WARREN BUFFET- A MODEL FOR HIS BILLIONAIRE PEERS

By Moksha Grover

Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway.  Born in Omaha, Nebraska in 1930, Buffet is 91 years old. He is one of the most successful investors of all time and a model for his ultra-rich peers. Buffet also runs Berkshire Hathaway, which owns above 60 companies, including insurer Geico, battery maker Duracell and restaurant chain Dairy Queen.  He has a net worth of over $104.4 billion as of August 2021, making him the world’s ninth-wealthiest person[1].  “If you don’t find a way to make money while you sleep, you will work until you die” is a famous quote said by Warren Edward Buffet.

EARLY LIFE AND CAREER

Warren Buffet displayed his interest in business and investing at a very young age. At age seven, he was inspired for investing in the book “One Thousand Ways to make $1000”. Much of buffets childhood was filled with business ventures. He sold chewing gum, Coca-Cola bottles, and weekly magazines door to door. When in high school, he made money delivering newspapers, selling golf balls and stamps etc. As a sophomore, with one of his friends, he established a large paper route and invested in pinball machines. They are stationed in barber shops and split their profits with the shop owners. They started their business with just $25 and sold their business later for $1200. Buffet also bought 40 acres of Nebraska farmland, by age 15 with the proceeds from earlier business ventures[2].

After completing his graduate degree from Columbia University, Buffett worked for the investment legend Benjamin Graham, in New York City. He considered Benjamin Graham as his mentor and was inspired by him a lot. After Graham retired from his business, buffett went back to his hometown and started running a series of successful hedge funds, known as the Buffett Partnerships.

In late1960s, Buffet closed down his original investment business and took over Berkshire Hathaway, a struggling textile maker. He decided to close his business when he saw the stock market being overvalued and made Berkshire Hathaway his primary business activity. Over the decades, with the help of buffet, Berkshire Hathaway turned into a conglomerate with annual sales of $245 billion[3]. It has a market capitalization of $654 billion and employs roughly 360,000 people through its many subsidiaries[4]. With the rise in the value of Berkshire’s stock, many people became rich. Buffet declared employee Greg Abel as his successor, keeping in mind his age-related health risks and long-term, interests. Although buffet has not retired or declared his intention to retire from Berkshire Hathaway. Its shares gained about 25% in the first eight months of 2021[5].

Image source: IndiaStudyChannel.com

LIVING LIFE ON HIS OWN TERMS

Buffet got much of his philosophy from his father, Howard Buffet, who was an American businessman, investor, and politician. He describes this philosophy as trying to “keep up with the Joneses.”. This means that he enjoys living up his life on his own terms and doesn’t care about what others think of him.

Talking about buffet’s personal life, Although, Buffet is a Democrat, he has still voted and donated to both democrats and republicans. He has also described himself as an ‘agnostic ‘person. His late wife and the foundation named after her that he has funded, the Susan Thompson Buffett Foundation, were and are substantial supporters of reproductive rights organisations that favour access to legal abortions. Warren Buffet married Susan in 1952, who spent her later years in San Francisco. He spent more than 20 years considering himself to be happily married to Susan. After his first wife’s 2004 death, Buffett married another woman named Astrid Menks, who lived in Omaha, at the same time in a small and informal ceremony.

WARREN BUFFET’S CHARITY

Warren Buffet became the founder of ‘The Giving Pledge along with Bill and Melinda French Gates. The Giving Pledge is a campaign to encourage extremely wealthy people to contribute a majority of their wealth to philanthropic causes. Buffet also pledged that more than 99% of his wealth will go to philanthropy, either during his lifetime or at his death[6]. He could have started his own charitable foundation but has contributed his money to five foundations run by others.  Until 2021, he served Bill & Melinda Gates Foundation as a trustee and poured most of his charitable money into the foundation.

Buffet says that he has given very little money to his three children Howard Graham Buffett, Peter Buffett and Susan Alice Buffett, who themselves are millionaires and own hundreds of millions of dollars for the foundations they each run. For example, he’s one of corporate America’s strongest proponents of women in business. He mentored Tracy Britt Cool for more than a decade as she rose from a financial assistant to CEO of Pampered Chef, a Berkshire subsidiary. Later, she started her own private equity firm, modelled after Berkshire, with Buffett’s support.

Buffet also shared his knowledge of the financial markets and the economy in 1977 and conducted annual shareholder meetings.[7] His annual shareholder meetings, known as “Woodstock for capitalists” is akin to a Disney vacation for thousands of families each year. Buffett also voluntarily met with scores of college students for decades about eight times a year for a Q&A session and tour of his businesses[8]. Buffet has given more than $4.1 billion to charity[9].

BUFFET’S RULE

Buffet recently admitted that he pays tax less than his secretary. The reason behind this, he told is a system from which he has benefitted a lot. This system lets billionaires pay very low tax bills, partly because it taxes income instead of wealth. For years he advocated for the so-called “Buffett Rule,” a minimum 30% tax on those making more than $1 million a year to remedy the problem[10]. Rich pay less tax when they deduct it from what they have donated to charities is a fact, also recognized by the buffet.

 For his rules on business, Buffet is a very sensible investor. He only invests in those companies which he has thoroughly researched and understands. Buffett personally lost about $23 billion in the financial crisis of 2008, and his company, Berkshire Hathaway, lost its revered AAA rating[11]. The most important quality, as defined by buffet for an investor is temperament, not intellect. For a successful investor, being with or against the crowd is not the centre of attraction.

Buffet was inspired a lot by the book “The Intelligent Investor” by Benjamin Graham as it inspired and convinced him to invest in stocks. With the help of this book, he got to know that investing in stocks is equal to owning a piece of the business. So, when Buffet searches for stock to invest in, he always prefers the business that exhibits favourable long-term prospects. Buffet never buys anything unless he can write a particular reason to pay a particular price for that shares of the company and advises all the investors to do the same.

“Leave the children enough so that they can do anything but not enough that they can do nothing” is a famous quote said by buffet to wealthy families for charitable purposes.


[1] John M.Longo, ‘Why Warren Buffett Is a Model for His Billionaire Peers’, The Wire (August 30,2021) < https://thewire.in/business/why-warren-buffett-is-a-model-for-his-billionaire-peers> accessed 30th August 2021.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Stephanie Loiacono,’ Rules That Warren Buffett Lives By’, Investopedia (Jan 12,2021) < https://www.investopedia.com/financial-edge/0210/rules-that-warren-buffett-lives-by.aspx> accessed 30th August,2021.

BITCOIN VS GOLD: WHAT IS THE FUTURE OF INVESTMENTS?

By Moksha Grover

Today, most people have shifted their focus toward investments for the purpose of strengthening their financial position. While there are many ways to strengthen one’s financial position, investment is considered to be the most apposite way. The covid pandemic has taught us a lot about different aspects of life. However, most importantly it has highlighted our way of savings and investments. During tough phases like lockdown, almost everyone suffered financially and was forced to make compromises within their lifestyle. Only those who made wise money decisions at the right time were left uncompromised.

During the pandemic, it was observed that more and more people started investing in safe-haven assets. The most popular safe-haven investment during the covid pandemic has been gold. Gold investments, as we all know, are said to give good returns most of the time. It is also viewed as one of the safest options for investments. However, nowadays, investment in gold is being challenged by cryptocurrencies. Cryptocurrencies are now being regarded as the new hot cake in the world of investments and are said to give even more returns than gold. The most trending and successful cryptocurrency is Bitcoin.

WHAT IS BITCOIN?

Bitcoin is termed a digital currency which is free of any central control or the oversight of banks or governments. Instead, it depends upon peer-to-peer software and cryptography. It is also known as digital gold because its properties are very similar to that of gold. Like gold, bitcoin too has a fixed supply and derives its value through its limited supply and growing consumer demand. Some of the pros and cons of this cryptocurrency are: –

PROS

  • Since bitcoin is entirely digital, it can be easily sold a transferred to another person’s account.
  • Bitcoin has the potential to give higher returns on investments because of its growing market.
  • Bitcoin can be used as a currency everywhere. It can be used for payments at any store that accepts bitcoin.
  • Investing in bitcoin now could lead to big payoffs down the road. Because bitcoin is an emerging investment and has the potential to increase in value.

CONS 

  • There is a greater degree of risk involved in bitcoin as it is extremely volatile and susceptible to large fluctuations.
  • Bitcoin is subjected to scams or stealing as it is completely digital and so web-based wallets have the possibility to be hacked.
  • Bitcoin’s value is totally dependent upon the phenomena of demand and supply. If the demand for other cryptocurrencies increases more than the demand for bitcoin, its value can decrease.

WHAT IS INVESTMENT IN GOLD?

Gold is a valuable yellow metal and is used for various consumer goods such as jewellery, and it is not in abundance. Gold is a must for all the special occasions in India ranging from weddings to other special functions. In fact, one of the largest markets for gold is found in India. Gold has a big significance in the country’s cultural value and is considered to be a store of value, a symbol of wealth and status and a fundamental part of many rituals. Investment in gold gives fruitful results most of the time. Some of the pros and cons of Gold investments are: –

PROS

  • Investment in gold is always a stable option as its value increases over time; even if the economy gets into recession, its value will not decrease.
  • If you have your gold stored in a precious metals IRA, it will be stored in a specific, safe vault that is overseen by a custodian who will manage your account. These accounts are often insured up to a certain amount, much like a traditional bank account, so you can rest easy knowing your investment is safe[1].
  • Gold is considered to be an ideal baseline for trading purposes and is being used up as long as civilizations have been around. So it is durable in nature.

CONS

  • Gold can be used as a currency only during an economic crisis. It cannot be used as a currency to buy something in normal times.
  • When you invest in gold you need to keep that physical item stored carefully and safely.

DIFFERENCE BETWEEN BITCOIN AND GOLD

CHARACTERISTICSBITCOINGOLD
Legality, Transparency and safetyBitcoin has safety issues and is not that transparent and legalGold ranks above bitcoin in safety, legality and transparency.
VolatilityBitcoin is extremely volatile. It is more susceptible to market whims and newsGold is a safer asset and is less volatile
Baseline ValueBitcoin has less baseline value as it is based on a full banking system and many people don’t have access to online banking services.As gold is used in a variety of ways, therefore, it has more baseline value than bitcoin.
RarityRareRare
LiquidityLiquidLiquid

WHICH TYPE OF INVESTMENT SHOULD BE CONSIDERED? GOLD OR BITCOIN

According to billionaire Ray Dalio, bitcoin is just a digital version of gold but he prefers physical gold over bitcoin. “If you put a gun to my head, and you said, ‘I can only have one,’” says Dalio. “I would choose gold.” Here’s why he prefers investment in gold over bitcoin[2].

  • Gold has thousands of years of historical record as a store value and doesn’t face the same competition risks as bitcoin has
  • Unlike bitcoin, gold is very less volatile. Its volatility is just one-fifth of the volatility of bitcoin.
  • Cryptocurrencies can never replace metals like gold and silver as they are being used for centuries in every corner of the world and have a very strong economic standing as compared to bitcoin. So Cryptocurrencies like bitcoin can only help increase the value of these metals but cannot replace them.
  • Gold has offered a very high degree of longevity but such degree of longevity offered by bitcoin is highly questionable.

FINAL VERDICT

Both bitcoin and gold have their own advantages and disadvantages. For now, it is very hard to predict whether an investment in gold will result in better returns or investment in bitcoin. Bitcoin, today is said to be giving more returns than gold. It is alleged that Bitcoin’s market cap will surpass gold’s market cap by 2030. However, nothing is for sure now. Many people prefer gold investments, at the same time many people have shifted towards investments in bitcoin. Bitcoin has a fantastic upside and limited downside, while gold has a more traditional risk-reward balance[3]. Bitcoin is good for short-term investments and getting high returns on it and gold is good for long-term investments and gives relatively lower returns than bitcoin. It is completely the choice of the investor regarding the kind of investment he/ she wants to take up. An investor can invest in bitcoin or gold or in both. It is completely the choice of the investor. But it is advisable to invest in both bitcoin as well as gold as it will help you diversify your investments and increase your chances of high returns.


[1] ‘BITCOIN VS GOLD: WHICH IS BETTER?’, NATIONWIDE COIN & BULLION RESERVE < https://nationwidecoins.com/bitcoin-vs-gold-which-is-the-better-investment/> accessed 11th September 2021

[2] Jade Scipioni, ‘Bitcoin vs. gold: Here’s what billionaire Ray Dalio thinks, make it (4th August 2021) < https://www.cnbc.com/2021/08/04/bitcoin-vs-gold-heres-what-billionaire-ray-dalio-thinks.html> accessed 11th September 2021

[3] Ravi Singhal, ‘Gold vs Bitcoin: Which one is a better option for investment?’, The Economic Times (8th August 2021) <https://economictimes.indiatimes.com/markets/cryptocurrency/gold-vs-bitcoin-which-one-is-a-better-option-for-investment/articleshow/85148997.cms?from=mdr accessed 11th September 2021

All you need to know about Cryptocurrency

Cryptocurrency is a digital or virtual currency that uses cryptography to verify transactions, which makes counterfeiting and double-spending practically impossible. Cryptocurrencies are not regulated or facilitated by a central or regulating authority, instead it uses decentralized network called blockchain technology. Since cryptocurrency are not issued by any central authority, it makes them theoretically immune to government interference or manipulation.

Understanding Cryptocurrency

The first cryptocurrency named Bitcoin was invented by an unknown person or a group of people named Satoshi Nakamoto in 2008. It was put into use in 2009 when the currency’s implementation was released as open-source software.

Cryptocurrencies are based on the blockchain, a distributed public database that keeps track of all transactions and is updated by currency holders.

Cryptocurrency units are formed through a process known as mining, which entails employing computer processing power to solve complex mathematical problems in order to earn coins. Users can also purchase the currencies from brokers, which they can then store and spend using encrypted wallets.

You don’t possess anything concrete if you own cryptocurrency. What you possess is a key that enables you to transfer a record or a unit of measurement from one person to another without the involvement of a trustworthy third party. Although Bitcoin has been present since 2009, cryptocurrencies and blockchain technologies are still in their infancy in terms of financial applications, with more to come in the future. Bonds, stocks, and other financial assets might all be traded via the technology in the future.

Types of Cryptocurrency

  • Bitcoin:
    As mentioned earlier, Bitcoin was invented in 2008 and is the first cryptocurrency that was invented. Bitcoin is still the most popular and well-known crypto currency.
  • Ethereum:
    Ethereum is a blockchain platform that has its own cryptocurrency, Ether (ETH) or Ethereum. It was created in 2015. After Bitcoin, it is the most widely used cryptocurrency.
  • Litecoin:
    This money is quite similar to bitcoin, but it has moved faster to build new innovations, such as speedier payments and processes that allow for more transactions.
  • Ripple:
    Ripple was founded in 2012 as a distributed ledger technology. Not only can Ripple be used to track cryptocurrency transactions, but it can also be used to track other types of transactions. Its creators have collaborated with a number of banks and financial institutions.

How to buy cryptocurrency?

There are 3 steps involved in purchasing of cryptocurrency. Please find them below:

Step 1: Choosing a platform
Before choosing a platform, compare various platforms on the basis of which cryptocurrencies are on offer, what fees they charge, their security features, storage and withdrawal options, and any educational resources. Typically, there are two main platforms which one can choose for trading of cryptocurrency:-

  • Traditional brokers: These are online brokers that allow you to purchase and sell cryptocurrencies as well as other financial assets such as stocks, bonds, and exchange-traded funds (ETFs). These platforms are known for having reduced trading fees but fewer crypto features.
  • Cryptocurrency exchanges: There are a variety of cryptocurrency exchanges to choose from, each with its own set of cryptocurrencies, wallet storage options, interest-bearing account options, and other features. Asset-based fees are charged by several exchanges.

Step 2: Funding your account
After you’ve decided on a platform, you’ll need to fund your account before you can start trading. Most crypto exchanges allow users to buy crypto with fiat (government-issued) currencies like the US Dollar, British Pound, or Euro using their debit or credit cards, though this varies per platform.

ACH and wire transfers are also accepted by some sites. The payment methods that are accepted and the time it takes to deposit or withdraw money vary each platform. Likewise, the time it takes for deposits to clear varies depending on the payment type.

Fees are an essential consideration. These fees could include transaction fees for deposits and withdrawals, as well as trading fees. Fees will vary depending on the payment method and platform, so do your homework ahead of time.

Step 3: Placing an order
You can use the web or mobile platform of your broker or exchange to make an order. If you wish to buy cryptocurrencies, go to “buy,” select the order type, enter the number of coins you want to buy, and confirm the order. Orders to “sell” follow the same procedure.

There are other ways to invest in cryptocurrency as well. PayPal, Cash App, and Venmo are examples of payment platforms that allow customers to buy, trade, or store cryptocurrencies. In addition, the following investment vehicles are available:

  • Bitcoin trusts: Bitcoin trusts can be purchased with a conventional brokerage account. Through the stock market, these vehicles provide regular investors with access to cryptocurrency.
  • Bitcoin mutual funds: You can select between Bitcoin ETFs and Bitcoin mutual funds.
  • Blockchain stocks or ETFs: Blockchain companies that specialize in the technology behind crypto and crypto transactions are another way to indirectly invest in crypto. Alternatively, you might invest in blockchain-related equities or exchange-traded funds (ETFs).

How to store cryptocurrency?

Once you’ve purchased cryptocurrency, you’ll need to keep it safe to avoid being hacked or stolen. Cryptocurrencies are typically stored in crypto wallets, which are physical devices or online software that securely store the private keys to your cryptocurrencies. Some exchanges offer wallet services, allowing you to store your funds directly on the platform. However, not all exchanges or brokers will automatically give you with a wallet.

There are a variety of wallet providers from which you can choose. The terms “hot wallet” and “cold wallet” are used to describe two types of wallets-

  • Hot wallet storage: “Hot wallets” refers to cryptocurrency storage that use internet software to safeguard your assets’ private keys.
  • Cold wallet storage: Unlike hot wallets, cold wallets (also known as hardware wallets) save your private keys on offline electronic devices.

Cold wallets typically charge fees, whereas hot wallets do not.

Union Budget 2022 and Cryptocurrency

  • In the Union Budget 2022-23, the government has imposed a 30 percent fixed tax rate on all crypto trading profits, with the goal of introducing the Digital Rupee in 2022–23.
  • The Digital Rupee, India’s first Central Bank Digital Currency (CBDC) project, will be a digital version of the rupee that would be fully regulated and overseen by the government.
  • The Finance Ministry has suggested a 30% tax on the trading of all virtual assets, including cryptocurrencies and non-fungible tokens, in these regulations. Losses on these crypto-assets cannot be offset at a later point, according to the report. This means that any losses incurred when trading these assets will not be offset by other sources of income and will be carried forward to later years.
  • Virtual currency gifts are likewise subject to taxation, with the recipient carrying the burden of any such deductions.
  • Further elaborating on the taxes approach for such virtual currencies, the Finance Minister stated that all crypto transfers exceeding a specific monetary level will be subject to a 1% TDS deduction, which will aid the authorities in keeping track of their movement in the economy.

CRYPTOCURRENCIES VS FIXED DEPOSITS

The Indian government and Indians have consistently been into reserve funds. In contrast to the westerners, India has high family esteems. The blood relations and relatives are consistently there to help each other additionally monetarily.

The bread worker of the family puts something aside for the eventual fate of the child(ren). In India, it is never similar to labouring for 40 hours per week, being paid according to the hours and chilling toward the end of the week and being down and out by Monday morning. India’s practice of venture is a drawn-out game that considers ages ahead.

The Indian government understood this before long freedom and subsequently made a great deal of plans that come as retirement plans. The banks that go under the Reserve bank of India likewise concoct approaches and plans to work with their clients into long haul arranging that implies least danger and a good speculation.

Indians have been assorted as far as their way of life. However, the one thing that ties each Indian is the affection for gold and silver. Furthermore, once more, customarily talking, gold is the image of Laxmi, the goddess of abundance. Gold is skilled to the lady and lucky man during the marriage. Gold is likewise worn as a piece of DRE gems. Monetarily talking, holding a resource can be utilized in good and bad for ages ahead.

Another exceptionally famous monetary instrument that Indians put resources into is the FD or the proper store. Be that as it may, with the new headway of computerized money, will a normal Indian embrace crypto? Allow us to see the distinctions and similitudes.

FIXED DEPOSITS VERSUS CRYPTOCURRENCY

Duty exception: When you put resources into FD, there are various areas under which you can put your cash in. For this venture that you pronounce, the public authority is informed of your system and you may get some thought under tax cut. Then again, the Indian government isn’t a too crypto master, and thus, there is no assessment exclusion on the benefits you make from putting resources into crypto.

Government-upheld: For making a FD account with your bank, the means are very simple. A stacked financial balance is a great idea to go to make a FD account. While then again, crypto speculation expects you to make a record with an exchanging stage, that, in a typical case, isn’t empowered by any administration.

Fixed return: according to the approach picked by you, your bank and your residency of FD, you will undoubtedly get a decent return. This generally doesn’t change. Regardless of whether it does, it doesn’t change too regularly. Likewise, the adjustment of the level of return isn’t an excessive amount to give a shock to the financial backer. Then again, crypto rides an exciting ride. One second the profits are multiplied and the following second you lose half of the cash you contributed. The recurrence of progress and the extent of progress is humongous.

Value-based expense: FDs are long haul plans and the passage and leave focuses are by and large ceaseless till development. Individuals for the most part don’t leave their FD plan before it develops. No exchange occurs and subsequently there is no exchange cost. Unexpectedly, since the crypto market is unstable, individuals settle on fast choices. They enter, stay for quite a while, exit and afterward return when the costs hit profound low. The quantity of passage and leave focuses is an excessive number of and this brings about a ton of conditional expenses.

No requirement for any exchanging or trade stage: For beginning a FD account, you simply need a ledger. What’s more, having a financial balance has been supported by the PM Jan Dhan Yojna. For putting resources into crypto, the client needs to have a confirmed record with an exchanging stage, connect the ledger and afterward begin to contribute.

Unpredictability: FDs are a speculation that individuals don’t contact. Individuals either start a FD for their retirement or they let it mature. The venture of crypto isn’t immaculate. The sum determined for the interest in the crypto is each effectively moved and flowed for putting resources into other cryptos or to encash into the neighbourhood cash.

Long haul Plan: FDs are long haul plans. So is the crypto venture. However, just favourable to crypto financial backers get this and are enduring. Henceforth, despite the fact that both FD and cryptos are long haul venture vehicles, many utilize the last for momentary addition.

Uncommon: FDs are not uncommon. Would you like to open a record? Fantastic! Go on. Would you like to mine bitcoin after 2140? Apologies, you can’t. Crypto accompanies a limited inventory and thus are uncommon. FDs are run on conventional cash and we would i be able to have quite a few customary cash notes as we need.

No mining: These backings the above point. There is no mining or additional work to change your conventional cash over to be put resources into FD. For cryptos, you need to mine new tokens to keep up with their dissemination or somebody mines and sells them so others can put resources into them.

Least danger: FDs are the most secure, least danger implying monetary arranging technique. When you store cash, you can fail to remember it till it develops. Cryptos involve the financial backers’ time and consideration. You lose your center, you may lose a ton!

Expansion rate and pace of revenue: As the swelling rate is higher, customary instruments like FDs and RDS don’t give incredible help. Despite the fact that crypto gets your heart beat quicker, an individual with great exploration on crypto can enter the market, stay for the time, bring in astounding cash and exit astutely. He/she doesn’t hang tight for the 5-year residency to get over.

Indians love to put cash in any case, love to contribute as long as possible and need their cash to develop. While certain individuals are daring people, some are more conventional. Venture techniques resemble food decisions. It depends from one person to another. One that works for you probably won’t work for your companion. Subsequently, it is consistently fitting to comprehend one’s necessities and needs and choose what best accommodates their objective.

Zerodha – 0 to 1 Billion Dollar Company

In just 10 years, Zerodha went from 0 to 1 billion dollars in valuation. 

But how and what is Zerodha?

Zerodha is a financial service company founded by two brothers Nithin Kamath and Nikhil Kamath in the year 2010 to make trading barrier-free in the Stock Market. The name Zerodha comprises two terms, ‘Zero’ and ‘Rodha’. The latter term has been taken from Sanskrit, combining it with zero gives the meaning ‘barrier free’. 

All of this was done with zero funding and zero marketing. That means Zerodha went from 0 to 1 billion dollars in valuation with zero marketing and zero funding. In today’s competitive world where companies are pouring millions of money for advertisement just to be in the market here, Zerodha built his empire with zero funding and zero marketing.

Nithin and Nikhil Kamath

The Idea Behind Zerodha

In 2016, Kunal Shah – one of the most legendary entrepreneurs in the Indian startup ecosystem, deliberated an ink talk where he proposed a very interesting theory which more or less explains the root cause of the success of some of the biggest startups in the world.

According to Kunal Shah, “in this world, there are terms of system which have a term of inefficiencies and hurdles which often prevent ordinary people like you and me from moving into a more efficient system but we human beings once we find an efficient system, we have this innate ability to move on from where we never ever come back.”

Before Zerodha, Nikhil Kamath observed that three hurdles were troubling the investors and were also preventing the common people of India from investing in the stock market.

These hurdles were – 

  • Lack of knowledge and awareness – People in India make decisions based on myths rather than knowledge and strategy.

  • Exorbitant brokerage fees – As the conventional brokerage forms for charging percentage commission, all the amount of investment that in investing was made which results in exorbitant brokerage fees.

  • The entire process of investment was very tedious and complex for a common man to understand.

“The problem we are trying to solve with this is how to grow the capital market ecosystem in India. It can only happen through educating people on a platform which has content and engagement both,” Nithin said.

That is why they came up with three unique solutions which turned Zerodha into billion-dollar company

  • Tackle the lack of knowledge and awareness – To educate the Indian population about investment in stocks, they came up with something called Zerodha Varsity, which is an investor education platform wherein customers can enhance their knowledge and skills on trading and investments.

  • Discount the brokerage fees to such a large extent that it results in it into revolution. They came up with a super affordable price of 20 rupees or 0.03% which is even less for all intraday trades and they charge 0 fees for all equity and direct mutual fund investments.

  • To resolve the tedious process of investment, they came up with a website with a simple user interface which any common man can get familiar with the entire process of investment.   

Now Zerodha is India’s first discount brokerage firm with over 8.5 lakh active clients. 

ECONOMICS OF MONEY

HOW MONEY ORIGINATED?

            Money is neither invented nor discovered. It evolved over years. Several centuries ago, there existed a system named the barter system. The barter system is the system where the goods and services are exchanged with each other. For example, If a person says X sells vegetable to another person Y, then the person Y have to sell fruits to the person X. Thus they exchanged goods between them. As time evolves, yellow metal and paper currency was used by the people. The yellow metal is nothing but gold, silver. In this system, the people used gold and silver to buy goods and commodities. As time evolves, the government has said that no need to use gold metals and they will issue notes, i.e, currencies with the value written on them. The government has ordered everyone to use and accept this. As long as people trust the system introduced by the government, paper currency is available. This is how money evolved over a while. Today, there are multiple forms of money. They are credit cards, debit cards, mobile banking, electronic wallets.

HOW DO WE SPEND MONEY?

            There are five forms of spending. They are needs, wants necessities, comforts, and luxuries.

NEEDS: Needs are the things that you must require at that time. Some of the common needs of a man are food, clothing, shelter, transport, communication, education. For example, as a college student, you need to have a phone since many study materials have been sent to your devices.

WANTS: Wants are the thing that you desire to have. Unlike needs, wants have options to choose from. If you do not have those things, it will not affect you. For example, well-furnished home, time-saving home devices, AC rooms, etc.,

NECESSITIES: Necessities have been categorized into three types: 

  • Necessities for life: This includes the basic things you need to run life on earth. Example: Food, clothing, and shelter.
  • Necessities for efficiency: This includes the bike for college students, a car for a businessman.
  • Conventional necessities: It is a social habit of practicing some habits. For example, people spend more money on wedding receptions.

COMFORTS: Comforts are the things that make life more enjoyable. The examples include a Well-furnished home, AC bedrooms, etc.,

LUXURIES: Luxuries represents the higher strata of spending. For example: Having a BMW car, buying diamonds.

       The important point is that needs and wants change with time. For instance, when you are a college student, having a Macbook pro is want. But when you are in the corporate world, having a Macbook pro becomes the need. Necessities, comforts, and luxuries will also differ from time to time and people to people. In the 1990s having a phone is a luxury, in 2000 having a phone is comfort and now it is a necessity to have a phone.

TAX, SAVINGS, AND INVESTMENT:

TAX: The part of our earnings has to be paid to the government in a form of taxes. The reason why we have to pay the taxes is that the government sets up the environment for our earnings. Taxes enable the government to maintain the city infrastructure by providing good roads, hospitals, and transports. To be a good citizen, we must pay the taxes honestly. The tax rate will be increased if some of the people are not paying their taxes properly. Once we paid the tax, then that money will be the government’s money. There are two types of taxes namely direct tax (income tax) and indirect tax (GST).

SAVINGS: Savings is the money that remains after you spend the money from your earnings. You can put your money in a savings bank account. The money in your account will be safe. The ability to convert them into cash is high. The rate of risk is low in a savings account. If you need money within one year, then put the money in a savings account. The ideal equation is INCOME-SAVINGS=EXPENSE.

INVESTMENT: You can invest the money in bank deposits, mutual funds, equity shares, fixed deposits, gold. The return of the money will be higher or lower. The risk of losing money varies by the investment you made. It is a long-term process generally more than 2 years. The liquidity depends on the type of investment. If you want to need the money a few years later, then invest the money.

Risk Profile

Risk Profiling refers to the evaluation of an individual ability to take risks. It assists in making the risk profile of the investor.

As psyche of every person differs from others. 

People can be classified as:-

Risk-Averse -Don’t want to take up the risk.

Risk seeker– Is one who is willing to accept greater financial risk in exchange for more profits.

Risk Neutral- These people are neither risk seekers nor averse.

Due to it, new investors can plan their investments by knowing where they stand and what is right for them Mutual Funds, Shares, or Crypto.

Some other benefits –

•It helps in taking the right risk as per requirements and capacity.

•Bring the right investment opportunities to light, so a balance of risk and reward can be achieved.

•Help to identify psychological reactions to unexpected fluctuation in the market.

•Plan for the worst-case scenario.
Know your risk Diet

Why you should invest????

1. Why You Should Invest In?

The investments that are necessary in order to achieve your goals. This is the only way to get better. By making an investment, you will also save money, and strengthen the case for a rainy day. In addition, there is a steady investment, making it possible to regularly set aside a certain amount, thereby instill a sense of financial discipline in the long run.

2. The impact of the inflation rate and the value of the investment

The inflation rate is, in simple terms, is an increase in the prices of raw materials, and services. This helps to reduce the value of your money and it will reduce your purchasing power. If there is an increase in the rate of inflation, you can buy less with the same amount of money. You have no control over the rate of inflation. If you want to stay ahead of the inflation rate, you will need to have in order to get more money for the purchase amount of the goods that it is going to be buying in the future, with the amount of money you have. However, the money does not grow on its own. If you have the money to make it grow, you must generate revenue. In order to make money you have to invest in it. Therefore, the investments that would be required to fight inflation. An inflation rate of 8%, it means that you need to have 8 percent more money than you have to in order to buy the same product again next year, too. It’s an 8% rate of inflation decreases the value of 1 lakh rupees by more than eight years of age:

It is very important to have an income that is higher than the rate of inflation, if it does not, it could not afford to materials and services in the future, this is the savings that you can make right now.

3. Types of investments:

You will need a lot of investment possibilities for you to choose from. You need to evaluate your requirements and the risks involved before making a decision to invest in a particular investment option. Investments are generally classified into active and passive. Active investing, you need to dynamically change the investments in your portfolio, depending on market conditions and the economy. You must have the time or knowledge to invest in order to enjoy an active trading. Investments in securities are the best examples of active investing. On the other hand, is a passive investments do not require a direct stake in their investments. You can invest your money in it, and you will have to be invested for a certain period of time. Also known as a buy-and-hold investment strategy. This strategy is recommended for those of you who are not in the free time management
Investments

 

You have to choose an active or passive strategy after assessing your needs and risk tolerance level.

4. The popular investment options in India

You will need a lot of investment possibilities for you to choose from. However, you will need to make sure to invest in ones that are within your risk tolerance, and meet all of your requirements.

Here are the top 7 investment options in India:

1) Direct Investment (Fdi)

2)funding

3)in time deposit

4) Deposits, Repeat

5) A Social Security Fund

6) The Staff Of The Package

7) the National pension system

💰 how do I plan my investment?

In the first step, the schedule of investments for the purpose of identifying the right type of investments that are the best fit for your system and needs. Here are a couple of things to bear in mind when planning a purchase:

Pick your investments carefully, and after conducting proper research,
Do not be persuaded to use it to schedule programs, which promise huge profits in the shortest amount of time possible
Periodically review your investments in stocks, and funds and
Consider the tax impact on the income you receive from your investment.
Keep it simple and avoid complex investments that you don’t understand

What are Mutual funds? Are they safe way of investing?

In this new era, it is very important for an individual to look up for opportunities to expand himself in every aspect. One of these aspects of one’s life is money, which plays an important role in one’s life. Money, is something which is required by everyone, because in this world in which we are living most of the exchange of commodities, goods and services are provided by the exchange of money. Hence, we know that growth of our money is very important as we ourselves grow in our lives.

But, the question arises here, what most of the people in our country do? We Indians have mentality to grow our knowledge, earn a good paying job and seek for more growth in job. But what do we do with the money we get as our salaries? We keep that in bank account for eternities or we just spend it on buying some expensive stuffs, which are not even required by an individual, Or if investment comes in one’s mind he simply goes to bank and creates an F.D. (Fixed Deposit) of a particular amount, which then again have very low rate of returns (about 5%-6%). We Indians have mentality to let ourselves work but not let our money work, we are simply afraid of doing or trying something new especially when money is involved and we take the route what most of the people of our country take and end up doing nothing.

There are lot of ways of investing in this new area, there is Stock Market, Crypto Currencies, Corporate and Gold Bonds, etc. Now, here we are going to discuss about one such way of investing our money which requires only a little knowledge for investors to have and can earn great returns for its investors. One of the ways of Investment we will be discussing is Mutual Funds.

A Mutual Funds is a type of investment trust which collects money from the investors who share common interest and are looking for investment in common investment classes, these are generally managed by an industry expert, which are hired by the mutual fund houses. Mutual Fund House are the companies which have various types of investment plans in various asset classes like equity, debt, gold, money market, liquid, hybrid, foreign investment, etc. There are various schemes offered by a Mutual Fund House and we can invest in any of the asset class we would like to acquire. The only thing to keep in mind is to research properly about funds a person is going to invest in and check with our risk to reward ratio like if it is an equity fund, then what type of shares the fund is going to invest, if it is debt fund, then to which type of companies debt will be given. If we are going to invest in a particular fund we have to look for risks the fund carries, the amount which we are going to invest and amount of returns or reward which we may get by investing in that fund. Mutual Funds are usually for Long-term investors who are less bothered about doing research on companies and want to invest their extra capital somewhere which is not required by them in short term and they can keep invested in it for years. In, Simple words Mutual fund is way of hiring an expert who does investment for you and manages your portfolio.

Various types of Mutual Funds have various types of returns ranging from more than 100% to as low as 6-8% and also various types of fund have various types risk related with it. The amount of risk basically depends upon the type of investment class a person is invested in. The Mutual Funds activities and transactions are regulated by SEBI and RBI. So, thee is no chance of a scam happening with investors and there money invested will bes safe only risk there is to them is the risk of the asset class, Also, mutual funds are subject to market risks. The types of Mutual fund for different types of investors will be discussed on next time. Till then keep investing, let money make more money and Happy Investing!!!

What is Financial Literacy? Why is it important?

Financial literacy is knowing how to handle your money and use it productively in more than one way. Often we spend our money carelessly and regret it later. Utilising your money in a way that proves useful in the present or sometime in future is why financial literacy is important. This is just a brief description of it. In a real sense, it is a very vast subject. 

Financial literacy involves things like budgeting, saving, investing and loans and interest. This skill is developed when one gets involved in financial transactions. 

What is financial literacy?

It is the ability to understand and effectively use financial skills. Financial skills include:

  • Budgeting 
  • Saving
  • Investing 
  • Credit management 
  • Financial management

You might deal with these in your day to life. But to acquire these skills one needs to understand the basic financial concepts. These financial concepts include the time value of money, compound interest, annualised returns and opportunity cost. 

Why is financial literacy important?

The answer is very simple. You are financially literate, you can manage your money more effectively. It increases your confidence to manage your money and allocates it towards your goals. 

  • Distributing your income in a way that your expenses get paid without disturbing your budget. Note how much income is coming in and distribute it accordingly. And make sure to keep a track of your expenses and make changes in your spending plan now and then. 
  • If you are financially literate, you know that while seeking a loan you look at for the one with the lowest rate of interest. Comparing different loan plans is very important. You also are well aware that paying credit card bills on time is for your good. Because after a certain time you get charged with interest. This will only increase your expenses. time
  • Emergency funds are very essential in today’s uncertain time. Start saving little by little separately for emergencies. If you are already a financial literate you know that saving money equivalent to your three or six-month income is a must. Use it when you are in dire need of money. 
  • Everyone has to stop working after a certain age. Maybe because of health issues or because of retirement. Thus, you need to have a retirement plan. You should be well aware of which accounts will help you secure a good life after retirement.

How to improve financial literacy skills?

  • Manage your bills properly. Use the auto-debit option for recurring bills. Don’t postpone paying bills for late as it may affect the entire budget.
  • Maintain a good credit score. If you have a good credit score you can secure low-interest rates on loans and credit cards. 
  • Manage your debts properly. Stop spending lavishly and start saving and increase repayments. This will reduce your liability and pay off loans with high interests first.
  • Start saving and investing more. Investments are a good way to increase your saving. Invest where the rate of return is high. Also, don’t spend needlessly and save that money for something better and use it effectively. 

Lack of financial literacy will lead to budget mismatch, higher expenses, accumulation of debt, poor credit score and financial frauds. 

Acquiring financial skills will help you make major financial decisions. It ensures that you have a stable present as well as a future. It is a necessity.