P2P or Equity backed Mutual Funds - a comparison.

In an age of financial awareness and the availability of multiple investment options for fund growth and money-flow dynamics, a lot of multiple channels are in place for maneuvering the channelization of funds and fund options in diverse ways. One of these options that has recently emerged on the scene is P2P or Peer-to-Peer lending. Simply put, P2P lending involves setting up a lender or investor account on a peer-to-peer platform (mostly online) and then lending money to prospective borrowers. As per the existing guidelines, a maximum of Rs. 50000 can be lent on a peer-to-peer platform and the total amount lent by one investor or lender must not cross the upper capping of Rs. 10 Lac. P2P lending is a quite popular platform where borrowers can meet their short-term requirements by getting into touch with the matching lender profiles.

In India, traditionally, lending of money has always been considered to be a viable source of money generation by various segments of society. In fact money lenders have been a very important part of the Indian financial life, especially so in the rural areas. However, the financial impact on the borrowers has also been quite adverse, given the arbitrary and injudicious rates of interest charged by the traditional money lending class. Generally, moneylenders would loan out a certain amount in return for a collateral and charge hefty rates of interest. This would unnecessarily put severe burden on the pockets of the borrowers and on the whole, this system has been out-rightly rejected by the experts as being quite manipulative and harassing in nature. With the advent of modern, digital times, however, various options like P2P have emerged that have become a parallel, more transparent and accountable systems of money lending and subsequent growth of funds.

Many people often compare the options of investment in P2P domain with investment in mutual funds, especially the equity-based MFs. However, before any such comparison, it must be kept in mind that the basic platform of these two options is vastly different in nature. Equity-backed mutual funds are rooted in the returns that an investor can garner over a period of time from equity- instruments. Therefore, these are high-risk investment options that are preferred generally by people who have a knack for earning high returns with a considerable risk-appetite. There are other low-risk and medium risk options too  - like investing in debt-backed and hybrid (mix of debt and equity-backed instruments). Therefore, mutual fund advisors manage and handle your fund-allocation in such a manner that optimum returns can be generated over a period of time.

However, P2P lending is a lending platform, with fixed returns through money-flow in the monetary channelization mechanism and through need-based mutual agreements between the lender and the borrower (the borrower's profile is made after thorough documentation). Therefore, P2P lending is all about generating profits based on money-flow and the consequent movement of cash.

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