STOCK EXCHANGES

Stock exchange is a indirect market (secondary market). Stock exchange is a market where stock shares and other securities are bought and sold.

Stock exchange is an important constituent of the securities market. It is an organized and regulated market where second hand listed securities are bought and sold for investment and speculations. The securities traded on stock exchanges consist of shares, debentures and bonds issued by companies public and private.

If a person wants to sell his shares or debentures or government securities, he can sell them easily and quickly on the stock exchange with the help of stock brokers. Investors can purchase them easily and quickly through stock brokers on the stock exchange. Thus a stock exchange provides facilities for the purchases and sale of industrial, financial, government securities.

Definition of stock exchange: -

Stock exchanges are also called stock market. It is organized by a body or an associated of individual. Thus, the securities contract act (regulation) 1956, defines a stock exchange as an association, organization or body of individuals, whether in corporate or not, established for the purpose of assisting, regulating and controlling business in buying selling and dealing in securities.

FUNCTIONS OF STOCK EXCHANGES

Provides ready market for securities: -Stock exchange provides a ready and continuous or regular market for securities. It provides a ready where buyer and sellers are always available. A person who wants to buyer and sell securities at any time during working hours of the stock exchange. A person can convert his securities provide liquidity and price continuity to investment in securities.

Encourage capital formation: -Stock exchange provides faculties for investment in shares, debentures and government bonds. They encourage the habit of saving, investing and risk taking among the members of the public. They encourage savers to investment funds in government and corporate securities. Stock exchanges promote the growth of capital in the country and thus encourage of capital formation.

Provides correct evaluation of securities:- Prices of shares and other securities in the markets are determined by the force of demand and supply. The prices at which purchase and sale take place are made public.

Encourage safety of funds:- Stock exchanges ensure fair dealings and safety of funds because of strict regulations on the working of stock exchange. Strict regulations over the amount and the procedure of trading, speculation etc, to help avoid the exploitation of ignorant investor.

Provides proper allocation of funds:-Stock exchanges regulate the flow of capital in the proper direction. They serve as the barometers of business activity. A price of shares indicates whether a particular industry is prosperous and profitable or not.

Helpful in raising capital:- The new and existing companies need capital for their activities. Stock exchanges. Stock exchanges helpful in raising capital both by new and old companies.

Clearing house of business formation: -Some stock exchanges publish data based information and reports. They serve as a clearing house of business information and provide advice and guidance to investors.

Provides a raising of public debts:- The increasing government role in economic development has raising of huge amount for this purpose. Stock exchange provide for a raising of public debts.

LISTING

Every stock exchange maintains an official list of securities which can be bought and sold on it trading. Only those securities that are included in the list of stock exchange can bought and sold on a stock exchange. The inclusion of securities of a company in the list of securities permitted to bought and sold on a stock exchange is known as listing of securities. Listing implies the admission of shares or debentures of a company to trading privileges on stock exchanges.

Objectives of listing: - Listing is the basis of stock exchanges operations. The following are the objectives of listing.1.To ensure constant marketing facilities2.To ensure liquidity3.To facilities negotiability 4.To regulate the dealing in securities according to the interest of the investors.

Formalities for listing :-

Section 73 of the companies act provides for the listing of securities or scripts. The company intending to have its securities listed must apply in the prescribed from and has to comply with the following formalities.

1.Certified copies of memorandum and articles of association, prospects, underwriting agreements, consent of SEBI should be submitted to the stock exchanges along with the application for listing of securities.2.The company should offer not less than 49% of its issued capital for public subscription.

3.A brief history of the company with reference to its assets, liabilities, dividend policy, and capital structure should be given.

4.The allotment policy should be fair. In case of over subscription, allotment should be made in consultation with the stock exchange.

5.The company should be provide the necessary facilities for transfer instrument, transfer receipts new shares certificates etc,

If the application for listing is accepted the stock exchange authorities will call upon the company to execute a listing agreement. Under the listing agreement, the company undertakes to fulfill certain obligation on a continues basis.

SEBI

SEBI under the securities and exchange board of India act the central government has setup the SEBI. It is a corporate body. It is main purpose is to regulated the stock exchanges in the country and safeguarded in the interests of investors. The board has wide powers to regulate the business in stock exchanges. It has been exercising controlling over the activities of stock exchanges and public limited companies.

In recent time the government of India has taken setup as a healthy growth of capital market. It has setup SEBI in 1988. The main objective is to regulated the stock exchanges in the country and safeguard the interests of the investors.

Functions of SEBI: -

1.Regulating the business in the stock exchange and any other securities market.

2.Regulating and registering the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue registers to an issue, merchant bankers, underwriters, portfolio managers, investment advisors etc..,,

3.Registering and regulating the working of collective investment schemes, including mutual funds.

4.Promoting investors education and teaching of intermediaries of securities market.

5.Promoting and regulating self-regulatory organizations.

6.Prohibiting insider trading in securities.7.Regulating substantial acquisition of shares and take over of companies.

8.Calling for information from stock exchanges and intermediaries in the stock market.

9.Performing such other functions as may be prescribed decided.

10.Conducting research for the above purpose.

Performing such functions and exercising such powers under the provisions of the capital issue (control) act, 1947 and the securities contracts regulation act, 1956 as may be delegated to it by the central government.

Powers of SEBI:-

In January 1995, the SEBI act has been amended so as to arm SEBI with additional powers for ensuring the orderly development of capital market.

1.It has the power to prescribe maintenance of certain documents by the stock exchanges.

2.It has the power to call periodical returns from stock exchanges.

3.It has the power to approve bye-law of the stock exchanges for regulating a control of the contracts.

4.It may call upon the stock exchanges or any member to furnish such explanation or information relating to the affairs of the stock exchanges or any member.

5.It can amend the bye-law of stock exchanges.

6. It certain areas it can license the dealers in securities.

7.It can compel a public limited company to list of its shares.

8.It has the power to file complaints in courts and to notify it regulations with out prior approval of the government.

9.It has the power impose monetary penalties on capital market intermediaries and the other participants for listed range of violations.

10.It has the power to summon the attendances of and call documents from all categories of market intermediaries including persons from the securities market.

SERVICE SECTOR PROBLEMS

The service sector has to face many challenge in its attempt to fulfill the over growing financial demands of the economy. Some of the important challenges are briefly reported here under.

Lack of qualified personnel: -The financial service is fully to the task of financial creativity. However, this sector has to face many challenges. In fact, the dearth of qualified and trained personnel is an important impediment in it growth. Hence, it is very vital that a proper and a comprehensives training must be given to the various financial intermediaries.

Lack of investors awareness:- The introduction of new financial product and instrument will be of no use unless the investor is aware of the advantages and uses of the new and innovative products and instruments.

Hence, the financial intermediaries should educate the prospective investors, users of the advantages of the innovative instruments through literature, seminars, and workshops; even through they are getting good knowledge. But Indian markets are mostly occupies money market (indigenous banker, money lenders they are mostly occupies that these sector). Uneducated People their no concentrated on deposits, saving activities. Some time these financial activities are unless.

Lack of transparency:-The whole financial systems are undergoing phenomenal changes in accordance with the requirement of the nationalized and globalize environments. It is high time more liberalized rules and regulations, because agent, brokers, sub-brokers, portfolio manager, and investment advisors involved with the ill legal activities.

Lack of specializations:-In Indian scene, the financial intermediary seems to deals in different financial services lines with out speciazed in one or two areas. In other words, each intermediary is acting as a financial super marketing delivering, so many financial product and dealing different competitive varieties of instruments.

Lack of recent data:-In Indian financial market issuing the financial schemes so, that type of information isnt properly provided for innocent customers.

Unit-IIFinancial market and services

Financial services

The term financial services in a broad sense means mobilizing and allocation of saving. The financial service can also called financial intermediation. The financial intermediation is a process by which funds are mobilized from the a large number of savers and make them available to all those who are in needs of it and particularly to corporate customers a well developed financial services industry is absolutely necessary to mobilized the saving and to allocate them to various investable channel and there by to promote industrial development in a country.

Classifications of financial service industry: -

The financial services intermediaries in India can be traditionally classified into two: -

1) Capital market intermediaries2) Money market intermediaries

The capital market intermediaries consist of term lending institutions and which mainly provide long-term funds. On the other hand money market consists of commercial banks, co-operative banks and other agencies which supply only short-term funds.SCOPE OF FINANCIAL SERVICES: -

Financial services cover a wide range of activities. They can be broadly classified into two namely: -

1.Traditional activities2.Modern activities Traditional activities: Traditionally the financial intermediaries have been rendering a wide range of services both capital and money market activities. They can be grouped under two heads.

1) Fund based activities2) Non-fund based activities

Fund based activities:The traditional service which comes under fund based activities is the following:

A)Under writing of or investment shares, debentures, bonds, etc, (new issues primary market activities).B)Dealing in secondary market activitiesC)Participating in money market instruments like commercial paper, certificate of deposits, treasury bills, discounting of bills etc..,D)Involving the equipment leasing, hire purchase, venture capital, seed capital etc..,E)Dealing in foreign exchange market..,

NON FUND BASED ACTIVITIES:

Financial intermediaries provide services on the basis of non-fund activities also. They can also called fee-based activities. Today customers whether individuals or corporate are not satisfied with mere provision of finance. The expect more financial service companies. Hence, a wide variety of services are being provided under this head. This include following:

A)Managing the capital issues, management of pre- issue and post issue activities relating to the capital issue in accordance with SEBI guidelines and thus the promoter to market their issues.

B)Making arrangement for the placement of capital and debt instrument with instrument institutions.

C)Arrangement of funds from financial institutions for the client project cost or his working capital requirement.

II) Modern Activities

Beside the above traditional services, the financial intermediaries render in numerable services in recent time. Most of them are in the nature of non-fund based activities. In view of the important, the activities have been discuss in brief under the head new financial products and services. However some of the modern services provided by them are given in brief here under,

1)Rendering project advisory services right from the preparation of the project report till the raising of funds for starting the project with necessary government approval.

2)Planning for merger and acquisitions and assisting for the smooth carry out.

3)Guiding corporate customer in capital destructing.

4)Acting as trustee to the debenture holders.

5)Recommending suitable changes in the management structure and management style with a view to achieving better resulting.

6)Re-habiting and reconstructing sick companies through appropriate scheme of reconstructions and facilitating the implementations of the scheme.

7)Managing the portfolio of large public sector corporations.

8)Under taking management services like insurance service, back options etc

9)Under taking services relating to the capital market:A)Clearing servicesB)Registration and transfersC)Safe- custodian of securitiesD) Collection of income on securities

10)Due to exchange rate risk interest rate risk, economic risk and political risk by using swaps and other derivative products.

11)Promoting credit rating agencies for the purpose of rating companies which want to go public by the issue of debt instruments.

Financial Services

As a result of innovations, new instruments and new products are emerging in the capital market. The capital market and the money market are getting widened and depended. Many financial intermediaries including banks have already started expanding their activities in the financial service sector by offering a variety of new products.

Merchant banking: Merchant banking started developing in India, since 1972 on wards. It was commercial bank which originally established merchant banking division. A merchant banker is a financial intermediary who helps to transfer capital from those who possess it to those who need it. Merchant banking includes a wide range of activities. Such as management of customer securities, portfolio management, project counseling and appraisal, underwriting of shares and debentures, loan syndication acting as banker for the refund order, handling interest and divided warrants etc.., thus merchant banker render a host services to corporate and promote industrial development in the country.

Loan syndication:-This is more or less similar to consortium financing. But this work is taken up by the merchant banker as a lead manager. It refers to a loan arrangement by a bank called lead manager for a government. Such a single bank cannot provide by a huge loan, number of banks join together and form syndicate with a particular loan among themselves.

Leasing: Leasing is an arrangement under which a company or a firm acquires a right to make use of a capital assets like machinery on payment prescribed fee called rental charge. The lease cannot acquire any ownership to the assets, but he can use it. He is expected to pay for all maintenance charges and repairing and operation cost. In countries like the USA, UK, JAPAN, equipment leasing is very popular and nearly 25% of plant and equipment is being financed by leasing co; In India also many financial companies have stated equipment leasing business.

Factoring: Factoring refers to the process of managing the sale ledger of a client by a financial service company. In other words, it is an arrangement under which a financial intermediary assumes the credit risk in the collection of book debts for its. The entire responsibility of collecting the book debts passes on to the factor. But a factor provides credit information, collects debts, monitor the sales ledger and provide finance against debts. Thus, he provides a number of a service a part from financing.

Forfaiting:-Forfeiting is a technique by which a forfaitor (financing agency) discount an export bill and pay ready to a cash to the exporter who can concentrate on the export front with out bothering about collection of export bill. The forfaitor does so with out any resource to the exporter and the exporter is protected against the risk of non-payment of debts by the importers.

Venture capital: -A venture capital is another method of financing in the form of equity participation. A venture capitalist finances a project based on the penalties of a new innovative project. It is in contrast to the conventional security based financing. Must thrust is given to new ideas or technological innovations. Finance is being provided not only for start-up capital but also for development capital by the financial intermediary.

Custodial services: - It is yet another line of activity has gained importance, of late. Under this financial intermediary mainly provides services to clients, particularly to foreign investor, for a prescribed fee. Custodial services provide agency services like safe keeping of shares debentures, collection of investment and dividend and reporting of matter on corporate development and corporate securities to foreign investor.

New Financial Products or Services in FOREX Market

New products have also emerged in the forex markets of developed countries. Some of these products are to make full entry in Indian market.

Forward contract: -A Forward transaction is one where the deliveries of a foreign currency take place at a specified future date for a specific price. It may have a fixed maturity for May or a flexible maturity. There is an obligation to honour this contract at any cost, falling which, there will be some penalty forward contracts are permitted only for genuine business transaction.

Options: -As the very name implies, it is a contract where in the buyer of the option has a right to buy or sell a fixed amount of currency against another currency at a fixed rate on a future date according to his option. There is no obligation to buy or sell, but it is completely left to his option.

Options may be two types: -a) Call option b) Put option

a) Call option: - under call options the customer has an option to buy.b) Put option: - it is the option to sell under put option.Option trading would lead to speculation and hence there is much restriction in India.Future: -It is a contract where in there is an agreement to buy or sell a stated quality of foreign currency at a future date at a price agreed to between the parties on the stated exchange. Unlike options, there is an obligation to buy or sell foreign exchange on a future date at a specified rate. It can be dealt only in a stock exchange.

Swaps: - A swap refers to a transaction where in a financial intermediary buys and sells a specified foreign currency simultaneously for different maturity date-say, for instance, purchase of spot and sale of forward or vice versa with different maturities. Thus, swaps would result in simultaneous buying and selling of the same foreign currency of the same value for different maturities to eliminate exposure risk. It can also be used as a tool to enter arbitrage operations operations, if any, between two countries. It can also be used in the interest rate market also.

Merchant Banking

Merchant banking started developing in India, since 1972 onwards. It was commercial banks which originally established merchant bank division.

Merchant banks are issue housed rendering such services to industrial project, corporate units as flotation of new ventures and new companies, preparation and execution of new projects, consultancy and advice in technical, financial, managerial and organization fields.

Merchant banking started developing in India, since 1972 on wards. It was commercial bank which originally established merchant banking division. A merchant banker is a financial intermediary who helps to transfer capital from those who possess it to those who need it. Merchant banking includes a wide range of activities. Such as management of customer securities, portfolio management, project counseling and appraisal, underwriting of shares and debentures, loan syndication acting as banker for the refund order, handling interest and divided warrants etc.., thus merchant banker render a host services to corporate and promote industrial development in the country.

Need for Merchant Banking

Growth of industries: -During the 1970s and 1980s India has witness a tremendous growth in industrial in the field of petro-chemical, fertilizes, chemical, engineering, electronic and other (industrial development from 1950s up to present). Such industries do requires specialized services in the field of promoting of project, investment decision, project evaluation, techno-economic survey etc, thus there is a need for merchant banking services.

Expensive consultancy service: -The consultancy services provided by individuals and others were quite expensive and at the same time inadequate as per the requirement of the industry. The merchant bankers do provide adequate and economic services are per the needs of the industry.

Problems of small & middle scale industry:-The small and medium scale industries find it difficult to employee the service of experts. Again, the hiring of managerial and technical services is quite expensive from private consultancy firm. As such, the need for merchant banking was felt.

Mega issue: -Of late, Indian companies are coming up with mega issue. The prominent among such industries that have come with mega issue are Reliance, Madras refineries, State bank of India and other. Such mega issues of hundred of crorrs require efficient services from merchant banker.Project reports: The term lending institutions do lending long tem loan on the basis of a proper project report of the proposed project. There is a need to plan and draft a systematical project, which can easily handled by Merchant bankers.

Joint venture:- There are growing opportunities in the field of joint venture a broad. To assess the potentialities and implications of participation in joint venture abroad needs a close security. Such tasks can be easily handled by merchant bankers.

Services of Merchant Banking

Corporate counseling:Corporate counseling covers the entire field of merchant banking activities. Project counseling, capital restructuring, project management, public issue management, loan syndication, working capital, fixed deposits, lease financing, acceptance credit etc..,. It is provided to a corporate unit with a view to ensure better performance, main steady growth and create better image among services.

Project counseling:-Project counseling includes preparation of project reports, deciding on the financing pattern to finance the cost of project and appraising project report with the financial institution or banks (merchant banks).

Loan syndication:-This is more or less similar to consortium financing. But this work is taken up by the merchant banker as a lead manager. It refers to a loan arrangement by a bank called lead manager for a government. Such a single bank cannot provide by a huge loan, number of banks join together and form syndicate with a particular loan among themselves.

Issue management:-Management of issue involves marketing of corporate securities, equity shares, preference shares and debentures or bonds by offering them to public. Merchant banks act as intermediaries whos who own it to those who need it.The issue function may be broadly dividend into pre-issue management and post issue management. It both the stages, legal requirement have to comply with and several activities connected with the issue have to co-coordinate.

Portfolio management: -Portfolio refers to investment in different kinds of securities such as shares, debentures or bonds issued by different companies and securities issued by management. It is not merely a collection of unrelated assets by a carefully blended asset combination with in a unified frame work. Role of Merchant Banking:

The important of merchant banking has increased very much in the field of consultancy and industrial development. These banks help companies, small business units and small entrepreneurs by offering financial, banking and consultancy services. Merchant banking services provided counseling are given below:1.Scope for the establishment of industry.2.Technical and marketing facilities3.Taxation, export and import, accounting and management.4.Preparation of project exports on proposed industries.5.Guidance to entrepreneurs regarding the availability of raw-material and marketing prospects.6.Technical assistance to self employed persons regarding the feasibility of their projects and proposal and overall industrial surveys.7.Management of public issue for raising capital.8.Assistance in establishing liaison with government lending bodies for raising long term development finance.9.Assessment of the strengths and weakness of companies through management audit.10.Suggestion of the solutions to remove weakness. Functions of merchant banking

Promotional services:The merchant bankers assist and advice the promoters in promoting a project. To promote a project requires a number of formalities such as obtaining clearances. Preparing project report, and so on. Such preliminary activities in connection with the project are handled by merchant bankers.

Financial arrangement:The promoters also need long-term and short-term finance assets and pre-operative working capital needs. The merchant bankers can handle the job of arranging finance, which involve application to the financial institutions, monitoring the sanction of the loans.

Corporate restructuring:-The merchant bankers provide assistance and advice in the case of mergers, amalgamations, take-overs, etc. They act as intermediaries in negotiating the term of mergers, take-over etc.

Capital reorganizations:-The merchant banking may also facilitate capital reorganization, especially when the company is facing problem of over-capitalization and under capitalization. Thus, the merchant bankers can have the right capital mix and in the right quantum.

Capital issue management:For raising capital from the market, there are a number of formalities such as drafting of prospectus, vetting of prospectus by SEBI, appointment of underwriters, appointment of registrars, brokers and a number of other formalities. Such formalities can be completed by merchant bankers.

Special assistance to small scale industries:Small scale industries do lack the technical and managerial know-how in connection with the running of the company. The merchant bankers do provide them with adequate advice and assistance in running their organization effectively and efficiency.

Portfolio management: Merchant bankers manage the portfolios of individuals and institutions to suit the need of the owners. They make investment decisions in equity, bonds, bullion, real state etc. some investments are retained and some are dis-invested to achieve target rates of return. The merchant bankers are paid a fee and also performance based incentive.

Private placement: The merchant bankers assist the company in private placement to raise capital. They negotiate with mutual funds, financial institutions, and fixed deposit holders, existing shareholders and other and fixed deposited holder and other and raise funds within less time and at less cost.

Foreign currency loan:All India financial institutions like IDBI and IFCI provides foreign currency loans to Indian importers to import capital goods and machinery from abroad. The merchant bankers assist the companies in obtaining foreign currency loan from financial institutional. The foreign banks normally insist on guarantees from Indian financial institutions. The merchant bankers assist the companies to obtain foreign currency loan guarantee.Technical assistance: Merchant bankers do advise their client in respect of technological upgradation and modernization of industries. The advice and assistance of merchant banker in respect of explanations and diversification is of great significance.

Investment advisory service: Merchant banker also provided advice in respect of investments in other companies of fields. They study balance sheet, obtain latest information and accordingly advise their clients to invest their funds at the right directions.

Different categories or merchant bankingThere are four different categories of merchant bankers. Only category 1 merchant bankers are allowed to act as lead managers to the issue.

Category 1:-Those merchant banker who can conduct all above mentioned activities, relating to management of issues. They may, if they so choose, act only in an advisory/ consultative capacity or as co-manager, underwriter or as portfolio manager.

Category II:-Those merchant bankers who can act as consultant, advisor, portfolio manager and co-manager.

Category III:-Those merchant bankers who can act as underwriter, adviser and consultant.

Category IV:-That merchant banker who can act only as adviser or consultant to an issue.

UNIT-IIIVENTURE CAPITAL, LEASING FINANCE, FACTORING

LEASING FINANCE

Leasing is a method of financing investment. Leasing in India as compared to USA, UK&JAPAN is not very popular. One percentage of the industrial investment is covered by lease finance.

Leasing is a legal process having tax (assumption) implication. It is an off-balance sheet. Leasing is used in many developed countries. As a method of finance investment. Leasing has a big industry in the USA and UK and spread to other country during the present century.

Leasing as a concept involves a central where by ownership and financing risk taking of any equipment or asset are separated and by two or more parties.

Leasing is a method of acquiring the right to use equipment for consideration. Leasing is a contract between the owner (lesser) and the user (lessee) for a fixed term for the use and hire of specific asset select by the lessee.

Leasing Source as a finance:- a) Modernization of businessb) Balancing equipmentc) Cars, scooters, vehicles, land building plants machinery and other durable assets.d) Items entitle to 100% or 50% depreciation.e) Assets which are not being financed by banking institutions.

History and development of leasing:The history of leasing dates back to 200BC when Sumerians leased good. Romans had developed a full body of law relating to lease for movable and immovable property.

How ever the modern concept of leasing appeared for the first time in 1887.when the bell telephone company began renting telephones in the USA.Subsequently 1930s the Railway industry used leasing service for its rolling stock needs. In the post war period, the American Airlines leased their jet engines for most of the new air craft.

Since Second World War the use of leasing has been greatly expanded and is constantly used for new products and new industries in may 1952, Henry Sheffield setup a separated corporation in the USA to handle leased transaction.

The concept of financial leasing was pioneer in India during 1973. the first company was setup by the Chidambaram group in 1973 in Madras. The company undertook leasing of industrial equipment as its many activities.

SBI was the first commercial bank to setup leasing subsidiary, SBI capital market.

In the subsequent years leasing industry business transacted by both public and private companies leasing co; was Rs.5000 corers in 1993 and it is expected to cross Rs.10, 000 corers by 1995.

Steps involved in leasing transactions:The steps involved in leasing transactions are summarized as followed.

1.First, the lessee has to decide the asset required and selected supplier. He has to decide about the design specification, the price warranties, terms servicing etc..,

2.The lessee, they enter into lease agreement with the lessor. The lease agreement contains the terms and conditions of the lease such as.a)The basic lease period during which the lease is irrecoverable.b)The timing and amount of periodical rental payments during the lease period.

c) Details regarding payment of cost of maintenance and repairs, taxes, insurance and other expanses.

3.After the lease agreement it signed the lessor contracts the manufacturers and requests him to supply the asset to the lessee. The lesser makes payment to the manufacturer after the assets has been delivered and accepts by the lessor.

Structure of leasing industry

The present structure of leasing industry in India consist of 1)Private sector leasing 2)Public sector leasing

I)Private sector leasing companies:-Pure leasing companiesHire purchases leasing & finance companiesSubsidiaries of manufacturing group companies

II) Public sector leasing companies:-a) leasing division of financial institutionsb) Subsidiaries of public sector banksc) Other public sector leasing organizationsAdvantages of leasing

Permit alternative use of funds:A leasing arrangement provides a firm with the use and control over asset huge capital expenditure. The firm is required only to make rental payment. It saves considerable funds for alternative uses which would otherwise be tied up in fixed capital.

Faster cheaper credit:Depending on tax of the lessee it costs less than other methods of acquiring assets. It permits firms to acquire new equipment without going through formal producer. Hence, acquisition of assets under leasing arrangement is cheaper and faster than any other service of finance.

Flexibility:Leasing arrangements may be the lessees need more easily that ordinary financing.No Restrictive:The restrictive covenants such as debt and equity declaration of dividend etc., which are usually impose under loan agreement are absolutely absent in a lease agreement.100% financing:Lease financing enables a firm to acquire the use of an asset without having to make down payment. So hundred percent financing is assured to the lessee.Tax consideration:A lease payment is tax deductible if an asset is purchased, it must be capitalized and the annual depreciation charge is deducted as a tax deductible item.Lower administration cost:Some time the firm may find leasing reducing its administrative cost as well. In very large operations, a firm may find it more attractive to let some other party take care of the assets.Dis-advantages of leasing finance

1) Lease is not suitable mode of project finance. This is because rentals are repayable soon after entering into lease agreement while in new projects cash generations may start only after a long period.2) Certain tax benefits/ incentives such as subsidy may not be available on leased equipment.3) The value of real asset. Such as period. In such a case the lessee loses the advantage of a potential capital gain.4) The cost of financing is generally higher than that of debt financing.5) A manufacturer who wants to discontinue a particular line of business will not in a position to terminate the contract expect by paying heavy penalties.6) If the lessee not able to pay rental regularly the lessor would suffer a loss particularly when the asset is a sophisticated one and less liquid.7) In the absence of exclusive laws with the lease transaction, several problems crop up between and lessee regularity in unnecessary complications and avoidable tension.8) Lease agreement is not suitable for small scale industries. It is only available for large scale industries because small scale industry is always facing material, machinery problems financing problems.

Types of lease (leasing)Operating lease: An operating lease is also known a service lease, short term lease or true lease. In this lease, the contractual period between lessor and lessee is less than the full expected economic life equipment. This means that the lease is for a limited period may be month, six month, a year or few years.

The risk of obsolescence is enforced on the lessor who will also bear the cost of maintenance and other relevant expenditure. The lessor also does the service like handling warrants claims, paying taxes, scheduling and performance maintenance and keeping complete records lease is suitable. Ex: computers, copy machinery and other office equipment, vehicles, material handles equipment etc.., which is sensitive to obsolesce.

Finance lease: A financial lease is also known as capital lease, long-term lease. In financial lease, the lessee selects the equipment settles the price and terms of scale and arranges with leasing company to buy it. He enters into a irrevocable with the leasing company. Under a financial lease the rate of lease would be fixed based on the kind of lease, the period of lease, periodicity of rent payment and the rate of depreciation and other tax benefits available. In a large number of cases the financial lease and used as financing tax planning tool. The financial lease is very popular in India as in other countries like USA, UK and JAPAN. The high cost of equipment such as office equipment, diesel generators, machinery tools, textile machinery, containers etc.., leased under financial lease.

Sale and lease back: Under this type of lease a firm which has an asset sells it to the leasing company and gets it back on lease. Leasing company and gets it back on lease. The asset is generally sold at its market value. The firm receives the sale price in cash and gets the right to use the asset during the period. Most of the lease back agreements are on a net basis which means that the lessee pay all maintenance expenses property taxes and insurance. The sale and lease back agreement in beneficial to both lessor and lessee. The lessee gets immediate cash which becomes available for capital for further expansion and lessor gets tax benefits. Ex: retail stores, office buildings, multi-purpose industrial buildings and shopping centers are financed under this period.

Cross borders lease or international lease:

Cross border lease is international leasing and is known a transaction leasing. It relates to a lease transaction between lessor and lessee domiciled in different countries and includes exports leasing. In other words the lessor may be of one country and lessee may be another country to illustrate, if a leasing company in USA makes a available an Air Bus on lease to Air India, there would be a cross border lease. Import lease: Import leasing is an arrangement by which a leasing company or the government enters in to an agreement with a foreign company to acquire sophisticated equipment on lease basis.

Leverage lease: A leveraged or third lease is one that involves a third party who is lender in addition to the lessor and lessee. Under the arrangement, the lessor borrows funds from the lender and himself act as an equity participant. Normally, the amount borrowed is substantial funds provided by the lessor himself. The lessor services the debt out of lease rent received. The third party usually involved in financing the transaction is a financial institution like unit trust, insurance company, commercial banks etc.., Difference between financial lease and operating lease:Sl.noFinancial leaseOperating lease

1.Financial lease is also known as capital lease, long-term lease, closed lease.An operating lease is also known as short-term lease, service lease, rental lease or true lease.

2.A financial lease is like an installment loan. An operating lease is a rental agreement.

3.It is a legal commitment to pay for the entire cost of equipment plus interest over a specified period of time. The lessee commits to a series of payment which in total exceed the cost of the equipment.The lessee is not committed to paying more than the original cost of equipment during contractual period.

4.It excludes provision for maintenance or taxes which are paid separately by the lessee.Operating lease provides for maintenance expenses and taxes if the lessor.

5.The risk of obsolescence is assumed by the lessee.Leasing company assumes risk is obsolescence.

6.Contract period ranges from medium to long-term.Contract period ranges from intermediate to short term.

7.Contract are usually non-cancelable.Contracts are usually cancelable either by the lessor or by the lessee.

8.Air crafts, land and building heavy machinery are leased.Computers, office equipments automobiles, truck etc.., are leased.

9.The lease involves a financial commitment similar to a loan by a leasing company. It places the lessee in a position of borrow.The financial commitment is restricted to regular rental payment. The rentals find a place in the P&L a/c of the lessee.

10.The lessor fulfills financial function.The lessor fulfills service function/

Venture capitalThe capital provided to start venture known a venture capital. Venture capital refers to the commitment of capital as share capital for the formulation and setting up of small firms are specializing in new technologies. Venture capital is not merely an injection of funds to a new firm. It is simultaneous input of skill needed to set up the firm, design it marketing strategy and organize and manage. Venture capital understood many ways. In a narrow sense, it refers to investment in new and tried enterprises are lacking a stable record growth. Venture capital has played an important role in the industrial development of our country in last one decade.

The venture capital comes to India only in 1980s. The nature of venture capital in India would be discussed. In India IDBI venture capital schemes was the first venture capital fund. In India venture capital is available in three forms, these are1) Equity2) Conditional loan3) Income note

Venture capital is equity support to funds new concepts that involves a high risk and at the same time have high growth and capital potential. Venture capital is an important source of funds for technology based industry.

Meaning of venture capital:Venture capital is long term risk capital to finance high technology project which involves risk but at the same time has strong potential for growth. Venture capitalists pool their resources including managerial ability to assist new entrepreneurs in the early years of the project. Once the project. Once the project reaches the stages of profitability, they sell their equity holdings at high premium.

Feature of venture capital1) Venture capital is usually in the form of equity participation. It may also take the form of convertible debt or long term loan. 2) Investment is made not only in high risk but also in high growth potential projects.3) Venture capital is available only for commercialization of new ideas or new technologies and not for enterprises which are engaged in trading, booking, financial services, agencies or research and development.4) There is continuous involvement in business after making an investment by the investors.5) Venture capital is not just injection of money by also input need to setup the firm, design its marketing strategy and organize and manage it.6) Investment is usually made in small and medium scale enterprises.7) It is part of primary market.8) Venture capital funds also provide technical, financial and managerial service.9) Venture capital investment is highly skewed to the right. The success rate is 10-20%.10) It is a equity form investment.

Functions of venture capital1) Venture capital has played an important role in financing new projects. They have played an important role in encouraging innovation, techno-commercial projects which are highly risky.2) Besides finance they provide skills to new enterprises and new ventures. It provides seed capital fund to finance innovation even in the restarts stage.3) Venture capital also develops a business plan (in partnership with the entrepreneur) which will detail the market opportunity, the product development and financial needs.4) The venture capitalist is expected to perform not only the role of a financier but also a skilled-faceted intermediary supplying a board spectrum of specialist services technical, commercial, managerial, financial and entrepreneurial.5) Venture capital assistance provided by the financial institution is in the form project loan, equity, conditional loans and guidance service including technology information service.6) Venture capitalist assists the entrepreneurs in locating interviewing and employing out standing corporate a achievers to professionalize the firm.

Advantages of venture capital Venture capital has made significant contribution to technology, innovation and promotion of entrepreneurs. We would discuss the advantages of venture capital in three abroad areas.1) economy oriented:a) Helps in the industrialization of the country.b) Helps in the technology development of the country.c) Generates employment.d) Helps in developing entrepreneurial skills.e) To provide more and more new job opportunities.

2) Investors oriented:a) Benefits to the investors is that they are invested to invest only after the company starts earning profits, so the risk less and healthy growth of capital market is entrusted.b) Profit to venture capital companies / venture capital funds.

3) entrepreneurs oriented:a) Helps small and medium first generation entrepreneurs to translate their ideas into a reality.b) Promotes entrepreneurship and faster entrepreneurism in the country.IMPORTANCE OF VENTURE CAPITAL

1) Advantages to investing public:a) The investing public will be able to reduce risk significantly against management.b) if the public invest in venture capital fund who in turn will invest in equity of new business with their expertise in the field and continuous involvement in the business.c) Investors have no means to vouch for the reasonableness of the claims made by the promoter about profitability of the business.d) The venture capital funds equipped with necessary skills will be able to analyse the prospects of the business. e) The investors dont have any means to ensure that the affairs of the business are conducted.II) Advantages to promoters:1) the entrepreneur of the success of public issue is require to convince of underwriters, brokers and thousand of investors but to obtain venture capital assistance.2) Venture capital fund assistance would eliminate those efforts by leaving entrepreneur to contract bread and butter activities of business.3) New entrepreneurs find it very difficult to make under writing arrangement and require a great deal of effort.III) General:1) It also paved the way for private sector to share the responsibility with public sector.2) A developed venture capital institution set up reduces the time log between technological innovations and its commercial exploitations.3) These business will take-off with the help of finance from venture funds and this would help in increasing productivity, better capacity utilizations etc..,

Venture capital in Indian scenarioGenerally there are three types venture capital systems in our India scenario.

a) Equity participation b) Conventional loanc) Conditional loand) Income notes

I) Equity participation: Venture capital firms participated in equity through direct purchase of shares but their stake doesnt exceed 49%. These shares are retained by them till the assisted project making profit. These shares are sold either to the promoter at negotiated price under buy back agreement or to the public in the secondary market at a profit.

II) Conventional loan:Under this form of an assistance a lower fixed rated of interest is charged till the assisted unit become commercially operational after which the loan carrier normal or higher rate of interest rate. The loan has to be rapid according to a predetermined schedule of repayment as per terms of loan agreement.

III) Conditional loan:Under this form of finance an interest free loan is provided during the implementation period but it has to pay royalty on sale. The loan has to be repaid according to a predetermined schedule as soon as company is able to generated scale and income. IV Income notes:It is a combination of conventional and conditional loans. Both interest and royalty are payable at much lower rate than in case of conditional loan.

Suggestion for growth of venture capital Venture capital industry is at the take of stage in India. It can play a catalytic role in the development of entrepreneurship skill that remains unexploited among the young and energetic provided for professionally qualifies talents. It can help prompted new technology and hi-tech industries, which involves high risk but promises attractive rate of return.

Exemption/concession for capital gains: Capital gains law represents a handle to the success of venture capital financing. The earning of the funds depends primarily on the appreciation in stock values. The capital gains arise only after 3to 4 year investment and that the projects being in new risky area.

The benefits of capital funds gains, under section 48 of the act are not significant. It would be advisable that all long term capital gains earned by VCCS (venture capital companies) should be exempted from tax or subjected to concessional flat rated. The capital gains reinvested in new ventures should be also exempted from tax.

Development of stock markets: One of the major factors which contributed to the success of venture funds in the west is development of secondary and territory stock markets. These markets dont have listing requirement and are spread over all important cities and towns in the country. The success of venture capital funds depends very much upon profitable disinvestment of the capital contribute by it.

Fiscal incentives: Fiscal incentives may be given in the form of lowering the rate of income tax. It can be accomplished by:1) Application of provisions applicable to non-corporate entities for taxing long-term capital gains.2) An allowance to funds similar to section 80-CC of income tax act, say 20% of the investment in new venture which can be allowed as deduction from the income.

Private sector participation: Where the economy is dominated by private sector development of venture fund market was possible due to very significant role played by private sector which is often willing to put money in high risk business provided higher returns are expected.

The private sector because of this provision, may not like to promote venture fund business. Promoters share in the capital of venture fund cannot exceed 20% of the total sector. sLimited partnership: The practice of limited partnership as in UK should be permitted in order to promote of objects between the managers and contributories for the success of venture capital projects.

LEGAL ASPECTS & GUIDELIENS ISSUED FOR VENTURE CAPITALThe following are the guidelines issued by the government of India:1) The public sector financial institutional SBI scheduled banks, foreign banks and their subsidiaries are eligible for setting the venture capital funds with mininumsize Rs.10 crore and a debt equity ration 1:1.5. 2) If they desire to raise funds from the public, promoters will be required to contribute a minimum of 40% of capital.3) Foreign equity up to 25% subject to certain conditions would be permitted.4) The guidelines provide for NRI investment up to 74% on reportable basis and 20% to 40% on a non repartrible basis. It should invest 60% of it funds in venture capital activity.5) The balance amount can be invested in new issue of any existing or new company in equity cumulative, convertible preference share, debentures bonds or any other security approved by CCI (controller of capital issues).6) The venture capital companies and venture capital funds can be set up a joint venture between stipulated agencies and non institutional promoters and but the equity holding of such promoters should not be largest single holder.7) Venture capital assistance should go to enterprises with a total investment of not more that Rs.10crores.8) The venture capital company (VCC) /Venture Capital Fund (VCF) should be managed by professionals and should be independent of the parent organization.9) The VCC/VCF will not be allowed to undertake activities such as trading, brokering, money market operations, bills discounting, inter corporate lending. They will be to invest in leasing to the extent of 15% of the total funds & developed. The investment on revival of risk units will be treated as a part of venture capital activity.10) Listing of VCCs/VCF can be according to the prescribed norms and underwriting of issues at the promoters discretion.11) A person holding a position on full time chairman persons, chief executive director/ whole time director in a company will not be allowed to hold the same position simultaneous in the VCC/VCF.12) The venture capital assistance should be extended to:

a) The enterprise having investment up to Rs.10 crores in the project.b) The technology involved should be new and untried or it should incorporated significant improvement over the existing technologies in India.c) The promoters should be new professionally or technically qualified with inadequate resources.d) The enterprises should be new, professionally or technically qualified with inadequate resources.e) The enterprises should be established in the company from employing professionally qualified person for maintenance of accounts.f) Share pricing at the disinvestment by a public issue on general sale offer by the company or fund may be done subject to this being calculated an objective criteria and the basis disclosed adequately to the public.