Financial Planning

Bank and Types of Bank Account

**Savings and Investment**

In the financial industry, there are two concepts that form the basis of most transactional activities. One is savings and the other is investments. A lot of times people confuse savings with investments. But savings and investment are different from each other in their approach of utilizing the money involved.

Savings refers to the part of the income which remains in the hands of a person, after paying all the expenses. On the other end, investment is the act of investing the saved money into assets, with a view to earning profit.

Let us now solve some problems to understand this concept more clearly.

**Example 1:**

Mr. Rakesh invested ₹5,00,000 in a private company. After 2 year, he got ₹6,50,000 from that company. He kept the original investment aside and invested his gains in a mutual funds and in fixed deposits in the ratio 8 : 7. How much amount did he invested in each of the schemes?

**Solution:**

Mr. Rakesh's profit at the end of 2 years = ₹6,50,000 − ₹5,00,000 = ₹1,50,000

Amount invested in a mutual funds = $\u20b91,50,000\times \frac{8}{15}$ = $\u20b980,000$

Amount invested in fixed deposits = $\u20b91,50,000\times \frac{7}{15}$ = $\u20b970,000$

Mr. Rakesh invested ₹80,000 in mutual funds and ₹70,000 in fixed deposits.

**Example 2:**

An insurance company paid an interest at the rate of 10% p.a. compounded annually on a fixed deposit. If Ms. Soni received ₹33,100 as interest after three years, then what amount had he deposited in the fixed deposit?

**Solution:**

Let the amount deposited by Ms. Soni i.e., the principal be *x*.

*R* = 10% p.a. compounded annually

Number of years, *n* = 3

*CI* = ₹33,100

∴ *A* = *P* + *CI* = *x* +₹33,100

It is known that amount received is given by:

$x+\u20b933,100=x{\left(1+\frac{10}{100}\right)}^{3}\phantom{\rule{0ex}{0ex}}\Rightarrow x+\u20b933,100=x{\left(\frac{11}{10}\right)}^{3}\phantom{\rule{0ex}{0ex}}\Rightarrow x{\left(\frac{11}{10}\right)}^{3}-x=\u20b933,100\phantom{\rule{0ex}{0ex}}\Rightarrow x\left(\frac{1331}{1000}-1\right)=\u20b933,100\phantom{\rule{0ex}{0ex}}\Rightarrow x\times \frac{331}{1000}=\u20b933,100\phantom{\rule{0ex}{0ex}}\Rightarrow x=\u20b91,00,000$

Thus, Ms. Soni had deposited Rs 1,00,000 in fixed deposit for a period of 3 years.

Everyone must have heard the word 'tax' in newspapers, news channels or in people's conversation.

What exactly is tax and why do we pay it? Why do the government collects taxes from us?

**Tax **is actually the amount of money charged by the government from the common people and other various entities to meet the expenditure required for public welfare such as street lightning, street cleaning, water supply and building of roads. It is also charged on products, incomes and other activities.

There are two types of taxes. They are:

(1) Direct tax

(2) Indirect tax

Let us try to understand these types of taxes.

**(1) Direct tax:**

The tax which is paid directly to the government by an individual or by an entity upon whom the tax is imposed is called direct tax. Direct taxes include property tax, income tax, water tax, professional tax, taxes on assets, etc.

The burden of direct taxes cannot be shifted to another individual or entity. Only the individual or the entity upon whom the tax is imposed is responsible for the payment of tax.

**(2) Indirect tax:**

The tax which is not paid directly to the government is called indirect tax. It actually increases the price of a commodity, so the consumer pays the tax indirectly to the government by paying more for the commodity. Indirect taxes can be shifted to other individuals, so it is not necessary that only the individual responsible for the payment of tax should fulfil its responsibility; rather, he/she can shift his taxes to someone.

Some examples of indirect taxes are excise tax, cus…

To view the complete topic, please