Monetary planning is a crucial aspect of the time a company starts functioning; nothing can be achieved without a suitable strategy in place. A blueprint in terms of the existing financial health and future challenges, helps the company to formulate a strategy that will help it to achieve its goals. Even the regulators expect and insist on a regular good risk assessment and want the companies to follow the suggestions given by the evaluators. Some steps in the risk assessment process are as follows:
- Identify the risks that may hamper the productivity and financial health of the company. These will also affect its survival and competition against other similar companies negatively.
- Understand the various categories of risks that may challenge the company from time to time. These groups may include one or more kinds of risks again. These comprise of risks associated with insurance, market-based or related to market and operational risks and finally the planning or strategy based risks.
- There are various departments in a company and they all have a department head. Similarly, there can be one person or department that owns the responsibility of a risk, either pertaining to the company or a particular process or department. They can assess the risk appetite of the company in that particular area and then help to find the solution and implement it as well.
- Every risk has to be mitigated and this solution needs to be controlled by a responsible person or department. This can also be delegated to the person responsible for the particular function or department.
- The risk has to be assessed by the company to know whether all the safeguards are in place. Then it can analyze if any risk is worth the returns that are going to accrue. The company needs to know the impact of financial decisions made by the management.
- The occurrence of a risk should be anticipated, and its impact and profit and loss should be estimated both quantitatively or qualitatively related to each one. This helps the company to make important decisions about investments.
- The evaluations need to be done repeatedly and regularly. The environmental conditions keep changing as do the other factors. The political changes or monetary fluctuations can change the way the business will face challenges and that is why a periodical assessment is important.
Regulatory authorities do insist upon regular risk assessments and it is in the interest of the companies to do it as well. Due diligence is the key to good management and sustainability in the corporate world.
The blockchain concept can be well-applied with
- Registration of assets, portfolio, and exchange
- Acquiring property including both hard or physically existing property and immaterial like ideas, health data, votes, reputation, shares, copyrights or reservations and so on
- Financial areas, economics, and money
This technology is applicable to multiple functional areas across a wide class of business embedded with markets, money, and transactions.
The brilliant thought of smart property initiated with blockchain to enhance a property-transferring done with smart contracts. This means the exchange of property in centered models.
- An example related to this is the use of basic digital currency technology, to effectively transfer almost 125 touchable wooden artworks and was presented for purchase.
- Likewise, any kind of available asset forms can be registered within a blockchain and its full control is maintained by the person having the private key to the blocks. Further, the controller can sell it by giving the private key code to another for accessing it.
- All these processes are subject to the existing law. For example, a vehicle ownership tag is transferable from a particular financial firm to an individual, if all the loan payments are done and confirmed by blockchain contracts.
- The interest rate tagged with the item is also variable and is specified on the digital website of contracts.
- Presently, there exist alternatives to the private key. Smartphones come with the immense ability and embedded technology to unlock any digital codes like QR codes, NFC tags, sensors, Wi-Fi access upon reaffirming a customers’ virtual identity encoded in the blockchain.
- Colored coins were familiarized as a part of the smart property on the blockchain. These colors are the tags linked to specific selected properties or assets. This is done to ensure the safety and loyalty of the transaction. The easiness obtained from these types of exchanges reflects the point that compound transactions can also be done with blockchain.
Smart Contract can be better explained as the way of using digital currency to formulate agreements with individuals via blockchain.
- This is based on trust between the parties signing the order and includes three basic essentialities
- Autonomy: If the contract is initiated, no further interaction should occur.
- Self-Sufficient: Should have provisions for arranging an area for storage and operational power.
- Decentralized: They are widely available across the networking nodes and are self-performing.
The efficient use of blockchain’s smartness feature allows common problems to be solved on the basis of minimal trust.
Making an income from self-employment is a dream for many, but the risk involved in setting a beginning for the same can be challenging to face. Keeping in mind, the current business era and all the revolutions that are taking place day by day, there are numerous ways in which you can rightly start a business and become a successful personality soon.
There are broadly two ways of raising funds which can be in terms of equity and debt. The sources of raising funds through equity and debt are discussed here.
Sources of equity:
- Self-funding: this is done by many investors, they do it themselves. They are independent and use their savings for the start of any venture they prefer to do.Also, they use credit cards or any personal debt to fund their business. This may look pretty tough in the beginning as they need to be self-sufficient, but as they progress into the future, it gets easier.
- Friends -family: resorting to help from the nearest relations like our family members and friends can be a conducive option for the business. But it is like standing on the edge of a steep cliff as it may hinder the long bound healthy relations and also cause a crack in friendships if any misunderstanding happens.
- Angel investors: these are a group of people who come forward to invest in the business. They are very affluent and also help at the right moment. They will also claim for a share of profits from the business. These people can be found through the local cha ber of commerce in your area. This is a common way to fund your business.
- Cloud funding: this is completely done online, when you announce that you have the idea of making an entry into any venture, people join together and contribute funds for the same.this very effective to find out people with similar interest but placed in a different area and having different financial capabilities. Such a mission will bring these type of people together.
- Partners: choosing a partner may help for the business in the best way, it can either be a working partner by contributing funds and extending the service in terms of working for the business or it can only strategy contributing being an enterprise specialized in the same. Hence it is better to have such helpful partnerships.
- Venture capital: these are efficient funding techniques which will offer the funds and later expect a huge share from the investment and the profits.
- Crowdfunding: a web-based method to find potential investors to get together to make a fruitful business
Sources of debt :
- Small business lenders: these are people who help to cater to startups and small business by lending loans at easy interest rates.
- SBA Loans: these are loans which require a repayment guarantee and work like traditional lenders
- Banks: the very common type of lending facility anyone can resort to.
The recession of 2008:
Uncertain economic times have a way of teaching tough lessons. The great recession of 2008 left most of the companies grappling with issues that they had never faced or those that they thought were too farfetched and could never come face to face with them. But it did and how!
One of the lessons that the recession taught each one of us and particularly the medium and the large corporate was that they need to constantly evolve their risk management strategies. There can never be one strategy that will fit all. In a way, it helped the management honchos to rethink all the strategies that were almost like set in stone before the recession actually hit them unaware. Before that, they thought that since the business was moving on smoothly there was no major reason for them to think about risk assessment and risk management. How wrong they were!
Today, there is a renewed focus on management of risks:
It is by far the most important need of the hour that risk assessment and management departments be set up immediately incorporate to be able to identify, assess and strategize on the risks in order to avoid any long-term or debilitating effect on the corporate or its business processes.
It would be an unfortunate event if a promising corporate has to suffer losses only because it was lackadaisical in assessing and managing its risks.
Risk as a cause of uncertainty:
The main cause of uncertainty in a corporate environment is the inability to handle risks mainly because they were not expected in the first place. a lot of time, energy and resources need to be put into assessing and identifying risks of the future because a lot of the corporate confidence arises from the mentality that it can fix any kind of challenges that will arise in case it has to face a kind of risk. This confidence helps it in taking the right business decision which has a positive implication in the corporate bottom line.
Knowledge is indeed power!
Just like shooting in the dark is dangerous, a corporate trying to take major decisions on its processes without actually identifying the risks is not just potentially dangerous but implies that the days of the company may be quite numbered. A clear appreciation of the risks is therefore extremely important in today’s economic climate. it helps shield the company from unwanted situations. Risk management is the mantra if you do not like to be in a situation that you would not like to be anyways!
Times are changing and the once darlings of the financial industry have fallen on hard times as the fund management industry is going through a rough phase. The clients are becoming restless with the turn of events while the managers are figuring out ways to stay afloat with more than half the managers failing to retain their previously held top spot.
Here are a few things you didn’t know about this industry.
Blame it on luck
It is ironic that fund managers blame their underperformance to bad luck but never do the same when they overperform; that they attribute to their skill. It is common sense that no individual will wontedly underperform. What these managers fail to acknowledge is that human error is the cause of overperformance for some and underperformance for others.
Fund managers are slow to adapt
The current investor’s trend is a herd mentality wherein they are simultaneously in “risk on” and “risk off” mentality. As a result, when the market is wobbly all shares are sold simultaneously which makes diversification a total waste of time. Most fund managers fail to identify this trend and hence unable to reset their portfolio management techniques leading to their underperformance.
On an average 50% fund managers underperform
It is a common industry secret that 50% of active fund managers underperform even when the market is performing well. Hence, if you are an investor you must be wary of using fund managers. Even those managers who are in charge of commodities fail to deliver alpha.
What can you do as an investor
It is obvious that it is the fund manager and not the firm that plays a key role in fund management. Hence always stick with people who perform and not a firm which is at the top because you never know if the next manager will deliver an alpha or not.
Make sure that you fully agree with your manager’s strategy because ups and downs are part of the game but the long-term benefits are possible only when you adopt a proper investment approach. Do not overlook experience because these advisors have seen the market’s ups and down and will have a better understanding of how things work and what the pitfalls are than anyone else.
One advice any industry veteran will give you is to diversify your investments because this will safeguard them from the vagaries which have become common in the present marketplace.
“My grandmother was a great cook”, this is something many of us remember telling our friends, “She could have started a business selling her cakes”. This could be a common thought in many people’s minds that they wish their grandmother or father or someone in the family had started a business selling stuff or services that they were experts at.
Times were different then. Those days, people gladly worked with and for their family. Very few people actually thought of starting a business in any area. Then also they used their own savings and borrowed money from some known people. Borrowing from banks and institutional finance came into the picture much later.
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Once this concept became popular, many people could take their business ideas forward. Already established companies also look at options for expansions. And that is how the Initial Public Offerings or IPOs came about.
So who can offer an IPO?
An IPO can be offered by any kind of company, whether it is a small, new startup or a big established company. The reason behind the offering is the same. It is to collect money for the company. If we go back to the historical evidence, then Dutch merchants and English businessmen collected money and formed companies. The main aim was to collect a good corpus of money to start or expand a business.
The aim remains the same, but today after an IPO is offered then the stocks of the company are sold to individual investors or institutional investors. The company is listed on the stock market and then the stocks can be traded. The prices keep fluctuating based on the performance of the company.
Important aspects of IPO
There are many important factors that are considered before launching an IPO. It is a very complicated process and all the financial aspects and legal features need to be worked out in detail by their respective experts. They also engage with a big bank or financial institution, which is then known as the underwriter of the issue of stocks. There may be more than one underwriters at times when the issue is very big. They also engage the services of one book runner or lead manager. This is in order to finalize the price of shares. The share should not be overpriced or it may remain undersubscribed.
If you are interested in issuing an IPO, then take the help of experts for guidance. On the other hand, if you want to know whether to buy the shares of an IPO then read the prospectus and make an informed choice.
It is one of the most used universal marketing strategies by almost all kinds of businesses to promote expensive products and services compared to the economic ones. This multiplies their income in terms of sales as well as a commission for the services. For example, if you approach a stockbroker for advises regarding investing in shares or mutual funds, it is apparent that he will persuade you to go for an expensive one. You put in more money in the hope that you will get more, but that is just one of the probabilities. The sure outcome is that the broker will get a higher commission.
To keep a check on this malpractice made by a majority of the retail brokers, the federal laws have introduced this relatively new form of mutual fund shares known as Clean Shares Mutual Funds.
Why are they clean?
Clean shares have a uniform platform for pricing across all markets and therefore put a constraint on the unprofessional behavior of advisors to encourage their customers to invest in expensive shares. With expensive shares, the advisors get a higher commission and their interest prevails more than that of the customer. The advisors have to vouch in for recommending their investors to select affordable shares when you decide to buy clean shares.
Clean shares also bring in a high degree of transparency in the mutual fund market. Unlike other forms of shares, they do not levy additional charges like marketing fees, distribution fees like 12b-1, front-load or back-load fees. For example, if you invest in the hugely popular Class A shares, you will be charged 0.5% or more as the front-load fees by the advisors. In addition to this are other fees like marketing fees, handling charges etc. These wolf down a major chunk out of your returns and sometimes, your losses get escalated in the process.
On the other hand, when you invest in a clean share, you are not paying any of these charges, and the amount extracted from you is purely the commission of your advisor. You know what you were charged and the advisor is also aware of that. The money flowing is clear like water to you.
Another positive change brought by clean shares is that when your interest is to invest in an affordable share and get good returns and the aim of the advisor is to give you good profits on economical clean shares, there is no conflict of interest. The interests of both the parties are aligned concurrently towards the same clear objective.