In recent years, Peer-to-peer (P2P) lending has become an area of interest for high yield investing since the other traditional investment options are not providing sufficient returns. While P2P lending allows the investors to provide personal loans to borrowers and then receive average annual returns of up to 12% p.a on it.
Perpetual Growth While Overcoming Defaults
Investors these days are enthusiastic about P2P Lending since it’s growing steadily over the last few years. P2P lending has grown more than 10 times in the last one year on a year-on-year basis. Reserve Bank of India (RBI), recognised the growth and now regulates the sector under a different category named P2P NBFC (Non-Banking Financial Companies). P2P investing provides a high-yield alternative to the highly volatile and unpredictable equity (stock) market. While also being much steadier and dependable.
As a result, this asset is comparatively less risky, which fits the bill for investors of all risk classes. Though defaults are a huge concern that investors are bothered about. Although, that can be mitigated by correct diversification of your investment amongst multiple borrowers. For instance, if you invest Rs. 50 lakh in thousands of borrowers loans, it will eventually reduce your risk of defaults.
Achieve Double-Digit Returns
In December 2019, the RBI relaxed P2P lending norms by increasing individual lending limits across platforms from Rs. 10 lakh to Rs. 50 lakh. With no upper limit on interest rates, an investor can earn returns ranging between 10-12% p.a, or even more, by giving small loans to subprime borrowers. Moreover, a portfolio of mixed credit can earn double-digit returns, even if you deduct the 1% management fee and maybe a reasonable allowance for loan defaults.
No Blockage Of Money
The most interesting thing while investing in P2P loans is the monthly returns that investors gain. Investing in any other instrument asset class might block both of your returns and your capital for a specified period of time, which may vary from months to years. Here, you get your investment back every month! There is another good thing, the P2P loan is the simple asset instrument to invest. You do not have to be an expert to understand and invest successfully in P2P lending.
Moreover, P2P platforms are growing by leaps and bounds, giving high returns with moderate risks, it has attracted many investors and at the same time multiple borrowers. Have a look at a peer-to-peer lending platform LenDenClub, and you can start investing to gain double-digit returns!