Investors, the crucial participant in P2P lending. P2P platforms connect these investors and borrowers while engaging them in a worthwhile investment. Though investing in P2P platforms is relatively new, it’s simple and easy. Let’s understand what an investor can gain from investing in P2P loans. The major ones are, the potential to grow the money quicker than with a traditional fixed deposit investment, better returns than any debt, liquid or overnight mutual fund, and an opportunity to diversify an investment portfolio.
Let’s look at some of the benefits in more depth.
The platforms have a verified borrower which allows a screening mechanism that ensures more diversification and better returns. It also offers a passive income while diversifying their investment exposure across a range of borrowers, which potentially lowers the risk of default. Extending the funds to borrowers on a P2P platform offers investors the opportunity to gain exposure to a diversified portfolio of borrowers that have been vetted by the P2P platform. The interest rates achieved in a P2P environment are higher than conventional interest rates, particularly in the current low rate environment in developing countries like India. Investor can opt for the risk profile they are most comfortable with, understanding that the higher returns offered by borrowers with lower credit ratings will expose them to higher potential risk.
A great advantage of P2P lending is that the investor will have access to a flexible service that allows to add and withdraw funds easily, provided that there are other investors available to replace in the loans an individual wishes to withdraw from. This differs from other types of investment that require a long-term commitment, such as property. While the investor will need to commit for a longer period to see the best returns, P2P lending can be an attractive option if one needs that extra flexibility. There is a strong emphasis on P2P platforms providing a transparent service as well as providing them with all the information needed to make an informed decision about the investment. This means that the investor should be able to access all the guidance one need before deciding to invest with a P2P platform.
P2P lending is one of the most revolutionary and disruptive financial innovations of times. P2P lending is a smart investment choice for investors with higher returns that beat inflation and help to plan the financial future. Adding it to your investment portfolio will take your portfolio returns up by a couple of percentages, which is a huge upside at a portfolio level!