A more exotic form of vanilla securitised debt instrument (SDI) with debt securities such as non-convertible debentures as the underlying, is gaining momentum among investors looking to diversify their exposure as well as realise higher returns.

In a recent transaction in this space, the Credence Family Office bought NCDs worth ₹20 crore from Vivriti Asset Management and bundled it as a product that was issued to its investors. Most SDIs in the market are backed by lease receivables, but these are backed by cash flows from the underlying NCDs.

While SDIs form just a fraction of the total securitised debt instruments space, small firms and fractional platforms use it as a way to raise funds. According to ratings agency ICRA, since FY20, there have been only about 18 such transactions valued at around ₹250 crore.

“These SDIs (with NCDs as underlying) have been driven mainly by a few new age platforms, which are trying to bundle together a few NCDs and provide a diversified pool of assets where the investor then needs to invest in only one instrument, that is, a pass-through certificate,” said Abhishek Dafria, Senior Vice-President and Group Head, Structured Finance, ICRA. “Investors would thus have an exposure across four or five different entities,“ he added.

He said it was a differentiated proposition that provides the investor exposure across multiple bonds, “but instead of doing a diversification at your own end, you can do it as a single investment through the PTC.”

In the current form, it is not a difficult product to design, as it means buying out a few bonds from the secondary market, pooling it together, and selling it as a PTC. The bonds are usually rated around BB+ or A.


The returns that such SDIs offer is higher than plain vanilla bonds and are aligned to the underlying NCDs.

Chief Investment and Strategy Officer at Credence, Chanchal Agarwal, said the SDIs issued by them have a tenure of around 2.5 years and provide an annual return of 11-12 per cent. The tenure of the SDI is that of the paper with the highest maturity in the portfolio. The minimum ticket size of the SDIs issued by Credence was ₹1 lakh.

She said having shorter term maturities reduced the risk and also provided liquidity to investors.

For investors who were unable to invest directly in bonds or alternative investment funds, this offered a better option. Otherwise, they ended up putting their money in riskier peer-to-peer platforms.

“To those who want to get high yields and are using sub-optimal options, we are telling them there are better ways of doing it for a double-digit return, but with much lower risk.”