Basics of Financial Markets Non-Resident Indians (NRIs) Fixed Maturity Plans (FMPs)
Basics of Financial Markets

What is Investment?
The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.

Why should one invest?
One needs to invest to: One of the important reasons why one needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future as it does now or did in the past. For example, if there was a 6% inflation rate for the next 20 years, a Rs. 100 purchase today would cost Rs. 321 in 20 years. This is why it is important to consider inflation as a factor in any long-term investment strategy. Remember to look at an investment’s ‘real’ rate of return, which is the return after inflation. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value.

When to start Investing?
The sooner one starts investing the better. By investing early you allow your investments more time to grow, whereby the concept of compounding (as we shall see later) increases your income, by a cumulating the principal and the interest or dividend earned on it, year after year. The three golden rules for all investors are:
What care should one take while investing?
Before making any investment, one must ensure to:
1. Obtain written documents explaining the investment.
2. Read and understand such documents.
3. Verify the legitimacy of the investment.
4. Find out the costs and benefits associated with the investment.
5. Assess the risk-return profile of the investment.
6. Know the liquidity and safety aspects of the investment.
7. Ascertain if it is appropriate for your specific goals.
8. Compare these details with other investment opportunities available.
9. Examine if it fits in with other investments you are considering or you have already made.
10. Deal only through an authorised intermediary.
11. Seek all clarifications about the intermediary and the investment.
12. Explore the options available to you if something were to go wrong, and then, if satisfied, make the investment.
These are called the Twelve Important Steps to Investing.

What are various options available for investment?
One may invest in:
What are various Short-term financial options available for investment?
Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with banks may be considered as short-term financial investment options:
What are various Long-term financial options available for investment?
Post Office Savings Schemes, Public Provident Fund, Company Fixed Deposits, Bonds and Debentures, Mutual Funds etc.
What is an ‘Equity’/Share?
Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is 11 said to have 20,00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.

What is a ‘Debt Instrument’?
Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector.
Non-Resident Indians (NRIS)

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Who is an NRI?
Any person holding Indian passport who has left India for an indefinite period for the following purposes: For tax purposes 182 days period is a cut off mark. Students going abroad for education is also considered an NRI.

Who is PIO?
A citizen of a foreign country (other than a citizen of Bangladesh or Pakistan) is a PIO if:
What are the products offered to NRI/PIO by OPTIMUS

What are the different types of rupee accounts that are permitted and can be maintained by NRIs?
The three types of rupee accounts permitted, that can be maintained by NRIs are as follows: Note : With effect from 01/04/2002, both NRSR and NRNR deposit schemes have been discontinued.

What are NRE and NRO accounts?

What is PIS?

Can an NRI have investments under PIS on repatriation and non-repatriation basis?

In case a resident Indian becomes a non-resident, will he / she be required to change the status of his / her holding from Resident to Non-Resident?

Does an NRI, PIO, FII requires any approval from the RBI to invest in mutual fund schemes?

What types of transactions are allowed under NRE / NRO Savings Account?

What are the provisions for corporate benefits for investment on repatriation and non-repatriation basis?

How will the redemption proceeds be paid?

What is the tax liability on redemptions?

What is the tax liability for income received from your mutual funds?

Is the indexation benefit available to NRIs?

Can a Power of Attorney (POA) invest on behalf of the NRI investor?

Is nomination by NRIs allowed in Mutual Funds?

Can a resident Indian have an NRI as nominee?
Fixed Maturity Plans (FMPS)

When does the term of an FMP start, from the date of purchase or the date of closing of NFO?
The term of an FMP starts from the date of allotment which can differ from the closing date of NFO. The allotment process is usually completed within 5 days of closure of NFO and the units are credited to investors' accounts.

How do I redeem after maturity?
You do not need to file a redemption request with the fund house at maturity of the scheme. AMCs are bound to transfer redemption proceeds within 10 days from the date of maturity. The amount you get will be determined by the scheme NAV on the redemption date. This amount will be automatically credited to your registered bank account if direct credit option is available with your bank or else redemption warrants will be issued to you.

Do I need a demat account for redemption of FMP?
You don't need a demat account to get the redemption proceeds. However, you need one if you want to trade the FMP on exchange before maturity.

How are FMPs different from short term funds?
Liquidity is the biggest differentiating factor between the two funds. While FMPs are closed-end, short-term funds are open-ended, meaning you can enter or exit short-term funds any time. FMPs invest in instruments with same or lower maturity than the scheme. This means that regardless of change in interest rates, the returns that would be realised are known. Short-term funds, through, can invest in instruments with varying maturity, depending on the fund manager's outlook for interest rates. So if a short-term fund has invested in bonds with longer maturity it can suffer interest rate risk.

I want to invest in current FMPs through secondary market. How do I go about this?
All FMPs have to be compulsorily listed on exchange. If you are able to find a seller for the FMP you want to invest in, you can buy units of the scheme from the stock market like you buy an equity share. As explained earlier, it is highly unlikely that you will find sellers and therefore low liquidity.