FINANCIAL SERVICES MEANING : It is a process by which funds are mobilised from a large number of savers and make them

m available to all those who are in need of it, particularly to corporate customers. It can be also called financial intermediation. In broad sense it means mobilising and allocating savings. CLASSIFICATION 1. Asset/Fund Based Services 2. Advisory/Fee based Services

ASSET BASED SERVICES: 1. 2. 3. 4. 5. 6. Leasing Hire-Purchase Bill Discounting Venture Capital Housing Finance Insurance, etc

FEE BASED SERVICES: 1. 2. 3. 4. 5. 6. 7. 8. Issue Management Portfolio Management Corporate Counselling Loan Syndication Merger and Acquisition Capital Restructuring Credit Rating Stock Broking, etc

LEASING Definition: According to James C. Van Horne Lease is a contract whereby the owner of an asset (lessor) grants to another party (lessee) the exclusive right to use the asset usually for an agreed period of time in return for the payment of rent. The ownership of the asset remains with the lessor The lessee just uses the asset The lease rent is fully tax deductible. CLASSIFICATION OF LEASE

1. 2. 3. 4. 5.

Financial lease Operating lease Leverage lease Sale and lease back Cross border lease

FINANCIAL LEASE A financial lease is also known as Capital lease, long-term lease, Net lease and Close Lease. In a financial lease, the lessee selects the equipments, settles the price and terms of sale and arranges with a leasing company to buy it. He enters into a irrevocable and non-cancellable contractual agreement with the leasing company. The lessee uses the equipment exclusively, maintains it, insures and avails of the after sales service and warranty backing it. He also bears the risk of obsolescence as it stands committed to pay the rental for the entire lease period. The financial lease could also be with purchase option, where at the end of the predetermined period, the lessee has the option to buy the equipment. The financial lease may also contain a non-cancellable clause which means that the lessor transfers the title to the lessee at the end of the lease period. The rate of lease would be fixed based on the kind of lease, the period of lease, periodicity of rent payment and the rate of depreciation and other tax benefits. The lessee can claim lease rentals as tax-deductible expenses. The lease rentals received by the lessor are taxable. The leasing company charges nominal service charges to cover legal and other costs. In a large number of cases, the financial lease is used as financing cum tax planning tool. High cost equipments like machine tools, diesel generators, office equipments, textile machinery, containers, locomotives, etc are leased under financial lease.

OPERATING LEASE An operating Lease is also known as Service Lease, Short term Lease or True Lease. The Lease is for a limited period, may be a month, six months, a year or few years. The lease is terminable by giving stipulated notice as per the agreement. Normally, the lease rentals will be higher as compared to other leases on account of short period. The risk of obsolescence is enforced on the lessor who will also bear the cost of maintenance and other relevant expenditure. The lessor also does the services like handling warranty claims, paying taxes, scheduling and performing maintenance and keeping complete records. Computers, copy machines and other office equipments, vehicles, material handling equipments, etc (which are sensitive to obsolescence) are suitable for this kind of leasing.

LEVERAGE LEASE A leverage lease is used for financing those assets which require huge capital outlay. It involves three parties the lessee, the lessor and the lender. The lessor acquires the assets as per the terms of the lease agreement but finances only a part of the total investment, 20%-25%. The balance is provided by a person or a group of persons in the form of loan to the lessor. The loan is generally secured by mortgage of the asset. The position of the lessee is the same as in other type of lease. By investing 20-25% of the cost of an asset, the lessor is entitled to 100% allowance for depreciation and the investment allowance in terms of tax. In leveraged lease, a wide range of equipments such as rail road, rolling stock, coal mining, electricity generating plants, pipelines, ships, etc are acquired.

MUTUAL FUNDS DEFINITION : According to SEBI, it is a fund established in the form of a trust by a sponsor, to raise money by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with the regulations. CLASSIFICATION:

CLOSE-ENDED FUNDS

 Redeemable Funds having a pre-specified life, at the end of which capital is returned to the investors. These are listed in the stock exchanges. After one has subscribed to the units at the time of the new fund offer, these cannot be sold back to the AMC until the end of the funds life, nor can one buy new units from the mutual fund. However if one wants to sell the units then one can do so in the stock exchange in which it is listed. OPEN-ENDED FUNDS They have no maturity period. They are open for investment and redemption throughout the year. They are not listed in the stock exchange. The AMC offers to buy and sell the units from the investors at NAV New investors can also buy units from the AMC. The no. of outstanding units varies on a daily basis.

GROWTH FUND, BALANCED FUND AND INCOME FUNDS Based on the extent of the combination of different asset classes in the investments. Growth funds invest predominantly in equities and very little on debt e.g. 80:20. It re-invests the dividends. Income fund invests in the reverse ratio e.g. 20:80. The priority here is to pay a steady income or dividend stream. Balanced fund invests more or less in the same ratio of equity and debt. All funds invest around 5 to 10 % in money market instruments for liquidity.

MUTUAL FUNDS BASED ON ASSET CLASS Eg equity funds, debt funds, money market fund, gilt funds, real estate funds and so on. Equity Funds invest in portfolio of equity shares. Debt Funds invest in fixed return instruments. Money Market Mutual funds invest in short-term money market instruments like CDs, Commercial Papers, Inter-bank call Money market, etc. Gilt funds Gilt, Bullion or related securities. Real estate funds real estate. SPECIALISED FUNDS They offer special schemes so as to meet the specific needs of specific categories of people like pensioners, widows, etc. eg Childrens Fund generating savings to meet anticipated expenses of the children in future. Some funds may be confined to particular sector.

CREDIT RATING

Credit Rating is the Opinion of the rating agency on the relative ability and willingness of the issuer of a debt instrument to meet the debt service obligation as and when they arise. IMPORTANCE OF CREDIT RATING They provide a yardstick against which to measure the risk inherent in any instrument Every investor cannot undertake a detailed risk analysis. Investors also do not possess the requisite skills of credit evaluation. Helps the issuer to price the security correctly. Used by regulators for eligibility criteria Also helpful for establishing business relationships.

CREDIT RATING AGENCIES IN INDIA 1. 2. 3. 4. 5. CRISIL (Credit Rating Information Services of India Ltd.) ICRA LTD.(Investment Information and Credit Rating Agency) CARE LTD. (Credit Analysis and REsearch) DCR (Duff and Phelps Credit Rating Agency) ONICRA (Onida Individual Credit Rating Agency), etc.

PRIMARY MARKET It is a market for new issues or new financial claims. Thus it is also called New Issue market. In the primary market borrowers exchange new financial securities for long-term funds. There are three ways a company may raise capital in the primary market. These are : 1) Public Issue Public issue is the most common method of raising capital by new companies. In this the capital is raised through sale of securities to the public. 2) Rights Issue When an existing company wants to raise additional capital, securities are first offered to the existing shareholders. This is known as Rights issue. 3) Private Placement It is a way of selling securities privately to a small group of investors.

FUNCTIONS OF PRIMARY MARKET: The primary market plays an important role of mobilising the funds from the savers and transfers them to borrowers for production purposes, an important requisite of economic growth. It is not only a platform for raising finance to establish new enterprises but also for expansion/diversification/modernisation of existing units. In this basis the new issue market can be classified as : 1) Market where firms go to the public for the first time through IPO. 2) Market where firms which are already trading raise additional capital through seasoned equity offering (SEO) or FPO.

The main functions of a new issue market can be divided into a triple service function: 1. Origination 2. Underwriting 3. Distribution

ADVANTAGES OF PRIMARY MARKET 1) 2) 3) 4) 5) avenue for investment mobilisation of savings sources of large supply of funds rapid industrial growth Sources for expansion and technological upgradation.

DIS-ADVANTAGES OF PRIMARY MARKET 1) 2) 3) 4) 5) 6) 7) possibility of deceiving investors Lack of post issue seriousness. ineffective role of merchant bankers no fixed norms for project appraisal delay in allotment process poor mobilisation of savings hesitancy to invest on shares

SECONDARY MARKET OR STOCK EXCHANGE As per Securities Contracts Regulation Act, 1956, A stock exchange is an association, organisation or body of individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities. Stock exchange constitute a market where securities issued by the central and state governments, public bodies and joint stock companies are traded. It provides mechanism for regular and continuous purchase and sale of securities.

Functions/ Services of Stock Exchanges 1) 2) 3) 4) 5) 6) 7) 8) Liquidity and Marketability of securities Safety of Funds Supply of Long Term Funds Flow of Capital to Profitable Ventures Motivation for improved performance Promotion of Investment Reflection of Business Cycle Marketing of new issues

LISTING PROCEDURE: The company concerned must apply in the prescribed form along with the following documents and details: 1) Certified copies of MOA, AOA, Prospectus or In lieu of Prospectus, Underwriting agreements, Agreements with vendors and Promoters etc. 2) Specimen copies of Shares and debenture certificates, letter of call, allotment and acceptance 3) Copies of B/s and P&L a/c of last five years 4) Copies of offer for sale and circulars or advertisements offering any securities for subscription or sale during the last 5 years 5) Certified copies of agreements with managerial personnel 6) Particulars of dividends and bonuses paid during the last 10 years 7) A statement showing dividends or interest in arrears if any 8) A brief history of the company since its corporation, giving details of its activities 9) Particulars regarding its capital structure 10) Particulars of shares and debentures for which permission to deal is applied for and their issue 11) Particulars of shares forfeited 12) Certified copies of agreements if any with the Industrial Finance Corporation, ICICI, etc. 13) Listing agreement with the necessary initial and annual listing fee.

Advantages of Listing 1) 2) 3) 4) 5) Facilitates Buying and selling securities Ensures Liquidity Offers wide Publicity Enables Borrowings Protects Investors

Drawbacks 1) Leads to Speculation 2) Degrades Companies reputation 3) Disclose Vital Information to competitors