In today’s financial landscape, where investors strive to balance higher returns with capital protection, invoice discounting presents an attractive solution. By converting outstanding invoices into immediate cash flow, this method provides a steady stream of short-term returns while mitigating risks through diversification.
Structured debt investment instruments like altPack harness the potential of invoice discounting, offering investors the opportunity to benefit from secured, quality receivables while maintaining liquidity and minimising exposure to market volatility. Let’s explore how altPack leverages these advantages for investors.
What is altPack?
altPack is a structured debt investment that pools invoices securitised through pass-through certificates (PTCs) with escrow control and partial principal protection in some cases. These invoices act as collateral for the investment for which either altGraaf or an external trustee manages the repayment through an escrow account. The tenure ranges from 120 to 270 days, with risk levels varying from very low to high.
How Does altPack Work?
Here’s how the altPack structure operates:
1. Originator Sourcing and Pooling Invoices:
- A licensed NBFC factoring company acts as the originator, sourcing multiple seller companies and collecting invoices raised by buyers for goods or services
2. Assigning Ratings to Invoice Pools:
- Each pool of invoices is assigned a rating, allowing investors to choose between safer, lower-return investments. These invoices are grouped into different pools based on their risk profiles (e.g., AAA-rated for low risk, BBB-rated for higher risk but potentially higher returns)
- The originator manages the process of sourcing, pooling, and rating the invoices
3. Transfer to SPV (Special Purpose Vehicle):
- The originator assigns the pooled invoices to an SPV
- A SEBI-registered debenture trustee oversees the SPV to ensure transparency and regulation
4. Issuance of Pass-through Certificates (PTCs):
- The SPV converts the invoice pools into PTC units, which are issued to investors
- Investors can hold these PTCs in their demat accounts, just like shares or bonds
5. Escrow and Repayments:
- Buyers repay their invoices into an escrow account controlled by the trustee
- The trustee then distributes the funds from the escrow to investors as returns based on their PTC holdings
6. Steady Stream of Returns:
- Investors benefit from regular repayments based on the performance of the underlying receivables, offering a structured, secure, and diverse investment product
Key Risk Mitigants of altPack
- altPack is a structured debt investment product. It is already diversified since the individual investor invests in the invoices of more than one companies
- One of the critical features of altPack is that in the event of payment default, the originator will bear part of the loss if the originator offers credit protection. It provides partial security to the instrument and a safety net for the investor.
- The RBI-appointed trustee controls the escrow account, thus ensuring transparency in the funds transfer.
Conclusion: Is altPack the Right Investment for You?
altPack offers a structured debt investment opportunity in a pool of discounted invoices, allowing for portfolio diversification. The likelihood of all buyers defaulting is low because companies undergo multiple levels of verification, including assessments of their creditworthiness, financial stability, and payment histories.
altPack is particularly suitable for investors seeking short-term, fixed-income opportunities with a balance between higher returns and capital protection. It’s ideal for those looking to diversify their portfolio beyond traditional investments while maintaining liquidity and reducing exposure to market volatility. However, it’s crucial to assess the quality of the invoice pool and any credit protection offered before committing funds.
FAQs
What are PTCs in altPack Investments?
PTCs are fixed-income instruments issued following an RBI-set framework. They are structured investment opportunities by multiple companies’ diversified pool of invoices. They are a secure pool of trade receivables often rated by credit rating agencies.
What is the Role of an SPV in altPack?
A special purpose vehicle (SPV) is a company created by a parent company to protect itself from financial risk. Its separate legal status ensures the obligations of the SPV are secure even in the parent company’s bankruptcy. It provides a safeguard against potential financial losses.
What is the Minimum Investment Amount for altPack?
The minimum investment for altPack is ₹1,00,000
What is the investment tenure for altPack?
The Investment tenure is 120 to 270 days.
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