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2. Investment services
Q.2. Give two examples of Open Ended and Close Ended Mutual Funds with
their concept in
two lines.
Open-End Funds
There are two types of these products on the market. Open-end funds are what you
know as a mutual fund. They don't have a limit as to how many shares they can
issue. When an investor purchases shares in a mutual fund, more shares are
created, and when somebody sells his or her shares the shares are taken out of
circulation. If a large amount of shares are sold (called a redemption), the fund may
have to sell some of its investments in order to pay the investor.
Unlike Stocks, an open-end fund are not traded on the open market. At the end of
each trading day, the funds reprice based on the amount of shares bought and sold.
Their price is based on the total value of the fund or the net asset value (NAV).
Example:
Closed-End
Funds
Closed-end funds look similar but they're very different. A closed-end fund functions
much more like an exchange traded fund than a mutual fund. They are launched
through an IPO in order to raise money and then trade in the open market just like a
stock or an ETF. They only issue a set amount of shares and, although their value is
also based on the NAV, the actual price of the fund is affected by supply and
demand, allowing it to trade at prices above or below its real value.
There are currently about 650 closed-end funds trading on the market, yet they are
not well known by retail investors. Some funds, like BlackRock Corporate High
Yield Fund VI (HYT), pay a dividend of more than 8%, making these funds an
attractive choice for income investors.
But investors have to know one key fact about closed-end funds. Nearly 70% of all
of these products use leverage as a way to produce more gains. Using borrowed
money to invest may produce big returns, but it could also put the fund under
intense pressure. Recently, Moody's downgraded the rating of many of the largest
banks that included debt securities issued by 38 closed-end funds.
These downgrades will likely make it more expensive for these and other closed-end
funds to borrow money in order to invest. Higher borrowing costs impact the return
investors receive from these funds, making them potentially less attractive in the
future.
Example:
Conclusion
Open-end products may represent a safer choice than closed-end funds, but the
closed-end products might produce a better return, combining both dividend
payments and capital appreciation. Of course, investors should always compare
individual products within an asset class; some open-end funds may be more risky
than some closed-end funds.
Q.3. Write 5 examples of Commercial Banks with their headquarters
and date of establishment.
Name of Commercial
Date of Establishment
Headquarters
Bank
1. Allahabad
Founded by a Group of
Bank
2. Bank
of
1865
Founded in the year 1908
Baroda
3. Bank
of
Founded
on
16th
Allahabad
Baroda
Pune
Maharashtra
4. Bank of India
September 1935
Founded
in
September
Mumbai
5. Canara Bank
1906
Founded on 1st July 1906
Bangalore
Q.4. Prepare a list of 10 NBFC working in India along with the type of
NBFC in which they belong.
Type of NBFC
Asset Finance Companies
LIMITED
United Overseas Finance Ltd
SHRIRAM TRANSPORT FINANCE COMPANY
LIMITED
LIMITED
L&T INFRASTRUCTURE
LIMITED
BANDHAN FINANCIAL SERVICES PRIVATE
LIMITED
1) Finance Lease: Under finance lease all risks and rewards of ownership of asset
are transferred to lessee. The ownership or title may or may not be transferred. A
finance lease is somewhat like a hire purchase agreement. Under finance lease the
lessee after paying agreed number of installments, is entitled to exercise an option
to become the owner of asset.
Example:
Suppose the AB company takes a new automobile on lease for three year. Also
assume that at the end of three years the AB company will be called to take the
ownership of vehicle at no extra cost. Here not only the vehicle is taken on lease but
also the AB company is using the lease agreement as a means of financing the
automobile. This type is called capital lease or finance lease.
(2) Operating Lease: According to International Accounting Standard (IAS-17) the
operating lease is one which is not a finance lease. Under operating lease, the
lessor gives the right to lessee to use the asset or property for a specified period of
time, but risks and rewards of ownership are retained by the lesser.
Example:
Let up suppose that MY enterprises owns a complete 6th floor in Eden Tower, a multi
story building. Further assume that MY enterprises gives some rooms of this floor on
lease to XY corporation.
Now if the value of this building increase due to good business activity then the
lessor i.e., MY enterprises can take the benefit of this increase by either selling out
the rooms or by increasing the rental amount. On the other hand if the building
decreases in value than also the MY enterprises will be the sufferer of loss. This type
of leasing is called operating lease.
Besides these two main types, some other types of leasing are explained below:
(3) Sale and Lease Back: Under sale and lease back agreement, an asset is first
sold to the financial institution. The sale is made at the genuine market value. After
that the asset is taken back on a lease. This type of leasing is advantageous for
those companies which do not want to show high debt balances in their financial
statement.
(4) Leveraged Lease: This type of leasing involves three parties including a
lender, a lessor and a lessee. The lender and lessor join hands to accumulate funds
to buy the asset. The asset purchased is then given on the lease to lessee. The
lessee makes periodic payments to the lessor who in turn makes payment to the
lender.
BASIS
FOR
HIRE PURCHASING
LEASING
Leasing
Purchasing.
COMPARISON
Meaning
is
an
agreement
Accounting
AS- 19
Down Payment
Required
Not Required
Installments
Asset type
Ownership
Ownership
Standard
of
the
asset
is
Transfer
of
ownership
installment.
Repairs & Maintenance
Consideration
Lease Rentals
Duration
Short Term
Evaluation
Lease:
Interest Suspense
The
Method
Sales Method
Operating
of
lease
the
which
asset
is
Interest Suspense
Operating Lease. In
Method
there is no transfer
of risk and rewards.
Finance Lease: A
lease
agreement
to
for
the
life
as
is
Finance
to
the
ownership
transferred
lessee
is
to
with
the
the