Types of Financial Services

India’s diverse and comprehensive financial services industry is rapidly expanding due to demand drivers (increased disposable incomes, customized financial solutions, etc.) and supply drivers (new service providers in existing markets, new financial solutions and products, etc.). The Indian financial services industry is divided into several key segments. Mutual funds, pension funds, insurance companies, stockbrokers, wealth managers, financial advisory firms, and commercial banks are examples, ranging from small domestic players to large multinational corporations. Individuals, private businesses, and public organizations all use the services.

There are ten types of financial services:

• Banking
• Professional advice
• Wealth management
• Mutual funds
• Insurance
• Stock market
• Treasury/debt instruments
• Tax/Audit Consultation
• Capital Restructuring
• Portfolio management

These financial services are outlined below:

Banking

The banking sector is the backbone of India’s financial services industry. There are 27 public sector banks in the country, 21 private sector banks, 49 foreign banks, 56 regional rural banks, and over 95,000 urban/rural cooperative banks. This segment offers the following financial services:

Personal banking (checking accounts, savings accounts, debit/credit cards, etc.)

Business Banking (merchant services, checking and savings accounts for businesses, treasury services, and so on).

Loans (business loans, personal loans, home loans, car loans, working capital loans, etc.)

The Reserve Bank of India (RBI) regulates the banking sector, monitoring and maintaining liquidity, capitalization, and financial health.

Professional advice

India has a large number of professional financial advisory service providers who provide a diverse range of services to individuals and businesses, including investment due diligence, M&A advisory, valuation, real estate consulting, risk consulting, and tax consulting. These services are provided by a variety of providers, from individual domestic consultants to large multinational corporations.

Wealth Management services include managing and investing customers’ assets in debt, equity, mutual funds, insurance, derivatives, structured products, commodities, and real estate based on their financial goals, risk profile, and time horizons.

Mutual funds

Mutual fund service providers provide professional investment services for funds comprised of various asset classes, primarily debt and equity-linked assets. In general, mutual fund solutions have a lower buy-in than stock market and debt products. These products are very popular in India due to their lower risks, tax benefits, stable returns, and diversification properties. Over the last five years, the mutual fund segment has seen double-digit growth in assets under management, thanks to its popularity as a low-risk wealth multiplier.

Insurance

• This segment primarily offers financial services in two categories:
• General insurance (automobile, home, medical, fire, travel, etc.)
• Life insurance (term, money-back, unit-linked, pension plans, and so on)

Individuals and businesses can protect themselves from unforeseen circumstances and accidents by using insurance solutions. Payouts for these products vary depending on the nature of the product, time horizons, customer risk assessment, premiums, and a number of other key qualitative and quantitative factors. India has a large number of insurance providers in both the life insurance (24) and general insurance (39) categories. The Insurance Regulatory and Development Authority of India regulates the insurance market.

Stock market

The stock market segment offers investment solutions for customers in the Indian stock markets (National Stock Exchange and Bombay Stock Exchange) through a variety of equity-linked products. Customers’ returns are based on capital appreciation growth in the value of the equity solution, as well as dividends and payouts made by companies to their shareholders.

Treasury/debt instruments

This segment’s services include bond investments for government and private organizations. At the end of the investment period, the bond issuer (borrower) makes fixed payments (interest) and repays the investor in principal. This segment includes listed bonds, non-convertible debentures, capital-gain bonds, Government of India savings bonds, tax-free bonds, and so on.

Tax/Audit Consultation

This segment encompasses a wide range of financial services in the tax and auditing fields. This services domain can be divided into individual and business clients. They include the following:

Individual tax services include determining liability, filing returns, and providing tax savings advice.

Tax services for businesses include determining tax liability, analyzing transfer pricing, registering for GST, and providing tax compliance guidance.

Auditing service providers provide solutions such as statutory audits, internal audits, service tax audits, tax audits, process/transaction audits, risk audits, and stock audits. These services are needed to guarantee the proper running of business organizations from a qualitative and quantitative standpoint, as well as to limit risk. Read more about Indian taxation.

Capital restructuring

These services are primarily provided to businesses and involve restructuring capital structure (debt and equity) to increase profitability or respond to crises such as bankruptcy, volatile markets, liquidity constraints, or hostile takeovers. Structured transactions, lender negotiations, accelerated M&A, and capital raising are typical financial solutions offered in this segment.

Portfolio management

This segment offers a highly specialized and customized range of solutions that help clients achieve their financial goals. Portfolio managers analyze and optimize investments across a wide range of assets (debt, equity, insurance, real estate, etc.). These services are generally aimed at HNIs and are discretionary (investment exclusively at the discretion of fund management with no client involvement) and non-discretionary (decisions made with client interaction).

Importance

It is the existence of financial services that helps a nation to better its economic state wherein there is more output in all the sectors leading to economic development.

The advantage of economic development is reflected on the population in the form of economic prosperity whereby the person enjoys improved quality of life. It is here the financial services allow a person to buy or receive numerous consumer items via hire purchase. In the process, there are a number of financial institutions which also generate income. The existence of these financial institutions stimulate investment, manufacturing, saving etc.

Hence, we can bring out the importance of financial services in the following points:

• Importance of Financial Services
• Vibrant Capital Market.
• Expands activities of financial markets.
• Benefits of Government.
• Economic Development.
• Economic Growth.
• Ensures Greater Yield.
• Maximizes Returns.
• Minimizes Risks.
• Promotes Savings.
• Promotes Investments.
• Balanced Regional Development.
• Promotion of Domestic & Foreign Trade.
• Ensures greater Yield

As seen already, there is a subtle difference between return and yield. It is the yield which attracts more producers to enter the market and increase their production to meet the demands of the consumer. The financial services enable the producer to not only earn more profits but also maximize their wealth.

Financial services enhance their goodwill and induce them to go in for diversification. The stock market and the different types of derivative market provide ample opportunities to get a higher yield for the investor.

Maximizing the Returns

The presence of financial services enables businessmen to maximize their returns. This is possible due to the availability of credit at a reasonable rate. Producers can avail various types of credit facilities for acquiring assets. In certain cases, they can even go for leasing of certain assets of very high value.

Factoring companies enable the seller as well as producer to increase their turnover which also increases the profit. Even under stiff competition, the producers will be in a position to sell their products at a low margin. With a higher turnover of stocks, they are able to maximize their return.

Minimizing the risks

The risks of both financial services as well as producers are minimized by the presence of insurance companies. Various types of risks are covered which not only offer protection from the fluctuating business conditions but also from risks caused by natural calamities.

Insurance is not only a source of finance but also a source of savings, besides minimizing the risks. Taking this aspect into account, the government has not only privatized the life insurance but also set up a regulatory authority for the insurance companies known as IRDA, 1999 (Insurance Regulatory and Development Authority).

Promoting savings

Financial services such as mutual funds provide ample opportunity for different types of saving. In fact, different types of investment options are made available for the convenience of pensioners as well as aged people so that they can be assured of a reasonable return on investment without much risks.

Promoting investment

The presence of financial services creates more demand for products and the producer, in order to meet the demand from the consumer goes for more investment. At this stage, the financial services comes to the rescue of the investor such as merchant banker through the new issue market, enabling the producer to raise capital.

The stock market helps in mobilizing more funds by the investor. Investments from abroad is attracted. Factoring and leasing companies, both domestic and foreign enable the producer not only to sell the products but also to acquire modern machinery/technology for further production.

Expands activities of Financial Institutions

The presence of financial services enables financial institutions to not only raise finance but also get an opportunity to disburse their funds in the most profitable manner. Mutual funds, factoring, credit cards, hire purchase finance are some of the services which get financed by financial institutions.

The financial institutions are in a position to expand their activities and thus diversify the use of their funds for various activities. This ensures economic dynamism.

Benefit to Government

The presence of financial services enables the government to raise both short-term and long-term funds to meet both revenue and capital expenditure. Through the money market, government raises short term funds by the issue of Treasury Bills. These are purchased by commercial banks from out of their depositors’ money.

In addition to this, the government is able to raise long-term funds by the sale of government securities in the securities market which forms apart of financial market. Even foreign exchange requirements of the government can be met in the foreign exchange market.

Economic development

Financial services enable the consumers to obtain different types of products and services by which they can improve their standard of living. Purchase of car, house and other essential as well as luxurious items is made possible through hire purchase, leasing and housing finance companies.