Finance Education

Government First Grade College, Barkur

September 15, 2014

B. V. Raghunandan

bvrsvs@gmail.com

Relevance of Finance Education

• When the Economy becomes market-driven

• Availability of many investment products

• Investment products are complex in nature

• Investors incapability of understanding investment causes misselling of products

• Huge losses accrue to investors

• Make the investors risk-averse

B. V. Raghunandan

bvrsvs@gmail.com

First Debacle: Risk Management & Investment

B. V. Raghunandan

bvrsvs@gmail.com

Risk Management involves a cost and a contingent benefit and no return on the money spent

Investment may carry a cost and return, certain or uncertain

Combining both risk management & investment in one product leads to huge losses

Second Debacle: Wrong Approach to Market Investment

B. V. Raghunandan

bvrsvs@gmail.com

Investment in market driven products like

stocks, commodities and currencies require

wide understanding and constant monitoring

The one-shot approach given to investment in bank deposits can not help in market

driven investment products

There is the need to understand the

market and procedure before

making such investment

Third Debacle: Management of Losses

B. V. Raghunandan

bvrsvs@gmail.com

Inexperienced dip into the market results in losses

Gamblers behaviour results in repeating the mistakes with

vengeance even with borrowed

money

Resulting huge losses create a

disgust

The resultant is risk aversion like an uneducated investors-Going back to square

one with a load of losses on the

shoulders

First Lesson in Learning Module

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• Comparison of investment products

• Insurance is not an investment product

• Different Forms of Returns: Annual return, capital appreciation, special return

• Transaction costs of different investment products

• Tax incidence on the returns

Categories of Investment Products

B. V. Raghunandan

bvrsvs@gmail.com

Risk-Free Investment

Risky Investment

Investment in NBFCs

Real Estate

Gold

Mutual Funds and Shares

Small Saving of Government of India

Bank Deposits

Debentures and Bonds of PSUs

Government Bonds and Treasury Bills

Inferiority of Non-Corporate Investment

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• NBFCs give only a slightly higher rate of interest

• Gold and land give only capital appreciation

• Transaction costs are very high

• Higher level of taxability

• Very high level of risk in both gold and land

Superiority of Investment in Shares

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Annual Dividend, Interim Dividend, Special Dividend

Increase in market value

Bonus shares

Benefit from corporate action like share splitting, buy-back of shares, Rights Issue, return of money

Low incidence of taxation

Making a Beginning

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• Selecting a broker

• Opening a Trading Account with the broker

• Opening a demat account

• Selecting a strategy

• Choosing the sectors

• Making a right portfolio

• Timing of purchase and sales

Conditioning the Behaviour

B. V. Raghunandan

bvrsvs@gmail.com

Losses are part of life

A loss can be converted into

a profit opportunity

Swim against the

current trend

Not expecting profit from each share, but expecting the

targeted return from the portfolio

Avoiding investment on

recommendations

Thank You

B. V. Raghunandan

bvrsvs@gmail.com