See previous post Financial intermediaries
In general the financial intermediaries in the Indian Financial System are classified in the following ways-
(i) Deposit taking organizations – These organizations accept deposits from investors and lend the same to various entities. Investors are very familiar with these organizations as they deal with them quite regularly. Examples are
- Banks
- Finance companies
- National savings organizations
(ii) Contractual savings organizations – These organizations enter long term contracts with investors. Typically the contract involves receiving a series of periodic payments from investors over a period of time. These companies manage the amount received carefully to adhere to the terms of the agreement and to meet their part of obligations. Examples are
- Insurance companies
- Pension funds
(iii) Investment type organizations – These companies accept money from investors to manage money for them on their behalf. Normally, it involves making a pool of investor’s money and investing it in a portfolio of securities or assets to meet certain common investment objective of the clients. The most common example is a Mutual fund.
(iv) Fee based intermediaries – These intermediaries do not become a party to the fund transfer process, but just helps in the transfer. They help in providing information to either party about availability of funds or need of funds and help in getting a match. They also help investors in understanding various investment products, understanding risks, analyzing comparative facts and making suitable choices in case of multiple options. They do not take the transactions on their own books. They earn a fee for the services they provide.