How Returns Are Calculated
No ambiguity. No hidden math. Here's the exact formula that determines your payout on every deal, with worked examples and what to watch for.
The formula
Returns on Vridi are calculated using simple interest — not compound interest. The formula is straightforward:
Return = Investment × Discount Rate × (Tenure / 365)
Where Tenure is in days and Discount Rate is expressed as a decimal (e.g., 12% = 0.12)
The discount rate is set at deal creation and is fixed for the life of the deal. It's not variable — it won't change based on market conditions after you invest.
Worked examples
Let's calculate returns for different investment amounts and tenures at a 12% annualized rate:
All examples use simple interest. No fees deducted from returns in these examples.
Annualized vs absolute return
The discount rate on a deal card (e.g., 14%) is an annualized rate. It represents what you'd earn if the deal ran for exactly one year. But most deals run for 30–120 days.
The absolute return is the actual rupee amount you earn on that specific deal. A 12% annualized rate on ₹50,000 for 90 days gives you ₹1,479 — that's the absolute return, which is 2.96% of your invested amount.
Don't confuse them
Seeing "12%" on a 30-day deal doesn't mean you'll earn 12 rupees on every 100. You'll earn 12% × (30/365) = ~1% in 30 days. If you reinvest 12 times in a year, the compounding starts to work in your favour — but each individual deal's absolute return is proportional to its tenure.
"The magic of short-tenure deals isn't the return per deal — it's the ability to redeploy capital 4–12× per year."
What the discount rate means
In traditional lending, the borrower pays an interest rate. In invoice discounting, the terminology shifts: the seller receives less than the invoice face value (the "discount"), and the difference over time represents the investor's return.
The effect is economically identical to interest — but the framing reflects the true nature of the transaction. The investor is advancing money against an invoice, not lending on a promissory note. This distinction affects legal treatment and, in some cases, tax treatment.
Tax treatment
Returns earned on invoice discounting are classified as income from other sources under the Income Tax Act, 1961. They are added to your total income and taxed at your applicable slab rate.
TDS (Tax Deducted at Source) may be applicable at the platform level depending on the structure and regulatory guidance at the time. Vridi will issue appropriate TDS certificates for your tax filing.
Quick comparison with FD interest
FD interest is also taxed as income from other sources. So the tax treatment is identical — but the gross return on invoice discounting (10–14%) is significantly higher than most FDs (6.5–7.5%), leaving a larger post-tax return even after paying the same rate of tax.
We recommend consulting your tax advisor for specific guidance relevant to your situation.
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