Understanding Securitised Debt Instruments (SDIs): Definition, Investment Opportunities, Risks And Challenges

Grip Invest
Grip Invest
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Sep 29, 2023
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    Securitised Debt Instruments

    In the complicated world of finance, specific terms can appear confusing upon first encounter. One such term is "Securitised Debt Instruments," or SDIs. In this comprehensive exposition, we begin on a journey to explain SDIs. We will get into their complicated definitions and the effective ways to invest in India that they offer. We will also analyse the potential risks and challenges associated with them and try to see what the future holds for these financial instruments. So, let us start on this enlightening path through the complex landscape of Securitised Debt Instruments.

    What Are Securitised Debt Instruments (SDIs)?

    Imagine you are buying a piece of a giant cake that is divided into many slices. Each slice represents a small part of the cake, and people buy these slices because they promise a share of the cake's sweetness (profits).

    Now, think of securitised debt instruments like those cake slices. These financial products combine loans, like mortgages (home loans) or car loans, turning them into slices investors can buy. When people invest in these slices, they hope to get some of the interest payments that borrowers make on their loans.

    Investment Opportunities In India

    Within the Indian financial landscape, SDIs have blossomed into an alternative investment option. This allows users to diversify their portfolios beyond traditional stocks and bonds. Among the notable forms of SDIs is the investment option of Mortgage-Backed Securities (MBS). Here, home loans are bundled into securities sold to investors, who get money back as interest payments from homes. This view opens the door to a variety that goes beyond traditional assets.

    A report says that loan securitisation volumes in the last quarter of FY 22-23 grew by more than 50%, totalling more than INR 50,000 crore. Last fiscal year, securitising of loan assets touched a total of INR 1.35 lakh crore. In 2021, this number was about INR 0.90 lakh crore.

    The standard retail Mortgage-Backed Securitisation (MBS) market accounted for 40% of the overall loan securitisation volumes. Commercial vehicle (CV-25%), Gold (10%), and two-wheeler (2%) loans continued to be significant asset segments under Asset-Backed Securitisation (ABS). In the last quarter of fiscal 2022, microfinance loans rose, making up 10% of the total amount. This amount is much lower than in developed economies, where debt securities comprise 60% of the corporate debt market.

    Recognising The Risks And Challenges

    As with any investment, securitised debt instruments come with risks. One of the major risks is that of credit risk. If the borrowers of the underlying loans start defaulting, the value of the securities can plummet. The 2008 financial crisis, triggered partly by the collapse of mortgage-backed securities, is a stark reminder of the potential risks associated with these instruments. Let us learn more about the risks:

    • Default Risk: Default risk is the risk that a borrower will not be able to repay a loan. This can happen for various reasons, such as job loss, illness, or death. When a borrower defaults on a loan, the lender may not be able to recover the full amount of the loan. Default risk is an essential consideration for lenders when making lending decisions. Lenders will assess the borrower's creditworthiness before giving a loan. They may also charge a higher interest rate to borrowers with higher default risk.
    • Market Risk: The value of these slices can go up and down, just like the price of a toy might change depending on how much people want it. If the market for these slices isn't doing well, the value of your investment might drop.
    • Transparency Risk: Credit rating companies figure out how risky the loans they are looking at are, but bad loans can get mixed up with good loans because of mistakes, a lack of information, or the issuer's desire to lower the cost of financing. Investors can use the net NPA data, but it only shows how things are right now and doesn't consider the risk of future failure. So, people who want to invest in securitised debt products should think about the risk of bad loans and know the limits of the credit rating process.
    • Prepayment Risk: Imagine you paid for a slice of cake, and suddenly, someone takes a big bite. With securitised debt, borrowers might pay back their loans early. This can affect the money investors are supposed to get.
    • Liquidity Risk: Liquidity is how easily you can turn something into cash. Some of these slices might not be easy to sell quickly if you suddenly need your money back.
    • Complexity Risk: The structure of these products can be quite complicated. You might not realise all the potential problems if you don't understand them well.

    While securitised debt instruments offer a way to invest in loans and earn money from interest payments, they involve risks like any other investment. It is advisable to thoroughly research them or consult professionals before putting your money into them. Grip, an online investment discovery platform, provides a curated collection of these investment opportunities to assist you in making informed decisions. LeaseX, LoanX, and BondX are some of the SDIs by Grip that present a streamlined approach towards short tenure, fixed income, and regulatory-compliant products.

    Regulatory Landscape And Futuristic Prospects

    Understanding how Securitised debt instruments (SDIs) function now and in the future is crucial as we learn more about them. This section examines potential future regulatory changes that may impact how we trade in various financial products. Let us examine more closely how governmental modifications and recent technological developments could alter the deployment of SDI.

    • Regulatory Transformations: The government may enact new regulations to clarify the process and increase security for SDI investors. These guidelines may help consumers better understand their investments and how to safeguard their funds.
    • Technological Prowess: This involves how technology might improve your life. Think about how simple it would be to buy and manage your SDI investments using your phone. The procedure may become more streamlined and effective thanks to technology. Grip is one such technology-driven discovery platform for SDIs that helps you identify the best SDI options available. The SDI products on Grip are listed on the stock exchange. You can manage them in your demat account. 
    • Market Transformation: This suggests that SDIs could have even greater significance for investors as time passes. Given the variety of alternatives they provide compared to conventional investments like stocks and bonds, they may start to represent a larger part of people's investing plans.

    In other words, the government may introduce additional regulations in the future to help people understand SDIs and protect investors' funds. Technology may also simplify the purchase and management of SDIs, increasing their importance in people's financial investments.


    When you solve the puzzle of securitised debt instruments (SDIs), you will see many unique business opportunities. Buyers must stay aware of the risks associated with these products, even though they offer more ways to diversify and make money. SDIs measure how the financial environment changes as new ideas and rules work together to shape its path. Anyone who knows about SDIs can keep up with the changes in the finance world, no matter how experienced or novice they are in finance.

    Acknowledging that all investments bear an inherent element of risk is paramount. Therefore, thorough research and seeking guidance from financial experts are vital before making any investment decisions. Your financial journey begins with knowledge and prudent choices.

    Eager to start your journey into the universe of securitised debt instruments? Explore Grip Invest, a platform primed to deliver the latest trends and opportunities through the financial domain. Your journey toward making informed investment decisions begins here! 

    Want to stay at the top of your finances? 

    Join the community of 2.5 lakh+ investors and learn more about Grip, the latest financial knick-knacks and shenanigans that take place in the world of investing.

    Happy Investing!

    Disclaimer - Investments in debt securities are subject to risks. Read all the offer-related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading. This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip does not guarantee or assure any return on investments and accepts no liability for the consequences of any actions taken based on the information provided. For more details, please visit https://www.gripinvest.in/. 
    Registered Address - 106, II F, New Asiatic Building, H Block, Connaught Place, New Delhi 110001.

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