Master of Business Administration- MBA Semester 4 MF0017/MA0041 Merchant Banking and Financial Services

1. Define merchant banking and explain its functions

Merchant banks, now so called, are in fact the original "banks". These were invented in the Middle Ages by Italian grain merchants. As the Lombardy merchants and bankers grew in stature on the back of the Lombard plains cereal crops many of the displaced Jews who had fled persecution in Spain after 613 entered the trade. They brought with them to the grain trade ancient practices that had grown to normalcy in the middle and far east, along the Silk Road, for the finance of long distance goods trades. The Jews could not hold land in Italy, so they entered the great trading piazzas and halls of Lombardy, along side the local traders, and set up their benches to trade in crops. They had one great advantage over the locals. Christians were strictly forbidden the sin of usury. The Jewish newcomers, on the other hand, could lend to farmers against crops in the field, a high-risk loan at what would have been considered usurous rates by the Church. In this way they could secure the grain sale rights against the eventual harvest. They then began to advance against the delivery of grain shipped to distant ports. In both cases they made their profit from the present discount against the future price. This two-handed trade was time consuming and soon there arose a class of merchants, who were trading grain debt instead of grain. It was a short step from financing trade on their own behalf to settling trades for others, and then to holding deposits for settlement of "billete" or notes written by the people who were still brokering the actual grain. And so the merchant's "benches" (bank is a corruption of the Italian for bench, as in a counter) in the great grain markets became centers for holding money against a bill (billette, a note, a letter of formal exchange, later a bill of exchange, later still, a cheque). These deposited funds were intended to be held for the settlement of grain trades, but often were used for the bench's own trades in the meantime. The term bankrupt is a corruption of the Italian banca rotta, or broken bench, which is what happened when someone lost his traders' deposits. Being "broke" has the same connotation. A sensible manner of discounting interest to the depositors against what could be earned by employing their money in the trade of the bench soon developed; in

short, selling an "interest" to them in a specific trade, thus overcoming the usury objection. Once again this merely developed what was an ancient method of financing long distance transport of goods. Islamic banking has the same constraints against usury as Christianity and from the same old testament notions. Whether the insistence that money cannot be earned from deposits held as debt will be relaxed as Islam ages and matures is unknown. The medieval Italian markets were disrupted by wars and in any case were limited by the fractured nature of the Italian states. And so the next generation of bankers arose from migrant Jewish merchants in the great wheat growing areas of Germany and Poland. Many of these merchants were from the same families who had been part of the development of the banking process in Italy. They also had links with family members who had, centuries before, fled Spain for both Italy and England. This course of events set the stage for the rise of banking names which still resonate today: Schroders, Warburgs, Rothschilds, even the ill-fated Barings, were all the product of the continental grain trade, and indirectly, the early Iberian persecution of Jews. [edit] Modern practices The definition of merchant banking has changed greatly since the days of the Rothschilds. The great merchant banking families dealt in everything from underwriting bonds to originating foreign loans. Bullion trading and bond issuing were some of the specialties of the Rothschild family. The modern merchant banks, however, tend to advise corporations and wealthy individuals on how to use their money. The advice varies from counsel on M&A to recommendation on the type of credit needed. The job of generating loans and initiating other complex financial transactions has been taken over by investment banks and private equity firms. Today there are many different classes of merchant banks. One of the most common forms is primarily utilized in America. This type initiates loans and then sells them to investors. Even though these companies call themselves "Merchant banks," they have few if any of the characteristics of former Merchant banks. A more traditional form of Merchant bank is not as widely used. This genre of merchant banking is seen in companies such as Blackstone Group, LCF Rothschild Group, and Goldman Sachs. Their activities include private banking, fund management, and advisory services. Though these organizations are holding companies, their operations are essentially those of the original Merchant banks

2. Explain the taxation aspects of hire-purchase transaction

Hire Purchase Transactions Including detailed information on the calculation of relief of VAT in respect of Bad Debts and for Early Determination in Hire Purchase transactions. 1. Introduction 1.1 The Finance Act 2007 amends the VAT treatment of hire purchase transactions. The amendments allow finance houses to become entitled to bad debt relief in respect of such transactions. Under the new provisions, with effect from 1 May 2007, finance houses involved in hire purchase transactions are accountable persons in respect of the supply of the underlying goods concerned and on the subsequent sale of such goods if repossessed by them. This leaflet provides guidance in relation to the Finance Act amendments and also information on bad debt relief in general. 2. Summary of New Provisions 2.1 Arising from the changes in the Finance Act 2007 there is a supply by the dealer of the goods to the finance house and the supply from the finance house to the customer who acquires the goods under the hire purchase agreement. These two supplies occur simultaneously. The finance house continues to be exempt from VAT on its finance charges. 2.2 The new legislation provides that the transfer of ownership of goods from the dealer to the finance house is a taxable supply. The dealer must issue a VAT invoice to the finance house. (The special documentary procedure for hire purchase transactions in operation since 1996 no longer applies). 2.3 The finance house makes a taxable supply when the goods are handed over to the customer. Accordingly, it must account for the VAT on that supply, and may claim deductibility in respect of the VAT chargeable in relation to that supply. (The handing over of the goods to the customer has always been a taxable supply but prior to Finance Act 2007 that supply was treated as a supply by the dealer directly to the customer.) 2.4 Where the customer defaults on the hire purchase payments the finance house is entitled to claim bad debt relief in respect of the VAT element of the outstanding payments. This should be calculated on a prorata basis as outlined in paragraph 19 below. 2.5 Where the hire purchase agreement is terminated early and the goods are handed back to the finance company then the finance company can claim relief in respect of the VAT element of the outstanding payments in accordance with paragraph 20 below. 2.6 If the finance house repossesses goods before the hire purchase agreement has run its course, and subsequently sells those goods, that sale is a taxable supply on which the finance house must account for VAT. 3. Invoices 3.1 A finance house must issue a VAT invoice in respect of a supply of goods under a hire purchase agreement where the supply is to an accountable person. However, if the hire purchase document contains all the details required by regulation for a VAT invoice then that document will be accepted as a VAT invoice.

3.2 Where the supply by the finance house consists of qualifying goods as defined in section 13A of the VAT Act and that supply is to a taxable customer who holds a section 13A authorisation then the VAT invoice/hire purchase document will show the zero rate of VAT together with the usual authorisation number. It should be noted that motor vehicles do not come within the meaning of qualifying goods and therefore the supply is not zero-rated. 4. Taxable amount 4.1 The taxable amount of goods supplied by the finance house to the customer is usually the same as that of the supply of those goods from the dealer to the finance house. This is because the finance house does not apply a profit margin to the value of the supply of the goods from the dealer. Therefore, (apart from the situation outlined in paragraph 9), the tax on the purchase from the dealer by the finance house and the tax on the supply of the goods by the finance house will be the same amount. 4.2 In the case of a new motor vehicle the amount on which VAT is chargeable in respect of the supply by the dealer does not include Vehicle Registration Tax (VRT). In the case of the supply by the finance house to its customer, the amount of the VRT is treated for VAT purposes as a disbursement on behalf of the customer and accordingly is not included in the taxable amount. 4.3 Interest charges are treated as consideration for the supply of credit and are not part of the taxable amount for the goods. These charges are exempt from VAT. 5. Transfer of ownership at the end of the hire purchase agreement 5.1 The transfer of ownership of the goods from the finance house to the customer at the end of the hire purchase agreement is not a supply for VAT purposes. 6. Payments of instalments by the customer 6.1 No VAT liability arises for the finance house at the time the instalments are received by it during the term of the hire purchase agreement. The VAT will have been accounted for when the goods were handed over to the customer. The interest element of the instalments is treated for VAT purposes as consideration for the exempt supply of credit. The cash receipts basis of accounting for VAT does not apply to hire purchase transactions. 7. Entitlement to deductibility 7.1 Finance houses which supply goods on hire purchase terms are entitled to full deductibility in respect of the purchase by them of those goods for onward supply. As regards dual-use inputs used by the finance house for both deductible and non-deductible supplies, the finance house is entitled to deduct only the proportion of input tax which correctly reflects the extent to which those inputs are used for the taxable supplies. 8. Cases where a customer defaults on repayments The conditions under which bad debt relief is allowed are set out in Regulations. In general, a taxable person must be in a position to demonstrate that: 1. The consideration due for the supply is treated as a bad debt only after the taxable person has taken all reasonable steps to recover the debt. 2. The bad debt is allowable as a deduction for the purposes of the Taxes Consolidation Act 1997 and has been written off as such in the financial accounts of the taxable person and the

requirements of Regulation 8(1)(m) of the Value-Added Tax Regulations 2006 in respect of that debt have been fulfilled. 3. The debt is not due from a person connected with the taxable person within the meaning of Regulation 15(5)(b) of the Value-Added Tax Regulations 2006. The VAT bad debt relief should be calculated in accordance with the VAT analysis of the transactions outlined in paragraphs 9 and 10 below. 9. Bad debt relief for a supply, other than a supply under hire purchase 9.1 Before dealing with bad debt relief in respect of a supply under a hire purchase agreement it may be helpful to first outline the general method for calculating bad debt relief. This is calculated in accordance with the following formula (First Formula): A x B / 100 + B where: A:is the amount which is outstanding from the debtor in relation to the taxable supply B:is the percentage rate of VAT applicable to the supply Example 1 Bad debt relief for a supply, other than a supply under hire purchase: Sale Price of the Goods: 24,200 [B]VAT standard rate: 21% VAT amount accounted for on the supply: 4,200 Amount received from debtor: 14,520 [A]Amount outstanding from debtor: 9,680 Therefore the VAT adjustment for bad debt relief, using the First Formula, is as follows: 9,680 x 21 / 100 + 21 Bad debt relief = 1,680 10. Bad debt relief for a supply made under a hire purchase agreement 10.1 Relief from VAT on bad debts arises only in respect of the VAT element of hire purchase transactions. A hire purchase agreement is made up of different elements, comprising payment in respect of the goods, VAT, VRT (in the case of motor vehicles) and credit charges. In the normal course, the value of each of these elements should be available in the records of the finance house. Bad debt relief should be calculated in accordance with the following formula (Second Formula):

(C D) x (E F) / C where: C is the sum of all the amounts scheduled for payment by instalment under the hire purchase agreement, D is the total amount paid by the customer against the instalments scheduled for payment under the hire purchase agreement up to and including the date on which the bad debt is written off in the financial accounts of the accountable person, E is an amount equal to the amount of tax accounted for by the taxable person on the supply of the goods under the hire purchase agreement, and F is an amount equal to the tax attributable to a part payment referred to in the hire purchase agreement calculated in accordance with the Third Formula. However, if there is no part payment F is equal to zero. The result of this calculation gives the amount of the VAT bad debt relief which can be claimed. The following examples will help to clarify the position: Example 2 Hire Purchase of equipment where no part payment is made and the customer defaults after three years: Sale Price of the Goods: 24,200 VAT rate: 21% [E] VAT accounted for: 4,200 Hire Purchase term: 5 years Credit charges over 5 years: 4,800 [C] Total of instalments scheduled for payment: 29,000 Annual instalment Payment: 5,800 [D] Total paid by instalment in the first 3 years: 17,400 [C-D] Amount outstanding: 11,600 Therefore the VAT adjustment for bad debt relief, using the Second Formula, is as follows: (29,000 - 17,400) x (4,200 - 0) / 29,000 Bad debt relief = 1,680

Example 3 Hire purchase of a new means of transport where no part payment is made and the customer defaults after 3 years: Sale Price of the Goods: 32,266 VRT (say 24% of 32,266): 7,743 VAT inclusive price (32,266 7,743): 24,523 [E] VAT accounted for: 4,256 Hire Purchase term 5 years Credit charges over 5 years 6,453 [C] Total of instalments scheduled for payment: 38,719 Annual instalment Payment: 7,744 [D] Total paid by instalment in the first 3 years: 23,232 [C-D] Amount outstanding: 15,487 Therefore the VAT adjustment for bad debt relief, using the Second Formula, is as follows: (38,719 - 23,232) x (4,256 - 0) / 38,719 Bad debt relief = 1,702 Example 4 Hire purchase of new means of transport involving a part payment (such as a trade-in or a cash payment/deposit) where the customer defaults after 3 years:[H] Sale Price of the Goods: 32,266 VRT (say 24% of 32,266): 7,743 VAT inclusive price (32,266 7,743): 24,523 [E] VAT accounted for: 4,256 [G] Part Payment: 5,000 [F] Tax attributable to the part payment: 672 Hire Purchase term 5: years

Credit charges over 5 years: 5,453 [C]Total of instalments scheduled for payment: 32,719 Annual instalment Payment: 6,544 [D] Total paid by instalment in the first 3 years: 19,632 [C-D] Amount outstanding: 13,087 As this example includes a part payment it is necessary to calculate the tax attributable to that part payment in order to establish a value for F so that the Second Formula can be completed. The tax attributable to the part payment is calculated in accordance with the following formula (Third Formula): GxE/H 5,000 x 4,256 / 32,266 F is therefore equal to 659 Therefore the VAT adjustment for bad debt relief, using the Second Formula, is as follows: (32,719 - 19,632) x (4,256 659) / 32,719 Bad debt relief = 1,438 11. Early Determinations 11.1 Under the Consumer Credit Act 1995 a customer is entitled to end the hire purchase agreement on a date earlier than the date fixed in the agreement for termination of that agreement. This is referred to as a determination. The customer may in these circumstances have to pay an additional amount as part of that determination. Where early determination of the hire purchase agreement occurs and the full amount payable on the original agreement is not paid and no transfer of title from the finance house to the customer takes place, the finance house will be entitled to relief in respect of the excess VAT already accounted for. The relief should be calculated on a pro-rata basis in accordance with the following formula (Fourth Formula): J x (E K) / C where: J: is the total amount paid by the customer against the instalments scheduled for payment under the hire purchase agreement up to and including the prior date agreed under the determination plus any amount paid by the customer as part of the determination, E: is an amount equal to the amount of tax accounted for by the accountable person on the supply of the goods under the hire purchase agreement, K: is an amount equal to the amount of tax attributable to the part payment shown in the hire purchase agreement calculated in accordance with the Third Formula (however, if there is no part payment K is equal to zero), and

C: is the sum of all the amounts scheduled for payment by instalment under the hire purchase agreement. Example 5 Early determination of hire purchase agreement after 1 year, where a deposit is paid, an amount is paid as part of that determination and the goods are returned to the finance company: [H] Sale Price of the Goods: 24,200 VAT rate: 21% [E] VAT accounted for: 4,200 [G] Part Payment: 5,000 [K] Tax attributable to the part payment: 884 Hire Purchase term: 5 years Credit charges over 5 years: 3,840 [C]Total of instalments scheduled for payment: 23,040 Annual instalment Payment: 4,608 [J*]Total paid by instalment in the first year: 4,608 [J*] Amount paid as part of the determination: 4,412 Total amount paid: 14,020 *One element of the value of J If the customer opts to end the hire purchase agreement after one year and return the goods to the finance company he or she is obliged under the hire purchase agreement to pay at least half of the hire purchase price and so must pay a further 4,412. The tax attributable to the part payment Before calculating the relief that can be claimed in this case it is necessary to first calculate the tax attributable to the part payment. This is calculated as follows using the Third Formula: GxE/H 5,000 x 4,200 / 24,200 Tax attributable to the part payment is therefore equal to 868 This figure is also needed in order to establish a value for K so that the Fourth Formula can be completed. The tax attributable to the remaining payments made by the customer

It is now necessary to calculate the tax attributable to the amount paid by the customer against the instalments scheduled for payment under the hire purchase agreement plus any amount paid by the customer as part of the determination. This is calculated as follows using the Fourth Formula: 9,020 x (4,200 868) / 23,040 = 1304 The total VAT due in relation to the payments made by the customer is therefore equal to 2,172 (i.e. 868 + 1,304) VAT accounted for on the handing over of the goods was equal to 4,200 Therefore the relief for the determination of the hire purchase agreement is equal to 2,028 (i.e. 4,200 2,172). Relief cannot be claimed until the credit note, required to be issued in accordance with section 10(3)(d) of the Act, has been issued. 11.2 Relief does not arise where early determination of the hire purchase agreement occurs and the transfer of title from the finance house to the customer takes place. Relief, in the case of early determination of a HP agreement, cannot be claimed: 1. Until the credit note required to be issued in accordance with section 10(3)(d) of the Act has been issued. 2. Where transfer of title from the Finance House to the customer takes place. Back to Top 12. Sale of repossessed goods 12.1 Where a finance house repossesses goods which have been subject to a hire purchase contract which terminates early, or on which the customer defaults, such repossession is not a taxable event as the title had not been transferred from the finance house to the customer. However, the subsequent sale by the finance house of those goods is taxable. The taxable amount is the consideration received by the finance house for that sale of those goods. 13. Hire Purchase transactions in respect of second-hand means of transport: 13.1 The provisions regarding residual input credit allowed to taxable dealers under section 12B of the VAT Act apply to finance houses involved in the sale on hire purchase of second-hand means of transport. The finance house may deduct the residual tax deemed to be included in the value of the means of transport when acquired by it and must account for VAT on the subsequent supply of that means of transport. 3. Explain

the concept of factoring. What are the characteristics of factoring?

What is factoring? Factoring is a financial option for the management of receivables. In simple definition it is the conversion of credit sales into cash. In factoring, a financial institution (factor) buys the accounts receivable of a

company (Client) and pays up to 80%(rarely up to 90%) of the amount immediately on agreement. Factoring company pays the remaining amount (Balance 20%-finance cost-operating cost) to the client when the customer pays the debt. Collection of debt from the customer is done either by the factor or the client depending upon the type of factoring. We will see different types of factoring in this article. The account receivable in factoring can either be for a product or service. Examples are factoring against goods purchased, factoring for construction services (usually for government contracts where the government body is capable of paying back the debt in the stipulated period of factoring. Contractors submit invoices to get cash instantly), factoring against medical insurance etc. Let us see how factoring is done against an invoice of goods purchased.

Characteristics of factoring Usually the period for factoring is 90 to 150 days. Some factoring companies allow even more than 150 days. Factoring is considered to be a costly source of finance compared to other sources of short term borrowings. Factoring receivables is an ideal financial solution for new and emerging firms without strong financials. This is because credit worthiness is evaluated based on the financial strength of the customer (debtor). Hence these companies can leverage on the financial strength of their customers. Bad debts will not be considered for factoring. Credit rating is not mandatory. But the factoring companies usually carry out credit risk analysis before entering into the agreement. Factoring is a method of off balance sheet financing.

Cost of factoring=finance cost + operating cost. Factoring cost vary according to the transaction size, financial strength of the customer etc. The cost of factoring vary from 1.5% to 3% per month depending upon the financial strength of the client's customer. Indian firms offer factoring for invoices as low as 1000Rs For delayed payments beyond the approved credit period, penal charge of around 1-2% per month over and above the normal cost is charged (it varies like 1% for the first month and 2% afterwards). Different types of Factoring Disclosed and Undisclosed Recourse and Non recourse A single factoring company may not offer all these services. Disclosed In disclosed factoring client's customers are notified of the factoring agreement. Disclosed type can either be recourse or non recourse. Undisclosed In undisclosed factoring, client's customers are not notified of the factoring arrangement. Sales ledger administration and collection of debts are undertaken by the client himself. Client has to pay the amount to the factor irrespective of whether customer has paid or not. But in disclosed type factor may or may not be responsible for the collection of debts depending on whether it is recourse or non recourse. Recourse factoring In recourse factoring, client undertakes to collect the debts from the customer. If the customer don't pay the amount on maturity, factor will recover the amount from the client. This is the most common type of factoring. Recourse factoring is offered at a lower interest rate since the risk by the factor is low. Balance amount is paid to client when the customer pays the factor. Non recourse factoring In non recourse factoring, factor undertakes to collect the debts from the customer. Balance amount is paid to client at the end of the credit period or when the customer pays the factor whichever comes first. The advantage of non recourse factoring is that continuous factoring will eliminate the need for credit and collection departments in the organization.

4. Explain the different life insurance products.

What is a life insurance policy? A life insurance policy provides financial protection to your family in the unfortunate event of your death. At a basic level, it involves paying small sums each month (called premiums) to cover the risk of your untimely demise during the tenure of the policy. In such an event, your family (or the beneficiaries you have named in the policy) will receive a lump sum amount. In case you live till the maturity of the policy, depending on the type of life insurance policy you have opted for, you will receive returns the policy may have earned over the years. Today, there are many variations to this basic theme, and insurance policies cater to a wide variety of needs.

What are the various types of life insurance policies?

Given below are the basic types of life insurance policies. All other life insurance policies are built around these basic insurance policies by combination of various other features.

Term Insurance Policy

A term insurance policy is a pure risk cover policy that protects the person insured for a specific period of time. In such type of a life insurance policy, a fixed sum of money called the sum assured is paid to the beneficiaries (family) if the policyholder expires within the policy term. For instance, if a person buys a Rs 2 lakh policy for 15 years, his family is entitled to the sum of Rs 2 lakh if he dies within that 15-year period.

If the policy holder survives the 15-year period, the premiums paid are not returned back. The advantage, apart from the financial security for an individuals family is that the premiums paid are exempt from tax.

These insurance policies are designed to provide 100 per cent risk cover and hence they do not have any additional charges other than the basic ones. This makes premiums paid under such life insurance policies the lowest in the life insurance category.

Whole Life Policy

A whole life policy covers a policyholder against death, throughout his life term. The advantage that an individual gets when he / she opts for a whole life policy is that the validity of this life insurance policy is not defined and hence the individual enjoys the life cover throughout his or her life.

Under this life insurance policy, the policyholder pays regular premiums until his death, upon which the corpus is paid to the family. The policy does not expire till the time any unfortunate event occurs with the individual.

Increasingly, whole life policies are being combined with other insurance products to address a variety of needs such as retirement planning, etc. Premiums paid under the whole life policies are tax exempt.

Endowment Policy

Combining risk cover with financial savings, endowment policies are among the popular life insurance policies.

Policy holders benefit in two ways from a pure endowment insurance policy. In case of death during the tenure, the beneficiary gets the sum assured. If the individual survives the policy tenure, he gets back the premiums paid with other investment returns and benefits like bonuses.

In addition to the basic policy, insurers offer various benefits such as double endowment and marriage/ education endowment plans.

The concept of providing the customers with better returns has been gaining importance in recent times. Hence, insurance companies have been coming out with new and better ULIP versions of endowment policies. Under such life insurance policies the customers are also provided with an option of investing their premiums into the markets, depending on their risk appetite, using various fund options provided by the insurer, these life insurance policies help the customer profit from rising markets.

The premiums paid and the returns accumulated through pure endowment policies and their ULIP variants are tax exempt.

Money Back Policy

This life insurance policy is favoured by many people because it gives periodic payments during the term of policy. In other words, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured.

In case of death during the policy term, the beneficiary gets the full sum assured.

New ULIP versions of money back policies are also being offered by various life insurers.

The premiums paid and the returns accumulated though a money back policy or its ULIP variants are tax exempt.

ULIPs

ULIPs are market-linked life insurance products that provide a combination of life cover and wealth creation options.

A part of the amount that people invest in a ULIP goes toward providing life cover, while the rest is invested in the equity and debt instruments for maximising returns. .

ULIPs provide the flexibility of choosing from a variety of fund options depending on the customers risk appetite. One can opt from aggressive funds (invested largely in the equity market with the objective of high capital appreciation) to conservative funds (invested in debt markets, cash, bank deposits and other instruments, with the aim of preserving capital while providing steady returns).

ULIPs can be useful for achieving various long-term financial goals such as planning for retirement, childs education, marriage etc.

Annuities and Pension

In these types of life insurance policies, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect against financial risks as well as provide money in the form of pension at regular intervals.

5. Indian Venture Capital Scenario

In India, the emergence of venture capital companies is a relatively new phenomenon. Until 1985, individual investors and Development Finance Institutions (DFIs) have played the role of venture capitalists in the absence of an organised venture capital industry. During that time entrepreneurs have largely depended on private placements, public offerings and lending by financial institutions. The venture capital phenomenon has arrived at a take-off stage in India with the easy availability of risk capital in all forms. In the earlier stage, it was easy to raise only growth capital but financing of ideas or seed capital is now available after the introduction of venture capital phenomenon. The number of players offering growth capital and the number of investors is rising rapidly. In India, the concept of venture capital was initiated by the Industrial Finance Corporation of India (IFCI) when it established the Risk Capital Foundation (RCF) to provide seed capital to small and risky projects. However, the concept of venture capital financing first time got statutory recognition in the fiscal budget for the year 1986 to 1987. The venture capital companies operating at present in India can be divided into four categories based on their mode of promotion. Let us read about each mode. Promoted by All-India Development Financial Institution (IDFI) The ICICI provided the required impetus to venture capital activities in India. In 1986 it started providing venture capital finance. In 1998, it promoted with the Unit Trust of India (UTI) and Technology Development and Information Company of India (TDICI) as the first venture capital company registered under the Companies Act, 1956. The risk capital foundation established by the IFCI in 1975 was converted to Risk Capital and Technology Finance Company (RCTC). The RCTC was established as a subsidiary company of IFCI to provide assistance in form of conventional loans and to give financial support to high technology projects. Promoted by state level finance institution In India, the state level financial institutions in some states like Gujarat, Uttar Pradesh have done an excellent job by providing venture capital finance to small scale enterprises. Promoted by commercial banks Venture capital funds have been established by their corresponding commercial banks to undertake venture capital financing activity. Examples of these funds are Canbank venture capital fund, State bank venture capital fund, and Grindlays bank. Private venture capital funds

In India, several venture capital funds have been established to provide funding to various small scale enterprises. Examples of these funds established in India are 20th Century Venture Capital Corporation and Indus venture capital fund.

6. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund :

Mutual Fund Operation Flow Chart ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:

ADVANTAGES OF MUTUAL FUNDS The advantages of investing in a Mutual Fund are: Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated

What Are Fund Flows? Mutual Funds As Economic Indicators Definition: Mutual fund flows, which are usually called "fund flows," indicate how investors are investing their money in mutual funds. The flows are measures of dollars flowing into or out of mutual funds. Economic Indicators: What Fund Flows Mean Some investors use fund flows as a leading economic indicator, which means that clues about which direction the economy may be heading in the near future can be obtained by observing how mutual fund investors are investing today. If, for example, fund flows are positive--more dollars are flowing into mutual funds than flowing out--investors may consider this a sign that the economy is heading in a positive direction in the near future. The reason fund flows often provide insights into the future of the economy is because they may reflect investor sentiment (feelings) about the economy. If investors, as a whole, are positive about the economy they tend to put more dollars into their mutual funds. Likewise, if fund flows are negative, investors generally have negative feelings about the economy. At times, however, strong fund flows can indicate the opposite: In strong economies, investors put more dollars into their 401(k)'s and mutual fund accounts. Therefore an economic peak is often marked by extremely positive fund flows. The bottom point of an economic recession may be marked by extremely negative fund flows. For this reason, fund flows are, at times, considered contrarian indicators.