Investment Planning – Meaning & Importance
Is keeping money in a locker "Investing"? No, that's Hoarding. Investing means putting money to work to generate more money. Investment Planning is the roadmap for this journey.
1. Savings vs Investing
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2. The Risk-Return Trade-off
In finance, there is no free lunch. Higher return always demands higher risk.
| Asset Class | Risk Level | Expected Return | Ideal Time Horizon |
|---|---|---|---|
| Fixed Deposit / PPF | Low | 6% - 7% (Stable) | 1-5 Years |
| Corporate Bonds | Medium | 8% - 9% (Moderate) | 3-5 Years |
| Real Estate | High | Variable (Illiquid) | 10+ Years |
| Equity (Stocks) | Very High | 12% - 15% (Volatile) | 7+ Years |
Insight: You cannot get 15% return with "Safe" FD safety.
3. Case Study: The Inflation Trap
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4. The Investing Process
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5. Exam Notes: Writing the Answer
Question: "Distinguish between Savings and Investment." (5 Marks)
Key Points:
- Objective: Saving is for safety; Investing is for growth.
- Risk: Saving is risk-free; Investing carries market risk.
- Liquidity: Saving is highly liquid (ATM); Investing is less liquid (Lock-ins).
- Protection: Only Investing protects against Inflation in the long run.
Summary
- Necessity: Investing is not optional. It is the only way to maintain purchasing power.
- Asset Allocation: Don't put all eggs in one basket.
- Horizon: Match the product to the time horizon (Stocks for long term, FD for short term).
Quiz Time! 🎯
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