Earn Money with no Stock Market Risk in India
In April 2022, the inflation rate of our country rose to 7.79%. With the increase in inflation, almost every item and commodity considered an ‘essential’ becomes increasingly expensive. In such times, investing surplus income is perhaps the only way to ensure inflation doesn’t negatively impact your purchasing power.
Fixed deposits used to be a dependable way for investors to hedge against inflation, but the current inflation rate far surpasses FD payouts. While high-yielding investments like stock markets and Mutual Funds can help you beat inflation, they are highly volatile.
With disruptions caused in the international supply chains because of the ongoing Russia-Ukraine war, the stock markets, along with most other commodities, are going through a highly volatile phase. Just last month, Indian investors collectively lost Rs. 6 lakh crores due to the stock market crash.
So, where should you invest your money, especially in un times? Is there a way to beat inflation while avoiding the risks associated with stock market investments? Let’s find out!
How to earn money with no stock market risk in India?
Alternative lending methods like P2P lending have quickly gained ground in India. With the rise of Fintech companies, many investors are moving towards P2P investments.
By investing your money in peer-to-peer lending, you can earn 10%-12% annualised returns and still not face any stock market-related risk.
Peer-to-peer lending, or P2P lending in India, is a relatively new investment opportunity. To put it simply, P2P lending platforms in India enable investors to lend their money to borrowers and earn on the interest rate. If you invest regularly and diversify your portfolio, P2P investments have the potential to make high returns and generate consistent income.
Since the money is lent to a real person, and it works exactly like a loan, P2P loans relatively have low market risk. Just like loan repayment to a bank, the borrower is legally bound to repay the money borrowed from you with interest. So, how does P2P lending work? Read on to find out.
Regular monthly income with the help of high return investment plan
Peer-to-peer lending in India is facilitated by P2P lending platforms. A peer-to-peer lending platform in India, like LenDenClub, obtains an NBFC-P2P license, and the operations are regulated by the RBI. This makes platforms like LenDenClub safe from a security perspective.
So how does P2P lending generate regular income for investors?
P2P lending works exactly like conventional loans. Investors lend the amount to the borrowers for which they receive monthly repayments. The repayment amount comprises both the principal and interest, which can be reinvested by the investor on the platform to earn the benefits. Since the whole process is regulated by the RBI, the P2P lending platform actually does not hold any money.
Starting from the loan disbursement to the repayment of the loan, all P2P transactions are routed through an Escrow Account. At no point does the P2P platform hold any of the money. This mechanism ensures the safety of investors’ funds.
Comparison with the volatility of the stock market
We have already established that P2P lending investments don’t carry any of the risks associated with stock markets. So they are less volatile and relatively . However, this doesn’t mean that there is absolutely no risk. Let’s understand the risk involved with P2P investments and see how it compares against the risks of the stock market.
The biggest risk for the investors’ money under P2P lending is the borrower defaulting on repayments. This is called default risk. Platforms like LenDenClub build robust borrower screening to minimise the risk of default. As a result, they are able to maintain low default rates between 3-4%.
Here’s how LenDenClub ensures a low default risk for its investors:
- LenDenClub evaluates potential loan applicants using 200+ unique data points, giving them a holistic view of the borrower’s creditworthiness. Only genuine borrowers are allowed to list on the platform to ensure investors’ safety.
- The other way a P2P lending company in India, like LenDenClub, helps investors is by helping them diversify their investment amount. Investors on the platform can lend small amounts to multiple borrowers and diversify the default risk. That said, the platform ensures that the investment is performed in an AI-based automated manner, not manually. Of course, the investor has the flexibility to set the borrower preferences. And AI does the rest!
Let’s understand this with a simple example. Say you have INR 50,000 to invest. If you give this entire amount to a single borrower, then it puts your investment at a high risk of default. If, on the other hand, you divide this amount among 100 borrowers, your risk is spread considerably. Even if one of them defaults, the major chunk of your investment will still remain intact and continue to earn interest for you.
So how does the managed risk of default compare to the risks of the stock market?
In light of the recent developments of the Covid-19 pandemic and geopolitics, experts are expecting a stock market crash due to rising inflation. The stock markets also saw a similar crash in 2020 when the lockdowns induced by coronavirus distressed the global economies. At that time, markets plunged nearly 40% in a matter of days. This shows the inherent risk of investing in the stock markets.
On the other hand, with proper checks in place, P2P lending platforms can maintain incredibly low default rates. As mentioned, LenDenClub can maintain a low default rate between 3-4%. With P2P investments, you can save your money from the risk of market volatility and also earn a truly passive income. Here’s how it works.
Unlike Stock markets that demand news awareness and thorough market study, platforms like LenDenClub use the power of AI. You can set up a borrower preference filter by answering 8 simple choices. Thereafter, the AI selects suitable borrowers and starts investing on your behalf. AI-powered investors also get priority access to new borrowers listed on the LenDenClub platform.
It’s easy to see that peer-to-peer lending is a superb investment opportunity in today’s economic scenario. We hope that this article has helped you understand P2P investments better.