If you have money to invest for the short term, you can consider a new option in the debt segment other than traditional debt instruments such as debentures and bonds - peer-to-peer (P2P) lending, which has emerged as an attractive avenue for people who don't mind taking some additional risks for extra returns. This involves lending money to individuals or businesses through online services that match lenders with borrowers. Recently, even the Reserve Bank of India (RBI) showed confidence in the fledgling segment by revising a lender's exposure limit across P2P platforms from Rs 10 lakh to Rs 50 lakh. Experts say one can earn good returns by diversifying risks across types of borrowers.

Key Regulatory Developments

P2P players have been in existence since 2012, when the first platform - i-Lend - was launched. Initially, there was hardly any regulatory oversight. Seeing the potential of the evolving technology and growth of lending to the underserved, the RBI came out with guidelines in September 2017, to convert P2P players into NBFCs by issuing NBFC-P2P licences. There are around 30 P2P players in the country of which 20 had got the NBFC-P2P licences as on October 31, 2019; the rest have applied for it.

One can invest up to Rs 50 lakh across P2P platforms. The minimum amount is Rs 25,000. The RBI has specified that the tenure of a single loan cannot be more than three years. Exposure to a single borrower cannot go above Rs 50,000. For example, if you have Rs 50 lakh to invest, you need 100 borrowers across platforms. "This is good because it ensures better diversification. On our platform, we have fixed it at Rs 20,000," says Ajit Kumar, Founder & CEO, RupeeCircle.

What You Must Know Before Investing

• P2P lending is regulated by the RBI
• The interest rate charged varies with the perceived risk and credit score
• Returns are less volatile than in products such as equities, commodities
• Innovative credit assessment tools are used to judge the risk profile of borrowers
• You are free to choose the borrower matching your return and risk parameters
• If a borrower defaults, you bear the losses, not the P2P platform; but the P2P player may help in recovery
• A good strategy is to diversify across different types of borrowers

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