 Hi folks, my name is Deepak, Deepak Shanwai, I work with a company called Capital Mind, we do a lot of crazy things with investments, we are very happy customers of Satyajit's company, Zerodha as well, and we will talk a little bit about payments, investments and the banking system today. So you know if you look at the past, like the real, real past, payments, investments were used largely to hide cash, so if I had a lot of black money, I would buy an insurance policy in cash, and I would keep that insurance policy document with my neighbor, so if they came and raided my house, they would find nothing, and then I could go and take the insurance policy, give it back, they would give me money, either in cash or in check or however I wanted it. So this was a law for a long time, investments were largely used, most retail level investments were used for you know moving cash around, this whole black money elimination concept was a laugh, you know people would say black money they couldn't eliminate, come on. So this is over time you know, then the government tried getting involved and said you know we need to stop or slow down some of these mechanisms to hide stuff, we want to know who you are, largely a cash investment does not tell you who the person is, so we need to know who you are, where the investment came from, we need to trace it back, and that soon started setting up into regulations, you can't buy stuff about 50,000 rupees without giving a pan card, you can't do anything in the stock market with cash almost, I mean there are ways but I won't talk about that here, but you are typically as people in this room most likely never going to see cash being used in a stock market transaction, in mutual funds it gets even worse, I mean they require not only your, I mean you need to have a bank account in the first place and then a mutual fund setup which again has no cash input, insurance now they have cut it down a little bit, there is still stuff that you can invest in that uses cash, cheat funds real estate till November last year, then I think a few others like PPF I think you can still go and put about 10,000, 20,000 rupees as cash into a PPF account that will probably also go away soon, so we are moving towards low I know a less cash more recognized system of investment, the peculiar problem that happens with investments unlike you know if you are a merchant selling like you know SD cards, I can pay 2% my margin is 15%, I can pay 2% for a credit card, I can pay 1% to a debit card, I can't do that for an insurance for a policy where I don't have that kind of margins or for a mutual fund, you give me 100,000 rupees I am going to invest it, I can't pay 1% of that to somebody who offers me a payment gateway, the transaction costs of cash have to be very, very narrow and I think Satyajit mentioned this, one of the things that happens is they can't, they charge, if you are a customer of most of the brokerages in India, they will actually charge you money to use a payment gateway to transfer money to them and that's because there is not, I mean this is not a business where you know you are going to make so much margins that you can subsidize the cost of the transaction, one of the reasons, one of the things that happens because of this is checks become more useful, so everything happens with checks, so the broker tells you give me a check for the amount that you need to pay, a mutual fund is very happy to accept your checks because checks are free, checks are free by legislation, now the government has actually set up this whole system that said, I mean the RBI set it up saying, listen checks are, if they are local, you can't charge the customer for them, you can't charge the customer who writes the check, you can't charge the customer who receives the check, if it's local and now because of the check truncation system, everything is local, now I won't go into the details of the check truncation system, essentially earlier your actual physical check would go to the other bank when you deposited it in your bank, now what they do is they take a photograph and say boss this is what he gave me, I, you just tell me if the signature is okay and the guy says okay signature is okay and that's fine, so it's like a semi electronicish mechanism somewhere in the middle that saves a lot of cost, checks are the costliest form of transaction for a bank, largely because they can't charge you anything for it, so they have to keep the cost for themselves, the bank NEFTs or IMPS or RTGS are the most other forms of transfer, now you can't transfer a large amount by check immediately, check still takes time to reflect, so you want real-time transactions, they're going to go through RTGS, UPI and I'm going to show an example of that, so when you have a customer initiated transaction, the customer wants to transfer funds to you and he initiates the transfer and then somehow tells you listen I have transferred so much money to you, typically that happens with a check, you get to know, you record the check number, you can reconcile, you also have producer initiated being a mutual fund, you tell a mutual fund, you go to a mutual fund website and say I want to pay you 5000 rupees, now he initiates a transaction through a payment gateway, here they can't accept check, sorry credit cards that's for a different reason, but they most likely will try to make you go through net banking or I think a debit card now, because some there are some transaction costs that have come down substantially and lastly for these SIP kind of transactions, there is an automated clearing house, you take one mandate from the individual who they take a mandate from you and then they debit your account every month using this NACH mandates, the problem with these things is that you might have given a mandate 2 years ago, it might still be valid and you want to go to your bank and try to reverse it, I do not recommend doing this unless you are suicidal, actually I do not recommend doing it even if you are suicidal, but it's a really bad system because you have to go to the bank, you have to tell them look I want to stop this thing because if you actually don't tell them, you don't have enough funds in your account, the bank will charge you 350 rupees because of low balance and you don't want to get that hit, so you want to tell the bank stop this thing and then they will tell you no, you tell the other guy to send me a letter that they will actually stop this thing and then the other guy is some mutual fund and he will say listen it will take you 7 days, in the middle there is one date in which the check is going or the transaction is happening, so you don't want this stuff happening, you know you don't want this happening to you, so one of the problems with that is this, so one of the solutions something like this is UPI, I mean one of the things that is happening right now and although SEBI hasn't really said this is okay, this is what is happening you know today a lot of mutual funds and banks kind of try to sit on the edge of regulation, so when there isn't a regulation let's see what we can do SEBI comes back and say no, no, no you can't do this then we won't do it, so IDFC has started this concept where you can go to this website, you can go to the website, it's very strange because you can't do it on the mobile for some reason, so you go to the website and you say okay this is my UPI ID, I want to transfer money to you and then they send a request to your UPI then you have to open your mobile and say okay and then the money goes to them, so this is an interesting approach, I think it's very early, I shouldn't say bad things because this is like 15 days old or something but this is an interesting mechanism because instead of doing that regular with this ACH mandate where to stop it, I have to go to the bank and run through hoops, I can actually ask a mutual fund or a regular investment product to tell me give me an instruction that you want 15,000 rupees per month from me every month, it'll come as a UPI request to me, I can just say okay I enter my PIN and I'm done, this is great because now there's no going back to the bank and saying stop this, if I want to stop it I just don't accept the transaction, so it's an interesting you know concept, one of so this is one thing I mean you this is the inflow part of the equation that means you're investing but whatever money comes out of the financial system is almost always in the banking channel, so you'll get checks even from PPF now, you will get dividends and interest from companies or from bonds that you buy or everything comes in electronically or through checks, in fact the government has actually said that if you don't have a DMAT account, you will actually ask people to deduct tax at source on interest that you receive from certain kinds of products like bonds, so if you have a DMAT account now a DMAT account is another kind of an account where you can store all your investments including your mutual funds and so on, the government tries to encourage this in one place, what happens of course you know cheat funds in real estate, the outflows are also still in cash, though I wouldn't recommend it because you know there's a lot of other stuff that happens over there, you hold investments in multiple ways, now if I were to tell you listen give me this share and I'll give you 50,000 rupees, I end up having some risk and you end up having some risk because you'll say hey Deepak Shana said he'll give me 50,000 rupees but he gave me a check, the check didn't clear or I'll say listen you gave me some security which was in paper but it's not really you know it's fake, there's a counterparty risk that happens what if we said instead of you trading with me there is some guy in the middle called a national stock exchange or a Bombay stock exchange and there's a clearing, they clear a transaction, they help clear a transaction so I do a trade with you, you don't I don't even know who you are, you're mostly anonymous to me I'll say I want to buy the share, you say you want to sell the share and your shares automatically come in through and my money automatically comes goes in goes in through the system, these are called central counterparties, the other kind of counterparties in the system are regulated and this is very important because you know every investment product at some level needs some regulation otherwise you don't know where your money is going so even real estate is getting regulated now so a mutual fund for instance you just you can pay a mutual fund you know what it will you will get your money back even brokers although they some of them have got a bad name the brokerage system is actually such that you will get your money back if your your money is in your account there is a system that actually says if any broker defaults will pay you back and all of this is electronic so much of these investment related systems have a lot of you know a counterparty risk removed it's similar to perhaps why we go through Flipkart versus going to some other random website and just directly buying products because we can press Flipkart to make sure that if the product is it doesn't reach us we'll get our money back and so on excuse me so there are many of these you know these kind of things in the middle there the intermediaries the clearing agents DMAT agents and eventually I think paper holdings will go away what you can hold as paper it's called bearer stuff that you can go and give it give to somebody and say listen I am this person give me back the money that stuff is going to go that stuff is going to go away eventually it's going to be like I can you can give me this paper but I will only return the money to the bank account that was created that originally funded this transaction this is great because let's say you die and your children and wife need to or husband need to find out what you invested in if it's in paper it could be anywhere and they wouldn't be able to find it but you know at this point they can just go to a single central counterparty and say listen with this pan number can you tell me what all has been invested and bring it all together it's bad for privacy because if somebody else did the same thing they could find out how much money you had invested in what so there are some good and bad things about it right now things seem to be quite you know split between the two one of the things that you know people have done for stuff like this is one time mandates so what you do is instead of giving this a CH for every single mutual fund I want to invest in reliance mutual fund every month I want to invest in IDFC mutual fund every month that is like two different mandates just give it once and your advisor can then split it across onto all of this stuff so this is interesting because you get one wet signature and then you you can send they can send the money to any fund house I think this is a startup script box which does this in some sort of way they take one mandate from you and then push it push it to different areas are the RBA hates the fact that you may be able to take credit to invest in stocks specifically they just hate it so because they believe that if you're doing that yourself a quasi bank of sorts okay so you need to be regulated so credit cards they don't like as acceptance criteria so a broker will not accept a credit card plus the transaction fees of two percent are too high guess what one of the complications that's happening because I think free charge is trying to partner with a mutual mutual fund to be able to invest is I can use my credit card to put money into free charge free of charge and then I can use that money to invest in a mutual fund which is risk-free and I'll come to why it's some of the mutual funds are very low risk and then in a month I can give it back free of charge and then you know you've got you've got stuff that happens I'm sorry I'm just a little running too slow on this so I'm going to do this last part this is interesting you know you can ditch a bank a bank is now abstracted away let's say you park your money in these liquid mutual funds and I'll show you how we can probably discuss this later but you'll save 80% of tax if this is money that you're not using you can just use the interest on this money over time you can use credit cards to pay for stuff and then you can redeem part of your investments when you want to pay your credit card bill you can literally get rid of the bank as part of your life if the so what's happened now is there's I think the reliance mutual fund that actually gives you a credit card or debit card on your investment itself so you take a debit card you swipe it use it online the money comes out of your liquid fund the liquid funds offer you seven eight percent sometimes and these are much better in terms of taxation than your fixed deposit or your savings banks so it actually becomes a quasi shadow bank of sorts you've created your own mechanism to do this but you've gotten rid of the bank I won't go into this this is a little complicated I think we'll run short of time I'll go come back to it later but essentially this is how you save 80% tax and you if you took out 2 lakh worth of profit in something where you invested 10 lakh rupees in you might pay just 10,000 rupees in tax that's the you know the difference is the in in terms of the taxation that you would you would face you also have instant redemption you're you're you're on a Sunday you don't have a credit card you need to use a debit card your bank does not have their balance to use it you can do an instant redemption from your mutual fund the money comes into your account in five minutes I think I mean I've done this so it has come in less than five minutes or five seconds but and then you can use the money instantly we use this a lot in our field because we keep you know you have idle money all the time because you've sold some investment you don't have anything new to buy just dump it into a liquid fund and then suddenly some stock falls 30% you should buy this but then you know then you say okay instantly redeemed from the mutual fund but put it back into your brokerage account and buy this stock so we do this instant mechanism quite easily and I'm looking forward to UPI changing some of that as well okay you can see the start of a liquid fund okay so there is some risk involved in liquid funds but in the last 17 years there isn't been so much of a risk you can see that little blip in 2013 little that much that was the risk that we've seen in these funds and on average this thing has returned approximately seven and a half eight and a half percent in the last five or six years it goes up and down based on interest rates as well but it's never as low as a savings bank account which is your four percent or lower and sorry you don't um it's also great for corporates because you can put money on a friday take out take it out on a monday and you'll earn the interest for three days find a bank that pays me interest for three days and they won't even talk to you at less than 15 days and less than 15 days some of them say I'll give you one percent I'm like dude that I can put it in my savings bank account and you know it'll give me more like precisely they don't want the money for like really short periods but you can use these liquid funds to do that and the risk is relatively low effectively what you're doing when you buy a liquid fund is you're financing a bunch of really large companies or banks banks themselves borrow from these whole sale markets where liquid funds give them money they borrow at about seven seven and a half maybe seven percent which is higher than you would get paid by the bank themselves and this money is usually available on demand to you so you a corporate for instance might be able to use this much better because you know you you have the ability to manage your cash much more easily in the shorter span of time a bank typically earns three percent they give they give you four or five or six percent they lend out at eleven percent twelve percent you can get do the same thing for yourself and the charges that the liquid fund charges you are approximately 0.5 percent so you instead of you remove the intermediary in this case he'll exist but it's just much more subliminal level yeah that's what I have for you today thank you Deepak can you give him a round of applause please do we have any questions newbie question how do I get started with educating myself on equities and mutual funds and as it as someone who is always in like in the technology field how do I become financially literate any recommendation on getting started that's a good that's a good question zero line themselves they have a thing called zero the varsity which has a bunch of I think they currently text tutorials on a lot of stuff around equity investments there is the Salman Khan Academy who has some very basic stuff around sorry mutual funds and structures though they US centric I think the concept is pretty much the same as in India there is also you know the problem with it in India is that everything changes every few years so you build a very complicated commentary about how something works and then they change all the rules so most of the stuff you'll have to find is relatively new but one of the basic things is don't invest in what you don't understand so try to understand it you know I think that's the that's the bigger thing and some connect with me offline we have there's a bunch of videos around Indian mutual funds and Indian equities that can help you get started around around of this and more importantly if anybody offers you something like a 12% risk-free return always say no so if it's 12% the risk is free is any other questions yeah that's one that's it how come as a customer I never know about this liquid funds and where can I find how to invest in liquid funds okay we have a video on this and I can send you the link but you see this is this is the stuff banks do and the liquid fund is not bad stuff so that's why you don't know about it because they don't they don't want to tell you to for the most part they don't own any commissions I mean if you're charging 0.5% how much commission will you give so you you don't get that feedback from them so liquid funds you can find information on this on many of the mutual fund websites IDFC and reliance have some interesting reliance mutual funds have some interesting training material on how you can how liquid funds are structured but yeah you connect with me offline Deepak Shanno at CapitalMind.in I'll send you some links and videos as well if that helps before we take the next question a very quick announcement there's a buff that's going to happen at 430 on the point of sale online opportunities offline challenges and will be fascinated by Akash Gehani, Chaitra Sadanand, Raj Subramanyam and Yashwanthes any further questions yeah we have a question here what is the extra risk that explains this extra return compared to fixed deposit what's the extra risk here so what happens typically is the risk is yours versus the risk is the banks when I lend sorry when I lend to a liquid fund it can't guarantee me a return it can't you just have to look at the past and say okay this is approximately what return I can get or look at the market right now but a bank takes on the risk so the guy on the other side defaults the bank will not say oh you know what he's defaulted I can't pay you back your money here the liquid fund can say that so to avoid this they have a bunch of mechanisms they they invest only in paper liquid funds only invest in stuff that matures in the next three months they also invest in hundreds of companies rather than one or two so that one default is going to be relatively small that's that little blip that you saw there was when Subra came one day and said oh I'm increasing overnight rates to 12 percent so what was 8 percent became 12 percent even that blip got over in a few days so that kind of risk is not there for you in a in a in a fixed deposit or a bank but on because you get paid for that risk that's an extra percentage point or two that that you get yeah there's one more question there any book this is very key um yeah oh there you go hello quick question now the mutual funds are all actively managed funds right are there any ETF style funds over here as well there are so ETFs are typically in India and there is equity mutual funds and risk based mutual funds so you don't have any money market ETFs there's only one that I know of called liquid bees because of the tax structures in India they the return for you is only four and a half percent in that particular fund so it's not very exciting from a return perspective it's great for us market players to park or access money for very short periods but ETFs exist you can buy them off the market they're passive mostly passive investments there's about I think there's ETFs on gold you can even buy NASDAQ or NASDAQ 100 related ETFs in India there's a NASDAQ 100 ETF and because of the rupee going to 70 it's the best performer in the last four years so they are they are available just that the liquid part of it is very very narrow there's not much there any we will take we can take one last we can take one last question this is not related to the talk but general investment question my name is Vikas I'm from Jaipur the question is if I have to buy facebook stock what is the easiest way as an Indian citizen to do that as an Indian citizen get an account with an international brokerage like you can get an account easily with interactive brokers there's another broker called Drive wealth who's also partnered with Axis Bank to be able to transfer money on through the banking system once you get the account online then you can just you have to fund your account once you fund your account that it involves an international transaction you'll do some paperwork with your bank after that you can it's like an online interface you just say fb.buy whatever I mean just select the clicker and buy it that's it so it's drive well drive wealth and what's the first one interactive brokers interactive brokers.com these are Indian companies and these are US companies they have an Indian interface I mean they they actually work with Indian customers if you're an Indian citizen or an Indian so if you're not a US citizen the life is a little more complicated because you have to submit some more forms if you're a US citizen you just have to give your SSN or whatever it is no I mean the so if I have to fund the account is there any regulations I mean I'll be converting rupees to dollars and then yeah you can't do more than 250,000 dollars a year okay which if it's not a problem then yeah yeah if it's a problem we can talk later you know so yeah okay thank you Deepak please give him a round of applause