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Home > BUSINESS > Can P2P lending help generate passive income? A Quick Guide – Forbes Advisor INDIA

Can P2P lending help generate passive income? A Quick Guide – Forbes Advisor INDIA

Can P2P lending help generate passive income?  A Quick Guide – Forbes Advisor INDIA

Many people around the world earn an income by making some smart investment choices and introducing a system that helps them leverage their skills without straining too much or too much time. Passive income refers to earnings that system to a company’s cash flow income and comes from various sources without having to spend a significant amount of time, energy, effort or other resources.

Some examples of passive income include portfolio income, rental income, royalty income, display advertising, while some new age models include e-books, YouTube channels and P2P lending.

What is P2P lending?

P2P lending directly connects people with available money who are interested in lending to people who need credit, thus removing intermediary margins. This allows lenders to earn higher returns from their investments and borrowers can access quick loans at lower cost.

How can I earn through P2P lending?

Lenders receive the money they lend back in the form of EMIs – juxtaposed monthly investments – which include both principal and interest income. Each month, the borrower repays lenders through EMIs. The P2P lending platform collects the EMIs on behalf of the borrower from the borrower and adds it to the lenders’ escrow account, from which 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, it can be time consuming to build a portfolio that reduces the risk of default by spreading investments across many borrowers with different risk profiles, demographic, business and others. P2P lending platforms involve innovative products and processes to reduce the time and effort required to build a portfolio.

How can my earnings from P2P lending become passive income?

By definition, passive income should be earned without spending much time and energy. P2P lending earnings can become passive income through smart investment decisions and choices.

1. Reinvestment

Lenders earn their income from the loans they invest in through EMIs, which are credited to their escrow account on the platform every month. They have the option to withdraw these EMIs or reinvest them in loans listed on the platform.

By reinvesting the lender chooses to:

  • Take advantage of composing returns: Data show that reinvesting lenders earn up to 10% more returns than those that do not.
  • Significantly reduce time and effort: By enabling reinvestment, lenders ensure that their monthly earnings are automatically reinvested in the same products or plans that they have chosen, and continue to generate returns for them. Then they should not spend more time investing these funds.

2. Automated investment

P2P lending platforms provide automated investment opportunities that reduce the time and effort required in building a portfolio. Instead of spending time studying and selecting each borrower profile, you can choose to add funds for auto-investment and choose the various parameters that match your investment strategy. The algorithm automatically builds your portfolio by matching your investment goals with borrower profiles listed on the platform.

Auto investing is a more efficient and less time consuming investment process that helps you earn passive income.

Systematic income generation plans

The latest, most effective and least time consuming method of investing in P2P lending is when many investors pool their money into a single portfolio to achieve efficiency in portfolio building and management.

The pool uses computer 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 approved the platform to pay it, your job is done. The platform’s algorithm will distribute the pool money to a diverse mix of loans and loan products that per. It has repayment ability to deliver high total returns.

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