How do we calculate the yearly return?
We calculate an annualised rate of return of your investments so far.
We use XIRR methodology (extended internal rate of return). Please note that it is not a forward looking measure. We do not make any assumption on the future repayments of your portfolio.
NB: We start displaying the result of the formula only once you have accumulated at least 1 BGN of earned interest. Before that, the amounts are too small and the roundings at the closest cent may lead to some weird fluctuations on the %.
This return is computed by using all the cash flows with their exact dates, including purchases of loan, premium and discount if any, repayments of principal and interest, write offs if any and the current outstanding of your portfolio.
Please note that the return is calculated only on the invested funds. Money idle on your Klear account does not bring any revenue.
It’s why we recommend you to regularly visit your dashboard in order to reinvest money received on your loans or to withdraw it from your Klear account.
At the beginning, if you invest only in the primary market, your return will be close to the average interest rate of the loans in your portfolio. Only with time passing, your return will progressively decrease and converge towards the expected return, which is equal to the interest rate deducted by the cost of risk.
Why? Because the credit risk does not occur immediately. It takes some time to appear and to impact the return.
This cost of risk will be materialized in your return when a write off occurs. When a loan is in default and reaches 120 days delay, it is sold to external agencies with a discount. This discount is then impacting negatively your return.
Hopefully, if you’ve well diversified your investments, the average cost of risk will be near the expected value depending on the mix between the various risk segments.
Your return could also be impacted by transactions on the secondary market.
- If you buy a loan with a extra cost, then your return is instantly negatively impacted.
- If you buy a loan with discount, then there is an immediate positive impact on your return but it will probably be offset in time because buying a loan with discount is usually done with loans with some payments problems, which means that these loans in average will perform worse than the initial expectations.
The opposite impacts occur in case you sell loans from your portfolio with premium or discount.
