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Comparing Investment Products and Their Returns over Risk

Everyone has a list of goals in life. Maybe a bucket list, things they wish to do before
they retire, or turn 40, and so on. Some people wish for a house, some want to travel
the world, some want to build a fortune for their kids, and most of us want to do all
the above, right?

How do we achieve all that? How do we build a personal fortune to pay for such
expenses? The answer is simple! Investing. Yes, investing your money is the best step
to help you reach your future goals.

How do we start investing? By setting aside enough money to invest in the first place.
In other words, start saving! As you start earning money, your first step should be
planning out your expenses and setting aside a portion of your income, which is your
savings. Use your savings to invest, which will earn you good money to pay for all your
future expenses.

Investing is a way to increase wealth. The more you invest, the more your money

There are numerous investment options out there, so we have created a comparative
and detailed article on various investment instruments and their returns over risk.
To guide those interested in our P2P financing instrument, our Funding Societies
investment is also compared with many of the options on the market. To start, let’s
look at the various investments:

1. The NO Risk Investments

There are few investment options available with NO risks involved, such as
bank savings accounts and fixed deposits. Fixed deposits are financial
instruments offered by banks or non-bank financial institutions. While fixed
deposits provide higher interest rates compared to regular bank savings
accounts, they come with a maturity date. It is difficult to withdraw your funds
prior to the maturity date, and even if you do withdraw early, you would be
subject to penalty fees.

Some of these investments pay an annual interest rate around 1% or even less
than that (think about how little interest one generally gets from their bank
savings account, no matter how much money is in the account!). In Malaysia,
fixed deposit rates hover around 3%. Interest rates are low because they are
safe investments; the risk is zero or close to zero. These instruments are meant
for those with low or no risk appetites.

Many term these returns rates as negative returns. On average, returns offered
by no risk investments are around 1-1.5% per year. Meanwhile, from 2012-2016,
the Malaysian inflation rate ranges from 1.66%-3.14%. In years when rate of
inflation is above interest rate, your savings interest effectively become ‘zero’
or even ‘negative’.

Analysis – Risk – None, Returns – Low/Zero

2. Investing in Corporate bonds

Bonds are securities that pay a fixed sum of interest on your investment.
Corporate bonds are issued by companies and have features similar to fixed
deposit accounts. A corporate bond has statements indicating amount invested,
interest rate payable, period of payment, and maturity date. Bond interest is
also known as coupon rate, and it varies from company to company. Generally,
you can expect an annual coupon rate of 3.5-6%.

Corporate bonds bear more risk compared to fixed deposits. The risks corporate
bonds carry can be credit risks, default risk, or even liquidity risk. Apart from
the noted risks, bonds may also have certain fees attached to them.

Be careful if a company offers a higher than normal coupon rate. It likely

means that the credit score of the company is poor and you are taking more
risk in investing in the bonds.

Analysis – Risk – Moderate, Returns – Low/ Moderate.

3. Investing in ETFs

ETF is short for ‘Exchange Traded Funds’. This instrument has gained much
popularity in a short span. ETFs run on the concept of pooling in money from
many investors then investing in various stocks (certain ETFs combine stocks
with other assets, such as commodity, bonds, and foreign currency). This
method of investing helps you diversify your stock and asset selection, and
gives you a wider exposure. ETFs invest in stocks of various industries;
sometimes they even in dip into foreign markets. The structure helps you earn
better returns while reducing your risk, compared to buying a single stock.

ETFs provide high interest rates and hence are quite popular with investors.
But in accordance with the “risk and return” principle, ETFs are quite risky
instruments. Another negative factor is that ETFs can be complicated for
people to understand, invest, or calculate their returns. And because ETFs are
quite popular, some people invest to follow the ‘herd’ without understanding
what they are investing into. After, they have difficulty figuring out how much
they are gaining or losing.

Apart from the associated risks, another major drawback of ETFs is that funds
are blocked for a longer time as short term ETFs hardly earn good returns. Also,
take note of trading and commission fees if you are interested in ETFs; they
can pile up to make a quantifiable amount at the end.
Analyses – Risk – High, Returns – High

4. Investing in REITs

REIT stands for Real Estate Investment Trust. REITs can simply be defined as
stocks purely in the real estate sector. Here, an investor would invest in a REIT
and become owner of a piece of multiple properties, instead of owning one
single property. Investors become REIT shareholders, but not the owner of the
property. Hence, they make an investment, but all decisions would be taken by
someone else (just like stocks in a company).

Returns offered by REITs in Malaysia yield dividends around 6% (as per this
year’s data), with a range from 5-9%. In general, returns on REITs depend
completely on how efficiently it is managed. If management is inefficient,
returns ought to be low. Another factor to consider is how dependent REITs are
on the stock market. Sometimes, even if the REIT is performing well, prices
could fall following the market.

REITs pay property tax and tax on dividends, which eats away a chunk of
investment profit. This can lower your returns.

Analyses – Risk – High, Returns – High.

5. Investing in Stocks

Investing in shares of a company is a well-known and established investment

instrument. The concept of stock investment is simple; you invest an amount of
money and get a number of shares depending on share price. The day you sell
your shares, you earn dividends, bonus shares, and the difference in share
price. Stock investment is definitely for those with a high risk appetite and is
considered to be the highest risk-bearing and reward-bearing investment.

Investing in shares could multiply your investments, but it also comes with a
high risk of losing your money when the market crashes or when there is a fall
in the market index. Sometimes, even when the market index is good, the
company may perform poorly. Yet another drawback of investing in shares is
that shareholders are the last people to receive money in case of a company
winding up.

Apart from all this, there are commissions and charges involved in dealing with
brokers or agents in making stock investments. Investing in company shares also
requires analyzing and understanding the market, along with factors that affect
the price of a stock.

Analyses – Risk – High, Returns – High.

6. Investing in P2P Financing – Funding Societies

P2P financing is a simple business model where a group of lenders collectively
pool in money to lend to SMEs who want to raise funding for their business. The
principle “for the people, by the people” applies to how P2P financing works.

P2P financing has gained popularity in the past few years, including in
Southeast Asia. Funding Societies is a Malaysia-based platform that offers P2P
financing services. Funding Societies offers an attractive rate of return to its
investors for the considerable risk an investor takes; investors can earn returns
up to 14% per year.

Apart from investment risks, the process is hassle-free and does not require
complex calculations, or high-level expertise. The risk of investing in P2P
financing is mainly default risk, where SMEs can’t repay their financing and
causing loss for the investors. However, with a 1.4% regional default rate (as of
November 2017), non-performing financing levels are still relatively low.

In addition, Funding Societies management implement a “skin in the game”

philosophy, where founders and team members invest their own money along
with other platform investors, to show their confidence in their P2P financing

The minimum investment one can make could be as low as a RM 1,000 first
deposit and RM 100 per financing investment allocation. After the initial
transfer, there is no minimum deposit amount. Another beneficial feature is
P2P financing’s short-term investment flexibility, making it a convenient
instrument as one can invest in as quick as 3 months.

Funding Societies is regulated by the government and is in fact, one of the first
6 P2P financing platforms to be registered by Securities Commission (SC)
Malaysia. The platform considers not only the financial and cash flow
statements of applicant SMEs, but also their risk analysis.

For more information click here.

Analyses – Risk – High, Returns – High.

This brings us to some basic conclusions. Your investment is dependent on 2 factors –

the amount of risk you can bear and the returns you can expect. Both are directly
related and high returns come with high risk, while low risks come with low returns.

Here is a simplified format to show how the risk and return principle work on

Investment Risk Returns

Savings Account, Fixed Zero Low
Corporate Bonds Moderate Moderate
ETFs High High
REITs High High
Stocks High High
P2P financing High High

Funding Societies

Wondering why we struck off P2P financing and compared Funding Societies instead?
It’s because every P2P financing organization has its own regulations and set of rules
and work on different terms.

From the above table, we get a clear idea of how each investment option in Malaysia
earns returns based on risk.

Now comes a one on one comparison of high-return investments:

There are 4 investment options that fall in the category of high returns and high risk.
Let’s find out how each of these differ with investing in Funding Societies.

ETFs vs. Funding Societies

ETFs offer high rates of return but you need to select the right ETF from the
numerous options available. You need to know investment strategies of ETFs, the fund
manager, and other complexities. If you are not clear about expected returns and the
selected ETF, there could be chances of negative returns. Also, ETFs depend on
market indices and hence, if the market goes down and you withdraw, you are at a

Apart from this, ETFs are not actively managed by fund managers, which is why they
charge low fees. Those who want a more hands on manager for their funds would
need to hire an agent or broker who would charge additional fees for managing your

Comparison –

Factors Funding Societies ETFs

Risk Default by SMEs 1. Market risk

2. Management risk

3. No understanding/
Returns > 10% Yes Yes
Regulated Yes Yes
Fees *Service fee charged on For every transaction
interest paid.
Short Term Investment Yes Yes. But most of the time
Option short-term ETF investment
causes loss.

REITs vs. Funding Societies

REITs have the same drawbacks as ETFs. Another challenge for investors is selecting
the REIT that could outperform the market (out of several REITs on the market) –
there are REITs that perform below expectations. Other than that, REITs are good
investments managed by fund managers who charge a relatively low fee as long as
they are not actively managed.

Comparison –

Factors Funding Societies REITs

Risk Default by SMEs 1. Market risk

2. Management risk

3. Selecting the most

profitable REIT is a
Returns > 10% Yes Not always.
Regulated Yes Yes
Short Term Investment Yes Yes
Stocks vs. Funding Societies

Stocks are often first on the list of many when talking about investments. They move
according to market indices and are really run by big stakeholders, while most retail
investors only own small shares. Stocks tend to earn optimum benefits in the long run.

Comparison –

Factors Funding Societies Stocks

Risk Default by SMEs 1. Market risk

2. Stock markets are

run by big players in
the market

3. No understanding/
Incorrect selection
can lead to loss of
Returns > 10% Yes Yes
Regulated Yes Yes
Fees *Service fee charged on For every transaction
interest paid.
Short Term Investment Yes Yes. But most of the time
Option short-term stock
investment fails to
generate adequate

*Returns earned are after deduction of all fees and charges.

**All investments pay more than 10% but all these investments are subject to certain amount of risk for
which they pay such high returns.


While we hope the article has been most informative, there is no sure shot way of
making huge money off your investments. The returns on your investments will mainly
depend on your appetite for risk. The higher the risk, the higher the returns.
Investments should be made after considering maturity date/how long you need to
invest your money, what the expected returns are, and the associated risks.

All the options stated above have their pros and cons. Each of them can be considered
depending on individual preferences and choice. The comparisons above are given for
better understanding the features that come in many notable investments.

A final word: every successful investor applies the rule “never place all your eggs in
a single basket” or better known as diversification. Without diversifying your
instruments, you are putting your investments at higher risk.

Consider all available options on the market and invest carefully in various
alternatives to make the most of your money. Analyze everything and be sure of
where you make an investment. Risk is common in all high-earning investments. Just
make sure your financial goal and strategy are in line with the investment options you