22.18        ndian    onom
                                                         the money parked will be released only under
        equity linkeD sAving scheme                      fulfilment of certain conditions of a contract.
     Equity linked savings schemes (ELSS) are open-      The term escrow is derived from the French
     ended, diversified equity schemes offered by        term ‘escroue’ meaning a scrap of paper or roll of
     mutual funds. They offer tax benefits under the     parchment, an indicator of the deed that was held
     new section 80C introduced in the Finance Bill      by a third party till a transaction is completed.
     2005–06.                                                 An escrow account is an arrangement for
          Besides offering the tax benefits, the scheme  safeguarding the ‘seller’ against its ‘buyer’ from
     invests in shares of frontline companies and offers the payment risk for the goods or services sold by
     long-term capital appreciation. This means unlike   the former to the latter. This is done by removing
     a guaranteed return by assured return schemes       the control over cash flows from the hands of the
     like Public Provident Fund or National Savings      buyer to an independent agent. The independent
     Certificate, the investor gets the benefit of the   agent, i.e, the holder of the escrow account
     upside (if any) in the equity markets.              would ensure that the appropriation of cash
          Unlike other mutual fund schemes, there is a   flows is as per the agreed terms and conditions
     three-year lock in period for investments made in   between the transacting parties. Escrow account
     these schemes. Investors planning to build wealth   has become the standard in various transactions
     over the long-term and save on tax can use these    and business deals. In India escrow account is
     schemes.                                            widely used in public private partnership projects
                                                         in infrastructure. RBI has also permitted Banks
          Returns in these schemes are linked to the
                                                         (Authorised Dealer Category I) to open escrow
     fortunes of the stock market. Investors should
                                                         accounts on behalf of Non-Resident corporates
     assess their respective risk appetites before
                                                         for acquisition / transfer of shares / convertible
     investing.                                          shares of an Indian company.
        equity shAre                                        esops
     A security issued by a company to those who         Employee Stock Option Plans (ESOPs) is a
     contributed capital in its formation shows          provision under which a foreign company (i.e.,
     ownership in the company. The other terms for it    MNC) offers shares to its employees overseas. Till
     are ‘stock’ or ‘common stock’.                      February 2005 in the case of local firms, an MNC
          Such shares might be issued via public issue,  needed a permission from the RBI before allotting
     bonus shares, convertible debentures, etc. and      ESOPs, but since then, it does not need any
     may be traded on the stock exchanges.               permission provided the company has a minimum
          Such shareholders have a claim on the earnings of 15 per cent holding in the Indian arm.
     and assets of the company after all the claims have
     been paid for. This is why such shareholders are       exploDing Arms
     also known as the residual owners.
                                                         A term associated with the mortgage business
        escrow Account                                   which became popular after the subprime crisis hit
                                                         the US financial system in mid-2007. Exploding
     In simple terms, an ‘escrow account’ is a third     arms are mortgages with initial low, fixed interest
     party account. It is a separate bank account to     rates which escalate to a high floating rate after a
     hold money which belongs to others and where        period of two to three years.