Make the Most of the High Interest Rates
RBI’s actions have ripple effects on every aspect of your financial life, influencing how much you’re charged to borrow and how much you earn when saving. Even though red-hot levels of inflation has pushed up our monthly expenses, some investors have reasons to smile.
Here are a few ways to situate your money so that you can benefit from rising rates, and protect yourself from their downside:
Fixed Deposits – Go short: The hike in repo rates has forced banks and NBFCs to raise their deposit rates. Even the government has raised the interest rate of Senior Citizen Savings Scheme to 7.6%. Don’t jump into a large purchase that isn’t right for you just because interest rates might go up in future. Investors should go for short-term Corporate FDs of 12-15 months and deploy for the long term when the interest rates have settled down.
Loan & Credit cards – Minimize the bite: If you’re carrying balances on your credit cards and loans – which typically have high variable interest rates – consider reducing the amount by pre-paying some of the amount. This would protect your wallet from upcoming high interest rates.
Stocks – Seek broad exposure: Typically financial service companies and banks do well in a rising rate environment because, among other things, they can make more money on loans. But if there’s a slowdown, their overall loan volume could go down. The idea of diversification is to hedge your bets, since some of those areas will come out ahead, but not all of them will.
Think short term: The past one year has not been very good for debt funds, especially long duration schemes holding very long term bonds. However, this doesn’t mean investors should dump debt funds now. In fact, this is the time to get into ultra-short and low duration funds because there is limited upside left in bond yields now. Also, during times of high inflation, indexation can reduce the tax to very low levels, ultimately benefiting you quite a bit.
(Contributed by Priya Goel, Financial Planner, Team Sukhoi, Hum Fauji Initiatives)
Be transparent with Your Financial Planner as you would be with your Doctor
Do you hide your disease from your Doctor?
Or do you hide the important details of your case from your lawyer?
Most people do not do that because they then put themselves in a big danger.
But then why are many people reluctant to disclose their financial condition like assets and liabilities, investments made, short term requirements, future financial goals, etc to their financial planner in a similar manner?
Most people are aware that if they are to achieve their numerous life goals, financial planning is essential. Unfortunately, they egregiously downplay their own contribution to the financial planning process.
They are unaware that the information they do not give can destroy even a carefully plan. So, what is one supposed to do at various stages of preparation of their financial plan?
- The Fundamental Step – Sharing your assets, liabilities, income expenses would help to make the perfect plan. Along with that, you also need communicate about your money habits, your aspirations, your career, and so on. A financial planner also needs to understand the client’s ambitions with their money and the rationale behind their priorities.
- Right inputs – You could be asked to assign a priority to each of your goals by your financial advisor or provide you with rough estimates that you can work with. For example, if you want to go for vacations, a financial planner must know where and when is it likely to be in general so that the same can be factored in the plan.
- Disclosure of all Facts – Another crucial factor that could help you reach your financial goals comfortably is truthful disclosure, rather than hiding, of your assets or liabilities. For example, if you didn’t give out the correct and complete details of your DSOPF, FDs, real estate or Fixed Assets, the financial planner would make your Equity and Debt allocation incorrectly in your portfolio which will later hamper you meeting your requirements in future or not meeting your returns expectations.
- Review of the Plan – As life progresses, there would be a lot of changes in aspirations, too. For example, you may have planned to buy a less expensive car after 5 years but after 1-2 years, you change your mind and now want to buy an expensive car. Conveying this to your financial planner about the recent changes and reviewing the plan is a must. It can help you prepare for your growing ambitions and also for any shortfalls in your preparation on the way to your financial goals.
Tokenization – RBI’s New Initiative to Safeguard Your Online Transactions
We all have seen how online payments have increased significantly over a period of time especially after gaining momentum post-covid-19. But with rising digital payments, there has also been a surge in online scams. In order to combat this, RBI keeps on taking some steps from time to time to improve the safety of the digital payment structure.RBI has now come up with a new initiative to modify the existing card rules which has already been implemented from 1st October 2022 onwards.
Tokenization refers to the replacement of actual card details with a ‘Token’. It is a unique alternate code, which is a combination of card, token requestor and identified device. In this process, the card details will be converted into a unique token that is specific to the individual’s card and available to only one merchant at a time. This token masks the actual details of the individual’s card, thus eliminating the scope for misuse.
Now, e-commerce websites like flipkart, amazon, myntra, zomato, etc will not ask you to save card details as RBI has prohibited merchants from storing customer card details on their servers. They are required to delete any credit and debit card data stored on their platforms and replace them with tokens to secure card details of consumers.
This process adds an additional layer of security as the actual card details are not shared with the merchant during transaction processing. The authorised card networks, such as VISA and Mastercard, securely store actual card data, token, and other details with them.
With this initiative, it is expected that users’ payment experiences will be enhanced and transactions with credit card and debit card will become safer than before. Also, note that this tokenization only applies to domestic online transactions.
(Contributed by Yogesh Gola, Associate Financial Planner, Team Vikrant, Hum Fauji Initiatives)