08/07/2023 | 4 Comments

“Don’t put all your eggs in one basket.”

This adage stands true when it comes to your investments. With the global market volatility and rising economic uncertainties, diversifying your portfolio is important to stay secure during tough times. However, what is the first thing that comes to your mind when you think of portfolio diversification?

You would normally think of spreading your investments across various stocks, or maybe adding some exposure to debt and commodities like gold. However, with the revolution in technology, peer-to-peer (P2P) lending has emerged as one of the lucrative investment opportunities offering higher returns.

Why Should You Choose P2P Lending For Portfolio Diversification?

Here are some of the reasons why you must consider investing in P2P lending:

  • Low Entry Cost: You do not need too much capital to start investing in P2P loans. The entry cost for P2P lending is low compared to other investment avenues. At 13Karat, you can start investing with as little as Rs. 500 and slowly expand the size of your P2P lending portfolio. Moreover, 13Karat does not levy any investment fee when you invest in our P2P lending products.
  • Secured Investing Process: The entire P2P lending process is carried out digitally. This includes identifying eligible borrowers, scanning and filtering their credit profiles to ensure investor protection, and then carrying out the loan distribution process. At 13Karat, all transactions are carried through carefully monitored escrow accounts operated by an RBI-regulated trustee, ensuring that your invested money is secure.
  • Higher Investment Returns: With P2P lending, you can make fixed-income investments and earn higher returns as compared to traditional avenues like savings accounts and fixed deposits. When you invest in 13Karat, you can earn up to 13% per annum on your invested amount. You can choose to cash out these investment returns in monthly, quarterly, half-yearly, or annual intervals. P2P lending platforms like 13Karat also offer the auto-invest option, where you can re-invest your earnings into P2P loans to benefit from the power of compounding and earn higher returns.

A Word of Caution on P2P Lending

P2P lending is evolving as an attractive investment option and is competing with traditional investment avenues like fixed deposits and saving accounts. Though the Reserve Bank of India (RBI) is carefully regulating the P2P lending industry to ensure investor protection, like every investment avenue, P2P lending also comes with certain risks.

Here are some of the risks you must keep in mind while investing in P2P loans:

  • Risk of Borrower Default: One of the biggest risks involved in P2P lending is that the borrower can default on the loan or delay the repayment. This can result in reduced investment returns or even losses, as you will have to bear the consequences of the borrower’s default.
  • Lack of Liquidity: Another downside to P2P lending is that P2P loans are typically illiquid. This means that you may not be able to withdraw your funds from these loans easily or quickly. However, at 13Karat, we also offer investment options that do not have a fixed lock-in period. With these products, you can choose to withdraw your investments at any time at your convenience.

Know more about the 13Karat investment products (hyperlink to product page)

  • Platform Risk: Since P2P lending platforms operate online, they may face various risks including hacking, fraud, regulatory changes, etc. These risks can affect the online platform’s stability and reliability. Hence, you must consider these risks before selecting a P2P lending platform and investing in their P2P loans.

In conclusion, P2P lending can be a great tool for portfolio diversification that also has the potential to offer higher returns. However, it also comes with certain risks and limitations that must be carefully evaluated. Hence, as an investor, you should understand the pros and cons of P2P lending, and then make an informed decision to invest in P2P lending.