RateSetter reforms market rate formula to tackle fluctuations
RATESETTER is updating how its market rate is calculated to ensure returns are more consistent for investors.
The peer-to-peer lender’s daily market rate is currently calculated by taking the weighted average of all the rates transacted during the previous day. However, RateSetter said that this can lead to fluctuations that can be “frustrating” for investors.
Instead, from March the market rate will be calculated based on rates transacted during the previous 28 days.
This would close the gap between the highest and lowest returns on the market rate.
Under the new formula, for example, RateSetter’s rolling market rate would have ranged from 2.8 per cent to 3.4 per cent last month, rather than the wider range of 1.9 per cent to 4.1 per cent based on the existing method.
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“Currently, the daily market rate is calculated by taking the weighted average of all the rates transacted during the previous day,” Mario Lupori (pictured), chief investment officer for RateSetter, said.
“This has the benefit of making the market rate dynamic, but it has the downside of fluctuations which can be frustrating for investors
“This update will mean greater consistency in returns for investors while preserving the flexibility that makes investing with RateSetter so attractive.
“It will also allow RateSetter to plan ahead and lend with greater certainty and confidence to generate more investment opportunities for investors.”
The platform said this would not affect an investor’s reinvestment settings.
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