The document discusses various sources of finance for Indian corporations operating overseas. It covers long-term sources such as equity shares, retained earnings, and term loans. Medium-term sources include preference shares, debentures, and medium-term loans. Short-term sources are discussed as well, such as trade credit, working capital loans, and bill discounting. The document also examines the differences between owned and borrowed capital, as well as internal and external sources of financing. Specific financing instruments like American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) are explained in detail.
Short term funds such as working capital loans less than one year are used to finance business operations like accounts receivable and inventory. Long term funds from sources like bank loans and equity investments are generally used for start-up costs, capital expenditures, and business expansion. The loan application process involves applicants providing personal and financial details which are assessed by credit officers and committees to evaluate creditworthiness and ability to repay before a loan is approved or denied.
This document discusses sources of finance for businesses. It outlines different classifications of sources including short, medium, and long term sources. Short term sources include bank credit, customer advances, and trade credit. Medium term sources include debentures, preference shares, and bank loans. Long term sources include debentures, shares, and plowing back profits. Sources are also classified as internal or external, owned or borrowed, and according to the mode of financing such as security/external financing, internal financing, and loan financing. Security financing involves raising funds through corporate securities like shares and debentures.
This document discusses sources of funds for businesses. It describes internal sources like retained earnings and depreciation, as well as external sources like share capital, loan capital, overdrafts, leasing, and trade credit. Long-term sources include share capital in the form of ordinary, preference, and deferred shares, as well as debt like debentures and mortgages. Short-term sources are those under one year, such as overdrafts, credit cards, and trade credit. The choice of funds depends on costs, use, business size and status, financial situation, and gearing level.
This document discusses different sources of finance for businesses classified according to time period, ownership/control, and source of generation. Sources are classified as long-term, medium-term, or short-term depending on the time period for which funds are required. Sources also include owned capital like equity or retained earnings that are under the business's control, and borrowed capital from external sources like financial institutions or public debt. Internal sources of finance come from within the business like retained profits, while external sources come from outside the business like loans or share offerings. Choosing the right source of finance is important for business costs and feasibility.
This document discusses the major sources of funds for businesses, including internal and external sources. Internally, businesses can raise funds from retained profits, depreciation, and selling assets. Externally, common long-term sources are share capital in the form of ordinary, preference, or deferred shares, as well as loan capital from debentures, mortgages, venture capitalists, or government assistance. Short-term external sources include bank overdrafts, loans, leasing, credit cards, and trade credit. The choice of funds depends on factors like cost, availability, and financial risk.
This document discusses various sources of finance for companies. It outlines long-term sources such as bank loans, equity shares, debentures, and internal accruals. Medium-term sources include leasing, hire purchase, bonds, and medium-term loans. Short-term sources are bank overdrafts, trade credits, and customer advances. The document also discusses share capital, types of shares including preference and equity shares, borrowed funds both secured and unsecured, and international and domestic sources of funds.
This document summarizes various sources of funds for Islamic banks including wadiah mudharabah contracts, capital and equity, and different types of deposits and investment accounts. It explains that wadiah involves monetary deposits for safekeeping without a share of profits, while mudharabah is a profit-sharing contract between capital providers and entrepreneurs. It also outlines the key features and underlying shariah concepts for current accounts, savings accounts, general investment accounts, and special investment accounts.
Short term funds such as working capital loans less than one year are used to finance business operations like accounts receivable and inventory. Long term funds from sources like bank loans and equity investments are generally used for start-up costs, capital expenditures, and business expansion. The loan application process involves applicants providing personal and financial details which are assessed by credit officers and committees to evaluate creditworthiness and ability to repay before a loan is approved or denied.
This document discusses sources of finance for businesses. It outlines different classifications of sources including short, medium, and long term sources. Short term sources include bank credit, customer advances, and trade credit. Medium term sources include debentures, preference shares, and bank loans. Long term sources include debentures, shares, and plowing back profits. Sources are also classified as internal or external, owned or borrowed, and according to the mode of financing such as security/external financing, internal financing, and loan financing. Security financing involves raising funds through corporate securities like shares and debentures.
This document discusses sources of funds for businesses. It describes internal sources like retained earnings and depreciation, as well as external sources like share capital, loan capital, overdrafts, leasing, and trade credit. Long-term sources include share capital in the form of ordinary, preference, and deferred shares, as well as debt like debentures and mortgages. Short-term sources are those under one year, such as overdrafts, credit cards, and trade credit. The choice of funds depends on costs, use, business size and status, financial situation, and gearing level.
This document discusses different sources of finance for businesses classified according to time period, ownership/control, and source of generation. Sources are classified as long-term, medium-term, or short-term depending on the time period for which funds are required. Sources also include owned capital like equity or retained earnings that are under the business's control, and borrowed capital from external sources like financial institutions or public debt. Internal sources of finance come from within the business like retained profits, while external sources come from outside the business like loans or share offerings. Choosing the right source of finance is important for business costs and feasibility.
This document discusses the major sources of funds for businesses, including internal and external sources. Internally, businesses can raise funds from retained profits, depreciation, and selling assets. Externally, common long-term sources are share capital in the form of ordinary, preference, or deferred shares, as well as loan capital from debentures, mortgages, venture capitalists, or government assistance. Short-term external sources include bank overdrafts, loans, leasing, credit cards, and trade credit. The choice of funds depends on factors like cost, availability, and financial risk.
This document discusses various sources of finance for companies. It outlines long-term sources such as bank loans, equity shares, debentures, and internal accruals. Medium-term sources include leasing, hire purchase, bonds, and medium-term loans. Short-term sources are bank overdrafts, trade credits, and customer advances. The document also discusses share capital, types of shares including preference and equity shares, borrowed funds both secured and unsecured, and international and domestic sources of funds.
This document summarizes various sources of funds for Islamic banks including wadiah mudharabah contracts, capital and equity, and different types of deposits and investment accounts. It explains that wadiah involves monetary deposits for safekeeping without a share of profits, while mudharabah is a profit-sharing contract between capital providers and entrepreneurs. It also outlines the key features and underlying shariah concepts for current accounts, savings accounts, general investment accounts, and special investment accounts.
The document discusses various sources of finance for businesses including commercial banks, development banks, capital markets, and venture capital. It provides details on different types of each source such as short and long term bank loans, development institutions like IFCI and ICICI, primary and secondary capital markets, and the advantages and disadvantages of venture capital. The sources of finance can be classified as long or short term, generated internally or externally, and involve ownership or being borrowed. Documentation required for loans from financial institutions is also outlined.
This document discusses various sources of business financing. It defines business financing as the process of raising, providing, and managing money used for business activities. Some key sources discussed include retained earnings, trade credit, factoring, lease financing, public deposits, commercial paper, and issuing shares. For each source, the document outlines the basic concept, merits, and limitations. The overall purpose is to explain different options for funding a business and factors to consider when choosing financing sources.
This document discusses sources of business finance. It explains that business finance refers to funds required for business activities and is needed for starting, running, expanding, and purchasing assets for a business. Sources of funds are classified by period, ownership, and generation. Owner's funds come from equity shares, preference shares, and retained earnings. Borrowed funds sources include debentures, loans from financial institutions and banks, and public deposits.
Internal sources of finance for a business include cash from daily sales, extended credit from suppliers, and reducing stock levels. External finance comes from individuals or organizations outside the business, such as banks or investors. There are also differences between short-term and long-term financing. Short-term finance covers day-to-day operations and is paid back quickly, while long-term finance funds larger projects over multiple years and typically requires some security. A business can obtain funding from either internal or external sources.
Following this presentation you will:
- Understand the differences between Internal and External sources of finance.
- Distinguish between long, medium and short term sources of finance.
- Understand the advantages and disadvantages of each form.
So you’re a young professional who has managed to keep a savings account that has been slowly growing over the years. You can’t help but think that there must be something that you can do to grow your money by investing it more wisely. What are your options to doing this?
Taskworld’s Investment Guide for beginners is full of tips and ideas for your consideration as a first time investor!
The document provides an overview of various sources of financing, including both conventional and Islamic options. It discusses debt financing through instruments like bonds, sukuk, murabaha, and qard al hassan. It also covers equity financing such as venture capital, public offerings, private placements, and Islamic structures like musharakah and mudarabah. Practical tips are provided for sourcing financing, including factors financiers consider, requirements for applications, and emphasizing the importance of istighfar.
This document discusses various sources of finance for businesses. It explains that all businesses, regardless of size, require financing to operate and achieve their goals. It then outlines different sources of financing like retained earnings, trade credit, leasing, public deposits, commercial paper, equity shares, preference shares, debentures, bank loans, financial institutions, and international markets. The document concludes by noting businesses must consider factors like cost, purpose, flexibility, and tax benefits when deciding which source of financing to use.
The document discusses various sources of finance for businesses, including internal sources like profits, customers, and suppliers; and external sources like equity and debt. It covers short-term sources like overdrafts and factoring, medium-term sources like term loans and leasing, and long-term sources like shares, bonds, retained earnings, and loans from institutions. The key aspects are to match financing needs with appropriate sources, understand the costs and risks of different options, and establish a financial plan to take advantage of sources without damaging the business's credit or relationships.
Businesses require funds to start, operate ongoing activities, and expand. They have two main sources of funds: internal and external. Internal sources include profits, depreciation, and selling assets. External long-term sources are share capital like ordinary shares, preference shares, and deferred shares, as well as loan capital like debentures, bank loans, and mortgages. External short-term sources include bank loans, overdraft facilities, and leasing. The document provides details on different types of internal and external sources of funds for businesses.
This document discusses the importance of finance for startups and the various sources of finance available. It notes that while personal sources from the entrepreneur are very important initially, startups often struggle to raise funds until more established. The main sources of finance discussed are internal sources like founder capital, retained profits, and friends/family money as well as external sources such as bank loans, angel investors, venture capital, trade credit, and issuing shares or debentures. Specific personal sources explored include using cash/investments, re-mortgaging property, credit cards, and working for free initially. The document provides an overview of each type of funding source.
Businesses need extra funding for various reasons such as starting up, introducing new products, or updating equipment. The sources of funds include owner's savings, retained profits, loans from banks, government grants, hiring/leasing assets, issuing shares, selling assets, and venture capital. When choosing a source, businesses consider factors like the amount needed, length of time for funds, risk, cost of funds, and loss of control. Internal sources include owner's funds and retained profits, while external sources are bank loans/overdrafts, government grants, hiring/leasing, issuing shares, selling assets, and venture capital - each with their own advantages and disadvantages.
The Uses of Funds schedule needed for a Business Plan and/or Projections and/or Forecasts should be a straightforward, one to two page document completed in Excel. For Business Plans that have multiple phases or expansions that require phased or tiered investment, additional Use of Funds schedules, or a single schedule with columns for Phase I, Phase II, etc., should be utilized. When completing Forecasts, let alone Uses of Funds, it is imperative to structure these documents in one file with multiple worksheets so they can be easily edited to suit the needs and expectations of individual investors or institutions
The document discusses various sources of short, medium, and long term finance for businesses. It identifies common short term sources like overdrafts, trade credit, and retained profits. Medium term sources include factoring, bank loans, and leasing. Long term sources involve share capital, asset sales, venture capital, and government grants. The document encourages matching finance sources to business structures like sole trader, private limited, and public limited companies.
The document discusses different sources of finance for businesses categorized by term - short term (up to 1 year), medium term (up to 5 years), and long term (more than 5 years). Some sources mentioned are bank overdrafts, loans, venture capital, ordinary share capital, and personal sources. Key factors in choosing a source include the legal structure of the business, the intended use of funds, amount required, the business's profit levels and risk level, and the owners' willingness to lose control.
Equity shares represent ownership in a company and are an important source of long-term capital financing. Preference shares have preferential rights to dividends and assets but limited voting rights. Debentures are a form of debt where the company promises to repay the principal along with interest. Other sources of financing discussed include retained earnings, loans from banks and financial institutions, public deposits, trade credit, leasing, factoring, and commercial paper.
FINANCIAL MANAGEMENT- Sources of finance
Sources of finance can be classified into:
Internal sources (raised from within the organisation)
External (raised from an outside source)
Internal Sources Owner’s investment
Internal Sources Retained Profits
Internal Sources Sale of Stock
Internal Sources Sale of Fixed Assets
Internal Sources Debt Collection
External Sources Bank Loan
External Sources Share Issue
External Sources Share Issue
The document discusses theories around a company's optimal capital structure, including Modigliani-Miller's propositions that in a world without taxes or bankruptcy risk, a company's value and cost of capital do not depend on its debt-to-equity ratio. It also examines how the introduction of taxes can increase firm value through interest tax deductions, but higher debt also increases bankruptcy risk which reduces value. The optimal capital structure balances the tax benefits of debt against the costs of financial distress from taking on too much debt.
sources of short term fund and indirect source of fundAJITH MK
This document discusses various short-term and indirect sources of funds for financial management. Some key short-term sources include trade credit, accrued expenses, commercial paper, inter-corporate deposits, and bank credit. Indirect sources include deferred credit, bill discounting, venture capital, hire purchase/installment schemes, factoring, forfeiting, securitization, lease financing, seed capital assistance, and operating/service leases. Financial leases transfer ownership of the asset to the lessee, while operating leases are shorter term without ownership transfer.
This document provides an overview of various short-term financing sources including indigenous bankers, trade credit, installment credit, advances, factoring, accrued expenses, deferred incomes, commercial paper, commercial banks, and public deposits. It also discusses various types of equity such as equity shares, preference shares, debentures, and warrants. Preference shares are further classified as convertible/non-convertible, redeemable/irredeemable, participating/non-participating, and cumulative/non-cumulative preference shares. The document serves as a reference for various short-term financing options and equity instruments available to companies.
The document discusses various sources of finance for companies. It categorizes sources as short term, medium term, and long term based on tenure. Short term sources include working capital finance from banks, trade credit, inter-corporate deposits, factoring, and commercial paper. Medium term sources include loans from banks and financial institutions, lease financing, hire purchase, external commercial borrowings, and bonds. Long term sources include shares, debentures, retained earnings, depository receipts, venture capital, and securitization. The document provides details on each type of financing source and their advantages and disadvantages.
The document provides an introduction to financial management. It defines finance as the management of money and discusses how financial managers are responsible for raising and allocating business funds. The document outlines different goals of financial management like profit and wealth maximization. It also describes various long-term sources of financing like shares, debentures, and loans. Short-term financing options like bank loans, commercial paper, and trade credit are also summarized. The key aspects and features of different financing instruments are defined.
The document discusses various sources of finance for businesses including commercial banks, development banks, capital markets, and venture capital. It provides details on different types of each source such as short and long term bank loans, development institutions like IFCI and ICICI, primary and secondary capital markets, and the advantages and disadvantages of venture capital. The sources of finance can be classified as long or short term, generated internally or externally, and involve ownership or being borrowed. Documentation required for loans from financial institutions is also outlined.
This document discusses various sources of business financing. It defines business financing as the process of raising, providing, and managing money used for business activities. Some key sources discussed include retained earnings, trade credit, factoring, lease financing, public deposits, commercial paper, and issuing shares. For each source, the document outlines the basic concept, merits, and limitations. The overall purpose is to explain different options for funding a business and factors to consider when choosing financing sources.
This document discusses sources of business finance. It explains that business finance refers to funds required for business activities and is needed for starting, running, expanding, and purchasing assets for a business. Sources of funds are classified by period, ownership, and generation. Owner's funds come from equity shares, preference shares, and retained earnings. Borrowed funds sources include debentures, loans from financial institutions and banks, and public deposits.
Internal sources of finance for a business include cash from daily sales, extended credit from suppliers, and reducing stock levels. External finance comes from individuals or organizations outside the business, such as banks or investors. There are also differences between short-term and long-term financing. Short-term finance covers day-to-day operations and is paid back quickly, while long-term finance funds larger projects over multiple years and typically requires some security. A business can obtain funding from either internal or external sources.
Following this presentation you will:
- Understand the differences between Internal and External sources of finance.
- Distinguish between long, medium and short term sources of finance.
- Understand the advantages and disadvantages of each form.
So you’re a young professional who has managed to keep a savings account that has been slowly growing over the years. You can’t help but think that there must be something that you can do to grow your money by investing it more wisely. What are your options to doing this?
Taskworld’s Investment Guide for beginners is full of tips and ideas for your consideration as a first time investor!
The document provides an overview of various sources of financing, including both conventional and Islamic options. It discusses debt financing through instruments like bonds, sukuk, murabaha, and qard al hassan. It also covers equity financing such as venture capital, public offerings, private placements, and Islamic structures like musharakah and mudarabah. Practical tips are provided for sourcing financing, including factors financiers consider, requirements for applications, and emphasizing the importance of istighfar.
This document discusses various sources of finance for businesses. It explains that all businesses, regardless of size, require financing to operate and achieve their goals. It then outlines different sources of financing like retained earnings, trade credit, leasing, public deposits, commercial paper, equity shares, preference shares, debentures, bank loans, financial institutions, and international markets. The document concludes by noting businesses must consider factors like cost, purpose, flexibility, and tax benefits when deciding which source of financing to use.
The document discusses various sources of finance for businesses, including internal sources like profits, customers, and suppliers; and external sources like equity and debt. It covers short-term sources like overdrafts and factoring, medium-term sources like term loans and leasing, and long-term sources like shares, bonds, retained earnings, and loans from institutions. The key aspects are to match financing needs with appropriate sources, understand the costs and risks of different options, and establish a financial plan to take advantage of sources without damaging the business's credit or relationships.
Businesses require funds to start, operate ongoing activities, and expand. They have two main sources of funds: internal and external. Internal sources include profits, depreciation, and selling assets. External long-term sources are share capital like ordinary shares, preference shares, and deferred shares, as well as loan capital like debentures, bank loans, and mortgages. External short-term sources include bank loans, overdraft facilities, and leasing. The document provides details on different types of internal and external sources of funds for businesses.
This document discusses the importance of finance for startups and the various sources of finance available. It notes that while personal sources from the entrepreneur are very important initially, startups often struggle to raise funds until more established. The main sources of finance discussed are internal sources like founder capital, retained profits, and friends/family money as well as external sources such as bank loans, angel investors, venture capital, trade credit, and issuing shares or debentures. Specific personal sources explored include using cash/investments, re-mortgaging property, credit cards, and working for free initially. The document provides an overview of each type of funding source.
Businesses need extra funding for various reasons such as starting up, introducing new products, or updating equipment. The sources of funds include owner's savings, retained profits, loans from banks, government grants, hiring/leasing assets, issuing shares, selling assets, and venture capital. When choosing a source, businesses consider factors like the amount needed, length of time for funds, risk, cost of funds, and loss of control. Internal sources include owner's funds and retained profits, while external sources are bank loans/overdrafts, government grants, hiring/leasing, issuing shares, selling assets, and venture capital - each with their own advantages and disadvantages.
The Uses of Funds schedule needed for a Business Plan and/or Projections and/or Forecasts should be a straightforward, one to two page document completed in Excel. For Business Plans that have multiple phases or expansions that require phased or tiered investment, additional Use of Funds schedules, or a single schedule with columns for Phase I, Phase II, etc., should be utilized. When completing Forecasts, let alone Uses of Funds, it is imperative to structure these documents in one file with multiple worksheets so they can be easily edited to suit the needs and expectations of individual investors or institutions
The document discusses various sources of short, medium, and long term finance for businesses. It identifies common short term sources like overdrafts, trade credit, and retained profits. Medium term sources include factoring, bank loans, and leasing. Long term sources involve share capital, asset sales, venture capital, and government grants. The document encourages matching finance sources to business structures like sole trader, private limited, and public limited companies.
The document discusses different sources of finance for businesses categorized by term - short term (up to 1 year), medium term (up to 5 years), and long term (more than 5 years). Some sources mentioned are bank overdrafts, loans, venture capital, ordinary share capital, and personal sources. Key factors in choosing a source include the legal structure of the business, the intended use of funds, amount required, the business's profit levels and risk level, and the owners' willingness to lose control.
Equity shares represent ownership in a company and are an important source of long-term capital financing. Preference shares have preferential rights to dividends and assets but limited voting rights. Debentures are a form of debt where the company promises to repay the principal along with interest. Other sources of financing discussed include retained earnings, loans from banks and financial institutions, public deposits, trade credit, leasing, factoring, and commercial paper.
FINANCIAL MANAGEMENT- Sources of finance
Sources of finance can be classified into:
Internal sources (raised from within the organisation)
External (raised from an outside source)
Internal Sources Owner’s investment
Internal Sources Retained Profits
Internal Sources Sale of Stock
Internal Sources Sale of Fixed Assets
Internal Sources Debt Collection
External Sources Bank Loan
External Sources Share Issue
External Sources Share Issue
The document discusses theories around a company's optimal capital structure, including Modigliani-Miller's propositions that in a world without taxes or bankruptcy risk, a company's value and cost of capital do not depend on its debt-to-equity ratio. It also examines how the introduction of taxes can increase firm value through interest tax deductions, but higher debt also increases bankruptcy risk which reduces value. The optimal capital structure balances the tax benefits of debt against the costs of financial distress from taking on too much debt.
sources of short term fund and indirect source of fundAJITH MK
This document discusses various short-term and indirect sources of funds for financial management. Some key short-term sources include trade credit, accrued expenses, commercial paper, inter-corporate deposits, and bank credit. Indirect sources include deferred credit, bill discounting, venture capital, hire purchase/installment schemes, factoring, forfeiting, securitization, lease financing, seed capital assistance, and operating/service leases. Financial leases transfer ownership of the asset to the lessee, while operating leases are shorter term without ownership transfer.
This document provides an overview of various short-term financing sources including indigenous bankers, trade credit, installment credit, advances, factoring, accrued expenses, deferred incomes, commercial paper, commercial banks, and public deposits. It also discusses various types of equity such as equity shares, preference shares, debentures, and warrants. Preference shares are further classified as convertible/non-convertible, redeemable/irredeemable, participating/non-participating, and cumulative/non-cumulative preference shares. The document serves as a reference for various short-term financing options and equity instruments available to companies.
The document discusses various sources of finance for companies. It categorizes sources as short term, medium term, and long term based on tenure. Short term sources include working capital finance from banks, trade credit, inter-corporate deposits, factoring, and commercial paper. Medium term sources include loans from banks and financial institutions, lease financing, hire purchase, external commercial borrowings, and bonds. Long term sources include shares, debentures, retained earnings, depository receipts, venture capital, and securitization. The document provides details on each type of financing source and their advantages and disadvantages.
The document provides an introduction to financial management. It defines finance as the management of money and discusses how financial managers are responsible for raising and allocating business funds. The document outlines different goals of financial management like profit and wealth maximization. It also describes various long-term sources of financing like shares, debentures, and loans. Short-term financing options like bank loans, commercial paper, and trade credit are also summarized. The key aspects and features of different financing instruments are defined.
The document provides an introduction to financial management. It defines finance as the art and science of managing money. The goals of financial management are profit maximization and wealth maximization. Sources of financing include long term sources like shares, debentures, loans, and short term sources like bank financing, trade credit, and commercial paper. Long term financing is for over 5 years while short term is less than 1 year.
Finance is essential for businesses and can come from internal or external sources. Internal sources include personal savings and retained profits. External sources are from outside the business and include ownership capital from shareholders and non-ownership capital from lenders like banks. Different sources have different benefits and costs. Long-term sources include equity shares, preference shares, and debentures, while short-term sources include trade credit and overdraft facilities. Debentures are debt instruments that allow companies to borrow money from the public over a long period at a fixed interest rate. They do not confer ownership or voting rights but are often secured against company assets.
Sources of funds are needed for businesses to start up, continue operations, and expand. The main sources are debt and equity capital. Equity capital includes share capital from ordinary shares, preference shares, and deferred shares. Debt includes debentures, mortgages, loans from specialists, and government assistance. Short-term sources include bank overdrafts, loans, leasing, credit cards, and trade credit. Internal sources include profits, asset sales, and working capital reductions while external sources are evaluated on time availability, costs, and company control lost.
This document discusses various sources of business finance. It defines business finance as raising and managing funds for business organizations. The main sources discussed include retained earnings, trade credit, public deposits, shares (equity and preference), debentures, commercial banks, financial institutions, and international sources. For each source, the key merits and limitations are provided. Several factors that affect the choice of sources are also outlined, such as cost, financial strength, purpose, risk profile, control, tax benefits, and flexibility.
This document summarizes different sources of finance for businesses, including short term and long term financing options. It discusses various short term financing mechanisms like trade credit, lines of credit, and factoring. The document also covers various long term financing sources like equity, bonds, term loans, retained earnings, and venture capital. It provides details on primary and secondary stock markets. Finally, it compares key differences between working capital loans and term loans.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
This document summarizes various types of fund requirements and sources of finance for businesses. It discusses long-term and short-term financial requirements, as well as sources such as shares, debentures, retained earnings, public deposits, bank loans, and trade credit. The key differences between equity shares, preference shares, shares and debentures are highlighted. Short-term financing options like commercial papers, public deposits and trade credit are also summarized. The document concludes with definitions of capitalization and types of capitalization such as over-capitalization.
The document discusses various sources of funds for businesses, including internal and external sources. Internal sources include retained earnings, depreciation, and sale of assets. External long-term sources include share capital and loan capital (such as debentures, mortgage loans, and government assistance). External short-term sources include bank overdrafts, loans, leasing, credit cards, and trade credit. Specialized financial institutions that provide funding to businesses in India are also outlined, such as IFCI, SFCs, ICICI, IDBI, and SIDCs.
This document discusses various sources of financing for businesses including traditional sources like personal savings and retained profits. It describes ownership capital provided by shareholders and non-ownership capital from lenders. Specific ownership capital tools include common stock, which provides ownership and voting rights, and preferred stock, which guarantees dividend payments. Non-ownership capital generally takes the form of bank loans with fixed repayment terms. The document also discusses factors that influence stock prices and different forms of business ownership.
Business finance includes all types of funds used in a business, such as owner's funds and borrowed funds. It is required for starting, operating, expanding, and modernizing a business. The amount required varies based on the nature and size of operations. Some key long term sources of finance include equity shares, preference shares, retained profits, debentures, loans from financial institutions and commercial banks. Short term sources include trade credit, advances from customers, discounting bills, bank overdrafts, cash credits and public deposits.
The document discusses project financing and sources of finance for projects and businesses. It defines project financing as financing for a specific project, such as infrastructure projects, that is repaid from the cash flow of that project. It then discusses various internal and external sources of finance for businesses and projects, including retained profits, bank loans, venture capital, bonds, and other sources. It also provides an overview of ICICI Bank and its project financing group that provides funding for infrastructure and manufacturing projects.
Introduction of Finance, classification of source of finance according to ownership, period and generation. Define long term financing, medium term financing and also short term financing along with their sources
Funding option for mergers & acquisionhkhirani
This document discusses various methods of payment that can be used for mergers and acquisitions, including issuing equity shares, preference shares, secured debt instruments, or cash payments from the acquiring company. It also discusses sources of funding for these payments, such as internal accruals, IPOs, rights issues, private placements, bank loans, and overseas markets. The document provides examples of companies that have used different methods, such as Tata Motors issuing equity shares and taking a bridge loan to acquire Jaguar Land Rover.
Sources of Finance in entrepreneurship.pptxNaishana
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2. Sources of Finance: Sources of finance for business are equity, debt, debentures, retained earnings, term loans,
working capital loans, letter of credit, euro issue, venture funding etc. These sources of funds are used in different
situations. They are classified based on time period, ownership and control, and their source of generation. It is ideal
to evaluate each source of capital before opting for it. Sources of capital are the most explorable area especially for the
the entrepreneurs who are about to start a new business. It is perhaps the toughest part of all the efforts. There are
various capital sources, we can classify on the basis of different parameters.
1.Long-Term Sources of Finance
2.Medium Term Sources of Finance
3.Short Term Sources of Finance
4.Owned Capital
5.Borrowed Capital
6.Internal Sources
7.External Sources
3.
4. Long-Term Sources of Finance
Long-term financing means capital requirements for a period of more than 5 years to 10, 15, 20 years or maybe more
depending on other factors. Capital expenditures in fixed assets like plant and machinery, land and building, etc of
business are funded using long-term sources of finance. Part of working capital which permanently stays with the
business is also financed with long-term sources of funds. Long-term financing sources can be in the form of any of
them:
•Share Capital or Equity Shares
•Preference Capital or Preference Shares
•Retained Earnings or Internal Accruals
•Debenture / Bonds
•Term Loans from Financial Institutes, Government, and Commercial Banks
•Venture Funding
•Asset Securitization
•International Financing by way of Euro Issue, Foreign Currency Loans, ADR, GDR, etc.
5. Medium Term Sources of Finance
Medium term financing means financing for a period of 3 to 5 years and is used generally for two reasons. One,
when long-term capital is not available for the time being and second when deferred revenue expenditures like
advertisements are made which are to be written off over a period of 3 to 5 years. Medium term financing sources
can in the form of one of them:
•Preference Capital or Preference Shares
•Debenture / Bonds
•Medium Term Loans from
•Financial Institutes
•Government, and
•Commercial Banks
•Lease Finance
•Hire Purchase Finance.
6. Short Term Sources of Finance
Short term financing means financing for a period of less than 1 year. The need for short-term finance arises to
to finance the current assets of a business like an inventory of raw material and finished goods, debtors,
minimum cash and bank balance etc. Short-term financing is also named as working capital financing. Short
term finances are available in the form of:
•Trade Credit
•Short Term Loans like Working Capital Loans from Commercial Banks
•Fixed Deposits for a period of 1 year or less
•Advances received from customers
•Creditors
•Payables
•Factoring Services
•Bill Discounting etc.
•According to Ownership and Control:
Sources of finances are classified based on ownership and control over the business. These two parameters are
are an important consideration while selecting a source of funds for the business. Whenever we bring in
capital, there are two types of costs – one is the interest and another is sharing ownership and control. Some
entrepreneurs may not like to dilute their ownership rights in the business and others may believe in sharing
the risk.
7. Owned Capital
Owned capital also refers to equity. It is sourced from promoters of the company or from the general public by issuing
new equity shares. Promoters start the business by bringing in the required money for a startup. Following are the
sources of Owned Capital:
•Equity
•Preference
•Retained Earnings
•Convertible Debentures
•Venture Fund or Private Equity
Further, when the business grows and internal accruals like profits of the company are not enough to satisfy financing
requirements, the promoters have a choice of selecting ownership capital or non-ownership capital. This decision is up to
to the promoters. Still, to discuss, certain advantages of equity capital are as follows:
It is a long-term capital which means it stays permanently with the business.
There is no burden of paying interest or instalments like borrowed capital. So, the risk of bankruptcy also reduces.
Businesses in infancy stages prefer equity for this reason.
8. Borrowed Capital
Borrowed or debt capital is the finance arranged from outside sources. These sources of debt financing include the
the following:
Financial institutions, Commercial banks or The general public in case of debentures.
In this type of capital, the borrower has a charge on the assets of the business which means the company will pay
the borrower by selling the assets in case of liquidation. Another feature of the borrowed fund is a regular
payment of fixed interest and repayment of capital. Certain advantages of borrowing are as follows:
• There is no dilution in ownership and control of the business.
• The cost of borrowed funds is low since it is a deductible expense for taxation purpose which ends up saving on
on taxes for the company.
• It gives the business the benefit of leverage.
9. ACCORDING TO SOURCE OF GENERATION:
Based on the source of generation, the following are the internal and external sources of finance:
10. Internal Sources
The internal source of capital is the one which is generated internally by the business. These are as follows:
•Retained profits
•Reduction or controlling of working capital
•Sale of assets etc.
The internal source of funds has the same characteristics of owned capital. The best part of the internal sourcing of capital
capital is that the business grows by itself and does not depend on outside parties. Disadvantages of both equity and debt
debt are not present in this form of financing. Neither ownership dilutes nor fixed obligation/bankruptcy risk arises.
External Sources
An external source of finance is the capital generated from outside the business. Apart from the internal sources of funds,
funds, all the sources are external sources.
Deciding the right source of funds is a crucial business decision taken by top-level finance managers. The usage of the
wrong source increases the cost of funds which in turn would have a direct impact on the feasibility of the project under
concern. Improper match of the type of capital with business requirements may go against the smooth functioning of the
business. For instance, if fixed assets, which derive benefits after 2 years, are financed through short-term finances will
create cash flow mismatch after one year and the manager will again have to look for finances and pay the fee for raising
capital again.
11. EQUITY SHARE AND ITS TYPES
Equity share is a main source of finance for any company giving investors rights to vote, share profits and claim on
assets. Various types of equity share capital are authorized, issued, subscribed, paid up, rights, bonus, sweat equity
etc. The expression of the value of equity shares are in terms of face value or par value, issue price, book value,
market value, intrinsic value, stock market value etc.
12. AMERICAN DEPOSITORY RECEIPT
American Depository Receipt (ADR) is a certified negotiable instrument issued by an American bank suggesting the
the number of shares of a foreign company that can be traded in U.S. financial markets.
American Depository Receipts provide US investors with an opportunity to trade in shares of a foreign company.
When the ADRs did not exist, it was very difficult for an American investor to trade in shares of foreign companies
as they had to go through many rules and regulation.
To ease such hardship faced by American investors, the regulatory body Securities Exchange Commission (SEC)
introduced the concept of ADR which made it easier for an American investor to trade in shares of foreign
companies. American depository receipt fee varies from one cent to three cents per share depending upon the
ADR amount and its timing.
EXAMPLE: - Volkswagen, a German company trades on New York Stock Exchange. The investor in America can
easily invest into the German company, through the stock exchange. Volkswagen is listed on the American stock
exchange after complying the required laws. On other hand if the shares of Volkswagen are listed in stock markets
of countries other than US then it is termed as GDR.
13. AMERICAN DEPOSITORY RECEIPT (ADR) PROCESS
•The domestic company, already listed in its local stock exchange, sells its shares in bulk to a U.S. bank to get
itself listed on U.S. exchange.
•The U.S. bank accepts the shares of the issuing company. The bank keeps the shares in its security and issues
issues certificates (ADRs) to the interested investors through the exchange.
•Investors set the price of the ADRs through bidding process in U.S. dollars. The buying and selling in ADR
shares by the investors is possible only after the major U.S. stock exchange lists the bank certificates for
trading.
•The U.S. stock exchange is regulated by Securities Exchange Commission, which keeps a check on necessary
compliances that need to be complied by the foreign company.
14. ADVANTAGES OF AMERICAN DEPOSITORY RECEIPT (ADR)
Following are the advantages of ADRs:
• The American investor can invest in foreign companies which can fetch him higher returns.
• The companies located in foreign countries can get registered on American Stock Exchange and have its shares trades in two
different countries.
• The benefit of currency fluctuation can be availed.
• It is an easier way to invest in foreign companies as there are no restrictions to invest in ADR.
• ADR simplifies tax calculations. Trading in shares of foreign company in ADR would lead to tax under US jurisdiction and not in
in the home country of company.
• The pricing of shares of foreign companies in ADR is generally cheaper. Hence it provides additional benefit to investors.
DISADVANTAGES OF AMERICAN DEPOSITORY RECEIPT (ADR)
The following are the disadvantages of American Depository Receipts:
• Even though the transactions in ADR take place in US dollars, still they are exposed to the risk associated with foreign
exchange fluctuation.
• The number of options to invest in foreign companies is limited. Only a few companies feel the necessity to register
themselves through ADR. This limits the choice available to US investor to invest.
• The investment in companies opting for ADR often becomes illiquid as an investor needs to hold the shares for the long term
term to generate good returns.
• The charges for the entire process of ADR are mostly transferred on investors by foreign1 companies.
• Any violation of compliance can lead to strict action by the Securities Exchange Commission.
15. Conclusion
ADRs provide the US investors with ability to trade in foreign companies shares. ADR makes it easier and convenient
convenient for the domestic investors in US to trade in foreign companies shares. ADR provides the investors an
opportunity to diversify their portfolio by investing in companies which are not located in America. This eventually
leads to investors investing in companies located in emerging markets, thereby leading to profit maximization for
investors.
16. GLOBAL DEPOSITORY RECEIPT
Global Depository Receipt (GDR) is an instrument in which a company located in domestic country issues one or more
more of its shares or convertibles bonds outside the domestic country. In GDR, an overseas depository bank i.e. bank
outside the domestic territory of a company, issues shares of the company to residents outside the domestic territory.
territory. Such shares are in the form of depository receipt or certificate created by overseas the depository bank.
Issue of Global Depository Receipt is one of the most popular ways to tap the global equity markets. A company can
raise foreign currency funds by issuing equity shares in a foreign country.
GLOBAL DEPOSITORY RECEIPT EXAMPLE
A company based in USA, willing to get its stock listed on German stock exchange can do so with the help of GDR. The
The US based company shall enter into an agreement with the German depository bank, who shall issue shares to
residents based in Germany after getting instructions from the domestic custodian of the company. The shares are
issued after compliance of law in both the countries.
17. GLOBAL DEPOSITORY RECEIPT MECHANISM
•The domestic company enters into an agreement with the overseas depository bank for the purpose of issue of
of GDR.
•The overseas depository bank then enters into a custodian agreement with the domestic custodian of such
company.
•The domestic custodian holds the equity shares of the company.
•On the instruction of domestic custodian, the overseas depository bank issues shares to foreign investors
.
•The whole process is carried out under strict guidelines.
•GDRs are usually denominated in U.S. dollars.
18. ADVANTAGES OF GDR
The following are the advantages of Global Depository Receipts:
•GDR provides access to foreign capital markets.
•A company can get itself registered on an overseas stock exchange or over the counter and its shares can be traded in
more than one currency.
•GDR expands the global presence of the company which helps in getting international attention and coverage.
•GDR are liquid in nature as they are based on demand and supply which can be regulated.
•The valuation of shares in the domestic market increase, on listing in the international market.
•With GDR, the non-residents can invest in shares of the foreign company.
•GDR can be freely transferred.
•Foreign Institutional investors can buy the shares of company issuing GDR in their country even if they are restricted to
buy shares of foreign company.
•GDR increases the shareholders base of the company.
•GDR saves the taxes of an investor. An investor would need to pay tax if he purchases shares in the foreign company,
whereas in GDR same is not the case.
19. DISADVANTAGES
The following are the disadvantages of Global Depository Receipts:
•Violating any regulation can lead to serious consequences against the company.
•Dividends are paid in domestic country’s currency which is subject to volatility in the forex market.
•It is mostly beneficial to High Net-Worth Individual (HNI) investors due to their capacity to invest high amount in GDR.
•GDR is one of the expensive sources of finance.
Conclusion
GDR is now one of most important sources of finance in today’s world. With globalization, every company is willing to
expand its wings. GDR makes it possible for such companies to reach and tap international markets. GDR provides
companies in emerging markets with opportunities for rapid growth and development.
20. BONDS AND THEIR TYPES
Bond is a financial instrument whereby the
issuer of the bond raises (borrows) capital
or funds at a certain cost for certain time
period and pays back the principal amount
on maturity of the bond. Interest paid on
bonds is usually referred to as coupon. In
simple words, a bond is a loan taken at a
certain rate of interest for a definite time
period and repaid on maturity. From a
company’s point of view, the bond or
debenture falls under the liabilities section
of the balance sheet under the heading of
Debt. A bond is similar to the loan in many
aspects however it differs mainly with
respect to its tradability. A bond is usually
tradable and can change many hands
before it matures; while a loan usually is
not traded or transferred freely
21. YANKEE BONDS
A dollar-denominated bond issued in the US by an issuer who is outside the US is called as Yankee bond.
KEY TAKEAWAYS
A Yankee bond is a debt obligation denominated in U.S. dollars that is publicly issued in the U.S. by foreign banks and
corporation, and sometimes even governments.
Yankee bonds are subject to U.S. securities laws, as they trade on U.S. exchanges.
Yankee bonds offer the issuer to chance to get cheaper financing and reach a broader investment audience; they offer
investors the chance for better yields.
On the downside, Yankee bonds can take a long time to come to market, subjecting them to interest rate risk; they are
also vulnerable to currency risk and other problems in their home country's economy.
Yankee bonds are frequently issued in tranches, individual portions of a larger debt offering or structured financing
arrangement that have differing risk levels, interest rates and maturities, and offerings may be extremely large, as much
as $1 billion.
22. There are also Yankee certificate of deposits, CDs that are issued in the United States by a branch or agency of a foreign bank.
Advantages of Yankee Bonds
Yankee bonds can represent a win-win opportunity for both issuers and investors. One of the primary potential advantages for a Yankee bond issuer is the
opportunity to obtain cheaper financing capital at a lower cost if comparable bond rates in the United States are significantly lower than the current rates in a
foreign company’s own country. The size of the U.S. bond market and the fact U.S. investors very actively trade it also confers an advantage for the issuer,
especially if the bond offering is a large one. Although U.S. regulatory requirements may initially hamper a foreign issuer in regard to obtaining approval to offer
bonds, conditions for lending in the United States may still be less stringent overall than those in the issuer’s own country, allowing the issuer greater flexibility in
terms of the offering.
A major advantage for U.S. investors in Yankee bonds is such bonds frequently offer higher yields than the yields available on comparable, or even lower-rated, bond
issues from U.S. issuers. Another potential advantage is the fact that Yankee bonds offer investors a means of obtaining international diversification in a portfolio of
bond investments. Yankee bonds also offer U.S. investors an advantage over investing in foreign corporation bond issues made in the foreign company’s home
country. Since Yankee bonds are denominated in U.S. dollars, the currency risk commonly associated with foreign bond investments is virtually eliminated.
Disadvantages of Yankee Bonds
One of the drawbacks of Yankee bonds for issuers is the time involved. Because of strict U.S. regulations for the issuing of such bonds, it can take more than three
months for a Yankee bond issue to be approved for sale. The approval process includes an evaluation of the issuer’s creditworthiness by a debt-rating agency such
as Moody’s or Standard & Poor’s.
Another consideration is the interest rate environment. Foreign issuers usually favor issuing Yankee bonds when there is a low-interest-rate environment in the
United States, since that means the issuer can offer the bond with lower interest payments. But should something send interest rates soaring or plummeting in three
months, it could mess up the carefully calibrated pricing of the Yankee bond, affecting how well it sells.
Finally, a Yankee bond can be affected by the economy of its home country. So if that country has a shaky economy, its price could topple, or the issuer could run
into problems—which could affect its coupon payments. And while the Yankee bond is issued in dollars, it could be vulnerable to some currency risk as well, as a
nation's economic woes often affect its money's performance in the foreign exchange markets.
24. What are Rupee Denominated Bonds or Masala Bonds?
A rupee denominated bond is a bond issued by an Indian entity in foreign markets and the interest payments and principal
reimbursements are denominated (expressed) in rupees.
The peculiarity of rupee denominated bond is that buying of bonds, interest payments and repayment all are expressed in
rupees. All payments are converted into corresponding dollar values at the time of payment. The term ‘masala bond’ is also
used to describe rupee denominated ever since the first issuer of rupee-denominated bonds used the name masala bonds in its
its first issue. RBI in its August 2016 regulations also used this name.
Why the masala bonds are attractive for foreign investors?
For the foreign investor, the rupee denominated bonds is attractive as it will give him higher interest rate compared to the
standard interest rate prevailing in their markets. On an average, the rupee denominated bonds have an interest rate of 2 to 3 %
higher compared to the standard LIBOR (London Interbank Offer Rate).
An additional benefit of rupee denominated bonds is that it will encourage foreign buyers to deal more in rupees (and products
that help them to reduce exchange rate risks). Hence, internationalization of rupee can be promoted by rupee denominated
bonds.
The International Finance Corporation (IFC) – a World Bank affiliate is the first major issuer of rupee denominated bonds in the
name tag of ‘masala bonds’. Later, in September 2015, the RBI came out with detailed regulatory guidelines for the issue of
rupee denominated bonds. As per the RBI’s regulation on masala bonds, the money can be used only for infrastructure financing
purposes. In August 2016, the RBI allowed banks to issue masala bonds to procure money to meet their capital needs and to
collect fund to finance infrastructure projects. The overall guidelines for rupee denominated bonds will be same as that for
External Commercial Borrowings.
25. External Commercial Borrowings (ECB)
ECBs are commercial loans raised by eligible resident entities from recognized non-resident entities and should conform to
parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The
parameters apply in totality and not on a standalone basis. The framework for raising loans through ECB (herein after referred
to as the ECB Framework) comprises the following three tracks:
• Track I: Medium term foreign currency denominated ECB with minimum average maturity of 3/5 years. 5Manufacturing
sector companies may raise foreign currency denominated ECBs with minimum average maturity period of 1 year.
• Track II: Long term foreign currency denominated ECB with minimum average maturity of 10 years.
• Track III: Indian Rupee (INR) denominated ECB with minimum average maturity of 3/5 years. 6Manufacturing sector
companies may raise INR denominated ECBs with minimum average maturity period of 1 year.
Loans including bank loans;
Securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially
convertible preference shares / debentures);
•Buyers’ credit;
•Suppliers’ credit;
•Foreign Currency Convertible Bonds (FCCBs);
•Financial Lease; and
•Foreign Currency Exchangeable Bonds (FCEBs)
However, ECB framework is not applicable in respect of the investment in Non-convertible Debentures (NCDs) in India made by
Registered Foreign Portfolio Investors (RFPIs).
26. Currency of Borrowing: ECB can be raised in any freely convertible foreign currency as well as in Indian Rupees. Further details
are given below:
i. In case of Rupee denominated ECB, the non-resident lender, other than foreign equity holders, should mobilise Indian Rupees
Rupees through swaps/outright sale undertaken through an AD Category I bank in India.
ii. Change of currency of ECB from one convertible foreign currency to any other convertible foreign currency as well as to INR is
is freely permitted. Change of currency from INR to any foreign currency is, however, not permitted.
iii. Change of currency of ECB into INR can be at the exchange rate prevailing on the date of the agreement between the parties
parties concerned for such change or at an exchange rate which is less than the rate prevailing on the date of agreement if
consented to by the ECB lender.
Security for raising ECB: AD Category I banks are permitted to allow creation of charge on immovable assets, movable assets,
financial securities and issue of corporate and/ or personal guarantees in favor of overseas lender / security trustee, to secure
the ECB to be raised / raised by the borrower, subject to satisfying themselves that:
•the underlying ECB is in compliance with the extant ECB guidelines,
•there exists a security clause in the Loan Agreement requiring the ECB borrower to create charge, in favour of overseas lender /
security trustee, on immovable assets / movable assets / financial securities / issuance of corporate and / or personal guarantee,
and
•No objection certificate, as applicable, from the existing lenders in India has been obtained.
27. Conclusion
Though external commercial borrowings come at lower costs, it comes with various restriction and guidelines that need to be
followed. There exists restriction on the amount and maturity of the ECB. ECBS above $ 20 million need to be of minimum
average maturity of 5 years and below $ 20 million should have a minimum average maturity of 3 years. There are restrictions
with regards to end use of the funds too. The companies may use it for expansion, but they cannot use it for onward lending,
real estate investments, repayment of existing loans and many such limitations. ECBs are one of the commonly availed sources
of cheaper funds by eligible companies. However, the companies need to be cautious about the exchange rate risk and impact
on balance sheet debt to use it effectively.
28.
29.
30.
31. • It is evident from above that it is essential that good governance practices must be effectively implemented and enforced
preferably by self-regulation and voluntary adoption of ethical code of business conduct and if necessary, through relevant
regulatory laws and rules framed by Government or its agencies such as SFBI, RBI.
• The effective implementation of good governance practices would ensure investors confidence in the corporate companies
which will lead to greater investment in them ensuring their sustained growth. Thus, good corporate governance would
greatly benefit the companies enabling them to thrive and prosper.
• Further, in the context of liberalization and globalisation there is growing realization in the emerging economies including
India that a country’s business environment must be maintained and operated in a manner that is conducive to investors’
confidence so that both domestic and foreign investors are induced to make adequate investment in corporate companies.
This will be conducive to rapid capital formation and sustained growth of the economy.
• Some persons regard certain good corporate practices as ‘irritants’ to the growth of their businesses since they require the
implementation of minimum standards of corporate governance. However, fact of the matter is that the observance of
practices of good corporate governance will ensure investors’ confidence in the companies which have record of good
corporate governance.
• Further, it needs to be emphasized that practices and principles of good corporate governance have been evolved which
stimulate business rather than stifle it. In fact in good corporate governance structure what is ensured is that companies
must preferably follow voluntarily ethical code of business conduct which are conducive to the expansion of investment in
them and ensure good outcome in terms of rates of return.
32. • The ministry of corporate affairs (MCA) is close to releasing a draft report which will pave way for Indian companies to list
their shares in overseas markets without listing in India first, two regulatory officials aware of the matter said.
• The ministry will propose changes to Foreign Exchange Management Act (FEMA), Income Tax Act and Companies Act, the
officials said on condition of anonymity. These will include amendments on taxing share transfers in India and adding
enabling provisions under the Companies Act 2013 to allow listing of certain classes of securities on stock exchanges in
permissible foreign jurisdictions. The proposal was cleared by the Union cabinet in March.
• FEMA would be amended to include a category of ‘permissible investors’ from select jurisdictions. These companies will also
be governed by the rules of the jurisdiction in which they are listed,” said the first of the two persons, both of whom spoke
on condition of anonymity.
• Currently, a company incorporated in India can list on a foreign stock exchange only after it is listed in India. MakeMyTrip,
which is listed on Nasdaq, had to incorporate itself in Mauritius to facilitate overseas listing without going public in India.
• After the Union cabinet green-lighted the proposal in March, finance minister Nirmala Sitharaman reiterated the policy
intent in May, on the last of a five-day-long series of announcements on the Rs20 trillion financial package to ease covid-19
related hardships.
33. • The idea for overseas listing was first floated by a committee set up by the Securities and Exchange Board of India (Sebi). In its
recommendations in December 2018, it said listing Indian companies abroad would require simultaneous easing of provisions
of taxation and foreign exchange management act (FEMA) among others.
• FEMA, at present, does not contemplate a company incorporated in India and listed on a foreign stock exchange selling shares
to a person resident outside India. Companies Act 2013 currently has rules for public offers and private placements of
securities, is applicable to all companies incorporated in India, including companies that issue ADRs/GDRs as well as those
which would propose to list their equity shares on foreign stock exchanges.
• The ministry is also in favor of allowing listing in certain key permissible jurisdictions. These jurisdictions will have strong anti-
money laundering norms, know your client norms and would need to be compliant with foreign action task force (FATF).
• A Sebi discussion paper had suggested 10 permissible jurisdictions which have strong anti-money laundering laws such as US,
UK, China, Japan, Hong Kong, South Korea, Switzerland, France, Germany, Canada.
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