College Students Financial Planning

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Securities and Exchange Board of India

LESSONS ON

FINANCIAL PLANNING
FOR YOUNG INVESTORS

Securities and Exchange Board of India
“The content of the book is developed by MCX Stock Exchange (MCX-SX) and FT Knowledge Management Company (FTKMC) under the guidance of the Advisory Committee for the Investor Protection and Education Fund (IPEF) of Securities Exchange Board of India (SEBI)” (Graphics and print design by MCX-SX and FTKMC) Disclaimer Financial Education initiatives of the SEBI are for providing general information to the public. For specific information on securities law, rules, regulations, guidelines and directives framed thereunder, please refer to the same at www.sebi.gov.in Published by: Securities and Exchange Board of India, (SEBI) SEBI BHAVAN Plot No.C4-A, ’G’ - Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051 Tel: +91-22-26449000 / 40459000 / 9114 Fax: +91-22-26449027 / 40459027 E-mail: fefeedback@sebi.gov.in

Every effort has been made to avoid errors or omission in this publication. Nevertheless any mistake, errors or discrepancy noted may be brought to the notice at the above mentioned address which shall be rectified in the next edition. It is notified that the publisher will not be responsible for any damage or loss to any one, of any kind, in any manner from use of this material. No part of this book may be reproduced or copied in any form or by any means (graphic or mechanical, including photocopy, recording, taping or information retrieval systems) or reproduce on any disc, tape, perforated media or other information storage device, etc. without the written permission of the publisher. Breach of this condition is liable for legal action.

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Key Learning Objectives: After reading this booklet, you will be able to understand the following: • Need for financial planning • Need to plan at early age so that you can meet your needs in time • Various investment avenues in the Indian financial market • Precautions to be taken before making investments • Investment strategies to achieve your financial goals • How to begin investing?

TABLE OF CONTENTS

1. Introduction 2. Financial Planning 3. SMART Goals 4. How to achieve your goals? 5. Risk vs. Return 6. The Power of Compounding 7. Inflation Effects on Investments 8. Savings vs. Investments 9. Loans vs. Investments 10. Investment vehicles 11. Investment Strategies 12. How not to lose money? 13. How to begin investing? 14. Summary 15. Self Assessment 16. References

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1. INTRODUCTION
Planning of finances is essential for each and every one, be it a school-going kid or a retired citizen. The more early you begin to manage your money the better it is. Let’s suppose you choose not to plan and keep spending as and when you like and one day you wish to purchase a house but then you cannot as you hardly have any savings left. This is what happens when you don’t plan and end up overspending. We tend to overspend when we do not understand what we really need. We keep on spending to fulfill all our requirements and we lose count of how much we spent. One should understand the difference between your needs and wants. Things like daily lunch, dinner and house rent payments are our needs which we will have to incur. But things like play stations, videogames and movies are always an option and can be done without. If even we do want to splurge on our wants we can set aside some of our savings over a time period and can buy important needs like vehicles, house, higher education etc when we have accumulated savings. This is what planning is all about, to plan, save and help us achieve our financial goals. When you start early you can always plan for your future financial goals and have the benefit of meeting them when you want to. This is because you have a longer time horizon to spread out your investments and manage your portfolio across time. Every school-going kid is taught from his childhood to count and save money for his...
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