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.
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.
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
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 “.
Leasing enables a firm to avail the services of plant or equipment
without making the investment.
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
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
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
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.
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
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
- 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
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.
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
- 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
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.
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
26. The clients credit sales are immediately converted into cash as
the factor makes a payment of around 80% of the factored invoices in
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
29. Venture capital financing is generally made in new enterprises
that use new technology to produce new products.
continuously involve themselves with the clients investments either by
providing loans or managerial sills or any other support.
Capitalists usually finance small and medium sized firm during the
early stages of their development. Features of Venture Capital
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
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
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.
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
2. LICHFL and
3. DHFL BANKS:
6. HDFC and
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
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