Basic Finance Management

8/13/2019 Basic Finance Management

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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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Documents

Basic Finance Management