India has a diverse financial sector that is rapidly expanding, both in terms of established financial services firms' robust growth and new entrants into the market. Commercial banks, insurance firms, non-banking financial companies, co-operatives, pension funds, mutual funds, and other smaller financial institutions make up the sector. New businesses, such as payment banks, have lately been allowed to be established by the banking regulator, expanding the types of entities that operate in the industry. However, India's financial sector is primarily a banking sector, with commercial banks accounting for more than 64% of the financial system's total assets.

The Indian government has implemented a number of reforms to liberalise, regulate, and improve this business. The government and the Reserve Bank of India (RBI) have made a number of steps to make it easier for Micro, Small, and Medium Enterprises (MSMEs) to obtain financing (MSMEs). These initiatives include establishing a Micro Units Development and Refinance Agency, establishing a Credit Guarantee Fund Scheme for MSMEs, releasing guidelines to banks about collateral requirements, and establishing a Credit Guarantee Fund Scheme for MSMEs (MUDRA). India is unquestionably one of the world's most lively capital markets, thanks to a concerted effort from the government and the business sector.

In India a person can enter into financial market through many form of business like;

  1. Nidhi Company
  2. Non Banking Financial Company
  3. Full Fledge Money Changer
  4. Payment wallet
  5. Asset Reconstruction Company
  6. Collective investment scheme
  7. Merchant Banking
  8. Micro Finance company
  9. Alternate Investment fund
  10. Infrastructure Investment Fund

Nidhi Company

A company which has the object of cultivating the habit of thrift & savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Govt.

RBI is empowered to issue directions on Nidhi Company in matters relating to their deposits acceptance activities. However, RBI has exempted the notified Nidhis from the core provisions of the RBI Act and other directions applicable to NBFCs. Nidhi Company is an ideal entity to take a deposit from and lend to a specific group of people.

Benefits

  1. No RBI Regulation

By its nature of the activity, Nidhi Company falls under the NBFC category but does not require approval from RBI. These companies obey Nidhi Laws, released in 2014 with respect to the company's operation and function. RBI has exempted Nidhi Company from observing strict compliances, so you don't have to be in a rush-n-hush as RBI won't bother if you start a Nidhi Company in India.

  1. Can easily lend and borrow funds fund from its member

The main objective of Nidhi company is to promote the habit of saving amongst its member which means it is certain and going concern business as the members will not stop savings anytime.

  1. Low rate of interest

One can borrow money as a member at a minimum rate, compared to the rate at which banks lend money. This can be a big advantage in times of need, as different individuals in the mutual benefit society would probably need funds at different times.

  1. Encourage Saving

It encourages all its members to save money and encourages a sparing lifestyle. After all, a Nidhi Company is a mutual benefit society in which members can lend or borrow money, and accept financial assistance among themselves.

For Operating this business you need to incorporate a company under company’s act 2013 with objective of cultivating the habit of thrift & savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Govt.

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Non Banking Financial Company (NBFC)

NBFCs or Non-Banking Financial Institutions are companies registered under the Companies Act, 2013 engaged in the business of providing financial services. They are financial intermediaries registered as companies, indulged in various financial services that range from providing loans and advances, accepting deposits, delivering credit, acquisition of shares, stocks, debenture, bonds, securities, hire-purchase insurance. and play an pivotal role in financial development of our economy. While the Indian financial system is dominated by banks, NBFC’s increase the financial inclusion of the corporate sector, facilitate credit to the unorganized sector & small and local borrowers by supplementing and posing competition to the banking sector in India.

Benefits

  1. NBFCs recently gained a lot of popularity in between institutional investors, because NBFCs provides semi-rural and rural India with the access to credit, as the traditional banks have been traditionally poor in reaching them. Some advantages are as follows:
  2. Provides loans and credit facilities- Growing number of businesses and startups are willing to take a business loan from NBFCs other than Banks due to quicker processing, competitive interest rates, and availability of loans for those with poor credit history.
  3. A hard copy of the above-mentioned application along with demanded documents and enclosures to the concerned Regional Office of the RBI.
  4. Supporting investments in property- Investing in property with NBFCs is advantageous due to flexible rates, easy repayment, acceptable property collaterals with quick and easy processing
  5. Trading money market instruments- Interest rates on money market instruments such as commercial paper id soft with NBFCs, though the base rate of banks stayed unchanged.
  6. Funding private education- Flexible rates and easy return make it convenient.
  7. Facilitates retirement planning
  8. Advise companies in merger and acquisition
  9. Wealth management such as managing portfolios of stocks and shares

For operating this industries an entrepreneur need to incorporate the company and get it registered under RBI with proper NBFC license. 

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Full Fledge Money Changer

An authorized company that is authorized to purchased foreign exchange from non-residents visiting India & residents & to sell foreign exchange for private & business travel purposes only is Known as Full fledged money changer (FFMC).

As per section 10 of (FEMA) Foreign Exchange Management Act 1999, Reserve Bank authorises Authorised Money Changer (AMC) who can undertake the money-changing business. Without possession of a valid money changer’s licence issued by RBI, no person shall carry on money changing business.

Full Fledged Money Changers License or a FOREX Licence is mandatory for all and any kind of currency exchange business in India. Guidelines for Full Fledged Money Changer License or Authorised Money Changers (AMC) are laid down by the Reserve Bank of India under Section 10 of the Foreign Exchange Management Act, 1999

Benefits

  1. Full-fledged money changer (FFM)C gives the facility of bringing in and taking out of the foreign exchange
  2. Full-fledged money changer (FFMC) purchases foreign currency notes, coins and travellers' cheques from residents as well as non-residents. They may sell Indian Rupees to foreigners (tourists or visitors) against International Credit or Debit Cards and take prompt steps to obtain reimbursement through legal and normal banking channels.
  3. Certificate of encashment may be issued by Full fledged money changer (FFMC)  when asked for in cases of purchases of foreign currency notes, coins and travellers' cheques from residents as well as non-residents
  4. Full-fledged money changer (FFMC) offers sales facilities of foreign exchange
  5. Transactions relating to foreign currency notes and travellers' cheques will be done by Full fledged money changer (FFMC) at rates of exchange determined by market conditions and in alignment with the ongoing market rates.

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Payment Wallet

Mobile payment wallets are payment services that are governed by financial regulations and done from or via a mobile device. Mobile money, mobile money transfer, and mobile wallet are all terms used to describe a mobile payment wallet.

Mobile payment wallets are payment services that are governed by financial regulations and done from or via a mobile device. Mobile money, mobile money transfer, and mobile wallet are all terms used to describe a mobile payment wallet.

In India, the Reserve Bank of India (RBI) is the regulatory and issuing authority for payment wallet licences or prepaid payment wallet licences.

RBI is in charge of providing guidelines and rules for prepaid payment wallets, as well as issuing incense.

Types of prepaid

  1. Closed System Payment
  2. Semi- closed System
  3. Open System

       Benefits:

  1. Way to enter into financial business in India
  2. One of most trending and upcoming business in market
  3. It is safe and secure mode for making payment on various platforms
  4. It is RBI licensed business

Asset Reconstruction Company

The Asset Reconstruction Business, popularly known as 'ARC,' is a securitization company that was founded under the Companies Act of 2013. In compliance with the provisions of Section 3 of the SARFAESI Act, an ARC must be registered with the RBI. Asset Reconstruction Companies (ARCs) are specialised financial entities that buy poor loans and non-performing assets (NPAs) from banks and financial institutions in order to improve the balance sheet and liquidity of the banks and financial institutions.

When the ARC purchases a bank's or financial institution's financial assets, it becomes the owner of the asset and assumes the role of the lender bank or financial institution. Following that, it proceeds with the recovery procedure as if it were the original lender, in compliance with SARFAESI and other applicable statutes.

Assets Reconstruction Company(ies) must make an application for registration with the Reserve Bank within six months of the Act's commencement. Any company cannot conduct asset reconstruction or securitization business until it receives a certificate of registration or, in the case of a rejection of an application for registration, notification of the rejection.

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Collective investment scheme

A Collective Investment Scheme (CIS) is an investment scheme in which multiple people pool their money to invest in a certain asset(s) with the intention of sharing the profits gained from the investment according to an agreement signed before the money was pooled.

A collective investment scheme is an amount or money obtained by an investor by a corporation that uses these pooled contributions under a scheme or arrangement with the goal of collecting profits, income, or property and is managed on behalf of the investors.

Investors do not have control over the management and operation of such a plan or arrangement.

Any unregistered scheme or arrangement that pools funds under this, with a corpus amount of one hundred crore rupees or more, is regarded to be a collective investment scheme under SEBI ordinance 2014.

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Merchant Banking

Merchant banker is a business that provides both consulting and banking services. The SEBI (merchant banker) rule of 1992 governs merchant bankers' activities in India.

According to SEBI regulations:

Any person who is involved in the issue management business, either by making arrangements for the purchase, sale, or subscription of securities, or by serving as a manager, consultant, or providing corporate consulting services in respect to such issue management.

It may provide some services similar to investment banks, but it cannot provide conventional banking services. These are specialised bankers who accept and underwrite equity or bond issuance, as well as syndicate them.

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Micro Finance company

The organisation that is registered under the Companies Act of 2013 or 1956 and facilitates financing activities such as loans, savings, and insurance to the needy or those who are unable to obtain a loan from banks or other financial institutions due to a lack of proper facilities and documentation. These businesses can be described as a collection of banking services aimed at assisting low-income people with their financial needs.

Small companies or low-income people can get a loan or credit from MFI up to 50,000 in the rural region and 1.25 lakh in the urban area. The two most perfect types of business that can run as Micro Finance Institutions are Non-Banking Finance Companies (duly registered with RBI) and Section 8 Companies (no registration with RBI required) (MFIs)

 

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Alternate Investment fund

Any fund established or incorporated in India that is a privately pooled investment vehicle that collects funds from sophisticated investors, whether Indian or foreign, for investing in accordance with a defined investment policy for the benefit of its investors is referred to as an Alternative Investment Fund or AIF.AIF does not include funds regulated by the SEBI (Mutual Funds) Laws, 1996, the SEBI (Collective Investment Schemes) Regulations, 1999, or any other Board regulations governing fund management.

These regulations may be called the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. “Venture capital fund” means a fund established in the form of a trust or a company including a body corporate and registered under this regulation which— (i) has a dedicated pool of capital; (ii) raised in a manner specified in the regulations. The Securities & Exchange Board of India (‘SEBI' or ‘Board') approved a proposal to frame SEBI (Alternative Investment Funds) Regulations, 2012 and notified the SEBI (Alternative Investment Funds) Regulations, 2012 on May 21, 2012, with the aim of ensuring systemic stability, increasing market efficiency, encouraging the formation of new capital, and protecting the interests of investors.

AIFs (Alternative Investment Funds) have a number of advantages. In comparison to typical investment possibilities, there is more freedom and breadth.

  • AIFs have an extremely favourable risk-to-reward ratio.

 

  • AIFs offer higher fund diversification and reduced correlation.

 

  • Provides a variety of investment options, including unlisted firms and high-yielding ETFs.

 

  • AIFs are structured products that come with a lot of risk reduction. As a result, HNIs are more likely to invest in AIFs.

 

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Infrastructure Investment Fund

An Infrastructure Investment Trust (InvIT) is a mutual fund-style collective investment vehicle that allows private and institutional investors to engage directly in infrastructure projects in exchange for a modest percentage of the revenue.

The Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (SEBI InvITs Regulations) controls Infrastructure Investment Trusts (SEBI).

SEBI also provided detailed regulations for the public issue of units of InvITs in its circular CIR/IMD/DF/55/2016 dated May 11, 2016.

The primary purpose of InvITs is to encourage more individuals to participate in India's infrastructure industry, and they may be tailored to match any situation. A technique like this is typically used to pool money from a lot of people and invest it in income-producing assets. The cash flow generated is distributed to investors as dividend income. When compared to Real Estate Investment Trusts, or REITs, both have a similar structure and function.

Benefits

  1. Diversification
  2. Obtains a steady income
  3. Liquidity
  4. Asset Management of height quality
  5. Investors

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