It will be an opportunity for an investor to take a trade if they know the future price of a share before they purchase it. Fundamental analysis helps to predict the future price of any share.

Investors can book profits, if they can purchase the undervalued shares on the basis of fundamental analysis and then wait for the market to reach the correct value price, to sell it.

• Fundamental analysis is the process of analyzing the current performance of a company on the basis of financial statements and industry trends.
• Fundamental analysis is a method of evaluating the fundamental performance of the company to predict the future share price.

Fundamental analysis includes the analysis of business financial statements, operational health, product competency, and market opportunity.

Below are the fundamental analysis tools or factors need to consider for an investment decision and the favorable conditions for an investor.

Market Capitalization          : Higher is the capitalization, safer for investment.

Face-Book-Market Value         : Higher Market value compared to book value, the stock may be overvalued or stock has higher potential.

EPS (TTM) -Earnings per Share  : Higher the value, good for the investor.

Price to Earning Ration (P/E)  : Lower the value, good for investors.

Industry P/E   : Lower P/E compared to industry P/E, good for investors.

Dividend Yield : Higher dividend yield is good for investors.

Deliverable    : Higher deliverable is good for investors.

Promoters      : Higher promoter's credibility is good for investors.

Through the fundamental analysis, an investor can understand the true value of the share and take the once of the following action. This true value on the base of analysis is called the intrinsic value.

If the intrinsic value <   Market price  = Buy the share.

If the intrinsic value =   Market price  = Need to hold the share.

If the intrinsic value >   Market price  = Need to sell the shares.

Below listed fundamental analysis details help an investor to identify the suitable stock to invest in. Fundamental analysis is an important factor, which helps to avoid the investment financial misatake.

Market Capitalization.

The total market value of a company’s outstanding shares is called Market capitalization. It is calculated as below.

Market capitalization ( market cap) = (Total number of a company’s outstanding shares) X (current market price of one share).

Market capitalization in the simple terms we can say as the total market value of all outstanding shares. Companies are typically divided into 3 categories on the basis of market capitalization:

• Large-cap  (Capitalization morethan Rs.20,000 crores) 
• Mid-cap     (5000 crores and less than Rs.20000 crores.)
• Small-cap  (Less than5000 crores)

Small-cap 

Small-cap are the companies having relatively small market capitalization.

• In India, companies with a market capitalization of less than5000 crores are classified as small-cap companies.

Mid-cap 

Mid-cap are the companies having medium-level market capitalization.

• In India, companies with a market capitalization above Rs.5000 crores and less than Rs.20000 crores are considered mid-cap companies.

Large-cap 

Large-cap companies are the companies having large market capitalization.

• In India, company’s with a market capitalization greater than Rs.20,000 crores is classified as Large-cap companies.

Higher the market capitalization more secure for an investor to invest. As the company's business is already large, the probability of the share price goes up will be more.

Face-Book-Market Value of the company

Face Value, Market Value, and book value are the three valuations of the shares of the companies. On the basis of these values, an investor can decide the valuation of the companies share price. First, this blog will explain, what each value is and then will share, the significance of each value on the buy or sell decision.

Face Value

Face value is the nominal or the original value of a security, stated by its issuer at the time of issue. For stocks, the face value is the listed value of a share in the certificate.

• A companies stock’s face value is the initial value of the unit share, which is indicated on the certificate at the time of the initial issue.
• The face value of a share remains the same until the company declares the stock split.

Market value

The market value, of a share, is determined based on principles of demand and supply of the company’s share in the market. It is defined as the price at which an investor is willing to buy or sell a particular share, in a stock exchange at a specific market time.

• The actual market value of a stock is always influenced by the forces of supply and demand.
• If demand increases, market value will go up, and if supply increases, market value will go down.

Book Value

The book value means the value of a share of a company which reflected on its financial statements. Book value is the price that investors would get per share if the company decides to liquidate the company and sold all the assets and paid all its liabilities and obligations.

• Book value is the net value of a company in its balance sheet.
• Book value is roughly equal to the amount per share all shareholders will get if the company gets liqudated.
• Book value is the net asset value investors get by holding a share as it is the actual current value of a share.

In general, market value tends to be higher than book value, since the market value is influenced by the profitability and future growth prospects of a company.

If the market value is much higher, it means that the company has higher potential growth, so investors can invest in that company. If the market value is lower than the book value, it can be a positive or a negative situation for the buying decisions. Hence  Price-to-book ratio is a critical factor for an investment decision.

Price-to-book (P/B)

P/B ratio is a popular way to compare the market and book value of a company.

Price-to-book (P/B) = Market value / Book value

• A lower ratio indicates it can be an ideal time for an investor to buy more shares as the current market price is near to book value.

If an investor purchases a share at a low market value, and later the company decided to liquidate, the investor will get more money as per the book value of that company.

If the market value is lower than the book valve, it is ideal to buy, but there may be a reason for lower market value, hence need to explore the following fundamental analysis, before making and buying decision. 

EPS (TTM):-Earnings Per Share

EPS   means  Earnings per Share 

TTM  means  Trailing Twelve Months.

EPS (TTM) means the total profits a company has made over the last 12 months divided by the outstanding total shares, I.e. earnings made per share. TTM can be any last consecutive 12 months, it is not necessary the company’s last financial year. Below is the earnings per share calculation formula.

EPS = Total profit in last 12 months / Total no of shares.

 Earnings per Share= (Net Income − Preferred Dividends ) / End-of-Period Common  Outstanding Shares of the company.

 Consider the below example:

The company's net profit in last 12 months is: 1000 crores

The number of shares outstanding is: 100 Crores 

EPS = 1000 crores/ 100 Crores = 10

 EPS indicates the company’s profitability. The higher EPS value of the company represents the company is under the more profitable condition.

• EPS shows, how much money an organization makes for each share.
• EPS is widely used to estimate the companies corporate value. Higher the EPS, the more the value.

For an investor, if the companies EPS is higher, it is ideal for an investor to make a buying decision, as the profitability of the company is more.

P/E:-Price-to-Earnings Ratio

The price-to-earnings ratio (P/E ratio) is the ratio that indicates the value of a company, it is measured by dividing the current share price by its earnings-per-share (EPS). P/E ratios are used by investors to determine the relative value of a company’s shares.

P/E Ratio= Current market price of share / EPS of the company.​

• P/E ratio shows whether a company’s stock price is undervalued or overvalued.
• The Price-to-earnings ratio indicates how much cash an investor needs to invest in a company in order to earn one rupee profit from that company’s earnings.

I.e. P/E of 5 indicates that investors need to pay 5 INR to earn one INR in a year.

Lower the value of the P/E is good for the investor to make a buying decision, as it gives more return on investment.

A high P/E ratio means either of below

• Either the company’s stock is over-valued or the Investors are expecting high growth rates in the near

A low P/E might indicate either of below

• Either the current companies stock price is undervalued or the Investors are expecting low-growth rates in the near

P/E ratio indicates the price which investors are willing to pay for a stock of companies, based on its future and past earnings.

Two kinds of P/E ratios are derived

• Forward P/E:- Calculate based on the forecast earnings.
• Trailing P/E:- Calculated based on the past performance.

Industry P/E

PE ratios could depend upon the industry performance.

The industry P/E is calculated by taking the median of P/E of all the companies in the industry or sector.

• Industry P/E performance is decided on the basis of the historical P/E average of all the companies in the industry.

If the P/E of a company is a lower value compared to the industry P/E, that means, the performance of that particular company is better than the average industry performance. I.e. it is ideal to invest in that company.

Dividend Yield

The dividend yield is the ratio of total dividends paid to shareholders to the market value per share. The dividend is a corporate action and the dividend yield is expressed in a percentage.

Dividend yield = (Annual dividend per share / Current share price ) X 100.

The dividend yield is also calculated by dividing the company’s total annual dividend payout by the total market capitalization.

As the higher value of dividend yield indicates, investors will get more money as dividends, for the shares they are holding. It is advisable to buy and hold more shares

Deliverable

Deliverable is the percentage of the number of shares taking delivery into Demat or selling from Demat account, out of the total quantity traded in a day in the trading account.

Below is the example shows the deliverable quantity to traded quantity.

The total traded quantity of a Stock of a company in a day is 100 lakh. In that 80 lakh quantity is for Intraday trading and remaining quantity of 20 lakh are the delivery order, these 20 lakhs of share is called the deliverable quantity. It is represented in percentage, hence the deliverable is 20%.

Deliverable = ((Total trade quantity - Total Intraday quantity) / Total trade quantity ) X 100.

• If the Deliverable percentage increases, it means, more investors are taking the delivery for holding it, which in turn means, the stock is bullish.
• If more buyers are coming, automatically demand will increase, and prices will increase. If Deliverables reducing, the price will reduce.

If the deliverable is increasing, it is advisable to buy and hold more shares as the chance of the market price getting increase is more.

Promoters.

A corporate promoter is a firm or person who worked for the formation of a company.  A promoter is a person who played a major role in making the business plan, raising capital from various sources to start the business and incorporate a company. promoters’ duties and liabilities are endless and their efficiency and capability decide the companies future performance.

A promoter can be referred to as the founder of a business.

• If the credibility of the promoter is more, investors can invest in the company with more confidence as the chance of getting a return will be more.

As per SEBI rules, promoters’ shareholding in listed companies should be a maximum of 75% of the total no of shares. If the holding is more than 75 percent, the promoter needs to bring down the holding below 75% within three years from the date of listing.

Investors can invest in a company with confidence if the credibility of the promoter is more.

CONCLUSION:

Fundamental analysts are concerned with a stock’s valuation and the price at which it is trading. Technical analysis is concerned with the performance of the stock price movement on the basis of stock’s supply and demand. If an investor chooses a stock that is fundamentally strong, which will in-turn gives a guaranteed return in the long run. It is ideal to select a fundamentally strong stock for meeting the financial goals in the long run.

This article covers the basic fundamental analysis techniques and the following article will cover the Fundamental analysis vs Technical analysis. There are many share market learning books available in the market which covers the Technical analysis and charts, fundamental analysis methods, and tools in detail.

Thanks & Regards.

MyMoneyBooks.

This blog is designed to answer the top general 50 questions people asked on Google. All the questions are answered in simple bullet points format for easy understanding of the users. This blog mainly covers the questions about equity, share market, and futures and options. After going through all the below questions, a newcomer to the share market will have a basic idea about the share market and how to make money from it.

Open Demat Account

1. What is the share market and how it works?

• Share market is the place to trade the shares of pubic listed companies.
• Companies float shares to the public through an initial public offering (IPO) to raise capital in the Primary market, through investment banks, financial institutions, brokers…
• Then these listed stocks bought or sold on an exchange, these exchange is share market.
• A share market is a secondary market where traders can sell and buy stocks among themselves.
• The stock market works much like an auction house, it enables sellers and buyers to negotiate prices and make trades.
• In the stock market, Investors can sell and buy these stocks among themselves.
• The stock exchange tracks the demand and supply of each listed stock.

2. What is the difference between the share market and the stock market?

• In operation wise, both stock market and share market is similar in operation.
• The difference between the share market and the stock market is, in the share market only shares of the listed companies are allowed for trading but in the stock market, traders can trade any financial instruments like Shares, Mutual funds, Bonds, Derivatives…

3. what is the Demat account?

• A Demat account is an account that is used to hold securities and shares of companies in electronic format.
• Dematerialised (means converted from physical to electronic form) account is the full form of Demat account.
• The purpose of the Demat account is to hold shares in dematerialized form and trade the shares online, through any trading platform provided by brokers.

4. Is the Demat account safe?

• Demat accounts are safe and secure.
• Demat accounts are opened with the NSDL or CDSL, both depositories have their own security measures to protect the holdings of investors.
• All the brokers also take their own security measures to avoide the misuse of Demat account.

5. Is the Demat account free?

• Now most brokers made the account opening free, but need to pay a maintenance fee every year.
• If it is a basic Demat account then there are no charges up to the certain limit of holdings.
• Some brokers charge to customers monthly and some yearly to the customers.

6. Which is better CDSL or NSDL?

• Technically there is no difference between NSDL and CDSL depositories.
• NSDL started in the year 1996 and CDSL started in the year 1999.
• In NSDL, NSE is the largest shareholder and CDSL has BSE as the shareholder.
• Depository charges of CDSL and NSDL are slightly different.
• The revenue source for depositories is the DP charges which they charge during the sell order.

7. What is the stock market?

• A stock market is a network of exchanges used to trade the shares of companies listed on an exchange.
• The stock market is a safe and regulated auction house where sellers and buyers can negotiate prices and trade on the stocks of listed companies or any financial instruments.

8. How can I open a Demat account?

A Step-by-Step Guide to Open a Demat Account

Step 1: Choose the broker on which, we prefer to open the account.

Step 2: Submit Demat Account Opening Form in an online or offline format

Step 3: Fulfill KYC (Know Your Customer) Norms in the portal.

Step 4: Complete the Verification Process.

Step 5: Upload all the required documents in an online format or submit signed documents to the respective office.

Step 6: Get the Demat ID Number from the broker.

9. Can we withdraw money from the Demat account?

• Our money is in the Trading account not in the Demat account.
• We can withdraw money from the trading account at any time, but for some brokers, it will take some processing time.
• To withdraw money customers need to login to the online portal of trading account and select the option ‘funds'( option name vary broker to broker) and select the withdraw funds option in it.

10. Can I have 2 Demat accounts?

• Yes, investors can have multiple Demat accounts
• It is legitimate to have multiple Demat accounts and trading accounts, with different brokers.
• It is not allowed to have multiple trading and Demat accounts with the same broker or the same DP.

11. Is NSDL a govement company?

• Both CDSL- Central Depository Services (India) Limited and NSDL- National Securities Depository Ltd. are government registered share depositories in India.
• The function of both depositories is to hold shares in an electronic form.

12. How do I know if CDSL or NSDL?

• By checking the first 2 digits ( 1^stand 2^nd out of 16-digit) of the Demat account, the account holder can identify, it is with CDSL or NSDL.
• If the account has only numeric character, then it is with CDSL (Eg:1234567812345678)
• If the account number starts with “IN” and followed by a 14 numeric code, then is with NSDL( Eg: IN12345678912345).

13. How to buy shares?

• We can buy stocks or shares through any online stockbroker, by opening an account with them.
• Once we open the account and add funds to the trading account, you can buy stocks through the broker’s trading platform or through the website.
• Other options are directly or over phone trading services provided by full-service stockbrokers.
• Also, we can buy stock directly from the company or through applying IPO.

14. What are the minimum and maximum age limits for opening a Demat account?

• There is no minimum age limit for investors to open a Demat account and invest in the stock market.
• Both adult and a minor can invest in stocks after submitting their respective documents for account opening.
• For a minor account, it must be opened in a minor’s name by the parents or the appointed guardian.

15. What is NSDL DP?

• DP is the short form of Depository Participants, who is an intermediary (Broker) between investors and the depository (NSDL or CDSL).
• NSDL depository provides its services to investors through Depository Participants (DP), who work as market intermediaries.
• All DP comes under SEBI regulations.
• DP is a financial service providing organization.
• DP can be banks, share brokers, custodians in the share market, financial institutions who provide the service to investors.

16. What trading account means?

• In simple language, the Trading account is an account used to trade shares, bonds, commodities…
• A trading account helps investors or traders to trade securities, cash, or other holdings.
• In the share market domain, a trading account is a primary account in 2 in 1 or 3 in 1 account for traders.

17. How do I start a trading account?

Step by step process to open a trading account:

Step 1: Select the stockbroker or firm with whom need to open the account.

Step 2: Compare brokerage rates and other charges for trading.

Step 3: Decide the mode of opening online or offline. Most discount brokers provide offline account opening options.

Step 4: In the online method, fill up the details and upload the required documents. In the offline method, visit the office and submit the required documents.

Step 5: Re-verify all the details and submit, remaining process broker will take care of.

18. Is day trading illegal?

• Buying and selling or vice versa in a single day are called day trading.
• Day trading is neither unethical nor illegal.
• Day trading is highly risky if do it without learning it.
• Day traders should have emotional control to handle the losses, which day trading can bring.

19. What is the share market meaning?

• Share market means a market where selling and buying of share happens.
• A unit of ownership of the company is called Share of the company.
• By buying shares of a company, an investor become the partial owner of the company.
• If the company grows, the value of share also increases and the invested asset will increase.
• Investors will get profit by selling the shares of the companies if it is more than the buy price.

20. How do we buy shares?

• We can buy or sell stocks through an online stockbroker trading platform.
• Once the fund added to the trading account, we can buy stocks through the broker’s trading platform during market hours.
• If it is a full-service broker, investors can buy stock directly from the office or over the phone trading service during the market hour.
• Some discount brokers also provide phone trading services.

21. What are the 2 types of stocks?

• Common stock and preferred stock are the two main types of stocks of companies.
• Common stock is an equity share of a company, i.e a security that represents partial ownership in the company. At the time of liquidation of companies, common stockholders get only whatever assets remain after paying for bondholders, creditors, and preferred stockholders.
• Preferred stock is like a combination of equity and a debt instrument It is generally considered a hybrid financial instrument. During liquidation Preferred stockholder receives the money along as a creditor in the company.

22. How many shares should I buy?

• An investor can buy any number of shares, which traded in the share market.
• About 20 different companies from different sectors are ideal diversification number, advised by most financial experts.
• During the selection of stocks, it is advisable to diversify across industries and sectors.

23. How do I start investing?

• The first step is to open a Demat and trading account with a broker.
• Select the companies that need to invest.
• Prepare financial planning including goals.
• Buy the stocks as per our preference, which will help to meet our financial goals.

24. When should I buy stocks?

• For investment, there is no right time to buy shares, any time we can buy and start investing.
• If it’s for long term investment, only consider fundamentally strong companies.
• It is the responsibility of every investor to do research and get confident that price will rise in the short or long term, before investing.

25. How do you make money from stocks?

• An investor can make money by booking profit at the time of selling of stocks.
• Investors can also earn money by getting dividends from the companies.
• Dividends are usually paid on a yearly or half-year or quarterly basis to the shareholders.

26. How can you select a good stock?

Below are the 8 things to consider in selecting the stocks.

1. Market Capitalization
2. Stock price
3. Possibility of revenue growth of companies.
4. Earnings Per Share of the stock.
5. Dividend yield.
6. Historical prices data at least for last 5 years
7. Positive technical analysis
8. The Sector

27. Where do I buy stocks?

• Investors can buy and trade it in the stock market through brokers’ trading account.
• First, need to open a Trading and Demat account with a stockbroker, and then using their platform investors can buy stocks

28. What are the different stock sectors?

There are basically 1o main sectors in the stock market based on domain

1. Information Technology.
2. Financial sector.
3. Consumer
4. Energy
5. Utilities.
6. Health Care.
7. Real Estate.
8. Materials.
9. Communication Services.
10. Consumer Staples.

29. Can I buy 1 share?

• There is no minimum order limit to buy shares from the stock market.
• An investor can buy 1 share of listed companies in stock

30. Can you get rich from stocks?

• An investor can get rich from the stock market if invested in growing companies.
• To get rich investors to need to wait for a long time frame like 10 to 15 years.

31. Can I buy a share today and sell tomorrow (BTST)?

• Some brokers provide the option of BTST, Buy Today, Sell Tomorrow.
• Traders can sell the shares before the actual delivery before credited in the Demat account.
• With BTST option, a trader can sell shares within T+2 days.

32. Should I buy red or green stocks?

• An investor can buy green or red stock.
• Green means the prices in the recent past have gone up (positive momentum), whilst Red means prices have gone down( negative momentum).
• It is advisable to buy stocks that have the chance of having positive momentum.

33. What is a good price for a stock?

• If P/B (price-to-book) ratio is less than 1 is considered as a good value for a stock to purchase.
• If the value is less than 1 is indicating undervalued stock.
• Some value investors consider P/B value under 3.0 is potential to buy.

34. How are the stock’s total holdings calculated?

• The number of shares of stock holding multiplied by the current market price is the method to calculate the total holdings.

35. What time of day is best to buy stocks?

• Regular trading begins at 9:00 m. and ends at 3:30 PM.
• The best trading time of the day is between 9:30 AM and 3:00 PM as the market will be comparatively stable after half an hour of market opening and half an hour before market closing.

36. What is a good amount of money to invest?

• It is ideal to decide on the base of percentage of Income.
• Between 10% and 15% of your annual income is the amount most financial planners advise.
• If possible to invest more percentage in value stocks will help to create wealth early.

37. Can I sell intraday share the next day?

• Intraday trade needs to square off before the market hour close.
• Some brokers allow converting Intraday position into delivery by paying the balance trading amount.
• It is advisable to close the trade position in a day itself.

38. Can I sell shares without buying?

• Traders can sell the stock without buying using the short sell option provided by the brokers.
• Using the short sell method, traders can make money in equities markets without owning shares, during downtrend.
• Using short sell, the trader is borrowing stock from a broker and sell the borrowed stock, and then buy it when the price drops.

39. Can I sell futures without buying?

• Yes, futures can sell without buying them.
• Trader cannot realize a profit or loss in futures trading until square off the position.
• Square off means placing an apposite position order for the same quantity later.

40. How can I buy a future?

• A futures contract is an agreement on an underline asset that traded on an exchange.
• In a future contract, one party agrees to buy a given quantity of securities on a future date and another selling party agrees to provide it.

41. How can I buy Nifty options?

• First need to add the NIFTY options to the watch list and select CE or PE, which need to buy.
• Select the strike price and buy CE or PE by paying the premium.

42. Why is the option better than the future?

• Option contract provides only the right to the buyer, not an obligation.
• In option, the maximum risk to the buyer is limited to the premium paid.

43. What is the future in the share market?

• Futures share market is a financial contract on an underlying asset.
• A futures contract is an agreement between the buyer and seller to sell or buy a specified quantity of underlying equity share upon a price agreed on a future date.

44. Can I buy Nifty 50?

• There is no option for an investor to buys Nifty 50 directly.
• Nifty 50 is an Index comprising of the top 50 stocks listed in the share market.
• We can buy 50 stocks in the Index so that we will get the same growth as Nifty 50 grows.

45. What is F&O trading?

• F&O stands for Futures and Options, it is a derivative of shares in the stock market.
• F&O derive their values from an underlying asset such as shares, currency, gold…

 46. What is F&O expiry?

• For every F&O contract, it will have an expiry date i.e. up to that date only the F&O contract is valid.
• Before an option expires, its owners need to square off the position to realize their profit or loss.

 47. Can I buy Bank Nifty?

• Bank Nifty can buy like any other option contract.
• Bank Nifty comprising 30 shares of different listed banks.
• A trader can buy a call or put option on the base of a bullish or bearish market.

48. Can I buy Nifty intraday?

• Yes, it is possible to buy or sell nifty options intraday.
• The process of Nifty intraday trade is similar to normal option trade.

49. Can we invest directly in Sensex?

• The Nifty consists of the top 50 listed companies of the share market and Sensex consist of 30 companies.
• An investor can invest in the companies that come in this list so that they will get the same growth of Sensex or Nifty.

50. What is PE & CE?

• PE & CE are the two terms of options trading PE-Put Option and CE- Call Option.
• CE stands for “call European” (Right to Buy) and PE stands for “Put European” (Right to Sell).
• When the market goes up, the premium will go up and when underlying security’s price goes down PE premium goes up.

CONCLUSION:

Share market is the place where people can buy and sell shares and make a profit. There are many ways traders can make money from the share market like intraday, BTST, short sell, position trading… More than a trading instrument, the share market is a perfect investment option for those who would like to have financial growth. Every investor needs to learn at least fundamental and technical analysis before investing in the stock market.

Thanks and Regards

Harry

The objectives of personal finance learning for newbie earners are to get them basic financial knowledge and necessary tools that help them to build the life which they envision. This personal financial learning for newbie earners blog will cover the basics about the following 4 topics which are essential for all new earners to understand before getting the first salary in hand.

1. 10 easy Investment options for newbie earners.
2. What is Personal financial literacy?
3. What are Personal financial responsibilities?
4. How to excellent Personal financial literacy?

10 easy investment options for newbie earners.

Saving and investing our hard-earned money in the right options is one of the important financial decisions of newbie earners. Personal financial learning helps newbie earners to take suitable decisions in selecting investment options among low-risk, medium-risk, and high-risk investments.

In general, bank FD, RD, ULIP, PPF  NPS… are considered low-risk savings and investment options. Equity and market-linked investments like MF and direct equity investments are considered high-risk investments. A combination of market-linked investments and fixed return investments are considered as medium-risk investments.

10 easy investment options for newbie earners.

1. Bank FD-Fixed Deposit & RD- Recurring Deposit.

• In RD-Recurring deposit, investment is made at a fixed period regularly for the predefined time period.
• FD- Fixed deposit is the investment in which investment is done for one-time for a specific period of time.
• For both, the percentage interest rate for the invested amount will remain the same.

2. ULIP – Unit-linked Insurance Plan.

• Unit Linked Insurance Plans (ULIPs) is moderate risk, a goal-based financial instrument that offers benefits of protection and Investment for the long term.
• Unit linked Insurance Plan is linked directly to the equity market.
• It offers flexibility to invest units in debt funds or in equity depending upon our risk appetite.
• ULIPs provide long term capital gains and also offer a protection cover.

3. PPF- Public provident fund.

• The public provident fund scheme is a safe and low-risk financial instrument.
• PPF is mandated by the government and provides a fixed return.
• The minimum time period is for 15 years and it can be continued.
• The investment minimum amount is 500 rupees and a maximum of 1.5 Lakh annually.
• PPF provides the option to avail loan against the amount in the account.

4. MF- Mutual Funds.

• A mutual fund is a market-linked financial instrument that pools money from a group of investors and put it into a portfolio of financial instruments.
• The portfolio includes stocks, bonds, and government securities…
• Buying and selling shares in a mutual fund are doing as units of portfolio.
• The risk of Mutual fund investment, Is based on the financial instrument on with the units are invested.

5. NPS- National Pension Scheme.

• NPS is a government-sponsored pension scheme.
• During retirement, NPS allows investors to withdraw a part of the corpus and use the remaining corpus to buy an annuity of security.
• NPS helps investors to get a regular income after retirement.

6. Investment in Direct Equity.

• Direct equity investment is a high-risk investment that will ensure long term growth.
• Growth of our investment fund based on the way the price of a share of the company performs.
• Investors are eligible for getting the dividend as and when companies offer it to the shareholders.

7. Bonds come under RBI Regulations.

• Bonds are fixed-income instruments, hence it is a low-risk instrument.
• Bonds issued by government bodies or companies to raise capital from investors.
• During maturity, investors will get back the investment amount with interest.
• Bonds are available as Fixed-Rate Bonds and Floating-Rate Bonds

8. Gold / Gold ETF

• Gold-ETF (Exchange Traded Fund), is a commodity-based Mutual Fund investment.
• In Gold- ETF amount is invested in assets like gold.
• Gold ETF  investors will get the unit’s equivalent in cash instead of actual gold.

9. Post Office Saving Scheme.

• Most of the post office fixed deposit investment is for a period of 10 years.
• It is a low-risk investment and provides a higher return than normal bank FD.
• The annual interest of the deposit is credited to the investor’s savings account.

10. IPO – Initial Public Offerings.

• Through IPO shares of a private company are offered to the public.
• Once the IPO is realized, investors can apply through the Demat account and get it.
• IPOs help companies to obtain capital through the primary market.

Well thought out decision based on personal financial literacy is needed to select the suitable investment options, which help newbie earners to meet the Personal financial responsibilities.

What Is Personal Financial Literacy?

Personal Financial literacy is the capability to understand the financial principles, which help to manage money effectively and wisely. The essential part of personal financial literacy is knowing how to manage money. To become personal financial literate, newbie earners need to take a step to implement personal financial principles in life.

• Financial Literacy is important for newbie earners because a proper understanding of personal finance concepts helps them to manage the earning effectively.
• Money is easy to mismanage, it will lead to a financial struggle in the future.
• If newbie earners spend time to learn how to manage money and apply those skills in life, they can build wealth easily.

What Are The Benefits of Personal Financial Literacy?

The benefits of personal financial literacy are countless however here are a few important points to the lookout.

• Net worth will grow continually, irrespective of what you earn.
• Helps to avoid going into debt, even with lower earnings.
• Less Financial Struggle in the older ages, even if don’t have any income.
• Better Household Finances, even in the situation of increasing expense.

What are personal financial responsibilities?

Financial responsibility means having a lifestyle that meets the social standards within means, regardless of the level of income. To succeed in personal finances, newbie earners needs to have a close look at the financial situations, evaluate earning, and make adjustments in the spending habits to match it. As Financial responsibility had a big impact on the future, it is important to expertise on personal financial literacy from an early stage of earnings.

Key points of Personal Financial Responsibilities. 

• The management of personal finances effectively to meet the financial needs of individuals and family.
• Meeting the standard of lifestyle irrespective of economic, cultural, social, and technologies.
• Able to support yourself and family financially for at least six months irrespective of zero income and adverse circumstance.
• Having an organized plan for saving and spending money.
• Making the right decisions early in life to become financially independent and having a comfortable retirement life.
• Understanding the four basic components of finance, like income, Expenses, Assets, and Dept.
• Having a good understanding of the difference between a Good and Bad Debt

To get expertise in the subject of personal finance, one need to understand personal financial planning concepts and applications. Application of Personal finance includes cash in and outflow, net worth and asset, income taxes, insurance, and consumer debt… A Financially Responsible person avoids Debt and should meet the financial emergencies from the savings or investments.

How to excel in personal financial literacy?

People will spend years getting a degree to get a well-paid career. To manage the earnings from the career newbie earners need proper financial literacy. It doesn’t take years to get financial literacy for beginners. With a focused effort, anyone can become financially literate over the course of a few weeks.

To develop personal finance literacy, newbie financial learners have many options like,

• Take a paid or free courses online or offline from some experts,
• By reading a couple of personal finance for beginners books.
• Learning from YouTube, Blogs, or Articles from any search engine.

5 practical steps to excel in personal financial literacy.

In-spite of learning to become experts in the domain of financial literacy needs to practice the following 5 steps.

1. Track Your Income and Net Worth.

• The difference between assets and debt tells where newbie earners stand financially.
• Keep an eye on income and expense help to keep the track of the progress of financial literacy.
• Manage Money by Creating a personal investment portfolio help to increase the net worth, irrespective of earning.
• Newbie Earners need to focus on regulating expenses wisely to become Personal financial responsible in society.

2. Set a Budget, time Period.

• As part of Personal Financial Learning, all newbie Earners should prepare a checklist of expenses.
• The checklist helps to knockout unwanted expenses and meet the personal budget with within the income.
• This budgeting is the starting point of for financial goals in life.
• Proper budgeting help to spend judiciously and deal with surplus cash.

3. Take a Daily Money Minute

• It is important to spend at least one minute every day to check financial transactions.
• Now there are many online apps available to manage and monitor our daily expenses.
• Preparation of money minutes helps to identify overall expenses and keep track of financial goal progress.
• This also helps to set the spending tone for the rest of the days in the month.
• In money minutes it is important to add a personal balance sheet and tax paid.

4. Allocate at Least 20% for the future.

• Planning for Retirement should be one of the prime objectives of Personal financial responsibilities.
• Newbie earners need to priorities, their savings, and investments.
• First priority of fund allocation should for building up emergency savings and retirement funds.
• Managing the debt wisely will help to safeguard the money for the future.

5. Spend at least 10% of Your Income on Lifestyle and fun.

• Spending the money for lifestyle and fun is an important part of Personal financial learning for Newbie Earners.
• If we don’t spend the money for the fun, during our retirement age, we may have a corpus of the amount in our hand, however, it may lead to regret about not enjoying life at a younger age.
• Income for Lifestyle and fun should include movies, outing, travel… ideally anything that doesn’t cover under the basic life

Conclusion:

For newbie earners, it is essential to spend time developing Personal financial literacy. through that, they can meet Personal financial responsibilities. Making proper budgeting and tracking the expenses is the fundamental of Personal financial literacy. The goal of every newbie earner should be to have a hassle-free retirement life with financial freedom, as early as possible. Practicing the knowledge earned through financial literacy is an important factor to enhance the skills.

Thanks & Regards.

Harry.