Project Arthik Gyanfor NFLAT

a FIAI imitative to supportFinancial Literacy drive of NCFE

for Class 8th, 9th

Project Arthik Gyanfor NFLAT

a FIAI imitative to supportFinancial Literacy drive of NCFE

& 10th Students

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Chapter 1: Money Matters: Smart Goals And Financial Analysis

Money : A current medium of exchange in the form of coins and banknotes; collectively.

Which 5 things you would like to buy right away, if you had

the money?

Chapter 1: Money Matters: Smart Goals And Financial

A current medium of exchange in the form of coins and banknotes;

Which 5 things you would like to buy right away, if you had

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Asset: Items owned by a person.

Liability: Money owed by a person.

Net-Worth = Assets – Liabilities

Identify the assets and the liabilities of Mr. ABC and calculate his net

Item Amount Assets

Gold / Jewellery 1000000 1000000

Laptop 40000 40000

Car 500000 500000

Home Loan 1500000

Loan Taken From A Friend

10000

Total Assests / Liabilities 1540000

Net Worth 30000

Net Worth

1

Identify the assets and the liabilities of Mr. ABC and calculate his net-worth.

Assets Liability

1000000

40000

500000

1500000

10000

1540000 1510000

3

Smart Goals And Financial Analysis

Not SmartSpecific I want to go

somewhere on my winter vacations.

Measurable I need to save some money for going on a trip.

Achievable I will arrange all the money myself.

Realistic I will start saving the amount required 2 months before leaving for the vacation.

Timely I will save money sometime soon.

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Smart Goals And Financial Analysis

Not Smart SmartI want to go somewhere on my winter vacations.

I want to visit Goa on my winter vacations.

I need to save some money for going on a trip.

I need to save Rs.3000 for going on a trip.

I will arrange all the money myself.

I will request my parents to give me Rs.2000 & for rest I will use my savings.

I will start saving the amount required 2 months before leaving for the vacation.

I will start saving Rs.200 monthly from my pocket money.

I will save money sometime soon.

I will save Rs.200 per month for next 5 months.

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Chapter 2: Budgeting: Balancing the Means and the Ends

Income: It is the money earned/gained.

Eg; Your parents giving you Rs.500 monthly as pocket money.

Income are of two type:

1. Active Income: You are receiving Rs.500 regularly as your monthly pocket money.

2. Passive Income: You received Rs.500 from your parents on your B'day.

Expenditure: It is the money that you spend on your needs and

Wants.

Eg: Rs.100 you spent for having a pizza.

Expense are of two types:

1. Regular Expense: That you regularly or daily spend like eating daily in canteen.

2. Lump Sum Expense: That you spend once on your Birthday Party.

Chapter 2: Budgeting: Balancing the Means and the Ends

Your parents giving you Rs.500 monthly as pocket money.

You are receiving Rs.500 regularly as your monthly pocket

You received Rs.500 from your parents on your B'day.

It is the money that you spend on your needs and

That you regularly or daily spend like eating daily in

That you spend once on your Birthday Party.

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Expenses can be Discretionary Or Non-Discretionary.

Discretionary Expense: Its your choice that you want to spend money for eating at canteen. You can also bring your lunch.

Non-Discretionary Expense: Its a expense that you have to spend out of necessity. You spend Rs.10 daily for taking a bus for attending school.

Deficit: Deficit is a lack OR an excess of expenditure over earning.

Eg; Instead of Rs.500 you spend Rs.600 on a pizza (Rs.100 borrowed from anyone), so your deficit is -Rs.100 (your pocket money Rs.500 your deficit amount)

Surplus: Surplus is the amount that remains when use or need is satisfied.

Eg; If you along with your 4 friends ordered 4 Burgers, Cold Drinks etc. at total cost of your order will be Rs.500. Now, instead of ordering everything separately, you ordered 4 combos which includes Burger, Cold Drinks, Toys etc. For Rs.400 only. In this case Rs.500 – Rs.400 = Rs.100 money you still have with you. This amount is your SURPLUS, where you utilized your smartness to

Expenses

Discretionary.

Its your choice that you want to spend money for eating at

Its a expense that you have to spend out of necessity. You spend Rs.10 daily for taking a bus for attending school.

Deficit is a lack OR an excess of expenditure over earning.

Instead of Rs.500 you spend Rs.600 on a pizza (Rs.100 borrowed from anyone), so Rs.100 (your pocket money Rs.500 – your pizza cost Rs.600 = - Rs.100,

Surplus is the amount that remains when use or need is satisfied.

If you along with your 4 friends ordered 4 Burgers, Cold Drinks etc. at Mc'Donalds. The total cost of your order will be Rs.500. Now, instead of ordering everything separately, you ordered 4 combos which includes Burger, Cold Drinks, Toys etc. For

Rs.400 = Rs.100 money you still have with you. This where you utilized your smartness to fulfill your need.

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Small Amount creates Valuable Interesting &

“Saving is a healthy habbit, which will reap benefits in the long run”

Why...?

Because you have short term goals like buying a book, toy etc.

& you have long term goals like saving for buying a bicycle, video game etc.

Savings

nteresting & Nice Gifts

, which will reap benefits in the long run”

like buying a book, toy etc.

like saving for buying a bicycle, video game etc.

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Cash-Flow statement : It is a record of your income and expenditure, i.e. Income – Expense = Cash Flow

Importance Of Cash Flow Statement:

It tells us the amount of money remaining with us after deducting our all expenses from our income.

Eg; Pocket Money (Rs.500) – Pizza Cost (Rs.100) = Rs.400 (Cash Flow)

Now, you can utilize Rs.400 for any of your need.

Cash Flow Statement

It is a record of your income and expenditure, i.e.

It tells us the amount of money remaining with us after deducting our all

Pizza Cost (Rs.100) = Rs.400 (Cash Flow)

Now, you can utilize Rs.400 for any of your need.

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Budget : Budget is a planning of your expenses keeping in mind your income/savings.

E.g. You ordered a pizza of Rs.200 keeping in mind that your monthly pocket money is Rs.500.

Opportunity Cost : Opportunity cost is what you give up every time you make a choice. Re sources are limited and wants are endless. There is no way we can have it all. So each choice to buy something is also a choice of what to give up.

E.g. If you ordered a pizza of Rs.500 but due to some reason its delivery got delayed. Due to delay, you got a discount of Rs.200 on your pizza. So, in this case you paid only Rs.300 instead of Rs.500 then your Opportunity Cost is Rs.200 here.

Budget

Budget is a planning of your expenses keeping in mind your

You ordered a pizza of Rs.200 keeping in mind that your monthly

Opportunity cost is what you give up every time you make a choice. Re sources are limited and wants are endless. There is no way we can have it all. So each choice to buy something is also a

If you ordered a pizza of Rs.500 but due to some reason its delivery got delayed. Due to delay, you got a discount of Rs.200 on your pizza. So, in this case you paid only Rs.300 instead of Rs.500

is Rs.200 here.

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Delayed Gratification: With long-term goals, you must be willing to give up something you want now to get something better/bigger in the future.

Eg; You have received a pocket money of Rs.500 & want to order a pizza of Rs.700. Either you can ask your parents for more money or you can order something else like burger for Rs.100 & in coming next month you can have a pizza of Rs.700 as you already have saved Rs.400 this month.

Instant Gratification: When you satisfy a want immediately, it gives you instant gratification.

Eg; You have received a pocket money of Rs.500 & want to order a pizza of Rs.700. Now, you will ask your parents for Rs.200 more immediate so that you can have that pizza of Rs.700.

Then in next month, your pocket money will be Rs.300 only (as Rs.200 you already have taken for Pizza).

term goals, you must be willing to give up something you want now to get something better/bigger in the future.

You have received a pocket money of Rs.500 & want to order a pizza of Rs.700. Either you can ask your parents for more money or you can order something else like burger for Rs.100 & in coming next month you can have a pizza of Rs.700 as you already have saved Rs.400 this

When you satisfy a want immediately, it gives you

You have received a pocket money of Rs.500 & want to order a pizza of Rs.700. Now, you will ask your parents for Rs.200 more immediate so that you can have that pizza of Rs.700.

Then in next month, your pocket money will be Rs.300 only (as Rs.200 you

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Chapter 3: Understanding Insurance

Insurance: “Life Insurance is a Noblest concept invented by the Government” which is a way of managing risks of Human Life.

Types Of Insurance:

A. Life Insurance : Term Insurance, Whole Life, ULIP, Traditional, Retirement Policy etc.

B. General Insurance: Motor, Property, Health (Mediclaim) etc..

Insurance policies can be divided on the basis of two risks, i.e.

A. “Pure Risk” : Where the coverage involves the risks related to the “insured” life only.

B. “Investment Risk” Where the coverage not only involves the risks related to the “insured” life but also his investments.

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Chapter 3: Understanding Insurance

“Life Insurance is a Noblest concept invented by the Government” which is a

Term Insurance, Whole Life, ULIP, Traditional, Retirement Policy etc.

Motor, Property, Health (Mediclaim) etc..

Insurance policies can be divided on the basis of two risks, i.e.

Where the coverage involves the risks related to the “insured” life

Where the coverage not only involves the risks related to the

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Risk for Human beings

Dying too Early Living too Long

Financial Loss

Above picture explains the risks involved with Humans and if they die early & live too long then it will get impact on their Finances. Thus explaining the importance of Life Insurance.

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Risk for Human beings

Living too Long

Financial Loss

Above picture explains the risks involved with Humans and if they die early & live too long then it will get impact on their Finances. Thus explaining the importance

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“A Peace of Mind”

Need of Insurance

13Life Insurance Products

Traditional Plan

Term plan(Risk Management Scheme)

Pure Endowment

Note :

Term Plan : Benefit paid only in case of mishappening during the term

Pure Endowment : Benefit paid only in case of survival during the term

Life Insurance products

Life Insurance Products

Unit Linked Insurance Plan

: Benefit paid only in case of mishappening during the term

: Benefit paid only in case of survival during the term

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Basics Element

Death Cover

Term Assurance(Provides only death cover)

Endowment Plan(Combo of Term and Pure

Endowment

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Life Insurance products

Basics Element

Survival Benefit

Pure Endowment(Provides only

survival benefit)

Endowment Plan(Combo of Term and Pure

Endowment

15

Unbundled Pricing Factors

Premium

. Mortality

Charges

Investment Element

They are more transparent in nature

Unbundled Pricing Factors

Investment Element

Expenses

They are more transparent in nature

17• They offer choice of funds to the investors

• Investments are made in equities, debts and the

• Investors can choose an Asset class as per their

• It offers more flexibility to the investor than a

Equity

Debt

Money Market

16

Unit Linked Insurance Plan (ULIP)

1

They offer choice of funds to the investors

Investments are made in equities, debts and the money market

• Investors can choose an Asset class as per their risk preferences

the investor than a traditional policy

Debt

Unit Linked Insurance Plan (ULIP)

Proposal form Initial step(application) to initiate the contract

Proposer

Life Insured

Sum Assured

Premium

The person who applies for the insurance contract

The person who is covered in the insurance

The risk cover amount promised by the insurer

The money paid as consideration for a specified Sum Assured

Insurance Terminologies

17

Initial step(application) to initiate the contract

The person who applies for the insurance contract

The person who is covered in the insurance contract

The risk cover amount promised by the insurer

The money paid as consideration for a specified Sum Assured

19Policy term The duration of the insurance contract

Maturity value

Premium paying term

Surrender value

The amount received at the end of policy term

The number of years premium is to be paid. Can be less than or equal to Benefit Period

The amount received if policy is closed before the end of policy term

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Insurance Terminologies

The duration of the insurance contract

The amount received at the end of policy term

The number of years premium is to be paid. Can be less than or equal to Benefit Period

The amount received if policy is closed before the end of policy term

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Types Of General Insurance:

Marine (dealing with transport related risk & ships)

Fire (dealing with fire related risks)

(dealing with

related risk &

Miscellaneous (dealing with all

other like motor, liability, Medical etc)

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You have a car of Rs.3 lac & have taken a car insurance. The premium for this is Rs.6000/year. After 1 month your car met with an accident and too fix the damage (make the car new again), it will cost Rs.20000. Now the insurance company will pay this amount as you have taken a car insurance.

Examples Of General Insurance (Motor)

& have taken a car insurance. The premium for this is Rs.6000/year. After 1 month your car met with an accident and too fix the damage (make the car new again), it will cost Rs.20000. Now the insurance company will pay this amount as you have taken a car insurance.

Examples Of General Insurance (Motor)

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Example Of General Insurance (Mediclaim);insurance cover of Rs.5 lac (Sum Assured). The premium for this is Rs.8000/year. After 6 month you need to be hospitalize due to some illness & your hospital bill was Rs.200000. Now the insurance company will pay this amount as you have taken a health insurance policy.

Portability Of Health Insurance: Here one can change his insurance company.

Note: In INDIA the regulatory body for insurance companies is Insurance Regulatory And Development Authority

Examples Of General Insurance (Motor)

Example Of General Insurance (Mediclaim); You have taken a health (Sum Assured). The premium for this is

Rs.8000/year. After 6 month you need to be hospitalize due to some illness & your hospital bill was Rs.200000. Now the insurance company will pay this amount as you have taken a health insurance policy.

Here one can change his insurance company.

In INDIA the regulatory body for insurance companies is IRDA i.e. Insurance Regulatory And Development Authority.

Examples Of General Insurance (Motor)

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Chapter - 4: Understanding Investment

Investment: Investment is a instrument which helps in grow money & it also helps you to fulfil your certain desires in your life.

Benefits Of Investments:

Investing makes your savings grow

Invested money grows with time

Interest is the extra money you get when you invest

Your money for some time

When interest is compounded money grows faster

4: Understanding Investment

Investment is a instrument which helps in grow money & it also helps you to fulfil your certain desires in your life.

Interest is the extra money you get when you invest

When interest is compounded money grows faster

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Diversification: Diversification is a very familiar financial terminology to most investors.

In the most general sense, it can be summed up with this phrase:

"Don't put all of your eggs in one basket.“

Taking a closer look at the concept of diversificationportfolio that includes multiple investments in order to

Diversification is a very familiar financial terminology to most

In the most general sense, it can be summed up with this phrase:

diversification, the idea is to create a portfolio that includes multiple investments in order to reduce risk.

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Lets understand Growth Of Money with an example:

Once a boy (Named - Ankush) received Rs.500 from his grandfather for his Birthday.

Ankush went to his father with this Rs.500.

Father: Son, put the money in your a piggy bank.

Ankush: Father, it is almost full and what should I do now?

Father: Why don't you put the money in my bank?

Ankush: I have total Rs.1500 (Rs. 1000 in my piggy bank and this Rs.500), but why should I give it to your Bank? Will they return my money?

Father: What if I say, they will not only return your money but will also give you additional Rs. 90 at the end of the year.

Ankush: I would like to know that why they are giving me this extra Rs.90?

Father : Rs.1500 was your investment and Rs.90 is the simple term interest amount.

** Interest Rate Taken As 6% Per Annum

Lets understand Growth Of Money with an example:

Ankush) received Rs.500 from his grandfather for his

: Son, put the money in your a piggy bank.

: Father, it is almost full and what should I do now?

: Why don't you put the money in my bank?

: I have total Rs.1500 (Rs. 1000 in my piggy bank and this Rs.500), but why should I give it to your Bank? Will they return my money?

: What if I say, they will not only return your money but will also give you

: I would like to know that why they are giving me this extra Rs.90?

: Rs.1500 was your investment and Rs.90 is the return on investment or in

** Interest Rate Taken As 6% Per Annum

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Inflation: The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

For Eg; When Mc'Donald launches its Mc Alooinflation (Due to rise in price of potato, transportation cost etc.) the same burger now costs Rs.30 (including taxes). So, inflation rate is 30

Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Burger at Rs.20, now because of inflation (Due to rise in price of potato, transportation cost etc.) the same burger now costs Rs.30 (including taxes). So, inflation rate is 30-20/20 = 50%.

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CPI (Consumer Price Index): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance.

The annual percentage change in a CPI is used as a measure of

WPI: An index that measures and tracks the changes in price of goods in the stages before the retail level. Some countries use WPI changes as a central measure of inflation.

Time Value Of Money: The time value of money is the principle that a certain currency amount of money today has a different buying power (value) than the same currency amount of money in the future. The value of money at a future point of time would take account of interest earned or inflation accrued over a given period of time.

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are

The annual percentage change in a CPI is used as a measure of inflation.

An index that measures and tracks the changes in price of goods in the stages before the retail level. Some countries use WPI changes as a central measure of

The time value of money is the principle that a certain currency amount of money today has a different buying power (value) than the same currency amount of money in the future. The value of money at a future point of time would take account of interest earned or inflation accrued over a

27

A. Simple Interest:

Formula:

S.I. = P*N*R/100 = Principal (Rs.1500 Amount Deposited) 100

S.I. (Simple Interest) = Rs.90

B. Compound Interest: Interest On Interest.

Suppose Ankush has deposited his Rs.1500 with bank for 2 years then his interest would be Rs.1685.40

Formula:

C.I. = P (Principal) * (1+r)^n = P (Rs.1500 Amount Deposited)

= Rs.1685.40

C.I. = Compound Interest, P= Principal, R = rate of interest, n = number of periods, r = R/100 (6 / 100 = 0.06)

So, Compound Interest for 2 years = Rs.185.40 (Compound Interest)

Types of Interest

S.I. = P*N*R/100 = Principal (Rs.1500 Amount Deposited) × Number Of Year (1Year) × Rate (6%) /

Suppose Ankush has deposited his Rs.1500 with bank for 2 years then his interest would be Rs.1685.40

C.I. = P (Principal) * (1+r)^n = P (Rs.1500 Amount Deposited) × {1+0.06}^n(2)

C.I. = Compound Interest, P= Principal, R = rate of interest, n = number of periods, r = R/100 (6 / 100

So, Compound Interest for 2 years = Rs.185.40 (Compound Interest)

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Rule Of 72:

29

Chapter 5: Basics Of Banking

Bank : Bank is an institution where people park their surplus money (Deposit) and earn some return called interest.

Types of bank Accounts:

Savings Account: You deposit money &

get interest on that deposit but there is a limit

on monthly withdrawls.

Current Account: You deposit money but

you don't get any interest on that deposit and

also there is no limit on withdrawls.

Bank is an institution where people park their surplus money (Deposit) and earn some return called interest.

You deposit money &

get interest on that deposit but there is a limit

You deposit money but

you don't get any interest on that deposit and

30

Eligibility Criteria For Opening A Bank Account:

One can open bank a/c who is of 18 years or above

Now, parents can also open bank a/c in name of their kids

Eg; Kotak Junior Account

Eligibility Criteria For Opening A Bank Account:

One can open bank a/c who is of 18 years or above

Now, parents can also open bank a/c in name of their kids

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.

31

Services Offered By Bank:

1

32

Types of Bank Deposits:

Recurring Deposit : Recurring Deposits are a special kind of Term Deposits offered by banks which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits.

Fixed Deposit: It is a financial instrument which provides investors with a higher rate of interest than a regular savings account, until the given maturity date . It may or may not require the creation of a separate account. It is known as a term deposit.

Special Bank Term Deposits: Banks also have their own specialized FD's offering attractive interest rate which is higher than normal FD's.

1

Recurring Deposits are a special kind of Term Deposits offered by banks which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at

It is a financial instrument which provides investors with a higher rate of interest than a regular savings account, until the given maturity date . It may or may not require the creation of a separate account. It is known as a term deposit.

Banks also have their own specialized FD's offering attractive interest rate which is higher than normal FD's.

33

Cheque: A cheque is an instrument in writing containing an unconditional order, signed by the maker, directing a a specified banker to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.

Demand Draft: It is a special instrument which does not get dishonoured (bounced). IT is always issued by a Bank.

ATM: Its a machine through which we can withdraw money from our deposit a/c at any time.

E-Banking Or Internet Banking: Its a process through which one can manage his/her account online like viewing e-statement, fund transfer, online shopping, ticket booking etc.

Tele-Banking: Its a process through which one can manage his/her account over the telephone.

Banking

A cheque is an instrument in writing containing an unconditional order, signed by specified banker to pay a certain sum of money only to, or to

the order of a certain person or to the bearer of the instrument.

It is a special instrument which does not get dishonoured (bounced). IT is

Its a machine through which we can withdraw money from our deposit a/c at any time.

Its a process through which one can manage his/her account statement, fund transfer, online shopping, ticket booking etc.

Its a process through which one can manage his/her account over the

34

Circled Number

Details Entry in the above cheque

1 Pay ( Name of the person who needs to be paid) Ramesh K.N

2 Date ( Date on which the money is to be paid) 31-03

3 Rupees(The amount to be paid in words) One Thousand only

4 Rs. (The amount to be paid in Figures) 1000

5 Signature of the person issuing cheque Signature(It should be as per specimen signature card given to the bank)

6 Account Number of the person issuing cheque 11987

7 Branch Name(The branch where the person who is signing the cheque is having the account)

State Bank of Mysore

Public Utility Branch, Bangalore

8 Cheque Number 665078

9 Mode of Payment A/C Payee

Cheque

1

Entry in the above cheque

Ramesh K.N

03-1999

One Thousand only

1000

Signature(It should be as per specimen signature card given to the bank)

11987

State Bank of Mysore

Public Utility Branch, Bangalore -560 001

665078

A/C Payee

35

Enclosed within the figure Enclosed within the figure Details

Black rectangle at the top left SBM - Somwarpet The branch of bank issuing the DD

Red Rectangle against ‘ON DEMAND PAY’

FOODS LIMITED The party which gets the amount specified in the DD

Red circle at the top right corner 22/06/2006 Date of issue of DD(Validity period is six months)

Green Circle below the date 65000.00 The amount payable to the party

Green rectangle in the middle Six – ten thousandFive – ThousandsZero – HundredsZero – tens

Amount in words

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

Demand Draft

Details

The branch of bank issuing the DD

The party which gets the amount specified in the DD

Date of issue of DD(Validity period is six months)

The amount payable to the party

Amount in words

The branch of bank which pays the amount

Number of DD

Two signatures of the officers of branch issuing DD

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No Features Cheque Demand Draft(DD)

1 Issuer Issued by account holder Issued by bank

2 Availability of Amount

The account need to have enough balance, at the time of passing of cheque.

Amount need to be paid to the bank before DD is made

3 Safety Can be forged easily Highly secure

4 Credit of amount to the payee’s account.

Couldtake fewdays

One or two days

5 Dishonoring of instrument

Cheque may get dishonored

Guaranteed by Bank

6 Issue Date Can be pre/post dated Can not be pre/post dated

7 Signature Signed by Accountholder/s

Signed by 2 designated officers of the Bank

8 Charges for issue

Nil or negligible Based on the value of DD, the Bank charges commission

Difference between Cheques and DDs:

1

Demand Draft(DD)

Issued by bank

Amount need to be paid to the bank before DD is made

Highly secure

One or two days

Guaranteed by Bank

Can not be pre/post dated

Signed by 2 designated officers of the Bank

Based on the value of DD, the Bank charges commission

Difference between Cheques and DDs:

37

Basics Of Banking

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 you get your money back if you need it immediately?

Growth: What is the return you will get on your investment? It could be in the form of income or appreciation or both.

Bank offers Safety on amount deposited.

You can withdraw money at any time through cheque, atm etc.

On amount deposited, you will also get interest on same.

Note: In INDIA the regulatory body for Banks is

Bank Gives You

1

If you lend 100 rupees to someone, will he give it back to you i.e. is your

Will you get your money back if you need it immediately?

What is the return you will get on your investment? It could be in the

You can withdraw money at any time through cheque, atm etc.

On amount deposited, you will also get interest on same.

In INDIA the regulatory body for Banks is RBI i.e. Reserve Bank Of India.

Bank Gives

38

Chapter 6: Introduction Of Stocks & Bonds

Can you identify these buildings?

Chapter 6: Introduction Of Stocks & Bonds

Can you identify these buildings?

39

The two buildings shown in last slide were:

National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) Located In Mumbai, INDIA.

BSE is the oldest stock market in Asia and NSE is the largest stock exchange in India and the third largest in the world in terms of volume of transactions. Though a number of other exchanges exist, NSE and BSE are the two most significant stock exchanges in India.

What is a Stock Exchange?

A ‘stock exchange’ is an organization constituted for the purpose of assisting and carrying out buying, selling or otherwise dealing in securities. It is also known as

What are securities?

Securities are financial instruments and include instruments such as shares, bonds, debentures of a company or body corporate or a government. Thus, a stock exchange provides a trading platform, where buyers and sellers can meet to transact in securities.

Note: In INDIA the regulatory body for stock exchange is Exchange Board Of India.

National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) Located In Mumbai,

BSE is the oldest stock market in Asia and NSE is the largest stock exchange in India and the third largest in the world in terms of volume of transactions. Though a number of other

are the two most significant stock exchanges in India.

A ‘stock exchange’ is an organization constituted for the purpose of assisting and carrying out buying, selling or otherwise dealing in securities. It is also known as Secondary Market.

Securities are financial instruments and include instruments such as shares, bonds, debentures of a company or body corporate or a government. Thus, a stock exchange provides a trading platform, where buyers and sellers can meet to transact in securities.

In INDIA the regulatory body for stock exchange is SEBI i.e. Securities and

40

IPO: An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange (like NSE, BSE), for the first time.

Demat Account: In India, shares and securities are held electronically in a Dematerialized account, instead of the investor taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment broker (or subwill have a Dematerialized account for the purpose of transacting shares.

Dematerializing a security means converting it from physical form to electronic form.

In India there are two depositories which take care of securities dematerialization. They are NSDL (National Securities Depository Limited) & CDSL (Central Depository Services Limited).

An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange (like NSE, BSE), for the first time.

In India, shares and securities are held electronically in a Dematerialized account, instead of the investor taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment broker (or sub-broker). Every shareholder will have a Dematerialized account for the purpose of transacting shares.

converting it from physical form to

In India there are two depositories which take care of securities NSDL (National Securities Depository

Limited) & CDSL (Central Depository Services Limited).

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Equity Stocks: An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises.

Face Value: It is also known as par value of the stock. Face Value of share is generally Rs.10.

Dividend: A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can either reit in the business (called retained earnings), or it can distribute it to shareholders.

EPS (Earning Per Share): It is the rupee value of earnings per outstanding share of a company's equity stock.

Earnings per share (net income formula) :

EPS = Profits – Dividends / No. Of Outstanding Shares

P/E Ratio: The price-to-earnings ratio or P/E ratio, is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share.

An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises.

It is also known as par value of the stock. Face Value of share is generally

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can either re-invest it in the business (called retained earnings), or it can distribute it to shareholders.

It is the rupee value of earnings per outstanding share of a

Dividends / No. Of Outstanding Shares

earnings ratio or P/E ratio, is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share.

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Shareholders: Individuals who buy (in other words invest in) shares of a company are the owners of the company and are referred to as share holders. Share holders usually have voting rights and can, thus, participate in management of the company.

Bond: It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest.

Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets.

Debenture: A debenture is a document that either creates a debt or acknowledges

it, and it is a desbt without collateral.Nifty is the 50 stock index comprised of some of the largest and most liquid

stocks traded on the NSE.

BSE 100 is the stock index comprised of 100 of the largest and most liquid stocks traded on the BSE.

Individuals who buy (in other words invest in) shares of a company are the owners of the company and are referred to as share holders. Share holders usually have voting rights and can, thus, participate in management of the company.

It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest.

public authorities, credit institutions, companies and supranational institutions in the primary markets.

: A debenture is a document that either creates a debt or acknowledges

is the 50 stock index comprised of some of the largest and most liquid

is the stock index comprised of 100 of the largest and most liquid

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Phases Of Stock Market:

Bull Phase: A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains). A bullish trend in the stock market often begins before the general economy shows clear signs of recovery.

Bear Phase: A bear market is a general decline in the stock market over a period of time. It is a transition from high investor optimism to widespread investor fear and pessimism.

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A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains). A bullish trend in the stock market often begins before the general economy shows clear signs of recovery.

A bear market is a general decline in the stock market over a period of time. It is a transition from high investor optimism to widespread investor fear and pessimism.

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Chapter 7: Investments : The Wider Spectrum

There are other asset classes for investing apart from bank saving a/c such as: Mutual Funds, Commodities (Gold), Real Estate, Foreign Exchange (Dollar).

Mutual Fund: It is a pool of funds for doing investments which is professionally managed by Fund Managers & has a common goal.

Types Of Mutual Funds:

A. Open Ended Funds: Where you can invest/sell anytime.

B. Close Ended Funds: Where you can invest for a specified time and can sell only after the specified time.

Entry/Exit Load: A Load is a charge, which the mutual fund collects on entry and/or exit from 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.

Chapter 7: Investments : The Wider Spectrum

There are other asset classes for investing apart from bank saving a/c such as: Mutual Funds, Commodities (Gold), Real Estate, Foreign Exchange (Dollar).

Mutual Fund: It is a pool of funds for doing investments which is professionally managed by

Where you can invest/sell anytime.

Where you can invest for a specified time and can sell only after the

A Load is a charge, which the mutual fund collects on entry and/or exit from a fund. A load is charged to cover the cost incurred by the mutual fund when it buys or

45

Types Of Mutual Funds:

1

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Benefits Of Mutual Fund

•• Professional Management Professional Management –– Fund ManagerFund Manager

•• Diversification Diversification -- In All Sectors of EconomyIn All Sectors of Economy

•• Return Potential Return Potential -- High Returns / Post Tax Returns High Returns / Post Tax Returns

•• Low Costs Low Costs -- Entry / Exist LoadEntry / Exist Load

•• Liquidity Liquidity -- Anytime Redemption / Partial WithdrawalAnytime Redemption / Partial Withdrawal

•• Transparency Transparency –– Fact Sheet Fact Sheet

•• Flexibility Flexibility –– Switching Option (One Scheme to other)Switching Option (One Scheme to other)

•• Choice of schemes Choice of schemes –– Various FundsVarious Funds

•• Tax benefits Tax benefits –– u/su/s 8080©©

Fund ManagerFund Manager

In All Sectors of EconomyIn All Sectors of Economy

High Returns / Post Tax Returns High Returns / Post Tax Returns

Anytime Redemption / Partial WithdrawalAnytime Redemption / Partial Withdrawal

Switching Option (One Scheme to other)Switching Option (One Scheme to other)

Various FundsVarious Funds

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NAV : Net asset value(NAV) is the value of a fund's asset less the value of its liabilities per unit.

Where Assets = Market value of the fund’s investments + Receivables + Accrued Income

NAV

Net asset value(NAV) is the value of a fund's asset less the value of its

Where Assets = Market value of the fund’s investments + Receivables +

49

v/s

48

Comparisons

v/s

49

P a r a m e t e r PPF Ba n k FD

Re turns 8% 8% - 9%On Ma turit y

Te nure 15 Ye a rs

No No

No Ye s

Minim um Rs 500 p.a . Rs 10000Inv e s tm e ntMa x im um Rs 1 ,00 ,000Inv e s tm e nt

N.A N.A.

Inte re s t Re c e ipt

On Ma turit y

7 da y s to 10 y rs

Pa rt ia l Withdra w a l Long t e rm Ta x Lia bilit y

No Uppe r Lim it

Monthly Inv e s tm e nt sLoc k In Pe riod

By De fa ult 15 y rs

De pe nds on Te rm of De pos it

Comparisons

Ba n k FD

8% - 9% 12 -15%

No Ye s

Ye s No

Rs 10000 Rs 5000

N.A. Rs 500

Eq u it y MF S c h e m e s

Ma turit yDe pe nds on Pe rform a nc e

7 da y s to No Spe c ifie d Te rm

No Uppe r Lim it

No Uppe r Lim it

De pe nds on Te rm of De pos it

No Loc k- in Pe riod

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National Saving Certificate (NSC): National Savings Certificates popularly known as NSO is a saving bond , primarily used for small saving and income tax saving investment in India, part of the Postal savings system of Indian Postal Service (India Post). These can be purchased from a post office by an adult in his own name or in the name of a minor, a minor, a trust, two adults jointly. These are issued for six year maturity and can be pledged to banks for availing loans.

NSC

: National Savings Certificates popularly known as NSO is a saving bond , primarily used for small saving and income tax saving investment in India, part of the Postal savings system of Indian Postal Service (India Post). These can be purchased from a post office by an adult in his own name or in the name of a minor, a minor, a trust, two adults jointly. These are issued for six year maturity and can be pledged to banks

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Post Office Monthly Income Scheme (POMIS)Scheme plan is one of the many investment options offered by Post Office in India. Schemes offered by Post Offices are risk free as there is no touch of equity in them. POMIS is also one such scheme.

PO MIS

Post Office Monthly Income Scheme (POMIS): Post Office Monthly Income Scheme plan is one of the many investment options offered by Post Office in India. Schemes offered by Post Offices are risk free as there is no touch of equity in them. POMIS is also one such scheme.

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Chapter 8: Beyond Savings : Borrowing

Loan: A thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

For eg; As explained in previous slides your pocket money is Rs.500, you ordered a pizza of Rs.700. Your shortage is Rs.200, so you borrowed or took a “LOAN” from your elder sibling for Rs.200. Now your loan is Rs.200 which you will pay back when you will get your pocket money next month. This loan also can be treated as Personal Loan.

EMI (Equated Monthly Installment) is the amount that a borrower should pay every month.

For eg; You pay back Rs.200 loan taken from your elder sibling in 4 monthly installments of Rs.50. In simple term, you will pay back your loan in EMI's of Rs.50.

1

Chapter 8: Beyond Savings : Borrowing

A thing that is borrowed, especially a sum of money that is expected to be

As explained in previous slides your pocket money is Rs.500, you ordered a pizza of Rs.700. Your shortage is Rs.200, so you borrowed or took a “LOAN” from your elder sibling for Rs.200. Now your loan is Rs.200 which you will pay back when you will get your pocket money next month. This loan also can be

is the amount that a borrower should pay every

You pay back Rs.200 loan taken from your elder sibling in 4 monthly installments of Rs.50. In simple term, you will pay back your loan in EMI's of Rs.50.

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Amortization: Amortization is the process by which loan principal decreases over the life of a loan, typically an amortizing loan. With each loan payment that is made, a portion of it is applied towards reducing the principal, and another one is applied towards reducing the interest on the loan.

Credit Cards: A credit card is a payment card issued to users as a system of payment. It allows the cardholder to pay for goods and services based on the holder's promise to pay for them.

Credit Card

: Amortization is the process by which loan principal decreases over the life of a loan, typically an amortizing loan. With each loan payment that is made, a portion of it is applied towards reducing the principal, and another one is applied towards reducing the interest on the loan.

: A credit card is a payment card issued to users as a system of payment. It allows the cardholder to pay for goods and services based on the

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Advantages of Credit Card:

Availibility of interest free credit for 45 days

No need to carry cash

Useful for online shoppings/payments

Available all over the world

Disadvantages of Credit Card:

High interest rates on late payment

If lost, it can be misused

One tends to spend a lot over and above his earning

Credit Card

1

of interest free credit for 45 days

One tends to spend a lot over and above his earning

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Different Types Of Loans:

House Loan

Consumer Loan

Personal Loan

Auto Loan

Education Loan etc.

Eg: Suppose you purchased a car of Rs.5 Lac. You paid Rs.2 Lac for now i.e. your down payment. For the remaining portion you took an Rs.3 Lac (Loan Amt-3Lac) at 12% per annum (Interest Ratepay Rs.7000 monthly to pay off your loan i.e.

If the interest rate remains the same i.e. 12%, its called as

If the interest rate fluctuates i.e. Sometime 12%, sometime 13%, its called as Floating Rate.

Loans

Suppose you purchased a car of Rs.5 Lac. You paid Rs.2 Lac for now i.e. your down payment. For the remaining portion you took an Auto Loan of

per annum (Interest Rate-12%). And you pay Rs.7000 monthly to pay off your loan i.e. EMI.

If the interest rate remains the same i.e. 12%, its called as Fixed Rate.

If the interest rate fluctuates i.e. Sometime 12%, sometime 13%, its called as

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Chapter 9: Retirement Planning

Retirement planning: Planning for the purpose of achieving financial independence after retirement.

Pension: Regular income to the individual after retirement.

Retirement planning requires three basic steps:

1. Determine how much annual income will be needed in each year of retirement.

2. Determine how much corpus must be accumulated in retirement savings by the start of retirement in order to fund the expenditure during retired years.

3. Determine how much must be contributed to retirement savings in each working year remaining in order to accumulate the required amount.

Chapter 9: Retirement Planning

Planning for the purpose of achieving financial independence

Regular income to the individual after retirement.

Retirement planning requires three basic steps:

1. Determine how much annual income will be needed in each year of retirement.

2. Determine how much corpus must be accumulated in retirement savings by the start of retirement in order to fund the expenditure during retired years.

3. Determine how much must be contributed to retirement savings in each working year remaining in order to accumulate the required amount.