Resource Mobilization

Section-A: Finance
What is your understanding about finance?
Finance refers to the

  1. funds
  2. or monetary resources

needed by either

  1. individuals
  2. or business houses
  3. or by the government.

and is needed by the businesses to

  1. to start
  2. and to allow businesses to exploit the opportunities to grow and expand.





What is the importance of finance in an enterprise?

Finance is very important for the business as it helps the business to 💡

  1. Acquire fixed assets
  2. Be prepared to meet the unplanned/unexpected expenses.
  3. Conduct Market investigations.
  4. Develop the product
  5. Encourage management to progress and create value
  6. Establish or promote the business
  7. Expand, diversify, improve and grow
  8. Keep men and machines at work💡
Before starting an enterprise, what is the most important pre-requisite that the entrepreneur must consider?

Before starting an enterprise, the most important pre-requisite that the entrepreneur must consider is finance as it helps

  1. to start
  2. and to allow businesses to exploit the opportunities to grow and expand.
What are the most important factors for the business to sustain itself?

The most important factors for any business to sustain itself are

  1. Financing
  2. Production
  3. Marketing
What are the two major categories into which the finance sources are classified into?

The finance sources are majorly classified into the following two categories.

  1. Internal Sources
  2. External Sources
Give a brief of the internal sources of finance.
Internal source of finance, also known as equity, refers to the owner’s money and is usually small. This is either from owner’s personal savings.
State any one difference between the financial market and other market.
Financial markets would trade in financial assets such as financial securities, stocks etc. In other-words, financial markets trade the ownership or similar value proposition of an enterprise where as the other markets trade in products or real assets.
For any business to sustain, the most important factors required are Production, Marketing and Financing. Among these, which is the most critical factor?
Among production, marketing and financing, financing is considered to be the most important factor because the other two i.e. production and marketing can not existing without financing/money.
When there is a need for the long-term funds, which sources the entrepreneur should go to?
The following sources are available for an entrepreneur, to cater to their needs of long-term fund requirements.

  1. Capital Markets: A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.
  2. Angel investors 👼: Angel investor 👼, also known as business angel 👼 or informal investors is a wealthy person who can provide the capital for starting an enterprise or for the initial stage operations of an enterprise. They usually have high-risk, high-return matrix. In return they expect convertible debt or ownership equity in the enterprise.
  3. Venture capital: This source is a kind of private equity capital and supplies seed 🌱 funding while staring up the enterprise. Suitable for high potential, high risk, growth-up enterprises run by the entrepreneurs who are in need of necessary experience and finances to implement their ideas.
  4. Specialized financial institutions: These specialized financial institutions provide the finance to
    1. Small and medium sized concerns
    2. New enterprises established by the new entrepreneurial groups
    3. Specific industries that are in need of finance to implement modernization
    4. Enterprises established to implement innovations and new technological developments
    5. Enterprises in need of huge funds 💰 to sustain long gestation period
    6. Enterprises established in backward regions
For which purpose the entrepreneurs can use the raised capital?
The entrepreneurs can use the raised capital for a variety of purposes like

  1. Acquisition capital to buy a competitor or another business or supplier.
  2. Business debt that is existing can be repaid with the acquired capital and there by saving on the interest (if any)
  3. Corporate marketing and development to increase the sales and revenues
  4. Development and expansion/growth of the business more rapidly
In what way the entrepreneurs raise funds, especially from the institutional investors, through selling the issue.
Entrepreneurs use private placement to raise funds from the institutional investors. These institutional investors are very limited in number. Entrepreneurs belonging to both public and private limited sector utilize this option. They issue different varieties of financial instruments to capitalize using private placement. Private placement help the entrepreneurs to keep maintain business information confidentially and keep it from disclosing in the open market.
Different institutional investors are

  1. Unit Trust of India
  2. Life Insurance Corporation of India
  3. General Insurance Corporation
  4. Army Group Insurance
  5. State Level Financial Corporations
How can the employees become share holders and share the profits of the company?
Stock options or offering shares enable the employees to become share holders and share the profits of the company. When an employee opts for a stock option, the employee goes through an agreement to stay with the company for a specified period of time. If the employee leaves the company before the specified period or is fired, they’ll not be able to utilize their stock options. Availing the stock options requires the employees to stay with the company for a specified period of time after which they can purchase the stocks. They benefit from the stock options if the value of the share is increased during this period.
What are the important sources from where an entrepreneur can raise funds.
The following are the important sources are available for an entrepreneur, to raise funds, to cater to their needs of long-term fund requirements.

  1. Capital Markets: A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. This is known as financial inter-mediation. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.
  2. Angel investors 👼: Angel investor 👼, also known as business angel 👼or informal investors is a wealthy person who can provide the capital for starting an enterprise or for the initial stage operations of an enterprise. They usually have high-risk, high-return matrix. In return they expect convertible debt or ownership equity in the enterprise.
  3. Venture capital: This source is a kind of private equity capital and supplies seed 🌱 funding while staring up the enterprise. Suitable for high potential, high risk, growth-up enterprises run by the entrepreneurs who are in need of necessary experience and finances to implement their ideas.
  4. Specialized financial institutions: These specialized financial institutions provide the finance to
    1. Small and medium sized concerns
    2. New enterprises established by the new entrepreneurial groups
    3. Specific industries that are in need of finance to implement modernization
    4. Enterprises established to implement innovations and new technological developments
    5. Enterprises in need of huge funds 💰 to sustain long gestation period
    6. Enterprises established in backward regions
Section-B: Financial Markets
What is capital market?
A capital market is a well organized mechanism for

  1. effective
  2. and smooth

transfer of

  1. money capital
  2. or financial resources

from the

  1. investors
  2. to the entrepreneurs
Who are the major players in the capital market.
The major players in the capital market are

  1. Individual investors
  2. Stock Exchange
  3. Financial Institutions
  4. Securities and Exchange board of India (SEBI) etc
What does the IPO investors expect in return for their investment.
The IPO investors seek the following rewards in return of their investment.

  1. Appreciation of their investment
  2. Dividends
When additional finance is required by the entrepreneurs, what is the strategy followed by them to to procure it from the existing share holders?
When additional finance is required, entrepreneurs follow the strategy named Rights issue where in they offer securities to the existing shareholders on a pro-rata basis. In other-words they give right on certain number of shares in proportion to the number of shares held by them currently.
Give a brief of the methodology followed in the allotment of securities on a pro-rata basis?
  1. A circular is issued to the existing shareholders proposing the Rights issue.
  2. If they like the offer, they can subscribe.
  3. Otherwise, they can refuse the offer and other persons gets the opportunity to acquired the rights issue.
Define the rights issue.
Rights issue is the method used to raise additional finance from existing shareholders by offering them securities to them. The shares are offered on a pro-rata basis in which the shareholders get the rights to purchase a specific number of shares in proportion to the shares they are holding currently.
As you know, in the rights issue, the existing shareholders are offered to buy the shares in proportion to their existing shares. If any of the existing shareholders are not willing to purchase the shares, what is the alternate action taken by the business owners?
When the existing shareholders are not ready to purchase the shares issued to them under the Rights issue, the shares are offered to other persons who are willing to purchase them.
Is the method of Rights Issue expensive or inexpensive. State the reason.
The method of issuing securities through Rights Issue is considered to be inexpensive as it does not involve any

  1. Agents
  2. Brokers
  3. Prospectus
  4. Underwriters
  5. Enlistment etc.
What is private placement?
Private placement is the method in which the companies directly sell their securities to a finite set of sophisticated investors.
Define stock options.
This is the method in which the employees of a company are offered to own the shares and become the shareholders. This leads to much better growth of the company.
What is the name of the method through which the employees become the shareholders and share the profits earned by the company.
Stock Options is the method in which the employees of a company are offered to own the shares and become the shareholders. This leads to much better growth of the company.
Define secondary market.
Secondary market, also know as old securities market or stock exchange, is the market in which the old securities (i.e. the market securities issued earlier) are bought and sold.
Why is a secondary market required?
Secondary markets are required because

  1. they increase the marketability of the securities
  2. and this leads to liquidity 💡 of investments.

and

What are the various forms in which the companies can raise their capital through the capital market?
The following are the forms in which the companies can raise their capital through the capital market.

  1. Public issue
  2. Rights issue
  3. Private Placement
  4. Offers to the employees
Give reasons why the entrepreneurs need finance right from the point of conceiving an idea?
Entrepreneurs will in in need of finance right from the point of conceiving an idea, for various requirements like

  1. Acquire fixed assets
  2. Be prepared to meet the unplanned/unexpected expenses.
  3. Conduct Market investigations.
  4. Develop the product
  5. Encourage management to progress and create value
  6. Establish or promote the business
  7. Expand, diversify, improve and grow
  8. Keep men and machines at work💡
What do entrepreneurs need the finance?
Finance is needed by the entrepreneurs because it is the primarily required means for establishing the enterprise. Finance helps in the formation of the new enterprise and to exploit the opportunities to grow and expand the enterprise. It is required for various activities like

  1. Acquire fixed assets
  2. Be prepared to meet the unplanned/unexpected expenses.
  3. Conduct Market investigations.
  4. Develop the product
  5. Encourage management to progress and create value
  6. Establish or promote the business
  7. Expand, diversify, improve and grow
  8. Keep men and machines at work💡
What is the essential requirement for the entrepreneur to reach the extent of bearking risk, bringing together different factors of production and implement their creative ideas.
Finance is the essential requirement for the entrepreneurs to reach the extent of bearing the risk, bringing together different factors of production and implementing their creative ideas.
What are some of the upcoming sources of raising finance in the business?
The following are the various upcoming sources of raising finance in the business

  1. Capital Markets: A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.
  2. Angel investors 👼: Angel investor 👼, also known as business angel 👼 or informal investors is a wealthy person who can provide the capital for starting an enterprise or for the initial stage operations of an enterprise. They usually have high-risk, high-return matrix. In return they expect convertible debt or ownership equity in the enterprise.
  3. Venture capital: This source is a kind of private equity capital and supplies seed 🌱 funding while staring up the enterprise. Suitable for high potential, high risk, growth-up enterprises run by the entrepreneurs who are in need of necessary experience and finances to implement their ideas.
  4. Specialized financial institutions: These specialized financial institutions provide the finance to
    1. Small and medium sized concerns
    2. New enterprises established by the new entrepreneurial groups
    3. Specific industries that are in need of finance to implement modernization
    4. Enterprises established to implement innovations and new technological developments
    5. Enterprises in need of huge funds 💰 to sustain long gestation period
    6. Enterprises established in backward regions

In addition to this, the entrepreneurs can also procure the finance from the following Specialized financial institutions (SFIs), as per their needs.

  1. At national level/All India development banks
    1. Industrial Credit and Investment Corporation of India (ICICI)
    2. Industrial Development Bank of India (IDBI)
    3. Industrial Finance Corporation of India (IFCI)
    4. Industrial Investment Bank of India Ltd.(IIBI)
    5. National Bank for Agriculture and Rural Development (NABARD)
    6. Small Industries Development Bank of India (SIDBI)
  2. At state level
    1. State Financial Corporation (SFCs)
    2. Tourism Finance Corporation of India (TFCI)
    3. State Industrial Development Corporations (SIDC)
What are characteristics of the money market. Who are the major players in the money market.
Money market is an element of the financial market which is involved in the lending and borroweing of short term loans. The loan term should be less than or equal to 365 days. Money market is the means though which the short term monetary transactions are dealt with in the economy.
The major participants in the money market are

  1. Banks
  2. Brokers
  3. Corporate Investors
  4. Government
  5. Mutual funds
  6. Non-Banking Finance Companies (NBFCs)
  7. Provident Funds
  8. Public sector undertakings (PSUs)
  9. Reserve Bank of India (RBI)
Explain how the capital markets act as the vital sources of procuring finance for the entrepreneurs.
Capital markets act as the vital sources of procuring finance for the entrepreneurs in the following ways.

  1. They mobilize the financial sources throughout the nation.
  2. They secure the required foreign capital
  3. They know the process to accelerate the economic growth.
  4. They make sure that the financial resources are allocated most effectively. They achieve this by directing the financial resources either
    1. to the projects that are capable of returning maximum returns
    2. or to the underdeveloped priority areas that that are in need to promote balanced and diversified industrialization urgently.
Give a brief of capital markets as per your understanding.
A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.
What are the different categories into which the capital markets are broadly classified in India?
The capital markets are broadly classified in India into the follow broad categories.

  1. Organised Sector:
    1. Individual investors
    2. Corporate investors
    3. Institutional investors
    4. Government bodies
    5. Semi-Governmental agencies
    6. International financial agencies
  2. Un-organized sector:
    1. Indigenous bankers
    2. Money lenders
    3. Finance Brokers
    4. Non-regulated banking finance institutions like chit funds or Nidhis etc
What are the various sectors of organized market?
The various sectors of organized market are

  1. Individual investors
  2. Corporate investors
  3. Institutional investors
  4. Government bodies
  5. Semi-Governmental agencies
  6. International financial agencies
What are the various sectors of un-organized market?
The various sectors of un-organized market are

  1. Indigenous bankers
  2. Money lenders
  3. Finance Brokers
  4. Non-regulated banking finance institutions like chit funds or Nidhis etc
What is primary market?
Primary market is the market whose sole purpose is to enable the transfer of resources

  1. from the savers
  2. to the entrepreneurs who are are looking for the funds for the purpose of
    1. Setting up new enterprises
    2. Expansion
    3. Diversification

from the savers to the entrepreneurs who are in

What is the Rights Issue that is implemented by the established companies?
  1. When additional finance is required, entrepreneurs follow the strategy named Rights issue where in they offer securities to the existing shareholders on a pro-rata basis. In other-words they give right on certain number of shares in proportion to the number of shares held by them currently.
  2. The availability of the shares is communicated to the existing shareholders through a circular.
  3. The existing share holders have the option to either acquire their shares or to not accept them.
  4. If the shares are not accepted by the existing shareholders they are transferred to the other persons.
  5. Rights issue is inexpensive as there is no involvement of
    1. Agents
    2. Brokers
    3. Prospectus
    4. Underwriters
    5. Enlistment etc.
What are the different methods available for the entrepreneur to raise funds in the primary market?
The entrepreneurs have the option of raising the required funds through the following methods in the primary market.

  1. Public Issue/Going Public: This is the method more popular. In this method a prospectus is prepared and issued to the public. The funds are collected from the public through this prospectus.
  2. Rights Issue:
    1. When additional finance is required, entrepreneurs follow the strategy named Rights issue where in they offer securities to the existing shareholders on a pro-rata basis. In other-words they give right on certain number of shares in proportion to the number of shares held by them currently.
    2. The availability of the shares is communicated to the existing shareholders through a circular.
    3. The existing share holders have the option to either acquire their shares or to not accept them.
    4. If the shares are not accepted by the existing shareholders they are transferred to the other persons.
    5. Rights issue is inexpensive as there is no involvement of
      1. Agents
      2. Brokers
      3. Prospectus
      4. Underwriters
      5. Enlistment etc.
  3. Private Placement:
    Entrepreneurs use private placement to raise funds from the institutional investors. These institutional investors are very limited in number. Entrepreneurs belonging to both public and private limited sector utilize this option. They issue different varieties of financial instruments to capitalize using private placement. Private placement help the entrepreneurs to keep maintain business information confidentially and keep it from disclosing in the open market.
    Different institutional investors are

    1. Unit Trust of India
    2. Life Insurance Corporation of India
    3. General Insurance Corporation
    4. Army Group Insurance
    5. State Level Financial Corporations
  4. Offers to the employees: Stock options or offering shares enable the employees to become share holders and share the profits of the company. When an employee opts for a stock option, the employee goes through an agreement to stay with the company for a specified period of time. If the employee leaves the company before the specified period or is fired, they’ll not be able to utilize their stock options. Availing the stock options requires the employees to stay with the company for a specified period of time after which they can purchase the stocks. They benefit from the stock options if the value of the share is increased during this period.
Explain the benefits that an entrepreneur gets when the entrepreneur decides to go public and make the company as a public company.
Entrepreneurs have the following advantages of raising the funds through the capital market.

  1. Acquisition capital to buy a competitor or another business or supplier.
  2. Business debt that is existing can be repaid with the acquired capital and there by saving on the interest (if any)
  3. Corporate marketing and development to increase the sales and revenues
  4. Development and expansion/growth of the business more rapidly

In addition to the above advantages they’ve the following additional advantages too.

  1. Acquisitions and Mergers: The entrepreneurs can use the public stock option to grow the enterprise through acquisitions and mergers.
  2. Benchmark trading price: The trading price of a public company’s stock act as a benchmark of the offer price of the other securities.
  3. Capital Formation: It becomes easier to raise the capital later due to the extra liquidity for the investors.
  4. Dilution: Dilution of ownership is less as compared to the IPO.
  5. Eased out/reduced business requirements: Going for an IPO requires significant earnings. But going public does not require significant earnings and hence it is easier.
  6. Higher Valuations: As compared to the public companies, private companies have higher valuation.
  7. Incentives: Stock options and stock incentives attract the employees a lot.
  8. Liquidity: Public companies provide liquidity for
    1. Investors
    2. Management
    3. and Minority investors
  9. Increased prestige: Increased prestige in the eyes of the
    1. customers
    2. financial investors
    3. suppliers
When the entrepreneurs go public, along with the advantages what are certain disadvantages too that come in due to the additional obligations and reporting requirements?
The entrepreneur has to endure the following additional obligations and reporting requirements too when they go public

  1. Adhere strictly to the rules and regulations laid out by the governing bodies and need to closely observe them.
  2. Becomes more vulnerable to an unwelcome/hostile takeover 💡
  3. Costs are increase as the company has to comply with higher levels of reporting requirements.
  4. Demand/Need to maintain more dividend and profits.
  5. Enhanced/increased accountability to public share holders.
  6. Following the public offer, the entrepreneur is likely to lose some control.
  7. Growth of media interest results in a loss of privacy.
What is the reason behind people calling the primary market with the name issue market?
The entrepreneurs have high dependency on primary markets though the initial issues to generate funds. When the entrepreneurs decides to issue securities to the public so as to procure capital funds they do it in the primary market for the first time. As this is done for the first time such “issues of securities” are also known as “new money issues”. Consequently the primary market is also known as new issue market 💡
Section-C: Stock Exchange
Which responsibilities does the governing body possess?
The responsibilities that the governing body possess are to look after

  1. policy formulation
  2. proper functioning of the exchange
  3. possess wide range of powers like
    1. Admit and expel members
    2. By-laws, rules and regulations etc interpretation
    3. Conduct the affairs related to the exchange
    4. Dispute adjudication 💡
    5. Electing the office bearers and set up committees
    6. Finance and property (belonging to the exchange) management for the exchange
In which stock exchanges in India is the most stock trading done?
In India stock trading is done mostly in the following stock exchanges

  1. Bombay stock exchange(BSE)
  2. National Stock exchange (NSE)
Define secondary capital market.
Secondary market, also know as old securities market or stock exchange, is the market in which the old securities (i.e. the market securities issued earlier) are bought and sold.
What are the different names used by people to refer to the stock?
The stocks are synchronously referred to by the following names

  1. Equity
  2. Holdings
  3. Scrip
  4. Security
  5. Share
From the perspective of the companies, what is the significance of the Stock Exchange.
The following is the significance of the stock exchange from the view point of the companies.

  1. Recognition: The market values of the companies’s shares are published in various media channels like newspapers, magazines and websites. This increases the reputation of good companies/entrepreneurs.
  2. Wide market: The securities of some companies are listed in multiple stock exchanges, there by widening the market for the securities of that company. Due to this the companies will be able to reach more number of investors who are willing to invest in the company and this helps is procuring large capital funds.
  3. Higher share value: Investors prefer to buy shares that have some premium value and hence there is demand for such shares. Due to increase in the demand, the price of the shares increase further.
From the perspective of the investors, what is the significance of the Stock Exchange.
The following is the significance of the stock exchange from the view point of the investors.

  1. Dissemination 💡 of useful information: Stock exchanges publish useful information related to securities like the price lists, quotations etc in various channels like newspapers, magazines, journals, websites etc. Investors heavily depend on this information published by the stock exchanges to buy and sell their securities
  2. Ready market: Shareholders can sell their shares and convert them to cash through a member of the stock exchange.
  3. Investors’ interests protected: Stock exchanges formulate the rules and regulations. This will avoid frauds and protect the investor interests.
  4. Genuine guidance about the securities listed: The information published by the stock exchanges is trustworthy and the investors can safely depend upon this information.
  5. Barriers of distance is removed: Stock exchanges provide an opportunity to the investors to participate in the shares of any company regardless of the location. Thus an investor has an opportunity to invest without any distance barriers.
  6. Knowledge of profit or loss on investments: The price of the securities is live and up-to-date which helps the investors to get an instant estimate of whether their securities are running with profit or loss and decide whether to retain or sell the securities.
From the perspective of the society, what is the significance of the Stock Exchange.
The following is the significance of the stock exchange from the view point of the society.

  1. Rapid capital formation: When the companies are performing well in the stock market, they lure the investors to invest in their securities. Thus the investments in corporate and government sectors is increased. In addition to this, the income from these securities can be further invested. Thus there is a surplus flow of funds and this leads to rapid capital formation.
  2. Economic development: As the funds are easily mobilized, the production is boosted and this brings additional capital. This in-turn lead to economic development.
  3. National Projects: As stock exchanges promote capital formation, it becomes easier to start projects that bring National Prosperity.
Rahil (Finance) and Anushk (HR) are doing MBA (IIM Indore). While reading the newspaper Anushk saw the heading “Sensex goes up”. But last week the heading was different that “Sensex goes down”. Now some confusion was going on in his mind. He immediately asked his Friend Rahil the same. Now according to you how Rahil will clear the confusion of Anushk? Explain and give some value points.
SENSEX is the short name for S&P BSE SENSEX(S&P Bombay Stock Exchange Sensitive Index) also called as BSE 30 is an index of how the well-established 30 companies listed on the Bombay Stock exchange are performing. These 30 companies are from various industry sectors. This index represents health of the India’s economy. When most of these stocks are performing well their prices increases and the SENSEX goes up and vice versa. Last week there was a dip in the prices and hence the SENSEX has gone down and this week their prices are increased and hence the SENSEX has gone up.
The value points from this case study are:

  1. Awareness of surroundings
  2. Enthusiasm
  3. Knowledge Sharing
  4. Communication
  5. Cooperation
  6. Willingness to help
Enumerate the features of stock exchanges.
The following are the features of the stock exchange

  1. Association of persons: A stock exchange is an association of persons or body of individuals which may be registered or unregistered.
  2. Barometer of finances: Stock exchanges are the financial barometers and indicate the development of the national economy. The index of stock exchange reflects the stability and industrial growth.
  3. Central Government Recognition: As stock exchange is an organized market, it requires recognition from the Central Government.
  4. Deals in second hand securities: Stock exchanges deal with the bonds, debentures, shares and other such securities which are already issued by the companies. In other-words, they deal with the existing or second hand securities and hence they are called as secondary market.
  5. Effect of transactions only through members: All the transactions in securities at the stock exchanges are effected only through its authorized brokers and members. They will not allow the outsiders or direct investors to enter the trading circles. It is only through the authorized brokers that the investors have to buy and sell the securities.
  6. Facilitate dealings only in listed securities: A stock exchange has its own official list of securities. Investors can buy and sell only these securities through this stock exchange. Securities which are not part of this official list are called as unlisted securities. The unlisted securities can not be traded in the stock exchange.
  7. Governs/works as per the rules: The investors can carry out the buying or selling transactions at the stock exchange subject to the rules and regulations of the stock exchange and the SEBI guidelines. There is no relaxation of these rules and regulations under any circumstances.
  8. Handles/regulates trade in securities: Stock exchanges neither buy nor sell any securities themselves. They just provide the required infrastructure and the facilities to the brokers and its members to perform the trading of securities. Thus stock exchanges handle or regulate the trading activities and ensure that the trade is free and fair.
  9. It is market for securities: Stock exchange is market where in securities of
    1. corporate bodies
    2. Government bodies
    3. Non-government bodies

    are bought and sold.

  10. Specific Location: It is the place where authorized brokers come together on working days. They meet on the floor of market called trading circles and do trading. The prices of various securities being traded are displayed on the electronic boards. The market is closed after the working hours. The working of stock exchange is conducted and controled through computers and electronic system.
What are the various functions of stock exchange?
The following are the various functions of stock exchange.

  1. Acts/Serves as economic barometer: Stock exchanges act as an index indicating the health of the companies and national economy. In other-words it acts as a barometer indicating the economic conditions/situation and serves as the pulse of economy or economic mirror.
  2. Bank Lending facilitation: Hanks get the information related to the prices of the quoted securities from the stock exchanges. So, they offer loans to customers against the corporate securities as they know the value or price of these securities. This is a very big convenience to the owners of securities.
  3. Continuous and ready market securities: Stock exchange act as a central market for buying and selling securities. It provides ready and continuous platform for buying and selling securities. Buyers and sellers strongly believe that they would be able to perform the transactions at any time (during the stock exchange working hours)
  4. Deals/regulates company management:: Stock exchanges mandate that the companies should comply with the rule and regulations laid out. The companies will be under the vigilance of stock exchange authorities.
  5. Examines or checks on brokers: Stock exchanges control the activities of brokers and there by prevent any fraud activities or malpractices by the brokers. If any of the brokers are found to be overcharging or not providing accurate information, their licence may be cancelled.
  6. Facilitates public borrowing: Stock exchanges also provide the platform for buying and selling of government securities. This makes it easy for the government to raise public debts quickly.
  7. Gathering/raising new capital by the entrepreneurs: The companies will be able to easily gather or raise new capital through stock exchanges for the purpose of development expansion.
  8. Healthy Speculation: Stock exchanges keep a check on the speculation and regulates it at healthy levels. This provides more business to the exchange. The speculation is also under control and there by preventing any danger to the investor and growth of corporate sector.
  9. Intensifying capital formation: Stock exchanges promote the habit of saving, investing and risk taking among the investors and there by converting their savings into profitable and safe investments. This accelerates the capital formation as the investors will be more willing to invest their money in companies.
  10. Justice through Safety and security in dealings: The stock exchanges work under the control of the provisions of the Securities Control (Regulation) Act. Due to this the investor confidence is grown. Also, the fraudulent practices are under check and there by ensuring safety, security and justice in dealings.
  11. Facilitates evaluation of securities: Stock exchanges help in the evaluation of industrial securities. They thoroughly analyze the demand and supply position and publish the share prices. The investors will thus be able to know the true worth of their holdings at any time.
Stock exchanges execute a number of functions with respect to the marketability of different types of securities for investors and borrowing companies. Specify the most important functions executed by the stock exchanges.
The following are the various functions of stock exchange.

  1. Acts/Serves as economic barometer: Stock exchanges act as an index indicating the health of the companies and national economy. In other-words it acts as a barometer indicating the economic conditions/situation and serves as the pulse of economy or economic mirror.
  2. Bank Lending facilitation: Hanks get the information related to the prices of the quoted securities from the stock exchanges. So, they offer loans to customers against the corporate securities as they know the value or price of these securities. This is a very big convenience to the owners of securities.
  3. Continuous and ready market securities: Stock exchange act as a central market for buying and selling securities. It provides ready and continuous platform for buying and selling securities. Buyers and sellers strongly believe that they would be able to perform the transactions at any time (during the stock exchange working hours)
  4. Deals/regulates company management:: Stock exchanges mandate that the companies should comply with the rule and regulations laid out. The companies will be under the vigilance of stock exchange authorities.
  5. Examines or checks on brokers: Stock exchanges control the activities of brokers and there by prevent any fraud activities or malpractices by the brokers. If any of the brokers are found to be overcharging or not providing accurate information, their licence may be cancelled.
  6. Facilitates public borrowing: Stock exchanges also provide the platform for buying and selling of government securities. This makes it easy for the government to raise public debts quickly.
  7. Gathering/raising new capital by the entrepreneurs: The companies will be able to easily gather or raise new capital through stock exchanges for the purpose of development expansion.
  8. Healthy Speculation: Stock exchanges keep a check on the speculation and regulates it at healthy levels. This provides more business to the exchange. The speculation is also under control and there by preventing any danger to the investor and growth of corporate sector.
  9. Intensifying capital formation: Stock exchanges promote the habit of saving, investing and risk taking among the investors and there by converting their savings into profitable and safe investments. This accelerates the capital formation as the investors will be more willing to invest their money in companies.
  10. Justice through Safety and security in dealings: The stock exchanges work under the control of the provisions of the Securities Control (Regulation) Act. Due to this the investor confidence is grown. Also, the fraudulent practices are under check and there by ensuring safety, security and justice in dealings.
  11. Facilitates evaluation of securities: Stock exchanges help in the evaluation of industrial securities. They thoroughly analyze the demand and supply position and publish the share prices. The investors will thus be able to know the true worth of their holdings at any time.
Section-D: SEBI & Others
Define stock exchange.
A stock exchange is a body of individuals, either incorporated or not incorporated, constituted for the purpose of

  1. Assisting
  2. Controlling
  3. or Regulating

the business of

  1. buying
  2. and selling
  3. or dealing in

securities.

Define SEBI.
SEBI is acronym for Securities and Exchange Board of India. It is the regulator of the securities market in India. It was established on 12th April, 1992 through the SEBI Act, 1992. This act ws passed by the Indian Parliament.
Enumerate the functions of SEBI.
SEBI has three functions rolled into one body.

  1. quasi-legislative: It can draft regulations in its legistlative capacity.
  2. quasi-judicial: It passes rulings and orders in its judicial capacity.
  3. quasi-executive: It conducts investigation and enforcement action in its executive function.
The acronym FFF acronym was used while referring to the angel investors 👼. What does this acronym stand for?
The acronym FFF used while referring to the angel investors 👼 stands for Friends, Family and Fools
Who are angle investors?
Angel investors 👼 are affluent💡 individuals who can arrange capital for a start-up company or those companies which are still in the incubation stage and have high-risk, high-return matrix. The arrangement of the capital is usually in exchange of convertible debt or ownership equity. Angel investors 👼 are also called as Business angel 👼 or informal investor.
Define SEBI and discuss its role.
SEBI: SEBI is acronym for Securities and Exchange Board of India. It is the regulator of the securities market in India. It was established on 12th April, 1992 through the SEBI Act, 1992. This act ws passed by the Indian Parliament.
Roles of SEBI:

  1. It supervises and regulates the securities market to eliminate any malpractices and to promote the securities market in India.
    1. quasi-legislative: It can draft regulations in its legislative capacity.
    2. quasi-judicial: It passes rulings and orders in its judicial capacity.
    3. quasi-executive: It conducts investigation and enforcement action in its executive function.
Who is part of managing authorities of SEBI?
SEBI is managed by its member as follows:

  1. Chairman nominated by Union Government of India
  2. Two members who are officers from Union Finance Ministry
  3. One member from The Reserve Bank of India
  4. Five members nominated by Union Government of India. Among these five, at-least three should be whole-time members.
Give a brief of the SEBI’s three functions rolled into one body.
SEBI has three functions rolled into one body.

  1. quasi-legislative: It can draft regulations in its legislative capacity.
  2. quasi-judicial: It passes rulings and orders in its judicial capacity.
  3. quasi-executive: It conducts investigation and enforcement action in its executive function.
Explain about venture capital.
  1. Venture capital is a type of private equity capital. It is provided in the form of seed 🌱 funding to the companies which are early-stage, high potential, high risk, growth-up stages. These are also provided to entrepreneurs have very less experience and are in need of funds to implement their ideas.
  2. Venture capital is provided to such companies which are new or going to implement very new technologies by entrepreneurs who are professionally or technically qualified. Such companies fail to attract investments from public. Without venture capital they will never be able to take shape.
  3. It is equity based investment in small to medium companies that have growth-potential.
  4. It is through venture capital that the investors support the entrepreneurs who have talent. In return the investors will be able exploit market opportunities and reap long-term capital gains.
  5. It is a tool for economic development in many of developing regions. In many of these regions finance is made available to many small and medium enterprises (SMEs) which have difficulties in getting a loan from the banks.
What are the various financing options available for the small ventures?
The following financing options are available for the small ventures.

  1. Venture capital
  2. Seed 🌱 capital finance
  3. Pre-startup and startup finance
  4. Second-round financing
  5. Specialized financial institutions at both national and state levels.
Why do venture capitalists prefer to invest in only selected ventures?
Venture capitalists will prefer to invest in only selected ventures due to the following reasons.

  1. The ventures into which they’re going to invest are early-stage, high risk, growth-up companies started by the entrepreneurs who might have been lacking the necessary experience.
  2. The ventures are usually employing new or relatively new technologies which have not yet proven their potential to be successful.
  3. The ventures in which they’re going to invest are in still developing regions.

As they’re investing their money they will be very cautious and they won’t proceed if there is more probability of failure.

What are the powers provided to SEBI so that it can carry out its functions efficiently?
To carry out its functions efficiently, the following powers are provided to SEBI

  1. Approve the by-laws of stock exchanges, SEBI.
  2. Books of accounts inspection. Inspection of periodical returns from recognized stock exchanges.
  3. Compel specific companies to make their shares available in one or more stock exchanges.
  4. Delegate powers that can be executed.
  5. Enquire the stock exchanges so taht they amend their by-laws, as required.
  6. Financial intermediaries’s books of accounts inspection
  7. Grant licenses to any persons so that they can deal with the securities at specific places.
  8. Have the fee and other charges imposed on the intermediaries for executing their functions.
  9. Impose monetary penalties
  10. Judge after prosecuting the violation of specific provisions of the companies Act., directly.
Enumerate the features of the venture capitalist finance.
The following are the features of the venture capital.

  1. Equity finance in relatively new start-up companies.
  2. Long-term investment in small or medium firms which have growth possibilities.
  3. Venture capitalists mentor business skills to the companies in which they are investing.
  4. Lies in the high risk-return spectrum
  5. Subset of private equity
  6. Continuously involve in the affairs of the business after investing in them.
  7. Dis-invest the holdings either to the promoters or in the markets.
When is the right time for the entrepreneurs to go for venture capital financing?
Entrepreneurs will go for raising venture capital funds under the following conditions.

  1. When the venture under consideration is in the start-up stage, high risk oriented.
  2. When the venture involves the use of new or upcoming technologies which is not yet successfully implemented by others.
  3. When the business is such that it fails to attract funds from the invetors
  4. When the entrepreneurs are looking for partners/mentos who have good business skills and also can provide capital for their start-ups.
  5. Seed 🌱 capital requirements to develop a prototype.
  6. When the entrepreneurs are in need of start-up finance.
What are features of angel investors 👼?
The following are the features of the angel investors 👼.

  1. They are currently working or retired executives, business owners or high net worth individuals. They possess the knowledge, expertise and funds that are needed for a firm to start and grow.
  2. The bear very high risk and go for dilution from future investment stages. They seek high return for their investments.
  3. The also assist the entrepreneurs with advice, provide guidance, help them network with the people in the industry and also mentor the entrepreneurs.
  4. They aim at creating great companies through value creation. In addition they help the investor get a high return on their investment.
  5. They keep a close watch on the current development in a specific industry/sector, mentor the entrepreneurs to become next generation leaders.
Do you agree that “A venture capitalist’s investments are illiquid”. Give reasons.
Venture capitalists invest in high-risk, high-growth, yet to mature companies having high returns in the future. Their funding goes when the company is about to be started. It takes a huge amount of time before the value of the investment reaches the desired levels. In addition the entrepreneurs are usually not yet experienced. Due to these reasons it takes lot of time for the investment to reach the desired growth levels. In addition there is risk of the enterprise not becoming successful and subsequently losing their investment. Due to these reasons, the venture capitalist’s investments are illiquid in other words their investments can not easily/quickly converted into cash.
Section-E: Specialized Financial Institutions
What role does the specialized financial institutions play in India?
The specialized financial institutions play the role of

  1. a promotional “mentor” and technical adviser
  2. Also, they act as an important source of medium and long term financing .

to various types of upcoming and existing entrepreneurs.

What are the various Specialized Financial Institutions from where entrepreneurs can borrow capital to meet their needs and requirements?
The following are the various specialized Financial institutions from where entrepreneurs can borrow capital to meet their needs and requirements.

  1. At national level/All India development banks
    1. Industrial Credit and Investment Corporation of India (ICICI)
    2. Industrial Development Bank of India (IDBI)
    3. Industrial Finance Corporation of India (IFCI)
    4. Industrial Investment Bank of India Ltd.(IIBI)
    5. National Bank for Agriculture and Rural Development (NABARD)
    6. Small Industries Development Bank of India (SIDBI)
  2. At state level
    1. State Financial Corporation (SFCs)
    2. Tourism Finance Corporation of India (TFCI)
    3. State Industrial Development Corporations (SIDC)
In which year SIDBI was established?
SIDBI was established as wholly owned subsidiary of IDBI, in April, 1990 under the Small Industries Development Bank of India Act, 1990.
Why are Specialized Financial Institutions are required in India?
Specialized Financial Institutions (SFIs) provide developmental finance. Thus SFIs are the sources for the entrepreneurs to procure finance required to invest in fixed assets. Due to this reason, the SFIs are also called as Development Banks or Development Financial Institutions. Thus the SFIs play an important role and are very much need due to the following reasons.

  1. Accommodate enough long-tern funds in the required sectors as per the planned priorities as the industrial units and entrepreneurs.
  2. Bring new and small entrepreneurs into the industry by providing the required finance to them.
  3. Coordinate the underwriting of and direct subscription to the issue of shares and debentures in the capital market of the upcoming ventures.
  4. Development of
    1. Small scale industry
    2. Projects in the backward areas
  5. Establishing the enterprises that are in need of extremely huge finance and those that have lengthy gestation periods.
  6. Facilitate the technical and managerial support to the entrepreneurs there by facilitating the
    1. identification
    2. evaluation
    3. and execution

    of new enterprises that require finance.

What are the objectives and functions of State Industrial Development Corporations (SIDC)?
  1. Objective: To promote industrial development in the states where they are setup.
  2. Functions:
    1. Allocate term finance to all the small, medium and large industrial enterprises established in the state.
    2. Be a catalyst for the activities like underwriting and directly subscribing to the shares and debentures of industrial enterprises that are established in the state.
    3. Collaborating with private entrepreneurs to establish industrial enterprises in fields of joint and assisted sectors.
    4. Direct the operations like
      1. Preparation of feasibility study
      2. Conducting market surveys
      3. Motivating the private entrepreneurs to start their ventures in the state
    5. Ensure that the the IDBI’s scheme of seed 🌱 capital is implemented in the state.
Write the expansion of the following acronyms and specify when these are established.

  1. SIDC
  2. TFCI
  3. SFC’s
  4. NABARD
  5. IFCI
  6. IDBI
  7. ICICI
Financial Institution Expansion Year of Establishment
SIDC State Industrial Development Corporation 1956
TFCI Tourism Finance Corporation of India 1989
SFC’s State Finance Corporation 1951
NABARD National Bank for Agriculture and Rural Development 1982
IFCI Industrial Finance Corporation of India 1948
IDBI Industrial Development Bank of India 1964
ICICI Industrial Credit and Investment Corporation of India 1955
John wants to start a business in his locality. He is in need of capital. What are the various national and state level financial institutions which can provide the required capital to John to cater to his needs and requirements.
The following state/national level financial institutions can provide the required capital to John.

  1. At national level/All India development banks
    1. Industrial Credit and Investment Corporation of India (ICICI)
    2. Industrial Development Bank of India (IDBI)
    3. Industrial Finance Corporation of India (IFCI)
    4. Industrial Investment Bank of India Ltd.(IIBI)
    5. National Bank for Agriculture and Rural Development (NABARD)
    6. Small Industries Development Bank of India (SIDBI)
  2. At state level
    1. State Financial Corporation (SFCs)
    2. Tourism Finance Corporation of India (TFCI)
    3. State Industrial Development Corporations (SIDC)
Enumerate the objectives of IDBI.
The following are the objectives of IDBI.

  1. Assist in widening the scope of assistance provided by other financial institutions. To achieve this, IDBI supplement the resources of other financial institutions.
  2. Broadening or diversifications of industrial growth and
    1. planning
    2. promotion
    3. and development

    of key industries.

    1. Coordination
    2. Regulation
    3. and supervision

    of the working of other financial institutions like IFCI, ICICI, UTI, LIC, Commercial Banks and SFCs.

  3. Devising a system of industrial growth that conforms to national priorities and then enforce it.
Explain the financial schemes provided by state level financing institutions and their significance in promoting entrepreneurship in India.
State Financial Corporations (SFCs) were established to meet the financial needs of small and medium enterprises through the State Financial corporations Act in 1951. The act empowers state governments to establish a bank that cater to the development in their respective states. As of now there are 18 SFCs.

  1. Objectives:
    1. Arrange financial assistance to small and medium industrial companies. The companies that can benefit might be from the following wide range of sectors/types
      1. Corporate sector
      2. Co-operative sectors
      3. Partnership 👬
      4. Individual 🕴
      5. Joint Hindu family business 👪
      6. Manufacture 🏭
      7. Preservation
      8. Processing of goods
      9. Mining
      10. Hospitality 🏨
      11. Transportation 🚆🚛🚢
      12. Generation or distribution of electricity ⚡
      13. Repairs and maintenance of machinery 🛠
      14. Setting up or development of an industrial area or industrial estate 🏭
    2. Bring financial assistance in reach of those industrial concerns whose paid up share capital and free services is a maximum of ₹ 3 crores.
    3. Contribute financial assistance to any single industry that fall into the corporate or co-operative sector at an average maximum value of ₹ 60 lakhs. For all other type of companies the maximum value is ₹ 30 lakhs.
    4. Deal with providing long and medium-term loan repayment. The re-payment period in most cases is below 20 years.
    5. Ensure that special emphasis is laid on the development of small scale industries 🏭 and backward localities.
  2. Functions:
    1. Act as an agent of
      1. central government
      2. state government
      3. IDBI
      4. IFCI
      5. or any other financial institution

      in matters related to the grant of loan or business of IDBI, IFCI or other financial instituion

    2. Bear the responsibility of underwriting of
      1. stock
      2. bonds
      3. or debentures

      by the industrial concern.

      1. Coordinate the grant of advances and loans or subscribe to the debentures of indistrial concerns.
      2. The maximum repayment period is 20 years.
      3. There is provision to convert into shares or stocks of the company.
    3. Development and promotion of industries 🏭 through planning and assisting
    4. Equip technical and administrative assistance to any industrial entity or individuals for
      1. promotion
      2. management
      3. or expansion

      of any industry.

    5. Facilitate the guarantee for the loans raised by industries 🏭. The maximum loan repayment should be 20 years.
    6. Guaranteeing deferred payments pending from an industrial entity for buying capital goods in India.
    7. Handle/own the subscription or purchasing of
      1. Stock
      2. Shares
      3. Bonds
      4. or debentures

      of an industrial concern within the limit of

      1. 30 percent of the subscribed capital
      2. or 30 percent of paid up share capital and free reserve

      whichever is less

Briefly explain IIBI.
Industrial Reconstruction Bank of India (IRBI) was transformed and renamed as Industrial Investment Bank of India Ltd or IIBI💡 under the Companies Act, 1956 in March, 1997. It was initially setup by IDBI through Government of India in April 1971. Its sole purpose was to rehabilitate poorly performing industrial companies.
Functions:
It provides a wide range of products and services as specified below.

  1. Assistance in term-loan for project finance.
  2. Backing the financing of working capital or other short term loan to companies. This is usually for purchasing short duration non-project assets.
  3. Capital market and money market instruments investments.
  4. Dealing with equity subscription asset credit.
  5. Equipment finance.
What kind of assistance is provided by SIDBI to the industrial concerns?
  1. Allocate finances for the promotion, financing and development of small-scale industries in India. This is channelized through the following routes.
    1. Direct assistance
    2. Indirect assistance
  2. Bring about the initiation of the technological up-gradation and/or modernization of existing units.
  3. Create channels for marketing of SSI sector products in India and abroad and opens up new markets.

In addition it has taken over the responsibility of allocating the following two funds.

  1. Small Industries development fund
  2. Small Industries development Assistance Fund
    1. Financial assistance to SSS
    2. Refinance loans and advances
    3. Discount and re-discount bills arising from sale of machinery to or its manufacture by industrial units 🏭
    4. Refinance assistance for
      1. setup new venture
      2. expansion
      3. modernization
      4. diversification of existing units for all the activities.
    5. Seed 🌱 capital/loan assistance through specified lending agencies.
    6. Grant direct assistance and refinance loans.
    7. Provide venture capital assistance
    8. Leasing and factoring to small-scale units
What are the main objectives and functions of ICICI.
  1. Objectives:
    1. Assist in the
      1. formation
      2. expansion
      3. and modernization

      of industrial entities in the private segment.

    2. Bring private capital (both Indian and foreign) into these industries by stimulating and promoting
    3. Coordinate the provision of technical and managerial help in order to increase production and there by increasing employment opportunities.
  2. Objectives:
    1. Allocate medium and long-term loans in Indian and foreign currency to import capital equipment and technical services. The aim is to allocate these loans for the purchase of fixed assets like
      1. Land
      2. Building
      3. and Machinery
    2. Become the guarantor 💡 for the loans raised from private sources. This is applicable for deferred payments too.
      1. Consultancy services
      2. technical assistance
      3. managerial assistance

      is provided to industrial entities to start new projects.

    3. Direct subscription to the new issues of shares. Most of the times taking up the underwriting.
    4. Equipment and other asset lease to industrial entities. In this cases the assets will be under the ownership of ICICI and will be leased to the industrial concerns for rent.
    5. Facilitate merchant banking services
    6. Gives/sanctions a minimum loan of ₹ 5 lakhs and a maximum loan of ₹ 1 crore to a business entity.
Give the details of the objectives and functions of NABARD.
The following are the objectives and functions of NABARD.

  1. Objectives:
    1. Allocate direct lending to any institution as approved by the central government.
    2. Bank will play the role of financing institution
      1. for industrial credit like long-term, short-term
      2. for the promotion of activities in rural regions 🏕.
  2. Functions:
    1. Credit functions
      1. Short-term credit to
        1. State Cooperative Banks
        2. Regional Rural Banks
        3. Other financial institutions

        approved by RBI for the following purposes

        1. Financing seasonal agricultural 🌱🌲🌳🌴🌽operations
        2. Marketing of crops 🚜
        3. Pisciculture 🐟 activities
          1. Production
          2. Procurement
          3. and Marketing

          of cooperative weavers and rural artisans societies and individuals.

        4. Production and marketing activities of industrial cooperatives.
      2. Medium-term credit to
        1. State Cooperative Banks
        2. State Land Development Banks
        3. Regional Rural banks
        4. and Other approved financial institutions approved by RBI

        to convert the short term loans to medium term loans for approved agricultural requirements.

      3. Long-term credit to
        1. State Land Development Banks
        2. State Cooperative banks
        3. Regional Rural Banks
        4. and Other approved financial institutions
      4. Refinance to
        1. cottage
        2. village
        3. small-scale industries

        located in rural areas.

    2. Developmental Functions
      1. Acts as an agent to the Government and RBI in the transaction of business in relevant areas and provide facilities for training, research and dissemination 💡 of information in rural banking and development
      2. Be the coordinator for the operations of rural credit institutions
      3. Contribute to the share capital of eligible institutions.
      4. Develop the expertise to deal with agricultural and rural problem so taht it can help in rural development efforts
      5. Equip the provision of direct loans to centrally approved cases.
    3. Regulatory Functions:
      1. Authorized to undertake the inspection of RRBs and Cooperative banks, excluding the Primary Cooperative Banks
      2. Branch opening requires a recommendation of NABARD. This is imperative by RRBs or Cooperative Banks to take permission from RBI.
      3. Collect the file returns and documents from
        1. RRBs
        2. Cooperative Banks
        3. including RBI
Do you think that TFCI pays a very important role in the development of entrepreneurship in today’s economy?

Yes. TFCI was born with this sole objective in mind. It is a specialized all-India development financial institution to serve the needs to the needs of the tourism industry.

The following are its functions through which it helps in the development of entrepreneurship in today’s economy.

  1. Advisory and merchant banking services provision in this field.
  2. Billions of rupees (5.2 billion)were sanctioned as assistance to more than 2000 projects in the recent 5 years. Due to these more than 12,000 hotel rooms came into existence and around 23,000 people got jobs.
  3. Capital cost to be eligible under this scheme should be more than 1 crore. However, they consider small projects also.
  4. Deals with providing financial assistance to enterprises for setting up or the development of tourism related projects, facilities and services such as
    1. Amusement parks 🏞
    2. Air Services ✈
    3. Convention halls
    4. Cultural centers
    5. Education 📓 and Sports ⛷🏌🏋
    6. Entertainment centers 🎠
    7. Hotels 🏨
    8. Holiday resorts 🏖
    9. Restaurants ☕
    10. Rope ways 🚠
    11. Sports facilities ⛳
    12. Travel 🚌 🛫
    13. Tourism emporium
    14. Tourism operating agencies

Thus there is wide range of new ventures financed by TFCI and as the tourism sector has multitude of opportunities and is growing industry in the modern times, TFCI plays a critical role in the development of modern economy.

Linden is an entrepreneur who is very much interested to start an amusement park in New Delhi. He did the analysis and found that the amusement part requires huge amount of capital 💰. Suggest the suitable financial institution that he should approach. Explain why do you think so?
Tourism Finance Corporation of India (TFCI) provides financial assistance to enterprises for setting up the development of tourism related projects like amusement park etc. So, Linden should approach TFCI for procuring the funds for starting this amusement park. In addition to this TFCI assists with a capital cost of ₹ 1 crore which best suits for ventures like an amusement park etc. There were more than 2000 projects that were benefited from the finance aid provided by TFCI. Due to these reasons Linden should approach TFCI for getting the required capital.
Consider the scenario where in an entrepreneur would like to set up a detergent powder manufacturing concern. What are all the options that he has for getting finance from the financial institutions.
Due to the less complicated process of manufacturing, the manufacture of detergent power falls under small-scale industries. The following are the various options available for procuring the finance for small scale industries.

  1. Angel Investors 👼: Angel investors 👼 will be willing to invest in this manufacturing concern, as the market is huge and once established the returns would be high. So, this option can be used by the entrepreneurs. The angel investors not only provide funds but they also provide expertise and mentor the entrepreneurs.
  2. Venture Capitalist: As the manufacturing concern is going to be started (as it is a startup), the entrepreneurs can approach the venture capitalist. In addition venture capitalist help the new entrepreneurs to realize their dreams.
  3. State financing corporations: State financing corporations provide financing help to the small and medium enterprises engaged in the manufacture etc. So, the entrepreneurs can approach these financial institutions.
What are the various merits and demerits that the entrepreneurs face from the financial institutions.
  1. Advantages:
    1. It is easy to procure loans from the financial institutions.
    2. Less time consuming.
    3. Option of subscribing to the shares and debentures either directly or through underwriting.
    4. The financial institutions also play the role of mentor and technical advisor to a wide range of upcoming and existing entrepreneurs.
    5. The are very important sources of long term financing
    6. Availability of very long term loans.
    7. Possibility of getting finance for both new and small industrial units
    8. Certain financial institutions focus on the development of specific sectors. If the enterprise being established matches this sector, then getting finance is very easy.
    9. They promote the systems that are in alignment with the national priorities.
    10. They assist in the formation, expansion and modernization for the industrial units.
    11. Certain financial institutions target specifically rural sectors for the development of the rural areas.
  2. Disadvantages:
    1. Procuring finance for terms beyond 20 years is very difficult.
    2. Sometimes it is difficult to get loans for business concerns that fall into specific sectors.
    3. Interest rates are high and sometimes it is possible to lose collateral.
    4. Sometimes the loans are made available in 2 or more terms. The entrepreneurs have to seek other sources for the rest of the amount till it is sanctioned from the bank.
    5. Sometimes it is possible to lose some control on the enterprise as the financial institutions get involved and take the position of important stakeholders.
What are the differences between ICICI and SIDBI?
The following are the differences between ICICI and SIDBI.

ICICI SIDBI
ICICI was established in 1995 as a joint stock company in the private sector. All its share capital came from

  1. banks
  2. insurance companies
  3. foreign institutions including world bank

At present it has the following major share holders are

  1. General Insurance corporation of India and its subsidiaries
  2. Life insurance corporation of India
  3. Unit Trust of India

Their total share capital in ICICI is approximately 50%, all put together.

SIDBI was established in April 1990 as a wholly owned subsidiary of IDBI under the Small Industries Development Bank India Act, 1990
Its objective is to help the industrial units in the private sector in the

  1. formation
  2. expansion
  3. and modernization
To assist in the technology upgrade during the starting stage and/or modernization of existing business entities.
It stimulates and promotes the investment of private capital in the industrial units both from India and abroad. It broadens the channels for marketing of SSI sector products both in India and abroad.
To facilitate

  1. technical assistance
  2. managerial assistance
  3. consultancy services

and to increase production and to create more employment opportunities.

To promote employment oriented industries
It owns certain assets and lease them to industrial entities. It provides leasing and factoring to small-scale business units
It gives medium and long-term loans in Indian and foreign currency for importing capital equipment and technical services. Provides direct assistance and refinance loans. These loans are extended by primary Lending Institutions for financing the export of products manufactured by industrial concerns in small scale sector.
Differentiate between NABARD and TFCI.
The following are the differences between NABARD and TFCI.

  • Started for promoting the tourism industry.
  • No share capital participation.
  • Works independently.
  • NABARD TFCI
    Started for promoting agriculture and other rural small scale industries sector.
    Provides short, medium and long term and refinance facilities. Provides medium term loans.
    Coordinates the operations of the rural credit institutions. Provides the advisory services
    Contributes to the share capital.
    Authorized to perform regulatory functions.
    A company opts for publicly issuing 10000 shares at the rate of ₹ 10 each. However, there were only 5000 applications received. Will the company be able to proceed with the issuing of shares?

    SEBI has issued a guideline where if a company does not receive 90% of the issued amount from the public subscription including development from underwriters, within 120 days from the date of the issue, the amount of subscription received is required to be refunded to the applicants. In case of disputed development also, subscription is required to be refunded if 90% of the issued amount plus accepted.

    Development from underwriters, if any, is not received within 120 days of the issue of prospectus, all the money received from the applicants for the shares is required to be repaid forthwith without interest and if any such money is not so repaid in the next 10 days (after the expiry of 120 days), the directors of the company are jointly and severally liable to repay that money, with interest from the expiry of the 130 days

    The company should refund the amount within 10 weeks of the closing of the subscription list and pay interest, if refunds are delayed by more than 8 days after this period

    In the given scenario only 50% of the issued shares are subscribed. Hence the company should not proceed with the issuing of shares and should return the share amount to the subscribers as specified above.






    Manish is the chief accountant in a firm. It came to his notice that the company is going to declare an interim dividend. He bought 2000 shares of the company at the market price of ₹ 215 hoping that the price would increase in the market in the near future. After few days the share value increased to ₹ 537. He sold his shares and made a good profit. What is the underlying concept here and which social values are impacted?
    The underlying concept is known as insider trading💡. Interim dividend is decided in the annual general meeting (AGM) held by the directors. This information is confidential and it is illegal to use such information for personal gains as it results in conflict of interest. Chief accountants have access to this information and it is illegal for them to use this for personal advantage and they are not supposed to disclose it even to their close associates.
    The following social values are negatively impacted by the behaviour of the chief accountant.

    1. Integrity
    2. Ethical behaviour
    3. Shareholder Trust
    4. Social
    5. Reputation of the company
    Which values does a company exhibit by offering shares to its employees?
    The following values are exhibited by the companies by offering the shares to their employees.

    1. Encourage employees to stay with the company for longer periods of time.
    2. Gain Reputation as employee friendly
    3. Gain employee trust.
    4. Induce a sense of ownership among the employees.
    5. Employees will be more enthusiastic to work and there by productivity and profits will increase.
    6. Promote savings among employees.
    7. Socially responsible to increase the standards of their employees.
    Assume that you are the legal advisor in a firm. A case where in a manager from the finance department took advantage of the company about to announce the rights issue and purchased 1000 shares in advance. Do you justify this kind of behaviour?
    The company announcing the rights issue is confidential information and should not be mis-used by the employees.
    It is unethical practice to use such information for personal gain.
    Companies go for rights issue to gather additional capital/finance from the existing stakeholders. A company going for rights issue means that it is in the path of growth and preference will be given to the existing shareholders to purchase shares on a pro-rata basis.
    It is responsibility of the employees from the finance department to keep such information confidential and it should not be used for their personal gains. As the legal adviser of the company, I discourage such practices and advise for a legal action against the manager for breaching the integrity.

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