Fund Based Financial Services.pptx k444j

Fund Based Financial Services

FINANCIAL SERVICES: MEANING

 The finance industry encomes a broad range of organizations that deal with the management of money.  Among these organizations are Asset Management Companies like leasing companies, merchant bankers and Liability Management Companies like discounting houses and acceptance houses, and general financial institutions like banks, credit card companies, insurance companies, consumer finance companies, stock exchanges.  The term ‘Financial Services’ in a broad sense means “mobilizing and allocating savings.” Thus, it includes all activities involved in the transformation of savings into investment.

 Following are some of the examples of financial services:  Leasing, credit card services, factoring, portfolio management, financial consultancy services, Underwriting, discounting and rediscounting of bills, Depository services, housing finance, Hire purchases, Mutual Fund management.  The financial services can also be called ‘financial intermediation’. It is the process by which funds are mobilized from a large number of savers and make them available to all those who are in need of it.

Classification of Financial Services Industry

The financial intermediaries in India can be classified as:  Capital Market Intermediaries which constitutes Term Lending Institutions and Investing Institutions which mainly provide long term funds.  Money Market Intermediaries which consists of commercial banks, Cooperative Banks, and other financial agencies which supply only short term funds.

Types of Financial Services

Financial Services offered are mainly 2 types -Fee based merchant banking, broking services, credit rating, portfolio management services, underwriting, etc. -Fund based factoring, leasing, hire purchases, housing finance, bill discounting, Venture Capital, etc.

Leasing

Meaning        

A lease may be defined as : a contractual arrangement / transaction in which a party owning an asset / equipment (lessor) provides the asset for use to another / transfer the right to use the equipment to the (lessee) over a certain / for an agreed period of time for consideration in form of / in return for periodic payment (rental) at the end of the period of contract (lease period) ,the asset /equipment reverts back to the lessor unless there is a provision for the renewal of the contract.

Parties In Leasing  Leasing essentially involves the divorce of ownership from the economic use of an asset/equipment.  LESSOR: Lessor is the owner of the asset that is being leased.  LESSEE: Lessee is the receiver of the services of the asset under a lease .

Characteristics of a lease    

The The The The

Parties Asset Term Lease Rentals

Classification of Lease

1. 2. 3. 4.

Financial lease and operating lease Sales and lease back and direct lease Single investor lease and leveraged lease Domestic lease and international lease

Hire Purchase

Meaning

It is defined as a peculiar kind of transaction in which the goods are let on hire with an option to the hirer to purchase them with the following stipulations:  -payment to be made in installments over a specified period  -the possession is delivered to the hirer at the time of entering in to the contract  -the property in the goods es to the hirer on payment of the last installment  -each installment is treated as hire charges so that if default is made in payment of any installment the seller becomes entitled to take away the goods &  -the hirer is free to return the goods with out being required to pay any further installments falling due after the return.

Various Aspect of HP Transaction  Goods are let out on finance by a finance company to the hire purchaser customer.  Buyer is required to pay an equal amount of periodic installments during a given period.  Ownership transfers at the payment of the last installment.  The hirer is required to make a down payment of 20-25% of the cost and pay the balance amount along with interest in advance or arrears over a time period of 36-48months.

 The interest on each hire purchase installment is computed on the basis of flat rate of interest is applied to the declining balance of original loan amount to determine the interest component of installment for a given flat rate of interest, the equivalent effective rate of interest is higher.

Leasing VS Hire Purchase

Factoring

Meaning

 Undertakes the task of realizing ‘receivables’, i.e. s receivables, book debts, bills receivables etc .

 Also manages the sales s, sundry debts of the commercial firms/trading agents , for a commission.

…Mechanism Credit Transaction (1) Merchant

Agreement (2)

Customer

Receiving Payment(6)

Factor Financing (5)

Handing over Inovice(4)

Factor

Factoring Contract for sale of receivables.(3)

Mechanism  Seller does not maintain a collection/credit department.  After sale, a copy of the invoice, delivery challan, the agreement, other papers are handed over to the Factor.  The Factor receives payment from the buyer on the due date as agreed, whereby the buyer is reminded of the due date payment amt. for collection.  The Factor remits the money collected to the seller after deducting its own service charges at the agreed rate.  Thereafter the seller closes all transactions with the Factor.  The seller es on papers to the Factor for recovery of the amount.

Types of Factoring  Domestic Factoring  Export Factoring  Cross Border Factoring

WHAT IS VENTURE CAPITAL

Money provided by investors to startup firms and small businesses with perceived long-term growth potential.

Venture Capital Financing

Bank of England Quarterly Bulletin : Venture capital is an activity by which investors entrepreneurial talent with finance and business skills to exploit market opportunities and thus obtain long-term capital gains.

Venture Capitalists generally:  Finance new and rapidly growing companies.  Purchase equity securities.  Assist in the development of new products or services.  Add value to the company through active participation.

Stages & Risk of Financing Financial Stage

Seed Money

Start Up

First Stage

Period (Funds locked in years) 7-10

5-9

3-7

Risk Perception

Extreme

Very High

High

Activity to be financed For ing a concept or idea or R&D for product development Initializing operations or developing prototypes Start commercials production and marketing

Financial Stage

Second Stage

Period (Funds locked in years) 3-5

Risk Perception

Sufficiently high

Third Stage

1-3

Medium

Fourth Stage

1-3

Low

Activity to be financed Expand market and growing working capital need Market expansion, acquisition & product development for profit making company Facilitating public issue

VC Investment Process Deal origination Screening Due diligence (Evaluation) Deal structuring Post investment activity Exit plan

Definition  A legal contract between two parties whereby one party called insurer undertakes to pay a fixed amount of money on the happening of a particular event, which may be certain or uncertain. The other party called insured ,pays in exchange a fixed sum , called .

Types Of Insurance

ORIGIN AND GROWTH OF INSURANCE SECTOR  Till end of FY 1999-2000, two state-run insurance companies, Life Insurance Corporation (LIC); General Insurance Corporation (GIC) were the monopoly insurance provider in India.  Under GIC there were four subsidiaries:  National Insurance Company Ltd.  Oriental Insurance Company Ltd.  New India Assurance Company Ltd.  United India Insurance Company Ltd.

 In fiscal 2000-01, the Indian federal government lifted all entry restrictions for private sector investors.  Foreign investment insurance market was also allowed with 26 percent cap.  GIC was converted into India's national reinsurer, from December 2000.  All the subsidiaries working under the GIC umbrella were restructured as independent insurance companies.

IRDA  Insurance Regulatory and Development Authority (IRDA) is an autonomous apex statutory body which regulates and develops the insurance industry in India.  IRDA batted for a hike in the foreign direct investment (FDI) limit to 49 per cent in the insurance sector from the erstwhile 26 per cent. The FDI limit in insurance sector was raised to 49% in July 2013.

Mutual Fund Services

What is a Mutual Fund?

 A mutual fund is a pool of money from numerous investors who wish to save or make money. Investing in a mutual fund can be a lot easier than buying and selling individual stocks and bonds on your own. Investors can sell their shares when they want.

What is a Mutual Fund?  Professional Management Each fund's investments are chosen and monitored by qualified professionals who use this money to create a portfolio.  Fund Ownership As an investor, you own shares of the mutual fund, not the individual securities. All shareholders share in the fund's gains and losses on an equal basis, proportionately to the amount they've invested.

What is a Mutual Fund?

 Mutual Funds are Diversified By investing in mutual funds, you could diversify your portfolio across a large number of securities so as to minimize risk. By spreading your money over numerous securities, which is what a mutual fund does, you need not worry about the fluctuation of the individual securities in the fund's portfolio.

Types Of Mutual Fund Schemes  Mutual funds Schemes can be segregated into two heads – 1. Schemes according to Maturity Period:  Open-ended Fund/ Scheme  Open-ended schemes are those schemes where investors can redeem and buy new units all throughout the year as per.  Close-ended Fund/ Scheme  The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and there after they can buy or sell the units of the scheme on the stock exchanges where the units are listed.

2. Schemes according to Investment Objective:  Growth / Equity Oriented Scheme  Income / Debt Oriented Scheme  Balanced Fund  Money Market Mutual Fund (are low risk funds offers highest possible current income consistent with preservation of capital)

Regulation & Distribution  All mutual funds in India today are regulated by SEBI.  The Association of Mutual Funds of India  (AMFI) is a self-governing association of Indian Mutual Funds that regulates its ' sales, distribution and communication practices. Investors can invest in Indian mutual funds directly or through distributors under codes of practice developed by AMFI.

Housing Finance

Meaning   Housing finance connotes finance (or loans) for meeting the various needs relating to housing, namely:  a) Purchase of a flat or house.  b) Acquisition of a plot.  c) Construction of a house.  d) Extension of a house.  e) Repairs, renovation and up gradation of a house/flat.

Importance     

Create & meet a growing housing demand Reduce poverty Prevent slum proliferation Engine of equitable economic growth Take part in financial sector liberalization 

Types Of Home Loan  The following is the list of different types of Home Loans you can avail from the market:  Home Purchase Loans  Home Construction Loans  Home Improvement Loans  Home Extension Loans  Home Conversion Loans  Land Purchase Loans  Stamp Duty Loans  Bridge Loans  Balance Transfer Loans  Loans to NRIs

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