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Are you unknowingly committing these costly investment mistakes?

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A few pricey investment blunders can have a significant negative impact on your finances. Here are a few frequent financial blunders you may be doing without realizing it, as well as how to avoid losing money as a result. If you want to achieve your financial goals, one of the most important investments you can make is in stocks and bonds.

Investing without financial goals

Investing without a financial purpose is akin to eating without knowing your appetite or health status. People who invest without a financial purpose in mind may find themselves in a scenario where they are short on cash when they need it most. For example, a fund worth Rs. 5 lakh might be used to buy a car in two years and a fund of Rs. 50 lakhs may be used to generate a Rs 5 crore retirement corpus in 35 years.

Not checking expenses related to investments

Investing in stocks, mutual funds, and other investments comes with a set of costs. Such costs may accumulate over time, reducing your investment returns to that level. To get a clearer view, focus on the returns after deducting the necessary expenses when investing money in an instrument. You may have to pay brokerage fees, exchange fees, and other expenses, for example. 

Ignoring the real rate of return

Many investors make the mistake of focusing just on the nominal returns on their investments. A nominal return is a return obtained by an investment before expenses, taxes, inflation, and other factors are taken into account. Assume you have put Rs 1 lakh in a one-year fixed deposit at a rate of 6% per annum. Despite nominal returns of 6%, your true rate of return would be only Rs. 1,295, or 1.29%.

It’s a typical mistake to concentrate solely on nominal returns, which can sometimes result in negative returns. Make sure your investment has the highest potential positive real rate of return. Long-term wealth-building can be aided by earning a high real return.

Not considering the tax liability

Tax liabilities on short- and long-term income from investments in assets such as equities, debt, real estate, and other types of assets differ greatly. Before you invest, learn about the taxes that apply to the revenue from such assets. It can assist you in selecting tax-advantaged investments and provide you with higher returns.

Not ensuring sufficient liquidity

Investing without considering your liquidity requirements could lead to a financial calamity. Setting a liquidity threshold that takes into account your rent/home loan EMIs, utilities, insurance, and other expenses, as well as investing the surplus cash wisely in line with your goals and risk appetite, is a good idea. When investing in securities with extended lock-in periods, consider the impact of the invested funds not being available until the investment matures.

Not diversifying adequately

When it comes to investing, many people make the error of not diversifying their portfolios to match their financial objectives. ‘Adequate’ diversity indicates that it’s neither more nor less than what’s required to reduce your investment portfolio’s total risk. Over diversification reduces your return on investment; on the other side, lack of diversity puts your portfolio at danger of volatility. 

Investing based on hearsay

Investing solely based on hearsay, such as stock tips or mutual fund plan ideas, might result in significant losses. Before investing, make the necessary effort to learn the rules of the game by reading investment-related books or articles, watching tutorial videos, or even enrolling in an online course. Instead of making judgments based on hearsay, you should seek a competent and neutral investment advisor if you have any reservations about investing.

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Cryptocurrency: increasingly the currency of choice for new India

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Cryptocurrencies took the world by storm when they first emerged in 2009. With no government backing these digital currencies, and no single user having complete authority over them, Crypto has seen a decent rise in the number of its owners. From Elon Musk to Bill Gates, all have spoken about the ‘future’ of currency.  

Recently, BrokerChoose, a broker discovery and comparison website stated in its annual proliferation index that India has the biggest number of cryptocurrency users in the world, with 10.07 crore users. The United States is next, with 2.74 million crypto owners, followed by Russia (1.74 million), and Nigeria (1.30 million).  

The increasing trade volumes and valuations of Crypto exchanges in India is another testimonial to the exponential rise of this virtual currency in the country. The report by Mint states that the Crypto exchange platform CoinSwitch Kuber has 11 million users, whereas WazirX stands at 8.3 million. Within one year of its incorporation in June 2020, CoinSwitch Kuber entered the unicorn club with a valuation of $1.9 billion. Prior to this, just two months earlier, crypto exchange platform CoinDCX became the first crypto unicorn in India with a valuation of $1.1 billion.  

Despite the country’s uncertain future, the cryptocurrency fever continues to grow among the public. The Reserve Bank of India banned cryptocurrency trading in 2018, but the prohibition was eventually overturned by the Supreme Court. In February of this year, the Indian government proposed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which would prohibit the use of private cryptocurrencies in the country. However, the bill has yet to be introduced in Parliament. 

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India’s looming Non-Performing Assets problem

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A Non-Performing Asset,  or an NPA, is a loan for which the payment of interest is overdue for over 90 days. All banks around India are obligated to classify these NPAs into Substandard Assets, Doubtful Assets, and Loss Assets.

A Substandard Asset is due for a period less than or equal to a year. A doubtful Asset is in the substandard region for 12 months and a Loss Asset is one which is uncollectable and is of low value.

There are various reasons for the rise of NPAs. Some include the slowdown in the global economy and the irrational lending of banks to business houses. India as a whole has seen a major problem in this field over the recent period

The NPA problem in India

The financial stability of India’s public banks has seen a major downfall since 2011. Gross NPAs had risen to a total of 9.5% in 2015-16. Most of the loans were given out during the peak period of 2004-2008. The banks continued to be inspired by this peak period and continued to irrationally loan out money to various business houses around the country. 

As a global crisis grew, the damage was too much, the projects were unviable, and losses began to surface. The biggest problem faced by the Indian banking system is the fact that the borrower lacks incentives to repay these loans. The business houses are not obliged to make sacrifices either if they decide to default. This led to a huge NPA problem in the Indian Public sector banks

How can India overcome the NPA issue?

India’s NPA problem is on a  rise, and steps must be taken as quickly as possible to resolve these issues to let the banks focus on lending. A new bankruptcy code can play a huge part in helping this system but it will take a lot of time to bring it into full effect.

The second RBI scheme is the Scheme for Sustainable Structuring of Stressed Assets (S4A), under which the bank can offer existing management an opportunity to rehabilitate the project by dividing the debt into two parts. 

The Indian Public Bank sectors need to work on this looming NPA problem. The quicker this is done, the easier it will be for all banks to resume the process of lending money to the business houses which will inevitably help improve the economic condition of the Indian business market

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CoinSwitch Kuber: The story of India’s largest crypto exchange

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The growth of Cryptocurrency over the years has been astronomical. People are now tempted to take their first steps into the world of crypto. To make trading, investing, and knowledge of crypto easier for people, three engineers, Ashish Singhal (CEO), Govind Soni (CTO), and Vimal Sagar (COO) launched ‘CoinSwitch Kuber’ in 2017. This began the journey of a platform that is now home to over 11 million users.

In early 2018, the Reserve Bank of India (RBI) issued a policy that did not allow the banks to support crypto transactions that forced the three founders to spread their idea outside India with the VC, Sequoia Capital funding them in the seed round. But soon in early 2020, their dream of shedding light on the digital currency in India came true as the Supreme Court of India overturned RBI’s policy. ‘CoinSwitch Kuber’ was then introduced to the people of India.

Ashish defines simplified User Experience (UX) and the decision to not provide the users with some trading features as the two factors that helped the platform overtake other coin exchanges.

CoinSwitch recently suspended crypto withdrawals for its users due to lack of clear rules concerning the currency. Clarifying the move, Ashish says, “This was perhaps the hardest call we had to take. But regulators are worried about crypto being used as legal tender and hurting the sovereignty of the Indian rupee. Further, they are worried crypto can be used for money laundering and other illicit activities. So far, no one has figured out how to stop it, but disabling crypto withdrawals in a stopgap measure till the right policies come in place.”

Talking about the future, the founders aim to transform this app into a full-time investment platform with crypto and traditional financial instruments available for everyone. Praising the investors such as a16z, the founders hope that the Indian government defines the rules around crypto better, and compartmentalize virtual currencies based on their use cases and not prohibit it in upcoming legislation.

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