Emerging Fixed Income Investment Products for Retail Investors -Neha Juneja

India is witnessing the rapid emergence of an affluent middle class population in the world and on the other hand, we are on the list of economies with the lowest penetration in financial products.

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

Asset	Amount for the 2020 financial year (Rupee Crore)	Proportion
Equity	6,355,210	13.66%
Debts (including cash)	19,648,191	42.24%
Alternative assets (including gold, precious metals and precious stones)	12,501,434	26.87%
Real estate	8,014,576	17.23%
Total	46,519,411

More than 50% of India’s wealth is concentrated in the real estate and gold sector. If we assess the financial asset allocation, we can see that much of it is concentrated in term deposits and bank savings accounts, which currently yield around 4%. This rate is well below the current rate of inflation and therefore generates negative real returns.

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

Also for most Indians, investments in stocks and mutual funds are too volatile in nature and require active monitoring more than time permits. On the other hand, existing borrowing options, while passive and the predictable returns of fixed income securities, do not offer sufficient 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 has emerged offering predictable and high returns.

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

Emerging fixed income investment options

1. New Fixed Income Alternatives

P2P lending platforms facilitate direct investments in 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 on existing P2P platforms for investors to choose from and depending on fees, risk management practices and product design, as different platforms -forms have unique offerings.

Examples include IndiaP2P offering up to 18% per annum, CRED Mint offering 9%, BharatPe 12% club offering 12% and many more.

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

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

Example: Company A has supplied goods to Company B and issues an invoice payable after 90 days for Rs 100,000. invoice value. The lenders will fund these bills, paying Rs 95,000 to Company A against the bill and will receive the full amount of Rs 100,000 from Company B after 90 days when the bill is due, making a profit of 5%.

The minimum investment in bill discounting starts from ~Rs.50,000.

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

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

The minimum investment in equipment rental starts at around 10,000 rupees (varies depending on the platform and the individual agreement you are investing in).

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

And then there is the crypto:

This is a new asset class that is rapidly gaining popularity, especially among young people. There are different ways to make money from crypto assets like buying and holding, trading, investing in initial coin offerings, lending, staking and more.

The minimum investment in crypto assets can start from Rs.100. Currently, a 1% transaction fee is applicable on every purchase of crypto assets and a 30% tax on profits. Offsetting losses on one crypto with gains on another is not allowed. While crypto is inherently volatile, new fixed income product options are emerging that are still subject to tax levels.

Examples include Flint Money offering up to 13% per year and Pillow Fund offering up to 18% per year.

Because these are relatively new types of investments and may be subject to different terms, taxes and fees, it is important for retail investors to calculate returns after taxes and fees on a annualized basis before making a choice.

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

---