You will run a structured check on one P2P platform, collectible or other alternative you are considering.
Every few months, something new will be offered to you as an alternative to boring investments. A platform for lending to businesses, a fractional share in a rare whisky cask, a fund that buys music royalties, a new kind of token. Each comes with its own vocabulary and its own reasons why this one is different. You cannot become an expert in every one. What you can do is ask the same few questions of all of them, in the same order, and write down the answers. This exercise gives you that routine and runs it once.
Pick one alternative you are actually considering, or one that has been pitched to you recently. Allow about 25 minutes. You will need the provider's website and documents, and the MAS Financial Institutions Directory and Investor Alert List.
These four questions carry most of the weight. Write each answer in a sentence, with where you found it.
Who regulates it? Find the provider's exact legal entity and search for it in the MAS Financial Institutions Directory, as in lesson 3.4, Run a licence and terms check on one exchange. Note the licence type and whether it covers this activity. Then search the Investor Alert List. If no Singapore regulator oversees it, write that plainly.
Who holds the asset? Find out whether you own the asset directly, own a share in a company that owns it, or simply have a claim on the provider. Lesson 6.3, Gold ETFs and gold savings accounts, showed why owning something and being owed something are very different when a provider fails.
What are all the costs? List every fee and spread from purchase to sale: entry fees, yearly fees, fees taken from income, spreads, storage, insurance and exit fees. Lessons 6.4 and 7.2 showed how quickly these add up.
How do I get out? Note how long it takes to sell, at what likely discount, and any lock-ups, notice periods or withdrawal limits, using lesson 7.3, Liquidity: how fast you can sell and at what price.
Look for the worst year, the worst loan vintage, the largest loss or the highest default rate the provider discloses. Providers tend to lead with averages and good years. The worst figure is usually further down, in a statistics page, an annual report or a risk disclosure. If you cannot find any bad year at all, ask whether the provider has existed through a bad year. A track record made only of good times tells you very little.
Every alternative has to beat something simpler. Compare its expected return after costs with two plain options you already understand: a low-cost index fund, and Singapore Savings Bonds.
Singapore Savings Bonds are backed by the Singapore Government, and you can redeem them in any month. Look up the current rates on the MAS website. An index fund carries market risk, but it is cheap, easy to sell and spread across many companies, which is the ground Investing 101: from zero to your first ETF covers.
The question is whether the alternative pays enough extra to justify its extra risks, costs and lack of liquidity. If it offers roughly what Singapore Savings Bonds pay, with the chance of losing money and no easy exit, the answer is clear.
Before you reach a decision, write down the conditions that would make your answer no. For example: no MAS licence for this activity, a fee you cannot find out, no disclosed worst year, or an exit that takes longer than you can afford. Writing these first stops you from talking yourself past them once you like the look of the investment.
Kumar ran the routine on a P2P lending platform. His figures are made up for the example.
The platform's legal entity appeared in the MAS directory with a capital markets services licence, and was not on the Investor Alert List. Investors' loans were held through notes issued for each loan, so he would own the notes but depend on the platform to collect repayments. Costs were a 1% yearly fee taken from repayments. Exit was only at maturity, with no resale market.
The worst year the platform disclosed had defaults of 3% of loans outstanding. Its headline rate was 9%. Taking off the 1% fee and allowing for 3% of defaults gave Kumar a rough expected return of about 5% a year, before any bad luck beyond the platform's worst disclosed year. He then looked up the current Singapore Savings Bonds rate and set the two side by side, along with the fact that one could be redeemed in any month and the other could not.
His "say no" list had four items: no MAS licence, no disclosed default history, fees taken before he could see them, and loans longer than a year. The platform passed all four. His decision paragraph said a small trial could fit, but only after module 8 had given him a written cap for it.
A finished sheet is one page per alternative: the four core answers with sources, the worst case disclosed, the comparison with the plain choices, your "say no" conditions, and a short paragraph giving your decision and why. Now open the documents for the alternative you chose and start with who regulates it.
Complete the alternatives due diligence sheet for one option and write a one-paragraph decision with your reasons.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).