Covered Bond Understanding

In Covered Bond, Lets say its backed by vehicle loans .

1.The interest is typically paid monthly , who pays the interest? or is it paid by the covered pool size.

2.What if vehicle loan buyers defaults , Which makes the collateral worthless and my covered Bond is not actually covered.

The above user is referring to WintWheels 21 on WintWealth.com

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Hi,

In covered bond the investor has dual recourse. Firstly on the issuer of the bond and Secondly on the underlying pool of assets.
The issuer is obligated to pay the interest and principal. In case the issuer has defaulted/gone bankrupt, the underlying pool of loans is used to repay the interest and principal.
Further, the issuer is also obligated to maintain the quality of the cover pool. For example, lets say a loan in the underlying has become NPA the issuer is obligated to top up the pool with a performing loan.

Hope this answers.

Anshul,
Wint Wealth (previously Growfix)


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@anshulgupta Concept is good. How many of these CB have you done? How many ran into problems?

Hi Vij,

Covered Bond as a product came into India in early 2019 in which a mutual fund was an investor and incidentally the issuer was Kogta Finance itself (the same NBFC whose covered bond is live on WintWealth). Subsequently close to 5000 Cr worth of covered bonds have been placed in the market mostly with institutional investors and ultra HNIs.

Wint Wealth was started around six months back to democratise such products and enable retail investors to also access them. This is our third transaction. There hasn’t been any default in covered bonds till date.

Regards,
Anshul


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Hi,

The vehicle loan rate is 7 to 8.5% , How are you offering 10.25% ? @anshulgupta #wintwealth.com

Thanks for your query Suri.

7 to 8.5% ROI is offered in new vehicle financing segment which is typically offered by PSU and Private Banks (this segment goes upto ~12%). Also these rates are majorly offered in Urban areas.

In the case of Wint Wheels live asset, the NBFC Kogta Finance offers mostly used commercial vehicle loans. The rates in this segment is ~17% and above ROI. These customers are mostly from Tier2/Tier 3 geographies where banking penetration would be comparitively lower and the customers are catered to by NBFC sector.

The performance of this segment(especially LCV segment) has been good since these are commercial vehicles taken for income generation purposes.

Stay safe !

Anshul


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@anshulgupta
Can we assume that an investor’s money is 100% secured in case of covered bonds and all of his Principal amount would be returned in case of things going wrong ?

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this would be everyone’s question…is the principal safe? here the risk seems to be high as you are fully dependent on one bond vs debt mutual fund which has several securities. also, its difficult to understand the legal fine print as it gets too technical.

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Hi,
Thanks for your query.
This is not a risk free product and definitely not a replacement for Fixed Deposits. The product is subject to credit and liquidity risks as detailed on the website. In case the NBFC defaults and there are significant losses in the underlying collateral pool, there may be a shortfall in principal and/or interest repayments.

Happy to get on a call to explain the risks in more detail.

Stay safe!

Anshul,
Wint Wealth
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Hi,

Hope you are doing well.

You are right. We also recommend the investors to diversify their exposure across Wint deals (we are trying to bring one asset per month on our platform) and to not allocate significant portion of portfolio in just one asset. In future we do plan to bring pooled products as well where in a single deal investors would be able to diversify their exposures across assets.

Happy to get on a call to discuss the technicalities of the product covering risks and how the same are mitigated.

Stay safe!

Anshul,
Wint Wealth,
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