2ND ASSIGNMENT MBA (MARKETING

)

3RD SYSMESTER

ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD

ASSIGNMENT NO.2
ON

FINANCIAL MANAGEMENT (562) Topic:Time value of money affects investment decisions in financial management. Give a comprehensive theoretical background of the topic and then analyze its practical application in an organization selected by you.
Submitted by: Submitted to: Roll No. Mob No.
ZAFAR IQBAL. Page 1

ZAFAR IQBAL. SIR MUHAMMAD YAMIN SATTI SB. 508192645. 0302-8496300.
FINANCIAL MANAGEMENT (562)

2ND ASSIGNMENT MBA (MARKETING)

3RD SYSMESTER

ACKNOWLEDGEMENT
All praises to Almighty Allah, the most Gracious, the most Beneficent and the most Merciful, who enabled me to complete this assignment. There is always a sense of gratitude one expresses to others for the helpful and needy service they render during all phases of life. I have completed this assignment with the help of different personalities. I wish to express my gratitude towards all of them. It gives me immense pleasure to express my deep regards and sincere sense of gratitude to Mr. Zafar M. Shaikh Director General National Savings Organization for his guidance throughout this assignment. I would also like to thank my teacher SIR MUHAMMAD YAMIN SATTI SB for steering my confidence and capability for giving me insight into assignment by giving me exposure to the arena of competitive and real world. Lastly I would like to thank my parents and friends for their constant support during the duration of my assignment.

Thank You One and All ZAFAR IQBAL. ROLL NO. 508192645. MBA (MARKETING).

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EXECUTIVE SUMMARY
This assignment is a research-oriented activity, which represents both the theoretical and practical implication of the topic. In the first section of this assignment, I explain the theoretical aspect of the topic and all major parts has been explained which are involved in the Time value of
money affects investment decisions in financial management. I give a comprehensive theoretical background of the topic and then analyze its practical application in an organization selected by me in financial

management.

For

empirical

study,

I

select

NATIONAL

SAVING

ORGANIZATION and compare its ways of Time value of money affects
investment decisions in financial management and I give a comprehensive theoretical background of the topic and then I analyze its practical application in an organization selected by National Saving Organization in business

instruments.

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CONTENTS:

TITLE PAGE…...………………………………………………………………………… 1

ACKNOWLEDGEMENT……………………………………………………………… 2

EXECUTIVE 3

SUMMARY……………………………….……………………………..

CONTENTS...……………………………………. ……………………………………….. 4

INTRODUCTION TO THE TOPIC…….…………………………………………… 5

APPLICATION OF TIME VALUE 5

CONCEPT ……………………………….

SIMPLE 6

AND

COMPOUNDED

INTEREST……………………………………

ANNUITY………………………………………………………………………………….. 7

DISTINCTION BETWEEN AN ORDINARY ANNUITY AND AN ANNUITY DUE…………………………………………………………………………. 8

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CALCULATING THE VALUE OF AN ANNUITY DUE……………………… 9

VISUAL COMPARISON OF CASH FLOW……………………………………… 10

TIME VALUE OF MONEY AFFECTS INVESTMENT DECISION IN FINANCIAL MANAGEMENT…….. ……………………………………………… 12

STOCK 13

VALUATION………………………………………………………………….

PRACTICAL 15

STUDY

OF

THE

ORGANIZATION……………………………

INTRODUCTION……………………………………………………..……………….. 15 CASE STUDY AS PER TOPIC…………………………………….………………. 17 SWOT 24 RECOMMENDATION……………………………………………………………….. 26 CONCLUSIONS .………………………………………………………………………. 26 ANALYSIS …………………………………………………………………….

Topic:-

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Time value of money affects investment decisions in financial management. Give a comprehensive theoretical background of the topic and then analyze its practical application in an organization selected by you.

Introduction:Time Value (TV) of Money:
A dollar received today is worth more than a dollar promised at some time in the future. This relationship exists because of the opportunity to invest today’s dollar and receive interest on the investment.

Applications of Time Value Concepts:
a) Used for making decisions about Notes, Leases, Pensions and Other Postretirement Benefits, Long-Term Assets, Sinking Funds, Business Combinations, Disclosures, and Installment Contracts. b) Also, TV concepts are very important in personal finance and investment decisions. For example, TV of Money is used when purchasing home or car, planning for retirement, and deciding on investments. To make itself a valuable as possible to stockholders; an enterprise must choose the best combination of decisions on investment, financing and dividends. In any economy in which individuals, firm and governments have the time preference, the time value of money is an important concept. Stockholders will pay more for an investment that promises returns over years 1 to 5 than they will pay for an investment that promises identical returns for 6 years through 10. The decision to purchase new plant and equipment or to introduce a new product in the market requires using capital allocating or capital budgeting techniques. Essentially we mu7st determine whether future benefits are sufficiently large to justify current outlays. It is important that we develop the mathematical tools of the time value of money as the first step towards making capital allocating decisions. Principle Amount (P): This is the amount of money that is initially being considered. It might be an amount to be invested or loaned or it may refer to the initial value or cost of plant or machinery. Thus if the company was considering a bank loan of say Rs. 500,000 this would be referred to as the principal amount borrowed.

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Accrued Amount (A): This term is applied generally to a principal amount after some time has elapsed for which interest has been calculated and added.

Simple and Compounded Interest:
When an amount of money is invested over a number of years, the interest earned can be dealt with in two ways. Simple Interest:- This where any interest earned is not added back to the principal Amount invested. For example, suppose that Rs. 200,000 is invested at 20% simple Interest per annum. The following table shows the state of the investment, year by Year:-

Year 1 2 3 …etc

Principa l 200,000 200,000 200,000

Interest Earned Amount 40,000 200,000) 40,000 200,000) 40,000 200,000) (20% (20% (20%

Cumulative Amount of 240,000 of 280,000 of 320,000

Compound Interest:- The notion of compounded interest is central to understanding the mathematics of finance. The term itself merely implies that interest paid on load or an investment is added to the principle. As a result, interest is earned on interest. Compounding is the arithmetic process of determining the final value of a cash flow or series of cash flow or series of cash flows when compound interest is applied

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Year Principal 1 2 3 ….et c 200,000 240,000 288,000

Interest Earned Amount 40,000 200,000) 48,000 240,000) 57,600 288,000) (20% (20% (20%

Cumulative Amount of 240,000 of 288,000 of 345,600

The difference between the two methods can easily be seen by comparing the above two tables. Notice that the amount on which simple interest is calculated is always the same. Time Line: An important tool used in time value of money analysis and graphically show the timing of cash flows. In the above example for the simple interest, the time line can be produced as. Discounting:- The process of determining the present value of future cash flows. It is an important concept, which is used in project appraisals. The opportunity cost rate is the rate available on the next best alternative with same equal risk as the current investment.

Annuity.
Annuity is a sequence of fixed equal payments or receipts made over uniform time intervals. Some common examples of annuities include: weekly wages, monthly salaries, insurance premiums, hire purchase payments. Annuities are used in all areas of business and commerce. Loans are normally repaid with an annuity, investment funds are set up to meet fixed future commitments (for example, asset replacement) by the payment of an annuity. Annuities may be paid:1. At the end of payment intervals (Called and Ordinary Annuity) 2. At the beginning of payment intervals (called Annuity Due) The terms of an annuity may:1. Begin and end on fixed dates (a Certain Annuity) 2. Depend on some event that cannot be fixed (a Contingent annuity)
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A perpetuity annuity is one that carries on indefinitely. The most common form of annuities are certain and ordinary. That is the annuity is paid at the end of the payment interval and will begin and end on fixed dates. Personal loans and most domestic hire purchase are paid off in a similar manner but normally without the initial deposit. Annuities that are being invested however are often due, that is paid of ‘in advance’ of the intervals. The present value (PV) of an annuity could be found as for any cash flow by discounting each return individually, but there is a more economical method. Consider the case of an annuity of Rs. 10,000 that runs for four years at 10% interest. Assume that the first payment will be made after one year. Using the discount factor table the PV is:-

Yea Cash r Flow 1 10,000 2 3 4 10,000 10,000 10,000

Discount Factor 0.9091 0.8264 0.7513 0.6830 Total

Present Value 9091 8264 7513 6830 31,698

Sinking Fund:- A sinking fund can be defined as an annuity invested in an order to meet a known commitment at some future date. Sinking funds are usually used for the following purposes. 1. 2. Repayment of debts To provide funds to purchase a new asset when the existing asset is fully depreciated.

Example of Dept Repayment Using a Sinking Fund:- Here a debt is incurred over a fixed period of time subject to a given interest rate. A sinking fund must be set up to mature to the outstanding amount of the debt. Perpetuities:- A special case of an annuity is where a contract runs indefinitely and there is no end to the payments. This is called perpetuity. Steam of equal payments expected to continue forever. Semiannual and other compounding periods semiannual compounding is the arithmetical process of determining the final value of determining the final value of cash flows when interest is added twice a year.

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A Mortised Load:- Loan repaid in equal payments over its life. Installment prepayments are prevalent is mortgage loans, auto loan and consumer loans and in certain business loans. The distinguishing feature is that the loan is repaid in equal perio9dic payments that embody both interest and principal. These payments can be made monthly, quarterly, semi annually or annually. The debt is said to be amortized if this method is used.

Interest Rates:
1. Nominal Rate The rate which is quoted or stated on loan or investment. 2. Effective Annual Rate The rate, which would produce the same ending (future), values if annual compounding had been used. 3. Periodic Rate The rate charged by a lender or paid by a borrower each period. It can be rate per year, per six month period, per quarter, per month of per day.

Distinction Between an Ordinary Annuity and An Annuity Due
Each payment of an ordinary annuity belongs to the payment period preceding its date, while the payment of an annuity due refers to a payment period following its date. the meaning of the above statement may not be immediately obvious until we look at it graphically….

A more simplistic way of expressing the distinction is to say that payments made under an ordinary annuity occur at the end of the period while payments made under and annuity due occur at the beginning of the period. A third possibility is to define and annuity due in terms of an ordinary annuity, an annuit6y due is an ordinary annuity that has its term beginning and ending one period earlier that an ordinary annuity. This definition is useful because this si how we will computer an annuity due i.e. in relation to an ordinary annuity
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(discussed further in “calculating the value of an annuity due” below). Most annuities are ordinary annuities. Installment loans and coupon bearing bonds are examples of ordinary annuities. Rent payments, which are typically due on the day commencing with the rental period, is an example of annuity due. Note that an ordinary annuity is sometimes referred to as an immediate annuity, which is unfortunate because it implies that the payments are made immediately (i.e. at the beginning of the period, which would be the case with an annuity due). However, ordinary annuity is the more widely used term.

Calculating the Value of an Annuity Due
An annuity due is calculated in reference to an ordinary annuity. In other words, to calculate either the present value (PV) or future value (FV) of an annuity due, we simply calculate the value of the comparable ordinary annuity and multiply the result by a factor of (1+i) as shown below:Annuity due = Annuity Ordinary x (1=i) This makes sense because if we go back to our earlier definitions we see that the difference between the ordinary annuity and the annuity due is one compounding period. Note also that the above formula implies that both the PV and the FV of an annuity due will be greater than their comparable ordinary annuity values. This is illustrated graphically in the section that follows, Visual Comparison of Cash Flows. It can also be clearly seen in the discount and accumulation schedules constructed in the “Excel” section. The following examples illustrate the mechanics of the ordinary annuity calculation and subsequent annuity due calculation. Present Value of an Annuity: Using the example problem from the present value of an annuity page, we calculate the PV of a ordinary annuity of Rs. 50 per year over 3 years at 7% as …… and the present value of an annuity due under the same terms is calculated as….

…. and just as we thought, the PV of the annuity due is greater that the PV of the ordinary annuity; by 9.18 in this example.
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Future Value of an Annuity:- Using the example problem from the Future Value of annuity page, we calculate the FV of an ordinary annuity of Rs. 25 per year over 3 year at 9% as….

and the future value of an annuity due under the same terms is calculated as

… and again the FV of the annuity due is greater than the FV of the ordinary annuity; in this example by 7.38.

Visual Comparison of Cash Flows .
The distinction between and ordinary annuity and an annuity due can be easily grasped by visualizing the timing of the payments. Present Value of an Annuity:Ordinary Annuity. Continuing with the same example from the PV of an annuity page, the following illustration shows how payments are applied in the case of an ordinary annuity

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Annuity-Due. With an annuity-due the payments are made at the beginning rather than the end of the period...

The fact that the value of the annuity-due is greater makes sense because all the payments are being shifted back (closer to the start) by one period. This means the PV should be larger under the annuity due because all the payments are made earlier. In other words, they are all closer to the "present" so they are subject to less discounting. Note that there is no need to discount the first payment under the annuity due at all; since it is made at the very outset, its PV is its face value. Future Value of an Annuity: Ordinary annuity.Continuing with the same example from the Future Value of an Annuity page, the following illustration shows how payments are applied in the case of an ordinary annuity...

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Annuity-Due. With an annuity-due the payments are made at the beginning rather than the end of the period.

Note that the FV of the ordinary annuity is 81.95 and the FV of the annuity-due is 89.33 (calculated as 81.95 x 1.09).

Time value of money affects investment decisions in financial management.
The fact that the value of the annuity-due is greater makes sense because all the payments are being shifted back (closer to the start) by one period. Moving the payments back means there is an additional period available for compounding. Note the under the annuity due the first payment compounds for 3 periods while under the ordinary annuity it compounds for only 2 periods. Likewise for the second and third payments; they all have an
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additional compounding period under the annuity due. The additional compounding generates a larger FV. When a company buys back its own shares it has to offer a price higher than the current stock price, otherwise investors have no incentive to sell their stock. Buy offering a price higher than the market, the company is distributing value to its existing shareholders. Note that “dividend” is used in a generic sense of value distribution as well as a cash distribution the most common form of dividend. You should also note that cash dividends are paid on a regular basis unless the company explicitly announces an on-time increase in dividends. Trhe latter is referred to as a special dividend. The main advantage of stock repurchase over dividends is that the latter is a one time distribution. An increase in dividend is promised to the shareholders, such that the company would be paying the dividend on a regular basis in the future. There are two important implications of expected regular dividend and one time distribution. One is that if a regular dividend is lowred then investors interpret this act as a bad sign and thus the price of the stock tends to fall. Because of this built in expectation, dividend is a burden on the company, as the company feels obidated to satisfy its shareholders’ expectation. On the other hand, stock repurchase is a one time deal and thus shareholders don’t expect it to continue in any regular fashion in the future.

The Stock Valuation
Firms obtain their long term sources of equity financing bu issuing common and preferred stock. The payments of the firm to the holders of these securities are in the form of dividends. Unlike interest payments on debt, which are tax deductible, dividends must be paid out of after tax income. The common stockholder are the owners of the firm. They have the right to vote on important matters to the firm such as the election of the Board of Directors. Preferred stock, on the other hand, is a hybrid form of financing, sharing some features with debt and some with common equity. For example preferred dividends like interest payments on debt are generally fixed. In addition, the claims against the assets of the firm of common stockholders have a residual claim against the assets and cash flows of the firm. That is, the common stockholders have a claim against whatever
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assets remain after the debt holders and preferred stockholders have been paid. Moreover, the cash flow that remains after interest and preferred dividends have been paid belongs to the common stockholders. The priority of the claims against the assets of the firm belonging to debt holders, preferred stockholders and common stockholders differ. The owners of the firm’s debt securities have the first claim against the assets of the firm. This means that the debt holders must receive their scheduled interest and principle payments before any dividends can be paid to the equity holder. If these claims are not paid the debt holders can force the firm into bankruptcy. The preferred stockholders have the next claim. They must be paid the full amount of their scheduled dividends before any dividends may be distributed to the common stockholders. The value of these securities, as with other assets, is based upon the discounted value for their expected future cash flows. Time Value of Money Principles are applied to value common and preferred stock. Two approaches are presented for the valuation of common stock. The first approach illustrates the valuation of a constant growth stock i.e. a stock whose dividends are growing at a rate, which mirrors the long term growth rate of the economy. The second approach is a more general approach, which can be applied to value stock whose growth is not constant in the near term. Capital Budget: (1) The amount of money set aside for the purchase of fixed assets (e.g. equipment, building etc). also (2) a request for authorization to purchase new fixed assets. Mutually Exclusive Proposals: Consideration of two or more assets that perform the same function. If one is chosen for purchase, the others are automatically rejected. The capital budgeting decision may be thought of as a cost benefit analysis. We are asking a very simple question: “if I purchase this fixed asset, will the benefits to the company be greater than the cost of the asset?” In essence we are placing the cash inflows and outflows on the scale (similar to the one above) to see which is greater. A complicating factors is that the inflows and outflows may not be comparable cash outflows (costs) are typically
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concentrated at the time of the purchase, while cash inflows (benefits) may be spread over many years. The time value of money principle states that dollars today are not eh same as dollars in the future (because we would all prefer possessing dollars today to receiving the same amount of dollars in the future). Therefore, before we can place the costs and benefits on the scale, we must make sure that they are comparable. We do this by taking the present value of each, which restates all of the cash flows into “today’s dollars”. Once all of the cash flows are on the comparable basis, they may be placed onto the scale to see if the benefits exceed the costs.

CASE STUDY National Savings Organization
The history of National Savings Organization dates back to the year 1873 when the Government Savings Bank Act, 1873 was promulgated. During the first world war, the British Government introduced several Schemes for collection of funds to meet the expenditure. It was in this context that the Post Office Cash Certificates and, during the second world war, Post Office Defence Savings Certificates were floated. The need to setup a separate agency was felt and a National Savings Bureau was established in 1943- 44 as an attached department of the Ministry of Finance of the undivided Government of India. The department was headed by National Savings Commissioner with the status of a Joint Secretary. At that time the main functions of the Savings Department were to initiate all policy matters and issue directives for the execution of policy decisions of the Central Government, and to review the Savings Schemes from time to time. Gradually, Savings Organization were established in almost all the Provinces of the sub-continent with the objective of popularizing the Savings
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Schemes among the masses as well as to supervise, guide and control the working of authorized agents under their jurisdiction. The agents, who were appointed by the local authorities. They were paid commission @ 2 1/2 on the investment secured by them. These authorized agents were in those days the only agency for securing investment in terms of Savings Certificates from the general public. In nutshell the central agency viz. National Savings Bureau, Simla, was mainly concerned with the policy and planning matters of the Savings Schemes whereas the responsibility of execution of various Savings Schemes vested with Provincial authorities . At the time of Independence there was no time for any sort of innovations in the field of administration. Thus an organization with the name of 'Pakistan savings Central Bureau' was created and the Savings work was entrusted to it by the Government of Pakistan, but this Bureau had its own peculiarities. The Pakistan Savings Central Bureau had no independent entity and was not given the same status as enjoyed by Savings Bureau, Simla. The head of the Pakistan Savings Central Bureau was then called Central National Savings Officer, a Junior Officer of the Ministry of Finance with the status of an Under Secretary to the Government of Pakistan. He was assisted by a Superintendent having some auxiliary staff. In 1953, the Pakistan Savings Control Bureau was re-named as Central Directorate of National Savings and it carried out the functions on the lines of National Savings Bureau Simla but as a part and parcel of the Finance Division, Central Directorate of National Savings was only responsible for publicity, and the operative agents were the Provincial Governments as well as Pakistan post Offices. However, the entire expenditure in this regard was borne by the Central Government. Such an arrangement created a large number of administrative difficulties and stunted the growth of savings. In view of these difficulties the Central Directorate of National Savings was given the status of an Attached Department in September, 1960, and was made responsible for all policy matters and execution of various National Savings Schemes. Subsequently, it was also declared a Technical Department by the Government. The Director General, National Savings (BPS-20) now enjoys full powers of a Head of the Department.

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Till December, 1971, the National Savings Organization functioned as a Publicity organization and its activities were merely promotional in nature. But in early 1972, the scope of its activities was enlarged as the Central Directorate started selling II-Rupee Prize Bonds, and subsequently engaged in the operations of other savings schemes. This resulted in considerable expansion of the National Savings Organization. At present, this Organization has a total sanctioned strength of 3377 employees in various grades and its main component units are as under:
a. Central Directorate of National Savings, Islamabad. b. Directorate of Inspection and Accounts, Islamabad. c. Training d. 12

Institute of National Savings, Islamabad alongwith a sub-Training Institute at Karachi. Regional Directorates (located at Peshawar, Abbottabad, Rawalpindi, Gujranwala, Lahore, Faisalabad, Multan, Bahawalpur, Sukkur, Hyderabad, Karachi, Quetta)

e. 367 National Savings Centres spread throughout the country.

Director General Mr. Zafar M. Shaikh Director General National Savings Organization Address 23-N, Savings House, G-6 Markaz, Civic Centre, Islamabad.

Case study as per topic:The following products of National Savings Organization directly involves that how the time value of money effects investment decision in financial management.

Defence Savings Certificates

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The Government of Pakistan introduced Defence Savings Certificate scheme in the year 1966. The scheme has specifically been designed to meet the future requirements of the depositors. This is the only scheme having 10 years' maturity with built in feature of automatic reinvestment after the maturity. These certificates are available in the denominations of Rs.500, Rs.1000, Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000, Rs.500,000 and Rs.1,000,000/=. Who Can Invest . These certificates can be purchased by a single adult, a minor, two adults in their joint names with the options of payable to the holders jointly (Joint-A ) or payable to either (Joint-B). An adult can also purchase these certificates on behalf of a single minor, two minors jointly or himself/herself and a minor jointly. In addition to above individual investors, the following institutions are also allowed to invest in the scheme: Registered Charities (Non-profit bodies). Public Sector Enterprises excluding Banks. Private Educational & Health Institutions. Employees Old Age Benefit Institutions (EOBIs). Private Corporate Sector registered with the SECP excluding Banks. Non-Bank Financial Companies. How To Purchase. These certificates can be purchased from any National Savings Centre (NSC), Pakistan Post Offices (PPO), Scheduled Bank branches and State Bank of Pakistan (SBP) by filling in a prescribed form called SC-1, which is available at all the above offices of issue free of cost. A copy of the National Identity Card or in case of a foreign national, a copy of the Passport is required to be attached with the application form. To download application form in editable Adobe Acrobat format, please click here.
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Institutions

(NBFIs)

excluding

Insurance

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Mode of Deposit. These certificates can be purchased by depositing cash at the issuing office or by presenting a cheque. The certificates shall immediately be issued on receipt of cash. However, in case of deposit through cheque the certificates shall be issued from the date of realization of the cheque after receipt of the clearance advice. What Is The Investment Limit. The minimum investment limit is Rs.500/-, however, there is no maximum limit of investment in this scheme. What About Redemption. These certificates are encashable at par any time after one month from the date of purchase. However, no profit is payable if encashment is made before completion of one year. What is the return. In this scheme the profit is paid on maturity or encashment for completed years. Every Rs.100,000/- will become Rs.108,000/-, Rs.118,000/-, Rs.129,000/-, Rs.142,000/-, Rs.158,000/-, Rs.177,000/-, Rs.201,000/-, Rs.230,000/-, Rs.265,000/- and Rs.315,000/- on completion of 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 years, respectively. These rates are effective from 24th June, 2008. The average compound rate of return on maturity presently works to 12.15% p.a. For any other time period rates table is also available on website.

Tax & Zakat Status. At present, the profit earned is exempt from withholding tax, if the total investment in the scheme by the investor(s) does not exceed Rs.150,000/-. However, withholding tax @ 10% is deductible at source on the profit(s) earned if the total investment exceeds Rs.150,000/- by the investor(s). The Zakat is collected at source as per rules.

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Special Savings Certificates (Registered)
Keeping in view the periodic needs of depositors, this three years' maturity scheme was introduced in February, 1990. These certificates are available in the denomination of Rs.500, Rs.1000, Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000, Rs.500,000 and Rs.1,000,000/=. Profit is paid on the completion of each period of six months. Who Can Invest . These certificates can be purchased by a single adult, a minor, two adults in their joint names with the options of payable to the holders jointly (Joint-A ) or payable to either (Joint-B). An adult can also purchase these certificates on behalf of a single minor, two minors jointly or himself/herself and a minor jointly. In addition to the above individual investors, the following institutions can also invest in the scheme: Registered Charities (Non-profit bodies). Public Sector Enterprises excluding Banks. Private Educational & Health Institutions. Employees Old Age Benefit Institutions (EOBIs). Private Corporate Sector registered with the SECP excluding Banks. Non-Bank Financial Companies. How To Purchase. These certificates can be purchased from any National Savings Centre (NSC), Pakistan Post Office (PPO), Scheduled Bank branches and the offices of State Bank of Pakistan (SBP) by filling in a prescribed form called SC-1, which is available at all the above offices of issue free of cost. A copy of the National Identity Card or in case of a foreign national, a copy of the Passport is required to be attached with the application form. To download Institutions (NBFIs) excluding Insurance

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application form in editable Adobe Acrobat format, please click here. Mode of Deposit. These certificates can be purchased by depositing cash at the issuing office or by presenting a cheque. The certificates shall immediately be issued on receipt of cash. However, in case of deposit through cheque the certificates shall be issued from the date of realization of the cheque after receipt of the clearance advice. What Is The Investment Limit. The minimum investment limit is Rs.500/-, however, there is no maximum limit of investment in the scheme. What About Redemption. These certificates are encashable at par any time after one month from the date of purchase. However, no profit is payable if the encashment is made before completion of six months. What Will I Get As Profit. At prevailing rates, the profit is paid @11.6% p.a. for 1st five profits and @ 12.0% p.a. for the last profit. However, if the profit is not withdrawn on due date it will automatically stand reinvested and would be calculated for further profit on completion of the next 06 months' period. Tax & Zakat Status. At present, the profit earned is exempt from withholding tax, if the total investment in the scheme by the investor(s) does not exceed Rs.150,000/-. However, withholding tax @ 10% is deductible at source on the profit(s) earned if the total investment exceeds Rs.150,000/- by the investor(s). Zakat is collected at source as per rules.

Regular Income Certificates
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Keeping in view the monthly requirements of the general public, this five years' maturity scheme was launched on 2nd February, 1993. These certificates are available in the denomination of Rs.50,000, Rs.100,000, Rs.500,000, Rs.1,000,000, Rs.5,000,000 & Rs.10,000,000/=. Profit is paid on monthly basis reckoned from the date of issue of certificates. Who Can Invest . These certificates can be purchased by a single adult, a minor or two adults in their joint names with the options of payable to the holders jointly (Joint-A ) or payable to either (Joint-B). An adult can also purchase these certificates on behalf of a single minor, two minors jointly or himself/herself and a minor jointly. In addition to above individual investors, the following institutions are also allowed to invest in the scheme: Registered Charities (Non-profit bodies). Public Sector Enterprises excluding Banks. Private Educational & Health Institutions. Employees Old Age Benefit Institutions (EOBIs). Private Corporate Sector registered with the SECP excluding Banks. Non-Bank Financial Institutions (NBFIs) excluding Insurance Companies. How To Purchase. These certificates can be purchased from any National Savings Centre (NSCs) or from Pakistan Post Office (PPO) by filling in a prescribed form called SC-1, which is available at all the above offices of issue free of cost. A copy of the National Identity Card or in case of a foreign national, a copy of the Passport may be attached with the application form (SC-I). To download application form in editable Adobe Acrobat format, please click here. Mode of Deposit. These certificates can be purchased by depositing cash at the issuing office or by presenting a cheque. The certificates shall immediately be issued on receipt of cash. However, in case of deposit through cheque the certificates shall be issued from the date of realization of the cheque after receipt of the clearance advice. What Is The Investment Limit.
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3RD SYSMESTER

The minimum investment limit is Rs.50,000/-, however, there is no maximum limit of investment in this scheme. What About Redemption. These certificates are encashable any time subject to deduction of service charges at the following rates: if encashed before completion of one year from the date of issue. @ 2.00% of the face value if encashed after one year but before completion of 02 years from the date of issue. @ 1.50% of the face value if encashed after two years but before completion of 03 years from the date of issue. @ 1.00% of the face value if encashed after three years but before completion of 04 years from the date of issue. @ 0.50% of the face value Note: A receipt of the service charges so deducted, duly signed by the officer incharge and the cashier, shall be issued to the investor. What is the return. At the prevailing rates monthly profit of Rs.1000/- is paid on investment of each Rs.100,000/-. This way the profit rate works to 12.0% p.a. However, the facility of automatic reinvestment of profit to earn further profit is not available in this scheme. Tax & Zakat Status. The profit earned on these certificates is subject of deduction of 10% withholding tax at source. However, the investment made in this scheme is exempt from collection of Zakat.

Keeping in view the hardships faced by the widows and senior citizens and to guard them against the declining rate of return on National Savings Schemes, this ten years' maturity scheme was launched by the Government on 1st July, 2003. Initially the scheme was meant for widows only, however, the Govt. later decided to extended the facility for senior citizens aged 60 years and above with effect from 1st January, 2004. These certificates are available in the denominations of Rs.5,000/-, Rs.10,000/-, Rs.50,000/-, Rs.100,000/-, Rs.500,000 and Rs.1,000,000/-. Profit

Bahbood Savings Certificates

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3RD SYSMESTER

is paid on monthly basis reckoned from the date of purchase of the certificates. Who Can Invest . Only widows and senior citizens aged 60 years and above are eligible to invest, singly or jointly. How To Purchase. These certificates can only be purchased from the National Savings Centre (NSCs) by filling in a prescribed form called SC-1, which is available at the offices of issue free of cost. A copy of the National Identity Card and necessary evidence regarding eligibility is required to be attached with the application form. To download application form in editable Adobe Acrobat format, please click here. Mode of Deposit. The certificates can be purchased by depositing cash at the issuing office or by presenting a cheque. The certificates shall immediately be issued on receipt of cash. However, in case of deposit through cheque the certificates shall have the effect from the date of realization of the cheque after receipt of the clearance advice. What Is The Investment Limit. The minimum investment limit in this scheme is Rs.5,000/-, whereas, the maximum limit is Rs.3,000,000/-. Investment in allowed in multiple of Rs.1,000/-. What About Redemption. The certificates can be encashed any time after issuance subject to deduction of service charges at the following rates: If encashed before completion of one year from the date of purchase. @ 1.00% of the face value If encashed after one year but before completion of 02 years from the date of purchase. @ 0.75% of the face value If encashed after two years but before completion of 03 years from the date of purchase. @ 0.50% of the face value If encashed after three years but before completion of 04 years from the date of purchase. @ 0.25% of the face value If encashed after completion of 04 years No service charges

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Note: A receipt of the service charges so deducted, duly signed by the officer incharge and the cashier, shall be issued to the investor. Note: It is to clarify that in the cases of conversions made on 0202-2009 by the existing holders of BSCs to earn higher rate of profit, the service charges deduction on such conversion shall be refunded on a written request lodged by them for this purpose. Such refunds shall however, be made through crossed government cheques issued by the National Savings Treasury or the cheques issued on current accounts opened by out station centers at the NBP. A proper acknowledgement receipt shall also be obtained from the concerned investor for the cheque so issued. In addition they shall also be entitled to the difference of profit due under the amended rules and that be paid to them on the date. What is the return.. At the prevailing rates monthly profit of Rs.1180/- is paid on investment of each Rs.100,000/-. This way the profit rate works to 14.16% p.a. Automatic reinvestment of profit facility to earn further profit is not admissible in this scheme at the scheme's rate; however, further profit is paid on undrawn profit at the rate applicable on Savings Account. Tax & Zakat Status. The withholding tax is not collected on the profit earned on these certificates. The investment made in this scheme is also exempt from Zakat. Note: In exercise of the powers conferred by rule 12 of the Bahbood Saving Certificates Rules, 2003, the Federal Government is pleased to direct that monthly profit on Bahbood Savings Certificates notified on 29th November,2008 by the Federal Government shall be applicable to all existing investment with effect from 1st February,2009.

SWOT ANALYSIS
The SWOT analysis is done by the organization for the environmental scanning. The strength and weaknesses and opportunities and threats are analyzed by organization from the

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external environment. National analysis is given below:  STRENGTH

Savings

Organization

SWOT

 It has always been considered as the pillar of the country's 

 

 

economic scenario asset. Its image, work force, network and working according to the financial policies of Govt. of Pakistan are also the strength of the National Savings Organization. The branch, I visited has most experienced and fresh employees which is good combination of experienced heads and exuberance of youth Saving Organization has strong reputation and confidence of the general public National Savings Organization culture was very friendly and interesting. Employees has created a very cooperative environment among each other. They have created loyalty toward the organization by deviating their future efforts and energies. The employees take the organizational problem personals and try their best for the prosperity of the organization. Fortunately National Saving Organization has got from time to time best top management. The organization has huge branch network even in the small towns and cities all over the country.

WEAKNESSES  National Savings Organization has small staff with a shallow skills base in many areas.  I keenly observe this that as compared to other financial institutions, their capabilities are not upto the requirement and staff trainings should be arranged.  Lack of competitive strength  Delays were observed because the prescribed procedures are not followed. OPPORTUNITIES  National Savings Organization has very bright prospects for the future. They plan to region their lost glory not only in
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terms of profitability but also include latest technology and competent work force.  National Savings Organization has advantage of generating more deposits and attracting valuable customers due to its better image in the business community. This better image can help further in explanation of its activities.  Due to non existence of competitor National Savings has lot of opportunities to boost its business.  Volumes, production, economies Threats. 
 This is the major threat for any business organization in

Pakistan because the political officials influence in financing  National saving organization sick projects are increasing day by day due to economic downfall.  IT developments  New technologies, services, ideas

Recommendations
 National Savings Organization should undergo extension of their products.  At present not a big / strong competitor exist for National Savings, but in future there should be a threat for its products so it should combine quality with ingenuity.  Reputation of the organization has to be kept robust.  Today we live in a fast moving world where novelty and newness count a lot. So fresh efforts, newness of approach must remain the cardinal principle of a well maintained strategy and the campaign must be relentless.

Conclusion
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National Savings is a well renowned organization and it has maintained its position well by understanding the client psychology, by ensuring quality, by introducing ingenuity in products, by enlarging its product base, by keeping economic factors in view and by intense and jazzy advertisement. National Savings has very strong guarantee of Government of Pakistan at its back and people buy its products on behalf of Govt. of Pakistan

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