Wint Wealth Senior Secured Bonds allows investing Rs 10,000 in fixed income assets. Should we invest?
Wint Wealth will present tomorrow (November 25, 2021) senior covered bonds in a publicly traded structure on its platform. Investors could invest as little as Rs 10,000 in these bonds and earn monthly interest. Up to 33% of the principal will be repaid every 9 months, offering an opportunity for reinvestment to investors and reducing credit risk. According to Wint Wealth, it will be the first Indian government bond backed by a mortgage hedging portfolio valued at Rs 68 crore, or 1.25 times the bonds issued, which reduces the risk aspect.
Ahead of the launch of Wint Wealth’s new public show, FE Online sat down with Anshul Gupta, co-founder of Wint Wealth, to understand the new product and who should invest in it. Excerpts
What are Senior Secured Bonds? And why is it called that?
A senior secured bond is a bond backed by a pool of security, such as gold loans, auto loans, or home loans. In a senior secured bond, the term “senior” indicates that bondholders have priority to be reimbursed in the event of NBFC default. If the bond-issuing NBFC fails to make a payment, the entity will be forced to file for bankruptcy, which will be governed by applicable laws and regulations that protect the interests of investors.
What Kind of Investors Should Invest in Senior Covered Bonds? What are the minimum and maximum investment ceilings?
All of Wint Wealth’s assets are democratized to transform the debt landscape into small investment vehicles. Senior Covered Bonds introduced by Wint Wealth allow retail investors to invest in fixed income assets with as little as Rs. 10,000. This gives them a chance to test the waters of the debt and bond market before deciding to invest more or not.
An ideal investor would be one who falls in the 30% tax bracket and plans to invest around Rs. 50k to Rs. 1.5 lakh. In terms of maximum investment, we recommend that Wint Wealth assets do not represent more than 15% of your entire portfolio. In addition, this 15% should be spread over at least 5-6 assets of different NBFCs. In other words, only put 1-2% of your entire portfolio in each asset and diversify your risk accordingly.
How will senior covered bonds generate returns for investors?
Normally, NBFCs raise funds through equity or debt. They fundraise in the market so they can lend money at higher rates for business loans, and more. After the operating costs, these NBFCs get their net profit. So, it is usually not senior secured bonds that pay off here, but money raised by NBFCs by expanding their loan portfolios to earn interest and raise capital.
What is the expected return on investment? And is it guaranteed? If not, what are the possible risks of investing in these bonds?
Wint Bricks Nov21 provides XIRR interest of 10.5% on a monthly basis. You will get a 33% return of capital every 9 months for up to 27 months. Asset returns are XIRR returns, which are calculated the same way debt mutual fund returns are generated, i.e. using the XIRR method to calculate an annual compound interest rate. when the interest is paid back to you on an annual basis.
These Senior Secured bonds are designed with features such as an exclusive charge on the underlying securities pool, amortization on the security pool collateral and strict covenants. Although Wint Wealth works to mitigate risk by verifying individual loans in pools, there is still a high risk factor. The three big risks associated with this type of investment are credit risk, liquidity risk and fraud risk, so there is no guarantee on returns.
How to invest in these bonds?
On launch day (November 25), go to the Wint Bricks Nov21 website and click Invest Now (the button will be where the “Notify Me!” Button is now), and we’ll walk you through the rest. Simply use the script code that we will provide you once you click on Invest Now to search for the bond on your broker account. Make sure that the funds you want to invest are preloaded into your broker account.
As Wint Bricks Nov’21 is a listed bond, it will be searchable and visible via the following brokers: Upstox, ICICI, HDFC, 5paisa, Axis, Edelweiss, Zerodha, Upstox, ICICI, HDFC, 5paisa, Axis, Edelweiss.
How does Senior Secured Bonds compare to other options like FD, Debt Mutual Funds?
Although Wint Wealth assets offer higher returns than debt mutual funds, the associated risk is also higher. One advantage of investing with Wint Wealth is taxation, these assets are taxed as equity (STCG and LTCG). Nonetheless, we encourage investors to diversify their investment among Wint’s assets in order to mitigate risk.
How have previous Wint Wealth covered bond issues performed?
The 1st asset maturity where we fully reimbursed the investors was in February of this year. The other previous covered bond-based assets on the platform are performing well, with no downgrade or default. The next maturity of the asset is due in June 2022.