BUSINESS

FINANCE
 INTEREST
At the end of the lesson, the learners should be able to:
1. Discuss the basic terms in financial concepts;
2. Solve for simple interest;
3. Solve for compound interest;
4. Discuss risk and its nature;
5. Enumerate the kinds of risk associated in business;
6. Discuss what is insurance;
7. Enumerate the types of insurance.
Interest
The return earned by or the amount paid to someone who has forgone current
consumption or alternative investment opportunities and “rented" money in a creditor
relationship.
Interest is the cost of using somebody else’s money. When you borrow money, you pay
interest. When you lend money, you earn interest. It is the additional money that must
be repaid — in addition to the original loan balance or deposit. 
 
Principal
The amount of money borrowed or invested.
 
Term of a loan
The length of time or number of time periods during which the borrower can use the
principal.
 
Rate of interest
The percentage on the principal that the borrower pays the lender per time period as
compensation for forgoing other investment or consumption opportunities.
TWO TYPES OF INTEREST
Simple Interest
It is the interest paid on the principal only.
It is the amount equal to the product of the present value times the interest rate
per time periods times the number of time to pay as the formula given below:
I=PxRxT
Where: I =the simple interest
P=the principal amount at time O, or the present value
R=interest rate per time period
T=the number of time periods
 For converting time in days into years, divide the number of days
by 365 (for ordering or lap year.)

Ex. Time is 40 days, just divide the given no. of

days by 365 which is total days in a year
(40/365) and it will give you the result of .11,
which is to be substituted to T.
 For converting time in month into years, divide the number of
month by 12 (for ordering or lap year.)

Ex. Time is 4 months, just divide the given no.

of mos. by 12 (4/12) and it will give you the result
of .33.
Sample Problem #1: What is the simple interest on P100 at 10% /pa (per
annum) for six months?
I= P100x.10x0.50(half year) = P5
 
Sample Problem #2: What is the simple interest on P50,000 at 5% / pa for
1 year and six months?
I= P50,000x .05 x 1.50(half year) = P3,750
 
Sample Problem #3: What is the simple interest on P6,000 at 7% / pa for
40 days?
I= P6,000 x .07 x .11= P46.2
 
Compounded Interest
It is the interest that is paid not only on the principal invested but also on any
interest earned in the principal but not withdrawn during earlier periods.

Formula: CI n=P(1+ I)
Where: CI= Compounded Interest
P= Principal
I= Interest

Example: If Lucas deposits P1,000 in a savings account paying 6%interest

compounded annually, the future(compound)value of his account at the end
of one year is:
 
CI1=P0(1+ I)
CI ＝ 1,000 (1+0.06)
＝ 1,060 PHP
 If Lucas leaves the P1,000 plus the accumulated interest in the account
for another year, its worth at the end of the second year as:
CI2=CI1(1+ I)
＝ 1,060 (1+0.06)
＝ 1,060 (1.06)
＝ 1,123.60
If for another year(for 3rd year=CI)
CI3=CI2(1+i)
=1,123.60 (1.06)
=1,191.01
 

（ Checking: using table 1=1.191)

CI3=P0(CI2)
=1,000(1.191)
=1,191.00
Risk
The possibility that the actual cash flows from an investment or any other business
transaction will be diff from the expected cash flows.

Under a free enterprise system, the prospects of profits in business are inevitably
accompanied by risk of loss, and this hazard exerts a profound impact upon the organizers
of business and the users of capital, not to say on society as a whole.

The risk LIES mainly in the UNCERTAINTY of the income expected and of the recovery
of the original principal invested. When a business enterprise FAILS to make a profit but
instead continues to spend more money than it takes in, it is evident that the prospects and
risks were not carefully weighed prior to the establishment of the business.
Nature of risk
 There is nothing certain in this world where we live except its uncertainty.
 Future always presents no little amount of uncertainty. This means that the businessman in
the course of his business operations must assume a number of risks.
 Some of this risk are:

Fires, floods, theft, industrial accidents,

Infidelity of employees, breach of contracts, and
Bad debts to name a few.
Fortunately for businessman, some of these risks are measurable since actuaries are
able to estimate their occurrence with a fair degree of accuracy. Hence, they are
considered insurable. For this reason, most businessmen buy insurance and thus
transfer the risks to an insurance company.
 
Kinds of Risk associated in business are:
1. Market risk
 The risk to a financial portfolio from movements in market prices such as equity prices, foreign exchange rates,
interest rates, and commodity prices.
2. Liquidity risk
 A particular risk from conducting transactions in markets with low liquidity as evidenced in low trading volume and
large bid-ask spreads.
 This is an attempt to sell assets may push prices lower, and assets may have to be sold at prices below their
fundamental values or within a time frame longer than expected.
3. Operational risk
 The risk of loss due to physical catastrophe, technical failure, and human error in the operation of a firm, including
fraud, failure of management, and process errors.
4. Credit risk
 The risk that a counterparty may become less likely to fulfill its obligation in part or in full on the agreed upon date.
Thus, credit risk consists not only of the risk that a counterparty completely defaults on its obligation, but also that it
only pays in part or after the agreed upon date.
5. Business risk
 Risk that changes in variables of a business plan will destroy that plan's viability, including quantifiable risks, such as
business cycle and demand equation risk, and non-quantifiable risks, such as changes in competitive behavior or
technology.
Insurance
May be defined as a contract whereby one undertakes, for a consideration, to indemnify another
against loss, damage, or liability arising from an unknown or contingent risk.
 
Insurance policy
A written instrument in which a contract of insurance is set forth, and it must specify the following:
1. The parties bet whom the contract is made;
2. The amount to be insured except in the case of open or running policies;
3. The rate of premium;
4. The property or life insured;
5. The interest of the insured in property insured, if he is not the absolute owner thereof;
6. The risk insured against and the period during which the insurance is to continue.

The person who undertakes to indemnify another by contract of insurance is called INSURER, and
indemnified is called INSURED.
 Types of Insurance
1. Property and casualty insurance
Fire insurance
- Most common risks for every business it is a must that the company should be insured
for this kind of insurance.
Casualty insurance
-refers to a serious or fatal accident. Covers automobile, theft, and accident and health
insurance as well as workmen's compensation insurance.
Marine insurance
-insurance protects the importer or exporter against financial loss from physical damage
to or loss of merchandise while enroute from a factory or warehouse in the country of
destination, that is if the damage or loss is accidental and is due to one of the numerous
perils incident to transportation by water.
Fidelity and surety insurance
-refers to the possibility of loss if an employee may steal the funds or the goods. For
protection, employer obtains a fidelity bond, which protects him against loss due to
defalcation or embezzlement by his employees.
2. Life insurance
Term Insurance
Ordinary Life
Limited-Payment Life
Single-Premium Life
Endowment
 TIME VALUE OF MONEY

At the end of the lesson, the learners will be able to:

1.Define time value of money.

2.Understand time value of money in the future.
3.Solve for future values and present values of money.
 TIME VALUE OF MONEY
Understanding time value of money is crucial to effective financial
management.
This knowing how much are you going to invest today (PV) if you intend to
get much in the future or how much do you expect that your money will be in
the future (FV).
That, there are instances you don’t have enough money today, and that you
intend to have it in an amortized sequence (annuity).
Some comprehension of the Time Value of Money
 A banker who makes loans and other investments.
 A financial officer whose job includes consideration of various alternative sources of
funds in terms of their cost.
 A company manager who must choose among various alternative investment projects.
 A security analyst who evaluates securities that affirms sells to investors.
 An individual confronted with a host of daily financial problems ranging from personal
credit account management to deciding how to finance a new home purchase.
- Each individual makes frequent use of the time value of money.
PV – denotes PRESENT VALUE
FV – denotes FUTURE VALUE
FUTURE VALUES (to use table 1 on the succeeding page)
Future Value Interest Factors (FVIFs) – are commonly used to simplify such computations.
Because each future interest factor is defined as:

FVIF – may be thought of as the value that P1 today grows to n periods at a periodic interest rate of i.

Formula:

i = the nominal interest rate per period

n = the number of periods
Problem: Determine the value of P1,000 compounded at 6% for 20 years.
“So, where did we get the 3.207? Let’s take a look at the table 1.”
“To see if our answer is correct let’s do the checking.”
Checking: I 20 = Future Value minus Present Value
= P3,207 – P1,000
= P2,207
That for an investment of P1,000 it will generate an interest of P2,207.00 for 20 years at
6% per annum compounded.
Table 1 Future Value Interest Factor (FVIF)
 PRESENT VALUES (to use table 2 on the succeeding page)
Given some future value, what is its equivalent value today?
That is what is its present value that is equivalent to some promised future peso amount,
- The process of finding the present values is frequently called DISCOUNTING.

Formula:

Problem: How much is to be invested today if you want to receive P1,000 after 20 years with 10% interest rate?
“Where did we get 0.149? Let’s take a look at the table 2.
“To see if our answer is correct, let’s do the checking.”
Checking: I 20 = Future Value minus Present Value
= P1,000 – P149
= P851
That when a person invest today of P149, he will receive P1,000 after 20
years at 1% interest rate that he will earn an interest income of P851.
Table 2
 TIME VALUE OF MONEY (cont.)

At the end of the lesson, the learners will be able to:

1. To analyze the value of money as time passes by;
2. Solve for annuities using future values and present values.
ANNUITIES
Annuity – is the payment or receipt of equal cash flows per period for a specified amount of
time.
 Ordinary annuity – is one in which the payments or receipts occur at the end of each
period.
 Annuity due – is one in which payments or receipts occur at the beginning of each period.

Future Value of an Ordinary Annuity (to use table 3 in the succeeding page)
FVAN – series of payments – future values – payment at the end of each yr. (ordinary)
Formula:
PMT – is the payment made in installment
Problem: You receive a 3-year ordinary annuity of P1,000 per year and deposits the money
in a savings account at the end of each year for interest of 6% compounded annually. How
much will your account be at the end of the 3-year period?

= 1,000 (FVIFA 6,3)

=1,000 (3.184)
=P3,184
Where did we get 3.184?
Let’s look at the table 3 in the succeeding page.
To see if our answer is correct let’s do the checking.
 
Checking: I= Future Value minus Present Value
= P3,184 – P3,000 (Note: P3,000 is derived by multiplying P1,000 per year as a capital x 3 years)
= P184
For an investment of P3,000 ( Note: 1,000 per year for 3 years), the investor will earn P184 at 6%
compounded annually for 3-years.
Future Value of an Annuity Due (to use table 3 in the succeeding page)
- Payments are made at the beginning of each period/year.

Formula:

Refer to the Previous Problem, but the payment is at the beginning of each year.
Formula:

= P1,000 [3.184(1+.06)]
= P1,000 [3.184(1.06)]
= P1,000 [3.375]
FVAND3 = P3,375.00
 
To see if our answer is correct, let’s do the checking.
 
Checking: I = Future Value minus Present Value
= P3,375 – P3,000
= P375
 
For an investment of P3,000 for 3-years, and if the investment is placed at the beginning of the year, the interest income
the investor will earn is P375.
Table 3
Present Value of an Ordinary Annuity (to use table 4 in the succeeding page)

PVA – series of payment – present values – Payment at the end of each year. (ordinary)
 
Formula:

Problem: Present value of an ordinary P1,000 annuity received at the end of each year for 5-years discounted at 6% rate.
 
Formula:
= P1,000 (PVIFA 6,5)
= P1,000 (4.212)
= P4,212
Where did we get 4.212? Let’s take a look with table 4 in the succeeding page.
To see if our answer is correct, let’s do the checking.
 
Checking: I = Future Value minus Present Value
= P5,000 – P4,212
= P788
For the investor to invest P4,212, he will got a total of P5,000 (1,000 x 5 years) earning P788 interest.
Present value of an annuity due
- Payments are made at the beginning of each period/year.
 
Formula:

Refer to the previous problem but the payment is at the beginning of each year.
 
Formula:

= P1,000 [4.212(1+.06)]
= P1,000 [4.212 (1.06)]
= P1,000 [4.465]
= P4,465.00
To see if our answer is correct, let’s do the checking.
 
Checking: I = Future Value minus Present Value
= P5,000 – P4,465 (1,000 x 5 years)
= P535.00
That if you invest P4,465 you will earn P535 interest for 6% for 5 years.
Table 4
 INTRODUCTION TO INVESTMENT

At the end of the lesson, the learners will be able to:

1. Define the meaning of Investment;
2. Enumerate the two (2) basic forms of investments;
3. Classify the participants in the investment process.
Investment
Investment is the employment of funds with the aim of getting return on it. In general terms, investment means
the use of money in the hope of making more money. In finance, investment means the purchase of a financial
product or other item of value with an expectation of favorable future returns.
Investment of hard earned money is a crucial activity of every human being. Investment is the commitment of
funds which have been saved from current consumption with the hope that some benefits will be received in
future. Thus, it is a reward for waiting for money. Savings of the people are invested in assets depending on
their risk and return demands.
Investment refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan or
keeping funds in a bank account with the aim of generating future returns. Various investment options are
available, offering differing risk-reward trade-offs. An understanding of the concepts and a thorough analysis of
the options can help an investor create a portfolio that maximizes returns while minimizing risk exposure.
Saving versus Investing
Saving for the deposit on a new car or next year’s holiday is different from investing to
achieve a long-term goal, such as building up a retirement pot or paying school fees.
However, a savings plan may not earn you wealth enhancing returns over the long term
and taking into account the impact of inflation the real purchasing power of your money
will likely decline.
Investing, on the other hand, can help you to both create and preserve your wealth. By
taking an appropriate level of risk you may have the opportunity to earn potentially higher
long-term returns. It is important to remember that the value of investments, and the
income from them, may fall or rise and investors may get back less than they invested.
Quite simply, you invest to create and preserve wealth.
Five Basic Investment Concepts
1. Risk and return
Return and risk always go together. The higher the potential return, the higher the risk. You should never blindly
pursue high-return investments. Bear in mind your investment goal, investment period and risk tolerance. Always choose
an investment that is suitable for you.
2. Risk diversification
Any investment involves risk. You cannot avoid it, but you can manage your risk exposure with the right strategy to
reduce the chances of major losses. The simplest and best way is to diversify your investments and spread your risk. An
effective way is to diversify your investment to different asset classes, such as stocks, bonds, deposits etc.
3. Compound Interest
Where interest is paid on both the initial investment and any interest reinvested during the period. Overtime,
compounding has the potential to increase gains significantly, the longer you invest, the more you benefit from compound
interest. Therefore, it is important to start saving and investing early.
4. Inflation
Inflation is an economy-wide, sustained trend of increasing prices from one year to the next. An economic concept,
the rate of inflation is important as it represents the rate at which the real value of an investment is deceased and the loss in
spending or purchasing power over time. Inflation also tells investors exactly how much of a return (in percentage terms)
their investments need to make for them to maintain their standard of living.
The rewards or returns, from investing are received in two (2) basic forms:
1. Current income
Example: money invested in a bank provides current income in the form of
periodic interest payment.
2. Increased value
Example: A share of common stock purchased as an investment is expected
to increase in value between the time it is purchased and the time it is sold.
Types Of Investments
1. Securities
 Investments that represent debt or ownership or the legal right to acquire or sell an
ownership interest. Most common types of securities that we discussed in the past lessons
are Stocks, bonds and more.
2. Property
 Consists of investments in real property or tangible personal property.
 Real property-are land, building, and that which is permanently affixed to the land.
 Tangible personal property-includes items such as gold, artwork, antiques and other
collectibles.
Investment Objectives
 Investing is a wide spread practice and many have made their fortunes in the process. The starting point in this process is to
determine the characteristics of the various investments and then matching them with the individuals need and preferences. All
personal investing is designed in order to achieve certain objectives. These objectives may be tangible such as buying a car,
house etc. and intangible objectives such as social status, security etc. similarly; these objectives may be classified as financial
or personal objectives.
 
Classification of Investment Objective by Approach
Short term high priority objectives: Investors have a high priority towards achieving certain objectives in a short time. For
example, a young couple will give high priority to buy a house. Thus, investors will go for high priority objectives and invest
their money accordingly.
Long term high priority objectives: Some investors look forward and invest on the basis of objectives of long term needs.
They want to achieve financial independence in long period. For example, investing for post-retirement period or education of
child etc. investors, usually prefer a diversified approach while selecting different types of investments.
Low priority objectives: These objectives have low priority in investing. These objectives are not painful. After investing in
high priority assets, investors can invest in these low priority assets. For example, provision for tour, domestic appliances etc.
Money making objectives: Investors put their surplus money in these kinds of investment. Their objective is to maximize
wealth. Usually, the investors invest in shares of companies which provide capital appreciation apart from regular income from
dividend.
Common Objectives With Regard To the Investment of Their Capital
The importance of each objective varies from investor to investor and depends upon the age and the amount of
capital they have. These objectives are broadly defined as follows.
Lifestyle – Investors want to ensure that their assets can meet their financial needs over their lifetimes.
Financial security – Investors want to protect their financial needs against financial risks at all times.
Return – Investors want a balance of risk and return that is suitable to their personal risk preferences.
Value for money – Investors want to minimize the costs of managing their assets and their financial needs.
Peace of mind – Investors does not want to worry about the day to day movements of markets and their
present and future financial security.

Domestic or Foreign Investments

 Domestic investment - within the boundaries of the country.
 Foreign investment - international or outbound investments
Participants In The Investment Process
Three key participants in the investment process and each may act as a supplier and a demander of funds.
1. Government
 Require vast sums of money to finance long-term projects related to the construction of public facilities, such as schools,
hospitals, public housing, highways, and to meet operating needs- the money required to keep the government running.
2. Business
 Most business requires large sums of money to support operations. Like government, business has both long and short
Financial needs. Business issues a wide variety of debt and equity securities to finance these needs. They also supply
funds when they have excess cash.
3. Individuals
You might be surprised to learn that the individual’s role in the investment process is significant. Individuals frequently
demand funds in the form of loans to finance the acquisition of property-typically automobiles and houses.
Investment and Speculation
Investment involves putting money into an asset which is not necessarily marketable in order to enjoy a series
of returns. The investor sacrifices some money today in anticipation of a financial return in future. He indulges
in a bit of speculation. There is an element of speculation involved in all investment decisions. However, it
does not mean that all investments are speculative by nature. Genuine investments are carefully thought out
decisions. On the other hand, speculative investment, are not carefully thought out decisions. They are based on
tips, and rumors.

Speculation has a special meaning when talking about money. The person who speculates is called a
speculator. A speculator does not buy goods to own them, but to sell them later. The reason is that speculator
wants to profit from the changes of market prices. One tries to buy the goods when they are cheap and to sell
them when they are expensive. Speculation includes the buying, holding, selling and short selling of stocks,
bonds, commodities, currencies, real estate collectibles, derivatives or any valuable financial instrument. It is
the opposite of buying because one wants to use them for daily life or to get income from them (as dividends or
interest).
 RISK OF INVESTMENT/FINANCIAL GOALS

At the end of the lesson, the learners will be able to:

1. Enumerate types of investors;
2. Discuss the Elements of Investment
3. Understanding Risks
4. Making Investment Plans
5. Advantages And Disadvantages Of Having Investments
6. Portfolios And Diversification
7. The Role Of Portfolio Manager
8. Portfolio Management
9. Objectives Of Portfolio Management
10.Financial Goals
 Types of Investors

1. Individual investors
Investors who manage their own funds to achieve their financial goals. They usually
concentrate on earnings a return on idle funds, building a source of retirement income, and
providing security for his or her family.

2. Institutional investors
Employ by individual who lack the time or expertise to make investment decisions.
Investment professionals who are paid to manage other people's money. These professionals
trade large volumes of securities for individuals, business and government.
 The Elements of Investment
1. Return
Returns are the value created by an investment, through either income or gains. Returns are also your
compensation for investing, for taking on some or all of the risk of the investment, whether it is a corporation,
government, parcel of real estate, or work of art.
2. Risk
Risk is the chance of loss due to variability of returns on an investment. In case of every investment, there is a
chance of loss. It may be loss of interest, dividend or principal amount of investment.
3. Time
Time is an important factor in investment. It offers several different courses of action. Time period depends on
the attitude of the investor who follows a ‘buy and hold’ policy.
4. Liquidity
Liquidity is also important factor to be considered while making an investment.
5. Tax Saving
The investors should get the benefit of tax exemption from the investments. There are certain investments
which provide tax exemption to the investor.
 Types of Risk
1. Country risk - The risk that domestic events – such as political upheaval, financial
troubles, or
natural disasters – will weaken a country’s financial markets.
2. Currency risk - The risk that changes in currency exchange rates causes the value of an
investment to decline.
3. Inflation risk - Inflation is a measure of the rate of increase in general prices for goods and
services. The risk that inflation poses is that it can erode the value or purchasing power of
your investments.
4. Liquidity risk - The chance that an investment may be difficult to buy or sell.
5. Market risk - There are risks associated with the majority of asset classes. This is what
professionals call market risk.
6. Short fall risk - Short fall risk is a possibility that your portfolio will fail to meet your
longer-term financial goals.
Making Investment Plans
It is important that your investment plans take into account the impact of taxes. Your plans also should be
responsive to your stage in the life-cycle and to the changing economic environment.
Steps in investing (Gitman,2005)

1. Meet investment prerequisites

2. Establishing investment goals
3. Adopting an investment plan
4. Evaluating investment vehicles
5. Selecting suitable investments
6. Constructing a diversified portfolio
7. Managing the portfolio
Advantages and Disadvantages of Having Investments
Advantages:

1. Potential for great investment returns.

2. Can invest smaller or large sums of money.
3. Long-term investment possible.
4. Investment managers can monitor the markets to avoid dramatic losses.
5. Chance to purchase second home and earn income/holiday for free.
6. Can save tax-free.
7. Can specify the type of company in which you wish to invest.
 Disadvantages:

1. No guarantee of returns.
2. Potential loss of capital.
3. Long-term investment prevents early withdrawals.
4. Reliance on aptitude of investment manager to make profit.
5. Hidden costs and work involved e.g. when purchasing a property.
6. Economic crises or market problems may reduce value of investment.
Portfolios and Diversification
 It's good to clarify how securities are different from each other, but it's even more
important to understand how their different characteristics can work together to
accomplish an objective.

The Portfolio
 A portfolio is a combination of different investment assets mixed and matched for the
purpose of achieving an investor's goal(s). Items that are considered a part of your
portfolio can include any asset you own - from real items such as art and
real estate, to equities, fixed-income instruments and their cash and equivalents.
Basic Types of Portfolios
1. Aggressive Investment Portfolio
Those that shoot for the highest possible return - are most appropriate for investors who, for the sake of this
potential high return, have a high risk tolerance (can stomach wide fluctuations in value) and a longer time
horizon.

2. Conservative Investment Portfolio

Which put safety at a high priority, are most appropriate for investors who are risk averse
and have a shorter time horizon.

3. Moderately Aggressive Portfolio

Is meant for individuals with a longer time horizon and an average risk tolerance.
Investors who find these types of portfolios attractive are seeking to balance the
amount of risk and return contained within the fund.
Diversification
 Portfolios centers on diversification. There have been all sorts of academic studies and
formulas that demonstrate why diversification is important, but it's really just the simple
practice of "not putting all your eggs in one basket."  
Portfolio Management
Portfolio management means selection of securities and constant shifting of the portfolio in
the light of varying attractiveness of the constituents of the portfolio. It is a choice of
selecting and revising spectrum of securities to it in with the characteristics of an investor.

Portfolio Manager
A professional, who manages other people's or institution's investment portfolio with the
object of profitability, growth and risk minimization. He is expected to manage the
investor's assets prudently and choose particular investment avenues appropriate for
particular times aiming at maximization of profit.
 
 The role of portfolio manager includes the following:

1. Quantify their clients’ risk tolerances and return needs by taking into account his
liquidity, income, time horizon, expectations
2. Do an optimal asset allocation and choose strategy that meets the client’s needs
3. Diversify the portfolio to eliminate the unsystematic risk
4. Monitor the changing market scenario, expectations, client needs, etc. and rebalance
accordingly.
5. Lower the transaction cost by minimizing the taxes, trading turnover, and liquidity costs.
Portfolio management is on-going process involving the following basic tasks:
1. Identification of the investor’s objectives, constraints and preferences.
2. Strategies are to be developed and implemented in tune with investment policy
formulated.
3. Review and monitoring of the performance of the portfolio.
4. Finally the evaluation of the portfolio and make some adjustments for the future.
 Objectives of Portfolio Management
1) Security/Safety of Principal
Security not only involves keeping the principal sum intact but also keeping intact its purchasing power intact.
Safety means protection for investment against loss under reasonably variations. In order to
provide safety, a careful review of economic and industry trends is necessary.
2) Stability of Income
So as to facilitate planning more accurately and systematically the reinvestment consumption of income is important.
3) Capital Growth
This can be attained by reinvesting in growth securities or through purchase of growth securities. Capital appreciation
has become an important investment principle.
4) Marketability
It is the case with which a security can be bought or sold. This is essential for providing flexibility to investment
portfolio.
5) Liquidity i.e. nearness to money
It is desirable to investor so as to take advantage of attractive opportunities upcoming in the market.
6) Diversification
The basic objective of building a portfolio is to reduce risk of loss of capital and / or income by investing in
various types of securities and over a wide range of industries.
7) Favorable Tax status (Tax Incentives)
The effective yield an investor gets from his investment depends on tax to which it is subject. By minimizing the tax
burden, yield can be effectively improved. Investors try to minimize their tax liabilities from the investments.
FINANCIAL GOALS
If you want to get anywhere in life, you need a roadmap. The same is true for money.  Financial goals give you a
destination: an emergency fund, no credit card debt, and retirement savings. And once you know where you want
to go, the next step is to map out a plan to get there. 
 
Step No. 1: Brainstorm your financial goals
Put pen to paper and brainstorm your financial goals. Use this exercise to identify financial behaviors that
are contributing to or hindering your goals. What do you want to start doing, keep doing, or stop doing?
For example: 
 Start saving for big purchases, like a car or house. 
 Keep contributing to your work.
 Stop racking up unnecessary debt.
Make sure these goals are realistic by taking your current financial situation into account. Don’t set
yourself up for failure by listing goals that are too difficult to achieve and behaviors that are unlikely to
change.
 Step No. 2: Prioritize your goals for success
 We may be conditioned to multitask in other areas of our lives, but goal setting needs to be hyper-focused. If we spread
ourselves too thin, we’ll make minimal progress. With this in mind, once you have an idea of the goals you’d like to
accomplish, rank them according to importance. Prioritization is key the here.

Step. No 3: Know your motivation

 Most people set goals without considering why they want to achieve them. When setting your financial goals, consider
the “why.” What can money management help you accomplish in the future?
 Everyone wants to reduce expenses and make more money, but every long-term goal is unique. For instance, someone
who loves to travel may want to ensure they can retire with enough money to not only cover the basics, but take
frequent trips.

Step No. 4: Categorize your financial goals 

 Categorize your goals according to timeline.
 Short-term goals position you to complete mid-term goals, which position you to accomplish long-term goals.
Step No. 5: Accomplish your financial goals
 With your goals clearly in mind, it’s time to start executing. Create a plan of action. 
 Don’t underestimate the power of writing down your goals. By committing them to
paper, you’ll have a solid plan of action to hold yourself accountable.