NOTES OF PART B

BUSINESS STUDIES

BY CS DHEERAJ JAGIYA

2022-2023

AS PER LATEST AMENDMENTS

CH – 9TH FINANCIAL MANAGEMENT

CHAPTER 9TH FINANCIAL MANAGEMENT and FINANCIAL

PLANNING

FINANCIAL MANAGEMENT is concerned with management of flow of funds

and involves decisions relating to procurement of funds, investment of funds
and distribution of profits.

FINANCIAL MANAGEMENT includes three broad decisions:

1.) INVESTMENT DECISION – it relates with investment of funds in different

assets so that firm will be able to earn maximum possible return.
Investment decisions are of two types:
(i) Short-term investment decision – it is also called working capital decisions
and relates with cash, stock and debtors. It affects day to day working of a
business. Proper cash management, stock management and debtors
management are important for sound business management.

(ii) Long-term investment decision – its is also called capital budgeting

decision and relates with investing funds on long term basis. For example.
Huge amount invested in fixed assets.

2.) FINANCING DECISION – this decision is regarding quantity of funds to be

raised from various sources. The main long term sources of raising funds are:
(a) Owner funds or Equity means issue of shares and use of retained earnings.
(b) Borrowed funds or Debt means raising funds through issue of debentures or
taking loans, etc.

3.) DIVIDEND DECISION – Dividend is that portion of profit which is

distributed to shareholders. Dividend decision involves how much of the profit
earned by a company (after paying taxes) is to be distributed to the
shareholders and how much of it should be retained in the business.
OBJECTIVES OF FINANCIAL MANAGEMENT
The primary objective of financial management is to maximize shareholder’s
wealth. The wealth of shareholders can be maximized when the price of shares
rises overtime.
The funds of the company belong with shareholders and the manner in which
they are invested determine the market price of shares.
So, it’s obvious that maximizing shareholder’s wealth means maximization of
the current market price of equity shares of the company.

THE ABOVE OBJECTIVE OF WEALTH MAXIMIZATION CAN BE ACHIEVED

BY:
(a)Ensuring availability of sufficient funds at reasonable cost.
(b) Ensuring effective utilization of funds.
(c) Ensuring safety of funds by creating reserves, etc.

ROLE OF FINANCIAL MANEGMENT (OR) WHY FINANCIAL MANAGEMENT IS

NECESSARY?
1.) It is concerned with optimum usage of finance.
2.) Good financial management aims at:
raising funds at lower cost , keeping the risk under control and proper usage of funds.
3.) it aims at ensuring availability of sufficient funds all the time in the company.

INVESTMENT DECSION OR LONG TERM INVESTMENT DECISION

LONG TERM INVESTMENT DECISION is also known as Capital budgeting

decision or Management of fixed capital.
It involves allocation of firm’s capital to different projects or assets with long
term implications for the business.
It involves investment in following:
(a) Acquiring a new fixed asset such as land, building, plant and machinery,
etc.
(b) Opening a new branch
(c) Expenditure on acquisition, modernization and their replacement.
(d) Launching a new product line.
(e) Investment in advanced techniques of production
(f) Major expenditures on advertising campaign and research and development.
WHY LONG TERM DECISION IS IMPORTANT?

1.) LONG-TERM GROWTH – These decisions have long term impact on

company’s growth. The funds invested in long term assets are likely to earn
returns in future. Thus, it will affect the future growth of business also.

2.) LARGE AMOUNTS OF FUNDS INVOLVED – These decisions normally involve

huge amount of funds being blocked in long term projects.

3.) RISK INVOLVED – Fixed capital involves investment of huge amounts it

affects the profits of the firm in the long run and thus this decision involves lot
of risk.

4.) IRREVERSIBE DECISION – these decisions once taken are not reversible without
incurring heavy losses. If firms abandon/cancels a project after heavy
investments, then, it will be a lot of wastage of funds.

FACTORS AFFECTING LONG TERM INVESTMENT DECISION –

1.) THE RATE OF RETURN – the most important factor is the rate of return of the
project. If there is only one project then, its strength can be seen from rate of
return. However , if there are more than one projects a particular project with high
rate of return is selected.

2.) CASH FLOWS OF THE PROJECT – When a company takes an investment

decision involving huge amount of funds, it expects to generate some cash flows
over a period. These cash flows are in the form of receipts and payments over the
life of the investment. The amount of these inflows and outflows should be
carefully analyzed before considering a capital budgeting decision.

3.) THE INVESTMENT CRITERIA INVOLVED: the decision to invest in a particular

project involves a number of calculations regarding the amount of investment,
interest rate, cash flows and rate of return. There are different techniques to
evaluate investment proposals which are called as capital budgeting techniques.
These techniques are applied to each proposal before selecting a particular project.
FINANCING DECISION
FINANCING DECISION relates with the financing pattern or the proportion of debt
and equity. It is a decision regarding how much funds to be raised and from
which source.
Before learning the factors affecting financing decision, let us learn the
concept of debt and equity.

DEBT
• Here company raised money from loans and debentures
• Need to pay interest by company
• As interest is an expense, so, co. needs to pay tax after payment of
interest. Thus tax benefit available
• Debenture-holders and loan providers cannot be the owner of company.
Thus issue of debt doesn’t dilute the control
• Floatation cost doesn’t exist for taking loans and issuing debentures.
• Need to pay interest in profits as well as in loss. Thus debt is risky.
• Debentures holders are secured people as they get assured returns
• Due to assured return, their % of interest is low.
• Due to low % of interest, no floatation cost and due to tax benefit, we can
say cost of debt is cheaper.

EQUITY
• Here company raised money from issue of shares and use of retained
earnings.
• Need to pay dividend by company to shareholders.
• Tax benefit not available as dividend is not an expense and company
needs to pay tax on whole profit.
• Shareholders become the owner of the company. It means issue of shares
means dilution of control of company in many hands.
• It involves huge floatation cost like issue of prospectus, advertisement
cost, cost of brokerage, etc.
 • Need to pay dividend only in profits and company is not liable to pay any
dividend in case of losses unlike debt. Thus equity is not risky.
• Shareholders are insecure people as they get dividend in profit only and
not in case of losses.
• Due to insecurity of payments, shareholders get high % of dividend.
• Due to high % of dividend, high floatation cost and no tax benefit. All
these pts make equity costlier.

FACTORS AFFECTING FINANCING DECISION

1.) CASH FLOW POSITION OF THE COMPANY – A company has cash payment
obligations for daily business operations as well as for investment in fixed
assets and also for payment of principal amount and interest.
If the cash flow position of the company is strong, then issue of debt is more
viable as company can easily take the commitments of interest.
Whereas, if the cash flow position of the company is weak then, debt is not
recommended because company would not be able to pay interest payments on
time.

2.) FIXED OPERATING COSTS – If a business has high fixed operating costs like
rent, insurance premium, salaries, etc then company should not use debt as a
source of finance because debt includes fixed payments of interest.
Similarly, if fixed operating cost is less then company can raise more funds
from debt.

3.) COST (TAX DEDUCTION) – the cost of each type of finance is estimated. Some
sources may be cheaper than others. A financial manager would normally opt
for a cheaper source of finance. For example: a debt is considered to be the
cheapest source of finance because it includes tax deductions.

4.) RISK CONSIDERATION – risk evaluation is mandatory before choosing any

source of finance.
Use of more debt increases the financial risk of a business. Financial risk refers
to a position when a company is unable to pay its fixed financial charges.
Apart from financial risk, every business has some operating risk (business
risk). Operating or business risk depends on fixed operating costs. Higher fixed
cost like rent means higher operating risk.
So, if all these risks are low hen company can use more debt otherwise not.

5.) FLOATATION COST – the funds raising process involves huge cost like
expenditure of prospectus, advertisement cost, brokerages, etc. this cost is called
floatation cost. Public issue of shares costs so much floatation cost and thus it
makes equity more costly while taking a loan from ban or debt is not so costlier
as it doesn’t involve any floatation costs. This consideration is also necessary
before choosing the source of finance.

6.) CONTROL CONSIDERATION – debt doesn’t cause a dilution of control because

issue of debt doesn’t make debenture-holders the owner of the company. While
issue of equity reduces company control on business as shareholders are
considered as the owner of the company. Thus, before choosing source of finance,
this must be taken into consideration.

7.) STATE OF CAPITAL MARKET – stock market condition always affect the
choice between debt and equity. During the period when stock market is rising
means bullish phase , then , most people invest in equity and thus issue of
shares by company would be much easier as shares can be easily sold in the
market.
However, during bearish phase, company should choose debt as stock market
crashed and no one would like to invest in shares.

NOTE: IT must be noted that debt is cheapest as compare to retained earnings.

It is because if earnings were not retained they would be paid to equity
shareholders in the form of dividends. When part of profit is retained and not
distributed to shareholders then use of such amount increases the expectation of
shareholders of higher dividends.
In short, use of retained earnings amount means in coming year shareholders
would be expecting higher dividends.
Thus, debt is cheapest as compare to using retained earnings.
DIVIDEND DECISION
DIVIDEND DECISION involves how much of the profits earned by a company
(after paying taxes) will be distributed as dividend to shareholders and how
much will be retained in the business.
Following are the factors affecting dividend decision:

1.) AMOUNT OF EARNINGS – dividends is paid out of current and past

earnings. Therefore, earnings are a major determinant of the dividend decision.

2.) STABILITY OF EARNINGS – other things remaining same, a company

having stable earnings is in a better position to declare higher dividends.
Whereas, a company having unstable earnings is likely to pay smaller
dividends.

3.) STABILITY OF DIVIDENDS – companies generally follows a policy of

stable dividend per share. The increase in dividends generally made when the
earning potential of the company increases and not just the earnings of the
current year. In simple words, we can say dividend should not be altered if the
changes in earnings is small or temporary in nature.

4.) GROWTH OPPORTUNITIES – companies having good growth

opportunities retain more money out of their earnings for future investments
and declare fewer dividends. Whereas, non-growth companies are likely to pay
more dividend.

5.) CASH FLOW POSITION – the payment of dividend involves an outflow of

cash. A company may be earning profit but may be short on cash. Availability
of enough cash in the company is necessary for declaration of dividend.

6.) SHAREHOLDER’S PREFERNCE – While declaring dividends,

management of a company must keep in mind the preferences of the
shareholders. If the shareholders in general desire that at least a certain amount
is paid as dividend, the company is likely to declare the same because there are
always some shareholders who depend upon a regular income from their
investments.
7.) TAXATION POLICY – A dividend distribution tax is levied on companies. If
tax on dividend is higher, it is better to pay less by way of dividends. Whereas,
higher dividends may be declared if tax rate is lower.

NOTE: as per companies act 2013, DDT is levied @15% on companies. Dividends
are free of tax in the hands of shareholders up to 10 lakhs. However, in case the
dividend received by any shareholder is more than 10 lakhs, then it will be
charged @ 10 %.

8.) STOCK MARKET REACTION : Generally, investors view an increase in

dividend as a good news and hence market price of shares increases in the stock
market. Against this, a decrease in dividend reduces the market price of shares.

9.) ACCESS TO CAPITAL MARKET – Large and reputed companies generally

have easy access to the capital market (for taking loans) and therefore may
depend less on retained earnings and thus company will pay higher dividend.
Similarly, small companies having less access in capital market for taking
loans will retain more money with that and pay less dividends.

10.) LEGAL CONSTRAINTS – certain provisions of companies act place

restrictions on payment of dividends. These rules and provisions of companies
act 2013 must be adhered before declaring the dividend.

11.) CONTRACTUAL CONSTRAINTS – while granting loans to a company,

sometimes banks may impose certain restrictions on the payment of dividends
in the future. The companies are required to ensure that the dividend does not
violate the terms of the loan agreement.

FINANCIAL PLANNING

FINANCIAL PLANNING is the process of estimating the funds requirement of

a business and specifying the sources of funds.
OBJECTIVES OF FINANCIAL PLANNING ARE:

1.) TO ENSURE THE AVAILABILITY OF FUNDS whenever REQUIRED – it

involves estimation of funds required, the time at which these are to be made
available and the sources of these funds. If adequate funds are not available, the
firm will not be able to honour its commitments.

2.) TO SEE THAT THE FIRM DOES NOT RAISE FUNDS

UNNECESSARILY – if excess funds are available, it will unnecessarily
increase the costs and funds will remain idle. It may also encourage wasteful
expenditures.

IMPORTANCE OF FINANCIAL PLANNING –

1.) it helps the firm to prepare for the future.
2.) it helps in avoiding business shocks and surprises.
3.) It helps in coordinating various business functions.
4.) it helps in reducing wastage and duplication of efforts
5.) It makes a link between present and the future.

DIFFERENCE BETWEEN FINANCIAL PLANNING AND FINANCIAL

MANAGEMENT
Financial management involves decisions regarding raising of funds for the
business, its investment and distribution of dividend. Whereas, financial
planning just involves availability of enough funds at right time.

While doing financial management, financial planning is important to

perform.

Financial planning can short term as well as log term. Long term financial
planning relates with long term growth and investment while, short term
financial planning covers short term financial plan, called budget.

CAPITAL STRUCTURE
Capital Structure refers to mix between owner funds and borrowed funds.
Capital structure simply means the proportion of debt and equity used for
financing the operations of a business.
Capital structure can be calculated as DEBT / EQUITY.
It can also be calculated as DEBT / DEBT + EQUITY.

The proportion of DEBT in the total capital is also called financial leverage.

If return on Investment (ROI) is greater than Interest on debentures then, more

debt should be preferred as it will increase the earning of shareholders due to
various benefits like tax benefit. This is called favourable financial leverage or
trading on equity. Trading on equity refers to increase in earnings of
shareholders due to presence of debt.

Whereas, if Return on investment (ROI) is less than the Interest on debentures

then debt should not be preferred as use of debt in such a case will increase the
risk for shareholders and their earnings will decline. This is called
unfavourable financial Leverage.

IMPORTANT FORMULAE:
ROI = EBIT x 100
TOTAL CAPITAL

EPS = EAT / no. of shares.

No. of shares = EQUITY / 10

NUMERICAL 1st
EBIT = 4,00,000 , Total capital = 30 lakhs, Tax rate = 30% and Interest = 10% on
debt.
SITUATION I = NO DEBT
SITUATION II = DEBT 20 LAKHS
 SITUATION I SITUATION II
EBIT = 4,00,000 EBIT = 4,00,000
- Interest zero - interest 2,00,000
EBT = 4,00,000 EBT = 2,00,000
- TAX 1,20,000 - TAX 60,000
EAT = 2,80,000 EAT = 1,40,000

No. of shares = 30,00,000 / 10 No. of shares = 10,00,000 / 10

No. of shares = 3,00,000 No. of shares = 1,00,000

EPS = EAT / no. of shares EPS = EAT / no. of shares

EPS = 280,000 / 300000 EPS = 1,40,000 / 1,00,000
EPS = 0.93 EPS = 1.40

As ROI is greater than interest, so we can see that Use of debt( situation II ) is
more favourable.

ROI = EBIT x 100

TOTAL CAPITAL

ROI = 4,00,000 x 100

30,00,000

ROI = 13.3%
ROI (13.3%) is more than interest on debentures(10%).

NUMERICAL 2nd
EBIT = 2,00,000 , Total capital = 30 lakhs, Tax rate = 30% and Interest = 10% on
debt.
SITUATION I = NO DEBT
SITUATION II = DEBT 10 LAKHS

SITUATION I SITUATION II
EBIT = 2,00,000 EBIT = 2,00,000
- Interest zero - interest 1,00,000
EBT = 2,00,000 EBT = 1,00,000
- TAX 60,000 - TAX 30,000
EAT = 1,40,000 EAT = 70,000

No. of shares = 30,00,000 / 10 No. of shares = 20,00,000 / 10

No. of shares = 3,00,000 No. of shares = 2,00,000

EPS = EAT / no. of shares EPS = EAT / no. of shares

EPS = 1,40,000 / 300000 EPS = 70,000 / 2,00,000
EPS = 0.47 EPS = 0.35

As ROI is less than interest, so we can see that Use of debt( situation II ) is NOT
favourable and company should not use debt or use very less debt.

ROI = EBIT x 100

TOTAL CAPITAL

ROI = 2,00,000 x 100

30,00,000

ROI = 6.67%
ROI (6.67%) is less than interest on debentures (10%).

FACTORS AFFECTING THE CHOICE OF CAPITAL STRUCTURE:

1.) RISK CONSIDERATION – Financial risk refers to a situation when a company

is unable to meet its fixed charges like interest and principal amount. Use of
more debt increases the financial risk of the business.
Apart from financial risk, every business has some operating risk (Business
risk). Business risks depend upon fixed operating costs like rent, salary,
insurance premium, etc). Higher will be the risk in case of high fixed operaying
costs.
This risk factor must be considered before taking any mixture of debt and
equity. if the financial risk and business risk is less in company, then more
debt can be used.
2.) COST OF DEBT – A firm’s ability to borrow at a lower rate increases its
capacity to employ high debt. Thus, more debt can be used if debt can be raised
at a lower rate.

3.) COST OF EQUITY – Cost of Equity means the expected rate of dividend on
Equity. When a company increases debt, then, the risk of shareholders
increases and thus shareholders expects a high rate of dividend for facing high
risk. Thus, a company should not use debt beyond a point. If debt is used
beyond a point, then, cost of equity means dividend expectation of shareholders
will increase and due to high risk, share prices will go down.

4.) TAX RATE – as we know, Interest is a tax deductible expense and cost of debt
will be low due to high tax benefits. if there is high tax rates prevailing, then use
of more debt can save lot of tax amount and thus use of debt will be cheaper.
Suppose EBIT is 40,000 and interest is 10,000. So company needs to pay tax
only on balance 30,000. But if there is no funds raised from debt then, interest
will be zero and thus company needs to pay tax on complete 40,000.

5.) RETURN ON INVESTMENT – If return on Investment (ROI) is greater than

Interest on debentures then, more debt should be preferred as it will increase the
earning of shareholders due to various benefits like tax benefit. This is called
favourable financial leverage or trading on equity. Trading on equity refers to
increase in earnings of shareholders due to presence of debt.
Whereas, if Return on investment (ROI) is less than the Interest on debentures
then debt should not be preferred as use of debt in such a case will increase the
risk for shareholders and their earnings will decline. This is called
unfavourable financial Leverage.

6.) CASH FLOW POSITION – A company has cash payment obligations for daily
business operations as well as for investment in fixed assets and also for
payment of principal amount and interest.
If the cash flow position of the company is strong, then issue of more debt is
more viable as company can easily take the commitments of interest.
Whereas, if the cash flow position of the company is weak then, more debt is not
recommended because company would not be able to pay interest payments on
time.
7.) FLOATATION COST – the funds raising process involves huge cost like
expenditure of prospectus, advertisement cost, brokerages, etc. this cost is called
floatation cost. Public issue of shares costs so much floatation cost and thus it
makes equity more costly while taking a loan from ban or debt is not so costlier
as it doesn’t involve any floatation costs. This consideration is also necessary
before choosing the capital structure of business.

8.) CONTROL CONSIDERATION – Debt doesn’t cause a dilution of control because

issue of debt doesn’t make debenture-holders the owner of the company. While
issue of equity reduces company control on business as shareholders are
considered as the owner of the company. Thus, before choosing the capital
structure of company, this must be taken into consideration.

9.) FLEXIBILITY – If a firm uses its debt potential to its full, it loses flexibility to
issue further debt. To maintain flexibility, it must maintain some borrowings
power to take care of unforeseen circumstances. It must be noted that Interest on
debt is fixed burden but it’s a temporary burden until the amount is repaid.
While, Dividend on Equity is a permanent burden as it is to be paid until the
company goes into liquidation (wind –up).

10.) INTEREST COVERAGE RATIO – It is calculated as EBIT / interest. It refers to

the Number of times EBIT of a company is able to cover the Interest obligation.
The higher the ratio, lower shall be the risk of the company for delaying in
interest payments. ICR must be higher to use more debt. However, this is not an
adequate measure because along with profit, cash inflow also matters for
payment of interest. Thus DSCR is also taken into consideration.

11.) DEBT SERVICE COVERAGE RATIO – DSCR takes care of the deficiencies
referred to in the ICR. The cash profits are compared with the total cash required
for the payment of Interest and dividend.
A higher DSCR means high profits and high availability of cash to meet cash
commitments.

12.) STOCK MARKET CONDITIONS - Stock market condition always affect the
choice between debt and equity. During the period when stock market is rising
means bullish phase, then , most people invest in equity and thus issue of more
shares by company would be much easier as shares can be easily sold in the
market.
However, during bearish phase, company should choose more debt as stock
market crashed and no one would like to invest in shares

13.) CAPITAL STRUCTURE OF OTHER COMPANIES – Debt – Equity ratio of other

companies in the same industry is a useful guideline for planning the capital
structure. It must be noted that before following the capital structure of other
companies, risk and other factors must be considered.

14.) REGULATORY FRAMEWORK – Every company operates within a regulatory

framework provided by the law. For example: public issue of debentures and
shares must be made according to the guidelines of the Indian Companies act
2013 and SEBI guidelines.

FIXED CAPITAL AND ITS FACTORS

Fixed capital refers to investment in long-term assets or fixed assets. Fixed
assets are those which remain in the business for more than one year and
usually for much longer.

FACTORS AFFECTING FIXED CAPITAL REQUIREMENT

1.) Nature/Type of Business – the type of business always affects the fixed
capital requirements. For example: A trading business needs a lower investment
in fixed assets as compare to manufacturing business. It is because
manufacturing business require more plant and machinery as compare to
trading business.

2.) Scale of operations – A larger organization operating at a higher scale needs

bigger plant and machinery and thus requires large fixed capital whereas, a
small scale business requires less fixed capital due to less investment in plant
and machinery.

3.) Choice of technique – A capital intensive technique using organization

requires higher investment in plant and machinery as it mainly dependent on
machineries and thus its fixed capital requirement would be higher. As against
this, company using labour intensive technique requires less fixed capital as it
mainly relies on manual labour.

4.) Technology upgradation – In certain industries, assets become obsolete or

outdated sooner and thus their replacement becomes faster. Thus, more fixed
capital will be required for upgradation of technology. For example: frequent
upgradation of assets and computers in software company and thus they
require more fixed capital.

5.) Growth opportunities – Higher growth of an organization generally requires

higher investments in fixed assets. If such growth is expected then, company
will require higher fixed capital to make investments.
While a company with lower growth prospects require less fixed capital.

6.) Diversification – With diversification, fixed capital requirements increase.

For example: if a textile company is diversifying and starting a cement
manufacturing plant along with its existing tiles making plants, then,
company would require more fixed capital.

7.) Financing alternatives – When assets are taken on lease, the firm pays lease
rentals and uses the plants. By doing this, it avoids huge amount required to
purchase it and thus fixed capital requirement would be less.
Whereas, a company purchasing all its assets instead of taking on lease then,
it would require more fixed capital.

8.) Level of collaboration – At times, certain business organizations share each

other facilities. For example, a bank may use another ATM’s and can also
establish a facility in joint. In doing so, expenditures will be divided and thus a
company would require less fixed capital.
As against this, if company is not making any such collaboration then fixed
capital requirement would be much higher.
WORKING CAPITAL
Working capital refers to investment in current assets. Current assets are
expected to get converted into cash with in a period of one year.
Cash in hand, cash at bank, debtors, stock of raw-material, stock of finished
goods are some of the examples of current assets.
Similarly current liabilities are those payments which need to be paid during
one year.
The excess of current assets over current liabilities is called Net working capital.

FACTORS AFFECTING WORKING CAPITAL REQUIREMENTS

1.) Nature of business – A trading business needs less amount of working
capital because there is no processing of input to output. However, working
capital requirement of a manufacturing business is more since raw-materials
needs to be converted into finished goods.
And, in service industries like transport, banking, advertising, warehousing,
etc. Require less working capital as they do not have to maintain inventory.

2.) scale of operations – A large scale organization requires larger amount of

working capital as compared to a small scale organization because the
quantum of inventory, debtors and cash is required high in large scale
industries.

3.) Business cycle – Different phases of business cycle affect the requirement of
working capital. In case of a boom, the sales as well as production are likely to
be high and thus larger amount of working capital is required.
But, working capital requirement would be lower in case of Depression and
recession due to less sales and less production.

4.) Seasonal factors – In peak season, because of higher level of activities, larger
amount of working capital is required. As against this, the level of activity
would be less in lean season and thus working capital requirement would also
be less.

5.) Production cycle/processing cycle – production cycle is the time span between
the receipt of raw-material and their conversion into finished goods.
For example..In car, there is longer production cycle and thus large no. of funds
will be required for raw-materials and other expenses and thus working capital
requirement would be high.
Whereas in shorter production cycle, working capital requirement would be less
due to less expenses.

6.) level of competition – Higher level of competition requires larger stock of

finished goods to meet urgent orders of customers. This increases the working
capital requirement of business.
However, in case of less competition , its requirement would be less.

7.) Credit allowed (DEBTORS) – Different firm allows different monetary terms
to their customers. A liberal credit allowed policy results in high amount of
debtors and thus there will be shortage of cash and working capital requirement
would be high.
But, in case of strict credit allowed policy, debtors will be less and working
capital requirement would be less only.

8.) Credit availed (CREDITORS) – Company gets credit from various sources and
even company gets input on credit from its suppliers of raw-material. Working
capital requirement would be higher in case of strict policy of credit of suppliers.

9.) Availability of raw-materials – If the raw-material can be procured easily and

there will be less need of maintaining stocks of raw-materials. So, working
capital requirements would be less.
However, if the raw-materials are not easily available, then, company needs to
maintain a large stock of raw-material and thus working capital requirement
would be high.

10.) Growth opportunities – If the growth potential of an enterprise is higher, t

will require large amount of working capital in order to meet higher production
and sales target whenever required.

11.) Inflation – With rising prices of input, larger amounts are required to
maintain a constant volume of production and sales and thus working capital
requirement would be high. Thus changes in prices also affect the working
capital requirement of business.

12.) Operating efficiency – Efficiency in managing raw-materials and better

sales efforts by sales departments may reduce the level of raw-materials and
requirement of cash and thus working capital requirement would be less.
Similarly, in case of inefficient sales management, debtors will be high and
working capital requirement would be high.

13.) Operating cycle – Operating cycle is the time period between acquisition of
raw-material and the receipt of cash through cash sales or collection of cash
from debtors.
Longer the operating cycle means sales in credit, so, larger will be requirement
of working capital as goods are sold in credit and now cash shortage is
prevailing in firm.
While, in case of shorter operating cycle means goods are sold in cash, working
capital requirement would be less.
CH – 10TH FINANCIAL MARKETS

CHAPTER 10TH FINANCIAL MARKETS

FINANCIAL MARKET refers to a market for the creation and exchange of

financial assets. A financial market helps to link the savers and the investors
by mobilizing funds between them. Financial market performs the allocative
function. It means it allocates funds into most productive investments.

The process by which allocation of funds is done is called financial

intermediation.

CONSEQUENCES OF ALLOCATIVE FUNCTION/ BENEFITS OR

OBJECTIVES OF ALLOCATIVE FUNCTION:

1.) The rate of return offered to households would be higher.

2.) Scarce resources are allocated to those firms which have the highest
productivity.

There are two alternate mechanisms through which allocation of funds

can be done:

1.) VIA BANKS – Households can deposit their surplus funds with banks and
bank can lend these funds to business firms.

2.) VIA FINANCIAL MARKETS – Households can buy the shares and
debentures in share market.

It means banks and the brokers of financial markets are intermediaries in this
entire system.
FUNCTIONS OF FINANCIAL MARKET

1.) MOBILIZATION OF SAVINGS AND CHANNELISING THEM INTO MOST

PRODUCTIE USE: A financial market facilitates the transfer of savings from
savers to investors. It gives savers the choice of different investments and thus
helps to channelize surplus funds into the most productive use.

2.) FACILITATE PRICE DISCOVERY: In the financial market, households are

suppliers of funds and business firms represent the demand. The interaction
between demand and supply helps to establish the price of financial assets
means shares, debentures and bonds and also the discovery of rate of interest.

3.) PROVIDING LIQUIDITY: financial market facilitates easy purchase and sale
of financial assets. In doing so, they provide liquidity to financial assets so
that they can be easily converted into cash whenever required. Asset holders can
readily sell their shares anytime.

4.) REDUCING THE COST OF TRANSACTIONS: financial markets provide valuable

information about securities being traded in the market. It helps to save time,
effort and money that both buyers and sellers of a financial asset would have to
spend to find each other. The financial market is a common platform where
buyers and sellers can meet for fulfillment of their needs.

TYPES OF FINANCIAL MARKETS

MONEY MARKET
Money market is a market for short term funds which deals in monetary assets
whose period of maturity is up to one year. This market enables raising of short
term funds for meeting the temporary shortages of cash and investment of
money for short term earnings.

The major participants in money market are RBI, commercial banks, non
banking finance companies, state governments, large corporate houses and
mutual funds.
It requires more financial outlay like a single Treasury bill costs 25000 Rs.

Instruments under money market are commercial paper, Treasury bill,

commercial bill, certificate of deposits and call money.

Money market instruments are close substitutes of money and are less risky.
Money market instruments are highly liquid. It must be noted that money
market has no physical location and conducted on internet. It is less risky and
thus less profitable as compare to capital market.

CAPITAL MARKET
Capital market refers to an arrangement through which medium and long term
funds both debt and equity are raised and invested.

The major participants in the capital market are corporate entities, stock
exchanges, development banks, commercial banks, financial institutions,
foreign investors, etc.

It deals in medium and long term securities like shares and debentures which
require less financial outlay like a single share costs 100, 500, etc.

Capital market securities are less liquid because a share may not be actively
traded i.e it may not easily find a buyer.

Capital market instruments are riskier both with respect to returns and
principal amount. Capital market instruments are riskier and thus more
profitable.

Instruments Of Money Market

1.) COMMERCIAL PAPER – commercial paper is a short term unsecured

promissory note and transferable by delivery with a fixed maturity period.
• It is issued by large and credit worthy companies to raise short term
funds at lower rates of interest.
 • It usually has a maturity period of 15 Days to one year.
• Commercial paper is used by large and credit worthy companies for:
(a) To raise short term funds for seasonal and working capital needs.
(b) to meet the flotation cost of issue of shares i.e prospectus expenditures,
brokerage , etc. this called bridge financing.

The issue of commercial paper is best alternate of bank borrowings. It is always

issued at discount and redeem at par.

2.) TREASURY BILL – A treasury bill is an instrument issued by RBI on behalf

of Central government to meet its short term requirements of funds.
• It is highly liquid and has an assured return.
• Treasury bill can be issued for a minimum amount of 25,000 and in
multiples thereof.
• Treasury bills are also known as zero coupon bonds because they are
issued at a price which is lower than their face value and redeem at par.
• The difference between the issue price and the redemption value is the
interest receivable on them and is called discount.
• Suppose Treasury bill of face value Rs . 1 lakh can be purchased for
95000 and on maturity we will get complete 1 lakh and thus 5000 will be
profit.

3.) CALL MONEY –

Call money is short term finance used for inter bank transactions.
Call money is a method by which banks borrow from each other to be able to
maintain the CRR (cash reserve ratio).
• It is repayable on demand with a maturity period of one day to 15 Days.
• The interest rate paid on call money loans is called call rate and it is
highly volatile rate that changes from day to day and sometimes even
hour to hour.
• A rise in call money rates make other sources cheaper for banks to borrow
money. Thus there is inverse relationship between call rate and other
instruments.
4.) CERTIFICATE OF DEPOSITS – CD are unsecured, negotiable, short term
instruments issued by commercial banks during the period of tight liquidity
when the deposit growth of banks is slow but the demand of credit is high. They
help to mobilize a large amount of money for short periods.

5.) COMMERCIAL BILL – A commercial bill is a short term, negotiable

instrument which is used to finance the credit sales of firms. It is a bills of
exchange used to finance the working capital requirements of business.

When goods are sold on credit, the buyer of goods liable to make payment on a
specific date in future. The seller have to wait for that specific date to receive the
payment. The seller draws the bill and buyer accepts in and on acceptance , the
bills of exchange becomes trade bill.

These bills can be discounted with a bank if the seller needs fund before the
maturity of bill. When a trade bill is accepted by a commercial bank then it
becomes commercial bill.

TYPES OF CAPITAL MARKET

1.) PRIMARY MARKET –

Primary market is also known as the new issues market. It deals with new
securities being issued for the first time. A company can raise capital through
the primary market in the form of equity shares, preference shares, debentures,
loans, etc.
• There is sale of securities by new companies or further new issues of
securities by existing companies.
• Only buying of securities take place in the primary market as securities
cannot be sold there.
• Securities are sold by the company to the investors directly.
• Price of securities are determined by the management of the companies.
• There is no fixed geographical location of primary market.
SECONDARY MARKET
The secondary market is also known as the stock exchange or stock Market. It
is a market for purchase of existing securities.
• There is trading of existing securities only.
• Both buying and selling take place in the stock exchange.
• Company is not involved at all.
• Price of shares is determined by demand and supply of the securities.
• Located at specified places like Bombay stock exchange.

METHODS OF FLOATING NEW ISSUES IN PRIMARY MARKET

1.) OFFER THROUGH PROSPECTUS – this is the most popular method of raising
funds by public companies in the primary market. This involves inviting
subscriptions from the public through issue of prospectus. A prospectus makes a
direct appeal to investors to raise capital. The content of prospectus must be in
accordance with the provisions of companies act and SEBI guidelines.

2.) E-IPO – A company proposing to issue capital to the public through the online
system of the stock exchange has to enter into an agreement with the stock
exchange. This is called an initial public offer. SEBI registered stock brokers
have to be appointed for the purpose of accepting applications and placing orders
with the company. The company should also appoint a registrar for having
electronic connectivity with the stock exchange.

3.) OFFER FOR SALE – under this method, securities are not issued directly to the
public but are offered for sale through intermediaries like issuing houses or
stock brokers. In this case, a company sells securities en-bloc (complete lot) at
an agreed price to brokers who resell them to investing public.

4.) PRIVATE PLACEMENT – It is the allotment of securities by a company to

institutional investors and some selected individuals. It helps to raise capital
more quickly than a public issue. Public issue can be more expensive on account
of mandatory and non-mandatory expenses. Some companies cannot afford a
public issue and thus use private placement.
5.) RIGHT ISSUE – this is a privilege given to existing shareholders to subscribe to
a new issue of shares according to the terms and conditions of the company.
The shareholders are offered the right to buy new shares in proportion to the
number of shares they already hold.

STOCK EXCHANGE
A stock exchange is an institution which provides a platform for buying and
selling of existing securities. Stock exchange performs the following functions:

1.) PROVIDING LIQUIDITY AND MARKETABILITY TO EXISTING SECURITIES

The main function of a stock exchange is to provide a ready and continuous
market for the sale and purchase of existing securities. It helps existing
investors to sell to redeem shares and fresh investors to enter the market.
2.) PRICING OF SECURITIES
Share prices on a stock exchange are determined by the forces of demand and
supply. A stock exchange is a mechanism of constant valuation of demand and
supply and necessary information of buyers and sellers and thus prices are
determined accordingly.
3.) SAFETY OF TRANSACTIONS
The stock exchange is well regulated and securities are traded, cleared and
settled as per the guidelines of SEBI. This ensures that the investing public gets
a safe and fair deal on the market. Now, there is screen based electronic trading
system and trading is done through SEBI registered brokers only. In Demat
account, securities are held electronically and there is no risk of theft, forged
transfers, paper work, etc unlike physical share certificates.

4.) CONTRIBUTES TO ECONOMIC GROWTH

A stock exchange is a market in which existing securities are resold or traded.
Through this process of disinvestment and reinvestment savings get
channelized into their most productive investment avenues. This leads to capital
formation and economic growth.
5.) SPREADING OF EQUITY CULT
The stock exchange can play a vital role in ensuring wider share ownership by
regulating new issues, better trading practices and taking effective steps in
educating the public about investments.
6.) PROVIDING SCOPE FOR SPECULATION
The stock exchange provides sufficient scope within the provisions of law for
speculative activity in a restricted and controlled manner. A certain degree of
healthy speculation is necessary to ensure liquidity and price continuity in the
stock market.

DEMATERALIZATION AND DEPOSITORIES

DEMATERIALIZATION is a process where securities held by the investor in the
physical form are cancelled and the investor is given an electronic entry so that
he/she can hold it is an electronic balance in an account.

The investor has to open a Demat account with an organization called as

depository. In simple words, the process of holding securities in an electronic
form is called dematerialization.

SEBI has made it mandatory for the settlement procedures to take place in
Demat form.
ADVANTAGES ARE:
1.) This is mainly done to eliminate problems associated with share certificates
in physical form like theft, forged transfers, transfer delays, etc.
2.) Holding shares in Demat account is just like bank account and shares can
be easily transferred just like cash.
3.) These Demat securities can even be pledged or mortgaged to get loans.
4.) all transactions are settled with greater speed, efficiency and use as all
securities are entered in an electronic book entry mode.

DEPOSITORIES
Just like, a bank keeps money in safe custody for customers, a depository is
also like a bank and keeps securities in an electronic form on behalf of the
investor.

In India, there are two depositories…

1.) NSDL means National securities depositories limited – It is the first and
largest depository presently operational in India. It was promoted as a joint
venture of the IDBI, UTI and The National stock exchange.
2.) CDSL (central depository services limited) – it is the second depository to
commence operations and was promoted by the Bombay stock exchange and the
bank of India.

These depositories interact with the public and investors through intermediaries
known as depository participants (DPs).
DPs have to maintain accounts of dematerialized shares of the investors and to
intimate the investors about their holding from time to time.

STEPS INVOLVED IN SCREEN-BASED TRADING FOR BUYING AND SELLING OF

SECURITIES (OR) TRADING PROCEDURE IN A STOCK EXCHANGE

1.)SELECTION OF BROKER - if an investor wishes to sell or buy any security

then he has to first approach a registered broker and enter into an agreement
with him. He has to sign broker client agreement and to provide certain details
and information. They are:
(a) PAN (permanent account number) (this is mandatory document)
(b) date of birth and address (c) educational qualification and occupation (d)
residential status (e) bank account details (f) depository account details etc.

2.) OPENING DEMAT ACCOUNT - The investor has to open a Demat account
with depository for holding and transferring securities in Demat form. He
must also have a bank account for cash transactions in securities market.

3.) PLACING AN ORDER - The investor then places an order with the broker to
buy or sell shares. Clear instructions must be given about the number of shares
and the price at which the shares should be bought or sold. On this, an order
confirmation slip will be issued to the investor when he places the order for
buying or for selling of shares.

4.) MATCH THE ORDER - The broker then will go online and connect to the
stock exchange and match the share and best price available

5.) EXECUTING THE ORDER - When a match is found then it will be

communicated to the broker and investor and trade will be executed
electronically means online. On this, a trade confirmation slip will be issued to
the investor.
6.) ISSUE OF CONTRACT NOTE - After the trade has been executed, a
contract note shall be issued by the broker within 24 hours. Contract note will
act as a valid legal proof or document in case of any breach/fraud.

7.) DELIVERY OF SHARES/PAYMENT FOR SHARES - In case of sale of

shares, the investor has to deliver the shares (DR. of shares from Demat account)
and In case of purchase of shares, investor has to make payment for buying
shares (DR. of cash in bank account). This is called PAY-IN-DAY.

8.) SETTLEMENT - now, according to T+2 settlement basis, means after two
working days of transaction. In case of sale of shares, amount will be credited
in bank account and in case of purchase of shares, shares will be credited in
Demat account. This is called PAY-OUT-DAY.

ADVANTAGES OF ONLINE TRADING -----

1.) It ensures transparency as it allows participants to see the prices of all
securities in the market.
2.) It increases the efficiency of operations since there is reduction in time and
cost.
3.) it improves the liquidity of the market as transactions are settled on T+2
basis and there are no longer delays.
4.) it provides a single trading platform for all.

SEBI (SECURITIES AND EXCHANGE BOARD OF INDIA)

SEBI was established by the Government of India on 12th April 1988 an
Administrative body to promote orderly and healthy growth of shares market.
SEBI was established to prohibit two unfair practices.
1.) INSIDER-TRADING – the insiders like employees of company using secret
information of company to make personal profits.
2.) Price – rigging – making manipulations with the sole objective of inflating
or deflating the market share price of securities.
OBJECTIVES OF SEBI
The overall objective of SEBI is to protect the interest of Investors and to make
development of securities market.
1.) To regulate the stock exchange for their healthy growth.
2.) To protect the rights and interest of Investors.
3.) To prevent malpractices and unfair trade practices
4.) To develop code of conduct for securities market.

FUNCTIONS OF SEBI:
PROTECTIVE FUNCTIONS:
1.) Prohibition of fraudulent and unfair trade practices like misleading
statements, manipulative prospectus, insider trading, price rigging, etc.
2.) Control insider trading and imposing penalties for such practices.
3.) undertaking steps for investors protection.
4.) promotion of fair practices and code of conduct in securities market.

DEVELOPMENT FUNCTIONS:
1.) Training of intermediaries of securities market.
2.) Conducting research and publishing information useful to all market
participants.
3.) Undertaking measures to develop the capital market by adapting a flexible
approach.

REGULATORY FUNCTIONS:
1.) Registration of brokers and sub-brokers in the market.
2.) Registration of collective investment schemes and mutual funds.
3.) Regulation of stock brokers, portfolio exchanges, underwriters and merchant
bankers.
4.) Regulation of takeover-bid by the companies.
5.) Calling for information by undertaking inspection, conducting enquiries
and audits of stock exchanges and intermediaries.
6.) Imposing fees and other charges for carrying out the purposes of the SEBI
act 1992.
CH – 11TH MARKETING

MARKETING is a process whereby people exchange goods and services for money
or for something of value to them.

Marketing is not just a post production activity. It includes many activities

that are performed even before goods are actually produced and it continued
even after sale of goods.
It must be noted that Marketing is a social process.

FEATURES OF MARKETING –

1.) NEEDS AND WANTS – A marketer’s job is to identify needs and wants of the
target customers and develop products and services that satisfy such needs and
wants. Its main focus is to satisfy needs and wants of the target market.
NEED is a felling of deprived of something and if need is unsatisfied it leaves a
person unhappy and uncomfortable. For example.. hungry person looking for
food. Where as
WANTS are culturally defined objects that are potential satisfiers of needs. For
example hungry person wants pizza, burger only.

2.) CREATE MARKET OFFERING – it refers to a complete offer for a product or

service with all required features and at a certain price. For example: offering a
mobile with all the features for a given price like 12000/- in a city. A good
marketing offering is the one which is developed after analyzing needs and
preferences of the potential buyers.

3.) CUSTOMER VALUE – marketing provides exchange of goods and services

between the buyers and the sellers. The buyer will purchase the product only if it
will have value for money. The purpose of marketer is to generate customer value
at a profit. The job of a marketer is to add value to the product so that the
customers prefer it and decide to purchase it.
4.) EXCHANGE MECHANISM – The process of marketing involves exchange of
goods and services for money or for something value to them. Marketing is
based on exchange mechanism and exchange mechanism involves:
(a) Involvement of at least two parties i.e buyer and seller.
(b) Each party should be capable of offering something
(c) Each party should have the ability to communicate with each other.
(d) Each party should have the freedom to accept or reject the other party’s offer
(e) the parties should be willing to enter into transactions with each other.

FUNCTIONS OF MARKETING

1.) GATHERING AND ANALYZING MARKET INFORMATION One of the important

function of marketer is to gather and analyze market information. This is
necessary to identify the needs of the customers and take various decisions for
the successful marketing of the products and services. This is important for
making an analysis of the available opportunities and threats as well as
strengths and weakness of the organization.

2.) MARKETING PLANNING Another important function of marketing is to

develop appropriate marketing plans to achieve the marketing objectives of the
organization. For example: a marketer of LED television having 10% of current
market share aims at enhancing his market share to 20% in next two years.

3.) PRDOUCT DESIGNING AND DEVELOPMENT another important marketing

activity relates to designing and developing the product in such a way that it
attracts the target customers. A good design can improve performance of the
product and also improve its competitive advantage.

4.) STANDARDISATION AND GRADING standardization refers to producing

goods of predetermined specifications which helps in achieving uniformity and
quality in output.
Grading is the process of classification of product into different groups on the
basis of quality, size, etc.
5.) PACKAGING AND LABELLING packaging refers to designing and developing
the package for the products and labeling refers to designing and developing
the label to be put on the package. The label may vary from a simple tag to
complex graphics.

6.) BRANDING Branding helps in differentiating the product of a firm with that
of the competitor which helps in building customer loyalty and promoting its
sale.

7.) PRICING OF PRODUCTS price of a product refers to amount of money

customers have to pay to obtain a product. Price is an important factor affecting
the success or failure of a product in the market. The demand for a product or
service is related to its price.

8.) PROMOTION promotion of products and services involves informing the

customers about the firm’s product, its features, etc. and persuading them to
purchase these products. The four important methods of promotion include
advertising, personal selling, sales promotions and public relations.

9.) PHYSICAL DISTRIBUTION this function includes two major decisions:

(a) Decision regarding channels of distribution likes direct channel or indirect
channel to opt. (b) Physical movement of the product from where it is produced
to the place where it is required.

10.) TRANSPORTATION it involves physical movement of goods from one place to

another. As generally the users of products live at different places and not
always at the place where goods are produced. So transportation is necessary to
move the goods from one place to another or to consumers.

11.) STORAGE AND WAREHOUSING usually there is a time gap between the
production of goods and services and their sale. It may be due to irregular
demand or irregular supply.
In order to maintain smooth flow of products in the market, there is a need for
proper storage of the products. Stock is also mandatory to maintain the regular
supply and to avoid unnecessary delays in delivery of products.
12.) CUSTOMER SUPPORT SERVICES a very important function of marketing
relates to developing customer support services such as after sale services,
handling customer complaints, maintenance services, technical services, etc.

MARKETING MANAGEMENT
CONCEPT/PHILOSOPHIES/ORIENTATION

1.) PRODUCTION CONCEPT Its main objective is to earn profits through large
volume of production. the marketing efforts start from the factory.
Main focus is on quantity of product to make per unit cost cheaper.

2.) PRODUCT CONCEPT Its objective is to earn profits through product quality
improvements. The marketing efforts start from the factory.
Main focus is on quality of product means to make the product of high quality
and standards.

3.) SELLING CONCEPT its objective is to earn profits through increased volume
of sales. The marketing efforts start from the factory.
Its focus is on pushing the sales of existing product by huge advertisement.

4.) MARKETING CONCEPT its objective is to earn profits by satisfying needs

of the target market better than the competitors. The marketing efforts start
after identification of needs and wants of the consumer of target market.
Main focus is on customer satisfaction.

5.) SOCIETAL-MARKETING CONCEPT its objective is to earn profits through

customer satisfaction along with social welfare. The marketing efforts start
after identification of needs of consumer as well as of society.
Its main focus is to satisfy customer needs along with social welfare.

(DIFFERENCE BETWEEN ALL 5 PHILOSOPHIES FROM SUBHASH DEY BOOK PAGE

NO.104 LATEST EDITION)
MARKETING MIX
MARKETING MIX is a set of marketing tools that the firm uses to pursue its
marketing objectives in target market.
Marketing mix are the combination of variables chosen by a firm to prepare its
market offering.

There are two types of factors:

1.) Controllable factors – those factors which can be influenced at the level of the
firm. For example: changing the management of firm.
2.) Non-controllable factors – there are certain factors which affect the decision
of the firm but are outside the control of firm like change in govt. policies.

PRODUCT
Product means goods or services or anything of value which is offered to the
market for sale.
Product MIX is the combination of all products offered for exchange by a
company.
Example of Product mix are:
Products of Hindustan unilever limited – close-up toothpaste, lifebuoy soap, fair
and lovely cream, surf detergent powder, etc

IMPORTANT PRODUCT DECISIONS ARE branding, packaging and

labeling.
The concept of product not only includes the physical product as mentioned
above but also the benefits offered by product to the customer. The concept of
product also includes the extended product like after sales services.
From customer’s point of view, product is the bundle of utilities.

PRICE
Price may be defined as the amount of money paid by a buyer in consideration
of the purchase of goods or services. it is the most important factor affecting
revenue and profits of the firm. Pricing is used as a regulator of the demand of
a product.
IMPORTANT PRICING DECISIONS ARE:
a) setting pricing objectives like profit maximization, obtaining market share
leadership etc.
b) determining the pricing strategies like to follow market penetration policy or
market skimmimg policy. Penetration strategy means to lower the price in
order to capture a large share of market and skimming strategy means to set
high price to set product as a brand.
c) Analysis the factor determine the price.
d) fixing a price for firm’s product.
e) decisions regarding discounts, credit terms, etc to customers.

PLACE OR PHYSICAL DISTRIBUTION

Important element of marketing mix is the physical distribution of Goods and
services. It is concerned with making the goods and services available at the
right place and at the right time so that people can purchase the same.

It involves two decisions:

(a) Decision regarding physical movement of goods from producers to
consumers.
(b) deciding the channel of distribution of goods and services.

PROMOTION
Promotion refers to the use of communication tools with the twin objective of
informing potential consumers about a product and persuading them to buy it.
Despite all the work, sales may be less in the market. As such there is need for
developing proper communication with the market and this communication can
be done via promotional tools.
It involves Advertisement, personal selling, sales promotion techniques and
public relations.

TOPICS UNDER PRODUCT ELEMENT ARE:

BRANDING, PACKAGING AND LABELLING.
BRANDING
Branding is a process of giving a name or a sign or a symbol to a product.

It must be noted that Generic name refers to the name of the class of the product
like Pen, SHOES, Mobile, etc, it would be very difficult for the marketers to sell
the product by generic names as people would not be able to distinguish the
product of various competitors. So its necessary to give the product a brand
name.
For Example: Television is a generic name but Samsung TV, LG television, etc
is brand name.

IMPORTANT TERMS:

1.) BRAND – A brand is a name, sign, symbol used to identify the products of
one firm and to differentiate them from the products of competitors. For
example: Mercedes, AMUL, Nike, Woodland , etc are brands i.e company name.

2.) BRAND NAME – that part of a brand which can be spoken is called brand
name. in other words, brand name is the verbal component of a brand. For
example Maggie of nestle co. here nestle is brand and Maggie is brand name.

3.) BRAND MARK – that part of a brand which can be recognized only but
cannot be spoken is called brand mark. It appears in the form of symbol,
design, character, colour, scheme, etc. for example Gattu of Asian paints.

4.) TRADE MARK – a brand which is given legal protection against its use by
other firms is called trademark. If a firm got its brand registered then, no other
firm can use this. For example - logo of Mercedes, logo of Nike, etc.

ADVANTAGES OF BRANDING:

TO THE MARKETER:
1.) ENABLES PRODUCT DIFFERENTIATION – branding helps a firm in
distinguishing its product from that of its competitors. This enables the firm to
secure and control the market for its product.
2.) EASE INTRODUCTION OF NEW PRODUCTS – if a new product is introduced
under a known brand, it is likely to get an excellent start. For example: Samsung
introduced mobile phones after washing machines.

3.) DIFFERENTIAL PRICING – branding enables a firm to charge higher price for
its product than its competitors because if customers like a brand and become
habitual, then they do not mind paying a higher price.

4.) HELPS IN ADVERTISEMENT – a brand name helps a firm in its advertising and
display programmes. Without a brand name, advertiser can only create
awareness and never be sure about heavy sales.

TO THE CUSTOMERS:
1.) HELPS IN PRODUCT IDENTIFICATION – branding helps the customers in
identifying the products. If a person is satisfied with a particular brand, he will
buy the product of that brand on repeat basis.

2.) ENSURES QUALITY – Branding ensures a particular level of quality of a

product. If there is any deviation in the quality, the customer can make a
complaint to the manufacturer. This builds up confidence of the customer.

3.) STATUS SYMBOL – some brands become status symbol because of their
quality. Eg. Woodland, Gucci, parker, audi, Mercedes, etc. customers feel proud
of using them.

FEATURES OF A GOOD brand name

1.) A brand name should be short and easy to pronounce, spell and recognize
like Maggie
2.) A brand name should sugest the product benefits like hajmola means
digestion tablet, like ujjala means a liquid for whitening clothes.
3.) A brand name should be distinctive.
4.) Chosen name should have staying power and not get outdated easily.
5.) The brand name should be adaptable for packaging and labeling and should
be capable for registration legally.
PACKAGING
Packaging refers to the act of designing and producing the container or
wrapper of a product and putting the product into it.

LEVELS OF PACKAGING:
1.) PRIMARY PACKAGING – It refers to the product’s immediate container like
toothpaste tube. In some cases primary packaging is kept till the consumer is
ready to use the product like plastic packet of socks.
And sometimes, primary packaging kept throughout the entire life of product
like Match box.

2.) SECONDARY PACKAGING – It refers to additional layer of protection that are

kept till the product is ready for use. For example ; toothpaste tube comes in
cardboard box and that box is secondary packaging. When the consumer start
using the toothpaste, then they will dispose or throw that cardboard box and just
retain tube only.

3.) TANSPORTATION PACKAGING – it refers to further packaging components

necessary for storage , identification and transportation. For example:
toothpaste manufacturing company may send the toothpaste to retailers in big
box containing 100 or 500 units.

FUNCTIONS OF PACKAGING

1.) PRODUCT IDENTIFICATION – packaging greatly helps n identification of the

products. For example: uncle chips in green colour, Maggie noodles in yellow
colour, dairy milk in blue colour, can be easily identified.

2.) PRODUCT PROTECTION – packaging protects the contents of a product from

spoilage, breakage, leakage, damage, etc. airtight containers and packets are
used for chips, biscuits, jams, etc. this kind of protection is required during
storage, distribution and transportation of product.

3.) PRODUCT PROMOTION – PACKAGING IS CONSIDERED AS SILENT

SALESMAN. Packaging is also used for promotion purposes. The packaging is
the buyer’s first encounter with the product and is capable of turning the buyer.
For example: haldiram’s sweets and namkeens , ferrero rocher chocolates, etc
attract the customers to buy the product.

4.) FACILITATING THE USE OF THE PRODUCT – the size and shape of the package
should be such that it is convenient to open, handle and use for the consumers.
Eg. Cosmetics, medicines and toothpaste tubes.

IMPORTANCE OF PACKAGING (read only)

1.) RISING STANDARDS OF HEALTH AND SANITATION – because of increasing

standards of living in country, more and more people have started purchasing
packed food in order to minimize the risk of adulteration.
2.) SELF SERVICE OUTLETS – the self service retail outlets are very popular and
thus here packaging plays a greater role to attract the buyers.
3.) PRODUCT DIFFERENTIATION – packaging is one of the important means of
product differentiation. For example: by looking at the package of paints, one
can make some guess about the quality of product in it.
4.) INNOVATIONAL OPPORTUNITY – some recent developments in the area of
packaging have completely changed the marketing scene in the country. For
example: now milk can be stored for 4 to 5 days without refrigeration in recent
packing materials.

LABELLING
LABELLING refers to designing the label to be put on the package. Labels are
useful in providing detailed information about the product, its content, methods
of use etc.
Label can be a simple tag attached in a product like label printed in local
products like wheat, etc and also can be in the form of complex graphics.

FUNCTIONS OF LABELLING

1.) DESCRIBE THE PRODUCT AND SPECIFY ITS CONTENT - One of the most
important functions of labels is to describe the product, its usage,
manufacturing and expiry date, cautions in use , etc specify its contents.
2.) IDENTIFICATION OF THE PRODUCT OR BRAND – the another important
function performed by labels is to help in identifying the product or brand.
For example.. we can easily identify a Cadbury chocolate from various
chocolates kept in shelf of a shop by the colour of its label.

3.) GRADING OF PRODUCTS – Another important function performed by label is

to help grading the products into different categories. Sometimes marketers
assign different grades to indicate different features or quality of the product.
For example: brooke bond red label, green label, etc.

4.) HELP IN PROMOTION OF PRODUCTS – An important function of label is to

help in promotion of the products. a carefully designed label can gain attention
and give reason to purchase. We see many labels providing promotional
messages. For example: amla hair oil label says “ balo me dum, life me fun”.
Dettol shaving cream label says 40% extra, etc.

5.) PROVIDING THE INFORMATION REQUIRED BY LAW - Another important

function of labeling is to provide information required by law. For example: the
statutory warning on the package of cigarette is Smoking is injurious to
health. In case of hazardous and poisonous material, appropriate safety
warning need to be put on the label.

TOPIC OF PRICE:

FACTORS AFFECTING PRICE DETERMINATION –

1.) PRODUCT COST – One of the most important factors affecting price of a
product is its cost. This includes cost of manufacturing, cost of distribution
and transportation as well as cost of selling or advertisement. The cost sets the
minimum level price at which the product may be sold. All the marketers strive
to cover all their costs and in addition they aim at earning a margin of profit
over and above the costs. In short run, if cost is not covered then firm can
survive but its necessary to cover the cost in long run otherwise business cannot
survive and will shutdown.
Costs can be of three types….1.) Fixed cost refers to the cost which does not
change with change in output like payment of Rent.
2.) Variable cost refers to the cost which changes with the change in output like
payment of wages to labour.
3.) semi-variable cost refers to the cost which is fixed up to a level then
variable(changes) after that like payment of Electricity.
Sum total of all these costs is called Total costs.

2.) THE UTILITY AND DEMAND – while the product cost sets the lower limit of the
price, the utility provided by the product sets the upper limit of the price, which a
buyer would be ready to pay.
The price of the product is affected by elasticity of demand of the product. When
the demand of the product is inelastic, a rise in price does not affect the
quantity demanded too much and thus a firm can fix higher prices.
Similarly, if demand is elastic, a small rise in price results in heavy decrease
in demand and thus firm should charge lower prices.

3.) EXTENT OF COMPETITION IN THE MARKET – the price would be higher in case
there is lesser degree of competition while under conditions of free competition
means heavy competition, price should be set at lowest limit. Competitor’s price ,
their product quality and their reactions must also be considered before fixing
the price.

4.) GOVERNMENT AND LEGAL REGULATIONS – In order to protect the interest of

public against unfair practices in the field of price fixing, government can
interfere and regulate the price of commodities. Government can declare a
commodity as essential commodity and can regulate its prices. For example: a
company manufacturing a medicine costing 20 Rs and selling medicine at
RS 100 to buyers and forcing buyers to buy at 100 only. In such a case, govt
will interfere in the market and sets a lower price for it.
Whereas, goods which are non essential, there govt will not interfere and price
can be set higher according to demand.

5.) MARKETING METHODS USED – price decision is also affected by the

distribution system, quality of salesman employed, quality of advertisement,
type of packaging, credit facility, customer services, etc. if company is
providing lot of unique services to their clients then company can charge higher
price but, if a company is providing fewer services then they should fix lower
possible price.

6.) PRICING OBJECTIVES

a) Profit maximization – if a firm decides to maximize the profits in the short
run, it will charge maximum price of its product. But if the company wants to
maximize the profits in the long run, so company will charge lowest price so
that it can capture larger market share.

b) Obtaining market share leadership – if a firm’s objective is to obtain larger

share of the market, it will keep the price of its product at lower levels so that
greater no. of people can be attracted to purchase the products. while, company
aiming to capture particular section only would charge higher price.

c) Surviving in competitive market – if a firm is facing difficulties in surviving

in the market because of intense competition or introduction of a substitute
then, it may resort to discount its products or other schemes to clear the stocks.

d) Attaining product quality leadership – in this case, normally higher prices are
charged to cover high quality and high cost of research and development. And
thus lower prices would be charged if company is not providing higher qualities.

TOPIC OF PROMOTION:

PROMOTION MIX OR COMMUNICATION TOOLS OF

MARKETING

PROMOTION MIX refers to combination of promotional tools used by an

organization to achieve its communication objectives.
These tools are also called elements of promotion mix and can be used in
different combinations to achieve the goals of promotion.
For example……Consumer Goods require use of advertising for mass reach but
industrial products like raw material require personal selling.
TOOLS OF PROMOTION ARE:
1.) ADVERTISING –
Advertising is an impersonal form of communication which is paid by the
marketers or sponsors to promote their products. the most common modes of
advertising are newspaper, magazines, television and radio.

FEATURES OF ADVERTISING:
A) PAID FORM – Advertising is a paid form of communication which means the
sponsor or marketer has to bear the cost of communicating with the prospective
buyers.
B) IMPERSONAL – there is no direct face to face contact between the prospective
buyers and the advertiser. It is the impersonal method of promotion and
advertising creates a monologue and not a dialogue.
C) IDENTIFIED SPONSOR – advertising is undertaken by some identified
individual or company who makes the advertising efforts and also bears the
cost of it.

2.) PERSONAL SELLING – Personal selling involves oral presentation of message

in the form of conversation with one or more prospective customers for the
purpose of making sales. For this companies appoint salespersons to contact
prospective buyers and create awareness about the product and to develop product
preferences among the buyers.
FEATURES OF PERSONAL SELLING
1.) PERSONAL FORM – in personal selling, a direct face to face dialogue
takes place that involves an interactive relationship between the buyer and the
seller.
2.) DEVELOPMENT OF RELATIONSHIP – personal selling allows a
salesperson to develop healthy personal relationships with the prospective
customers which may become important in making sales.

3.) SALES PROMOTION TECHNIQUES – Sales promotion refers to short term

incentives which are designed to encourage the buyers to make immediate
purchase of a product or service.
Sales promotion activities include offering cash discounts, sales contests, free
gift offers, free sample distribution, etc. It must be Noted that saes promotion is
undertaken to boost advertising and personal selling.

4.) PUBLIC RELATIONS – the business needs to communicate effectively to

customers, suppliers and dealers since they are important in increasing the
sales and profits.
Public relations management can be performed by
a) the marketing department (or)
b) a separate department to manage public relations known as public relations
department.
The firm may also utilize the services of any outside public relations agency.

PUBLIC RELATIONS involve a variety of programmes designed to promote or

protect a company’s image and its individual product in the eyes of the public.
For example: sponsoring sports and cultural events, contributing money and
time to certain causes like environment, wildlife, children’s rights, education ,
etc.

They are especially useful when there is negative publicity about the company
or its products. at that time, the situation has to be tackled like an emergency to
improve public image. The public relations department then has to do something
drastic so that damage of company’s image can be minimized.
(DIFFERENCE BETWEEN ADVERTISING AND PERSONAL
SELLING FROM SUBHASH DEY BOOK LATEST EDITION
PAGE NO. 126)
TOPIC OF PLACE/PHYSICAL
DISTRIBUTION:

COMPONENTS OF PHYSICAL DISTRIBUTION:

1.) ORDER PROCESSING – order placement from customer to manufacturer is the

first step. A good physical distribution system should provide for an accurate
and speedy processing of orders. In the absence of this speedy processing, goods
would reach the customers late. This would result in customer dis-satisfaction
and also a danger of loss of goodwill.

2.) TRANSPORTATION – it is the means of carrying goods and raw-material

from the point of production to the point of sale. It is very important because
unless goods are physically available, sale cannot be completed.

3.) WAREHOUSING – it refers to the act of storing products in order to create

time utility. The need for warehousing arises because there may be difference
between time of production and the time of sale.
It must be noted that large no. of warehouses with a firm means lesser time
company will take to complete the order. But at same time, cost of warehousing
increases.
So there must be a balance between cost of warehousing and level of customer
service.

4.) INVENTORY CONTROL – inventory means stock should be managed properly.

Higher the level of inventory, higher will be customer service but cost of
carrying inventory will also rise because lot of capital will be blocked in stock.
So following factors must be taken into account for deciding inventory levels:

A.) POLICY OF CUSTOMER SERVICE – for a greater and speedy customer

service, higher inventory would be required.

B.) COST – cost factor always matter a lot because carrying higher stocks
require lot of capital for warehouse, manufacturing, raw-material, etc.
C.) SALES FORECASTS – level of inventory depends upon forecasting about
future demand of products. if accurate prediction is available about future
demand, cost of inventory can be reduced by keeping only required inventories.

D.) RESPONSE TO MARKET – if time required responding to additional

demand is high, there is a need to maintain high inventory. But if demand can
be met in less time, need for inventory would be less.

CHANNELS OF DISTRIBUTION –

1.) DIRECT CHANNEL (ZERO CHANNEL) – the most simple and shortest form of
distribution is direct distribution where goods are made directly available by the
manufacturer to the customers. A straight and direct relation between
manufacturer and customer is established without an intermediary.
For example:
Selling goods through own retail outlets like MacDonald’s
Internet selling

2.) INDIRECT CHANNELS – Sale of Goods through intermediary is called indirect

channel.

A.) ONE LEVEL CHANNEL – It means manufacturer – retailer – customer. Only

one intermediary i.e retailer is used between manufacturer and customer. Goods
pass from manufacturer to retailer and then retailer sells those goods to final
users or customers. For example: Maruti sells its cars to vipul motors and vipul
motors sell cars to customers.

B.) TWO LEVEL CHANNEL – manufacturer – wholesaler – retailer – customer.

this is the most commonly adopted distribution network for most consumer
goods like soap, oils, clothes, etc . Here wholesaler and retailer are connecting
links between manufacturer and customers. This channel is basically used to
cover larger market area.
C.) THREE LEVEL CHANNEL – MANUFACTURER – AGENT- WHOLESALER –
RETAILER- CUSTOMER.
In this channel, three intermediaries are involved i.e agent, wholesaler and
retailers. Manufacturers uses their own selling agents who connects with
wholesalers and retailers.
It is basically used when manufacturer carries a limited product and needed to
cover a very large market. Thus manufacturer appoints agents for each area
who makes link with wholesalers. For example medicines.

CH – 12TH CONSUMER PROTECTION ACT

2019

CHAPTER 12TH CONSUMER PROTECTION ACT 2019

INTRODUCTION
The earlier approach (traditional approach) was caveat emptor which means let
the buyer beware, but now it has been changed to Caveat venditor means let the
seller beware (Modern approach).
Manufacturer and service provider may be engaged in
a) Exploitative and unfair trade practices. (b) Adulteration (c) False and
misleading advertisement (d) Black-marketing and hoarding (e) counterfeit
goods (f) sale of sub-standards and duplicate goods (g) under-weight goods
(h)over-charging a product (i) defective goods (j) inferior services
CONSUMER PROTECTION refers to protection of consumers from above said
unfair trade practices of manufacturers, sellers, traders and service providers.

Importance of Consumer Protection

From Consumers’ Point of View From the Point of View of Businesses
1. Widespread Exploitation of Consumers:
Consumers might be exploited by unscrupulous, exploitative and unfair trade
practices like defective and unsafe products, adulteration, false and misleading
advertising, hoarding, blackmarketing etc. Consumers need protection against
such malpractices of the sellers.
2. Consumer Ignorance: In the light of widespread ignorance of consumers
about their rights and reliefs available to them, it becomes necessary to
educate them about the same so as to achieve consumer awareness.
A consumer, who is well-informed about his rights and reliefs available to him,
would be in a position to raise his voice against any unfair trade practices of
sellers.

3. Unorganised Consumers: Consumers need to be organised in the form of

consumer organisations which would take care of their interests. Consumer
organisations play an important role in educating consumers about their
rights and providing protection to them. These organisations can force business
firms to avoid malpractices and exploitation of consumers.
Though, in India, we do have consumer organisations which are working in this
direction, adequate protection is required to be given to consumers till these
organisations become powerful enough to protect and promote the interests of
consumers.

FROM THE POINT OF VIEW OF BUSINESS

1. Business uses Society’s Resources: Business organisations use resources

which belong to the society. Thus, they have a responsibility to supply such
goods and services which are in public interest.

2. Social Responsibility: A business has social responsibilities towards various

interest groups. Business organisations make money by selling goods and
providing services to consumers. Thus, consumers form an important group
among the many stakeholders of business and like other stakeholders, their
interest has to be well taken care of.

3. Moral Justification: It is the moral duty of any business to take care of

consumers’ interests and avoid any form of their exploitation. Thus, a business
must avoid unscrupulous, exploitative and unfair trade practices like defective
and unsafe products, adulteration, false and misleading advertising,
hoarding, black marketing etc.

4. Long-term Interest of Business: Enlightened business firms realise that it is

in their long-term interest to serve and satisfy the customers. Satisfied
customers not only lead to repeat sales but also provide good feedback to
prospective customers and thus, help in increasing the customer-base of
business. Thus, business firms should aim at long-term profit maximisation
through customer satisfaction. Socially responsible firms follow ethical
standards and practices in dealing with their customers.

5. Government Intervention: A business engaging in any form of exploitative

trade practices would invite government intervention or action. This can impair
and tarnish the image of the company. Therefore, business organizations
should voluntarily resort to such practices where the customer needs and interest
will be taken care of.

Role of Consumer Organisations and NGOs in Protecting Consumers’

Interests
In India, several consumer organisations and non-governmental organisations
(NGOs) have been set up for the protection and promotion of consumers’
interests. Non-governmental organisations are non-profit organisations which
aim at promoting the welfare of people. They have a constitution of their own
and are free from government interference. Consumer organisations and NGOs
perform several functions for the protection and promotion of consumers’
interests. These include:
1. Educating the general public about consumer rights by organising training
programmes, seminars and workshops.
2. Publishing periodicals and other publications to impart knowledge about
consumer problems, legal reporting, reliefs available and other matters of
interest.
3. Carrying out comparative testing of consumer products in accredited
laboratories to test relative qualities of competing brands and publishing the
test results for the benefit of consumers.
4. Encouraging consumers to strongly protest and take an action against
unscrupulous, exploitative and unfair trade practices of sellers.
5. Providing legal assistance to consumers by way of providing aid, legal
advice, etc. in seeking legal remedy
6. Filing complaints in appropriate consumer courts on behalf of the consumers.
7. Taking an initiative in filing cases in consumer courts in the interests of
the general public, not for any individual.
DEFINITION OF CONSUMER
A consumer is generally understood as a person who uses or consumes goods or
avails of any services. As per consumer protection act, consumer is defined as:

a) Any person who buys any goods for a consideration which has been paid or
promised, or partly paid and partly promised or under any scheme of deferred
payments. It includes any user of such goods when such use is made with the
approval of the buyer, but it does not include any person who obtains good for
resale or for any commercial purpose.

b) Any person who hires or avails of any service for a consideration which has
been paid or promised, or partly paid and partly promised or under any scheme
of deferred payments. It includes any beneficiary of services when such services
are availed with the approval of the buyer of service but does not include any
person who avail such service for any commercial purpose.

Who can file a complaint under consumer protection act?

a) Any consumer can file a complaint on his/her own and does not need any
professional person or advocate.
b) Any registered consumer’s association.
c) The central government or state government
d) One or more consumers having same interest.
e) a legal heir or legal representative of a deceased consumer.
(f) The central authority
(g) in case of a minor, his/her parent or legal guardian.

Against whom a complaint can be filed?

a) In case of any defective goods supplied, a complaint can be filed against the
manufacturer or seller or dealer. Defect means any fault in the quality,
quantity or purity of goods.
b) In case of any deficiency in services, a complaint can be filed against the
provider of services. Deficiency means any imperfection in the quality, nature
and performance of services.
 RESPONSIBLITIES OF A CONSUMER

WHILE PURCHASING GOODS/SERVICES:

a) A consumer would be aware about various goods and services available in the
market so that consumer can make better choices.
b) A consumer should buy only standardized goods as they provide quality
assurance. For example. Consumer should look for ISI mark on electrical goods,
FPO mark on food items, HALLMARK on jewellery, AGMARK on agricultural
goods, etc.
c) he should read labels carefully in order to be aware about price, net weight,
manufacturing and expiry date, etc.
d) A consumer should not be involved into unfair or illegal trade practices.
He/she must purchase goods from legal sources only and must be involved in
fair deal only.
e) A consumer must ask for a cash memo on purchase of goods or services. This
cash memo or bill will be act as proof of purchase.

WHILE USING GOODS/SERVICES:

a) A consumer must learn about the risk associated with the products or services
and must follow the instructions safely.
b) A consumer must file a complaint in an appropriate consumer court and he
should take an action even when amount is involved.
c) A consumer must respect the environment and avoid wastage and should not
contribute to pollution.

CONSUMER RIGHTS
The consumer protection act 2019 provides the following six rights to consumers
with a view to empowering them to fight against any unfair trade practices and
to protect the consumers.

1.) RIGHT TO SAFETY the consumer has a right to be protected against goods and
services which are hazardous to life and health. For example: electrical appliances
which are manufactured with low standard products do not provide to the safety
and might cause injury. Thus, consumers are educated that they should use
electrical appliances with ISI mark only as this would be an assurance of such
products meeting quality specifications.
2.) RIGHT TO BE INFORMED – The consumer has the right to have complete
information about the product like ingredients, date of manufacture, price,
quantity, directions of use, etc. it is because of this reason that the legal
framework in India requires the manufactures to provide such information on
the package.
As per right to information act 2005, all relevant information is required to be
made available to all the citizens of the country.

3.) RIGHT TO CHOOSE the consumer has the freedom to choose from variety of
products at competitive prices. This implies that the marketer should offer a wide
variety of products in terms of quality, brands, prices, sizes, etc. and allow the
consumer to make a choice among many varieties.

4.) RIGHT TO BE HEARD the consumer has a right to file a complaint and to be
heard in case of dissatisfaction with a good or a service.
It is because of the reason that many enlightened business firms have set up
their own customer service and grievances cell to redress the problems and
grievances of their customers.

5.) RIGHT TO SEEK REDRESSAL the consumer ha s a right to get relief in case the
product or service fall short of his expectations. The CPA 2019, provides no. of
reliefs to the consumers. For example: (a) removal of defect in goods and
removal of deficiency in services. (b) Replacement of defective product with a
new one. (c) Compensation paid for any loss or injury suffered by consumer.

6.) RIGHT TO CONSUMER EDUCATION the consumer has a right to acquire

knowledge and to be well informed consumer throughout the life. He should be
aware about his rights and the reliefs available to him in case the good or service
falling short of his expectations.
Many organizations taking active part in educating customers in this respect.

REILEFS AND REMEDIES AVAILABLE TO CONSUMERS

If the consumer court is satisfied about the complaint of the consumer, then
consumer court can issue one or more of the following directions to the opposite
party:
1.) to remove the defect in good or deficiency in service.
2.) to replace the defective good with a new one free from all defects.
3.) to refund the price paid for the good or refund the charges paid for the service.
4.) to pay a reasonable amount of compensation for any loss or injury suffered
by the consumer due to the negligence of opposite party.
5.) to discontinue the unfair trade practices and not to repeat in the future.
6.) not to offer hazardous goods for sale/ withdraw all hazardous goods from
market
7.) to cease manufacture of hazardous goods.
8.) to issue corrective advertisement to remove the effect of false and misleading
advertisements.
9.) to pay any amount (not less than 5% of value of defective goods and
compensation) to the consumer welfare fund.
10.) to pay punitive damages to the consumer if above compensation is not
sufficient.

REDRESSAL MACHINERY UNDER CONSUMER PROTECTION ACT 2019

1.) DISTRICT CONSUMER DISPUTE REDRESSAL COMMISSION/DISTRICT FORUM

The state government shall establish the district consumer dispute redressal
commission also known as district forum or district commission in each
districts of the state.
Each district commission shall consist of –
A president and not less than two members or not more than two members as
directed by central government. One of the member must be a woman.
The district commission will entertain complaints where the value of goods and
services along with compensation is up to 1 crore.
Any person aggrieved/dissatisfied by the order of district commission may
prefer an appeal against such order, to the state commission within 45 days
from the date of order of district commission.

2.) STATE CONSUMER DISPUTE REDRESSAL COMMISSION/STATE FORUM

The state government shall establish a state consumer dispute redressal
commission, also known as state commission in each state.
Each state commission shall consist of –
A president and not less than FOUR members or not more than FOUR as directed
by central government.
The state commission will entertain complaints when the value of goods and
services along with compensation IS ABOVE 1 CRORE BUT UPTO 10 CRORES.
Any person aggrieved/dissatisfied by the order of state commission may prefer
an appeal against such order, to the National commission within 30 days from
the date of order of State commission.

3.) NATIONAL CONSUMER DISPUTE REDRESSAL COMMISSION/NATIONAL

FORUM
The central government shall establish a National consumer dispute redressal
commission, also known as National commission in each state.
Each state commission shall consist of –
A president and not less than four members or NOT more than four as directed
by central government.
The National commission will entertain complaints when the value of goods
and services along with compensation is above 10 crores.
Any person aggrieved/dissatisfied by the order of National commission may
prefer an appeal against such order, to the Supreme court within 30 days from
the date of order of National commission.
IMPORTANT NOTE: Appeal to supreme court can be made only when value of
goods along with compensation is above 10 crores.
NOTE:
If any complaint filed to district or state forum, then, for that case highest
authority is National commission.
But if any complaint directly made to national commission, can only be passed
on to supreme court because supreme court will handle the complaint whose
value is above 10 crores.