Category Archive : Basic Concepts

What is Financial Freedom?

What Does Financial Freedom Mean To You?


India is celebrating its 72nd Independence Day tomorrow on 15th August 2019. So Lets discuss about what is financial freedom or financial independence from personal finance perspective. What Does Financial Freedom Mean To You?

What is Financial Freedom?

  • As we all know, India got the freedom on 15th August 1947. This freedom was an outcome of sacrifices made by great leaders.
  • In the same context, for investors, financial freedom will come at the cost of years of savings and tactical investments to create wealth.
  • Financial independence is about taking ownership of your finances. You have a dependable cash flow that allows you to live the life you want. You aren’t worrying about how you’ll pay your bills or sudden expenses. And you aren’t burdened with a pile of debt.
  • It’s about recognizing that you need more money to pay down debt and maybe increasing your income with a side hustle – we’ll get to that in just a minute. It’s also about planning your long-term financial situation by actively saving for a rainy day or retirement.

Key Features of Financial Freedom vs Debt

What is Financial Freedom?
What is Financial Freedom?

What Does Financial Freedom Mean To You?

  • How about you being able to celebrate your own Independence Day or your Financial Independence Day to be more precise.
  • What Does Financial Freedom Mean To You? Does earning a big salary mean financial Freedom? In spite of having a high salary, why people many a times feel cash strapped when some emergency strikes? 
  • The answer is simple for those who understand the difference between income and wealth, and how to create it manage to be financially independent.
  • Also we need to value money for what it is and look at the money positively as an investment or savings than as a expense.
  • Income is merely the flow of money that enables you to meet your day to day expenses, provide for your living, some leisure and wants to be able to survive.
  • Whereas wealth is an outcome of what you do with the income and how well you accumulate and improve your financial strength to be able to sustain for a long term.
Financial Planning
Financial Independence and Investing
  • According to financial goals or objectives, Investing is the right way to achieve financial independence.
  • Apart from the traditional investment options, experts are of the view that equities alone can get you the financial independence.
  • Investing is not a one-time activity but more of a continuous process. The investment methodology will be different when you start investing in your 20’s and will change when you turn 40 and later on towards your retirement age, above 60’s.


In short, financial freedom is when you don’t have any kind of financial stress or any worries. Your investments are in the right place and are in a position working hard for you.

4 Financial Lessons Our Parents Tought Us

4 Financial Lessons Our Parents Tought Us

Parents’ Day Special Message From InvestYadnya


On the occasion of Parents’ Day, lets see 4 Financial Lessons Our Parents Tought Us, in this article. Our financial education starts from our parents. Parent’s Day acknowledges the overpowering presence of parents in children’s life. It is celebrated on forth sunday of July every year. Thus, for 2019, it is on 28th July.

4 Financial Lessons Our Parents Tought Us

Parent’s Day Festival

  • Parent’s Day is dedicated to parents all over the world. It is an occasion to show appreciation for their commitment to strengthen the family bond and to create an atmosphere of happiness, love and understanding.
  • It is parents who mould their personality according to their inherent strengths and talents and bequeath to them moral values and the spirit of living life wholly.
  • There is a constant flow of positive energy from the parent to the child which nourishes and strengthens the familial bond and sustains for a lifetime.

What Are The Financial Lessons Our Parents Tought Us?

4 Financial Lessons Our Parents Tought Us
4 Financial Lessons Our Parents Tought Us
1.Learn Basics of Budgeting
  • We must have seen our parents tallying thier monthly expenses, keep track of how much grossary, light bills, petrol expenses occured or hang a “to do” list on the refrigerator.
  • We probably didn’t think much of it but this is called budgeting – to understand your incomes and expenses and tracking it.
2.Importance of Saving
  • Our Parents gave us the first lesson in saving by not allowing us to spend all our pocket money and save it for our bigger future need – a bicycle or a video game
  • Saving helps us avoid debt and achieve big financial goals, like buying a house, Higher Education, or retiring. 
3.Start Early
  • Our parents always talk about benefits of starting our day early so we don’t get late for school or our interview or office.
  • This rule applies to money very well, Warren Buffet started investing at age 11 and said he was probably late. So we should start investing early.
4.Don’t waste Your Money
  • There’s one thing most parents excel at, it’s saying “no.” “No, you can’t always have the things/ comforts / luxuries you want.” You have to learn to differntiate between your needs and your wants and thus to control your wants.
  • This teaches us an important financial lesson of not wasting our money on unnecessary wants and impulse buys

Wealth Management v/s Financial Planning

Wealth Management v/s Financial Planning

Difference Between Wealth Management & Financial Planning


In this article, we are going to compare wealth management v/s financial planning. These two terms – wealth management and financial planning are often used interchangeably in investment world and interpreted as the same. However, there are some key differences.

Wealth Management v/s Financial Planning

Wealth Management v/s Financial Planning
Wealth Management v/s Financial Planning


  1. Wealth Management
    • In simple words, Wealth is an accumulated resource or the value of existing assets a person own. Generally, Net worth is a measure of wealth of an individual. Wealth management is all about managing one’s wealth/ Net worth.
    • As part of wealth management, investors often actively try to identify and take advantage of profit-making opportunities.
  2. Financial planning
    • While Financial planning is a comprehensive assessment of your financial situation and your future goals. It involves creating a financial plan to help you answer important questions such as: How much do I need to save for retirement?
    • In short, Financial planning is the establishment of a process for attaining your financial goals by a thorough evaluation of your current financial status and exploring opportunities to improve it.


  1. Wealth management is an Opportunity-oriented personal finance management. It predominantly deals with preservation, growth and further accumulation of the existing wealth.
  2. On the other hand, Financial planning is Goal-oriented personal finance management. It mainly deals with building/creating the strategies to create wealth and meet financial goals either short-term or long-term.

3.For Whom

  1. Wealth mangement is basically meant for the high net worth individuals. Thus, wealth management is undertaken by wealthy people who have already achieved or fulfilled their basic financial goals.
  2. Financial Planning is for every individual who are yet to meet their financial goals It is for anyone who wants to make the best out of the money they have, through personal finance, to meet their financial goals; be it short-term or long-term. Financial planning does it by taking your income, expense and savings into account and balancing them.

4.Comprises of

  1. Wealth management comprises of :
    • Wealth Assessment
    • Risk Tolerance Assessment
    • Asset Allocation
    • Wealth Preservation Strategy
    • Wealth Growth Strategy
  2. Financial planning comprises of :

5.Type of Management

  • Wealth Management is a Active wealth management process. Here, a wealth manager will make decisions based on your portfolio, your risk tolerance and your preference for wealth preservation or wealth growth. The wealth manager will execute the asset allocation by investing in various asset classes based on your risk profile.
  • On the other hand, Financial planning is a Passive wealth management process. In this, a financial planner will make and suggest a plan based on income and the financial goals. The financial planner suggests the asset allocation based on your risk profile.

6.Financial Decisions/ Recommondations are Based on

  • In case of wealth management, wealth manager takes financial decisions by considering only your investment portfolio. Alternative assets such as private equity, real estate might also be considered.
  • While in case of financial planning, financial recommondations are given considerating the financial goals and the time horizon for realising those goals.


  • A holistic plan will help you identify your risks, fix your income leakages, set measurable goals, and create wealth in the process. Financial planning does not require you to have sufficient wealth. As you execute the plan, you will be able to create an investible surplus, cover your risks through insurance and make investments suiting your risk profile. You can create your free financial plan by visiting our website-
  • On the other hand, wealth management comes into picture when you have created wealth and need professional help to grow, preserve and enjoy your wealth. It requires the active monitoring of the wealth manager to identify the right mix of investments for you. Having a financial plan in place is the first step to create wealth.
5 Golden Questions of Financial Planning

5 Golden Questions about Financial Planning

Questions about Financial Planning To Ask Yourself !


In this article, we are going to discuss the 5 Golden Questions about Financial Planning. Before you start the financial planning process and building your portfolio, you should ask these questions yourself.

5 Golden Questions About Financial Planning

Here are the 5 Golden questions about financial planning which should get answered before you build your portfolio.

5 Golden Questions of Financial Planning
5 Golden Questions about Financial Planning

1.Net Worth?

  • When you start with your financial planning, you should first check the status of your Net Worth? Where do you stand? What is your current Net Worth?
  • For calculating the net worth, we should know the two aspects – Assets and Liabilities. What are your current Assets and current Liabilities?
  • When you are calculating your net worth from financial planning point of view, you should include only your financial assets in assets heads. Don’t include your real estate assets here because of the difficulties in the liquidation of real estate assets. While you can liquidate the financial assets whenever you are going to achieve your financial goals.
  • Following assets are considered as financials assets –
    1. Equity side : Equity Stocks, Equity mutual funds, ULIPs
    2. Debt side : Fixed Deposits, Debt Funds, PPF, EPF, LIC policy
    3. Liquid : Savings Account, Current Account, Liquid Funds
  • Net Worth = Assets – Liabilities
  • Thus, You can get an idea of your existing assets from the net worth number. And thereby. You can link these existing assets with your financial plan.
  • Thus, knowing your current net worth is the key parameter of financial planning.

2.Financial Goals?

  • Secondly, you should ask yourself what are my financial goals?
  • There are 3 types of financial goals based on the horizon :
    1. Short-term Financial Goals : Realising in 0-3 years
    2. Medium-term Financial Goals : Realising in 3-5 years
    3. Long-term Financial Goals : Realising in 5+ years
  • So you should enlist your financial goals according the horizon and then categorize them accordingly. While enlisting the financial goals, there are mainly two types :
  • Need-based goals and Want-based goals. So you should understand what are your need and should cover them on priority. Thus, after covering your needs, you can plan for your wants with the surplus available with you.
  • In the Indian context, Need-based Financial Goals are First Home, Children Education, Children Marriage, Retirement etc. On the other hand, Want-based goals are Vacation, Big Car, Foreign Trips etc.

3.Amount Required For Achieving The Goals?

  • Here, we calculate the amount that will be required for achieving/realising your financial goals. In this parameters, you should analyse how realistic are your goals? You can get the amount required for your goals as of today. But for achieving your future goals, you should always consider the inflation.
  • When you are considering the life-style inflation, you should take inflation range to be 7%-8% per annum.
  • While the education inflation is recommended to be at 10%. The recommendation of education inflation is based on the historical education expenses and its percentage growth.
  • Therefore, Inflation is a significant factor in calculation of amount required for achieving the goals.

4.Risk Appetite or Risk Taking Capacity?

  • It is also a very important factor in financial planning. You should first ask yourself, what is my risk taking capacity? Most of the investors enter into the market just by seeing the returns of the last 1-2 years. You should always focus on your risk appetite and your financial goals rather than investing blindly by going after the returns. Your financial planning process should not be return-driven only. So one must understand his risk taking capacity or how much volatility he can sustain.
  • For example, Are you ready for Averaging out of your portfolio, when it is down by say 10%? Many investors begin to redeem their investments instantly if below expected or negative returns are achieved. So, when there is a down-turn in the market cycle, you can realised exactly what is your risk taking capacity. Thus, you should build your portfolio accordingly.
  • If you are not ready to sustain such negative returns, then you should go with the less risky investment options such as Fixed Income Securities, Debt Funds, Government securities etc. And if your financial goals are not in a position to be achieved with such low volatile and low returns instruments, then you should toned down your financial goals. Because if you are not having that much risk appetite or having some behaviour management issues with volatile instruments to generate the expected returns, then it is advisable to scale down your financial goals.
  • Thus, rather than going into the equity out of your risk taking capacity just for higher returns, it is always better to be realistic with your portfolio according to your risk appetite. The underlying risk should also be taken into the consideration. Basically, we should not look at the market volatility as a risk. So just because of the volatility in the market, you should not redeem your investments.
  • So you should always analyse your portfolio properly before making such prompt or emotion-driven decisions.

5.Investment Options?

  • What are the different types of investment options? Normally, an investor with the higher risk taking capacity is advisable to choose equity investment options.
    1. On a broader base, a medium risk taking capacity investor is recommended to go with debt funds, RDs for the short-term financial goals realising in 0-3 years.
    2. For an investment horizon of 3-5 years, you can invest in Hybrid Funds. Hybrid funds are with a combination of Equity and Debt characteristics.
    3. For an investment horizon of 5-7 years, you can consider Large Cap Funds, Index Funds etc.
    4. If your investment horizon is 7-10years, then you can invest in Multicap Funds (ie. Mix of Large + Mid + Small Cap Stocks).
    5. And for an investment horizon of 10+ years and you are an aggressive investors, then you can choose Small cap  and Mid cap funds.
  • Here, we have discussed about only Mutual Funds and not the Stocks Investments. It is because when we are building our portfolio from the angle of financial planning, it is always better to stick to the mutual funds. Once, you have covered all your financial planning goals, then you can invest in the stocks with the available surplus funds with you. And you should build the mentality of investing in the stocks like a shareholder or a long-term investor and not like a trader.
  • For a more detailed comparative analysis, please refer our article :  Mutual Funds vs Stocks
  • You can try our stock subscription, here we have tried to make the retail investors understand the business model and the fundamental analysis of the stock. Rather than going for buying/selling target price of the stock, you should build an approach to become a long-term investor or a shareholder of the company. Thus, it is very important to understand the business of that stock to build that conviction for holding the stock in long-term.
Whar is a Commercial Paper

What is a Commercial Paper?

Benefits of Commercial Paper


Commercial Paper (CP) is a money market instrument in India, which was first introduced in 1990 in India as a short-term instrument. They are issued either in the form of a promissory note or in a dematerialised form through any of the depositories approved by and registered with SEBI.

What is a Commercial Paper?

  • Commercial Paper (CP) is an unsecured and negotiable money market instrument issued in the form of a promissory note issued by companies to raise funds generally for a time period up to one year. 
  • CPs are issued by highly rated corporate entities to raise short-term funds for meeting working capital requirements directly from the market instead of borrowing from banks.
  • CPs are not usually backed by any form of collaterals and are allowed to be issued only by corporate with high quality debt ratings. The issue of CP seeks to by-pass the intermediary role of the banking system.
What is a Commercial Paper?
What is a Commercial Paper?

Why Commercial papers were Introduced?

  • Commercial papers were introduced as a privately placed instrument for the Non-Banking Financial Companies (NBFCs) mainly to enable highly rated corporate borrowers to diversify their pattern of short time borrowings and to provide an enhanced instrument to the investors.
  • Eventually, all the primary dealers and all India Financial Institutions were permitted to issue commercial paper that enables them to meet the short-term funding requirements of their operations.

Few important things to note about commercial papers

Who Can Issue CP?

Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP. Prior approval of RBI is required before a company can issue CP in the market.

Eligibility for issuance of CP
  • The tangible net worth of the issuer company, as per the latest audited balance sheet, should not be less than Rs. 4 crore
  • The issuer company should have been sanctioned working capital limit by bank/s or all-India financial institution/s
  • Borrowal account of the company is to be classified as a Standard Asset by the financing bank/s/ institution/s.
Credit Rating Requirements for Issuer Company
  • The issuer company needs to obtain the credit rating either from CRISIL, ICRA, CARE, FITCH or any other credit rating agency (CRA) that may be specified by RBI.
  • The minimum credit rating shall be A-2 as per SEBI guidelines.
  • The issuers also needs to ensure that at the time of issuance of Commercial Paper the rating so obtained is current and has not fallen due for review. 
Maturity Period & Denomination for CPs
  • CPs can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. However, the maturity date of the instrument typically should not go beyond the date up to which the credit rating of the issuer is valid.
  • They can be issued in denominations of ₹ 5 lakh or multiples thereof. 
Mode of CP

CP has to be issued at a discount to face value. Discount rate has to be freely determined by the market.

Who can invest in CP?
  • Individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, non-resident Indians (NRIs) and foreign institutional investors (FIIs), etc can invest in CPs.
  • However, investment by FIIs would be within the limits set for them by Securities and Exchange Board of India (SEBI) from time-to-time.

Benefits of Commercial Papers

CPs have been introduced in the Indian market so as to provide a diversified source of funding to the borrowers as well as an additional investment option to the investors.

Benefits to the Issuer :

  1. Low interest expenses: The interest cost associated with the issuance of CP is normally expected to be less than the cost of bank financing.
  2. Access to short term funding: CP issuance provides a company with increased access to short term funding sources.
  3. Flexibility and liquidity: CP affords the issuer increased flexibility and liquidity in matching the exact amount and maturity of its debt to its current working capital requirement.
  4. Investor recognition: The issuance of CP provides the issuer with favourable exposure to major institutional investors as well as wider distribution of its debt.
  5. Ease and low cost of establishment: A CP programme can be established with ease at a low cost, once the basic criteria have been satisfied.
  6. No Collaterals – CPs can be issued with any collateral so very less paperwork and formalities required.

Benefits to the Investor :

  1. Higher yield: Higher yields are expected to be generally obtainable on CP than on other short term money market instruments like bank deposits.
  2. Portfolio diversification: Commercial Paper provides an attractive avenue for short term portfolio diversification.
  3. Flexibility: CPs can be issued for periods ranging from 15 days to less than one year, thereby affording an opportunity to precisely match cash flow requirements.
  4. Liquidity: Liquidity in CP is generally provided by a dealer offering to buy it back from an investor prior to maturity, for which a market quote will be available. The investment in CP will therefore be quite liquid.

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