5 reasons you should invest in P2P Lending

Invest in P2P Lending

Peer-to-peer (P2P) lending is an age-old concept, but it has recently gained quite a reputation as a formal way of building an investment portfolio. Investors all across the globe are beginning to consider P2P Lending as a must approach opportunity for high and safe returns. Running through its multiple advantages, here are some reasons why you must Invest in P2P Lending.

           5reasons-invest-inner

#1 – High Returns

If you’re having to keep your money idle for a long period of time to get minimal returns, you’re certainly losing it. P2P lending provides an opportunity to earn big in lesser time.

Savings accounts usually provide a rate of interest of around 4%. That means if you put ₹1,00,000 in your account, it would grow to ₹1,04,000 at the end of one year. Just ₹4,000 on a much bigger sum. But what if you could earn around 20% on your investment?

With i2iFunding.com, this is possible. The platform offers returns as high as 30% on borrowers, but let’s take a conservative estimate at 20%.

The RBI has mandated a single borrower-lender exchange to not be more than ₹50,000 in value. So the investment must be distributed to a minimum of 2 borrowers.

Assuming both borrowers take loans at 20% rate for 1 year.

At the end of the year, you should earn ₹11,162 summed from both your investments. These returns are less than ₹20,000, as you get repayments in the form of EMI. If you invest the EMI which you are getting every month, your returns would be much higher. Returns are higher in this case even though your complete Principal amount is not invested for the entire duration.

This isn’t attractive in the context of just savings accounts, this is greater than many other options. These are also much safer than all market-linked investments as they eliminate the volatility factor. Talking about safety when you Invest in P2P Lending, we’ve covered that in another article here.

#2 – Safety

High returns typically mean high risk. Naturally, it isn’t just the high returns you should target, but also the safety of your money.

A borrower starts with an anonymous person in need of money who files an application in the platform for a loan. Naturally then, strong background and safety checks are necessary. At i2i Funding, this (and more) is taken care of. The platform does detailed credit evaluation of borrowers and lists borrower profiles only if they meet credit criteria. i2ifunding approves only 5% of loan applications it receives. Approved profiles are listed with an i2i risk category, credit score, employment details, financial details, and other factors. The risk category is the measure of a borrower’s credibility which is mapped by checking the borrower’s loan history, previous repayment failures (if any), debt to income ratio, education, and employment details etc. The idea is that you should know the borrower’s ability to pay and intend to pay.

Once you have access to all the data, you choose the borrower of your choice, checking their details, their credit scores, and after making the decision, you lend your money to the select borrower(s).

#3 – Monthly Returns

Investments are usually planned for long-term goals and returns. But what if putting your money in something could earn you returns every month?

Loans attract monthly returns. When you become an investor, you play the role of a lender. Hence, you charge interest. This earning can be withdrawn from the platform and becomes your monthly earning.

This is unlike many other investments – wherein your money is invested for as long as you decide to not exit. When you Invest in P2P Lending, you can even reinvest this amount back into more loans and further increase your returns.

#4 – Reduced Risks

if you plan to invest in P2P Lending, it is best optimised when you diversify your portfolio and distribute your investments over multiple borrowers. Now, with the arrival of RBI regulations, a lender-borrower pair can anyway only exchange ₹50,000 at a given point of time.

Let’s say you want to invest ₹6,00,000. You can distribute the money in any form among several borrowers and even charge them different interest rates.

For example,

30 borrowers may take a loan of ₹10,000.

10 borrowers may take a loan of ₹20,000.

2 borrowers may take a loan of ₹50,000.

The only risk that an investor faces in P2P lending are a defaulting borrower. With 42 borrowers, if someone defaults, the amount at risk is far less.

In P2P Lending, it is advisable to cross-check all the details of the borrower. Go through the complete profile of borrower before lending money to him. Also, prefer those platforms that help recover the amount if a borrower defaults.

#5 – It’s Evergreen

Unarguably, there is never going to be a time that people stop taking loans. Unlike other asset classes – such as equity and mutual funds, Peer to Peer Lending is far less volatile and doesn’t involve you having to keep tabs on your portfolio every hour. With its high returns and safety, you could always earn solid profits at a consistent rate.

Conclusively, P2P lending suits every investment requirement. If you haven’t already begun – start with i2i Funding!

As an Investor, are you cut out for P2P lending? Find out with this quiz.
P2P Lending in India - Expectations in 2018

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