Peer to peer lending in India is one of the best modes of investments available to an investor anywhere in the world. Zopa was the pioneer in peer to peer lending in the world and it started its operations in 2006 in U.K. After Zopa, there have been many pioneers in this field like Prosper, LendingClub etc. With increasing NPA’s in banking in India, banks are increasingly hesitant in lending to the consumer. In this scenario P2P lending is set to gain ground in India. As a prospective lender/investor, you need to be aware on how you can maximize your returns from investing in peer to peer lending in India platform. Let us look at some points on how you can maximize your returns from it –
- Diversify your portfolio – While building a P2P lending portfolio you need to invest in as many different types of risk-adjusted portfolio as you can. Usually, in these platforms different borrowers are categorized as low risk, medium risk or high-risk applicants. Higher the risk, higher is the expected return from that applicant. Ideally, you should divide your portfolio in the ratio of 5:3:2. For ex- if you want a higher return from your investment, then you can invest half of your money in applicants with a high-risk category.
- Do your homework – Usually, all peer to peer lending platforms provide information like personal details, financial details, Bank statement, Credit history etc to the lender. You need to do your own analysis of the applicant’s detail before investing your money in it. This extra amount of work from your side can give you higher returns. For ex- suppose an individual has a poor CIBIL record of 650 but during your research you observe that he recently got a promotion in his company then, you can take a call on his future repayment capacity. In this way, you can earn higher returns compared to other investors who don’t do their homework and rely on platform only.
- Re invest your money – You earn interest on your money that you invest in peer to peer lending platform. It is very important to re-invest your money in these platforms. If you don’t re-invest your money the, your money would remain idle and you would not be utilizing full power of compounding of money.
- Invest in different platforms – There are unlimited number of P2P lending platforms available to invest in. Initially, you should invest small amounts in at least 3-5 platforms. You should analyze the amount of returns and default rates among different platforms. After that, you can invest your money in 1 or 2 platforms of your choice who have offered highest returns along with minimum defaults.
- Limit loan tenure and amount – You should not invest in loan proposal of higher tenures and higher loan amount. It has been proved that there are highest chances of defaults among loans with higher tenure.
- Other factors – You should carefully study following additional factors in addition to above factors like –
- Debt to income ratio
- Co-applicant included or not?
- Employment or business vintage
- Annual income
- Number of inquiries in past 3 months.
As we can see from above article that investing in peer to peer lending in India platform is one of the most modern ways to invest your money for higher returns but you can take extra amount of steps to earn higher returns from these platforms.