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Financial Literacy

Financial literacy

  • Introduction to Financial Literacy

  • Key Points:

    • What is financial literacy?

    • Importance of managing money effectively.

    • How it impacts your life (budgeting, saving, and investing).

Saving

  • WHAT IS SAVING?

  • Savings = income minus expenses

  • No or very little income generated on savings

  • Helps you during emergencies

  • Budgeting helps cut down unwanted expenses and increase savings

  • Expenses = income minus savings

Investment

  • WHAT IS investment?

  • Savings generating income

  • Interest – amount charged for the period of borrowing

  • Simple interest & compound interest

  • Short-term / long-term

  • LUMPSUM / REGULAR

Simple interest vs compound interest

Lumpsum investment of Rs.10,000 for 10 years at 10% p.a. interest

Year Simple Interest Value at year end Compound Interest Value at year end
1 1,000 11,000 1,000 11,000
2 1,000 12,000 1,100 12,100
3 1,000 13,000 1,210 13,310
4 1,000 14,000 1,331 14,641
5 1,000 15,000 1,464 16,105
6 1,000 16,000 1,611 17,716
7 1,000 17,000 1,772 19,487
8 1,000 18,000 1,949 21,436
9 1,000 19,000 2,144 23,579
10 1,000 20,000 2,358 25,937

Principles of investing

  • Invest early – lumpsum investment
  • Compounding works better if you start investing early and invest for a longer term

Principles of investing

  • Invest early & regularly – regular investment
  • Compounding works better if you start investing early and invest for a longer term

Principles of investing

  • Invest early
  • Compounding works better if you start investing early and invest for a longer term
Particulars A B
Start Age 25 35
End Age 55 55
Investment per month ₹ 3,500 ₹ 7,000
Rate of Return 12% p.a. 12% p.a.
Corpus accumulated ₹ 1,07,83,406 ₹ 64,39,001

Investment avenues

Instrument Risk Return Term Duration Avg expected return
Recurring Deposit / Fixed Deposit Low Low Short term Upto 3 years 5.5-6% p.a.
Liquid / Ultra short term debt mutual funds Low Low Short term Upto 3 years 5-7% p.a.
Equity Mutual Funds / ETFs High High Long term > 8 years 12-15% p.a.
Equity Shares High High Long term > 8 years 12-15% p.a.


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