BNPL Schemes May Be Costlier Than Using Credit Cards

Queries

Uruthiran M.

I want to open a savings account with either a neo bank or a traditional bank. I want to keep my costs as low as possible and may not always have money in the account, especially at the end of the month. Which type of bank should I choose?

It is better to choose a bank on the basis of costs as well as the services. Look for banks where:

• you need the least amount to be maintained as average balance,

• charges related to cash withdrawals from ATM, SMS services and others are low,

• there is a good network of ATMs and branches and,

• as most banking-related transactions are done online nowadays, make sure banks have a safe and user-friendly website or banking app.

Having said that, when it comes to neo banks, one must understand that although they offer better user interface than traditional banks, typically, they are not licensed to offer deposits on interest or loans. They conduct that part of the business on the platform of an underlying partner bank. As such, many are also not regulated by the Reserve Bank of India and, therefore, it is important to do the due diligence to understand which bank they are offering these services through and what are the risks and costs of the same.

Neel Das

How should one choose a mutual fund if different rating entities have rated the same fund differently?

There are various rating entities or platforms and yes, it’s true that the same mutual fund scheme may be rated differently by different entities. In a few cases, you may find a significant contrast in ratings as well.

The reason behind this difference is that each rating platform has its own methodology to rank schemes. Ratings are often based on the weightage given to factors like past returns, risk-return trade-off, size of assets under management (AUM), portfolio turnover, fund manager and so on. For instance, the rating of a scheme on one platform may give more weight to risk and volatility, while another gives more weightage to past returns.

For new investors, different ratings can create confusion. So, it is advisable to take help of a financial advisor who can give you a holistic view of your portfolio and suggest schemes to look at, keeping ratings as well as other factors in mind.

Bapi Sathpathy

Online marketplaces such as Amazon and Flipkart and fintech players such as Sezzle offer buy now pay later (BNPL) options, which are cheaper than credit cards. What are the pitfalls of BNPL schemes? Are credit cards better?

Buy now pay later (BNPL) is a new way for consumers to take on credit. Often, the rates of interest, after including processing charges and penalties, are as high as or even higher than credit cards. Therefore, it is important to understand those terms and conditions and how they compare with credit cards.

That being said, both these products have high rates of interest and it is important to ensure that you pay off your dues within the committed time and in full. The alternative, where you start paying fees and interest on your past purchases, can often lead to a debt spiral and a debt trap. Many purchases that are made on Amazon or Flipkart are discretionary in nature. You may get a high from the purchase in the short term, but in the long run, you will be left paying off the debt and that can make you vulnerable financially.

Rishad Manekia, founder and MD, Kairos Capital