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A financial intermediary or intermediator is a financial institution.
It may be a bank, building society, insurance company, investment bank or pension fund.
A financial intermediary offers a service to help an individual or firm to save or borrow money.
A financial intermediary helps to satisfy different needs of lenders and borrowers.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
For example, if you need $/₹/Rs 5,00,000 to borrow, you should try to find out an individual who wants to lend this amount
But, this will be very time consuming and you will find it very difficult.
Therefore, rather than look for individuals to borrow a sum, it is more efficient to go to a saving and loan cooperative (a financial intermediary) to borrow money.
Cooperative raises funds from its members.
Cooperative also takes loan from commercial bank.
It lends out to those members who need it.
Cooperative takes security deposit to provide loan.
It charges more service charge and interest on loan than commercial banks.
Role and function of financial institutions in financial market
The main functions of the financial institutions are as follows:
a. |
Financial institutions accumulate the savings from several small investors and invest the same in the security. |
b. |
They offer margin lending opportunity to the prospective customers to purchase new securities from the market. |
c. |
They bring funds suppliers and fund borrowers together in single platform. |
d. |
They play vital role in transferring fund from one entity to another entity through financial market. |
e. |
Non-depository financial institutions like pension funds play important role in financial intermediary. |
f. |
They allocating saving into investment. |
g. |
Providing financial services. |
h. |
Ensuring satisfaction, return and minimizing the risk of loss. |
i. |
Helping cost of living raising funds. |
Financial Intermediaries
Depository institutions |
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Non-depository institutions |
Commercial banks |
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Insurance companies |
Development banks |
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Pension fund |
Finance companies |
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Mutual fund |
Saving and loan cooperatives |
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Accounting Equation |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Final Account: Class 11 |
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Adjustment In Final Account |
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Capital and Revenue |
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Single Entry System |
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Non-Profit Organization (Non-Trading Concern) |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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Pension funds are retirement plans funded by corporations or government agencies for their workers.
Pension funds make a periodic deposit and provide benefits to associated employers on the retirement.
The pension funds basically invest in stock, bonds and other type of long-term securities including real estate.
The pension fund has not grown smoothly at private level.
There is no specialized pension fund company in Nepal.
Recently, Citizen Investment Trust (CIT) manages pension funds of public sectors companies in Nepal.
Citizen Investment Trust (Nagarik Lagani Kosh), a statutory institute under Citizen Investment Trust Act, 2047, has ownership of Nepal Government as a public financial organization.
It was established on 18th March 1991 (4th Chaitra 2047 B.S.) as an autonomous body.
Formally it has been operating its activities since 15th January 1992 (1st Magh 2048).
It operates and manages various types of retirement schemes and programs.
It operates various unit schemes and mutual fund program for both domestic and foreign investors to encourage for saving in order to expand fund.
It increases the investment opportunities along with the dynamic development of the capital market to contribute economic development of the nation.
CIT has successfully completed its two decade challenging years with the simultaneous growth of dynamic capital market in Nepal.
At present, it has been launching various types of voluntary retirement schemes (Pension funds, Gratuity funds etc) and mandatory insurance fund programs on the basis of fully funded and individual account.
CIT encourages the long-term saving mobilizations by operating Employee Savings Growth Retirement Fund (ESGRF), Insurance Funds for Civil Service’s employees, Teachers, Nepal Army’s Employees, Nepal Police’s Employees, Armed Police Force’s Employees and others institute’s employees to help the depositors for saving to expand fund and increase opportunities to investment along with the development of the capital market.
The head office of CIT is at Newbaneshor, Kathmandu, Nepal; branch offices are in Pokhara and Biratnager.
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Click on link for YouTube videos: |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Final Accounts |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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Citizen Investment Trust (CIT) operates different functions.
Out of them, they care categorised into three major functions; they are:
1. Service Mobilization
2. Investment and Financing
3. Capital Market service
They are explained below in different headings:
CIT operates different kind of retirement scheme; out of them some are as:
(a) Gratuity funds.
(b) Nepal Government Employee’s Insurance funds.
(c) Teacher’s Insurance funds.
(d) Employees Saving Growth Retirement funds.
(d) Pension Funds etc.
CIT operates various unit and mutual fund schemes to both domestic and foreign investors.
Mutual fund is common investment in certain earnings like bonds, debentures, preference shares, high interest fixed deposits etc.
It is also a kind of retirement schemes.
CIT operates two types of investor’s account scheme.
Investor’s Account Schemes are carried out in two different models.
The first model is operated under the approach of retirement schemes.
The second model operates under only the concept of Investment Trust i.e. ‘Portfolio Management Services’.
However, both the schemes are conducted according to investment trust concept.
CIT charges a minimum amount of service charge as management fee on the management of the funds.
Keep in Mind
Institutions can also participate in this scheme making their long-term liabilities other than pensions/gratuities funds funded. |
The objectives of this scheme are to facilitate institutions to make their liabilities like welfare funds, insurance funds and similar nature of other funds fully funded. |
The procedures for participation and operation are the same to the Pension/Gratuity Schemes. |
Under the investment and financing service, CIT provides various funds services; they are:
Invest in corporate shares, debentures and government securities.
Provide term loan and bridge finances to corporate bodies.
Provide credit for purchasing shares
Under the capital market service, CIT provides two major services; they are trustee services and corporate financial services.
Under the trustee service, CIT provides various funds services; they are:
Debenture Trustee services
Escrow Agent services
Custodian services
Other Trustee services
Under the corporate finance service, CIT provides various finance services; they are:
Public issue management
Underwriting and syndication of underwriting public issue
Market making of corporate and government securities.
Consultancy services:
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