ARTHSHASTRA

BY DHANDOLAT

Arthshastra
By Dhandolat

Part -1
 Table of Content
1 Financial literacy in India

2 Financial Planning

3 Important reforms and event

4 The golden decade for India

5 Why investing is important

6 Concept of asset diversification

7 Number of options for indirect investment

8 Number of options for direct investment

Chapter 1
Financial literacy

Financial literacy is the ability to effectively manage a variety of

financial skills, such as personal finance management,
budgeting, and investing. Financial investments and services
have recently become widespread among people of all
economic backgrounds. When it comes to financial literacy, India
ranks the lowest among all the BRICS nations, as per a survey
conducted by National Center for Financial Education in 2019.
Similarly, according to a recent survey undertaken by the
Securities and Exchange Board of India, only 27 percent of India's
population is financially literate. While parents attempt to teach
their children about managing money by opening a bank
account for them or even gifting them piggy banks, financial
literacy is rarely encouraged within schools.

Therefore, the concept severely lacks institutional rigor in India,

rendering students unaware and unprepared. The gap in
financial literacy in the developmental stages results in a larger
pitfall for the youth. In this day and age, as we observe the world
turning digital and the rise of entrepreneurship, cryptocurrency,
and blockchain – developing financial literacy in school students
has become invaluable. Everyone had to "manage their cash" as
a result of the pandemic, which emphasizes how important
financial literacy is in India. Therefore, being able to manage
money wisely and effectively should be seen as a valuable
ability.
2
Chapter 2
Financial Planning

What is Financial Planning ?

Financial Planning is the process of framing objectives, policies,
procedures, programs, and budgets regarding the financial
activities of a concern. This ensures effective and adequate
financial and investment policies.

Importance of Financial Planning ?

Adequate funds have to be ensured.
Helps in ensuring a reasonable balance between outflow and inflow
of funds so that stability is maintained.
Ensures that the suppliers of funds are easily investing in companies
that exercise financial planning.
Helps in making growth and expansion programs which helps in the
long-run survival of the company.
Reduces uncertainties concerning changing market trends which
can be faced easily through enough funds.
Helps in reducing the uncertainties which can be a hindrance to the
growth of the company. This helps in ensuring stability and
profitability in concern.
3
 Chapter 3
Financial Reforms in India &
its Impacts

1. Privatization of Banks
The transfer of ownership, property, or business from the government
to the private sector is termed privatization. The government ceases
to be the owner of the entity or business.
Privatization is considered to bring more efficiency and objectivity to
the company, something that a government company does not care
about.

. 2. Capital Market Reform

A capital market is defined as a financial market that works as a channel
for the demand and supply of debt and equity capital. It channels the
money provided by savers and depository institutions to borrowers and
investors through a variety of financial instruments (bonds, notes, shares,
etc.) called securities. The practice of reform of the capital market was
started in 1992 along the lines recommended by the Narasimham
Committee. It was intended to remove direct government control and
replace it with a regulatory framework based on transparency and
disclosure supervised by an independent regulator.

4
.
The Securities and Exchange Board of India (SEBI), which was first
constituted as a non-statutory entity in 1988, was elevated to a
full capital market regulator with statutory powers in 1992,
marking the beginning of the process.

.
. 3. Opening the Capital Market to Foreign
Investors

TA's significant policy initiative in 1993 was the opening of the capital
market to foreign institutional investors (FIIs) and allowing Indian
companies to raise capital abroad by issuing equity in the form of global
depository receipts (GDRs).

4. Reforms in the Foreign Exchange Market

Market-based exchange rates and current account convertibility

were adopted in 1993.
The government permitted commercial banks to undertake
operations in foreign exchange.
Participation of newer players allowed in the rupee foreign currency
swap market to undertake currency swap transactions subject to
certain limitations.
Replacement of foreign exchange regulation act (FERA), 1973 was
replaced by the foreign exchange management act (FEMA), 1999 for
providing greater freedom to the exchange markets.
Trading in exchange-traded derivatives contracts was permitted for
foreign institutional investors and non-resident Indians subject to
certain regulations and limitations.

So let's dig out something that the country in which we are living in,
does it have any Opportunities?

5
Chapter 4
Golden Decade of India

Demographic Dividend:
India has one of the youngest populations in an aging world. By
2020, the median age in India will be just 28, compared to 37 in
China and the US, 45 in Western Europe, and 49 in Japan.
Since 2018, India’s working-age population (people between 15
and 64 years of age) has grown larger than the dependent
population — children aged 14 or below as well as people above
65 years of age. This bulge in the working-age population is
going to last till 2055, or 37 years from its beginning.

Frugality:
Around 67% of the population is below 35 years of age which
makes it the youngest-populated country in the world. India's
youth are energetic and have inherent skills, and patience to
showcase their talent. According to N Chandrasekaran,
Chairman of TATA Sons, India has both demand and supply but
there is a gap between them that needs to be filled up. With such
young talent and risk-taking abilities, Entrepreneurs can build
platforms thus, creating markets.

6
Reform:
Due to the license-permit raj till 1991, India had a stagnant
economy. But after the fall of the Soviet Union and the Gulf war,
India was on the brink of economic collapse. External debt was
around 23% of the Indian GDP. The announcement of
liberalization in the Union budget in 1991 marked the revolution by
reducing the PSUs, breaking the bottleneck of FDI, and making a
free market.
This year, a similar budget was introduced by freeing from
bureaucracy. Agri reforms, Privatisation, RERA, and GST have all
made the world realize that India has more opportunities coming
up.

Infrastructure:
The three pillars of the Indian economy are agriculture,
Infrastructure/Manufacturing, and Services. India is the world's
back office and has the highest farmland in the world. This is
what makes India top in terms of agriculture and service exports.
With the recent PLI scheme in manufacturing, there will be
millions of direct and indirect employment. If India has a
monopoly in service and pharma exports, it can also set record
export in defense equipment, automobiles, and consumer
durables. PLI schemes have made international companies such
as Apple and Samsung open their manufacturing base in India.
"India is going to surpass China in the next 25 years. Today, the
Per-Capita Income is 1/5th of China but it will exceed in the
coming decade" says Rakesh Jhunjhunwala, Rare Enterprises.
"We believe India is set to surpass Japan and Germany to
become the world's third-largest economy by 2027 and will have
the third-largest stock market by the end of this decade," says
Ridham Desai, Morgan Stanley's Chief Equity Strategist for India.
It's not India's decade, it's India's century, says
McKinsey's Bob Sternfels.

7
 Chapter 5
Why is investing important?

1. Wealth Creation
Wealth could mean different things to different people. It could mean a
certain amount of money in your bank account, or it could be defined as
certain financial goals you set for yourself. Either way, investing can help
you get there.

2. Compounding
.

With investing, you can take advantage of compound interest.

Compound interest is the interest you earn on your invested money plus
the money earned in each prior period. It is sometimes called "interest in
interest.

3. To Beat Inflation
.
If there is inflation over 30 or 40 years, your money will be worth
considerably less while the cost of living has grown. One way to beat
inflation is to invest your money. If your money earns more than the
inflation rate, this means your money is worth more tomorrow than it is
today.

8
.
 4. Retirement
If you plan on stopping work and retiring, you need to have a large
amount of money saved to live off, when you no longer work.
Investing can help bridge the gap between what you save and
what you need to live off of for 20 or 30 years.
Now let us study the impact of the concept that we all did in our
9th Class
We are talking about Compound Interest.

Power of Compounding

"Buy right and sit tight". That means if you identify quality
assets and hold on to them with patience for the long term,
then you are bound to generate wealth. Why do equities
generate wealth over the long run? The answer is the
power of compounding. So, how exactly does the power of
compounding work? When you invest in an asset, that
investment earns returns. If you also reinvest these returns
into the same fund, then your returns will also earn returns.
When your investment and your returns are earning
cumulative returns for you each year, it is called the power
of compounding

9
Chapter 6
Concept of Asset Diversification

So for now we have studied financial literacy and planning in India,

Financial Reforms, and Why Investing is Important Now, we will see the
Diversification or we can say "portfolio"
The portfolio is the Diversification of your Assets. The question arises why
we have to invest in diversification. Can't we just invest in one thing and
reap that fruit money? But the answer is no. As Warren buffet quoted
"don't put all your eggs in one basket".
Every business has its own sin curve, sometime they will be up and
Sometimes they will go down, so if you are investing you should do
diversification because it balances every type of business. It is one of the
most important tools of risk management because it controls your risk
exposure to your investment.
Some Investments are made for the long term and on the other side,
some investments are made for the Short term.
So now, let us see Different types of Investment

10
Chapter 7
Methods of Indirect Investment
A portfolio is the diversification of your assets. During our early ages,
People tend to go for risk but as we grow older we go for Fixed
Income Instruments that are Insurance, PPF, REIT, NSC, NPC, etc. So,
let us go deeper and gain insights into each one of them

Insurance
.
Insurance is the most effective risk management tool which can
protect individuals and businesses from financial risks arising
out of various contingencies. The emotional and psychological
loss can never be compensated, but at least the financial loss
can be compensated with insurance. Though there are
uncertainties in life that you cannot mitigate, insurance will
surely help you transfer the financial risk associated with the
same.

Insurance is a legal agreement between an insurer (insurance

company) and an insured (individual), in which an insured
receives financial protection from an insurer for the losses he
may suffer under specific circumstances.

Types of Insurance
Life Insurance Policy
It is insurance for your life. You buy life insurance to ensure that
your loved ones are financially secure even when you are not
around
Health Insurance Policy
Although health insurance is usually counted as a general
insurance contract, there are a few differences. Health
insurance covers your medical costs for expensive treatments.
You can avail of two types of health insurance policies:

11
Indemnity Plans and Definite Benefit Plans. The indemnity plans
are traditional health covers that cover hospitalization costs
from the sum assured. Definite benefit plans offer lump-sum
payments on the detection of illness. For those who are suffering
from critical diseases.

REIT
Real Estate Investment Trusts are similar to mutual funds. They
pool money from multiple investors and use that to buy
income-generating real estate properties. REITs manage these
assets so that they can earn capital appreciation and rental
income.

The minimum investment is not high, enabling both small and

big investors to participate in the real estate market of India. In
India, when REITs were introduced a couple of years back, the
minimum investment was INR 50,000 with a lot size of 200
units. However, SEBI has brought down the minimum
investment to INR 10,000-INR 15,000 with a lot size of one unit.
This was to increase liquidity in the REIT space and also
encourage more listings.

PPF
Before you plan on investing, it is important to know all about
what is a PPF account and how it works. Public Provident Fund or
PPF was introduced in 1968 and it is still one of the popular long-
term investment plans in India. This is an ideal plan for all those
looking to achieve their long-term goals and planning to create
a financial corpus for their retirement. This plan comes with a
lock-in period of 15 years, though the investor can make partial
withdrawals after the 7th year of the policy.

12
NSC
One of your best investment options is a National Savings
Certificate. For investors, this is a secure and low-risk product. It
is a business that our Indian government has framed. If you
want your capital to be secure, you should invest in this plan.

It is a savings bond program designed specifically for middle-

class investors. It promotes both funding and income tax
reductions under Section 80C. With no TDS, it offers a minimum
limit of Rs. 100. It offers fixed income as well as low risk because
it is provided by the government.

Invoice Discounting
A financial phrase is known as an "invoicing discount" enables you to
access funds contained in outstanding invoices from your customers.
Invoice discounting is the practice of selling your invoice to a third party,
sometimes a financing business. Invoice discounting is a short-term
borrowing method that uses your unpaid client invoices as collateral.
So here we are done with low-risk investment!
If you want to earn a high return then read the below-given investment

13
Chapter 8
Methods of Direct Investment

FINANCIAL MARKET
Financial markets are the marketplace where the trading of securities
occurs, including the stock market, bond market, forex market, and
derivatives market, among others. Financial markets are vital to the
smooth operation of capitalist economies.

Types of Financial markets are:-

Stock Exchange
A stock exchange also called the stock market is an organized market for
the sale and purchase of securities such as shares. They list the shares or
stocks on stock exchanges, such as the NASDAQ, the NYSE, or OTC.

Bond Market
A bond market is a place where debt securities are traded. This market
includes government-issued securities as well as corporate debt
securities. It enables the transfer of capital from savers or investors to
issuers who need the capital for projects and other operations. This
market is also known as the debt, fixed-income, or credit market.

Market for Derivatives

.
Derivatives, which derive their value from an underlying asset, are traded
on the derivatives market. For example futures, options, swamps, and
forward
. 14
Forward contracts and swaps can be traded by both individuals
and businesses. To manage the financial risk, such deals can be
executed over the counter or through exchange-traded derivatives.

Market for Forex

Currency exchange is facilitated by the foreign exchange (Forex)
market. These markets, which are run by financial firms, are used to
calculate the exchange rates for all currencies.

Materials Market

A commodity market deals with items like gold, oil, wheat, rice, and

other commodities. There are over 50 significant commodities

worldwide.

So let us start with the most popular financial market

which is the stock market!

Basic explanation of the stock market

It is a place where regular activities of buying, selling, and issuance of

shares of publicly-held companies take place. In the stock market, one
can also trade in financial instruments such as derivatives, bonds, and
mutual funds, along with shares of a listed company.
A stock exchange is a meeting place for buyers and sellers for trade. In
India, the prime stock exchanges are the National Stock Exchange and
the Bombay Stock Exchange.

Types of markets
One can trade in either one of the two market segments: the Primary
market and the Secondary market.

15
Primary market
The primary market is where a company first gets registered to raise
money and issues a certain number of shares or bonds. It's in this market
that firms float new stocks and bonds to the public for the first time. When
a company decides to list its shares for the first time this is known as an
initial public offer (IPO).

Secondary market
After stocks or securities of a company have been sold in the
primary market, they are then traded in the secondary market.
Investors trade previously issued securities without the companies'

involvement. In the secondary market, the investor buys shares

from another investor at the prevailing market price or whatever

price both the buyer and seller agree upon.

How we will make money in the stock market?

The answer is simple and that is by analyzing the stock

market

What is Stock Market Analysis?

Stock market analysis is the evaluation of a particular trading instrument

(for eg. Stock), an industry/sector, or the market as a whole. Stock
market analysis helps determine the future activity of an instrument,
sector, or market.
There are broadly two types of analysis i.e Fundamental & Technical.

In this we will compare Fundamental Analysis vs Technical Analysis and

how are they used to evaluate certain factors that can influence the
price and performance of a company's stock.

16
What is Fundamental Analysis?

Fundamental analysis is a method of assessing the intrinsic value of a

stock. It combines financial statements, external influences, events, and
industry trends. It is important to note that the intrinsic value or fair value
of a stock does not change overnight. Such analysis helps you identify
key attributes of the company and analyze its actual worth, taking into
account macro and microeconomic factors.

What is Technical Analysis?

Technical analysis examines prior patterns, charts, and trends in an

attempt to forecast an organization's price fluctuations in the future. In
other words, technical analysis is a strategy for predicting the future
price of assets using charts to discover trends and patterns. For assets
held for a shorter time, technical analysis is useful.

17
Difference Between Fundamental
and Technical Analysis

Fundamental Technical
Fundamental analysis is used to Technical analysis is used to
determine the inherent worth of forecast future price patterns.
a specific company.

The investing function is handled The trading function is handled by

by fundamental analysis. technical analysis.

Fundamental analysis is Technical analysis is undertaken by

conducted by analyzing many examining price movements and

economic elements. patterns, volume displayed on

charts.

Mutual Funds sahi hai ?

What is a 'Mutual Fund'?

A mutual fund is a professionally-managed investment scheme, usually

run by an asset management company that brings together a group of
people and invests their money in stocks, bonds, and other securities.

Types of Mutual Funds

Schemes for every type of investor are responsible for the
widespread popularity of mutual funds in India. All these available
options make it difficult for investors.

Mutual Fund Types

Mutual funds can be classified based on asset class, investment
objective, structure, specialty, and even risk. Classifications based
on asset class, investment objective and structure are more
common.

18
Types of Mutual Funds Based on
Asset Class
Asset class-based classification depends on the assets in which
a mutual fund scheme has invested. These consist of the
following funds-

Equity Funds
Equity funds invest in equity (stocks) and related instruments. They carry
the highest returns potential but also come with the highest level of risk.
Equity funds are recommended for investors with at least 3-5 years of
investment duration. Equity funds can be of various types. They can be
further classified based on their market capitalization.

Debt Funds:
Debt funds invest their money in debt instruments, such as government
bonds, company debentures, and other securities delivering fixed income.
They are one of the safest types of mutual funds and can be regarded as
short-term and long-term investments. Just like equity funds, debt funds
can be of various types based on the maturity period of the debt and
money market instruments.

Types of Mutual Funds Based on Structure

Open-Ended Funds
Open ended funds are always open to investment and redemptions,
hence, the name open ended funds. Open-ended funds are the most
common form of investment in mutual funds in India. These funds do not
have any lock-in period or maturities; therefore, it is open perennially.

19
Close-Ended Funds
Closed ended mutual fund scheme is where your investment is
locked in for a specified period of time. You can subscribe to close-
ended schemes only during the new fund offer period (NFO) and
redeem the units only after the lock-in period or the tenure of the
scheme is over.

What is A SIP?
A systematic Investment Plan, commonly referred to as a SIP, allows
you to invest a small sum regularly in your preferred mutual fund
scheme. By activating a SIP, a fixed amount is deducted from your
bank account every month, which gets invested in the mutual fund
of your choice.

How Do SIPs Work?

Every time you invest in a mutual fund scheme through a SIP, you
purchase a certain number of fund units corresponding to the
amount you invested. You don't need to time the markets when
investing through a SIP as you benefit from both bullish and
bearish market trends.

When the markets are down, you purchase more fund units while
you purchase fewer units when the markets are surging. Since
the NAV of all mutual funds is updated daily, the cost of purchase
may vary from one SIP installment to another. Over time, the cost
of purchase averages out and turns out to be on the lower side.
This is known as rupee cost averaging. This benefit is not
available when you invest as a One-time investment

20
Congratulations on becoming a
KAUTILYA!

Join Us