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Business News/ Markets / Stock Markets/  Why Zerodha founder finds retail investors using 'Buy Now Pay Later' products a worrying trend
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Why Zerodha founder finds retail investors using 'Buy Now Pay Later' products a worrying trend

Investing using borrowed money reduces the odds of profitability significantly because of interest & margin requirements, Zerodha founder said in a tweet

Closeup of a stock market broker (istockphoto)Premium
Closeup of a stock market broker (istockphoto)

Brokerage firms trying to monetize retail customers using ‘Buy Now Pay Later’ (BNPL) type of products for investments is a worrying trend, as per Zerodha's founder and chief executive officer (CEO) Nithin Kamath, who believes that it is not good for the customer & if the customer does not do well with their money, it is also as not good for the brokerage firm & the stock markets overall.

“Investing using borrowed money reduces the odds of profitability significantly because of interest and margin requirements. The risk of leverage is forced liquidation of stock holdings when there is peak volatility, panic, and at the worst possible prices," Kamath said in a tweet.

“Not borrowing to invest is a massive advantage for retail investors because you aren't forced to exit at the worst possible time at the worst prices. This allows you to stay invested and compound your money steadily over the long term," the Bengaluru-based online brokerage firm Zerodha said in a tweet.

Global as well as Indian domestic equities were hammered on Thursday as they tumbled as much as 5%, after Russian President Vladimir Putin's announcement of starting a military operation in Ukraine. Oil prices have also been rising amid the ongoing crisis and on worries about supply disruptions.

The volatility in the stock markets has continued in the past few sessions as Russia-Ukraine crisis worsened after which western nations ramped up sanctions on Russia, while a Ukrainian delegation arrived for talks with Moscow on the border with Belarus.

“One big reason for our growth over the last few years is that most investors made profits. We consciously don't provide leverage to invest. So on Thursday, when markets were down 5%, no one was forced to sell. In fact, it was our biggest day in terms of stocks bought," Nithin Kamath added.

 

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Published: 01 Mar 2022, 10:05 AM IST
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