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Is “Gift Gujarat” Going To Be India’s New Best Friend?

To grease the wheels in the global economic marathon, strategies such as GIFT Gujarat has been brought into existence. It is said to be developing into a platform to showcase India’s competitiveness at a global altitude transforming it into a financial zone. GIFT City is the first IFSC (International Financial Services Centre) of its kind in India. What is GIFT Gujarat? `GIFT (Gujarat International Finance Tec-City) is a government plan aiming to provide a high-quality infrastructure to attain a fin-tec developed region, for which it has acquired a land of 359 hectares. This particular land is situated between Ahmedabad and Gandhinagar located in Gujarat. The government of Gujarat is working towards the hitch with an estimated cost of 1300 billion INR for the entire project. The area under construction includes plans of incorporating world-class infrastructure like telecoms, broadband, roads, buildings, district cooling etc. The Government of Gujarat has partnered with Infrastructure Leasing (IL) and Financial Services (FS) as a 50-50 joint venture with Ajay Pandey as the MD and CEO, to develop the central business district as a India’s first Global Financial Hub, giving effect to the financial and technological firms to relocate their operations in Gujarat. “GIFT GUJARAT” A MASTER PLAN: The plan was laid out by our Prime minister Narendra Modi, to build best infrastructures to attract FDI inflows and motivate people to set up offices. The proposed plan is said to boost the economy with employment opportunities on a large scale aiming to generate one million jobs by 2025 in the financial as well as technology sectors. An IFSC is favoured with certain tax benefits and an institution for rapid resolution of disputes. The City is in line and deals with the Reserve Bank of India, Insurance Regulatory and Development Authority (IRDA), Securities Exchange Board Of India (SEBI) and a few other financial institutions. SEBI is envisaged to strengthen commodity derivatives tradings limited to non-agricultural commodities and predominantly entice additional foreign portfolio investments. SEBI has stated to settle cash in foreign currency only on determined price on the overseas exchanges.Currency, commodities and equity segments conforming with the SEBI rules are anticipated to get listed on the new exchanges paving way for the introduction of new products. Is It a Real Gift? Gift City Gujarat progress : An IFSC is favoured with certain tax benefits where infrastructure is said to be deficient or exorbitant. GIFT has been successful in creating more than 8,000 jobs and is anticipated to leap +50% yearly aiming at one million jobs including 500,000 direct employment. Bank of Baroda with more than 1500 employees is the largest employer in this business region. It is expected to make use of 62 million square feet of space for its operational purposes. The smart city is intended to be a centre for setting prices on trading instruments like currencies, commodities etc globally. There are about 11 important domestic banks like HDFC, SBI, KOTAK MAHINDRA etc that have already started operations in this region. Their financial transactions have estimated to crossed 8 billion dollars. The GFCI report lists top 15 centers which are predicted to be remarkable in the upcoming years. GIFT has positioned in the tenth place in the latest edition of Emerging Global Financial Centres (GFCI). The business area is planned to be composed of special economic zone (SEZ), grand hotels, integrated townships, sophisticated educational zone, technology parks, stock exchanges and other advanced institutions. Two 29-floor commercial towers are already constructed leading the way for further upgrowth. There are about 100 capital market players and eight insurance companies who have commenced their base in GIFT. On the grounds of reduced taxes for SEZ’s, overseas currency loans are easily accessible to the abroad Indian companies and other foreign entities. The IRDAI has issued regulations permitting to set up offices in IFSC GIFT for Indian as well as offshore insurers which were restricted earlier, with a bonus of exemption from GST for export of services. The trading will be done for 16 hours and is made adjustable depending on the market demand, covering Singapore market and closing with London. DRAWBACKS OF GIFT: After the implementations are being made, education has not been streamlined and is getting expensive especially for engineering and medical fields. The land is just 12 kms away from Ahmedabad airport, which imposes a few restrictions on the height of the buildings and structures around this area to keep the flight’s path clear. There has also been deliberation on structuring and renewing design of development to fill in the gap of new requirements and the plans. Short-term capital gains taxes on transactions are to be removed to compete with international exchanges operating in IFSCs like Singapore and Dubai. This is because firms without a physical setup in the city making investments in securities, have to pay capital gain taxes. Although there were several discussions on starting an IFSC in Mumbai, currently it is a formidable thought for India. China is the only nation with two international finance centres which were developed with a span of eight years. In a short duration of two years, it has caught the eye of the investors and set to unwind the potential of the country. If the plan is executed in an effective manner and is uninterrupted, it could be cast as a base for syndication of loans for foreign currency and other global activities.
Is “Gift Gujarat” Going To Be India’s New Best Friend?
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Is “Gift Gujarat” Going To Be India’s New Best Friend? 388 Is “Gift Gujarat” Going To Be India’s New Best Friend? Blog
Kranthi Tilak Reddy Jan 24, 2018
To grease the wheels in the global economic marathon, strategies such as GIFT Gujarat has been brought into existence. It is said to be developing into a platform to showcase India’s competitiveness at a global altitude transforming it into a f...
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An Overview of Foreign Direct Investments

We all are aware how indispensable Foreign Direct Investments (FDI) are to boost economic growth on a large scale. Moreover, the foreign capital flowing into any country is also one of the powerful sources for economic development of India as this money is used to establish tangible assets in company. Meaning of FDI: Foreign direct investment is a broad term where an investor from a different country invests money in a business of another country to take economic advantage of expansion, wages, cheap skill set etc. This can be done either by setting up a business with an infrastructure for operations or by the way of purchasing business assets in other countries by the Multinational Corporations (MNCs). FDI example: SAIC Motor Corporation is planning to enter India’s automobile market and begin operations in 2019 by setting up a fully-owned car manufacturing facility in India. Types of Foreign Direct investments: Horizontal FDI is where entities carrying on similar activities combine. Vertical FDI is where companies performing different types and stages of manufacturing combine to produce the final product. Conglomerate FDI is the most different one where investments are made in unrelated business, it is challenging as it involves working in a new industry and fresh markets. What are the advantages of FDI? There are a plethora of advantages that a growing economy like India can derive from FDIs. Few of the predominant benefits of FDI are listed here. Source of capital: They act as a source of external capital to the Indian companies, especially growing startups which in turn is beneficial in deriving more revenue. Employment opportunities: Once the infrastructure is set up, the business requires local labour, equipment etc leading to the creation of new jobs. Tax generation: Activities in the factory are exposed to taxes which generate income to the government. The return can be used to build roads, educational institutions and for other domestic economic activities. Globally exposed: Indian domestic companies are accessed to foreign markets and are globally recognised. Technology transfer: Best in practices with economic concepts and technological know-how of the host country as it involves establishing and functioning of a firm. What are the disadvantages of FDI? Like any other investment, FDI also has its own disadvantages. Some of them are discussed below: Profits of small domestic business and supply chains might get affected adversely. Huge MNCs try to monopolise and take over highly profitable companies. Might slightly affect the exchange rates of the currency. Extensive use of precious resources leading to decreased use for domestic purposes. What are Greenfield and Brownfield Investments in FDI? MNCs investing in abroad companies are often referred to as Greenfield investments and when these entities are involved in other acquisitions and merge with foreign firms, they are also known as Brownfield investments. Both of these investments are helpful in driving financial and economic development indirectly. Greenfield investments are said to have a relatively higher impact on a country’s economy as it aids in capital accumulation. Whereas, Brownfield investments positively contribute to the transfer of knowledge and influence technology.   
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An Overview of Foreign Direct Investments

An Overview of Foreign Direct Investments

Kranthi Tilak Reddy
We all are aware how indispensable Foreign Direct Investments (FDI) are to boost economic growth on a large scale. Moreover, the foreign capital flowing into any country is also one of the powerful so...
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Overseas Direct Investments

Introduction: Overseas market gives opportunities to Indian entities to expand and diversify their business abroad by making full utilization of the capacity through an “overseas direct investment” . To put it in simple words, it is an investment done outside India. In recent times, India is making a positive approach towards this pre-eminent step that has seized the global marketplace. Meaning of Overseas Direct Investment: When an organisation invests money abroad by starting a business or either capitalising them, it is known as “Overseas Direct Investments”. This business strategy creates branding for an entity as well as helps the Indian entrepreneurs to get global exposure. Overseas Direct Investments can include making investments in Joint Ventures or a Wholly Owned Subsidiary abroad, purchase of shares or private placement in foreign entities etc, but portfolio investments are not included here. Eg: The third largest software service company in India, Wipro will be acquiring US-based cloud services firm Appirio by spending US$ 500 million. Governing body: The Reserve Bank of India is the governing body of the Overseas Direct Investment activities. They draw up the guidelines and look if such investments are in compliance with them. Through the Master Circulars from RBI along with FEMA Act.co the cross-border transactions are regulated and are amended from time to time. http://www.rbi.org.in/scripts/Fema.aspx.   The two different ways an Indian party can involve in ODI  are Automatic route and Approval route: Automatic route: If the Indian parties are exposed to Automatic route while involving in overseas direct investments, they  do not necessarily require any prior approval from the Reserve Bank of India. An Indian party making overseas direct investments whether in a joint venture (JV) or a wholly owned subsidiary (WOS)  needs to approach an Authorised Dealer Category-1 bank with application Form ODI and with other documents for remittances in terms of A.P. (DIR Series) Circular No.62 dated April 13, 2016. After a particular Unique Identification Number is provided instantaneously, subsequent investments can be made in the same JV and WOS. Approval route: Under the Approval route, if the Indian party proposal does not cover the conditions under the “automatic route”, then it requires a prior approval from the Reserve Bank of India. This requires an Authorized Dealer Category-1 bank to submit a specific application in Form ODI along with other prescribed documents. Currency restrictions: To make investments in Pakistan, it is permissible only under the approval route. Any investments in Bhutan are permitted to be made in Indian rupees and in convertible currencies, but in Nepal, it can be done only in Indian Rupees. Advantages of ODI: This development has inclined benefits towards drawing better technological know-how to Indian companies. It provides a platform to expand business opportunities across the globe. This facility allows the Indian companies to get direct access to more demanding and extensive markets. Domestic companies can achieve a widespread customer base in the global arena. Recent developments in ODI: Considering the above advantages, the Indian government is rigorously making efforts to combine the domestic economy with the global economy. In accordance with the RBI reports, Indian overseas direct investments in equity, loan and guaranteed issue in the month of Aug 2017 rose up to US$ 1.33 billion as against US$ 1.76 billion in July 2017.  Lately, the UK reported that India stood at the third place as a source of foreign investments for them.   From April 1, 2017, to June 30, 2017, the highest Overseas Direct Investments by India was made in the United States of America, Singapore and Mauritius with 1,341 USD millions (34%), 657 USD millions (17%) and 554 USD millions (14%) respectively. Also, refer RBI master circulars for more information: https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=8100 For other information get in touch with www.savedesk.co
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Overseas Direct Investments

Overseas Direct Investments

Kranthi Tilak Reddy
Introduction: Overseas market gives opportunities to Indian entities to expand and diversify their business abroad by making full utilization of the capacity through an “overseas direct inves...
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Significance Of Libor (London Interbank Offered Rate)

History of Libor: Rooted from the early 1980s, LIBOR has an active part in the modern financial markets. In 1986, Libor was officially launched by the “British Bankers”, with top three currencies - dollar, yen and the pound sterling.  Before the takeover by IBA (ICE Benchmark Administration) it was known as BBA libor until Feb 1, 2014. SIGNIFICANCE OF LIBOR: The libor rates have a vast spread significance and as it is not just limited to London or Europe. They have more than sixty nations as volunteered members possessing an international scope. This is primarily due to the lowest borrowing rates presented  among all the other financial institutions. The FOREX market is probably unthinkable without libor and its implications in global currency trade. Also familiar as ICE libor or benchmark rate offered by the London interbank, it is predominantly used in Forex markets to serve the purpose of calculating interest rates on various loans across the world. WHAT IS LIBOR? “LIBOR” or Intercontinental Exchange London Inter bank Offered Rate is a reference benchmark rate charged by the banks for short-term debt instruments which includes government and corporate bonds, derivatives such as currency and interest swaps etc.The rates offered are considered as the base price by banks to calculate interest rates. Libor is used as base price+marginal interest cost that help companies to hedge interest rates exposures. HOW DOES LIBOR FUNCTION? It is structured to work in a way where a group of major banks is asked to quote the rate at which they could borrow funds from other banks before 11:00 AM each morning (Greenwich Mean Time). About 35 libor rates are posted each business day and the lowest interest rates are compiled for loans with 7 different maturities for 5 major currencies. Libor can range from overnight to twelve months, but the most quoted is the 3 month USD rate. Basically, libor is calculated on a method called “trimmed arithmetic mean” wherein the extreme values are included.This can be expressed as “LIBOR+X bps”, wherein bps stands for ‘basis point’ and ‘X’ is the premium charged over and above the libor rate by the lender to the borrower. The publication of benchmark such as libor is beneficial for the bank customers to judge whether a loan rate is competitive in the market. Libor is not prefixed but is based on a questionnaire where selective banks estimate the borrowing rates. LIBOR decides rates on five major currencies  1)CHF(Swiss Franc)   2)EUR(Euro)   3)GBP(Pound Sterling)   4)JPY (Japanese Yen)   5)USD(US Dollar). Most of the credit agencies, banks and other financial institutions all over the world look up to libor rates to set up their own interest rates. Presently, there are contracts worth more than trillions of dollars which are spread across different maturities to benchmark libor. Other rates are fixed on top of libor. Though it has encountered a number of controversies, its daily borrowing rates continue to be at the top to calculate base for interest rates.
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Significance Of Libor (London Interbank Offered Rate)

Significance Of Libor (London Interbank Offered Rate)

Kranthi Tilak Reddy
History of Libor: Rooted from the early 1980s, LIBOR has an active part in the modern financial markets. In 1986, Libor was officially launched by the “British Bankers”, with top three ...
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Export Credit : Fundamentals, Risks Involved And Ways To Mitigate Them

Companies that uphold exporting have to be skillful with their approach as they embrace huge risks. These companies have to follow the requirements and have to be committed to their export operations. If you are intending to extend your export credit, here is a watch over on how export credit agencies work, risks covered by exporters and ways to mitigate them. EXPORT CREDIT AGENCIES: Export credit agencies (ECA) can be referred as intermediaries mediating between a nation’s government and the exporters. There are about 85 export credit agencies approximately around the world. ECAs comprise of financial institutions supporting international export activities by funding domiciliary companies. These agencies are also known as investment insurance agencies, could be private or quasi-governmental institutions. ECAs promote international trade in the form of crediting insurance and guarantee arrangements or both, often referred as “pure cover” which depends on the directions provided to ECA. Shifting risks by the virtue of premiums from the corporations, they tend to encourage foreign trade by promoting investments in areas where corporations fail. These agencies often involve in a few risks that are sustained by the supporting country’s government. Large risks, other than any normal transactions, will be inspected by a committee of government or authorised officials. ECA adopts three methods to funds- Direct funding- This is the basic structure where the loan is customized for the purchase of goods and services in the arranging country. Financial intermediary- This involves a financial intermediary that lends to the importing entity. Interest rate Equalization- A commercial money monger grants loans less than the market rates. Later, he is secured with the difference amount between the market rate and the commercial rate. Export credit agencies limit their risks by not funding to risky countries. In case of non-compliance with the provisions described in the policy, claims on the losses of uncovered portions may be refused. “By using ECAs, exporters can sell on more liberal terms than cash in advance policies, and  still have a high degree of certainty that they will get paid.” -World’s Export Credit Agencies”,written by- William A. Delphos provides this insight, RISKS INVOLVED IN EXPORT BUSINESS AND WAYS TO MITIGATE THEM: The most common risk of all is the payment risk. This can occur when the customer dodges payments for operational reasons. The best way to secure this risk is by a well-written contract. It cannot be recovered with credit insurance. Even after the beneficiary satisfying the terms and conditions, there can be risks of defaults on payments by the issuing bank.  Hence, the exporter is issued with confirmation of Letter of Credit that assures his payments. Bad debts disturb profitability and can adversely affect the payments in international trade. Therefore, to mitigate this, it is always expected to keep alternatives like confirmation of LC, credit insurance or debt purchase (factoring without recourse of forfeiting). The banks would have formerly advanced the funds in the debt purchase transaction, where it is without recourse. Here, the banks or the financial institutions take the risk of nonpayment. The exporter has to be very sure dealing with creditworthiness of the foreign buyer, predominantly because international business covers large distances and unusual environments. If the creditworthiness is unknown, there are high risks of non-payments or fraud involved. To soften the process, you can aid from a few commercial firms in assisting on credit-checking and secure payment methods such as an irrevocable documentary credit.    In the course of shipment, there can be theft, damage or non-arrival of goods. It is very important for the exporter to understand the transportation and logistic risks in particular the “contract of carriage”.  It is always better to request pre-shipment inspection to secure both importers and exporters interest. There can be chances of rejecting the arrived shipment and non-payment due to poor quality.    The exporter should be aware of the legal formalities of the contract as international laws and regulation change frequently and are enforced differently from the exporter’s country. The exporter’s interest can be  secured by covering all legal and political risks. International business embraces two different currencies, changes in exchange rates has negative impacts on both the factors and one of the factors will derive benefit ultimately. To overcome this,  it is optimum to quote in one’s very own currency and hedge through the purchase of “forward exchange rate” contracts. There can be a few countries with constraints upon their foreign currency reserves while they are advanced towards more open markets. In such cases, there can be non-payment to the exporter due to non-sufficient foreign exchange for payments by the Reserve or Central bank of the importing country. If the banks are not solvent, then they can not meet their financial commitments. In such cases, transactions pertaining to cash against LC and guarantees may not be honored, which can contribute to outstandings. Loss might be faced by the exporter if there are any occurrences of natural disaster or unexpected terrorist actions destroying export market for a company. These are some of the unforeseen risks that exporters should be aware of. In any international contract, it is necessary to ensure that the force majeure clause is included
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Export Credit : Fundamentals, Risks Involved And Ways To Mitigate Them

Export Credit : Fundamentals, Risks Involved And Ways To Mitigate Them

Kranthi Tilak Reddy
Companies that uphold exporting have to be skillful with their approach as they embrace huge risks. These companies have to follow the requirements and have to be committed to their export operations....
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Mechanism of Buyer’s Credit Rollover

Rollover Buyer’s credit is an extension of the tenure on Buyer’s credit availed by importers in India.This enables importers to extend the credit to 1 year for Non-capital goods and up to 5 years on capital goods.However, most of the banks in India restrict the total tenure to 3 years from the date of shipment.The funding for rollover Buyer’s credit is arranged on the basis of the payment guarantee (LoU) issued by importers banks to overseas financial institutions. While availing fresh buyer’s credit, the client has the option of choosing the tenure. It is, however, restrictedto the maximum of working capital gap identified.The client can choose to go for fresh Buyer's credit for the maximum tenure allowed, wherein the importers get an option to choose on LIBOR reset at 3M/6M or 12 M. Likewise, interest settlement will be made depending on the reset chosen by the importer. In this case, the margins are fixed for the tenure of Buyer's credit availed. When can Buyer’s Credit Rollovers happen? ●     To leverage on lowest interest rate and extend the credit to maximum tenure i.e., Operating cycle or 1 year in case of raw material import and 3 years in case of Capital goods imports. ●     Unfavourable Foreign exchange to settle Buyer’s credit on the due date which may influence for rollover ●     Insufficient working capital on the due date. Refer RBI Circular as appended:   https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=10023&Mode=0 What is the Process to followed to avail Buyer’s Credit Rollover from the Existing Bank? ●     Importer will approach SaveDesk for availing Rollover quotes at least 2 days in advance from Due date which ensures timely settlement ●     Either before or on the due date, the local bank will issue a ‘Letter of Undertaking’ and make an interest payment of the already existing buyer’s credit. ●     On the required date, the overseas buyer’s credit will approve the rollover of existing buyer’s credit and confirm the local importer’s bank with MT799, which includes the new due date with interest along with the fresh maturity. If you have to opt for a rollover from other banks, one of the predominant reasons could be better pricing. Though it has better pricing, one should also consider other charges like swift charges, intermediary bank charges etc before opting for rollover from another financial institution. What is the Process to be followed to avail Buyer’s Credit Rollover from other financial institutions? ●     Firstly, the importers should get a fresh quote issued by the new buyer’s credit arranging bank. ●     To avoid any delay charges, it is always better to send the ‘Letter of Undertaking’ with a value date at least 1 day prior to the due date of the already existing buyer’s credit. ●     The local banks make the payment along with interest using A2 Form, once the funds are received at the existing buyer’s credit bank. What are the other key factors to consider? 1.    As per the RBI guidelines and norms, buyer’s credit for non-capital goods is not allowed beyond their operating cycle. 2.    The prime factor to consider is the cost factor. Every time you opt for buyer’s credit rollover, LIBOR will keep changing and even the Margin might change. Moreover charges like LOU charges (the nationalised banks can charge a fixed amount as commitment charge and other usance charges, due to which there are chances of increased overall cost) 3.    The bank arranging Buyer’s credit can charge for delayed payment if any, this can be factored at the time of determining the value date for rollover transaction. There are banks that also charge an additional $50 to $100 other than interest cost for the rollover of the existing buyer’s credit.  Important Documents required: 1.    LOU format and Swift address. 2.    Fresh offer letter 3.    Form A2 4.    Form 15CA and Form 15CB (when interest payments are being made to the overseas financial institution) There is nothing as such prescribed by RBI on interest payment in the rollover buyer’s credit amount. Therefore, most of the importers banks that issue LOU do not allow interest payment, but sometimes it can depend on the bank’s internal policies.Keynote: Just remember that, if the buyer’s credit does not get rolled over, it would get converted into term loan resulting in payment of a higher rate of interest to the importer
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Mechanism of Buyer’s Credit Rollover

Mechanism of Buyer’s Credit Rollover

Saravana Bhaskar
Rollover Buyer’s credit is an extension of the tenure on Buyer’s credit availed by importers in India.This enables importers to extend the credit to 1 year for Non-capital goods and up to 5 year...
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Loans Against Mutual Funds In A Nutshell

What are mutual funds precisely?A mutual fund is an ideal investment channel where the money is pooled in by the investors to serve the purpose of investing in shares and securities of different companies. A small amount in the form of fee is charged by the professional money managers who manage money on their behalf and invest them in order to reproduce capital gains or incomes. Investors are allowed choose a mutual fund scheme depending on their financial goal.Were you aware that investments that were made on mutual funds either through lump sum investments or a systematic investment plan (SIP) can help you with contingency funds? Anyhow liquidating the mutual funds is not the only available option, but is a better option to opt as banks lend up to 50% of the NAV and comparatively the lending interest rates are lower than for personal loans.1)How about borrowing loans against mutual funds?Yes, when there is a requirement of money on an immediate basis for short tenures like three months to a year. A number of investors opt for borrowings against their mutual funds. This can be done like any other loan by pledging mutual funds to banks or financial institutions as a security and borrowing against them. This would work to be a better option in the close future rather than terminating SIPs (Systematic Investment Plan) or redeeming your units. Depending on the type of mutual fund you own, the required money will be lent by the financial institutions.Here are a few questions on all you need to know about loans against mutual Funds:2)How does loan against mutual fund units actually work?The first step is, you can approach a financial institution or a non-banking financial company (NBFC) and make a request for a loan or an overdraft by pledging your mutual fund units. Later, you can obtain a lien on the units in the name of the bank as it would offer the loan based on the value of units held in your mutual fund account.3)How much would it cost?The loan can be paid back to the financier at the agreed interest rate.Depending on the tenure and the quantum of loan lying somewhere around 10-11% of these mutual funds. You are not permitted to switch the units or sell them when they are under lien. Most of the financial planners recommend on not opting loans against liquid or debt-oriented funds but rather to opt for equity oriented mutual funds as you can get as much as 50% on the Net Asset Value of your mutual funds. The banks also have pre-fixed limits on the maximum and minimum loan you can avail against mutual funds.4)How do we apply for loans?If you hold demat units and get a prior approval, it is much easier as the online portals offer loans swiftly. If the same units are held in physical form, there is a need for an execution of loan agreement with the concerned financier. Further, the financier will put in writing to the mutual fund registrar and request them to mark a lien on the number of pledged units. Typically, the financiers extend loans only about 60-70% of the value of pledged units. In turn, the Registrar will mark lien and draft a letter to Financier with a duplicate copy to the investor accepting the marking of a lien on the Units.5)What is lien for mutual funds?Lien is a typical document that allows the bank by giving the right of ownership, to hold or sell the pledged funds. When a mark of lien is done in the favour of the bank, you are shifting the ownership and giving the right of the fund units you own. 6)Can the lien on the mutual fund units be removed? This can be done if the amount is repaid to the borrower, a request letter can be sent to the fund house for the removal of the lien. Or the financier can  make request for partial removal of lien which can happen if the Financiers receive part payments and the removed units are referred as ‘Free’ units.In case there are any defaults by the borrower in making payments, the financier can use the right and enforce the lien.7)What are the basic advantages of loans against mutual funds?The primary benefit is, it provides immediate liquidity against your mutual funds. It is more like an overdraft facility which has a relatively shorter tenure than others and feasible for short-term funds requirements. It facilitates in raising capital swiftly for short-term needs and acts as a monetary tool for those who are finding ways to leverage  their otherwise idle mutual fund investment. Most importantly, your financial plan remains intact as you are not selling your mutual funds and even after you pledge them for a loan, your ownership of fund units is not divested.
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Loans Against Mutual Funds In A Nutshell

Loans Against Mutual Funds In A Nutshell

Piuesh Daga
What are mutual funds precisely?A mutual fund is an ideal investment channel where the money is pooled in by the investors to serve the purpose of investing in shares and securities of different compa...
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Introduction to Buyers Credit Interest Rates and Calculation Process

Buyers Credit is short-term loan offered by overseas financial institutions/Bank to importers in India. Buyer’s credit provides access to cheap and easy availability of funds. The funds are provided to an importer for the purchase of capital goods and non-capital goods. Buyer’s credit facility can be availed for eligible goods and services in India on deferred payment terms. The available funds are used to make payments to exporter’s bank against import bill on the due date. Funds are charged closed to Libor rates which are less costly than the local source of funds. Normally, it is calculated as Libor + Margin rates. The Interest rates offered by FI’s involve factors which play important roles in finalising them. They are: To examine whether sufficient funds are available to borrow for the transaction. Tenure for which funds are borrowed. When banks are running in scarcity they would prefer higher margins compared to other bank lines. The cost of funds that is what rates these banks get to borrow from their local market. There is an Internal Minimum margin or the cut-off margin decided by the committee or treasury. The bank is not allowed to offer pricing below the cut off margin. Banks adds their margin above the cost of funds (L+X) borrowed. External factors like economic conditions, inflations, market volatility and recent events like US downgrade, Greece and Portugal debt crisis etc also impact margin rates. Check Points for before availing Buyers Credit Maximum duration of Buyers Credit Facility for Capital Goods in 3 Yrs Maximum duration of Buyers Credit for Non-Capital Goods is 1 Yr. Maximum credit limit per Buyers Credit transaction is $20 MN. Ceiling Cost of buyer’s credit is 6 Months LIBOR + 350 BPS  (L+350 bps) Cost involved in buyer’s credit Buyer’s credit process involves a number of steps and through the process flow there are cost involved to extract its benefits: Interest cost:  Any margin charged above LIBOR forms Interest Margin, this is a financing cost  charged by banks. Interest costs usually vary with Cost of funds with respective banks. Normally it is calculated as Libor+Margin rates, it is also quoted as “3M L+350 bps” where 3M is 3 month, L is libor and bps is basis points. “Basis point” is a unit that is equal to 1/100th of 1%. It can also be put across as 3M L+3.50%. Libor will change depending upon tenure. Letter of undertaking/letter of credit:It is the cost charged by the existing bank or local bank in India for issuing LOU. It is charged as high as 1.5%. Currency risk premium: Depends on the risk perceived on the transactions. Forward booking cost /hedging cost:  In case of long terms BC, Bankers/AD insists on availing  hedging strategies to cover Foreign exchange fluctuations which comes with an additional cost of up to 3%. It is optional for the importer to book for forwards and in few banks, it is a mandatory process. Arrangement fee: it is paid to the arranger also known as broker or agent. It is the sum paid for the service rendered by authorised dealer in arranging buyer’s credit quotes to the importer. Withholding tax(WHT): tax has to be deducted by the Indian importer on the interest amount paid for the loans borrowed. Rates charged by the overseas  lenders are net of taxes; thus it has to be grossed up at the time of calculation of interest and the borrower bears tax payment as his additional  cost. WHT will not be applicable  if the loans raised are from overseas branch of Indian banks. Export credit agency(ECA) guarantee charges: They may provide credit insurance and financial guarantee. To avail this facility a sum has to be paid. Other charges: A2 payments on maturity, charges for documents 15CA and 15CB on maturity, intermediary bank charges, out-of-pocket charges etc come under this category which cost him additional money. Interest Rate Calculation Process: - Bank mentions Interest rate on Offer letter usually under below heading 3M L + 20 BPS  (Volume along with Specific Tenure will be mentioned) 6M L + 20 BPS  (Volume along with Specific Tenure will be mentioned) For instance, if the customer avails Buyers Credit of $100K from FI for 90 days, below interest will be applicable in above two scenarios 1 USD = INR 65 BPS ( Basis Point ) = 0.2% 3 Month Libor = 1.2% 6 Month Libor= 1.4% Case 1 :- a.  3M LIBOR + 60 BPS = 1.8% =  100000*65*1.8*90/360*1/100= 29250 Case 2: b.  6M LIBOR + 60 BPS = 2% =100000*65*2/100*90/360= 32500 Thus under same situations customer will pay an additional INR 3250 to avail BC for the same tenure. To read about Importance of hedging Buyers Credit
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Introduction to Buyers Credit Interest Rates and Calculation Process

Introduction to Buyers Credit Interest Rates and Calculation Process

Saurabh Jain
Buyers Credit is short-term loan offered by overseas financial institutions/Bank to importers in India. Buyer’s credit provides access to cheap and easy availability of funds. The funds are prov...
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Simplified Hedging Norms For Exchange Rate Risks By RBI

There are simplified norms set up by RBI recently for hedging exchange rate risks. Under this, the companies are allowed to take up to USD 30 million on a gross basis.  Though the draft scheme of simplified hedging facility was released in April 2017, its first official announcement was made by the Reserve Bank of India in August 2016."The facility is being introduced with a view to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture," said an RBI notification.The provisions for resident and non-resident firms (other than individuals) contracted or anticipated, to hedge exchange rate risk on transactions, made permissible under Foreign Exchange Management Act (FEMA) will come into force from  January 1, 2018.“The products covered under this will be any Over the Counter (OTC) derivative or Exchange Traded Currency Derivatives(ETCD)”, the RBI said, adding cap on outstanding contracts is "USD 30 million, or its equivalent, on a gross basis"."If hedging requirement of the user exceeds the limit in course of time, the designated bank may re-assess and, at its discretion, extend the limit up to 150 percent of the stipulated cap," the guidelines read.It also said that internal policy is mandatory for banks with respect to the deadline up to which a hedge contract for a given latent can be rebooked by the user or rolled over.
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Simplified Hedging Norms For Exchange Rate Risks By RBI

Simplified Hedging Norms For Exchange Rate Risks By RBI

Piuesh Daga
There are simplified norms set up by RBI recently for hedging exchange rate risks. Under this, the companies are allowed to take up to USD 30 million on a gross basis.  Though the draft scheme of si...
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Everything you need to know about OFAC Sanctions

What is OFAC?OFAC or Office of Foreign Assets Control is a department of US Treasury that regulates both economic and trade sanctions against countries or individuals who are directly involved or promote terrorism or narcotics related activities. OFAC Sanctions generally regulates United States persons in conducting  or  dealing  with any commerce or trade related activities with the sanctioned countries as listed, which may change from time to time.United States Persons are:U.S. Citizens Permanent U.S. residents / LPRs i.e. Lawful permanent residentsCompanies incorporated under U.S. Law or in U.S.All companies / persons located in the U.S.Companies or entities which are owned /controlled by the U.S. Citizens.Why do Indian Companies or Indian Banks abide by OFAC Sanctions?The obvious question is why are Indian companies regulated from trading with the sanctioned countries or why Indian banks restrict such transactions? Many countries tacitly abide by the sanctions imposed by the U.S, mainly for the below reasons:US dollar is the most traded or accepted currency globally for the international trade, cross-border payments or other related transactions.Today’s global banking system and transactions involve Correspondent banks, which could be based out of US or associated with the U.S. banks.Cross-border payments could directly or indirectly involve U.S. banks, hence third countries companies or banks, often refuse to conduct transactions with companies / countries on the US sanctions list on account of settlement related issues.Economic and diplomatic ties with the U.S.  There are various types of economic sanctions, few of them are stated below:Country Based SanctionsList Based Sanctions/Smart SanctionsSecondary SanctionsCountry Based Sanctions: Below listed countries currently face country-based sanctions, which means any trade or economic transactions involving these countries are restricted.IranNorth Korea.SudanCentral African RepublicSyria andCubaBurma, also known as Myanmar, was earlier a part of the above list. However, in late 2016, sanctions against the Asian country have been ended. Although US sanctions against Burma have been lifted, there are still a few mild restrictions that companies dealing with Burma should be wary of.List Based Sanctions:Also known as ‘smart sanctions’, these are specific to persons, companies, and entities and not the whole country. List-based sanctions allow the government to accurately aim at individuals and entities that are a menace to the country’s security, foreign policy, and economy of the U.S.OFAC forbids any transactions between U.S. persons and individuals, companies on the SDN list i.e. Specially Designated Nationals and Blocked Persons list. Smart-sanctions were used for the Ukraine-based sanctions as they are more precise and don’t end complete ties with a particular country.Secondary Sanctions:These are currently being applied only to non-US persons, entities or organizations that have significant volumes of trade with Iran and can be used against other countries in future when the need arises.
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Everything you need to know about OFAC Sanctions

Everything you need to know about OFAC Sanctions

Kranthi Tilak Reddy
What is OFAC?OFAC or Office of Foreign Assets Control is a department of US Treasury that regulates both economic and trade sanctions against countries or individuals who are directly involved or prom...
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Can an Importer Combine Multiple Bills and Avail a Single Buyer’s Credit Quote

There could be instances where an importer has to make multiple payments to the same exporter. The importer can choose to combine all the bills and avail a single Buyer’s Credit quote, which would help him reduce various costs that are associated with availing Buyer’s Credit. Advantages:Generally, transactions with higher value would fetch better quotes in the market. i.e. if there are 3 bills of 30,000 USD each for 90 days, the interest rate/cost in the isolation would be much higher than a single quote for 90,000 USD.Multiple BC quotes mean additional LOU charges and arrangement fees as it’s linked to the number of offer letters issued.Obviates the delay and hassle of obtaining multiple quotes either from the bank or the consultants.   Things to consider while opting for such transactions:Importer should check with his bank i.e. the LOU issuing bank on availing Buyer’s Credit by combining multiple bills.Payment due dates could vary between each bill so the importer has to choose specific drawdown date and opt for BC accordingly.  Process Flow ChartProcess FlowImporter decides on the drawdown date.Importer has to inform his bank on combining multiple bills and execute a single BC transactionImporter takes BC quote either from the bank or consultant post providing the details of multiple bills.Importer’s bank issues LOU /LOC with complete details of all the bills involved in the transaction.Overseas lender or the funding bank funds the cumulative amount of all the bills as requested.Post receipt of funds, importers bank makes payment to the   exporter/ supplier as per the details provided in the bills.
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Can an Importer Combine Multiple Bills and Avail a Single Buyer’s Credit Quote

Can an Importer Combine Multiple Bills and Avail a Single Buyer’s Credit Quote

Kranthi Tilak Reddy
There could be instances where an importer has to make multiple payments to the same exporter. The importer can choose to combine all the bills and avail a single Buyer’s Credit quote, which would h...
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