P2P Lending: 10 months in


  • Financial Bloggers

    It has been 10 months since I’ve invested RM1,000.00, with the intent of dipping my toes into the world of P2P lending. It has been a remarkable experience thus far.

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    I sincerely appreciate the remarkable traits which are part and parcel of P2P lending such as, stability and predictability. In contrast, the volatility and the uncertainty of the stock market may be a bit too intense at times, especially in the last couple of months. I realised that I needed a breather from the stock market; one that would do me some good.

    However, the opposing characteristics of P2P lending and the stock market, could compliment your investment portfolio by providing some uncorrelated diversification in your investments. This uncorrelated diversification ensures that when one asset class is unfavourably affected, the other asset class would not suffer the same fate.

    In addition, the potential investment yield, from P2P lending, is also a charming feature as most of the notes/loans offer interests rates of more than 10% per annum. Hence, this is a factor which is appealing to investors, other than traits such as, non-volatile and fixed income.

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    My last deposit was made on 05.04.2018, in the amount of RM1,000.00 thus bringing the size of my P2P lending portfolio to RM3,000.00. Currently, my portfolio consists of 18 notes/loans, which provides good diversification and a yield of 11.50% in terms of annualised return. In monetary terms, that is RM148.84, in interest. It should be noted that most of the interest accrued are from the initial investment of RM1,000.00, and not RM3,000.00.

    On the other hand, I’ve only paid RM26.68 in service fees.

    The effect of compounded interest on my portfolio is also becoming more pronounced. That effect is achieved by reinvesting every cent of interest so that more interest could be earned, and later, reinvested again. Hence, theoretically, a P2P portfolio could achieve a compounded return of 18% per annum. On top of that, frequent reinvestments mean that any default to a note/loan would only cause a minimal dent to my overall P2P lending portfolio. [See: Peer-to-peer (P2P) Lending: Maximising gain and reducing risks]

    It should be noted that I’ve not experienced a single incident of default, touch wood. This, to me, indicates that the due diligence process undertaken by Funding Societies Malaysia is thorough and effective.

    CONCLUSION
    This year, I’ve set my sights on increasing the size of my P2P lending portfolio, and to diversify away from other asset classes.

    If you are new to investing, or would like to add some diversity to your investment portfolio, you’d be delighted to know that there is a special promotion where Funding Societies Malaysia will top up an additional RM50.00, for free, into your account, once you have deposited and invested a minimum of RM1,000.00.

    To participate in this promotion, please register an account via this LINK (be careful not refresh the link before completing the registration as it will affect the promotion code), or alternatively, use the promotion code: j1mzpcw5 when registering through Funding Societies Malaysia.

    HELPFUL LINKS
    Click the link if you would like to know more about P2P financing with Funding Societies Malaysia.

    If you enjoy reading this write-up, please share and like Bursa:Going Long on Facebook for more updates and analysis of investment-related topics.

    ** This article is written in association with Funding Societies Malaysia. **



  • I started mine with good faith since Aug'17. Until recently when I met a friend, a credit analyst, with whom I shared about this platform. Few things she reminded me about is the importance to read and understand the financial statements by their financial ratios. She also shared about the probability of default which she has seen in the bank. I showed her one fact sheet in which I put in quite a big sum of money due to its high return, but she noticed that the company which I invested in is quite risky in terms of its financial ratios. This month, I first experienced a delayed payment from this issuer, which has started to alarm me on my pure naive faith. I started to learn how to read the financial statements before investing into the companies.

    Just hope everything will be fine and FS continues to bring in good issuers. Meanwhile, a reminder to all to always know where our money is putting into. If we opt for auto-investment, I think it is still always best for us to go through the fact sheets before making the decision.

    Happy investing! =)



  • The things is, you won't get to see the full financial statements of the borrowers.

    My philosophy is different. Though I do read each fact sheet, I cannot do a full credit analysis like banks. Therefore, I see myself as betting at the state of the whole SME space (the economy as a whole), rather than betting on each individual name I lend to. How do we do this? Diversify to (very?) small amounts. This also means defaults are inevitable. I do not bet to avoid each and every default. One will surely slip through. To mitigate default risk, the rate must be large enough to compensate for it. If in the fact sheet shows that the full rate minus the default rate is less than my hurdle rate, I opt out auto-invest. Actually, this is how banks work. Think of the portfolio and not individual loans. Do not be scared of defaults. Just make sure you are making enough money on those performing loans. Don't be discouraged by default, as you need to also stick to this in the long run -- to make the law of averages work for you.


  • Financial Bloggers

    Yes, the name of the game is to protect the downside, by diversifying. Some may prefer to auto-invest, which is nothing wrong, but some are willing to get their hands dirty by diligently sieving through the fact sheet provided by FS.

    My opinion is that when you are investing, you should also be keen to learn about the process of investing. That includes learning financial terms and reading financial statements. It is a very handy life skill, especially when you are in a profession. Even though no financial statement is disclosed by FS, there is sufficient information to discern from the financial ratios etc.



  • SME, by their nature, have very bad fiancial ratios. What are the thresholds and criteria that we should use in the analysis? Is it subjective? Clearly, those levels that we are used to in larger corporates won’t work.



  • @jomni

    Yes you are pretty right. Even for those SME banking customers, some of their ratios are not as pretty as big corporates.



  • There you go.. My friend was right, this is the bad financial ratio's company and they are delaying repayment whilst it's just their 3rd installment out of 12. #GG.com

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  • @josephyiong I have this loan also in my portfolio. which ratio is bad?



  • @ktinvest Quick ratio shows negative.. My friend advised me that negative financial ratios is an indicator of risky companies. Net margin also shows negative and low in general. Also, gearing ratio is generally high..



  • https://crowdfundtalks.com/topic/130/financial-ratios-mentioned-in-fs-factsheets-a-primer-part-i/2

    This is a very useful and comprehensive guide on how to read financial ratios. thanks to @evenu



  • @josephyiong said in P2P Lending: 10 months in:

    There you go.. My friend was right, this is the bad financial ratio's company and they are delaying repayment whilst it's just their 3rd installment out of 12. #GG.com

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    Which p2p platform is it from?



  • @bendahara FS yow~


  • Financial Bloggers

    For short term lending, I think the primary concern is cash flow i.e. the ability to pay off the interest and principal. Assets, although important, may not come into the picture unless the company is being liquidated.



  • @josephyiong great. thanks.
    @Bendahara it is MBBT-18010018



  • Oh i see that is from the Malaysian side. Good luck and do remember late payment is not the end



  • @josephyiong Actually this is good news, you can earn more via late interest fees. Banks make money from credit cards by charging overdue interest & legal letter fees.



  • @horkh haha.. true also.. nice having positive mindset..



  • @horkh said in P2P Lending: 10 months in:

    @josephyiong Actually this is good news, you can earn more via late interest fees. Banks make money from credit cards by charging overdue interest & legal letter fees.

    haha this is bang on, late but not default loans yield the most returns!


 

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