What is Financial Service? Features and Types of Financial Service

All the financial activities that various financial institutions perform as intermediaries in the financial market are called financial services. The central objective of financial services is to facilitate the functioning of financial markets. Through financial services, financial intermediation institutions on the one hand provide necessary funds and on the other hand ensure that those funds are used properly.

Features of Financial Services:

  1. Intangibility: Financial services offered by different types of financial institutions are never tangible. Financial institutions issue businessmen’s hundi (Bill) in exchange for pasture, accept hundi in many cases, warn investors about risks, publicize the company’s financial strengths and weaknesses, and disclose the exact quality of investment documents.
  2. Non-Conservation: Financial services cannot be conserved in the same way as industrial products can be conserved. When customers feel that they need the services, the financial institutions provide those services to satisfy the customers.
  3. Dynamism: As the needs of people have increased in the current socio-economic system, new methods are being created to meet the needs. Therefore, financial institutions have to change their scope of work and speed up their working methods for financial development.
  4. Customer-based Service: Financial services are actually customer-based services. According to the needs of the customers, the service providers have to decide on the service strategy. Customers always want better quality services to strengthen their financial base. Service providers also need to improve service quality to gain customer trust.
  5. Help to Proper Investment: Big investors can invest with the advice of skilled fund managers or experienced people. Apart from that, they can know the situation by participating in various investment-related training and seminars. This becomes difficult for medium and small investors. They depend on intermediary financial institutions. As intermediary institutions are well-managed institutions, they strive to give investors a fair return on their money. Thus, a significant feature of financial services provided by financial intermediaries is to help in making the right investments.
  6. Innovative: Financial services are actually customer-oriented services, so new financial services need to be created through innovation according to customer needs. Financial services companies have to focus on ensuring that customers can get services quickly. In developing financial services, one must keep in mind that it should be a universal service.
  7. Control by Various Rules: Financial service providers are regulated by strict rules of SEBI, Reserve Bank, and Industrial and Financial Reform Board. Hence irregularities are not usually seen in financial services activities.

Types of Financial Services:

Financial intermediaries play an important role in financial markets. Such as (i) helping to transfer financial assets in the name of the public, (ii) exchanging financial assets, (iii) advising financial market participants on investment, and (iv) helping in making decisions about what kind of financial assets to purchase.

Financial services are mainly of two types (A) Free-Based Services and (B) Fund-Based Services

Certain intermediary organizations help buyers or clients with financial matters for a fixed fee. Such functions of various intermediary institutions are:

  1. Merchant Banking: All these organizations require specialized knowledge and experience in various aspects of the business. At first, all these firms were only advisory and not investment oriented. But today merchant banking also does investment-related work without consulting.
  2. Issue Management: Some intermediary organizations do the work related to the distribution of investment securities of various companies in return for a fixed fee.
  3. Portfolio Consultant: The portfolio approach literally means the holder or holder of the entire investment portfolio. A portfolio advisor, therefore, refers to a person who arranges for the responsible management of all investment portfolios or funds of an investor or his client for a fixed fee as per contract.
  1. Capital Reorganisation: Some financial institutions undertake capital restructuring activities for client organizations for a fixed fee. In fact, financial restructuring is one of the objectives of this service.
  2. Service to Acquisition and Merger: When a similar company buys majority shares of another company to control or participate in its management, it is called a merger. But on the eve of incorporation, the purchase price has to be fixed or any other legal formalities have to be followed. In many cases, it is seen that the concerned institutions are not experienced enough in this regard. So they take the help of specialist institutes. Such specialist firms offer appropriate advice for a fixed fee.
  3. Fund-Based Services:

Some financial intermediation firms cater to the short-term or long-term financial needs of businesses. Such services include arranging long-term or short-term loans, issuing bonds, providing venture capital, underwriting, financing equipment leasing or hire purchase. Such functions of intermediary institutions are:-

  1. Arrange Long-term or Short-term Loan: Many organizations require long-term or short-term loans to purchase the property. There are banks or several financial institutions that provide such loans.
  2. Bill Discounting: Some financial institutions offer money written in hundi to the hundi holder ahead of time. But for that, they deduct some money as a commission or discounting charges. Hundi holders or recipients of Hundi money can avail of this service.
  1. Supply of Venture Capital: Supply of financial capital is arranged in many cases even in risky ventures which are new companies or companies in which investment is risky. Some financial intermediaries provide capital by buying shares of risky venture companies at the initial stage. Later, when the company is financially stable, the financial intermediary sells the shares of the concerned company in the market.
  2. Underwritings: Underwriters help companies tremendously in issuing new shares. Underwriters are a class of brokers who promise to sell a certain amount of investments. The promoters of the company can rest assured by leaving the onus on the borrowers to raise the capital. It is not easy to raise capital in large industrial enterprises without the cooperation of customers.
  1. Equipment Leasing: Some financial intermediaries lease equipment to various companies. Financial institutions that arrange such loans are called Equipment Leasing Companies.
  2. Hire Purchase Systems: Some financial intermediaries provide financial assistance to those who wish to purchase property on the hire purchase system.

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