InvestorQ : Is P2P lending better than a stock market investment?
ishika Banerjee made post

Is P2P lending better than a stock market investment?

Answer
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5Paise Expert answered.
3 months ago


Well, both have their own relevance and we cannot really compare the two. However, with so much volatility in the market the investors are looking for options that involve less risk and have better returns as offered by the stock market. I will not say that P2P lending is better than stock market investment but we can definitely give it some consideration, here’s why:

1.Higher returns: We cannot really compare the returns offered by the stock market and P2P platform, as it is just a new concept and we do not have any legacy to establish the difference between the returns. However, the average returns recorded by the P2P lending over the past few years are between 20-25%. So, even if you consider a legitimate provision for bad debts, we are still looking at some attractive returns. Also, returns under the P2P arrangement can be much higher than what is offered by the debt funds. The returns are much closer to equity, however, we cannot really comment on the risk.

2.Compounding: Equity is an attractive investment option because the investors are given the benefit of compounding and here’s why P2P could also be an attractive option. Just like equity, P2P lending automatically compounds money.

3.Technology: While there are several apps in the market to help you invest in the market, they do not really offer a pre-risk assessment or credit rating for the money you put in the market. However, P2P is way ahead of it, while offering an easy to use interface for the users it also follows a grading system for the borrowers. Lenders can decide their investment options based on the credit rating of the borrowers.

4. Diversification: Just like an investment portfolio in the stock market could be diversified, the lender can also diversify the entire investment based on credit risk. He may decide to put some money in low-credit rated borrowers to earn more returns and some in high and medium rate borrowers. This will give him an opportunity to earn better returns, just like the security market. The lender is not bound to put all money on the same borrower.

We cannot really consider P2P lending as a substitute for investment in equity. However, there are chances that it will emerge as an attractive and strong investment option in the coming years.