Podcast
Questions and Answers
What is the primary purpose of savings in a bank account?
What is the primary purpose of savings in a bank account?
Which of the following best describes the main risk associated with investments?
Which of the following best describes the main risk associated with investments?
Which of the following is NOT a method of investment as mentioned?
Which of the following is NOT a method of investment as mentioned?
What is the effect of starting to save and invest early in life?
What is the effect of starting to save and invest early in life?
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What distinguishes the liquidity of savings from investments?
What distinguishes the liquidity of savings from investments?
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What is the average price per unit of the mutual fund calculated from the total investment and total units acquired?
What is the average price per unit of the mutual fund calculated from the total investment and total units acquired?
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Which of the following factors is NOT typically considered in financial planning?
Which of the following factors is NOT typically considered in financial planning?
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What is necessary to determine before planning for future financial needs?
What is necessary to determine before planning for future financial needs?
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If an investor paid ₹2,000 each month and acquired units at varying costs per unit, which month provided the investor the most units?
If an investor paid ₹2,000 each month and acquired units at varying costs per unit, which month provided the investor the most units?
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Which statement best describes the financial planning process?
Which statement best describes the financial planning process?
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What is the primary purpose of calculating net worth?
What is the primary purpose of calculating net worth?
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Which of the following is NOT categorized as a financial goal?
Which of the following is NOT categorized as a financial goal?
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What does the acronym SMART stand for in relation to financial goals?
What does the acronym SMART stand for in relation to financial goals?
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According to the financial planning concept presented, what should one prioritize when managing income?
According to the financial planning concept presented, what should one prioritize when managing income?
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Which statement reflects a misunderstanding about financial planning?
Which statement reflects a misunderstanding about financial planning?
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What is capital appreciation in the context of investments?
What is capital appreciation in the context of investments?
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What constitutes regular income from equity investments?
What constitutes regular income from equity investments?
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How should an investor approach the assessment of risks associated with investments?
How should an investor approach the assessment of risks associated with investments?
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What is the relationship between risk and return in investing?
What is the relationship between risk and return in investing?
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What should an investor do regarding promised high returns?
What should an investor do regarding promised high returns?
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Study Notes
Financial Literacy
- Financial literacy is crucial for managing personal finances effectively.
- People face issues like complex financial products, fraud, retirement planning, etc. which necessitate proper income and expenditure management.
- Financial education equips individuals with the knowledge and skills to manage their finances, leading to better financial well-being.
- Financial planning involves creating a budget and managing income, expenditure, assets and liabilities.
Key Concepts in Personal Finance
- Savings: Surplus of income over expenditure.
- Investments: Deployment of savings into financial or non-financial products to earn higher returns. This can include but is not limited to: fixed deposits, shares and stock market investments, Mutual funds, etc. (both financial and non-financial)
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Savings vs Investments: The table in the document details the differences (see below)
- Savings are for short-term goals and liquidity needs; investments are for long-term growth.
- Savings risk is low to negligible, while investment risk can be higher or lower, depending on the investment type.
- Savings are highly liquid, while investments can be less liquid.
Importance of Saving and Investing
- Investing money grows your investment over a period of time.
- Starting early is important in achieving financial goals like buying a house, financing education, or funding retirement.
- Assets are owned items (e.g., savings account, fixed deposit, or investment)
- Liabilities are borrowed items (e.g., loans or debt)
- Debt is money borrowed when expenses exceed available funds.
Time Value Of Money
- The value of money decreases over time due to inflation.
- The value of money now is more than its value in the future.
Inflation and Investment
- Inflation refers to the rise in prices of goods and services.
- Inflation decreases the purchasing power of money over time, affecting investments.
Power of Compounding
- Compounding is earning interest on principal and previously earned interest.
- It shows how your investment grows over time with regular, reinvested returns.
- This is significantly more beneficial than simple interest.
The Rule of 72
- Dividing 72 by the interest rate approximates the time required to double your investment.
Rupee Cost Averaging
- Investing a fixed amount of money regularly, regardless of market fluctuations.
- This averages out the costs of invested units.
Financial Planning Process
- Review and revise: Reviewing and updating financial plans regularly to adapt to changing situations.
- Financial goals: Defining and setting clear financial objectives.
- Action plan: Outline concrete steps required to achieve financial goals, outlining financial expectations and strategy
- Evaluate alternatives: Considering different options for achieving financial goals.
- Financial position: Understanding current financial resources (income, expenses, assets, liabilities).
Current Financial Position
- To establish a financial strategy, one needs to understand their present financial situation.
- Assets (items owned) minus liabilities (amount owed) equals net worth.
Types of Bank Accounts
- Savings Account (SB): A highly-liquid account with low interest that provides payment facilities via ATM cards, debit cards, etc.
- Fixed Deposit (FD): A long-term investment with a fixed interest rate.
- Recurring Deposit (RD): A fixed deposit made in installments.
- Other options: A variety of other deposit accounts are offered by banks.
- KYC norns: Know your client (KYC) norms, which are a series of requirements that are designed for the safety and security of customers who operate accounts.
Digital Banking
- NEFT (National Electronic Funds Transfer): The transfer of funds from one Bank account to another.
- RTGS (Real-Time Gross Settlement): A real-time transfer of large amounts between accounts.
- IMPS (Immediate Payments Service): A faster real-time transfer of funds using an account number and IFSC code.
- UPI (Unified Payments Interface): An online system for transferring small amounts of money through an application.
Digital Payments - Do's and Don'ts
- Do's: Regularly change passwords, use secure internet banking portals, update applications, and keep your information private.
- Don'ts: Do not use unsecured Wi-Fi networks when banking, do not leave your device unattended when banking, etc.
Investment in Securities Market
- Before investing in securities one must understand the associated risks.
- Market Risk: Overall market fluctuations impacting asset value.
- Unsystematic Risk: Uncertainty of individual company performance.
- Inflation Risk: Loss of purchasing power due to price increases.
- Liquidity Risk: Inability to convert assets to cash quickly.
- Business Risk: Operations disrupting a business or company.
- Volatility Risk: Price fluctuations impacting asset value.
- Currency Risk: Risks associated with currency exchange fluctuations.
- Systematic risk is a part of the stock market that cannot be diversified away.
Trading Days and Settlement Cycle
- Stock trades occur on most days except Saturdays, Sundays, and declared holidays.
- Pay-in day: Day investors make payments; the settlement of trades.
- Pay-out day: Day investors receive payments for investments.
- Settlement cycles are on a T+2 basis; meaning Trades executed on a Monday will settle on Wednesday.
Contract Notes
- Legal document outlining transactions, including traded prices, brokerage fees, etc.
Basic Services Demat Account (BSDA)
- A low-cost demat account for retail investors with no/minimal annual maintenance fees.
- Provides statements and online order placement.
Mutual Funds
- An investment pool investing on behalf of investors across diversified assets and securities markets with different types of schemes.
- Funds are managed by professional fund managers.
- Mutual funds combine investment diversification and economy of scale.
What is SIP?
- An SIP is a systematic investment plan in which investors deposit a fixed amount into a mutual fund regularly.
- It reduces market timing risks from investors.
Commodity Derivatives Market
- Commodity markets include agricultural, non-agricultural, and other products like metals, energy, and polymers.
Insurance Related Products
- Life Insurance: Provides financial protection in case of death (term life, endowment, and whole life).
- Personal Accidental Cover Policy: Provides compensation in case of injuries, etc..
- Motor Insurance: Covers insurance for cars, trucks, motorcycles, etc.
- Property Insurance: Covers property damage and theft.
- Group Insurance: Covers defined groups (e.g., employees).
- Health Insurance: Covers medical expenses.
- Travel Insurance: Covers travel issues/risks (cancellation, medical, etc.)
Pension Services
- Pension is a regular payment received upon retirement.
- The person can get a lump sum or a regular income through annuity plan.
- Existing accounts can be used for pension or transferred to another bank.
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Description
This quiz covers essential concepts of financial literacy and personal finance management. Explore topics such as savings, investments, budgeting, and financial planning techniques. Gain a deeper understanding of how to manage your income and prepare for future financial challenges.
