Benefits And Risks Of Pooled Debt Securitisation (SDIs): A Case Study Of LoanX

An alternative investment asset that offers small-scale investors access to a diversified pool of loans is LoanX. Through LoanX, investors receive returns by investing in thousands of loans given to individuals, MSMEs (Micro, Small, and Medium Enterprises), and large corporates, facilitated by an NBFC (Non-Banking Financial Company).

In this blog, we will dive into how LoanX makes investing smarter and safer. We will see how LoanX is like a bridge between the benefits and risks of pooled debt securitisation.

Benefits Of Pooled Debt Securitisation

Pooled debt securitisation has been making waves because of the benefits it carries, some of which are as follows:

• Diversification: Pooled debt securitisation provides an intelligent strategy for diversifying investment portfolios. This helps to minimise risks while earning favourable returns through a mix of investments. It involves pooling smaller loans from various sources into a single package. These investments span across varied products and sectors, leading to reduced risk exposure.
  Unlike relying solely on a single investment, this diversified structure protects against potential losses. Thus, if the investment in the volatile stock market is not performing well, these investments can bring a balance to your portfolio with stable and predictable non-market-linked returns.
• Credit Risk Reduction: Pooled debt securitisation provides investors with significant safeguarding. This protective layer shields investors from potential financial problems that the issuer might face.
  This mechanism is commonly referred to as bankruptcy remoteness¹. It involves transferring the ownership of the underlying assets to a separate legal entity, often called a Special Purpose Vehicle (SPV). Consequently, investors in securitised debt instruments are insulated from credit risks. So, even if the business faces troubles, your investment stays safe.
• Excellent Credit Rating: Securitised pooled debts demonstrate elevated creditworthiness. These pooled debts are set apart from their parent entities. This separation often lands them impressive credit ratings. A securitised pooled debt with a strong credit rating indicates a lower risk. Credit rating agencies analyze the underlying assets and provide a rating to these investment products, making them trustworthy and attractive as an investment avenue.
• Low Capital Investment: Traditional mortgage investments require significant upfront funds and often take a long time to generate substantial returns. Furthermore, various investment options regulated by the Securities and Exchange Board of India (SEBI) come with high entry barriers, such as substantial investment amounts or a significant net worth.
  On the other hand, pooled debt securitisation provides a unique chance for investors with limited capital to achieve profits. It transforms groups of debts or assets into tradable securities, enhancing liquidity and accessibility for a broader investor base.

Risks Of Pooled Debt Securitisation

Note that no investment is 100% free of risks. Despite being backed by tangible assets, pooled debt securities carry the following risks and challenges.

• Lack Of Transparency: Pooled debt securities could have limited transparency. SPVs are in charge but might only sometimes provide complete asset details. That can be disappointing because it makes it hard for investors to understand the risks thoroughly.
  So, potential investors need to be cautious. They should conduct comprehensive research and demand transparency guarantees before committing to pooled debt securities.
• Undervalued Assets And Credit Risk: Originators need to see the actual value of the assets or how risky they are. They might not value them properly due to inadequate assessment of borrower creditworthiness, economic fluctuations, or other unforeseen factors. This misjudgment can lead to securities being priced lower than their actual potential.
  This way, investors are offered an opportunity and exposed to higher risk. Therefore, it is important to value these assets correctly to stay safe from credit risks. This will help investors to accurately price pooled debt securities, mitigating the potential credit risk.
• Early Repayment Impact: Early repayment can considerably affect pooled debt securities. Situations may arise where homeowners decide to refinance their loans. This can trigger payouts to investors way earlier than expected. This changes the whole desired money flow plan and can impact the returns that were expected to come in.
  Consider this possibility when weighing the risks and rewards of diving into pooled debt securities.
• Investor Risk-Bearing: Investing in pooled debt securities involves a notable risk for investors – the possibility of non-repayment by the borrower. Unlike traditional loans, where the lender shares the chance, you are in pooled debt securities, bearing the entire burden if the borrower does not pay.
  Defaults can occur, disrupting the anticipated cash flow and affecting the expected returns. Thus, before jumping in, thoroughly assess risk and due diligence to ensure a balanced risk-return profile for investors.

LoanX (SDI) : Pooled Debt Securitisation With A Safety Net

LoanX is an innovative alternative investment product combining pooled debt securitisation advantages with risk-mitigating solutions for a balanced and secure investment experience. Here are some prominent features of LoanX:

• Exposure To A Diverse Pool Of Loans: LoanX offers exposure to a diverse pool of loans. It brings thousands of loans given to different entities, individuals, joint liability groups, and MSMEs together, which acts as a risk mitigation strategy.
• SEBI And RBI-Compliant Structure: LoanX is structured in compliance with SEBI and RBI guidelines, making it a legitimate investment product, leading to a sense of security and transparency. LoanX follows stringent financial rules to ensure your investments are in good hands.
• Credit-Rated Instrument For Transparency: LoanX is a credit-rated instrument that enhances investment transparency. These ratings show how risky or safe an investment is, effectively aligning risk tolerance with potential returns and helping you make informed investment decisions.
  LoanX ensures that you have a clearer understanding of the associated risk levels when investing your hard-earned money.
• Listed On BSE/NSE And Demat Account Holding: All the LoanX opportunities available on Grip Invest are listed on the stock exchange, making it easier for the investors to manage and track them from their Demat account. This enables easy access and trading for investors, leading to security and efficiency.
• Direct Returns To Bank Account: LoanX returns go straight to your bank account. There is no waiting, no extra steps. This feature simplifies managing your investment. Moreover, you can access and utilise your earnings conveniently.
• Monitored By A SEBI-Registered Trustee: LoanX is made even more secure through the watchful eye of a trustee registered with SEBI. This extra layer of protection ensures that all activities strictly follow the rules set by regulators, keeping investors' interests safe.
  The trustee plays a crucial role in overseeing transactions and ensuring transparency. This boosts investor trust and shows LoanX's dedication to creating a safe and regulated investment space.
• Additional Security Measures: LoanX takes an extra step to ensure investor safety through an innovative method. By including a fixed deposit element, they secure up to 20% of the investment's value. This innovative approach boosts investor trust and provides security, especially during uncertain market times.

Conclusion

LoanX is a first-of-its-kind investment opportunity that enables small-scale investors to access a diversified pool of loans for investment at a lower minimum investment amount. While pooled debt securitisation may seem complex, LoanX becomes a solution as it is a rated, listed, and regulated securitised debt instrument.

LoanX provides exposure to a diversified pool of loans given to different industries. It is structured in compliance with SEBI and RBI guidelines and ensures transparent credit information. Moreover, it simplifies the investment process, offers direct returns, and is closely supervised by SEBI-registered trustees for security. Explore Grip Invest to learn more about alternative investments like LoanX.

References:

1. CRISIL Ratings <https://www.crisilratings.com/en/home/newsroom/press-releases/2019/10/defaults-due-to-legal-interpretation-a-threat-to-securitisation-market.html> 

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Disclaimer - Investments in debt securities are subject to risks. Read all the offer-related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading. This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip does not guarantee or assure any return on investments and accepts no liability for the consequences of any actions taken based on the information provided. For more details, please visit https://www.gripinvest.in/. 
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