SDIs and PTCs Explained: Why 12% Debt Returns Carry Hidden Risks

With retail inflation lately around 1-1.5 per cent, even a 6 per cent debt return can be a decent real return after inflation. Yet many investors see returns from fixed income from bank FDs and government and corporate bond yields as ordinary. In that mood, anything promising 10-12 per cent looks like an obvious upgrade. Debt platforms are marketing securitised deals linked to invoices or loan collections as SDIs and PTCs, using words like secured, escrow, first loss and rated. Retail investors often do not understand that the extra return in such instruments is usually a risk premium, not a free lunch. Here is a lowdown.

What you are really buying

To most, an invoice sounds like a simple bill, and a loan repayment sounds like a simple monthly payment, so it feels safe, like money that is already due. But in these products, many such bills and payments are bundled together, put into a separate bucket (an SPV or a special purpose vehicle), and that bucket issues a paper called an SDI or PTC (a securitised debt instrument or pass-through certificate). When the bills are actually paid, the money flows through to you. If payments are late, disputed or not paid, your return can slip, even though the idea sounded simple.

An SDI is a security where your return comes from a pool of cash flows, not from one company paying you like a normal bond. In an invoice receivables PTC, the cash flows are expected collections from many invoices raised by sellers on buyers. The pool is usually transferred to an SPV. The SPV issues PTCs to investors, and collections are routed through a controlled bank account, often described as escrow (a designated account where money is collected and then distributed as per rules).

Debt and bond investing platforms marketing SDIs and PTCs to retail investors show the same pool cut into layers (called tranches). Imagine it like a cake cut into top and bottom slices, where the top slice gets paid first and the bottom slice takes the first hit if cash-flows fall short. The top layer is the senior tranche (first in line for payment), usually offered at a lower rate and marketed as safer, while the lower layers are the subordinate or junior tranches. That cushion is called credit enhancement (extra buffers that absorb losses before the senior tranche is hit). This can include cash collateral (money kept aside upfront) and the subordinate or junior tranches themselves. You may also see first loss (the initial layer of losses meant to be absorbed by these buffers).

From a rating perspective, such instruments may show a rating such as A-minus with an SO tag (structured obligation rating). ‘SO’ is a rating of the structure and the pool, not a simple rating of the company.

Live listings on platforms show minimum tickets around ₹1 lakh, yields of about 11-12.65 per cent and tenors around 16-22 months, with ratings of A+/A-/BBB-, including invoice receivables PTCs and loan pool SDIs.

In conclusion, the product is not just invoices or collections. It is invoices plus legal assignment, servicing, collection controls, replenishment rules and a payout waterfall (the order in which cash is distributed). If any of these parts are weak, the headline yield/return stops being the main story.

Know the risks

Before you look at the promised return, here are the risks you should be aware of.

* Start with liquidity risk (the ability to sell early). Many of these are bullet structures (principal and interest paid at maturity) and may be listed in name but thinly traded in reality. If you need money before maturity, your exit may depend on whether someone else wants to buy, at what price and after what costs. Retail investors often underestimate this because apps make it feel like a simple click product.

* Next is cash-flow risk. Invoices can face disputes, deductions, delayed acceptance, set-offs (when the buyer cuts the invoice payment to adjust another claim like a penalty, discount or refund), or quality claims (when the buyer says the goods or service were not as agreed and delays or reduces payment). Even when an invoice is confirmed, payment can be delayed due to various issues. Escrow control reduces the chance of money being diverted, but can’t do much if payments are not honoured on time.

* Then comes operational and servicing risk. Someone has to track invoices, follow up on delays, manage replacements and enforce contracts. If the servicer (the company appointed to collect and manage the invoice pool, often the same firm that originated the receivables) fails to act quickly, small delays can compound. Legal strength matters too.

* Structure risk is the quiet one. Many deals allow replenishment (new receivables added over time), so the pool is not static. That means pool quality can drift. Rules like buyer rating thresholds, concentration caps and industry limits are only as good as monitoring and enforcement. Also watch for legal maturity (the final date by which the structure must be wound up) versus expected maturity. A short remaining tenure, such as three-four months, on an app screen can distract from a longer legal tail if collections are delayed.

* Also account for tax. TDS on SDIs is 25 per cent for resident individuals or HUFs (submission of Form 15/15H can stop TDS). Income is taxed as per your slab, so post-tax return can be much lower than the headline yield.

* Do not let comforting labels do the thinking for you. Secured is not the same as guaranteed. With secured products, if cash-flows stop or there is a dispute, recovery can still be delayed, partial or messy, even if there is collateral or a buffer.

* Finally, a rating is not an assurance of timely exit. First-loss buffers can be meaningful, but you must know the exact percentage, the form, who funds it and what events can erode it.

Takeaway

As a retail investor, if you still want to participate, size it like a risk asset, not like a fixed deposit substitute.

Remember that some instances of serious issues have surfaced in structured debt products sold on bond platforms. In a recent case, the borrower kept paying investors till July 2025. From August 2025, it reportedly stopped sending loan collections into the Trust account, which it was supposed to do. The trustee then used the cash collateral available and investors got only a partial payout of 35.5 per cent (including interest) on 17 September 2025. After that, there have reportedly been no more collection updates or transfers, and the borrower is said to be under stress with multiple lenders and seeking restructuring.

Before you invest, read the information memorandum (the legal and cash-flow document) and look for simple answers: Who pays, how money is collected, what happens if payments delay, whether the pool can change, what the top buyer exposures are, whether early exit is realistic and what fees reduce your net yield.

If those answers are unclear, the safest decision is to step back. It is always better to use diversified debt mutual funds or professionally-managed credit portfolios, where teams can track pools, enforce covenants, and limit damage from one bad structure.

Published on February 14, 2026