financial services Definition Facilities such as saving accounts, checking accounts, confirming, leasing, and money transfer, provided

generally by banks, credit unions, and finance companies.
Financial services can be defined as the products and services offered by institutions like banks of various kinds for the facilitation of various financial transactions and other related activities in the world of finance like loans, insurance, credit cards, investment opportunities and money management as well as providing information on the stock market and other issues like market trends.

Financial Services Types Insurance A contract in which one party agrees to pay for another party's financial loss resulting from a specified event (for example, a collision, theft, or storm damage). Lease agreements generally require that you maintain vehicle collision and comprehensive insurance as well as liability insurance for bodily injury and property damage. Mutual Fund

A mutual fund enables investors to pool their money and place it under professional investment management. The portfolio manager trades the fund's underlying securities, realizing a gain or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. There are more mutual funds than there are individual stocks. Mutual Fund Mutual fund can be termed as a type of Investment Company or a form of joint investment. Mutual fund provides comparatively safe investment options to the investors. On the other hand, the returns from the mutual funds are also high.

The mutual funds are actually huge funds where a number of investors invest their money. This huge amount is invested in several projects and companies that can provide desired growth to the money. The mutual funds are managed by the fund managers who are selected from the most experienced professionals in the field of finance. These fund managers are also termed as the portfolio managers. These people shoulder the responsibility of the mutual fund growth that means the growth of the money. The mutual funds invest money in the stocks, bonds, Forex market and in a number of other investment instruments.

Investments in the mutual funds are safe because the funds are managed by the professionals. These professionals know everything about the market. Because of this, they can plan the best strategy for their investment. The investment portfolios of mutual funds are kept under observation of the fund managers and whenever it is needed, the portfolio is adjusted. On the other hand, an individual investor, when new in the market, can expose his investments to the market risks and may have to face losses. The mutual fund provides returns that are lower than the stocks, however, the returns are almost safe. There are a number of mutual funds that are differentiated according to their areas of investment. Some of these types of mutual funds are as follows:
y y y y y y y y

Open-end fund Hedge funds Capitalization Bond funds Money market funds Funds of funds Equity funds Exchange-traded funds

Again, the mutual funds are subjected to a different set of rules and regulations regarding administration, tax structure and many more. The mutual funds distribute their income among the investors and because of this, no tax is imposed on the income

The term is often used in connection with the number of units issued to an owner of Common Stock or Preferred Stock. savings banks. Reforms are continuing as part of the overall structural reforms aimed at improving the productivity and efficiency of the economy. Shares and Stocks Shares are a term referred to the units of ownership interest provided to the stockholder or owner of a company. the income is tax-free for the investors also. There are several types of banks: central banks. investment banks. Banks have drastically evolved throughout time. corporate banks. commercial banks. The role of an integrated financial . and safeguarding money as well as conduction other financial transactions. increasing their services but also becoming institutions that cater to greater numbers of people. finance companies. A stock is a certificate of ownership in a corporation. lending.of the mutual funds. life insurers. It is the same as a share Industry Overview The financial sector is in a process of rapid transformation. etc. In case of certain types of returns. trust companies. Banking Financial intermediary Institutions for receiving. credit unions.

contributing to two trends: consolidation and increased competition at both national and international levels. with Ministry of Finance at the helm as policy making body. The growth rate of the financial sector is 15 percent. Consolidation Consolidation means that financial services worldwide are increasingly concentrated in the hands of a few corporations.infrastructure is to stimulate and sustain economic growth. specialized and non-specialized financial institutions of organized and unorganized financial markets. The financial sector consists of Institutions. These parts are not always mutually exclusive. financial instruments and services. . Indian Financial sector. The common thing between all is that they facilitate transfer of funds. Financial Institutions Banking Segment Markets: Debt/Equity/Securities Trends and Strategies in the Financial Sector Information technology. Interrelationships between these are a part of the system e. with two regulators RBI and SEBI consists of three principal segments i..g. financial instruments.e. therefore. deregulation and liberalization have dramatically affected the financial services industry. a part of such markets. markets. Financial Institutions operate in financial markets and are.

most consolidated financial firms grew through mergers and acquisitions or takeovers that were either friendly or hostile. e. Increasing the quality of service and products to gain the trust of the customers. Many experts predict that consolidation will continue and within 5 to 10 years there will be only five to ten top financial conglomerates in the world. c. d. Maintaining a large capital base as a sponge to absorb losses and the growing cost of technology. Many financial services categories. were increasingly being brought under one corporate roof.Consolidation is seen as the single most important factor transforming the financial services industry since almost a decade. which is called "cross-category consolidation". by trading and investing in financial services in many countries around the world. such as retail banking and insurance. Financial products through one distribution channel. Increasing the number of customers and beating competitors by selling various b. . The strategies behind consolidation are: a. In the search for more profitable opportunities. Such process took place at national and international levels with cross-border consolidation. Diversifying products and customers to avoid the risk and to finance a loss-making part of the business with the profits of another one.

Governments. Competition remains fierce. The struggle is always for quicker and short-term profit which leads to strategies for more efficiency. any person involved in the provision of. arranging for. lowering costs.f. This often means an increasing effort to standardize and automate services. Generally. One should also notice the importance of cross selling and cross branding (some financial companies have started to distribute products for their competitors without operating them). to differentiate them according to the wealth of the client and to shift the focus on financial portfolios. Increasing profitability in the battle against competitors Competition Consolidation is the financial industry's way of dealing with increasing competition. for the sake of efficiency and lower prices. or the agreeing to provide an exempt financial service is not eligible to claim input tax credits in respect of tax paid on the inputs used in the making of that exempt supply. are those services that are commonly associated with the supply of financial instruments such as debt securities. regulators and supervisors worldwide try to create and maintain a free market with many competitors. expansion of profit-making clients and markets while outpacing competitors. equity securities and insurance policies. Financial Services Last Updated: June 2010 .

insurance and real estate sectors rose by 9. was US$ 77.4 per cent in 2009-10.9 billion in debt. according to the data released by Association of Mutual Funds in India (AMFI). Net investment made by FIIs in equity between June 1. according to the Reserve Bank of India's Weekly Statistical Supplement.73 million in debt. According to the latest Central Statistical Organisation (CSO) data.58 billion in May 2009. 2010.2 billion . banking. . financial services. As per the Securities and Exchange Board of India (SEBI). number of registered Foreign Institutional Investors (FIIs) as on May 31. The total FII inflow in equity during January to May 2010 was US$ 4. 2010 was 1710 and the cumulative investments in equity since November 1992 to May 31. a research service focussed on PE and merger and acquisitions (M&A) transaction activity in India.4 billion . as per the latest data released by SEBI. according to a study by Venture Intelligence. an increase of US$ 9. As on June 4. 2010 was US$ 530. 2010. Private equity (PE) firms invested about US$ 2 billion across 56 deals during the quarter ended March 2010.87 billion over the same period last year. billion.6 billion while it was US$ 5.The Indian economy is estimated to have grown by 7. 2010 and June 14. as compared to US$ 135.05 million while it was US$ 875. while the cumulative investments in debt during the same period were US$ 13.7 per cent in 2009-10. The average assets under management of the mutual fund industry stood at US$ 170. India's foreign exchange reserves totalled US$ 271.46 billion for the month of May 2010.

. a study by Project Finance International (PFI). to a qualified institutional buyer (QIB).13 billion by way of 45 QIP issuances. India's market cap as a percentage of world market cap was 2. whereby a listed company can issue equity shares. a source of global project finance intelligence and a Thomson Reuters publication has ranked India on top in the global project finance (PF) market in 2009. In 2009. Stock markets According to data from Bloomberg. ahead of Australia. 2009. Spain and the US. fully and partly convertible debentures. Qualified Institutional Placements (QIPs) QIP is a capital raising tool.5 per cent of the global PF market. which raised US$ 30 billion. accounting for 21.The amount invested during the January-March 2010 quarter was the highest in the last six quarters. The figure was significantly higher than that during the same period last year (January-March 2009) which witnessed US$ 620 million being invested across 58 deals and also the immediate previous quarter (October-December 2009) where investments worth US$ 1. or securities other than warrants.681 million were made across 102 deals. The study said the main market for PF in 2009 was the domestic Indian market.8 per cent as on December 31. This was up from US$ 19 billion in 2008. Also. which are convertible into equity shares. Indian companies had raised close to US$ 7.

according to ICICI Securities. Managing Director and CEO. Insurance India is the fifth largest life insurance market in the emerging insurance economies globally and the segment is growing at a healthy 32-34 per cent annually.64 billion collected in 2008-09. .62 billion.64 billion.43 billion from the primary market over the next three years. in April 2010. Further. According to Madhabi Puri-Buch.46 per cent over US$ 19.53 trillion. total first year premium collected in 2009-10 was US$ 24.18 billion as compared to 36 IPOs in 2008 that raised US$ 3. of which around US$ 8. according to the Life Insurance Council. Forward Markets Commission (FMC). the 23 commodity exchanges posted 50 per cent year-on-year growth in turnover in the AprilFebruary period of 2009-10. ICICI Securities' nearly US$ 20 billion will be raised from the initial public offer (IPO) market this fiscal (2010-11). there were 21 IPOs that raised US$ 4. on the back of an increase in the participation of agriculture and other commodities. Moreover. Indian companies are likely to raise up to US$ 42. to touch US$ 1. According to the Insurance Regulatory and Development Authority (IRDA).49 billion would be from the public sector and an equal amount from private companies.In 2009. an increase of 25. according to the commodity markets regulator. life insurance companies collected first year premium worth US$ 1. Further.29 billion. according to IRDA.

at US$ 56. Banking services According to the weekly statistical supplement (WSS) of the Reserve Bank of India (RBI).4 billion mark. If achieved. secretary general.04 billion. Furthermore. we are expecting a growth of 18 per cent in total premium income. The WSS reflected that bank deposits rose by US$ 3.1 per cent as of June 4. Life Insurance Council. against US$ 47. Exchange rate used: 1 USD = 46. 2010. Total premium income. outstanding loans showed an increase from US$ 12. Indian bank loans represented a rise of 19. rose 18 per cent during 2009-10.6 billion in the previous year.5 billion in the two weeks to June 4.3 per cent from the previous year.as compared to US$ 810. The life insurance industry is expected to cross the Rs 3 lakh crore total premium income mark in 2010-11. ³This year. 2010 while deposits were up 14.24 billion to US$ 975 billion in the two weeks to June 4.9 million in the corresponding period of 2009.39 billion to US$ 703. Financial services is also the term used to describe organizations that deal . it is expected to cross the US$ 64.74 INR (as on June 2010) Financial services is a term used to refer to the services provided by the finance industry.´ said SB Mathur.

and other. the industry represents 20% of the market capitalization of the S&P 500. construction loans. simply walking into a financial institution will allow one to pick up brochures and other publications which can put it all into perspective. or even that much of an accounting background in order to have a rudimentary understanding of financial services. credit card companies. such as checking and savings accounts (which may or may not include retirement accounts). consumer finance companies . As everyone knows. of banking especially. The term financial services most often brings to mind the more simpler aspects. . one begins to wonder if middle schools and high schools should begin offering courses in Banking 101 as part of their curriculum. Different Types of Financial Services Banking. for one to have an accounting degree. Certainly. With all these. It really isn't necessary. the first two topics alone would take up a full school year. though. Often. there are other areas of financial services. Financial services is the largest industry (or industry category) in the world. government sponsored enterprises. small business loans. as of 2004. retirement accounts. financial terms and the services to which they refer to out there. credit unions.with the management of money and includes merchant banks. however. and stock brokerages. in terms of earnings.

some banks have built their reputation on the fact that they deal primarily with such loans. yes. The Navy Federal Credit Union Navy Federal Credit Union. anyone can join. again. In fact. as its name implies. such as the Small Business Administration. One only need to open the door to any one of the many branches of banks. may come through a bank. of course. however. S. that is. Even if membership is considered "closed". be opened in a regular bank. or they may be obtained through other financial institutions. Navy. to find out anything they wish to know. and. for example. it does not take a financial "wizard" in order to access the availability of all these institutions have to offer. Once the first step has been taken. which other credit unions will only offer their services to employees of certain companies or businesses. Financial Services Company . serves those who are or once were members of the U. and. although they certainly offer loans for other things. Membership may be "open". Retirement accounts can. credit unions require that its patrons be members of that particular financial institution. relatives of members are usually welcome to join. it is almost always smooth sailing the rest of the way. The services are out there. Unlike banks. or one may choose to utilize the services of a credit union. Small business loans can be acquired through government financial services. credit unions.Construction loans.

The different types of financial services company jointly create one of the largest industries of the world. Some of these companies are the following: y y y y y y Investment services company Insurance company Intermediation or advisory services company Conglomerates Bank Credit Rating Agencies Bank It is one of the biggest financial services companies of the world. . mortgage services. insurances. Some of these are commercial banks. credit rating services and many more. Banks provide a number of financial services to the clients. There are different types of financial services like lending money for different purposes. There are different types of banks in the world. investment services. There are some banks that work for the capital markets only. There are a number of financial services companies in the world. There are different types of financial services company to provide these services to different commercial sectors as well as to the individuals. depository services. private banks and many more.The finance industry provides a number of services to the clients.

These services are provided for both the individuals and the commercial sector. These services are provided by the following banks: . lending services. credit card facilities and many more. Several banks that provide such services are: y y y y y y y y y Commercial bank Private banks Savings bank Postal savings banks Ethical banks Offshore banks Community development banks Building societies Community Banks Investment banking facilities are designed mainly for corporate clients. for instance: y y y Banks run by the private sector (meant to earn profits by providing financial services Banks regulated by the government Non-profit banks Retail banking services are offered to individual clients and also to small-scale businesses. There are a variety of banks. and consist of underwriting services. advisory services. trade financing and so forth.These services include depository services. run by different organizations.

There are a number of investment options available for the investors but at the same time. the intermediation or advisory services companies are handling the investor's money and investing it according to the client's choice. every investor is not meant for every kind of investment option.y y Merchant Banks Investment Banks Apart from these. there are Islamic banks that are built on Islamic ideals and Islamic regulations. property and many more. At the same time. Intermediation or Advisory Services Company These companies are basically involved in providing investment services to the clients. The rules and regulation are a bit differ from other banks. These services are not only designed to provide security but at the same time there are a number of insurance plans that are designed to provide regular income to the clients. These services are designed to cover a number of risks that are related to an individual's life. Insurance Companies The insurance companies provide the clients with risk coverage services. These companies are designed to provide advises to the investors in selecting the right investment options that suit their investment plans and also the risk tolerance capacity. The insurance . There are a number of factors like returns from the investment. security of the investment and several other risk factors that are involved with the investments.

Credit Rating Agencies The credit rating agencies are those firms that evaluate different types of financial services companies. commercial insurances and a lot more. life insurance.policies can be divided in several types like general insurance. Top 10 financial services companies in India The financial system of a country has a great impact on the economy with financial services companies responsible for the robust economic growth. List of top 10 financial services companies in India Find below a comprehensive list of top financial services . Financial services provided by finance companies include insurance. customer facilitation and many more. and investment advisory. These ratings are based on a number of factors like the kind of services. housing financing. risk factor involved with the services. There has to be a direct link between the regulatory institutions and the intermediary institutions while determining the financial system of a country. stock broking. mutual funds. credit reporting. Investment Services Company The investment services companies provide services like asset management. custody services and many more. portfolio management. debt collection. hedge funds.

DSP Merrill Lynch offers financial advises to varied corporations and institutions.Ltd.. SBI Capital Markets Limited: This happens to be the oldest organizations in the sphere of capital markets in India. high network clients as well. and many others. The company is a traiblazer in privatization and securitization. individual investors. Established in 1986 in the form of an ancillary of SBI.companies in India. With an array of wealth management and investor services. they have ranked second in Asia's Project Advisory services. corporate houses. SBICAP Trustee Co. Bajaj Capital offers best investment advisory and financial planning services. The subsidiaries of SBI Capital Markets are SBICAPs Ventures Ltd. DSP Merrill Lynch Limited: A major player in the equity and debt market in India. Birla Global Finance Limited: . The services are meted out to the institutional investors. their services are customized in a manner that they meet every investor requirement. NRIs. Bajaj Capital Limited: One of the major financial services companies in India.

The subsidiary of Aditya Birla Nuvo Ltd. this company has operations in the corporate finance and capital market arena. ICICI Bank imobile etc. . Birla Sun Life Distribution Co. NRI loans. ICICI Group has solutions like InstaBanking. Online Trading. ICICI Group: Wide arena of financial products and services. Private Equity. With overseas branches in Singapore. Qatar. The Home Loan Life Insurance Plan of this has come in conjunction with TATA AIG. HDFC is the one stop destination for personal finance. Insta Insure.. and alike. HDFC has been going great guns every year. An alliance with Sun Life Financial of Canada. Providing high class financial services in all segments of the society. Housing Development Finance Corporation: A best financial solution for home loans. Saudi Arabia and many others. with the lowest premium when compared to the peers. they have given birth to Birla Sun Life Insurance Co Ltd. Kuwait. and Life Insurance etc. PNB Housing Finance Limited: This company offers premium solutions for relieving the borrower segment. Securities. ICICI Group deals with Mutual Fund..

Lease Definition .LIC Finance Limited: It is the biggest Housing Finance Company in India. Agricultural Instruments. Depository Services. providing finance to individuals for repair or construction or renovation of any old or new apartment or house. Karvy Group has spanned across the domestic financial sector as well as abroad. they have all types of loans for a long tenure. Investment Banking and many others. Debt Market Services. this has become a significant name in the financial sector. L & T Finance Limited: Established in 1994 by the Larsen and Turbo group. Karvy Group: With Mutual Funds Services. Funds for automobiles. secured loans.

Such elements are as follows y The degree of ownership risk and rewards transferred to the lessee. lease financing is an arrangement where the lessee who requires the equipment or machinery gets the finance from the lessor for the agreed rental payments. and domestic and international lease. the lessor finances the asset or equipment and the lessee uses it in exchange of fixed lease rentals. y No. In lease finance. there are sale and lease back and direct lease. Very popularly heard leases are financial and operating lease. single investor lease and leveraged lease. of parties involved y Location of lessor. Apart from these. Leases are classified into different types based on the variation in the elements of a lease. lessee and the equipment supplier y The lessor and the lessee . Lease finance is a very important financing option for an entrepreneur with no or inadequate money for financing the initial investment required in plant and machinery.A written agreement under which a property owner allows a tenant to use the property for a specified period of time and rent. In other words. There are many such arrangements and hence there are many types of lease. Let us have a look at the different kinds of lease. Certain variation in the elements of lease classifies lease into different types. Such kind of lease is called finance lease.

Here. the ownership is transferred to the lessee at the end of the economic life of the asset. Sale And Lease Back and Direct Lease: In the arrangement of sale and lease back. is a type of lease wherein the lessor transfers substantially all the risks and rewards related to the asset to the lessee. lessor is not only acting as a financier but he also provides additional services required in the course of using the asset or equipment. the lessee sells his . risk and rewards are not transferred completely to the lessee. in operating lease. lessor is only a financier. Ownership along with its risks and rewards lies with the lessor. The term of lease is very small compared to finance lease. The lessor depends on many different lessees for recovering his cost. Example of a finance lease is big industrial equipment. Example of an operating lease is music system leased on rent with the respective technicians. Generally. Types of Lease: On the basis of above dimensions. leases are classified into following: Finance Lease and Operating Lease: Finance lease. On the contrary. Lease term is spread over the major part of the asset life. also known as Full Payout Lease. Here. risk means the chance of technological obsolescence and reward refers to the cash flow generated from the use of equipment and the residual value of the equipment. Here.

direct lease is a simple lease where the asset is either owned by the lessor or he acquires it. invested in the equipment or asset. and lessee and it is called tripartite lease.asset or equipment to the lessor (financier) with an advanced agreement of leasing back to the lessee for a fixed lease rental per period. equipment supplier and lessor are two different parties. has three parties ± lessor. Here. Whereas. Single Investor Lease and Leveraged Lease: In single investor lease. to utilize it at whatsoever place for any reason. In the former case. Leveraged lease. Equity is arranged by the lessor and debt is financed by the lender or financier. It is exercised by the entrepreneur when he wants to free his money. The lessor arranges the money to finance the asset or equipment by way of equity or debt. there are two parties. On the other hand. the lender is also entitled to receive money from lessee. Lessee is entitled to pay the lease rentals only to the lessor. The lender is entitled to recover money from the lessor only and not from the lessee in case of default by lessor. Here. equipment supplier.lessor and lessee. lessee and the financier or lendor. there are two parties . in the latter case. In bipartite lease. the lessor and equipment supplier are one and the same person and this case is called µbipartite lease¶. . lessor. there is a direct connection of the lender with the lessee and in case of default by the lessor. there are three different parties viz. on the other hand. Such transactions are generally routed through a trustee.

S. some of which are as follows: (1) Financial Lease: A long term lease contract which extends over the whole useful life of an asset and which cannot be cancelled is known as Financial Lease.Domestic and International Lease: When all the parties of the lease agreement reside in the same country. Types of Lease Many types of lease contracts are seen in practice. . When lessor and lessee reside in same country and equipment supplier stays in different country. In the Statement of Financial Accounting Standard No. the lease is called cross border lease. Thus whole investment is recovered by the lessor in case of Financial Lease. the lease arrangement is called import lease. The lessee may be given an option to purchase the asset at the expiration. Sometimes this type of lease is also known as capital lease. a lease is regarded as a Capital Lease (or Financial Lease) if it meets any one of the following conditions: (1) The lease transfers title to the asset to the lessee by the end of the lease period. 13. published by the U. International lease are of two types ± Import Lease and Cross Border Lease. The duration of the lease is almost equal to the useful life of an asset. When the lessor and lessee are residing in two different countries and no matter where the equipment supplier stays. it is called domestic lease. Financial Accounting Standard Board.

The lessor is not the manufacturer of or trading in specific assets or equipments. the lessee generally selects the asset and the lessor places an order for it and gets the delivery. giving an office space on a 2 year . end he retains the ownership of the asset. the lease rent is fixed in such a way that whole cost of the asset is recovered and in addition. profit is made in such a way that a fixed rate of return in earned on capital invested. The lessor receives the invoice and makes payment for it. He also bears the risk of obsolescence. Such type of leasing arrangement is also called µClose-end Lease¶. He simply provides finance for whatever asset the lessee needs. e. Secondly. 75 per cent of the estimated economic life of the asset. (4) At the beginning of the lease. the lessee is said to have received most of the economic benefits and risk associated with the leased property. (2) Operating Lease : It is a type of lease in which asset is leased for a short period and the contract is cancellable after giving notice of a fixed period. the maintenance and other related expenses are normally borne by the lessee. The asset is available for use to the lessee without arranging for the full value of the asset.g. In financial lease. If any of three conditions is met. because it is non-cancellable. It is a very popular method and is a better alternative to raising finance through debentures or bank loan.(2) The lease contains an option to purchase the asset at a bargain price. Under this form of lease. (3) The lease period is equal to or greater than. the present value of the minimum lease payments equals or exceeds 90 per cent of the fair value of the leased property to the lessor.

an operating lease is one which does not satisfy any of the conditions mentioned above in respect of Financial Lease. he continues to use the asset by paying a fixed rental. In other words. a firm or individual who is the owner of an asset sells it to another party and the same asset is taken on lease from that party. Under a sale and lease back lease. the original cost of the asset cannot be recovered in a single lease.lease cancellable on 60-days notice. the shorter the period of the lease. (2) When the lessee is interested in overcoming his problems temporarily. other financial institutions. because a single lease covers a period which is shorter than the useful life of the asset. institutional investors. while the . banks and other specialised leasing companies. Generally the parties interested in purchasing assets under such arrangement are insurance companies. The operating lease is generally preferred under following circumstances (1) When the asset is likely to become obsolete within a short period. Thus the period of such type of lease is shorter than the asset¶s economic life. Similarly lease contracts for computers or office equipments may run for 3 to 5 years. The lessor¶gets the benefit of depreciation deductions. The lessor is also responsible for the insurance and other expenses. the greater will be the lease rentals. In this type of lease. Naturally. The risk of obsolescence remains with the lessor. It is prevalent particularly in those machines where technological changes are rapid. Thus the lessee gets money by selling the asset and at the same time. (3) Sale and Lease Back: This is a very popular method of leasing.

The owner of the asset can realise money by selling the asset and can also continue to use it in his own business. As such contracts were made at market price.A. whatever may be its market value. The lessor gets the benefit of higher depreciation charges. in the budget presented to the Parliament on 22nd July. It is generally used when the asset to be leased is a very costly one and the lessor is not able to provide complete finance. The selling price is usually the fair market price. property taxes. who may be a bank or a financial institution. after the Second World War. (4) Leveraged Leasing: This type of lease arrangement has become popular during last few years. . while the remaining amount is provided by the financier. which he can use in business. 1996. In some cases. He generally provides 25 per cent of the cost of the asset. mainly as a loan. Such arrangement is particularly useful to companies facing shortage of liquidity. Thus three parties are involved (1) the Lessor (2) the Lessee and (3) The Financier. the Finance Minister provided that the depreciation on such asset will be allowed only on depreciated value of such an asset to the original owner.lessee gets the benefit of increased funds. and insurance and lease payments. the lessor used to get high depreciation charges. In most of lease back agreements the lessee is required to pay all maintenance expenses.S. So in India. Such arrangement has become very popular in the U. This type of lease is beneficial to both the parties. the lease arrangement allows the lessee to repurchase the Property on termination of the lease. It is generally a popular method of financing expensive asset. The lessee gets back the price of the asset by selling it-and so his liquidity increases.

such lessors are finance companies. specialised leasing .The position of the lessee is the same as in any other type of lease. As the lessor is responsible for all routine servicing and repairs. the lessee get protection against any major breakdown. This means that the lease period is less than the service. (5) Service Lease: Under this arrangement the lessor provides not only the finance but also undertakes servicing of the asset during the lease period. Generally 25% of the finance is provided by him and the remaining 75% is provided by the financier to whom the asset remains mortgaged. if the lease is cancelled before its term. the service lease can be cancelled | by the lessee by giving notice of a fixed period. But the position of a lessor is different. In case of service lease (1) the maintenance cost is included in lease rent. (3) In most cases. The asset may be purchased by a third party. the lessee may lease directly from a manufacture. trucks and other capital assets requiring maintenance are general leased under contracts that provide maintenance or servicing of the asset during the lease period. office buildings. But provision is made. commercial banks. life of the asset. for penalty. multipurpose industrial building and even complete shopping centres are frequently financed with this method. (2) In such leases. who leases it to the user. This is often done in case of computers and office equipments. the lease period is no sufficiently long to recover fully the original cost of the asset. Retail stores. Computers copiers. He continues to make payment of rent during the period of the lease and continues with the right to use the asset. (6) Direct Leasing: In case of direct leasing. He does not provide 100% finance.

g. because they involve complex problems of law and taxation. it is called International Leasing or Cross-border Leasing. special leasing companies have come into existence to lease such costly machines and equipments. this is not a kind of lease. Of course. are obtained on such lease. The leasing company aids the manufacturer in selling. then it is sales-aid leasing. Some of the latest machines cost crores of rupees. The lessor and the lessee are from different countries. Particularly the costly war equipments like sub-marines etc. the lessors get the benefit of large scale buying from manufacturer and this benefit is passed on to the lessee in the form of low lease rent. India obtained three atomic submarines from Russia on lease. The U. In certain cases.companies and also individuals. Thus in the second case the lease is acquired through the third party. (8) Medical Equipment Leasing: In fact. countries of West Europe. e. Hence. (9) Sales-Aid Leasing: When a manufacturer himself starts a Leasing Company and leases products manufactured by him to customers.S. here again this is not a . There are very few such lease contracts.A. started such leasing arrangements. In addition to the above types of leasing there are certain other types as described below: (7) International or Cross-border Leasing: When a lease agreement is made between citizens of two different countries. Britain. Japan etc. which an individual doctor or a charitable hospital may not afford.. but is a method of giving very costly medical equipments on lease.

Equipment Lease Financing Terms and Features y y y y y y y Benefits of Leasing Equipment for Your Business Ownership of Equipment (under the lease agreement) Tax Implications of Equipment Leasing Purchase Options Goods and Services Tax (GST) and the Provincial or Harmonized Sales Tax Multiple Equipment Purchases Business Equipment That We Finance Benefits of Leasing Equipment for Your Business Working with RBC Royal Bank's account manager and Leasing specialist team. From the above discussion. Financial Lease and Operating Lease.kind of lease. but is an arrangement by which products are leased by the manufacturer. sale and lease back as well as leveraged lease as a part of Financial Lease. Ownership of Equipment (under the lease agreement) . it becomes clear that there are mainly two types of leases vis. we can provide you with a customized analysis demonstrating the potential benefits of leasing versus traditional equipment financing methods. Some authors describe direct leasing.

a purchase option must be calculated and represent a true estimate of the Fair Market value. Tax Implications of Equipment Leasing Lease payments are usually 100 percent tax deductible. RBC Royal Bank owns the equipment and claims the Capital Cost Allowance on any equipment that is leased. In order for your company to deduct lease payments as an expense. You are responsible for the maintenance and insurance costs associated with the equipment that is leased and all warranties are transferred directly to you. Purchase Options The purchase option is a reasonable estimate of the Fair Market Value of the equipment at the option date determined at the beginning of the lease. which allows you to deduct the payments as a business expense. Goods and Services Tax (GST) and the Provincial or Harmonized Sales Tax .As lessor under the equipment lease agreement. Please consult with a tax adviser to determine if equipment leasing is an appropriate form of financing for your company.

software. furniture Resource Equipment: logging equipment. backhoes. However. Much like an operating line of credit. baggage carts . Multiple Equipment Purchases A lease line of credit may be very beneficial to your company in accommodating multiple equipment leases. cranes Business Services and Information Systems: computers. Business Equipment That We Finance RBC Royal Bank offers lease financing for a wide range of equipment in a number of different industries. This enables you to acquire equipment quickly and effectively. lease payments include GST and Provincial or Harmonized Sales Tax. ultrasound machines. drilling equipment Medical & Health Services: x-ray machines. furniture Airline: aircraft. engines. material handling equipment Transportation: tractors. electric shovels. hardware. furnishings. including: y y y y y y y Manufacturing: production equipment. fixtures. trailers. a lease line is an approved lease facility with a preset dollar value. railway cars Construction: loaders.The lessor pays all applicable taxes at the time the equipment is originally purchased. compressors.

passenger vehicles and light trucks . banks are restricted from leasing consumer goods. By leasing equipment. Some leases provide an option to then purchase the equipment at substantially less money when at the end of the term of the lease. Most equipment necessary in commercial businesses today. as it does not limit your ability to borrow from lending sources. Advantages of lease financing: . ploughs. tractors Under the Bank Act. if structured properly. Advantages and Disadvantages of Lease Financing for Businesses Related Articles y y y Equipment Lease Financing Financing Equipment with Business Loans Creating a Capital Equipment List It has become increasingly more common in recent years for companies to lease equipment. can be leased. Each leasing agreement needs to be read through carefully to understand the terms and conditions within said lease. including technical equipment. This is advantageous. as the lease debt does not have to be considered a direct liability on your financial statements. Typically a lease can run anywhere from one to five years.y Agriculture1: combines. you can maintain your credit availability.

As the costs go up over five years. no matter how well the business does. you pay at the same rate monthly. Typically. you still pay the same rate as when you began the lease.y y y y y y y y It offers fixed rate financing. You can keep upgrading. as new equipment becomes available you can upgrade to the latest models each time your lease ends. the lease is not connected to the success of the business. therefore making your dollar stretch farther. much of your technology will be deemed "dinosaurs. (In addition. One of the reasons for the popularity of leasing is the steady stream of new and improved technology.) There is less upfront cash outlay. you do not need to make large cash payments for the purchase of needed equipment. It offers potential tax benefits depending on how the lease is structured. Therefore. it is easier to obtain lease financing than loans from commercial lenders. By the end of a calendar year. For this reason leasing is very advantageous. Leasing better utilizes equipment." The cost of continually buying new equipment to meet changing and growing business needs can be difficult for most small businesses. you lease and pay for equipment only for the time you need it. Leasing is inflation friendly. the lease rate never changes. There is typically an option to buy equipment at end of lease term. .

Failure to do so can prove costly. Disadvantages of lease financing: Leasing is a preferred means of financing for certain businesses. you may have balloon payments. Tax implications also need to be compared between leasing and purchasing equipment. leases may not be terminated before the original term is completed. Although you are not the owner. y y y You have an obligation to continue making payments. you are still responsible for maintaining the equipment as specified by the terms of the lease. The type of industry and type of equipment required also need to be considered.Leasing can also help you enhance your status to the lending community by improving your debt-to-equity and earnings-tofixed assets ratios. For example. deferred payments or even seasonal payments. step up or step down payments. the renter is responsible for paying off the lease. There are a variety of ways in which a lease can be structured. This provides greater flexibility so that the lease is structured to best accommodate the individual cash flow requirements of a specific business. This can pose a major financial problem for the owners of a business experiences a downturn. However it is not for everyone. You have no equity until you decide to purchase the equipment at the end of the lease term. Therefore. Types of leasing options: . at which point the equipment has depreciated significantly. Typically.

At the end of the term. you have a residual position and an option to purchase the equipment at fair market value. and is fully tax-deductible. depending on the economic life of the asset Tax Lease ± Also known as an operating lease. There is no obligation to buy the equipment at the end of the lease term TRAC Lease (Terminal Rental Adjustment Clause) Designed for commercial vehicles.Lessee owns the equipment and therefore takes depreciation. Payment is considered rental expense. fixed-rate financing.y y y y Capital . Offers 100%. this lease has the advantages of a Tax Lease.Provides a financing option to meet specific needs for government entities . not a loan payment. with terms ranging from two to 10 years. plus a fixed-purchase option at the end of the term Municipal Leases .

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