Dividend Magic

Saving and Investing towards Financial Independence in Malaysia

P2P Lending Malaysia

Earning Passive Income in Malaysia

By
Filed Under: FI/RE, Passive Income 2

Readers of the blog will be familiar with the term passive income. And to once and for all give my point of view on what is actually passive income as well as my own passive revenue streams.

What is Passive Income?

The notion of having your money work for you, to have it generate additional income while you sleep is a wonderful one.

Right off the bat, let me dispel the notion that passive income is only for the wealthier individual. In fact, passive income is for anyone and everyone. Regardless of the amount, passive income is passive income. RM10 a month is a passive income if your assets are generating it for you. Everyone starts small. In fact, I think my first dividend received was in the region of RM50 for the first year. That’s like RM4 per month. Work on it continuously and trust me, it’ll grow.

More popular forms of passive income in Malaysia include rentals from real estate, interest from bank deposits and P2P lending, and dividends from stocks and businesses.

Real Passive Income

The term Passive Income has been thrown around and mentioned a lot recently as Malaysians become more financially literate. In general, passive income is defined as income earned with little or no effort. So not all ”passive income” is truly passive.

For example, almost everyone would list their rental income as passive. I beg to differ. In my experience, taking care of your rental property takes time and effort. You may have a real estate agent working with you at the start but most of the time, you’ll be doing the work yourself. Personally, I put up ads on my own as I feel my agent’s ads were too generic. I even attend the viewings to make sure the said agent is doing his/her job right.

Now all that is just to get your unit rented, what happens when a pipe bursts or your air conditioner malfunctions? Your agent isn’t going to help you with it as there’s nothing in it for them. So no, I’ll not list my rent collection as a passive income.

However, your rental income will be classified as passive once you hire a proper property manager where he/she is hired on a full-time basis to take care of your real estate portfolio. Of course, you’ll have to have a large mix of properties before that is viable.

My Passive Income

passive income malaysia

I like to only call a source of income passive when it truly requires zero to minimal effort on my part.

This is why, out of all my income streams, I only actually consider my dividends from stocks and interest earned from P2P lending passive income. 

A good benchmark to know if your passive income returns are up to par would be your fixed deposits with banks. Historically, it has been at the 3% mark. Recently, a 2% return is the norm. So if you’ve already got investments generating passive returns for you, check if it’s higher than your FD rates. I’d even go so far as to say that FDs are like the kings of passive income. Easiest to obtain, all you need is capital.

My income right now comes from the following:

  1. Salary
  2. Stakes in businesses
  3. Rental
  4. Dividends
  5. Interest

Earned income from working a job is the total opposite of passive income. My businesses, although can run by themselves, I still consider them not to be truly passive because they still require constant monitoring and checking in.

As mentioned earlier, rental income from my properties does not fall under the passive category for me. My properties require attention from time to time in the form of rent collection, having to look for tenants, fixing stuff etc. So, not passive. For me at least. Until I hire a property manager.

Dividends from my stocks I totally consider passive because the valuation of a company is done once before I purchase the stock. Thereafter, I only check in with the same company either quarterly, half-yearly or sometimes even once a year. 

Lastly, my income in the form of interest comes mostly from fixed deposits and lending money via P2P lending platforms. FDs are a no-brainer, you can even make placements online nowadays. As for my P2P lending, although small in comparison to my other income, this one is passive for me as well. I just read the prospectus and information on the company/business I’m lending money to, and then sit back and receive my money in the form of capital plus interest.

My main source of passive income comes from dividends generated by my Freedom Fund. To achieve financial independence, I’ve calculated that I’d need roughly RM3,000 a month in passive income.

Updated 2025 – Last year’s dividends came up to RM20,735.99. I’m more than halfway to my goal of RM36,000 in dividends per annum. My dividends so far for the year 2024 can be viewed hERE.

Updated 2021 -Last year’s dividends came up to RM16,322.27. I’m almost halfway to my goal of RM36,000 in dividends per annum. My dividends so far for the year 2020 can be viewed hERE.

How to Generate Passive Income

Earning any form of income boils down to two factors – the effort and time and/or the amount of capital you put in. In essence, either you invest and put up your time or you put up your money.

So if you’re young, you’re able and you’ve got time to spare, you will want to consider putting in your time and effort towards building a steady stream of passive income. A good example of this would be someone in their 20s working their ass off in a business with the eventual goal of automating it and generating returns without their involvement.

Or, that same 20-year-old person could work at their career, save their salary, and then invest that money to then eventually earn passive returns. This means – time and effort first, and then putting up the capital after.

Unless you’re fortunate to be inheriting wealth, you’ll always have to put something up for return. Your effort, your time, your money.

Getting to where I’m at hasn’t been an easy ride. My portfolio is mainly built on frugality. In my experience, passive income does not come easy. It’ll take a huge initial investment on your part. In the case of my dividend income from stocks, to earn that RM16K per annum, I had to have about RM400K in capital which comes up to about a 4% return for me.

Why is Passive Income Important

If like me, you’re on a quest for financial independence, passive income will cover your expenses. Financial freedom and security have always been my ultimate goal.

When I invest, I invest to first increase my passive income. And when I’ve eventually reached my passive income goal, I’ll focus on growth. Because that is when I’m set and I can afford to take bigger risks with my investments. Also, I’d rather not liquidate and sell my stocks for income.

With a steady, reliable source of passive income generating for you every month, trust me, you’ll be in a very happy place. Investment decisions can be so much more logical and less emotional. You worry less about losing the shirt off your back if your investments don’t work out. Of course, being a rational investor you’ll still exercise caution, you just won’t be hindered by thoughts of bankruptcy and worst-case scenarios.

Passive Income Ideas

If you’re like most readers of the blog, you probably are in your 20s or 30s, and you’re working for a salary. You might want to first consider putting in FDs, and then maybe stocks for dividends.

Another way to go is properties, it may not be passive for now. But once you’ve built up a substantial real estate portfolio where hiring a property manager is viable, it most definitely will be passive then.

One more potentially lucrative endeavour is to venture into business. You may have a hobby right now which can be turned into a side hustle and eventually into a full-fledged business. Or if you’ve got the dough, look into franchises that do not require your full attention.

I’m always trying to find other ways to generate passive income for myself. Some good ones come to mind like royalties from book publishing, music, or any kind of intellectual property.

The blog itself is earning a little from ad revenue and affiliate marketing. This however isn’t passive YET. I don’t want to bombard you guys with too many ads on the site. Affiliate marketing only happens when I actually like and/or use the products. Right now I’m just really enjoying writing and having a community built on investing and FI/RE.

Now, as you can probably tell, not everything may qualify as passive at first because it requires a tremendous amount of effort. But at the end of the day, say 10 years down the road when you’re able to be hands-off and collect your cash, it’s most definitely passive.

A Few Closing Thoughts

Passive income for me is tied closely to my goal of financial independence and freedom. And I’ve decided on dividends to be my main stream of income. You may have other ideas for passive income and your goals might differ. At the end of the day, we can all agree that passive income is a good supplement to your portfolio whatever your financial goals might be.

Ever since I graduated and started my first job, I’ve worked towards a goal – having a stock portfolio whose dividends I can live off for the rest of my life. So, if you haven’t already, set yourself a target and work towards it. Don’t just work that 9 to 5 job aimlessly. Your goal could be like mine, financial independence. Or maybe you truly find happiness in living a lavish life. There isn’t anything wrong with either one. A goal is a goal, as long as you have one and you’re happy, by all means!

For the next article of the FI/RE and Savings Series, check out article 004 – Emergency Funds & Fixed Deposit Laddering.

As always, Facebook and Instagram. Keep up to date and help support the blog by following and sharing. Thank you!

Funding Societies – My First Default

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Filed Under: Other Investments, Dividends, Financial Independence, Investment 9

First off, an update on my portfolio’s performance with Funding Societies Malaysia. Annualised returns have gone down from 13% to 9.23%.

A lower figure compared to January but still, a 9.23% return is commendable for an investment.

Mainly due to –
1. A default; and
2. New unutilised capital.

My First Default(s)

It caught me off guard when I first received notice on the default on the issued notes, of which I’ve put in RM300 each into the affected notes.

MBBT-18080032
MBBT-18080033
MBBT-18080034

Being caught off guard like that isn’t always a nice experience but it was mitigated somewhat because I’ve constantly been managing my own expectations and prepping for a few defaults.

Re-adjusting Funding Societies’ Auto-invest Bot

If you’ve noticed, all the notes come from a single issuer or company. So it’s back to the drawing board for me.

I’ve now switched my auto-invest bot settings to have ‘Max Issuer Exposure’ from the previous 25% to a mere 5%. I don’t want to be over-invested in one single issuer.

In the event that a single issuer defaults, my loss exposure will never exceed 5% of my total loan portfolio.

Steps Taken by Funding Societies

It all started on 7 January 2019. The issuer contacted Funding Societies to delay payment. Below will be the notices I received from Funding Societies. In chronological order.

This will be pretty lengthy but it is important you as investors know the step-by-step process taken by Funding Societies.

7 January 2019

Dear Investor, The Issuer has reached out to us to push back the repayment of January 2019 due amount because pending receivables from their client, this will include late interest charges. Tentatively, repayment of January 2019 due will be on 18 January 2019. Thank you for understanding the situation. Team Funding Societies 7/01/2019, 6.20pm

** And thereafter, lengthy amounts of back and forth discussions with the issuer on the settlement. I’ll spare you the details. With the issuer failing to make repayments in March, Funding Societies finally decided to serve a letter of demand.

10 April 2019

Dear Investor, We wish to update that we have served the Letter of Demand as of 8 April 2019. At this stage we continue to be in contact with Issuer through our lawyers to demand for RM 50,000 which due on 31 March 2019, and upcoming RM 150,000 which is due 15 April 2019. As we wait for Issuer response to the Letter of Demand, kindly allow us to update you by 17 April 2019. Team Funding Societies 10 April 2019, 8.30pm

18 April 2019

Dear Investor, We would like to inform you that Note Issuer has made a partial payment of total RM 10,000 and it has been distributed as principle to investors on 16 April 2019. However, the amount made by Issuer is less than what we have requested from the Issuer. We are still in the midst of negotiating the outstanding repayment term with Issuer. As per our last update, the Letter of Demand has been served to the Note Issuer, and the Note Issuer has only made payment of RM 10,000.00 of the promised RM 200,000.00 upon the expiry of the Letter of Demand on 17 April 2019. At the meantime, we are escalating our recovery efforts through legal avenues and are discussing with the appointed panel lawyer on how to approach this matter effectively. You may refer to your email for full update. Kindly allow us until 3 May 2019 to provide you updates on the progress of recovery. We truly appreciate your kind patience and continued support. Team Funding Societies 18 April 2019, 1.25PM

End.

So there you have it. I’ve said there would be defaults and I’m sharing with everyone the first of mine.

There are inherent risks in investing in P2P financing. To mitigate, I am diversifying as much as I can. Putting in small amounts in every note issued.

And now, as I’ve learnt the hard way, not to overexpose myself to one single issuer.

I hope everyone learns from this.

That being said, I am still getting a 9.23% return. So don’t let yourself be discouraged by my defaults.

😀

Sign Up!

If you have not already, you can sign up with Funding Societies hERE.
Alternatively, you may use the code: j1mwa37p
You’ll receive RM50 upon investing your first RM1,000.

Note:
Funding Societies has reduced their referral bonus from RM50 to RM30 effective 1st March 2019.

Using my code and link, you’ll still receive RM50.

Funding Societies – Risks, Defaults and Diversification

By
Filed Under: Portfolio - Freedom Fund, Financial Independence, Investment, Other Investments 8

Funding Societies Malaysia

This will be an update to my earlier post on Funding Societies, Malaysia’s (largest?) P2P platform.

As I have posted and shown earlier, my investments in Funding Societies has netted me an annualised return of 13.12%. As of today, it has increased slightly to 13.15%.

The referral bonus from you guys does not affect that 13.15% return. 

To put the returns into perspective, my IRR and average return for the Freedom Fund is at the 12% mark for the past few years.

 

Calculating Simple and Effective Interest Rate

Funding Societies Effective Interest Rate
Simple vs Effective Interest Rate

 

From the example, interest returns of RM10,000 for an RM100,000 investment opportunity (effective investment exposure of RM55,000) gives you an effective return as high as 18% (RM10,000 / RM55000).

The monthly repayments help reduce your risk exposure every month while increasing your investment returns. Best of all, if you choose to reinvest the monthly repayments you receive, you’ll compound and achieve even higher returns.

The folks at Funding Societies have a handy explanation for simple vs effective interest rates. The effective interest rate comes in handy when you want to compare your investments vs other choices in the market.

Default and Diversification

Most of you are worried about the risk involved when lending your hard-earned money to businesses you know almost nothing about. And you should be.

However, you’d be happy to know that the regional default rate as of November 2018 is at 1.02%.  Regional meaning Malaysia, Indonesia and Singapore.

Even more good news, the default rate in Malaysia is 3 out of 300 loans. That is 1.0%. With that kind of risk and return rates, I hope you’ll be able to make a more informed decision.

I do expect the default rate to increase in the near future as more businesses seek funding through the P2P network. As for me personally, I’ve yet to have a loan default in my portfolio.

Defaults are normal in the P2P lending industry so the key to success for us as investors is to DIVERSIFY.  The loans from Funding Societies give your returns anywhere from 10% to 16%.

I personally use the Auto Investment Bot provided by Funding Societies Malaysia.

I set my parameters as follows:

  • RM300;
  • A minimum investment period of 1 month;
  • A maximum investment period of 24 months;
  • At least 12% simple interest rate; and
  • At most 18% simple interest rate.

Signing Up – RM50 BONUS

Signing up to be invest is a breeze. Just head over to Funding Societies, and all you need is your IC / passport number, an email, and your mobile number.

Additionally, you’ll receive a bonus RM50 when you sign up with my code j1mwa37p

The terms? You’ll just have to invest a collective amount of RM1,000.

End.

I’ve been using Funding Societies for close to a year now and that 13.15% return is real. If you’re able to stomach that minuscule default rate they have right now, I think this would make a good investment alternative.

Again, thank you, everyone, for using my code upon registration.

I’ve gotten messages of concern from many of you advising against posting my referral bonus. But my aim is to always be as transparent as I can. I’m not recommending P2P for the referral fees.