This document provides an overview of fund-based financial services. It discusses six main types of fund-based services: 1) leasing, 2) hire purchase, 3) consumer credit, 4) factoring, 5) venture capital financing, and 6) housing finance. For each type, it provides definitions, key features, and advantages. The overall purpose is to classify and explain different methods of providing structured financing that is secured or supported by company assets.

1. FUND BASED FINANCIAL
SERVICES
BY T.SATYA DEEPTHI-JNTUA(MBA)

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. 1. LEASING

8.  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.
DEFINITION

10.  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

11. Advantages Of Leasing
Lessor Lessee
1. Full Security 1. Financing of Capital
Goods
2. Tax Benefit 2. Less Costly
3. High Profitability 3. Tax Benefits
4. Trading On Equity 4. Flexibility in structuring
of Rentals
5. High Growth Potential 5. Simplicity

12. 2. HIRE PURCHASE

13.  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

14.  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

15.  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

16.  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

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

19. 3. CONSUMER CREDIT

20.  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

21.  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”

22.  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.
 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

23.  Enjoying Possession
 Compulsory saving
 Meeting Emergency
 Realization Of Dreams
Advantages of Consumer Credit

24. 4. FACTORING

25.  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

26.  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

27.  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

28.  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

29. 5.VENTURE CAPITAL
FINANCING

30.  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

31.  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

32.  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

33. 6. HOUSING FINANCE

34. DEFINITION

35.  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

36.  Institutions: 1. HUDCO
2. LICHFL and
3. DHFL
BANKS: 1. SCB’s
2. RRB’S
3. HDFC and
4. ARDB’S
Major institutions and banks involved
in Housing Finance

37.  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