After demonetisation, the use of debit cards and credit cards has skyrocketed. According to RBI, as of August 2023 over 9.13 crores credit cards were active, which is a 17% increase from last year of about 7.8 crore active credit cards. These cards offer unparalleled convenience, allowing you to purchase anything from groceries and medicine to tickets and services. While both are widely accepted, credit cards hold the upper hand due to their rewarding nature. However, credit cards take a back seat when it comes to investing. In this article, let’s understand which investments can be made using a credit card in India and why many investments do not accept credit cards.
Credit cards are considered one of the best financial inventions. They allow you to borrow money to pay your bills without any interest if paid within the grace period. On top of this, they help you save on your bills and offer rewards and cashback. Despite being a very useful financial tool, credit cards cannot be used for investments. There are very few investments that accept credit cards, but a majority of the investments don’t.
There are multiple reasons why you can’t invest in mutual funds and stocks through credit cards, and the following are some of them.
One investment that allows you to invest through a credit card is NPS. The National Pension Scheme (NPS) is a retirement pension scheme introduced by India’s government. The government regulates this scheme along with the Pension Fund Regulatory and Development Authority (PFRDA), which was exclusively set up to oversee the activities of the scheme.
Under NPS, you can invest a certain amount every year from the age of 18 until 60. After the age of 60, you will receive a lump sum amount (60%) as a retirement benefit, and the rest (40%) is utilised to buy an annuity plan, which will pay a regular pension for your entire life. All Indian citizens and non-resident Indians (NRIs) can invest in NPS to secure their financial future.
NPS has two types of accounts, namely Tier 1 and Tier 2. The minimum investment in a Tier 1 account is Rs 6,000 per annum, and the maximum is Rs 1.5 lakhs per annum. Tier 2 is a voluntary account and has more flexibility than Tier 1 accounts. The minimum investment in a Tier 2 account is Rs 250 per annum. Unlike a Tier 1 account, the investment in a Tier 2 account can be withdrawn anytime.
You can invest in NPS through entities such as banks, which are known as Point of Presence (POP). To find POPs near you, you can visit the PFRDA website. You can visit the POPs personally or go to their website online. Fill in the NPS application form and submit all necessary documents, such as identity, address, and age proofs.
After submitting the documents, you can pay online or offline. If you want to use your credit card, you must use the online mode. To pay through a credit card, log in to your NPS account and select ‘Transact Online’ followed by ‘Contribute Online’ tabs. During payment, choose the credit card option and pay your contribution.
Once the payment is made, you will be assigned a 12-digit unique number called Permanent Retirement Account Number (PRAN), which will help you pay your investment dues and check your balance in the future.
Although using a credit card can seem quite convenient, it is important that you avoid using it during investment due to the high risks associated with it. Following are the risks of using a credit card for investments.
Investing using a credit card is a risky affair and has certain disadvantages. Hence, looking for alternative credit card sources for investment is important.
Although using a credit card is very convenient for investing, there are certain risks attached to it. You can fall into a debt trap or pay additional charges for the transactions. Moreover, the interest costs are very high in the case of credit cards. Before opting for credit card investments, you must carefully analyse the benefits and risks and make an informed decision. However, it is always best to save money before you start investing rather than using a credit card.
Yes, you can use a credit card to invest in India. However, you can only invest in NPS or National Pension Scheme and physical gold using a credit card.
Yes, you can borrow money from a credit card and invest. However, it is not advisable as the charges associated with cash withdrawal and investing through a credit card are high and outweigh the benefits of the investment itself.
You can invest in NPS using a credit card. However, you can only do it online on the PFRDA website. To invest through a credit card, log in to your NPS account and select ‘Transact Online’ followed by ‘Contribute Online’ tabs. During payment, choose the credit card option and pay your contribution.
You cannot invest in mutual fund SIP using your credit card, as the Securities and Exchange Board of India (SEBI) doesn’t allow you to do so.
Yes, you can transfer money from a credit card to your bank account. It can be done through the bank’s ATM. However, transferring money is considered a cash withdrawal, and the applicable charges will be levied on the transaction.
Credit cards charge an interest rate as high as 40% per annum, whereas investments in India give an average return of 15%-20% per annum. Since the interest cost is higher, it is better to repay the credit card dues than invest. Investing can wait until you repay your loans and dues.
No, SEBI doesn’t allow investors to use credit cards to invest in stocks. Only net banking and UPI are the eligible payment modes for investing in stocks in India.