JAIIB RBWM Paper-4 Module-D Unit 4: Other Financial Services Provided by Banks

JAIIB Paper 4 (RBWM) Module D Unit 4: Other Financial Services Provided by Banks (New Syllabus) 

The Institute of Indian Banking and Finance (IIBF) has recently revealed the revised syllabus and examination pattern for the JAIIB Exam 2023. The JAIIB 2023 will consist of four papers, with Paper 4 (Retail Banking and Wealth Management) covering the crucial topic of “Unit 4: Other Financial Services Provided by Banks.” It is essential for candidates to thoroughly understand this unit to perform well in the examination.

To assist candidates in comprehending the topic, we will provide all the necessary details related to Unit 4: Other Financial Services Provided by Banks of JAIIB Paper 4 (RBWM) Module D Wealth Management. We highly recommend that candidates refer to this article and make use of our Online Mock Test Series to enhance their knowledge of  Other Financial Services Provided by Banks.

Understanding each unit in the syllabus, especially the Marketing unit, is essential for JAIIB Certification Examination 2023 candidates. This unit plays a vital role in the banking industry, and thus, candidates must prepare well to excel in the exam and establish a successful career in the banking sector.


Banks are permitted to undertake certain eligible financial services or para banking activities either departmentally or by setting up subsidiaries. Para banking activities, including bancassurance, depository service, insurance, MFs, credit and debit cards, etc, have helped increase the reach of the banks and brought a vast segment of the population into the fold of basic financial services.

Mutual Fund Business

A mutual fund pools money from many investors and invests the money in stocks, bonds, short-terms money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each unit represents an investor’s proportionate ownership of the fund’s holdings and the income those holdings generate.

The function of Mutual Fund can be easily understood by the diagram given below.

Salient Features of Mutual Funds

  • Professional Management – Money is invested through fund managers.
  • Diversification – Diversification is an investing strategy that can be neatly summed up as “Don’t put all your eggs in one basket”. By owning shares in a mutual fund instead of owning individual or bonds, the risk is spread out.
  • Economies of Scale – Because a mutual fund buys and sells large amounts of securities at a time its transaction costs are lower than what an individual would pay for securities transactions
  • Liquidity – Just like individual shares, mutual fund units are convertible into money by way of sale in the market.
  • Simplicity – Buying a mutual fund unit is simple. Any bank has its own line of mutual funds, and the minimum investment amount is small.
  • Investors should examine each of the above features carefully before investing in mutual funds.

Types of Mutual Funds

Each fund has a predetermined investment objective that tailors the fund’s assets, regions of investments and investment strategies. At the fundamental level, there are three varieties of mutual funds:

  • Equity funds (stocks)
  • Fixed-income funds (bonds)
  • Money market funds

All mutual funds are variants of these three asset classes. For example, while equity funds that invest in fast-growing companies are known as growth funds, equity funds that invest only in companies of the same sector or region are known as specialty funds.

Mutual Funds can also be classified as open-ended or closed-ended, depending on the maturity date of the fund.

Closed – Ended Funds

  • Closed-end funds run for a specific period.
  • On the specified maturity date, all units are redeemed and the scheme comes to a close.
  • The units shall be listed on a stock exchange to provide liquidity.
  • Investors buy and sell the units among themselves, at the price prevailing in the stock market.

Categorization of mutual fund schemes

In order to bring the desired uniformity in the practice, across Mutual Funds and to standardize the scheme categories and characteristics of each category, SEBI advised to categorize the open-ended MF schemes s given below.

The Schemes would be broadly classified into following groups:

  • Equity Schemes
  • Debt Schemes
  • Hybrid Schemes
  • Solution Oriented Schemes
  • Other Scheme

Equity Schemes

Invest in shares and stocks:

  • Represent the largest category of mutual funds.
  • Investment objective is long-term capital growth with some income.
  • Many different types of equity funds because of the different types of investment objective.

In equity schemes, a company is referred based on its market capitalization. Market capitalisation is the value of the stock that you arrive at by multiplying the stock price by the company’s outstanding number of equity shares. There are three main classifications, viz., Large Cap, Mid Cap and Small Cap.

  • Large Cap: 1st – 100th company in terms of full market capitalization
  • Mid Cap: 101st – 250th company in terms of full market capitalization
  • Small Cap: 251st – company onwards in terms of full market capitalization

Debt Scheme

  • Invest in debt instrument of different maturities. This ensures regular income.

Hybrid Schemes

  • Invest in Equity and debt instruments depending on the objectives of the schemes.

Solution Oriented Schemes

In case of Solution oriented schemes, there will be specified period of lock in. Examples of fund in the scheme are:

  • Retirement fund scheme: An open ended retirement solution oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier).
  • Children’s Fund: An open ended fund for investment for children having a lock-in for atleast 5 years or till the child attains age of majority (whichever is earlier).

Other Schemes: Examples of this Schemes are Index fund schemes and ETF.

RBI guidelines on mutual fund business

  • Banks shall not undertake mutual fund business with risk participation except through a subsidiary joint venture set up for the purpose.
  • Where a sponsoring bank undertaking the mutual fund business lends its name to the bank sponsored mutual fund, a suitable disclaimer clause shall be inserted while publicising new schemes to the effect that the bank is not liable or responsible for any loss or shortfall resulting from the operations of the scheme.
  • Banks shall undertake agency business of mutual fund companies departmentally subject compliance of the following additional conditions:
  • The investors’ applications for purchase/sale of mutual fund units shall be forwarded to the mutual funds/registrars/transfer agents.
  • The purchase of units shall be at the customers’ risk without the bank guaranteeing any assured return.
  • No mutual fund units shall be acquired from the secondary market or bought back from a customer for selling it to other customers.
  • Extension of credit facility to individuals against the security of mutual fund units shall be in accordance with the Master Directions on Credit Management.
  • A bank holding custody of mutual fund units on behalf of its customers shall keep the investments of the customers distinct from its own investments.

Insurance Business

Insurance is a financial risk management tool in which the insured transfer a risk of potential financial loss to the insurance company that mitigates it in exchange for monetary compensation known as the premium.

Insurance policies are of different types depending on the risk they mitigate. Broad categories include:

  • Health Insurance
  • Life Insurance
  • Asset Insurance

Health Insurance

Health insurance is a contract between the insurance company and the insured person to cover the medical cost that might arise from illness, accidental injuries, surgeries and other medical complications. The Liberalization of the insurance sector as well as the increasing demand for health insurance covers. specially from the middle class, have given a fillip to the growth of health insurance and today the sector is emerging as fastest growing segment in the non-life insurance industry. These insurance companies provide individual as well as floater policies. Group insurance are also in vogue.

Present players in Health Insurance Industry:

We can divide them into THREE categories.

  • Standalone health insurance companies
  • Health Insurance from General insurance companies
  • Health Insurance from Life Insurance Companies.

Life Insurance Products

There are different Life insurance products offerings catering to the investment needs and objectives of different kinds of investors. The broad categories of life insurance products are:

  • Endowment Policies: An endowment policy is the life insurance agreement that is mapped out to pay the lump sum after a specified term that is on maturity or upon death. The typical maturities are 10, 15 or 20 years up to a specified age limit. Moreover, in the case of any critical illness, the endowment policy also pays out.
  • Term Insurance Policy: Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term.
  • Money Back Policies
  • Pension Plans

Asset insurance

Many movable and immovable assets can be insured. It is the need of any bank to protect the assets charged to it. These assets are to be safeguarded by covering under insurance. Insurance on vehicles, machinery, livestock insurance etc. are some of the examples. The Insurance Regulatory and Development Authority, an agency of the Government of India, is the regulatory body for the insurance sector’s supervision and development in India.

Cross Selling

Cross-selling is the action or practice of selling an additional product or service to an existing customer. In practice, businesses define cross-selling in many different ways.

Strategies for Effective Cross Selling

  • A robust customer database is foremost for effective cross-selling. The database is the core on which the entire cross-selling strategy is built.
  • Based on the customer relationship history and the cross-selling model, a broad mapping of the customer profile and retail products to be cross sold has to be done.
  • The mapped data has to be sliced and diced to develop specific asset related cross-selling information.
  • The cross-selling information has to be put in place for staff (internal customers) to view and communicate to the target customer group.
  • The internal customers should be trained to effectively cross sell and convert the initiatives into business.
  • Cross-selling is a team effort and success depends on the attitude and involvement of all the staff concerned.
  • The success of cross-selling depends on offering at the right time, the relevant product to customer. It will be a futile exercise to cross sell a product which is not needed or relevant for the customer.
  • The strategy has to percolate from the corporate to the branch level based on customer database across geographies.
  • Dynamic feedback from the line level should be taken cognizance of for fine-tuning/re-tuning the strategies.
  • Selecting the target customer group is essential for cross-selling success. Selling the right product to the right customer improves the relationship.
  • Cross-selling is more relationship- than transaction-based. At any point of time, the cross-selling initiative by the line staff should not be an irritant for the customer.

Depository Services by Banks

With a view to adding value to banking services and making available the numerous benefits of depository system to clients, some banks have been offering DEMAT/Depository services through both the Depositories viz., National Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd. (CDSL).

A “Depository” is a provider of the facility for holding and/or transacting securities (like shares, debentures, bonds, government securities, mutual fund units, etc.) in, book entry form.

Depository Participant

Depository Participant (DP) is an agent of the depository who is authorized to offer depository services to investors and is registered as a DP with SEBI. Financial institutions, banks, custodians, stockbrokers and other types of intermediaries specified under SEBI (Depositories and Participants) Regulations, 1996, complying with the requirements prescribed by SEBI/Depositories can be registered as DP. An investor will always interact with a DP for the services and cannot directly approach the depository for any services except for Redressal of Grievances.

A Depository provides following services to investors through a DP:

  • Opening a demat account.
  • Dematerialization
  • Rematerialization.
  • To maintain record of holdings in the electronic form.
  • Facilitate settlement of trades by exchanges/Clearing corporations by delivering/receiving underlying securities from/in Beneficial Owner (BO) accounts.
  • Facilitate transfer of securities between BOs.
  • Receiving electronic credit in respect of securities allotted by issuers under IPO or otherwise.
  • Receiving non-cash corporate benefits, such as, allotment of bonus and rights shares or any other non-cash corporate benefits given by the issuers in electronic.
  • Facilitate pledging of dematerialized securities.
  • Freezing of the demat account for debits, credits or both.
  • Subscription/Redemption of mutual fund units in demat form.

Demat Account

What is a Dematerialisation (Demat) Account?

Investing in equity shares in physical form entails a lengthy procedure, lot of paperwork and risk of getting fake shares. In order to keep the entire experience easy and streamlined, a demat account is required. While trading online, demat account is used to hold shares and securities in dematerialised/electronic format.

Facilities offered by a Demat Account

  • Transfer of shares
  • Loan facility
  • Dematerialization & rematerialization
  • Multiple access options
  • Corporate actions
  • Freezing Demat accounts
  • Speed E-Facility

How to open a Demat Account?

You can open a Demat Account by following these easy steps:

  • Firstly choose a Depository Participant (DP) with whom you would like to open a Demat Account.
  • Afterwards, fill an account opening form and attach a passport-sized photograph along with photocopies of the required documents stating proof of address and identity. You should have a PAN card unless otherwise exempted. Remember to carry the original documents along for verification.
  • The DP will give you a copy of the rules and regulations, the terms of the agreement and necessary charges that you need to pay.
  • During an In-Person Verification, a representative of the DP would contact you to verify the details provided in the account opening form.
  • After processing of the application, you will get an account number/ client ID from the DP. These details will be required to access Demat Account online.
  • When you become a demat account holder, you would be required to pay an annual maintenance fee for maintenance of your account. Additionally, you would be charged a transaction fee for conducting buying/selling transaction via the Demat Account. In case your shares are in physical form, the DP may charge you a separate fee for dematerialisation of the shares.
  • You can open a Demat Account without having any shareholdings. Moreover, there’s no mandate to maintain a minimum balance.

Some Social Security Insurance Schemes

PM Jeevan Jyoti Bima Yojana Scheme

  • As mentioned earlier, this scheme is a one-year Insurance Scheme, and it offers life insurance cover for death due to any reason. The plan would be offered/administered through LIC (Life Insurance Corporation of India) and other Life Insurance companies willing to provide the product on similar terms with the required approvals and tie-ups with Banks for this purpose.
  • PMJJBY can be availed by the people who fall under the age group of 18 to 50 years ( life covers up to age 55) and have a savings bank account. Interested people who give their consent to join and enable auto-debit can avail of the benefits of this scheme.
  • A life cover of Rs. 2 lakhs is available under the PMJJBY scheme, at a premium of Rs.330 per annum per member, and is renewable every year. If someone has a joint account, all the account holders can join the scheme, provided they meet its eligibility criteria and agree to pay the premium at the rate of Rs.330 per person.
  • Benefits: ₹2 lakh is payable on member’s death due to any cause.
  • Premium: ₹ 436/- per annum per member.

Appropriation of Premium: 

  • Insurance Premium to LIC/insurance company: ₹289/- per annum per member
  • Reimbursement of Expenses to BC/Micro/Corporate/Agent: ₹30/- per annum per member.
  • Reimbursement of Administrative expenses to participating Bank: ₹11/- per annum per member

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

Pradhan Mantri Suraksha Bima Yojana is a government scheme launched on 9th May 2015 by PM Narendra Modi.  It intends to provide an affordable insurance scheme for the poor and underprivileged people in the age group of 18 to 70 years with a bank account at a premium of Rs.12 per annum; risk coverage of Rs.2 lakh for accidental death and full disability and Rs.1 lakh for partial disability.

Benefits of Pradhan Mantri Suraksha Bima Yojana

Pradhan Mantri Suraksha Bima Yojana (PMSBY) provides an insurance policy to the people belonging to the underprivileged sections of society. The scheme is administered by insurance companies from both the private and public sectors. Some of the benefits provided by the scheme are mentioned below:

  • The Pradhan Mantri Suraksha Bima Yojana offers a life cover of Rs. 2 lakhs for one year to all its account holders. This life cover is provided in case of accidental death or permanent disability.
  • A life cover of Rs. 1 lakh is provided to the beneficiary in case of partial disability.
  • This scheme can be availed by any individual aged between 18 years to 70 years.
  • In case of the death of the account holder, the benefits of the scheme can be availed by his/her nominee.
  • The scheme provides an annual premium of Rs. 12 per annum per member. This premium is auto-debited in one instalment on or before 1st June of every year.

Eligibility for Pradhan Mantri Suraksha Bima Yojana

Any individual must follow the below-mentioned criteria to be eligible for the Pradhan Mantri Suraksha Bima Yojana:

  • Any individual aged between 18 years to 70 years are eligible to apply for the scheme.
  • He/she must have a bank account along with their phone number linked to the account.
  • The individual should submit their Aadhaar details while applying for the scheme. This Aadhaar details will be linked with their bank account.
  • If any individual has multiple bank accounts of one or different banks, then he/she will be eligible to join the scheme through one bank account only. In the case of a joint account, the scheme benefits can be availed by all the bank account holders.
  • In the case of an NRI beneficiary, the claim benefits will only be provided to the nominee in Indian currency.


Factoring implies a financial arrangement between the factor and client, in which the firm (client) gets advances in return for receivables, from a financial institution (factor). It is a financing technique, in which there is an outright selling of trade debts by a firm to a third party, i.e. factor, at discounted prices.

Type of Factoring

Recourse and Non-recourse Factoring: In this type of arrangement, the financial institution, can resort to the firm, when the debts are not recoverable. So, the credit risk associated with the trade debts are not assumed by the factor.

On the other hand, in non-recourse factoring, the factor cannot recourse to the firm, in case the debt turn out to be irrecoverable.

Disclosed and Undisclosed Factoring: The factoring in which the factor’s name is indicated in the invoice by the supplier of the goods or services asking the purchaser to pay the factor, is called disclosed factoring.

Conversely, the form of factoring in which the name of the factor is not mentioned in the invoice issued by the manufacturer. In such a case, the factor maintains sales ledger of the client and the debt is realized in the name of the firm. However, the control is in the hands of the factor.

Domestic and Export Factoring: When the three parties to factoring, i.e. customer, client, and factor, reside in the same country, then this is called as domestic factoring.

Export factoring, or otherwise known as cross-border factoring is one in which there are four parties involved, i.e. exporter (client), the importer (customer), export factor and import factor. This is also termed as the two-factor system.

Advance and Maturity Factoring: In advance factoring, the factor gives an advance to the client, against the uncollected receivables.

In maturity factoring, the factoring agency does not provide any advance to the firm. Instead, the bank collects the sum from the customer and pays to the firm, either on the date on which the amount is collected from the customers or on a guaranteed payment date.

Procedure of Factoring

Atal Pension Yojana (APY)

The Government of India has announced a new scheme called Atal Pension Yojana (APY). APY is a guaranteed pension scheme and is administered by the Pension Fund Regulatory and Development Authority (PFRDA).

There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs 4000, or Rs 5000 on attaining an age of 60. The pension will be determined based on the individual’s age and the contribution amount. The contributor’s spouse can claim the pension upon the contributor’s death, and upon the death of both the contributor and his/her spouse, the nominee will receive the accumulated corpus. However, if the contributor dies before completing 60 years of age, the spouse can either exit the scheme and claim the corpus or continue the scheme for the balance period.

APY Features

Guaranteed monthly pension for subscribers, ranging from Rs. 1,000 to Rs. 5,000 per month.

  • Government of India (GoI) will also co-contribute 50% of the subscriber’s contribution or Rs. 1,000 per annum, whichever is lower. The Government co-contribution is available for those who are not covered by any Statutory Social Security Schemes and is not an Income Tax payer
  • GoI will co-contribute to each eligible subscriber for a period of 5 years, who joined the scheme during the period Jun 1, 2015 to Mar 31, 2016. The benefit of five years of Government co-contribution under APY would not exceed 5 years for all subscribers, including the migrated Swavalamban beneficiaries.


  • APY is applicable to all citizens of India aged between 18 – 40 years
  • KYC compliant Bank account is mandatory for this product

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