Types of Finances

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Types of Finances

Venture Capital : Venture capital is capital typically provided by outside investors for financing of new, growing or struggling businesses. Venture capital investments generally are high risk investments but offer the potential for above average returns.
A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.Because of the strict requirements venture capitalists have for potential investments, many entrepreneurs seek initial funding from angel investors, who may be more willing to invest in highly speculative opportunities, or may have a prior relationship with the entrepreneur.Furthermore, many venture capital firms will only seriously evaluate an investment in a start-up otherwise unknown to them if the company can prove at least some of its claims about the technology and/or market potential for its product or services. To achieve this, or even just to avoid the dilutive effects of receiving funding before such claims are proven, many start-ups seek to self-finance until they reach a point where they can credibly approach outside capital providers such as VCs or angels.
This practice is called "bootstrapping".
In industries where assets can be securitized effectively because they reliably generate future revenue streams or have a good potential for resale in case of foreclosure, businesses may more cheaply be able to raise debt to finance their growth. Good examples would include asset-intensive extractive industries such as mining, or manufacturing industries
Angel Investors Individuals that provide venture capital to seed or early stage companies.. Business angels can usually add value through their contacts and expertise

Microfinance : Microfinance is a term used to refer to the activity of provision of financial services to clients who are excluded from the traditional financial system on account of their lower economic status. These financial services will most commonly take the form of loans (see microcredit) and micro-savings, though some microfinance institutions will offer other services such as micro-insurance and payment services. Microcredit is the extension of very small loans to the unemployed, to poor entrepreneurs and to others living in poverty who are not bankable. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimum qualifications to gain access
to traditional credit.
Microcredit is a part of microfinance, which is the provision of financial services to the very poor; apart from loans, it includes savings, microinsurance and other financial innovations.
Microcredit is a financial innovation which originated in developing countries where it has successfully enabled extremely impoverished people (mostly women) to engage in self-employment projects that allow them to generate an income and, in many cases, begin to build wealth and exit poverty. Due to the success of microcredit, many in the traditional banking industry have begun to realize that these microcredit borrowers should more correctly be categorized as pre-bankable; thus, microcredit is increasingly gaining credibility in the mainstream finance industry and many traditional large finance organizations are contemplating microcredit projects as a source of future growth.
Women have become the center focus of many microcredit institutions and agencies worldwide. The reasoning behind this is the observation that loans to women tend to more often benefit the whole family than loans to men do. It has also been observed that giving women the control and the responsibility of small loans raises their socio-economic status, which is seen as a positive change to many of the current relationships of gender and class. However, there is an ongoing debate about whether microcredit loans have the power to truly change established political and economic relationships.
The primary differentiator between microfinance and the conventional credit disbursal mechanism lies in the "joint liability" concept. A group of individuals, almost always women, form an association to apply for loans. For instance, the groups in India are called "Self Help Groups' (SHG). All members of the association undergo a training programme on the basic procedures and system requirements.
Loans to individuals within the group are approved by its other members; the group is likewise jointly responsible for its repayment. Recently many institutions have abandoned strict joint liability, giving the groups an important, but largely social function. A prime example is the Grameen Bank. To minimise the financial burden, there are upper limits on the amounts lended and lower limits on the duration of repayment.

Bonds : A bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. Other stipulations may also be attached to the bond issue, such as the obligation for the issuer to provide certain information to the bond holder, or limitations on the behavior of the issuer. Bonds are generally issued for a fixed term (the maturity) longer than one year.
A bond is mostly just a loan, but in the form of a security, although terminology used is rather
different. The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest. Bonds enable the issuer to finance long-term investments with external funds. Debt securities with a maturity shorter than one year are typically bills. Certificates of deposit (CDs) or commercial paper are considered money market instruments.

Non Banking Financial corporations : Non-bank financial companies (NBFCs) also known as a
non-bank or a non-bank bank, are financial institutions that provide banking services without meeting the legal definition of a bank, i. e. one that does not hold a banking license. Operations are, regardless of this, still exercised under bank regulation. However this depends on the jurisdiction, as in some jurisdictions, such as New Zealand, any company can do the business of banking, and there are no banking licences issued.
Non-bank institutions frequently acts as suppliers of loans and credit facilities, supporting investments in property, providing services relating to events within peoples lives such as funding private education, wealth management and retirement planning however they are typically not allowed to take deposits from the general public and have to find other means of funding their operations such as issuing debt instruments. In India, most NBFCs raise capital through Chit Funds

Mutual Funds : A mutual fund is a form of collective investment that pools money from many
investors and invests the money in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value (NAV), is calculated daily based on the total value of the fund divided by the number of shares purchased by investors.

Insurance companies : Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of catastrophic financial loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium and duty of care.

Private equity : Private equity is a broad term that refers to any type of equity investment in an asset in which the equity is not freely tradable on a public stock market. Passive institutional investors may invest in private equity funds, which are in turn used by private equity firms for investment in target companies. Categories of private equity investment include leveraged buyout, venture capital, growth capital, angel investing, mezzanine capital and others. Private equity funds typically control management of the companies in which they invest, and often bring in new management teams that focus on making the company more valuable.