But before you jump in and blindly go ahead, you need to explore the risks and rewards associated with such investments. This article digs deeper into the potential benefits and hidden risks to help you make an informed decision.
What are these platforms all about?
Agriculture income has been tax-free in India due to various reasons. Unpredictable climatic conditions, uncertainty of harvest and seasonal variations are a few of the reasons behind the same.
Considering it to be an opportunity, a few agri-investment platforms have come into the picture. They allow retail investors to invest in agriculture opportunities and earn a tax-free income.
Working on a fractional model, these investments allow investors to invest money starting from ₹5,000 and may go up to 15 lakhs. While allowing diversification in the investment portfolio, they also offer investors significant returns higher than traditional investment options making it a lucrative investment option.
Also Read: TGIF Agribusiness IPO: Check GMP, subscription status on day 2, issue size, key details to know
How do these platforms work?
A retail investor makes an investment in these platforms via the website or mobile app in an online mode. Usually, he or she may be asked to sign the LLP (Limited Liability Partnership) agreement and complete authentication.
The investments are pooled from all the investors and invested further. For example, these may be further invested to lease agricultural land or invest in projects related to agriculture.
Now, the product is sold and revenue is generated. After deducting certain expenses such as salaries, rent, raw material costs, etc., the rest is distributed among the investors.
Investors usually earn fixed returns specified in the LLP agreement which was signed at the time of making investments.
Also Read: Skymet predicts normal monsoon, boosts hopes for India’s agriculture-dependent economy
Risks involved
Investment in agricultural schemes like these is not always sunshine and rainbows. It comes with its share of risks and uncertainties.
Firstly, profits are not assured. Though they may guarantee fixed returns, if the firm incurs losses, you will have to incur them as a partner. Weather uncertainties can result in loss of produce which may lead to a high risk of losing returns on investments.
Then, these platforms are not regulated by SEBI or RBI. So, there is no authority to control or monitor the activities of such platforms.
In 1990, the Anubhav Plantations scam case was a major financial scandal. Returns were guaranteed and investors were lured to make investments. However, the scheme collapsed due to several reasons in 1997-98 leaving multiple investors losing their money.
Recently, SEBI has banned agri-investment platform Growpital from collecting money from investors.
Benefits of agri investing
- Diversification of portfolio: Investment in such projects allows you to diversify your portfolio. It further helps in reducing overall risk by spreading investments across different sectors.
- Tax-free income: As agricultural income is not taxed, returns from these schemes are not taxed as well.
- Fixed returns: Usually, these platforms promise a fixed return as mentioned in the contract which is another reason to invest.
Who regulates these platforms?
Currently, these agri-investment platforms are operating in a bit of a shady area. They are not directly controlled or monitored by authorities like SEBI (Securities and Exchange Board of India) or RBI (Reserve Bank of India). These agri-investment platforms act as facilitators,
providing investors with a platform to invest money. Hence, the regulation of these schemes is still in question.
Also Read: Along with incomes, agri needs an investment push
Some platforms
- Growpital
- FAAB Invest
- Kisaan Parivar
- KrishiFunds
- Farm Chakra
There are several platforms that allow you to put money into agricultural projects and make tax-free income. However, it is recommended to perform detailed research before investing in such platforms.
Here are certain questions you can ask them before investing your money:
- Would you still get guaranteed returns if an LLP incurs a loss as mentioned in the agreement?
- Can you have access to their financial statements?
- Who manages the platform/investments and what qualifications/experience do they possess?
- Do they have a background or record of controversies if any?
- How would the LLP resolve any dispute that might arise?
Risks
Weather risk: Agriculture is dependent on weather. While the farms of these platforms might use advanced technology, it would be wise to consider the impact of weather on crop production.
Liquidity risk: While platforms might honour your redemption requests within a few days, however, as agricultural produce is harvested in batches, investors might have to wait for the next batch to hit the market before they can get their money back. It is important to keep that in mind as well.
In conclusion, though these investments offer lucrative returns, it is not advisable to invest blindly. Tax-free returns shouldn’t be the only reason to invest money. Purchasing such investments involves high risk as returns are not guaranteed and you may even lose your capital invested.
Hence, these platforms are recommended only for those folks who understand the workings of these schemes and have a high-risk appetite.
Padmaja Choudhury is a freelance financial content writer. You can reach out to her at padmaja@padmajachoudhury.com.
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Published: 10 May 2024, 05:11 PM IST