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Wednesday, October 23rd, 2019

WHY INVESTORS SHOULD CONSIDER P2P LENDING

The peer-to-peer lending industry, valued globally at $64 billion in 2015, is growing at approx. 50% CAGR. It has established itself as an asset class delivering predictable investor returns protected from stock market volatility. The emergence of P2P platforms has created an opportunity for income-seeking investors to diversify their portfolio with an alternative investment that was previously only available to institutional investors like banks.

6 reasons why investors should consider a P2P lending

Higher returns – Average net returns (after deducting losses) fall in a lucrative range of 11% to 20% p.a for most lenders on the platform. These returns are highly competitive when considered against average returns delivered by other market-linked investments like Real Estate, MFs, and Stock market.

Risks adjusted returns – P2P lending delivers risk-adjusted returns by enabling lenders to predict risk. For instance, on average, net returns will factor in the loss rate of about 5%-6% p.a. Responsible platforms help lenders earn higher net returns by helping them to mitigate individual risk.

Easy tenures – In the peer-to-peer lending world, borrowers and lenders can choose from a set of easy pre-define tenures to suit their purpose. For instance, the duration of the loan may vary from 6 months to 36 months.

Regular and stable income – Investors can earn month-on-month returns in the form of principal repayment and interest (EMI).  This is one of the biggest advantages offered by P2P lending over other market-linked investments that have a lock-in period (up to 3 years).

Benefits of compounding returns – Lenders start earning returns every month which can be re-invested to generate compounding returns.

Diversification of P2P portfolio –An investor generally invests in multiple instruments like MFs, SIPs, stocks and investing in P2P lending adds to the diversification of his/her market-linked investment portfolio. Additional diversification in this loan segment can be attained by investing across borrower profiles – geographies, risk-grades, demographics, and professions.

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