Fund Based:

Fund based financial services

1. FUND BASED FINANCIAL SERVICES

2. Financial Services can be defined as the products and services offered by institutions like banks of various kinds for the facilitation of various financial transactions and other related activities in the world of finance like loans, insurance, credit cards, investment opportunities. INTRODUCTION

3. Fund Based Services Fee Based Services Classification of financial services

4. Fund Based Finance is a specialized method of providing structured working capital and term loans that are secured by account receivables, inventory, machinery, equipment, and real estate.  Fund Based Financial Services(FBFS) are financing method that is driven by the assets of companies. Assets include current assets such as account receivables, inventory and fixed assets such as plant and machinery.

FUND-BASED SERVICES

5. It is an efficient way to finance an expanding operation because borrowing capacity expands along with sales  It generates new business  It permits borrowers to take advantage of purchase discounts because cash is received immediately upon sales, permitting prompt payment to suppliers and thereby earning the company a good enough reputation to reduce the cost of purchases. Features Of Fund Based Services

6. Fund Based Services are used for creating assets or supported by assets where the funds are transformed into assets. Following are the types of fund-based financial services:

  • 1. LEASE FINANCING
  • 2. HIRE PURCHASE
  • 3. CONSUMER CREDIT / CONSUMER FINANCE
  • 4. FACTORING
  • 5. VENTURE CAPITAL FINANCING and
  • 6. HOUSING FINANCE TYPES OF FUND-BASED SERVICES
  • 7. LEASING

7. A Lease may be defined as “ a contractual agreement where by a party owning an asset provides the asset for use to another over a certain time for consideration in the form of periodic payments “.

8. Leasing enables a firm to avail the services of plant or equipment without making the investment.

DEFINITION

9. The parties to the lease must be competent to contract.

The lease agreements do not provide for transfer of ownership to the lessee as such transactions are classified as hire-purchase.

The goods are delivered to the lessee for a specified purpose and period, the lessee should return exactly the same goods after the lease period.

The lease rentals are payable generally in equated monthly instalments at the beginning of every month, a number of rental structures are used related to the lessees requirements and projected cash flows.

Features of Leasing

10. Advantages Of Leasing Lessor Lessee

  • Full Security
  • Financing of Capital Goods
  • Tax Benefit
  • Less Costly
  • High Profitability
  • Tax Benefits
  • Trading On Equity
  • Flexibility in structuring of Rentals
  • High Growth Potential
  • Simplicity

11. 2. HIRE PURCHASE

12. Hire Purchase means hiring of an asset for a period of time and at the end of the period, purchasing the same. This is the time sharing of the asset, the person hiring the asset acquires is possession and the right to use it. As it is a legal device I tis being used for financing of consumer goods and for selling consumer goods on hire purchase.

DEFINITION

13. Hire Purchase means a transaction where goods are purchased and sold on the terms that:

  • 1) Payment will be made in instalments
  • 2) The possession of the goods is given to the buyer immediately
  • 3) The property in the goods remains with the vendor till the last instalment is paid
  • 4) The seller can repossess the goods in case of default in payment of any instalment and
  • 5) Each instalment is treated as hire charges till the last instalment is paid

14. There are two parties involved in hire purchase:

  • 1) Hire Purchaser: He is the customer who obtains possession of the goods at the outset and can use it, while paying for it by instalments over a agreed period of time.
  • 2) Hire Vendor: The time of ownership of the goods remains with the seller called hire vendor until the hire purchaser has made all the payments. Parties in Hire Purchase

15. Under hire-purchase agreement the hire seller transfers possession of goods immediately to the purchaser.

The buyer agrees to make payment in instalment over a period of time

The ownership of the goods will remain with the seller until the payment of the last instalment.

The hire purchase generally makes a down payment on signing the agreement.

If the purchase of the goods default even the last instalment, the hire seller has the right to take the goods back without making any compensation other buyer of goods Features of Hire Purchase

  • 16. Spread the cost of finance
  • Higher Realized Income
  • Fewer Defaulters
  • Recycle Recovered Funds
  • Higher Acceptance Rates
  • Advantages of Hire Purchase

17. 3. CONSUMER CREDIT

18. Consumer Credits include all fund-based financing plans offered to primarily individuals to acquire durable consumer goods. In a consumer credit transaction the individual consumer buyer pays a fraction of the cash purchase price at the time of the delivery of the asset and pays the balance with interest over a specified period of time.

DEFINITION

19. The term consumer credit refers to the activities involved in granting credit to consumers to enable them possess own goods means for everyday use.
It is also known by several names such as credit merchandising, deferred payment, instalment buying, easy payment and instalment credit plan.
According to Reavis Cox, Consumer Credit refers to the “Business procedure through which the consumers purchase semi-durables and durables other than real estate, in order to obtain from them a series of payments extending over a period of three months to five years, and obtain possession of them when only a fraction of the total price has been paid”

20. CLOSED-END CREDIT:

This form of credit is used for a specific purpose for a specific amount and for a specific period of time. Payments are usually of equal amounts. EX: Automobile loans, where a agreement lists the repayments terms such as the number of payments, the payment amount and how much the credit will cost.


21. OPENED-END CREDIT:

Loans are made on a continuous basis as you purchase items, and you are billed periodically to make at least partial payment. EX: Using a credit card issued by a store, a bank card such as VISA or Master Card. There is a maximum amount of credit that you can use called Line of Credit, you have to pay the debt in full each month, you also have a finance charges for use of credit. Types of Consumer Credit


  • Enjoying Possession
  • Compulsory saving
  • Meeting Emergency
  • Realization Of Dreams

Advantages of Consumer Credit

22. 4. FACTORING

23. The word Factoring has its origin from Latin word ‘factor’ which means ‘doer'. The Webster dictionary defines a factor as a “one that lends money to producers and dealers on the security of account receivables”

Factoring is a financial transaction where by a business sell its account receivables to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business.

DEFINITION

24. There are three main parties in factoring. They are as follows:

  • 1)The Factor
  • 2)The client(Seller) and
  • 3)The Customer(Buyer) Parties In Factoring

25. Factoring is a contractual service arising out of the agreement between the business firm and the factors.

Factoring makes an advance payment generally arising from 80% to 90% against the invoices factored by the client firm.

Smoothens your Cash flow. Features of Factoring

26. The clients credit sales are immediately converted into cash as the factor makes a payment of around 80% of the factored invoices in advance.

The cash realized from credit sales can be used to accelerate the production cycle.

The client can expand his business by exploring new markets. Advantages of Factoring

27. 5.VENTURE CAPITAL FINANCING

28. The term Venture Capital comprises of two words, namely Venture and Capital. The term venture literally means a course of proceeding the outcome of which is uncertain but which is attended by; the risk of danger of loss. On the other hand , the term capital refers to the resources to start the enterprise.
According to narrow sense, the capital which is available for financing the new business ventures is called Venture Capital. It involves leading finance to the growing companies.

DEFINITION

29. Venture capital financing is generally made in new enterprises that use new technology to produce new products.
Venture Capitalists continuously involve themselves with the clients investments either by providing loans or managerial sills or any other support.
Venture Capitalists usually finance small and medium sized firm during the early stages of their development. Features of Venture Capital Financing

30. The Venture Capitalist is a business partner, sharing both the risks and rewards. Venture Capitalists are rewarded by business success and the capital gain.
It could encourage new breed of entrepreneurs to take up risks
They could also be the part of economic growth
They can provide large sums of equity finance, bring a wealth of expertise to business which provides a solid capital base for future growth Advantages

31. HOUSING FINANCE

32. DEFINITION

33. SOCIAL STABILITY:

Housing Finance contributes to social stability by enabling households to purchase an asset which will represent their large single investment. Housing represents 15% to 40% of the monthly expenditure of households worldwide.

ECONOMIC DEVELOPMENT:
By supporting Housing finance, it promotes a successful economic sector and frees personal savings which entrepreneur can invest in small businesses. Need for Housing Finance

34. Institutions:

1. HUDCO

2. LICHFL and

3. DHFL BANKS:

4. SCB’s

5. RRB’S

6. HDFC and

7. ARDB’S

Major institutions and banks involved in Housing Finance

35. Employment for large masses

Rural housing develops not only rural areas but prevents migration of labour to urban areas
The creation of more houses results in building up more infrastructure facilities such as roads, electricity generation, drinking water facilities.
Factories and industrial establishment creates townships by providing more housing facilities to their employees. Advantages of Housing Finance

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