A Guide To Investing In Funding Societies

Funding Societies is a debt investment platform that connects investors with small and medium-sized enterprises (SMEs) through an online marketplace. The platform is committed to providing financial support to SMEs, while also creating financial opportunities for individuals and institutions with its fixed-income investment option. As an investor, you can provide financing to SMEs for working capital and capital expenditures over a short period, typically ranging from 1 to 12 months. In return, you would profit from receiving interest payments from the respective SMEs. The minimum investment amount starts from as low as S$20, and the investment returns can be up to 7.82%, based on the Singapore weighted average in 2020. Here is what you need to know about investing in Funding Societies.

Funding Societies' investment process

Funding Societies is a debt investment platform that specialises in short-term digital financing for small and medium-sized enterprises (SMEs). It connects SMEs with investors through an online marketplace, increasing financing access for SMEs while providing a convenient and short-term fixed-income investment option for investors.

• Sign up and open an account: Visit the Funding Societies website and click on the "Sign Up" or "Get Started" button. Provide the required information, such as your name, email address, and password, to create your account. You may also be asked to verify your identity and provide additional documentation. Once your account is approved, you can log in and explore the investment platform.
• Fund your account: Before you can start investing, you need to deposit funds into your Funding Societies account. The minimum deposit amount may vary depending on your location, but it is generally a low amount, such as S$20 or RM100. You can use various payment methods, such as bank transfer or credit card, to add funds to your account.
• Browse investment opportunities: Once your account is funded, you can browse the available investment opportunities on the platform. Funding Societies offers a range of investment options, including short-term business loans, invoice financing, and property-backed loans. Each investment opportunity will have a detailed factsheet outlining the loan purpose, amount, interest rate, and potential risks.
• Select an investment and invest: After reviewing the available investment opportunities, choose the one that aligns with your investment goals and risk tolerance. Decide on the amount you want to invest, keeping in mind the minimum and maximum investment limits set by Funding Societies. Then, follow the platform's instructions to finalise your investment.
• Track your investments: Funding Societies provides tools to help you monitor your investment portfolio's performance. You can log in to your account and view the status of your investments, including repayment schedules and amounts. The platform also allows you to track the progress of your investments and view your returns over time.
• Reinvest or withdraw: As you receive repayments from your investments, you can choose to reinvest the funds into other investment opportunities on the platform or withdraw them to your bank account. Funding Societies offers a diverse range of investment options, allowing you to build a portfolio that suits your financial goals.

It is important to note that investing carries risks, and you should carefully consider your investment strategy and conduct thorough research before committing your funds.

Investment opportunities

Funding Societies is a debt investment platform specialising in short-term financing for small and medium-sized enterprises (SMEs). It connects investors with SMEs through an online marketplace, increasing financing access for SMEs.

Business Term Financing

Business Term Financing allows investors to provide financing to SMEs for working capital and capital expenditures over a short period, ranging from 1 to 24 months. In return, investors receive interest payments from the respective SMEs. The interest rates for these loans are typically between 4% and 18% per annum.

Invoice Financing

Invoice Financing allows investors to buy over future invoices of SMEs at a discount. SMEs benefit by receiving instant cash from investors, while investors profit by receiving interest income from the respective SMEs. Invoice financing tends to present lower risk and returns than unsecured business loans as it is based on the value of goods or services that the borrower has already provided.

Property-backed Financing

Funding Societies also offers property-backed financing, where loans are secured by residential, industrial, or commercial properties. These loans typically offer lower returns of 4-8% per annum but provide additional recourse for investors. For example, Funding Societies can recoup some losses from loan defaults by liquidating the property.

Auto-Invest

Funding Societies offers a free tool called "Auto-Invest", which allows investors to automatically allocate funds to investment opportunities based on their preferred tenure, interest rates, and industry.

The minimum investment amount for Funding Societies' opportunities varies, starting from as little as S$20 or RM100, depending on the region. The platform has a strong performance record, with a low default rate of approximately 1.66% and a high rate of on-time payments of about 90%. It is important to note that past performance does not guarantee future results, and investors must conduct their own research and due diligence.

Returns and risks

Returns

• Funding Societies offers investors the opportunity to earn attractive returns by providing financing to small and medium-sized enterprises (SMEs). The platform specialises in short-term financing for SMEs, and investors can expect to receive returns in the form of interest payments.
• The return rates vary depending on the investment product chosen. For example, Business Term Financing offers investors the chance to provide financing for working capital and capital expenditures, with tenures ranging from 1 to 24 months. Invoice Financing, on the other hand, allows investors to buy future receivables or invoices of SMEs at a discount, providing instant cash flow to the businesses.
• According to one investor, their Funding Societies investment had an annualised portfolio performance of 6.64%. Another investor calculated their simple interest return to be 10.74%, with an effective annual rate of 19.26%.
• It is important to note that actual returns may be lower than expected, and historical returns may not reflect future performance.

Risks

• As with any investment, there are risks involved when investing in Funding Societies. One of the main risks is the potential for loan defaults and late payments by the SMEs. As of December 2017, Funding Societies reported a default rate of 1.4% in Malaysia, and 1.31% regionally.
• To mitigate this risk, Funding Societies provides a scorecard-based assessment of the SME's creditworthiness, taking into account factors such as business model, financials, directors' scores, and repayment behaviours. They may also conduct site visits and interviews with directors to ensure the quality of their borrower portfolio.
• Investors can further minimise their risk by diversifying their investments across multiple borrowers and notes. This helps to spread out the risk and reduce the impact of any single default on the overall portfolio.
• It is also important to understand that defaults are a reality in the investment game and cannot be completely avoided. Choosing shorter-term notes can help recoup capital faster in the event of a default.
• Another risk to consider is the regulatory environment. Funding Societies is regulated by the Securities Commission in Malaysia and the Monetary Authority of Singapore. However, it is important to understand the specific regulations and restrictions that may apply to your investment, especially if you are a foreign investor.

Tracking your portfolio

Understanding Your Portfolio Metrics:

Funding Societies provides a breakdown of the terms and numbers you see on your portfolio. It's important to familiarise yourself with these metrics to effectively track your investments. Some key terms include:

• Total Deposits: The total amount deposited into your Investor account.
• Total Withdrawals: The total amount of withdrawals requested, including pending requests.
• Total Invested: Your cumulative investment amount, including reinvestments from repayments.
• Annualised Portfolio Performance: Weighted average annualised returns based on your investments, less the proportion of defaulted principal.
• Investment Returns: Includes total interest, late interest, and early repayments received.
• Bonus Received: Cashbacks and promotional offers.
• Expenses: Service fees and withholding taxes.
• Service Fees: The fees charged by Funding Societies, currently at 18% of interest earned.
• Withholding Taxes: Tax withheld for non-Singapore tax residents on interest earned.
• Net Income: Investment returns plus bonuses received minus expenses.
• Number of Notes Invested: The total number of notes in your portfolio, excluding ongoing crowdfunds.
• Loans Ongoing: The number of notes on your portfolio that are not yet completed or defaulted.
• Expected Returns: The total amount of interest expected to be received based on your investments.
• Repayments Received: The total principal, interest, and early repayments received in the current calendar month.
• Outstanding Principal: Principal still held in ongoing notes that have not been fully repaid.
• Principal Defaulted: The total amount of your invested principal on defaulted notes.

Using Portfolio Tracking Tools:

To effectively track your portfolio, consider utilising dedicated portfolio management apps or online tools. These tools can provide real-time information and help you monitor your investments in one place. Here are some popular options:

• Empower (formerly Personal Capital): This app offers a free version and has over three million users. It allows you to track your net worth, create a savings plan, and sync various investment and bank accounts. Empower provides easy-to-read graphs and charts to visualise your performance, asset allocation, and fees.
• SigFig Wealth Management: SigFig offers a free version that automatically pulls your investment accounts into a single dashboard, providing real-time information on your stocks, mutual funds, and exchange-traded funds (ETFs). It can connect with over 50 brokerages, including Schwab and Fidelity.
• Sharesight: Sharesight is a portfolio tracker that can monitor the performance of your investments using data from 60 stock exchanges. It offers a free service for up to ten holdings or one portfolio, with additional reporting features available for a fee. Sharesight allows investors to track the price and performance of stocks, ETFs, and mutual funds globally.
• Yahoo Finance: The Yahoo Finance app provides a simple way to track your stocks, commodities, bonds, and currencies. You can create and track the performance of your personal portfolio and sync multiple portfolios across devices. It offers real-time stock information, personalised alerts, and market movement updates.
• Equitymaster's Portfolio Tracker: This premium online stock and mutual fund tracking utility provides "intelligent" tools and reports to help you analyse your portfolio, even during trading hours. It offers email alerts, transaction summaries, annualised returns, and currency reports.

Best Practices for Portfolio Tracking:

When tracking your portfolio, keep the following best practices in mind:

• Regularly Review Your Investments: Don't wait for tax season to review your investments. Routinely check your portfolio to stay informed about your investment performance.
• Sync All Your Investment Accounts: Utilise the syncing features of portfolio management apps to aggregate data from all your investment and banking accounts. This provides a comprehensive view of your financial position.
• Monitor Retirement Accounts: Ensure your portfolio tracker includes retirement accounts such as 401(k) and IRAs. This helps you stay on track with your long-term financial goals.
• Analyse Asset Allocation: Understand your portfolio's diversification by analysing your asset allocation. Compare your allocation to benchmark indices like the S&P 500 to identify potential adjustments.
• Rebalance Your Portfolio: Market conditions or life events may change your target asset allocation. Periodically rebalance your portfolio to align with your financial goals and risk tolerance.
• Monitor Risk Levels: Regularly assess your risk levels to ensure your portfolio is not overexposed or underexposed to specific investments or sectors.
• Utilise Real-Time Data: Choose a portfolio tracker that provides real-time data and monitoring. This allows you to make timely decisions based on up-to-date information.

Opening an account

To open an account with Funding Societies, you can sign up through their website or by downloading the Funding Societies mobile app.

Funding Societies is a debt investment platform that connects investors with small and medium-sized enterprises (SMEs) through an online marketplace. As an investor, you can start investing with a minimum of S$20 or RM100, depending on your location. The platform offers short-term investments with a maximum tenor of 12 months.

• Sign up: Visit the Funding Societies website or download the mobile app and click on the "Sign Up" or "Register" button. Provide the required personal information, such as your name, email address, and password.
• Verify your account: You will need to verify your email address and may also be asked to provide additional documentation for identity verification, such as a government-issued ID or proof of address.
• Fund your account: Once your account is verified, you will need to deposit funds into your account. The minimum deposit amount may vary depending on your location, such as RM 1,000 in Malaysia.
• Browse investment opportunities: Log in to your account and go to the "Browse Loans" or "Investment Opportunities" section to view the ongoing funding opportunities. Look for the "Crowdfunding" status to identify the available investments.
• Review the details: Click on the note ID or the investment opportunity to view the factsheet, which provides details about the loan, business, interest rates, tenure, and potential returns.
• Make your investment: Once you have found an investment opportunity that aligns with your interests, log in to your account during the crowdfunding round. Input the amount you want to invest, ensuring it is within the minimum and maximum investment limits. Click on the "Confirm Investment" or similar button to complete your investment.

By following these steps, you can open an account with Funding Societies and start investing in various notes or investment opportunities available on the platform.

Frequently asked questions