Anuj Kapoor, Partner and Founder of Investment Banking at Upwisery, a professional advisory and financial services, recently shed light on the growing popularity of Alternative Investment Funds (AIFs) in the performing credit space due to the removal of indexation benefits from debt products. Kapoor said that the removal of indexation benefits has effectively leveled the playing field between debt mutual funds and fixed deposits.

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"Consequently, seasoned investors seeking higher returns than conventional debt products are increasingly directing their investments towards structured debt products offered by various AIFs," he told CNBC-TV18.com.

Traditionally, the performing credit space was largely dominated by customised offerings from NBFCs, foreign banks, and global funds. Kapoor addressed whether AIFs are encroaching upon these established businesses. He emphasised that while AIFs are gaining prominence in India, this does not necessarily imply a decline in the business of NBFCs and banks.

With the Indian economy growing at a rapid pace, the capital requirements of companies are set to multiply significantly. The increasing demand for capital across sectors will create ample opportunities for NBFCs, banks, and AIFs to coexist as they grow. Each entity will cater to different market capital needs, with AIFs primarily serving the performing credit segment through innovative and flexible debt structures that may be challenging for traditional banks and NBFCs to address due to regulatory guidelines and limitations.

Steady Yields in the Short to Medium Term

Regarding the current yield scenario in performing credit, Kapoor pointed out that most performing credit funds are targeting gross yields in the range of 15-18 percent, with net yields (factoring in expenses, fees, and taxes) ranging from 9-12 percent. He noted that with stabilising interest rates globally and active lending by banking institutions, the net yields are expected to remain stable within this range in the short to medium term.

Balancing High Yields with Informed Investment Decisions

Addressing concerns about potential mis-selling or concentrated bets by investors due to the allure of higher yields, Kapoor stressed the importance of comprehensive evaluation.

He encouraged investors to focus on the "three P's" - People, Process, and Portfolio - before committing to any investment. Understanding the portfolio construction strategy is essential in identifying over/under-diversification risks and assessing the return profile of the AIF, ensuring well-informed investment decisions.

In conclusion, Anuj Kapoor's insights highlight the dynamic landscape of performing credit investments in India, where AIFs are carving a niche for themselves. This evolving asset class presents opportunities and challenges that investors and financial institutions alike must navigate with care.

First Published:Sept 1, 2023 4:45 PM IST