Page 1 - LN 241606010111

TOPIC:CH-6 -RESOURCE MOBILIZATIONS

CODE:241606010111

SUB-TOPIC: SOURCES OF FINANCE, CAPITAL MARKET, METHOD OF FLOTATION, STOCK EXCHANGE,
SEBI

NOTES:

• Business is full of surprises. As an entrepreneur one may face situations that can catch them off
guard. Any situation has the potential to become, either a 'disaster' or an 'opportunity’.
Whether running a home-based business or a mid-sized venture, the first thing required is
money.
• One cannot imagine a world without money – every day's life and every activity of human being
is dependent upon money. Thus, 'Finance' refers to funds or monetary resources needed by
individuals, business houses and the government.
• The significance of finance in enterprise is elucidated like a lubricant to the process of
production. It's one of the most important prerequisite to start an enterprise.
• Thus, the most critical element for success in business is 'Finance'. Before doing anything, an
entrepreneur should clearly answer the following three questions:
• 1) How much money is required?
• 2) Where will money come from?
• 3) When does the money need to be available?

Sources of Finances.
These sources could broadly be classified into 2 major categories.
1) Internal sources
2) External sources
Internal sources referred to as owner's own money is also known as 'equity'. Particularly in the case of
small entrepreneurs the owner's money is very small. Therefore, an overwhelming portion of money is
arranged from the external sources.

Thus, here we discuss some mushrooming sources available to an entrepreneur to raise finance:
a) Capital markets
b) Angel investors
c) Venture capital
I. Capital markets
• A capital market may be defined as an organized mechanism meant for effective and smooth
transfer of money capital or financial resources from the investors to the entrepreneurs. Here,
productive capital is raised and made available for industrial purposes.
• Capital markets are the most important source of raising finance for the entrepreneurs as this
market can:
(a) Mobilize the financial resources on a nation-wide scale.
(b) Secure the required foreign capital and know-how to promote economic growth at a faster
rate.
(c) Ensure the most effective allocation of the mobilized financial resources by directing the
same either to such projects which are capable of the highest yield or to the underdeveloped