36 Homemaker

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INVESTMENT PLANNINGFOR

HOME MAKERS

Seuiies an Exhane Ba Inia


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The content o the book is developed by Bombay Stock Exchange (BSE) under the guidance

o the Advisory Committee or the Investor Protection and Education Fund (IPEF) o Securities

Exchange Board o India (SEBI)

(Graphics and print design by MCX-SX and FTKMC)

Disclaimer

Financial Education initiatives o the SEBI are or providing general inormation to the public.

For specic inormation on securities law, rules, regulations, guidelines and directives ramed

thereunder, please reer to the same at www.sebi.gov.in

Pubishe b:

Securities and Exchange Board o India, (SEBI)

SEBI BHAVAN

Plot No.C4-A, G - Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051

Tel: +91-22-26449000 / 40459000 / 9114

Fax: +91-22-26449027 / 40459027

E-mail: [email protected]

Every efort has been made to avoid errors or omission in this publication. Nevertheless any mistake,

errors or discrepancy noted may be brought to the notice at the above mentioned address which

shall be rectied in the next edition. It is notied that the publisher will not be responsible or any

damage or loss to any one, o any kind, in any manner rom use o this material.

No part o this book can be reproduced or copied in any orm or by any means (graphic or mechanical,

including photocopy, recording, taping or inormation retrieval systems) or reproduced on any disc,

tape, perorated media or other inormation storage device, etc. without the written permission o

the publisher. Breach o this condition is liable or legal action.


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1. NEEd or INANcIAl PlANNINg

2. ImPortANcE o UNdErStANdINg HoUSEHold INANcES

3. PowEr o comPoUNdINg ANd tImE VAlUE o moNEy

4. SAVINgS & INVEStmENt rElAtEd ProdUctS

5. ProtEctIoN rElAtEd ProdUctS

6. BorrowINg rElAtEd ProdUctS

7. NEEd ANd ImPortANcE o PAN cArd

8. UNdErStANdINg PoNzI ScHEmES

9. NomINEE ANd HIS rIgHtS

10. womEN cENtrIc ProdUctS

11. EdUcAtIoN PlANNINg or cHIldrEN

12. SEcUrIty tIPS oN Atm cArd & PIN

13. A HoUSEwIES gUIdE to INVEStINg IN gold

14. AdVANtAgES o INANcIAl EdUcAtIoN

15. INVEStor ProtEctIoN & grIEVANcES rEdrESSAl mEcHANISm

TABLE OF

CONTENTS


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Financial planning isnt just or some people nancial planning is or everyone. Financial

planning is one o the most important lie skill. It is the process o meeting your lie goalsthrough the proper management o your nances. A bad nancial plan may lead you to

nancial problems while; a good plan can provide you and your amily with a comortable lie.

Unortunately, many think nancial planning is just about money. Thats not true money is

just the start.

Just like a house needs a strong oundation to withstand the elements, you need to have a

solid nancial oundation. Creating your nancial oundation requires that you have the basics

covered. Your lie goals include buying a home, saving or your childrens education, managing

debt or planning or retirement.

Personal nance covers a wide variety o money topics including budgeting, expenses, debt,saving, retirement and insurance among others. Understanding how each o these topics work

together and aect each other is important or laying the groundwork or a solid nancial

oundation or you and your amily.

It is a six step process that helps you take a big picture , look at where you are and where you

want to be nancially. Using this process helps you work out what you need to do now and in

the uture to reach your goals.

1. NEED FOR FINANCIAL PLANNING


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Oten only one person in the household is responsible or maintaining the amily budget and

managing households nances.

What i you/your partner died or became incapacitated and could no longer manage the

budget? You need to ollow the ollowing steps:-

mainain a huseh bue

Get a big picture idea o all the money in play the income, the debts, the recurring expenses,

the investments and so on.

Understand your amily nances and ll out a budget and a balance sheet. The purpose o

these two nancial tools is to give you a nancial snapshot o your nances. Remember, i youput clean honest data in, you will get a true picture o your nancial situation.

Unesan an esiae u uen spenin paens

Constant debits:- EMI (equated monthly installment) payments, car loans, taxes are the

amounts that are debited every month

Changing debits:- Electricity, phones, groceries and more utilities that are dependent on the

usage. Bills or these services uctuate and must be recorded on a monthly basis

make sue u have aess evehin

Just knowing that you own various assets wont be enough. I you want to take charge, you

should have ull access. Get a set o keys to any saety deposit boxes, make sure you are namedaccount holder or the primary beneciary on all major accounts, lie insurance policies and

property you own. Also ensure that you open a separate account in your name with a nominee

(or emergencies) so that you can control some part o the nances.

Unesan evehin an h i is ipan

People tend to complete tasks more successully when they understand the purpose o what

they are doing. Just hearing rom your partner that this account is where we put our savings

isnt as good as explaining why you choose to put your savings there. Saying that we get the

best interest rate at this bank helps.

gaua shae ih u pane se nania espnsibiiI you currently dont handle the money at all, start o with a small manageable task-

preerably one with low stakes. For example, be responsible or paying one small bill each

month - something with a generous grace period on the payment due date, like the electric

bill. As you become more adept, manage additional tasks. Eventually, handle all the nances

or one month (with supervision, o course). Then, let your partner switch o or months, with

you handling the nances every other month until you both eel completely comortable. This

way you will not only boost your sel condence while handling nancial matters, it will also

provide reedom to your partner to think on other issues o the amily.

disuss ninen Pans

Make sure you know what your partner would do in an emergency or unplanned nancial

event. Dont just be conceptual - discuss actual, concrete strategies to handle unplannedevents. Example:- i there was a sudden loss o income, which bills would need to be prioritized,

and which expenses could be reduced or dropped altogether.

2. IMPORTANCE OF UNDERSTANDINGHOUSEHOLD FINANCES


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3. POwER OF COMPOUNDING ANDTIME VALUE OF MONEy

Poer of Compounding

As you pursue your nancial planning, the most powerul tool or creating wealth saely and

surely is the magical power o compounding. Albert Einstein had once remarked, The most

powerul orce in the universe is compound interest. Compounding is a simple concept that

oers astounding returns: i you park your money in an investment with a given return and

then reinvest those earnings as you receive them, your investment grows exponentially over

time. With simple interest, you earn interest only on the principal (that is, the amount you

initially invested); with compounding, you earn interest on the principal and additionally

earned interest on the interest.

Consider what the power o compounding does to an investment o`12,000 a year (that is, an

aordable`1,000 a month) in a scheme that oers a 9 per cent return, over 30 years. The total

investment o`3.6 lacs (principal) grow to`17.83 lacs over that period.

Compounding rewards disciplined investing and works best over long tenures. In the above

example, the rst 20 years yield is just`6.69 lacs. The last 10 years show the multiplier eect

o the power o compounding. The longer you leave your money untouched, the aster and

bigger it grows. For instance, stretching the above investment pattern to 40 years will give you

`44.20 lacs.

Compounding, thus, is a wonder tool that lets you make the most o small investments madeover long periods o time to accumulate phenomenal wealth. It works best i you start investing

early and leave the money alone. Compounding is, in act, the single most important reason

or you to start investing right now. Every day you are invested is a day that your money is

working or you, helping to ensure a nancially secure and stable uture.

Illustrations: Power o Compounding

Santosh and Sunil are riends and both want to invest` 1 lac @ 10% pa. But Santosh will

get compounding interest rate o 10% and Sunil will get Simple interest rate o 10% on their

investments

Now see the power o compounding:

yea cpunin @ 10% Sipe inees @ 10%

1 1,10,000.00 1,10,000.00

2 1,21,000.00 1,20,000.00

3 1,33,100.00 1,30,000.00

4 1,46,410.00 1,40,000.00

5 1,61,051.00 1,50,000.00

20 6,72,750.00 3,00,000.00

25 10,83,470.59 3,50,000.00

30 17,44,940.23 4,00,000.00


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1. Ater one year both will get same amount i.e.`110, 000

2. Ater 5 years Santosh will get`1, 61,051 and Sunil will get`1, 50,000.

3. Ater 30 years Santosh will get`17, 44,940 and Sunil will get`4, 00, 000,

A ieene `13.4 a in 30 eas

1. diva invess`500 a in an aun eanin 7% p.a inees ae pune

annua. H uh i i be h in?a. 5 years?

b. 10 years?

c. 20 years?

2. N diva ns an aun ha eans 10% p.a inees ae pune annua.

H uh i he`500 be h a he ne ae in:

a. 5 years?

b. 10 years?

c. 20 years?

the rue 72You now know that the concept o compounding means that your money is making moremoney even while you sleep. One way to see how powerul this can be is called the Rule o 72.

Mathematicians say that you can see how long it will take you to double your money simply by

dividing 72 by the interest rate. So lets say your grandparents give you`200 or your birthday

and you plan to invest it. I you put the money into an account that earns 6 percent interest a

year, how long will it take to grow to`400?

72 6% interest = 12 years

So in 12 years, your money will have doubled to`400. But what i your dad tells you about an

account where you could earn 9 percent a year on your money?

72 9% interest = 8 years

Now you will have that`400 in only eight years. By earning just a little bit more interest, you

reduce the time to double your money by our years. And this doesnt include any additional

money that you may put into your account over time, which would only speed up the process.

But what i eight years seems too long to wait and you want that`400 in our years instead?

The Rule o 72 can also tell you the interest rate you need to earn to double your money in a

certain amount o time. So or our years it would be:

72 4 years = 18% interest

You can now see how even a small dierence in the interest rate you earn can make a big

dierence in how quickly your money compounds earning you more money over time.

Time Value of Mone

As time passes, you will realise that i 10 years back you could aord to purchase a ull lunch or

`10, today you might aord to get a ew pieces o vegetables only. This means that the value

o a thousand rupee note would be higher today than ater ve years. Although the note is the

same, you can do much more with the money i you have it now because over time. The value

o`1,000 will decrease because o ination.

At the most basic level the time value o money demonstrates that time literally is money - the

value o the money you have now is not the same as it will be in the uture and vice versa.


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4. SAVINGS & INVESTMENT RELATED PRODUCTS

BanksBank deposits are sae investments as all bank deposits are insured upto a maximum o

`100,000 under the Deposit Insurance & Credit Guarantee Scheme o India. Banks are subject

to control and regulated by the Reserve Bank o India. They oer various types o deposits,

depending on the needs o the customer. Bank deposits are preerred more or their liquidity

and saety than or the returns thereon. It is possible to get loans up to 75 - 90% o the deposit

amount rom banks against xed deposit receipts.

tyPES o dEPoSItS ANd KEy EAtUrES

Savins Bank Aun

Oten the rst banking product people use

Low interest however, highly liquid

Suitable or inculcating the habit o saving among the customers

Bank ixe depsi (Bank ds)

Involves placing unds with the banks or a xed term (not less than 30 days) or a certain

stipulated amount o interest

The ideal investment time or bank FDs is 6 to 12 months as normally interest on bank less

than 6 months bank FDs is likely to be low

The time rame assumes importance as early withdrawal may carry penalty

reuin depsi Aun

Some xed amount is deposited at monthly intervals or a pre-xed term

Earns higher interest than Savings Bank Account

Helps in the saving o a xed amount every month

Speia Bank te depsi Shee

This is the Tax Saving Scheme available with banks

Relie under Section 80C o the Income Tax, Act available

Term deposit o ve years maturity in a scheduled bank is mandatory

GOVERNMENT SCHEMES

tax Savins Shees*

the gvenen Inia has aunhe Ine tax Savin Shees inuin:

National Savings Certicate (NSC)

Public Provident Fund (PPF)

Post Ofce Scheme (POS)

Besides, Equity linked savings scheme (ELSS) oered by Mutual Funds and Inrastructure Bonds

o Financial Institutions / Banks also oer tax benet.

The incomes rom the investment are exempt rom Income Tax and the investments in these

schemes are deductible subject to certain limits rom the taxable income.


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Naina Savins ceiaes (NSc)

Popular Income Tax Savings scheme, available throughout the year

Interest rate o 8%

Minimum investment is`100/- and with no upper limit

Maturity period o 6 years

Transerable and a provision o loan on the basis o this scheme

Pubi Pvien un (PP)

Interest rate o 8% p.a

Minimum investment limit is`500/- and maximum is`70,000/-

Maturity period o 15 years

The rst loan can be taken in the third nancial year rom the date o opening o the

account, or upto 25% o the amount at credit at the end o the rst nancial year. Loan

amount can be returned in maximum o 36 installments

A person can withdraw an amount (not more than 50% o the balance) every year rom the

7th year onwards

Ps ofe Shee (PoS) It is one o the best Income Tax Saving Schemes

It is available throughout the year

Post Ofce schemes depends upon the type o investment and maturity period, which can

be divided into ollowing categories:

Monthly Deposit

Saving Deposit

Time Deposit

Recurring Deposit

Equi linke Savins Shees (ElSS)

Mirror image o a diversied equity und, however, with tax benet U/S 80 C

Lock in period o three years Dividends are also tax ree

On sale o these units, benet can be obtained o long term capital gains, on which no

capital gains tax is to be paid

Minimum investment is`500 and then multiples thereo

Investor can opt or systematic investment plan

Inasuue Bns

Lock in period o three years

Tax benet U/S 88 on investments upto`20,000

Any redemption prior to maturity nullies the tax exemption

Kisan Vikas Paa (KVP)

Money invested in this scheme doubles in 8 years and 7 months

There is a minimum investment limitation o`100/- with no upper limit

This scheme is available throughout the year

Currently there is no tax benet on investment under this scheme

* Investors are advised to see latest Income tax provisions and other details rom relevant sources

Bonds

A Bond is a loan given by the buyer to the issuer o the instrument, in return or interest. Bonds

can be issued by companies, nancial institutions, or even the Government. The buyer receives

interest income rom the seller and the par value o the bond is receivable by the buyer on the

maturity date which is specied.


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tyPES o BoNdS

tax-Savin Bns

Tax-Saving Bonds oer tax exemption up to a specied amount o investment, depending on

the scheme the Government notication. Examples are:

Inrastructure Bonds under Section 88 o the Income Tax Act, 1961

NABARD/ NHAI/REC Bonds under Section 54EC o the Income Tax Act, 1961 RBI Tax Relie Bonds

reua Ine Bns

Regular-Income Bonds provide a stable source o income at regular, pre-determined intervals.

Examples are:

Double Your Money Bond

Step-Up Interest Bond

Retirement Bond

Encash Bond

Education Bonds

Money Multiplier Bonds Deep Discount Bonds

Ke eaues

Rated by specialised credit rating agencies like, CRISIL, ICRA, CARE, Fitch etc. The yield on a

bond varies inversely with its credit (saety) rating

Suitable or regular income. Interest received semi-annually, quarterly or monthly

depending on type o bond

Bonds available in both primary and secondary markets

Market price depends on yield at maturity, prevailing interest rates, and rating o the issuer

One can borrow against bonds by pledging the same with a bank

Minimum investment ranges rom`5,000 to`10,000

Duration usually varies between 5 and 7 years

Can be held in demat orm

Debentures

Ke eaues debenues

Fixed interest debt instruments with varying period o maturity, similar to bonds, but are

issued by companies

Either be placed privately or oered or subscription

May or may not be listed on the stock exchange. I they are listed on the stock exchanges,

they should be rated prior to the listing by any o the credit rating agencies designated bySEBI

Maturity period normally varies rom 3 to 10 years

tpes ebenues

There are dierent kinds o debentures, which can be oered. They are as ollows:

Non convertible debentures (NCD) Total amount redeemed by the issuer

Partially convertible debentures (PCD) Part is redeemed and part is converted to equity

shares with or without the option to investor.

Fully convertible debentures (FCD) Whole value is converted into equity. The conversion

price is stated when the instrument is issued


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Compan Fixed Deposits

Ke eaues

Fixed deposit scheme oered by a company. Similar to a bank deposit

Used by companies to borrow rom small investors

The investment period must be selected careully as most FDs are not encashable prior to

their maturity

Not as sae as a bank deposit. Company deposits are unsecured

Oer higher returns than bank FDs, since they entail higher risks

Rating can be guide to their saety

Mutual Funds

A mutual und pools money rom many investors and invests the money in stocks, bonds,

short-term money-market instruments, other securities or assets, or some combination o

these investments. The combined holdings the mutual und owns are known as its portolio.

Each unit represents an investors proportionate ownership o the unds holdings and theincome those holdings generate.

Saien eaues muua uns

Proessional Management Money is invested through und managers

Diversication - Diversication is an investing strategy that can be neatly summed up

as Dont put all your eggs in one basket. By owning shares in a mutual und instead o

owning individual stocks or bonds, the risk is spread out

Economy o Scale - Because a mutual und buys and sells large amounts o securities at

a time, its transaction costs are lower than what an individual would pay or securities

transactions

Liquidity - Just like individual shares, mutual und units are convertible into money by wayo sale in the market

Simplicity - Buying a mutual und unit is simple. Many banks have sponsored their own

line o mutual unds and the minimum investment amount is small

Investors should examine each o the above eatures careully beore investing in mutual

unds

tpes muua uns

Each und has a predetermined investment objectives that tailors the unds assets, regions o

investments and investment strategies. At the undamental level, there are three varieties o

mutual unds:

Equity unds (stocks)

Fixed-income unds (bonds)

Money market unds

All mutual unds are variations o these three asset classes. For example, while equity unds

that invest in ast-growing companies are known as growth unds, equity unds that invest

only in companies o the same sector or region are known as specialty unds.

Mutual Funds can also be classied as open-ended or closed-end, depending on the maturity

date o the und.

open-ene uns

An open-ended und does not have a maturity date Investors can buy and sell units o an open-ended und rom / to the Asset Management

Company (AMC), at the mutual und ofces or their Investor Service Centres (ISCs) or

through the stock exchange.

The prices at which purchase and redemption transactions take place in a mutual und are

based on the net asset value (NAV) o the und


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cse-en uns

Closed-end unds run or a specic period

On the specied maturity date, all units are redeemed and the scheme comes to a close

The units shall be listed on a stock exchange to provide liquidity

Investors buy and sell the units among themselves, at the price prevailing in the stock

market

mne make uns

Invest in extremely short-term xed income instruments

The returns may not be very high, but the principal is sae

These oer better returns than savings account but lower than xed deposits without

compromising liquidity

Bn/Ine uns

Purpose is to provide current income on a steady basis

Invests primarily in government and corporate debt

While und holdings may appreciate in value, the primary objective o these unds is to

provide a steady cash ow to investors

Baane uns

Objective is to provide a balanced mixture o saety, income and capital appreciation

Strategy is to invest in a combination o xed income and equities

Equi uns

Invest in shares and stocks

Represent the largest category o mutual unds

Investment objective is long-term capital growth with some income

Many dierent types o equity unds because o the dierent types o investment objectives

ein/Inenaina uns

An international und (or oreign und) invests in the equity o the companies which are

outside the home country

Se uns

These are targeted at specic sectors o the economy such as nancial, technology, health,

etc.

Inex uns

This type o mutual und replicates the perormance o a broad market index such as the

SENSEX or NIFTY An index und merely replicates the market return and benets investors in the orm o

low ees

Equit Shares

The ownership interest in a company o holders o the common and preerred stock.

A stock market is a public market or the trading o company shares at an agreed price; these

are securities listed on a stock exchange.

The shares are listed and traded on stock exchanges which acilitate the buying and selling o

stocks in the secondary market. The prime stock exchanges in India are The Stock Exchange

Mumbai, known as BSE and the National Stock Exchange known as NSE. The purpose o a stock


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exchange is to acilitate the trading o securities between buyers and sellers, thus providing

a marketplace. Investing in equities is riskier and denitely demands more time than other

investments.

thee ae as in hih invesen in equiies an be ae:

Through the primary market (by applying or shares that are oered to the public)

Through the secondary market (by buying shares that are listed on the stock exchanges)

Having rst understood the markets, it is important to know how to go about selecting a

company, a stock and the right price. A little bit o research, some diversication and proper

monitoring will ensure that the investor earns good returns.

Depositor Sstem

In order to invest in shares, it is necessary to understand the term Dematerialisation o

Shares, as almost all shares are now in Demat orm. Earlier, there used to be physical share

certicates issued, which are now converted to Electronic orm. For this, an understanding o

the depository system becomes essential.

A depository is an organisation which holds securities (like shares, debentures, bonds,

government securities, mutual und units etc.) o investors in electronic orm at the request o

the investors through a registered Depository Participant. It also provides services related to

transactions in securities. It can be compared with a bank, which holds the unds or depositors.

At present two Depositories viz. National Securities Depository Limited (NSDL) and Central

Depository Services (India) Limited (CDSL) are registered with SEBI.

A Depository Participant (DP) is an agent o the depository through which it interaces with the

investor and provides depository services. Public nancial institutions, scheduled commercialbanks, oreign banks operating in India with the approval o the Reserve Bank o India, state

nancial corporations, custodians, stock-brokers, clearing corporations /clearing houses,

NBFCs and Registrar to an Issue or Share Transer Agent complying with the requirements

prescribed by SEBI can be registered as DP. Banking services can be availed through a branch

whereas depository services can be availed through a DP.

It is now compulsory or every investor to open a benecial owner (BO) account to trade in the

stock exchange or apply in public issue. Thereore, in view o the convenience as listed below,

it is advisable to have a benecial owner (BO) account.

However to acilitate trading by small investors (Maximum 500 shares, irrespective o theirvalue) in physical mode the stock exchanges provide an additional trading window, which

gives one time acility or small investors to sell physical shares which are in compulsory demat

list. The buyer o these shares has to demat such shares beore urther selling.

Benes avaiin epsi sevies inue:

A sae and convenient way to hold securities;

Immediate transer o securities;

No stamp duty on transer o securities;

Elimination o risks associated with physical certicates such as bad delivery, ake securities,

delays, thets etc.

Reduction in paperwork involved in transer o securities; Reduction in transaction cost;

No odd lot problem, even one share can be traded;

Nomination acility;

Change in address recorded with DP gets registered with all companies in which investor


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holds securities electronically eliminating the need to correspond with each o them

separately;

Transmission o securities is done by DP eliminating correspondence with companies;

Automatic credit into demat account o shares, arising out o bonus/split/consolidation/

merger etc.

Holding investments in equity and debt instruments in a single account.

Pins reebe

Participants range rom small individual stock investors to large und traders, who can be

based anywhere

One o the most important sources or companies to raise money

Allows businesses to be publicly traded, or raise additional capital or expansion by selling

shares o ownership o the company in a public market

Stock market is oten considered the primary indicator o a countrys economic strength

and development

Stock prices uctuate, in marked contrast to the bank deposits or bonds

The reasons or investing in equity must also be reviewed periodically to ensure that they

are still valid Sometimes the market seems to react irrationally to economic or nancial news, even i

that news is likely to have no real eect on the value o securities itsel

Over the short-term, stocks and other securities can be battered or buoyed by any number

o ast market-changing events, making the stock market behaviour difcult to predict.

Investment Philosophies

Evaluate risk o every investment

Have clarity on short term and long term needs o the amily

Decide the investment based on the needs

Do not invest in any scheme that you do not understand Do not invest on trust. Have everything backed up by documents

Take into account tax implication o every income

Do not blindly ollow market tips and rumours

Anything that appears unnaturally high or low will have some catch disguised

Do not ollow schemes where you may protect the interest but lose the principal

Invest with knowledge ater understanding the product well


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5. PROTECTION RELATED PRODUCTS

Insurance Policies*

Insurance, as the name suggests is an insurance against uture loss. However, although lie

insurance is most common, there are other schemes that generate regular income and coverother types o losses.

lie Insuane

Lie Insurance is a contract providing or payment o a sum o money to the person assured or,ollowing him to the person entitled to receive the same, on the happening o a certain event.

It is a good method to protect your amily nancially, in case o death, by providing unds orthe loss o income.

te lie Insuane Gaining popularity in India

Lump sum is paid to the designated beneciary in case o the death o the insured

Policies are usually or 5, 10, 15, 20 or 30 years

Low premium compared to other insurance policies

Does not carry any cash value

Enen Piies

Provide or periodic payment o premiums and a lump sum amount either in the event o

death o the insured or on the date o expiry o the policy, whichever occurs earlier

Annui / Pensin Piies / uns No lie insurance cover but only a guaranteed income either or lie or a certain period

Taken so as to get income ater the retirement

Premium can be paid as a single lump sum or through installments paid over a certain

number o years

The insured receives back a specic sum periodically rom a specied date onwards (can

be monthly, hal yearly or annual)

In case o the death, it also oers residual benet to the nominee.

Unis linke Insuane Pi (UlIP)

A ULIP is a lie insurance policy which provides a combination o risk cover and investment.

The dynamics o the capital market have a direct bearing on the perormance o the ULIPs.

The investment risk is generally borne by the investor

Most insurers oer a wide range o unds to suit ones investment objectives, risk prole

and time horizons. Dierent unds have dierent risk proles. The potential or returns alsovaries rom und to und

ULIPs oered by dierent insurers have varying charge structures. Broadly the dierent eesand charges include- Premium allocation charges, Mortality charges, und management

ees, policy/administration charges and und switching charges

Ne Pensin Shee, 2009

Dened contribution scheme open to any Indian Citizen between the age o 18 and 55

The individual invests a certain amount in a pension scheme till he retires

At retirement, he is allowed to either withdraw the money that has accumulated or buy animmediate annuity rom an insurance company to generate a regular income or do both.

A minimum o 40% needs to be used to buy an immediate annuity, a maximum o 60% othe money accumulated can be withdrawn

Buying an immediate annuity assures a regular payment rom the insurance company.


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17/3017

6. BORROwING RELATED PRODUCTS#

With todays heightened cost o living, debts become a usual thing. A number o people apply

or personal loans, car loans, mortgage loans, and a whole lot o others. There seems to be aloan or everything. Oten, nancial troubles begin as a result o too large debt.

dIErENt tyPE o loANS AVAIlABlE

Personal Loan

Personal loans are usually taken when you have to meet unexpected needs that are beyond

a persons immediate nancial means. People oten get into nancial trouble by taking out

personal loans just or the extra money, or to purchase rivolous items, and then nd that they

cant make the monthly payments required.

Ke eaues

Be ready or high interest rates o 14-18% p.a, high ees and even higher monthly

installments

The application process can be time consuming, taking weeks to be approved and unds

disbursed, quite impractical or those unexpected immediate needs

Rates and terms o the personal loans can vary tremendously, careul comparison is

wise, helping to ensure that the consumer does not pay more than necessary or those

emergency unds

Take your time and do the homework beore taking a personal loan

Not advisable except or emergency requirements

Housing Loan

A home loan is just another loan with your house as the collateral. I you are buying your

rst home then it is important to understand the ins and outs o home loans. There are many

variations according to the economy and what the market is doing that determines things that

are going to apply to your home loan.

Ke eaues

Banks nance 75-80% o the property value

Banks have recently started to oer lower xed teaser rates or a short period o time.

Then ater some time the interest rates jump up and become variable. Be careul to read

the ne print.

Most housing loans have a minimum lock in period o 3 years or more.

Heavy penalty charges or pre payment

Hidden ees include appraisal ees and other charges associated with the loan

I you want to sell the house the loan becomes payable immediately

Reverse Mortgage

The whole idea o a reverse mortgage is entirely opposite to the regular mortgage processwhere a person pays the bank or a mortgaged property. This concept is particularly popular

in the western countries.


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Ke eaues

A senior citizen who holds a house property, but lacks a regular source o income can put

his property on mortgage with a bank or housing nance company. The bank/ housing

nance company pays the person a regular payment

The good thing is that the person who reverse mortgages his property can stay in the

house or his lie and continue to receive the much needed regular payments. So eectively

the property now pays or the owner. The way this works is that the bank will have the right to sell o the property ater the

incumbent passes away or leaves the place, and to recover the loan. It passes on any extra

amount to the legal heir

da guieines evese ae in Inia pepae b rBI have he in saien

eaues:

Any house owner over 60 years in eligible

The maximum loan is upto 60% o the value o residential property

The maximum period is 15 years

The borrower can opt or monthly, quarterly, annual or lump sum payments at any point,

as per his discretion The revaluation o the property has to be undertaken by the Bank or HFC once every 5

years

The amount received through reverse mortgage is considered as loan and not income

Reverse mortgage rates can be xed or oating and hence will vary according to market

conditions depending on the interest rate regime chosen by the borrower

Loan against Securities

The main purpose o taking loans against shares is to preserve investment, apart rom taking

care o personal needs. People also resort to such a loan to meet their contingencies and get

liquidity without actually selling the shares. It is advisable to take loan against securities onlywhen you are expecting a certain sum o money a ew months down the line and you need

some unds in the interim.

Ke eaues

RBI allows banks to lend up to 75% o the value o demat shares and 50 per cent o the

value o physical shares. However, banks can, and do, x their own limits with respect to

the extent o unding within that range

Banks have an approved list o securities that they lend against and this list varies rom one

lender to the other. This list also gets revised rom time to time

Loans against mutual und units are based on their NAV value

The amount o loan that you will get depends on the valuation o the security, applicablemargin, your ability to service and repay the loan and other conditions

Interest rates usually range between 14-18%

Charges vary rom bank to bank and usually include processing ees (1-1.5%) and

documentation charges

Only ully paid shares are accepted

Scrips in the name o corporate, minors, Firms, HUF, and NRIs are not eligible or nance

under this scheme

# Plese check latest guidelines / provisions or each loan

Credit Card DebtCredit card debt is usually resorted to when all other option including personal loans are

exhausted. Credit card debt is unsecured thereore it carries very high interest rates. A credit


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card gives you the power to spend money even when you dont have the unds. Lots o young

people misuse it by spending on rivolous things

Stay away rom credit card debt: Lots o people are having problems with credit debt. Paying

only the minimum is costly and will ensure that you have debt or a long time. Try to consistently

pay as much as you are able to, towards your debts - you will be glad you did.

Ke eaues

Interest rates on credit cards are probably the highest compared to other credit acilities.

The interest ranges rom 18-36% p.a

Debt keeps accumulating via interest and penalties. I you are not paying o your

outstanding balance beore the interest ree period expires then you will be paying a high

interest rate. This can make it hard to reduce your credit card debt

As most credit card limits are low some borrowers tend to neglect the act that the interest

payment is relatively small on a month to month basis. This is a dangerous practice because

the amount o interest you pay can quickly jump to exceed the value o your actual debt

Be very careul o having multiple cards and be very careul o taking up the marketing

promotions rom credit card providers when they actively try and get you to increase yourcredit card limit

Steps to Avoid Excess Debt

Se eb iis

Decide how much you can aord to be in debt. Then, make sure that your total debt is

below this amount

You may also want to set a limit on how much money out o each paycheck you are willing

to spend on debts. Having this sort o limit can be very useul in ensuring that you do not

overextend your credit

Shp aeu ebs

I you do need a loan, be sure to do your research well. Always understand how much

you will pay or your loan in interest and look or the lowest interest rates and the most

aordable debt you can nd. This will ensure that you do not end up overspending on

interest rates

Once a year, check to make sure that you are still getting the best interest rates and best

loan deals possible

dn ive in epain

Once you show that you can handle some debt, many companies will be eager to oer

you more credit. Companies may start sending you credit card oers and your lenders mayoer you additional credit products

While it may be tempting to take out lots o new debt, you need to be wary o doing so.

Only take out a loan or credit service when you really need to

Auaia have ne as u bis

Many banks and employers will allow you to have some money automatically deducted

rom your paycheck

This can be a great way to ensure that your bills get paid promptly. Plus, since you wont

even see the money, you are less likely to miss it


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7. NEED AND IMPORTANCE OF PAN CARD

The permanent account number or PAN has grown in importance and is today a vital part

o any nancial transaction. The tax department allots the PAN to an individual or the

purpose o identication and to relate to various transactions and inormation pertaining

to him.

I your income exceeds the basic exemption limit, you should apply or PAN by May 31

o the relevant assessment year. Any person whose turnover or gross receipts exceeds

`500,000 should apply or PAN beore the end o the said accounting year

H e a PAN a?

1. Application or PAN should be made in prescribed orm (Form 49A) and submitted in any

o the I-T pan service centres set up such as by Unit Trust o India Investor Services Limited

(UTIISL) across the country

2. From July 1, 2003, I-T PAN Service Centres have been set up in all cities or towns where I-T

ofces are located. For urther convenience o PAN applicants in major cities there will be

more than one I-T PAN Service Centre

3. Location and other details about I-T PAN Service Centres in any city can be obtained rom

local Income Tax Ofce or ofces o UTI or UTIISL in that city or rom Web site o the Income

Tax department (http://www.incometaxindia.gov.in) or o UTIISL (http://www.utiisl.co.in)

It is necessary to quote the PAN in documents related to the ollowing transactions:-

1. Sale or purchase o immovable property valued at`500,000 or more

2. Sale or purchase o a motor vehicle requiring registration other than two-wheelers

3. A time deposit o more than`50,000 with any banking company and deposit o more than`50,000 with post-ofce savings bank

4. Contract o sale or purchase o all securities including shares, bonds, debentures,

derivatives, mutual und units

5. Cash payment o`50,000 or more or purchase o bank drats, pay orders or bankers

cheques in a day

6. Application or installation o telephone, including cellular telephone

7. Opening a bank account

8. Application or issue o a credit card

9. A cash deposit o`50,000 or more with any bank during any one day

10. Payment o`50,000 or more to a mutual und or purchase o units or to a company or

acquiring its shares or to a company/institution or acquiring its debentures/bonds or toRBI or acquiring bonds


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A Ponzi scheme is a raudulent investing scam that promises high rates at little risk to investors.

The scheme generates returns or older investors rom their own money or money paid by

subsequent investors, rather than any actual prot earned. The perpetuation o the returns

that a Ponzi scheme advertises and pays requires an ever-increasing ow o money rom

investors to keep the scheme going.

H Sp ne?

The Ponzi scheme usually entices new investors by oering returns other investments cannot

guarantee, in the orm o short-term returns that are either abnormally high or unusually

consistent. In other words it seems too good to be true. Investor must be very careul about

such investment, there is nothing like extra ordinary returns.

the uiae unavein a Pni shee

As more investors become involved, the likelihood o the scheme coming to the attention

o authorities increases

External market orces, such as sharp decline in the economy will cause many investors

to withdraw part or all o their unds not due to loss o condence in the investment, but

simply due to underlying market undamentals

The scheme will collapse under its own weight as investment slows and the promoter

starts having problems paying out the promised returns

The promoter will vanish, taking all the remaining investment money

8. UNDERSTANDING PONZI SCHEMES


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9. NOMINEE AND HIS RIGHTS

Inheritance has oten been a bone o contention, with a plethora o community specic laws in

the country and the legal ormalities and hassles that a amily has to go through ater a breadwinner has departed.

A nominee is like a trustee who basically takes care o the assets let behind by the owner and

is obliged under the law to distribute them among the legal heirs o the deceased.

wha ae he ihs a ninee ve an asse? des he asse bee his hen he

iina ne ies?

A nominee cannot assume ownership by virtue o the death o the original owner unless he is

a legal heir. And even then, he will have to get a succession certicate rom the court stating

this act.

I there is a will, it has to be duly authenticated by the court.

wha is he peue akin a ai?

It is more or less the same in case the owner dies leaving behind a will or dies intestate that is,

without making one. The legal heirs will have to le a petition in a court in their district. The

court will then advertise in the newspaper to invite objections, i any. I no one contests the

transer o the ownership o the deceaseds assets, the court will clear the succession.

wha happens hen hee is n ninee a a?

In such a case, the legal heirs will be required to apply or and obtain a certicate o succession,

on the basis o which the assets will be distributed among the heirs, in their respective

proportion.

Nomination need not be only or inheritance like property, etc., but also in all investments

including bank deposits, shares, bonds, debentures, etc. It is advisable or the homemaker to

have separate bank and demat accounts in sole name and nominate someone like the husband,

child, etc. This gives a sense o independence and by investing wisely, you can satisactorily see

your money grow.

10. wOMEN CENTRIC PRODUCTS

Are we still living in a mans world? I one considers the rate at which women-centric banking

products are being launched, one may not be wrong in concluding that Woman Power is here

to stay.

Today banking players are increasingly competing with each another to introduce innovative

products in order to address the diversied needs o women, hailing rom all walks o lie, be

it the urban working woman, the homemaker, the semi-urban entrepreneur or the rural selhelp group (SHG) member.


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Educating your children is a major expense the sooner you start saving or it the better.

Many parents believe that educating their children in private schools is worth it. But also the

nancial burden is heavy. Further higher education in India, especially proessional courses isbecoming expensive by the day. Cost o the proessional education is quite steep and we need

to plan early.

While earlier a single income was more than sufcient, today even with two incomes we may

not be able to nance our childrens higher studies. Many parents pay school ees, as with most

household bills. Many parents use their general savings to pay school ees. And i you have to

save or two kids, your investment just doubles.

Some available options include:

Se en eni pus ee b banks inue:-

Special Lie Insurance Plans: some o the lie insurance plans are exclusively or women.

Such plans oer additional benets or women that are not available in other plans

available in the market. These benets include coverage o congenital disability benet,

pregnancy complications etc.

Special Health Insurance Plans: In some o the insurance plan Women Rider is an example

o special rider exclusively or women. Bank Accounts with special benets or women: some o the banks oer Smart Privilege

Account or women. Through these accounts, women get the added advantage o special

loan or deposit rates, acility o recurring deposits, lower minimum balance, etc.

Women Debit and credit Cards: Some o the banks oer women specic cards with special

benets such as discount on locker ees; cash back acility, accidental insurance cover, ree

bill pay acility etc.

Loan Schemes or Women: Various PSU banks are oering special loan rates or women.

Some o the PSU banks oer lower (0.25% less) interest rate on home loans to women.

Women-centric nancial products arent just a marketing gimmick. The nancial

organizations have identied the special needs o women and are accordingly catering to

these needs by way o such specialized products.

Given the choice, it might be preerable or women to choose a product tailored or women

over some general product available in the market. Always ask i there are special schemes

available, and compare the benets o the women-centric products to the other products

available in the market. Additionally, make sure that you are not being charged a higher ee or

commission or choosing a product tailored or women.

11. EDUCATION PLANNING FOR CHILDREN


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Insuane piies

Insurance companies oer policies money back or endowment, which give a dened

payout at a dened period.

Herein, one keeps paying a premium every year and gets a lump sum amount when the

child has grown-up and is ready or college. Such policies can be used to plan or the higher

studies, i you have time on your side.

Besides, i something unortunate happens to the parent, not only does the child still getthe sum assured on maturity, but the interim premiums are also waived o.

However, the return rom such policies is relatively low. So it is possible that you may end-

up with some shortall in case the education expenses move higher.

Invesen Pus

One can invest in pure investment options such as PPF, NSC, and Mutual Funds etc.

There are many child oriented investment products available in the market today. They

may not always be a good investment option. In act, there is no need to specically go

or child-oriented products. Even normal investment products like PPF, MFs etc. which suit

your prole can serve the purpose, in a better manner.

However there is no need to panic. You would most likely be still in an earning phasewhen your child is ready to go to college (and getting much higher salaries), which can

supplement your savings. You can always ll the gap in your savings with a small loan and/

or a scholarship.

12. SECURITy TIPS ON ATM CARD & PIN

Do not keep the PIN issued by the Bank together with your ATM Card.

Change your PIN immediately when using your ATM Card or the rst time and destroy any

documents containing PIN inormation.

Do not write down your PIN. You should memorise it.

Do not send your PIN via email/SMS and never use the same PIN to access other services.

Do not write down your PIN on the card ace and do not disclose your PIN to anyone

including any joint account holder.

Do not, under any circumstances, disclose your PIN to anyone who claims to represent the

Bank or who claims to be the Banks employee or other authorised person, or the police. Itis not necessary or anyone to know your PIN. The Bank will never ask or your PIN by any

means such as email, SMS, phone, etc.

Do not use combinations that are readily accessible/deducible such as your identity card

number, telephone number, date o birth, drivers licence number or any popular number

sequence (such as 987654 or 123456) or your PIN. Avoid using the same digit consecutively

or the same sequence o numbers more than twice (such as 112233 or 383838) as a PIN.

For security reasons, change your PIN regularly

I you enter an incorrect PIN a certain number o times consecutively, your ATM Card will

be captured by the ATM

Be alert to your surroundings beore conducting any banking transactions. Make sure no

one sees your PIN and cover the keypad when you enter your PIN on any device, such as

an ATM or other sel-service terminal.

Should you notice any suspicious devices at any ATM or any suspicious activities around

you when perorming an ATM transaction, cancel your transaction immediately and inorm

the Bank.


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13. A HOUSEwIFES GUIDE TO INVESTING INGOLD

When you have completed your ATM transaction, please retrieve your ATM Card as

instructed on the ATM. Never try pushing your card back into the ATM.

Remember to take your cash and ATM Card ater each ATM cash withdrawal.

Keep all transaction receipts and check them against your account records.

Do not accept assistance rom strangers. I you encounter any problems at the ATM,

contact the Bank directly.

I your ATM Card is lost or stolen, please inorm your bank immediately.

Gold- The king o the metals has a strong hold over our collective consciousness which is

perhaps incomparable. It is indeed rare to come across a housewie in India who does not

know the current price o gold. Imagine how convenient it would be i you could buy gold

rom your home.

wha has invesin in ih he sk ake?

You can invest in gold by buying units o gold Exchange Traded unds (ETFs). Gold ETFs

are mutual und schemes which invest in gold. Mutual unds are regulated by Securities

and Exchange Board o India (SEBI) and are not to be conused with the unregulated and

unregistered chit unds. Gold ETF are special types o exchange traded unds (ETFs) which

tracks the prices o gold (i.e. whose value is based on price o gold) and are convenient and

inexpensive alternative to owning physical gold.As a retail investor you can peaceully invest

in gold through gold ETFs with the ull assurance that they are governed by a proven legalramework. Gold ETFs buy standard Gold (99.5% purity) and place it with custodian banks or

saekeeping. Against this gold, units are issued, which are equivalent to about 1 gram o gold.

These units are traded in the stock Exchange like any other share.

Avanaes g Ets:

You can accumulate gold over a long period by buying say, one unit o gold ETF every month.

At the end o say 10-15 years, you will have sizeable investment in units, which you can readily

encash or your daughters/sons marriage. Your investment in Gold ETFs are held in demat /

electronic orm and can be traded on a stock exchange just like buying and selling stocks

Investment in gold ETFs eliminate the hassles and drawbacks o physical gold (e.g. impurityrisk), no loss on account o making charges, locker chagres o banks are more taxefcient and

allow you to invest in small amounts. However you will be charged or Demat account.

Returns o all Gold ETFs schemes are more or less similar to physical gold because they reect

the price o gold in the spot market.

H inves in g Ets?

Gold ETFs are listed and traded on Stock Exchanges. They are held in demat orm just like the

stocks. You require a DMAT account to invest in them (and or that you also require a PAN).

Besides, you also require to open a trading account with a broker. Typically, each unit in Gold

ETF represents one-tenth o an ounce o gold (1 gram). In other words, small sum is requiredto gain exposure to the gold price or specic inormation on gold ETFs please visit stock

exchanges website or AMFI website.


26/3026

14. ADVANTAGES OF FINANCIAL EDUCATION

The pressing need or nancial education comes rom two areas.

Firstly is the deterioration o personal nances. Today youngsters resort to living beyond their

means, have credit card debt and making risky investments.

Second is the prolieration o new and oten complex, nancial products that demand

more nancial expertise o consumers. Turbulent market conditions and changing tax laws

compound the need or sound nancial education.

Even Government servants are moving to dened contribution regimes rom the earlier

schemes with dened benets on retirement. Thereore, retirement planning becomes very

important.

Se avanaes nania euain ae:-

Helps build a secure nancial uture. Lack o nancial knowledge can aect an individuals

or amilys ability to save or long-term goals and make them vulnerable to severe nancial

crisis

Prepared or nancial emergencies. By incorporating contingencies in your nancial plan

you are ready to ace unseen circumstances head on

People who are nancially literate are reluctant to buy nancial products that they do not

understand and thus do not all or marketing gimmicks

Feeling a sense o accomplishment. Financial education is eective at moving people

closer to their goals

Makes a more responsible individual with a disciplined approach to money. Helps people

rom overspending and inculcates a habit o savings and investments You become more aware o questionable lending practices adopted by banks and other

lenders to sell their products

Feel like you are setting a good example or your amily

Money management skills can benet other aspects o your lie


27/3027

15. INVESTOR PROTECTION &GRIEVANCES REDRESSAL MECHANISM

INVEStor ProtEctIoN

Securities Exchange Board o India (SEBI) was established with the primary objective o

protecting the interest o the investors in the securities market

SEBI can issue directions to all intermediaries and other persons associated with the

securities market in the interest o the investors or or orderly development o the securities

market

SEBI has notied the SEBI (Investor Protection and Education Fund) Regulations, 2009 with

a view to strengthening its activities or investor protection. The und shall be used or the

ollowing purposes:-

Educational activities including seminars, training, research and publications, aimed at

investors Awareness programmes through media - print, electronic, aimed at investors

Funding investor education and awareness activities o investor associations recognized

by the Board

Aiding investor associations recognized by the Board to undertake legal proceedings

in the interest o investors in securities that are listed or proposed to be listed

Exchanges have set up an Investor Protection Fund (IPF) to meet the claims o investors

against deaulter members

The Exchanges also assist in arbitration process between members and investors and

members inter-se

INVEStor grIEVANcE rEdrESSAl mEcHANISm

SEBI and Stock Exchanges have set up investor grievance redressal cells or ast redressal

o investor complaints relating to securities markets

SEBI has directed all the stock exchanges, registered brokers, sub-brokers, depositories

and listed companies to make a provision or a special email ID o the grievance redressal

division/ compliance ofcer or the purpose o registering complaints by the investors

SEBI has set up a mechanism or redressal o investor grievances arising rom the securities

market

SEBI provides walk-in service at its head ofce at Mumbai and its regional ofces at New

Delhi, Chennai, Kolkatta and Ahmedabad on all working days. Investors can meet the

ofcials and get guidance relating to the grievances that they may have against issuers.

Investors can also meet the higher ofcials o SEBI on specied working days

Investors can lodge their complaints with SEBI at: [email protected]

Investors can approach SEBI or any assistance at: [email protected]


28/30


29/3029


For uture nancial education programs on any o the ollowing modules;

1. School Children

2. College Students

3. Middle Income groups

4. Executives

5. Retirement Planning

6. Home Makers

7. Sel Help groups

OR

Any o the ollowing topics on securities markets namely;

1. How to read an oer document

2. How to invest in the primary market through stock exchanges

3. How to trade in securities/guide to investors

4. D-mat account and depositories

5. Mutual unds-Dos and Donts

6. Collective investment schemes- Dos and Donts

7. Buy back o shares, delisting o securities

8. Takeover regulations

9. Investor grievances-how to resolve it

Please write to SEBI at: [email protected]

Or

dEPUty gENErAl mANAgEr

Investor Awareness Division


SEBI BHAVAN

Plot No - C4-A, G - Block

Bandra Kurla Complex, Bandra (East)Mumbai 400051

Tel: +91 022 26449218


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Contact details o SEBI ofces in India

HEAd oIcE

SEBI BHAVAN

Plot No.C4-A,G Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051

Tel: +91-22-26449000 / 40459000 / 9114 / Fax: +91-22-26449016-20 / 40459016-20

E-mail: [email protected]

(Maharashtra, Madhya Pradesh, Chhatisgarh, Goa, Diu, Daman and Dadra & Nagar Haveli)

Nhen reina ofe

5th Floor, Bank o Baroda Building,

16, Sansad Marg, New Delhi - 110 001.

Tel: +91-11-23724001-05 / Fax: +91-11-23724006.

E-mail : [email protected]

(Haryana, Himachal Pradesh, Jammu and Kashmir,

Punjab, Uttar Pradesh, Chandigarh, Uttarakhand and

Delhi.)

Suhen reina ofe

D Monte Building, 3rd Floor, 32 D

Monte Colony, TTK Road, Alwarpet, Chennai: 600018.

Tel : +91-44-24674000/24674150

Fax: +91-044-24674001


(Andhra Pradesh, Karnataka, Kerala, Tamilnadu,

Pondicherry and Lakshwadeep & Minicoy Islands)

Easen reina ofeL&T Chambers, 3rd Floor, 16 Camac Street,

Kolkata - 700 017

Tel : +91-33-23023000 / Fax: +91-33-22874307.


(Assam, Bihar, Manipur, Meghalaya, Nagaland, Orissa,

West Bengal, Arunachal Pradesh, Mizoram, Tripura,

Sikkim, Jharkhand and Andaman & Nicobar Islands)

wesen reina ofeUnit No: 002, Ground Floor SAKAR I, Near Gandhigram

Railway Station, Opp. Nehru Bridge Ashram Road,

Ahmedabad - 380 009

Tel : +91 079-26583633-35 / Fax: +91 079-26583632


(Gujarat and Rajasthan)

SEcUrItIES ANd EXcHANgE BoArd o INdIA

PUBlISHEd IN JUly, 2010

Documents

36 Homemaker