Currently, I have investments on three peer-to-peer (P2P) lending platforms. They are Capsphere, Fundaztic, and Funding Societies Malaysia. The results are as on 30 September 2020.
Capsphere
As I just started to invest on this platform, I do not have enough data to comment on it yet. Up to today, I have only invested in two notes.
Fundaztic
My stated return on investment (equivalent to total return in the best-case scenario) is 24.14%. However, after taking the defaulted notes into account, my total return is just 9.70%, translating to an annualized return of 3.13% per annum.
The official since day-1 default rate is 9.93%. However, my personal default rate (including write-off) is 10.43%, based on the principal amount.
As I have mentioned in a previous article, I have stopped investing in new notes on this platform. Nonetheless, I noticed there is an improvement in the recovery efforts by Fundaztic. It managed to restructure some defaulted notes and get back some money for the investors. Nevertheless, I am still not going to resume investing on this platform due to the not-so-good return.
Funding Societies Malaysia
My stated return on this platform is 10.29% per annum. However, based on my own calculation, my actual return is only 3.78% per annum. Why is there such a big difference?
I have confirmed with Funding Societies about their calculation. The reply is as follows:
“The annualized portfolio performance can be roughly calculated by adding all the interest rates from all investments divided by the amount of loans, and then deducting the defaulted principal. This calculation should not include crowdfunds that have not been disbursed to borrowers. The service fee is inclusive in the annualized portfolio performance.”
In my opinion, this represents total return, rather than annualized return. I also minus the service fee from my calculation. Based on my own calculation, my total return on this platform is 11.78%. My default rate is 1.95%. The official default rate is 1.52%, so my own rate does not differ that much from the official rate.
Conclusion
To simplify the comparison, I am going to put the returns in the table below.
| Platform | Total Return | Annualized Return | Default Rate |
|---|---|---|---|
| Fundaztic | 9.70% | 3.13% | 10.43% |
| Funding Societies Malaysia | 11.78% | 3.78% | 1.95% |
It is clear that Funding Societies Malaysia is better than Fundaztic. However, the returns from both platforms are just a tad better than fixed deposit rate. So, the question now is whether it is worth the risk for such a small increase in return?
One of the reasons that my returns are not so stellar might be due to the fact that there was no non-stop reinvesting. I did not straightaway put all the repayments into new notes. Furthermore, the returns might have taken a hit too due to the loan moratorium and restructuring of notes offered by the platforms during this challenging time.
For the time being, I am still going to invest in P2P lending on Capsphere and Funding Societies Malaysia. Nonetheless, I think I should not recommend P2P lending as an alternative investment now until I am confident that the returns could be much better than the safer fixed-price funds of ASNB.
Comments
Hi I was wondering how you calculated your CAGR and why its very different than the actual return. How do you factor in notes that have not yet been settled, over how many years have you invested in these platforms.
Author
Hi, Izzy.
I have been investing on these two platforms since 2017. For the notes that are not settled yet, I am assuming that they would be collected without default. Thus, I might be overestimating my return.
1. For my total return on Fundaztic, I am using the following formula
(Total Net Investment Receivables – Total Remaining Net Receivables for Default and Write Off)/Total Invested Amount
2. For my total return on Funding Societies Malaysia, the formula is
(Net Interest + Expected Returns)/Total Invested Amount
*All the values used are gotten from the platforms.
3. To annualize the return, I use the following formula
(1 + return in decimal)^[(1/N) – 1] where N is years of investment
However, I am thinking whether I should be using internal rate of return instead. What do you think of these formulae? Do you have any suggestion to get a more accurate picture?