P2P Loan Borrowing Comparison(with Fees)

Lot of people want to  borrow money online. With so many P2P platform available it becomes very difficult to assess where we can get the best deal. I have prepared a comparison of various P2P borrowing Platform charges.

Fees for each Interest rate category is given

 

Rupee circle is the best platform for a borrower from fees perspective.(Use code PIND145 to avail loans fast)

Borrower link : https://www.rupeecircle.com/borrower-register   

If you need a microloan (20-30k) then try both  RupeeCircle or Cashkumar.( mail me to get cashkumar referral)

If you have a decent Credit score and you need urgent loan I2Ifunding  should be able to provide interest at lowest levels.There interest rate are generally 2-3% lower than other platform.

I2IFunding Borrower Referral Link

So basically you should apply across I2Ifunding  and RupeeCircle   and compare the interest rate they are offering ,then add the fees I have mentioned which will give you the total cost. Try cashkumar  also if your loan requirement is less than 6 months and amount less than 50000

P2P lending Platform Fees Comparison

When it comes to investing in P2P platforms I have covered various aspects related to calculation of returns and factoring of defaults .One important factor in choosing a platform and duration loan I would want to add is Platform fees!

How is the Fees calculated? Each platform  has its own method of levying the charges.Some of them charge an upfront fees while other charge on the EMI. It is basically comparison of a flat interest rate vs reducing balance interest rate.How  does this impact us? Here is comparison between 1% Fees charged upfront on 10000 investment vs 1% charged  on ROI. Paying on total principal is more expensive for shorter tenors.

We have taken a 12 month loan with 1% fees deduced from ROI. We end up paying 54.25 versus 100 if we would have paid upfront. Paying upfront is better deal when tenor is longer as  your cost is spread across time.

 

Here are the Fees details of the most popular platforms:

  • I2I Funding: Charge 1% upfront plus gst . If you want to compare it with ROI based charges ,for 1 year it is equivalent to 2% deducted from ROI and 1.13% for 2 years. So longer tenor loans are better in I2I Funding.
  •  Faircent: Same as I2I funding though it has higher registration charges also.
  • LendenClub : It has ROI based fees. Fees is variable depending on which ROI category we are investing. For  Loans below 25%  you have to pay 1% while for 48% you end up paying 3%. As it is a ROI based fees tenor does not impact fees .Ideal for short duration loans
  • RupeeCircle: Charge 1% with each EMI similar to Lenden. One issue is they charge 50 Rs document handling fees .For disbursement size of 5000 it is equivalent to1% which makes the platform expensive for short term loans. Only beyond 18 months its feasible to invest in the platform at decent cost.
  • Cashkumar :ROI based fees which varies from 0.75% to 1.5%. One of the cheapest platform and ideal for short duration.
  • Monexo:  For Investment less than 1Lakh in escrow they charge 4% +gst = 4.72% from ROI which is a bummer!
  • Finzy :Only have 36 months loan and they charge 1% from ROI which is slightly more than I2I for equivalent tenor.

Below is a reference table where we can compare platform fees for various tenor .I have converted all Fees in ROI based fees.

It means all numbers are average annual interest you have to pay from your ROI if you invest in that platform in that tenor.

eg: FOR I2I in 18 month loan you pay 1.5%per annum of your ROI as fees while in 24 months you pay 1.13%.

 

I have highlighted the tenors for each loan where you should invest .In short this is how your platform and tenor combination should be:

0- 18 months :  LendenClub  and Cashkumar

18- 36 Months: For 23% and less ROI loans prefer I2I,For 23% plus loans go for RupeeCircle,As a rule longer the duration of loan safer the borrower I prefer.

Offcourse you can use LendenClub and Cashkumar for longer term loans also but its best to stay diversified.

 

Happy Investing!

 

LendenClub (use code LDC11989 to get discount)

RupeeCircle use code PIND145

For I2I with portfolio analysis use : https://www.i2ifunding.com/refer…

mail me at rohanrautela9@gmail.com to get referral for cashkumar

 

Credit Risk Funds Portfolio

I have been publishing my P2P portfolio every month .Another arsenal people can add to their investment portfolio is Credit Risk Fund.

Why to use? Everybody does not have a 10-15 year horizon which is the requirement for  an equity portfolio to get decent returns.Even then a large cap fund will not deliver more than 11-12% return.

People who want to invest for a shorter horizon tend to stick with RD or Liquid Fund which give out around 7%.P2P is one platform where we can get superior return in short tenor ,but its best to diversify in other asset classes too to have a balanced portfolio.

Return vs Investment Horizon

Risk?  Interestingly Credit Risk Funds and P2P have similar risk . In P2P risk is of individual lender defaulting while in credit risk funds risk is of  individual companies defaulting. Companies have more credibility than individuals hence the lower return.

How to Invest? The bottom line is if something is giving me around 10%  .I have around only  2-2.5% of margin of risk i.e I can afford to lose only 2.5% otherwise I am better off putting in liquid fund which gives 7-7.5%.

So how do I go about doing that!

I will first create such portfolio and then explain what will happen when a credit default event happens.

I am choosing 4 funds for the analysis. Things to look before investing

  • Expense ratio is not too high : around 1% max
  • They are diversified (not concentrated in 4-5 securities)
  • Historically fund has performed well

As we can see its quite evident that Aditya birla is most diversified and has good expense ratio too.Now what have we have to do is download portfolio holding details .You can use value research,AMC site etc.

Now my goal is to allocate money to various funds in a ratio so that in my complete portfolio no single security has more than 2% exposure.

This is the  calculated portfolio .

It means that if I have 1lakh to invest I will put 35k in aditya birla,30k in franklin ,25k in kotak and 15k in Baroda. These number are a ball park figure.Based on your risk reward preference you can deviate slightly but ensure you don’t  increase exposure  more than 3% in a fund.

Stressed portfolio:What will happen if some bond defaults .We already have a precedent ILFS. How have returns changed after that.

Lets assume we had ILFS in our portfolio and exposure was 2%

So 2% drop in my NAV right.

How will portfolio  perform now

What did I just see.Due to a default yield went up and our bond portfolio is giving 12.53% annualised yield which more than compensate for 2% loss in default.

So if we have a well diversified credit portfolio we can get decent returns and it emerges as good investment vehicle for medium term.Infact this these days due to inflated yield its an ideal time to buy credit funds

  • People who are retired or  have decent corpus (8 lakh plus)  to invest and want equity exposure can use Credit Risk Fund with Options to Create  principal protected  Large Cap Mutual Fund.
  • How to do it? We have established 9% plus return from Credit fund. 1 year ATM call option cost around 7% at current yield.  If we invest lets say 8.5 lakh in large cap  we  take complete downside risk.Instead of that buy ATM option which will cost 68000 . put the rest 7.8 lakh in credit fund. you will make 72000. Now you have exposure of large cap with principal protection

P2P Portfolio Analytics(December’2018)

Wish you all a very happy new Year

I am publishing my latest P2P returns and performance.Will also provide comparison with my last month portfolio performance.I have evaluated more than 10-11 platforms before investing in these

Portfolio Synopsis: I have been  investing in 3 platforms actively for the past 12 months. I have added couple of more platform

Portfolio Composition

 

I have added Cashkumar and Rupee circle to my portfolio while reduced my exposure in Faircent .

  • Calculating Portfolio Performance:( I have covered methods to calculate portfolio performance in my earlier report(November)

LendenClub (use code LDC11989 to get discount) : For lenden I have used conservative NPA approach where any delay more than 45 days past due date is considered default and written off)

 

 Provision I have kept as  the amount of NPA I can tolerate to get 10% Return on my investment,

My ROI in Lenden has improved thus now I can tolerate higher NPA (reason is I have been investing in 40%+ interest loans ,thus I have higher appetite to book npa)

Future EMI

I2I Funding:

My december ROI has declined as i recently put one big loan in NPA because of EMI delay though it might not default in future. It was an old investment as now I dont invest more than 5000 per borrower in I2I to avoid concentration risk

Future EMI:

Faircent:

 

I am in the process of unwinding Faircent portfolio

Future EMI

:

Now lets see Total portfolio Performance and Strategy

   

 

Returns look fine considering I have been Conservative in my calculation.Replacing Faircent with other p2p should increase the ROI over next 3 months

Now lets see the future EMI

 

 

As  I had invested more in short term I have lot of inflows in the near future and thus need to balance out my lending long term

 

Strategy Going Forward:

 

  • Move all Faircent EMI to Lendenclub(better risk adjusted Return)
  • Monitor  Investment in RupeeCircle and grow book(use code PIND145 while registering to get portfolio analysis reports)
  • Increase investment in I2I  (use referral to get portfolio analysis https://www.i2ifunding.com/referral/ud8cwng83/invest   )
  • Increase investment in cashkumar( positives are:short term loans(<6 months), overall good platform performance with low npa, high interest)  Mail me for referral !
  • Will Run Portfolio analysis next month again and compare results

People who wish to construct a quantitative P2P portfolio can mail me.

 

Parking Emergency Fund In P2P Platform

Everybody knows that emergency fund is absolutely necessary. Nobody likes to have unforeseen expenditure but we can never know when bad luck knocks at our door.could be in the form of medical emergency, a layoff, car repair,  a close friend’s requirement

How do we park our money in emergency fund and what impact it can have in the long run !

Primary requirement of an emergency fund is liquidity i.e. money should be at our disposal. Secondary requirement is returns, higher the better.

I will do a comparative analysis of a person who uses a saving bank for parking money and other who uses P2P .

Lets say Mr X earns 1lakh per month and keeps an emergency fund of 4lakh in the saving account.basically out of the 5 lakh .1 Lakh is for immediate requirement like some medical issue etc( technically everybody should have a medical insurance also). The rest 4 lakh is for  a scenario where if he loses a job he can still pay for bills,rent and emi etc.

Saving bank Performance

In 15 years at 5% return your emergency account will grow to 10.4 lakh. Hardly the amount that will cover you 15 years later.

 

So whats the alternative :P2P lending

But how do we use P2P lending to maintain liquidity

We can split the emergency fund into 2 parts:

1 part : current month liquidity

2 part: far month liquidity

 

So the 5 lakh will be divided into 1+4i.e 1 for this month and 4 for later

Basically 1 month backup is for immediate needs and later for other than that.

We put the 1 in saving bank and 4 in P2P platform.

The cashflow of the 4 lakh will look like.I have considered following assumption

6 months loans,20% interest rate 4 lakh capital

So every month we get back close to 71000.Now if things are going great we reinvest this ,otherwise we can draw it and get 71000 in 1 day. We have visibility of next few months so we can start or stop reinvesting accordingly.

Lets say that we do this for 15 years and  luckily we dint need to use it How much would we have made doing this:

@ 15% cagr (considering some defaults) : 40.7 lakh

@20% cagr  :77 Lakh

Isnt it wonderful that our emergency fund ends up as our best investment!

LendenClub (use code LDC11989 to get discount)

RupeeCircle use code PIND145

For I2I with portfolio analysis use https://www.i2ifunding.com/referral/ud8cwng83/invest

 

Mail me To know how to create a robust portfolio.

 

 

P2P Portfolio Analytics (November)

Hi everybody,

From this month I will publish my monthly P2P returns and performance.Also I will show how to perform analysis to make the most out of your investment.

Portfolio Synopsis: I have been  investing in 3 platforms actively for the past 11 months. I will evaluate all the 3 platforms and how I manage risk associated with this investment class.

Portfolio Composition

 

As we can Portofolio allocation is maximum in I2I and lowest in Faircent .Now I will take you through steps in  managing Portfolio like an investment firm. Our objective is to make consistent returns while minimising risk.

  • Calculating Portfolio Performance:

Most P2P lending provide expected income in their dashboard. This does not provide a clear picture of the portfolio performance. There are 2 methods to calculate our portfolio performance

Net Annualized Return(NAR) : In this method we calculate the monthly interest computed on the available principal that month and then annualize the returns.In other words we calculate principal weighted annualized Interest.

XIRR: In this method we consider in all the cashflows debited or credited in the account and thus come up with an interest rate to achieve the closing balance. Advantage of this method is that it factors in the cash lying in account which is not deployed and thus loss due to cash drag.

Used NAR method (will compare with XIRR in future).

  • Non Performing Assets: Biggest risk in P2P lending is non performing assets.Its hard to predict npa beforehand and most P2P report NPA post 180 days delay which might give an investor an inflated ROI figure because of under reporting. How to ideally factor  in NPA? There are 2 ways:
  1. Providing loss factor for delinquent loan depending upon how much they are delayed. Eg: 25% loss factor for 60 days past due and 50% for 90 DPD.
  2. Taking a more conservative figure of NPA i.e having a smaller cutoff delay date for considering a loan NPA. Eg take all loan 60 days past due  as NPA .

I have used the second method for NPA.

Now with these methods I have done my portfolio analysis .I will post individual as well as portfolio level performance.

LendenClub (use code LDC11989 to get discount) :

 Provision I have kept as  the amount of NPA I can tolerate to get 10% Return on my investment, below that investment is futile.

Future EMI

I2I Funding:

 I2I has more provision than Lenden simply because  I2I has showed lower NPA for a longer vintage and I have collected more interest in that period thus I can afford to lose more in the next few months

Future EMI:

Faircent:

 

Faircent has been a disappointment with barely managing 4.9%!Almost equivalent of a saving account L

I should have started this portfolio analysis earlier to prevent this mishap

Future EMI

:

Now lets see Total portfolio Performance and Strategy

   

 

Returns look fine considering I have been Conservative in my calculation. Now lets see the future EMI

 

 

As  I had invested more in short term I have lot of inflows in the near future and thus need to balance out my lending

 

Strategy Going Forward:

 

  • Move all Faircent EMI to Lendenclub(better risk adjusted Return)
  • Start Investing in RupeeCircle(use code PIND145 while registering to get portfolio analysis reports)
  • Increase investment in I2I  (use referral to get portfolio analysis https://www.i2ifunding.com/referral/ud8cwng83/invest   )
  • Need to reduce EMI outflow in near month .For this I will go long dated loans in Faircent,medium dated in Rupee circle and short dated in Lenden.
  • Will Run Portfolio analysis next month again and compare results

People who wish to construct a quantitative P2P portfolio can mail me.

 

P2P platform performance Oct,2018

I will be covering the top P2P platform month on month performance in terms of returns and defaults.It will be helpful for people to identify  improvement or decline in platform performance and thus make decision based on it.The data has been collected from their website.

4 Platform which I am covering as of now are:

  • LendenClub
  • I2I
  • Faircent
  • RupeeCircle

Matrix to judge the platform is Risk adjusted Return i.e how much return will an investor get after factoring in the current historical default rate.

LendenClub

Ultra high and unidentified have been introduced lately .They dint have data past 180 days to calculate default rate.I have assumed 5 and 10% default rate to calculate Risk adjusted Return.

Faircent

The numbers look good but the problem is where other sites have posted default as  90 Days past due EMI,Faircent has used 180 days.This gives a much brighter picture.Considering 90 DPD  the risk adjusted return for most categories will fall close to 15%!

I2IFunding

As it is evident I2I has been very good for medium and low risk category but High risk category has not provided good returns.Investor should focus on D category,Government employees or very stable job private employees only.

RupeeCircle

Here again E and F category have been the best.C category shows higher NPA because of lower disbursement.

 

In my next article I will show how I manage P2P investment like a NBFC. I monitor trends,allocation across platform and EMI timeline to maximise my returns.

 

 

 

Real Estate Vs Mutual Fund( includes tax and rent benefit)

Most of the answers support either buying a house or investing in mutual funds.The case is not that one sided . It depends on many factors such as:

cost of interest
House appreciation
Mutual Funds Return
Rental yield.
Leverage ratio to buy house
I will show you how slight change in any factor can make one look more profitable than other:

Assume cost of house is 50 lakh

Case 1: House appreciation is 10% per annum, Rental yield is 2.5%, Mutual fund gives 15% return in 20 years,tax saving is included ( we reinvest rental income and tax saved in mutual funds monthly)


So my property in 20 years grew to 3.66 Cr

Rental money and saved tax grew to 4.46

Mutual fund gave 7.14( includes 10 lakh upfront too invested at 15%)

property beats mutual fund by 1 cr

Case 2:House appreciation is 8% per annum, Rental yield is 3 .5%, Mutual fund gives 15% return in 20 years,tax saving is included ( we reinvest rental income and tax saved in mutual funds monthly)

What happened now???

because how appreciation dipped to 8% I am making net loss if mutual funds gave 15% return.

I can try numerous permutation and compare my profit and loss.There fore factors I need to consider while making any decision are :

  • What is my cost of funds.Lower the better
  • Rental yield of property.How to check?Check price of house and rent people are paying in that area for similar property.
    How much appreciation.Its hard to predict.I will still prefer Tier 2 cities where appreciation can be higher than big cities(they are like mid and small caps). Best thing about them is they paying dividend( rental yield) like big city(large caps) and they appreciating like small caps!
  • How much leverage to take.High leverage in a growing market can give great returns!

 

RealEstatevsMutualFund.xls

Tax Efficient Investment

People  tend to think about returns while investing but overlook the taxation part which has a big impact on net returns.

Example : Lot of people park money in liquid fund but its not very efficient for a person in 30% tax slab as most of his returns go away in tax!!

I have created a cheat sheet to help  in deciding which investment to choose based on your tax bracket.

this is a broad scope ,within this we can choose various debt and equity avenues to maximize returns!

 

Comparison of P2P lending Platform in India

I have been actively following the P2P market in India.Having tried some of the platform with my own money I was able to short list some of the most consistent players.One big factor I consider while investing is ,how open the platform is in sharing its loan performance data .I have compiled the loan performance of my top 3 platforms.

I have caluclated the expected payoff as the determining factor to invest in a category of loan.

Expected Payoff = Average return* Probability of non default- Principal * probability of Default

basically it tells you how much you will make in the long run for a given default rate in a category:

 

I2I Performance:

As it is evident Category  D and E have performed best with average  expected payoff of 17.5%

 

Faircent:

Faircent highest performance has been in the medium risk category.The result across categories show less variation compared to I2I

LendenClub

Lenden Club has been a winner with great returns in the High and Unidentified Risk.Unidentified risk are generally 2 months loan given to salaried people

Some other factors need to be considered  during  investing apart from just returns:

  • Tenor of Loan
  • Type of borrower:Purpose,details of documents submitted,cibil report,gender
  • Amount of investing in one loan