Are alternative investments worth the risks involved?

These investment avenues promise higher returns but also carry increased risks

What’s the fun in earning a boring 6% annual interest from fixed deposits (FDs) when you can pocket a handsome 11-14% monthly returns? High risk-adjusted return opportunities like invoice discounting (ID), asset leasing, and agri-investing promise such returns. These options are widely available in the space for high net worth individuals. But it was during the pandemic—post the surge of retail investors entering the market for the first time—that some platforms set out to bring these alternative investment options to the masses.

With time, investors started gaining confidence in these alternative investment platforms, particularly after their capital was returned along with interest. The short-term opportunities, coupled with high internal rate of revenue, offered by these investment avenues soon became very popular.

altGraaf (previously Jiraaf), known for its ID product, mobilized ₹3,291 crore from retail investors as of 8 April in a mix of ID and unlisted corporate bonds. Other platforms like Grip Invest, Tap Invest, KredX have also collectively garnered more than ₹2,000 crore from retail investors. Even Growpital, the agri-investing startup that is currently under market regulator Sebi’s scrutiny, was able to raise ₹182 crore from investors.

But not all is hunky-dory. In this story, Mint highlights some of the recent defaults on these platforms and the extent of losses investors have had to bear. altGraaf–Arzooo ID altGraaf’s core offerings are ID, unlisted corporate debt and securitized debt instruments. altGraaf was recently spun out of Jiraaf when the latter turned into an Online Bond Platform Providers, or OBPP platform, offering regulated products. Recently, Arzooo, a B2B e-commerce platform in the electronics and consumer durables segment, defaulted after raising funds on altGraaf via ID.

Let’s understand how ID works through Arzooo’s example. Arzooo would supply electronics to its customers on a credit period of 30-45 days and use those invoices on altGraaf to raise money from retail investors, in return offering anywhere between 11.40% and 14% for 30 days.

Arzooo raised its last batch of money on the platform on 29 November last year. Six days later, it defaulted on a repayment due on 5 December of a deal closed on 3 November. As per altGraaf, Arzooo was facing temporary working capital issues and was waiting for an equity infusion to pay investors.

The retail investors of the platform have so far received 31% of the outstanding amount of ₹19.52 crore raised against invoices by Arzooo. Some investors who went big on the invoices were shocked that they could indeed lose their principal amount as well. As of 9 April, altGraaf says it is trying to recover the amount via various channels. A spokesperson of altGraaf declined official comment on the Arzooo default episode.

Exa Mobility leasing model

Exa Mobility, a mobility-as-a-service company, has a FICO (franchise investing company operated) model that allows you to buy an electric scooter or electric three-wheeler and lease it out to them to be deployed in the field. The company would then pay investors lease rentals every month for the next three years and then offer to buy back the scooter at the end of the three years, at a depreciated value.

However, some investors of Exa Mobilitiy told Mint that the firm had not made rental payments for the last two months. The company still continues to advertise the deal on its website and as per a leaderboard on the deal page it proclaims that it got ₹40 lakh from individual investors last month.

An email seeking comment from the company did not eliciit any response. Tyke Invest—Geeani (CSOP) Tyke Invest is another alternative platform that aims to democratize startup investing via its community subscription offer plan (CSOP) and Compulsory Convertible Debentures (CCD) product. It also offers other products like ID and sporadically allows angel investing via the AIF (alternative investment fund) route.

Geeani, a manufacturer of green energy automotive products, got famous when its Shark Tank episode aired and its founders demonstrated a mini electric tractor. Post this episode, they came on Tyke to raise money via CSOP, which is a contract between the investor and the company, and the money invested is recorded as revenue in the books of the company. As per Geeani’s Instagram page, their CSOP was at least 1,000% subscribed (10 times the initial target) when it raised funds in February 2023. The CSOP agreement laid out return multiples to be paid to the investor if the company decided to buy back the agreement.

In Geeani’s case, the company decided to buy back the agreements within 3-4 months and were to pay twice the returns as per the agreement. However, they only offered 30% interest to investors, who were infuriated. After Tyke intervened and negotiated the offer, Geeani agreed to pay the principal back in October and the 2X multiple in December.

In October, Geeani’s payment due date passed and investors were informed that the delay was due to Geeani’s account being frozen for cybersecurity reasons. The new date was in November but investors never received the payout. As it stands, the founders have stopped responding to Tyke or any individual investors.

As per Tyke, “Geeani has received intervened and Geeani agreed to pay 2x. never repaid money.

Stopped paying lease rentals in early 2024.

Claims capital crunch as an issue.

sent multiple legal notices but no result yet. multiple legal notices from Tyke’s legal team and will pursue further legal actions if needed. All users involved in this case have been appropriately informed with all details along with notice copies sent to them. Unfortunately, this situation arose due to the founder initially committing to an exit and subsequently reneging on that commitment due to the falling of a joint venture.”

Tap Invest—Melorra

Tap Invest, previously known as Leafround, offers direct leasing opportunities along with ID and unlisted corporate bonds. Melorra, a premium jewellery brand, came to Tap Invest in 2021 to get on lease some Macbooks that were to be used by their staff. Investors purchased those Macbooks upfront via Tap Invest and entered into a leasing agreement with Melorra. The deals were to mature in April 2024 and June 2024. Melorra recently stopped paying monthly lease rentals and sent all 55 leased laptops to Tap Invest’s office without the 15 days upfront notice mentioned in the agreement. Tap Invest, which did not respond to queries, had to liquidate those assets in the secondary market but was unable to provide investors their agreed returns.

(For an extended version of this story, go to livemint.com)