Project A thik Gy Gya a for FLA
a FIAI imita tati ti e t o suppo uppor r Fin ina ancia iall Lite itera ra y drive of NC NCF F th Students f or Clas Classs 8 th , 9 th & 1 0
Chapter 1: Money Matters: S art Goal Goals s An And Financial Analysis 1
Money : A cu curren rr entt medi mediu um of exch exchang ang in the for form m of coin oins and ba b anknot knotes es;; collectively.
W hich 5 th things ings you would ould lik like to buy buy rig r ig ht aw away, if you had the money?
Net Worth 2
Asset: Items owned by a person. Liability: Money owed by a person. Net-Worth = Ass Assets – Liabi iabililitities es Identi Identiff y th t he ass assets and and the liabi liabililitities es of Mr. Mr. BC and calculate his netet-wort worth. Item
Amount
As et
Gold / Jewellery
1000000
1000000
Laptop
40000
40000
Car
500000
500000
Home Loan
1500000
1500000
Loan Taken From A Friend
10000
10000
Total Assests / Liabilities Net Worth
Liability
15 0000 30000
1510000 1
Smar artt Goal Goals s And And Finan nanc cial nal nalysi 3
Not Smart
Smart
Specific
I want to go somewhere on my inter vacations.
I want to visit Goa on my winter vacations.
Measurable
I need to save some money for going on a trip.
I need to save Rs.3000 for going on a trip.
Achievable
I will arrange all the I will request my oney myself. parents to give me Rs.2000 & for rest I will use my savings.
Realistic
I will start saving t e amount r quired 2 months before leaving for t e vacation.
I will start saving Rs.200 monthly from my pocket money.
Timely
I will save money sometime soon.
I will save Rs.200 per month for next 5 months.
1
Chapter 2: Budgetin ing g: Bala lan n ing the Means and and the End 4
Income: It is is the the mon mone ey earn ear ned/ gain gai ned. Eg; Your our par parent ents giving gi ving you you Rs.500 .500 mont onthly a pocket money.
Inc Income ome are are of two type: ty pe:
1. Act Active Incom Income: You are receiving Rs.500 regular egularly as your your mont onthly pocket money.
2. Passive assive Incom Income: You rec receive ived Rs.500 fr m your parents on your B'day. Expenditure: It is the money that you spend n you your needs eeds and Wants. Eg: Rs.100 you spent for having a pizza.
Expense are ar e of two types types::
1. Regular egular Expense: That you regularly or aily aily spend pend lik like eatin eating daily dai ly in canteen.
2. Lump SumEx Expense pense: That you spend pend onc once on your Birthday Party.
Expenses 5
Expenses can be Discretionary Or Non-Discretionar .
Discret Discretionary Expense: Its your choice that you ant to spend money oney for eating eating at canteen. You can also bring your lunch.
Non-Discre Non-Discretionary Expense: Its a expense that ou ha have to to sp spend out of neces necess sity. You You spend Rs.10 daily for taking a bus for attending school. eficitit is i s a lack lack OR an exc exces ess s of expenditu expenditure over over earn ear ning. Deficit: Defic Eg; Ins Instead tead of Rs.500 .500 you spe spen nd Rs.600 .600 on a pizza pizza (Rs.100 .100 bor borrowed f rom anyone), so your deficit def icit is -Rs -Rs.100 .100 (your (your pock p ocket et mon money ey Rs.500 – your your pizza pizza cos cost Rs.600 = - Rs.100, .100, your deficit amount)
Surplus: Surplus rp lus is the the amou amoun nt th t hat remai remain ns when when u e or need is satisfied. Eg; If you you along along with with you your 4 friends friends ordered ordered 4 Bu Burg rs, Cold old Drinks etc etc. at Mc'Dona Mc'Donalds. The total total cost ost of your order order will will be Rs Rs.500. .500. Now, Now, ins ins ead of ordering everything separat eparately, ely, you ordered ordered 4 com combos bos which which includ includ s Burger, Cold Drinks, Toys etc. For Rs.400 .400 only. In In this case ase Rs.500 .500 – Rs.400 .400 = Rs.1 0 money you still have with you. This amount is your SURPLUS, where you you utilized tilized yo r sm smartne ar tnes ss to fu f ulfil lf illl your your need.
Savings 6
Small Amount creates Valuable Int resting & Nice Gifts “ Saving aving is a healt health hy hab habbi bit, t, wh which will rea benef enefiits in the long ong run” Why...? shorttermgoals goals like bu ing Because you have short ing a book, toy etc. etc. goals like & you have long termgoals like savin saving g fo f o buying a bic bi cycl ycle, video video gam game etc. etc.
Cash Ca sh Flow Flow Statement 7
CashCash-Fl Flow ow statement: It is a record of y ur income and expenditure, i.e. Incom Income e – Expense ense = Cash Flow
Imp Import or tance Of Of Cash Flow St Statemen ementt: It tell ells us the am amoun ount of money oney rem r ema aining ith us after deducting our all exp expenses enses f rom our income. ome. Eg; Pocket Mo Money (R (Rs.500) 500) – Pizz izza Co Cost ( s.10 .100) = Rs.40 .400 (Cash (Cash Flow)
Now Now, you you can utili tilize ze Rs.400 for f or any any of yo r need.
Budget 8
Budget: Budget dget is a plann planning ing of yo r expenses keeping in mind your income/ ome/ savin vings. E.g. You order ord ered ed a pizza pi zza of Rs.200 .20 0 keeping in mind that your monthly pocket money is Rs.500. Opportunit nity Cost: Opportu Opportun nity cos is what you give up every time you make ake a ch choice ice. Re source rces are li ited and wants are endless. There is no way way we can have ave it all. all . So So ea ea h choice to buy something is also a choice choice of wha what to t o give gi ve up. up. E.g. If you you ordered ordered a pizz pizza of Rs.500 but due to some reason its deliv delive ery got got delay delaye ed. Due to del del y, you got a discoun ount of Rs.20 .200 on on you your pizza. pizza. So So, in this this case ase you you p id only Rs.30 .300 in i nstead ead of Rs.50 .500 nity Costis Rs.200 here. then your Opportunit
9
Delayed Gratifi Gratification: W ith long-term goals, you must be willing to give up somethin thing g you want ant now to get so ethin ething g better/ better/ bigger bigger in in the the fu future. ture. Eg; You have recei received ved a pocket ocket mon money ey o Rs.500 & want to order a pizza of Rs.700. Eithe ither you you can ask ask you your pa ents for more money or you can order something else like burger for s.100 & in coming next month you can have ave a piz pizz za of of Rs.700 700 as as you al eady have saved Rs.400 this month. InstantGrat Gratificat fication: When you satisfy ins instan tant grat gratifific icat ation ion..
want immediately, it gives you
Eg; You have recei received ved a pocket ocket mon money ey o Rs.500 & want to order a pizza of Rs.700. Now, yo you will ask ask you your par nts for Rs.200 more immediate so that you you can have tha that pi p izza of Rs.70 .70 .
Then in next mont onth, your your pocket ocket mon mone ey will be Rs.30 .300 onl only (as (as Rs.20 .200 you already have taken for Pizza).
Chapt Cha pter 3: Understandi anding ng Insur nc 10
Insurance: “Lif “Lif e Insura Insuranc nce e is a Nob Nobles lestt concep concept invent nvented by the Governm Gover nmen entt” which is a way of managin anagi ng ris ri sks of Hum Human Lif Life e. Types ypes O f Ins Insurance: ur ance:
A. Life Life Insu Insurance : Term Ins Insuran rance, Wh Whole Lif Lif e, ULIP ULIP, Tra Trad ditional, onal, Reti etirement ement Pol Poliicy etc etc.
otor, Property roperty,, Heal h (Medic (Medi clai la im) etc.. B. Gen General Insurance: Motor Ins Insuran rance policies pol icies can be divi d ivided ded on the bas basi of two ris ri sks, ks, i.e. the cov coverage erage inv involv s the risks related to the “insured” life A. “Pure Risk” Risk” : W here the only. the cov cover erage age n t only involves the risks related to the B. “Investm “InvestmentRisk” Risk” W here the “insured” life but also his investments. 1
11
Risk for Human bei gs 12
Dying to o Early
L iving too Long
Fin ina anc ncial ial L s s Abov bove pictu picture re explains xplains the the risk risks inv involve lved with with Humans ans and and if they they die di e early ear ly & liv li ve too too lon long the then it will will get get impac impactt on on the their Fin Fina a ces. Thus explaining the importance of Lif e Insu Insurance.
Need of Insurance 12
“ A
Peace of M i nd”
Life Insuranc Insurance products
Life Insuranc Products
13
Unit Linked Insurance Plan
Traditional Plan
Pure Endowment
Term plan (Risk Management Scheme)
Note :
TermPlan Plan Pure Endow
: Benefit paid only in case of ish ishappening ap pening durin during the ter fi
d
l
f s vival during th
Life Insuranc Insurance products 14
Ba ics Ele ent 15
Death Cover
Survival Benefit
Term Assurance Assura nce
Pure Endowment
(Provides only death cover)
(Provides only survival benefit)
Endo ment Plan (Combo of Term and Pure En owment
15
Un b u n d l ed Pr i c i
g Facto rs
Premium
. Mortality
Expenses
Charges
Investment Ele
ent
They are more transpa ent in nature
Unitt Linked Insuranc Uni Insurance Plan (UL (ULI 16 17
•
They off of f er ch choic oice e of of f unds to the the inv invest ors
• In Inves vesttmen entts ar are e made in in eq equ uities es,, debt debts and the mon oney ey mar market ket
De t
Equity
Money Market
• In Inves vestor ors s can ch choos oose e an As Ass set clas class as p r th their eir ri ris sk preferen pref erenc ces ff
f
Insurance Terminol nologi ogies es 17
Pr o p o s al f o r m
In i t i al s t ep (ap p l i c ation ) to init iate the contr act
Proposer
Th e p er s o n wh w h o ap p l ies for the insurance contract
Life Li fe Insured
The pe pers rson on who w ho i covered in the insu rance contract
Sum Assured
Premium
Th e r i s k c o v er am o unt promi sed by the insu rer
The mon ey paid as onsi dera deration tion for a specified S m Assured
Insurance Terminol nologi ogies es 18 19
Po l i c y t er m
Th e d u r at i o n o the insu rance cont ract
Maturit Ma turit y value
Th e am o u n t r ec ei v ed at the end of poli cy term
Premium p aying term
Th e n u m b er o f y ears premium is to be paid. Can Ca n be b e less than or equal to Bene Benefit fit Period
Surrender value
The amoun amountt received if poli cy is closed before the end f policy te term rm
Types Of Of General Insurance: 19
Fire (dealing with fire related risks)
Marine (dealing with transport related ris & ships)
Miscellaneous (dealing with all other like motor, liability liabi lity,, Medical etc)
Exa xam mple les s Of General Ins Insura ce (Motor) 20
You have a car car of Rs.3 lac lac & have take a car insurance. The premium for this is Rs.6000/ year. year. Af ter 1 mon month th your your c r met with an accident and too fix the dam damage (make (make the the car car new again again), ), i will cost Rs.20000. Now the insurance company will pay this amount as you have taken a car insurance.
Exa xam mple les s Of General Ins Insura ce (Motor) 21
Exam xample ple Of General Insurance (Medicl diclai ai ); You have taken a health insurance cover cover of Rs.5 lac (Su (Sum Ass Assured) ed). The premium for this is Rs.8000/ .8000/ year. After After 6 month onth you need eed t be hospitalize due to some illness & your hospital bill was Rs.200000. Now the insurance company will pay this amo amount as you you have ave take taken a he health ins insur nce policy.
Portabili ortability Of Of Healt alth Insurance: Here one an cha change his insurance comp company. Note: In INDIA th the regu regulato latory ry bo body for for ins insur nce nce comp companies nies is IRDA i.e. InsuranceRegulatory And And Developme t Authorit horit .
Chaptter - 4: Understanding In estmen Chap 22
Investment: Investment is a instrument whi which help elps in grow money oney & it also helps you to fulfil your certain desires in your life. Benefits fits Of Investments:
Investing makes your savings grow
Invested money grows with time
Interes Interestt is the the ext extra ra mon mone ey you you get wh n you invest nvest
Your money for some time
W hen inter interest est is compound ounded money oney rows f aster
23
Diversification: Diversification is a very amiliar financial terminology to most investors. In the mos mostt gen genera eral sense, it can be su summed up with this phrase: " Don on'' t put all al l of your eggs in one one bask basket.“
Takin aking a closer oser look at the con conc cept of div rsificatio , the idea is to create a portf portfo olio that that inc include ludes s multiple inv investm nts in order to reduce risk.
Lets understand Grow Growtth Of Of
oney wi witth an exampl ple e
24
Onc Once a boy boy (Named (Named - Anku Ankus sh) rec received eived Rs.50 f rom his gran grandf dfat ath her for his Birthday. Anku Ankus sh went went to to his f ather wit with this Rs.50 .500. Father: Son, on, put put the the mone oney in i n your your a piggy ba nk. Ankush: Fat Fath her, it is alm almost ost f ull and and what what shoul oul d I do now? Father: W hy don't don't you put put the the mone oney in my ba nk? Ankush: I have total Rs.1500 (Rs. 1000 in my iggy bank and this Rs.500), but why should I give it to your Bank? Will they return my money? Father: Wh What if I say, say, the they will will not only only retu return our money but will also give you addi additition onal al Rs. 90 at the the end end of the the year. Ankush: I wou would ld lik like to know know that that why why the they ar ar giving me this extra Rs.90 Father : Rs.150 investment or in .15 00 was was your in invest vestment ent and Rs.9 0 is the return on investm amount. simple term interestam
** InterestRate Taken As 6% Per Annu Annu
Inflation 25
Inflation: The rate at which the general level f pri pr ices f or goods goods and ser services vices is rising, and, subsequently, purchasing power is falling.
For Eg; W hen Mc' Mc'Dona onald launches ches its Mc Aloo Aloo Burger ger at Rs.20 .20, now now becaus because of infla flation (Due to rise in price of po potato, tra sportation cost etc.) the same burger now cos costts Rs.30 (in (includin di ng taxes ta xes). ). S , inf inf lation lati on rate is 30-20/ 20 = 50%.
26
CPI (Consum (ConsumerPrice Price Index): A measure t at exam examines the weig weigh hted averag average e of prices pr ices of a bas basket of cons onsumer goods an services, such as transportation, food and medi medic cal care. ar e. The CP CPI is calc al culated at ed b taking price changes for each item in the predeter predeterm mined ined bas b aske kett of goods and and veraging them; the goods are weighted according to their importance. The ann annual perc percenta entage ge ch change ange in in a CPI is us d as a s a mea meas sure of inflation.
WPI: An index that measures and tracks the hanges in pri pr ice of good goods s in the stages ages before the retail level. Some countries use W PI cha changes as a cent entral meas easure of inflation.
Time Value Value Of Money: The titime valu value of oney is the principle that a certain curre rrency am amount of of money toda today y has has a di di fferent buying power (value) than the same ame cu curren rrenc cy amou amoun nt of mone oney in the the fut fut ure. The valu value of money oney at at a f uture point point of time time wou would ld take acc accoun ount of intere intere st earned or inflation accrued over a given period of time.
Types of Interest 27
A. Simple ple Interest: Formula: S.I. .I. = P*N*R *N* R/ 100 = Princ rincipal (Rs.1500 Amoun ount Depo Depos si ed) × Num Number Of Year (1Year) × Rate (6%) (6%) / 100 S.I. (Si (Simple pl e Interes Inter est) t) = Rs.90 .90 B. Com Compound Interest Interest: Interest On Interest.
Suppos pp ose e Anku Ankus sh has depos dep ositited ed hi his Rs.1500 .15 00 with with bank for 2 years then his interest would be Rs.1685.40
Formula: C.I. = P (Princ rincipal) * (1+r)^n = P (Rs.1500 Am Amoun ount Dep Deposited) × {1+0.06}^n {1+ 0.06}^n((2) = Rs.1685.40 .168 5.40 C.I. = Compoun pound In Interes terest, P= Princ rincipal, R = rate of of int int rest, rest, n = number of periods peri ods,, r = R/ 100 (6 / 100 = 0.06) 0.06) So, Com Compoun pound Intere Interes st for f or 2 years = Rs.185.40 .185.40 (Com (Comp ound Interest)
Rule Of 72: 28
Chapter 5: Basi asics cs Of Banki anking ng 29
Bank : Bank ank is an ins institu tituti tio on where people park their surplus money (Depos posit) and and earn earn some retu return rn called interest. Types of bank Acc Accounts: Savi avings Acc Account: You deposit money
get interest on that deposit but there is a limit on monthly withdrawls. Current Current Account: You deposit deposit mone oney but
you you don't don't get any any in interest terest on that that depo d epo it and also there is no limit on withdrawls.
Eligibility Cri Criteria For Openin A Bank Acc Account: 30
One One can can open open bank bank a/ c who who is of 1 years or above
Now Now, paren par ents ts can als al so open open ban ba nk a/ c in name of their kid
Eg; Kotak Junior Account
Kotak Junior Account is designed to inculcate the habit of savings in children from an early age and help parents build a corpus for their child’s future.
Servi ervice ces Of Offered By Bank: 31
1
Types of Bank Deposi positts: 32
Recurring rring Deposit eposit : Recurring Deposits re a speci ecial kin kind of Term erm Depos eposiits offered by banks which help people ith regular incomes to deposit a fixed amou amoun nt every month onth into into th t heir Recu ecurrin Deposit account and earn interest at the rate applicable to Fixed Deposits.
Fix Fixed Deposit posit: It is a fin f inan anc cial ins instrum trum nt which provides investors with a highe igher rate of of inte interes rest than than a regul regular savings account, until the given maturity date . It may or or may no not requir equire e the the crea creatition on of a sepa separa rate te account. It is known as a term dep sit.
Special pecial Bank TermDeposits: Deposits: Banks also have their eir own own speci ecialized FD's of f ering ring attractiv attractive e inte interes restt rate which is higher than normal FD's.
1
Banking 33
Cheque: A cheque eque is an ins instrument ent in writing writing con contai tai ing an unconditional order, signed by the maker, aker, direc dir ectitin ng a a specif pecified ied bank b anker er to pay pay a certa er tain in su sum of money oney only to, or to the order of a certain person or to the bearer of the instrument.
Demand and Draft: Draft: It is a special instrument which does ot get get dishonoure honoured d (boun (bounc ced). ed). IT is always issued by a Bank.
ATM: Its a machine through which we can withdraw oney oney from f rom our our deposit deposit a/ c at any any tim time.
E-Banking Or Or Int Internet Banking: anking: Its a proces process throug throug which one one ca can manage his/ his/ her acc accoun ountt online online like view viewin ing g e-statem e-statemen ent, t, fu f und transf transf er, er, onl online shopping, ticket booking etc.
Tele-Banking: Its a process through which one can m nage age his/ is/ her accou accoun nt over the telephone.
Cheque 34
Circled Number
Detail s
Entry in the above cheque
1
Pay ( Name of the person who needs to be paid)
Ra esh K.N
2
Date ( Date on which the money is i s to be pai d)
31-03-1999
3
Rupees(The amount to be paid in words)
On Thousand only
4
Rs. (The amount to be paid in Fi gures)
1000
5
Si gnature of the person i ssuing cheque
Si gnature(It should be as per specimen si g ature card given to the bank)
6
Account Number of the person i ssui ng cheque
11987
7
Branch Name(The branch where the person who is signing the cheque is having the account)
Sta e Bank of Mysore Pu lic Utility Branch, Bangalore -560 001
8
Cheque Number
665078
9
Mode of Payment
A/C Payee
1
Demand Draf Draftt 35
Enclosed within th the f igure
Enclosed within th the f igure
Details
Black rectangle at the top lef t
SBM - Somwarpet
The branch of bank issuing the DD
Red Rectangl e against ‘ON DEMAND PAY’
FOODS LIMITED
The party which gets the amount specified in t e DD
Red Re d circ le at the top right corner
22/06/2006
Date of issue of DD ( alidity period is six months)
Green Gree n Circle below the date
65000.00
The amount payable to the party
Green Gree n rectangle in the middle
Six – ten thousand Five – Thou Five Thousand sands s Zero Zer o – Hund Hundred reds s Zero Zer o – ten tens s
Black circle at the bottom
SBM – Service Bangalore
The branch of bank which pays the amount
Blue rectangle next to Drawee branch
DD715693
Number of DD
Brown rectangle on the right
Signatures
Two signatures of the officers of branch issuing DD
Amount in words
Difference between Cheques an DDs 36
No
Features
Cheque
1
Issuer
Issued by account holder
2
Availability of Amount
emand Draft(DD) Issued by bank
The account need to have enough balance, at the time of passing of cheque.
mount need to be paid to the bank before D is made
3
Safety
Can be forged easily
ighly secure
4
Credit of amount to the payee’s account.
Could take few days
ne or two days
5
Dishonoring of instrument
Cheque may get dishonored
uaranteed by Bank
6
Issue Date
Can be pre/post dated
an not be pre/post dated
7
Signature
8
Charges for issue
Signed by Accountholder/s
igned by 2 designated officers of the Bank
Nil or negligible
ased on the value of DD, the Bank charges 1 ommission
Basi asic cs Of Banking 37
Safety: If you lend 100 rupees to someone, will he give it back to you i.e. is your capital (Rs.100) safe? Liquidity: Will Will you you get get your your mone money y back back if y u need it immediately? Growth: What is the return you will will get on your investment? It could be in the form of income or appreciation or both.
Bank Gives Yo u
Bank offers Safety on amount deposited. You can withdraw money at any time thr ugh cheque, atm etc. On am amount deposited, you wi will al also ge get in interest on same.
Note: In INDIA INDIA the regulator regulatory y body body for for Bank Bank is RBI i.e. Reserve Re1serve Bank Of India.
Chapter 6: Introductio ion n Of Socks &Bond 38
Can you identify these b il ildings?
39
The two buildings shown in last slide were: National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) Locate Located In In Mumbai, bai, INDIA.
BSEis the oldes old estt stock stock mar market ket in in Asia Asia and NSE NSEis t e largest stock exchange in India and the third larg larges estt in in the wor world ld in term terms of volum volume of tra tr ansactions ctions. Thoug hough a num number of other other exchanges exist, NSE and BSE are the the two two mo t significant stock exchanges in India. What hat is a Stock Exchange?
A ‘stock ‘stock exch exchange’ ange’ is an orga organ nization ization con cons stitu tituted ted f r the purpos purpose e of ass assisti istin ng and carry ar rying ing out out buying, buying, selling or oth otherwis erwise e dealing dealing in secu ecuriti rit i s. It is also known as Secondary Market. What hatare are securities? curities?
Secu ecurities rities are finan financ cial ins instrum truments ents and and inc include lude ins instruments ents such as shares hares,, bonds onds, debentur ebentures es of a compan pany or body corpo rporate or or a government. Thus, a stock exchange provides a trading trading platform, platform, where where buye buyers rs and and sell rs can meet to transact in securities.
Note: In INDIA the regulatory body for stock exchange is SEBI i.e. Securiti ecurities es and Exchange Board Of India.
40
IPO: An initial initial public public of f ering ring (I (IPO) or st st ck ma market ket la l aunch is a ty t ype of public li c off of f erin eri ng where where sh shares of stock in a company are sold to the general general pu p ublic bli c, on a sec secu urities rities exch xchan e (like NSE, BSE), for the first time. DematA at Account: In India, shares res and sec rities are held electronically in a Demat emateria erialilize zed d ac a ccoun ount, in instead of th investor taking physical possession of certificate rtificates s. A Demateriali aterializ zed acc acc unt is opened by the investor while registering with an investment broker or sub-broker). Every shareholder will have ave a Dem Dematerializ ateriali zed acc accoun ount f r the pu purpose ose of transacting shares. es. Dematerializing a se security rity me means ans converting it from physical form to electronic form.
In India there are two depositories which take ta ke ca care of secu ecuriti it ies urities Deposit pository demat demateri erial aliza izatition on.. Th They are ar e NSDL (N tional Securit Lim Limited) &CDSL (Central Depository pository Service ervices Limited).
41
Equity Equity Stocks: An equity investment generally ref ers to th t he buying an and holdin holdi ng of shares ar es of stock on a stock stock marke ar kett by individuals an f irm ir ms in anticipati anticipation on of incom income e from f rom divid dividen ends ds and cap capitital al gain gai ns, as as the val valu ue of he stock rises. FaceValue: Value: It is is als al so known known as par valu value of the stock. Face Valu al ue of share ar e is generall generally y Rs.10. Dividend: A dividend is a payment made by a orporation to its shareholders, usually as a distribu distributio tion n of profits profits.. W hen a co corporatio rporation n e rns a profit or surplus, it can either re-invest it in the business (called retained earnings), r it can distribute it to shareholders. EPS(Earning (Earning Per Share): hare): It is the rupee value of earn ear nings per outs outsta tan ndin ding share ar e of a company's equity stock.
Earnings per share (net income formula) : EPS= Profits – Divid ividends / No. Of Outstandin andin Share P/E Ratio: The price-to-earn price-to-earnin ings gs ratio or P/ P/ E ratio, is an equity valuation valuation multip ltiple. le. It is defin def ined ed as mark ar ket price per sh share divided divided by annual earnings per share.
42
Shareholders: Individuals who buy (in ther words words invest vest in) shares of a company pany are the the owners of the the com any and are referred to as share holders. Share holders usually have oting rights and can, thus, par pa rtic ticipat ip ate e in man manag agem emen entt of the the c mpany. Bond: It is a debt security, under which the issuer owes owes the hold olders ers a debt and, depen epend ding on the the ter terms of the bon bond d, is bliged to pay them interest. Bonds are issued issued by public public auth autho orities rities, cre cre it institutions ons, comp ompanies and supranational institutions in the primary arkets. Debenture: A debenture is a document that either creates a debt or acknowledges
it, it, and and it it is is a des desbt bt withou withoutt colla collatera terall .
Nifty is the 50 stock stock ind index compris pr ised ed o some ome of the lar la rgest gest an a nd mos mostt lil iquid stocks traded on the NSE. BSE 100 00 is the st stock ock in index comp comprised of 100 100 of the the lar largest gest an and mos mostt liq l iqu uid stocks traded on the BSE.
Phases Of Of Stock Market: 43 44
Bull ull Phase: A bull bull mark ar ket is ass associa ociate te with increasing investor confidence, and and inc increased reased inv investing ting in antic anticipat ipation of f uture price pr ice increases eases (cap (capitita al gains). A bullish trend in the stock arket often begins before the general econom economy y shows clear ear signs of reco ery.
Bear Phase: Phase: A bear market arket is a gen general decl ecline in the stock market over a period of time time. ItIt is a trans transition f ro high investor optimism to widespread investor fear and pessimism.
Chapt Cha pter 7: Inv Invest estments : The Wider Spectru 44
There are a re other as asset clas lasses for inves investitin ng apar apar t f rom rom bank saving ving a/ c such uch as: Mutual Fund unds, Commoditi ditie es (Gold Gold)), Real Estate tate,, Foreig reign n E change change (Dollar). (Dollar). Mutual tual Fund: It is a po pool of of fun funds for for doin doing g inv investments which is prof rof ess essionall onally managed naged by Fund Managers & has a common goal.
Types Of Mutual Fund unds: A. Open Ended Funds: Whe Where you you can inv invest/ ell anytime. B. Close Close EndedFunds: W here you you can inv invest f r a specified pecif ied tim time and can sell only only after af ter the specified time. Entry/Exi ry/ ExittLoad: A Load is a charge, which the mutual fu f und collects on entr entry y an and/ or exit exi t from f rom a fund. A load is charged to cover the cost incurred by the mutual fund when it buys or sells shares in the stock market.
Types Of Of Mutual Funds: 45
1
Benefits Of Of Mutual Fund 46 • •
Professional Management – und Manager
• •
Diversification - In All Sectors f Economy
• •
Return Potential - High Retur s / Post Tax Returns
• •
Low Costs - Entry / Exist Load
• •
Liquidity - Anytime Redemption ion / Anytime Redempt Redemption / Partial Withdrawal
• •
Transparency – Fact Sheet
• •
Flexibility – Switching Option ( ne Scheme to other)
• •
Choice of schemes – Various Funds
• •
Tax benefits – u/s 80 80© ©
NAV 47
NAV : Net asset value(NAV) is the value f a f und's d' s asset less ess the valu value of its liabilities per unit.
W here As Assets = Mark Market val valu ue of the the fu f und ’s inves investtments + Receivab eceivables + Accrued Income
Comparisons 48
49
v/s
v/s
Comparisons 49
Parameter Returns Interest Receipt Tenure Tenure Partial Withdrawal Long term Tax Liabilit Liability y
PPF
Bank FD FD
8% On Maturity
8% On Maturit
15 Years
7 days o 10 yrs
Equity MF Schemes 12-15% Depends on Performance No Specified Specified Term
No
No
Yes
No
Yes
No
Minim inimu um Rs 500 p.a. .a. Rs 10 00 Rs 5000 Investment Maximum Rs 1,00,000 No Upper No Upper Limit Limit Investment N. A N.A. Rs 500 Monthly Investments Depen s Lock In By Default No Lock-in Period 15 yrs on Ter of Period Deposi
NSC 50
National Saving aving Certifi rtificate (NSC): Nationa ational Savings Certificates popularly know known n as NSO is i s a savin saving g bond bond , pri prim mari ari ly used for small saving and income tax tax savin saving g in i nvestm estmen entt in i n Indi India, a, par pa rt of th Post ostal savin vings system of Ind Indian Postal Service (India Post). These can be urchased from a post office by an adult in i n his own name or in the na name of minor, a minor, a trust, two adults ointly. intly. These are iss issued for six six year mat rity and can be pledged to banks for availing loans.
PO MIS 51
Post Off Office Monthly onthly Income Scheme (P Scheme plan is one of of the the many any inv invest Indi India. a. Sch Schem emes es off of f ered by Post ost Of Of f ice equity in them. POMIS is also one such
MIS : Pos Postt Of Offf ice Mont Monthly Inc Income ome ent options offered by Post Office in are ar e ri risk fr f ree as there is is no tou touch ch of scheme.
Chapter 8: Beyond Sav aviings : orrowi owin n 52
Loan: A thing that is borrowed, especially a sum of money oney that is expec expectted to be paid back with interest. For eg; As explai xplain ned in previou previous s slides lides yo r pocket money is Rs.500, you ordered a pizza pizza of Rs.700. .700 . Your our shorta ortage ge is Rs.20 0, so you borrowed or took a “LOAN” f rom your your elder elder sibl siblin ing g for f or Rs.200. No No your loan is Rs.200 which you will pay back back when you you will get get you your pock pocket mo money next month. This loan also can be treated treated as a s Personal Loan.
EMI (Equated Monthly hly Install allment) is the amount that a borrower should pay every month. For eg; You pay bac back Rs.200 loan loan take taken f om your elder1sibling in 4 monthly insta installlmen lmentts of Rs.50. .50. In simple pl e ter term m, yo u wil will pay pay ba back your loa loan n in EMI's MI's of Rs.50
Credit Card 53
Amortization: Amortization is the process y which which loan loa n pri pr incipal ip al decreas decreases over over the the life lif e of of a loan loan,, typically typically an amo amortizi rtizi g loan. With each loan payment that is made, ade, a portion portion of it is applied applied tow towa rds reducing the principal, and another one is applie applied d tow towards redu reduc cing ing the the int int rest on the loan. Credit Credit Cards: A credit redit card is is a paym payme ent c rd issued to users ers as a system of paymen payment. t. ItIt allo all ows the the cardh cardholde olderr to p y for goods and services based on the holder's promise to pay for them.
Credit Card 54
Advantages of Credit Card:
Availibili aili bility ty of interes interest free f ree credit for f or 5 day
No need to carry cash
Usefu ef ul for f or onl online sh shoppi oppings/ gs/ pay payments ents
Available all over the world
Disadvant Disadvantages of Credit Card:
High interest rates on late payment
If lost ost, it it can be mi misused
One One ten tends to spen pend a lot lot ov over and and ab ove his ear earning1
Loans 55
Diff DifferentTypes Of Loans:
House Loan
Consumer Loan
Personal Loan
Auto Loan
Education Loan etc.
Eg: Suppos pp ose e you purchas purchased ed a car of Rs. your your dow d own n paym pay ment. ent. For For the remai remain nin Rs.3 Lac (Loan Amt-3Lac) at 12% pe pay Rs.7000 .700 0 mon monthly thly to pay pay off of f your your
Lac. You paid Rs.2 Lac for now i.e. portion you took an Auto Loan of annum (Interest Rate-12%). And you loan i.e. EMI.
Fixed Rate. If the in interes erestt ra rate rema remains the sa same i.e. 2%, its call al led as Fix
If the the intere interes st rate flu f luc ctuates tuates i.e. i.e. Som Someti e 12%, 12 %, somet ometiime 13%, its call al led as Floa Floating ting Rate.
Chapt Cha pter 9: RetirementPl Planni annin n 56
Retirem tirementplanni planning: ng: Plann lanning ing fo f or the the purpo purpo e of achievi achievin ng fi f inancia anciall in i ndepen dependenc dence e after retirement. Pension: Regular egular in i ncome to the the individu individual al af af t r retirement.
Retirement planning requires three basic step : 1. Determine how much annual income will be needed in each year of retir retirem emen ent. t. 2. Dete Determ rmin ine e ho how mu much corpus rpus must be acc accum lat la ted in retir eti remen ementt savin avings by the star ta rt of retire retirem ment in order rder to f und the the expen xpendi ure during retired years. 3. Determ Determine how how mu much must be contr ontrib ibu uted t reti etiremen ementt savin avi ngs in each each worki workin ng year remaining in order to accumulate the required amount.
