Finance Toolkit

EMI (Equated Monthly Installment) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month.

EMIs are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.

The EMI depends on three factors:

• Loan Amount (Principal): The total sum borrowed.
• Interest Rate: The rate at which interest is charged on the loan.
• Loan Tenure: The duration over which the loan needs to be repaid.

A longer tenure reduces the EMI amount but increases the total interest paid. Conversely, a shorter tenure increases EMI but reduces total interest.

Working Capital is the lifeblood of any business. It's the difference between current assets (like inventory and receivables) and current liabilities (like payables).

GST Turnover impacts working capital as it reflects sales volume. Higher sales usually mean higher inventory and receivables, increasing working capital needs.

Cash Conversion Cycle (CCC):
CCC = Inventory Days + Receivables Days - Payables Days.
A shorter CCC is generally better as it means your cash is tied up for less time.

Key Components:

• Inventory: Raw materials, work-in-progress, and finished goods. Efficient management reduces holding costs.
• Receivables (Debtors): Money owed by customers for goods/services sold on credit.
• Payables (Creditors): Money owed to suppliers for goods/services purchased on credit.

Optimizing these components helps in maintaining healthy cash flow and reducing the need for external financing.

PMMY offers loans up to ₹10 lakh to non-corporate, non-farm small/micro enterprises.

Loans are categorized as:

• Shishu: Loans up to ₹50,000
• Kishore: Loans above ₹50,000 and up to ₹5 lakh
• Tarun: Loans above ₹5 lakh and up to ₹10 lakh

Key Features:

• No collateral required.
• Available through Commercial Banks, RRBs, Small Finance Banks, MFIs, and NBFCs.
• For income-generating activities in manufacturing, trading, services, and agri-allied sectors.

Eligibility also depends on the applicant's profile, business plan viability, and lender's credit policies.

CGTMSE provides credit guarantee to lending institutions for collateral-free loans extended to Micro and Small Enterprises (MSEs).

Maximum Credit Facility: Up to ₹5 crore per eligible borrower.

Eligible Borrowers: New and existing Micro & Small Enterprises. (Medium enterprises are generally not eligible).

Eligible Activities: Manufacturing and Service activities. Retail trade, educational institutions, agriculture, and SHGs have limited or no coverage.

Key Requirements:

• The loan must be collateral-free.
• The borrower should not have any defaults with banks/financial institutions.
• The lending institution must be registered with CGTMSE.

An Annual Guarantee Fee (AGF) is payable by the lender to CGTMSE.

Retirement planning is crucial to ensure financial independence after you stop working. This calculator helps estimate the total sum (corpus) you'll need.

• Years to Retirement: The longer you have, the more compounding can work for you.
• Inflation: A key factor in India, as it erodes the purchasing power of your savings over time. Your future expenses will be much higher.
• Post-Retirement Returns: The returns you expect your corpus to generate after retirement. This should ideally be conservative.
• Life Expectancy: How long your corpus needs to last. It's better to plan for a longer lifespan.

Starting early, even with small amounts, can make a significant difference due to the power of compounding.

A Systematic Investment Plan (SIP) is a disciplined way to invest a fixed sum regularly in mutual funds.

• Power of Compounding: Returns earned on your investment also start earning returns, leading to exponential growth over time.
• Rupee Cost Averaging: When markets are down, you buy more units; when markets are up, you buy fewer. This averages out your purchase cost.
• Disciplined Investing: Automates regular investments, fostering financial discipline.

SIPs are ideal for long-term wealth creation. The expected rate of return is an estimate and actual returns can vary based on market performance.

The National Pension Scheme (NPS) is a government-backed, voluntary retirement savings scheme.

• Tax Benefits: Contributions are eligible for deductions under Sec 80CCD(1) (within ₹1.5 lakh limit of 80C) and an additional exclusive deduction up to ₹50,000 under Sec 80CCD(1B). Employer contributions also offer benefits.
• Market-linked Returns: Offers potential for higher returns through equity exposure (choice of pension funds and asset allocation).
• Withdrawal: At retirement (age 60), up to 60% of the corpus can be withdrawn tax-free. The remaining (minimum 40%) must be used to purchase an annuity for regular pension.
• Annuity: Provides a regular pension income post-retirement. The pension amount depends on the annuity rate at the time of purchase.

NPS is a long-term product designed for retirement. Returns are not guaranteed and depend on market performance.

Public Provident Fund (PPF) is a popular long-term savings-cum-investment product in India, backed by the government.

• EEE Status: Exempt-Exempt-Exempt. Investment, interest, and maturity amount are all tax-free.
• Interest Rate: Set by the government quarterly. Currently 7.1% p.a. (compounded annually).
• Investment Limit: Minimum ₹500, Maximum ₹1.5 Lakh per financial year.
• Lock-in Period: 15 years. Can be extended in blocks of 5 years.
• Loan & Withdrawal: Partial withdrawal and loan facilities are available subject to conditions.

PPF is considered a safe investment option for long-term goals like retirement or children's education due to its sovereign guarantee and tax benefits.

Section 80C of the Income Tax Act allows deductions up to ₹1.5 lakh from your gross total income, reducing your taxable income.

Common 80C Investments/Expenses:

• Employee Provident Fund (EPF)
• Public Provident Fund (PPF)
• Equity Linked Savings Scheme (ELSS)
• Life Insurance Premiums
• National Savings Certificate (NSC)
• 5-Year Tax Saving Fixed Deposits
• Home Loan Principal Repayment, Sukanya Samriddhi Yojana, etc.

Note on Tax Regimes: This planner is most relevant for individuals opting for the Old Tax Regime. The New Tax Regime offers lower tax rates but disallows most common deductions, including Section 80C, 80D etc. Choose your regime carefully.

Fixed Deposits (FDs) are a popular investment option offered by banks and NBFCs, providing a fixed rate of interest for a specified tenure.

• Safety: Considered relatively safe, especially those with DICGC insurance up to ₹5 lakhs per depositor per bank.
• Fixed Returns: Interest rate is locked in at the time of investment, offering predictable returns.
• Compounding: Interest can be compounded monthly, quarterly, half-yearly, or annually, affecting the final maturity amount. More frequent compounding generally yields higher returns.
• Taxation: Interest earned on FDs is taxable as per your income tax slab. TDS is deducted by the bank if interest exceeds certain limits (Form 15G/15H can be submitted if applicable).
• Premature Withdrawal: Usually allowed but may attract a penalty.

FDs are suitable for risk-averse investors looking for capital preservation and steady income.