InCred Money's hybrid offering can give small investors upto 14.05%

InCred Money’s hybrid offering can give small investors upto 14.05%

Mumbai: Individual investors looking to lock in profits in stocks at these levels but keen on retaining exposure to the market could consider InCred Money’s Nifty Accelerator Market linked debenture (MLD) – a hybrid instrument that bets on a mix of debt and equity. This is the first MLD with a ticket size of ₹1 lakh, compared to the earlier ₹10 lakh. Investors could earn as much as 14.05% from this instrument with a tenure of 26 months.

MLDs – a popular structured product among rich investors till the government changed its taxation in 2023 – are structured to protect capital with Nifty exposure generating higher returns than traditional fixed income instruments. Issued by non-banking finance companies (NBFCs), it is used by them to raise funds from the market.

How it is structured

Out of every ₹100 invested, ₹80 will be invested in the bonds of the issuer (in this case InCred Financial). This will protect the capital. The rest of the ₹20 will be invested in Nifty call options – an equity derivative that bets on Nifty rising in value. If Nifty 50 moves as expected, the derivatives exposure can rise up to ₹ 33 over the next 26 months. If it does not, the value can become zero in this period. At the end of the tenure, an investor will get between ₹100 (capital) to ₹133 (₹100 + ₹33(profit)), which translates into an annualised return of as much as 14.05%. The product will work for an investor who is uncertain about the stock market prospects after the 24% run-up in Nifty in the past year.

“The ticket size which was earlier ₹10 lakhs has been cut to ₹1 lakh, which will attract a whole set of new investors,” says Vijay Kuppa, CEO, Incred Money. Kuppa said it is a good diversifier for retail investors, who are looking for equity market exposure with a layer of protection.

The structure works in such a way that if Nifty falls below 22,000, investors will only get their principal or ₹100 back. The index closed at 22,040.70 on Friday.

If Nifty remains between 23,000 and 27,500, investors will get ₹109-Rs 133. In the event Nifty reaches 27,500 and above, which is 25% from the current levels, an investor will get ₹133.

Not For All

Financial planners say investors must, however, resist from going overboard while investing in such products. The credit worthiness of the MLD-issuing NBFC is the key while deciding whether to invest.

Also, MLDs – primarily a debt oriented product – are taxed like any other debt product. They lost their popularity among rich investors after the government in the 2023 Union Budget put a higher tax on these structured products, resulting in them losing their advantage over other debt instruments. Short-term capital gains tax on debt instruments for individuals in the highest tax bracket is 30%. “Due to the change in taxation, the product has lost its relevance for rich investors and family offices,” said Nirav Karkera, head of research, Fisdom.

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