With the advancement in technology, there have been changes in the way financial services and investment products are made available these days. Now one can make almost all financial transactions and investments online. While this is a welcome change, it has also thrown up many opportunities as well as issues. Cryptocurrencies are one of those. Let’s understand what cryptocurrency is.
Cryptocurrencies are virtual assets that can be used as a medium of exchange between owners of cryptos. All transactions pertaining to cryptos are stored in ledger format on databases that are connected over a network using blockchain technology. Thus, cryptocurrencies do not exist in physical format and are not issued by the central bank. Hence you can’t use cryptocurrencies as money in India. Their exact status i.e if they should be considered as money, asset, stock or commodity is still unclear as RBI or any other regulatory body in India have not yet recognized it.
While cryptos come with many advantages like transparency, portability, divisibility, and a great investment opportunity for those willing to take the risk, one cannot overlook the various cryptocurrency risks. Even though Cryptocurrencies are not banned in India by the Indian Government, there is no law that provides clarity on their legal status. Hence it is an ambiguous asset class. It is one of the most volatile assets one can think of. Since cryptos make the transfer of funds between two parties possible without going through a bank, it can lead to money laundering and fraud. Without government regulations, small and ill-informed investors can easily lose their money.
It is always advisable to invest your hard-earned savings in investment products that are well regulated like mutual funds, stocks, bonds, insurance rather than opting for cryptos that are in trend but not regulated by any government agency. Apart from lacking legal recognition and being highly volatile, they also do not have clear taxation rules to tell you how your profits will be taxed. If mutual funds sound complicated to you, cryptos can baffle you beyond imagination as there are not enough analysts covering this asset class thoroughly to help you understand how you should value them for investment purpose or if you can rely on them for your financial goal planning.
Mutual Funds have been around for a long, provide investor protection with the presence of SEBI as the regulator, provide many options to choose from depending on your financial goal, can be tracked easily, and make monthly disclosures to help investors make an informed decision. They also provide grievance redressal mechanisms. All of these factors help in building trust among investors. Cryptocurrencies do not have any such provision which makes them risky for investing your life’s savings.
It would be prudent to look at the pros and cons of any investment option objectively before committing your hard-earned money to it, be it cryptos, mutual funds, or any other asset. Do your own research to decide if a particular asset class or investment product suits you in terms of your risk profile and return expectations. If you are unable to arrive at this decision on your own, reach out to a SEBI registered financial advisor/mutual fund distributor for help but don’t make these decisions in haste or based on news headlines. Investment decisions are made for life and it’s worth spending some time arriving at these choices.