Iii Semester BCom Financial Education and Investment Awareness Module 1 Foundation For Finance Intro

Financial Education
And Investment
Awareness Module-1:
Foundation For
Finance Introduction
To Basic Concepts Of
Finance Money And Its
Need:
Money is any item or medium of exchange that is accepted by people for the payment of
goods and services, as well as the repayment of loans. Money is a medium of exchange;
it allows people and businesses to obtain what they need to live and thrive.
by Manjula B K
Benefits/ Need Of Money:
1 Freedom
When we have enough money, we can live where we want, take care of our needs,
and indulge in our hobbies.
2 Dream Pursuit
Having money makes it possible to start a business, build a dream home, pay the
costs associated with having a family, or accomplish other goals.
3 Security
When we have enough money in the bank, we never need to worry about having a
roof over our head or about having enough to eat or about being able to see a
doctor when we are sick.
4 Reduced Stress
When a person's finances become stable, financial stress significantly reduces.
They might still experience anxiety around money, but financial stability means
less stress.
Need For Financial Planning:
Meaning Of Financial Planning:
Financial planning refers to the process of streamlining the income, expenses, assets and liabilities of
the household to take care of both current and future need for funds.
Increased Savings Improved Living Standard Emergency Preparedness
When we create a financial With a good financial plan, Creating an emergency fund
plan, we get a good deal of there is no need to is a critical aspect of financial
insight into our income and compromise the lifestyle. It is planning. The Emergency
expenses. We can track and possible to achieve the goals fund should be equal to at
cut down the costs while living in relative least 6 months of the monthly
consciously. This comfort. salary.
automatically increases the
savings in the long run.
Life Goals And Financial Goals:
Financial goal is the term used to describe the future needs of an individual that require
funding. It specifies the sum of money required in order to meet the needs and when it is
required. Goals described in terms of the money required to meet it at a point of time in
future, is called a financial goal.
Short-Term Goals
Short-term goals are something you want to achieve in the future over the next few
months. These are required for your more immediate expenses. These expenses are
generally smaller in scope and easier to project and predict.
Medium-Term Goals
Medium Term lies between short term and long term. Short-term goals have a typical
timeline of a year whereas long-term goals are planned for a decade or more.
Clearing outstanding dues on your credit card or personal loan can be classified
under mediumterm goals.
Long-Term Goals
Long-term goals require more deliberation, and in most cases, money. Retirement,
buying a house, and funding a child's higher education are typical long-term goals.
Time Value Of Money Meaning
Of Time Value Money:
Time value of money refers to "time has got a value". The rupee value keeps on
changing over a period of time. The concept of time value of money refers to the money
received today is different in its worth form the money receivable at some other time in
future.
Reinvestment Opportunities
Monet received today can be re-invested to get further return.
Uncertainty
The present is more certain than the future which is uncertain.
Inflation
During inflation, the value of money goes decreasing or the price level goes
on increasing.
Personal Consumption Preference

Individual have strong preference for immediate rather than delayed consumption.
Concept Of Compounding:
Compound value concept is used to find out the future value of
present money. It is same as the concept of compound interest,
the interest earned in preceding year is reinvested at the
prevailing rate of interest for the remaining period.
Interest Definition
Simple Interest (SI) Interest calculated only on

the original amount of
principal.
Compound Interest (CI) Interest calculated on the
accumulated sum of
principal and the previous
interest left unpaid.
Calculation Of Techniques In
Time Value Of Money:
The compounding technique is to find out the future value (FV) of the present worth of money.
Compounding Technique
The compounding technique is to find out the future value (FV) of the present worth of money.
Discounting Technique (Present Value Technique)

The present value of an entity can be defined as the present worth of a prospective
amount of money or a stream of cashflows with a specified return rate. Present value
technique is a reverse of compounding technique and is also known as discounting
technique.
Annuity
Annuity is a series of fixed payments which are essential to be paid or payable at a
specific frequency over a fixed time interval. Example: Premium on Life Insurance, Rent
of building, Loan of EMIs.
Valuation Of Securities Meaning:
A security is a financial instrument, typically any financial asset that can be traded. A security is a financial
asset or instrument that has value and can be bought, sold, or traded. Some of the most common
examples of securities include stocks, bonds, options, mutual funds
Portfolio Decision 1
Security valuation is important to decide
on the portfolio of an investor.
2 Scientific Analysis
All investment decisions are to be made
on a scientific analysis of the right price
Investment Process 3 of a share.
Investment process requires the
valuation of securities in which the
investments are proposed. The value of
a security may be compared with the Fair Price
4
price of the security to get an idea as to
The purpose of calculating the valuation
whether a particular security is
of securities is to ensure that we are
overpriced, under-priced or correctly
paying a fair price for the investment.
priced.
Rate of Return 5
It also allows us to determine the rate of
return that we would need to receive to
break even on our investment.

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Iii Semester BCom Financial Education and Investment Awareness Module 1 Foundation For Finance Intro

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Financial Education

Increased Savings Improved Living Standard Emergency Preparedness

Personal Consumption Preference

Simple Interest (SI) Interest calculated only on

Discounting Technique (Present Value Technique)

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