Peer to peer (P2P) lending is fast emerging as a lucrative investment avenue in the Indian financial marketplace. While new, it offers a plethora of advantages compared to conventional investments. On the other hand, there are mutual funds which are diversified in terms of options and are established as one of the oldest and mainstream investment options.
For an investor, choosing either of them as has its own pros and cons.. To make an informed choice, it is important to study and contrast both options, because as an investor with considerable capital, you would want to get optimum returns.
Let us compare Peer to Peer Lending vs. Mutual Funds and determine which one is a better fit in today's market.
Many people have shown keen interest in this as an investment option because of higher returns available compared to traditional investment options. Lendbox, is a popular peer to peer lending platform which facilitates this investment for investors while simultaneously helping borrowers avail quick loans.
1. Diversifying Options:
Peer to Peer Lending:
A peer to peer lending marketplace provides investors with a number of borrowers to choose from. As an investor, you can go through the credit details of each borrower and decide for yourself which one to choose from. Similarly, borrowers have an option to choose an investor or a group of investors for their monetary needs.
This breaks down the scope of partial victory and makes this investment a win-win situation for both borrowers and lenders. This concept has been able to capture the trust of both parties equally. Plus, the advent of online P2P platforms has made the whole procedure transparent, which makes it easier for people to invest.
Investing in Mutual funds involves pooling your capital with a group of investors. A portfolio manager takes care of the capital to be invested in various avenues. Mutual funds aim to reduce risks that are associated with stock market investments.
A mutual fund investment also provides an investor with motley of options to invest in, such as European equities, emerging market equities etc. All the holdings of a portfolio can be maintained and tracked upon easily which is an additional benefit associated with mutual funds investment.
2. Exit Strategy:
Peer to peer lending:
Once you decide to invest in P2P lending, you have to adhere to the duration of the investment. That means you cannot withdraw your money before the tenure ends. This is also termed as low liquidity in the financial market.
Since P2P lending has no defined universal rules and they differ from website to website, withdrawing your money before the duration ends can be subject to different consequences that are totally dependent upon the platform invested in. On the whole, you can lose a great return of interest on your committed amount if you choose to withdraw it before the duration ends.
Mutual Funds, on the other hand, are extremely liquid and easy to withdraw. You can buy or sell (add or remove holdings from your portfolio) any time in your investment duration, thus offering greater flexibility. Once you decide to sell any of your holdings, it takes two to ten days the procedure to be processed.
Peer to peer lending:
The returns are not variable in the case of P2P lending. Once you lend your money to a borrower for a fixed duration, you are entitled to get a fixed amount of interest as a return on your investment. The volatility of the market does not affect peer to peer lending returns and thus it does not fluctuate. That is, you can be assured to get a fixed and lucrative return on your investment for a fixed duration.
Mutual Funds, on the other hand, are subject to market risks. The return on a mutual fund investment is hard to calculate because it fluctuates frequently.
However, a thorough study of the market conditions can help you track your possible returns for a year which might be higher than the returns in a P2P investment. But, on the flip side, the returns can also be negligible for the times when the market is down.
Many websites offer the option P2P lending, but it is recommended to choose one that promises the safety and security of your money while simultaneously fetching high returns. Lendbox offers the best balance between safety and return on investment. Register now!
Feel free to reach us if you have any doubts or questions. Mail us or call @ 011 2625 4235.