India’s Investment Economy Is Entering Its Liquidity Era - Rohit Pateria

India is going through a basic change in the way households create, manage and gain access to wealth. Mutual funds, equities, ETFs and other investments linked to the market are no longer products intended only for a small number of wealthy investors; they are increasingly becoming a significant element in the financial lives of millions of Indians.

However, there is a gap in this economy which is expanding rapidly.

Investors are aware of the way to build up their wealth, but it has always been much more difficult to gain access to it without disrupting their long-term investments.

When some liquidity is needed, the usual course of action has generally been to redeem mutual funds or to sell some stocks.

It's starting to differ now.

The next phase in India's journey regarding investments will involve generating liquidity from investments without having to sell them, and in this regard, Loan Against Mutual Funds (LAMF) and the wider Loan Against Securities (LAS) system can have a transformative impact.

From Investment to Financial Utility

It has traditionally been the view that an investment portfolio should be held on until a financial goal has been reached. However, a fully developed financial ecosystem should enable the investor to make more intelligent use of the value generated by the portfolio.

Suppose an investor has gradually put together a mutual fund portfolio worth ₹10 lakh. In the event of an unexpected business need, the cost of education, a medical emergency or a temporary requirement for cash, an amount of ₹2 lakh may be needed.

The usual method would be to redeem investments amounting to ₹2 lakh.

What if the investor was able to obtain credit based on their eligible mutual fund units, provided that the lender's policies and eligibility criteria were met?

The investment is still included in the investor's long-term wealth strategy, and the need for immediate liquidity is met by means of secured credit.

The basic idea that underlies a loan against mutual funds is this.

This same philosophy applies to loans against stocks and securities, since eligible financial assets may be used as collateral when obtaining credit.

It doesn't mean that borrowing is always the correct solution. Credit should be used responsibly, with a full understanding of the costs of interest, the duties involved in repayment, the requirements regarding collateral, and the risks that are linked to the market. However, when it is used appropriately, investment-backed credit can give investors a strong additional financial option.

The Rise of the Investment-Backed Credit Economy

For the past ten years, India's financial ecosystem has been moving investment into the digital area.

SIPs can be initiated within a matter of minutes. Mutual funds can be bought using mobile applications. It is possible to open a Demat account digitally. Information about your portfolio is becoming increasingly available in real time.

The next logical move would then be to make it just as easy to obtain liquidity against investments.

It's at this point that technology goes beyond being just a convenient layer.

A modern Loan Against Securities system has to connect a number of different components—such as investor authentication, investment verification, asset eligibility, the pledge and lien mechanisms, lender underwriting, documentation, disbursement and repayment, and servicing.

The chance in question is not merely the development of yet another lending application; it is about establishing the infrastructure which links India's expanding investment base with its credit ecosystem.

Building Trust Into Digital Lending

One cannot, therefore, base financial innovation solely on convenience.

It is essential for trust to be established when investments are used as collateral.

Investors should have clear information regarding how their securities are pledged, who the lending institution is, what the interest rate and fees applicable are, what takes place during periods of market volatility, and the procedure for the release of the securities after repayment.

Transparency, security, compliance with regulatory requirements, and educating customers all become essential aspects of the future of investment-backed lending.

We at LARK Money think that the most successful financial platforms will be the ones which combine technology with trust.

The aim is to provide investors with a simple digital experience at the same time as operating within a strong ecosystem consisting of regulated lending partners and financial infrastructure.

The experience of the customer should be simple in that they should understand their eligibility, understand the offer, make an informed decision, go through the digital process and then have access to the liquidity when needed.

LARK Money: Building the Liquidity Layer

LARK Money is based on a simple idea: investors shouldn't have to decide between their long-term investments and their short-term need for liquidity each time they need money.

The fact that the platform is focusing on Loans Against Mutual Funds (LAMF) is a key initial step, the broader aim then being to extend this to Loans Against Securities (LAS) in a number of asset classes.

With India's investment market growing, so too will the pool of available collateral—covering mutual funds and shares as well as ETFs, bonds, REITs and other approved financial assets.

It makes it possible to establish a new financial structure in which an investor's portfolio can have two functions at the same time: the creation of wealth and responsible access to liquidity.

This also presents a new opportunity for wealth managers, mutual fund distributors, fintech platforms and financial institutions.

Rather than considering redemption as the sole answer to a customer's liquidity needs, the financial ecosystem could provide an alternative solution—investment-backed credit.

This could potentially help with keeping investors on distributors' and wealth platforms since the customer's portfolio need not leave the platform just because the customer temporarily needs some money.

In this respect, a loan against mutual funds is not just a lending product but can serve as a new element of wealth management and investor relationship management.

The Bigger Opportunity: India's Investment Economy

The process of financialisation of savings in India has still only just begun.

With an increasing number of households shifting from physical assets and conventional savings to mutual funds, equities and other financial instruments, the investment asset base will keep on becoming larger and more diverse.

The next chance is to increase the productivity of this ever-growing amount of financial assets.

Worldwide, mature financial markets have shown that investment portfolios can be incorporated into a wider credit framework. India now possesses the digital infrastructure, the investor base and the financial technology ecosystem needed to build its own version of this model on a large scale.

This opportunity is especially important since India's investors are becoming more digital, more financially aware and more focused on results.

What they want is not merely to make an investment.

They want flexibility.

They want control.

Gradually, they are wanting their investments to work harder for them.

A New Investor Mindset

The essential change is therefore in behaviour.

The old question was:

How much of the investment I have should I sell?

The emerging question is:

Can I have access to the liquidity I require without altering my investment strategy?

That change can fundamentally alter the relationship between investment and credit.

We at LARK Money think that the future of personal finance won't be determined by having to choose between investing and borrowing but instead will be shaped by the intelligent combination of the two.

Our aim is to provide access to liquidity in relation to investments in a simple, reliable and digital way, while assisting investors in making well-informed financial decisions.

India has taken many years to develop an investment culture.

The following decade might focus on developing the liquidity infrastructure to go with that investment culture.

At that point, the investment portfolio will cease to be merely a destination for wealth.

It might turn into a financial asset which will work harder for the investor instead of needing to be sold each time there is a demand for liquidity.

To explore how investment-backed credit fits into your financial strategy, learn more at LARK Money.

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