Peer to Peer Lending has emerged as a profitable investment opportunity for investors looking for better income potential.

Bonds will go up or down. Stock prices will fluctuate every day. SIPs and mutual funds have lock in periods. Short-term interest rates at banks and financial institutions have little to talk about in terms of fruitful gains. Given all this, what do you do as an investor seeking ‘greener’ opportunities? Fortunately, peer-to-peer lending looks like an interesting answer for income-seeking investors like you.

Peer-to-peer lending works to benefit investors in different risk buckets

Peer-to-peer lending is an alternative income solution if you are willing to do your homework in terms of its risks and rewards. It allows you to extend Personal Loans to individuals and other borrowers directly removing intermediaries like banks and other financial institutions. You can limit your risk by deciding the nature and extent of credit risk that you are willing to take. One way of doing so is selecting borrowers as per the risk bucket assigned to them.

At Faircent, a 100 percent technology enabled and reliable underwriting mechanism helps us reach pre-ascertained interest rates at which borrower requirements can be funded by lenders. Accordingly, borrowers are divided from medium to high risk. A smart investor should spread his risk by putting small amounts in large no of borrowers across risk buckets.

Further, all relevant information on different borrowers is available on the lenders online account known as the portfolio manager or dashboard helping him assess the credit profile of different borrowers - without any fuss. Basically, investors should use all information at their disposal to get a fair understanding about the levels of risk that they can absorb along with an estimation of the rewards that is in store for them.

P2P lending – a better opportunity for investors interested in risk-based investments

Compounded earnings – With a part of their principal amount and monthly interest being credited to their account every month, investors can reinvest their returns to earn more. With fixed monthly interest and principal payments to look forward to, P2P lending serves as an alternative investment means for smart income seekers desirous of beating inflation with returns .

State-of-the-art lending, borrowing and underwriting mechanisms – These are the backbone of any P2P lending website. The automated processes like the underwriting mechanism, or investment limiting mechanisms at Faircent that restricts lending amounts to 20% of borrower requirements, backed by legally-binding agreements and PDCs, help manage and mitigate the fear of defaults in lenders.

High returns: The same is true for the lenders Currently, at Faircent lenders are earning 18-22% return by building diversified borrower portfolios. These returns are not just comparable but in some cases, even better than returns offered by other investments like Equity (stocks, SIP, mutual funds), real estate, gold, varied bank deposits. Income seeking investors, especially those who choose to put their eggs in different baskets, get better returns at the end. It is advisable, P2P Lending, along with other alternative investments like art, commodities, etc. should be 20% of the total investment portfolio of an investor keen on risk-based investments to fetch lucrative returns.

Unsecured but calculated yields: P2P lending extends unsecured loans to credit worthy borrowers by managing and controlling risk. Still, it’s advisable that lenders calculate their expected returns after factoring in 1-2% delinquency ratio. Ideally, the yields, post the calculation of losses and fees, makes this opportunity worthwhile. Faircent will soon become the first P2P lending marketplaces to offer loans against collateral with its tie-up with Baxi, India’s on demand motorcycle company.

In a nutshell, to add to their income portfolio, investors opting for P2P lending should imbibe information about the credit quality and loan diversification policies of players like Faircent. The idea is to ‘start small’ and have a smart risk-to-reward strategy in place – this is because every cent and % counts!