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TradeCred on Risks, Returns & Tax Liability of Invoice Discounting | Ft. Kunal Tekwani, Co-Founder - YouTube
Channel: Asset Yogi
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Mukul: Many times even our principle sinks,
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then what will happen?
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Kunal: We should not give the money to the vender,
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that money should come to us.
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Mukul: Is there any regulator for this particular instrument?
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Mukul: What if a buyer or seller defaults?
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Kunal: Whether it happened from the customer's end or seller's end?
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Kunal: They started as a niche platform for HNIs
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Mukul: Suppose if the TradeCred defaults
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then what will happen to the investor's money?
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Mukul: Namaskar friend, you are very welcome,
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in our another brand new video of the Asset Yogi Talks series,
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what we are going to talk about?
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You know we made a video last week,
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in which we've discussed the concept of invoice discounting.
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We've got lots of comments and genuine concerns of people,
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because when fixed returns of 12-13% are promised,
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then safety becomes quite a genuine concern there,
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that we are investing our money somewhere.
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What if our principle sinks, what will happen then?
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As well as what will be the tax liability,
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is there any regulator for this product?
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We will know the answers to these questions in this video.
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And I thought about who can give the answers to these questions,
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who can be the best person?
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So I thought we should ask co-founders
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that they want to answer all these questions?
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So I will welcome Mr. Kunal Tekwani, Co-founder of TradeCred.
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So welcome Kunal to the show.
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Kunal: Hi Mukul, thank you for having me on the show,
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I am excited, lets's begin with the questions.
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Mukul: Okay, so my first question is
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People have asked a lot of questions related to income tax liability
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that what kind of tax liability we'll have
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for example in stocks, mutual funds, bonds capital gains taxes come.
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So what is the tax liability here?
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Kunal: So as a platform, we don't deduct TDS.
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You get pre-tax returns
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according to your own slabs.
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According to the nature of investor's income,
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this deduction will be on the investor's side.
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There will be no deduction on TradeCred's end.
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Mukul: Okay.
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So, you are saying
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this tax is basically charged according to the income tax slab.
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Assume it is someone's business income,
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or other income,
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then it will be added to their income.
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Okay, so basically income tax will be charged on the portion of the interest
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as per the income tax slab, Right?
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Kunal: We call it earning, not interest.
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You will see the earning portion as taxable,
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earning on the investment that you've done.
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Mukul: Okay. Right,
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so we have one more question-related taxation,
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which is about GST that how GST will be applicable here?
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Like, the investor is giving money to the seller,
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finally, suppose Amazon is a buyer company
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and it is giving money to any investor,
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so what will be GST's applicability?
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Kunal: Okay, so Mukul, GST is exempted here,
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because this invoice is to be considered an actionable claim,
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so GST is completely exempted here, under the GST act.
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Mukul: Okay.
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Kunal: In fact, the previous question on tax and this GST question,
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for both questions, we've taken opinions from Deloitte
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and on that basis, we've finalized this.
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Mukul: Okay great!
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here, we've one more question from people
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that what type of charges are applicable?
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Are there any annual charges for the platform?
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or any other charges of the platform?
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Suppose they're getting 12% interest per anum
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so does TradeCred gives after deduction to them?
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Kunal: Okay, so if you'll see,
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registration, adding money in the wallet or withdrawing money
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or annual maintenance, TradeCred wouldn't charge you any such charge.
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There are only transactional charges of TradeCred in for of TC charges,
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and that too after the exclusion,
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an investor will see only the net return on the platform.
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If we talk about the transactional charge,
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so it varies from vendor to vendor.
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Let's say if in a deal transaction charge is 1%
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then that will be of a year,
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so suppose the deal is for three months, then this will be 0.25%.
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Mukul: Okay, it's good that you explained this
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because many people have asked us this question,
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that if we would have to pay 1% charge for three months?
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Okay, so here we will talk about safety and risk-related questions.
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We've many such questions.
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So Kunal I want you to answer these questions in detail.
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Even I would like you to tell yours overall risk mitigation process,
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that how do you mitigate risks?
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Kunal: So whatever invoice raises on the end customer
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that invoice is verified from there, it is compulsory.
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Only after the verification,
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that invoice will be listed for discounting.
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secondly, there is a deal report on the platform on every deal.
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In this deal report,
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you need to fill vendor's details,
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on whom he is raising invoice or customer's details.
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You'll see the track payment record
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that how is the vendor's track payment record,
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numbers of timely payments,
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if there are any delays then for how many. days,
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Other than this, in risks mitigation,
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authentication of invoice taken?
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Have we taken some additional securities or not?
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How Escrow mechanisms are structured?
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You'll find all these details in the deal report.
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And this deal report is a small analysis
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which is done in depth by TradeCred
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but this is not possible to give a complete analysis
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so we provide a gist in the form of a deal report to the investor.
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So that he himself can make a call
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that they wanted to invest
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or to wait for better investment opportunities.
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Mukul: In fact, you've talked about the Escrow account
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we got some questions related to this also.
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So how is the risk mitigated by this Escrow mechanism,
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what is the process?
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Kunal: Let's say the bill is raised from amazon
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so the vendor has raised the bill, amazon has varified this,
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now after the confirmation from amazon
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money should not be given to the vendor again,
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that money should come to us.
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Or basically, it should come in ICICI bank account
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which is our transactional manager and custodian as well.
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Okay? so when money comes into Escrow,
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the vendor has no right to this.,
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so the vendor can not use that money again
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it belongs to the investor
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which is added to their wallet as soon as come to Escrow,
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and then it is the investor's call to withdraw or re-invest.
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Mukul: Okay, all right.
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So we've one more common question that
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is there any regulator for this particular type of instrument?
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For example, for stocks we have SEBI,
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also for bonds and commodities, we've SEBI
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for investments in real estate we've RERA,
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for loans we've RBI.
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So do we have any regulator for this or not?
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If not, then what type of agreement do we have,
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and if we want to file any complaint, where can we file this?
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if there is an issue.
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Kunal: The first question about the regulator,
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so there is no regulator at the product level
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because it's regulations is not come till now
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that is one,
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secondly, in more security structured way
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we've done aadhar authentication
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and all these contracts come under the Indian Contract Act.
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With the adhar authentication, they become so strength full
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that tomorrow if there is an issue or liability
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then the investor can even go
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to Highcourt with these agreements.
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Mukul: Okay, so you are talking about these agreements,
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where can a user find these agreements?
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Kunal: some agreements they can see as soon as they get registered,
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for agreements like master buy, they are required to sign part-time.
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Other than this,
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when they invest,
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as the investment become successful
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they get an e-mail
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in that mail they get, all the agreements,
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signed by the seller, investor and
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authorized signatory of TradeCred
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Again these agreements are signed by an adhar authentication mechanism
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so completely legal.
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Mukul: Okay, so now we talk about,
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that if any buyer or seller defaults,
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for example, amazon is the buyer
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and the other side there is XYZ enterprise
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if any of them defaults then what will happen?
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Kunal: So it depends what kind of default is there,
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from which end does the default happen,
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customer end or seller end?
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If Amazon has given okay to the invoice,
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Let's say Amazon has done okay,
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accepted goods and services
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and after that also if they are rejecting the invoice
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or for some reason not paying or defaults to payment,
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then TradeCred, on behalf of the investor,
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and along with the seller can do legal filing
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and in case the seller defaults
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then also TradeCred can do the same on behalf of investors.
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Still, if we talk about the defaults then till now
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just because TradeCred deals majorly
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in the blue-chip company's invoices,
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So we haven't faced any default till now,
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since the company has started, last three years
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and we will follow the same mechanism in the future also.
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Mukul: Okay, so you are saying,
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till now there are no defaults found in any investor's payment.
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Kunal: No way, no dispute and no default till now,
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In short, no investor has lost their money till now.
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Mukul: We agree, till now there is no default,
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when a company grows, other companies will also come,
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so for us, the process becomes very important,
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so I would like to know that process in detail
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so assume there is any other company instead amazon that defaults
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assume ABC company,
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and possibly you checked its due diligence properly,
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but for some reason, it defaults to any invoice.
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What will happen in that case?
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will there be the seller's liability?
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And what type of security do you take from the seller,
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and how will you ensure that he will pay?
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Kunal: So if the end client has defaulted,
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so again on behalf of the seller and investor, we can file the case.
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Because we've all the agreement that they've accepted ate invoice.
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Other than this, we also take additional securities,
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again you get all the details in the deal report,
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that what are those securities.
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Other than this, after that also
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if the money is not coming from the end customer,
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we give a tenure for the seller, which is about 15 to 30 or 45 days
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that you've to pay in this tenure,
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because the primary record belongs to the seller
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and if payment is not come from there
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then we'll further manage legally
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but till now there is no such case
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but this is our process, our protocol.
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Mukul: Okay, so from here we have one more question,
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asked by many people.
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Assume someone is investing for a period of three years
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then after that does the deal get auto-renewed?
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Suppose someone wants to invest for a year
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or his money comes to his wallet
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and then he will have to buy again a new deal?
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Kunal: Okay, so it depends, which deal are they buying?
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that is very important
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that where are they investing?
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So, before buying you see the deal report.
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You see this deal is a zero-cost deal or it is an auto-renewed deal?
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If it is an auto-renewed deal then it will be auto-renew.
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If it is not, then on the tentative day of maturity,
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you get the funds, or even before, along with your earnings.
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And then this is your call to withdraw or reinvest.
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Mukul: Okay, Our next question is
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can we check these invoices anywhere,
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like in what invoices we are investing?
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Kunal: Okay, so we have NDAs with the sellers
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so we can't share sensitive data
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Many vendors have invoicing in thousands of invoices,
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so to give ten thousand invoices at one point of time
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to the investors is impossible.
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So when investors, invest
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they get all the data in an agreement
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so in an invoice all major details
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invoice number, date, value, when was the invoice raised?
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these major details we provide in the agreement when he buys,
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the same agreement is shared with the investors.
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Mukul: So we've got one more common question
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What is the guarantee
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that we will get our money back after the maturity period?
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Kunal: So you can see two things Mukul,
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The first is that we take SPDCs from the seller
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where if they can't pay the funds or
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money has not come from the end customer
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and there are issues with the money from the seller,
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Mukul: PDCs? PDCs are post-dated cheques?
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Kunal: Yes, security post-dated cheques, SPDCs, you can also say PDCs
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Mukul: Okay.
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Kunal: first is that we can deposit them in bank,
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whenever any investor, invest,
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if he sees the repayment track record
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then he'll have more comfort.
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Because which customer has done last thousand payments on time
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and there is a brand like Godrage and ACC
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Then I don't think there will be any such issues
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But still, if it happens then I already told you we'll use the SPDCs
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Mukul: in fact, some people quoted also that they have studied reviews on quora
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lots of people have lost their money
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many people shared their experiences.
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And I personally think
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if someone has borne such losses
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then he has a genuinely valid concern,
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then what is your comment on that
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If there is such risk?
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how do you mitigate risks and what is the track record of TradeCred,
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if you want to share something?
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Kunal: As of now, the track record has been very good,
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there are reviews about TradeCred also at the quora
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which are quite positive
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and yes! losses have happened
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but not on our platform.
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Till now we haven't lost any investor's money
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Our structuring or mechanism or you can say credit evaluation
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we've maintained it very well which is going on.
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I think the future experience which investors will get
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I think that will play a more important role.
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Mukul: So next question is
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many people are saying that
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currently, you've less users
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Only 10k people are using it so far.
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And the rating is also below four.
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So what do you want to comment?
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Kunal: So when this platform has started
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this started as a niche platform for HNIs
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or basically high net-worth individuals who has the capacity
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to invest 50 lakh or more.
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We opened for retail for from last few months or from a year before.
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I think this is the reason we have only 10k users for now.
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But seeing our popularity I think this will increase.
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But again this was opened for HNIs
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that's why there were only specific users,
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but now it is open for pan investors
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retail, HNIs, family-house, everyone
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Mukul: Okay, so if I may ask,
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how much is your average per user asset under management
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approximately?
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Kunal: from a retail perspective,
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It could be anywhere from one lakh to four lakh
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for a very new retail user who has joined the board recently,
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If we talk about HNIs then definitely fifty lakh and above,
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for ultra HNIs a crore and above
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for a family-house and small corporate treasuries more than ten crores.
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Mukul: So here is one more question Kunal,
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in e-adhar, the password is also asked, is it safe?
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what would you like to comment on?
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Kunal: So first of all, we ask for the password
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if in the normal aadhar copy the mobile number is not reflecting
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then we ask our investor to download the e-adhar
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and share with us
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that is one.
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secondly, sharing the password means sharing an aadhar copy.
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And the password is common for all individual
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that is the first four letters of your name in capital
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and birth year.
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So it is completely safe,
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we are completely managing the security in terms of data
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so it is completely safe.
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Mukul: Okay, and the final question comes
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which I saved for the last is that
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What if TradeCred itself defaults?
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I mean this should not happen, you are net cash positive
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I think it is a bootstrapped company, it is profitable.
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But for some reason suppose if TradeCred defaults,
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what will happen to investors' money?
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Kunal: Investors are buying the invoices
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and money is not coming to me
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money is going to the vendors.
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TradeCred is not taking money, so if TradeCred defaults,
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or it runs away or the company shuts down
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then new deals wouldn't list, of course, that will be one problem,
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but the existing deals,
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their cash flow management, which I told you earlier
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is managed by the ICICI bank and our custodian.
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And according to that, you'll get your payment timely,
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whether TrradeCred exists or does not exist.
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Mukul: I think that's fair enough
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you've given quite honest answers.
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I tried and assembled 15-16 questions to ask you.
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So I hope people would get a lot of knowledge from this,
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and concerns of many people would've resolved
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and definitely, I believe
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in an investment, it is not possible to become 100% risk-free.
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It always has some risk in it.
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At one level company manages the risk and mitigate ,
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and at one level, I think, people should also mitigate the risk.
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When they are looking for a deal,
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then they should study it properly
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and read the entire report properly,
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when they are comfortable only then they should invest
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and if then also they don't feel comfortable,
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then don't invest, there is no problem with that.
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Everyone can see according to himself
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that at that point of time which product is best for him.
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What do you say about this Kunal?
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Kunal: perfect! I think that its a personal call, personal approach,
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its a personal interest
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So I think quantitative investment is a growing market
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definitely, we should explore this,
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but with safety, security and it is a personal call completely.
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Mukul: Right!
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So thank you for coming here Kunal
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and answering all these questions.
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So I think all the viewers got profited from this video
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Kunal: Thank you so much Mukul for having me,
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Thank you so much for your time,
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Thank You!
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Mukul: Thank You!
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And if someone wants to invest in TradeCred
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then you'll get the links below in the description
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and also you'll get the link to our previous video
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Mukul: Thank You!
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Kunal: Thank You!
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