Meaning and Importance of Financial Services

Financial service is part of a financial system that offers various forms of financing through different credit instruments, financial goods, and services. These financial instruments include cheques, bills, promissory notes, debt instruments, letter of credit, etc. We experience various types of mutual funds in financial items that expand all kinds of investment opportunities. Additionally there are things like credit cards, debit cards, etc. Services include leasing, factoring, hire purchase finance etc., using which we can own or get on loan various assets. Even these loans and factors are of different types. As such, financial services allow us to possess any asset on loan very easily on small interests.

Importance of Financial Services

Not only are these financial services important for the businesses to run smoothly, they are even helpful to the governments for improving the overall economic health of a nation. With the growth in the economy, people of the nation also get a higher standard of living and they enjoy a better life with a number of facilities at their doorstep. While the nationals of a country can resort to hire purchase to get various services and products, the financial institutions also flourish as they promote investment, production, etc. Let’s see how Financial Services are important to us.

1. Promoting Investment

When a product is launched or new features are added to the existing service or product, their demand is bound to go up. It is important for the producer or business to possess capital for further production to meet the increasing demand. This is when the financial institutions come to the rescue of the business. The stock market also helps the business to mobilize funds for investment.Factoring and leasing companies also help the business to sell their products and also purchase better and new machinery for producing their goods.

2. Savings Promotion

Financial services such as mutual funds provide adequate incentives for different forms of savings. In fact, for the benefit of pensioners as well as aged citizens, various types of investment options are made available so that they can be guaranteed a fair return on investment without much risk. Numerous reinvestment incentives are offered for individuals concerned in increasing their savings. The laws enacted by the government regulate the operation of various financial services in such a way that there is strong security for the interests of the public who save through these financial institutions.

3. Mitigating Risks

Financial Institutions such as Insurance Companies prove to be very helpful by mitigating the risk that may be caused by using the financial services or by the producers. Different types of risks are covered, which provide protection not only from fluctuating market conditions but also from risks caused by natural disasters.

4. Maximizing Returns

The presence of financial services helps companies to increase their returns. This is possible at an affordable rate because of the credit availability. Producers may take advantage of different kinds of credit facilities to acquire properties. In some cases, they may even lease some very high value properties. Factoring firms help both the seller and the manufacturer to increase their turnover which also increases the profit. The producers would be in a position to sell their goods at a low margin, even under strong competition. Through greater stock turnover, they will increase their return.

5. Better Yield

Though there is a small difference between returns and yield, the producers are attracted to a product that has a better yield. The financial services not only allow the producer to earn more income but also to increase their wealth.

Summing Up

Besides the above-mentioned benefits that accrue from financial services, some others are a better economic growth and as such economic development along with it. Financial services are also helpful in widening the scope of the financial institutions. Financial services also happen to promote trade both on the domestic as well as international level. Due to this, there is a growth of the region also where the financial institutions are offering their financial services.