NFO Grade 11

Grade 11
TM
National Finance Olympiad
Table of Contents
1. Money 2
• Inflation & Deflation 2
• Depreciation 6
2. Banking 9
• How do banks make money? 9
• Calculating interest rates 12
• Neo-banks and banking future 15
• Financial crimes 17
3. Financial planning 20
• Budgeting and emergency funds 20
• Dos and Don’ts of personal finance 25
• Liquidity 29
• Insurance 33
• Debt management 36
• EMI 38
4. Investment 41
• Time Value of money 41
• Types of investments 45
• Long Term v/s Short Term Investment 48
• Equity 50
• Mutual Funds 53
• Bonds 56
• Real Estate 59
• Risk Allocation 64
5. Loans & Credits 68

• Understanding Credit & Loans 68
• Loan Amortisation 72
• Defaulting 75
6. Tax planning 78
• GST & Income Tax 78
• Post office savings 81
• Public Provident Fund 83
7. Our mentors 85
Disclaimer
The material provided herein is solely for informational purposes and does not constitute an
endorsement, recommendation, or solicitation of any kind. It is not intended to be financial advice
and should not be relied upon as such. The rates and examples presented are representative of a
particular date and are subject to change based on general market fluctuations. Furthermore, the
rules mentioned in the document are not absolute and may differ based on circumstances. The user
acknowledges and agrees that they will not hold liable the provider of this information for any errors,
inaccuracies, or omissions in the information provided. Please refer to your financial advisor before
taking any financial decisions.
1
1. Money
Inflation & Deflation
If you’re a frequent movie-goer, you an economy over a period of time. It is
might have noticed the prices of movie the opposite of inflation, which is an
tickets increasing over time. This is an increase in the general price level of
example of inflation, where the cost of goods and services. Deflation can be
providing the same movie experience caused by a variety of factors, such as
has gone up, and the movie theatre a decrease in consumer spending, an
raises prices to cover those costs. increase in the supply of goods and
services, or a decrease in the money
Inflation is the increase in the general supply.
level of prices of goods and services
in an economy over a period of time. When prices are falling, consumers
Inflation reduces the purchasing power may delay purchases in anticipation
of money and can impact the overall of even lower prices in the future. This
standard of living for individuals. can lead to a decrease in demand for
goods and services, which in turn can
Remember the beginning of the lead to businesses reducing production
lockdown? The tourism industry and laying off workers. Lower demand
suffered greatly and the prices of even can also result in lower revenue and
5 star hotels went down by more than profits for businesses, making it more
50%. This is an example of Deflation. difficult for them to invest in new
Deflation is a decrease in the general projects and create new jobs.
price level of goods and services in
Figure: Inflation
2
Quick look
• Inflation can be measured using different indices such as the Consumer Price Index (CPI)
and the Producer Price Index (PPI).
• Inflation can impact different groups of individuals in different ways. For example, people
on fixed incomes may be adversely affected by inflation as their purchasing power
decreases, while individuals with investments in assets that increase in value during
inflation may benefit.
• Cost-push inflation is the decrease in the aggregate supply of goods and services
stemming from an increase in the cost of production.
• Demand-pull inflation is the increase in aggregate demand, categorised by the four
sections of the macro economy: households, business, governments, and foreign buyers.
• Deflation is a decrease in the general price level of goods and services.
• It can lead to a decrease in demand, production, revenue, and profits for businesses.
• This can result in fewer job opportunities and weaker economic growth.
Activity
Case study
Deflation in the Tech Industry
A phone startup has been running successfully for the past few years, but recently the tech
industry has been experiencing deflation, causing a decline in prices.
Product: The smartphones are sold for Rs. 20,000 each.
Sales: The startup sells an average of 1,000 smartphones per month.
Revenue: The startup generates a monthly revenue of Rs. 20,000,000 (Rs. 20,000 x 1,000).
Costs: The cost of producing each smartphone is Rs. 15,000, which includes the cost of
materials, labour, and overhead expenses. The startup also incurs additional monthly costs of
Rs. 5,000,000 for marketing, rent, salaries, and other expenses.
Deflation: Due to deflation, the price of smartphones has decreased by 20%. The startup is
now forced to sell each smartphone for Rs. 16,000 instead of Rs. 20,000.
Find ways to reduce their costs or increase their revenue.
3
Test your knowledge
1. What is deflation and how is it different from 4. How is inflation measured?

inflation?
5. What are the effects of inflation on
2. What are some of the causes of deflation? individuals?
3. What are some strategies individuals can

use to protect themselves during a period of
deflation?
MCQs
1. What is one of the causes of deflation? 5. Which of the following is a limitation of using
a) An increase in the money supply the consumer price index (CPI) to measure
b) An increase in consumer spending inflation?
c) A decrease in the money supply a) It only includes goods and services
purchased by consumers
2. What is one of the effects of deflation on an b) It does not take into account changes in
economy? quality of goods and services
a) A increase in the real value of debt c) It does not consider changes in the price
b) An increase in profits for businesses of imported goods
c) An increase in economic output
6. What is one strategy individuals can use
3. How can policymakers address deflation? to protect themselves during a period of
a) Decreasing the money supply deflation?
b) Decreasing government spending a) Increasing debt
c) Decreasing interest rates b) Decreasing savings
c) Investing in high-quality bonds or stocks
4. Which of the following policies could be used
to control inflation?
a) Expansionary monetary policy
b) Expansionary fiscal policy
c) Contractionary monetary policy
Answers
Activity
1. Reduce production costs: The company could try to reduce their production costs
by finding cheaper suppliers, negotiating better deals with their existing suppliers, or
optimising their production processes to be more efficient.
2. Increase product prices: The company could increase the prices of their products to make
up for the revenue lost due to deflation. However, they would need to be careful not to
price themselves out of the market and lose customers.
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3. Expand their product line: The company could consider expanding their product line to
include new products that are not affected by deflation. This would allow them to diversify
their revenue streams and reduce their reliance on products that are experiencing deflation.
4. Cut non-essential expenses: The company could review their expenses and cut any non-
essential expenses to reduce their overall costs. For example, they could reduce their
marketing expenses or cut back on non-essential employee perks.
5. Innovate: The company could try to innovate and create new products or services that are
not affected by deflation. This would require research and development, but could pay off
in the long run by creating new revenue streams for the company.
Test your knowledge
1. Deflation is a decrease in the general price level of goods and services in an economy. It is
the opposite of inflation, which is an increase in the general price level.
2. Some of the causes of deflation include a decrease in the money supply, a decrease in
consumer spending, a decrease in investment spending, and a decrease in government
spending. Eg. Deflation can occur when the supply of goods and services increases. This
can be caused by overproduction or increased competition, which can drive down prices.
3. Some strategies individuals can use to protect themselves during a period of deflation
include reducing debt, increasing savings, investing in high-quality bonds or stocks, and
keeping a close eye on job security. Eg. during deflation, the value of money increases,
which means that the value of your debt decreases. If you have any high-interest debt,
such as credit card debt, it’s a good idea to pay it off as soon as possible.
4. Inflation can be measured using different indices such as the Consumer Price Index (CPI)
and the Producer Price Index (PPI).
5. Inflation can impact different groups of individuals in different ways, depending on factors
such as income and investments. Inflation reduces the purchasing power of money and can
impact the overall standard of living for individuals.
MCQs
1. c)
2. a)
3. c)
4. c)
5. b)
6. c)
5
Depreciation
Let’s say you buy a car for Rs. There are several methods for
10,00,000. As soon as you drive it off calculating depreciation, including
the lot, the car starts to depreciate. straight-line, accelerated, and units-of-
After a year, the car may only be production. Straight-line depreciation
worth Rs. 8,00,000 due to the wear is the simplest method and involves
and tear of driving it. This decrease in spreading the cost of an asset evenly
value is depreciation. over its useful life. The formula for
straight-line depreciation is:
Depreciation is a reduction in the (Cost of asset - Salvage value) /
value of an asset over time. It is an Useful life
accounting method used to allocate
the cost of a tangible asset over its It’s important to note that depreciation
useful life. Depreciation can occur due only affects tangible assets, like
to wear and tear, obsolescence, or buildings, equipment, and vehicles.
other factors that make the asset less Intangible assets, like patents and
valuable. It is important to properly trademarks, are instead subject
account for depreciation because to amortisation, which is a similar
it affects a company’s financial process but for intangible assets.
statements and taxes.
Figure: Depreciation
Quick look
• Depreciation is a reduction in the value of an asset over time

• It’s an accounting method used to allocate the cost of an asset over its
useful life
• There are several methods for calculating depreciation, including
straight-line, accelerated, and units-of-production
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• Depreciation only applies to tangible assets, while intangible assets are subject to
amortisation
• Straight-line depreciation: This is the most common method and involves spreading the
cost of the asset equally over its useful life
Activity
1. A company purchases a new machine for Rs. 50,000. It has a useful life of 5 years and a
salvage value of Rs. 5,000. What is the annual straight-line depreciation expense for this
machine?
2. A company purchases a machine for Rs. 50,000 with a useful life of 10 years and a salvage
value of Rs. 5,000. What is the annual depreciation expense using straight-line depreciation?
3. A car purchased for Rs. 300,000 has a useful life of 5 years and a salvage value of Rs.
20,000. What is the depreciation expense for the first year using straight-line depreciation?
Test your knowledge
1. What is depreciation? 4. Does depreciation apply to both tangible and

intangible assets?
2. What are some factors that can cause
depreciation? 5. Why is it important to properly account for
depreciation?
3. What is the straight-line method of
depreciation?
MCQs
1. Which of the following is NOT a method for 3. What is the purpose of depreciation?
calculating depreciation? a) To increase the value of an asset
a) Straight-line b) To reduce the value of an asset
b) Double declining balance c) To allocate the cost of an asset over its
c) Accelerated useful life
d) Net present value d) To increase revenue
2. Which of the following is an example of a

tangible asset?
a) Patent
b) Trademark
c) Building
d) Copyright
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Answers
Activity
1. (Cost - Salvage Value) / Useful Life = (50,000 - 5,000) / 5 = Rs. 9,000
2. The depreciable cost of the machine is Rs. 45,000 (Rs. 50,000 - Rs. 5,000). The annual
depreciation expense is: Rs. 45,000 ÷ 10 = Rs. 4,500 per year.
3. The depreciable cost of the car is Rs. 280,000 (Rs. 300,000 - Rs. 20,000). The annual
depreciation expense is: Rs. 280,000 ÷ 5 = Rs. 56,000 per year.
Test your knowledge
1. Depreciation is a reduction in the value of an asset over time.
2. Depreciation can occur due to wear and tear, obsolescence, or other factors that make the
asset less valuable.
3. The straight-line method is a depreciation method that spreads the cost of an asset evenly
over its useful life.
4. No, depreciation only applies to tangible assets. Intangible assets are subject to
amortisation.
5. It’s important to properly account for depreciation because it affects a company’s financial
statements and taxes.
MCQs
1. d)
2. c)
3. c)
8
2. Banking
How do banks make money?
Have you ever wondered how banks earn on loans and investments is their
make money? Banks are an essential primary source of revenue. This is
part of our financial system, and they because the interest rate banks pay
provide a range of services that we on deposits is typically lower than
all use regularly. But have you ever the interest rate charged on loans,
stopped to think about how they make allowing banks to earn a margin on
money? It might seem like a mystery, the difference. Banks also charge fees
but in reality, banks use a variety of for services like account maintenance,
methods to generate revenue and turn wire transfers, and overdraft
a profit. protection, which provide additional
income. Banks can also generate
Banks are financial institutions that revenue through investments in
take deposits from customers and the stock market or other financial
use those deposits to make loans and instruments.
investments. The interest that they
Figure: Sources of income
Quick look
• Banks make money primarily through interest on loans and

investments.
• Fees for services like account maintenance and wire transfers also
contribute to their revenue.
• Investments in the stock market or other financial instruments can
also generate income.
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Test your knowledge
1. What are some of the fees that banks charge 3. What is the purpose of banks taking deposits
for their services? from customers?
2. Can banks generate revenue through 4. How can you understand how banks make
investments in the stock market? money?
MCQs
1. What is the primary source of revenue for 4. Banks may also generate revenue by
banks? investing in:
a) Fees and commissions on services a) Government bonds
provided b) Corporate bonds
b) Interest on loans and investments c) Stocks
c) Income from trading activities d) All of the above
d) All of the above
5. Which of the following is an example of a
2. When a bank charges a higher interest rate non-interest income for banks?
on loans than it pays on deposits, it is called: a) ATM fees
a) Loan interest rate b) Interest on loans
b) Deposit interest rate c) Interest on deposits
c) Interest Rate Spread d) Loan origination fees
d) Margin
3. Which of the following is NOT a way that

banks make money?
a) Charging fees for maintaing bank accounts
b) Earning interest on loans
c) Selling stocks and bonds
d) ATM fees
Answers
Test your knowledge
1. Banks charge fees for services like account maintenance, wire transfers, and overdraft
protection.
2. Yes, banks can generate revenue through investments in the stock market or other financial
instruments.
3. Banks take deposits from customers and use those deposits to make loans and
investments.
4. You can understand how banks make money by playing a simulation game where you act
as a banker and make decisions about loans and investments.
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MCQs
1. b)
2. c)
3. c)
4. d)
5. a)
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Calculating interest rates

Imagine that you are planning to buy a of the loan amount.
new play station worth Rs. 30,000. You • The interest rate is determined by
decide to take a loan from a bank to the lender and depends on various
buy the play station, but you’re not sure factors such as the borrower’s
how much interest you will have to pay credit history, the loan amount, the
back. You want to calculate the interest loan term, and the current market
rate so that you can make an informed conditions.
decision about the loan. • To calculate the interest rate, you
• Interest rate is the cost of borrowing need to know the loan amount, the
money, expressed as a percentage total interest paid, and the loan term.
Activity
Solve the following.
1. A bank offers 5% compound interest calculated on a half-yearly basis.

A customer deposits Rs. 1600 each on 1st January and 1st July of a
year. At the end of the year, the amount he would have gained by way
of interest is:
• Rs. 120
• Rs. 121
• Rs. 122
• Rs. 123
2. You want to save Rs. 5,00,000 for a down payment on a house in 5

years. If you invest in a savings account that earns an annual interest
rate of 6% compounded quarterly, how much do you need to deposit
now to reach your goal?
3. You have Rs. 10,000 in a savings account that earns an annual interest
rate of 6% compounded monthly. You want to use this money to buy
a car in 3 years. How much can you afford to spend on the car if you
leave the money in the savings account?
4. Manish invested a sum of money at CI. It amounted to Rs 2,420 in 2

years and Rs 2,662 in 3 years. Find the rate percent per annum.
Test your knowledge
1. What is interest rate? 3. How do you calculate the interest

rate?
2. What factors affect the interest
rate? 4. If you take a loan of Rs. 50,000 for
5 years and the total interest paid
is Rs. 10,000, what is the interest
rate?
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MCQs
1. What is the primary tool used by the central 3. What factors affect the interest rate?
banks to control short-term interest rates? a) Credit history
a) Open market operations b) Loan amount
b) Fiscal policy c) Loan term
c) Quantitative easing d) All of the above
d) None of the above
2. What is the term used to describe the

difference between the interest rate on a
loan and the inflation rate?
a) Interest spread
b) Inflation spread
c) Real interest rate
d) Nominal interest rate
Answers
Activity
1. Rs. 121
2. You need to deposit Rs. 3,59,301. If you use the formula P = A/((1 + r/n)^(nt)), where P is
the principal amount, A is the future value, r is the annual interest rate, n is the number of
times interest is compounded per year, and t is the time in years, the calculation would be:
P = 5,00,000/(1 + 0.06/4)^(4*5) = 3,71,235.21
3. You can afford to spend Rs. 11,966.81 on the car.
4. Last year interest = 2662 - 2420 = Rs 242

Therefore, Rate% = (242 * 100)/(2420 * 1)
R% = 10%
Test your knowledge
1. Interest rate is the cost of borrowing money, expressed as a percentage of the loan
amount.
2. The interest rate is affected by factors such as the borrower’s credit history, the loan
amount, the loan term, and the current market conditions.
3. To calculate the interest rate, you need to know the loan amount, total interest paid, and
loan term. You can use the formula: Interest rate = total interest / (loan amount x loan term).
4. Interest rate = total interest / (loan amount x loan term) = 10,000 / (50,000 x 5)
= 0.04 or 4%.
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MCQs
1. a)
2. c)
3. d)
14
Neo-banks and banking future

Neo-banks are digital banks that Neo-banks are changing the way we
operate entirely online and have bank by providing a more streamlined
no physical branches. They are and convenient banking experience.
revolutionising the banking industry Unlike traditional banks, neo-banks
and providing customers with a new have lower overhead costs and
way of managing their money. As we can offer customers better interest
move towards a more digital future, rates and lower fees. They also use
neo-banks are expected to play a technology to provide customers with
significant role in the banking industry. real-time updates on their accounts
Some of the present neo banks are- and spending habits.
Streak card, Jupiter, Fi Money etc.
Figure: Examples of Neo-banks
Quick look
• Neo-banks have lower overhead costs than traditional banks.

• Neo-banks can offer better interest rates and lower fees to
customers.
• Neo-banks use technology to provide real-time updates on accounts
and spending habits.
• Neo-banks operate entirely online and have no physical branches.
Test your knowledge
1. What are neo-banks? 3. What advantages do neo-banks

offer to customers?
2. How are neo-banks different from
traditional banks? 4. Why are neo-banks expected
to play a significant role in the
banking industry?
15
MCQs
1. How do neo-banks use technology to 2. Why are neo-banks well-positioned for the
provide a better banking experience? future of banking?
a) By sending customers mail updates. a) Because they have higher overhead costs
b) By providing real-time updates on than traditional banks.
accounts and spending habits. b) Because they use robots.
c) By requiring customers to visit physical c) Because they provide customers with a
branches. more streamlined and convenient banking
experience.
Answers
Test your knowledge
1. Neo-banks are digital banks that operate entirely online and have no physical branches.
2. Neo-banks have lower overhead costs and can offer customers better interest rates
and lower fees. They also use technology to provide real-time updates on accounts and
spending habits.
3. Neo-banks offer customers a more streamlined and convenient banking experience, better
interest rates, lower fees, and real-time updates on their accounts and spending habits.
4. As we move towards a more digital future, neo-banks are well-positioned to provide

customers with a new way of managing their money and a more convenient banking
experience.
MCQs
1. b)
2. c)
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Financial crimes
The Nirav Modi-PNB scam is one of financial transactions. These crimes
the most notorious financial crimes in can take many forms, including fraud,
India’s history. It involved a fraudulent money laundering, embezzlement,
issuance of Letters of Undertaking insider trading, and identity
(LOU is a document issued by a theft. They can be perpetrated
bank that guarantees payment to a by individuals, groups, or entire
beneficiary if the customer defaults organisations, and they can have
on a loan) by PNB officials to the serious consequences for victims,
diamond businessman, Nirav Modi, communities, and society at large.
and his associates. These LoUs were
used to obtain loans from overseas Financial crimes can have a range
banks, which Modi and his associates of effects on individuals and
then used to launder the funds. The society. For individuals, they can
scam is estimated to be worth around result in significant financial losses,
Rs. 14,000 crores, and it shook the damage to their credit scores and
Indian banking system to its core. reputations, and in some cases,
This is just one example of the various even personal harm or physical
types of financial crimes that take danger. For communities and society
place in India and across the world. at large, financial crimes can lead
to reduced economic growth and
Financial crimes refer to a wide range stability, increased social inequality,
of fraudulent and illegal activities and erosion of public trust in financial
that are committed in the context of institutions and government agencies.
Quick look
• Financial crimes refer to illegal activities that involve financial

transactions.
• Examples of financial crimes include money laundering, fraud,
embezzlement, and insider trading.
• Financial crimes can have serious consequences for individuals,
companies, and the overall economy.
• Preventing and detecting financial crimes often requires cooperation
between government agencies, financial institutions, and law
enforcement.
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Activity
Watch Bad Boy Billionaires on Netflix to understand financial crimes better.
Test your knowledge
1. What is the definition of financial crimes? 3. Why do individuals commit financial crimes?
2. What are some examples of financial crimes? 4. What are the consequences of financial
crimes?
MCQs
1. What is a financial crime? 2. Why are financial crimes a concern for

a) An ethical business practice individuals, companies, and the economy as
b) An illegal activity that involves financial a whole?
transactions a) They can lead to financial losses for
c) A legal way to make money individuals and companies.
d) A government-regulated financial b) They can damage the reputation of
transaction financial institutions and the overall economy.
c) They can erode trust in the financial
system.
d) All of the above.
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3. What measures can be taken to prevent and 4. Which of the following is an example of
detect financial crimes? money laundering?
a) Improved regulation and oversight of a) Investing in a legitimate business
financial transactions. b) Stealing money from a bank
b) Increased education and awareness about c) Hiding the proceeds of illegal activities
financial crimes. by transferring them through a series of
c) Enhanced cooperation between legitimate financial transactions
government agencies, financial institutions, d) Donating to a charity
and law enforcement.
d) All of the above.
Answers
Test your knowledge
1. Financial crimes refer to illegal activities that are committed for financial gain, including
fraud, embezzlement, money laundering, and bribery.
2. Examples of financial crimes include insider trading, Ponzi schemes, tax evasion,
cybercrime, and identity theft.
3. Individuals may commit financial crimes for various reasons, such as to obtain financial
gain, to cover up other illegal activities, or due to greed or desperation.
4. The consequences of financial crimes can include fines, imprisonment, forfeiture of assets,
and damage to reputation and credit rating.
MCQs
1. b)
2. d)
3. d)
4. c)
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3. Financial Planning
Budgeting and emergency funds
Budgeting is the process of creating have in your emergency fund depends
a spending plan that allows you to on your individual circumstances,
meet your financial obligations while but most experts recommend having
also saving money for the future. It three to six months’ worth of living
involves tracking your income and expenses saved.
expenses, identifying areas where you
can cut back on spending, and setting Creating a budget and building an
financial goals. A budget can help you emergency fund can help you be
make informed financial decisions, prepared for unexpected expenses
avoid debt, and achieve your long- and improve your overall financial
term financial objectives. well-being. By living within your
means, you can avoid the stress and
Emergency funds are an important financial burden of debt, and have
part of any budget. These are peace of mind knowing that you
savings that are set aside to cover are prepared for whatever life may
unexpected expenses, such as a throw your way. Financial experts
medical emergency, car repair, or job recommend having at least three to
loss. The amount of money you should six months’ worth of living expenses
saved in an emergency fund.
Figure: Emergency Fund
The 50-30-20* rule is a budgeting • 50% for Needs: This includes

rule that can help you manage your things that you need to live, such
money wisely. It suggests that you as food, housing, and clothing.
should divide your income into three These are expenses that you
categories: can't do without, and they should
take up no more than half of your
income.
* This spending plan is subject to change based on individual circumstances.

20
• 30% for Wants: This includes things that is money that you don't spend right away,
you want but don't necessarily need, such but rather set aside for future use. This
as entertainment, hobbies, and vacations. category should take up at least 20% of your
These are expenses that you can live without income.
if you need to, but they make life more
enjoyable. This category should take up no By following this rule, you can ensure that you're
more than 30% of your income. meeting your basic needs, enjoying some of the
things you want in life, and saving for the future.
• 20% for Savings: This includes money It's a good idea to start practising budgeting
that you save for the future, such as an early on in life, so that you can develop good
emergency fund or savings for college. This financial habits that will serve you well as you
grow older.
Figure: The 50/30/20 spending plan
Quick look
• Budgeting involves planning and managing your finances

• Emergency funds are set aside for unexpected expenses
• It’s important to create a budget and stick to it to achieve financial goals
• Having an emergency fund can help you avoid financial stress in unexpected situations
• Budgeting and emergency funds go hand in hand for financial security and stability
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Activity
Imagine you’re a college student and live alone. Create a monthly budgeting plan keeping in
mind that your rent is Rs. 10,000 per month. Your parents send you Rs. 15,000 every month
and you earn Rs. 5,000 every month from your internship.
Income
Pocket money 15,000
Internship 5,000
Expenses
Rent 10,000
Food
Shopping
Groceries
Entertainment
Transport
WiFi
Savings
Investments
Test your knowledge
1. What is budgeting?
4. How much should you save in an emergency
2. How can you create a budget? fund?
3. What is an emergency fund? 5. What are some strategies for building an

emergency fund?
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MCQs
1. Which of the following is NOT a recommended 3. Which of the following is NOT a potential
strategy for building an emergency fund? consequence of not having an emergency
a) Setting a savings goal of 3-6 months’ worth fund?
of expenses a) Taking on high-interest debt to cover
b) Keeping the emergency fund in a high-risk unexpected expenses
investment account b) Selling off assets at a loss to cover
c) Automating contributions to the emergency unexpected expenses
fund c) Delaying necessary medical treatment due
d) Prioritizing debt repayment before building to lack of funds
the emergency fund d) Being able to afford luxury items like
vacations and electronics
2. What are the benefits of budgeting?
a) Better control over your money
b) Ability to save money
c) Reduced stress and worry about money
d) All of the above
Answers
Activity
Income
Pocket money 15,000
Internship 5,000
Total 20,000
Expenses
Rent 10,000
Food 3,000
Shopping 1,500
Groceries 3,000
Entertainment 750
Transport 1,000
WiFi 750
Total 18,500
Savings (Income - Expences) 1,500
Investments 1000
Note : Budget may vary as per the individual’s needs
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Test your knowledge
1. Budgeting is the process of creating a plan for your money. It involves setting goals for how
you want to spend your money and tracking your expenses to ensure that you stay within
your budget.
2. To create a budget, you can determine your income, list your expenses, categorise your
expenses, set spending limits, and track your spending.
3. An emergency fund is a savings account that you set aside for unexpected expenses such
as medical bills, car repairs, or job loss.
4. Financial experts recommend having at least three to six months’ worth of living expenses
saved in an emergency fund.
5. Some strategies for building an emergency fund include setting a savings goal and a
timeline for achieving it, starting small and increasing contributions over time, looking
for ways to reduce expenses and increase income, using automatic savings plans to
make regular contributions, and avoiding using the emergency fund for non-emergency
expenses.
MCQs
1. b)
2. d)
3. d)
24
Dos and Don’ts of personal finance

Personal finance is all about managing Don’ts:
your money effectively to achieve 1. Overspend: Overspending is one
your financial goals. Here are some of the biggest mistakes people
important Dos and Don’ts to keep in make when it comes to personal
mind: finance. Avoid impulsive purchases
and stick to your budget.
Dos:
1. Set financial goals: Setting 2. Ignore debt: Ignoring debt can
financial goals is the first step lead to financial trouble in the long
to achieving financial success. It run. It’s important to pay off debt
helps you prioritize your spending as soon as possible and avoid
and saving. taking on more debt than you can
handle.
2. Create a budget: A budget is a
plan that helps you manage your 3. Live paycheck to paycheck: Living
income and expenses. It helps paycheck to paycheck means
you track your spending and avoid you’re not saving enough for
overspending. emergencies or long-term financial
goals. It’s important to create a
3. Build an emergency fund: An budget and find ways to save
emergency fund is a savings money.
account that can be used to
cover unexpected expenses. It’s 4. Neglect insurance: Insurance is an
important to have at least 3-6 important part of personal finance.
months of living expenses saved in It helps protect you and your
case of emergencies. family from unexpected financial
expenses. Don’t neglect insurance
4. Save for retirement: It’s important and make sure you have adequate
to save for retirement to ensure coverage.
a comfortable and secure future.
Start early and contribute regularly 5. Make hasty financial decisions:
to retirement savings accounts. Financial decisions should be
made after careful consideration
5. Invest wisely: Investing is a and research. Don’t make hasty
great way to grow your wealth. decisions that can negatively
It’s important to educate yourself impact your financial health.
about different investment options
and choose the ones that align
with your financial goals.
25
Activity
Which scenario is the best case in terms of financial planning.
Scenario 1 Scenario 2 Scenario 3

Salary Riya is a 28-year-old John is a 30-year-old Rahul is a 32-year-
teacher earning a software engineer old sales executive
monthly salary of Rs. earning a monthly earning a monthly
45,000. salary of Rs. 50,000. salary of Rs. 60,000.
Expenses She has been He has been living in He owns a house
living in a rented a rented apartment for which he pays
apartment for the for the past five a monthly EMI of
past three years and years and has a total Rs. 2,000. His total
has a total monthly monthly expense of monthly expense
expense of Rs. Rs. 25,000, including including the EMI
22,000, including rent, groceries, bills, is Rs. 35,000,
rent, groceries, bills, and entertainment. which includes
and entertainment. groceries, bills, and
entertainment.
Loans She has an He has no He has an
outstanding outstanding debts or outstanding house
education loan of Rs. loans loan of Rs. 4,00,000,
5,00,000, which she which he is paying
is paying off through off through EMIs.
EMIs.
Savings + She has a savings He has a savings He has a savings
Investments account with a account with a account with a
balance of Rs. balance of Rs. balance of Rs.
1,00,000 and invests 1,50,000. He invests 2,00,000 and invests
20% of her monthly 25% of his monthly 30% of his monthly
income in mutual income in mutual income in mutual
funds. She maintains funds and maintains funds. He maintains
a monthly budget to a monthly budget to a monthly budget to
track her expenses. track his expenses track his expenses.
Test your knowledge
1. Why is it important to set financial goals? 3. What is the difference between good debt
and bad debt?
2. Why is overspending a problem when it
comes to personal finance? 4. Why is it important to invest wisely?
26
MCQs
1. Which of the following is a ‘do’ in personal 4. Which of the following is a ‘don’t’ in personal
finance? finance when it comes to investments?
a) Creating an emergency fund a) Investing in a variety of assets
b) Spending more than what you earn b) Falling for get-rich-quick schemes
c) Splurging every time you get money c) Doing research before investing
d) Ignoring bills and debts d) Spreading investments
2. Which of the following is a ‘don’t’ in personal 5. What is a recommended ‘do’ in personal

finance? finance when it comes to saving?
a) Creating a budget and sticking to it a) Keeping all savings in one account
b) Investing in a diverse range of assets b) Spending all income each month
c) Living beyond your means and c) Automating savings through direct deposit
overspending d) Saving only small amounts occasionally
d) Paying bills and debts on time
3. What is a recommended ‘do’ in personal

finance when it comes to credit cards?
a) Maxing out the credit limit on the card
b) Making only minimum payments each
month
c) Using the credit card for all purchases
d) Paying the balance in full each month
Answers
Activity
In this scenario, Rahul has the best financial plan out of all the others. He regularly pays off his
EMI while saving and investing more than the other two examples.
Test your knowledge
1. Setting financial goals helps you prioritise your spending and saving, and gives you a clear
direction to work towards.
2. Overspending can lead to debt, which can negatively impact your financial health in the
long run.
3. Good debt is debt that is used to purchase assets that increase in value over time, such
as a home or education. Bad debt is debt that is used to purchase items that decrease in
value over time, such as a car or credit card debt.
4. Investing wisely can help you grow your wealth and achieve your financial goals. It’s
important to educate yourself about different investment options and choose the ones that
align with your goals.
27
MCQs
1. a)
2. c)
3. d)
4. b)
5. c)
28
Liquidity
Imagine you want to sell your old without affecting its market value. In
playstation to buy a new one. You post other words, a liquid asset is readily
an ad online and get several offers saleable and can be converted
from interested buyers. However, into cash quickly without incurring
you need to sell your playstation significant losses. Examples of
quickly to get the cash for your new liquid assets include cash, savings
purchase. In this situation, you want accounts, stocks, and bonds. On the
your playstation to be a liquid asset, other hand, assets such as real estate
meaning you can quickly and easily or collectibles are less liquid, as it may
convert it into cash. take time and effort to find a buyer
and sell them at a fair price.
Liquidity refers to the ease with which
an asset can be converted into cash
Figure: Liquidity
Quick look
• Liquidity is an important aspect of financial management as it ensures

that individuals and organisations have access to cash when needed.
• The level of liquidity needed depends on various factors, including the
individual’s financial goals, cash flow, and the nature of their assets
and liabilities.
• Maintaining a balance between liquid assets and long-term
investments is essential to meet short-term financial needs while
earning returns on long-term investments.
29
Activity
Classify the following into liquid and illiquid assets.

• Real estate property
• Stocks
• Precious metals (gold, silver, etc.)
• Artwork and collectibles
• Savings account balance
• Cash on hand
• Antique furniture
• Mutual funds
• Cryptocurrency
• Business ownership or partnership
• Savings bonds
• Intellectual property (patents, copyrights)
• Livestock or farm equipment
• Rental properties
Liquid assets Illiquid assets
Test your knowledge
1. What is liquidity? 4. How can individuals maintain a balance

between liquid assets and long-term
2. What are some examples of liquid assets? investments?
3. Why is liquidity important in financial 5. What are some factors that determine the
management? level of liquidity needed?
30
MCQs
1. Which of the following is an example of a 3. Which of the following is not a factor that
liquid asset? determines the level of liquidity needed?
a) Real estate a) The individual’s financial goals
b) Collectibles b) The nature of their assets and liabilities
c) Savings account c) The current stock market trends
d) Antique furniture d) The individual’s cash flow
2. Why is maintaining a balance between liquid

assets and long-term investments important?
a) To maximize returns on long-term
investments
b) To ensure short-term financial needs are
met
c) To reduce the risk of losses
d) All of the above
Answers
Activity
Liquid assets Illiquid assets

Stocks Real Estate Property
Precious Metals Art work & collectibles
Savings Account Balance Antique furniture
Cash in hand Business ownership or Partnership
Mutual Funds Intellectual property (patents,copyrights)
Cryptocurrency Livestock or farm equipment
Savings Bonds Rental properties
Test your knowledge
1. Liquidity refers to the ease with which an asset can be converted into cash without
affecting its market value.
2. Examples of liquid assets include cash, savings accounts, stocks, and bonds.
3. Liquidity is important in financial management as it ensures that individuals and

organisations have access to cash when needed.
4. Individuals can maintain a balance between liquid assets and long-term investments by
considering their financial goals, cash flow, and the nature of their assets and liabilities. It
is also necessary to make a diverse portfolio (mix of long-term and short-term investment),
rebalance the portfolio regularly, create an emergency fund, etc.
31
5. The level of liquidity needed depends on various factors, including the individual’s financial
goals, cash flow, and the nature of their assets and liabilities.
MCQs
1. c)
2. b)
3. c)
32
Insurance
Imagine you’re driving a car and Insurance is a type of contract where
suddenly, someone crashes into you. the insurer agrees to compensate
The damages to your car could be the policyholder in the event of a
expensive and you might have to specific loss, damage or illness. The
pay out of your own pocket if you policyholder pays a premium to the
don’t have insurance. This is where insurer for this protection. Insurance
insurance comes into play. can cover a wide range of risks
such as health, life, property, and
automobiles.
Figure: Insurance
Quick look
• Different types of insurance such as life insurance, health insurance,

home insurance, car insurance, etc.
• Importance of insurance in managing risk and protecting against
financial losses.
• Understanding the terms and conditions of the insurance policy
before purchasing.
• Premium payments and deductibles.
• Types of insurance companies - government-owned, private, and
cooperative.
33
Activity
Here are five situations, find out whether insurance can be applied or not with True and False.
1. If a tree falls on your car during a storm, car insurance can cover the damages.
2. If you accidentally drop your phone and it cracks, home insurance can cover the damages.
3. If a guest slips and falls on your property, homeowner’s insurance can cover their medical
expenses.
4. If your pet damages your furniture, renter’s insurance can cover the damages.
5. If your business is damaged by a natural disaster, commercial property insurance can cover
the damages.
Test your knowledge
1. What is insurance? 4. What is a deductible?
2. What are some types of insurance? 5. What are the types of insurance companies?
3. What is a premium?
MCQs
1. Which type of insurance covers damage to 3. What is the purpose of travel insurance?
your own vehicle in case of an accident? a) To provide coverage for lost luggage
a) Third-party insurance b) To provide medical coverage during travel
b) Comprehensive insurance c) To provide coverage for flight delays and
c) Personal accident insurance cancellations
d) Health insurance d) All of the above
2. Which type of insurance provides coverage 4. Which type of insurance provides coverage
for home damage caused by natural for loss of income due to a disability?
disasters like floods and earthquakes? a) Life insurance
a) Health insurance b) Personal accident insurance
b) Third-party insurance c) Health insurance
c) Life insurance d) Critical illness insurance
d) Home insurance
34
Answers
Activity
1. True. Comprehensive coverage in car insurance can cover damages to your vehicle caused
by falling objects, such as trees.
2. False. Home insurance typically does not cover damages to personal property caused by
accidents or mishandling.
3. True. Liability coverage in homeowner’s insurance can cover medical expenses for someone
who is injured on your property, even if it was not your fault.
4. False. Renter’s insurance typically does not cover damages caused by pets.
5. True. Commercial property insurance can cover damages to your business property caused
by natural disasters such as floods, fires, and earthquakes.
Test your knowledge
1. Insurance is a type of contract where the insurer agrees to compensate the policyholder
in the event of a specific loss, damage or illness. The policyholder pays a premium to the
insurer for this protection.
2. Some types of insurance include life insurance, health insurance, home insurance, car
insurance, etc.
3. A premium is the amount of money the policyholder pays to the insurer for insurance
coverage.
4. A deductible is the amount of money the policyholder is responsible for paying before the
insurance coverage kicks in.
5. The types of insurance companies are government-owned, private, and cooperative.
MCQs
1. b)
2. d)
3. d)
4. b)
35
Debt management
Debt management is the process of debts, negotiating with creditors
managing and paying off outstanding to reduce interest rates or monthly
debts in a responsible manner. It payments, and sticking to a budget to
involves developing a plan to repay avoid further debt.
Figure: Debt management
Quick look
• Assess your current financial situation and create a budget to track

your income and expenses.
• Prioritise your debts and create a repayment plan to pay them off in a
timely manner.
• Negotiate with your creditors to reduce your interest rates or monthly
payments if possible.
• Consider consolidating your debts with a personal loan or balance
transfer credit card.
• Seek professional help from a credit counsellor or debt management
company if needed.
Test your knowledge
1. What is debt management? 4. What is debt consolidation?
2. What are some ways to manage 5. When should you consider

debt? seeking professional help for debt
management?
3. Why is it important to prioritize
debts when managing debt?
36
MCQs
1. Which of the following is the most effective 3. Which of the following is a disadvantage of
debt management strategy? debt consolidation?
a) Paying off debts with the highest interest a) Simplifies monthly payments
rates first b) Lowers overall interest rates
b) Consolidating all debts into one loan c) Can lead to more debt if not managed
c) Paying off debts with the smallest properly
balances first d) Increases credit score
d) Ignoring debts until they become
unmanageable 4. What is a debt management plan?
a) A plan to pay off all debts in a month
2. What is debt-to-income ratio? b) A plan to consolidate debts into three
a) The amount of debt you owe compared to loans
the amount of money you make c) A plan to negotiate with creditors to lower
b) The amount of debt you owe compared to interest rates and monthly payments
the value of your assets d) A plan to file for bankruptcy
c) The amount of money you have left over
after paying off all your debts
d) The amount of money you owe on your
credit cards
Answers
Test your knowledge
1. Debt management is the process of managing and paying off outstanding debts in a
responsible manner.
2. Some ways to manage debt include creating a budget, prioritizing debts, negotiating with
creditors, consolidating debts, and seeking professional help.
3. It is important to prioritize debts when managing debt because some debts may have
higher interest rates or penalties than others.
4. Debt consolidation is the process of combining multiple debts into one monthly payment
with a lower interest rate.
5. You should consider seeking professional help for debt management if you are unable to
manage your debts on your own or if you have a large amount of debt.
MCQs
1. a)
2. a)
3. c)
4. c)
37
EMI
Meet Rahul, a 25-year-old working the TV without having to pay the
professional who wants to buy a entire amount upfront.
brand new TV. The cost of the TV is
Rs. 70,000, but Rahul does not have EMI is a loan repayment mechanism
the entire amount to pay upfront. that allows borrowers to pay back the
Instead, he opts to pay in monthly borrowed amount along with interest
instalments, known as Equated in fixed instalments over a specified
Monthly Instalments (EMIs). With EMI, period. The EMI amount is calculated
he can spread out the cost of the TV based on the loan amount, interest
over several months and make the rate, and loan tenure. This makes it
purchase more manageable within his easier for borrowers to manage their
budget. In this way, he can purchase finances by knowing exactly how
much they need to pay every month.
Figure: EMI
Quick look
• EMI is a common repayment method for loans such as home loans, car
loans, personal loans, and credit cards.
• The longer the tenure of the loan, the smaller the EMI amount, but the
higher the overall interest paid.
• The higher the interest rate, the higher the EMI amount and the overall
interest paid.
• Some lenders offer a prepayment facility that allows borrowers to pay
off their loan earlier than the original tenure and save on interest.
38
Activity
Using the information below, calculate the total interest paid by both persons.
Name: Arjun Name: Priya

Age: 25 years old Age: 30 years old
Occupation: IT professional Occupation: Freelance graphic designer
Monthly Income: Rs. 50,000 Monthly Income: Rs. 40,000
Loan Amount: Rs. 5,00,000 Loan Amount: Rs. 5,00,000
Interest Rate: 10% Interest Rate: 12%
Loan Term: 5 years Loan Term: 3 years
EMI: Rs. 10,623.52 EMI: Rs. 16,607.15
Test your knowledge
1. What does EMI stand for? 3. What types of loans commonly use EMI as a
repayment method?
2. How is the EMI amount calculated?
4. Can borrowers save on interest by making
prepayments?
MCQs
1. Which of the following is not a factor that can 3. How can a borrower reduce their EMI?
affect the EMI of a loan? a) Increase the loan amount
a) Loan amount b) Increase the interest rate
b) Interest rate c) Decrease the loan term
c) Loan term d) Make a larger down payment
d) Lender’s credit score
4. What happens if a borrower misses an EMI
2. What happens to the EMI when the loan term payment?
is increased? a) The loan is cancelled
a) EMI increases b) The interest rate increases
b) EMI decreases c) The borrower is charged a late payment
c) EMI remains the same fee
d) EMI is directly proportional to loan term d) The borrower is penalized with a higher
EMI for the remainder of the loan term
39
Answers
Activity
Interest Paid by:

• Arjun: ₹1,37,311.20
• Priya: ₹ 97,857.40
Test your knowledge
1. Equated Monthly Installment.
2. The EMI amount is calculated based on the loan amount, interest rate, and loan tenure.
3. Home loans, car loans, personal loans, and credit cards.
4. Yes, some lenders offer a prepayment facility that allows borrowers to pay off their loan
earlier than the original tenure and save on interest.
MCQs
1. d)
2. b)
3. d)
4. c)
40
4. Investment
Time Value of money
Time Value of Money is a financial time through interest, investments,
concept that refers to the idea that or other forms of financial gains.
money is worth more today than Therefore, the value of money today
it is in the future. This is because is worth more than the same amount
money has the potential to grow over of money in the future.
Figure: Time value of money
Quick look
• Time Value of Money considers the fact that the same amount of
money today is worth more than the same amount of money in the
future.
• This concept is based on the idea that money can be invested or grow
over time through interest, dividends, or other forms of financial gains.
• The future value of an investment can be calculated using the time
value of money formula, which takes into account the interest rate,
time period, and present value of the investment.
• The present value of an investment can also be calculated using the
time value of money formula, which takes into account the interest
rate, time period, and future value of the investment.
• The time value of money is an important concept in finance, as it helps
individuals and businesses make informed investment decisions based
on the potential future value of their money.
41
Rules of compounding*
There are 3 important rules to remember to These rules are simple mathematical formulas
understand the concept of compounding better. that can be used to estimate the time it will
These are: take for an investment to double in value based
• Rule of 72 on a fixed annual rate of return, assuming
• Rule of 114 compounding interest.
• Rule of 144
Figure: Rules of compounding
Rule of 72 Rule of 114

The Rule of 72 is the most commonly used of the The Rule of 114 is similar to the Rule of 72,
three rules and states that the number of years but is used when the rate of return is lower. It
it takes for an investment to double in value can estimates the number of years it will take for
be estimated by dividing 72 by the annual rate an investment to triple in value by dividing 114
of return. For example, if an investment earns a by the annual rate of return. For example, if an
fixed annual rate of return of 6%, it would take investment earns a fixed annual rate of return of
approximately 12 years for the investment to 4%, it would take approximately 28.5 years for
double in value (72 divided by 6 equals 12). the investment to triple in value (114 divided by
4 equals 28.5).
*These rules give an approximate time period.

42
Annual Innterest Rate The Rule of 72 Actual Number of Years

1% 72.00 69.66
2% 36.00 35.00
3% 24.00 23.45
4% 18.00 17.67
5% 14.40 14.21
10% 7.20 7.27
20% 3.60 3.80
30% 2.40 2.64
50% 1.44 1.71
75% 0.96 1.24
100% 0.72 1.00
Figure: Rules of 72
Rule of 144 It is important to note that these rules are

The Rule of 144 is similar to the Rule of 72, only estimates and do not take into account
but is used when the rate of return is higher. It factors such as inflation, taxes, or changes in
estimates the number of years it will take for an the rate of return over time. However, they can
investment to be 4 times in value by dividing 144 be useful tools for understanding the power
by the annual rate of return. For example, if an of compounding interest and how long-term
investment earns a fixed annual rate of return of investing can lead to significant growth in wealth
10%, it would take approximately 14.4 years for over time.
the investment to quadruple in value (144 divided
by 10 equals 14.4).
Test your knowledge
1. What is Time Value of Money? 4. What is the importance of Time Value of

Money in finance?
2. What is the basis of Time Value of Money?
5. How can the present value of an investment
3. How can the future value of an investment be be calculated using Time Value of Money?
calculated using Time Value of Money?
MCQs
1. What is the formula for calculating the future 2. How does Time Value of Money help in
value of an investment using Time Value of making investment decisions?
Money? a) It helps in understanding the current value
a) FV = PV * (1 + i)^n of money
b) PV = FV * (1 + i)^n b) It helps in predicting the future value of
c) FV = PV / (1 + i)^n money
d) PV = FV / (1 + i)^n c) It helps in comparing the returns of
different investment options
d) All of the above
43
Answers
Test your knowledge
1. Time Value of Money is a financial concept that refers to the idea that money is worth more
today than it is in the future.
2. Time Value of Money is based on the idea that money can be invested or grow over time
through interest, dividends, or other forms of financial gains.
3. The future value of an investment can be calculated using the time value of money
formula, which takes into account the interest rate, time period, and present value of the
investment.
4. The time value of money is an important concept in finance, as it helps individuals and
businesses make informed investment decisions based on the potential future value of their
money.
5. The present value of an investment can be calculated using the time value of money
formula, which takes into account the interest rate, time period, and future value of the
investment.
MCQs
1. a)
2. d)
44
Type of Investments
Imagine that you and your friends 2. Bonds: Bonds are a type of
are planning a big party. You need investment where you lend money
to decide how to invest your party to a company or government in
budget to make it the most fun and exchange for regular interest
memorable event ever. You could payments. At the end of the
invest in a great DJ to play awesome bond’s term, you get your original
music, invest in decorations to make investment back.
the party look amazing, or invest in
games and activities to keep everyone 3. Mutual Funds: Mutual funds are a
entertained. Each investment will have type of investment where you pool
a different impact on the party and your money with other investors to
will bring different returns, just like buy a portfolio of stocks, bonds, or
different types of investments have other assets. This helps spread the
different risks and rewards. Similarly risk across multiple investments.
there are several types of financial
investments that you can choose 4. Alternative Investments:
from, each with its own set of risks Alternative investments refer
and rewards. Here are some of the to non-traditional investment
most common types of investments or options that fall outside the
asset classes: realm of traditional investments
like stocks, bonds, and cash.
1. Stocks: Stocks are a type of These investments offer unique
investment where you own a small opportunities to diversify one’s
part of a company. When the portfolio and potentially achieve
company does well, the value of higher returns. ses.
your stock increases, and you can
sell your shares for a profit.
Figure: Types of investments - real estate and bonds
45
Quick look
• Each type of investment has its own set of risks and rewards
• It’s important to diversify your investments to minimise risk
• Research and understand each type of investment before deciding where to invest your
money
Activity
Investment Definition
Stocks An ownership stake in a company
Mutual Funds A loan made to a company or government
Commodities A collection of investments managed by a professional
Real Estate Property, land, or buildings
Bonds Raw materials or goods used in manufacturing
Test your knowledge
1. What is the difference between stocks and 3. What is a dividend?

bonds?
2. What is a mutual fund?
MCQs
1. What is a stock? 3. What is the purpose of diversifying your

a) A type of investment where you lend investments?
money to a company a) To maximise your returns
b) A type of investment where you own a b) To minimise your risk
small part of a company c) To invest in multiple types of assets
c) A type of investment where you buy gold
2. Which of the following is a low-risk, low-

return investment?
a) Stocks
b) Commodities
c) Real Estate
d) Fixed deposit
46
Answers
Investment Definition
Stocks An ownership stake in a company
Mutual Funds A collection of investments managed by a professional
Commodities Raw materials or goods used in manufacturing
Real Estate Property, land or buildings
Bonds A loan made to a company or government
Test your knowledge
1. Stocks represent ownership in a company, while bonds represent a loan made to a

company or government.
2. A mutual fund is an investment vehicle that pools money from many investors to purchase a
diverse portfolio of stocks, bonds, or other securities.
3. A dividend is a payment made by a company to its shareholders as a portion of its profits.
MCQs
1. b)
2. d)
3. b)
47
Long Term v/s Short Term Investment

Investing money can be a great way to Short-term investments are designed
grow your wealth over time. However, for a shorter investment period and
it’s important to understand that there offer quick access to your money,
are different types of investments while long-term investments require
that vary in terms of risk and reward, a longer investment period and offer
as well as time horizons. Short-term higher returns but with more risk.
investments are generally those with Short-term investments are typically
a maturity period of one year or less, less risky and offer lower returns
while long-term investments are those compared to long-term investments.
that last for more than one year. Each Long-term investments require more
type of investment has its own set patience and are designed to provide
of benefits and drawbacks, and it’s higher returns over time.
important to understand them before
making any investment decisions.
Quick look
• Long-term investments are best suited for those who have a long
investment horizon.
• Short-term investments are best suited for those who have a short
investment horizon and want to earn a quick return on investment.
• Long-term investments are typically less volatile and offer a more
stable return on investment.
• Short-term investments are typically more volatile and offer a less
stable return on investment.
• Investors should choose the investment option that suits their financial
goals and risk appetite.
Test your knowledge
1. What are long-term investments? 4. Which type of investment is more

volatile?
2. What are short-term investments?
5. What should investors consider
3. Which type of investment is less when choosing an investment
risky? option?
48
MCQs
1. Which of the following investments 4. If an investor purchases a bond for Rs. 1,000
is typically considered a short-term with a coupon rate of 5%, what will be the
investment? annual interest payment?
a) Real estate a) Rs. 5
b) Pension fund b) Rs. 50
c) Money market c) Rs. 100
d) Retirement accounts d) Rs. 500
2. Long-term investments are designed to: 5. Which of the following is an example of a

a) Provide quick access to money long-term investment?
b) Meet your short-term requirements a) A savings account
c) Build wealth over time b) A certificate of deposit
d) Minimize risks and maximize short-term c) A 5-year government bond
gains. d) A money market fund
3. Which of the following is an advantage of

long-term investments?
a) Higher liquidity
b) Lower returns
c) Greater risk
d) Lower taxes
Answers
Test your knowledge
1. Long-term investments are investments that are held for a long period, usually more than
five years.
2. Short-term investments are investments that are held for a short period, usually less than
five years.
3. Long-term investments are typically less risky.
4. Short-term investments are typically more volatile.
5. Investors should consider their financial goals and risk appetite when choosing an
investment option.
MCQs
1. c)
2. c)
3. d)
4. b)
5. c)
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Equity
Imagine you and your friends decide Equity is an important concept in
to open a lemonade stand. You investing, because it represents
each contribute some money to buy ownership in a company. When you
ingredients and supplies, and you buy a share of stock, you are buying
agree to split the profits equally. This a small ownership stake in that
is an example of equity - each person company. As the company grows
has an equal ownership stake in the and becomes more profitable, the
business. value of your equity (i.e. your share of
ownership) increases.
Now imagine that one of your friends
comes up with a great idea to add Equity refers to the ownership of
cookies to the menu, but you don’t shares in a company. It represents
have enough money to buy the the portion of the company that a
ingredients. Your friend offers to shareholder owns, and can be bought
contribute extra money to buy the or sold in the stock market. Equity is
ingredients for the cookies, but in often considered a high-risk, high-
return, they will get a bigger share of return investment option, as the value
the profits from the cookie sales. This of the shares can fluctuate widely
is an example of dilution of equity - based on various factors such as
the original equity holders (you and company performance, economic
your other friends) now own a smaller conditions, and market sentiments.
percentage of the business because
someone else has bought in and is
entitled to a share of the profits.
Figure: Equity
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Quick look
• Equity represents ownership in a company and can be bought or sold in the stock market
• Equity investments are considered high-risk, high-return investments
• The value of equity shares can fluctuate widely based on various factors such as company
performance, economic conditions, and market sentiments
• Equity investments are recommended for long-term investors who are willing to take on
higher risks in exchange for potentially higher returns
Test your knowledge
1. What is a stock exchange? 3. How do stock prices fluctuate?
2. What is a dividend?
MCQs
1. What is equity? 4. How can one buy or sell equity shares?

a) A form of debt a) Through a bank account
b) A form of ownership b) Through a credit card
c) A form of insurance c) Through a broker
d) A form of savings d) Through an insurance agent
2. What are the risks associated with equity 5. What factors should one consider before
investments? investing in equity?
a) Low risks, low returns a) Company’s financial performance
b) High risks, high returns b) Management quality
c) Low risks, high returns c) Growth prospects
d) High risks, low returns d) Market conditions
e) All of the above
3. Who should invest in equity?
a) Short-term investors
b) Risk-averse investors
c) Long-term investors
d) Investors looking for guaranteed returns
Answers
Test your knowledge
1. A stock exchange is a marketplace where publicly traded companies’ shares are bought
and sold.
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2. A dividend is a portion of a company’s profits that is distributed to its shareholders.
3. Stock prices fluctuate based on supply and demand, as well as changes in the company’s
performance and overall market conditions.
MCQs
1. b)
2. b)
3. c)
4. c)
5. e)
52
Mutual Funds
Imagine you and your friends are for making decisions on what to buy
planning a camping trip. Each of you or sell. Professional fund managers
wants to bring different supplies are responsible for managing the
like tents, sleeping bags, cooking mutual fund’s investments. They make
equipment, and games. However, decisions on what stocks or bonds
you all realize that buying everything to buy or sell based on research and
individually would be expensive and analysis.
might not be the most efficient way to
plan the trip. By investing in a mutual fund, you can
own a small portion of many different
Instead, you decide to pool your money companies or bonds, just like owning
together and create a “Campers Mutual a share of the camping supplies in the
Fund” Each friend contributes some “Campers Mutual Fund” This allows
money, and together you have a larger you to be a part-owner of a portfolio
amount to spend on all the necessary without needing a large amount of
camping supplies. You appoint a money or having to make all the
leader, who is responsible for making investment decisions yourself. The
the final decisions on what to buy. value of each investor’s portion of the
mutual fund, called units, depends
Now, the leader goes to the camping on the overall performance of the
store and starts buying the supplies investments held in the fund. Net Asset
on behalf of the group. They carefully Value (NAV) is a metric used to track
select a variety of items to ensure the performance of a mutual fund. The
you have everything you need for a NAV of a mutual fund is calculated
successful camping trip. Some of the by taking the total value of all the
money is used to buy tents, some investments held by the mutual fund
for sleeping bags, some for cooking and dividing it by the total number
equipment, and some for games and of shares in the fund. It’s important
entertainment. to note that the NAV can change
every day because the value of the
Once all the supplies are purchased, investments held in the fund can go up
you and your friends have equal or down.
ownership of the items based on
the amount of money each person One of the benefits of investing
contributed. For example, if you in mutual funds is that they offer
contributed Rs. 20 and the total instant diversification. Diversification
amount collected was Rs. 100, you means spreading your money across
would own 20% of the “Campers different investments to reduce risk.
Mutual Fund” and have an equal claim By investing in a mutual fund, you
on the camping supplies. indirectly own a small portion of many
different companies or bonds, which
In a similar way, a real mutual fund can help protect your money if one
works by pooling money from many investment doesn’t perform well.
different investors to buy a diversified
portfolio of stocks, bonds, or other Another advantage is that mutual funds
assets. The leader of the group, just are usually easy to buy and sell. You
like a professional fund manager in can typically invest in mutual funds
a real mutual fund, is responsible through a bank, brokerage firm, or
53
online platform. When you want to sell your units, called expense ratios, cover the costs of running
you can easily do so, usually at the current value the fund and paying the fund managers. It’s
of the fund. essential to understand these fees and compare
them across different mutual funds before making
It’s important to know that mutual funds charge an investment decision.
fees for managing the investments. These fees,
Figure: Mutual funds
Quick look
• Investing in a mutual fund allows you to own a small portion of various companies or bonds,
providing instant diversification to reduce risk.
• The value of your investment is measured by Net Asset Value (NAV), calculated by dividing
the total value of the investments by the total number of shares. The NAV can change daily
based on the performance of the investments.
• They are highly liquid making it easy to enter and exit investments.
• Mutual funds charge fees called expense ratios to cover management costs.
Activity
Conduct research on some of the best performing mutual funds in India. Find out who the fund
managers are and compare their performance, costs and investment holdings.
54
Test your knowledge
1. What are the advantages of investing in 3. What is a mutual fund?

mutual funds?
4. What is NAV and why is it used?
2. What is an expense ratio?
MCQs
1. Who manages a mutual fund? 3. What is the primary advantage of investing in

a) Individual investors mutual funds?
b) Financial advisors a) High returns in a short period
c) Professional fund managers b) Low risk with guaranteed returns
d) Government regulators c) Professional management and
diversification
2. How do you calculate NAV d) Access to insider trading information
a) Total assets held / Total cash in hand
b) Total value of investments held / Total
number of shares
c) Total assets / Number of shares
outstanding + Expense ratio
d) Total assets + Total liabilities / Total
number of shares
Answers
Test your knowledge
1. Some advantages of investing in mutual funds include diversification, professional

management, access to a variety of asset classes, and the ability to start with relatively
small amounts of money.
2. An expense ratio is the annual fee charged by a mutual fund for managing the fund’s
investments. It is expressed as a percentage of the fund’s assets.
3. A mutual fund is an investment vehicle that pools money from many investors to invest in a
diversified portfolio of stocks, bonds, or other securities.
4. NAV is the Net Asset Value (NAV) of a mutual fund. It is a metric used to track the
performance of a mutual fund.
MCQs
1. c)
2. b)
3. c)
55
Bonds
Bonds are a type of fixed-income specified period of time, after which
security that represents a loan made the principal amount of the bond is
by an investor to a borrower, typically returned to the investor. Bonds are
a corporation or government entity. generally considered less risky than
The issuer of the bond agrees to stocks, as they provide a steady
pay the investor a fixed interest rate, stream of income and are backed by
known as the coupon rate, for a the creditworthiness of the issuer.
Quick look
• Bonds are a type of fixed-income security that represents a loan made

by an investor to a borrower.
• The issuer of the bond agrees to pay the investor a fixed interest rate,
known as the coupon rate, for a specified period of time.
• Bonds are generally considered less risky than stocks, as they provide
a steady stream of income and are backed by the creditworthiness of
the issuer.
• Bonds can be bought and sold on the secondary market, and their
prices can fluctuate based on changes in interest rates and the
creditworthiness of the issuer.
• There are several types of bonds, including government bonds,
corporate bonds, municipal bonds, and convertible bonds.
The 10-5-3 rule*
The 10-5-3 rule for returns on and the actual returns may vary
investment suggests that you can depending on market conditions and
expect an average annual return of other factors. It’s also important to
10% from stocks, 5% from bonds, and consider your own investment goals,
3% from cash investments, such as risk tolerance, and financial situation
savings accounts or money market before deciding on an investment
funds. strategy. Therefore, this rule should
be used as a guideline rather than a
However, it’s important to note that hard and fast rule.
these are not guaranteed returns,
* The rules are not absolute and may differ based on individual circumstances.
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Figure: 10-5-3 rule
Test your knowledge
1. What are bonds? 4. What factors can affect the price of a bond?
2. What is the coupon rate of a bond? 5. What are the different types of bonds?
3. Are bonds less risky than stocks?
MCQs
1. What is the main advantage of bonds over 3. What is a convertible bond?
stocks? a) A bond that can be exchanged for another
a) Bonds provide a steady stream of income bond of equal value
b) Bonds have a higher potential for capital b) A bond that can be converted into shares
gains of stock
c) Bonds are less risky than stocks c) A bond that has a variable interest rate
d) Bonds can be easily traded on the stock d) A bond that can be converted to gold
exchange
2. What is a government bond?

a) A bond issued by a corporation
b) A bond issued by a municipality
c) A bond issued by the federal government
d) A bond that can be converted into shares
of stock
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Answers
Test your knowledge
1. Bonds are a type of fixed-income security that represents a loan made by an investor to a
borrower, typically a corporation or government entity.
2. The coupon rate of a bond is the fixed interest rate that the issuer of the bond agrees to
pay the investor for a specified period of time.
3. Yes, bonds are generally considered less risky than stocks, as they provide a steady stream
of income and are backed by the creditworthiness of the issuer.
4. The price of a bond can fluctuate based on changes in interest rates and the
creditworthiness of the issuer.
5. There are several types of bonds, including government bonds, corporate bonds, municipal
bonds, and convertible bonds.
MCQs
1. a)
2. c)
3. b)
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Real Estate
Real estate investment refers to the properties that are undervalued,
process of investing in real estate distressed, or in need of renovation or
with the aim of earning a return on repairs. They purchase the property,
investment. This can be done in make necessary improvements or
various ways, including buying a renovations, and then sell it at a
property and renting it out, buying higher price, ideally within a short
and flipping properties, investing in period of time.
real estate investment trusts (REITs),
and more. Real estate is a popular Investing in real estate also comes
investment option for many people with risks. You need to consider the
because it has the potential to costs involved in owning a property,
generate significant returns over the such as property taxes, maintenance,
long term. and repairs. These expenses can
impact your profits. If you buy a
If you buy a property that you rent out property that doesn’t generate
to others, you can earn money each enough rental income to cover your
month from the rent payments. Another expenses, you could end up losing
way to make money in real estate is money. Real estate investments also
through appreciation. This means that tend to be less liquid compared to
the value of the property you own stocks or bonds. Selling a property
increases over time, allowing you to sell can take time and may involve
it for more than you paid for it. transaction costs. Stocks and bonds,
on the other hand, can be bought
Flipping in real estate refers to the or sold relatively quickly on public
practice of buying a property with exchanges. Additionally, the value of
the intention of selling it quickly for real estate can fluctuate, which means
a profit. Flippers typically look for that you may not be able to sell your
property for as much as you hoped.
Quick look
• Real estate investment can provide a steady source of passive income

through rental properties.
• Other ways to earn returns on a real estate investment are capital
appreciation and flipping
• It can be a long-term investment that has the potential for significant
capital appreciation.
• Real estate investment requires a significant amount of capital upfront,
and ongoing maintenance costs can add up over time.
• Investors should carefully consider factors such as location, property
type, and market conditions before making an investment.
• Real estate investments are illiquid compared to other asset classes
such as stocks and bonds.
59
Figure: Real estate prices
60
Activity
Find the types of costs that affect real estate investments in India.
Test your knowledge
1. What are some potential ways to make 3. How do real estate investments differ from
money from a real estate investment? other types of investments, like stocks or
bonds?
2. What are some potential risks or challenges
that come with investing in real estate?
MCQs
1. Which investment type typically offers more 3. What is real estate investment?
liquidity? a) Buying a property to live in
a) Real estate b) Buying a property with the intention of
b) Stocks making money from it in the future
c) Bonds c) Investing in stocks and bonds
d) They all offer similar levels of liquidity d) Renting a property for a short period
2. Which one of the following is a risk in real

estate investment?
a) Market fluctuations and financing risks
b) Liquidity challenges
c) Property vacancies
d) All of the above
Answers
Activity
There are several types of expenses that can affect a real estate investment in India. Some of
the most common expenses include:
1. Purchase price: The amount of money you pay to purchase a property is a significant
expense that can impact your investment. This can include the price of the property itself,
as well as any fees associated with the purchase, such as stamp duty and registration fees.
2. Financing costs: If you’re taking out a loan to purchase the property, you’ll need to pay
interest on the loan, which can be a significant expense over time.
3. Maintenance and repairs: As a property owner, you’ll be responsible for maintaining

and repairing the property over time. This can include things like fixing leaks, replacing
appliances, and repainting the interior and exterior of the property.
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4. Property taxes: Property taxes are levied by the local government and are based on the
value of the property. These taxes can be a significant expense for property owners in
India.
5. Insurance: You’ll need to purchase insurance to protect your investment, which can include
things like property insurance, liability insurance, and rental insurance.
6. Property management: If you’re renting out the property, you may need to hire a property
manager to handle things like finding tenants, collecting rent, and handling maintenance
requests. This can be an additional expense.
7. Vacancy and turnover costs: If your property is vacant, you’ll still be responsible for paying
expenses like mortgage payments, property taxes, and maintenance costs. Additionally,
when tenants move out, you may need to pay for things like cleaning and repairs before
you can rent the property out again.
Test your knowledge
1. Rental Income: One of the most popular ways to make money in real estate is through rental
income. If you own a property, you can rent it out to tenants who will pay you monthly rent.
The rental income can help cover your expenses, such as mortgage payments, property
taxes, and maintenance costs. Ideally, the rental income should exceed your expenses,
allowing you to generate positive cash flow and potentially make a profit.
Property Appreciation: Real estate values can increase over time, which means the property
you own can become more valuable.
Flipping Properties: Property flipping involves buying a property, renovating or improving

it, and selling it quickly for a profit. Investors look for properties that have the potential for
value enhancement through renovations or repairs. By adding value to the property, they
aim to sell it at a higher price in a short period.
2. Market Fluctuations: Real estate markets can experience fluctuations in property values and
demand. Economic conditions, changes in supply and demand, or local factors can affect
property prices. An unfavorable market can impact the profitability of your investment or
make it difficult to sell a property at a desired price.
Property Vacancy: If you are investing in rental properties, there is a risk of experiencing
periods of vacancy where you have no tenants. This means you won’t receive rental income
during that time but will still have expenses like mortgage payments, property taxes, and
maintenance costs to cover.
Liquidity Challenges: Real estate investments are relatively illiquid compared to other
investments. It can take time to sell a property and convert it into cash if you need to
access your investment quickly. Limited liquidity can restrict your ability to respond to
changing financial circumstances.
Maintenance and Repairs: Owning a property requires ongoing maintenance and occasional
repairs. Unexpected repair costs can arise, affecting your cash flow and profitability. It’s
important to budget for these expenses and ensure the property is properly maintained to
preserve its value.
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3. Tangibility: Real estate investments involve physical properties that you can see and touch.
Unlike stocks or bonds, which represent ownership in a company or debt obligations, real
estate investments provide a tangible asset in the form of land or buildings.
Liquidity: Real estate investments tend to be less liquid compared to stocks or bonds.
Selling a property can take time and may involve transaction costs. Stocks and bonds, on
the other hand, can be bought or sold relatively quickly on public exchanges.
Potential for Income Generation: Real estate investments have the potential to generate
ongoing income through rental payments. Stocks may offer dividends, but not all stocks pay
dividends, and the income is dependent on the company’s performance. Bonds typically
provide fixed interest payments but lack the potential for increasing income over time.
MCQs
1. b)
2. d)
3. b)
63
Risk Allocation
Consider a basketball team. If the Risk allocation is the process of
team only relies on one star player assigning responsibility for potential
to win games, they are putting all losses or damages that may occur
their eggs in one basket. But if they in a given situation. In the context
have multiple players who might not of finance, risk allocation involves
be exceptional but can score and spreading the risk of investments
contribute to the team, they are across various assets and markets,
spreading the risk and increasing their thereby reducing the overall risk
chances of winning. This is called risk exposure of the portfolio.
allocation.
Figure: Risk allocation
Quick look
• Risk allocation is an important aspect of risk management, as it helps

to reduce the impact of potential losses.
• The allocation of risk can vary depending on the nature of the
investment and the investor’s risk appetite.
• Diversification of the portfolio is a popular risk allocation strategy,
where investments are spread across multiple assets and markets.
• Insurance is another risk allocation tool, where the potential losses are
transferred to an insurance company.
• Risk allocation is an ongoing process that needs to be reviewed and
updated regularly to ensure that the portfolio is aligned with the
investor’s financial goals.
64
100 minus age finance rule*
Figure: 100 minus age finance rule of investment allocation

* This rule may differ based on individual circumstances.
The 100 minus age finance rule suggests that So, for example, if you're 30 years old, you could
you should invest a percentage of your savings invest 70% of your savings in stocks assets
in stocks and the remaining percentage in less and 30% in less risky assets. In India, there are
risky assets such as bonds or cash. The exact many options for investing in stocks and bonds,
percentage of your investments that should be such as mutual funds, stocks, bonds, and other
in stocks is determined by subtracting your age financial instruments.
from 100.
Activity
Rohan is a 25 yr old software engineer earning Rs. 1,00,000 per month. He wants to start
investing to build his wealth and secure his future. He has a monthly expenditure of Rs. 30,000.
Come up with an investment plan keeping the risk and diversification in mind.
Monthly
Portfolio Interest pa Time period Risk zone
investment
Gold bond 1,500 8% 1 yr Low risk
Stocks
Mutual Funds
Real estate
Corporate Bonds
FD
PPF
Post office schemes
65
Test your knowledge
1. What is the relationship between risk and 3. What is an example of a low-risk investment?
return in risk allocation?
4. How does an investor determine their risk
2. What is an example of a high-risk tolerance?
investment?
MCQs
1. What is the purpose of risk allocation? 4. Is risk allocation a one-time process?

a) To increase the impact of potential losses a) Yes, risk allocation is a one-time process
b) To reduce the impact of potential losses b) It depends on the nature of the investment
c) To eliminate potential losses c) It depends on the investor’s risk appetite
d) To increase the risk exposure of the d)No, risk allocation is an ongoing process
portfolio
5. What is the popular risk allocation strategy?
2. What is diversification in the context of risk a) Investing in a single asset or market
allocation? b) Diversification of the portfolio
a) Investing in multiple assets or markets c) Transferring potential losses to an
b) Investing in a single asset or market insurance company
c) Transferring potential losses to an d) Assigning responsibility for potential
insurance company losses to another party
d) Allocating your risk to another company
3. What is the role of insurance in risk

allocation?
a) To increase the risk exposure of the
portfolio
b) To reduce the impact of potential losses
c) To eliminate potential losses
d) To increase the impact of potential losses
Answers
Activity
After removing the monthly expenditure Rohan has Rs. 70,000. According to the 50-30-20
rule, Rohan should keep 30% of that for any wants and 20% of it for investing.
20% of 70,000 = Rs. 14,000
According to the 100 minus age rule, the percentage of your investments that should be in
stocks is determined by subtracting your age from 100.
100 - 25 = 75%.
Hence, 75% of his savings should be invested in equity, i.e., Rs. 14,000 x 75% = Rs. 10,500
66
Monthly
Portfolio Interest pa Time period Risk zone
investment
Gold bond 1,500 8% 1 yr Low risk
Stocks 7,000 17% Indefinite High risk
Mutual Funds 3,500 15% Indefinite High risk
Real estate
Corporate Bonds 1,500 5% Indefinite Moderate risk
FD
PPF
Post office schemes 500 7% 1 yr Low risk
Note: The interest p.a. is an approximate.
As Rohan is still young, he can afford to invest in high risk assets such as equity and mutual
funds and keep his investments low in low risk assets like Post office schemes. This is a
possible investment strategy but you can choose to differ from it.
Test your knowledge
1. In risk allocation, higher risk is typically associated with the potential for higher returns,
while lower risk is associated with lower returns.
2. An example of a high-risk investment is investing in a startup company with little to no

track record.
3. An example of a low-risk investment is investing in a government bond with a low interest

rate.
4. An investor can determine their risk tolerance by considering their investment goals, time
horizon, and overall financial situation. It is important to work with a financial advisor to
assess risk tolerance and develop a risk allocation strategy.
MCQs
1. b)
2. a)
3. b)
4. d)
5. b)
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5. Loans & Credits

Understanding Credit & Loans
Imagine you really want to buy a new a period of time. The interest is an
video game, but you don’t have enough additional fee charged by the lender for
money saved up. If you use your the privilege of borrowing the money.
allowance or birthday money to buy it
now, you won’t have any money left for There are different types of loans,
other things. But with credit, you can such as personal loans, auto loans,
buy the game now and pay for it later home loans, and student loans. When
when you have more money. you take out a loan, you have to pay
back the amount you borrowed plus
Credit is a financial term that refers interest, which is the cost of borrowing
to the ability of a person or company the money. The interest rate can vary
to borrow money or obtain goods depending on the type of loan and the
and services before paying for them. lender.
When someone uses credit, they are
essentially borrowing money from a For example, imagine that your parents
lender, such as a bank, credit union, or want to buy a new car, but they don’t
credit card company, with the promise have enough money to pay for it all at
to pay it back with interest over time. once. They could take out a car loan
from a bank, which would give them
A loan is a sum of money that the money they need to buy the car.
you borrow from someone or an However, they would have to pay back
organization, and you agree to pay the loan over time, usually with monthly
back that amount with interest over payments that include interest.
Figure: Loan from bank
Quick look
• Credit refers to the ability to borrow money or obtain goods and

services before paying for them.
• Credit can come in many forms, including credit cards, personal loans,
mortgages, car loans, and student loans.
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• Loans are a way to borrow money that you have to pay back over time.
• There are different types of loans, such as personal loans, auto loans, home loans, and
student loans.
Activity
Pick the Credit card* best suited for you.
Note: Credit cards cannot be issued to anyone under the age of 18. But you can always have a favourite you’d like to own
some day
*This is not an endorsement and should be treated as an example only.
69
Test your knowledge
1. How does credit score affect your ability to 4. What is an unsecured loan?
get credit?
5. What is a payday loan?
2. What is a credit report?
6. What is a mortgage loan?
3. What are some tips for building good credit?
MCQs
1. What is credit? 4. What is a student loan?

a) The ability to borrow money or obtain a) A loan used to purchase a car
goods and services before paying for them b) A loan used to pay for education expenses
b) A type of investment c) A loan used to consolidate debt
c) A type of a cashback d) A loan used to start a business
2. What are some examples of credit? 5. What is a personal loan?

a) Credit cards, personal loans, mortgages, a) A loan used to purchase a car
car loans, and student loans b) A loan used to pay for education expenses
b) Bank accounts, stocks, and bonds c) A loan that can be used for a variety of
c) Cash and checks purposes
d) A loan used to purchase a home
3. What are some things to remember about
using credit?
a) Use it responsibly and pay it back on time
b) You can only purchase automotives
c) It expires in 15 days
Answers
Test your knowledge
1. A credit score is a numerical representation of a person’s creditworthiness, and it plays a

big role in determining whether or not they can get credit. A higher credit score generally
means a person is more likely to get approved for credit and receive favourable terms and
interest rates.
2. A credit report is a record of a person’s credit history, including their credit accounts,
payment history, and any delinquencies or defaults. Credit reports are used by lenders and
other financial institutions to determine a person’s creditworthiness and eligibility for credit.
3. Some tips for building good credit include paying bills on time, keeping credit card balances
low, not opening too many new accounts at once, and regularly checking credit reports for
errors or inaccuracies.
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4. An unsecured loan is a type of loan that is not backed by collateral. Instead, the lender
assesses the borrower’s creditworthiness to determine whether or not to lend money.
5. A payday loan is a short-term, high-interest loan that is typically due on the borrower’s next
payday. These loans are often used by people who need cash quickly and have few other
options.
6. A mortgage loan is a type of secured loan that is used to purchase a house or other
real estate. The loan is secured by the property itself, and if the borrower fails to make
payments, the lender can foreclose on the property to recover the loan amount.
MCQs
1. a)
2. a)
3. a)
4. b)
5. c)
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Loan Amortisation
Imagine you want to buy a new car, of the principal amount borrowed and
and you decide to take out a loan the interest charged on that amount.
to pay for it. The loan amount is Rs. The loan amortisation schedule shows
1 lakh, with a 5-year term and an the breakdown of each payment,
annual interest rate of 10%. To repay including the amount of interest paid,
the loan, you will make equal monthly the amount of principal repaid, and
payments for the next 5 years. This the outstanding loan balance.
process of paying off the loan in fixed
instalments each month is known as Loan amortisation is used in various
loan amortisation. types of loans such as home loans,
car loans, and personal loans. It
Loan amortisation is the process helps borrowers to know exactly how
of paying off a loan with fixed much they need to pay each month
instalments over a period of time. and how long it will take to pay off
Each instalment consists of a portion the loan.
Quick look
• The total amount borrowed, interest rate, and loan term determine the
amount of each instalment.
• In the early stages of the loan, the majority of the instalment goes
towards paying interest. Over time, the amount of principal repaid
increases.
• The loan amortisation schedule shows the progress of loan repayment
over time and helps borrowers to plan their finances accordingly.
• Making additional payments towards the principal can help to reduce
the total interest paid and shorten the loan term.
Activity
Let’s say you want to buy a car worth ₹3,00,000 and you want to take
a loan to buy it. The tenure of the loan is 1 year and the interest rate
decided is 6%. Create a loan amortisation schedule and determine the
total interest you will end up paying.
Test your knowledge
1. Can making additional payments 3. What determines the amount

towards the principal help to of each instalment in loan
reduce the total interest paid? amortisation?
2. Which types of loans use loan

amortisation?
72
MCQs
1. What is loan amortisation? 3. What does the loan amortisation schedule
a) The process of paying off a loan with a show?
lump sum payment a) The total amount borrowed
b) The process of paying off a loan with fixed b) The outstanding loan balance
instalments over a period of time c) The breakdown of each payment, including
c) The process of refinancing a loan the amount of interest paid and the amount
d) The process of transferring a loan to of principal repaid
another borrower d) The credit score of the borrower
2. Can making additional payments towards

the principal help to reduce the total interest
paid?
a) Yes
b) No
Answers
Activity
Total Interest Remaining

Month Payment Principal Interest
Paid Principal
1 25,819.93 24,319.93 1,500 1,500 2,75,680.07

2 25,819.93 24,441.53 1,378.40 2,878.40 2,51,238.54
3 25,819.93 24,563.74 1,256.19 4,134.59 2,26,674.81
4 25,819.93 24,686.55 1,133.37 5,267.97 2,01,988.25
5 25,819.93 24,809.99 1,009.94 6,277.91 1,77,178.26
6 25,819.93 24,934.04 885.89 7,163.80 1,52,244.23
7 25,819.93 25,058.71 761.22 7,925.02 1,27,185.52
8 25,819.93 25,184.00 635.93 8,560.95 1,02,001.52
9 25,819.93 25,309.92 510.01 9,070.96 76,691.60
10 25,819.93 25,436.47 383.46 9,454.41 51,255.12
11 25,819.93 25,563.65 256.28 9,710.69 25,691.47
12 25,819.93 25,691.47 128.46 9,839.15 0.00
Test your knowledge
1. Yes, making additional payments towards the principal can help to reduce the total interest
paid and shorten the loan term.
2. Home loans, car loans, and personal loans are some examples of loans that use loan
amortization.
73
3. The total amount borrowed, interest rate, and loan term determine the amount of each
instalment in loan amortisation.
MCQs
1. b)
2. a)
3. c)
74
Defaulting
Defaulting refers to the failure of a When a borrower defaults on a loan,
borrower to repay a loan or meet the it can have serious consequences.
terms of a contract or agreement. The lender may take legal action to
Defaulting can occur in various recover the debt, which can result in
forms, including missed payments, a damaged credit score, legal fees,
late payments, or failure to meet and even the seizure of assets. In the
other obligations outlined in a loan case of bonds, defaulting refers to the
agreement or contract. failure of the issuer to make interest
or principal payments to bondholders.
Figure: Defaulting
Quick look
• Defaulting can occur in various forms, including missed payments,

late payments, or failure to meet other obligations outlined in a loan
agreement or contract.
• When a borrower defaults on a loan, it can result in a damaged credit
score, legal action, and the seizure of assets.
• In the case of bonds, defaulting refers to the failure of the issuer to
make interest or principal payments to bondholders.
• Investors should carefully evaluate the creditworthiness of borrowers
before investing in loans or bonds.
• Credit rating agencies, such as Moody’s and Standard & Poor’s,
provide ratings that indicate the creditworthiness of borrowers and
the likelihood of default.
75
Test your knowledge
1. Are there different types of default? 4. What happens if a borrower defaults on a

secured loan?
2. What is the best way to avoid defaulting on a
loan? 5. Can a borrower face legal consequences for
defaulting on a loan?
3. Can a borrower negotiate with the lender if
they are struggling to make payments?
MCQs
1. What is defaulting? 4. How can investors avoid default risk?

a) The failure of a borrower to repay a loan or a) By investing in high-risk assets
meet the terms of a contract or agreement b) By not investing at all
b) The repayment of a loan before the due c) By carefully evaluating the
date creditworthiness of borrowers
c) The partial repayment of a loan d) By investing in only short-term assets
d) The transfer of a loan to a new borrower
5. What do credit rating agencies do?
2. What are the consequences of defaulting on a) They provide ratings that indicate the
a loan? creditworthiness of borrowers and the
a) Increased credit score likelihood of default
b) Legal rewards b) They issue loans to borrowers
c) The seizure of assets c) They invest in the stock market
d) A reduction in interest rates d) They provide legal advice to borrowers
3. What is defaulting in the case of bonds?

a) The failure of the bondholder to make
interest payments to the issuer
b) The failure of the bondholder to make
principal payments to the issuer
c) The failure of the issuer to make interest
or principal payments to bondholders
d) The early repayment of a bond
Answers
Test your knowledge
1. Yes, there are two types of default: technical default, which occurs when a borrower fails to
meet a specific condition of the loan agreement, and payment default, which occurs when
a borrower fails to make a required payment.
2. The best way to avoid defaulting on a loan is to create a realistic budget, prioritize loan
payments, and communicate with the lender if there are financial difficulties.
76
3. Yes, borrowers can often negotiate with the lender to modify the loan terms, such as
lowering the interest rate or extending the repayment period.
4. If a borrower defaults on a secured loan, the lender can seize the collateral used to recover
the loan.
5. Yes, lenders may pursue legal action to recover the debt owed, including wage garnishment
or property liens.
MCQs
1. a)
2. c)
3. c)
4. c)
5. a)
77
6. Tax planning
GST & Income Tax
GST (Goods and Services Tax) and consumption of goods and services.
Income Tax are two types of taxes The GST rate varies depending on the
levied by the Indian government. GST type of goods and services.
is a tax on the supply of goods and
services while income tax is a tax on Income tax, on the other hand, is
the income earned by an individual or levied on the income earned by
entity. an individual or entity. The income
tax rate also varies depending on
GST was introduced in India on July the income earned. Individuals are
1, 2017, replacing various indirect required to file income tax returns
taxes such as central excise duty, with the Income Tax Department
service tax, and value-added tax. It of India by July 31st each year. The
is a destination-based tax, meaning income tax department is responsible
that the tax is levied on the final for collecting income tax in India.
Figure: GST Rates
Quick look
• GST is a tax on the supply of goods and services while income tax is a
tax on the income earned.
• GST was introduced in India on July 1, 2017, while income tax has
been in existence for a long time.
• The income tax rates and tax slabs for individuals vary based on their
income levels.
• Individuals are required to file income tax returns with the Income Tax
Department of India by July 31st each year.
78
Figure: Types of GST in India
Test your knowledge
1. What is GST? 4. What is the responsibility of the income tax

department in India?
2. When was GST introduced in India?
5. How is the GST rate determined?
3. What is the difference between GST and
income tax?
MCQs
1. Which of the following taxes is levied on the 4. Which of the following is a destination-based
supply of only certain goods and services? tax?
a) Income tax a) Income tax
b) Sales tax b) Property tax
c) Property tax c) Excise duty
d) Excise duty d) GST
2. What is the full form of GST? 5. What is the difference between GST and
a) Goods and Services Tax sales tax?
b) General Sales Tax a) GST is a destination-based tax while sales
c) Global Service Tax tax is a production-based tax.
d) Gross State Tax b) GST is a production-based tax while sales
tax is a destination-based tax.
3. Which department is responsible for c) GST is only levied on goods while sales tax
collecting income tax in India? is levied on goods and services.
a) Income Tax Department d) GST is only levied on services while sales
b) Goods and Services Tax Council tax is levied on goods and services.
c) Ministry of Finance
d) Reserve Bank of India
79
Answers
Test your knowledge
1. GST is a tax on the supply of goods and services.
2. GST was introduced in India on July 1, 2017.
3. GST is a tax on the supply of goods and services while income tax is a tax on the income
earned by an individual or entity.
4. The income tax department is responsible for collecting income tax in India.
5. The GST rate varies depending on the type of goods and services.
MCQs
1. d)
2. a)
3. a)
4. d)
5. a)
80
Post office savings

Post office savings is a traditional options, including savings accounts,
form of savings in India. It has been recurring deposits, fixed deposits,
popular for many years, especially public provident funds, and more.
among those who live in rural One of the key benefits of the Post
areas and small towns. It is also a Office Savings Scheme is that it
popular tax saving scheme for many provides a higher interest rate than
employees. most commercial banks, making it
an attractive option for those who
The Post Office Savings Scheme is a want to earn a good return on their
government-backed saving scheme investment.
that offers a variety of investment
Figure: Indian post office
Quick look
• The Post Office Savings Scheme is available in all post offices across
the country.
• The scheme is backed by the government, making it a safe and secure
investment option.
• The interest rate offered by the Post Office Savings Scheme is revised
every quarter.
• The scheme offers tax benefits under Section 80C of the Income Tax
Act.
• The minimum amount with which you can begin investing in one of the
schemes (Savings account) is Rs. 500, and there is no maximum limit.
81
Test your knowledge
1. 1. What is a Post Office Savings Scheme? 2. Is the Post Office Savings Scheme a safe
investment option?
MCQs
1. What is the minimum investment required for 2. Which of the following is a benefit of the Post
the Post Office Savings account Scheme? Office Savings Scheme?
a) Rs. 100 a) It provides a lower interest rate
b) Rs. 50 than most commercial banks
c) Rs. 20 b) It is not backed by the
d) Rs. 500 government
c) It offers tax benefits under Section 80C of
the Income Tax Act
d) It is not available in all post offices across
the country
Answers
Test your knowledge
1. Post Office Savings Scheme is a government-backed saving scheme that offers a variety
that
of investment
offers a variety
options,
of including
investmentsavings
options,
accounts,
including
recurring
savings deposits,
accounts,fixed deposits,
recurring
public provident
deposits,
funds,
fixedand
deposits,
more. public provident funds, and more.
2. Yes, the scheme is backed by the government, making it a safe and secure investment
secure investment option.
option.
3. The minimum investment required for the scheme is Rs. 20, and there
MCQs
is no maximum limit.
1. d)
1. c)
MCQs
2.
82
Public Provident Fund

Public Provident Fund (PPF) is a long- fund. The scheme is available at
term savings scheme offered by the designated post offices, nationalised
Indian government. It was introduced banks, and some private banks. The
to encourage small savings and primary objective of PPF is to provide
investments among the general public financial security and stability to
and is a popular tax saving investment individuals in their retirement years.
Quick look
• The minimum investment in a PPF account is Rs. 500 per year, and the
maximum investment is Rs. 1.5 lakh per year.
• The maturity period for a PPF account is 15 years, and the interest
rate is revised every quarter.
• PPF accounts can be opened by any resident Indian citizen or Hindu
Undivided Family (HUF).
• PPF accounts can be opened with any post office, nationalised bank,
or private bank that has been authorised by the government.
• The interest earned on PPF investments is tax-free.
• PPF accounts can be extended for a period of 5 years after the
maturity period.
Test your knowledge
1. What is a Public Provident Fund? 3. What is the maturity period for a

PPF account?
2. What is the minimum and
maximum investment in a PPF
account?
MCQs
1. 1. Who can open a PPF account? 3. Can a PPF account be opened

a) Only resident Indians with a private bank?
b) Only non-resident Indians a) No
c) Only Hindu Undivided Families b) Yes, only with authorized
d) Both resident Indians and Hindu private banks
Undivided Families c) Yes, with any private bank
2. Is the interest earned on PPF

investments of upto 1.5 lacs
taxable?
a) Yes
b) No
83
Answers
Test your knowledge
1. Public Provident Fund (PPF) is a long-term savings scheme offered by the Indian
government to encourage small savings and investments among the general public.
2. The minimum investment in a PPF account is Rs. 500 per year, and the maximum
investment is Rs. 1.5 lakh per year.
3. The maturity period for a PPF account is 15 years.
MCQs
1. d)
2. b)
3. b)
84
Our Mentors
“
Financial literacy can give founders a competitive
advantage. By understanding financial concepts and
managing finances effectively, founders can make smarter
decisions, mitigate risks, and capitalize on opportunities.
This can help them to stay ahead of the competition and
“
succeed in the long run.
-Reeju Datta
Cofounder - Cashfree
“
Financial literacy can help individuals and business
officers communicate more effectively with financial
professionals and stakeholders. Financially literate
individuals can understand financial reports, investment
opportunities, and financial jargon and can explain
financial strategies and decisions to investors,
“
shareholders, and board members.
- Soumya Kanti Purkayastha

Investor, Mentor
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5. Loans & Credits 68

Deflation in the Tech Industry

Product: The smartphones are sold for Rs. 20,000 each.

Sales: The startup sells an average of 1,000 smartphones per month.

Find ways to reduce their costs or increase their revenue.

Test your knowledge

1. What is deflation and how is it different from 4. How is inflation measured?

3. What are some strategies individuals can

Test your knowledge

• Depreciation is a reduction in the value of an asset over time

Test your knowledge

1. What is depreciation? 4. Does depreciation apply to both tangible and

2. Which of the following is an example of a

1. (Cost - Salvage Value) / Useful Life = (50,000 - 5,000) / 5 = Rs. 9,000

Test your knowledge

1. Depreciation is a reduction in the value of an asset over time.

Figure: Sources of income

• Banks make money primarily through interest on loans and

Test your knowledge

3. Which of the following is NOT a way that

Test your knowledge

Calculating interest rates

Solve the following.

1. A bank offers 5% compound interest calculated on a half-yearly basis.

2. You want to save Rs. 5,00,000 for a down payment on a house in 5

4. Manish invested a sum of money at CI. It amounted to Rs 2,420 in 2

Test your knowledge

1. What is interest rate? 3. How do you calculate the interest

2. What is the term used to describe the

3. You can afford to spend Rs. 11,966.81 on the car.

4. Last year interest = 2662 - 2420 = Rs 242

Test your knowledge

Neo-banks and banking future

Figure: Examples of Neo-banks

• Neo-banks have lower overhead costs than traditional banks.

Test your knowledge

1. What are neo-banks? 3. What advantages do neo-banks

4. As we move towards a more digital future, neo-banks are well-positioned to provide

• Financial crimes refer to illegal activities that involve financial

Watch Bad Boy Billionaires on Netflix to understand financial crimes better.

Test your knowledge

1. What is a financial crime? 2. Why are financial crimes a concern for

Figure: Emergency Fund

The 50-30-20* rule is a budgeting • 50% for Needs: This includes

* This spending plan is subject to change based on individual circumstances.

Figure: The 50/30/20 spending plan

• Budgeting involves planning and managing your finances

Test your knowledge

3. What is an emergency fund? 5. What are some strategies for building an

Note : Budget may vary as per the individual’s needs

Test your knowledge

Dos and Don’ts of personal finance

Which scenario is the best case in terms of financial planning.

Scenario 1 Scenario 2 Scenario 3

Test your knowledge

2. Which of the following is a ‘don’t’ in personal 5. What is a recommended ‘do’ in personal

3. What is a recommended ‘do’ in personal

Test your knowledge

• Liquidity is an important aspect of financial management as it ensures