P2P Lending Vs Gold: Explore Which One Is Better

In the contemporary realm of investments, a wide array of options are available to individuals, many of which were unheard of even a decade prior. P2P Lending Platforms have caught on quite recently, and investment options in the same are now open for everyday investors.

While P2P Investments do offer decent returns, how well do they hold up when compared to the literal Gold standard of investments? 

Yes, we’re comparing Investments in P2P with Investments in Gold!

Both options offer their unique advantages and disadvantages, and hence it becomes extremely important to understand the nitty-gritties behind both investment options. This blog delves into the same, which should ideally help one understand the differences between both and, therefore, make an effective choice in investing.

Gold Investment: The Traditional Safe Haven

India has historically been one of the world’s biggest markets for Gold in all its forms - be it gold bars, coins, or jewelry. The trend of Gold investment has carried over well into the modern day as well, with Indian households collectively estimated to be holding up an amount of 25,000 Tons worth of Gold.

Gold served the purpose of being both an investment for the future as well as a decorative piece of jewelry that they could use in their everyday lives. No other asset could’ve possibly offered that level of versatility in terms of use-case scenarios like Gold did. Needless to say, gold has been a favourite of Indians across generations.

Warren Buffet's Views on Gold

One of the world’s Best investors, Warren Buffet, has taken views on Gold that are contrary to what most Indians hold.

Warren believes that Gold is a ‘sterile’ investment, as it didn’t offer any real use case scenario for the world. Buffet instead ended up with a massive amount of US$ 1 Billion in Silver, which had a lot of industrial and retail use cases.

While Warren’s views might come off as extreme to some, it doesn’t make Gold a bad investment by any means. Gold has historically held its value well across long-term timeframes, thus making it a near-perfect hedge against inflation.

Indian Market’s Views on Gold

Historically, Indians have been avid consumers of Gold. Families invested and gifted in Gold, mostly in the jewelry form, across generations, thus making Gold an integral part of Indian culture. Although the emotional attachment towards Gold more or less remains as strong as always, market sentiments have begun to change.

Gold isn’t as favored as it used to be when considered as a choice of investment. Experts attribute this to the younger generations being aware of more investment choices. 

Investments in the Stock Market, Real Estate, and Alternative Investments have taken up a majority of significant portions of Indians’ investable wealth, which is a stark difference from the past when Gold used to rule a majority of investment portfolios by a significant margin.

Beyond that, various other factors such as rising Gold prices, depreciation of the rupee, fluctuating interest rates, unstable global markets, and other macroeconomic factors ensured that the demand for Gold fell to 6-year lows recently. 

Needless to say, Gold simply isn’t what it used to be. It does make for a good hedge against inflation and deserves to be part of a well-balanced portfolio, but there are better options in the contemporary market if one aims to build wealth instead of simply maintaining one's existing wealth.

Learn the Indian Mindset of Investment Mindset here in our blog How do Indians invest?

P2P Lending: A fresh face in the battlefield of Investments.

P2P Lending platforms have been gaining prominence recently as an alternative investment option when compared to traditional investment options such as gold. 

These platforms work on rather simple premises, wherein the investors get higher rates of returns than they would through traditional investment methods (An average of 12% compared to the 6-7% offered by banks), while the borrowers would get easier access to finance without much formalities, at reasonable rates of interest. 

The P2P lending platform would take a small part of the transaction as their commission, and they would still be profitable as they wouldn’t have much of the overheads of traditional finance, such as offices and employee expenses.

Is it truly a safe alternative?

While other countries have raised doubts about the safety of investor funds in P2P Lending platforms, India’s chief banking regulator, the RBI, has this front covered by rolling out regulations for P2P Lending platforms as early as 2017. 

The regulations ensure that investor funds are never lying empty in the hands of the Platform; rather, they provide for the investors' funds to be transferred to the borrowers as intended and advertised. Such regulations improve the transparency of such platforms and make them more investor-friendly, thus offering safe returns on a regulated entity and process.

You can learn more about whether P2P is safe here in our blog Confused whether P2P lending is safe or not? Let's Discuss!

The Joys of Fixed Returns and Choosing Your Debtor

P2P Lending platforms offer unprecedented levels of transparency. While traditional banking options would simply use your money and lend it to individuals, P2P Lending platforms allow you to pick and choose who gets to borrow your investment based on their credit ratings and borrower profiles. Thus, investors get to choose their levels of risk, effectively allowing them to take over the reins of how their money is being managed. What’s more - P2P Lending platforms also offer fixed rates of return, just like traditional finance!

Most P2P Lending platforms offer an average of 12% returns on investment, while traditional savings bank accounts and fixed deposit programs offer anywhere from 6 to a maximum of 7% in returns. Thus, P2P investments are able to offer a level of guaranteed returns, depending on who the investor chooses to lend their money to, as opposed to gold, whose rate of returns can vary based on global macroeconomic factors, which is often beyond the control of the investor.

A Must-Have for a Diversified Portfolio?

P2P Lending also offers the benefit of monthly returns. This makes it a must-have for any individual with a diversified portfolio, as an asset that offers decent returns of 12% p.a. but monthly payouts would do wonders in terms of liquidity offered.

While Gold holds its value well, new-age investment options such as P2P Lending offer investors the opportunity to generate monthly returns at a respectable rate of return on the capital invested, with the amount of risk involved being completely up to them. Such a proposition effectively makes a case for itself on why P2P Investments should be part of every investment portfolio, along with traditional investments.

Conclusion

The dynamic, modern-day financial environment has brought along with it a ton of investment opportunities. While some options, such as Cryptos and NFTs, offered high returns that seemed too good to be true, such options didn’t last well in the market for obvious reasons.

However, with the bad, there exists the good, and nichè opportunities such as P2P Investments may very well be one among them. Although it hasn’t been around for as long as gold has, it does offer a very interesting proposition for one who should invest - Fixed returns at reasonable rates on a regular basis, at a rate of risk to be determined by the investor. 

Truly makes one think, why not invest in P2P?