New financial products and services Leasing: it a method of acquiring right to use any equipment or asset for consideration. Merchant banking: a merchant banker is a financial intermediary who helps to transfer capital from those who posses it to those who need it. These are service bankers and concerned with providing non- fund based services of arranging funds rather than providing them. Mutual funds: a mutual fund refers to a fund raised by a financial service company by pooling the savings from the public, these funds are invested in a diversified portfolio with a view to spreading and minimizing risk.
Factoring: it is an arrangement between a financial institution(factor) and a business concern(client) which sells goods and services to trade customers. As a result of this arrangement, the factor( usually banker) undertakes collection of the clients debts and finance the client on the basis of his accounts receivables. Forfeiting: it is a technique by which a forfeiter(financing agency) discounts an export bill and pay ready cash to the exporter who can concentrate on the export front without bothering about collection of bills, with this the exporter is protected against the risk of non- payment of debts by the importer.
venture capital: It is a form of equity financing designed specially for funding high –risk and high reward projects. It is a method of financing in the form of equity participation. A venture capitalists finances a project based on the potentialities of a new innovative project. much trust is given to new ideas and finance is being provided not only for start-up capital but also for development capital by the financial intermediary. Hire purchase: it is a method of selling assets on installment basis. Custodial services: under this, financial intermediary provides services to clients particularly to foreign investors for a prescribed fees. Eg: collection of interest and dividends safe keeping of shares and debentures
Stock invest: it is the facility available to an investor for payment of share application money against the shares applied by him. Securitization: it is a technique where by a financial company converts its ill- liquid non- negotiable and high value financial assets into securities of small value which are made tradable and transferable. It is a method of trading in securities, backed by pools of mortgage loans. Payment of principal and interest from the income generated by the mortgages. Book- building: it is the process by which corporate determine the demand and price of the securities through public bidding.
COMMERICAL PAPER: short- term negotiable money market instrument it is like unsecured promissory note with a fixed maturity of 3-6 months.
TREASURY BILL: money market instrument issued by the central government. It is issued at discount and redeemed at par(182 to 364 days)
INTER- BANK PARTICIPATIONS(1BPS): scheduled banks issue 1bps carrying 14-17% interest p.a(91-180 days- with or without risk participations)
ZERO INTEREST CONVERTIBLE DEBENTURES/BOND: these are converted into equity shares after some period and no interest is paid.
DEEP DISCOUNT BONDS: no interest payments and they are sold at very high discount. Eg: discounted price rs. 5,300, face value is rs. 2,00,000. maturity period is 25 years.
Index linked guilt bonds: fixed maturity period and the value is linked to the index prevailing on the date of maturity.
Secured premium notes: no interest for 3 years.
Medium term debentures: secured, negotiable and highly liquid(3-5 years). Popular in German.
Variable rate debentures: compound rate of interest but vary from time to time.
Non convertible debentures with equity warrants: redeemed at premium in installments( 5, 6th 7,8th year onwards)
Cumulative convertible preference shares: within 3 to 5 yrs, these are compulsory converted into equity shares with capital and accumulated dividend.
Debentures with call or put features: call features: company has the option to redeem before maturity
Put features: holder is given right to seek redemption
Easy exit bonds: Ancash bond after 18 months of its issue
Retirement bond: the investor gets an assured monthly income for a fixed period after the expiry of the wait period
Regular income bond: attractive rate of interest payable half- yearly. Redeemable at the end of every year
Loyalty coupons: these are entitlements to the holder of debt for two to three years to exchange into equity at a discount prices.
Infrastructure bonds: giving tax benefits to the investor.
Global depository receipt( gdr): a dollar denominated instrument traded on a stock exchange in Europe/USA or both. It represents a certain number of underlying equity shares, which are denominated in rupees. The shares are issued by the company to an intermediary called depository on whose name the shares are registered. It is depository which subsequently issues the GDRs
Convertible bonds: can be converted into equity shares at a pre determined data either partially or fully.
Options bonds: cumulative/ non- cumulative(periodical payment of interest)
Classification of equity shares Blue chip shares: established company shares Defensive shares: safe return for the investors money more stable than others. Growth shares: the shares of fast growing companies (with high eps and p/e ratios) Cyclical vs. non cyclical shares: which rise and fall in price with the state of the economy of the industries to which they belong to called cyclical shares, otherwise non-cyclical. Turn around shares: rise/fall all of sudden due to turn round situations prevailing in companies
Active shares: which have frequent and day to day dealings, they must be bought and sold at least 3 times a week. Alpha shares: most frequently traded in the market. Sweat shares: which are issued to employees or workers who contribute for the development of the company. CHALLENGES TO THE FINANCIAL SECTOR: Dearth of qualified personnel( intermediaries) Lack of investor awareness Lack of transparency Lack of recent data Lack of specialization Lack of efficient risk management system
Present scenario: Conservation to dynamism Concept of credit rating Process of liberalization and globalization Emergency of primary equity market( to channelize the giving's) The financial sector should meet the above challenges by adopting new instruments and innovative means of financing, so that it could play a dynamic role in the economy.