finance ppt
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Finance PptTRANSCRIPT
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PRESENTED BY:
ARJUN GUPTA(09)GEETANJALI SHARMA(15)KARISHMA KHULLAR(17)MEGHNA JAMWAL(21)SHWETANSHU GUPTA(49)SIDHARTH GUPTA(50)
* FINANCIAL SERVICES
* FINANCIAL INTERMEDIATION* It is a process by which funds are mobilized from a large
number of savers and make them available to those who are in need of it.Particularly to Corporate Customers.
* FINANCIAL SERVICES* It means “ mobilizing and allocating SAVINGS”
* It includes all the activities involved in the transformation of SAVINGS into INVESTMENTS
* It can also be called as financial intermediation.
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* IMPORTANCE OF FINANCIAL SERVICES
*Economic Growth (Employment)*Promotion of Savings (Interest)*Capital Formation (used in industries)*Provision of Liquidity (providing to those who need
it)*Financial Intermediation*Contribution to GNP
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* SCOPE OF FINANCIAL SERVICES1. FUND BASED ACTIVITIES: includes* Underwriting (subscription of shares and debentures)* Dealing in secondary market activities. (stock market)
(selling of already sold shares)* Participating in money market instruments. (short term
funds)* Leasing, hire-purchase, venture capital, etc.
2. FEE BASED ACTIVITIES: includes* Managing the capital issues* Arrangements for placement of capital and debt instruments* Arrangement of funds from financial institutions* Assisting in Government and other clearance
B. MODERN ACTIVITIES
It includes* Rendering project advisory services. (consultancy fee)* Planning for mergers and acquisitions* Acting as trustee to the debenture-holder* Hedging of risks. (avoidance of future risk)* Managing the portfolio of large public sector companies.* Undertaking risk management services.
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* FINANCIAL SERVICES AND PROMOTION OF INDUSTRIES
* Industrial promotion through Merchant Banking Services
*Working Capital Finance Through Factoring Services
*Equipment Finance through Leasing*Financial resources through Mutual Funds*Long-term Risk Capital through Venture Capital
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* FINANCIAL INSTRUMENTS
* Commercial Papers* Treasury Bills* Certificates of Deposit* Inter-bank Participation(IBPs)* Option Bonds* Medium Term Maturity* Equity with 100% Safety Net* Convertible Bonds* Flip-Flop Notes* Loyalty Notes* Convertible Bonds with a Premium Put* Debentures with ‘Call’ and ‘Put’ features* Easy Exit Bonds
.
*Leasing is an arrangement that provides firm with the use
and control over assets without buying and owing the same.
*It is a contract between the owner of asset (lessor) and the
user of asset(lessee)
*The lessee agrees to pay a number of fixed or flexible
installments over an agreed period to the lessor called as
lease rental.
*LEASING
* STEPS IN LEASING
*FEATURES
*Leasing a product is similar to renting it
*A contract lasts over a number of years, usually between 2 and
10, depending on the cost and usable life of the product.
*Have the full use of a piece of equipment without having to
pay the full cost of the item in one go.
*TYPES OF LEASING
Sale and leaseback Direct leasing
Leveraged lease
Operating lease
Finance lease
*FINANCIAL LEASE*Long-term, non-cancellable lease contracts are known as
financial leases.
*The essential point - it contains a condition whereby the lessor agrees to transfer the title for the asset at the end of the lease period at a nominal cost.
*At lease it must give an option to the lessee to purchase the asset he has used at the expiry of the lease.
*High cost high tech equip.
*The lease agreement is irrevocable.
*All the risks incidental to the asset ownership are transferred to the lessee who bears the cost of maintenance, insurance and repairs. *Only title deeds remain with the lessor.
*SALE AND LEASEBACK
*Sub-part of finance lease
*The owner of an asset sells the asset to a party (the buyer),
who in turn leases back the same asset to the owner in
consideration of lease rentals.
*This enables a firm to receive cash from sale of asset and
also retain the economic use of asset in consideration of
lease rental.
*Sale and lease back transaction is suitable for those
assets, which are not subjected depreciation but
appreciation, like land.
*The seller assumes the role of a lessee and the buyer assumes the role of a lessor.
*The seller gets the agreed selling price and the buyer gets the lease rentals.
*OPERATING LEASE
*Contrast to the financial lease
*A lease agreement gives to the lessee only a limited right to
use the asset.
*The lessor is responsible for the upkeep and maintenance of
the asset.
*The lessee is not given any uplift to purchase the asset at
the end of the lease period.
*LEVERAGED LEASE*A third party is involved beside lessor and lessee.
*The lessor borrows a part of the purchase cost (say 8 0 %) of
the asset from the third party i.e., lender
*The asset so purchased is held as security against the loan.
*The lender is paid off from the lease rentals directly by the
lessee and the surplus after meeting the claims of the lender
goes to the lessor.
*LEVERAGED LEASE
*DIRECT LEASING
*Under direct leasing, a firm acquires the right to use an asset from the manufacturer directly.
*The ownership of the asset leased out remains with the manufacturer itself.
*ADVANTAGES OF LEASING*No large outlay:
The cost is spread over a number of years; there is no need to pay the
entire amount upfront.
*Security:
The product is still owned by the leasing company, meaning that
they have better security on finance.
*Flexibility and convenience
The lease agreement can be tailor- made in respect of
lease period and lease rentals according to the convenience and
requirements of all lessees
*DISADVANTAGES OF LEASING
*No Ownership*Costly option - high interest rates, costlier than straight buying*Long Term Expense*Maintenance*No working capital
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*HIRE-PURCHASE
*An agreement under which goods are let on hire and under which the buyer (hirer) has an option to purchase them from vendor (hiree) in accordance with the terms of the agreement
*Hire purchase is used to buy expensive items which a person cannot afford to pay outright: e.g. a car A down payment is usually paid and the balance is paid over several months (monthly installments).
*HIRE-PURCHASE FEATURES
*Goods are let out on finance by a finance company to the hire purchaser customer*Buyer is required to pay an equal amount of periodic
installments during a given period*Ownership transfers at the payment of the last installment
*TERMS OF HIRE-PURCHASE
*In hire purchase the hiror has to follow the agreement and he cannot terminate the contract. The seller can however, terminate the agreement in case of default of purchaser hire purchase price is higher than cash price, because interest element is added in this price
*PROCESS OF HIRE-PURCHASE
*The vendor, contracts with finance co. for financing his hire purchase deals.* The customer selects the goods for HP, and dealer arranges for the
complete set of documents*Down payment by customer on completion of proposal form*Dealer sends documents to finance co. with request to purchase the
goods, and accept the HP transaction.*The finance co. signs the agreement and sends copy a long with EMI
details to dealer*Dealer delivers the goods to the customer, property passes on to the
finance co.*Hirer pays EMIs, and on last payment , the ownership passes on to
him, with loan completion certificate by the finance co.
*Many kinds of business asset are suitable for financing using hire purchase or leasing , including:-
Plant and machineryBusiness cars Commercial vehicles Agricultural equipment. Hotel equipment Medical and dental equipment Computers, including software packagesOffice equipment
VENTURE CAPITAL
*MEANING
Venture capital is an investment in the form of equity, quasi equity and sometimes debt-straight or conditional made in new and untried technology or high risk venture promoted by technically or professionally qualified entrepreneur where the venture capitalist
expects the enterprise to have a very high growth rate provides management and business skills to enterprise
*Venture capital finance is often thought of as the early stage finance of new and young enterprises seeking to grow rapidly. It usually implies an involvement by the venture capitalist in the management of the client enterprises.
*In broad terms, venture capital is the investment of the long term equity finance where the venture capitalist earn his return primarily in the form of capital gains. The venture capitalist and the entrepreneur would act together in the interest of the enterprise as partners.
*ACCORDING TO SEBI:
The SEBI has defined Venture Capital Fund in its Regulation 1996 as ‘a fund established in the form of a company or trust which raises money through loans, donations, issue of securities or units as the case may be and makes or proposes to make investments in accordance with the regulations’.
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*CHARACTERSTICS
*Long time horizon
*High risk
*Equity participation
*Participation in management
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STAGES IN VENTURE FINANCING
Early stage financing• Start up capital• Financing for full-scale production• R&D financing for product development Expansion financing • Financing for working capital• Development financing
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Acquisition financing• Financing for acquiring another firm• Turn around financing for turning around a
sick point
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PROCESS OF VENTURE CAPITAL FINANCING
1. Deal origination Referral system Active search Intermediaries2. Screening3. Evaluation Preliminary evaluation Detailed evaluation
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4. Deal structuring: Once the venture has been evaluated as viable, the venture capitalist and the company negotiate the terms of the deal viz., the amount, form and price of the investment.
5. Post investment activities: Once the deal has been structured and agreement finalized, the venture capitalist generally assumes the role of partner and collaborator and he also gets involved in shaping the direction of the venture.
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6. Exit plan: venture capitalists generally want to cash-out their gains in five to ten years and they play a positive role in directing the company towards particular exit routes.
Initial public offeringsAcquisition by another companyPurchase of the venture capitalist’s share by
the promoterPurchase of venture capitalist’s share by an
outsider
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*METHOD OF VENTURE FINANCING
*Equity
*Conditional loan
*Income note
*Participating debentures
*DEVELOPMENT OF VENTURE CAPITAL IN INDIA
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*DEVELOPMENT OF VENTURE CAPITAL IN INDIA
*The concept of venture capital was formally introduced in India in 1987 by IDBI.
*The government levied a 5 per cent cess on all know-how import payments to create the venture fund.
*ICICI started VC activity in the same year
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*VENTURE CAPITAL FUNDS IN INDIA
1) Those promoted by the Central Government controlled development finance institutions.
for example; - Risk capital and technology finance corporation (RCTFC) - Industrial finance corporation of India (IFCI) - Risk capital fund by IDBI
2) Those promoted by State Government controlled development finance institutions.For example:
- Punjab Infotech Venture Fund - Gujarat industrial investment corporation (GIIC) - Kerala Venture Capital Fund Pvt Ltd.
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3. Promoted by the public sector banks for example: - Canfina by Canara bank - SBI-cap by State bank of India4. Promoted by the foreign banks for example: - Indus venture fund - Credit capital venture fund - Grindlay’s India development fund
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*ADVANTAGES
*It injects long term equity finance which provides a solid capital base for future growth.
*The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain.
*The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations.
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*VC can help in the rehabilitation of sick units.*VC can assist small ancillary units to upgrade their
technologies*VCFs can play a significant role in developing countries in the
service sector including tourism, publishing, health care etc.*They can provide financial assistance to people coming out
of universities, technical institutes, etc thus promoting entrepreneurial spirits
*FUTURE PROSPECTS OF VC IN INDIA
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