The role of finance companies in economic development of a country is very prominent. These companies are defined as those providing a range of financial services to their clients such as general banking, private banking, stock broking, insurance etc. These finance companies help in mobilizing money of their clients and give them higher returns in the long term. The existence of these companies has contributed greatly to the development of the habit of saving and investing by the common people.
Different Types of Finance Companies
Investment Banks
Investment banks would be rated as the most important in the world of finance. These banks act as middlemen in the execution of big transactions which involve exchange of securities/shares. So, whether it is helping common investors buy stocks, or helping giant or medium-sized corporations to issue fresh equity, investment banks always play a key role. Investment banks like JPMorgan Chase and Wells Fargo are well-known for their wealth management division which caters to retail as well as institutional investors.
Private Equity Firms
The private equity firms work in a professional way, and are known to execute several billion dollars of transactions in a year. These firms approach cash rich investors to invest their money in their firms and finally, they use this money to buy stakes in privately managed companies. Private equity firms have highly qualified analysts who study the fundamentals and growth prospects of the firms before investing the company's money in them.
Hedge Funds
Hedge funds are those funds in which rich global investors invest their money for the purpose of wealth maximization. These hedge funds are managed by professional hedge fund managers who have vast experience in hedging, and have many clients with them. In the United States of America, there are many rules and regulations for hedge funds which make it compulsory for them to have minimum income and hence only the top finance brains in the world are seen actively involved in hedge funds.
Deposit Type Firms
Credit Unions
Credit unions are non-profit organizations which are active in the financial world. Almost all the nations in the world have credit unions which are owned by people who are members of that credit union. Since profitability is not the aim here, common people can expect high returns on deposits and cheap loans from such credit unions.
Commercial Banks
Commercial banks are very important for economic stability. The range of facilities and services provided by these banks helps them compete with other banks. However, commercial banks are known to offer low rate of interest on deposits. Even, the loans advanced by these banks may not be with attractive rates of interests. So, the profitability of these commercial banks is very high.
Saving Associations
Saving associations differ in ownership as compared to the banks, and are known to offer attractive interest on deposits and cheap loans as compared to commercial banks.
Internet Banks
Internet banks are the biggest boon for consumers in this modern era of technology. internet banks are known to advance loans at attractive interest rates and pay more interest on deposits. The basic reason for this is that due to absence of physical branches and offices, the expenses of these internet banks are well under control.
Insurance and Fund Management Companies
Life Insurance Corporations
Life insurance companies are one of the most popular finance companies which give life, disability and accident insurance to their customers. The funds which insurance companies get from their customers are invested in long-term profit maximizing assets which are safe and would give the best results like equities and debt instruments.
General Insurance Companies
General insurance companies mainly offer services such as automobile insurance and property insurance. General insurance companies invest the funds they receive from investors in equities, government securities and deposits.
Public Unit Trusts
Public unit trusts are formed with the money contributed by retail investors and these funds are ultimately invested in the property market, equities of local companies as well as equities of foreign companies. Public trusts are generally in the control of banks and large insurance companies having a strong global presence.
Non-Banking Companies
Mutual Fund Corporations
Mutual fund corporations are one of the main non-banking financial institutions. These are the institutions that do not have a complete banking license and are not regulated or monitored by a regulator. Mutual funds offer investment schemes of different types to investors which include high risk high return and low risk low return. Ratings of mutual fund companies helps in taking investment decisions.
Stock Brokerage Firms
Stock broking firms are an important part of the today's financial system. These firms help investors open trading accounts with them, aid them in stock purchase and sell and educate investors about the available investment options. Broking firms also give quality IPO advice for primary market enthusiasts.The income of these companies is in the form of brokerage on every transaction.
Some More Financial Companies
- Thrift: These are the depository institutions which specialize in accepting deposits and mortgage making. Saving banks and savings associations are the best examples of thrift
- Pension funds: Pension funds offer the common public attractive saving plans for their retirement. These funds are strictly tax exempted
- Asset management firms: Asset management firms are important financial services institutions that are responsible for managing securities and assets of their customers and clients. They also offer quality advice on fund management to retail investors and large corporates
- Building Societies: Building societies are known to raise funds from households. They also offer loans and issue share capital
- Securitizers: Securitizers are nothing but the special purpose vehicles (SPV) which issue credit enhanced securities
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