Page 96 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 5: Investment Vehicles

Income Tax Relief Notes
(i) Interest accrued/credited/paid is fully tax-free.
(ii) Amount deposited under the scheme is free from wealth tax.
Banks Authorised to Accept Deposits

Selected branches of the following banks are authorized to accept deposits under the
scheme.

Self Assessment

State True or False:
1. Investors would like to have as high a rate of return on their investments as possible.

2. Generally, the greater the expected rate of return, the smaller the risk.
3. Liquidity essentially means the speed with which assets can be converted to Gold.
4. Small savings schemes are designed to provide safe & attractive investment options to the
public and at the same time to mobilise resources for development.
5. BSE is responsible for national level promotion of the small savings schemes through
publicity campaigns and advertisements in audio, video as well as print media.

5.3 Fixed Income Instruments

Step1: Why Invest in Fixed Income

Fixed-income instruments in India typically include company bonds, fixed deposits and
government schemes.

Low risk tolerance one of the key benefits of fixed-income instruments is low risk i.e. the
relative safety of principal and a predictable rate of return (yield). If your risk tolerance
level is low, fixed-income investments might suit your investment needs better.

Need for returns in the short-term Investment in equity shares is recommended only for
that portion of your wealth for which you are unlikely to have a need in the short-term, at
least five-years. Consequently, the money that you are likely to need in the short-term
(for capital or other expenses), should be invested in fixed-income instruments.

Predictable versus Uncertain Returns: Returns from fixed-income instruments are
predictable i.e. they offer a fixed rate of return. In comparison, returns from shares are
uncertain. If you need a certain predictable stream of income, fixed-income instruments
are recommended.

Step 2: Evaluate Options to meet your needs

Before you decide to invest in fixed-income instruments, evaluate your needs from three key
perspectives - risk, returns and liquidity. Match the investment options with your financial needs.

1. Evaluate credit risk: Credit risk refers to the possibility that the issuer fails to pay what is
owed (principal and/or interest). Evaluate the credit ratings assigned by rating agencies
like CRISIL, ICRA and CARE to find corporate bonds/fixed deposits that match your risk
tolerance level.

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