Investing

For generations, Fixed Deposits (FDs) have been the gold standard of “safe” investing for the Indian middle class. A guaranteed 7% return sounds reassuring, especially in an uncertain economy. Banks market them as a fortress for your savings, no risk, assured income, peace of mind.

But here’s the uncomfortable truth: that 7% isn’t really 7% once you factor in taxes and inflation. What feels like a cushion today could quietly be eroding your wealth tomorrow.

The Post-Tax, Post-Inflation Reality

Let’s crunch the numbers.

• FD Interest Rate: 7%
  
• Tax Deduction (30% slab): ~2.1% gone
  
• Effective Return after Tax: 4.9%
  
• Average Inflation (2025 estimate): 5–6%
  

Do the math, and you’ll see you’re effectively making zero or even negative returns. Your money isn’t growing; it’s losing purchasing power.

So while your bank balance looks bigger year after year, what you can actually buy with that money is shrinking. That dream of upgrading your car, funding your child’s higher education abroad, or even retiring comfortably? It’s slipping further away with every “safe” FD renewal.

The Illusion of Safety

FDs feel safe because they protect your principal. But safety isn’t about having the same number on your bank statement; it’s about safeguarding your future lifestyle. If inflation and taxes are eating into your returns, then FDs are only giving you a false sense of security.

Here’s the kicker: While you’re stuck at 4-5% effective returns, inflation-driven assets like real estate, equities, and even gold are compounding much faster. Over 10-15 years, the wealth gap between FD investors and market-savvy investors becomes a chasm.

Why You’re Falling Behind Without Realizing

Imagine two people start with ₹10 lakh today:

• Person A puts it in a 7% FD. After 10 years, they might see ~₹20 lakh in the account, but the inflation-adjusted value is far less, closer to ₹13–14 lakh in today’s money.
  
• Person B invests smartly with diversified, inflation-beating options, averaging 11–12% returns. In 10 years, their portfolio could touch ₹28-30 lakh.

That’s a ₹10 lakh gap simply because one played it “safe” and the other played it smart.

Why You Need Guidance, Not Just FDs

Most investors stick with FDs because they don’t know where else to turn. Markets feel risky, options feel confusing, and nobody wants to gamble with hard-earned money. But here’s the truth: it’s not about gambling – it’s about strategy.

A good investment advisory does three things that FDs can’t:

1. Customize your portfolio based on your goals, age, and risk appetite.
2. Balances risk and reward with asset diversification (equity, debt, gold, global funds, etc.).
3. Keeps you ahead of inflation, ensuring your money actually grows in real terms.

Don’t Settle for Stagnation

Every year you lock money into FDs, you’re silently letting inflation steal your dreams. The world won’t wait. Opportunities in equity markets, mutual funds, and alternative investments are creating wealth for those who move beyond “safe” illusions.

The question is: Do you want your money to simply sit, or do you want it to work harder than you do?

It’s time to rethink “safety.” With the right investment advisor by your side, you can protect your capital and grow it meaningfully. Don’t wait until your FDs mature by then; the opportunity might have already slipped away.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

Filing your Income Tax Return (ITR) each year feels like a necessary evil. You wrestle with Form 16s, TDS certificates, and salary slips, and finally breathe a sigh of relief when the confirmation email arrives. But here’s the real truth: filing ITR is just a compliance step. What you do after filing is what truly shapes your financial future.

Let’s dissect the middle-class salary, an autopsy of money flows in 2025, and see how refunds, savings, and investments should actually be managed.

Where Does Your Money Really Go?

If you earn ₹12–15 lakh annually in 2025, here’s how your salary often “dies” every month:

• 30 – 35%: House rent or EMIs
  
• 20 – 25%: Lifestyle spends (Swiggy, Netflix, EMIs on gadgets, weekend getaways)
  
• 15 – 20%: Children’s education, healthcare, parents’ needs
  
• 10 – 12%: Insurance premiums, PF, and forced savings
  
• 5 – 7%: Actual investments
  
• Remainder: Vanishes quietly into UPI swipes, subscription auto-debits, and festive overspending

When you file your ITR, this picture becomes brutally clear: most Indians don’t have an income problem – they have an allocation problem.

Refunds Are Not Free Money

Many salaried taxpayers cheer when they see an ITR refund. But let’s be honest, your refund is not a “bonus” from the government. It’s your own money that you overpaid in advance tax or TDS.

Instead of parking it in a 7% FD, which shrinks to ~5% post-tax and zero after inflation, you need to ask: Can this refund actually create wealth?

This is where SEBI-registered investment advisory firms step in. A registered investment advisor is bound to act in your best interest, unlike random social media tips. They can help you:

• Allocate refunds into equity SIPs or index funds
  
• Explore mid-cap stocks or large-cap stocks with potential
  
• Understand high-growth stocks vs high-risk best penny stocks
  
• Diversify across mutual funds, ETFs, and debt instruments

Why Advisory Investment Services Matter

The Indian middle class loses lakhs over decades, not because they don’t save, but because they don’t invest wisely.

A stock market advisory helps answer questions like:

• Should you start a SIP investment or go lump-sum?
  
• What is stock market volatility, and how do you manage it?
  
• How much equity vs FD should you hold at age 35 vs 45?
  
• Which tax-efficient options beat FDs long term?

Imagine this: Your ₹1 lakh refund left in a savings account = ₹1 lakh in 2045. 

The same ₹1 lakh in equities compounding at 12% CAGR = ₹9.6 lakh. 

That’s the power of compounding you miss without guidance.

Post-ITR Action Plan for Middle-Class Salaried in 2025

1. Do a salary autopsy: Use a budgeting app or Excel to see where your income leaks.
   
2. Redirect refunds smartly: Don’t blow it on gadgets; invest in SIPs or ETFs.
   
3. Seek professional help: The best Indian stock market advisor tailors advice for your tax slab and goals.
   
4. Use calculators: A SIP calculator, CAGR calculator, and compound interest calculator show you the real power of long-term investing.
   
5. Review insurance & debt: Don’t overpay premiums or carry costly credit card debt.

Final Word

Filing ITR is not the end. It’s a financial mirror. Once you see where your salary dies each year, you can revive it with investment advisory services.

The middle-class trap is real, but with the right share market advisory services, your money doesn’t just pay bills. It builds wealth.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

Investing in mutual funds is a smart way to grow your wealth, but with so many options available, choosing the right fund can be confusing. Among the most talked-about categories today are multi cap funds and flexi cap funds. While both belong to the equity fund category, they follow different investment strategies and suit different kinds of investors.

In this article, we will explore the concept of multicap vs flexicap within the broader landscape of different types of mutual funds, understand how each fund type operates, compare their key differences, and help you determine which one aligns best with your financial goals.

What Are Multi Cap Mutual Funds?

Multi-cap mutual funds are a type of equity fund that invests in companies across all market capitalisations, large-cap, mid-cap, and small-cap stocks. However, there’s a specific rule set by the Securities and Exchange Board of India (SEBI) for these funds.

SEBI Mandate:

As per SEBI’s 2020 guidelines, multi cap funds must invest:

• At least 25% in large-cap stocks
  
• At least 25% in mid-cap stocks
  
• At least 25% in small-cap stocks
  

This rule ensures a minimum diversified exposure to all three market segments. The remaining 25% can be allocated at the fund manager’s discretion.

Who Should Invest?

Multi cap funds are ideal for investors looking for:

• A balanced exposure to various market caps
  
• Moderate risk with growth potential
  
• A medium to long-term investment horizon
  

These funds offer stability through large-cap stocks and growth potential through mid and small-cap companies. If you’re someone who wants a good mix without actively managing your portfolio, multi-cap funds are worth considering.

What Are Flexi Cap Mutual Funds?

Flexi cap mutual funds, as the name suggests, are flexible in their approach. They can invest across large-cap, mid-cap, and small-cap stocks without any minimum allocation requirement. The fund manager decides the asset allocation based on market conditions, valuation opportunities, and the fund’s strategy.

Key Features:

• No rigid allocation mandate unlike multi cap funds.
  
• Entire portfolio can be in large-cap, mid-cap, or small-cap, depending on market outlook.
  
• Offers high flexibility for fund managers to optimise returns.
  

Who Should Invest?

Flexi cap funds are suitable for investors who:

• Want professional fund management with market-driven strategies
  
• Have a higher risk appetite
  
• Are looking for potentially higher returns during market upcycles
  

Because these funds can swiftly move across market caps, they can take advantage of short-term opportunities and navigate market volatility better.

Multi Cap vs Flexi Cap: Key Differences Explained

Understanding the flexi cap vs multi cap debate is easier with a direct comparison:

Feature	Multi Cap Funds	Flexi Cap Funds
SEBI Mandate	Minimum 25% each in large, mid, and small-cap	No fixed allocation
Flexibility	Limited due to regulatory structure	High, based on market conditions
Risk Level	Moderate due to balanced allocation	Can be high or low depending on allocation
Fund Manager Freedom	Restricted to meet allocation norms	Full freedom in asset allocation
Suitability	Ideal for balanced investors	Ideal for active, growth-focused investors

Risk-Return Profile: Which One Performs Better?

When comparing multicap vs flexicap, the key differentiator lies in risk and returns.

• Flexi Cap Funds tend to perform better during bullish markets. Fund managers can move more funds into mid and small-cap stocks, which usually outperform large-cap stocks in rising markets.
  
• Multi Cap Funds may lag slightly in such cycles because they are required to maintain a fixed 25% allocation across segments, regardless of market opportunities.
  

However, in bearish markets or when small-cap stocks underperform, multi cap funds might provide better downside protection due to their diversified and regulated approach.

So, Flexi Cap = Higher returns + higher risk;
Multi Cap = Balanced returns + lower risk.

Ideal Investor Profile for Multi Cap vs Flexi Cap

To choose the right fund, match your investment profile with the fund’s characteristics:

Multi Cap Funds:

• Age Group: 30-55 years
  
• Investment Style: Conservative to moderate
  
• Horizon: Medium to long term (5+ years)
  
• Preferred Mode: SIP is recommended for rupee cost averaging
  
• Risk Appetite: Medium
  

Flexi Cap Funds:

• Age Group: 25-45 years
  
• Investment Style: Aggressive
  
• Horizon: Long term (7+ years)
  
• Preferred Mode: SIP and Lumpsum during market corrections
  
• Risk Appetite: High
  

Understanding your goals, risk tolerance, and investment horizon can help you choose between multi cap funds and flexi cap funds wisely.

Taxation Rules for Multi Cap and Flexi Cap Funds

Tax rules for both these fund types fall under the umbrella of equity mutual funds, so taxation is similar.

• Short-Term Capital Gains (STCG): If sold within 12 months, gains are taxed at 15%.
  
• Long-Term Capital Gains (LTCG): If sold after 12 months, gains above ₹1 lakh are taxed at 10% without indexation.
  

These rules apply uniformly to both multi cap funds and flexi cap funds, making taxation a non-factor in fund selection.

Which Is Better in Volatile Markets?

During market volatility, having the freedom to quickly reallocate capital becomes an advantage.

Flexi Cap Funds:

• With the support of stock advisory services, fund managers can lower exposure to small or mid-cap stocks during a market downturn and shift investments to more stable large-cap stocks for better risk management.
• This flexibility can protect your money and give better returns than fixed funds during uncertain times.

Multi Cap Funds:

• The rigid allocation structure can be a limitation during volatile phases.
  
• For example, even if small caps are underperforming, the fund must maintain a 25% allocation, which can drag down returns.
  

Multi Cap vs Flexi Cap Returns: Historical Performance Overview

Over the past three years (2021-2024), multi-cap funds have given an average return of about 21.38%, while flexi-cap funds have returned around 17.97%. During this time, nine multi-cap funds were available. Among them, Nippon India Multi Cap Fund performed the best with a return of 28.03%, followed by ICICI Prudential Multicap Fund at 22.81%. On the lower side, Aditya Birla Sun Life Multi-Cap Fund delivered the least with 18.44%.

In comparison, about 27 flexi-cap funds were active during the same period. The top performer was JM FlexiCap Fund, which gave a return of 27.85%, followed by HDFC Flexi Cap Fund with 26.41%. The lowest performer among flexi-cap funds was UTI Flexi Cap Fund, with a return of just 7.83%.

Source: Economic Times

While past performance doesn’t guarantee future results, it offers a glimpse into how these funds behave in different cycles.

Rising phase	Flexi-cap funds	Multi-cap funds
April 30 2021 to October 31, 2021	24.10%	28.50%
February 28, 2023 to July 31, 2023	18.00%	20.60%
January 31, 2024 to April 30, 2024	5.70%	5.40%
May 31, 2024 to September 30, 2024	16.60%	17.50%
Falling phase
March 31, 2022 to June 30, 2022	-11.00%	-11.20%
November 30, 2024 to February 28, 2025	-13.80%	-15.50%

Source: Valueresearch

How to Choose Between Multi Cap and Flexi Cap Funds?

Use this simple decision-making checklist:

Choose Multi Cap Funds if:

1. You prefer regulated diversification
   Multi cap funds invest across large, mid, and small caps, offering balanced diversification as mandated by SEBI for risk management.
   
2. You’re a beginner or moderately risk-tolerant
   These funds are ideal for investors with limited experience or medium risk appetite, offering exposure to all market segments safely.
   
3. You want to avoid timing the market
   Multi cap funds automatically balance investments across segments, saving you from the challenge of predicting market highs and lows.
   
4. You seek consistency in returns
   With exposure to different market caps, these funds help reduce volatility and aim for stable, long-term performance across market cycles.
   

Choose Flexi Cap Funds if:

• You trust a fund manager’s judgement
  Flexi cap funds rely on the fund manager’s skill to dynamically shift between market caps based on evolving opportunities.
  
• You want to capitalise on market opportunities
  These funds allow flexible allocation, helping capture emerging trends or sectoral momentum as market conditions change without restriction.
  
• You have a long investment horizon
  Flexi cap funds perform better over time, benefiting from market cycles if held for five years or more consistently.
  
• You can stomach some volatility for higher potential gains
  These funds may take bold bets, leading to short-term ups and downs, but aim for superior long-term wealth creation.
  

Conclusion

Both multi cap and flexi cap mutual funds come with distinct advantages. To enjoy the full benefits of mutual funds, it’s essential to align your choice with your investment goals, risk tolerance, and desired portfolio flexibility. Choose multi cap funds if you prefer balanced exposure and steady performance. Opt for flexi cap funds if you’re comfortable with dynamic allocation and aiming for higher returns.

Ultimately, both fund types offer many benefits, including diversification, professional management, and long-term growth potential, making them smart options for retail investors who prefer simplicity over direct stock picking or the mutual fund vs ETF debate.

FAQs 

What is the main difference between Multi Cap and Flexi Cap funds?

The key difference is in asset allocation. Multi cap funds have a SEBI-mandated allocation (25% each in large, mid, and small caps), while flexi cap funds have no fixed allocation and give the fund manager full flexibility.

Which fund type is better for beginners?

Multi cap funds are more suitable for beginners as they provide balanced exposure across the market and do not rely heavily on timing or fund manager discretion.

Are both Multi Cap and Flexi Cap equity mutual funds?

Yes, both are equity mutual funds. They invest in shares of listed companies across various market caps but differ in how they allocate funds among those companies.

Can I switch from Multi Cap to Flexi Cap?

Yes, you can switch between the two. This can be done via a fund switch option if your platform allows it or by redeeming units from one and reinvesting in another.

Which has better returns – Multi Cap or Flexi Cap?

Multi-cap and Flexi-cap funds both could offer good returns, but their risk profiles differ. Multi-cap funds are more volatile due to mandatory small and mid-cap exposure, while Flexi-cap funds offer flexibility, stability, and suit moderately risk-tolerant investors better.

What are the risks associated with these funds?

Both multi-cap and flexi-cap funds carry market risks, but flexi-cap funds have some extra challenges. Their performance depends more on the fund manager’s decisions, which may not always be right. If too much is invested in one type of stock, like small or mid-caps, the fund can become risky. Multi-cap funds are more balanced by rule, but they also invest in small-caps, which can hurt returns when markets fall.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

When planning your investments to save taxes and build wealth, two popular options often come up, NPS and ELSS. Both options are eligible under Section 80C of the Income Tax Act and offer long-term benefits. However, they differ significantly in terms of structure, lock-in period, risk, and returns.

In this article, we will break down everything you need to know about NPS vs ELSS, the National Pension Scheme and Equity Linked Savings Scheme to help you make the right financial decision.

What Is NPS?

The National Pension Scheme (NPS) is a retirement-focused investment plan launched by the Government of India. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The purpose of the NPS scheme is to provide a steady income after retirement by encouraging long-term, disciplined savings.

Investing in NPS allows individuals to systematically build a retirement corpus over the years, with the added advantage of tax benefits under Section 80C and 80CCD(1B). 

Key Features of NPS:

• Structure: NPS is a market-linked product where contributions are invested in equity, corporate bonds, and government securities.
  
• Suitability: Ideal for individuals who want to build a retirement corpus with moderate risk.
  
• Lock-in Period: Funds are locked in until the subscriber turns 60 years old.
  
• Minimum Investment: ₹500 for Tier I accounts and ₹1,000 per year minimum contribution.
  
• NPS Interest Rate: The NPS interest rate varies based on market performance and allocation choices, typically ranging between 8% to 10% annually.
  

What is National Pension Scheme Best For?

If you are looking for retirement-oriented savings with long-term benefits, then understanding what is National Pension Scheme becomes crucial. It is a disciplined, structured, and government-backed investment vehicle. When comparing NPS vs SIP, NPS offers more stability and retirement-focused tax advantages.

What Is ELSS?

ELSS (Equity Linked Savings Scheme) is a type of mutual fund that qualifies for tax deduction under Section 80C. It primarily invests in equities and equity-related instruments, offering high return potential with market-linked risk. In the NPS vs ELSS debate, ELSS is preferred for short-term liquidity and higher growth.

Key Features of ELSS:

• Lock-In Period: Just 3 years, which is the lowest among all Section 80C options.
  
• Market Exposure: ELSS has a high exposure to equities, which means it can offer higher returns but comes with market volatility.
  
• Fund Structure: Managed by professional fund managers, these funds invest across sectors and market caps.
  

Who Should Invest in ELSS?

ELSS is suitable for those who:

• Can handle short-term market fluctuations,
  
• Want high returns,
  
• Need liquidity in the medium term.

Key Differences Between NPS and ELSS

Here’s a comparison table to help you understand the major differences between NPS vs ELSS:

Feature	NPS	ELSS
Type of Investment	Retirement-focused pension plan	Equity mutual fund with tax-saving benefits
Lock-in Period	Till age 60	3 years
Tax Benefits	Up to ₹2 lakh (₹1.5 lakh under 80C + ₹50k under 80CCD(1B))	₹1.5 lakh under 80C
Risk Profile	Moderate (Equity + Debt allocation)	High (Equity-focused)
Returns	8–10% (market-linked but lower volatility)	12–15% potential (but volatile)
Liquidity	Low (withdrawal restrictions before 60)	High after 3 years
Exit Rules	60% lump sum + 40% mandatory annuity	Full withdrawal allowed after 3 years
Ideal For	Long-term retirement planning	Medium- to long-term wealth creation

Tax Benefits: NPS vs ELSS Under Section 80C and Beyond

Both NPS and ELSS are popular primarily because they help reduce your tax burden.

ELSS Tax Benefits:

• Investment up to ₹1.5 lakh qualifies for deduction under Section 80C.
  
• Returns (LTCG) above ₹1 lakh are taxed at 10% without indexation.
  

NPS Tax Benefits:

• Investment up to ₹1.5 lakh qualifies under Section 80C.
  
• Additional deduction of ₹50,000 is available under Section 80CCD(1B), making the total tax saving ₹2 lakh.
  
• Partial withdrawals (up to 25% for specific purposes) are tax-free.
  
• At retirement, 60% of the corpus is tax-free, while 40% must be used to buy an annuity (which is taxable as income).

If maximum tax saving is your goal, the NPS scheme offers greater benefits, especially with the additional ₹50,000 deduction under Section 80CCD(1B), over and above the ₹1.5 lakh allowed under Section 80C. This makes NPS one of the most tax-efficient retirement investment options available.

However, if you prioritise liquidity, shorter lock-in periods, and ease of access to your money, ELSS may be more suitable. 

An important feature of NPS that adds further flexibility is the porting of NPS annuity. This means that at the time of retirement, you are not bound to stick with the original annuity service provider chosen when you joined the scheme. Instead, you have the option to port your NPS annuity to another provider offering better terms, such as higher monthly payouts, better service, or more favourable retirement benefits. 

Returns & Risk Profile Comparison

NPS Returns & Risk:

• NPS interest rate varies based on chosen asset allocation.
  
• Government employees typically have more debt exposure.
  
• Returns are relatively stable due to diversified asset allocation.
  

ELSS Returns & Risk:

• Since ELSS invests 100% in equities, it carries higher risk.
  
• Returns can be high—12% to 15% or more—but can also fluctuate heavily based on market performance.
  

NPS is ideal for conservative investors aiming for retirement. ELSS is suited for aggressive investors aiming for higher short-to-medium-term gains.

Lock-In Period and Withdrawal Flexibility

One of the biggest decision-making factors in the NPS vs ELSS comparison is liquidity.

NPS Lock-in:

• Locked until the age of 60.
  
• After 60: You can withdraw 60% as a lump sum (tax-free) and invest 40% in an annuity (taxable).
  
• Partial withdrawal (up to 25%) is allowed only after 3 years, and only for specific purposes.
  

ELSS Lock-in:

• Only a 3-year lock-in period.
  
• Post that, you can redeem or switch at any time.
  
• Offers complete flexibility for investors who need money in the near future.
  

Which Is Better for Long-Term Wealth Creation?

NPS for Long-Term Wealth:

• Helps in disciplined retirement planning:
  The NPS scheme encourages consistent, long-term contributions, helping individuals systematically build a secure retirement corpus with government oversight.
• Low volatility, moderate growth:
  With a balanced mix of equity and debt, NPS delivers steady returns while minimizing market-related fluctuations for safer wealth accumulation.
• Lock-in ensures long-term investment horizon:
  The mandatory lock-in till age 60 discourages premature withdrawals, promoting long-term financial discipline and ensuring funds are reserved for retirement needs.

ELSS for Long-Term Wealth:

• Can generate higher returns:
  ELSS invests in equities, offering potential for higher long-term returns compared to traditional tax-saving options like PPF or FD.
• More suited for wealth creation goals:
  With just a 3-year lock-in, ELSS supports medium-term goals, helping investors grow wealth for major life milestones efficiently.
• Comes with a higher risk:
  ELSS returns depend on stock market performance, making it riskier and more volatile compared to fixed-income or debt-based instruments like NPS.

If your primary goal is a secure post-retirement income, go for NPS. But if your focus is on building wealth over the next 5–10 years, ELSS might be better.

ELSS vs NPS: Which One to Choose Based on Your Investment Goal?

Your investment goal should dictate your choice between NPS vs ELSS. Here are some investor personas:

1. Investor A – Age 28, Software Engineer

Goal: Retirement Planning
With a long investment horizon, Investor A chooses the NPS scheme to build a secure retirement corpus. The additional tax benefit of ₹50,000 under Section 80CCD(1B) enhances savings. Since retirement is decades away, locking funds till 60 isn’t an issue. NPS offers disciplined investing with moderate returns and low volatility, making it ideal for a stable financial future.

2. Investor B – Age 35, Entrepreneur

Goal: Tax-Saving + Liquidity
As an entrepreneur with unpredictable income, Investor B prefers ELSS for its flexibility and short 3-year lock-in. The potential for high returns through equity exposure fits well with her growth-oriented mindset. ELSS provides tax benefits under Section 80C while allowing partial liquidity, helping her meet short- to medium-term financial goals like business expansion or personal milestones.

3. Investor C – Suresh, Age 45, Business Owner

Goal: Mix of Retirement and Tax Planning
Suresh opts for both NPS and ELSS to strike a balance between stability and growth. He uses NPS for disciplined retirement savings and additional tax deductions, while ELSS helps generate higher returns with a shorter lock-in. This dual strategy diversifies his portfolio, reduces risk, and maximizes tax benefits—ideal for someone approaching retirement yet still aiming for wealth creation.

Key Takeaway:

• Choose NPS if your investment goal is retirement:
  NPS offers structured, long-term savings with tax benefits, ideal for building a secure retirement corpus with low-to-moderate risk exposure.
• Choose ELSS if you want higher returns with more liquidity:
  ELSS provides equity-based growth, a short 3-year lock-in, and quick access to funds—perfect for medium-term financial goals and flexibility.
• Choose both for a balanced, tax-efficient portfolio:
  Combining NPS and ELSS ensures tax savings, diversification, stable retirement income, and equity-driven growth for short- and long-term wealth creation.

Conclusion

The NPS vs ELSS debate doesn’t have a one-size-fits-all answer, as each option offers unique benefits based on your financial goals, risk tolerance, and investment horizon. NPS is a structured, government-backed plan that suits individuals focused on long-term retirement planning, while ELSS is a market-linked mutual fund designed for those seeking higher returns with a shorter 3-year lock-in period. 

If your primary goal is a secure retirement, the NPS scheme is the better fit. On the other hand, if you’re aiming for aggressive growth over 3–5 years, ELSS may be more suitable. For many investors, using shares advisory services can also help create a balanced strategy that includes both NPS and ELSS, allowing for effective tax savings, portfolio diversification, and long-term wealth creation.

FAQs 

Can I invest in both NPS and ELSS?

Yes, you can. In fact, combining both helps you diversify your investments. ELSS offers high growth potential, while NPS ensures retirement safety. Plus, you can claim up to ₹2 lakh in tax deductions.

Is NPS better than ELSS for retirement planning?

Yes, NPS is specifically designed for retirement planning. It locks your funds till 60 and offers a structured withdrawal system. ELSS, while useful, is more suitable for general wealth creation.

Which gives better returns – NPS or ELSS?

ELSS has the potential for higher returns as it’s fully invested in equity. NPS, with its mixed allocation of equity and debt, offers more stable but slightly lower returns.

Is ELSS eligible under Section 80C?

Yes, investments in ELSS up to ₹1.5 lakh are eligible for deduction under Section 80C of the Income Tax Act.

How do I exit from NPS and ELSS?

In NPS, after age 60, you can withdraw 60% tax-free and must buy an annuity with 40%. In ELSS, you can fully withdraw your money after the 3-year lock-in period, with no restrictions.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

Infosys has come into the spotlight once again as its board is set to meet on September 11, 2025, to discuss a new share buyback proposal, which could be the company’s fifth buyback initiative. Ahead of this development, the stock has already witnessed strong momentum in the market, with Infosys shares trading around ₹1,499 on the NSE and BSE, up nearly 4.6% in today’s session. The announcement has not only lifted investor sentiment around Infosys but also supported the broader IT index, which posted gains of over 2%.

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Market Momentum This Week

The excitement began as soon as the buyback consideration was disclosed. Infosys shares touched intraday highs of ₹1,495–₹1,496 before settling close to ₹1,499. The rally also extended to other IT majors, with the Nifty IT index reversing its recent losing streak and closing stronger by 1.5–2.3%.

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Why Investors Should Pay Attention

1. Why Buybacks Matter

A share buyback typically means the company buys its own shares, often at a premium. This can:

• Indicate management’s belief that the stock is undervalued.
  
• Reduce the number of outstanding shares, boosting Earnings Per Share (EPS) and return ratios.
  
• Distribute cash directly to shareholders, often reinforcing confidence.
  

2. Infosys’ Buyback Track Record

Infosys isn’t new to buybacks: it previously executed similar programs in 2017, 2019, 2021, and 2022, with the last one worth about ₹9,300 crore at a buyback price of ₹1,850 per share.

3. What’s Behind the Timing?

The timing may have strategic merit. Infosys’ share price is down around 24–28% from its peak, and the wider IT index has also underperformed this year. The buyback could be a move to revive sentiment amid macroeconomic hurdles like U.S. tariffs, visa constraints, and cautious technology spending abroad.

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Why This Matters for You

• If you’re already holding Infosys, the buyback announcement could enhance value through improved EPS or even offer an arbitrage opportunity.
  
• For prospective investors, this moment could signal a tactical entry point, especially if the buyback is sizable enough to lift valuation multiples.
  
• For all investors, it’s a reminder to balance optimism with macro caution—drivers such as global IT spending trends and institutional flows still matter.
  

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Final Thoughts

Infosys’ upcoming board meeting to consider a fifth share buyback has triggered a sharp rally in its stock, bringing it closer to the ₹1,500 mark. The move appears aimed at boosting investor sentiment and delivering excess cash to shareholders. The final details of the buyback—price, size, and method—will determine whether this rally gains further strength, not just for Infosys but also for the broader IT sector.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

In a bullish turn for India’s metal sector, Tata Steel and JSW Steel emerged as top gainers on the Nifty 50 index during Wednesday’s trading session, reflecting renewed investor confidence driven by strong quarterly earnings and improving profitability metrics.

Tata Steel: Profit Rebound Signals Recovery

Tata Steel’s stock rose 2.72% to ₹162.70, buoyed by a sharp turnaround in its financial performance. For the quarter ending June 2025, the company posted a consolidated net profit of ₹1,927.64 crore—more than double the ₹826.06 crore reported in the same period last year. This surge in profitability came despite a marginal dip in quarterly revenue to ₹53,178 crore from ₹54,771 crore.

On an annual basis, Tata Steel’s FY25 net profit stood at ₹2,982.97 crore, marking a dramatic recovery from the ₹4,851.63 crore loss in FY24. The company’s debt-to-equity ratio, now at 0.98, remains within a manageable range, suggesting prudent capital management amid volatile commodity cycles.

JSW Steel: Earnings Beat Despite Revenue Dip

JSW Steel followed closely, gaining 1.63% to ₹1,061.00. The company reported a quarterly net profit of ₹2,309 crore for June 2025, up from ₹879 crore in the previous year. EPS nearly tripled to ₹8.95, indicating improved operational efficiency and cost control.

While annual revenue declined to ₹168,824 crore from ₹175,006 crore, the company’s ability to sustain profitability—₹3,802 crore in FY25—despite macroeconomic headwinds, speaks to its resilience. However, its debt-to-equity ratio ticked up to 1.21, warranting close monitoring as the company continues to invest in capacity expansion.

Sector Sentiment: Cyclical Tailwinds and Global Demand

The rally in steel stocks aligns with broader optimism around infrastructure spending and global demand recovery. With China’s stimulus measures and India’s continued push for domestic manufacturing, steel producers are well-positioned to benefit from rising volumes and pricing power.

Moreover, the uptick in earnings signals that the worst of margin compression may be behind, especially as input costs stabilize and export opportunities expand.

Investor Takeaway: Tactical Opportunity or Long-Term Play?

For investors, the recent surge in Tata Steel and JSW Steel offers both tactical and strategic angles. Short-term traders may find momentum-driven gains attractive, while long-term investors could view the earnings recovery as a signal to revisit valuations.

However, caution is warranted. Steel remains a cyclical sector, sensitive to global trade dynamics, raw material prices, and policy shifts. Monitoring debt levels, capex plans, and geopolitical developments will be key to navigating future volatility.

As always, a diversified portfolio and a clear investment thesis remain essential when engaging with commodity-linked equities.

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a financial advisor before making investment decisions.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

When it comes to selecting the right investment vehicle, many individuals find themselves comparing RD vs debt mutual funds. Both options cater to different investor needs—while recurring deposits are known for their safety and predictability, debt mutual funds offer relatively higher return potential with some associated risk.

So, is RD better than debt mutual funds? Let’s break it down, one step at a time so that you can make an informed decision based on your financial goals, risk appetite, and tax considerations.

What is a Recurring Deposit (RD)?

A Recurring Deposit (RD) is a time-bound savings instrument offered by banks and post offices in India. It allows you to invest a fixed amount every month for a pre-determined period, typically ranging from 6 months to 10 years. Upon maturity, the principal, along with the accrued interest, is returned to the investor.

RDs are particularly appealing for individuals who seek a secure and disciplined approach to saving, as they offer guaranteed returns and are backed by reputed financial institutions. Interest rates on RDs generally range between 6% to 7%, depending on the tenure and the institution.

For instance, if you invest ₹5,000 per month in an RD for 2 years at 6.5% interest, you will receive around ₹1,30,000 at maturity. The process is straightforward, predictable, and suitable for risk-averse investors.

What are Debt Mutual Funds?

Debt mutual funds are a type of mutual fund investment that primarily invest in fixed-income securities such as government bonds, corporate debentures, treasury bills, and other money market instruments. These funds aim to generate stable returns by earning interest on the instruments they hold.

If you have ever wondered what are debt funds, in simple terms, they are mutual funds that do not invest in stocks but in debt instruments, making them less volatile than equity funds. However, they are still subject to market risks, especially interest rate and credit risk, which can impact returns.

Debt mutual funds can offer returns in the range of 6% to 9%, depending on the type of fund, interest rate movements, and market conditions. They also provide flexibility in terms of investment amount and duration, with options like SIP (Systematic Investment Plan) or lump sum contributions.

Key Differences: RD vs Debt Mutual Funds

The table below provides a clear comparison between RD vs debt mutual funds across key parameters:

Feature	Recurring Deposit	Debt Mutual Funds
Risk	Very low	Moderate (market-linked)
Returns	Fixed (6–7%)	Variable (6–9%)
Liquidity	Limited (penalty on early withdrawal)	High (exit anytime, may have exit load)
Taxation	Interest taxed as per slab	Tax-efficient after 3 years (indexation)
Tenure	Fixed (6 months to 10 years)	Flexible
Flexibility	Fixed amount monthly	Flexible SIP/lump sum options

This comparison offers a clearer picture of the trade-offs between recurring deposit vs mutual fund investments.

RD vs Debt Mutual Funds: Which is Safer?

From a safety perspective, Recurring Deposits are generally considered safer. Since they are backed by banks and post offices, the capital is well protected and returns are assured.

In contrast, debt mutual funds, although relatively low-risk compared to equity mutual funds, carry certain market-related risks. The performance of these funds is influenced by interest rate movements and credit quality of the debt instruments in their portfolio.

Therefore, for investors prioritising capital protection, RDs are typically a more suitable choice in the rd vs debt mutual funds debate.

Taxation on RD vs Debt Mutual Funds

Tax treatment is a critical factor in evaluating RD vs debt mutual funds.

• Recurring Deposit: Interest earned is fully taxable as per your income tax slab. There is no special tax benefit, and higher-income earners may find the post-tax returns less attractive.
  
• Debt Mutual Funds: For investments held longer than three years, gains are classified as long-term capital gains (LTCG) and are eligible for indexation benefit. This can significantly reduce your tax on debt mutual funds, especially during high inflation periods. 

Thus, from a tax efficiency standpoint, debt mutual funds often outperform RDs when held for the long term.

Which Offers Better Returns: RD Vs Debt Mutual Funds

To evaluate the potential return difference between RD vs debt mutual funds, let’s consider an example.

Assume you invest ₹10,000 per month for 3 years.

• In an RD at 6.5% interest, your maturity amount will be approximately ₹4,00,000.
  
• In a debt mutual fund averaging 8% annual returns, your corpus could grow to around ₹4.2–₹4.3 lakh.
  

While the difference may not seem large at first glance, post-tax returns from debt mutual funds—especially after three years—could be more favourable due to indexation benefits.

Factors to Consider Before Choosing Between RD and Debt Funds

Here are some essential factors to evaluate before deciding:

• Investment Horizon: RDs are suitable for short to medium-term goals. Debt funds are better suited for those with a horizon of 3 years or more.
  
• Risk Appetite: If your primary concern is capital safety, RDs are preferable. If you’re open to moderate risk for slightly higher returns, consider debt funds.
  
• Tax Preference: High-income earners may benefit more from the tax efficiency of debt mutual funds.
  
• Liquidity Needs: Debt mutual funds offer better liquidity compared to RDs, which may involve penalties on early withdrawal.
  

If you are unsure, consider consulting stock advisory services to receive personalised guidance.

Ideal Use Cases: Who Should Invest in What?

Let’s break down who may benefit most from each option:

• Recurring Deposit is ideal for:
  
  • Risk-averse investors
    
  • Senior citizens
    
  • Individuals seeking predictable savings
    
• Debt Mutual Funds are better suited for:
  
  • Investors with medium-term goals (3+ years)
    
  • Tax-sensitive individuals
    
  • Those comfortable with market-linked instruments

Thus, the right choice between rd vs debt mutual funds largely depends on your profile as an investor.

Conclusion

In conclusion, both Recurring Deposits and Debt Mutual Funds serve distinct purposes. While RDs offer stability and guaranteed returns, debt mutual funds provide better returns and tax efficiency over the long term. Ultimately, your decision should align with your financial goals, risk appetite, and tax planning strategy. When in doubt, don’t hesitate to explore stock advisory services for professional portfolio advice tailored to your needs.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FAQs on RD vs Debt Mutual Funds

Is RD better than debt mutual funds?

It depends on your risk appetite, return expectation, and investment horizon. RDs offer safety, while debt funds offer potential for higher post-tax returns.

Are debt mutual funds safe like RDs?

No. Debt mutual funds involve interest rate and credit risk, unlike RDs which are backed by banks and offer capital protection.

Which is more tax-efficient: RD or debt mutual funds?

Debt mutual funds, especially if held for over 3 years, offer better tax benefits due to indexation.

Can I break my RD or exit a debt mutual fund early?

Yes, both are possible. Premature withdrawal from RDs attracts penalties. Debt mutual funds can be exited anytime, though exit loads may apply for short holding periods.

What is the average return from debt mutual funds vs RD?

RDs typically offer 6–7% fixed returns, while debt mutual funds can offer 6–9%, depending on market conditions and the type of fund.

In today’s fast-paced business world, making the right decisions often comes down to having the right data. And whether you’re starting your own venture, putting money into the stock market, or running an established company, knowing how financial models work can make a big difference. 

These models help you see the bigger picture, whether it’s forecasting revenue, assessing risk, or figuring out what your business is really worth. 

In this article, we will explain what is financial modeling, the types of financial models, how they are built, where they are used, and how you can begin learning this valuable skill, even as a beginner.

What is a Financial Model?

What is a financial model? Simply put, a financial model is a tool, usually built in Excel or similar spreadsheet software that represents the financial performance of a business or project. It includes calculations, assumptions, charts, and forecasts that help understand how a business might perform in the future based on current or expected conditions.

In simple terms, a financial model is a way to show a company’s financial situation using numbers and calculations. It helps you see how different decisions or changes like a drop in sales or rise in costs, might affect the business. So, if you’re wondering what is financial modeling, it’s the process of creating these models using company data, key financial ratios, and “what-if” scenarios to support important business decisions.

Why Are Financial Models Important?

Financial models are not just for large corporations. They are essential for:

• Startups planning fundraising and growth
  
• Investors analyzing business value
  
• Finance teams forecasting revenue and expenses
  
• Decision-makers evaluating risks and returns
  

Key benefits include:

Forecasting future performance: Predicts how much a business might earn or spend in the future, helping plan for profits and challenges ahead.

Capital planning:  Shows how much money a business needs, when it’s needed, and how it can be raised or managed efficiently.

Investment analysis:  Helps assess whether an investment opportunity is financially sound and likely to deliver returns based on future projections.

Risk management: Uses scenarios to test different outcomes, helping identify and prepare for financial risks or opportunities in advance.

Strategic planning: Supports big decisions like mergers or expansions by showing potential financial impacts and aligning them with long-term goals.

If you work in stock market advisory services or financial planning, financial models help you clearly see opportunities and handle risks.

Key Components of a Financial Model

A financial model isn’t just numbers on a spreadsheet. It has a clear structure and key components. These include:

1. Assumptions

The heart of every model lies in its assumptions. This includes projected growth rates, cost of goods sold (COGS), interest rates, tax rates, etc.

2. Revenue Projections

This estimates how much money a company expects to earn. It can be based on units sold, pricing models, or subscription rates.

3. Expense Forecasts

Covers both fixed and variable expenses, including salaries, rent, utilities, and marketing.

4. Income Statement

Also known as the Profit & Loss statement, it reflects profitability by calculating revenue minus expenses.

5. Balance Sheet

Shows the company’s assets, liabilities, and equity over time. It helps assess the business’s financial health.

6. Cash Flow Statement

Projects how cash moves in and out of the business. Vital for assessing liquidity and operational efficiency.

7. Financial Ratios

Financial Ratios are used for analysis and benchmarking, such as profit margins, debt-to-equity, return on equity (ROE), and current ratio.

Types of Financial Models

There are several types of financial models, each suited for different situations. Here’s a breakdown of the most common ones:

1. Three-Statement Model
This model connects the income statement, balance sheet, and cash flow statement to show a complete financial picture. It’s the base for more complex models and essential for decision-making.

2. Discounted Cash Flow (DCF) Model
It estimates a company’s value by predicting future cash earnings and adjusting them to today’s value. Often used by investors and analysts during valuation, especially for equity analysis and stock research.

3. Leveraged Buyout (LBO) Model
Used in private equity to check if buying a company using debt is profitable. It includes loan repayments, interest, and expected returns after selling the business later.

4. Merger & Acquisition (M&A) Model
Helps evaluate financial effects of merging with or acquiring another company. It considers cost savings, deal costs, and changes in earnings per share—important for strategic growth planning.

5. Budgeting Model
Used by companies to plan and manage finances. It sets targets for spending, tracks revenue, and compares real performance against the budget to ensure proper control and resource allocation.

6. Forecasting Model
Projects a company’s financial future, usually over several years. Unlike budgets, it’s more flexible and often includes best-case, worst-case, and realistic projections to guide long-term decisions.

7. Scenario and Sensitivity Models
Tests different financial outcomes by adjusting key inputs like sales or costs. Useful for seeing how changes in one factor can affect the overall business performance and risk exposure.

Common Use Cases of Financial Models

Financial models have widespread applications across industries and business functions. Here are some real-world uses:

1. Business Valuation
Investors and acquirers use financial models like DCF (Discounted Cash Flow)  to estimate a company’s value, helping them decide whether to buy, invest, or hold based on future earnings and expected returns.

2. Fundraising
Startups use financial models to show their revenue potential, costs, and growth projections. These models help convince venture capitalists or angel investors to fund their business ideas and expansion plans.

3. Budgeting and Forecasting
Finance teams use models to set financial goals, allocate resources, and predict future income and expenses. This helps businesses stay on track and make informed adjustments as needed.

4. Expansion Planning
When businesses consider growing through new locations, products, or markets, financial models help measure expected profits, costs, and risks, supporting better strategic decisions before committing funds.

5. Investor Presentations
Financial models are often part of pitch decks to show how money will be spent, how the business will grow, and what return investors can expect, building trust and credibility.

Financial Modeling in Excel: Basics to Know

Most models are built in Microsoft Excel, making it a critical tool for anyone learning what is financial modeling. Here’s what you need to know:

1. Key Formulas

• SUM, IF, VLOOKUP, INDEX/MATCH, NPV, IRR, PMT, XNPV, and XIRR are widely used.
  

2. Formatting Best Practices

• Use consistent formatting: color code inputs (blue), formulas (black), and links (green).
  
• Keep a clean, logical layout.
  

3. Error Checks

• Always include checks to verify your model’s accuracy—like balance sheet balancing (Assets = Liabilities + Equity).
  

4. Naming Conventions

• Use clear names for sheets, rows, and ranges to keep things organized.
  

5. Avoid Hardcoding

• Place all assumptions in a separate section and link them to your calculations.
  

Excel is also used to create dashboards for visual presentations. For advanced users, tools like Python or financial modeling software can add automation and complexity.

Examples of Financial Models Used in the Real World

Let’s look at some financial modeling examples used in real businesses.

1. Startup Financial Models

Startups often build a five-year financial projection model to raise funds from investors. This model includes assumptions about revenue growth, user acquisition, operating expenses (burn rate), and funding requirements.

Let’s understand this with an example:

Assumptions (Year 1)

• Users (starting): 10,000
  
• Monthly user growth rate: 10%
  
• Revenue per user per month: ₹100
  
• Monthly expenses (fixed): ₹5,00,000
  
• Monthly variable expenses (₹30/user)
  
• Planned fundraising milestone: After 12 months
  

Step-by-Step Calculation (Month 1 to Month 12)

Step 1: Calculate Users Each Month

Users grow by 10% monthly. So:

• Month 1: 10,000
  
• Month 2: 10,000 × 1.10 = 11,000
  
• Month 3: 11,000 × 1.10 = 12,100
  
• Month 12: Approx. 31,384 users
  

Total users in Year 1 (sum of all months) – 2,44,000

Step 2: Calculate Revenue

Revenue = Users × Revenue per User per Month

• Average monthly users ≈ 20,000
  
• Monthly Revenue = 20,000 × ₹100 = ₹20,00,000
  
• Yearly Revenue = ₹20,00,000 × 12 = ₹2.4 Crores
  

Step 3: Calculate Expenses

• Fixed Expenses = ₹5,00,000 × 12 = ₹60,00,000
  
• Variable Expenses = ₹30/user × 2,44,000 = ₹73,20,000
  
• Total Expenses = ₹60,00,000 + ₹73,20,000 = ₹1.33 Crores
  

Step 4: Calculate Burn Rate & Runway

Burn Rate = Expenses – Revenue (if negative cash flow)
In this case:

• Monthly Burn = ₹20,00,000 – ₹11,10,000 = ₹8,90,000 profit
  
• But in early months, revenue may not cover costs.
  

Assume first 6 months have a burn rate of ₹3,00,000/month

• Burn over 6 months = ₹18,00,000
  

Step 5: Fundraising Milestone

To raise funds, the startup includes projections like:

• User growth: From 10,000 to 31,000+ in one year
  
• Annual revenue target: ₹2.4 Cr
  
• Target funding: ₹1.5 Cr to support expansion and cover burn
  

Investors use this model to assess:

• Is the growth realistic?
  
• Are the expenses optimized?
  
• Will funding result in profitability or scale?
  

2. Project Finance Model

Used to evaluate large infrastructure or real estate projects. It includes debt service coverage ratios, construction costs, and timelines.

3. Franchise Expansion Model

Helps determine the financial impact of opening new franchise locations by analyzing capital costs, break-even points, and ROI.

4. Business Plan Model

Entrepreneurs use this to support loan applications or internal planning. It covers expected cash flows, costs, and sales projections.

Such financial modeling examples help you see the practical application of theory in industries ranging from tech and healthcare to real estate and retail.

Tips to Build a Robust Financial Model

Building a model isn’t just about crunching numbers. It’s about making sure it’s reliable, understandable, and decision-ready.

1. Start with Clear Assumptions

All calculations depend on assumptions—make them realistic and well-documented.

2. Ensure Consistency

Follow a consistent format across worksheets, formulas, and data entry.

3. Make it Flexible

Allow easy updates to variables like growth rates, cost inflation, or capital expenses.

4. Use Scenarios

Incorporate “best-case,” “worst-case,” and “most likely” scenarios to test robustness.

5. Link Everything

Avoid hardcoded values. Instead, use references to ensure easy updates.

6. Keep it Simple

Don’t overcomplicate with too many variables unless necessary. Simple models are easier to interpret and audit.

By applying these practices, your models will become powerful tools aligned with your financial ikigai, that sweet spot where financial knowledge meets purpose.

Conclusion

Financial models are critical tools that help businesses, investors, and individuals make informed decisions. Learning how to build and read them is a valuable skill.

You don’t need to be a finance expert to get started. With practice, online courses, and a good understanding of Excel, anyone can begin their journey into what is financial modelling.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

FAQs on Financial Models

What is the purpose of a financial model?

A financial model helps predict future business outcomes. It supports decisions like investment evaluation, fundraising, budgeting, and risk analysis.

What are the most common types of financial models?

The most common include the 3-statement model, discounted cash flow (DCF), budgeting model, forecasting model, and scenario-based models.

Is financial modeling only for finance professionals?

No. While finance professionals use it regularly, entrepreneurs, business founders, product heads, and analysts also benefit greatly from learning what is financial modeling.

How accurate are financial models?

Financial models are only as accurate as the assumptions behind them. Including multiple scenarios improves reliability and helps manage risk.

What tools are used for financial modeling?

The most widely used tool is Microsoft Excel. Others include Google Sheets, Python (for automation or analytics), and specialized financial modeling software.

Can I learn financial modeling online?

Absolutely. Many free and paid courses teach financial modeling basics, with templates and real-world financial modeling examples. It’s a skill worth building for long-term professional growth.