Millennials, unlike their preceding generations, is no longer interested to simply save enough for retirement. They not only strive for regular comforts like owning a home, but also are also unwilling to compromise on luxuries of life such as travel to exotic locations. At the same time, they wish to retire early and wealthy. So, their investment decisions are driven by the need to earn more and not just to beat inflation.
Take the case of Sneha Shah, a young professional from Mumbai. When Sneha was weighing potential investment options, she spent a lot of time in studying each instrument in depth. Her investment goal was to be able to afford a holiday across Europe and buy the new sedan before the end of year. She also wanted to start saving for a down payment so that she can become a homeowner within the next couple of years.
With traditional investments like savings and fixed deposits she found that returns were just too low. To invest in real estate, she needed upfront and large amount of capital and investment in gold was not yielding returns like it used to. While she dabbled in mutual funds and SIPs (systematic investment plans) she realised that to earn 12-15 per cent returns, she had to be invested for 3-4 years, if not more.
Sneha discovered online peer-to-peer lending while researching for alternative high return investment options available. The process was tech-driven, simple and transparent. She decided to invest a small sum initially. The steady and regular income, and from the very next month itself, drew Sneha immediately to online P2P lending. Having invested over Rs 4 lakh, Sneha is managing a portfolio of almost 100 borrowers using automated processes on the platform. She is mitigating risk by spreading her investments and earning approximately. 20 per cent net returns after factoring in a default rate of 3 per cent. Since the whole process is online, she manages her investments through the app she has downloaded on her smartphone.
Sneha is just one of many such millennials who simply do not find the idea of locking their funds in traditional investment tools just to make mediocre returns appealing at all. This is because millennial investors are vastly different from their parents. Their goals and ambitions in life are quite different, and so are their methods of achieving them. The realisation that they need to work doubly harder to achieve what they want is evident in the way they approach their investments too.
Moreover, with no time or inclination to visit a financial company’s office or meet with investment consultants, these young investors are leveraging technology to the fullest when it comes to financial products and services.
Over the recent years, returns from traditional, market-linked investments have been extremely low, and dwindling gradually. After being adjusted for inflation, some even deliver negative returns, defeating the very purpose of investing. But online P2P lending combines the benefits of cash-based liquid investments and fixed income investments to create a unique asset class that can drive maximum returns for lenders at predictable risk. P2P loans offer higher and steady returns as well as monthly income with both the principal amount invested and interest being generated for the lenders from the very next month after investing. P2P lending marketplaces are performing better than other similar market-linked investments. We, at Faircent.com, for example, offer 18-22 per cent net risk-adjusted returns to lenders.
By investing in P2P loans, investors can gain access to a regular income, and if they want, even reinvest these returns to maximise their cumulative earnings over the long-term. While the regular income feature of P2P loans helps young investors build savings and create wealth, the asset class has several benefits for retired individuals and senior citizens as well.
Considering factors like rising inflation and the increasing cost of living across large Indian cities and metros, post-retirement life can be difficult for a lot of senior citizens, with no avenues for a steady income. For such consumers, investing in P2P loans is a potential source of regular income to help them take care of their healthcare expenses and live comfortable by making their money work for them even when they aren’t any longer. Building a diversified portfolio is the key to spreading and minimising risk when investing in P2P loans. Investors can easily mitigate risk by investing small amounts as low Rs 750 in each borrower. Moreover, they can also choose from a large number of loans and borrowers to invest in, based on various parameters like risk buckets (low, medium and high), borrower background, and loan purpose.
Another key advantage of P2P lending is that it gives lenders the autonomy to take decisions regarding their investments. Through access to transparent and comprehensive information on each borrower made freely available on the platform, lenders can make informed decisions with respect to building a robust investment portfolio.
With P2P lending now being regulated by the Reserve Bank of India (RBI), the traction for this highly innovative and secure asset class is expected to grow enormously in the near future. In the current market scenario, where investments seldom deliver expected returns and most of our bank savings are usually spent in simply paying service charges, P2P lending is a highly-promising asset class that is giving young, salaried Indians the opportunity to create significant wealth and easily achieve their long-term financial goals.
(The author is founder & chief executive officer of Faircent.com)