Should you go for non-market linked alternative investments?

Kumar Shankar Roy |BL Research Bureau | Updated on: Jun 25, 2022

Understand the associated financial and credit risks; here are details of our platform review of ‘Grip’

Many new investors these days are looking beyond traditional avenues such as stocks, fixed deposits and gold to diversify their investment portfolio. Fintech start-up 'Grip' curates non-market linked alternative investment opportunities. Let us have a detailed look at its offerings.

About the platform

Grip (Grip Invest Advisors), with its registered office at Gurgaon, was co-founded by Nikhil Agarwal, Vivek Gulati, and Aashish Jindal in June 2020. It has enabled ₹250 crore in investment opportunities. It predominantly offers investment options in asset-backed leasing (covering kitchenware, IT equipment, electric vehicles, furniture etc) and in inventory financing. Pre-leased commercial properties and start-up equity are also offered. Grip says its leasing structure falls under the purview of the Ministry of Corporate Affairs.

The internet-based asset ownership portal appears to conduct due diligence on investment opportunities and then lists them on its website. Leveraging the co-investment/fractional investing route, it also aggregates investors and the income/returns generated from that investment is then shared in proportion to their investment. Any individual over the age of 18 years having a valid PAN and Aadhaar card can invest. The minimum amount for any asset-backed leasing and inventory financing investment opportunity is about ₹15,000-20,000. Lease-based deals have 24-36 months tenure, while inventory-based offerings have one-six months tenure.

For each investment to purchase and lease an asset, a specific purpose vehicle (SPV) in the form of a limited liability partnership (LLP) is created, in which investors contribute their funds. As an investor, you will become a partner to this LLP. Grip assumes responsibility for oversight, reporting, and management of this SPV on behalf of investors. It charges a management fee on every repayment an investor receives.

Point to ponder
The money you lend goes to unrated start-ups falling in the high-risk lending category

What's good, what's bad

Grip presents the offer details in a simple, transparent and easy-to-understand manner. There is specific mention of pre-tax return (IRR), return frequency, tenure, payment schedule, minimum investment, quantum of investment raised so far, lot of details on the company raising funds for each offering. There is also an elaborate FAQ (frequently asked questions) section on the website.

However, investors should not underestimate the financial and credit risks associated with fractional equipment-leasing opportunities. The money that you lend goes to, typically, unrated start-ups, which fall in the high-risk category in the lending world. The potential downside is loss of a significant portion of your investment if the start-up fails during the tenure.

Hence, investors should assess whether the returns they get are commensurate with risks taken. For instance, as per a live deal proposal on Grip website, investing ₹20,000 in a deal for a 24-month tenure could get you total pre-tax amount of ₹25,230 and post-tax amount of ₹22,911, translating to a post-tax p.a. return of 7 per cent. This is actually not very rewarding, given the high corporate credit risks involved in venture debt. In comparison, corporate bond yields to middle of the investment-grade category easily fetch you 10.7-11.5 per cent (pre-tax)for one-three year tenures.

Also, note that as per the payment schedules, about one-fifth of the investment comes back only in the last month of leasing investment deals; your entire upside is visible only at the end of the tenure. Currently, you cannot exit investment before the lease term is over. While Grip claims zero bad loans and clean on-time payment so far, it remains to be seen how these metrics look after a full business cycle.

Published on June 25, 2022
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