finance education b.v.raghunandan
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Finance Education
Government First Grade College, Barkur
September 15, 2014
B. V. Raghunandan
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
First Debacle: Risk Management & Investment
B. V. Raghunandan
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
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
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
B. V. Raghunandan
• 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
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
B. V. Raghunandan
• 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
B. V. Raghunandan
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
B. V. Raghunandan
• 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
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
