Fixed-income platform Wint Wealth has recently launched its Securitised Debt Instrument (SDI) offering. Called Wint Basket, this product enables investors to invest in multiple listed curated senior secured bonds with a single investment starting at around ₹1 lakh. Through this investment, principal and interest is repaid monthly.

At present, Wint Basket Oct’23, rated ICRA BBB (SO), is up for grabs. This basket (to be listed on BSE) offers pre-tax 10.5 per cent XIRR for around 15 months tenure. It has been launched today and over 89 per cent of the ₹9.1 crore issue has been sold out already.

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For whom is this fixed income option ideal? What are the pros and cons? Here is a lowdown.

What is SDI

Securitised debt instruments (SDIs) are essentially asset-backed securities. Securitisation helps transform an illiquid asset, or group of assets, into a security/financial instrument.

In many cases, the cash generated by the underlying assets mentioned earlier is channeled into a special purpose vehicle (SPV). This SPV issues securities that are then offered to investors. The SPV manages these securities by gathering the cash flows coming from the assets and disburses them to the holders of the securities.

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In India, SDIs are govered by SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008. SDIs hadn’t picked up pace, till recently.

Wealth-tech platform Grip in 2022 was the first fintech to foray into SDI space. Its SDIs are listed on the NSE. Currently, the SDIs offered on its platform have a minimum ticket size ranging from ₹81,000 to ₹1.22 lakh (tenure: 14-47 months).

What is Wint Basket Oct’23

Most corporate bonds are privately placed. Many investors cannot invest in multiple bonds due to ticket size (₹1 lakh). If you invest in a single issuer, 100 per cent of capital is at risk with default. Wint Basket aims to solve this problem with multiple senior secured bonds as underlying assets. This allows investors to invest across multiple NBFCs by investing in a single SDI. Even if one bond defaults, others are safe.

Wint Wealth curates the bonds in Wint basket with criteria checks such as senior secured bonds, rated NBFCs, exchange listed bonds. Filters are also used (such as leverage lower than 4 times, reasonable balance sheet size of ₹1,000 crore-₹5,000 crore). Wint also verifies the NBFCs credentials. All the NBFCs in the basket have no history of default.

Wint Basket Oct’23 is composed of bonds from 7 NBFCs viz. 23.14 per cent allocation to Aye Finance (IND A- stable), 21.09 per cent allocation to Clix (CARE A stable), 15.67 per cent allocation to Krazybee (Crisil A- stable), 12.66 per cent allocation to Neogrowth (ICRA BBB stable), 12.56 per cent allocation to Ugro Capital (CRISIL A-/positive), 8.86 per cent allocation to Akara Capital (ICRA BBB stable) and 6.03 per cent allocation Vivriti (Care A positive). The weight numbers are as on October 1, 2023.

Below is a chart on NBFCs’ financials.

Investment timings for the offering is 9.15 AM to 3.30 PM on market days. The minimum investment is ₹92,643.

The trustee of this SDI is MITCON Credentia Trusteeship Services. The name of the originator entity is Fourdegreewater Services Private Limited. The RTA is NSDL Database Management.

Pros and Cons

Such a basket offers 3 advantages. One, investor money is spread across multiple NBFCs without requiring higher investment. Two, principal is amortised i.e. monthly repayments of principal ensure investment is not at risk of default. Three, there is a security cover pool, which means the bonds are backed by a minimum security cover of 1.05 times the issue size.

Concerns: Even if the security cover exists, complete investment recovery may not be possible in case of NBFC bankruptcy. 100 per cent recovery is not guaranteed. Liquidity is a major issue for SDIs. In case of premature exit, buyer may not be available. Wint doesn’t guarantee buyback or buyer availability. Hence, though SDIs are listed, they lack full liquidity. Lastly, fraud risks from NBFCs is not something that is taken away by the SDI structure. If NBFCs commit fraud, money recovery may take time or may not be recoverable.

Taxation

Resident individuals and HUF can invest in SDIs. Interest will be taxed as per tax slab of investor.

TDS rate is 25 per cent. TDS will be deducted by trust while making the payment. Of course, TDS can be claimed by investor while filing income tax return.

Currently, there is no form 15G/H availability in SDI.

Our take

Wint Wealth aims to bring one Wint Basket each month. So, if you don’t get a chance to invest in the latest one, don’t fret. More importantly, this investment is not for everyone, although the investment ticket size is around ₹1 lakh. Don’t invest your emergency funds in SDIs. Retail investors can stay away from SDIs for the time being.

SDIs in their current form, given the liquidity concerns, modest credit rating (BBB), pre-tax XIRR of around 10.5 per cent and low diversification (all the underlying bonds are from NBFCs), are apt only for sophisticated investors with high risk appetite. Others can skip the offering.

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