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Is Investing in P2P Lending the Right Move?

P2P (Peer-to-peer) lending has been a hot topic in the investors circle for couple of years now. Also known as "marketplace lending", it allows retail and/or institutional investors to lend money to borrowers online without the use of a conventional intermediary such as bank.

Investing through P2P lending platforms allows investors to provide loans for small business and personal purposes. It has quickly become a desirable option for many investors, due to the big returns on these fixed income assets.

Additionally, by cutting out the traditional intermediary, P2P lending allows investors to pocket more of the interest. And for many investors, knowing their money is helping another person or small business prosper makes the investment even sweeter. If you are looking for a way to diversify your portfolio, investing in P2P lending may be the right move. Here is what to know before investing.

Why Did P2P Lending Become so Popular?

Post 2008 "Credit crunch", banks all over the world significantly increased the credit requirements for consumers to obtain home loans, auto loans, credit cards and other loan products. Since credit is so important to any economy, alternative lenders saw a rise in popularity, especially for personal or small business loans. Also, the new technologies empowered lenders to create innovative platforms and algorithms to expand their reach and bring together more quality borrowers and investors.

Fixed income is an important part of most investors' portfolios, but the rates of return for this asset class is minimal due to low interest rates. Investors keep looking for yield in other assets, and P2P lending became an attractive area for some looking for higher returns for fixed income assets through the private credit markets.

Now a days, a variety of multiple online platforms make investing in P2P lending as easy as clicking a button. And with some platforms requiring only a minimal investment of just Rs.500, it offers investors a simple, easy way to invest.

4 Reasons to Consider Investing in P2P Lending

There are numerous reasons why investors should consider investing in P2P lending, including:

  1. P2P lending provides investors with access to loans that perform better than more conventional types of fixed income products. Many P2P investors report annual investment returns of greater than 18%.
  2. P2P lending allows investors to diversify across many loans, reducing risk and driving stable returns. Additionally, P2P platforms allow investors to select the level of risk. The higher the risk, the higher the estimated return. Investors can spread their risk out, to provide their portfolio balance.
  3. Investors can decide where their money goes. For example, marketplace lending platforms like OMLp2p makes it easier for investors seeking to invest in personal and/or small business loans. OMLp2p is being run by the team of capable finance professionals under the managements of experienced bankers / senior finance management and Board of directors, platforms who are having their well-defined and time-tested credit policies and algorithm to select the right quality borrowers where the investor can expect higher risk adjusted returns. Investment returns for such good quality P2P lending platforms have been really attractive - ranging anywhere between 15-20% annually (post delinquencies). OMLp2p provides alternate investment opportunities through its monthly income product and tie-up loan product (Double guaranteed) listings to diversify your investment portfolio. -
  4. Well diversified portfolios of P2P loans perform consistently well - even during times of market volatility, rising interest rates or low employment rates.

Building a Customized Portfolio

The choices available to those interested in investing in P2P lending continue to grow. With a few clicks, an investor can invest in personal loan requirements or in profitable small businesses in need of a loan, from anywhere in India.

Additionally, P2P lending platforms' ongoing incorporation of artificial intelligence allows investors to make better informed decisions. P2P lending platforms evaluates borrowers on a variety of variables such as education, occupation, and employer, assigning each an annual percentage rate.

P2P lending is symbolic of wide options available to investors in the alternative assets market, and it will likely continue to have a considerable impact on their future asset allocations.


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