Unit 2: Investment fundamentals & products
Personal Financial Planning notes · PTU syllabus (BCOP 511-18)
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Unit summary
Savings must be put to work in suitable products — bank deposits, insurance, shares, mutual funds and bonds — and credit must be managed wisely. This unit covers savings vs investment, debt and equity, bank deposit and loan products, credit scores and credit information reports, insurance products, equity investing through NSE/BSE and demat accounts, derivatives, mutual funds and SIPs, and debt market instruments.
After this unit you can
- Distinguish savings and investment, and debt and equity
- Explain bank deposit and loan products and credit scores
- Explain insurance products — life, health and personal accident
- Explain equity investing, demat accounts, derivatives, mutual funds, SIPs and debt instruments
PTU syllabus topics
- Savings and investment
- debt and equity
- banking deposit and loan products
- credit score and credit information reports
- insurance products (life, health, personal accident)
- equity investment via NSE/BSE
- demat accounts
- derivatives
- mutual funds
- SIPs
- debt market instruments
- Equity and equity funds
Highest return potential, highest risk
- Hybrid and debt funds
Moderate
- Bonds and deposits
Lower risk, steady return
- Savings account and cash
Safest, lowest return
Topic 1
Savings vs investment; debt vs equity
Meaning
Income not spent
Savings deployed to earn returns
Risk
Very low
Low to high
Return
Low (savings account interest)
Higher potential
Liquidity
High
Varies
Purpose
Short-term needs, emergencies
Long-term goals, wealth creation
Nature
Lending money
Ownership
Return
Fixed interest
Dividends and capital gains (variable)
Risk
Lower
Higher
Priority on liquidation
Before equity
Last
Examples
FDs, bonds, debentures, debt funds
Shares, equity mutual funds
Topic 2
Banking deposit and loan products
| Deposit product | Features |
|---|---|
| Savings account | Liquid, interest on daily balance, debit card, UPI |
| Current account | For businesses, no interest, unlimited transactions |
| Fixed deposit | Fixed tenure and rate; premature withdrawal penalty; tax-saver FD 5 years |
| Recurring deposit | Fixed monthly deposits — disciplined saving |
| Senior citizen FD | Extra interest (about 0.5%) |
- Deposit insurance: DICGC insures up to ₹5 lakh per depositor per bank.
| Loan product | Features |
|---|---|
| Home loan | Long tenure (up to 30 years), lower rate; tax benefits under 24(b) and 80C (old regime) |
| Car / two-wheeler loan | Secured by the vehicle |
| Personal loan | Unsecured, higher interest |
| Education loan | Moratorium till course completion; Section 80E interest deduction |
| Gold loan | Quick, against gold |
| Credit card | Interest-free period, but 36–42% p.a. on revolving balances |
EMI
P × r × (1 + r)^n ÷ [(1 + r)^n − 1] — P principal, r monthly rate, n months
Example
Home loan ₹30 lakh at 9% for 20 years: r = 0.0075, n = 240. EMI ≈ ₹26,992 — total paid about ₹64.8 lakh, so interest exceeds the principal.
Topic 3
Credit score and credit information reports
- Credit Information Companies (CICs) licensed by RBI: TransUnion CIBIL, Experian, Equifax, CRIF High Mark.
- Credit score: 300–900; above 750 is considered good.
- Factors: repayment history (most important), credit utilisation (keep below 30%), length of credit history, credit mix, number of recent enquiries.
- Credit Information Report (CIR): details of all loans and cards, repayment record, defaults, enquiries; one free full report per year from each CIC; disputes can be raised for errors.
Exam tip
Tips to mention: pay EMIs and card dues on time, avoid frequent loan applications, keep old cards active, check CIR annually.
Topic 4
Insurance products
- Life insurance: term plan (pure protection — best value), endowment, money-back, whole life, ULIP, pension plans. Cover need: 10–15 times annual income or need-based.
- Health insurance: individual and family floater, senior citizen plans, critical illness, top-up and super top-up; cashless hospitalisation through network hospitals; premium deduction under Section 80D (old regime). GST on individual health and life policies was exempted from September 2025.
- Personal accident insurance: covers accidental death, permanent total/partial disability, temporary disability (weekly benefit); PMSBY — ₹2 lakh cover for ₹20 a year; PMJJBY — ₹2 lakh life cover for ₹436 a year.
- Key policy terms: sum assured, premium, policy term, nominee, grace period, free-look period (30 days for new policies), waiting period, co-payment, sub-limits, no-claim bonus.
Topic 5
Equity investing, demat accounts and derivatives
- Stock exchanges: NSE (Nifty 50) and BSE (Sensex); regulated by SEBI.
- 1
Complete KYC
- 2
Open demat account
With a depository participant — NSDL or CDSL
- 3
Open trading account
With a SEBI-registered broker
- 4
Link bank account
- 5
Place orders
Market or limit orders on NSE/BSE
- 6
Settlement
T+1 (shares credited to demat next working day)
- Demat account: holds securities in electronic form; benefits — no theft or forgery, quick transfer, no stamp duty on transfer (in demat), easy pledging.
- IPO investing: apply through ASBA/UPI.
- Derivatives: contracts deriving value from an underlying asset — futures (obligation to buy/sell at a fixed price on a future date) and options (right but not obligation — call/put). Used for hedging and speculation; high risk for retail investors (SEBI studies show most retail F&O traders lose money).
Topic 6
Mutual funds, SIPs and debt market instruments
- Mutual funds: pooled investment managed by an AMC; NAV; equity, debt, hybrid, index funds, ETFs, ELSS (3-year lock-in, 80C).
- SIP (systematic investment plan): fixed amount monthly — rupee cost averaging, discipline, compounding; SWP (withdrawals) and STP (transfers).
Example
SIP of ₹5,000 a month for 20 years at 12% p.a. grows to about ₹49.5 lakh against ₹12 lakh invested.
- Debt market instruments: government securities (G-secs, T-bills — RBI Retail Direct), state development loans, corporate bonds and debentures (check credit rating), commercial paper, certificates of deposit, tax-free bonds, RBI Floating Rate Savings Bonds, small-savings schemes (PPF, NSC, SCSS, KVP).
- Bond risk: interest-rate risk (prices fall when rates rise), credit risk, liquidity risk.
Key terms
- Credit score
- Number from 300–900 summarising creditworthiness
- Demat account
- Account holding securities in electronic form
- Derivative
- Contract whose value depends on an underlying asset
- SIP
- Fixed periodic investment in a mutual fund
- G-sec
- Government security issued through RBI
Quick revision
- Savings vs investment; debt vs equity.
- Deposits insured up to ₹5 lakh; EMI formula.
- Credit score above 750 is good; CICs — CIBIL, Experian, Equifax, CRIF.
- Insurance: term, health (80D), personal accident (PMSBY).
- Equity through demat + trading accounts; MFs and SIPs; debt instruments with credit and interest-rate risk.
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.Distinguish savings and investment.
- Q2.What is DICGC insurance cover?
- Q3.What factors affect a credit score?
- Q4.What is a term insurance plan?
- Q5.What is a demat account?
- Q6.What is rupee cost averaging?
Long-answer questions
- Q1.Explain banking deposit and loan products available to individuals.
- Q2.Explain credit scores and credit information reports.
- Q3.Explain the insurance products for personal financial planning.
- Q4.Explain equity investment through stock exchanges, mutual funds and SIPs, and debt market instruments.
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