Sep. 12, 2025
7 Min read
Lending
Share :
P2P lending has emerged as an attractive alternative investment opportunity in India, particularly after the RBI’s regulatory framework brought structure to this growing sector. The P2P lending industry’s current value is approximately ₹7,000-8,000 crore. Moreover, about 20 peer-to-peer lending platforms registered with the RBI as NBFCs, connecting people directly through the digital space, bypassing traditional financial institutions.
While the innovation offers exciting opportunities, it also operates outside the traditional bank guarantees, presenting potential pitfalls, from platform stability to default risks. Despite these challenges, the sector is set to grow at a robust 21.6% CAGR, reaching a market size of $10.5 billion by 2026. Nonetheless, if you are an investor seeking to build wealth through P2P platforms, you need to know how to create a risk-adjusted strategy. So, how do you invest in a P2P platform in India systematically? Read on to find the risk-adjust strategies for P2P lending to get sustainable returns!
P2P Lending, or peer-to-peer lending, is a form of direct lending process where you can lend money to other individuals or businesses through digital platforms. In P2P lending, investors (or lenders) provide capital to borrowers in exchange for interest payments. The online peer-to-peer loan platforms facilitate the connection between these parties, managing land administration and handling underwriting for a specified charge.
P2P lending in India offers attractive returns compared to traditional financial investments like fixed deposits, bonds, and savings accounts. However, is P2P lending safe? While the investment has higher returns and quicker access to loans, it also has certain risks that should be carefully considered. Let’s take a look at the potential risks involved:
Credit risk, the most significant risk in P2P lending, happens when a borrower fails to repay the loan. Borrowers may default due to loss of income, financial distress, or any other personal reasons. If a borrower defaults, you may lose a portion of your invested amount. It is especially risky in unsecured loans (which are not backed by collateral), as there is no guarantee of recovering your money.
Peer-to-peer lending platforms act as intermediaries that facilitate the borrowing and lending process. There might be a risk in the platform itself, where they face operational issues or even go bankrupt. If your chosen platform ceases its operations, it will be difficult for you to recover your investment or track your loan repayments.
P2P lending is usually a long-term investment, running from 1 to 5 years. Since there is no secondary market for the investment, it is hard to sell or liquidate your investment before the end term. In certain emergencies, if you need to access your funds earlier than expected, you might not be able to sell your loads or recover the investment immediately. It will eventually result in potential liquidity issues.
Interest rates on a peer-to-peer loan platform are market-driven. It means there will be fluctuation in the rate based on economic conditions or your borrower’s credit risk profile. For instance, if the interest rates increase in the market. You may feel that the fixed return you are receiving from the loans is less appealing. It will discourage the new investment plan or rescue your earnings from your current investment.
P2P lending is a relatively new concept for many people across the world. Therefore, there may be uncertainty regarding its regulations. Some countries have introduced stricter regulations, which can impact the continuity of your investment. In fact, the industry’s asset under management (AUM) plummeted by 35%, from an estimated ₹10,000 crore to ₹6,500 crore, due to the RBI’s stricter guidelines in August 2024. Such regulatory changes could also lead to changes in platform fees, tax implications, and the structure of the P2P lending process, possibly affecting your returns.
There is always the possibility of fraud in any lending environment, and P2P is no exception. P2P lending could involve fraudulent borrowers providing false information about themselves or P2P platforms being mismanaged. If a borrower in a minimized platform provides false information and defaults, you could lose your investment money.
Lending money to individuals or firms is always a risky business, and so is the P2P platform. These platforms offer personal loans at really affordable interest rates, without going through the hassle of an intermediary like banks. To help you make the most of your investment, here are a brief risk-adjusted strategies to follow in P2P lending.
Before investing, research the P2P platform thoroughly. Look for the platforms with a strong track record, positive user reviews, and transparent operational practices. Also, make sure the platform complies with the regular requirements of the RBI. For instance, Finkeda follows RBI guidelines for PED lending. Your personal and financial data is encrypted, and every transaction is protected with bank-grade protocols.
Diversification should be the key rule in your investment strategy in P2P lending. Instead of lending a large amount to a single borrower, try to spread your investment across multiple borrowers with varying credit profiles. In this way, you can reduce the impact of potential borrowers’ default and balance your overall portfolio.
Most peer-to-peer lending platforms offer detailed profiles on their websites, including credit scores, income levels, and more. Evaluate such information carefully to assess the credibility of your chosen borrower. Balance the investment with a mix of low-risk and moderate-risk borrowers to maintain a stable portfolio. With Finkeda, as an investor, you can see the credit-assessed borrower profiles. You can also view their repayment history and choose the one to lend based on risk and return preferences.
Always keep an eye on market trends and economic factors that might affect your borrower’s repayment ability. For instance, the default rate may increase at the time of an economic downturn. When you stay updated at such times, you can adjust your investment strategy accordingly by focusing on a browser with stable income sources.
Compounding is a strong tool to grow your investment in P2P lending. Instead of withdrawing your returns from the platform, make a plan to reinvest them into new loans. It will maximize your earning potential and ensure that your investment continues to make profits over time. At Finkeda, you can receive repayments in predictable monthly installments. You can either reinvest or withdraw as needed easily, without any hassles.
Many P2P platforms offer advanced filters and analytics devices to help you make better decisions. You can use these tools to diversify your borrowers based on their loan tenure, creditworthiness, and interest rates.
Loan tenure has a major role in determining your returns for the investment. Plan a mix of short-term and long-term loans to ensure liquidity while enhancing your returns. For instance, you can focus on short-term loans if you are anticipating faster liquidity or want quicker turnover for your investments.
The Reserve Bank of India has implemented stringent guidelines to promote transparency and protect investor interests in P2P lending. Make sure you are updated with such guidelines to align your investments with compliant platforms and avoid any unnecessary risks. For instance, a recent RBI guideline made it mandatory that every transaction must happen through an escrow account. It will ensure greater protection for both borrowers and lenders.
The promise of high returns can be tempting. However, keep in mind that higher returns often come with higher risks. Therefore, refrain from lending to borrowers who promise unusually high interest rates without any proper due diligence. Follow a balanced approach with realistic expectations on interests to ensure steady growth without any hindrances.
P2P lending strategy is not a set-it-and-forget-it process. You need to regularly review your portfolio to assess the performance and make necessary adjustments. Make sure to find loads that are nearing the end maturity period, monitor the default rates, and reallocate funds.
Despite any risks, you need to understand the tax implications for your P2P lending earnings. The income you earn from a P2P loan is taxable. But you can offset losses from defaults against your taxable income. You can consult with a financial advisor to plan your tax strategy and increase your returns.
The peer-to-peer lending platforms you choose to invest in will affect your experience in the lending process. Choose to partner with reliable and established platforms like Finkeda, which prioritize transparent, regular compliance and user support. At Finketa, we have advanced features like risk assessment tools, reinvestment options, and investment loan offerings that will increase your profits in a risk-free environment.
Here’s a brief overview of dos and don’ts for P2P lending to reduce your risks.
| Do’s | Dont’s |
| Diversify your investments through multiple loans | Invest all funding in a single loan or to a single borrower |
| Research platforms thoroughly before investing | Ignore the platform’s fees and their impact on returns |
| Take advantage of automated tools to streamline portfolio management | Depend only on the manual loan selection |
| Periodically review and adjust your portfolio | Ignore the review of the loan performance data |
| Look out for emergency funds for unforeseen risks. | Investing money that you cannot afford to lose. |
Peer-to-peer lending platforms are giving a new-age investment opportunity, delivering stable and high returns. However, wealth creation through P2P lending is not a quick-win strategy. Like most investments, it requires patience and consistency. Resist the temptation to withdraw your funds prematurely or chase excessively high returns without understanding the risks. Stick to your risk-adjusted strategy, reinvest regularly, and review your portfolio. Over time, the effect of your disciplined investing will pay off in our financial growth in the future.
At Finkeda, we empower our investors with the insights and features needed to gain better returns in the P2P lending space. If you are a first-time investor, start small, gain experience, and build a diversified portfolio to minimize risk and achieve higher profits, without any hassles!
Share :
Like:
0
