P2P Portfolio Analysis(July)

To enhance my portfolio diversification I have increased my investment in some of the platform which have been performing well and my initial investment had been low. viz OMLP2P  and FinancePeer.

I have also decided to not increase my investment in Lendenclub and cashkumar  for now  primarily because  auto invest is very slow in these 2 platforms and it’s a hassle to invest manually in these. I am using these platforms as liquidity buffer (replacement for Liquid Funds) as they have short maturity and I can use the EMI if I need cash in future

Portfolio Composition

Portfolio Changes:

  • My portfolio is more uniformly distributed now  among multiple platform compared to when I started
  • I have added fresh investments to FinancePeer and OMLP2P

 Portfolio Performance

:

Performance Analysis:

Key Points from this month’s performance are:

  • LendenClub: I had mentioned I am  cutting down my Insta Loan exposure ,slight increase in my portfolio yield can be attributed to it
  •  I2IFunding : Have decreased investment size per loan in D and E category to 2000 per borrower to diversify  optimally
  • RupeeCircle :Till now 1  delay that too within 30 days
  • FinancePeer : I am using the platform only for Education Loans which is going to add a new diversification to my overall portfolio. No defaults till now
  • OMLP2P : I am sticking mostly to  salaried People in OMLP2P. For the yield I am getting ,the credit worthiness of the borrowers is pretty impressive here.
  • Cashkumar: The yield has been fluctuating between 13-14%. The platform is decent but very tough to find borrowers even after auto invest which makes it good for only small investment

*some fluctuation in yield and NPA can be attributed to the date on which I calculate returns i.e sometime I receive EMI just after calculation, thus people should focus on the trend rather than look at individual numbers

Historical Default Pattern for each Platform:

I2IFunding: 3 defaults 90 plus days:

My Portfolio breakup : around 70% is in D category Government Loans 20% in E and 10% (B&C). On a hindsight I would have invested in C and B categories more  in the start rather than going for D category totally.

Although Municipal employees in D category have performed well in my portfolio

Below is the status of my delinquent loans

The absconded guy was from category F, I could have avoided that loan as the guy had made enquiries in 10 other places which is a red flag.

The 1st loan was from E and 3rd from D.

That’s why diversification is very important especially in high risk loans

OMLP2P : No Defaults 

My portfolio breakup:  75% of portfolio is in salaried(P2,P3 and P4) while 25% is high quality business loan(B2 and B3)

Interestingly in OML  we have even MBA candidate with 60K monthly salary in P3 Category giving 23-24% which is much higher ROI compared to a similar credit loan in I2I.

RupeeCircle: No Defaults

My Portfolio breakup: 50% D category 30% E Category 20% F

Range of ROI is 24-30%

RupeeCircle has some really High CIbil score borrowers(750 +) even though salary is low which implies that they have decent credit history but due to the nature of their job they do not have access to cheap credit from banks  which is a great opportunity for P2P investors!

FinancePeer: No Defaults

100% education Loans

ROI  is 20%

Till now the platform does not have any defaults in this category as the parents are guarantor of the loan and wilful defaulters would be very low.

(Need to keep in mind Financepeer does not charge any Fees so 20% in FInancepeer is equivalent to 22-23% in other platforms)

LendenClub: 12% Default

Portfolio Break up 35% in Insta , 65% in High Risk

Interestingly my Portfolio yield is 30% plus but due to Defaults the net yield is 15%. Yield will dip now as I am reducing Insta but NPA will also come down

Default break up: 75% of my defaults are in Insta Loan while rest in other category

 

 

Cashkumar: 1 Default

Defaulting guy had average monthly account balance less than 1000 .Repayment capacity of such borrowers will always be doubtful

P2P investment Pyramid:

Based on my experience I have created a structure for people to follow when they start investing in P2P .People should start from the base and then go up the pyramid

 

It implies people who are starting to invest or have lower capital to invest should first concentrate on the Loan categories and platforms which are at the bottom of the pyramid and invest lesser on the ones at top.

Eg: if you have 10Rs : Invest 6 in base  3 in middle and 1 in top.

When the investment amount grows you can increase the allocation for mid level

eg: if you have 10Rs : Invest 4 in base  4 in middle and 2 in top.

Logic: if some one is sufficiently diversified it doesn’t matter which category he focus more on as the expected payoff is same

ie. for 25% loan at 10% default you earn almost same as 20% loans with 5% NPA.

The reason for the structure is that though payoff of the total portfolio is deterministic the path of return is not uniform.

Let’s say we have 100 Loans , in a high risk category 10 loans will be bad but portfolio will give 25% ,while in low risk 5 will be bad but portfolio total return is same.

For someone who  starts to invest in 10 loan ,he can pick up 10 bad loans in first scenario  while in the other max bad loans he can pick is 5. This can  make his portfolio performance substantially even though for few months.

One factor which can further worsen it is that a new investor lack the experience to pick up good loans hence chances are higher that he will pick up bad loans. With experience he can improve the skills.

Once he has 100 loans it does not matter in  which category he invested more as the net payoff is similar.

To enable this kind of investment one can use small ticket size for high risk loans(say 2000) and larger ticket for safer loans(say 5000)

Invoice Discounting Performance:

I keep rolling my invoice discount investments. Currently I am invested In Flipkart and Amazon for average duration  40 Days

My current Portfolio yield and duration:

While selecting a company in Invoice discounting factors which I check:

  • Latest Quarterly report if available
  • Current Leverage and cashflow
  • Any adverse news in the last 3 months.
  • Financial strength of the vendor too ensure  in the scenario enterprise fail to honour receipt , the vendor is able to pay me .

Footnotes:

I2I Referral Link

I2I Account Referral Link

(First Use the link to register then add the Code I2I50%DISCOUNT while paying to get 50% off)

Rupee Circle Referral Code- PIND145
Rupee Circle

LendenClub Referral Code – LDC11989
LendenClub

OMLP2P Referral Link

OMLP2P

FinancePeer

(Use Code MNJ6547)

Mail me to get Cashkumar Referral

For starting invoice discounting mail me or drop a message on 9967974993 or mail me at rohanrautela9@gmail.com

 

P2P Portfolio Analysis (June,19)

This month I have added FinancePeer in my portfolio to take exposure to Education Loan borrowing. Apart from publishing my portfolio performance I will also cover :

  • My Receivable Finance Portfolio Investment
  •  Capital Structure of my investment and Liquidity Analysis

Portfolio Composition

May Allocation:

June Allocation

Portfolio Changes:

  • I have started investing FinancePeer
  • I have increased my portfolio exposure to RupeeCircle,OMLP2P
  • Have cut down my “InstaLoan” Portfolio in lenden .No more fresh deployment to instamoney

 Portfolio Performance:

 

Performance Analysis:

Key Points from this month’s performance are:

  • If you see lendenClub performance it has gradually dipped. Major culprit has been insta loans. Now as I am cutting down my Insta Loan exposure hopefully I will be able to gain 1-2% yield in next 4-5 months.
  • I2I has been more or less (between 14-16%). People who are starting in I2I should focus on safer loans( preferably C and  good D) .
  • RupeeCircle has been the only platform where yield have actually gone up with time. This is the first month where I have delay in EMI.If it doesnt go back to normal I may see a drop 1-2%  in yield after 2 months when I put it as an NPA though I have already considered 3% of return as NPA in form of provisioning.
  • Cashkumar have only 2.5% but due to short term lending and small size of book overall returns look low,which should improve with time.
  • FinancePeer I am sticking to only educational loans .Hope NPA are low as promised in the category.
  • OMLP2P ,as of now I have not faced any NPA but as my investment are fresh I will wait for a month or 2 before giving any verdict.

 

Invoice Discounting Performance:

I have been investing in a couple of Invoice discounting platforms. Some of the companies whose invoice I inivested in are Paytm and Indian Oil. Most of the invoice are blue chip.Some of the Invoice available to invest are:

  • Cognizant
  • Maersk
  • Yesbank
  • Amazon
  • Wipro
  • Oracle
  • BHEL

The range of yield is between 12-15% for the invoices  and duration 30 -90 days

My current Portfolio yield and duration:

Capital Structure:

Lot of people ask why they should invest in other assets when equity can give 10-15% in long run. The answer is ,do they have the capacity to digest monthly volatility of 5-6% on their complete corpus.Second, how do they mange their liquidity. What if they need money in next 3-6 months will they  book losses in mutual funds and redeem them?

Alternate asset class is a way to fill the place between low yield and high yield  , low liquidity vs high Liquidity .It also ensure construction of  a portfolio where asset classes have low correlation among them.

Let’s Look at how a conventional portfolio looks like:

 

The allocation may vary depending on age. For instance a 35 year guy will allocate more to equity than 45 year old. If someone has 20 Lakh then 10% is saving = 2Lakhs, 25% small cap = 5 Lakh etc.

Now look at a portfolio with alternatives:

Three things stand out:

  • Overall return is higher 11.7% compared to 10.7% as our capital is not tied to low yielding assets.
  • We have more liquidity. Almost 50% portfolio cashflow is received within 2 years ,which implies we can use it for emergency or for near terms goal as we have more certainty.
  • Our asset classes have very low correlation among themselves.

in original portfolio  our equity can have 10% drawdown in a month and as 50% of our portfolio is in equity almost 5 percent of our portfolio will drop.

In alternate portfolio we have reduced equity allocation to 30% thus only 3% impact ,thus overall volatility of portfolio drops.

Therefore adding alternate asset classes in portfolio helps to improve Returns,  Liquidity and  lower Volatility

 

Footnotes:

I2I Referral Link

I2I Account Referral Link

(First Use the link to register then add the Code I2I50%DISCOUNT while paying to get 50% off)

Rupee Circle Referral Code- PIND145
Rupee Circle

LendenClub Referral Code – LDC11989
LendenClub

OMLP2P Referral Link

OMLP2P

FinancePeer

(Use Code MNJ6547)

Mail me to get Cashkumar Referral

For starting invoice discounting mail me or drop a message on 9967974993 or mail me at rohanrautela9@gmail.com

 

Review of Finance Peer P2P Platform

Finance Peer is a new addition to the P2P lending Platform which have received NBFC-P2P license.

Background: FinancePeer  was setup in 2017 and is registered as NBFC-P2P company. The promoters and board of directors have a technical background and their intention is to create a lending system based on using machine learning to underwrite the loans

Details of the promoters :

https://www.financepeer.com/team/

Financepeer has already raised a funding of $500,000.The office is in Lower Parel mumbai

Types of Loans: The highlight of this platform is that it caters to 2 Kinds of loan:

  • Salary Loan
  • Education Loan

They have tieup with educational institute where they provide education loan which is paid by the parents. As risk of not repaying the loan can affect the education of the child thus default rate is very low.

Minumum Ticket size is 5000 as of now.

Average ROI :

Almost all the loans on the platform are at 20% ROI and tenure is less than 12 months. Ideal for people who looking for short term investment in low risk loans. They display their own score based on the AI algorithm.

Fees:The good part is that they do not charge Lender any fees which is a bonus as most P2P platform charge between 1-4% thus reducing the actual earning.

NPA : I have details of the historical performance of the platform.The numbers look promising but I can comment on my performance only after 5-6 Months . Educational Loans have historically low delinquency and can be a good addition to portfolio.

The current NPA is below 0.5% and is at the moment one of the best in industry but only with time we can predict how much of it will be maintained once the scale up.

Conclusion: Based on the various parameters I find it to be a good platform for people who are  already investing in other platforms and looking to add a new variety of short term loan to their portfolio.

Problems which they can work on

  • Reducing ticket size to 2000
  • Having an app which will make investment process easier

I will be covering monthly performance of this Platform along with others.

PS:Lender Referral Link for  free Registeration

FinancePeer

(Use Code MNJ6547)

 

 

12% Return alternative for Corporate FD

Lot of people invest in Corporate FD to gain some extra return over bank FD’s.  We know there is an element of risk as this is a form of unsecured lending and in event of company default capital maybe at risk. There is an alternate solution for people who can make 12%-15% which is much better than the top corporate FD  in the market with reduced risk .

What is the Solution?

Invoice Discounting Investment!

what is Invoice discounting?

Invoice discounting is the practice of using company’s unpaid invoices to raise working capital & fulfil its financial needs. Traditionally, financial institutions including banks and NBFCs have been discounting invoices for MSMEs. Invoice discounting involves transfer of rights on an asset (invoice) from the seller (i.e. business) to the financier (i.e. investor) at an agreed value

The process is a simple method used by companies to generate working Capital. Let’s say company A provide some services to company B.

Company A : mid sized enterprise(SME)

Company B: Blue chip company.

Now B has to pay A money for the services. A raise invoice for the payment. B being a big company takes 2-3 months for the payment.

Now A does not want to wait for the money as it needs immediate cash which can be deployed in business. Here comes invoice discounting.

  1. The firm A borrows money from an investor keeping the invoice as collateral
  2. The investor does not pay the full face value of the invoices; instead it pays the firm a percentage, 80-90%
  3. As the investor now owns the unpaid invoices money , the money due from the end customers is credited to the investor
  4. When the end customers pay the invoices, all the money goes to the investor
  5. Thus investor had put in 90 bucks and got 100 end of 3 months which is the interest he earned.

The advantage over corporate FD is that this funding is backed by invoice as collateral and is thus a secured funding.

The companies which are going to pay are blue chip  thus unlikely to default.

Company A is legally liable to pay you even if company B does not honour the invoice.

All transaction take place in escrow account thus is reasonable safe.

How to to participate in Invoice Discounting?

In India Kredx is the most trusted invoice discounting platform. KredX is an online invoice discounting platform where business owners get an opportunity to raise funds for their working capital needs at attractive terms by selling their unpaid invoices raised on blue chip companies.

It is backed by Sequoia Capital has received more than  50 Cr Funding.

Points to Note:

  • KredX  minimum investment is 3Lakh , Time duration would be between  30 days to 90 days.Expected return would be 12-20% annualized.
  • KredX fees is 0.15% of investment amount.
  • Also, investors are made available the credit history of the SMEs and they know which Blue Chip company was the invoice raised for. KredX also does a verification of the invoice with the Blue Chip Company,gets a posted dated cheque from the SMEs in case of contingencies , operates an escrow account which helps the  investor get back the money in case the Blue Chip company does not pay

Example:

lets’s say company A wants to raise money against invoice of 100,000

SME discounting rate = 15%

You will invest around 96000 and get back 100,000 after 3 months

Kredx Fees = .15% / month = 450 in 3 months (approx)

So you make around 3500 in  months or around 14% annual returns.

 

Sample screenshot of dashboard:

 

Pros:

  1. Shorter investment duration(good liquidity)
  2. secured Lending
  3. Better than corporate FD
  4. No defaults till date
  5. Low correlation with stock market

Cons:

1. There is a small chance that Blue chip company defaults or SME becomes bankrupts within 3 months .Unlikely but possible

2. Minimum ticket is high at 3 lakhs

Conclusion:

People who have capital surplus and have deployed lot of money in Corporate FD, Liquid Fund , Bonds etc can use this asset class to achieve decent return.More secured and higher liquidity compared to corporate FD and unsecured bonds

Not a good investment for people who have just started investment because of high minimum ticket size.

People who are interested and want to know details/register for free please contact me on mail on rohanrautela9@gmail.com  or message me on 9967974993

 

P2P Portfolio Analysis (May,2019)

This month I  have added significant amount of capital to the platform which I had  less share uptill now . My goal is to have a more uniform allocation among different platform.

This month I will also do a deep dive of my existing NPA across platforms

Portfolio Composition

April Allocation

 

May Allocation:

Portfolio Changes:

  • Have added OMLP2P this month
  • Have increased capital in RupeeCircle and Cashkumar
  • Have stopped unidentified category in Lendenclub for few months .Will calculate the impact on ROI
  • Goal is to increase allocation in platforms other than I2I and lendenclub now to have a more uniform portfolio

 Portfolio Performance:

Performance Analysis:

LendenClub: The portfolio Return stands at 15.6% after factoring in all NPA. I consider zero recovery in case of NPA.

I have tried to break down my NPA into 2 parts. “Unidentified Risk” vs Others.

“Unidentified Risk ” loan have been in my portfolio for almost half the time since I started investing.

Interestingly Half of my Interest has been earned from “unidentified ” and other half from rest of the portfolio.

Of the 9.8% NPA almost 7.5%  can attributed to ” unidentified”. Though “unidentified” has generated  higher return ( same interest in less time) the NPA are quite high . If I would have avoided “unidentified ” my interest might have been lower but net returns would have definitely be above 17%!

In other words the high ROI of 48% is getting offset by high NPA.

Problem with investing in non unidentified category is that auto invest hardly works and I have to check for loans every  morning at 10.30 am to invest. Thus investing a high amount is a challenge

I2IFunding:

In I2IFunding ,only 3 borrowers out of 93 are in delay of more than 75 Days. Other loans either got some form of repayment thus I do not consider as delinquent.

Even though only 3 loans are in delay due to higher ticket size in I2I total NPA is 4% plus. One loan itself is causing 2% of NPA.

One mistake I had done in I2I was to give loan to a person who made 10 enquiries in other institute ,the loan is one of the delinquent ones now. It was a sign  that the individual had tendency to over leverage and  I should had to refrained from investing!

Collection process of I2I is superior compared to lendenClub.

RupeeCircle: 

RupeeCircle has been the only platform where I have not suffered any NPA till now. Now I have been investing for more than 8 months and having no delinquency is  an achievement after investing in  27 Loans

Cashkumar:

In Cashkumar I have one delinquency. After evaluating the borrower I can see his average monthly balance was 1000 for last 3 months. It is a definite red flag. People who have low average balance will always struggle to pay EMI. Now I always ensure that average balance of individual is well above the future EMI.

Overall repayment has been ok with few delays but no major issues.

OMLP2P: 

I have recently started investing here thus no NPA till now. I like the variety of borrowers available.High Salaried and established business owners. This platform has helped me diversify some of the money when borrowers were not available in I2I and rupeecircle.

They have lowered minimum ticket to 2000 which is a big positive!

 

Footnotes:

I2I Referral Link

I2I Account Referral Link

(First Use the link to register then add the Code I2I50%DISCOUNT while paying to get 50% off)

Rupee Circle Referral Code- PIND145
Rupee Circle

LendenClub Referral Code – LDC11989
LendenClub

OMLP2P Referral Link

OMLP2P

Mail me to get Cashkumar Referral

Liquid Fund vs Arbitrage Fund

If it comes down to choosing Between the two :

Arbitrage Fund wins hands down.
Let’s take example for people who are in 30% tax slab as it will make the difference more stark.
Why do you use Liquid Fund? 
1. Liquidity
As the name suggest people use it for liquidity. If you take out money from liquid fund which is considered a debt fund before 3 years you have to pay marginal rate of tax which can be as high as 30%!!
In contrast short term tax in Arbitrage fund is 20%( equity category) and after 1 year is 0 if the capital gain is less than 1 year. Which means even if you have 10 lakh in arbitrage after 1 year you pay zero tax!
2.Low Risk
Let’s look at portfolio of some of the best Liquid Funds in the market. Kotak Liquid Fund.

Let’s look at DSP liquid Fund

Well I see almost 10–15% portfolio in companies like Aditya birla finance ,tata capital ,Trapti Trading, chambal fertilizers etc. They are very safe I agree but even ILFS was AAA.The point is its not zero risk like what most people assume.

Now let’s look at portfolio of an arbitrage Fund. Reliance Arbitrage

70% equity= Pure arbitrage of cash future so zero risk of principal loss
20% FD of banks(HDFC,Federal) = very safe
11% GOI debt/blue chip debt = very safe

In terms of Risk also arbitrage is much better than liquid and chances of loss of principal are  lower.

 3 . Returns
Well there is not much difference in pretax return of Liquid fund and arbitrage fund . Close to 7–7.5%. After tax Arbitrage Fund is better.

Conclusion: If someone wants to take credit risk then focus on funds which invest in credit and P2P Lending. If someone doesn’t want any credit risk focus on Bank FD and arbitrage.
Liquid Fund neither provide absolute safety nor great returns and is a compromise between the two

My article on risk free FD portfolio :

Create a Risk Free Fixed Deposit Portfolio

 

P2P Platform Risk Adjusted Return Comparison

Each platform has different types of Loans and different Returns. How do we compare the platform Returns. An easy way is to see for each category how much Return you are making after factoring in the Fees and NPA.

I have two ways of doing it. One is to rely on platform published data and other to extrapolate my returns as assume in future portfolio will deliver similar returns.

I have calculated both numbers and compared them

I2IFunding:

Let’s the check the Interest Rate published on the platform:

Almost 70% loans are in the range of 18.5%-23% .

Platform NPA status:

If you calculate in terms of Percentage loans delayed beyond 90 Days are around 4.6% .

My actual  portfolio average ROI is 22% and NPA is around 4.5%. Hence Risk adjusted Return = 22%-4.6% =17.4%  .

If i deduct the Fees in the long term I should make around 15-16%  if things remain the same which is approximately equal to what I am already making.(15%).

My portfolio Returns are at par with platform performance

RupeeCircle:

ROI for Rupee Circle:

Average Return is approximately 25%

Platform NPA status:

If you calculate in terms of Percentage loans beyond 90 Days are around 4.2% .

My portfolio average ROI is 25% and NPA is zero at the moment. Hence Risk adjusted Return = 25-0-2.5% =22.5%  .

With time my NPA should increase to platform level and then after fees I should make 25-4-2.5%= 18.5% (as fees in rupee circle is slightly higher than I2I)

Also remember that rupee circle has less number of loans till date and  its NPA may rise . But at the moment I am generating Higher Risk adjusted Return than I2I platform.

LendenClub:

Lenden ROI

.

They have not mentioned but as of now 75% of loans are in unidentified category with average ROI = 48% and others in high and ultrahigh with average Interest = 26% approx

LendenClub NPA:

Interestingly NPA for Instamoney (short term loan) is published separately which is a good thing as it is a different asset class and NPA should be read in a different way. Total NPA published in instamoney =4% approx . A 4% default annualized will be approximately 16% plus annually and after fees you will get 48% -16%-4% =28% .

My portfolio instamoney  NPA is around 7.5% which is  around 30% annually  but this class is pretty volatile. Which makes my return around 48% -30%-3.5%= 14.5% . 

Good part is you get lot of loans and can use auto disbursal also but do expect lot of NPA and volatile returns.

For Non Instamoney Portfolio NPA = 4.11%.

My personal portfolio non Instamoney average return is 26% .My NPA is around 6%. After factoring in Fees I will make= 26%-1.5%-6% =  19%.

Cashkumar:

Cashkumar has only one fixed interest Rate =41%

Again as loans are short dated (approx 4-5 months) 3.35% NPA will approx equal to 8-9% annually.

My historical NPA has been close to 5% which will be approx 14-15% annually . After Fees I should make close to

41% -15%-1%= 24-26% if the NPA does not go higher.

But in short term loans you need to be wary of any change in NPA as they can impact the ROI fast.

OMLP2P:

Average ROI in OMLP2P = 23-24%

NPA in OMLP2P

As of now NPA is extremely low <1%.

With time NPA should go up. I expect NPA to go upto 4% plus and average Risk adjusted Return to be 16-18% after Fees.

As of now my Risk adjusted Return = 20%

Faircent:

Faircent ROI:

Faircent NPA

Faircent consider NPA after 6 EMI delay which is 180 days. For 90 Days delay you can double the delinquency.

My portfolio return after factoring NPA has barely been 4-5% after Fees.

Summary of Performance in table:

My article on Fees comparison:

P2P lending Platform Fees Comparison

Observations:

  • Your Total returns should fall into 15-25% range if you are sufficiently diversified
  • Platform like I2I funding, RupeeCircle and OMLP2P  have less divergence between platform published numbers and my portfolio returns.
  • Faircent has the lowest risk adjusted return while cashkumar highest.
  • Cashkumar and Lenden have high yield and more volatile returns thus can be used to enhance yield(Like midcaps )
  • I2I ,RupeeCircle and OMLP2P can be used to create  a stable portfolio (Like Large Caps)
  • Short Term loans NPA should be taken with a pinch of salt as portfolio churn is higher and  overall capital loss would be much higher than published numbers.
  • Combination of these platform is sufficient upto 10 Lakh deployment without problem.

Footnote:

I2I Account Referral Link(Use Code I2I50%DISCOUNT while paying to get 50% off,Mail me after registering to get further benefits)

Rupee Circle Referral Code- PIND145
Rupee Circle

LendenClub Referral Code – LDC11989
LendenClub

OMLP2P Referral Link

OMLP2P

Mail me to get Cashkumar Referral

Review of OMLP2P

People who have been investing in P2P for a while would agree how difficult it becomes beyond a point to find new borrowers.The only way to tackle is to find more platforms and spread your capital across them.In this process I have recently started investing in OMLP2P . It is too early to comment how my NPA will fare in the long run but I would like to describe my experience in terms of quality of Loans, Fees and where it fits among the other Platforms.

Background:

OML P2P  was setup in 2016 and is registered as NBFC-P2P company. The promoters and board of directors have a decent pedigree in the Lending business. Details of the promoters is available

https://www.omlp2p.com/board-of-directors

Types of Loans: OML caters to both salaried and business loans and on a given time you can expect to have 6-8 loans to choose from .They publish an appraisal sheet of each borrower in which the key parameters

  • Cibil score
  • Salary
  • Average Daily Balance
  • Write off
  • Bounces
  • Details of Loans.

Minumum Ticket size is 5000 as of now.

Average ROI : The ROI  range is quite high in OML.Ranging from 15-30% . If I compare it with I2I and RupeeCircle the borrowers spread on OML is a combination of the two.

In I2I we have either Business loans or Government employees as occupation for 90% borrowers

RupeeCircle generally  has people with salary less than 25000 or business loans.

In OMLP2P I see either business loans or salaried people which salary mostly >25000.

Therefore  ROI in OML for most salaried loans < RupeeCircle (approx 2-3%) because of  more stable jobs

The ROI is generally higher than I2I . For a P3 category loan you can expect around 24-25% Interest which is generally unavailable in I2I but again it’s not an apple to apple comparison as  I2I you have access to lower risk people at 20%. To sum up the various range available in the platforms are:

  • Not considered ultrashort loans (<4 months)

Some of the loans will fall out these range but they are a minority.

As you can see I dont go for the riskiest in each platform mostly  but target 80 percentile in terms of risk as I find it to be the sweet spot. Offcourse some one with a smaller portfolio should start with lower risk and gradually move on to higher once you have built up capital.

Fees: In terms of fees its exactly like I2I where they charge 1% upfront Fees which makes it a better platform for 18 Months plus loans. I had compared upfront fees with EMI based fees earlier.

You can register free of cost at  OMLP2P.

P2P lending Platform Fees Comparison

NPA : I have details of the historical performance of the platform.The numbers look promising but I can comment on my performance only after 5-6 Months .

The platform has disbursed more than 3 Cr of Loans and at 1.5 Lakh delinquency the NPA is staggeringly low . This number will definitely  go up but at the current NPA it seems like a  steal.I think one reason for this trend is that once platform grows the pressure to find new loans is immense and delinquency increases which is not the case with new platforms.

Conclusion: Based on the various parameters I find it to be a good platform for people who are  already investing in I2I and rupee circle and want to add another platform as off late finding loans has become tough due to increasing number of Investors in various platforms.

Some of the things which can be improved are:

  • Reducing ticket size to 2000
  • Adding names of the borrower which help to track them via social media account.
  • Having an app which will make investment process easier

I will be covering monthly performance of this Platform along with others.

 

PS:Lender Referral Link for OMLP2P:

OMLP2P

List of P2P companies in India which have received the NBFC-P2P registration from RBI .Good starting point for people who want to explore new P2P platforms. I have marked in green the ones which I have tried at some point in time

 

 

 

Portfolio Diversification and Alternate Investment

It is known fact that diversification helps in reduction of total risk . Conventional portfolio use this principle and diversify between bonds and equity etc. This is the foundation of modern portfolio Theory.

Let’s take an example . Mr X is 30 year old. Conventional wisdom say he should invest 70% in equity and 30% in Debt.

Let’s look at the risk and return parameters of this portfolio.

let’s assume Nifty gives annual return of 12% in the long run .Historical volatility of Nifty is around 15% per annum.

let the debt portfolio gives 7.5% with annual volatility of 5%.

so a portfolio with 70% in equity and 30% in debt will give = 70% * 12% + 7.5%*30% =10.8%

Portfolio volatility is calculated as

Image result for variance formula 2 assets

Portfolio Volatility = 10.5% for our portfolio

almost 85% volatility is attributed from the equity portfolio which makes the return quite unstable with frequent drawdown.

In contrast to this another portfolio allocation is in practice where you try to balance the risk(volatility) by leveraging low volatility asset class. It’s called Risk Parity

Risk Parity: Risk Parity is approach where portfolio weights are created according to equal contribution of risk. It implies that you can  take leverage for bonds and lower contribution of equity so that your output in terms of return is such that both  equity  and bonds contribute equal  to  volatility.

There is another approach which can be followed which lies somewhere in between and provides good risk adjusted return.

Instead of 70% Equity and 30% bond you will have 30% equity and 130% bond etc so your return matches equity but volatility is low.Problem is during a equity bull run it will under perform the other portfolio

I try to create a portfolio which lies in between these 2 methods where I can participate in equity and also lower my volatility to certain extent. The idea is to find very low correlated assets.

Let’s compare this portfolio (Portfolio B) with traditional Portfolio(Portfolio A):

Portfolio A: Traditional

70% Equity 30%  Bond

I have considered correlation between bonds and equity as 0.3 based on some market reports. It would vary depending on types of bond and historical period you take. Idea is to show the correlation is low.

Portfolio B: Hybrid

 

basically I have used futures instead of stocks to take equity exposure( I am able to leverage 10X approx i.e. by putting 7% margin I get exposure to 70% portfolio.

Cost of exposure is the future premium which is around 5%.

Instead of using future I can also use combination of options. You need to be proficient in Option Trading to implement that strategy

My Returns are higher compared to traditional portfolio because I have leverage. Important part is how much is my portfolio volatility.

I have taken correlation from various reports and true numbers can deviate from my numbers. Essence is to show that most of these assets are not strongly correlated as they have different underlying viz equity, credit, Real estate, Retail loans, Bank FD

Correlation for FD portfolio is zero as it wont show any deviation. I have posted article on creating risk free FD portfolio.

Create a Risk Free Fixed Deposit Portfolio

 

How to calculate Portfolio Variance for multiple assets with correlation?

Here is the formula:

Image result for variance formula multiple assets

Based on this my Portfolio Standard deviation is

 

My new portfolio has better risk adjusted return i.e for lower volatility I am achieving higher return. Offcourse you need to monitor this portfolio for margin requirement,re balancing etc.

If someone is very conservative they can further increase FD exposure ,reduce equity and portfolio volatility will drop further at the cost of some returns!!

 

How to buy Corporate Bonds Online?

When it comes to investing in Debt most people look into only 2 options:

  • Fixed Deposit
  • Debt Mutual Funds

Though these have their own advantages which I have covered earlier, one thing which they lack is liquidity . You end up paying either an exit fees or you have to wait till a stipulated period.

Other problem is It’s very hard to take advantage of a view when you are investing through a Debt mutual fund as   you are not aware of the portfolio at any given time.

It makes sense to invest in  Debt Funds to diversify across debts but you can add your own bond portfolio based on your analysis and save some expense ratio.

The rationale is when you are certain about some company why not just buy the bond directly if it is offering decent yield .Gradually you will  understand the mechanics of the market and would be able to take credit and interest rate view.

You can buy bond at a particular yield and if the yield spikes you can average it or book profit if yield softens. Due to the liquidity you wont face problems in entering or exiting.

So how do we buy bonds. We can buy directly buy bonds from the broking platform.

NSE publish details of the available bonds for trading everyday on it’s platform. It is available under live Market section

 

Various details are available for a bond:

  • Coupon
  • Maturity
  • Volume
  • Yield To Maturity (YTM)

We can check the tentative YTM from this page and select the bond we would like to evaluate. Let’s say we shortlisted Tata Capital 3 year bond.We can then do further drill down:

What all can we see:

  • Coupon = 8.8%
  • Maturity = 27 Sep 2021
  • Category = Sr secondary (It means in case of default we have rights on company access over other lenders)
  • Credit Rating =AAA
  • Coupon Freq = 1 year( You can google the ISIN number to check these details)

Now comes the important part: PRICING.

Bonds are priced by discounting of future cashflow . YTM is the number  if we use to discount we will get  the current price of the bond .

Bonds quoted in the NSE platform with dirty price. What does it mean?

It means that accrued interest from the last coupon date is added to the current price because the buyer will get the coupon not the seller.

Now how to check the current YTM. We also need to check the current yield( which will be higher than YTM if bond is trading at discount.

This is because in maturity bond pays back the principal ,if we buy in discount today we get more than the YTM  but if we buy in premium we get less. So for people who are buying to trade this bond rather than hold it till maturity current yield gives better picture.

To Calculate YTM you can use this link:

http://www.quantwolf.com/calculators/bondyieldcalc.html

 

 

Based on the current price, the bond is trading at 9.16% yield which is better than most FD available in the market. People who are interested in buying this bond should do their own due diligence about the company which should include Fundamental analysis ,market news and sentiment analysis of the company.

The bond has 2.5 years of maturity thus will have small exposure to interest rate risk . We will get coupon as dividend which we have to reinvest.