Lease Financing in India — Statistical Arbitrage

For whom?

But before investing in any of these alternate assets, it’s important to understand personal finance as a whole and how these fit into one’s basket. Lease financing provides you with a regular passive income, generating fixed monthly returns which are much better than any Fixed Deposit or government security bond returns.

What is Lease Financing?

Lease Financing is an alternative arrangement of medium- and long-term loans. In Lease financing, the owner of an asset gives another person the right to use that asset against periodical payments. The owner of the asset is known as the lessor and the consumer of the asset is called the lessee.

Why not buy them outright?

Companies or businesses for that matter do this as they don’t have to spend huge sums of cash on an asset in one go. This allows them to spread their cash payments across a period of time and as known in businesses, cash is oxygen. From outright buying the asset, leasing allows the company to move these cash investments from the balance sheet to the profit and loss statement.

Popular Industries

Leasing contracts are fairly common in the west from both raising money and investing point of view. In fact, most businesses such as airlines, heavy equipment companies, and manufacturing giants lease their assets rather than own them. All heavy investment centric businesses can use lease financing to go about their business.

What is GRIP?

GRIP is an investment platform that offers curated investment opportunities in lease finance with a low minimum investment amount and fixed returns. Think as low as Rs 10K in one investment and generate reasonable post-tax returns. This was an asset class, initially available to banks as lessors and big-name industries and companies as lessees.

Information Transparency

  • The payout schedule is available in a transparent fashion.
  • The financials are available as well

Investments at a Glance

GRIP has people believing that IRR is 21% on their website but that’s pre-tax post-tax it is 12% post-tax. This drop-in investment is due to the fact that LLP income is taxed completely instead of just the returns. Each investment deal is an LLP of its own.

GRIP Logistics

Grip selects investment deals based on three key metrics:

  1. Financials (balance sheet)
  2. Corporate profile(company reputation)
  3. Business performance(key contracts,trends,etc)

Investing Recommendation

The asset class has the following going for it:

  1. Monthly Payouts: Get paid monthly on a fixed schedule.
  2. Fixed Returns: Pre-agreed monthly payments for the full lease tenure with no day-to-day volatility like stock markets.
  3. Diversification: Non-market linked
  4. Low Friction: Upfront security deposit as well as the ability to recover, re-lease or sell assets to mitigate risk
  5. Tools: Lots of tools available for calculations and tax assistance.

Lease Financing Taxation

All payments that you receive are post-tax since the LLP already makes the tax payments and hence there are no additional tax implications for you.

  • As a partner to the investment LLP, you will need to additionally fill ITR form 3 when you submit your income tax returns.
  • On behalf of the LLP, Grip will file ITR 5 and provide the same to you to make the process transparent and easy for you

Default Risk

All said and done, everything goes out of the window, the movement there is a default.

  • The LLP have the ability to reclaim assets for selling or re-leasing.
  • While there are safeguards in place, it does not guarantee 100% returns in case the leasing partner defaults. In that case, GRIP will take a suitable legal course.
  • GRIP will take care of all the processes related to the reclaim of assets for selling or re-leasing in case of default.

Investor Logistics

If one still decides to invest and go through the process. There are multiple ongoing deals at any point in time. The process is similar to Kickstarter campaigns. This is the easiest way to participate in lease financing in India currently.

  • Once the funding target for a deal is achieved, GRIP would send you the agreement and consent letter for the LLP which would be the vehicle of investment for the deal
  • Investors will start receiving returns within 30 days after the 100% funding is completed.

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