Market volatility

Aug 16, 2022

FMPP in curbing market dependence

Understanding market volatilities can be important to investing strategically. In this blog, we shall go through factors on which market volatility is based. We shall later on go through the list of investment avenues and find out which one is the best to choose. Finally, we shall see as to why FMPP is the best in terms of market volatility for safe investment.

Understanding market volatility

Volatility is one of the major concerns in terms of investments. Numerous factors affect the market condition, which, in turn, affect an investment. Market volatility can affect just the returns or an investment amount in whole, i.e. the principal and the returns. 

Investment avenues differ in terms of volatility. Some are highly market-dependent, while others are not at all. Fixed deposits, recurring deposits, postal investment schemes, etc are the least market-dependent; hence, they come with principal protection. Market-linked asset classes, namely mutual funds, and primary and secondary market assets are the most prone to the whims of the market. 

Market-linked vs market-dependent asset classes

The difference between ‘market-linked’ and ‘market-dependent asset classes’ may not be too obvious. Even though both these phrases are used interchangeably, being market-dependent is lesser than being market-linked. In other words, the preconditions that define being market-linked are the same that define being market-dependent. Therefore, market-linked asset classes are highly volatile, and non-market-linked or market-dependent ones are the least volatile.

Portfolio diversification for countering market volatility

Having a well-diversified investment portfolio is the key to achieving the mean, i.e. the desirable range of returns. There are two ways to diversify one’s investment portfolio, namely latitudinal and longitudinal diversifications. In the latitudinal diversification of an investment portfolio, an investment amount is diversified across various investment avenues, all ranging in terms of being risk-prone. In longitudinal diversification, multiple investments are made across different times, with different maturities, and for different goals. One can match an optimum mean by mixing both types of diversifications. 

P2P investment and market volatility

P2P investment is one of the least market-dependent investment avenues. Just like fixed deposits, recurring deposits, etc, P2P investment is a debt instrument. It is not market-linked and thus not subject to market volatility. However, it is market-dependent to some extent: it is subject to repayments from individual borrowers; bad market conditions, like recession can still affect repayments.

P2P platforms follow all the protocols of on-boarding borrowers who are Credit Bureau-verified. LenDenClub, in particular, being India’s leader in the P2P sector, on-boards borrowers after passing them through yet another checkpoint, i.e. screening them over 200+ verification points. This way, LenDenClub insures reducing NPA as much as possible. Owing to these two checkpoints of on-boarding borrowers, LenDenClub has had consistently low NPA along with returns of up to 10 to 12% p.a.* for the past five years.

FMPP, the ultimate solution for returns with ty

LenDenClub’s new FMPP, i.e. the Fixed-Maturity Peer-to-Peer Plan, has been designed such that it gives platform-level uniformity with its returns proposition. The new algorithm for FMPP has been designed to hyper-diversify every investment amount; the funds allocated to individual borrowers can go as low as ₹1 per borrower. In the case of non-payment from some borrowers, the defaults and bad debts are evened out on a platform level, and the NPA for individual investors is reduced to a minimal–Systematic Risk Mitigation. Thus, with FMPP, one can get Marginalised NPA through Systematic Risk Mitigation.

FMPP vs mediator-facilitated investment avenues

Earning returns is the ultimate goal of investments. Return rates of fixed deposits, recurring deposits, and post office investment schemes hardly compete with the inflation rate. FMPP has been designed to give returns of up to 10 to 12% p.a.* thus, FMPP offers inflating-beating as well as double-digit returns. 

FMPP, too is a -term investment plan. Hence, one can choose a tenure of 1, 2, 3, 4, and 5 years. The starting investment amount of ₹10,000, going up to ₹10 lakh or ₹50 lakh after submission of a net-worth certificate, means FMPP has been designed for serious investment.

Principal protection vs Uniform portfolio performance

Principal protection is a lucrative option for an investment avenue. Hence, one can rest that their investment is safe. In a worst-case scenario, where the returns are com , the principal is safe. 

It is worth noting that even though banks and other such financial institutions have unlimited liabilities, the repayment of a principal amount is subject to the liquidity of the institution’s assets. 

LenDenClub is to giving platform-level uniformity with its returns proposition, which it has honed for more than half a decade. The platform-level uniformity is owed to the new hyper-diversification principle based on the AI- and ML-enabled platform, giving Marginalised NPA through Systematic Risk Mitigation.

Conclusion

P2P investments, being subject to repayments from individual borrowers, are not market-linked but market-dependent. With FMPP, LenDenClub offers unprecedented measures of offering returns with uncom security, i.e. returns of up to 10 to 12% p.a.* Therefore, FMPP can be used as a means of portfolio diversification as well as a one-point-solution for investment.

* On platform level.

*P2P investment is subject to risks. And investment decisions taken by a lender on the basis of this information are at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower.

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