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LeaseX
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What is a LeaseX?
- LeaseX is a lease financing investment opportunity structured in the form of a Securitized Debt Instrument (SDI) which is a tradable fixed-income instrument issued in accordance with a SEBI framework. Grip through LeaseX offers lease rentals backed SDIs which are rated by a credit rating agency and are listed on National Stock Exchange (NSE) in a demat form. It provides investors with fixed monthly payouts linked to rental payments made by a single or a diverse pool or leasing partners. For risk mitigation, all cashflows are managed by a SEBI registered trust (with an escrow mechanism to ring-fence the receivables). Further, the rentals are also backed by a bank guarantee.
Is the LeaseX tradable?
- LeaseX is in the form of SDI and therefore is a tradable instrument held in dematerialised form, i.e., it offers a similar experience to buying, holding, and selling a bond. However, ability to find a buyer is not guaranteed by Grip and the investor could expect to hold the instruments until maturity.
What is the history of the SDI?
- SDI was introduced by SEBI in 2008 under the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations. The first asset leasing backed SDI was listed on the National Stock Exchange (NSE) by Grip on 7 October 2022. As on 31 January 2023, Grip has listed four LeaseX transactions (in SDI format) of collectively INR 41Cr.
How is LeaseX secured?
- The LeaseX (in SDI format) is a SEBI compliant, listed, and rated instrument, partially secured by cash collateralized bank guarantee and managed by an independent, SEBI-registered trustee. The monthly returns in the LeaseX originate from contracted lease agreements with the lessee(s). Lessee(s) forming part of any SDI are decided upfront and cannot be changed during the tenure, unlike a mutual fund.
Is IRR different from ROI?
- ROI and IRR are complementary metrics where the main difference between the two is the time value of money. ROI gives you the total return of an investment but doesn’t take into consideration the time value of money. For example, INR 1,000 received today is more valuable than INR 1,000 received after 3 months. IRR calculations take into consideration when the INR 1,000 was received, while ROI does not.
- IRR hence not only represents the amount of money earned but also how fast it was earned.
What is the tax applicable on my return?
- Only the monthly interest payout is expected to be taxed at the marginal tax rate of the individual investor; no tax should be payable on the principal repayment. Appreciation (if any) of the price of the SDI, in case of sale prior to the full tenure, is expected to be considered as capital gain and taxed accordingly. Please do not consider this as tax advice. We urge you to speak with your independent tax advisor.
What is accrued interest?
- Accrued interest is the amount of interest due on the SDI that has accumulated since the last time an interest payment was made. The interest has been earned by the existing holder, but because interest is only paid at set intervals the investor has not received the money yet. If the present holder sells his SDI, he should be entitled to get the interest until the date of the sale.
- For example, assume you receive INR 1,000 as interest on the 30th of every month. On the 15th of the month, you decide to sell the SDI. Since you held the SDI for 15 days, an equivalent coupon amount, in this case INR 500 is earned by you but not yet received. Hence, when you sell the SDI, the INR 500 in accrued interest must be added to the sale price to fairly compensate you.
What is the difference between the clean price and dirty price of the SDI? (Purchase Price vs Investment Amount)
- The clean price is the price of an SDI not including any accrued interest. The clean price is typically calculated as the adjusted face value of the instrument closer to the nearest payout date, ceteris paribus. Dirty price is the price of an SDI that includes accrued interest between payout dates.
How is the Investment amount of an SDI calculated?
- The investment amount is the sum of the face value of each SDI (“Clean Price”) and accrued interest.
Can I withdraw my funds before the maturity period of the transaction?
- LeaseX (in SDIs format) are tradable instruments. This means that there is no lock-in on your investment. If you want to sell the instrument before maturity, you can do so in the secondary market at the market price (market price may vary from par-value)
Is it compulsory to do KYC for LeaseX investment?
- Yes, SEBI has mandated KYC requirements for the purchase of the SDIs to prevent money laundering activities
Is it okay if I transfer the funds from someone else’s account?
- No. It is mandated by SEBI to transfer funds from the bank account in the name of the applicant.
