SDIs – Securitized Debt Instruments
Empowering institutions to raise debt by securitizing their assets and providing individual investors an opportunity to invest in fixed interest yielding assets.
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What are SDIs?
SDIs are securities that represent an ownership interest in a pool of income generating assets, typically loan receivables, invoice receivables or real assets. The income generated from the underlying assets is distributed to the security holders.
This is done through a securitization process that involves transforming illiquid assets into marketable securities, which are then sold to investors.
Tenure
12 to 36 Months
IRR
8 percent to 15 percent
How are
SDI’s Structured?
01
Borrower
Borrowers raise capital by securitizing their assets.
02
Servicer
Entity responsible for asset pool collection. This can be the borrower themselves or a third-party entity.
03
SPV or Bankruptcy Remote
The asset pool is transferred to the SPV (Special Purpose Vehicle Entity). SPV then issues securities (NCDs, PTCs) against them.
04
Trustee
Oversees the operations of SPV and safeguards the interests of investors.
05
Investor
Invests to build a portfolio of fixed income securities, and receives cashflows.
Why invest in SDIs?
Diversification
Helps you diversify your fixed income portfolio and balance your risks and rewards.
Better Yield
Better returns than traditional fixed income investments.
Predictable Repayments
Predictable cashflows to help plan your goals better
Secured
Represent a pool of rated assets, such as loan receivables (mortgage, auto, gold), invoice receivables (unpaid invoices), or real assets (cars, tractors, machinery).
Market Liquidity
Provides better liquidity given it is listed on exchanges
Risk Mitigation Factors
Security
Secured by pool of underlying assets (receivables or real assets)
Covenants
Adherence to financial covenants put in place that cannot be breached
Credit Rating
Rated by third party credit rating agencies (CRISIL/ICRA/CARE)
FAQs
| Points of difference | Corporate Bonds | SDIs |
|---|---|---|
| Structure | Debt securities issued by corporations to raise funds with a promise to pay fixed periodic repayments to investors. | Securities representing ownership in a pool of underlying income generating assets. The income generated is in turn distributed to investors. |
| Returns | 8 to 14 percent | 8 to 15 percent |
| Rating | Borrower entity is rated | Pool of assets is rated |
| Diversification | Investment in a single bond | Investment in a pool of assets |
| Taxation | Taxed as per tax slab. TDS of 10% applicable. | Taxed as per Tax slab. TDS of 10% for NCDs and 25% for PTCs |
Structure
Corporate Bond: Debt securities issued by corporations to raise funds with a promise to pay fixed periodic repayments to investors.
SDIs: Securities representing ownership in a pool of underlying income generating assets. The income generated is in turn distributed to investors.
Returns
Corporate Bond: 8-14%
SDIs: 8-15%
Rating
Corporate Bond: Borrower entity is rated
SDIs: Pool of assets is rated
Diversification
Corporate Bond: Investment in a single bond
SDIs: Investment in a pool of assets
Taxation
Corporate Bond: Taxed as per tax slab. TDS of 10% applicable.
SDIs: Taxed as per Tax slab. TDS of 10% for NCDs and 25% for PTCs
- Credit risk: The creditworthiness of borrowers in the underlying pool of loans can affect the performance of SDIs
- Liquidity risk: SDIs are often traded in the secondary market. The ability to liquidate may vary depending on market conditions and demand for the underlying security.
- Prepayment risk: Early repayments could impact SDI investors in terms of cumulative interest income and total return on investment earned from the opportunity invested
The interest component received is categorized as “Income from other sources” and will be taxed as per tax slab. TDS is 25% for PTCs and 10% for NCDs.
Assets commonly securitized can broadly be classified into three categories: Loan receivables: Receivables from car loans, personal loans, gold loans etc. Invoice receivables: Receivables from invoices raised by entities. Income generated by leasing real assets: Income generated by leasing assets like cars, trucks, machinery, real estate etc.
SDIs are often traded in the secondary market, providing some liquidity to investors. However, liquidity may vary depending on market conditions and the specific characteristics of the certificates.