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www.funancialquest.com – Online Course Module

Online Course
Module 4

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Vol. 1.1-4n4

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Investing
Duration: 20 Mins
Module 4

Vol. 1.1-4n4


www.funancialquest.com Module 4: Investing

Contents
• Saving

• How to save more

• Saving vs. Investing

• Investment Instruments

• Getting Started

• How to Build Wealth

Vol. 1.1-4n4

www.funancialquest.com Module 4: Investing | Saving

Why is saving important?

Saving is the art of not spending one’s money in order to use it at a
later point in time. The possible reasons why saving money is
important:
1. Emergency funds
2. Retirement
3. Large, necessary payments
4. Education
5. Luxuries

Vol. 1.1-4n4

www.funancialquest.com Module 4: Investing | Saving

The Rule of 72

Number of years x interest = 72

The Rule of 72 is a simple rule of thumb to calculate compound interest. For e.g., if
putting your money in a savings account gets you an interest rate of 8%, we can
quickly calculate:

Y = 72 / 8 = 9 years

Therefore, at 8% interest, your money will double in 9 years.
Vol. 1.1-4n4

www.funancialquest.com Module 4: Investing | How To Save More

Get a savings account

Saving some money in a piggy bank is well and good, but if you’re serious about
saving in the long term, open a savings account. If you already have a bank
account, this account should be a different one, so that you spend from only one of
the two accounts.

Look for a bank offering the highest interest rates, so that you earn the most on
your money, year on year.

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Start saving NOW.

The next step is to start putting money in your account. Start with whatever you
have, whether it's five bucks or a thousand, it all helps. The best thing to do is to
make a saving plan. Decide how much you're willing to put aside every month and
then do it.

If you already have an account, set up an automatic transfer every month, so that
your money can go automatically into your savings account.

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Invest

Putting your money in a savings account is a passive way to earn interest and grow
your money. But if you have a serious goal (paying for college, backpacking
through Europe after graduation, etc.) the best idea is to start making your
money work for you. The way to do this is to invest your money somewhere where
it's going to make more interest than in your savings account.

Vol. 1.1-4n4

www.funancialquest.com Module 4: Investing | Saving vs. Investing

Saving vs. Investing

Saving is not the same as investing, though the two are often confused
for each other.

Saving is the act of preserving Investing is the act of placing money
income for a future use. Therefore, in an asset that is expected to grow,
The main objective of saving is i.e. that the asset will generate an
to preserve the money. Money is acceptable return over time, making
usually saved in extremely safe, liquid you wealthier with each passing year.
securities or accounts, so that it can Investing is a much longer process,
be converted to cash in a very short often yielding better returns in the
time. long run. Vol. 1.1-4n4


Are you saving or investing?

Various forms of saving and investment are available

The following are ways in which you A few examples of investment
can save your money: options:

1.Checking accounts 1.Stocks
2.Savings accounts 2.Mutual funds
3.Short-term certificates of deposit 3.Bonds
4.Treasury Bills 4.Real estate
5.Insurance
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Differences between saving and
investment
Savings Investment

1. Considered to be very low risk 1. Can be risky
2. Money can be quickly accessed 2. Money is usually locked for a
any time longer period of time
3. The objective of saving is to 3. The objective of investment is to
preserve the money (e.g. Saving make more money (i.e. long term
for a car, or for retirement) financial growth and wealth-
4. Money remains idle building)
5. There is very little risk of losing 4. Money is active
money 5. There is a risk of losing money if
6. Inflation may erode any earnings investments decline in value
6. Usually earns more than value of
inflation in the long term

Vol. 1.1-4n4


Contents
• Saving



• Investment
Instruments
• Glossary

Vol. 1.1-4n4

www.funancialquest.com Module 4: Investing | Investing Instruments

Investment instruments

The following investment options are available to the Indian investor

1. Equity Shares
2. Mutual Funds
3. Bonds & Debentures
4. Company Fixed Deposits
5. Insurance
6. Public Provident Fund

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Equity Shares

A share or stock is an instrument that signifies ownership in a corporation and
represents a claim on part of the corporation's assets and earnings. In other
words, a shareholder is an owner of a company. Ownership is determined by the
no. of shares a person owns relative to the number of outstanding shares. For
example, if a company has 1,000 shares of stock outstanding and one person owns
100 shares, that person would own and have claim to 10% of the company's assets.

Historically, investing in the stock market has outperformed most other
investments in the long run.

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Mutual Funds

Mutual funds are a type of investment where an investment company sells shares
to the public and then invests the money in a group of investments such as stocks
and bonds.

Since mutual funds are operated by money managers, who attempt to produce a
gain for the fund’s investors, it is an ideal investment vehicle for people who are
new to investing, but still want to have a diverse portfolio.

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Bonds

Bonds are usually issued by a company, municipality or government. A bond
investor lends money to the issuer and in exchange, the issuer promises to repay
the loan amount on a specified maturity date. The issuer usually pays the bond
holder periodic interest payments over the life of the bond.

Bond maturities range from a 90-day Treasury bill to a 30-year government
bond. Corporate and municipals are typically in the three to 10-year range.

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Life Insurance

Life Insurance is a form of protection against the loss of income that would result if
the insured person passed away. The named beneficiary receives the proceeds
and is thereby safeguarded from the financial impact of the death of the insured.
Most life insurance policies carry relatively low risk.

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Public Provident Fund (PPF)

The Public Provident Fund is one of the most low-risk investments available. In a
PPF account, money is invested for a long term (15 years) at a rate determined
annually by the govt., and compounded annually.

The biggest benefit of the PPF is that the investment is totally tax-deductible.

Vol. 1.1-4n4


Contents
• Saving



• Investment
Instruments

• Glossary

Vol. 1.1-4n4

www.funancialquest.com Module 4: Investing | Basic Terms

Basic Investment Terms
Dividend
If a company does well financially, its board of directors may decide to pay a small
amount of its profits, called a dividend, directly back to its shareholders. Dividends
are usually cash, but may also take the form of stock or other property.

Net worth
Net worth refers to the value of a company or individual's assets. This is inclusive of
cash, capital and income, after reducing total liabilities.

Portfolio

A collection of investments all owned by the same person or organization. For
example, a portfolio might include a variety of stocks, bonds, and mutual funds.

Vol. 1.1-4n4

www.funancialquest.com Module 4: Investing | Basic Terms

Basic Investment Terms
Stock market
An organized market place in which stocks are traded by members of the
exchange, such as brokers and principals. The core function of a stock exchange is
to ensure fair and orderly trading, as well as efficient dissemination of price
information for any securities trading on that exchange.

Liability
A liability is a loan or a debt which a business takes to support its activities
financially. This debt needs to be returned to the creditors. Liabilities can be for a
short term as well as long term.

Maturity
Maturity refers to a finite time period at the end of which the financial instrument
will cease to exist and the principal is repaid with interest.

Vol. 1.1-4n4


-End of Module 4-
When ready, test your knowledge
and receive a score!
Note: The test contains 15 Objective Type Questions to be finished in 20 mins
duration.

For more interesting updates and information, visit us on www.facebook.com/funancialquest

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