Are you among those who put all the small change accumulated during the day in a piggy bank every evening? Collecting small change is among age-old household habits, but with the onset of online payments, the concept is getting old.
Some financial apps are trying to tap this habit even with digital payments. Recently, Deciml, a fintech company launched their small change investing feature. Several other apps, including Appreciate, Jar, Niyo and others, too have entered this segment.
Here’s what small change investing is all about and its pros and cons.
These apps are based on the concept of micro-investing. To be able to do that, they scan the SMSes related to financial transactions received on your device and other data. Each time you make a digital purchase or payment, the app will send a nudge to invest the digital spare change. The app nudges you to invest the difference between the billed amount and the nearest round figure. For instance, if you pay Rs 595 for a new earphone, the app will give you the option of investing Rs 5.
These apps automatically round off the transaction to the next 10 (or a multiple of 10, whatever you choose) which in this case is Rs 600, and instantly invest the spare change, says Satyajeet Kunjeer, founder and CEO of Deciml, a financial services company.
Where your money gets invested depends on the app you choose. Usually, apps have tie-ups with different providers. For example, Deciml users can invest in schemes of ICICI Prudential Mutual Fund and Motilal Oswal Asset Management Company. The app also gives the option of investing in a fixed deposit. Similarly, Appreciate app allows subscribers to invest in US stocks. The Niyo app allows users to preselect a mutual fund of their choice. After the saving hits a minimum threshold, the amount gets automatically invested in the chose fund. Jar app allows users to buy digital gold.
Change investing is suitable for young investors as there is no minimum investing limit in most of these apps. For instance, it will also invest Re 1 on your behalf. Plus, it may help inculcate investing habit.
“The liberty of investing a little more whenever you want, to help inculcate the idea that rather than leaving around any bonus money or focussing on spending it, it’s always a better idea to invest it (no matter how small it may be),” adds Kunjeer.
Some of these apps also include suggestions and advice through robo advisory. For instance, Appreciate app provides artificial intelligence (AI) algorithms to suggest US stocks.
These apps also make tracking expenses simpler. “This type of investing fits in perfectly here because this is a demographic (young people) that is already pretty tech-savvy and transacts digitally almost every day,” adds Kunjeer.
Overspending: These apps may indirectly nudge you to spend more to invest more.
“While small change investing may help young people get into the habit of investing but for the long term, it is not feasible. Suppose you buy a pizza for Rs 196, then Rs 4 will get invested. For investing a sizable corpus, you need to spend more. So, indirectly these apps are encouraging you to spend more to invest more. If investors are serious about building a sizable investment corpus, they should use direct mutual fund platforms and apps to invest systematically rather than using these change investing apps." said Rushabh Desai, founder of Rupee with Rushabh Investment Services.
Data Privacy: These apps track SMSes and other data in your phone, which means some of your information is exposed. Desai further, says that there is always a risk of personal data privacy with these small change investing apps. These apps could in the future harvest financial data of users and target them with cross-selling of other financial products or may even sell this data to other companies.
“Since users are agreeing to these changes, investing apps reading and analysing users’ SMS there is always a chance of sensitive financial information data getting leaked or hacked. Platform specific cyber safety mechanisms need to be checked by the individual investing in these apps,” added Desai.
Always read the terms and conditions of these apps and ask about the app’s specific data handling and governance protocols before signing up.
