm buy - sell / bid ask quotes for T-Bills & dated securities

(v) Development of Secondary Debt Market

PDs are performing an exceptional role in giving marketability to government securities. the RBI
has elaborated the role of PDs in the following words “PDs are expected to play an active role in
the G-Sec market, both in its primary and secondary market segments through various
obligations like participating in Primary auction, market making in G-Sec, predominance of
investment in G-Sec, achieving minimum secondary market turnover ratio, maintaining efficient
internal control system for fair conduct of business etc. A PD is required to have a standing
arrangement with RBI based on the execution of an undertaking and the authorization letter
issued by RBI every three years. Undertaking will be based on passing of a fresh Board
resolution by the PD every three years.”

As on January 2015, there was 21 Primary Dealers in the country. Most of the PDs are started by
scheduled commercial banks and are registered as NBFCs. Operations of the PDs are subject to
prudential and regulatory guidelines issued by RBI from time to time.

INSURANCE COMPANIES IN INDIA

Insurance: in law and economics, is a form of risk management primarily used to hedge against
the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of
a loss, from one entity to another, in exchange for payment. An insurer is a company selling the
insurance; an insured or policyholder is the person or entity buying the insurance policy.
General Insurance: Insuring anything other than human life is called general insurance.
Examples are insuring property like house and belongings against fire and theft or vehicles
against accidental damage or theft. Injury due to accident or hospitalization for illness and
surgery can also be insured. Your liabilities to others arising out of the law can also be insured
and is compulsory in some cases like motor third party insurance.

Definition of Insurance
  Insurance is a cooperative form of distributing a certain risk over a group of persons who
are exposed to it. – Ghosh and Agarwal
 Insurance is a contract in which a sum of money is paid to the assured as consideration of
insurer’s incurring the risk of paying a large sum upon a given contingency. – Justice
Tindall
 Insurance may be described as a social device whereby a large group of individuals,
through a system of equitable contributions, may reduce or eliminate certain measurable
risks of economic loss common to all members of the group. – Encyclopedia Britannica
 Insurance is an instrument of distributing the loss of few among many. – Disnadle
 The collective bearing of risk is Insurance. – W. Beverideges
 A provision which a prudent man makes against fortuitous or inevitable contingencies,
loss or misfortune. – Thomas
 Insurance is a device for the transfer to an insurer of certain risks of economic loss that
would otherwise come by the insured. – Allen Z. Mayerson
 Insurance has been defined as a plan by which large numbers of people
associate themselves, to shoulders of all, risks attach to individuals. – Magee D.H.
 Insurance may be defined as a social device providing financial compensation for the
effects of misfortune, the payments being made from the accumulated contribution of all
parties participating in the scheme. – D.S. Hansell

Insurance in India
Insurance in India refers to the market for insurance in India which covers both the public and
private sector organizations. It is listed in the Constitution of India in the Seventh Schedule as a
Union List subject, meaning it can only be legislated by the Central government.
The insurance sector has gone through a number of phases by allowing private companies to
solicit insurance and also allowing foreign direct investment. India allowed private companies in
insurance sector in 2000, setting a limit on FDI to 26%, which was increased to 49% in 2014.
Since the privatization in 2001, the largest life-insurance company in India, Life Insurance
Corporation of India has seen its market share slowly slipping to private giants like HDFC Life
Insurance, Exide Life Insurance, ICICI Prudential Life Insurance and SBI Life Insurance
Company.
Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance
Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community.
The pre-independence era in India saw discrimination between the lives of foreigners (English)
and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life
Assurance Society became the first Indian insurer.
At the dawn of the twentieth century, many insurance companies were founded. In the year 1912,
the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the
insurance business. The Life Insurance Companies Act, 1912 made it necessary that the
premium-rate tables and periodical valuations of companies should be certified by an actuary.
However, the disparity still existed as discrimination between Indian and foreign companies. The
oldest existing insurance company in India is the National Insurance Company, which was
founded in 1906, and is still in business.
The Government of India issued an Ordinance on 19 January 1956 nationalizing the Life
Insurance sector and Life Insurance Corporation came into existence in the same year. The Life
Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident
societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business
(Nationalization) Act was passed by the Indian Parliament, and consequently, General Insurance
business was nationalized with effect from 1 January 1973. 107 insurers were amalgamated and
grouped into four companies, namely National Insurance Company Ltd., the New India
Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance
Company Ltd. The General Insurance Corporation of India was incorporated as a company in
1971 and it commence business on 1 January 1973.
The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private
sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance
Corporation of India, LIC) and General Insurers (General Insurance Corporation of India, GIC).
GIC had four subsidiary companies. With effect from December 2000, these subsidiaries have
been de-linked from the parent company and were set up as independent insurance companies:
Oriental Insurance Company Limited, New India Assurance Company Limited, National
Insurance Company Limited and United India Insurance Company.
Industry structure
By 2012 Indian Insurance is a US$72 billion industry. However, only two million people (0.2%
of the total population of 1 billion) are covered under Mediclaim. With more and more private
companies in the sector, this situation is expected to change. ECGC, ESIC and AIC provide
insurance services for niche markets. So, their scope is limited by legislation but enjoy some
special powers. The majority of Western Countries have state run medical systems so have less
need for medical insurance. In the UK, for example, the corporate cover of employees, when
added to the individual purchase of coverage gives approximately 11–12% of the population on
cover due largely to usage of the state financed National Health Service (NHS), whereas in
developed nations with a more limited state system, like USA, about 75% of the total population
are covered under some insurance scheme.
Insurance repository
On 16 September 2013, IRDA launched "insurance repository" services in India. It is a unique
concept and first to be introduced in India. This system enables policy holders to buy and keep
insurance policies in dematerialized or electronic form. Policy holders can hold all their
insurance policies in an electronic format in a single account called electronic insurance account
(eIA). Insurance Regulatory and Development Authority of India has issued licences to five
entities to act as Insurance Repository:
CDSL Insurance Repository Limited (CDSL IR), SHCIL Projects Limited Karvy Insurance
repository Limited NSDL Database Management Limited CAMS Repository Services Limited.
WHAT IS SECTION 25 COMPANY? (Section 8 Company; as per Company Act 2013)
A “Section 25” company is registered under Section 25 of the Companies Act, 2013. This
section provides an alternative to those who want to promote charity without creating a Trust or a
Society for the purpose. It allows the formation of a company, which will exist as a legal entity
in its own right, separate from the person promoting it. The crucial bit, however, is that any
company under this section must necessarily re-invest any and all income towards promoting the
said object or charity. In essence, unlike a regular company, where owners and shareholders can
make profits or receive dividends, no money gets out of a Section 25 company.
A Section 25 company is often preferred because it is easier to start — being exempt from
statutory requirements of minimum paid-up capital. They are much easier to run than Trusts and
Societies, as board meetings require a smaller quorum and requirements for calling such
meetings are less rigid. It is easier to increase the number of directors, it is easier for people
donating money to join or leave or transfer shares to others, and such a company is obliged to
fulfill far less stringent book-keeping and auditing requirements as against a regular company.
Lastly, a Section 25 company enjoys significant tax benefits. Depending on how it is registered
under the Income-Tax Act, companies could benefit from income-tax exemptions, or from the
provision wherein people donating money to these companies receive income deductions in their
income-tax liability. Such companies are also exempt from stamp duty payments. Section 25 is
preferred by several businessmen because they are conversant with the company structure, while
benefits from several exemptions make it easy for philanthropy.

A lot of entrepreneurs wish to run non-profit organizations to promote objects like charity,
religion, art, etc. Even though there are forms of organizations such as trust and societies for
these purposes, there is an option available to promote these objects through a company
registered under the Companies Act. These companies are known as Section 25 companies and
they enjoy a lot of privileges for the very reason that they promote these objects. The details of
Section 25 companies and the procedural formalities are given below:

According to section 25(1)(a) and (b) of the Indian Companies Act, 1956, a section-25 company
can be established ‘for promoting commerce, art, science, religion, charity or any other useful
object’, provided the profits, if any, or other income is applied for promoting only the objects of
the company and no dividend is paid to its members.

Legislation: Section-25 companies are registered under section-25 of the Indian Companies Act.
1956.

Main Instrument: For a section-25 company, the main instrument is a Memorandum and
articles of association (no stamp paper required)

Trustees: A section-25 Company needs a minimum of three trustees; there is no upper limit to
the number of trustees. The Board of Management is in the form of a Board of directors or
managing committee.