Financial services encompass an extensive spectrum of specific services, including investing, banking, and insurance. Financial services are restricted to the work of financial services companies and their employees. In contrast, financial products refer to the actual products they offer, such as accounts or investments.
What are Financial Services?
Finance Services are the services provided by the financial industry, which cover an array of companies that manage money, such as banks, credit unions, insurance companies, credit card companies, accounting companies, financial institutions for consumers as well as investment funds, stock brokerages as well as individual managers, and certain government-sponsored businesses. Financial service companies are found across all economically developed geographic regions. They are more likely to be located in national, local, regional, and international financial hubs such as London, New York City, and Tokyo.
Importance of Financial Services
The availability of financial services allows an economy to grow and improve its economic standing, resulting in more outstanding production in all sectors that contribute to growth.
The positive effect of economic growth can be seen in the citizens through economic prosperity, where the person has a higher standard of living. This is where financial services allow individuals to purchase or acquire various consumer items by hiring purchases. As a result, numerous financial institutions also make profits. The existence of these financial institutions can encourage the production of capital, investment, savings, etc.
Therefore, we can point out the significance of financial services through these points:
Importance of Financial Services
- Vibrant Capital Market.
- Increases the 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.
Promotion of investments
Financial services generate more demand for products, and the producer, to meet the needs of the consumers, will invest more. At this point, the financial services come to the aid of investors, such as merchant bankers, by introducing the issue market, which allows producers to raise capital.
The stock market assists in the mobilization of more funds by the investor. International investments are attracted. Factoring and leasing firms, both foreign and domestic, allow manufacturer to sell their products and acquire the latest equipment and technology for production.
Mutual funds are a great way to access various types of savings. In reality, multiple choices in investment are available to the elderly and pensioners to have fair returns on investment without taking on too many risks.
For those looking to increase the development of their money, various opportunities to reinvest are offered. The laws adopted by the government govern the operation of different financial services to ensure that the interest of the people who invest through these institutions are protected.
Eliminating the risks
The existence of insurance companies reduces the risk to financial services and producers. Different types of risks are covered, which offer protection from fluctuating business environments and the dangers of natural disasters.
Insurance isn’t just an investment in finance but also an opportunity for savings and minimizing risk. With this in mind, the government has not just privatized life insurance but established an authority regulating insurance companies, referred to as IRDA, in 1999 (Insurance the Regulatory and Development Authority).
Maximizing the Returns
The existence of financial services allows entrepreneurs to increase their profits. This is made possible by the accessibility of credit at a fair cost. Producers have access to a variety of credit facilities to purchase assets. Sometimes, they can opt for leasing-specific help with a practical value.
Factoring companies allow sellers and producers to boost their sales and increase their profits. Despite fierce competition, producers can offer their goods at an affordable cost. They can increase their earnings with a greater stock volume and a higher margin.
As we have seen, there is a subtle distinction between yield and return. The yield draws more producers to join the market and boost their production to meet the needs of consumers. Financial services help producers gain more profit and increase their wealth.
Financial services increase their credibility and make them more inclined to move to diversification. The stock market, as well as the various types of derivative markets, offer a variety of opportunities to earn an increase in the investor’s yield.
The growth of all sectors is crucial to economic growth. Financial services guarantee the equal distribution of money to all three sectors, that is, primary, secondary, and tertiary so that the activities are distributed evenly across each of the three sectors. This leads to equal growth of the economy, because of which job opportunities are increased.
The service or tertiary sector does not just grow, which is a crucial indicator of the growth of any economy. In a well-developed country, the service sector plays an important role and can contribute more to the economy than the two other sectors.
Financial services permit customers to access a variety of services and products through which they can increase their quality of life. Purchase of homes, cars, and other necessities and luxurious goods is possible with the help of hire purchase, leasing, and home finance firms. So, the buyer is forced to save money while reaping the benefits of items acquired through financial services.
Benefit to Government
The existence of financial services allows governments to access short-term as well as long-term funds to finance both capital expenditure and revenue. The government raises funds for short-term needs through the money market by issuing Treasury Bills. Commercial banks purchase them out of the money they receive from depositors.
Furthermore, the government can raise funds for long-term purposes by purchasing securities issued by the government in the securities market, which is part of the financial market. The foreign exchange requirements of the government can be met through the need for foreign exchange.
The main benefit to governments is the ability to raise money without providing security. This is why financial services are a massive benefit to the government.
Financial Services provided by various financial institutions
- Hire Purchase Finance.
- Credit card.
- Merchant Banking.
- Book Building.
- Asset Liability Management.
- Housing Finance.
- Portfolio Finance.
- Credit Rating.
- Interest & Credit Swap.
- Mutual Fund.
The activities of Financial Institutions
The availability of financial services allows institutions not just to obtain financing but also to have an opportunity to release money most efficiently. Factoring, mutual funds, credit cards, and factoring purchase financing are just a few options funded through financial institutions.
Financial institutions can broaden their operations and, consequently, diversify the use of their money for different tasks. This will ensure economic growth.
One of the indicators of an economy is the presence of an active capital market. If there is much activity in the capital market, it signifies a favorable economic environment. Financial services ensure that every company can acquire sufficient resources to increase production and earn more profits in the end.
With financial services, there will be an adequate supply of money that will positively affect the functioning of businesses and result in positive growth for markets for capital. When the capital market becomes more active, cash flows from abroad. Thus, the shifts in the capital market are primarily because of the accessibility of financial services.
Promotion of Domestic and Foreign Trade
Financial services facilitate the promotion of domestic and foreign trade. Factoring and forfaiting firms ensure a rise in the selling of products on the domestic market and the export of goods to the market outside of the country. Insurance and banking services also aid in accelerating these promotions.
Balanced regional development
The government monitors the development of economies, and economically backward regions receive financial and fiscal benefits via tax reductions and lower credit rates through which more investment is encouraged. This leads to an increase in employment, production demand, income, and, ultimately, gains in price.
Producers will make more profits and will be able to expand their operations further. Therefore, financial services can help regions that need to be developed to get ahead of other areas of the nation that is developing already.
10 Types of Financial Services:
- Professional Advisory
- Wealth Management
- Mutual Funds
- Stock Market
- Treasury/Debt Instruments
- Tax/Audit Consulting
- Capital Restructuring
- Portfolio Management
The financial services are described in the following paragraphs:
The banking sector is the mainstay of India’s financial services sector. There are several banks in India, including banks in the public sector (27) as well as the private sector (21) and foreign (49) and rural and regional (56), and rural and urban cooperative (95,000plus) banks. The financial services provided within this segment comprise:
- Bank accounts for individuals (checking accounts or savings accounts, debit/credit cards, etc.)
- Banks for Business (merchant services including checking accounts, savings and checking accounts for Business and treasury services, etc.)
- Credit (business credit, private loans, house loans, auto loans, working capital loans, and more.)
The banking industry is regulated through the Reserve Bank of India (RBI), which oversees and monitors the sector’s liquidity, capitalization, and financial health.
2. Professional Advisory
India is home to a wide array of expert financial advisory services that offer consumers and businesses various services, such as investment due diligence M&A advice, appraisal real estate consulting, risk-based consulting, and taxation advice. Multiple service providers provide these services, ranging from individual consultants in India to multinational companies.
3. Wealth Management
The services offered by this sector include managing and investing clients’ wealth across a variety of financial instruments, including equity, debt mutual funds, insurance products, derivatives as well as commodities, structured products, and real estate, following the customers’ financial goals, risk profiles, and time horizon.
4. Mutual Funds
The mutual fund service providers provide professional investment services for funds that comprise various asset classes, including equity-linked and debt-linked assets. The cost of buying into mutual fund products is typically less than bond and stock market. They are extremely popular in India because they usually are less risky and have tax advantages, steady returns, and the features of diversification. The mutual fund market has experienced double-digit growth in assets under administration in the last five years due to its popularity as an investment with a low risk of wealth multipliers.
The financial services offered in this sector are typically available in two categories:
- General Insurance (automotive, home, medical, fire, travel, etc.)
- Life Insurance (term-life, money-back, unit-linked, pension plans, etc.)
Insurance solutions allow people and businesses to protect against unexpected events and injuries. The payouts of these insurance products differ according to the nature of the product, the time horizon, risk assessments of the customer, the cost of premiums, and other crucial quantitative and qualitative aspects. In India, insurance companies have a significant presence across both the life insurance (24) and general insurance (39) categories. The insurance market is controlled by the Insurance Regulatory and Development Authority of India (IRDAI).
6. Stock Market
The stock market segment encompasses investment solutions for customers interested in Indian markets for stocks (National Stock Exchange as well as Bombay Stock Exchange) in various equity-linked offerings. The returns to customers depend on capital appreciation – an increase in the value of the equity solution or dividends and payments paid by the company to its customers.
7. Treasury/Debt Instruments
Services provided in this sector include government and private-organization bond (debt) investment. The company that issues these bonds (borrower) provides fixed payments (interest) and principal payments to the borrower at the end of the investment. The kinds of instruments that fall under this sector comprise listed bonds, non-convertible debentures capital-gain bonds, savings bonds from GoI, and tax-free bonds.
8. Tax/Audit Consulting
This segment encompasses a broad range of financial services in the tax and auditing area. This domain of services can be classified based on individuals and businesses. These include:
- Tax Individual (determining the tax liability, Tax-savings advice, etc.)
- Tax Business (determining the tax obligation Tax – Business (determining tax liability, analysis of transfer pricing and structuring taxes compliance guidance and tax compliance advice, etc.)
Service providers offer auditing services, including internal audits, statutory audits, tax audits for service and tax audits, transaction/process audits, risk audits of stocks, etc. These services are vital to ensure the smooth functioning of businesses from an analytical and qualitative perspective and reduce risk. Find out more about taxes in the tax system in India.
9. Capital Restructuring
They are provided to companies and include the restructuring of the capital structures (debt as well as equity) to increase the profitability of an organization or to respond to crises like bankruptcy, unstable markets, liquidity shortages, and hostile takeovers. The various types of financial solutions available in this sector typically include structured transactions, negotiations with lenders, acceleration of M&A, and capital raise.
10. Portfolio Management
This category includes a highly personalized and specialized solution that allows clients to achieve their financial goals with portfolio managers who analyze and optimize the investment portfolio for their clients across a broad range of assets (debt and equity, real estate, insurance, and so on.). These services are focused on HNIs, and are both discretionary (investment is only by the fund manager, with no involvement from the client) and non-discretionary (decisions taken with the help of a client).
Despite the technological changes in the twenty-first century, the world of financial services is one of the American industries with the least advanced marketers. When the Medici conducted banking deals with Popes during the 14th and 15th centuries, they relied on personal contacts and a reputation for making deals. The investment banking industry operates similarly. Specific sectors of the financial sector have been pioneers in marketing; banks, for instance, were one of the first companies to adopt the concept of customer relationship management (CRM) systems for tracking the behavior of customers. However, a significant portion of the sector is just starting to transition away from the sales and marketing models. This shift is being made by manufacturing consumer products …
Banks are banks that are authorized to offer credit products and to receive deposits. Other institutions can’t perform this. Financial services encompass insurance, facilitation of payments, wealth management, and retirement plan.
Commercial banks earn money by offering and making interest on loans. […]. Customers’ deposits supply banks with the capital needed to create loans. Typically, money generated in the form the interest earned from loans accounts for as much as a 65percent of banks’ revenue model.
Types of Financial Management
- Capital budgeting. The use of funds across different assets is essential to any business. …
- Capital structure. Critical decision organizations must search for funds to ensure smooth operation. …
- Dividend decision. …
- Working capital management decision.
Firms provide a myriad of financial services within the financial services industry across the globe. They include brokerage, banking mortgages, credit cards, mortgages, real estate, payment services, taxes, accounting and taxation, and investment funds.
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