Unit 1: Financial Literacy

Meaning of Financial Literacy

Financial literacy is the ability to understand and effectively use various financial skills,
including personal financial management, budgeting, and investing. The meaning of financial
literacy is the foundation of your relationship with money, and it is a lifelong journey of
learning. The earlier you start, the better off you will be because education is the key to success
when it comes to money. Given the importance of finance in modern society, lacking financial
literacy can be very damaging to an individual’s long-term financial success.

Benefits of Financial Literacy

Holistically, the benefit of financial literacy is to empower individuals to make smarter

decisions. More specifically, financial literacy is important for a number of reasons:

• Financial literacy can prevent devastating mistakes. Floating rate loans may have
different interest rates each month, while traditional IRA contributions can't be
withdrawn until retirement. Seemingly innocent financial decisions may have long-
term implications that cost individuals money or impact life plans. Financial literacy
helps individuals avoid making mistakes with their personal finances.
• Financial literacy prepares people for emergencies. Financial literacy topics such
as saving or emergency preparedness get individuals ready for the uncertain. Though
losing a job or having a major unexpected expense are always financially impactful,
an individual can cushion the blow by implementing their financial literacy in advance
by being ready for emergencies.
• Financial literacy can help individual reach their goals. By better understanding
how to budget and save money, individuals can create plans that set expectations, hold
them accountable to their finances, and sets a course for achieving seemingly
unachievable goals. Though someone may not be able to afford a dream today, they
can always make a plan to better increase their odds of making it happen.
• Financial literacy invokes confidence. Imagine making a life-changing decision
without all the information you need to make the best decision. By being armed with
the appropriate knowledge about finances, individuals can approach major life choices
with greater confidence realizing they are less likely to be surprised or negatively
impacted by unforeseen outcomes.

Financial Goal

A financial goal is a scientifically defined financial milestone that you plan to achieve or reach.
Financial goals comprise earning, saving, investing and spending in proportions that match
your short-term, medium-term or long-term plans. Every financial goal will have the following
three details associated with them:

-What is the purpose?

- How much money is needed?

- How much time? (usually in years)

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Emergency funds, retirement corpus, home purchase, car ownership, debt clearance etc are all
examples of financial goals.

Types of Financial Goals

Although you can have a wide variety of goals, you can broadly classify each of these goals
within a specific time frame so that your priorities become clear. Categorizing as per time frame
helps you visualize the goals and pace yourself accordingly. To ensure your life is planned and
on track, you must focus on putting clear timelines when setting goals. This will make you
more productive and effective. Here are 3 types of goals:

a) Short-Term Goals
Short-term goals are something you want to achieve in the foreseeable future over the next few
months. These are required for your more immediate expenses. These expenses are generally
smaller in scope and easier to project and predict.

b) Medium-Term Goals
Medium Term lies between short term and long term. Short-term goals have a typical timeline
of a year whereas long-term goals are planned for a decade or more. You may have to achieve
a series of short-term goals to reach your medium-term goals. Clearing outstanding dues on
your credit card or personal loan can be classified under medium-term goals. Medium-term
goals are critical for evaluating your progress against your long-term goals. You can check
whether you are headed in the right direction.

c) Long-Term Goals
Long-term goals require more deliberation, and in most cases, money. Retirement, buying a
house, and funding a child’s higher education are typical long-term goals.

Types Of Bank Accounts

Based on the purpose, frequency of transaction, and location of the account-holder, banks offer
a bouquet of bank accounts to choose from. Here is a list of some of the types of bank accounts
in India.

1. Current account

A current account is a deposit account for traders, business owners, and entrepreneurs, who
need to make and receive payments more often than others. These accounts hold more liquid
deposits with no limit on the number of transactions per day. Current accounts allow overdraft
facility, that is withdrawing more than what is currently available in the account. Also, unlike
savings accounts, where you earn some interest, these are zero-interest bearing accounts. You
need to maintain a minimum balance to be able to operate current accounts.

2. Savings account

A savings bank account is a regular deposit account, where you earn a minimum rate of interest.
Here, the number of transactions you can make each month is capped. Banks offer a variety
of Savings Accounts based on the type of depositor, features of the product, age or purpose of
holding the account, and so on.There are regular savings accounts, savings accounts for

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children, senior citizens or women, institutional savings accounts, family savings accounts, and
so many more.You have the option to pick from a range of savings products. There are zero-
balance savings accounts and also advanced ones with features like auto sweep, debit cards,
bill payments and cross-product benefits. A cross-product benefit is when you have a savings
account with a bank and get to avail special offers on opening a second account such as a demat
account.

3. Salary account

Among the different types of bank accounts, your salary account is the one you have opened
as per the tie-up between your employer and the bank. This is the account, where salaries of
every employee are credited to at the beginning of the pay cycle. Employees can pick their type
of salary account based on the features they want. The bank, where you have a salary account,
also maintains reimbursement accounts; this is where your allowances and reimbursements are
credited to.

4. Fixed deposit account

To park your funds and earn a decent rate of interest on it, there are different types of
accounts like fixed deposits and recurring deposits. A fixed deposit (FD) account allows you
to earn a fixed rate of interest for keeping a certain sum of money locked in for a given time,
that is until the FD matures. FDs range between a maturity period of seven days to 10 years.
The rate of interest you earn on FDs will vary depending on the tenure of the FD. Generally,
you cannot withdraw money from an FD before it matures. Some banks offer a premature
withdrawal facility. But in that case, the interest rate you earn is lower.

5. Recurring deposit account

A recurring deposit (RD) has a fixed tenure. You need to invest a fixed sum of money in it
regularly -- every month or once a quarter -- to earn interest. Unlike FDs, where you need to
make a lump sum deposit, the sum you need to invest here is smaller and more frequent. You
cannot change the tenure of the RD and the amount to be invested each month or quarter. Even
in the case of RDs, you face a penalty in the form of a lower interest rate for premature
withdrawal. The maturity period of an RD could range between six months to 10 years.

6. NRI accounts

There are different types of bank accounts for Indians or Indian-origin people living
overseas. These accounts are called overseas accounts. They include two types of savings
accounts and fixed deposits -- NRO or non-resident ordinary and NRE or non-resident external
accounts. Banks also offer foreign currency non-resident fixed deposit accounts.

DIGITAL BANKING

Digital Banking Meaning

Digital Banking is the automation of traditional banking services. Digital banking enables a
bank’s customers to access banking products and services via an electronic/online platform.
Digital banking means to digitize all of the banking operations and substitute the bank’s

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physical presence with an everlasting online presence, eliminating a consumer’s need to visit
a branch.

Benefits of Digital Banking

Advancing to a more technologically sophisticated way of doing things, it goes without saying
that the benefits long outweigh the costs. Similarly, digital banking as a technological by-
product aims to make life easier for the customers of a bank. Digital banking has the following
benefits:

 Digital banking enables consumers to perform banking functions from the comfort of their
homes, be it an elderly person who is tired of waiting in lines or a working-class
professional who is caught up with work, or a regular person who does not want to visit the
bank’s branch to run a single errand. It also offers convenience.
 Elaborating on the convenience offered, digital banking lets a user carry out banking work
around the clock, with 24*7 availability of access to banking functions.
 One of the biggest drawbacks of traditional banking was the overly placed importance on
paper. Banking has become paperless with the development of digital banking as a service.
A user can log into their account at any point in time to monitor records.
 Digital banking allows a user to set up automatic payments for regular utility bills such
as electricity, gas, phone, and credit cards. The customer no longer has to make a conscious
effort of remembering the due dates. The customer can opt for alerts on upcoming payments
and outstanding dues.
 Online shopping has become a cakewalk with payment channels becoming well-integrated
with the online shopping portals. Internet banking has significantly contributed to online
payments.
 Digital banking extending services to remote areas is seemingly a step toward holistic
development. With smartphones at affordable prices and internet access in remote areas,
the rural population can make the most out of digital banking services.
 Digital banking-enabled fund transfers reduce the risk of counterfeit currency.
 With the help of digital banking, a user can report and block misplaced credit cards at the
click of a button. This benefit greatly strengthens the privacy and security available to a
bank’s customer.
 By promoting a cashless society, digital banking restricts the circulation of black
money as the Government can keep a track of fund movements. In the long run, digital
banking is expected to lower the minting demands of a currency.

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CREDIT AND DEBIT CARDS

Debit and credit cards are both used to pay for goods or services without paying in cash or
writing a check. The difference between the two is where the money to pay for the purchase
comes from. When you use a debit card, the funds for the amount of your purchase are taken
from your checking account almost instantly. When you use a credit card, the amount will be
charged to your line of credit, meaning you will pay the bill at a later date, which also gives
you more time to pay.

It can often be complicated to decide when it is best to use each card. For everyday purchases,
consider using your debit card because you will see the money taken out of your checking
account right away. For bigger items, such as a rental car or hotel room, you could use your
credit card so that you can save up money by the time you have to pay.

Time value of money and inflation

If an individual is given an option to receive Rs 1000 today or to receive the same amount
after one year, he will choose to receive the amount today. The obvious reason for this
preference for receiving the money today is that rupee received today has higher value than
the rupee receivable in future.

A finance manager must deal with decision (investment decision, financing decision and
dividend decision) involving evaluation of various alternatives series of cash flows occurring
over time.

The finance manager while making a comparative study of these options may find that the
cash flows are different not only in quantum but also with respect to timings of their
occurrences. One machine may give lower but early returns, while other may give higher
returns but at later stage. One machine may be less costly while other may be costlier. These
series of cash inflows and cash outflows arising out of a decision are not comparable. The
simple reason being that one rupee of time-period 1 is not comparable with one rupee of some
other time-period. However, one rupee of different time periods can be made comparable by
introducing the interest factor. The interest factor is one of the crucial and exclusive concepts
of the theory of finance. This concept is also known as the concept of time value of money.

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Simple and compound Interest Rate/ Rule of 72, Rule of 70, Rule of 50-30-20, Rule of 10-
5-3, 3X Emergency Rule.

Rule of 72

The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of
years required to double the invested money at a given annual rate of return. Alternatively, it
can compute the annual rate of compounded return from an investment given how many years
it will take to double the investment. If the interest per quarter is 4% (but interest is only
compounded annually), then it will take (72 / 4) = 18 quarters or 4.5 years to double the
principal. If the population of a nation increases at the rate of 1% per month, it will double in
72 months, or six years. The Rule of 72 dates back to 1494 when Luca Pacioli referenced the
rule in his comprehensive mathematics book called Summa de Arithmetica.

Rule of 70

The rule of 70 is a simple mathematical formula that can be used to approximate how long it
takes for an investment to double in value. It’s similar to the rule of 72 and the rule of 69, but
has slightly different applications.

Let’s say an investor decides to compare rates of return on the investments in their retirement
portfolio to get an idea of how long it may take their savings to double. To calculate the
doubling time, the investor would simply divide 70 by the annual rate of return. Here’s an
example:

• At a 4% growth rate, it would take 17.5 years for a portfolio to double (70/4)
• At a 7% growth rate, it would take 10 years to double (70/7)
• At an 11% growth rate, it would take 6.4 years to double (70/11)

Rule of 50-30-20

The 50/30/20 rule of budgeting is a simple method that helps you manage your money more
effectively. This basic thumb rule is to divide your post-tax income into three spending
categories – 50% for needs, 30% for wants, and 20% for savings. This is not a hard and fast
rule but a simple guideline that helps you build a financially strong budget.

50% for Needs

Needs are the basic expenses that you absolutely require for your living. The basic requirements
of food, shelter and clothing fall in this category.

30% for Wants

This is the second component of the budgeting rule. These are expenses that are unnecessary
for survival but considered luxuries of life.

• Entertainment expenses like movies, Netflix, etc.

• Dining out
• Gym membership

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 • Shopping
• Travel
• Hobby
• Buying the latest gadget like iPhones, smart tv, etc.

20% for Savings

This is the last and most crucial component of the budgeting rule, which facilitates financial
planning. This money helps to take care of your future needs.

• Emergency Funds
• Investments in mutual funds , stocks, ETFs, gold, or any other instrument
• Tax saving funds like PPF, NPS, ELSS
• Loan Prepayment
• Planning for long-term goals like children’s education, marriage, retirement, etc.

Rule of 10-5-3

Another basic mantra on financial planning is the 10-5-3 rule. This rule simply tells you how
different asset classes give you different kind of returns. As an investor, you should diversify
your money into all of these asset classes to generate expected returns.

The different asset classes and returns which can be expected from them as per this rule are -
• Long term Equity options– Returns expected can be in the range of 10%#
• Debt options– Returns expected can be in the range of 5%#
• Savings account – Returns expected can be in the range of 3%#

Equity may give you higher return, but it is riskier as compared to other options, while debt
investments will be comparatively safer, with moderate returns. Savings account means
liquidity to meet any emergency needs.

Diversification is thus the key to financial planning.

The 3X Emergency Rule

The term Emergency Fund refers to money kept away to use in times of financial distress. An
emergency fund aims to improve financial security by creating a safety net that can meet
uncalled expenses, such as an illness or major home repairs. It is advisable to own an
emergency fund that's at least three times your current monthly income which is the bare
minimum. You can move up to six months and keep building if you need to do so, but this
fund will keep you financially stable in emergencies such as loss of employment, urgent
travel, repairs, etc.

40% EMI Rule

All of your EMIs combined should be no more than 40 percent of your In-hand income. For
instance, if your In-hand pay is Rs 50,000, then the combined EMIs should ideally be Rs
20,000. If you are thinking of going overboard with this limit, you might strain your finances,
lower your savings, and run into the risk of defaulting on your EMIs. Life throws unexpected

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situations which we can neither avoid nor control. It's advisable to be prepared for such cases
and follow the rule to manage and control the way your EMI works.

Planning And Debt Management

Debt management is a way to get your debt under control through financial planning and
budgeting. The goal of a debt management plan is to use the strategies to help you lower your
current debt and move toward eliminating it.

Interest rate, Tenure, Penalty

Interest rate is the amount charged over and above the principal amount by the lender from the
borrower. In terms of the receiver, a person who deposits money to any bank or financial
institution also earns additional income considering the time value of money, termed as interest
received by the depositor.

The tenure in your loan is the time period between the disbursal of your loan and the last EMI
payment that you make. For example, if your personal loan was disbursed on 1st January 2022
and you repaid the debt in its entirety (made the last EMI payment) on the 1st of January 2025,
your loan tenure is said to be of 3 years.

Penal interest is the penalty one has to pay because of delayed loan EMI. Penal charges is a
penalty interest levied by the loan provider. A prepayment penalty, also known as an early
payoff penalty, is a fee you will have to pay if you pay back your loan ahead of the
predetermined schedule. If the terms of your loan include a prepayment penalty clause, then
you will be penalized if you pay off your debt early.

3Cs in loan sanction

Your credit score is a measure of factors that may affect your ability to repay credit. It’s a
complex formula that takes into account how you’ve repaid previous loans, any outstanding
debt, and your current salary.
A credit score is dynamic and can change positively or negatively depending upon how much
debt you accrue and how you manage your bills. The factors that determine your credit score
are called The Three C’s of Credit - Character, Capital and Capacity. These are areas a creditor
looks at prior to making a decision about whether to take you on as a borrower.
Character
From your credit history, the lender attempts to determine if you possess the honesty and
reliability to repay the debt.
Capital
The lender will want to know if you have any valuable assets such as real estate, personal
property like an automobile, or savings and investments that could be used to repay credit debts
if income is unavailable.
Capacity
This refers to your ability to repay the debt. The lender will look to see if you have been
working regularly in an occupation that is likely to provide enough income to support your
credit use.

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Personal Loan

One can prefer to go for personal loans for their requirements like education, health, weddings
etc. We can see an increase in several personal loans for different purposes in recent times.
Many reasons exist for the increase in personal loans like low rates of interest, liquidity, etc.
The documents required are:

• Know Your Customer documents like Aadhar card, driving license

• One’s slips of salary of last Two months and proof of income for employed persons,
• Copy of Statement of income tax
• Statement of savings account.

Vehicle Loan

This loan is purchased for buying new vehicles or used one, whichever form it may be like a
two or four-wheeler vehicle. The score of credit, ratio of debt to income, tenor of loan etc play
an important role.

Education Loan

Dream of studying abroad and from prestigious institutions increase the demand for such loans.
It can be utilized full-time or part-time in any field of their study. A special feature of this type
of loan is the suspension period where students cannot pay EMI till 12 months of their course
completion.

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Unit 2: Income Management

Provident Fund Scheme:

EPF

The Employees’ Provident Fund or EPF is a popular savings scheme that has been introduced
by the EPFO under the supervision of the Government of India. The savings scheme is directed
towards the salaried class to facilitate their habit of saving money to build a substantial
retirement corpus.

The fund is built with monetary contributions extended by employees and their employers each
month. Both parties extend 12% each of the employees’ monthly salary, as their share of
contribution towards EPF.

The accrued interest on the EPF is tax-free and can be withdrawn without paying for the same.
Employees avail a lump-sum amount on their retirement, which is inclusive of the accrued
interest.

PPF

The PPF account or Public Provident Fund scheme is one of the most popular long-term saving-
cum-investment products, mainly due to its combination of safety, returns and tax savings.

The PPF was first offered to the public in the year 1968 by the Finance Ministry’s National
Savings Institute. Since then it has emerged as a powerful tool to create long-term wealth for
investors.
Investors use the PPF as a tool to build a corpus for their retirement by putting aside sums of
money regularly, over long periods of time (PPF has a 15-year maturity, and the facility to
extend the tenure). With its attractive interest rates and tax benefits, the PPF is a big favourite
with a small saver.

The interest rate is set by the government every quarter. PPF scores over many other investment
options mainly because your investment is tax exempt under section 80C of the Income Tax
Act (ITA) and the returns from PPF are also not taxable. You can invest a minimum of Rs. 500
and a maximum of Rs. 1,50,000 in a financial year.

NPS

National Pension System (NPS) is a retirement benefit Scheme introduced by the Government
of India to facilitate a regular income post retirement to all the subscribers. PFRDA (Pension
Fund Regulatory and Development Authority) is the governing body for NPS

It is a voluntary scheme for all citizens of India. You can invest any amount in your NPS
account and at any time.

A portion of the NPS goes to equities (this may not offer guaranteed returns). However, it
offers returns that are much higher than other traditional tax-saving investments like the PPF.

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The NPS scheme holds immense value for anyone who works in the private sector and requires
a regular pension after retirement. The scheme is portable across jobs and locations, with tax
benefits under Section 80C and Section 80CCD.

You can claim tax exemption upto Rs. 50,000 under section 80CCD (1B). This benefit is over
an above limit of Rs. 1,50,000 under section 80C.

Atal Pension Yojana

The Government of India has announced a new scheme called Atal Pension Yojana (APY).
APY is a guaranteed pension scheme and is administered by the Pension Fund Regulatory and
Development Authority (PFRDA).

• Guaranteed monthly pension for subscribers, ranging from Rs. 1,000 to Rs. 5,000 per
month.
• Government of India (GoI) will also co-contribute 50% of the subscriber’s contribution
or Rs. 1,000 per annum, whichever is lower. The Government co-contribution is
available for those who are not covered by any Statutory Social Security Schemes and
is not an Income Tax payer.
• GoI will co-contribute to each eligible subscriber for a period of 5 years, who joined
the scheme during the period Jun 1, 2015 to Mar 31, 2016. The benefit of five years of
Government co-contribution under APY would not exceed 5 years for all subscribers,
including the migrated Swavalamban beneficiaries.
• Atal Pension Yojna is a Social Security Scheme introduced by Govt. of India, aimed at
providing a steady stream of income after the age of 60 to all citizens of India. It is
based on National Pension Scheme (NPS) frame work. Permanent Retirement Account
Number (PRAN) will be provided to the subscriber immediately by the branch.

Under APY the subscribers have a choice to get Fixed Monthly Pension amount from Rs. 1000,
Rs.2000, Rs. 3000, Rs. 4000 and Rs. 5000 by paying monthly subscription

• Central Government will co-contribute 50% of the total yearly contribution or Rs. 1000
per annum, whichever is lower, for the period of 5 Years in the account of subscribers
who join the scheme up to 31st December, 2015 and who are not a member of any
Statutory Social Scheme and not an income tax payer.

Post Office Savings Scheme

Sukanya Samridhi Yojana

• Minimum deposit ₹ 250/- Maximum deposit ₹ 1.5 Lakh in a financial year.

• Account can be opened in the name of a girl child till she attains the age of 10 years.
• Only one account can be opened in the name of a girl child.
• Account can be opened in Post offices and in authorised banks.
• Withdrawal shall be allowed for the purpose of higher education of the Account holder
to meet education expenses.
• The account can be prematurely closed in case of marriage of girl child after her
attaining the age of 18 years.

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 • The account can be transferred anywhere in India from one Post office/Bank to
another.
• The account shall mature on completion of a period of 21 years from the date of
opening of account.
• Deposit qualifies for deduction under Sec.80-C of I.T.Act.
• Interest earned in the account is free from Income Tax under Section -10 of I.T.Act.

The Sukanya Samriddhi Yojana scheme was launched on 22 January 2015 in Panipat, Haryana
by Prime Minister Narendra Modi. The scheme is aimed at the betterment of the girl child in
the country by abolishing sex determination, gender discrimination, protection of girls, and
higher participation of girls in education and other fields.

Sukanya Samriddhi Yojana (SSY) scheme was launched under the Beti Bachao Beti
Padhao campaign with the main aim of securing the future of a girl child. The main benefits of
the SSY scheme are mentioned below:

• Interest rate was reduced from 8.4% to 7.6%

• Tax benefits of up to Rs.1.5 lakh
• Account can be transferred

Investments made towards the scheme can be used for the girl child's marriage and education.
An SSY account can be opened at banks and post offices. Under Section 80C of the Income
Tax Act, 1961, tax benefits of up to Rs.1.5 lakh are provided for contributions made towards
the scheme.

National Saving Certificate

National Savings Certificate or NSC, a post office savings product, is a popular option. As a
low-risk investment, it comes with a host of benefits. We have covered the following in this
article:

Interest Rate 6.8% per annum.

Minimum Investment Rs.1,000

Lock-in Period 5 years

Low-risk
Risk Profile

Tax Benefit
Up to Rs.1.5 lakh under Section 80C

The National Savings Certificate (NSC) is a fixed income investment scheme that you can
open with any post office branch. The scheme is a Government of India initiative. It is a

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savings bond that encourages subscribers – mainly small to mid-income investors – to invest
while saving on income tax. Anyone looking for a safe investment avenue to earn a steady
interest while saving on taxes can choose to invest in NSC. NSC offers guaranteed interest
and complete capital protection.

Life Insurance

Term

Term insurance protects your family’s financial future if something were to happen to you.
Designed as a simple and affordable way to give financial cover, a term plan is a vital part of
financial planning for the primary wage earner in a family.
Term insurance is a pure protection plan and is not market-linked. Moreover, the premiums for
term insurance are lower as compared to any other life insurance product. The premiums are
also more affordable if you buy them early in life. Experts often suggest that term plan should
be a priority for you as soon as you start earning.
Term insurance can be used for various purposes. In the absence of an income, your family can
use the cover from the insurance to pay for their day to expenditure, education costs, or wedding
expenses. If you have any outstanding debts, such as home loan, car loan, etc., your family can
pay them off with the cover.

Endowment

Endowment plans are ideal for people who want guaranteed returns along with the protection
of life insurance. An endowment plan is a life insurance policy that provides life coverage
along with an opportunity to save regularly. This enables you to receive a lump sum amount
on the maturity of the policy. In case of death during the policy term, your nominee(s) also
receives a death benefit.
Just like ULIPs, endowment plans are quite flexible too. You can choose a suitable method and
time frame to pay the premium. Endowment plans also give you a chance to benefit from
bonuses, that are paid additionally over and above the sum assured of your policy.
Lastly, the returns generated on maturity from an endowment plan are tax-free* subject to
Section 10(10D) of the Income Tax Act of 1961. The premiums paid can also be claimed as a
deduction under Section 80C* of the same Act.

Whole Life

A whole life insurance plan is a life insurance policy that gives you life coverage for 99 years.
Unlike other policies that have a relatively shorter term of 10-30 years, the long coverage
period of such plans ensures protection for your family for an extended period of time.

With coverage of up to 99 years, whole life insurance is ideal for those who have financial
dependents even in their old age. The biggest advantage of this product is that not only does
it provide lifelong protection to the insured but also provides a simple way to leave behind a
legacy for their children.

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Whole insurance plans offer a lot of stability. After paying the premiums for 5 years, you get
a guaranteed income on maturity. Moreover, the income received from a whole life insurance
policy is tax-free* subject to Section 10(10D) of the Income Tax Act of 1961.

Unit Linked Insurance

A unit linked insurance plan (ULIP) is a combination of insurance and investment. A ULIP
provides life cover that offers financial protection for your loved ones. In addition to this, it
also gives you the potential to create wealth through market-linked returns from systematic
investments.

A ULIP offers you the opportunity to invest your money in different fund options, depending
on your risk appetite. ULIPs come with a 5-year lock-in period, and the money can be invested
in bonds, equities, hybrid funds, etc. If you are looking for safer options, bonds can be a good
choice. On the other hand, if you are open to more risk, hybrid funds and equities have the
potential to offer better returns.

Since each individual is different, ULIPs allow great flexibility for investment. Your risk
appetite and investment preferences are likely to change with age. ULIPs permit you to take
these factors into consideration and alter your investment strategy accordingly.

ULIPs also provide flexibility in terms of partial withdrawals and fund-switching. They offer
interesting benefits like loyalty additions and wealth boosters to help you generate more
wealth over time. Additionally, the maturity amount from ULIPs is tax-free* subject to Section
10(10D) of the Income Tax Act of 1961.

Rule of 20X

For calculating the minimum cover you need, you can go by the common thumb rule of having
a sum assured that is 20 times your annual income.

Based on the value of your future earnings, a simple way to estimate this is to get 30X your
income between the ages of 18 and 40; 20X income for age 41-50; 15X income for age 51-
60; and 10X income for age 61-65. After age 65, coverage is based on net worth instead of
income.

Personal Accidental Cover

Personal Accident Insurance policy provides complete financial protection to the insured
members against uncertainties such as accidental death, accidental bodily injuries, and
partial/total disabilities, permanent as well as temporary disabilities resulting from an
accident. In the case of accidental death of the policyholder, the nominee gets 100%
compensation from the insurer. There are various other compensations that are offered for
accidental disability such as loss of eyes, limbs, and speech. There are various other rider
benefits such as accidental hospitalization cover, Hospital Confinement Allowance, and
Medical Expense Cover. Accidental Insurance Policies can be further divided into
Individual Accident Insurance and Group Accident Insurance.

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Motor Insurance

Motor insurance is an insurance policy designed for four-wheelers, commercial trucks, two-
wheelers, and other road vehicles. It has been made mandatory for all the vehicles such as
cars, bikes, scooters, and trucks that are plying on the roads in India. Vehicle owners are
required to avail motor insurance even for commercial vehicles. Motor insurance not only
provides cover for the damages caused by the accident but also covers from theft, natural
calamity, fire damage, vandalism, manmade disaster.

Health Insurance

Health Insurance is a type of insurance that covers the medical expenses of the insured due
to an illness or accident in exchange for a premium amount. It enables the insurance company
to provide medical coverage for hospitalization expenses, day care procedures, critical
illnesses, etc. A health plan also offers multiple benefits, including cashless hospitalization and
free medical check-ups.

Health Insurance is a contract between the policyholder and the insurer where the health
insurance company provides financial coverage to the insured up to the sum insured limit. It
offers medical coverage for healthcare expenses incurred during an emergency or planned
hospitalization. It also provides tax savings on the premium paid to the insurance company
under Section 80D of the Income Tax, 1961.

Group Insurance

This type of insurance plan provides coverage to group of people under the same plan. It
provides same coverage to all the members irrespective of their gender, age, economic status
or occupation. It provides coverage to the dependents of the covered member such as spouses,
kids, etc. It is usually purchased by companies or organizations to provide additional medical
coverage to their employees as a perk because premium amount of group medical insurance
plan is paid by the employer.

PM Suraksha Bima Yojana

The Scheme is available to people in the age group 18 to 70 years with a bank account who
give their consent to join / enable auto-debit on or before 31st May for the coverage period
1st June to 31st May on an annual renewal basis. Aadhar would be the primary KYC for the
bank account. The risk coverage under the scheme isRs.2 lakh for accidental death and full
disability and Rs. 1 lakh for partial disability. The premium of Rs. 20 per annum is to be
deducted from the account holder’s bank account through ‘auto-debit’ facility in one
instalment. The scheme is being offered by Public Sector General Insurance Companies or
any other General Insurance Company who are willing to offer the product on similar terms
with necessary approvals and tie up with banks for this purpose.

PM Jeevan Jyoti Yojana

The PMJJBY is available to people in the age group of 18 to 50 years having a bank account
who give their consent to join / enable auto-debit. Aadhar would be the primary KYC for the
bank account. The life cover of Rs. 2 lakhs shall be for the one year period stretching from 1st

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June to 31st May and will be renewable. Risk coverage under this scheme is for Rs. 2 Lakh in
case of death of the insured, due to any reason. The premium is Rs. 436 per annum which is
to be auto-debited in one instalment from the subscriber’s bank account as per the option given
by him on or before 31st May of each annual coverage period under the scheme. The scheme
is being offered by Life Insurance Corporation and all other life insurers who are willing to
offer the product on similar terms with necessary approvals and tie up with banks for this
purpose.

Ayushman Bharat

Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (lit. 'Prime Minister's People's Health
Scheme' or PM-JAY; also referred to as Ayushman Bharat National Health Protection
Scheme or NHPS) is a national public health insurance fund of the Government of India that
aims to provide free access to health insurance coverage for low income earners in the country.
Roughly, the bottom 50% of the country qualifies for this scheme. People using the program
access their own primary care services from a family doctor. When anyone needs additional
care, then PM-JAY provides free secondary health care for those needing specialist treatment
and tertiary health care for those requiring hospitalization.

The programme is part of the Indian government's National Health Policy and is means-tested.
It was launched in September 2018 by the Ministry of Health and Family Welfare. That
ministry later established the National Health Authority as an organization to administer the
program. It is a centrally sponsored scheme and is jointly funded by both the union
government and the states. By offering services to 50 crore (500 million) people it is the
world's largest government sponsored healthcare program. The program is a means-tested as
its users are people with low income in India.

Protection against Ponzi Scheme

A Ponzi scheme is considered a fraudulent investment program. It involves using payments

collected from new investors to pay off the earlier investors. The organizers of Ponzi schemes
usually promise to invest the money they collect to generate supernormal profits with little to
no risk.

Grievance redressal agencies for Banking, Securities Market, Insurance and Pension
Industry

Grievance redressal agencies for Banking

The Banking Ombudsman Scheme is an expeditious and inexpensive forum for bank
customers for resolution of complaints relating to certain services rendered by banks. The
Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation
Act, 1949 by RBI with effect from 1995. The Banking Ombudsman is a senior official
appointed by the Reserve Bank of India to redress customer complaints against deficiency in
certain banking services covered under the grounds of complaint specified under Clause 8 of
the Banking Ombudsman Scheme 2006 (As amended upto July 1, 2017). One can file a
complaint before the Banking Ombudsman if the reply is not received from the bank within a
period of one month after the bank concerned has received one's complaint, or the bank rejects
the complaint, or if the complainant is not satisfied with the reply given by the bank.

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Grievance redressal agencies for Securities Market

Securities Board of Exchange of India has implemented an online SEBI Complaints Redress
System (SCORES) to enable investors to lodge their complaints related to the capital
market, against SEBI listed companies and registered intermediaries. SCORES is an online
platform designed and launched by the securities markets regulator SEBI in June 2011 to help
concerned investors to lodge their complaints online with respect to the issues that are covered
under the SEBI Act, Securities Contract Regulation Act (SCRA), Depositories Act, and rules
and regulations framed under the provisions of the Companies Act. All complaints received
by SEBI against listed companies and registered intermediaries under SEBI are dealt through
SCORES. The newly introduced Investor Grievance Redressal System is intended to expedite
the redressal process or speedy disposal of investors’ complaints.

Grievance redressal agencies for Insurance

Every insurer must ensure a grievance redressal mechanism is in place for providing excellent
customer service which in turn is the most important tool for business growth. If one are
unhappy with the insurance company procedures or claim settlement, one can

• Approach the Grievance Redressal Officer of its branch or any other office that one
deals with. All formal mail IDs of Grievance Redressal Officers, GRO, of all insurance
companies is made available in IRDAI portal: policyholder.gov.in
• Complaint in writing along with the necessary support documents to be provided
• Written acknowledgement of complaint date to be obtained.

The insurance company should deal with all complaint within 15 days.

Grievance redressal agencies for Pension Industry

As per the provisions of the PFRDA (Redressal of subscriber Grievance) Regulations 2015,
the subscribers can raise their grievances for resolution through the Central Grievance
Management System (CGMS). The grievances shall be directed to the concerned
intermediary/office, for taking necessary action to resolve the grievance raised by the
subscriber. The resolution remarks provided by the concerned entity shall be intimated to the
subscriber over email and also can be viewed online.

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Unit 3: Investment Management

Securities Market: Equity Shares and Debt Securities

An equity market is a financial marketplace where shares/stocks are bought and sold at a given
market price. The equity market is also popularly known as the stock market.

A private company that requires funds for growth, expansion, or other requirements, may
invite the general public to buy its shares. An Initial Public Offering (IPO) is a process by
which the company may do so and thereby go public. Investors may subscribe to it and buy
shares directly from the company. Such investors include retail investors, institutional
investors, etc.

Once the company goes public, its shares become available on the stock exchanges. Through
stock exchanges, investors can purchase shares from other investors or sell shares to other
investors. The investors buying shares get partial ownership in the company, proportional to
the number of shares they hold. The Securities and Exchange Board of India is the regulator
of the Indian equity market.

A debt market is a financial marketplace where debt securities are bought and sold. It is also
called the fixed income securities market.

In the debt markets, corporations or governments looking for funds for a specific time issue
debt securities. Various debt securities include corporate debentures, corporate bonds,
government bonds, etc. Investors looking to park funds for a particular period may invest in
them.

While issuing debt securities, the issuer promises to repay the principal amount to the investor
at the end of a predetermined maturity period. In addition, the issuer also promises to pay
interest at regular intervals as a reward for providing funds. Thus, debt securities essentially
act as loans, where the issuers are borrowers, and debtholders/bondholders are the creditors.
A few of the debt securities are also traded on the stock exchanges. For those securities, the
price may fluctuate. SEBI and RBI regulate the debt market.

SEBI

The Securities and Exchange Board of India (SEBI) is a regulatory body. It was founded on
April 12, 1992, under the SEBI Act, 1992. It is responsible for the regulation of Indian
securities and capital markets. SEBI is the regulator of the securities and commodity market
in India owned by the Government of India.

SEBI was established with the objective of safeguarding the investor’s interest, regulating the
capital market, and establishing a transparent market. It safeguards the interests of investors,
securities issuers, and market players. Moreover, it has achieved it by introducing rules and
regulations, a mandatory revelation of information, etc.

The role of SEBI in India is to regulate and promote the following entities:

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 • Issuers of securities- These are the companies and corporations that list their stocks on
the stock market for open trade and raising capital for expansion. SEBI ensures that
the process of IPO initial public offering is smooth. Moreover, post IPO open trade
must also be efficient and smooth.
• Investor- The investors are the most important stock market participants. The
protection of their interest is the most crucial role of SEBI in India. This is because
investors are institutional and retail investors who have put their money at stake by
investing in the market.
• Financial Intermediaries- The link or connection between the issue of securities and
investors is the intermediaries. These intermediaries establish a connection between
investors and issuers for a smooth exchange of transactions and trade. Such
intermediaries include brokers, aggregators, merchant bankers, underwriters,
custodians, and credit rating agencies.

Functions of SEBI

Protective Functions

• Prohibit securities markets related fraudulent and unfair trade practices

• Prohibit insider trading in securities
• Issue directions to protect the interests of investors, intermediaries, fair trade, and balance
of trade.

Regulatory Functions

• Regulate the business in stock exchanges and any other securities markets
• Register and regulate the working of the depositories, participants, custodians
of securities, foreign institutional investors, credit rating agencies and other
intermediaries
• Register and regulate the working of venture capital funds, mutual funds, and other
schemes
• Regulating substantial acquisition of shares and take over of companies
• Raise requests for information, inspection, conducting inquiries and audits

Development Functions

• Promote investors‘ education and training of intermediaries of securities markets;

• Promoting and regulate self regulatory organisations

Stock Exchanges

The stock exchange in India serves as a market where financial instruments like stocks, bonds
and commodities are traded.

It is a platform where buyers and sellers come together to trade financial tools during specific
hours of any business day while adhering to SEBI’s well-defined guidelines. However, only
those companies who are listed in a stock exchange are allowed to trade in it.

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Mostly, a stock exchange in India works independently as no ‘market makers’ or ‘specialists’
are present in them.

Listing with a stock exchange extends special privileges to company securities. For instance,
only listed company shares are quoted on a stock exchange. The entire process of trading
in stock exchange in India is order-driven and is conducted over an electronic limit order
book.

Being listed on a reputed stock exchange is deemed beneficial for companies, investors and
the public in general and they tend to benefit in these following ways –

• Increased Value

Only stocks listed with a reputable stock exchange are considered to be higher in value.
Companies can cash in on their market reputation in the stock exchange market by increasing
their number of shareholders. Issuing shares in the market for shareholders to acquire is a
potent way of increasing shareholder base and base, which in turn increases their credibility.

• Accessing capital

One of the most effective ways of availing cheap capital for a company is by issuing company
shares in the stock exchange market for shareholders to acquire. Listed companies can
generate comparatively more capital through share issuance owing to their repute in a stock
exchange market and use it to keep their company afloat and its operations running.

• Collateral value

Almost all lenders accept listed securities as collateral and extend credit facilities against
them. A listed company is more likely to avail a faster approval for their credit request; as
they are deemed more credible in the stock exchange market.

• Liquidity

Listing helps shareholder avail the advantage of liquidity better than other counterparts and
offers them ready marketability. It allows shareholders to estimate the value of investment
owned by them.

Additionally, it permits share transactions with a company and helps them to even out the
associated risks. It also helps shareholders to improve their earnings from even the slightest
increase in overall organisational value.

• Fair price

The quoted price also tends to represent the real value of a particular security in a stock
exchange in India.

The fact that the prices of listed securities are set as per the forces of demand and supply and
are disclosed publicly, investors are assured to acquire them at a fair price.

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Investors can invest in a stock exchange of India through these two ways:

Primary Market – This market creates securities and acts as platform where firms float their
new stock options and bonds for general public to acquire. It is where companies enlist their
shares for first time.

Secondary Market – It acts a trading platform for investors. Here, investors trade securities
without involving the companies who issued them in first place with help of brokers.

There are two major types of Stock Exchanges in India, namely the –

Bombay Stock Exchange (BSE): This particular stock exchange was established in 1875 in
Mumbai at Dalal Street. It renowned as the oldest stock exchange not just in Asia and is the
‘World’s 10th largest Stock Exchange’.

The estimated market capitalisation of Bombay Stock Exchange as of April stands at $ 4.9
Trillion and has around 6000 companies publicly listed under it. The performance of BSE is
measured by the Sensex, and it reached its all-time high in June in 2019, when it touched
40312.07.

National Stock Exchange (NSE): The NSE was established in 1992 in Mumbai and is
accredited as the pioneer among the demutualised electronic stock exchange markets in India.
This stock exchange market was established with the objective to eliminate the monopolistic
impact of the Bombay Stock exchange in the Indian stock market.

The estimated market capitalisation of National Stock Exchange as of March 2016 was US$
4.1 trillion and was acclaimed as the 12th largest stock exchange in the world. NIFTY 50 is
NSE’s index, and it is extensively used by investors across the globe to gauge the performance
of the Indian capital market.

Pre-requisities for Investing in Securities Market

Bank Account - As you are choosing to invest in stocks, you will be buying and selling them
over time. For this, you will require a bank account that is linked to your trading account. This
ensures that money flows in and out of your account seamlessly while you trade. This is
mandated by most brokers with whom you will choose to open a demat and trading account.

Trading abd Demat Account - You will also need to open a Demat Account, apart from a Bank
account where you will be able to hold all of your shares and securities in your name. You
can no longer own stock certificates.

As a result, if you want to hold all of your securities in an electronic (dematerialized) form,
you’ll need a Demat Account. To buy and sell the shares, you’ll need a trading account. All
of this is usually handled by the broker. As a result, when you approach a broker, your Demat
account and trading account are both opened at the same time.

KYC Process - The Securities and Exchange Board of India (SEBI) has made KYC
compliance mandatory for mutual fund and broking accounts. Several documents are required

MS. PRIYANKA JOE 21

by registration agencies to complete the Know Your Customer (KYC) process for mutual fund
investors. They include KYC forms and proofs of identity and address.

Investment through IPO

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It
is the largest source of funds with long or indefinite maturity for the company.

An IPO is an important step in the growth of a business. It provides a company access to funds
through the public capital market. An IPO also greatly increases the credibility and publicity
that a business receives. In many cases, an IPO is the only way to finance quick growth and
expansion. In terms of the economy, when a large number of IPOs are issued, it is a sign of a
healthy stock market and economy.

Book Building as "a process undertaken by which a demand for the securities proposed to be
issued by a body corporate is elicited and built-up and the price for such securities is assessed
for the determination of the quantum of such securities to be issued by means of a notice,
circular, advertisement, document or information memoranda or offer document".

Book Building is basically a process used in Initial Public Offer (IPO) for efficient price
discovery. It is a mechanism where, during the period for which the IPO is open, bids are
collected from investors at various prices, which are above or equal to the floor price. The
offer price is determined after the bid closing date. The company which issues shares to the
public is referred to as the issuer. There are two common types of IPO.

Fixed Price Offering Fixed Price IPO can be referred to as the issue price that some
companies set for the initial sale of their shares.

Book Building Offering In the case of book building, the company initiating an IPO offers a
20% price band on the stocks to the investors. The interested investors bid on the shares before
the final price is decided.

IPO is used by small and medium enterprises, startups and other new companies to expand,
improve their existing business. An IPO is a way for companies to acquire fresh capital, which
in turn can be used to finance research, fund capital expenditure, reduce debt and explore other
opportunities. An IPO will also bring in transparency into affairs of the company since it will
be required to inform financial numbers and other market-related developments on time to the
stock exchanges. The company's investment in various equity and bond instruments will come
under greater scrutiny after it gets listed. IPO of any company brings great deal of attention
and credibility. Analysts around the world report on investment decisions of the clients.

Trading through Online/Mobile App

Registered Stock Broker

A stockbroker is a financial professional who executes orders in the market on behalf of

clients. A stockbroker may also be known as a registered representative (RR) or an
investment advisor.

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Most stockbrokers work for a brokerage firm and handle transactions for a number of
individual and institutional customers. Stockbrokers are often paid on a commission basis
although compensation methods vary by employer.

India’s securities and commodity markets are regulated by the Securities and Exchange Board
of India (SEBI). Registration as a broker and a sub-broker is required by SEBI. It is impossible
to engage in the profession without doing so.

Risk Evaluation: Macro-Economic, Industrial and Technical Analysis

Introduction to security analysis deals with fundamental and technical analysis.

Fundamental Analysis – attempts to find out true value of securities so that investors can
decide to buy or not buy securities at current market prices. The broader framework of
fundamental analysis attempts to study the economic scenario, industry scenario and company
expectations. In EIC approach, the investor starts with economy and overall market and then
moves towards industry prospects.

Economic Analysis- deals with analysis of forces operating in the economy. Important
variables to be looked into are:

1. Gross domestic product

2. Inflation
3. Interest rates
4. Fiscal policy
5. Monetary policy
6. Business cycles

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Industry Analysis- homogeneous groups of firms with compete with one another with similar
types of products, goods and services. After forecasting the economy, it is necessary to
determine the implication of specific industry. Key factors in Industry Analysis are:

1. Past performance of the industry

2. Performance of the product and technology of the industry
3. Role of government in the industry
4. Labour conditions
5. Competitive conditions in the market
6. Industry life cycle

Company Analysis – to identify specific companies or specific shares which are expected to
perform well in future. The objective of company analysis are to:

1. Find out the intrinsic value of a share

2. Find out the expected earnings of the company

Information required for estimating the future earnings of a firm is primarily available in the
annual financial statements. These include:

1. Balance Sheet
2. Income Statement
3. Cash flow statement
4. Notes to financial statement

For analysing company’s earnings, the following information is used

1. Profitability of the company

2. Liquidity of the company
3. Solvency of the company
4. Activity level of the company

Technical Analysis – securities prices and volume in past suggest their future price behaviour.
Technical analysis aims at evaluating securities by analysing information generated by stock
market activities, past prices and volume.

Tools and techniques used by technical analyst are classified into two:

1. Charting
2. Market indicators

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Charting:

1. Bar chart

2. Line Chart

3. Point to Figure Chart

4. Candlestick Chart

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Market indicator:

1. Pattern Analysis
a. Trends
b. Heads and shoulders
c. Inverted head and shoulders
d. Double tops and bottoms
e. Triangles
f. Flags

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 2. Indicator Analysis
a. Moving average
b. Relative strength
c. New highs and lows
d. Moving average convergence divergence

Mutual Funds: Meaning and Purchase of Funds (SIP & Lumpsum), Risk-o-meter

A mutual fund is a company that pools money from many investors and invests the money in
securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual
fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents
an investor’s part ownership in the fund and the income it generates.

Mutual funds are a popular choice among investors because they generally offer the following
features:

• Professional Management. The fund managers do the research for you. They select the
securities and monitor the performance.

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 • Diversification or “Don’t put all your eggs in one basket.” Mutual funds typically
invest in a range of companies and industries. This helps to lower your risk if one
company fails.
• Affordability. Most mutual funds set a relatively low dollar amount for initial
investment and subsequent purchases.
• Liquidity. Mutual fund investors can easily redeem their shares at any time, for the
current net asset value (NAV) plus any redemption fees.

Investing comes with choices. Apart from which schemes to invest in, one can also choose
how invest in mutual funds. An investor can make a one-time investment in mutual funds via
a lumpsum investment or can choose to spread it out over a period of time through a systematic
investment plan (SIP). The mode of investment can make a difference in one’s investment
portfolio.

Comparison of the two methods – SIP vs Lumpsum

Most investors prefer periodic investments because of the benefits SIPs offer over lump-sum
investments. Some of these are outlined below:

1. Investors don’t have to monitor the market closely

Since lump-sum investments are a bulk commitment, investors need to know when they are
entering the market. Lump-sum investments are most beneficial when you invest during a
market low. However, with SIPs, you have the chance to enter during different market
cycles. Investors do not have to watch market movements as closely as they would for lump-
sum investments.

2. Lower investment requirement

As mentioned above, you can begin investing in SIPs with as little as Rs. 500 per month On
the other hand, lump-sum investments need at least Rs.1,000, although most mutual funds in
India set the lower limit at Rs.5,000. Investors can use SIP calculator to calculate and estimate
the returns on their SIP investment.

3. Averaged costs

As SIP leads to mutual fund purchases during different market cycles, the cost per unit is
averaged out over the overall investment horizon. More number of units are purchased during
a market low, compensating for purchases made during a market high. This can help tide over
market fluctuations and even out the cost. Units can then be sold when the market is
performing well.

4. Power of Compounding

The interest earned on SIP investments are reinvested in the scheme. Here, the compounding
effect helps generate greater returns.

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Riskometer

Riskometer is a graphical representation of the risk a mutual fund carries. The graph is
designed as per the Association of Mutual Funds in India (AMFI) guidelines. The current
version of the meter was introduced on 1st July 2015 by SEBI.

The risk o meter prepared through new guidelines classifies risk into broader levels, making
it easier for investors to choose a mutual fund as per their appetite.

Exchange Traded Funds

ETFs are a sort of investment fund that combines the best features of two popular assets: They
combine the diversification benefits of mutual funds with the simplicity with which equities
may be exchanged. An exchange-traded fund (ETF) is a collection of investments such as

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equities or bonds. ETFs will let you invest in a large number of securities at once, and they
often have cheaper fees than other types of funds. ETFs are also more easily traded.

However, ETFs, like any other financial product, is not a one-size-fits-all solution.

The assets that are underlying are owned by the fund provider, who then forms a fund to track
the performance and offers shares in that fund to investors. Shareholders own a part of an ETF
but not the fund's assets.

Types of ETFs

• Index ETFs: These are funds that are designed to track a specific index.
• Fixed Income ETFs: These funds are designed to provide exposure to nearly every
type of bond available.
• Commodity ETFs: These funds are designed to track the price of a certain commodity,
such as gold, oil, or corn.
• Leveraged ETFs: These funds are designed to employ leverage to boost returns.
• Style ETFs: These funds are designed to mirror a specific investment style or market
size focus, such as large-cap value or small-cap growth.
• Foreign market ETFs: These funds are designed to monitor non-Indian markets such
as Japan's Nikkei Index or Hong Kong's Hang Seng Index.
• Inverse ETFs: These funds are designed to profit from a drop in the underlying market
or index.

ETF trades take place on the stock exchange where they are listed. To invest, investors must
first open a trading account with a broker and also a Demat account

Commodity Market

A commodity market is a marketplace for buying, selling, and trading raw materials or primary
products. Commodities are often split into two broad categories: hard and soft commodities.
Hard commodities include natural resources that must be mined or extracted—such as gold,
rubber, and oil, whereas soft commodities are agricultural products or livestock—such as
corn, wheat, coffee, sugar, soybeans, and pork.

commodities trade either in spot markets or derivatives markets. Spot markets are also
referred to as “physical markets” or “cash markets” where buyers and sellers exchange
physical commodities for immediate delivery.

Derivatives markets involve forwards, futures, and options. Forwards and futures are
derivatives contracts that use the spot market as the underlying asset. These are contracts that
give the owner control of the underlying at some point in the future, for a price agreed upon
today.

The most popular commodity exchanges of India through which market participants (hedgers
and speculators) trade are:

• Multi Commodity Exchange (MCX)

• National Commodity and Derivative Exchange (NCDEX)

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 • Indian Commodity Exchange (ICEX)

Digital Currency

Digital currency (digital money, electronic money or electronic currency) is

any currency, money, or money-like asset that is primarily managed, stored or exchanged on
digital computer systems, especially over the internet. Types of digital currencies
include cryptocurrency, virtual currency and central bank digital currency.

Central Bank Digital Currency (CBDC) is a digital form of currency notes issued by a central
bank. While most central banks across the globe are exploring the issuance of CBDC, the key
motivations for its issuance are specific to each country’s unique requirements.

Broadly, there are three different types of currencies:

Digital Currencies Virtual Currencies Cryptocurrencies

Regulated or An unregulated digital A virtual currency that uses
unregulated currency currency that is controlled by cryptography to secure and verify
that is available only in its developer(s), its founding transactions as well as to manage and
digital or electronic organization, or its defined control the creation of new currency
form. network protocol. units.

Pros and Cons of Digital Currencies

Pros

• Faster transaction times.

• Do not require physical manufacturing.
• Lower transaction costs.
• Make it easier to implement monetary and fiscal policy.

Cons

• They can be difficult to store and use.

• Can be hacked.
• Prices can be volatile.

NTF

Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique

identification codes and metadata that distinguish them from each other.
Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from
fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can
serve as a medium for commercial transactions.

NFTs evolved from the ERC-721 standard.

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NFTs have the potential for several use cases. For example, they are an ideal vehicle to
digitally represent physical assets like real estate and artwork. Because they are based on
blockchains, NFTs can also work to remove intermediaries and connect artists with audiences
or for identity management. NFTs can remove intermediaries, simplify transactions, and
create new markets.

NFTs are created through a process called minting in which the information of the NFT is
published on a blockchain.

As tokens are minted, they are assigned a unique identifier directly linked to one blockchain
address. Each token has an owner, and the ownership information (i.e. the address in which
the minted token resides) is publicly available.

NFTs shift the crypto paradigm by making each token unique and irreplaceable, thereby
making it impossible for one non-fungible token to be equal to another. They are digital
representations of assets and have been likened to digital passports because each token
contains a unique, non-transferable identity to distinguish it from other tokens.

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Unit 4: Tax Benefit for savings and Investment

Income Tax Slabs

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Deductions from GTI U/s 80C, 80CCC 80CCD

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Return on Income

An Income tax return (ITR) is a form used to file information about your income and tax to
the Income Tax Department. The tax liability of a taxpayer is calculated based on his or her
income. In case the return shows that excess tax has been paid during a year, then the individual
will be eligible to receive an income tax refund from the Income Tax Department.
As per the income tax laws, the return must be filed every year by an individual or business
that earns any income during a financial year.
The income could be in the form of a salary, business profits, income from house property or
earned through dividends, capital gains, interests or other sources. Tax returns have to be filed

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by an individual or a business before a specified date. If a taxpayer fails to abide by the
deadline, he or she has to pay a penalty.
• Who should file taxes?

1. All individuals up to the age of 59 earnings above 2.5 lakhs per annum
2. All registered companies that generate income
3. People who want to claim refund for the excess tax paid
4. Individuals who own assets or businesses outside India.
5. Foreign companies that enjoy treaty benefits on transaction made in India

Every single taxpayer including organizations, firms, societies, etc is eligible for e filing
income tax returns. The entire process is simple and minimum time consuming.

• Documents required -
1. PAN
2. Aadhar card
3. The individual’s bank account details

Types of ITR Forms

The department has notified 7 types of ITR forms –

• ITR 1 or Sahaj form –

Individuals residing in India with a total income of Rs 50 lakh are eligible.
It maybe filed by someone who earns money from salary, house rent or other sources.

• ITR 2 –
Individuals and HUF who have income gains from various avenues like capital gains
from one or more property, rental income or income from other sources.
It does not include income earned from a business or other profession but for a
company, the director of a listed or an unlisted company must file ITR 2.

• ITR 3 –
The ITR 3 for AY 2020-21 applies to every individual and Hindu Undivided Family
(HUF) having income from a proprietary business or carrying on a profession such as
architecture, accountancy, engineering, medical and more.

• ITR 4 or Sugam form–

It is applicable for the taxpayers who are filing return under the presumptive income
scheme in Section 44AD, Section 44ADA and Section 44AE of the Income Tax Act,
1961.
It is used to report revenue from a company with a turnover of up to Rs. 2 crore that is
subject to section 44AD taxation.

• ITR 5 –

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 Partnership companies, LLPs, Association of persons and Body of Individuals file
ITR 5 to disclose profits from their businesses and professions as well as some other
sources of income.

• ITR 6 –
It is a tax return used by businesses to report revenue from industry or occupation, as
well as all other forms on income.

• ITR 7 –
Individuals or companies required to furnish returns under Section 139(4A) or
139(4C) or 139(4D) or 139(4E) or 139(4F) must utilise ITR 7 form to file income tax
returns.

Due date of filing ITR for –

1. Current year :
a. AY 22-23 and PY 21-22 was 31st July, 2022.
2. Last year :
a. AY 21-22 and PY 20-21 was 28th February, 2022

Form 16

Form 16 is essentially a certificate issued by employers to their employees. Form 16

contains the information needed to prepare and file your income tax return. It shows
the breakup of salary income and the TDS amount deducted by the employer.

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