How can I become an online lender?

Aug 17, 2022

How can I become an online lender?

In today’s day and age lending or investing money online is available for everyone on their fingertips. 

There are several ways and places you can put your money to work online. 

But What makes a good online Lending option? any savings plan can be measured by several factors determining its effectiveness. if we list down, the following factors which influence the investment decision of an investor:

  •  Flexibility to invest
  •  Safer risk-return proposition
  •  Tax benefits 
  •  Freedom to withdraw anytime
  •  investment period

After deciding your goals and needs you can look at which factor holds more importance to you when investing. Every investment will have to focus on an objective, while compromising on others. For instance, when you are investing for high liquidity, you might lose on the overall returns.

Best Online Investment Options in India

1. Equity – Stocks

Buying individual equity stocks of the companies which are listed or unlisted on the stock exchanges is known as Direct Equity investment. You can get dividend and capital gains returns from your direct stock investments. The performance of stocks depends on factors such as market condition, company’s performance, etc.

  • This option is considered volatile investments and has a high risk-return ratio
  • One of the best investment options to generate inflation-adjusted wealth
  • Best Suitable for a long-term and short-term goals
  • Flexibility to liquidate 

You need to have a bank account, Demat account and an online investing platform (like zerodha) to start investing. 

You need to have a good understanding of  the workings of equity stocks and markets. you can invest using your research and analytical skills or on advice from a certified broker. However, you also need ways of managing your investment risk.

2. Bank Fixed Deposit

It is a facility offered by the banks that ensures the safety of your invested money and provides Interest on it.

In Bank Fixed Deposits, you are required to invest a lump sum amount with the bank for a specific term and at an existing rate. After your term gets over you will receive your principal with the compound interest added over the term.

Things to know about Bank Fixed Deposits

  1. a) Bank FD offers you returns. Thus, your principal is safe.
  2. b) You cannot withdraw from your FD till it matures. By breaking your FD before the term, you can lose out on compound interest and incur penalty charges.
  3. c) FD can be both long-term and short-term. The term can be as low as 7 days and can go as long as 10 years.
  4. d) The interest rate agreed upon at the start will continue throughout the term in a Bank FD. Thus, fixed rates of interest continue
  5. e) You can either receive the interest or reinvest it.

3. Equity Mutual Funds

It’s a type of mutual fund where the majority of funds are invested in equity stocks.

Equity mutual funds invest anywhere starting from 70% to 95% of the invested value in equity and related instruments. Since these are equity-based, they offer a high risk-return ratio. 

  1. a) Actively Managed Mutual Funds

In these, the fund manager is actively involved in managing. The experience, knowledge and expertise of the fund manager is an important element in the performance of this fund. They chose the stocks that the fund will be invested in based on research and analysis of the companies.

b) Passively Managed Mutual Funds

In this, the Fund manager does not actively play a major role. The fund is based on a particular index or market portfolio. For example, a fund that is built up of stocks of NIFTY50, etc. The performance of the index determines the performance of this fund.

4. Debt Mutual Funds or Bond Funds

Investing in equity can give you amazing returns but also has high risk. And if you do not have a high-risk appetite and do not want to take much risk? In that case Debt Mutual Funds can be a good option.

In Debt Funds, the amount is invested in fixed income securities by the use of instruments like government and corporate bonds, debentures and other fixed income securities. Depending on the type of instruments held in the portfolio it can have a varied risk profile.

Funds with top rated securities or government bonds are suitable for you if you want the stability of returns with less risk but return on your investment will be less also compared to others.

You should consider debt funds when

  1. a) You have low risk appetite
  2. b) You want fixed and safe returns
  3. c) your priority is Safety of principal

5. Public Provident Fund (PPF)

one of the most popular and safe investments for your long-term goals, PFF. Originally introduced as a retirement investment plan for people who are self-employed, it’s a popular with long-term investors, because:

a) Helps in Tax Efficiency

Claim up to 1.5 lakhs deduction under section 80C up for ULIP investments. Also, the maturity received is tax-free.

b) Liquidity

borrowing from the accumulated corpus within the first 5 years of the account. After 5 years withdrawals partially are allowed

c) Risk-Return Mix

Low-risk investment with a market-linked rate of interest, which is updated every year.

d) Investment Period

Minimum 15 years, after that account batches can be extended upto 5 years.

6. Peer-to-Peer lending platforms

P2P platform connects lenders directly with borrowers, without any financial institutions as middle man. This makes it possible for P2P platforms to give higher earning returns than bank deposits as well as the invested funds get dispersed between several borrowers reducing the risk involved.

In India it’s a very difficult and time consuming process to be accepted for a constitutional loan which is always filled with complex regulations. Slowly and steadily a new alternative is gaining popularity and is on the rise, peer-2-peer lending or crowdfunding platforms. 

Crowdfunding and p2p is still a modern day term  in our country with which our investors are still getting in terms with. unlike the US or Uk where it’s a well established institution and part of their ecosystem. 

Anyone can be a lender on a p2p site by following a few steps:

  1. Choose the right platform

Alternative finance is still relatively a new market and many new companies are jumping on the bandwagon. Research online and figure out the companies which are professional, transparent and most importantly have a robust Robust Borrower Screening which makes the defaulter less likely big names like LenDenClub follow such practices. They also have an Investment Diversification system which reduces the risk significantly.

  1. Set up your account

Provide the platform of your choice the required documents and set up your account. You might need your pan card and bank account details for the same.

     c) invest!

Choose the amount and tenure you want to invest for and there you go!

Close with why LDC

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