Page 86 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Rupesh Roshan Singh, Lovely Professional University
Unit 5: Investment Vehicles

Unit 5: Investment Vehicles Notes

CONTENTS
Objectives
Introduction

5.1 Investment Concerns
5.2 Small Savings Scheme
5.3 Fixed Income Instruments
5.4 Mutual Funds
5.5 Other Types of Investment Vehicles
5.6 Summary
5.7 Keyword

5.8 Review Questions
5.9 Further Readings
Objectives

After studying this unit, you will be able to:
Describe the various types of investment vehicles in India;
Understand the significance of investment vehicles in personal financial planning;
Know about the various types of small savings scheme operating in India;

Explain the various types of fixed income instruments;
Learn about the concept of mutual funds and various other investment schemes.

Introduction

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.

5.1 Investment Concerns

Rate of Return: The percentage change in the value of an asset over some period of time.
Investors purchase assets as a way of saving for the future. Anytime an asset is purchased the
purchaser is forgoing current consumption for future consumption. In order to make such a
transaction worthwhile the investors hopes (sometimes expects) to have more money for future
consumption than the amount they give up in the present. Thus investors would like to have as
high a rate of return on their investments as possible.

Example: Suppose a Picasso painting is purchased in 1996 for ` 500,000. One year later
the painting is resold for ` 600,000. The rate of return is calculated as,
(600,000 – 500,000) 100,000
×
× 100 = × 100 = 0.20 100 = 20%
500,000 500,000

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