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7/31/2019 Understanding Financial Products
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UnderstandingFinancial Products
Financial Services Marketing (303)
Mrs. Charu Rastogi, Asst. Proff.
7/31/2019 Understanding Financial Products
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Agenda
What are Financial Products? What are Financial Services? Financial System, its functions Indian Financial System Financial Products
o Banks
o Money market
o Capital market
o Asset / Fund based
o Fee based
How are financial products managed?o Financial Planning Process
o Individual Financial Plan
o Customer needs and product solutions
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Afinancial product is afacility(arrangement or intangible property) throughwhich, or through the acquisition of which, a person
o makes a financial investment
the investor gives money to another person and the person uses the contribution to
generate a financial return, or other benefit, for the investor
the investor has no day-to-day control over the use of the contribution to generatethe return or benefit
Eg: a person paying money to a company for the issue of shares (the company uses
the money to generate dividends for the person and the person, as a shareholder,
does not have control over the day-to-day affairs of the company)
o manages financial risk
manage, avoid or limit the financial consequences to them of particular
circumstances happening
Eg. taking out insurance and hedging a liability by acquiring a futures contract or
entering into a currency swap
o makes non-cash payments
by ways other than making physical delivery of a domestic or foreign currency in
the form of notes / coins
Eg: facility for direct debit of a deposit account, a facility for the use of cheques
Financial Product
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Financial Service
A person provides afinancial service if theyo provide financial product advice
to influence a person in making a decision in relation to a particular financial
product
o deal in a financial product
acquiring/issuing/varying/disposing a financial product
underwriting the securities or interests
o make a market for a financial product
through a facility, at a place or otherwise, the person regularly states the prices at
which they propose to acquire or dispose of financial products on their own behalf
o
provide a custodial or depository service a financial product, or a beneficial interest in a financial product, is held by the
provider in trust for the client
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Financial System
Financial system supplies the necessaryfinancial inputs for the production of goods and
services which in turn promotes the well being
and standard of living of the people of a country Efficient functioning of the financial system
facilitates free flow of funds to more productive
activities and thus promotes investment
It the intermediation between savers andinvestors and promotes faster economic
development
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Functions of Financial System
It serves as a link between savers and investors. It channelizes flow of saving into productive investment. It provides payment mechanism for exchange of goods and
services.
It provides a mechanism for the transfer of resources acrossgeographic boundaries
It provides a mechanism for managing and controlling the riskinvolved in mobilizing savings and allocating credit.
It promotes the process of capital formation by bringingtogether the supply of saving and the demand for investible
funds.
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Financial System in India
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Constituents of Indian Financial System
Financial Institutionso facilitate smooth functioning of the financial system and act as
middlemen or intermediaries between savers and borrowers
Financial Marketso Centers and arrangements which facilitate buying and selling of
financial assets, claims and services
o Unorganized market and Organized market;
Capital Market: Market for financial assets with long or
indefinite maturity period
Industrial Securities Market (Primary and Secondary) Government Securities Market Long term loans market (Term loans, mortgages)
Money Market: Market for short term liquid assets
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Constituents of Indian Financial System
Financial Instruments / Assets / Securitieso represent a claim against the future income and
wealth of others
o Can be classified as per marketability Marketable (shares, bonds, g-sec)
Non-marketable (FDR, PF, Pension funds, NSCs)
oAs per type: Cash, debt, stock assets
oAs per maturity: Short term, long term assets
Financial Serviceso Fund / Asset based
o
Non-fund / Fee based
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Financial products: Banks
CorporateBusiness Loan
Capital raising (Equity, debts)
Mezzanine financing (subordinated
debt or preferred equityinstrument, superior only to equity
shares)
Project finance
Revolving credit (No fixed number of
payments. eg. Credit cards)Risk management (commodities,
interest rate derivatives)
Term loan
Cash management services
Agency services
RetailCurrent account
Savings account
Money market account
Certificate of depositIndividual retirement account
Credit card / debit card
Mortgage
Personal loan (Home, auto,
education)Time deposit
Depository services
Credit Cards
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Financial Products: Money Market
Treasury bill: short term borrowings of the government(14 days, 91 days, 182 days, 364 days)
Commercial bills: banks make advances to customersagainst these
Inter bank call money: source for banks for gettingovernight and short term funds
Commercial paper: short term unsecured instrument
issued by a company via promissory notes with fixedmaturities
Certificate of Deposit: issued by commercial banks ata discount on face value
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Financial Products: Capital Market
Derivatives: forwards, futures, options, swaps Shares, right, bonus, preference Debentures
Bondso Euro convertible bonds
o Deep discount bonds
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Financial Products: Fund based
o Underwriting (shares, debentures, bonds, etc.) of new
issue
o Equipment Leasing
o Hire Purchaseo Bill discounting
o Venture capital
o Housing finance
o Insurance serviceso Factoring, etc
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Financial Products: Fee Based
o Corporate advisory services
o Merchant banking
o Issue management
o Loan syndicationo Credit rating
o Stock Broking
o M & A
o Capital restructuring
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How are financial products managed?
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Financial Planning Process
o Financial planning is the process of managing your funds toachieve your desired goals in the required time frame.
o It involves analyzing your existing financial position,expected future cash flows, inflation and identified financialobjectives to develop a comprehensive financial planning
roadmap.o This is aimed at making available the right amounts of funds
at the right time in the future
o Insurance planning is an integral part of financial planning.An insurance plan takes care of the unforeseeable demandson your finances.
o For instance, an unfortunate illness requiring a surgery canbe covered under a medical insurance plan and you neednot dig into your savings and other investments to pay for it.
o In effect, insurance helps to keep your financial plan ontrack.
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Financial Planning Process
Mrs. Charu Rastogi, Asst. Proff.
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How an Individual Manages FinancialProducts?
An individual investor will undertake comprehensive financial planning:o Determine his current financial situation
income, savings, living expenses, and debts
o Develop financial goals
Retirement, Childs Education, Childs Marriage, Asset purchase, Insurance,
Investment, Tax planning
o Identify alternative courses of action
Consider investment options wrt his risk return profile (conservative, moderate,
aggressive)
Mutual funds, equities, bonds, bank deposits
o Create and implement financial plan
o Sources of information:
Family, spouse
Printed materials, Internet, provider website
Co-workers
Seminars, meetings
Financial Advisor
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Individuals Financial Plan
3. Growth Opportunities
2. Controllable Priorities
1. Non-controllable Events
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Customer needs and product solutions
Customer Need Financial Product Solution
Secure depository for readily accessible cash
managing receipts and payments
Secure depository for cash that pays interest
Current Account
Secure depository for cash that pays interestDeposit Account / Saving
Account
Means of investing lump sum for long term growth
Corporate bonds
Government bonds
Growth funds
Means of investing lump sum to generate income
Income funds
Annuities
Pension schemes
Means of protecting tangible assets from fire, theft,
accidentl damage, etc.General Insurance
Means of protecting human assets from risks associated
with death, illness and medical conditions
Life Assurance
Disability insurance
Critical illness insurance
Permanent Health insurance
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Possible Questions
Discuss various Financial Products and how theseproducts are being managed?
Explain different Financial Products? How are theymanaged?
How Financial Planning of Individual is done throughFinancial Products? How it is managed?