Change Investing: A Concept Gaining Popularity Among Millennials

To which I responded, "Ritika, Investing does not require any huge sum of money, you could easily start by investing in mutual funds via SIPs that allow investments as low as Rs 500/-. Is this an investing application you are referring to?"

Ritika replied, "Yes, I am aware of SIP investments with small amounts, but the app I am talking about allows you to invest the smallest amount left from your bill payments. This concept of investing allows you to invest the change you receive while making any bill payments. Since this is a new concept of investing, I thought I should consult with you first to discuss the pros and cons."

I replied, "Ohh, you are referring to the 'Change Investing' apps, which have been in the news now. Sure, let me help you understand the functioning of this concept of investing and if it is beneficial for you."

Many individuals find parking their money in traditional government-backed financial instruments the easiest and safest choice. In a tussle to avoid making tough decisions about their money, they often miss out on opportunities to get attractive returns.

It may happen that you want to save money on a regular basis, but you are having trouble allocating funds for investments at the start of each month. And before you know it, you've spent all of your income. While we are learning to save money to attain our desired goals, building a habit of saving regularly is the need of the hour, and the sooner we get to it, the better.

Do you think it takes a lot of money to start investing? What if you could set aside small amounts to invest every time you bought a coffee at a coffee shop, made an online purchase, or paid your utility bills?

Many new investors want to find an investment destination where they may start investing at the micro-level. Many individuals are unaware of micro-investing, in which an investor saves a small amount of money and invests it. It makes investing more accessible for early investors who wish to instil saving habits into their life.

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What is 'Change Investing'?

Micro-investment is the foundation of the change investing concept. Many millennials find money matters to be perplexing and challenging to keep track of. These fintech apps track your spending and encourage you to invest a tiny amount of money in assets whenever you make a purchase, such as clothes, food, or anything else. Small amounts of money, referred to as "change money," can be invested in a variety of assets, including digital gold, mutual funds, and direct equities.

A simple example of 'Change investing' - Perhaps you had a piggy bank in your childhood? A place to stash spare pocket change from your parents or gift money from relatives. Saving money, little by little, is one of the most basic financial lessons for most of us, with the benefit of being able to purchase a favourite book or that video game that a friend had been bragging about.

Similarly, these fintech applications urge you to save a small amount of money and invest it wisely in order to develop a solid financial habit of investing on a regular basis.

How does 'Change Investing' work?

These spare change investment apps have gained popularity among the tech-savvy generation of millennials and Gen Z, who don't have a lot of spare capital to invest. However, they are still eager to make small investments to create wealth.

These fintech apps allow users to convert their spare change into investments. When you spend money to buy something, using your debit card or net banking account the apps mandate linking them to, they calculate the difference between the amount you've just spent and the nearest roundoff amount.

The app will fix an amount let's call this a roundoff amount to the next Rs 10, Rs 50, or Rs 100, depending on what they offer and what you choose. When you spend money on any such transactions (food orders, cab fares, OTT subscriptions, bill payments, fund transfers, etc.), the app will encourage you to invest the spare change into any investment avenues of your choice available as per the app. The differential that comes from your amount spent and the nearest roundoff amount gets added up, and the app nudges you to invest it in a financial asset available on its platform.

Here is a table that exhibits the functioning of 'Change Investing':

All that a user has to do is select the nearest round-off amount and enable auto-debit on the app. The platform will accordingly invest the change, which can be as low as ₹1, with each spend.

These fintech apps also have a feature where you can select a benchmark amount as a minimum investment amount. The spare change that gets collected each time a user spends keeps accumulating. For instance, when it crosses Rs 100, it gets auto-invested in a pre-selected mutual fund or any other investment option of the user's choice.

For millennials who have just started working and do not have enough money to invest, change investing is a good option. The Change Investing feature ensures that at least some of the money gets invested. As it invests multiple times within a month, so it has an added advantage as compared to monthly SIP (systematic investment plan). Small sums of money can be invested in assets that many investors would normally overlook, preferring to save up a large sum of money, such as Rs 1,000 or Rs 5,000, before investing.

Although such innovative fintech apps assist millennials with the ease of access to save and invest at their fingertips, they may still not be ideal for everyone.

These fintech apps with 'Change Investing' are new in the investment market, and the investment avenues your 'change money' gets invested in through these apps are limited as of now. With technological advancements, it may be developed in the future. However, there are certain drawbacks, such as the fact that if you use a fintech app for change investing, it may only provide investments in a single asset class, resulting in a lack of diversification. Unless you move investment platforms, you may not be able to switch to another asset.

Keep in mind, that as you will be entering your sensitive financial data, there is a risk of personal data leakage as you are giving the platform access to your transaction records.

Should you consider 'Change Investing'?

To encourage Indian millennials to save and invest, various Fintech organisations introduced the concept of investing your change money through these apps. It aims to inculcate a habit of saving and investing among the Indian millennials by making it simple and fun. Users can spend as they do currently and start their investment journey on the side with small amounts.

The concept of 'Change Investing' is new in India and has yet to mark its success. Although these apps encourage you to invest small amounts, such investments do not provide long-term wealth. It's critical to understand the fintech app's investing procedure in-depth, as well as where your money is placed.

Millennials are a tech-savvy generation who are drawn to technologies that make investing more accessible. However, some millennials are still uninformed of the principles of investing in various financial assets and need to understand them. And as a result of their lack of financial knowledge, millennials may wind up making impulsive investing decisions with unworthy investments.

Therefore, if you are serious about wealth creation, you may consider investing in mutual funds via SIPs which have proven track records and provide a comprehensive approach to investing for novice investors. Millennials may begin with a small amount and gradually increase the amount with effective Asset allocation in their investment portfolio.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst