What is expected rate of return from your savings or invested money? 6% from saving account 8% -12% via FDs, 20% (avg) via Mutual Funds (over a period of long term 5 yrs.), 30%-40% via stocks (Don’t forget the risk element here). Haven’t you dream about making 20% return of your investment without going through the process of researching for Stocks/ tips in short run, may be in a year or two. How about generating passive income for your future?
[Passive income refers to your existing investments generating income for you. You can literally be sleeping while your money works to generate income for you.]
That’s the thing we will deal with today – the ultimate investment option to generate a passive income, which will set you free.
Investing Options
To generate an income you need an investment base. To create that, first you need to save. There is no debate that it is the starting point. But saving is not enough. The saving needs to be invested in the right options. Make the wrong choices and you can spend a lifetime before you start generating a passive income.
Choosing the investment options that work for you is essential. Let’s evaluate the investment options.
What are your investment options?
Now, when you are evaluating a passive income generating opportunity, you essentially want:
- High fixed income (at least, reasonably and enough to meet your expenses)
- Regular (monthly or quarterly) Income
- Safety of your investment
Let’s look at some of the well-known investment options that you have and their key features?
- Real Estate – Needs high investment and maintenance; Yields are low at 2 to 3%, not so easy to sell/exit.
- Bank FDs – Safe investment, assured returns, can withdraw early with interest penalty.
- Direct Stocks – High risk, high return, dividend returns not fixed nor assured, not suited for short term.
- Mutual Funds – especially equity mutual funds, similar to stocks, high-risk, high return.
- PPF – Tax-free returns but limit on investment per year along with lock-in of investment.
- Post Office Schemes – Assured returns with a lock-in.
- NSC – Assured Returns with a lock-in
- Government Bonds – Assured returns and government guarantee along with lock-in
- Corporate Bonds – Fixed return, risk higher compared to FDs or PPF along with lock-in.
- Disclosed later
As you do observe, these are options that have been used forever. You can also see the trade off between assured returns and high returns.
In the investing world, one of the big myths that has been fed to almost everyone is that “If you need higher returns, be prepared to take higher risk.” The other way of putting this is “if you want a fixed, assured income, you will have to be satisfied with lower returns.” Really? Frankly, you deserve better.
Option no. 10: A New Investing Option
A few years ago, IDFC Foundation created a short movie called One Idiot (you can find it on YouTube). Focused on investor education, the key message delivered by the movie through the main character Bugs Bhargava is – to become wealthy and achieve financial independence it is important to save early, save a lot and save regularly.
Timeless rules!
Because he did that, he can afford to live a life he wants, with indulgence. The one thing, which this great movie missed out on though, is the range of investment options that an investor can choose from. But then it was not its fault. The short movie came in 2012. How would it ever know about the investment choices that would be available in 2016?
So, what is this option for 2016?
To reiterate, this investment of 2016 that you can use effectively to generate an ongoing passive income and gives you everything –
- High fixed returns
- Regular payouts / income
- Safety of Investment
This investment is in P2P or Peer to Peer Lending.
Peer to Peer Lending
How can you use P2P or Peer to Peer Lending to generate a passive income?
Peer to Peer Lending lending is a dream-come-true for those who want to create a passive income portfolio. As you must have noticed a while ago, an investor has to make trade offs in different types of investments – trade off amongst safety, returns and flexibility. Why can’t you have all of these together? That’s where Peer to Peer or P2P lending comes into picture.
In Peer to Peer Lending, you become a member of a platform where lenders meet borrowers. Lenders are those who are looking to invest money for better returns.
You can register on a P2P lending platform and start lending money as personal loans to verified borrowers. The interest rates on offer range from 12% to 30% based on various categories of borrowers. The rates are fixed and payouts are regular, usually monthly. Have a look at the table below:
Peer to Peer Lending
Peer to Peer Lending or P2P investment can get you to create a faster passive income.
The average rate of returns has been arrived at by assuming that 75% of the investments are made in Fixed Deposits, Post office schemes and Debt Mutual Funds and only 25% is invested via P2P lending. This way you are not putting all your eggs in one basket.
The compounding has not been factored in as it is assumed that the returns / interest will be used by you for your expenses.
Please note that by only exposing 25% of your investments through P2P, you can generate extra returns from the same corpus of funds.
High, fixed and regular income – it is the ultimate source of passive income in 2016 that you are looking for.
With a higher return driven by P2P investments, you need much less investment to generate the same level of passive income. That’s not it. The higher assured returns come with a protection of your money too.
This is unique to P2P lending platform i2ifunding.com. It offers a unique principal protection feature to the investors who lend through its platform. What it means is that in case a borrower defaults on loan repayments, i2ifunding would refund upto 100% of the invested principal with that borrower to you, the investor.
To put this in perspective, while bank fixed deposits are guaranteed by the government till Rs. 1 lac, no other investment option, small savings or market linked, offers you a protection of your principal investment.
To see is to believe. You are now invited to explore this ultimate option to build your passive income portfolio to deliver high, regular and safe income.Simultaneously, start working on your travel plans. The world is waiting for you.
Author of this article is working with i2iFunding, one of the leading P2P lending platform in India
The post Peer to Peer Lending: A passive income strategy via investing smartly appeared first on Be Money Aware Blog.