P2P vs Mutual Funds – Which One Is Right For You?

The world of investing is a maze of countless investment options. Two of the most popular options people often consider for growing money over time include P2P lending and mutual funds. While P2P (peer-to-peer) lending connects borrowers directly with lenders, mutual funds are like big baskets as they pool investments from various investors to buy diverse securities.

But which one of these two options is right for you? To understand this better, let’s learn about P2P vs mutual funds in detail.

What is P2P Lending?

If we describe P2P lending in a single line, it is the online matchmaking of borrowers and lenders. With the help of P2P lending platforms, borrowers can directly connect with lenders without any involvement of traditional banks.

Also Read: P2P Lending: The Future of Borrowing and Investing

What are Mutual Funds?

A mutual fund pools money from various investors and then invests it in a variety of stocks, bonds, and other asset classes. When you invest in a mutual fund, you are pooling your money with others to buy various assets that are then managed by professionals. Equity funds, debt funds, and hybrid funds are three major types of mutual funds.

Major Differences – P2P Lending Vs Mutual Funds

Here we list down the major differences between P2P lending and mutual funds to help you choose the right one for you.

Aspect	P2P Lending	Mutual Funds
Risk Profile	Higher risk as lenders may face borrower defaults	The risk is spread due to portfolio diversification
Liquidity	Limited liquidity options until borrowers repay the P2P loans	Offers superior liquidity as investors can redeem investments at any time
Diversification	May lack diversification as it often involves lending to individual borrowers or small businesses.	Great portfolio diversification as mutual funds invest in a wide array of asset classes
Regulation	May expose investors to higher regulatory risks	Undergoes extensive regulation and is overseen by the Securities and Exchange Board of India (SEBI)
Returns	P2P lending offers higher returns in comparison to traditional savings accounts because, with P2P lending platforms such as 13Karat, you are lending your money directly to borrowers, thereby	When you invest in mutual funds, you get a diverse portfolio which is managed by experts and hence, the returns in mutual funds are often steady returns over time.

Who Should Choose P2P Lending?

• People who are comfortable with moderate investment risk.
• Those seeking higher returns compared to traditional savings accounts.
• People who are looking to diversify their investments.

Who Should Choose Mutual Funds?

• People who prefer a more hands-off approach to investing.
• Those seeking diversification and convenience in managing their investments.
• Those who lack the time or expertise to manage a portfolio of individual securities.
• Investors who want access to professional management and expertise.
• Individuals looking for higher liquidity and the ability to buy or sell fund shares easily.

Conclusion

So, now that you know the differences between P2P lending and mutual funds, consider both of them wisely and choose the right investment options. For P2P lending, you can consider 13Karat, RBI regulated online investment platform offering returns of up to 13% per annum.