StartupTalky

Tag: ✍️ Opinions

  • Sector Agnostic Investing: Key Strategies and Trends for Driving Innovation

    This article has been contributed by Mudit Kumar, Active Angel Investor.

    Today’s world that we live in, is rapidly and dynamically evolving. This change is happening so fast that sometimes we don’t even realize this subliminal change is affecting our lives. At the forefront of this change is the dynamic and forward-looking vision of the new-age startup founders, who are driving this change with their innovative vision!

    The spirit and passion to drive this innovation to inculcate in our societal and behavioural patterns are what “startup culture” has been defining in the last couple of years!

    The underlying phenomenon behind this change is “Innovation” and the same has been spreading across the industry & sectors. Certain sectors that are at the forefront of this transformation, and sectors that have been the growth engines that are driving India’s entrepreneurial culture include FinTech, HealthTech, E-Commerce/Q-Commerce, SpaceTech, AgriTech, SaaS, and EdTech among others. The startups in these sectors have redefined their respective industries and captivated the imaginative spirit of both investors and entrepreneurs alike.

    To highlight the way the entire landscape has been shaping up in the last couple of years, startups like “Zomato” have subliminally influenced our behaviour towards the way we eat and consume food. Fintech Startups like “BharatPe”, “PineLabs” and “RazorPay” etc. have influenced the way we do business transactions. “Nykaa” and “Myntra” have changed the way we shop online. And the list is pretty long.

    Therefore, for any investor and entrepreneur success lies in finding the answer to this critical question – “How can any sector/industry be enabled or disrupted by the innovative use of technology!”

    Key Strategies for Sector-Agnostic Investing

    For any sector-agnostic investment, it is imperative to have an in-depth knowledge of these basic strategies:

    Ascertaining the Nuances of the Sector

    Every sector has its nuances – critical factors that determine outcome and productivity! Understanding the core nature of the sector, and the forward and backward integration mechanisms enables determine what will be more optimal – a product or a solution! Moreover, how the execution needs to be done – whether the execution is towards enabling the sector/industry or disrupting it!

    For reference, there is a barrage of wealth-tech startups in the recent past which primarily are banking on the financialization of the Indian economy and the growing affluent class and swelling of HNI/UHNI segments. But the critical aspect for any investor/entrepreneur is how a sustainable and value-driven business solution is being created which not only survives throughout different business cycles but also enables the investor fraternity with better value-added deliverables in a consistent and effective way!

    Innovative Use of Technology

    At the core of developing any business, lies the innovative use of technology. Today startups are using technologies like Artificial Intelligence (AI), ML, IoT, and blockchain to bring an era of digital disruption by integrating these advanced technologies to enable better decision-making, drive growth, achieve better operational efficiency and elevate customer experiences.

    For reference, take a look at how Agri-tech startup “DeHaat” is empowering our farmers through their “DeHaat Farmer App” by using AI-enabled technologies to revolutionize the entire supply chain and production efficiency by providing them 360-degree crop solutions. Niche Generative AI solutions by startups like “Zoho” are revolutionizing the way we communicate (ZohoMail & ZohoChat) and interact.

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    Future Vision for Defining the Category

    Whether an entrepreneur or an early-stage angel investor, both are expected to possess that critical knack of ascertaining – what it takes to define a particular segment! For example, founders of startups like “IdeaForge” and “New Space Research Technology” have defined the entire segment, “Miko” AI Robots can be our Indianized version of Interactive “Alexa”. Deeptech applications in Cybersecurity can be another niche domain to watch out for in time to come.

    Furthermore, it’s just not about the changing sector-agnostic startup landscape, what is more heartening is the trends that are emerging in the last couple of years.

    Here are some notable trends that we are witnessing:

    Increased Focus on Environment and Sustainability

    Startups in Green energy, Deep tech and Clean mobility are at the forefront of this trend. For example, the traditional mobility trend which was earlier defined by “Ola” has scaled up to “Ola Electric” & “BluSmart”! Increased awareness and focus on carbon neutralization has resulted in cleantech startups working on solar, wind and hydrogen solutions to working on niche technologies like biomethanation to solve organic waste management – the list seems to be going on!

    Inclusivity & Empowerment Towards “Women Entrepreneurship”

    This paradigm shift is evident from the fact that today we have over 8 million Women Entrepreneurs in our startup ecosystem. We have witnessed women entrepreneurs who are the founders of unicorns like Nykaa, Mamaearth, Hosura, GoodGlamm, and Pristyn Care to name a few and this list is growing faster than ever, fostering a more inclusive pursuit towards a diverse ecosystem!

    Growing Diverse Base of Investors

    We have graduated from those days when the entire dependency used to be on PE/VCs to today where we are witnessing the rapidly growing number of Angel investors to active participation from Corporate Family offices to Industrial houses who are not just supporting financially but also mentoring and hand holding these startups providing necessary business insights also.

    This surge in the investor base not only signifies the appetite for investing in these new-age startups but also reflects the deepening faith in the potential of our Indian startups to innovate, create wealth, and create a positive “Impact” on the society at large.

    Incubators and Accelerators

    One of the most holistic and perhaps groundbreaking trends for fostering and creating a better vibrant, sustainable, inclusive, and healthy breed of startups is the partnerships by academia and corporates in the form of incubators and accelerators programs – who not only provide seed monetary support but also mentor and train them through workshops and expose them through potential partners and investors through their “Demo Day”.

    Special mention to esteemed institutions like IITs which are deeply engrossed in creating and nurturing the startup culture among new age of founders by seeding them with innovative thinking. And the result is evident from some of the most successful stories coming out from IIT Madras Incubation Centre (IITMIC) in the form of “AgniKul Cosmos”, “Ather Energy” and “Uniphore” to name a few.

    Concluding Remarks

    There are opportunities galore in today’s startup landscape, but what is important is to critically analyze the “sustainability” and the critical “impact” that the product/solution will have on the sector/industry and the user base and society at large. Unless the ideation is “Value Accretive” on a consistent basis, the merit will get diluted over time.

    Lastly, for any business to create and scale it requires ‘time’ and ‘patience’ with a continued hustle to ‘innovate’ to stay relevant to ever-changing dynamics around. Therefore, whether you are an entrepreneur or an investor – stick to your ‘core’ values and have ‘patience’ to create something bigger and better!

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  • The Strategic Role of Corporate Affairs: Aligning Values, Enhancing Visibility, and Managing Communication

    This article has been contributed by Vasudha Jajoo Pahwa, Vice President of Corporate Affairs at Bry-Air, Pahwa Group.

    Corporate affairs hold a lot of significance for any organization. Looking at the dynamic and highly competitive business landscape, organizations are always on the lookout for effective corporate affairs strategy to create an impactful reputation in the industry. Forming a vital link between the company and the internal and external stakeholders is crucial for forging a strong relationship with the stakeholders and is also responsible for maintaining consistent and cohesive messaging across the platforms.

    Corporate affairs have a far-reaching influence on the existence of the company, as it navigates the potential risks that could harm the reputation and operations of the company beforehand and devise appropriate strategies to uphold the integrity of the company.

    Gauging the crucial role corporate affairs plays in an organization, devising a comprehensive corporate affairs strategy can go a long way in driving optimal results.

    Alignment with Company Values

    Corporate affairs function extends beyond just managing internal and external communications within the company. At Bry-Air, marketing and HR activities are also part of corporate affairs. It’s important to emphasize that maintaining consistent communication across all functions and ensuring that all departments are aligned with the company’s mission and vision is crucial. This alignment is a key responsibility of corporate affairs professionals.

    Another significant aspect is how the company is portrayed in the media and the management of relationships with stakeholders. While marketing plays a role in this, the focus should be on the broader scope of corporate communication, which includes both internal and external aspects. Internally, it’s about ensuring employees understand the company’s mission, vision, and holistic goals. Externally, we communicate the same to our stakeholders, business partners, and customers to keep them informed about the company’s ventures and direction.

    Enhanced Visibility Among Audiences

    It’s also important to highlight the innovations spearheaded by the company. Especially in a B2B segment, making the audience cognizant of the new technologies and unique offerings is crucial. The communication efforts should revolve around keeping the audience informed about these developments. Corporate affairs ultimately serve as a platform to communicate important narratives about the company. The messaging needs to convey these critical points effectively.

    Integration of Advanced Tools 

    In today’s digital world, the success of communication depends on two factors: the quality of the data one possesses and the channels being used. As the world becomes more digital, it’s imperative to utilize world-class tools, such as HubSpot, to manage the data and communications. There should be an incessant focus on managing SEO, running campaigns across social media and Google, and creating targeted email campaigns that give an insight into the problems that are being solved by the company.

    Highlighting the Problem-Solving Aspect in Media 

    The positioning of the organization in public relations should always reflect the problem-solving approach. It’s not just about claiming that the products or services are the best, but about taking a more human-centered approach, emphasizing the larger mission of the company. For instance, we are solely driven by our mission to make life better for both people and machines. Since air is omnipresent and integral to our environment, our work in air treatment contributes to improving everything around us. This is also depicted in our communication, which revolves around the problems we are committed to solving, both for our internal teams and external customers.

    Focus on HR Roles

    Corporate affairs should proactively touch on the HR aspect, emphasizing the importance of employee engagement. As a company, it should value employees and stakeholders with policies focused on sustainability and employee well-being. Prioritizing a diverse workforce with the commitment to rendering a safe and inclusive place to work, particularly for women, can foster a progressive work culture within the organization. For instance, we at Bry-Air have female staff working on our shop floors. These points, which are also highlighted in our sustainability report, can be framed within the broader context of corporate communication.

    Having elaborated on the various aspects of corporate affairs, it also bodes well for ensuring the legal and regulatory compliance of the company. Therefore, overseeing diverse facets of the organization, corporate affairs is essential for ensuring alignment across internal and external stakeholders.

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  • How Can Women Entrepreneurs Attract and Secure Angel Investment to Scale Their Businesses?

    This article has been contributed by Ms. Somdutta Singh, First-Generation Serial Entrepreneur, Founder & CEO Assiduus, Angel Investor and Philanthropist.

    Michelle Obama once said, “There is no limit to what we, as women, can accomplish.”

    Women entrepreneurs are not mere participants in the business world; they are transformative leaders, reshaping industries and driving economic growth across the globe.

    We’re navigating an era where innovation and diversity are paramount, and I cannot overstate the importance of women-led enterprises.

    Do you know, according to a report by McKinsey, advancing gender equality in the workforce could contribute an astounding $12 trillion to global GDP by 2025? Yet, despite our potential, women entrepreneurs continue to face significant barriers, particularly in securing angel investment.

    In this article, I will share insights and strategies that can empower women entrepreneurs to navigate the complexities of securing angel investment, because I have witnessed them myself and have overcome those challenges.

    What Does the Landscape of Women Entrepreneurship Look Like?

    Globally, women-owned businesses are on the rise, yet they still face significant barriers. According to a report by the International Finance Corporation (IFC), women entrepreneurs receive only 7% of total venture capital funding. In India, the situation is somewhat better but still challenging; a study by the Indian Angel Network found that only 14% of angel investors are women, highlighting a gender gap in both entrepreneurship and investment.

    Despite these challenges, the potential for women-led businesses is immense. A McKinsey report estimates that achieving gender equality in labor force participation could add $12 trillion to global GDP by 2025. In India, women entrepreneurs could contribute an additional $700 billion to the economy by 2025, according to a report by the Boston Consulting Group.

    How Can You Build a Compelling Business Case?

    Investors are looking for innovative ideas, strong market potential, and a clear path to profitability. Here are key components to include:

    1. Solid Business Plan: A well-structured business plan should outline your vision, market analysis, revenue model, and growth strategy. Investors need to see that you have a clear understanding of your market and how you plan to capture it.
    2. Unique Value Proposition: Clearly articulate what sets your business apart from competitors. This could be a unique product, a novel service, or a disruptive business model.
    3. Strong Financial Projections: Present realistic financial projections that demonstrate your business’s potential for growth. Include key metrics such as customer acquisition cost, lifetime value, and break-even analysis.
    4. Traction and Milestones: Highlight any traction your business has achieved, such as sales figures, user growth, or partnerships. Demonstrating progress can build investor confidence.

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    Networking and Building Relationships

    Networking is vital, not just for women entrepreneurs in India, but every entrepreneur based in every corner of the world, looking to secure angel investment. It can feel both exciting and daunting, but here are certain strategies that can help you build connections and find the support you need:

    Join Entrepreneurial Networks

    Think of networking as building your own community. Joining organizations that support women entrepreneurs can be a game-changer. There are several initiatives that help women step into the world of entrepreneurship. By joining, you can connect with other women who share similar goals and gain access to resources that can help you navigate the investment landscape. These initiatives also offer workshops, mentorship programs, and networking events that can help you connect with other entrepreneurs and potential investors who understand your journey.

    Attend Pitch Events

    Pitching your idea can be nerve-wracking, but it’s also an incredible opportunity to gain visibility. Look for events that celebrate women entrepreneurs. Gatherings like NASSCOM’s startup events or the various women’s startup summits are not just about pitching; they’re about connecting with like-minded individuals. You’ll meet investors who are eager to support innovative ideas, and you might even find a mentor in the crowd. They’re supportive environments where you can learn from others and gain confidence in your presentation skills.

    Leverage Social Media

    Social media can be your best friend when it comes to networking. Platforms like LinkedIn are perfect for sharing your journey. Post updates about your entrepreneurial journey, share insights, and celebrate your achievements. This not only builds your personal brand but also attracts the attention of potential investors who resonate with your story.

    Seek Mentorship

    Finding a mentor can feel like having a secret weapon in your entrepreneurial arsenal. Look for someone who has successfully navigated the investment landscape. Mentors will understand the challenges you face and can offer practical advice. With their extensive experience in funding startups, they can provide insights that are invaluable as you refine your pitch and strategy. Most importantly, they’re passionate about supporting women-led ventures and can guide you through the intricacies of securing investment.

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    Overcoming Gender Bias

    Women entrepreneurs often encounter gender bias, which can hinder their ability to secure investment. It’s essential to address this head-on:

    1. Confidence and Assertiveness: Cultivating confidence in your abilities and being assertive in negotiations can help counteract bias. Practice your pitch repeatedly to build confidence.
    2. Focus on Results: When discussing your business, emphasize your achievements and the results you have delivered. Data-driven discussions can help shift the focus from gender to capability.
    3. Create Supportive Networks: Surround yourself with other women entrepreneurs and allies who can provide support and encouragement. Building a community can help mitigate feelings of isolation and self-doubt.

    Key Takeaways:

    1. Prepare Thoroughly: A well-prepared pitch can make a significant difference. Understand your business, market, and financials inside and out.
    2. Build Relationships: Networking is essential. Cultivate relationships with investors, mentors, and peers in the industry.
    3. Stay Resilient: The path to securing investment can be challenging. Stay focused on your goals and don’t be discouraged by setbacks.
    4. Leverage Your Unique Perspective: Women entrepreneurs often bring unique insights and perspectives to their businesses. Use this to your advantage when pitching to investors.
    5. Advocate for Change: As women entrepreneurs succeed, they pave the way for others. Advocate for policies and practices that support female entrepreneurship and investment.

    Concluding Thoughts

    Attracting and securing angel investment is a critical step for women entrepreneurs looking to scale their businesses. By presenting a compelling business case, building strong networks, and overcoming gender bias, women can position themselves for success in the entrepreneurial landscape. As we continue to push for greater representation and support for women in business, the potential for economic growth and innovation remains vast. Together, we can create a more equitable future for all entrepreneurs.

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  • How Leadership and Employee Engagement Promote Workplace Independence

    This article has been contributed by Ms. Pallavi Jha, MD and Chairperson of Dale Carnegie and Walchand PeopleFirst Limited.

    The importance of the dynamic interactions among workplace independence, employee engagement, and leadership has continued to increase over time in today’s rapidly changing work environment. Let’s delve into how Dale Carnegie’s ideas and our white papers like the 2022 engagement survey can create a more self-determining and productive office space through good leadership and engaged workers.

    The Value of Person-Centred Management

    Dale Carnegie once said that we need to ‘endeavour to understand what other people are thinking and feeling’. In this regard, it can be argued that human-oriented leadership is crucial in fostering independence at work. Organizations should couple both emotional and organizational drivers to meet present-day empowered employees as indicated by Dale Carnegie’s (2022) Employee Engagement Survey.

    Senior leaders play a vital role in designing systems and structures that align with employee needs. This refers to flexible working arrangements, skill-building, and development aspects as well as creating an environment where emotions are open. Thus, leaders foster feelings of worthiness among employees who are entrusted with self-direction.

    Role of Immediate Managers

    To encourage autonomy at work, immediate managers are the key. They require the necessary instruments and assistance to create strong collaborative teams. According to Dale Carnegie’s study, 26 % of staff members are valuing their relationship with their immediate superiors. This connection is important for developing trust and independence among team members.

    Managers who practice this principle are more likely to create an environment that encourages independent thinking and decision-making for their subordinates. By using this approach, employees become more confident hence increasing productivity and innovation.

    Flexibility: The Key to Engagement and Independence

    For the modern workforce, flexibility has never been more important. A study done by Harvard Business Review in 2021 showed that 76% of workers thought that employees should be able to prioritize lifestyle before choosing where they live close to work even if there are lower salaries offered. This change in preferences indicates a need for organizations to foster flexible working environments.

    Leaders who adapt accordingly as well as allow workers’ autonomy for them to choose how best they want to work may see increased engagement as well as independence levels. When employees think they have earned trust while managing their own time load then it results in enhanced productivity for themselves and the organisation.

    Investing in Continuous Learning and Development

    Organizations that give priority to continuing education and training create an atmosphere in which employees feel they are always on the go. This personal development investment enhances not only their abilities but also increases confidence, thereby resulting in greater autonomy at workplaces.

    Dale Carnegie’s research indicates that employees who are appreciated are almost three times more likely to put extra hours into work when required and actively defend the interests of their organizations. Companies should therefore provide tailored training opportunities as a sign of commitment to employee growth leading to independence of one’s own career path.

    The Impact of Emotional Drives

    However, emotional drives play a big role in promoting workplace independence. Dale Carnegie’s research identified several key emotional drives:

    1. Understanding themselves as valued employees.
    2. Experiencing workplace culture as psychologically safe.
    3. Feeling that they contribute to the organization’s mission and success.

    When leaders focus on these emotional elements, it creates an environment where employees feel secure enough to take initiative, make independent decisions, and contribute towards achieving the organization’s objectives meaningfully.

    Connect With the Employees

    Creating a connection with the employees can transform great resignation to retention. Replacing an employee is expensive hence it is important to value them and give them a conducive environment to grow and foster through upskilling opportunities and ensuring emotional well-being.

    Conclusion

    The conclusion of the matter is that leadership and engagement of employees in organisations are inseparable from independence at work. By adopting a human-centred approach, supporting flexible work arrangements, investing in employee development, and addressing both the organisational drivers as well as emotional ones, leaders can foster an environment where independence flourishes.

    As Dale Carnegie rightly observed, being considerate of others’ thoughts and needs is crucial. By living out this principle, leaders promote trust, appreciation, and self-direction. With time, such kind of setting will make employees always feel treasured and respected hence willingly working on their own toward organizational objectives.

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  • Independence Day Celebrations: A Catalyst for Employee Engagement

    This article has been contributed by Suvarna Nikam, Global HR Head, Visionet.

    In India, the scenario of employee engagement is multifaceted. According to a 2024 survey, only 32% of Indian employees reported being engaged at work, indicating a significant need for initiatives that can uplift engagement levels. It’s an alarming statistic, as the same report indicated that disengaged employees are more likely to leave their current employer—something that could be a dampener for any business.

    Moreover, it is observed that organizations with high levels of employee engagement in India experienced 25% lower turnover rates, which underscores the need for keeping a motivated workforce intact. Every HR and people leader recognizes that employee engagement is a complex equation. There is never a one-size-fits-all approach, there are groups who enjoy wellness, while others enjoy outdoor and fun activities, some get excited about individual talent competitions while most appreciate group adventures or festivities that they personally celebrate and hold dear.

    Given this backdrop, organizations in India should increasingly explore innovative approaches to increase engagement and enhance workplace culture.

    Remote and Hybrid Culture

    The nature of work has changed all over the globe. The shift from a physical workspace to that of a remote culture is a significant reason for employees to get disengaged. Over 20% of the workforce, globally, is equipped with the right tools to work remotely or on a hybrid model. Even though that is quite an achievement in the technological and financial landscape for enterprises, the fact that it has proven to disassociate the team cannot be denied.

    Moreover, isolation and loneliness are also prevalent as employees miss the social interactions of a traditional office environment. Extensive use of gadgets, particularly mobile phones, is another key element contributing to disengagement. Back when everyone worked in offices, employees would often engage in random conversations during tea breaks or lunch, promoting camaraderie and building stronger team bonds. These on-floor interactions and water cooler chats were a big source of learning from unusual sources, developing diverse perspectives, and talking through topics outside of work as they were crucial for maintaining a sense of togetherness within the workplace.

    However, in the current remote or hybrid work setting, devices & virtual spaces have largely taken over this physical space. Workers now tend to spend these breaks scrolling through social media or engaging in digital activities, which would further cut them off from their colleagues, thereby letting them miss out on the chance to establish valuable human connections.

    Taking these hurdles into consideration, those organizations that made employee well-being a top priority through ongoing recognition, feedback, and event celebrations witnessed improved employee engagement. These celebrations provide chances for the team members to connect and take part in shared experiences, which can rekindle the sense of belonging that is often missing in remote work settings.

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    Festive Strategies 

    To maximize employee engagement, incorporating celebrations like Independence Day, cultural performances, team-building games, and patriotic displays helps. Breaking the monotony of routine work, and creating a festive atmosphere that strengthens employees’ sense of belonging, is an imperative perk associated with these workplace celebrations. In addition to lifting workplace spirits, these initiatives also increase productivity, job satisfaction, and overall dedication.

    Marking Independence Day at work can spark patriotism in employees. Just as 15th August stands for freedom and togetherness, creating a continuing culture of engagement in companies can empower workers and lead to greater results. To effectively celebrate Independence Day and maximize employee engagement, organizations can adopt several methods.

    Firstly, organizing cultural programs that reflect India’s diverse heritage, such as dance, music, and drama, can be an excellent way to celebrate Independence Day at the office. Cheering for employees to join in and display their skills in these acts creates a feeling of togetherness and honor. Along with it, patriotic decor, including tricolor ornaments like flags, balloons, and posters, can set the mood and spark a sense of national pride. Now that we do have hybrid work models’ the cherry on the cake would be to also involve willing family members to participate in these festivities and celebrate the theme in the employee’s own home setting.

    Secondly, hands-on events like workshops or talks by eminent personalities on topics related to India’s history, freedom struggle, and contemporary achievements can be both informative and inspiring. There is much to learn from the resilience, rigor, and passion each of our freedom fighters exhibited & our employees can draw valuable inspiration from their stories.

    Lastly, taking part in community service activities, like visiting orphanages or organizing clean-up drives, strengthens the idea of giving back to society and brings a more meaningful dimension to these celebrations.

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    Impact on Engagement

    Independence Day celebrations have a profound influence on employee engagement. Past research in these areas, shows that organizations celebrating cultural and national events experience a 20% increase in employee engagement levels. These celebrations create a sense of pride and belonging, a shared experience of celebrating a national event strengthens employees’ emotional bond with the organization, making them more committed and loyal.

    Recognizing employees for their contributions to the organization during such occasions can uplift spirits and showcase their efforts as part of the bigger sentiment towards national growth.

    To Sum Up

    Independence Day celebrations at the offices are not just about commemorating a historical event; they serve as a powerful approach to enhance employee engagement. By executing fun and engaging ways of involving employees, HR can harness positive energy, and companies can show appreciation for their employees, which together create lasting memories.

    In today’s world, where employee engagement and satisfaction matter more than ever, organizations that invest in initiatives such as a well-planned Independence Day celebration are likely to see higher levels of employee satisfaction and retention.

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  • Budget 2024: Decoding Capital Gains Tax Revamp Amid Abolition of Indexation

    This article has been contributed by CA Samir Sanghvi, Co-founder, InCorp Advisory.

    The Union Budget for 2024-25 (II) unveiled the Prime Minister’s package of nine priorities which outlines the roadmap of ‘Viksit Bharat’ with an aim to simplify tax structures towards transparency and self-governance. While numerous aspects were highlighted in the Finance Minister’s speech, the rationalization of capital gains tax has emerged as the focal point of discussion. 

    Before diving deep into the budget amendments, let us look at the evolution of capital gain tax in India over the three decades.

    Year Milestones in Indian Union Budgets
    1992 Levy of the special tax rate of 20% on LTCG after indexation from 01/04/1981 with the introduction of Godfathering provision for replacing cost with FMV.
    2004 Exemption on LTCG on listed securities with levy of a nominal Securities Transaction Tax (STT).
    2018 Re-introduction of concessional LTCG tax on listed securities with no indexation benefits.

    Indexation is the process of adjusting the original purchase price thereby enabling a taxpayer to neutralise the impact of inflation while paying tax on capital gains.

    The complexity of India’s direct tax laws, particularly in capital gains taxation was a concern amongst various taxpayers. Different holding periods and indexation rules for different classes of assets led to a complex maze. So, there was a need to simplify the income tax regime for capital gain for different asset classes.

    Union Budget 2024 with an aim to rationalize and simplify the taxation of capital gains has proposed significant reforms discussed herewith.

    Proposed Revamp of Capital Gains Taxes As Per the Union Budget 2024

    1. Holding Period Simplification

    The budget proposes the revision of the holding periods as per the classification of capital assets into long-term or short-term.

    • 12 months for listed securities 
    • 36 months in the case of business undertaking
    • 24 months for all other capital assets

    2. Withdrawal of Indexation Benefits Across All Long-term Assets

    • The indexation benefits used for calculating LTCG on specified assets have been proposed to be abolished from 23 July 2024 onwards.
    • However, post receipt of various representations, the Finance Minister has reintroduced indexation on immovable property acquired before 23 July 2024. The resident individuals and HUFs can now opt for the old rule of 20% tax on LTCG with indexation or tax at 12.5% without indexation, in respect of immovable property acquired on or before 23 July 2024, thereby choosing a beneficial tax rate.
    • This option is not applicable to any other entity such as partnership firms, LLPs, companies, or Non-Resident Indians (NRIs).
    • Property acquired after 23 July 2024 is subject to the new rule of no indexation benefit on LTCG.

    3. Introduction of Uniform LTCG Tax Rates Across Assets and Simplification in STCG Tax Structure for Specific Assets Class

    The change in the basic tax rate of STCG and LTCG for different classes of assets qua holding period is summarised herewith:

    Class of assets

    Holding period 

    (in months)

    STCG

    LTCG @

    Before 23/07/24

    w.e.f 23/07/24

    Before 23/07/24

    w.e.f 23/07/24

    Before 23/07/24

    w.e.f 23/07/24

    Equities

    Listed Equity shares*

    12

    12

    15%

    20%

    10%

    12.5%

    Listed equity mutual funds*

    12

    12

    15%

    20%

    10%

    12.5%

    Unlisted Equity shares (Direct or via CAT II Funds)

    24

    24

    Normal rate

    20%**

    12.5%

    The tax structure is maintained same for direct equity and equity oriented MFs enabling investors to choose any product from tax neutrality perspective.

    Non Equity Securities

    Debt mutual funds 

    -Invested before 31st March 2023

    36

    24

    Normal rate

    20%**

    12.5%

    -Invested after 31st March 2023

    Irrespective of holding period

    Normal rate 

    Normal rate

    Listed bonds 

    12

    12

    Normal rate

    10%

    12.5%

    Listed debentures 

    12

    12

    Normal rate

    10%

    12.5%

    Unlisted bonds and debentures

    36

    Irrespective of holding period

    Normal rate

    20%**

    Normal rate

    Market Linked Debentures

    Irrespective of holding period

    Normal rate

    Taxation on all fixed-income instruments is uniform. MLDs and unlisted debentures/bonds however are taxed at normal rates even under capital gains at par with interest income taxed under other sources.

    Immovable property

    Physical Assets held as Investment

    – Property by Resident Individual or HUF (purchased before 23/7/2024)

    24

    24

    Slab Rate

    20%**

    Option of

    12.5% OR 20%**

    – Others

    24

    24

    Normal rate

    20%**

    12.5 %

    Physical assets used for business and depreciated

    24

    24

    Normal Rate

    NA

    Units of REIT/ InvITs

    36

    12

    15%

    20%

    10%

    12.5 %

    Ideally, real estate should be purchased only for personal consumption. On the other hand, REITs/ InvITs remain a better vehicle for exposure to commercial real estate due to holding condition as well as liquidity ease out as well waiver from Stamp duty exposure.

    Gold, Silver and Exchange Traded Funds (ETF)

    Gold & Silver Physical 

    36

    24

    Normal rate

    20%**

    12.5%

    Sovereign Bonds 

    7 years

    7 years

    Normal rate

    Nil

    NIl

    Gold, Silver & Overseas ETFs

    -Invested before 31/03/2023

    36

    24

    Normal rate

    20%**

    12.5%

    -Invested after 31/03/2023^

    Irrespective of holding period

    12

    Normal rate

    Normal rate

    12.5%

    Gold allocation helps hedge inflation and currency risk. Even though Gold ETFs and Funds are attractive again with these tax changes, sovereign gold bonds are attractive bet for Long term investors.

    ETFs / Fund of Funds(FoF)

    Domestic Funds

    1.   Equity > 65%

    12

    12

    15%

    20%

    10%

    12.5%

    1. Equity 35%-65%

    36

    24

    Normal rate

    20% **

    12.5%

    1. Equity < 35%

    Irrespective of holding period

    Normal rate

    Normal rate

    Overseas Funds

    -Invested before 31/03/2023

    36

    24

    Normal rate

    20%**

    12.5%

    -Invested after 31/03/2023^

    Irrespective of holding period

    24

    Normal rate

    Normal rate

    12.5%

    The last budget modified the definition of equity exposure only to consider listed shares of domestic companies. Unintentionally, FOFs holding equity funds and global feeders moved to a higher tax regime. This has been equalised now from tax rate point of view.

    Other Capital Assets

    Business Undertaking

    36

    36

    Normal rate

    20%**

    12.5%

    Business trust*

    36

    12

    15%

    20%

    20%**

    12.5%

    @ Grandfathering provision prevails for replacing the original cost – 31/01/2018 for Equity and Equity Linked Mutual Funds, 01/04/2001 for other non-depreciable assets excluding self-generated assets and Business undertaking.

    * Exemption of Rs.1,25,000 on LTCG proposed and such gains are subject to STT.  

    ** With Indexation benefit.

    ^ Section 50AA of the Income Tax Act, effective April 2025, redefines specified Mutual Funds as those investing over 65% in debt instruments. This tax effect would apply for investments liquidated post-April 2025.

    PS: Normal Rate includes slab rates for individuals/HUF, where applicable.

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    Impact Assessment of the Proposed Budget on Any Capital Asset That was Subjected to Indexation Before 22 July 2024: 

    Analysing the impact of no indexation vis-à-vis reduced LTCG rate should be evaluated on a case-specific basis. The impact assessment of amendment can be understood with the below example under three scenarios.

     (Amount in Rs.)

    Purchase year 

    2004-05

    2004-05

    2004-05

    CAGR

    8%

    11%

    14%

    Purchase price 

    50,00,000

    50,00,000

    50,00,000

    Indexed cost

    1.60,61,947

    1.60,61,947

    1.60,61,947

    Sale Consideration (Year 2024) (rounded off)

    2,15,00,000

    3,63,00,000

    6,00,00,000

    LTCG gain

    Old provision

    New provision

    Old provision

    New provision

    Old provision

    New provision

    LTCG 

    54,38,053

    1,65,00,000

    2,02,38,053

    3,13,00,000

    4,39,38,053

    5,50,00,000

    LTCG tax ^

    10,87,611

    20,62,500

    40,47,611

    39,12,500

    87,87,611

    68,75,000

    Beneficial provision

    Old provision

    New provision

    New provision

    ^ Surcharge and Education cess extra.

    Based on the above analysis, the post-budget amended provisions of taxability of LTCG at 12.5% without indexation will become more beneficial to the taxpayers, as compared to the pre-budget regime. This advantage will apply if the appreciation in the valuation of their properties is more than the minimum CAGR (Break-Even point) vis a vis holding period condition. Refer to the table below:

    Holding period /year of Acquisition

    Break Even point (minimum CAGR to be achieved)

    3 years / 2021-22

    11.85%

    5 years /2019-20

    11.20%

    7 years / 2017-18

    9.60%

    10 years / 2014-15

    9.00%

    15 years / 2009-10

    11.14%

    20 years / 2004-05

    10.14%

    24 years / 2001-02

    9.06%

    The changes have impacted different categories of assets/investors:

    Real Estates Investments

    • The interplay between CAGR above the break-even point and holding period conditions may play a crucial role in the coming years.  
    • Loss arising on account of indexation would not be available for claim. The Indexation benefit is limited for determining upfront tax outflow.
    • Non-resident sellers may benefit due to a reduced withholding rate. However, they are not entitled to the option of claiming indexation with a 20% tax bracket.

    Startup Ecosystems (including unlisted equity)

    • Reduced LTCG tax on unlisted equities shall encourage participation in India’s startup ecosystem designed for growth in innovation, infrastructure, and domestic manufacturing.
    • Much-needed clarification is provided for the holder of equity shares of unlisted companies who tender their shares via ‘Offer for Sale’ during IPO. If shares are acquired before January 31, 2018, and the same is offered for sale during IPO, then the cost of acquisition shall be adjusted by applying indexation of 2017-18 compared to indexation of the year of purchase.
    • Startups with IPO mandates can smartly plan part of cash compensation to key employees in the form of ESOPs to attract talent and offer a tax arbitrage on secondary transfer due to the concessional LTCG tax regime.

    Debt Mutual Funds

    • The withdrawal of Indexation leads to a steep hike in the tax cost on debt mutual funds, making them practically unviable propositions for investors seeking assured time-bound returns.

    Non-resident Indian (NRI) Investors

    • The tax rates for non-residents have been aligned with resident rates aiming for more participation from NRIs.
    • NRIs can continue to claim benefits of foreign exchange fluctuation and tax treaties between India and their respective country of residence.

    Foreign Retail Investors (FI)/Foreign Institutional Investors (FII)

    • Unlisted Compulsorily Convertible Debentures (CCDs) having fixed coupon rate till date of conversion into equity shall attract the highest tax bracket of slab rate (for FI) and 35% (for FII) irrespective of holding period. Holders of unlisted CCDs may be pushed to convert into equity to enjoy tax concessions ensuring holding of 24 months as equity before sale.
    • However, listed CCDs would turn out to be the best option with a 12-month holding period and a 12.5% tax bracket.

    Mergers and Acquisition (M&A)The concessional

    • The concessional tax regime shall fuel the fastest and least procedural route of M&A i.e. business transfer through slump sale.

    Concluding Thoughts

    The reforms in the Budget, particularly the rationalization of capital gains taxation, represent a significant move towards providing clarity, simplicity, consistency, and efficiency in the tax framework. Rationalizing capital gains taxation by aligning the tax rates and holding period conditions for various assets shall have far-reaching effects. Further, the interplay of the abolition of indexation vis-a-vis concessional LTCG tax rate needs proper application of mind over hue and cry amongst the investors.

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  • Impact of Regulatory Changes on Startups: Staying Ahead in a Dynamic Landscape

    This article has been contributed by Mr. Mahesh Krishnamoorthy, Managing Director, Core Integra.

    It is increasingly becoming evident that India will be a global leader in the Startup ecosystem with the highest number of Entrepreneurs in the next decade. To fuel this segment, there are a plethora of benefits and schemes provided by the Government, and in every budget, this segment has been a key focus area for the last few years. The added advantage is increased domestic demand and consumption of products and services along with the Make in India initiative.

    The benefits for promoting growth in this sector include reduced interest rates, collateral-free loans, tax exemptions, and protection against delayed payments, there is no discount or subsidy from the Government when it comes to adherence to Compliance. Non-compliance is viewed seriously and could result in heavy penalties including imprisonment thereby affecting the reputation and business continuity.

    Understanding the Scope of Labour Law Compliances

    It is often misunderstood that labour law compliances are restricted to workforce-related compliances alone such as compensation, benefits, work conditions, disputes, etc but actually it is far more comprehensive including Establishment compliances, Factory compliances if engaged in manufacturing, Environment, Health, Safety compliances, Contractor compliances and in recent times ESG compliances is gaining relevance. Further, there are specific compliances related to the nature of business as well. The majority of the labour law compliances are applicable to startups irrespective of the scale of operations, vintage, revenue size, or profitability. This is an important perspective that needs to be kept in mind by the leaders of such organizations.

    Key Areas of Labour Law Compliances for Startups

    Some of the important areas of labour law compliance that would be relevant to the startup organizations would include the following:

    1. Licenses and Registrations under the various Labour Laws/Acts as applicable under the State and Central Laws depending upon the nature of business of the entity.
    2. Statutory benefits such as Provident Fund, Employee State Insurance, Profession Tax, Labour Welfare Fund, Statutory Bonus, Gratuity, Superannuation, Leave encashment.
    3. Registers are to be maintained under the applicable laws of the State and Centre.
    4. Returns are to be filed on a periodic basis under the applicable laws of the State and Centre.
    5. Other important laws such as Minimum Wages, POSH, Rights of Persons with Disabilities, Engagement of Apprentices, Inter-State Migrant Workers, and Industrial Disputes.

    To begin with, a startup needs to understand the Laws and Acts applicable to the entity under State and Central Laws depending on the nature of the business and location of operations. From this emanates the next steps which involved procuring the licenses and registrations, many of which are currently available through the online portal of the respective authority. If there are any exemptions offered for startups, the same needs to be considered while checking the applicability of the Laws, Acts, and Registration/Licensing requirements. Post obtaining the requisite license and registration, the appropriate deductions and payments need to be made to respective authorities and acknowledgments need to be maintained for future records, inspections, and responding to notices from authorities, if any. Appropriate policies need to be drafted for defining procedures under labour laws, training, and education initiatives for the employees, and periodic documentation such as registers, and returns need to be maintained.

    The above-mentioned could seem to be elaborate and cumbersome, and indeed to some extent it requires diligent fulfilment which may be time-consuming, and with proper knowledge of procedures, there would also be some cost involved towards appropriate adherence to compliance. Larger organizations could afford to have a department with a set of knowledgeable resources which may not be the case with boot-strapped startups which would prefer to have their bandwidth and financial resources used for business growth rather than compliance costs. There are many professional firms and software available in the market at affordable prices that take care of a large part of labour law compliances in a efficient and simple manner. The startups may use these options to utilize their time and efforts on core business while compliances are taken care of by professionals or software.

    It is easy and important to comply with labour laws, this is critical from a startup perspective as they will at some stage of their business lifecycle want to raise capital for growth through various means, whether listing in the capital markets or through investors where the due diligence process captures every element of compliance adherence and gaps could result in issues detrimental to the growth and reputation of the entity.

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  • Working with the Customer Interests in Mind: Satyakam Sahoo on How AI is Changing the World of Retail

    The impact of emerging AI technology is mostly discussed regarding the highly digitalized fields, such as software development or digital marketing. However, other aspects of the economy will not escape the influence of AI, and retail is no exception. The industry, which constitutes an essential part of daily life for US citizens, is undergoing a massive change, as defined by the growing adoption of AI and machine learning.

    Strategic professional Satyakam Sahoo, currently a Senior Product Manager at Walmart, works on the leading edge of these new developments. He anticipates them as the changes that will benefit businesses and customers and aims to implement this approach in practice. His career path provides a vivid example of the developments of the industry. With his experience of more than 15 years of continuous professional improvement, he shares his insight regarding the current state of the industry and its future.

    In the course of his career, Satyakam Sahoo performed the roles of Strategic Consultant, Analyst, and Product Manager at companies operating in various fields, from retail (Walmart, Tesco) to charity organizations (JDRF International, ALSAC). It is a true illustration of the universal skills and expertise he possesses, which allow him to achieve success in adapting to the specifics of a particular field. However, whether it is the case of creating a commercial product or establishing connections for a fundraising campaign, Satyakam Sahoo focuses on crafting a solution that is beneficial for both parties.

    “While the end goals of the consumer and the business may seem contradictory to each other, in reality, it is possible a win-win solution,” points out Satyakam Sahoo. “And it is not only desirable but necessary for businesses that strive for long-term, sustainable success.”

    He explains that one of the most obvious, low-hanging fruits of the AI applications in retail serves exactly this purpose. Machine learning and generative AI allow businesses to create content that is adapted to the needs of particular users, providing them with the information or offers they will be more likely interested in.

    However, the applications of AI-powered tools are not limited to personalized content. Technology facilitates interactions between customers and the business in general. At Walmart, Satyakam Sahoo implemented a tech-driven approach, which included the development of the Customer Self-Service Portal, providing customers with a user-friendly, accessible, and flexible way to acquire relevant information, submit claims, and track their progress.

    While creating a convenient customer experience remains one of the priorities, supporting the employees is another essential component for the sustainable development of the retail business. It is no wonder that AI can be of use here as well. Satyakam Sahoo comments that his experience of implementing AI-powered automation at Walmart is a vivid example of the idea:

    “Automation solutions powered by AI technologies are able to relieve employees from routine tasks, freeing up their resources for more complex tasks which may require a more creative approach. The result is beneficial both for customers who get their cases resolved fast and for employees who avoid routine and repetitiveness.”

    It is worth noting that automation in retail is not limited to digital interaction between customers and businesses. Digital transformation spills out into the physical world in the form of robotics. Currently, Satyakam Sahoo is working on research on applying retail robots in practice. He comments that they can take over routine and physically demanding tasks, including inventory management, shelf-stocking, order picking, and cleaning. They can also interact with customers, helping them to orient themselves in the store or providing other information.

    For Instance, Satyakam Sahoo participated in the peer review of the “Spark IntelliCart” product, which uses artificial intelligence and machine learning to enhance the shopping experience. The technology provides customers with advice on the ingredients needed for a particular dish and the aisles or shelves where they can find them. The feedback provided by Mr.Sahoo helped to improve the products making it more convenient and beneficial for the customers. He concludes that while this field is currently in its early stages and implementing robotics and automation in retail requires significant investment at the start, the benefits for the companies that manage to do so will be immense.

    Finding the right balance between profitability, sustainability, and convenience remains a priority for Satyakam Sahoo in his current role at Walmart, as it was at his previous workplaces. He provides the trend for greener shopping as an example, explaining that thanks to the tech-driven approach and implementing cutting-edge solutions, they were able to reduce packaging waste, transition to renewable energy sources, and create an eco-friendlier customer experience.

    While working on implementing new solutions and consulting others, Satyakam Sahoo finds it important to inspire others in his team and beyond to innovate and find creative solutions. Recently, he participated as a jury member in the Globee Awards, which is a global event conducted to honor organizations from all around the world for their achievements in business and technology. Its panel of judges unites recognized professionals from diverse industries and backgrounds. Satyakam Sahoo highlights the importance of staying open to ideas and solutions from other industries and fostering an environment for recognizing excellence and supporting innovations in the field.

    “The ever-evolving digital landscape creates a constant push for progress and sustainable development, which can eventually improve people’s lives,” concludes Satyakam Sahoo. “To get an advantage of using these technologies, retail businesses should implement them focusing on common values such as employees’ well-being or customer convenience alongside increasing profitability.

    In Walmart’s particular case, Satyakam Sahoo’s work resulted in creating a better and more convenient Customer Claims Portal, which increased customer satisfaction and provided a smoother way to process claims. However, this is just a single part of a wider tech-driven approach, providing a valuable lesson for other businesses in the industry.

  • Key Considerations for Licensing Your Intellectual Property

    This article has been contributed by Ada Shaharbanu, Senior Associate, Spice Route Legal.

    Licensing intellectual property is a strategic and largely commercial play that involves a nuanced mix and match of rights and obligations. This note aims to provide an overview of considerations that businesses should assess while licensing their intellectual property to users who require such licences for their operations.

    Key Considerations in Licensing Agreements

    Key considerations that should be captured in suitable contractual arrangements typically arise from various factors, including the commercial intent between the parties, the bargaining power of each side, the licensee’s ability to rely on other vendors, whether the intellectual property is being licensed for a development project, general software-as-a-service (SaaS) requirements, or specific customisations, the ability to collaborate with the licensee’s competitors, whether it is a distributor or reseller arrangement, and the importance and uniqueness of the product with attached intellectual property rights, among others.

    Defining the Scope of the License

    While negotiating a licence clause, a licensor should closely analyse the scope of the licence that is provided to potential licensees. While intellectual property requirements and enforcement vary across jurisdictions, most jurisdictions recognise rights that are automatically vested upon intellectual property owners, usually as a result of the creation of the concerned property that the rights are associated with. Defining the scope of the licence becomes crucial, as the commercial benefits from that intellectual property will be closely linked to the defined scope.

    Flexibility in Defining Licence Rights

    Licensors have the flexibility to define and restrict rights to align with specific business strategies. They might limit usage to specific regions or industries to avoid conflicts with other licensing agreements or to maintain exclusivity in certain markets. These restrictions help in managing and maximising the value of their intellectual property. Geographic or industry-specific restrictions might limit a licensee’s operational flexibility. Clear language on rights will help licensees assess whether the product fits their needs and avoid potential legal issues.

    Licensors should therefore expressly specify the rights available to licensees and (also) expressly specify the rights not available to them for better clarity, with a confirmation that licensees will not receive any ownership interest, where relevant. Knowing the limits will also help licensees avoid inadvertently breaching their agreement with licensors. Limiting or restricting licences may not, however, (always) be possible, especially in situations where licensees invest heavily in product or software development – they would typically insist on broad licence terms so that they have the flexibility to utilise the product across departments and applications. Unrestricted licences are typically seen for high-value deals where the licensee is willing to pay a premium.

    Exclusive Licences and Strategic Decisions

    Offering exclusive licenses can be a strategic decision for licensors, allowing them to charge higher fees to grant specific rights. However, this limits their ability to license the product to others, so they must ensure the exclusivity premium justifies the potential revenue loss from other possible users. Exclusive licences are particularly important for distributors seeking to dominate specific markets.

    Revocability of License Terms

    Licensors should also closely study the revocability of their licence terms. Granting an irrevocable licence means giving up significant control, as the licensor cannot revoke the rights even in cases of breach by the licensee. Licensors ought to weigh this against the stability it offers to licensees, and reserve irrevocable terms for high-value or long-term relationships. Licensees naturally value irrevocable licenses for the security they provide, ensuring they can continue using the product regardless of potential disputes. This is particularly crucial for mission-critical applications where continuity is essential.

    Payments and Financial Considerations

    Payments and taxes are another significant aspect that licensors should contemplate. Licensees are likely to insist on royalty-free licences to avoid recurring expenses and budget management. However, licensors must ensure that the payment structures adequately compensate for the lack of ongoing royalties.

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    Sublicensing and Transfer Rights

    Licensees may generally also insist on the ability to sublicense or transfer rights to third parties, such as partners or clients. It allows them to extend the licence’s benefits throughout their supply chain or client base. Licence offerings should carefully be structured to avoid the uncontrolled proliferation of their product. Clauses to regulate sublicensing or assignment should therefore be included within contracts. Further, licensors need to contractually differentiate between transfers and sublicenses to maintain necessary control over their intellectual property. Sublicences are intended to allow for broader distribution rights while generally keeping the primary licensee accountable, while a right to transfer may allow licensees to easily transfer licences in the event of an assignment or other similar change of control events.

    Preventing Unauthorised Use

    Licensors should also, where possible, insist on specific terms regulating unauthorised access to their intellectual property and list out specific scenarios and examples of unauthorised use of licensees. Again, whenever possible, licensors should insist on providing their own draft agreements, as these will be tailored to accurately reflect their technology, product structure, and licensing arrangements.

    Managing Copies and Modifications

    Usually, licensors should consider limiting copies a licensee can make to prevent unauthorised distribution and loss of control over their product. However, large companies often negotiate for unlimited or multiple copies of the licence to facilitate broad use across teams. In such cases, licensors may offer enterprise licences, which are customer-friendly and eliminate the need to track unauthorised users.

    Licensees often require the ability to modify software to tailor it to their specific needs and integrate it with other systems. Allowing modifications and the creation of derivative works can be a double-edged sword for licensors. While it can enhance the licence’s value and adaptability, it may also lead to versions that deviate from the original intent or quality standards. Licensors must balance these risks by setting clear boundaries and conditions. Clear rights to modifications would also help licensees avoid legal pitfalls and ensure seamless customisation.

    Termination Clauses and Transition

    Finally, licensees should prepare for the implications of termination clauses, while they seek agreements that allow sufficient time to transition away from the product and ensure that their operations are not abruptly disrupted. Ensuring that licensees cease using their products upon termination is vital for licensors to protect their IPs from continued unauthorised use. Clear termination clauses help licensors reclaim control over their products and prevent potential revenue losses from ongoing exploitation.

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  • How Can You Get Quick Short-Term Loans in India?

    This article has been contributed by Manish Aggarwal, Founder & CEO, E-Revbay Private Limited.

    In the rapidly evolving financial landscape, short-term loans have become a vital resource for individuals and small businesses to address immediate financial needs.

    Short-term loans are essential for both personal use and small businesses in India. With an emerging middle class of over 400 million, short-term loans will play a pivotal role in personal finance.

    A 2021 survey indicates that 90% of adults in India now have access to a financial or savings account, highlighting the vast distribution potential of short-term loans in Tier 2, 3, and 4 towns. Easy access to short-term capital will remain crucial to our economy’s growth.

    Understanding Short-Term Loans?

    Short-term loans are loans designed to provide quick funds to borrowers, typically with a repayment period of less than one year. These loans are characterized by the following:

    • Repayment Period: Less than eighteen months.
    • Loan Amount: Ranges from a few thousand to 10 lakh rupees.
    • Rate of Interest: Typically ranges from 11% to 24% per annum, based on the borrower’s credit profile.

    Why Short-Term Loans?

    Short-term loans typically fulfil an immediate need for funds, which could arise from:

    • Unforeseen Expenses: Providing quick funds for unplanned and unavoidable expenses.
    • Meeting Emergency Expenses: Typically used for funding medical emergencies or emergencies arising from unexpected damages.
    • Bridging Temporary Cash Flow Gaps: For both individuals and small businesses to maintain liquidity.
    • Financing Short-Term Business Needs: This may take the form of inventory purchases or working capital requirements.

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    What Makes Short-Term Loans a Viable Option?

    Short-term loans stand out as a practical solution for addressing immediate financial needs due to their:

    • Accessibility: These loans are typically disbursed quickly, often within 24-48 hours, providing immediate financial relief.
    • Economic Flexibility: Helps individuals manage unexpected expenses without significant financial strain.
    • Business Support: Enables small businesses to maintain operations during cash flow shortages or unexpected expenditures.
    • Credit Building: Timely repayments can help borrowers build or improve their credit scores.
    • Economic Impact: Contributes to overall economic stability by providing financial support during economic downturns or personal financial crises.
    • Inclusivity: Available through various channels, including traditional banks, NBFCs, and online platforms, making them accessible to many borrowers across urban and rural areas.

    What Types of Short-Term Loans Are Available?

    Understanding the different types of short-term loans can help borrowers make informed decisions about their financial requirements. 

    More popular short-term loan options include:

    Payday Loans

    Payday loans are designed for individuals who need quick cash and are waiting for their next paycheck. They are an advance on your salary, which you can use to cover immediate expenses. Your next payday must repay these loans.

    Personal Loans

    Personal loans are granted based on income, employment status, and credit history. They require minimal paperwork and are approved and disbursed quickly. Personal loans can be used for various purposes, such as urgent home repairs, medical emergencies, wedding expenses, travel, and shopping.

    Loans Against Gold

    Gold loans involve mortgaging your gold to secure the loan amount. To secure this loan, you are required to use your gold as collateral. These loans offer the flexibility to repay the principal amount at the end of the loan tenure.

    Car Title Loans

    If the car is owned outright by the borrower, they can use it as collateral to obtain a Car Title Loan. These loans typically let you borrow 25 to 50 percent of the car’s market value and often come with high APRs and short repayment periods. Delayed payments can increase interest charges, making the loan more expensive.

    Bank Overdrafts

    Bank overdrafts provide temporary coverage when your account lacks sufficient funds. Although this option comes with high interest rates, it serves as a short-term solution to cover immediate expenses. Similarly, instalment loans involve regular, frequent payments over time until the principal and interest are fully repaid.

    Lines of Credit

    Unsecured and secured personal lines of credit allow access to funds on an as-needed basis. Borrowers can withdraw up to a preset credit limit, which replenishes as payments are made. Interest is only charged on the amount borrowed. Once the draw period ends, the remaining balance is converted to an installment loan with a set repayment period.

    Online or Installment Loans

    Short-term loans can also be obtained entirely online. The entire process is digital, from application to approval, and funds are often wired to the borrower’s bank account within minutes of approval.

    Invoice Financing

    Popular among small businesses, true to its name, businesses can use their accounts receivables (unpaid invoices) as collateral to obtain a loan. The lender advances money based on the value of the outstanding invoices and charges interest for the duration that the invoices remain unpaid. Once an invoice is paid, the lender deducts the interest charges and returns the remaining balance to the borrower.

    Short-term loans come in various forms, each designed to meet different financial needs. Understanding these options and choosing the best solution for your immediate monetary requirements can be challenging.

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    FinTech Coming to the Rescue

    Given the number of options available today and the presence of numerous financial advisors, borrowers may feel unsure if they are getting the best deal; this is where fintech comes to the rescue; tools are now available to help even the most uninitiated understand their options. For those who are well-versed, these tools make the evaluation quick and error-free. Let us look at some of the tools in the market that help customers find the easiest ways to raise funds for short-term or long-term needs and are gaining traction:

    • Car Par Loan (CPL): Enables customers to apply for auto loans for new or used cars. CPL calculates the car’s current value and determines the eligible loan amount in just 10 seconds.
    • My Loan Bhai (MLB): An algorithm-based virtual loan agent that automatically decodes a customer’s credit profile to recommend best-match, high viability for approval personal loans, home loans, loan balance transfer, loan consolidation, and other funding solutions.

    Once you have determined the best loan option for you, let’s examine how to get it.

    How Can One Obtain a Short-Term Loan?

    The process of obtaining a short-term loan involves several steps:

    1. Application
    • Fill out application forms.
    • Provide necessary documentation (ID, proof of income, etc.).
    • Apply.
    1. Approval
    • Undergo a credit check and information verification.
    • Receive approval decision.
    1. Disbursement
    • The loan amount is disbursed to the borrower’s account.
    • Typically, it occurs within a few days of approval.

    Required Documents

    To apply for a short-term loan, borrowers need to provide various documents, including:

    • Personal Identification: Aadhar card, PAN card, Passport.
    • Proof of Income: Salary slips, 3-6 month Bank Statements, Income Tax Returns.
    • Address Proof: Utility bills, Rental agreements, Property tax receipts.
    • Additional Documents: As required by the lender’s policies, such as employment verification or business registration documents.

    How to Apply for a Short-Term Loan

    Borrowers can apply for short-term loans through multiple channels:

    1. Online or App-Based Application
    • Apply through lender websites or apps.
    • Fill out the form and upload it along with the required documents.
    • Apply online.
    1. In-Person Application
    • Visit bank branches or lending institutions.
    • Fill out physical forms and provide the necessary documentation.
    • Apply in person.
    1. Through Financial Advisors/Agents
    • Consult with financial advisors or brokers.
    • Receive assistance in finding suitable loan options.
    • The advisor applies on your behalf.

    Eligibility Criteria

    The eligibility criteria for short-term loans typically include:

    • Age: Minimum age of 21 years; maximum age varies between 60-65 years.
    • Income: Minimum monthly income ranges from ₹15,000 to ₹25,000, depending on the lender and loan amount.
    • Credit Score: A good credit score, typically 650 or above, affects eligibility and interest rates.
    • Employment Status: Stable employment with a minimum of 6 months to 1 year at the current job. Self-employed individuals must have a reliable source of income.0

    Conclusion

    Short-term loans are indispensable tools that provide quick financial relief to individuals and businesses alike. They support economic flexibility, help maintain business operations, and contribute to credit building and economic stability. 

    With the convenience of multiple application channels and tailored products like CPL and MLB, short-term loans are more decipherable and accessible than ever. 

    Whether for immediate personal needs or business support, short-term loans offer a valuable financial solution that can help bridge gaps and address urgent expenses.

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    StartupTalkyTeam Kotak Mahindra