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A Summer Internship Project Report On STUDY OF TREASURY, PAYROLL, BILL PASSING FUNCTIONS IN MAZAGON DOCK LTD

Master of Management Studies under the University of Mumbai By Girish .M. Shanbhag - 35

Specialization:Finance

Allana Institute of Management Studies and Research


CST, Mumbai-400001 2011

Mazagon Dock Limited


SHIPBUILDERS TO THE NATION

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Evaluation Report Summer Internship 2010-11 Basic Information Name of the Student: Girish Maruti Shanbhag. Year and Roll No: Second Year MMS. Roll no. - . Name of the Company: Mazagon Dock Ltd, Dockyard Road, Mumbai 400 010. Name of the Training Supervisor: Mr. Ashok Mishra. Designation of the Training Supervisor: Deputy Manager, Treasury. Area of Training: Treasury Section. Score Card Please rate the following attributes on a scale of 01-05. (01=Average, 02=Good, 03=Very Good, 04=Excellent and 05=Outstanding) 1. Attendance __________ 2. Punctuality __________ 3. Attitude __________ 4. Performance __________ 5. Initiative __________ 6. Interpersonal Skills __________ 7. Diligence Level __________ 8. Subject Knowledge __________ 9. Personal Grooming __________ 10. Communication Skills __________ Total Score ___________

Any other Special remarks and Appreciation ____________________________________ _________________________________________________________________________________________ __________________________________________________________

Signature of Training Supervisor

Official Seal of the Company

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Certificate of Originality
This is to certify that the Summer Project titled Study of Treasury Section is an original work done under the guidance of Mr. Ashok Mishra Deputy Manager of Treasury Section of MDL from 2 nd May 2011 till 30th June 2011 and is being submitted in partial fulfillment for the award of the Masters Degree in Management Studies of University of Mumbai. This Summer Project report has not been submitted earlier either to this university or to any other affiliated college of this university or to any other university / institution for the fulfillment of the requirement of the MMS Course.

Signature of Student

Place: Date:

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Acknowledgement
I cordially thank Mazagon Dock Ltd. for giving me an opportunity to put forth my capabilities and thus to encourage me in this project. I thank Mr. J G Nair, Deputy General Manager (Finance-Payroll), Ms. Hezel Fernandes, Chief Manager (Finance-Bills-ONP) Mr. Ashok Mishra, Deputy Manager (Finance-Treasury) for guiding me towards right direction. Intention, Dedication, Concentration and Hard work are very much essential to complete any task. But it still needs a lot of support, guidance, assistance and cooperation of people to make it successful. I am also deeply indebted to all the staff members and respected managers of all the departments of MDL with out whose guidance and encouragement this would not have been possible. In spite of having busy schedule, they managed to guide me right from identification of topics till its completion. I consider it a privilege to have had an opportunity of being associated with them.

Girish Maruti Shanbhag, Anjuman-I-Islams Allana Institute of Management Studies, Dr D.N. Road (CST) ,Mumbai.

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INDEX
SR. NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 13 14 TOPIC Executive Summary Company Profile SWOT Analysis of MDL Treasury Section Implementation of SAP New Methods of Payments Bank Reconciliation Bank Guarantee Earnest Money Deposit (EMD) Cash Flow Analysis Investment of Surplus Funds Corporate Liquid Term Deposits (CLTD) Mutual Funds Liquid Funds CLTD v/s Mutual funds Procurement of Materials from Vendor Bibliography PAGE NO. 6 7 13 15 18 28 30 32 34 37 45 47 48 51 54 59 62

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EXECUTIVE SUMMARY
Treasury section in any corporate body or organization is responsible for the management of day to day cash needs, banking facilities and management of surplus or deficit funds. Thus treasury section plays very important role in the functioning of an organization. The importance of effective functioning of treasury section is immeasurable from the point of view of business prospective as it is concern with all cash activities of a firm. The major purpose of this project is to study and understand the working of a treasury section at Mazagon Dock Limited (MDL). In MDL, treasury section is involved in managing cash, cheque, ECS (Electronic Clearing System) / NEFT (Net Electronic Fund Transfer) payments, depending upon cash requirements of various departments. Additionally, the section also looks after Managing Funds, Investment of Surplus Funds in Banks, Bank Reconciliation, Earnest Money Deposits (EMD) etc. Every function has its own significance. Traditionally, the Treasury section at MDL has been parking their surplus funds from operations in low yielding investment avenues such as bank deposits Corporate Liquid Term Deposits (CLTD). Recently financial market in India has evolved tremendously to provide lot of investments avenues at retail as well as corporate level. Besides studying existing treasury system, the project focuses on suggesting better methods to manage surplus funds which involve investment in Mutual Funds, Treasury Bills etc.

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Company Profile
Mazagon Dock Ltd. (MDL), Mumbai, a Mini Ratna PSU and an ISO 9001:2000 company, is one of the leading shipbuilding, submarine construction and offshore fabrication yards in India. The Yard was established in the 18th century and over the 200 eventful years has earned the reputation for high quality workmanship. The skill and resourcefulness of workmen is well known in the shipping world in general and the Indian Navy, Coast Guard and ONGC in particular. Initially MDL had passed through various ownership changes like the P&O Lines and the British Indian Steam Navigation Company. It was incorporated as a Public Limited Company in 1934.

After its takeover by the Government of India on 14th May 1960, Mazagon Dock grew rapidly to become the premier warship building yard in India, producing sophisticated warships for the Indian Navy and offshore structures for the ONGC. It has grown from a single unit smaller ship repair company into a multiproduct company with significant rise in production and sophistication of products. The companys current portfolio of designs spans a wide range of products for both domestic and overseas clients.

DEVELOPMENT AND DIVERSIFICATION Since the takeover by the Government as a PSU in 1960, the Company underwent major expansion and modernisation during 1964 68 to undertake construction of large, modern warships for the Indian Navy. During early 1970s, the Company went into Phase II of the expansion programme to undertake construction of advanced Offshore Patrol Vessels for the Coast Guard. In 1978, it further diversified into fabrication of offshore structures followed by the transportation and installation of offshore well Platforms.

This was followed by augmentation of facilities at Nhava Yard during 1981 83 and at Mangalore during 1983 85 to cater to the increased demands from M/s ONGC Ltd. in the Energy sector. During the same period the Company developed indigenous capabilities for load out, transportation and installation of offshore structures at Bombay High by acquiring 650 T Derrick Barge, OSV and Jacket Launch Barges. To cater to the needs of the Indian Navy for the construction of high technology SSK Submarines for the first time in India, Mazagon Dock created state-of-art production and assembly facilities during 1980 85 in the East Yard. The Company has also undertaken the work of a New Class of submarine called the Scorpene Class Submarines in 2007 with French Technology.

MDL has also ventured into new areas like the Border Outpost (BOP) to cater to the needs of Border Security Force, as well as the supply and creation of Demineralization Plant, Chlorination Plant and Nuclear Power Plant for Nuclear Power Corporation (NPCIL)

Mazagon Dock has the capabilities to undertake a product mix as under:

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I. Defence Sector: Frigates, Corvettes, Missile Boats. Destroyers, Cadet Training Ships, Offshore

Patrol Vessels, Submarines etc.


II. Civil Sector: Cargo ships, Coasters, Passenger-cum-Cargo ships, Tankers, Dredgers, Tugs,

Cargo Barges, Floating Cranes, Sail Training ships, Fishing Trawlers, Barges, Pontoons, Launches, Offshore Supply Vessels, Multipurpose Support Vessels, Diving Support Vessels, Border Outpost etc.
III. Energy Sector: Fabrication of Well Head Platforms, Process Platforms, Single point Mooring

systems, Jackup Rigs, Pipe Coating, transportation and installation of offshore structures etc.
IV. Export Sector: Dredger Commandant Mortenol a 1600 Cu M Sand Dredger built for M/s

Maritime Joint Ownership, a French Company operating from Guadeloupe, an island territory of France Eastern West Indies. Multipurpose Support Vessel (MSV) for Greatship Global Offshore Services Pte. Ltd., Singapore.

GEOGRAPHICAL LOCATIONS AND FACILITIES Mazagon Dock has created facilities to serve Defence, Civil and Energy Sectors at following strategic locations. I. II. Dockyard Road, Mazagon, Mumbai 400 010. Nhava Yard, close to Jawaharlal Nehru Port across Mumbai Harbour.

Shipbuilding and Submarine Construction


The entire Yard is geographically divided into four sections viz. North Yard, South Yard, East Yard and Alcock Yard. The facilities of North Yard are mainly geared for fabrication work and repair activities and houses the Corporate offices. The South Yard is earmarked for the Mazdock Modernisation Project (MMP) for construction of Modular Workshops with pre-outfitting facilities. The East Yard is dedicated to submarine construction with modern semi-automatic processes. The Alcock Yard has the Apprentice Training School, the Main Engineering Training Centre and the Basic Training Centre. Allied activities of shipbuilding and submarine construction are also carried out there.

Mazagon Dock has three slipways, two dry docks and a wet basin for outfitting work. The Company has the capacity to build vessels upto 27,000 DWT and has specialised in the construction of warships, submarines, fast patrol craft and a variety of merchant ships.

Mazagon Dock has full-fledged Computer Aided Design department to provide up-to-date design and production support to the Yards capabilities. The Company has considerable human expertise in the usage of CAD facilities and can take up projects for different designs of ships and of weapons and Page 9 of 66

weapon system. These facilities make it possible for the company to offer complete integrated design for Naval projects like frigates, corvettes, submarines as also for a variety of Merchant ships.

The discovery of major oil fields at Bombay High during 1975 was seen as an excellent opportunity for Mazagon Dock to diversify into the manufacture of Offshore Platforms and other structures. The company established fabrication facilities at its Mumbai Yard inn 1978 and augmented facilities for fabrication of platforms at Nhava Yard during 1981 83 and at Mangalore Yard during 1983 85. These Yards specialised in the fabrication of offshore well platforms, process & production platforms and Jack-up rigs.

The Company has so far fabricated over 65 jackets, 63 Decks and 42 Well head topsides, three process platforms and two 300 M Jack-up Rigs. It has also carried out the coating of 636 kms of pipes of which 200 kms have been of 36 diameter and sub-sea laying of 518 kms. However, as the offshore business has been on the decline, the Yard at Mangalore was closed down and facilities in Mumbai and Nhava Yard are being utilized for shipbuilding activity.

Mazagon Dock is fully geared to carry out major repairs to all types of vessels and handles a large portion of repairs carried out in the port of Mumbai. The Companys repair service is renowned for the quality of its work and adherence to delivery schedules. There are no size restrictions on ships, which can be repaired by Mazagon Dock, except that they should be able to enter the Mumbai harbour. Both deck and engine repair work is undertaken. Underwater repair can be carried out on all types of vessels that can be accommodated in the largest dry dock (304.80 meter long) of the Mumbai Port Trust (approx. 4500 tones)

The Company has been implementing the concept of maintenance refit-repair on offshore patrol vessels and offshore supply vessels of the Coast Guard and ONGC Limited respectively. Major repairs and modernisation of Naval ships and SSK Submarines and Jack-up Rigs of ONGC are also being carried out by Mazagon Dock.

Objectives

Business I. II. To evolve a suitable strategy to achieve reasonable gains on investments. To pursue shipbuilding and ship repair activities towards further increasing its contribution in the company value of production and profitability.

Productivity Page 10 of 66

I. II.

To ensure optimum utilization of facilities in the shipbuilding Division, including facilities created for submarine building. To reduce greater operational efficiency, improved productivity and higher capacity utilization, resulting in reduced cost and generation of internal resources.

Diversification To Indigenisation To pursue indigenisation efforts for strategic reasons. explore business opportunities in conventional and potential areas.

Customers To achieve and maintain high degree of customer satisfaction through timely delivery of quality products and services at competitive cost.

Employees I. II. III. To upgrade the quality of HR and strengthen the technical and managerial competence and growth. To achieve higher levels of safety standards. To restructure the manpower by rationalization.

Corporate Social Responsibility The Department of Public Enterprises have issued on CSR for Central Public Sector Enterprises. The CSR will be adopted as a strategic tool for sustainable growth by integration of business processes with social processes. Accordingly, a holistic approach is being adopted on CSR so as to integrate the social responsibilities within immediate vicinity with the business of organisation. The ultimate goal would be to generate community goodwill and create a visible social / ecological impact that will benefit both the organisation and the community at large.

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Mazagon Dock Limited Organization Structure

CMD Chairman & Managing Director. D Director. S Shipbuilding. F Finance. S&HE Submarine & Heavy Engineering. CP&P Corporate Planning & Personnel. CVO Chief Vigilance Officer. CS Company Secretary. LA Legal Advisor. AGM Additional General Manager. IA Internal Audit.

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GGM Group General Manager. GM General Manager. AGM Additional General Manager. DGM Deputy General Manager. Page 13 of 66

CM Chief Manager. M Manager. DM Deputy Manager. AM Assistant Manager. AO Accounts Officer. F & A Finance & Accounts. C & B Costing & Budgeting. PR Payroll. PF Provident Fund. Tr. Treasury. PT Project Taxation. Bills ONP Bills other than Naval Project. C/A Central Accounts. FS Financial Services. CO Coordination. PE-F Project Executive Finance. MSV Multipurpose Support Vehicle. C/W Capital Works. MMP Mazdock Modernisation Project. CT Corporate Tax. P & I Property & Insurance. ERP Enterprisewide Resource Planning. ME Member ERP. CIT Computing & Information Technology. NP Naval Projects. SM Submarine. NPP Naval Project Payment

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SWOT ANALYSIS OF THE MAZAGON DOCK LIMITED


STRENGTHS:

Company is one of the leading shipbuilding and offshore fabrication yards in India. Location of the company itself is a strength of company as it is the best place for ship building being both the conditions of shallow water level and deep water level are available here. The ship building division of the company has been assessed and approved in accordance with the requirements of ISO 9001:2000 quality management system and awarded by that certificate. Company has granted Category-1 MINIRATNA status by government of India enabling enhanced powers in respect of capital expenditure, joint ventures and subsidiaries, mergers & strategic alliances. MDL provides design facility to other ship yards. Company having shipbuilding experience of more 150 years than

WEAKNESSES:

Unionism: It is the major weakness of the company. Because of which expected productivity cannot be achieved. Average age of the workers in MDL is and above.

fifty

Some of the services and equipment still not available in the India, are required to import from other countries. Aircraft career cannot be built due to constraints of dry dock capacity.

OPPORTUNITIES:

Company can have joint ventures with leading private companies. Company can penetrate the export market for both commercial and military/paramilitary vessels. Experienced and skilled manpower. Company can expand its site to get more orders. Page 15 of 66

Company can try to get international benchmarking.

THREATS:

Competition in the market due to private companies.


L&T (a private sector company) started building ships for the Navy

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TREASURY SECTION
Treasury section at MDL is responsible for minimum cash balance, withdrawal of cash based on requirements, arranging for security protection, physical verification of cash. Additionally, it also looks after all bank transactions such as preparation of cheques. DDs, accounting of payments and receipts, collection of bank advices and forwarding to respective accounts section for verification and accounting of direct debits and credits, issue of salary cheques through ECS/NEFT, payment to suppliers on due dates, computation of main cash book.

Objectives of Treasury Department: 1 All receipts and payments including bank transactions are recorded in time in the books prescribed for the purpose. 2 Excesses and shortages, if any, are recognized and reconciled before close of the day. 3 No transaction is omitted or recorded more than once. 4 To exercise complete control on all cash and bank transactions to avoid misuse are misappropriation of funds. 5 EMD receipts refund and adjustments are made with proper control. 6 EMDs are monitored regularly. 7 Accounting transactions pertaining to EMD are accurately and regularly recorded in the books of Accounts. 8 Investment of surplus funds. 9 Preparation of BRS. Responsibilities of treasury department: 1 Custody of all original Bank Guarantee (BG) received from suppliers. 2 To seek confirmation of signatures of BGs and genuineness of BGs 3 To lodge claim of BGs for encashment based on the advice received from the concerned commercial dept. for such action with approval of CMD. 4 To obtain approval of Committee of Directors for investment of surplus funds and then accordingly invest them. To monitor the invested funds on a continuous basis regarding their maturities and reinvestment and to account the interest received on such investment. 5 To obtain approval of the Management for opening of new Bank Accounts or closure of existing accounts and complete all documentation formalities. 6 To obtain approval of the Management for revision of authorized signatories as and when necessary. 7 Transfer of funds, payments through RTGS/NEFT/ECS and issue of cheques.

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Graphical representation of Treasury Section functions is as shown below:

PAYMENTS The Payments function of Treasury section involves fulfilling the financial obligations of the company. The obligations cover mainly the payments made to employees and vendors which provide various services to the company. Payment at MDL is mainly done by three modes: Cash

Cheque

ECS (Electronic Clearing System). . Cash Payment:

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In MDL, the cash payment is done for following purposes: Unpaid salaries and other dues of clerical and sub staff

Unpaid wages and other dues of workman Travelling allowances for officers Reimbursement of incidental expenses

As per the procedure followed by MDL, cash payment is not permitted for transaction of amount more than Rs. 20,000. Treasury Department receives the petty cash voucher duly signed and authorized by the concern department along with the supporting bill. Cash counter is open at 10.00 am and closes at 2.30 pm. One officer will record entries in the system simultaneously while the cashier distributes cash against the authorized voucher. One copy of petty cash voucher is maintained at Treasury Department for their records.

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Implementation of SAP
The concerned person who looks after Petty Cash A/c of MDL maintains the records in SAP. He makes advance payment or reimbursement or receives the excess cash not used. Each Leger A/c has been allotted different GL Codes. For e.g. Petty Cash A/c has 2231300 GL Code Home Screen of SAP for Treasury.

Consider entry of Advance given to Mr. Rajesh (T-code used :

) Page 20 of 66

The concerned person enter all the required data on the screen

He then enters the Cost Center Code. Each department has different Cost Center Code which helps at the time of Audit of Accounts.

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The following entry gets passed in Books of Accounts in SAP for advance payment.

Consider entry of Income by Sale of Coupons in MDL (T-code used : The concerned person enter all the required data on the screen

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He then enters the respective Cost Center code

He enters the vacant fields like in this case he has filled the text for reference while auditing.

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The following entry gets passed in Books of Accounts in SAP for Income.

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Consider entry of payment of Cash Allowance to the employee (T-code used : F-53 ) The concerned person enter all the required data on the screen

At the end of the day, all the transactions made by the concerned staff in Petty Cash A/c have to be checked by the Officer in Treasury Section. So he takes the print out of all the transactions carried out on a particular day and gets it checked by the concerned officer on daily basis. Below is the print out of transactions carried out on 26th May 2011. Page 25 of 66

If in case the staff makes the wrong entry by entering wrong GL code or wrong details, in SAP there is a provision to rectify it. The Officer in the Treasury Section makes the reverse entry so that the effect gets nullify.

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T-Code FB08 used for the reversal of the document

The Officer enters the Document no. of the wrongly posted transaction and then enters the required details.

Cheque Payment: As per the policy of MDL, all bank payments are made either by cheque or through ECS. MDL has its accounts with about 17 banks. Various bank accounts are used to make payments depending upon the amount or nature of the transaction. The system in MDL is such that it would automatically print the code of specific bank based on the amount specified on cheque. For example, the payment for amount more than Rs. 10 lakh is automatically made through SBI account. In case of payment through ECS mode, Bill Passing Section (BPS) records the information from the form filled by vendors in the system. This information is further accessed by treasury section to execute the payment. The information filled by BPS cannot be modified by treasury section. The banks are already provided with list of vendors and their account numbers. The Treasury section informs the banks about the amount to be credited to vendors account and subsequently the banks execute the payment transactions. Page 27 of 66

Review of data entry and printing cheques The operational process from receiving invoices to payment execution is detailed below: Treasury section receives the invoices with supporting documents from various departments such as Project section, BPS, East Yard Section and Offshore Section. These departments enter the required information in the system. The head of the department at Treasury section verifies the details such as party's name, amount, Bank code, General ledger code, mode of payment etc. and then authorizes these invoices with proper stamp and signature stamp. Once the entry is verified, the system automatically marks the entry by 'X' indicating that the entry is authorized for payments. The printing of cheque is done in the form of Payment Advice (PA) at the end of day process. Payment Advice (PA) is printed in three sets. At the time of printing of the first PA, concerned cheque number is filled in the system. Subsequently, the system will pick up the continuous series of cheque numbers. PA's are sent along with the cheque and invoices to the authorized persons for signature. The authorized personnel consists of two groups viz A category and B category. Minimum two persons are required for authorizing any payment, one from each category. After cheques are designed by the signatories, Treasury Department sent back the cheque and supporting documents to the concerned department. Cancellation of Cheques: The cheques are cancelled if they have turned defective due to misprinting or have become stale. It is observed that for recording the details of cancelled cheques, the company has maintained manually a register showing details such as date of issue and cheque number. MDL also keeps all cancelled cheques for their records. In case any cheque issued to the vendor is misplaced or has become stale, the vendor has to provide affidavit to concerned BPS. After receiving intimation from BPS, the Treasury department will instruct the bank to stop payment. Treasury Department will issue the fresh cheque, net of bank charges. Defective cheques can't be revalidated. Instead of revalidation MDL has the policy of reissuing fresh cheques. ECS Payment: In ECS(Electronic Clearing System) payment mode, series of electronic payment instructions are generated to replace the paper instruments. The system works on the basis of one single debit transaction triggering a large number of credit entries. These credits or electronic payment instructions which possess details of the beneficiary's account number, amount and bank branch, are then communicated to the bank branches through their respective service branches for crediting the accounts of the beneficiaries either through magnetic media duly encrypted or through hard copy. The minimum number of transactions per user institution is Rs. 2,500 with upper limit in value of any single item being restricted to Rs. 1,00,000. In MDL, when payment is made through ECS, Bill Passing Section (BPS) based on the form filled in by vendors, records all the information in the system. Based on the information provided, a concerned person in treasury section generates ECS at 3.00 p.m. on all working days. Following information is required for generating ECS: Bank Branch Beneficiary's Name Page 28 of 66

Account Type Ac No. of beneficiary MICR Code

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NEW METHODS OF PAYMENTS


Along with Cash, Cheque and ECs payment, MDL has introduced RTGS and NEFT mode of payment as part of its payment functions. RTGS (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 the money transfer takes place in the books of the Reserve Bank of India. The payment is taken as final and irrevocable.

+The RTGS system is primarily for large value transactions. The minimum amount to be remitted through RTGS is Rs.1 lac. There is no upper ceiling for RTGS transactions 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 customer has to furnish the following information to a bank for effecting a RTGS remittance:

Amount to be remitted His account number which is to be debited Name of the beneficiary bank Name of the beneficiary customer Account number of the beneficiary customer Sender to receiver information, if any The IFSC code of the receiving branch

NEFT (National Electronic Fund Transfer): NEFT is 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. NEFT SYSTEM OPERATION:` Step-1: The remitter fills in the NEFT Application form giving the particulars of the beneficiary and authorizes the branch to remit the specified amount to the beneficiary by raising a debit to the remitter's account. Page 30 of 66

Step-2: The remitting branch prepares a Structured Financial Messaging Solution (SFMS) message and sends it to its Service Centre for NEFT. Step-3: The Service Centre forwards the same to the local RBI to be included for the next available settlement. Step-4: The RBI at the clearing center sorts the transactions bank-wise and prepares accounting entries of net debit or credit for passing on to the banks participating in the system. Thereafter, bank-wise remittance messages are transmitted to banks. Step-5: The receiving banks process the remittance messages received from RBI and affect the credit to the beneficiaries' accounts. DIFFERENCE BETWEEN RTGS AND NEFT NEFT is an electronic payment system to transfer funds from any part of country to any other part of the country and works on Net settlement, unlike RTGS (Return of Goods Sold) that works on gross settlement. NEFT is restricted to the fifteen centers only where RBI offices are located.

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BANK RECONCILIATION
Overview: Bank reconciliation is the process of matching and comparing figures from accounting records against those presented on a bank statement. Less any items which have no relation to the bank statement, the balance of the accounting ledger should reconcile (match) to the balance of the bank statement. Bank reconciliation allows companies or individuals to compare their account records to the bank's records of their account balance in order to uncover any possible discrepancies. When ledgers were written manually, regular checks were important to ensure they remained in balance. It was important to have a reliable source against which to check the accounts ledger. The statement of account from a bank would have been hand written by a clerk and checked carefully by the bank manager. The statement can be taken as a reliable source, as banks' primary business is to ensure their ledgers correctly tracked the flow of funds. Hence the bank balance at the end of a given period could be obtained from bank and matched to a bank ledger kept by a company's accountant. A bank reconciliation statement is a statement prepared by organizations to reconcile the balance of cash at bank in a company's own records with the bank statement on a particular date. This statement is the most common tool used by organizations for reconciling the balance as per books of company with the bank statement and is made at the end of every month. The main objective of reconciliation is to ascertain if the discrepancy is due to error rather than timing. The difference between the two records on a given date may arise because of the following: Cheques drawn but not yet presented to the bank. Cheques received but not yet deposited in the bank. Interest credited and not recorded in the organization's books. Bank charges debited but not recorded in the organization's books.

BANK RECONCILLATION AT MDL


Bank reconciliation statement is prepared on the monthly basis in MDL's treasury section. MDL has account in 17 different banks. The concerned person at Treasury Department forms reconciliation statement for each account separately. So any entry missed can be easily found out. E.g. bank debit charges on 31st of the month. Earlier the majority of payments were through cash or cheque payment mode due to which the quantity of missing entries was large but now due to ECS system the work has reduced drastically. The Bank Reconciliation function activities are as following: Bank Statements and copies of Bank Advices are collected by the Assistant from the Bank on daily basis. The Assistant hands over the Bank Statements and Copies of Bank Advices to the concerned Assistant in Cash Section. The list of outstanding debits and credits is prepared monthly and is sent to the concerned department for incorporating outstanding entries in the next months Cash Book. The respective Assistant prepares Bank Reconciliation Statement (BRS) for confirmation of Balances as per Page 32 of 66

Bank Statement. The Officer-in-charge of Cash Section signs the Bank Reconciliation Statement with date and forwards the same to MIS. The officer concerned reviews the BRS and signs it with date as a proof of having reviewed. Unusual and abnormal entries/amount and long outstanding items are enquired into by the officer concerned and rectifications are effected in the following month. Items which need clarification are taken up with the Bank concerned. The Assistant files the BRS and Bank Statements separately month-wise in the BRS files and Bank Statement file respectively. The Book is bound and stored separately.

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BANK GUARANTEES
Overview A bank guarantee is a commercial instrument in the nature of a contract, intended between two parties, to secure compliance with the contract. It is an off-shoot of the main contract between two parties. In simple terms, a bank guarantee is defined as an accessory contract, whereby the promisor undertakes to be answerable to the promisee for the debt, default or miscarriage of another person, whose primary liability to the promisee must exist or be contemplated. Bank Guarantees In Commercial Contracts: Guarantees are important instruments used to minimize the risks that are involved in commercial contracts. For the enforcement of ordinary guarantees, as construed dependence of the guarantee on the main contract may lead to unnecessary disputes and litigation, arising from the main contract. These disputes may have a material effect on the guarantee, thereby blocking funds in litigation. Hence, there was a need for an innovative instrument which would enable the guarantee to serve its original purpose; namely, providing a form of security. The bank guarantee is one such innovative financial instrument whereby, if the beneficiary perceives that there has been a breach of contract by the other party, he can encash the guarantee and avail of the amount immediately, without having to undergo the hassles of litigation. Thus, the relevance of a bank guarantee achieves relevance. Difference Between Bank Guarantee And Usual Guarantee: An ordinary guarantee is a tri-partite (3 parties) agreement involving the surety, the debtor and the creditor. But a bank guarantee is a contract involving two parties i.e. the bank and the beneficiary. In an ordinary guarantee, the contract between the surety and the creditor arises as a subsidiary to the contract between the creditor and the principal debtor. The bank guarantee is independent of the main contract. In an ordinary guarantee, the inter se disputes between the debtor and the creditor have a material effect upon the surety's liability. However, the bank guarantee is independent of the disputes, arising ex contract (arising out of the contract). An ordinary guarantee does not have any time limit before which the debt has to be claimed. Bank guarantees generally have a specific time within which they are functional. BANK GUARANTEE AT MDL: In MDL following type of bank guarantees are found:

Bank guarantee against equipment. Bank guarantee against performance. Bank guarantee for security. Bank guarantee for performance. Bank guarantee for EMD (Earnest Money Deposits).

Procedure for Obtaining Bank Guarantees: On receipt of requisition for Bank Guarantee and draft Bank Guarantee along with management approval, Page 34 of 66

Billing & Receipt Section approaches the Bankers for the approval of Bank Guarantee draft. On receipt of approved draft from the Bank, the same is prepared on the stamp paper of Rs.100/- (for this purpose/blank stamp paper should be purchased either in the name of beneficiary or in the name of the Banker). The original Bank Guarantee along with three copies is submitted to the concerned Bank accompanied with request letter duly signed by authorized officer. Original Bank Guarantee and the second copy of Bank Guarantee duly endorsed by the Bank along with certificate of authority issued by the Bank confirming the Authority of the signatory is obtained and distributed as under a) Original copy along with authorisation certificate to the indenting department for onward submission to the customer. b) Second copy of the Bank Guarantee is retained in the respective office file In case of foreign Bank Guarantee, Bank Guarantee is issued to the customer directly to their foreign office through the foreign branch office of our bankers and a confirmation of having delivered to the party is obtained from the Bank. Procedure to be followed on encashment of Bank Guarantee On receipt of intimation from beneficiary for encashment of Bank Guarantee, Officer in Charge, B&R Section forwards the same to the respective Section. After getting the management approval for confirming the encashment from concerned Department, Officer in Charge B&R Section passes order in respective Division.

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EARNEST MONEY DEPOSITS


EMD (Earnest money deposit) is deposit taken by the company from any party at the time of issue of tender and company is supposed to return it if tender of that party does not get selected. The procedure for the EMD is as follows:

EMDs are received in the form of Demand Drafts as well as bank guarantees. Commercial Department
sends Demand Drafts to Treasury Department.

All receipts are entered in serial order in the EMD Received Register. Refund of EMD to unsuccessful bidders or successful bidder on completion of the contract, is on the basis
of advice given by Commercial Department.

EMD Registers are reviewed bi-monthly. It is generally 5% of the total contract value.
EMD's received from Outside Parties

EMDs are normally received from bidders (Contractors/Sub- contractors, carriers, scrap dealers etc.)
against tenders issued by the company EMDs are received in the form of DDs/Bankers Cheques. The cheques/DDs received from Commercial Department are entered in the Lodgement Register and deposited in the Bank.

Based on pay-in-slip, Receipt Advice (RA) is prepared in triplicate. Original RA is sent to the bidder by
Registered Post A/D as receipt of EMD, one copy is sent to EDP for accounting and the last copy is retained by Treasury Department.

Entry is made in the EMD Received Register, by the Assistant in Treasury Department on the basis of the
copy of the Receipt Advice (RA) received by him. The entry in the

The entry in the Register is made in serial order and each entry is checked and authorised by the officer
concerned. Repayment of EMD's to Outside Parties
(i)

Repayment of EMDs received from parties, are made as per the advice of Commercial Department. A letter signed normally by the Head of the Commercial Department, containing details of the party, amount, EMD deposit Receipt reference etc., is received by the Treasury Department. The Assistant concerned in Treasury Department cross verifies the details in the letter with EMDs Received Register.

(ii)

(iii)On instructions from Officer concerned, the Assistant prepares a Payment Advice (PA) for repaying the EMD. On the basis of the PA, entries are made in the EMD Received Register by rounding off the original receipt entry. The Officer concerned, at the time of checking and authorizing the PA, checks the entry in the Register and signs with date. Cheque prepared on the basis of PA is delivered to the concerned party only against submission of original receipt issued by MDL. Page 36 of 66

CASH FLOW STATEMENT


A Cash flow statement shows the change in a company's cash balance over a certain period. It is one of the four major financial statements reported by companies under the International Financial Reporting Standards (IFRS) and the US Generally Accepted Accounting Principles (GAAP). The cash flow statement breaks down cash inflows and outflows of a business into three broad categories: operating, investing and financing. Unlike the balance sheet and the income statement, the cash flow statement is not based on accruals accounting, which means, it only takes into account transactions for which there has been a cash exchange. For example: Depreciation expenses do not affect a company's cash flow statement. The statement is useful for determining a company's short-term strength/weakness, since it shows the company's ability to pay for its expenses. The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent. The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit. Operating Measuring the cash inflows and outflows caused by core business operations, the operations component of cash flow reflects how much cash is generated from a company's products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations. The operating section contains all cash flow related to operating the business. Examples of transactions that are accounted for in this section are: Cash received from sale of goods Payment to Employees Payment to Suppliers Lease payments Tax payments

Investing Changes in equipment, assets or investments relate to cash from investing. Usually cash changes from investing are a "cash out" item, because cash is used to buy new equipment, buildings or short-term assets such as marketable securities. However, when a company divests of an asset, the transaction is considered "cash in" for calculating cash from investing. The investing section reports cash flow from long-term investments that the company has made. Examples of transactions in this section are: Page 37 of 66

Capital Expenditures (e.g. buying a machine or a building) Investments income (e.g. dividends from another company) Sale of long-term asset, such as a building

Financing Changes in debt, loans or dividends are accounted for in cash from financing. Changes in cash from financing are "cash in" when capital is raised, and they're "cash out" when dividends are paid. Thus, if a company issues a bond to the public, the company receives cash financing; however, when interest is paid to bondholders, the company is reducing its cash. The financing section reports cash flow from investors and debt holders. Examples of transactions in this section are: Issuance/Repurchase of Shares Dividend Payments Retirement of debt

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CASH FLOW ANALYSIS


We can derive useful ratios the cash flow statement so as to assist us to evaluate the cash sufficiency of the entity. When we say cash sufficiency of an entity, we basically mean the adequacy of the cash flows to meet the entitys cash needs for long-term debt payments, dividends and acquisition of non-current assets. However, we should not be confused with cash flow efficiency of the entity which is really the efficiency with which the entity generates cash from its revenues, profits and assets. Lets look at the ratios for Cash flow namely: Cash Sufficiency Cash flow Efficiency Cash flow Efficiency: (a)Cash flow to sales: Percentage measure of a firm's ability to convert sales into cash, and an important indicator of its creditworthiness and productivity. A high number means the firm will be able to grow because it has sufficient cash flow to finance additional production, a low number indicates the opposite. Cash from operations Net sales revenue (b)Operation Index: an index measuring the relationship between profits from operations and operating cash flows. Cash from operations Operating profit after income tax (c)Cash flow return on assets: to measure the entitys operating cash flow return on interest and tax. Cash from operations + Tax Paid + Interest paid Average total assets assets before

Cash Sufficiency: (a)Cash flow adequacy: to measure the entitys ability to cover its main cash requirements. Cash from operations Long term debt paid + Assets Acquired + Dividends paid (b)Long-term debt repayment: to measure the entitys ability to cover its long term debt out of cash from operations. Long term debt repayments Cash from operations (c)Dividend payment: to measure the entitys ability to cover its dividend payments. Page 39 of 66

Dividends paid Cash from operations (d)Reinvestment: to measure the entitys ability to pay for its non-current assets out of cash from operations Non-current asset payments Cash from operations (e)Debt Coverage: to measure the payback period for coverage of long-term debt. Total long-term debt Cash from operations

Cash flow efficiency ratios: Sr.No. Ratio 1. Cash flow to Sales 2. Operation Index 3. Cash flow Return on Asset Cash Flow Sufficiency Ratios: Sr.No. 1. 2. 3. 4. Ratio Cash flow Adequacy Long term debt repayment Dividend payment Reinvestment 2008-2009 60.07% 5.79 4.57

2007-2008 16.96 0.21% 4.22% 1.46%

Cash flow analysis: One of the most important features you should look for in a potential investment is the company's ability to produce cash. Just because a company shows a profit on the income statement doesn't mean it cannot get into trouble later because of insufficient cash flows. A close examination of the cash flow statement can give investors a better sense of how the company will fare. Basically, the sections on operations and financing show how the company gets its cash, while the investing section shows how the company spends its cash. (B) Cash flow analysis By analyzing the SCF, it is possible to learn how effectively an organization has managed its cash for operating, investing, and financing activities and the financial activities that have occurred to date, resulting in its current cash position. For example, an organization that continually obtains most of its cash through operations demonstrates healthy and stable operations. An organization that obtains most of its cash through financing activities is in a more risky position. Trend analysis: The most significant information acquired from analyzing SCF data concerns the relationships between two or more variables, such as cash flows from operating activities to total cash flows. Comparing information presented in the SCF over a period of two or more years is useful in detecting improvement or deterioration in an organization's financial performance and helps identify trends. Page 40 of 66

Trend analysis is also known as horizontal analysis because it focuses on year-to-year changes in specific components of the SCF, showing rupee and percentage changes for each important item. This analysis of year-to-year changes can be performed either by comparing changes in absolute rupee amounts or by comparing percentage changes.

Common-sized analysis: Common-sized analysis, also referred to as vertical analysis because it focuses on intra-period relationships within the SCF for a given year, is another method that may be used to evaluate the SCF. Common-sized analysis consists of reducing a series of related amounts to a series of percentages of a given base. Each item on the SCF in a given period is expressed proportionately to a base amount. This analysis lends itself to a comparison of data and is useful in evaluating the relative size of items or the relative change in items. When performing such an analysis of the SCF, cash inflows and outflows should be separated, and an analysis should be performed for each type of cash flow. Common-sized analysis of the SCF shows the percentage of cash flows for each item in proportion to the total cash flows.

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Comparing the financial year 2008-09 and 2009-10 TABLE (A) Particulars Inflow from Operating activities Inflow from Investing activities Inflow from Financing activities Total Inflow 2008-09 (In Lakhs) 192052 30417 0 222469 2009-10 (In Lakhs) 230506 24955 0 255461

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TABLE (B) Particulars Cash receipt from customer Sale of scrap Sale of fixed asset Interest received Dividend received Total Inflow 2008-09 (In Lakhs) 191743 309 47 29683 687 222469 2009-10 (In Lakhs) 229966 540 400 23772 783 255461

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TABLE (C) Particulars Outflow from Operating activities Outflow from Investing activities Outflow from Financing activities Total Outflow 2008-09 (In Lakhs) 293191 7143 8368 308702 2009-10 (In Lakhs) 300406 3881 9064 313351

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TABLE (D) Particulars Cash paid to suppliers Cash paid to employees Income tax paid Purchase of Fixed Assets Repayment of Preference shares Repayment of Long Term Borrowings Interest paid Dividend paid Total Outflow 2008-09 (In Lakhs) 245910 32490 14791 7143 2474 287 4 5603 308702 2009-10 (In Lakhs) 243560 45287 11559 3881 2475 285 2 6302 313351

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INVESTMENT
Overview The money or fund available is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get returns on it inn future. This is called investment When investing, it's only natural to seek the highest rate of return for your investment. Four factors must be considered when making your investment decisions:

Risk Maturity Liquidity Yield

Each factor plays an important role in determining the rate of return the company receives on its invested cash surplus. These factors can also help it determine how much to invest and when to invest the cash surplus.

INVESTMENT AT MDL In the company decision to invest is based on the company policy regarding investment and also as per the Directorate of Public Enterprise (DPE) guidelines. The Department of Public enterprises (DPE) issues guidelines from time to time through Office Memorandum. The summary of the guidelines is as follows:

Investments should be made only in instruments with maximum safety. There should be a proper commercial appreciation before any investment decision is taken. The surplus availability may be worked out for the purpose of investment. Funds should not be invested by the public sector enterprise at a particular rate of interest for a particular period of time while the company is resorting to borrowing of at an equal or higher rate of interest for its requirements for the same period of time. Investment decision should be based on sound commercial judgment. The availability should be worked out based on the cash flow estimates taking into account working capital requirements, replacement of assets and other foreseeable demands. Term deposits with any scheduled commercial bank can be kept which has a paid up capital of at least 100 crores, and which fulfils the capital adequacy norm as prescribed by the RBI from time to time. Investments can be made in instruments which have been rated by an established credit rating agency and have been accorded the highest credit rating signifying highest safety, Certificates of deposits, deposit schemes or similar instruments issued by scheduled commercial banks/ term lending Page 47 of 66

institutions including their subsidiaries as well as commercial papers of corporate.

Inter-Corporate loans are permissible to be lent only to Central PSEs, which have obtained highest credit rating awarded by one of the established credit rating agencies. Any debt instrument which has obtained highest credit rating from an established credit rating agency. Decisions on investment of surplus funds shall be taken by the PSU board. However decisions involving investing short-term surplus funds up to a maximum of one year maturity may be delegated to the prescribed limits of investment, to a designated group of directors which should invariably include CMD and Director (Finance)/Heads of Finance internally. Where such delegation is made, the delegation order should spell out the levels of approval and the powers of each official which should be strictly observed. Where such delegation is exercised there should be a proper system of automatic internal reporting to the board at its next meeting.

On account of volatility of call money market instrument, there has been a general policy shift toward making the call money market a purely inter- bank market with the gradual phasing out of non-bank participation. Therefore it has now been decided not to allow PSEs to invest their surplus funds in call money market. The company on the other hand has an investment policy. It limits its investment in a single company at Rs. 600 crore or 5% of the net worth of the bank/company whichever is less. Investment Objectives of the company is that the investment of excess cash balances must satisfy the following investment objectives:

Maturity terms are selected which ensure that sufficient cash resources are available to meet obligations as they become due. Security of the invested funds must be a prime consideration in any investment and must be assured by reasonable tests. In addition, protection of the invested principal will be achieved with a diversified portfolio. A high level of liquidity must be maintained in the portfolio of investments to enable the sourcing of funds at minimal risk level of capital loss, or to provide the ability to adjust the portfolio in changing market conditions. This will be achieved by limiting investments to readily marketable securities Investment yield, while an important factor will be subordinate to security and liquidity considerations. Securities will not normally be actively traded - this will occur only when unexpected cash requirements arise, or opportunities arise to enhance credit at the same yield or enhance yield at the same credit without loss of principal.

The surplus available for the company to invest in different securities for different time period is determined through budgeted cash flow of the company. An analysis of the performance of various banks has been done to find the best avenue for the purpose of parking the cash surplus. The company mainly invests in Bank in Corporate Liquid Term Deposits (CLTD)

Corporate Liquid Term Deposits (CLTD)


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Corporate Liquid Term Deposit (CLTD) scheme is a deposit scheme for corporates, Institutions & Firms with its unique facility of the partial withdrawals (unitized break up) to the depositors without the need for premature encashment of the entire deposit. Thus the product provides liquidity to the depositors with high return and convenience.

Customer has the flexibility to choose the period of deposit from 7 days to 3 years. Rate of interest for CLTD will be the card rate applicable for the contracted tenure of the deposit. No differential rate of interest is applicable. Minimum amount of deposit to be maintained is Rs.25000/-.Subsequent deposit in multiples of Rs.5000/with a minimum of Rs.25000/- . Max cap is Rs.4.95 crores. Whenever any cheque is presented by the customer in case of inadequate balance in the current account for payment of the cheque the shortfall amount is broken in multiples of Rs.5000/- in last in first out basis from the CLTD and the cheque is honoured without any hassle to the customer. No loan /overdraft facility is available under the scheme. Rules applicable for premature withdrawal for fixed deposit are applicable for the part amount of deposit broken for withdrawal. Usual formalities applicable for opening current account and TDR/STDR account including KYC procedure are applicable for opening accounts under the scheme.

Currently MDL invests its temporary surplus funds in term deposits with schedule commercial banks and in CLTD A/c, fulfilling the requirement as specified in DPE guidelines. MDL does not consider Mutual Fund investment because the company is not given any guarantee on the principal amount or the returns. Moreover it is subject to market risk and it is more of a speculation which is taking place. As mutual funds are not considered by MDL, in the following pages I will try to study more about the mutual funds, how much and what is the risk involved in them, are the returns worthy enough if the risk is undertaken, will it be beneficial for MDL if it considers investing in them in future.

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MUTUAL FUNDS A mutual fund is a professionally-managed investment that offers diversity, liquidity and convenience. Each mutual fund is made up of individual stocks, bonds, or money market securities. Because a mutual fund pools the money of many individuals, it has the buying power to invest in hundreds of different securities at once. In exchange for the money invested in a mutual fund, the fund gives you units in the fund that represent the participation in the fund. The flow chart below describes broadly the working of a mutual fund:

TYPES OF MUTUAL FUND SCHEMES: Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. Mutual funds are classified in the following manner: On the basis of objective: Equity Funds/ Growth Funds: Funds that invest in equity shares are called equity funds. They carry the principal objective of capital appreciation of the investment over the medium to long term. They are best suited for investors who are seeking capital appreciation. There are different types of equity funds such as diversified funds, sector specific funds and index based funds. Diversified funds: These funds invest in companies spread across sectors. These funds are generally meant for risk-averse investor who wants a diversified portfolio across sector. Sector funds: These funds invest primarily in equities of companies in a particular business sector .these funds are targeted at investors who are bullish or fancy the prospects of a particular sector. Index funds: These funds invest in the same pattern as popular market indices like Nifty or CNX midcap 200. The money collected from the investors is invested only in stocks, which present the index. Tax saving funds: These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided under this Page 50 of 66

scream are in the form of tax rebate. Debt /Income funds: These funds invest predominantly in high rated fixed-income-bearing instruments like bonds, debentures. They are best suited for the medium to long term investors who are avers of risk and seek capital preservation. Liquid / Money Market fund: These funds invest in highly liquid money market instruments,. The period of investment could be as short as a day. They provide easy liquidity. These funds are ideal for corporate, institutional investors and business houses that invest their funds for very short periods. Guilt funds: These funds invest in central and State Government Securities. Since they are Government backed bonds they give secured returns and also ensure safety of principal amount. Balanced Funds: These funds invest both in equity shares and fixed-income-bearing instruments in some proportion. They provide steady returns and reduce the volatility of fund while providing some upside for capital appreciation. On The Basis Of Flexibility: Open Ended Funds: These funds do not have fixed date of redemption. Generally they are open for subscription and redemption throughout the year. Their prices are linked to the daily net asset value. Closed Ended Funds: These funds are open initially for entry during public offering and there after closed for entry as well as exit. These funds have fixed date of redemption. BENEFITS OF MUTUAL FUNDS Convenience: Investors who have the time and the money can build their portfolio by buying one security at a time. But identifying, researching and monitoring securities can be a full-time job that requires a lot of commitment. Alternatively, investors can simply buy a mutual fund in the market that will save them a lot of time and regular monitoring of the performance of the individual securities that make up the fund.. Diversification: A single fund can hold securities from 100s of different issuers or companies, far more than what an individual investor can realistically manage to hold in their individual portfolios. This diversification reduces the risk of a loss due to problems in one particular company or industry. Professional management: A mutual fund is managed by professional investors who do this full time. The resources available to them like traders who have practical experience in when to buy and sell securities, research team and access to company management is far more than what an individual investors can achieve on his own. Page 51 of 66

Liquidity: Like shares, mutual funds are also liquid investments that can be bought or sold freely so that investors have access to their money when needed. However, certain shares might not trade freely because there is not market for them, and then the investor is stuck. Mutual funds do not face this problem of illiquidity. DISADVANTAGES OF MUTUAL FUNDS Cost: Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are very complicated. Dilution: It's possible to have too much diversification. Because funds have small holdings in so many 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. Taxes: When making decisions about the money, fund managers don't consider investors personal tax situation. For example, when a fund manager sells a security, a capital-gains 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. For Mutual funds investment, I am considering liquid funds as a good option, because they match our purpose of investing for short term.

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LIQUID FUNDS
Liquid funds are ultra-short-term debt funds, which invest in money market instruments such as certificates of deposit, commercial papers and treasury bills, on an overnight basis or for few days or months. Liquid funds basically invest in short-term debt with maturities of less than a year, treasury securities and money market instruments. These instruments are held for a period of three to six months or even lower time period such as for few days or months. This type of funds does not invest in the debt securities having maturity period of more than one year. Many investors find these funds attractive as they provide the prevailing yield in the market, good liquidity and low interest rate risk because of 10% or less mark-to-market component as per SEBI guidelines. Some of the key advantages of this type of mutual funds can be summarized as below. Investors can park their short term cash in this fund to earn good return. Lower tax on interest earned by the investors. No entry and exit load is charged on the investment amount. Low annual fee of 0.30 to 0.70 per cent is applicable to manage the funds. Redemption time within 1 day. Minimum investment requirement is Rs. 5000. Investors can park there idle cash balances in liquid funds for earning interest for very short time periods like 7 - 20 days. Even bank savings account provides interest on average quarterly balances maintained in the savings account. But in case of liquid fund investor can earn the interest on daily basis upon the exact balances maintained in the fund. As there is no entry or exit load one can withdraw fund whenever requirement arises or can put more money into the fund if there is short term cash surplus. UTI TREASURY ADVANTAGE FUND GROWTH The fund plans to generate income through investments in quality oriented debt and Money Market Instruments.

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SBI MAGNUM INSTA CASH CASH PLAN It seeks to provide the investors an opportunity to earn returns through investment in debt & money market securities, while having the benefit of a very high degree of liquidity to meet unexpected needs of cash.

LIC NOMURA MF LIQUID FUND GROWTH It seeks to generate reasonable returns with low risk and high liquidity through investments primarily in money market securities.

IDBI ULTRA SHORT TERM FUND GROWTH The objective of the Scheme will be to provide investors with regular income for their investment. The Scheme Page 54 of 66

will endeavor to achieve this objective through an allocation of the investment corpus in a diversified portfolio of money market and debt instruments with maturity predominantly between a liquid fund and a short term fund while maintaining a portfolio risk profile similar to a liquid fund.

Comparative Calculation of Returns on the Investible Options Available to MDL Let us consider that MDL has some surplus funds available with it of Rs.10 Crore as on 23rd May 2011 I will try to calculate the income which these surplus funds can generate for the short period of time they are lying unutilized. Following the Guidelines of DPE, I will focus on two major investment options for investing this surplus fund. a. CLTD b. Public Sector Mutual fund. For Calculating the interest earned on these funds, Formula of simple interest is considered. The simple interest formula is as follows: Interest = Principal Rate Time Where: 'Interest' is the total amount of interest earned, 'Principal' is the amount Deposited, 'Rate' is the interest rate (%) per annum. 'Time' is the time period.

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CLTD v/s Mutual Funds


SWOT Analysis Corporate Liquid Term Deposits (CLTD) Strengths Returns are comparable with Fixed Deposits.

Funds can be liquefied as and when required without any charges

Weakness Returns are fixed but lesser than some other investment like mutual funds. Opportunities As they give interest after seven days, they are good investment instrument for very short periods. Threats They are threatened by mutual funds liquefied schemes that provide higher returns than them. Mutual Funds Strengths Higher returns on investment than Fixed Deposits. Open ended funds and liquid funds Investment does not have a maturity date. Funds can be liquefied as and when required They provide interest on very short term investments, also less than a week.

Weakness Returns are not fixed but variable. Some risk factor is ignored There is uncertainty in returns at times

Opportunities As the give high returns, they are preferred by most of the investors. Some schemes offer tax benefits also on form of dividends.

Threats Page 56 of 66

Due to uncertain returns, some people stay away from them.

Comparison of Returns from CLTD & different Mutual Funds Returns for 1 Day

Tabular Representation of 1 Day Returns Rate of retu rn 0.02 3 0.02 4 0.02 2 0.02 6 NA

Principal 10,00,00,0 00 10,00,00,0 00 10,00,00,0 00 10,00,00,0 00 10,00,00,0 00

Name of the scheme UTI Treasury Advantage Fund -Growth SBI Magnum Insta Cash - Cash Plan LIC Nomura MF Liquid fund Growth IDBI Ultra Short Term Fund Growth CLTD (Canara Bank)

Durati on 1 day 1 day 1 day 1 day 1 day

Amount 10,00,06,3 01 10,00,06,5 75 10,00,06,0 27 10,00,07,1 23 10,00,00,0 00

Retur ns 6,301 6,575 6,027 7,123 NA

Graphical Representation of 1 Day Returns

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Note: Bank CLTD A/c does not provide interest on the deposit which is invested for less than 7 days.

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Return for 7 days

Tabular Representation of 7 Days Returns

Principal Name of the scheme 10,00,00,0 UTI Treasury Advantage Fund 00 Growth SBI Magnum Insta Cash 10,00,00,000 Cash Plan LIC Nomura MF Liquid fund 10,00,00,000 Growth IDBI Ultra Short Term Fund 10,00,00,000 Growth 10,00,00,000 CLTD (Canara Bank)

Rate of return 0.161 0.168 0.154 0.172 2.5% p.a.

Durati on 7 days 7 days 7 days 7 days 7 days

Amount 10,03,08,7 67 10,03,22,1 92 10,02,95,3 42 10,03,29,8 63 10,00,47,9 45 47,945

Retur ns 3,08,7 67 3,22,1 92 2,95,3 42 3,29,8 63

Graphical Representation of 7 Days Returns

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Return for 30 days Tabular Representation of 30 Days Returns

Principal 10,00,00,0 00 10,00,00,0 00 10,00,00,0 00 10,00,00,0 00 10,00,00,0 00

Name of the scheme UTI Treasury Advantage Fund Growth SBI Magnum Insta Cash - Cash Plan LIC Nomura MF Liquid fund Growth IDBI Ultra Short Term Fund Growth CLTD (Canara Bank)

Rate of retur n 0.69 0.71 0.66 0.75 3.5% pa

Durati on 30 days 30 days 30 days 30 days 30 days

Amount 10,56,71,2 33 10,58,35,6 16 10,54,24,6 58 10,61,64,3 84 10,02,87,6 71

Returns 56,71,23 3 58,35,61 6 54,24,65 8 61,64,38 4 2,87,671

Graphical Representation of 30 Days Returns

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Risk in Mutual Funds


Every type of investment, including Mutual Funds, involves risk. Risk refers to the possibility that an investor might lose money, either principal or earnings or both. A funds investment objective and its holdings are influential factor in determining how risky a fund is. Reading the prospectus helps an investor to understand the risk associated with that particular fund. Risk and potential returns are directly related. This is the risk/return trade-off. Higher risks are usually taken with the expectation of higher returns at the cost of increased volatility. While a fund with higher risk has the potential for higher return, it also has the greater potential for losses or negative returns. The longer an investment time horizon is, the less affected one is by short-term volatility. In the offer document of Mutual Funds, there is a clause mentioned MUTUAL FUNDS ARE SUBJECT TO MARKET RISKS. This means that mutual funds never take the guarantee that there will be assured returns. This is especially true in case of equity mutual funds (because they provide higher returns, so greater risk is associated with them). Different mutual fund categories have inherently different risk characteristics and they cannot be compared. CONCLUSION: So from the above calculations and analysis it is clear that Mutual funds help to earn the investor much greater returns as compared to the CLTD Bank A/c investment options. It is true that there is some inherent risk involved in the case of Mutual funds whereas the other options are risk free. But the risks in the public sector mutual funds are not very high. They provide the investor with stable returns at low-risk and also high liquidity. And one advantage is also that dividend from mutual funds are tax free in the hands of the investor.

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PROCUREMENT OF MATERIALS FROM VENDOR


DIRECT PURCHASE ORDER (DPO) Direct Purchase is done for the items which are not coded with MDL. The procedure for accounting of Direct Purchase Items movement of documents thereof, procedure of passing the bills of DP by relevant Bill Passing Section and inter-action with SAP is explained below: Orders for Direct Purchases relating to each project / department are issued separately.

The User raises the Purchase Requisition (PR) of the goods / items he requires to the Purchase Department. The Purchase Department draws the tenders and attracts the various Suppliers. The various Suppliers send their quotations and from that the Purchase Dept. selects the suitable Supplier. The Purchase Dept. generates Order no from SAP and gives order to respective supplier. Goods received are inspected by the Inspection Dept. and after the acceptance of goods by the User, the Goods Receiving Section (GRS) makes entry of goods receipt in SAP and generates the GRN no. The Inspection Dept. prepares the Goods Receiving Note (GRN) confirming acceptance of goods and passes the copies of the same to Commercial Department and respective Bill Passing Section. In case the goods received are rejected by the User then the Inspection Dept. should clearly mention the defects / deficiencies in the remarks column of the GRN. The Goods Receiving Section (GRS) makes entry of goods receipt in SAP and generates the GRN no. In DPO the acceptance of goods is checked manually in the BPS. The concerned person verifies the bill and holds which will generate Invoice no. Then the concerned person enters the required data in SAP & checks whether the invoice is a Tax Invoice or not and checks whether the goods are delivered on time. If the delivery is delayed the Supplier is charged penalty in the form of Liquidated Damages (LD) which is 0.5% of the Basic cost per week subject to maximum of 5% and then he parks the document. The concerned Officer verifies the details and passes for the payment in Treasury Section.

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The Treasury Section makes the payment to the Supplier by the mode of ECS / NEFT / Cheque as prescribed in the document on the due date.

Graphical Representation of Vendor Procurement Cycle is given below:

Step No. 1 is carried out by User Step No. 2, 3, 4 & 5 is carried out by Purchase Department Step No. 6 is carried out by Goods Receiving Section Step No. 7 is carried out by respective Bill Passing Section Step No. 8 is carried out by Treasury Section

STOCK PURCHASE ORDER (SPO) Stock Purchase is done for the items which are coded with MDL. The procedure for accounting of Stock Purchase Items movement of documents thereof, procedure of passing the bills of SPO by relevant Bill Passing Section and inter-action with SAP is explained below:

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All stock purchases including steel and imported items are supported by a Stock Purchase Order (SPO) issued by Material Section of Commercial Department.

Stock Purchase Order (SPO) is generated from the system by the Material Purchase Department. Final Rate includes the Excise duty/VAT/CST/Freight and Insurance/Octroi which is calculated by applying the percentage rate to the basic material value.

Goods received are inspected by the Inspection Dept., the Goods Receiving Section (GRS) makes entry of goods receipt in SAP and generates the GRN no. The Inspector checks for the quality of the goods received. The Inspector enters the quantity accepted and the quantity rejected (if any) after inspection and indicates the reasons for rejection in SAP. The Inspection Dept. prepares the Goods Receiving Note (GRN) confirming acceptance of goods.

The Goods Receiving Section (GRS) makes entry of goods receipt in SAP and generates the GRN no.

The GRS passes the Bill one each to the Commercial Dept. and the respective Bill Passing Section (BPS). In BPS the concerned person enters the required data in SAP, checks whether the invoice is a Tax Invoice or not and checks whether the goods are accepted or rejected in system and checks whether the goods are delivered on time. If the delivery is delayed the Supplier is charged penalty in the form of Liquidated Damages (LD) which is 0.5% of the Basic cost per week subject to maximum of 5% and then he parks the document.

The concerned Officer verifies the details and passes for the payment in Treasury Section.

The Treasury Section makes the payment to the Supplier by the mode of ECS/NEFT/RTGS as prescribed in the document on the due date. Material Requisition (MR) for coded items is raised by the user department in the system. The MR is available to the stores online for issue. Page 65 of 66

Bibliography Accounts Manual, Second Edition, Volume 1 (2008), MDL Officers Manual, Revised Edition (2010), MDL http://amfiindia.com http://dpe.nic.in http://www.indorebank.org/cltd.htm http://www.mazagondock.gov.in http://www.mutualfundsindia.com/fundfactsheet1.asp http://www.investopedia.com/university/ratios/ http://valueresearchonline.com/funds/

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