WHAT IS A SINKING FUND

WHAT IS A SINKING FUND?
A sinking fund is a part of a bond indenture or preferred stock charter that requires the issuer to regularly set money aside in a separate custodial account for the exclusive purpose of redeeming the bonds or shares.

let's assume company ABC issues $10 million of bonds that mature in 10 years.
If the bonds have a sinking fund, company ABC might be required to retire, say, $1 million of the bonds each year for 10 years.
To do so, company ABC must deposit $1 million each year into a sinking fund, which is separate from its operating funds and is used exclusively to retire this debt.
 This strategy ensures that company ABC will pay off the $10 million in 10 years

Establishing a Sinking Fund
When creating a sinking fund, the issuer sets up a custodial account and makes systematic payments into it. Payments might not begin until several years have passed. Amounts are typically fixed, although variable amounts may be allowed based on earnings levels or other criteria set by the fund's provisions. Unless preferred stock is used with sinking funds, failure to make scheduled principal and interest payments results in defaulting on the loan.

Advantages and Disadvantages of a Sinking Fund
A sinking fund improves a corporation's creditworthiness, letting the business pay investors a lower interest rate. Because of the interest savings, the corporation has more net income and cash flow for funding operations. Also, businesses may deduct interest payments given to lenders from their taxes, helping increase cash flow as well. Corporations may use the savings for covering sinking fund payments or other obligations. In addition, investors appreciate the added protection a sinking fund provides, making investors more likely to lend a company money. A business that is controlling its money is less likely to default on outstanding debt.

However, if interest rates decrease and bond prices increase, bonds may be called and investors may lose some of their interest payments, resulting in less long-term income. Also, investors may have to put their funds elsewhere at a lower interest rate, also missing out on potential long-term income.

What is a Debenture

What is a Debenture?
A debenture is a type of debt instrument that is not secured by physical assets or collateral.
Debentures are backed only by the general creditworthiness and reputation of the issuer. 
Both corporations and governments frequently issue this type of bond to secure capital.

Types
There are two types of debentures as :
1 .convertible debentures  and
2. nonconvertible debentures 

Convertible debentures are bonds that can convert into equity shares of the issuing corporation after a specific period of time.
Nonconvertible debentures are regular debentures that cannot be converted into equity of the issuing corporation. 

Debentures are generally freely transferable by the debenture holder. 
Debenture holders have no rights to vote in the company's general meetings of shareholders,
but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures. 
The interest paid to them is a charge against profit in the company's financial statements.

Solved answers of APPLICATIONS OF LIFE INSURANCE

CHAPTER

 APPLICATIONS OF LIFE INSURANCE

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Question 1
The sum assured under keyman insurance policy is generally linked to which of
the following?
I. Keyman income
II. Business profitability
III. Business history
IV. Inflation index
Answer: II. Business profitability

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Question 2
Mortgage redemption insurance (MRI) can be categorised under ________.
I. Increasing term life assurance
II. Decreasing term life assurance
III. Variable life assurance
IV. Universal life assurance
Answer: II. Decreasing term life assurance

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Question 3
Which of the below losses are covered under keyman insurance?
I. Property theft
II. Losses related to the extended period when a key person is unable to work
III. General liability
IV. Losses caused due to errors and omission
Answer: II. Losses related to the extended period when a key person is unable to work

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Question 4
A policy is effected under the MWP Act. If the policyholder does not appoint a
special trustee to receive and administer the benefits under the policy, the sum
secured under the policy becomes payable to the _____________.
I. Next of kin
II. Official Trustee of the State
III. Insurer
IV. Insured
Answer: II. Official Trustee of the State

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Question 5
Mahesh ran a business on borrowed capital. After his sudden demise, all the
creditors are doing their best to go after Mahesh’s assets. Which of the below
assets is beyond the reach of the creditors?
I. Property under Mahesh’s name
II. Mahesh’s bank accounts
III. Term life insurance policy purchased under Section 6 of MWP Act
IV. Mutual funds owned by Mahesh
Answer: III. Term life insurance policy purchased under Section 6 of MWP Act

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Question 6
Which of the below option is true with regards to MWP Act cases?
Statement I: Maturity claims cheques are paid to policyholders
Statement II: Maturity claims cheques are paid to trustees
I. I is true
II. II is true
III. Both I and II are true
IV. Neither I nor II is true
Answer: II. II is true

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Question 7
Which of the below option is true with regards to MWP act cases?
Statement I: Death claims are settled in favour of nominees
Statement II: Death claims are settled in favour of trustees
I. I is true
II. II is true
III. Both I and II are true
IV. Neither I nor II is true
Answer: II. II is true

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Question 8
Ajay pays insurance premium for his employees. Which of the below insurance
premium will not be treated deductible as compensation paid to employee?
Choice I: Health insurance with benefits payable to employee
Choice II: Keyman life insurance with benefits payable to Ajay
I. I only
II. II only
III. Both I and II
IV. Neither I nor II
Answer: II. II only

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Question 9
The practice of charging interest to borrowers who pledge their property as
collateral but leaving them in possession of the property is called
_____________.
I. Security
II. Mortgage
III. Usury
IV. Hypothecation
Answer: II. Mortgage

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Question 10
Which of the below policy can provide protection to home loan borrowers?
I. Life Insurance
II. Disability Insurance
III. Mortgage Redemption Insurance
IV. General Insurance
Answer: III. Mortgage Redemption Insurance

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Question 11
What is the objective behind Mortgage Redemption Insurance?
I. Facilitate cheaper mortgage rates
II. Provide financial protection for home loan borrowers
III. Protect value of the mortgaged property
IV. Evade eviction in case of default
Answer: II. Provide financial protection for home loan borrowers

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Financial planning

Financial planning:

If we want to invest our money we should first think twice about it .
The points to keep in our investment are : Time of period , return of the money with percentage and time.

We should have a financial planning
Financial planning plays a crucial role in building a life with less worry. Careful planning can help set your priorities and work steadily to achieve your various goals.
Types of goals:
1) Short term Goals

2) Medium term Goals

3) Long term Goals

Elements of financial planning include::
#Investing - allocation assets based on one's risk taking appetite,
#Risk management,
#Retirement planning,
#Tax and estate planning , and
#Financing one's needs

Life stages and priorities:
a) Learner -till say age 20-25
b)Earner - from 25 onward
c)Partner - on getting marriage at say 28 - 30
d)Parent - say 28 to 35
e) Provider - say age  35- 55
f) Empty nester - age 55- 65
g) Retirement - the twilight years - age 60 and beyond

As we can see above , the economic life cycle has three phases:
Student phase - first phase is the pre job when typically a student.
Working phase - phase of work begin individual comes to earn more than he consumes and thus begins to save and invest fund.
Retirement phase - process he accumulates wealth and builds assets which would provide funds for various needs in future including an income later years, when one has retired and stopped working.


To achieve one's financial goals , one must follow a disciplined savings in investment vehicles that  best suit one's risk taking appetite.
An unplanned, impulsive approach to financial planning is one of the prime causes of financial distress that affects individuals.

These goals may be short term : Buying an LCD TV set or a family vacation.
They could be medium term : Buying a house or a vacation abroad.
The long term goals may include : Education or marriage of one's child or post retirement provision

Tears wipe by yourself

Wipe your tears by yourself if other comes to wipe then they will do business of it

Never give up

Fell years ago Never gave up

Share market study

In share market you can buy and sell stocks to earn money with proper study of stock you want to purchase.

There is intraday and delivery trading in share market.
Intraday trading deals with buying and selling of stocks on the same day, during the trading hours that are stipulated by the exchange.
In Intraday the cost of brokerage is low and you receive margin profits the same day.

Delivery Trading is, if we buy shares today and sell them after 1 day whenever we want.It is the one of the secured ways of trading in stock market.
Customer can take delivery for undefined period and need not sell them on the same day with loss, even if the market price of share value reduces. This is a kind of long-term investments.

Example if we buy a share of Tata with Rs 100 and we purchase total 500 share that is we have to pay 500*100=Rs 50000 and sell it when the share price goes to Rs 110 ,
so we will get 500 * 110 = Rs 55000 that is we will get 10% profit
Make the overall study of the share you are going to purchase with its all information and management with all the market depth.

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There is NSE and BSE

The National Stock Exchange of India Limited (NSE) is the leading stock exchange of India, located in Mumbai.
The NSE was established in 1992 as the first demutualized electronic exchange in the country.

The Bombay Stock Exchange BSE) is an Indian stock exchange located at Dalal Street, Mumbai.BSE is established in 1875 is Asia's first stock exchange
Bombay Exchange was founded by Premchand Roychand.

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Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors;
an IPO is underwritten by one or more investment banks,who also arrange for the shares to be listed on one or more stock exchanges.

A new fund offer (NFO) is the first subscription offering for any new fund offered by an investment company.
A new fund offer occurs when a fund is launched, allowing the firm to raise capital for purchasing securities