How this fintech start-up wants to bring the rich man’s investment into smaller hands

Alternate investments offer a unique opportunity for investors to earn fixed-income plus returns, but understand the risks well

What’s the first thing that comes to your mind when you think of investing? Mutual funds, shares, fixed deposits and so on?

In June 2020, three individuals with varying backgrounds came together to offer something more. Nikhil Aggarwal, Vivek Gulati and Aashish Jindal, who have all worked in start-ups, launched a technology-backed investment platform called Grip.

Their idea was straightforward: break down complex products that have so far been available only to the rich. And offer them to retail investors. The trio also wanted to offer products other than the traditional mutual funds, small-savings instruments, equity shares, non-convertible debentures and so on.

The challenge was: How?

Aside from the zeal to democratize investments, probably the only thing common to the three founders was Chalo; a mobility start-up that Aggarwal co-founded in 2016. Gulati and Jinda were Aggarwal’s colleagues at Chalo. Gulati has also previously worked at OYO. Jindal has worked at ICICI Lombard as well as start-ups like Pepperfry, before he joined Chalo and then later Grip.

The three decided to harness technology to make large–scale investments accessible to retail investors. In their regular line of work, they had come across small and medium companies, especially in new age businesses, looking to raise capital privately to finance the assets needed for their operations.

They also realised that while some of these opportunities may be available to high net-worth investors at large ticket sizes, retail access was limited.

Also read | Why do wealth investors chase risky bonds and market-linked debentures?

Grip Invest is a digital investment platform that offers non-market-linked, asset-backed fixed income and equity investment options to retail investors who otherwise would not have been able to capitalise on such opportunities.

Breaking it down, making it digestible At its core, Grip Invest offers lease financing to retail investors. This is a business that typically owns assets it rents to users. The user pays rent, which is the firm’s income.

The assets could be a fleet of cars it leases to a transport service provider who pays a regular rental for each car. The rental becomes Grip’s income. Similarly, it could own furniture, pre-leased commercial real estate, or even medical equipment. This is bundled into an investment product and offered to your.

Grip owns the assets, but the financial investment, in form of the lease for which you receive an income, is in your name. Since lease rentals could be short-term (5-6 months), medium-term (12-24 months) or long term (5 year or higher), Grip offers different lease-backed earning products to investors, catering to different time-frames.

Grip also offers start-up equity financing through its online platform. The ticket sizes for such investment is usually upwards of Rs 1 crore, limiting access to retail investors.

This problem gets solved with Grip’s online platform offering the opportunity to invest with a minimum ticket size of Rs 20,000. Owning the assets gives Grip better control over outcomes and in case, for any reason, the lessee is unable to deliver the contracted incomes, the asset which is still owned by Grip and can be sold to recover money for its investors.

How do you earn money from it? When Grip sees a lease rental opportunity, it floats the idea and scouts for investors like you. Once investors collectively pool in money, Grip buys the assets and then leases them out.

Investors earn through the rental income that the users pay for using assets owned by Grip.

Your expected return will depend on the lease opportunity and contracted income. Depending on the type of lease, the tenure, relative certainty of income and so on, you can make anywhere between 11 percent and 22 percent annualised return on a pre-tax basis. A pre-leased grade A commercial property can earn you around 11 percent, according to Grip’s website.

Returns from leasing out three-wheeler electric vehicles for a new age business can earn you a higher 20-22 percent annualised return.

The reason why these returns look so high is because lease rentals are contractual agreements. They are not marked-linked.

Of the rental income that Grip gets from users of its underlying assets, it retains around 1-3 percent as its own income. The remaining income gets passed on to the investors.

Grip has a total of Rs 300 crore invested across different investment opportunities, with a user base of roughly 200,000 people in the age group of 30-40 years.

You need to do your Know-Your-Client (KYC) formalities, online, before you start investing.

Is Grip regulated? Aggarwal tells us that the start-up investing opportunity (where investors can pool in money, and Grip offers it as equity capital to start-ups that need money) and the commercial real estate lease product are both governed by the capital market regulator, Securities and Exchange Board of India’s (SEBI) Category-1 alternative investment license.

The other lease financing products, he adds, are governed by provisions under the Companies Act. Aggarwal agrees that regulated products offer a degree of accountability that investors are comfortable with.

“We are working actively with regulators to identify other instruments that may help us achieve the objective of providing access to alternative investments in lower minimum ticket- sizes," he said.

The risk element The biggest risk is one of lessee/user quality. For instance, the start-up where Grip invests your money may not turn profitable. Or the drivers of the fleet of cars aren’t able to meet their rental commitment.

Or the pre-leased commercial real estate market slows down, breaking lease contracts thought to be final; the way it happened during COVID-19 when companies wound up, many gave up their offices spaces, employees shifted to working from homes, and so on.

The products come with a 2 percent cost which is split over the tenure of the investment, rather than being charged upfront as in the case of your mutual fund investment. This is a one-time cost, not a recurring annual cost. You will receive the first return in 30-45 days as each opportunity gets closed at different times, after which, returns are paid out in a monthly frequency. Returns earned are likely to be taxed at the marginal income tax rate applicable to you.

Should you invest? Although, as Aggarwal says, Grip can always sell the underlying assets to recover losses, in addition to recovery of the security deposit the lessors would have given at the start of their agreement, this is not an assured return product.

The onus of doing due diligence of investing money lies on Grip. And it remains to be seen how it performs over long periods of economic and business cycles and across different assets.

According to Nishant Agarwal, managing partner and head-family office, ASK Private Wealth: “While the platform gives retail access, there is a lot to consider before investing. In case of the start-up equity and commercial real estate deals, nuances of internal deal structures are complicated to understand and enforce if things go wrong. There are too many moving parts when it comes to consortium start-up investing or pooled investing through a fund and unless you understand each of these, it’s best not to opt in. Venture debt funds which work in the area of lease and inventory financing exist in the market, but risk, when it comes to recovery in the event of default, can be high. Fixed-income investing is sufficiently addressed through debt mutual funds and for retail investors that might be simpler.”

Grip offers a unique opportunity for retail investors to earn fixed-income plus returns, but it is not your first, second or even third investment. In fact it is an alternative investment.

Invest your money only if you understand the risks. And only so much you are comfortable with.