Fund Management – From Different Perspectives

 

Fund management is taken up differently by different people. It all depends on what the organization or the company is, what are their services to the general public and the type of business they are into. It is the fund manager who decides on how this has to be done and it is his decision regarding the style or approach of fund management. Let`s take a look at few of these approaches and try to engage one of them for our funds.

Styles of fund management

  • Growth style – this style is mainly used when fund managers believe in high potential assets and stocks. This style has a greater emphasis on the future earnings and to gain this, the fund managers are ready to even spend more as premium on securities or assets that are expected to grow in future. Such investments or huge expenditure in the name of premium are paid by companies mainly who try to attract customers with such retained earnings that would be shown big in the final statement of the company`s financial report which is nothing but the balance sheet. This style is expected to give good and satisfying results when the market is in a bullish trend.
  • Growth at reasonable value– this is a little different from the above style wherein investments or expectations are restricted to only a limited number of securities unlike the above one, the ones that are performing well in the market. These are restricted to specific sectors, the capabilities of those that are expected to grow and increase during specific conditions and situations in the market.
  • Value style– this is an approach that is taken by the fund managers with regards to those securities that are of less importance to the investors. Generally, there are few securities in the market that are not very popular due to their low value and returns. The fund managers who are interested in this approach generally invest in such securities and try and wait for the right time to earn from them when the market favors them.
  • Fundamental style – this is the basic fund management style which is mainly adopted by the mutual fund accounts who try to cautiously make their moves in the market expecting a decent return on the investments. Here the investments are diversified and hence there are a lot of securities here. The changes in the market are constantly monitored

The pros and cons of taking capital budgeting decisions based on payback period

 

Capital budgeting decisions are not straightforward. But the more you ponder over the strategies you adopt and fine tune them the better would the outcome be. Capital budgeting can be done in various ways. Different investors follow different strategies and use different tools in order to make decisions. Payback period based capital budgeting decisions are very popular. There are ups and downs to using this method in the evaluation.

What is a payback period based decision?

Given the simplicity of this method, it has been very popular. As the name indicates this is a strategy that relies on the evaluation of the payback period. It is the study of the duration required for the investor to get back the capital that is being invested. To know how much time it would take to earn back what was invested the investor should also understand the cash flow expected annually.

Benefits of Payback period based calculations

It is one of the most direct perspectives when anyone makes an investment. If you are a capital investor irrespective of the sum you invest you would be very much keen on knowing when you would be able to draw out the capital that you invest. This would be the simplest indication of the kind of growth to expect from the business.

When we talk investments most investors prefer a suitable amount of liquidity in all their investments. After all, money that is not at your disposal when you really need it might not be useful. The ease of recovering the investment indicates a good liquidity in the investment.

This direct method also acts as a quick way to compare the available options at hand. So as a capital investor if you have a handful of projects that require the same investment you would be able to pick one among them by comparing their payback periods.

Limitations

The long-term scenario of the cash flow is not studied. Cash flow pattern and volume increase as the company grows. Payback period based decisions would not take into account this pattern of growth and the cash flow that can be expected after the investment is recovered. To be specific the value of money keeps changing. The cash flow that occurs when the company just starts out is very important. There are some businesses that make profits in the early years while some that take a lot of time to stabilize and fetch better returns.

 

How Are Business Operations Affected By Stock Market Fluctuations?

Several ordinary people wake up every day to read the newspapers or online news, specifically to check if their favorite company is doing well or not. This is not because they are loyal customers to the company’s products but because their loyalty has been built and developed due to the shares bought by them in the respective companies. As long as the share value is high and increasing, customers are happy and the reverse happens when the share price goes down.

Here is a look at how these businesses are affected even by the slightest change in the stock market.

  1. It influences the spending behavior of consumers when the stock market is doing well. When the share value of the stocks is increasing, consumers get a feeling that they are rich and as a result, they tend to spend more, even in goods that are not of use to the present situation. As a result, businesses perform well and earn increased revenue.

  2. In addition, it influences the spending behavior of consumers when the market is dull. When the stock price is declining, consumers feel that they are losing a lot of money and as a result, they curb their spending habits. This greatly affects businesses as people control their buying of essential items and totally avoid buying the non-essential items such as luxury goods or an additional phone/car.

  3. It also provides an opportunity to earn greater returns on investment on the capital costs involved. An increase in the stock market value will result in an increase in the value of all assets including fiat money and universal currencies. This indirectly allows businesses to generate more capital by issuing more shares or stocks and to use the existing stock as an advantage/leverage over their competitors. Additionally, the same approach can be used to acquire underperforming competitors.

  4. Additionally, it is a perfect tool to predict and foresee economic instability. Although the deductions are not always accurate, it provides some great information as to the present and future stock market trends based on historical data. One common application of this that it can be effectively used to predict future recessions and market crashes.

  5. Moreover, it determines the credit flexibility in an economy. It is all about credit and borrowing these days. This will indirectly depend on the interest rates of the amount borrowed, which is directly depended on the market’s rise or fall, in addition to customer’s credit history. When the market is declining, it creates an air of uncertainty, which increases the risk involved in the cash flows. This increase in the risk will increase the interest charged on the amount borrowed and as a result, make credit an expensive affair.

How Fintech ChangedThe World?

The current era of technology

Being part of a very technology build atmosphere we get to see electronic transactions everywhere around us. People from every part of the world are able to come together with this kind of a setup where there is business and online transaction in every aspect. The recent successful one has been the Fintech revolution and it has been making life easier for business people.

Making safe and secure payments are key to a successful business and this has been accomplished so well by the Fintech startups. These were mainly for the lesser privileged people in the society who were deprived of this technology usage. Now we can see everyone using the online banking, investing and insurance sitting in their homes. The reach of this technology has been multi-level targetted and global.

How does technology invasion happen?

A person from one country is able to shop his favorite products from other countries. Cash transfers globally and products which are possible only with the introduction of technology and the smartphone device which has taken these solutions to a higher level.

Working on a well-established platform this service provides more than expected technology satisfaction to its users.hence it has been able to grow at a very fast and quick pace.It has set up merchant accounts and payment gateway facilities based on the business it deals with. According to each business it works with it caters the required and suitable facility in the easiest and simplest and affordable methods. There are no huge costs or much of technology to be upgraded for this purpose.

When considering the safety environment, it asks for all the personal data of the customers and still maintains these very privately and keeping such information from being misused or under fraudulent misuse.all these factors have contributed widely to its success and the place it has reached today.

The path to success

Must say. This can come through a challenging route to reach this successful position in the market where there are many financial institutions which are well-established and long-standing.when customers and merchants need to go in a united mode towards business deals and have easy and fast cash transfers without much effort and also much costs it takes a big task to set up such a facility. The Fintech startups have come across all such tests of patience and have been competent enough to succeed the others in this industry.

To mention in a positive note as an end to this discussion is that the Fintechrevolution has been a successful startup in changing finance for the better future.

Inflation Affects Everything

Any kind of trade or for that matter life itself now depends on a monetary system. Historically people followed a barter system and the price of any product or service depended on its demand. People used to trade spices, gold, salt and silk and so many other commodities. Everything was available and limited trade happened to a certain extent.

What changed the face of business

With the industrial revolution and mass production of goods and paper and metal, currencies brought about a complete sea change in the way business happened around the world. People would charge more for stuff that was more in demand with less supply. Slowly this is the pattern that gave rise to inequality and imbalance in the financial position of people and countries. This has also given rise to another prominent phenomenon called the inflation.

Inflation is part of the economy

Different parts of the world and various countries have different types of currencies. Inflation is the increase in the rate of prices of goods and services that can be purchased using a currency. Whenever there are political and natural events that change the prices of goods the rate of inflation also changes. Many times inflation is good for the economy. But most of the times, inflation reduces the power of money as the purchasing power of a currency is reduced and people may feel the pinch due to the cascading effect.

Spending patterns change with inflation

The increased prices of goods and services affect the cost of living directly. This has a domino effect on the other areas of spending. For example, if the prices of basic essentials go up then a family cannot spend much on other aspects, like education, entertainment, and health. A family will restructure its expenditure in such a way that the basic essentials, like food. healthcare and education are not affected much. The priorities change with every inflationary change.

All this has an impact on the economy of the country. The financial budget of a country depends on the taxes and bonds and other savings of its people. But if the common citizen reduces his savings in bonds and reduces spending on goods then the taxes and other income would also correspondingly reduce. The borrowing capacity, interest yields and the corporate taxes, everything depends on inflation and gets affected. Inflation to a certain extent is important to balance the demand and supply curve in the industry. But when it continues to rise and the majority of people find inflation affecting their lives then it becomes a matter of concern. That is why governments take the help of financial experts and economists to formulate helpful economic policies.

A True Example Of Microfinance-Led Development

The villagers were struggling to make the two ends meet and even a three-time meal was a luxury for them. They had to go through endless turmoil to get enough drinking water and to satisfy their hungry babies. Most of them had shelters, but they could be hardly called as secured shelters since the wooden planks and sand blocks gave more than enough room for harsh sun rays and dust to enter inside. Rains were more or less absent; hence they did not have the fear of floods or getting rain-drenched in these crumbling constructions.

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The main occupation of the villagers was farming, poultry, and animal products and with the drought-like condition prevailing since ages, many had migrated to towns in search of other labor-intensive jobs. The leftover population was largely composed of women and children and the skin and boned animals showed the pathetic state of the village. Their traditional occupation of producing food for the human population was not giving anything even to them.

This was when the government-sponsored scheme of providing microfinance to dying businesses and developing rural households came to their rescue. The scheme worked through volunteers and trained farmers.

The entry of new life and new income

The scheme started off by making a census of the population, per capita income, crops cultivated per household, livestock and the individual as well as total yield. The poor picture demanded extensive and quick actions and the first job was to bring in the resources. Water channels were cut and rainwater harvesting helped in the initial steps.

Next step was the most important. Selected individuals from each family were given financial aids, a running bank account and classes from experts on how to spend, save and earn money using agriculture. High-yielding methods were taught and representatives were appointed for door-to-door delivery of funds, materials, and collection of finished products.

In many houses, group efforts were encouraged, where the skills of different farmers cohesively brought diverse products with higher income.

In a short span of six months, the per capita income of each family rose by almost three-fold and sustainable farming became possible with continued monetary support from micro financing institutes. The once arid land has become green, fertile producers of essential food commodities for the bigger human population dwelling in the cities.

Now, the villagers are proudly calling themselves as the microfinance management experts and portray a real example of how microfinance, along with hard work and planning can bear unmatched fruits.

Tapping Opportunities In Microfinance For A Better Tomorrow

When we mention about micro financing a business, the organization coming into our minds would be a start up founded by one or more techies or a retail business chain or food carts. There is more to the spread of microfinance, and now, microfinance is more about making funds available to the unreachable like rural households, entrepreneurs without funds, traditional businesses running into debt etc.

The definition of the term has itself increased in depth, with its purpose more or less connected to the social and economic development of the weaker sections of the population. These sections are mostly away from the better-off population dwelling in the more civilized areas and often lack any links to a regular banking operation. Modern banking terms like savings, insurance, transfers, merchant accounts and the availability of expensive, high-quality consumer goods and resources may not be accessible to them.

With the introduction of micro financing opportunities, things are for a revolutionary change. There are many incidences where proper funding and group activities saved dooming villages and traditional businesses. Microfinance has not only led to better economic and social conditions of the underprivileged but has also led to a rise in employment opportunities and per capita income. Below are some of the areas where microfinance has been doing wonders for the lower strata of the society.

Household garment factories: The handlooms, weaving machines and hand-made threads were almost becoming items limited to displays in museums and archaeological exhibitions. Thanks to efforts through micro financing plans, families and traditional weavers have now found their endangered occupation and means of livelihood gaining entry into the mainstream market.

Handicrafts and wooden furniture: Every piece of handicraft or art takes several days and sometimes months of dedicated hard work and inherent skill, but was almost unrewarded in the modern society. These talented sections fought with daily requirements and the love for their traditional skill with the increasing demands of the civilized population. Microfinance has brought into their lives fresh hopes of a revival and co-operative societies to work together and bring back the prosperity.

Home-made edible items: Pickles, jams, and squashes without artificial preservatives and additives are getting more and more takers with the realization of better health with home-made food and rural innocence. These chefs never underwent any professional cooking courses, yet their sense of taste and ingredient mix is unmatched. Microfinance related household efforts have given these sections, majorly constituting of women a new way of finding their identity.

Farming and diary: Droughts, floods, and feudalist powers always resulted in the wiping off of the essential livelihood occupations and discouraged even the ardent lovers of the traditional businesses to try their luck. Microfinance and collective measures to increase farmlands, combined with green and white revolutions, headed by financing opportunities are giving them new sunrise.