Following the global financial crisis, certain market forces at play led the way for a direct lending asset class for investors. Banks, through savings accounts or fixed deposits, provide interest rates of around 6-8%. In contrast, peer-to-peer (P2P) lending in India currently gives a net return of 18-22% to lenders. This is chiefly achieved by connecting lenders directly with borrowers, something which drastically reduces the operational costs.
What P2P lending offers investors
– P2P lending in India currently gives a net return of 18-22%
– Borrowers repay principal & interest every month so there is a steady cash flow
– Investors can pursue legal recourse against the borrower in case of defaults
– By diversifying your investment across different borrowers, you will begin to mirror the overall default rate of the platform
If you are an investor looking to diversify your portfolio, here are three main reasons why you must consider investing in peer-to-peer (P2P) lending. Exciting returns: P2P lending is consistently delivering net return upwards of 18% per annum. It takes about 18 months and an investment of up to `10 lakh across a diversified portfolio to stabilise at 18-22%. Add to this the fact that since borrowers repay every month (principal and interest), there is a steady cash flow coming in every month. Reinvesting this monthly inflow means an opportunity to earn even greater returns.
Stable asset class: For an average investor, P2P lending is a good asset class of consumer credit.
P2P lending is like investing in debt; the capital risk is lower, and there exist ways to mitigate it. In case a borrower defaults, investors can pursue legal recourse against the borrower. Such a provision is not possible if you invest in stocks and bonds. By diversifying your investment across different borrowers, you will begin to mirror the overall default rate of the platform, gaining stability and consistency within your portfolio and enjoying the returns just like a bank does.
Participate in India’s financial growth and inclusion: The money you invest helps bring positive changes in people’s lives. People are able to come out of credit card /debt trap, a father is able to get his daughter married, a son is able to make his mother healthier, businessmen are less stressed. P2P lending companies are giving you the opportunity to invest in and help out a fellow Indian under pressure due to lack of access to easy and cheaper credit.
A smart investor invests across various investment opportunities like equity and stocks, mutual funds, SIPs, or deposits with banks such as saving, recurring, or fixed deposits. Alternative investments include real estate, gold, art, and P2P lending and tend to give higher returns. To beat inflationary trends, experts recommend that 20% of total investments should ideally be in alternative investments.
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