MANAGEMET OF FINANCIAL SERVICES AND INSTITUTION UNIT-I An overview of Indian Financial System

Indian financial system

Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products. This paper discusses the meaning of finance and Indian Financial System and focus on the financial markets, financial intermediaries and financial instruments. The brief review on various money market instruments are also covered in this study. The term "finance" in our simple understanding it is perceived as equivalent to 'Money'. We read about Money and banking in Economics, about Monetary Theory and Practice and about "Public Finance". But finance exactly is not money; it is the source of providing funds for a particular activity. Thus public finance does not mean the money with the Government, but it refers to sources of raising revenue for the activities and functions of a Government. Here some of the definitions of the word 'finance both as a source and as an activity i.e. as a noun and a verb. The American Heritage Dictionary of the English Language, Fourth Edition defines the term as under1:"The science of the management of money and other assets."; 2: "The management of money, banking, investments, and credit. "; 3: "finances Monetary resources; funds, especially those of a government or corporate body" 4: "The supplying of funds or capital." Finance as a function (i.e. verb) is defined by the same dictionary as under1:"To provide or raise the funds or capital for": financed a new car 2: "To supply funds to": financing a daughter through law school. 3: "To furnish credit to". Another English Dictionary, "WordNet 1.6, 1997Princeton University " defines the term as under1:"the commercial activity of providing funds and capital" 2: "the branch of economics that studies the management of money and other assets" 3: "the management of money and credit and banking and investments" The same dictionary also defines the term as a function in similar words as under1: "obtain or provide 2:"sell or provide on credit money for;" Can we finance the addition to our home?"

All definitions listed above refer to finance as a source of funding an activity. In this respect providing or securing finance by itself is a distinct activity or function, which results in Financial Management, Financial Services and Financial Institutions. Finance therefore represents the resources by way funds needed for a particular activity. We thus speak of 'finance' only in relation to a proposed activity. Finance goes with commerce, business, banking etc. Finance is also referred to as "Funds" or "Capital", when referring to the financial needs of a corporate body. When we study finance as a subject for generalising its profile and attributes, we distinguish between 'personal finance" and "corporate finance" i.e. resources needed personally by an individual for his family and individual needs and resources needed by a business organization to carry on its functions intended for the achievement of its corporate goals.

INDIAN FINANCIAL SYSTEM The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. While performing their activities these units will be placed in surplus/deficit/balanced budgetary situations. There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities. Financial System; The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial market, financial instruments and financial intermediation. These are briefly discussed below;

FINANCIAL MARKETS
A Financial Market can be defined as the market in which financial assets are created or transferred. As against a real transaction that involves exchange of money for real goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend.

Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term
instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions.

Capital Market - The capital market is designed to finance the long-term investments. The transactions
taking place in this market will be for periods over a year.

Forex Market - The Forex market deals with the multicurrency requirements, which are met by the
exchange of currencies. Depending on the exchange rate that is applicable, the transfer of funds takes place in this market. This is one of the most developed and integrated market across the globe.

Credit Market- Credit market is a place where banks, FIs and NBFCs purvey short, medium and longterm loans to corporate and individuals.

Constituents of a Financial System

FINANCIAL INTERMEDIATION Having designed the instrument, the issuer should then ensure that these financial assets reach the ultimate investor in order to garner the requisite amount. When the borrower of funds approaches the financial market to raise funds, mere issue of securities will not suffice. Adequate information of the issue, issuer and the security should be passed on to take place. There should be a proper channel within the financial system to ensure such transfer. To serve this purpose, financial intermediaries came into existence. Financial intermediation in the organized sector is conducted by a wide range of institutions functioning under the overall surveillance of the Reserve Bank of India. In the initial stages, the role of the intermediary was mostly related to ensure transfer of funds from the lender to the borrower. This service

was offered by banks, FIs, brokers, and dealers. However, as the financial system widened along with the developments taking place in the financial markets, the scope of its operations also widened. Some of the important intermediaries operating ink the financial markets include; investment bankers, underwriters, stock exchanges, registrars, depositories, custodians, portfolio managers, mutual funds, financial advertisers financial consultants, primary dealers, satellite dealers, self regulatory organizations, etc. Though the markets are different, there may be a few intermediaries offering their services in move than one market e.g. underwriter. However, the services offered by them vary from one market to another. Intermediary Stock Exchange Investment Bankers Underwriters Market Capital Market Capital Market, Credit Market Capital Market, Money Market Role Secondary Market to securities Corporate advisory services, Issue of securities Subscribe to unsubscribed portion of securities Issue securities to the investors on behalf of the company and handle share transfer activity Market making in government securities Ensure exchange ink currencies

Registrars, Depositories, Custodians Capital Market Primary Dealers Satellite Dealers Forex Dealers Money Market Forex Market

FINANCIAL INSTRUMENTS Money Market Instruments The money market can be defined as a market for short-term money and financial assets that are near substitutes for money. The term short-term means generally a period up to one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost. Some of the important money market instruments are briefly discussed below; 1. Call/Notice Money 2. Treasury Bills 3. Term Money 4. Certificate of Deposit 5. Commercial Papers 1. Call /Notice-Money Market Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of intervening holidays) is "Call Money". When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions. 2. Inter-Bank Term Money Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market. The entry restrictions are the same as those for Call/Notice Money except that, as per existing regulations, the specified entities are not allowed to lend beyond 14 days.

3. Treasury Bills. Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction. 4. Certificate of Deposits Certificates of Deposit (CDs) is a negotiable money market instrument issued in dematerialized form or as a Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time. CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their requirements. An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue of CD together with other instruments viz., term money, term deposits, commercial papers and interoperate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet. 5. Commercial Paper CP is a note in evidence of the debt obligation of the issuer. On issuing commercial paper the debt obligation is transformed into an instrument. CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces. CP is freely negotiable by endorsement and delivery. A company shall be eligible to issue CP provided - (a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore and (c) the borrower account of the company is classified as a Standard Asset by the financing bank/s. The minimum maturity period of CP is 7 days. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies Capital Market Instruments The capital market generally consists of the following long term period i.e., more than one year period, financial instruments; In the equity segment Equity shares, preference shares, convertible preference shares, non-convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc. ISSUE MANAGEMENT Management of issue denotes marketing of corporate securities such as equity shares, preference shares and debentures or bonds by offering them to public. Merchant banks act as intermediary between those who own funds to those who need it by transferring it. FUNCTIONS OF ISSUE MANAGEMENT *Pre-issue Management *Post-issue Management I-Pre-Issue Management It can discussed under three heads

1-Public issue through prospectus 2-Marketing and Underwriting 3-Pricing of Issues Public issue through prospectus

I - Issue through Prospectus

*common method *new capital issue only by prospectus

II-Offer for sale

*stock brokers *intermediary of issue house *issued to broker below the par value

III-Private Placement
* direct sale of securities by a company to investor *investors are LIC,UTI,GIC,SFC. *Merchant banker appoint the broker to issue

Marketing and underwriting

Merchant banker arrange for a meeting with company representative and advertising agents for: #Date of opening and closing of issue #Registration of prospectus #fixing date for board meeting to approve and sign prospectus and pass the necessary resolution Pricing of issues it is a part of SEBI guidelines It is a part of new-issue management Pricing the share freely (conditions) Only an existing listed company, a new company set up by on existing company with five years track record, existing private closely held company and existing unlisted company going in for public issues for the first time with two and half years track record of constant profitability can freely price the issue. POST-ISSUE MANAGEMENT . Collection of application forms . Statement of amount received from bankers . Screening of application . Deciding allotment procedure . Mailing of allotment letters . Share certificate and refund orders Registrars role in post-issue management Receive the application

 Verify and submit on the basis of allotment Allotment is approved by stock-exchange and allotted by the board Auditor and Secretary has to certify allotment made as per the basis of approved by stock exchange Application to refund orders are send within 70 days of the close of the issue Merchant banker assist and co-ordinate all activities Services of merchant banks Issue management Portfolio management Conduct pre-investment services Working out for project funding Cost auditing Foreign currency loan Arrangement of lease financing Counseling services Helps in raising pubic finance Advice on investment in govt. securities marketing SEBI guidelines for merchant banking Merchant banking regulations # it regulate the raising of funds in primary market # it assure the issuer a market for raising resources at low cost, effectively and easily # it ensure a high degree of protection to the interests of the investors # it ensure a fair, efficient and flexible primary market to all involved in the process of primary issue Question bank for first unit What is merchant banking? Define merchant bank? What is money market? What is capital market? What is issue management? Write short notes on post-issue management. Explain the structure of Indian financial system What are the various functions of merchant banker? Describe the role of merchant banker in issue mgt. Give a brief account of SEBI guidelines on merchant banker What are the qualities of successful merchant banker? Explain the present state of merchant banking in India UNIT-II LEASING Introduction: # In the recent year the growth of NBFC is very high. # Fund based and non-fund based finance. # leasing- long-term finance. # Main factor for growth is liberalization, deregulation, delicensing etc. # Examples for non-fund based activities are leasing, hire purchase, bill discounting, venture capital, private placement.

# Non-fund based activity mainly helpful for entrepreneur Leasing concepts Leasing was initiated in USA the late 50s Leasing undertaken global scale 10-12% Leasing organized in the early 80s Last 10-11 years leasing came to india in big way Mushrooming growth of leasing(1200 companies and partnership firm engaged leasing business so the value of assets 1250 crores on 1988 Definition James c.van horne, Lease is a form of 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. Forms/kinds of lease financing Operating Lease Financial Lease Sale And Lease Back Leveraged Lease Direct Lease Service Leasing

Operating Lease Any lease other than a finance lease Lessor maintain and services the leased equipment Contract may be less than the economic life of assets Example-computer (technological obsolescence) Two kinds of operating lease- wet lease and dry lease It is cancelable Wet lease- lessee bear the cost of insuring and maintaining the leased equipment Dry lease- just opposite so its not popular in india

Financial lease Non-cancelable Risk and reward associated with lessee Lessee is legally obliged to make all lease payments

Lease and hire purchase-differences Lease *ownership is with the financier forever *no option to buy *legal ownership with lessor *it recognises lessor as owner *Depreciation allowed to lessor *lease rental taxed as lessors income and allowed as lessees expenses *accounted as a lessors assets *sales tax laws treat as special sales

Hire purchase *ownership passed at the option of the hirer at end *contain options to buy *legal ownership with financier *it recognizes hirer as owner *Depreciation allowed to hirer *only the interest part of installments taxed as financiers income and allowed as hirers expenses *accounted as hirers asset *sales tax laws treat as normal sale Question bank for second unit Meaning and definition of leasing Meaning and definition of hire-purchase Meaning and definition of factoring What is forfaiting? Write the differences between financial lease and hire purchase What is direct lease and leveraged lease? Explain the legal aspects of leasing and hire purchase What are the rights of hirer under hire purchase What are the differences between lease and hire purchase Explain types of leasing Explain types of factoring Explain the process in factoring and forfaiting Differentiate factoring and bills discounting

Factoring Factoring is specialized activity whereby a firm converts its receivables into cash by selling them to a factoring organisation.The factor assumes the risk of collection and in the event of non-payment by the customers/ debtors bear the risk of bad debt losses. Define factoring According to thiru c.s.kalyanasundaram in his report submitted to the RBI defines factoring as the outright purchase of credit approved accounts receivables by the factor assuming bad debts losses Factoring process Client (seller) Customer of the client (buyer) Factoring company (factoring) Process: 1-Extension of factoring documentation (client and factoring company) 2-places order (client and customer) 3-delivery of goods and invoice with notice to pay factor (client and customer) 4-copy of invoice to factor (client & factor) 5-pre-payment up to 80% (client & factor) 6-monthly-follow up unpaid by due date (customer and factor) 7-payment (customer and factor) 8-balance amount (factor and client) Charges Sales ledger - 0.4% to 1% Immediate payment- discount charges (charge compared to bank interest)

Types of factoring Recourse factoring Non-recourse factoring Maturity factoring Invoice discounting Credit insurance Advance factoring Export factoring Disclosed and undisclosed factoring Bank participation factoring Supplier guarantee factoring Cross border factoring Types of factoring Full Service Factoring in its full form, or traditional factoring, is a continuous relationship between a factor and the client (the supplier of goods and services to trade customers), in which the factor purchases substantially all the trade debts of his client, arising from such sales, in the normal course of doing business. This comprises all the factoring services, so that in return for the agreed fees and finance charges, the client receives: financing debt administration collection of debts due risk coverage, in case of non-payment of debt This type of factoring is best suited for small and medium size companies, which have a swift development and they need not only financing, but also administrative support and risk coverage. It is also suited for large companies who target their exports to new markets. The factor takes over the clients' debts, becoming solely debtor towards the client. The transfer of debts' ownership is normally accompanied by the submission to the factor of the copies of invoices that represent the debts sold. In some cases, the factor may require also the submission of the original invoices, to be able to forward them to the debtors, accompanied by copies of retention by the factor. The contract between the client and the factor is totally notified to the debtors. Many factors arrange nowadays for their large clients to notify them the debts by electronic means. The factor is responsible towards the client for the purchase price of the debt assigned. The purchase price is normally the amount of any discount or other allowance granted to the debtor and, in some cases, after the deduction of the factor's charges. The factor will credit the client's account with the purchase price of debts sold and as a corollary the client may charge all his sales to the factor's account. The client will consequently look to the factor alone for the collection of the invoices. The final date for payment of the purchase price will be either a fixed number of days after the invoice date (often referred to as the maturity date), or when collection has been effected from the debtor. To the extent that the factor has given approval of the debts, the factor purchases them without recourse to the client. The client thus receives full protection against bad debts provided that they do not sell to any

debtor that the factor did not agree with, or to an extent greater than the approval given by the factor (for debts approved and uncontested). By making an early payment (prepayment or initial payment) on account of a substantial part of the purchase price, the factor provides the finance for the client to meet the debtors' trade credit requirements. Some factors make such payment by way of an advance secured by their right to set off against the full purchase price when due, whereas others provide for prepayments as part payments of the purchase price. The factor will make retention of part of the purchase price of each debt, so that in aggregate he will hold a sufficient balance to provide for any debt to be charged back to the client by way of recourse for the non-payment of an unapproved or disputed debt. However, the balance credited for the purchase price of debts purchased less the retention may no Recourse factoring A large number of the factoring companies do not offer complete factoring services, being specialized in recourse factoring. Although most forms of factoring other than the full service are provided with full recourse to the client in respect of the failure of the debtor to pay for any reason, recourse factoring normally describes the service by which the factor provides finance for the client and carries out the functions of sales ledger administration and collections, but does not protect the client against bad debt. The factor has full recourse", meaning the right to have payment guaranteed or the debt repurchased by the client for debts unpaid for any reason, including the insolvency of the debtor. Thus, the services the client receives are: Financing Sales ledger administration Collection of debts due For every debt purchased by the factor, he will have the right to sell it (or part of it) back to the client for the amount for which he credited the purchase price originally, in addition to his charges (or be guaranteed in full by the client) to the extent that the debtor shall not have settled the debt by an agreed period after the invoice due date. The period often agreed is 3 months or 90 days from the end of the month in which the invoice is dated. Such a period postulates that in many trades, in which it is common the payment to be due at the end of the month following the one of the invoice, the factor must collect payment within 2 months of the due date or the recourse may come into effect. It is usual to provide that the factor will refrain from exercising his right of recourse for a specified further period, in exchange of an additional charge paid by the client. In such case, the factor may require that an additional retention be maintained against the purchase price of further debts, so that in effect, the client will repay the amount paid by the factor against, or on account of the purchase price of the unpaid debts. In this way, in respect of debts that are seriously overdue, the client will remain relieved from the collection function, but the finance for such debts may be withdrawn. If it becomes irrecoverable, the recourse is then finally exercised. Approvals of credit on debtors' accounts are given by the factor, for the purpose of specifying the amount of finance available against them or as an advisory service to the client, or for both reasons.Normally be drawn by the client by way of prepayment at short notice. Invoice discounting For the clients who need finance for the trade credit requirements of their debtors, but no administrative service or risk coverage, another service is extensively provided by the factoring companies. Factoring is changed to a purely financial service, named confidential factoring or more commonly invoice discounting, where the client is released from the need to notify the debtors to pay directly to the factor and there is provided that all the debts sold to the factor should be subject to full recourse.

In the early days of invoice discounting, debts represented by individual invoices were sold to factors. This system gave rise to some difficulties: it was not always possible for the client to pass onto the factor the payment for the invoice in its original form as the payment might have been made after deductions for cross-claims or combined with payment of other invoices. In recent years, the service of invoice discounting has been more usually provided on a whole turnover basis, by including all the client's sales or all his sales to particular customers. The client maintains the sales ledger and collects from the debtors on behalf of the factor to whom the ownership of the debts has been transferred, and arrangements are made for the proceeds of collections to be paid by the client directly to the factor's bank account. Although it does not offer the three other services, the factor usually charges a small factoring commission too, apart from the financing commission. This charge is more like an engagement, because the factor has to grant financing for the client at request, taking into account the total amount of the debts. This commission covers the assistance given by the factor to the client for the debt administration and risk coverage, the expenses incurred by the factor in the process of monitoring the debtor, and for the business in general. The client is obviously interested only in increasing his working capital, and invoice discounting is a flexible way to accomplish this. For the factor, invoice discounting is easily done, but implies that the client has a good administration system and solid knowledge in risk management. The factor has to regularly audit the client, to make sure that his financial situation and his administration standards are kept sound. Exceptionally, the factor may cover the risk of non-payment. There exists also a form of invoice discounting in which the factor takes no responsibility for the administration or collection of the debts, the factoring is fully on a recourse basis, but the factor requires disclosure to the debtors. This form is referred to as disclosed invoice discounting. This system is used when the client has a large number of small debtor accounts; there are factoring companies that provide this service on a non-recourse basis, subject to the approval of debtor accounts. Maturity factoring When financing is not required, an arrangement is made which comprises full administration of the sales ledger, collection from debtors and protection against bad debts. This service is called maturity factoring and can be defined as a full service factoring without the financing element. This lack of financing makes the guarantees different. The risk consists only in debtors' risk; there is no seller's risk. For the same reason, there are no financing commissions, the factor being remunerated trough commission taxes. The factor pays the client for the debts sold in one of the following ways: After a certain period from the date of invoicing (i.e. 60 days), this being known as the maturity period. The benefit of this method is that the client knows exactly when he will get paid and can adjust his cash flow accordingly. When every debtor pays his invoice or when the debtor is insolvable, on the condition that the nonpayment risk is insured To apply for this service, the client is supposed to have enough finance resources; he demands the factor to improve his weak debt administration, to diminish his indirect costs and to ensure coverage against nonpayment risk. International factoring International factoring made after deductions for cross-claims or combined with payment of other invoices. In recent years, the service of invoice discounting has been more usually provided on a whole turnover basis, by including all the client's sales or all his sales to particular customers. The client maintains the sales ledger and collects from the debtors on behalf of the factor to whom the ownership of the debts has been

transferred, and arrangements are made for the proceeds of collections to be paid by the client directly to the factor's bank account. Although it does not offer the three other services, the factor usually charges a small factoring commission too, apart from the financing commission. This charge is more like an engagement, because the factor has to grant financing for the client at request, taking into account the total amount of the debts. This commission covers the assistance given by the factor to the client for the debt administration and risk coverage, the expenses incurred by the factor in the process of monitoring the debtor, and for the business in general. The client is obviously interested only in increasing his working capital, and invoice discounting is a flexible way to accomplish this. For the factor, invoice discounting is easily done, but implies that the client has a good administration system and solid knowledge in risk management. The factor has to regularly audit the client, to make sure that his financial situation and his administration standards are kept sound. Exceptionally, the factor may cover the risk of non-payment. There exists also a form of invoice discounting in which the factor takes no responsibility for the administration or collection of the debts, the factoring is fully on a recourse basis, but the factor requires disclosure to the debtors. This form is referred to as disclosed invoice discounting. This system is used when the client has a large number of small debtor accounts; there are factoring companies that provide this service on a non-recourse basis, subject to the approval of debtor accounts. or many companies, selling in an international market place is the ultimate challenge. Different customs, currency systems, laws and languages still create barriers to trade. International factoring provides solutions regardless of whether the exporter is a small organization or a major corporation, being used by exporters who sell on open account or documents against acceptance terms. By outsourcing the credit function, exporters can convert the high fixed cost of operating an international credit department into a variable expense. Commissions paid to the factor are based on sales volume so costs fluctuate with actual sales, lowering operating costs during slow sales periods. In addition to relieving exporters of the time-consuming administrative burden of approving credit and collecting export sales, international factoring lets exporters safely offer their foreign customers competitive open account terms. Financing is provided by means of advances against outstanding accounts receivable. International factoring provides the following benefits to the exporters: Increased sales in foreign markets by offering competitive terms of sale Protection against credit losses on foreign customers Accelerated cash flow through faster collection Lower costs than the aggregate charges for L/C (letter of credit) transactions International factoring provides also benefits for the importers: Purchase on convenient 'open account' terms No need to open L/C Expanded purchasing power without blocking existing lines of credit Orders can be place

Kinds of Factoring Operations On the factoring basis lays outstanding debt requirement of factoring company that is a general element for

all kinds of factoring. Factoring of operation of banks is classified as: - Internal, if the supplier and its client, i.e. the parties under the contract of sale and purchase, and also factoring company are in the same country, or international; - Notification factoring is a form factoring of service, at which the debtor is notified. - Non-notification or confidential factoring. In this case payer conducts accounts with the supplier, which after reception of payment should list its appropriate part of the company factoring for repayment of the credit The given conditions are connected to risks, which arise at failure of the payer of the obligations performance, i.e. credit risks. At the conclusion of the agreement with the right of recourse the supplier continues to bear the certain credit risk under the debt requirements sold by them a factoring company. The given condition is provided, if the suppliers are sure, that at them the doubtful liabilities can not appear, or that they carefully enough estimate credit status of the clients, having developed own, the effective system of protection from credit suffices is brave, or by virtue of specificity of the clients. Both in that and in the other case the supplier does not consider necessity to pay services for insurance of credit risk. However guaranteed for the supplier and the duly inflow of money resources can be provided only at the conclusion of the agreement without the right of recourse. It is necessary, truth to note, that, if the debt requirement is recognized void, the factoring company has the right of recourse to the supplier in any case. In the first case, the client of the factoring company ship production, shows the accounts to the buyer via the company, which task to receive for the benefit of the client payment in terms according to the economic contract (usually from 30 about 120 days). In case of the advance payment the factoring company buys the accounts - invoice from the client on conditions of an immediate reimbursement 80-90 % of shipment costs. Reserve 10 - 20 % of shipment costs is not paid to the client, and is reserved on the separate account on a case of the claims in its address from the buyer on quality of production, and its price. The reception of such service most fully satisfy requirements of the functioning enterprises, as allows them to transform sale with a delay of payment into sale with an immediate reimbursement by means of factoring and thus to speed up movement of the capital. The basic advantage of the advance payment is that its size represents fixed percent from the sum of the debt requirements. Thus, the supplier automatically receives more means at increase of the sales volume. Forfaiting-concept Developed in Switzerland in mid 1960 Helping to finance Forfeit French word, it means to surrender something or give up ones right Mainly to export and import Exporter surrender their rights to forfeiter to receive future payment from the buyer to whom goods have been sullied Developed and developing countries (more export by developed country) Factoring and balance sheet The balance sheet of ABC. co ltd.(before and after factoring), calculate overall working captal position, net working capital, current ratio, liquid ratio. Balance sheet S/C & R&S 1000000 Fixed assets 1000000 Long. Debt 600000 Curre.assets: Curre.liability 400000 Inventory 400000 Receivables 400000 Cash 200000 -------------------------2000000 2000000 ---------------------------Calculate above one before factoring and after factoring at 80% of receivables.

Solution (without factoring) Overall working capital=Tot. current assets =1000000 Net working capital =CA CL 1000000-400000 =600000 Current ratio =CA/CL (1000000/400000) =2.5: 1 Liquid ratio = LA/CL (600000/400000) =1.5: 1 Solution (with 80% factoring) Overall working capital=Tot. Current assets =1000000 Net working capital =CA CL 1000000-400000 =600000 Current ratio =CA/CL (1000000/400000) =2.5: 1 Liquid ratio = LA/CL (600000/400000) =1.5: 1 (Composition of assets only affects*) DIFFERENCE BETWEEN BILL DISCOUNTING AND FACTORING (FACTOR=BILL DISCOUNT BUT SOME DIFFERENCES)

BILL DISCOUNTING
1-It provides only finance to the client and other services are not provided. 2-Advance is given against bill of exchange raised. 3-Charges of the lender i.e., bank can be registered with register of companies 4-Here the drawee or acceptor is aware of the banks charges on the receivables 5-It is an individual transaction and so each bill of exchange is assessed on its merits of purchase/discount. 6-Here the amount of receivables and bank credit are mentioned in the balance sheet

FACTORING
1-It provides finance and also offers other services like sales ledger administration, collection of debts and advisory role. 2-Trade debts are out rightly purchased for a consideration. 3-Here the factor is the owner of debt, the question of registration of charges does not arise. 4-In some kind of factoring i.e., invoice factoring the debtor is not informed of the factoring arrangement the client. 5-In factoring, the concept of bulk finance is followed.

6-In some kind of factoring like full service factoring financing become off balance sheet. This is because the client adjusts his accounting entry on receiving payment from factor. Benefits of forfeiting It helps the exporter convert their credit sale into cash sale. The exporter does not have to carry their receivables in their balance sheet. The exporter does not deal with the forfeiter. Instead, the EXIM bank does everything for them. Documentation procedure is simple. Fixed interest rate and no currency risk (EXIM is involving). Accounting treatment for Leases

The first step in categorizing a lease is to determine whether or not the risks and benefits of ownership have been substantially transferred to the lessee. According to the SFAS 13, Accounting for Leases, substantially all of the risks and benefits of ownership are considered to be transferred to the lessee if, at inception, the lease meets at least one of the following criteria: The lease transfers ownership of the property to the lessee by the end of the lease term. The lease contains a bargain purchase option. The lease term equals at least 75 percent of the estimated economic life of the leased property. Economic life is defined as the period during which the property can be used economically by one or more users for the purpose that it was intended at the inception of the lease. Estimated economic life and estimated useful life (for depreciation purposes) are not necessarily the same. For example, a bank may use a shorter useful life and higher salvage value for depreciation purposes if its policy is to dispose of assets before the end of the assets economic lives. The present value of the minimum lease payments at the beginning of the lease term equals at least 90 percent of the fair market value less any investment tax credit retained by the lessor. (Note: A lessor should compute the present value using the interest rate implicit in the lease. A lessee should compute the present value using the lessees incremental borrowing rate unless the implicit rate is available and lower.) Comptrollers Handbook 13 Lease Financing For the lessee, any lease that meets any one of those criteria is accounted for as a capital lease. All other leases are accounted for as operating leases. For the lessor, determining accounting treatment is somewhat more complicated. If the lease meets any one of the four criteria listed above and both of the criteria set forth below, the lease is further categorized as either a sales-type, direct financing, or leveraged lease depending upon the conditions present at the inception of the lease (see Categories of Leases in this booklet for a discussion of the different conditions defining those types): Collectibles of the minimum lease payments is reasonably predictable. The amount of unreimbursable costs yet to be incurred by the lessor under the lease is substantially predictable. Leases that do not meet these criteria are accounted for as operating leases on the lessors books. For direct financing leases, bank lessors should record the lease in an amount equal to the sum of the aggregate minimum lease payments (including any guaranteed residual value), the unguaranteed residual value, and any available investment tax credit. Any excess of those items over the actual cost of the property leased is recorded as a liability, unearned income. Lease payments made are applied to reduce the asset account. Unearned income is accrued over the life of the lease using the effective income method (a constant periodic rate of return). Initial direct costs also are amortized over the lease term. Banks may use

other methods of recognizing income if the results are not materially different. When accounting for leveraged leases, the lessors net investment (gross investment less unearned income and deferred taxes) is recorded as it would be in a direct financing lease, but principal and interest on the nonrecourse debt is netted out. Based on an analysis of projected cash flow for the lease term, unearned and deferred income is recognized as income at a constant rate only when the net investment is positive. In years when the net investment is zero or negative, no income is to be recognized. As a result of the timing of the tax benefits, the lessors net investment declines during the early years of the lease and rises in the later years. Bank lessors account for operating leases by recording the cost of the property leased as an other asset. That asset, less the residual value at the end of the lease, is depreciated over the estimated economic life of the property, following the banks normal depreciation policy or practice. Lease rental payments are taken directly into income over the life of the lease as they become due and receivable (accrual accounting). Any initial direct costs Legal aspects of Indian leasing: A very comprehensive document on the legalities of Indian leasing. A must read for everyone. o o o o o o o o o o Sources of the law Leasing and hire-purchase Requirements of a valid lease or hire-purchase Goods and redeliverability features Supreme ownership rights of the lessor Obligations relating to the goods Obligations on misuse of the goods Repossession of the goods Motor vehicles law on lease and hire-purchase Lease and Hire-purchase documentation

1. Sources of Law on leasing and hire-purchase Leasing and hire-purchase are essentially hiring transactions - transactions in which possession of goods is handed over along with right to use, for a stated period and for consideration. Hiring transactions are species of bailment in contract law - therefore, the transactions of lease and hirepurchase are governed by the common law of contracts dealing with bailment transactions. Contracts law, being common law, is codified in the Indian Contracts Act 1872 but is enriched by history of precedents from both English and Indian Courts. Notably, the common law of contracts in India is based largely on the British legal principles, which have by and large been accepted as applicable to India. Therefore, the principal sources of applicable law on lease and hire-purchase transactions are sections 148 to 171 of the Indian Contracts Act dealing with bailment, and a long series of Court rulings, principally on hire-purchase transactions, but of late, on lease transactions as well. The law of hire-purchase, essentially with a view to standardize procedures and eliminate malpractice, on the lines of the English Hire-purchase Act, was enacted in 1972. However, this has not been enforced as yet. In the meantime, there has been an attempt to amend it and make it applicable. Reportedly, the Law Commission is again considering it fit to amend and implement the law, but unfortunately, over years, there have been so much change in commercial reality of hire-purchase business that the concepts and calculations relevant in 1972 have become absolutely redundant close to Y2K. Besides, there is no sanctity today to implement a law dealing with hire-purchase, and not lease, or any such instrument in isolation - if at all necessary, India needs a law on consumer credit. Even UK has scrapped the Hire-purchase Act and merged it with consumer credit law.

Hire purchase (abbreviated HP) is the legal term for a contract, in these persons usually agrees to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom and can now found in China, Japan, Malaysia, India, Australia, and New Zealand. It is also called closed-end leasing. In cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price (usually a nominal sum) or return the goods to the owner. In Canada and the United States, a hire purchase is termed an installment plan; other analogous practices are described as closed-end leasing or rent to own. Hire purchase differs from a mortgage and similar forms of lien-secured credit in that the so-called buyer who has the use of the goods is not the legal owner during the term of the hire-purchase contract. If the buyer defaults in paying the installments, the owner may repossess the goods, a vendor protection not available with unsecured-consumer-credit systems. HP is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. Business consumers may find the different balance sheet and taxation treatment of hire-purchased goods beneficial to their taxable income. The need for HP is reduced when consumers have collateral or other forms of credit readily available. Legal & Regulatory Aspects of Leasing Leasing Is a form of Asset Finance Asset Finance: A method of lending in which lenders look primarily to the cash flow from a particular asset for repayment. Features of Asset Finance: Usually no additional collateral required apart from the asset financed. Assets ability to generate cash flow is important in the lending decision. Compare with Asset Based Lending: A flexible form of finance which allows businesses to secure funding against debtors (via invoice discounting and actoring), stock, plant and machinery and property. and Asset Agreements Conditional Sale: A sale of goods in which the buyer gains immediate possession of the goods but the seller retains title until the buyer performs a condition, especially payment of full purchase price (United Kingdom). Installment Sale: A conditional sale in which the buyer makes a down payment followed by periodic payments and the seller retains title or a security interest until all payments have been made (South frica). Credit Sale: An agreement for the sale of goods, the purchase price being payable by 5 or more installments, not being a conditional sale agreement. Under such agreements the ownership of goods passes to the buyer at once, and he may therefore pass on good title to another person (United Kingdom).ses Distinguished From Other Credit and Asset Agreements _ Finance Lease: A fixed term lease used by a business to finance capital equipment. The Lessors service is usually limited to financing the asset, and the lessee pays maintenance costs and taxes and has the option of purchasing the asset at the lease end for a nominal price. _ Hire Purchase: is decisively a financing transaction. A Hire - Purchase agreement is an agreement to finance the acquisition of goods. However, a H.P. may be different from a FL with regard to purchase options, use thereof (e.g. consumer goods or for consumers). HP is a common law concept, remains in statute books but it has either: never/ rarely been used or a historical concept. _ Operating Lease: A lease of property, especially equipment for a term that is shorter than the propertys useful life. Under an operating lease, the lessor is typically responsible for paying taxes and other expenses on the property.

What is a Lease/ Finance Lease? Generally speaking, a lease is a contract between two parties whereby one party (the lessor) lets another party (the lessee) use an asset in exchange for regular periodic payments. A lease separates ownership of an asset from its use. The Business logic of leasing: One does not have to own an asset to use it for production and to generate profits. Legally & Historically: A lease (as with a Hire Purchase) is a contract of bailment. There are different types of bailment. A bailment is an entrustment of goods/ a party (the bailor) gives possessor rights to goods to another party the bailee) A FL is a financing device/ mechanism - Financial lessors, are normally financial intermediaries. Financial lessors are not vendors, even though a leasing company may be a captive. i.e., a subsidiary of an equipment supply company e.g. Caterpillar Financial Services Inc., IBM Global Financing, Ford Motor Credit etc) A finance lease is not a sale or an agreement to sell; although a transfer of title to the goods may take place at end of the lease term - compare with England and India where legally a lease does not contain a purchase option. However, this is more of a legal fiction to distinguish a lease from a Hire Purchase. Finance Lease A finance lease is not a pledge or a mortgage of assets by a borrower (lessee) to a creditor (lessor) in return for credit advance. The assets/ goods do not belong to the lessee, but to the lessor. Amortization of all or substantially the whole of the cost of the asset (plus element of profit). Compare with practical experiences in the United States, i.e., large equipment suppliers; Convention on International Financial leasing; Ghana legislation. Typically written for capital and business assets; not for consumer type assets. Hire Purchase and remnants thereof. Does a Country Need A Leasing Law? Continued This question is particularly relevant in common law countries. The answer depends on various factors. RBI regulations on NBFCs o Deposit-taking by banking companies o Non-banking non-financial companies o Non-banking financial companies (NBFCs) o Unregistered NBFCs o Registered NBFCs with net worth less than Rs. 25 lacs o Unrated or below-minimum rated companies o Rated leasing and HP companies o Table showing deposit-taking by various companies, firms and unincorporated bodies Income-tax aspects of Indian leasing o Basic tax treatment of lease and hirepurchase transactions o What distinguishes between lease and hirepurchase o Allowability of depreciation on lease transactions

o Depreciation rates o Sale and leaseback transactions o Taxation of income in case of hire-purchase transactions o Lessee's claim for lease rentals o Hirer's claim for depreciation o Deduction of tax at source o Leases by cross-border lessors.

Accounting for leases in India o Why specific accounting method for finance leases o Indian and International accounting standards compared o Finance leases in India o Splitting of rentals o Examples on splitting of rentals o Lease equalisation account o Lessee disclosures o Accounting for hire-purchase o Accounting for operating leases o Full text of the Guidance Note on Lease Accounting o Accounting for non-performing assets o Other useful lease accounting links Standard provisions To be valid, HP agreements must be in writing and signed by both parties. They must clearly set out the following information in a print that all can read without effort: 1. 2. 3. 4. 5. 6. 7. a clear description of the goods the cash price for the goods the HP price, i.e., the total sum that must be paid to hire and then purchase the goods the deposit the monthly installments (most states require that the applicable interest rate is disclosed and regulate the rates and charges that can be applied in HP transactions) and a reasonably comprehensive statement of the parties' rights (sometimes including the right to cancel the agreement during a "cooling-off" period). The right of the hirer to terminate the contract when he feels like doing so with a valid reason.

The seller and the owner If the seller has the resources and the legal right to sell the goods on credit (which usually depends on a licensing system in most countries), the seller and the owner will be the same person. But most sellers

prefer to receive a cash payment immediately. To achieve this, the seller transfers ownership of the goods to a Finance Company, usually at a discounted price, and it is this company that hires and sells the goods to the buyer. This introduction of a third party complicates the transaction. Suppose that the seller makes false claims as to the quality and reliability of the goods that induce the buyer to "buy". In a conventional contract of sale, the seller will be liable to the buyer if these representations prove false. But, in this instance, the seller who makes the representation is not the owner who sells the goods to the buyer only after all the installments have been paid. To combat this, some jurisdictions, including Ireland, make the seller and the finance house jointly and severally liable to answer for breaches of the purchase contract. Implied warranties and conditions to protect the hirer The extent to which buyers are protected varies from jurisdiction to jurisdiction, but the following are usually present: 1. the hirer will be allowed to enjoy quiet possession of the goods, i.e. no-one will interfere with the hirer's possession during the term of this contract the owner will be able to pass title to, or ownership of, the goods when the contract requires it that the goods are of merchantable quality and fit for their purpose, save that exclusion clauses may, to a greater or lesser extent, limit the Finance Company's liability where the goods are let by reference to a description or to a sample, what is actually supplied must correspond with the description and the sample.

2.
3. 4.

The hirer's rights: The hirer usually has the following rights: 1. 2. To buy the goods at any time by giving notice to the owner and paying the balance of the HP price less a rebate (each jurisdiction has a different formula for calculating the amount of this rebate) To return the goods to the owner this is subject to the payment of a penalty to reflect the owner's loss of profit but subject to a maximum specified in each jurisdiction's law to strike a balance between the need for the buyer to minimize liability and the fact that the owner now has possession of an obsolescent asset of reduced value With the consent of the owner, to assign both the benefit and the burden of the contract to a third person. The owner cannot unreasonably refuse consent where the nominated third party has good credit rating Where the owner wrongfully repossesses the goods, either to recover the goods plus damages for loss of quiet possession or to damages representing the value of the goods lost.

3. 4.

Basically hirer has following rights- 1-Rights of protection 2-Rights of notice 3-Rights of repossession 4Rights of Statement 5-Rights of excess amount The owner's rights: The owner usually has the right to terminate the agreement where the hirer defaults in paying the installments or breaches any of the other terms in the agreement. This entitles the owner: 1. 2. 3. to forfeit the deposit to retain the installments already paid and recover the balance due to repossess the goods (which may have to be by application to a Court depending on the nature of the goods and the percentage of the total price paid)

4. to claim damages for any loss suffered.

ACCOUNTING FOR LEASES

Prepared by: paul sudahar.v OBJECTIVES: 1. 2. Understand the difference between Finance and Operating Leases in regards to the accounting treatment and disclosures. Understand the impact of GST on Leases and Hire Purchase Agreements. ACCOUNTING FOR LEASES INTRODUCTION AASB 117 Accounting for Leases is the current accounting standard that regulates and provides guidance as to how to correctly account for and disclose leases and hire purchase agreements. A copy of AASB 117 has been provided for you in full at the end of this section. The commentary that follows is based on the information contained in AASB 117 but has been summarized and interpreted only from the lessees point of view. APPLICABILITY OF AASB 117 This Standard applies to agreements that transfer the right to use assets even though substantial services by the lessor may be called for in connection with the operation or maintenance of such assets. This Standard does not apply to agreements that are contracts for services that do not transfer the right to use assets from one contracting party to the other. DEFINITIONS The commencement of the lease term is the date from which the lessee is entitled to exercise its right to use the leased asset. It is the date of initial recognition of the lease (i.e. the recognition of the assets, liabilities, income or expenses resulting from the lease, as appropriate). Economic life is either: (a) the period over which an asset is expected to be economically usable by one or more users; or (b) the number of production or similar units expected to be obtained from the asset by one or more users. A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. The lease term is the non-cancelable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option. A non-cancelable lease is a lease that is cancelable only: (a)upon the occurrence of some remote contingency; (b)with the permission of the lessor; (c)if the lessee enters into a new lease for the same or an equivalent asset with the same lessor; or (d)upon payment by the lessee of such an additional amount that, at inception of the lease, continuation of the lease is reasonably certain.

An operating lease is a lease other than a finance lease. Useful life is the estimated remaining period, from the commencement of the lease term, without limitation by the lease term, over which the economic benefits embodied in the asset are expected to be consumed by the entity. The definition of a lease includes contracts for the hire of an asset that contain a provision giving the hirer an option to acquire title to the asset upon the fulfillment of agreed conditions. These contracts are sometimes known as hire purchase contracts. CLASSIFICATION OF LEASES The classification of leases adopted in this Standard is based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. Risks include the possibilities of losses from idle capacity or technological obsolescence and of variations in return because of changing economic conditions. Rewards may be represented by the expectation of profitable operation over the assets economic life and of gain from appreciation in value or realization of a residual value. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are: (a) the lease transfers ownership of the asset to the lessee by the end of the lease term; (b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; (c) the lease term is for the major part of the economic life of the asset even if title is not transferred; (d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and (e) the leased assets are of such a specialized nature that only the lessee can use them without major modifications. Leases of land and of buildings are classified as operating or finance leases in the same way as leases of other assets. However, a characteristic of land is that it normally has an indefinite economic life and, if title is not expected to pass to the lessee by the end of the lease term, the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease. ACCOUNTING AND DISCLOSURE OF LEASES IN THE FINANCIAL STATEMENTS OF THE LESSEE Finance Leases Initial recognition At the commencement of the lease term, lessees shall recognize finance leases as assets and liabilities in their balance sheets at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. At the commencement of the lease term, the asset and the liability for the future lease payments are recognized in the balance sheet at the same amounts except for any initial direct costs of the lessee that are added to the amount recognized as an asset.

Minimum lease payments shall be apportioned between the finance charge and the reduction of the outstanding liability. The finance charge shall be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. In practice, in allocating the finance charge to periods during the lease term, a lessee may use some form of approximation to simplify the calculation. A finance lease gives rise to depreciation expense for depreciable assets as well as finance expense for each reporting period. The depreciation policy for depreciable leased assets shall be consistent with that for depreciable assets that are owned, and the depreciation recognized shall be calculated in accordance with AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life. To determine whether a leased asset has become impaired, an entity applies AASB 136 Impairment of Assets. Lessees shall, in addition to meeting the requirements of AASB 7 Financial Instruments: Disclosures make the following disclosures for finance leases: (a) for each class of asset, the net carrying amount at the reporting date;

(b) a reconciliation between the total of future minimum lease payments at the reporting date, and their present value. In addition, an entity shall disclose the total of future minimum lease payments at the reporting date, and their present value, for each of the following periods: (i) (ii) (iii) not later than one year; later than one year and not later than five years; later than five years; contingent rents recognized as an expense in the period;

(c) (d)

the total of future minimum sublease payments expected to be received under non-cancelable subleases at the reporting date; and (e) a general description of the lessees material leasing arrangements including, but not limited to, the following: (i) the basis on which contingent rent payable is determined; (ii) the existence and terms of renewal or purchase options and escalation clauses; and (iii) Restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing. Operating Leases Lease payments under an operating lease shall be recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the users benefit. For operating leases, lease payments (excluding costs for services such as insurance and maintenance) are recognized as an expense on a straight-line basis unless another systematic basis is representative of the time pattern of the users benefit, even if the payments are not on that basis.

Lessees shall, in addition to meeting the requirements of AASB 7, make the following disclosures for operating leases:

(a)

the total of future minimum lease payments under non-cancelable operating leases for each of the following periods: (i) (ii) (iii) not later than one year; later than one year and not later than five years; later than five years;

(b) the total of future minimum sublease payments expected to be received under non-cancellable subleases at the reporting date;

(c)

lease and sublease payments recognized as an expense in the period, with separate amounts for minimum lease payments, contingent rents, and sublease payments; (d) a general description of the lessees significant leasing arrangements including, but not limited to, the following: (i) (ii) (iii) the basis on which contingent rent payable is determined; the existence and terms of renewal or purchase options and escalation clauses; and Restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing.

EXAMPLE OF FINANCIAL STATEMENT DISCLOSURES LEASING COMMITMENTS Finance Lease Commitments Future minimum lease payments payable at 30 June 20XX: Not later than 1 year Less than 1 year but not greater than 5 years $25,000 $80,000

The leased assets are all motor vehicles financed under both finance leases and hire purchase agreements with a term of five years. Lease & HP payments are payable monthly in advance. The lease & HP agreements have a common expiry date of 15 March 2010 have options to purchase by payment of a residual amount at expiry. Operating Lease Commitments Non-cancelable operating leases contracted for but not capitalized in the financial statements: Future minimum lease payments payable at 30 June 20XX: Not later than 1 year Less than 1 year but not greater than 5 years $40,000 $60,000

The leased assets, medical equipment, are non-cancelable leases with a five year term, with rent payable monthly in advance. The lease expires on 30 April 2010. There are no restrictions placed upon the lessee by entering into these leases. EXAMPLE OF ACCOUNTING TREATMENT

Finance Lease or Hire Purchase Motor Vehicle Purchased for $32,000 on 1 July 2006. Leased over 36 months (3 years) Total cost of lease $36,000 Zero residual Monthly payments in advance on the 1st day of each month of $1,000 per month. Total lease interest charges $4,000 Using the Rule of 78 the apportionment of the finance charges is calculated as:Year ended 30 June 2007 Year ended 30 June 2008 Year ended 30 June 2009 Journal Entries Required 01/07/06Dr. Motor Vehicle Asset (B/S) $32,000 Cr. Lease Liability (B/S) $36,000 Dr. Unexpired Lease Charges (B/S) $4,000 To bring to account motor vehicle asset and lease liability at the inception of the lease. Lease Liability (B/S) $1,000.00 Cr. Cash at Bank (B/S) To record first lease payment at 1 July 2006. 55% x $4,000 = $2,200 / 12 = $183.33 33% x $4,000 = $1,320 / 12 = $110.00 12% x $4,000 = $480 / 12 = $40.00

01/07/06Dr.

$1,000.00

01/07/06Dr.

Lease Charges/Interest (P&L) $183.33 Cr. Unexpired Lease Charges (B/S) $183.33 To record lease interest charges that have expired as at 1 July 2006. Depreciation Expense (P&L) $6,400.00 Cr. Accumulated Depreciation (B/S) To record depreciation charges as at 30 June 2007.

30/06/07Dr.

$6,400.00

CASE STUDY 1 Prepare the disclosure note required as at 30 June 2007. Operating Lease Entity enters into an operating lease with ABC Medical Equipment for the rent of an ECG monitoring machine. ABC Medical Equipment will ensure that the medical equipment is repaired and maintained as per the terms of the lease in return for a monthly payment of $750 over 24 months. The entity has no option to cancel the lease or to purchase the equipment at the expiry of the lease term. 01/07/06Dr. Lease Charges/Interest (P&L) $750.00 Cr. Cash at Bank (B/S) $750.00 To record lease interest charges that have expired as at 1 July 2006. Note: No Asset or Liability is created under this type of lease arrangement and therefore no depreciation charges are eligible.

CASE STUDY 2 Prepare the disclosure note required as at 30 June 2007. GST AND LEASES AND HIRE PURCHASE AGREEMENTS Depending on whether you report and record your GST through Cash Basis or Accruals Basis. How do you claim GST credits on hire purchases? If you account for GST on a non-cash (accruals) basis, you claim the full amount of your GST credit entitlement in the earlier of the tax periods in which either you make your first payment or an invoice is issued to you. If you account for GST on a cash basis, you may claim one eleventh of the principal component of each installment in the period in which you actually pay the installment. If the supplier provides regular accounts or statements that show the principal and interest components for each installment, you need to always use that information as the basis for calculating GST credits in the relevant tax period. If you do not know the principal component for each installment, you need to take reasonable steps to find out this information from the supplier. How do you claim GST credits on lease agreements? If you account for GST on a non-cash (accruals) basis, you are entitled to a GST credit of one-eleventh of the lease installments for each tax period. You claim the GST credit for a tax period when payment of any part of the lease payments due in that period is made, or an invoice for that period is issued, whichever is the earlier. If you account for GST on a cash basis, you claim a GST credit of one-eleventh of the lease installment amounts paid in each tax period. What happens if ownership of goods changes at the end of the lease? Residual payments under lease agreements may be subject to GST. These are payments made for ownership of the goods changing hands at the end of the lease, which is a separate transaction to the lease agreement. If you purchase the goods at the end of the lease agreement, you may be eligible to claim a GST credit for any GST you paid in the price of the purchase. UNIT III Mutual Funds Definition refers to the meaning of Mutual Fund, which is a fund, managed by an investment company with the financial objective of generating high Rate of Returns. These asset management or investment management companies collects money from the investors and invests those money in different Stocks, Bonds and other financial securities in a diversified manner. Before investing they carry out thorough research and detailed analysis on the market conditions and market trends of stock and bond prices. These things help the fund mangers to speculate properly in the right direction. The investors, who invest their money in the Mutual fund of any Investment Management Company, receive an Equity Position in that particular mutual fund. When after certain period of time, whether long term or short term, the investors sell the Shares of the Mutual Fund, they receive the return according to the market conditions.

Welcome to the Mutual Funds Resource Center Types of mutual funds Most funds have a particular strategy they focus on when investing. For instance, some invest only in Blue Chip companies that are more established and are relatively low risk. On the other hand, some focus on high-risk start up companies that have the potential for double and triple digit growth. Finding a mutual fund that fits your investment criteria and style is important. Types of mutual funds are: Value stocks Stocks from firms with relative low Price to Earning (P/E) Ratio, usually pay good dividends. The investor is looking for income rather than capital gains. Growth stock Stocks from firms with higher low Price to Earning (P/E) Ratio, usually pay small dividends. The investor is looking for capital gains rather than income. Based on company size, large, mid, and small cap Stocks from firms with various asset levels such as over $2 Billion for large; in between $2 and $1 Billion for mid and below $1 Billion for small. Income stock The investor is looking for income which usually comes from dividends or interest. These stocks are from firms which pay relative high dividends. This fund may include bonds which pay high dividends. This fund is much like the value stock fund, but accepts a little more risk and is not limited to stocks. Index funds The securities in this fund are the same as in an Index fund such as the Dow Jones Average or Standard and Poor's. The number and ratios or securities are maintained by the fund manager to mimic the Index fund it is following. Enhanced index This is an index fund which has been modified by either adding value or reducing volatility through selective stock-picking. Stock market sector The securities in this fund are chosen from a particular marked sector such as Aerospace, retail, utilities, etc. Defensive stock The securities in this fund are chosen from a stock which usually is not impacted by economic down turns. International Stocks from international firms. Real estate Stocks from firms involved in real estate such as builder, supplier, architects and engineers, financial lenders, etc. Socially responsible This fund would invest according to non-economic guidelines. Funds may make investments based on such issues as environmental responsibility, human rights, or religious views. For example, socially responsible funds may take a proactive stance by selectively investing in environmentally-friendly companies or firms with good employee relations. Therefore the fund would avoid securities from firms who profit from alcohol, tobacco, gambling, pornography etc. Balanced funds The investor may wish to balance his risk between various sectors such as asset size, income or growth. Therefore the fund is a balance between various attributes desired. Tax efficient Aims to minimize tax bills, such as keeping turnover levels low or shying away from companies that provide dividends, which are regular payouts in cash or stock that, are taxable

What Does Offshore Mutual Fund Mean? A mutual fund that is based in an offshore jurisdiction, which is generally considered to be outside the Nation. The term is often used, perhaps incorrectly, to describe a fund that is not in a high-tax country. Offshore Mutual Fund: Always be careful when investing your money in offshore accounts that have sponsors that are not well known and/or are located outside of established financial centers such as London or Hong Kong. Nonmainstream offerings may be more prone to scams because of relaxed regulations in some offshore locations. Offshore funds offer a number of features that distinguish them from those domiciled in the U.S., as a lower level of regulation makes it easier to establish and administer the funds. Consequently, operating costs are significantly reduced and management fees can be lower. Tax exempt status enables the fund to reinvest gains that would otherwise be taxable in high-tax areas. Money market mutual fund Definition: An open-end mutual fund which invests only in money markets. These funds invest in short term (one day to one year) debt obligations such as Treasury bills, certificates of deposit, and commercial paper. The main goal is the preservation of principal, accompanied by modest dividends. The fund's Net Asset Value remains a constant $1 per share to simplify accounting, but the interest rate does fluctuate. Money market funds are very liquid investments, and therefore are often used by financial institutions to store money that is not currently invested. Unlike bank accounts and money market accounts, most deposits are not FDIC insured, but the risk is extremely low (only those funds administered by banks are FDIC-insured, but some others are privately insured). Although money market mutual funds are among the safest types of mutual funds, it still is possible for money market funds to fail, but it is unlikely. In fact, the biggest risk involved in investing in money market funds is the risk that inflation will outpace the funds' returns, thereby eroding the purchasing power of the investor's money. also called money fund or money market fund Credit rating A credit rating estimates the credit worthiness of an individual, corporation, or even a country. It is an evaluation made by credit bureaus of a borrowers overall credit history. [1] A credit rating is also known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit bureau at the request of the lender (Black's Law Dictionary). Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the subject being able to pay back a loan. However, in recent years, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit. A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates, or the refusal of a loan by the creditor. Personal credit ratings An individual's credit score, along with his or her credit report, affects his or her ability to borrow money through financial institutions such as banks. The factors that may influence a person's credit rating are:[2]

ability to pay a loan interest amount of credit used saving patterns spending patterns debt

In different parts of the world different personal credit rating systems exist. A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. In some cases, the servicers of the underlying debt are also given ratings. In most cases, the issuers of securities are companies, special purpose entities, state and local governments, non-profit organizations, or national governments issuing debt-like securities (i.e., bonds) that can be traded on a secondary market. A credit rating for an issuer takes into consideration the issuer's credit worthiness (i.e., its ability to pay back a loan), and affects the interest rate applied to the particular security being issued. (In contrast to CRAs, a company that issues credit scores for individual credit-worthiness is generally called a credit bureau or consumer credit reporting agency.) The value of such ratings has been widely questioned after the 2007/2009 financial crisis. In 2003 the Securities and Exchange Commission submitted a report to Congress detailing plans to launch an investigation into the anti-competitive practices of credit rating agencies and issues including conflicts of interest. How the Rating Process works CRISIL receives the completed application form CRISIL's representatives visit the company CRISIL's analysts have a short discussion with the management of the company CRISIL prepares a rating report, assigns a rating and sends the copy of the report to you and NSIC

Time required The whole process takes three to four weeks after CRISIL receives complete information. Rating Scale Your rating will reflect two components, Financial Strength and Performance Capability. Ratings will be assigned on the following rating scale: Financial Strength Moderate SE 1B SE 2B SE 3B SE 4B SE 5B

Performance Capability

Highest High Moderate Weak Poor

High SE 1A SE 2A SE 3A SE 4A SE 5A

Low SE 1C SE 2C SE 3C SE 4C SE 5C

For example, a company with high Performance Capability and high Financial Strength will be rated 'SE2A', while one with weak Performance Capability and low Financial Strength will be rated 'SE4C'. I-TYPES OF MUTUAL FUNDS OPERATIONAL CLASSIFICATION

1-OPEN-ENDED 2- CLOSE-ENDED PORTFOLIO CLASSIFICATION 1-STOCK FUNDS 2-GROWTH FUNDS 3-INCOME-ORIENTED FUNDS 4-BALANCED FUNDS 5-INDEX FUNDS 6-INDUSTRY FUNDS 7-TAX RELIEF FUNDS 8-REAL ESTATE FUNDS 9-LIQUID FUNDS 10-BOND FUNDS GEOGRAPHICAL CLASSIFICATION 1-OFFSHORE MUTUAL FUND 2-DOMESTIC MUTUAL FUND STRUCTURAL CLASSIFICATION 1-CAPITAL MARKET MUTUAL FUNDS 2-MONEY MARKET MUTUAL FUNDS II-ADVANTAGES 1-PROFESSIONAL MANAGEMENT 2-DIVERSIFICATION 3-CONVENIENCE 4-RETURN POTENTIAL 5-LOW COST 6-LIQUIDITY 7-TRANSPARANCY 8-FLEXIBILITY 9-CHOICE OF SCHEMES 10-TAX BENEFITS 11-GOVERNMENT REGULATION 12-SHARE HOLDERS SERVICES 13-SAFETY FROM LOSS III-COMPUTATION OF NET ASSETS VALUE 1-STANDARD FORMAT BY SEBI ON BALANCE SHEET 2-BUT PRACTICE NOT HAS A STANDARD ACCOUNTING POLICY 3-FOLLOWING COMMON DENOMINATOR 4-FOLOWING VARIOUS STATISTICAL TOOLS FOR CALCULATION OF RISK AND RETURN ON PER UNIT 5-FORMULA FOR NET ASSET VALUE CALCULATION IS (TOT. MARKET VALUE OF MF HOLDING)-(ALL MF LIABILITIES) NAV = --------------------------------------------------------------------------------------(NO. OF MF UNITS OR SHARES) ILLUSRATION: NAME OF THE SCHEME: XYZ SIZE OF THE SCHEME : Rs.50, 00, 00,000 (FIFTY CRORES)

FACE VALUE OF UNITS : Rs.10 NO. OF UNITS : 5, 00, 00,000 SCHEME SIZE = ---------------------------------------FACE VALUE OF UNITS INVESTMENTS : IN SHARES MARKET VALUE OF SHARES: Rs.75, 00, 00,000(EVENTY FIVE CRORES)

MARKET VALUE OF INVESTMENTS = ----------------------------------------------------------NO. OF UNITS = Rs.75, 00, 00,000 --------------------------------5, 00, 00,000

= Rs.15/ THUS EACH UNIT OF Rs.10/ IS NOW WORTH Rs.15 HERE MONEY HAS BEEN APPRECIATED. * NAV INCLUDES: DIVIDENDS INTEREST ACCURUALS REDUCTION OF LIABILITIES AND EXPENSES #MARKET VALUE OF INVESTMENTS

MONEY MARKET MUTUAL FUNDS AMOUNT INVESTED IN MONEY MARKET INSTUMENTS SUCH AS TREASURY BILLS CERTIFICATE OF DEPOSITS COMMERCIAL PAPERS BILLS DISCOUNTING HERE REGULATION AND SPECIFIED GUIDELINES LAID DOWN BY RESERVE BANK OF INDIA OFFSHORE MUTUAL FUNDS #FUNDS ENABLED FROM THE NRI #THESE FUNDS ARE GOVERNED BY THE RULES AND PROCEDURES LAID DOWN FOR THE PURPOSE OF APPROVING AND MONITORING THEIR PERFORMANCE BY THE DEPARTMENT

OF ECONOMICS AFFAIRS, MINISTRY OF FINANCE AND THE DIRECTION OF RESERVE BANK OF INDIA # UTI WAS THE FIRST INSTITUTION TO LAUNCH OFFSHORE MF IN INDIA # SBI MAGNUM MF (COLLECTED $15.7 IN U.S ON 1988) # CITI BANK # GOVT. OF INDIA REDUCE THE TAX ON DIVIDEND TO OFFSHORE MF # PRIVATE SECTOR ALSO PERMITTED STRUCTURE OF MUTUAL FUNDS ORGANISATION: #FORMED EITHER CORPORATION OR AS A TRUST #OPERATED BY A SEPARATE ASSET MGT. COMPANY #REGISRATION UNDER INDIAN COMPANIES ACT 1956 #MEMORANDUM AND ARTICLES OF ASSOCIATION ARE TO APPROVED BY SEBI # MAJOR PLAYERS IN MF BORD OF TRUSTEES ASSET MGT. COMPANIES (MIN. NET WORTH OF Rs.5 CRORES) CUSTODIAN (CORPORATE BODIES) INVESTORS # BESIDERS IN MF REGISTRARS AND TRANSFER AGENTS ADVERTISERS LEGAL ADVISORS REGULATION OF MUTUAL FUNDS: # MF SHALL BE ESTABLISHED IN THE FORM OF TRUSTS UNDER INDIAN TRUST ACT AND MANAGED BY AMC # MONEY MARKET MUTUAL FUND REGULATED BY RBI AND OTHER MUTUAL FUND REGULATED BY SEBI # 50% MEMBERS OF THE BORD OF AMC MUST BE INDEPENDENT DIRECTORS AND MUST HAVE NO CONNECTION WITH SPONSORING ORG. # THE DIRECTORS SHOULD HAVE AT LEADT 10 YEARS EXPERIENCE IN THE FIELD OF PORTFOLIO MGT. # THE AMC SHOULD HAVE A MINIMUM NET WORTH OF Rs.10 CRORES #THE SEBI HAS AN AUTHORITY TO WTITHDRAW THE AUTHORISATION OF AMC IF THEY FAIL TO WORK FOR THE INVESTORS # AN AMC CAN NOT ACT AS THE AMC OF ANOTHER MUTUAL FUND # THE MINIMUM AMOUNT RAISED WITH EACH CLOSED-END SCHEME SHOULD BE Rs.20 CRORES AND FOR OPEN-END SCHEME Rs.50 CRORES

#EACH SCHEME OF MUTUAL FUND IS REGISTERED WITH SEBI # IF THE MINIMUM AMOUNT OR 60% OF THE TARGET AMOUNT NOT RAISED, THE ENTIRE AMOUNT RETURNED TO THE INVESTORS #SEBI MADE PENALTY FOR VIOLATION OF THE GUIDELINES #FOR EACH SCHEME, THERE SHOULD BE SEPARATE AND RESPONSIBLE FUND MANAGER. CREDIT RATING: MEANING AND DEFINITION OF CREDIT RATING A SYMBOLIC INDICATOR OF THE CURRENT OPINION OF THE RELATIVE CABABLITY OF A CORPORATE ENTITY TO SERVICE ITS DEBT OBLIGATIONS IN A TIMELY FASHION, WITH SPECIFIC REFERENCE TO THE INSTRUMENT BEING RATED. BENEFITS OF RATING #GUIDENCE INDICATIOR TO THE INVESTORS AND CREDITORS IN DETERMINING THE CREDIT RISK ASSOCIATED WITH DEBT INSTRUMENT. #IT HELPS THE COMPANIES IN FOREIGN COLLABORATIONS. #IT ENCOURAGES DICIPLINES AMONG THE BORROWING COMPANIES #IT MAKES FOR GREATER LIQUIDITY FOR THE DEBT INSTRUMENT IN THE SECONDARY MARKET. #IT REDUCES THE BURDEN FOR THE GOVERNMENT IN SAFEGURDING THE INTEREST OF THE INVESTORS. BENEFIT TO INVESTORS: #IT PROVIDES SUPERIOR INFORMATION AT LOW COST TO THE INVESTORS. #IT ENABLES THE INVESTORS TO TAKE CALCULATED RISK IN THEIR INVESTMENTS #IT ENCOURAGES THE INVESTORS TO INVEST IN THOSE COMPANIES WHERE THEY WILL GET HIGH RETURN. #IT DEPRIVES THE INVESTORS OF DEPENDING ON BROKERS AND MERCHANT BANKERS. #THE INVESTOR CAN BECOME ABLE TO TAKE QUICK AND COMPARATIVE DECISIONS CAN BECOME ON THE BASIS OF THE ASSOCIATED RATINGS. #IT PROVIDES LIQUIDITY FOR THE DEBT INSTRUMENTS IN SECONDARY MARKET. Credit rating process: Rating Process The rating process takes about three to four weeks, depending on the complexity of the assignment and the flow of information from the client. Rating decisions are made by the Rating Committee.

CRISIL (credit rating information services of India ltd.) CRISIL was set up in the year 1987 in order to rate the firms and then entered into the field of assessment service for the banks. Highly skilled members manage the agency. Ms. Roopa Kudva who acts as the Managing Director and Chief Executive Officer of the company heads it. The company has set up large number of committees to look after dispersal of various services offered by the company for example, investor grievance committee, investment committee, rating committee, allotment committee, compensation committee and so on. The head office of the company is located at Mumbai and it has established offices outside India also. ICRA: (investment information & credit rating agency of India ltd.) ICRA was established in the year 1991 by the collaboration of financial institutions, investment companies, and banks. The company has formed the ICRA group together with its subsidiaries. The company is headed by Mr. Piyush G. Mankad and offers products like short-term debt schemes, Issue-specific long-term rating and offers fund based as well as non-fund based facilities to its clients. Care (credit analysis and research ltd.) # sponsored by industrial development bank of India jointly with canara bank, uti, private sector bank , and financial service companies # incorporated on april 21, 1993 and commenced operation in October 1993.

#Rating symbol care aaa, aa,a care bbb.bb,b care c ,care d. #rating of all commercial paper, fixed deposits, bonds, debentures. Credit rating system: Personal credit ratings An individual's credit score, along with his or her credit report, affects his or her ability to borrow money through financial institutions such as banks. The factors that may influence a person's credit rating are: ability to pay a loan interest amount of credit used saving patterns spending patterns debt

Corporate credit ratings The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. These are assigned by credit rating agencies such as A.M. Best, Dun & Bradstreet, Standard & Poor's, Moody's or Fitch Ratings and have letter designations such as A, B, C. The Standard & Poor's rating scale is as follows, from excellent to poor: AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-, CC, C, D. Anything lower than a BBB- rating is considered a speculative or junk bond.[3] The Moody's rating system is similar in concept but the naming is a little different. It is as follows, from excellent to poor: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C. A.M. Best rates from excellent to poor in the following manner: A++, A+, A, A-, B++, B+, B, B-, C++, C+, C, C-, D, E, F, and S. The CTRISKS rating system is as follows: CT3A, CT2A, CT1A, CT3B, CT2B, CT1B, CT3C, CT2C and CT1C. All these CTRISKS grades are mapped to one-year probability of default. Question bank on iii unit 1. Define mutual fund 2. What is mutual fund? 3. Write short notes on: A) Open-ended mutual fund b) close-ended mutual fund c) Offshore mutual fund D) Money market mutual fund e) Net assets value 4. What is credit rating? 5. Explain the different kinds of mutual fund

6. Write the regulation by sebi on mutual fund 7. Explain the credit rating procedure 8. Explain the credit rating agencies in India 9. Mutual fund in India- explain

UNIT IV Venture capital Definition VC. Funds made available for startup firms and small businesses with exceptional growth potential. Managerial and technical expertise are often also provided. also called risk capital. Characteristics of venture capital Venture capital is usually associated with high risk/high return investments. Many venture capitalists would not be as quick to use that word to describe the ideal investment. The association of risk with venture capital comes from two sources. First, there is always a basic assumption that all other types of financing have been attempted already. There are some reasons why traditional lending institutions have rejected low interest business loans. These reasons are not associated with the classic idea of risk as a high possibility of failure. More common reasons include a lack of tangible collateral. The venture capitalist is more likely to view a good idea whose time has come as representing intangible collateral. The second source of the risk idea is that venture capital is drawn to ideas on the cutting edge. Many people view venture capital as an essential element of growth in an economy because it encourages that which is new. New ideas are not always attractive to the traditional and very conservative lending industry that prefers to deal with what is old and tested. Yet, without movement out on the cutting edge of technology and innovation, there will be little growth. New represents as much opportunity for large profit as it does risk of failure.\ Venture Capital in India In India the Venture Capital plays a vital role in the development and growth of innovative entrepreneurships. Venture Capital activity in the past was possibly done by the developmental financial institutions like IDBI, ICICI and State Financial Corporations. These institutions promoted entities in the private sector with debt as an instrument of funding. For a long time funds raised from public were used as a source of Venture Capital. This source however depended a lot on the market vagaries. And with the minimum paid up capital requirements being raised for listing at the stock exchanges, it became difficult for smaller firms with viable projects to raise funds from public. In India, the need for Venture Capital was recognized in the 7th five year plan and long term fiscal policy of GOI. In 1973 a committee on Development of small and medium enterprises highlighted the need to faster VC as a source of funding new entrepreneurs and technology. VC financing really started in India in 1988 with the formation of Technology Development and Information Company of India Ltd. (TDICI) - promoted by ICICI and UTI. The first private VC fund was sponsored by Credit Capital Finance Corporation (CFC) and promoted by Bank of India, Asian Development Bank and the Commonwealth Development Corporation viz. Credit Capital Venture Fund. At the same time Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. were started by state level financial institutions. Sources of these funds were the financial institutions, foreign institutional investors or pension funds and high net-worth individuals. The venture capital funds in India are listed in Annexure I.

Venture capital investors 1 to 1 Ventures 3i (US) Aavin Equity Advisors Academy Funds Accel Partners Acorn Campus Adams Capital Management Advanced Technology Ventures Advantage Capital Partners Advent International Agave Capital Alloy Ventures Alta Communications Alta Partners Ampersand Ventures Apax Ventures ARCH Development Partners ARCH Venture Partners Ardesta Ascent Venture Partners Asset Mgmt Co Venture Capital Atlas Venture August Capital Management Aurora Funds Austin Ventures Axiom Venture Partners Bain Capital Battery Ventures Bay City Capital Bay Partners Ben Franklin Technology Partners Benchmark Capital Bessemer Venture Partners BioVentures Investors Blue Chip Venture Co. Boston Millennia Partners Boston Scientific Corporation Burrill & Company Canaan Partners Canopy Group Cardinal Partners Centennial Ventures Century Capital Management Charles River Ventures Chrysalis Ventures CID Equity Partners CMEA Ventures Collaborative Capital Columbia Capital Commons Capital Commonwealth Capital Ventures ComVentures Connecticut Innovations J.P. Morgan Partners Jefferson Capital Partners Kleiner Perkins Caufield & Byers Kodiak Venture Partners Latterell Venture Partners LaunchCyte Lazard Technology Partners Leo Capital Holdings Liberty Venture Partners M/C Venture Partners Madison Dearborn Capital Partners Madrona Venture Group Matrix Partners Mayfield Fund MedVenture Associates Navigation Capital Partners Menlo Ventures Mid-Atlantic Venture Funds Milestone Venture Partners Mission Ventures Mobius Venture Capital Monumental Venture Partners Morgenthaler Partners Motorola Ventures Mountaineer Capital MPM Capital Navigator Technology Ventures NeoCarta Ventures New Enterprise Associates Next Generation Ventures Noro-Moseley Partners North Bridge Venture Partners Northwood Ventures Norwest Venture Partners Novartis Corp Oak Investment Partners Onset Ventures Oxford Bioscience Partners Pacific Venture Group Pequot Capital Management Polaris Venture Partners Prism Venture Partners Prolog Ventures ProQuest Investments Prospect Venture Partners Radius Ventures Redleaf Group Redpoint Ventures Research Triangle Ventures Ridgewood Capital River Cities Capital Funds Rockport Venture Partners RRE Ventures

Cordova Ventures Crescendo Ventures Crossbow Ventures Crosspoint Venture Partners DeNovo Ventures Diamond State Ventures Doll Capital Management Domain Associates Dot Edu Draper Atlantic Venture Fund Draper Fisher Jurvetson Draper Richards Draper Triangle Ventures DynaFund Ventures eCentury Capital Partners Evercore Venture Partners Edison Venture Fund ElDorado Ventures EnerTech Capital Enterprise Partners First Capital Group Management Flagship Ventures Forrest Binkley & Brown Forward Ventures Foundation Capital Frazier & Co. G51 Capital Gefinor Ventures General Catalyst Partners Goldman Sachs Group Grace Venture Partners Granite Ventures Greylock Partners Harris & Harris Group Highland Capital Partners Hopkins Capital Group Hummer Winblad Venture Partners IDG Ventures Inflection Point Ventures Insight Venture Partners Intel Capital Intelligent Systems Corp Internet Capital Group InterWest Partners Invencor ITU Ventures

Sanderling Ventures SBV Venture Partners Selby Venture Partners Sequel Venture Partners Sequoia Capital Sevin Rosen Funds Sierra Ventures Sigma Partners Silicon Alley Venture Partners Sofinnova Ventures Solstice Capital Sprout Group St. Paul Venture Capital Staenberg Venture Partners STARTech Sterling Partners Steve Walker & Associates Stonehenge Capital Corporation Storm Ventures Summit Partners Tech Coast Angels Technology Funding TeleSoft Partners TL Ventures Toucan Capital Trident Capital Trillium Capital Partners Trinity Ventures TVM Techno Venture Mgmt U.S. Venture Partners Valley Ventures Venrock Associates Versant Ventures Vertical Group Village Ventures VIMAC vSpring Capital Wakefield Group Warburg Pincus Wasatch Venture Fund Wilson Sonsini Goodrich & Rosati Windamere Venture Partners Wolf Ventures Worldview Technology Partners Zero Stage Capital

These are venture capital companies in India. Accel Partners India Artheon Ventures Artiman Ventures BlueRun Ventures

Canaan Partners DFJ India Epiphany Ventures Helion Venture Partners IFCI Venture Capital Funds India Innovation Investors Intel Capital Inventus (India) Advisory Company JAFCO Asia Lightspeed Venture Partners Netz Capital Nexus India Capital Norwest Venture Partners Ojas Venture Partners Reliance Technology Ventures Trident Capital VentureEast

SEBI Venture Capital Funds (VCFs) Regulations, 1996 A Venture Capital Fund means a fund established in the form of a trust/company; including a body corporate, and registered with SEBI which (i) has a dedicated pool of capital raised in a manner specified in the regulations and (ii) invests in venture capital undertakings (VCUs) in accordance with these regulations. A Venture Capital Undertaking means a domestic company (i) whose shares are not listed on a recognized stock exchange in India and (ii) which is engaged in the business of providing services/production/manufacture of articles/things but does not include such activities/sectors as are specified in the negative list by SEBI with government approval-namely, real estate, non-banking financial companies (NBFCs), gold financing, activities not permitted under the industrial policy of the Government and any other activity which may be specified by SEBI in consultation with the Government from time to time. Registration All VCFs must be registered with SEBI and pay Rs.25,000 as application fee and Rs. 5,00,000 as registration fee for grant of certificate. Recommendations of SEBI (Chandrasekhar) Committee, 2000 SEBI appointed the Chandrasekhar Committee to identify the impediments in the growth of venture capital industry in the country and suggest suitable measures for its rapid growth. Its report was submitted in January, 2000. The recommendations pertain to 1. Harmonization of multiplicity of regulations 2. VCF structures 3. Resource raising 4. Investments 5. Exit 6. SEBI regulations 7. Company law related issues and 8. Other related issues. Venture Capital Investment Process Deal origination:

In generating a deal flow, the VC investor creates a pipeline of deals or investment opportunities that he would consider for investing in. Deal may originate in various ways. referral system, active search system, and intermediaries. Referral system is an important source of deals. Deals may be referred to VCFs by their parent organisaions, trade partners, industry associations, friends etc. Another deal flow is active search through networks, trade fairs, conferences, seminars, foreign visits etc. Intermediaries is used by venture capitalists in developed countries like USA, is certain intermediaries who match VCFs and the potential entrepreneurs. Screening: VCFs, before going for an in-depth analysis, carry out initial screening of all projects on the basis of some broad criteria. For example, the screening process may limit projects to areas in which the venture capitalist is familiar in terms of technology, or product, or market scope. The size of investment, geographical location and stage of financing could also be used as the broad screening criteria. Due Diligence: Due diligence is the industry jargon for all the activities that are associated with evaluating an investment proposal. The venture capitalists evaluate the quality of entrepreneur before appraising the characteristics of the product, market or technology. Most venture capitalists ask for a business plan to make an assessment of the possible risk and return on the venture. Business plan contains detailed information about the proposed venture. The evaluation of ventures by VCFs in India includes; Preliminary evaluation: The applicant required to provide a brief profile of the proposed venture to establish prima facie eligibility. Detailed evaluation: Once the preliminary evaluation is over, the proposal is evaluated in greater detail. VCFs in India expect the entrepreneur to have:- Integrity, long-term vision, urge to grow, managerial skills, commercial orientation. VCFs in India also make the risk analysis of the proposed projects which includes: Product risk, Market risk, Technological risk and Entrepreneurial risk. The final decision is taken in terms of the expected riskreturn trade-off as shown in Figure. Deal Structuring: In this process, the venture capitalist and the venture company negotiate the terms of the deals, that is, the amount, form and price of the investment. This process is termed as deal structuring. The agreement also include the venture capitalist's right to control the venture company and to change its management if needed, buyback arrangements, acquisition, making initial public offerings (IPOs), etc. Earned out arrangements specify the entrequreneur's equity share and the objectives to be achieved. Post Investment Activities: Once the deal has been structured and agreement finalized, the venture capitalist generally assumes the role of a partner and collaborator. He also gets involved in shaping of the direction of the venture. The degree of the venture capitalist's involvement depends on his policy. It may not, however, be desirable for a venture capitalist to get involved in the day-to-day operation of the venture. If a financial or managerial crisis occurs, the venture capitalist may intervene, and even install a new management team.

Exit: Venture capitalists generally want to cash-out their gains in five to ten years after the initial investment. They play a positive role in directing the company towards particular exit routes. A venture may exit in one of the following ways: 1. Initial Public Offerings (IPOs) 2. Acquisition by another company 3. Purchase of the venture capitalist's shares by the promoter, or 4. Purchase of the venture capitalist's share by an outsider. ADVANTAGES AND DISADVANTAGES OF VENTURE CAPITAL Venture capital provides the funding that a company needs to expand its business. It also offers a number of value added services. Advantages In addition to being a source of funding, an advantage of venture capital is that a number of valueadded services are provided to companies: Mentoring - Venture capitalists provide companies with ongoing strategic, operational and financial advice. They will typically have nominee directors appointed to the companys board and often become intimately involved with the strategic direction of the company. Alliances - Venture capitalists can introduce the company to an extensive network of strategic partners both domestically and internationally and may also identify potential acquisition targets for the business and facilitate the acquisition. Facilitate exit - Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the Australian Stock Exchange (ASX) or overseas stock exchange such as NASDAQ. They can also facilitate a trade sale. Disadvantages most venture capitalists seek to realize their investment in a company in three to five years. If an entrepreneurs business plan contemplates a longer timetable before providing liquidity, venture capital may not be appropriate. Entrepreneurs should also consider: Pricing - Venture capitalists are typically more sophisticated and may drive a harder bargain. Intrusion - Venture capitalists are more likely to want to influence the strategic direction of the company. Control - Venture capitalists are more likely to be interested in taking control of the company if the management is unable to drive the business. Project management: Project management is the discipline of planning, organizing, securing and managing resources to bring about the successful completion of specific project goals and objectives. It is sometimes conflated with program management, however technically a program is actually a higher level construct: a group of related and somehow interdependent projects. A project is a temporary endeavor, having a defined beginning and end (usually constrained by date, but can be by funding or deliverables),[1] undertaken to meet unique goals and objectives,[2] usually to bring about beneficial change or added value. The temporary nature of projects stands in contrast to business as usual (or operations),[3] which are repetitive, permanent or semi-permanent functional work to produce products or services. In practice, the management of these two systems is often found to be quite different, and as such requires the development of distinct technical skills and the adoption of separate management.

- Project management is a methodical approach to planning and guiding project processes from start to finish. According to the Project Management Institute, the processes are guided through five stages: initiation, planning, executing, controlling, and closing. Project management can be applied to almost any type of project and is widely used to control the complex processes of software development projects. The Project Life Cycle It refers to a logical sequence of activities to accomplish the projects goals or objectives. Regardless of scope or complexity, any project goes through a series of stages during its life. There is first an Initiation or Birth phase, in which the outputs and critical success factors are defined, followed by a Planning phase, characterized by breaking down the project into smaller parts/tasks, an Execution phase, in which the project plan is executed, and lastly a Closure or Exit phase, that marks the completion of the project. Project activities must be grouped into phases because by doing so, the project manager and the core team can efficiently plan and organize resources for each activity, and also objectively measure achievement of goals and justify their decisions to move ahead, correct, or terminate. It is of great importance to organize project phases into industry-specific project cycles. Why? Not only because each industry sector involves specific requirements, tasks, and procedures when it comes to projects, but also because different industry sectors have different needs for life cycle management methodology. And paying close attention to such details is the difference between doing things well and excelling as project managers. Diverse project management tools and methodologies prevail in the different project cycle phases. Lets take a closer look at whats important in each one of these stages: 1) Initiation In this first stage, the scope of the project is defined along with the approach to be taken to deliver the desired outputs. The project manager is appointed and in turn, he selects the team members based on their skills and experience. The most common tools or methodologies used in the initiation stage are Project Charter, Business Plan, Project Framework (or Overview), Business Case Justification, and Milestones Reviews. 2) Planning The second phase should include a detailed identification and assignment of each task until the end of the project. It should also include a risk analysis and a definition of a criterion for the successful completion of each deliverable. The governance process is defined, stake holders identified and reporting frequency and channels agreed. The most common tools or methodologies used in the planning stage are Business Plan and Milestones Reviews. 3) Execution and controlling The most important issue in this phase is to ensure project activities are properly executed and controlled. During the execution phase, the planned solution is implemented to solve the problem specified in the project's requirements. In product and system development, a design resulting in a specific set of product requirements is created. This convergence is measured by prototypes, testing, and reviews. As the execution phase progresses, groups across the organization become more deeply involved in planning for the final testing, production, and support. The most common tools or methodologies used in the execution phase are an update of Risk Analysis and Score Cards, in addition to Business Plan and Milestones Reviews. 4) Closure In this last stage, the project manager must ensure that the project is brought to its proper completion. The closure phase is characterized by a written formal project review report containing the following components: a formal acceptance of the final product by the client, Weighted Critical Measurements (matching the initial requirements specified by the client with the final delivered product), rewarding the team, a list of lessons learned, releasing project resources, and a formal project closure notification to higher management. No special tool or methodology is needed during the closure phase.

Objectives of project management

Effective objectives in project management are specific. A specific objective increases the chances of leading to a specific outcome. Therefore objectives shouldn't be vague, such as "to improve customer relations," because they are not measurable. Objectives should show how successful a project has been, for example "to reduce customer complaints by 50%" would be a good objective. The measure can be, in some cases, a simple yes or no answer, for example, "did we reduce the number of customer complaints by 50%?" While there may be one major project objective, in pursuing it there may be interim project objectives. In lots of instances, project teams are tasked with achieving a series of objectives in pursuit of the final objective. In many cases, teams can only proceed in a stair step fashion to achieve the desired outcome. If they were to proceed in any other manner, they may not be able to develop the skills or insights along the way that will enable them to progress in a productive manner. Objectives can often be set under three headings: Performance and Quality The end result of a project must fit the purpose for which it was intended. At one time, quality was seen as the responsibility of the quality control department. In more recent years the concept of total quality management has come to the fore, with the responsibility for quality shared by all staff from top management downwards. Budget The project must be completed without exceeding the authorized expenditure. Financial sources are not always inexhaustible and a project might be abandoned altogether if funds run out before completion. If that was to happen, the money and effort invested in the project would be forfeited and written off. In extreme cases the project contractor could face ruin. There are many projects where there is no direct profit motive, however it is still important to pay proper attention to the cost budgets, and financial management remains essential. Time to Completion Actual progress has to match or beat planned progress. All significant stages of the project must take place no later than their specified dates, to result in total completion on or before the planned finish date. The timescale objective is extremely important because late completion of a project is not very likely to please the project purchaser or the sponsor.

Characteristics of project management

1. Interpersonal skills. The ability to manage people is vital. Project managers will ultimately be responsible for coordinating the efforts of the technical staff assigned to the project. It's crucial that they have the interpersonal and leadership skills to direct team members and keep them motivated and on track. They also need to be able to smoothly navigate through the tricky politics within and between the participating organizations. 2. Organizational skills. This key characteristic of great project managers is absolutely critical to keep projects on schedule and budget. The ability to assign resources, prioritize tasks, and keep tabs on the budget will ensure quality and impact the project's success. 3. Communication skills. The project manager is the main communication link between the business

managers and technical team. His or her ability to clearly communicate with members of both groups is essential. He or she must be able to clearly communicate project objectives, challenges or problems, scope changes, and regular project status reports. In offshore outsourcing, communication skills become even more critical. Project managers must not only communicate with team members that may be on the other side of the world, they must do so in a way that makes the global nature of the project invisible to the client. It's an added challenge to try to effectively communicate between on-site and offshore staff. But an experienced offshore outsourcing project manager can do this with ease. In addition to global distance between personnel, he or she also needs to be aware of and address cultural differences. 4. Problem-solving skills. In every project, it's unexpected problems or challenges that drive everyone crazy. The project manager must be able to effectively handle these situations and mitigate risk so they don't get out of control. 5. Professional training. Look for project managers that have PMI's Project Management Professional (PMP) training, the project management profession's most respected and globally recognized certification credential. To obtain PMP certification, an individual must satisfy education and experience requirements, agree and adhere to a Code of Professional Conduct, and pass the PMP Certification Examination.

UNIT V Non-bank financial companies: (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. Operations are, regardless of this, still exercised under bank regulation. However this depends on the jurisdiction, as in some jurisdictions, such as New Zealand, any company can do the business of banking, and there are no banking licenses issued. Classification Depending upon their nature of activities, non- banking finance companies can be classified into the following categories: 1. 2. 3. 4. 5. 6. Development finance institutions Leasing companies Investment companies House finance companies Venture capital companies Discount & guarantee houses

Types of Non-Banking Financial Entities(companies) (Regulated by RBI) Non-Banking Financial Entity Principal Business I. Non-Banking Financial Company In terms of the Section 45-l (f) read with Section 45-i(c) of the RBI Act, 1934, as amended in 1997, their principal business is that of receiving deposits or that of a financial institution, such as lending, investment in securities, hire purchase finance or equipment leasing. (a) Equipment leasing company (EL) Equipment leasing or financing of such activity.

(b) Hire purchase finance company (HP) Hire purchase transactions or financing of such transactions. (c) Investment company (1C) Acquisition of securities. These include Primary Dealers (PDs) who deal in underwriting and market making for government securities. (d) Loan company (LC) Providing finance by making loans or advances, or otherwise for any activity other than its own; excludes EL/HP/Housing Finance Companies (HFCs). (e) Residuary non-banking company, Company which receives deposits under any scheme or (RNBC) arrangement by whatever name called, in one lump-sum or in installments by way of contributions or subscriptions or by sale of units or certificates or other instruments, or in any manner. These companies do not belong to any of the categories as stated above. II. Mutual Benefit Financial Company Any company which is notified by the Central Government as a (MBFC) i.e., Nidhi Company Nidhi Company under section 620A of the Companies Act, 1956 (1 of 1956) III. Mutual Benefit Company A company which is working on the lines of a Nidhi company (MBC), i.e., potential Nidhi company but has not yet been so declared by the Central Government, has minimum net owned fund(NOF) of Rs.10 lakh, has applied to the RB1 for CoR and also to Department of Company Affairs (DCA) for being notified as Nidhi company and has not contravened directions/ regulations of RBI/DCA. IV. Miscellaneous non-banking company Managing, conducting or supervising as a promoter, foreman or (MNBC), Managing, Conducting or agent of any transaction or arrangement by which the company supervising as a promoter, foreman enters into an agreement with a specified number of subscribers ori.e., Chit Fund Company that every one of them shall subscribe a certain sum in installments over a definite period and that every one of such subscribers shall in turn, as determined by tender or in such manner as may be provided for in the arrangement, be entitled to the prize amount. PRUDENTIAL NORMS (INVOLVING OR SHOWING CARE): Non-Banking Financial Companies i Norms (Reserve Bank) Directions, 1998 NOTIFICATION No. DFC. 119 /DG (SPT)-98 DATED JANUARY 31, 1998 The Reserve Bank of India, having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to issue the directions relating to the prudential norms as set out below hereby, in exercise of the powers conferred by section 45JA of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, and in super session of the earlier directions contained in Notification No. DFC. 115/DG (SPT)/98 dated January 2, 1998 gives to every non-banking financial company the directions hereinafter specified. Short title, commencement and applicability of the directions: FIRST (1) These directions shall be known as the "Non-Banking Financial Companies Prudential Norms Reserve Bank) Directions, 1998". SECOND (2) These directions shall come into force with immediate effect. THIRD

(3) (i) All the provisions of these directions save as provided for in clauses (ii) and (iii) hereinafter, shall apply to (a) a non-banking financial company (referred to in these directions as NBFC), except a mutual benefit financial company [and a mutual benefit company] as defined in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 which is having net owned fund (referred to in these directions as NOF) of rupees twenty-five lakh and above and accepting/holding public deposit; (b) A residuary non-banking company (referred to in these directions as "RNBC") as defined in the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987. (ii) The provisions of paragraph 10 and 12 of these directions shall not apply to (a) A loan company; (b) An investment company; (c) a hire purchase finance company; and (d) an equipment leasing company, which is having NOF of rupees twenty-five lakh and above but not accepting/holding public deposit. (iii) These directions shall not apply to an NBFC being an investment company; provided that, it is (a) holding investments in the securities of its group/holding/ subsidiary companies and book value of such holding is not less than ninety per cent of its total assets and it is not trading in such securities; and (b) Not accepting/holding public deposit. (iv) These directions except the provisions of Paragraph 13A shall not apply to an NBFC being a Government company as defined under section 617 of the Companies Act, 1956 (1 of 1956).]. FOUR (4) These Directions shall apply to infrastructure loan as defined in paragraph 2 (1) (vii a) hereinafter, of these Directions, as provided in Paragraph 13C of these directions. Definitions 2. (1) For the purpose of these directions, unless the context otherwise requires:(i) break up value means the equity capital and reserves as reduced by intangible assets and revaluation reserves, divided by the number of equity shares of the investor of company; (ii) Carrying cost means book value of the assets and interest accrued thereon but not received; (iii) current investment means an investment which is by its nature readily realizable and is intended to be held for not more than one year from the date on which such investment is made; (iv) Doubtful asset means (i) A term loan, or (ii) A lease asset, or (iii) A hire purchase asset, or (iv) Any other asset, which remains a sub-standard asset for a period exceeding 18 months;

(v) earning value means the value of an equity share computed by taking the average of profits after tax as reduced by the preference dividend and adjusted for extra-ordinary and non-recurring items, for the immediately preceding three years and further divided by the number of equity shares of the investor of company and capitalized at the following rate :(a) in case of predominantly manufacturing company, eight per cent; (b) in case of predominantly trading company, ten per cent; and (c) in case of any other company, including an NBFC, twelve per cent; Financial institution Definition Institution which collects funds from the public and places them in financial assets, such as deposits, loans, and bonds, rather than tangible property. Role of Financial Institutions in Financial Markets: If financial markets were perfect, all information would be continuously and freely available to investors, including the creditworthiness of each security issuer. All information identifying investors purchasing and selling securities would be freely available. All securities for sale could be broken down and security transaction costs would be nonexistent. Because markets are imperfect, buyers and sellers do not always have full access to information and cannot always breakdown securities to the precise size they desire. Financial intermediaries resolve the problems caused by market imperfections. Sometimes they unbundled securities by spreading them across several investors until the entire amount is sold. Microfinance: Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers."[1] Those who promote microfinance generally believe that such access will help poor people out of poverty. DEFINITION OF MICROFINANACE: Microcredit, or microfinance, is banking the unbankables, bringing credit, savings and other essential financial services within the reach of.millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral. In general, banks are for people with money, not for people without. MBA 09 FO2 MANAGEMENT OF FINANCIAL SERVICES & INSTITUTIONS 1 MERCHANT BANKING An overview of Indian Financial System Nature and Functions of Merchant Banking. Regulation of Merchant Banking.

 Present State of Merchant Banking in India. ISSUE MANAGEMENT Pre & Post issue activities 2 LEASING AND HIRE PURCHASING Legal Aspects of Hiring and Leasing Types of Leasing. Rights of Hirer and Hire Purchase Accounting Treatment of Leases Lease vs. Hire Purchasing FACTORING Introduction Types of Factoring Forfaiting- Process Advantages Evaluation Bills Discounting Vs Factoring Vs Forfaiting 3 MUTUAL FUNDS Types of Mutual Funds. Mutual Funds in India- Developing, Launching and Computation and Relevance of NAV Offshore Mutual Funds and Money Market Mutual Funds. Regulation of Mutual Funds. CREDIT RATING Credit Rating system Growth factors Rating & Agencies Credit rating process 4 VENTURE CAPITAL Definition- Characteristics-Evolution Venture capital investment process Advantages-Forms SEBI and Venture capital funds Venture capital in India PROJECT MANAGEMENT Definition-Characteristics Objectives- Classification Project Life Cycle 5 NON-BANKING FINANCIAL COMPANIES Meaning Types Prudential norms FINANCIAL INSTITUTIONS Role of financial Institution in financial markets. Development Banking Institutions National and State Micro Finance Institutions- Concept, Models and Services ======================================================================= References Clifford Gomez, Financial Markets, Institutions and Financial Services, Prentice Hall of India 2008 Bhole, Financial Institutions and Markets, Tata McGraw Hill, 2010 Shanmugam, Financial Services, Wiley publications, 2009 M.Y.Khan, Financial Services, Tata McGraw Hill 2010 Bharati Pathak , Indian Financial System,Pearson,2010 Punivathy Pandian, Management of Financial Services, Vikas Publishing House,2010 Gurusamy, Financial Services, Tata McGraw Hill 2010 Nanadagopal, Sri Vidya, Emerging Financial Markets, Excel Books, 2009 Tripathy, Financial Services, Prentice Hall of India 2009

 Madura, Financial Markets and Institutions , Thomson, 2009 Meera Sharma, Management of Financial Institutions, PHI, 2008 Machiraju, Indian Financial System, Vikas Publishing House 2010 Gupta, Chopra, Financial Markets- Institutions & Services, Ane Books,2010 Preeti Singh, Dynamics of Indian Financial System, Ane Books,

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