In India, the Financial services industry is growing at a rapid pace due to the new demands and developments across the industry. Financial services are all about savings and investment. Financial services help convert these savings into investments.
Portfolio management, leasing, discounting, brokerage, housing finance, insurance, loan syndicating, credit rating, mutual fund management, etc are all some examples of financial services in various forms. In this article, we will know about some of the major financial services in India and their importance.
Financial Services Meaning
Financial services is a collective term used to represent a wide range of economic services related to money, which consists of services provided by various sectors such as co-operative banks, non banking financial companies, commercial banks, insurance companies, mutual funds, etc.
All major transactions, holdings, and services that consist of money will be counted in the list of financial services in India or abroad. Financial services contains a wide range of organizations that deal with the inflow and outflow of funds in an economy.
Some examples of organisations are banks, insurance companies, consumer finance companies, stock exchanges, merchant bankers, acceptance houses, discount houses, leasing companies, etc.
Also, check How to make Financial Reporting Analytics?
Characteristics of Financial Services
Financial services possess a wide range of financial activities, functions for providing funds, advisory, growth, and more. Let us know some major characteristics of financial services.
- Priority to Customers: Financial services are helping their clients, businesses or organisations meet their financial needs, secure investments, plan savings, manage risks, and more. They manage customer’s unique requirements in various ways.
- Manage Funds: Financial services help individuals and businesses manage money. For example, we can save our money in banks and we get interest too. We invest these savings into a productive revenue plan and create economic growth.
- Market Based: Financial services have much influence on the market and fluctuate based on market conditions. Economic conditions and the needs of clients trigger changes in financial services.
- Risk Distribution: These financial services help clients, businesses, and organizations distribute their funds in productive investment and provide various insurance plans as per their needs.
- Global trade support: Financial services facilitate international transactions, foreign exchange, cross-border investments, etc.
- Economic Stability: Financial services provide capital for businesses, create job opportunities, and help businesses grow.
Functions of Financial Services
The main objective of Financial services is to deal with money management. Many institutions such as banks, brokerage firms, credit unions, insurance companies, etc provide financial services.
1. Capital Formation and Allocation
Financial services help mobilize savings from individuals and allocate these resources to investment for economic growth. For instance, banks collect deposits from people provide loans, interest, etc, and contribute to channelling resources into productive sectors of the company.
2. Risk Management
Financial services also provide risk management services for individuals, organisations, and businesses. For example, insurance companies offer health, life, vehicle, and property insurance for managing uncertainties. While future hedge, options against currency or commodity risks.
3. Ensure Liquidity
The liquidity of an asset is important for individuals, businesses, and organizations to meet their financial needs at any time. Financial services also help maintain a system where funds can easily be accessed for transactions, investments, etc.
For example, commercial banks provide overdrafts, loans, and credit lines to ensure that customers have access to cash when needed.
4. Promote Economic Growth
Financial services have a major role in supporting economic growth and development. It provides credit and financial services to businesses for expansion, infrastructure development, innovation, and more. These services make industries grow and create employment opportunities.
For example, microfinance institutions provide small loans to rural entrepreneurs to support local development and enhance the quality of living.
5. Encourage savings and Investment
Provide various perks and benefits to encourage individuals and businesses to save and invest. For example, mutual funds, pensions, fixed deposits, etc help individuals save funds for productive investments.
For example, banks provide interest to help people save for future needs and grow their wealth over time.
6. Wealth Management and Financial Planning
Financial services also provide financial advice to help individuals manage their funds and grow. Wealth management firms, and financial advisors help make investment strategies, portfolio management, retirement plans, etc to help them meet their financial goals.
Also, Check, What is Financial Advisory Services?
7. Financial Stability
Financial services help maintain the economic balance through financial activities that support financial growth. Banks offer interest rates, control monetary policies, fiscal policies, and give priority to important sectors like agriculture, health or small businesses.
Types of Financial Services
Financial services include services offered by various industries such as banks, credit unions, accounting firms, stock brokerages, etc. India is one of the fastest growing economies in the world, which is expanding financial services and taking on new shapes.
1. Banking
The banking sector is the backbone of the Indian economy. There are many banks that provide services to individuals and organisations tailored to their needs, such as commercial banks, urban/rural banks, regional banks, foreign banks, public banks, private banks, cooperative banks, etc.
Banks provide loans, accept deposits, transfer funds, credit deposits, foreign exchange services, and more. The Reserve Bank of India (RBI) oversees and maintains India’s banking sector.
2. Advisory Services
Financial institutions provide various advisory services to help individuals and businesses grow and make sound financial decisions in all situations.
Risk advisories, investment advisories, financial planning advisories, and retirement advisories are some of the financial advisories offered to individuals or organizations based on their needs.
3. Mutual Funds
Mutual Funds are investment pools that pool money from multiple investors and purchase diversified portfolios of stocks, bonds or other securities. These funds are managed by professionals and generally chosen by individuals who are not familiar with investment strategies. Due to diversification risk factors are reduced by a significant amount.
4. Insurance Coverage
Financial services include insurance services which protect individuals or businesses from unforeseen expenses. Insurance is financial coverage that is paid monthly or yearly and is used to provide safety from large expenses. The major types of insurance services are health, home, rent and life insurance.
Banks, credit card companies, wealth management companies, insurance companies, stock brokerage, investment firms, merchant banks, venture capital firms, financial institutions, accountancy firms, etc provide insurance coverage to clients, businesses and organizations.
5. Wealth Management
Financial services enable individuals, organisations, or businesses to invest their money for growth and higher returns. Financial services provide various investment possibilities such as real estate, mutual funds, equities, insurance products, derivatives, etc.
Role of Financial Services in a Country’s Economy
Financial services drive growth and prosperity to a country’s economy. Check some of the major roles of financial services below.
- Support Startups and Small Businesses: Financial services provide financial support to new businesses. They provide loans, financial advisory, and resource allocation to help them invest in business opportunities and grow.
- Encourage Entrepreneurship: Banks, Venture capitalists, angel investors, and financial advisors help grow entrepreneurship opportunities in India.
- Ensures growth: Financial services help individuals, companies or businesses grow their stagnant money with a variety of investment options available.
- Risk Mitigation: With the help of professional advisory risk factors are significantly reduced. People or organizations often buy insurance coverage to protect them from large pay due to unforeseen events.
- Create Employment Opportunities: The financial services sector contributes to the growing economy by providing jobs. The BFSI Sector is a rising sector that provides employment opportunities for freshers as well as working professionals. A recent study found that the financial services sector employs about 30% of the country’s workforce.
- Ensures economic balance: Financial services help contribute to various sectors and provide them with services to grow and prosper. It also protects a country’s economy from losses due to unforeseen events.
Classifications of Financial Services
Let us check the major classifications of financial services below.
| Classification | Types | Examples |
| Traditional Financial Services | Fund Based Services |
|
| Fee based services |
|
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| Modern Financial Services |
|
A Strong Global Fintech Power India
The Fintech Industry in India is one of the fastest-growing markets in the world. The estimated market size of the Fintech industry by 2025 is approximately $1.5 trillion. Major sectors under fintech include digital lending, wealth tech, payments, insurance, etc.
The Fintech industry is a game-changing segment as it helps create innovative and smart solutions such as new business models, smart software solutions, applications, etc.
Digital payment in India has surged by 70% and 91% with the UPI platform in the market. As per the reports, UPI recorded the highest number of transactions in May 2024 which was approximately equal to 14.03 billion.
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Financial Services FAQs
Q1. What are financial services?
Ans: Financial services comprise services like loans, insurance, advisory, portfolio management, banking, stock market investments, and more which help in investment, generate capital, risk management, grow economy, and more.
Q2. What are the types of Financial Services?
Ans: Some major types of financial services are mentioned below.
Banking
Wealth Management
Financial Advisory
Insurance
Stock Market
Tax/Audit Consulting
Debt instruments
Mutual Funds
Q3. What is the full range of financial services?
Ans: There are a variety of financial services offered by multiple institutions around the world. These financial services help enact financial stability, and economic growth, create jobs, and more. These common financial services include banking, insurance, wealth management, real estate, taxes, and more.
Q4. How many financial services are there?
Ans: Financial services include accountancy firms, asset management companies, liabilities companies, investment banking, insurance companies, etc.
