How to Plan Monthly Budget – A Step-by-Step Guide Maintaining a monthly budget is the one financial habit that will help you stay on track with your finances. Setting up a budget makes it easier for you to plan expenses, see where your money is going, and easily reach your financial and personal goals. If only an ordinary earner knew how much money he was spending, saving, and setting aside for emergencies, he could keep his finances in order. You will learn the value of budgeting and how to make a budget plan efficiently to keep everything in balance by following this guide. What is a Monthly Budget? A monthly budget is a financial plan that assists you in providing a transparent view of your earnings and outlays for a specific month. It is a strategy that assists you in allocating your income to different needs by your priorities. Important categories including housing, groceries, entertainment, and savings may fall under this. You may determine if you are overspending or have adequate savings by monitoring your expenditure and comparing it to your budget each month. Learning how to make a budget plan will help you effectively manage your personal loan finances and stay on track with your financial goals. Why is Budgeting Important? Budgeting helps as it gives you control over your finances, and makes informed decisions about your spending. The budgeting helps you with: Savings: Setting aside a certain amount of money each month for your savings account can assist you in keeping a healthy balance for the future. Learning how to make a monthly budget plan ensures you allocate funds effectively for various savings goals. Avoids Overspending: Creating a budget gives you a road map for how much to save and how much to spend. One advantage of budgeting is that it helps you see how much you are spending, which helps you avoid overspending. Helps with timely bill payments:  A budget helps you to keep aside a certain amount for your monthly EMIs or loan repayments. Budgeting helps you with timely bill payments. Covering unplanned expenses:  Planning your budget helps you to make wise decisions. Therefore, practicing financial discipline will help you to save money that you may use to pay for unforeseen costs Also Read: Planning for Unexpected Expenses: Tips & Advice 5 Steps to Make a Monthly Budget If you are wondering how to make a monthly budget plan, it is a simple and easy step to follow. Here’s a step-by-step guide to help you get started: Here’s a step-by-step guide to help you get started: 1. Gather Details of Your Income and Expenses Start by having a comprehensive list of all your income sources, such as salary, freelance work, or your investment returns. Then, start by tracking your expenses, which may include your bills, groceries, and entertainment. This method gives a clear picture of your finances and works as a base of your budget 2. Categorize Fixed and Variable Costs Once you have a list of all your expenses, categorize them into fixed and variable costs. Fixed costs may include rent, mortgage, and utilities while variable costs include groceries, entertainment, etc. This helps you where your expenses can be compromised to do the relevant spending. 3. Identify Financial Goals Identify your financial goals that will align with your long-term plans. Whether it’s savings for vacation, or paying off debts, having a specific goal will help you maintain a budget. These goals act as a guide, which will help you prioritize spending and saving efficiently. 4. Allocate Funds Allocate funds to each category once you have a clear understanding of your income and expenses. You need to make sure your funds should be allocated to the important categories first. This helps to keep your finances organized. 5. Keep Track of Your Spending Keeping track of your spending is important to maintain a budget. Using tools like spreadsheets, apps or even a notebook can work to keep track of your transactions. This helps you to compare your actual spending with your budget, which helps to identify the spending and adjust whenever necessary. Also Read: The Dos and Don’ts of Personal Finance Planning Conclusion Creating a monthly budget is the best method to reach your financial goals, know your spending, and plan for the future. Sticking to a monthly budget will help you to decide about your expenses, avoid overspending, and save more. Creating a budget and following the process is ongoing and can be adjusted frequently to be successful. Apply Now Frequently Asked Questions What Is The Best Way To Plan A Monthly Budget? You can plan a monthly budget by  listing down all the income sources and expenses. Categorize expenses into fixed and variable, allocate funds, and monitor regularly to adjust accordingly. How Can I Accurately Track My Expenses? There are apps available online to maintain and track your expenses. You can also use spreadsheets, or a notebook to maintain and compare all the income and expenses every month and to get an overview. What Are Some Common Budgeting Mistakes To Avoid? You should avoid underestimating expenses, failing to save funds for emergencies, and neglecting the changes that need to be made. Regularly reviewing your expenses helps you track and avoid overspending. How Often Should I Review And Adjust My Budget? You can keep a balance by regularly assessing your budget and making the necessary adjustments. Thus, it’s advisable to review and make adjustments frequently. What Tools And Apps Can Help With Budgeting? Apps like  Wallet, Mint, etc help to simplify tracking expenses and categorizing spending. Spreadsheets like Excel or Google Sheets also provide customizable templates for manual budgeting. How Can I Set Realistic Financial Goals? Assess your financial situation, set specific, measurable goals, and align them with your budget. Break down goals into short-term and long-term objectives, allowing for flexibility and adjustments. How Can I Stay Motivated To Stick To My Budget? Review your budget regularly, and track progress. Use apps and visual charts

Interest Rate Swap: Meaning, Benefits and Types What is an Interest Rate Swap? An interest rate swap (IRS) is a contract where two parties agree to exchange interest payments for a specified principal amount and duration. These derivatives are traded over the counter (OTC) and can be tailored to meet the needs of the parties involved. Key participants in interest rate swaps include banks and both large and small corporations. In India, the Overnight Index Swap (OIS) serves as a prominent benchmark swap. How does the Interest Rate Swap work? An interest rate swap is essentially a contractual agreement where two parties exchange their respective loan arrangements. If one party prefers a fixed interest rate while the other favors a floating interest rate, they may mutually agree to swap their loan terms. In such an arrangement, only the interest payments are exchanged, while the loan amount, tenor, and other payment terms remain unchanged. As a derivative contract, both parties settle the difference in the loan payments rather than paying each other’s debt in full. A well-structured swap contract outlines the terms, payment obligations, schedule, start date, and maturity date. Both parties are bound by these terms until the contract’s maturity. The main motive for entering into a swap contract is to capitalize on changes in interest rates. For instance, a party exchanging fixed for floating rates may anticipate future rate increases to earn higher interest income. Conversely, parties switching from floating to fixed rates seek to hedge against potential interest rate declines. In a swap contract, each party achieves its desired outcome. However, only one-party benefits depend on how interest rates evolve. If rates rise, the party receiving a floating rate gain from increased interest income, while the party receiving a fixed rate faces loss. Conversely, if the rate falls, the party receiving a floating rate earns less, while the party with fixed payments maintains consistent interest income. Types of Interest Rate Swaps Below are the mentioned few interest rate swap types: Fixed-to-Floating Interest Rate Swap: In this type of interest rate swap, a participant enters a contract where they receive cash flows at a fixed interest rate and make payments at floating interest rates. The interest is calculated as a percentage of a predetermined principal amount. Floating-to-Fixed Interest Rate Swap: In this interest rate swap arrangement, a party enters a contract to receive cash flows based on floating interest rates and make payments at fixed interest rates. The interest is determined using a predetermined principal amount. Float-to-Float Interest Rate Swap: This type of interest rate swap involves parties entering a contract to exchange cash flows based on floating rates referenced to two different benchmarks, using a predetermined principal amount. Companies can also adjust the type or duration of the floating-rate index to secure more favorable rates in this swap. How to Invest in an Interest Rate Swap? Float-to-Float Interest Rate Swap can successfully reduce interest rate risk by using interest rate swaps. Risk managers can achieve profitable agreements while ensuring optimal cash flow aligned with the demands of the organisation by trading fixed and floating interest rates. Interest rate swaps can also offer chances to purchase low-liquidity fixed-income securities. Interest Rate Swap Example: Here’s one of the Interest Rate Swap Example: Let’s consider a real estate development company, XYZ Properties, which has borrowed funds at a floating interest rate and anticipates potential interest rate hikes. To hedge against this risk, XYZ Properties has decided to enter into an interest rate swap with a financial institution. XYZ Properties agrees to pay the financial institution a fixed interest rate of 7% on a notional amount of ₹50 million, while the financial institution agrees to pay XYZ Properties a floating rate based on the Prime Lending Rate. Through this swap, XYZ Properties effectively transforms its floating-rate debt into fixed-rate debt, ensuring stability in its cash flows regardless of interest rate fluctuations. Advantages & Risks of Interest Rate Swaps:       Advantages of Interest Rate Swaps Risks of Interest Rate Swaps Access to Financing: Enables businesses to access financing based on their preferences and market conditions. Interest Rate Risk: Fluctuations in interest rates can impact both parties. Risk Management: – Helps manage cash flow risks, stabilizing cash flows at desired levels. Credit Risk: Significant risk related to counterparty default. Flexibility: – Highly flexible and customizable to accommodate various needs and strategies. Basis Risk:      – Imbalance in relationship between different interest rates over time. To sum up, interest rate swaps are essential financial instruments for optimising debt commitments and controlling interest rate risk. Even if they have a lot to offer, participants need to be aware of the risks. The most efficient way to maximise the utility of Interest Rate Swaps in financial strategies is to understand and manage these risks. Parties can confidently use Interest Rate Swaps to achieve their financial goals while handling the complexities of interest rate variations in the market by properly assessing and reducing risks. Also Read: The Dos and Don’ts of Personal Finance Planning Apply Now Frequently Asked Questions What Are The Features Of Interest Rate Swaps? Interest rate typically involves exchanging a fixed interest rate for a floating rate, or vice versa. This exchange aims to either reduce, mitigate or amplify exposure to interest rate fluctuations or to secure a slightly lower interest rate compared to what would have been achievable without the swap. What Is The Full Meaning Of Swap? Swap refers to an exchange of one financial instrument for another between the parties concerned. This exchange takes place at a predetermined time, as specified in the contract. What Is The Purpose Of The Swap Rate? Swap rates serve multiple purposes. One example is companies and investors entering an interest rate swap to manage interest rate risk. How Are Interest Rate Swap Agreements Structured And Executed? In an interest rate swap, two parties agree to exchange periodic cash flows. One cash flow is determined by a fixed interest rate, which remains constant over

What is Masked Aadhaar Card? Meaning, Uses & How to Download Are you aware of the smart approach the Unique Identification Authority of India (UIDAI) developed in response to growing concerns around data security? We are discussing The Masked Aadhaar Card, one of the solutions developed by UIDAI in response to fraud and data theft. Let’s look into this in more detail:  What is Masked Aadhaar Card?   A masked Aadhaar card is a version of an Aadhaar card that has the first eight digits of the Aadhaar number hidden or masked. This includes the first four numbers, a photo, and some demographic data. Aadhaar card masking is to safeguard one’s access to essential services and benefits provided by the government. Hiding the important data from the Aadhaar card helps to prevent possible theft and fraudulent activity. By doing so, individuals can continue to avail themselves of various services provided by the government. Since a masked Aadhaar card is approved by UIDAI, people can use this card instead of a regular Aadhaar card for a variety of purposes. This lowers the possibility of theft of one’s original Aadhaar card and ensures data security. Why Should I Use a Masked Aadhaar? Aadhaar masking online offers several advantages for security and privacy. Anyone can lawfully follow the procedure and get masked aadhaar card instead of a real Aadhaar card. The following justifies the benefits of getting a masked Aadhaar card:  Privacy: By hiding the majority of your Aadhaar number, you may safeguard your data. Aadhaar card masking ensures privacy and access to personal data. With aadhaar masking online, the Aadhaar number remains confidential and avoids misuse or theft.   Preventing theft: With the process of Aadhaar masking online, the chances of phishing, data leakage, or false identity theft are minimized. This additional layer of security reduces the possibility of data leakage and prevents various forms of cyber threats.  Legality: The masked Aadhaar card maintains legality under Indian law, serving as a valid form of identification documentation. A person can lawfully use a masked Aadhaar card to obtain a variety of services since this is a legally approved document by UIDAI, except for government schemes and benefits. Hiding most of the Aadhaar number ensures protection against potential misuse or unauthorized access to personal data.  Benefit of a Masked Aadhaar Card Masked Aadhaar cards provide the benefit of data security. For legal purposes, the Aadhaar card is the identity evidence accepted nationwide. Several things are linked to an Aadhaar number. As the information may be misused to obtain personal information about an individual, a masked Aadhaar card ensures that private information is kept secret and safeguards one’s privacy. Using a masked Aadhaar card reduces the risk of fraud and identity theft. This is crucial when sharing personal information throughout the verification procedure. People can conduct transactions without worrying their identity will be used fraudulently by protecting their Aadhaar number.   The Masked Aadhaar card is similar to the Aadhaar card which is valid for all verification needs. The card makes it convenient to opt for services across various platforms. Masked Aadhaar card proves flexible as it can be used for Aadhaar-based authentication and verification purposes by only revealing partial personal details. Masked Aadhaar Vs Regular Aadhaar Understanding the differences is crucial for individuals ensuring they choose the card that aligns best with their privacy preferences and requirements. Here are a few points of differences:  Point of Differences  Masked Aadhaar   Regular Aadhaarb  Visibility   Only the last 4 digits are visible, the first 8 digits are masked in the Masked Aadhaar.  Complete 12-digit Aadhaar number is visible in Regular Aadhaar.  Usability for Government Schemes  Masked Aadhaar cannot be used to avail government schemes and benefits.  Regular Aadhaar can be used to avail government schemes and benefits  Identity Proof while travelling  Yes, Masked Aashar can be used as proof of identity   Yes, Regular Aadhaar can be used as proof of identity   How to Download a Masked Aadhaar card? Understanding the data concerns, UIDAI has provided a straightforward method to download Masked Aadhaar card. In this guide, we will walk you through the steps to download masked aadhaar card online:   How to Download Masked Aadhaar Card Using an Aadhaar Number? 1. Visit the official UIDAI website    2. Go to the Aadhaar Service section and select “Download Aadhaar” at the top of the page.  3. Enter your 12-digit Aadhaar number or the 28-digit Enrollment ID along with the security code.  4. You will receive an OTP on your registered mobile number (Ensure your mobile number is linked to your Aadhaar). You cannot download masked aadhaar without otp.  5. Choose the option to download either – the Aadhaar or Masked Aadhaar.  6. Select “Masked Aadhaar” and proceed.  7. Get Masked Aadhaar which will be downloaded to your device.  8. Alternatively, you can visit an Aadhaar enrollment center and get a masked Aadhaar card. What is a Masked Aadhaar Password?  To download masked Aadhaar card, you need a special password called a masked Aadhaar password. The card will ask for a password each time it is attempted to be opened. The person’s name and birthdate are used to generate this password. This is a combination of your birth year and the first four letters of your name.   Example: Rajesh Sharma the name.  Year of Birth: 1996 To read the document, you will have to enter the password RAJE1996.  Conclusion Your Aadhaar is an important document that holds personal details and your unique identity. Misusing or theft of that information can expose you to fraud, digital theft, and other risk. This masked Aadhaar ensures the security of your personal information and shields your Aadhaar number. In addition to being utilized for bank operations and verification, masked Aadhaar can be used to apply for unsecured loans in a matter of minutes. Just download the Zype app to get a 5 lakh personal loan on Aadhaar card.  In final words, even though regular Aadhaar is a commonly used method of identification, using a Masked Aadhaar can be

What Is a Letter of Credit and How Does It Work? A letter of credit is a financial document issued by a bank that guarantees a buyer’s payment to a seller within a specified timeframe. It is used primarily in international trade transactions to mitigate risks, ensuring that all parties involved fulfil their contractu al obligations. The issuing bank pays the seller directly upon the presentation of the required documents, which usually include shipping and title documents. The effectiveness of a letter of credit lies in its ability to provide a level of certainty in international transactions. For the buyer, it ensures that the bank will only pay the seller once the agreed-upon goods or services are confirmed as delivered.  How a Letter of Credit Works? The process of a letter of credit begins when a buyer and seller agree to conduct a transaction using this method. The buyer then applies to their bank for a letter of credit, specifying the terms that the seller must fulfil. If the documents are in order, the seller’s bank forwards them to the buyer’s bank for payment. This letter of credit process ensures that the seller receives payment promptly upon fulfilling the terms. When to Use a Letter of Credit? Using a letter of credit is particularly beneficial in international trade, where the distance and differences in legal systems between the buyer and seller can create significant risks. It’s ideal for transactions where the reliability of the trading partner is uncertain or when the political or economic stability of the buyer’s country is questionable. A letter of credit provides a layer of security for both parties, ensuring that the seller receives payment as long as the terms of the credit are met, and the buyer receives the goods or services as agreed. In scenarios where large transactions are involved, or in deals requiring detailed specifications for the goods, a letter of credit becomes essential. For businesses venturing into new international markets or dealing with new suppliers, a letter of credit serves as a reassurance that each party will uphold their end of the bargain, thus facilitating smoother and more confident trade dealings. Also Read: What is Personal Loan Repayment and Types of Loan Repayment Methods? How Much a Letter of Credit Costs?  The cost of a letter of credit varies, typically ranging between 1% to 8% of the transaction value, depending on various factors like the creditworthiness of the parties involved, the total amount of the transaction, and the perceived risk. Banks charge this fee for providing the guarantee of payment and the administrative work involved in the letter of credit process. Additional costs can also arise from document handling, courier fees, and any amendments that might be required in the letter of credit. Letter of Credit Types  Letters of credit come in various forms, each tailored to specific trading needs and scenarios. Here are the letter of credit types: Commercial Letter of Credit  It is also known as a documentary credit and is commonly used in international trade. It guarantees payment to the seller upon the provision of documentary evidence that goods have been shipped. For example, a U.S. electronics retailer purchasing TVs from a manufacturer in Germany might use a commercial letter of credit to ensure payment upon shipment of the TVs. Revolving Letter of Credit  A revolving letter of credit is designed for ongoing transactions, allowing for multiple withdrawals up to a certain credit limit over a set period. This type is beneficial for businesses with regular, repeat transactions. Traveller’s Letter of Credit  A traveller’s letter of credit is used by individuals travelling abroad, ensuring they have access to funds. The issuing bank guarantees payment to foreign banks at certain intervals or when requested. For example, a student studying abroad might use a traveller’s letter of credit to secure living expenses from a home country bank. Confirmed Letter of Credit  Lastly, a confirmed letter of credit adds an extra layer of security, where a second bank, usually in the seller’s country, guarantees payment in addition to the buyer’s bank. For instance, a company importing oil from a volatile region might opt for a confirmed letter of credit to ensure payment despite potential economic uncertainties. Example of a Letter of Credit  An example of a letter of credit can illustrate its practical application, especially in a context relevant to India. Imagine an Indian textile manufacturer, “Mumbai Textiles”, agreeing to sell a bulk shipment of fabrics to a clothing retailer in France, “Paris Fashion House.” Upon agreement, “Paris Fashion House” applies for a letter of credit at its bank in France. The bank then issues the letter of credit and forwards it to “Mumbai Textiles'” bank in India. This document states that the French bank will pay “Mumbai Textiles” the agreed amount upon receiving documentary proof that the fabrics have been shipped, typically including a bill of lading. Once “Mumbai Textiles” ships the fabrics and presents the required documents to its bank in India, the bank verifies them and forwards them to the French bank for payment.  Letter of Credit Key Terms Glossary  A letter of credit involves several key terms that are essential to understanding its functioning and the roles of the different parties involved. Applicant: The applicant is the party that requests the letter of credit from a bank, typically the buyer in a transaction. For instance, a company importing goods from overseas will apply for a letter of credit at its bank, initiating the process to ensure payment upon delivery of the goods. Beneficiary: The beneficiary is the recipient of the letter of credit, usually the seller in a trade transaction. For example, an exporter who ships goods to a foreign buyer will be the beneficiary, receiving payment upon presenting the required documents to the bank. Issuing Bank: The issuing bank is the financial institution that issues the letter of credit at the request of the applicant. This bank is responsible for guaranteeing payment to the beneficiary when all

The Dos and Don’ts of Personal Finance Planning While financial goals give you direction and purpose to build a brighter future, a financial plan is the roadmap towards it. In fact, it is a strategy that defines the goals and steps you should follow to achieve them. To create one, you need to carefully assess your financial situation, set specific goals and develop strategies for budgeting, saving, investing and managing expenses. But before you do that, there are some good and bad practices of personal finance planning that you should keep in mind. Good Financial Practices (Dos) 1. Set Personal Finance Goals Efficient financial planning is incomplete without setting financial goals. Finance goals are objectives you set for yourself for managing money. But something that’s more important than setting finance goals is setting the right ones. The best practice is to keep a defined timeline to achieve these goals. Based on the timeline, you can set up three types of goals: — Short-term goals — Mid-term goals — Long-term goals. You can read more about it here. 2. Make Financial Literacy a Priority Financial literacy is one of the initial steps to taking control of your money. When you educate yourself about money, you are able to take better decisions when it comes to saving, spending and investing. This will help answer many of your personal finance questions like, “how to create a budget?”, “where should I invest?” or “what are taxes?” 3.  Track Your Expenses Tracking expenses is another good practice in personal finance planning. Tracking your money gives you a clear understanding of where your money is going. This can help you prioritize your expenses, avoid overspending and help you work towards your financial goals. You can manually track all your expenses by maintaining a spreadsheet or going through your bank statement every month. If you feel this is a very complex and inconvenient way of going about it, then you can try Zype’s spend analyzer, where you can get category-wise spending and set monthly budget goals. 4. Creating a Realistic Monthly Budget You can accomplish your long-term goals when you save more money. And you can save more money by creating a monthly budget. Start by tracking all your expenses and earnings. Next, subtract your expenses from your earnings to check if you’re overspending. After you get a clear insight into your current spending habits, you can decide where you want to cut down your expenses to increase your savings. Create a budget at the start of the month and review it at the end of the month in order to check if you were able to stick to it.  If you do this for 3-4 months, you will gain more awareness about your personal finances and will be able to create a more realistic budget going forward.  5. Build An Emergency Fund An emergency fund is a pool of money that has 3-6 months of your living expenses that you can use during unforeseen times. With an emergency fund, you will always have instant access to money in times of need. If you want to start building an emergency fund, calculate how much money you would need to save up and start saving a set amount every month. Always remember to use your emergency loans only during crucial and unexpected events like a job loss, medical emergency or unexpected bills. 6. Start Saving And Investing Every Month Make savings and investments a big part of your financial plan because it will help secure your financial future and meet your long-term goals faster. It is extremely important to diversify and maintain a healthy balance between your savings and investments. Save some portion of your money regularly into a fixed deposit or invest it in assets such as stocks, bonds, real estate, etc to grow your portfolio. If you’re just starting out, set financial goals, create a budget and automate your savings. You should also research your investment options and consult a financial advisor who can guide you before you invest your money. 7. Start Building a Strong Credit Profile A strong credit profile is the first sign of a responsible borrower and increases your chances of getting credit whenever you need. It also gives you advantages like instant personal loan online approvals, higher credit score and lower interest rates. If you want to improve your credit score and build a stronger credit profile, repay your personal loans on time, don’t exceed your credit utilization of 30% and keep monitoring your credit report to find any errors. 8. Start Building a Retirement Fund A retirement fund is extremely important to secure your future. It helps you ensure you get to enjoy independence and a comfortable lifestyle during the years post-retirement. Before you build a retirement fund, it is important to set clear goals on the amount of money you need to save for it. Start by contributing more savings to your retirement fund, diversify your investments to manage risk and commit to more long-term savings. Regularly review your plans and adjust wherever necessary to enjoy a financially stable retirement. Also Read: Apply for Long Term Personal Loan @15k Minimum Salary Bad Financial Practices (Don’ts) 1. Don’t Overspend & Make Impulsive Purchases One of the fundamental rules of financial planning is to avoid overspending. If you consistently run out of money before the end of the month, then chances are you are overspending and need to cut back on your expenses. Avoiding impulsive purchases and overspending is extremely important to maintain financial stability. To avoid overspending, create a monthly budget and stick to it. It is important to make sure you’re saving money every month. By being aware of your spending habits and implementing effective budgeting techniques, you can avoid making impulsive purchases and make progress towards your financial goals. 2. Don’t Fall Into a Debt Trap If you miss your repayments once or twice due to genuine reasons, it might not create such a big problem. But if you’re consistently missing your repayments or maxing out your credit

Debt Trap – What it is And How to Avoid It? Using debt products like credit cards, instant loans, etc feel like a quick solution for all your money needs. And there are many advantages of using them smartly. But it is a double-edged sword, and if used recklessly, can affect your finances negatively by putting you into a debt trap.  What is a Debt Trap?  Debt Trap is a situation where a person borrows so much money that it becomes difficult to repay.  A debt trap generally happens when someone borrows money, struggles to repay it, and hence borrows more money. This creates a loop where debt keeps piling up, and it keeps getting more and more difficult to get out of it. How Does a Debt Trap Work? The personal loan you take from your lender has two main components: the borrowed principal amount and the interest rate charged on the loan. You have to repay your loan in the form of EMIs which keep reducing the total outstanding amount, helping you clear your loan. When you’re unable to make these EMI payments, the total outstanding amount keeps piling up month after month that can lead to a debt trap. Debt Trap and Bankruptcy  Bankruptcy is a legal situation where a person or a company is unable to pay their debts and seeks help from the court to resolve their financial problems.  If someone has fallen into a debt trap and can’t find a way out, they may have to file for bankruptcy.  Causes of Debt Trap Falling into a debt trap can be a distressing situation for any individual as it can even lead to filing for bankruptcy. However, being aware of the causes of debt trap can help you identify if you’re on that path and help you reverse that situation. 1. Your EMIs are More than 50% of Your Monthly Income When your EMI amount is very high (above 50% of your monthly income), you’re more likely to fall into a debt trap as your loan isn’t fitting your budget. Also Read: Personal Loan EMI Calculator 2. Taking Multiple Loans When you have too many ongoing loans, it becomes very difficult to manage your personal loan repayments. And going overboard on your budget due to loans can wind you up in a debt trap. 3. Lack of Repayment Planning It’s extremely important to create a repayment plan before you even apply for a loan. This involves determining the loan amount you want to borrow along with a set amount you can dedicate to paying your EMIs. 11 Ways to Avoid the Debt Trap 1. Practice Financial Planning  Financial planning means creating a roadmap for your money. It includes setting goals, making a budget, etc., basically making smart decisions about how you earn, spend, save, and invest your money.  This ensures that you have clear goals which help you to prioritize your spending, not splurging money impulsively and avoiding unnecessary debt.  2. Build an Emergency Fund  Your emergency fund is the money you keep aside for unexpected situations like job loss, medical emergency, etc.  It is recommended that your emergency loan should have an amount equivalent to six months’ worth of expenses.  If you have an emergency fund in place, you would be able to pay without having to borrow money and wouldn’t need to pay high-interest charges.  3. Invest Wisely   This means researching the investment opportunity thoroughly before putting money into it so that you minimize the risk of losing your money.   This not only helps you stay on track towards achieving your financial goals while avoiding the debt trap but also come in handy in case of an emergency.  4. Read the Fine Print Before Taking The Debt  When you take a loan or apply for a credit card, you agree to their terms and conditions. Its details are present in the fine print which can significantly affect your financial well-being.  The fine print has important details like interest rates, processing fees, late payment fees, repayment terms, penalties, etc. Understanding the complete details will help you make sound financial decisions and be safe from making any financial mistakes.  5. Pay Your Credit Card Debt in Full  If you do not pay off the full amount due on your credit card by the due date, the remaining balance starts accumulating interest charges. If you do this month after month, interest charges can quickly add up, making it harder to repay the debt.  Paying your credit card debt in full before the due date is a wise financial practice. It helps you avoid interest charges, prevents the accumulation of debt, and increases your credit score.  6. Start Tracking Your Expenses  When you make a monthly budget and track your spendings, you get a clear picture of your financial situation. This helps you understand how much money you can spend, your upcoming expenses and existing debts.  It helps you to make responsible financial decisions and live within your means, thereby keeping your away from falling into debt.  7. Buy Necessary Insurance Buying good insurance is important to protect yourself from unexpected expenses. For example, health insurance covers medical expenses and car insurance covers damages from accidents. This helps you avoid taking loans to cover these large, unexpected expenses.  8. Have Sufficient Liquid Assets  Liquid assets mean financial instruments that can be easily and quickly exchanged for cash like gold, stocks, etc.  By having sufficient liquid assets, you can cover unforeseen costs without resorting to borrowing costly debt. It provides a financial safety net, allowing you to handle emergencies while maintaining your financial stability.  9. Do Not Take More Debt Than You Can Handle  Taking on more debt than you can comfortably repay can put you at the risk of falling behind on payments. This would result in accumulation of interest charges, penalty, etc. which can push you into a debt trap.  By only taking the debt you can comfortably manage, you can minimize the interest

CIBIL Score: The Ultimate Guide Goals give you a direction and purpose to move forward with everything you want to achieve. Even when it comes to money.  Financial goals can help you create a roadmap for a brighter financial future. But something that’s more important than setting personal finance goals is setting the right ones. What exactly are these right finance goals? Let’s find out:   Short-Term Finance Goals  1. Build An Emergency Fund: We all have a natural tendency to think about those what-if situations in our life. Which is exactly why it is important to take charge. Building an emergency fund is the first step towards it.  An emergency fund is like a special jar of money that you can use in those unforeseen times. The ideal way to build one is by saving 3-6 months worth of your living expenses. This way, you will always have money to fall back on.   2. Set a Monthly Budget: Doing something as simple as creating a monthly budget can help you save more for your future. These savings will help you accomplish all your long-term financial goals. Start by making a list of all of your expenses and earnings. Next, identify how much money you would like to save every month so that you can identify where you can cut down your expenses.  This will give you clarity on your current spending habits and help you make better adjustments so you can save more money. 3. Pay Off Your Credit Card Bills: If you have credit card bills that are overdue, make their repayment your top priority. This will reduce your credit utilization ratio, avoid unnecessary fees, and potentially improve your credit score. By meeting these goals, you can improve your financial habits and can secure a more stable financial future. Have you overspent on your credit cards? Click here to learn how you can pay them in 6 quick ways.    4. Build Your Credit Score:  The next step after paying off your credit card bills is improving your credit score. Your credit score is so much more than a 3-digit number. A good credit score makes it easier for you to borrow money in times of need.   Not to forget the perks that come with a high credit such as faster approval and low interest rates. Mid-Term Finance Goals to Level-Up And Get Organized 5. Automate All Your Payments:  One of the important factors that helps you organize your finances better is ensuring you never miss your payments. And the easiest way of going about it is automating them.   The beauty of being in the 21st century is digitalization. Be it your bill payments or EMI repayments, you will always have an option to set up autopay. This simple step can save you a lot of time, energy, and any kind of late fees.   6. Become Debt-Free:  If you’re someone who is currently in debt, then you can create a plan to become debt-free with debt comsolidation loan. Start by making a list of all your debts and prioritizing your repayments. You could also consider minimizing your expenses or taking an extra source of income. With some patience, consistency, and the right approach you can become debt-free.  Long-Term Finance Goals – Thinking About the Future 7. Ask Yourself “What Are My Dream Purchases?”  Before you dive into any big-ticket purchases like a new home, new car, or education abroad, it is important to prioritize them.   The path to achieving long-term financial goals depends a lot on your current finances. Your goals could range from renovating your house to buying a new one.   After you’ve added such expenses to your list, you can start figuring out your next steps like how much money you need or whether you need a personal loan for the purchase.   8. Start Retirement Planning   Starting your retirement planning is the first step towards investing in your future self.   Figure out the amount of money you would need to manage your expenses post-retirement and start saving accordingly.    A retirement plan will ensure you enjoy your golden years comfortably.  Also Read: The Dos and Don’ts of Personal Finance Planning In Conclusion  The first step before adding a dream car or lavish vacation to your life goals is to get your financial health in check. This increases your chances of achieving your life goals while meeting your financial goals too.   You can start with something small like setting a budget or reducing your expenses, and then work towards achieving more long-term financial goals.   If you’re looking to find an app that could help you with those initial steps of taking control of your money, you can consider Zype’s Spend Insights.   Apply Now YOU MAY ALSO LIKE Personal Loan Control Number in CIBIL Report: What is It & How to Get it? 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A Beginner’s Guide to Investing in India Investing your money is a powerful way to increase your wealth and secure financial stability. It is the process of allocating your money in assets with the expectation of gaining profits over a period of time. When it comes to investing in India, you have multiple options like stocks, bonds, mutual funds and SIPs. But before you start investing, it’s important to do some groundwork like setting your objective, doing research, etc. Investment Tips for Beginners Some fundamental investment tips are: 1. Set Your Investment Goals: Are you investing to purchase something or is it for your retirement fund? Whether it is a short-term or a long-term investment, setting a concrete timeline will give you clarity. Factors such as the total amount of money you’re investing, tenure of investment and the expected gains are important when creating your portfolio. When you define your investment goals with these factors in mind, you can make more informed decisions. 2. Assess Your Risk Tolerance: Typically, investing involves some level of risk. This is because the value of your investment can fluctuate. The risk you can afford to take when investing is known as your risk tolerance. When choosing an investment option, it is important to understand the risk associated with it. One way of understanding your risk tolerance is by comparing all the investment options you have. This is important before making a decision. 3. Diversification is Key: “Don’t put all your eggs in one basket” is a very popular piece of advice when it comes to managing the risk of your investments. It is a technique to diversify the risk associated with all your investments. Diversifying investments can mean investing in a mix of options such as stocks, bonds, and real estate to spread the risk. The intent behind this is to minimize the losses you incur with the investments, manage your portfolio during market fluctuations, enhance potential returns and spread your exposure. 4. Do Your Research: When starting out, it is important to study the market before making an investment. When you consider investment options, it is important to understand factors like the risk, historical performance, market conditions, and the returns. This will also give you a better understanding of your risk associated with that particular investment, helping you make an informed decision. If you’re new to investing and need help, you can always approach a financial advisor. Types of Investments in India When investing in India, there are many options you can consider. You can start off with these ones: 1. Stocks Stock represents ownership certificate of a company. Units of a stock are known as shares. When you buy shares in a company, you become a shareholder and own the assets and profits of the company. Stocks are one of the most common investments in India. 2. Mutual Funds Mutual funds are an investment vehicle that pool money from various investors who share similar investment goals and are looking to invest their money in a diversified portfolio of stocks, bonds and other assets. Mutual funds are considered to be one of the most convenient ways to build a diversified portfolio. 3. Real Estate Real estate is another popular investment in India. You can invest in a residential or commercial property either directly or through real estate investment trusts (REITs). Many people lease purchased property to start an income source or resell the property in the future for profit. 4. Fixed Deposits Fixed deposits are considered as a low-risk investment where you invest an amount of money at a fixed interest rate. The return on this investment is guaranteed, making it a safe investment option. 5. SIPs Systematic Invest Plan (SIP) is a popular way of investing in mutual funds. You can invest a fixed amount of money at regular intervals. It allows you to participate in the market while managing your risk better. In Conclusion Starting your investment journey early in your life can help you make the most of the power of compounding, time, and the potential of higher returns. This can positively impact your financial well-being and there is never a better day to start than today. Apply Now YOU MAY ALSO LIKE Personal Loan Control Number in CIBIL Report: What is It & How to Get it? May 28, 2024 0 Personal Loan Top 10 Emerging Trends in Financial Services in India May 28, 2024 0 Personal Loan What is Unsecured Debt? Definition and Examples May 27, 2024 0 Personal Loan Step By Step Guide to Overcoming Financial Crisis May 27, 2024 0 Personal Loan Difference between Debt Consolidation and Debt Settlement May 24, 2024 0 Personal Loan Pre-Qualified vs. Pre-Approved Personal Loan: What’s the Difference? May 24, 2024 0

How to Build An Emergency Fund? The way seatbelts protect you during accidents, an emergency fund protects you during unforeseen times like loss of job, medical emergencies, or unexpected expenses.  What is An Emergency Fund?   An emergency loan is money that you should put aside to cover at least 3-6 months of your monthly living expenses. It’s like a safety net which you can always fall back on.  The Importance of an Emergency Fund The Importance of an Emergency Fund Now that you know what is an emergency fund, the next step is to understand why it is important. Since life is full of surprises and unexpected events it’s extremely important to stay prepared with additional funds. Whether it’s a sudden job loss, medical emergency or even an unforeseen event, having some extra cash handy can reduce the burden of that situation. With an emergency fund, you’re able to meet your basic needs until you figure out the next steps. How much should your Emergency Fund have? Depending on your monthly income and expenses, typically, your emergency funds should be able to meet 3-6 months of your expenditure. For example; if your monthly income is Rs. 30,000 then your emergency fund should be anywhere between Rs. 90,000 to Rs. 1,80,000. Here are 2 Types of An Emergency Fund: Long-Term Emergency Fund A long-term loan for emergencies can help you meet expenses for an extended period in case of any unfortunate circumstances. This can include job loss, natural calamities, medical treatments, etc. Short-Term Emergency Fund A short-term loan for emergencies can provide you with financial support for situations that are more short-lived and require immediate attention. This can include a sudden car repair, accident, etc. How to Create Emergency Fund?   Your future self will thank you for starting early. Start building your emergency fund today in these 5 simple steps!   1. Evaluate How Much Money You Would Need Since an emergency fund is roughly 3-6 months of your living expenses, it is important to understand how much you’re spending monthly on essential items like your rent, groceries, and utility bills.    For example, if you’re currently spending ₹25,000 each month, the best practice is to build an emergency fund of ₹75,000 or more. Also, doing this activity will give you an insight into your spending habits. And it is a great opportunity for you to cut down on your excessive spending. 2. Choose Where You Save Money After deciding the total amount of money you need to build your emergency fund, it’s time to decide where you save this money. The best practice is to choose an investment that is stable, easily accessible, has high returns, and is safe from market fluctuations.   Usually, people open a savings account with less fees and a good interest rate. You can also explore some other investment options like short-term fixed deposits and liquid mutual fund. 3. Set a Target for Yourself Setting a target amount and date by which you want to build your emergency fund will help you speed up the process.   When setting the target, consider factors like your monthly income, expenses, and savings.   The earlier you start, the more time you will have to achieve your target. This could take 3 months, 6 months or even a year based on your goal. 4. Start Saving Every Month Put aside a fixed amount of your total income towards your emergency fund and do this every month.   For example, if you have to save an amount of Rs 3 lakhs and have given yourself a target of 9 months, start putting aside Rs 33,000 every month.   This will help you reach your target on time.   5. Create a Separate Bank Account Creating a separate savings account which is only dedicated to your emergency fund is one way of controlling the urge to spend that extra money. You can go a step further and set up an auto-debit feature on your primary account. This will make sure you are putting money into your emergency fund, every month. The best practice is to set the auto-debit date close to the day you receive your income, helping you avoid any kind of overspending.    How to Save for an Emergency Fund? When creating your financial plan, building an emergency fund should be on top of your list. It doesn’t only act as a safety net during emergencies but also provides you with peace of mind. Here are simple steps in which you can save for an emergency fund: Set a goal: Calculate your total income and expenses to understand the total amount that you need to save for building an emergency fund.  Create a budget: Based on your goal, make sure you create an efficient budget that includes savings for your emergency fund Cut down expenses on non-essential items: Until you have built your emergency fund, make sure you reduce any unnecessary expenses. This can open up more savings towards your emergency fund. Automate your savings: If you’re finding it too difficult to save, automating it is one of the easiest and most effective ways.  How To Secure Your Emergency Fund? While it’s important to build an emergency fund, it’s even more important to ensure it’s secure and accessible. Here are some simple ways in which you can secure it:  Savings account:  Where to keep emergency funds in India? A savings account that’s liquid and secure is the best place to invest emergency funds.  Avoid Risky Investments: An emergency fund is supposed to be easily accessible during an emergency. Hence it’s best to avoid risky investments like stocks or mutual funds.  Keep monitoring your fund: Regularly checking your emergency fund can help you ensure that it’s intact during your time of need.  Don’t touch that fund: Make sure you set strict rules for withdrawing that money and keep it only for emergencies.  Replenish Funds: After you have utilised your funds, make sure you replenish it. It’s important to keep updating and renewing your emergency fund so that

Basic Finance Concepts for Beginners Financial literacy is the first step towards taking control of your money. It makes you independent and helps you in making more informed decisions about spending, saving and investing. It’s never too late to start learning about personal loan. You might have a lot of questions on basic finance concepts like; “How do I make a realistic budget?”, “Where should I invest? What are taxes? How do I plan my finances? This blog on finance basics for beginners is specifically written to answer all these questions. I) How Do I Make a Realistic Budget Plan? Planning a good budget starts with tracking all your expenses to understand where your money is going and where you can cut down on your spending. You can go about this in 5 simple steps: 1. Calculate Your Total Income Make a list of all your sources of income. It could be through your monthly salary, investment income or money earned through your freelance and side projects. 2. Make a List of all Your Expenses Rent, groceries, electricity bills, insurance, loan repayments, credit card bills, shopping expenses, Netflix subscriptions – make sure you include everything. One way to go about this list is to simply check your bank statement to identify all your expenses. Think this is a lot of work? There are budgeting tools and apps like Zype that will do it for you. 3. Label Your Expenses as Needs And Wants ‘Needs’ are expenses that you cannot do without. This should include expenses like your rent, groceries, loan repayments and utility bills ‘Wants’ include expenses that can be cut down on. These are things like shopping, subscriptions, and outings 4. See How Much Money You’re Saving The next step of your budget plan is to check how much you’re saving. Subtract your total expenses from your total income to see how much you are already saving every month. Check where this money is going. Are you adding it to a recurring deposit or investing it in stocks? After this list is complete, you will have 100% transparency about where your money is going. 5. Adjust Where You Can Before you tweak your budget ask yourself; Am I happy with the way I’m managing money? Is there more room for savings? Am I constantly overspending? This will give you a lot of clarity on where you are supposed to start making changes in your budget. Also Read: The Dos and Don’ts of Personal Finance Planning II) Types of Bank Accounts One of the basic things to know about bank accounts is the purpose served by each type of bank account. This can help you decide where to keep your money. 1. Current Account Current accounts are usually used for business purposes. They allow users to make endless number of transactions. Hence, it is recommended for business owners and entrepreneurs. The users must maintain a minimum balance in their account. Although, you miss out on the advantage of earning any interest rate in a current account. 2. Savings Account As the name suggests, a savings account is meant for users to save their money. To open a savings bank account, the user needs to submit their PAN and Aadhaar card. There is no limit to the amount you can save in this account, although there is a chance you have a constraint on the number of transactions. You get an added benefit of interest rate in a savings account. 3. Salary Account It is a type of Savings account where the employer of the account holder deposits a salary every month. There is no requirement of maintaining a minimum amount in the account and, you can make endless number of transactions here. Also Read: Salary Loan Online Apply Now YOU MAY ALSO LIKE Personal Loan Control Number in CIBIL Report: What is It & How to Get it? May 28, 2024 0 Personal Loan Top 10 Emerging Trends in Financial Services in India May 28, 2024 0 Personal Loan What is Unsecured Debt? Definition and Examples May 27, 2024 0 Personal Loan Step By Step Guide to Overcoming Financial Crisis May 27, 2024 0 Personal Loan Difference between Debt Consolidation and Debt Settlement May 24, 2024 0 Personal Loan Pre-Qualified vs. Pre-Approved Personal Loan: What’s the Difference? May 24, 2024 0

Top Reasons for Salary Delay: Best Ways To Deal with Them Have you ever found yourself anxiously checking your bank account, waiting for salary to be credited, only to disappointed that it hasn’t come on time? Many of us would have gone through this frustrating experience, unsure of what to do next. Even a few days of delay could create problems in the life of any salaried person. In this blog, we’ll discuss the reasons why salary might get delayed and what can be done to deal with this problem. When Does A Company Delay Salary? No company delays their employees’ salary without any major reason. It not only disrupts employees’ personal lives but also creates an environment of anxiety in the company. And this can impact productivity in the company. Here are some possible reasons why salary delays happen: 1. Technical Glitch Or Operational Error Sometimes, the reason behind a salary delay could simply be an error by the admin team or some issue from the bank’s end. 2. The Company Is Facing A Cash Crunch Usually, companies maintain a pool of money to avoid this problem but there could be reasons like heavy investments, cash inflow at a standstill, etc that can lead to salary delay. 3. The Company Is Going Through A Rough Phase A company might delay salaries if they have incurred unforeseen losses and is unable to maintain adequate cash balance. 4. The Whole Sector Is Facing A Hard Time When a sector goes through a bad phase, companies try to maintain as much liquidity as they can to survive till everything comes back on track. In such times, salary delays become more frequent to manage cashflow. 5. Catastrophes Like Pandemic, Recession, Etc Such adversities lead to cash flow problems, reduced sales, operational issues, etc and have significant impact on the financial health of companies, leading to salary delays of employees. 6. The Company Goes Bankrupt A company is declared as bankrupt when they are unable to repay its creditors and fulfil its financial obligations. If a company goes bankrupt, the employees may or may not receive their salaries, depending on factors like the type of bankruptcy, employment contracts, and status of the company’s assets. When facing a salary delay, it is natural to feel worried. But it’s important to stay calm as panic can lead to hasty decisions which might not be in your best interest. Your action towards this problem should depend on things like: – Number of days or months of salary delay – Your company’s attitude and response – Your financial situation (debts, savings, financial obligations, etc) Also Read – Salary Loan Online How To Deal With A Salary Delay? Here are three things you can do in case of a salary delay: 1. Talk To Your Employer It’s very important to have an open and honest conversation with your employer. You should express your concerns, ask for more information and enquire about when you can expect to receive your salary, etc. It’s important to remain professional and respectful during the conversation. Your employer might also be going through a difficult time. It is always advisable to maintain a record of this communication over an email so that you have a record for future reference. 2. Send Your Company A Demand Notice You can consider this step if you are still facing salary delay after talking to your organisation. A demand notice is a legal document that is sent to an employer when an employee’s salary is delayed. It serves as a formal request for the payment of the salary that a company is liable to pay its employees. It establishes a formal record of the salary delay. This is helpful if the situation escalates into a legal dispute. 3. File Official Complaint Before you take this step, make sure your salary has been delayed for a considerable amount of time and you’re able to establish that your employer is not willing to pay your due salary. You can approach labour court if you earn less than Rs. 18,000 per month. A labour court is supposed to solve the case within just 3 months. In case your monthly salary exceeds Rs. 18,000, you have the option to pursue the matter through a civil court. Also Read – Get Low Salary Personal Loan How do I File a Complaint Against a Company for Salary Delay? If your salary has been delayed for a long period of time, you can file a legal complaint against the organization. Based on your situation, the intensity of the complaint can range anything between sending a legal notice to a criminal suit. The first step towards making a legal complaint is to file a civil suit against the employer which falls under the Civil Procedure Code 1907. This involves sending a notice to your employer alleging them to pay your salary. If they still don’t agree to pay your salary, you can proceed legally. What To Avoid In Case Of A Salary Delay? A delay in salary could get to your nerves but ensure that you don’t do anything that might impact your life or your career negatively. Here are a few things that employees end up doing in such situations which is a big no-no: 1. Do Not Do Anything Illegal If you do anything illegal like blackmailing your employer or the company to give you the money. They could file criminal charges against you. 2. Do Not Go On A Strike Without A Union A strike without a union is considered illegal. Even a union strike can be deemed illegal if certain pre-conditions are not met. 3. Do Not Stop Working Just To Create Pressure On The Company If you stop working without resigning or serving your notice period, the company can take legal action against you. In Conclusion Your salary is your right, and you deserve to be paid on time and in full. In case of a delay, do the needful as per

What is NBFC? Types and Difference Between Bank vs NBFC We are living in a generation that likes to have their financial activities taken care of even before they drink their first cup of coffee! And it is only fair. I mean, forget the millennials, why should anyone waste their precious time waiting for a simple approval? Thankfully, NBFCs just solve this problem. In the recent past, NBFCs have played a pivotal role in increasing access to financial products for millions of Indians. Non-Banking Financial Companies (NBFCs) offer financial services without holding a banking license and perform activities like lending, insurance, and investment management. But if we already have the traditional banking system offering personal loan, then why do we need personal loan by NBFC? NBFCs were started as an alternative for savers & investors who were either unable to access traditional banking or were not sufficiently served by it. What is NBFC? NBFC stands for Non-Banking Financial Companies which is NBFC full form. NBFCs are companies that perform financial activities without holding a banking license. These companies entered the market not too long ago and are already becoming the raging trend in the financial world. The credit for this goes to the ability of NBFCs to perform all the financial activities that one expects in the most simple, convenient & fastest way possible! While net banking is also a viable option available with the same functions, they cater only to 34% of the overall population using financial facilities. Usually, NBFCs are preferred over banks because they can serve a larger population and fit just right with the mentality of the generation. While there is no hard & fast rule for concluding that one is superior to the other, it all depends on your utility. To understand what is a better option for you, it is important to know the key differences between an NBFC & a bank: Personal Loan by NBFCs NBFC personal loans are bridging the gap between people and their immediate need for money. In fact, fastest loan app that have an NBFC license offer features like instant approvals, automated risk assessments and advanced security systems that increase the accessibility even more. Looking for an instant loan? Zype offers personal loans up to ₹5,00,000 starting at just 1.5% interest. Just complete an easy application in less than 8 minutes and get approved for a personal loan within 60 seconds! But before you apply for a personal loan, it is important to understand everything about an NBFC and how it is different from a bank. What are the Different Types of NBFC in India According to the RBI guidelines, these are various types of NBFCs categorized by their activities and deposit found at apply for a personal loans: Asset Finance Company (AFC): AFCs offer tangible assets like automobiles, tractors, lathe machines, generator sets, etc to individuals and SMEs. Investment Company (IC): As the name suggests, investment companies primarily deal with the acquisition of assets and securities like stocks, bonds, etc. Loan Company (LC): Loan company is the most common type of NBFC that you must be familiar with. They offer personal loans, home loans, education loans, etc. to self-employed individuals, salaried individuals and even businesses. Infrastructure Finance Company (IFC): IFCs play a significant role in offering assets, loans and funding for any kind of infrastructural development. Systemically Important Core Investment Company (CIC-ND-SI): Like Investment companies, CIC-SI are NBFCs that hold 90% of the total assets in the form of investments in equity shares, preference shares and other financial assets. Infrastructure Debt Fund: Non-Banking Financial Company (IDF – NBFC): IDF-NBFCs assist in the flow of long-term loans to infrastructure projects. Non-Banking Financial Company: Micro-Finance Institution (NBFC – MFI): NBFC-MFI is a non-deposit-taking NBFC that offers collateral-free loans to Rural households whose annual income is not more than Rs 1,00,000Semi-urban and urban households whose annual income is not more than Rs 1,60,000. Also Read: Unsecured Loans Differences Between Banks vs NBFC Personal Loan 1. Authorization The biggest factor that sets an NBFC & bank apart is who are they authorized by. To carry out all core functions such as creating credit, drawing cheques, and so on, a bank requires a banking license which is usually issued by the government. While NBFCs don’t require a banking license, it doesn’t mean they don’t need any kind of authorization. A non-banking company usually needs an NBFC license which is authorized by the RBI. 2. Roles and Functions While some functions may overlap between NBFCs and banks, there is a lot of difference between the activities they can and cannot carry out. The primary reason for this is that a bank plays a vital role in the payment and settlement of the system. Banks perform activities such as giving loans at a market interest rate, creating & distributing credit, depositing money, allowing demand deposits, making safe money transfers, managing withdrawals, clearing cheques & general utility financial services. NBFCs perform activities such as lending loans (personal & business) & credit lines, distributing investment products, managing assets (if providing secured loans), depositing money (only for a short-term loans for short time up to 60 months), and making online withdrawals. Since NBFCs don’t hold a banking license, they cannot perform activities such as making demand deposits, creating credit, or clearing cheques drawn on themselves. 3. Application Applying for an account at a bank looks very different from applying for an account at an NBFC. The biggest difference lies in the amount of documentation and the speed of approval.While a bank will ask you for a lot of documentation such as your address proof, PAN card, nominee details, and so on, an NBFC takes only basic information of your PAN number. More the documentation, more is the time is taken for approval. Hence,it may take 2-3 business days for a bank to get back to you with an approval, but an NBFC doesn’t take more than minutes! 4. Demand Deposits Demand deposits are when a user can