Who came first: Saver or Borrower (Version 0.1)

Volume 1:

In the financial market, we basically have 2 parties of the transactions. Lender / Savers and Borrowers. Savers do saving for their future where Borrowers needs money to finance their current events. These events can be in terms of short term or long term requirement.

Short term can be,

• Buying food,
• Clothes,
• Home appliances,
• Personal celebrations like Marriage, Honeymoon etc.
• Home improvement

Long term can be,

• Buying a property like House, plot, commercial or residential
• Buying equipment’s like Manufacturing machines etc.

Savers save their money and get some sort of benefits for saving these funds we call it as Interest/ Profit. Whereas when borrower takes the money, he also needs to give the money (Principal) back and with more money which compensate the usage of principal funds for the duration, which we call as Interest. If these Savers and Borrowers deal with each other, before the deal there should be a trust factor that needs to build among them. As during this kind of one to one transaction, problem has started mostly from the Borrower side, where he refused to make re-payment of Principal + Interest on time and the trust has been broken.

Savers/ Lenders postpone their utilization of Money for the future and Borrower will utilize these servies/ products Now, with borrowed money. So in present Lender has Given Up the Money (P) and Borrower has Taken Up the Money (P). In future, Borrower needs to Give Up the Money (P) and Lender should Recover or Take Up the Money (P +I).

  

Event	Lender	Borrower
Present	Given Up the Money (P)	Taken Up the Money (P)
Future	Recover/ Taken Up the Money (P + I)	Give Up the Money (P + I)

Where there is small gap between the Lending the money and taking the money back, Liquidity arises. When there a big gap between the Lending the money and taking the money back, Liquidity problem becomes solvency problem. Liquidity problem are short term in nature and Solvency problems are long term in nature.

To build the trust, new parties has been started getting involved in these transactions. Who fill the gap of Trust between the Savers/ Lenders and Borrowers? These entities are Financial Institutions like Bank or NBFCs. When the new parties are getting involved in such type of transactions, it believed that the market conditions should get improved from both fronts i.e. Savings and Borrowings.

This Financial will set Interest rate from both sides of the transaction and difference of the interest applied from Saving and Borrowing side, profit will be booked for Financial Institutions. These are called SPEAD.

The process was going smoothly for all the 3 parties, Lending, Borrowing and Mediator. Note that, here Savers/Lender did not know to whom their funds are lying. Means whether their funds has been given to borrower or money has been kept in Banking lockers for provisioning. In this case savers/ lenders only need to contact with his or her Financial Institution.

In similar ways, the Borrower when take the money, it is the Financial Institution who lend the money to Borrower. Here in this case borrower did not know who’s money he is using. Borrower needs to repay the Principal + Interest to the FI on scheduled time and frequency.

The problem has not solved yet. The problem of getting Principal + Interest from Borrower. Trust factor has been increased due to availability of huge corpus of the Savers/ Lenders with FI and making this Money available as finance to the forward customers i.e. Borrowers. Borrowers again breaking these trust and not returning the money to FI, which intern the money of the Savers/ Lenders. One point needs to make is that, the Savers/ Lenders can be Inside or Outside customers to FI. Inside could be the Investors who put their money, to run the FI. Outside Savers/ Lenders could be individual customer or corporate customers.

As single individual can be a Saver/Lender or Borrower. For example a salaried employee saves funds in PF and can have home loan. Based on the saving behavior, FI and Government has come up with different types of saving products which give Interest/ profit differently. In similar way, from the borrower side, different product has come up to suite the needs of the parties.

To create money in the system, usually there are collateral which give support to the money created in the system. These collateral can be of the Real or Financial and that can be of the followings,

• Gold
• Silver
• Oil
• Plot or Lands
• Treasury Bills/ Notes / Bonds
• Cash Management Bills
• Currency Reserves (Again backed by world reserve currency like USD, EUR, GBO etc.)

Based on these collateral, new money gets circulated in the system, and FI believe that they will support the Economy.

Five Investments options during COVID19: Personal and Financial level

Five Investments options during COVID19: Personal and Financial level

During this tough time, where earnings has been reduced, job has been lost, government is planning aggressively to fight with pandemic both at Population level and Economic level, one need to change their habits in terms of Personal and Financial level. Based on my personal experience and knowledge, I am bringing the Five investments which an Individual can do in terms of Personal and Financial level.



Personal Level:

1) Develop Mental Health: This is very important in terms of all the options. Mental health will give very good support to individuals to stay Focused, Healthy, Stress-less, etc. in the current pandemic situation. Watch motivational videos/ movies, read Fiction or non-fiction books, do Yoga (focus on breath-in and breath-out) etc.

2) Maintain Physical Health: Adopt a good habit of Gym exercise, Yoga, Dance etc. As this will make your Mind, body in good shape and you will feel relaxed, energetic and focused. Blood circulation will also improve in these cases.

3) Eat Home Made Food: Eat mostly homemade food and include vegetables, fruit, grains, spices etc. in your diet, include milk with turmeric, Garlic, Hing, Cumin etc. Clean the food before serving and preparing.

4) Have some Play: Try to play some indoor games like Chess, Carrom Board, Saap Siddi, Ludo etc. If you have children at home, that will be good, they have some crazy ideas and try to mingle with them and do whatever they say, you will definitely enjoy the togetherness and craziness with children.

5) Maintain good Hygiene: This is for the precautionary measure one need to take. From here on-wards, personal hygiene becomes necessity and important. Government is also encouraging to maintain the hygiene when going outside, specially when going in public places like train platform, Airport, bus stop/ depot, shopping malls, cinema halls, etc. Wash you hands with Soap, take proper bath, clean your home, clean your washrooms, clean your clothes on regular basis. Teach these good habits to your little one as well.



Financial Level:

If one have good finance available during this pandemic situation and can foresee that he can manage his finances in long term, he can choose the following investment options. These options are applicable for individual customer segment who is in Higher Middle class, Higher class level (Exception to this are always available).

1) Invest in Properties: Buying properties can be a good and fruitful bet during this pandemic situation. Interest rates has come down and now home loan is available with 7.8% PA. Choose good bank to bank on. I prefer HDFC, HDFC Bank, SBI, ICICI Bank. One can buy properties like Residential Flat, Plots, Commercial premise, Auctioned properties etc. While selecting the properties, you need to consider the reputed builders, good locality, good amenities etc.

2) Invest in Shares: Currently share market facing downhill situation and major share markets had been crashed due to COVID19 impact. Business are not running their operations, cash flow (In and Out) has been minimized hence economy is going in no growth trajectory. In the Share market, majority of shares are now available at a discount of 30% to 80%, means share which are trading during Jan at peak level say INR 1000, now sharp correct has been seen in these shares and available to say INR 300. Look for the quality shares in the market. Before any investment in these instruments, please discuss with your financial advisors. Investment in such market is risky and one can lose his or her corpus.

3) Alternate Investments: These include investments in precious metals like Diamond, Gold, Silver, Platinum, Palladium etc. One can buy luxury goods such as watch, decorative items etc. as they are available at discounts at this situation. Gold and Silver are the topmost choice as their demands are keep on growing and can also be sold in the market as liquidity in these metals is good. Gold is treated alternate to the Money in the economy.

4) Investment in Startups: During this situation investment in startups is not recommended y most of the analyst, but I prefer one can invest in the same. As an investor, you can ask for good equity in the company. After the lockdown gets over, these startups again be operational and do good business. Personal equity investment is good choice, but one need to do proper analysis on the startup business, before the investment.

5) Investment in Agriculture: In this segment, one can do investments in Cold storage, supply chain management, Distribution, Wholesale business for the agriculture products. These are fundamental business and the requirement for Agri products are keep on growing. Investment in this segment will be good bet and should be linked with long term growth.

Disclaimer: The above inputs are my personal opinion and thoughts.