Fund Based Financial

Services

FINANCIAL SERVICES: MEANING

The finance industry encompasses 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 user (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 contact.

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 passes 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. accounts receivables, book debts, bills
receivables etc .

Also
manages the sales registers, 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 passes 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 support 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 supporting 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 premium.

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.
TheAssociation of Mutual Funds of India
(AMFI) is a self-governing association of
Indian Mutual Funds that regulates its
members'
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

THE END