Zerodha founder warns against this product for investing for retail investors
PremiumZerodha founder Nithin Kamath's comments came on the day when the stock markets witnessed a bloodbath since the opening on Monday
Online broking firm Zerodha founder Nithin Kamath has termed the ‘buy now pay later' (BNPL) as the worst financial product for retail investors. In a series of tweets, Nithin Kamath explained why the BNPL lending business may not be the right method of investment for the customers.
“But given high customer acquisition costs for many brokers, what worries me is if someone launches a buy now pay later type of product for investing, it will end up pushing everyone else to start. Using this as a hook to generate revenue will not be right for the customers," Nithin Kamath tweeted.
Kamath also explained that buying stocks by borrowing at approximately 15% and risk of being liquidated in drawdowns, is "probably the worst financial product for retail investors,"
“Hoping that the broking industry like others doesn't morph into a lending business to recover the very high cost of acquiring a customer," he added.
His comments came on the day when the stock markets witnessed a bloodbath since the opening on Monday.
At the closing bell, the BSE S&P Sensex was down by 1170.12 points or 1.96 per cent at 58465.89, while the Nifty 50 dropped by 348.30 points or 1.96 per cent at 17416.50.
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“Unlike the previous bull runs, there isn't a lot of leverage in the system this time. Stocks are mostly bought with full money upfront. So when there are drawdowns in the market on days like today, retail investors aren't forced to liquidate, which also increases volatility," Zerodha founder posted.
“Credit goes to SEBI & also all of us new-age online brokers who haven't pushed customers to borrow and buy while placing orders. If platforms enabled greed by nudging users to borrow to buy more quantities, customers would ignore the risks of margin funding (MTF)," he added.
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