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Agenda
What are Financial Products? What are Financial Services? Financial System, its functions Indian Financial System Financial Products
o Banks
o Money market o Capital market o Asset / Fund based o Fee based
Financial Product
A financial product is a facility (arrangement or intangible property) through which, or through the acquisition of which, a person
o makes a financial investment the investor gives money to another person and the person uses the contribution to
generate a financial return, or other benefit, for the investor
the investor has no day-to-day control over the use of the contribution to generate the return or benefit Eg: a person paying money to a company for the issue of shares (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day-to-day affairs of the company)
o manages financial risk manage, avoid or limit the financial consequences to them of particular
circumstances happening
Eg. taking out insurance and hedging a liability by acquiring a futures contract or entering into a currency swap
o makes non-cash payments by ways other than making physical delivery of a domestic or foreign currency in
the form of notes / coins
Eg: facility for direct debit of a deposit account, a facility for the use of cheques
Financial Service
A person provides a financial service if they o provide financial product advice to influence a person in making a decision in relation to a particular financial
product
o deal in a financial product acquiring/issuing/varying/disposing a financial product underwriting the securities or interests o make a market for a financial product through a facility, at a place or otherwise, the person regularly states the prices at
which they propose to acquire or dispose of financial products on their own behalf
o provide a custodial or depository service a financial product, or a beneficial interest in a financial product, is held by the
provider in trust for the client
Financial System
It serves as a link between savers and investors. It channelizes flow of saving into productive investment. It provides payment mechanism for exchange of goods and services. It provides a mechanism for the transfer of resources across geographic boundaries It provides a mechanism for managing and controlling the risk involved in mobilizing savings and allocating credit. It promotes the process of capital formation by bringing together the supply of saving and the demand for investible funds.
Financial Institutions
o facilitate smooth functioning of the financial system and act as middlemen or intermediaries between savers and borrowers
Financial Markets
o Centers and arrangements which facilitate buying and selling of financial assets, claims and services o Unorganized market and Organized market; Capital Market: Market for financial assets with long or indefinite maturity period Industrial Securities Market (Primary and Secondary) Government Securities Market Long term loans market (Term loans, mortgages) Money Market: Market for short term liquid assets
Financial Services
Retail
Current account Savings account Money market account Certificate of deposit Individual retirement account Credit card / debit card Mortgage Personal loan (Home, auto, education) Time deposit Depository services Credit Cards
Treasury bill: short term borrowings of the government (14 days, 91 days, 182 days, 364 days) Commercial bills: banks make advances to customers against these Inter bank call money: source for banks for getting overnight and short term funds Commercial paper: short term unsecured instrument issued by a company via promissory notes with fixed maturities Certificate of Deposit: issued by commercial banks at a discount on face value
Derivatives: forwards, futures, options, swaps Shares, right, bonus, preference Debentures Bonds
o o
An individual investor will undertake comprehensive financial planning: o Determine his current financial situation income, savings, living expenses, and debts o Develop financial goals Retirement, Childs Education, Childs Marriage, Asset purchase, Insurance,
Investment, Tax planning
o Identify alternative courses of action Consider investment options wrt his risk return profile (conservative, moderate,
aggressive)
Mutual funds, equities, bonds, bank deposits o Create and implement financial plan o Sources of information: Family, spouse Printed materials, Internet, provider website Co-workers Seminars, meetings Financial Advisor
2. Controllable Priorities
1. Non-controllable Events
Means of investing lump sum to generate income Means of protecting tangible assets from fire, theft, accidentl damage, etc. Means of protecting human assets from risks associated with death, illness and medical conditions
Possible Questions
Discuss various Financial Products and how these products are being managed? Explain different Financial Products? How are they managed? How Financial Planning of Individual is done through Financial Products? How it is managed?