Long Term Sources of Finance

Only available on StudyMode
  • Download(s) : 858
  • Published : December 8, 2012
Open Document
Text Preview
LONG TERM SOURCES OF FINANCE WITH REFERENCE TO INDIA
Long term sources of finance are the institutions or agencies or institutions from which finance/ funds can be raised for a long period of time. In case of sole-proprietary concerns and partnership firms long term funds are generally provided by the owners themselves or by their retained profits. But in case of Companies whose financial requirements are rather large, the following are the sources from which funds are raised: (1.) Capital Market

(2.) Special Financial Institutions
(3.) Mutual Funds
(4.) Leasing Companies
(5.) Foreign Sources
(6.) Retained Earnings

CAPITAL MARKET
Capital markets refer to the organization and the mechanism through which the companies, other institutions and the government raise long-term funds. So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and raising of capital by issuing various securities such as shares, debentures, bonds etc. for trading of securities there are two different segments in capital market. One is primary market and the other is secondary market. The primary market deals with new/ fresh issue of securities and is. Therefore, known as new issue market. the secondary market on the other hand, provides a place for purchase and sale of existing securities and is known as stock market or stock exchange. Individuals and institutions which contribute to the share capital of the company become its shareholders. They are also known as members of the company. Before shares are issued, the directors of the company have to decide on the following matters:- * The amount of capital which is to be raised by issue of shares.

* The types of shares which will be issued.

* The time of issuing shares.

SPECIAL FINANCIAL INSTITUTIONS
a number of special financial institutions have been set up by the central and state governments to provide long-term finance to the business organizations. They also offer support services in launching of the new enterprises and so also for expansion and modernization of existing enterprises. Some of the important ones are Industrial Finance Corporation of India (IFCI), Industrial Investment Bank of India (IIBI), Industrial Credit and Investment Corporation of India (ICICI), Industrial Development Bank of India (IDBI), Infrastructure Development Finance Company Ltd. (IDFC), Small Industries Development Bank of India (SIDBI), State Industrial Development Corporations (SIDCs), and State Financial Corporations (SFCs) etc. since these institutions provide development finance these are known as Development Banks or Development Financial Institutions (DFIs). Besides these there are there are a few other financial institutions such as Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC) and Unit Trust of India (UTI) which provide long term finance to companies and subscribe to their share and debentures. The main functions of these institutions are: (1.) to grant loans for a longer period to industrial establishment; (2.) to help the establishment of business units that require large amount of funds and have long gestation periods. (3.) to provide support for the speedy development of the economy in general and backward regions in particular. (4.) to offer specialized services operating in the areas of promotion, project assistance, technical assistance services and training and development of entrepreneurs. (5.) to provide technical and professional management services and help in identification, evaluation and execution of new projects.

MUTUAL FUNDS
Mutual fund refers to a fund established in the form of a trust by a sponsor to raise money through one or more schemes for investing in securities. It is a special type of investment institution, which acts as an investment intermediary that collects or pools the savings of a large number of...
tracking img