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In India, which of the following can trade in Corporate Bonds and Government Securities ? 1. Insurance Companies 2. Pension Funds 3. Retail Investors Select the correct answer using the code given below :
Explanation
The correct answer is option D because all three entitiesâinsurance companies, pension funds, and retail investorsâcan trade in corporate bonds and government securities in India.
Insurance companies are among the select entities permitted by RBI to undertake repo in corporate debt securities.[1] Pension Fund Managers invest in various classes of securities including Corporate Bonds and Government Securities as per PFRDA guidelines.[2] Retail individual investors can open a Retail Direct Gilt (RDG) Account with RBI and purchase Government securities (Treasury Bills and Dated Securities, State Government securities) in both primary and secondary markets.[3]
Therefore, all three categories of investorsâinsurance companies (Statement 1), pension funds (Statement 2), and retail investors (Statement 3)âare permitted to trade in these securities, making option D (1, 2 and 3) the correct answer.
Sources- [1] https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=711
- [2] https://mea.gov.in/Portal/CountryNews/4929_FAQs_on_NPA_for_NRIs.pdf
- [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Retail Direct Scheme (of RBI): > p. 47
PROVENANCE & STUDY PATTERN
Guest previewThis question blends 'Static Common Sense' (Institutions like Insurance/Pension funds exist to invest money) with 'High-Profile Reform' (RBI Retail Direct Scheme). It rewards understanding the *business model* of financial players rather than just memorizing lists.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
Web source
Presence: 4/5
"RBI has permitted select entities (scheduled commercial banks excluding RRBs and LABs, PDs, all-India FIs, NBFCs, mutual funds, housing finance companies, insurance companies) to undertake repo in corporate debt securities. This is similar to repo in G-Secs except that corporate debt securities are used as collateral for borrowing funds."
Why this source?
- RBI explicitly permits select entities, including 'insurance companies', to undertake repo in corporate debt securities.
- The passage lists 'insurance companies' among the permitted entities, directly tying insurance firms to permitted activity in corporate bonds.
- The text notes this repo arrangement is 'similar to repo in G-Secs', linking the permission for corporate-debt repo to the government-securities repo framework.
- RBI explicitly permits select entities, including 'insurance companies', to undertake repo in corporate debt securities.
- The passage lists 'insurance companies' among the permitted entities, directly tying insurance firms to permitted activity in corporate bonds.
- The text notes this repo arrangement is 'similar to repo in G-Secs', linking the permission for corporate-debt repo to the government-securities repo framework.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
Strength: 5/5
âIn this market transaction is between the issuer (company) of security and the investor. In the securities example earlier, the market in which the company issued bonds for the first time to one lakh investors is the primary market.⢠(ii) Secondary Market: Once the securities have been issued by the issuer in the primary market, it gets traded in the secondary market among the investors. In this market, investors trade the previously issued securities among themselves without the involvement of the issuer of security (company). Example, Bombay Stock Exchange. In the securities example, the market in which the investors started buying and selling the bonds among themselves is a secondary market.⢠2.â
Why relevant
Defines the secondary market where investors trade previously issued securities (including bonds) among themselves.
How to extend
A student could combine this with the fact that insurance companies are investors to infer they could participate in secondary trading of bonds and then check specific regulations.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.23 Foreign Investment > p. 97
Strength: 4/5
âIf the warrant holder does not exercise his option to subscribe to equity shares, then the initial amount (some percent of the total amount paid by the warrant holder to purchase the warrant) paid stands forfeited.⢠Foreign investment can be broadly classified into two ways: ⢠Foreign Direct Investment (FDI) is the investment through 'capital instruments' by a person resident outside India: ⢠In an unlisted Indian company; or⢠In 10 percent or more of the equity capital of a listed Indian company⢠Foreign Portfolio Investment (FPI) is any investment made by a person resident outside India in 'capital instruments' where such investment is less than 10 percent of the equity capital of a listed Indian company.⢠Foreign Portfolio Investors (FPIs) can also invest in Central and State Government securities/bonds and corporate bonds and are treated as debt.⢠Foreign Direct Investment can come through two routes viz. automatic and government approval route.â
Why relevant
States that Foreign Portfolio Investors can invest in Central and State Government securities/bonds and corporate bonds and are treated as debt.
How to extend
Use this as a pattern that regulators permit institutional/portfolio investors to hold such bonds, then ask whether domestic institutional investors (like insurers) are similarly classified.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.6 Corporate Bond Market in India > p. 49
Strength: 4/5
ârequirements of the corporate entities are large. The development of a corporate bond market has now become crucial especially, in view of the need for raising large amount of resources for infrastructure development in the country during the next couple of years. Following are the factors responsible for the slow growth of corporate bond market in India. ⢠There are only a few corporate entities which are capable of meeting investor requirements in terms of transparency and governance standards. This has resulted in a yawning gap between demand for and supply of corporate bonds in India.â
Why relevant
Describes the existence and importance of a corporate bond market in India and demand/supply factors for corporate bonds.
How to extend
A student can infer that a domestic investor base (including insurance companies) is needed for this market, motivating checking whether insurers are allowed to invest/trade in corporate bonds.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 14: Service Sector > SERVICE SECTOR > p. 423
Strength: 3/5
âIntroduction
Insurance Sector
Life Insurance Corporation
General Insurance Corporation
Agriculture Insurance Company of India Limited
Deposit Insurance and Credit Guarantee Corporation (DICGC)
Insurance Reforms
Insurance Schemes Backed by Government
Tourism Sector
Medical Tourism, Eco-tourism, Information Technology and Business Process Management Services, India BPO Promotion Scheme, Communication Sector, Logistic Sector, Port and Shipping Services, Space Sector, Real Estate Sectorâ
Why relevant
Lists the insurance sector and major insurance entities, establishing insurers as organised, regulated financial players.
How to extend
Combining insurer institutional status with the secondary market rule (snippet 10) suggests insurers are plausible participants in bond markets, warranting looking up their investment permissions.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.5 Government Securities > p. 47
Strength: 3/5
âincreased by the inflation index and the interest is offered on the increased principle. ⢠Special Securities: Under the market borrowing program, the Government of India also issues, from time to time, special securities to entities like Oil Marketing Companies, Fertilizer Companies, the Food Corporation of India, etc. (popularly called oil bonds, fertiliser bonds and food bonds respectively) as compensation to these companies in lieu of cash subsidies.⢠Bank recapitalization bonds: Government of India has also issued Bank Recapitalisation Bonds to specific Public Sector Banks in 2018. (Discussed in detail in bank recapitalization)⢠Sovereign gold bonds (SGB): SGBs are unique instruments, prices of which are linked to commodity price viz Gold.â
Why relevant
Explains various types of government securities issued by the Government of India (e.g., special securities, bonds).
How to extend
Knowing what government securities exist lets a student identify the instruments insurers might hold and then verify regulatory permissions for insurers to invest in those specific instruments.
Defines the secondary market where investors trade previously issued securities (including bonds) among themselves.
A student could combine this with the fact that insurance companies are investors to infer they could participate in secondary trading of bonds and then check specific regulations.
States that Foreign Portfolio Investors can invest in Central and State Government securities/bonds and corporate bonds and are treated as debt.
Use this as a pattern that regulators permit institutional/portfolio investors to hold such bonds, then ask whether domestic institutional investors (like insurers) are similarly classified.
Describes the existence and importance of a corporate bond market in India and demand/supply factors for corporate bonds.
A student can infer that a domestic investor base (including insurance companies) is needed for this market, motivating checking whether insurers are allowed to invest/trade in corporate bonds.
Lists the insurance sector and major insurance entities, establishing insurers as organised, regulated financial players.
Combining insurer institutional status with the secondary market rule (snippet 10) suggests insurers are plausible participants in bond markets, warranting looking up their investment permissions.
Explains various types of government securities issued by the Government of India (e.g., special securities, bonds).
Knowing what government securities exist lets a student identify the instruments insurers might hold and then verify regulatory permissions for insurers to invest in those specific instruments.
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SIMILAR QUESTIONS
With reference to India, consider the following statements : 1. Retail investors through demat account can invest in 'Treasury Bills' and 'Government of India Debt Bonds' in primary market. 2. The Negotiated Dealing System-Order Matching' is a government securities trading platform of the Reserve Bank of India. 3. The 'Central Depository Services Ltd.' is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange. Which of the statements given above is/are correct?
Which of the following are the sources of income for the Reserve Bank of India?
I. Buying and selling Government bonds
II. Buying and selling foreign currency
III. Pension fund management
IV. Lending to private companies
V. Printing and distributing currency notes
Select the correct answer using the code given below.