FPS Unit - I

STUDY MATERIAL FOR BBA
FINANCIAL SERVICES
SEMESTER - IV, ACADEMIC YEAR 2020-21
UNIT CONTENT PAGE Nr
I CONCEPT OF FINANCIAL SERVICES 02
II FUND BASED FINANCIAL SERVICES 10
III MEANING OF MUTUAL FUNDS 14
IV FACTORING 20
V MERCHANT BANKING 34
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FINANCIAL SERVICES
UNIT - I
Concept of Financial services:
Financial services are intermediary services in financial market place.Financial Services
are provided by the banks and financial institution in financial system. It is a process by which
funds are mobilised from a large number of savers and made available to all those who are in
need. It is defined as all activities, benefits and satisfactions connected with sale of money, that
offers to users and customers financial related value.
Objectives of financial services are

 Maintain the public’s confidence in the financial system;
 Facilitate the deterrence of financial crimes;
 Supervise financial services licensees in accordance with legislation, regulations and
codes;
 Ensure periodic evaluation of the legislative and regulatory framework in accordance
with developments in the financial services sector;
 Promote best practices, mutual assistance and exchange of information by maintaining
contact and forging relations with foreign regulatory authorities, international
associations of regulatory authority bodies or groups relevant to its functions;
 Facilitate the development of the financial services sector.
Functions of financial system

 Financial system works as an effective conduit for optimum allocation of financial
resources inan economy.
 It helps in establishing a link between the savers and the investors.
 Financial system allows ‘asset-liability transformation’. Banks create claims (liabilities)
against themselves when they accept deposits from customers but also create assets
when they provide loans to clients.
 Economic resources (i.e., funds) are transferred from one party to another through
financialsystem.
 The financial system ensures the efficient functioning of the payment mechanism in
aneconomy. All transactions between the buyers and sellers of goods and services are
effectedsmoothly because of financial system.
 Financial system helps in risk transformation by diversification, as in case of mutual
funds.
 Financial system enhances liquidity of financial claims.
 Financial system helps price discovery of financial assets resulting from the interaction
ofbuyers and sellers. For example, the prices of securities are determined by demand
and supplyforces in the capital market.
 Financial system helps reducing the cost of transactions.
Financial markets play a significant role in economic growth through their role of
allocation capital, monitoring managers, mobilizing of savings and promoting technological
changes among others. Economists had held the view that the development of the financial
sector is a crucial element for stimulating economic growth. Financial development can be
defined as the ability of a financial sector acquire effectively information, enforce contracts,
facilitate transactions and create incentives for the emergence of particular types of financial
contracts, markets and intermediaries, and all should be at a low cost. Financial development
occurs when financial instruments, markets and intermediaries ameliorate through the basis of
information, enforcement and transaction costs, and therefore better provide financial services.
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FINANCIAL SERVICES
The financial functions or services may influence saving and investment decisions of an
economy through capital accumulation and technological innovation and hence economic
growth. Capital accumulation can either be modelled through capital externalities or capital
goods produced using constant returns to scale but without the use of any reproducible factors
to generate steady-state per capita growth. Through capital accumulation, the functions
performed by the financial system affect the steady growth rate thereby influencing the rate of
capital formation. The financial system affects capital accumulation either by altering the
savings rate or by reallocating savings among different capital producing levels. Through
technological innovation, the focus is on the invention of new production processes and goods.
Characteristics of Financial Services

 Financial services are Intangible
 Financial services are customer oriented
 The production and delivery of a service are simultaneous functions therefor are
inseparable
 They are perishable in nature and cannot be stored
 They are dynamic in nature as a financial service varies with the changing requirements
of the customer and the socio-economic environment. - must be dynamic socio
economic changes, disposable income
 They are proactive in nature and help to visualize the expectations of the market.
Financial Services Market

Financial Markets are the institutional arrangements by which savings generated in the
economy are channelized into avenues of investment by industry, business and the government.
It is a market for the creation and exchange of financial assets.
Functions of Financial Market

1. Mobilization of savings and channelizing them into the most productive uses:
 Facilitates transfer of savings from the savers to the investors.
 Financial markets help people to invest their savings in various financial instruments and
earn income and capital appreciation.
 Facilitate mobilization of savings of people and their channelization into the most
productive uses.
2.Facilitate Price Discovery:

 Price of anything depends upon the demand and supply factors.
 Demand and supply of financial assets and securities in financial markets help in
deciding the prices of various financial securities; where business firms represent the
demand and the households represent the supply
3.Provide liquidity to financial assets:

 Financial markets provide liquidity to financial instruments by providing a ready market
for the sale and purchase of financial assets.
 Whenever the investors want, they can invest their savings into long term investments
and whenever they want, they can sell the investments/ instruments and convert them
into cash.
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FINANCIAL SERVICES
4.Reduce the cost of transactions:

 By providing valuable information to buyers and sellers of financial assets, it helps to
saves time, effort and money that would have been spent by them to find each other.
 Also investors can buy/sell securities through brokers who charge a nominal commission
for their services. These way financial markets facilitate transactions at a very low cost.
Problems of Financial Services Sector

Financial industry challenges are largely generational. The late 1800s were marked by
notorious gangs that plundered banks throughout the American Wild West. The 1900s
witnessed women struggling to enter the male-dominated banking industry. And now? Well,
now we have digital banking. The long-held promise of digital technology to transform financial
institutions has not been broken. It just hasn’t been fully kept. The digitization of the financial
industry was supposed to solve problems. And it has. It has also created some new ones in the
process.
Challenges Facing the Financial Services Industry

We will also see how the global financial sector is doubling down on technology to find
the solutions it needs not only to survive, but to thrive in the era of digital finance.
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FINANCIAL SERVICES
1. Cybercrime in Finance
Reports of data breaches by financial services companies:

Data breaches involving financial service firms increased by 480% from 2017 to
2018. With each attack costing financial institutions millions, innovative solutions are
needed if we are to avoid a repeat of the lawless days of the Wild West.
Whatever cybercrime solutions emerge to protect financial services, blockchain
technology must be the foundation Period.
As more and more institutions adopt distributed ledger technology (DLT),
blockchain will become the de facto solution to keeping financial data secure while at rest.
Integrating DLT with existing financial infrastructures poses some serious obstacles that
must be overcome.
2. Regulatory Compliance in Finance:

The ever-changing regulatory environment poses a constant challenge for financial
institutions of all types.
Regtech is an emerging industry that can help ease the burden of compliance. By
using the latest FinTech technologies to address regulatory compliance, RegTechstartups
are bridging the gap between regulators and the financial service industry.
Automated reporting, automated audits, and process streamlining are only a few of
the benefits offered by RegTech applications.
3. Big Data Use in Finance

Big data provides both opportunities and obstacles for financial service providers.
Tapping into social media, consumer databases, and even news feeds can help banks
better serve their customers, while better protecting their own interests.
But sorting through torrents of unstructured data for useful information is no small
undertaking. It requires powerful data analytics technology if institutions are to reap a
benefit.
Fortunately, data analytics solutions are emerging with the potential to transform
asset management, trading, risk management, and other financial services.
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FINANCIAL SERVICES
4. AI Use in Finance
Industry experts believe that AI will transform nearly every aspect of the financial
service industry. Automated wealth management, customer verification, and open banking
all provide opportunities for AI solution providers.
But that’s all been said before. So why should we expect AI to keep that promise
now?
Powerful advances in deep learning technology are paving the way for AI. In fact, if
you have been alerted by your bank of suspicious activity on your account, you have likely
already benefited from AI.
The challenge that financial services face is learning how to benefit from the power
of AI, without being victimized by it. In R&D labs across the world, that question is being
pondered at this very moment.
5. Fintech Disruption of the Financial Service Industry
Penetration of Fintech among the US Financial Sector (a sample of 1300 companies)

Those pesky little FinTech companies that appeared less than a decade ago have
not gone away, as many in the banking industry had hoped. On the contrary. Many have
matured into formidable rivals for customers and the cash they bring to the table.
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FINANCIAL SERVICES
6. Customer Retention in the Financial Services Industry

Competition for financial service clients has never been fiercer. While brand loyalty
may not be dead, it is definitely on life support.
What matters to most customers in 2019 is greater personalization, more automated

services, and easier access to services. Institutions that can deliver all three will capture
their share of the market.
Key to not losing the battle is recognizing that customers are less concerned with
brand familiarity than getting the services they want. Providing customers those services is
key to client retention.
7. Employee Retention in the Financial Service Industry

Today’s financial service companies not only find it difficult to attract customers,
but they are also finding it difficult to attract employees.
A lack of qualified talent to fill new IT roles, and a millennial workforce that shuns
long-term employment, are leading factors in finding good help.
Institutions that want to attract and retain a qualified workforce must change their
philosophy. No longer is it enough to offer good pay and benefits; workers now expect
employers to nurture a culture that is accommodating to the values and lifestyles of the
employee.
Change is necessary if stable and qualified workforces are to be achieved. But don’t
expect it to come easy.
8. Blockchain Integration in Finance

Blockchain is a key component in the battle against cybercrime. But data security is
not the only application for blockchains in the financial sector.
Far from it, cases across the globe are already proving the value of blockchain in a
wide variety of banking and investment applications. From solving challenges faced by
investment banks to helping customers make safer payment transactions, the list is
growing daily.
Having said that, industry-wide adoption of blockchain is unlikely to occur until we

reach a tipping point in the maturity of the technology. When that will happen is anyone’s
guess.
9. Customer Experience in the Financial Services Industry

cx isn’t just a buzzword, it is one of the most important issues facing firms in the
financial services industry.
Banking customers, today, expect banking to be mobile, with a la carte services, and
they don’t care if the bank is a FinTech no one ever heard of.
Changing old-age traditions will take time and money, but mostly open mindedness.
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FINANCIAL SERVICES
10. Crossing the Digital Divide in Financial Services Marketing

Success in the era of digital banking means more than having a mobile app. It
means digitizing your entire brand. How do you do that? You shift your advertising
campaigns from conventional ad media to digital channels. Which is another way of saying
you reach your target audience where they are today, rather than where they were
yesterday.
Of course, social media exposure is necessary, but you need more than a Facebook
ad. You must tap big data and AI to help locate potential customers, and to deliver
customized offers in real time.
Growth of financial services in India

The present growth rate of financial sector in India is about 8.5% p.a. An increase in
growth rate is equivalent to growth of our economy. Over the past few years, there have
been reforms in monetary policies, economicpolicies, opening up of financial markets,
development of other financial sectors etc. In present times, a wide variety of financial
products and services are offered to consumers to keep them satisfied. The Reserve Bank
of India has also played a major role to help in growth of financial sector of India.
The diversified financial sector of India comprises of banks, mutual funds,insurance

companies,pension funds etc. Do you know that the banking sector in India holds more
than 60% of the total financial assets of the country. Atpresent, India is without any doubts
one of the world’s most vibrant capital market.Let’s take a look at growth of some of the
financial sectors of India one by one.
Growth of the banking sector

Being one of the most extensive,the entire Indian banking system has a total asset
value of approximately US$ 270 billion with total deposits being around US$ 220 billion.
The banking system in India is continuously advancing and transformingitself. The current
development of Core banking,Internet banking etc. has made banking operations easy and
customer friendly.
Growth of the Capital Market in India

The capital markets in India have also witnessed changes.Some of them are-
1. Stock exchanges facing privatisation.
2. Removal of ill-used forward trading mechanism
3. In order to serve different investors in different locations,the introduction of
InfoTech systems in National Stock Exchange.
4. The increase in the ratio of transaction with deposit system and share ratio.
Growth in the Insurance sector in India

1. The market potential in India is immense. But it is untapped. So now in order to
utilise thisopportunity, both foreign and Indian private players are providing tailor
made products with opening of the market.
2. Because of huge competition and entry of new players, the insurance sector has
also witnessed innovations like innovative insurance based products, services and
value etc.
3. Many foreign companies like New York Life,Aviva,Standard Life have also entered
this sector.
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FINANCIAL SERVICES
4. Now a days,the insurance companies are engaged in aggressive marketing,selling

and distribution techniques because of the extreme competition that they face
from each other.
5. The credit for the development of this sector also goes to the active part of the
regulatory body –Insurance Regulatory and Development Authority.
Growth of the Venture Capital market in India

1. In spite of the hindrances by the external setup, the venture capital sector in India is
a very active financial sector.
2. In India,currently,there are around 2 international and 34 national venture capital
funds registered by SEBI.
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FINANCIAL SERVICES
UNIT - II
FUND BASED FINANCIAL SERVICES
It refers to services that are used to acquire assets or funds for a customer.
Following are some of the examples of financial services:
Leasing, credit card services, factoring, portfolio management, financial consultancy

services, Underwriting, discounting and rediscounting of bills, Depository services, housing
finance, Hire purchases, Mutual Fund management.
Non- Fund Based Financial Services

This would help them to increase their revenue while optimizing the use of funds
and would help to spread their risk over variety of activities. The non-fund based financial
services of the public sector banks include loan syndication, consultancy and advisory
services, capital issue management etc. The public sector banks have been marketing all
the non-fund based financial services either directly by starting merchant banking division
or by indirectly floating their subsidiary companies or both.
Leasing
A “lease” is defined as a contract between a lessor and a lessee for the hire of a
specific asset for a specific period on payment of specified rentals.
FORMS OF LEASE FINANCING

Broadly speaking lease financing can take six different forms. They are as follows:
We shall now briefly discuss the characteristic features of these doof lease financing.
1. Sale and Lease Back

Under this method, a company owning an asset sells it to another party and leases
it back. Thus, the seller gives up the title to the asset hu retains its use. The main advantage
of this kind of arrangement to the company that sells and then leases back is that it
receives cash from the sale of the asset, which could be reinvested in the business while
still making economic use of the asset during the lease period. This method of leasing is
mostly found in real estate financing.
The structure of this arrangement is analogous to a mortgage on the asset taken

out by the lessee. Rather than making a series of payments that amortized the lessor's
acquisition costs and provide the lessor with a required return. By entering into this type of
arrangement, the lessee firm can free the capital originally invested in the equipment.
2. Direct Leasing
In contrast with the sale and lease back arrangement under direct leasing the
company acquires the right to use the property that it did not previously own. Direct
leasing may be arranged either through the manufacturer or the financial institutions.
Independent leasing companies or financial institutions usually enter into the business of
acquiring assets like machinery etc. for their clients who are in need of certain assets for
their business purpose. Once the leasing company owns the property, a direct lease is
arranged under usual terms and conditions. It may be categorised into two based on the
number of parties involved namely,
 Bipartite Lease, and
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 Tripartite Lease.
In bipartite lease, only two parties are involved namely, equipment supplier, and
lessor & lessee. It acts like an operating lease with upgradation, improvement of the
equipment etc. Whereas tripartite lease involves three different parties namely, the
equipment supplier, the lessor, and the lessee. Most of the equipment lease transactions
to under this category. This form of lease has recourse to the supplier case of default by
the lessee, either to buy back the equipment from the lessor on default or providing a
guarantee on behalf of lessee.
3. Operating Leasing
Operating lease may be defined as "any lease other than a finance Under operating
lease, the lessor maintains and services leased equipment. Here, the term of the lease
contract may be less the economic life of the asset. Therefore, the cost of the
equipmentWould not be fully amortised, and the lessor would subsequently lend the asset
to other users.
In this method, the lease facility is provided on a period to period basis. In this type
of leasing, no long-term obligation is Imposed either on the lessor or on the lessee and the
agreement is cancellable at the option of either the owner or the user of the asset after
giving a certain stipulated notice. This type of lease may be written off on a month-to-
month basis without any specified expiration period. This, operating leases allow lessees to
combat technological obsolescence that may affect computers and other equipment’s.
The lessor usually provides the operating know-how, supplies the related services
and undertakes the responsibility of insuring and training the equipment. This kind of
operating lease is known as “wet lease”Sometimes, the lessee bears the cost of insuring
and obtaining the leased equipment. In such case it is called "Dry Lease"In our country,
operating leases are not very popular.
4. Service Leasing
Service leasing provides for the maintenance of the equipment and performances
of all routine servicing and repairs. The lessor generally meets these expenses and cost of
this maintenance is built into the lease payments. In contrast to this, non-maintenance
lease places the burden of maintenance and repairs on the lessee.
5. Financial Leasing
Operating lease, as we all know is a cancellable contract i.e.cancellable at the
option of either party. Financial leasing, on the other hand, is a non-cancellable contract.
Non-cancellability implies that the lessee is legally obliged to make all the lease payments
regardless of whether he continues to use the asset or not. He should pay off the entire
contract amount before he cancels the contract.
Financial lease transfers a substantial part of the risks and rewards associated with
ownership from the lessor to the lessee. Here the lessor enters the transaction as a
financier and buys the equipment from the supplier for the use of lessee. In practice, the
lessee will usually write the identification for the equipment and liaise with the seller to
ensure that is supplied meets those specifications. However, the lessee does note the
owner. The primary rental period is designed to correspond he working life of the asset. At
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FINANCIAL SERVICES
the end of the lease period, the lessee has the option to contract for a second period for a
nominal rent, or return the asset to the le e asset to the lessor or sell the asset as the
lessor's agent. The regulations glasses preclude there being any intention in the leasing
agreement that the lessee should at any time become the owner of the asset.
As far as repairs and servicing are concerned, in a financial lease, the lessor is
separate from the suppler of the asset. Though the leasing company becomes the true
owner of the asset, its real interest is in providing the finance. The leasing agreement will
invariably make the responsible for maintaining and repairing the equipment,
Characteristics of a Financial Lease

The following are the characteristics of a financial lease:
 The lessee selects the equipment
 The lessor is the legal owner and the lessee has no restroom to purchase the
assetat the time the lease is signed
 The lessee has the right to use the assets provided rentals are paid
 A non-cancellable primary period during which rentals should amortized capital cost
of asset and give the lessor his profit k essential.
 The lessee bears the burden of obsolescence.
 Generally industrial and commercial customers are involved,
 The lessee is responsible for maintenance and repair.
 The lessee is responsible for suitability and condition.
 Options on the expiry period do not include an option to purchase
 In India, leases are generally structured like financial lease only.
6. Leveraged Leasing
In leveraged leasing, the lessee contracts to make periodic payments during the
lease period and in return, he is entitled to the use of the asset over that period of time.
The lessor owns property but acquires it partly by contributing his own funds and partly by
taking loans from the financial institutions. The financial institutions usually provide loan
against the mortgage on the asset as well as by the assignment of the lease and lease
payments. Thus, the lessor is the owner as well as the borrower. This method is similar to
our popular instalment purchase system
Besides the above, there are arrangements such as the "Sales-aid Lease" involving a
tie-up between a manufacturer and a lessor for mu benefit. In case of sales-aid lease, the
lessor gains by way of commission and/or credit from the manufacturer. A "Cross-border
Lease transcends national boundaries, and a "Big-ticket Lease" is one w very large
transaction value.
Features of Lease Contract:

The important features of lease contract are as follows:
1. The lease finance is a contract.
2. The parties to contract are lessor and lessee.
3. Equipment are bought by lessor at the request of lessee.
4. The lease contract specifies the period of contract.
5. The lessee uses these equipment’s.
6. The lessee, in consideration, pays the lease rentals to the lessor.
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7. The lessor is the owner of the assets and is entitled to the benefit of depreciation
and other allied benefits e.g., under sections 32A and 32B of the Income-tax Act.
8. The lessee claims the rentals as expenses chargeable to his income.
Hire Purchase:
Hire purchase means a transaction where goods are purchased and sold on the terms that:
i. Payment will be made in instalments,
ii. The possession of the goods is given to the buyer immediately,
iii. The property (ownership) in the goods remains with the vendor till the last
instalment is paid,
iv. The seller can repossess the goods in case of default in payment of any instalment,
and
v. Each instalment is treated as hire charges till the last instalment is paid.
Features of Hire Purchase:

The main features of a hire purchase agreement are as below:
1. The payment is to be made by the hirer (buyer) to the hiree, usually the vendor,
in instalments over a specified period of time.
2. The possession of the goods is transferred to the buyer immediately.
3. The property in the goods remains with the vendor (hiree) till the last instalment
is paid. The ownership passes to the buyer (hirer) when he pays all instalments.
4. The Hire or the vendor can repossess the goods in case of default and treat the
amount received by way of instalments as hire charged for that period.
5. The instalments in hire purchase include interest as well as repayments of
principal.
6. Usually, the hire charges interest on flat rate.
Guidelines for Hire Purchase

 Must be in writing and signed by both the parties
 It must contain description of goods
 Price of Hire Purchase
 The date of commencement of agreement
 The number of instalments, amount & due date.
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FINANCIAL SERVICES
UNIT - III
MEANING OF MUTUAL FUNDS
A mutual fund is a corporation, which receive funds from investors and deploy the
same in equities, long-term bonds and money market etc.
It represents pooled savings of numerous investors invested by professional fund

managers in diversified portfolio to obtain maximum return on the investments made with
minimum risk to the investors. Thus the fund collected is deployed in diversified portfolio.
They have in their pool professional investment analysts who try to maximise the return on
behalf of investors keeping in mind the likely risk involved in the whole exercise.
Hence a mutual fund is the most suitable form of investment for the common
person because it offers an opportunity to invest in a diversified, and professionally
managed portfolio at a relatively low cost. So anybody with an investible surplus of a few
thousand rupees can invest in mutual funds. Each mutual fund scheme has a defined
investment objective and strategy. Investors can select fund, which they found suitable to
the objective and invest so as to reap a maximum benefit out of it.
TYPES OF MUTUAL FUNDS

Mutual funds can be broadly classified into two categories such as:
 On the basis of Operation and Execution.
 On the basis of Investment Objectives of Investors.
 We shall now detail them briefly.
1.On the basis of Operation and Execution

On the basis of operation and execution of mutual funds, it can be classified into two
namely,
 Open-end Funds, and
 Closed-end Funds.
1.Open-end Funds:
Open-end fund is a mutual fund, which continuously issue new shares or units to
meet the demand of the investors.At the same time, it redeems shares for those who want
to sell. Hence, there is no limit on the number of shares that can be issued. In fact, the
number of shares outstanding keeps changing due to the continuous influx and exit of
investors. On account of the constant changes in the aggregate portfolio value and the
number of shares, the Net Asset Value keeps changing The purchase and sale prices for
redeeming or selling shares are set at or around the net asset value.
2.Close-end Funds:
Closed-end fund is a scheme of an investment company in which a fixed number of
shares are issued. The funds so mobilised are invested in a variety of vehicles including
shares and debentures, to achieve the stated objective. Capital appreciation for a Growth
Fund or current income for an Income Fund can be cited as examples for this type of
mutual fund. After the issue, investors may buy shares of the fund from the secondary
market. The value of these shares depends on the Net Asset Value of the fund, as well as
supply and demand or the fund's shares. Examples are Master Share and India Ratna.
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2.On the basis of Investment Objectives of Investors

Based on the investment objectives of investors, mutual funds can be classified into
five types. They are:
1. Share Fund:
Share funds are normally invested in shares. They e hot invested in fixed income
earning securities like bonds etc. Such funds can again be classified into four types as
shown below:
1) Aggress Aggressive Growth Funds:
This type of funds is willing and ready to assume greater risk with an idea of getting
huge profit on the investment made. Current income is not at all considered here. So such
funds are invested only in securities, which are subject to frequent pricefluctuations.
2) Growth Funds:
These funds are also ready to assume risk but at a limited level. The basic objective
of this type of fund is to get reasonable long-term capital appreciation. Hence, they invest
their funds only in companies, which have sound capital structure.
3) Current Income Funds:

In this type, funds are invested only in securities, which have a greater scope to get
high current income. Hence, such funds maintain the portfolio, which has permanent
income
4) Growth and Income Funds:

This type of funds combines the merits of growth funds and income funds. They
maintain their portfolio i such a manner to get fixed dividend as well as capital appreciation
2.Dualpurpose funds:
These funds have twin objectives namely (i) Current income, and (ii) Capital
appreciation. They issue their sha in two types such as Capital Shares and Income Shares.
Those invest in income shares will receive only a share of net profit of the fundwhereas
those who invest in capital funds get only capital appreciation and they will receive no
dividend. Here the unit holders will be assumed of only minimum dividend.
3. Balanced Fund:
Balanced fund is a mutual fund whose objective is to eam a mix of periodic income
and capital appreciation for its investors.The General Insurance Corporation (GIC) Balanced
Fund and Centurion Prudence Fund are examples of this type of fund.
4. Money Market Fund (MMF):

Money market fund is a mutual fund, which invests in money market securities like
Treasury Bills and Commercial Paper. In India, the Guidelines for setting up Money Market
Mutual Funds Are spelt out by the Reserve Bank of India (RBI) in April 1992. Even then the
response was indifferent owing to certain rigidities in the scheme. Consequently, in
November 1995, the RBI introduced the following relaxations:
1. The private sector has been permitted to set up MMFS. Before this relaxation,
only scheduled commercial banks and public financial institutions were allowed
to set up mutual funds.
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2. There will be no ceiling as regards the size of MMFS.

3. Limits on investments in individual instruments by the funds have been removed
except in the case of commercial paper.
In April 1996, the RBI further announced that MMFS might i5sue units to corporate
too. RBI will provide liquidity support to those funds,which are dedicated to Government
Securities.
In a period of rising short-term interest rates, money market funds av become an attractive
investment alternative and could even the ff disintermediation from yield savings deposits
with banks.
5. Specialised Funds:
Specialised fund is a mutual fund, which focuses on a particular industry or on
companies in a specific geographical region. For instance, a mutual fund may be promoted
to cater to investors interested in Chemical Industry, or in companies located in a rapidly
developing country. Some funds may concentrate on a particular type of security such as
Convertible Debentures. In February 1994, Canbank Mutual Fund floated a unique fund
called, Canexpo invest mainly in export-oriented businesses. Similarly, ICICI Power, another
mutual fund will focus on the infrastructure sector including power and telecom.
Besides the above, there is another mutual fund which has been recently
introduced viz., Off Shore Mutual Funds. Such funds received their predetermined corpus
fund in foreign currency and bring them to India for portfolio investment. For e.g., UTI's off
shore funds, India Fund, India Growth Fund etc.
ADVANTAGES TO AN INVESTOR IN MUTUAL FUND

Mutual Funds offer numerous benefits to investors, which are as below:
1. Since the shares/units of mutual fund are traded on stock exchange, they are
encashable on any day. So it offers liquidity to its units.
2. The worries of investment complexities are taken care of by mutual fund.
Individual investor need not bother about it.
3. Different tax benefits are available to investors in mutual funds.
4. Since the total funds available to mutual fund are substantially greater than
available to a particular investor, the mutual funds can judicially deploy the huge
fund to a grater extent for the sake of the individual investor.
5. Because of different regulations of SEBI, the RBI and Government on mutual
funds, the funds are in safe hands.
6. The continuous return from investment in mutual fund is automatically
reinvested on behalf of investors.
7. It induces saving habit.
DISADVANTAGES OF MUTUAL FUNDS

Mutual funds suffer from various risks. They are as follows:
1. Market Risk:
Market risk arises out of fluctuations in the market value of securities. It may lead
to a loss of principal. The market value of shares, debentures etc. fluctuates due to various
factors such as demand for and supply of securities, quantum of money supply, economic
policy, political conditions etc. So it cannot be avoided in its entirety. Howeverit can be
minimised by diversifying among a variety of securities rather than investing in one or two
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securities. This is because, when one stock is adversely affected another stock may do well
or less affected. That is why mutual funds invest their money in many companies.
2. Interest Rate Risk:

The value of a fixed income security like debentures, bonds etc. depends upon the
rates of interest prevailing in the market. If the interest rates rise, the value of the security
will fall and vice versa. This risk also cannot be avoided.
3. Inflation Risk:
The return on investments does not change proportionately with the change in
consumer prices. It is what is called inflation risk. This risk also cannot be avoided. However,
it can be managed by investing a portion of its fund in equity shares, which always provide
for higher return as compared to debt instruments.
4. Business Risk:
Business risk is associated with the financial soundness, proper management etc of
the business. If any business is poorly managed, it denotes that it is not financially sound.
Such companies value of securities will fall automatically in the market. This kind of risk
also can be avoided by diversifying the portfolio of mutual funds.
5. Credit Risk:
Sometimes the issuer of fixed income security fails to pay interest or principal when
it becomes due Such risk is called as credit risk. Normally, this kind of risk arises due to the
mismanagement, dissolution etc. of the company. In order to avoid this kind of risk, mutual
funds should get the ratings of reliable credit rating agency. The companies with high rating
only should be selected for investments
6. Political Risk:
Political risk refers to the change in the market value of a security due to political
events like war, change in law, change in Government etc. This risk cannot be avoided.
However, diversification to a certain extent will help to minimise it.
7. Liquidity Risk:
Liquidity risk is associated with the marketability of the securities. Mutual funds
have different schemes each one has its own time for exiting the market. So, mutual funds
cannot enter and exit the market as they like, which affects the marketability of their
investmentsThis risk cannot be avoided
8. Timing Risk:
Each investment is to be properly timed Wrong timing of buying and selling the
securities will naturally lead to a loss should be avoided. Otherwise, iaats very purpose will
be defeated. Expertsin mutual funds schemes should study the market situation and find
out whether climate in the market is suitable for purchase/sale and decide accordingly.
Benefits of mutual funds

1.Simplicity: Mutual Funds Are Easy to Understand
Because of their simplicity, mutual funds require no experience or knowledge of
economics, financial statements, or financial markets to be a successful investor.
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For beginners, here is a simple definition of Mutual Funds. A mutual fund is an

investment security type that enables investors to pool their money together into one
professionally managed investment. Mutual funds can invest in stocks, bonds, cash and/or
other assets. These underlying security types, called holdings combine to form one mutual
fund, also called a portfolio1 .
For a simple definition, mutual funds can be considered baskets of investments.

Each basket holds dozens or hundreds of security types, such as stocks or bonds. Therefore,
when an investor buys a mutual fund, they are buying a basket of investment securities.
Simple!
Yes, there are many things to know about mutual funds but compared to the broad
world of financial products, mutual funds are quite easy to use and understand.
2. Accessibility: Mutual Funds Are Easy to Buy

Mutual funds are offered at brokerage firms, discount brokers online, mutual fund
companies, banks, and insurance companies. Even beginning investors can easily open an
account at a no-load mutual fund company, such as Vanguard Investments, and open an
account within minutes2 .
3. Diversification: Mutual Funds Have Broad Market Exposure

One mutual fund can invest in dozens, hundreds, or even thousands of different
investment securities, making it possible to achieve diversification by investing in just one
fund. However, it is smart to diversify into several different mutual funds.
4. Variety: Mutual Funds Come in Many Different Categories and Types

As you grow your portfolio of mutual funds, you will want to diversify into
various mutual fund categories and types. You can invest in mutual funds that cover the
main asset classes (stocks, bonds, cash) and various sub-categories or you can even
venture into specialized areas, such as sector funds or precious metals funds.
5. Affordability: Mutual Funds Have Low Minimums

Most mutual funds have minimum initial investment requirements of $3,000 or less.
In many cases, if the investor initiates a systematic investment program, the initial
investment may be much lower. Some minimums can be as low as $100. Subsequent
investments may be lower than $100. If you invest through a 401(k) plan or other
employer-sponsored retirement plan, there is no minimum to get started1 .
6.Low Expense: Mutual Funds Can Cost Less to Manage Than Other Portfolio Types
Costs as a percentage of assets in the portfolio may be lower for an actively-
managed mutual fund when compared to an actively-managed portfolio of individual
securities. When you add up transaction costs, annual fees paid to a brokerage firm, and
the cost for research tools or investment advice, mutual funds are often less expensive
than the typical portfolio of stocks.
7. Professional Management: Mutual Funds Have a Team of Professionals Researching

and Analyzing Investments So You Don't Have To!
Perhaps the greatest benefit of mutual funds is that investors can save countless
hours of time, energy and frustration involved with the research and analysis required to
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find quality investments to hold in a portfolio. That's not to speak of the skill, desire and
patience required to do a job well in any professional pursuit. Mutual funds enable
investors to do more of the things in life they enjoy rather than spending time and energy
on investment matters1 .
8. Flexibility: Mutual Funds Have Several Uses and Applications

All of the above benefits of mutual funds overlap into simplicity and flexibility. You
can invest in just one fund or invest in a wide variety. Automatic deposit, systematic
withdrawal, 401(k) plans, annuity sub-accounts, dividends, short-term savings, long-term
savings, and nearly limitless investment strategies make mutual funds the best overall
investment type for both beginners and advanced investors.
Regulations of Mutual Fund

 For a mutual fund, the AMC set up should consist of 50% independent directors, a
separate board of trustees’ company with 50% independent trustees and
independent custodians so that some distance can be managed between fund
managers, custodians, and trustees.
 As AMC manages the funds and trustees hold the custody of all the assets. A
balance must be maintained between them so that both can keep a check on each
other.
 SEBI takes care of the Sponsor, financial soundness of the fund and probity of the
business while granting permission.
 Mutual funds must adhere to the principles of advertisement.
 In the case of an open-ended scheme and closed-ended scheme, the minimum of
50 crores and 20 crores corpus is required as per the guidelines of SEBI.
 A mutual fund should invest the money raised for these savings schemes within 9
months.
 By this, the funds do not get invested in bullish markets and suffering from poor
NAV also reduces.
 The maximum amount that a mutual fund can invest in the money market is 25% in
the first 6 months after closing the funds and 15%of the corpus after six months so
that short-term liquidity requirements can be met.
 SEBI checks mutual funds every year in order to make it in compliance with the
regulations and guidelines.
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UNIT - IV
FACTORING
MEANING AND DEFINITION OF FACTORING
Factoring is a specialised 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 bears the risk of bad debt losses. It is
also termed as "Invoice Factoring” as factoring covers only those receivables, which are not
supported by negotiable instruments namely, bills. In case of receivables backed by bills,
the firm resorts to the practice of bill discounting bankers. with its banker. With the
factoring of receivables, the client dispenses away the credit department and the debtors
of the firm become the debtors of the factor.
MECHANICS OF FACTORING
The factoring arrangement starts when the seller (client) concludes an agreement
with the factor, wherein the limits, charges and other terms and conditions are mutually
agreed upon. Then the client will pass on all credit sales to the factor. When the customer
places the order and the client delivers the goods along with invoices to the customer, the
client sells the customer’s account to the factor and also informs the customer that
payment has to be made to the factor. A copy of the invoice is also sent to the factor. The
factor purchases the invoices and makes prepayment, generally up to 80% of the invoice
amount. The factor sends monthly statement showing outstanding balance to the
customer, copy of which are also sent to the client. The factor also carries follow-up if the
customer does not pay by the due date. Once the customer makes payment to the factor,
the balance amount due to the client is paid by the factor.
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The factoring process is explained in Fig. 11.2.
TYPES OF FACTORING:
Factoring can be classified into many types. This section covers various forms of factoring
1. Recourse Factoring
Under recourse factoring, the factor purchases the receivables on the condition
that any loss arising out of irrecoverable receivables will be borne by the client. In other
words, the factor has recourse to the cli if the receivables purchased turn out to be
irrecoverable. Thus, type of factoring if any debt is not paid by the debtor on maturity, the
factor can recover his dues from the seller (client) and the debt is reassigned back to the
seller (client). Factoring agencies usually begin with this kind of facility and only after some
stabilisation is reached, they convert their venture into full-service factoring which is of
without recourse type.
2.Non-Recourse or Full Factoring

This is the most comprehensive and classical form of factoring. As the name implies,
in this type of factoring, the factor has no recourse to the client if the receivables are not
recovered in. the client gets total credit protection. Under this factoring, all the
components of service viz., short-term finance, administration of sales ledger and credit
protection are available to the client. It includes all types of facilities including credit
protection. The factor buys all approved debts without recourse to the client and even if
payment of a debt is not forthcoming, he bears the loss himself
In full factoring, the factor takes the responsibility for all aspects of this part of the
firm's business. By this arrangement the factor relieves the client from the administrative
burden of looking after receivables and purchases the debt without recourse and thereby
shoulders the risk payment may not be made. As the factor is assuming the credit risk,
Lakes the responsibility for credit control, assesses the credit risk a decides what amount of
credit will be allowed to individual customers establishing credit intelligence for this
purpose. Thus it is considered high risk factors Thus the factor has to closely examine the
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financial viability of each debtor of his client before entering into such an agreement It also
takes over administration of a client's sales ledger, chases debtor and evaluates credit risks.
Recourse Factoring and Non-Recourse Factoring:

The recourse factoring and non-recourse factoring differ only respect i.e. who bears
the risk of loss in the event of risk of default or delayed collection. In recourse factoring, it
is the client who carries the credit risk of the debts sold to the factor. On the other hand, in
a non- recourse factoring, the client sells the debts on the condition that in the risk of
default or delayed collection, factor has to bear the loss and financial burden cannot be
shifted to the client.
3. Maturity Factoring
Under this type of factoring arrangement, the factor does not make any advance or
prepayment. The factor pays the client either on a guaranteed payment date or on the
date of collection from the customer. This is opposed to "Advance Factoring" where the
factor makes prepayment of around 80% of the invoice value to the client. Here he
provides only administrative services.
In this type of factoring, factor normally performs the following services:

1. Monitoring and maintaining the sales ledger,
2. Issuing and despatching invoices, and
3. Collecting debts on due date.
The factor relieves the client from the following activities:

1. Sending out invoices,
2. Keeping a record of the amount owing to it by the customers
3. Making sure that the customers pay the client by the date and should payment
be not received, and
4. Reminding them or even in some cases taking action to recover the debt. This is
non-credit aspect of the service.
Thus, factor frees the client from maintaining an accounting section Due to
economies of scale the factor offers this service very efficiently and quite possibly more
cheaply than the client could achieve. Management can devote most of its time for more
important tasks. Resides there could be substantial savings from speedy collection of debts.
Hence, small and medium-sized companies are able to enjoy professionalism in the
management of their debts far beyond that which they might otherwise achieve from their
own resources.
4. Invoice Discounting
Strictly speaking, this is not a form of factoring because it does not carry the service
elements of factoring. Under this arrangement, the factor provides a pre-payment to the
client against the purchase of accounts receivable and collects interest (service charges) for
the period extending from the date of collection. The client carries out the sales ledger
administration and collection. This service provides the seller (client) with cash in exchange
for receivables. In this factoring, the debtor customer) is not aware that the seller (client) is
availing any factoring facility and hence this is also called "Confidential Discounting" Here,
the utilisation of factoring service is not disclosed to the customer unless or until there is a
breach of agreement on the part of the client or where the factor feels that he is at a risk
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5. Credit Insurance
In credit insurance, the factor takes over responsibility for the company's debts and
so removes any risk of loss for the company. The company ends up with just one debt
owing to it as the factor buys the debts from it, paying the company when the customers
pay the debts The factor is able to take on the risks of the debts because through his
specialist knowledge and experience, he can assess the risks better the company. The
factor will also set a limit to customers' credit and a not take on any debts he considers to
be bad ones.
6. Finance Provision or Advance Factoring

Using this arrangement, the factor will agree to buy the debts of the company, and
at the same time will advance up to 80% of their value to the company - the remainder
(minus interest) being paid when the debts are collected. In this way the company is able
to improve its cash position immediately.
7. Export Factoring
This is designed to help reduce the risks of overseas trading and to ensure that the
supplier receives payment for his goods quickly. Usually the factor not only pays the
supplier when the goods are shipped, being paid in turn by the purchaser eventually, but
also deals with export duties, Local tariffs and so on-being able to use his expert knowledge
of the local markets and conditions to help the exporting company considerably.
8. Disclosed and Undisclosed Factoring

In the case of disclosed factoring, the name of the factor is disclosed to the
customer by indicating the same in the invoice sent by the supplier (client) to the customer.
The client directs the customers to make payment to the factor. The risk of default in
payment rests with the supplier and hence it is a form of recourse factoring Sometimes this
kind of factoring is done as non-recourse in part by specifying the limit with which factor
should act on non-recourse basis
In the case of undisclosed factoring, the name of the factor is disclosed to the client.
The maintenance of sales ledger is done by the tractor but all dealings with customers as to
collection of debt are done in the seller (client). However, the control of credit sales by
sales administration and management of credit risk is provided by the factor.
9. Bank Participation
Factoring In this method, bank creates floating charge on the amount payable by a
factor for client's receivables. Then based on that, the bank gives loan to the client. Besides,
it provides a chance to get double finance also to the client.
10. Supplier Guarantee Factoring
This type of factoring arises when the client acts as an intermediary between the
supplier and the customer.The factor guarantees the supplier against the invoices raised by
supplier on the client. Then client writes receivables on the customer and assigns the same
to factor itself. This helps the client to get full profit without any financial problem.
11. Cross-border Factoring or International Factoring

There are four parties in each transaction in a cross-border factoring. They are - an
exporter, an export factor, an import factor and an importer. In a cross-border factoring,
the exporter enters into an agreement with the export factor in his country and assigns him
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export receivables as and when they arise. Here payments for factored debts are made in a
similar manner as in the case of domestic factoring. The export factor enters into an
agreement with the factor in the country in which the import factor resides and enters into
a contract with him assigning him the tasks of credit checking, sales ledgering and
collection, for payment of a stipulated fee.
Features of Factoring:
The features of factoring have been explained below:
1. It is very costly.
2. In factoring there are three parties: The seller, the debtor and the factor.
3. It helps to generate an immediate inflow of cash.
4. Here the full liability of debtor has been assumed by the factor.
5. Factor has the right to take any legal action required to recover the debts.
Functions of Factor:
A factor performs a number of functions for his client.
These functions are:

1. Maintenance of Sales Ledger:
A factor maintains sales ledger for his client firm. An invoice is sent by the client to
the customer, a copy of which is marked to the factor. The client need not maintain
individual sales ledgers for his customers.
On the basis of the sales ledger, the factor reports to the client about the current
status of his receivables, as also receipt of payments from the customers and as part of a
package, may generate other useful information. With the help of these reports, the client
firm can review its credit and collection policies more effectively.
2. Collection of Accounts Receivables:

Under factoring arrangement, a factor undertakes the responsibility of collecting
the receivables for his client. Thus, the client firm is relieved of the rigours of collecting
debts and is thereby enabled to concentrate on improving the purchase, production,
marketing and other managerial aspects of the business.
With the help of trained manpower backed by infrastructural facilities a factor

systematically undertakes follow up measure and makes timely demand in the debtors to
pay amounts. Normally, debtors are more responsive to demands or reminders from a
factor as they would not like to go down in the esteem of credit institution as a factor.
3. Credit Control and Credit Protection:

Another useful service rendered by a factor is credit control and protection. As a
factor maintains extensive information records (generally computerized) about the
financial standing and credit rating of individual customers and their track record of
payments, he is able to advise its client on whether to extend credit to a buyer or not and if
it is to be extended the amount of the credit and the period there-for.
Further, the factor establishes credit limits for individual customers indicating the
extent to which he is prepared to accept the client’s receivables on such customers without
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recourse to the client. This specialised service of a factor assists clients to handle a far
greater volume of business with confidence than would have been possible otherwise.
In addition, factor provides credit protection to his client by purchasing without

recourse to him every debt of approved customers (within the stipulated credit limit) and
assumes the risk of default in payment by customers only in case of customers’ financial
inability to pay.
4. Advisory Functions:
At times, factors render certain advisory services to their clients. Thus, as a credit
specialist a factor undertakes comprehensive studies of economic conditions and trends
and thus is in a position to advise its clients of impending developments in their respective
industries.
Many factors employ individuals with extensive manufacturing experience who can
even advise on work load analysis, machinery replacement programmes and other
technical aspects of a client’s business.
Factors also help their clients in choosing suitable sales agents/seasoned personnel
because of their close relationship with various individuals and non-factored organizations.
Thus, as a financial system combining all the related services, factoring offers a
distinct solution to the problems posed by working capital tied in trade debts.
RBI's Guidelines on Factoring

To govern the conduct of factoring business by banking companies the RBI
amended the Banking companies Act 1949 and issued the Guidelines in 1990 to enable the
banking companies to undertake factoring business in India.
The guidelines issued by it are as below:

1. At present, banks shall not involve directly in factoring business
2. They may invest in shares of other factoring companies within the specified limit
with the prior permission of the RBI. They shall not act as promoters of such
companies. With the prior approval of the RBI banks may set up separate
subsidiaries to invest in factoring companies
3. A factoring subsidiary or joint venture factoring company may undertake
factoring business and such other activities as are incidental thereto.
4. Investment of a bank in the shares of factoring companies (inclusive of its
subsidiary carrying on factoring business) shall not in the aggregate exceed 10%
of the paid up capital and reserves of the bank.
5. Any application to be made to the RBI for setting up of the subsidiaries of the
joint venture factoring companies in India shall require prior clearance of the
Reserve Bank of India.
6. Banks, which are setting up subsidiaries of investing in joint venture factoring
companies for the purpose of carrying on factoring business should furnish such
information in such form and at sunset time as the RBI may require from time to
time.
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Forfeiting
The terms forfeiting is originated from an old French word ‘forfait’, which means to
surrender ones right on something to someone else. In international trade, forfeiting may
be defined as the purchasing of an exporter’s receivables at a discount price by paying cash.
By buying these receivables, the forfeiter frees the exporter from credit and the risk of not
receiving the payment from the importer.
Role of Forfeiting in International Trade

The exporter and importer negotiate according to the proposed export sales
contract. Then the exporter approaches the forfeiter to ascertain the terms of forfeiting.
After collecting the details about the importer, and other necessary documents, forfeiter
estimates riskinvolved in it and then quotes the discount rate.
The exporter then quotes a contract price to the overseas buyer by loading the
discount rate and commitment fee on the sales price of the goods to be exported and sign
a contract with the forfeiter. Export takes place against documents guaranteed by the
importer’s bank and discounts the bill with the forfeiter and presents the same to the
importer for payment on due date.
Documentary Requirements
In case of Indian exporters availing forfeiting facility, the forfeiting transaction is to
be reflected in the following documents associated with an export transaction in the
manner suggested below:
Invoice:
Forfeiting discount, commitment fees, etc. needs not be shown separately instead,
these could be built into the FOB price, stated on the invoice.
Shipping Bill and GR form:

Details of the forfeiting costs are to be included along with the other details, such
FOB price, commission insurance, normally included in the "Analysis of Export Value "on
the shipping bill. The claim for duty drawback, if any is to be certified only with reference
to the FOB value of the exports stated on the shipping bill.
Forfeiting
The forfeiting typically involves the following cost elements:
1. Commitment fee, payable by the exporter to the forfeiter ‘for latter’s’ commitment
to execute a specific forfeiting transaction at a firm discount rate within a specified
time.
2. Discount fee, interest payable by the exporter for the entire period of credit
involved and deducted by the forfeiter from the amount paid to the exporter
against the availed promissory notes or bills of exchange.
Benefits to Exporter
100 per cent financing:
Without recourse and not occupying exporter's credit line, That is to say once the
exporter obtains the financed fund, he will be exempted from the responsibility to repay
the debt.
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Improved cash flow:

Receivables become current cash inflow and it is beneficial to the exporters to
improve financial status and liquidation ability so as to heighten further the funds raising
capability.
Reduced administration cost:

By using forfeiting, the exporter will spare from the management of the receivables.
The relative costs, as a result, are reduced greatly.
Advance tax refund:

Through forfeiting the exporter can make the verification of export and get tax
refund in advance just after financing.
Risk reduction:
Forfeiting business enables the exporter to transfer various risk resulted from
deferred payments, such as interest rate risk, currency risk, credit risk, and political risk to
the forfeiting bank.
Increased trade opportunity:

With forfeiting, the export is able to grant credit to his buyers freely, and thus, be
more competitive in the market.
Benefits to Banks
Forfeiting provides the banks following benefits:
 Banks can offer a novel product range to clients, which enable the client to gain
100% finance, as against 8085% in case of other discounting products.
 Bank gain fee-based income
 Lower credit administration and credit follow up
Features of Forfeiting
 Credit is extended to the importer for a period of between 180 days and seven
years.
 The minimum bill size is normally $250,000, although $500,000 is preferred.
 The payment is normally receivable in any major convertible currency.
 A letter of credit or a guarantee is made by a bank, usually in the importer's country.
 The contract can be for either goods or services.
At its simplest, the receivables should be evidenced by a promissory note, a bill of
exchange, a deferred-payment letter of credit, or a letter of forfaiting.
Venture Capital
MEANING AND DEFINITION OF VENTURE CAPITAL
Venture capital is a form of equity financing specially designed for funding high risk
and high reward projects. It plays an important role in financing hi-technology projects and
helps to convert research and development into commercial production.
In a narrow sense, the concept of venture capital may be referred to "Investment in

young firms, which lack funds". However, in a broader sense. it refers to "The contribution
of share capital for the formulation and setting up of small firms that are specialising in
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new ideas/new technologies". It gives a firm not only funds but also provides skill needed
to establish the firm, designs its marketing strategy and organises and manages it
Venture capital is a long-term risk capital for financing high technology projects that
involve risk but at the same time has strong potential for growth Generally venture
capitalists accumulate their resources in the early years of the project so as to assist the
new entrepreneurs As soon as the project develops and starts reaping profits, they sell
away their equity shares at high premium.
The Organisation for Economic Co-operation and Development has formulated an

elaborate definition, which covers almost the entire features of venture capital. The
definition formulated by it is as follows
"Capital provided by firms who invest alongside management in young companies

that are not quoted on the stock market objective is high return from the investment.
Value is created by young in partnership with the venture capitalist's mon and professional
expertise".
Thus, a venture capital company may be defined as "A finance institution, which
joins an enterprise as a co-promoter in a project and shares the risks and rewards of the
enterprise".
FEATURES OF VENTURE CAPITAL

The features of venture capital are listed down below:
1. Venture capital is normally contributed in the form of equity capital. However it
may also be given in the form of long-term loan or debt capital.
2. It is a high-risk venture. However, it also enjoys high growth potentials
3. Venture capital is provided only for setting up of new firms with new ideas or
new technologies. The enterprise, which are engaged in trading, booking,
financial services, agency, liaison work or research and development are not
considered for investment by venture capitalists:
4. Venture capitalist joins an enterprise as a co-promoter in projects He shares the
risks and rewards of the enterprise.
5. Venture capitalist continuously involve in business in which he makes investment
It has a long-term orientation
6. As soon as the venture has reached the full potential the venture capitalist
disinvests his holdings. Hence it is obvious that the basic objective of investment
is capital appreciation at the time of disinvestment and not profit
7. Venture capitalists provide not only money but also an input skill needed to set
up the firm, design its marketing strategy organise and manage it
8. Normally, venture capitalists make investment in small medium firms.
9. The gestation period is long. The benefit or profit from the true capital
investment will start accruing only after an average period of 4 to 5 years
10. It is a long-term investment and the returns are in the form of capital gains
11. It is an active form of investment with a higher degree of involvement in the
management of a venture
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FORMS OF VENTURE CAPITAL

Normally, venture capital is required for the various stages of development of a business
such as -
1. Development of Idea,
2. Implementation of the Idea,
3. Commercial Production, and
4. Establishment Stage,
During the first stage i.e. "Development of Idea" the risk associated ab the business
is very high. This stage involves two steps such as 1 Conceiving an Idea, and 2. Converting
the Idea so conceived into a business proposition. At this stage, investigation is made
deeply which takes normally a year or more. So, the finance required at this stage is called
seed finance
The second stage is "Implementation of the Idea Phase". In this stage, the firm is
set up to manufacture a product and so the finance provided by the venture capitalists at
this stage is known as start-up capital. The capital introduced up to the second stage is
used for manufacturing the products as well as for further business development,
The third stage is going for “Commercial Production” of the product for which firm
was actually set up. During this stage, the firm faces E teething problems. In this stage, it
may not be able to get adequate funds. So, the finance is provided additionally to develop
the marketing infrastructure for the firm
The fourth stage is the "Establishment Stage" in which the firm is established in the
market and expected to expand at a rapid pace In stage, it needs finance for its growth and
expansion so that it can enjoy economies of large scale Here establishment finance is
sought from the venture capital fund.
The extent of risk associated with a business decreases gradually in subsequent

stage of development of the business whereas its need e increases gradually when it
passes through its every subsequent stages of development.
PHASES IN VENTURE CAPITAL FINANCING

The venture capital, which the venture capitalists finance passes through different stages
such as:
1. Raising of Funds and Exploring Business Plans.
2. Investing in Firms.
3. Leaving Successful Firms.
4. Returning the Capital to Investors
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The pictorial representation of its phases is given in Fig. 13.1 below.
1.Raising of Funds and Exploring Business plans

Raising of funds and exploring business plans are usually carried on simultaneously.
These are ongoing processes. In other words, these are never ending processes. Venture
capitalists normally raise funds from general investors who do not know for which purpose
their money will be invested. At the same time, he explores the business plans that have
growth potential. Normally, out of hundred proposals only one or two will be capable of
selection for investment. Hence, venture capitalists should be very careful and analyse the
proposal in various angles, and choose the best for their investment.
2. Investing in Firms
The second phase in venture capital financing is making investment in a new firm.
Normally, newly created firms concentrate on only one product because they are in the
initial stage. Venture capitalist aims at developing such start up business into a stable
company. They monitor its operation continuously; take part in strategic decision-making
of its Board. They also contribute their business experience, knowledge and decision-
making skills for the successful development of a new business.
3. Leaving the Successful Firms

The third stage is exiting the firm. After the company stabilises, the venture
capitalists withdraw their money from the company for returning the money to the
investors. There are two objectives to withdraw money at this stage. One is this is the stage
at which the venture capitalists reap profit due to the capital appreciation. The other one is,
the money can be invested in another risky venture. Otherwise, it will be with the company
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FINANCIAL SERVICES
in which no more capital appreciation can be expected than gained already. That is why,
once the company developed the venture capitalists withdraw their money from the
company and look for another new venture having growth potential. Hence the cycle
continues.
FUNCTIONS OF VENTURE CAPITAL

The key functions of venture capital are as follows:
1.Provides Finance as well as Skills

Venture capital provides finance as well as skills to new firms and new ventures of
existing firms. It provides funds not only in the initial stages but also throughout the life of
a business concern. Venture capitalist fills the gap in the owner's funds in relation to the
quantum of equity required to support the successful launching of a new business or the
optimum scale of operations of an existing business. It acts as a trigger in launching new
business and is catalyst in stimulating existing firms to achieve optimum performance.
2. Widens the Industrial Base

Venture capital finances hi-tech projects and thereby it widens the industrial base
of high-tech industries and promotes the growth of technology
3. Helps in Professionalising the Firms

Venture capitalist assists the entrepreneurs to locate, interview and employ
outstanding people to professionalise the firm
SEBI REGULATIONS ON VENTURE CAPITAL FUND

1.Meaning of Venture Capital Fund
A venture capital fund means a fund established in the form of or a company
including a body corporate and registered under the regulations, which has a dedicated
pool of capital, rose in a man specified in the regulations, and invests in venture capital
undertaking in accordance with the regulations.
2. Grant of Registration Certificate

1) Application for Grant of Certificate
Any company or trust or body corporate proposing to carry on any activity as a
venture capital fund must apply in Form A to SEBI along with non-refundable application of
Rs. 25,000 for grant of a certificate of carrying out venture capital activity in India.
Registration fee for grant of certificate is Rs. 500.000
2) Eligibility Criteria for Registration

For the purpose of grant of certificate by SEBI, the following conditions must be satisfied:
A. Where the Application is made by a Company

1. 1.The main object of the company as per its Memorandum of Association must
be the carrying on of the activity of venture capital fund
2. Its Memorandum and Articles of Association prohibit it from making an invitation
to the public to subscribe to its securities
3. Its directors or its principal officer or employee must be a fit and proper person
to act as director or principal officer or employee of the company
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FINANCIAL SERVICES
B. Where the Application is made by a Trust

1. The Trust Deed is in the form of a deed and has been duly registered under the
provisions of the Indian Registration Act 1908
2. The main object of the trust is to carry on the activity of a venture capital fund
3. Its directors or its principal officer or employee must be a fit and proper person
to act as director or principal officer or employee of the company
3) Furnishing of Information
SEBImay require the applicant to furnish such further information as it considers
necessary for enabling it to process the application An cation, which is not complete in all
respects, shall be rejected by SEBI
4) Procedure for Grant of Certificate

SEBI is satisfied that the applicant is eligible for grant of silicate, it shall send
intimation to the applicant of its eligibility. On receipt of intimation, the applicant must pay
to SEBI registration fee of R 500,000. On the receipt of such fees, SEBI shall grant a
certificate of registration in Form B.
5) Conditions as to Certificate
The certificate granted shall be subject to the following conditions:
1. The venture capital fund shall abide by the provisions of the SEBI Act and these
regulations
2. The venture capital fund shall not carry on any other activity other than that of a
venture capital fund.
3. The venture capital fund shall inform SEBI in writing of any information or details
previously submitted to SEBI, which have changed after grant of the certificate.
4. If the information or details submitted are found to be false or are misleading in
any particular manner, suitable penal action can be taken
3. Conditions and Restrictions as to Investment

Each scheme launched or fund set up by a venture capital fund shall have firm
commitment from the investors for contribution of an amount at least Rupees five crores
before the start of operations by the venture capital fund. All investments made or to be
made by a venture capital fund shall be subject to the following conditions:
1. Venture capital fund shall disclose the investment strategy at the time of
application for registration,
2. Venture capital fund shall not invest more than 25% corpus of the fund in one
venture capital undertaking
3. It shall not invest in the associated companies
4. venture capital fund shall make investment in the venture capital undertaking as
enumerated below:
At least 75% of the investible funds shall be invested in unlisted equity shares or
equity-linked instruments. However, if the venture capital fund seeks to avail of benefits
under relevant provisions of the Income Tax Act applicable venture capital fund, it shall be
required to disinvest from such investments within a period of one year from the da on
which the shares of the venture capital undertaking listed in a recognized stock exchange.
Not more than 25% of the investible funds may be invested by way of:
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FINANCIAL SERVICES
a. Subscription to Initial public offer of a venture capital undertaking whose shares

are proposed to be listed subject to lock-in period of one year;
b. Debt or debt instrument of a venture capital undertaking in which the venture
capital fund has already made an investment by way of equity.
4. Prohibition on Listing on Stock Exchange

No venture capital fund shall be entitled to get its securities or units listed on any
recognized stock exchange up to the expiry of three years from the date of issue of
securities or units by the venture capital fund
5.General Obligations and Responsibilities

No venture capital fund shall be entitled to get its securities or units listed on any
recognized stock exchange upto the expiry of three years from the date of issue of
securities or units by the venture capital fund.
6.Private Placement
Venture capital fund may raise money only through private placement of its
securities or units. The venture capital fund before issuing any securities or units must file
with SEBI a placement memorandum
7. Maintenance of Books and Records

Every venture capital fund must maintain for a period of 8 years, books of accounts,
records and documents, which must give a true and fair picture of state of affairs of the
venture capital fund
8. Power to Call for Information

SEBI may at any time call for any information from the venture capital fund in
respect to any matter relating to its activity as a venture capital fund. Such information
must be submitted within the time specified by days to SEBI
9. Submission of Reports to SEBI

SEBI may at any time call upon the venture capital fund to file su report as it deems
fit with regards to the activity carried out by venture capital fund.
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FINANCIAL SERVICES
UNIT - V
MERCHANT BANKING
DEFINITION
Merchant Bank may be defined as a kind of financial institution that provide a
variety of services, including investment, banking, management of customer's securities,
portfolios, insurance, acceptance of bills, etc".
As per the Securities and Exchange Board of India (Merchant Bankers) Rules, 1992,
“Merchant Bankers" means "any person who is engaged in the business of issue
management either by making arrangements regarding selling, buying or subscribing to
securities as manager, consultant, adviser or rendering corporate advisory services in
relation to such issue management".
To sum up, merchant bankers may be referred to an "intermediary who provides

various financial services, other than lending money, such as managing public issues,
underwriting new issues, arranging loan syndications and giving advice on portfolio
management, financial restructuring, mergers and acquisitions"
FUNCTIONS OF MERCHANT BANKING

Merchant banking in India has a very extensive role to play merchant banking division
performs the following functions:
1. Helps in obtaining consent of the Central and State Governments for the project
if necessary.
2. Prepares economic, technical and financial feasibility reports
3. Undertakes initial project preparation, pre-investment survey, and market
studies.
4. Helps in raising rupee resources from financial institutions and commercial banks.
5. Underwrite the new issues.
6. Assists in raising foreign exchange resources for the import of machinery and
technical know-how and secure foreign collaboration
7. Advices as to setting up turnkey projects in foreign countries and identifying
foreign markets.
8. Helps in financial management and in designing proper capital structure for the
company.
9. Advices on restructuring of capital, amalgamation, mergers, take overs etc.
10. Manages investment trusts, charitable trusts etc.
11. Recruits technical and managerial personnel etc.
12. Subscribes in to the new issues.
SERVICES OF MERCHANT BANKS

Merchant banks generally offer the following services:
1. Conduct Pre-investment Studies:
Merchant banks conduct pre-investment studies for the purpose of investors. These
are in the nature of financial feasibility explorations in selected areas of interest of the
client.
2. Working out Package for Project Funding:

They assist in working out a comprehensive package for the project funding and
pattern of financing is available from the merchant banks. They work in close liaison with
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FINANCIAL SERVICES
the client, his technical consultants, and the funding institutions. They prepare and submit
complete financial dossiers, and arrange for the various sources of finance. They also assist
in legal documentation for the finance arranged
3. Financial Structuring and Syndication:

They render ad on the financial structuring of these projects as well as assist in
syndicate of the finance itself
4. Arrangement of Lease Financing etc.:

Some of the laro banks are also involved in areas such as the arrangement of lease
finance and assistance in acquisitions and mergers etc.
5. Provide Counselling Services:

Merchant banks provide counsel on capital and capital structure, the form of capital
to be raised preparing the terms and conditions of issue, underwriting, preparation of the
prospectus etc. They provide the services of financial and non-financia nature, and a host
of related services
6. Management of Issue:
The public visibility of merchant banking has been largely confined to management
of issue of corporate securities by newly floated companies, existing companies, and
foreign companies for complying with the provisions of FEMA The types of services under
this head include obtaining consent/acknowledgement from SEBI for issue of capital,
preparation of prospectus, tying up arrangement of underwriting, appointment of brokers
and bankers to the issues, press publicity, compliance of stock exchange listing
requirements etc
7. Prepare Project Files etc.:

Merchant banks undertake preparation of project file, loan application for financial
assistance on behalf of promoters from various financial institutions for term loan working
capital finance from commercial banks for new projects etc. Merchant bankers also
arrange finance for the projects abroad.
8. Guide Promoters:
Merchant banks guide promoters in the matter of rules, regulations, capital goods
clearance, import clearance etc.
9. Help in Raising Public Finance:

The companies are also helped by merchant banks to raise finance by way of public
finance. In this connection, they provide not only the required guidance but also act as
brokers for the mobilisation of public deposits. Management of new accounts of deposits is
also undertaken.
10. Advise on Investment in Government Securities:

It includes advising on investment in Government securities to trusts, charitable
institutions, and companies regarding their investment in compliance with the provisions
of various Acts. Merchant banks have undertaken purchase and sale of securities and
management of individual investment portfolio of investors.
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FINANCIAL SERVICES
11. Cost Audit:

Merchant banks provide corporate counselling and advisory services on mergers,
acquisition and reorganisation. Some of them also help in taking up cost audit and
recruitment of executives
12. Issue Management:

Management of the public Issue of shares/ debentures including even an offer for
sales has been the traditional service rendered by merchant bankers in India. Under this
head, they decide on the size and timing of a public issue in the light of the market
condition. They prepare the base of successful issue marketing from the initial
documentation, liaison with the Controller of Capital Issues for clearances etc. to the
preparation of the actual launch of the proposed issue They perform underwriting services:
appoint bankers and brokers as well as esue houses; manages the issues. They act as an
intermediary with share market functionaries like brokers. portfolio managers and financial
press for pre-selling and media coverage. Prepare draft prospectus and other documents.
Provide coverage throughout the country for collection of applications. Prepare advertising
and promotional material
13. Provision of Working Capital:

Merchant banking is a part of the banking system. So the client has to be assisted in
arranging for working capital finance especially for the new ventures. If the requirement of
the client is substantially large, then it is desirable to arrange for the syndication on behalf
of the promoters: There has been recent change in arrangement for the working capital
finance by issue of debentures on"Rights basis. Merchant bankers play a great role in
helping the clients in the preparation of the necessary forms for the financial institutions
such as LIC, GIC, UTI, who are the major supporters for such issue. He arranges for the
trustees for the debentures and also ensures that the balance portion is tied up with the
other bankers.
14. Foreign Currency Loans:

The merchant banker also arranges for export credit for various countries. He also
arranges for foreign currency loan like Eurodollar, IFCI loans etc
15. Portfolio Management for Non-residents:

The merchant banker assists in this area by identifying suitable arrangements of
investment suitable to each Non-Resident Indian. Under this head, a merchant banker
performs various functions, which are as follows:
1. Guide on buying and selling of securities
2. Handles the transactions relating to the purchase and sale of securities
3. Advices on market conditions.
4. Keeps the documents safely.
5. Collects of earnings such as dividend interest etc
6. Serves as a link between non-residents and Reserve Bank of India for obtaining
necessary permission
16. Marketing:
It is also a very important function, which the merchant banker has to take into
account since he has to create the business for himself. He also has to have a close
association with his own clients, understand their future expansion/modernisation
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FINANCIAL SERVICES
programme and advise them the way in which these programmes are to be carried out. His
imagination and expertise play a great role in this area.
Features of Merchant Banking

They are below as;
1. The high proportion of decision-makers as a percentage of total staff.
2. Quick decision process.
3. The high density of information.
4. Intense contact with the environment.
5. Loose organizational structure.
6. A concentration of short and medium-term engagements.
7. Emphasis on fee and commission income.
8. Innovative instead of repetitive operations.
9. Sophisticated services on a national and international level.
10. The low rate of profit distribution.
11. High liquidity ratio.
SEBI GUIDELINES ON MERCHANT BANKING

These Guidelines on merchant banking are summarised below
OBJECTIVES OF MERCHANT BANKING REGULATIONS

The following are the objectives of merchant banking regulations:
1. It regulates the raising of funds in primary market.
2. It assures the issuer a market for raising resources at low cost effectively and
easily.
3. It ensures a high degree of protection to the interests of the investors
4. It provides for the merchant bankers a dynamic and competitive market with
high standard of professional competence, honesty, integrity and solvency.
5. It ensures a fair, efficient and flexible primary market to all involved in the
process of primary issue.
AUTHORISED ACTIVITIES
The legislation authorises the following activities to facilitate merchant banking.
1. Issue management:
It consists of preparation of prospectus and other information relating to the
a) Issue of shares and securities
b) Determining financing structure.
c) Tie-up of finances.
d) Final allotment
e) Refund of subscriptions.
2. Corporate Advice: It consists of advising the company on the issue
3.Managing, Consultation and Advising:

Covers all the three aspects related to issue and underwriting
4.Portfolio Management Services:

The other authorised activities will be portfolio management services.
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FINANCIAL SERVICES
METHOD OF AUTHORISATION
The criteria for authorisation consider the following:
I. Professional qualification in finance, law or business management.
II. Adequate office space, equipment and manpower.
III. At least two persons to be employed with experience to carry on the business of
merchant banking.
IV. Capital adequacy.
V. Previous track record, experience, general reputation and fairness in all their
transactions.
CREDIT RATING
MEANING AND DEFINITION OF CREDIT RATING
The credit rating is "A symbolic indicator of the current opinion of elative capability
of a corporate entity to service its debt obligations a timely fashion, with specific reference
to the instrument being rated.
Ratings are usually expressed in alphabetical or alphanumeric symbols. They are a

simple and easily understood aid for the investor. They enable him to differentiate debt
instruments on the basis of their underlying credit quality.
A rating is specific to a debt instrument and is intended to grade different and

specific debt instruments in terms of credit risk associated with the particular instrument.
It is based upon the relative capability and willingness of the entity issuing the said debt
instruments to the debt obligations (both principal and interest) as per terms of contract.
Rating groups together a large number of similar (but not necessarily identical) debt
instrument under different categories according to their underlying credit quality as judged
by their inherent protective factors. This does not amount to recommendation to buy, hold
or sell an instrument, as it does not take into consideration factors such as market prices,
personal risk-preferences and other considerations, which may bear influence on an
investment decision.
Credit ratings help investors by providing an easily recognizable and simple tool,
which couples a possibly unknown issuer with an informative and meaningful credit quality.
FUNCTIONS OF CREDIT RATING

(1) Provides superior Information:
Provides superior information on credit risk for three reasons: (i) An independent
rating agency, unlike brokers, financial intermediaries, underwriters who have vested
interest in an issue, is likely to provide an unbiased opinion; (ii) Due to professional and
highly trained staff, their ability to assess risk is better, and finally, (iii) the rating firm has
access to a lot of information which may not be publicly available.
(2) Low cost information:

Rating firm gathers, analyses, interprets and summarises complex information in a
simple and readily understood formal manner. It is highly welcome by most investors who
find it prohibitively expensive and simply impossible to do such credit evaluation of their
own.
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FINANCIAL SERVICES
(3) Basis for a proper risk and return:

If an instrument is rated by a credit rating agency, then such instrument enjoys
higher confidence from investors. Investors have some idea as to what is the risk
associated with the instrument in which he/she is likely to take, if investment is done in
that security.
(4) Healthy discipline on corporate borrowers:

Higher credit rating to any credit investment tends to enhance the corporate image
and visibility and hence it induces a healthy discipline on corporate.
(5) Greater credence to financial and other representation:

When credit rating agency rates a security, its own reputation is at stake. So it seeks
financial and other information, the quality of which is acceptable to it. As the issue
complies with the demands of a credit rating agency on a continuing basis, its financial and
other representations acquire greater credibility.
(6) Formation of public policy:

Public policy guidelines on what kinds of securities are eligible for inclusions in
different kinds of institutional portfolios can be developed with greater confidence if debt
securities are rated professionally.
FEATURES OF CREDIT RATING

The main features which are involved with the credit ratings are as follows:-
1. It is used to estimate the worthiness of the credit for the company, country or any
individual company.
2. Credit rating is been done after considering various factors such as financial, non-
financial parameters, and past credit history.
3. The rating which gets done is simple and it facilitates universal understanding.
Credit rating also makes it widely accepted as the symbols which are used are
generalized and made common for all.
4. The process of credit rating is very detailed and it involves lots of information such
as financial information, client's office and works information and other
management information. It involves in-depth study.
SEBI Guidelines for credit rating

Securities and Exchange Board of India (Credit Rating Agencies) Regulations,
1999was passed which made even the SEBI keep a watchful eye on the Credit
RatingCompanies in India with the help of various regulation needed for it. The
Securitiesand Exchange Board of India (Credit Rating Agencies) Regulations, 1999 contains:-
1. Regulation regarding the registration of credit rating agencies regulating

theapplication for grant of certificate eligibility criteria for promoter of credit
ratingagency, furnishing of information, clarification and personal representation by
thepromoter, grant of certificate of the SEBI its conditions validity period, clauses of
itsrenewal, and procedure for refusal of certificate and its effect.
2. General obligations of credit rating agencies regulating the Code of
Conduct,Agreement with the client, Monitoring and process of ratings and the
Procedure forreview of rating, Appointment of Compliance Officer and compiling
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FINANCIAL SERVICES
the lettercirculars of the SEBI, maintaining of proper book of Accounts and having
regularaudits.
3. Restriction on rating of securities issued by promoters or by certain other persons
regulating the securities issued by promoter, certain entities, connected with a
promoter or securities already rated.
4. Procedure for inspection and investigation regulating SEBI’s right to inspect after a
due notice and obligations to be fulfilled by taking actions on the inspection or
investigation report.
5. Procedure for action in case of default fixing the liability of the credit company.
Page 40 of 40

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STUDY MATERIAL FOR BBA

UNIT CONTENT PAGE Nr

I CONCEPT OF FINANCIAL SERVICES 02

II FUND BASED FINANCIAL SERVICES 10

III MEANING OF MUTUAL FUNDS 14

Objectives of financial services are

Functions of financial system

Characteristics of Financial Services

Financial Services Market

Functions of Financial Market

2.Facilitate Price Discovery:

3.Provide liquidity to financial assets:

4.Reduce the cost of transactions:

Problems of Financial Services Sector

Challenges Facing the Financial Services Industry

Reports of data breaches by financial services companies:

2. Regulatory Compliance in Finance:

3. Big Data Use in Finance

5. Fintech Disruption of the Financial Service Industry

Penetration of Fintech among the US Financial Sector (a sample of 1300 companies)

6. Customer Retention in the Financial Services Industry

What matters to most customers in 2019 is greater personalization, more automated

7. Employee Retention in the Financial Service Industry

8. Blockchain Integration in Finance

Having said that, industry-wide adoption of blockchain is unlikely to occur until we

9. Customer Experience in the Financial Services Industry

10. Crossing the Digital Divide in Financial Services Marketing

Growth of financial services in India

The diversified financial sector of India comprises of banks, mutual funds,insurance

Growth of the banking sector

Growth of the Capital Market in India

Growth in the Insurance sector in India

4. Now a days,the insurance companies are engaged in aggressive marketing,selling

Growth of the Venture Capital market in India

Leasing, credit card services, factoring, portfolio management, financial consultancy

Non- Fund Based Financial Services

FORMS OF LEASE FINANCING

1. Sale and Lease Back

The structure of this arrangement is analogous to a mortgage on the asset taken

 Bipartite Lease, and

Characteristics of a Financial Lease

Features of Lease Contract:

Features of Hire Purchase:

Guidelines for Hire Purchase

It represents pooled savings of numerous investors invested by professional fund

TYPES OF MUTUAL FUNDS

1.On the basis of Operation and Execution

2.On the basis of Investment Objectives of Investors

3) Current Income Funds:

4) Growth and Income Funds:

4. Money Market Fund (MMF):

2. There will be no ceiling as regards the size of MMFS.

ADVANTAGES TO AN INVESTOR IN MUTUAL FUND

DISADVANTAGES OF MUTUAL FUNDS

2. Interest Rate Risk:

Benefits of mutual funds

For beginners, here is a simple definition of Mutual Funds. A mutual fund is an

For a simple definition, mutual funds can be considered baskets of investments.

2. Accessibility: Mutual Funds Are Easy to Buy

3. Diversification: Mutual Funds Have Broad Market Exposure

4. Variety: Mutual Funds Come in Many Different Categories and Types

5. Affordability: Mutual Funds Have Low Minimums

7. Professional Management: Mutual Funds Have a Team of Professionals Researching