1. Prescribed Investment Pattern

As per the pattern prescribed by the Government of India, Ministry of Finance, the Corpus of the

Trust is required to be invested in Securities. The Trust usually invests in Government of India

Securities, State Government Securities, PSU’s Securities and Private Securities. There are

certain guidelines provided by the Government of India which defines the limits of investment in

each category. The current pattern of investment is as under:

A. Government of India Securities : - 25%

B. State Government and Government Guaranteed Securities : - 15%

C. PSU’s, Financial Institutions and Banks : - 30%

D. In any of the above three (Including 10% in Private Sector) : - 30%

A. Government of India Securities

Government of India Securities are those securities which are issued by the Central Government

and whose interest and the maturity amount are directly payable by the Reserve Bank of India.

Whenever the Central Government needs funding, it has the power to issue new securities. These

securities can be purchased in the primary as well as secondary market. These securities are

considered as riskless. Moreover, these securities also provide a reasonable return to the security

holder. Thus, Government of India Securities are considered as one of the best options for

investment.

The Government of India securities can be directly purchased in the primary market through

auctions/sales. Moreover, these securities can also be purchased in the secondary market.

Considering their riskless nature, one might think to invest all the money in these securities only

but the rate of interest needed to be given on Provident Fund is higher than the rate of return of

these securities and that is why the Trust invests in other options as well in order to increase its

returns.

B. State Government and Government Guaranteed Securities

State Government Securities are those securities which are issued by the State Government and

are also known as State Development Loans (SDLs). These securities are managed by the

Reserve Bank of India. These securities are issued by State whenever it needs funding for

development. As far as risk is considered, these securities are also riskless as these are

guaranteed by the Reserve Bank of India i.e. if State Government does not have enough money

to make repayments than in that case RBI has the power to make repayments out of the funds

allocated by the Central Government.

The State Government Securities can be purchased in the primary market through auction like

the Government Securities. Also, these can be purchased in the secondary market.

The coupon rates on Sate Government securities are slightly higher than those of Government

Securities which shows that the risk in investing in State Government is higher than that of the

Central Government.

C. PSU’s Securities

PSU’s Securities are medium or long term securities issued by Public Sector Undertakings. The

liability to make repayments i.e. interest and maturity are on the company itself. Although, some

of these securities are guaranteed by the Central Government while some are guaranteed by the

State Government.

These securities can be purchased in primary as well as secondary market.

Usually, PSU Securities are rated by some credit rating agencies in order to attract investors.

These securities are riskier than Central and State Government Securities thus these securities

offer high coupon rates. Thus, in order to achieve higher returns, the Trust usually invests a huge

amount in these PSU’s.

D. Private Sector Securities

Private Sector Securities are medium or long term securities issued by Private Sector Companies.

The proceeds of these securities are used by the company itself for its growth and expansion.

These securities are neither guaranteed by the Central Government nor by the State Government.

Thus, the liability to make repayments in the form of interest and maturity is solely of the

company.

These securities can be purchased in primary as well as secondary market.

These securities are much riskier and thus are not considered to be safe for investment. But

owing to their high rates of return, the Trust still invests sum of its amount in these securities in

order to achieve the overall required rate of return.

Now, considering the guidelines of the Government, 70% of the investments are strictly fixed

and needs to be invested in Central Government Securities (25%), State Government Securities

(15%) and PSU’s Securities (30%). The Trust has no control over this. But, 30% of the

remaining investments are free and the Trust has full control over that amount. The Trust can

invest this 30% in any of the above mentioned securities as well as Private Securities.

Considering the above mentioned securities, if the Trust wants to minimize the risk on its

investment then the preference should be given to Government of India Securities but if it does

so the returns would not be as high. This may result in shortage of payments to employees on

account of interest on Provident Fund.

On the other hand if the Trust wants to maximize its returns on its investment than it needs to

invest in Private Securities but in this case the risk involved would be very high which means

that the chances of default would be quite high. Under such a case, there would be chances that

the Trust may not get all its repayments on securities. Thus in this case also, the Trust would

suffer from losses.

Thus it becomes the responsibility of FCI CPF Trust to make a perfect balance between risk and

returns i.e. the Trust should select the securities while keeping in mind both the risk as well as

returns associated with it. The risk should be minimized such that the Trust gets ensured

repayments. Also, the returns should be enough so that the Trust meets its obligations of paying

interest on Provident Fund.

The monthly breakup of investment of FCI CPF Trust in various categories for the year 2011-12

is as under:

(Figures in Rs. Crores)

 Month/

Category GOI State PSU Private

         

April 20.00 10.31 60.00 0.00

May 25.00 10.12 44.70 0.00

June 15.34 20.00 40.00 0.00

July 10.00 10.00 30.00 0.00

August 10.00 0.00 15.00 5.00

September 0.00 0.00 0.00 0.00

October 25.00 14.43 58.00 5.00

November 25.00 26.00 18.00 0.00

December 0.00 14.00 27.00 0.00

January 36.00 0.00 89.00 0.00

February 0.00 0.00 0.00 0.00

March 0.00 0.00 0.00 0.00

         

Total 166.34 104.86 381.70 10.00

 %age Achieved 25.09 15.82 57.58 1.51

Prescribed %age 25-55 15-45 30-60 0-10

From the above figures it becomes clear that in case of Government and State Securities, the

Trust only maintains the required percentage. Also, the Trust doesn’t prefer to invest in Private

Securities but in case of PSU’s Securities, the Trust invests the maximum amount it can invest in

this category.

The Trust invests this extra 30% amount in PSU’s because these securities gives higher returns

as compared to Government and State Securities but are not as risky as the Private Securities. In

this way, the Trust without increasing the amount of risk too much maintains good returns on

their investment.

April

May

June Ju

ly

Augus

t

Septem

ber

Octobe

r

Novem

ber

Decem

ber

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ary

Febru

ary

Marc

h0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

GOIPSUStatePrivate

From the above graph, it becomes clear that the investment in PSU’s securities is much higher as

compared to the investments in other securities. Also, the investment in Private securities is

approximately nil.

From the data, it becomes very clear that the preference of the Trust is to invest in PSU’s

securities.

2. Market for Investment

Investments by the Trust are made almost every month. These investments can be made in any of

the markets i.e. Primary Market as well as Secondary Market.

1. Primary Market

A Primary Market is that market which deals with the sale and purchase of new securities. When

a company issues new securities, it can be directly purchased from the company in the primary

market. The proceeds of the investments in securities are used by the company for its own

expansion. When the State Government issues new securities known as State Development

Loans, the proceeds of investments are used for the development of the State. Investments in the

primary market are made through:

A. Arrangers of the Securities

FCI CPF Trust has formed a panel of arrangers for the purpose of making investment of surplus

fund of the Trust. The Trust contacts these arrangers at the time of investment. The arrangers

provide quotations to the Trust for investment. The Trust, at the time of making investment,

contacts only those arrangers who are in the “Empanelment of Arrangers.” Those who wish to be

a part of empanelment of arrangers of the trust can apply to become an arranger for the Trust.

The list of arrangers includes Almondz Global Securities, Brics Securities Limited, Centrum

Capital Limited, etc.

B. Participation in the auction held by RBI

Whenever the Central government needs money, than instead of printing additional money the

Reserve Bank of India announces the auction of Government of India Securities. The Trust can

directly participate in the auctions to purchase Government Securities. Generally, there are two

types of auctions conducted by RBI i.e. Yield Based and Price Based.

Yield Based

In this type of auction, the RBI announces the total size and the tenure of the securities to be

auctioned. Bids are then invited in terms of yield i.e. the return on which an investor is ready to

purchase the security. If the bid is more than the cut-off yield, the bid is rejected otherwise it is

accepted.

Price Based

In this type of auction, the RBI announces the total size, tenure as well as the coupon rate of the

securities to be auctioned. Bids are then invited in terms of price i.e. the price at which the

investor is ready to purchase the security. If the bid is lower than the cut-off price, the bid is

rejected otherwise it is accepted.

2. Secondary Market:

A Secondary Market is that market which deals with the sale and purchase of old securities. In a

secondary market, securities are traded between investors rather than the corporation and an

investor. The market at present is very volatile and due to constantly changing market rates,

secondary market plays a very important role in trading securities. Investments in the Secondary

Market are made by purchasing securities from:

A. Primary Dealers

A Primary Dealer is one which directly buys securities from the Government and then sells these

securities in the market. This system was introduced by the RBI in 1995 in order to promote the

trading of Government Securities in the secondary market. Primary Dealers also do trading of

Government Securities by underwriting i.e. these dealers sell the securities on behalf of the

Government in the secondary market for some share.

Some of the primary dealers with which the Trust deal are ICICI Securities Primary Dealership

Limited, SBI DFHI (Discount and Finance House of India), etc.

B. Satellite Dealers

A Satellite Dealer just like a Primary Dealer deals with the sale and purchase of Government

Securities. But the satellite dealers unlike primary dealers do not solely deals in Government

Securities. The satellite dealers were formed to promote the trading of Government Securities at

the retail level. The satellite dealers by working in co-ordination with the primary dealers form

the second tier of trading in Government Securities.

Some of the satellite dealers at present are Tower Capital, Birla Global Finance, Dil Vikas

Finance and SREI International Securities.

C. Merchant Bankers

Merchant Bankers are those institutions which mostly deal in underwriting for companies. When

a company needs to issue securities, it approaches a merchant banker. The merchant banker co-

ordinates with the company and announces the issuance of the required amount of securities on

behalf of the company. The merchant bankers then finalize all the deals of the securities and in

turn get commission.

Some of the merchant bankers with which the Trust deals are A. K. Capital Services Limited,

ICICI Bank Limited, Axis Bank Limited, etc.

D. SEBI Registered Brokers

A SEBI registered broker is one whose name is registered with SEBI in the list of registered

brokers. A broker fills the gap between the investor and the corporation issuing securities. A

broker may also conduct a deal of security between two investors.

Some of the brokers registered with SEBI with which the Trust deals are Kotak Mahindra Bank

Limited, ICICI bank Limited, Axis bank Limited, etc.

3. Guidelines for Investment

Apart from the guidelines and pattern prescribed by the Government of India, Ministry of

Finance, the FCI CPF Trust follows certain other guidelines of its own for investments as well.

These guidelines are approved by the Board of Trustees and are continuously reviewed and

changed by them according to the prevailing market scenario. The original guidelines were

approved in the meeting held on 3rd September, 2002 and later in the meeting held on 12 th July,

2011. According to these guidelines, the investment decision broadly considers:

1. Pattern of Investment

The FCI CPF Trust follows the pattern of investment as prescribed by Ministry of Labour for

“Employee’s Provident Fund Organization” (EPFO). As stated earlier as well, the Trust invests

in Government of India Securities, State Government Securities, PSU’s Securities and Private

Securities with certain conditions and guidelines. The Trust cannot invest beyond the prescribed

percentage in any of the security.

The category-wise investment of FCI CPF Trust as on 31.03.2012 is as under:

(Figures in Rs. Crores)

  Total Investment %age Achieved Prescribed %age

GOI 1,879.73 33.72 25-55

State 807.29 14.48 15-45

PSU 2,780.07 49.87 30-60

Private 107.00 1.92 0-10

From the above table, it becomes clear that the Trust strictly follows the investment pattern and

regularly maintains the prescribed percentage level of investment.

2. Required Inflow/Outflow of Fund

The quantum of investment is decided based on the availability of surplus fund on the date of

investment. The major source of fund is the contributions receivables from FCI every month.

Apart from this, the proceeds of interest and maturities also get added to the total funds.

The monthly breakup of inflow of FCI CPF Trust for the year 2011-12 is as under:

(Figures in Rs. Crores)

  Bank Contributi

on Expect

edExpect

edAdju

st. Total

 Balan

ce from FCIInteres

tMaturi

ty   Fund

April 17.41 59.40 30.40 0.20 -16.38 91.03

May 3.17 66.25 7.12 9.00 7.53 93.07

June 1.97 45.50 5.83 10.57 28.93 92.80

July 0.59 50.00 12.00 0.00 6.41 69.00

August 0.39 50.50 22.55 2.10 11.28 86.82

Septemb

er - - - - - -

October 27.89 56.00 6.94 14.20 -0.03 105.00

Novemb

er 0.98 58.00 4.44 0.00 13.58 77.00

Decemb

er 1.00 58.00 4.24 0.00 -0.24 63.00

January 0.26 50.00 140.90 0.00 -0.31 190.85

Februar

y 0.26 50.00 11.70 0.00 0.00 61.96

March 1.58 60.00 6.70 2.75 0.91 71.94

The above table shows the monthly total funds available with the Trust for the period 2011-12.

From this, the expected liabilities are deducted and the surplus fund becomes available for

investment.

April

May

June Ju

ly

Augus

t

Septem

ber

Octobe

r

Novem

ber

Decem

ber

Janu

ary

Febru

ary

Marc

h0.00

50.00

100.00

150.00

200.00

250.00

Total Fund

From the above graph, we can see that the total monthly funds of the Trust ranges between Rs.

70-90 Crores.

The remaining amount after the deduction of liabilities becomes the surplus fund. The

investment committee then decides whether to invest that surplus fund or not.

3. Yield

The Trust invests in the securities having highest Yield to Maturity (YTM) in respective category

on monthly basis on the basis of quotations received. YTM is the expected rate of return from a

security assuming that the security would be held till maturity and all the repayments would be

made on time. The YTM calculates the return on the market value of the security and also takes

into account the compounding effect.

Thus, YTM is an efficient method of finding the exact returns from a security and is highly

considered by the Trust while making investment.

4. Tenure

The tenure/tenor of the security means the total time left for maturity of the security. At maturity,

the holder of the security gets the entire face value of the security back. As the Trust has

liabilities of paying temporary, part final payments and final payments towards Provident Fund

which requires huge amount, so the Trust while investing carefully observes the maturity date, so

that it regularly receives the maturity amount in order to pay off its liabilities.

In Government of India Securities, the Trust do not invest in 2040 paper. In PSU’s no investment

is made in a paper having tenure of less than five years.

5. Security Guarantee

While investing in a security, a guarantor is needed. A guarantor has the liability to make

repayments in case the issuer of security fails to do so.

The papers which are guaranteed by Central Government/State Government are preferred by the

Trust for investment.

6. Credit Rating

A credit rating tells about the ability of the issuers of the security to pay-off all its liabilities. The

credit rating is given by credit rating agencies. The credit rating agencies analyses the position of

the issuer of security and accordingly assigns them credit ratings. Credit ratings are helpful for

investors as from these credit ratings they can find out the risk involved in investing in the

securities.

Some of the credit rating agencies in India are FITCH Ratings India Private Limited, CRISIL

Limited, etc. The credit rating agencies assigns grades to various corporations. The various

grades with their implications are given below:

Grade Implications

AAA This rating is given to the best issuers and thus the issuers are considered as

completely riskless.

AA This rating is given to issuers whose financial conditions are closely similar to

those of the best issuers. Thus, these issuers are also considered to be very

safe for investment. .

A This rating is given to those issuers whose financial condition is generally

normal but a change in economic conditions may affect the timely

repayments. An investment with these issuers is advisable. Risk is very less.

BBB This rating is given to those issuers who involves a negligible risk under

normal conditions but are very much likely to affect with the change in

economic conditions. An investment with these issuers has a little risk.

BB This rating is given to those issuers whose financial conditions are just

sufficient to repay its debt but is more likely to affect under changes in

economic conditions. An investment can be made with these issuers but

certain risk occurs.

B This rating is given to those issuers who can pay off its debt at the moment

but still depends upon the economic conditions. An investment should be

avoided with these issuers.

C This rating is given to those issuers who solely depend upon favorable

economic conditions to re-pay its debt. Investments are very risky with these

issuers.

D This rating is given to those issuers who are in default at present. Investments

are not advisable with these issuers.

Between every two grades, “+” and “-” signs may be assigned to show a relative status between

the respective categories.

In PSU category, investment is made on a paper having rating of A(-) and above. In Private

category, investment is made in a paper having rating of ‘AA’ and above from atleast two rating

agencies. Rating is considered at the time of investment.

7. Exposure

Apart from the overall limits on investment in each category, there are some other limits

associated with each security. There are some upper limits set for each type of security beyond

which, the Trust cannot invest in that particular security. This limit is mainly for PSU’s

according to their guarantor. The exposure is more in the securities guaranteed by the Central

Government while the exposure is less in the securities guaranteed by the State Government.

In Central Government PSU’s, investment is made upto Rs. 150 Crores. In State PSU’s

investment is made upto Rs. 80 Crores.

8. Track Record

When making fresh investments in a corporation whose securities are also previously held by the

Trust, the corporation’s track record and repayment/payment of interest on due date is monitored

and is taken into account. The Trust does not prefer to invest in those corporations who do not

pay interest on time.

The Trust makes fresh investments only in those corporations from whom they have received

repayments on time.

9. Financial health of Issuer/ Guarantor

When investing in a corporation, the Trust sees to it that there is minimum risk of default. The

Trust wants to be sure of repayments of interest and maturities. For this, the Trust carefully

observes the financial health of both the issuer of the security as well as the guarantor of the

security. The Trust invests in a corporation only when it thinks that the issuer/guarantor will be

able to repay its debt.

The Trust do not make investment in a loss making company.

10. Availability of Put/ Call Option

At present, there are so many securities which come with call/put option. The yield of such

securities is not calculated in the same way as the yield is calculated for normal securities. So, a

careful analysis of such securities is needed to be done by the Trust before investing.

Call Option

A buyer of the call option gets the right to purchase the security at a certain price on a fixed date.

The decision to take call option depends upon the buyer of the call option. But if the buyer

decides to take the call option, then the seller of the call option must sell the security.

The investors usually buy call option when they think that the price of the security will rise in

future and thus by utilizing the call option they will be able to buy the security at a price lower

than the market price.

Put Option

A buyer of the put option gets the right to sell the security at a certain price on a fixed date. The

decision to take put option depends upon the buyer of this option. If the buyer of the option

decides to take the call option, then the seller of this option must buy back the security.

The investors usually buy put option when they think that the price of the security will depreciate

in future and thus by utilizing the put option they will be able to sell the security at a price higher

than the market price.

In case of put/call option, yield is calculated upto the date of put/call option and that yield is

considered for comparing with other options at the time of investment.

11. Media/Market Report

Any information available through media/market about the market conditions is also considered

for investment. The media may provide some important information which affects the

investment decision.

The Employee’s Provident Fund Organization (EPFO) has recently issued directions to all the PF

Trust to follow the Securities & Exchange Board of India (SEBI) Guidelines which states that:

1. All transactions in Corporate Bonds must be reported on authorized platform of Bombay

Stock Exchange (BSE)/ National Stock Exchange (NSE)/ Fixed Income Money Market &

Derivative Associations of India (FIMMDA).

2. Settlement of trade must be done through “National Securities Clearing Corporation Limited”

(NSCCL) or “Indian Clearing Corporation Limited” (ICCL).

Accordingly, all the transactions by the FCI CPF Trust in corporate bonds are being cleared and

settled through NSCCL since April 2010 onwards which is automatically reported to FIMMDA

by NSCCL. All transactions of Government Securities and State Development Loan (SDL) are

dealt through Negotiable Deal Settlement (NDS) of Reserve bank of India.

Fixed Income Money Market & Derivative Associations of India

The FIMMDA was formed as a regulating body for the derivatives market of India. The

FIMMDA forms the standardize guidelines for investors, settles any dispute between various

members, and works for the smooth functioning of this market.

National Securities Clearing Corporation Limited

The NSCCL was incorporated to carry the clearing and settlement of trades in securities. The

main aim of NSCCL is to bring confidence among the investors in the trading of securities. The

function of NSCCL is to clear and settle all the transactions made in securities.

The Government through these corporations monitors the working of derivative market of India

and makes changes in the guidelines for investors according to the market conditions.

4. Investment Proposal

Normally, investments are made during the first week of the month when monthly contributions

from FCI are received by the Trust. The monthly contribution from FCI usually ranges between

45-55 Crores. Apart from this amount, there are interest and maturity proceeds as well which the

Trust invests. Additional process of investment during the month is also taken up as and when

reasonable amount becomes available for investment on account of other receipts.

A statement is made during the last week of every month giving the details of the surplus fund

available for investment in the next month. The monthly statement includes the following

elements:

1. Bank Balance

The monthly statement indicates the bank balance of the Trust as on the date of investment

proposal.

2. Contributions receivables from FCI

The statement also tells the monthly contributions which would be receivable by the Trust from

FCI on account of Provident Fund.

3. Expected Interest & Maturity

An expected amount of interest and maturities receivable are calculated by the Trust from the

date of investment proposal upto the date of investment.

4. Liabilities

All the expected liabilities on account of retirement, temporary advances, etc. are calculated by

the Trust and are written in the statement.

5. Surplus Fund

All the expected liabilities are deducted from the total fund and the remaining surplus fund

becomes available for investment by the Trust.

The format of the monthly statement of surplus fund is shown below.

Position of surplus fund for investment for the month of August, 2011 is as under:-

Bank Balance as on 27th July, 2011:-

Axis Bank : - xx.xx Cr

IDBI Bank : - xx.xx Cr

Total (A) : - 00.39 Cr

Contribution receivable from FCI, Headquarters for the Month of July, 2011

: - 50.50 Cr

Expected Interest receivable between 28th July, 2011 to 06th August, 2011

: - 22.55 Cr

Maturity receivable up to 06th August, 2011 : - 02.10 Cr

Total (B) : - 75.15 Cr

Liabilities to be paid towards FCI, Headquarters

Approved : - xx.xx Cr

Unapproved : - xx.xx Cr

Total (C) : - 56.82 Cr

Surplus fund available for investment for the Month of August, 2011

(A) + (B) - (C) : - 18.72 Cr

At the end of every month, the statement shown above is made and is sent to the higher officials.

Based on the total surplus fund, a decision whether to invest or not is taken.

5. Investment Decision

The monthly investment of the Trust ranges between Rs 50-80 Crores. The investment

sometimes is even more. Securities in the primary market in the ratio fixed by the Finance

Ministry are not always available requiring the Trust to seek help from market players already

mentioned. The investment decision is taken through a step by step process stated as under:

1. Once the investment proposal reaches the members of the investment committee, they take a

decision, on the basis of available surplus fund, whether to invest this fund or keep it safe for

some other purposes.

2. Once the investment committee decides to invest the surplus fund, a date, usually in the first

week of the month, is fixed for investment.

3. The trust then informs all the members in the empanelment of arrangers about the investment

decision via telephone or e-mail and quotations are asked from them.

4. On the fixed date, the Investment Committee consisting of Manager, AGM, GM and CGM

analyses all the received quotations keeping in mind the guidelines to be followed by the Trust.

Usually, the investment decision is taken on account of “Yield to Maturity” (YTM).

5. The recommendations by the Investment Committee are then send to the High Level

Committee consisting of ED (F) and ED (P). Final investment decision lies in the hand of High

Level Committee.

6. The High Level Committee finalizes the securities in which investment is to be made. Based

on the availability of that security on the investment date, investment is done.

7. If the desired security is unavailable on the investment date, a decision to purchase the security

with next highest yield may be taken.

The breakup of the surplus fund available and the investment made during each month by FCI

CPF Trust for the year 2011-12 is as under:

(Figures in Rs. Crores)

  Total Fund

Liabilit

y Surplus Fund

Investmen

t

Reserve

s

April 91.03 0.00 91.03 90.31 0.72

May 93.07 9.07 84.00 79.82 4.18

June 92.80 15.30 77.50 75.34 2.16

July 69.00 19.00 50.00 50.00 0.00

August 86.82 56.82 30.00 30.00 0.00

Septembe

r - - - - -

October 105.00 0.00 105.00 102.43 2.57

November 77.00 8.00 69.00 69.00 0.00

December 63.00 12.00 51.00 41.00 10.00

January 190.85 65.85 125.00 125.00 0.00

February 61.96 61.53 0.43 0.00 0.43

March 71.94 63.68 8.26 0.00 8.26

From the above table it is clear that the FCI CPF Trust makes investment almost every month.

However, in the month of February, no investment was made as there was not sufficient fund and

in the next month also no investment was made as there as a little surplus fund and that too was

used to clear the pending liabilities of the previous month. In the month of September, the

investment proposal was not made and thus the surplus fund during that month was not

calculated.

It can also be seen from the table that the Trust invest almost all the money in hand. In many

cases, the bank balance of the trust reached zero after investment which simply means that the

Trust calculates its expected liabilities accurately and doesn’t like to keep reserves after that.

The graph below shows the percentage distribution of the total funds in the form of investments

and liabilities.

April

May

June Ju

ly

Augus

t

Septem

ber

Octobe

r

Novem

ber

Decem

ber

Janu

ary

Febru

ary

Marc

h0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

99.2

1%

85.7

6%

81.1

9%

72.4

6%

34.5

5%

97.5

5%

89.6

1%

65.0

8%

65.5

0%

9.75

%

16.4

9%

27.5

4%

65.4

5%

10.3

9%

19.0

5%

34.5

0%

99.3

1%

88.5

2%

InvestmentLiability

From the graph it is clear that during the month of February and March, the liabilities were so

high that the Trust was not able to make nay investments during these months. But during other

months, liabilities took only a small portion of the total funds and the rest was invested.

From the table and the graph, we can observe that the Trust invests almost all the money in hand.

It doesn’t keep too much of reserves.

This is indeed a good policy as keeping reserves will not provide any returns to the Trust and

thus the money kept in reserves will be a waste. So, we can say that the Trust has choosen the

right option to invest all of its money.

6. Mode of Transactions

There are a large number of players in the market from which the Trust can buy securities. But in

order to prevent delays in investment decisions, the Trust only approaches a handful of players.

Apart from this, the market is very volatile. The securities offered today may not stand tomorrow

and thus on the spot decisions is the need of the hour. Once the decision is taken to purchase a

security, the final payment is needed to be paid immediately otherwise the deal might also get

cancelled. In order to make quick payments and online transfer of money, the Trust has opened

two types of accounts, i.e. CSGL Account for Central Government and State Government

Securities and Demat Account for Non-Government and PSU Securities.

A. Demat Account

A Demat account means an account in dematerialized form. With a demat account, securities can

be transferred online without any paperwork. The deal is considered to be final once the

transaction is completed. No physical possession of the security is required. This account

provides a fast and cheaper means of transactions to the Trust.

B. CSGL Account

CSGL Account stands for “Constituent’s Subsidiary General Ledger Account”. CSGL account

enables the Trust to hold Government Securities in dematerialized form which can be easily

converted to physical mode whenever required. The Trust receives periodical statement showing

the balance of securities in its account. This reduces the burden on the Trust to keep track of its

securities with the Government of India. Moreover, by opening this account, the Trust has made

itself eligible to participate in the auctions of Government Securities by RBI.

The trust is allowed to open a number of Demat and CSGL account as per their need. The

number of such accounts depends on the various facilities provided by the Merchant

Banker/Primary Dealer.

RTGS (Real Time Gross Settlement)

The trust also makes and receives payments through RTGS. With the RTGS system, the

transactions can be done in real time i.e. the transactions are immediately done once they are

processed. Also, through RTGS, transactions are taken on an individual basis rather than in

batches. This fast mean of transaction helps in avoiding losses due to delay in payments and

receipts.

Advantages

1. The Government and other securities are maintained in a dematerialized form through these

accounts which is an easy and convenient mode.

2. With the help of CSGL account, the Trust can participate in the auctions of Government

Securities thus enabling them to make direct dealings with RBI.

3. The Trust receives a periodical statement of its holding in the demat account from the bank.

This makes it easy for the Trust to keep a track on its current position of holdings of securities.

4. Moreover, the repayments of interests and maturities are also directly transferred to the Trust’s

demat account thus minimizing delays in payments.

5. These accounts provide a fast means of payment thus preventing any loss such as cancellation

of a deal, loss of interest due to delay in payments.

6. These accounts are cheaper to maintain as these accounts eliminates the need of physical

ownership by the Trust reducing the paper work needed.

7. With the physical possession of securities, there is a risk associated. This risk is eliminated

with the holding of securities in demat form.