Peer-to-peer (P2P) Lending: Maximising gain and reducing risks

Dear Readers

In my previous articles, P2P Financing Tips & Who’s afraid of P2P financing?, I have shared with you an overview of P2P Financing and some tips in choosing a sound SME to invest.

In this article, I will share with you a method to maximise profits in your P2P Lending investment whilst reducing its associated risks.

illustration-handing-dollar-sign-to-hands-getty_573x300

Reinvesting repayment

Since July 2017, my investment in P2P Lending through Funding Societies Malaysia, has multiplied from 1 portfolio to 3 portfolios.

This rapid expansion was made possible by reinvesting the monthly repayments, from my first and initial portfolio, as they are paid into my account balance, into other crowdfunding exercises. Funding Societies Malaysia makes reinvesting very accessible because the minimum investment amount for a crowdfunding exercise is RM100.

Through reinvesting, I have effectively invested RM1,500 even though I have only invested RM1,000. To illustrate, I have prepared this TABLE.

As you can deduce from the table, I reinvested a total of RM500, in September 2017, that was split into two portfolios of RM300 and RM200 respectively. Now, that RM500, has the opportunity to earn interest, which it wouldn’t have, had it just sat in my account balance (where no interest will be accrued).

Consequently, I am utilising my initial investment capital as efficiently as possible by squeezing every single drop of opportunity there is to earn interest. This is essentially another way of compounding returns – earning interest on interest.

Compounding returns is how wealth is built, over time. The wonders of compounding returns can only be fully taken advantage of when you start investing in the early part of your life. Do this by setting aside a portion of your salary to invest in quality investments such as P2P Lending.

Of course, before committing to any investment, you should stick to a few handy P2P Financing Tips to aid you in sieving out a right SME to invest.

Risk management

P2P Lending, like any other investments, is not immune to risks. The major risk in P2P Lending is the inability of a SME to make repayments associated to the financing. In other words, defaulting on repayments.

However, by picking a financially sound SME in which to invest and adopting proper risk management plan, it is possible to earn a handsome return with relatively low risk.

For example, I have RM454.24, currently, in my account balance (See: TABLE) which I have yet to reinvest. I’m looking into reinvesting RM400 by splitting them into two portfolios of RM200 each. By doing so, I am essentially spreading the risk, should there be a default, by investing in smaller amounts across multiple portfolios. Not only do I maximise my returns, I am also limiting any untoward risk which may affect my investment. That is definitely a win-win scenario.

Conclusion

It has been 4 months since I have started investing in P2P lending and I have gained a return of 3.7% (excluding service charges). I have already achieved a higher return rate than a 12-month-return-rate of most fixed deposits plans in Malaysia. And I did it in just 4 months.

Because of the low default rate, none of my portfolios experienced any hiccups or defaults. As long as I continue reinvesting my returns and capital, and adopting a risk management system, I anticipate that I will be receiving a total return of ~6% (excluding service charge) by year’s end. Not too shabby for an investment timeline of only 6 months.

So, what are you thoughts of this investment strategy? Do drop me a comment.

If you find this write-up helpful, follow me on Facebook to receive future updates and analysis.

Helpful links

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

Register an account with Funding Societies Malaysia now as they will top up an additional RM50.00, for free, into your account when you deposit and invest a minimum of RM1,000.00. To participate in this special 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.

 

 

 

 

 

 

 

5 thoughts on “Peer-to-peer (P2P) Lending: Maximising gain and reducing risks”

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s