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You are aware of diversification in mutual funds, right. Similarly, you can diversify portfolio in other asset classes such as peer to peer (P2P) lending to reduce risk in portfolio and generate better risk adjusted returns.
Here are some useful tips on how your clients can diversify portfolio in P2P lending:
- Invest in as many loans as possible: Higher the number of loans you invest in, the lesser will be the capital risk due to default. If your client has Rs.1 lakh, lend it to a minimum of 20-25 borrowers to mitigate credit default risk.
- Lend at different interest rates: It’s prudent to invest in a mix of loans which have different interest rates.. In other words, lending at high interest rates increases the risk profile of lending. Therefore, it is a good idea to ‘blend your lending’ by lending loans across a wide range of interest rates.
- Invest at different timescale: Your clients can lend money to loans across different tenor. The time period varies from 6 months to 36 months. Ensure that your client invest in different time period comprising both short term and long term terms. So, that your client gets a balance between liquidity and long term cash flow.
- Invest in diverse range of profiles: You will find wide range of borrower backgrounds in P2P lending platforms such as Monexo. There are women entrepreneurs, salaried people and even small business owners. Ask your clients to invest in a variety of profiles.
- Invest by automating: Many platforms like Monexo offer auto-lending or auto- diversifying option that diversifies your funds across different borrowers. If your clients have large sums of money to lend, they can choose this option instead of doing it manually. It saves time and makes it easier to manage the account.
- Always stay invested: Encourage your clients to stay invested by reinvesting the cash flow in fresh loans. This helps in fetching more money to achieve long term financial goals.