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Financial Services

Financial services can be broadly categorized into fund-based services and fee-based services. Fund-based services involve the provision of funds against assets and include activities like lease financing, hire purchase, venture capital, insurance, factoring, mutual funds, housing finance, bill discounting, and credit financing. Fee-based services are advisory in nature and financial institutions earn fees through commissions, dividends or brokerages from activities like issue management, portfolio management, corporate counseling, merchant banking, credit rating, stock broking, and debt/capital restructuring. Financial services play an important role in promoting economic growth, savings, capital formation, and liquidity in an economy.

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Midhun Manohar
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0% found this document useful (0 votes)
220 views23 pages

Financial Services

Financial services can be broadly categorized into fund-based services and fee-based services. Fund-based services involve the provision of funds against assets and include activities like lease financing, hire purchase, venture capital, insurance, factoring, mutual funds, housing finance, bill discounting, and credit financing. Fee-based services are advisory in nature and financial institutions earn fees through commissions, dividends or brokerages from activities like issue management, portfolio management, corporate counseling, merchant banking, credit rating, stock broking, and debt/capital restructuring. Financial services play an important role in promoting economic growth, savings, capital formation, and liquidity in an economy.

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Midhun Manohar
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FINANCIAL SERVICES

Financial services

• Financial services can be defined as “activities,


benefits and satisfactions, connected with the sale
of money, that offer to users and customers,
financial related value”
Financial services
• All
types of activities which are of a financial nature could
be brought under the term financial services.
• The
term ‘financial services’ in a broad sense means
‘mobilising and allocating savings’.
• Activities involved in the transformation of savings into
investment.
• Financial
service can also be called as ‘financial
intermediation’.
Financial Intermediation
• Process by which funds are mobilised from a large number
of savers and make them available to all those who are in
need of it and particularly to corporate customers.
Features of Financial Services
• Customer-oriented
Designing innovative financial products suitable to
varied risk-return requirements of the customers.
• Intangibility
Need to have a track record of integrity, reputation,
good corporate image and timely delivery of services.
• Simultaneous Performance
Production and supply have to be performed
simultaneously.
• Dominance of human element
People intensive services. Competent and skilled personnel to market the
quality of financial services. Quality of financial services varies with time,
place and customer.
• Perishability
Immediately consumed and hence inventories cannot be created.
Marketing and operations should be closely interlinked.
Importance / Role of Financial Services.
• Economic Growth
• Promotion of savings
• Capital formation
• Provision of liquidity
• Financial Intermediation
• Contribution to GNP
• Creation of Employment opportunities
Financial Services

Fund-Based Fee-Based
Services Services
Fund Based Financial Services
• Also known as Asset-based services.
• Involve provision of fund against assets, bank deposits etc.
• Relate
those activities which results in immediate actual
outflow of cash.
Fund Based Financial Services
1. Lease Financing
2. Hire Purchase
3. Venture Capital
4. Insurance Services
5. Factoring
6. Mutual funds
7. Housing Finance
8. Bill discounting
9. Credit financing
Fee-Based Financial Services
• Also known advisory services.
• Fee-based financial services are those in which financial institutions
work in specialized fields to earn a significant profit by
commissions, dividends, or brokerage on operations.
Fee-Based Financial Services
• Issue management
• Portfolio Management
• Corporate Counselling
• Merchant Banking
• Credit Rating
• Stock Broking
• Debt & capital restructuring
Lease Financing

• Method of renting assets.

•A contractual agreement in which the owner of the asset or


property(lessor) grant to a firm or person (lessee) the use of
the property for a specified period for an agreed sum of rent.

• Right to use an asset without actually owning it.


Hire Purchase
• An arrangement whereby a customer agrees to a contract to acquire an
asset by paying an initial installment and repays the balance of the price
of the asset plus interest over a period of time.

• Alternative to leasing.

• Parties involved are Hirer and Hiree.

• Hiree is the owner of the asset

• Hirer is the buyer.


Venture Capital
• Long-term risk capital to finance high technology projects which
involve risk but at the time have strong potential for growth.
• Venture capital investments are made in innovative projects
• Suppliers of venture capital participate in the management of the
company
• In addition to capital, it provides valuable information, resources,
technical assistance to make a business successful
Insurance Services
• Insurance is a contract whereby the insurer, undertakes, in
consideration of a sum of money, to make good the loss
suffered by the insured against a specific risk such as fire
or compensates the be beneficiaries on the happening of a
specified event such as accident or death.
Factoring
•A fund based financial service, provides resources to finance
receivables as well as facilitates the collection of receivables.
• Involves an outright sale of the receivables of a firm to a
financial institution called factor which specialises in the
management of trade credit.
• Charges commission, usually a percentage of the value of the
receivables received.
Bill discounting

• The banks or FIs purchase the bills of exchange and credits


the customer’s account with the amount of bill less
discount.
• Lending without any collateral security.
• Bill
discounting is a trade-related activity in which a
company's unpaid invoices which are due to be paid at a
future date are sold to a financier (a bank or another
financial institution).
Housing Finance
• It has emerged as a fund based financial service in the
country with the setting up of National Housing
Bank(NHB) by RBI in 1988.
Credit financing
• Allasset based financing plans offered to individuals
to help them acquire durable goods.
• Loansfor purchase of Land, vehicle or fund for
business expansion.
• Usually charge interest for loans.
Mutual funds
• Each Funds investments are chosen and monitored by
qualified professionals who use this money to create a
portfolio.

• All the holders of mutual fund share the funds gains


and losses on an equal basis proportionately to the
amount they have invested.

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