CU-MBA-SEM-III-Banking and Financial Services Management -Second Draft

An ever-increasing number of essential financial backers, regardless of whether private value assets of-reserves or other institutional financial backers, additionally apportion a portion of their essential program to secondaries. As the private value auxiliary market develops, non-conventional optional techniques are arising. One such methodology is favoured capital, where both Limited Partners and General Partners can raise extra capital at net resource esteem while safeguarding responsibility for portfolio and its future potential gain. Secondary transactions can be generally split into two basic categories: Sale of Fund Interests A common secondary exchange, this classification remembers the offer of a financial backer's premium for a private value asset or arrangement of interests in different assets through the exchange of the financial backer's restricted association or LLC Member possession interest in the fund(s). Essentially a wide range of private value reserves (e.g., including buyout, development value, funding, mezzanine, troubled, and land) can be sold in the optional market. The exchange of the asset premium normally will permit the financial backer to get some liquidity for the subsidized speculations just as a delivery from any excess unfunded commitments to the asset. Notwithstanding customary money deals, deals of asset interests are fulfilled through various organized exchanges- Structured Joint Ventures It incorporates a wide assortment of arranged exchanges between the purchaser and merchant that ordinarily is redone to the particular necessities of the purchaser and dealer. Regularly, the purchaser and dealer concur on a financial plan that is more perplexing than a straightforward exchange of 100% responsibility for reserve revenue. Securitization A financial backer contributes its asset advantages into another vehicle (a collateralized reserve commitment vehicle) which thus gives notes and creates fractional liquidity for the dealer. Regularly, the financial backer will likewise sell a piece of the value in the utilized vehicle. It is alluded to as a collateralized reserve commitment vehicle. Stapled Transactions Stapled exchange is regularly alluded to as stapled secondaries. It happens when a private value firm (the GP) is raising another asset. An optional purchaser buys a premium in a current asset from a current financial backer and makes another obligation to the new asset being raised by the GP. These exchanges are regularly started by private value firms during the raising money measure. They had gotten less and less regular during 2008 and 2009 as the craving for essential speculations contracted. Since 2009, a set number of spinout exchanges have been finished including hostage groups inside monetary foundations. 101 CU IDOL SELF LEARNING MATERIAL (SLM)

Low-Funded Secondary An optional exchange where a LP acquires liquidity right off the bat in the existence of the asset, where the asset has called under 10% of the asset or less. Sale of direct interests Secondary directs or synthetic secondaries This category is the offer of arrangement of direct interests in working organizations, instead of restricted association interests in speculation reserves. These portfolios verifiably have started from either corporate improvement projects or enormous monetary foundations. Commonly, this class can be partitioned as follows: Secondary Direct An optional purchaser will either deal with the immediate speculations themselves or organize another chief for the ventures. Quite possibly the most eminent instances of a corporate vender connecting with into an immediate portfolios deal is the two back-to-back deals of direct portfolios from AEA Technology to Coller Capital and Vision Capital in 2005 and 2006 separately. Synthetic Secondary or Spinout Under a manufactured auxiliary exchange, optional financial backers get a premium in another restricted association that is framed explicitly to hold an arrangement of direct ventures. Normally the chief of the new asset had truly dealt with the resources as a hostage portfolio. The most remarkable illustration of this kind of exchange is the spinout of MidOcean Partners from Deutsche Bank in 2003. Tail-End This classification normally alludes to the offer of the excess resources in a private value store that is drawing closer, or has surpassed, its expected life. A last part exchange permits the director of the asset to accomplish liquidity for the asset's financial backers. Structured Secondary This class commonly alludes to the organized offer of an arrangement of private value store interests whereby the merchant keeps a few or the entirety of the asset interests on its monetary record yet the purchaser consent to support all future capital calls of the dealer's portfolio in return for a favoured return got against future circulations of the vender's portfolio. These sorts of optional exchanges have gotten progressively investigated since mid- 2008 and all through 2009 as numerous venders would not like to assume a misfortune through a straight offer of their portfolio at a precarious rebate yet rather were prepared to leave a portion of things to come potential gain in return for an extension of the uncalled capital responsibilities. 102 CU IDOL SELF LEARNING MATERIAL (SLM)

5.6 MONEY MARKET The money market alludes to exchanging exceptionally momentary obligation ventures. At the discount level, it includes huge volume exchanges among establishments and dealers. At the retail level, it incorporates currency market shared assets purchased by singular financial backers and currency market accounts opened by bank clients. In these cases, the currency market is portrayed by a serious level of wellbeing and generally low paces of return. Understanding the Money Market The currency market is one of the mainstays of the worldwide monetary framework. It includes for the time being trades of immense measures of cash among banks and the U.S. government. Most of currency market exchanges are discount exchanges that occur between monetary organizations and organizations. Foundations that take part in the currency market incorporate banks that loan to each other and to enormous organizations in the eurocurrency and time store markets; organizations that fund-raise by selling business paper into the market, which can be purchased by different organizations or assets; and financial backers who buy bank CDs as a protected spot to stop cash temporarily. A portion of those discount exchanges in the long run advance under the control of purchasers as parts of currency market shared assets and different speculations. In the discount market, business paper is a famous getting instrument on the grounds that the loan costs are higher than for bank time stores or Treasury bills, and a more prominent scope of developments is accessible, from overnight to 270 days. Be that as it may, the danger of default is fundamentally higher for business paper than for bank or government instruments. People can put resources into the currency market by purchasing currency market reserves, momentary declarations of store (CDs), metropolitan notes, or U.S. Depository bills. For singular financial backers, the currency market has retail stores, including neighbourhood banks and the U.S. government's Treasury Direct site. Intermediaries are another road for putting resources into the currency market. The U.S. government issues Treasury bills in the currency market, with developments going from a couple of days to one year. Essential vendors get them in enormous sums straightforwardly from the public authority to exchange between themselves or to offer to singular financial backers. Singular financial backers can get them straightforwardly from the public authority through its Treasury Direct site or through a bank or an agent. State, region, and metropolitan governments likewise issue transient notes. Currency market subsidizes look for steadiness and security with the objective of never losing cash and keeping net resource esteem (NAV) at $1. This one-buck NAV gauge leads to the expression \"break the buck,\" implying that if the worth falls underneath the $1 NAV 103 CU IDOL SELF LEARNING MATERIAL (SLM)

level, a portion of the first venture is gone and financial backers will lose cash. Notwithstanding, this situation just happens seldom, but since numerous currency market reserves are not FDIC-safeguarded, implying that currency market assets can all things considered lose cash. Types of Money Market Instruments Money Market Funds The discount currency market is restricted to organizations and monetary foundations that loan and get in sums going from $5 million to well more than $1 billion for each exchange. Shared assets offer containers of these items to singular financial backers. The net resource esteem (NAV) of such assets is expected to remain at $1. During the 2008 monetary emergency, one asset fell beneath that level. That set off market alarm and a mass departure from the assets, which at last prompted extra limitations on their admittance to less secure ventures. Money Market Accounts Money market accounts are a kind of investment account. They pay revenue; however, a few backers offer record holders restricted rights to at times pull out cash or compose checks against the record. (Withdrawals are restricted by government guidelines. In case they are surpassed, the bank expeditiously changes it over to a financial record.) Banks commonly figure revenue on a currency market account consistently and make a month-to-month credit to the record. By and large, currency market accounts offer marginally higher loan costs than standard investment accounts. Be that as it may, the distinction in rates among reserve funds and currency market accounts has limited significantly since the 2008 monetary emergency. Normal loan costs for currency market accounts fluctuate dependent on the sum stored. As of August 2020, the best-paying currency market account with no base store offered 0.99% annualized premium. Certificates of Deposit (CDs) Most certificates of deposit (CDs) are not rigorously currency market reserves since they are sold with terms of as long as 10 years. Nonetheless, CDs with terms however short as 90 days to a half year may be accessible. Similarly, as with currency market accounts, greater stores and longer terms yield better loan costs. Rates in August 2020 for year CDs went from about 0.5% to 1.5% contingent upon the size of the store. Dissimilar to a currency market account, the rates offered with a CD stay consistent for the store time frame. There is a punishment related with any early withdrawal of assets stored in a CD. Commercial Paper 104 CU IDOL SELF LEARNING MATERIAL (SLM)

The commercial paper market is intended for purchasing and selling unstable advances for enterprises needing a transient money mixture. Just profoundly trustworthy organizations partake, so the dangers are low. Bankers Acceptances The banker's acknowledgment is a transient advance that is ensured by a bank. Utilized widely in unfamiliar exchange, a broker's acknowledgment resembles a post-dated check and fills in as an assurance that a merchant can pay for the merchandise. There is an auxiliary market for purchasing and selling financiers acknowledgments at a rebate. Eurodollars Eurodollars are dollar-designated stores held in unfamiliar banks, and are along these lines, not expose to Federal Reserve guidelines. Exceptionally enormous stores of euro dollars are held in banks in the Cayman Islands and the Bahamas. Currency market reserves, unfamiliar banks, and huge enterprises put resources into them since they pay a somewhat higher loan fee than U.S. government obligation. Repos The repo, or repurchase understanding (repo), is important for the overnight loaning currency market. Depository bills or other government protections are offered to one more party with a consent to repurchase them at a set cost on a set date. Money Markets vs. Capital Markets The money market is characterized as managing under water of short of what one year. It is fundamentally utilized by governments and organizations to keep their income consistent, and for financial backers to make an unassuming benefit. The capital market is devoted to the deal and acquisition of long-haul obligation and value instruments. The term capital business sectors allude to the whole of the stock and security markets. While anybody can purchase and sell a stock in a small part of a second nowadays, organizations that issue stock do as such to fund-raise for their drawn-out tasks. While a stock's worth might vary, dissimilar to numerous currency market items, it has no lapse date (except if, obviously, the actual organization stops to work). 5.7 CAPITAL MARKET Capital markets sectors are the place where reserve funds and speculations are diverted between providers—individuals or organizations with money to loan or contribute—and those out of luck. Providers regularly incorporate banks and financial backers while the individuals who look for capital are organizations, governments, and people. Capital business sectors are made out of essential and auxiliary business sectors. The most well-known capital business sectors are the securities exchange and the security market. 105 CU IDOL SELF LEARNING MATERIAL (SLM)

Capital business sectors try to improve conditional efficiencies. These business sectors unite providers with those looking for capital, and give where they can trade protections. Understanding Capital Markets The term capital market extensively characterizes where different substances exchange diverse monetary instruments. These settings might incorporate the financial exchange, the security market, and the money and unfamiliar trade markets. Most business sectors are packed in major monetary focuses including New York, London, Singapore, and Hong Kong. Capital business sectors are made out of the providers and clients of assets. Providers incorporate families through reserve funds with banks just as organizations like annuity reserves, life coverage organizations, altruistic establishments, and non-monetary organizations that create cash past their requirements. Clients of assets incorporate home and engine vehicle buyers, non-monetary organizations, and governments financing foundation venture and working costs. Capital business sectors are utilized to sell monetary items like values and obligation protections. Values are stocks, which are proprietorship partakes in an organization. Obligation protections, like bonds, are interest-bearing IOUs. These business sectors are separated into two unique classifications: essential business sectors—where new value stock and security issues are offered to financial backers—and auxiliary business sectors, which exchange existing protections. Capital business sectors are a vital piece of a working present day economy since they move cash from individuals who have it to the individuals who need it for useful use. Primary vs. Secondary Markets Capital markets are made out of essential and optional business sectors. Most of present day essential and auxiliary business sectors are PC based electronic stages. Essential business sectors are available to explicit financial backers who purchase protections straightforwardly from the responsible organization. These protections are viewed as essential contributions or starting public contributions (IPOs). At the point when an organization opens up to the world, it offers its stocks and securities to enormous scope and institutional financial backers, for example, multifaceted investments and common assets. The auxiliary market, then again, incorporates settings directed by an administrative body like the Securities and Exchange Commission (SEC) where existing or as of now gave protections are exchanged between financial backers. Giving organizations don't have a section in the optional market. The New York Stock Exchange (NYSE) and NASDAQ are instances of the optional market. The auxiliary market fills a significant need in capital business sectors since it makes liquidity, giving financial backers the certainty to buy protections. 106 CU IDOL SELF LEARNING MATERIAL (SLM)

Capital Markets Expanded Capital markets can refer to markets in a broad sense for any financial asset. Corporate Finance In this domain, the capital market is the place where investable capital for non-monetary organizations is accessible. Investable capital incorporates the outer assets remembered for a weighted normal expense of capital computation normal and favoured value, public securities, and private obligation that are likewise utilized in a profit from contributed capital estimation. Capital business sectors in corporate money may likewise allude to value financing, barring obligation. Financial Services Monetary organizations associated with private instead of public business sectors are essential for the capital market. They incorporate speculation banks, private value, and investment firms rather than specialist sellers and public trades. Public Markets Worked by a directed trade, capital business sectors can allude to value markets rather than obligation, security, fixed pay, cash, subsidiaries, and wares markets. Reflecting the corporate money setting, capital business sectors can mean value just as obligation, security, or fixed pay markets. Capital business sectors may likewise allude to speculations that get capital additions charge treatment. While transient increases resources held under a year are burdened as pay as indicated by an expense section, there are various rates for long haul gains. These rates are regularly identified with exchanges orchestrated secretly through speculation banks or private assets, for example, private value or investment. 5.8 FINANCIAL INSTRUMENT Financial instruments are resources that can be exchanged, or they can likewise be viewed as bundles of capital that might be exchanged. Most sorts of monetary instruments give proficient stream and move of capital all through the world's financial backers. These resources can be cash, an authoritative right to convey or get cash or another kind of monetary instrument, or proof of one's responsibility for substance. Understanding Financial Instruments Financial instruments can be genuine or virtual reports addressing a lawful understanding including any sort of financial worth. Value based monetary instruments address responsibility for resource. Obligation based monetary instruments address an advance made by a financial backer to the proprietor of the resource. 107 CU IDOL SELF LEARNING MATERIAL (SLM)

Unfamiliar trade instruments include a third, special sort of monetary instrument. Diverse subcategories of each instrument type exist, for example, favoured offer value and normal offer value. Types of Financial Instruments Financial instruments may be divided into two types: cash instruments and derivative instruments. Cash Instruments  The values of cash instruments are directly influenced and determined by the markets. These can be securities that are easily transferable.  Cash instruments may also be deposits and loans agreed upon by borrowers and lenders. Derivative Instruments  The worth and qualities of subordinate instruments depend on the vehicle's hidden segments, like resources, financing costs, or lists.  A value choices contract, for instance, is a subordinate since it gets its worth from the hidden stock. The choice gives the right, yet not the commitment, to purchase or sell the stock at a predetermined cost and by a specific date. As the cost of the stock ascents and falls, so too does the worth of the alternative albeit not really by a similar rate.  There can be over-the-counter (OTC) subsidiaries or trade exchanged subordinates. OTC is a market or interaction whereby protections that are not recorded on proper trades are evaluated and exchanged. Types of Asset Classes of Financial Instruments Financial instruments may likewise be isolated by a resource class, which relies upon whether they are obligation based or value based. Debt-Based Financial Instruments Short-term debt-based financial instruments keep going for one year or less. Protections of this sort come as T-bills and business paper. Money of this sort can be stores and testaments of store (CDs). Trade exchanged subordinates under present moment, obligation based monetary instruments can be momentary loan cost prospects. OTC subordinates are forward rate arrangements. Long haul obligation based monetary instruments keep going for over a year. Under protections, these are bonds. Money counterparts are credits. Trade exchanged subsidiaries are bond prospects and choices on bond fates. OTC subsidiaries are financing cost trades, loan fee covers and floors, financing cost alternatives, and extraordinary subordinates. Equity-Based Financial Instruments 108 CU IDOL SELF LEARNING MATERIAL (SLM)

Securities under value based monetary instruments are stocks. Trade exchanged subsidiaries this class incorporate investment opportunities and value fates. The OTC subsidiaries are investment opportunities and extraordinary subordinates. 5.9 SUMMARY  Financial markets allude comprehensively to any commercial centre where the exchanging of protections happens.  There are numerous sorts of monetary business sectors, including (however not restricted to) forex, cash, stock, and security markets.  These markets might incorporate resources or protections that are either recorded on controlled trades or probably exchange over-the-counter (OTC).  Financial markets exchange a wide range of protections and are basic to the smooth activity of an entrepreneur society.  When monetary business sectors come up short, financial disturbance including downturn and joblessness can result.  A monetary resource is a fluid resource that addresses—and gets esteem from—a case of responsibility for substance or authoritative rights to future instalments from an element.  Financial resources worth might be founded on a hidden unmistakable or genuine resource, yet market interest impacts its worth also.  Stocks, bonds, money, CDs, and bank stores are instances of monetary resources.  In the essential market, new stocks and securities are offered to the general population interestingly.  In an essential market, financial backers can buy protections straightforwardly from the guarantor.  Types of essential market issues incorporate a first sale of stock (IPO), a private arrangement, a rights issue, and a favoured apportioning.  Stock trades rather address optional business sectors, where financial backers purchase and sell from each other.  After they've been given on the essential market, protections are exchanged between financial backers on what is known as the optional market—basically, the natural stock trades.  Debt is cash acquired by one party from another. 109 CU IDOL SELF LEARNING MATERIAL (SLM)

 Many companies and people use obligation as a technique for making huge buys that they couldn't manage under ordinary conditions.  In an obligation based monetary course of action, the getting party gets authorization to acquire cash under the condition that it should be repaid sometime in the not-too- distant future, typically with premium.  Debt can be grouped into four principal classifications: got, unstable, rotating, or sold.  Corporations issue obligation as bonds to raise capital.  Equity addresses the worth that would be gotten back to an organization's investors if the entirety of the resources were exchanged and the entirety of the organization's obligations were paid off.  We can likewise consider value a level of lingering possession in a firm or resource in the wake of taking away all obligations related with that resource.  Equity addresses the investors' stake in the organization, distinguished on an organization's asset report.  The estimation of value is an organization's absolute resources short its complete liabilities, and is utilized in a few key monetary proportions like ROE.  The currency market includes the buy and offer of enormous volumes of exceptionally momentary obligation items, like for the time being stores or business paper.  An individual might put resources into the currency market by buying a currency market common asset, purchasing a Treasury bill, or opening a currency market account at a bank.  Money market speculations are portrayed by wellbeing and liquidity, with currency market store shares designated at $1.  Capital markets allude to the settings where assets are traded between providers of capital and the individuals who request capital for use.  Primary capital business sectors are the place where new protections are given and sold. The auxiliary market is the place where as of now gave protections are exchanged between financial backers.  The most popular capital business sectors incorporate the securities exchange and the security markets, used to raise capital.  A monetary instrument is a genuine or virtual record addressing a legitimate arrangement including any sort of money related worth. 110 CU IDOL SELF LEARNING MATERIAL (SLM)

 Financial instruments might be separated into two kinds: cash instruments and subordinate instruments.  Financial instruments may likewise be isolated by a resource class, which relies upon whether they are obligation based or value based.  Foreign trade instruments involve a third, exceptional kind of monetary instrument.  The security market comprehensively portrays a commercial centre where financial backers purchase obligation protections that are brought to the market by either legislative elements or companies.  National governments for the most part utilize the returns from bonds to back infrastructural upgrades and pay down obligations.  Companies issue bonds to raise the capital expected to keep up with activities, develop their product offerings, or open new areas.  Bonds are either given on the essential market, which carries out new obligation, or on the auxiliary market, wherein financial backers might buy existing obligation through merchants or other outsiders.  Bonds will in general be not so much unstable but rather more traditionalist than corporate securities, yet additionally have lower anticipated returns. 5.10 KEYWORDS  Economy - The condition of a nation or district as far as the creation and utilization of labour and products and the stock of cash.  Financial markets - Financial business sectors allude extensively to any commercial centre where the exchanging of protections happens. There are numerous sorts of monetary business sectors, including (yet not restricted to) forex, cash, stock, and security markets  Funds - A stock of cash or monetary assets, with respect to some reason like an asset for schooling, a retirement store and so forth  Investment - A speculation is a resource or thing obtained fully intent on creating pay or appreciation. A speculation consistently concerns the expense of some capital today time, exertion, cash, or a resource with at least some expectations of a more prominent result in the future than what was initially placed in.  Liquid resources - A fluid resource is a kind of resource that can be quickly changed over into cash while keeping its fairly estimated worth. There are different elements that make resources pretty much fluid, including: How settled the market is. How 111 CU IDOL SELF LEARNING MATERIAL (SLM)

effectively possession is moved. What amount of time it requires for the resources for be sold? 5.11 LEARNING ACTIVITY 1. Mecca Ltd. a reputed automobile manufacturer needs Rupees ten cores as additional capital to expand its business. Atul Jalan, the CEO of the company wanted to raise funds through equity. On the other hand, the Finance Manager, Nimi Sahdev said that the public issue may be expensive on account of various mandatory and non- mandatory expenses. Therefore, it was decided to allot the securities to institutional investors.Name and explain the method through which the company decided to raise additional capital. ___________________________________________________________________________ ___________________________________________________________________________ 2. These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this there is another market in which unsecured and short-term debt instruments are actively traded every day. These markets together help the savers and investors in directing the available funds into their most productive investment opportunity.Name the function being performed by the market in the above case.Also, explain briefly three other functions performed by this market? ___________________________________________________________________________ ___________________________________________________________________________ 5.12 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What are the different types of financial market? 2. Define Primary market. 3. Define secondary market. 4. How do financial market works? 5. What is the main function of financial market? Long Questions 1. Who are the main participants in financial market? 112 CU IDOL SELF LEARNING MATERIAL (SLM)

2. What are the types of primary market? 3. What is the difference between primary and secondary market? 4. What is the role of primary market? 5. Explain money market. B. Multiple Choice Questions 1. Which stock exchange has its index named as SENSEX? a. BSE b. NSE c. Calcutta Stock Exchange d. India commodity Stock Exchange 2. Which is the market where there is a single buyer for a product or service? a. Monopoly b. Duopoly c. Monopsony d. Oligopoly 3. What is NIKKEI? a. Share price Index of Tokyo Share market b. Name of Japanese bank c. Name of Japanese planning commission d. Foreign exchange market of Japan 4. Which European country was the first one to introduce notes and was in news to soon become cashless country in the world? a. UK b. Germany c. Sweden d. Switzerland 5. Which is a stock of a large, well established and financially sound company that has operated for many years? a. Blue Chip b. Cyclical c. Income 113 CU IDOL SELF LEARNING MATERIAL (SLM)

d. Defensive Answers 1-a, 2-c, 3-a, 4-c, 5-a 5.13 REFERENCES References  Adams, A. and Clunie, J. (2006). The split capital investment trust saga: Lessons for financial services marketing. Journal of Financial Services Marketing.  Albrecht, K. and Zemke, R. (1985). Service America: Doing Business in the New Economy. Homewood, IL: Dow Jones-Irwin.  Alferoff, C., Knights, D. and Starkey, K. (2005). Corporate Social Responsibility and Financial Service Organisations. Nottingham: Financial Services Research Forum. Textbooks  Abou Aish, E., Ennew, C. T. and Mckechnie, S. A. (2004). Bank selection decisions: A cross cultural analysis. Journal of Marketing Management.  Ansoff, I. (1965). Corporate Strategy. New York: McGraw-Hill.  Chang & Kelly (1994). Satisfying Internal Customers First. California: Richard chang Associates. Websites  https://www.investopedia.com/terms/f/financial-market.asp  https://www.toppr.com/guides/business-studies/financial-markets/concept-of- financial-market/  https://www.investindia.gov.in/team-india-blogs/10-types-financial-services-offered- india 114 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 6: FINANCIAL SERVICES 115 STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Concept of Financial Services 6.3 Functions of Financial Services 6.4 Characteristics of Financial Services 6.4.1 Intangibility 6.4.2 Inseparability 6.4.3 Perishability 6.4.4 Variability 6.4.5 Dominance of Human Element 6.5 Types of Financial Services 6.5.1 Provision of Funds 6.5.2 Managing Investible Funds 6.5.3 Risk Financing 6.5.4 Consultancy Services 6.5.5 Market Operations 6.5.6 Research and Development 6.6 Scope of Financial Services 6.6.1 Fund Based Services 6.6.2 Non-fund Based Services 6.7 Summary 6.8 Keywords 6.9 Learning Activity 6.10 Unit End Questions 6.11 References 6.0 LEARNING OBJECTIVES CU IDOL SELF LEARNING MATERIAL (SLM)

After studying this unit, you will be able to:  Describe the concept of financial services.  Describe the characteristics of financial services.  Discuss the types of financial services 6.1 INTRODUCTION The economy is comprised of various fragments called areas. These areas are included various organizations that give labour and products to customers. The organizations that are gathered in an area give a comparative item or administration. For example, organizations that offer rural administrations make up the agrarian area. Companies that give portable or cell telephone utilities are essential for the broadcast communications area. This article takes a gander at the monetary administrations area, perhaps the main fragments of the economy. The monetary administrations area offers monetary types of assistance to individuals and enterprises. This section of the economy is comprised of an assortment of monetary firms including banks, speculation houses, moneylenders, finance organizations, land representatives, and insurance agencies. As verified over, the monetary administrations industry is presumably the main area of the economy, driving the world as far as income and value market capitalization. Enormous aggregates overwhelm this area, yet it additionally incorporates a different scope of more modest organizations. As per the money and improvement branch of the International Monetary Fund (IMF), monetary administrations are the cycles by which customers or organizations procure monetary products. For instance, an instalment framework supplier offers a monetary assistance when it acknowledges and moves assets among payers and beneficiaries. This incorporates accounts settled through credit and charge cards, checks, and electronic assets moves. Organizations in the monetary administrations industry oversee cash. For example, a monetary guide oversees resources and offers exhortation for the benefit of a customer. The guide doesn't straightforwardly give speculations or some other item; rather, they work with the development of assets among savers and the backers of protections and different instruments. This help is a transitory assignment instead of an unmistakable resource. Monetary products, then again, are not errands. They are things. A home loan credit might appear to be an assistance, yet it's really an item that keeps going past the underlying arrangement. Stocks, bonds, advances, ware resources, land, and protection arrangements are instances of monetary merchandise. Importance of the Financial Services Sector 116 CU IDOL SELF LEARNING MATERIAL (SLM)

The monetary administrations area is the essential driver of a country's economy. It gives the free progression of capital and liquidity in the commercial centre. At the point when the area is solid, the economy develops, and organizations in this industry are better ready to oversee hazard. The strength of the monetary administrations area is additionally critical to the thriving of a nation's populace. At the point when the area and economy are solid, customers by and large procure more. This lifts their certainty and buying power. At the point when they need admittance to credit for huge buys, they go to the monetary administrations area to get. In the event that the monetary administrations area falls flat, however, it can drag a country's economy down. This can prompt a downturn. At the point when the monetary framework begins to separate, the economy begins to endure. Capital starts to evaporate as banks fix the reins on loaning. Joblessness rises, and wages might even drop, driving customers to quit spending. To redress, national banks lower loan costs to attempt to support monetary development. This is principally what occurred during the monetary emergency that prompted the Great Recession. Banking Services The financial business is the establishment of the monetary administrations bunch. It is generally worried about direct saving and loaning, while the monetary administrations area joins ventures, protection, the reallocation of hazard, and other monetary exercises. Banking administrations are given by huge business banks, local area banks, credit associations, and different substances. Banks acquire income essentially on the distinction in the loan costs charged for credit accounts and the rates paid to investors. Monetary administrations like these essentially acquire income through expenses, commissions, and different strategies like the spread on financing costs among credits and stores. Banking Segments Banking is comprised of a few sections—retail banking, business banking, and speculation banking. Otherwise called purchaser or individual banking, retail banking serves shoppers as opposed to enterprises. These banks offer monetary administrations custom-made to people, including checking and investment accounts, home loans, advances, and Mastercard’s, just as certain venture administrations. Corporate, business, or business banking, then again, manages independent companies and enormous partnerships. Like retail banking, it gives account administrations and credit items that are custom-made to the particular necessities of organizations. A venture bank regularly just works with bargain producers and high-total assets people (HNWIs) not the overall population. These banks endorse bargains, secure admittance to capital business sectors, offer abundance the executives and expense counsel, exhort 117 CU IDOL SELF LEARNING MATERIAL (SLM)

organizations on consolidations and acquisitions (M&A), and work with the purchasing and selling of stocks and bonds. Monetary counsels and markdown financiers likewise possess this specialty. Investment Services People might get to monetary business sectors like stocks and bonds through speculation administrations. Specialists either human or self-guided online administrations to work with the purchasing and selling of protections, taking a commission for their endeavours. Monetary counsellors might charge a yearly expense dependent on resources under administration (AUM) and direct a few exchanges the quest for building and dealing with a very much differentiated portfolio. Robot-counsels are the most recent manifestation of monetary guidance and portfolio the board, with completely robotized algorithmic portfolio designations and exchange executions. Mutual funds, common assets, and venture associations put cash in the monetary business sectors and gather the executives’ charges simultaneously. These associations require care administrations for exchanging and adjusting their portfolios, just as lawful, consistence, and advertising exhortation. There are likewise programming merchants that oblige the speculation reserve local area by creating programming applications for portfolio the executives, customer announcing, and other administrative centre administrations. Private value reserves, funding suppliers, and private backers supply speculation money to organizations in return for proprietorship stakes or benefit support. Investment was particularly imperative to innovation firms during the 1990s. A lot of what goes on in the background in the creation of serious deals is ascribed to this gathering. Insurance Services Insurance is another significant subsector of the monetary administrations industry. Protection administrations are accessible for insurance against death or injury (for example disaster protection, inability pay protection, health care coverage), against property misfortune or harm (for example mortgage holders protection, vehicle protection), or against responsibility or claim. In the United States, a protection specialist varies from an intermediary. The previous is an agent of the protection transporter, while the last addresses the safeguarded and looks for protection strategies. This is additionally the domain of the financier, who evaluates the danger of safeguarding customers and furthermore exhorts speculation investors on credit hazard. Reinsurers are occupied with offering protection to the safety net providers themselves to assist with shielding them from calamitous misfortunes. Tax and Accounting Services The area additionally incorporates bookkeepers and assessment recording administrations, cash trade and wire move administrations, and Visa machine administrations and 118 CU IDOL SELF LEARNING MATERIAL (SLM)

organizations. It likewise incorporates obligation goal administrations and worldwide instalment suppliers like Visa and MasterCard, just as trades that work with stock, subordinates, and item exchanges. Bookkeepers guarantee every monetary record and articulations—the asset report, pay and misfortune explanation, income proclamation, and government form—are in accordance with bureaucratic laws and guidelines and proper accounting rules (GAAP). Bookkeepers additionally aggregate the data expected to get ready passages to organization records like the overall record, and they report business monetary exchanges over the long run. This data is utilized to plan week after week, month to month, quarterly, or yearly shutting articulations and cost bookkeeping reports. Bookkeepers should likewise resolve any inconsistencies or abnormalities they find in records, articulations, or reported exchanges. They normally notice set up bookkeeping control techniques through a bookkeeping framework or programming program. Bookkeepers are frequently allotted other money related undertakings as well as examining monetary records and proclamations. Auxiliary occupation obligations incorporate observing the productivity of bookkeeping control systems or programming projects to guarantee they are fully informed regarding government and state guidelines. Bookkeepers are additionally entrusted with making suggestions to different divisions or C-suite staff in regards to the effective utilization of organization assets and techniques. These proposals intend to give answers for conceivably exorbitant business monetary concerns or issues. In certain cases, bookkeepers may likewise get ready and audit solicitations for clients and merchants to help with convenient instalment on remarkable equilibriums. Compromise of finance, confirmation of agreements and orders, development of an organization spending plan, and the advancement of monetary models or projections may likewise be important for a bookkeeper's ordinary obligations. Notwithstanding these obligations, bookkeepers get ready and document charges for organizations and people. They investigate all organization resources; pay acquired and paid, or expected costs and liabilities to arrive at an absolute expense commitment for the year. With both organization and individual duty readiness and documenting, bookkeepers are relied upon to give a point-by-point investigation of assessment proficiency or shortcoming and make suggestions for how to lessen absolute expense liabilities later on. 6.2 CONCEPT OF FINANCIAL SERVICES Financial services are the financial administrations given by the money business, which incorporates a wide scope of organizations that oversee cash, including credit associations, banks, credit card organizations, insurance agencies, bookkeeping organizations, consumer finance organizations, stock financiers, speculation reserves, singular supervisors, and some administration supported ventures. 119 CU IDOL SELF LEARNING MATERIAL (SLM)

Monetary administrations allude to monetary administrations given by different monetary organizations that arrangement with the administration of cash. It is a theoretical result of monetary business sectors like advances, protection, stocks, Visa, and so on Monetary administrations are results of establishments like financial firms, insurance agencies, speculation reserves, credit associations, business firms, and shopper finance organizations. It is a critical part of the monetary framework that works with monetary exchanges in an economy. Monetary administrations are a fundamental device for financial development as it unites the person who needs reserves and the individuals who can supply reserves. It empowers people groups in increasing their expectations of livings by furnishing them with an office of buying different items on employ buy. Monetary administrations go about as a hindrance against hazard emerging from different unexpected exercises by safeguarding individuals against misfortunes. These administrations are purchaser situated as these are planned and given in understanding the requirements of clients. Objectives  Raises Fund: Financial administrations fill in as a productive instrument for bringing assets up in an economy. It gives different monetary instruments to people, financial backers, companies, and establishments where they can put away their cash accordingly raising assets from them.  Promotes Savings: These administrations give various sorts of advantageous venture alternatives that can develop individuals' reserve funds. A common asset is one such acceptable choice where individuals can contribute and procure sensible returns absent a lot of hazards.  Deployment of Funds: Financial administrations empower the appropriate sending of monetary assets into useful means. There are various venture roads and instruments accessible in the monetary market where individuals can contribute their assets for acquiring pay.  Minimizes Risk: Risk minimization is a significant pretended by monetary administrations. These administrations help in expanding the danger and ensure individuals against harms by giving protection strategies.  Economic Growth: Financial administrations help the public authority in accomplishing the general development of the economy. The public authority can without much of a stretch raise both present moment and long-haul assets for its different requirements. It helps in further developing generally speaking infrastructural offices and work open doors in a country. 6.3 FUNCTIONS OF FINANCIAL SERVICES Functions of Financial Services 120 CU IDOL SELF LEARNING MATERIAL (SLM)

 Enables instalment framework: Financial administrations play a critical part in the appropriate development of assets among people groups. It empowers people groups to effectively do their instalments with no trouble. Visas, charge cards, bill of trade, and check are such monetary instruments which work with monetary exchanges.  Proper Utilization of Funds: These theoretical administrations help in effective designation of assets. Monetary administrations fill in as a method through which people groups put their ideal lying assets into better growth strategies for creating wages.  Maintains Liquidity: Financial administrations helps in keeping up with adequate assets in an economy. It interfaces the person who needs reserves and the individuals who can supply assets as they have adequate investment funds. Different administrations like advances and Visas empower individuals to gain required assets without any problem.  Raises Standard of living: These administrations assume an essential part in working on the expectations for everyday comforts of individuals. Clients are effectively ready to buy expensive products on enlist buy framework benefiting these administrations. Individuals can partake in the advantages of value and extravagance things.  Promotes exchange: Financial administrations advance both homegrown and unfamiliar exchange a country. Relinquishing and calculating organizations in the monetary market advance the fare of merchandise to unfamiliar business sectors and furthermore the deals of items in the homegrown market. Notwithstanding this protection and banking offices likewise support exchange exercises country.  Improve Employment Opportunities: Generation of work openings is another significant capacity of monetary administrations. Diverse monetary organizations utilize an enormous number of people groups for selling these administrations. They pay compensations to their representatives out of the benefit procured by selling these monetary administrations.  Balanced Regional Development: Financial administrations helps in the decent provincial advancement of the country. Every one of the vital areas of the economy like the essential area, auxiliary area, and tertiary area can secure the necessary assets through these administrations. This outcomes in territorial aberrations and gets adjusted improvement a country. 6.4 CHARACTERISTICS OF FINANCIAL SERVICES Characteristics and Features of Financial Services  Customer-Specific: Financial administrations are generally client centred. The organizations offering these types of assistance, study the necessities of their clients exhaustively prior to choosing their monetary methodology, giving due respect to expenses, liquidity and development contemplations. Monetary administrations firms 121 CU IDOL SELF LEARNING MATERIAL (SLM)

constantly stay in contact with their clients, so they can plan items which can take into account the particular requirements of their clients. The suppliers of monetary administrations continually do advertise overviews, so they can offer new items much in front of need and looming enactment. More up to date advances are being utilized to present imaginative, client agreeable items and administrations which plainly show that the centralization of the suppliers of monetary administrations is on creating firm/client explicit administrations.  Intangibility: In an exceptionally serious worldwide climate brand picture is extremely vital. Except if the monetary foundations giving monetary items and administrations have great picture, partaking in the certainty of their customers, they may not be fruitful. In this manner foundations need to zero in on the quality and creativity of their administrations to develop their believability.  Concomitant: Production of monetary administrations and supply of these administrations must be associative. Both these capacities for example creation of new and inventive monetary administrations and providing of these administrations are to be performed all the while.  Tendency to Perish: Unlike some other help, monetary administrations do will in general die and subsequently can't be put away. They must be provided as needed by the clients. Consequently, monetary establishments need to guarantee a legitimate synchronization of interest and supply.  People Based Services: Marketing of monetary administrations must be individuals serious and subsequently it's exposed to inconstancy of execution or nature of administration. The faculty in monetary administrations association should be chosen based on their appropriateness and prepared appropriately, with the goal that they can play out their exercises productively and adequately.  Market Dynamics: The market elements depend generally, on financial changes like discretionary cashflow, expectation for everyday comforts and instructive changes identified with the different classes of clients. In this manner monetary administrations must be continually reclassified and refined thinking about the market elements. The foundations offering monetary types of assistance, while developing new administrations could be proactive in picturing ahead of time what the market needs, or being responsive to the requirements and needs of their clients. 6.4.1 Intangibility In a profoundly aggressive worldwide climate brand picture is exceptionally urgent. Except if the monetary organizations giving monetary items and administrations have great picture, partaking in the certainty of their customers, they may not be effective. Hence establishments 122 CU IDOL SELF LEARNING MATERIAL (SLM)

need to zero in on the quality and inventiveness of their administrations to develop their validity. 6.4.2 Inseparability Financial services are made and conveyed all the while and can't be isolated. These the two capacities for example creation and supply goes simultaneously. 6.4.3 Perishability These administrations are transient in nature and can't be store ahead of their need. Monetary administrations are delivered and provided as and when needed by people groups. 6.4.4 Variability Financial services are dynamic in nature. It changes as per the differing needs of clients and the financial climate. 6.4.5 Dominance of Human Element Marketing of monetary administrations must be individuals serious and consequently it's exposed to fluctuation of execution or nature of administration. The staff in monetary administrations association should be chosen based on their reasonableness and prepared appropriately, so they can play out their exercises proficiently and successfully. 6.5 TYPES OF FINANCIAL SERVICES Financial services mean the administrations offered by monetary and banking foundations. It additionally implies the administration of cash by associations like banks, venture banks, insurance agencies, and stock trades. Monetary administrations help people and associations in the administration of their money related issues. Monetary administrations are theoretical and client arranged. 6.5.1 Provision of Funds It incorporates giving stores into checking and bank accounts, just as loaning cash to clients. About 10% of the cash kept into banks should remain close by, as directed by the Federal Deposit Insurance Corporation's (FDIC) hold prerequisite. The other 90% is accessible for credits. Probably the premium the bank procures from these advances is given to the clients who have stored cash into the bank. 6.5.2 Managing Investible Funds Common asset specialist organizations offer proficient speculation administrations across reserves that are made out of various resource classes, fundamentally obligation and value connected resources. The upfront investment for common asset arrangements is for the most part lower contrasted with the financial exchange and obligation items. These items are exceptionally famous in India as they by and large have lower hazards, tax breaks, stable 123 CU IDOL SELF LEARNING MATERIAL (SLM)

returns and properties of broadening. The shared assets fragment has seen twofold digit development in resources under administration in the course of the most recent five years, attributable to its fame as a generally safe abundance multiplier. 6.5.3 Risk Financing Debt instruments are used to acquire capital. Various types of obligation instruments are Mastercard’s, advances, bonds, and so on Obligation instrument centres around obligation capital raised by institutional substances like governments, private and public organizations. A portion of the normal kinds of obligation instruments are bonds, debentures, home loans, and depository bills. Obligation instruments can be present moment or long haul and give fixed and more significant yields. 6.5.4 Consultancy Services India has a solid presence of expert monetary warning specialist co-ops, which offer people and organizations a wide arrangement of administrations, including speculation due ingenuity, M&A warning, valuation, land counselling, hazard counselling, tax assessment counselling. These contributions are made by a scope of suppliers, including singular homegrown specialists to enormous global associations. This fragment likewise incorporates an enormous arrangement of monetary administrations inside the assessment and evaluating area. This administrations space can be portioned dependent on individual and business customers. They incorporate:  Tax – Individual (determining tax liability, filing tax-returns, tax-savings advisory, etc.)  Tax – Business (determining tax liability, transfer pricing analysis and structuring, GST registrations, tax compliance advisory, etc.) In the evaluating fragment, specialist co-ops offer arrangements including legal reviews, inner reviews, administration charge reviews, charge reviews, measure/exchange reviews, hazard reviews, stock reviews, and so on These administrations are fundamental to guarantee the smooth activity of business elements from a subjective and quantitative viewpoint, just as to moderate danger. You can peruse more about tax assessment in India. 6.5.5 Market Operations The securities exchange offers monetary types of assistance of selling and purchasing of numerous kinds of stocks under a characterized set of guidelines. It is a spot for exchanging different sorts of protections a safe and controlled climate. The elements of a financial exchange are managing in protections exchanges, productive value disclosure, security, and legitimacy of exchanges, liquidity support, financial backer insurance, and so on The stock trades charge an expense for their administrations and the expenses that they charge on every exchange are the wellspring of their pay. 124 CU IDOL SELF LEARNING MATERIAL (SLM)

6.5.6 Research and Development A committed R&D office is liable for discovering information to make new items and reinforce existing ones with new provisions. This piece of an organization's activities forms examination into thoughts, items, and administrations that are generally lined up with an organization's technique and strategy. Regardless of whether it's entering another market or totally upgrading an item, a R&D office would direct an itemized study to think of solid information to help the venture. The exploration makes ready for item improvement, where a model is tried to guarantee the new item meets project prerequisites. FinTech Innovation Lab is a R&D unit that spotlights on creating extensive advances that will change the fate of banking – API, man-made reasoning, AI, Internet of Things, M2M instalments, haze and quantum registering, voice interfaces, normal language handling. 6.6 SCOPE OF FINANCIAL SERVICES Scope of Financial Services Financial services cover a wide scope of exercises. They can be comprehensively characterized into two, specifically:  Traditional Activities Generally, the monetary go-betweens have been delivering a wide scope of administrations enveloping both capital and currency market exercises. They can be assembled under two heads, viz. i. Fund based activities and ii. Non-fund-based activities.  Modern Activities Adjacent to the above conventional administrations, the monetary delegates render incalculable administrations as of late. The vast majority of them are in the idea of non- reserve-based movement. Taking into account the significance, these exercises have been in a nutshell under the head 'New monetary items and administrations'. Be that as it may, a portion of the advanced administrations given by them are given to sum things up here under. i. Rendering project warning administrations directly from the arrangement of the task report till the raising of assets for beginning the undertaking with vital Government endorsements. ii. Planning for M&A and helping for their smooth do. iii. Guiding corporate clients in capital rebuilding. 125 CU IDOL SELF LEARNING MATERIAL (SLM)

iv. Acting as trustees to the debenture holders. v. Recommending appropriate changes in the administration design and the board style with the end goal of accomplishing better outcomes. vi. Structuring the monetary coordinated efforts/joint endeavours by recognizing reasonable joint endeavour accomplices and getting ready joint endeavour arrangements. vii. Rehabilitating and rebuilding debilitated organizations through suitable plan of recreation and working with the execution of the plan. viii. Hedging of dangers because of swapping scale hazard, loan fee hazard, financial danger, and political danger by utilizing trades and other subsidiary items. ix. Managing in-arrangement of enormous Public Sector Corporations. x. Undertaking hazard, the board administrations like protection administrations, repurchase alternatives and so on xi. Advising the customers on the inquiries of choosing the best wellspring of assets thinking about the quantum of assets required, their expense, loaning period and so on xii. Guiding the customers in the minimization of the expense of obligation and in the assurance of the ideal obligation value blend xiii. Promoting credit score offices to rate organizations which need to open up to the world by the issue of obligation instrument. xiv. Undertaking administrations identifying with the capital market, like Clearing administrations, enrolment and moves, safe guardianship of protections and assortment of pay on protections. 6.6.1 Fund Based Services Fund based exercises The conventional administrations which go under reserve-based exercises are the accompanying:  Underwriting or interest in shares, debentures, bonds, and so forth of new issues (essential market exercises).  Dealing in auxiliary market exercises.  Participating in currency market instruments like business papers, authentication of stores, depository charges, limiting of bills and so forth  Involving in hardware renting, recruit buy, investment, seed capital and so forth  Dealing in unfamiliar trade market exercises. Non-asset-based exercises. 6.6.2 Non-fund Based Services 126 CU IDOL SELF LEARNING MATERIAL (SLM)

Financial intermediaries offer types of assistance based on non-store exercises moreover. This can be called 'charge based' action. Today clients, regardless of whether individual or corporate, are not happy with simple arrangements of money. They hope for something else from monetary administrations organizations. Consequently, a wide assortment of administrations, are being given under this head. They incorporate:  Managing the capital issue for example the board of pre-issue and post-issue exercises identifying with the capital issue as per the SEBI rules and in this way empowering the advertisers to showcase their issue.  Making courses of action for the situation of capital and obligation instruments with speculation organizations.  Arrangement of assets from monetary organizations for the customers project cost or his functioning capital necessities.  Assisting during the time spent getting all Government and different clearances. 6.7 SUMMARY  Financial administrations make up one of the economy's generally significant and powerful areas.  Financial administrations are a wide scope of more explicit exercises like banking, contributing, and protection.  Financial administrations are restricted to the action of monetary administrations firms and their experts, while monetary items are the real merchandise, records, or ventures they give.  There are 9 significant kinds of monetary establishments that give an assortment of administrations from contract advances to venture vehicles.  Financial administrations are normally client centred. The organizations offering these types of assistance, study the requirements of their clients exhaustively prior to choosing their monetary system, giving due respect to expenses, liquidity and development contemplations. Monetary administrations firms constantly keep in contact with their clients, so they can plan items which can take into account the particular necessities of their clients. The suppliers of monetary administrations continually do showcase overviews, so they can offer new items much in front of need and looming enactment. More current advances are being utilized to present imaginative, client cordial items and administrations which obviously show that the convergence of the suppliers of monetary administrations is on producing firm/client explicit administrations. 127 CU IDOL SELF LEARNING MATERIAL (SLM)

 In an exceptionally aggressive worldwide climate brand picture is extremely urgent. Except if the monetary organizations giving monetary items and administrations have great picture, partaking in the certainty of their customers, they may not be fruitful. In this manner organizations need to zero in on the quality and imaginativeness of their administrations to develop their believability.  Production of monetary administrations and supply of these administrations must be attendant. Both these capacities for example creation of new and imaginative monetary administrations and providing of these administrations are to be performed all the while.  Unlike some other assistance, monetary administrations do will in general die and henceforth can't be put away. They must be provided as needed by the clients. Subsequently monetary establishments need to guarantee an appropriate synchronization of interest and supply.  Marketing of monetary administrations must be individuals concentrated and subsequently it's exposed to changeability of execution or nature of administration. The staff in monetary administrations association should be chosen based on their reasonableness and prepared appropriately, with the goal that they can play out their exercises proficiently and viably.  The market elements depend by and large, on financial changes like discretionary cashflow, expectation for everyday comforts and instructive changes identified with the different classes of clients. Hence monetary administrations must be continually reclassified and refined thinking about the market elements. The establishments offering monetary types of assistance, while developing new administrations could be proactive in picturing ahead of time what the market needs, or being receptive to the necessities and needs of their clients. 6.8 KEYWORDS  Forfeiting-Lose or be denied of (property or a right or advantage) as a punishment for bad behaviour. Relinquish appeared around 1300 signifying \"to lose by wrongdoing.\" To relinquish is to lose or quit any trace of something as discipline for making a blunder. A relinquish is the thing that is lost.  Factor-A factor is a monetary delegate that buys receivables from an organization. It consents to pay the receipt, less a markdown for commission and expenses.  Capital-Capital is commonly money or fluid resources being held or acquired for consumptions. From a more extensive perspective, the term might be extended to incorporate the entirety of an organization's resources that have money related worth, like its gear, land, and stock. Yet, with regards to planning, capital is income. 128 CU IDOL SELF LEARNING MATERIAL (SLM)

 Indemnity-The word repayment implies security or assurance against a monetary risk. It commonly happens as a legally binding understanding made between parties in which one party consents to pay for misfortunes or harms endured by the other party.  Insurance-Insurance is an agreement, addressed by an approach, where an individual or element gets monetary assurance or repayment against misfortunes from an insurance agency. The organization pools customers' dangers to make instalments more moderate for the safeguarded. 6.9 LEARNING ACTIVITY 1. Discuss the role of privatization in banking system in India? ___________________________________________________________________________ ___________________________________________________________________________ 2. A financial service provider wants to develop a product strategy to access high potential SME segment. What recommendation you will give which will help them to access the target segment? ___________________________________________________________________________ ___________________________________________________________________________ 6.10 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is variability in financial services? 2. What are the functions of financial services? 3. Why research and development are imperative in financial sector? 4. Discuss underwriting? 5. What are the objectives of financial services? Long Questions 1. Discuss the characteristics of financial services? 2. What is scope of financial services? 3. What is the difference between fee based and fund based financial services? 4. What is risk financing? 5. Discuss the consultancy role of financial participants? 129 CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple Choice Questions 130 1. What is a road towards a high growth economy? a. Venture capital b. Merchant bank c. Leasing d. None of these. 2. Which acts as an intermediary to link source of ideas and source of fund? a. Venture capital b. Merchant bank c. Leasing d. None of these 3. Which feature is high risk? a. Mutual fund b. Venture Capital c. Debenture finance d. Government bonds 4. Which is needed for the development of product in its initial phase? a. Seed Capital b. Start-up capital c. Second round financing d. None of these 5. Which is needed for product development and marketing? a. Seed Capital b. Start-up capital c. first round financing d. None of these Answers 1-a, 2-a, 3-b, 4-a, 5-b 6.11 REFERENCES CU IDOL SELF LEARNING MATERIAL (SLM)

References  Bagazzi, (1991). Principles of Marketing Management. Singapore: Macmillan Publishing Company.  Bemstal Janet Bigham (2004). Sizing Up the Competition. American Bankers Association, ABA Bank Marketing.  Bhatnagar Depti (1983). Diffusion of Banking Innovations and Communication Strategies for Rural Areas. Prajnan. Textbooks  Bhattacharyya B. N (1989). Marketing Approach to Promoting Banking Services. Vikalpa.  Bhatt Atul (1991). Bank Marketing Market Research and Indian Banks. Prajnan.  Christian Gronross (1990). Service Management and Marketing. Massachusetts: Lexington Books. Websites  https://www.pwc.com/gx/en/industries/financial-services.html  https://www.ibef.org/industry/financial-services-india.aspx  https://www.oreilly.com/library/view/financial-services- marketing/9780415521673/xhtml/32_Bibliography.xhtm 131 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 7: FINANCIAL SERVICES 132 STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 Asset/Fund Based Services 7.2.1 Equipment Leasing/Lease financing 7.2.2 Hire Purchase and Consumer Credit 7.2.3 Bill Discounting 7.2.4 Venture Capital 7.2.5 Housing Finance 7.2.6 Insurance Services 7.2.7 Factoring 7.2.8 Forfeiting 7.2.9 Mutual Fund 7.3 Non-Fund Based/Fee Based Financial Services 7.3.1 Merchant Banking 7.3.2 Credit Rating 7.3.3 Stock Broking 7.3.4 Custodial Services 7.3.5 Loan Syndication 7.3.6 Securitisation (of debt) 7.4 Summary 7.5 Keywords 7.6 Learning Activity 7.7 Unit End Questions 7.8 References 7.0 LEARNING OBJECTIVES After studying this unit, you will be able to: CU IDOL SELF LEARNING MATERIAL (SLM)

 Discuss fund and non-fund-based services.  Explain venture capital.  Explain loan syndication. 7.1 INTRODUCTION The Indian monetary administrations industry has gone through a transformation since1990. Before its development the business banks and other monetary establishments overwhelmed the field and they met the monetary necessities of the Indian business. It was solely after the monetary advancement that the monetary help area acquired some conspicuousness. Presently this area has formed into an industry. Truth be told, one of the world's biggest ventures today is the monetary administrations industry. Monetary assistance is a fundamental section of monetary framework. Monetary administrations are the establishment of an advanced economy. The monetary assistance area is irreplaceable for the success of a country. Meaning of Financial Services As a rule, a wide range of exercises which are of monetary nature might be viewed as monetary administrations. From a wide perspective, the term monetary administrations imply preparation and portion of investment funds. In this manner, it incorporates all exercises engaged with the change of reserve funds into speculation. Monetary administrations allude to administrations given by the money business. The money business comprises of a wide scope of associations that arrangement with the administration of cash. These associations incorporate banks, charge card organizations, insurance agencies, buyer finance organizations, stock merchants, speculation assets and some administration supported ventures. Monetary administrations might be characterized as the items and administrations offered by monetary establishments for the help of different monetary exchanges and other related exercises. Monetary administrations can likewise be called monetary intermediation. Monetary intermediation is an interaction by which assets are prepared from an enormous number of savers and make them accessible to every one of the individuals who are needing it and especially to corporate clients. There are different organizations which render monetary administrations. A portion of the organizations are banks, speculation organizations, bookkeeping firms, monetary establishments, trader banks, renting organizations, investment organizations, calculating organizations, common assets and so forth These foundations give assortment of administrations to corporate endeavours. Such administrations are called monetary administrations. Along these lines, administrations delivered by monetary help associations to modern endeavours and to extreme buyer markets are called monetary administrations. These are the administrations and offices needed for the smooth activity of the monetary business sectors. To put it plainly, administrations given by monetary go-betweens are called monetary administrations. 133 CU IDOL SELF LEARNING MATERIAL (SLM)

Importance of Financial Services The effective working of any monetary framework relies on the scope of monetary administrations offered by monetary help associations. The significance of monetary administrations might be perceived from the accompanying focuses:  Economic development: The monetary assistance industry assembles the reserve funds of individuals, and channels them into useful ventures by offering different types of assistance to individuals overall and corporate undertakings specifically. So, the financial development of any nation relies on these reserve funds and speculations.  Promotion of reserve funds: The monetary assistance industry activates the reserve funds of individuals by giving change administrations. It gives risk, resource and size change administration by giving tremendous credit from little stores gathered from an enormous number of individuals. In this manner monetary assistance industry advances investment funds.  Capital development: Financial assistance industry works with capital arrangement by delivering different capital market mediator administrations. Capital development is the very reason for monetary development.  Creation of business openings: The monetary assistance industry sets out and gives work open doors to a huge number of individuals from one side of the planet to the other.  Contribution to GNP: Recently the commitment of monetary administrations to GNP has been expanding a seemingly endless amount of a large number of years in nearly nations.  Provision of liquidity: The monetary assistance industry advances liquidity in the monetary framework by distributing and redistributing reserve funds and interest into different roads of financial movement. It works with simple transformation of monetary resources into fluid money. 7.2 ASSET/FUND BASED SERVICES The extent of monetary administrations is exceptionally wide. This is on the grounds that it covers a wide scope of administrations. The monetary administrations can be comprehensively arranged into two: (a) store-based administrations and (b) non-reserve administrations (or charge based administrations). 7.2.1 Equipment Leasing/Lease financing A rent is an arrangement under which a firm gets an option to utilize a capital resource like hardware and so on instalment of a concurred expense called rent rentals. The individual (or the organization) which gets the right is known as tenant. He doesn't get the responsibility for resource. He secures simply the option to utilize the resource. The individual (or the organization) who gives the right is known as lessor. 134 CU IDOL SELF LEARNING MATERIAL (SLM)

7.2.2 Hire Purchase and Consumer Credit Hire purchase is an option in contrast to renting. Recruit buy is an exchange where products are bought and sold relying on the prerequisite that instalment is made in portions. The purchaser gets just ownership of products. He doesn't get possession. He gets possession solely after the instalment of the last portion. In the event that the purchaser neglects to pay any portion, the dealer can repossess the merchandise. Every portion incorporates revenue too. 7.2.3 Bill Discounting Discounting of bill is an appealing asset based monetary help given by the money organizations. On account of time charge (payable after a predefined period), the holder need not stand by till development or due date. In case he needs cash, he can limit the bill with his broker. In the wake of deducting a specific sum (rebate), the broker credits the net sum in the client's record. In this way, the bank buys the bill and acknowledges the client's record for the measure of the bill less rebate. On the due date, the drawee makes instalment to the financier. On the off chance that he neglects to make instalment, the financier will recuperate the sum from the client who has limited the bill. So, bill limiting means giving credits based on the security of a bill of trade. 7.2.4 Venture Capital Venture capital simply alludes to capital which is accessible for financing the new undertakings. It includes loaning money to the developing organizations. It is the interest in an exceptionally hazardous venture with the goal of acquiring a high pace of return. To put it plainly, funding implies long haul hazard capital as value finance. 7.2.5 Housing Finance Housing finance basically alludes to giving money to house building. It arose as an asset based monetary assistance in India with the foundation of National Housing Bank (NHB) by the RBI in 1988. It is a peak lodging finance organization in the country. Till now, various particular monetary organizations/organizations have entered in the record of lodging finance. A portion of the foundations are HDFC, LIC Housing Finance, Citi Home, Ind Bank Housing and so forth. 7.2.6 Insurance Services Insurance is an agreement between two gatherings. One party is the protected and the other party is the guarantor. Safeguarded is the individual whose life or property is protected with the safety net provider. That is, the individual whose hazard is safeguarded is called protected. Safety net provider is the insurance agency to whom hazard is moved by the guaranteed. That is, the individual who safeguards the danger of guaranteed is called guarantor. Subsequently protection is an agreement among back up plan and guaranteed. It is an agreement wherein the insurance agency embraces to repay the guaranteed on the 135 CU IDOL SELF LEARNING MATERIAL (SLM)

occurrence of certain occasion for an instalment of thought. It is an agreement between the safety net provider and guaranteed under which the backup plan embraces to repay the safeguarded for the shortfall emerging from the danger protected against. As indicated by Mc Gill, \"Protection is a cycle wherein vulnerabilities are made sure\". In the expressions of Jon Megi, \"Protection is an arrangement wherein people all things considered offer the misfortunes of dangers\". Consequently, protection is a gadget by which a misfortune prone to be brought about by dubious occasion is spread over an enormous number of people who are presented to it and who intentionally join themselves against such an occasion. The report which contains every one of the agreements of protection (for example the composed agreement) is known as the 'protection strategy'. The sum for which the protection strategy is taken is called 'total guaranteed'. The thought in kind for which the backup plan consents to make great the misfortune is known as 'protection premium'. This premium is to be paid consistently by the protected. It very well might be paid month to month, quarterly, half yearly or yearly. 7.2.7 Factoring Factoring is a plan under which the factor buys the record receivables (emerging out of credit offer of products/administrations) and makes quick money instalment to the provider or lender. In this manner, it is a plan where the record receivables of a firm (customer) are bought by a monetary foundation or investor. Hence, the factor gives money to the customer (provider) in regard of record receivables. The factor embraces the obligation of gathering the record receivables. The monetary establishment (factor) attempts the danger. For this kind of administration just as for the interest, the factor charges an expense for the mediating time frame. This expense or charge is called factorage. 7.2.8 Forfeiting Forfeiting is a type of financing of receivables identifying with worldwide exchange. It is a non-response buy by a broker or some other monetary foundation of receivables emerging from fare of labour and products. The exporter gives up his right to the forfeiter to get future instalment from the purchaser to whom products have been provided. Relinquishing is a strategy that helps the exporter sells his merchandise using a credit card but gets the money a long time before the due date. To put it plainly, relinquishing is a procedure by which a forfeiter (financing office) limits a fare bill and pay prepared money to the exporter. The exporter need not fret over assortment of fare bill. He can simply focus on send out exchange. 7.2.9 Mutual Fund Mutual funds are monetary delegates which activate reserve funds from individuals and put them in a blend of corporate and government protections. The shared asset administrators effectively deal with this arrangement of protections and procure pay through profit, interest and capital increases. The wages are ultimately given to common asset investors. 136 CU IDOL SELF LEARNING MATERIAL (SLM)

7.3 NON-FUND BASED/FEE BASED FINANCIAL SERVICES Today, clients are not happy with simple arrangement of money. They hope for something else from monetary assistance organizations. Consequently, the monetary help organizations or monetary delegates offer types of assistance based on non-store exercises moreover. Such administrations are otherwise called charge-based administrations. These incorporate the accompanying: 7.3.1 Merchant Banking Merchant banking is essentially an assistance banking, worried about giving non-reserve- based administrations of organizing reserves instead of giving them. The dealer investor just goes about as a delegate. Its fundamental occupation is to move capital from the individuals who own it to the individuals who need it. Today, dealer broker goes about as an establishment which comprehends the prerequisites of the e advertisers from one viewpoint and monetary foundations, banks, stock trade and currency markets on the other. SEBI (Merchant Bankers) Rule, 1992 has characterized a shipper broker as, \"any individual who is occupied with the matter of issue the executives either by making courses of action in regards to selling, purchasing or buying in to protections or going about as administrator, specialist, counsellor, or delivering corporate warning administrations comparable to such issue the board”. 7.3.2 Credit Rating Credit rating implies offering a specialist viewpoint by a rating office on the overall readiness and capacity of the backer of an obligation instrument to meet the monetary commitments on schedule and in full. It estimates the general danger of a backer's capacity and readiness to reimburse both premium and head over the time of the evaluated instrument. It is a judgment about an association's monetary and business possibilities. To put it plainly, credit score implies evaluating the financial soundness of an organization by an autonomous association. 7.3.3 Stock Broking Presently stock broking has arisen as an expert warning help. Stock intermediary is an individual from a perceived stock trade. He purchases, sells, or arrangements in shares/protections. It is obligatory for each stock agent to get himself/herself enrolled with SEBI to go about as a dealer. As an individual from a stock trade, he should comply with its standards, guidelines and local laws. 7.3.4 Custodial Services In simple words, the administrations given by an overseer are known as custodial administrations (caretaker administrations). Overseer is a foundation or an individual who is given over protections by the security proprietors for safe authority. Overseer is a guardian of a public property or protections. Caretakers are mediators among organizations and 137 CU IDOL SELF LEARNING MATERIAL (SLM)

customers (for example security holders) and organizations (monetary foundations and shared assets). There is a course of action and understanding among caretaker and genuine proprietors of protections or properties to go about as overseers of the individuals who hand over it. The obligation of an overseer is to hold the protections or reports under safe care. Crafted by overseer is extremely unsafe and exorbitant in nature. For delivering these administrations, he gets a compensation called custodial charges. Subsequently custodial help is the assistance of protecting the protections for and in the interest of another person for a compensation called custodial charges. 7.3.5 Loan Syndication Loan syndication is a course of action where a gathering of banks take part to give assets to a solitary advance. In advance partnership, a gathering of banks including 10 to 30 banks partake to give reserves wherein one of the banks is the lead administrator. This lead bank is chosen by the corporate endeavours, contingent upon trust in the number one spot supervisor. A solitary bank can't give an enormous advance. Consequently, various banks combine and structure an organization. This is known as advance partnership. Accordingly, advance partnership is basically the same as consortium financing. 7.3.6 Securitisation (of debt) Loans given to clients are resources for the bank. They are called credit resources. In contrast to speculation resources, advance resources are not tradable and adaptable. Hence credit resources are not fluid. The issue is the way to make the credit of a bank fluid. This issue can be tackled by changing the advances into attractive protections. Presently advances become fluid. They get the trait of attractiveness. This is done through the course of securitization. Securitisation is a monetary development. It is change of existing or future incomes into attractive protections that can be offered to financial backers. It is the cycle by which monetary resources, for example, advance receivables, charge card adjusts, enlist buy indebted individuals, rent receivables, exchange borrowers and so on are changed into protections. Accordingly, any resource with unsurprising incomes can be securitised. Securitisation is characterized as a course of change of illiquid resource into security which might be exchanged later in the initial market. So, securitization is the change of illiquid, non-attractive resources into protections which are fluid and attractive resources. It is a course of change of resources of a loaning organization into debatable instruments. Securitisation is not the same as figuring. Figuring includes move of obligations without changing obligations into attractive protections. However, securitisation consistently includes change of illiquid resources into fluid resources that can be offered to financial backers. 7.4 SUMMARY  A rent is an arrangement under which a firm gains an option to utilize a capital resource like hardware and so on instalment of a concurred charge called rent rentals. 138 CU IDOL SELF LEARNING MATERIAL (SLM)

The individual (or the organization) which obtains the right is known as resident. He doesn't get the responsibility for resource. He procures simply the option to utilize the resource. The individual (or the organization) who gives the right is known as lessor.  Hire buy is an option in contrast to renting. Recruit buy is an exchange where merchandise is bought and sold depending on the prerequisite that instalment is made in portions. The purchaser gets just ownership of products. He doesn't get possession. He gets possession solely after the instalment of the last portion. In the event that the purchaser neglects to pay any portion, the vender can repossess the merchandise. Every portion incorporates revenue moreover.  Discounting of bill is an alluring asset based monetary help given by the money organizations. On account of time charge (payable after a predefined period), the holder need not stand by till development or due date. In case he needs cash, he can limit the bill with his financier. In the wake of deducting a specific sum (rebate), the financier credits the net sum in the client's record. Subsequently, the bank buys the bill and acknowledges the client's record for the measure of the bill less markdown. On the due date, the drawee makes instalment to the broker. In the event that he neglects to make instalment, the financier will recuperate the sum from the client who has limited the bill. To put it plainly, limiting of bill implies giving credits based on the security of a bill of trade.  Venture capital essentially alludes to capital which is accessible for financing the new undertakings. It includes loaning money to the developing organizations. It is the interest in an exceptionally unsafe task with the goal of procuring a high pace of return. To put it plainly, funding implies long haul hazard capital as value finance.  Housing finance essentially alludes to giving money to house building. It arose as an asset based monetary help in India with the foundation of National Housing Bank (NHB) by the RBI in 1988. It is a peak lodging finance foundation in the country. Till now, various particular monetary foundations/organizations have entered in the document of lodging finance. A portion of the organizations are HDFC, LIC Housing Finance and so forth  Insurance is an agreement between two gatherings. One party is the protected and the other party is the backup plan. Safeguarded is the individual whose life or property is protected with the guarantor. That is, the individual whose hazard is safeguarded is called protected. Guarantor is the insurance agency to whom hazard is moved by the guaranteed. That is, the individual who guarantees the danger of safeguarded is called back up plan. Along these lines protection is an agreement among back up plan and safeguarded. It is an agreement where the insurance agency embraces to reimburse the safeguarded on the occurrence of certain occasion for an instalment of thought. It is an agreement between the guarantor and safeguarded under which the backup plan 139 CU IDOL SELF LEARNING MATERIAL (SLM)

embraces to remunerate the guaranteed for the misfortune emerging from the danger protected against.  Factoring is a plan under which the factor buys the record receivables (emerging out of credit offer of products/administrations) and makes prompt money instalment to the provider or loan boss. Along these lines, it is a game plan where the record receivables of a firm (customer) are bought by a monetary foundation or broker. Hence, the factor gives money to the customer (provider) in regard of record receivables. The factor embraces the obligation of gathering the record receivables. The monetary establishment (factor) embraces the danger. For this kind of administration just as for the interest, the factor charges an expense for the interceding time frame. This expense or charge is called factorage.  Forfeiting is a type of financing of receivables identifying with global exchange. It is a non-response buy by a broker or some other monetary organization of receivables emerging from fare of labour and products. The exporter gives up his right to the forfeiter to get future instalment from the purchaser to whom merchandise have been provided. Relinquishing is a method that helps the exporter sells his products on layaway but then gets the money a long time before the due date. To put it plainly, relinquishing is a strategy by which a forfeiter (financing organization) limits a fare bill and pay prepared money to the exporter. The exporter need not make a fuss over assortment of fare bill. He can simply focus on send out exchange.  Mutual reserves are monetary mediators which assemble reserve funds from individuals and put them in a blend of corporate and government protections. The shared asset administrators effectively deal with this arrangement of protections and acquire pay through profit, interest and capital additions. The livelihoods are in the long run given to common asset investors. 7.5 KEYWORDS  Merchant bank-The term trader bank alludes to a monetary foundation that behaviours guaranteeing, credit administrations, monetary exhorting, and gathering pledges administrations for huge companies and high-total assets people (HWNIs).  Dividend - A profit is a symbolic prize paid to the investors for their interest in an organization's value, and it for the most part starts from the organization's net benefits.  Agency-A relationship wherein the chief gives a specialist the option to follow up for the central's benefit and to practice some business judgment and watchfulness.  Securities-Securities are fungible and tradable monetary instruments used to bring capital up openly and private business sectors. There are principally three sorts of protections: value which gives proprietorship rights to holders; obligation basically 140 CU IDOL SELF LEARNING MATERIAL (SLM)

credits reimbursed with intermittent instalments; and cross breeds which consolidate parts of obligation and value.  Capital gains - Capital increase is the benefit one acquires on the offer of a resource like stocks, bonds or land. It brings about capital increase when the selling cost of a resource surpasses its price tag. It is the contrast between the selling value (higher) and cost value (lower) of the resource. 7.6 LEARNING ACTIVITY 1. What are the different financial services in India? Are they affected by change in global economic environment? ___________________________________________________________________________ ___________________________________________________________________________ 2. Arun wants to invest in mutual funds but he doesn’t have any prior knowledge on the same. What is the base of choosing MF scheme with respect to risk associated with it? Discuss. ___________________________________________________________________________ ___________________________________________________________________________ 7.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define bill discounting. 2. What is venture capital? 3. What is the role of housing finance? 4. Discuss insurance services provided by insurance company? 5. What is forfeiting? Long Questions 1. What is fund based financial services? Explain with the help of examples. 2. Describe stock broking? 3. Discuss loan syndication? 4. What are custodial services? 5. Discuss the role of merchant banking? 141 CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple Choice Questions 1. Who was regulating growth of merchant banking in the country? a. FEMA b. Foreign Exchange Regulation Act, 1973 c. Securities Contracts Act d. Income-tax Act 2. Which is not part of financial services? a. Commercial bank b. Insurance companies c. Crepitating companies d. Sole proprietorship 3. Which are functions of financial services? a. Mobilization of funds b. Allocation of funds c. Specialised service d. Mobilization of funds, Allocation of funds and Specialised service 4. Which is not a fee‐based financial service? a. Corporate counselling b. Profit management c. Lease financing d. Issue management 5. Which acts as an intermediary to link up the sources of ideas and the sources of fund? a. Merchant banking b. Venture capital c. Leasing d. None of these Answers 1-b, 2-d, 3-a, 4- c, 5- b 7.8 REFERENCES 142 CU IDOL SELF LEARNING MATERIAL (SLM)

References  Adams, A. and Clunie, J. (2006). The split capital investment trust saga: Lessons for financial services marketing. Journal of Financial Services Marketing.  Albrecht, K. and Zemke, R. (1985). Service America: Doing Business in the New Economy. Homewood, IL: Dow Jones-Irwin.  Alferoff, C., Knights, D. and Starkey, K. (2005). Corporate Social Responsibility and Financial Service Organisations. Nottingham: Financial Services Research Forum. Textbooks  Abou Aish, E., Ennew, C. T. and Mckechnie, S. A. (2004). Bank selection decisions: A cross cultural analysis. Journal of Marketing Management.  Bootwala, Penkar & Behere (2001). Modern Marketing Management. Sheth publishers.  Bagchi Kumar (1997). The Evolution of the state Bank of India. India: Sage Publications. Websites  https://www.michaelpage.com/advice/career-advice/growing-your-career/11-types- financial-services-and-institutions  https://portal.ct.gov/DOB/Consumer/Consumer-Education/ABCs-of-Banking--Banks- Thrifts-and-Credit-Unions  https://www.investopedia.com/ask/answers/030315/what-financial-services-sector.asp  https://www.chegg.com/homework-help/1-major-categories-financial-services-2- financial-services-a-chapter-4-problem-1cc-solution-9780077753863-exc 143 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 8: INSURANCE 144 STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Objective of Insurance 8.3 Nature of Insurance 8.3.1 Risk Sharing and Risk Transfer 8.3.2 Co-Operative Device 8.3.3 Risk Assessment in Advance 8.3.4 Amount of Payment 8.3.5 Huge Number of Insured Persons 8.3.6 Not to be Confused with Charity and Gambling 8.3.7 Investment Portfolio 8.4 Functions of Insurance 8.4.1 Certainty 8.4.2 Risk Sharing 8.4.3 Assists in Capital Formation 8.4.4 Prevention of Loss 8.4.5 Risk Transfer Mechanism 8.5 Limitation of Insurance 8.6 Classification of Insurance 8.7 Summary 8.8 Keywords 8.9 Learning Activity 8.10 Unit End Questions 8.11 References 8.0 LEARNING OBJECTIVES After studying this unit, you will be able to: CU IDOL SELF LEARNING MATERIAL (SLM)

 Explain the objectives of insurance.  Describe the nature and functions of insurance.  Discuss the limitations of insurance. 8.1 INTRODUCTION Insurance is an agreement, addressed by a strategy, where an individual or substance gets monetary assurance or repayment against misfortunes from an insurance agency. The organization pools customers' dangers to make instalments more reasonable for the safeguarded. Protection strategies are utilized to fence against the danger of monetary misfortunes, both of all shapes and sizes, that might result from harm to the safeguarded or her property, or from responsibility for harm or injury caused to an outsider. Working of Insurance There is a huge number of various sorts of protection approaches accessible, and basically any individual or business can discover an insurance agency willing to guarantee them at a cost. The most well-known sorts of individual protection arrangements are auto, wellbeing, mortgage holders, and life. Most people in the United States have somewhere around one of these kinds of protection, and vehicle protection is legally necessary. Organizations require uncommon sorts of protection approaches that safeguard against explicit kinds of dangers looked by a specific business. For instance, a drive-thru eatery needs an arrangement that covers harm or injury that happens because of cooking with a profound fryer. A car seller isn't dependent upon this sort of hazard yet requires inclusion for harm or injury that could happen during test drives. There are additionally protection arrangements accessible for quite certain requirements, for example, seize and emancipate (K&R), clinical misbehaviour, and expert risk protection, otherwise called blunders and oversights protection. Insurance Policy Components While picking an approach, see how protection works. A firm comprehension of these ideas goes far in assisting you with picking the approach that best suits your necessities. For example, entire extra security might possibly be the right sort of life coverage for you. There are three segments of a protection (premium, arrangement breaking point, and deductible) that are urgent.  Premium An approach's premium is its cost, normally communicated as a month-to-month cost. The premium is dictated by the safety net provider dependent on your or your business' danger profile, which might incorporate reliability. 145 CU IDOL SELF LEARNING MATERIAL (SLM)

For instance, in the event that you own few costly cars and have a background marked by crazy driving, you will probably pay more for an auto strategy than somebody with a solitary mid-range vehicle and an ideal driving record. Nonetheless, various guarantors might charge diverse expenses for comparative arrangements. So,discovering the value that is ideal for you requires some legwork.  Policy Limit As far as possible is the most extreme sum a safety net provider will pay under an approach for a covered shortfall. Maximums might be set per period (e.g., yearly or strategy term), per misfortune or injury, or over the existence of the arrangement, otherwise called the lifetime most extreme. Commonly, higher cut off points convey higher expenses. For an overall life coverage strategy, the greatest sum the safety net provider will pay is alluded to as the assumed worth, which is the sum paid to a recipient upon the demise of the protected.  Deductible The deductible is a particular sum the approach holder should pay cash based before the guarantor pays a case. Deductibles fill in as obstructions to huge volumes of little and irrelevant cases. Deductibles can apply per-strategy or per-guarantee contingent upon the guarantor and the kind of strategy. Approaches with extremely high deductibles are ordinarily more affordable on the grounds that the high cash-based cost for the most part brings about fewer little cases. 8.2 OBJECTIVE OF INSURANCE  Granting Security to People Protection fundamentally effectively grants protection from misfortunes and harms to individuals. It is an understanding goes into by two gatherings in which one vows to shield other from misfortunes as a trade-off for premium paid by other party. One party is insurance agency and other one is guaranteed. Insurance agencies ensure the guaranteed of remuneration if there should be an occurrence of any ominous possibility. Protected need to pay charge to insurance agencies as a trade-off for assurance of remuneration.  Minimisation Of Losses Protection focuses on minimisation of misfortunes emerging from future dangers and vulnerabilities. It adds assurance of instalments to individuals for occurring of dubious occasions. Protection guarantees the people for remuneration of misfortunes. It limits the danger through appropriate arranging and organization. Insurance agencies recommend 146 CU IDOL SELF LEARNING MATERIAL (SLM)

individuals for taking security estimates like establishment of fire recognition gadgets, alert and cameras framework and so forth They likewise hold hands with different associations like fire unit, wellbeing and different associations which work for decreasing misfortunes and harms. In this manner protection pursues limiting the occurrence of different misfortunes. Differentiating The Risk Insurance runs after enhancing the danger among enormous number of individuals. It targets decreasing the unfavourable impacts of any future possibility by spreading the general danger related with it. It is medium through which individuals share their danger with others. Insurance agencies repay the guaranteed for misfortunes out of expense they charged from their distinctive strategy holders. The misfortune caused by single individual is broadened among huge people groups by insurance agencies by using the gathered charge sum for paying pay.  Reduces the Anxiety and Fear Insurance policies mitigate the people of any pressure and dread in regards to the future dangers and vulnerabilities. It promises them of remuneration in event of any troublesome possibilities. Confirmation of remuneration is the most easing factor for strained and stressed individuals. They are sure of instalment on event of different questionable occasions. It makes them certain and they centre around their exercises with complete consideration.  Mobilises The Saving Mobilisation of savings is another significant target of protection. It draws in individuals for speculations by giving them various protection approaches guarantying of pay for misfortunes. Huge number of individuals takes this protection strategy to safeguard them against misfortunes and harms. Insurance agencies can create enormous measure of assets as top notch that they charged from their strategy holders consistently. These assets are then put by these organizations into protections and stock in advertise and acquire wages. Ideal lying assets with public are utilized by insurance agencies towards pay creating sources.  Generation Of Capital Insurance agencies prompts capital age by gathering huge measure of assets from public. They routinely charge premium from their enormous clients for giving them security against misfortunes. These assets are contributed for modern improvement by buying in to portions of organizations. Organizations can get their necessary capital through protection industry as this puts resources into organizations for procuring profits and different earnings. This lifts the business execution and monetary development of country. Likewise, greater ventures lead to production of different work openings. 147 CU IDOL SELF LEARNING MATERIAL (SLM)

8.3 NATURE OF INSURANCE Based on the meanings of protection talked about over, one can notice the accompanying nature or qualities:  Contract Insurance is an agreement between the insurance agency and the policyholder wherein the policyholder (safeguarded) makes an offer and the insurance agency (safety net provider) acknowledges his offer. The agreement of protection is constantly made recorded as a hard copy.  Consideration Like different agreements, there should be legal thought in protection too. The thought is as top notch which the safeguarded consents to pay to the backup plan.  Co-operative Device For one and one for everything is the reason for participation. The protection is a framework wherein enormous number of people, presented to a comparative danger, is covered and the danger is spread over among the bigger insurable public. Subsequently, protection is a social or helpful technique wherein misfortunes of one are borne by the general public.  Protection of financial risks A safety net provider is shielded from monetary dangers which can be estimated as far as cash. As such protection repays just monetary or financial misfortune or dangers.  Risk sharing and risk transfer Insurance is a social gadget for division of monetary misfortunes which might fall on an individual or his family on the occurrence of some unanticipated occasions. At the point when one is guaranteed, the misfortune emerging out of the occasions are shared by all the safeguarded as premium. Consequently, the danger is moved from one individual to a gathering.  Based upon certain principles The insurance depends on specific standards like insurable interest, most extreme great confidence, reimbursement, subrogation, causa-Proxima, commitment, and so on.  Regulated by Law Insurance companies are managed by legal laws in practically every one of the nations. In India, disaster protection and general protection are directed by Life Insurance Corporation of India Act 1956, and General Insurance Business (Nationalization) Act 1972, and IRDA Regulations and so on. 148 CU IDOL SELF LEARNING MATERIAL (SLM)

 Value of Risk Prior to protecting the topic of the protection contract, the danger is assessed to decide the measure of premium to be charged on the safeguarded. A few techniques are being taken on to assess the dangers implied in the topic. In case there is an assumption for weighty misfortune, higher expenses will be charged. Thus, the likelihood of event of misfortune is determined at the hour of protection.  Payment at contingency A back up plan is responsible to pay remuneration to the guaranteed just when certain possibilities emerge. In extra security, the possibility — the passing or the expiry of the term will positively happen. In such cases, the existence back up plan needs to pay the guaranteed aggregate. In other protection gets, the possibility — a fire mishap or the marine risks, could conceivably happen. Thus, if the possibility happens, instalment is made, in any case no instalment should be made to the policyholders.  Insurance is not gambling A protection contract can't be considered as betting as the individual guaranteed is guaranteed of his misfortune reimburse just on the occurrence of such unsure occasion as specified in the agreement of protection, though the round of betting may either result into benefit or misfortune.  Insurance is not a charity Premium collected from the policyholders under protection is the expense of hazard so covered. Henceforth, it can't be taken as good cause. Good cause comes up short on the component of agreement of repayment and remuneration of misfortune to the individual whosoever makes it.  Investment portfolio Since guarantors' obligation to pay remuneration to the guaranteed emerges on the incident of certain questionable occasion, the safety net providers don't need to keep the gathered premium with them. They put the superior got in chosen protections and acquire interest and profit on them. Hence, the safety net providers have two types of revenue: the protection premium and the venture pay (for example interest/profit) which happens after some time. 8.3.1 Risk Sharing and Risk Transfer You are probably going to have a daily practice for your everyday drive to work or school. On the off chance that you live in a city, you are probably going to walk or cycle to the bus station and ride a transport to the closest underground station, where you then, at that point take a train. Notwithstanding, regardless of whether you have finished this excursion 149 CU IDOL SELF LEARNING MATERIAL (SLM)

effectively various occasions, there is as yet a possibility that one day you will show up at the underground station just to discover that there is a strike and all trains are dropped. What will you do then, at that point? During a task arranging measure, an undertaking supervisor will make an activity intend to convey project destinations. In any case, when the execution of a venture will begin, various occasions can affect the task conveyance. Dubious occasions contrarily affecting a task are called hazards. To guarantee that these occasions don't crash an undertaking from conveying its targets, it is vital for an association to deal with its dangers deliberately. As a component of the danger the board cycle, an association should distinguish and investigate potential dangers, and afterward devise the best appropriate danger reaction for every one of the recognized dangers. In this exercise, we will look at two potential danger reaction procedures - hazard move and hazard sharing. Risk Transfer and Risk Sharing Risk transfer alludes to a danger the executive’s procedure wherein hazard is moved to an outsider. As such, hazard move implies one party expecting the liabilities of another party. Buying protection is a typical instance of moving danger from an individual or substance to an insurance agency. Working Risk transfer is a typical danger the executive’s strategy where the expected misfortune from an unfriendly result looked by an individual or substance is moved to an outsider. To repay the outsider for bearing the danger, the individual or substance will by and large furnish the outsider with occasional instalments. The most widely recognized illustration of hazard move is protection. At the point when an individual or element buys protection, they are safeguarding against monetary dangers. For instance, a person who buys vehicle protection is obtaining monetary security against actual harm or real damage that can result from traffic occurrences. Accordingly, the individual is moving the danger of bringing about huge monetary misfortunes from a traffic episode to an insurance agency. In return for bearing such dangers, the insurance agency will commonly require intermittent instalments from the person. Methods of Risk Transfer There are two common methods of transferring risk:  Insurance policy As laid out above, buying protection is a typical technique for moving danger. At the point when an individual or element is buying protection, they are moving monetary dangers to the insurance agency. Insurance agencies ordinarily charge an expense – a protection expense – for tolerating such dangers. 150 CU IDOL SELF LEARNING MATERIAL (SLM)