Time Value Money Concepts in Relation to Superannuation Plan

Concept of the time value of money

The time value of money is the referred to as the earning capacity of money after a certain period of time. As stated by Hogarth, Hutchinson and Scaife  (2016), the money that has been invested in a particular scheme generates certain amount of the return when it is kept for increment for a certain period of time. The time value of the money is the most common concept of the amount of the return generated by the money during a particular period of time. This is referred to as the earning capacity of money.  The potential earning capacity of money generally defined as the time value of money as per our financial accounting homework help experts. For example the money, which is deposited in a savings account, which belongs to a person, can generate certain amount of interest.  Similarly, when the superannuation money for an employee who works in the tertiary sector is deposited the money generates certain amount of the interest as the money is invested in a particular type of fund.

Factors to decide whether the super nation is contributed in the defined benefit plan or the investment choice plan

The factors are  

  1. Amount of the return- As commented by Clarke (2017), the employees working in the tertiary sector focus on the amount of the return generated by  the plan so the type of the plan which gives a greater amount of return in a lesser period of time is decided as a contributing plan. There are certain plans, which have attractive investment policies that help the investor or the employee of the tertiary sector to contribute their superannuation in the type of the fund in which they can reap greater returns. Therefore the amount of the return is one of the essential factor that determines whether should contribute in the defined benefit plan or the investment choice plan.
  2. Flexibility – is one of the important factors that can determine the amount of the investment that should be made in the defined benefit plan or the investment choice plan. There are certain plans, which are rigid in nature. As commented by our online exam help experts, their rigidity prohibits the employees from withdrawal of the fund as and when required. The money required that is accumulated by the principle of superannuation has certain restrictions on the withdrawal. This restriction reduces the flexibility in the operations of the schemes.
  3. Other legal formalities– There are certain other legal formalities, which are involved in the decision making regarding the investment that is to be done. The other legal formalities constitute the other legal documents, which are to be produced in order to open the plan. As commented by Hogarth, Hutchinson and Scaife (2016), if a certain plan has too much of legal formalities then the employees of the tertiary sector will not choose the type of the fund for their investment.

Cost of investment – Besides there are certain preliminary costs of the investments. The cost such as the cost of preparing the documents is taken into this concept. This may be one of the essential factors in order to take the decision regarding the investment of the superannuation in a particular type of fund.

Summary