Investment and risk are two inseparable components. This means that before starting to invest, one of the main decisions an investor will make (aside from setting a goal and deciding how to invest) is to define their tolerance for risk. There are many high risk investment opportunities in the market. However, there are many investment vehicles for those who want to put their money to work safely and avoid big losses. One of the few ways to minimize risk based on an investor’s individual perception of risk is to invest in P2P, which many investors forget or don’t even know about at all. In this article, you will learn why those looking for a safe way to invest should pay attention to this asset class.
INVESTMENT RISK ASSESSMENT
Even if an investor tolerates higher risk, an investor should always strive to manage their investment assets as responsibly as possible. This means that investors with a higher tolerance for risk should divide their portfolios so that some of their investments are relatively low risk, thus protecting the portfolio from high losses.
Bond investors, for example, take on a higher risk because they are aware that their investment situation may depend on fluctuations in interest rates in the market. Equity investors are never immune to falling stock prices if a company they have invested in were to face an unexpected crisis.
P2P lending platforms are one of the few investment tools that allow you to choose the level of risk yourself. For example, on the NEO Finance platform, loans are granted to consumers through an assessment of their credit risk by artificial intelligence (AI) algorithms, while investors can choose which borrowers are most acceptable to them: those rated A + or A which are very reliable, or higher risk borrowers rated B, C or C- which offer higher return potential.
For very cautious investors with minimal risk tolerance, P2P lending platforms not only offer highly reliable lending opportunities, but also additional services that allow them to reduce risk even further. For example, NEO Finance offers its clients two additional services: the Provision Fund and the repurchase of defaulting investments.
The Provision Fund is a paid service which guarantees that in the event of termination of the borrower’s contract, the platform will compensate the investor for 100% of his outstanding amount invested plus all interest accrued but not paid up to the date of termination of the credit agreement. Redemption is a completely free service that allows investors to sell defaulted loans to the platform. The sale of a loan is initiated when a borrower defaults and the contract with him is terminated.
Upon termination of the contract, investors can sell their investments to the platform for a certain period of time for a fixed price, and the price ratios depend on the credit rating of the borrower. In addition, investors with a very low tolerance for risk can also invest in loans rated A +. If a borrower of such a loan defaults and the contract is terminated, the platform will automatically purchase this investment for 100% of the remaining principal amount.
“Such loans allow investors to further reduce risk, also reducing the need to diversify their portfolios as much as possible. Under these conditions, investors in P2P lending platforms can invest larger amounts in a single loan in a more secure manner. Therefore, even those who have chosen a very safe way of investing have a great alternative for making their money work, ”said Evaldas Remeikis, Chairman of the Board of NEO Finance.
RELIABILITY OF AN INVESTMENT TOOL
Finally, in order for investments to be safe, you need to assess not only the risk of a particular investment, but also the tool itself through which the investments will be made, assessing the likelihood of bankruptcy of a service provider and the resulting consequences.
P2P lending platforms are still relatively new; therefore, many people are not sure of their reliability. However, not many people know that the legal regulation of P2P lending platform operations in Lithuania requires strict detail of the consumer credit issuance process and guarantees a very high level of protection of the interests of investors. For example, NEO Finance must have an EMI (Electronic Money Institution) license that separates investor money from platform money, be listed on the stock exchange, as well as perform crisis management simulations every year. Additionally, it is important to note that some P2P lending platforms receive income immediately upon issuance of a loan, while others are only paid when investors receive their payment.
“This should be a big factor for investors looking for a safe and reliable investment tool, whether a platform is geared towards quick wins or long term profit. Since we are on the side of the latter, we only receive our share when investors receive their payment from an investment. Platforms that operate in this way demonstrate that they are interested in issuing not only loans, but loans that have a good chance of being repaid, as well as effectively recovering overdue loans, ”commented M Remeikis.
P2P lending platforms allow everyone to flexibly adapt their investment models according to their risk appetite; however, investors should remember that investing always comes with risk.
NEO Finance, AB
A. Vivulskio g. 7, LT-03162 Vilnius,
Email: [email protected]
Neo Finance is the largest P2P lending platform in Lithuania. Currently, the company brings together more than 40 professionals in various fields in Lithuania and the Netherlands and operates a P2P loan platform “Paskolų klubas”, a payment initiation service “Neopay” and a financing platform participatory “FinoMark”.
By the Global Fintech Index 2020 awards, NEO Finance has been named one of the strongest Fintech companies in Lithuania. As well as the company of the year selected in the Fintech Week Lithuania 2020 awards.
This version was posted on openPR.