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Neha Juneja

CEO and co-founder, IndiaP2P

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Emerging Fixed-Income Investment Products For Retail Investors

Investing for wealth creation is no longer just the domain of the savvy and wealthy as technology and regulatory progress have democratized most of the investment classes

Photo Credit : ShutterStock,

India is witnessing a rapidly emerging affluent middle-class population in the world and on the other hand, we are on the list of economies with lowest penetration into financial products. 

According to Karvy Wealth Report 2020, here is how we are invested:

Asset

FY'20 Amount

(Rupee Crore)

Proportion

Equity

6,355,210

13.66%

Debt (including cash)

19,648,191

42.24%

Alternative Assets

(including gold,

precious metals & gems)

12,501,434

26.87%

Real Estate

8,014,576

17.23%

Total

46,519,411



Over 50% of Indian wealth is concentrated in the Real Estate and Gold sector. If we evaluate the split of financial assets, we can see a major chunk of it being concentrated in banks’ fixed deposit and saving accounts which currently yield ~ 4 per cent. This is way lower than the current inflation rate and thus delivers negative real returns.

With macroeconomic and technological changes, the country is now increasingly investing in equities, mutual funds and other financial assets.  For many, this has generated wealth and has shown a rapid increase in number of investors across age-groups and professions.

Still for most Indians, equity and equity mutual fund investments are too volatile in nature and require active oversight than time permits.  On the other hand, existing debt options while being passive, and predictable fixed-income returns do not offer adequate returns to compel retail investors to invest in them.

With technology and new asset classes becoming available to retail investors, a new force of fixed-income investments have come up offering predictable, high returns.

Here are some emerging options that can deliver wealth and help diversify your existing investment portfolio.

Emerging Fixed-Income Investment Options

  1. New Fixed-Income Alternatives

  • P2P Lending Platforms

P2P lending platforms facilitate direct investments into retail debt, enabling high returns for retail investors by removing the multiple intermediaries that exist between retail investors and high-yield debt.

All P2P platforms are regulated and must be licensed by the RBI.  

A wide variety of borrower/loan categories and products are available across existing P2P platforms that investors can choose from and depending upon the fees, risk management practices, product design as different platforms have unique offerings.  

Examples include IndiaP2P offering up to 18 per cent p.a., CRED Mint offering 9%, BharatPe’s 12 per cent club offering 12% and many more.

RBI regulations limit investments to Rs 50 Lakhs per investor across P2P platforms, minimum being around Rs. 5000. 

  • Invoice Discounting

Invoice discounting is a type of financing option where unpaid invoices are sold to a lender who gives cash in advance against the value payable in the invoice at a discount.

Example: Company A has supplied goods to company B and raises an invoice payable after 90 days for Rs.100,000. However, company A is in urgent need of funds and doesn’t mind giving a slight discount on the invoice value. Lenders will fund such invoices, paying Rs.95000 to company A against the invoice and will receive the full amount of Rs.100000 from the company B after 90 days when the invoice is due- making a profit of 5 per cent.

Minimum investment in invoice discounting starts from ~ Rs.50,000. 

Examples include KredX offering up to 20 per cent annualized returns, Jiraaf etc.

  • Equipment Leasing

Here, you invest in equipment or assets such as computer systems, vehicles, furniture, etc. and lease them to start-ups and other companies to earn returns. This investment option was previously available only to corporates and HNIs. However, with advancements in technology, many platforms offer this service to individual retail investors. 

Minimum investment in equipment leasing starts from around Rs.10000 (varies as per platform and individual deal you are investing in). 

Minimum investment is ~ Rs. 20,000. Examples include Pyse, Grip.

And then there’s crypto:

This is a new asset class which is gaining fast popularity, especially among youngsters. There are various ways to make money from crypto assets like buying and holding, trading, investing in initial coin offers, lending, staking and more. 

Minimum investment in crypto assets can start from as low as Rs.100. Presently, 1 per cent transaction charge is applicable on every crypto asset purchase and 30 per cent tax on profits.  Offsetting losses on one crypto with gains on another is not permitted. While crypto is inherently volatile, new fixed-income product options are emerging which are still subject to the taxation levels.

Examples include Flint Money offering up to 13 per cent p.a. and Pillow Fund offering up to 18% p.a.

Given that these are relatively new investment types and may be subject to different tenures, taxes and fees, it is important for retail investors to calculate returns post taxes and fees on an annualised basis before making a choice.

Investing for wealth creation is no longer just the domain of the savvy and wealthy as technology and regulatory progress have democratized most of the investment classes.  

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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