Category: Finance

2 commonly asked questions around fixed income instruments like Bonds, SDI & Invoice Discounting are

1. What is a good use case of these instruments
2. What is a good way to start investing in these (for beginners)

Now, these questions are highly subjective and a lot of things depend on investor goals, risk appetite and so on. But I recently came across a personal situation, which I thought offers great opportunity to invest in these instruments. In fact, I am investing almost 20lacs in Invoice Discounting, in a very short time frame for this situation. Let me explain in a but more detail.

What is Invoice Discounting?

Invoice discounting is a financial arrangement where businesses sell their unpaid invoices (amounts customers owe them) to a lender (the investor) at a discount. This gives the business immediate cash flow instead of waiting for customers to pay.

Example: Assume a company is owed ₹1,00,000 by a customer (client) who will pay in 60 days. The company can sell this invoice to an investor (like you & me) for ₹95,000 today. When the client pays the full amount later, the investor earns the difference as their return.

For investors, this is a a way to earn fixed returns over a short period. For Business this is a easiest (or cheapest) way to maintain working capital cashflows.

What Platforms Offer Invoice Discounting

With rapid advancement of fintech, a lot of platforms are offering invoice discounting to retail investors. Among these, the most popular ones are

1. Altgraaf: (4500cr invested till now) This is my preferred platform & I have invested over 22lac here. (Disclaimer: I also work as a partner with them, i.e., I manage accounts of multiple people from friends & friends, & get a commission for every investor who invests via me).
2. Tap Invest: (400cr invested till now) New Player in the market. Great team. Good deals. Their return rates are usually better. But since they are new, I am being cautious with them.
3. Tyke: They offer multiple products, invoice discounting being one of them. I have invested small amount with their other products, as I could not get enough confidence with them.

Some main features of Invoice Discounting for Investors are

1. Fixed, pre determined returns that usually vary from 10-15%
2. Fixed & Short Durations varying from 30 to 90 days.
3. Low Risk to High Risk depending on security structure of the deal. For example, if Invoices are protected by Bank Guarantees, then it is very low risk. If they are unsecured, then returns are higher & so is risk.

Why am I Investing in Invoice Discounting

Recently, I found myself planning for an event in March or April, requiring a considerable amount of money. The primary funding sources for this investment are FDs & other Debt instruments. This is where lies the challenge

1. FDs, Bonds mature on different dates (different months).
2. These maturing deposits end up idle in my savings account, earning minimal interest.

The options available

1. FDs: 2 or 3 month FDs offer pathetic returns.
2. T-Bills: Govt Secured short term investments that deliver around 7%, with almost 0 risk.
3. Debt Funds: Liquid debt funds are also a decent option & offer 7% with low risk.
4. Invoice Discounting: 30 to 120 days short term with 10-15% returns with low to very high risk

So I choose Secured Invoice Discounting that deliver 10-11% returns with very low risk because

1. Can’t afford the risk to loose principal right now & need repayment on fixed dates.
2. Altsmart & Altarmour offer Bank Guarantee at 10% and Credit Insurance Protection at 11% respectively.

Good Use Case for Invoice Discounting

This made me realise that Invoice Discounting can be a great investment option for short term where investors are planning for an event that requires large amount of money.

1. Large ticket events like marriage, buying property, investing PMS or SIF, higher education etc.
2. Secured Invoice Discounting offers fixed returns on fixed dates with good amount of security & lowered risk.
3. And the returns are still far better than FD or T-Bills. (10% compared to 5% or 7% in short term).

Great Option to Start with Invoice Discounting

Fixed income instruments can be overwhelming. If you’re new to this asset class, start with low-risk options like bank-guaranteed or insured invoice discounting.

When I began my journey six months ago, I experimented with riskier assets offering 14% returns. However, I’ve since realized that starting with low-risk options builds confidence & familiarity with the asset class without exposing your portfolio to undue risk.

Also, short term secured Invoice discounting can help investor plan their cashflows & reinvestments, earlier in their journey. Repayments are biggest USP of fixed income instruments, but they can be a challenge to manage and lead to lowered returns than expected.

Key Takeaways

• Short-Term Planning: Invoice discounting can be a great option for short term investments, specially when planning for big ticket event like property, marriage, PMS, higher education etc.
• Cash Flow Management: Its biggest advantage is providing fixed returns on fixed dates, but careful cash flow management is essential to avoid idle funds.
• Entry Point for Beginners: For those new to alternate investments, low-risk invoice discounting offers a practical starting point with returns better than traditional instruments like FDs.

Final Thoughts

Invoice discounting can be an effective tool for managing short-term financial needs while earning better returns than FD or saving accounts or Debt Funds or T-Bills. If you’re considering this asset class, ensure you prioritize safety and align it with your cash flow requirements.

If this insight resonated with you, feel free to like, share, and subscribe. If you have any question from my investment journey that might help you, please feel free to ask. I would be happy to help.

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DISCLAIMER: This video is not an investment recommendation. Its purpose is not to promote or demote any company or investment. Its purpose to share personal experience in unbiased form so other fellow investors can learn & take better informed decision for themselves. I am not a registered financial professional. For any investment advise, please take help from a registered Financial Professional.

In the ever-evolving world of startups, asset leasing has emerged as a promising method for businesses to raise capital. For investors, this offers high-yield opportunities. In this blog, I will share my experience & opinions about the concept of asset leasing, its advantages, and potential risks, while highlighting startups utilizing this model.

What is Asset Leasing?

Asset leasing is essentially a form of debt for a business. Investors, instead of owning equity, purchase & own assets such as electric vehicles (EVs), vending machines, or EV batteries. The company operates these assets, generates revenue, and repays investors on a monthly basis. Returns on investment typically range from 15% to 25%, with tenures varying between 1 to 10 years, depending on the business & asset type.

How Asset Leasing Works

1. Investment by Retail Investors: Investors purchase assets or fractions of assets through platforms, starting with amounts as low as ₹50,000.
2. Startup Operation: The startup uses these assets for revenue generation—for example, operating EVs as taxis.
3. Monthly Repayments: Startups repay investors in monthly installments, including both principal and interest.

Why Startups Prefer Asset Leasing

1. Cost-Effective Capital: Asset leasing provides startups with cheaper capital compared to bank loans, venture debt, or equity financing.
2. Fast Growth while preserving Equity: This enables startups to reach significant revenue milestones, such as ₹10–50 crore annually & save meaningful equity for larger rounds like Series A.
3. Networking Advantage: This model offers one of the biggest benefits of Angel Investments – Wider Network & fosters word-of-mouth promotion among retail investors.

Why Investors Prefer Asset Leasing

1. Lucrative High Returns: IRRs ranging from 15-30%.
2. Reduced Risk Visibility: Monthly repayments ensure partial capital recovery in the adverse situation of the startup failing.
3. Steady Cash Flow: Investors receive regular income, which can be reinvested in a systematic manner (SIP) or utilized for personal expenses.

Disadvantages of Asset Leasing

1. No Compounding: Unlike stocks, asset leasing investments do not compound; the effective annual return (CAGR) is much lower than IRR. (IRR of 25% usually translates to 12% CAGR. It can be compared to the difference between an FD 0f 9% and a Loan of 9%. Net amount is quite different in both).
2. Cash Management: Monthly repayments can accumulate as idle cash if not reinvested.
3. High Risk: These are startup investments, inherently riskier compared to traditional options like stocks or bonds.

Popular Startups Leveraging Asset Leasing

1. BluSmart (Taxi): Investors fund electric taxis. I have invested in this via 3rd party (Grip Invest). BluSmart has reportedly raised over ₹100 crore via their Asset Leasing Program called Assure.
2. Daalchini (Vending Machine): My estimate would be that Daalchini has raised over ₹40–45 crore. I have invested in this twice.
3. Race Energy (EV Batteries): Specializing in EV batteries, Race Energy has raised ₹8 crore and offers tenures from 3 to 5 years, and IRRs from 17 -30%. 
4. Machaxi (Sport Centers): Investors fund sports facilities such as badminton courts, pickleball courts, swimming pools etc. These are long-term projects with tenures up to 10 years. I have invested in this.
5. Celsius (Refrigerated Trucks): Celcius provides end-to-end supply chain solutions, including transport, warehousing, last-mile, and hyperlocal delivery services across the cold chain network.
6. Zypp Mobility: an EV-as-a-service platform offering electric vehicle rentals along with delivery services through its e-scooter fleet for gig workers.

Franchise-Owned Models: A Growing Trend

Some startups offer Franchise-Owned, Franchise-Operated (FOFO) models alongside asset leasing (which is similar to FOCO model). While FOFO requires operational involvement, it can deliver returns much higher compared to passive asset leasing investments (FOCO). Some startups offering these are

1. Daalchini: Daalchini offers both FOCO and FOFO model. (I have invested in FOCO, as I find FOFO operationally heavy)
2. Elefant: A unique concept offering premium toy libraries operated by women entrepreneurs. Investors earn through revenue-sharing models. 
3. BatterySmart: Battery Smart provides advanced lithium-ion batteries & swapping stations for electric two and three-wheelers. Investor partner invest & operate their battery swap stations. 

Tips for Prospective Investors

1. Conduct Due Diligence: Research the startup’s business model, financial health, and market potential.
2. Plan for Cash Flow: Have a clear strategy for reinvesting or utilizing monthly repayments.
3. Diversify Investments: Spread your investments across multiple startups and sectors to mitigate risk.
4. Understand the Risks: Startup investments are super risky; be prepared for potential losses.

Conclusion

Asset leasing is a dynamic investment avenue, offering retail investors the opportunity to participate in the growth of innovative startups while earning attractive returns. However, it’s essential to approach this investment with caution, conducting thorough research and aligning it with your financial goals.

Are you exploring asset leasing or have questions about this investment model? Share your thoughts in the comments or reach out for more insights. If you found this blog helpful, don’t forget to share it with others interested in innovative investment opportunities!

DISCLAIMER: This blog is not an investment recommendation. Its purpose is not to promote or demote any company or investment. Its purpose to share personal experience in unbiased form so other fellow investors can learn & take better informed decision for themselves. I am not a registered financial professional. For any investment advise, please take help from a registered Financial Professional.

In today’s fast-paced world, making smart choices is important. Technology is bringing solutions that were unimaginable few years back, and should be leveraged to improve quality of life. In this blog, we’ll discuss Volt Money, an app that offers loans against mutual funds, and why it could be a game-changer for individuals like us.

What is Volt Money?

Volt Money is a digital platform that provides loans against mutual funds. Unlike traditional personal loans with high interest rates, these allow individuals to leverage their mutual fund investments and get loans at very low interest rates. Here are the key details:

• Interest Rate: The interest rate is 10.5% (though they falsely advertise it at 9%). Your CIBIL score does not impact the interest rate.
• Credit Line: You receive a credit line against your pledged mutual funds. Pay interest only on amount withdrawn from this credit line, and repay principal as per your convenience.

How Volt Money Works

1. Open a Credit Line: Pledge your mutual funds & get a credit line of 50% the pledged value. For example, if your mutual fund corpus is valued at ₹10,00,000, you’ll receive a credit line of ₹5,00,000.
2. Quick Onboarding: The process takes just 15 minutes, requiring basic KYC, signatures, and pledging of mutual funds.
3. Flexibility: Withdraw as much as you need and pay interest only on the amount withdrawn.
4. Interest: Interest is calculated daily (at 10.5% per annum rate) & debited monthly.
5. Repayment Options: Repay the loan principal anytime, from as short as 1 day to as long as three years
6. Other Fee & Charges: There are no other hidden charges except from the rate of interest. No foreclosure charges. Complete details in charges section below.

Pros of Volt Money

1. Speed: Loans are processed and credited to bank account within hours.
2. User-Friendly App: The platform simplifies loan management with intuitive features for withdrawal, repayment, and tracking.
3. Cost-Effective: There are no processing fees or foreclosure charges, apart from a ₹1,000 fee for pledging and unpledging mutual funds.
4. Daily Interest Calculation: Pay interest only for the period you use the funds, making it an economical option for short-term needs.

Points to Consider

While Volt Money has several advantages, there are a few areas that could be improved:

1. Misleading Interest Rates: The advertised rate of 9% is inaccurate; the actual rate is 10.5%.
2. Customer Support: Though adequate, it lacks the proactiveness I have seen in financial platforms like Grip or Altgraaf.
3. Interest Tracking: The app does not display the upcoming interest amount, requiring users to calculate it manually.

Who Should Use Volt Money?

Volt Money is an excellent option for:

• Young Investors: Those looking for quick, short-term loans without liquidating their mutual fund investments.
• Emergency Needs: Individuals needing immediate funds without lengthy paperwork.
• Flexible Borrowers: Those who can manage their repayments dynamically, benefiting from daily interest calculations.
• Far Better than Personal Loans: Personal loans come at a very high rate of interest. Individuals who are not careful with personal loans, end up in a debt trap. Loan against mutual funds are a great way to stay away from that vicious cycle.

A Smart Financial Strategy

Managing liquidity without disrupting investments is crucial. As per data, more than 50% of investor exit their mutual funds in under 2 years. A lot of this happens because they need funds. Exiting mutual funds for emergency results in people paying extra taxes while loosing out compounding gains.

Volt Money provides an innovative way to achieve this by allowing you to tap into your mutual funds without selling them. For short-term needs, these kind of loans offers an efficient and cost-effective solution compared to traditional personal loans. However, transparency and better user experience could make it even more appealing.

Conclusion

Volt Money exemplifies how technology is reshaping personal finance. It’s ideal for young professionals looking to balance smart investments with the flexibility of accessible funds. By leveraging mutual funds for loans, you retain your long-term investment potential while addressing short-term financial needs.

Have you used Volt Money or considered loans against mutual funds? Share your experiences or questions in the comments below. And if you found this blog helpful, don’t forget to share it with others interested in personal finance strategies!

This is not an investment recommendation. Its purpose is not to promote or demote any company or investment. Its purpose to share personal experience in unbiased form so other fellow investors can learn & take better informed decision for themselves. I am not a registered financial professional. For any investment advise, please take help from a registered Financial Professional.