Resource Mobilization

Finance refers to the

needed by either

and is needed by the businesses to

Finance is very important for the business as it helps the business to

Before starting an enterprise, the most important pre-requisite that the entrepreneur must consider is finance as it helps

The most important factors for any business to sustain itself are

The finance sources are majorly classified into the following two categories.

Internal source of finance, also known as equity, refers to the owner’s money and is usually small. This is either from owner’s personal savings.

Financial markets would trade in financial assets such as financial securities, stocks etc. In other-words, financial markets trade the ownership or similar value proposition of an enterprise where as the other markets trade in products or real assets.

Among production, marketing and financing, financing is considered to be the most important factor because the other two i.e. production and marketing can not existing without financing/money.

The following sources provide the supply for long-term funds.

1. Capital Markets: A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.

2. Angel investors: Angel investor, also known as business angel or informal investors is a wealthy person who can provide the capital for starting an enterprise or for the initial stage operations of an enterprise. They usually have high-risk, high-return matrix. In return they expect convertible debt or ownership equity in the enterprise.

3. Venture capital: This source is a kind of private equity capital and supplies seed &funding while staring up the enterprise. Suitable for high potential, high risk, growth-up enterprises run by the entrepreneurs who are in need of necessary experience and finances to implement their ideas.

4. Specialized financial institutions: These specialized financial institutions provide the finance to

The entrepreneurs can use the raised capital for a variety of purposes like

Entrepreneurs use private placement to raise funds from the institutional investors. These institutional investors are very limited in number. Entrepreneurs belonging to both public and private limited sector utilize this option. They issue different varieties of financial instruments to capitalize using private placement. Private placement help the entrepreneurs to keep maintain business information confidentially and keep it from disclosing in the open market.

Different institutional investors are

Stock options or offering shares enable the employees to become share holders and share the profits of the company. When an employee opts for a stock option, the employee goes through an agreement to stay with the company for a specified period of time. If the employee leaves the company before the specified period or is fired, they’ll not be able to utilize their stock options. Availing the stock options requires the employees to stay with the company for a specified period of time after which they can purchase the stocks. They benefit from the stock options if the value of the share is increased during this period.

The following are the important sources are available for an entrepreneur, to raise funds, to cater to their needs of long-term fund requirements.

1. Capital Markets: A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. This is known as financial inter-mediation. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.

2. Angel investors: Angel investor, also known as business angel or informal investors is a wealthy person who can provide the capital for starting an enterprise or for the initial stage operations of an enterprise. They usually have high-risk, high-return matrix. In return they expect convertible debt or ownership equity in the enterprise.

3. Venture capital: This source is a kind of private equity capital and supplies seed funding while staring up the enterprise. Suitable for high potential, high risk, growth-up enterprises run by the entrepreneurs who are in need of necessary experience and finances to implement their ideas.

4. Specialized financial institutions: These specialized financial institutions provide the finance to

A capital market is a well organized mechanism for

transfer of

from the

The major players in the capital market are

The IPO investors seek the following rewards in return of their investment.

When additional finance is required, entrepreneurs follow the strategy named Rights issue where in they offer securities to the existing shareholders on a pro-rata basis. In other-words they give right on certain number of shares in proportion to the number of shares held by them currently.

Rights issue is the method used to raise additional finance from existing shareholders by offering them securities to them. The shares are offered on a pro-rata basis in which the shareholders get the rights to purchase a specific number of shares in proportion to the shares they are holding currently.

When the existing shareholders are not ready to purchase the shares issued to them under the Rights issue, the shares are offered to other persons who are willing to purchase them.

The method of issuing securities through Rights Issue is considered to be inexpensive as it does not involve any

Private placement is the method in which the companies directly sell their securities to a finite set of sophisticated investors.

This is the method in which the employees of a company are offered to own the shares and become the shareholders. This leads to much better growth of the company.

Stock Options is the method in which the employees of a company are offered to own the shares and become the shareholders. This leads to much better growth of the company.

Secondary market, also know as old securities market or stock exchange, is the market in which the old securities (i.e. the market securities issued earlier) are bought and sold.

Secondary markets are required because

and

The following are the forms in which the companies can raise their capital through the capital market.

Entrepreneurs will in in need of finance right from the point of conceiving an idea, for various requirements like

Finance is needed by the entrepreneurs because it is the primarily required means for establishing the enterprise. Finance helps in the formation of the new enterprise and to exploit the opportunities to grow and expand the enterprise. It is required for various activities like

Finance is the essential requirement for the entrepreneurs to reach the extent of bearing the risk, bringing together different factors of production and implementing their creative ideas.

The following are some of the mushrooming sources of raising finance in the business

1. Capital Markets: A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.

2. Angel investors: Angel investor, also known as business angel or informal investors is a wealthy person who can provide the capital for starting an enterprise or for the initial stage operations of an enterprise. They usually have high-risk, high-return matrix. In return they expect convertible debt or ownership equity in the enterprise.

3. Venture capital: This source is a kind of private equity capital and supplies seed & funding while staring up the enterprise. Suitable for high potential, high risk, growth-up enterprises run by the entrepreneurs who are in need of necessary experience and finances to implement their ideas.

4. Specialized financial institutions: These specialized financial institutions provide the finance to

In addition to this, the entrepreneurs can also procure the finance from the following Specialized financial institutions (SFIs), as per their needs.

Money market is an element of the financial market which is involved in the lending and borroweing of short term loans. The loan term should be less than or equal to 365 days. Money market is the means though which the short term monetary transactions are dealt with in the economy.

The major participants in the money market are

Capital markets act as the vital sources of procuring finance for the entrepreneurs in the following ways.

A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.

The capital markets are broadly classified in India into the follow broad categories.

The various sectors of organized market are

The various sectors of un-organized market are

Primary market is the market whose sole purpose is to enable the transfer of resources

from the savers to the entrepreneurs who are in

The entrepreneurs have the option of raising the required funds through the following methods in the primary market.

1. Public Issue/Going Public: This is the method more popular. In this method a prospectus is prepared and issued to the public. The funds are collected from the public through this prospectus.

3. Private Placement: Entrepreneurs use private placement to raise funds from the institutional investors. These institutional investors are very limited in number. Entrepreneurs belonging to both public and private limited sector utilize this option. They issue different varieties of financial instruments to capitalize using private placement. Private placement help the entrepreneurs to keep maintain business information confidentially and keep it from disclosing in the open market.

Different institutional investors are

4. Offers to the employees: Stock options or offering shares enable the employees to become share holders and share the profits of the company. When an employee opts for a stock option, the employee goes through an agreement to stay with the company for a specified period of time. If the employee leaves the company before the specified period or is fired, they’ll not be able to utilize their stock options. Availing the stock options requires the employees to stay with the company for a specified period of time after which they can purchase the stocks. They benefit from the stock options if the value of the share is increased during this period.

Entrepreneurs have the following advantages of raising the funds through the capital market.

In addition to the above advantages they’ve the following additional advantages too.

The entrepreneur has to endure the following additional obligations and reporting requirements too when they go public

The entrepreneurs have high dependency on primary markets though the initial issues to generate funds. When the entrepreneurs decides to issue securities to the public so as to procure capital funds they do it in the primary market for the first time. As this is done for the first time such “issues of securities” are also known as “new money issues”. Consequently the primary market is also known as new issue market

The responsibilities that the governing body possess are to look after

In India stock trading is done mostly in the following stock exchanges

Secondary market, also know as old securities market or stock exchange, is the market in which the old securities (i.e. the market securities issued earlier) are bought and sold.

The following is the significance of the stock exchange from the view point of the companies.

1. Recognition: The market values of the companies’s shares are published in various media channels like newspapers, magazines and websites. This increases the reputation of good companies/entrepreneurs.

2. Wide market: The securities of some companies are listed in multiple stock exchanges, there by widening the market for the securities of that company. Due to this the companies will be able to reach more number of investors who are willing to invest in the company and this helps is procuring large capital funds.

3. Higher share value: Investors prefer to buy shares that have some premium value and hence there is demand for such shares. Due to increase in the demand, the price of the shares increase further.

The following is the significance of the stock exchange from the view point of the investors.

1. Dissemination of useful information: Stock exchanges publish useful information related to securities like the price lists, quotations etc in various channels like newspapers, magazines, journals, websites etc. Investors heavily depend on this information published by the stock exchanges to buy and sell their securities

2. Ready market: Shareholders can sell their shares and convert them to cash through a member of the stock exchange.

3. Investors’ interests protected: Stock exchanges formulate the rules and regulations. This will avoid frauds and protect the investor interests.

4. Genuine guidance about the securities listed: The information published by the stock exchanges is trustworthy and the investors can safely depend upon this information.

5. Barriers of distance is removed: Stock exchanges provide an opportunity to the investors to participate in the shares of any company regardless of the location. Thus an investor has an opportunity to invest without any distance barriers.

6. Knowledge of profit or loss on investments: The price of the securities is live and up-to-date which helps the investors to get an instant estimate of whether their securities are running with profit or loss and decide whether to retain or sell the securities.

The following is the significance of the stock exchange from the view point of the society.

1. Rapid capital formation: When the companies are performing well in the stock market, they lure the investors to invest in their securities. Thus the investments in corporate and government sectors is increased. In addition to this, the income from these securities can be further invested. Thus there is a surplus flow of funds and this leads to rapid capital formation.

2. Economic development: As the funds are easily mobilized, the production is boosted and this brings additional capital. This in-turn lead to economic development.

3. National Projects: As stock exchanges promote capital formation, it becomes easier to start projects that bring National Prosperity.

SENSEX is the short name for S&P BSE SENSEX(S&P Bombay Stock Exchange Sensitive Index) also called as BSE 30 is an index of how the well-established 30 companies listed on the Bombay Stock exchange are performing. These 30 companies are from various industry sectors. This index represents health of the India’s economy. When most of these stocks are performing well their prices increases and the SENSEX goes up and vice versa. Last week there was a dip in the prices and hence the SENSEX has gone down and this week their prices are increased and hence the SENSEX has gone up.

The value points from this case study are:

The following are the features of the stock exchange

a. Association of persons: A stock exchange is an association of persons or body of individuals which may be registered or unregistered.

b. Barometer of finances: Stock exchanges are the financial barometers and indicate the development of the national economy. The index of stock exchange reflects the stability and industrial growth.

c. Central Government Recognition: As stock exchange is an organized market, it requires recognition from the Central Government.

d. Deals in second hand securities: Stock exchanges deal with the bonds, debentures, shares and other such securities which are already issued by the companies. In other-words, they deal with the existing or second hand securities and hence they are called as secondary market.

e. Effect of transactions only through members: All the transactions in securities at the stock exchanges are effected only through its authorized brokers and members. They will not allow the outsiders or direct investors to enter the trading circles. It is only through the authorized brokers that the investors have to buy and sell the securities.

f. Facilitate dealings only in listed securities: A stock exchange has its own official list of securities. Investors can buy and sell only these securities through this stock exchange. Securities which are not part of this official list are called as unlisted securities. The unlisted securities can not be traded in the stock exchange.

g. Governs/works as per the rules: The investors can carry out the buying or selling transactions at the stock exchange subject to the rules and regulations of the stock exchange and the SEBI guidelines. There is no relaxation of these rules and regulations under any circumstances.

h. Handles/regulates trade in securities: Stock exchanges neither buy nor sell any securities themselves. They just provide the required infrastructure and the facilities to the brokers and its members to perform the trading of securities. Thus stock exchanges handle or regulate the trading activities and ensure that the trade is free and fair.

i. It is market for securities: Stock exchange is market where in securities of

are bought and sold.

j. Specific Location: It is the place where authorized brokers come together on working days. They meet on the floor of market called trading circles and do trading. The prices of various securities being traded are displayed on the electronic boards. The market is closed after the working hours. The working of stock exchange is conducted and controled through computers and electronic system.

The following are the various functions of stock exchange.

a. Acts/Serves as economic barometer: Stock exchanges act as an index indicating the health of the companies and national economy. In other-words it acts as a barometer indicating the economic conditions/situation and serves as the pulse of economy or economic mirror.

b. Bank Lending facilitation: Banks get the information related to the prices of the quoted securities from the stock exchanges. So, they offer loans to customers against the corporate securities as they know the value or price of these securities. This is a very big convenience to the owners of securities.

c. Continuous and ready market securities: Stock exchange act as a central market for buying and selling securities. It provides ready and continuous platform for buying and selling securities. Buyers and sellers strongly believe that they would be able to perform the transactions at any time (during the stock exchange working hours)

d. Deals/regulates company management: Stock exchanges mandate that the companies should comply with the rule and regulations laid out. The companies will be under the vigilance of stock exchange authorities.

e. Examines or checks on brokers: Stock exchanges control the activities of brokers and there by prevent any fraud activities or malpractices by the brokers. If any of the brokers are found to be overcharging or not providing accurate information, their licence may be cancelled.

f. Facilitates public borrowing: Stock exchanges also provide the platform for buying and selling of government securities. This makes it easy for the government to raise public debts quickly.

g. Gathering/raising new capital by the entrepreneurs: The companies will be able to easily gather or raise new capital through stock exchanges for the purpose of development expansion.

h. Healthy Speculation: Stock exchanges keep a check on the speculation and regulates it at healthy levels. This provides more business to the exchange. The speculation is also under control and there by preventing any danger to the investor and growth of corporate sector.

i. Intensifying capital formation: Stock exchanges promote the habit of saving, investing and risk taking among the investors and there by converting their savings into profitable and safe investments. This accelerates the capital formation as the investors will be more willing to invest their money in companies.

j. Justice through Safety and security in dealings: The stock exchanges work under the control of the provisions of the Securities Control (Regulation) Act. Due to this the investor confidence is grown. Also, the fraudulent practices are under check and there by ensuring safety, security and justice in dealings.

k. Facilitates evaluation of securities: Stock exchanges help in the evaluation of industrial securities. They thoroughly analyze the demand and supply position and publish the share prices. The investors will thus be able to know the true worth of their holdings at any time.

The following are the various functions of stock exchange.

a. Acts/Serves as economic barometer: Stock exchanges act as an index indicating the health of the companies and national economy. In other-words it acts as a barometer indicating the economic conditions/situation and serves as the pulse of economy or economic mirror.

b. Bank Lending facilitation: Hanks get the information related to the prices of the quoted securities from the stock exchanges. So, they offer loans to customers against the corporate securities as they know the value or price of these securities. This is a very big convenience to the owners of securities.

c. Continuous and ready market securities: Stock exchange act as a central market for buying and selling securities. It provides ready and continuous platform for buying and selling securities. Buyers and sellers strongly believe that they would be able to perform the transactions at any time (during the stock exchange working hours)

d. Deals/regulates company management: Stock exchanges mandate that the companies should comply with the rule and regulations laid out. The companies will be under the vigilance of stock exchange authorities.

e. Examines or checks on brokers: Stock exchanges control the activities of brokers and there by prevent any fraud activities or malpractices by the brokers. If any of the brokers are found to be overcharging or not providing accurate information, their licence may be cancelled.

f. Facilitates public borrowing: Stock exchanges also provide the platform for buying and selling of government securities. This makes it easy for the government to raise public debts quickly.

g. Gathering/raising new capital by the entrepreneurs: The companies will be able to easily gather or raise new capital through stock exchanges for the purpose of development expansion.

h. Healthy Speculation: Stock exchanges keep a check on the speculation and regulates it at healthy levels. This provides more business to the exchange. The speculation is also under control and there by preventing any danger to the investor and growth of corporate sector.

i. Intensifying capital formation: Stock exchanges promote the habit of saving, investing and risk taking among the investors and there by converting their savings into profitable and safe investments. This accelerates the capital formation as the investors will be more willing to invest their money in companies.

j. Justice through Safety and security in dealings: The stock exchanges work under the control of the provisions of the Securities Control (Regulation) Act. Due to this the investor confidence is grown. Also, the fraudulent practices are under check and there by ensuring safety, security and justice in dealings.

k. Facilitates evaluation of securities: Stock exchanges help in the evaluation of industrial securities. They thoroughly analyze the demand and supply position and publish the share prices. The investors will thus be able to know the true worth of their holdings at any time.

A stock exchange is a body of individuals, either incorporated or not incorporated, constituted for the purpose of

the business of

securities.

SEBI is acronym for Securities and Exchange Board of India. It is the regulator of the securities market in India. It was established on 12th April, 1992 through the SEBI Act, 1992. This act ws passed by the Indian Parliament.

SEBI has three functions rolled into one body.

The acronym FFF used while referring to the angel investors stands for Friends, Family and Fools

Angel investors are affluent individuals who can arrange capital for a start-up company or those companies which are still in the incubation stage and have high-risk, high-return matrix. The arrangement of the capital is usually in exchange of convertible debt or ownership equity. Angel investors are also called as Business angel or informal investor.

SEBI: SEBI is acronym for Securities and Exchange Board of India. It is the regulator of the securities market in India. It was established on 12th April, 1992 through the SEBI Act, 1992. This act was passed by the Indian Parliament.

SEBI is managed by its member as follows:

SEBI has three functions rolled into one body.

The following financing options are available for the small ventures.

Venture capitalists will prefer to invest in only selected ventures due to the following reasons.

As they’re investing their money they will be very cautious and they won’t proceed if there is more probability of failure.

To carry out its functions efficiently, the following powers are provided to SEBI

The following are the features of the venture capital.

Entrepreneurs will go for raising venture capital funds under the following conditions.

The following are the features of the angel investors.

Venture capitalists invest in high-risk, high-growth, yet to mature companies having high returns in the future. Their funding goes when the company is about to be started. It takes a huge amount of time before the value of the investment reaches the desired levels. In addition the entrepreneurs are usually not yet experienced. Due to these reasons it takes lot of time for the investment to reach the desired growth levels. In addition there is risk of the enterprise not becoming successful and subsequently losing their investment. Due to these reasons, the venture capitalist’s investments are illiquid in other words their investments can not easily/quickly converted into cash.

The specialized financial institutions play the role of

to various types of upcoming and existing entrepreneurs.

The following are the various specialized Financial institutions from where entrepreneurs can borrow capital to meet their needs and requirements.

SIDBI was established as wholly owned subsidiary of IDBI, in April, 1990 under the Small Industries Development Bank of India Act, 1990.

Specialized Financial Institutions (SFIs) provide developmental finance. Thus SFIs are the sources for the entrepreneurs to procure finance required to invest in fixed assets. Due to this reason, the SFIs are also called as Development Banks or Development Financial Institutions. Thus the SFIs play an important role and are very much need due to the following reasons.

Objective: To promote industrial development in the states where they are setup.

The following state/national level financial institutions can provide the required capital to Apoorva.

The following are the objectives of IDBI.

State Financial Corporations (SFCs) were established to meet the financial needs of small and medium enterprises through the State Financial corporations Act in 1951. The act empowers state governments to establish a bank that cater to the development in their respective states. As of now there are 18 SFCs.

Industrial Reconstruction Bank of India (IRBI) was transformed and renamed as Industrial Investment Bank of India Ltd or IIBI under the Companies Act, 1956 in March, 1997. It was initially setup by IDBI through Government of India in April 1971. Its sole purpose was to rehabilitate poorly performing industrial companies.

Functions: It provides a wide range of products and services as specified below.

In addition it has taken over the responsibility of allocating the following two funds.

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