Personal Finance: Savings vs Investments

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Questions and Answers

What is the result of dividing 72 by 6%?

12 years (correct)

10 years

14 years

16 years

What is the primary purpose of the Rule of 72?

To determine the annual rate of return

To calculate the total amount of money invested

To find out how long it takes to double your money (correct)

To calculate the interest rate

What is the benefit of using Rupee Cost Averaging?

It guarantees a high rate of return

It reduces the impact of short-term market fluctuations (correct)

It helps to maximize returns

It allows you to predict market trends

What happens when unit prices are low with Rupee Cost Averaging?

You buy more units Signup and view all the answers

What is the goal of trying to figure out the exact best time to invest?

To avoid market fluctuations Signup and view all the answers

What is the outcome of investing a fixed amount of money at regular intervals?

The average cost of units is averaged out Signup and view all the answers

What is the primary purpose of making savings?

To maintain liquidity for short-term requirements Signup and view all the answers

What is the benefit of starting to save and invest early in life?

It helps in achieving long-term financial goals Signup and view all the answers

What is the term for borrowed money to meet a financial shortfall?

Debt Signup and view all the answers

What is the concept that describes the decrease in purchasing power of money over time?

Time Value of Money Signup and view all the answers

What is the term for items that you own and have economic value?

Assets Signup and view all the answers

What is the primary goal of investing?

To generate income in the future Signup and view all the answers

Why is it important to start saving and investing early?

To achieve long-term financial goals Signup and view all the answers

What determines the risk level of an investment?

The asset in which the investment is done Signup and view all the answers

What is the total amount invested by the investor over the period of twelve months?

₹24,000 Signup and view all the answers

What is the average cost per unit of the mutual fund?

₹51.50 Signup and view all the answers

In which month did the investor receive the highest number of units?

Jul Signup and view all the answers

What is the purpose of financial planning?

To estimate financial needs and implement a comprehensive plan to meet those needs Signup and view all the answers

How many units of the mutual fund did the investor receive in total?

466 units Signup and view all the answers

What is the cost per unit in the month of June?

₹66.67 Signup and view all the answers

What is the total number of months in which the investor invested in the mutual fund?

12 months Signup and view all the answers

In which month did the investor receive the lowest number of units?

May Signup and view all the answers

What is the primary characteristic of commodities?

They are raw materials for further processing Signup and view all the answers

Which of the following is NOT a type of agricultural commodity?

Metals Signup and view all the answers

What is an example of a fibre commodity?

Cotton Signup and view all the answers

What is the impact of rising steel prices on automobile producers?

Their cost of production increases Signup and view all the answers

What is an example of a factor that can affect commodity prices?

All of the above Signup and view all the answers

What is the result of a farmer planting less of a crop due to low prices?

The farmer misses out on potential profits if prices rise Signup and view all the answers

Which type of commodity includes cottonseed and soy oil?

Edible oilseed Signup and view all the answers

What is commodity price risk?

The uncertainty about a commodity's price that negatively impacts producers and users Signup and view all the answers

What is the primary purpose of insurance, according to the text?

To manage the risk of an uncertain future loss Signup and view all the answers

What is dabba trading, according to the text?

Informal trading using cash among traders betting on stock price fluctuations Signup and view all the answers

What should you do with your password for online accounts, according to the text?

Change it frequently Signup and view all the answers

What is the warning given regarding hot tips, according to the text?

They should not be relied upon for investment decisions Signup and view all the answers

What should you do with blank spaces in your KYC documents, according to the text?

Strike them off Signup and view all the answers

What is the warning given regarding Ponzi schemes, according to the text?

They are unregistered and should be avoided Signup and view all the answers

Where can you refer to for redressal of any grievance regarding securities market, according to the text?

Chapter 12 of this booklet Signup and view all the answers

What is the warning given regarding digital contracts, according to the text?

They should only be used by those familiar with computers Signup and view all the answers

Study Notes

Financial Education

The Rule of 72 is a mathematical formula used to find out how long it will take to double your money by dividing 72 by the interest rate.
For example, if you invest ₹200 at an interest rate of 6% per year, it will take approximately 12 years to double your money to ₹400.

Rupee Cost Averaging

Rupee cost averaging is a process of investing a fixed amount of money at regular intervals, regardless of market fluctuations.
It helps to avoid the complexity of trying to figure out the best time to invest and averages out the costs of your units.
This approach reduces the impact of short-term market fluctuations on your investments.

Savings and Investments

Savings are made to maintain liquidity for short-term or urgent requirements.
Investments are made to make money grow by creating assets that can generate income in the future or increase in value.
Savings have low or negligible risk, while investments depend on the asset in which they are done.
Savings are highly liquid, whereas investments are comparatively less liquid.

Importance of Saving and Investing

Investing money makes it grow for you, bringing you closer to your financial goals.
One should start saving and investing early in life to achieve goals like owning a house, financing education, or funding retirement.

Assets and Liabilities

Assets are items that you own and have economic value.
Liabilities are items that you owe to others or have borrowed from them.
For example, a fixed deposit is an asset, while a loan from a bank is a liability.

Debt

Debt is money borrowed to meet a shortfall of money when expenses are more than available funds.

Time Value of Money

The time value of money explains how the value of money changes over time.
As time passes, the same amount of money can buy fewer goods or services due to inflation.

Financial Planning

Financial planning is the process of estimating financial needs and implementing a comprehensive plan to meet those needs through investment.
It involves creating a plan to meet financial goals during one's lifetime.

Commodity Price Risk

Commodity price risk is the uncertainty that affects the financial position of those who use and produce commodities.
Factors that can affect commodity prices include political and regulatory changes, seasonal variations, weather, technology, and market conditions.

Insurance

Insurance is a form of risk management that allows individuals, businesses, and other entities to protect themselves against significant potential losses and financial hardship at a reasonably affordable cost.
Insurance provides a promise of compensation for specific potential future losses in exchange for a periodic payment called premium.
An entity that provides insurance is known as the insurer, and a person who buys insurance is known as an insured or policy holder.

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Description

Compare and contrast the goals, risks, and liquidity of savings and investments. Learn about the differences between saving for short-term needs and investing for long-term growth.