5paisa Loans Blog

Diversify your investment portfolio with lending

By Anurag Srivastva | 21 Mar 2020

What is the first thing that comes to your mind when you talk of diversification? You normally think of spreading your money across different stocks. Alternatively, you will look to add debt and reduce equity for an asset level diversification. Of late, gold has also emerged as a great asset diversifier. One more option you can look at is alternative investments and one such sub-option you have his P2P lending.

P2P lending diversifies risk at multiple levels

What do we mean when we say multiple levels of diversification? Firstly, P2P lending allows you to diversify your core portfolio. You are already familiar with equity, debt and gold as asset classes. P2P lending is a different asset class altogether and is not really impacted by the cycles in equity, debt or even domestic micros. Most of the P2P lending happens for necessities and emergencies and borrowers have a credit score to protect.

There is also diversification of risk at the product level. At an individual level, there is a limit of Rs.50,000 that a P2P lender can give to a single borrower. This ensures that the risk levels are automatically kept in check. For example, if you want to allocate Rs.5 lakhs to P2P lending, you must mandatorily spread it across minimum 10 borrowers. That diversifies the credit risk that you run in P2P lending.

One of the challenges that individual investors and asset managers have faced in the last few years is that most asset classes have moved in tandem. It is here that a unique product like P2P lending can really help to manage risk.