Net Returns Calculations
To calculate the annualised net return shown on your dashboard, we consider the return generated from the capital employed for each period. A period is defined as the number of days that pass in which the capital employed remains constant. The calculation of capital employed is taken from the sum of deposits less withdrawals. (i.e. funds added minus funds withdrawn) on a cumulative basis.
How does it work?
We aggregate NetGains as follows:
We then annualise the rate of return for each period in the series:
The more frequently you add or withdraw credit from the platform, the more periods you will have in your series. This addition to the formula improves the accuracy of how we track the capital employed. We also take a weighted average of the annualised rate of returns against the number of days so that longer periods of consistency weigh heavier in the formula than single days of unusually high losses or gains.
This method considers the following:
- It is based on historic data
- Defaults are discounted according to their probable loss
- Idle (unemployed) capital on the platform contributes to a lower yield
- The benefit of compounded returns is included
Our method accounts for all your money invested by accounting for employed capital and not just live investments.
Every investor portfolio is different, average default rates may reach 9.9% pa across the loan book. This is mainly based on historic performance of defaults as shown on our stats page, however our historic performance may not be indicative of future performance.
We estimate a recovery rate of around 40% (depending on security offered) and so the forecast bad debt level is estimated to be between 4% and 8% though may be higher or lower, depending on investment habits.
Defaulting loans are proportionally marked-down in the Net Return calculation, until either recovered or crystalised as a bad debt.
Compounding your returns by reinvesting your interest earnings is one of the best ways to maximise your returns. Please also be aware that historic gross returns may not be available in the future as they are symptomatic of demand and supply.