The non-securities market in the capital market of India includes various financial instruments and products that do not fall under the category of securities. These instruments provide alternative means for investors to save, invest, and protect their wealth. Key components of the non-securities market include mutual funds, deposits, and insurance.
1. Mutual Funds
Definition: Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers.
Key Features:
- Diversification: Reduces risk by investing in a variety of assets.
- Professional Management: Managed by experienced fund managers.
- Liquidity: Investors can buy or sell mutual fund units on any business day.
- Regulation: Regulated by the Securities and Exchange Board of India (SEBI).
Types of Mutual Funds:
- Equity Funds: Invest primarily in stocks.
- Debt Funds: Invest in fixed-income securities like bonds.
- Balanced Funds: Invest in a mix of equities and debt.
- Index Funds: Track a specific market index.
Example:
- HDFC Equity Fund: An investor invests ₹50,000 in HDFC Equity Fund, which primarily invests in large-cap stocks. The fund’s performance is based on the underlying stocks’ returns. The investor benefits from professional management and diversification.
2. Deposits
Definition: Deposits are savings instruments offered by banks and financial institutions where investors can park their money for a fixed period and earn interest. They include fixed deposits (FDs), recurring deposits (RDs), and savings accounts.
Key Features:
- Fixed Returns: Offer a guaranteed rate of interest.
- Safety: Considered low-risk as they are often insured and backed by the financial institution.
- Tenure: Can vary from a few months to several years.
- Liquidity: Premature withdrawal is possible, though it may incur a penalty.
Types of Deposits:
- Fixed Deposits (FDs): Lump sum amount is deposited for a fixed tenure at a predetermined interest rate.
- Recurring Deposits (RDs): Investors deposit a fixed amount every month for a specific period.
- Savings Accounts: Provide liquidity and modest interest rates for regular savings.
Example:
- State Bank of India (SBI) Fixed Deposit: An investor deposits ₹1,00,000 in an SBI fixed deposit for a tenure of 3 years at an interest rate of 6.5% per annum. The investor earns a fixed return over the tenure and can withdraw the principal amount along with the interest at maturity.
3. Insurance
Definition: Insurance is a contract between an individual (policyholder) and an insurance company where the insurer provides financial protection or reimbursement against losses in exchange for premium payments.
Key Features:
- Risk Management: Provides coverage against various risks such as life, health, property, and liability.
- Premium Payments: Policyholders pay regular premiums to maintain coverage.
- Claim Settlement: In the event of a loss, the insurer compensates the policyholder as per the policy terms.
- Regulation: Regulated by the Insurance Regulatory and Development Authority of India (IRDAI).
Types of Insurance:
- Life Insurance: Provides financial protection to the policyholder’s beneficiaries in case of the policyholder’s death.
- Health Insurance: Covers medical expenses for illnesses and injuries.
- General Insurance: Includes motor insurance, home insurance, travel insurance, and other non-life insurance products.
Example:
- LIC Life Insurance Policy: A policyholder purchases a life insurance policy from Life Insurance Corporation of India (LIC) with a sum assured of ₹10,00,000. The policyholder pays annual premiums of ₹10,000. In the event of the policyholder’s death, LIC pays the sum assured to the beneficiaries.
Comparison and Benefits
| Instrument | Purpose | Risk Level | Returns | Liquidity | Regulation |
| Mutual Funds | Investment and growth | Moderate to high | Market-linked | High (open-end funds) | SEBI |
| Fixed Deposits | Savings and fixed returns | Low | Fixed interest | Moderate | RBI |
| Life Insurance | Risk coverage and savings | Low to moderate | Guaranteed (traditional plans) or market-linked (ULIPs) | Low | IRDAI |
Real-World Example: Combining Non-Securities Market Instruments
Scenario: Comprehensive Financial Planning
- Mutual Funds: An investor allocates ₹2,00,000 in a balanced mutual fund to achieve long-term growth and diversification.
- Fixed Deposits: The same investor parks ₹1,00,000 in a 5-year FD for stability and guaranteed returns.
- Life Insurance: The investor also takes a life insurance policy with a sum assured of ₹20,00,000 to ensure financial security for their family.
Conclusion
The non-securities market in India provides a range of financial instruments for investors to save, invest, and manage risk. Mutual funds offer diversified investment options with professional management, fixed deposits provide safety and guaranteed returns, and insurance products offer financial protection against various risks. Each of these instruments serves different financial goals and caters to the varying risk appetites of investors, making them integral parts of comprehensive financial planning. Examples such as HDFC Equity Fund, SBI Fixed Deposit, and LIC Life Insurance Policy illustrate the practical applications and benefits of these non-securities market instruments in the Indian financial landscape.
