The Future of Direct to Consumer (D2C) Alternate Personal Investment in India

4 Feb 2022 , 11:59 AM

The Crucial Role of Low Barriers to Entry

Indians have been increasingly adopting alternate asset classes. To illustrate, consider the rise of alternate assets in 2021. Cryptocurrency ended on a high note last year when more than 15 million Indians invested in cryptocurrencies for the first time. 55% of these investors were from Tier 2 and Tier 3 cities, and the rest were from metros and Tier 1 cities. Data from CoinSwitch Kuber showed that most of these cryptocurrency investors were of an average age of 25 years. Moreover, the overall percentage of women investors in crypto stood at 15%, out of which 63% were less than 34 years old.   What makes crypto so attractive in a country that has favored safer options like gold? For starters, it has a lower barrier to entry. Investing in crypto is further facilitated and more, with investments starting at values as low as Rs. 100.

For traditional equity investments, digital platforms came of age as they witnessed a surge in the number of retail investors who wanted to invest with the tap of their fingers. Zerodha, a brokering platform with its client base of 3-5 million users, is a perfect example of a platform with low barriers to entry, a simplified process to sign up and trade, and low cost of transactions. 

When it comes to alternate asset categories (beyond market linked products or even crypto), stable returns and performance of institutional grade due diligence becomes very important to build trust. As investor demand for alternate assets will only rise in India, especially among investors who don’t wish to invest in high-risk market linked products or cryptocurrencies; but seek to explore stable asset categories that offer lucrative returns at lower risks, strong tech enabled investment and asset management processes, would be the key differentiator between mere punting and actual institutionalized investment. 

Need For Alternate Assets and Lower Barriers to Adoption

^[1] https://coinswitch.co/blog/2021-year-end-crypto-market-review-where-do-we-stand/
^[1]https://www.businesstoday.in/latest/trends/story/india-is-the-new-cryptocurrency-hub-and-heres-what-is-powering-the-craze-310053-2021-10-21
^[1]https://www.nasdaq.com/articles/the-secret-to-mass-adoption-of-cryptocurrencies-in-india-2020-07-22

While cryptocurrency as an investment asset has reduced entry barriers by providing low investment size and interlinking exchanges on the blockchain, primarily technology led adoption enablers, regulatory enablers have opened up options in Real Estate and Infrastructure through exchange traded REIT’s and InVIT’s,. However, adoption is impacted by lack of physical access and a sense of ownership when it comes to physical alternate assets. For example, Real Estate Investment Trusts or REITs are regulated, and quite liquid, due to trade through exchanges, it still doesn’t give a sense of ‘real estate’ ownership, which drives investors to still look for direct investments in alternate real estate backed commercial assets. There are more options which are opening up, example peer to peer or P2P lending or structured debt through Digital first App’s and distribution platforms, which provide alternate financial products backed by physical assets. However, each option has its own challenges, to build trust and provide institutional grade asset management across the investment life cycle, while managing macro and liquidity risks, which are inherent to the products. 

Therefore, there is a significant need for investment options that combine attributes of access, low risk, higher inflation adjusted returns, technology led adoption enabler, and simple policy framework that provides assurance without being overtly cumbersome to comply. This is where fractional direct to consumer or D2C investment platforms come into play, democratizing access to alternate assets, enabling discovery of physical and intellectual property backed asset classes, and cross boundary transactions.

The Rise of Fractional Direct to Consumer (D2C) Investment Platforms

Technological advancements and reforms are fundamentally changing consumer experience across sectors. Fractional direct to consumer (D2C) investment platforms are rapidly gaining prominence in a new wave of tech-powered investments in India and elsewhere. In the wake of the pandemic, online fractional D2C investment platforms gained significant visibility and accelerated adoption. Most fractional investment platforms are geared towards real estate, either directly investing in assets, or enabling structured finance through a P2P model, with underlying asset as collaterals (a tech enabled tweak to the traditional, high risk, unsecured “builder finance”). Some of these platforms provide highly transparent investment options to diversify by offering a range of assets such as yield generating holiday rentals, green and brown field warehouse assets, renewable energy, green mobility assets and more. Individuals who could not afford to invest in high ticket real estate assets earlier, excluding commercial office assets, are now able to do so by simply owning a fraction of these properties and reaping their yield benefits as well as retaining an option to use; or even buy out at a later date. The assets, whether real estate backed or movable assets, are all operated by top tier operators, in their specific asset category, and investor tends to earn a mix of fixed income, revenue share and valuation gains, while investing on the same platform.

Such D2C platforms (e.g. Upcide.com) allows investors to fractionally own capital assets (example, smart and green mobility assets or cloud kitchen equipment’s) which are then leased to new age, fast growing businesses (converting their CAPEX to OPEX). This provides the start-ups opportunity to scale fast and acquire markets, while not having to shell high-cost equity capital in purchasing capital assets. These platforms provide a seamless experience to investors with technology driven sourcing, discover, transaction and trade; supported by institutional grade due diligence.   Moreover, these platforms have low entry barriers sometime starting at as low as INR 20,000, for each investment opportunity. 

Investors are also able to truly diversify their portfolios with such platforms, giving them access to fractionally owning physical assets, as well as intellectual properties. As Indians look for alternative investment opportunities, fractional direct to consumer (D2C) investment platforms will serve as an instrument to democratize access to these assets and continuously lower the entry barriers, while improving trust and transparency by powering innovation across the investment and asset management ecosystem.

The author of this article is Avishek Banerjee, Founder, Upcide.com 

The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com