P2P vs. Mutual Funds – Choose the better investment option



Jun 28, 2022

Everybody wants to earn higher returns on their investments. But, the constraint is the associated risk. While it is a bad choice to keep your funds idle, investing all your capital in high-risk investments can be even worse. So, where to invest money to get good returns at a lower risk? 2 of the popular investments in India that provide high returns are Peer-to-Peer lending and Equity Mutual Funds. 

Peer-to-peer lending operates on the concept of direct lending, and the lenders can earn high returns on their investment. On the other hand, Equity Mutual Funds invest in the stock markets to earn returns but are affected by market volatility. In this blog, we compare both these investment options and help you make an informed decision.

But before comparing both, let us start by understanding P2P lending and Mutual funds in simpler terms. 

What is Peer-To-Peer Lending?

Peer-to-Peer lending, also known as P2P lending, is a form of direct lending between individuals. Online P2P platforms provide a marketplace for investors to invest their funds in suitable lending options. The investors thus earn good returns in the form of regular repayments from the borrowers that are reinvested for higher returns.

This investment is not affected by market volatility and provides much higher returns compared to traditional investments like FD. 

What are Equity Mutual Funds?

Mutual Funds pool the money from various investors and invest in various assets like debt, equity, ETFs, etc. The investors are allotted “Units” of a Mutual Fund, which are just like equity shares. The value of the units held by you depends on the market value of the investments. 

As the name suggests, Equity Mutual Funds invest primarily in the stock markets. Additionally, mutual funds are managed by experienced fund managers. 

If you are wondering where to invest to get good returns, Mutual Fund investment can be the go-to option. But, it is also important to understand the risks involved in it. 

While mutual funds provide high returns, it is worth noting that the risk involved is also very high. Your returns are dependent on the market prices of the stocks. Consider the current case of a market crash due to the Covid -19 crisis, which led to huge losses for the investors. 

LenDenClub P2P Lending Vs. Equity Mutual Funds

The first step towards making a correct decision is thorough research and exercising due diligence. But, what are the criteria that you should consider while making an investment decision? You should consider your investment objective, risk appetite, availability and requirement of funds, stable or unstable returns, etc. Let’s evaluate both P2P lending & Equity Mutual Funds on these parameters.

  • Investment Objective: Your investment objective means the goal you want to achieve by investing. Your goal can be to fund your expenses or simply to grow your capital. Depending on these objectives, your risk appetite will be decided. 

For earning stable returns, P2P lending is a better option compared to Equity Mutual Funds. Let’s understand why.

Unlike the returns on equity mutual funds that are subject to market volatility, the returns on P2P lending are not market-linked. The returns on P2P lending are not affected by the changes in market prices. Therefore, P2P lending provides more stable returns than equity mutual funds.

  • Risk Appetite: The value of an equity mutual fund changes with the change in the market prices of the equity stocks. On the other hand, P2P lending provides regular  returns to investors and is free from market risk. 

Given the highly volatile nature of equity mutual funds, it is not suitable for someone who has a low-risk appetite and wants to earn stable returns. 

Therefore, if you have a low-risk tolerance, you should choose P2P lending over equity mutual funds and vice versa. 

Particulars P2P Lending Equity Mutual Funds
You can simply register on the online website and start investing. You need to open a Demat account through a stockbroker.
Very low charges as middlemen like banks and financial institutions are removed. High charges, mostly due to the high salary of the fund manager.
Completely Debt Based Mostly based on Equity
No market risk. Only default risk is involved. High market risk is involved.
Stable returns in the form of EMI repayments from the borrowers Returns are dependent on market fluctuations.
Fruitful for both short term and long term. Fruitful only in the long term.
The Reserve Bank of India (RBI) The Securities and Exchange Board of India (SEBI)


Why Invest in P2P Lending Platforms?

If you are wondering where to invest money for good returns in India, P2P investments can solve your problem. But how exactly does P2P lending work, and why should you invest in it? We answer these questions in this section. 

Peer-to-Peer lending in India is regulated by the Reserve Bank of India. The minimum and maximum investment amount, precautions, and disclosures to be made by the P2P lending platforms are defined by the RBI in its guidelines. 

Online P2P lending platforms are required to first get a license from the RBI before starting the portal. Moreover, P2P websites use blockchain technology to encrypt sensitive data and protect it. This ensures a high level of security for the P2P lending platforms. 

An Escrow Account is used to conduct the transaction to ensure additional security for the investors against any financial fraud. The borrowers and lenders can register on the P2P lending website and app. 

If you have made up your mind to opt for P2P investments, check out how LenDenClub can help you start your investment journey. 

How to Start Investing in P2P Platforms?

Investing in online P2P platforms such as LenDenClub is fairly simple. Here are the steps that you need to follow to get started.

Step-1: Visit the LenDenClub website or download the mobile app (from Android or iOS)

Step-2: Fill in the basic details, including your Name, Address, Aadhar Card, PAN Card, and Bank Account (Only those who are 18+ can invest through P2P websites)

Step-3: Enter the amount that you want to invest through the website

Step-4: The LenDenClub AI-powered interface shortlists the most suitable investment options for you and starts investing automatically on a priority basis

This auto-investment feature makes LenDenClub investors’ favourite. You can truly earn passive income without having to handle your investments regularly.

Why Choose LenDenClub?

Here are some of the benefits of starting your P2P investment journey with LenDenClub:

  • It is an RBI-registered NBFC-P2P. 
  • All the P2P transactions are carried out through an Escrow Account, reducing the chances of online fraud. 
  • LenDenClub provides maximum diversification for investments. 
  • LenDenClub provides its performance data on its website to maintain complete transparency. 
  • It provides high returns up to 10-12% p.a., and the default rate is as low as 3-4%
  • No market risk is involved in your investments, and a thorough evaluation of the borrowers based on 200+ unique data points also reduces the default risk considerably. 
  • Available across platforms, LenDenClub is actively serving over 2 Million + users through its online platform. 

P2P investments are safer and provide more stable returns compared to Equity Mutual Funds. Also, there is no market risk involved in P2P lending, which makes it friendly for all types of investors. So, if you want to know where to invest money to get good returns, investing in P2P lending with LenDenClub is one of the best options. 

Register with LenDenClub and start investing Now!