It helps firm to generate interest in investors about the corporation. At the same time, it gives opportunity to firms and underwriters to collect information and interest level of potential purchasers. Pricing the securities: Determining the price of security is instrumental in the success or failure of IPOs.
Under-pricing on the other hand might bring more investors, but in essence would generate lesser capital than it could have. Issuing firm would bear the burden of expenses associated with IPO, without reaping the possible benefits. The two critical factors in determining the price of IPO are: a. Value of the company b. Expected demand for the securities 6. Securities must be supplemented with a final prospectus. After Market Activities: Underwriters are responsible for sustaining and supporting the stock price by trad- ing.
If stock prices decline, they purchase the share to control the falling price. Whereas in case stock price goes up, they use over allocation alternative to cover short position. TABLE Process of IPO is expensive and time-consuming. Open option of trading additional stock offerings in future. Stringent disclosure rules under Sarbanes-Oxley Act and demand of periodic reporting.
Enhanced liquidity for shareholders and investors, as they cash Intense pressure post IPO to perform in the short term. Better monitoring and control by external capital markets. Unlike debt, corporations are not under compulsion to repay Competitors might gain access to certain information.
They can focus on performance and growth, and investors would get their return automatically. Though experts in de- veloping and developed nations suggest promotion of self-employment, glaring problem is the inadequacy they face in fixed and working capital.
Banks have a constraint as source for them, as banks ask for collateral as a prerequisite, which is not available to microenterprises.
The evident resort for them is to avail credit services of local moneylenders and pawnbrokers who ask for high interest rates with stringent rules. Therefore to support self-employment, it gets imperative for government and other agencies to provide financial services to them at a subsidized rate. Microfinance has evolved with intend to benefit microenterprises, small businesses, low-income households, and thereby support economic development.
Activities that are mostly financed by Microfinancing include: n In rural areas: Farming, trifling trade, livestock, food processing, vending, small-scale labour incentive production like weaving, craft, etc. Microfinance is often confused with Microcredit. Microcredit is a subset of Microfinance that includes gamut of activities like savings, insurance, market assistance, technical assistance, etc.
Primary reason for this is the available evi- dences that demonstrate that women are less to default in repayment of loans, than men. The main incentive foreseen in doing so is that development of women has ripple effect on family and eventually on society. Empow- erment of women results in improved in nutrition an education of their family, which is also an indirect aim of MFIs. As per the statistics on Nov 5, , since , the World Bank has reached more than 6 million poor in Bangladesh through microfinance projects; 90 per cent of these microcredit borrowers are women.
Formal sector 2. Semiformal sector 3. Their prime objective for successful operations is to develop an understanding of the local environment, clientele and their business. To begin with, they form a group of 5 prospective borrowers, of which 2 are given loan. The per- formance and loan repayment of these 2 borrowers is observed over a period of time mostly 50 weeks to decide the eligibility of other borrowers.
Peer pressure and peer support drive these groups. It is a group of individuals who unite and make cyclical contribution to a common fund, shared by them all. This fund is given to involved members cyclically, i. This amount is paid back in regular monthly contributions.
It is a homogenous group of people who save portion of their emergent credit needs and revolve resources among the group members. Period and other term of loans are decided by members by consensus. If the group is not formally registered, it should not have more than 20 members. Failure of that skill to generate desired result would lead neither borrowers nor lenders with alternates. It is extremely difficult to monitor the diversion of funds in unproductive activities, instead of purpose loan was taken.
A main disadvantage to microfinance is that the deal is too small for the lender to devote ample time and money to doing proper due diligence. The smaller deal size makes transaction cost comparatively higher. As the capital is low, the profits are also low.
Lesser technology and doorstep service for loan initiation and monitoring makes the operational cost very high. The inability to reach the poorest of the poor is the biggest challenge and failure of such programs. Due to lesser default, women are preferred and targeted over men in microfinancing programs.
This may result in men requiring wife to get loans for them. Pension funds contribute on large scale to overall institutional investments. A Pension Scheme is the set of financial, administrative, legal, social, and other arrangements established for the purpose of providing pensions to a designated group of workers and their survivors. Schemes arranged by employers or other organizations are referred to as employer pension schemes. These schemes are mutual agreements between employees and employer.
The terms of such schemes are typically in the form of a legal contract. The terms of these schemes can be altered by mutual consensus of both the parties, by forming a new contract or agreement. Through employment, employees become eligible for participation in employer pension schemes. After specified time period, the employee becomes eligible to pension benefits. Pension Schemes are categorized mainly on the type of benefits and contributions: 1.
Defined-contribution scheme: In defined-contribution scheme, the employer is obliged by agreement to contribute a definite amount to the scheme on behalf of its employees.
Employees also contribute to individual accounts and get tax advantage apart from future savings. The amount contributed by em- ployee is excluded from current taxable income.
These contributions are deposited in individual accounts for each employee. Since upon retirement, the employee or survivor receives benefits based on the contribution, employers invest these contributions in long-term financial assets in the meanwhile.
These funds are invested in variety of as- sets, including shares, bonds, other financial assets, land, buildings, and valuables. The pension funds thereby have a liability to provide the committed pension benefits. The counterpart of the liability is a financial asset owned by the employees. This asset and its counterpart liability are classified as insurance technical reserves. Defined-benefit scheme: In defined-benefit scheme, the employer is obligated to provide specific benefits.
The level of benefits offered is typically defined by a formula centred on the years of employment, the wages and salaries earned. There is no obligation of contribution on either employee or employer.
Either party may or may not make contributions to the scheme. In case contributions are made, the amount deficit to provide an agreed benefit is borne by employer.
Pension Funds in India Pension funds in India, like in other countries, are structured and controlled by Government Regulatory bodies. Pension funds and related norms have modified and improved over a period of time to find justifiable solu- tions to the problem of providing satisfactory retirement income.
One of the major amendment introduced by the New Pension System for the reform was complete shift from a defined benefit pension to a defined contribution- based pension system, making it mandatory for new recruits except armed forces from January 1, Any withdrawal of saved amount before retirement at age of 60 is not allowed.
These contributions also help in tax advantages as it is exempted from taxable income, subject to certain defined range by govern- ment. Tier-II account: It is a voluntary savings facility. Neither does it provide tax benefits, nor there is any restric- tion on the time period after which withdrawals be done. These savings can be withdrawn on need basis. They are mostly short-term investments, unlike traditional sources. Commodities 2.
Hedge funds 3. Real assets 4. Private equity 5. Structured products It provides alternate source of investment and acts as a tool of diversification. These investments are expected to have low correlation with traditional financial investments, thereby reducing portfolio risk and diversifying in- vestments. Initially, there was demand of retail investor to get into commodities, but it was difficult. The common way to trade commodities and currencies is through the futures and options market.
However, trading futures is much more complicated than the ease of investing in equities. ETPs Exchange-Traded products were created with a familiar structure, thereby making investments in commodities and currencies easier to understand and more accessible like stocks. Exchange Traded Funds: They are shares of a portfolio, not of any individual company. They are traded on stock market as common share. Commodities Commodities are raw materials, mostly natural resources that are sold in bulk, like silver, gold, oil, wheat, etc.
The items traded as commodities are largely raw materials that are ultimately used to produce other goods. Com- modities can be broadly categorised as n Precious metals e. It is countercyclical asset, i. So, commodities help in diversification. There are various ways of getting exposure to commodity market: 1. Spot Market 2. Pure Play 3. Commodity Futures 4. Commodity Indices 1. Bank Management and Financial Services is designed to help students master established management principles and to confront the perplexing issues of risk, regulation, technology, and competition that bankers and other financial-service managers see as their greatest challenges for the future.
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