Knowledge Box

Savings and Investing 
Saving is the excess of your income over your expenditure. Generally,
savings is in the form of savings bank account and cash. Your money is
very safe in a savings account, earning a  small rate of interest and you
can get back your money as and when you need it (high liquidity).
Whereas when you are investing, you are setting your money aside for
long term goals. It is normal for investments to rise and fall in value over
time. However, in the end, prudent investments can earn a lot more than
in your savings account.



Budgeting 
The first step in your financial planning is budgeting - a process for
tracking, planning and controlling the inflow and outflow of your income. It
entails identifying all the sources of income and taking into account all
current and future expenses, with an aim to meet your financial goals. The
primary aim of a budgeting is to ensure reasonable savings after providing
for all expenses.
Benefits of budgeting
• it puts checks and balances in place in order to prevent overspending
at various levels;
• it takes into account the unexpected need for funds;
• it disciplines you in matters of earning and spending; and
• it helps you to maintain same standard of living even after post
   retirement



Power of Compounding 
As you pursue your financial planning, the most powerful tool for creating
wealth safely and surely is the magical ‘power of compounding’. If you
park your money in an investment with a given return, and then reinvest
those earnings as you receive them, your investment grows exponentially
over time.
Illustratively, if you set aside a sum of say ` 5,000 every month from the
age of 25, earning interest at the rate of 10% p.a., in 60 years you will
have with you funds worth more than ` 1 crore. However, if you start at 40
with the same amount and rate of interest, the fund accumulated will
amount to only around ` 33 lakh.
 
Hence, it is always advisable to start savings early to enjoy the benefits of
power of compounding.



Time Value of Money 
Money has time value. As the time passes, the value of money decreases.
This means that the value of a thousand rupee note you have today is
higher than its value five years hence, even if there is no inflation. This is
because we prefer consumption today to consumption in future which is
uncertain. That is why, if you invest ` 1,000 today at 5% per annum, you would receive ` 1,050 after a year. Thus, ` 1,000 today is equivalent to `
1,050 received after a year or its value one year henc



Mutual Funds 
Mutual funds collect money from many  investors and invest this corpus in
equity, debt or a combination of both, in a professional and transparent
manner. In return for your investment, you receive units of mutual funds which
entitle you to the benefit  of the collective return  earned by the fund, after
reduction of management fees.  
Mutual funds offer different schemes to cater to the needs of the investor are
regulated by securities and Exchange board of India (SEBI)


Types of Mutual Funds 
At the fundamental level, there are three types of mutual funds:
o Equity funds (stocks)
o Fixed-income funds (bonds)
o Money market funds




The pre-requisites 
(i) The investor need to have Permanent Account Number (PAN) issued by the
Income Tax Department and quote the same in the application form. However, the
investor are not required to attach photocopy of PAN along with the application
form.
(ii) Bank account
(iii) Shares or debentures allotted in a public issue will be credited to the investor’s
account in electronic form. For this the investor need to have a demat account and
the investor need to fill up the correct 16 digit demat account number in the
application form.



ASBA

(Application Supported by Blocked Amount) the smart choice
ASBA is an application containing an authorization to block the application
money in the bank account, for subscribing to an equity issue. The investor
can avail  ASBA facility for making payment in a public issue instead of
making payment through cheque. For this the investors have to submit the
simple ASBA application form to the designated bank branch (Self Certified
Syndicate Bank, SCSB).





What is IPO grading 
IPO grading is the professional assessment of a Credit Rating Agency
(CRAs) on the fundamentals of a company in relation to the other listed equity
shares in India. It is mandatory for the issuer company coming with initial
public offer (IPO) to obtain IPO grading from a Credit Rating Agency and
disclose the same on the cover page of offer document and Application
form.
IPO grading endeavors to provide the investor with an informed, objective
independent and unbiased opinion of a CRA after analyzing various relevant
factors. It is an additional input available for your investment decision.


What is credit rating  
Credit rating is an opinion of a Credit Rating Agency (CRA) on the likelihood of
timely payment of interest and principal (credit risk) on the rated debt instrument.
It is an unbiased, objective, and independent assessment of the issuer's capacity
to meet its financial obligations and is conveyed with alphanumeric symbols.
Credit rating is not a recommendation to buy, sell or hold a debt instrument. It is a
comment on the probability of the interest and principal of a debt instrument
being paid or not paid on time (credit risk). Rating is an additional input; however
investors are required to  make your their independent and objective analysis
before arriving at an investment decision. 

                                                                                                All Source SEBI