Sources of Business Finance Test - 4

Unit Trust of India was established by the Government of India in 1964 under the Unit Trust of India Act, 1963.

The basic objective of UTI is to mobilise the community’s savings and channelise them into productive ventures.

it sanctions direct assistance to industrial concerns, invests in their shares and debentures, and participates with other financial institutions.

A commercial bank is a type of financial institution that provides services such as accepting deposits, making business loans and offering basic investment products.

Some examples of commercial bank are as follow:

Allahabad Bank.

Andhra Bank.

Bank of Baroda.

Bank of India.

Bank of Maharashtra.

Canara Bank.

Central Bank of India.

Punjab National Bank

State Bank of India

The capital obtained by issue of shares is known as share capital.

The capital of a company is divided into small units called shares.

Each share has its nominal value. For example, a company can issue 1,00,000 shares of Rs. 10 each for a total value of Rs. 10,00,000.

The person holding the share is known as shareholder.

There are two types of shares normally issued by a company. These are equity shares and preference shares.

A type of preference shares, the capitals of which are to be paid back to the preference shareholders after expiry of some specified period known as redeemable preference shares.

  The local currency shares of a company are delivered to the depository bank.

    The depository bank issues depository receipts against these shares.

    Such depository receipts denominated in US dollars are known as Global Depository Receipts (GDR).

Lease is an agreement between lessor (owner) and lessee for use of an asset on some periodic payment (lease rental).

it is a renting of an asset for some specified period. The owner of the assets is called the‘lessor’ while the party that uses the assets is known as the ‘lessee’

    The lessee pays a fixed periodic amount called lease rental to the lessor for the use of the asset.

    At the end of the lease period, the asset goes back to the lessor.

Such type of financing is more prevalent in the acquisition of such assets as computers and electronic equipment which become obsolete quicker because of the fast changing technological developments.

GDR is issued in more than one country for raising shares globally through various stock exchanges.

    State Industrial Development Corporations were established by different states for the purpose of promoting industrial development in their respective states.

    The objectives of the SIDCs differ from one state to another.

    At present, 22 such SIDCs are functioning in India.

American Depository Receipts are issued by a non US company to American citizens to obtain foreign capital.These can be listed and traded on a stock exchange of USA.

The share capital is contributed by the shareholders and a share indicate how much ownersip you have in the company.thus equity shareholders are called owners.

   Industrial Finance Corporation of India (IFCI) was established in July 1948 as a statutory corporation under the Industrial Finance Corporation Act, 1948. It was the first development finance institution in the country to cater the needs of the industrial sector.

Its objectives include assistance towards balanced regional development and encouraging new entrepreneurs to enter into the priority sectors of the economy. IFCI has also contributed to the development of management education in the country.

The constitution of IFCI was changed in 1993 from a statutory corporation to a company under the Indian Companies Act, 1956. Subsequently, the name of the company was also changed to "IFCI Limited" with effect from October 1999.

An unsecured debt is an obligation or debt that does not have specific property (like your house or car) serving as collateral for payment of the debt. If you fail to make payment on an unsecured debt, the creditor cannot take any of your property

As the debt raised through commercial paper is totally unsecured, the large and creditworthy firms having good credit rating can issue the CP.

Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 as a public limited company under the Companies Act.

ICICI assists the creation, expansion, and modernisation of industrial enterprises exclusively in the private sector. The corporation has also encouraged the participation of foreign capital in the country.

The Industrial Credit and Investment Corporation of India Limited (ICICI) incorporated at the initiative of the World Bank, the Government of India and representatives of Indian industry.

In the 1990s, ICICI transformed its business from a financial institution limited to development projects to a diversified financial services group.

At Present ICICI is merged with ICICI Bank. ICICI (Industrial Credit and Investment Corporation of India) is an Indian multinational banking and financial services company headquartered in Mumbai, Maharashtra, Indian, with its registered office in Vadodra.

Debentures come under borrowed funds and are issued for a specified period and to be paid back to the debenture holders after that period.

The funds required for day to day operations i.e. to meet expenses like wages, salary, rent, insurance etc. and investment in current assets i.e. inventory, bills receivable etc.

The RBI regulates commercial papers. CP is a source of short term finance. The maturity period of CP ranges from 90 days to 364 days.

Trade credit is a short term finance provided by one firm to another for routine business transactions.

These receipts are issued by a non US company to Americans to obtain foreign capital. ADRs are bought and sold in American markets like regular stocks.it can be issued only to American citizens and can be listed and traded on a stock exchange of USA.

LIC was set up in 1956 under the LIC Act, 1956 after nationalising 245 existing insurance companies.

LIC mobilises the community’s savings in the form of insurance premia and makes it available to industrial concerns, both public as well as private, in the form of direct loans and underwriting of and subscription to shares and debentures

A holder of GDR can at any time convert it into the number of shares it represents.

    The holders of GDRs do not carry any voting rights but only dividends and capital appreciation.

Dividend is paid out of the profit of the company. Dividend is that part of the profit which is paid to the shareholders (Equity and Preference shareholders). Investors also see "dividend payment" as a sign of a company's strength.

Company issues a deposit receipt as acknowledgement of debt.  The rate of interest is higher than bank deposits. Therefore company can easily raise finance.

The sources for raising borrowed funds include loans from commercial banks, loans from financial institutions, issue of debentures, public deposits and trade credit.

A fixed rate of interest is paid by the borrowers on such funds.

Such sources provide funds for a specified period, on certain terms and conditions and have to be repaid after the expiry of that period.

Factors discount the bills and holds the responsibility of credit control and debt collection from the buyer.

These sources are generated by the organisation itself e.g. ploughing back of profits, collection of debtors and receivables.

Many firms issue convertible zero interest debentures in order to avoid paying interest over the period till conversion happens. After conversion, the dividend applicable on paid-up share capital will be paid.

Mahindra and Mahindra was the first company in India to issue convertible zero interest debentures in January 1990.

Lease is an agreement between two parties i.e. Lessor and Lessee for the use of asset in return of periodic payment and for a specified period.

Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 as a public limited company under the Companies Act.

    ICICI assists the creation, expansion and modernisation of industrial enterprises exclusively in the private sector. The corporation has also encouraged the participation of foreign capital in the country.

    The Industrial Credit and Investment Corporation of India Limited (ICICI) incorporated at the initiative of the World Bank, the Government of India and representatives of Indian industry.

    In the 1990s, ICICI transformed its business from a financial institution limited to development projects to a diversified financial services group.

At Present ICICI is merged with ICICI Bank. ICICI (Industrial Credit and Investment Corporation of India) is an Indian multinational banking and financial services company headquartered in Mumbai, Maharashtra, Indian, with its registered office in Vadodra.

Dividend payable to equity shareholders may keep fluctuating. Moreover It is not compulsory to pay dividend to equity shareholders./p>