Looking for the answer to the question below related to Financial Management ?
Which of the following is outside the purview of investment class?
|A. Fixed deposits
B. Recurring deposits
C. Savings bank deposits
D. Current account deposits
The Correct Answer Is:
- D. Current account deposits
The correct answer is D. Current account deposits. Current account deposits are not typically considered an investment class, while the other options (fixed deposits, recurring deposits, and savings bank deposits) fall within the purview of investment classes. Let’s delve into the reasons for this distinction and why the other options are considered part of investment classes:
D. Current Account Deposits:
Current accounts are primarily used for conducting day-to-day financial transactions, including making payments, receiving payments, and managing business expenses. Unlike savings or investment accounts, current accounts do not typically offer interest on deposits.
Instead, they may charge fees or maintenance charges. These accounts are designed for liquidity and convenience, not for wealth generation or investment purposes. Thus, current account deposits are not considered an investment class.
Now, let’s explore why the other options are indeed part of investment classes:
A. Fixed Deposits:
Fixed deposits (FDs) are a common form of investment class. When individuals or entities open fixed deposit accounts with banks or financial institutions, they agree to deposit a specific amount of money for a predetermined period, which can range from a few months to several years.
In return, they earn a fixed interest rate on their deposit, which is typically higher than the interest rates offered on savings accounts. Fixed deposits are known for their safety and predictability, making them an attractive choice for individuals looking to earn a steady income from their savings.
B. Recurring Deposits:
Recurring deposits (RDs) are also a form of investment class. RDs are similar to fixed deposits but have a different structure. In recurring deposit accounts, individuals deposit a fixed amount of money at regular intervals, such as monthly, instead of depositing a lump sum amount upfront.
Like fixed deposits, recurring deposits offer a fixed interest rate and a predetermined maturity period. RDs are suitable for individuals who want to build savings over time and earn interest on their recurring contributions.
C. Savings Bank Deposits:
Savings bank deposits are a widely recognized form of investment class. These accounts are designed for individuals to park their liquid funds securely while earning a nominal interest rate. While the interest rates on savings accounts may be lower compared to fixed deposits, they offer high liquidity, allowing account holders to withdraw funds as needed.
Many people use savings accounts to store emergency funds or maintain easy access to their money. Though the primary goal of a savings account is liquidity rather than high returns, it still falls within the realm of investment classes.
In summary, the correct answer, D. Current account deposits, is outside the purview of investment classes because current accounts are primarily meant for day-to-day banking transactions and do not offer interest on deposits.
On the other hand, fixed deposits, recurring deposits, and savings bank deposits all belong to investment classes because they provide a means for individuals to earn interest on their deposits, albeit with different terms and structures. These investment classes cater to varying financial goals and risk tolerances, allowing individuals to choose the most suitable option based on their needs.