Startup Stories

How Volt Money Is Unlocking The Value Of Mutual Funds With Secured Lending

Published

9 months ago

October 8, 2023

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Founded in 2022 by Bharat Lamba, Lalit Bihani and Ankit Agrawal, Volt Money offers loans against mutual funds, a space where it enjoys something of a first-mover advantage

With nearly 150 Mn folios in India, mutual funds have become less of a long term savings scheme and more of an investment opportunity

Having recently secured $1.5 Mn in a pre-seed round, Volt looks set to disrupt the secured lending market with more asset classes in the near future

After more than a decade at Bank of America and HSBC, Bharat Lamba wanted to take the entrepreneurial plunge in 2022. It was the era of the great resignation. But for Lamba, it was about the opportunity to innovate in the fintech segment, particularly disrupting the lending space, which was booming in the post-pandemic era.

Lamba teamed with long-time friends Lalit Bihani and Ankit Agrawal to launch Volt Money in 2022, joining India’s colourful digital lending landscape. But the trio knew they needed to differentiate themselves from the host of personal loan apps.

So, unlike the unsecured loans being offered by these apps, Volt dove into the secured lending space. It was also in 2022 that the RBI was pushing for more innovation in the secured lending space, so Volt Money’s bet had the advantage of market timing.

But secured lending is not new as such – gold, real estate and fixed deposits (FDs) linked models already abounded. There was one asset class that the trio identified as being untapped, and that was mutual funds.

“We were the first ones to identify the opportunity in mutual funds,” Lamba told Inc42, adding that while the startup has leveraged this first-mover advantage, the larger vision is to venture into other asset classes.

Essentially, Volt Money ties up with network participants, including the National Securities Depository Limited (NSDL), DigiLocker, Computer Age Management Services (CAMS) and the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), alongside several folio management firms such as Edelweiss and ICICI to offer secured loans.

“From the lender’s angle, secure lending is what they love. On the depository side, the process was improving, and on the customer side, traction could be gained by spreading awareness. All of this, together, developed into a superb idea that we used to build this business,” Lamba explained.

Having recently secured $1.5 Mn in a pre-seed round from the likes of Titan Capital, All In Capital, Praveen Jadhav (Raise Ventures), Aditi Kothari (DSP Adiko Holdings), Gemba Capital, Kunal Shah (CRED), Ashish Kehair and Rahul Jain (Nuvama Wealth), Volt looks set to disrupt the secured lending market with a new asset class.

The Hidden Value In Mutual Funds

Indeed, today, many players are looking at mutual funds as a potential asset class for secured lending.

Per a report by the Association of Mutual Funds in India, the average assets under management for the Indian mutual fund industry for June 2023 stood at INR 44.82 Lakh Cr, growing more than 5X in 10 years. With nearly 150 Mn folios in India, mutual funds have become less of a long term savings scheme and more of an investment opportunity.

However, most of this value is locked away in long term investments, and redeeming mutual funds means closing the account and risking losing years of progress. To address the emergency demands of customers and their unwillingness to withdraw from mutual funds, startups such as Volt Money disburse secured loans against the user’s folio.

According to the startup, customers can avail loans from INR 25,000 to INR 2 Cr, depending on the size of their mutual funds. Per RBI’s guidelines on loan against securities (LAS), a lender can only lend up to 50% of the total value of the securities. Hence, a user has to hold at least INR 50,000 in mutual funds to avail of a loan from Volt Money.

As part of the loan agreement, the mutual funds’ holder has to add a lien in favour of the lender, though Volt reverses this as soon as the lender has repaid the borrowing.

The fintech startup’s interest rate for loans starts at 9.95%, much lower than a personal loan in today’s environment, and this is one of the advantages secured lenders are banking on.

The borrower only has to pay interest on the amount withdrawn from the total sanctioned amount, which makes this a credit line rather than a lump sum loan. This automatically makes for lower risk for the lenders partnering with Volt.

Volt even allows borrowers to pay just the interest for very-short term loans, significantly reducing the chance of a default on payment. Given these flexible lending terms compared to the rest of the industry, Lamba claimed Volt is yet to see a default. However, Inc42 could not verify these claims independently.

In case there is a default, Lamba explained that the lender retains the right to sell the mutual funds to recover the loan amount. The cofounder said lenders can only recover the amount borrowed, which in most cases means the borrowers still hold 50% of their mutual fund assets, in the scenario of a default.

To reach potential customers at every touch point, Volt has developed web and app software development kits (SDKs) to allow easy integration with any platform offering mutual funds.

The startup earns revenue by taking a commission from the interest paid by the borrower and through direct processing fees. Since Volt operates in the B2B2C business model, Lamba claimed it has nearly zero customer acquisition cost (CAC), enabling it to operate on razor-thin margins.

The company has not yet filed its financials for FY22 or FY23, and Lamba declined to comment on the revenue for the past two fiscals.

Is Secure Lending The Future?

But mutual funds are just the start. As India’s retail investors diversify their assets, the company will expand into other asset classes, including equity stocks and insurance policies. To be clear, some of these avenues are already available at most large lenders, such as banks, but Volt offers these lenders a distribution advantage due to its tech-driven acquisition funnel.

“The vision is to leverage all financial assets; it’s not just mutual funds,” Lamba said.

With the RBI pushing for secure lending to reduce non-performing assets (NPAs) in India’s banking system, there is a clear push by digital lending startups into secured asset-linked loans.

For instance, several startups are in the gold loan space, including Ruptok, Oropocket, Rupeek, Yellow Metal, and others. Even Paytm and other larger apps offer gold loans. Fintech startup 50Fin also offers loans against securities, though this is against actual stocks held by a potential borrower, not the mutual funds’ portfolio.

While some large lenders offer loans against life insurance policies, India’s low insurance penetration makes it a difficult market to address. Plus, the value of most life insurance policies in India is on the lower side, which makes it harder to scale this vertical.

Therefore, with a potential total addressable market of 150 Mn mutual fund folios and growing, Volt has the opportunity to scale rapidly. Here, the big challenge for Volt Money is to create a meaningful moat in the segment, even though Volt has the first-mover advantage.

Pairing up with mutual fund depositories and NBFCs to ensure smooth integrations proved to be time-consuming in Volt’s experience. Companies looking to enter the segment might also face the uphill battle of creating a robust credit risk assessment model specific to mutual funds.

There is also the problem of the lack of historical data and standardised valuation methods for existing mutual funds. This can hinder a company’s attempts to accurately assess borrower creditworthiness, severely limiting its moat in this field.

Volt Money got around these hurdles by developing algorithms to analyse fund performance, volatility and investor behaviour. It will be interesting to see if the competition enters this space in the near future given that unsecured lending has so much competition.

Volt’s Lamba believes that customer trust is the biggest challenge of them all. Mutual funds, although widely popular, are seen as investment vehicles, not collateral for loans. While the startup has achieved significant scale over the past year, scaling up the model and reaching a larger share of the 150 Mn folios will be its biggest challenge going ahead.

With inputs from Nikhil Subramaniam

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Startup Stories

Byju’s partially pays March salaries, pending February payouts.

Published

2 months ago

April 23, 2024

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Byju’s, a prominent player in the edtech industry, has encountered financial challenges resulting in delayed salary payments for its employees. As of April 20, the company has only disbursed a portion of March salaries, attributing the delay to a severe cash crunch. Despite earlier assurances from the company’s management that salaries for March would be paid by April 18, many mid-senior employees have reported receiving only 50% of their March salaries. Additionally, February salaries remain unpaid for a significant number of employees, further exacerbating the situation.

Founder and CEO, Byju Raveendran, has resorted to raising personal debt against his stakes in the company to facilitate salary payments. This underscores the severity of the financial challenges facing Byju’s and highlights the lengths to which Raveendran is willing to go to address the issue.

Employee testimonies reveal the extent of the salary delays, with one employee stating that they received only 50% of their March salary on April 20, with 80% of their February salary still pending. Another concerning aspect is the reported disparity between junior and senior employees, with junior staff receiving full salary payments while top management has gone without salaries for the past two months.

Byju’s has acknowledged the delay in salary payments but has not provided a detailed explanation for the situation. A company spokesperson declined to comment on queries from ET regarding the matter. In an email sent to employees on April 8, the management team expressed regret over the delay and attributed it to the inability to secure approval to access funds from a rights issue. The delay has been further compounded by actions from foreign investors, hindering the company’s access to necessary funds.

This revelation follows a previous report by ET on April 1, which highlighted Byju’s decision to delay salary payments due to constraints imposed by warring investors, limiting the company’s access to funds through a rights issue. The ongoing dispute with investors, including Dutch investor Prosus, has added to Byju’s financial woes and has led to further delays in resolving the issue.

In a separate development, Byju’s India chief executive, Arjun Mohan, announced his departure from the company in mid-April, just six months after assuming the role. This unexpected move prompted founder Byju Raveendran to take on the responsibility of overseeing day-to-day operations of the company’s India business, housed under Think & Learn, marking a significant shift in leadership.

Amidst these challenges, Byju’s is embroiled in a legal battle with a group of investors led by Prosus, who are seeking to block a rights issue and the removal of Byju Raveendran as CEO. The company has also initiated arbitration proceedings to address the dispute and find a resolution.

The rights issue undertaken by Byju’s is significant, as it is being offered at a staggering 99% discount to the company’s peak valuation of $22 billion. This steep discount has implications for investors who choose not to participate in the funding, potentially resulting in a significant dilution of their shareholding post-completion of the rights issue.

The unfolding events at Byju’s underscore the challenges facing the edtech giant as it navigates financial constraints, leadership transitions, and legal disputes. The company’s ability to address these issues effectively will determine its future trajectory and its ability to maintain its position in the competitive edtech landscape.

Startup Stories

Revolut India receives provisional approval for PPI license from RBI

Published

3 months ago

April 13, 2024

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Revolut India, a neobank backed by Tiger Global and Softbank, has secured an in-principle approval from the Reserve Bank of India (RBI) for issuing Prepaid Payment Instruments (PPI), encompassing prepaid cards and wallets. CEO Paroma Chatterjee shared this development in a LinkedIn post on Friday. This approval complements Revolut India’s existing licenses from the RBI, which allow it to function as a Category-II Authorised Money Exchange Dealer (AD II), enabling the issuance of multi-currency forex cards and cross-border remittance services.

Chatterjee emphasized the significance of this milestone, highlighting the opportunity it presents to provide Indian consumers with both international and domestic payment solutions on a unified platform. Revolut, Europe’s largest neobank, entered the Indian market in 2021 with aspirations to disrupt the domestic payments sector. The RBI’s approval is expected to bolster Revolut’s position as a key player in this domain.

Prepaid Payment Instruments (PPIs) are payment tools that utilize stored monetary value, including digital wallets, smart cards, or vouchers, for transactions. RBI Governor Shaktikanta Das proposed on April 5, 2024, to allow PPIs to be linked through third-party UPI applications, enabling PPI holders to conduct UPI payments akin to bank account holders.

Chatterjee underscored Revolut’s commitment to full compliance with regulatory requirements, particularly in India, where the neobank has undertaken significant efforts to localize its global tech-stack to adhere to local regulations.

In an interview with ET BFSI, Chatterjee disclosed Revolut’s plans to introduce a comprehensive suite of digital-first money management services for all Indian customers. These services will enable users to manage their finances, including payments and remittances, both domestically and internationally.

The app, currently in use by employees, will be officially launched once the internal testing phase is completed, according to Chatterjee. She also revealed that there are over 175,000 prospective customers on Revolut India’s waitlist, indicating strong interest in the product.

Startup Stories

Postman buys Orbit to extend developer community reach.

Published

3 months ago

April 13, 2024

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Postman, renowned as an API management platform tailored for enterprises, has recently made headlines with its acquisition of Orbit, a pivotal tool in the arsenal of developer companies for nurturing communities across a spectrum of platforms, including Discord, Slack, and GitHub. Although the specifics of the financial transaction remain undisclosed, Postman took to its blog to underline Orbit’s indispensable role in supporting major developer companies in fostering community management and fostering growth over the course of the past four years.

Within the ecosystem of Postman, the integration of Orbit is poised to be transformative, with the Orbit team set to assume a pivotal role in seamlessly embedding community-centric features into the fabric of the Postman Public API Network. This strategic move is aimed at catalyzing dynamic collaboration between content creators and end-users within the network. Postman, boasting a staggering valuation of $5.6 billion, stands as a stalwart in the realm of API collaboration platforms, serving a user base exceeding 30 million developers and 500,000 organizations.

Under the stewardship of Noah Schwartz, a recent addition to the Postman team hailing from Amazon Web Services, the Orbit team is primed to spearhead initiatives aimed at empowering API distributors to broaden the horizons of their communities, optimize API utilization, and solicit direct feedback from users entrenched within the network.

This integration is anticipated to embolden developers to unearth APIs tailored to their unique requirements and foster meaningful engagements with peers to extract maximum value from each API. However, as part of the transitionary phase, Orbit has outlined plans to gradually phase out its existing product and platform over the span of the next 90 days. Commencing July 11, all functionalities will be deactivated, with no provision for the creation of new users or workspaces.

Postman’s strategic maneuver comes on the heels of its triumphant fundraising endeavor in 2021, securing a whopping $225 million in funding. The fundraising round, spearheaded by Insight Partners, witnessed active participation from prominent entities such as Coatue, Bond Capital (helmed by Mary Meeker), and Battery Ventures.