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  • Learning Investor Mindsets ft. The Avengers

    Learning Investor Mindsets ft. The Avengers

    Imagine if the Avengers, Earth’s mightiest heroes, were investors.

    What kind of an investor would each one be? Just like their superhero personas, each Avenger would have their unique investment style and investor mindset.

    In the ever-evolving world of finance, understanding different investor mindsets is crucial. Just as each Avenger possesses unique strengths, weaknesses, and perspectives, investors bring their own attitudes and approaches to the table.

    By comparing the investment styles of our favourite superheroes, we can gain valuable insights into the various mindsets that drive the world of investments.

    In this blog, let’s explore the different investor mindsets by comparing each Avenger to a type of investor.

    Understanding Investor Mindsets with Avengers

    The climax of the 2012 Avengers movie is the popular Battle of New York. All the superheroes work together to close the wormhole and stop the invasion of the Alien Army, Chitauri. In the battle, each Avenger uses his/her unique skills to fight the aliens.

    Let’s take this scenario and compare their skills and qualities to understand which investor mindsets each Avenger would have.

    Iron Man – The Risk-Taker

    Tony Stark, aka Iron Man, is known for his boldness and fearlessness, and his investment style would be no different. Iron Man would make a high-risk, high-reward investor.

    He’s not afraid to take big risks and bet on unproven startups that have the potential to disrupt entire industries. He invests in cutting-edge technologies that others may shy away from and always looks for the next big thing.

    His willingness to take big risks can also cause him to miss out on more conservative, reliable investments that could offer steady returns over time.

    Iron Man demonstrates his risk-taking investor mindset during the Battle of New York. As the Avengers face a massive alien invasion, Iron Man realizes that they need a powerful weapon to turn the tide of the battle.

    He takes a significant risk by diverting power from his suit’s arc reactor (which also powers his life-sustaining device). He unleashes the full potential of his suit’s new prototype weapon, the “Mark VII Unibeam.”

    Despite the potential risks to his own life and well-being, Iron Man takes a calculated gamble and unleashes a massive blast that devastates a significant portion of the invading army.

    Captain America – The Conservative Investor

    Steve Rogers, aka Captain America, is a conservative investor. He values stability and safety above all else. He seeks out investments that are reliable and predictable.

    Furthermore, he’s not interested in taking big risks or chasing after the latest trends. Instead, he looks for companies with solid fundamentals, strong cash flows, and a proven track record of success.

    Captain America is willing to wait patiently for his investments to pay off, and he’s not easily swayed by short-term fluctuations in the market.

    He’s a long-term thinker and believes in slow and steady growth. However, his conservative approach can sometimes cause him to miss out on big opportunities or emerging trends.

    While the Avengers are fighting against the alien invasion, Captain America takes a more cautious and calculated approach to the battle. He prefers to stick to proven strategies rather than taking big risks.

    He also insists on keeping the team’s focus on the mission and maintaining a clear chain of command, even when the situation becomes chaotic.

    This shows Captain America’s conservative approach to investing in the battle, preferring to rely on proven strategies and risk management rather than taking big gambles with uncertain outcomes.

    Thor – The Growth Investor

    Thor is a growth investor, with a focus on long-term potential. He invests in companies with ambitious goals and a strong vision for the future.

    He’s not interested in small, incremental gains but rather in massive growth and expansion. Thor is not afraid to take on risks but does so with a clear plan and a long-term outlook.

    He’s always looking for the next big thing and is willing to invest in unproven startups if he believes in their potential.

    Thor demonstrates his growth investor mindset when he’s battling the alien invasion during the Battle of New York.

    Thor is a god of thunder and possesses immense strength and power, but he doesn’t rely solely on his existing abilities to win the battle.

    Instead, he’s constantly exploring new ways to improve his performance and push his limits. For instance, he experiments with combining his lightning with Iron Man’s technology to create an even more powerful weapon.

    He also willingly puts himself in harm’s way to test the limits of his powers and develop new skills.

    The Hulk – The Defensive Investor

    Bruce Banner, aka The Hulk, is a defensive investor. He’s always on the lookout for potential threats and risks to his investments and takes steps to protect them from harm.

    He invests in companies with strong defenses against competition and market forces, and he diversifies his portfolio to minimize risk.

    The Hulk is not interested in taking big risks or chasing big gains. Instead, he’s focused on preserving and protecting what he has.

    He’s a careful, methodical investor who considers all the angles before making a decision. Hulk demonstrates his defensive investor mindset is during the Battle of New York.

    Unlike some of the other Avengers who take a more aggressive approach to the battle, Hulk initially tries to avoid confrontation and protect himself from harm.

    He’s reluctant to transform into his Hulk form, knowing that it could result in devastating consequences.

    When he’s finally forced to transform, he initially focuses on defending himself and the other Avengers, rather than engaging in all-out attacks.

    This shows Hulk’s defensive investor mindset, where he’s focused on minimizing losses and protecting what’s important.

    Black Widow – The Opportunistic Investor

    Natasha Romanoff, aka Black Widow, is an opportunistic investor. She’s always on the lookout for new opportunities and trends and is not afraid to take quick action to capitalize on them.

    Black Widow is highly adaptable and able to pivot quickly in response to changing market conditions. She invests in a wide range of companies and industries and is always looking for new ways to diversify her portfolio.

    As an investor, she would be the type of person who’s always scanning the market for undervalued assets or emerging trends.

    During the Battle of New York, Black Widow demonstrates her opportunistic investor mindset.

    As the Avengers are fighting against the alien invasion, Black Widow seizes an opportunity to take out a key target, the Chitauri Leviathan.

    She uses her agility and quick thinking to attach an explosive device to the creature’s neck and steer it into a nearby skyscraper. This causes a massive explosion that takes out a significant portion of the invading army.

    This move not only helps turn the tide of the battle, but it also highlights Black Widow’s opportunistic mindset.

    Hawkeye – The Value Investor

    Clint Barton, aka Hawkeye, would make a value investor. He seeks out undervalued companies with solid fundamentals and long-term potential.

    He’s not interested in chasing after the latest trends or hot stocks. But rather in finding hidden gems that others may have overlooked.

    Furthermore, He’s patient and methodical in his approach and is willing to wait for his investments to pay off over time.

    In the movie, when the Avengers discover the location of Ultron’s hidden base, they embark on a mission to infiltrate it and retrieve the powerful synthetic humanoid known as the Vision.

    Hawkeye takes a value-driven approach. He reaches out to Wanda, offering guidance, support, and a chance for her to use her abilities for the greater good.

    He sees the potential for her to become an invaluable asset to the Avengers, bringing her out of her self-doubt and helping her realize her true potential.

    This scenario showcases Hawkeye’s value investor mindset, where he recognizes the hidden worth and potential in individuals and seeks to unlock it.

    He understands that investing in the growth and development of others can yield substantial long-term value for the team and its collective mission.

    In Summary

    Just as the Avengers each bring their unique abilities and personalities to the team, different investor mindsets are necessary for success in the world of investing.

    Iron Man’s risk-taking and Captain America’s conservatism or Black Widow’s opportunism and Thor’s growth mindset, all have a place in the world of investing.

    Ultimately, successful investors know it’s important to have a well-rounded approach to investing.

    By combining different strategies and mindsets, investors can manage risk, capitalize on opportunities, and achieve their long-term investment goals.

    So, whether you’re an Iron Man or a Captain America, remember there’s no one-size-fits-all approach to investing.

    Find the strategy that works best for you. Don’t be afraid to adapt and evolve as the market changes.

    Happy investing!

  • How to make a Vacation Budget?

    How to make a Vacation Budget?

    Are you dreaming of a vacation but worried about breaking the costs? Creating a vacation budget can help you plan and enjoy your trip without emptying your wallet. Planning a trip can be exciting, but it can also be stressful if you’re not sure how to budget for it.

    Whether you’re traveling solo or with a group, to a far-flung destination or a nearby getaway, creating a vacation budget is essential. This is to ensure that you don’t overspend and end up with a “financial hangover” when you return home.

    But don’t worry, budgeting doesn’t have to be boring! In fact, it can be a fun and rewarding part of the vacation planning process.

    By taking the time to carefully plan and budget for your trip, you’ll be able to make the most of your time away without worrying about the cost.

    So, grab a cup of coffee (or a margarita if you’re feeling tropical). Let’s dive into the world of vacation budgeting.

    From determining your total budget to prioritizing activities, we’ll cover everything you need to know to create a vacation budget that works for you. Let’s get started!

    What is a Budget & why are they important? 

    A budget is a plan that outlines your income and expenses, giving you a clear picture of your financial situation and helping you make informed decisions about how to allocate your resources.

    Budgets are important because they help you manage your money effectively. Budgets ensure that you don’t overspend or run out of money before the end of the month.

    Now, with the technology at hand, budgeting, and expense tracking is not a tough task! It’s as easy as taking two seconds out sending a message on WhatsApp to your friend. The only difference is, when expense tracking, you take those two seconds to type in the amount in the Expense tracker on your phone.

    The latest Expense Tracker feature on the Vittae App helps you stay on track with your spending. It also reminds you when you are close to crossing the budget you set for a particular expense category, for example, shopping. 

    But, expense tracking is the second step to being mindful of your spending. The first step, as mentioned, is creating a budget. We often limit the idea of a budget to a monthly budget.

    When it comes to vacations, budgets are just as important. Planning a vacation can be expensive, with costs including transportation, accommodation, food, activities, and souvenirs.

    Without a budget, it can be easy to overspend and end up with a hefty credit card bill when you return home.

    Creating a vacation budget helps you set realistic expectations for your trip and avoid financial stress. By deciding on a budget upfront, you can prioritize your spending and make choices that align with your financial goals.

    For example, if you’re on a tight budget, you may choose to stay in a budget-friendly hotel or limit your dining-out expenses.

    On the other hand, if you have more money to spend, you may be able to splurge on a fancy hotel or take part in more expensive activities.

    Creating a vacation budget helps you to take control of your finances and make the most of your vacation without overspending. With a little bit of planning and discipline, you can enjoy a memorable and stress-free vacation while staying within your means.

    How Can a Vacation Budget Help You? 

    Helps you plan your finances

    A vacation budget helps you plan your finances and determine how much money you can afford to spend on your trip. It allows you to allocate your funds wisely and avoid overspending.

    Reduces stress

    Knowing how much money you have to spend on your vacation can reduce stress and anxiety. You can enjoy your trip without worrying about going over budget or running out of money.

    Helps you prioritize expenses

    Having a budget helps you prioritize your expenses and determine what is most important to you. You can allocate your funds to the activities and experiences that matter most. This allows you to cut back on things that are less important.

    Helps you save money

    By setting a budget, you can save money and avoid unnecessary expenses. You can look for deals and discounts on flights, accommodations, and activities to make the most of your vacation budget.

    Enables you to plan ahead

    A vacation budget enables you to plan ahead and make reservations for accommodations and activities in advance. This can help you secure the best deals and avoid last-minute expenses.

    Having a vacation budget is important not just to help you manage your finances but also to ensure you have a stress-free and enjoyable trip.

    10 Steps to Create Your Vacation Budget

    Determine your total budget

    The first step to making a vacation budget is to determine how much money you have available to spend.

    Decide on a destination

    Your destination will play a big role in how much money you will need to spend. Research the cost of living, transportation, and activities in your chosen destination.

    Estimate travel costs

    Determine the cost of transportation to and from your destination, including flights, rental cars, and gas.

    Choose your stay

    Look for accommodations that fit within your budget, such as hotels, motels, hostels, or vacation rentals.

    Plan your meals

    Decide how you will eat during your vacation. Will you be eating out at restaurants, cooking your own meals, or a combination of both? Research the cost of food in your destination.

    Consider activities

    Make a list of activities you want to do during your vacation and research their cost. This can include tours, attractions, and events.

    Include transportation costs

    Plan for transportation costs within your destination, such as taxi or public transportation fares.

    Set aside money for unexpected expenses

    Setting aside some extra money for unexpected expenses, such as medical emergencies or lost luggage, is always a good idea.

    Track your expenses

    Keep track of your vacation expenses to ensure you’re staying within your budget. Don’t miss this step because you’re lazy! Use the Vittae App, to make your job easier.

    Review your budget

    After your vacation, remember to review your budget. This is to see if there were any unexpected expenses or areas where you overspent. Use this information to adjust your budget for future vacations.

    Vacation Budget Example

    Let’s say you’re planning a beach vacation for this summer. Before you start ordering sunscreen and your bathing suit online, the ideal thing to do would be to create a budget.

    The first step is determining your destination and the duration of your trip. Let’s say you want to go to Goa for the long weekend (3 days and 2 nights).

    Here is what the breakdown of the budget would look like.

    Total budget: ₹ 20,000

    Transportation:

    – Round-trip travel (train): ₹3000

    – Car rental: ₹2000

    Total transportation: ₹5000

    Accommodation:

    – 2 nights in a hotel: ₹5000

    Total accommodation: ₹5000

    Food and drinks:

    – Breakfast: 500 per day x 3 days = ₹1,500

    – Lunch: 700 per day x 3 days = ₹2,100

    – Dinner: 1500 per day x 3 days = ₹4,500

    – Drinks: 800 per day x 3 days = ₹2,400

    Total food and drinks: ₹10,500

    Activities:

    – Parasailing: ₹500

    – Kayak rental: ₹1000

    Total activities: ₹1500

    Miscellaneous:

    – Souvenirs: ₹1000

    – Tips: ₹500

    – Emergency fund: ₹2000

    Total miscellaneous: ₹3500

    Grand total:₹25,500

    In this example, the total budget for the vacation is ₹20,000, but the estimated expenses come to ₹25,500.

    This means you may need to adjust the budget or cut back on some expenses to stay within the budget.

    When you break down the estimated expenses, you can see where your money is going. This gives you a clear picture to decide where to cut back on spending, if necessary.

    In Conclusion

    Creating a vacation budget may seem daunting, but it’s an essential step in ensuring that your trip is enjoyable and financially responsible.

    • Start by determining your total budget and break it down into categories such as transportation, accommodation, food, and activities.
    • Research your destination to get a sense of the costs associated with each category, and adjust your budget accordingly.
    • Be realistic about your spending habits and prioritize the activities and experiences that are most important to you.
    • Consider using budgeting tools or apps to help you track your expenses and stay on top of your budget.

    Remember these key points to help you get into planning right away!

    Finally, be flexible and willing to adjust your budget as needed. But remember, that sticking to your budget will ultimately make for a more enjoyable and stress-free vacation.

  • What is an Emergency Fund?

    What is an Emergency Fund?

    Have you ever heard the saying, “expect the unexpected”? Well, an emergency fund is like a superhero cape for your wallet. 

    It’s a special stash of money that you keep tucked away for those unexpected emergencies that life throws your way.

    Think about it like this: imagine you’re walking down the street and suddenly, a giant piano falls from the sky and squashes your car. Yikes! That’s definitely not something you were expecting, but with an emergency fund, you’ll be ready to handle it without breaking a sweat.

    An emergency fund is like a safety net that catches you when you fall. It’s there to help you cover unexpected expenses, such as a broken phone, a medical bill, or even a surprise trip to the vet for your furry friend.

    By having an emergency fund, you can avoid going into debt or having to borrow money. Borrowing money either from a bank or a friend, can often be stressful and embarrassing.

    Understanding an Emergency Fund

    When you set out to manage your personal finances, there are few things more important than having an emergency fund. 

    Expenses such as medical bills or a job loss, don’t come with a notice. Emergency fund is that preplanned fund that can protect you and your family from unexpected expenses.

    Yet, despite its importance, many people don’t have an emergency fund or don’t have enough saved up.

    An emergency fund is not the same as a regular savings account, which is typically used for long-term goals like a down payment on a house or a vacation. Instead, the purpose of an emergency fund is to provide immediate access to cash in case of an emergency.

    The amount of money you should have in your emergency fund can vary depending on your individual circumstances. A good rule of thumb is to have at least three to six months’ worth of living expenses saved up. 

    This will give you a cushion to fall back on in case of a job loss or any other financial emergency. It can take time and effort to build up a sufficient emergency fund, but the peace of mind it provides is well worth the effort. 

    In this blog, we’ll explore the importance of having an emergency fund, and how much money you should save. We’ll also cover some common mistakes to avoid while saving for your emergency fund. 

    What is an Emergency Fund?

    An emergency fund is a savings account that is specifically set aside for unexpected expenses. It is not intended for regular expenses such as rent or groceries. 

    Instead, it should be used to cover unexpected expenses such as car repairs, medical bills, or home repairs.

    The amount of money you should have in your emergency fund will depend on your personal circumstances, such as your income, expenses, and the number of dependents you have. 

    A general rule of thumb is to have three to six months’ worth of living expenses saved in your emergency fund. 

    This means that, if your monthly expenses are ₹20,000, you should aim to have between ₹60,000 and ₹1,20,000 saved in your emergency fund.

    Why Do You Need an Emergency Fund

    Unexpected expenses can happen to anyone at any time. You may lose your job, experience a medical emergency, or have unexpected car repairs. 

    Without an emergency fund, you may be forced to rely on credit cards or other forms of high-interest debt to cover these expenses. This can lead to a cycle of debt that can be difficult to break.

    An emergency fund can provide a safety net in times of financial hardship. It can help you avoid high-interest debt and provide a sense of security knowing that you have a cushion to fall back on in case of an emergency.

    Like how budgeting is one of the good financial practices you pick up, emergency fund is also a must when you’re planning personal finance.

    How to Build an Emergency Fund

    Building an emergency fund can take time and effort, but it is an important part of financial planning. Here are some steps you can take to build an emergency fund:

    1. Determine how much you need to save

    The first step in building an emergency fund is to determine how much you need to save. As mentioned earlier, a general rule of thumb is to have three to six months’ worth of living expenses saved in your emergency fund.

    You can calculate your living expenses by adding up your monthly bills, groceries, and other necessary expenses.

    2. Set a savings goal

    Once you know how much you need to save, set a savings goal. This will help you stay motivated and on track. 

    You can break your savings goal down into smaller, more manageable chunks. 

    For example, if you need to save ₹60,000 and want to save it within a year, you would need to save ₹5,000 per month.

    3. Create a budget

    Creating a budget is an essential part of building an emergency fund. It will help you identify areas where you can cut back on expenses and free up money to put toward your emergency fund. 

    Look for ways to reduce your expenses, such as cutting back on eating out or canceling subscription services that you don’t use.

    4. Make saving automatic

    One of the easiest ways to build an emergency fund is by making your savings automatic. Set up automatic transfers from your checking account to your emergency fund savings account.

    This way, you won’t have to remember to transfer money each month, and your emergency fund will grow without much effort on your part.

    5. Start small

    Building an emergency fund can seem overwhelming, but it’s important to start somewhere. Even if you can only save a small amount each month, it’s better than nothing.

    Over time, you can gradually increase the amount you save until you reach your goal.

    Common Mistakes to Avoid When Building Your Emergency Fund

    Not starting early

    One mistake people make is waiting too long to start building their emergency fund. It’s important to start as soon as possible, even if you can only save a little bit each month.

    Not setting a goal

    Another common mistake is not setting a specific goal for your emergency fund. You should aim to save at least three to six months’ worth of living expenses in case of an emergency.

    Not prioritizing your fund

    Some people make the mistake of not making their emergency fund a priority. It’s important to make it a priority expense and contribute regularly to it.

    Not keeping your fund separate

    Keeping your emergency fund separate from your regular checking or savings account is important. This will prevent you from accidentally spending the money on non-emergency expenses.

    Not adjusting for inflation

    Another mistake is not adjusting your emergency fund for inflation over time. As prices rise, your emergency fund may not be enough to cover your expenses.

    By avoiding these common mistakes, you can build a strong emergency fund that will help you weather unexpected financial emergencies.

    In Summary

    Life has its way of throwing surprises your way. Stay prepared with an emergency fund. 

    Start small by putting aside a little bit of money each month, like a superhero saving up their powers. 

    Building an emergency fund can take time and effort, but it’s an essential step in achieving financial security. 

    It’s important to start small and make regular contributions to your fund, even if it’s just a few hundred rupees a week. Over time, those small contributions can add up to a substantial amount of money.

    Over time, your emergency fund will grow stronger and stronger, until you’re ready to face any unexpected challenge that comes your way.

    An emergency fund may not be as exciting as a superhero adventure. But, remember it’s a smart and responsible way to protect yourself and your wallet from life’s unexpected bumps in the road. 

    Start building your emergency fund today, and be your own superhero!

  • What is a Fixed Deposit?

    What is a Fixed Deposit?

    Did your parents ask you to open a Fixed Deposit as soon as you got your first salary? We’re assuming yes!

    And you most likely shrugged it off or procrastinated? It’s human nature to do so.

    For most of our lives, we’ve all been advised to do something or not do something, without being given a reason for it. We often forget to ask “Why” when we’re given any advice. Let’s change that when it comes to taking financial decisions!

    If you also got advice about fixed deposits but never understood the reasoning behind it. Today’s the day to learn about it. We’ll elaborate on the why, what, and how of Fixed Deposits.

    With platforms like Vittae, we guide you toward Financial Freedom, while answering “why” for every financial suggestion we make.

    What is a fixed deposit? 

    In simple words, a fixed deposit is an agreement between you and a bank.

    It is a way of saving money where you give a certain amount of money to the bank for a fixed period (let’s say 1 year).

    In return, the bank gives you a promised amount of money (called interest) on top of your original investment. 

    So, let’s say you give the bank ₹1000 for one year at an interest rate of 5% per annum.

    At the end of the year, the bank will give you ₹50 (i.e. 5% of ₹1000) as interest on your investment.

    So, you will get back your original ₹1000 plus the additional ₹50 as interest.

    Fixed deposits are considered a safe way of investing money. It guarantees the money that you invest and the interest that you will earn at the end of the fixed period.

    Now, that you’ve understood the concept of a Fixed Deposit, let’s see what FD means in ‘finance terms’.

    A Fixed Deposit allows an individual to deposit a lump sum amount of money with a bank or a financial institution for a fixed tenure at an agreed-upon interest rate.

    The interest rate on fixed deposits is usually higher than that of savings accounts. The interest earned on the deposit is paid out at the end of the tenure. At times, it can also be paid on a periodic basis, depending on the terms of the deposit. 

    Fixed deposits are considered low-risk investments because the interest rate is fixed, and the principal amount is guaranteed to be returned at the end of the tenure.

    Tenure is nothing but the fixed time period of the deposit. The tenure of the fixed deposits can range from a few days to several years.

    The interest rate offered by banks and financial institutions varies depending on the tenure of the deposit and the amount deposited. 

    In India, fixed deposits are a popular investment option for individuals who want to earn a fixed return on their savings without taking on too much risk.

    They are also commonly used to save for short-term goals like purchasing a car, funding a wedding, or going on vacation.

    Key features of Fixed Deposits

    Guaranteed Returns

    Fixed Deposits offer a fixed rate of interest which is guaranteed for the entire tenure. This means that the amount you earn on your deposit is predetermined and does not change with market fluctuations.

    Flexible Tenure

    Fixed deposits can be opened for a period ranging from a few days to several years, depending on the bank’s policies. This allows you to choose a tenure that suits your financial goals and needs.

    Minimum Investment Amount

    The minimum investment amount for fixed deposits varies from bank to bank, but it is usually a few thousand rupees. This makes it accessible to a wide range of investors.

    Premature Withdrawal

    In case of an emergency, you can withdraw your fixed deposit before the maturity date. However, banks usually charge a penalty for premature withdrawal, and the interest rate may also be adjusted accordingly.

    Fixed vs Floating Interest Rates

    Fixed deposits offer a fixed rate of interest throughout the tenure, whereas floating rate deposits offer a variable rate of interest that changes with market conditions.

    Taxation

    The interest earned on fixed deposits is taxable as per the individual’s tax slab. However, senior citizens are eligible for higher rates of interest and tax benefits.

    Nomination Facility

    Fixed deposits offer a nomination facility that allows you to nominate a person who will receive the deposit amount

    Are Fixed Deposits a good choice for everyone? 

    Fixed Deposits (FDs) can be a wise investment choice for certain investors, depending on their individual financial goals and risk tolerance.

    Here are some reasons why:

    Low Risk

    Fixed deposits are considered low-risk investments because they offer guaranteed returns and the principal amount is protected. This makes them a suitable investment option for those who are not willing to take too much risk.

    At Vittae, we do a risk assessment, that helps us analyze your ‘risk level’ to give you a truly personalized financial report.

    Guaranteed Returns

    As mentioned before, FDs offer a fixed rate of interest for the entire tenure of the deposit. This means you will have a predictable return on investment.

    This makes fixed deposits a suitable investment option for those who want to earn a fixed return on their savings.

    Easy to Manage

    FDs are easy to open and manage. You can open an FD account with a bank or financial institution and manage it online or through a branch.

    This makes it a convenient investment option for those of you who want a hassle-free investment option.

    Flexible Tenure

    FDs offer flexible tenure options, ranging from a few days to several years. This makes them a suitable investment option for those who want to save for a specific financial goal within a set period.

    Drawbacks to Fixed Deposits that investors should also consider:

    Lower Returns

    FDs offer lower returns compared to other investment options like equities or mutual funds. This means that investors may not be able to generate the same level of returns as they would with other investment options.

    Inflation Risk

    The interest rate on FDs may not keep up with inflation, which can erode the purchasing power of your investment over time.

    Liquidity

    FDs are not as liquid as other investment options like savings accounts or mutual funds. Premature withdrawal may attract penalty charges and lower interest rates.

    In summary, FDs can be a wise investment choice for risk-averse investors who want to earn a fixed return on their savings. However, investors should also consider the lower returns and inflation risk associated with FDs before making an investment decision.

    Fixed Deposit Strategies

    Fixed deposit (FD) is a popular investment option among people looking for a guaranteed investment return. Here are some different-fixed deposit strategies in simple terms:

    Laddering Approach

    This means spreading your FD portfolio across different maturity periods. Instead of investing all your money at once in the same FD, you can create multiple FDs with different maturity periods. This can help you have regular liquidity and avoid penalties for premature withdrawals.

    Interest Compounding

    Banks offer different interest payment options, such as monthly, quarterly, or annually. If you choose to get the interest payment quarterly, you will receive less interest compared to getting it annually. So, it would be better to choose the interest-compounding option to get higher returns at maturity.

    Tax Saving FDs

    Banks offer tax-saving fixed deposit options where the investor can use tax benefits under section 80C of the Income Tax Act. These FDs usually have a lock-in period of 5 years and offer higher interest rates compared to regular FDs.

    Auto-Renewal

    If you are not in need of the maturity amount, you can opt for auto-renewal of your FD. This means the bank will renew your FD for another term with the same amount and interest rate. This strategy can help you to achieve a compounded return for a longer duration.

    Consider Joint Fixed Deposits

    Consider opening a joint FD account with your spouse or parents, which can help to get higher returns with tax benefits. It can also simplify the process of nomination and joint access to the account.

    These are some fixed deposit strategies that you can consider based on your investment goals and risk appetite.

    BONUS LEARNING

    Diversification is an essential strategy for investors to manage risk and maximize returns. Investing solely in a fixed deposit may seem like a safe and straightforward option, but it can limit the potential for growth and leave an investor vulnerable to inflation. Here are a few reasons why investors should consider diversifying their portfolios:

    Managing risk

    Diversification spreads the investment across various asset classes, sectors, regions, and securities. This helps in managing the risk of investing in a single asset class or market. If one segment of the portfolio underperforms, the other segments may help to offset the losses.

    Maximizing returns

    Different asset classes have varying performance patterns. Investors can maximize returns and reduce portfolio volatility by investing in several diversified assets. This helps to balance that fixed deposit’s low risk and low returns.

    Protecting against inflation

    Fixed deposits provide a return at a fixed rate and may not keep pace with inflation. By diversifying one’s portfolio, investors can invest in a mix of assets that provide a return that is at least in line with inflation.

    Taking advantage of opportunity

    A diverse portfolio may provide access to a wide range of investment opportunities. Investors can tap into the possibilities of alternative investments such as real estate or commodities. These may offer potentially higher returns than a fixed deposit.

    Diversification is a critical strategy in managing an investment portfolio. Fixed deposits can serve as a useful and conservative investment ,but it is important to spread the investment across different assets. This will help you maximize potential returns and reduce the risk of loss.

    In Summary

    Fixed deposits are a popular investment choice among people who want to save their money in a safe and secure way. 

    It provides a guaranteed interest rate and ensures the safety of the principal amount invested. Additionally, it is a low-risk investment option that offers higher returns compared to other savings accounts.

    While there are some limitations, such as the inability to withdraw funds before the maturity period without penalty, fixed deposits can be a useful tool in achieving one’s financial goals.

    If you are looking for a low-risk investment option that guarantees returns, then fixed deposits are definitely worth considering.

  • What are benefits of Term Life Insurance?

    What are benefits of Term Life Insurance?

    Did you ever have a costly smartphone and break it in the first week? Did you also regret not paying extra for the insurance that the salesperson reminded you about, right before the purchase? 

    Well, life is all about surprises. A phone can be repaired or better even, replaced. But, life is irreplaceable. If you’ve not taken insurance yet, to secure your future, this is a big bold reminder that you do. Term Life Insurance is that ‘guarantee’ that protects you and your family.

    It is natural to be overwhelmed by fairly new terms such as policy, cover, premium, beneficiary, etc.

    We’re here to help you cross that barrier. Learn about Term Life Insurance, and understand why it is important, and we’re sure you’ll by yourself make the right choice.

    In this blog, we’ll elaborate on Term Life Insurance or Life Insurance, its benefits, tips on how to choose the best policy, and some FAQs about the same. 

    The life insurance industry in India is expected to increase by 14-15% annually for the next three to five years. Now, that’s a green sign that this is the perfect time to get the insurance, that’s been unchecked on your To-Do list.

    What is Term Insurance? 

    Term insurance is a type of life insurance policy that provides coverage for a specified period of time, usually known as the “term”. It is a pure life cover with no savings or investment component. 

    In simpler words, this policy is your “investment” for the financial stability of you and your family, in case there’s an emergency.

    It is very normal for you to pay extra to get insurance for your car, at the time of purchase. This protects your car, and your pocket from a hefty payment in case there’s an accident.

    Similarly, Term Insurance or Life Insurance protects your Life. They are designed to give your family financial protection, in case of an untimely death.

    If the policyholder dies during the term of the policy, the death benefit is paid out to the nominee or beneficiary. The beneficiary in most cases is a family member like a spouse or children.

    However, if the policyholder survives the term of the policy, there is no payout at maturity.

    Term insurance policies are usually more affordable than other types of life insurance policies such as whole life insurance or endowment plans. 

    The premium for term insurance policies is lower than other types of life insurance policies. This is because term insurance policies do not have any savings or investment component.

    How Does Term Insurance Work? 

    1. You purchase a term insurance policy from an insurance provider for a specific term, such as 10, 20, or 30 years.

    2. You pay a premium (monthly, quarterly, annually, or as per the policy terms) to the insurance provider to keep the policy in force.

    3. If you pass away during the term of the policy, the insurance company will pay a death benefit to your beneficiaries (the people to whom you have designated to receive the payout).

    4. If you outlive the term of the policy, the coverage ends and the insurance company does not pay any benefits.

    The primary purpose of term insurance is to provide financial protection for your loved ones in case something unexpected happens to you during the term of the policy. 

    It is often more affordable than other types of life insurance policies, such as whole life insurance, because it does not build up cash value over time.

    Term insurance policies do not have a maturity value because they are not designed to accumulate cash value over time. Instead, the policy provides coverage for a specific period of time, hence the word ‘term’.

    However, if the policyholder outlives the term of the policy, the coverage ends and the policy expires. 

    At that point, the insurance company does not pay any benefits or return any premiums paid during the term of the policy. The policyholder may choose to renew the policy, but the premiums will likely increase as the insured person gets older.

    Also, there is no difference between term insurance and term life insurance. They both refer to the same insurance policy.

    The terms “term insurance” and “term life insurance” are often used interchangeably in the insurance industry.

    It’s worth noting that there are other types of life insurance policies, such as whole life insurance, universal life insurance, and variable life insurance. There is also medical insurance that caters to emergency medical expenses.

    But, term life insurance policies are designed to provide coverage for the entire life of the insured person and often include a savings or investment component. 

    However, term insurance is specifically designed to provide coverage for a limited period.

    Benefits of Term Life Insurance

    Affordability

    Term life insurance policies are usually more affordable than other types of life insurance policies, such as whole life insurance. This is because they only provide coverage for a specific period and do not build cash value.

    Flexibility

    Term life insurance policies offer a great deal of flexibility. You can choose the length of the policy and the amount of coverage that you need. This allows you to customize the policy to fit your specific needs and budget.

    Simple

    Term life insurance policies are straightforward and easy to understand. There are no complicated investment components or cash values to worry about.

    Peace of mind

    Having a term life insurance policy can provide peace of mind knowing that your loved ones will be financially protected if something were to happen to you.

    Estate planning

    Term life insurance can be an important part of estate planning. It can help provide liquidity to pay estate taxes, debts, and other expenses that may arise after you pass away.

    Term life insurance can provide an affordable and flexible way to protect your loved ones and provide peace of mind.

    How to Choose Your Insurance Plan?

    Choosing the best term insurance plan can be a daunting task, but here are some tips to help you select the right policy for your needs:

    Determine your coverage needs

    The first step in choosing a term insurance plan is to determine how much coverage you need. Consider your income, debts, future expenses, and your dependents’ needs to determine the appropriate coverage amount.

    Compare policies

    Once you know how much coverage you need, compare policies from different insurance providers. Look for policies that offer the coverage amount you need at a price you can afford.

    Check the claim settlement ratio

    The claim settlement ratio is the percentage of claims that an insurance company approves and pays out. Look for insurance providers with a high claim settlement ratio, as this indicates that they are more likely to pay out claims.

    Consider the term length

    Choose a term length that aligns with your needs. For example, if you have young children, you may want to choose a policy with a longer term length to ensure that they are financially protected until they are adults.

    Look for additional benefits

    Some term insurance policies offer additional benefits, such as accidental death coverage or critical illness coverage. Consider whether these benefits are important to you.

    Check the premium payment options

    Consider the premium payment options available with the policy. Some policies allow you to pay premiums monthly, quarterly, or annually, while others may require a lump sum payment.

    Read the policy document carefully

    Before purchasing a term insurance policy, read the policy document carefully to understand the terms and conditions of the policy. Make sure you understand the exclusions, limitations, and other important details of the policy.

    By following these tips, you can choose a term insurance plan that provides the right coverage at an affordable price.

    Commonly asked FAQs about Term Life Insurance

    What is term life insurance? 

    Term life insurance is a type of life insurance policy that provides coverage for a specific period, such as 10, 20, or 30 years. If the insured person dies during the term of the policy, the death benefit is paid out to the beneficiaries.

    How much coverage do I need? 

    The amount of coverage you need depends on your personal situation. You should consider factors such as your income, debts, and future expenses when determining how much coverage you need.

    How long should my term life insurance policy be? 

    The length of your policy depends on your personal situation. You should consider factors such as your age, the age of your dependents, and your financial goals when determining the length of your policy.

    How much does term life insurance cost? 

    The cost of term life insurance depends on several factors, including your age, health, and the amount of coverage you need. Term life insurance is more affordable than other types of life insurance policies.

    Can I convert my term life insurance policy to a permanent policy? 

    Many term life insurance policies offer the option to convert to a permanent policy at the end of the term. This allows you to continue your coverage without having to reapply for a new policy.

    Do I need a medical exam to get term life insurance? 

    In most cases, you will need to undergo a medical exam to get term life insurance. The results of the exam will be used to determine your health rating and the cost of your policy.

    Can I cancel my term life insurance policy? 

    Yes, you can cancel your term life insurance policy at any time. However, you will not receive a refund of any premiums that you have already paid.

    In Summary

    Term Life Insurance is like a financial safety net that you can put in place for a specific period of time.

    Whether that’s while you’re paying off a mortgage, raising a family, or simply trying to get your finances in order.

    One of the great things about term life insurance is that it can be customized to meet your individual needs. 

    You can choose how much coverage you want, and how long you want it to last, and even add on extra features like disability riders or critical illness coverage. 

    Plus, because it’s typically more affordable, you can get the protection you need without breaking the bank.

    Now, it’s true that term life insurance policies don’t build up cash value like some other types of life insurance. But that doesn’t mean they’re any less valuable!

    Re-stating the example, think of it like car insurance. You don’t expect to get a payout unless something bad happens, but having that coverage gives you peace of mind. And, it protects you financially in case of an accident.

    Ultimately, the decision to get term life insurance is a personal choice that depends on your current life situation. Experts at Vittae can help you choose the best policy, personalized to your current financial situation. 

    If you’re looking for a way to protect your loved ones and ensure their financial security in case the worst happens, term life insurance can be a great option to consider. 

    Secure your future, with steps that you can take today. 

  • Mutual Funds vs. Stocks: Which is Better for You?

    Mutual Funds vs. Stocks: Which is Better for You?

    Are you looking to start your investment journey? We’ll take a guess. You’re confused about which is the better option for you – mutual funds or stocks? Right?

    You’ve come to the right place. We’re here to educate you about both, so you can take an informed decision. 

    At Vittae, we want to empower everyone with financial growth and wellness.

    Every money story matters. We’re excited that you want to build your money story. 

    Be it mutual funds or stocks, it is the mindset of growth that is key to financial freedom. And you, my friend, are on the right track! 

    Read on to know in detail about mutual funds, stocks, how to invest in them, differences, risks involved about the same. 

    What are Mutual Funds? 

    A mutual fund is like a big basket of money that is collected from many people who want to invest their money. The money is then used to buy different types of investments like stocks, bonds, or other assets, depending on what the fund is trying to achieve.

    The goal is to make money for the investors by buying and selling these investments.

    When you invest in a mutual fund, you buy a small piece of that big basket of money. This means you are investing in various investments, which can help reduce your risk.

    A professional manager is in charge of deciding which investments to buy and sell, based on the fund’s goals.

    The value of your investment in the mutual fund goes up or down based on the performance of the investments in the fund.

    You can buy or sell your shares in the mutual fund at any time, and the price you get is based on the value of the investments in the fund at that time.

    Mutual funds are a way to invest your money in a diversified portfolio of investments, managed by professionals, to earn a return potentially.

    What are stocks? 

    Stocks, also known as shares or equities, represent ownership in a company. When you buy a stock, you are buying a small piece of ownership in that company.

    Stocks are bought and sold on stock exchanges. In India, the Stock Exchange Market is the NSE or BSE (National Stock Exchange or Bombay Stock Exchange).

    When a company sells stocks to the public, it is called an initial public offering (IPO). After that, the stocks can be bought and sold by anyone on the stock exchange.

    The price of a stock can go up or down based on many factors, such as the company’s financial performance, industry trends, and global economic conditions.

    Investing in stocks can be risky, as the value of a stock can be affected by many unpredictable factors. However, over the long term, stocks have historically provided higher returns than other types of investments, such as bonds or savings accounts.

    Investing in stocks requires knowledge, research, and a long-term perspective. It’s important to do your own research or work with a financial advisor to determine which stocks are right for you and your investment goals.

    As the below image shows, there’s been explosive growth in Demat accounts in the last decade. From 2020 to 2021, the number of Demat accounts has almost doubled. The information from SEBI shows how the public is aware of the long-term benefits of investing, to achieve their financial goals.

    Growth of Demat Accounts from FY10-11 to FY20-21
    Growth of Demat Accounts from FY10-11 to FY20-21

    Are Mutual funds and Stocks different? 

    Around this time, it’s all about cricket fever in India because of IPL (Indian Premiere League). Everyone roots for our favourite teams!

    Investing in stocks is like picking individual players for your fantasy sports team. You do your research, pick the players that you think will perform well, and hope that they do.

    If they do, your team succeeds and you make a profit. But if they don’t, your team might lose, and you might end up losing money.

    On the other hand, investing in mutual funds is like drafting an entire sports team for your fantasy league.

    Instead of picking individual players, you choose a team of players with different strengths and weaknesses. When combined, you create a well-rounded and competitive team.

    In the same way, a mutual fund is a collection of different stocks, bonds, and other investments that are managed by a professional fund manager.

    By investing in a mutual fund, you are essentially investing in a diversified portfolio of different assets, which can help expand your risk and potentially increase your chances of success.

    So, investing in stocks can be exciting and potentially lucrative. But, it is also risky and requires a lot of research and expertise.

    Investing in mutual funds, on the other hand, can offer a more diversified and potentially less risky approach to investing, while still providing the potential for growth and profit.

    Key differences between Mutual Funds and Stocks

    Ownership

    When you buy stocks, you own a share in a company. That means you have a direct ownership stake and the potential for capital gains and dividends.

    When you invest in a mutual fund, you own a share in a diversified portfolio of investments managed by a professional fund manager.

    This means you have indirect ownership and the potential for returns based on the performance of the underlying assets.

    Diversification

    Investing in stocks is typically more volatile and risky than investing in mutual funds. Mutual funds offer diversification across multiple stocks, bonds, or other asset classes.

    By holding a diversified portfolio of investments, mutual funds can help to reduce the risk of losses from the poor performance of any investment(s).

    Management

    Investing in individual stocks requires time and expertise to research and analyze companies, industries, and market trends.

    Mutual funds are managed by investment professionals who make decisions on behalf of investors, based on their expertise and analysis of market conditions.

    Fees and expenses

    Buying and selling individual stocks typically involves paying commissions and other fees to brokers. Mutual funds, on the other hand, charge fees for management and other expenses.

    The fees and expenses associated with mutual funds can vary widely. It’s important to research and compare different funds before investing.

    Liquidity

    Stocks are generally more liquid than mutual funds. This means they can be bought and sold quickly and easily on stock exchanges.

    On the other hand, mutual funds are priced once a day and can take several days to settle after a sale. This can limit their liquidity in certain situations.

    The main difference between stocks and mutual funds is that stocks offer direct ownership. They have the potential for higher returns but with greater risk and volatility.

    Mutual funds offer the diversification, professional management, and potentially lower risk and volatility but with slightly lower potential returns.

    Risk Factor in Mutual Funds v/s Stocks

    Investing in mutual funds and stocks carries different types of risks.

    When you invest in a mutual fund, you are essentially investing in a diversified portfolio of stocks or other assets that are managed by a professional fund manager.

    This means, when you invest in a mutual fund, you’re giving your money to a professional manager who invests it in a bunch of different companies.

    This can help reduce your risk because if one company does poorly, it won’t affect your investment too much. But, if the overall stock market does poorly, your mutual fund investment could still lose value.

    When you invest in a stock, you’re buying a piece of ownership in one company. This means that if the company does well, your investment could go up in value. But, if the company does poorly, your investment could lose value. 

    This is riskier than investing in a mutual fund because your investment depends on just one company instead of many.

    Investing in a mutual fund is considered safer than investing in individual stocks, but it may not offer as high of returns. The best choice for you depends on your goals and how much risk you’re comfortable with.

    Returns from Mutual Funds v/s Stocks

    The returns you can expect to get from mutual funds and stocks can vary widely, and it’s difficult to make a direct comparison because they are different types of investments.

    When you invest in a mutual fund, your returns will depend on the performance of the underlying assets held by the fund. 

    Mutual funds can invest in a variety of assets such as stocks, bonds, and real estate, and the returns will depend on how well those assets perform over time. 

    Mutual funds are considered to be a more conservative investment option than stocks, and they tend to offer more modest returns over the long term.

    When you invest in individual stocks, your returns will depend on the performance of the specific companies you have invested in. 

    If the company does well and its stock price goes up, your investment could also increase in value. 

    However, your investment could lose value if the company does poorly and its stock price goes down. Stocks can offer higher returns than mutual funds, but they are also considered to be a riskier investment option.

    Mutual funds are generally considered a more conservative investment option that can offer more modest returns over time, while stocks can offer higher returns but are also riskier. 

    The best choice for you depends on your investment goals and risk tolerance.

    In Conclusion

    We are sure you have financial goals that you want to plan for in the future. When you design your financial plan in line with these goals, remember to pick the investments that align with your goals.

    Now, that you understand the difference between mutual funds and stocks, we hope you make an informed decision.

    At Vittae, we learn about you, our client, and also conduct a risk assessment test to understand how much risk you can afford to take.

    These details help our certified Financial Experts give the perfect advice to achieve your financial goals, sustainably.

    We know it can seem a little overwhelming, but trust us. Take the first step towards investment and kick-start your journey to financial freedom.

  • Why is Tax Planning Important?

    Why is Tax Planning Important?

    Are you concerned about being smart with your taxes? Tax planning ahead of time can save you a lot of headaches and money in the long run. 

    Tax planning doesn’t have to be as complicated as you think it is. It is a well-defined process ideally done throughout the year, that helps you save your hard-earned money. 

    You cannot avoid filing taxes every year, but that doesn’t mean you also avoid the choice to save money when filing your taxes. 

    We are not asking you to spend your weekends over this either. All you need to spend is some quality time consistently every month. What do you do? You review your current investments and expenses and check where you can move them to make them tax-friendly.

    You are not in this alone. You can take help of financial experts like Vittae, that will guide you every step of the way.

    Let’s demystify tax planning and also understand why it is important, and how we can help you!

    What is Tax Planning? 

    Tax planning refers to the process of analyzing the financial status of an entity or individual to increase tax savings. 

    The main purpose of tax planning is to build tax efficiency. This means you have to ensure that all the elements of your financial plan are in line. This helps in an overall reduction of your tax burden and increases your tax deductions.

    Tax planning is not a one-time action! It continues throughout the year so that you make the most of it by the end of the financial year. 

    You must file taxes and returns during the assessment period after March 31st. However, you must make tax planning decisions across the financial year. 

    If you are still wondering if you really need tax planning, let’s dig a little deeper. 

    Why is tax planning important?

    Minimizing tax liability

    Tax planning helps individuals and businesses legally minimize the tax amount they owe. This is done by taking advantage of available tax deductions, credits, and exemptions.

    Maximizing cash flow

    When taxes are minimized, the funds saved can be used for other purposes. Such as investing, saving, or paying off debt, which can help increase cash flow.

    Avoiding penalties and interest

    Proper tax planning can help taxpayers avoid penalties and interest for underpayment or late payment of taxes.

    Risk mitigation

    Tax laws and regulations can be complex and constantly changing. Tax planning can help reduce the risk of non-compliance with tax laws and regulations. This saves you from paying hefty penalties or dealing with legal issues. 

    Planning for the future

    Tax planning can help individuals and businesses plan for the future. By considering the tax implications of future actions and decisions, you are not only saving money but also securing your future. 

    Benefits of Tax Planning

    Reduction of tax liability

    Tax planning helps individuals and businesses to legally reduce their tax liability, which can increase their take-home income or profits. This is a given that most folks fail to see. You often see all the forms and paperwork and forget how in the long term, the benefit is yours. 

    Improved cash flow

    By reducing tax liability, tax planning can help individuals and businesses to free up cash. As the logic goes, this cash can be used for other purposes such as investment, saving, or debt repayment.

    Better financial management

    Proper tax planning can help individuals and businesses to better manage finances. This is done by forecasting your tax liability and designing a tax-efficient strategy. The aim of this strategy is to minimize the impact of taxes on your personal or business finances.

    Avoidance of penalties and interest

    When you plan ahead, as a taxpayer you can avoid or minimize penalties. You won’t have to pay interest for underpayment, late payment, or non-compliance with tax laws and regulations.

    Better business decisions

    Tax planning can help businesses to make better decisions by considering the tax implications of potential business transactions or investment opportunities. This allows you to make informed decisions that align with their overall financial goals. 

    Tax Saving Instruments

    The following instruments and expenses will help you increase your tax savings.

    House Rent Allowance

    A salaried individual having rented accommodation can get the benefit of HRA (House Rent Allowance). This could be totally or partially exempted from income tax.

    Leave Travel 

    Domestic travel can be claimed as LTA. Only travel costs can be claimed. The modes of such travel must be either railway, air travel, or public transport.

    LTA can be claimed twice in a block of four years. In case an individual doesn’t use this exemption within a block, he/she could carry the same to the next block.

    Children’s Education & Hostel Allowance

    Children’s Educational Allowance: An allowance of ₹100 per month is allowed per child for up to two children studying in an educational institution.

    Hostel Expenditure Allowance: An allowance of ₹ 300 per month per child for up to two children is given to those staying in hostels.

    Telephone & Broadband allowance

    The income tax law allows an employee to claim a tax-free reimbursement of expenses incurred.

    If you are an employee, you can claim reimbursement of the actual bill amount paid or the amount provided in the salary package, whichever is lower.

    Car Maintenance Allowance 

    Maintenance and fuel expenses are reimbursed by the employer. If the employee owns the car (used for official and personal use), an exemption of

    ₹ 1,800 per month ( + 900 per month if the driver is provided) 

    (for cars with engine capacity up to 1,600 cc)

    or

    ₹ 2,400 per month ( + 900 per month if the driver is provided)

     (for cars with engine capacity of more than 1,600 cc)

    Housing Loan

    Interest on House Loan repayment can be claimed up to ₹ 200,000 under Section 24(b).

    Investments under Section 80C

    Public Provident Fund, Employee Provident Fund, Voluntary Provident Fund, Five-Year Post Office Time Deposit, and ELSS (Equity Linked Savings Scheme) are some of the investments that will save you money under Section 80C.

    80C Tax Deductions

    The following expenses qualify for tax deduction under 80C:

    • Life Insurance Policy premium payments
    • Children’s tuition fees
    • Repayment of principal amount on home loan

    Medical Insurance 80 D

    Section 80D of the Income Tax Act permits deductions on the amount spent by an individual towards the premium of a health insurance policy.

    This includes payment made on behalf of a spouse, children, parents, or self to a Central Government Notified health plan.

    Donation 80 G

    Section 80G encourages taxpayers to donate to funds and charitable institutions, offering tax benefits on monetary donations. All assesses are eligible for this deduction, subject to them providing proof of payment.

    Steps To Follow When Doing Tax Planning:

    Evaluate your tax situation

    Take a closer look at your income streams, sources of income, and taxable income to determine how much tax you owe.

    Identify tax deductions and credits

    Determine what deductions and credits you qualify for, such as charitable contributions, mortgage interest, property taxes, and education expenses. Check how they can impact your tax liability.

    Consider retirement account

    Saving for retirement in a tax-advantaged account can also reduce your taxable income and help you plan for your financial future.

    Plan for itemized deductions

    Determine if the total amount of itemized deductions will exceed the standard deduction by calculating and comparing both. Make strategic moves to maximize your deductions.

    Keep track of receipts and expenses

    Keep accurate records of your expenses, receipts, and documents. Doing this can support your deductions and credit claims (in the case of an audit).

    Consult a tax professional

    A tax professional can help you navigate the tax code, maximize your tax savings, and identify opportunities for tax planning that you might have missed on your own.

    At Vittae, we’ll file your taxes for free. Not just that, we’ll help you with a detailed Tax Report that guides you on your tax planning strategies. 

    Review and adjust your tax plan

    Make sure to review your tax plan annually. This will reflect changes in your income, expenses, tax laws, and regulations. You must further adjust it accordingly to ensure your tax plan is aligned with your financial goals.

    Tax Planning vs. Tax Filing 

    Tax planning is strategizing and optimizing your financial affairs to minimize your tax liability. 

    In contrast, tax filing involves completing and submitting your tax returns. This includes reporting your income, expenses, credits, and deductions, paying your taxes, or asking for a refund.

    Below are various factors that differentiate tax planning from tax filing: 

    Timing

    Tax planning typically occurs throughout the year, as taxpayers aim to take advantage of tax benefits and avoid overpaying taxes. In contrast, tax filing occurs annually.

    Goal

    The goal of tax planning is to minimize tax liability while planning for financial goals or achieving a favorable tax position. 

    Tax filing aims to comply with tax laws and regulations and accurately report your income, expenses, credits, and deductions.

    Complexity

    Tax planning is often more complex than tax filing. It involves designing and implementing strategies that consider your entire financial situation. 

    Tax filing, on the other hand, is often a straightforward task of filling out tax forms and submitting them with accuracy.

    Professional assistance

    Tax planning may require the expertise of tax professionals such as accountants, financial planners, or tax attorneys to evaluate the options and execute the strategies. 

    Tax filing can be done without professional help, although it is often advisable to seek assistance if you have a complicated tax situation.

    In Conclusion 

    Every financial plan is better when you include tax planning. It helps optimize your tax liability within the framework of legal regulations. It is important that you make tax planning an essential aspect of your financial plan as well.

    Effective tax planning can minimize the tax burden and maximize deductions. This ultimately leads to significant savings and improved financial stability.

    By staying up-to-date with tax laws and regulations you can avoid penalties and other legal consequences of non-compliance.

    For example, if you invest in certain tax-saving financial instruments such as Public Provident Fund (PPF), National Pension System (NPS), or Equity-Linked Savings Scheme (ELSS), you can claim deductions from your taxable income. 

    If you are a business owner, you can claim deductions for expenses. Such as salaries, rent, and depreciation. This can reduce your taxable income and lower your overall tax liability.

    In simple words, tax planning is important and unavoidable. It can help you keep more of your hard-earned money in your pocket.

  • Money Habits for Long Term Benefits

    Money Habits for Long Term Benefits

    Is there a habit you want to break? Such as eating junk food or spending more time on social media? We’re positive you do. Today, let’s talk about making new habits. Money Habits. These are good money practices that you can develop for your long-term benefit. 

    According to Behavioural Finance, a habit is also a type of bias. This is because, people prefer sticking to an action or a practice and not changing it. 

    The same applies to money habits as well. It is biased behaviour towards certain money actions. For example, your spending pattern towards shopping every month. 

    Did you know around 40-45% of your daily actions are habits? That means you function on autopilot for almost half of your day!

    We’ve all at some point tried to improve our health with better sleep, regular exercise, or a healthy diet. According to a research, stated in Forbes, on average it takes around 66 days to develop a behaviour, or in other words – a habit. 

    It boils down to which habits you choose to let go of and which you pick up. With one money habit at a time, you can even achieve financial freedom.

    Are you looking to stay ahead of the curve when it comes to your money habits? Whether you’re just starting out or have been managing your finances for years, understanding why money habits are important in the long haul, is key to achieving financial success.

    We agree it may be difficult to get out of a bad money habit, but not impossible. 

    There are plenty of hacks online on how to quit a bad habit or pick a good habit. The underlining statement in all is that focused commitment is key to building a new habit. 

    Before we talk about money habits for you to work on, let’s start with financial goals. These short-term and long-term financial goals are the foundation of your money habits. 

    Money habits are essentially recurring actions that will help you achieve these financial goals. 

    Why Are Financial Goals Important? 

    Provide direction

    Financial goals give you a clear direction and a purpose for your money. They help you focus on what’s important to you. This in turn gives you motivation to work towards achieving them.

    Help you prioritize

    Having financial goals helps you prioritize your spending and avoid overspending on non-essential items.

    Measure progress

    Financial goals help you track your progress toward your financial objectives. By monitoring your progress, you can stay on track and make adjustments as needed.

    Provide a sense of accomplishment

    Achieving financial goals gives you a sense of accomplishment. This further pushes you to continue working towards your next goal.

    Provide a safety net

    Saving for an emergency fund or retirement is also a financial goal. This provides a safety net and financial security in case of unforeseen circumstances.

    Improved financial well-being

    By setting and achieving financial goals, you can improve your overall financial well-being and reduce financial stress.

    Financial goals offer a purpose and direction for your financial decisions. They help you choose your money habits for the long run.

    For example, Sharan has a financial goal to buy his own car in 18 months. But, he has a bad money habit of playing online rummy. He spends approx. 5,000-7,000 INR. every month.

    The ideal next step for Sharan is, to stop gambling and invest this in a SIP that will contribute to his car payment.

    Money Habits help prioritize your spending and provide a sense of security. They also help you track your progress toward achieving the financial future you envision.

    Ten money habits for Long-term Benefits

    Create and stick to a budget

    Creating a budget helps you track your expenses and ensure you are living within your means.

    Save regularly

    Even if it’s a small amount each week, saving regularly can help you build up a solid financial cushion.

    Invest for the long-term

    Rather than trying to get rich quickly, invest for the long term and let the power of compounding work in your favour.

    Avoid debt as much as possible

    High-interest debt can quickly spiral out of control and limit your financial options.

    Live below your means

    Spending less than you earn can help you save more and avoid living pay-check to pay-check.

    Regularly review your financial goals

    A review of your finances and goals helps you stay on track and make any necessary adjustments to your financial plan.

    Track your net worth

    This helps you understand your overall financial health and can be a good metric for measuring progress.

    Increase your financial literacy

    Learning more about personal finance and investing can help you make better financial decisions.

    Automate your financial life

    This can help you save time and ensure that you are consistently taking steps to improve your financial well-being. Set automatic transfers into FDs and SIPs every month. Even though you may forget, the money gets automatically transferred.

    Be mindful of your spending habits

    Always ask yourself whether a purchase is truly necessary or not. Determining whether you’re spending on a need or want depends on whether you are spending on things that align with your goals.

    Long-Term Benefits of Good Money Habits:

    Financial stability

    By living within your means, avoiding excessive debt, and saving regularly, you can build financial stability.

    Reduced financial stress

    Consistently making good money habits a part of your life can help reduce financial stress and anxiety.

    Improved financial standing

    Good money habits can improve your credit score. This can help you qualify for loans with better rates, as well as renting an apartment.

    Flexibility

    Having sufficient savings and financial resources can give you flexibility. When it comes to life decisions such as when to retire, you have the flexible choice to decide.

    Increased wealth

    Consistently saving and investing your money over the long term can help you grow your wealth. This gives you the financial freedom to pursue the things you care about.

    Improved quality of life

    Having good money habits can improve your overall quality of life, enabling you to prioritize the things that truly matter to you.

    Good money habits can have a profound effect on your life. From financial security and flexibility to overall quality of life, good money practices add up over time.

    By making these practices habits, with regular action, you can build a solid financial foundation that will benefit you for many years to come.

    Sticking to these good money habits requires discipline and consistency. Here are some tips to help you make the journey easier.

    Tips to help you stick to Money Habits

    Set clear goals

    Define specific financial goals and the steps needed to achieve them. Keep these goals visible and review them regularly.

    Track your progress

    Monitor your spending and savings regularly to make sure you are staying on track. There are a number of apps and tools that can help with this.

    Hold yourself accountable

    Find someone who will hold you accountable for your financial goals. This could be a friend, family member, or financial advisor. Or the best idea would be to hold yourself accountable.

    Celebrate small wins

    Celebrate when you reach a savings milestone or when you make progress toward your financial goals. This can help motivate you to continue.

    When an action included in a routine is rewarded, it in turn acts as a “cue” or a push to perform the action again. This is a cycle that shows the relationship between routine, reward, and action.

    Apply it to any money habit to understand the importance of rewards.

    For example, if you set your reward for starting a SIP as going out for coffee with a friend, you are more likely to look forward to that quality time every month.

    Avoid temptation

    Stay away from situations that might tempt you to overspend or make impulsive purchases. This could be as simple as avoiding the mall or unsubscribing from promotional emails.

    Practice mindfulness

    Take time to reflect on your spending habits and ask yourself whether you’ve done enough to achieve your financial goals.

    Ultimately, sticking to money habits requires commitment and a willingness to prioritize your long-term financial health over short-term gratification

    In a nutshell

    Setting, following, and sticking to money habits might seem challenging, but in reality, is not. It all starts with a single step.

    They say every drop makes the mighty ocean. Similarly, small actions and habits over time result in big money benefits over time.

    Any long-term change is going to take time. Don’t forget to be kind to yourself as you get on this journey of financial stability and growth. There might be ups and downs. At times, you won’t be as consistent as you’d hope to be. Remind yourself that you are prepared with the tips at hand, and you’ll keep going.

    Let the action points you’ve learned today be your guiding path. Stay on track and accomplish every financial goal you set off to tick off. What’s better? You’ve got Vittae to guide you.

    Now, go get started.

    .

  • UPI: The Future of Digital Payments

    UPI: The Future of Digital Payments

    In the last decade, we’ve all moved from long queues at the ATM for cash to instant cards or UPI payments. Have you ever wondered if we’d still use cash by 2033?

    Most of us are still trying to decode cryptocurrency, the world going cashless still seems like a ‘way into the future’ situation. Doesn’t it?

    In FY 22, UPI accounted for 52 percent of the total 8,840 crore financial digital transactions. The total value of these UPI transactions was ₹126 lakh crores.

    Like how we upgrade to “smarter” phones every year, we also upgrade how we handle money. Hard cash in the wallet evolved into plastic money like debit/credit cards. Now, it is the era of UPI.

    The data below clearly indicates how UPI payments have almost doubled from 2021 to 2022. As mentioned, it’s winning the race against debit or credit cards.

    Total monthly transactions via UPI, Credit & Debit cards.
    Total monthly transactions via UPI, Credit & Debit cards.

    It is important for us to adapt to these evolving times.

    In this blog, you’ll learn how to create a UPI account, the steps in a UPI transaction, the advantages of UPI apps, and what the future holds for UPI.

    What is UPI?

    UPI stands for Unified Payments Interface. It is a digital payment system in India developed by the National Payments Corporation of India (NPCI).

    UPI payments allow you and me to make instant transactions, transfer money and pay bills through a mobile app. All this without the need to share bank account details, IFSC codes, or other sensitive information.

    UPI payment enables users to send and receive money from their linked bank accounts in real-time through a simple and secure platform. Users can create a UPI virtual payment address (VPA) linked to their bank account, which can be used to make transactions.

    UPI enables peer-to-peer transactions, as well as transactions with merchants, bill payments, and mobile, recharges. This means you can directly transfer money to your friend or also instantly pay the shopkeeper after getting groceries.

    It is interoperable across different banks. You can also do UPI payments through popular mobile apps such as Google Pay, PhonePe, Paytm, etc.

    There are no Sundays off like at a bank or the dreadful “no cash” message like in ATMs. UPI payment can be made 24×7. It is extremely convenient for us as users.

    It is a secure and efficient mode of digital payment, making it a popular choice among users in India.

    UPI (Unified Payments Interface) has revolutionized the digital payment ecosystem in our country.

    To put it in simple words, UPI payments make sending and receiving money easier, quicker, and more secure.

    Considering its popularity, UPI has been dubbed the future of digital transactions in India. It has disrupted traditional payment methods and has paved the way for a cashless economy.

    How to create a UPI account

    To open a UPI account, you can follow these steps:

    1. Download a UPI-enabled mobile app from the app store such as BHIM, PhonePe or Google Pay.

    2. Register your mobile number with the app.

    3. Create a UPI ID or VPA (Virtual Payment Address), which will be used for sending and receiving money.

    You can choose a unique name such as your name or mobile number followed by @bankname.

    4. Link your bank account with the UPI app by choosing the bank name and account number. You will receive an OTP (One time password) for authentication.

    5. Once the bank account is linked, you can set up a UPI PIN for making transactions. This PIN will be required to authorize all transactions.

    6. You can now start using your UPI account to send and receive money, pay bills, and make other transactions.

    Please note that the steps may vary slightly depending on the UPI app you are using.

    Example of a UPI transaction

    Suppose you need to pay your friend Akash ₹1000 after splitting a bill. You can use the UPI-enabled mobile app on your phone to initiate a UPI transaction.

    Here’s how the transaction will work:

    • Open the UPI app on your phone and log in using your UPI ID and PIN.
    • Select the “Send Money” option and enter Akash’s UPI ID or mobile number.
    • Enter the amount you want to transfer (₹1000 in this case) and a remark,

    such as “Dinner at Dhaba Express”

    • Confirm the details entered are correct and enter your UPI PIN to authorize the transaction.
    • Once the transaction is complete, both you and Akash will receive a confirmation message on your phones indicating that the transaction has been successfully processed.

    The transferred amount of ₹1000 will be debited from your linked bank account and credited to Akash’s linked bank account instantly using the UPI platform.

    Benefits of UPI

    UPI (Unified Payments Interface) has several benefits that make it a convenient and efficient mode of digital payment in India.

    Instant money transfer

    UPI payments enable instant money transfers from one bank account to another with only a few taps on a phone screen. This makes it a quick and efficient way to transfer money through a mobile app without delays.

    Easy to use

    UPI payment is very user-friendly. All you need is a smartphone, a bank account, and a UPI ID to get started with UPI payments. All you have to do is follow the steps and viola! you’re acing digital transactions.

    Safe and secure

    UPI payment requires two-factor authentication, i.e. you need to enter the phone password followed by the UPI PIN, set by you. This makes UPI transactions secure and less prone to fraud.

    Interoperability

    UPI payments can be used across different banks, making it an interoperable platform. This enables users to transfer money without having to add the beneficiary’s bank details to their account.

    Low transaction fees

    Many banks and UPI-enabled apps provide free transactions on UPI. This makes it a cost-effective option for people who frequently transfer small amounts of money.

    However, merchant transactions where the merchant country is different from the billing country will charge a 1% fee in Google Pay.

    Versatility

    UPI offers a wide range of services, including mobile recharges, paying bills, booking tickets, and even buying insurance! This makes it a versatile mode of digital payment. It also has fun perks like cashback that are available as scratchcards on the app. You can use them and get free coupons. At times recharge or freecharge is also gifted. The most popular is cashback which sends money directly to your account.

    UPI payment has transformed the way people transact and made digital payments more accessible and convenient for people across India. We hope to see how UPI is adopted by rural India as well to make their daily life easier.

    Top UPI companies in India

    Google Pay

    Google Pay is a UPI-enabled mobile payment app that is available on both Android and iOS platforms. It has quickly become one of the most popular UPI payment apps in India since its launch in 2017. As of August 2021, Google Pay has over 100 million monthly active users in India.

    PhonePe

    PhonePe is another popular UPI-enabled mobile payment app in India. It allows users to send and receive money, pay bills, and make other transactions. PhonePe claims to have over 300 million registered users. Ithas processed more than a billion transactions per month on its platform.

    Paytm

    Paytm is known for its digital wallet service, but also its UPI payment feature. Paytm has over 350 million registered users and claims to have processed over 1.4 billion transactions in a quarter in 2021.

    BHIM

    BHIM (Bharat Interface for Money) is a UPI payment app developed by the National Payments Corporation of India (NPCI). BHIM has over 400 million downloads and has processed over 3 billion transactions since its launch in 2016.

    Amazon Pay

    Amazon Pay is another UPI-enabled mobile payment app that offers users a seamless payment experience. It allows users to send and receive money, pay bills, and make other transactions. It has over 65 million registered users in India.

    Market share of UPI apps by transaction volume
    Market share of UPI apps

    You must have come how Paytm markets its app through multiple ads on television with the tagline “Paytm karo”. UPI companies in India have experienced significant growth in the past few years, indicating that UPI has gained wider acceptance among users as a preferred mode of payment.

    UPI vs. Debit Cards

    UPI (Unified Payments Interface) and Debit cards both facilitate digital transactions. Both are revolutionary methods of digital payments that have wide popularity. Here’s how they compare:

    Convenience

    The major advantage of making a UPI payment is that you do not need to carry a physical card or remember PINs and CVVs. UPI is a more convenient method. Debit cards require you to carry a physical card and enter the correct PIN to complete transactions.

    Security

    UPI uses a two-factor authentication process (Phone password & UPI PIN), making it more secure and less prone to fraud. On the other hand, debit cards are prone to risks such as skimming, phishing attacks, and counterfeit cards. This puts the user at risk for fraud.

    Interoperability

    UPI payments are interoperable across different banks, whereas debit cards can only be used to transact with the bank that issued them.

    Transaction fees

    UPI transactions are free or have minimal fees for most banks and UPI-enabled apps. However, debit cards usually have transaction fees, especially for certain transactions like ATM withdrawals and foreign currency transactions.

    Speed

    UPI payments facilitate instant transfers between bank accounts, while it takes some time for debit card transactions to be processed.

    Transaction limits

    UPI payments have varying transaction limits depending on the bank or app. However, Debit card transactions are usually subject to withdrawal and spending limits.

    UPI payment is gaining popularity as a cost-effective mode of digital payment than a conventional bank debit card. However, debit cards are still widely used, and it may take some time for UPI to completely replace debit card use.

    Future of UPI

    UPI has revolutionized the digital payment landscape in India since its launch in 2016. Today, UPI is rapidly gaining popularity as a preferred mode of payment. This stands true for both, individuals and businesses.

    Encouraging more transactions

    UPI payments have increased almost five-fold in just two years, and are expected to continue growing in the future. More people are switching to UPI-based payments from cash transactions or other traditional methods.

    Integration with new technologies

    With the Indian government’s push for digital payments and the emergence of new technologies like voice-activated payments, UPI is expected to integrate with new technologies, making payments even more convenient.

    Example:

    In April 2023, ICICI Bank introduced easy EMI facility for UPI payments made by scanning QR codes. Customers eligible for PayLater, the Bank’s ‘buy now, pay later’ service can avail of the EMI facility in an instant, easy and seamless manner.

    ICICI customers can now instantly buy products or services by scanning the required merchant QR code at a store and making payments in EMIs.

    Support for small businesses

    UPI payment can be especially beneficial for small and medium-sized businesses that do not have access to traditional payment gateways. With UPI, businesses can accept payments easily and efficiently, leading to lower transaction costs.

    Security

    UPI is highly secure with its two-factor authentication process, and this coupling with its speed and ease of use is expected to drive its growth in the future.

    The Way Forward

    A significant percentage of people still prefer the old-school method of cash and don’t want to go beyond the debit card. The choice is yours.

    Making instant transactions with a simple QR code scan or a few quick taps on your phone has become the new norm.

    UPI is expected to continue its upward trajectory, making it a preferred mode of transaction among people and businesses in India.

    Now that you know how to create a UPI account you have an easier way to spend as well as manage your spending. It’s the perfect time to start your journey toward financial growth.

    Download Vittae today and unlock your financial freedom in just 30 minutes.

  • BNPL v/s Credit Cards: Which is better for you?

    BNPL v/s Credit Cards: Which is better for you?

    It’s finally the weekend, and you’re relaxing at home. You added a new pair of branded shoes to your online cart. But, you’re too lazy to grab your wallet and opt for the BNPL payment instead. 

    We’ve all been there, done that. 

    You’ve chosen the easier way out – The buy now, pay later method. The question is, would you pick your credit card to pay instead? 

    Let’s change the scenario. 

    It’s the end of the month and the weekend. You’re staring at your computer screen trying to check if you’ve got the budget for a last-minute road trip. Turns out you do! 

    You’re about to call your friend to confirm when you get a mobile notification. It’s an alert message from the BNPL company that you are delayed in your payment. You have to pay back the money plus interest to avoid an extra penalty. Seems like the trip might not happen after all. 

    It’s a known fact that if you had paid via cash or a debit card, you wouldn’t have to owe any money. But, would the scenario have been different if you had chosen a credit card instead of BNPL? 

    Let’s dig a little deeper and understand what BNPL and Credit Cards are. We’ll also elaborate on their pros and cons, and help you decide which is the better option for you. 

    What is Buy Now Pay Later? 

    Buy Now Pay Later (BNPL) is a financial service that allows customers to purchase products and services upfront and pay for them later in installments. BNPL literally is buying a product now, and promising to pay later.

    It might seem like a method where you get to buy something for 0 rupees at the time of purchase. But in reality, you’re taking a tiny BNPL loan to own this product and owe money in the near future.

    In India, BNPL services have gained popularity in recent years, particularly among younger consumers who are looking for flexible payment options.

    There are several BNPL service providers in India, including Simpl, LazyPay, and ZestMoney, among others. These BNPL apps are gaining more popularity by the day. These services are usually integrated with e-commerce platforms and allow customers to make purchases on credit.

    When using a BNPL service, customers can choose to pay for their purchase in installments over a period of time, typically ranging from 3 to 12 months. 

    The exact terms and conditions of the installment plan will vary depending on the service provider and the amount of the purchase.

    Some BNPL services may also charge interest on the installment payments, while others offer interest-free options.

    Additionally, customers may be required to undergo a credit check before they are approved for a BNPL plan. A BNPL service in India provides consumers with a convenient and flexible way to make purchases and manage their finances. 

    However, it is important for customers to carefully read and understand the terms and conditions of the BNPL service before using it.

    BNPL process in 4 steps
    The BNPL Process in 4 steps

    BNPL Process

    • Pick any item and add it to your online cart.
    • When you check out, choose the buy now, pay later option.
    • The BNPL app/service will ask you to pay a small down payment (usually 25%) if you’re eligible.
    • You can then pay the pending amount in installments.
    • The amount can also get deducted directly from your bank account, credit, or debit card.

    Example of BNPL

    Let us look at a buy now, pay later example to understand the concept.

    Ravi is a chef. He wants to upgrade his kitchen with the latest appliances but doesn’t have enough funds.

    He found some affordable appliances online. So, he opted to buy now and pay later at the checkout point.

    He was able to purchase the ₹80,000 convection oven, after browsing through BNPL apps. He had to pay a down payment of ₹20,000 to the bnpl lenders. Furthermore, he needs to pay the rest of the ₹60,000 within 30–45 days.

    If he fails to pay the amount of time, Ravi might be charged a late fee.

    The below image is a bar graph showing how 4 different generations of people use the BNPL method. It also predicts the percentage of users in 2025. It can be seen how almost half of the youngest sector of the population, Gen Z, is likely to use BNPL in 2025.

    Percentage of GenZ, Millenials, Genx, Baby Boomers using BNPL in 2021, 2023 & 2025
    Percentage of 4 generations using BNPL in 2021, 2023 & 2025

    How does the Credit Card work? 

    Long before UPI (Unified Payments Interface) options like Gpay or Paytm became popular, hard cash in our wallets was replaced by plastic money. Though plastic money can mean debit or credit card, today we’ll discuss the latter.

    A credit card is a plastic card issued by a financial institution, such as a bank or a credit union. In simple words, the credit card allows the cardholder to borrow money on credit.

    The cardholder can use the card to make purchases or withdraw cash up to a certain limit, known as the credit limit. When a credit card is used to make a purchase, the cardholder is essentially borrowing money from the financial institution (bank) that issued the card.

    The cardholder is expected to pay back the borrowed amount, usually with interest, within a certain period of time, generally at the end of each month.

    If the cardholder fails to make the required payments on time, they may be charged additional fees and their credit score may be negatively affected.  A credit score determines how likely you are to pay a loan back on time, based on information from your credit reports.

    Though a consumer might face extra pressure to pay up these “extra” fees, more and more people are opting the credit card. Below is a comparison of credit card and debit card transactions in crores.

    Comparison of Credit Card & Debit Card Payments (in crores)
    Comparison of Credit Card & Debit Card Payments (in crores) in March 2023

    It can be seen how online credit card payments are almost 3 times more than online debit card payments. Ease of payment is the main cause of this. However, we’d like to remind that the process isn’t all risk-free.

    Credit cards work by establishing a revolving line of credit. This means the cardholder must make payments on time and stay within the credit limit. This is a key factor that allows them to continue to borrow money on credit.

    The interest rate charged on credit card balances can vary depending on factors such as the cardholder’s credit score and the type of card they have.

    Credit cards also often come with additional features and benefits. There are rewards programs that offer cashback or points for purchases, travel insurance, and fraud protection.

    However, it’s important for cardholders to use credit cards responsibly and only borrow what they can afford to pay back to avoid accumulating debt and damaging their credit score.

    Credit Cards have become immensely popular with increasing lifestyle choices. Today, even a fresh graduate wants to buy a high-end mobile, even if it is on EMI. Tools like credit cards help them get these products with ease.

    The below image shows the number of credit cards in use in India. The number has doubled from 29 million in 2017 to 62 million in 2021.

    Number of Credit Cards in India from 2017-2021
    Number of Credit Cards in India from 2017-2021

    According to RBI data, in March 2021, India with a population of 1.3 billion had 62 million credit cards active. This means five cards per every 100 people. Let’s also look at how to use this popular payment mode.

    How to use a credit card

    • Choose the right credit card
    • Verify your credit limit:
    • Make a purchase
    • Verify the amount
    • Pay your credit card bill

    Example of Credit Card Use:

    Sneha is at a grocery store and wants to buy groceries worth ₹4000. This is how she would use her credit card:

    • Choose the right credit card: Sneha has a XYZ credit card that offers 1% cashback on all purchases.
    • Verify credit limit: She checks that her credit limit is ₹50,000.
    • Make a purchase: She shows her card to the cashier and makes the payment.
    • Verify the amount: She confirms that the amount is credited to the store ₹4000 only
    • Pay credit card bill: At the end of the billing cycle, Sneha will receive a statement that she owes ₹4000 on her credit card.

    She can pay the bill online through the credit card company’s website. Since her card had a 1% cashback, she will earn ₹40 as a reward.

    Buy Now, Pay Later vs. Credit Cards: Key Differences

    BNPL (Buy Now Pay Later) and credit cards are two different payment methods that offer consumers different advantages and disadvantages.

    Buy Now Pay Later (BNPL) is a payment method that allows customers to purchase goods or services and pay for them in installments over a period of time.

    Credit cards, on the other hand, are a payment method that allows customers to borrow money from a lender (usually a bank). Credit cards also charge interest on any outstanding balances, which can vary depending on the card and the individual’s credit score.

    10 major differences between BNPL & Credit Card

    Payment Terms

    The most significant difference between buy now, pay later (BNPL) and credit cards is the payment terms. BNPL allows users to make purchases and delay payments for a set period. Whereas credit cards require immediate payment or carry over balances with interest charges.

    Credit Checks

    BNPL services do not require a credit check to use, whereas credit card companies often require a credit check to determine if an applicant qualifies for a card.

    Interest Rates

    Credit cards typically charge interest rates on balances carried over from month to month. BNPL services usually offer interest-free repayment options.

    Repayment Period

    BNPL services usually offer a shorter repayment period than credit cards. It often ranges from a few weeks to a few months, whereas credit cards allow for longer repayment periods, depending on the amount owed.

    Fees

    Credit cards often charge fees such as annual fees, late payment fees, and cash advance fees. BNPL services may charge fees for late payments or missed payments

    Credit Score Impact

    Using a BNPL service does not typically impact a user’s credit score. Whereas applying for and using a credit card can have an impact on credit score.

    Credit Limit

    Credit cards usually come with a credit limit that determines how much a user can borrow. BNPL services often offer a fixed amount of credit for each purchase.

    Rewards and Perks

    Credit cards often come with rewards and perks such as cashback, points, or airline miles. BNPL services usually do not offer such perks or incentives.

    Merchant Acceptance

    Credit cards are widely accepted by merchants. BNPL services may have limited merchant acceptance.

    Purchase Amount

    BNPL services are typically used for smaller purchases. Credit cards are used for larger purchases or to manage ongoing expenses.

    Overall, both BNPL and credit cards can be useful payment methods, depending on the customer’s financial situation and spending habits. We suggest you consider your individual needs and preferences when deciding which payment method to use.

    Is there a minimum age for BNPL?

    Yes, there is a minimum age limit for BNPL (Buy Now Pay Later) services, which is 18 years old. The specific age limit can vary depending on the provider and the country, but it is usually 18 years old.

    This is because individuals under the age of 18 are considered minors and may not have the legal capacity to enter financial contracts.

    Additionally, BNPL services often require a credit check or access to financial information, which may not be available to minors.

    It’s always important to read and understand the terms and conditions before using any financial service, including BNPL.

    Is BNPL replacing the Credit Card?

    It’s unlikely that Buy Now Pay Later (BNPL) options will completely replace credit cards. Both payment methods serve different purposes and have their own advantages and disadvantages.

    While BNPL services have gained popularity in recent years, particularly among younger consumers, credit cards are still widely used and accepted as a form of payment. In fact, many BNPL services require users to link a credit or debit card to their account for payment processing.

    Ultimately, it’s possible that BNPL services could become a popular alternative to credit cards. This applies to certain types of purchases or to consumers who prefer to avoid debt or interest charges. However, it’s unlikely that they will replace credit cards, which offer more flexibility and benefits for many users.

    In a nutshell

    Whether you’re planning your personal finance or figuring out how you can afford a costly product, your spending habits are a deciding factor if you choose BNPL or Credit Card.

    At Vittae, we want you to make an informed choice about your money decisions. Now, that you’re aware of both the pros and cons of BNPL and credit cards, you have to re-think why you choose a specific payment method.

    BNPL would be a great fit for those who want to avoid interest and are regular in paying back on time. But you also need to be cautious to not pile up BNPL loans.

    Credit cards can be a nice option if you have a regular income to pay off the credit card bill every month. You can also build a good credit score that might help with bigger loans. You are also at risk of paying extra (interest) if you fail to pay on time.

    Financial Experts at Vittae can help guide you in making the right money decisions. Unlock your financial freedom today.