Q1:define merchant banking and explain its funaction

Merchant bank is a financial institution that specialises in providing various financial services such as hire purchase or instalment buying, international trade financing, acceptance of exchange bills, long term loans, and so on. It provides advice on portfolio management. Merchant banks act as an intermediary between issuer and purchaser of securities. Merchant bankers manage the new issue of companies. They give services in designing the capital structure of a company and also hire issue houses and advertising agencies for pre and post publicity of the issue. The merchant bankers have pre and post issue obligation. In case of pre issue the merchant bankers have to make arrangements for filling the prospectus and relevant documents with SEBI and in case of post issue they have to make arrangements for getting the shares allotted and despatched within specified period to the applicants.

Functions of merchant banking: Issue management Pre-investment studies of investors Corporate counselling Project counselling Loan syndication Portfolio management Project finance Working capital Managerial and technical services

Q2:explain the taxtion aspects of hire purchase transection.

The Finance Act 2007 amends the VAT treatment of hire purchase transactions. The amendments allow finance houses to become entitled to bad debt relief in respect of such transactions. Under the new provisions, with effect from 1 May 2007, finance houses involved in hire purchase transactions are accountable persons in respect of the supply of the underlying goods concerned and on the subsequent sale of such goods if repossessed by them. This leaflet provides guidance in relation to the Finance Act amendments and also information on bad debt relief in genera Arising from the changes in the Finance Act 2007 there is a supply by the dealer of the goods to the finance house and the supply from the finance house to the customer who acquires the

goods under the hire purchase agreement. These two supplies occur simultaneously. The finance house continues to be exempt from VAT on its finance charges. The new legislation provides that the transfer of ownership of goods from the dealer to the finance house is a taxable supply. The dealer must issue a VAT invoice to the finance house. (The special documentary procedure for hire purchase transactions in operation since 1996 no longer applies). The finance house makes a taxable supply when the goods are handed over to the customer. Accordingly, it must account for the VAT on that supply, and may claim deductibility in respect of the VAT chargeable in relation to that supply. (The handing over of the goods to the customer has always been a taxable supply but prior to Finance Act 2007 that supply was treated as a supply by the dealer directly to the customer.) Where the customer defaults on the hire purchase payments the finance house is entitled to claim bad debt relief in respect of the VAT element of the outstanding payments. This should be calculated on a pro-rata basis as outlined in paragraph 19 below. Where the hire purchase agreement is terminated early and the goods are handed back to the finance company then the finance company can claim relief in respect of the VAT element of the outstanding payments in accordance with paragraph 20 below.

Q3:Explain the concept of factoring . what are the characteristics of factoring?

Factoring is a financial option for the management of receivables. In simple definition it is the conversion of credit sales into cash. In factoring, a financial institution (factor) buys the accounts receivable of a company (Client) and pays up to 80%(rarely up to 90%) of the amount immediately on agreement. Factoring company pays the remaining amount (Balance 20%-finance cost-operating cost) to the client when the customer pays the debt. Collection of debt from the customer is done either by the factor or the client depending upon the type of factoring. We will see different types of factoring in this article. The account receivable in factoring can either be for a product or service. Examples are factoring against goods purchased, factoring for construction services (usually for government contracts where the government body is capable of paying back the debt in the stipulated period of factoring. Contractors submit invoices to get cash instantly), factoring against medical insurance etc. Let us see how factoring is done against an invoice of goods purchased Characteristics of factoring Usually the period for factoring is 90 to 150 days. Some factoring companies allow even more than 150 days.

Factoring is considered to be a costly source of finance compared to other sources of short term borrowings. Factoring receivables is an ideal financial solution for new and emerging firms without strong financials. This is because credit worthiness is evaluated based on the financial strength of the customer (debtor). Hence these companies can leverage on the financial strength of their customers. Bad debts will not be considered for factoring. Credit rating is not mandatory. But the factoring companies usually carry out credit risk analysis before entering into the agreement. Factoring is a method of off balance sheet financing. Cost of factoring=finance cost + operating cost. Factoring cost vary according to the transaction size, financial strength of the customer etc. The cost of factoring vary from 1.5% to 3% per month depending upon the financial strength of the client's customer. Indian firms offer factoring for invoices as low as 1000Rs For delayed payments beyond the approved credit period, penal charge of around 1-2% per month over and above the normal cost is charged (it varies like 1% for the first month and 2% afterwards)

Q4:explain the different life insurance produacts.

Given below are the basic types of life insurance policies. All other life insurance policies are built around these basic insurance policies by combination of various other features.

Term Insurance Policy

A term insurance policy is a pure risk cover policy that protects the person insured for a specific period of time. In such type of a life insurance policy, a fixed sum of money called the sum assured is paid to the beneficiaries (family) if the policyholder expires within the policy term. For instance, if a person buys a Rs 2 lakh policy for 15 years, his family is entitled to the sum of Rs 2 lakh if he dies within that 15-year period.

Whole Life Policy

A whole life policy covers a policyholder against death, throughout his life term. The advantage that an individual gets when he / she opts for a whole life policy is that the validity of this life insurance policy is not defined and hence the individual enjoys the life cover throughout his or her life.

Endowment Policy

Combining risk cover with financial savings, endowment policies are among the popular life insurance policies. Policy holders benefit in two ways from a pure endowment insurance policy. In case of death during the tenure, the beneficiary gets the sum assured. If the individual survives the policy tenure, he gets back the premiums paid with other investment returns and benefits like bonuses.

Money Back Policy

This life insurance policy is favoured by many people because it gives periodic payments during the term of policy. In other words, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured. In case of death during the policy term, the beneficiary gets the full sum assured.

ULIPs ULIPs are market-linked life insurance products that provide a combination of life cover and wealth creation options. A part of the amount that people invest in a ULIP goes toward providing life cover, while the rest is invested in the equity and debt instruments for maximising returns. .

Annuities and Pension In these types of life insurance policies, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect against financial risks as well as provide money in the form of pension at regular intervals.

Q5: Give an overview of indian capital scenario.

Venture capital was introduced in India in mid eighties by All India Financial Institutions withthe inaugura tion of Risk Capital Foundation (RCF) sponsored by IFCI with a view to encouragethe technologists and the professional to promote ne w industries. Consequently the governmentof India promoted the venture capital during 198687 by creating a venture capital fund in thecontext of structural development and growth of smallscale business enterprises. Since thenseveral venture capital firms/funds (VCFs) are incorporated by Fin ancial Institutions (FIs), PublicSector Banks (PSBs), and Private Banks and Private Financial companies. The Indian Venture Capital Industry (IVCI) is just about a decade old industry ascompared to that in Europe and US. In this short span it has nurtured close to one thousandventures, mostly in SME segment and has supported building technocrat/professionals allthro ugh. The VC industry, through its investment in high growth companies as well as companiesadopting ne wer technologies backed by first generation entrepreneurs, has made a substantialcontribution to eco nomy. In India, however, the potential of venture capital investments is yet to be fully realized. There a re around thirty venture capital funds, which have garnered over Rs.5000 Crores. The venture capital in vestments in India at Rs. 1000.05 crore as in 1997,representing 0.1 percent of GDP, as compared to 5.5 per cent in countries such as Hong Kong.

Q6:what is mutual fund ? illsustrete the flow of funds in mutual fund. Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. funds can be classified as follow :

Mutual

Based on their structure: Open-ended funds: Investors can buy and sell the units from the fund, at any

point of time.

Close-ended funds: These funds raise money from investors only once. Therefore,

after the offer period, fresh investments can not be made into the fund. Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index both in terms of composition and

individual stock weightages. ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks. iii|) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme. e.g. -An infrastructure fund invests in power, construction, cements sectors etc. v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks. vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. i) Debt-oriented funds -Investment below 65% in equities. ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund:

They invest only in debt instruments, and are a good option for

investors averse to idea of taking risk associated with equities.

Liquid fundsGilt funds STFloating rate funds Arbitrage fundGilt funds LTIncome funds LT-