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P2P Lending: What makes it different from traditional investments, and popular among millennials?

Amitava Chakrabarty
Peer-to-Peer investment, P2P investment, P2P lending, Peer-to-Peer lending, savings account, bank FD, equity, mutual fund, MF, market risks, P2P platforms

Traditionally, most Indian investors are risk averse and rely more on bank fixed deposits (FDs) as the capital invested is not market-linked and doesn’t bear the brunt of short-term market volatility. However, things are now changing, as millennial investors are not fearful of taking some calculated risks.

P2P vs Bank Deposits

As a result of the change in investment patterns, apart from savings accounts and bank FDs, P2P investment has been coming up as an alternative among the younger generation.

Unlike investments through bank deposits, P2P platforms connect borrowers and lenders directly through the marketplace, thereby eliminating the role of middleman in a way.

By connecting the borrowers and lenders directly, P2P lending not only brings more transparency, but unlike in the case of banks, also provides opportunities for investors to choose the loans they want to fund.

Moreover, as the middleman (like banks in case of FDs) is eliminated, borrowers can negotiate better rate of return and investors can create their portfolio of loans as well on the basis risk grades and interest rates of borrowers, which may fetch higher returns for them.

P2P and risk-averse investors

Before the introduction of P2P, the options to invest were either market-linked products like equity and mutual funds, which required the investor to have a decent knowledge about the market, or to park the money in banks which had lower returns.

However, with P2P lending, investors may also earn higher returns without having to worry much about the volatility of markets. So, P2P lending has become a perfect alternative investment destination for those investors who wish to earn higher returns without facing short-term market risks.

Emergence of P2P among salaried investors

The millennial investors prefer data-backed investment options over the traditional options. As a result, P2P lending has become a go to option for the millennial salaried individuals as P2P platforms use AI and Machine Learning to deploy the investor’s money to generate maximum returns.

"Today, the millennial salaried individuals do have money in hand to invest and are looking at alternate tech-enabled investment alternatives which help them invest without taking much of their time," said Abhishek Gandhi, Co-Founder & CFO, RupeeCircle.

"On RupeeCircle platform, almost 60 per cent of the investors are salaried," he added.

Future of P2P lending in India

P2P lending is still in the nascent stage and is expected to grow to a $10-billion industry in India by 2025, as there are huge opportunities, with the credit demand and supply gap in India-as per the estimates of the World Bank-being close to $380 billion.