[searchwp_no_index][searchwp_no_index][searchwp_no_index][searchwp_no_index][searchwp_no_index][searchwp_no_index][searchwp_no_index][searchwp_no_index][searchwp_no_index][searchwp_no_index] Retirement planning is crucial for a financially secure future, but many people often ignore it. It’s widely believed that the savings and pension would be enough for post-retirement life. Retirement planning is a must for every salaried individual as the expenses and lifestyle would force to rely on children or spouse or other family connections if savings is not done efficiently. It is always better to calculate how much money is needed to save to ensure a comfortable and secure retirement. In this blog we will explore factors to consider when determining retirement corpus. When you are planning for retirement one core question that needs to be answered is The amount of money needed for retirement in India varies depending on various factors such as your lifestyle, goals for life after retirement, source of income, inflation, etc. However, considering that you will adequately make expenses after retirement, you can estimate your retirement corpus through a simple formula. Retirement corpus = (annual expenses after retirement X number of years left in retirement) / (1 + inflation rate) ^ (number of years left in retirement) For example, if you want to retire in 40 years, estimate your yearly expenses after retirement to be around ₹10 lakhs. So, with an inflation rate of 7%, you will have to save 3 crores for your retirement. However, this goal can be achieved by making some effective investments. Senior Citizens’ Savings Scheme (SCSS), is a savings scheme for senior citizens with a deposit tenure of five years and an option to extend it by three years. It offers a fixed rate of interest and is considered a safe investment option for senior citizens. Example: Suppose you are a 65-year-old senior citizen and have an investment corpus of INR 10 lakhs. You can invest a maximum of INR 30 lakhs in SCSS, and the interest rate for the financial year is 8%. The interest is paid quarterly, and the deposit term is 5 years, which is extendable by another 3 years. In this case, the interest earned on your investment of INR 10 lakhs would be INR 80,000 per annum or INR 20,000 per quarter. At the end of 5 years, your investment would have grown to approximately INR 14 lakhs. Additionally, the interest earned on SCSS is taxable, but the tax can be claimed as a deduction under Section 80C of the Income Tax Act, up to a maximum limit of INR 1.5 lakhs. It is also important to have a diversified investment portfolio in retirement. Suppose you have to invest Rs 10 lakhs, and you wish to invest in a diversified portfolio. You decide to allocate the funds as follows: At the end of the year, the interest earned on the savings account would be INR 1.2 lakhs, the interest earned on bonds would be INR 1.68 lakhs, the return on stocks would be INR 2 lakhs, and the return on real estate would be INR 2.24 lakhs. In total, your investment corpus would have grown to approximately INR 17.12 lakhs, representing a growth of 71.2% in one year. Diversifying your investments can help mitigate the impact of market fluctuations and reduce your risk. View Chapters Equity Instruments Equity instruments (stock or share) allows the investor to buy an ownership stake in the company. Equity refers to the Net Worth of the company. It is the source of permanent capital. Equity instruments may or may not pay their investors a monthly income because such income relies on the profit/loss of the business. When they do, it is a dividend. The most common types of equity-based financial instruments are: Stocks are the most commonly used equity instruments by both issuers and investors. It is one way for companies to raise capital from the public. There are two types of stocks: Investing in common/ordinary stocks comes with various benefits, such as: Common/ordinary stocks, however, do not guarantee dividends, nor are they the priority when the company makes any profits. Common stockholders also undertake a massive amount of business risk should the company face a loss. Of course, when the company makes a profit, they do receive a higher dividend. However, they are paid in the end - after paying creditors and other priority shareholders. Preferred stockholders also have ownership of the business with an extra priority in paying dividends. They will be the second to receive payment after bondholders. They will receive payments regardless if the company is liquidated, and their dividends will increase if the company makes a profit. However, they do not have any voting rights like common stockholders. Hence they do not have to carry many risks like ordinary shareholders. A convertible debenture is a hybrid financial instrument that has features of both equity and debt instruments. It is similar to a common bond, but an investor can convert it into common stock after a period of a specified time. It is a popular form of equity instrument investment because the interest rates are higher than bonds. Convertible debentures are usually unsecured bonds that may not have collateral as a backup. The conversion to common stocks hedges against that risk by allowing the investor to become a co-owner. A warrant is a form of an equity instrument that allows you to buy or sell shares at a certain price and date. A warrant carries an expiration date - meaning you have to trade it by a certain date. The company itself issues it. Options, likewise, are also an equity instrument but offered on the stock exchange. Options also allow you to trade in the stock exchange at a certain price and date but investors can refuse to trade within the period. Many equity securities are issued with an infinite life. In other words, they are issued without maturity dates. Some equity securities are issued with a maturity date. Equity securities may or may not be issued with a par value. The par value of a share is the stated value, or face value, of the equity security. In some jurisdictions, issuing companies are required to assign a par value when issuing shares. Some shares give their holders the right to vote on certain matters. Shareholders do not typically participate in the day-to-day business decisions of large companies. Instead, shareholders with voting rights collectively elect a group of people, called the board of directors, whose job it is to monitor the company's business activities on behalf of its shareholders. The board of directors is responsible for appointing the company's senior management (e.g., chief executive officer and chief operating officer), who manage the company's day-to-day business operations. But decisions of high importance, such as the decision to acquire another company, usually require the approval of shareholders with voting rights. Cash flow rights are the rights of shareholders to distributions, such as dividends, made by the company. In the event of the company being liquidated, assets are distributed following a priority of claims, or seniority ranking. This priority of claims can affect the amount that an investor will receive upon liquidation. When you buy a share of a company you become a shareholder in that company. Shares are also known as Equities. Equities have the potential to increase in value over time. Research studies have proved that the equity returns have outperformed the returns of most other forms of investments in the long term. Investors buy equity shares or equity based mutual funds because: - However, this does not mean all equity investments would guarantee similar high returns. Equities are high risk investments. Though higher the risk, higher the potential returns, high risk also indicates that the investor stands to lose some or all his investment amount if prices move unfavorably. One needs to study equity markets and stocks in which investments are being made carefully, before investing Both growth and value stocks provide investors with profitable investment options. Your specific financial goals and investing preferences will determine which investment strategy is ideal for you. The majority of fast-growing corporations do not pay big dividends to their owners. This is because they choose to reinvest all available cash back into their firm in order to promote faster growth. A growth stock's price is very sensitive to changes in a company's business prospects in the future. Growth stocks can skyrocket in value when things go better than expected. Higher-priced growth stocks can fall back to Earth just as rapidly as lower-priced growth companies when they disappoint. Growth stocks are frequently found in fast-moving sectors of the economy, such as technology. Many various growth companies fight against each other on a regular basis. You'll need to identify as many future winners as possible in a certain industry while avoiding losers. Growth stocks can take a long time to reach their full potential, and they frequently experience setbacks. It's vital to have a long enough time horizon to allow the business to flourish. Many value stocks pay out large amounts of money in dividends to their stockholders. Because such organisations lack considerable development potential, they must find other ways to keep their stock appealing. One strategy to entice investors to look at a stock is to pay out attractive dividend payouts. Value stocks aren't known for having huge price swings in either way. Stock price volatility is usually modest as long as their business circ*mstances remain within predictable parameters. Stocks that appear to be bargains are frequently value traps or bargains for a cause. It's possible that a business has lost its competitive advantage or is unable to keep up with the pace of innovation. To see whether a company's future business prospects are weak, you'll need to be able to look past its enticing values. Value stocks don't make money overnight. A company's stock price might fast grow if it is successful in getting its business moving in the correct way. The finest value investors spot stocks that are undervalued and buy shares before others do. These two types of risk are called systematic risk and specific risk, respectively. Systematic risk Specific risk Debt securities will always come with an issue date and an issue price at which investors buy the securities when first issued. Issuers are also warranted to pay an interest rate, also related to as the coupon rate. The coupon rate is fixed throughout the life of the security. Coupons are declared either by stating the number (example: 8%) or with a benchmark rate (example: LIBOR+0.5%). It is usually represented as a percentage of the face value or the par value of the bond. Maturity date refers to when the issuer must repay the headliner at face value and remaining interest. The maturity date determines the term that categorizes debt securities. Originally, yield-to- maturity (YTM) measures the periodic rate of return an investor is hoped to earn if the debt is held to maturity. It's used to compare securities with parallel maturity dates and considers the bond's pasteboard payments, copping price, and face value. Bonds are investment securities where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments. Once the bond reaches maturity, the bond issuer returns the investor's money. Fixed income is a term often used to describe bonds, since your investment earns fixed payments over the life of the bond. Companies sell bonds to finance ongoing operations, new projects or acquisitions. Governments sell bonds for funding purposes, and also to supplement revenue from taxes. When you invest in a bond, you are a debtholder for the entity that is issuing the bond. Many types of bonds, especially investment-grade bonds, are lower-risk investments than equities, making them a key component to a well-rounded investment portfolio. Bonds can help hedge the risk of more volatile investments like stocks, and they can provide a steady stream of income during your retirement years while preserving capital. A debenture is an unsecured bond, and as such, it has no lien against specific property as security for the obligation. Debenture holders are, therefore, general creditors whose claims, in the event of bankruptcy, are protected by property not otherwise pledged. In practice, the use of debentures depends on the nature of the firm's assets and general credit strength. If a firm's credit position is exceptionally strong, it can issue debentures because it simply does not need to pledge specific assets as security. Debentures are also issued by firms with only a small amount of assets suitable as collateral. Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Maturities on commercial paper typically last several days, and rarely range longer than 270 days. A commercial paper pays a fixed interest rate to the holder. Also, it is generally sold at a discount to its face value due to the somewhat risky nature of the unsecured security. The need for commercial paper often arises due to corporations facing a short-term need to cover their expenses. A fixed deposit(FD) is a financial instrument provided by banks or NBFCs which provides investors a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account. Fixed deposits (FD) are high-interest-yielding term deposits and are offered by banks in India. The most popular form of term deposits are fixed deposits, while other forms of term deposits are recurring deposit and Flexi Fixed deposits(the latter is actually a combination of demand deposit and fixed deposit) Understanding and optimizing Return on Investment, crucial for success in today’s fast-paced business landscape. Whether you’re a small startup or a multinational corporation, comprehending the impact of your investments is the key to making informed decisions that drive growth. In this article, we’ll delve into the intricacies of ROI, explore its significance in various sectors, and discuss strategies to maximize returns. In the dynamic landscape of modern business, understanding and optimizing Return on Investment (ROI) is paramount for sustained success. ROI is not a financial metric; it’s a strategic tool that empowers businesses to gauge the effectiveness of their investments and make informed decisions that propel growth. In this article, we’ll delve into the intricacies of ROI, starting with a comprehensive definition and exploring why it holds such profound significance in the business world. Return on investment, commonly abbreviated as ROI, a financial metric that measures the profitability of investment relative to its cost. The formula for calculating ROI is straightforward: (Net Gain / Cost of Investment) x 100. This percentage provides a clear picture of the returns generated, offering businesses a tangible way to assess the efficiency of their financial decisions. ROI matters because it serves as a compass for businesses navigating the complexities of decision-making. ROI is a crucial benchmark in a world driven by data and results. It goes beyond mere financial analysis, offering a holistic view of the value generated by investments. By understanding ROI, businesses can allocate resources judiciously, identifying and strengthening areas that contribute most to the bottom line. Without ROI analysis, decision-making becomes akin to navigating uncharted waters without a map. ROI provides that map, guiding businesses toward investments that promise monetary returns and strategic advantages. It empowers decision-makers to distinguish between assets that yield substantial gains and those that might drain resources without commensurate benefits. Businesses operate in resource-constrained environments, and optimizing these resources is imperative. ROI analysis allows companies to identify and prioritize investments that promise the best returns, ensuring that each dollar spent contributes significantly to overall profitability. Understanding the return on investment is inherently tied to risk assessment. By comprehending the potential returns and risks associated with an acquisition, businesses can make informed decisions that mitigate risks and maximize rewards. This risk-aware approach fosters resilience and adaptability in an ever-changing business landscape. The Formula Return on Investment, a fundamental metric that quantifies the profitability of an investment. The formula for calculating ROI is straightforward and provides a clear numerical representation of the returns generated relative to the initial investment. Here’s the basic recipe: ROI = (Net Gain / Cost of Investment) x 100 Breaking it down: By dividing the Net Gain by the Cost of Investment and multiplying the result by 100, you get the ROI percentage. This percentage indicates the efficiency and success of the investment. A positive ROI percentage signifies a profitable investment, while a negative rate suggests a loss. Investments come in various shapes and sizes, each with a risk and return profile. Short-term investments may offer quick gains, while long-term investments provide stability. Analyzing ROI in stocks, real estate, and other sectors is essential for making informed investment choices aligned with business goals. Short-Term vs. Long-Term Investments: In investments, the dichotomy between short-term and long-term plays a crucial role in shaping the Return on Investment (ROI). Short-term investments typically involve assets held for brief periods, such as stocks or bonds, and are characterized by quicker returns but higher volatility. On the other hand, long-term investments, like real estate or retirement funds, require patience and commitment but often offer more stability and potential for substantial returns over an extended period. ROI in Stocks, Real Estate, and Other Sectors: Different types of investments yield varied ROIs, each influenced by the nature of the asset. Stocks, for instance, are renowned for their potential high returns but come with inherent risks due to market fluctuations. Real estate investments offer long-term appreciation and rental income but demand significant capital and commitment. Exploring ROI in diverse sectors, including technology, healthcare, and commodities, allows investors to diversify portfolios and manage risk effectively. Data Accuracy and Quality: Ensuring the accuracy and quality of data is a fundamental factor influencing ROI calculation. Only accurate or complete data can distort the precise picture of returns and costs, leading to flawed calculations. Businesses must implement robust data collection processes, validate the accuracy of information, and address any discrepancies to enhance the reliability of ROI assessments. Time Horizon and Measurement Period: The choice of time horizon and measurement period significantly impacts ROI calculation. Short-term gains may provide immediate results, but a myopic view can overlook long-term returns. Businesses need to align the timeframes with the nature of the investment, considering factors such as industry dynamics, project timelines, and overall business objectives for a comprehensive evaluation. Comprehensive Cost Identification: Identifying and quantifying all costs associated with an investment is crucial for accurate ROI calculation. Beyond direct expenses, businesses must consider indirect costs, hidden expenditures, and opportunity costs. A comprehensive understanding of the full spectrum of costs ensures a more realistic representation of the investment’s impact on the bottom line. Market Fluctuations and External Factors: The dynamic nature of markets introduces a layer of complexity in ROI calculation. Fluctuations in economic conditions, shifts in consumer behavior, and external factors like geopolitical events can influence the performance of investments. Businesses must factor in these uncertainties and build flexibility into their ROI assessments to adapt to changing market dynamics. Attribution Modeling for Complex Campaigns: Attribution modeling is essential in marketing, where multiple channels contribute to customer interactions. Understanding the contributions of each touchpoint in the customer journey ensures a fair distribution of value. Businesses should employ sophisticated attribution models to accurately assign credit to various marketing efforts and avoid misjudging the impact of individual channels. Qualitative Factors and Intangibles: Quantifying qualitative factors and intangible benefits poses a challenge in ROI calculation. Brand perception, employee satisfaction, and customer loyalty contribute significantly to overall success but are challenging to express numerically. Developing methodologies to capture and integrate qualitative data is essential for a holistic understanding of the actual value of an investment. Return on Investment (ROI) holds immense significance in the business realm, acting as a compass that guides decision-making and shapes the overall strategic direction of a company. Its importance extends beyond being a mere financial metric, playing a pivotal role in various business operations. Let’s delve into the detailed significance of ROI: While Return on Investment (ROI) is a valuable metric for assessing the success of investments, it is not without its inherent risks and challenges. Navigating these hurdles is crucial for businesses aiming to achieve optimal returns and maintain financial health. Let’s delve into the risks and challenges associated with ROI: Achieving optimal Return on Investment (ROI) requires a strategic and proactive approach. Businesses can implement various strategies to enhance ROI, ensuring that every investment contributes significantly to overall profitability. Here are key strategies for maximizing returns: In conclusion, Return on Investment (ROI) is a universal metric that transcends industries, guiding businesses through the intricate maze of decision-making. This article has delved into the multifaceted aspects of ROI, from its fundamental definition and calculation to its profound significance in diverse industries. We explored how SEO plays a pivotal role in maximizing ROI, identified risks and challenges businesses face, and outlined strategies for enhancing returns. Recognizing that ROI varies across sectors, we examined its manifestation in finance, manufacturing, healthcare, technology, retail, and more. As businesses navigate the complexities of their respective industries, understanding the unique dynamics that influence ROI is paramount. The continuous evolution of market trends, the influence of technology, and the global interconnectedness of economies all contribute to the dynamic landscape in which ROI strategies must be crafted. By embracing innovation, implementing robust analytics, and staying attuned to industry-specific nuances, businesses can position themselves to measure success effectively and drive sustained growth and resilience. As we conclude this exploration into the world of ROI, it’s evident that optimizing returns requires a harmonious blend of strategic planning, adaptability, and a relentless commitment to delivering value in an ever-changing business environment. Understanding and optimizing Return on Investment, crucial for success in today’s fast-paced business landscape. Whether you’re a small startup or a multinational corporation, comprehending the impact of your investments is the key to making informed decisions that drive growth. In this article, we’ll delve into the intricacies of ROI, explore its significance in various sectors, and discuss strategies to maximize returns. View Chapters The most important question is: How much money has the fund made? It's no wonder that this is the first thing people think about. People invest in hopes of making money, and returns tell you what the fund made in the past. Historical returns sell funds-that's why mutual fund ads in financial magazines or newspapers often feature big mountain charts showing the funds' returns. Yet as hard as it might be to believe, a fund's past returns are not particularly predictive of its future returns. (The best predictor of good returns? Low costs. Nonetheless, a fund's past history can offer some clues about whether it's worth owning. To make sense of the return numbers in advertisem*nts, fund company literature, the newspaper, and on Morningstar.com, the first thing you should know is that these figures are based on important conventions. For starters, the numbers are known as total returns because they reflect two things: market gains (or losses) in the stocks or bonds the fund owns-the fund’s capital return-and income received from those investments Income comes from the dividends paid by stocks and the interest paid by bonds the fund owns. Together, those capital returns and income returns make up total returns. Total-return numbers for periods longer than one year are typically represented as annualized returns. An annualized return is something like an average, except that it takes compounding into account (i.e., it recognizes that if you made gains in the first year that you owned a fund, you have more to invest at the beginning of the next year). ICICI Pru Bluechip Fund had a three-year annualized return of 15.53%. The fund never actually earned that exact amount in any year. The total-return number is calculated on the assumption that shareholders reinvest any distributions that the fund makes. Mutual funds are required by law to distribute, or pay out, almost all income they receive (from dividend paying stocks or interest-paying bonds) to their shareholders. They also must distribute any gains they realize by selling stocks or bonds at a profit. If you choose to reinvest those distributions, and most investors do, you will get more fund shares instead of a check in the mail. If you decide to take the money, your returns may be lower than those of someone who reinvested and got more shares. If you own your funds in a taxable account instead of tax saving schemes, you should know that the total-return figures you typically see don't include the bite taxes can take out of your return. When a fund distributes income or capital gains to shareholders, it's called a taxable event. And, of course, paying taxes cuts into the money you made. The difference can be significant. The taxation rate of capital gains of mutual funds depends on the holding period and type of mutual fund. The holding period is the duration for which the mutual fund units were held by an investor. In simple words, the holding period is the time between the date of the purchase and sale of mutual fund units. Capital gains realised on selling units of mutual funds are categorised as follows: Fund type Short term capital gain Long term capital gain Equity Fund Shorter than 12 months 12 months & longer Debt Fund Shorter than 36 months 36 months & longer Hybrid equity oriented fund Shorter than 12 months 12 months & longer Hybrid debt oriented fund Shorter than 36 months 36 months & longer Fund type Short term capital gain Long term capital gain Equity Fund 15%+ cess+ surcharge Up to Rs 1 lakh a year is tax-exempt. Any gains above Rs 1 lakh are taxed at 10% + cess + surcharge Debt Fund Taxed at the investor's income tax slab rate 20% + cess + surcharge Hybrid equity oriented fund 15% + cess + surcharge Up to Rs 1 lakh a year is tax-exempt. Any gains above Rs 1 lakh are taxed at 10% + cess + surcharge Hybrid debt oriented fund Taxed at the investor's income tax slab rate 20% + cess + surcharge An index is the most common kind of benchmark. When you read a fund's shareholder report, you will always see the fund compared with an index, sometimes more than one. An index is a preselected, widely recognized group of securities, either stocks or bonds. Ask someone to name a stock market index and odds are good that the answer will be Sensex. You can't escape the Sensex-it’s the index that usually heads the stock report on the evening news. Although the Sensex is familiar, it isn't a great performance benchmark for your mutual funds because it is extremely narrow; it includes just 30 large company stocks. Most stock funds include many more holdings and do not focus solely on blue chips. Instead, the index you'll hear about most often in investing circles is the Nifty 50 index, which includes 50 major Indian companies. Because NSE chooses the stocks in the index to cover a range of industries, it has greater breadth than the Sensex. Thus, it's a reasonable yardstick for many funds that focus on big, name-brand Indian stocks. Yet despite widespread use, the Nifty 50 has its own drawbacks. Although it encompasses 50 stocks, it's designed so that the companies with the biggest market capitalizations (the total value of their outstanding shares), such as Reliance and TCS, take up the greatest percentage of the index. As a result, such names tend to influence the index's performance. On days when these giants do well, so does Nifty50. That's why you wouldn't want to compare a fund that focuses mostly on small companies, such as Axis Small cap fund, against the Nifty50 index alone. Small-company stocks make up a very small portion of the index, so it would be surprising if the fund performed much like the index at all. So what indexes should you use to make appropriate comparisons? If you're examining a small-company fund, use the BSE 250 Small cap benchmark, which is dedicated to small-capitalization stocks. Indexes can be useful, but peer groups such as the same category funds, are even better because they allow you to compare the fund with other funds that invest in the same way. An index may be a suitable benchmark because it tracks the same kinds of stocks that a fund invests in, an index itself isn't an investment option. Your choice isn't between investing in a fund and an index but between a fund and a fund. If you're trying to evaluate a fund that invests in large, cheaply priced companies, compare it with other large-value funds. Armed with information about a fund's true peer group, you're in a much better position to judge its performance. Say you owned Kotak Bluechip Fund. At the end of that year, you might have been very happy- sure, your fund made 17.43% for the year, but the BSE 100 gave return of 15.93%. Alongside that benchmark, your fund over performed. Also when you compare it with other funds of the same category: Kotak Bluechip fund has done better than ICICI Pru Bluechip fund & Axis Bluechip fund. Looking at just the index doesn't give complete insight into how your fund really did, but comparing the fund with its category tells you how well it does. You can check a fund's returns versus its category on various websites. But which returns should you consider? How the fund did for the past 6 months, the past 3 years or past 5 years, or some period in between? Because studies show that trading in and out of funds doesn't work, be a long-term investor and focus on a fund's returns for the past 3, 5, and 10 years. Compare those returns with those of other funds in the category to get a clear view of performance. Although we wouldn't rule out a fund that was below par for one of those periods, there's little reason to buy a fund that's inferior for most periods. Take a look at the fund's calendar-year returns versus its category, too. That's a handy way to identify a fund that may look good because of a couple of strong recent years but has little to recommend it overall. Finally, ask how long the fund's current manager has been aboard the fund. Maybe the fund sports terrific long-term returns over every period, but the person who helped deliver those great returns has retired or moved on to another fund. In that case, the fund's long-term record may have little bearing on how it will perform in the future Debentures, often considered the backbone of corporate finance, are financial instruments companies use to raise capital. These interest-bearing securities serve as a means for companies to borrow money from the public while providing investors with a fixed return over time. As versatile financial instruments, debentures come in various types, each catering to different investor preferences and risk appetites. Understanding the distinctions between these types is crucial for making informed investment decisions. Specific assets of the issuing company back secured debentures. In the event of default, these assets serve as collateral to ensure repayment to debenture holders. This type provides an added layer of security for investors, making it less risky than unsecured debentures. Unlike secured debentures, unsecured debentures are not backed by any specific assets. Investors rely solely on the creditworthiness of the issuing company. While these debentures pose a higher risk, they often yield higher returns to compensate for the increased uncertainty. Convertible debentures offer a unique feature that sets them apart. Investors can convert these debentures into equity shares of the issuing company after a predetermined period. This flexibility provides an opportunity for capital appreciation, attracting investors seeking fixed income and potential equity upside. Debentures, as an integral part of the financial market, offer a range of advantages for investors seeking stable returns and diversification. Understanding these benefits can help individuals make informed decisions when considering debentures as part of their investment portfolio. One significant advantage of investing in debentures is the assurance of fixed returns. Debenture holders receive regular interest payments at predetermined rates, providing a predictable income stream. This stability is desirable for investors looking for a reliable source of income. Compared to the volatility of the stock market, debentures carry lower risk. Since debentures represent debt owed by the issuing company, they have a higher claim on assets in case of liquidation, offering a layer of security for investors. This makes debentures an appealing option for those who prioritize capital preservation. Debenture holders receive periodic interest payments, usually semi-annually or annually, depending on the terms of the issuance. This steady income stream can benefit individuals looking to supplement their regular income or retirees seeking consistent cash flow. Including debentures in an investment portfolio adds diversification. Diversifying across asset classes, such as stocks, bonds, and debentures, helps spread risk and enhance portfolio stability. Debentures, with their fixed-income nature, contribute to this diversification strategy. Debentures are particularly attractive to conservative investors who prioritize capital preservation and are averse to the higher volatility of stocks. The fixed returns and relative debentures’ relative safety align well with conservative investors’ risk tolerance. For investors seeking fixed income and potential capital appreciation, convertible debentures offer a unique advantage. The option to convert debentures into equity shares can provide an opportunity to participate in the company’s growth. In the unfortunate event of a company facing bankruptcy, debenture holders have a higher claim on company assets than equity shareholders. This priority in repayment adds a layer of security for debenture investors. Debentures often exhibit stability during market downturns. While stocks may experience significant declines, the fixed-income nature of debentures can act as a cushion, providing strength and preserving capital during turbulent market conditions. While debentures offer several advantages, investors must know the associated risks. Understanding these risks is crucial for making informed decisions and managing the potential downsides of debenture investments. One of the primary risks associated with debentures is interest rate risk. Fluctuations in interest rates can impact the market value of existing debentures. If interest rates rise after purchasing debentures, their market value may decline, potentially resulting in capital losses for investors. Companies issuing debentures may face financial difficulties, leading to default on interest payments or, in extreme cases, principal repayment. Investors should carefully assess the issuing company’s financial health and creditworthiness to mitigate the risk of default. Debentures may have lower liquidity compared to other investments, such as stocks. Selling debentures in the secondary market might be challenging, especially if liquidity is suddenly needed. Investors should consider the liquidity of the debentures they choose to ensure they can exit positions when necessary. Market conditions influence debenture prices. Changes in economic factors, investor sentiment, and overall market trends can impact the value of debentures. Investors need to stay informed about market dynamics to navigate potential risks effectively. The credit rating assigned to a debenture reflects the issuer’s creditworthiness. A downgrade in the credit rating can negatively affect the market value of the debenture. Investors should regularly monitor credit ratings to avoid potential risks associated with changes in the financial health of the issuing company. Inflation erodes the purchasing power of money over time. While debentures provide fixed returns, the real value of these returns can diminish in an inflationary environment. Investors need to consider the potential impact of inflation on the purchasing power of their debenture income. Callable debentures give the issuing company the right to redeem the debentures before maturity. While this provides flexibility for the company, it introduces call risk for investors. If interest rates decline, the company may choose to call the debentures, leaving investors to reinvest at lower rates. Investors holding debentures denominated in foreign currencies face currency risk. Exchange rate fluctuations can impact the value of interest payments and principal when converted back into the investor’s home currency. During economic downturns, companies may face challenges that affect their ability to meet debenture obligations. Investors should consider the broader economic context and the resilience of the issuing company to economic downturns. Changes in financial regulations can impact the debenture market. Investors should stay informed about regulatory developments that may affect the terms and conditions of debenture issuances. Investors considering debenture investments must conduct thorough evaluations to make informed decisions. Here are vital factors to consider when assessing the attractiveness of debentures: Investors face a myriad of choices when deciding where to allocate their capital. Debentures represent one avenue, but how do they stack up against other investment options? Let’s explore this comparison in detail. Debentures vs. Stocks Debentures, as debt instruments, typically offer fixed returns with lower risk than stocks. On the other hand, stocks are more volatile but have the potential for higher returns. Investors must weigh their risk tolerance against their desire for capital appreciation Investing in debentures doesn’t confer ownership or voting rights in the company, whereas owning stocks grants shareholders a stake in the company’s ownership and a say in corporate decisions. The choice depends on whether investors seek passive income or active involvement. Debentures provide regular interest payments, which are ideal for income-focused investors. Stocks, while potentially offering dividends, may not guarantee steady income and are more influenced by market fluctuations. Debentures vs. Bonds Both debentures and bonds are debt instruments, but the distinction lies in their issuer. Corporations issue debentures, while governments or government agencies issue bonds. Bonds are often considered safer due to the backing of the government. Debentures may carry higher risk, especially if unsecured, but generally offer higher returns than government bonds. Investors must decide between the safety of government-backed bonds and the potential for higher yields with corporate debentures. Government bonds often have higher market liquidity compared to debentures. This liquidity can affect the ease of buying or selling, making bonds a more accessible option for some investors. Debentures vs. Real Estate Real estate offers a tangible asset class, providing diversification benefits. Debentures, while valuable, represent a financial instrument and may not contribute to the physical diversification that real estate offers. Debentures offer stable fixed income, while real estate income can be variable and subject to market conditions. Investors seeking reliable income may find debentures more suitable. Debentures offer higher liquidity and accessibility compared to real estate. Selling or buying debentures is typically faster and more straightforward than real estate transactions. Debentures vs. Mutual Funds Mutual funds are managed by professionals who make investment decisions on behalf of the investors. Debentures, being individual securities, require more hands-on management by the investor. Mutual funds provide instant diversification across a range of assets, reducing risk. While offering diversification benefits, debentures may require more effort for investors to achieve a well-diversified portfolio. Investors must align their risk and return goals with the investment structure. Debentures may suit those seeking fixed income, while mutual funds offer a broader range of investment options. Investors navigating the financial landscape must consider the returns and risks of their investments and understand the tax implications associated with each asset class. Debenture investments come with their tax considerations that can significantly impact an investor’s overall financial strategy. Taxation of Interest Income Interest income earned from debentures is typically considered taxable. Investors must include this income in their annual tax return and pay taxes based on their applicable income tax rate. The interest income from debentures is treated as regular income and is subject to the income tax slab rates. Investors should know their tax bracket to calculate the tax liability on the interest earned. Capital Gains Tax (for Capital Appreciation) If an investor sells debentures for a profit, the resulting capital gains may be subject to capital gains tax. The holding period of the debentures determines whether the payments are classified as short-term or long-term. Short-term capital gains (holding periods of less than one year) are taxed at the investor’s regular income tax rates, while long-term capital gains (having periods of more than one year) may qualify for lower tax rates. Tax Efficiency Compared to Other Investments Debentures that provide fixed returns may offer more predictable tax planning than variable-return investments like stocks. The certainty of interest payments simplifies tax calculations. In some jurisdictions, certain debentures may be structured to provide tax-deferred benefits, allowing investors to postpone taxes until later. However, these structures may come with specific conditions and restrictions. Tax-Advantaged Accounts Investors can consider holding debentures within tax-advantaged accounts, such as Individual Retirement Accounts (IRAs) or tax-deferred retirement accounts. This strategy could shield interest income and capital gains from immediate taxation. Effect of Inflation on Real Returns Inflation erodes the actual value of returns. While debenture interest is taxed, investors should consider the impact of inflation on their purchasing power when calculating after-tax actual returns. State and Local Tax Considerations Tax treatment of debenture income can vary between jurisdictions. Investors should be mindful of state and local tax regulations that may influence the overall tax implications of their debenture investments. Tax Reporting and Documentation Investors should maintain accurate records of debenture transactions and interest income. Proper documentation is essential for accurate tax reporting and compliance. Seek Professional Advice Given the complexity of tax regulations and the dynamic nature of financial markets, investors are advised to seek professional tax advice. Tax consultants can provide personalized guidance based on an individual’s financial situation and goals. Debentures are pivotal in corporate finance, serving as a versatile financial instrument companies utilize to raise capital and propel their growth initiatives. Understanding the multifaceted role of debentures sheds light on their significance within the broader corporate finance landscape. Capital Raising Mechanism Debentures represent a form of debt financing for companies. Corporations can secure funds from the capital market by issuing debentures without diluting ownership or relinquishing control. This allows companies to fuel expansion, undertake strategic projects, or address capital-intensive needs. Incorporating debentures into the capital structure provides companies with a diversified funding mix. This diversification enhances financial flexibility, reducing dependence on any single source of capital and mitigating associated risks. Stability in Funding Debentures typically offer fixed interest payments, providing companies with a stable and predictable cash outflow. This stability is beneficial for financial planning and ensures a regular stream of payments irrespective of the company’s operational performance. Unlike equity financing, where returns are tied to company performance, debenture holders receive fixed returns. This mitigates the impact of market volatility on a company’s financial obligations, offering financial stability during economic fluctuations. Enhancement of Creditworthiness Companies issuing debentures signal their creditworthiness to the financial markets. Successfully meeting debenture obligations enhances a company’s reputation, fostering trust among creditors and lowering the cost of future debt issuances. Prudent management of debentures and timely repayments can contribute to an improved credit rating. A higher credit rating allows companies to access capital more favorably, expanding their financial options. Flexibility in Terms and Conditions Debentures offer flexibility in structuring financial instruments. Companies can tailor terms and conditions to meet their needs, incorporating features such as convertibility or call options. This flexibility accommodates the diverse financial objectives of companies in various industries. Investor Attraction and Diversification Debentures attract diverse investors, including individual investors, institutional investors, and funds. This broadens a company’s investor pool, potentially increasing demand for its securities. Diversifying funding sources through debentures allows companies to tap into different financial market segments. This diversification enhances resilience, especially during economic downturns or industry-specific challenges. Contributing to Economic Growth By utilizing debentures to raise capital, companies contribute to economic growth. These funds can be channeled into strategic initiatives, such as research and development, infrastructure projects, or job creation, fostering economic development. Market Dynamics and Investor Confidence The issuance and performance of debentures indicate market confidence in a company. Successful debenture offerings and consistent repayments instill confidence in investors and positively influence the company’s stock performance. Strategic Financial Planning Incorporating debentures into financial planning allows companies to balance short-term and long-term obligations. This strategic approach ensures companies meet immediate economic needs while positioning themselves for sustained growth. In conclusion, debentures emerge as indispensable instruments in corporate finance, seamlessly blending stability and flexibility for companies seeking to navigate the complexities of capital markets. By serving as a reliable avenue for debt financing, debentures provide businesses with a means to raise funds, diversify their capital structure, and foster economic growth through strategic initiatives. The stability of fixed interest payments and the enhancement of creditworthiness contribute to a robust financial foundation. At the same time, the flexibility in terms allows companies to tailor financial instruments to their unique needs. The role of debentures extends beyond mere financial transactions; it reflects investor confidence, shapes market dynamics, and positions companies for sustained success. As companies strategically integrate debentures into their financial planning, they meet immediate obligations and lay the groundwork for resilience and growth in an ever-evolving economic landscape. View Chapters Term insurance is a basic financial security tool for an individual to park and save money to safeguard the future of the nominee(s) in case of any unforeseen event. It is basically a simple protection plan or pure insurance where a customer gets life coverage, which is normally a large sum of money for which a customer pays a premium over a given period of the life cover. A term insurance can help the insured to prepare for any eventuality arising from the financial stability that may occur if the breadwinner of a family passes away due to an illness, accident or unforeseen death. How Does Term Insurance Work Term plan is a traditional insurance plan that can be purchased by anyone; it is a basic financial instrument which should ideally be present in everyone’s investment portfolio. Any individual contributing financially towards the household and with dependent parents and other liabilities should opt for a term insurance as it offers a safety net in the event of the death of an individual. Reasons to Buy Term Insurance One of the primary purposes of a life insurance cover is to ensure financial support, including children’s education and other needs, to the immediate family in the absence of the breadwinner. An approximate corpus can be easily derived by doing the simple math of multiplying the annual income with the time left till retirement. According to experts, one should go for a term insurance cover that is at least 15-20 times of the annual income. Going by the tried and tested formula that industry experts recommend, if you have an income of INR 10 lakh per annum, your cover should be at least of INR 1.5 crore to INR 2 crore. One has to take into account the human life value to decide thesum assuredor in simple terms life cover. Then the premium is determined depending on the age and tenure of the policy. The premium amount may also vary according to habits and health status of the individual. Smokers generally have to shell out a higher premium due to comparatively higher mortality risk. For such individuals, higher premiums may be applicable and in cases of adverse health conditions or severity of any lifestyle diseases, there is a possibility of the insurance application being rejected. Prior to the coronavirus pandemic, it was common to find individuals with family responsibilities agreeing to insurance solutions for their families. This trend has seen a shift and the younger population of India is now seeking life cover for long-term protection for themselves as well. Specifically, millennials have emerged as more financially-savvy and aware of the advantages of taking a term plan at a young age. When a young individual takes a term plan, the premium amount is considerably lower and remains constant throughout the tenure of the plan. Key Features of Term Insurance Plan Types of Term Insurance Plans Important Considerations Before Buying Term Insurance Some important things to keep in mind before finalizing your term plan include: The premium should be competitive and one can compare for the same tenure, age and habits. The premium should be affordable throughout the policy tenure so that you’re not tempted to stop paying.One should decide the term of the policy keeping in mind the time horizon of the financial goals of the family. Protection should remain until the individual is free from all liabilities. The claim settlement history of the insurer should be a critical parameter of selection. This is found by learning about theclaims settlement ratio. Claims assistance support of the insurer is another criteria. Nobody would wish their families to run around from pillar to post to receive the claim during times of distress. The customer should declare all facts pertinent to the policy and should not conceal any vital information. Declaration of any adverse health condition or family history may rate up the premium but would ensure a hassle-free experience for the family during claim payments. Importance of a Medical Test It is common for a layman to avoid the hassle of a medical check for a life insurance cover. However, medical examination is an important process if called for. This is to reconfirm the health status of an individual as we may not be aware of an underlying ailment.Further, you have a lesser chance of getting the claim denied if you have undergone a medical test under instruction from the insurance company. Usually, medical tests are undertaken for a higher life coverage, age, and existence of any ailment or habits such as smoking. Unit Linked Insurance Plan is a multi-faceted life insurance product. A ULIP plan is a combination of life insurance and investment. ULIPs requires you (as a policyholder) to make regular premium payments, part of which is utilized to provide life insurance coverage. The remaining is pooled with the assets received from other policyholders, and then invested in financial instruments (i.e. equity and debt), similar to mutual funds. Investment in ULIP means you can stay financially secure against emergencies and grow your money as well. ULIP means an opportunity to avail of earn market-linked returns by allocating a portion of the premium invested into market-linked instruments such as debt and equity instruments (in varying proportions). Besides allocating a portion of the premium invested into market-linked instruments, Unit linked Insurance Plans (ULIP full form) also help protect you and your loved ones against any emergencies in life. Thus you can avail of market-linked returns, while the ULIP plan takes care of your protection needs. With the need of protection against life's eventualities out of the way, you can develop a regular habit of saving and investing and build substantial wealth over the long term with ULIP plans ULIP or Unit Linked Insurance Plans (ULIP full form) help you achieve your financial objectives by providing the flexibility to – Under a ULIP plan, all regular premium or limited-term premium payments shall have a uniform or level premium payment structure. Any additional payments of premium are treated as a single premium, to provide life insurance cover. According to IRDAI, the charges levied on ULIP plans are evenly distributed during the 5-year lock-in period, to help ensure that the insurers eliminate the high front-ending of expenses. Make sure you understand what is ULIP plan charges that you will be paying, before investing your money. The premium paid towards the ULIP plans is eligible for tax deduction underSection 80Cof income tax 1961, up to a maximum of Rs. 1.5 lakh. At the same time, the maturity/death benefit received under the ULIP plan is tax-exempt underSection 10(10D)of the Income Tax Act 1961. Once you understand what is ULIP plan, the next step is to choose the best-suited policy for you since there is a variety of options available. So, before you invest in a ULIP plan, you must consider comparing and evaluating to choose the best ULIP plan available in India. Following are some of the key points to keep in mind while choosing the best ULIP plan: Evaluate Your Goals A ULIP plan allows you (as the policyholder) to closely monitor your portfolio. Such individuals may also benefit from the switching flexibility offered by ULIP plans, thorough which they can adjust capital allocation between funds options with varying risk-return profiles. ULIP means more control over your financial planning, including investment and insurance decisions. ULIP plan is ideal for you if you are willing to stay invested for relatively long periods. ULIP plans offer a variety of funds options – each with varying risk-return profiles. Thus, investors with different risk profiles (from risk-averse investors to those with healthy risk appetite) must understand what is ULIP plan funds available before investing, so they can keep appropriate return expectations. Different types of ULIP plans are available to help you protect yourself and your loved ones against financial needs and liabilities at specific points in time. Some of the most common investment options available under ULIP plans are – a) Equity Funds In an equity fund of ULIP plans, the allocated investment amount is used to purchase stocks, which have aNet Asset Value(or NAV) associated with them. NAV is the price per share (or 'unit') in a Fund. As the ULIP full form suggests, ULIP plan is a market-linked instrument, so the investments in equity carry high inherent risk because of market fluctuations. However, equity investments can also be the most rewarding. b) Debt Funds The premium allocated towards debt funds is used to invest in instruments such as GovernmentBonds, and debentures, which offer a lower risk than equity investments. Compared to equity investments in ULIP plans, however, debt funds may offer a lower return on investment. c) Hybrid or Balanced Funds Under ULIP plans, Hybrid or Balanced Funds are designed to provide capital growth (from the equity component) while ensuring lower risk (due to the debt component.) In case of market fluctuations, thus, any loss that you incur from the equity portion is balanced out by the lower risk yet consistent returns from the fund's debt portion. Understanding what is ULIP plan and your investment objectives carefully will allow you to make sound choices. As the name suggests, a whole life insurance plan offers financial security and insurance coverage for the rest of your life. This type of insurance protects you and your loved ones by providing you with a life cover!for up to 99 years. This can safeguard the financial interests of your family in your absence. Whole life insurance can be categorized into the following types: If you select limited payment whole life insurance, you need to pay the policy premium for a limited period during the policy term. In most cases, you can pay the premium for the first 10 or 20 years and continue to enjoy policy coverage for a lifetime. The premium may be relatively high for these plans as you have a limited period to pay the premium but the overall savings on premiums would be higher than a regular payment life insurance plan. If you select single premium whole life insurance, you pay the premium in a lump sum as a one-time payment at the time of purchase. Moreover, your coverage remains constant for the entire policy term and the nominee enjoys uninterrupted financial protection. If you select modified whole life insurance, you pay varying amounts at different intervals of the policy term. In most cases, the premium is relatively low at the beginning of the tenure and gradually increases with time. However, irrespective of the premium amount, your policy coverage and benefits stay the same for the whole term. A variable whole life insurance policy offers life cover for the entire policy term, protecting your loved ones against any financial contingencies in your absence. Additionally, it also helps you meet your investment goals by investing your money. You can invest in this plan to enjoy tax benefits, build savings, and ensure financial protection for your loved ones. A joint whole life term insurance covers two people instead of one. The premium is paid for both policy owners, and thesum assuredis offered for both lives. The insurance payout is given on a first-death basis. These types of plans are suitable for couples planning to save for the financial needs of their children in their absence. Endowment plans refer to the life insurance policies that offer risk cover to the policyholder under the unfortunate event and a maturity benefit at the end of the policy term. The policyholders are paid a lump sum after a specific period called the maturity period. The insurance company willpay the assured amountto the policyholder’s nominees in case of the holder’s death or the holder themselves on a fixed date. Now that you know what is endowment plan in insurance is, let’s get into the details regarding why you must apply. An endowment plan offers apparent benefits to the policyholders. When the endowment insurance policy matures, the policyholder has a pool of savings. They can either reinvest the amount, use it for their personal needs or enjoy life post-retirement. Therefore, an endowment policy is almost risk-free and offers a steady amount on a fixed date as long as the premium is paid. Below mentioned are some of the benefits of an endowment plan: Under the endowmentlife insurance plan, the policyholder gets a substantial amount at the end of the term when their policy matures. This is the money that your loved ones/ nominee receive once they claim for it in case of your untimely death. It is just like a life insurance policy cover. Endowment insurance plans also offer tax benefits to the policyholder. The premiums paid for the policy can help you reduce your taxable income per India’s Income Tax laws. Endowment plans with a maturity period of 15 to 20 years are more profitable since you can quickly accumulate more money over a more extended period. In addition, the amount paid on the maturity can then be used to fund significant expenses in the future. Some plans even offer guaranteed returns and bonuses to the policyholder in addition to the sum assured, which is added to the policy holder’s account every year. These benefits and the tax savings make the life insurance endowment policy an extremely appealing investment instrument. If you are looking for a low-risk plan with the dual benefit of insurance and investment or for a plan with a long-term investment perspective that gives you a lump sum amount in the end, then a savings endowment planis suitable. Child Education Plans or Child Plans are investment cum insurance policies provided by insurance companies. These are marketed as investments that allow parents to save for their children’s higher education expenses over the policy term while additionally providing financial security to the child in case of the parent’s untimely death. A portion of the premiums paid for the plan is used to provide life cover, while the remainder is invested in Equity or Debt instruments to help save for the higher education requirements of the child. In the case of a Child Education Plan, the life insurance coverage is extended to the parent.These insurance plans mature, and the final payout occurs when the child turns 18. Child Plans can be classified into 2 different categories based on the type of payout being offered. These are: These Child Education Plans provide a lump sum payout at the end of the policy term.While the maturity proceeds of these plans can be used for any purpose, the primary goal is to provide funds for higher education expenses of the child for whom the plan is purchased. Child ULIPs invest in Equity and Debt securities similar to otherUnit Linked Insurance Plans (ULIPs). The only difference between a Child Education Plan ULIP vs. other ULIPs is in the tenure offered. While standard ULIPs are offered with policy terms ranging from 10 years to 25 years, the payout of a Child Education Plan ULIP occurs when the child turns 18. This type of Child Education Plan provides life insurance cover and guaranteed returns. These plans typically make 4 payouts equal to 25% of the sum assured plus applicable bonuses starting after the child reaches 18 years of age. Due to guaranteed returns, this type of Child Policy features a low degree of risk. However, returns offered by these schemes are often relatively low. Child Education Plans have life insurance cover built into it, and the sum assured is up to 10 times the annual premium paid. This life cover limit is as per the guidelines provided by India’s insurance industry regulator, the Insurance Regulatory and Development Authority of India (IRDAI). So the life cover limit for a Child Plan with an annual premium of Rs. 50,000 will be Rs. 5 lakh. In the case of Child Endowment Plans, policyholders have no scope to selectspecific asset classes to invest in.Insurance companies automatically choose the investment on behalf of policyholders, and these are typically Debt investments such as Government Bonds, Corporate Bonds, Treasury Bills, etc. On the other hand, Child ULIP Plans offer some choice to policyholders regarding where the money will be invested. However, the number of funds to choose from is limited to the list of funds managed by the Insurer. For example, the SBI Smart Scholar allows the policyholder to choose from a list of 9 funds, while ICICI Smart Kid Solution offers 13 fund options across Equity, Debt, and Hybrid Fund categories. Both types of Child Education Plans currently offered in Indiaare currently offered with a lock-in period of 5 years. From the 6th year onwards, partial withdrawal is allowed in the case of most Child Plans. The policyholder may also decide to surrender the policy and withdraw all investments after the 5-year lock-in is completed. Child Education Plans have various charges that need to be paid by the policyholder. These include fund management charges, premium allocation charges, policy administration charges, etc. Because of the life insurance component, premiums paid to keep the child policy in effect provide tax deduction benefits under Section 80C. However, there is a maximum limit of Rs. 1.5 lakh u/s 80C in total, which includes other popular tax-saving instruments such as Tax Saver ELSS Mutual Funds, Public Provident Fund (PPF),Employees’ Provident Fund (EPF), Life Insurance Plans, etc. The payout obtained from these plans is tax-free as long as the annual premium paid is less than Rs. 2.5 lakh annually. If the annual premium paid exceeds Rs. 2.5 lakh,the payout received will be subject to applicable Capital Gains taxation rules. This provision has been introduced in the Finance Bill, 2021. At first glance, a Child Education Plan seems to provide key benefits such as life insurance cover, growth of capital as well as tax benefits in a single package. But a closer look reveals a number of limitations that one needs to consider before choosing this type of policy: The life cover provided by Child Plans is limited to 10 times the annual premium payable for the scheme. So for an annual premium of Rs. 50,000 the life cover offered by a Child Education Plan will only be Rs. 5 lakh. This limited life cover is almost like not having a life cover at all, and term plans offer a significantly higher cover at a fraction of the cost. Not all of the premium paid for a Child Education Plan actually gets invested. This is because a portion of the premium is allocated towards providing life cover to the insured individual. As the invested amount is lower than the actual premium paid and various charges are also deducted from the premium payments, the potential payout from Child Education Plans gets reduced. Policyholders have limited options regarding where their money gets invested when they opt for a Child ULIP. The investment choices are limited to a small number of funds offered by the Insurance Company. Moreover, in the case of Child Endowment Plans, it is the insurer and not the policyholder who decides the asset classes where the investments will be made. This restricts the choice of policyholders when it comes to selecting how and in which instruments the investments will be made. Child Education Plans are offered with a lock-in of 5 years during which no withdrawals can be made. Subsequent to completion of the lock-in, the policyholder has the option to either surrender the policy or continue with the existing plan. Moreover, the terms of the policy, such as premium payable, life cover, etc. of the existing Child Education Plan cannot be altered once the plan is in effect. This limits the flexibility of these insurance policies. The insurance basedretirement plansare the combination of pension income and death benefit both. These plans are offered by various insurance companies and can be availed directly by the individual. Hence they are also known as personal pension plans. The majortypes of pension plansare as below: Under such a plan, you can begin receiving a pre-decided pension amount every month, once you attain the specific age. While you subscribe to such plans, you will have an option to select a debt plan (low risk product) or capital market plan(equities and bonds). The debt plan is suitable for conservative investors/ The capital market plan is expected to give high return, with higher exposure to the market risk. The key feature of deferred annuity is the wealth accumulation through power of compounding. Due to the waiting period, your corpus gets the time to grow. After the waiting period is over, you will get a higher pension amount, even if your original subscription was very small. This plan is most suitable for those who have recently retired with lump sum retirement benefits like gratuity, leave encashment, bonus and other similar proceeds. The retired person can park the lump sum amount to purchase an immediate annuity plan that gives you a regular pension amount from very next month. The key advantage of this plan is proper management of yourretirement benefits. Once you retire from a long service, you will receive a lump sum amount, that is quite larger than your monthly salary. Hence there is a tendency to utilize this money for unproductive purposes. Later on, you may end up with shortages of funds to meet your daily, routine expenses. The immediate annuity plan is the perfect answer to avoid this situation. You can park your entire retirement proceeds safely tobuy an immediate annuity planand ensure your monthly pension income for the entire lifespan. These plans are the combination of regular monthly pension and life cover. Upon the unfortunate death of the policy holder, the nominee receives death benefits from theinsurance company. The subscriber gets pension income till his or her lifespan. These plans are plain pension plans, that provide you income till your lifespan. However, no death benefits are covered under these plans. The key benefit is, these plans are available at substantially lower cost as compared to combination plans. If you have already availed other insurance cover liketerm insurancewith sufficient sum insured, you can opt for this plan and ensure regular pension after your retirement. Are you looking to invest your money? With so many investment options available, deciding can be overwhelming. This is where asset allocation comes in. This is a strategy that helps you in dividing your investment portfolio among different asset classes to balance risk and return. In this article, we will check the concept of asset allocation and how it helps you to achieve your financial goals. Asset allocation is an investment strategy that divides your portfolio among asset classes, such as bonds, stocks, and cash. It aims to balance risk and return by investing in a mix of assets that complement each other. Asset allocation is based on the principle that different asset classes have different levels of risk and return. By diversifying your investments, you can reduce the risk of losing money while maximizing returns. The process of asset allocation begins with assessing an individual’s risk tolerance and investment objectives. This step helps determine the appropriate asset mix that will optimize the risk and return profile of the portfolio. Risk tolerance is a crucial factor as it reflects an individual’s comfort level with potential fluctuations in the value of their investments. Once risk tolerance and investment goals are established, the next step is to select specific asset classes to include in the portfolio. Asset classes typically include equities (stocks), fixed income (bonds), cash, and alternative investments. Each asset class carries its level of risk and return potential. Equities, for example, tend to have higher volatility but also offer the potential for higher long-term returns. Bonds, on the other hand, provide stability and income generation. The investor’s risk tolerance and desired asset mix determine the allocation of funds across different asset classes. This allocation can be based on a strategic or tactical approach. Strategic asset allocation involves setting a target asset mix based on long-term objectives and maintaining that allocation over time. Tactical asset allocation, on the other hand, involves adjusting the asset mix based on short-term market conditions and expectations. Regular monitoring and periodic rebalancing are integral to the asset allocation process. As market conditions change, the portfolio’s asset allocation may deviate from the target allocation. Rebalancing involves adjusting the portfolio by buying or selling assets to align with the desired allocation. This disciplined approach ensures the portfolio remains aligned with the investor’s goals and risk tolerance. Asset allocation offers several advantages to investors. It helps manage risk by diversifying investments across different asset classes. Diversification reduces the potential impact of a single asset class underperforming. By allocating funds to different asset classes, investors can potentially mitigate losses and smooth out the volatility of their portfolios. Furthermore, asset allocation aims to maximize returns by capturing the growth potential of different asset classes. Over the long term, the performance of different asset classes tends to vary. By having exposure to multiple asset classes, investors increase their chances of benefiting from positive market trends. Let’s say an investor named Ram has a conservative risk tolerance and a goal of long-term wealth preservation. He allocates 40% of his portfolio to equities for potential growth, 50% to fixed income (bonds) for stability and income, and 10% to cash as a safety net. Ram selects a diversified mix of large-cap, mid-cap, and international stocks for his equity allocation. He invests in high-quality corporate bonds and government securities with varying maturities for the fixed-income portion. Over time, if the equity portion of Ram’s portfolio outperforms, its percentage may increase beyond the target allocation. To rebalance, he would sell some equities and reinvest the proceeds into bonds and cash to return the portfolio to the desired asset allocation. As Ram’s investment horizon changes or his risk tolerance evolves, he may adjust his asset allocation. For example, if he nears retirement, he may reduce his equity exposure and increase his allocation to fixed income for capital preservation. By following his asset allocation strategy and periodically reviewing and rebalancing his portfolio, Ram aims to balance risk and return that aligns with his financial goals and risk tolerance. Remember, this example is simplified, and asset allocation strategies can be more intricate and tailored to individual circ*mstances. Asset allocation helps investors manage risk, optimize returns, and adapt to changing market conditions. Asset allocation is crucial because it helps manage risk and maximize returns. By dividing investments across different asset classes, investors can reduce the impact of market volatility, optimize their risk-reward balance, and increase the likelihood of achieving their long-term financial goals. Asset classes are different categories of investments with unique characteristics and behave differently in the financial markets. Here’s a brief explanation of some common asset classes: Each asset class has its own risk and return, and the combination of these classes in a portfolio is known as asset allocation. By diversifying across asset classes, investors can spread risk and potentially enhance returns. The allocation of funds among these asset classes is based on an individual’s risk tolerance, investment goals, and time horizon. It’s important to note that additional asset classes are beyond those mentioned here, such as commodities, alternative investments (e.g., hedge funds, private equity), and derivatives. The choice of asset classes depends on the investor’s preferences and the suitability of the investments for their financial objectives. Here’s a brief explanation of some common asset allocation strategies: These strategies provide different approaches to asset allocation based on factors such as an investor’s goals, risk tolerance, and market conditions. Several factors are involved when choosing the appropriate asset allocation for an investment portfolio. Here’s a brief explanation of three key factors that influence asset allocation decisions: These factors interact and influence each other when determining the optimal asset allocation. It’s essential for investors to carefully assess their risk tolerance, time horizon, and financial goals to construct a well-balanced portfolio that aligns with their specific circ*mstances. Regular review and adjustments to the asset allocation may be necessary as goals evolve, risk preferences change, or the investment landscape shifts. Asset allocation is an important investment strategy that involves diversifying your portfolio across different asset classes to balance risk and return. By choosing one’s asset classes, setting one’s target asset allocation, and monitoring and rebalancing the portfolio, one can maximize your returns over the long term and achieve your financial goals. Remember to follow best practices such as diversifying your portfolio, choosing low-cost investments, rebalancing regularly, considering your time horizon and tax implications, and staying disciplined. And if one needs help, don’t hesitate to work with a financial advisor to implement an asset allocation strategy that is right. The Certificate of Deposit (CD) stands as a beacon of stability and security in the vast landscape of financial instruments. For those unfamiliar with this versatile investment tool, let’s embark on a journey into Certificate of Deposits, understanding their significance in financial planning and how they can be a reliable avenue for growth. At its core, a Certificate of Deposit is a time deposit offered by financial institutions. Investors deposit a specific amount of money for a predetermined period, known as the term, and, in return, receive a fixed interest rate. CDs are often considered a low-risk investment, making them an attractive option for individuals aiming to balance their portfolios with stability. In the intricate tapestry of financial planning, CDs play a crucial role. Their fixed interest rates and principal protection provide a level of certainty that aligns well with various financial goals. Whether saving for a short-term expense or looking for a secure component in your long-term strategy, CDs offer a valuable tool for building and preserving wealth. Certificates of Deposit (CDs) operate as a straightforward yet powerful financial instrument, offering investors a secure way to grow their wealth. Let’s break down the mechanics of how a Certificate of Deposit works: The first step in the CD process involves opening an account with a financial institution. This can be a bank, credit union, or other authorized entities offering CD services. During this process, investors specify the amount they wish to invest and choose a term length for the CD. Every CD comes with specific terms and conditions outlining the investment rules. These include the CD’s duration, or time, and any associated penalties for early withdrawal. Terms can vary widely, ranging from a few months to several years, providing flexibility for investors with different financial goals. One of the critical attractions of CDs is the fixed interest rate they offer. This means that when an investor opens a CD, the interest rate remains constant throughout the agreed-upon term. The interest earned is typically paid to the investor upon the CD’s maturity, which ends at the specified time. Certificates of Deposit (CDs) are a secure and advantageous investment option in the financial landscape. Let’s delve into the key benefits that make investing in CDs an attractive choice for many individuals: CDs’ primary advantages are the unparalleled safety and security they provide. Unlike more volatile investment options, the principal amount invested in a CD is often insured, offering financial stability that resonates with risk-averse investors. This assurance is precious in uncertain economic times, providing a haven for capital preservation. The appeal of fixed interest rates cannot be overstated. When investors commit to a CD, they lock in a specific interest rate that remains constant throughout the agreed-upon term. This predictability ensures that regardless of market fluctuations, the investor can anticipate the exact return on their investment. This stability is a significant advantage in a landscape where interest rates can be unpredictable. CDs offer a wide range of terms, catering to the diverse financial goals of investors. Whether someone is saving for a short-term expense or planning for a long-term goal like retirement, there’s a CD with a suitable term. This flexibility allows investors to align their CD investments with their unique financial timelines and objectives. While Certificates of Deposit (CDs) offer a secure investment option, investors need to be aware of the potential risks associated with this financial instrument. Here, we’ll explore the risks of investing in CDs and how understanding and managing these risks can contribute to a more informed investment strategy. One of the primary risks associated with CDs is their limited liquidity. Unlike other investments, withdrawing funds from a CD before it matures can result in penalties. This lack of flexibility can be a drawback for investors who unexpectedly need access to their funds. Investors must align the CD terms with their financial goals and liquidity needs. While the fixed interest rates of CDs provide stability, they also introduce a potential risk. If market interest rates rise significantly after an investor opens a CD, they may miss out on the opportunity to benefit from higher rates. This interest rate risk is essential, especially in dynamic economic environments where interest rates fluctuate. Investors must weigh the opportunity cost of tying up funds in a CD. While CDs offer stability and security, alternative investment opportunities with potentially higher returns might exist. Understanding one’s overall financial strategy and goals is crucial in evaluating whether the benefits of a CD outweigh potential opportunity costs. Certificates of Deposit (CDs) come in various forms, each catering to different financial needs and preferences. Understanding the types of CDs available empowers investors to make informed decisions aligned with their unique goals. Let’s explore the diverse landscape of Certificate of Deposits: The most common and straightforward type, Traditional CDs, offer a fixed interest rate for a predetermined term. Investors deposit a specific amount and receive interest upon maturity. Traditional CDs are ideal for those seeking stability and a predictable return on their investment. Callable CDs introduce an additional layer of flexibility. With Callable CDs, the issuing bank retains the right to recall or “call back” the CD before its maturity date. While this allows the issuer to adjust to changing market conditions, it adds an element of uncertainty for the investor. Callable CDs often offer slightly higher interest rates to compensate for this flexibility. For those with a significant amount of capital to invest, Jumbo CDs are an attractive option. These CDs involve more substantial sums of money than traditional CDs and, in return, typically offer higher interest rates. Jumbo CDs are well-suited for high-net-worth individuals or institutions looking to maximize returns on substantial investments. Selecting the correct Certificate of Deposit (CD) is a crucial step in maximizing the benefits of this secure investment. Here, we’ll explore key considerations and strategies to help investors make informed decisions tailored to their financial goals. Before committing to a CD, defining your financial goals is essential. Whether saving for a short-term expense, planning for a significant purchase, or investing for long-term growth, aligning the CD’s term with your objectives is paramount. Shorter-term CDs may suit immediate needs, while longer-term CDs can be part of a strategic retirement or wealth-building plan. Interest rates can vary among different financial institutions and CD types. Take the time to compare rates offered by various banks or credit unions. Higher interest rates typically accompany longer-term CDs or Jumbo CDs. However, balancing a favorable rate and an appropriate term for your financial goals is critical to optimizing returns. Most CDs come with penalty clauses for early withdrawal. Please familiarize yourself with these clauses, as they can impact the overall return on investment. While unexpected circ*mstances may arise, understanding the potential penalties ensures informed decision-making. Some CDs may offer more lenient penalty structures, providing flexibility. Understanding the tax implications of Certificates of Deposits (CDs) is crucial to effective financial planning. While CDs offer security and stability, it’s essential to be aware of how they interact with the tax system to make informed decisions. Let’s delve into the critical considerations regarding the tax implications of holding CDs. Interest earned from CDs is generally subject to taxation. The interest income is added to your annual income and will be taxed based on your overall tax bracket. This taxation occurs in the year the interest is credited, even if you choose to wait to withdraw the claim until the CD matures. While taxes are inevitable, there are strategies to minimize the impact on your CD returns: Consider the timing of CD maturities about your overall income. If you anticipate a lower income year, you may choose to have CDs mature in that year to mitigate the tax impact. Explore holding CDs within tax-advantaged accounts like IRAs or 401(k)s. While this depends on your overall investment strategy and goals, it can provide a tax-efficient way to enjoy the benefits of CDs. Some CDs are structured to defer taxes until maturity. While this can provide short-term tax relief, evaluating such CDs’ overall terms and benefits is essential. Every individual’s tax situation is unique. Seeking advice from a tax professional can provide personalized insights into optimizing your CD strategy within the context of your overall financial plan. Being proactive about understanding and managing the tax implications of CDs is a crucial step in maximizing the returns on your investments. As we continue our exploration, we’ll explore alternative investment options, tips for maximizing returns, and real-life success stories. Stay with us to understand how to navigate the intricate world of Certificate of Deposits. While Certificates of Deposit (CDs) offer stability and predictable returns, exploring alternative investment options can provide a more diversified and dynamic financial strategy. Let’s explore alternatives to Certificate of Deposits that cater to various risk appetites and financial goals. Money market accounts share similarities with CDs regarding safety and security, but they offer greater liquidity. These accounts often provide a competitive interest rate, making them a viable option for individuals who prioritize accessibility to their funds while still seeking a relatively stable return on investment. Investing in government bonds is another low-risk alternative. U.S. Treasury bonds, for example, are considered one of the safest investments available. They offer a fixed interest rate and principal protection, making them attractive to risk-averse investors. The terms for government bonds vary, allowing investors to choose durations that align with their financial goals. High-yield savings accounts combine the safety of traditional savings accounts with higher interest rates. While the rates may not match those of CDs, high-yield savings accounts provide more flexibility, allowing unlimited withdrawals without penalty. This flexibility can be particularly beneficial for individuals who need access to their funds in the short term. Corporate bonds can offer attractive returns for investors willing to take on a slightly higher level of risk. These bonds represent debt that businesses have issued and typically have higher interest rates than government bonds. However, they come with the added risk of the issuing company facing financial difficulties. Investing in the stock market is a viable alternative for those seeking higher returns and willing to accept more risk. Stocks offer the potential for capital appreciation, dividends, and a degree of ownership in the companies you invest in. However, the stock market is more volatile than the options mentioned earlier, requiring a longer-term investment horizon. Real estate investment provides an alternative asset class that can diversify a portfolio. Real estate investments can generate rental income and appreciate over time. Real estate investment trusts (REITs) offer a way to invest in real estate without direct property ownership. Certificates of Deposit (CDs) are a stalwart in secure investments, yet certain misconceptions can influence individuals’ perceptions and decisions. Let’s dispel some of the common misunderstandings surrounding CDs to provide a clearer understanding of their role in a well-rounded financial portfolio. Breaking Myths Surrounding Low Returns Addressing Concerns about Flexibility In conclusion, certificates of deposit (CDs) are a reliable and secure pillar of financial instruments. Despite common misconceptions, CDs offer a unique blend of stability and predictability, making them valuable to any investment portfolio. The fixed interest rates and principal protection provide investors a secure avenue for wealth building. While acknowledging the limited liquidity and potential opportunity costs, the strategic use of CDs, aligned with individual financial goals, can contribute significantly to a well-rounded financial plan. As we navigate the intricacies of the economic landscape, it’s essential to recognize the diverse alternatives and evolving trends. Whether utilized for short-term goals or as part of a long-term investment strategy, Certificates of Deposit continue to showcase their enduring relevance in fostering financial growth and security. View Chapters Investing is the process of allocating funds to various financial assets in order to put your money to work and profit from the results. This can serve as a supplemental or, in certain situations, primary source of income, allowing you to achieve your financial objectives. We tend to focus on only a few of the flaws that exist. And, in the end, turn a blind eye to the numerous advantages it delivers. Higher Returns: - Beats Inflation: - Easy & Flexible: - Magic of Compounding: - Many people know they should be investing, but fear of loss keeps them away. After all, nobody wants to lose their hard-earned money, and you often hear warnings about how poor investment decisions can lead to significant losses in the stock market. Some of the biggest risks associated with investing in stocks are: Volatility is a term used to describe the rate of short-term fluctuations in stock prices. Stocks that experience more volatility or a significant movement over a short period of time are considered higher-risk investments, while stocks that experience more slow-and-steady movement are considered lower-risk. Stocks become more volatile when specific events take place. Although volatility reflects the rate at which a stock moves, it does not determine the direction of the movement. In other words, volatility is higher on sharp movements, both up and down. The term time is money is nowhere truer than in stock market. Prices move by the second, and pinning down the best time to buy or sell a stock proves to be difficult for experts and retail investors alike. After all, although the goal is to buy low and sell high, without the ability to predict the future, there is no way to tell where low and high sit. Imagine buying a ton of stock when optimism is running high and suddenly the market crashes. Or giving in to panic and selling during a market fall, right before a major rebound begins. Poorly timed investments prove costly. While stocks have historically performed well over the long term, there is no guarantee you will make money on a stock at any given point in time. Although a number of things can help you assess a stock, no one can predict exactly how a stock will perform in the future. There is no guarantee that prices will go up or that the company will pay dividends or that a company will even stay in business. One of the most common pieces of advice you will hear about personal financial planning is that you should start investing as soon as possible, so that you can stay invested for a long time. So, let us understand what are the advantages of investing at an early age, and why is it critical for investors to recognize the significance of doing so at an early age? Is it not fascinating to invest at an early age or when you are a teenager? Yes, but there is more to it apart from just the excitement. The major reason is you give your corpus more time to earn returns if you start early. When you give your invested money more time to generate returns, you effectively give your returns more capability to create more returns. This is known as the power of compounding in technical terms, and it demonstrates that even small investments can provide large returns. For Example, For various time periods, Rs. 10,000 was invested monthly at the rate 10%. 3 Years = Rs. 4,17,818 6 Years = Rs. 9,81,113 9 Years = Rs. 17,40,537 The above table shows the importance of Investing at an early stage Consistency is the most critical factor in achieving success in any area of life. Discipline is required whether you want to be a great businessman or a decent student, keep yourself active, or do anything else in life. It applies to many aspects of life, including investment. Both types of investments have their own set of advantages and disadvantages. Short-term investing allows you to reach your financial targets in a short period of time while minimizing risk. Long-term investment avenues, on the other hand, are suitable for investors with a greater risk appetite and a desire for better returns. Summing up, if you are a person who prefers to achieve the small-scale financial goals with minimum risk then short-term investment plan suits you the most. The rule of thumb is that the higher the risk, the higher the reward. Because investors usually forget this basic rule, there is a lot of mis-selling of financial items which takes place. If a safe investment, such as a savings account, pays you 8% p.a. and a product that pays you even 10% p.a. is bound to be risker than keeping your money in savings account. If you do your homework on any investment product, then you would be able to evaluate the right kind of investment selection based on your risk profile. The part of a company's ownership held by shareholders is referred to as equity. In simple terms, it refers to a financial investment in the company's equity stock in order to become a shareholder. The primary distinction between equity and debt holders is that equity holders do not get regular payments, but they can profit from capital gains by selling their holdings. In addition, equity holders receive ownership rights and become one of the company's owners. When a company goes bankrupt, equity holders can only share the remaining interest after debt holders have been paid. Companies also pay dividends to their shareholders on a regular basis as a result of earned earnings from their core business operations. Debt Securities are divided into two categories: bonds and debentures. Bonds - Bonds are fixed-income instruments used to fund infrastructure development and other projects by the federal and state governments, municipalities, and even private firms. Debentures - Unlike bonds, debentures are unsecured investment choices with no collateral backing. Derivatives are capital market financial products whose values are based on underlying assets such as currency, bonds, stocks, and stock indexes. Forwards, futures, options, and interest rate swaps are the four most prevalent types of derivative instruments. Let us learn about them: Forwards - It is an agreement between two parties in which the exchange occurs at a pre-decided price at the end of the contract. Forward contracts are unstructured contracts and operate in an unregulated market. Future - Futures are derivative financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and set price. Underlying assets include physical commodities or other financial instruments. Futures contracts detail the quantity of the underlying asset and are standardized to facilitate trading on a futures exchange. Options - The term option refers to a financial instrument that is based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell depending on the type of contract, the underlying asset they hold. Each contract will have a specific expiration date by which the holder must exercise their option. The stated price on an option is known as the strike price. Interest Rate Swap - An interest rate swap is a contract between two parties in which both parties agree to pay each other interest rates on their loans in different currencies, options, and swaps. An ETF, or exchange-traded fund, is a vital investing instrument for making your financial strategy a success. ETFs are a collection of securities that are traded on a regulated exchange. Stocks, bonds, commodities, currencies, or a mixture of them all are common investments in ETFs. When you buy an ETF as an investor, you're buying a basket of assets rather than a single item. Your stake in the total number of assets is proportionate to the number of shares you own in this regard. Mutual funds are another excellent market investment strategy to consider if you want to boost your financial returns. Mutual funds aggregate money from many investors and invest it in bonds, equities, and other assets. Mutual funds are best suited if you have an expensive long-term goal or retirement plan in mind and want to diversify across financial instruments and buffer against anticipated market volatility. Saving and investing are vital concepts for establishing a strong financial foundation, but they are not interchangeable. While both can help you build a more secure financial future, people must understand the distinctions and know when to save and when to invest. The level of risk taken is the most major difference between saving and investing. You will normally receive a lower return by saving, but you will be virtually risk-free. Investing, on the other hand, allows you to earn a bigger return while also exposing you to the danger of losing money. The act of putting money aside for a future need or necessity is known as saving. When you decide to save money, you want the funds to be available as soon as possible, if not immediately. Savings, on the other hand, can be utilized for long-term purposes, such as ensuring that you have enough money at the correct time in the future. Savings are often deposited in a low-risk bank account. Investing is similar to saving in that you are putting away money for the future, except that you are looking to achieve a higher return in exchange for taking on more risk. Stocks, bonds, mutual funds, and exchange-traded funds are common investments (ETFs). The majority of people frequently confuse the two terms. However, in the realm of finance, saving and investing are two different things. You are saving when you actively set aside a portion of your money in a safe and conveniently accessible account. Purchasing stocks, bonds, or any other financial commodity with the intention of profiting from capital appreciation, dividends, or regular distributions is referred to as investing. While both provide a good return on investment, the rate on investments is far larger than the rate on saves. Investments aren't just for the wealthy or those with a lot of money, it's for anyone who wants to better their financial situation and experience financial freedom. If you have heard the famous saying from warren buffet: - If you do not find a way to make money work while you sleep, you will work until you die -Warren Buffet One might have read this quote a couple of times but have you wondered what it means or how are you going to make your money work for you once you are asleep? The answer is pretty simple one can do this by simply Investing their money. The capital market encompasses all of these sorts of instruments. They are traded in a variety of ways because each one is unique and has distinguishing characteristics. As a result, it's critical to comprehend the many forms of investment instruments so that you can invest in them in accordance with your financial objectives. Investments instruments are traded on the Stock Exchanges. The stock exchange in India is a place for trading financial products such as stocks, bonds, and commodities. It's a marketplace where buyers and sellers meet to exchange financial instruments at certain times during the business day, all while conforming to SEBI's well-defined criteria. Only corporations that are listed on a stock market, however, are permitted to trade on it. Even if a stock is not listed on a reputable stock exchange, it can still be traded in an Over the Counter Market. However, such shares would not be highly valued in the stock market. In India, most stock exchanges function independently because there are no "market makers" or "specialists" on staff. The whole stock market trading procedure in India is order-driven and takes place on an electronic limit order book. Orders are automatically matched with the help of the trading computer in this setup. Its purpose is to match market orders from investors with the most appropriate limit orders. The main advantage of an order-driven market is that it improves transaction transparency by publicly publishing all market orders. Brokers play a crucial part in the stock exchange market's trading structure, as all orders are placed through them. The advantages of direct market access, or DMA, are available to both institutional and retail investors. Investors can place orders directly into the trading system by using the trading terminals provided by stock exchange market brokers. Bombay Stock Market (BSE) - Located on Dalal Street in Mumbai, this stock exchange was founded in 1875. It is not only Asia's oldest stock exchange, but also the world's tenth largest stock exchange. As of April, the market capitalization of the Bombay Stock Exchange was expected to be US$ 4.9 trillion, with roughly 6000 businesses openly listed on the exchange. The Sensex, which measures the performance of the BSE, reached an all-time high of 40312.07 in June of this year. National Stock Exchange (NSE) - The NSE was founded in Mumbai in 1992 and is considered India's first demutualized computerized stock exchange market. This stock exchange market was created with the goal of removing the Bombay Stock Exchange's monopolistic influence from the Indian stock market. As of March 2016, the National Stock Exchange has a market capitalization of US$ 4.1 trillion, making it the world's 12th largest stock exchange. NIFTY 50 is the index of the National Stock Exchange of India, and it is widely used by investors throughout the world to assess the performance of the Indian capital market. A stock exchange in India has a significant impact on the country's financial industry because it is such an important aspect of the Indian stock market. Their combined performances are a key determinant of economic growth. Furthermore, all main types of stock exchanges are highly intertwined; if one big stock exchange collapses, it will have repercussions for all other major exchanges throughout the world. A stock market Index is made up of equities that are similar in terms of market capitalization, firm size or industry. The index is then calculated depending on the stocks chosen. But, each stock will have a different price and the price range of one stock will not be the same as the price range of another. A stock market index, often known as a stock index, is a metric that displays all key movements in the Indian stock market. To create an index, a basket of the same equities is chosen from among the securities already gathered and listed on the stock exchange. For example, if a real estate index has to be created, stocks of all real estate companies listed have to be taken into account for calculating the Index. The selection criteria, on the other hand, are based on the industry, the size of the company, and its market capitalization. This indicator is designed to reduce the blunder and to show the market's correct position. The value of the index is affected by changes in the price of the underlying assets. The stock index will climb if the price rises, and the index will fall if the stock prices fall. The two most prominent stock market indices in India are the Sensex and the Nifty. They are the benchmark indices, which are the most essential and serve as a point of reference for the whole Indian stock market. The value of the index cannot be determined by adding the prices of all the stocks. As a result, each company in the index is allocated a specific weighting depending on its current market price or market capitalization. The weight determines how much stock price movements affect the index's value. The most widely used stock market indices in India are the Nifty 50 and Sensex. The whole market value of a firm on the stock exchange is referred to as market capitalization. It is computed by multiplying the company's total number of outstanding stocks by the share price of each stock. In a market-cap weighted index, however, the companies are chosen based on their market capitalization relative to the index's overall market capitalization. The index value is calculated using the market capitalization rather than the company's stock price in this technique. As a result, equities with higher prices receive more substantial weighting in the index than stocks with lower prices. The Nifty 50 index is made up of the top 50 best-performing stocks, and the BSE Sensex index, which is in turn made up of the top 30 best-performing companies. The Nifty 50 Index and the BSE Sensex Index are indicators of the National Stock Exchange and the Bombay Stock Exchange, respectively. Benchmark indexes are a collection of stocks that employ best practices to select and govern the companies they invest in. As a result, they are regarded as the most reliable source of information about how markets work in general. The BSE and NSE both offer some good indicators for measuring companies in a certain industry. S&P BSE PSU and Nifty PSU Bank Indices are indices of all listed public sector banks, and are a good example of sectoral indices. However, both exchanges are not required to have equivalent indexes for all sectors, but this is a common occurrence. Only a small number of indices select firms based on their market capitalization. Market capitalization refers to the stock exchange's market value of any publicly traded corporation. Small-cap indices such as the S&P BSE and NSE small cap 50 are made up of companies with a lower market capitalization than the SEBI allows. Other indexes, such as the S&P BSE 100, S&P BSE 500, and NSE 100, are slightly larger and have a far larger number of stocks listed on them. The primary idea behind indices is to make trading more convenient for investors. A stock market with no such categories is just an open marketplace where you may buy any of the stocks listed on the exchanges; you have no idea which stocks have a greater m-cap, which stocks have lesser value, or which are the "better" stocks. Like headless hunters, all investors will be on the prowl. The significance of stock market indices is appreciated at this point. They make trading easier by grouping them and increasing their visibility. The stock market indices are an important aspect of the investment world. It is not just a plus, but also a requirement. Without it, the investment world would have been a shambles of investors looking for attractive stocks to buy. The relevance of stock market indices stems from the fact that they make investing simple. In finance, one of the fundamental concepts that underpin many financial decisions is the Time Value of Money (TVM). Understanding TVM is crucial for individuals and businesses as it helps make informed decisions regarding investments, loans, and other financial matters. Understanding the fundamental concepts of the Time Value of Money (TVM) is essential for making informed financial decisions. Below, we delve into the core principles that underpin TVM: The Time Value of Money (TVM) concept finds wide-ranging applications across various financial scenarios, playing a crucial role in decision-making processes. Below, we explore some of the critical applications of TVM: Understanding how to calculate the Time Value of Money (TVM) is essential for financial analysis and decision-making. Several formulas are commonly used to perform TVM calculations, allowing individuals and businesses to assess present and future value of cash flows. The two fundamental formulas used in TVM calculations determine money’s Present Value (PV) and Future Value (FV). The Present Value (PV) formula determines the current worth of a future sum of money, considering the time value of money and discounting future cash flows to their present value. The formula for calculating PV is: PV = FV / (1 + r)^t Where: For example, if you expect to receive $1,000 in five years and the annual interest rate is 5%, the present value would be calculated as follows: PV = $1,000 / (1 + 0.05)^5 ≈ $1,000 / (1.05)^5 ≈ $1,000 / 1.276 ≈ $783.53 The Future Value (FV) formula, on the other hand, is used to determine the value of an investment at a future date, considering the effects of compounding. The formula for calculating FV is: FV = PV × (1 + r)^t Where: For example, if you invest $500 today at annual interest rate of 6% compounded annually for three years, the future value would be calculated as follows: FV = $500 × (1 + 0.06)^3 = $500 × (1.06)^3 = $500 × 1.191016 ≈ $595.51 These formulas provide a framework for performing TVM calculations and are used extensively in various financial contexts, including investment analysis, loan pricing, retirement planning, and capital budgeting. By applying these formulas, individuals and businesses can evaluate cash flows’ present and future value, make informed financial decisions, and optimize resource allocation effectively. Investing has always been a fascinating topic. It provides investors with the opportunity to build money and broaden their financial horizons. Individual and institutional investors have various investment goals. The following are key factors that are universal to all investors but will vary each investor: ● Required return Investors may also have specialized requirements in terms of liquidity, tax concerns, legal requirements, religious or ethical standards compliance, or other special conditions. Because investors’ situations and needs change over time, it’s critical to re-evaluate their requirements on an annual basis. The amount of return required to achieve an investor’s objectives varies. The required rate of return before and after taxes can be determined based on a future wealth or portfolio value target. The amount of risk that investors are willing and able to bear with their investments is usually limited. There is a relationship between risk and return, as previously stated. In general, the bigger the predicted return, the higher the risk. Similarly, the larger the risk, the higher the predicted return. Risk tolerance is determined by an investor’s ability and willingness to take risks. The investor and adviser must agree on the investment’s time horizon. Some investors will require immediate access to funds from their holdings, while others will have a much longer time horizon. 4. Liquidity The amount to which investors may need to withdraw money from their holdings varies. They may require a withdrawal to pay for a specific item or to establish a monthly revenue stream. These requirements have an impact on the types of investments made. When liquidity is necessary, the investments must be able to be converted to cash promptly and at a reasonable cost (low transaction fees and price changes). Regulatory regulations apply to certain sorts of investors’ portfolios. For example, in some countries and for some types of institutional investors, the percentage of a portfolio that can be invested overseas or in riskier assets like equities is limited. Insurance company holdings are usually subject to stringent regulations. Investors have different tax situations. Some investors pay taxes on their investment profits, while others do not. Pension funds, for example, are tax-free on investment returns in many nations. Furthermore, how income and capital gains are taxed can differ. It is critical to evaluate an investor’s tax condition as well as the tax implications of various assets. Investors should be concerned with the returns they receive after taxes and fees since that is the amount of money they have available to spend. Individuals may potentially face varied tax situations depending on the components of their wealth. If capital gains are taxed at a lower rate than income, the investor may opt to hold assets that are projected to yield capital gains in a taxable investment account. The location (holding) of assets can have a big impact on an investor’s after-tax profits and wealth building. Many investors have specific needs or constraints that aren’t covered by the typical categories outlined thus far. Some investors have social, religious, or ethical views that limit the kind of investments they can make with their money. Investors may, for example, choose not to invest in companies that participate in activities that they fear may harm the environment. Other investors could insist on assets that are in line with their religious values. Surprisingly, many people are willing to increase their stakes in their employers’ stock because of loyalty or familiarity, despite the danger that this technique carries. If the company collapses or its financial status deteriorates, such a plan can have serious ramifications. Institutional investors may also have unique and specific requirements as a result of their objectives and circ*mstances. Apart from the aforementioned one, several other factors often guide or affect investment. Family history, personal profile, financial obligations, and other factors all have an impact on your investment decisions. Although the aforementioned elements influence decisions, it is still up to the investor to design a sound investment portfolio based on his or her needs and profile. It is recommended that you devise a strategy that will assist you in structuring and balancing your portfolio while also providing you with the best opportunity for profit. View Chapters Most stock market investors who make money do so not because they're smarter, luckier, or more clairvoyant than anyone else. They make money by simply being more patient and by using three simple investment methods: A small number of extraordinary investors - Warren Buffett being a famous one who's frequently in the news - generate exceptional returns. Buffett and these other elite investors do the above three things and have a talent for identifying and investing in undervalued businesses before most others see that value. The good news for you is that you can earn handsome long-term stock market returns without having Buffett's talent. The stock market isn't the place to invest money that you need to tap in the near future (certainly not money you need to use within the next five years). If your stock holdings take a dive, you don't want to be forced to sell when your investments have lost value. So come along for the ride - but only if you can stay for a while! Stocks represent a share of ownership in a company and its profits. As companies (and economies in general) grow and expand, stocks represent a wonderful way for investors to share in that growth and success. Over the last two centuries, investors holding diversified stock portfolios earned a rate of return averaging about 10 percent per year, which ended up being about 7 percent higher than the rate of inflation. Earning such returns may not seem like much (especially in a world with gurus and brokers claiming returns of 20 percent, 50 percent, or more per year). But don't forget the power of compounding: At 10 percent per year, your invested dollars doubles about every seven years. The purchasing power of your money growing 7 percent more per year than the rate of inflation doubles about every ten years. Contrast this return with bond and money market investments, which have historically returned just a percent or two per year over the rate of inflation. At these rates of return, the purchasing power of your invested money takes several decades or more to double. Your investment's return relative to the rate of inflation determines the growth in purchasing power of your portfolio. What's called the real growth rate on your investments is the rate of return your investments earn per year minus the yearly rate of inflation. If the cost of living is increasing at 3 percent per year and your money is invested in a bank savings account paying you 3 percent per year, you're treading water - your real rate of return is zero. (On the top of inflation, when you invest money outside of a tax-sheltered retirement account, you end up paying taxes on your returns, which could lead to a negative real "growth" in your money's purchasing power!) Mutual funds are the way to go when you want to invest in stocks. The best stock funds offer you diversification and a low-cost way to hire a professional money manager. They help in Reducing risk and increasing returns. When you invest in stock funds, you can make money in three ways: o Dividends: Some stocks pay dividends. Many companies make profits and pay out some of these profits to shareholders in the form of dividends. Some high-growth companies reinvest most or all of their profits right back into the business. As a mutual fund investor, you can choose to receive your fund's dividends as cash or reinvest them by purchasing more shares in the mutual fund. Unless you need the income to live on (if, for example, you're retired), reinvest your dividends into buying more shares in the fund. If you do this outside of a retirement account, keep a record of those reinvestments because those additional purchases should be factored into the tax calculations you make when you sell the shares. o Capital gains distributions: When a fund manager sells stocks for more than she paid for them, the resulting profits, known as capital gains, must be netted against losses and paid out to the fund's shareholders. As with dividends, your capital gains distributions can be reinvested back into the fund. Gains from stock held for more than one year are known as long-term capital gains and are taxed at 20% o Appreciation: The fund manager isn't going to sell all the stocks that have gone up in value. Thus, the price per share of the fund should increase (unless the fund manager made poor picks or the market as a whole is doing poorly) to reflect the gains in unsold stocks. For you, these profits are on paper until you sell the fund and lock them in. Of course, if a fund's stocks decline in value, the share price depreciates. Hold the fund for more than one year and you qualify for low long-term capital gains tax rates when you sell. If you add together dividends, capital gains distributions, and appreciation, you arrive at the total return of a fund. Stocks (and the funds that invest in them) differ in the proportions that make up their total returns, particularly with respect to dividends. View Chapters A mutual fund is an investment program that is professionally managed and diversified in its investments. The process involves professionals using the funds of retail investors to invest in a carefully selected set of investment products to build a diversified portfolio. The professionals who are responsible for managing a mutual fund are known as fund managers. A fund manager is an expert who is well versed with how the stock market works. He / She aims to build a portfolio that performs a certain market index. Suppose you wanted to buy a pizza, but you have money that's worth half the cost of the pizza. The only solution here would be to find another person, who is interested in buying the other half of the pizza with you. Why? Because - Advantages of Mutual Fund The concept and management of a mutual fund investment is very simple. You choose the fund and invest in it, and the rest of the decisions will be handled by the fund managers The mutual fund industry offers a huge number of schemes. They are built to cater to the different types of investors present in the market on the basis of time duration of investments, and the risk appetite of investors A mutual fund is a set of different types of investment products. When we put money in a mutual fund, it automatically diversifies your portfolio. The biggest advantage of putting our money in a mutual fund comes from the professional management that our investment receives As far as mutual funds are concerned, SEBI formulates policies, regulates and supervises mutual funds to protect the interest of the investors. SEBI notified regulations for mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines through circulars to mutual funds from time to time to protect the interests of investors. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI AMFI is an industry-standard organization for all mutual funds of the country. It is a not-for-profit organization that aims to spread investor awareness about the mutual funds industry The net assets of a mutual fund include all the resources that have been invested into the stocks of the mutual fund scheme. The Net Assets of a mutual fund are calculated as follows: The NAV of every fund is calculated at the end of every market day (business day), on the basis of the closing market prices of the securities that the fund or scheme is invested in. Any changes in the NAV indicate a rise or a dip in the prices of assets of the mutual fund scheme. "Mutual Funds are subjected to market risk. Read all scheme related documents carefully." This line is so popular. As we all have heard this in tv ads. So, what this tells us is- Yes, Mutual Funds are subjected to not only market risks but other various types of risks. Below are some risks involved in Mutual Funds: - Market Risks The most known and normal danger for any speculation vehicle is market risk. Market risk is essentially the likelihood that the market or the economy will decrease, making individual speculations lose esteem paying little heed to the exhibition. Inflation Risks The danger that increasing financing costs will make your shared assets decrease in esteem. At the point when financing costs rise, security costs decrease and security common assets may likewise decay subsequently. In basic terms, if your shared assets make 10% each year and the typical cost for basic items increases 6% you are simply left with 4% as net returns from your ventures. Volatility Risk The risk of losses due to the changes of prices of securities due to the change in the volatility of the market instruments. Market volatility indicates the degree of change of the price of an instrument being traded on the market. Interest Rate Risks The risk of the value of fixed-income securities going down due to a rise in the interest rates is known as the interest rate risk. Alpha is the excess returns relative to market benchmark for a given amount of risk taken by the scheme. Put simply, it measures how much better a fund has performed as compared to its benchmark index. For instance, if the NIFTY 50 index delivered 10% in the past year and the fund benchmarked against the NIFTY 50 delivered 11%, then the Alpha is +1%. And if the fund underperformed and achieved only 8%, then the Alpha is -2%. Therefore, actively managed funds can have positive or negative Alpha depending on how well the fund manager runs the fund. In fact, creating positive Alpha is the entire essence behind someone investing in an actively managed fund. Index Funds, on the other hand, will not produce any Alpha. Beta is a commonly used risk measure and calculates the relative volatility of a stock or Mutual Fund's returns as against its benchmark. So, Beta merely explains the relative riskiness of an asset and does not give the inherent risk of the asset itself. Beta is measured against a benchmark. In other words, the default Beta of the stock market or the benchmark will always be the numeric value 1. Since the Mutual Fund returns are measured against the benchmark, the value of Beta can be anything. For example, if the Beta of a Mutual Fund scheme is 1, it means the fund moves in line with the benchmark. So if the NIFTY 50 moves up by 1%, the fund is likely to go up by 1%. To put it in another way, Index Funds have a Beta of 1. Likewise, say the Beta of a fund is higher than 1. Assume it is 1.5. So, if the NIFTY 50 jumps by 1%, the fund benchmarked against NIFTY 50 is likely to go up by 1.5%. A similar pattern is followed where the Beta is lower than 1 as well. A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) per unit which is declared on a daily basis. The key feature of open-end schemes is liquidity. A close-ended fund or scheme has a stipulated maturity period e.g. 3-5 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the new fund offer and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges A scheme can also be classified as growth scheme, income scheme or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, growth, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. The aim of balanced schemes is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. These schemes are also income schemes and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared with other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt-oriented schemes. Funds replicate the portfolio of a particular index such as the BSE Sensitive index (Sensex), NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. As per SEBI Regulations on Mutual Funds, an investor is entitled to: The first and foremost document of a mutual fund is standard scheme offer document. The purpose of a scheme offer document is to provide essential information about the scheme in a way that will assist investors in making informed decisions about whether to purchase the units being offered. These Offer document consists of two parts: SID carries important information about the scheme(s) such as their investment objective, asset allocation pattern, investment strategies, risk involved, benchmark indices for respective scheme(s), who will manage the scheme(s), fees & expenses; amongst a host of others for making an informed investment decision. SAI contains all statutory information of the Mutual Fund house. Position sizing is a pivotal concept in the world of investing and trading, serving as a cornerstone for managing risk and optimizing portfolio performance. At its core, position sizing refers to the strategic allocation of capital to individual trades or investments based on predetermined criteria. This approach allows investors to balance the potential for profit with the inherent risk associated with each position. By determining the appropriate size for each trade relative to the overall portfolio, investors can safeguard against excessive losses while still capitalizing on profitable opportunities. Effective position sizing involves careful consideration of factors such as risk tolerance, market conditions, and investment objectives. By tailoring position sizes to these variables, investors can create a diversified portfolio that is resilient to market fluctuations and positioned for long-term success. In essence, position sizing empowers investors to take control of their risk exposure and optimize their chances of achieving their financial goals. Position sizing is a fundamental principle in investment and trading that involves determining the appropriate amount of capital to allocate to each trade or investment position within a portfolio. This strategy aims to manage risk effectively by ensuring that the size of each position is proportional to the overall portfolio size and the level of risk tolerance of the investor. Essentially, position sizing dictates how much of your available capital you should commit to a particular trade or investment opportunity. By carefully considering factors such as the potential return on investment, the probability of success, and the potential downside risk, investors can optimize their position sizes to achieve a balance between maximizing returns and minimizing losses. Effective position sizing is crucial for maintaining a diversified portfolio and avoiding overexposure to any single asset or market risk. It is a key component of risk management strategies and is essential for long-term success in the financial markets. Let’s delve into a practical illustration of position sizing to better understand its application in investment and trading scenarios. Imagine an investor with a portfolio valued at $100,000 who is considering a potential trade in a particular stock. Utilizing position sizing principles, the investor decides to allocate 5% of their portfolio to this trade. With the portfolio’s total value set at $100,000, 5% of this amount equates to $5,000. Therefore, the investor would commit $5,000 to purchasing shares of the chosen stock. By adhering to this position sizing strategy, the investor ensures that the impact of any potential losses from this trade is limited to 5% of their overall portfolio value. Conversely, if the trade proves to be successful and generates profits, the investor can benefit from proportional gains while still maintaining a diversified portfolio. This example underscores the importance of position sizing in managing risk and optimizing returns, demonstrating how a disciplined approach to allocating capital can contribute to a balanced and resilient investment strategy. Position sizing plays a crucial role in risk management within the realm of investment and trading. By carefully determining the size of each position relative to the overall portfolio, investors can effectively mitigate the impact of potential losses. By adhering to a disciplined position sizing strategy, investors can limit their exposure to any single trade or investment, thereby reducing the overall risk within their portfolio. This approach ensures that even if individual trades incur losses, the overall impact on the portfolio is minimized, preserving capital for future opportunities. In addition to risk management, effective position sizing can also contribute to maximizing returns. By allocating capital proportionally to high-probability trades and reducing exposure to lower-probability ones, investors can optimize their portfolio’s performance. Through strategic position sizing, investors can capitalize on profitable opportunities while minimizing the impact of losing trades. This enables investors to enhance their overall returns over time, ultimately contributing to the long-term success of their investment strategy. Another key aspect of the importance of position sizing is its role in portfolio diversification. By allocating capital across a diverse range of assets and investment opportunities, investors can spread their risk and reduce the impact of any single adverse event on their portfolio. Position sizing ensures that no single trade or investment dominates the portfolio, thereby safeguarding against excessive exposure to specific market risks. This diversification helps investors achieve a more balanced and resilient portfolio, capable of weathering various market conditions. Furthermore, effective position sizing instills confidence and discipline in investors’ decision-making processes. By adhering to predetermined position sizing rules, investors can approach trading and investment with a structured and systematic approach. This disciplined approach helps investors avoid impulsive or emotional decisions that may lead to poor outcomes. Additionally, knowing that position sizing strategies are in place to manage risk can provide investors with greater peace of mind, enabling them to navigate the markets with confidence and composure. Ultimately, the importance of position sizing lies in its contribution to long-term success in investment and trading. By effectively managing risk, maximizing returns, diversifying portfolios, and instilling discipline, position sizing plays a pivotal role in shaping investors’ overall performance and achieving their financial goals. Whether navigating volatile market conditions or capitalizing on emerging opportunities, a well-executed position sizing strategy can serve as a cornerstone for building wealth and achieving financial independence over time. There are several methods for determining position sizes, each with its own advantages and considerations. Some common position sizing methods include: One popular position sizing method is the Fixed Ratio method, which involves allocating a fixed percentage of the portfolio to each trade. This approach adjusts the position size based on the performance of previous trades, increasing capital allocation after successful trades and reducing it after losses. The Fixed Ratio method helps investors capitalize on winning streaks by increasing position sizes during periods of profitability. However, it also mitigates risk by scaling back positions during losing streaks, thereby preserving capital and preventing excessive drawdowns. This method provides a systematic approach to position sizing that adapts to the investor’s performance over time, striking a balance between maximizing returns and managing risk effectively. Another commonly used position sizing method is the Percent Volatility method, which takes into account the volatility of each asset when determining position sizes. Assets with higher volatility are assigned smaller position sizes to mitigate the risk of large losses, while less volatile assets receive larger allocations. By adjusting position sizes based on the inherent volatility of each asset, investors can tailor their risk exposure to market conditions and asset characteristics. The Percent Volatility method provides a dynamic approach to position sizing that accounts for fluctuations in market volatility, helping investors maintain a balanced and resilient portfolio. The Optimal f Method, popularized by renowned investor Ralph Vince, calculates the optimal fraction of capital to risk on each trade based on factors such as the probability of success and the potential reward-to-risk ratio. This method aims to maximize the long-term growth of the portfolio by allocating capital in proportion to the expected return of each trade. By dynamically adjusting position sizes based on the risk-reward profile of each opportunity, the Optimal f Method helps investors optimize their capital allocation and enhance overall portfolio performance. This method provides a sophisticated approach to position sizing that considers both the probability of success and the potential payoff of each trade, enabling investors to make informed decisions that align with their investment objectives. When implementing position sizing strategies, it’s essential to consider various factors to tailor the approach to your specific circ*mstances. Some key factors to consider include: One of the primary factors to consider in position sizing is an investor’s risk tolerance. Risk tolerance refers to the level of risk an investor is comfortable taking on in pursuit of their investment goals. Investors with a higher risk tolerance may opt for larger position sizes, as they are willing to accept greater fluctuations in their portfolio value in exchange for the potential for higher returns. Conversely, investors with a lower risk tolerance may prefer smaller position sizes to minimize the impact of potential losses. Understanding and aligning position sizes with one’s risk tolerance is crucial for maintaining emotional stability and confidence in the investment strategy. Another important factor to consider in position sizing is current market conditions. Market volatility, trends, and economic factors can all influence the level of risk associated with different assets and investment opportunities. During periods of heightened volatility or uncertainty, investors may choose to reduce their position sizes to mitigate risk and preserve capital. Conversely, in more stable market conditions, investors may feel more comfortable taking on larger position sizes to capitalize on potential opportunities. Adapting position sizes to reflect changing market conditions is essential for managing risk and maximizing returns over time. Investment goals play a significant role in determining appropriate position sizes. Investors with long-term goals, such as retirement planning or wealth accumulation, may adopt a more conservative approach to position sizing to prioritize capital preservation and steady growth. On the other hand, investors with shorter-term goals or a higher tolerance for risk may be more inclined to take on larger position sizes in pursuit of aggressive returns. Aligning position sizes with specific investment objectives helps investors stay focused on their long-term financial goals and avoid impulsive decisions that may jeopardize their success. The composition of an investor’s portfolio is another critical factor to consider in position sizing. Diversification across asset classes, industries, and geographic regions can help spread risk and reduce the impact of any single adverse event on the portfolio. When determining position sizes, investors should take into account the correlation between assets and ensure that no single position dominates the portfolio. By maintaining a well-balanced portfolio, investors can enhance their overall risk-adjusted returns and minimize the potential for catastrophic losses. In conclusion, position sizing is a critical aspect of investment and trading strategies, offering investors a systematic approach to managing risk and optimizing returns. By carefully determining the size of each position relative to factors such as risk tolerance, market conditions, investment goals, and portfolio composition, investors can strike a balance between maximizing potential gains and minimizing potential losses. Effective position sizing enables investors to maintain emotional stability and confidence in their investment decisions, even during periods of market volatility or uncertainty. Additionally, by adhering to disciplined position sizing rules, investors can avoid impulsive or emotional trading behaviors that may undermine their long-term success. Ultimately, a well-executed position sizing strategy contributes to a balanced and resilient portfolio, capable of weathering various market conditions and achieving consistent returns over time. Regularly reviewing and adjusting position sizes is essential to adapt to changing market conditions and investment objectives. It’s advisable to assess your portfolio periodically, ideally quarterly or semi-annually, and make adjustments as needed. . Yes, there are numerous position sizing tools and software available to assist investors and traders in implementing effective position sizing strategies. These tools often incorporate risk management calculations, portfolio analysis, and performance tracking features to streamline the process. Some common mistakes to avoid when implementing position sizing strategies include over-leveraging, neglecting risk management principles, and failing to adapt to changing market conditions. It’s essential to remain disciplined, stick to your predetermined position sizing rules, and continuously evaluate and refine your approach. A balanced fund combines equity stock component, a bond component and sometimes a money market component in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate, or higher equity, component, or conservative, or higher fixed-income, component orientation These funds invest in a mix of equities and debt, giving the investor the best of both worlds. Balanced funds gain from a healthy dose of equities but the debt portion fortifies them against any downturn. Balanced funds are suitable for a medium-term horizon and are ideal for investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts this type of mutual fund invests into each asset class usually must remain within a set minimum and maximum. Although they are in the “asset allocation” family, balanced fund portfolios do not materially change their asset mix. This is unlike life-cycle, target-date and actively managed asset-allocation funds, which make changes in response to an investor’s changing risk-return appetite and age or overall investment market conditions. Investors who have dual investment objectives favour Balanced Funds. Typically, retirees or investors with low risk tolerance prefer these funds for growth that outpaces inflation and income that supplements current needs. While retirees generally scale back risk as age advances, many individuals recognize the need for equity exposure as life expectancies increase. Equities prevent erosion of purchasing power and help ensure long-term preservation of retirement corpus Balanced funds provide investors with diversification. By diversifying the investment across different asset classes, the investor mitigates the risk that they will otherwise face if they’ve invested in a 100% equity fund or 100% bond fund. In a scenario where volatility occurs in one industry, a balanced fund portfolio will experience less fluctuation compared to a pure equity portfolio investing in the same industry. While a balanced fund does offer diversification, the securities selected and the weightings of each asset class may not be aligned with the holder’s investment goals. Balance funds, as the name suggests, balance your exposure to the debt and equity market by optimizing fund’s exposure between debt and equity market. For example, if a fund manager is optimistic about the future course of the market, and wants to benefit from the positive market outlook, he can increase his exposure in equity market, by allocating major part of his investment in equities. Stable and Consistent Returns- While equity returns are higher compared to other funds, the biggest drawback of these funds is that the returns are highly volatile. In other words, while the returns on equity funds may vary, balanced funds mostly have stable and consistent returns for a long period of time. Reduced risk- One of the biggest advantages of balanced funds is that they reduce your investment risk by balancing your exposure towards debt and equity. When investing in a balanced fund, you can optimize your exposure to equity and debt, so that when equity market becomes risky, you can chose to reduce your exposure by booking some profits and investing in debt instruments. They are not risk-less- Contrary to popular belief, balanced funds are not completely risk-less. Every balance fund has 50%-65% exposure to equity market. Such huge exposure itself is strong evidence that despite not being pure equity fund, balanced funds still have a risk factor. High Fee- Finally, the fee charged by a balanced fund is high compared to potential return received, since the team of fund managers and research analysts involved have to do the tough job of analysing both equity and debt market in order to optimize returns, the fund fee charged by balance funds is comparatively higher. Returns are lower than Equity Funds- While balance finds can be safer option to invest in stock market, the safety comes at a price. Most of the balanced funds usually under-perform equity mutual funds especially during bull market as a part of their fund still remains allocated to debt funds. This restricts balanced funds from taking full advantage of equity Bull Run and investors have no other option but to live with mediocre returns. As per cleartax.in, it has created a list of top balanced mutual funds for 2021, based on their performance in the past 5 years and 3 years of performance. Although I do not suggest you to look at past performance as the only factor for choosing a fund, still, it gives you a starting point to explore more about how these funds are managed and what stocks or bonds they hold? So, who should invest in balanced funds? Is it suitable for everyone? Well, since balanced funds are more focused towards safety of your capital, in my opinion, these funds are suitable for those investors that are new to the stock market and have little or no knowledge about investing. Secondly, those investors that are risk averse, and are close to retirement (let’s say 5-7 years), can invest in this fund. Balanced funds can be a great way to create wealth passively by investing in equity markets, while preventing overexposure, thus mitigating your risk in a highly volatile market. However, it’s also true that this safety comes at a cost of mediocre returns. Thus investors looking to invest in balanced funds should also analyse the behavior of the fund manager by looking at the how markets fared in the past and how the fund manager allocated capital to maximize return and minimize risk. In India taxation is divided in to two types Direct Tax and Indirect Tax. Taxes in India are levied by Central Government and State Government by virtue of powers conferred to them by Constitution of India. But do you know that all incomes are not taxable??? To know about such incomes where no tax is levied let us understand few concepts in detail. Tax Free Income is the income received that is not subject to income tax. These are tax exempted. Income may also be any property or services you receive apart from money. The tax free status of these goods, investments, and income may incentivize individuals and business entities to increase spending or investing. Every person with taxable income in India expects his tax to be saved. The following are the list of incomes that are tax free in India. Any amount which a policy holder or a nominee gets from the insurance company is tax free in India. These amount includes bonus amount too. This applies to certain insurance and its provisions defined under Section 10(10D). However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 15% of “actual capital sum assured” i.e., “minimum capital sum assured” under the policy on the happening of the insured event at any time during the term of the policy. Under section 80C premium paid to the extent of 15% of “actual capital sum assured” is exempt from tax. This is with respect to policies issued on or after 01.04.2013. Agriculture income is completely free from Income tax under section 10(1) of the Income Tax Act. Agriculture Income refers to: Salary is one of the primary motivating factors for any employee. It is the remuneration the employee receives for their work. Employees expect the company to pay the amount mutually agreed upon when they start working for the company. Components in Salary that are fully non-taxable or tax exempt are as follows: If the premium for medical insurance for the employee or his family members is borne by the company it is treated as tax free perquisite in the hands of the employee. Reimbursem*nt of telephone and internet bills is tax exempt. But there is no set limit and it is set at the company’s discretion. Employees need to provide bills to claim the tax benefit. Meal coupons like Sodexo are a popular tax saving perquisite offered by most employers in Indian Payroll Processing. These are tax-exempt, for a limit set at Rs.50 per meal. Assuming 22 working days and two meals per day during office hours, an amount of Rs.2200 per month is tax-free in the hands of the employee. Books, Journals and Periodicals which employees use to further their skills are also a tax free perk that can be offered by the employer. But the actual bills should be submitted. Here also the limit is set as per employer’s discretion. Tablets, Laptops, computers provided by the company are considered as tax free perks. If the company provides Medical facilities such as doctor checkups then they are tax free. Similarly memberships to sports or health clubs or facilities provided by workplace are also fully exempt from income tax. Gifts in Kind up to maximum Rs 5000 per year are not taxable in the hands of the employee. An individual who is member of a Hindu Undivided Family is not required to pay income tax on any receipts they receive. The HUF however has a separate income tax assessment and payment. If an individual is a partner of a firm, the profit shares the person owns in the total firm, income is exempted from the income tax, under section 10(2). Other sources of income of the partner or LLP or partnership firm receives including interest or remuneration are taxable. Gratuity is a benefit given by the employer to employees. Recently the Central government increased the maximum limit of gratuity. Now it is tax exempt up to Rs 20 lakhs from the previous ceiling of Rs 10 lakhs, which comes under Section 10(10) of the Income Tax Act. The exemption limit of Rs 20 lakh would be applicable to employees in the event of retirement or death or resignation or disablement on or after 29 March 2018. Covered by the Payment of Gratuity Act, 1972 Any death-cum-retirement gratuity is exempt from tax to the extent of least of the following: Note:Salary for this purpose means basic salary and dearness allowance. No. of days in a month for this purpose, shall be taken as 26. Not covered by the Payment of Gratuity Act, 1972 Any death cum retirement gratuity received by an employee on his retirement or his becoming incapacitated prior to such retirement or on his termination or any gratuity received by his widow, children or dependents on his death is exempt from tax to the extent of least of the following: PPF is one of the investment options under the EEE Category, so the investment amount interest and maturity amount are tax free. In Section 10 of Income Tax Act, the interest income you get from the PPF is exempt from Income Tax. Any amount you get from the maturity of PPF is also tax-free, provided the contributions were made for 5 consecutive years. For gifts no tax needs to be paid, including property, vehicles and Jewellery. However if you get these gifts from someone other than relative, the exemption limit is Rs 50000/- There is an exception to this rule when you get a gift for marriage, it becomes fully tax free, regardless of whether it is from a relative or friend. As per Section 10(17A) when the government, be it state or central, awards a monetary payment to you, you do not need to pay tax on it. This includes cash prize received along with state honours like the Bharat Ratna. If a person is awarded a scholarship for education from the government or even through non-government institutes, it is tax free. If you have invested in shares or equity mutual funds, then returns of Rs 1 lakh on selling them are tax free, This return is calculated under Long Term Capital Gain (LTCG). However returns above this amount attract LTCG tax. Instead of putting all of your money in one place, investing in a variety of securities is one of the safest strategies to prevent losses and maintain the health of your portfolio. Because of diversification, even if one of your investments performs poorly, your portfolio is not significantly impacted. The success of any investor depends on having a well-diversified portfolio. As an individual investor, you must understand how to choose an asset mix that best fits your unique investing objectives and risk tolerance. In other words, your portfolio should provide you with peace of mind while meeting your future cash needs. By using a systematic process, investors can build portfolios that are in line with their investment strategies. A portfolio is a collection of financial assets, such as securities, bonds, commodities, cash, and cash equivalents, such as closed-end funds and exchange-traded funds (ETFs). Most people think that a portfolio’s core consists of equities, bonds, and cash. Although this is frequently the case, it need not be the exception. Various types of assets, such as private investments, real estate, and fine art, may be included in a portfolio. The wisdom of diversification, which essentially means not putting all of your eggs in one basket, is one of the fundamental ideas in portfolio management. By distributing investments among different financial instruments, industries, and other categories, diversification aims to lower risk. By making investments in many sectors that would all respond differently to the same occurrence, it seeks to optimize returns. There are numerous ways to diversify. Robotic advisors are a less expensive option. They create and manage an investment portfolio for you while taking your risk tolerance and overall goals into consideration. The many types of investing accounts are numerous. Some, like IRAs, are designed for retirement and provide tax benefits for your investment capital. For non-retirement objectives, such as a down payment on a home, regular taxable brokerage accounts are preferable. If you need money and want to invest it within the next five years, a high-yield savings account might be a better option. Before selecting an account, think about what it is that you are investing for specifically. You must stock your portfolio with the actual items you intend to invest in after opening an investing account. Your individual risk tolerance is one of the most crucial factors to take into account when developing a portfolio. Your capacity for accepting investment losses in exchange for the chance of achieving larger investment returns is known as your risk tolerance. Your risk tolerance is influenced by a number of factors, including how long you have until you reach a financial objective like retirement and how you emotionally handle market fluctuations. If your target is many years away, you will have more time to weather the market’s highs and lows, allowing you to profit from the market’s overall upward trend. “Why are you investing? Why are your investments being made?” Your objectives may be to build a corpus, get married, go to school, start a family, plan for it, purchase a house or car, or just to save money on taxes. Ask yourself the following questions: Where, What, When, How, and Most Importantly, Why? Consider factors like how you anticipate this investment will benefit you long-term. Establish your time horizon and consider whether it aligns with your objectives, such as buying a home, getting married, having a child, paying for their education, buying their favorite car, your parents’ retirement, or even your own. Identifying your objectives and risk tolerance is the first step to effective investment. 2. A fundamental knowledge of the market You need to understand the fundamentals a little bit if you want to succeed in the financial markets. The performance of your portfolio would be much improved by having a basic understanding of the market. Prior to even starting to develop an investment portfolio, having a firm understanding of the capital markets is the first and most crucial step. Before attempting to build a portfolio using such knowledge, learn the basics of stock trading, how to invest in various asset classes depending on risk appetite, and other topics. Your decision as to where to invest and where not to will be aided by your understanding of the markets. 3. Ability to accept risk: All stock investments have some level of risk. The potential for a higher investment return is the reward for taking on risk. If you have a lengthy time horizon for your financial objective, strategically choosing riskier asset classes like stocks or bonds would likely yield a higher return than limiting your investments to safer assets like cash equivalents. Building an investing portfolio involves many important steps, one of which is assessing risk tolerance. Analyze the risk-reward ratio by carefully comparing the risk and the payoff. Think about the variables that will effect your risk, such as inflation, recession, decreases, shifting interest rates, and time horizon. 4. Keep your goals and risks in check. An investor might assist guard against substantial losses by including asset classes with investment returns that fluctuate in a portfolio under various market conditions. 5. Keep an emergency fund in place: Having enough money in a savings account to handle an emergency, such as unexpected unemployment, is essential. Some people make sure they have up to six months’ worth of salary in savings so they can be certain it will be available when they need it. 6. Increase your variety Instead of putting all of your money in one place, investing in a variety of securities is one of the safest strategies to prevent losses and maintain the health of your portfolio. Because of diversification, even if one of your investments performs poorly, your portfolio is not significantly impacted. 7. Conscious investment You must make consistent, disciplined investments in your portfolio to maintain a healthy one. If your income is steady, you ought to make portfolio investments as often as you can. These investments will enable you to reach financial independence even if you lose your work or retire because you won’t have a consistent source of income. 8. Keeping track of investments Monitoring the performance of your investments in the market on a regular basis is the best approach to manage your portfolio. Poor portfolio performance due to bad investments further leads to enormous losses. By keeping an eye on your assets, you may minimize your losses by identifying which ones have the potential to increase in value and which ones need to be sold right away to safeguard the performance of your portfolio. 9. Financial consultants Managing your portfolio is now essential if you have multiple investments. If you suspect your equity portfolio is in poor health, it’s never too late to speak with a financial advisor. A solid equity portfolio necessitates a fundamental comprehension of market trends and contributing elements. 10. Tax obligations Tax liabilities are a factor to be taken into account when managing a portfolio. Your wealth will increase more quickly with assets in a tax-deferred account than with investments in an account subject to taxes. You should think about investing in areas where you can reduce your taxable income and save taxes because you will have to pay taxes on the money you withdraw from your retirement fund account and other income. When it comes to creating an investment portfolio in India, you have many possibilities. Foreign investors’ interest in the nation has increased as a result of their ability to now access the stock exchange. This is a crucial step in learning how to make your money work for you. To ensure that you’re getting the most out of your investment, it’s also crucial to think about what you’re looking for in your investment portfolio. Investing in stocks based on the sector you want to invest in will be a fantastic choice for you if you want to maximize rewards while lowering risk. If not, bonds can be a better investment for you since they have higher yields and lower risk than stocks. Mutual Funds is one such financial instrument which helps in long term investment. In short, you will have some additional amounts apart from your regular savings in your account after your retirement. Well, nothing comes free of cost! Have you ever realized that whatever investments you are doing in Mutual Fund a percentage of it is getting deducted as a fee? Yes, This fee is known as Expense Ratio. Here we will make you understand what is Expense Ratio, Why it is important, Components of Mutual Fund Expense Ratio, How Does it impact fund return, Sebi Limits for Mutual Fund Expense Ratio and Expense Ratio Implications So Let us begin with The Mutual Fund Expense Ratio is the fee charged by mutual fund firms or exchange traded fund (ETF). This fee includes administration, portfolio management, marketing and more. It is usually percentage based. Value of the expense ratio depends on the size of the mutual fund. Expense Ratios have inverse relationship with the size of the respective mutual fund. Expense Ratio = Total Expenses/Total Assets of the Funds Where higher the asset lower will be the ratio and vice versa. Suppose there is Mutual Fund Company has Asset under Management worth Rs 4 Crores. In order to Manage the fund, Fund House charges fees for administration, management and distribution amounted to Rs 4,00,000/- The totalexpense ratiofor this fund would be calculated as below: Expense ratio= 5 lakhs/5 crores = 1% 1% is the amount of the totalassetsthat need to be paid out in order to manage the fund. The administrative Cost are the expenses incurred for running the fund. This includes keeping the records, customer support and service, information emails, and other way of communication. There are basically two plans in Mutual Funds- Direct or Regular. In case of Direct Mutual Funds do all transactions by themselves. Whereas in Regular Plan Asset Management Companies hire brokers for all transactions to be processed concerning the purchase and sale of the shares of the portfolio asset. There are Brokerage fees involved which is a part of Mutual Fund expense ratio. Mutual funds are governed by the Securities and Exchange Board of India. So there are frequent audits which helps in complying the rules and Regulations laid down by SEBI. Any cost associated with audits, registration, and transfers etc. are part of expense Ratio. The cost which are incurred for marketing, creating awareness and getting the mutual fund distributed are part of expense ratio. The cost component for intermediaries is lesser for direct funds and higher for regular funds. As we said in earlier point there is no broker involved in direct funds whereas in Regular funds there are Brokers and Distributors involved. So this shoots up the cost. 12B-1 fee are the fees which a fund manager collects from you and the other shareholders for advertisem*nts to get more investors. The larger the number of shares a company has under management, the less it costs them to advertise because the cost is divided among everyone. Generally 12B-1 fees covers two kinds of expenses: Mutual Fund Companies earlier used to charge a sum from investors as they enter the scheme. This fee is called load in general. Entry Load is cost paid when joining as an investor. But after August 2009, SEBI discontinued charging the entry load for mutual fund investments. When Mutual Fund Companies impose the price on investors at the time of exit or redemption of the mutual fund units held it is called Loan Exit Load. If an investor leaves the fund within earlier before certain period of time he will have to pay exit charge. The number of withdrawals from the mutual fund scheme can also be limited by this charge. Hence the fund managers will be in a better position of managing the funds and take investment decisions without the disruption of frequent redemptions. SEBI has set certain limit on Expense Ratio charged by Mutual Fund Companies in order to protect the interest of the investors. Effective from April 1, 2020 the TER limit is as follows :- Assets Under Management (AUM) Maximum TER as a percentage of daily net assets TER for Equity funds TER for Debt funds On the first Rs. 500 crores 2.25% 2.00% On the next Rs. 250 crores 2.00% 1.75% On the next Rs. 1,250 crores 1.75% 1.50% On the next Rs. 3,000 crores 1.60% 1.35% On the next Rs. 5,000 crores 1.50% 1.25% On the next Rs. 40,000 crores Total expense ratio reduction of 0.05%for every increase of Rs.5, 000 crores of daily net assets or part thereof. Total expense ratio reduction of 0.05%for every increase of Rs.5, 000 crores of daily net assets or part thereof. Above Rs. 50,000 crores 1.05% 0.80% In addition, mutual funds have been allowed to charge up to 30 bps more, if the new inflows from retail investors from beyond top 30 cities (B30) cities are at least (a) 30% of gross new inflows in the scheme or (b) 15% of the average assets under management (year to date) of the scheme, whichever is higher. This is essentially to encourage inflows into mutual funds from tier – 2 and tier – 3 cities. Thus, TER is an important parameter while selecting a mutual fund scheme. A Low expense Ratio would be considered as better because it helps save your returns and every penny is important for an investor. But in case if the expense ratio is high and at the same time you are getting a huge profit, then it is worth paying for the expenses also. So analysis is important. Till the time your investments are alive, there will expenses. The expense ratio value is prorated and charged on the investment amount on daily basis. Every day calculation ensures that the investor pays the fees till the time investment is alive. Yes, every investment done in Mutual fund has an expense ratio. The percentage of the charges might vary from company to company depending upon the nature of the fund . But the charges will be definitely levied. NAV is calculated after deducting the Expense Ratio. After deducting the expense ratio from the mutual fund on a particular day it is divided by the outstanding Units and NAV is thus determined for that day. Yes, of course! It is the cost at which one buys the mutual fund unit. Fluctuations in NAV help us to analyze the past performance of the fund. View Chapters Akansha and Abhijeet, both in their 20s, recently married and excited about planning their life together, heard about a free financial-planning seminar taking place at the local hotel. A local financial planner taught the seminar. One of his points was, "If you want to retire by the age of 65, you need to save at least 12 percent of your income every single year between now and retirement . . . the longer you wait to start saving, the more painful it’ll be." For the couple, the seminar was a wake-up call. On the drive home, they couldn’t stop thinking and talking about their finances and their future. They had big plans: They wanted to buy a home, they wanted to send the not-yet-born kiddies to college, and they definitely wanted to retire by age 65. And so it was resolved: A serious investment program must begin right away. Tomorrow, they'd fill out two applications for mutual fund companies that the financial planner had distributed to them. Within a week, they'd set up accounts in five different mutual funds at two firms. No more 3-percent-return bank savings accounts - the funds they chose had been returning 10 or more percent per year! Unlike most of their 20-something friends who didn't own funds or understand what funds were, they believed they were well on their way to realizing their dreams. Although I have to admire Akansha and Abhijeet's initiative (that's often the biggest hurdle to starting an investment program), I must point out the mistakes they made by investing the way they did. The funds themselves weren't poor choices - in fact, the funds they chose were solid: Each had competent managers, good historic performance, and reasonable fees The following points are the biggest mistakes they made: The single biggest mistake that mutual fund investors make is investing in funds before they're even ready to. It's like trying to build the walls of a house without a proper foundation. You have to get your financial ship in shape - sailing out of port with leaks in the hull is sure to lead to an early, unpleasant end to your journey. And you have to figure out what you're trying to accomplish with your investing. Some Important Point: A. Payoff Debt- Consumer debts include balances on such items as credit cards and auto loans. If you carry these types of debts, do not invest in mutual funds until these consumer debts are paid off. I realize that investing money may make you feel like you're making progress; paying off debt, on the other hand, just feels like you're treading water. Shatter this illusion. Paying credit card interest at 14 or 18 percent while making an investment that generates only an 8 percent return isn't even treading water; it's sinking. You won't be able to earn a consistently high enough rate of return in mutual funds to exceed the interest rate you're paying on consumer debt. Although some financial gurus claim that they can make you 15 to 20 percent per year, they can't - not year after year. Besides, in order to try and earn these high returns, you have to take great risk. If you have consumer debt and little savings, you're not in a position to take that much risk. Not only should you delay any investing until your consumer debts are paid off, but also you should seriously consider tapping into any existing savings (presuming you'd still have adequate emergency funds at your disposal) to pay off your debts. B. Figure out your financial goals- Mutual funds are goal-specific tools (, and humans are goal-driven animals, which is perhaps why the two make such a good match. Most people find that saving money is easier when they save with a purpose or goal in mind - even if their goal is as undefined as a "rainy day." Because mutual funds tend to be pretty specific in what they're designed to do, the more defined your goal, the more capable you are to make the most of your mutual fund money. Granted, your goals and needs will change over time, so these determinations don't have to be carved in stone. But unless you have a general idea of what you're going to do with the savings down the road, you won't really be able to thoughtfully choose suitable mutual funds. Common financial goals include saving for retirement, a home purchase, an emergency reserve, and stuff like that. Analyse Savings The vast majority of Indian's haven't a clue what their savings rate is. By savings rate, I mean, over a calendar year, how did your spending compare with your income? For example, if you earned Rs. 4,00,000 last year, and 3,80,000 of it got spent on taxes, food, clothing, rent, insurance, and other fun things, you saved Rs.20,000. Your savings rate then would be 5 percent (Rs20,000 of savings divided by your income of Rs.400000). If you already know that your rate is low, nonexistent, or negative, you can safely skip this step because you also already know that you need to save much more. But figuring out your savings rate can be a real eye-opener and wallet closer. To save more, reduce your spending, increase your income, or both. This isn't rocket science, but it's easier said than done. Think back over your investing career. You may not be a star money manager, but you've already made some investing decisions. For instance, leaving your excess money in a bank savings or checking account is a decision - it may indicate that you're afraid of volatile investments. How would you deal with an investment that dropped 10 to 50 percent in a year? Some of the more aggressive mutual funds that specialize in volatile securities like growth stocks, small company stocks, emerging market stocks, and long-term and low-quality bonds can quickly fall. If you can't stomach big waves in the financial markets, don't get in a small boat that you'll want to bail out of in a big storm. Selling after a big drop is the equivalent of jumping into the frothing sea at the peak of a pounding storm. You can invest in the riskier types of securities by selecting well-diversified mutual funds that mix a dash of riskier securities with a healthy helping of more stable investments. For example, you can purchase an international fund that invests the bulk of its money in companies of varying sizes in established economies and that has a small portion invested in riskier, emerging economies. That would be safer than investing the same chunk in a fund that invests solely in small companies that are just in emerging countries. Planning for retirement is essential to be able to live a comfortable life when you no longer earn a stable monthly income in the form of a salary. It is, therefore, prudent to invest a part of your salary in a retirement plan during your earning years for it to grow into a large retirement corpus. One such investment avenue aimed at retirement planning is the National Pension Scheme (NPS) launched by the Government of India. The NPS scheme is run and administered by the Pension Fund Regulatory and Development Authority (PFRDA). Citizens of India or Overseas Citizens of India (OCIs) can invest in the NPS scheme if they are aged between 18 and 70 yrs. NRIs can invest in the scheme provided they have a valid PAN card and a bank account in India. There are two types of NPS accounts – Tier I and Tier II account Particulars NPS Tier-I Acct NPS Tier-II Acct Status Default Voluntary Withdrawals Not permitted Permitted Min NPS contribution Rs 500 or RS 1,000p.a Rs 250 Max NPS contribution No limit No limit Tax exemption Up to Rs 2 lakh p.a (Under 80C and 80CCD) 1.5 lakh for govt. employees other employee “ none” Easy investment- Investing in the NPS scheme is relatively easy. You can invest online or offline either through PFRDA or through your bank. Many banks are authorised with PFRDA to allow NPS subscriptions. Moreover, the minimum investment amount is low and affordable, making the scheme suitable for every investor. Guaranteed lifelong pensions- The NPS scheme promises lifelong pensions. After the scheme matures, you have the option to withdraw up to 60% of the accumulated corpus in a lump sum. The remaining corpus is, then, used to pay pensions through investment returns from annuities. There are various pension options that you can choose from to customise the pension payments as per your requirements. Economical- NPS is one of the lowest cost investment products available. Portability- NPS account or PRAN will remain same irrespective of change in employment, city or state. Flexibility- the NPS scheme offers flexibility in switching, partial withdrawals, and loan facility. You can switch between the investment strategies as well as between the investment funds. Once three years are completed, you can make partial withdrawals. There is also a loan facility in NPS that you may avail of during your investment tenure. These flexible benefits help you manage your investments at your discretion. As a pension scheme, it is important for you to continue investing until the age of 60. However, if you have been investing for at least three years, you may withdraw up to 25% for certain purposes. These include children’s wedding or higher studies, building/buying a house or medical treatment of self/family, among others. You can make a withdrawal up to three times (with a gap of five years) in the entire tenure. These restrictions are only imposed on tier I accounts and not on tier II accounts. Please scroll down for more details on them. Contrary to common belief, you cannot withdraw the entire corpus of the NPS scheme after your retirement. You are compulsorily required to keep aside at least 40% of the corpus to receive a regular pension from a PFRDA-registered insurance firm. The remaining 60% is tax-free now. The latest update from the government says that the entire NPS withdrawal corpus is exempt from tax. public Provident Fund (PPF) and Tax-saving Fixed Deposits (FD). Here is how they are in comparison to the NPS: Investment Interest Lock-in period Risk profile NPS 8% to 10% (expected) Till retirement Market related risk PPF 8.1% (guaranteed) 15 yrs Risk free ELSS 12% to 15% (expected) 3 yrs Market related risk FD 7% to 9% (guaranteed) 5 yrs Risk free The NPS can earn higher returns than the PPF or FDs, but it is not as tax-efficient upon maturity. For instance, you can withdraw up to 60% of your accumulated amount from your NPS account. Out of this, 20% is taxable. Taxability on NPS withdrawal is subject to change. NPS scheme can be a tax-effective retirement planning tool. You can invest in the scheme and let the market-linked returns create an optimal corpus for retirement. On maturity, the pensions would give you regular incomes, and also a lump sum amount to address emergencies. Unlike stocks, bonds don’t give you ownership rights. They represent a loan from the buyer (you) to the issuer of the bond. A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debt holders, or creditors, of the issuer. A bond is a contract between the buyer and the investor, where the issuer borrows a specific amount of money and promises to repay it at a future date, known as the maturity date. Bonds are usually issued with a predetermined coupon rate, which calculates the interest payments made to bondholders. Bonds possess several key characteristics that make them unique investment instruments. These characteristics include: Face Value: The face value, principal amount, or par value represents the amount the issuer agrees to repay the bondholder upon maturity. It is the initial value of the bond and determines the interest payments. Tradable Bonds: Bonds can be traded in the secondary market before their maturity date. This allows investors to buy or sell bonds based on their investment strategies, market conditions, or changing financial needs. Interest or Coupon Rate: The interest rate, commonly called the coupon rate, is the fixed percentage of the bond’s face value that the issuer agrees to pay as interest over the bond’s tenure. The interest is usually paid semi-annually or annually. Tenure of Bonds: Bonds have a specified tenure or maturity period, which indicates the time until the issuer repays the principal amount to the bondholder. Maturities can range from months to years, offering investors flexibility in their investment horizon. Credit Quality: The credit quality of a bond refers to the buyer’s ability to meet its financial obligations and repay the bondholders. Credit rating agencies evaluate issuers and assign ratings to reflect their creditworthiness. Higher-rated bonds are considered less risky and generally offer lower yields, while lower-rated bonds carry higher risk but may offer higher returns. Government bond- A government bond or sovereign bond is an instrument of indebtedness issued by a national government to support government spending Corporate bond- Corporate bonds are issued by corporations and offer a higher yield relative to a government bond due to the higher risk of insolvency. A bond with a high credit rating will pay a lower interest rate because the credit quality indicates the lower default risk of the business. For example, if a company wants to build a new plant, it may issue bonds and pay a stated rate of interest to investors until the bond matures. The company also repays the original principal. Municipal bond- are issued when a government body wants to raise funds for projects such as infra-related, roads, airports, railway stations, schools, and so on. Municipal bonds can vary in term: Short-term bonds repay their principal in one to three years, while long-term bonds can take over ten years to mature. Fixed Returns on Investment- Fixed investment in Bonds yields regular interests at timely intervals. Also, once a bond matures, you receive the principal amount invested earlier. The best advantage of investing in Bonds is that the investors know exactly how many the returns will be. Less Risky- Although Bonds and stocks are both securities, the clear differences between the two are that the former matures in a specific period, while the latter typically remain outstanding indefinitely. Also, the bondholders are paid first over stockholders in case of liquidity. Less volatile- Investing in bonds is safer than the stock market, which also has several other risks. Although a bond’s value can fluctuate according to current interest rates or inflation rates, these are generally more stable compared when compared to stocks. Less liquid compared to stocks- Most major corporations may have high liquidity, but bonds issued by a smaller or less financially stable company may be less liquid as fewer investors are willing to buy them. Bonds with a very high face value will also be less liquid, but the companies with low face value won’t find any investors easily. Bankruptcy- Bondholders may lose much or all their investment in case a company goes bankrupt. In the economy such as the USA, bondholders are given much leverage and protection laws in case of bankruptcy. This means investors are expected to receive some or all of the invested money. But in many countries, there are no protections for investors. While bonds offer numerous benefits, they also have certain limitations that investors should consider: Before investing in bonds, it is essential to consider the following factors: New bonds: You can buy bonds during their initial bond offering via many online brokerage accounts. Secondary market: Your brokerage account may offer the option to purchase bonds on the secondary market. Mutual funds: You can buy shares of bond funds. These mutual funds typically purchase a variety of bonds under the umbrella of a particular strategy. These include long-term bond funds or high-yield corporate bonds, among many other strategies. Bond funds charge you management fees that compensate the fund’s portfolio managers. Bond ETFs: You can buy and sell shares of ETFs like stocks. Bond ETFs typically have lower fees than bond mutual funds. Investing in bonds is suitable for various individuals and organizations, including: Yield: The rate of return on the bond. While coupon is fixed, yield is variable and depends on a bond’s price in the secondary market and other factors. Yield can be expressed as current yield, yield to maturity and yield to call (more on those below). Maturity: The date that the bond expires, when the principal must be paid to the bondholder. Coupon Rate: The interest payments that the issuer makes to the bondholder. They are typically made semi-annually (every six months) but can vary. Duration risk: This is a measure of how a bond’s price might change as market interest rates fluctuate. Experts suggest that a bond will decrease 1% in price for every 1% increase in interest rates. The longer a bond’s duration, the higher exposure its price has to changes in interest rates. In conclusion, bonds serve as essential financial instruments in the Indian context, offering investors stability, regular income, and diversification benefits. Understanding the characteristics, risks, and avenues for investing in bonds is crucial for individuals looking to maximize their returns while managing their risk profile. Considering the factors discussed in this article, investors can make informed decisions and potentially enhance their investment portfolio. Mutual fund is a company that consolidates small amounts of money from many investors and invests the money in various financial instruments such as stocks, bonds, and short-term debt. The combined holding of a mutual fund is usually known as its portfolio. Investors can trade in mutual funds the same way they buy shares. Each share they purchase represents a investor’s ownership in the fund and the income it generates. Thus it is an investment vehicle where many investors pool their money to earn returns on their capital over a period. This corpus of funds is managed by an investment professional known as a fund manager or portfolio manager. It is his/her job to invest the corpus in different securities such as bonds, stocks, gold and other assets and seek to provide potential returns. The gains (or losses) on the investment are shared collectively by the investors in proportion to their contribution to the fund. Debt funds- Debt funds (also known as fixed income funds) invest in assets like government securities and corporate bonds. These funds aim to offer reasonable returns to the investor and are considered relatively less risky. These funds are ideal if you aim for a steady income and are averse to risk. Equity funds- In contrast to debt funds, equity funds invest your money in stocks. Capital appreciation is an important objective for these funds. But since the returns on equity funds are linked to market movements of stocks, these funds have a higher degree of risk. They are a good choice if you want to invest for long term goals such as retirement planning or buying a house as the level of risk comes down over time. Hybrid funds- What if you want equity as well as debt in your investment? Well, hybrid funds are the answer. Hybrid funds invest in a mix of both equity and fixed income securities. Based on the allocation between equity and debt (asset allocation), hybrid funds are further classified into various sub-categories. Growth funds- The main objective of growth funds is capital appreciation. These funds put a significant portion of the money in stocks. These funds can be relatively more risky due to high exposure to equity and hence it is good to invest in them for the long-term. But if you are nearing your goal, for example, you may want to avoid these funds. Income funds- As the name suggests, income funds try to provide investors with a stable income. These are debt funds that invest mostly in bonds, government securities and certificate of deposits, etc. They are suitable for different -term goals and for investors with a lower-risk appetite. Liquid funds- Liquid funds put money in short-term money market instruments like treasury bills, Certificate of Deposits (CDs), term deposits, commercial papers and so on. Liquid funds help to park your surplus money for a few days to a few months or create an emergency fund. Tax saving funds- Tax saving funds offer you tax benefits under Section 80C of the Income Tax Act. When you invest in these funds, you can claim deductions up to Rs 1.5 lakh each year. Equity Linked Saving Scheme (ELSS) is an example of tax saving funds. Open-ended mutual funds- Open-ended funds are mutual funds where an investor can invest on any business day. These funds are bought and sold at their net asset value (NAV). Open-ended funds are highly liquid because you can redeem your units from the fund on any business day at your convenience. Close-ended mutual funds- Close-ended funds come with a pre-defined maturity period. Investors can invest in the fund only when it is launched and can withdraw their money from the fund only at the time of maturity. These funds are listed just like shares in the stock market. However, they are not very liquid because trading volumes are very less. We may have heard the saying; “don’t put all your eggs in one basket”. This is a famous mantra to remember when you invest your money. When we invest only in a single asset, we could risk a loss if the market crashes. So we can avoid this problem by investing in different asset classes and diversifying portfolio. Mutual fund investors claim a tax deduction of up to Rs. 1.5 lakh by investing in equity linked saving schemes (ELSS). This tax benefit is eligible under section 80C of the income tax act. ELSS funds come with lock-in period of 3 years. (We can discuss lock0in period in next point) hence, if we invest in ELSS funds, you can only withdraw money after the lock-in period over. Other tax benefit is indexation benefit available on debt funds. In case of traditional products, all interest earned is subject to tax. one of the biggest mutual fund benefits is that have the opportunity to earn potentially higher returns than traditional investment options offering assured returns. This is because the return on mutual funds is linked to the market performance. So, if the market is on a bull run and it does exceedingly well, the impact would be reflected in the value of your fund. So, poor performance in the market could negatively impact your investments. Mutual funds are actively managed by a professional who constantly monitors the fund’s portfolio. In addition, the manager can devote more time selecting investments than a retail investor would. Investors buy mutual fund shares from the fund itself or through a broker for the fund, rather than from other investors. The price that investors pay for the mutual fund is the funds per share net asset value plus any fees charged at the time of purchase, such as sales loads. Mutual fund shares are “redeemable,” meaning investors can sell the shares back to the fund at any time. The fund usually must send you the payment within seven days. Before buying shares in a mutual fund, read the prospectus carefully. The prospectus contains information about the mutual fund’s investment objectives, risks, performance, and expenses. Investing in mutual funds is one of the simplest ways to achieve your financial goals on time. But before you invest, take an adequate amount of time to go through the different fund options. Don’t invest in a fund because your colleague or friend has invested in it. Identify your goals and invest accordingly. If required, you can approach a financial advisor to help you make the right investment decisions and plan your financial journey. Note: SIP should not be construed as promise on minimum returns and/or safeguard of capital. SIP does not assure any protection against losses in declining market conditions. The process of obtaining an asset with the goal of creating money from it’s called investment. The expansion within the asset’s value over time is understood as appreciation. When an asset is purchased for investment purposes, the investor doesn’t keep it. Instead, the investor will put it to good use to form money. The first goal of investing is to get an asset today and sell it at a greater price later. In the market, there are many alternative styles of assets to decide on from. All differs in terms of the returns it provides, the extent of risk it entails, the duration of the investment, taxation, and whether the returns are guaranteed, or market linked. There are several styles of investments available within the market, which we’ve got divided into three groups. They really are: Investing in fixed income: These investments provide a gradual stream of income within the kind of interest. These are investments with an occasional probability of failure. Some of the simplest fixed-income investments are listed here. Investing within the stock market: Market related investments are those who don’t provide a guarantee of returns and are subject to plug fluctuations. These investments are considered high-risk. When the market rises, though, the returns on these investments are likewise high. Other investments are people who don’t fall within the categories of fixed income or market-linked investments. Alternative investments are another name for them. Banks and financial organizations frequently provide fixed deposits, also referred to as FDs. FDs are the foremost popular investment form in India because they supply assured returns. They may be hired for anywhere from seven days to 10 years. The interest rates on fixed deposits range from 3% to 7%. Senior citizens also are given a better rate of interest on their FD deposits. The rate of interest on a bank account is not up to the rate on a hard and fast deposit. Interest is paid monthly, quarterly, half-yearly, annually, or at maturity, according to the investor’s preference. Bonds are fixed-income products that pay investors a hard and fast rate of interest in exchange for his or her money. Investors lend money to the government and corporations in exchange for normal interest payments. Borrowers who raise money publicly or privately for various projects are referred to as bond issuers. A bond could be a financial instrument that contains information on the rate of interest, the date, the due date, and the terms of the bond. Bondholders are paid the complete amount when the bond matures (upon maturity). Investors can potentially earn by selling the bond before it matures on the secondary market at the next price. The Public Provident Fund is one in all the National Savings Institute’s post office savings programmes. Some private and government-owned banks, however, are permitted to just accept PPF investments. The scheme’s returns are assured because it’s backed by the Indian government. As a result, they’re thought to be low-risk investments. Additionally, PPF investments have a 15-year lock-in term. Additionally, if the investor wants to increase the program, they will do so in 5-year increments. Additionally, one might invest in PPF to avoid wasting money on taxes. A stock investment is observed as an equity investment. Purchasing stocks or shares entitles investors to some of the company’s ownership. Stocks are purchased with the goal of generating regular income within the variety of dividends additionally as capital appreciation. Investors can exploit selling shares as stock prices climb. Mutual funds are financial entities that combine money from multiple individuals to speculate in a very sort of assets, including equities and debt. An open-end fund deliberately invests in stocks, government bonds, corporate bonds, and other assets. The open-end investment company is managed by a portfolio manager or fund manager appointed by the fund house. The exchange-traded fund (ETF) could be a kind of passive investment that tries to match the performance of the underlying index. In other words, an ETF’s portfolio closely resembles the makeup of an Index. An exchange-traded fund (ETF) replicates and follows the index’s performance. As a result, ETFs aren’t managed by a portfolio manager. In addition, exchange-traded funds don’t try to outperform their underlying index. The National Pension Scheme (NPS) could be a retirement savings plan. NPS may be a good option for those that desire a steady income after retirement while still saving money on taxes. Because they’re backed by the government, they’re considered low-risk investments. After retirement, the scheme allows the investor to withdraw a percentage of the accrued funds. For Indians, gold has always been a go-to asset or investment. It’s also a highly emotional and socially asset. Purchasing gold coins, bars, biscuits, and jewellery on auspicious days has been a long-standing custom in India. An object with such emotive worth has gained popularity in a variety of ways. Gold bonds and gold ETFs, for example, have recently gained appeal. Gold is used as a hedge to safeguard one’s investment portfolio from market risk. Investing in gold does not yield a consistent stream of income in the form of dividends or interest. It is, however, a very liquid asset that can provide returns that outperform inflation. Real estate investing entails the acquisition, ownership, and management of physical assets. To put it another way, any investment in land, a building, a plant, a property, or anything else is termed a real estate investment. The primary goal of real estate investing is to either sell the asset at a better price in the future or to create consistent income through rent. Land and property prices do not fluctuate significantly in the short term. As a result, investors with long-term objectives should choose real estate. Before investing in real estate, investors should exercise caution and conduct market research, as well as having the seller’s documents validated by legal specialists. In the fast-paced realm of financial markets, the term “High Wave” resonates as a distinctive phenomenon that demands the attention of investors. A High Wave is characterized by periods of pronounced market volatility, where asset prices experience significant and sometimes unpredictable fluctuations. Unlike more commonly discussed market trends like bull or bear markets, High Waves presents unique challenges and opportunities. In this article, we will explore the intricacies of High Waves in finance, delving into their definition, significance, and factors contributing to their occurrence. Understanding High Waves is pivotal for investors aspiring to successfully navigate the dynamic landscape of financial markets. As we embark on this journey, we will unravel the complexities surrounding High Waves, examining historical patterns, investment strategies, and the role of technology in adapting to these waves. Join us in deciphering the seas of financial markets and uncovering strategies to help you survive and thrive in the face of high tides. Understanding High Waves in Finance Market Trends Historical Analysis Factors Influencing High Waves Investment Strategies Risk Management Identifying Opportunities Challenges and Risks Volatility Market Corrections Economic Factors Diversification Monitoring Trends Long-Term Perspective The Role of Technology Fintech Innovations Analytical Tools Automation in Trading Misinterpretation of High Waves Addressing Myths Individual Investments Retirement Planning Financial Security In conclusion, navigating the tumultuous waters of “High Waves” in finance requires a nuanced approach that combines strategic planning, adaptability, and a deep understanding of market dynamics. The significance of High Waves lies in the challenges they pose and the opportunities they present for those who can ride the waves with skill and resilience. Successful strategies involve: Technology, including fintech innovations and analytical tools, emerges as a crucial ally in this journey, providing investors the means to navigate High Waves with precision and efficiency. Dispelling common misconceptions and addressing the impact on personal finances, from individual investments to retirement planning and overall financial security, completes the comprehensive picture of managing through market turbulence. Embracing High Waves becomes a necessity and an opportunity for growth and financial success when approached with knowledge, adaptability, and a commitment to long-term financial goals. Are you worried about the complexities of tax planning in India? Worry not because this comprehensive guide will help you through the details of tax planning in India. From understanding the basics of income tax to identifying the best investment options, we’ve got you covered. So, without further ado, let’s get started! Tax planning is the process of managing one’s finances in a way that minimizes your liability. It is a legal way of maximizing your savings by taking advantage of various tax deductions and exemptions provided by the government. By effectively planning your taxes, you can save significant money to achieve your financial goals. Before we dive into tax planning strategies, it’s essential to understand the basics of income tax in India. Income tax is the tax imposed on the income earned by individuals and entities in India. The income tax rate depends on the income slab. The current income tax slab rates for individuals are: Income Slab Tax Rate Up to Rs. 2.5 lakhs Nil Rs. 2.5 lakhs to Rs. 5 lakhs 5% Rs. 5 lakhs to Rs. 7.5 lakhs 10% Rs. 7.5 lakhs to Rs. 10 lakhs 15% Rs. 10 lakhs to Rs. 12.5 lakhs 20% Rs. 12.5 lakhs to Rs. 15 lakhs 25% Above Rs. 15 lakhs 30% Apart from the income tax, individuals must also pay other taxes like Goods and Services Tax (GST), Wealth Tax, etc. Tax planning minimizes tax liability by taking advantage of various tax-saving opportunities. Tax planning aims not to evade taxes but to legally minimize tax liability by utilizing various deductions, exemptions, and other tax-saving options. Effective tax planning can help you achieve your financial goals by maximizing your savings and reducing tax liability. Whether you’re an individual taxpayer, a business owner, a senior citizen, or an NRI, tax planning plays a critical role in managing your finances in India. Optimizing your tax strategy enables you to achieve your financial goals more quickly and efficiently. Tax planning is the process of organizing your financials in a way as to minimize your tax liability. It involves analyzing your income, expenses, and investments to find ways to reduce your tax burden. Tax planning is not a one-time event but a continuous process that requires ongoing evaluation and adjustments based on changing tax laws and your circ*mstances. Tax planning can be done at different levels, such as individual, corporate, and estate tax planning. Each level of tax planning has its unique strategies and considerations. For example, individual tax planning may involve maximizing deductions, taking advantage of tax-deferred investment options, and managing capital gains and losses. Corporate tax planning may involve using tax credits and incentives, optimizing depreciation schedules, and managing transfer pricing. Estate tax planning may involve gifting, trust planning, and using life insurance. In India, tax planning is an important aspect of financial planning, especially since the tax system is complex and various tax-saving options are available. Income Tax Act of 1961 gives a range of deductions and exemptions that can be used to reduce tax liability. Tax planning is beneficial for minimizing taxes and achieving your goals, such as saving for retirement, purchasing a home, or funding your child’s education. Several advantages of tax planning can benefit individuals and businesses in India. Here are some of the main advantages: Individuals and businesses in India can use several types of tax planning to minimize their tax liability and achieve their financial goals. Following are some types of tax planning: Getting started with tax planning can seem overwhelming, but with some basic steps, you can begin to take control of your finances and minimize your tax liability. With these steps, you can get started with tax planning and take control of your financial future. Remember to consult with a tax professional and consider the long-term financial implications of any tax planning strategy. Investing in tax-saving options can minimize your tax liability and maximize your savings. Here are some effective tax-saving strategies that you can follow: Section 80C of Income Tax Act, 1961, lets taxpayers to claim deductions up to Rs 1.5 lakhs on investments made in various schemes such as: By investing in these schemes, you save taxes and earn returns on your investments. Section 80D of Income Tax Act of 1961 allows taxpayers to claim deductions on health insurance premiums paid for themselves and their dependents. The maximum deduction under this section is Rs 25,000; for senior citizens, it is Rs 50,000. By investing in health insurance, you not only save taxes but also ensure that you and your family are protected against unforeseen medical expenses. Section 80E of Income Tax Act of 1961 lets taxpayers to claim deductions on the interest paid on education loans. This deduction is available for a maximum of eight years from when the loan is taken. By taking an education loan and claiming deductions under Section 80E, you save taxes and invest in your or your dependent’s education. As a salaried employee, one can claim exemptions on House Rent Allowance (HRA) received from your employer. The exemption amount is calculated based on the rent paid, HRA received, and the city of residence. You can reduce your taxable income and save taxes by claiming an HRA exemption. Apart from the tax-saving options mentioned above, there are several other exemptions and deductions that you can claim, such as: Using these exemptions and deductions, you can save taxes and maximize your savings. Tax saving is an important part of financial planning. Investing in tax-saving options and claiming exemptions and deductions can reduce your tax liability and maximize your savings. Remember to plan your taxes and invest in tax-saving schemes to save money on taxes. View Chapters So what is a bond? Let me try to explain with an analogy. If a money market fund is like a savings account, then a bond is similar to a certificate of deposit (CD). With a five-year CD, for example, a bank agrees to pay you a predetermined annual rate of interest - such as, say, 4.5 percent. If all goes according to plan, at the end of five years of earning the 4.5 percent interest, you get back the principal that you originally invested. Bonds work about the same way, only instead of banks issuing them, corporations or governments issue them. For example, you can purchase a bond, scheduled to mature five years from now, from a company such as Reliance. A Reliance five-year bond may pay you, say, 6 percent. As long as Reliance, doesn't have a financial catastrophe, after five years of receiving interest payments (also known as the coupon rate) on the bond, Reliance returns your original investment to you (Note: Zero coupon bonds pay no interest but are sold at a discounted price to make up for it.) The worst that can happen to your bond investment is that, if Reliance filed bankruptcy, then you may not get back any of your original investment, let alone the remaining interest. Bond funds aren't as complicated and unique as people, but they're certainly more complex than money market funds. However, after you know four key facts about bond funds - maturity, credit rating, the different entities that issue bonds, and, therefore, the tax consequences on those bonds - you can put the four together to understand how mutual fund companies came up with so many different types of bond funds. For example, you can buy a corporate intermediate-term high-yield (junk) bond fund, or a long-term municipal bond fund. Maturity: Counting the years until you get your principal back In everyday conversation, maturity refers to that quiet, blessed state of grace and wisdom that you develop as you get older (ahem). But that's not the kind of maturity we are talking about here. Maturity, as it applies to bonds, simply refers to when the bond pays you back - it could be next year, 5 years from now, 30 years from now, or longer. Maturity is the most important variable by which bonds, and therefore bond funds are differentiated and categorized. You should care plenty about how long a bond takes to mature because a bond's maturity gives you a good (although far from perfect) sense of how volatile a bond will be if interest rates change. As bond prices and interest rates are inversely related. If interest rates fall, bond prices rise. Bond funds are portfolios of dozens - and in some cases hundreds - of individual bonds. You won't need to know the maturity of every bond in a bond mutual fund. A useful summarizing statistic to know for a bond fund is the average maturity of its bonds. Bond funds usually lump themselves into one of three maturity categories: The above definitions aren't hard and fast. One long-term bond fund may have an average maturity of 14 years while another may have an average of 25 years. You can run into problems when one intermediate-term fund starts bragging that its returns are better than another’s. It's the old story of comparing apples to oranges. When you find out that the braggart fund has an average maturity of 12 years and the other fund has a maturity of 7, then you know that the 12-year fund is using the "intermediate-term" label to make misleading comparisons. The fact is, a fund with bonds maturing on average in 12 years should be generating higher returns than a fund with bonds maturing on average in 7 years. The 12-year fund is also more volatile when interest rates change. The greater risk associated with longer-term bonds, which suffer price declines greater than do short-term bonds when interest rates rise, often comes with greater compensation in the form of higher yields. Most of the time, longer-term bonds pay higher yields than do short-term bonds. Duration- Measuring interest rate risk If you're trying to determine the sensitivity of bonds and bond funds to changes in interest rates, duration may be a more useful statistic than maturity. A bond fund with a duration of ten years means that if interest rates rise by 1 percent, then the value of the bond fund should drop by 10 percent. (Conversely, if rates fall 1 percent, the fund should rise 10 percent.) Trying to use average maturities to determine what impact a 1 percent rise or fall in interest rates will have on bond prices forces you to slog through all sorts of ugly calculations. Duration is no fuss, no muss - and it gives you one big advantage, too. Besides saving on number crunching, duration enables you to compare funds of differing maturities. If a long-term bond fund has a duration of, say, 12 years, and an intermediate fund has a duration of 6 years, the long-term fund should be about twice as volatile to changes in interest rates. Although duration is easier to work with and a better indicator than average maturity, you're more likely to hear about average maturity because a fund's duration isn't that easy to understand. Mathematically, it represents the point at which a bondholder receives half (50 percent) of the present value of her total expected payments (interest plus payoff of principal at maturity) from a bond. Present value adjusts future payments to reflect changes in the cost of living. If you know a bond fund's duration, which you can obtain from the fund company behind the bond fund you're interested in, you know almost all you need to know about its sensitivity to interest rates. However, duration hasn't been a foolproof indicator: As interest rates have risen, some funds have dropped more than the funds' durations predicted. Credit quality: Determining whether a bond fund is dependable Bond funds also differ from one another in terms of the creditworthiness of the bonds that they hold. That’s just a fancy way of saying, "Hey, are they gonna stiff me or what?" Every year, bondholders get left holding nothing but the bag for billions of rupees when their bonds default. You can avoid this fiasco by purchasing bonds that are unlikely to default, otherwise known as high-credit-quality bonds. Credit rating agencies - Moody's, Standard & Poor's, Duff & Phelps, and so on - rate bonds based on credit quality and likelihood of default. The credit rating of a security depends on the company's (or the government entity's) ability to pay back its debt. Bond credit ratings are usually done on some sort of a letter-grade scale: For example, in one rating system, AAA is the highest rating, with ratings descending through AA and A, followed by BBB, BB, B, CCC, CC, C, and so on. Funds that mostly invest in: AAA and AA rated bonds are considered to be high-grade or high-creditquality bond funds; bonds of this type have little chance of default. These bonds are considered to be investment quality bonds. A and BBB rated bonds are considered to be general bond funds (moderate-credit-quality). Like AAA and AA rated bonds, these bonds are known as investment quality bonds. BB or lower rated bonds are known as junk bond funds (or by their more marketable name, high-yield funds). These funds expect to suffer more defaults - perhaps as many as a couple of percent of the total value of the bonds per year or more. Unrated bonds have no credit rating because they haven't been analyzed or evaluated by a rating agency. Lower-quality bonds are able to attract bond investors by paying them a higher interest rate. The lower the credit quality of a fund's holdings, the higher the yield you can expect a fund to pay (to hopefully more than offset the effect of potential defaults). Issuer: Knowing Who You're Lending To Bonds also differ according to which type of entity is issuing them. Here are the major options: Investing in bonds is a time-honored way to earn a better rate of return on money that you don't plan to use within at least the next couple of years. As with other mutual funds, bond funds are completely liquid on a day's notice, but generally one should view them as longer-term investments. Because their value fluctuates, you're more likely to lose money if you're forced to sell the bond fund sooner rather than later. In the short term, the bond market can bounce every which way; in the longer term, you're more likely to receive your money back with interest. Don't invest your emergency money in bond funds - use a money market fund instead. You could receive less money from a bond fund (and could even lose money) if you need it in an emergency. You also shouldn't put too much of your longer-term investment money in bond funds. With the exception of those rare periods when interest rates drop significantly, bond funds won't produce the high returns that growth-oriented investments such as stocks, real estate, and your own business can. Some common financial goals to which bond funds are well suited: View Chapters Insurance is not a necessity but it acts as a shield to tackle difficult situations. One might think that why insurance is needed when we are healthy, young , have multiple source of income. But this might not be case every time. There can be situations when in spite of having money in your account you cannot utilize it during an emergency. Taking an insurance policy helps out to overcome these difficulties. No humans can see their future. Unexpected emergencies can turn up any time such as accidents, illness and even death can leave family members facing financial stress. In such cases insured person can make their future secured by taking insurance policies. Retirement means a stage of life where a person have to stop going to job for earning income. At this age the person either quits the job aur gets retired and enjoys family life. During this time as all the sources of income have stopped taking insurance policy will be helpful. Insurance companies provides multiple options where one can earn pension like income after retirement. There are several insurance policies such as money back guarantee which helps to inculcate savings habit by investing. Instead of paying the amount at the time of maturity money back policies start to pay the investor within few years of investment. Another important reason for taking insurance is it gives peace of mind. Damages incurred due to unfortunate reasons get paid by the insurance companies. At the time of hospitalization insurance companies pays the amount one pays to the hospitals. Thus it helps during the time of crisis. Insurance is a financial instrument in which the losses incurred are distributed over a large group making it bearable for each individual. Business incur a huge loss and it becomes extremely costly for business to bounce back after the major loss of inventory. When insurance companies compensate for such losses it helps the business to achieve financial stability and bounce back easily. Insurance companies pool a large amount of money of which a part of amount is invested to support investment activities by the government. Due to safety concerns insurers invest in gilts or government securities . Insurance is often a long term contract especially life insurance. Life insurance plans can continue for three decades and by this period a large amount gets accumulated which is paid back on maturity to the insured if he survives or else it goes to the nominee. Payments received from life insurance is tax free if your investments have met few simple conditions. Also premium amount paid gets tax benefit under section 80C. Thus insurance reduces tax liability in the present and the future. Insurance plans like guaranteed savings plans and ULIP’s are some of the best retirement savings options available. Present life might be stable and there will be a steady income inflow but future is unpredictable. If saved today future could be secured and long term goals such as retirement and hospital expenses could be saved through insurance policies. The insurance companies transfer the risk of an individual to themselves by signing the contract but for doing this they charge premium. Now is the premium decided?? The insurance companies asks certain questions to its customers through which they evaluate the risk of the individual. For example if the age of the person is above 70, he or she is already under high risk of disease due to old age. Now for such cases the insurance companies charge very high premium. If the details shared at the time of taking policy are not correct, the insurance companies may refuse to make payment to the policy holder. This whole process is called underwriting. Underwriters are experts employed by the insurer to carry out this task. If you observe you are not paying the entire sum assured amount to the insurance company. The premium amount is less than the sum assured but still the insurance companies manage to pay your sum assured at the time of emergency. How is this possible?? The insurance companies afford to pay them because it receives premium from many customers and insurance companies operate on the principle of shared risk. All the customers pay certain amount as premium and this amount gets pooled up at the insurance company. Thus when one of the customer needs money that too large amount the company pays the amount from this collected amount. The insurance company sets premium in such a way that it receives money from all its customers to cover the damage as well as they earn the profit also. Insurance companies consider that if they have lot of policies in any particular area where natural disasters such as flood, earthquake occur frequently and the customers will definitely ask for claim in such cases the insurance companies pass on the risk to other large financial firms that offer re-insurance, meaning they protect themselves for the worst case scenario. The large firms take some extra risk from the insurance company that holds the policies and in return it pays for the services. For major natural disasters, the re-insurance companies pay for the damages incurred instead of the local insurance companies from where the policy was taken. Insurance companies over time receives lot of amount as premiums and have to occasionally pay out large amounts. Before paying out for the damages the insurance companies may already have surplus amount which they invest in funds which have less risk and generate substantial income from the investment. Discover the world of callable bonds and how they can be valuable investments. Learn what callable bonds are, how they work, how to value them, and their advantages and disadvantages. Dive into different types of callable bonds and their relationship with interest rates. Callable bonds, also known as redeemable bonds, are a type of fixed-income security that grants the issuer the right to redeem or call back the bonds before their maturity date. These bonds provide flexibility to the issuer, allowing them to take advantage of market conditions or lower interest rates. Understanding callable bonds is crucial as an investor, as it empowers you to make informed investment decisions. A callable bond is a fixed-income security that gives the issuer the right to redeem it before maturity. This allows the issuer to retire the debt to take advantage of lower interest rates or other favorable market conditions. Callable bonds typically have a call price, the price at which the issuer can redeem the bond, and a call date, the earliest date the issuer can exercise the call option. Understanding the Mechanics Callable bonds function similarly to traditional bonds, with the critical difference being the issuer’s ability to call them back. When an issuer exercises the call option, they effectively terminate the bond, returning the principal to the bondholders. The call price is typically set at a premium to the bond’s face value to compensate bondholders for the potential loss of future interest payments. Investors should be aware that callable bonds introduce reinvestment risk. If the issuer calls back the bond, investors must find alternative investment opportunities for their capital, which may offer a different return or risk profile. Unveiling the Valuation Process Valuing callable bonds requires consideration of both their present value and potential call features. The formula to find the value of a callable bond involves: The formula to find the value of a callable bond is as follows: CallableBondValue=PV(CouponPayments)+PV(PrincipalPayment)−PV(CallPrice)−PV(CallOptionPremium) It’s important to note that valuing callable bonds can be complex due to the uncertainty surrounding the call date and call price. Professional investors often utilize sophisticated financial models to accurately assess the fair value of callable bonds. One example of a callable bond is the ICICI Bank Callable Bonds. ICICI Bank, one of India’s leading private sector banks, has issued callable bonds to raise capital from investors. These bonds offer investors an attractive interest rate and allow the bank to manage its debt obligations. Let’s look at the features of the ICICI Bank callable bonds: Suppose you decide to invest in these callable bonds. After five years, if ICICI Bank chooses to exercise the call option, it can redeem the bonds at the call price ofINR 1,050. As an investor, you will receive the face value of INR 1,000 plus the accrued interest up to the call date. However, your future interest payments will cease if the bonds are called back. It’s crucial to note that the terms and conditions of callable bonds may vary from issuer to issuer. Investors interested in callable bonds should carefully review the offering documents and consult financial advisors before making investment decisions. Callable bonds like the ICICI Bank Callable Bonds allow investors in India to earn attractive returns while giving issuers the flexibility to manage their debt obligations effectively. Variations to Suit Diverse Needs Callable bonds come in various forms, offering different terms and conditions to suit the needs of issuers and investors. Some common types include: The type of callable bond chosen depends on the issuer’s intentions and the preferences of potential investors. A Dynamic Relationship Interest rates influence the value and attractiveness of callable bonds. Consider the following pointers to understand their relationship: Weighing the Pros and Cons Like any investment instrument, callable bonds have their advantages and disadvantages. Consider the following points when evaluating callable bonds: Embrace the Potential of Callable Bonds Callable bonds allow issuers and investors to navigate the dynamic world of fixed-income securities. Understanding how callable bonds work, their valuation and the advantages and disadvantages they offer can empower you to make informed investment decisions. Stay informed, consider your risk appetite, and explore the benefits of callable bonds in your portfolio. Fixed deposits are term deposits that you keep with the bank for a specific or fixed period of time. You can invest any amount for as little as a few days to as long as ten years. During this period, you earn a guaranteed interest applicable for the tenure as the rate increases with an increase in tenure. 1] Because the interest rates on FDs are fixed, the rewards on them are are too. 2] Since FD interest rates do not change during the tenure, the return will be constant throughout the tenure of the deposit 3] Profits are unaffected by market conditions. 4] There is no risk because the returns are guaranteed and the money invested is secure. 5] There are no fees associated with investing. 6] Interest on FDs is taxed according to the investor’s tax bracket. 7] Can be utilised to save money on taxes under Section 80C; however, there is a 5-year lock-in period. A mutual fund is a shared pool of funds into which individual participants contribute their individual contributions. These pooled funds are subsequently invested in accordance with a defined objective, which is also the fund objective. Debt, equity, and balanced mutual funds are the three categories of mutual funds. Debt funds engage primarily in fixed-income securities such as government and corporate bonds, whereas equity funds invest primarily in market-related instruments, and balanced funds incorporate the two. a} Because mutual funds do not have a set rate, their returns might vary. b} Because there are no fixed rates, returns will vary; they may be high, low, or even negative at times. c} Profits are determined by market conditions. d} There is risk associated while investing in mutual funds; the degree of risk varies depending on the type of MF. e} There are some expenditures and costs associated with investing in mutual funds. f} Mutual funds are taxed dependent on how long they have been held. The investor may be subject to short-term or long-term capital gains tax, depending on the time period. g} An equity-linked savings plan can help you save money on taxes; the lock-in period is three years. 1] A person who is unwilling to risk their money in the market. 2] An individual with taxable income can invest in a fixed deposit (FD). 3] An individual who is retired and wishes to have a steady source of income might apply for FD plans. 4] A housekeeper with a reasonable amount of money can examine numerous FDs and invest in one that best suits their needs. a) Anyone who wants to attain a short or long-term financial goal; b) Anyone who wants to earn greater returns than a traditional savings account; c) Anyone who wants to diversify his or her investment portfolio. Before investing in a fixed deposit or mutual fund, knowing and understanding all of the features, benefits, restrictions, risk considerations, short- and long-term financial objectives, liquidity, and other aspects is important. After you’ve compared the basic differences between FDs and mutual funds, compare different banks, asset management firms, and fund houses in terms of services, fund management techniques, and so on. Understanding market circ*mstances and personal requirements is the final step before choosing the optimal investment vehicle. You can select the ideal mix for you based on your objectives and risk tolerance. Because of their distinct advantages, both products can find a place in your portfolio. Whether you choose to invest in a fixed deposit or mutual funds, it’s critical to understand the product’s features and fine print before making a decision. View Chapters Establishing realistic financial goals is an essential first step toward successful investing. Understanding the investments best suited to helping you achieve your goals is equally important. Most people invest to meet long-term goals, such as ensuring a secure retirement or paying for a child's college education, but many also have more immediate goals, like making a down payment on a home or automobile. A Mutual Fund is a trust that collects money from investors who share a common financial goal, and invest the proceeds in different asset classes, as defined by the investment objective. Simply put, mutual fund is a financial intermediary, set up with an objective to professionally manage the money pooled from the investors at large. By pooling money together in a mutual fund, investors can enjoy economies of scale and can purchase stocks or bonds at a much lower trading costs compared to direct investing in capital markets. The other advantages are diversification, stock and bond selection by experts, low costs, convenience and flexibility. An investor in a mutual fund scheme receives units which are in accordance with the quantum of money invested by him. These units represent an investor's proportionate ownership into the assets of a scheme and his liability in case of loss to the fund is limited to the extent of amount invested by him. The pooling of resources is the biggest strength for mutual funds. The relatively lower amounts required for investing into a mutual fund scheme enables small retail investors to enjoy the benefits of professional money management and lends access to different markets, which they otherwise may not be able to access. The investment experts who invest the pooled money on behalf of investors of the scheme are known as 'Fund Managers'. These fund managers take the investment decisions pertaining to the selection of securities and the proportion of investments to be made into them. However, these decisions are governed by certain guidelines which are decided by the investment objective(s), investment pattern of the scheme and are subject to regulatory restrictions. It is this investment objective and investment pattern which also guides the investor in choosing the right fund for his investment purpose. Today, there are a variety of schemes offered by mutual funds in India, which cater to different categories of investors to suit different financial objectives e.g. some schemes may provide capital protection for the risk-averse investor, whereas some other schemes may provide for capital appreciation by investing in mid or small cap segment of the equity market for the more aggressive investor The diversity in investment objectives and mandates has helped to classify and sub-classify the schemes accordingly. The broad classification can be done at the asset class levels. Thus we have Equity Funds, Bond Funds, Liquid Funds, Balanced Funds, Gilt Funds etc. These can be further sub-classified into different categories like mid cap funds, small cap funds, sector funds, index funds etc. There are three basic types of mutual funds-stock (also called equity), bond, and money market. Stock mutual funds invest primarily in shares of stock listed on the Indian Stock Exchanges. Bond mutual funds invest primarily in bonds. Money market mutual funds invest mainly in short-term securities issued by the government and its agencies, companies, and state and local governments. Mutual funds make saving and investing simple, accessible, and affordable. The advantages of mutual funds include professional management, diversification, variety, liquidity, affordability, convenience, and ease of recordkeeping-as well as strict government regulation and full disclosure. Professional Management- Even under the best of market conditions, it takes an astute, experienced investor to choose investments correctly, and a further commitment of time to continually monitor those investments. With mutual funds, experienced professionals manage a portfolio of securities for you full-time, and decide which securities to buy and sell based on extensive research. A fund is usually managed by an individual or a team choosing investments that best match the fund's objectives. As economic conditions change, the managers often adjust the mix of the fund's investments to ensure it continues to meet the fund's objectives Diversification- Successful investors know that diversifying their investments can help reduce the adverse impact of a single investment. Mutual funds introduce diversification to your investment portfolio automatically by holding a wide variety of securities. Moreover, since you pool your assets with those of other investors, a mutual fund allows you to obtain a more diversified portfolio than you would probably be able to comfortably manage on your own-and at a fraction of the cost. Variety Within the broad categories of stock, bond, and money market funds, you can choose among a variety of investment approaches. Low Costs Mutual funds usually hold dozens or even hundreds of securities like stocks and bonds. The primary way you pay for this service is through a fee that is based on the total value of your account. Because the fund industry consists of hundreds of competing firms and thousands of funds, the actual level of fees can vary. But for most investors, mutual funds provide professional management and diversification at a fraction of the cost of making such investments independently. Liquidity It is the ability to readily access your money in an investment. Mutual fund shares are liquid investments that can be sold on any business day. Mutual funds are required by law to buy, or redeem, shares each business day. The price per share at which you can redeem shares is known as the fund's net asset value (NAV). NAV is the current market value of all the fund's assets, minus liabilities, divided by the total number of outstanding shares Convenience You can purchase or sell fund shares directly from a fund or through a broker, financial planner, bank or insurance agent, by mail, over the telephone, and increasingly by personal computer. You can also arrange for automatic reinvestment or periodic distribution of the dividends and capital gains paid by the fund. Funds may offer a wide variety of other services, including monthly or quarterly account statements, tax information, and 24-hour phone and computer access to fund and account information. Market Value of a Fund's Assets (including income and other earnings)= (Rs.60,00,000) View Chapters 3.1 Steps To Invest In Stock Market One cannot buy or sell directly on the stock market. For this, one needs to approach brokers who are authorized to trade on the market or stock brokerage companies that allow you to trade using their platform. The process is simple: One cannot buy or sell directly on the stock market. For this, one needs to approach brokers who are authorized to trade on the market or stock brokerage companies that allow you to trade using their platform. The process is simple: The key financial instruments traded on the stock market are: Issued by companies,equity sharesentitle you to receive a claim to any profits paid by the company in the form of dividends. Shares are the most popular financial product of the stock exchange. When you buy shares of a company, you are actually taking a partial stake in that company and becoming a shareholder of the company. Share prices fluctuate every moment. Profits and losses are determined by this fluctuation. 2. Bonds: Issued by companies and governments, bonds represent loans made by the investor to the issuer. These are issued at a fixed interest rate for a fixed tenure. Hence, they are also known as debt instruments or fixed income instruments. The government or companies issue bonds to raise money. In fact, by buying a bond, you are in a way lending to the issuer. The issuer pays you interest for this loan. Bonds are considered a safe investment option as they offer a fixed rate of interest to the investors. Bonds are also called fixed income securities because of their fixed income. 3. Mutual Funds (MFs): Issued and operated by financial institutions, MFs are vehicles to pool money which is then invested in different financial instruments. Profit from the investments is distributed between the investors in proportion to the number of units or investments they hold. These are called “actively” managed products where a fund manager takes calls on what to buy and sell on your behalf to generate better returns than the benchmark Mutual funds invest money in various assets such as equities, money markets, bonds, and other financial instruments by raising money from multiple investors. In this, your portfolio is managed by the fund manager, whose job is to provide high returns to the investors. Mutual funds can be a good option for new investors and those who have little knowledge of the stock market. 4. Exchange Traded Funds (ETFs): Increasingly gaining popularity, ETFs essentially track an index like the NIFTY or the SENSEX. Once you buy a unit of the ETF, you hold a part of the 50 stocks in the NIFTY in the same weightage that the NIFTY holds them. These are called “passive” products, which are typically much lower in cost than MFs and give you the same risk or return profile as the index. 5. Derivatives: A derivative derives its value from the performance of an underlying asset or asset class. These derivatives can be commodities, currencies, stocks, bonds, market indices and interest rates. A derivative is a contract between two parties. In derivatives, the investor contracts to buy or sell an asset on a specific day and at a specific rate. This asset can include shares, currencies, commodities, etc. Derivatives are also used for gold and oil. There are basically four types of derivatives – futures options, forwards, and swaps. 6. Currency Currencies are bought and sold in the currency market i.e., forex market. Currency trading involves banks, companies, central banks, investment management firms, brokers, and general investors. In currency trading, transactions always happen in pairs. For example, USD/INR rate means how many rupees it will take to buy one US dollar. You can trade currency through exchanges like BSE, NSE, or MCX-SX. 7. Commodity Commodities include trading in everyday items like agricultural products, energy, and metals. The best way to invest in commodities is through futures contracts. These are contracts that facilitate the purchase or sale of goods at a specified price at some future date. Trading in commodities is riskier for inexperienced investors. Trading can be done through other exchanges including Multi Commodity Exchange, National Commodity, and Derivatives Exchange. 3.4 Different Types of Stocks to Invest When researching stocks or MFs, you will come across the term “market cap”. Market cap or market capitalization is the value of 100% of the company. Put simply, if say a company’s market cap is INR 10,000 crore, it means that is how much money it would cost you to buy all the shares of the company. Based on the market capitalization, three types of stocks categorisation exists. It is important to know this because many mutual funds and ETFs are classified based on the market caps they focus on. SEBI defines large caps as the top 100 stocks by market cap. These companies are some of the largest in the country by revenue, are well-established and are usually market leaders in their respective industries. These are seen as least risky but may not grow as fast as mid or small cap stocks. But they may offer higher dividends and a safe capital reserve in the long term. 2. Mid cap stocks: SEBI defines mid caps as stocks ranked top 101-250 by market cap. This usually implies companies with a market cap in a range between INR 8,000 to INR 25,000 crore. These companies are smaller than large caps, capable of higher growth and the potential to disrupt a large company or grow into large cap company. They are considered riskier than large caps but less risky compared to small caps. 3. Small cap stocks: All stocks ranked top 251 and below by market cap are considered small caps by SEBI. These are stocks from small companies and are often highly volatile. Compared to the other two, these are seen as quite risky but have the potential for higher returns.Small cap stocksare also less “liquid”, which means that there aren’t as many buyers and sellers for these stocks as for large caps. Apart from market cap, stocks are categorized by the industry, how much dividend they pay, how quickly they are growing, among others. Risk appetite is the amount of risk that you can withstand. Several factors influencing risk appetite include the timeline of investment, age, goal and capital. Another key variable to keep in mind is your current liabilities. For example, if you are the sole earning member of your family then you will be less inclined to take risks. Here, maybe you’ll have more debt, large cap stocks, in your portfolio. On the other hand, if you are younger, with no dependents, you may have a high risk appetite. This may allow you higher exposure to equities vs. debt. Even within equities, you may be able to invest in more small caps, which are higher risk stocks. The starting point is to make a choice keeping in mind that risk and reward go hand in hand. Now that you have aDemat account, you need to allocate funds for regular investment. Set a personal budget, track your expenses, and see how much you can set aside. The best way to invest in the market is to use a SystematicInvestment Plan (SIP). A SIP is investing the same amount of money every month in, say, a mutual fund. This allows you to average the different market levels you come in at, maintain good investing habits and slowly increase your investments as you gain confidence. The basic rule for building any portfolio is to invest in a diverse range of assets. This is because it minimizes the impact if a certain asset performs badly. Diversification extends within the asset class, industry, and cycles. It may be tempting to park all your money in an industry that is in an upward swing. But it is always better to distribute between industries, balancing market cap exposure, and offset the risk of equity shares with stable, but lower return bonds. Finally, use SIPs to make sure you have invested in securities across different market cycles. 4. Rebalance your portfolio As your priorities change with time, your portfolio must also change to reflect this. You must rebalance your portfolio every couple of quarters to make sure you are not over or underexposed to any one stock or asset class. This is also necessary as you grow older and your priorities change. For instance, you may want to lower your risks when you start a family or when you are nearing retirement age. Private banking involves providing banking, investment, tax management, and other financial services to high-net-worth individuals (HNWIs). Unlike mass-market retail banking, private banking focuses on providing more personalized financial services to its clients, through banking personnel specifically dedicated to providing such individual services. Private banking includes common financial services like checking and savings accounts, but with a more personalized approach: A “relationship manager” or “private banker” is assigned to each customer to handle all matters. The private banker handles everything from involved tasks, like arranging a jumbo mortgage, to the mundane like paying bills. However, private banking goes beyond CDs and safe deposit boxes to address a client’s entire financial situation. Specialized services include investment strategy and financial planning advice, portfolio management, customized financing options, retirement planning, and passing wealth on to future generations. While an individual may be able to conduct some private banking with $50,000 or less in investable assets, most financial institutions set a benchmark of six figures’ worth of assets, and some exclusive entities only accept clients with at least $1 million to invest. Private banking is built on personal relationships between high-net-worth individuals and their advisors or relationship managers. However, since the financial crisis, private banking’s experienced a high turnover rate. It is partly due to the more restrictive regulatory framework. Banks now focus more intently on talent recruitment, training, and increasingly on retaining the most qualified professionals. Some of the steps that banks have taken to improve retention rates among their private banking staff include better compensation packages, incentive programs, and developing and launching succession programs for banking relationship managers. High-net-worth individuals are attracted to the culture of privacy in private banking because it offers them the ability to conceal personal information that, if publicly known, might give their business rivals an undue advantage. They may also simply have a desire to keep their personal financial dealings as private as possible. HNWIs are sometimes subjected to lawsuits involving their investments. Keeping such information confidential gives them a greater sense of security. It is possible because, due to their extensive resources, wealthy clients can get exclusive access to investment vehicles such as top-performing hedge funds, through their affiliation with the bank. The client also gets professional advice from an experienced investment professional on the best investment options offering a high rate of return. Limited Product Offerings- In terms of investments, a client might be limited to the bank’s proprietary products. Also, while the various legal, tax, and investment services offered by the bank are doubtlessly competent, they may not be as creative or as expert as those offered by other professionals that specialize in various types of investments. For example, small regional banks might provide stellar service that beats out the larger institutions. However, the investment choices at a smaller, regional bank might be far less than a major player such as JPMorgan Chase & Company (JPM). Bank Employee Turnover- Employee turnover rates at banks tend to be high, even in the elite private banking divisions. There may also be some concern over conflicts of interest and loyalty: The private banker is compensated by the financial institution, not the client—in contrast to an independent money manager. Private banking and wealth management are closely related but differ in the kind of services they offer. Wealth management involves taking into account the client’s risk tolerance levels and investing assets according to their financial goals. Private banking, on the other hand, involves providing personalized financial and banking services to high net worth individuals. The bank assigns specific staff members in the private banking division to manage client accounts. Private banking differs from wealth management in that private banking does not necessarily involve investing a client’s assets for them. Private bankers manage the client’s account, handling everything from cashing a check, to transferring large volumes of cash between accounts, to making payments on behalf of the client. Although they advise their clients on possible investment options, private bankers typically do not actually make or manage investments for their clients (although in some instances they may – usually just as a courtesy service for the client). Private bankers basically provide whatever financial services a client desires. If that includes making and managing investments for a client, then the private banker will do so. Zero coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount the investor will receive when the bond “matures” or comes due. So that’s how you profit: the difference between that initial discounted price, and what you collect when the bond comes due. The biggest benefit of zero-coupon bonds is their reliability. If you keep the bond to maturity, you will essentially be guaranteed a sizable return on your investment. However, the maturity dates on zero coupon bonds are usually long-term—many don’t mature for ten, fifteen, or more years. Thus, these are ideal for people who would require funds at a specific period of time in the future like children’s education or retirement or a planned tour. Also, if you are not interested in watching the market trends and like the comfort of the ‘invest and forget’ strategy, then you can consider zero coupon bonds. If your investment portfolio primarily consists of growth investments and you are looking to add diversity to it, then zero coupon bonds can help you secure a guaranteed return for a fixed time period. For example, a zero-coupon bond with a face value of Rs.20,000 that matures in 20 years with an interest rate of 5.5% might sell for around Rs.7,000. At maturity, two decades later, the investor will receive a lump-sum payment of Rs.20,000 — a Rs.13,000 return on investment. Here, the profit comes from interest that compounds automatically until the bond matures. Risk Involved Zero coupon bonds are subject to interest rates risk if sold prior to the date of maturity. The value of this bond is inversely related to the rise in the interest rates; with rising in interest rates there is a decline in the value of these bonds in the secondary market. The sensitivity of long-term zero-coupon bonds to interest rates exposes them to duration risk. This means that higher a bond’s duration, the greater will be its sensitivity to interest rate changes. Note: Duration risk is the risk that is associated with the sensitivity of a bond’s price to one percent change in the rate of interest. Advantages Of Zero Coupon Bond They often have higher interest rates than other bonds- Since zero-coupon bonds do not provide regular interest payments, their issuers must find a way to make them more attractive to investors. As a result, these bonds often come with higher yields than traditional bonds. They offer a predictable payout- The other big advantage of zero-coupon bonds is their predictability. If these bonds are held to maturity, you’re guaranteed a return of the full face value. Plus, you’ll have gotten a deal: paying less now for more later. Have you ever thought of making more money other than your Savings in your Bank Account? Also you want some sort of guidance or someone who will professionally manage your money and provide you good returns. Now such amounts which provides you additional income other than your regular savings are called Investments. Mutual Funds are companies who does this work for you. Mutual fund Company is a trust that collects money from the investors who share a common investment objective and invests the same in equities, bonds, money instruments, and other securities. The income gained from this collective investment is distributed proportionately amongst the investors after deducting all expenses by calculating the schemes Net Asset Value. Mutual Funds are ideal for those investors who not have large amount of investments and also do not have time to do a proper market research. The money collected by the mutual fund company is invested by the professional fund managers in line with the scheme’s stated objectives. The fund house charges a small fee which is deducted from the investment. The fees charged are regulated and are subject to certain limits specified by Securities and Exchange Board of India. India is one of the countries where savings rate is high. Indian investors have moved out of traditional culture where investments meant only Fixed Deposits and Saving Bank Accounts. But still many people are unaware about the mutual fund and its investment schemes. Investing in Mutual funds involves one of the easiest investment processes making these investments flexible, transparent and reliable for the investors. One can invest in mutual funds in either of the following ways Offline Mode As we are in the digital world, most of them prefer to invest online mode only as it is fast and simple process. However those who wish to opt for offline Mode can follow the following steps Online Mode To invest through a mobile application, you must- For example if someone cannot take risk with your investments, it would be better to invest in debt mutual funds as they involve lesser risk. On the other hand, if you have a higher risk appetite, equity mutual funds should be your choice If someone is investing for your own retirement, you should invest in long term equity funds that generate higher returns in the long term. If your purpose of investment is tosave on your tax payments, you may choose to invest in mutual funds such as ELSS that will help you save up to Rs.1.5 Lakh per year under Section 80C of the Income Tax Act. It is important to note that you must check the fund’s last 3 to 5 year trailing returns, its NAV and AUM in order to get an idea of the number of investors of the given fund. It is important to ensure that the fund has maintainedconsistencyover a long period of time. The management of your funds makes you liable to pay certain expenses explained as below- Mutual funds allow investors to reap inflation-beating returns with the help of a diversified portfolio of stocks and/or bonds. Mutual Funds allow investors to start investing with an amount as low as Rs. 500, along with the facility of professional management of funds. No wonder Mutual Funds have become one of the most popular investment instruments today. A front-end load, or sales charge, is a fee investor pay when purchasing mutual funds or other investment products. It is a percentage of the total investment amount and is deducted upfront at the time of purchase. This article will explore the concept of front-end load, its advantages, and disadvantages, and whether it is a suitable investment option. Before we dive into front-end load, let’s understand the concept of a “load” in the investment world. Simply put, a load is a fee that mutual funds or other investment companies levy for various reasons, such as sales commissions, marketing costs, and administrative expenses. Loads are categorized into two types: Front End Load and Back End Load (also known as a redemption fee or deferred sales charge). Front End Load is the fee for purchasing mutual funds or other investment products. It is called a “front end” load because it is deducted upfront from the initial investment amount. The percentage charged as a front-end load can vary depending on the mutual fund or investment company. For example, a mutual fund with a 5% front-end load will deduct INR 50 for every INR 1,000 invested. To better understand Front End Load, let’s explore its basics and how it works. Front End Load primarily compensates financial advisors or brokers who sell mutual funds to investors. The load acts as a commission for the advisor, incentivizing them to recommend and sell specific funds. It is important to note that Front End Load is not the only cost of investing in mutual funds. Investors also need to consider other expenses, such as management fees and operating expenses. Front-End Loads play a significant role in the mutual fund industry. Here are some key points to understand: Front-End Load compensation is an important aspect to consider when investing in mutual funds. Here’s how it typically works: Let’s look at an example of Front-End Load in the context of the Indian mutual fund industry. ABC Mutual Fund offers a front-end load of 2% on its equity fund. If an investor purchases units worth INR 100,000, a 2% front-end load of INR 2,000 will be deducted. As a result, the investor’s actual investment in the fund will be INR 98,000. Despite the upfront cost, there are certain advantages to investing in Front-End Load funds: Front-End Load funds also have some drawbacks that investors should consider: Investing in Front End Load mutual funds depends on your investment goals, time horizon, and risk tolerance. Here are some points to consider: While Front End Load is charged at the time of purchase, Back End Load (a redemption fee) is set when investors sell or redeem their mutual fund shares. The main difference between the two is the timing of the fee. Front End Load is deducted upfront, whereas Back End Load is imposed when the investor exits the fund. Back End Load is typically used to discourage early withdrawals and incentivize long-term investment. Front End Load is essential to understand when considering mutual fund investments. It is a sales charge deducted upfront at purchase and used to compensate financial advisors or brokers. Front-End Load funds have advantages such as professional advice and potentially lower expense ratios, but they also come with disadvantages like upfront costs and limited flexibility. Ultimately, investing in Front End Load funds should be based on your individual investment goals, risk tolerance, and evaluation of available options. Risk is an inherent part of the financial world. Whether investing in stocks, bonds, or other assets, understanding your risk tolerance is crucial for making informed decisions. This comprehensive guide will delve deep into risk tolerance and its significance in finance. Risk tolerance refers to your willingness and capacity to withstand the fluctuations and uncertainties in your investments without panicking or making impulsive decisions. It is a fundamental factor that shapes your investment strategy. Understanding risk tolerance is a pivotal aspect of making sound financial decisions. It profoundly impacts your investment strategy and can significantly influence your economic well-being. Let’s explore why risk tolerance is of such great importance: One of the critical roles of risk tolerance is crafting a diversified portfolio. Diversification involves spreading investments across various asset classes, such as stocks, bonds, and real estate. Doing so can minimize the risk of a significant loss in any one investment. For instance, if you have a high-risk tolerance, you might lean towards a more aggressive investment approach, whereas a lower risk tolerance might lead you to opt for a more conservative, stable investment mix. 2. Matching Risk Tolerance to Investment Investment choices should always align with your risk tolerance. Aggressive investors, who are comfortable with higher levels of risk, may favor high-risk, high-reward investment options like stocks. On the other hand, conservative investors with a lower risk tolerance often choose lower-risk investments, such as bonds or fixed-income assets. Matching your risk tolerance to your investments helps ensure your portfolio is in sync with your comfort level. 3. Assessing Your Risk Tolerance Assessing your risk tolerance is a critical step in shaping your investment strategy. It involves carefully examining various factors that influence your comfort level with risk. Let’s delve into how to evaluate your risk tolerance effectively: Several factors can influence your risk tolerance. Understanding these factors is essential in determining the level of risk you’re comfortable with in your investments: Age is a significant factor that affects your risk tolerance. Typically, younger investors tend to have higher risk tolerance. This is because they have more time to recover from losses and can afford to take more significant risks in pursuit of higher returns. On the other hand, as individuals near retirement age, risk tolerance often decreases as they seek to preserve their accumulated wealth. 2. Financial Goals Your financial goals also play a crucial role in determining your risk tolerance. Are you saving for retirement, a down payment on a house, or your child’s education? Short-term financial goals may require a more conservative approach to minimize risk, while long-term goals may allow for a higher tolerance for risk in pursuit of potentially higher rewards. 3. Time Horizon The time horizon of your investments is another essential factor. If you have a long time horizon, you can ride out market volatility and recover from losses, making you more tolerant of risk. Conversely, a lower risk tolerance may be more appropriate if your investment horizon is short. 4. Risk Tolerance Questionnaire Many financial advisors use a risk tolerance questionnaire to assess your risk tolerance more precisely. This tool typically consists of questions designed to gauge your comfort level with risk and help tailor your investment strategy accordingly. It considers investment goals, time horizons, and willingness to endure market fluctuations. 5. Managing Risk Effectively Once you’ve assessed your risk tolerance, the next crucial step is to manage risk effectively in your investments. Effective risk management is vital to achieving your financial goals while maintaining peace of mind. Let’s explore critical strategies for managing risk in your financial endeavors: 6. Diversification Diversification is one of the most widely recognized risk management strategies. It involves spreading investments across a variety of assets and sectors. Doing so reduces the risk of a significant loss in any single investment. Diversification can be achieved through investments in stocks, bonds, real estate, and other financial instruments. When one sector experiences a downturn, other areas of your portfolio may remain stable or even perform well, helping to mitigate overall risk. 7. Asset Allocation Asset allocation, determining the right mix of assets within your portfolio. Your asset allocation should align with your risk tolerance, financial goals, and investment time horizon. A well-thought-out asset allocation can help you balance risk and return. For example, if you have a higher risk tolerance, you may allocate a more significant portion of your portfolio to stocks with the potential for higher returns and volatility. If you have a lower risk tolerance, you might lean more toward bonds, which are generally less volatile. 8.Regular Reviews Financial markets are dynamic, and your financial situation can change over time. Periodic reviews of your investments ensure they align with your risk tolerance and financial objectives. You can regularly assess your portfolio and make adjustments as needed. If your risk tolerance has changed or your investment goals have evolved, your asset allocation may require modification to maintain an appropriate balance. 9. Professional Guidance If you’d like advice from a financial advisor or investment professional, that would be great. They can provide valuable insights and expertise, helping you navigate the complexities of risk management. A professional can assist in crafting an investment strategy that aligns with risk tolerance, financial goals, and the ever-changing financial landscape. Conclusion Understanding risk tolerance is a fundamental step in successful financial planning. It lets you make informed investment decisions aligning with your goals and emotional comfort. Remember that risk is inherent in finance, but you can navigate it effectively with the right strategies. Finance can be a complex field with a myriad of terms and concepts. One such term that often perplexes people is “Lock-In.” In this comprehensive article, we’ll delve deep into Lock-In, providing insights based on firsthand knowledge and credible sources. We aim to demystify this concept and equip you with a clear understanding. So, let’s unlock the secrets of Lock-In in finance! Lock-in is a financial term that refers to a binding commitment or agreement with specific terms and conditions. It is often associated with investments, loans, or insurance policies. When you enter a Lock-In agreement, you agree to abide by the specified terms for a predetermined period. Lock in period is a financial term that refers to a binding commitment or agreement with specific terms and conditions. It is often associated with investments, loans, or insurance policies. Let’s break down the key features of Lock-In to provide a comprehensive understanding: Lock-in can manifest in various forms, each tailored to the specific financial product it governs. Understanding these different types can help you make informed financial decisions. Investment Lock-Inis a common form found in various financial instruments such as mutual funds, fixed deposits, and retirement accounts. The purpose of this Lock-In is to encourage long-term commitment to an investment. Here’s how it works: Mortgage Lock-Inis prevalent in the realm of home loans. When you take out a mortgage, you may encounter this type of Lock-In. Here’s what you should know: Insurance Lock-Inis associated with insurance policies that encourage policyholders to maintain their policies for a specific duration. Here’s how it works: Some employment contracts include Lock-In clauses that require employees to stay with the company for a specified period. Here’s what you should be aware of: Finance can be a complex field with a myriad of terms and concepts. One such term that often perplexes people is “Lock-In.” In this comprehensive article, we’ll delve deep into Lock-In, providing insights based on firsthand knowledge and credible sources. We aim to demystify this concept and equip you with a clear understanding. So, let’s unlock the secrets of Lock-In in finance! Lock-in is a financial term that refers to a binding commitment or agreement with specific terms and conditions. It is often associated with investments, loans, or insurance policies. When you enter a Lock-In agreement, you agree to abide by the specified terms for a predetermined period. Key Features of Lock-In Lock-in is a financial term that refers to a binding commitment or agreement with specific terms and conditions. It is often associated with investments, loans, or insurance policies. Let’s break down the key features of Lock-In to provide a comprehensive understanding: Lock-in can manifest in various forms, each tailored to the specific financial product it governs. Understanding these different types can help you make informed financial decisions. Investment Lock-Inis a common form found in various financial instruments such as mutual funds, fixed deposits, and retirement accounts. The purpose of this Lock-In is to encourage long-term commitment to an investment. Here’s how it works: Mortgage Lock-Inis prevalent in the realm of home loans. When you take out a mortgage, you may encounter this type of Lock-In. Here’s what you should know: Insurance Lock-Inis associated with insurance policies that encourage policyholders to maintain their policies for a specific duration. Here’s how it works: Some employment contracts include Lock-In clauses that require employees to stay with the company for a specified period. Here’s what you should be aware of: Lock-in agreements in the world of finance come with both advantages and disadvantages. It’s crucial to weigh these pros and cons when considering whether to enter such commitments. Advantages: Disadvantages: In conclusion, Lock-In is a vital concept in finance, offering both stability and restrictions. Whether you’re considering investments, loans, or insurance policies, understanding Lock-In is crucial. This article has provided a comprehensive guide to help you navigate the intricate terrain of Lock-In agreements. By grasping the ins and outs of Lock-In, you can make informed financial decisions that align with your goals. BUDGET 2023-24 has cheered up Indian Industry Leaders and have hailed it as “prudent”, “positive” and “progressive”. The Budget has a clear vision with 7 Priorities or Saptrishi as India enters in the “Amrit Kaal”. The modifications under the new tax regime has provided relief to common man which will certainly boost consumption. The overall perspective of the BUDGET 2023-24 is positive and includes great optimism at every stages for economic growth. This is the year where Finance Minister Mrs. Nirmala Sitharaman has used many of the Sanskrit terms like “Shree Anna”, “Panchamrit” and many more which makes this budget unique on its own. PART A The word Amrit Kaal was coined by Prime Minister Mr. Narendra Modi in the year 2021 during the festivities of 75th Independence Day. While announcing a new blue print for India’s next 25 years, PM Modi used this phrase. Amrit Kaal has a goal of improving quality of life for Indian habitants and close development gap between rural and urban areas. The term “Amrit Kaal” comes from Vedic astrology. It refers to a crucial period when humans enjoy greater pleasure. It means the most fortunate time to begin any work. BUDGET 2023-24 was presented by Smt. Nirmala Sitharaman, the Union Minister for Finance and Corporate Affairs. While presenting the budget she emphasized that Indian economy is on the right track and despite challenges it is heading towards a bright future. Finance Minister said that this Budget hopes to build on the foundation laid in the previous budget and the blueprint drawn for India@100. This Budget envisions a prosperous and inclusive India, in which the fruits of development will be enjoyed by all the citizens, especially youth, women, farmers, OBCs, Scheduled Caste and Scheduled Tribes. While presenting the Budget, Mrs. Nirmala Sitharaman also said that during the nine years of the government, Indian economy has increased in size from being 10th to 5th largest in the world. India has significantly improved its position as a well governed and innovative country with a conducive environment for business. India has now a rising profile due to several accomplishments like World Class Digital Public Infrastructure namely Aadhaar, Co-win and UPI; Covid-19 vaccination drive, proactive roles in frontier areas such as achieving the climate related goal, mission LiFE, and National Hydrogen Mission. She Also Pointed Out Certain Points Mentioned Below Before Beginning The Budget The Amrit Kaal Budget has three vision for Empowered and Inclusive Economy The Amrit Kaal Budget includes technology driven and knowledge based economy with strong public finances and a robust financial sector and to achieve this, Jan Bhagidhari through Sabka Sath Sabka Prayas is essential. This can be achieved through the three visions mentioned above that is Opportunities for citizens with focus on youth, Growth in Job creation, Strong and Stable Macro Economic Environment The Finance Minister also discussed about the four opportunities that be utilized during Amrit Kaal which are as follows BUDGET 2023-24 has 7 major priorities known as Saptrishi which are listed below So the Saptrishi can be described in following way “IF YOU GRIP” I – INCLUSIVE DEVELOPMENT F- FINANCIAL SECTOR YOU- YOUTH POWER G -GREEN GROWTH R -REACHING THE LAST MILE I -INFRASTRUCTURE AND INVESTMENT P – UNLEASHING THE POTENTIAL Inclusive Development projects include benefits such as Farmers, Women, Youth, Scheduled Castes, Scheduled Tribes, and Other Backward Classes such as OBC, Divyangjan (PWD) and economically weaker Sections (EWS) are specifically covered in Inclusive Development. Overall priority for the underprivileged and sustained focus on Union Territory of Jammu and Kashmir and Ladakh and the North East Region is also included. It has two prolonged strategy which was first unveiled in 2019 like Incentivizing the private sector thus creating jobs and pushing growth and “Minimum Government, Maximum Governance” increasing capex and raising more revenues via disinvestment , There are three categories which is included in Inclusive Development –Sabka Saath Sabka Vikas Credit Guarantee Scheme: In 2022, the credit guarantee scheme for MSMEs was revamped and will take effect from 1st April 2023 through infusion of Rs 9000 crore in the corpus. This will enable additional collateral free guaranteed credit of Rs 2 lakh crore. The cost of credit will be reduced by about 1%. Financial Information Registry: A National Financial Information Registry will be set up to serve as the central repository of financial and Ancillary Information. This will facilitate efficient flow of credit to promote financial inclusion and foster financial stability. A new legislative framework designed in consultation with the RBI will govern this credit public infrastructure. Small Saving Scheme: In the honor of Azadi ka Amrit Mahotsav, a new one time small saving scheme, Mahila Samman Saving Certificate will be made available for a period of two years up to March 2025. This will offer deposit facility up to Rs 2 Lakh in the name of women or girls with partial withdrawal option. The maximum deposit limit for Senior Citizen Saving Scheme will be enhanced from Rs 15 lakh to Rs 30 Lakh. The maximum deposit limit for the Monthly Income Account Scheme will be enhanced from Rs 4.5 lakh to Rs 9Lakh (for single account) and from Rs 9 lakh to Rs 15 lakh (for joint account) On the Job training, industry partnership, new age courses like AI, robotics, mechatronics, 3D printing, drones etc. Expanding digital ecosystem to enable demand based formal skilling, linking with employers and facilitating access to entrepreneurship schemes. To provide stipend support to 47 lakh youth in three years. 50 destinations to be selected and developed as complete package for domestic and foreign tourists. For promotion and sale of ODOPs (One District, One Product), GI and handicraft products. An outlay of Rs 19700 crores has been allocated to the National Green Hydrogen Mission to facilitate transition of the economy to low carbon intensity and reduce dependence on fossil fuel imports and make the country assume technology and market leadership in this sunrise sector. The target is to reach an annual production of 5 MMT by 2030. 500 new waste to wealth plants under GOBARdhan Scheme will be established to promote Circular Economy which includes 200 compressed biogas CBG plants and 300 community cluster based plants. Total investment here would be Rs 10,000 crore. In due course a 5% CBG mandate will be introduced for all organizations marketing natural and biogas. Over the next 3 years, the Centre will facilitate1 crore farmers to adopt natural farmingby setting up10,000 Bio-Input Resource Centres, creating a national-level distributedmicro-fertilizer and pesticide manufacturing network. Rs. 35,000 crore for priority capital investments towards energy transitionandnet zero objectives, and energy security (Ministry of Petroleum & Natural Gas). Battery Energy Storage Systemswith capacity of 4,000 MWH to be supported withViability Gap Funding. Rs 20,700 crore(central support – Rs 8,300 crore) forinter-state transmission systemfor evacuation andgrid integrationof 13 GW renewable energy from Ladakh. Building on the success of theAspirational Districts Programme, theAspirational Blocks Programmewas recently launched covering 500 blocks. It is aimed at improving the performance of areas across multiple domains such ashealth, nutrition, education, agriculture, water resources, financial inclusion, skill development, and basic infrastructure. To improve socio-economic conditions of theParticularly Vulnerable Tribal Groups (PVTGs), Pradhan Mantri PVTG Development Missionwill be launched. An amount ofRs 15,000 crorewill be made available to implement the Mission in the next 3 years under theDevelopment Action Plan for the Scheduled Tribes. The Centre will alsorecruit 38,800 teachers and support stafffor the 740Eklavya Model Residential Schools, serving 3.5 lakh tribal students. In thedrought prone central region of Karnataka, central assistance ofRs 5,300 crorewill be given to theUpper Bhadra Projectto provide sustainable micro irrigation and filling up of surface tanks for drinking water. Theoutlay forPM Awas Yojanais being enhanced by 66%to over Rs 79,000 crore. A‘Bharat Shared Repository of Inscriptions (Bharat SHRI)’ will be set upin a digital epigraphy museum, withdigitization of 1 lakh ancient inscriptionsin the first stage. Capital investment outlay increased for the third consecutive year – by33% to Rs 10 lakh croremaking it3.3% of GDP. The‘EffectiveCapital Expenditure’is budgeted at Rs 13.7 lakh crore –4.5% of GDP. The Government has decided tocontinue the50-year interest free loan to state governmentsfor one more yearto spur investment in infrastructure and to incentivize them for complementary policy actions. The enhancedoutlay for this is Rs 1.3 lakh crore. A capital outlay ofRs 2.40 lakh crorehas been provided for theRailways– the highest ever outlay and about 9 times the outlay made in 2013- 14. 50 additional airports, heliports, water aerodromesandadvanced landing groundswill be revived for improving regional air connectivity. 100 critical transport infrastructure projects,for last and first mile connectivity for ports, coal, steel, fertiliser, and food grains sectors have been identified andwill be taken up on priority with investment of Rs 75,000 crore, includingRs 15,000 crore from private sources. AnUrban Infrastructure Development Fund (UIDF)will be established through use ofpriority sector lendingshortfall. UIDF will be managed by theNational Housing Bank, and will be used by public agencies tocreate urban infrastructure in Tier 2 and Tier 3 cities. Rs 10,000 crore on a yearly basiswill be allocated for this purpose. To enhance ease of doing business, more than39,000 compliances have been reducedandmore than 3,400 legal provisions have been decriminalizedunder theamendments to the Companies Act 2013. To further the trust-based governance, the Government introduced theJan Vishwas Billto amend 42 Central Acts. To realize the vision of“Make AI in India and Make AI work for India”,threeCentres of excellence forArtificial Intelligencewill be set-up in top educational institutions. Tofacilitate innovation and research by start-upsand academia, aNational Data Governance Policywill be brought out, which will enableaccess to anonymized data. AnEntityDigi Lockerwill be set up for use by MSMEs, large business and charitable trusts forstoring and sharing documents online securely,whenever needed, with various authorities, regulators, banks and other business entities. Vivad se Vishwas: Less stringent contract executionfor MSME. Easier and standardized settlement schemeenablingfaster settlement of contractual disputesof Govt and Govt undertakings. e-Courts: Phase III ofe-courtswill be launched for effective administration of justice. 100 labs for developing applications using5Gserviceswill be set up in engineering institutions to realize a new range of opportunities, business models, and employment potential. The labs will cover, among others, applications such assmart classrooms, precision farming, intelligent transport systems, andhealthcare apps. The Finance Minister stated that all states must utilize their fifty year loan for capital expenses by the end of 2023-24. Most of this will happen at the discretion of states but a part will be conditional on states designated for the purpose such as States are allowed to have a deficit of3.5% of theirGross State Domestic Product (GSDP), with0.5%of this amount specifically designated for power sector reforms. Sr. No Estimates Amount 1 Totalestimated receipts(excluding borrowings) Rs 27.2 lakh crore 2 Total estimated expenditure Rs 45 lakh crore 3 Net tax receipts Rs 23.3 lakh crore. 4 Fiscal deficit: 5.9%of GDP. To finance the fiscal deficit in 2023-24 the net market borrowings from dated securities are estimated at Rs 11.8 lakh crore. Thegross market borrowingsare estimated atRs 15.4 lakh crore. Also, the government is committed to sticking to this plan toreduce the fiscal deficit tobelow4.5% by 2025-26. PART B The finance Minister Mrs. Nirmala Sitharaman provided major relief to the tax payers. The indirect tax proposals contained in the budget aims to promote exports enhance domestic value addition, encourage green energy and mobility. There are five major announcements relating to personal income tax. The revised rebate limit as per the new tax regime is increased to Rs 7 lakh. The tax structure of the new personal tax regime has been changed by reducing number of slabs to five and increasing the tax exemption limit to Rs 3 lakh. This will provide major relief to all tax payers in the new regime. The benefit of standard deduction has been extended to the salaried class and the pensioners including family pensioner under the new tax regime. Salaried individual will get standard deduction of ₹ 50,000 and pensioner ₹ 15,000 as per the proposal. Each salaried person with an income of ₹ 15.5 lakh or more will thus gain ₹ 52,500, from the above proposals. The highest surcharge rate in personal income tax has been reduced from 37% to 25% in the new tax regime for income above ₹2 crore. This would result in maximum tax rate of personal income tax come down to 39% which was earlier 42.74%. The limit of tax exemption on leave encashment on retirement of non-government salaried employees has been increased from ₹3 lakh to ₹25 lakh. The new income tax regime has been made the default tax regime. However, the citizens will continue to have the option to avail the benefit of the old tax regime. Current Income Slab Proposed Income Slab Tax Rate Up to Rs 2.5 lakh Up to Rs 3 lakh Nil Rs 2.5 lakh to Rs 5 lakh Rs 3 lakh to Rs 6 lakh 5% Rs 5 lakh to Rs 7.5 lakh Rs 6 lakh to Rs 9 lakh 10% Rs 7.5 lakh to Rs 10 lakh Rs 9 lakh to Rs 12 lakh 15% Rs 10 lakh to Rs 12 lakh Rs 12 lakh to Rs 15 lakh 20% Rs 12 lakh to Rs 15 lakh – 25% Above Rs 15 lakh Above Rs 15 lakh 30% To reduce the compliance burden, promote entrepreneurial spirit and provide tax relief to citizens. The Indirect tax proposals mentioned in the Union Budget by Mrs. Nirmala Sitharaman emphasized on simplification of tax structure with fever tax rates so as help reducing the burden and improving tax administration. The number of basic customs duty rates on goods, other than textiles and agriculture, has been reduced from 21 to 13. There are minor changes in the basic customs duties, cesses and surcharges on items including toys, bicycles, automobiles and naphtha. The Indirect Tax Proposals include 1. Green Mobility : To exempt excise duty on GST Paid compressed bio gas. 2. Electronics : To provide relief in customs duty on import of certain parts of mobile phones. To reduce basic customs duty on parts of open cells of TV panels to 2.5%. 3. Electricals : To increase basic customs duty on electric kitchen chimney from 7.5% to 15%. To reduce basic customs duty on chimney heat coils from 20% to 15%. 4. Chemicals and Petrochemicals : To exempt basic customs duty on chemicals and petrochemicals. To reduce basic customs duty on acid grade fluorspar and crude glycerin to 2.5%. 5. Marine Products : To reduce duty on key inputs for domestic manufacture of shrimp feed. 6. Lab Grown Diamonds : To reduce basic customs duty on seeds used in their manufacturing. 7. Precious Metals : To increase customs duties on articles made from gold and platinum. To increase import duty on silver dore, bars and articles 8. Compounded Rubber : To increase basic customs duty rate on compounded rubber from 10% to 25%. 9. Cigarettes : National Calamity Contingent Duty on specified Cigarettes to be revised upwards by about 16% STANDARD DEDUCTION: MSMEs: COOPERATIVES: STARTUPS: ONLINE GAMING: GOLD: RATIONALISATION EXCEPTION FROM INCOME TAX: EXCEPTION FROM DUTIES: LEGISLATIVE CHANGES IN CUSTOMS LAWS: TheCustoms Act, 1962 is going to be revised to set anine-month deadline for the Settlement Commissionto make a final decision after an application has been filed. TheCustoms Tariff Actwill be revised to make the purpose and scope of Anti-Dumping Duty (ADD), Countervailing Duty (CVD), and Safeguard Measures clearer. Changes will also be made to theCentral Goods and Service Tax Act: RUPEE COMES FROM RUPEE GOES TO The Union Budget 2023-24 aims to strengthen India’s economic status. The mood behind this budget presented has been optimistic. The Indian economy is being viewed as a bright star amid crisis and economic slowdown outperforming with it peers. With this Budget India hopes to become a envisioned and prosperous country. In business and finance, various structures are available for entrepreneurs to choose from when starting a venture. One such structure is a partnership firm. It offers unique advantages and disadvantages, making it a popular choice among businesses. In this article, we will explore what a partnership firm is and delve into its key aspects, from formation to dissolution. A partnership firm is a business entity where two or more individuals come together to manage and operate a business. The partners pool their resources, knowledge, and skills to achieve common business goals. It is a widely preferred form of business, primarily due to its simplicity and ease of formation. While partnership firms offer various advantages, they have their drawbacks. Here are the disadvantages of a partnership firm explained in English: Partnership firms come in different forms, each with rules and characteristics to suit various business needs. Here are the most common types of partnership firms: Establishing a partnership firm involves several essential steps. This process is relatively straightforward and typically begins with the following key elements: In a partnership firm, capital contribution refers to the financial resources each partner invests in the business. This capital can take various forms, including cash, assets, or expertise. Partners typically contribute different amounts of money, determining each partner’s business share and profits. The partnership agreement outlines the capital contributions of each partner and the profit-sharing ratios, ensuring transparency and fairness within the partnership. Profit sharing in a partnership firm is a fundamental aspect of the business. Partners agree on the distribution of profits, often based on the terms outlined in the partnership agreement. The profit-sharing arrangement can vary, taking into account capital contributions, effort, or a combination of factors. Partners must clearly understand how profits will be divided, as this directly impacts their income and incentives within the firm. The management of a partnership firm typically involves all partners participating in decision-making and operational activities. Partners collectively oversee the day-to-day operations of the business. Significant decisions are made through mutual agreement, and partners often have an equal say in the firm’s direction. This shared management approach allows for diverse ideas and expertise, contributing to the firm’s success. However, it can also lead to challenges if partners have differing opinions or face conflicts in decision-making. In many jurisdictions, partnership firms have a unique tax treatment. Unlike corporations, where the business is taxed, partnership firms are not typically subject to income tax at the firm level. Instead, the profits and losses “pass through” to individual partners, who report these on their tax returns. This pass-through taxation can result in tax savings for partners. However, partners must understand their tax obligations and consult with tax professionals to ensure compliance with tax laws and regulations. Partnership firms can be dissolved for various reasons, such as the retirement or death of a partner, the achievement of the business’s goals, or disagreements among partners. The partnership deed typically outlines the procedures for dissolution, including the distribution of assets and liabilities among partners. Dissolution can be complex, and legal guidance is often necessary to navigate the legal aspects and ensure a fair and equitable dissolution. Partners in a partnership firm have legal obligations and responsibilities. These include the duty to act in good faith, loyalty to the partnership, and transparency in financial matters. Partners also have unlimited personal liability, meaning their assets may be at risk if the business incurs debts or faces legal issues. Understanding the legal framework and weaknesses is vital to protect the interests of all partners and the company itself. Partners should consider consulting legal experts to ensure compliance with legal requirements and create a solid partnership agreement that addresses these aspects. A partnership firm is a flexible and widely accepted business structure that allows individuals to join forces and pursue their entrepreneurial ambitions. While it offers advantages such as ease of formation and shared decision-making, it also comes with challenges, including unlimited liability. Understanding the nuances of partnership firms is essential for making informed business decisions. View Chapters Insurance is a way through which one can pool risk. Insurance companies analyses the risk of their customers and calculate a premium for them accordingly. It is but not always easy to choose a right insurance policy. Either one needs to go through all the policy documents and understand whether the policy is apt or one should approach insurance expert to understand the policy terms and conditions. Here are few points which one needs to follow before selecting the insurance policy. To decide the correct insurance policy one need to first understand why should he or she take a insurance policy and how taking a insurance policy will help them. The following points are certain questions which every individual who is planning to take insurance policy must ask to the insurance company or to oneself to choose the right policy. The very first question which needs to be answered is why insurance is needed. If you are the sole bread earner in the family and the entire family is depended on you it is your responsibility then to take care of them in your absence also. Here taking an insurance policy helps to protect the family and take care of their needs even if any unfortunate event happens to you. Secondly taking an insurance policy helps to avoid risk during an unfortunate event. For example if a person meets with an accident and the family doesn’t have cash to pay to the hospital right away, here an insurance policy helps to cover the expenses and save life of the person. Thirdly insurance policy is always an option through which future can be secured and independent especially after retirement. Also it helps in managing the big expenses such as marriage, education, buying a car or home etc. So one needs to understand that taking an insurance policy is important but which type of insurance is needed it depends on the individuals own needs and risk taking capacity. What should be covered in insurance policy is very important aspect because this is reason why one takes insurance policy. Insurance policy pay out the amount as per the terms and conditions mentioned in the policy. Individuals who are willing to take insurance policy must first check for what are the benefits which are covered. For example in case of whole life cover, a person gets the insurance policy coverage for his entire life. Also there are certain other benefits covered such as pension after retirement or accidental benefits or any expenses incurred. The insured person must read the policy document and see what are the benefits covered in the policy. Before selecting the insurance policy you need to identify whether your family members are getting the benefits or not. Some policy do not cover any family member and the benefit is received to the policy holder only. Whereas in some policy the insurance claim can be done for any one person in the family. So it is important to read and understand who are covered in the policy. Also one need to check whether nomination is done or not. Because after the death of the person the nominee gets the benefit of the insurance policy. The very important factor in deciding the insurance policy is the premium amount. It is very important to analyse the income and expenditure and then decide whether the payment of premium is affordable or not. Premium amount increases as age increases and any extra benefits covered in the policy also increases the premium. Sometimes additional charges are applied which also increases the premium. As we said there can be some additional charges involved while taking insurance policy which one may not be aware. For example some policy will have cheaper premium but there can be administrative charges involved if you change the policy or do any upgradation. Choosing the term of the policy depends on your income and risk taking capacity. The policy term vary considerably from 25 years for a life insurance policy designed to cover mortgage in the event of your death. The policy term differs according to the age, income and need. Claim Settlement Ratio is an indication through which one can access how much amount has been paid by the insurance company when the insured demands for the same. For example death claims approved by the insurance company. The ratio determines the total number of claims received and the total number of claims settled by the company. If suppose the insurance company receives a total of 100 death claims and has settled only 96 of them then the claim settlement ratio is 96% of the company. Why the Insured person must check for Claim Settlement Ratio a. It is a reliable measurement The claim settlement ratio is a method through which one can ensure the insurance company is genuine and reliable. It helps to identify whether or not the insurance provider pays the benefit of death. Failure to settle the claims shows that the very purpose of taking insurance policy is not getting satisfied. So such companies must be avoided who only loot the people by taking insurance premium and do not settle the claim. b. Ensures a secured future for loved ones Life insurance policies are purchased based on premium outgo and expected returns after the demise of the insured. The beneficiaries use the insurance amount to meet their financial needs such as repayment of an outstanding loan, meeting day to day or education expenses among others. Checking the claim settlement history of the insurance provider gives assurance about dependent financial future. How to Analyse Claim Settlement Ratio a. Past 5 years Records Accessing the Claim Settlement Ratio for the last 5 years records provides insight to the insurers’ consistency in honoring claims. A constantly improving Claim Settlement Ratio shows the insurer’s commitment to improve its services and building trust among customers. This record shows that the insurer is focused on offering the best possible support to policyholders which is exactly what the customer needs. b. Must be close to 100% The claim settlement ratio shows how efficient is the insurance company for settling the claims this efficiency reassures the policyholder that the insurer is skilled at quickly processing and honoring the rightful claims. This ensures that insured person’s family will have financial protection without having to worry about the funds during the challenging times like death of loved ones. c. Accountability and Transparency An insurer with good and transparent system has high claim settlement ratio and will always showcase its claim settlement ratio. It shows the insurer’s commitment and serves as a proof of its trustworthiness in the event of a financial crisis. These figures are usually given in the company’s website along with the other details like the company’s total asset under management, solvency Ratio, value of new business etc. Investors must be informed about the different types of life insurance charges. The investor should ensure that the funds never get reduced due to unnecessary expenses. Below are the few charges involved while taking insurance policy. There are certain charges involved in taking insurance policy. For example there are sum allocation charges which are upfront fees subtracted from the policy holders life insurance premium. It gets imposed as a portion of the insurance premium. These costs reckon for the principal expenses incurred by the insurance company in allotting the life insurance policy. Surrender Charge in a life insurance policy might get deducted for premature encashment of his insurance, either partially or in full. This life insurance surrender charge usually gets determined as part of annualized premium funds. The surrender or the discontinuance charges cannot surpass 50 basis points per year on the unit capital value and the insurance companies cannot levy any other charges. The IRDAI has established guidelines to curb the influence of these modifications on the overall gain from the investible part of premium. These mortality charges get imposed towards equipping with insurance coverage. When life insurance policies are issued the insurance company considers the insured person will live to a specific age based on their prevailing age, health conditions and gender. These life insurance fees and charges compensate the insurance company when the person live up to the expected age. The actual sum spent under this head depends on the sum of life cover the age of the policyholder and other such information. This method of calculating the mortality charges along with the death charge table is provided as a section in the policy document. When people purchase an insurance cum investment life insurance products like ULIP their main purpose is doing an investment. Here they might get sufficient coverage but still they need to pay the mortality charges on the chosen insurance product. Insurance companies levy these charges on administering fund and it gets imposed as a portion of the worth of assets. This life insurance charges gets subtracted before coming at the net asset value. It varies from one insurance sum to another. According to IRDAI, life insurance companies cannot levy fund management charges of more than 1.35% per year. Fund management charges get imposed on the accrued value and not on the premium spent. Hence in material terms as the corpus increases the amount subtracted as a fund administration charge moves up. This policy charges get deducted from the organizational expenses incurred by the firm towards the sustenance of the insurance policy. These charges usually levied once in a month include the paperwork cost, the premium intimation and so on. The charges could either be even throughout the life insurance policy duration or it can rise at the predetermined price. Taxes are a huge cause of worry for everyone. But one can always buy a insurance policy and minimize the tax burden. The Income Tax Act, 1961 offers all taxpayers specific exemptions on eligible investments. Some of these investments include tax saving mutual funds, fixed deposits, pension plans and tax saving life insurance policies. Tax department provides specific exemptions for different insurance plans such as life insurance, health insurance etc. Before selecting the right insurance policy one needs to check whether there are tax benefits available for the policy. Life insurance policies Tax deduction Section 80C All life insurance policies are eligible for tax exemption under Section 80C of the Income Tax Act, 1961. You get life insurance premium tax benefit on a life insurance policy, endowment plan, whole life insurance plans, money back policies, term insurances, as well as Unit Linked Insurance Plans (ULIPs). In addition, the following conditions apply: · The maximum deduction given under this section is up to ₹1.5 Lakh. · Tax exemption is given for premiums paid on insurance policies taken for self, spouse, dependent children, and in some cases dependent parents. Section 80CCC This section provides an exemption for any amount paid in annuity plan of Life Insurance Corporation of India or any other insurance company to secure a pension. The maximum deduction under this section is also up to ₹1.5 Lakh. Section 10(10D) Under this section, the amount you receive from the insurance company is fully exempt from income tax, subject to some conditions. The exemption applies to the receipt of sum assured, bonus, maturity value, surrender value and the death benefit. That said, you must note that if you cancel or withdraw any of the tax-exempted life insurance plans before the expiry of five years, the deductions will stand cancelled. Your deductions will be included back in your income in the year of policy cancellation, and you would pay taxes accordingly. Health Insurance Tax Benefits Section Members Insured Deduction 80D Self and family (age below 60 years) Up to ₹25,000 80D Self and family + parents (age below 60 years) Total up to ₹50,000 (25,000+25,000) 80D Self and family + parents (above 60 years of age) Total up to ₹75,000 (25,000+50,000) 80D Self and family (anyone above 60 years) + parents (over 60 years) Total up to ₹1,00,000 (50,000 + 50,000) 80U Self with disability Up to ₹75,000 Up to ₹1.25 Lakh in case of severe disability 80DD Any dependent family member (of any age) with disability Up to ₹75,000 Up to ₹1.25 Lakh in case of severe disability 80DDB Self or dependent family member (below 60 years of age) with a specific disease Up to ₹40,000 80DDB Self or dependent family member (above 60 years of age) with a specific disease Up to ₹1,00,000 There are lot of insurance companies and agents who do not bother to guide the customers once the insurance policy is taken. Such type of companies find their customers easily and through their conversations convince them to take the insurance policy. But once the policy is taken such companies never bother to take feedback of the customers or enquire whether the customer is facing any issues. This is called after sale service. When the customer opt for taking insurance policy they must check for the reviews provided by the other customers or ask any other members of the family regarding the company. Most of the company explain about the premiums, policy details and how fast the company settles the insurance policy claims. But the important factor which most of the insurance companies failed to tell their customer is how to apply for claim settlement process. This procedure is usually not explained by all insurance companies. Every insurance policy has a different methods for claim. For example life insurance policy can be claimed only after the death of the policy holder. Whereas health insurance has to be claimed when the insured person is hospitalized. So if the insured person needs to claim his insurance sum assured amount it is the responsibility of the insurance company to inform the insured person claim settlement procedure. Before taking the insurance policy one needs to check whether the insurance company informs about the claim settlement process. Companies submit a draft offer document to SEBI that includes company information. Upon approval, the firm launches an initial public offering (IPO) on the primary market to sell its shares to investors. To some or all of the investors who made bids during the IPO, the Company offers and allots shares. The secondary market (stock market) is then used to list the shares, enabling trading. The brokers place their orders on the market after obtaining instructions from the clients. When a buyer and seller are found, the trade is completed effectively. If you want to start investing in the stock market, having a good grasp of stocks and shares is essential. One of the most effective strategies to achieve financial independence is to use the correct investment strategy. The greatest investing options can improve your financial health, whether they serve as a complement to your normal income, additional savings for retirement, or a strategy to pay off debt. The following post will walk you through a few beginner-friendly investment techniques and help you select the best fit for your situation and objectives. An investing strategy is a precise plan to create income from nontraditional sources that is often determined by evaluating one’s long-term goals, risk tolerance, needs, and financial health. Maintaining investments necessitates varying degrees of involvement and capital. The greatest investment techniques can help you grow your money and, eventually, give financial security. Without delving too deeply into the details, different types of investment methods have varying levels of risk, time periods, and even involvement. Here are some tips to get you started:- When it comes to investing in stocks and shares, having long-term goals can be extremely beneficial. Setting long-term objectives will help you better grasp the value of saving, whether you want to save for your own retirement, for your child’s education, to buy a home, or for any other purpose. The quantity of money invested, the duration of the investment, and the net annual earnings on the capital will all influence the growth of your investment portfolio. It is recommended that you start investing as soon as possible because it can help you save a lot of money. Before you invest your money, you should carefully consider the level of risk connected with the investment option you choose. Conducting a complete analysis of the various schemes is the best approach to detect the dangers connected with various goods and determine the best alternative. This will allow you to determine the level of risk associated with each product and allocate your funds accordingly. Understanding the level of risk associated with investing can assist you in avoiding instruments that can result in a loss. A newcomer in the stock market should study the stock market for the essentials, including the many securities that make up the market, before making an investment. Order types, financial definitions and metrics, various types of investment accounts, investment timing, stock selection procedures, and so on are some of the areas that must be focused on. You’ll be in a better position to analyse risks if you have a broad understanding of the stock market. Stock diversification is typically done by professional investors after they have completed all of the necessary research to classify and evaluate the risk associated with their investment. Beginners, on the other hand, will need to get some expertise in the stock market before diversifying their investments. Diversifying exposure is one of the most popular risk management strategies. If you buy stocks from five different firms and expect their prices to rise steadily, it’s possible that two of them will outperform the others. Controlling your emotions is one of the most important aspects of stock market investment. The price of a corporation’s shares reflects market attitude toward that company. Because emotions are the primary motivator of behaviour, it is critical to thoroughly examine all considerations before making a final decision. There are a variety of investment options available to suit practically any level of risk, commitment, or timing. Understanding your personal tastes and financial position is key to determining the best plan for you. Following these easy guidelines will help you obtain a solid grasp of the stock market and invest your money in assets that will allow you to achieve big long-term returns. Financial literacy refers to the capacity to understand and apply financial concepts such as Budgeting, investing, credit management, and financial management etc. Financial literacy, in other terms, is the capacity to handle money. These abilities will help one achieve a variety of life objectives, including retirement, education, and even taking a trip. Budgeting, controlling spending, paying off debt, and understanding the risk-reward trade-off in investment products are necessary for financial literacy. Understanding basic financial concepts such as time value of money, compound interest, annual return, and opportunity cost is also part of Financial Literacy. Individuals lacking financial literacy find it difficult to make big financial decisions. Furthermore,Financial literacy improves financial discipline and capacity. This will result in significant lifestyle changes, such as regular saving and investing, good debt management, and the achievement of life objectives. Furthermore, financial literacy will protect individuals from financial fraud and preserve their financial well-being. Financial illiteracy results from the lack of knowledge of these abilities. Budget misalignment, more costs than income, debt buildup, low credit score, being a victim of financial fraud, and other unpleasant repercussions can be the outcomes of being a financially illiterate person. Financial literacy is composed of a number of financial components and skills that enable a person to learn how to handle money and debt effectively. I) Budgeting:- Budgeting is a necessary life skill that aids in the acquisition of financial knowledge for money planning and management. It’s one of the most crucial aspects of financial knowledge. Keeping track of one’s spending patterns is crucial. The creation of an executable financial strategy will be aided by effective money management. The practical plan will assist in keeping track of costs, separating the unneeded ones, and ensuring that money is spent properly.It is important for financial security and independence. II) Debt:- Debt is often viewed as a negative element. As a result, it’s critical to understand debt. It’s also essential to understand the difference between good and bad debt. Borrowing money for goods that are required to make a livelihood is considered good debt. Borrowing money for unneeded expenses is considered bad debt. As a result, being able to distinguish between required and superfluous spending will assist an individual in avoiding falling in debt. III) Savings:- Savings guarantees financial security, a stable present, and a bright future. Long-term wealth may be built via prudent financial planning. Keeping track of one’s spending patterns might aid in money saving and financial discipline. IV) Investments:- Instead of letting money sit in a bank account, it can be invested in financial products. Investing is all about creating and developing wealth so that you may live a secure and happy life. Investments will assist in the generation of additional monthly income as well as substantial profits. It is also possible to attain financial goals while allocating funds to retirement savings. Equities, debt instruments, mutual funds, real estate, and gold are some of the most popular investment possibilities. 1) Financial literacy is important as it provides individuals with the information and skills necessary to efficiently manage their finances. 2) Without financial literacy, one’s actions and judgments regarding savings and investments would be based on a shaky basis. 3) Aids in the better comprehension of financial concepts and the effective management of one’s money. 4) Assists in proper money management, financial decision-making, and financial stability. 5) imparts in-depth understanding of financial education and many techniques required for financial growth and success. 5) provides in-depth understanding of financial education and many techniques required for financial growth and success. 6)Adopting the greatest debt solutions allows one to become debt-free. Financial literacy is an important life skill to acquire since it improves one’s financial potential. Financial planning, budgeting, and saving should be taught right from school. Recent developments have made it even more critical for consumers to comprehend basic financial concepts. Short-term investments, on average, carry lower risk than long-term investments, which provide our money longer to grow and live through market downturns. Having an outlined financial goal can assist us in determining whether to speculate for the short or future, additionally as which instruments within those categories make the foremost sense for us. We’ll need access to our money sooner if we invest for the short term, therefore it’s advisable to decide on less hazardous options. After we invest for the future, however, our money has longer to recoup from losses and profit from securities market gains. As a result, it’s more feasible to pursue risky solutions. When we say we’re making a short-term investment, we usually mean we’ll need the money in three years or less. We should protect our money from losing value in such a brief period of our time. that sometimes entails a trade-off: our money is going to be safer, but we cannot get the identical level of growth as a riskier investment. Anything very liquid—in other words, something we can easily cash out—is an example of a short-term investment. Savings accounts, U.S. Treasury bills (not to be confused with longer-maturity Treasury bonds), market accounts, and short-term certificates of deposit are all examples (CDs). Bonds can have maturities starting from one to 3 years. Because our money has longer to recover after losses, a long-term investing strategy might include higher-risk investments. Making a long-term investment usually means we cannot be ready to access the funds for a minimum of ten years. Saving in an exceedingly large pension plan, like an NPS, could be a long-term investment. Stocks, longer-maturity bonds, and mutual funds—a collection of investments, including stocks and bonds, managed by a fund manager—are samples of long-term investments. ETFs (exchange-traded funds) are a kind of investment that consists of a set of stocks or bonds that may be exchanged more frequently than mutual funds. Long-term investing alternatives include land investment trusts (REITs). It’s a good idea to possess short- and long-term investments that are aligned with our objectives. If we anticipate spending the cash in a very year or two, putting money in an exceedingly market account or a CD is a wonderful option. An emergency fund, which should be available immediately, should be kept in an exceedingly high-yield or standard bank account that we will easily access. We can also designate other varieties of cash for long-term planning at the identical time. Because we aim to shop for a house in ten to fifteen years, we may save during an NPS retirement plan and separately in an account. As we create goals and priorities, it is smart to decide on both short- and long-term investments while still maintaining a solid foundation of emergency funds. There is no apparent winner because both have their advantages and downsides. Short-term investing allows us to achieve our financial objectives in an exceedingly short period of your time while reducing risk. On the opposite side, we can choose long-term investing routes if we’ve got a better risk appetite and seek better returns. We must choose short-term investments if we wish to conserve our wealth and are pleased with moderate profits. If we wish larger returns, however, we should always invest in long-term investing opportunities. Robert Kiyosaki – An author who taught the world the importance of financial literacy, financial independence and building wealth through investing in assets through his book “Rich Dad Poor Dad” has surprised everyone by sharing an Instagram post in which he states he is in debt of Rs 1.2 billion. Let us understand his Life journey first and then understand his debt. Robert Toru Kiyosaki is aJapanese-Americanbusinessman and author. He was born on 8th April, 1947. Kiyosaki is the founder of Rich Global LLC and the Rich Dad Company a private financial education company that provides personal finance and business education to people through books and videos. The company’s main revenues come from the franchisees of the Rich Dad seminars that are conducted by independent individuals using Kiyosaki’s brand name. Robert Kiyosaki is the author of more than 26 books out of which is his book named Rich Dad Poor Dad was translated in to 51 languages and sold over 41 million copies worldwide. Tax deferral refers to the practice of delaying the payment of taxes until a later date. Some taxes can be postponed forever, while others might be subject to future taxation at a reduced rate. Both firms and individual taxpayers have the option of deferring some taxes; another method of tax deferral is the retention of corporate profits abroad. An individual taxpayer must deposit money into a retirement account in order to postpone paying taxes on earnings. A 10% early withdrawal penalty is applied to the total amount taken out if the taxpayer withdraws the money before turning 59.5. After this age, a more favourable tax rate is applied to account earnings that are withdrawn. By 2015, Philip had amassed $100,000 in his IRA, and in 2016, the account generated $10,000. Instead of paying taxes now on the $10,000 gain, Philip will do so in the future when he withdraws money from his IRA. If Philip’s $10,000 income from 2016 had not been in a tax-deferred account, he would have had to pay $3,333 in taxes on it, bringing the net gain down to $6,667. Philip was in a 33 percent tax bracket. Philip received a return on the full $10,000 as opposed to the theoretical after-tax $6,667 since IRAs are tax-deferred. Year after year, the benefits of tax deferral grow. In order to collect overdue property taxes, the taxing authority may sell the property’s deed or title as well as the actual property itself. To obtain a tax deed, the taxing authority—typically a county government—must follow a set of legal procedures. Depending on local and municipal rules, these actions may also involve alerting the owner of the property, requesting a tax deed, placing a sign at the property, and publishing a public notice of the sale. Mutual funds or exchange-traded funds (ETFs) that have been structured with a target date are called target-date funds. The funds are structured to meet an investor’s capital requirements at a specified date, hence the term “target date.” Thus, a target-date fund falls within the category of lifecycle funds, in which the allocation of the portfolio gets more conservative over time. Investors would typically choose a target-date fund to contribute to their beginning of retirement. However, investors who are saving for a future expense, like a child’s college tuition, are more likely to utilize target-date funds. When the target date approaches, the asset allocation of a target-date fund is often planned to progressively move to a more conservative profile in order to reduce risk. The convenience of placing all of an investor’s investing actions on autopilot in a single vehicle is what attracts investors to target-date funds. Typically, target-date funds mature every five years, for example, in 2035, 2040, and 2045. Although target-date funds are still substantially more expensive than other forms of mutual funds, their expense ratios have decreased significantly in recent years. To achieve the investment return objective, target date funds use a conventional portfolio management methodology to target asset allocation over the fund’s period. Target-date funds are said to as exceptionally long-term investments because they are named after the year the investor intends to start using the assets. When prices go down, it’s generally considered a good thing; at least when it comes to your favourite shopping destinations. When prices go down across the entire economy, however, it’s called deflation, and that’s a whole other ballgame. Deflation is bad news for your country and your money. Deflation is when consumer and asset prices decrease over time, and purchasing power increases. Essentially, you can buy more goods or services tomorrow with the same amount of money you have today. This is the mirror image of inflation, which is the gradual increase in prices across the economy. While deflation may seem like a good thing, it can signal an impending recession and hard economic times. When people feel prices are headed down, they delay purchases in the hopes that they can buy things for less at a later date. But lower spending leads to less income for producers, which can lead to unemployment and higher interest rates. Deflation is measured using economic indicators like the Consumer Price Index (CPI). The CPI tracks the prices of a group of commonly purchased goods and services and publishes the changes every month. When the prices measured in aggregate by the CPI are lower in one period than they were in the period before, the economy is experiencing deflation. Conversely, when the prices collectively rise, the economy is experiencing inflation. There are three reasons why deflation exists as a greater threat than inflation since 2000. First, exports from China have kept prices low. The country has a lower standard of living, so it can pay its workers less. China also keeps its exchange rate pegged to the dollar, which keeps its exports competitive. Second, in the 21st century, technology such as computers keeps workers’ productivity high. Most information can be retrieved in seconds from the internet. Workers don’t have to spend time tracking it down. The switch from snail mail to email streamlined business communications. Third, the excess of aging baby boomers allows corporations to keep wages low. Many boomers have remained in the workforce because they can’t afford to retire. They are willing to accept lower wages to supplement their incomes. These lower costs mean companies haven’t needed to raise prices. To combat deflation, the Federal Reserve stimulates the economy with expansionary monetary policy. It reduces the fed funds rate target and buys Treasury’s using its open market operations. When needed, the Fed uses other tools to increase the money supply. When it increases liquidity in the economy, people often wonder whether the Fed is printing money. Our elected officials can also offset falling prices with discretionary fiscal policy, or lowering taxes. They can also increase government spending. Both create a temporary deficit. Of course, if the deficit is already at record levels, discretionary fiscal policy becomes less popular. With more money to spend, people are likely to buy what they want as well as what they need. They’ll stop waiting for prices to fall further. This increase in demand will push prices up, reversing the deflationary trend. The Great Recession-There was much concern about deflation in the U.S. recession spanning late 2007 to mid-2009. Commodity prices fell, and debtors found it harder to repay loans. The stock market was down, unemployment was up, and home prices dropped precipitously. Economists were concerned that deflation would lead to a deep downward economic spiral, but that didn’t happen. One study published in the American Journal of Macroeconomics suggests that the financial crisis at the beginning of the period managed to prop up inflation. Because interest rates were so high at the onset of the recession, some companies couldn’t afford to drop prices, which may have helped the economy avoid widespread deflation. The Great Depression- Deflation was an accelerator of one of the toughest U.S. economic periods, the Great Depression. Although it began as a recession in 1929, rapidly decreasing demand for goods and services caused prices to drop significantly, which led to the collapse of many companies and rising rates of unemployment. Between the summer of 1929 and early 1933, the wholesale price index fell 33%, and unemployment peaked at above 20%. Price deflation due to the Great Depression happened in virtually every other industrialized country in the world. In the U.S., output didn’t return to the previous long-term trend path until 1942. The opposite of deflation is inflation. Inflation is when prices rise over time. Both economic responses are very difficult to combat once entrenched because people’s expectations worsen price trends. When prices rise during inflation, they create an asset bubble. This bubble can be burst by central banks raising interest rates. Former Fed Chairman Paul Volcker proved this in the 1980s. He fought double-digit inflation by raising the fed funds rate to 20%.3He kept it there even though it caused a recession. He had to take this drastic action to convince everyone that inflation could actually be tamed. Thanks to Volcker, central bankers now know the most important tool in combating inflation or deflation is controlling people’s expectations of price changes. The first step in investing is to figure out what your portfolio’s goal is. The opportunities that a stock market provides are open to all investors. However, it is the thoughtful investor that knows precisely how he plans to utilise those opportunities to meet his specific goals. Before reaching the stage of stock selection, you must first determine what short-term and long-term goals you are hoping to finance with your stock market earnings. Is it for the purpose of saving for your retirement? Is it going to help you raise capital to launch a business? Defining goals such as these will help you narrow down your strategy When you buy a stock, you become a partial owner of a business. If you don’t understand the business, you’re setting yourself up for failure. The more familiar you are with a company, and the better you understand its business and competitive environment, the better your chances of finding a good “story” that will actually come true. You can find companies anywhere. You use dozens of products and services every day, so take a moment to consider the companies behind them. Also consider companies that may impact you indirectly. Many businesses don’t ever deal directly with consumers. When you go to check out at the supermarket, who makes those machines that take your payment? When you buy your medicine at the pharmacy, who’s actually making those drugs? What equipment are they using? When you get your car fixed by a mechanic, where do they buy new parts and who makes those spare parts? When the signal on your phone drops because there’s not a cell tower in sight, who’s really responsible for building new towers and who makes the equipment that goes on those towers? One can start looking at stock pricing after cutting down the list of equities you’re examining to companies with a significant competitive edge. There are numerous methods for determining whether or not a stock’s current price represents excellent value. 1) Price-to-earnings ratio (PE ratio): The PE ratio divides a company’s stock price by its earnings per share over the previous year. When a stock’s PE ratio falls below its historical average, investors can discover it trading at a fair price. Well-established enterprises with consistent earnings and growth are the greatest candidates for this indicator. 2) Price-to-Sales Ratio (PSR): The PSR is more useful for growth businesses that aren’t profitable or have very volatile earnings. Again, past averages can be a helpful guide, but keep in mind that future expectations must be taken into account. It’s important to remember that not all sales are made equal. A corporation may launch a new product or service with a significantly lower profit margin than its primary business, but which accounts for the majority of its revenue increase. As a result, investors’ expectations about how the stock should trade in relation to future sales must be adjusted. 3) Discounted cash flow modelling: If you really want to delve into the weeds, look at a company’s financials and start forecasting sales growth, profit margin, and other expenses for the next few years. Then, using those revenue and operating expense forecasts, create a model for future earnings. You can estimate the stock’s worth by discounting those cash flows by your needed rate of return. You’ll get a respectable stock price if you divide that by the number of shares outstanding. 4) Dividend yield: If you’re looking for a way to make money, dividend yield is an important metric to think about. If a stock’s dividend yield is higher than normal, it may be trading at a decent price. Make sure you don’t fall into a yield trap, though. Dividends might be unsustainable at times, so analyse the payout ratio as a percentage of earnings and free cash flow to see how safe the dividend is. Also, keep an eye on the future to ensure that the earnings and cash flow are stable and rising. By estimating dividend growth over the next many years, you can even create your own dividend discount model. The final phase in stock selection is to purchase firms that are trading at a discount to your estimate at a reasonable price. This is your safety margin. In other words, if your valuation is off, you’ll save a lot of money by buying considerably below market value. You might not need a large margin of safety for a stock with stable profits and a positive outlook. You’ll probably be alright if you take 10% off your desired price. You may desire a larger margin of safety for growth stocks with less predictable earnings. Aim for 15% to 30%, depending on your level of confidence in your estimation. That way, if things don’t go as planned, you’re covered. Keeping up with market news and opinions is critical. Passive research includes reading financial news and keeping up with industry blogs written by writers whose perspectives you find interesting. A common-sense observation can serve as the fundamental argument. After you’ve been acquainted with and convinced of the overall argument as a result of this type of qualitative study, you may go on to business press releases and investor presentation reports for more in-depth examination. You may end up with a single investment prospect or a list of ten or more companies at the end of your investigation. And you can invest in any of these, depending on your preferred industry. Universal banking is a term that encapsulates a wide range of financial services provided by banks. From traditional banking functions such as deposit-taking and lending to more complex investment banking activities and wealth management services, universal banks offer a one-stop solution for all financial needs. In this article, we’ll delve into the intricacies of universal banking, its functions, advantages, disadvantages, regulatory frameworks, recent trends, and more. Universal Banking is a comprehensive banking model that encompasses a wide array of financial services provided by a single institution. Unlike traditional banks, which typically specialize in either commercial or investment banking activities, universal banks offer a diverse range of services under one roof. This includes not only traditional banking functions such as deposit-taking and lending but also investment banking services, wealth management, insurance, and other financial products. The concept of universal banking emerged in the 19th century in Europe, where banks like Deutsche Bank and Credit Suisse pioneered the model. Since then, it has become a prevalent approach in the global financial industry. Universal banks provide a one-stop solution for all financial needs, catering to individuals, businesses, and institutional clients. They offer a wide range of deposit products, including savings accounts, checking accounts, and certificates of deposit, allowing customers to safely store and access their funds. Additionally, universal banks provide various lending services such as personal loans, mortgages, and business loans, enabling clients to finance their projects and investments. Beyond traditional banking functions, universal banks engage in investment banking activities such as underwriting securities, facilitating mergers and acquisitions, and advising clients on capital raising and corporate restructuring. They also offer wealth management services, including portfolio management, financial planning, estate planning, and asset allocation, to help clients grow and preserve their wealth over time. Deposits and Lending Investment Banking Services Wealth Management Diversification of Services Economies of Scale Convenience for Customers Systemic Risk Conflict of Interest Regulatory Challenges Role of Central Banks Regulatory Bodies Overseeing Universal Banks Conclusion The most common type of mutual funds, including those offered by American Funds, are known as open-end funds (while our funds are actively managed, open-end funds also include passive index funds). Open-end mutual funds typically do not limit the number of shares they can offer, and are bought and sold on demand. When an investor purchases shares in an open-end fund, the fund issues those shares and when someone sells shares, they are bought back by the fund. When shares are sold (known as a redemption), the fund pays the investor using cash on hand or it may have to sell some of its investments in order to pay the investor. Open-end mutual funds are also priced differently from closed-end mutual funds, which trade on a market similar to a stock. Shares of open-end funds are bought and sold directly from the fund at a price per share that is based on the value of the fund’s underlying securities. On each trading day, typically at the end of the day, the net asset value (NAV) is calculated by dividing the market value of the fund’s assets (less expenses) by the number of shares held by investors. Liquidity: Open-ended funds offer high liquidity due to which you can redeem your units at your convenience. When compared to other types of long-term investments, open-ended funds provide the flexibility for redemption at the prevailing Net Asset Value (NAV). Availability of Track Record: In case of a closed-ended fund, you cannot review the performance of the fund over different market cycles on account of non-availability of track record. However, in the case of open-ended funds, the historical performance of the fund is available. Hence, investing in an open-ended fund is a well-informed decision. Systematic Investment Form: Closed-ended funds require investors to invest a lump sum to buy the units of the fund at the time of their launch. This can be a risky approach to deal with your investments. It exposes you to take bigger bets than otherwise warranted. However, open-ended funds are a suitable investment option for a large number of salaried classes of investors. It is because they can invest via systematic investment plans (SIP). Suffers from Market Risk: Even though the fund manager of open-ended funds maintains a highly diversified portfolio, they are subject to market The NAV of the fund keeps fluctuating according to the movements of the underlying benchmark. No Say in Asset Composition: Open-ended funds appoint fund managers who are well-qualified and have experience in the field of fund management. They take all the decisions related to the selection of securities for the fund. Hence, the investors do not have a say in deciding the asset composition of the fund. Since closed-end mutual funds are traded among investors on an exchange, they have a fixed number of shares. Like stocks, closed-end funds are launched through an initial public offering (IPO) in order to raise money before they can trade in the open market. Although their value is also based on the fund’s NAV, the actual price of the fund is determined by supply and demand, so it can trade at prices above or below the value of its holdings. Closed-end funds are often actively managed unlike exchange-traded funds, which track an index and generally do not trade at a discount or premium to their NAV. Stable Asset Base: In closed-ended funds, the investors can redeem their units only on predefined dates, i.e. when the fund matures. This allows portfolio managers to get a stable base of assets, which is not subject to frequent redemptions. A stable asset base allows the fund manager to formulate an investment strategy more comfortably. The fund managers can also keep the fund objectives holistically in mind without having to worry about the inflows and outflows in the case of stable asset bases. Availability of Market Prices: Closed-ended funds primarily trade on stock exchanges like equity shares. This provides an opportunity for investors to buy/sell fund units based on real-time prices, which can be above (premium) or below (discount) the fund’s NAV. They can also make use of the usual stock trading strategies like market/limit orders and margin trading. Liquidity and Flexibility:Investors are allowed to liquidate closed-ended funds as per the fund norms. Investors can utilise real-time prices available during the trading day to buy/sell closed-ended fund units at the prevailing market prices. This provides the necessary flexibility to decide on their investments by using real-time information. Poor Performance- Performance of the closed-ended schemes has not been on par with open-ended peers across different time horizons. The lock-in period on closed-ended funds are aimed at giving the fund managers the flexibility to allocate the funds without the fear of outflows has not helped much in generating better returns. Lump Sum Investment- Closed-ended funds require you to invest a lump sum at the time of their launch. This can be a risky approach to deal with your investments. It exposes you to take bigger bets than otherwise warranted. Moreover, a large number of salaried classes of investors are unable to afford lump sum investments. They, instead, prefer staggered investments by way of systematic investment plans (SIP). Non-Availability of Track Record- In case of open-ended funds, investors can review the performance of the funds over different market cycles on account of availability of historical data. However, in the case of closed-ended funds, the track record is not available. Hence, investing in a closed-ended fund attracts uncertainties for which you can only depend on the fund manager. Both types of mutual funds have been around for quite a while. Closed-end funds are the oldest, having been introduced in the late 19th century; open-end funds followed in the early 20th century. American Funds’ oldest offering, The Investment Company of America: registered: (ICA), was established in 1926 as an investment trust, which is similar to a closed-end fund. In 1933, ICA became a publicly owned closed-end fund and began operations under management by Capital Group a year later. By the end of the decade, ICA became an open-end mutual fund. Today, open-end funds are by far the most popular among individual investors, who often have exposure to them through a 401(k) or other company-sponsored retirement plan. An open-end fund allows investors to participate in the markets and have a great deal of flexibility regarding how and when they purchase shares. Closed-end mutual funds may be more volatile; investors usually need to buy or sell them through a broker and are bound by the market price. But don’t confuse a closed-end fund with a “closed fund,” which is an open-end fund that no longer accepts new investors. A Systematic Investment Plan (or SIP) is a type of mutual fund investment that allows you to invest over time. It is a systematic method of investing fixed quantities of money on a regular basis, as the name implies. This can be done on a monthly, quarterly, or semi-annual basis and It may be easier to reach your financial goals if you invest consistently in this manner. SIPs operate on the following two principles: 1) Rupee Cost Averaging By removing the guessing game of market performance, SIPs can help you avoid market volatility. In the long run, regular investing guarantees that the average purchase cost is evened out. You receive less units when the markets rise, and more units when the markets fall. This reduces your risk and ensures that you buy investments at a lower average unit cost. 2) Compounding Because of the compounding effect, saving a small amount of money on a monthly basis for a lengthy period of time can have a huge impact on your investment. Regular investments over a longer period of time offer higher returns and profits. SIP investments in the monthly format are preferred by a number of investors .This is due to the fact that individuals can deposit the SIP amount straight into the fund when they receive their monthly paychecks. There are, however, a variety of different solutions available to you. a] Frequency of SIP SIPs are available from mutual fund firms on a weekly, fortnightly, quarterly, or semi-annual basis. You can also invest for the future without committing to a specific time frame. The ‘Perpetual SIP’ option allows you to do this. b] Perpetual SIP You can simply transfer a fixed amount into the mutual fund on a regular basis for as long as you desire using this option. Give your bank account a standing instruction, and the money will be moved on a certain day. This is a fantastic option if you have a substantial financial objective in the future (retirement, child’s wedding expenditures) and want to build a huge corpus. c} SIP step-up You can’t step-up or increase your SIP investments on a regular basis with the step-up SIP option. Are you someone looking forward to investing in Cryptocurrencies in 2022? This Blog is to throw you insight on the world of cryptos and our top cryptocurrency picks for the year 2022. A cryptocurrency also known in short as “crypto” is a type of digital or virtual currency that can circulate without the need for third-party intermediaries like governments or banks. Cryptos are made using cryptographic procedures that let users purchase, sell, and exchange them safely via the internet. Cryptocurrencies are popular because of their complete transparency, which is made possible by open-source, publicly verifiable technology. Despite it’s volatility and fluctuation in the market, long-term investments in crypto are considered as tremendously profitable. They can serve as a sound source of savings after retirement or provide a much-needed financial cushion in the event of a sudden economic downturn. The fact that Crypto trading is very flexible since it is available 24 hours a day, seven days a week, allowing traders to do business at any time of day makes it popular among it’s investors. A blockchain is a decentralized, public ledger that records the transactions of a cryptocurrency. Completed blocks are recorded and added to the blockchain, and they contain the most recent transaction history. As an open, permanent, and verifiable record, they are kept in chronological sequence. These blockchains are managed by a peer-to-peer network of market participants that follow a specified procedure for verifying new blocks. Every new block must be validated by each node before being confirmed, making forging transaction histories almost impossible. It is the world’s first and largest cryptocurrency launched in 2009. Its price movement still continues to have a substantial influence on the rest of the market even today and it is expected to soar even higher in the coming years. So If you are making a long-term investment in cryptocurrencies,then Bitcoin will be a good choice. The current price of this bitcoin is 28,55,594 Rs. The cryptocurrency market is extremely volatile, but Tether has been a stable coin that is backed by fiat currencies such as the US dollar and Euro and maintains a value equivalent to one of those currencies. This cryptocurrency seems to enjoy a high level of investor confidence, making it one of the finest options for investment. Current rate of Tether is 75.07Rs INR. 3)Ethereum:- This is another widely used cryptocurrency in the crypto market. With the Ethereum 2.0 about to debut, Ethereum’s largest challenge which is transaction speed will also be tackled. And this makes Ethereum one of the top cryptocurrencies to invest in the year 2022, This coin also has a lot of support from cryptocurrency investors. Current Price(as per January2022): 1,93,795.58Rs Terra is one crypto that always outperforms the Bear markets. It is often said that one should keep an eye on the market running Bearish but Terra on the other hand begins to rise as its competitors begin to fall. Terra has also seen a 52 percent gain in value in only seven days, putting pressure on currencies like the US dollar and Japanese yen which makes it a good investment for 2022. Price of this Cryptocurrency stands at 4,059.51Rs as per Jan 2022 The BNB symbol is used to trade this cryptocurrency, which is utilised as a utility token to pay for trading fees and transactions at a lower cost. This cryptocurrency is projected to soar to new heights in 2022. Current Rate : 3761.26 INR While Bitcoin has remained virtually stagnant Yearn.finance value has increased by over 86% in a short period of time in 2021 and the returns have been even more favorable for early backers of this decentralized project. This crypto is supposed to have a strong upward momentum in 2022. Current price of this Crypto is 19,87,939 Rs. Hedara is the decentralized economy’s most widely utilised enterprise-grade public network. It provides a blockchain enabling developers to construct secure enterprise applications and I s one among the best cryptocurrencies to invest in 2022. Price of this crypto as per Jan 2022 is 17.99 Rs. PancakeSwap is another decentralized exchange platform which has shown explosive growth since it’s launched in 2020,It allows users to purchase and sell digital tokens without having to go through a third party. This is a great place to start if you’re thinking about investing in digital currencies. This crypto is currently at 597INR Ripple is one of the best cryptocurrencies for investment in 2022 as their transactions are known due to their lower energy consumption when compared to Bitcoin and they also have quicker confirmation time. This crpto currency costs Rs.46.58Rs Solana is one of the major cryptocurrencies, with the potential to reach new highs in 2022 for crypto investors’ digital wallets. This cryptocurrency is worldwide accepted and noted for its effective, quick, and censorship-resistant blockchain. In 2022, the cryptocurrency price is predicted to rise steadily with a bright future.Price as per Jan 2022 for this crypto is Rs10,249.98 Rs If you want to obtain direct exposure to the world of digital currency, cryptocurrency is an excellent investment choice. Investing in crypto assets can get incredibly risky, but it can also be extremely lucrative. Here are some risk factors one need to take into consideration before investing in the cryptos: Despite the inherent dangers, cryptocurrencies and the blockchain sector still continue to expand. Investors are increasingly able to obtain institutional-grade custody services as necessary financial infrastructure is being constructed. Professional and amateur investors are progressively gaining access to the tools they need to manage and protect their cryptocurrency holdings. Investing in cryptocurrency can be heavily risky and speculative. Every individual has unique situations and aims and it is therefore suggested that a thorough Research along with the opinion of qualified professional should always be taken into account before making any financial decisions regarding InvestmentsHow Much Money is Needed for Retirement??
What is the ideal retirement corpus?
What is the 30X Rule?
Is a retirement corpus of 30x expenses enough?
Employee’s Provident Fund (EPF)
Senior Citizens’ Savings Scheme (SCSS)
Diversified investments
Conclusion
Chapters
6.1 What Are The Products Dealt In Secondary Markets?
The following are the products dealt in secondary market: -
Features That Characterize And Vary Among Equity Securities:
6.2 Why Should One Invest In Equities In Particular?
6.3 What Has Been The Average Return On Equities In India?
6.4 What Are The Factors That Influence The Price Of A Stock?
Demand and supply
Government Policies
Interest rates
Economy
Financials of the Company
6.5 What Is Meant By The Term Growth Stock/Value Stock?
Growth Stocks
Value Stocks
Growth v/s Value which one to choose?
Conclusion
6.6 What Is a Portfolio?
Portfolio Management
Risk Involved
6.7 What Is Diversification?
6.8 What Are The Advantages Of Having A Diversified Portfolio?
Reduces The Impact Of Market Volatility
Benefit Of Different Investment Instrument
Capital Preservation
Generating Better Returns (At Similar Levels Of Risk)
6.9 What Is A Debt Instrument?
6.10 What Are The Features Of Debt Instruments?
Main Features of Debt Securities
Debt Securities Vs. Equity Securities
Types of Debt Instruments
Introduction
Defining ROI
What is ROI?
Why ROI Matters
Calculating ROI
Types of Investments and Their ROI
Factors Affecting ROI Calculation
Significance of ROI
Risks and Challenges in ROI
Strategies for Enhancing ROI
Conclusion
Chapters
8.1 Understanding Returns
8.2. Checking the After-tax Return
8.3. Using Index as a Benchmark
8.4 Using Peer Groups as Benchmarks
8.5 Return History Longer the Better
Introduction
Types of Debentures
Advantages of Investing in Debentures
Risks Associated with Debentures
How to Evaluate Debentures
Debentures vs. Other Investment Options
Tax Implications of Debenture Investments
The Role of Debentures in Corporate Finance
Conclusion
Chapters
5.1 Term Life Insurance
5.2 Unit Linked Insurance Plan
ULIP Plans Benefits
How to Choose the Best ULIP Plan?
Which Investor Class Are ULIPs Most Suited For?
Fund Option Under ULIPs
5.3. Whole Life Insurance
What is Whole Life Insurance?
Types of Whole Life Insurance Policies
1. Limited Payment Whole Life Insurance
2. Single Premium Whole Life Insurance Policies
3. Modified Whole Life Insurance
4. Variable Whole Life Insurance
5. Joint Whole Life Insurance
Benefits of Buying Whole Life Insurance
5.4. Endowment Plans
What is Endowment Insurance Plan?
Why Must You Apply for an Endowment Plan?
Benefits of an Endowment Plan
1. Maturity Benefit
2. Death Benefit
3. Tax Benefits
5.5. Child Plans For Education
What Are Child Education Plans And How Do They Work?
Types Of Child Education Plans
1. Child ULIP Plans
2. Child Endowment Plans
Key Features of Child Education Plans
1. Life Insurance Cover
2. Investment Options
3. Lock-in Period
4. Charges
5. Tax Benefits
Limitations of A Child Education Plan
2. Diversion Of Premium Paid
3. Few Investment Choices
4. Limited Flexibility
Should One Invest In A Child Education Plan?
5.6. Retirement Plans
1. Deferred Annuity Retirement Plan
2. Immediate Annuity Plan
3. Pension with insurance cover
4. Pension without insurance cover
What is Asset Allocation?
How does Asset Allocation work?
Example of Asset Allocation
The Importance of Asset Allocation
Different Asset Classes/Categories
Strategies for Asset Allocation
Factors Affecting Asset Allocation Decision
Conclusion
Definition and Basics
Importance of CDs in Financial Planning
How Certificate of Deposit Works
Opening a CD Account
Terms and Conditions
Interest Rates and Maturity
Advantages of Investing in CDs
Safety and Security
Fixed Interest Rates
Variety of Terms Available
Risks Associated with Certificate of Deposit
Types of Certificate of Deposit
Choosing the Right Certificate of Deposit
Understanding Penalty Clauses
Strategies for Minimizing Tax Impact
Alternatives to Certificate of Deposit
Common Misconceptions about Certificate of Deposit
CD vs. Savings Accounts
Conclusion
Chapters
1.1 What Is Investing & Why One Should Invest?
What Is Investing?
Why Should One Invest?
your investment and your money's purchasing power. For example- lets say your money is lying idle and kept in the cash vault in your home- however every year inflation is going up. This essentially means that if inflation rate is 5%- value of your money will decline by 5% every year if kept idle. Because the prices of products are going to go up by 5% every year. Thus the longer you keep your money doing nothing- the more value you erode. Investing in assets helps you beat inflation and generate some positive returns.
1.2 Risks Associated With Investing
Volatility
Timing
Returns Not Guaranteed
1.3 When To Start Investing?
The Three Golden Rules To Remember Before You Start Investing: -
Invest Early
Invest Regularly
Choosing the right type of Investment period (Long/Short term)
1.4 What Care Should One Take While Investing?
A List Of Things One Must Ensure Before One Starts His Investment Journey: -
1.5 Types Of Investment Instruments
The Different Types of Investment Instruments are as Follows: -
Equities:
Debt Securities:
Derivatives:
Exchange Traded Funds (ETFs)
Mutual Funds
1.6 Saving Or Investment - The Better Option
Difference In Saving And Investing
The Better Option?
1.7 Where Are The Investment Instruments Traded?
How Does It Work?
Prominent Stock Exchanges In India:
1.8 What Is An Index?
Meaning of a Stock Market Index:
Types of Weightages:
1.9 Types Of Stock Market Indices
Let Us Understand The Different Types Of Indices In Bit More Detail:
Benchmark Indices -
Sectoral Indices -
Market-Cap Based Indices -
Other Indices -
What Is The Purpose Of Indices?
What is Time Value of Money
Basic Concepts of TVM
Applications of TVM
Calculating TVM: Formulas and Examples
Significance of TVM in Investment Decision Making
TVM and Inflation
Risk and TVM
Challenges in TVM
Conclusion
● Risk tolerance
● Time horizon1. Required Return
An investor can pursue a total-return approach, in which no distinction is made between income (such as dividends and interest) and capital gains (that is, increases in market value). A total-return investor is unconcerned with the source of return changes in value or income. Alternatively, an investor can make a distinction between income and capital gains, pursuing income for immediate needs and capital gains for long-term goals. The return criterion should be defined in real terms, which involves correcting for inflation,
especially for a long-term horizon. This change is critical because it keeps the focus on what the collected portfolio will deliver at the conclusion of the time horizon. A client’s spending capacity is not improved by a rise in value that simply equals inflation.
Within the limits, the investment manager or adviser must be confident that the investor’s targeted rate of return is possible. The majority of clients desire high returns with low risk, yet few assets meet these criteria. The adviser or manager has a function to play in the client’s counselling.
Larger levels of expected return typically necessitate a higher level of risk. Some investors will prefer to invest in high-risk assets because they need high returns to accomplish their objectives, but the potential implications (downside risks) of this strategy must be considered. Other investors will have amassed adequate assets and will not require huge returns, allowing them to take a lower-risk approach with greater
assurance of fulfilling their objectives. This could be the case for a pension plan with a high funding level, which means that its assets are adequate (or nearly sufficient) to cover its liabilities.2. Risk Tolerance
The ability to take risk is determined by the investor’s condition, such as the asset-to liability ratio and the time horizon. If an investor’s assets outnumber their liabilities, any losses incurred as a result of risk-taking may not have a significant impact on their way of life. Investors with a long-time horizon have more flexibility in adjusting their circ*mstances to cope with losses by saving more or waiting for markets to rebound, albeit recovery and timing cannot be assured. Willingness to take risks is also influenced by the investor’s psychology, which can be examined by surveys.
Regulatory constraints on the amount of risk that institutional investors, such as insurance firms and other financial intermediaries, can take with their portfolios may also apply. In some cases, an investor’s willingness to take risk and his or her ability to take risk may be incompatible. In such cases, the investment adviser should advise the investor on risk and establish the right level of risk to take in the portfolio, taking into account the investor’s ability and desire to take risks. The risk level assumed should be
the lower of the two risk levels.3. Time Frame
A property and casualty insurance firm with claims due in the next few years, for example, will have a short time horizon, whereas a sovereign wealth fund investing oil profits for future generations will have a long-time horizon, maybe decades.
The investment horizon has a significant impact on the amount of risk that can be accepted with a portfolio and the amount of liquidity that may be necessary. The ease with which an investment can be converted into cash is known as liquidity.
Because they have more time to adapt to their circ*mstances, investors with longer time horizons should be able to assume greater risk. Markets rise more often than they fall over time, so an investor with a longer time horizon has a better chance of accumulating positive returns. Long-term investors are also better able to wait for markets to rebound after a period of bad performance, but this is not always possible.
A person may also demand that a portion of their portfolio remain liquid in order to cover unanticipated needs. Furthermore, the individual may have anticipated future liquidity demands, such as a planned future spending on children’s schooling or retirement income requirements. The liquidity restriction for an institution usually represents the institution’s liabilities.5. Regulatory Issues
6. Taxes
For example, if income and capital gains on assets maintained in a pension account are tax-free or tax-deferred, an individual may choose to keep some assets in a pension account.7. Unusual Situations
Investors may also have special needs based on the type of their overall investment portfolio or financial situation. An employee of a company, for example, may seek to limit his or her investment in that company in order to reduce single-company exposure and acquire greater diversification.Chapters
6.1 Stock Market Investing
People who get soaked in the stock market are those who make easily avoidable mistakes. An investment mistake is a bad decision that you could've or should've avoided, either because better options were available, or because the odds were heavily stacked against you making money. Investment mistakes result from the following:6.2.The Stock Market Grows Your Money
6.3 Using Mutual Fund to Invest in stocks
When you invest in stocks, you expose yourself to risk. But that doesn't mean that you can't work to minimize unnecessary risk. One of the most effective risk-reduction techniques is diversification - owning numerous stocks to minimize the damage of any one stock's decline. Diversification is one reason why mutual funds are such a great way to own stocks. Unless you have a lot of money to invest, you can only cost-effectively afford to buy a handful of individual stocks. If you end up with a lemon in your portfolio, it can devastate the returns of your better-performing stocks. Companies go bankrupt. Even those that survive a rough period can see their stock prices plummet by huge amounts - 80 percent or more - and sometimes in a matter of weeks or months. Of course, owning any stock in a company that goes bankrupt and stays that way means that you lose 100 percent of your investment. If this stock represents, say, 20 percent of your holdings, the rest of your stock selections must increase about 25 percent in value just to get your portfolio back to even.
Stock mutual funds reduce your risk by investing in many stocks, often 50 or more. If a fund holds 50 stocks and one drops to zero, you lose only 2 percent of the value of the fund if the stock was an average holding. If the fund holds 100 stocks, you lose 1 percent, and a 200-stock fund loses only 0.5 percent if one stock goes. And don't forget another advantage of stock mutual funds: A good fund manager is more likely to sidestep investment disasters than you are. Another way that stock funds reduce risk (and thus their volatility) is by investing in different types of stocks across various industries.
Different types of stocks don't always move in tandem. So if smaller-company stocks are being beaten up, large-company stocks may be faring better. If growth companies are sluggish, value companies may be in vogue. You can diversify into various types of stocks by purchasing several stock funds, each of which focuses on different types of stocks. This diversification has two potential advantages. First, not all your money is riding in one stock fund and with one fund manager. Second, each of the different fund managers can focus on and track particular stock investing opportunities.6.4 How Stock Funds Make Money?
Chapters
9.1 Mutual Funds
9.2 What Is The Regulatory Body For Mutual Funds?
Association of Mutual Funds in India (AMFI)
Objectives of AMFI
How Is A Mutual Fund Set Up?
9.3 What Is NAV?
What Are Net Assets Of A Mutual Fund And How Are They Valued?
How Frequently Is The NAV Calculated?
9.4 Risks Involved In Mutual Funds
How Do We Measure The Risks Involved In A Mutual Fund?
Standard Deviation
9.5 What Are The Different Types Of Mutual Funds?
Schemes According To Maturity Period
Schemes according to Investment Objective
Money Market or Liquid Schemes
Gilt Funds
Index Funds Index
9.6 What Are The Rights That Are Available To Mutual Funds Holders In India?
9.7 What Is A Fund Offer Document?
Scheme Information Document (SID)
Statement of Additional Information (SAI)
9.8 What Is Active Fund Management?
9.9 What Is Passive Fund Management?
9.10 What Is An ETF?
9.11 Must Know Concepts
Expense Ratio
AUM stands for assets under management
Exit Load
Factsheet
Benchmark
Total Return Index
SIP
SWP
STP
What Does Position Sizing Mean?
Examples of Position Sizing
Importance of Position Sizing in Investment and Trading
Position Sizing Methods
Factors to Consider in Position Sizing
Conclusion
Frequently Asked Questions(FAQs)
Introduction
Equities And Inflation
Diversification
How Balanced Funds Work?
Advantages of Balanced Funds:
Disadvantages of Balanced Funds
Top Balanced Funds of 2021
Who Should Invest in Balanced Funds?
Conclusion
What are Tax Free Income?
Money Received From Insurance
Agriculture Income
Components of Salary received from the employer
Medical Insurance Premium
Phone and Internet Bills
Meal Coupons
Books, Periodicals, Newspapers and Journals
Gadgets
Recreational and Medical Facilities’
Gifts in Kind
Receipts from Hindu Undivided Family
Share from Partnership Firm or LLP
Gratuity
Earnings from Public Provident Fund
Gifts from Friends and Family
Income from Awards or Scholarships
Returns received from share or Equity MF
What is a portfolio?
How to build a stock portfolio?
Building a stock portfolio?
Investment portfolio tips
Conclusion:
Know More About Diversifying Your Portfolio
What is an Expense Ratio?
How To Calculate Expense Ratio
Let us understand this concept with an example
Components of Mutual Fund Expense Ratio
Mutual Fund Expense Ratio Limit By SEBI
How Does Expense Ratio Impact Funds Returns
Importance of Mutual Fund Expense Ratio
Things to remember about Mutual Fund Expense Ratio
Know More About Expense Ratio In Mutual Fund
Frequently Asked Questions (FAQ)
Chapters
2.1 Financial Plans
2.2 Mistakes Made
This story is not to discourage you but to caution you against buying mutual funds in haste or out of fear before you have your own financial goals in mind.2.3. Plan Before Investing
Another benefit of pondering your goals is that you better understand how much risk you need to take to accomplish your goals. Seeing the amount you need to save to achieve your dreams may encourage you to invest in more growth-oriented funds. Conversely, if you find that your nest egg is substantial, given what your aspirations are, you may scale back on the riskiness of your fund investments.2.4.Access the risk you're comfortable with
Features of NPS
Why invest in the NPS scheme?
Early Withdrawal and Exit rules
Withdrawal Rules After 60
Comparing NPS scheme with other Tax Saving Instruments
Overview
Introduction
What is a bond?
Characteristics of Bonds
Types of Bonds
Advantage of Bond Investment
Disadvantage of Bond Investment
Limitations of Bonds
Things to Consider Before Investing in Bonds
How to Invest in Bonds
Suitability of Investments in Bonds
Key Terms
Conclusion
What are Mutual Funds?
Types of Funds Based on Asset Class
Types of Funds Based on Investment Objective:
Types Funds Based on Structure:
Benefits In Investing Mutual Funds
How to Invest
To Conclude:
Know More About Mutual Funds
Definition of High Wave
Significance in Finance
Riding the High Waves
Strategies for High Wave Resilience
Common Misconceptions
Impact on Personal Finances
Conclusion
What is Tax Planning?
The Objective of Tax Planning
Understanding Tax Planning
Advantages of tax planning
Types of Tax Planning
How to Get Started with Tax Planning?
How to Save Taxes?
Conclusion
Chapters
5.1 About Bond Funds
5.2 Bond Fund Investing
5.3 Four Key Facts of Bond Mutual Fund
5.4 Why you might (and might not) want to invest in bond funds
Chapters
1.1 What Is Insurance?
1.2 What is the Need of Insurance?
The following are the reasons why one should take insurance policy
1.3 How Does Insurance Work?
Insurance companies first access the risk of an individual and charge premiums for various types of insurance coverage. When the damages incur, the insurance company pay you the agreed amount of the insurance policy. The insurance companies pay the amount assured and still make profit. Now how exactly do they do this? Let us understand them
Introduction
What is a callable bond?
How do callable bonds work?
How do I find the value of a callable bond with a formula?
Example of a callable bond
Different Types of Callable Bonds
Callable Bonds and Interest Rates
Advantages and Disadvantages of Callable Bonds
Advantages:
Disadvantages:
Conclusion
What is a Fixed deposit?
Features
What is a Mutual Fund?
Features
Who Should Invest in Fixed Deposit?
Who should put their money into mutual funds?
Which is the better option?
Chapters
1.1 Introduction
Mutual funds can fit well into either long- or short-term investment strategy, but the success of your plan depends on the type of fund you choose. Because all funds invest in securities markets, it is crucial to maintain realistic expectations about the performance of those markets and choose funds best suited to your needs.
Returns In Perspective
Successful investors base their performance expectations on historic average returns, and keep short-term market movements in perspective. Although many investors have enjoyed strong returns on their investments in recent years-market volatility can affect the returns.
If one's investment expectations are too high, and the market reverts to lower level, one may fail to reach their financial goals.
To achieve their goals, it helps to follow a few basic rules of investing as we have discussed in the previous modules:
1. Diversify your investments;
2. Understand the relationship between risk and reward;
3. Maintain realistic expectations about investment performance;
4. Keep short-term market movements in perspective;
5. Consider the impact that fees and taxes will have on your investment return; and
6. Remember that an investment's past performance is not necessarily indicative of its future results.1.2 About Mutual Fund
1.3. Different fund Different Features
Risk and Reward Potential for Types of Funds
Generally, risk and reward go hand in hand with mutual fund investments.
1.4. Why Invest in Mutual Fund ?
In short, funds allow you the opportunity to invest in many markets and sectors. That's the key benefit of diversification1.5. How a Fund Determines Its Share Price
MINUS
Fund's Liabilities (including fees and expenses)= (Rs.60,000)
DIVIDED BY
Number of Investor Shares Outstanding = 500,000
EQUAL TO
Fund Share Price or Net Asset Value (NAV) Rs. 11.88
Fund share prices appear in the financial pages of most major newspapers. Actual calculations of a fund's share price can be found in its semi-annual and annual reportsChapters
3.2 What Does It Cost to Invest in the Share Market
3.3. Types of Instruments You Can Buy In Share Market
3.5 How to Know Which Stock to Buy
How private banking works-
Retaining Private Banking Professionals
Benefits of private banking-
Drawback of private bank-
Private Banking vs. Wealth Management
What Is A Zero Coupon Bond?
Let’s understand How to Invest in Mutual Funds
How To Invest In Mutual Funds using Mobile Application
Things to be considered to Invest in Mutual Funds
How Do Mutual Funds Work?
Cost Involved in Mutual Funds
Conclusion
What is a load?
What is Front End Load?
Understanding front-end load
The Basics of Front-End Loads
What a front-end load compensation works
Example of Front-End Load
Advantages of Front-End Load Funds
Disadvantages of Front-End Load Funds
Should you choose to invest in front end load mutual funds?
What is the difference between Front Load vs Back Load?
Conclusion
Introduction
The Importance of Risk Tolerance
Factors Affecting Risk Tolerance
What is Lock-In?
Key Features of Lock-In
Types of Lock-In
What is Lock-In?
Types of Lock-In
Pros and Cons of Lock-In
Conclusion
SO HERE IS THE BUDGET 2023-24 ANALYSIS
BUDGET 2023-24- AN OVERVIEW
PRIORITY 1- INCLUSIVE DEVELOPMENT
PRIORITY 2- FINANCIAL SECTOR
PRIORITY 3- YOUTH POWER
PRIORITY 4 – GREEN GROWTH
PRIORITY 5- REACHING THE LAST MILE
PRIORITY 6- INFRASTRUCTURE AND INVESTMENT
PRIORITY 7- UNLEASHING THE POTENTIAL
WHAT IS THE STATUS OF FISCAL MANAGEMENT?
PERSONAL INCOME TAX
Current and Proposed Tax Slabs:
DIRECT TAX PROPOSALS
INDIRECT TAX PROPOSALS
Other Tax Reforms:
CONCLUSION
Introduction
What Is a Partnership Firm?
Advantages of a Partnership Firm
Disadvantages of a Partnership Firm
Types of Partnership Firms
Formation of a Partnership Firm
Capital Contribution in a Partnership Firm
Profit Sharing in a Partnership Firm
Management of a Partnership Firm
Taxation of Partnership Firms
Dissolution of a Partnership Firm
Legal Aspects and Liabilities
Conclusion
Chapters
6.1 Choosing the Right Policy
6.2 What should one look for while Selecting the correct Insurance Company
Claim Settlement Ratio
2. Cost Involved
3. Tax Benefits
4. After Sales Service
5. Claim Settlement Process
What is stock market?
How stock market works?
How share market works
What is the share market and how it works?
How does the share market work?
What is an Investing Strategy?
Establish Your Goals
Level of Risk
Study the Stock Market
Investment Diversification
Emotional Self-Control
Advantages of being Financially Literate
Components of Financial Literacy
Why is Financial Literacy important?
Who is Robert Kiyosaki??
Personal Life and Business Journey
Why is Robert Kiyosaki in Debt?
What is the True Wisdom Behind Savings According To Robert Kiyosaki??
Defining Good Debt and Bad Debt
Points to Remember
How Is Deflation Measured?
What are causes of deflation?
How it’s stopped
How Deflation Has Played a Role in History
Why Deflation Is Worse than Inflation?
A. Establish Your Goals
B. Find Companies You Understand
C. Determine A Reasonable Stock Price
D. Purchase A Stock With A Safety Margin
E. Keep An Open Mind
Definition and Concept
Range of Services
Functions of Universal Banks
Advantages of Universal Banking
Disadvantages of Universal Banking
Regulatory Framework for Universal Banking
Open-Ended Mutual Fund
Advantages of Open-Ended Funds
Disadvantages of Open-Ended Funds
Closed-Ended Mutual Funds
Advantages of Closed-Ended Funds
Disadvantages of Closed-Ended Funds
Closed-End vs. Open-End Funds
The Benefit of Investing in SIP
How do SIP Work?
Customizing SIP
Crypto Currencies
Blockchain Technology
Top 10 Cryptocurrencies To Buy In 2022
1) Bitcoin :-
2)Tether :-
4)Terra :–
5)Binance Coin:-
6)Yearn.finance :-
7) Hedera (HBAR):-
8) PancakeSwap:-
9) Ripple :-
10)Solana:-
Is Crypto Safe?
See Also
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