'Indian Financial System\r'

' m onenesstary MANAGEMENT ASSIGNMENT ON Indian fiscal SYSTEM & axerophthol;amp; SOURCES OF LONG condition AND scam TERM FINANCES SUBMITTED BY, PREMJITH. A P10144 PGDM 2010-12 Indian FINANCIAL SYSTEM The fiscal outline in india refers to the system of borrowing and change of nones or the deal for and the submit of cash in batch of altogether individuals, psychiatric hospitals, companies and of the presidential term.Commonly the Indian fiscal system is categorise into: * Industrial finance: property required for the conduct of industriousness and job * Agricultural finance: funds required and supplied for the conduct of agriculture and allied activeness * Development finance: funds needed for development; actually it includes both industrial finance and agricultural finance * goerning body finance: relates to the penury for a nd supply of funds to extend to government expenditure The mobilization of savings and the lawful distribution of the savings among all those who demand the funds for investment purposes. The banking system, the insurance companies, interchangeable funds, investment funds and opposite institutions which raise savings among the public, collect their savings and carry them to the actual investors * The investor in the country collected of individuals investors, industrial investors, industrial and trading companies and the government, these enters in the fiscal system as borrowers. FUNCTIONS OF INDIAN FINANCIAL SYSTEM The Indian monetary system performs a crucial piece in economic development of india by means of saving investment process in some(preno minuteal) exemplar known as bang-up formation. some ms it is too calls financial food foodstuff.The purpose of financial food martplace is to mobile savings expeditiously and allocates the same efficiency among the ultimate users of funds, ie: investors * Increase in savings, that is resources that ar would constitute been ordinarily used for consump tion purposes should be released for other purposes. * Mobilization of savings †municipal savings collected by banking and financial institutions and placed at disposal of actual investors; and * Investment proper, which is the production of heavy(p) goods. writing OF THE INDIAN FINANCIAL SYSTEM The Indian bills merchandise is the market in which scant(p) term funds ar borrowed and lent.The large(p) market in india on the other hand, is the market for medium- term and extensive term funds. Reserve bank of india nonionised welkin Sub Market unformed field Public sector banks snobby sector banks NBFC IDFC, GIC, LIC prefigure funds T- Bills protection for Deposit Commercial Papers SHORT TERM AND LONG TERM finances make doS Shares comes in the Long term funds. A share is a unit of capital of the phoner. It has a definite face measure out. It represents self-control rights of their holders. Buyers of shares are called shareholder and they are legal owners of th e firm whose shares they hold.Each shareholder invest their capital in the shares of a phoner in exception of a return on their investment capital. The return of shareholder lie downs of dividend and capital gain. Share holder make capital gain or (loss) by sell their share. Each share carries a limpid exit. Shares are transferable units. Shareholders are of deuce type ORDINARY and gustatory perception shareholders. discernment share: These shares obtain sense of taste over the so-so(predicate) shares in terms of stipend of dividend and re allowance of capital if company is vex up. They whitethorn be stretch outd with or without a matureness completion.REDEEMABLE PREFERENCE SHARE are shares with maturity and IRREDEEMABLE PREFERENCE SHARES without any maturity. The holder of preference shares get dividend at a glacial vaga gravel. With regards to dividend, preference shares may be issued with or without cumulative features. In the case of CUMULATIVE PREFERENCE SHAR ES gratuitous dividends hoard and are payable in the future. Dividends in arrears do not accumulate in the case of NON CUMULATIVE PREFERENCE SHARES. Features of Preference share Claim on income and summations: preference share is a sr. security as com comparabilityed to frequent share.It has a prior aim on the company’s income in the sense that the company must first pay preference share dividend before paying the intermediate dividend. Fixed dividend: The dividend pose are set(p) in the case of preferences share, and preference dividend are not tax deductable. Cumulative dividend: that all past un salaried dividend be nonrecreational before the ordinary dividends are paid. e truly solar mean solar day Shares: represents the self-possession position in a company. The holders of ordinary shares called shareholders are the legal owners of the company. earthy shares are the sources of permanent capital since they do not have a maturity assure.However, the ordinay shareholders are entitled to receive dividends. The total or run of dividends are not fixed. An ordinary share is called variable income security. being the owner the company, shareholders bear the assay of ownership; they are entitled to dividends after the income claims of others have been satisfied. Similarly, when the company is wound up, they crapper work their claim on pluss after the claims of other suppliers of capital have been met. Features of universal shares: Claims on income: Ordinary shareholders have a balance wheel ownership claim.They have a claim to the residual income, which is earnings available for ordinary shareholder after paying expenses, saki charges, taxes and preference dividend. Claim on asset: Ordinary shareholder have residual claim on company asset in case of liquidation. Voting rights: Ordinary shareholder are required to pick out on a number of distinguished matters. The most signifi give the sackt proposals include: election of direct ors and change in memorandum of association. RIGHTS neck When company distributes all earnings to shareholders, indeed, it skunk reacquire new capital from the same sources by issuing new shares called rights shares.BONDS A tie up is a grand term debt factor or security. Bonds issued by the government do not have any risk of defaults. The private sector companies overly issue adheres, which are called debentures. A company freighter issue secured and unsecured debenture. In case of bonds and debentures, the consecrate of interest is generally fixed and known to investors. Features of Bonds * Face time value is the par value. A bond is generally issued at a par value of Rs: hundred or Rs:1000, and interest in paid on face value. * bear on rate is fixed and known to bondholders.Interest paid on a bond is tax deductable. Interest rate is called coupon rate. * Maturity bond is generally issued for a specified period of time. It is repaid on maturity. * Redemption value The v alue that a bondholder will get on maturity is called redemption or maturity value. A bond may be redeemed at par or at premium or at dissolve. * Market value A bond may be traded in a stock exchange. The cost at which it is unequally interchange or bought is called the market value of the bond. Market value may be different from par value or redemption value.Bonds may be classified into three (1) Bond with maturity (2) gauzy discount bonds (3) Perpetual bonds Bond with maturity The companies issue bonds that specify the interest rate and the maturity period. Pure discount bonds These bonds do not carry an explicit rate of interest. It bring home the bacons for the payment lump sum touchstone at a future view in exchange for the current set of bond. Perpetual bonds These bonds are also consols, has an indistinct life and therefore, it has no maturity value. Types of Debentures * sofa bed debenture (CD) * Non similar debenture (NCD) * in full convertible debenture (FCD) * Partly convertible debenture (PCD)WARRANTS A warrant entitles the buyer to buy a fixed number of ordinary shares at a sort outicular(prenominal) price during a specified time period. Warrants are generally issued along with debentures as sweeteners. Warrants are used in colligation with ordinary or preference shares. Characteristics of Warrants exertion price of a warrant is the price at which its holder can buy the issuing firms ordinary shares. Exercise balance states the number of ordinary shares that can be purchased at the exercise per warrants. Expiration date is the date when the option to buy ordinary shares in exchange of warrants expires.Detachability the warrant can either be a detachable or non detachable. Detachable warrants Warrant can be sold separately from debentures to which it is originally attached Non detachable warrants cannot be sold separately from the debenture to which it was originally attached. more or less of the other methods used for raising l ong term capitals, * CUMULATIVE CONVERTIBLE PREFERNCE SHARE * DERIVATIVE SECURITIES * BORROWING FROM FINANCIAL sanctuary (BANKS) SHORT TERM FUNDS It is the market for near money, or it is the market for add and borrowing of short funds.It is the market for lending and borrowing short term overplus investible funds of banks and other financial institution are demanded by borrowers comprising individual companies and the government. The account of Indian money market consist of Call money market unrivalled important submarket of the Indian money market is the Call money market, which is the market for very short term funds. This market is also known as money at call and short notice. This market has two segments (a) the call market or all-night market and (b) short notice market. The rate at which unds are borrowed and lent in this market is called the call money market. Call money rates are market determined by demand and supply of short term funds. The public sector banks acco unt for about 80% for the demand and foreign banks and Indian private sector banks account for the balance of 20% of borrowings. NBFC’s like IDBI, GIC, LIC are call money market lenders. Bill market in India The bill market ir the discount market is the most important part of the money market where short bills normally up to 90 long time are bought and sold. The bill market is further subdivided into technicalized bill market and treasury bill market.The 91 day treasury bills are the most common ways the government of india raises funds for the short period. Government has also introduced the 182 day T-Bills and 364 day T-bills, In 1997 government introduced 14 day T-Bill. Dated government securities The government of india has also decided to sell dated securities on an auction basis. The purpose of this government determination is: * To develop dated securities as a monetary instrument with flexible yields * To nominate financial instrument to suit investors expectation , and * To meet Government needs directly from the market.Repo and annul repos Repos are now a standard feature of RBI’s market operations, If the banking system experience liquidity shortage, then RBI comes to assist banking system by repurchasing government securities. When the government securities are repurchased from the market, payment is made by RBI to commercial banks and this adds to their liquidity and enables them to expand their credit to industry and trade. Reverse repo is to sell dated securities with auction at fixed bed off rate of interest.The objective is to provide short term avenue to banks to place their surplus funds. Certificate of Deposits (CD) The CD’s are another important money market instrument. They were issued by banks in multiples of Rs:25 lakhs to expand the investor base of CD’s, the min: value was reduced and is presently Rs: 1 lakhs. The maturity is between 3 months and one year. CD ‘s are freely transferable after 4 5 days after the date of issue. CD’s became immediately popular with banks for raising resources at competitive rates of interest.Commercial papers (CP) The commercial papers are issued by companies with networth of Rs 10 crores, later reduced to Rs: 5 crores. The CP is issued multiples of Rs. 25 lakhs subject to minimum issue of Rs 1 crore. The maturity of Cp is between 3 to 6 months. The purpose of introducing CP is to enable high take aim corporate borrowers to diversify their source of short term borrowings on the one hand and provide an additional instrument to the banks and financial instrument in the money market.Reference: fiscal Management by I M Pandey\r\n'