All Businesses need money to operate. In fact, finance is the lifeblood of the business.   A business concern should have proper amounts of capital, because an inadequate capital will hamper operations and too much capital means that earnings will have to be spread over an unnecessary large amount of capital. There should, therefore, be proper financial planning.

Aspects of Financial Planning:

1. Capitalisation
2. Capital Structure
3. Sources of Finance

 FINANCIAL SERVICES:

                “Financial Services” means mobilizing & allocating the savings for different purposes. It includes all the activities involve the transformation of savings in to investment. The financial service can also be called financial intermediation. The financial service institution acts as the intermediary between the savers & the investors.

The financial intermediaries mobilise the savings in different forms, traditionally they are of two categories.

1. Money market intermediaries.
2. Capital Market Intermediaries.

 Capital market intermediaries provide the long term investments through capital market i.e. by purchasing the different types of securities like shares, bonds, etc…

 Money market intermediaries mobilize the savings for term purpose through different money market instruments like Commercial Papers, Treasurer Bills, etc…

               Financial services includes the various activities & these activities can be classified as

1. Traditional activities
2. Modern Activities.

 These are of fund based and non fund based activity.

 Fund Based Activity: These services involve the fund. They are like Underwriting of new issues, dealing in secondary market activities, Issue of money market instruments, Involvement in leasing, hire purchase, venture capital etc.., Dealing in foreign exchange activities.

 Non fund based activity:  These activities do not involve any type of funds, so that these can be called as fee based activities. These are like i). Managing the capital issues i.e. acts as the intermediaries like

Merchant Bankers, bankers to the issue, and registrars to the issue etc…

Modern Activities:  Most of the modern activities are non fund based. They are like i). Acts as the projects advisors, Planning for Mergers and Acquisition & Assisting for their carry out, Assisting the corporate customers in the capital structure, Acts as trustees to debenture issues, Advisory serviced in the management structure and style, Preparation of joint venture agreement for the financial collaboration of two or more firms, Assistance in Preparation of scheme of reconstruction and implementation for re habitation of sick companies, Hedging the risks i.e. exchange rate risk, interest rate risk, etc… through derivatives of the market, Acts as the portfolio manager for different funds and Advisory services to different clients in choosing the best securities.

INNOVATIVE FINANCIAL INSTRUMENTS:

Commercial Papers

Treasury Bills

CD’s

Inter Bank Participation

Deep discount Bonds

Index Linked Guilt Bonds

Option Bonds,

Secured Premium Bonds & Note

Medium Term debentures,

Variable rate Debentures

Cumulative convertible Preference shares

Convertible Bonds

Debentures with call & put features.

Easy exit Bonds

Retirement Bond

Regular Income Bond

Infrastructural Bonds

Debt with equity warrant

GDR

ECUnit Bonds

Loyalty Coupons

 Duel Currency Bond.

 Growth of financial services in India

 Merchant Banking Era (1960 onwards)

Financial services like MB, Insurance, Leasing services began to grow.

 Investment Companies Era: (1970 onwards)

includes establishment of variety of investment institutions and banks. Like, UTI, Mutual Funds, LIC, and Nationalization of major commercial banks.

 Modern Services Era: (1980 onwards)

Launch of a variety of financial products and services like OTCEI, MF, Factoring, VC, and credit rating.

 Depository Era: (1990 onwards)

depositories were set up, promoting paperless trading through dematerialization of securities. Book Building, NSE and computerization of BSE.

 Legislative Era: (1995 onwards)

FERA replaced by FEMA, Amendments in Co. Act 1956

Amendments in Inc. Tax Act, etc to facilitate safe and orderly trading and settlement of transactions and separate law to regulate the internet trading of securities was framed.

 FIIs Era: (1998 onwards)

Economic reforms envisaged the free play of Foreign Institutional Investors in Indian capital market towards the growth & development. GDR plays a vital role in portfolio investments in India. Indian financial services have worked together with the world level financial services institutions, such as, Lehman Brothers, Arthur Anderson and Goldman Sachs as a part of their efforts to upgrade to world standards in context to the management of financial services.

CHALLENGES FACING THE FINANCIAL SERVICES SECTOR:

1.        LACK OF QUALIFIED PERSONNEL:  The financial services sector is fully geared to the task of Financial Creativity. However, this sector has to face many challenges. In fact, the trained personnel is an important impediment in its growth. Hence, it is very vital that a proper & comprehensive training must be given to the various financial intermediaries.
2.        LACK OF INVESTOR AWARENESS:   The introduction of new financial products & instruments will be no use unless the investor is aware of the advantages & uses of the new & innovative products and instruments. Hence, the financial intermediaries should educate the prospective investors/users through literature, seminars, workshops, advertisements and even though audio visual ads.
3.        LACK OF TRANSPARANCY:  The whole financial system is undergoing a phenomenon change in accordance with the requirements of the national and global environments. It is high time that this sector gave up their orthodox attitude of keeping accounts in a highly secret manner. Hence, this sector should opt for better levels of transparency. In other words, the disclosure requirements and the accounting practices have to be in line with the international standards.     
4.   LACK OF SPECIFICATION:  In the Indian scene, each financial intermediary seems to deal in different financial service lines without specializing in one or two areas. In other wards, each intermediary is acting as a financial super market delivering so many financial products and dealing different varieties of instruments. In other countries, financial intermediaries like Nowtons, Solomon Brothers etc… specialize in on or two area only. This helps them to achieve high levels of efficiency and excellence. Hence, in India also, financial intermediaries can go for specialization.
5.        LACK OF RECENT DATA:  Most of the intermediaries do not spend more on research. It is very vital that one should build up a proper data base on the basis of which one could embark up on financial creativity. Moreover, a proper data base would keep oneself abreast of the recent developments, in other parts of the whole world and above all, it would enable the fund managers to take sound financial decisions.
6. LACK OF EFFICIENT RISK MANAGEMENT SYSTEM:  With the opening of the economy to multinationals and the exposure of Indian companies to international competitions, much importance is given to foreign portfolio flows. It involves the utilization of multi currency transactions which exposes the client to exchange rate risk, interest rate risk and economical, political risk. Unless a proper risk management system is developed by the financial intermediaries, they would not be in a position to fulfill the growing requirements of their customers. Hence, it is absolutely essential that they should introduce futures, options, swaps and other derivative products which are necessary for an efficient risk management system.