Page 87 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes
Example: ` 1000 is placed is a savings account for 1 year at an annual interest rate of 10%.
The interest earned after one year is ` 1000 x 0.10 = $100. Thus the value of the account after 1 year
is $1100. The rate of return is,

(1100 – 1000) 100
× 100 = × 100 = 0.10 100 = 10%
×
1000 1000
This means that the rate of return on a domestic interest bearing account is merely the interest
rate.
Risk: The second primary concern of an investor is the riskiness of the assets. Generally, the
greater the expected rate of return, the greater the risk. Invest in an oil wildcat endeavor and you
might get a 1000% return on your investment ... if you strike oil. The chances of doing so are
likely to be very low however. Thus, a key concern of investors is how to manage the trade-off
between risk and return.
Liquidity: 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.

5.2 Small Savings Scheme

There are different kinds of Small Savings Schemes suitable for various segments of the
population.
Objective: Small savings schemes are designed to provide safe & attractive investment options
to the public and at the same time to mobilise resources for development.

Operating Agencies

1. These schemes are operated through about 1.54 Lakh post offices throughout the country.
2. Public Provident Fund Scheme is also operated through about 8000 branches of public
sector banks in addition to the post offices.
3. Deposit Schemes for Retiring Employees are operated through selected branches of public
sector banks only.

Promotion

1. National Savings Organisation (NSO) is responsible for national level promotion of these
schemes through publicity campaigns and advertisements in audio, video as well as print
media.
2. Through a large network of over 5 lakh small savings agents working under different
categories viz:
a. Standardised Agency System (SAS),
b. Mahila Pradhan Kshetriya Bachat Yojana (MPKBY),
c. Public Provident Fund Agency Scheme,
d. Payroll Savings Groups,

e. School Savings Banks (Sanchayikas)
3. In addition, the Extra Departmental Branch Postmasters (EDBPMs) also help in mobilising
savings, especially in rural and remote/far flung areas.

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