basic finance management
TRANSCRIPT
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Basics of Financial Management
Presented by:
Esha Dhingra
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It is the Art & Science of Managing Money
We work hard to make money, but learn tomake your money work for you
Finance
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Golden Rule
Its Never Too Soon to Start Saving
Starting early takes advantage of compoundinterest.
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Value of Having a Long-Term Investing Program
Many people dont start investing becausethey only have a small amount to invest
but....
Small amounts invested regularly becomelarge amounts over time
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Compound Interest
Often called the eighth wonder of the world, because it seems topossess magical powers.
Compound interest makes your investment fund growsexponentially.
What it needs to give you good results is time. The more time yourfund has to grow, the more you will gain from the compoundinterest.
E.g.:Rs. 100 invested at a 10% return will be worth Rs. 110 in a year.Invest that Rs. 110 again at 10% and youllend up with Rs. 121. Thefirst year earned you Rs. 10, but the second generated Rs. 11
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Consider 10% annual interest.
At retirement, Jack would have
Rs 1.33 crores while Jill would
end up saving only Rs 41.79
lakhs
Clearly, this happened because
Jack started investing early in
life.
Kaun banega Crorepati?
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0
20
40
60
80
100
120
140
25 27 29 31 33 35 37 39 41 43 45 47 49
Jack
Jill
Rs. 41. 79
lakhs
Rs. 1.33 cr
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Will Jill be able to compensate for the difference by increasing herinvestments???
Jill will have more expenses unlike the early years of her career.
Lets consider that at the age of 35, Jill wishes to have the samecorpus as Jack at 50, how much do you think she will he have to shell
out???
To end up with an equal amount of accumulated wealth at 50, Jill will
have to contribute more than three times of the initial outgo!
Surprising, isntit?
Therefore, we can always start investing small amounts with top-ups.
Kaun banega Crorepati?
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Why Invest
Achieve financial goals
Increase current income
Gain wealth and financial security
Have funds available for retirement
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Preparation for Investing
Establish Investment Goals: Short, Medium and LongTerms
Live Within Your Means, Manage Your Debt
Save First
Prepare a budget which shows you exactly where your
money goes and provides a spending plan
Carry adequate insurance
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Life Insurance
Life insuranceis a contract between the policy holder and the
insurer, where the insurer promises to pay a designated
amount upon the death of the insured person.
Important for peace of mind.
Life Insurance providers: LIC, ICICI Prudential, HDFC Standard
Life Insurance Company Ltd, SBI Life Insurance, etc
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Health Insurance
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Insurance against loss by illness or bodily injury.
Health Insurance provides coverage for medicine, visits to the
doctor or emergency room, hospital stays and other medical
expenses.
There are a number of companies which provide private
health insurance, e.g. ICICI Lombard, TATA AIG HealthInsurance, etc
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Various Investment Avenues
1. Real Estate
2. Gold and Jewellery
3. Government Securities
4. Fixed Deposits
5. Mutual Funds
6. Shares
7. ULIPs
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Govt. Securities/Bonds
Bondsare investments whereby an investor loans a certain
amount of money, for a certain amount of time, with a
certain interest rate, to a company or country.
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Fixed Deposits
Fixed Deposits or FDs allow you to deposit your money for
a set period of time to earn a fixed rate of return.
All banks offer FDs. E.g. ICICI Bank, HDFC Bank, SBI, etc.
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Mutual Funds
A mutual fund is a professionally managed type of collective
investment that pools money from many investors to buy stocks,bonds, and/or other securities.
E.g. HDFC Mutual Funds, SBI Mutual Funds, ICICI PrudentialMutual Funds
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Shares
A joint stock company divides its capital into units of equal
denomination. Each unit is called a share.
These units are offered for sale to raise capital. This is
termed as issuing shares.
A person who buys share/shares of the company is called a
shareholder, and by acquiring share or shares in the
company becomes one of the owners of the company.
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ULIPs
Unit Linked Insurance Plan
Combines Investments and Insurance
E.g.: ICICI Prudential, HDFC Standard Life Insurance, Kotak
Life Insurance, etc
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Pyramid of Investment
WealthPreservation
& Distribution
WealthAccumulation
Risk Management
Preserve and distribute that which
you have worked so hard to
accumulate.
Accumulate wealth in a tax-efficientmanner for specific goals such as your
children's education, retirement
funding, or a future financial need.
Protect that which you can least
afford to lose your earning power.
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Investing knowledge
A financial plan is good to have no matter how little income
you make.
TRUE
Investing is just for people with a lot of money.
FALSE
As a general rule, the greater the risk, the higher the potentialrate of return.
TRUE
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The stock market will always go up.
FALSE
The earlier you start investing, the more money you can endup saving because of compound interest.
TRUE
People of all income levels and professions can be taken byinvestment fraud.
TRUE
Investing knowledge
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Banking Introduction
Keep money at home?
No interest
Risks: theft, fire, or some other
disaster
Open a bank account? You cantvisityour money as
easily
Opening a bank account is a big step
because you are putting your money
in someone elseshands.
Before you do that, it might be a
good idea to understand how banks
operate.
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How do I choose a Bank?
Best services and the lowest fees. (Non maintenance of QAB ;transaction fees)
Competitive interest rate in deposits
Convenient location and business hours
Courteous and efficient service
Word of mouth
Hence, do some comparison because all banks are not the same.
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Banking Basics
Types of Bank Accounts
Balances & Deposits
Loans
Cheques
Drafts/Pay Orders
Deposit Slips
Funds Transfer, Cash deposit & Cash withdrawal
Credit Cards & Debit Cards
Electronic Banking & Mobile Banking
Frauds
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Happy Saving!!!
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