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Home , Personal finance

CHAPTER 1

(A) INTRODUCTION

Personal is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain , budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.

Components of personal finance might include checking and accounts, cards and consumer , in the , plans, social benefits, policies, and tax management.

(B) DEFINATION OF PERSONAL FINANCE

Personal Finance refers to financial planning relative to the individual. In general, the terms relates to analyzing an individual’s current financial status, budgeting, and palnning for the future. Although each individual can perform these tasks for himself or herself, they may solicit the help of a ”personal ” or “personal financial advisor” to assist.

The defination of Personal finance is an inclusive term with regards to all the financial characteristics of an individual’s financial circumstance and monetary decision making. Managing your own is not actually just about protection, but those who possess self control, presevation, and accountability, as well as those who test themselves to economisze so they can follow their dreams, can appear comparatively secure that their personal finance abilities will ease them. OBJECTIVES OF THE STUDY

 THE MAIN OBJECTIVE IS TO KNOW WHAT IS PERSONAL FINANCE  TO KNOW DIFFERENT TYPES OF PERSONAL FINANCE

METHODOLOGY OF THE STUDY

The Methodology includes the information of the features of PERSONAL FINANCE in the form of primary data tha have been received from the branch manager and the officers of RBI. It also includes the information from related books and the related websites. CHAPTER 2 (A) STEPS IN PLANNING PERSONAL FINANCE

A key component of personal finance is financial planning, a dynamic process that requires regular monitoring and reevaluation . In general, it has five steps:

1. Assessment: Compiling simplified versions of financial balance sheets and income statements can assess one’s personal financial situation. A personal lists the values of personal (e.g., car, house, clothes, , account) along with personal liabilities (e.g., , bank , mortgage). A personal flow statement lists personal income amd .

2. Setting goals: Two examples are “retire at age 65 with a personal net worth of Rs.200,000 Indian” and “ buy a house in 3 years paying a monhly mortgage servicing cost that is no more than 25% of my gross income”. It is not uncommon to have several goals, some term and some term. Setting financial goals helps direct financial planning.

3. Creating a plan: The finacial plan details how to accomplish your goals. It could include, for example, reducing unnecessary expenses, increasing one’s employment income, or investing in the .

4. Execution: Execution of one’s often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, advisors, and . 5. Monitoring and reassessment: As time passes, one’s personal financial plan must be monitored for possible adjustments or reassessments.

(B) SIX KEY AREAS OF PERSONAL FINANCIAL PLANNIG

The six key areas of persoanl financial planning, as suggested by the Financial Planning Standards Board, are:

1. Financial : This area is concerned with understanding the personal resources available by examining net worth and household cash flow. Net worth is a person’s balance sheet, calculated by adding up all assets under that person’s control , minus all liabilities of the household, at one point in time. Household cash flow totals up all the expected sources of income within a year, minus all expected expenses within the same year. From this analysis, the financial planner can etermine to what degree and in what time the personal goals can be accomplished.

2. Adequate Protection: The analysis of how to protect a household from unforeseen risks. These risks can be divided into liability, property, death, disability, health and long term care. Some of these risks may be self-insurable, while most will require the purchase of an insurance contract. Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance. owners, professionals, athletes and antertainers require specialized insurance professionals to adequatlety protect themselves. Since insurance also enjoys some tax benefits, utilizing insurance investment products may be a critical piece of the overall investment planning.

3. Tax Planning: Typically the is the single largest in a household. Managing taxes is not a question of if you will pay taxes, but when and how much. Government gives many incentives in the form of tax deductions and , which can be used to reduce the lifetime tax burden. Most modern governments use a progressive tax. Typically, as your income grows, you pay a higher marginal rate of tax. Understanding how to take advantage of the myraid tax breaks when planning your personal finances can make a significant impact upon your success.

4. Investment and Accumulation Goals: Plannig how to accumulate enough money to acquire items with a high price is what most people consider to be financial planning. The major reasons to accumulate assets is for the following:

a- Purchasing a house b- Purchasing a car c- Starting a business d- Paying for education

Achieving these goals reqires projecting what they will cost, and when you need to withdraw fumds. A major risk to thehousehold in achieving their accumulation goal is the rate of price increases over time, or . Using net present value calculators, the financial planner will suggest a combination of earmarking and regular savings to be invested in a variety of investments. In order to overcome the rate of inflation, the investment portfolio has to get a higher rate of return, which typically will suject the portfolio to a number of risks. Mnaging these portfolio risks is most often accomplished using , which seeks to diversify investment risk and opportunity. This asset allocation will prescribe a percentage allocation to be invested in stocks, bonds, cash and alternative investments. The allocation should also take into consideration the personal risk profile of every , since risk attitudes vary from person to person.

5. : Retirement planning is the process of understanding how much it costs to live at retirement and coming up with a plan to distribute assets to meet any income shortfall.

6. Estate Planning: Involves planning for the disposition of your asset when you die. Typically, there is a tax due to the state or federal government at your death. Avoiding these taxes means that more of your assets will be distributed to your heirs. You can leave your assets to family, friends or charitable groups.

(C) 4 BASIC PERSONAL FINANCE PRINCIPLES

Managing your personal finances is a mixture of planning ahead and developing responsible spending and habits. It involves asking yourself how much money you need at varous points in the future and how you are going to get that money. In general, personal finace relates to analyzing your current financial status, setting financial short-term and long-trem goals, planning the execution for these goals, executing the goals and monitoring the progress, and reassessing the achivements and making necessary adjustments. There are a few basic principles of personal finance that everyone should master.

 Budgeting: The keystone to personal finance is budgeting. A budget is a financial game plan that will protect you from impulse buys and fiscal catastrophes. Operating without a budget usually leaves you mistified as your paycheck seems to magically disaapear; leaving you empty-handed by the time the end of the month rolls around and it’s time to pay bills or put food on the table. Take time to tally up all your monthly costs and designate a portion of your paycheck to each item, such asfood, utilities, transpotation, and entertainment and so on. Make sure you account your monthly overhead before committing money to luxuries. Creating a budget makes it easy for you to manage your money, pay your vills on time, and even set aside money for extra expenditures like vacations or large purchases. When creating a budget you need to consider both your income and expenses.  Investing: Given the nature of the economy, it is important to choose wisely when investing your savings. You are actually losing money by stashing your cash underneath the mattress. Put your money to work earnings interest in a or returns in retirement fund or a mutual or index fund or build equity in your home by payingdown your mortgage. Better yet, diversify your assets by investing in afew of these options, while keeping a liquid savings account for emergencies. Failing to take advantage of free money is a common personal finance mistake amounting in money lost to inflation and missed opportunity. Be wary also of investments that promise a high return with little or no risk.  Debt Management: The single most vexing aspect of personal finance for the great majority of individuals is debt management. Mismanaging your debt through over spending, failing to budget or high interest rates can quickly send you in a downward spiral. The lower you go, the harder it is to climb back up. Avoid the temptation to “buy now, pay later” and only take loans for the essentials in life: education, transportation and habitation. If you can’t buy your wants with cash, better forget it. As a general rule, do not finance anthing for longer than its useful life. Once you have your mortgage, and auto loans; be diligent in seeking the best possible rate. Keep your credit score high by keeping tabs on your credit report and paying your bills on time.  Insurance: One often overlooked facet of personal finance is planning for the unexpected. Seek out insurance policies that will cover you and your family in case someone is hospitalized or is unanle to work. If your area is particularly prone to a certain natural disaster, look into protecting your property with earthquake or flood insurance. Even the most carefully planned budget becomes useless when faced with an immense, unplanned expense without a backup plan. People who do not paln for the unplanned do not live in the real world. Something unexpected will always happen, and seemingly always at the wrong time. Like all life skills, personal finance takes experience to master. By starting on the right foot you’ll be better prepared for the unknown and more able to afford a comfortable lifestyle.

CHAPTER 3

COMPONENTS OF PERSONAL FINANCE

The Various Components that have been discussed in the further chapters are as follows: 1. Mutual Funds 2. Credit Cards 3. Debit Cards 4. Loan 5. Mortgage 6. Retirement Planning 7. Tax Planning 8. Insurace (Life) 9. Other Investments Options  PPF  National saving certificate  Post Office

1. MUTUAL FUNDS INTRODUCTION

A is a mechanism whereby a or company pools funds from individuals and invests the pooled amounts in stocks, bonds and other securities. In other words, you and some other come together, pool your funds and entrust it to a company for profit gaining investments. To state in simple words, a mutual fund collects the savings from small investors, invest them in Government and other corporate securities and earn income through interest and dividends, besides capital gains. It works on the principle of “small drops of water makes big ocean”. For instance, if one had Rs.1000 to invest, it may not fetch very much on its own. But, when pooled with Rs.1000 each from a lot of other people, then, one could create ‘big funds’ thus, to enjoy the economies of large scale operations.

DEFINATION OF MUTUAL FUND

The securities and exchange board of India regulations, 1993 defines a mutual fund as:

“A fund established in the form of a trust by a sponsor, to raise monies by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with these regulations”.

CONCEPT When managing personal finance it is advisable to invest in Mutual Funds because:

 “Mutual fund is vehicle that enables a number of inventors to pool their money and have it jointly managed by a professional money manager.”  A Mutual Fund is a pool of money, collected from investors, and is invested according to certain investment objectives.  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 instruments such as shares, and other securitites.  The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.  Mutual fund companies are known as Companies. They offer a variety of diversified schemes. Mutual fumds act act investment companies.  Mutual funds can be broken down into two basic categories:equity & .  Equity funds invest primarily in , while bond funds invest mainly in various debt instruments.  Mutual Fund investor is also known as amutual fund shareholder or a unit holder.

Any change in the value of the investmentsmade into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme’s assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme’s assets by the total number of units issued to the investors.

TYPES OF MUTUAL FUNDS

Existing types of mutual funds can be classified into three types. They are:

Based on Maturity period:

 Open ended mutual funds  Close ended mutual funds.

Based on Investment objective:

 Growth scheme or equity scheme  Income scheme or debt oriented scheme  Balanced scheme  scheme.

Other Equity-related schemes:

 Tax savings scheme  Index scheme  Sectoral Scheme.

Open ended mutual funds

A type of mutual fund that does not have restrictions on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-ended mutual funds also buy back shares when investors wish to sell.

Close ended mutual funds

A closed-ended fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). Thefund is then structured, listed and traded like a stock on a .

Growth scheme or Equity scheme

The aim of growth scheme is to provide capital appreciation over the medium to long term. Such schemes normally invest major part of their corpus in equities. Such funds have comparatively high risks. Growth schemes are good for investors having a long term outlook seeking appreciation over a period of time.

Income Scheme

A type of investment vehicle that provides a specified monthly payment to the investor. This monthly payment is intended to be a stable form of income and is therefore typically suited for retired persons orsenior citizens without other substantial sources of monthly income.

Balanced scheme

Investing in balanced fund, you enjoy the twin benefits of growth and a regular income. This is possible as the funds are invested both in equities and securities. This means, in case the proportion of investment is higher in equities than in fixed income securities, as an investor you would be exposed to higher risks.

Money Market scheme

Easy liquidity and preservation of capital and morderate income are the key aspects of money market schemes. Under this scheme, your funds are invested exclusively in short-term instruments such as treasury bills, commercial papers, certificates of deposit and inter-bank call money, government securities etc. Commercially safe, it is less volatile compared to other funds. You can select money market schemes for its short period and less risks.

Tax Savings scheme

An ELSS is a diversified equity mutual fund which has a majority of the corpus investedin equities. Since it is an equity fund, returns from ELSS fund reflect returns from the equity markets. This type of mutual fund has a lock in period of 3years from the date of investment. Investors can exit ELSS by selling it after 3years.

Index scheme

Under this scheme, the performance of the market as a whole, or a specific sector is assessed. This helps you to decide on whether to invest on the market as awhole or in any specific fund.

Sectoral scheme

You can decide to invest in specific sectors namely, FMCG, Information Technology, Banking, Pharmaceuticals etc. Sectoral schemes pose high risk as compared to equity schemes. This is because the portfolio is less diversified and very specific, concentrating on selected industrial group.

ADVANTAGES OF MUTUAL FUND

Portfolio Diversification: Mutual Funds invest in a well- diversified portfolio of securities which enables investor to hold a diversified investment portfolio.

Professional Management: Fund manager undergoes through various research works and has better skills which ensure higher returns to the investor than what he can manage on his own.

Less Risk: Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in adiversified portfolio is lesser than investing in merely 2 or 3 securities.

Liquidity: An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of mutual fund are far more liquid.

Choice of Schemes: Mutual funds provide investors with various schemes with different investment objectives. Investors have the of investing in a scheme having a correlation between its investment objectives and their own financial goals.

Flexibility: Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice- versa. Option of systematic investment and withdrawal is also offered to the investors in most open-end schemes.

Safety: Mutual Fund industry is part of a well-regulated investment environment where the interests of theinvestors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced. DISADVANTAGES OF MUTUAL FUNDS

Costs Control Not in the Hands of an Investor: Investors has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund.

No Customized Portfolios: The portfolios of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of afund manager,which some investors find as a constraint in achieving their finacial objectives.

Difficulty in Selecting a Suitable Fund Scheme: Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

IMPORTANCE OF MUTUAL FUNDS Channelizing saving for investments: Mutual funds acts as a vehiclein galvanizing the savings of the people by offering various schemes suitable to the various classes of customers for the development of the economy as a whole. A number of schemes are being offered by mutual funds so as to meet the varied requirements of the masses, and thus savings are directed towards capital investments directly.

Offering wide portfolio investments: Small & medium investors used to burn their fingers in stock exchange operations with a relatively modest outlay. If they invest in a select few shares, some may even sink without a trace never to rise again. Now, these investors can enjoy the wide portfolio of the investments held by the mutual fund.

Providing Better Yeilds: The pooling of funds from a large number of customers enables the funds to have at its disposal. Due to these large funds, mutual funds are able to buy cheaper sell deare than the small and medium investors. Thus they are able to command better market rates and lower rates of brokerage. So they provide better yeilds to their customers.

Rendering Expertise Investment Service at Low Cost: The management of the fund is generally assigned to professionals who are well trained and have adequate experience in the field of investment.

Offering Tax Benefits: Certain funds offer tax benefits t oits customers. Thus, apart from dividend, interest and capital appreciation, investors also stands to get tax benefits concessions. For instance sum of Rs.10000 received as dividend from a mutual fund is deductible from the gross total income.

Supporting Capital Market: Mutual funds play a vital role in supporting the development capital markets. The mutual funds make the capital markets active by means of providing a sustainable domestic source of demand for capital market instruments. The savings of people are directed towards investments in capital markets through these mutual funds.

Simplified Record Keeping: An investor with just an investment in 500shares or so in 3-4 companies has to keep proper records of dividend payments, bonus issues, price movements, purchase or sale instructions, brokerage and other related items. It is very tedious and consumes a lot of time. One may even forget to record the right issues and may forfeit the same. Thus, record keeping is the biggest problem for small and medium investors.

Acting as Substitutes for Initial Public Offering (IPO): In most cases investors are not able to get the allotment of IPO’s of companies because they are often oversubscribed many times. Moreover, they have to apply for a minimum of 500 shares which is very difficult particularly for small investors. But, in mutual funds, allotment is more or less guaranteed.

2. CREDIT CARDS INTRODUCTION

A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder’s promise to pay for these goods and services. The issuer of the card creates a revolving account and grants a to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a to the user. A credit card in India is gaining ground. A number of in India are encouraging people to use credit card. The concept of credit card was used in 1950 with the launch of charge cards in USA by Diners Club and American Express. In India Andhra Bank and of India introduced credit cards in 1981. Credit card however became more popular with use of magnetic strip in 1970.

A credit card is a card or mechanism which enables cardholders to purchase goods, travel and dine in a hotel without making immediate payments. The holders can use the cards to get credit from banks upto 45days the credit card relieves the consumers from the botheration of carrying cash and ensures safety. It is convenience of extended credit without the formality. Thus credit card is a passport to, “safety, convenience, prestige and credit”.

Earlier, the cards offered up to a few months credit before the bill had to be paid. The first piece of plastic, as we know them today, was introduced by Diner’s Club with American Express soon following. In the early days they were not known as Credit cards rather Charge Cards because they offered no credit. What you spent that month you had to pay when the bill came due. DEFINATION

Any card that may be used repeatedly to borrow money or buy products and services on credit. Issued by banks, savings and loans, retail stores, and other business. Credit Card is a plastic card having a magnetic strip, issued by bank or business authorizing the holder to buy goods or services on credit. It is also called “”.

TYPES OF CREDIT CARDS

Smart Cards: It is new generation card. The primary feature of smart card is security. It prevents card related frauds and crimes. It is used for making purchases without necessarily requiring the authorization of Personal Identification Number. In India’ the Dena Bank launched the Smart Card in Mumbai.

Business Credit Cards: Business credit cards are designed specifically for business use. They provide business owners with an easy method of keeping business and personal transactions separate. There are standard business credit and charge cards available.

In-store Cards: The in-store card are issued by retailers or companies. These cards have currency only at the issuer’s outlets for purchasing products of the issuer company. Payment can be normally or extended credit basis. For extended credit facility interest is charged. In India, such cards are normally issued by Five Star Hotels & Resorts.

Charge Cards: Charge cards do not have a credit limit. The balance on a charge card must be paid in full at the end of each month. Charge cards typically do not have a finance charge or minimum payment since the balance is to be paid in full. Late payments are subject to a fee, charge restrictions, or card cancellation depending on your card agreement.

Gold Cards: A credit card that offers a higher line of credit than a standard card. Income eligibility is also higher. In addition, issuers provide incentives to cardholders like access to Airport Lounges

Platinum Cards: A credit card with a higher limit and additional perks than a gold card.

Titanium Cards: A card with an even higher limit than platinum card.

ADVANTAGES OF CREDIT CARDS

Purchase Power and Ease of Purchase: Credit cards can make it easier to buy things. If you don’t like to carry large amounts of cash with you or if a company doesn’t accept cash purchases (for example most airlines, hotels, and car rental agencies), putting purchases on a credit card can make buying things easier.

Protection of Purchases: Credit cards may also offer you additional protection if something you have brought is lost, damaged, or stolen. Both your credit card statement (and the credit card company) can vouch for the fact that you have made a purchase if the original receipt is lost or stolen. In addition, some credit card companies offer insurance on large purchases.

Building a Credit Line: Having a good is often important, not only when applying for credit cards, but also when applying for things such as loans, rental applications, or even some jobs. Having a credit card and using it wisely will help you build a good credit history.

Emergencies: Credit cards can also be useful in times of emergency. While you should avoid spending outside your budget (or money you don’t have), sometimes emergencies (such as your car breaking down or flood or fire) may lead to a large purchase. DISADVANTAGES OF CREDIT CARDS

Card Holders

1. The card holders are burdened with services charge, annual fees, membership fees, etc. A high rate of interest is charged for delayed payment. A minimum of 5-10% on monthly purchase apart from the additional charges are to be paid in case the consumer postpone the stipulated credit period. 2. Credit cards tempt the holders for more purchase beyond their income and repaying capacity

Issuers

1. The cost involved in credit cards business is high which includes cost of plastic cards to be imported, cost of placing, cost of information and marketing cards. Unless the number of card holders and the volume of the business are high the credit business will not be a profitable one. 2. Frauds by the holders of bogus cards and sometimes collusion with the member establishments are the major problem for the issuers. Member Establishment

1. The commission to be paid to the issuing bank or credit card organization is heavy. 2. Some banks make delay in payment due to lack of adequate system and trained personnel which affect the cash flow of the member establishment.

VARIETY OF CREDIT CARDS

(1) Do you have a credit card? (2) How many credit cards do you have? Yes, the question has shifted from (1) to (2) in recent years as the credit penetration is increasing at a good pace. Today, India has close to 50 million credit card users. As per recent industry estimates there are about 20million credit card users in India. The number of credit and debit cards in active use in 2008 has been in the range of 25 and 40 million. And the number continues to multiply.

3.DEBIT CARDS A (also known as a abnk card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Funtionally, it can be called an electronic check, as the funds are withdrawn directly from either the , or from the remaining balance on the card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card.

The use of debit cards has become wide spread in many countries and has overtaken the check and in some instances cash transactions by volume. Like credit cards, debit cards are used widely for telephone and Internet purchases, and unlike credit cards the funds are transferred from the bearer’s bank account instead of having the bearer to pay back on a later date.

Debit cards can also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a guarantee card. Merchants can also offer “cash back”/”cash out” facilities to customers, where a customer can withdraw cash along with their purchase. SAMPLE DEBIT CARDS FEATURES OF A DEBIT CARD

1. Cashless Spending: This debit card enables instant on-line debit to your ICICI Bank account. Every time you swipe your card at restaurants, shops, petrol pumps, multiplexes, etc., the amount that you have spent is debited to your account. Enjoy cashless shopping, dining, travelling etc. 2. Lost Card Protection: Card is safer than cash! Feel safe even in the event of losing your card!! All you need to do is to call our 24-hour Customer Care, and a new card would be issued to you within a week. You are protected from any financial liability arising from any purchase transaction made on your lost card. This insurance is valid only on non-cash transactions made at merchant outlets within 30days prior to the date of reporting. 3. Country wide Acceptance: Your debit card is accepted at over 3.5lakh merchant establishments in India i.e. restaurants, department stores, grocery stores, petrol pumps, etc. Besides, you can use it conveniently at more than 3,000 ICICI Bank ATM’s and more than 18,000 VISA/MasterCard ATM’s all over India. 4. Worldwide Acceptance: Travel the world and enjoy the freedom of using your debit card. This debit card gives you access to over 24 million shops and 1 million Visa ATM’s all over the world, giving you the freedom of payment anywhere in the world.

TYPES OF DEBIT CARD 1.ONLINE DEBIT CARD 2.OFFLINE DEBIT CARD 3.PREPAID DEBIT CARD 4.ELECTRONIC DEBIT CARD

1. Online Debit Card: Online debit cards require electronic authorization of every transaction and the debits are reflected in the user’s account immediately. The transaction may be additionally secured with the personal identification number (PIN) authentication system and some online cards require such authentication for every transaction, essentially becoming enhanced automatic teller machine (ATM) cards. One difficulty in using online debit cards is the necessity of an electronic authorization device at the point of sale (POS) and sometimes also a separate PIN pad to enter the PIN, although this is becoming commomplace for all card transactions in many countries. 2. Offline Debit Card: Offline debit cards have the logos of major credit cards (e.g. Visa or MasterCard) or major debit cards (e.g. Maestro in the United Kingdom and other countries, but not the United States) and are used at the point of sale like a credit card. This type of debit card may be subject to a daily limit, and/or a maximum limit equal to the current/checking account balance from which it draws funds. Transactions counducted with offline debit cards reqiure 2-3 days to be reflected on users account balances. Other differences are that online debit purchasers may option to withdraw cash in addition to the amount of the debit purchase; also from the merchant’s standpoint, the merchant pays lower fees on online debit transaction as compared to “credit” (offline) debit transaction. 3. Prepaid Debit Card: Prepaid debit cards, also called reloadable debit cards or reloadable prepaid cards, are often used for recurring payments. The payer loads funds to the cardholder’s card account. Particularly for US-based companies with a large number of payment recipients abroad , prepaid debit cards allow the delivery of international payments without the delays and fees associated with international chwcks and bank transfers. Web-based services also started offering prepaid debit cards e.g. stock photography, outsourced services and affiliate networks have all started offering for their contributors. 4. Electronic Purse Card: Smart-card based electronic purse systems (in which value is stored on the card chip, not in an externally recorded account, so that machines accepting the card need no network connectivity) are in use throughout Europe since the mid-1990s, most notably in Germany, Austria, and Belgium. In Austria and Germany, all current bank cards now include electronic purses. ADVANTAGES OF DEBIT CARDS

 A consumer who is not creidt worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card.  Use of a debit card is limited to the existing funds in the account to which it is linked.  For most transactions, a check card are accepted by merchants with less identification.  Unlike a credit card, which charges higher fees and interset rates when a cash advance is obtained, adebit card may be used to obtain cash from an ATM or a PIN- based transaction at no extra charge, other than a foreign ATM fee. DISADVANTAGES OF DEBIT CARDS

 Some banks are now charging over-limit fees or non- sufficient funds fees based upon pre-authorizations.  Many merchants mistakenly belive that amounts owed can be “taken” from a customer’s account after debit card (or number) has been presented.  In some countries debit cards offer lower levels of security protection than credit cards.

SEVEN TIPS FOR RESPONSIBLE USE OF DEBIT CARDS

 If your card is lost or stolen, report the loss immediately to your financial institution.  If you suspect your card is being fraudulently used, report it immediately to your financial institution.  Hold on to your recepits from your debit card transactions. A thief may get your name and debit card number from a receipt and other goods by mail or over the telephone. Your card does not have to be missing in order for it to be misused.  If you have a PIN number, memorize it. Don not keep your PIN number with your card. Also, don’t choose a PIN number that a smart theif could figure out, such as phone number or birthday.  Never give your PIN number to anyone. Keep your PIN private.  Always know how much money you have available in your account. Don’t forget that your debit card may allow you to access money that you have set aside to cover a check which has not cleared your bank yet.  Keep your receipts in one place for easy retrieval and better oversight of your bank account.

4.LOANS INTRODUCTION

A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debit instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.

Acting as aprovider of loans isone of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is typical source of funding. Bank loans and credit are one way to increase the .

CLASSIFICATION OF LOANS

Another way to classifying the loans is through the activity being financed. Viewed from this angle, bank loans are bifurcated into…

1. Priority sector lending: The Government of India through the instument of Reserve Bank of India mandates certain type of lending on the Banks operating in India irrespective of their origin. RBI sets targets in terms of percentage to be lent to certain sectors, which in RBI perception would not have had access to organized lending market or could not afford to pay interest at the commercial rate. This type of lending is called Priority Sector Lending. Financing of small scale industry, Small business, Agricultural Activities and Export activities fall under this category. 2. Commercial Landing: This is the mainstay of Indian Banking its bread and butter activity. Although historically this activity had been relegated to a secondary position as banks were driven by the desire to excel themselves in what is known as “priority sector banking” yet it is this part of their loan portfolio which has kept them afloat nd help meet the costs. This activity survived despite a number of restrictions imposed on it in the past.

Today many banks focus on this activity for improving their bottom lines. Fresh and innovative products are being launched to facillitate the corporate customer who forms the core of this business. Based on customer profile, these loans are of two types:

 Corporate loans: These loans are meant for corporate bodies engaged in legal activity with object of making profit. Banks lend to such entities on the strenght of their balance sheet, the length of cash cycle and depending upon the products available with individual banks.  Retail loans: This type of lending is meant for very small entrepreneurs as well as individual who are engaged in gainful commercial activity and have the capacity to repay the loan. Loans are given on the strenght of the means of the borrower eith an eye on the repaying capacity. Most banks nowadays have a product for financing the purchase of automobile and other consumer durable items. The quantum of loan is generally determined by the repayment capacity of the prospective borrower. 3. Lending on the strenght of balance sheet: Banks analyses the audited balance sheets of the prospective borrowers to appraise their needs as also the capacity to absorb credit. Prospective borrowers are requied to furnish their financial details in the form of CMA data to the bankers and file an application for the loan. The loans are structured depending upon the need of the client and the product available with the lending Bank.

Some Basic Types of Loans which Banks provides are as follows:

1. Personal Loans 5. Business Loans 2. Home Loans 6. Marriage Loans 3. Auto Loans 7. Loan against Home 4. Educationl Loans 8. Loan against Auto

5.MORTGAGE MEANING

Amortgage loan is aloan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the gramting of a mortgae which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean .

Home buyer or biulder can obtain financing (a loan) either to purchase or secure against the property from a finacial institution, such as a bank, either directly or inderctly through intermediaries. Features of martgage loans such as the size of the loan, maturity of the loan, , method of paying off the loan, and other characteristics can vary considerably.

MORTGAGE LOAN TYPES

There are many types of martgages used worldwide, but several factors broadly define the characteristics of the mortgage.  Interest: Interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods; the interest rate can also be higher or lower.  Term: Mortgae loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid. Some martgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.  Payments amount and frequency: The amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.  Prepayment: Some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of apenalty to the lender for prepayment.

LOAN TO VALUE AND DOWN PAYMENTS

Upon making a mortgage loan for purchase of a property, lenders usually require that the borrower make a down payment, that is, contribute a portion of the cost of the property. This down payment may be expressed as a portion of the cost of the property. This down payment may be expressed as aportion of the value of the property (see below for a defination of this term). The loan to value ratio (or LTV) is the size of the loan against the value of the property. Therefore, a mortgage loan where the purchaser has made a down payment of 20% has a loan to value ratio of 80%. For loans made against properties that the borrower already owns, the loan to value ratio will be imputed against the estimated value of the property. 6.RETIREMENT PLANNING Retirement Planning means setting aside of money or assets for the purpose of derving some income during old age. This is to be done before reaching retirement age. But the process of retirment planning is based on a person’s desired retirement age and lifestyle.

STEPS TO RETIREMENT PLANNING

1. Start early and retire peacefully: Never delay planning for retirement. Start as early as possible. Make a list of your financial goals and what you own so you recognize the gap between the reality and your dreams. For example, start saving for retirement at age of 25, so that even if you wish to retire by 60, you have an investment horizon of 35years. If at the age of 25, you start investing Rs.10,000 per annum at the rate of 13% compounding then the maturity amount will be Rs.1,300,000. Alternatively if you commence the same investment at the age of 35, then the maturity value at the age of 60 will be Rs.650,000. 2. Plan wisely: Assess your income and expenditure and make arrangements for emergency needs. For example, set aside some money for medical expenditure after retirement. Try to cut down on the unnecessary expenditures and allocate your resources towards necessary ends like children’s education and marriage that you will incure in course of time. 3. Consult a financial advisor: If you are not in a position to make a workable plan, consult a financial advisor who will he;p you develop one. Analyze the options from the retirement perspective, because it should be beneficial at retirement. So it can be with a limited equity to longer period could be vital. 4. Track and review your plan: The financial plan has to be reviewed at regular intervals to make sure whether the targets meets the objectives. Also, understand and get comfortable with the risks, costs and liquidity of your investments. 5. Don’t dip into your retiremnt savings: Don’t touch thispool of savings preretirement. If you spend money from your retirement kitty to fulfill your present needs, you will lose out big in the long run. The corpus for your retirement will be that much lower.

RETIREMENT LIFE

The idea of retirement is changing and there is more to retirement planning than saving money. After retirement the quality of life can be improved by spending more time with family members and also traveling to some places where we can get to know some good values as well as enjoy the nature.

Unfortunately, for too many people go into retirement with no planning, and little understanding of what will happen. Actually the rising stock market and the improving real estate property values all disguise the fact that the company compensation plans in the past are no longer present today.

But middle-aged individuals believe that they can expect a higher standard of living once they retire and spend their time in leisure, but it is in vain. This is because they had not planned their retirement properly when they were working and their standard of living declines significantly. So it is better to understand the social aspects of retiree’s life and look into those investment options which suits better and face retirement with excitement rather than fear.

RETIREMENT AGE

Age at which employees no longer work. Though there is no longer any mandatory retirement age, many institutions do impose a retirement age. The federal government has a retirement age of 70. Many corporations have a retirement age of 65, although this has become more flexible and are no longer standard. Employees reaching age 62 may start to receive Social Security benefits, though the minimum age for receiving full Social Security benefits starts at age 65 and gradually increasing to age 67. For example, for those born from 1943 through 1954, the age to receive full Social Security benefits is 66. For those born in 1960 or later, the age for full benefits rises to 67.

7. TAX PLANNING

MEANING Tax planning involves conceiving of and implementing various strategies in order to minimize the amount of taxes paid for a given period. For a small business, minimizing the tax liability can provide more money for expenses, investment, or growth. Inthis way, tax planning can be a source of . According to The Entrepreneur Magazine Small Business Advisor, two basic rules apply to tax planning. First, a small business should never incur additional expenses only to gain a tax deduction. While purchasing necessary equipment prior to the end of the tax year can be a valuable tax planning strategy, making unnecessary purchases is not recommended. Second, a small business should always attempt to defer taxes when possible. Deferring taxes enables the business to use that money interest-free, and sometimes even earn interest on it, until the next time taxes are due. Experts recommend that entrepreneurs and small business owners conduct formal tax planning sessions in the middle of each tax year. This approach will give them time to apply their strategies to the current year as well as allow them to get a jump on the following year. It is important for small business owners to maintain a personal awareness of tax planning issues in order to save money. Even if they employ a professional bookkeeper or accountant, small business owners should keep careful tabs on their own preparation in order to take advantage of all possible opportunities for deductions and tax savings. “Whether or not you enlist the aid of an outsider, you should understand the basic provisions of the tax code,” Albert B. Ellentuck wrote in the Laventhol and Horwath Small Business Tax Planning Guide. “Just as you would notturn over the management of your money to another person, you should not blindly allow someone else to take complete charge of your tax paying responsibilities.” In addition, as Frederick W. Dailey wrote in his book Tax Savvy for Small Business, ‘Tax knowledge has powerful profit potential. Knowing what the tax law has to offer can give you a far better bottom line than your competitors who don’t bother to learn.”

TAX PLANNING IN INDIA

Tax Planning in India is abasic duty of every person paying income tax, which should be followed diligently. Tax planning in India involves the selection of the right tax saving instruments and making proper investments. The amount of tax to be paid is calculated on the nature of investments made, income earned, and the quantum of other like , rent from property, interest etc. There are many deductions and exemptions applicable on the net taxable amount, depending upon the source of income. To take advantage of these facilities tax planning is necessary. Moreover, the annual budget of the government should be taken into consideration before planning as tax plans are often changed.

STEPS IN TAX PLANNING IN INDIA

There are three steps I nTax Planning India which would aid a person in making prudent tax plans to reduce their income tax liability and ensure a better tomorrow by making complusory savings by investing in safe government schemes. These three steps in tax planning are:

 Calculating taxable income.  Calculating tax payable on gross taxable income for the entire financial year.  To either pay the tax without tax planning or minimize tax through planning.

The Exemptions are:

 Deduction under Section 80C – This section has been introduced from the FY 2005-06, under which a deduction of upto Rs.1,00,00 is allowed from taxable income by investing in some specified schemes  Deduction under Section 80 CCC (1)- This section allows a deduction of upto Rs.10,000 to an individual for making contribution to schemes.  Deduction under Section 80D – This section allows a deduction uoto Rs.10,000 for paying premium for policy. 8.INSURANCE

Financial planning is must for every individual. When we start saving money for our goals, there is always a fear of the unknown. We can’t predict the future. So just by doing investments we cannot ensure that all is well. Buying insurance is a good way to protect yourself, your family & assets. Learning some basics of insurance will help you invest wisely.

You are working hard every day to earn a decent living standard. Based upon your monthly expenses, you can do some savings. You do financial planning based on your current health & status. But with time as your age increases health problems can also surround you. It may be major surgery, a fracture or an infectious disease. Every medical problem poses a hurdle in your path. In such conditions having an insurance policy is abig advantage, not only it provides financial support in crisis but it also gives a sense of security.

Insurance plans can be different types like endownment plans or nit linked plans. All these have their importance. Selection of a proper plan is not easy. You may have to take the help of an investment expert. For example the amount of life cover required is not same for all of us. It is calculated using parameters like your age, current assets, total liabilities, monthly income & number of family members. So, take proper advice to find out what is best for you. Insurance helps your personal finance in one more way by offering tax benefits.

Insurance policy is a contract between the insurer & policy owner. A fixed amount has to b paid by the policy owner either in limp sum or annually, which is called as premium. The premium is calculated on the basis of insurance cover required & the duration of insurance. Depending upon the term & conditions mentioned in the policy one has to pay the premium for certain years, known as premium paying term. If you fail to do so, the policy will be lapsed. The maturity value or sum assured is the amount guaranteed by the company in case of death of policy owner or when the policy term ends. The life cover may continue after the premium paying term, in some plans, till whole life.

Buying a policy is very easy nowadays. You can now buy them online. All leading insurance companies are offering this service. You can easily compare different plans & choose the perfect one. There are some other sites which provide you with insurance plans of different companies, you just have to submit some basic information about yourself & all plans will ne displayed in a tabular form.

To sum up, is an important tool when planning your personal finance. Due to availability of so many options in market choosing the right one is difficult. Take the help of a financial advisor if you are not sure about it. Live a happy & secured life!

9.OTHER INVESTMENT OPTIONS

 PUBLIC PROVIDENT FUND

Public Provident Fund, popularly known as PPF, is a savings tax saving instruments. It also serves as aretirement planning tool for many of those who do not have any structured pension plan covering them.

Public Provident Fund account can be opened at designated post offices throughout the country and at designated branches of Public Sector Banks throughtout thecountry. The account can be opened by an individual in his own name, on behalf of a minor of whom he is a guardian, or by Hindu Undivided Family.

The account matures for closure after 15years . Account can be continued with or without subscriptions after maturity for block periods of five years. Premature withdrawal is permissible every year after completion of 5years from end of the year of opening the account.

Loans from the amount at credit in PPF amount can be taken after completion of one year from the end of the financial year of opening theaccount and before completion of the 5th year.

Income Tax rebate is available “on thedeposits made,” under Section 88 of Income Tax Act, as amended from time to time. Interest credited every year is tax-free. Stands for Public Provident Fund account. This is a small saving 15year term account, where interest is paid annually @ 8.5% p.a. The maximum contribution per year is INR70000. The contribution is eligible for deduction under section 80C of the income tax act. Account can be opened at Post Offices or at select Bank Branches. Nomination facility is available. The amount in PPF account can not be attached by a court of law or IT authorities. Interest and principal are not subject to TDS. After a minimum 5years tenure withdrawals are allowed subject to certain conditins. You have to make at least one deposit in a year to keep the account alive. Minimum deposit is INR500.

PPF Investment

A PublibProvident Fund account accords flexibility of investment. It is unlike a bank recurring deposit scheme wherein the same amount has to be deposited every month. One can invest upto a maximum limit of Rs.60,000/- per annum in the PPF account and it can go upto Rs.70,000/- for certain categories. The minimum investment must be Rs.500/- per annum. Investments can also be made in upto twelve installments.

PPF Interest

PPF offers great return to the discerning investor. The government fixes the rate of imterest to be paid periodically. The current rate of interest is 8% which is compounded annually. Because of the tax rebate, the actual return works out to be much higher.

PPF-Pros and Cons

 The PPF investment provides the lowest risk possible  Tax rebate facility offered on money invested  Flexibility of investment  PPF account is exempt from wealth tax  Provision for loans and withdrawals  The amount in the PPF account cannot be attached by courts in case of or on any loan payments.

If one considers the worst of the Public Provident Fund, the Cons are:

 The rate of interest is fixed by the government from time to time and it keeps changing. Initially the interest was 12% per annum and it dropped to 11%, then 9.5% and now only 8%.  Some investors opine that the stipulated fifteen years lock in period for investment is too lenghty.  The interest on PPF account is calculated on the lowest balance between the fifth and the last day of the month. For instance if there is a balance of Rs.1,00,000/- in the PPF account and on the 10th an additional deposit od Rs.10,000/- is made, the interest will be calculated on Rs.1,00,000/- and not on Rs.1,10,000/-.  The Public Provident Fund lacks liquidity and does not afford short term liquidity. PPF also does not provide any avenues for regular income. It provides for accumulation of interest income over a fifteen year period and the lump sum amount with the principal and interest is payable on maturity.  PPF account does not have any and it cannot be traded. Public Provident Fund can be best constructed as a retirement planning tool for those who do not have any structured pension plan covering them. It is money that one will never touch. If a person is just 24 now, he/she will get the money around 40years of age. This probably can be used to repay a housing loan then.

 NATIONAL SAVING CERTIFICATES

National Saving Certificates (NSC) is certificates issued by Department of post, Government of India and is available at all post office counters in the country. It is a long term safe savings option for the investor. The scheme combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act, 1961. The duration of a NSC scheme is 6years.

FEATURES

 NSC’s are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000 for a maturity period of 6 years. There is no prescribed upper limit on investment.  Individuals, singly or jointly or on behalf of minors and trust can purchase a NSC by applying to the Post Office Through a representative or an agent.  One person can be nominated for certificates of denomination of Rs.100 and more than one person can be nominated for higher denominations.  The certificates are easily tansferable from one person to another through the post office. There is a nominal fee for registering the transfer. They can also be transferred from one post office to another.  One can take a loan against the NSC by pledging it to the RBI or a scheduled bank or a co-operative society, a corporation or a government company, a housing finance company approved by the National Housing Bank etc with the permission of the concerned post master.  Though premature encashment is not possible under normal course, under sub-rule (1) of rule 16 it is possible after the expiry of three years from the date of purchase of certificate.  Tax benefits are available on amounts inveted in NSC under section 88, and exemtion can be claimed under section 80L for interest accured on the NSC. Interest accured for any year can be treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88.

RETURN

It is having a high interest rate at 8% compounded half yearly. Post maturity interest will be paid for a maximum period of 24 months at he rate applicable to individual savings account. An Rs1000 denomination certificate will increase to Rs. 1,601 on completion of 6years.

ADVANTAGES

Tax benefits are available on amounts invested in NSC under section 88, and exemption can be claimed under section 80L for interest accured on the NSC. Interest accured for any year can be treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88. NSC’s can be transferred from one person to another through the post office on the payment of a prescribed fee. They can also be transferred from one post office to another. The scheme has the backing of the Government of India so there are no risks associated with your investment.

 POST OFFICE

A Post-Office Recurring (RDA) is a banking service offered by Department of post, Government of India at all post office counters in the country. The scheme is meant for investors who want to deposit a fixed amount every month, in order to get a lump sum after five years. The scheme, a systematic way for long term savings, is one of the best investment options for the low income groups.

FEATURES

The minimum investmentin a post-office RDA is Rs.10 and then in multiples of Rs.5/- for a period of 5years . There is no prescribed upper limit on your investment. The deposit shall be apid as monthly installments and each subsequent monthly investment shall be made before the end of the calendar month and shallbe equal to the first deposit. In case of default in payment, a default fee is chargeable for delayed deposit at0.20 paise per month of delay, for Rs.10 denomination. After more than four defaults, the account shall be treated as discounted in case the account is not revived within two months from the fifth default.

For Advance deposits for 6months or 12months, a rebate is allowed at the prescribed rate (for Rs.10 denomination: Rs.1/- for 6advance deposits, Rs.4/- for 12 advance deposits). One withdrawal isallowed after one year of opening a post-office RDA on meeting certain conditions. You can withdraw up to half the balance lying to your credit at an interest charged at 15%. The withdrawal or the loan be repaid in one lump or in equal monthly installments. Premature closure is allowed on sompletion of three years from the date of opening and in such case, interest is payable as per the rate applicable for the Post Office Account.

After maturity of the account, it can be continued for a further period of 5years with or without further deposits. During this extended period, the account can be closed at any time. The post- office recurring deposits offers a fixed rate of interest, currently at 7.5 pecent per annum compounded quaterly.

ADVANTAGES

The post office offers a fixed rate of interest unlike banks which constantly change their recurring deposit interest rates depending on their demand supply position. As the post office is a department of the government of India, it is a safe investment. The principal amount in the Recurring Deposit Account is assurd. Moreover Interest earned on this account is exempted from tax as per Section 80L of Income Tax Act. CHAPTER 4 CONCLUSION

 Personal Finance is not just a tool but also a complete mechanism to make the best out of ones money.  To common man Personal Finance means to get money, to save for attaining a particular goal or to convert the assets into liquid cash. Basically it is a meansto anhance the liquidity position in the present or in the future.  The return that one can get out of his savings would depend on his appetite to take risk. Also his present liquidity position would depend on his credit standings.  Personal Finance always existed in the form of budgeting and investment planning, but a more formal approach towards it came in with the invention of the credit cards, when the techniques of personal finance began to be used to enhance the present cash position too.  Like all other means and methods, personal finance techniques are more developed in the developed countries and have more popularity among the masses, in India however the knowledge and understanding of these exist only among the people residing in the urban areas.  However I nthe recent times, the interest rates may have lowered, but credit is still getting tighter- and not just for high –risk borrowers.  Several species of mortgages are headed for extinction, including those requiring no proof of income. But the effects of the mess have extended beyond subprime. According to the Federal Reserve, about one in seven banks have toughened home lending standards even for borrowers with good credit. Even the credit card terms are slightly higher.

RECOMMENDATIONS

Personal Finance is one of the most important aspects of your life. Personal finance by defination is how you manage your money. But what is money really?

Money = Choice = Freedom = Ability to Fulfill Your Dreams and Purpose

The impotant thing to realize is that money affects how you lead your life. If you don’t have money you can’t do many of the things you want in life. Money is simply a tool that gives you choice along the way. This, however, doesn’t mean they will be the correct choices.

Without learning personal finance, you’re going to lead a completely different life than someone with personal finance knowledge. Basically, you’ll be less free than them. You’ll be imprisoned by the stuff you own, your job, and the reoccuring feeling of not having enough money. Living paycheck to paycheck is a common trait of those who do not have personal finance knowledge. Learning about personal finance gives you the knowledge and understanding to make smart money choices. Thus, you become more in control of your own life and are empowered to do the things that matter most to you.

Personal Finance teaches you about money and money is the ability to make choice and gain power. Learning about personal finance will give you freedom in your life and the ability to accomplish your dreams. And that is why, learning PERSONAL FINANCE is important.

BIBLIOGRAPHY

1. Developing and Managing a Successful Payment Cards Business Author - By Jeff H. Slawsky Edition - November 30, 2005 Publication - Ashgate Publishing

2. Financial Markets and Services Author - Gordon Natarajan Edition - Third Revised Editions 2006 Publication - Himalaya Publishing House

WEBSITES REFFERED

1.www.google.co.in 2.www.scribd.com 3.www.wikipedia.com