Best Time to Invest in Mutual Fund Systematic Investment Plans (SIP's).

The recent correction in the markets due to crises brewing in the European Union provides the opportunity to go in for these mutual funds at reasonable valuations. India still remains a fundamentally strong economy and likely to post GDP growth of over 8% in next 3-5 years. The below funds show a good trend over time. We recommend the investors to start for SIP’s for next 5-10 years and benefit from the volatile market cycles.

The investment will help to maintain a discipline in your investing pattern, invest regularly & build your corpus. The above listed funds show a good compounded return with returns ranging from 20% to 27% on a 5 years trend.


In developing economies like India, where securities markets (equities and fixed income instruments) can be volatile and it is rarely possible to time the markets and predict the future.

We recommend Systematic Investment Plan (SIP) for a good blend of compounding return & rupee cost averaging.

Please let us know if you require more details or plan to invest in SIP’s in the above schemes.

Thanks,
Nimesh. 

Awaken The Winner In You - June 13th 2010 - Hotel Mirage (Andheri (E))

Markets Today - 18/5/2010 - Analysed - Disclaimer Post Applies !

Increase of discount in Nifty future to spot, higher call activity at 5,100 and 5,000 strike prices with put shedding witnessed across all strikes would invite more weakness at current levels. However, we believe that Global Cues should soon start giving direction to the market.

Option Analysis

·         Call Writing: Consecutive third trading session of major writing observed at 5,100 and 5,000 strike prices implies that it would be difficult for market to sustain above these levels. Fresh addition of ~2.5 lakh shares was witnessed at 5100CE and 5000CE strike prices. Major concentration is still observed at 5300CE of ~84 lakh shares.

·         Put Writing: On the other hand, in today’s trading session shedding was seen across all strike prices except 5100PE strike price. Major unwinding of was witnessed at 4800PE and 4700PE strike prices. Concentration observed at 5000PE strike price of ~88.7 lakh shares.

Implications: Consecutive third trading session for major call writing and put shedding indicates less upside to be seen from current levels. We expect market to trade in narrow range of 5000 and 5200 for next few trading sessions and for May Series.    

FIIs and DIIs activity in capital market segment

·         FIIs were net sellers of Rs 440 crore with Gross buyers of Rs 2,154 crore and Gross Sellers of Rs 2,594 crore.

·         DIIs were net buyers of Rs 326 crore with Gross buyers of Rs 1,387 crore and Gross sellers of Rs 1,061 crore.

India VIX (Inverse relationship between Nifty and Indian VIX)

·         Volatility for 16^th May, 2010 close at 26.50 which is 2.32% lower as compared to previous close, after touching an intraday high of 27.6 and low of 26.15.

Implications: Volatility, after making a high of 29.36 in yesterday’s trading session has come down today. We expect volatility to move above 30 odd levels which would have negative impact on Nifty.  

Forthcoming results -may 2010

It's all Greek to me !! The Greece financial crisis 2010

European Union leaders have hailed an agreement to use funds from both Europe and the International Monetary Fund to help financially-crippled Greece as important for the euro zone.

So what's the problem in Greece?
Years of unrestrained spending, cheap lending and failure to implement financial reforms left Greece badly exposed when the global economic downturn struck. This whisked away a curtain of partly fiddled statistics to reveal debt levels and deficits that exceeded limits set by the Eurozone.

How big are these debts?
National debt, put at €300 billion ($413.6 billion), is bigger than the country's economy, with some estimates predicting it will reach 120 percent of gross domestic product in 2010. The country's deficit -- how much more it spends than it takes in -- is 12.7 percent.

So what happens now?
Greece's credit rating -- the assessment of its ability to repay its debts -- has been downgraded to the lowest in the Eurozone, meaning it will likely be viewed as a financial black hole by foreign investors. This leaves the country struggling to pay its bills as interest rates on existing debts rise. The Greek government of Prime Minister George Papandreou, which inherited much of the financial burden when it took office late last year, has already scrapped most of its pre-election promises and must implement harsh and unpopular spending cuts.



Will this hurt the rest of Europe?
Greece is already in major breach of Eurozone rules on deficit management and with the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. There are also fears that financial doubts will infect other nations at the low end of Europe's economic scale, with Portugal and the Republic of Ireland coming under scrutiny. If Europe needs to resort to rescue packages involving bodies such as the International Monetary Fund, this would further damage the euro's reputation and could lead to a substantial fall against other key currencies.

So what is Greece doing?
As already mentioned, the government has started slashing away at spending and has implemented austerity measures aimed at reducing the deficit by more than €10 billion ($13.7 billion). It has hiked taxes on fuel, tobacco and alcohol, raised the retirement age by two years, imposed public sector pay cuts and applied tough new tax evasion regulations.

Are people happy with this?
Predictably, quite the opposite and there have been warnings of resistance from various sectors of society. Workers nationwide have staged strikes closing airports, government offices, courts and schools. This industrial action is expected to continue.

How are Greece's European neighbors helping?
Led by Germany's Chancellor Angela Merkel, all 16 countries which make up the euro zone have agreed a rescue plan for their ailing neighbor. The package, which would only be offered as a last resort, will involve co-ordinated bilateral loans from countries inside the common currency area, as well as funds and technical assistance from the International Monetary Fund (IMF).

According to a joint statement on the EU Web site, a "majority" of the euro zone States would contribute an amount based on their Gross Domestic Product (GDP) and population, "in the event that Greece needed support after failing to access funds in the financial markets."

This means Germany will be the main contributor, followed by France. Although the announcement did not mention any specific figure, a senior European official quoted by Reuters said that the potential package may be worth around 20 billion euro (US$26.8 billion).

However any European-backed loan package requires the unanimous approval of European Union members, meaning any euro zone country would have effective veto power.

Prepared by : KARTIK GALA

(business development)

Markets Today - 17/5/2010 - Analysed - Disclaimer Post Applies !

Volatility approaching its resistance, reduction in Nifty discount with increase in open interest and heavy put writing below 5,000 levels indicates market bottoming out at current levels. However, we see market to trade in a range of 5,000 and 5,300 for May series. Strategy to be adopted by traders remains the same to Sell in rally and Buy at dips.  

Option Analysis

·         Call Writing: More than ~10 lakh shares were added at 5100CE and 5000CE strike prices. ~40% of total call current month open interest outstanding observed at 5200CE and 5300CE with higher at 5300CE.

·         Put Writing: On the other hand, shedding was seen at in-the-money strike prices with fresh writing at lower levels. Major unwinding of ~10 lakh was witnessed at 5200PE and 5100Pe strike prices. ~48% of total put concentration observed below 5000PE to 4700PE strike prices with major at 5000PE.

Implications: Heavy call writing at higher levels with put shedding indicates less upside to be seen from current levels. However, fresh put writing with majority outstanding open interest below 5,000 levels indicates strong support at lower levels. So, we expect market to trade in narrow range of 5,000 and 5,200 for next few trading sessions.    

FIIs and DIIs activity in capital market segment

·         FIIs were net sellers of Rs 1,224 crore with Gross buyers of Rs 1,653 crore and Gross Sellers of Rs 2,877 crore.

·         DIIs were net buyers of Rs 382 crore with Gross buyers of Rs 1,407 crore and Gross sellers of Rs 1,025 crore.

India VIX (Inverse relationship between Nifty and Indian VIX)

·         Volatility for 15^th May, 2010 close at 27.15 which is 2.41% higher as compared to previous close, after touching an intraday high of 29.35 and low of 27.

Implications: Volatility, as mentioned before is moving upward. We expect volatility to move up to 30 odd levels which would have negative impact on Nifty.  

A REPORT ON Mutual fund industry in India And its Current Status

What is a Mutual Fund?
A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.
Diversification Diversification is nothing but spreading out your money across available or different types of investments. By choosing to diversify respective investment holdings reduces risk tremendously up to certain extent. The most basic level of diversification is to buy multiple stocks rather than just one stock. Mutual funds are set up to buy many stocks. Beyond that, you can diversify even more by purchasing different kinds of stocks, then adding bonds, then international, and so on. It could take you weeks to buy all these investments, but if you purchased a few mutual funds you could be done in a few hours because mutual funds automatically diversify in a predetermined category of investments (i.e. - growth companies, emerging or mid size companies, low-grade corporate bonds, etc). Working of Mutual Fund
Types of Mutual Funds Schemes in India
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.
Overview of existing schemes existed in mutual fund category: BY STRUCTURE
1. Open - Ended Schemes:
An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.
2. Close - Ended Schemes:
These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation, expectations of unitholder and other market factors. Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor.
3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.
Overview of existing schemes existed in mutual fund category: BY NATURE
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.
2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:
Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.
MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
3. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.
By investment objective:
Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.
Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Other schemes
Tax Saving Schemes:
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.
Sector Specific Schemes:
These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
Risk Return Matrix The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vice versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesn’t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile. Types of returns
There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.
Pros & cons of investing in mutual funds
For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.
Advantages of Investing Mutual Funds:
1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:
1. Professional Management- Some funds doesn’t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks.
2. Costs – The biggest source of AMC income, is generally from the exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.
3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Mutual Funds & Assets under Management

Source –www. mutualfundsindia.com

Source –www. mutualfundsindia.com

Sales during the month of April, 2010

All Schemes

Source –www. mutualfundsindia.com

Prepared by :

CHINTAN DEDHIA
(Business development)

A REPORT ON IFSC,MICR,RTGS & NEFT

1.INDIAN FINANCIAL SYSTEM CODE

IFSC CODE:

The Indian Financial System Code is a code for identifying the bank and branch which an account is held. The IFSC code is used both by the RTGS and NEFT finance transfer systems

IFSC stands for Indian Financial System Code . In the Structured Financial Messaging System (SFMS), the Indian Financial System Code (IFSC) is being used as the addressing code in user-to-user message transmission. The Payment System Applications such as RTGS, CFMS and NEFT developed by the Reserve Bank of India use these codes.

The code consists of 11 Characters - First 4 characters represent the entity; Fifth position has been defaulted with a '0' (Zero) for future use; and the Last 6 character denotes the branch identity. IFSC is being identified by the RBI as the code to be used for various payment system projects within the country, and it would, in due course, cover all networked branches in the country. In due course, when all bank branches participate in electronic payment systems, they would need to have a single identifiable unique code and IFSC would serve the purpose effectively.

2.Magnetic Ink Character Recognition

MICR:

Magnetic Ink Character Recognition or MICR, is a character recognition technology used primarily by the banking industry to facilitate the processing of cheques. The technology allows computers to read information (such as account numbers) off of printed documents. Unlike barcodes or similar technologies, however, MICR codes can be easily read by humans.

MICR characters are printed in special typefaces with a magnetic ink or toner, usually containing iron oxide. As a machine decodes the MICR text, it first magnetizes the characters in the plane of the paper. Then the characters are passed over a MICR read head, a device similar to the playback head of a tape recorder. As each character passes over the head it produces a unique waveform that can be easily identified by the system.

The use of magnetic printing allows the characters to be read reliably even if they have been overprinted or obscured by other marks, such as cancellation stamps. The error rate for the magnetic scanning of a typical check is smaller than with optical character recognition systems. For well printed MICR documents, the "can't read" rate is usually less than 1% while the substitution rate (misread rate) is in the order of 1 per 100,000 characters.

MICR is standardized by ISO 1004:1995.

MICR code number consisting of nine digits followed by a delimiter. The first three digits represent the city, the next three indicate the bank and the last three digits signify the branch. The nine digit sort code is unique for any bank branch in the country. This MICR code is used in RBI clearing process to identify the branch and bank for clearing processes.

3.Real Time Gross Settlement(RTGS):

Ø RTGS System:

The acronym “RTGS” stands for Real Time Gross Settlement. RTGS system is a

funds transfer mechanism where transfer of money takes place from one bank to

another on a “real time” and on “gross” basis. This is the fastest possible money

transfer system through the banking channel. Settlement in “real time” means

payment transaction is not subjected to any waiting period. The transactions are

settled as soon as they are processed. “Gross settlement” means the transaction is

settled on one to one basis without bunching with any other transaction. Considering

that money transfer takes place in the books of the Reserve Bank of India, the

payment is taken as final and irrevocable.

Under normal circumstances the beneficiary branches are expected to receive the

funds in real time as soon as funds are transferred by the remitting bank. The

beneficiary bank has to credit the beneficiary's account within two hours of receiving

the funds transfer message.

The remitting bank receives a message from the Reserve Bank that money has been

credited to the receiving bank. Based on this the remitting bank can advise the

remitting customer that money has been delivered to the receiving bank.

If the money cannot be credited for any reason, the receiving bank would

have to return the money to the remitting bank within 2 hours. Once the money is

received back by the remitting bank, the original debit entry in the customer's

account is reversed.

all the bank branches in India are not RTGS enabled. As on January 31, 2007

more than 26,000 bank branches are RTGS enabled.

Ø Difference between RTGS and Electronic Fund Transfer System (EFT) or National

Electronics Funds Transfer System (NEFT):

EFT and NEFT are electronic fund transfer modes that operate on a deferred net

settlement (DNS) basis which settles transactions in batches. In DNS, the settlement

takes place at a particular point of time. All transactions are held up till that time.

For example, NEFT settlement takes place 6 times a day during the week days (9.30 am,

10.30 am, 12.00 noon. 1.00 pm, 3.00 pm and 4.00 pm) and 3 times during Saturdays

(9.30 am, 10.30 am and 12.00 noon). Any transaction initiated after a designated

settlement time would have to wait till the next designated settlement time. Contrary

to this, in RTGS, transactions are processed continuously throughout the RTGS

business hours.

The RTGS service window for customer's transactions is available from 9.00 hours

to 15.00 hours on week days and from 9.00 hours to 12.00 noon on Saturdays i.e. to

accept the customer transactions for settlement at the RBI during 9.00 hours to

15.00 hours on week days and between 9.00 hours and 12.00 noon on Saturday.

Ø Essential requirements to be furnished:

The remitting customer has to furnish the following information to a bank for effecting

a RTGS remittance:

1. Amount to be remitted

2. His account number which is to be debited

3. Name of the beneficiary bank

4. Name of the beneficiary customer

5. Account number of the beneficiary customer

6. Sender to receiver information, if any

7. The IFSC code of the receiving branch

Ø minimum / maximum amount stipulation for RTGS transactions :

The RTGS system is primarily for large value transactions. The minimum amount to

be remitted through RTGS is Rs.1 lakh. There is no upper ceiling for RTGS

transactions. No minimum or maximum stipulation has been fixed for EFT and NEFT

transactions.

On a typical day, RTGS handles about 14000 transactions a day for an approximate

value of Rs.1,50,000 crore.

Ø Processing Charges:

While RBI has waived its processing charges for all electronic payment products till

March 31, 2008, levy of service charges by banks is left to the discretion of the

respective banks. The bank-wise details of charges levied are available on the RBI

website – www.rbi.org.in.

4.NATIONAL ELECTRONIC FUND TRANSFER(NEFT):

Ø NEFT SYSTEM:

National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates individuals to electronically transfer funds from any bank branch to any other bank branch in the country.

For being part of the NEFT funds transfer network a bank branch has to be NEFT-enabled. As at end-November 2009 as many as 62,000 branches / offices of 94 banks in the country (out of around 75,000 bank branches) are NEFT-enabled. Steps are being taken to further widen the coverage both in terms of banks and branches.

The list of bank branches participating in the NEFT system is available on the website of Reserve Bank of India.

Individuals, firms or corporates maintaining accounts with a bank branch can transfer funds using NEFT. Even such individuals, firms or corporates who do not have a bank account (walk in customers) can also deposit cash at the branch with instructions to transfer funds using NEFT. A separate Transaction Code (No. 50) has been allotted in the NEFT system to facilitate walk-in customers to deposit cash and transfer funds to a beneficiary. Such customers have to furnish full details including complete address, telephone number etc. NEFT, thus, facilitates originators or remitters to initiate funds transfer transactions even without the need for having a bank account.

Presently, NEFT operates in batches from 9 a.m to 5 p.m. There are six settlements at 9 a.m, 11 a.m, 12 noon, 1 p.m, 3 p.m and 5 p.m on week days and three settlements at 9 a.m, 11 a.m and 12 noon on Saturdays.

Ø Working Of NEFT System:

Step-1 : An individual / firm / corporate intending to originate or transfer funds through NEFT has to fill an application form giving details of the beneficiary (like, name of the beneficiary, name of the bank branch where the beneficiary has an account, IFSC of the beneficiary bank branch, account type and account number). The application form will be available at the originating bank branch. The originator authorises the branch to debit his account and remit the specified amount to the beneficiary. Customers enjoying net banking facility offered by their bankers can initiate the funds transfer request online. Some banks offer the NEFT facility even through the ATMs. Walk-in customers will, however, have to give their contact details (complete address and telephone no. etc.,) to the branch. This will help the branch to refund the money to the customer in case credit could not be afforded to the beneficiary’s bank account or the transaction is rejected / returned for any reason.

Step-2 : The originating bank branch prepares a message and sends the message to its pooling centre (also called the NEFT Service Centre).

Step-3 : The pooling centre forwards the message to the NEFT Clearing Centre (operated by National Clearing Cell, Reserve Bank of India, Mumbai) to be included for the next available batch.

Step-4 : The Clearing Centre sorts the funds transfer transactions destination bank-wise and prepares accounting entries to receive funds from (debit) the originating banks and give the funds to (credit) the destination banks. Thereafter, bank-wise remittance messages are forwarded to the destination banks through their pooling centre (NEFT Service Centre).

Step-5 : The destination banks receive the remittance messages received from the Clearing Centre and pass on the credit to the beneficiary accounts.

Ø Processing charges:

Reserve Bank of India has waived the processing or service charges for member banks till March 31, 2010. Accordingly, member banks participating in NEFT need not pay any processing or service charges to Reserve Bank of India. Further, processing or service charges to be levied by the member banks from their customers have also been rationalised by Reserve Bank of India as under: –
a) Inward transactions at destination bank branches (for credit to beneficiary accounts)

– Free, no charges to be levied from beneficiaries

b) Outward transactions at originating bank branches (charges for the remitter)

– For transactions up to Rs. 1 lakh – Charges not exceeding Rs. 5.
– For transactions of Rs. 1 lakh and above – Charges not exceeding Rs. 25.

Prepared by :

Mayur naik

(Business development)