SAVINGS AND INVESTMENTS CH 11 Flashcards
Define savings
Certain proportions of income kept aside regularly for a secure future.
What are the two types of savings?
Savings don’t gather on their own. They have to be accumulated through careful planning. Family must save money irrespective of the income group they belong to. They must have the clarity about the purpose for saving i.e. achievement of family goals. There are two types of savings:-
1) SHORT TERM SAVINGS - These are used to purchase relatively expensive commodities or services such as television, expensive phone, international trip, etc.
2) LONG TERM SAVINGS - These are accumulated to secure one’s future. For example, savings for old age.
What are the REASONS/ADVANTAGES/IMPORTANCE of savings?
1) FULFILLING NEEDS OF THE FAMILY - A growing family requires more income. Expenses increase significant as we move through the stages of life starting form bachelorhood, marriage, children and old age.
2) MEETING EMERGENCIES - Savings help to meet expenditure incurred because of unforeseen reasons like: accident, ill health, theft, natural calamity, etc . Emergencies are unpredictable and can deplete savings for a long period of time.
3) ENJOYING SECURE RETIREMENT/OLD AGE - Individuals have greater earning capacity as youth as compared to old age. Thus, resulting in reduces or no income in later stages of life. Nonetheless, expenses are high because of medical reasons. Saving made at a younger age provide security later when you are more vulnerable.
4) MAINTAINING A GOOD STANDARD OF LIVING - Every individual desires to improve his family’s living standard. A limited income makes it difficult to attain a better life style. The amount of property, kind of car, use of air conditioner, computer, branded clothes, etc. reflect the standard of living of a person.
5) ACQUIRING MORE MONEY - People invest their savings in property, business, shares, etc. to supplement their income. Money is also invested in saving schemes to earn interest over the saved money.
6) FINANCIAL SECURITY - Savings provide financial security not only to self but also the dependents in the family.
Define investment
Savings that help one to earn interest/premium are often referred to as investments.
Define bank
A bank is “ an institution where individual/organisations keeps the money in safe custody”
What are some of the services provided by the bank?
1) Accepting deposits
2) Lending
3) Exchanging
4) Money transfer
5) ATM
6) Internet banking
7) Credit and debit card
8) Safe deposit lockers
How to open a bank account?
To open a bank account, one has to be introduced by an account holder in the bank. A form for opening any deposit account is filled under “ KNOW YOUR CUSTOMER (KYC) guidelines issued by Reserve Bank of India (RBI).
What types of accounts can you open in bank
1) FIXED DEPOSIT ACCOUNT - This is opened for a fixed time period for which the account holder is liable to get predetermined interest. Usually, a fixed deposit account is opened for 46 days to 5 years. In case of early withdrawal, entire interest amount is not given.
2) SAVINGS ACCOUNT - This is a popular household account. It is opened to deposit short sums of money periodically. Savings account can be opened individually or jointly with one or two other candidates. Account holder may or may not avail the cheque book facility. In most of the banks savings account can be opened with a nominal amount of ₹1000/- and presently, the interest rate varies from 4% - 6% in different banks. While the number of deposits are unlimited but number of withdrawals are limited.
3) CURRENT ACCOUNT - This is popular with businessmen and business houses as it provides the facility of unlimited deposits and withdrawals. Also, the customer is not liable to pay any service or transaction charges if basic amount in the account is maintained.
4) RECURRING DEPOSIT ACCOUNT- As the name suggests, a fixed amount is deposited in the account periodically. The investment amount and period is predetermined initially. At the end of the period, the account holder gets the invested capital in addition to the interest. The rate of interest is higher in recurring deposit account as compared to savings account.
What is a debenture?
A debenture is a document or a certificate issued by a company as a proof of the money invested in the company.
What is a post office?
Post offices are found in more areas, places than the banks. As such the post offices are better suited to individuals living even in distant and remote areas. A post office is generally available in every residential colony. The procedures for investment are kept very simple at the post offices. Even an illiterate person, after acquiring a little knowledge, can invest his / her money. Post office schemes are very similar to that of the banking system
What types of account can you open in a post office?
1) POST OFFICE SAVINGS ACCOUNT - Any individual can open a savings account in a post office with minimum deposit of ₹20, maximum of ₹1 lakh for single account and ₹2 lakhs for joint account. There is no lock in or maturity period. Rate of interest is decided by the central government from time to time. Interest is calcul on monthly balances and credited annually.
2) POST OFFICE MONTHLY INCOME SCHEME - In this scheme, an individual has to deposit a fixed amount. The interest on this amount is paid on monthly basis. One can opt for this account either in single name or joint name. In the single account, one can deposit minimum of ₹1,500 and maximum of ₹4.5 lakh. The upper limit for a joint account is ₹9 lakh. The present rate of interest is 7.7% per Anuj. Interest income is taxable.
3) POST OFFICE DEPOSIT ACCOUNT - The individual deposits the money for a fixed time period. One has to deposit minimum amount of ₹200 and in multiple thereof. There is no cap on maximum limit. The interest is calculated on the basis of the duration for which the deposit is made. The interest is paid annually but calculated quarterly. Time deposit scheme can be availed for 1year, 2 years, 3 years, and 5 years.
4) RECURRING DEPOSIT ACCOUNT - Monthly deposit of INR 10/ - or any amount in multiples of INR 5 is deposited at regular intervals of time. The amount invested and the interest can be withdrawn only after the end of the agreed term which may be five years or more. The rate of interest is 7.3% per annul.
5) KISAN VIKAS PATRA - Any adult can buy these patrias from departmental post offices in denomination of ₹1000, 5000, 10,000 and ₹50,000. There is no required of minimum deposit of ₹1000 and no maximum limit. Certificates can be purchased on behalf of self or on behalf of a minor. Amount invested doubles in 112 months.
6) NATIONAL SAVINGS CERTIFICATE (NSC) VIII ISSUE - This is one of the most popular scheme offered by post office. One can purchase these certificates for ₹100 and there is no maximum limit of investment. In this scheme, 8.0% interest per Annie compounded
7) SENIOR CITIZEN SAVINGS ACCOUNT (SCSS) ACCOUNT - Any individual of the age of 60 years or more may open this account. An individual of the age of 55 years or more but less than 60 years of age. Who has retired on superannuation or under VRS can also open account subject to the condition that the account is opened within on one month of receipt of retirement benefits and amount should not exceed the amount of retirement benefits. There shall be only one deposit in the account in multiple of ₹1000 maximum not exceeding ₹1.5 lakh. Maturity period is 5 years. Account can be opened by cash for the amount below ₹1 lakh and for ₹1 lakh and above by cheque only.
What is life insurance corporation
Life Insurance Corporation is a public sector financial institution that provides facilities where by people contribute their funds to protect and safeguard themselves. Insurance is a contract between the individual and the insurance company. It is a kind of risk sharing plan.
What are some of the popular LIC policies
Whole life insurance policy, Endowment policy, Limited payment life policy, Grih Laxmi, Jeevan Raksha, Jeevan shree
What are the other schemes that UTI provides for saving money
1) 7NIT LINKED INSURANCE PLAN ( ULIP)
2) CHILDREN’S GIFT GROWTH FUND (CGGF)
3) MONTHLY INCOME UNIT SCHEME
