Looking for Higher Returns? Invest in Peer-to-peer

Dec 9, 2020

We know what you’re thinking! Double-digit returns?? Yes! you read it correctly!
Have you been investing your hard-earned money in traditional investment options? If yes! Are you currently liking the returns you’re receiving? I assume the answer is slightly on the no-side, assuming the single-digit returns on the money invested. However, after reading the double-digit returns above, you must be wondering where I went wrong in my investment and how I can correctly invest my money and get higher returns investment.  

Anyways, it is never too late to do something good or catch up a rally you have missed earlier.

Let’s understand how you can earn double-digit returns by investing in Peer-to-peer. But before that, let’s understand what is a peer-to-peer investment

What is Peer-to-peer investment? 

  • Peer-to-peer investment is a form of direct lending of money to individuals or businesses without an official financial institution participating as an intermediary in the deal. 
  • Peer-to-peer lending is generally done through online platforms that match investors with potential borrowers who have registered themselves on the platform. 
  • Before allowing the investors and borrowers to start their activity, due diligence is carried out to lower the risk associated and to control the default rate. 
  • The main idea is to get higher interest for investors by lending out the money instead of saving it, and borrowers receive funds at comparatively low-interest rates.

Reasons to invest in Peer-to-peer

  • Verified Borrowers
    The borrowers on Peer-to-peer platforms come from a large demographic pool, primarily consisting of salaried individuals. Every borrower goes through a screening mechanism where borrower’s personal, professional and financial information is scrutinised by our digital verification mechanism and physical verification checks. On successful verification and confirmation of the borrower credentials, the profile is processed by the proprietary S-Algo (Screening Algorithm). Further, the borrower is listed on the platform once the comprehensive sets of S-Algo criteria are met. This ensures lesser borrower defaults and easy tracing of borrowers if at all he/she defaults.  
  • Solid Returns
    Peer to peer lending companies also offers tangible benefits for people who want to invest their money and get higher returns than they would from conventional investments such as mutual funds, stocks and fixed deposit accounts. An investor can earn up to net returns of 17% p.a. Moreover, sustained high returns on investment make Peer-to-peer lending a sought-after investment option for fixed income investors. Across the world, it is used as a diversification tool by HNI’s and institutions. 
  • Diversification
    Diversification of lending amount among many borrowers is default risk mitigation. Optimal diversification can vastly improve the performance of your Peer-to-peer investments. Also, ensuring high returns.
    A similar principle is applied to Peer-to-peer lending as well. For instance the performance of an investment amount of Rs. 50 lakhs divided into 100 borrowers (Rs. 50,000 each) could be majorly affected by even one default. Whereas, if a similar amount is divided between 2500 borrowers (Rs.2,000 each), a couple of defaults won’t affect the collective returns of your portfolio in a big way.
    However, on LenDenClub, you can mitigate your risk, diversify your portfolio, and maximize your returns by investing as low as ₹ 500 across multiple borrowers on the platform.
  • Monthly Cashflow & No Volatility
    Peer-to-peer is the only high return instrument to fetch monthly cash flows with interest payments. Unlike other investing instruments, cash flow is not tied to maturity and starts immediately.
    Also, it offers zero volatility with returns whereas, traditional instruments such as equity, forex, commodity etc. have high volatility inherent to them, resulting in notional or actual losses. Peer-to-peer lending is unique in that approach. 

Moreover, you can build a diversified portfolio by adding Peer-to-peer as an option. However, to generate much better returns, you need to reinvest your funds and remember to invest it for a longer duration. In Peer-to-peer, to create a good portfolio, the key is to Diversify and Reinvest and keep an investment horizon of 2-3 years, and definitely, you will see much better returns compared to other investment instruments in the market.

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