They say p2p is the next big thing. peer-to-peer lending is gaining a lot of popularity because of it’s hassle free and simple process. Also the attractive returns on investments plays a vital role in gaining popularity. When it comes to mutual funds, it is one of the oldest and diversified option. Each of them has it’s own advantages and disadvantages. For making the most appropriate choice, here are certain pointers for mutual funds and peer-to-peer lending which can help an investor to make a better choice in between the both.
- Risk factor:
Peer-to-peer lending: While taking risk into consideration, peer-to-peer lending seems to be a much more convinent option. In p2p, you invest directly in the borrower. You can see the credit rating of the borrower and you get the detailed portfolio of the borrower. This helps you to choose the perfect borrower who has almost zero crediblity to default. For borrowers, they can select the investor s per their wish. This way it is a win-win situation for both and risk is eventually reduced.
Mutual funds: Mutual funds, on other hand is kind of more on the riskier part because it is associated with stock market. Here, a portfolio manager takes care of all the investments made and comes up with various plans for maximum returns from each investment.
- Process complexity:
Peer-to-peer lending: Process complexity in terms of p2p is very minimal. The process is simple, hassle free and digital. The borrower just needs to go on the website, apply for application, wait for 10 mins and the application is approved. The same thing applies on the lender. The lender just has to come on the platform, fill up a form and click on submit. All the documents are checked online within minutes. Yo don’t need to have a seperate account unlike mutual funds.
Mutual funds: In mutual funds, you have option to fill up the form manually as well as online. This gives more flexiblity for people who are not convinient to fill up the form online. The process however is a bit lengthy as compared to p2p.
- Duration constraint:Peer-to-peer lending: Once you decide that you want to invest in another person, you have to stick to the duration which is abide by the company/platform. The duration will be different for different companies and it also depends on the the amount you are going to invest or the amount you are going to borrow. If you remove the invested amount before the pre-decided time period, you might lose a great return on investment.
Mutual funds: Mutual funds, on the other hand, are very flexible and easy to withdraw. At any point of time you can buy and sell the stocks you want to. Once you decide to sell a stock, you have to wait for a few days for the process to execute.
- Extra money:
Peer-to-peer lending: In p2p, there are no extra charges or any share from the profit. There is only transaction fees which the borrowers have to pay which is very minimal. Apart from that, no fees is charged to either borrower or lender. Even if you gain a good returns on your investment, you don’t have to pay anything to the company.
Mutual funds: In mutual funds, if you gain sayfor example 40,000rs on 20,000 rs, you might have to give some percent of your profit to the portfolio manager apart from the transaction fees which is compulsory.
Peer-to-peer lending: The returns on peer-to-peer lending is fixed. The change in the market has no effect on the returns on investment. So if the market is low, the lender will get a higher amount of money as compared to the market, which is an advantage. But if market is doing good, then he might get lower rate of interest as compared to the market.
Mutual funds: They are subject to market risk. At one point you can earn and other minute, you might actually loose everything. The risk involved is very high. It is therefore essential to have a detailed understanding of the market before investing in mutual funds.
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