What is mean by finance?

Finance is the science[citation needed] of funds management, or the allocation of assets and liabilities over time under conditions of certainty and uncertainty. A key point in finance is the time value of money, which states that a unit of currency today is worth more than the same unit of currency tomorrow. Finance aims to price assets based on their risk level, and expected rate of return. Finance can be broken into three different sub categories: public finance, corporate finance and personal finance. Areas of finance Personal finance Personal finance may involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement. Personal finance may also involve paying for a loan, or debt obligations. The six key areas of personal financial planning, as suggested by the Financial Planning Standards Board, are: 1.Financial position: is concerned with understanding the personal resources available by examining net worth and household cash flow. Net worth is a person's balance sheet, calculated by adding up all assets under that person's control, minus all liabilities of the household, at one point in time. 2.Adequate protection: the analysis of how to protect a household from unforeseen risks. These risks can be divided into liability, property, death, disability, health and long term care. Some of these risks may be selfinsurable, while most will require the purchase of an insurance contract. Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance. 3.Tax planning: typically the income tax is the single largest expense in a household. Managing taxes is not a question of if you will pay taxes, but when and how much. Government gives many incentives in the form of tax deductions and credits, which can be used to reduce the lifetime tax burden. 4.Investment and accumulation goals: planning how to accumulate enough money for large purchases, and life events is what most people consider to be financial planning. Major reasons to accumulate assets include, purchasing a house or car, starting a business, paying for education expenses, and saving for retirement. Achieving these goals requires projecting what they will cost, and when you need to withdraw funds. 5.Retirement planning is the process of understanding how much it costs to live at retirement, and coming up with a plan to distribute assets to meet any income shortfall. Methods for retirement plan include taking advantage of government allowed structures to manage tax liability including: individual (IRA) structures, or employer sponsored retirement plans. 6.Estate planning involves planning for the disposition of one's assets after death. Typically, there is a tax due to the state or federal government at one's death. Avoiding these taxes means that more of one's assets will be distributed to one's heirs. One can leave one's assets to family, friends or charitable groups. Corporate finance Corporate finance is the area of finance dealing with the sources of funding and the capital structure of corporations and the actions that managers take to increase the value of the firm to the shareholders, as well as the tools and analysis used to allocate financial resources. Although it is in principle different from managerial

finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms. Corporate finance generally involves balancing risk and profitability, while attempting to maximize an entity's wealth and the value of its stock, and generically entails three primary areas of capital resource allocation. In the first, "capital budgeting", management must choose which "projects" (if any) to undertake. The discipline of capital budgeting may employ standard business valuation techniques or even extend to real options valuation Financial services An entity whose income exceeds its expenditure can lend or invest the excess income. Though on the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial intermediary such as a bank, or buy notes or bonds in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary earns the difference for arranging the loan. A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity. Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance) and by a wide variety of other organizations, including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments and methodologies, with consideration to their institutional setting. Finance is one of the most important aspects of business management and includes analysis related to the use and acquisition of funds for the enterprise. Public finance[edit source | editbeta] Main article: Public finance Public finance describes finance as related to sovereign states and sub-national entities (states/provinces, counties, municipalities, etc.) and related public entities (e.g. school districts) or agencies. It is concerned with: Identification of required expenditure of a public sector entity Source(s) of that entity's revenue The budgeting process Debt issuance (municipal bonds) for public works projects

Central banks, such as the Federal Reserve System banks in the United States and Bank of England in the United Kingdom, are strong players in public finance, acting as lenders of last resortas well as strong influences on monetary and credit conditions in the economy. Meaning of financial instument A financial instrument is a tradeable asset of any kind; either cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument.

Financial Instruments are nothing but legal agreement made between two or more in terms of cash, evidence of an entity, or an contract right to deliver, receive (cash/cheque/demand draft/bonds/bill of exchange/futures or option contract) is called an Financial Instrument. There are two main types of Financial Instruments available in India.They are Government Securities and Industrial Securities. Financial instruments can be categorized by form depending on whether they are cash instruments or derivative instruments: Cash instruments are financial instruments whose value is determined directly by the markets. They can be divided into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both borrower and lender have to agree on a transfer. Derivative instruments are financial instruments which derive their value from the value and characteristics of one or more underlying entities such as an asset, index, or interest rate. They can be divided into exchange-traded derivatives and over-the-counter (OTC) derivatives. Alternatively, financial instruments can be categorized by "asset class" depending on whether they are equity based (reflecting ownership of the issuing entity) or debt based (reflecting a loan the investor has made to the issuing entity). If it is debt, it can be further categorised into short term (less than one year) or long term. Foreign Exchange instruments and transactions are neither debt nor equity based and belong in their own category.

Defination According to IAS 32 and 39, it is defined as "any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity".

Investopedia Says: Financial instruments can be thought of as easily tradeable packages of capital, each having their own unique characteristics and structure. The wide array of financial instruments in today's marketplace allows for the efficient flow of capital amongst the world's investors.

Feature of financial products

Yield curve fitting with bootstrapping and parametric fitting models, and term-structure analysis Black Scholes, Black, Garman-Kohlhagen, Roll-Geske-Whaley, Bjerksund-Stensland, Nengjiu Ju, Stulz, and LongstaffSchwartz models

Fixed-income and equity derivative calculations for price, yield, discount rate, cash-flow schedule, spread, implied volatility, option adjusted spread (OAS), and greeks Tree models: CRR, EQP, LR, ITT, HJM, BDT, BK, and HW Interest-rate instruments: bonds, stepped-coupon bonds, futures, vanilla options, Bermuda options, bonds with embedded options, vanilla swaps, forward swaps, amortizing swaps, swaptions, caps, floors, range notes, floatingrate notes, and collared floating-rate notes Equity instruments: stocks, vanilla options, Bermuda options, Asian options, lookback options, barrier options, digital options, rainbow options, basket options, compound options, and chooser options Credit instruments: mortgage pools, balloon mortgages, and credit default swaps

Why should we invest? Take a minute to think about why you may want to invest Inflation is constantly increasing the cost of goods and services and eating into the value of your income and wealth. You need to save money and invest it well so that the value of every rupee is augmented. Higher life-expectancy means people live longer and hence, need more money to maintain their living standards. Investing selectively allows you to enjoy tax benefits.

By investing wisely we can improve your standard of living and create wealth for the future Types of investment risks associated with investments made as a part of the portfolio management services (The level and types of investment risks depend on the Investment Strategy) Market risk. The risk associated with the evolution of the situation on financial markets. Market risk includes the risk of changes in prices of shares, stock indices, prices of bonds and commodities, or exchange rates. Investment funds risk. The risk associated with the way the investment funds in which the clients' funds are invested are managed. In particular, the risk of deviation from the declared investment strategy by the fund manager, the risk related to fund's liquidity and the risk related to the possibility of redeeming the units. Liquidity risk. The risks associated with the possibility of low liquidity, i.e. the possibility of disposing of a given financial instrument without significant impact on its price. One of the ways to reduce this risk is adequate diversification of assets. Credit risk. The risks related to the possibility of non-fulfilment by the issuer of certain financial instruments, e.g. the issuer of corporate bonds, of its obligations. Interest rate risk. The risk associated with changes in interest rates leading to changes of, among others, the level and shape of the curve of interest rates. Settlement risk. The risks related to the inability to settle a concluded transaction due to, among

others, an error of one of the parties to the transaction, non-compliance by one of the parties with the agreed terms, suspension of operation of the clearing house, or errors of the intermediate entity. Risk of legal changes. The risk related to sudden changes in legislation that may directly affect the rates of return on certain investments of the Portfolio or some market participants, which may lead to market disturbances. Risk of tax changes. The risks related to changes in tax law, which may affect the rate of return acquired or expected by the Client. Risk related to the activity of the entity maintaining the accounts in which the Portfolio's assets are held. This risk is related to the potentially improper operation of the entity maintaining brokerage or custodian accounts. This risk can be reduced by appropriate selection of the entities where these accounts are opened.

Classification of financial products

Financial instruments

Non financial instruments

Industry securities

Bank deposits

Call money market

Government securities

Gold

Real estate

Equity share

Preference share

Tresury bills

Commercial paper

Bond

Debenture

Certificate Of Deposit

Repo Repo

Types of investment risks associated with investments Types of investment risks associated with investments made as a part of the portfolio management services (The level and types of investment risks depend on the Investment Strategy) Market risk. The risk associated with the evolution of the situation on financial markets. Market risk includes the risk of changes in prices of shares, stock indices, prices of bonds and commodities, or exchange rates. Investment funds risk. The risk associated with the way the investment funds in which the clients' funds are invested are managed. In particular, the risk of deviation from the declared investment strategy by the fund manager, the risk related to fund's liquidity and the risk related to the possibility of redeeming the units. Liquidity risk. The risks associated with the possibility of low liquidity, i.e. the possibility of disposing of a given financial instrument without significant impact on its price. One of the ways to reduce this risk is adequate diversification of assets. Credit risk. The risks related to the possibility of non-fulfilment by the issuer of certain financial instruments, e.g. the issuer of corporate bonds, of its obligations. Interest rate risk. The risk associated with changes in interest rates leading to changes of, among others, the level and shape of the curve of interest rates. Settlement risk. The risks related to the inability to settle a concluded transaction due to, among others, an error of one of the parties to the transaction, non-compliance by one of the parties with the agreed terms, suspension of operation of the clearing house, or errors of the intermediate entity. Risk of legal changes. The risk related to sudden changes in legislation that may directly affect the rates of return on certain investments of the Portfolio or some market participants, which may lead to market disturbances. Risk of tax changes. The risks related to changes in tax law, which may affect the rate of return

acquired or expected by the Client. Risk related to the activity of the entity maintaining the accounts in which the Portfolio's assets are held. This risk is related to the potentially improper operation of the entity maintaining brokerage or custodian accounts. This risk can be reduced by appropriate selection of the entities where these accounts are opened.