Page 51 - Banking Finance MAY 2017

FEATURES

WHAT'S MUTUAL

FUND MIS?

A s the name suggest, an MIS to a designated bank account. Once an of one or more regular, commercial

(Monthly Income Scheme)
SWP mandate is given, money is cred- banks. This segregation of bad assets
ited to the bank account at pre-defined into a separate structure from good
is a mutual fund scheme
which aim at distributing
regular income by investing a large interval. assets which remain with the banks at
times become necessary to save the
part of its corpus in debt instruments, Things to remember whole banking system from becoming
while a small portion (15-20%) is also highly risky.
Dividend payout in an MIS by a mutual
invested in equities. The debt part en-
fund is not guaranteed. However, an
sures regular income into the fund Lately in India, several politicians and
SWP in an MIS can ensure that a pre-
while the equity part works as a bankers are talking about this concept
set amount could be taken out at pre-
booster when the going is good. so that NPAs of especially public sector
defined intervals even if the small eq- banks and also some large private
uity part in the fund do not perform banks could be transferred to a bad
What's SWP and how it well and the fund does not declare a
bank so that the existing banks can
works? dividend. again start their regular banking busi-
A systematic withdrawal (SWP) is a ness. High level of NPAs in several In-
mechanism through which an investor What is a bad bank? dian banks is currently hampering lend-

can mandate the fund house to re- A bad bank is a special type of bank ing borrowing operations of a large
deem part of his/her investments at a that is set up to buy only the number of Indian banks. (Source : The
regular interval and transfer the same nonperforming and highly risky assets Times of India)

What is the reset clause in a home loan?

A reset clause gives banks and housing finance companies (HFCs) the power to revise even their fixed-rate home loans.
Most home loan borrowers take floating-rate home loans, which are attractive in a falling rate scenario but can cause
hardships when rates are rising. To avoid this, some conservative borrowers opt for a fixed-rate loan, which are typi-
cally more expensive than floating rate loans. Usually, it is a good idea to opt for fixed rate home loans when interest
rates are close to the bottom, as is the case now.

When does reset clause kick in?

The rest clause usually states that banks/HFCs can revise the rate of interest at certain intervals, say, after two, five or
10 years, or if prevailing interest rates deviate significantly from the fixed rate. Check the exact circumstances in which
the fixed rate can be revised. Opt for a player that offer the fairest terms and conditions. (Source : Business Standard)

BANKING FINANCE | MAY | 2017 | 51

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