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We all want our money parked in an investment that gives the highest return. Historically, Indians have placed a significant amount of trust in non-volatile investment options such as physical assets like gold or real estate, and for good reason. This is still true. According to the RBI, 95% of the average Indian household’s investments are tied up in physical assets.
Considering the rising real estate and gold prices in the country, most investors that chose these assets more than a decade ago are sitting on serious profits. For a long time, physical assets were considered the best investment with high returns in India.
However, times are changing, and so are the investment habits of smart investors. Safe investments with high returns in India nowadays are not limited to physical assets.
In the high-inflationary environment of today, the returns associated with gold and real estate are no longer as attractive as they once were. Not to mention, both assets have become incredibly expensive, growing out of the reach of many first-time investors.
So, what does an attractive investment look like in 2022? What assets or investment instruments are the most relevant for today’s investors?
Let’s find out in the upcoming sections of this guide.
The Qualities Of An Attractive Investment Asset Class Or Instrument
Before we talk about how you can start making attractive returns from your investments, let’s talk a little about identifying the right investment for yourself. After all, you cannot get far depending on buying and selling recommendations from others.
Here are some qualities you should look for when evaluating investment instruments and assets:
Historical Returns: Historical returns, as the name suggests, are the record of the returns that investors have received from an asset or asset class, or investment instrument. By studying the historical performance of an asset or investment instrument, one can make predictions about future performance.
Having said that, it is important for investors to remember that historical performance is not a guaranteed indicator of future performance. Many assets that may have performed well in the past may not do so in the future, and the opposite is also true.
For this reason, high historical returns should be one of the qualities to look for in potential investment opportunities. It should never be the only metric guiding your decisions.
Fundamentals: The next quality of a good investment opportunity is that it is backed by sound fundamentals. Simply put, the fundamentals of a company or an asset are the description of the underlying value of that company or asset.
The larger umbrella of ‘fundamentals’ includes many performance indicators that may be unique to the asset class or investment instrument. For instance, if you are thinking about investing in fixed deposits, you will want to do it with a well-known and well-established bank, like HDFC bank. By doing this, you are safeguarding your interests as an investor, as you know that HDFC bank is one of the leading banks in the country and the likeliness of your investment going down the drain is minuscule.
Similarly, when evaluating stocks, a different set of fundamentals may be considered. These may include (but not be limited to), the cash flow of the company, the return on assets, and the debt on the company.
Risk-Reward Equation: The risk-reward equation of an investment opportunity are not entirely about the asset or investment instrument. Calculating this equation also requires investors to consider their own risk appetite.
Put simply, the risk-reward equation, as the name suggests, outlines the relationship between the magnitude of return you can expect and the risk involved with the investment. Ideally, you should look for an investment opportunity that features a small degree of risk and a high possible reward.
Having said that, most investment opportunities you find will not be ‘ideal’. That’s why the risk-reward calculation is highly personal. Investors should calculate the same and make investment decisions according to what their risk appetite allows and what their ambitions dictate. For instance, if you have a low-risk appetite, you may look for non-volatile investment options. However, in this case, you must also consider that your returns will be decent at best.
To recap, a good investment should be evaluated on the basis of fundamentals, historical returns, and the risk-reward equation.
Now that we have learned to evaluate investment opportunities, let’s talk about how you can invest and start making handsome returns in just three steps.
About LendenClub and its P2P service
Before we discuss what LenDenClub is and how it is a brilliant investment opportunity, let’s build a working understanding of peer-to-peer lending or P2P lending.
The term “peer-to-peer” refers to situations where transactions take place between two individuals. The individuals interact with each other directly and usually, no intermediary is involved. In the case of P2P lending, a lender and a borrower interact directly.
As a peer-to-peer lending platform in India, LenDenClub acts as a marketplace that helps facilitate transactions between lenders and borrowers. Whether you are a borrower or an investor, LenDenClub presents a unique opportunity for you. However, since this guide is about investment, we will focus on the point of view of a lender.
Being a lender on LenDenClub entails investing your money by giving it out in the form of a loan.
Now, the logical next question is, how is the investment protected against fraud and default?
There are a couple of mechanisms in place to safeguard the interests of investors:
Thorough Screening Of Borrowers: Borrowers present on the LenDenClub platform have to go through a robust screening process. Each borrower application is evaluated on over 200 data points and multiple checks are performed. This way, LenDenClub makes debt capital more accessible, but only to creditworthy borrowers.
Diversification Of Investment: Diversification is considered one of the smartest investment strategies. When an investor spreads their total investment in different investments, the risk is also distributed. On LenDenClub, investors diversify their investment portfolio by investing their capital in small investments that make money, spreading the risk over multiple loans.
These two safeguards ensure that the investors’ interests are protected and the platform continues to function as a competitive and healthy marketplace. Thanks to them, the default rate of loans on LenDenClub is under 4%.
Finally, P2P lending in India is regulated by the Indian Government. LenDenClub is a certified NBFC-P2P platform that operates in adherence to the guidelines given by The Reserve Bank Of India.
Now that it is established that P2P lending on LenDenClub is a safe and secure investment opportunity, let’s talk about returns.
On average, investors on the platform make anywhere between 10-12%annual returns on their investment.
The historical returns are higher than most other forms of traditional investment instruments. The fundamentals are strong as P2P lending is regulated and borrowers are strictly screened. Finally, the risk-reward equation also makes sense, since the average rate of default is quite low and diversification further mitigates an investor’s risk.
P2P investments on LenDenClub tick all three boxes, which makes them an attractive investment option.
Now, let’s talk about the three-step process to start investing in LenDenClub.
Signup process (3 step simple process)
Singing up on LenDenClub is simple:
Step 1: Create Your Account
Click on this link to create an account. All you need are your phone number and email address.
Step 2: Choose A Plan
Investors can choose between three plans on LenDenClub. These are:
Basic Plan: With the basic plan, you are responsible for manually picking out borrowers for your investments. Basic plan subscribers are also responsible for reinvesting their returns periodically to maximise their ROI.
Silver Plan: Subscribers of the Silver plan don’t have to do anything manually. The AI-powered investment algorithm on LenDenClub automatically invests your capital in the best possible manner, in order to maximise your returns. Even your returns are reinvested in a manner that your risk is reduced and returns are optimized. Silver plan subscriptions are available for a tenure of 1 year.
Gold Plan: The Gold plan offers all the benefits of the Silver plan, but the tenure is longer; two years.
Once you have selected a plan, you will be asked to complete your KYC verification. Only three documents are required- bank details, Government ID and PAN card, and the verification will happen instantly.
Step 3: Fund Your Account And Start Investing
Finally, it is time to fund your account and start your investment journey. Depending on the plan you select, you will be making manual or automatic investments.
As you can see, LenDenClub has made it possible for investors to make handsome returns with easy.
However, that, and the high rate of return aren’t the only benefits associated with P2P investments. Let’s look at a few others.
Advantages Associated With P2P Investments On LenDenClub
Efficient Spreading Of Risk
On LenDenClub, investors can invest as little as INR 500 with a single borrower. This enables even small investment amounts to be effectively spread.
The platform also ensures no investor is lending more than INR 2000 to any single borrower, putting a much-needed cap on the amount of risk involved. These measures, coupled with the fact that all borrowers on the platform are highly creditworthy, ensure that your money is at minimum possible risk, while still earning a high return.
Automated Investments
Auto investments, offer an effortless and smart way of investing your capital.
This means, whenever a new list of borrowers is added to the platform, the AI automatically captures the list and automatic investments are made on a priority basis. In other words, the auto investment feature ensures that investors get instant access to the most lucrative investment opportunities on the platform.
Free Of Market-Related Risk
Almost every other financial investment instrument that offers returns similar to P2P lending is dependent on the market’s performance. Mutual funds, stock or equity investments, cryptocurrency investments, are all known to be volatile. While the risk is spread to an extent in the case of mutual funds, the actual returns are still entirely dependent on the performance of the market or the specific companies present in the portfolio of the mutual fund.
The safety offered by debt mutual funds is comparable to P2P investments but the returns are very small. In 2022, returns from debt mutual funds and fixed deposits aren’t even capable of overcoming the cost of inflation.
On the other hand, P2P investments are completely free of market-related risk. Regardless of how the market or the economy is performing, the borrowers you lend to are expected to make timely payments against their loans.
This only leaves the default risk associated with your investment. As discussed earlier, that issue is mitigated with the help of diversification.
Completely Digital
Ease of making an investment is often a consideration factor, especially for busy working professionals. With LenDenClub, you get incredible ease and accessibility. You can control and manage your investments on the platform using your smartphone on the LenDenClub Invest Money App. It is one of the most widely used P2P lending apps in India. This accessibility makes LenDenClub perfect for NRI investments in India and institutional investment in India.
Operated Using A RBI-Escrow Mechanism
As stated in the guidelines published by the RBI, all transactions on LenDenClub happen using a RBI escrow mechanism. This means that LenDenClub never gets access to your investment or returns. They are directly deposited to, and released from, an escrow account.
This acts as an additional security blanket for investors, ensuring that their money is protected from all sorts of financial fraud.
Conclusion
In today’s economy, it is important for investors to diversify by investing in different markets and asset classes. Putting all your eggs in one basket is a bad investment strategy, even when you are focused on traditionally dependable assets like Gold and real estate. Similarly, you don’t have to commit your entire savings to P2P investments. However, as a smart investor, it makes a lot of sense to have at least some percentage of your portfolio allocated towards P2P investments. Check out LenDenClub’s P2P investment platform for more insights.
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