Fund-Based Activities - Overview 💰

Let's look at the major Fund-Based financial services where institutions provide money/assets.

1. Leasing 🏗️

Concept:

• Lessor (Owner/Finance Co) buys an asset (machine/car).
• Lessee (User) uses it for a fixed period.
• Lessee pays periodic Lease Rentals.
• Ownership remains with Lessor.

Benefit: Lessee gets to use asset without paying full price upfront (100% financing).

2. Hire Purchase (HP) 🚗

Concept:

• Similar to leasing, but with an option to buy.
• Hirer pays installments (Principal + Interest).
• Ownership transfers to Hirer ONLY after paying the LAST installment.

Difference from Lease: In Lease, asset usually returns to owner. In HP, intention is to buy.

3. Factoring 🧾

Concept:

• A company sells its Accounts Receivable (Invoices/Bills) to a Factor (Bank/NBFC).
• Factor pays 80-90% of bill amount immediately (Cash advance).
• Factor collects money from the customer on due date.
• Factor pays remaining balance (minus fees) to company.

Benefit: Instant cash flow for business. No need to wait for customers to pay.

4. Bill Discounting 💵

Concept:

• Seller draws a Bill of Exchange on Buyer.
• Buyer accepts it (payable after 3 months).
• Seller needs money NOW.
• Seller goes to Bank and discounts the bill (sells it for slightly less value).
• Bank pays Seller immediately.
• Bank collects full amount from Buyer after 3 months.

5. Venture Capital 🚀

Concept:

• Providing Equity Capital (Ownership stake) to Startups with high growth potential but high risk.
• Not a loan, but an investment.
• Exit: VC sells shares when company grows big (IPO).

6. Housing Finance 🏠

• Loans for purchase/construction of houses.
• Institutions: HDFC, LIC Housing Finance, SBI.
• Security: Mortgage of the house.

Quiz Time! 🎯

💡 Final Wisdom: "Whether renting a machine (Leasing) or selling invoices (Factoring), Fund-Based services keep the wheels of industry turning!" ⚙️💸

Next up: Non-Fund Based Activities - Merchant Banking & Credit Rating! 🗣️