EXECUTIVE SUMMARY

Power sector being the key infrastructure area it will be the centre stage driving India on higher economic growth path. The current all India installed power generation capacity as on July, 2010 is 163670 MW and the 11th plan targeted capacity addition is 78,700 MW 12th plan aims at adding 100000 MW. And during the 11th plan already 24500 MW has been commissioned and about 37800 MW is under construction and to be commissioned in remaining part of the 11th plan. However the energy shortage and pack shortage still continued to be 10.1% and 13.3% respectively given that demand continued to outstrip supply. Power Finance Corporation, a government of India undertaking is a non banking financing company, registered with RBI which provides financial assistance to power sector. Power Finance Corporation is a dominant player in Indian public sector in terms of investment but its market shares of 20% PFC has the status of a public financial institution that finances and assists borrowers in the power sector. these essentially exists a time gap between founds available for short term investments funds to the tone of 100 crores are available per month as surplus , thus there arise the need for placing / investment the surplus funds at an optimum yield . Treasury management unit (TMU) is in charge of the total short term investment function at power Finance Corporation. these include empanelment of banks identification of surplus, evolution quotation, making the investment decision according to the procedures laid down etc, the investment function is guided by operational policy as well as the investment policy option available for fund management of fund deployment for the funds in financial investment as per policy, arrangement of funds in case of any short fall, informed by banking unit.

FIXED DEPOSITS (FD) POWER FINANCE CORPORATION may place fund in fixed deposits with scheduled banks with a minimum net worth of RS 100 crore and having capital adequacy ratio (CAP) as per requirement of RBI from time to time . Further, PFC may place funds in FD‘s with public sector banks without credit rating from them. Whoever PFC may continue to insist safety rating either for FD‘s or commercial deposit from credit rating agency. (like DRSIL, ICRA,CARE,FITCH etc ) for placement of fund in FD ‘s with private bank the combined exposal limit of CD and FD with public sector and private banks will be fixed as under :

A) The top five empanelled nationalized banks selected on the basic of there net worth (based on there last audited account) will have an exposure of RS 1000 crore each. SBI and other banks will have exposure limit as given below.

B) In case of number of empanelled banks exceeds 20 and amount of investment is less than RS 500 cores, rotation system for calling quotations is to be followed . For rotation the quotation will be called from SBI, ten banks out of list of PSU banks (including subsidiaries of SBI), 5 banks from other schedule banks and 2 banks with whom the funds were last deployment at highest rate.

C) PFC shall update the panel every year in the month of September –October. The panel so drawn upon shall remain valid till a new one is drawn and approved. During the year, if PFC receives any request from any bank for inclusion of its name in the panel after the finalization of the panel, the bank may be included in the panel provided its worth exceed the net worth of bank that have the lowest net worth in the panel. Such additions to the panels will be in addition to the banks already empanelled for the year.

D) In the case rating of private bank is down graded below the highest safety rating, the corporation may imitate action for removing the said banks for the list of empanelment. Further in the case the corporation is having FD‘s / CD or any other deposits, even PFC may have to pay penalty for the said foreclosure. The said foreclosure will be done after taking approval of chief management director and will also be informed to the board of director in the monthly investment report. The said clause of foreclosure may be applicable for all types of investment in instruments requiring highest safety from banks or other institutions.

AVERAGE CALCULATION OF MUTUAL FUND

SAMPLE

S.NO Name of mutual fund

Amount of investment

(1)

Period (in days)

(2)

Rate of interest (Net of tax in %)

(3)

Amount *Period *Rate

4=(1*2*3)

Amount*Period

5=(1*2)

1 MF1 47.00 12 6.59 3716.76 564.0010.00 17 6.60 1122.00 170.0043.00 19 6.59 5384.03 817.001.96 7 6.61 90.69 13.72

41.46 6 6.60 1641.82 248.76100.00 1 6.31 631.00 100.00

2 MF2 15.00 4 6.49 389.40 60.0085.00 5 6.47 2749.75 425.00

3 MF3 2.00 3 6.36 38.16 6.0037.00 4 6.34 938.32 48.008.00 5 6.31 252.40 40.0035.00 9 6.26 1971.90 315.0018.00 10 6.27 1128.60 180.0047.00 4 6.23 1171.24 188.00

4 MF4 100.00 19 6.59 12521.00 1900.0090.06 1 6.39 575.48 90.06

5 MF5 10.00 11 6.61 727.10 110.0032.26 12 6.50 2516.28 387.1257.74 6 6.56 2272.65 346.44

39838.58 609.10

Weighted Average Rate of Interest=Amount X Period X Rate

Amount X Period

6.52%

On the basis of the above, monthly average returns have been tabulated below:-

Month Weighted rate % (Net of Tax)

Aug-10 4.27Sep-10 4.70Oct-10 5.26Nov-10 5.40Dec-10 5.39Jan-11 6.09Feb-11 6.32Mar-11 6.45Apr-11 6.41May-11 6.59Jun-11 6.31Jul-11 6.56

Aug-11 6.63Sep-11 6.51Oct-11 6.81Nov-11 6.79Dec-11 6.82Jan-12 7.10Feb-12 7.15Mar-12 7.33Apr-12 7.34May-12 7.49Jun-12 7.10Jul-12 6.95

Aug-12 6.74Sep-12 6.52Oct-12 6.31Nov-12 6.31Dec-12 6.25Jan-13 6.47Feb-13 6.3Mar-13 6.48Apr-13 6.48May-13 6.26Jun-13 5.94

5) The monthly returns given above have been further averaged to arrive at yearly return which is as under:-

Period Returns ( Net of Tax)

2010-2011 5.71%2011-2012 6.73%2012-2013 6.79%

FIXED DEPOSITS IN LAST THREE YEAR AT VARIOUS RATE

SAMPLE CALCULATION

Name of Bank

Amt of Investment (in crores)

Period (in days)

Rate of Interest (%)(Gross of Tax)

Amount*Peri*Od*Rate

Amount*Period

AAA 6.49 30 2.75 535.425 194.7

BBB 20.00 30 2.75 1650 600

CCC 63.97 48 3.51 10777.6656 3070.56

DDD 97.38 45 3.50 15337.35 4382.1

EEE 21.86 45 3.50 3442.95 983.7

FFF 260.50 14 3.25 11852.75 3647

GGG 56.05 14 3.50 2746.45 784.7

526.25 46342.5906 13662.76

Month Weighted Average Month Weighted Average

Rate % Rate %Financial Year 2010-2011

Apr-10 3.47 Oct-10 6.31

May-10 3.39 Nov-10 7.44

Jun-10 4.64 Dec-10 8.17

July-10 5.37 Jan-11 7.28

Aug-10 5.37 Feb-11 7.39

Sept-10 7.06 Mar-11 10.24

Financial year 2011-2012

Apr-11 6.83 Oct-11 8.38

May-11 9.17 Nov-11 9.15

Jun-11 9.72 Dec-11 9.42

Jul-11 7.97 Jan-12 9.23

Aug-11 8.67 Feb-12 9.54

Sep-11 8 Mar-12 12.14

Financial year 2012-2013

Apr-12 8.98 Oct-12 8.03

May-12 9.61 Nov-12 7.98

Jun-12 9.48 Dec-12 8.25

Jul-12 8.66 Jan-13 8.01

Aug-12 8.14 Feb-13 8

Sep-12 7.92 Mar-13 9.68

The above rates have been further averaged to arrive at yearly weightly averaged rate which are as under:-

Period Weighted Average Returns

2010-2011 6.34%

2011-2012 9.01%

2012-2013 8.56%

RECOMMADATION

As per the government regulations, the public sector enterprises should observe the following guidelines in regard to investment of surplus funds.

Deployment should be made only in instruments with maximum safety. There should be a proper commercial appreciation before any deployment

decision of surplus funds is taken. The surplus availability may be worked out for a period of minimum one year at any point of time.

Funds should not be invested by public sector enterprises at a particular rate of interest for a particular period of time while public sector enterprise is resorting to borrowing at an equal or higher rate of interest for its requirements for the same period of time.

Deployment decision should be based on sound commercial judgements.the availability should be worked out based on cash flow estimated taking into account working capital requirements, replacement of assets and other foreseeable demands.

The remaining period of maturity of any instrument should not exceed one year from the date of investment where the deployment is made in an instrument already issued.

Where the deployment is made in an instrument newly issued, the final maturity of the instrument should not exceed one year, however only in the case of term deposits with banks, it can be upto 3 year.

OBSERVATIONS

My short experience at Power Finance Corporation limited gives me animpression that is one of the largest power finance enterprise in India.It holds a vibrant organizational culture where the member exercises a shared meaning, which distinguishes this organization from other. The distinguishing characteristics 1 cloud pick up are:

Good quality management It is one of the leading government of India undertaking. Well established, long standing relation in the power sector industry. Implementing agency for schemes including AG&SP & AP&DRP Highest credit rating by the credit rating agencies of India Power sector presents significant investment opportunities. Sector expertise for consulting and providing investment gateways for domestic

and external financial agencies. New business opportunities to cover the range of activities in the power sector.

CONCLUSION

As per the analysis done we can conclude that there is a wide scope for the company to invest in, such as:

In a stable market the fund management unit if focuses more on mutual funds can get better opportunities for deployment and earn a high rate of return on deployment.

Power Finance Corporation also explores possibility of deploying its surplus fund in CBLO (Collateralized Borrowings and Lending Obligations) market. It will provide higher liquidity along with market linked return. However this will required approval department of public enterprises (DPE). It understood PFC has already taken a issue with the government.

The money market mutual funds is also good option as it provide high rate of return in comparison with the fixed deposits and has a huge market to play in and investment can be easily made during requirement of cash, it can easily be cashed .

The department thus has a number of various other option on which they can concentrate and focus on the trends so that the investment could be made and high yield can be earned.

BIBLIOGRAPHY

www.indiagov.in www.wiipedia.com www.investopedia.com www.dpe.nic.in www.rbi.org.in PFC Annual Report (2011-12) PFC Brochures PFC Manual on Fund Management & Banking Unit. Inputs provided by the Guide. Returns data for investment made by PFC Ltd.in Fixed Deposits and Mutual

Funds.

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