A

DISSERTATION
ON
“Financial Planning and Comparison of Various
Instruments”

SUBMITTED BY : - SUBMITTED TO :-

SAKSHAM JAIN MRS. NUPUR OJHA

REG. NO .:- 200901035

BBA VI – A

Department of Business Administration

School of Business and Commerce
MANIPAL UNIVERSITY JAIPUR
1
 INDEX

S.No. TITLE Page No.

1. Declaration 1

2. Acknowledgement 2

3. Chapter 1: Introduction 3-8

4. Chapter 2 : Research Methodology 9-10

5. Chapter 3 : Review of Literature 11

6. Chapter 4 : Various Aspects of Financial 12-33

Planning (Topic Briefing)
7. Chapter 5 : Case Study 34-36

8. Chapter 6 : Data Analysis & Interpretations 37-39

9. Chapter 7 : Conclusion & Suggestion 40

10. Chapter 8 : Bibliography 41

2
 Declaration
I hereby declare that the report titled “Financial Planning and Comparison of Various
Instruments”, herewith submitted in partial fulfilment for award of “Bachelors of Business
Administration” Manipal University Jaipur is an authentic record of the research work
carried out by me. The matter embodied in this report has not been submitted for the award
of any other degree or diploma.

Saksham Jain

( Reg. No. :- 200901035 )

3
 Acknowledgement

Any fruitful work is incomplete without words of gratitude to those who directly or indirectly
contributed to its completion. I would like to express my gratitude to everyone who helped
me in preparing the dissertation report.

I am deeply grateful to the Respected faculty members and fellow students for their valuable
inputs and suggestions. Their expertise was a source of inspiration and helped me a lot during
the project work.

I want to express my heartfelt thanks to my mentor and teacher, Mrs. Nupur Ojha at Manipal
University Jaipur for always supporting me and giving me the best ideas and valuable
information and guidance. I am very inspired with her remarkable suggestions and
experienced ideas. The whole project was also successfully completed because of the
relentless efforts of my teacher.

4
 Chapter 1: INTRODUCTION
Financial planning is important for everyone, whether they are students or retirees. The
earlier you start managing your money, the better. Let's say you decide not to budget
and continue spending whenever you choose. Eventually, you decide you would like to
buy a house but are unable to since you scarcely have any funds left. When you don't
budget and wind up overpaying, this is what occurs.

When we are unsure of what we actually need, we frequently overpay. In our effort to
meet all of our needs, we continue to spend money without keeping track of it. One
should be aware of the distinction between necessities and wants. We will need to
spend money on things like tea every night, lunch every day, and rent.

Today I, the writer of this Project work on Financial Planning & Comparison of
Various Instruments presents many facets of financial planning for college students
are discussed. Planning your finances is crucial for everyone. Achieving future
financial objectives is easier if individuals recognize its importance at a young age
since you may invest in various goods to suit your demands.

1) Financial Planning

The term “Financial Planning” itself contains two words:

 1.1) Finance: Finance is an expansive concept that encompasses a range of activities

linked to banking, debt or leverage, credit, capital markets, investments, and money. In
essence, finance is the practice of managing money and securing necessary funds. It
also involves the supervision, formation, and analysis of financial systems, which
consist of assets, liabilities, money, banking, credit, and investments.

FINANCE

Forecasting Budgeting Investing Savings Lending

5
 It may include:
1) Investments: An investment is an item or asset acquired with the objective of generating
income or increasing in value. Economically speaking, an investment involves the purchase
of goods that are not consumed immediately but are held for future use to generate wealth.
In finance, an investment is a financial asset bought with the expectation that it will
generate income or be sold for a profit at a later date.
2) Loans: In the realm of finance, a loan refers to the act of lending money by one or more
entities, such as individuals or organizations, to others. The recipient of the loan, commonly
referred to as the borrower, becomes indebted and is typically obligated to pay interest on
the borrowed sum until it is fully repaid, in addition to returning the principal amount
borrowed.
3) Budgeting: A personal budget or home budget is a finance plan that allocates future
personal income towards expenses, savings and debt repayment. Past spending and personal
debt are considered when creating a personal budget.
4) Saving: Saving involves setting aside any additional money that remains after covering
expenses for future spending or investing purposes. Whenever an individual earns more
than they spend, they can allocate the extra amount towards savings or investments.
Properly managing savings is a crucial aspect of personal finance.

 1.2) Planning:
Planning is the process of thinking about the activities required to achieve a desired goal. It
is the first and foremost activity to achieve desired results. It is the fundamental
management function, which involves deciding beforehand, what is to be done, when is it to
be done, how it is to be done and who is going to do it. It is an intellectual process which
lays down an organization’s objectives and develops various courses of action, by which the
organization can achieve those objectives. It talks out exactly, how to attain a specific goal.
Planning is nothing but thinking before the action takes place. It helps us to take a peep into
the future and decide in advance the way to deal with the situations, which we are going to
encounter in future. It involves logical thinking and rational decision making.

1.3) What is Financial Planning?

It can be said as, planning our finance to achieve our future goals considering the current
assets and liabilities in known as Financial Planning.

6
Financial planning is the process of developing a personal roadmap for your financial well-
being.
The output of the financial planning process is a personal financial plan that tells you how
to use your money to achieve your goals, keeping in mind inflation, real return and taxes.
In short, financial planning is the process of systematically planning your finances towards
achieving your short-term and long-term life goals.

1.4) Importance of Financial Planning

Can you manage without financial planning? Many people do, but they may find—often when
it is too late—that they don’t have the means to achieve their life goals.

People nowadays, for instance, are aware of how important it is to fully live each day. As a
result, a lot more people now choose to leave their full-time occupations before the
mandatory retirement age of 58 to 60 years, as opposed to a few decades ago.

Retirement life is now almost as long as working life since the ordinary individual can now
expect to live a healthy life well into his or her seventies or eighties. Financially, it suggests
that savings (after accounting for inflation) should be sufficient to cover not just the cost of
maintaining the same standard of living for almost 25 to 30 years while receiving no new
income, but also the cost of medical care, which is often significant as a person ages. It's a
big task to plan for all of this for anyone. Everyone should start planning their finances early
because of this.

1.5) Benefits of Financial Planning

Here is a summary of the advantages that a carefully drafted financial plan might have:
• Assists in keeping track of financial flows and cuts back on wasteful spending.
• Makes it possible to maintain the ideal balance between income and spending.
• Promotes wealth creation and increases savings.
• Helps in lowering tax obligations.
• Maximizes investment returns.
• Contributes to money creation and improved wealth management in order to realise life goals.
• Retirement with a safe financial future.

1.6) Stages where Financial Planning is needed

7
1.7) Steps of Financial Planning,

Ideally, at this point, you've come to the conclusion that you must have a piece of the action. Next,
what? When it comes down to it, financial planning involves a number of processes. Detailing each
of these processes is covered in this section.
Step 1: Determine your present financial condition as the first step.
All the family members who are employed should get down and discuss their income sources, debts,
assets, and responsibilities. You may see your current financial condition from this.

Step 2: Determine your objectives.

Get a list of the family's aspirations for the now and the future from each member. By reaching an
agreement, rank each objective in order of importance and assign a deadline for when you'll need the
money to complete it. Quantify each objective if at all possible. This activity helps you identify your
short- and long-term goals as well as the amount of money required for each.
Step 3: Determine any financial gaps
Knowing your financial situation and where you want to go, that is, how much money you have or
can anticipate your regular sources of income to bring in, as well as how much money you need to
achieve your different goals.
You may get a rough sense of the shortage with a simple computation. This is significant because
you must quantify the income from your assets in order to choose the best investments to make up
the gap.

Step 4: Create a financial strategy for yourself.

Review the several investment alternatives available to you, including equities, mutual funds, debt
instruments like PPF, bonds, fixed deposits, gilt funds, etc., and decide which instrument or mix of
instruments best meets your needs.
Your investment's time horizon must line up with the duration of your ambitions.
Step 5: Put your financial strategy into action.

The moment has come to start acting. Collect the required paperwork, open the required trading,
bank, and Demat accounts, communicate with brokers, and start the process.
Start investing and stick to your goal first and foremost.
8
 Step 6: Regularly evaluate your strategy

Financial planning is a continuous process. A solid commitment to the strategy and regular reviews
are required for success (once in six months, or at a major event such as birth, death, inheritance).
Based on a review of the performance of your assets, you should be ready to make modest or
significant modifications to your present financial condition, goals, and investing time frame.
Those with little resources who believe this is just out of their reach can, of course, consult certified
financial advisors, who will walk them through the entire procedure. Financial planning is a long-
term commitment that continues until the final objective is attained.
It is also a personal choice, meaning the individual making it must choose someone with whom he or
she can establish a lasting, mutually beneficial connection.

1.8) .Various aspects of Financial Planning

1) Investing:
An investment is an asset or item acquired with the goal of generating income or
appreciation. In an economic sense, an investment is the purchase of goods that are not
consumed today but are used in the future to create wealth. In finance, an investment is a
monetary asset purchased with the idea that the asset will provide income in the future or
will later be sold at a higher price for a profit.

2) Taxation

Taxation means imposition of levies on individuals or entities by the government authorities

on the income earned.
3) Retirement

Retirement, according to the dictionary, is to “withdraw from one's position or occupation

or from active working life.” You can achieve retirement when you have sources of income

9
that do not have to be earned by working. Retirement and the term “financial independence”
are often used interchangeably.

10
 CHAPTER 2 : RESEARCH METHODOLOGY
2.1 INTRODUCTION

The study has been conducted using both primary as well as secondary data. The primary
data was obtained from the analysis done through direct questionnaire provided to the
respondents. Information regarding the project was obtained from Students, Service Men,
the Self-Employed and others. The project undertaken is Descriptive in nature as it tries to
find out the awareness among the people and their perception. The Questionnaire was
distributed among 50 respondents residing in Mumbai. The responses received formed the
basis of primary data required for the study. The secondary research method is used for the
research for studying the various financial instruments and its features. The secondary
method was used as materials to be estimated with further detail. The aim of this approach
is to study about financial planning and various instruments in a broader and detailed way.

2.2 STATEMENT OF PROBLEM

The study on the project title “Financial Planning & Comparison of Various Instruments.”
has been undertaken to understand the aspects of financial planning and comparison of
various instruments to invest in to reap better returns. How it is beneficial to the people and
what are various avenues to Financial Planning.

2.3 OBJECTIVES OF FINANCIAL PLANNING

The given Project work is made with the following objectives:

1) To know about the various aspects of Financial Planning.

2) Methods & steps of financial Planning
3) Understanding Various Financial instruments in debt.
4) Comparing the various instruments to earn maximum returns and fulfill the financial goals
of the user.
5) Understand various taxation advantages in form of Tax planning for an individual.
6) To Plan lives and insure lives in a manner to secure one’s life in monetary aspects and also
get money as the required moment of time.

2.4 RESEARCH METHODOLOGY

Research Design

A Research design is purely and simply the framework of plan for a study that guides the
collection and analysis of data. The study is intended to find whether Awareness of
financial planning & Investment distribution in various asset classes. The study design is
descriptive in nature.

11
 2.5) SAMPLING METHODS
1) Primary Data Questionnaire 2) Personal
Interview.

Sample design
The sample was chosen based on sociodemographic variables, including age and income. Just 50
people were allowed to answer. Mumbai residents who responded were chosen at random.
Secondary information has also been gathered from outside sources to learn more about investor
financial planning and awareness.

Parameters
The following are the many criteria that the research was to be based on:

1. Financial planning awareness

2. Aligning one's financial and personal objectives

3. Openness to Invest in Several Asset Classes

Data collection
1) Primary data – collected through structured questionnaire.
2) Secondary data – collected from website, records, manuals, etc.

Personal Interview.

a) Life Insurance Agents: In Personal interviews with few life insurance agents it can be
concluded generally this days people are investing towards a combination of traditional and
term plans.
Traditional plans with a perspective to fulfill financial goals with maturity amount.
Term Plans to secure their lives.

b) Chartered accounts: In Personal interview with a CA it was been seen young people more
invest in ELSS and claim 80C benefits with a proportion of income as life insurance
premiums and PPF.

c) An Earner of house: In a personal interview with earner of house he plans to invest equally
in various instruments to balance his portfolio.

12
 CHAPTER 3: REVIEW OF LITERATURE
Financial literacy proves to be a major block for investors who do prefer safer avenues of
investment as they lack basic knowledge of financial markets. The financial literacy has
been measured in different terms by various authors.

1) A Review of Research in Financial Planning

- By Shawn Brayman (President, Planplus INC)
The FPSC Foundation has hired PlanPlus to conduct an analysis of the financial planning
research conducted in Australia, Canada, the United Kingdom, and the United States
between 2003 and the present.
The main goal is to attempt to identify research areas with potential gaps that would call for
FPSC Foundation priority.

2) Chen and Volpe (1998)

The study revealed that men generally possess greater knowledge about insurance and
personal loans, whereas women tend to exhibit more expertise in financial domains
such as budgeting, saving, taxation, and personal financial planning.

6) Barnewall (1987)
Finds that lifestyle traits, risk aversion, control orientation, and career may all be used
to identify an individual investor.

7) Peggy and Dwyer,2001

There is behavioral differences between male and female managers suggests that investors
preferring moderate and stable investment styles should invest in female managed funds,
while more daring investors interested in funds that take more active bets should choose
male managed funds.

8) Schmidt & Sevak, 2006

Earlier studies have been carried out to determine the pattern of Institutional investors
Investment but Studies dealing with Investment pattern of individual investors are very few.
Previous Studies mainly concentrate on Differences in individual investing pattern on the
basis of Gender. Differences on the basis of Age in Investment pattern is new avenue for
research. Earlier studies conclude that women invest their asset portfolios more
conservatively than their male counterparts. Women‟s investment has historically been
lower than men‟s for several reasons, including Social and various demographic concerns.
However the differences continue to be significant even after controlling for individual
Characteristics.

13
 CHAPTER 4: TOPIC BREIFING

Various Aspects Of Financial Planning

4.1) Investing
"How many millionaires do you know who have become wealthy by investing in
savings accounts? I rest my case."

- ROBERT G. ALLEN: THRIVING INVESTORS DON'T PLAY IT SAFE.

4.1.1 : INTRODUCTION
Investments are made with the intention of generating revenue and increasing value over
time. They can be made to start or grow projects, buy assets or interests, or any number of
other things. Every process employed to produce future revenue is considered a
"investment" in this context. In a financial sense, this may mean buying bonds, equities, or
real estate, among other things. A completed structure or other facility utilized for
manufacturing goods can also be considered an investment. It is possible to consider
investing to include the creation of items needed to manufacture other goods.

An activity that is taken with the intention of generating more money later on is sometimes
referred to as an investment. For instance, while choosing to continue your education, your
objective is frequently to learn more and develop your talents with the expectation of
earning more money in the future. Investments include risk in the event that they do not
materialise or fall short since they are focused on future growth or income. investment, for
instance, in a firm that goes out of business or a project that is unsuccessful. Saving money
without putting it at risk for use in the future is what distinguishes investing from investing,
whereas putting money to work for future gain involves some risk.

4.1.4 Reason to Invest

In order to build wealth, you should invest your money. If you don't invest, you will miss
out on opportunities to increase your financial worth. Needless to say, you have the
potential to lose money in investments, but if you invest wisely, the potential to gain is
higher. If not invested, the buying power of your money will depreciate overtime.

Top reasons why you should invest your money are:

1. Wealth Creation - Investing your money will allow it to grow. Most investment vehicles,
such as stocks, certificates of deposit, or bonds, offer returns on your money over long term.
This return allows your money to compound, earning money on the money already earned
and creating wealth over time.

14
2. Beat Inflation - 100 rupees today would only be 96.5 rupees next year according to
recent Indian inflation statistics, which implies that you would lose 4.5% of our money
every year if kept as cash. Returns from the investment helps maintain the purchasing
power at a constant level. If you don't beat the inflation rate you'd be losing money, not
making money.

3. Tax-saving - Some investment vehicles give a double return by providing returns as well
as reducing your taxable income, which in turn minimizes the tax liability such as equity
linked savings scheme (ELSS) funds. Money saved is money earned which can be invested
further.

4. High-returns - Investing would help to achieve high returns as compared to bank's saving
account which provides a mere 4 per cent return. Investing in markets could provide you
returns upwards of 20 percent if given the right time horizon.

FACT: If a person
invested Rs 724 in June 1989 then the amount would have compounded to Rs 34,103 today!

15
4.2) Various Instruments of investments and its Comparison.

Financial Instruments
Financial instruments can be conceptualized as either bundles of money that can be
exchanged, or as assets that can be traded. Most types of financial instruments facilitate
efficient movement and transfer of money among investors globally. These assets can
include cash, contractual entitlements to receive or give money or other financial
instruments, or evidence of ownership of a legal entity.
Various financial instruments are explained as below:

A) Saving Bank Account.

A savings account is a basic type of bank account that allows for depositing money,
earning interest, and withdrawing funds while ensuring their safety. Various financial
institutions, including credit unions and banks, offer savings accounts that are typically
backed by FDIC insurance and often provide interest on deposited funds. The interest rates
on savings accounts can vary depending on the type of account.
a) Savings Account Benefits

A savings account is generally a good idea, and they are typically free, especially with
internet banks, neighbourhood banks, and credit unions. Storing money someplace that you
don't intend to spend right away is risky, and having a savings account has a psychological
advantage since it makes it harder to give in to temptation and spend cash on the spot. But,
placing money away in a savings account might help you achieve longer-term objectives.
b) Safety

Your bank or credit union will store your money in a savings account in a secure location.
Outside of the bank, cash is vulnerable to theft and fire damage. Nevertheless, if your
savings are insured by the federal government, you won't have to worry about losing money
if your bank or credit union collapses. FDIC insurance covers banks, whereas NCUSIF
insurance covers credit unions. Share accounts are a common name for savings accounts at
credit unions.
Nirmala Sitharaman, the Union Finance Minister, suggested in her budget address for 2020
to increase bank deposit insurance in scheduled commercial banks from the existing level of
Rs 1 lakh to Rs 5 lakh per depositor, starting as of Tuesday, February 4, 2020.

For instance, the depositor can presently only get Rs 5 lakh if the deposit amount in their bank
account reaches Rs 5 lakh and the bank fails.
The latest PMC bank incident had preceded the Budget plan.

B) Fixed Deposits

“Do not save what is left after spending, but spend what is left after saving.”

16
 – Warren Buffet.

For a greater rate of return than savings accounts, banks and non-banking financial
institutions provide fixed deposits as investment tools. A large quantity of money can be
deposited into a fixed deposit for a set time period, which varies depending on the financier.
When money is deposited with a reputable lender, it immediately begins to earn interest
based on how long the deposit has been made. The standard definition of an FD is that the
funds cannot be removed before to maturity but may be withdrawn with a penalty. Fixed
deposits provide investors the chance to earn more interest on their extra money.

Features of Fixed Deposit.

• Renewal is simple.

• In accordance with the Income Tax Act of 1961, tax is withheld at source from
appropriate Fixed Deposit interest payments.

a) Benefits of Fixed Deposit

Investments in fixed deposits provide a number of benefits, some of which are listed
below:

a. They provide more consistency and are the safest forms of investing

b. Fixed-deposit returns are guaranteed, and principle loss is not a possibility.

c. Your fixed deposit is immune to market changes, increasing the safety of your investment funds.

d. Higher interest rates on firm fixed deposits are advantageous to you.

e. Several financial institutions provide older persons with higher returns.

b) Taxability on Fixed Deposit

Fixed deposit interest is subject to taxation. FD taxes can range from 0% to 30%, depending
on the investor's income tax status. If your PAN data are on file with the financier and you
earn interest that exceeds Rs. 40,000 in a year, the financier will take 10% TDS from your
earnings. Nonetheless, 20% TDS will be taken off if your banking institution does not get
your PAN information.
You may request a refund of the TDS that was deducted if your total income falls below the
minimum tax threshold of 10%. Also, you can prevent the deduction by giving Form 15G
and, if you're a senior citizen, Form 15H to your financial institution. If your tax bracket is
higher (20% or 30%), you would have to pay extra tax over and above the TDS deducted by
17
your NBFC or bank.
c) Safety

A Fixed Deposit holds your money in a safe place, your bank or credit union.
Cash that’s outside of the bank can get stolen or damaged in a fire. But when the federal
government insures your savings, you avoid the risk of losing money if your bank or credit
union fails. Banks are covered by FDIC insurance, and credit unions are covered by
NCUSIF insurance.
For instance, if a bank account user has a fixed deposit that is worth more than Rs 5 lakh
and the bank goes out of business, they are only now eligible to get Rs 5 lakh. The latest
PMC bank incident had preceded the Budget plan.

18
Comparison between Saving Bank Account & Fixed Deposits

Saving Bank Fixed Deposit

a) Meaning
A saving account is a bank account A fixed deposit account is a bank which is
generally opened by salaried account which requires a fixed sum of
individuals. The main objective of money to be invested for a fixed period a saving
bank account is to encourage of time. and promote savings.

b) Purpose
Salaried individuals or people with a fixed Large organizations and wealthy individuals
income open a saving bank account to opt for a fixed deposit account and park
save for a rainy day. their idle funds there to earn interest.

c) Rate of Interest
3% (SBI Bank 5.9%
Rates) (SBI Bank One Year Non Sr.
Citizen)
d) Period
A saving bank account is continuous in One time investment for a fixed amount of
nature. time.

e) Withdrawals
Withdrawals are permitted under a saving Does not permit withdrawals until the expiry
account. of the fixed period. Premature withdrawals
attract penalties.

f) Minimum Balance
Minimum or Nil Balance Minimum Balance may vary.
g) Loan Facility
No Loan Facility against Collateral of 75% of the deposit amount.
account balance

h) Liquidity
Highly Liquid Less liquidity

19
 C) Kisan Vikas Patra (KVP)

India Post first offered the Kisan Vikas Patra in 1988. It is a savings certificate programme
that was developed to promote long-term fiscal responsibility. The plan was shut down by
the Indian government in 2011 after a government committee recommended that it may be
used to launder money. Then, in 2014, the Kisan Vikas Patra (KVP) was reintroduced. The
Kisan Vikas Patra modification from 2014 states that the plan now offers a 113-month
tenure duration with a Rs. 1000 minimum commitment.

a) Types of Kisan Vikas Patra

A saving certificate known as Kisan Vikas Patra is offered by the Ministry of Finance and
falls into one of three categories:

 Certificate of Single Holder Type: This certificate may only be granted to an adult acting
alone or on behalf of a minor.

 Joint A Type Certificate: Under Kisan Vikas Patra, two adults may apply jointly for this
certificate. The sum shall be paid to either the surviving owner or both owners in
accordance with its terms.
 Joint B Type Certificate: This type of KVP can be jointly held by two individuals and is
payable to either of the account holders or the survivor.

b) Benefits of Kisan Vikas Patra

Every benefit offered by the Kisan Vikas Patra is available to anybody who resides in India.
Hindu Undivided Families (HUFs) and NRIs cannot invest in the Kisan Vikas Patra,
however. This programme was initially designed to help farmers save money over the long
term, but it is now open to all Indian citizens.

The following list includes some of the advantages that the Kisan Vikas Patra offers:

• The programme offers variable denominations ranging from Rs. 1000 to Rs. 50,000 at most.
• KVP is a risk-free investment that pays a consistent interest rate all year round.
• There is no maximum investment amount allowed under the plan.
• The scheme's current interest rate for the first quarter of FY2019–20 is 7.7%.

c) Who should invest in KVP Scheme

At the closest post office, any Indian citizen over the age of 18 can purchase a Kisan Vikas
Patra. Individuals from rural India who don't have bank accounts are especially drawn to
this. One can also be purchased on behalf of a child or another adult. Don't forget to provide
the minor's birthdate and the parent or guardian's name. An HUF or an NRI cannot
purchase one; however, a Trust may. KVP is a wise investment for risk-averse people who
20
have extra cash they might not need in the near future. Your risk tolerance and objectives
will all be factors. As an illustration, preferable alternatives for those looking for tax-saving
plans include Public Provident Fund, National Savings Certificates, and tax-saving bank FD
Schemes.

The Equity Linked Savings Plan is available to you if you are willing to accept a certain
amount of risk (ELSS). Play to your financial advantages as a result.

d) Features & benefits of Kisan Vikas Patra

 Returns that are ensured

You will receive the specified amount notwithstanding changes in the market. The goal of this
program was to encourage farmers to conserve money because it was designed with them in
mind.

 Capital safety
It is a risk-free investing strategy that is not impacted by market hazards. After the term is
through, you will get the investment and any profits.

 Tenure
You can access the corpus after the Kisan Vikas Patra matures in 112 months. Until
you remove the money, the maturity profits of KVP will continue to accumulate
interest.

 Taxation

It is not deductible under section 80C, and the returns are fully taxed. Tax
Deducted at Source (TDS) is not applicable to withdrawals made after the
maturity period, nevertheless.

 Rules to premature withdrawal

After 113 months, the money is available for withdrawal. Yet there is a 30-
month lock-in period. Unless in the case of the account holder's death or a
court order, early plan exit is not permitted.

 Loan secured by a KVP certificate

Your KVP certificate may be used as security or collateral when applying for secured loans.
Such loans have a relatively lower interest rate.

21
 Issue of KVP certificates

They immediately issue the KVP Certificate if payment is made in cash. Also, you
must wait until the money has cleared at the post office if you are using a check,
demand draught, or money order.

22
e) Rate of return earned
(Note: Tax rate may vary depending upon the income tax bracket)

Return Earned Before Tax

Return earned
100%
(In Percentage)
=100% / 113
Return earned per annum Months *
12Months
Percentage of return
10.62% p.a.
earned
Return Earned After Tax @30%
(Tax Rate 30% + 4%
31.20% 3.31%
Education Cess)

Return earned 7.31% p.a.

f) Documents needed for Kisan Vikas Patra

To be eligible for Kisan Vikas Patra, candidates must additionally furnish the following
documentation in addition to being Indian residents:

• To reduce the danger of money laundering, the Indian government required PAN Card
documentation for all investments over Rs. 50,000 when the programme was relaunched.

• Income documentation, such as pay stubs, bank statements, or ITR documents, are required for
deposits of Rs. 10 lakhs and higher.

• A copy of an identification document, such as a driver's licence, passport, voter ID card, or PAN
card.

23
 Comparison Between Fixed Deposits & Kisan Vikas Patra
Kisan Vikas Patra Fixed Deposit
a) Meaning
Kisan Vikas Patra (KVP) is a savings A fixed deposit account is a bank
scheme available at India Post Offices account which requires a fixed sum of
in the form of certificates. money to be invested for a fixed
period of time.

b) Purpose
Kisan Vikas Patra is a small savings Large organizations and wealthy
instrument that facilitates people to individuals opt for a fixed deposit
invest in a long-term savings plan. account and park their idle funds there
to earn interest.

c) Rate of Interest
Return Before Tax : 10.61 % 5.9%
(SBI Bank One Year Non
Sr. Citizen)
d) Period
113 Months One time investment for a fixed
amount of time.
e) Minimum Balance
Rs. 1000 Minimum Balance may vary.
f) Loan Facility
No Loan Facility against Collateral 75% of the deposit amount.
of account balance
g) Insurance
Completely backed by Central The Amount of deposit is insured up
Government. to Rs 5 Lakhs.
h) Deduction Under Chapter VI-A of Income Tax Act , 1961
No Deduction is allowed Deduction under Section 80C for a 5
year Fixed Deposit.
i) Taxability
Interest Completely Taxable Exempt under 80TTB up to 50,000
(Only for Sr. Citizen)

24
 D) Public Provident Fund (PPF)

“Compound interest is the eighth wonder of the world. He who

understands it, earns it …he who doesn’t…pays it.”

-Albert Einstein.

One of the most well-liked long-term savings and investment programmes is the PPF
account, often known as the Public Provident Fund plan, primarily because it combines
safety, returns, and tax benefits.

The National Savings Institute of the Finance Ministry initially made the PPF available to
the general public in 1968. Since then, it has become a potent instrument for helping
investors build long-term wealth.

PPF investors utilize it as a vehicle to consistently set away money over a long period of
time in order to accumulate a corpus for their retirement (PPF has a 15-year maturity, and
the facility to extend the tenure). The PPF is a top choice for small savers due to its
alluring interest rates and tax advantages.

a) Popularity of PPF

One of the safest investment options is the PPF, which is why it is so well-liked. In other
words, your investments in the fund are guaranteed by the Indian government. PPF now
provides a yearly compound interest rate of 7.6%. Every three months, the government sets
the interest rate.
Because your investment is exempt from taxes under section 80C of the Income Tax Act
(ITA) and PPF returns are likewise tax-free, PPF outperforms many other investment
alternatives.

b) Essentials features of PPF

• Tenure:
The PPF has a 15-year minimum term that can be increased in 5-year increments at your
discretion.

• Opening Balance:
Only 100 rupees may be used to open the account. investment income beyond ,
Rs 1.5 lakh would not be eligible for tax savings or to earn interest.

• Deposit Frequency :
PPF accounts require deposits to be made at least once every year for a minimum of 15 years.
25
• Joint accounts :
Just one person's name may be maintained as the owner of a PPF account. It is not
permitted to open an account in joint names.

c) PPF withdrawal
A PPF account may often only be closed at maturity, or after 15 years have passed. Once
15 years have passed, an account holder's full balance in the PPF account, including earned
interest, is free to withdraw, and the account may be terminated. However, the plan allows
partial withdrawals starting in year 7, or after completing 6 years, if account holders are in
need of money and want to withdraw before 15 years.

Up to 50% of the balance in the account at the conclusion of the fourth year may be
withdrawn prematurely by the account holder (preceding the year in which the amount is
withdrawn or at the end of the preceding year, whichever is lower). Furthermore, a
financial year allows only a single withdrawal.

d) Tax Benefits of Investing in PPF

One investment instrument that fits under the Exempt-Exempt-Exempt (EEE) classification
is PPF. In other words, this means that all PPF contributions are tax deductible in
accordance with Section 80C of the Income Tax Act. Moreover, tax exemptions will apply
to both the accrued funds and interest when they are withdrawn.

The fact that a PPF account cannot be terminated before maturity should not be overlooked.
Nonetheless, a PPF account may be moved from one place of designation to another.
However, keep in mind that a PPF account cannot be prematurely closed.
The nominees can only request the account be closed in the event of the account holder's
passing.

Comparison between Public Provident Fund & Kisan Vikas Patra

Kisan Vikas Patra Public Provident Fund

a) Meaning
Kisan Vikas Patra (KVP) is a savings Public Provident Fund (PPF) scheme is a
scheme available at India Post Offices in the long term investment option which offers an
form of certificates. attractive rate of interest and returns on the
amount invested.
b) Purpose
Kisan Vikas Patra is a small savings The aim of the scheme is to mobilize small
instrument that facilitates people to invest in savings by offering an investment with
a long-term savings plan. reasonable returns combined with income tax
benefits.
c) Rate of Interest

26
 Return Before Tax : 10.61 7.9%
% (Varies according to
economy situation)
Effective Rate : 7.31%
d) Period
113 Months 15 Years
e) Extension
No Extension is available Extension of 10 Years. (5
Years + 5 Years)

e) Withdrawals
Withdrawals are permitted after 2 years and After completion of 6 Years.
6 months from the date of issuance &
further at the block of 6 Months.

f) Minimum Balance
Rs. 1000 Rs. 500
g) Deduction Under Chapter VI-A of Income Tax Act , 1961
No Deduction is allowed Deduction under Section 80C

E) Mutual Funds

“Rule no. 1: Never lose money.

Rule no. 2: Never forget rule number 1.”

- Warren Buffet.
An investment vehicle known as a mutual fund pools the funds from several individuals to
purchase securities such as stocks, bonds, money market instruments, and other assets.
Mutual funds are overseen by expert financial managers who decide how to invest the
assets and aim to generate profits or returns for the fund's shareholders. These managers
construct and maintain the portfolio of the mutual fund in accordance with the investment
objectives outlined in the prospectus

Mutual funds offer an avenue for small or individual investors to access expertly
managed portfolios consisting of diverse securities like stocks and bonds. Through
mutual funds, investors can own a proportionate share of the fund's profits or
losses. These funds typically invest in a wide range of assets, and their performance
is commonly evaluated based on the changes in the fund's overall market
capitalization, which reflects the combined performance of its underlying
investments.

27
a) Understanding Mutual Funds

Mutual funds combine investor capital and utilise it to purchase other assets, often stocks
and bonds. The success of the stocks the mutual fund business chooses to purchase
determines the worth of the company. Hence, when you purchase a unit or share of a mutual
fund, you are really purchasing a portion of the portfolio's value rather than the performance
of the fund's portfolio. Purchasing shares of a mutual fund is distinct from purchasing stock.
Mutual fund shares do not grant their owners any voting rights, in contrast to stock. Instead
of representing a single holding, a mutual fund share reflects investments in a variety of
stocks (or other assets).
The Net Asset Value per Share (NAVPS) represents the price of a mutual fund share.
As the typical mutual fund holds hundreds of different securities, owners benefit from
significant diversification at a discount. Think of a buyer who invests

only Google shares prior to a poor quarter for the business. Because all of his rupees are
linked to a single firm, he stands to lose a tremendous deal of value. A separate investor,
on the other hand, may purchase shares of a mutual fund that also happens to hold Google
stock. Because Google makes up a modest portion of the fund's portfolio, she suffers
substantially less loss when the company has a terrible quarter.

b) How Mutual Funds Work

Mutual funds are both investments and legitimate businesses. Although this dual nature
may appear unusual, it is identical to how an AAPL share represents Apple Inc. Investors
who purchase Apple shares are acquiring a portion of the business and its assets. In a
similar way, a mutual fund investor purchases a portion of the assets and the mutual fund
business. The distinction is that a mutual fund company is in the business of creating
investments, whereas Apple makes cutting-edge products and tablets.

Investors typically earn a return from a mutual fund in three ways:

Dividends on stocks and interest on bonds held in the fund's portfolio generate income. A
fund distributes almost all of its annual income to its shareholders in the form of
distributions. Investors in funds sometimes have the option of receiving a cheque for
dividends or reinvesting the earnings to acquire further shares.
The fund makes a financial gain if it sells securities whose value has improved. The
majority of funds distribute these gains to investors as well.
The price of the fund's shares rises if the fund management does not sell any of the rising
value assets. Afterwards, you may profitably sell your mutual fund shares on the open
market.
If a mutual fund is thought of as a fictional business, then its CEO, also known as its
investment adviser, is the fund manager. The mutual fund shareholders' best interests must
be served by the fund manager, who is employed by a board of directors. The majority of
fund managers are also fund owners. The rest of the staff of a mutual fund firm is quite
small. To assist in choosing investments or doing market research, the investment adviser
or fund manager may hire some analysts. To compute the fund's NAV, the daily value of
the portfolio that determines whether share prices increase or decrease, a fund accountant is
28
retained on staff.
The majority of mutual funds are a part of much bigger investing firms, the biggest of
which manages hundreds of different mutual funds. A few of these fund businesses, such
Fidelity Investments, The Vanguard Group, T. Rowe Price, and Oppenheimer Funds, are
household names.
Types of Mutual Funds

Mutual funds are divided into several kinds of categories , which are :-

1) Equity Funds
The category of equities or stock funds is the biggest. As the name suggests, this type of
fund mostly invests in equities. There are several subcategories within this category. Some
equity funds are labelled as small, mid, or large-cap based on the size of the firms they
invest in.
A few others go by the names aggressive development, income-oriented, value, and others,
depending on their strategy to investing. In addition, equity funds are divided into those
that invest in domestic companies and those who do so overseas. Due of the wide variety
of stocks, there are also a wide variety of equity funds. Using a style box, like the one
below, is an excellent method to comprehend the universe of equity funds.
The goal is to categorise funds according to market capitalization of firms they invest in as
well as the potential for stock growth. Value funds are a type of investment that seeks for
high-quality, slow-growing businesses that are undervalued by the market. Low price-to-
earnings (P/E), low price-to-book (P/B), and high dividend yields are characteristics of
these firms. Spectrums, on the other hand, are growth funds that focus on businesses that
have seen or are anticipated to experience rapid growth in their profits, sales, and cash
flows. These businesses often don't pay dividends and have high P/E ratios. A "blend,"
which is simply defined as businesses which are neither value nor growth stocks and are
categorised as being somewhere in the center, is a compromise between rigorous value and
growth investments.

2) Fixed-Income Funds

The fixed income category is another sizable group. A fixed-income mutual fund concentrates on
assets including corporate bonds, government bonds, and other debt instruments that have a fixed
rate of return. The concept is that the portfolio of the fund earns interest revenue, which it
subsequently distributes to the investors.
These funds, sometimes known as bond funds, are often actively managed and aim to purchase
bonds that are comparatively cheap with the intention of reselling them for a profit. Bond funds do
carry some risk, but they are more likely to yield larger returns than money market and certificate of
deposit investments. Bonds come in a wide variety of varieties, therefore bond funds might range
29
greatly based on their investment locations. For instance, a fund that only invests in high-yield trash
bonds has far higher risk than a portfolio that just holds government assets.
Additionally, almost all bond funds are exposed to interest rate risk, which implies that if rates
increase, the value of the fund will decrease.

3) Index Funds
Another category, known as "index funds," has grown to be quite well-liked in recent years.
Their investment approach is predicated on the idea that trying to regularly outperform the
market is highly difficult and sometimes costly. The index fund manager then purchases
equities that track a significant market index like the Nifty 50 or Sensex. With fewer
expenditures to offset before profits are distributed to shareholders, this technique
necessitates less research from analysts and consultants. Cost-conscious investors are
frequently taken into account while creating these funds

4) Money Market Funds

The short-term debt instruments that make up the money market are safe (risk-free), and the
majority of them are Treasury bills. It's safe to leave your money here. Although the profits
won't be great, you won't have to worry about losing your initial investment. The average
return is marginally higher than the interest you would receive from a standard checking or
savings account and marginally lower than the average certificate of deposit. (CD). Money
market funds, however, invest in extremely secure assets.

5) Balanced Funds
Stocks, bonds, instruments of the money market, or alternative assets are all included in the
mix of asset classes that balanced funds invest in. Reducing exposure risk across asset
classes is the goal. Asset allocation fund is another name for this type of vehicle. Such
funds come in two forms that are tailored to the goals of the investor.
So that an investor may have a known exposure to different asset classes, certain funds are
created using a fixed allocation approach. To satisfy different investor goals, some funds
employ a dynamic allocation percentages technique. This might involve adapting to
changes in the market, the business cycle, or an investor's own life phases.
While dynamic allocation funds' goals are comparable to those of a balanced fund, they
are not required to hold a specific percentage of any asset class. To preserve the integrity
of the fund's declared strategy, the portfolio manager is therefore allowed to change the
ratio of asset classes as needed.

c) Mutual Fund Fees

A mutual fund will divide costs into shareholder fees or yearly running fees. An annual
proportion of the funds under administration, often between 1 and 3 percent, is what's
known as an annual fund operating charge. The expenditure ratio is the total of annual
operating costs. An investment fund's expense ratio is calculated by adding its advisory or
management charge and operating expenses.
Investors directly pay shareholder costs when buying or selling funds. These fees take the
form of commissions, sales charges, and redemption fees. What is referred to as "the load"
of a mutual fund are sales commissions or fees. Fees are levied when shares of a mutual
30
 fund with a front-end load are acquired. For a back-end load, mutual fund fees are assessed
when an investor sells his shares.

Yet, occasionally an investing firm will provide a no-load mutual fund, which has no commission or
sales fee. Instead of going via a third party, an investment corporation distributes these money
directly.
For early withdrawals or selling the holding before a set period of time has passed, some funds
impose fees and penalties. Moreover, exchange-traded funds have become more popular, and
because of their passive management style and cheaper costs, they have been fiercely competing
with mutual funds for investors' dollars. Negative sentiments about mutual funds have also been
sparked by articles from financial media sites describing how fund cost ratios and loads may cut into
rates of return.

Advantages of Mutual Funds

Diversification
Diversification, or the mixing of investments and assets within a portfolio to reduce risk, is
one of the advantages of investing in mutual funds. Experts advocate diversification as a
way of enhancing a portfolio's returns, while reducing its risk. Buying individual company
stocks and offsetting them with industrial sector stocks, for example, offers some
diversification. However, a truly diversified portfolio has securities with different
capitalizations and industries and bonds with varying maturities and issuers. Buying a
mutual fund can achieve diversification cheaper and faster than by buying individual
securities. Large mutual funds typically own hundreds of different stocks in many different
industries. It wouldn't be practical for an investor to build this kind of a portfolio with a
small amount of money.
Easy Access

Trading on the major stock exchanges, mutual funds can be bought and sold with relative
ease, making them highly liquid investments. Also, when it comes to certain types of assets,
like foreign equities or exotic commodities, mutual funds are often the most feasible way—
in fact, sometimes the only way—for individual investors to participate.
Transparency
Mutual funds are subject to industry regulation that ensures accountability and fairness to
investors.

Economies of Scale
Mutual funds also provide economies of scale. Buying one spares the investor of the
numerous commission charges needed to create a diversified portfolio. Buying only one
security at a time leads to large transaction fees, which will eat up a good chunk of the
investment. Also, the Rs100 to Rs200 an individual investor might be able to afford is
usually not enough to buy a round lot of the stock, but it will purchase many mutual fund
shares. The smaller denominations of mutual funds allow investors to take advantage of
rupee cost averaging.
Because a mutual fund buys and sells large amounts of securities at a time, its transaction
31
costs are lower than what an individual would pay for securities transactions. Moreover, a
mutual fund, since it pools money from many smaller investors, can invest in certain assets
or take larger positions than a smaller investor could. For example, the fund may have
access to IPO placements or certain structured products only available to institutional
investors.

Professional Management
A primary advantage of mutual funds is not having to pick stocks and manage investments.
Instead, a professional investment manager takes care of all of this using careful research
and skillful trading. Investors purchase funds because they often do not have the time or the
expertise to manage their own portfolios, or they don't have access to the same kind of
information that a professional fund has. A mutual fund is a relatively inexpensive way for
a small investor to get a full-time manager to make and monitor investments. Most private,
non-institutional money managers deal only with high-net-worth individuals—people with
at least six figures to invest. However, mutual funds, as noted above, require much lower
investment minimums. So, these funds provide a low-cost way for individual investors to
experience and hopefully benefit from professional money management.

Variety and Freedom of Choice

Investors have the freedom to research and select from managers with a variety of styles
and management goals. For instance, a fund manager may focus on value investing,
growth investing, developed markets, emerging markets, income, or macroeconomic
investing, among many other styles. One manager may also oversee funds that employ
several different styles. This variety allows investors to gain exposure to not only stocks
and bonds but also commodities, foreign assets, and real estate through specialized mutual
funds.
Some mutual funds are even structured to profit from a falling market (known as bear
funds). Mutual funds provide opportunities for foreign and domestic investment that may
not otherwise be directly accessible to ordinary investor

32
d) Disadvantages of Mutual Funds

Liquidity, diversification, and professional management all make mutual funds attractive
options for younger, novice, and other individual investors who don't want to actively
manage their money. However, no asset is perfect, and mutual funds have drawbacks too.

Fluctuating Returns

Like many other investments without a guaranteed return, there is always the possibility
that the value of your mutual fund will depreciate. Equity mutual funds experience price
fluctuations, along with the stocks that make up the fund. The Federal Deposit Insurance
Corporation (FDIC) does not back up mutual fund investments, and there is no guarantee of
performance with any fund. Of course, almost every investment carries risk. It is especially
important for investors in money market funds to know that, unlike their bank counterparts,
these will not be insured by the FDIC.

Cash Drag

Mutual funds pool money from thousands of investors, so every day people are putting
money into the fund as well as withdrawing it. To maintain the capacity to accommodate
withdrawals, funds typically have to keep a large portion of their portfolios in cash. Having
ample cash is excellent for liquidity, but money that is sitting around as cash and not
working for you is not very advantageous. Mutual funds require a significant amount of their
portfolios to be held in cash in order to satisfy share redemptions each day. To maintain
liquidity and the capacity to accommodate withdrawals, funds typically have to keep a larger
portion of their portfolio as cash than a typical investor might. Because cash earns no return,
it is often referred to as a "cash drag."

High Costs

Mutual funds provide investors with professional management, but it comes at a cost—
those expense ratios mentioned earlier. These fees reduce the fund's overall payout, and
they're assessed to mutual fund investors regardless of the performance of the fund. As you
can imagine, in years when the fund doesn't make money, these fees only magnify losses.
Creating, distributing, and running a mutual fund is an expensive undertaking. Everything
from the portfolio manager's salary to the investors' quarterly statements cost money. Those
expenses are passed on to the investors. Since fees vary widely from fund to fund, failing to
pay attention to the fees can have negative long-term consequences. Actively managed
funds incur transaction costs that accumulate over each year. Remember, every rupee spent
on fees is a rupee that is not invested to grow over time.

Lack of Liquidity

A mutual fund allows you to request that your shares be converted into cash at any time,
however, unlike stock that trades throughout the day, many mutual fund redemptions take
place only at the end of each trading day.

33
 Taxes
An investor must pay capital gains tax when they sell a security. When making investments
in mutual funds, investors who are worried about the effects of taxes need to bear such
worries in mind. Investing in tax-sensitive ETFs can reduce taxes.

Comparison between Mutual Funds & Public Provident Fund

Mutual Funds Public Provident Fund

a) Meaning
“A mutual fund is a type of financial “Public Provident Fund (PPF) scheme is a
vehicle made up of a pool of money long term investment option which offers
collected from many investors to invest in an attractive rate of interest and returns on
securities like stocks, bonds, money the amount invested.”
market instruments, and other assets.”

b Rate of Interest
Return Before Tax : 9% to 11% 7.9%
(Varies according to
economy situation)

c) Period
Varies fund to fund 15 Years
d) Withdrawals/Redemptions
Subject to Lock in Period. After completion of 6 Years.

e) Taxability
Interest Completely Taxable Exempt Under Income Tax
act 1961
f) Risk
Highly Risky Risk Free

F) Life Insurance
An agreement known as an insurance policy provides financial protection or payment against losses
from an insurance provider to a person or an organisation. In order to make payments to the insured
more manageable, the firm combines the risks of its clients.
Insurance plans are used to protect against the possibility of monetary losses, large and small, either
from harm to the insured person or her property or due to liability for harm or damage to another
party.

34
a) Insurance as Investment Option.
How to use insurance as a savings tool:

The trip known as life may turn into a living nightmare if you don't prepare your money in advance
and fail to shield your loved ones from the whims of life. So, it is crucial to maintain your money
invested in the correct places so that it serves as both a safety net and a powerful instrument for
saving.

Life insurance is the ideal solution for your demands in terms of protection and money in this
situation. Including life insurance products into your asset allocation plan can help you increase your
wealth if you do it based on your risk tolerance.

The Indian insurance market now prioritises the needs of the consumer and offers investors a variety
of solutions that go above and beyond the basic function of life insurance. If properly utilised, some
of these policies may operate as wealth development vehicles for investors as well as savings tools,
while still giving them the security that comes with any insurance policy.

b) Savings plans offer added benefits

Consider insurance savings programmes, which may not only provide for your family's
requirements but also provide you the much-needed freedom to make withdrawals from your policy
to cover significant or small life events without requiring you to give up your coverage.
Similar to this, other insurers provide online term plans, which have recently acquired popularity
among young investors. Together with proper life insurance, they provide the advantages of a
consistent monthly income or a rising monthly income according on the investor's preferences.
Items like this may be utilised as efficient life stage planning tools for activities like purchasing a
home, making investments in the education and marriage of your children, and making plans for a
pleasant retirement.

c) New and improved ULIPs are effective long term investment plans

Speaking of long-term investments, unit linked plans, or ULIPs, are another insurance product that merits
appropriate attention. They provide a tax-efficient and frictionless transition from debt to equity and
back. ULIPs were heavily criticised just five years ago for their excessive fee structure and distributor
misselling due to the allure of hefty fees.
This necessitated a wide range of reformative methods that were applied to ULIPs. As a result, ULIPs as
an insurance and investment product fall under the purview of the new regulations and are even more
affordable than the similar mutual fund products. Hence, ULIPs are now a great option for risk
protection, tax advantages, and long-term investment potential all bundled into one.

Because ULIPs offer a wide variety of low, medium, and high risk possibilities under a single policy,
investors may select the right plan based on their risk tolerance. Customers may also pick the
investment ratio and the amount secured in the yearly targeted premium, and they can take advantage
of top-ups' benefits for a single enhancement of their investment portfolios.

35
ULIPs may be the best option for investors who wish to profit from long-term market-linked gains
without having to deal with the hassle of direct stock market involvement. Moreover, ULIPs give
customers the option of a partial withdrawal every five years and support the development of a
regular saving habit.

Comparison between Mutual Funds & Life Insurance

Mutual Funds Life Insurance

a) Meaning
“A mutual fund is a type of financial “Insurance is a contract, represented by
vehicle made up of a pool of money a policy, in which an individual or
collected from many investors to invest in entity receives financial protection or
securities like stocks, bonds, money market reimbursement against losses from an
instruments, and other assets.” insurance company.”

b) Purpose
A mutual fund holds a variety of Financial protection or reimbursement
investments which can make it easier against losses & also an Investment for
investors to diversify than through Tool. ownership of individual stocks or
bonds.

c) Rate of Interest
Return Before Tax : 9% to 11% 14% to 17%

d) Period
Depends upon the Investor 16 years to 35 years
&
Many a time also Life line.
e) Withdrawals/Redemptions
Subject to Lock in Period. After 3 years.

f) Loan Facility
No Loan Facility May vary depending upon the year in
which this facility has been opted for.
g) Taxability
Interest Completely Taxable Exempt Under Income Tax act
1961

36
CHAPTER 5: CASE STUDY
Family finance: Salaried Pendse has enough time to reach financial goals.

His goals include building an emergency corpus, saving for his spouse’s business, child’s
education and wedding, taking a vacation, and retirement.

Yatin Pandey, 35, shares his Pune home with his wife, a stay-at-home mother, and their
one-year-old child. He makes Rs 80,000 a month and has assets of Rs 70 lakh in real
estate, Rs 3 lakh in cash, Rs 10 lakh in debt (in the form of EPF, PPF, and fixed deposits),
and Rs 10 lakh in equity (in the form of mutual funds).

He has no loans, and after accounting for home costs, his parents' contribution, insurance
costs, and investments, he has a surplus of Rs 22,800. His objectives include creating an
emergency fund, setting up money for his wife's company, his children's school and
wedding, travelling, and retiring.

PORTFOLIO
CASHFLOW

37
The financial planning team advises Pendse to create a contingency fund of Rs 2.5 lakh,
or enough money to cover costs for six months. He can set aside money for that purpose
and place it in a liquid fund. Pendse wants to save Rs 5.6 lakh since his wife plans to
open her own business in two years. He must dedicate his remaining cash and fixed
deposit towards this as well as begin a SIP in an equity savings fund for Rs 19,178.

Pendse has estimated that he will require Rs 3.3 lakh to fund his child's school admission in
three years. To achieve this goal, he can initiate an SIP of Rs 8,191 in an equity savings
fund. For the child's higher education in 17 years, Pendse will need Rs 75.8 lakh, which he
can fund by allocating his mutual fund corpus of Rs 10 lakh. In order to meet the goal of Rs
40.4 lakh for his child's wedding in 23 years, Pendse can begin an SIP of Rs 2,864 in a
diversified equity fund two years after completing his business goal. For his retirement goal
in 25 years, Pendse will need Rs 3.01 crore. He can allocate his EPF and PPF corpuses
towards this goal, and start an SIP of Rs 9,852 in a diversified equity fund. However, due
to the lack of surplus funds, he can initiate the SIP with Rs 8,400 and increase it after two
years. In addition, he should contribute Rs 500 per month to the PPF. Finally, he is advised
to defer his vacation goal for the time being

How to Invest For Goals

Kumar has two term life insurance plans totaling Rs 1 crore. He is recommended to cancel
both of the policies and get a single 1.5 crore rupee term plan, which would cost him 1,417
rupees each month. He is covered by his employer's Rs 5 lakh family floater plan for
health insurance. Fincart advises him to additionally get a 5 lakh rupee independent family
floater plan and a 20 lakh rupee top-up plan with a 5 lakh rupee deductible. The monthly
fee for this would be Rs 1,406.

38
 Insurance portfolio

- Source of the Case study: The Economic Times WEALTH

Dated : 20th April 2020
Written by: Raju Mehta (Fincart)

39
 CHAPTER 6: DATA ANALYSIS & INTERPRETATION
Data Analysis
a. Questionnaire method.

Note: The summary is been made from the responses collected.

Table.1.Age distribution of the respondents.

Age distribution of the No. of respondent
respondent %
15 to 18 2
19 to 25 32
26 to 31 12
32 to 40 8
41 to 50 38
51 to 60 6
60 & Above 2
Total 100

Interpretation: The majority of respondents, accounting for 58%, fell into the age bracket of 26-
50 years, which is regarded as the most dynamic age group. At this stage of life, individuals
typically have a steady income stream, necessitating sound financial planning. Investment
choices, in the end, are frequently influenced more by the desire to take risks than by the ability
to do so.
Table2. Savings distribution of the respondents
Savings %
0 to 20,000 24
20,001 to 40,000 18
40,001 to 60,000 16
60,001 to 80,000 20
80,001 to 1,00,000 10
1,00,001 & above 12
Total 100
Interpretation: 78% of respondents Save in a range of Rs0 - Rs80,000 and 22% of the respondents
belonging to net saving group i.e. 80,001 & above.
Table.3 Number of respondents willing to take risk according to age

40
 Age distribution of the RISK
respondent
LOW MEDIUM HIGH TOTAL
IN %
15 to 18 1 0 0 2
19 to 25 1 4 11 32
26 to 31 0 2 4 12
32 to 40 1 1 2 8
41 to 50 4 6 9 38
51 to 60 2 1 0 6
60 & Above 1 0 0 2
Total 100

Interpretation: The table above indicates that respondents aged between 19 and 50 are more
willing to take risks compared to those aged 50 and above.
Table.4 Investment made by respondents in various investment avenues
AVENUE %
LIFE INSURANCE 70
MUTUAL FUNDS 56
EQUITIES 68
FIXED INCOME SECURITIES 54
GOVT SECURITIES 52
PPF 68
NPS 10
AIF 0
SAVING BANK ACCOUNT 62
ANY OTHER 32

Interpretation: Based on the above analysis, it can be inferred that 70% of respondents prioritize
family protection and hence invest in life insurance, despite its low-risk and low returns.
Additionally, 68% of respondents choose to invest in the Public Provident Fund (PPF) due to its
growth potential. Furthermore, 68% and 56% of respondents prefer to balance their portfolios by
taking risks with safe investments, respectively. For instance, 54% and 52% of respondents
invest in fixed income securities and government securities, respectively, due to their fixed rate
of return. Apart from these investment options, respondents also invest in National Pension
Scheme (NPS) and other sources

41
Table.5 Investment objectives of respondents
investment objective %
Principal Safety 18
Maintain Standard Of Living 34
Meet Future Expenses 36
Safeguard against Contingences 12
TOTAL 100

Interpretation: According to the table, 70% of respondents invest with the objective of
fulfilling their future expenses and sustaining their standard of living.

Table.6 Financial literacy of respondents

Financial Literacy %

Poor 10

Average 78

Expertise 12

TOTAL 100

Interpretation: The aim of assessing financial literacy is to determine how capable respondents are
in making investment decisions on their own. The survey revealed that 78% of the participants
consider their knowledge about investment avenues to be average. The results indicate that,
although many respondents acknowledge the importance of financial planning and express interest
in developing a plan, only a small fraction feels confident in their ability to create a plan due to a
perceived lack of necessary knowledge.

42
CHAPTER 7: CONCLUSION AND SUGGESTIONS

The capacity to make wise financial decisions on one's own is known as financial planning
and literacy. Understanding investment goods, financial ideas, addressing financial issues,
choosing between managing, spending, and conserving money, and adjusting to recent
financial market reforms are among the abilities.
New investment products are constantly being introduced to the market by the sophisticated
financial markets. Financial inclusion, a requirement of the current Indian economy, would
follow from an increase in financial literacy. The investor should examine the product's
fundamental functionality and mechanism in addition to the tempting return claims, and they
should confirm that the product complies with all legal requirements. The investor should also
self-justify that his personal considerations are taken into account while making an investment
in a financial instrument. Investors must also be aware of the risk involved with their chosen
investing strategy across the various economic cycles. The investors' choices among the six
options and the advice of the experts are contrasted.

The options are rated according to priority based on factors such as main security, liquidity, return
stability, capital appreciation, inflation resistance, tax advantages, and conceal ability.
The capacity to accept risk is less important than desire to take risk while making financial decisions.
The following list includes several justifications for not engaging in financial planning:

1) Later will begin with financial planning

2) Delaying financial planning until you have the necessary funds C. Ignorance D. Earlier
financial planning mistakes
3) Thinking that only wealthy people use financial planning
4) The administration of personal finances is not prioritised
5) Lack of stated or definite financial goals
6) Relying on ineffective advisors

RECOMMANDATIONS
1. Financial distribution will have more opportunities if people are educated and
informed about financial planning.

2. It is important to separate each investor's investing aim into short, medium, and
long term goals. Several instruments should be properly allocated based on the time
frame and aim.

3. SIP investments ought to be promoted. A small sum invested consistently over a

long period of time can generate more wealth.

4. One should make an effort to keep their investments straightforward and only put
money into projects they fully comprehend. The investor should make sure that
their investments are diversified, but they shouldn't overcomplicate things.

43
 CHAPTER 8: BIBLOGRAPHY

1. www.investopedia.com
2. ijahms.com
3. economictimes.indiatimes.com
4. cleartax.in
5. www.thebalance.com
6. investfunds.in
7. www.businesstoday.in
8. theequitymarkets.com

44