These institutions perform a variety of functions other than direct banking with the customers. All together they support the financial system of a country. The following are the common types of non-depository institutions:
Mutual Funds: Mutual Funds are the professionally managed funds by fund management companies which collectively invest money taken from many big and small investors in bonds, shares, money market instruments, commodities etc. to generate higher return from the same. It also offers different portfolios with different risk-return objectives based on investor’s choice and helps investors to achieve portfolio diversification without worrying much about market index movement.
Security Firms: Investment banking, Equity Broking: These financial institutions help the investors to perform different capital market and debt related financial transactions. Broking services enable trading in equity market and exchange of shares among different entities. Investment banking services help different companies to raise money from the market through IPO, Debt offering etc. and to complete different merger and acquisition related transactions.
Pension Funds: Pension funds mainly handle the pension deposit of all the people living in a country. They take money from people and invest the money in almost risk free instruments like government bonds etc. The main aim is to save their money and provide them interest rate by investing the money in appropriate investment instruments. The rules and guidelines are very strict for the Pension funds as retirement savings of all the common men are deposited in the funds.
Insurance Companies: Insurance companies provide the necessary insurance services to the common people and different business entities. There are different rules and guidelines for the Insurance companies which are different from the rules and guidelines being followed by the Banks. The main aim is to spread risk among large number of people so that potential loss to an insured can be minimized.