Retirement Savings with P2P Lending

We can delay it, But we can’t run away from retirement savings planning.

Ageing is a natural phenomenon that happens to everyone who’s born.

And we can’t deny the fact that, the retirement is an inevitable part of our life.

It’s getting more important to plan for it.

Why?

People are preferring to live in nuclear families like never before. Besides, factors such as the high aspiration of youth and their job-related migration make it more compelling for everyone to be financially independent even post-retirement. Thankfully, there’s enough awareness today about building adequate retirement savings.

But unfortunately, for fulfilling this important goal, people are not choosing the right investment options.

Many of you might be investing in pension plans. Have you ever asked yourself, if you need such products? Without any shadow of a doubt, insurance is an important product for safeguarding your financial dependents from the potential loss they might suffer in your absence. But it’s a gross mistake to commingle your insurance and investment necessities.

Some of you might regularly be investing in fixed deposits for creating a retirement corpus. Looking at the inflation and tax-adjusted returns on FDs, do you think they will help you generate any wealth in the long term?

Ideally, your retirement savings should be deployed in a blend of growth and fixed income assets. Depending on your age, years left in retirement, present financial situation and risk tolerance, you should design a right asset mix. For example, Mr. Manjyot Bindra –a 40-year old professional can go for a split of 50% and 50% in equity and fixed income respectively. As per the estimates of his financial planner, he needs to invest Rs 50,000 per month until he retires, to be able to achieve financial independence post-retirement.

Mr. Bindra, being a disciplined investor, has been regularly investing as prescribed his financial planner. To invest in equity assets, he prefers a direct route and invests in mutual funds through Systematic Investment Plan (SIP) route.

And do you know which fixed income avenues does he prefer? He invests Rs 25,000 in Public Provident Fund (PPF) National Saving Certificates and other small savings schemes all put together.  He is unaware that he is losing an opportunity to generate higher returns by taking a calculated risk.

Of Rs 25,000, if he diverts 50% of the amount to Peer-To-Peer (P2P) Lending projects, he can accelerate his returns.  A right decision can earn him at least Rs 61.16 lakh more than what he may make in PPF by the time he retires at the age of 58.

Which investment option looks more attractive?

(The returns on P2P Loans are calculated assuming that all investments will be made in the safest category)

For this who don’t know much about P2P Lending Platforms…

P2P Lending platforms are modern technology-based platforms that enable investors and borrowers to connect directly, entirely eliminating the role of the banks. However, the platform conducts credit evaluation before listing a loan proposal for funding. Therefore, it’s imperative to choose a right P2P Lending platform. Technological superiority and robustness of credit evaluation processes are the two most important factors you should look at before you start lending your hard-earned money on a P2P Lending platform. So choose wisely.

i2iFunding is a leading P2P Lending platform. We, at i2iFunding, have established strong credit evaluation processes which evaluate each proposal based on more than 40 pre-determined parameters. We assign the top-most priority to the safety of your principal. You would be surprised to know this—only about 10% loan proposals successfully pass through our rigorous evaluation processes, on an average. And, please make no mistake. We don’t reject loans in a lazy manner like banks do.

For the better understanding of investors, we categories loans in 6 risk categories from “A” to “F” –wherein “A” denotes the highest safety. We also provide many other filtration tools to our investors.

We believe, Mr. Bindra would be better off investing in multiple P2P Lending projects at i2iFunding. And, he should keep reinvesting the interest that he will earn every month. For the safety of this corpus, we recommend him to focus only on first 5 categories of loans. And he should invest only Rs 5,000 in each category of loans every month. With this approach, he will be able to accumulate a sum of close to Rs 4.29 crore at the time of retirement. As against that, with his current preferences (i.e. by investing in PPF and NSC), he would be able to accumulate only Rs 1.19 crore on his retirement as retirement savings.

P2P Lending—An attractive avenue to grow your retirement kitty…

Assumption: Interest earned is reinvested at the same rate.

(For illustration purpose only)

Some of you may argue, PPF and NSC offer a complete safety of corpus. True, they do. But, we at i2iFunding don’t care less about it. We maintain a separate fund called “Principal Protection Fund” which offsets your capital losses in case of a default. However, it’s noteworthy that, so far we have managed to maintain a record of ZERO default.

Now please don’t forget to check with your investment consultant, how much return he expects from equity investments over next 18 years and then compare which investment avenue earns a superior return—P2P Lending projects or equities.

Nonetheless, we understand the importance of diversification. And we too believe not putting all eggs in one basket is a wise strategy. Rather we encourage you to diversify across asset classes and across various options within each asset class. That being said, it’s up to you which asset class should dominate your asset allocation.

To begin with, try to gain confidence in P2P Lending as a new investment avenue. And as you mature as a lender, think about increasing your commitments.

Mind you, we are not in a business of making you rich overnight. We are just opening an investment avenue which is still in its nascent stage in India and thus being looked upon with a lot of skepticism.

Retirement Savings and planning is a big decision. But, don’t blindly say no to something which can be so rewarding if dealt with care. Instead, you should explore, test, experience and judge. Sounds logical, doesn’t it?