Page 102 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 5: Investment Vehicles

Notes
let’s see which investment vehicle is going to perform best and shall be preferred over
others.
Lets take an example, suppose David has decided to take a home loan for which he is
required to pay ` 15,000 as monthly EMI. His objective is that he should invest sufficient
money is a suitable investment vehicle that should give him a return equal to his EMI.
This way the load of paying EMI’s will not come on his salary. Here the selection of a
suitable and reliable investment vehicle is very important. Suppose David decides to
invest in Index ETF then the annual return should be equal to ` 15,000×12= ` 1,80,000. On
an average, Index ETF can give your returns at the rate of 12% per annum. It means to
generate a return of ` 1,80,000 per year you shall have investing fund equal to ` 1,80,000/
12*100 = ` 15,00,000.
It is critical to list down and schedule investment goals before your start investing your
money. The reason for this is that longer will be your goals you are likely to get better
average results over time as you have options of investing in equity. For short term goals,
you have option of investing only in debt linked schemes which gives low returns. Debt
linked investment vehicles has a comparatively lower level of risk as compared to equity
(shares). But if one can invest for long-term in equity, the level of risk can be drastically
reduced. Hence it is always best to select equity as your investment vehicle when investing
for long term (more than three to five years). Where an equity linked investment vehicle
can give you a return of 12%, a debt linked plans can give 7%-8% at its best.

Questions
1. Discuss the importance of scheduling investment goals before selecting an investment
option.

2. Comment: It is always best to select equity as your investment vehicle when investing
for long term (more than three to five years).

5.6 Summary

Investors generally have three broad concerns when an investment is made. They care
about how much money the investment will earn over time, they care about how risky the
investment is, and they care about how liquid, or convertible, the asset is.
Liquidity essentially means the speed with which assets can be converted to cash. Insurance
companies need to have assets which are fairly liquid in the event that they need to pay
out a large number of claims. Banks have to stand ready to make payout to depositors etc.
There are different kinds of Small Savings Schemes suitable for various segments of the
population.

The objective of small savings schemes are designed to provide safe & attractive investment
options to the public and at the same time to mobilise resources for development.

The Non-Resident Indians (NRIs.) are not eligible to invest in small savings schemes
including Public Provident Fund (PPF) and Deposit Schemes For Retiring Employees.
There are many types of Current Small savings scheme in India such as Post Office Savings
Account, Post office recurring deposit accounts, post office monthly income account, national
savings certificate, kisan vikas patra, deposit scheme for retiring government employees,
deposit scheme for retiring employees of public sector companies etc.
A mutual fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money, thus, collected is then invested in capital market

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