Unit 3: Investment planning
Personal Financial Planning notes · PTU syllabus (BBA 621-18)
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Unit summary
Investment planning puts savings to work so that goals are met despite inflation. This unit covers the meaning, objectives and process of investment planning, tax-saving instruments, mutual fund schemes, fixed income securities, capital and money market instruments, and real assets.
After this unit you can
- Explain the meaning, objectives, process and importance of investment planning
- Describe tax-saving instruments available to individuals
- Classify mutual fund schemes and fixed income options
- Compare capital market, money market and real asset investments
PTU syllabus topics
- Meaning
- process
- importance and objectives of investment planning
- tax-saving instruments
- mutual fund schemes
- fixed income securities (government bonds, corporate debt, bank deposits, post office schemes)
- capital and money market instruments
- real assets
- High risk
Equity shares, derivatives
- Moderate risk
Equity mutual funds, real estate
- Low risk
Bonds, debt funds, PPF
- Foundation
Emergency fund, insurance, bank deposits
Topic 1
Investment planning: meaning and objectives
Investment is committing money today to assets expected to provide a return in future. Investment planning matches financial goals with suitable investments considering return, risk, liquidity and tax.
Safety
Protect the principal
Return
Income and capital appreciation
Liquidity
Convert to cash when needed
Tax efficiency
Maximise post-tax return
Other objectives: hedge against inflation, regular income, wealth creation.
Importance
- Beats inflation and builds wealth through compounding.
- Funds specific goals — education, home, retirement.
- Provides financial independence and security.
- Channels savings into the economy.
Topic 2
Investment planning process
- 1
Set goals and time horizon
- 2
Assess risk profile
- 3
Decide asset allocation
Equity, debt, gold, real estate
- 4
Select instruments
- 5
Invest (lump sum or SIP)
- 6
Monitor and rebalance
- Asset allocation: splitting money across asset classes; a common rule of thumb is equity % = 100 − age.
- Diversification: spreading investments to reduce risk.
- Rebalancing: restoring target allocation periodically.
Equity
High
High
Debt
Moderate
Low to moderate
Gold
Moderate, hedges inflation
Moderate
Bank deposits
Low
Very low
Topic 3
Tax-saving instruments
Under the old tax regime, Section 80C allows deductions up to ₹1.5 lakh a year. (The new default regime under Section 115BAC offers lower rates but few deductions.)
| Instrument | Lock-in / tenure | Key feature |
|---|---|---|
| PPF | 15 years | Government-backed, interest tax-free (EEE) |
| ELSS mutual funds | 3 years | Shortest lock-in, equity-linked |
| Tax-saving FD | 5 years | Fixed return, interest taxable |
| NSC | 5 years | Post office, fixed return |
| Sukanya Samriddhi Yojana | Till girl child turns 21 | High rate, EEE |
| Life insurance premium | Policy term | Protection + deduction |
| EPF / VPF | Till retirement | Employee contribution qualifies |
| SCSS | 5 years | For senior citizens |
Other deductions: 80CCD(1B) extra ₹50,000 for NPS; 80D health insurance premium; 24(b) home-loan interest up to ₹2 lakh for self-occupied property.
Exam tip
Check the current Finance Act for limits — tax figures change with each Budget.
Topic 4
Mutual fund schemes
A mutual fund pools money from many investors and invests it in securities through a professional fund manager; units have a Net Asset Value (NAV). Regulated by SEBI.
By structure
Open-ended, close-ended, interval
By asset class
Equity, debt, hybrid, solution-oriented (retirement, children)
Equity types
Large-cap, mid-cap, small-cap, flexi-cap, ELSS, sectoral, index
Debt types
Liquid, overnight, gilt, corporate bond, dynamic bond
Other
ETFs, fund of funds, gold funds
- SIP (systematic investment plan): fixed monthly investment; gives rupee cost averaging.
- Direct vs regular plans: direct plans have a lower expense ratio.
- Benefits: diversification, professional management, liquidity, small ticket sizes, transparency.
Topic 5
Fixed income securities
- Government bonds (G-secs): issued by the central or state government through RBI; virtually no default risk; RBI Retail Direct allows individuals to buy them.
- Treasury bills: short-term government securities (91, 182, 364 days) issued at a discount.
- Corporate debt: debentures and bonds issued by companies; higher interest, credit risk — check ratings (AAA, AA).
- Bank deposits: savings and fixed deposits; insured up to ₹5 lakh per depositor per bank by DICGC.
- Post office schemes: PPF, NSC, Kisan Vikas Patra, Monthly Income Scheme, Senior Citizens' Savings Scheme, Recurring Deposit — government-backed.
- Sovereign Gold Bonds: gold-linked with interest (new issues have been paused recently; existing ones trade on exchanges).
Topic 6
Capital and money market instruments; real assets
Tenure
Long term (over 1 year)
Short term (up to 1 year)
Instruments
Equity shares, preference shares, debentures, bonds
T-bills, commercial paper, certificates of deposit, call money, repo
Risk and return
Higher
Lower
Regulator
SEBI
RBI
- Real assets: tangible assets like real estate (house, land, REITs), gold (jewellery, coins, gold ETFs), art and collectibles.
- Pros of real estate: rental income, appreciation, loan availability. Cons: illiquidity, large ticket size, legal risk, maintenance.
- Pros of gold: hedge against inflation and currency fall. Cons: no regular income, making charges, storage risk.
Key terms
- Asset allocation
- Distribution of investments across asset classes
- NAV
- Market value of a fund's assets minus liabilities, per unit
- SIP
- Investing a fixed sum at regular intervals in a mutual fund
- ELSS
- Equity-linked savings scheme with a 3-year lock-in and 80C benefit
- Treasury bill
- Short-term government security issued at a discount
Quick revision
- Objectives: safety, return, liquidity, tax efficiency.
- Process: goals → risk profile → allocation → selection → invest → review.
- 80C limit ₹1.5 lakh; extra ₹50,000 for NPS.
- MF classes: equity, debt, hybrid, solution-oriented.
- Capital market long-term (SEBI); money market short-term (RBI).
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Define investment planning.
- Q2.What is asset allocation?
- Q3.Name four tax-saving instruments under Section 80C.
- Q4.What is an ELSS?
- Q5.What is rupee cost averaging?
- Q6.Distinguish capital market and money market.
Long-answer questions
- Q1.Explain the meaning, process and importance of investment planning.
- Q2.Discuss tax-saving instruments available to individuals in India.
- Q3.Explain the classification of mutual fund schemes and their benefits.
- Q4.Discuss fixed income securities and real assets as investment options.
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