Can P2P Lending Help Generate Passive Income? A Quick Guide – Forbes Advisor INDIA – Forbes

Updated: Sep 13, 2021, 9:49pm
Many people across the world do earn income by making some smart investment choices and putting in place a system that helps them exploit their skills without exerting too much effort or time. Passive income refers to earnings that system to the cash flow income of an entity and is derived from various sources without the need to put in a considerable amount of time, energy, effort or any other resources.
Some examples of passive income include portfolio income, rental income, income from royalty, display advertising while some new age ones include eBooks, YouTube channels and P2P lending, among others.
P2P lending directly connects people with idle money interested in lending to people in need of credit, thereby removing intermediary margins. This enables the lenders to earn higher returns from their investments and borrowers to access quick loans at lower cost.
Lenders receive back the money they lend in the form of EMIs – equated monthly investments – which include both principal and the interest income earned. Every month the borrower repays the lenders through EMIs. The P2P lending platform collects the EMIs on behalf of the lender from the borrower and adds it to the lenders escrow account from where the lender can choose to withdraw or invest again.
Most lenders are able to earn high and stable returns by building a diversified portfolio. However, building a portfolio that mitigates risk of default by spreading investment across many borrowers with different risk profiles, demographic, occupation and others can be time consuming. P2P lending platforms involve innovative products and processes to cut down on the time and effort needed to build a portfolio.
By definition, passive income should be earned without putting in considerable time and energy. P2P lending earnings can become passive income through smart investment decisions and choices.
Lenders earn their income from the loans they invest in through EMIs that get credited to their escrow account on the platform every month. They have the option to withdraw these EMIs or reinvest them back in loans listed on the platform.
By reinvesting the lender is choosing to:
P2P lending platforms provide automated investment options which reduce the time and effort required in building a portfolio. Instead of spending time in studying and selecting each borrower profile, you can choose to add funds to auto invest and select the various parameters which match your investment strategy. The algorithm automatically builds your portfolio by matching your investment objectives with borrower profiles listed on the platform.
Auto invest is a more efficient and less time-consuming process of investing which works for you to help you earn passive income.
The latest, most efficient and least time taking method of investing in P2P lending is when lots of investors pool their monies into a single portfolio to achieve efficiency in portfolio building and management.
The pool uses data science and artificial intelligence (AI) to build and manage a portfolio that has the potential to deliver high and stable returns.
Once you have added your investment amount and authorized the platform to disburse it, your job is done. The platform’s algorithm will disburse the pool money into a diverse mix of loans and loan products who as per it have the repaying capacity to provide high aggregate returns.
Rajat Gandhi is the founder and CEO of Faircent.com, a peer-to-peer lending platform. He also serves as the President of Association of NBFC P2P Lending Platforms. Rajat holds a master’s degree in business administration and has over 25 years of experience in launching and building online portals.
Armaan is the India Lead Editor for Forbes Advisor. He has more than a decade’s experience working with media and publishing companies to help them build expert-led content and establish editorial teams. At Forbes Advisor, he is determined to help readers declutter complex financial jargons and do his bit for India’s financial literacy.

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