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Prime Retail Debt - Alternate Investment Opportunity
1. What is Peer to Peer (P2P) Lending:
Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. The development of financial technologies, or fintech, by integrating banking processes with information technology has enabled the creation of financial products and services that can be delivered to consumers at scale, and at a fraction of the cost incurred by conventional banks and NBFCs. Since P2P lending companies operate online, they can run with lower overheads and provide the service more cheaply than traditional financial institutions. As a result, lenders can earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates.
2. Global P2P Businesses:
The research report published by Transparency Market Research states that the opportunity in the Global P2P lending market was worth US$26.16 bn in 2015 & analysts have predicted that the market valuation will reach US$897.85 bn by 2024, as it expands at a significant CAGR of 48.2% from 2016 to 2024. In a report in 2015, Morgan Stanley also predicted that marketplace lending would grow to USD 490 billion globally by 2020. The new loan volume for USA alone in 2018 is expected to be $38.9 billion, a year on year increase of 46%. By 2050, the overall P2P lending value is expected to be close to 1 trillion U.S. dollars.
3. Indian P2P Landscape:
P2P lending service providers have been in business in India since early 2014, but until last year, there was no regulation around it. In September 2017, RBI notified that these will be registered as non-banking financial companies (NBFCs) and came out with guidelines for P2P lending platforms a month later i.e. in October 2017.
Most experts were predicting S&P Sensex to be above 42500 and NIFTY 50 above 13000 levels by March 2020. With this back ground, let me start my narrative of this article and my own thoughts on where we went wrong, what should have been our role as Advisors, should we have only listened to the Experts and not applied Logic and Common Sense to our Advisory practice and finally should we have continued to believe in the old adages like Buy and Hold, SIP Karo Bhool Jao and Do Not Time the Markets?
It has been a turmoil filled 2019-2020 as far as debt markets are concerned. What was 2008-2009 for Equity markets has turned out to be 2018 onwards in Debt market space since IL&FS defaults and downgrades and thereafter many more defaults by well known names like DHFL, Essel Group, Cox & Kings, and many more. How to approach it as a need and a solution click on the article to read more.
I am sure by now most readers are aware of what Bharat Bond ETF is and what are its salient features. I have seen and read many notes on the same. Surprisingly, all are repeating the same i.e. what is ETF, how this Product has transparency, liquidity, visibility of returns, tax efficiency etc. However, none have so far highlighted the NEED-SOLUTION approach for Investors to look at and take an investment decision based on that. If you see this as another debt scheme or a product, there will be less traction; but if you see this as a NEED and a SOLUTION approach, you will get better perspective as to why you should look to invest in the scheme . Also, I will explain in detail the Concept of Constantly Rolling Down and how does it benefit the Investors.
I am sure by now most readers are aware of what Bharat Bond ETF is and what are its salient features. I have seen and read many notes on the same. Surprisingly, all are repeating the same i.e. what is ETF, how this Product has transparency, liquidity, visibility of returns, tax efficiency etc. However, none have so far highlighted the NEED-SOLUTION approach for Investors to look at and take an investment decision based on that. If we sell this as another debt scheme or a product, there will be less traction; but if we sell this as a NEED and a SOLUTION approach, we will get better Mind Share and Wallet Share of the Investors. Also, I will explain in detail the Concept of Constantly Rolling Down and how does it benefit the Investors.
Generally, you will not see my notes or recommendations on Equity Schemes. But here I am making an exception and writing about one specific Equity scheme from the stable of PPFAS Mutual Fund viz. PPFAS Long Term Equity scheme. While playing golf with Neil Parikh, one of the Founders of the Fund House, we got to talking about his Scheme performance and philosophy of investment. That conversation intrigued me and on my return to my office, I started doing my own bit of analysis of the said scheme on different parameters. What came to light was nothing short of pleasant shock and surprise. I tried analyzing this scheme from all conceivable angles to find some weakness, some faults, some negative surprises. From all angles I was left disappointed that nothing untoward or negative came out of my research (actually I was happy that this scheme passed all my filters and tests).
Through Larissa of Morningstar, I received following queries of an Investor. I was asked to give my views on the same. I requested her to let me write a piece on these queries instead of taking my quotes in bits and pieces and reproducing them. I personally felt that these are queries on minds of most Investors in the current market situation and felt the urge for writing the entire article for benefit of all readers. I wish to thank Larissa for giving me this opportunity.
MisterBond's take on current crisis in debt markets due to Mutual Fund Exposure to Essel Group with exposure to Zee shares as Collaterals
Please understand the choices MFs had on debt given to Essel group against Zee shares. Let us act maturely, stay calm, think logically, not panic and hand hold investors during such trying times instead of adding fuel to fire which is being done by Media on a daily basis. Our job as advisors is not to be part of the Herd bit be outside the Herd and guide the investors on the right path. Just my thoughts - take them or ignore them.
Many may not know that my GURU in the debt markets from whom I have learnt a lot through many personal interactions, telephonic and mail conversations is none other than Santosh Kamath. I think he joined FT in 2006 and my initial interactions were few and far between. But first real interaction happened when one of his schemes viz Short Term Income plan delivered close to his captured YTM returns over one year period even in the year when 1 year CD rates went up by 400 bps (4%).
There is huge opportunity for all IFAs to start providing solution for retirement cash flow requirements & move funds from traditional mindset. Also, this strategy helps 2 generations of investors viz. a) retired senior citizens to meet their daily cash flow requirements during their lifetime alongwith an opportunity to grow their corpus (v/s eroding the same in terms of purchasing power due to impact of inflation – as explained in my first note) & enjoy their GOLDEN YEARS & b) benefit the beneficiaries by letting investments grow over a period of time.