I have always been looking at different investment opportunities just to understand and figure out how it works. Mid last year, I stumbled upon funding societies, a peer-to-peer lending platform and invested a little in it. Peer to peer lending is not something new but in fact, I have heard of this some time ago. But it was only last year that I look into it out of curiosity.
Peer to peer lending is a high-risk high return investment. This post is not on promoting peer-to-peer lending. But more on sharing what peer-to-peer lending is, my experience and my thoughts of it. Hopefully, this is of a good read for those who have not heard of it.
What is peer-to-peer lending
Peer to peer lending is a platform that facilitates the lending of money to individuals or businesses. This is done through an intermediary that crowdsourced fund from lenders. Sort of similar to getting a loan from the bank. In the case of a bank, the borrower would receive the loan from the bank.
You play a role as a pool of lenders in peer-to-peer lending investment model and the company who are raising fund will play a role as a borrower. In return of lending your money to the borrower, you will be compensated with interest. Usually, the return you will get back in return is pretty lucrative. But high return comes with higher risk. In this case, the risk of default.
My Experience with Funding Societies
There are various peer-to-peer lending platforms out there but I have invested some in Funding Societies Malaysia as well as Funding Societies Singapore. It is based in South East Asia, headquartered in Singapore. Being a risky investment, it is essential that the peer-to-peer platform is trustable. Here are some key features of funding societies which I find pretty attractive.
Security of your money
The money you invested is entrusted with an independent and licensed trustee. Funding Societies has no authorization over the money. This is less risky as compared to companies which hold your money.
Low minimum investment amount
The minimum investment amount is SGD20 which allow greater diversification. In the event of default, the diversification allows you to minimize the loss. Investing SGD1,000 in 50 different SMEs which require funding reduces the risk as compared to investing SGD1,000 in on 1 SME company. In the event of default, the later will result in a complete loss of your entire capital.
There are multiple tenures you can choose ranging from 1 month up to 24 months. This is crucial as it allows greater liquidity of your cash flow.
I invested SGD1,000 in July 2018 as that is the minimum deposit amount.
Depositing money into the platform does not mean that you are investing in any of the opportunities. The entire investment process is pretty simple. You deposit your money and invest in opportunities as at when it arises. There is usually a notification when a new opportunity is up with a factsheet which will allow you to have a brief understanding of what you are investing in.
What I did was set up the ‘auto-invest’ function in which it will auto-invest in new opportunities. This is pretty cool as you are able to specify the investment tenure you are looking for, investment amount and type of investment you are interested in which allow you to manage the risk.
As of March 2019, my annualised portfolio performance is at approximately 10.93% which is pretty attractive with literally zero effort needed.
My thoughts on it
In my own personal opinion, there is no quick money from peer-to-peer lending. The attractive returns come with high risk. There are reasons why companies engage peer-to-peer platform to raise funding instead of obtaining a loan from the bank with its lower interest rate. This is definitely a high-risk investment and will definitely not be a good idea to invest your life savings in it. One default from a company you invested it would wipe out the profits you have gained.
Always do your due diligence before investing in any platform. You may read more on the peer-to-peer lending crash in China to have a glimpse of the risk you may be exposed to.
But having said that, this is still a pretty attractive high-risk high return investment. If you are keen on investing in this investment, only invest if you have excess money and know what you are investing in.
There is no default from my investment so far and the return on my portfolio is pretty good. If you are interested in funding societies, you may find out more about it over here.
What are your thoughts on peer-to-peer lending?
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