Safe investment – which tool is most worthy to choose?

Investment and risk are two inseparable components. This means that before starting to invest one of the main decisions to be made by an investor (apart from setting a goal and choosing how to invest) is to define his/her risk tolerance. There are many high-risk investment opportunities in the market. However, those who want to put their money to work safely and avoid large losses do not have many investment vehicles to choose from. One of the few ways to minimise risk based on individual risk perception for an investor is to invest in P2P, which many investors forget about or even do not know 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 when tolerating higher risk, an investor should still strive to manage his/her investment assets as responsibly as possible. This means that investors with higher-risk tolerance should divide their portfolios in such a way that some of their investments are relatively low risk, protecting the portfolio from high losses.

Bond investors, for instance, assume higher risk as they are aware that their investment situation may depend on interest rate fluctuations in the market. Stock investors are never safe from falling stock prices should a company they invested in experience an unexpected crisis.

P2P lending platforms are among the few investment tools that allow you to choose the risk level yourself. For example, on the NEO Finance platform loans are issued to consumers through assessment of their credit risk by artificial intelligence (AI) algorithms, while investors can choose which borrowers are more acceptable to them: those rated A+ or A who are highly reliable, or higher risk borrowers rated B, C or C- who offer a higher return potential.

ADDITIONAL SECURITY

For very conservative investors with minimum risk tolerance, P2P lending platforms offer not only high-reliability lending opportunities, but also additional services that allow them to reduce risk even further. For example, NEO Finance offers its clients two additional services – Provision Fund and a buyback of defaulted investments.

Provision Fund is a paid service which guarantees that, in the event of borrower contract termination, the platform will compensate the investor 100% of his/her invested, outstanding amount plus all the interest that have accumulated but have not been paid until the date of credit contract termination. Buyback is a completely free service that allows investors to sell defaulted loans to the platform. The selling of a loan is initiated when a borrower defaults and the contract with him/her is terminated.

Upon contract termination, investors can sell their investments to the platform during a certain period for a fixed price, and the price ratios depend on the borrower’s creditworthiness rating. Moreover, investors with very low risk tolerance can also invest in loans rated A+. If a borrower of such a loan defaults and the contract is terminated, the platform will automatically buy this investment for 100% of the remaining principle amount.

“Such loans allow investors to further reduce risk, also reducing the necessity of diversifying their portfolio as much as possible. Under these terms, investors on P2P lending platforms can invest higher amounts in a single credit more safely. Therefore, even those who chose a very safe way of investing have a great alternative to put their money to work,” said Evaldas Remeikis, Chair of the Board at NEO Finance.

RELIABILITY OF AN INVESTMENT TOOL

Finally, for investments to be safe you should 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 a service provider’s bankruptcy and the resulting consequences.

P2P lending platforms are still relatively new; therefore, many people are uncertain about their reliability. However, few people know that the legal regulation of P2P lending platform operations in Lithuania requires a strict detailing of the process of consumer credit issuance and ensures a very high level protection of investor interests. For example, NEO Finance must have an Electronic Money Institution (EMI) licence that separates investors’ money from the platform’s money, be listed on a stock exchange, as well as conduct crisis management simulations annually. As well it is important to notice, that some of P2P lending platforms receive revenue immediately upon the issuance of a loan, while others get paid only when investors get their payment.

“This should be a significant factor for investors who are looking for a safe and reliable investment tool – whether a platform is focused on quick earnings or on a long-term profit. Since we are on the side of the latter, we receive our share only when investors receive their payment from an investment. Platforms that operate in this manner demonstrate that they are interested in issuing not just any loans, but such loans that have a good prospect of being paid back, as well as in effectively recovering any defaulted loans,” commented Mr Remeikis.

P2P lending platforms allow everyone to flexibly adapt their investment patterns according to their risk appetite; however, investors should not forget that investing always carries risk.

NEO Finance, AB
A. Vivulskio g. 7, LT-03162 Vilnius,
Communication specialist
Mingaile Gulbinauskaite
Email: mingaile.gulbinauskaite@neofinance.com

Neo Finance is the largest P2P lending platform in Lithuania. Currently, the company unites more than 40 professionals in various fields in Lithuania and the Netherlands and administrates a P2P lending platform "Paskolų klubas", a payment initiation service "Neopay" and crowdfunding platform “FinoMark”.
By The Global Fintech Index 2020 awards, NEO Finance named as 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 release was published on openPR.