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?

    <p>You buy more units</p> Signup and view all the answers

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

    <p>To avoid market fluctuations</p> Signup and view all the answers

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

    <p>The average cost of units is averaged out</p> Signup and view all the answers

    What is the primary purpose of making savings?

    <p>To maintain liquidity for short-term requirements</p> Signup and view all the answers

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

    <p>It helps in achieving long-term financial goals</p> Signup and view all the answers

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

    <p>Debt</p> Signup and view all the answers

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

    <p>Time Value of Money</p> Signup and view all the answers

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

    <p>Assets</p> Signup and view all the answers

    What is the primary goal of investing?

    <p>To generate income in the future</p> Signup and view all the answers

    Why is it important to start saving and investing early?

    <p>To achieve long-term financial goals</p> Signup and view all the answers

    What determines the risk level of an investment?

    <p>The asset in which the investment is done</p> Signup and view all the answers

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

    <p>₹24,000</p> Signup and view all the answers

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

    <p>₹51.50</p> Signup and view all the answers

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

    <p>Jul</p> Signup and view all the answers

    What is the purpose of financial planning?

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

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

    <p>466 units</p> Signup and view all the answers

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

    <p>₹66.67</p> Signup and view all the answers

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

    <p>12 months</p> Signup and view all the answers

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

    <p>May</p> Signup and view all the answers

    What is the primary characteristic of commodities?

    <p>They are raw materials for further processing</p> Signup and view all the answers

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

    <p>Metals</p> Signup and view all the answers

    What is an example of a fibre commodity?

    <p>Cotton</p> Signup and view all the answers

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

    <p>Their cost of production increases</p> Signup and view all the answers

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

    <p>All of the above</p> Signup and view all the answers

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

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

    Which type of commodity includes cottonseed and soy oil?

    <p>Edible oilseed</p> Signup and view all the answers

    What is commodity price risk?

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

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

    <p>To manage the risk of an uncertain future loss</p> Signup and view all the answers

    What is dabba trading, according to the text?

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

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

    <p>Change it frequently</p> Signup and view all the answers

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

    <p>They should not be relied upon for investment decisions</p> Signup and view all the answers

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

    <p>Strike them off</p> Signup and view all the answers

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

    <p>They are unregistered and should be avoided</p> Signup and view all the answers

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

    <p>Chapter 12 of this booklet</p> Signup and view all the answers

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

    <p>They should only be used by those familiar with computers</p> 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.

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