Managing investment risk
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. 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 invested capital. Past performance does not guarantee future returns. We encourage investors to read the Disclosure of risks before making any investments.
Risks of investing
Risks of investing
Risks related to the underlying loan
Payments on Notes 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.
Diversify your investment to limit your exposure.
Review the Loan portfolio performance subscore of the Mintos Risk Score before investing in Notes. It includes information about historical and current loan repayment trends and loss rates.
Invest in Notes backed by secured loans with collateral, such as mortgages or car loans.
Invest in Notes backed by loans with a buyback obligation. If any of the underlying loans is more than 60 days late, the lending company is obliged to buy back the loan together with any interest.
The borrower may repay the principal amount at any time before the term. The loan agreement might also be canceled by the lending company, triggering early repayment by the borrower. While the investor may invest the repaid money in other Notes, 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 Mintos Core to make sure your money is always invested.
Configure a custom automated strategy to invest in Notes that match your investment goals and to automatically reinvest repayments you receive.
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.
Review the Loan servicer efficiency, Buyback strength, and Cooperation structure subscores of the Mintos Risk Score before investing in a Note. These scores can help you make informed investment decisions.
Review information available about the lending company. On our lending company pages, you can find a presentation of each company as well as the company’s financial information.
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 Mintos as 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 capital.
As an authorized investment firm, Mintos is a member of the national investor compensation scheme established under Directive 97/9/EC. The scheme protects investors by providing compensation if Mintos fails to return financial instruments or investor funds to investors. The scheme covers situations that typically arise from operational errors, for example, if Mintos is involved in fraud or administrative malpractice or if Mintos goes out of business.
The maximum compensation an investor can claim under the investor compensation scheme is 90% of their net loss, up to a maximum of €20 000.
The scheme does not protect against investment risk, for example, poor performance of underlying loans, borrower default, or lending company default.
Risks related to the issuer
The company issuing the Notes may default on its obligation or become insolvent. This could lead to delayed repayments or loss of invested amounts.
The issuer is established as a special purpose entity. It is a wholly owned Mintos Group company not engaged in any other business activities, thus limiting the default risk of the issuer.
Risks specific to Notes
Notes typically have a fixed term, and investors have to hold them until they mature. Investors who want to sell their investment early can only do so on the Mintos Secondary Market. There’s a risk that an investor might not be able to find a buyer for an investment, that they will only be able to sell the investment at a discount, or that the Mintos Secondary Market as such might not be available.
Investors are investing in Notes backed by loan receivables. The legal title to the loan receivables is held by the Notes issuer. This means investors don’t have direct recourse against the borrower and can’t independently pursue the borrower to collect payments.
Mintos will pursue the lending company on behalf of investors.
Investors will only receive payment after payment obligations of a higher priority (e.g. taxes or recovery costs), if any, have been settled. It can also be the case that the outcome of an insolvency or court procedure could overrule the creditors’ priority defined by the prospectus. However, changes in the payment priority typically result from extraordinary circumstances such as a recovery or insolvency procedure.
Mintos will follow all applicable contractual and legal obligations when transferring payments to investors.
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. This risk only applies to investments in a foreign currency.
Invest in your home currency to avoid exchange rate risk.
When a Note is listed on the platform in a currency that is different from the currency in which the underlying loans were issued, the lending company assumes a currency exchange risk. When borrower repayments are received or when repurchase or buyback prices have to be paid, the lending company must transfer the amount to Mintos in the listed currency. If the currency of the underlying loans devalues significantly against the listed currency, the lending company's ability to transfer amounts due to the investor might be impacted.
Review information available on the lending company page to better understand the company’s financial position and its ability to cover currency exchange risk. The currency of the underlying loans is listed in the base prospectus. It is also included in the Note details on the Mintos platform.
Diversify your investments across multiple geographies and lending companies to reduce risk.
Conflicts of interest
The best interests of the investors, the lending company, the issuer, 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:
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.
Mintos closely follows regulatory developments, and we will update our strategy accordingly.
IT system risk
Mintos and lending companies rely on IT systems to operate. A failure or breach of these systems can affect Mintos’ 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.
As an authorized investment firm, Mintos is also subject to regulatory requirements with respect to the IT systems. The applicable regulation sets out requirements for IT processes in order to minimize failure risks. The regulator conducts audits to control whether Mintos complies with the regulatory requirements.
Lending companies also devote substantial resources to ensure stable performance of IT systems, as they are essential to their operations.
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 and lending companies carefully select their partners and have backup service providers in place where feasible.
A buyback obligation is the duty of a lending company (or other entity that holds the obligation for a particular loan) to repurchase the relevant loans, together with any interest, if any payment under any of the relevant loans is delayed by more than 60 days. Investors can see whether specific Notes have a buyback obligation in the applicable Final Terms.
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. 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
What is the Mintos Risk Score and how it can help you make investing decisions
How Mintos handles and protects your data, and puts you in control
How you can help protect your account against unauthorized access
Why proper diversification matters for your returns
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