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SOURCES OF

FINANCE
SOURCES OF FINANCE

ACCORDING
ACCORDING ACCORDING TO
TO ACCORDING TO
TO SOURCE OF
MODE OF OWNERSHIP
PERIOD FINANCE
FINANCING

•INTERNAL SOURCES
•OWNED CAPITAL •EXTERNAL SOURCES
SHORT TERM •EXTERNAL FINANCING
•BORROWED CAPITAL
MEDIUM TERM •INTERNAL FINANCING
LONG TERM •LOAN FINANCING
CLASSIFICATION OF CORPORATE SECURITIES

OWNERSHIP CREDITORSHIP
SECURITIES SECURITIES

•DEBENTURES

ORDINARY OR PREFERENCE SHARES NO PAR STOCK


EQUITY SHARES
FEATURES OF EQUITY SHARES

 Maturity
 Right to income
 Claim on assets
 Right to control
 Pre-emptive Rights
 Limited Liability
PREFERENCE SHARES

 Preference over the payment of dividend


 Preference in the payment of capital at the time of liquidity
TYPES OF PREFERENCE SHARES

 Cumulative preference shares


 Non-cumulative preference shares
 Redeemable preference shares
 Irredeemable preference shares.
 Participating preference shares
 Non-Participating preference shares
 Convertible preference shares
 Non-Convertible preference shares
FEATURES OF PREFERENCE SHARES

 Maturity: To Redeem preference shares : the following conditions


are to be fulfilled: 1) must be fully paid
2) either from accumulated profits or fresh issue of shares.
3) if from accumulated profits capital redemption reserve
is created.
4) if at premium then either out of accumulated profits or
share premium account
 Claim on income.
 Claim on assets
 Control
DEBENTURES

 An acknowledgement of Debt.
 A long term promissory note for raising loan capital
First and
simple Convertible Second Deb.
Secured or
Mortgaged Bearer registered

TYPES OF DEBENTURES

Redeemable Irredeemable
Zero Coupon
Zero Interest Bonds
Bonds
Sweat equity
 It must be of class of shares already issued.
 It must be authorized by a special resolution in
general meeting.
 The sweat shares can be issued only one year after
the company is entitled to start its business.
 Equity shares must be listed on a stock exchange.
 A subsidiary of an Indian company can issue sweat
equity to Indian employees even if the sub. Is
incorporated out of India.
 All the limitations, restrictions and provisions relating
to equity shares shall be applicable to the sweat
equity.
LISTING OF SECURITIES 

Listing means admission of the securities to dealings on


a recognized stock exchange. The securities may be
of any public limited company, Central or State
Government, quasi governmental and other financial
institutions/corporations, municipalities, etc.

The objectives of listing are mainly to :


 provide liquidity to securities;
 mobilize savings for economic development;
 protect interest of investors by ensuring full
disclosures.
LOAN FINANCING

Indigenous Accrued
bankers Advances
Expenses.
Trade Installment
Credit Credit Factoring

SHORT TERM LOANS AND CREDITS

Commercial Commercial
Paper banks Public
Deffered Deposits
Expenses
PUBLIC DEPOSITS
Govt. Regulation on Public Deposits
2. Ceiling on Deposits
3. Maturity of Deposits
4. Form and Particulars of Advertisement.
5. Form of Application for Deposits.
6. Furnishing of Receipts to Depositors.
7. Register of Deposits.
8. Interest on Deposits.
9. Ceiling on Brokerage
10. Repayment of Deposits
11. Maintenance of Liquid Assets.
12. Return of Deposits.
Evaluation of Public Deposits

 As a Source of Corporate Finance


 Cost of Funds
 Availability of Alternative Sources of Finance
 Convenience in Raising Funds
Advantages of Public Deposits

 It is a less costly method for raising short and medium term


funds for meeting working capital requirements.
 More simple, more convenient and less bothersome
 As there is no need of creation of any charge on the assets
of the company for raising funds through it.
 A company can take advantage of trading on equity as the
maturity period of deposits and the rates of interests are
fixed.
 A company can avail this source when other sources are not
available
INVESTOR’S POINT OF VIEW:

 High Rate of Interest paid by the companies

 Maturity period