www.fichansraj.

org
 1

ACKNOWLEDGEMENT

The process of putting this book together has been a voyage of putting
practicality into words. What started as a small idea of changing lives turned
into this glorious mission of trying to fill the void of financial literacy in our
educational system.

We would like to express our gratitude to Dr. Rama, the Principal of

Hansraj College, for giving us a platform to advocate financial literacy within
her institution and Mr Ashutosh Yadav, the Convenor of Finance &
Investment Cell, Hansraj College for providing us with this opportunity to
write a book that would benefit a significant proportion of individuals. We
would like to thank our President, Ms Vipriya Anjum and other members
of the core for their constant support and passionate encouragement
throughout the process of steering this endeavour with enthusiasm.

A special thanks to all those who were always supporting us in times of doubt
and uncertainty. This book could not have been a reality without their
constant encouragement.

And lastly, a big thanks to you, the readers for having trusted us. This small
interest in our effort has made it all worth it.
 2

CONTENTS
1. The Ultimate Five Letter Word…………………………………... 03
Introduction
2. The First Steps Towards Finance……………………………….... 08
Basics of finance
3. Personance…………………………………………………………...… 11
Personal finance
4. The Dreaded B-Word…………………………………………..… 14
Budgeting
5. More than just a Modern Piggy Bank………………………... 19
Basics of banking
6. Money in the Bank…………………………………………………. 24
Online banking and digital wallets
7. Not all Plastic is Bad………………………………………………… 36
Credit and Debit cards
8. Investopedia……………………………………………………………. 43
Investment avenues
9. Baggage, Burdens & the Key to Fight: Loans!.................. 51
Mortgage, reverse mortgage and student loans
10. Everybody’s doing it. It’s called Insurance………………….. 58
Basics of insurance
11. White Collar Crimes……………………………………………….. 64
Financial frauds
12. Ughhh…Tax!!!.................................................................. 70
Basics of taxes
13. Retire N Roll……………………………………………………………78
Retirement planning
14. What’s all the fuss about?............................................... 84
Fintech and NFTs
15. Bonus – Time is Money……………………………………..…… 88
Time value of money
16. Congratulations! You get a Gold Star…………………….….. 91
Conclusion
17. Glossary…………………………………………………………….….. 92
 3

1
THE ULTIMATE FIVE LETTER WORD
Have you ever thought how funny it is that a five-letter word (yes, we are
talking about the word money) governs our world and how we live our lives?
Have you ever freaked out thinking about how are you going to earn money,
how will you save it and invest it and what will you do at the age of 60 when
all your teeth start falling out? Do words like money and finance scare you?

Well, worry no more! Contrary to popular belief money isn’t complicated

with big and scary formulae. It is just a will to take actionable steps to
improve your situation and become financially empowered. And you
deciding to read this book is a step in that direction. This book is an attempt
to provide you with all the information you need to know about personal
finance under one roof and a hope that by the time you read the last word
of the book, the ‘M’ word does not scare you anymore.
 4

Money is everywhere around us. It makes our world go around. But what
exactly is it? A solution to combat the double coincidence of wants 1 under
the barter system2, money is anything that is recognised as a medium of
exchange for all the transactions taking place in the economy. This saves
time and energy and broadens the scope of exchanges. It also acts as a store
of value. This is because, while goods tend to wear out with the passage of
time, the value of money stays the same. So, saving in terms of money is
more efficient than saving in terms of goods.

Well enough with the technical jargon, all we are trying to say is that money
is a medium through which all transactions (whether it be the buying or
selling of goods or services) are carried out and you can save money
efficiently without you having to wake up one day only to find out that all
your savings are gone because they are no longer in the same form as you
had purchased them for.

So if someone was to ask you what money is, you are more likely to answer
the notes in your wallet. But money is of several types:
• Fiat money - Fiat means formal authorization. Ever wondered why
the Monopoly money remains inside the Monopoly box only? This
is because this money is not recognised by the government to be
used as the legal tender of the country. Fiat money is money whose
value is declared by the government and is accepted as a form of
payment everywhere. No one can refuse fiat money and if someone
does, he/she is not legally entitled to get any other sort of payment.
Common examples of these are paper currency and coins.
• Commodity money - Commodity money means a commodity that
is valuable by itself as well as can be used for buying other
commodities. This type of money was more commonly used under
the barter system.
• Representative money - Representative money is produced by the
government and is backed by a physical commodity such as
precious metals. This money has no value of its own. This gives you
the advantage of accessibility and can be carried around easily.
Certificates, paper money are common examples of representative
money.
 5

• Fiduciary money - This is not a government-ordered legal tender

and works on the premise of trust (or to simply say, it is not issued
by the government and works on the faith that the concerned
parties will fulfil their payment obligations). It is a promise that the
fiduciary money will be exchanged for commodity or fiat money.
Cheques and bank drafts are common examples of the same.

"Money doesn't buy happiness." This is something that we have been

listening to for many years but how much weight does it hold? Our society
provides conflicting views on the same. At one end it tends to glorify those
who are famous and rich and on the other hand, teaches us not to envy
them and tries to justify that money is not everything. The actual answer to
this question is up to you to decide. All we can do is provide you with
knowledge on how to handle your finances.

Oops! Wait, ‘finances’ - that is a big word (not literally) to just throw out
there and hope that you do not freak out and start cursing us. Now that we
have gone over the basics of money, let’s try to understand what finance is
and what exactly we are dealing with here.
 6

2
THE FIRST STEPS TOWARDS FINANCE
If you want to reap financial blessings, you have to sow financially.
-Joel Osteen

Finance has always been considered a fascinating word. Everyone has their
own meaning of finance. This is so because everyone’s life, directly or
indirectly, revolves around it. Generally, finance is defined as the act or the
process of managing money. It has always been associated with large
corporations or the government. However, today every individual in some
way or the other manages money. This is known as personal finance.
Everything, from making a decision regarding money to acting upon it is a
part of finance. As stated earlier, everyone's life revolves around finance
directly or indirectly. But do you think people like to talk about it? The
answer might be a straight-up no or maybe. This is so because people are
not comfortable talking about such an important topic.
So, we have a question for you - why did you decide to pick up this book

read the budget of this yea

and start reading it rather than just binge-watching the latest show on Netflix?
Surely because you understand how much relevance finance holds in our
lives, what is its importance and thus to educate yourselves about it. So what
exactly is the importance of finance? Finance is essential for any government
to run properly. It is financial planning which helps the government to
ensure the welfare of the country. For large corporations, finance plays a
very important role in their growth and profitability. We just bombarded
you with too many big terms, didn’t we? Let’s try to simplify this using an
example. For a company that produces air conditioners, the business is
highly seasonal. Therefore, they will have to calculate their costs, profit
margins by taking into account the seasonality. For individuals, like you and
us, finance is a second name to survival.
 7

Can you define the feeling you get when you need to ask your parents for
money? Have you ever looked deeply at the plight of the women who have
to rely on their husbands for running their household and sometimes how
the husbands control each penny spent? Have you ever seen financially
independent women hold their heads high? In today's world, financial
independence has been an integral part of our society. From a student
freshly out of school to a housewife, everyone wants to become financially
independent. There is nothing wrong with paying one’s bills, is it? At
present, the unemployment3 rate in India is staggeringly high. With next to
no jobs in the market, financial independence has been a far-fetched
dream.

And the best thing that money can buy is financial freedom.

The first step towards financial independence is understanding its

importance. A person should have a clear objective followed by a plan as to
how he/she can attain the same. Let us now answer a simple question. What
would be an ideal amount of lottery amount you would want to win so that
you never have to bother about money. Someone would say 10 lakhs while
someone would say 10 crores. As much fascinating it might sound, it is
impossible to give a numeric answer which everyone agrees to. The main
reason for this is a concept called standard of living. Everyone has different
needs and wants which is why there cannot be the same answer to this
question. To achieve financial freedom or even financial stability, one must
understand that their standard of living is at par with their income.

In today's world, people spend more than their month’s salary on the latest
phone in the market and their annual income in their favourite car. This is
why financial planning8 is essential. Well well well, we are sure that you will
think before you spend, make wise decisions and be financially
independent. Because you know, it's not what you earn, but what you save

and how you manage. Remember! Money looks better in the bank than in
your closet.
 8

3
PERSONANCE
"The best way to double your money is to fold it over once and put it in your
pocket "
- Frank Hubbard

As stated above, finance is important to understand how governments and

large corporations4 function. But surely that is not the reason you decided to
pick up this book. For obvious reasons, you will think about yourself first
and then the country. Before understanding how things work on a macro
scale, we need to figure out things on a micro-level, which simply means
what finance means for you and why you need to have knowledge about the
same.

The 14 years of your school life filled with maths, science, history and you
unravelling the mystery of life (or whether your crush likes you or not), there
was one thing of prime importance which unfortunately was not stressed
upon enough - personal finance. Or simply put, managing your money as
well as saving and investing. This also encompasses budgeting, banking,
insurance, mortgage, investments, recruitment planning, tax and estate
planning. Don’t get intimidated by these words just yet, we will be covering
most of these in the subsequent chapters.

The future is uncertain and you never know what it has in store for you.
You might require funds on short notice due to any medical emergency (or
maybe a birthday present that you forgot). Personal finance helps in
compensating for these uncertainties.

Coming back to the topic of personal finance, it is all about meeting your
personal financial goals. A human being's life is surrounded by an
uncountable number of needs, ranging from buying the latest mobile phone
in the market, paying for your children’s college education to taking a long
trip after you retire. But unfortunately, all of them come at a cost (literally),
and a piece of knowledge on how to plan your finances could be the key to
unlocking a plan that can fulfil these needs. But most of all, accurate
knowledge of personal finance will help you distinguish between good and
bad financial advice and help you invest your money and savings most
optimally5.
There's a need to identify one's financial priorities. There's always a
dilemma to choose if saved money should be spent on travelling or buying
 9

a new house; education or livelihood; health or hygiene. All these questions

can be answered if one has adequate knowledge of personal finance and its
basics. The importance of learning personal finance varies from parent to
child and vice versa. For example, cash is a summary idea for children, and
they'll anticipate you've got a limitless supply. Rather than really telling them
that cash doesn’t grow on trees, attempt explaining in a manner they
recognize that cash is limited.

We interact with tens of people in a day and get to know what all is
happening in the world (or maybe who is dating whom) through our
conversations with them. Throughout your life, you must have heard people
giving you money advice - save your money, invest in stocks or
sometimes maybe some advice on how to avoid taxes. But what is true and
what is just a myth?

Let us try to debunk some of the myths.

• You cannot invest if you do not have a large income - Ask a person
why he/she does not invest and the most common answer would be
“I don’t have sufficient income”. But the truth is that saving and
investing has nothing to do with income. Saving as much as 10% of
your total income and choosing the right investment avenue for
yourself can go a long way. Here the power of compounding6 will
work wonders for you (we will unveil this wonder in some time).
• Credit card = no need for emergency funds - Many people believe
that just because you have a credit card means that there is no need
to save some money for emergency purposes. But this thinking is
 10

entirely wrong. This is because payment through credit cards is not

feasible in case something big happens. Thus, an emergency fund7
should be an unavoidable affair for every person. Take an example
here - Suppose you get fired from your job and you need to pay the
rent of your apartment. Now you could use a credit card to pay the
same, but remember that you will have to pay a certain amount on
it which may not be ideal. Also, don’t forget credit card payments
have to be repaid. So to avoid dilemmas like these it is always better
to have some money saved for emergencies.
• Gold is a smart investment - You must have often seen your
mothers buying gold whenever they have some extra money in
hand. Investing in gold has been a famous avenue for a long time.
But the truth is that the returns from investing in gold are not that
promising as compared to other avenues. So think twice before you
consider this option to invest your hard-earned money.
• We’ll start thinking of retirement at the age of 40 - People generally
retire at the age of 60 - 65 and the general notion is that they will
start thinking about the same at the age of 40. But here lies the
entire problem, at the age of 40 the financial responsibilities of an
individual are at their peak and it is difficult for one to set aside
money for his retirement. Thus, the prime requirement is that
savings for requirements should start from early on in life itself. The
earlier the better.
• Saving = Money to be kept in a savings account - Keeping money
in savings account for saving is just a 20s version of keeping that in
Chawal ka Dibba. Let’s accept it. We keep using the money from
our savings account despite knowing that they are meant for saving.
So, it's important to look beyond these and invest in SIPs, portfolios
of different assets, that align with our goals.

So now that you all are familiar with the basics of what finance and personal
finance is, we’ll now focus more on the specific topics within personal
finance.
 11

4
THE DREADED B-WORD
Alright, let's ask you a very simple question. There are two equations given
below. Which one would you choose?

Income - savings = expenditure

Income - expenditure = savings

Now before you go off accusing us of not knowing the basics of maths, just
hear us out. If you chose the first equation you are the kind of person who
likes to save first and then use the rest of the money for your expenses. On
the other hand, if you choose the second equation, you are the one who
likes to spend your money first and whatever is left you prefer to save.
Which method is correct is not for us to decide. Whatever works for you is
the most ideal. The thing to be noted here is that everyone saves money, no
matter in what quantity and one of the best methods to save money and
keep a track of it is to prepare a budget.

Budgeting by definition is making an estimation of revenues and expenses

over a period of time and compiling and re-evaluating it periodically. This
is a pervasive concept and is done by everyone including the business,
government, households, a multinational corporation and anyone else who
earns and spends money. While budgeting can initially seem tedious and
 12

mathematical, it simply means keeping a watch on your expenses so you

have greater control over your finances.

Savings are positive and are defined as the money left over after all personal
expenses have been met. The importance of these terms can be explained
in just a few words. Maintaining a budget will help you to ensure that you
always have money for the things you need and also help you save.
Inefficient budgeting will lead to fewer savings, which not only serves as a
life saviour in times of emergency but also lets you invest your surplus funds
elsewhere and earn a secondary source of income.

Thus, budgeting helps you to control your expenses, allows you to save
money (or increase the saving) which in turn helps in wealth creation (by
investing the savings) as well as acts as an emergency fund for the
unforeseeable future. For example, your income is Rs. 50,000. Now,
suppose you spend Rs. 20,000 on necessities (rent, groceries, electricity,
etc.) while with the rest, you engage in frivolous expenditure and do not care
about saving. Now, if you maintain a proper budget, you will know how
much to spend where and how much to save. Money says only one language,
“If you save me today, I’ll save you tomorrow!”

Ever wished you had a guide that would tell you how much of your income
should be spent and how much should be saved? Well, we can let you know
the thing closest to a guide. We present to you the much acclaimed ‘50-30-
20 budget rule’. According to this rule, 50 percent of your income should
be spent on ‘needs’ which includes the expenses which are necessary for
your survival and sustenance (unfortunately, Netflix is not a part of this). 30
percent of the income should be devoted to ‘wants’ which include the
expenses towards the things which are not for basic survival but niceties and
pleasures of life (pizza sounds good right now). This is also the trickiest
section to navigate because wants are endless unless you are a modern-day
Buddha, content with the bare necessities. The final 20 percent should be
targeted towards building future wealth through savings and investments
(damn, that world tour). This is the sphere that draws the line between
financially independent individuals and the subservient and struggling
kind.
 13

All this aside, the question most of you would be asking yourselves is how
to go about making a budget? Before we get into the steps of making a
personal budget, find yourself a good template8 wherein you can keep a
track of your finances and all the things are properly sorted.

Once you start keeping a tab of your money matters, you’ll deploy more
diligence towards all the expenses and once you know the wealth inflows
and outflows you will be able to exert greater control on how you want to
spend your money and consequently become more mindful of your
spending habits, setting you on the path of economic empowerment.

So here are a few simple steps you can follow to help maintain a proper
budget:

• Determination of your income - Before you start with anything, the

primary step is to know how much are you earning on an average
in a month. Make the closest estimate of your total net income9 and
includes both primary and secondary sources in your calculation.
Once you have a fair estimation of the money in hand, we can go
ahead with reviewing how to go about it.
• Create a list of monthly expenses - Prepare a list of your expected
expenses in a month. These could be rent, groceries, childcare,
education, recreation, transportation costs, insurance, utilities etc.
Having a clear idea of your expenses is of utmost importance as
failure to do the same can lead to wrong budgeting and thus,
inefficient savings.
 14

• Differentiate between fixed and variable expenses - Once you have

a fair estimate of your expenses, the next step is to determine if
those are fixed or variable. Fixed costs are those which are
necessary and have to be made monthly. These remain the same
and are unavoidable like insurance, rent, etc. Variable costs on the
other hand are those expenses that are completely in your hand and
can be adjusted at your convenience. These could be money spent
on recreational activities like entertainment, gifts, luxury spending
etc. The next step involves allocating a spending value to each
expense and focusing more on fixed payments. Then rank your
variable costs in terms of necessity and go from there. So the next
time you are eager to renew your Netflix subscription, make sure
that all your other expenditures are being met adequately.
• Setting goals - Before checking whether you're saving money, and if
you are, how much you're saving, you should set your financial goals
to get an idea about how much you "need" to save. Distinguish
between short term and long term goals. Short term goals are the
ones that will take at most a year to achieve. Long term goals are
the ones that will take years to achieve, for example saving for your
post-retirement life.
• Calculate the difference - If your income is more than your
expenses, pat yourself on the back as you are already off to a good
start. But in case your expenses are more than your income, then
you need to review which variable expenses can you reduce and
then gradually you can start looking for prospective sources of
investing your money.
• What to do with your savings - You have savings. Congratulations!
Now before giving your friends a pizza party, we would recommend
that you look for various avenues where you can invest your money
and earn a secondary source of income.
• Plan, Review, Repeat - Make sure you make it a habit of making a
budget monthly and keep reviewing it constantly to figure out where
you can save money and eliminate wasteful expenditures.

All this is good, but what method should you use to create and evaluate your
budget? Here are some budgeting techniques to help you with the same:
• 50-20-30 (already covered)
• Zero-based budget - In this method, you'll have to accurately
evaluate your expenses. If you overspend in one category of
expenses, you'll have to lessen the number of expenses from
another category. Also, you plan the amount of savings you want
beforehand. Following this budgeting method, you'll literally have
Rs. 0 after your expenses and savings, i.e., Income - expenses -
 15

savings = 0, hence the name. Since you've assigned a role for every
unit of money you make, you basically "give every dollar a job".
• Pay-yourself-first budget - This method primarily focuses on savings
and debt repayment. Basically, whenever you get your income, you
set aside an amount you'll need to make debt repayments and for
savings. The remaining money could be used for whatever you
seem fit (the priority should be necessary expenses for sure, but
after that, you don't need to think twice before spending since
you've already put money aside for savings).
• The "No" budget - This method does not require you to create a
budget as such. You keep a regular check on your bank account.
Whenever you are spending and upon seeing your bank balance
you feel like this expense isn't important, you tell yourself "no",
hence the name.
• The envelope budgeting - In this method, you use actual cash. You
categorise your expenses and put fixed amounts of cash in
envelopes for each expense. Now you'll use the cash from each
envelope for that specific expense only, and as soon as the envelope
gets empty, you can't spend more relating to that expense.

Warning! Do not see this task as a chore. It is important to know the limits
of your income so that you can take control of your spending and ultimately
reach your financial goals.
 16

5
MORE THAN JUST A MODERN PIGGY BANK

You must be familiar with the term ‘banks’. These institutions are
everywhere and revolve around the most basic of tasks. But do you know
what takes place behind those closed doors? Do you have a grasp on how
they operate, and what their purpose is?

We know that banks are financial institutions involved in receiving and

lending money. But they also provide a lot of other services and have been
constantly evolving. You all know why banks are important and other basic
functions that banks serve. So in this module, let’s keep the basics aside and
look at some of the lesser-known areas of banking.
 17

What is the objective of banks?

Banks are built around two main objectives, namely the provision of money
and the provision of services to their customers. To understand why banks
provide these services, let’s look at what they do to earn their money.

Banks pay out interest on their customers' savings and deposits which are
kept in these institutions for safekeeping. Similarly, banks also earn interest
on the money they lend to individuals and companies for various purposes.
So these entities always try to create a stream of income for themselves by
getting a small percentage from every transaction that takes place in the
economy. Additionally, banks also charge a fee or service mechanism when
they provide loans and other financial facilities such as debit cards and ATM
cards etc.

All this is alright and most probably already known to you, but what are the
various types of banks that exist in an economy?

• Central banks - Starting with the head of all banks is the Central
bank. In India, the Reserve Bank of India serves the role of the
central bank, and with such great power comes great responsibility
(no reference intended). So the RBI has the sole authority for the
issue of currency in the country (all paper currency except Re 1
coins), acts as a financial advisor for the government and is
responsible for managing public debt10. It also oversees the
commercial banks and can take various measures to keep these
banks in check. Amongst other functions, it also maintains foreign
exchange reserves, controls the foreign exchange rate11 and provides
stability to it (how this is done, is an separate concept entirely).
• Commercial or Corporate banks - These banks provide banking
services from small business owners to large corporate entities.
Aside from this various other services like credit services, cash
management etc. are provided.
• Investment banks - The clients of such types of banks are generally
large corporations, other financial institutions, pension funds,
governments, and hedge funds12. They provide financial services
such as underwriting13 and assistance with mergers and acquisitions.
One of the most basic functions of banks is to provide money-saving and
withdrawing functions. For the same, banks have different types of bank
accounts:

• Current Account - These are not used for savings and are mostly
opened by businessmen, companies, institutions and for other
 18

business-related works. There is no fixed number of times that

money can either be deposited or withdrawn from such accounts
and little to no interest is provided on them. A positive feature of
such types of bank accounts is that they provide overdraft facilities.
• Savings Account - The savings accounts can be opened by an
individual or jointly by two people to save money. There is no
restriction to the number of times money can be deposited in
savings accounts but a restriction is placed on the number of times
the money can be withdrawn. The rate of interest that an account
holder gets varies from 4% to 6% per annum and is most suitable
for students, homemakers, pensioners and working professionals.
• Fixed Deposit Account – It’s a one-time deposit and one-time
takeaway account. Under this type of account, the account holder
needs to deposit a fixed amount of sum (as per their wish) for a
fixed period. The rate of interest depends upon the amount you
deposit and for the time duration of the FD. However, if the
account holder wishes to withdraw the money prematurely, they
can do so upon the payment of some fee.
• Recurring Deposit Account - Similar to FD, in this, account holder
needs to deposit a fixed amount every month until it reaches the
fixed maturity date. Anyone can open an RD account and the
monthly installments can be as low as Rs. 50 and may vary from
one bank to another. Premature withdrawal of the amount is
permitted, provided a sum of the amount is deducted as a penalty.

But how does one go about opening a bank account?

1. Visit the bank branch or apply online - To open any type of bank
account, you need to visit the bank’s branch or visit the bank’s
website to procure the bank account opening form. This form
requires you to fill in personal details such as your name,
permanent address, date of birth, the names of parents or spouse,
along with your signatures to commit to basic terms and conditions
of the bank.
2. Submit Documents of Proof for KYC - In the case of opening a
new account, customers need to submit mandatory documents
such as an Aadhaar Card or PAN Card and submit two recent
photos of themselves. Other documents of proof will vary from one
bank to another.
3. Wait for Bank to Assess Documents - Banks usually take one to
two days for new account approvals. Once you’ve submitted your
documents, wait for the bank to reach out to you for verification or
 19

clarifications on any errors they might see in your KYC document

submissions.
4. Collect Your Account Details, Debit Card and Internet Banking
Details - Once the bank approves your account-opening documents
by analysing the proofs submitted, a new account opening is
sanctioned and the bank issues your bank account number, along
with a customer ID to enable online banking. A debit card and a
cheque book are also issued. As a mandatory requirement, you are
expected to change your ATM pin by visiting a bank ATM and
setting up a new pin for your debit card.

Well well well, where there is money involved there are thieves that will
smell it and like a sneaky fox try to take it so one must take certain
precautions while using banks and banking in general.

• Keep your pin code, your password, your credit and debit card
number private. Never write them down or share them with
anyone.
• Always use strong passwords and pins.
• Never share any OTP that you receive on your mobile with anyone
while net banking.
• Fraudsters may call and pretend to be the bank and ask your private
information. Never disclose any information in response to such
calls or even mails. Banks will never send you emails or call you
asking you to provide such information.
• And at last, always check your bank statements and keep a look at
all transactions taking place. Contact your bank immediately if you
notice any transaction you didn’t authorise.

Banking is a vast area and the functions provided by them are too many to
count. But we have tried to provide you with the most important
information and the rest is continued in the following chapters.
 20

6
MONEY IN THE BANK?
Now that you are familiar with banking and why it's important, in this
chapter we will introduce you to some means to handle your money without
enduring the hassle of visiting banks all the time. And once you finish this
chapter, you will get to know how to avail those services and enjoy handling
the cashless money!

Sounds fun? It should.

With the entire world going online these days, guess who decided to jump
on the online wagon too!

If you guessed banks, congratulations! You get an entire chapter on it.

Electronic banking has many names like e-banking, virtual banking, online
banking, or internet banking. As the name suggests, it is simply the use of
electronic and telecommunication networks for delivering various banking
products and services.

Most traditional banks offer e-banking services as an additional method of

providing service. Also, some banks are ‘Internet only’ banks without any
physical branch anywhere in the country. How do transactions take place
then?

Fret not! We are at your service.

But first, why E-Banking?

For Banks:
1. Lesser transaction costs
2. Reduced fixed costs
3. No room for human error
For Customers:
1. Convenience
2. Lesser transaction costs
3. No Geographical barriers

So, what are some of the well-known services provided through E-banking
ATMs (Automated Teller Machines)
 21

You might have heard of ATMs before. Your parents (or you) often visit
an ATM centre to cash out money, right?

An ATM is a device that enables users to perform financial transactions,

such as cash withdrawals, deposits, funds transfers, balance inquiries, or
account information inquiries, at any time without the need for direct
interaction with bank staff.

You can get your ATM card simply by filling out an application form at your
bank. A card and a pin will be issued to you and you can use them at any
ATM near you.

RTGS
Now, let's suppose you have to send or transfer money to any of your friends
or relatives, but he/she has an account at a different bank altogether.

So what can be done? Enter R.T.G.S.

Its full form is Real-time gross settlement. (quite a jargon right?) Simply put,
it is an electronic funds transfer system where the transfer of money or
securities takes place from one bank to another bank. It happens on a real-
time basis i.e. without any waiting period (that's why the term Real-Time).
On “gross basis” means on a one-to-one basis without any bundling.

You can use this service through the website of your bank. There is usually
a separate section of RTGS when you log in. You have to fill out details like
bank A/c No., bank name, amount to be transferred, and beneficiary name.
Then, you can easily do the transaction. (Problem Solved!)

NEFT
There is another transaction process similar to that of R.T.G.S.
National Electronic Funds Transfer or simply, N.E.F.T. is an electronic
funds transfer system maintained by the Reserve Bank of India.
NEFT enables users in India to transfer funds between any two NEFT-
enabled bank accounts(sadly). NEFT system settles fund transfers on 48
half-hourly batches occurring between 00.30 am to 00:00 am every day.
Unlike RTGS, fund transfers through the NEFT system do not occur on a
real-time basis. In layman terms, a bit more restrictive than good old
R.T.G.S.

Electronic Clearing Cards

 22

Let's make some space for the companies. How do their massive
transactions take place through the internet? Electronic Clearing Cards will
help curb your curiosity.

It is also an electronic method of fund transfer from one bank account to

another. But, it is generally used for bulk transfers performed by
corporations for making payments like dividends, interest, salary, pension,
etc.

Smart Cards
A smart card is a physical card that has an embedded integrated chip that
acts as a security token. Smart cards are used for a variety of applications
but are most commonly used as credit cards, debit cards, and other payment
cards. Credit and debit cards are fairly easy to use. The user needs to get it
issued like ATM cards from the bank. For any payment, through swipe
machines or online portals, a key called CVV is required to complete the
transaction along with details like the account holder’s name and expiry
terms.

Telephone Banking
The phone in your hand can be used to check the available balance as well
as the transaction history of your account.

The process involves using the feature phone or dial-telephone to perform

a variety of banking functions. This service can be put to use by dialling
USSD codes of respective banks and performing transactions through your
phone. E.g. USSD code for checking the SBI bank account balance is
“*99*41#”.

Mobile Banking
'Internet data' is something close to the heart of today's generation. So, we
always try to save a bit more of it, every time we get a chance. (Not for those
of you who use Wi-Fi facilities, it's a cheat code!) Well, if not everyone, our
banks have come up with something called Mobile Banking.

It is a service provided by a bank or other financial institution that allows its

customers to conduct financial transactions remotely using a mobile device
without the use of an internet facility. (Don't freak out already. Here comes
Internet Banking.)

Internet Banking
As the name suggests (and you may have guessed it already), Internet
banking is a service provided by a bank or other financial institution that
 23

allows its customers to conduct financial transactions remotely using a

mobile device with the use of an internet facility. What's the difference
between Mobile and E-Banking then?

The difference lies in their functionality i.e. many services are only offered
with internet banking and not with mobile banking. (Sadly, no data charge
comes at an implicit charge.)

Digital Wallets
Let us introduce you to another key aspect in making the transactions more
accessible, efficient, and hassle-free. Digital Wallets.
With the booming digitization of the nation (and you being the flag bearer
of this trend), there is no doubt about the fact that services like Paytm and
Google Pay have become an indispensable part of most of our lives.

They eliminate the need to carry physical cash and you no longer need to
spend your Rs. 500 note to pay the chaat wale bhaiya!

Google pay, Paytm all are technically termed digital wallets, also known as
e-wallets, refer to software in an online service that allows users to store
funds, make transactions, and track payment histories by a computer or
through an app using a mobile device.
 24

Digital wallets largely eliminate the need to carry a physical wallet by storing
all of a consumer's payment information securely and compactly.
The biggest advantage of digital wallets is that they do not require a bank
account with a physical firm or branch, often allowing those in unbanked
and underbanked communities, low-income neighbourhoods, or rural
areas, to be served as well, therefore, enabling a wider financial inclusion.

So, wallets are great! Blah blah blah...What about the information one
shares? What if there is a glitch or breach of security?

All these questions may pop up in your mind. So here are some assurances:
• There are multiple layers of security in digital wallet transactions.
Each transaction is protected by the app, retail outlet, credit card
company, and the bank or credit union that issued the card.
• Also, digital wallets rely on proven security measures such as two-
factor authentication and PINs that can only be used once. Wallets
also use encryption technology to scramble the financial and
password information of users.

What to do if your device is lost or stolen?

Not so much to worry about, if you provide your carrier with the IMEI or
MEID number, your carrier will be able to disable your smartphone and
digital payment apps, blocking access to your personal information and
sensitive data.

So, lost but not lost! (Do try to not lose it though)
 25

UPI- Unified Payments Interface

In the pandemic, when social distancing has become the most critical norm,
a unified payments interface (what's that?) is like a godsend. The instant
real- time payment system has turned out to be the best financial innovation
post-independence in India and has begun in the earnest process of
replacing the cash economy altogether. (Great! But again, what is U.P.I.?)

It has allowed India to become one of the fastest-growing digital economies

in the world…"

Wait! What is U.P.I? How did it come into existence?

Sorry to keep you waiting.

But, before delving into U.P.I., let us take a walk down the memory lane.
Back in 2011, an average user would have no more than 6 digital
transactions in a year, even though there were adequate facilities to pay via
cards. India had more than one crore merchants who would accept card
payments.

However, card payments weren’t conventional mainly because of three

reasons. The first is complexity. Not everyone has a credit card, you need a
machine to operate a debit card and if you have to transfer funds digitally,
you need to know the bank name, IFSC code, account number, and much
more. (Cumbersome, right?). The second reason is charges levied.
Merchants have to pay 2% charges to MasterCard and Visa on transactions
(as commission, if you say). Naturally, this is a huge amount for small
shops. The last reason is fraud. It is very common for cards to get stolen or
get duplicated, making it not a very safe option for people.

To solve all these complications, the National Payments Corporation of

India launched its brainchild, the UPI technology in 2016.

Enter U.P.I.

By definition, the unified payments interface or the UPI is an interface via

which you can transfer money or funds between bank accounts across a
single window. Didn't crack a nut?

Let us break it down for you.

 26

This means you can pay an individual, a merchant, or a service provider by

sending or receiving money or scanning a rapid response (QR) code to
shop, pay bills, or authorize payments. Earlier, you had to go to banks for
deposits and withdrawals, now, using UPI apps you can collect money and
deposit it in the bank on your behalf.

Think of UPI as your assistant which goes to the bank for you but a special
one that is free of charge, available throughout the day, and one that has a
network across India. To enable payment using your phone, all you need is
a mobile payment application and the virtual payment address of the payee.
But again, the question arises: Is it safe?

For starters, UPI not only provides safety during transactions but also during
the verification and authentication of other parties, making it one of the
most secure platforms.

Let's see how it does that.

The first and foremost feature of UPI during the initial registration is that of
a mobile verification which binds your UPI account to your mobile number,
making it a point of identification. This will provide a safety net against
identity threats in case of any mishappenings such as phone loss. (Again,
lost but not lost)

On signing up, UPI provides an option to set up a pin called MPIN or

mobile pin which allows you to authenticate every transaction you make.
(You really are you, right?)

Another feature implanted in UPI is that of dual authentication of the

parties involved in the transaction to prevent fraud. The quick response
 27

codes and the signed intent options permit you to check if the merchant is
UPI verified or not.

We hope that by now you are pretty much convinced to use UPI for all your
digital transactions, so let's get on to how to set up a UPI account.
It involves just five easy steps:
1. To enjoy the perks of cashless payments and speedy money
transfers through UPI, you need two things: your smartphone and
a UPI member bank account. (Check which banks are U.P.I.
members)
2. Download any UPI-supported app such as Google Pay, Phone Pe,
Paytm, BHIM, etc.
3. While signing into the app, you will be asked to make a unique
virtual ID, which will be your identity to make and receive all the
UPI payments.
4. Once created, your bank will send a one-time password or an OTP
to your mobile number to confirm that it is indeed your bank.
5. Once the verification is through, you will be asked to set up your
Virtual Payment Address, which is a unique ID similar to an email
address linked to your mobile number and bank account.

Easy, right? Now make your first digital transaction. And as a bonus, most
of the apps provide you with a small sum if you convince others to use their
app.

How do they recognise it? They provide you with a link to share. If your
friend or anyone you know downloads the app through your link and makes
their first payment (now you being a referee) a certain sum gets deposited
to your account (maybe small, but still is)

So, why wait?

KYC - Know Your Customer

Let's suppose, someone comes to you and asks you to lend him or her some
money. Would you lend it right away?

No, right? Before handing over the money you would like to know a bit
about him/her and then you will decide whether to lend or not.

Now, in the above para, replace yourself with the bank and the borrower
with yourself. The bank would also like to have some information of yours
before letting you use its services. This information is provided by you
 28

through a form, and that form is what is simply called a K.Y.C. (there is
much more to it though)

KYC stands for Know Your Customer. For a bank getting to know you is
not just a good banking practice, it is also a legitimate and regulatory
condition. It is a policy that has been introduced globally and is now a
standard banking practice.
Why is KYC a must for you? The more your bank gets to know you, the
more you can be sure of your finances being safe and that you would get
even better services from your bank.

KYC serves an important purpose to understand the customer’s activities,

qualify that the source of funds is legitimate, and prevent identity theft,
financial fraud, money laundering, and funding for terrorism. On a more
personal level, it lets the banks know customers like you better which allows
them to manage any money laundering risks on your behalf and provide
better and more efficient services. Banks are legally required to follow the
KYC policy laid down by the Reserve Bank of India. Its elements include
everything from identifying a customer to monitoring transactions and risks.
Even the definition of the customer is laid down in the policy. KYC controls
and manages what the banks do for and how they interact with their
customers.

However, in what context do they, the regulator, and the banks imply
‘know’? What does all this mean to you? The bank needs to verify your
customer identity through reliable information and documents, so when you
open an account the bank will ask you for the documents required, such as
Aadhar card, Voter ID, driving license, or passport, under the law to
complete its KYC procedures. The documents will be credible proof of
your name and permanent address. Your bank will give you the options that
 29

you can provide for each. You will need to show the originals for verification
and submit self-attested copies for bank records. A recent coloured
passport-size photo will also be required. KYC information will also need
to be uploaded periodically. Your bank will inform you when that is
required.

Besides opening an account, there will be other times when you will need
to provide documentation for KYC, ranging from applying for a loan or
credit card to investing in mutual funds and even applying for a credit card.
Every bank has its list of instances when KYC is applicable. KYC is a must
both for your financial safety and for the bank if the customer doesn’t
cooperate or provides the information required, the bank has the right to
close your account or end the banking relationship after providing due
notice and explaining its reasons for the decision. Quite rigorous right? But
remember, it's important for the customer's as well as the bank's welfare.

Let's move on to the next important question. How to get your KYC done?

KYC can be done in three different ways:

1. Online –
• Visit the website of any KYC Registration Agency or fund
house of your choice such as NSE, NDML, CAMS, Karvy,
CVL.
• Enter the details they ask for as mentioned in your Aadhaar
Card.
• Verify using the One Time Password or OTP sent to the
mobile number registered and synced with Aadhaar Card.
• Submit your application.
• Once verified by UIDAI, you can check the status of your KYC
request by visiting the portal of KRA using your PAN.

2. Online through Aadhaar-based biometric - KYC can also be done

through Aadhaar-based Biometric authentication. If your KYC is
done online, you are allowed to invest only up to Rs. 50,000 p.a.
However, if you get your KYC done through this method, the bar
of Rs. 50,000 is removed and there remains no maximum limit of
investment.

3. Offline - You can also get your KYC done offline by visiting any
AMC14 or KRA15 office of your choice or even any independent
 30

financial advisor. Take the KYC application form along with the
hard copies of all relevant documents.

So, we have finally reached the end of this chapter. We know, it's a lot to
digest at one time. But fret not! Once you get to do these things in
practicality, it will become crystal clear. After all, there are services to
facilitate these practices which are advantageous to the common folks like
you and us at so many levels. So don't wait. Scribble through the internet
for these services and get a hold of it. Start asking your elders or anyone to
get hands-on experience and it will become just as easy as drinking water.
Even for that, you have to move your muscles considerably, here, just a click
will be enough.

Again, we always expect you to disseminate the knowledge you received

among those who are underprivileged or are unaware of these services, who
knows, one day you might be the reason for the positive change in their
lives!
 31

7
NOT ALL PLASTIC IS BAD
‘Nothing comes for free, if you are using it for free then you are the product’
(The Social Dilemma, 2020)

Plastic cash, as a facilitator in regulating money in recent times, has emerged

as one of the best alternatives to a more secure transfer of payments and
receipts in the economy.

Debit and credit cards, collectively known as plastic cash, have

revolutionised the concept and perception of money. The world progressed
from barter to paper notes and then to plastic money. When debit and
credit cards were newly introduced, possessing one was royalty. Carrying
one of our parents’ cards in our wallets would be enough to leave an elegant
impression on our mates. Although, in today's world, it has become
ordinary to hold a debit or a credit card.

Many of us have struggled to truly understand the difference between the

two similar-looking, similar-sounding cards. Let us have a look at some of
the major differences between the two:

• Definition - Debit cards, when used, deduct money straight from

the individual's savings or current account. Whereas, credit cards
extend you access to money you otherwise do not have (similar to
a very short-term loan).
• Spending room - Debit cards allow you to spend whatever you have
in your bank account. At the same time credit cards give you the
ability to spend more than what you have up to one’s credit limit.
• Who pays for the purchase - Debit cardholder pays directly for any
purchases made by him. In the case of credit cards, credit card
companies pay the vendor for your purchase and then you pay the
credit card company.
• Payment - In debit cards, no payment needs to be made since you
are using your own money although if you are using a credit card, a
 32

bill needs to be paid each month since the money is being

borrowed.

The various elements that together constitute debit cards and credit cards
are the important factors that are considered significant to analyse their
diverse roles. They can be summarised under the following heads:

• Bank Branding - The card contains the name or logo of the bank
with which the card is associated.
• Card number - This constitutes one of the most important part of
the card as it is required with all online purchases. It helps the
merchant recognize the bank your card is linked with and it goes
without saying, keep this safe and do not share it with anyone.
• Cardholder's name - This one is pretty self-explanatory, this is the
person authorized to use the card.
• Smart Chips - There are tiny metal processors in front of the card
but their impact might not be so tiny. Payments through the chip
(inserting instead of swiping) make it many times harder for thieves
to use stolen credit cards than using the traditional magnetic stripe.
• Expiration date - This shows the date beyond which the card
becomes expired or unusable.
• Payment network logo - This shows the type of card you have.
Merchants often display stickers or placards telling you which cards
they accept. Common examples include Visa and Mastercard.
• Magnetic Stripe - The black stripe on your credit card contains
information about you and your card. Devices known as card
readers are used to gather this information every time you swipe
your card at a merchant to provide payment information.
 33

• Security Codes - This code ensures that the card user is legitimate
and original, basically providing an extra layer of security in online
payments. Security codes might be referred to as CVV, CVV2,
CVC, CSC, or other similar names.
• Signature Panel, Hologram, Bank Contact Information -All these
are standards of authentication and safety that help prevent frauds
and unauthorised payments.

The issue of credit cards has been the primary shortcoming that leads to
less users and access among the low income earning groups. So the most
important question about plastic jumps up on the scene. The question of
how credit cards can be issued to a user along with proper knowledge about
its functions requires an in-depth analysis.

Debit cards are very easy to get issued, all one needs to do is go to a bank
and open an account with necessary documents. The bank will provide you
with an option to hold a debit card for ATM withdrawals.

Credit cards, on the other hand, are a little harder to get as to get one with
good features and benefits along with a good credit limit, you would need
to maintain a good credit score and an airtight credit history (don’t worry,
we’ll cover ‘credit score’ ahead). However, the process remains the same,
apply for the credit card you want, submit the necessary documents, and
wait for the bank to contact you.

The different categories associated with credit cards must be carefully

studied in order to understand the functions they perform. There are credit
cards for various intents and purposes, let's have a look at some of the major
ones:

• Rewards Credit Cards - This works based on “The more you

spend, the more you earn”. So basically if one spends large
amounts from one’s credit card, they get points or cashback as a
percentage of that spending.
• Travel Credit Cards - As the name suggests, these credit cards give
you benefits that accrue specifically to travel. Some credit cards give
you points within a specific program, such as a frequent flyer
program or hotel loyalty program.
• Balance transfer credit cards - Suppose you went on a shopping
spree or decided to do retail therapy, and managed to mount huge
high-interest credit card debt. Now the balance transfer credit card
can help you pay off the previous debts and give you a nice break
from paying interests.
 34

• Business Credit Cards - These cards combine the benefits of

different credit cards that are related to business spending.
• Student Credit Cards - They are meant for children who possess a
limited credit history, here application requirements are not that
strict, so it's easier to get approved. If used responsibly, it can help
young people build good financial habits and great credit scores.
• Secured Credit Cards - A credit card is usually unsecured, so no
collateral is required. However, with secured credit cards, you need
to put down a cash deposit to secure a small line of credit. In
addition to being the easiest type of credit card to be approved for,
secured credit cards are also useful when you need to repair your
credit after a financial struggle or when building credit from scratch.

The advantages and disadvantages that come along with the use of credit
cards are discussed in the next section. The assets that they create must be
complementarity studied with the associated liabilities. So, the advantages
and disadvantages of using credit cards are:

As propounded by Sam Eving, “As a child, a library card takes you to exotic,
faraway places. When you’re grown up, a credit card does it. “The
advantages of the credit card are thus summarised as:

• Credit score - As discussed above, credit score depends largely on

your credit history. Credit cards can be instrumental in helping you
build a credit score to receive loans at good interest rates.
• Less risky - When you use credit cards the bank is paying for you.
So, in case of a fraud, it would not directly affect your savings, which
could be the case if the same were to happen using a debit card.
• Rewards - Banks and credit card companies offer various offers,
cashback, discounts, and reward points that can be redeemed on
future transactions.
• Useful in case of a financial emergency - Wouldn’t we all like to
have a backup in case of emergencies? Even though the money isn’t
ours, credit cards can work like that for us.

On the other hand, it has the following disadvantages:

 35

• Debt Trap - Using a credit card simply means taking a quick loan
from the bank and you have to repay this amount within the billing
cycle which is usually of 25-31 days and you are charged no interest.
Sounds appealing right? But here is the truth, if you miss out on the
repayment within the billing cycle then the interest is charged from
the day you made the transaction using the card. This interest rate
is around 24% to 40% per annum!

• Minimum Amount Due (MAD) - Credit card companies trick us

with MAD because if you don’t keep this in mind, they are going
to start charging interest and the kind of interest they charge is
enough to burn a hole in your pocket.
• Hidden Charges - Credit cards usually come with an annual
maintenance fee and other small charges which silently take a bite
of your money. Even though these fees can be predicted, they are
put in the fine print.
• Cash Withdrawal - Credit cards levy a fee whenever you withdraw
cash using it. So it is better to use a debit card for cash withdrawal
instead of a credit card.

Another interesting thing is that whenever you use a card there are high
chances that you might spend your money recklessly whereas when you use
cash for transactions it puts psychological pressure on you, which makes you
realise that your savings are depleting and hence you spend rationally.

Let’s understand the usual functioning of a credit card by exemplifying its

use in a hypothetical situation. When paying more attention to the example,
the basics of the credit card functions could be understood in a gist.
 36

The credit score is a three-digit numeric summary of an applicant’s credit

history which determines the credit-worthiness of an individual. It ranges
from 300-900 with 900 being the best score. The better the score, the higher
are your chances of getting a loan at a good rate of interest. And, if the score
is not good enough it can become a serious impediment16 for receiving a
loan, and even if you do get a loan sanctioned, it will be for very high rates
of interest. A good credit score is anywhere above 750.

The above example could not explain as to what really are the possible
reasons that determine the credit score of a credit card. This very question
could be answered through the following explanation.

There are four credit information companies licensed by the Reserve Bank
of India: CIBIL (Credit Information Bureau India Limited), Equifax,
Equarian, and Highmark. The most popular credit score in India is the
CIBIL score. These companies collect information from banks and
financial institutions to create a Credit Information Report. This
information is then used by the lenders during the loan approval process.

Improvement in credit score requires a planned and executive course of

action. The following methods would help amplify one’s credit score:

• Credit Discipline and Timely Payment - Any outstanding payments

should be paid off inside the prescribed time limit. Suppose you
have taken a loan, so don’t miss out on EMI’s17.
• Maintain Credit Cards - If you possess old credit cards, try to
continue them as long as you can. This will help you develop a
lengthy and healthy credit history.
• Utilisation of Credit - The credit utilisation ratio plays a significant
role in determining your credit score. The farther you are from
reaching your credit limit, the better your credit score.
• Keep looking at your Credit Report - Check your credit report
regularly because they are prone to errors. If you find anything
inconsistent, rectify that immediately.
• Debt Consolidation - Suppose you have taken loans from a bunch
of banks, use this to your advantage by using the credit union18
feature. This consolidates all your debts into one single loan, now
pay off this loan and get extra points on your CIBIL.

The chapter thus summarises the very basics of plastic cash, its functions
and its importance in recent times. The various categories of a credit card,
the associated benefits and challenges that it brings are necessary from an
 37

economic point of view to an ordinary citizen. Also, the various methods to

ameliorate the credit score has been discussed in the chapter. If the plastic
cash is used responsibly, you're actually much better off paying with a credit
card than with a debit card keeping cash transactions to a minimum, with
reward points and cash backs. The boon or bane of credit cards is therefore,
a responsible choice on the end of the user. DON’T DISCARD THIS
PLASTIC, USE IT, REUSE IT AND SAVE THE DEBT.
 38

8
INVESTOPEDIA

The world of investing puts you through many experiences. Investment is

basically putting the money to use rather than letting it rot over time. Don’t
worry we won’t tell you to start investing in shares and IPOs of a company,
we will rather start by explaining what they are.

Investment avenues are the different ways or modes through which people
can put their money in action to get more money in return (or lose some if
you aren’t careful).

Broadly speaking, there are two types of investment avenues - physical

investments and financial investments. As the word suggests, the former has
some physical existence and the latter has no physical existence and might
just be on pen and paper.

Shares
Shares are the small denominations that represent the ownership of a
company. A company needs funds for its operations. To do so, it might go
to an investor or just ask the general public. The only difference is that the
amount of money an investor will put in is a lot more than a commoner will.
Being an investor or a shareholder means that you hold a percentage of
ownership of that company. However, owning a company doesn’t always
result in profits, if the company is at loss, you will have to bear them as well.

Debentures
A debenture is a certificate of loan advanced to a company. A company
might decide to borrow money rather than give away its ownership. In such
cases, it can go to the bank to borrow funds or again, to the general public.
This time the debenture holders do not have any part in the losses or profits
of the company, they simply extend money to the company in return for the
fixed amount of interest. Debentures are a comparatively safer investment
than shares as it has a fixed interest that the holder will receive irrespective
of the financial condition of the company. Also in case the company runs
out of money and declares bankruptcy, the debenture holders are paid
before the shareholders. However, a drawback is that the returns they
receive are quite less than the returns on shares when the company is in
profit.
 39

Bonds
Bonds also represent a loan to a company, financial institutions19 or even the
government. They are similar to debentures. The main difference between
them is that bonds are secured by some kind of collateral (secured by some
kind of asset) and debentures can be both unsecured or secured. Also, they
are paid off before debentures in case the company goes bankrupt.
However, as they are comparatively safer, the rate of interest given on bonds
is less than that on debentures.

Shares, debentures, bonds, can be classified into types. Shares, for example,
are of two types: preference shares and equity shares. Debentures can be
classified as secured, unsecured, redeemable, non-redeemable, convertible,
non-convertible, bearer and registered. Similarly, even bonds have certain
types but let's not get into their details, we don’t want to scare you off.

Commodities
The easiest way to describe a commodity is that it is a good which is
exchangeable for another good. The most common types of commodities
that people invest in are gold and silver. These commodities are an asset as
they have fascinated human society since the beginning. Due to low supply
and high demand as they are considered a status symbol gold has a very high
value in our society. Gold was and is still accepted as a form of payment. In
fact, the US monetary system was also based on gold till 1970.

One can invest in gold and silver either by investing in gold bullions or by
buying shares of gold mining companies. Investing in these commodities
also has risks like government actions and their rules so one needs to do
intensive research before investing in it.

Mutual Funds
Imagine that you have an investment objective, so does another person and
the person next to him. What to do about it? Where to invest to achieve
this goal? You have no skill to invest but some people do, so you give them
the money to do what they are best at and they take a certain percentage of
the profit you make but you take the entire risk if a loss occurs. This is
mutual funds, it is basically a trust that asks people who have a common
investment goal to give them money and then this is handled by a
professional fund manager. This fund manager then invests the money of
the fund into equities, bonds, stock market and so on.
 40

Whatever profit is made on the investment for the particular time is

distributed proportionately (with respect to their principal amount of
investment) among the investors after deducting expenses. This is done by
calculating the schemes NAV or net asset value. Investing in mutual funds
is affected by the fluctuations in the markets invested and can be very risky
as well. One needs to read and comprehend all the scheme related
documents very carefully before investing, which is why the advertisements

never fail to mention it.

Public Provident Fund

PPF is ideal for people who want to invest in something that is not risky at
all as it is backed by the Indian government and offers guaranteed returns.
One can invest a minimum of Rs. 500 to a maximum of Rs. 1.5 LPA in
either a lump sum or in 12 installments. Any Indian citizen is eligible for
this but only one account can be opened under one name.

The minimum tenure, however, for a PPF is 15 years which means you can’t
get your money back before this. You can have partial withdrawals after
completing 6 years in the scheme. However, it can be extended for blocks
of 5 years as per the investors wish. The current rate of return is set at 7.1%
per annum. There is also a tax benefit attached to this scheme that all
deposits made in this are deductible under section 80C of Income Tax Act.
It is one of the safest ways of investment and you can get amazing returns
on your initial principal amount.

Systematic Investment Plan

Do you know what investing regularly in stocks is known as? It is called SIP.
The best example of disciplined investing is the SIP or Systematic
Investment Plan.
 41

Assume a situation in which you are asked to decide a date every month
when you will invest money in a stock/mutual funds/small case consistently
despite its price on the date.

The most fundamental question that arises is how does investing every
month result in compounding?

There is a popular saying, “drop by drop fills the ocean”. The same
principle is applied in SIP. It allows you to invest a fixed amount, that can
be as small as Rs. 500, in a mutual fund at regular intervals. It can be weekly,
monthly, quarterly or annually and over a period of time. In the end,
creating a great amount of wealth.

3 Benefits of SIPs:

1. Power of compounding - Did you know that Warren Buffet started

investing at the age of 14? But, his money started growing
exponentially when he was 50. The power of compounding is
referred to as the “eighth wonder of the world”.Under this, you not
only get returns on the money that you invest but also on the gains.
And this way you can create great wealth over a period of time.

“Someone is sitting in the shade of a tree today because someone

planted a tree a long time ago.”

2. Disciplined Investing - SIP compels you to follow a disciplined

investment regime. If a person is aware of what his/her expenses
are, he/she will make a habit of spending within the budget. If a
person fashions financial activities around the “first save and then
spend” concept, he/she will never face any financial hardship
because of the disciplined investment approach.

“We don’t have to be smarter than the rest. We have to be more

disciplined than the rest.”

3. Rupee cost averaging - Systematic Investing Plan makes your cost

average out. The markets move in a cycle. Sometimes it is bullish,
then it turns bearish and then, bullish and then bearish again. This
is how the cycle moves. So if a person is investing a fixed amount
in a SIP regularly, in the time when the markets are bearish, that
person will be allotted more units for his/her investments and vice
versa. This way the cost gets averaged out.
 42

Post Office Savings

Another investment avenue is post office savings. Post office started way
back during the British era in October 1854. It is one of the oldest
organisations in India. Initially, it only focused on delivering posts. Later, it
started providing an array of other financial services such as insurance,
investments, banking etc. The post office savings account is a deposit
scheme that is provided by the post office throughout India. The account
provides a fixed rate of interest on the account balance.

Advantages of investing in Post Office Schemes:

• Easily accessible
• Customised products to suit investment needs
• Long term benefits
• Risk-free and competent interest rates
• Simple Investment Process
The money deposited in a post office savings account can be withdrawn as
per the needs of the depositor at any time. A minimum balance of Rs. 50
should be maintained for a generic account and Rs. 500 should be
maintained for a cheque facility.

Real Estate
Real Estate has always been that sector that witnessed greater investment
possibilities. Many avenues within the real estate sector offer investment
options at a reasonable price and promise escalated returns. Securities and
Exchange Board of India (SEBI) has introduced REMFs Real Estate
Mutual Funds as close-ended units. They are also known as REITs: Real

Estate Investment Trusts. If they are introduced in India, it will provide

access to stable and competitively priced capital. They make it convenient
for the public to invest in the realty sector i.e. the real estate sector.Realty
 43

funds in India can include the ones which are devoted to investment in
malls, property development etc. Prominent companies promoting these
funds in India are DHFL Venture Capital Fund, HDFC Property Fund,
Kotak Mahindra Realty Fund and ICICI’s real estate fund.

Basics of Cryptocurrency
Here is a small story for you. Meet William and Lucas!

One day they decided to go on a trip to India. They made a budget list for
all their expenses like residence fees, flight charges etc. They thought of
making their bookings online from a site that offered discounts to the first
ten visitors on that site. While making their respective flight bookings, Lucas
misses the offer as his transaction failed and William became one of the
lucky draw winners. Lucas was surprised and asked how he could make the
transaction. William responded: “I used Bitcoin, a type of cryptocurrency”.

Lucas was confused and asked what cryptocurrency is and since when had
it been in use. William explained, Cryptocurrency is a virtual or digital
currency that works on blockchain technology and is designed to work as
an online medium of exchange to buy goods and services and make
payments which was introduced to the world in 2013 by Satoshi Nakamoto
(the name is most likely an alias).

Lucas felt that it is similar to other online payment options. He asked what
makes it different. William explained, Cryptocurrency is decentralised and
is free from any third party appearance which means it is not issued or
controlled by any government or central authority, unlike other payment
systems. That’s why a cryptocurrency transaction never fails.

The reasons that Lucas’s transaction failed may be because he exceeded his
transaction limit or maybe there were technical issues with the bank server.
The same could also have happened due to high transaction costs imposed
by the bank or the account being hacked. On the other hand,
cryptocurrency charges no or almost very low transaction cost.

There is no limit to making transactions. You have 24/7 access to your

money. There is no delay of extra charges for international transactions.
Anybody can use cryptocurrency without paperwork. All you need to do is
create an account on any digital wallet of cryptocurrency.

This is what makes it different from other payment options.

 44

Lucas was impressed but wondered how it works without an external

authority. Upon research, he found that cryptocurrency works on
blockchain technology. Blockchain is a set of blocks that record
information of transactions like who made the transaction to whom and the
amount of trade in the form of a digital ledger.

Now Lucas was completely aware of the technical concept behind

cryptocurrency and was influenced by William who adopted cryptocurrency
in his daily lifestyle too. He did that by booking a ticket. Like Lucas,
cryptocurrency is fascinating many others and is garnering enormous
popularity worldwide. Due to this, new companies like Meitu and PayPal is
investing in cryptocurrencies every day.

In 2018, Malta, an island located in the Mediterranean Sea, was titled - block
chain island-as it led to the economic stability of a nation. Many fintech
companies like Binance and Okex have already begun to take advantage of
Malta's financial incentives and moved their headquarters to the blockchain
island.

We hope that now you won’t feel lost when your father or your friends are
talking about some investments. Nonetheless, you have cleared a big step
towards becoming financially literate by learning about investment avenues.
Now, there is one task for you, you need to tell one of your friends about
one investment avenue.

Since now you know where you can invest your money, you can explore
what are the various modes of earning money in the first place. A good place
to start could be learning about loans and mortgages. You’ll find all you
need in the next chapter.
 45

9
BAGGAGE, BURDENS & THE KEY TO
FIGHT: LOANS!

Loans! Many people see this word in a negative light. For them it is a sign
of weakness. This couldn’t be further from the truth.

In this chapter, we are going to introduce you to three of the most important
tools to handle and manage your financial burdens. A correct knowledge of
these will help you get a better way with your life in terms of asset
management through mortgage systems and most importantly availing the
best quality of education even with the fees getting shockingly high these
days. Moreover, you need not worry about your expenses in your old age if
you have a residential property in your name. Doesn’t that sound relieving!

The three tools are: Mortgages, Reverse Mortgages and Student /Education
Loan.

Mortgages
A mortgage is a term related to home loans. If a person wishes to buy a
home, he would approach a bank or any lender for a loan. This loan
would be repaid in a series of instalments along with interest. However,
the homeowner would have to hand over the property documents to the
lender as a security against the unpaid amounts of the loan. This is termed
as “mortgage”.

The mortgage is resolved when all the money due to the lender is paid off.
To avail a mortgage, the borrower must go through the required screening
process such as minimum credit scores (repayment ability) and income
levels. Mortgages are an efficient solution to those who want to buy homes
or properties but do not have the whole amount upfront. Once the
borrowers repay the amount outstanding, they get to own the property free
and clear.
 46

What would a borrower do if he/she wishes to buy a home through

mortgage?

1. Once the borrower applies for a mortgage, the lender will check for
evidence of repayment capability and credit score. This will involve
checking proof of present employment, recent tax returns and bank
statements.
2. If the application is approved, the lender will offer a loan of a
certain amount at a particular interest rate. This is called pre-
approval. The borrower can then finalize on the property they wish
to acquire.
3. Once the deal is finalized, the borrower makes the down-payment
to the lender and the transfer of ownership of property takes place.

The family (types) of mortgages:

1. Fixed Rate Mortgages: Rate of interest stays the same for the
whole duration of repayment of loan.
2. Adjustable Rate Mortgages: Here the interest rate is fixed for a
period of time after which it will vary depending on the prevailing
interest rates. However, there are limits on the increase/decrease
in interest rates during the variable period.
Reverse Mortgage
Reverse mortgage, as the name suggests, is the reverse or the opposite of
the process involved in a mortgage which we learnt about in the previous
section.

In simple words, a reverse mortgage is a special kind of loan that allows

homeowners of the age of 60 or above to convert a portion of their home
equity into cash. It means that the borrower enters into an agreement with
the bank wherein the bank pays a monthly amount and over a specified
period of time (10-15 years generally), the ownership of the residential
 47

property gets transferred to the bank (whereas traditionally while taking a

loan, a person pays monthly EMIs to get the ownership of their property
back).

This kind of mortgage does not require monthly payments unlike the
traditional mortgages. It helps the elderly people to defer the payments till
they die, move out of their house or sell it away. It acts as a support system
to elderly people wherein they can use the assets registered in their names
to get a fixed monthly income and they no longer need to be dependent on
their children for their expenses.

Now, it is not essential that the payment in such a case will be on a monthly
basis necessarily. It can be monthly, quarterly, half-yearly, annually or even
in lump sum. From these options, a lump sum is generally paid in case of a
medical use for the person themselves, their spouse or anyone else
dependent on the borrower. Also, it is important to note that the maximum
amount that a person can avail in a lump sum is 50% of the loan amount
sanctioned.

Now that we have discussed the availability of this kind of loan, some of you
might wonder how the bank recovers this amount from the borrower who
does not even have any source of income.

To answer this, we’d say that in most cases, what happens is that the tenure
ends and on the non-payment of this loan, the residential property is sold
off in the market.

Now the market price of that property can be either higher or lower than
the total amount the bank needs to recover (principal + interest).
 48

In case, the value of the residential property appreciates, the additional

income from the sale i.e. (selling price of house - recovery amount) is
returned to the person. In case of depreciation20 of property, the bank does
not usually recover the exceeding amount.

In case the borrower dies, the legal heirs are required to pay the total
amount to get the title in their name and if they are not interested to get back
the property, it is sold off in the market and after recovering the amount
payable to the bank, the bank gives away the remaining sum to the legal
heirs.

Fit candidates for reverse mortgages

The eligibility criteria for a person to avail a reverse mortgage is the
following:

• The person must be 60 years of age or above and in case of joint

borrowers, the age of the spouse must be at least 55 years.
• The residential property should be self-occupied and not the one
given away on lease.
• The property must have a clear title. In other words, there should
not be any pending/ongoing legal battle regarding the ownership of
the property.
• The residual life of the property should be minimum 20 years
meaning that the property should not be very old.

Once all these conditions are met, a person becomes entitled to receive a
reverse mortgage.

Traits of reverse mortgages

Some important features of reverse mortgage are as follows:

• The tenure for which a person will be paid money is usually 10 to

15 years while some banks do extend this period up to 20 years but
that depends on the person's age. For example, a person aged 80
years has less chances of getting a loan for 20 years.
• Maximum loan amount that can be sanctioned is 60% of the current
market value of the property.
• The interest rate is usually 1-2% higher than the home loan rate.
• The maximum monthly payment that can be made is capped at Rs.
50,000.
• As discussed above, the disbursements can be made on a
monthly/quarterly/half-yearly/ annually basis or even as a lump
 49

sum. A lump sum is usually allocated in case of a medical

emergency and the maximum amount in that case is 50% of the
total loan amount sanctioned and is capped at Rs. 50 lakhs.
• The property is re-evaluated at an interval of 5 years and the loan
amount can be increased or decreased depending on the same.

Foreclosure
Foreclosure is the action of taking possession of a mortgaged property
when the mortgagor fails to keep up their mortgage payments.

In case of a reverse mortgage, a foreclosure takes place in following cases:

• Borrower did not pay the property taxes.

• Borrower is not staying in the house for more than 1 year.
• The property has been donated or abandoned by the borrower.
• Borrowed declared himself bankrupt.
• If there are additional encumbrances on the property. For example
loans, lease etc.

Student Loans

With the skyrocketing cost of education in the higher strata, the parents
and students (mostly of the middle and lower income families) are finding
it hard to manage the finances required to make up for the exorbitant fees.
Oftentimes it is the case that they get drenched in the financial burden
with perilous repercussions ahead.

The education loan provided by the banks might just prove to be their
getaway key. So here are some titbits regarding it:

• The Loan - The Education loan typically covers all the facets of
pursuing higher education (fees + other additional costs). During
 50

the tenure of the course, the bank charges a simple and feasible
interest rate on the loan amount.
• Eligibility & Documents required - Any student with credible
educational background, wishing to pursue higher education in
India or overseas has the rights to avail the loan. Notably, students
can also avail the loan with their parent, sibling or spouse as a co-
applicant. The documents include the class X, XII and graduation
(if applicable) mark sheets, income slip/certificate (parent's if
student is not working), Income tax returns (if applicable), identity
proofs, the K.Y.C. (Know your Customer Document) and of
course, the acceptance/admission letter from the concerned
educational institution.
• Collateral - The Bank may ask for a collateral (something that acts
as a security for repayment of a loan) depending on the loan
amount. To be precise, it is necessary for loans above Rs. 7.5 lakhs.
Interest rates on loans backed by collateral (secured loan) are lower
than its counterpart (unsecured loan). The Collateral can be
provided to the bank in terms of properties like houses, lands
owned or assets like insurance policies in favour of the bank.
• Margin Money - It accounts for a certain portion of the cost of
education that is to be paid by the borrower itself. The rest is
covered up in totality by the loan. This margin money differs from
bank to bank, depending on the loan amount, concerned
educational institution etc. So it is a must for the borrower to check
the terms and conditions thoroughly before signing the loan papers.
• Concessions - Section 80E of the IT Act allows for deduction in the
interest rate on the loan. This deduction is only allowable for those
individuals who are paying interest rate on the loan for themselves,
spouse or children or for the children to whom they're a legal
guardian. Also, female applicants can avail concessional rate of
interest if asked for.
• Repayment - Last and most importantly, the loan is to be repaid by
the student. Typically, the repayment period begins a year after
completion of the course or six months after getting a job,
depending on whichever is earlier.

So, why wait?

Visit your bank, go through the terms and conditions thoroughly and avail
the facilities that are strictly made for you. Work hard and later on, repay
them once you are financially stable. Learn, earn and yearn!
 51

Also, other than the loans, one can also opt for the scholarships (amount
varies) provided by various organization's (Government as well as certain
NGOs) for higher education overseas. For example - The Commonwealth
Scholarship, The Narotam Sekhsaria Foundation scholarship etc.

We know you still have a few doubts, so here are some tasks for your self-
exploration:

• Interest rates - Check out the interest rate on education loans

provided by various banks across India, compare and find out the
most suited option for you.
• Terms of concession - Take a look at the concession terms on
interest rates on the loan. Make a list of all the eligibility criteria to
avail the same.
• Govt. Schemes: Take a good look at various government schemes
that help the students earn scholarships and loans to pursue higher
studies. Example - The Student Credit Card scheme launched by
the Govt. of West Bengal.
• Beware of frauds - Always ask for information in accredited,
certified and legal websites or officials in these regards. We highly
encourage you to reach out to the personnel in charge of these loans
to get a more exhaustive and insightful idea of how this whole
mechanism works.

Certainly, this small exercise will be beneficial for both you and the society
in general as you'll bring forth and disseminate the knowledge and
awareness with you!
 52

10
EVERYBODY’S DOING IT. IT’S
CALLED INSURANCE

“Jeevan ke saath bhi, Jeevan ke baad bhi”. We are sure most of you would
have guessed this famous ad campaign. This famous LIC campaign was one
that stuck in our minds for many years. Life is full of uncertainties. There
are risks involved with almost everything you do. Risks related to death, loss
due to a fire, burglary or your favourite stock may be running at a loss.
Irrespective, insurance is the one thing which comes as a saviour in disguise
to help you survive life-changing ordeals.

An insurance is a contract or agreement under which one party agrees in

return for a consideration to pay an agreed amount of money to another
party to make a loss, damage or injury to something of value in which the
insured has a pecuniary interest as a result of some uncertain event. This
agreement is known as a policy.

When we think of insurance policies, we tend to focus on the broad strokes

of coverage and leave in-depth knowledge of paperwork to policymakers.
However, it is important to recognise that each component of one's
insurance policy should be understood-

• Protection from probable chances of loss

• The possibility of loss due to risk is shared by all the persons
exposed to it.
• It helps in generation of income as the money pooled in these
schemes can be used in income generating activities.

It is important to understand how insurance works before selecting

coverage. The three most important components of insurance policies are:

Premium
In simple words, a premium is nothing but the amount one has to pay to
buy a particular insurance policy. This premium is mostly charged on a
monthly basis. Default in paying a premium can lead to the revocation of
the particular policy. The premium is calculated by the insurer based on
 53

your nature of work, your records in different matters, your property, your
education etc. which is proof of one's creditworthiness.

For example, if you do not own many vehicles and do not have a history of
reckless driving, you will likely pay less for auto insurance than someone
who owns multiple vehicles and has a history of reckless driving. For similar
policies, however, various insurers may charge varying prices. As a result,
doing some research before buying insurance can give the best necessary
pricing.

There are some factors that influence the nature and worth of premium
which one must keep in mind while buying insurance or premium:

• Kind of insurance you’re buying

• The amount of insurance you'll need
• Policy limits you select
• Account balance
• Additional coverage you purchase, also known as policy
• Your insurance history
• What kind of occupation you're involved in
• Your income
• Your savings and the total property you own (type and value)

Policy Limit
Once the insured party suffers a loss, a policy limit is the maximum
amount of money an insurer will pay out to an insurance policyholder.
The amount insured and the type of policy you have determines the policy
limits. The amount of insurance you purchase is usually called your Policy
Limit or Limit of Coverage. Your policy may include a variety of limits, so
we'll take a look at the main ones:
 54

• Liability Insurance - If you are found legally responsible for harm

to someone else or their property, you will have to pay for the
damages you caused. Liability insurance can help with that. In an
auto policy, the portion that pays for harm to another person is
called Bodily Injury. You will likely see a set of two numbers for
that coverage limit - something like 250/500. The first number is
the amount that the insurance company will pay per person in an
accident and the second number is the total amount that the
company will pay for an accident, regardless of how many people
are involved. The numbers are in thousands, so if your policy shows
250/500, it means Rs. 2,50,000 per person and Rs. 500,000 total.

A separate coverage applies if you cause damage to someone else's

vehicle or property. Suppose you have an accident and your vehicle
damages not only the other party's vehicle but a fence alongside the
road. Coverage for this is referred to as Property Damage. You'll
see a different limit for that on your policy. It's usually one number,
and it is the total your insurance company will pay for all property
damaged as the result of any one accident. Sometimes, insurance
companies will put all three of these numbers together.

If you see 250/500/100, it means your limits are rupees 250,000 per
person for bodily injury, 500,000 total per accident for bodily
injury, and rupees 100,000 total for property damage per accident.

• Collision Coverage - Collision coverage covers the vehicle against

accidental collisions. The reimbursement is faster for collision
coverage. So, rather than a predetermined limit, a loss to your
vehicle is settled based on its current value.

• Deductible - It is a figure that represents an annual threshold and is

unique to each plan. Let's say your deductible is Rs. 1000. This is
the amount of money you must spend on health care out of your
pocket. This is the amount of money you must spend each year
before your insurance begins to cover your bills.

Luckily, there are various types of insurance to protect you from every life-
changing event. Some of these include:
 55

Life Insurance
The famous saying goes like “After you die it's too late for life insurance!”

Life Insurance is the agreement between an insurance policyholder and an

insurance company, where the insurer assures to pay an amount of money
in exchange for a premium, upon the death of the insured person. In simple
terms “if death occurs to me, give my family financial protection.” There
are two kinds of life insurance-

i. Term plan - This plan requires you to pay a premium to the

insurance provider for a period of time in exchange for no benefit
if nothing bad occurs to you. The best part about a term plan is that
the premium stays the same for the whole period. We all know that
due to inflation every year the value of money increases. Let’s say
you pay Rs. 5,000 every year as the premium. The value of this
5,000 will only decrease as time goes by and not increase due to
inflation. Since insurance is a fixed premium product, today it might
seem a lot to pay 5,000, but in future, that difficulty will only reduce
and not increase
ii. Endowment Plan - This plan returns the premium that you pay for
some time. The biggest disadvantage of this plan is that you have to
pay a higher premium for the same cover. The premium to pay is
2-4 times more as compared to the premium paid in term
insurance.

Health Insurance
“Your health, your choice!”

One needs to keep in their conscious mind the fact that one’s health is an
investment not an expense. Health insurance is a type of insurance that
covers medical expenses that arise due to an illness. These expenses could
be related to hospitalisation costs, cost of medicines or doctor consultation
fees.

Buying health insurance when young and healthy is recommended since the
likelihood of hospitalisation is relatively low at a young and healthy age,
companies provide maximum cover at the least premium. On the other
hand, when you buy insurance at a healthy age, even if you get hospitalised,
the rejection rate would be very low because it is quite possible that there
was nothing that you hid from the insurance company or did not disclose a
pre-existing disease etc.
 56

Auto Insurance

“Don’t worry, we have got you covered!”

Auto insurance is also known as motor insurance and provides cover for the
loss or damage to all kinds of vehicles. The most important term associated
with auto insurance is Insured Depreciated Value (IDV).

Let's understand this with the help of an example. You buy a car for Rs. 10
lakhs. So every year the value of that car will depreciate. Let's say, after 2
years, the value of your vehicle is Rs. 7 lakhs and it gets stolen. The
insurance company will give you Rs. 7 lakhs because according to them that
is the car’s current value.

There are two types of auto insurance in India:

1. Third party insurance - This insurance covers the damages of the

third party involved in the accident. Third-party insurance is
mandatory in India.
2. Comprehensive insurance - This insurance covers the damage of
the third party as well as your vehicle damage.

Concept of Zero Dep - Zero depreciation is a car insurance add-on cover

that makes the insurance companies settle the claim amount without taking
the depreciation on various parts of the car into consideration. This
enhances the claim amount of the policyholder. It can be availed for a
limited number of times in a policy term of the insurance policy.

Home Insurance
Home insurance is a type of property insurance that provides coverage to
the owner from unforeseen loss or damage caused to the house and its
contents. It usually covers private residences. Home insurance provides
you cover against any ‘acts of god’ like storms, floods, earthquakes,
cyclones etc.

Some things to keep in mind while buying an insurance plan:

• Check the premium and coverage

• Check claim settlement ratio
• Company’s reputation from where you intend to buy the insurance

We see that insurance has become an indispensable part of one’s life.

Whether it is your life or your car, you need insurance. However, one
 57

should know the various principles associated with them and should thus,
abide by them. Hence, the insured should refrain from doing any kind of
insurance fraud, about which we will be dealing in the next chapter.
 58

11
WHITE COLLAR CRIMES
In previous chapters, you learnt about various financial instruments. With
these instruments, there are various risks, one of them is financial fraud.
So, in this chapter we would be discussing some of the major financial
frauds.

Ponzi Scheme
If Anuradha from Laxmi Chit fund calls you and presents you with a
scheme of making your money double in just 25 days, will you believe it?
Too good to be true, isn’t it. Unfortunately, the motley and naive Raju falls
for that trap and bears the consequences. However, never once during the
entire movie did we think – “Wow, could I have fallen for something like
that.”

The idea is idiotic, unthinkable even! We literate folk, trained to detect

even the smallest scent of pranks, would never fall for such a half-baked
plan. Ever wondered what this kind of fraud is called? Well, it's called a
Ponzi Scheme. A Ponzi scheme is a delusive investing scam promising a
big return of investment with minimal risk to investors and in a little time.

Low risk and high rate of return are the two most important factors which
are considered by investors to make an investment and these both are
enough to lure the investors. To sum up, in this kind of fraud the
company makes an investment with a stupid but in theory plausible reason
for having a high rate of return.
 59

Insurance Fraud
Insurance fraud refers to an illegal act, or in simple words, illegal
exploitation of the contract of insurance. This can be done by both, the
provider as well as the availer of the insurance. This is mainly caused by
the motive of earning financial profit. You might have often seen in movies
and serials that people often declare themselves as dead to get the
insurance claim. This is an example of insurance fraud.

Affiliate fraud
Ever used the referrals or links provided by your favourite influencer, can
be fraud too. No, no, this is not to scare you but to make you aware. This
kind of fraud is called affiliate fraud. Affiliate fraud refers to any false or
exploitative activity conducted to generate commissions21 from an affiliate
marketing program. These may include auto-refreshing a page, spamming
an email from a referral link or using software to click.

Zero liability policy

Zero liability policy is a provision in credit card contracts, which states that
the cardholder is not going to be held responsible for unauthorized
transactions made on the credit card. This means that the cardholders are
not liable to make payments for all unauthorized transactions and they
cannot be legally prosecuted. Credit card issuers, to speed up their sales
offer this policy so as to attract more customers.

Appraisal fraud
It deliberately involves assessment of the value of a home/an asset at an
inflated price that is, dishonestly overstating the price of the property. Such
actions potentially inflate the prices of other properties nearby, making it
harder for people to buy into the same community.

Additionally, they put the lender at a disadvantage in the event of

foreclosure22, as the property may not be worth nearly the amount that they
financed.

Credit fraud alert

Suppose that some fraudster gets hold of identity in virtual terms, then that
person can access all your finances and perform illicit actions, for which you
will be held responsible in legal terms and also he or she might just run away
looting you of your hard-earned money and assets!

Sweating already?
 60

Well, to relieve your tension, there is something called Credit Fraud Alert,
which may not be able to stop the fraudster from stealing or hacking into
your identity, but it is capable of pulling a string on the fraudulent actions
that the fraudster might conduct.

A credit fraud alert informs a credit reporting bureau that a consumer's

identity has been stolen and it's possible that a request for new credit in that
consumer's name isn't genuine. An identity thief may find it more difficult
to register new accounts in your name if you have a fraud alert. You may
put a fraud warning on your credit report by contacting one of the national
credit bureaus. The warning is valid for a year.

Take a deep dive into this concept, to get more clarification and information
on how this works, which might save you (and your money) in the future!

Fake claims
It won't be very wrong to assume that most of us (if not all) have at least
once in our life made a claim that later on, turned out to be false. And the
consequences don't turn out positive most times, for both us and others
concerned.

But what if rather than playing the innocent one here, we just straight out
make a false claim (which we know is false), just to make sure things go our
way, even at the cost of others' loss.

The first one is called ignorance and the other one is an act of fraud.
Following this analogy, Insurance claims that are made with the goal to
defraud are known for fake claims. Fake claims are overstated and false
claims filed by policyholders to obtain financial benefits from the insurer's
insurance policy. These practices are against the law.

For instance, a policyholder of a house insurance policy might exaggerate

the value of the belongings kept in his house which has been robbed of his
belongings by a robber. Insurers typically keep a record of claims they
receive and conduct surveys to analyse the number of claims they receive.
This helps insurance companies make claims and identify those who are
most likely to abuse the system. Despite the measures, some still escape,
thanks to the plot holes in the system! You might want to check out the cases
of fake claims in our country. But hey, don't try them out, unlike other tasks
we ask you to perform!
 61

Phishing
You might be wondering what does "Fishing" have to do with finances and
frauds?

Firstly, the term is "Phishing" not "fishing". (Got it, but where does it lead to?)

So, you may have heard of the phrase, "Something is fishy about this" either
in movies or conversations, to note something skeptical, doubtful, unusual
event in the play.

Well, the spelling may not match, but essentially phishing is a term for some
'fishy' act which can be defined as a method of personal information theft
that relies on an individual to unknowingly provide personal information or
information that may be used for malicious purposes. You do not know that
you're being robbed of your identity and privacy, that's what phishing
essentially stands for.

Often performed by creating deceptive websites, emails, or texts that appear

to represent legitimate companies. Phishing happens in a variety of ways.
Fraudsters try to obtain information such as the victim's credit/debit card
details and bank account details.

Always make sure never to enter an unknown and possibly harmful website
(especially when your browser is warning you), reply or click a link from
spam mails which may potentially steal all of your data, and data is
something very precious and vulnerable component of your life, in this
digital era.

So, we advise you to invest some more time on this topic, the instances of
phishing, how to make sure you don't become a victim of data theft etc.
 62

Altered Cheque
This is something that is not very technical in terms of the procedure and
is also very common. Actually, some of us might have at some time or the
other manipulated some information on paper (say, your attendance
report for eligibility in exams) to make the outcome positive for us.

Similar is the case with Altered Cheques in the financial world. As the name
suggests, it is a document or a negotiable instrument, which was
manipulated/altered to affect fraud significantly and spitefully. Generally,
the cheque has a change in name or the amount written on it.

Just as a mischievous student makes 1 as 10 on the answer sheet, this fraud

alters the amounts by making 10,000 to 1,00,000 by adding a zero!

You may check out the movie - " Catch me if you Can" where you'll get to
see the main character, the con-artist deploy various methods to replicate
and create false cheques.

Also the story of Harshad Mehta (the Sony LIV series Scam 1992) will also
let you have a glimpse of how alteration of information in financial
instruments can potentially cause a massive financial fiasco!

NDNC Registry
It feels very irritating when we take up a call and get to listen…"Namaskar,
apka swagat hai …" or spam messages of advertisement that ping notifications
which are of no use to us. All of us have faced this in our life.

We have good news for you if you condemn these (and if you like them and
want to spend your time listening to their precious advertisements, or
reading their messages filling your phone's inbox, then good for you!)

The Telecom Regulatory Authority of India (TRAI) has developed an

NDNC (National Do Not Call) filter. It's a national telephone ban registry
fully operated by the Government of India. The main purpose of
developing this NDNC registry is to prevent telemarketers from making
unnecessary marketing SMS or phone calls. If any consumer doesn't want
to receive promotional text messages or phone calls, he/she/they can add
their number to the NDNC registry.

The Customer Preferences Portal on the TRAI website details the official
rules for setting up registration and the steps for registering with the silent
 63

registry. The actual management of the register is not done by TRAI via this
portal or elsewhere. Management is left to the individual service provider.
So, you can finally say goodbye to these spam activities, but for that you have
to go through some documentation, as always. So, go through the process
carefully and get relief from random calls and messages!

This chapter was quite a ride right? From something as harmless as spam
calls and messages to something as grave as identity theft, we tried to cover
all of the possible procedures that fraudsters often follow and some
measures on how to tackle or put a pause on these.

Many times those people who aren't aware of these things get cheated big
time and lose all of their life savings. Having knowledge about these will not
only help you in managing your money and life the most secure way
possible, it will also help you to contribute something of value in the society
as you make people aware of these happenings on the way.

To get a concrete hold on these, we strongly advise you to do your own

research and gather as much information as possible so as to make your
journey in the world of personal finance a memorable and most importantly
a "valuable one". We know you will!
 64

12
UGHHH…TAX!!!
"This is the season of the year when we discover that we owe most of our
success to Uncle Sam." - The Wall Street Journal

Taxes are like vampires to your income. They serve only one purpose for a
common man and that is to decrease your bank balance. So unless you live
in places like the UAE or Monaco (yes, these are some places with zero
income tax), taxes must. So, is there any way for you to figure out how you
can plan and save your taxes effectively? Let’s find out.

What is tax planning? Tax planning is the process of analysing a financial

situation or plan to ensure that all components work together to allow you
to pay the least amount of taxes possible. A method that decreases the
amount of money you pay in taxes is known as tax-efficient planning. Tax
preparation should be a crucial component of individual investors' financial
goals.

When it comes to tax preparation, several things come into play. The timing
of income, the magnitude and timing of purchases, and the planning of
other expenditures are all factors to consider. To achieve the best potential
 65

result, the investments and types of retirement plans chosen must

complement the tax filing status and deductions.

All this is okay, but why is tax planning important for me?
• The basic goal is to lower your tax bill by taking advantage of all
available deductions.
• It allows you to save some money from your monthly earnings
which you can put to good use by investing in other potential
investment opportunities and reaping substantial returns on that
money.
• Removes unnecessary stress and uncertainty by determining your
tax liability and making informed decisions, resulting in peace of
mind.
• The earlier you begin tax preparation in your professional/business
life, the more strategies you might explore to maximise the effects.
• They aid in the understanding of tax laws' tips and tricks, as well as
various tax minimization tactics, which aid in tax compliance and
successful adherence to the government's tax regulations.
• When tax planning is distinguished from tax avoidance/evasion,
there is less involvement with tax authorities and fewer unnecessary
lawsuits.

Who likes to give away their hard-earned money to someone else for
apparently no benefits at all? We believe no one. Some of the major
provisions made by the Indian government which can be used to reduce
your taxable income:
• Section 80C (Income Tax Act) - Under this, you can claim
a tax deduction of up to Rs. 1.5 lakh by investing in specific
avenues, some of which are:
• Employee Provident Fund
• Public Provident Fund
• Equity Linked Saving Scheme
• Sukanya Samridhhi Account
• Repayment of principal amount (Home Loan) up to Rs.
1.5 Lakh
 66

Some others include

Section Description Exemption limit

Interest income from all

80TTA ₹10,000
bank accounts.

Tax on income spent on

interest payments of
80E No limit
education loans up to 8
years

From ₹25,000 up to ₹1
Health insurance
80D lakh under some
premiums
circumstances.

Interest repayment on
24(b) ₹2 lakhs
home loans
 67

Interest repayment on
80EEA home loans for first-time ₹50,000
buyers

Sum assured on life

10(10D) Entire amount
insurance plans

House rent allowance (if

10(13A) HRA is given in salary Specified conditions
break-up)

House rent allowance (if

80GG HRA is not mentioned in Specified conditions
salary break-up)

80G Donation to Charity No limit

Donation for scientific

80GGA research and rural No limit
development
 68

Donation to Political
80GGC No limit
parties

₹75,000 for 40%-80%

Treatment of Disabled
80DD disability ₹1,25,000 for
persons
higher than 80% disability

₹75,000 for 40%-80%

80U Disabled persons disability ₹1,25,000 for
higher than 80% disability

₹40,000 (₹1,00,000 for

80DDB Medical ailments
senior citizens)

Note: The difference between Section 80DD and Section 80U is that under
80DDB, individuals paying medical expenses for a differently-abled family
member can avail the tax benefits whereas, under Section 80U, differently-
abled people can themselves avail the tax benefits in general.
 69

Other than making use of the provisions provided by the government to

avail tax benefits, there are some other methods too, but those are largely
illegal and classified as tax evasion. If caught, the Income Tax Department
of India can impose hefty amounts of penalties, hence it is best to just claim
tax benefits provided by the government.

Tax planning and tax management, tax evasion and tax avoidance. If you
just focus on the words, it may be difficult to differentiate one from
another. However, these could not be worlds apart.

Tax Planning
It means reducing tax liability by taking advantage of the legitimate
concessions and exemptions provided in the tax law along with various
advantageous provisions which are legal. It involves arranging business
operations in such a way that reduces tax liability.

Examples:
1. Investments under Section 80C i.e. payment-related deductions
2. Under Section 80CCD i.e. contribution to Pension Fund of LIC
or other insurance company Report this ad
3. Reinvestment under Section 54, 54EC, etc.

Tax Evasion
Tax Evasion is using illegal means to avoid paying taxes. Tax evasion
usually entails concealing or falsifying income. Underreporting income,
exaggerating deductions without proof, concealing or failing to register
cash transactions, and hiding money in offshore accounts are all examples
of this. Tax evasion is a subset of tax fraud, which is defined as the illegal
and purposeful non-payment of taxes.

Examples:
1. Bogus Expense
2. Underreporting of Income
3. Inflating deductions without proof
4. Hiding or not reporting cash transactions, hiding money in
offshore accounts etc.

Tax Avoidance
Tax avoidance means taking undue advantage of the loopholes, lacunae,
or drafting mistakes for reducing tax liability and thus avoiding payment of
tax that is lawfully payable. Generally, it is done by twisting or interpreting
the provision of law and avoiding the payment of tax. It is the practice of
taking unfair advantage of flaws in the tax code by devising innovative ways
 70

to avoid paying taxes that are within the law's restrictions. Tax evasion can
be accomplished by altering the accounts in such a way that no tax rules
are broken. It is legal, although it may fall under the category of criminality
in some situations.

Examples:
1. Taking legitimate tax deductions to minimise business expenses
and lower your business tax bill.
2. Taking tax credits for spending money for legitimate purposes etc.

Tax Management
Tax Management means planning affairs in such a manner so that the tax
obligation is managed properly. The objective of tax management is to
comply with the provisions of Income Tax Law and its allied rules. Tax
management aids in the avoidance of interest, penalties, and prosecution,
among other things.

Examples:
1. Tax management deals with filing returns in time.
2. Getting the accounts audited.
3. Deducting tax at source etc.

Tax evasion, tax avoidance, and tax planning have the following
characteristics and differences:

• Nature - Tax planning and tax avoidance are legal whereas tax
evasion is illegal.
• Attributes - Tax planning is moral. Tax avoidance is immoral. Tax
evasion is illegal and objectionable.
• Motive - Tax preparation is a way to save money on taxes. Tax
evasion, on the other hand, is the act of avoiding paying taxes. The
act of avoiding paying taxes is known as tax evasion.
• Consequences - Tax evasion results in a postponement of tax
liability. Tax evasion is punishable by fines or jail.
• Objective - The objective of tax avoidance is to reduce tax liability
by applying the script of law whereas tax evasion is done to reduce
tax liability by exercising unfair means. Tax planning is done to
reduce the liability of tax by applying the provision and morals of
law.
• Permissible - Tax planning and avoidance are legal, but tax evasion
is not.
o The tax liability of an individual can be reduced through 3
different methods - Tax planning, Tax avoidance and Tax
 71

evasion. All of the methods are distinct from one another

and can be used interchangeably.
o Tax planning and tax avoidance are the legal ways to reduce
tax liabilities but Tax avoidance is not advisable as it
manipulates the law for one’s benefit. Whereas tax
planning is an ideal method.

Though we have been taught that tax is levied in order to ensure welfare, it
is nothing but a mere method to reduce our bank balance. Hence, every
individual, at the right time, must take sound tax planning decisions and not
indulge in tax evasion schemes as these schemes are illegal and can lead to
actions which are a criminal offence. One should know the various acts and
sections of the constitution related to taxes and then take tax minimisation
decisions. In the words of JM Keynes –

"The avoidance of taxes is the only intellectual pursuit that carries any
reward."
 72

13
RETIRE N ROLL
Fascinated by delving deep into the world of finance? Well, let's keep this
curiosity going. In this chapter, we will learn about the retirement plan and
how one can plan it effectively. But before going further let's first
understand what's the importance of a retirement plan and why everyone
thinks about it when one starts working.

Retirement planning can be described as a process of identifying your

post-retirement goals and undertaking steps to be financially stable when
your paid working period ends. It includes saving and investing money
presently to help you lead a happy and comfortable life post your
retirement. It helps you deliver a smooth flow of money when you stop
working and maintain a healthy standard of living when you retire from
work, and not from life.

We all may develop a flippant attitude at a nascent stage of our working

career but here is some importance of retirement planning which may
help you in the long run.
• Financial backup for the future - Life is full of unprecedented
times and at certain points, one may require some money to
finance emergencies. In these times a financial corpus23 can help
you tackle this situation effectively.
• Financial Independence - Retirement planning makes you
financially independent post your retirement and gives you peace
 73

of mind leading you to live a life of legacy not depending on

others for your financial expenses.
• Tax Benefits - Today many financial instruments are present that
help you develop a strong retirement plan and also help you avail
tax benefits under prevailing tax laws. So it allows you to reduce
your taxable income and also maintain a corpus for the future.
• Inflation - The prices of goods rise every year due to inflation and
it might affect your standard of living. Investing early in a
retirement plan helps you beat inflation and help you achieve your
desires and aspirations.
• Medical Expenses - Old age can be burdening due to
unanticipated medical emergencies. However, if you have a set
aside amount your old age journey becomes hassle-free, and
unprecedented happenings can be tackled smoothly.

But perhaps the first question you should ask yourself, funnily enough, is
by what age do you deserve to retire? Sounds like a silly question, yes, but
a very important one, even if it might be a bit too far down the line right
now in your opinion. Moreover, it isn’t an easy one either.

There are a lot of factors that this can hinge on:

• Employment constraints - As the biggest source of income,
employment constraints deserve due respect. Many jobs,
especially government jobs have set limits to how old you can be
while working in that capacity, and so do many private jobs. Even
though technically it is possible to work in a different
capacity/different firm/own venture, given the age at which this
limit comes into play, this is generally unlikely. One should spend
ample time researching what are the age limits in one’s dream
 74

job/profession. If unclear, it doesn’t hurt to ask an industry

veteran!

• Physical constraints - Moreover, there is also the possibility of

physical constraints coming into play. These generally are more
prominent in blue-collar employment24 capacities, and other roles
that necessitate physical effort. While a healthy lifestyle can surely
prolong one’s employment tenure and avoid early forceful
retirement, it is good practice to know how physical constraints
might affect one’s retirement age. Good practice includes knowing
the average age of retirement in one’s employment type and
keeping a check on one’s fitness and health to avoid these
constraints for long.

• Personal choice - Even though the above two factors might affect
one’s decision, this one is the most important. Perhaps you’re off
the hustle mind-set and dream to retire by your early 30s. the
F.I.R.E. (Financial Independence, Retire Early) is best suited to
you. Perhaps you’re the conservative kind and wish to work till
age catches up with you, living a safe and happy life. Perhaps in
such a case, a pension scheme might be the way to go! Overall, it
is certainly a complex decision. Yet, with the use of reliable
information on the internet as well as advice from those working
in these fields, it certainly is doable!
• Cost of Living - What is needed next, is an estimate of what your

cost of living might be during those years. Simple decisions, such

as a flashy car vs a second hand can have an enormous impact on
the amount needed to be saved to enjoy those twilight years. So,
 75

what are the key elements of this aspect? Here are the biggest
decisions that can sway the cost of living:
o Location - Living in the bay area vis a vis Gorakhpur,
quite frankly is different. Admittedly, there is a certain
difference in the quality of services and quality of life in
both scenarios, but at the same time, the cost of living falls
steeply as one goes from a global hub to a metro city, to a
tier 2 city. Hence, choosing a location, while certainly a
hard decision, should also take into account the cost of
living there. More importantly, however, the cost of living
at the said location should be factored into the cost of unit
products. Apples don’t cost the same everywhere, and to
base consumption expenses based on where one
currently lives can be a serious error.

o Number of dependents - Each mouth to feed, each thirst

to quench, each extra ticket for that dream holiday can
increase the amount needed to live carefree
exponentially. What this means is, one should have a fair
estimate of not only their own expenses but also any
person they wish to support in their retirement. Does one
perhaps have a brother hard on times they wish to help
out? Or a significant other with no significant income?
Such decisions should be taken early on, and factored
into the retirement investing goal.

o Quality of life - Rolls Royce or Hyundai? Gucci or off the

rack? Bali or Manali? Forget “to be or not to be”, these
are the biggest questions. Especially when planning for
retirement. The easiest way is to budget your expenses,
for now, omit miscellaneous expenses26 that you won’t be
making in your retirement period (yes, fancy sneakers
too), adjust for inflation, and voila! You have your figure!

Moreover, one must also account for whether he wants to live at the same
level, better or worse, than he lives with a healthy source of income. This
should be factored in to adjust the amount needed as well.

It is prudent to let your savings exceed this number by a healthy amount,

as it allows for you to battle for extenuating circumstances because while
we must hope they don’t come up, they might.
 76

What the heck do I do with this money then?

Ah, the one question that no wonder has come up in your mind while
reading this. While we have already covered “Investing” as its own
chapter, one more thing to keep in mind is that specific schemes for
retirement exist. These are, in most cases, provided by the employer.
While government related jobs are statutorily27 provided with retirement
schemes and retirement-centric investing avenues, private employers are
not mandated. Regardless, government run programs such as the National
Pension Scheme exist and are open to both government and private
jobholders.

Thrilled to secure your future after retirement? Pondering on where to

begin? Where to invest? Well, we got you covered. Here are some
government retirement schemes where you can invest to secure your
future.

• PMVVY - Pradhan Mantri Vaya Vandana Yojana was announced

by the government in 2017. It is currently managed by LIC (Life
Insurance Company). It is a retirement cum pension scheme
offering an assured rate of return on your investment. The
pension is delivered regularly, monthly, quarterly or yearly.
Anyone who is a subscriber above the age of 60 years is eligible to
enrol in this scheme. The minimum amount which needs to be
invested is 1.5 lakhs and the minimum pension received is 1000
rupees monthly. The annual rate of return offered on your
investment varies from 8 % to 8.3% making it a better option than
investing in a savings account.

• Deferred Annuity Plan - In this plan, you can deposit either a

single premium or multiple premiums across the length of the
policy term. Only after the policy term gets over is when the
pension scheme started. Other advantages include the fact that
there are deferred tax benefits as a tax is charged until one plans
to finally withdraw the money.

• Employees' Provident Fund (EPF) - EPF is a plan wherein both

the employee and the employer each contributes 12% of the
employee’s basic salary and dearness allowance28 towards this
fund. It has a high-interest rate currently being 8.50% p.a. It acts as
an emergency corpus and is eligible for tax exemption under
Section 80C of the IT Act.
 77

• EPS - Employee Pension Scheme was incorporated in the year

1995 by the government of India. It endeavours to secure the life
of employees serving in the organised sector. Any person who is
eligible for the EPF (Employee Provident Fund) is eligible for
EPS too. The employee must have also been working for 10 years
in the organised sector. It is managed and operated by EPFO
(Employee Provident Fund Organisation). It is a regular source of
income for people after retirement. It is a risk-free investment
since it is sponsored by the government of India and a minimum
amount of Rs. 1000 is provided monthly.

Curious about how you can figure out how much wealth you need to
augment before retiring? Do you wish to know the compilation of
retirement benefits accruing to you? To help you provide answers to these
questions, there are several retirement calculators available on the internet.
Just providing a few details can help you figure out how you should move
forward. So what are you waiting for? Start thinking about your retirement
as soon as you can because trust us it is never too early for retirement
planning.
 78

14
WHAT’S ALL THE FUSS ABOUT?
“Javelin meri ankhon mein, Javelin meri saanson mein…”. Did you also
have this cred advertisement stuck in your head for weeks like the rest of
the country? Did you at some point see the global news filled with terms
like NFTs and still could not figure out what they really were? Trust us,
you are not alone. The world of finance has changed a lot in recent years.
Terms like crypto and NFTs have become part of our regular vocabulary.
Fintech companies like Paytm are taking over the country and all this
evolution has happened in the blink of an eye. But what do these terms
mean?

FinTech
We hear this term being used everywhere nowadays with the financial
gurus calling it the future but what exactly is it? A simple search on the
internet tells you “computer programs and other technology used to
support or enable banking and financial services”.

So let’s try to break this down. With the advancements in technology, it is

becoming more and more necessary as well as beneficial to use the
modern developments in the field of finance. Technologies such as
Artificial Intelligence29 (AI) and the prestigious customer data help in the
finance industry. The usage of these is called FinTech (Finance
Technology). These are used to better automate and facilitate various
banking services like depositing, lending, withdrawing, etc. The companies
that provide these services are called FinTech Companies. The leading
FinTech Companies in India are Razorpay, Paytm, PhonePe, Cred among
others.

The last two years have seen a meteoric rise in the FinTech industry in
India with paperless lending, mobile banking, secure payment gateways30
and mobile wallets becoming common. This can be accredited to the
development of better network facilities, better access to smartphones and
other historic events like demonetisation31 and the COVID 19 pandemic.

The Government’s initiatives of ‘Digital India’ and ‘Make In India’ have

played and will continue to play a key role in this. The introductions of
Immediate Payments Service32 (IMPS), Unified Payments Interface (UPI),
Bharat Interface for Money33 (BHIM) have proved to be a great
 79

contributing factor to FinTech’s growth. FinTech is the new normal for

Indians as 10-15 million new customers switched to digital means.

The Indian economy is still largely underserved and unbanked.

Therefore, the FinTech industry has a great scope for the future with
governmental regulations being the only foreseeable roadblock in the path
ahead.

Non-Fungible Tokens (NFTs)

NFTs are a very hot topic in the market currently. It is the trend right now
and it is all everyone likes to talk about. But what are NFTs? Let’s look at
the word “Non Fungible”. It simply refers to something that cannot be
traced or copied. If you could digitally sign your art, that is to say, you
could virtually prove that you have complete ownership over the piece of
art. That is where NFTs step in.

They are proof of ownership of a digital asset stored on the blockchain

which can be sold and bought. It gives you the right to prevent anyone
from copying/using the art without your permission. They can be any type
of media (even memes can be sold as NFTs).

Do you remember the image of the girl who was menacingly smiling at the
camera while firefighters were trying to save a burning house behind her?
This iconic meme "Disaster Girl", was sold by the girl, Zoe Ruth for a
whopping $500,000. Sounds insane right!

NFTs can be used in various forms:

• Digital Art
• Games
 80

• Music
• Film
• Memes
• Tweets

While being a great prospect for the future, there are some drawbacks to
NFTs:
• Money Laundering - There is scope for illegal activities such as
money laundering through NFTs as anything can be considered
an NFT and be used to make illicit payments.
• Storage - Due to NFTs being digital, and usually having a greater
file size, it cannot be stored on the blockchain. Hosting it and
protecting it can prove to be a challenge.
• Environmental Concerns - As it is a common criticism to other
uses of blockchain as well, environmental problems are a
drawback of NFTs too as a lot of power is consumed to validate
the blockchain and transactions on it.

Now that you have grasped upon talk of the town, at least some NFT
Memes will make more sense to you. Jokes apart, these technologies &
platforms are going to be used on a daily basis... When? Earlier than you
expect. It is, thus, better if you keep yourself properly acquainted with
these things.

Now, with the course of this book, you have cleared a very significant step
towards financial literacy. But as we all know, YOU ARE WHAT YOU
DO, NOT WHAT YOU SAY YOU’LL DO, you have to start
implementing the learnings in your Life. Start with small steps like opening
a bank account for yourself, if you don’t have one and try out different
technologies, platforms, investments, and what all you learned!
 81

BONUS
TIME IS MONEY

Let us start by asking you a million-dollar question (literally). Would you

choose Rs. 1 million right now or Rs. 1.2 million, three years from now? If
your answer was the first option, then think of the possible reason to choose
it. The luxury of consumption today, greater purchasing power or
opportunity to earn returns can be any of the reasons.

However, if you chose the second option then you need to sit back and
think. Would you not want to use the money right now? Wouldn’t this
money depreciate due to inflation in the coming years? Can’t you invest the
money and make it grow exponentially? This value of money in terms of
time is called the Time Value of money.

As the famous saying goes, “time is money” and in the world of finance, this
is true. The time value of money simply means that the present value of
money of a particular sum will be more than the future value of the same
sum. Or to simply say your Rs. 10 Dairy Milk chocolate may not be available
to you for the same amount 10 years down the line. This is so because the
current sum has the opportunity to appreciate and grow. Another way to
look at it will be inflation and deferred consumption. Before stepping
further let us first understand what deferred consumption is? Deferred
consumption is nothing else but setting aside money for future consumption
or delaying your consumption of goods and services.

If you have ever heard your parents telling you about their childhood, which
I know for a fact they do, they often mention how cheap things were, how
the movie ticket was just Rs 5 and popcorn for just Rs 2 (honestly a bit
jealous of them sometimes). This is primarily because of the loss of
purchasing power due to inflation. Because of inflation, the current value is
more than the future value. If I ask you if you would like to eat an ice cream
today or one week later, what would you choose? The answer is pretty
straightforward - today. However, what if I offer you an ice cream with
brownie next week but only the ice cream if you choose to have it today?
Then, the answer will not be very simple. We will have to compare the
benefit of brownies to not having the ice cream today.

So in a world of constant rising inflation, how do you ensure that your

money does not depreciate over the years? This is where the ‘Power of
compounding’ comes to play. Compounding is simply the practice of
 82

investing money and reinvesting the interest earned thereon. A simple

formula can help us calculate our future value.

FV = PV (1 + r)n

Where,
FV = Future value,
PV = Present value,
r = Interest rate,
n = Time

Let us take an example to make things simpler. If you were to invest Rs.
1,00,000 today. What would be its value 10 years from now assuming the
rate of interest to be 10%? We can calculate this by using the formula given
above.

FV = 100000 (1 + 0.1)10
FV = Rs. 17,50,000

Wow! Right?

Let us ask you another question. Let us assume you wish to accumulate Rs.
1,00,000 after 15 years. For the same, how much amount would you put in
an investment avenue today giving you 7% interest?

Again using the same formula, you can find out the required present
value. The calculation is shown below:

PV = FV1(1 + r)n
PV = 100,0001(1.07)15
PV = 36,244

This means that we have to put in Rs 36,244 in an investment avenue, today,

giving a 7% rate of return which will become 1,00,000 Rs after 15 years. This
process is the reverse of compounding and is called discounting.

We ask you again. What would you choose - Rs. 1 million right now or Rs.
1.2 million, three years from now?
 83

CONGRATULATIONS! YOU GET A GOLD

STAR
Just kidding! But we really hope, that if you got so far, you got much more
than a gold star. The world of finance is everlasting. It never ends. But we
sincerely hope that our small effort has gotten you interested in this
mammoth world and we assure you if you go ahead in the world or simply
your google icon you’ll see what all finance has to offer.

The goal of this book was to make sure that whenever someone is talking
about money or finance, you do not have to stand there and wonder what
gibberish they are talking about. You can hold your head high and actively
participate in the conversation.

The aim of this book was not to give you any advice on investing or give
strict guidelines on what you should do in case you ever get stuck. The
simple ambition was to make you step into the world of finance so that you
can go and explore for yourselves. Once you have done that, you can frame
your own principles on how to earn, spend, budget and invest your money
because personal finance is nothing if not personal.
 84

GLOSSARY

1. Double coincidence of wants - A situation in which the buyer and

seller agree to buy each other’s commodities.
2. Barter system - A system of exchange of goods and services based
on the double coincidence of wants.
3. Unemployment - Person willing to work and is available to do work,
does not find work.
4. Corporations - A large company/ group of companies authorized
to act as a single entity.
5. Optimally – In the most favourable way.
6. Compounding – Ability of something to generate things.
7. Emergency fund – Money kept aside to tackle unexpected expenses
life throws at you.
8. Template - It’s a pre-formed document on excel or a dashboard
where you put in your transactions and the formulae applied in the
template gives you a summarised version of the data.
9. Net income - Income that comes into your household from all
sources and after all the deductions like taxes.
10. Public debt - Debt that has been taken by the Government to meet
budgetary expenditure.
11. Foreign exchange rate - It is basically the price of one unit of foreign
currency like Foreign exchange rate of the Dollar with respect to
Indian Rupee revolves around Re. 70-75.
12. Hedge fund - A hedge fund is a pooled investment fund that trades
in relatively liquid assets and is able to make extensive use of more
complex trading and risk management techniques in an attempt to
improve performance.
13. Underwriting - Underwriting services are provided by some large
financial institutions, such as banks, insurance companies and
investment houses, whereby they guarantee payment in case of
damage or financial loss and accept the financial risk for liability
arising from such guarantee.
14. A.M.C. - Stands for Asset Management Companies. They invest
the pooled funds of the clients in stocks, bonds, real estate etc. Also
called money management firms.
15. K.R.A. - It stands for K.Y.C. Registration Agency, registered under
the Securities and Exchange Board of India (S.E.B.I.), to centrally
maintain the K.Y.C. records of the investors (Stock market players).
 85

The key five K.R.A.s are- N.S.E., Karvy, C.A.M.S., N.S.D.L.,

C.V.L. (Maybe you want to check them out to get a brief knowledge
about each one of them.)
16. Impediment - A hurdle in doing something
17. EMIs - An equated monthly installment (EMI) is a fixed monthly
payment made by a borrower to a lender on a set day each month.
18. Credit union - A credit union is a member-owned financial
cooperative that is managed by its members and run on a not-for-
profit basis, comparable to a commercial bank.
19. Financial Institution - Financial institutions, or banking institutions,
are organisations that act as intermediaries in different types of
financial transactions. For e.g., Banks, Mutual Funds, Insurance
companies, etc.
20. Depreciation – Gradual fall in the value of the asset due to wear,
tear etc.
21. Commissions – A fee paid to an agent transacting a piece of
business.
22. Foreclosure – The action of taking possession of a mortgaged
property when the mortgager fails to keep up their mortgage
payments.
23. Corpus – Corpus is described as the total money invested in a
particular scheme by all investors.
24. Blue-collar employment – Blue-collar jobs are considered
“working-class” jobs, which are typically manual labour and paid
hourly.
25. Twilight saga – The last years of someone’s life.
26. Miscellaneous expenses – This is a general ledger account that may
contain a large number of minor transactions.
27. Statutorily – Statutory authority refers to the powers and duties
assigned to a government official or agency through a law passed by
Congress or a state legislature.
28. Dearness allowance – It is paid by the government to its employees
as well as the pensioner to offset the impact of inflation.
29. Artificial Intelligence: is simply the decision making ability of a
Computer system on its own. It is used to automate activities that
require relatively less human intervention.
30. Payment Gateway: is a technology through which transactions are
submitted to the banking network for authorization, settlement
and reporting.
31. Demonetisation: is referred to as the process of terminating a
currency unit’s status of a legal tender.
32. Immediate Payments Service (IMPS): is an instant payment inter-
bank electronic funds transfer system in India.
 86

33. BHIM: Bharat Interface for Money is an app that lets you make
simple, easy and quick payment transactions using Unified
Payments Interface (UPI).
 CONTRIBUTORS
Convenor - Ashutosh Yadav

Core - Vipriya Anjum (President)

Aneesha Bajesaria (Vice President)
Khushi Jindal (General Secretary)
Kunal Shroff (General Secretary)

Team
Author | Illustrator

Eesha Goyal

Contributors -
Aagya Mehta | Abhradeep Goswami | Anushka Maharishi | Arab Kansal |
Garima Gupta | Hardik Jonwal | Harmanpreet Kaur | Joy Singhal | Kashish
Makin | Ketav Rastogi | Madhav Goel | Naman Gambhir | Nikita Koya |
Nishitha Bringi | Prachi Patidar | Pratyush Mengi | Ramya Sehgal | Rivya
Gupta | Saksham Goyal | Samay Jain | Tushasp Rajput | Ujjwal Anurag |
Vaishnavi Singh

Compilation -
Abhradeep Goswami | Arab Kansal | Harmanpreet Kaur | Ketav Rastogi |
Nikita Koya | Pratyush Mengi | Ujjwal Anurag | Vaishnavi Singh
THE INITIALS OF FINANCE
Over the years, we have heard people saying that money doesn't
guarantee happiness but deep inside we all know it sure as hell
helps. The key is not to earn obscene amounts of money but to
carefully and systematically build wealth from whatever you have.
This book will help you do exactly that as it serves as your first step
into the world of finance.

All of us, at some point in our lives, have stopped for a second and
thought about how exciting it would be to manage our own money,
having a stack of cash in our pockets. As thrilling as that sounds, we
have also come across people who say that it's a hassle to track all
the transactions and work on Personal Finance.

In The Initials of Finance, we set out to methodically explain

Personal Finance and spread financial literacy which our education
system lacks and which is necessary to survive in today’s
environment. This book takes you from scratch and ends up making
you aware of all the major financial topics that are in existence
today. Hence, transforming you into a Money Sage.

www.fichansraj.org