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Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set. The Financial Plan describes each of the activities, resources, equipment and materials that are needed to achieve these objectives, as well as the timeframes involved.

The Financial Planning activity involves the following tasks;—-

  • Assess the business environment
  • Confirm the business vision and objectives
  • Identify the types of resources needed to achieve these objectives
  • Quantify the amount of resource (labor, equipment, materials)
  • Calculate the total cost of each type of resource
  • Summarize the costs to create a budget
  • Identify any risks and issues with the budget set

Performing Financial Planning is critical to the success of any organization. It provides the Business Plan with rigor, by confirming that the objectives set are achievable from a financial point of view. It also helps the CEO to set financial targets for the organization, and reward staff for meeting objectives within the budget set.

The role of financial planning includes three categories:

  1. Strategic role of financial management
  2. Objectives of financial management
  3. The planning cycle

When drafting a financial plan, the company should establish the planning horizon, which is the time period of the plan, whether it be on a short-term (usually 12 months) or long-term (2–5 years) basis. Also, the individual projects and investment proposals of each operational unit within the company should be totaled and treated as one large project. This process is called aggregation.

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Disadvantages of Credit Use

Using credit also has some disadvantages.

Credit almost always costs money. You have to decide if the item is worth the extra expense of interest paid, the rate of interest and possible fees.

It can become a habit and encourages overspending. By simply having a credit card available, a person is likely to spend more when shopping than when paying cash for everything.

Overuse of credit leads to a poor credit record. A poor credit record means you will find it more difficult and more expensive to get future credit.

Comparison shopping may be discouraged. Ifyouhave credit available, you may be more likely to buy now rather than shopping around to find the best buy.

Reduces future buying power. Future income is tied up increditpayments. Ifyouusecredit, partofeverythingyouearn in the future will go toward what you bought in the past.

Extra fees add to the total cost. Credit card companies are collecting higher late and over-the-limit fees which add to the total cost of credit. Pay attention to due dates and total amount charged to avoid these added costs.

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Advantages credit cardsDisadvantages credit cards
  •  It’s convenient to use in a wide variety of places – in stores, on the phone or online.
  • You can better manage your budget using your monthly statement with the details of all of your purchases.
  • It is safer than carrying a lot of cash.
  • You are not responsible for charges if your card is stolen as long as you report it immediately.
  • You can build your credit history.
  • You can earn prizes like frequent flyer miles, rebates or points.
  •  Often, you need a credit card to make car, hotel, airplane or other reservations.
  • If you make a late payment, do not pay the balance in full, or exceed your credit limit, you will have to pay extra in fees and interest.
  • Credit cards can lead to debt and negatively affect your credit history if it is not managed properly.
  • If you do not track your purchases, it can be difficult to know how much you spend in one month until your statement arrives.
  • The terms and conditions can be confusing and, in some cases, they are only available in English.

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Advantages of Credit

Using credit has some advantages.

Convenience. Using credit cards when you travel or shop is more convenient than carrying cash. It also provides a handy record of transactions. Using a credit card also may give you some bargaining power if there is a dispute or disagreement involving a purchase.

Use other people’s money. During the time between when you buy something with credit and when you pay the bill, you’re actually using someone else’s money rather than your own cash.

Meet emergencies. Unexpected costs such as car repairs or health needs can be met quickly with credit.

Use something while you pay for it. You can enjoy using something you need as you pay for it.

Get something you can’t afford now. If you can’t af- ford to pay cash for a car or other large purchase, using credit allows you to get it now.

May get better service on something bought on credit. If you haven’t paid for something entirely and a problem arises, it may be easier to get the service needed.

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Delhi University Mcom Financial Planning detailed Syllabus is available here.


Unit I: Introduction to Financial Planning: Globally accepted six steps financial planning process; General principles of cash flow planning, budgeting, legal aspects of financial planning. Overview of risk management: investments, insurance, retirement solutions, tax and estate planning.

Unit II: Investment Environment: Types of investment options available to an individual investor – bonds, equity shares, mutual funds, fixed deposits, PPF, financial derivatives, commodity derivatives, gold and bullion, ETFs, REITs, real estate etc. Objectives and rewards of investing. Investment constraints (tax considerations, unique needs etc.). Impact of inflation and indexation. Sources of financial information. Understanding mutual funds (Schemes, NAV calculation, load structure, Systematic Investment Plans, Systematic withdrawal plan etc.)

Unit III: Return-Risk Assessment: Risk aversion and risk profiling. Concept, types and calculation of returns. Assessment of risks in various financial instruments. Power of compounding and Time value of money. Rupee cost averaging. Concept of Portfolio and Diversification. Basics of Portfolio risk and return (two assets case). Tactical and strategic asset allocation.

Unit IV: Personal Financial Planning: Personal financial planning process. Setting personal financial goals. Life cycle approach to financial planning. Components of financial plan; developing financial plan; Using time value concept to estimate savings. Evaluation of tax saving instruments. Objectives of will and creating a valid will; living will and power of attorney. Planning for life insurance and health insurance. Primary clauses in Insurance agreement. Main contents of healthcare insurance.

Unit V: Credit Planning and Retirement Planning: Assessment of credit – types, advantages, disadvantages. Consumer and housing finance planning. EMI calculations – methods and implications. Reverse mortgage. Education loan. Credit card management; credit limits, overdraft protection, grace period. Credit Bureaus – individual credit history and ranking, identity theft and protection against identity thefts. Retirement planning and pension plans. Impact of taxes and inflation.

Unit VI: Investor Protection: Role of SEBI. Investor grievances and redressal system in India.

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Credit is the trust which allows one party to provide money or resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead promises either to repay or return those resources (or other materials of equal value) at a later date.In other words, credit is a method of making reciprocity formal, legally enforceable, and extensible to a large group of unrelated people.

The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment. Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower.

Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services.However, in modern societies, credit is usually denominated by a unit of account.

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

Master of Commerce (MCom or M Comm; sometimes Magister Commercii) is a postgraduate master’s degree focusing on commerce-, accounting-, management– and economics-related subjects. Like the undergraduate Bachelor of Commerce, the degree is offered in Commonwealths nations.

Disadvantages of credit planning for Financial Planning MCOM sem 1 Delhi University

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