Personal Finance in 2022: New year is just a few steps away, and it is time to look ahead to see what trends could have a significant impact on our finances in 2022. Here are three personal finance trends you should pay attention to.
BNPL (Buy Now Pay Later)
BNPL: Buy now pay later (BNPL) is a new term in financial services. It means you can buy whatever you want today, but you don’t have to pay for the purchase in interest-free instalments. It began with e-commerce outlets, retail outlets and fintech providing this advantage to the customers. And now banks have also footed in it with similar features in their debit cards.
BNPL gives interest-free payback instalments in 3-6 months. But it needs KYC and does not require a prior credit history or credit score. The facility gets approved within a few minutes or hours. It aims to reach out to spenders who may not be eligible for a credit card and have a relatively sizable spending appetite.
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For example, Slice offers a repayment window of three months at no additional cost. It questions traditional credit cards that only offer a 50-day credit period. Unlike credit cards, there is no annual fee and the credit limit can go up to Rs 10 lakh without a formal credit score. And there are other features too, like sharing rewards and bills. Targeted at young earners, this card aims to get permission within minutes and delivery within a few days.
BNPL is indeed a double-edged sword that can help you manage liquidity but in the end, can create a false sense of affordability. If you are using it to increase your liquidity or cash, it means you have to pay for purchases on time and only buy what you can afford in that time. The credit limit on such cards can be increased beyond your ability and can lead you astray.
If you start spending more with BNPL, your salary may not cover the instalments. Going beyond the interest-free payment period will attract a charge of over 30 per cent per annum.
ETF: Personal Finance Trend
ETFs (Exchange-traded funds): Retail investing through exchange-traded funds (ETFs) has grown exponentially during the pandemic. Total assets under management in this category grew from Rs 230,000 crore from the end of November 2020 to Rs 364,000 crore in November 2021. This is a 58 per cent increase in one year, compared to a 29 per cent increase in overall open-ended mutual fund assets. At present, 17 schemes are from the debt category, with estimated assets under management of Rs 50,000 crore.
ETFs are convenient and low-cost options for individual investors, especially those comfortable with digital platforms.
According to Swarup Mohanty, CEO, Mirae Asset Investment Managers (India), “The popularity and growth in this segment is a natural progression for any equity market and we are seeing it playing out in India as well. There is limited scope for innovation in proactive schemes as regulatory directed categories are already populated. Indian asset managers and investors can benefit from the experience of themed-based and smart-beta ETFs abroad to find the best-suited solution for the domestic market.
Many more rules-based ETFs, both from domestic and foreign markets, are awaiting approval from SEBI. You have to tread carefully and choose the topics which you understand better.
Personal Finance Trend 3: Neobanks
Neobanks: Neobanks or digital banks are emerging as a major component in the Indian personal finance sector. Unlike traditional banks that present you with a more personalized experience, NeoBank is all about comfort and carrying all your money management tasks into your banking app. Be it person-to-person transfers, budgeting tools or instant investment options, payment reminders, digital receipts, Neobank offers it all and at an affordable cost to the customer.
A Neobank is usually a fintech that has a relationship with a traditional bank to offer these services to its customers. The focus is on providing a customized experience through the use of AI-based technologies, along with ease of use and convenience.
While there is a request for instant banking services, Neobanks are still far from offering a broad bouquet. However, for the younger generation, transaction speed, low costs, as well as a seamless digital experience, maybe enough to see a rapid pick-up to the trend.
These personal finance trends are bound to impress you or the younger members of your family in the months and years to come. Now, 2022 will be a critical period to see the direction and momentum of these trends.
The views expressed in this article are personal.
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