Friday, Mar 22 2024
Source/Contribution by : NJ Publications

Few years back, we used to go to nearby stores to buy items like clothing, books, gadgets, and other necessities. However, with the emergence of online marketplaces like Flipkart and Amazon, shopping has become more convenient as we can now access thousands of products at the touch of a button—and at fantastic prices, too! Consumers' purchasing habits are changing, and so are the payment ways. When you shop online at major retailers and stores, you will usually see BNPL payment plans which improve your online shopping experience. BNPL, or buy now pay later, is a new credit scheme that gives consumers the power to purchase a product immediately but pay later in flexible payments.

Although claimed to be a revolution in how people shop, the concept of BNPL is the authentic way of extending credit. For instance, with credit cards, you purchase on credit and pay the credit card bill later. That is also BNPL. Many of you might wonder, how come this new line of credit gained so much success in such a short span?

The exceptional product offering and service to Millenials and genX is just one facet. The main reason behind the success of this credit form is the changing consumer patterns and changes in their payment modes. The pandemic has undoubtedly influenced people's preference for contactless and cashless payment methods. This new type of easy credit has quickly gained popularity and acceptance.

The name Buy Now, Pay Later is so appealing that it is easy to fall for this scheme. This Pay Later Loan is similar to an instant increase in one's credit limit without the hassle of proving credit worthiness or going through tedious documentation. Customers who use the BNPL loan scheme will find the purchasing process extremely simple and painless. In simple words, BNPL triggers consumer spending & motivates people to spend more.

Many people in India still don't know about BNPL schemes, and the ones who do know don't have a complete idea. So, if you don’t know too, you need to know!

BNPL allows the person to make a purchase even if he does not have immediate funds. The customer adds items to a shopping basket and, at checkout, selects the company that offers a BNPL loan. This company then pays the seller on behalf of the customer within 48-72 hours. The customer must repay the loan in instalments over a set period. This repayment is interest-free for the initial days, which makes it the most attractive feature of this service. In simple terms, BNPL is similar to a quick credit facility that allows one to apply for an instant loan without worrying about detailed clauses and terms and conditions. With the help of fintech companies, e-commerce portals promote this credit option. It is an excellent way to encourage consumerism, which improves economic growth and development.

But, is this facility a blessing or a curse? Let's find out.

BNPL - A BOON

Most people regard this new credit facility as a boon, owing to its ease of use. Some of the reasons why this payment plan is so appealing are as follows:

• You get the required amount needed for purchases immediately. BNPL is beneficial for users who do not have a strong credit history and are new as credit borrowers because it allows them to get started without complications. Aside from that, the discipline they demonstrate in repaying the amount contributes to a good credit history record for the future.

• If the purchase is thoughtful, the consumer has the option to pay for the product over the next few months without having to postpone the purchase.

• Repayments are made directly through the bank, requiring only a one-time effort to link the bank account and then automated monthly deductions for repayments. While credit cards have many hidden fees, the BNPL scheme's costs are more transparent.

• BNPL charges a lower interest rate than credit cards. With BNPL, consumers have an interest-free period of 10-30 days to repay the total amount owed without incurring any penalties.

Given the benefits of the BNPL scheme, it is safe to say that, if buy now pay later is used correctly and appropriately, it can become a prominent financial offering in the future.

BNPL - A BANE

Like there are two sides to every coin, BNPL also comes with its drawbacks, which are as follows:

• BNPL credit payment method is very convenient, and people easily sway towards it without fully comprehending how it adds to their fixed monthly obligation and increases their credit load. Some even end up using these cards on petty expenses. People hardly feel the punch of spending, i.e. the thought of money going from their pocket, & as a result, they overspend.

• You can get into trouble if you have multiple BNPL cards and do not use this service carefully. Because the more credit you obtain, the less financially stable you appear, which can hurt your credit score. Therefore always be watchful & limit on the no. of these BNPL credit facilities you avail.

• It is another payment mode that acts as an additional line of credit, increasing people's debt and repayment schedules. Furthermore, if you default or make late payments consistently or more than once on such services, you may face difficulty obtaining a long-term loan which can question your credibility. 

In a nutshell, Millennials and Generation Z will become risky borrowers in the future if they do not stick to their budgets. The bottom line is that it all comes down to responsible spending. In the beginning, you may feel you have it all under control, but it is not necessarily the case in the long run. Your financial future depends on how wisely and carefully you manage your finances with this additional line of credit. We can conclude that the BNPL scheme is a fantastic credit payment option, but only if users understand how to manage and repay the outstanding amount in a timely & systematic manner.

Friday, Mar 15 2024
Source/Contribution by : NJ Publications

“In the rapidly changing world order, India is going ahead as ‘Vishwa Mitra’. India has given hope to the world that we can decide on common goals and achieve them.” - PM Shri Narendra Modi. 

India’s rise to the 5th largest economy in the world, with a GDP of $3.73 trillion*, has gained attention all over the world. A report published by S&P states that India is set to become the 3rd largest economy of $7.3 trillion by 2030. This rise is driven by the resilience shown by the economy and the policy initiatives taken over the last decade. Despite the challenges of the pandemic and geopolitical conflicts, the Indian economy has shown its ability to handle the challenges appropriately and stay on track with the growth momentum. 

In the last year, India has displayed steady growth, making it the fastest-growing economy amongst G20 economies. With a current growth rate of 7.3%, 7.2% in FY23, and 9.1% in FY22, India has by far outperformed the global growth rate, which is struggling to grow at 2%**. This year, India has written its name in history by becoming the first country to soft land on the south pole of the moon, successfully launching Aditya L-1 to orbit around the sun, its G20 presidency, UPI users reaching 800 million, excellent performance at Asian Games, 2 Oscar awards, the fastest rollout of 5G in the world and more such achievements. These achievements are a testament to the bright future of our beloved country. Let’s dig deeper into the Indian growth story. 

The Post-Independence Story (1947-2014) 

India was ruled by the British for about 200 years until it finally got its independence in 1947. However, this resulted in India plummeting from being one of the wealthiest countries in the world to becoming a struggling economy. In 1700, India’s share in the global economy was 22.6%, which dropped to a mere 3.8% in 1952**. The period from 1952 to 1960 saw a growth rate of 3.9%. However, the Indian economy slumped in the 1960s due to the Sino-Indian war in 1962, the India-Pakistan war of 1965-66, and the drought of 1965. 

The 70s were marked by a severe devaluation of the Indian rupee by 57%. The late 70s and early 80s were tumultuous not just for India but for the world. In the 80s, the GDP growth rate was 5.7%**, driven by modest liberalisation and government spending. In 1990-91, the Iraq-Kuwait war and the collapse of the Soviet Union impacted trade and current account balances, leading to a Balance-of-Payments (BoP) crisis. To uplift India from the shackles of this crisis, the Indian economy was liberalised and globalised in 1991. 

The early 2000s were marked by a sustained upward economic trend. With global growth, the Indian economy too experienced expansion in capital inflows. However, the global financial crisis of 2008 led to the accumulation of bad debts in banks, reaching double-digit percentages. During this period, inflation remained persistent, and the annual depreciation rate of the Indian rupee averaged 5.9%, leading to a stagnation in economic growth**.

The Decade of Explosive Growth - 2014-2024

The year 2014 was a game-changer for India, for it was the year when the seeds of explosive growth had been sown. With the new government in power in India, it was a year of structural reforms which were highly effective in strengthening macroeconomic fundamentals. In the last decade, India has strengthened its transportation facility and education system, handled a pandemic efficiently, improved local infrastructure, worked towards affordable and wholesome health, helped entrepreneurs, provided basic amenities and improved social security.

This decade, India doubled the number of airports that were built in the first 67 years of independence. Three major railway corridors have also been set up to improve logistics efficiency and reduce costs. Since 2014, 7 IITs, 16 IIITs, 7IIMs, and 15 AIIMS have been set up among new colleges established in India. In STEM (Science, Technology, Engineering and Mathematics) courses, women constitute 43% of enrolment, one of the highest in the world. Under the Pradhan Mantri Awas Yojana, 2.5 crore houses have been constructed for the poor. Under the PM Jan Dhan Yojana, 51.4 crore accounts have been opened, and subscriptions for Atal Pension Yojana have reached 6.1 crore. Under Stand-Up India, 2.1 lakh loans have been sanctioned to aspiring entrepreneurs, out of which 84% were women entrepreneurs**. Now, let’s look at how India is expected to perform in the future. 

India in Amrit Kaal - A Futuristic Outlook

In 2047, India will finish 100 years of independence. The period from now until 2047 is known as the Amrit Kaal. This period is defined as a highly auspicious time associated with good luck, positivity, healthy growth, and high energy. The goal of Amrit Kaal is to build a holistically developed India which is technology-driven and knowledge-based, with modern infrastructure, strong public finances, and a solid financial sector. 

In the interim budget disclosed by Finance Minister Nirmala Sitharaman on 1st February 2024, it was announced that to make India ‘Viksit’ (Developed) by 2047, we need to focus on the upliftment of 4 major areas, i.e. ‘Garib’ (Poor), ‘Annadata’ (Farmers), ‘Mahilayen’ (Women), and ‘Yuva’ (youth). Moreover, seven priorities will be acting as ‘Saptarishi’ to guide Amrit Kaal's vision. These 7 priorities are inclusive development, reaching the last mile, infrastructure and investment, unleashing the potential, green growth, youth power, and financial sector. Moreover, the country is expected to meet ‘Net Zero’ emissions by 2070, and the country is fully committed to attain all the UN Sustainable Development Goals. To promote tourism in the country, States will be encouraged and empowered to develop iconic tourist sites, hence attracting business and promoting local entrepreneurship. Moreover, long-term interest-free loans will be given to states to promote holistic development. 

The coming years in India are expected to exhibit robust growth. The resilience shown by our country during the tough period of Covid-19 is a testament to the strength and potential of our country. Despite facing unprecedented challenges, India demonstrated remarkable adaptability and innovation, leveraging technology and fostering a spirit of unity. The challenges now confronting the growth of India’s economy are managing this highly integrated global economy efficiently, handling the geopolitical, technological, fiscal, economic, and social issues, deploying Artificial Intelligence (AI), and ensuring that the workforce is placed appropriately. In the past, India has shown resilience and progress despite risks and uncertainties, and hopefully, through efficient and effective policy measures, it will continue to do so. India now embarks on its Amrit Kaal journey with confidence, trust, and unity to build a prosperous and ‘Atmanirbhar’ country.

 **(Source - The Indian Economy - A Review - Jan 2024),  *(Source - IMF, as in 2023) 

Thursday, Dec 21 2023
Source/Contribution by : NJ Publications

Over the course of time, certain things have proven to be universally true in different situations. With time, such happenings have taken the shape of universal laws that speaks of wisdom and experience. Such universal laws are true not just in general situations but also in the context of personal finance. As investors, we can be open to learning from these universal laws to better prepare and navigate our own investment journey. In this blog, we will delve into some of the universal laws and explore their relevance in the context of personal finance.

1. Murphy's Law: ‘Anything that can go wrong will go wrong.’

Murphy's Law is a stark reminder that unforeseen events can disrupt even the most meticulously crafted financial plans. Experienced investors recognize the importance of risk management and diversification. Establishing an emergency fund, securing insurance coverage, and adopting a resilient mindset are crucial components of navigating the unpredictable nature of life and markets.

2. Kidlin's Law: “If you write the problem down clearly, then the matter is half solved.”

Quite often, we are not clear what we need and want in life and when and where we plan to reach in our financial journey. This law lays importance on the need assessment - clearly defining your goals and financial objectives before you start investing. A proper financial plan can be a document where our financial goals can be clearly defined with specific dates, target amounts and the path to achieve the same can then be easily worked out.

3. Gilbert's Law: “The biggest problem at work is that none tells you what to do.”

The idea here is simple - take ownership in a world that is constantly evolving and changing. It is important that we develop our own understanding and knowledge as we learn to navigate our investment journey and not really depend on others to tell us what to do. The law also implies that we have to keep an eye out for changes happening around us and adapt our investment strategies in order to capitalize on emerging opportunities and navigate potential risks.

4. Wilson's Law: ‘You can't win if you don't play.’

This simple yet profound law encourages participation and taking action, even when faced with uncertainty or fear of failure. We can see this law in the context of long-term wealth creation by participating in the equities, especially in a market like India. To emerge successful, we must play the game of patience, discipline and give time for the power of compounding to work in our favour and help us win in the investment game. 

5. Falkland Law: 'When there is no need to make a decision, Don't make a decision.'

Not making a decision is also a decision. In the personal finance context, it is essential to avoid the market noise and short-term fluctuations and not be forced to make decisions based on the market’s herd behaviour. In the journey of building wealth, it is important that you do not change lanes too often and avoid unnecessary changes and decisions that are not in alignment with your long-term objectives and not logical or rational in nature. 

6. Newton's Law: “Every action has an equal and opposite reaction.”

A very popular law simply means that whatever you decide or say yes means you have said no to many other choices. Every financial decision carries a potentially long-term impact on our wealth building journey. A delayed investment, a lower amount of SIP, not growing your SIPs, investing in FDs instead of equities, spending on latest gadgets and so on, carries both positive and negative outcomes if you consider the opportunity costs involved in every such decision or financial behaviour.

7. Walson’s law: “Put information and intelligence first, and money will come rolling in.”

For investors, Walson’s law would mean that one has to keep growing knowledge and expertise and practice this repeatedly in the investment journey. The outcome of this practice, and behaviour will ultimately yield positive results in the wealth creation journey. 

8. Parkinson's Law: “Work expands so as to fill the time available for its completion.”

Parkinson's Law can be seen as a warning against lifestyle inflation, unless it is controlled. It is very often seen that our expenses rise to fill the rising disposable income with time. One needs to control this by regularly diverting a large portion of this rise in income to investments in a disciplined manner so that your increase in investments is higher than your increase in your spending.

9. Hofstadter's Law: “It always takes longer than you expect, even when you take this into account.”

Hofstadter's Law highlights the tendency for tasks to take longer than initially anticipated. In the context of personal finance, this is a reminder that achieving financial goals requires time, persistence and patience. In today’s world, expecting that your money will continue to grow at an unusually high rate for the foreseeable future is foolish. There is a need to be conservative, have a comfortable margin of safety in terms of your expectations - both time and returns, and plan accordingly to ensure that your goals are safe, and your plans have a high probability of success. 

10. Sturgeon's Law: “Ninety percent of everything is crap.”

Sturgeon's Law serves as a reminder to exercise judgement and discretion in the world of investments. Experienced investors understand that not all opportunities are created equal, and thorough due diligence is essential. By filtering through the noise and identifying the right investment opportunities, they can build a resilient and profitable portfolio. This law reinforces the importance of quality over quantity in the pursuit of financial success.

Conclusion

Learning and wisdom can be found anywhere, beyond just the finance discipline. As investors, learning from the wisdom of the greats and from other disciplines of knowledge can help us become better investors. In this context, the universal laws do offer us plenty to think about, introspect and get insights from. By incorporating these universal laws into our investment strategies, experienced investors can navigate the complexities of wealth management, hopefully as better investors.