Inflation has a corrosive effect on the savings of consumers. For example, if we consider the current inflation rate of 8%, as measured by the wholesale price index, then a Rs. 100 earned today will be just Rs. 92 after a year. Thus, investment is the only solution. While considering your investment option, you must look for the inflation-beating investment option that offers returns several percentages higher than the current 8% of inflation rate.
Conventional tools of investment such as PPF, bank fixed deposits and savings accounts yield 7-8% returns, which are unfeasible to keep you afloat. While other Investment Options such as stock market and equities returning 16.7% a year require extensive knowledge of the market. Ultimately Peer to Peer lending (also known as P2P lending or social lending) comes in to picture to bridge these gaps. If you have savings and you are looking for reliable yet progressive ways to multiply your wealth, then P2P lending is the most profitable way to home your cash.
Peer to Peer Lending
Simply put, it is an online credit marketplace that allows investors / lenders (people with savings) to invest directly into consumer loans (personal loans or business loans). Both the participating allies get a better deal by eliminating out the middleman in the form of banks. FAI₹CENT, for example, is offering returns starting from 13.5% up to 26.8% across various risk buckets. It is also essential to recognize that like any other Online Investment option there are no guaranteed returns. Only and biggest risk with P2P lending is the default, but this can be mitigated by building a diversified portfolio.
Higher Risk-Adjusted Returns
Investors can reduce the risk by diversifying across various loan risk buckets (pricing loans based on borrower’s creditworthiness). If you have a higher risk-taking appetite you can invest in high-risk bucket loans returning as high as 16.4%. On the contrary, even if you choose to invest in the minimal risk bucket, there also returns are inflation beating with a net return of 13.5%.
Regular and Passive income
P2P lending is efficient, effective and simplest way to earn regular passive income. As soon as the borrower begins the repayment, you will get a consistent and fixed monthly income in the form of EMIs (principal + Interest). You can make even greater returns by reinvesting the returns in a newer set of borrower’s loans. The compounding impact will help you beat inflation by a secure margin.
Putting it all together!
Increasing cost of living due to soaring inflation could leave your savings losing its value. P2P lending is the Best way to Invest Money delivering above-inflation returns. It will be an ideal addition to any short term to a long-term investment portfolio.