Managing investment risk

Investing is ultimately about making money. To be successful and earn significant returns, investors need to understand the risks they are taking, and what they can do to manage them.

Investing and risk

It’s important to understand investing does not offer “free lunch”. Some risk is normal and should be accepted with all kinds of investing – not just investing in Notes. For example, the value of the investment may decline due to events outside the control of market participants, such as an economic downturn, a financial crisis, or geopolitical events.

Understanding different types of risk and following a few simple tips can already take you a long way towards becoming a successful investor. Investing smartly can be learned. Remember risk tolerance is individual – only you can decide what you’re comfortable with.

When you invest on Mintos, we offer several tools to help you. Let’s take a look at the risks you face on Mintos, and how you can manage them. However, managing risk does not exclude the possibility to lose part or all of the invested funds if some of the risks materialize.

The content of this page is marketing communication. It shall not be treated as investment advice or independent research, and does not preclude Mintos employees from investing in loan-based securities on Mintos. Mintos shall not be responsible for any direct or indirect loss resulting from the use of the provided information. Investing in financial instruments involves risk, and there’s no guarantee investors will get back any invested amounts. Past performance does not guarantee future returns. We encourage investors to read the Disclosure of risks before making any investments.

Risks of investing

Risk management

Risks of investing

Risk management

Risks related to the loan

Payments are linked to the underlying loan receivables.

The borrower might fail to make scheduled payments. If the borrower does not repay on time, the investor will also not receive a payment on time. If the borrower does not repay the loan at all and the lending company is not able to recover the money, the investor will not receive further payments.

Invest in loans with a buyback obligation. If the loan is more than 60 days late, the lending company buys back the loan and pays you the outstanding principal and accrued interest.

Invest in secured loans with collateral, such as mortgages or car loans.

Diversify your investment to limit your exposure.

Invest in loans with good performance (vintage analysis, expected default rates).

Invest in loans that continue to pay interest when late or pay late payment fees (depending on the clauses of the loan agreement).

The borrower may repay the principal amount at any time. The loan agreement might also be cancelled by the lending company, triggering early repayment by the borrower. While the investor may invest the repaid money in other loans, the return on the investments could be lower than the initially planned return. If the investor decides not to reinvest, the uninvested money in their account will not earn any returns.

Use a Mintos strategy to make sure your money is not idle.

Configure a custom automated strategy to invest in loans that match your investment goals.

Risks related to the lending company

The lending company may become insolvent, become unable to service loans, or stop cooperating with Mintos. As a result, the company could fail to honor its contractual obligations, leading to not making payments or defaulting on the buyback obligation.

Before we onboard a lending company, we put it through a series of rigorous checks, and we continue to track their performance on an ongoing basis.

Based on our initial and ongoing analysis, we assign loans issued by a lending company a Mintos Risk Score. These scores can help you gauge the risk of investing in a loan and make informed investment decisions.

It’s generally a good idea to diversify your investment to limit your exposure. We make it easy for you to diversify across lending companies.

Risks related to the investment firm

Mintos may become insolvent, its license may be revoked, or the company may become unable to service its clients. This could lead to delayed repayments or loss of invested amounts.

Steps will be taken to transfer servicing of all loans and investments to an appropriate manager. As Mintos does not issue loans, you still own the claim rights against the borrower or lending company, and the appointed manager will help transfer all outstanding payments

Diversify your investment across asset classes.

Risks related to currency

The value of an investment in a foreign currency may depreciate against the investor’s home currency as the exchange rate fluctuates.

Invest in your home currency to avoid exchange rate risk. Mintos currently supports multiple currencies.

Conflicts of interest

The best interests of the lending company, the investors and Mintos might not be aligned.

On Mintos, lending companies are incentivized to only take risks they are comfortable with having in their own books.

Lending companies have a “skin in the game”, meaning they keep a part of each loan in their books.

Lending companies initially fund loans out of their own budget, and they don’t know for sure if they can sell them to investors.

Mintos has set up internal procedures to identify and manage conflicts of interest. You can read more about this in our conflict of interest management policy.

Regulatory and compliance risk

Lending companies and Mintos are subject to laws and regulation in the geographies they operate in. At the same time, the regulatory and legislative environment surrounding alternative investing and lending is relatively new and susceptible to change. There is a risk that any change may have a negative effect on a company’s ability to carry out its business – for example, a regulatory change could restrict the products and services the company can offer in the future.

We look at the regulatory environment a lending company operates under as part of the due diligence check, and adjust the Mintos Risk Score for loans issued by the company accordingly.

IT system risk

Mintos and lending companies rely on IT systems to operate. A failure or breach of these systems can affect Mintos’s or the lending company’s ability to serve its customers. In this event, investors’ orders might not be executed to the full extent, or investors might not receive information on their investments in real time.

Mintos has taken steps to protect its systems against failure or breach.

Lending companies typically also devote substantial resources to ensure stable performance of IT systems.

Risks related to cooperation with external partners

To service their customers, Mintos and lending companies rely on external partners such as banks and web service providers. Any problems with these partners could impact some of the services Mintos provides.

Mintos carefully selects its partners and has backup service providers in place where feasible.

Buyback obligation

A buyback obligation is a credit enhancement given by the lending company or other entity of a lending company group for a particular loan. If the borrower has failed to pay more than 60 days after the scheduled repayment date, the buyback obligation kicks in and the lending company is obligated to buy back the loan, together with any interest. Investors can see whether specific Notes have a buyback obligation in the applicable prospectus.

While investing in loans with a buyback obligation could reduce the potential loss for the investor in case of a borrower default, the buyback obligation is only as good as the company undertaking this obligation. Since most of the buyback providers are not banks or insurance companies, they are not subject to relevant regulation or capital requirements to ensure they are able to honor the buyback obligation. If the buyback provider fails to honor its obligation, the investor is directly exposed to the risk of the borrower not making repayments.

Learn more about security on Mintos

Mintos Risk Score

What is the Mintos Risk Score and how it can help you make investing decisions

Mintos and your data

How Mintos handles and protects your data, and puts you in control

Protect your account

How you can help protect your account against unauthorized access

Diversification and returns

Why proper diversification matters for your returns

Ready to join?

Start investing today.

You might want to know