Reinvest or Withdraw? How to manage your monthly P2P cashflow on Monexo

21 May, 2019

'Compound interest is the eighth wonder of the world - he who understands it earns it, he who doesn't - pays it' - Albert Einstein

Reinvest vs Withdraw - what's the big fuss about ?


Investing on Monexo is a unique refreshing experience as it enables you to participate in a low volatile asset class with defined, monthly cashflow ('EMIs') from borrowers. Your EMIs comprise capital + interest repayments from borrowers and come into your Monexo Escrow account every month.

As an investor, your ability to prudently manage these monthly cashflows, we believe, will be a crucial factor in helping you meet and even exceed your target returns from P2P lending on Monexo.

Sure, performance of underlying loans invested in will also play a big role but an often under-appreciated concept is the importance of making your EMIs work for you.

Borrowers pay EMIs monthly. What are my options as an investor?

1. Withdraw EMIs (Capital + interest)

2. Reinvest EMIs (Capital + Interest)

3. Withdraw interest alone, reinvest capital (now possible through our Monthly Income Plan feature)

4. Not do anything - let EMIs accumulate in Escrow

Additional Read: How can I grow my money with P2P lending?

What's right for your portfolio ?

To understand this, let's delve deeper into all the above 4 scenarios.

1. Withdraw EMIs (capital + interest) - Moving your Monexo EMIs to a savings account is like giving your money an Ambassador when it could be driving you in a Ferrari. You are technically giving up the ability to lock in your yields at 15%+ p.a and growing your money at 4% in a bank savings account. Not recommended unless you badly need the cash.

This is because systematic withdrawal of EMIs will diminish your capital that is earning interest every month. The end result - your interest earnings will follow a declining trajectory - month on month like shown below.

Graph


2. Redeploy EMIs (capital + interest) and create fresh loans (Reinvest) - Your money does some serious heavy lifting here and by reinvesting - you get introduced to compound interest - famously referred to by Einstein as the eighth wonder of the world. Highly recommended - a great way to optimize portfolio yield and grow monthly interest earnings.

Check out the graph above to see how your monthly earnings grow over time with reinvestment. Reinvestment, also interestingly, will help you generate additional interest income that provides an added safety buffer against any potential losses you may incur in future from loans that go into write-off scenarios.

And plus, with our auto invest facility, reinvesting also does not require any time or effort from your side. Auto invest is a great way to seamlessly reinvest - without having to log in !

3. Withdraw the interest alone and reinvest the capital - A super nice middle ground which makes full sense for investors who are looking for regular income while not wanting to compromise on interest earnings. Our Monthly Income Plan ("MIP) is designed expressly for this purpose - to give you regular income flow from your Monexo investments while enabling you to reinvest the capital.

To opt for Monthly Income Plan - just write to lend@monexo.co from your registered mail ID.

4. Not do anything - let EMIs accumulate in Escrow : Sitting on your EMIs Keeping and letting your Escrow balance grow is an expensive luxury. Idle money in your Escrow does not earn you anything as a result your money loses value daily - as inflation eats into it and eventually loses significant if not all of it's purchasing power. Strictly not recommended.

So, the next time you have some uninvested cash balance in your Monexo account and are wondering what to do, we sure hope this blog helps throw some light on what's right for your portfolio :)