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Disclaimer: This blog provides information about the Post Office Time Deposit Scheme for educational purposes only and should not be construed as financial advice. Consult a financial advisor for personalized recommendations. Investing in the Post Office Time Deposit Scheme offers the benefit of tax exemption under Section 80C of the Income Tax Act, 1961, along with excellent interest rates. Post Office Savings Schemes: Safe and Rewarding Post Office Savings Schemes are gaining popularity due to their combination of safety and high returns. These schemes cater to a wide range of investors, from children to the elderly. Among these, the Post Office Time Deposit Scheme stands out for its strong returns and secure investment. This five-year scheme is particularly attractive because it offers both safety for your capital and substantial returns, making it a preferred choice among investors. Attractive Interest Rates Everyone aims to save a portion of their earnings and invest it where it i...

Introduction Infrastructure Investment Trusts (InvITs) are a type of Collective Investment Scheme similar to mutual funds. They allow individual and institutional investors to directly invest in infrastructure projects and earn a portion of the income as returns. InvITs enable developers of infrastructure assets to pool multiple projects under a single entity, known as a trust structure. These trusts raise funds from a large number of investors and invest in infrastructure projects or through special purpose vehicles (SPVs). InvITs are designed to attract low-cost, long-term capital and provide a mechanism for developers to monetize their assets while generating fresh equity capital for infrastructure projects. They are positioned as high-dividend paying investments that offer stable cash flows and moderate capital appreciation. The regulations require InvITs to distribute at least 90% of the Net Distributable Cash Flows (NDCF) to investors every six months. Currently, there are two li...

  Part-1 All right, let's give an example of a scatter diagram. And I'm going to pick an example that compares the return on the stock market, or the overall market of all investable assets, with the return on an individual stock, let's say Apple Computer. Which I just picked because it's the biggest company in America. So let me just draw on the horizontal axis the Return on the Market. That's everything that you could invest in. We'll just imagine all stocks put together. And then on this axis we're going to put the return of Apple. And each point represents one year. So let's pick a year when the stock market went up, let's say, the market went up 10%. And what did Apple do in the same year? Let's say it did 15%. So I make a point here, a point above 10% and at 15% here. In some years the market goes down. Let's not forget that. So here, I'll say there was another year when the market did minus 5%. What did Apple do in that year? Well,...

What Is the Capital Asset Pricing Model? Part-1 The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk, or the general perils of investing, and expected return for assets, particularly stocks. It is a finance model that establishes a linear relationship between the required return on an investment and risk. The model is based on the relationship between an asset's beta, the risk-free rate (typically the Treasury bill rate), and the equity risk premium, or the expected return on the market minus the risk-free rate. The capital asset pricing model. It's a model of the optimal portfolio. It asserts that all investors will hold the optimal portfolio.  Scatter Diagram Article   So anyway, I showed you last time a scatter diagram which had on the horizontal axis, the return on the stock market and on the vertical axis, the return on Apple Computer. And there was a scatter of points, one for each year, the return on the market and the return on Appl...

Think of risk, I was wondering how these large hedge funds and their ability to take on large amounts of risk and leverage themselves, how that affects the market? Well hedge funds are investment companies that are not approved for the general retail market. So they're not allowed to advertise. They're not well-known, because they're not allowed to promote themselves, except through private conversations, and to invest in them you have to be an accredited investor, not a general investor. So they are allowed to do sophisticated and dangerous things. The idea is a hedge fund is regulated for people who have professional advisors or family offices. You know what a family office is? If you are really rich you don't just hire an advisor. You get a team of advisers, who that's their whole job, is to work on your family investments. That's what hedge funds are really for. So they're dangerous because they're not, it's like taking drugs.  Then, so often in ...

The first health insurance, apparently was in 1694. The first U.S. health insurance company was Franklin health insurance company of Massachusetts in 1850. There was an important step forward in health, in Health insurance with the health maintenance organization Act of 1973 which required employers with 25 or more employees to offer what's called an HMO.  A health maintenance organization. The idea at that time was that the medical services were generally provided by practitioners, to uninsured people who had to pay when they were sick. The problem was that doctors made more money if people were sick.  They would, they didn't have any incentive to prevent disease. So there were people who complained that we needed to have our our health managed by practitioners who had an incentive to keep you healthy to do preventive things.  So how do we do that we have to create an organization For example it can be the Pradhan Mantri health plan, that keeps you for a lifetime. Let's ...

In continuation of-  Insurance Fundamentals So, in order to make insurance work it takes a lot of developments and it's not easy and obvious. The concept of insurance, as we pointed out, goes back to ancient Rome but it doesn't seem to have taken over.  It wasn't managing most risk. It was a narrow scope of risk. If you look at the history of insurance, insurance developed because of specific technical advances like the development of actuarial theory. So it was in the 1600's that they produced the first life tables.  And what they were, it showed the probability of dying at each age. That's what you need to know if you're doing a life insurance policy. What is the probability that the insured will die? And they didn't, nobody had any statistics anywhere in the world on that until the 1600's. So they started doing life insurance but it didn't take off well.  And fire insurance, it wasn't widely accepted. The people mistrusted it and didn't un...

So today we will talk about insurance and it's a very old idea.  In fact, in some sense it even is used by animals, non-human animals. If they share risks, then it's some kind of insurance maybe. So it's very basic. And I think you have some idea of really what insurance is, but it involves an insurance company of some kind or a government insurance. But the policyholders have a contract with the insurance company to protect them against certain well-defined risks and for that they pay a premium, a regular payment to the insurance company for its standing ready to manage those risks.  There is a theory behind insurance and this theory is risk pooling. That, what is a risk for one person is not a risk for society at large if they are independent. Because by the Law of Large Numbers, the number of bad outcomes are fairly predictable.  The insurance company pools all these risks, and by the Law of Large Numbers is not really risky in itself. There's a little mathematical f...

Now the question is, what do we mean by an outlier? Well, there's something, I'm sure you've heard about the normal distribution or the bell shaped curve for random variables. The normal distribution is a typical distribution for random variables in nature and there are reasons to think that many random variables follow a distribution like this.  The distribution has two parameters , its mean and its standard deviation. So in this case, I have plotted it for two different standard deviations but both a mean of zero.  So, this is a theoretical probability distribution for let's say a return on a stock and here the standard deviation is one on this pink curve, and it's three on the blue curve. Many random variables in nature follow this distribution but not all of them and that's important because in finance it tends not to follow this distribution, that we tend to have outliers or fat tails.  The normal distribution, has two tails. This is the right tail which h...

Understanding S&P 500 This is the S&P, Standard & Poor's 500 stock price index and it's used as a benchmark for returns.  So this is what you did if you just invested in the whole market monthly from 2000 to 2016. And what it shows is quite a roller coaster ride of value, right? So, actually, I should have maybe plotted it longer. It was rising for a long time before that and then it had a huge drop from 100 it fell about in half. And then starting in 2003 it started a long increase again. And then here is the great financial crisis, 2007 to 2009. And then since then, has been going up a lot here.  It's amazingly unstable, the stock market. To think that the risk of any other comp, the Law of Large Numbers is not working here because this is the Standard & Poor's 500 Index. It's an average of 500 stocks. So if they were all independent of each other, the Law of Large Numbers would make the stock market as a whole almost constant.  But, in fact, it...

 VaR and Stress Testing  There is a thing called VAR in the financial industry. Actually, this means two things. It means variance, it means amount of risk, but the truth is third, vector autoregression. I just thought it would be confusing. Therefore, the variance of data collection is defined as a measure of its variability. In finance, some people use the relatively new term VAR to mean "value at risk". It didn't happen until after the 1987 recession. As such, it is a measure used by some financiers to evaluate investment or portfolio risk in terms of money rather than probability and time. For example, if you say 1%, $10 million one-year VaR, that means the portfolio has a 1% chance of losing $10 million in one year. There is also a risk measurement method that has become popular in recent years, especially after the 2007-09 financial crisis, and this is the stress test. Now, stress testing dates back to the 1960s, and that means if your doctor is worried about your m...

 In this blog we will learn the good and evils of financial market. So, in my opinion, money is a tool that can be used for good or bad. Successful doctors tend to attract more money. That doesn't mean you can't be honest and fair in the financial world. So, one thing I've seen talking around the world is when you go to poor countries and they really like money because of today's worth of money in survival. These people know what financial transactions are. It is part of the success of the business. They are known in China, they are known in Russia, they are known in Brazil and many other countries. Because money is real technology. They don't want outside help, they don't need outside help, they just want principles, and wealth will always follow. So this is not a lesson on how to live a life of wealth and smugness. This is a lesson that deals with some moral goals. Andrew Carnegie is one of the richest men in America. He said he believed the rich were successf...