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Is BNPL a boon or bane?
 

A few years ago, we would visit nearby stores to purchase items like clothing, books, gadgets, and other necessities. However, shopping has become more convenient since the rise of online marketplaces like Flipkart and Amazon as we can now access thousands of products at the touch of a button—and at great prices, too! The Buy Now Pay Later (BNPL) programs, which let us order items online and pay for them later in flexible payments, improve our online shopping experience. But is this facility a blessing or a curse? Let's find out in this blog.

With a short-term credit product called "Buy Now Pay Later," we can make upfront purchases that can be paid for over the course of four or six payments. In essence, we are taking out a short-term loan and we will need to pay it back in a lump sum or through EMIs. The majority of the time, we use these loans for online shopping.

Paytm Post-paid, Amazon Post-paid, Flipkart Post-paid, Zest Money, Simpl, PayPal, Lazy Pay, and Mobi Kwik Post-paid are the entities providing this facility in India.

We can purchase items with the help of BNPL plans without having to pay for them right away. But we should proceed with caution and only purchase items that we can genuinely afford to pay for; otherwise, we run the risk of purchasing something we didn't really want but ended up doing so because it wouldn't immediately strain our budget. In addition, interest will be added to the amount that was defaulted if we delay or neglect to pay an instalment.

Although BNPL schemes offer flexibility in selecting payback terms and instalment amounts at no additional cost, our credit scores are negatively impacted by late payments. But in all the fuss about BNPL hurting credit scores, the opportunity it affords new borrowers to establish strong credit histories is being disregarded. We can build solid traditional credit ratings by making on-time repayments and using credit responsibly. To do this, we must improve our knowledge of personal finance. With this goal in mind, I am developing "Mastering Money Management," a brand-new course on personal finance. Details will shortly be released on my website www.rachanaranade.com.

Moving on BNPL schemes have their own advantages and disadvantages. Advantages include quick and simple approval of interest-free loans, minimal documentation, low processing fees, customized repayment schedules, and safe and transparent online transactions. Disadvantages include impulsive spending, interest and fees for late payments, and the possibility of a lower credit score.

There is no such thing as a free lunch when it comes to money. The price of our purchases must be paid in any case. Therefore, the choice to buy now and pay now or buy now and pay later is entirely up to us, i.e., the consumer.

Is BNPL a boon or bane?
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How to set financial goals?

 

Establishing financial goals is a crucial first step toward obtaining success and stability in your finances. But a lot of people have trouble figuring out what their financial goals should be and how to achieve them. We'll go through several actions you can take to make sure your financial goals are practical, achievable, and significant in this blog.

1. Determine how you are currently doing financially - Examining your present financial condition is the first step in defining financial goals. This entails figuring out your net worth, figuring out how much money you make, and figuring out how much money you spend. You can use this information to assess your financial situation and make goals since it will assist you to do so.

2. Define your short-term and long-term goals - It's time to define your financial goals after you've evaluated your existing financial status. Start by establishing both short- and long-term objectives. Paying off debt, setting up an emergency fund, or saving for a down payment on a home are some examples of short-term objectives. Long-term objectives can include supporting your children's education, retiring comfortably, or purchasing a home.

3. Be specific and measurable in your goals - It's important to make your financial goals specific and measurable. For example, rather than setting a vague goal of "saving more money," set a specific goal of saving a certain amount each month or increasing your savings rate by a certain percentage. This will make it easier to track your progress and stay motivated.

4. Establish a schedule for accomplishing your goals - Choosing a schedule for reaching your financial goals is a crucial component of goal-setting. Think about your short- and long-term objectives, and decide when you want to accomplish each one. You can use this to prioritize your goals and build a strategy for accomplishing them.

5. Make a plan of action - It's time to make an action plan when you've established your financial goals and the timeframe for reaching them. This should include concrete actions you can take, like raising your income, cutting your costs, or making stock market investments, to reach each goal. Make a timeline for finishing each goal and break it down into smaller, manageable tasks.

6. Consistently assess and modify your goals - Finally, when your circumstances change, it's critical to periodically assess and modify your financial goals. If your income or expenses change, you might need to revise your schedule, modify your goals, or set new ones after you've reached your previous ones.

 

In summary, establishing financial goals is a crucial first step toward financial success. You can develop a road map to financial stability and success by analyzing your present financial condition, identifying clear and measurable goals, establishing a schedule, making an action plan, and routinely reviewing and updating your goals. Always keep in mind that setting financial goals requires time and work, but they are ultimately worthwhile.

In addition to this, I have also made a detailed video on “How to set SMART Goals?” 

                                                                                                     
How to set financial goals?
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5 Financial Tips when you start a family

 

Starting a family is a wonderful time, everyone is happy, excited, and a little nervous but it can also be a stressful one. If you are a parent, parents-to-be, or planning a family in the future – one of the most important things to consider is how much it is going to cost. You cannot put a price tag on having a child; it is a priceless experience that adds immense joy and meaning to life. However, smart parents are those who are prepared for the journey emotionally, physically, and most importantly, financially.

One of the most important things you can do to reduce stress is to establish sound financial habits early on. Here are ten financial tips to keep in mind when starting a family:

1. Create a budget

A budget is the foundation of good financial management. It helps you understand your income, expenses, and how much money you can allocate toward different categories. Create a budget including your income sources, expenses, and savings goals.

a. Save for emergencies
Having an emergency fund can provide peace of mind and financial security. Aim to save at least six months of living expenses in an emergency fund.

b. Consider childcare expenses
Child care can be a significant expense for families. A study by Aditya Birla Capital suggested that the cost of nine months of parental care and delivery might go up to Rs. 2,00,000/- and the two-year cost of raising an infant (0 to 2 years) can go up to Rs. 5,00,000/-. Consider the cost of child care when creating your budget, and start planning for it as early as possible to enjoy the best time of your life.

c. Don't overspend on baby items
Babies need a lot of stuff, but you don't have to spend a fortune on it. Consider buying gently used items or borrowing from friends and family to save money.

d. Plan for education expenses
Planning for your child's education expenses early can help you avoid financial stress later on. There is no need to explain how expensive the education system is. According to a survey by NDTV, in most schools in Tier-I and Tier-II cities, the annual tuition fee might range from ₹ 60,000 to ₹ 1.5 lakhs.

2. Get a life insurance
Life insurance is important if you have dependents who rely on your income. It can provide financial support for your family in case something unexpected happens. If you already have insurance then review your insurance coverage regularly to ensure that it meets your family's needs. Consider getting a term life insurance policy if you don't already have one.

3. Plan for retirement

It's never too early to start saving for retirement. There are numerous government schemes as well as private plans to help you accumulate your retirement fund. Consider setting up a retirement investment as early as possible and contribute regularly to it.

4. Make a will

Creating a will is an important step in protecting your family's financial future. It ensures that your assets are distributed according to your wishes and can help avoid legal complications.

5. Communicate with your partner

Effective communication with your partner is essential for good financial management. Set financial goals together, create a budget, and regularly review your finances to ensure you're on track.

Starting a family is an exciting and challenging time, but by following these financial tips, you can establish good habits that will help you achieve your financial goals and provide security for your family's future. This will help you enjoy the happy moments in your life stress-free. So, stay aware and start investing, until next time!

5 Financial Tips when you start a family
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Reliance Retail Segments Review

Company Background:

 

  • Reliance Retail Limited founded in 2006 is a subsidiary of Reliance Industries Limited.
  • The fastest-growing retailer in the world.
  • India’s largest cash and carry chain with 52 stores and more than 4 million registered B2B and B2C customers
  • India’s largest consumer electronics retail chain with 8,249 stores
  • India’s largest fashion destination with 777 stores of Reliance Trends

 

Business Segments:

As per above infographic Reliance Retail is majorly in the 5 segments:

1) Grocery

2) Connectivity

3) Fashion & Lifestyle

4) Consumer Electronics

5) Petro Retail

 

 

The relation between contribution and market growth of the business segments:

To analyze and estimate the future growth of the entity one should focus on major segments of the business of the entity. Not just segmentation, but how much individual segments are contributing to the entire revenue of the entity and the future prospects of those segments can be considered. 

Along with economic conditions, one of the factors to be considered is the growth of the segment in the market and whether the contribution of the segments is in line with the expected growth of respective segments. 

For Example – In case of Reliance Retail, Grocery segment of the entity contributes 21% of the total revenue of the entity and the market growth rate of the segment is around 48%, Connectivity segment is contributing around 34% of the total revenue and the segment is growing at 28%. 

If one considers these facts for all the segments and relates to the current economic situations, the expected growth of the segments – strength and opportunities of the business can be estimated to a certain extent. 

Due to the COVID-19 situation, the savings of the general public has gone down to a certain extent as well as other financial stress has affected which can have a good impact in short term over the fashion and lifestyle segment of the entity.

 

Conclusion:

Understanding of business segments and its relation with the economic conditions is one of the most important things for consideration while investment decision.

Reliance Retail Segments Review
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Investing in Gold

Options for investment in gold:

 

  1. Physical Gold
    1. Jewelry
    2. Coins
    3. Gold Savings Schemes
  2. Paper Gold
    1. Sovereign Gold Bonds [SGBs]
    2. Gold Exchange Traded Funds [ETFs]
    3. Digital Gold [Mobile wallet platforms like Paytm, GoldRush, etc.]

 

Gold Market Cycle:

The gold market cycle means the period in which the instrument is in the bull run. Simply, it’s the period from the start point of the bull run to the correction start point. Usually, the gold market cycle lasts for around 8 to 10 years. 

For example – the previous gold market bull cycle was started in 2001 and ended in 2011. In 2001 – [In 2001 approx. per gram price was approx. Rs. 400 & in 2012 it was approx. Rs. 3,112. After this high, it corrected up to Rs. 2,227 in the next 3 years i.e. July 2015]. 

According to Experts, currently gold is in a bull market cycle. So, if one checks the below graph, approx. from 2017, the gold entered in the bull run cycle with approx. per gram price of Rs. 2,523 and as on date gold is at around Rs. 5,230. If the usual bull cycle horizon matches with the current gold market cycle, even if in the short term, gold is in an overbought zone, one can see a good amount of growth in the remaining life cycle. 

According to US-based analyst Nigam Arora, the author of The Arora Expert, “ there is more than 50% probability of gold approaching $3000 in this gold market cycle.” Earlier, Christopher Wood had said in his Greed and Fear report that gold could climb up to $4000 in the current bull cycle. [Current Price as at 6th August 2020 is approx. US$2,060.70, Mumbai – Rs. 5,768 per gram].

Returns comparison with other investment options:

If one compares the returns on major investment options for retail investors i.e. Fixed Deposit, SENSEX, NIFTY, Gold at last 20 years CAGR, Gold has provided the highest rate of return at approx.. 13% of CAGR.[Refer https://www.rachanaranade.com/blog/investment-comparison]

Investing in Gold
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Parameters to analyze IT Companies

Many investors keep a keen interest to invest in IT companies as they fall in the defensive category, meaning when all sectors are down, the IT sector is generally up. Also, since IT companies have global businesses, they are not only dependent on the domestic market i.e. India forms the view-point of diversification. 

So before investing in IT companies, let’s look at some of the important key ratios.

1. Operating Profit Margins (OPM). 

An Investor should focus at Operating Profit Margin of IT companies, because in the Service sector, especially IT companies, employee cost is the major cost. Below is the chart of the last 3 year’s OPM of Top 5 IT companies based on their market capitalization.

2. Return on Equity (ROE): 

ROE is a very important ratio to analyse for IT companies since it reflects the profit created for shareholders by reinvesting in its business. It is also said that it is profit on the shareholder’s capital on the balance sheet date. ROE should always be higher, otherwise investing in low ROE businesses will wipe out the investor’s wealth. Below is the chart of ROE generated over the last 10 years by these 5 major IT companies.

One of the key reasons to invest in IT companies: 

Since IT companies have global businesses, they get the advantage of depreciating Indian Rupee, which in turn increases profits and thereby enhancing their reserves (profits kept aside) year on year. IT companies distribute a good portion of earnings through a dividend to the shareholders. IT companies are also known as cash-rich businesses. They enhance shareholder’s wealth through buy-backs or dividends. Just look at the dividend payout ratio for the past 3 years of these Top 5 IT companies below.

Parameters to analyze IT Companies
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What is Grey Market Premium?

In an IPO flurry, we all have heard that this stock is having an 80% GMP, the other stock has a GMP of only 15% and the likes.

But what does GMP actually mean and is it even legal?

Let’s take an example – People apply for a blockbuster IPO and know for sure that it’s going to have a super listing - but many of the times they don’t get an allotment, especially in such rockstar IPO’s.

So, what do they do to enjoy the listing gains of such IPO’s?

Here comes the answer. They deal in the Grey Market.

A Grey Market, also known as a parallel market, is one where trading takes place outside the realm of official trading channels. Since this is an unofficial market, there are no rules and regulations. Market regulators like SEBI are not involved in these transactions and they don’t endorse this either.

Now, Grey Market Premium is nothing but the price at which the shares are being traded in the grey market. For instance, let’s assume the issue price for stock XYZ is Rs. 150 and the GMP is Rs. 100, it means that people are ready to buy the shares of company XYZ for Rs. 250, which implies that they expect the IPO listing price to be even above Rs. 250 and hence they will make a gain out of this transaction.

What is Grey Market Premium?
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What is an OFS?

 

We all have heard about a company bringing an Offer for Sale (OFS), but don’t really understand the meaning of it, right? Let’s decode the same in today’s blog!
An OFS is a mechanism through which the promoters in listed companies offer their shares to others.
So, there is no fresh issue of shares in an OFS, rather it’s just an offer from promoters to sell their holding to others. Hence there is no increase in the share capital of the company and yes, as rightly guessed by you, the money paid by you against the shares purchased doesn’t go to the company, but goes to the selling promoters.
Now one question naturally arises in our minds being “Why do promoters sell their shares to others? Are they not confident about the shares of their own company?”
It’s not always like that!
There can be various reasons as to why promoters may be willing to sell their shares to others. Let’s see some of them:

1) To pursue other life goals:
Many a times it so happens that the promoters started a company from scratch and built it as a professional company, brought it to a certain stage - and it took them good amount of time to do so and at current stage of their personal lives, they wish to encash some money and pursue personal or professional goals.
2) Healthy profit booking on their part:
As they have built a business from scratch and have listed the company on the exchanges, doing good business and generating good cash flows, obviously they have made a decent return on their initial investments and what’s wrong with some profit booking? It doesn’t mean that they don’t believe in the fundamentals of their own company. Just assume yourself in their shoes. However strong stocks you may be holding in your portfolio, if you made a decent return, will you not want to secure some of the profits that have been made? Obviously yes!

3) Better investment opportunities:
It may also be a case where the promoters want some stake to be offloaded as they may be eyeing some better investment opportunities in some other space like say private equity, real estate etc.
So now we know as to why do promoters bring in an OFS and applying to an OFS is not always a bad proposition.

Conclusion
So that’s what an OFS is all about!

What is an OFS?
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Types of Derivatves

We all have observed “the new normal” during this pandemic. Hand sanitisers have now become one of the irreplaceable items in our bags. Why is that? Because these sanitisers can effectively kill germs and viruses and reduce our chances of getting infected. This practice has become so essential during the current times that there are various kinds of sanitisers being offered in the market. From alcohol-based, alcohol-free, spray, gel-based to fragrant sanitisers, there are numerous options available for us.

Do you think that if we have so many types just for a sanitiser, there won’t be any in derivatives? Of course, we do! And that’s exactly what we will be discussing in today's blog. Before we dig in, if you wish to revise the basics of derivatives discussed in the previous blog, click here.
Now let’s get started!
What is the structure of the Derivatives market?
Before jumping into the types of derivatives, we must understand the structure of the derivatives market. We already know that a derivative is a contract, based on the value of an underlying asset like stocks, bonds, commodities, currencies, interest rates and even indices.
Coming to the markets’ structure, the derivatives market is broadly classified into two categories:
 

a. OTC derivatives market
In simple words, the OTC market is where derivative instruments are traded informally. An over-the-counter (OTC) derivative is a contract that is tailored as per the needs of the parties involved. These instruments are not listed on any exchange and hence are negotiable between a buyer and a seller to match their risk and return. It is a decentralized dealer market. No intermediaries or exchanges like NSE, BSE, MCX, etc. are involved in the transaction due to which these instruments possess counter-party risk. Popularly known OTC derivatives instruments include forwards and swaps which we shall discuss ahead in this blog.

b. Exchange-traded derivatives market
As the name suggests, these derivatives instruments can be traded on exchanges like NSE, BSE, MCX, etc. These instruments are standardized contracts that have a pre-determined expiration date, price, lot size, etc. and hence are non-negotiable. Here, the exchanges act as an intermediary and thereby eliminates counter-party risk. Unlike the OTC derivatives market, this market is regulated by SEBI. Popularly known exchange-traded derivatives instruments include futures and options which we shall discuss ahead in this blog.

What is the difference between OTC & Exchange-traded derivatives markets?

What are the types of derivatives?
The primary purpose of derivatives is to minimize your risk and earn profits. But how to do that? For that, we have different types of derivatives being traded, in both OTC and exchange-traded markets. So, let’s unfold them one by one.

1. Forwards
Forwards are customized contracts between a buyer and a seller based on an underlying asset at a pre-decided price, quantity, expiration date, etc. I am sure after reading the word customized, you must have guessed that forwards are OTC instruments. You are absolutely right! Hence, forwards being a private transaction, do not trade on exchanges. Investors and businesses use forwards to hedge against the volatility in pricing.

2. Swaps
To put it very simply for you, swaps enable the buyer and the seller to exchange their revenue streams based on an underlying asset. These are again OTC instruments so no exchanges are involved in the transaction. Investors and businesses use swaps to hedge and speculate against the volatility in pricing. The most common types of swaps are interest rate swaps and currency swaps.


3. Futures
Now, the real game starts with Futures and options. Futures are standardized contracts between a buyer and a seller based on an underlying asset at a pre-decided price for a later date. We can say that futures are an advanced version of forwards. They are highly tradable due to the involvement of the exchanges. This also removes the counterparty risk on the traders’ part. Investors and businesses use future contracts to hedge and speculate against the volatility in pricing. The most common types of futures involve stock futures, index futures, currency futures and commodity futures.
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4.Options
As the name suggests, options are contracts that give the buyer a right but not the obligation to buy or sell the underlying asset at a pre-decided price. The buyer of the option has to pay a premium to the seller. You must have heard about the call and put options that are widely known amongst traders. These are commonly used to hedge and speculate against portfolio risk.

 

Bottom Line
Well, the derivatives market is huge and there’s a lot more to learn about all the types of derivatives we discussed today. But don’t worry, we shall understand their basics better in future blogs. It is important to note that even though there’s huge profit potential in derivatives there’s an equal or more probability of losing. It is important to have extremely good knowledge about the stock market , technical analysis and derivatives, to trade in the derivatives market. If you want to learn about Futures and options in the most fun, simplified and practical manner, make sure you check out my course here. I am sure you will love it. Until next time!

 

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Types of Derivatves
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