Legal Money

Money that has a legal sanction by the government behind it is called legal tender or legal tender money.

Legal tender or legal money means money under the law of land. It is the money issued by monetary authority or government which cannot be refused by any person in payment for transactions. The tender or payment of it constitutes by law the sufficient discharge of debt.

The government issues an order stating what money is and that becomes legal tender money. Everybody is bound to accept it in exchange for goods and services and in discharge of debts. None can refuse to accept it because non-acceptance is an offence. For example, in India currency (notes) and coins are legal tender money which cannot be refused in payment of transactions.

In this context, chequable demand deposit is not money because a person can legally refuse to accept payment through cheques. Legal tender status given by the government to money is of two types—limited legal tender and unlimited legal tender.

Employee Stock Option Plan(ESOP)

Definition: An Employee Stock Option Plan (ESOP) is a benefit plan for employees which makes them owners of stocks in the company. ESOPs have several features which make them unique compared to other employee benefit plans. Most companies, both at home and abroad, are utilising this scheme as an essential tool to reward and retain their employees. Currently, this form of restructuring is most prevalent in IT companies where manpower is the main asset.

Description: Abroad, ESOP (where the 'O' often stands for ownership) is seen when employees buy over the stock of an owner or promoter who is relinquishing charge. In India, ESOP is used largely to motivate employees to put in their best and in turn, help the company enjoy lower employee turnover and retain its talent pool. These two uses probably account for over two-thirds of all ESOPs now in existence, and their numbers are expected to increase with time.

Interestingly, many companies abroad use ESOPs as a technique of corporate finance for a variety of purposes -- to finance expansion, to make an acquisition, to spin off a division, to take a company private, and so on. This has yet to catch on in India, perhaps because the scale of ESOP so far is too small for many of these uses.

So far as the future of ESOPs in India is concerned, as more and more companies realise the need to retain their best talent in a world which would be dominated by companies with the best intellectual capital, this management technique would be the phenomenon of the new century.

TAXES

I. DIRECT TAXES :-
These types of taxes are directly imposed & paid to Government of India. There has been a steady rise in the net Direct Tax collections in India over the years, which is healthy signal. Direct taxes, which are imposed by the Government of India, are:
(1) Income Tax :-
Income tax, this tax is mostly known to everyone. Every individual whose total income exceeds taxable limit has to pay income tax based on prevailing rates applicable time to time.
(2) Capital Gains Tax :-
Capital Gain tax as name suggests it is tax on gain in capital. If you sale property, shares, bonds & precious material etc. and earn profit on it within predefined time frame you are supposed to pay capital gain tax. The capital gain is the difference between the money received from selling the asset and the price paid for it.
(3) Securities Transaction Tax :-
A lot of people do not declare their profit and avoid paying capital gain tax, as government can only tax those profits, which have been declared by people. To fight with this situation Government has introduced STT (Securities Transaction Tax ) which is applicable on every transaction done at stock exchange. That means if you buy or sell equity shares, derivative instruments, equity oriented Mutual Funds this tax is applicable.
(4) Perquisite Tax :-
Earlier to Perquisite Tax we had tax called FBT (Fringe Benefit Tax) which was abolished in 2009, this tax is on benefit given by employer to employee. E.g If your company provides you non-monetary benefits like car with driver, club membership, ESOP etc. All this benefit is taxable under perquisite Tax.
(5) Corporate Tax :-
Corporate Taxes are annual taxes payable on the income of a corporate operating in India. For the purpose of taxation companies in India are broadly classified into domestic companies and foreign companies.
II. INDIRECT TAXES :-
(6) Sales Tax :-
Sales tax charged on the sales of movable goods. Sale tax on Inter State sale is charged by Union Government, while sales tax on intra-State sale (sale within State) (now termed as VAT) is charged by State Government.
(7) Service Tax :-
Most of the paid services you take you have to pay service tax on those services. This tax is called service tax. Over the past few years, service tax been expanded to cover new services.
(8) Value Added Tax :-
The Sales Tax is the most important source of revenue of the state governments; every state has their respective Sales Tax Act. The tax rates are also different for respective states.
(9) Custom duty & Octroi (On Goods) :-
Custom Duty is a type of indirect tax charged on goods imported into India. One has to pay this duty , on goods that are imported from a foreign country into India. This duty is often payable at the port of entry (like the airport). This duty rate varies based on nature of items.
(10) Excise Duty :-
An excise or excise duty is a type of tax charged on goods produced within the country. This is opposite to custom duty which is charged on bringing goods from outside of country. Another name of this tax is CENVAT (Central Value Added Tax).
(11) Anti Dumping Duty :-
Dumping is said to occur when the goods are exported by a country to another country at a price lower than its normal value. This is an unfair trade practice which can have a distortive effect on international trade. In order to rectify this situation Central Govt. imposes an anti dumping duty not exceeding the margin of dumping in relation to such goods.
III. OTHER TAXES :-
(12) Professional Tax :-
If you are earning professional you need to pay professional tax. Professional tax is imposed by respective Municipal Corporations. Most of the States in India charge this tax.
(13) Dividend distribution Tax :-
Dividend distribution tax is the tax imposed by the Indian Government on companies according to the dividend paid to a company’s investors. Dividend amount to investor is tax free. At present dividend distribution tax is 15%.
(14) Municipal Tax :-
Municipal Corporation in every city imposed tax in terms of property tax. Owner of every property has to pay this tax. This tax rate varies in every city.
(15) Entertainment Tax :-
Tax is also applicable on Entertainment; this tax is imposed by state government on every financial transaction that is related to entertainment such as movie tickets, major commercial shows exhibition, broadcasting service, DTH service and cable service.
(16) Stamp Duty, Registration Fees, Transfer Tax :- If you decide to purchase property than in addition to cost paid to seller. You must consider additional cost to transfer that property on your name.
(17) Education Cess , Surcharge :-
Education cess is deducted and used for Education of poor people in INDIA. All taxes in India are subject to an education cess, which is 3% of the total tax payable. The education cess is mainly applicable on Income tax, excise duty and service tax.
(18) Gift Tax :-
If you receive gift from someone it is clubbed with your income and you need to pay tax on it. This tax is called as gift tax.
(19) Wealth Tax :-
Wealth tax is a direct tax, which is charged on the net wealth of the assessee. Wealth tax is chargeable in respect of Net wealth corresponding to Valuation date.Net wealth means all assets less loans taken to acquire those assets. Wealth tax is 1% on net wealth exceeding 30 Lakhs (Rs 3,000,000). So if you have more money, assets you are liable to pay tax.
(20) Toll Tax :-
At some of places you need to pay tax in order to use infrastructure (road, bridge etc.) build from your money given to government as Tax. This tax is called as toll tax. This tax amount is very small amount but, to be paid for maintenance work and good up keepingBack

Credit Rating Agencies in India

A credit rating agency is a company which rates the debtors on the basis of their ability to pay back the debt in timely manner. They rate large scale borrowers, whether companies or governments.
There are three big credit rating agencies in the world which areStandard and Poor’s (S&P), Moody’s and Fitch Ratings.

There are mainly 4 credit rating agencies in India which are

Credit Rating and Information Services of India Limited (CRISIL)

• It is India’s first credit rating agency which was incorporated and promoted by the erstwhile ICICI Ltd, along with UTI and other financial institutions in 1987.
• After 1 year, i.e. in 1988 it commenced its operations.
• It has its head office in Mumbai.
• It is India’s foremost provider of ratings, data and research, analytics and solutions, with a strong track record of growth and innovation.
• It delivers independent opinions and efficient solutions.
• CRISIL’s businesses operate from 8 countries including USA, Argentina, Poland, UK, India, China, Hong Kong and Singapore.
• CRISIL’s majority shareholder is Standard & Poor’s.
• It also works with governments and policy-makers in India and other emerging markets in the infrastructure domain.

Investment Information and Credit rating agency (ICRA)

• The second credit rating agency incorporated in India was ICRA in 1991.
• It was set up by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.
• It is a public limited company.
• It has its head office in New Delhi.
• ICRA’s majority shareholder is Moody’s.

Credit Analysis & Research Ltd. (CARE)

• The next credit rating agency to be set up was CARE in 1993.
• It is the second-largest credit rating agency in India.
• It has its head office in Mumbai.
• CARE Ratings is one of the 5 partners of an international rating agency called ARC Ratings.

ONICRA

• It is a private sector agency set up by Onida Finance.
• It has its head office in Gurgaon.
• It provides ratings, risk assessment and analytical solutions to Individuals, MSMEs and Corporates.
• It is one of only 7 agencies licensed by NSIC (National Small Industries Corporation) to rate SMEs.
• They have Pan India Presence with offices over 125 locations.

Apart from these credit rating agencies, there are three more credit rating agencies which are also registered with SEBI. These are Fitch Ratings India Private Ltd., Brickwork Ratings India Private Limited, SME Rating Agency of India Ltd. (SMERA).

Note:

• Out of four credit rating agencies, CRISIL, ICRA, CARE and ONICRA, ONICRA is a private sector agency, all others are public sector companies.
• There are 6 credit rating agencies which are registered with SEBI. These are CRISIL, ICRA, CARE, Fitch India, Brickwork Ratings, and SMERA.

Credit Rating Agencies in India

A credit rating agency is a company which rates the debtors on the basis of their ability to pay back the debt in timely manner. They rate large scale borrowers, whether companies or governments.
There are three big credit rating agencies in the world which areStandard and Poor’s (S&P), Moody’s and Fitch Ratings.

There are mainly 4 credit rating agencies in India which are

Credit Rating and Information Services of India Limited (CRISIL)

• It is India’s first credit rating agency which was incorporated and promoted by the erstwhile ICICI Ltd, along with UTI and other financial institutions in 1987.
• After 1 year, i.e. in 1988 it commenced its operations.
• It has its head office in Mumbai.
• It is India’s foremost provider of ratings, data and research, analytics and solutions, with a strong track record of growth and innovation.
• It delivers independent opinions and efficient solutions.
• CRISIL’s businesses operate from 8 countries including USA, Argentina, Poland, UK, India, China, Hong Kong and Singapore.
• CRISIL’s majority shareholder is Standard & Poor’s.
• It also works with governments and policy-makers in India and other emerging markets in the infrastructure domain.

Investment Information and Credit rating agency (ICRA)

• The second credit rating agency incorporated in India was ICRA in 1991.
• It was set up by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.
• It is a public limited company.
• It has its head office in New Delhi.
• ICRA’s majority shareholder is Moody’s.

Credit Analysis & Research Ltd. (CARE)

• The next credit rating agency to be set up was CARE in 1993.
• It is the second-largest credit rating agency in India.
• It has its head office in Mumbai.
• CARE Ratings is one of the 5 partners of an international rating agency called ARC Ratings.

ONICRA

• It is a private sector agency set up by Onida Finance.
• It has its head office in Gurgaon.
• It provides ratings, risk assessment and analytical solutions to Individuals, MSMEs and Corporates.
• It is one of only 7 agencies licensed by NSIC (National Small Industries Corporation) to rate SMEs.
• They have Pan India Presence with offices over 125 locations.

Apart from these credit rating agencies, there are three more credit rating agencies which are also registered with SEBI. These are Fitch Ratings India Private Ltd., Brickwork Ratings India Private Limited, SME Rating Agency of India Ltd. (SMERA).

Note:

• Out of four credit rating agencies, CRISIL, ICRA, CARE and ONICRA, ONICRA is a private sector agency, all others are public sector companies.
• There are 6 credit rating agencies which are registered with SEBI. These are CRISIL, ICRA, CARE, Fitch India, Brickwork Ratings, and SMERA.

INDIAN FINANCIAL MARKET

Financial Market plays a very important role in development of any country because it is place where liquidity requirement who needs money like industries to meet their expansion plans and those who want to earn better rate of interest on the surplus funds are met .Individuals and financial institution having surplus money come to earn better rate of interest Financial market is a platform where buyers and sellers are involved in sale and purchase of financial products like shares, mutual funds, certificate of deposit ,bonds and so on. 

Any industry like reliance ,tatas or government needs money to meet liquidity requirement come to financial market .Financial market act as intermediary between those who need money and who want to invest their money to earn better rate of interest.

Financial market are divided in two types depends on duration for which they need money. 

There are two types of financial market : 

1. Money Market 
2. Capital Market

Money Market

It is one part of financial market where instruments like securities ,bonds having short term maturities usually less than one year are traded  is know as Money market .Organization or Financial institutions having short term money requirement less than one year to meet immediate needs like buying inventories, raw material ,paying loans come to Money Market. It involves lending and borrowing of short term funds. Money market instruments like treasury bills, certificate of deposit and bills of exchange are traded their having maturity less than one year .Investment in money market is safe but it gives low rate of return.

Money Market is regulated by R.B.I in India  and instrument having maturity less than one year usually traded in money markets

Major Players in Money Market:-

1. RBI 
2. Central Government 
3. State Governments 
4. Banks 
5. Financial Institutions 
6. Micro Finance Institutions 
7. Foreign Institutional Investors (FII) 
8. Mutual Funds

Money Market Instruments

1. Treasury Bills

2. Commercial Papers

3. Certificate of Deposit

4. Bankers Acceptance

5. Repurchase Agreement

1. Treasury Bills

Treasury Bills are also know as T-Bills. This is one of safest instrument to invest .T-bills are issued by RBI  backed by government security. RBI issue treasury bills on the behalf of central government to meet the short term liquidity needs of central government bills are issued at a discount to face value, on maturity face value is paid to holder.

At present , the Government of India issues three types of treasury bills through auctions, for 91-day, 182-day and 364-day. Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000.

Treasury bills are also issued under the Market Stabilization Scheme (MSS).In this if RBI want to absorb excess liquidity it can issue T-bills .

2. Commercial Papers (CP)

Commercial papers are issue by private organizations or financial institutions having strong credit rating to meet short term liquidity requirements. These are unsecured instruments as these are not backed by any security. The return on commercial papers is usually higher than T-bills. Different rating agencies ,rate the commercial paper before issue by any organization .If commercial paper carrying good rating means it is safe to invest and carrying lower risk of default .

All corporate are not eligible to issue CP, only who met certain defined criteria by RBI are eligible to issue CP.

CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue and can be issued not less than 5 lakhs and multiples thereafter.

3. Certificate Of Deposit

Certificate of Deposit (CD) is a money market instrument. CDs can be issued by  scheduled commercial banks and  select All-India Financial Institutions (FIs) that have been permitted by RBI to raise short-term resources. Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit that could be accepted from a single subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter. The maturity period of CDs issued by banks should not be less than 7 days and not more than one year, from the date of issue. CDs may be issued at a discount on face value.

In this a person invest his money  in COD  and after the end of maturity period he receives money along with interest.

4. Bankers Acceptance

Bankers Acceptance is also a money market instrument to meet short term liquidity requirement .In this company provides bank guarantee to seller to pay amount of good purchased at agreed future date . In case buyer failed to pay on agreed date , seller can invoke bank guarantee . It is usually used to finance export and import.

5. Repurchase Agreement

Repurchase agreement is also know as Repo .It is money market instrument .In this one party sell his asset usually government securities  to other party and agreed to buy this asset on future agreed date . The seller pays an interest rate, called the repo rate, when buying back the securities. This is like a short term loan given by buyer of security to seller of security to meet immediate financial needs.

Major Players in Money Market:-

1.S.E.B.I

2.Central and State Government

3.Financial Institutions like L.I.C.

4.Financial intermediaries like stock brokers

5.Individuals

6.Corporate houses

7.Insurance companies

Capital Market

 Capital market is also very important part of Indian financial system .This segment of financial market meant to meet long term financial needs usually more than one year or more .Companies like manufacturing , infrastructure power generation and governments which need funds for longer duration period  raise money from capital market. Individuals and financial institutions who have surplus fund and want to earn higher rate of interest usually invest in capital market .

S.E.B.I. regulate the capital market in India .It set the transparent mechanism rules and regulations for investors and borrowers .It task is to protect the interest of investors and promote the growth of capital market.

 Capital market can be primary market and secondary market . In primary market new securities are issued where as in secondary market already issue securities are traded.

Capital market  is divided into two

1.Equity

2.Bond

Capital Market Instruments

1. Shares

2. Debentures

3. Bonds

Equities

Equity market generally know as stock .In this company want to raise money issue shares  in share market like B.S.E.or N.S.E.to individual or financial institutions who want to invest their surplus money

Shares can be issued in two ways:

If company issuing share for first time that it is know as I.P.O.(Initial Public Offering ).IPO  of any company issued in primary market and if company issuing shares for second or third time than it is know as FPO(Follow on Public Offering ) and trading of already issued shares take place in secondary market.

Share gives ownership right to individuals who subscribe to it ,in this way company has to dilute his ownership right Same way public sector undertakings dilute up to 49 percent of their ownership and keep remaining 51 percent with them so that they have majority control.

A person earns from shares is company make profit which is distributed among share holders  know as dividend and if company make loss value of share also falls so shares are high risk instruments

Bond or Debt

Bond market is also know as Debt market. A debt instrument is used by government or organization to generate funds for longer duration. The relation between person who invest in debt instrument is of lender and borrower .This gives no ownership right .A person receives fixed rate of interest on debt instrument.

If any company or organization want to raise money for long term purpose without diluting his ownership that it is know as Debentures. These are backed by security so there is no risk involves but return on these instrument is low as compared to shares .Company pay fixed rate of interest on debentures.

If government want to generate funds to meet long term needs like infrastructure it issue bonds know as sovereign bonds which are backed by government security so there is no risk