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PRESENTED BY:

ARJUN GUPTA(09)GEETANJALI SHARMA(15)KARISHMA KHULLAR(17)MEGHNA JAMWAL(21)SHWETANSHU GUPTA(49)SIDHARTH GUPTA(50)

* FINANCIAL SERVICES

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• Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored enterprises.

* INTRODUCTION

* FINANCIAL INTERMEDIATION

* It is a process by which funds are mobilized from a large number of savers and make them available to those who are in need of it.

* It means “ mobilizing and allocating SAVINGS”

* It includes all the activities involved in the transformation of SAVINGS into INVESTMENTS

* It can also be called as financial intermediation.

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* IMPORTANCE OF FINANCIAL SERVICES

*Economic Growth (Employment)

*Promotion of Savings (Interest)

*Capital Formation (used in industries)

*Provision of Liquidity (providing to those who need it)

*Financial Intermediation

*Contribution to GNP

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* SCOPE OF FINANCIAL SERVICES1. FUND BASED ACTIVITIES: includes

* Underwriting (subscription of shares and debentures)

* Dealing in secondary market activities. (stock market)(selling of already sold shares)

* Participating in money market instruments. (short term funds)

* Leasing, hire-purchase, venture capital, etc.

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FEE BASED ACTIVITIES: includes

• Managing the capital issues (generation of capital)

• Arrangements for placement of equity (profits) and debt (interest) instruments

• Arrangement of funds from financial institutions

• Assisting in Government and other clearance

B. MODERN ACTIVITIES

It includes

* Rendering project advisory services. (consultancy fee)

* Planning for mergers and acquisitions.

* Acting as trustee to the debenture-holder (interest)

* Hedging of risks. (avoidance of future risk)

* Managing the portfolio of large public sector companies.

* Undertaking risk management services.

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* FINANCIAL INSTRUMENTS

* Commercial Papers* Treasury Bills* Certificates of Deposit* Inter-bank Participation(IBPs)* Option Bonds* Medium Term Maturity* Equity with 100% Safety Net* Convertible Bonds* Flip-Flop Notes* Loyalty Notes* Convertible Bonds with a Premium Put* Debentures with ‘Call’ and ‘Put’ features* Easy Exit Bonds

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* FINANCIAL SERVICES AND PROMOTION OF INDUSTRIES

* Industrial promotion through Merchant Banking Services

*Working Capital Finance Through Factoring Services

*Equipment Finance through Leasing*Financial resources through Mutual Funds*Long-term Risk Capital through Venture Capital

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Types of financial services

Hire-purchase

Venture capital

Leasing

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*Leasing is an arrangement that provides firm with the use

and control over assets without buying and owing the same.

*It is a contract between the owner of asset (lessor) and the

user of asset(lessee)

*The lessee agrees to pay a number of fixed or flexible

installments over an agreed period to the lessor called as

lease rental.

*LEASING

* STEPS IN LEASING

*FEATURES

*Leasing a product is similar to renting it

*A contract lasts over a number of years, usually between 2 and

10, depending on the cost and usable life of the product.

*Have the full use of a piece of equipment without having to

pay the full cost of the item in one go.

*TYPES OF LEASINGSale and leaseback

Direct leasing

Leveraged lease

Operating lease

Finance lease

*FINANCIAL LEASE*Long-term, non-cancellable lease contracts are known as

financial leases.

*The essential point - it contains a condition whereby the lessor agrees to transfer the title for the asset at the end of the lease period at a nominal cost.

*At lease it must give an option to the lessee to purchase the asset he has used at the expiry of the lease.

*High cost high tech equip.

*The lease agreement is irrevocable.

*All the risks incidental to the asset ownership are transferred to the lessee who bears

the cost of maintenance,

insurance and repairs.

*Only title deeds remain with the lessor.

*SALE AND LEASEBACK

*Sub-part of finance lease

*The owner of an asset sells the asset to a party (the buyer),

who in turn leases back the same asset to the owner in

consideration of lease rentals.

*This enables a firm to receive cash from sale of asset and

also retain the economic use of asset in consideration of

lease rental.

*Sale and lease back transaction is suitable for those

assets, which are not subjected depreciation but

appreciation, like land.

*The seller assumes the role of a lessee and the buyer assumes the role of a lessor.

*The seller gets the agreed selling price and the buyer gets the lease rentals.

*OPERATING LEASE

*Contrast to the financial lease

*A lease agreement gives to the lessee only a limited right to

use the asset.

*The lessor is responsible for the upkeep and maintenance of

the asset.

*The lessee is not given any uplift to purchase the asset at

the end of the lease period.

*LEVERAGED LEASE

*A third party is involved beside lessor and lessee.

*The lessor borrows a part of the purchase cost (say 8 0 %) of

the asset from the third party i.e., lender

*The asset so purchased is held as security against the loan.

*The lender is paid off from the lease rentals directly by the

lessee and the surplus after meeting the claims of the lender

goes to the lessor.

*LEVERAGED LEASE

*DIRECT LEASING

*Under direct leasing, a firm acquires the right to use an asset from the manufacturer directly.

*The ownership of the asset leased out remains with the manufacturer itself.

*ADVANTAGES OF LEASING*No large outlay:

The cost is spread over a number of years; there is no need to pay the

entire amount upfront.

*Security:

The product is still owned by the leasing company, meaning that

they have better security on finance.

*Flexibility and convenience

The lease agreement can be tailor- made in respect of

lease period and lease rentals according to the convenience and

requirements of all lessees

*DISADVANTAGES OF LEASING

*No Ownership

*Costly option - high interest rates, costlier than straight buying

*Long Term Expense

*Maintenance

*No working capital

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*HIRE-PURCHASE

*An agreement under which goods are let on hire and under which the buyer (hirer) has an option to purchase them from vendor (hiree) in accordance with the terms of the agreement

*Hire purchase is used to buy expensive items which a person cannot afford to pay outright: e.g. a car A down payment is usually paid and the balance is paid over several months (monthly installments).

*HIRE-PURCHASE FEATURES

*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

*TERMS OF HIRE-PURCHASE

*In hire purchase the hiror has to follow the agreement and he cannot terminate the contract. The seller can however, terminate the agreement in case of default of purchaser hire purchase price is higher than cash price, because interest element is added in this price

*PROCESS OF HIRE-PURCHASE

*The vendor, contracts with finance co. for financing his hire purchase deals.

* The customer selects the goods for HP, and dealer arranges for the complete set of documents

*Down payment by customer on completion of proposal form

*Dealer sends documents to finance co. with request to purchase the goods, and accept the HP transaction.

*The finance co. signs the agreement and sends copy a long with EMI details to dealer

*Dealer delivers the goods to the customer, property passes on to the finance co.

*Hirer pays EMIs, and on last payment , the ownership passes on to him, with loan completion certificate by the finance co.

*Many kinds of business asset are suitable for financing using hire purchase or leasing , including:-

Plant and machinery

Business cars

Commercial vehicles

Agricultural equipment.

Hotel equipment

Medical and dental equipment

Computers, including software packages

Office equipment

VENTURE CAPITAL

*MEANING

Venture capital means funds made available for startup firms and small businesses with exceptional growth potential.

Venture capital is money provided by professionals who alongside management invest in young, rapidly growing companies that have the potential to develop into significant economic contributors.

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.

*ACCORDING TO SEBI:

The SEBI has defined Venture Capital Fund in its Regulation 1996 as ‘a fund established in the form of a company or trust which raises money through loans, donations, issue of securities or units as the case may be and makes or proposes to make investments in accordance with the regulations’.

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*CHARACTERSTICS

*Long time horizon

*Lack of liquidity

*High risk

*Equity participation

*Participation in management

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*ADVANTAGES

*It injects long term equity finance which provides a solid capital base for future growth.

*The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain.

*The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations.

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*ADVANTAGES

The venture capitalist also has a network of contacts in many areas that can add value to the company.

Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the stock exchanges or overseas stock exchange such as NASDAQ.They can also facilitate a trade sale.

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*METHOD OF VENTURE FINANCING

The financing pattern of the deal is the most important element. Following are the various methods of venture financing:*Equity*Conditional loan*Income note*Participating debentures*Quasi equity

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*DEVELOPMENT OF VENTURE CAPITAL IN INDIA

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*DEVELOPMENT OF VENTURE CAPITAL IN INDIA

*The concept of venture capital was formally introduced in India in 1987 by IDBI.

*The government levied a 5 per cent cess on all know-how import payments to create the venture fund.

*ICICI started VC activity in the same year

*Later on ICICI floated a separate VC company - TDICI

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*VENTURE CAPITAL FUNDS IN INDIAVCFs in India can be categorized into following five groups:

1) Those promoted by the Central Government controlled development finance institutions. For example: - ICICI Venture Funds Ltd. - IFCI Venture Capital Funds Ltd (IVCF) - SIDBI Venture Capital Ltd (SVCL)

2) Those promoted by State Government controlled development finance institutions.For example:

- Punjab Infotech Venture Fund - Gujarat Venture Finance Ltd (GVFL) - Kerala Venture Capital Fund Pvt Ltd.

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3) Those promoted by public banks.For example:

- Canbank Venture Capital Fund - SBI Capital Market Ltd

4) Those promoted by private sectorcompanies.For example:

- IL&FS Trust Company Ltd - Infinity Venture India Fund

5)Those established as an overseas venture capital fund.For example:

- Walden International Investment Group - HSBC Private Equity

management Mauritius Ltd

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*RULES AND REGULATIONS OF VC IN INDIA

RULES BY SEBI:

VCF are regulated by the SEBI (Venture Capital Fund) Regulations, 1996.

The following are the various provisions:

A venture capital fund may be set up by a company or a trust, after a certificate of registration is granted by SEBI on an application made to it. On receipt of the certificate of registration, it shall be binding on the venture capital fund to abide by the provisions of the SEBI Act, 1992.

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*INDIAN VENTURE CAPITAL AND PVT EQUITY ASSOCIATION

It was established in 1993 and is based in Delhi, the capital of India

It is a member based national organization that - represents venture capital and private equity firms - promotes the industry within India and throughout

the world - encourages investment in high growth companies

and - supports entrepreneurial activity and innovation.

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*It IVCA members comprise venture capital firms, institutional investors, banks, incubators, angel groups, corporate advisors, accountants, lawyers, government bodies, academic institutions and other service providers to the venture capital and private equity industry.

*Members represent most of the active venture capital and private equity firms in India. These firms provide capital for seed ventures, early stage companies and later stage expansion.

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*VC can help in the rehabilitation of sick units.*VC can assist small ancillary units to upgrade their

technologies*VCFs can play a significant role in developing countries in the

service sector including tourism, publishing, health care etc.*They can provide financial assistance to people coming out

of universities, technical institutes, etc thus promoting entrepreneurial spirits

*FUTURE PROSPECTS OF VC IN INDIA

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