Financial Services: NBFCs, Mutual Funds and Markets
This domain covers the services that move money outside ordinary deposit banking - non-bank lending, pooled investment, securities trading and digital payments. Questions usually test what an entity may legally do and which regulator supervises it.
Core concepts
- NBFC: a company registered with the RBI that lends or invests, but cannot accept demand deposits, cannot issue cheques drawn on itself, and is outside the payment system. Examples: gold-loan and vehicle-finance companies.
- Mutual fund: pools money from many investors and issues units. Its value per unit is the NAV = (assets − liabilities) ÷ units outstanding. A SIP invests a fixed sum at fixed intervals; AUM is total assets managed.
- Securities market: shares and debentures are held electronically in a demat account with NSDL or CDSL; trades settle on a T+1 cycle; SEBI regulates exchanges, brokers and depository participants.
- Payments: NPCI owns UPI, RuPay, IMPS and AePS; prepaid wallets (PPIs) are issued under RBI rules.
- Other services: credit rating, leasing and hire purchase, factoring, microfinance.
Worked example: calculating NAV
A scheme holds assets of ₹110 crore and owes ₹10 crore. Units outstanding: 5 crore. Net assets = 110 − 10 = ₹100 crore. NAV = 100 crore ÷ 5 crore = ₹20 per unit. An investor holding 2,500 units therefore holds 2,500 × 20 = ₹50,000. Note the reasoning: NAV is a per-unit figure, so liabilities must be deducted first and the result divided by units, never by the number of investors.
Traps that cost marks
- Treating NAV as a share's market price, which is set by trading, not by a formula.
- Assuming an NBFC is a bank because it lends.
- Naming SEBI as the insurance regulator, or the RBI as the mutual fund regulator.
- Writing that mutual funds guarantee returns. They do not; returns follow the NAV.