Understanding How P2P Investing Can Maximise Returns While Reducing Risks
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Malaysia has seen a significant shift in the investment landscape with many investors exploring different alternative asset classes, such as cryptocurrency, to diversify their investments further.
Peer-to-peer (P2P) investing is one such alternative investment option that has seen a rise in popularity with the cumulative count of investors exceeding 34,000 back in 2023. For investors seeking higher returns compared to traditional saving accounts or unit trusts, P2P investing has become an attractive option.
As with any other investments, there are risks associated with P2P investing (issuer defaults, lack of diversification, uncertain returns, etc.). With the help of platforms such as CapBay P2P which is registered with the Securities Commission Malaysia, investors have managed to mitigate these risks while maximising potential returns.
In this article, we’ll explore how CapBay P2P delivers in maximising returns and minimising risks, as well as the suite of features they provide, for investors who want to explore this alternative investment.
How CapBay P2P investing maximises returns for investors
Since its inception in 2020, CapBay P2P has positioned itself as a leader in the P2P investing market by delivering impressive and consistent returns to its investors.
With an average net return of up to 8.5% per annum, CapBay P2P’s performance stands out, especially when compared to the Kuala Lumpur Composite Index (KLCI). The KLCI, which represents the Malaysian stock market, delivered a more modest performance from 2020 to 2024.
For those seeking higher and consistent yields on their investments, CapBay P2P’s fund performance provides steady returns that outperform more traditional investments such as FTSE, with CapBay averaging 8.41% over 1 year.
Fund performance data (Average net returns)
| 1 Month | 3 Months | 6 Months | 1 Year | |
|---|---|---|---|---|
| CapBay P2P | 0.72% | 2.20% | 4.32% | 8.41% |
| Benchmark | -0.99% | 5.60% | 7.86% | 7.98% |
Note: Benchmark – FTSE Bursa Malaysia KLCI Mar 2023 – Mar 2024
When looking at the calendar year returns, CapBay P2P also delivers high yields for its investors, with net returns averaging above 8% p.a., from 2020 to 2024.
Calendar year returns (Average net returns)
| 20201 | 2021 | 2022 | 2023 | 20242 | |
|---|---|---|---|---|---|
| CapBay P2P | 7.33% | 8.20% | 8.03% | 8.39% | 8.58% |
1March 2020 to Dec 2020 as operations only began in March 2020
2As of 30 December 2024
Beyond the P2P market performance, CapBay also offers a slew of features and services that are created to ensure investors achieve maximum returns.
For example, having a diversified portfolio is a key part of investment strategies and CapBay automates it with the Auto Invest feature that automatically distributes an investor’s funds across 40 to 100 notes.
Another feature that they offer to help maximise returns is CapBay Plus. This feature lets investors enjoy an additional 2% per annum return on top of the regular investment returns, provided investors maintain a minimum balance of RM10,000
Of course, it’s important to understand that past performance does guarantee future results and any investments made should be done after thorough analysis and research.
How CapBay P2P minimises risk for investors
While the potential for high returns is enticing, there are still risks associated with P2P investing. CapBay understands the risks associated with P2P investing and has taken measures to address these issues
We take a look at some of the risks that investors need to be aware of and how they help minimise these risks.
1. Loss of principal via default
While P2P investments have delivered consistent returns, there still exists a possibility of experiencing principal loss from defaults.
CapBay mitigates these risks by diversifying an investor’s portfolio through their Auto Invest feature, which ensures that if an investment note defaults, the returns from the rest of the investment notes can recover from the defaulted notes–this is why the average net returns for CapBay P2P is 8.4% p.a.
Additionally, studies such as the one conducted by the Bank for International Settlements (BIS) indicate that diversification can significantly reduce extreme losses as findings show that the number of issuers in a bond portfolio increases, the Conditional Value at Risk (CVaR) decreases, highlighting the benefits of holding a diversified set of assets.
2. Lower returns than expected
P2P investments have the potential for higher returns, and the 4thWay P2P And Direct Lending (PADL) Index shows an average of 7.36 per cent per annum over the past 10 years, but there is still the risk of achieving lower returns.
To help minimise the risk of lower returns, CapBay Assure puts an investor’s funds into high-quality notes that have the opportunity to deliver guaranteed returns of up to 8% per annum with zero service fee, even if the notes are defaulted. This allows investors to invest safely without worrying about lower returns from potential default.
3. Credit risk from P2P financing
With P2P financing, there is a credit risk that investors undertake as it is tied to the businesses that they invest in and their ability to repay the financing.
Generally, investors should do their due diligence and research on a business’s profile before making an investment decision. CapBay P2P implements a rigorous vetting and screening process for companies seeking financing. This thorough evaluation has led to the platform having a default rate of <0.4%, even in periods of volatility, the lowest default rate in the industry.
4. Longer lock-in period
The average lock-in period, the duration during which the investor cannot redeem or sell their investments, averages around 12-to-18 months. This can be a huge disadvantage if liquidity is a main concern as investors can’t take out their funds without having to suffer significant loss.
CapBay, on the other hand, offers an average note tenure of 3-to-6 months, which is significantly shorter than the industry average. This shorter lock-in period provides investors with greater flexibility and quicker capital turnover.
5. Lower utilisation rate
One common risk in P2P investing is a low utilisation rate, where investors deposit funds into a platform, but their money remains idle due to a lack of available financing notes. When this happens, investors miss out on potential returns as their capital is not actively deployed.
Fortunately, CapBay maintains a high utilisation rate, with over 96% of investor funds allocated within just a few days after deposit. This ensures that investors can maximise their returns with minimal idle time. Compared to industry benchmarks, where funds can remain unutilised for weeks, CapBay’s efficiency provides a significant advantage in optimising investment opportunities.
What happens if an investment note experiences a default?
In the unfortunate event of a default, CapBay has established a comprehensive recovery process to protect investors. When a default occurs, CapBay may declare an Event of Default, initiating recovery actions such as restructuring or legal proceedings.
For invoice factoring, CapBay will also pursue recovery actions against the issuer’s buyers or debtors. Any amounts recovered are distributed to investors on a pro-rata basis, corresponding to the proportion of each investor’s amount in the defaulted note.
This structured approach provides a safety net, helping investors recover as much of their investment as possible.
A suite of features for P2P investors
CapBay P2P offers a suite of features designed to cater to a wide range of investor preferences and risk appetites, such as the Auto Invest feature that allows investors to invest based on different risk profiles (Conservative, Moderate, or Aggressive) across 20+ different industries.
Depending on the risk profiles, investors can allocate their funds to varying limits between programmes such as:
- CapBay Assure which provides guaranteed returns* with the safest notes.
- CapBay Select delivers moderate returns with carefully curated low-risk investment notes.
- CapBay Diversified provides access to a full range of investment notes with higher returns and moderate risks.
*Contingent on availability of funds in the reserve fund
Furthermore, CapBay accommodates investors seeking ethical investment options by providing the ability to opt for Shariah-compliant investments. Through CapBay P2P Islamic, investors have access to a fully automated Shariah-compliant option that delivers the same performance and returns as CapBay’s conventional options.
CapBay’s regulation by the Securities Commission Malaysia means strict compliance with regulatory standards, ensuring a secure and transparent investment environment for all participants.
Smarter P2P platforms for the smart investor
P2P platforms like CapBay empower investors to make smarter investment choices by offering a balance of high returns and minimized risks.
With a robust vetting process, comprehensive recovery strategies, and a diverse suite of features, CapBay stands as a reliable partner for investors looking to navigate the dynamic world of P2P investing.
For those ready to embark on their P2P investment journey, sign up today with CapBay P2P and enjoy Service Fee Rebates to further enhance the investment experience!
