fin stms & cash mgmt

8/8/2019 Fin stms & cash mgmt

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ANALYSIS OF FINANACIALANALYSIS OF FINANACIAL

STATEMENTSSTATEMENTS&&

CASH MANAGEMENTCASH MANAGEMENT


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ANALYSIS OF FINANACIALANALYSIS OF FINANACIAL

STATEMENTSSTATEMENTS


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FINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSIS

Analysis of financial statement meansAnalysis of financial statement means

a systematic and specializeda systematic and specializedtreatment of the information found intreatment of the information found infinancial statements so as to derivefinancial statements so as to deriveuseful conclusions on the profitabilityuseful conclusions on the profitability

and solvency of the business entityand solvency of the business entityconcerned.concerned.


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Objectives of

Financial Statement

Analysis

Profitability Analysis Liquidity Analysis Solvency Analysis


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Profitability Analysis:Profitability Analysis: Users of financial statementsUsers of financial statementsmay analyze financial statements to decide past andmay analyze financial statements to decide past andpresent profitability of the businesspresent profitability of the business

Liquidity Analysis:Liquidity Analysis: Suppliers of goods, moneylendersSuppliers of goods, moneylenders

and financial institutions may do a liquidity analysis toand financial institutions may do a liquidity analysis tofind out the ability of the company to meet its obligationsfind out the ability of the company to meet its obligations

Solvency Analysis:Solvency Analysis:It refers to analysis of long termIt refers to analysis of long termfinancial position of the company. This analysis helps tofinancial position of the company. This analysis helps to

test the ability of a company to repay its debts.test the ability of a company to repay its debts.


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TYPES OFFINANCIAL

ANALYSIS

Intra Firm

Analysis

InterFirm

Analysis

Standard

Analysis

Horizontal

Analysis

Vertical

Analysis


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Intra Firm Analysis:Intra Firm Analysis:Analysis of performance of the organizationAnalysis of performance of the organizationover a number of years. It is also referred to as Time Series Analysisover a number of years. It is also referred to as Time Series Analysisor Trend Analysisor Trend Analysis

InterFirm Analysis:InterFirm Analysis: It is a comparison of two or moreIt is a comparison of two or moreorganizations in terms of various financial variables.organizations in terms of various financial variables.

Standard Analysis:Standard Analysis: only one set of financial statements of anonly one set of financial statements of anorganization is analyzed on the basis of standard set for the firm ororganization is analyzed on the basis of standard set for the firm orindustryindustry

Horizontalanalysis:Horizontalanalysis:It is a comparison of figures reported inIt is a comparison of figures reported infinancial statements of two or more consecutive accounting periodsfinancial statements of two or more consecutive accounting periodsi.e. Analysis across yearsi.e. Analysis across years

Vertical Analysis:Vertical Analysis: comparing figures from the financial statementscomparing figures from the financial statementsof a single period is known as Vertical Analysisof a single period is known as Vertical Analysis


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11. COMPARATIVE FINANCIAL STATEMENTS. COMPARATIVE FINANCIAL STATEMENTS

Comparative financial statements are statements ofComparative financial statements are statements ofthe financial position of a business so designed as tothe financial position of a business so designed as tofacilitate comparison of different accounting variablesfacilitate comparison of different accounting variablesfor drawing useful inferencesfor drawing useful inferences

Comparative financial statements show:Comparative financial statements show:

a)a) Absolute data for each of the periods statedAbsolute data for each of the periods stated

b)b) Changes in absolute data in terms of rupeesChanges in absolute data in terms of rupees

c)c) Changes in absolute data in percentagesChanges in absolute data in percentagesd)d) RatiosRatios

e)e) Percentage to totalsPercentage to totals


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PARTICULARSPARTICULARS Y1Y1

(Rs)(Rs)

Y2Y2

(Rs)(Rs)

CHANGECHANGE

IN AMTIN AMT

(Rs)(Rs)

Y2Y2--Y1Y1

CHANGE INCHANGE IN

PERCENPERCEN--

TAGETAGE

Y2Y2--Y1Y1 *100*100

Y1Y1

NET SALESNET SALES

LESS:LESS:COST OF GOODS SOLDCOST OF GOODS SOLD

OPENING STOCKOPENING STOCK

ADDADD:PURCHASES:PURCHASES

WAGESWAGES

FACTORY EXPENSESFACTORY EXPENSES

LESS:LESS: CLOSING STOCKCLOSING STOCK

COST OF GOODS SOLDCOST OF GOODS SOLD

GROSS PROFITGROSS PROFIT

LESS:LESS: OPERATING EXPENSESOPERATING EXPENSES

1.1. ADMIN EXPENSESADMIN EXPENSES

2.2. SELLING &SELLING &

DISTRIBUTION EXP.DISTRIBUTION EXP.

3.3. FINANCE EXP.FINANCE EXP.

TOTAL OPERATING EXP.

TOTAL OPERATING EXP.

600600

8080

300300

100100

8080

560560

120120

440440

160160

1818

3333

11

5252

1,0001,000

120120

800800

160160

100100

11801180

300300

880880

120120

2222

2323

--

4545

400400

4040

500500

6060

2020

620620

180180

440440

(40)(40)

44

(10)(10)

(1)(1)

(7)(7)

66.6766.67

5050

166.66166.66

6060

2525

110.7110.7

150150

100100

(25)(25)

22.2222.22

(30.30)(30.30)

(100)(100)

(13.46)(13.46)


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AdvantagesAdvantages

Indicates the direction of movement andIndicates the direction of movement andthe financial position of the company.the financial position of the company.

Used to compare the position of the everyUsed to compare the position of the everymonth or every quarter.month or every quarter.

Used to compare with other firms.Used to compare with other firms.

Presents a review of the past activities andPresents a review of the past activities and

their effect on the financial position.their effect on the financial position. Helps to determine the nature of trends ofHelps to determine the nature of trends of

current changes affecting the enterprise.current changes affecting the enterprise.


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DisadvantagesDisadvantages

Loose their purpose if the application of accountingLoose their purpose if the application of accounting

principles over a period of time is not consistent.principles over a period of time is not consistent.

Consistent changes in price levels render accountingConsistent changes in price levels render accountingstatements useless for comparisonsstatements useless for comparisons

To carry out inter firm comparison the firms need to bTo carry out inter firm comparison the firms need to b

of the same age, size and follow the same principles.of the same age, size and follow the same principles.

If the accounting period follows an abnormal periodIf the accounting period follows an abnormal period

the analysis would be rendered uselessthe analysis would be rendered useless


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2. Common2. Common--Size StatementsSize Statements

It is a statement which facilitatesIt is a statement which facilitates

comparison of two or morecomparison of two or more

business entities with a commonbusiness entities with a commonbasebase


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ParticularsParticulars AmtAmt PercentagePercentage

Sources of FundsSources of Funds

Owned FundsOwned Funds

Share CapitalShare Capital 80,00080,000 64%64%

ReservesReserves 20,00020,000 16%16%

Proprietors FundProprietors Fund100,000100,000 80%80%

AddAdd Borrowed FundsBorrowed Funds

DebenturesDebentures 25,00025,000 20%20%

Loan FundLoan Fund 25,00025,000 20%20%

Total Capital EmployedTotal Capital Employed 1,25,0001,25,000 100100

Application of FundsApplication of Funds

Fixed CapitalFixed Capital 75,00075,000 60%60%

AddAdd Working CapitalWorking Capital 50,00050,000 40%40%

Total Net Assets OwnedTotal Net Assets Owned 1,25,0001,25,000 100100

Common Size Balance Sheet


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ParticularsParticulars AmtAmt %%

Net SalesNet Sales 3,17,2503,17,250 100100

LessLess: Cost of Good Sold: Cost of Good Sold 1,77,7501,77,750 56.0256.02

Gross ProfitGross Profit 1,39,5001,39,500 43.9743.97

LessLess:: Operating ExpensesOperating Expenses

Administration and General ExpensesAdministration and General Expenses 23,00023,000 7.247.24

Selling OverheadsSelling Overheads 90,00090,000 28.3628.36

Total Operating ExpensesTotal Operating Expenses 1,13,0001,13,000 35.6135.61

Net Operation ProfitNet Operation Profit 26,50026,500 8.358.35

Add: NonAdd: Non--Operating ProfitOperating Profit

Other IncomeOther Income 30003000 0.940.94Less: NonLess: Non--Operating ExpensesOperating Expenses

Loss on Sale of InvestmentLoss on Sale of Investment 12,00012,000 3.783.78

Net Profit before TaxNet Profit before Tax 17,50017,500 5.515.51

LessLess: Tax: Tax 8,5008,500 2.672.67

Net Profit After TaxNet Profit After Tax 90009000 2.832.83

Common Size Income Statement


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It reveals the sources of funds and theIt reveals the sources of funds and the

application of the total funds in the assetsapplication of the total funds in the assets

of a business enterprise.of a business enterprise.

It indicates the changing proportion of theIt indicates the changing proportion of the

assets, liabilities, costs etc.assets, liabilities, costs etc.

It assists corporate evaluation andIt assists corporate evaluation and

ranking.ranking.


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Do not show variation in various item fromDo not show variation in various item from

time to timetime to time

If it is not prepared on a consistent basisIf it is not prepared on a consistent basiscomparative study will be misleading.comparative study will be misleading.

It does not establish any relationshipIt does not establish any relationship

between items in profit and loss accountbetween items in profit and loss account

with that of items of balance sheetwith that of items of balance sheet


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3. Trend Analysis3. Trend Analysis overviewoverview

What is trend analysis?What is trend analysis?

Advantages of trend analysisAdvantages of trend analysis

Disadvantages of trend analysisDisadvantages of trend analysis Example of trend analysisExample of trend analysis

Comments derived from trend analysis.Comments derived from trend analysis.


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What is Trend AnalysisWhat is Trend Analysis

Also termed as trend percentage.Also termed as trend percentage.

Used for comparing financial statements

Used for comparing financial statementsover a number of years.over a number of years.

At leastAt least 33 years data required.years data required.

Base yearBase year


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Trend analysisTrend analysis

Each base year item taken as 100.Each base year item taken as 100.

Upward trend will be indicated by the trendUpward trend will be indicated by the trend% being more than 100.% being more than 100.

Downward trend % will be indicated by theDownward trend % will be indicated by thetrend% being less than 100.trend% being less than 100.


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particularsparticulars 02 Rs.02 Rs. 02 %02 % 03 Rs.03 Rs. 03 %03 % 02 Rs.02 Rs. 04 %04 %

sources of fundssources of funds

1)Net worth1)Net worth

2)Borrowed funds2)Borrowed fundsDebenturesDebentures

Total loan fundsTotal loan funds..

Total capital employedTotal capital employed

44

44

44

88

100100

100100

100100

100100

7.27.2

33

33

10.210.2

180180

7575

7575

128128

10.210.2

22

22

12,212,2

255255

5050

5050

153153

Application of funds.Application of funds.

Fixed assetsFixed assets

Less: Depreciation prov.Less: Depreciation prov.

Netfixedassets.Netfixedassets.

1.61.6

0.60.6

11

100100

100100

100100

2.42.4

0.90.9

1.51.5

150150

150150

150150

3.23.2

1.51.5

1.71.7

200200

250250

170170


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particularsparticulars 02 Rs.02 Rs. 02 %02 % 03 Rs.03 Rs. 03 %03 % 02 Rs.02 Rs. 04 %04 %

Working capitalWorking capital

1)1) Current assetsCurrent assets

Quick assetsQuick assetsDebtorsDebtors

BankBank

Total Q.ATotal Q.A

4.54.5

11

5.55.5

100100

100100

100100

5.45.4

0.80.8

6.26.2

120120

8080

113113

7.27.2

1.11.1

8.38.3

160160

110110

151151

Non quick assetsNon quick assets

StockStock

Staff advancesStaff advances

Total non quick assetsTotal non quick assets

Total C.ATotal C.A

less C. Lless C. L

Working capitalWorking capital

33

1.51.5

4.54.5

1010

33

77

100100

100100

100100

100100

100100

100100

3.63.6

2.22.2

5.85.8

1212

3.33.3

8.78.7

120120

147147

129129

120120

110110

124124

4.24.2

1.91.9

6.16.1

1414

3.93.9

10.510.5

140140

127127

136136

144144

130130150150


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Comments/derivationsComments/derivations

Company reliance on borrowed funds hasCompany reliance on borrowed funds has

declined whereas the dependence on owneddeclined whereas the dependence on owned

funds has increased which can be revealed byfunds has increased which can be revealed by

8080%.%. The company has gone for an expansionThe company has gone for an expansion

program which is reflected by addition to theprogram which is reflected by addition to the

Fixed assets which has increased byFixed assets which has increased by 5050% in the% in the

yearyear 20032003 andand 7070% in% in 20042004 compared to thecompared to thebase year calculated on net Fixed Assets.base year calculated on net Fixed Assets.


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Comments/derivationsComments/derivations

Due to increase in Fixed Assets there isDue to increase in Fixed Assets there is

also an additional requirement of workingalso an additional requirement of working

capital in order to mobilize the Fixedcapital in order to mobilize the Fixed

Assets which is reflected by 24% in theAssets which is reflected by 24% in the

year 2003 and 50% increase in the yearyear 2003 and 50% increase in the year

2004 compared to the base year.2004 compared to the base year.


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Indicates the direction of movement ofIndicates the direction of movement offinancial performance of the company.financial performance of the company.

Indicates the increase or decrease in anIndicates the increase or decrease in anaccounted item.accounted item.

Shows the magnitude change , henceShows the magnitude change , hencemore effective than regular data.more effective than regular data.

An efficient method to showcase theAn efficient method to showcase thefinancial performance of a company over afinancial performance of a company over aperiod of time.period of time.


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Any 1 trend by itselfAny 1 trend by itselfdoes notdoes notshow theshow thetrue picture.true picture.

Trend percentages without absolute dataTrend percentages without absolute datareference tend to be absurd.reference tend to be absurd.

Comparison of trend is meaningless ifComparison of trend is meaningless ifaccounting practices change during theaccounting practices change during the

years.years. The base year selected may not be normalThe base year selected may not be normal

or typical.or typical.


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Cash ManagementCash Management


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MotivesforHolding Cash:MotivesforHolding Cash:

Transaction motiveTransaction motive-- Holding of cash to financeHolding of cash to financeroutine transactions occurring during ordinaryroutine transactions occurring during ordinarycourse of businesscourse of business

Precautionary motivePrecautionary motive-- Holding of cash forHolding of cash forunpredictable circumstances E.g: Floods,unpredictable circumstances E.g: Floods,increase in cost of raw materials etc.increase in cost of raw materials etc.

Speculative motiveSpeculative motive-- Take advantage ofTake advantage ofunexpected opportunities E.g: making purchaseunexpected opportunities E.g: making purchase

at favorable pricesat favorable prices Compensating motiveCompensating motive-- Banks use the minimumBanks use the minimum

balance in accounts to compensate themselvesbalance in accounts to compensate themselvesfor the services rendered to the business firmfor the services rendered to the business firm


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Cash Management Models:Cash Management Models:

1.1. Baumols Model:Baumols Model: EOQ management of cashEOQ management of cash

C= sqrt (C= sqrt (22FT)FT)

II

where, C=Optimal transaction sizewhere, C=Optimal transaction sizeF= Fixed Cost per transactionF= Fixed Cost per transaction

T= Estimated cash paymentsT= Estimated cash paymentsduring the periodduring the period

I=Interest on marketable securities per

I=Interest on marketable securities perannumannum

LimitationLimitation-- Too much uncertainty when trying toToo much uncertainty when trying topredict what the return will be.predict what the return will be.


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22.. MillerMiller-- OrrModel:OrrModel:

UpperControl Limit (UCL)UpperControl Limit (UCL)-- Marketable securitiesMarketable securitiesare boughtare bought-- Decided with the help of a formulaDecided with the help of a formula

LowerControl Limit (LCL)LowerControl Limit (LCL)-- Marketable securitiesMarketable securities

are soldare sold-- Decided by managementDecided by management


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UCL=UCL= 33RPRP-- 22LCLLCL

where,where, RP= Return PointRP= Return Point

RP=RP= 33 sqrt(sqrt(33bb22))

44II

where, RP=where, RP= Return PointReturn Point

b= Fixed Cost per order for converting marketableb= Fixed Cost per order for converting marketable

securities into cashsecurities into cash

I=Daily interest on marketable securitiesI=Daily interest on marketable securities22== Standard DeviationStandard Deviation Variance of daily changesVariance of daily changes

in expected cash balancein expected cash balance


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Cash Budget:Cash Budget:

It is a statement showing the estimated cashIt is a statement showing the estimated cash

inflows over a period of time.inflows over a period of time.

It shows the net cash position (surplus orIt shows the net cash position (surplus or

deficiency) of a firm asdeficiency) of a firm as it moves from oneit moves from onebudgeting period to another.budgeting period to another.

It is a device to help a firm plan and control theIt is a device to help a firm plan and control the

use of cash.use of cash.


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VariouspurposesofCashVariouspurposesofCash

Budget:Budget:

To coTo co--ordinate the timings of cash needsordinate the timings of cash needs

It pinpoints the period when there is likely to beIt pinpoints the period when there is likely to beexcess cashexcess cash

Enables a firm to take advantage of cashEnables a firm to take advantage of cashdiscounts on its accounts payable, paydiscounts on its accounts payable, payobligations when due, formulate a dividendobligations when due, formulate a dividendpolicy etcpolicy etc

Helps arrange needed funds on the mostHelps arrange needed funds on the mostfavorable termsfavorable terms

Prevents accumulation of fundsPrevents accumulation of funds


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ContdContd

Payments:Payments:

xxxxxxxxxxxx(1) Cash Payments(1) Cash Payments

xxxxxxxxxxxx(2) Suppliers (Creditors) for(2) Suppliers (Creditors) for

earlier credit purchasesearlier credit purchases

xxxxxxxxxxxx(3) OtherCash Expenses(3) OtherCash Expenses

xxxxxxxxxxxxxxxxxxxxxxxxTotalpayments (B)Totalpayments (B)

xxxxxxxxxxxxxxxxxxxxxxxxClosing Balance (AClosing Balance (A--B)B)


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CASHCYCLESCASHCYCLES


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MeaningMeaning

The cash conversion cycle is the number of daysThe cash conversion cycle is the number of days

between paying for raw materials and receiving the cashbetween paying for raw materials and receiving the cash

from the sale of the goods made from that raw material.from the sale of the goods made from that raw material.

Inventory Period

Day 0 : Purchase

stock on credit

Day X : Cash

paid for stock

Day Y : Sell

finished goods

on credit

Day Z :

Cash

received

A/Cs Payable period

A/Cs Receivable period

CASH CYCLE

CASH CYCLE = Y + Z - X


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SignificanceSignificance

A short cash conversion cycle is a sign of good workingA short cash conversion cycle is a sign of good working

capital management.capital management.

Conversely, a long cash conversion cycle indicates thatConversely, a long cash conversion cycle indicates that

capital is tied up while the business waits for customerscapital is tied up while the business waits for customers

to pay.to pay.

It is quite possible for a business to have a negativeIt is quite possible for a business to have a negative

cash conversion cycle.cash conversion cycle.

E.g.E.g.-- Dell Computers inDell Computers in 20052005

Cash Cycle =

- 41days

(4 + 30 75)A/Cs payable period

Inv. period A/Cs receivable

X Y Z4 30

75


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Concept of FloatConcept of Float

It is the difference between the availableIt is the difference between the available

balance and the book or ledger balance.balance and the book or ledger balance.

Disbursement float

Disbursement float

Collection floatCollection float

Plays an important role in thePlays an important role in the 22 types oftypes of

cash cycles viz.D

isbursement & Receiptcash cycles viz.D

isbursement & Receiptcyclescycles


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Disbursement cycleDisbursement cycle

It is the total time between when an obligation occursIt is the total time between when an obligation occurs

and when the payment is cleared from the bank.and when the payment is cleared from the bank.

Total cycle time =Total cycle time = 3535 daysdays Main objective is to increase the cycle time.Main objective is to increase the cycle time.

ActivityActivity DayDay

Obligation to supplierObligation to supplier

Invoice from supplierInvoice from supplier

Send chequesSend cheques

Payment clears the bankPayment clears the bank

00

1010

2525

3535FLOAT


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Methods of delaying paymentsMethods of delaying payments

Increasing Mail floats by mailing chequesIncreasing Mail floats by mailing cheques

from locations not close to parties.from locations not close to parties.

Increasing Clearance float by disbursingIncreasing Clearance float by disbursing

cheques from a remote bank.cheques from a remote bank.

Increasing Processing float by purchasingIncreasing Processing float by purchasing

with credit cards.with credit cards.


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Receipt cycleReceipt cycle

It is the total time between products /services areIt is the total time between products /services aredelivered and when payment from the customerdelivered and when payment from the customerclears the bank.clears the bank.

Total cycle time =Total cycle time =6666 daysdays

Main objective is to shorten the cycle.Main objective is to shorten the cycle.

ActivityActivity DayDayBegin services to customerBegin services to customer

Issue Invoice to customerIssue Invoice to customer

Receive paymentReceive payment

Payment clears the bankPayment clears the bank

00

3030

6262

6666

FLOAT


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Methods to shorten overall cycleMethods to shorten overall cycle

Invoicing customer as soon as possible and monthlyInvoicing customer as soon as possible and monthlyreminders.reminders.

Evaluating financial soundness of customers beforeEvaluating financial soundness of customers before

extending credit.extending credit.

Rewarding early payments with discountsRewarding early payments with discounts

Shorten Collection floatShorten Collection float Lock boxesLock boxes

Concentration bankingConcentration banking


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Marketable SecuritiesMarketable Securities

Short term investment instruments.Short term investment instruments.

They can be easily converted into cash inThey can be easily converted into cash ina short period of time.a short period of time.

CharacteristicsCharacteristicsA ready market and safety of principalA ready market and safety of principal

Little or no loss in the value over timeLittle or no loss in the value over time


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Selection CriteriaSelection Criteria

Financial RiskFinancial Risk

Uncertainty of the expected returns from a marketableUncertainty of the expected returns from a marketablesecurity.security.

Interest Rate RiskInterest Rate RiskUncertainty of the expected returns from a marketableUncertainty of the expected returns from a marketablesecurity attributable to changes in interest rate.security attributable to changes in interest rate.

TaxabilityTaxability

Market yields are affected because of different taxMarket yields are affected because of different taxstructures with different market securities.structures with different market securities.

egeg Govt./muncipal bonds are tax freeGovt./muncipal bonds are tax free


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LiquidityLiquidity

Ability to transform a security into cash in noAbility to transform a security into cash in no

time.time.

YieldYield

Affected by all the four factors. If a given risk isAffected by all the four factors. If a given risk is

assumed, such as lack of liquidity, then higherassumed, such as lack of liquidity, then higher

yield may be expected.yield may be expected.

Selection CriteriaSelection Criteria


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Types of Marketable SecuritiesTypes of Marketable Securities

Termdepositwith scheduledbankTermdepositwith scheduledbank

Banks accept deposit for periods ranging fromBanks accept deposit for periods ranging from15 days to 5 years.15 days to 5 years.

interest rate varies from 4%interest rate varies from 4% -- 10%10%

Treasury BillsTreasury Bills

Short term obligations of the government, whichShort term obligations of the government, which

have maturities like 91, 182, 364 days. It is soldhave maturities like 91, 182, 364 days. It is soldat discount and redeemed at par.at discount and redeemed at par.


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CertificateofdepositsCertificateofdeposits

Negotiable receipt of funds deposited with theNegotiable receipt of funds deposited with the

bank with a fixed rate of interest. They can bebank with a fixed rate of interest. They can be

transferred from one party to another.transferred from one party to another. CommercialPapersCommercialPapers

Short term unsecured promissory note with fixedShort term unsecured promissory note with fixed

maturity period issued by leading, nationallymaturity period issued by leading, nationally

reputed creditworthy and large business firms toreputed creditworthy and large business firms to

raise cash.raise cash.



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Mutual Fund SchemeMutual Fund Scheme

A financial intermediary ... investment objective.A financial intermediary ... investment objective.

It accepts small amounts from small investorsIt accepts small amounts from small investors

and further invests in huge securities.and further invests in huge securities.

InterInter-- corporatedepositscorporatedeposits

Short term deposit with other companies.Short term deposit with other companies.

It has high degree of risk and also it takes oneIt has high degree of risk and also it takes onemonth to convert them into cash.month to convert them into cash.



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BillsdiscountingBillsdiscounting

Seller discounts the bill with the bank and theSeller discounts the bill with the bank and the

bank releases the funds to the seller.bank releases the funds to the seller.

ReadyforwarddealReadyforwarddeal

A commercial bank or some organization may doA commercial bank or some organization may do

a ready forward deal with a company interesteda ready forward deal with a company interestedin deploying surplus funds on short term basis.in deploying surplus funds on short term basis.



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GiltGilt-- edged Securitiesedged Securities

Most government securities bong are gilt edgedMost government securities bong are gilt edged

securities because of less risk involved. Theirsecurities because of less risk involved. Their

returns are lower than other forms of investment.returns are lower than other forms of investment.

Municipal BondsMunicipal Bonds

Bonds raised by municipal bodies of local

Bonds raised by municipal bodies of localgovernment for financing core urbangovernment for financing core urban

infrastructure facilities like drinking water.infrastructure facilities like drinking water.



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