January 11, 2018
Peer-to-peer investing could be THE new year financial resolution that will give your investment portfolio a boost and deliver quick returns, without the need to go on a financial crash diet. Intrigued? We break it down for you here.
It’s a brand new year, which means it’s a great time to make changes to your life for the better. A good place to start is by making financial resolutions to help you reach your money goals and reach financial freedom.
P2P financing is a way for registered businesses to request or get funds from investors through a digital platform. The digital platform serves as the middle-man between the requestor and the investor. Several investors will then contribute their money towards the funding request. Basically, it connects SMEs that are seeking financing to investors who are seeking attractive returns.
P2P investors are made up of everyday people who are willing to assume a portion of the funding request. For example, let’s say Syarikat ABC requires working capital of RM30,000. Syarikat ABC will submit an application to get funds via a P2P platform which will evaluate the application, set the terms and conditions inclusive interest rates and host the approved funding request. Money is then crowdfunded from various individuals or even other businesses who will then each assume a percentage of the financing.
Let’s say 50 people each agree to invest RM600. A total of RM30,000 will then be successfully raised and the P2P platform will then perform another round of due diligence and disburse the funds raised to the requester or issuer as they are termed in Malaysia. The issuer is legally obliged to make monthly repayments of which the platform will disseminate by the proportion of investment back to the investors.
P2P financing fills this gap in the middle that is not provided by other investments such as savings accounts, the stock market and bonds. This is because P2P financing provides an investment opportunity that has low volatility compared to the other types of investment vehicles such as stocks. Aside from that, you only need low capital to begin investing.
Some P2P financing platforms allow you to start investing from as little as RM50. This means you can start small, and then reinvest your returns to make your capital work harder.
With any investment vehicle there will always be risks involved. However, with P2P financing the investment risk usually comes with higher returns. This is because you will get to choose to invest in various businesses across either the same or different P2P financing platforms. Investors are able to earn an Effective Interest Rate up to 23% per annum in P2P financing.
If you didn’t already know, among the tricks to investing is diversification. You should never put all your eggs in one basket. By investing in P2P, you get to spread your risk and may be a great way for beginners to dip their toes into investing. If you choose to finance quality small businesses, you can get high, periodic returns on your investments which also comes with additional perks such as the low-entry requirement.
Also, with the low barrier entry of just RM50, many Malaysians can now diversify when investing. For example, you can invest RM1,000 into 20 different SMEs looking for P2P funding. Before P2P financing existed, one would need a few thousand Ringgit in order to start investing in bonds, unit trust funds and stocks.
This is among the benefits when you invest in P2P. You are able to learn more about the SMEs before you invest and you can then choose to invest in a company that you believe in. Remember that you can study the borrowers you are thinking about investing with, which means you will have insights into their business plan and use of the money you will be financing them. This not only gives you more control as investor as you can look at the profile first before deciding, but it may also give more meaning to your investment. However, not all P2P financing platforms provides business profiles so do go with P2P financing platforms which do provide it.
Unlike the get rich schemes and many other schemes that promises high returns, often it is not legitimate. P2P is licensed and regulated by Securities Commission of Malaysia (SC) so you know that it is regulated. And rest assured that all investors’ money are kept in a secured 3rd party trustee. Here’s a list of registered P2P financing in Malaysia.
P2P is a digital platform which means you can have access to it whenever and wherever you may be as long as there is an internet connection. This means you can monitor how your investment is doing without the hassle of going through agents or any other intermediaries.
If you are worried or wondering about the safety of investing in P2P financing, rest assured that you will be protected.
In Malaysia, the Securities Commission (SC) is the regulatory body for P2P funding activities via its P2P regulatory framework. The framework has set out requirements for registration and obligations of a P2P operator and the type of issuers (SMEs seeking funds) and investors who can participate in P2P financing. It should also be noted that in Malaysia only businesses are allowed to be issuers who seek for funding from P2P financing, making it safer to invest in.
You may be excited to start investing in P2P by now, but here are some tips for you to follow in order to ensure that you get stable and strong returns from your P2P investment.
It is important for you to have a strategy when it comes to picking which type of debt financing or notes you want to invest in. The first step is for you to make a careful selection of investment by thoroughly going through the profile of the issuer (SMEs seeking funding) especially the probability of default (PD).
Another tip when it comes to investing in P2P financing, in fact, investing in general, is diversification. Hence it is advisable for all investors to select issuers with different risk grades, and invest in various P2P notes. This is to make sure you will be diversifying the risks of your investments, so you can minimize big losses.
Because of the fixed monthly repayment and a low barrier of entry in P2P, you have the opportunity to reinvest easier. When you reinvest the returns, you make your initial capital work harder, an in turn you increase chances of receiving more returns.
When it comes to investing, one must always access the amount of risk they are willing to take on, and how much they can afford to lose. So before investing in a P2P financing, identify your own risk tolerance. Although a higher risk investment may also mean higher returns, you must also ask yourself how much you can afford to lose.
As an investor you need to examine the investment notes by going through the profile of those seeking peer financing and give extra attention to the probability of default (PD). PD means the likelihood of a default and will provide an estimation of the chances a borrower may be unable to meet obligations. Borrowers may default on their payments leaving you as the investor with losses. Therefore, learn as much as you can about the SME you are thinking about financing your money into.
Do also look at the funding purpose, tenure of business and tenure of funding before deciding to invest and provide peer funding. Aside from that, it is advised to go with P2P financing platform that gives you as much transparent information as possible. Understand how they handle your funds and whether you are charged any fees that eat into the profit you receive.
Another tip when it comes to investing in P2P financing is to practice the virtue of patience. Usually successful P2P financing investors have many loans across different P2P financing as we discussed above about diversification. Aside from that, most of the time successful investors also reinvest their returns as discussed in the previous point of reinvesting. So don’t play it smart and don’t rush when investing.
Are you interested to invest in P2P financing? We suggest Fundaztic, a P2P financing platform which provides a legal and easy way to start investing. Check out the video below where you will get to see the features and how to get started.
As a quick example, if you invest RM10,000 in P2P financing on Fundaztic note ID: 55. It has a rate per annum of 9.34% and a tenure of 24 months. The returns you can get will be as below:
That’s a pretty fair price especially if you compare it to putting your money in a fixed deposit which would only give you at most, return of 4.2%.
Fundaztic is currently the only P2P Platform in the world that do not require an upfront deposit to start investing. Registered investors can just select whichever Notes that they are interested, check-out and make payment securely via FPX.
Fundaztic’s minimum investment amount is only RM50, making it a great choice for investment. The low minimum will provide opportunity to diversify your investments easier for you to manage overall risks. Let’s say you want to invest RM1,000 to start, you can actually diversify your investment by investing in 20 investment notes. Remember this is made possible because the initial investment amount is only RM50 with Fundaztic.
Because of the monthly repayment, when you invest in P2P financing through Fundaztic you get to enjoy additional monthly cashflow. And every month you will receive both the principal and interest payment for providing the funding.
You can invest with peace of mind with Fundaztic. If you are wondering about safety, rest assured that as an investor you will be protected and covered by a ‘living will’. This concept of “living will” means that the integrity of all notes issued will continue even in the event of the platform failure. Fundaztic has appointed Rodgers Reidy as its back up service provider to execute this concept of “living will”.
Fundaztic is a fully online P2P financing platform, which makes it even easier for you to begin investing. You don’t have to put down your signature on any physical documents to register. You can also keep track on your investments because it can be accessed anywhere as long as you have internet connection.
When it comes to deciding where to put your hard-earned money, you will need to make a calculated decision to make sure that you get good return of investment. With Fundaztic, you will now have the option of a new and simpler investment opportunity to grow your money ideal for both beginners and experienced investors.
Ready to start investing? Just click here to register and in a few clicks you’ll be on your way towards boosting your “wealth” by way of a smarter investment vehicle.