Tips & Tricks

CRED Mint wants you to earn more from the idle cash in your bank account; that’s it

Many people believe that “cash is king” throughout their lives, and they should not be blamed. From the holiday envelope to the first paycheck, nothing is more comforting than holding paper money. However, holding too much uninvested cash may be counterproductive and may even damage people‚Äôs ability to save for retirement.

Today, when the COVID-19 pandemic brings greater financial uncertainty, some Indians have accumulated more cash in their bank accounts. But let us show you a different picture.Most Indians are
Spend less
-Dining out, impulsive shopping and expensive holidays-some of the less pleasant effects of the blockade. Coupled with market volatility and uncertainty, people withdraw from investment. Therefore, people hold large amounts of idle cash.

If you want to know what idle cash is, it means that it has not been invested anywhere and therefore has no funds to participate in the economy-it has not been spent on anything, and it has not added value.

So, what is the problem with holding uninvested cash, and what can you do?

First, cash may not generate meaningful returns
What is the biggest disadvantage of holding cash? It will not increase in value over time. Although financial institutions will pay a small fee for depositing your money in a savings account, the Reserve Bank of India is unlikely to raise interest rates in the short term because the coronavirus pandemic has dealt a heavy blow to the economy. As a result, depositors and investors earn less than expected interest on funds deposited in bank accounts.Most importantly, many
Market-linked funds
Over the years, the average rate of return has exceeded 10%, and it is expected to maintain growth. Some have already brought higher returns, although it means higher risks. The point is that in the long run, many investment vehicles are likely to produce higher inflation-adjusted returns than other asset classes.

Uninvested cash cannot keep up with inflation
this
Inflation rate
In the past two years, it was 4.76% in 2019, 6.2% in 2020, and 4.89% in 2021. Considering that the value of cash has not increased significantly, it may not keep up with inflation. The following is an example of how inflation can reduce the value of cash:

For example, you plan to buy a new laptop next year, so you reserve 75,000 rupees for this. At the end of the year, you may have approximately 77,250 rupees in your account, and the bank provides 3% interest. However, if the inflation rate rises by 6%, the PC may now cost 79,500 rupees-2250 rupees more than your savings. Now think about all your long-term goals, and if inflation continues to rise by 4-6% per year, how much will they cost in the future. If your funds are cash, rather than investment vehicles that are likely to generate higher returns, then your savings may not be able to cover your future cost of living.

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Understand the role of cash
When cash cannot generate sufficient returns, it will lose purchasing power over time, so why should it be hoarded? Although cash can be used for short-term goals and emergency expenditures, it makes more sense to put it on the market for long-term savings. Of course, reserve some for expenses that you know will explode within a year-like you are looking forward to a renovation in the next few months or you unexpectedly need a large car repair-the fastest and easiest way is to use a savings account. But subtract this and make your remaining cash work through investment. A new approach is peer-to-peer or P2P investment.

Increase your cash savings through P2P investment
For laymen, this is how it works-individuals who want to lend some or all of their investable surplus and earn interest income, use P2P platforms to connect with people seeking loans. If you are one of those looking for a good investment channel, here are ways to get a decent return as a P2P lender:

  • According to your risk appetite, start small by investing 1-2 lacs and increase your loan portfolio organically and steadily.
  • Use different risk ranges, maturities and principals to build your loan portfolio. Considering a large amount of borrower information from different locations, genders, occupations, etc., is a wise move to diversify investment.
  • Maintaining a good profile portfolio will also diversify investment risks. Achieve your expected return by setting yourself a target distribution from low to high risk conditions.
  • It is a misunderstanding that putting all your money on high-risk borrowers will lead to high returns. Although they offer high interest rates, it is best not to limit yourself to one risk category, but to create a portfolio of low, medium and high risk borrowers to reduce your risk.
  • If your goal is to get high returns from the P2P lending portfolio, then you should stay away from unreliable platforms. RBI supervises the P2P lending industry and regards it as NBFC-P2P. This is where the financial technology platform CRED intervenes by introducing CRED Mint, which is an investment product launched by CRED in cooperation with NDX P2P Private Limited (LiquiLoans), which is a P2P NBFC registered by RBI.

Use CRED Mint to put your cash into more productive investments
CRED has spent a lot of time thinking about how it can help you make the most of all your funds. More than 7.5 million people (35% of premium credit card holders) are part of CRED, the app facilitates 25% of credit card bill payments in India and can be used by anyone with a credit score >750. Their recently launched investment tool, CRED Mint, enables you to manage your idle funds by offering higher interest rates than most traditional methods. This service will allow you to lend money to other users and get an annual interest rate of up to 9% based on the amount you provide as a loan. As a CRED Mint member, you can invest any amount from 100,000 Indian rupees to 10,000,000 Indian rupees and receive payment from the borrower on a fixed basis-one-off or equal monthly installments.

The lender usually has a portfolio of approximately 200 borrowers of different loan sizes. Handling a large number of borrowers is not a problem because all processes on CRED are automated and investment can be easily tracked. As a community product, the funds invested in CRED Mint will be lent to the highly trusted CRED member community through CRED Cash. CRED Cash is a CRED loan product created in cooperation with licensed banks and NBFC. Therefore, you can rest assured that your investment funds will only be lent to others like you-the most trustworthy people in India, and CRED knows they keep their promises.

It should be noted that P2P investment is a type of venture capital similar to stocks and MF, so there is a default risk and no guaranteed return. Nonetheless, by building a diversified investment portfolio and reducing risk, most of CRED Mint’s lenders are expected to obtain an annual rate of return of up to 9%. Even under the scale of CRED Cash, the default rate has historically been less than 1%. In order to further reduce risks, investment funds will be directly transferred to the custody account held by CRED’s NBFC partner Liquiloans, and will be evenly distributed to more than 200 borrowers. In addition, CRED Mint uses its fully automated credit evaluation mechanism to ensure that each borrower registered with it undergoes identity checks, credit checks and risk assessments, thereby minimizing this risk. Not only does it make your money work, but you also benefit from the elimination of commissions, inefficiencies, and other expenses that can erode typical returns and get higher returns in the process.

As we have learned, cash is not the king that some people think. If you want to continue to increase your wealth, please try to put it into an investment vehicle with growth potential. Therefore, join CRED Mint now to make the most of your remaining cash and keep it in good shape.

Disclaimer: The above content is non-editing, TIL (Times Internet Limited) hereby does not assume any and all express or implied warranties related to this. TIL does not provide investment consulting services in any way, and the publication of this content does not represent the endorsement of TIL or the Economic Times. TIL strongly recommends that users take all necessary measures to ensure that any information and content provided are correct, updated and verified before making any investment decisions, and/or talk to qualified investment professionals.

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