Fund Based Financial Services

- Presented By :- Gaurav- Mehak- Swati

- Saumya- Srikriti

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.

FINANCIAL SERVICES: MEANING

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.

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.

Classification of Financial Services Industry

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.

Types of Financial Services

Leasing

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.

Meaning

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.

Parties In Leasing

The Parties The Asset The Term The Lease Rentals

Characteristics of a lease

Classification of Lease

1. Financial lease and operating lease 2. Sales and lease back and direct lease 3. Single investor lease and leveraged lease4. Domestic lease and international lease

Hire Purchase

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.

Meaning

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.

Various Aspect of HP Transaction

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

Merchant Customer

Factor

Credit Transaction (1)

Agreement (2)

FactorFinancing (5)

Handing over Inovice(4)

Factoring Contract for sale of receivables.(3)

ReceivingPayment(6)

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.

Financial Stage Period (Funds locked in years)

Risk Perception Activity to be financed

Seed Money 7-10 ExtremeFor supporting a

concept or idea or R&D for product

development

Start Up 5-9 Very HighInitializing

operations or developing prototypes

First Stage 3-7 HighStart commercials

production and marketing

Stages & Risk of Financing

Financial Stage Period (Funds locked in years)

Risk Perception Activity to be financed

Second Stage 3-5 Sufficiently highExpand market

and growing working capital

need

Third Stage 1-3 Medium

Market expansion, acquisition &

product development for

profit making company

Fourth Stage 1-3 Low Facilitating public issue

Deal origination

Screening

Due diligence (Evaluation)

Deal structuring

Post investment activity

Exit plan

VC Investment Process

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.

Definition

Types Of Insurance

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.

ORIGIN AND GROWTH OF INSURANCE SECTOR

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.

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.

IRDA

Mutual Fund Services

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 ManagementEach fund's investments are chosen and

monitored by qualified professionals who use this money to create a portfolio.

Fund OwnershipAs 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 DiversifiedBy 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.

What is a Mutual Fund?

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.

Types Of Mutual Fund Schemes

2. Schemes according to Investment Objective:Growth / Equity Oriented Scheme Income / Debt Oriented SchemeBalanced FundMoney Market Mutual Fund (are low risk

funds offers highest possible current income consistent with preservation of capital)

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 members' sales, distribution and communication practices. Investors can invest in Indian mutual funds directly or through distributors under codes of practice developed by AMFI.

Regulation & Distribution

Housing Finance

 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.

Meaning

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

Importance

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

Types Of Home Loan

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