Frequently Asked Questions

Background


IndiaP2P is a digital Peer to Peer lending platform that diligences and aggregates borrowers & lenders. We offer technology-driven direct connections between borrowers and lenders enabling lenders to earn higher returns than conventional savings and other investments while borrowers can get loans at lower interest than market rates. Thereby, creating a win-win for both sides using a technology-marketplace approach.

P2P lending in India is regulated by the Reserve Bank of India (RBI) since late 2017. IndiaP2P (Trickle Flood Technologies Pvt Ltd) is certified as NBFC-P2P by the RBI. Along with connecting lenders and borrowers we also conduct credit assessments of all borrowers, generate scientific loan portfolios for lenders, facilitate transactions and contracting, interact with credit bureaus and assist in recovering due repayments if required. All of this is done digitally and with strong risk management practices.

P2P stands for Peer to Peer lending. It enables individuals to obtain loans directly from other individuals without the involvement of any intermediary. It’s an alternate option for borrowing money other than Banks.

IndiaP2P is a NBFC-P2P, licenced by the Reserve Bank of India (RBI) under the name Trickle Flood Technologies Pvt. Ltd.

IndiaP2P is a NBFC-P2P, licenced by the Reserve Bank of India (RBI) under the name Trickle Flood Technologies Pvt. Ltd.Yes, IndiaP2P is an NBFC-P2P certified by the Reserve Bank of India (RBI).

IndiaP2P is a NBFC-P2P, licenced by the Reserve Bank of India (RBI) under the name Trickle Flood Technologies Pvt. Ltd.Yes, IndiaP2P is an NBFC-P2P certified by the Reserve Bank of India (RBI).IndiaP2P is an RBI-certified platform that diligences and onboards creditworthy borrowers seeking immediate loans and connects them with lenders thereafter enabling signing of loan documents and managing disbursements and transfer of funds electronically.

You need to complete a quick online KYC for which you will need to keep your Aadhaar, PAN, and bank details handy. Post KYC verification we will create your unique virtual escrow account into which you can deposit funds for investing in IndiaP2P products. If you are using NEFT, IMPS, or RTGS to transfer funds into your escrow account you will need to add this account as a beneficiary to your netbanking first.
This entire process only takes a few minutes. No physical paper submission is required. Please note that we do not accept any form of cash investments, fees, or payments.

As a lender on IndiaP2P, you are giving out a loan directly to borrowers who repay you with interest. Since there are no institutional intermediaries or middlemen, you earn the interest charged to a borrower minus a nominal platform fee charged by IndiaP2P.

You can earn up to 18% per annum with loans on IndiaP2P. For all loans and loan categories, the interest rate and fees are transparently indicated. As a platform IndiaP2P does not list very high-risk borrowers even though they may be willing to pay higher interest rates.
As a lender investor, you have full access to the borrower’s profile, credit score, and more to make an informed decision. We encourage lenders to understand that their investments in loans come with a risk-reward profile i.e. as the interest rate/earnings increase so do the chances of potential default.

Peer to Peer (P2P) lending is a new asset class that provides an opportunity for Investors to directly invest in one or a portfolio of loans of credit assessed and worthy Borrowers. Introduced by the RBI in 2017, P2P lending allows individual investors to access retail loans, which typically offer higher and yet stable returns.

Some unique advantages of lending on IndiaP2P are: 
 
1. Earn regular Income and/or compound your wealth with auto re-investing: Investing in loans via IndiaP2P enables you to earn monthly income that you can reinvest to grow and compound further flexibly. You can earn returns as much as 3 times of a fixed deposit.
2.Low volatility & simplicity: With IndiP2P, you know exactly the type of loans you are investing in which as an asset class are uncorrelated to market volatility. Your investment is transparent, simple and stable.
3.Scientific risk mitigation: Using our auto-invest options you can invest in a pre-created loan portfolios that are designed to mitigate risk of overdue payments by spreading your investment over multiple, diversified loans.
4.Focus on loans to women borrowers: In India, women are known to have superior credit ratings.

For the past year, inflation and indicative average returns across common investment types were:

  • Inflation ~ 5 to 7%
  • Fixed Deposits ~ 5% </li.
  • Mutual Funds ~ 12%
  • Real Estate ~ 8.5 to 10%
We recommend using Auto-Invest as it deploys a scientific portfolio approach to split your investments over multiple loans which are further diversified across geography, type etc. thereby mitigating risk without compromising on returns.
The Auto-Invest Income and Auto-Invest Growth Plans re-invest your repayments quickly to not miss out on any precious earning time.
You are also free to browse loans and invest manually into just one loan or split your funds across multiple borrowers to create your own portfolio.
An individual, Company formed under the India Companies Act, HUF, firm, NRI, Society, Trust, RBI certified finance companies or any artificial body whether incorporated or not, holding a PAN card and bank account in India can invest in loans on IndiaP2P. Please note that individuals lending must be 18 years or above.
If you represent an organisation seeking to invest via IndiaP2P then please write to us at investors@indiap2p.com or schedule a call with us.
Yes, across all peer to peer lending platforms regulated by the RBI you can invest a maximum of ₹50 lakhs. For investments above 10 lakhs a certificate from a CA is required to ascertain your net worth.
Our investor services team will assist you with this certificate.
Additionally, the maximum lending per borrower is restricted to ₹50,000 for risk mitigation purposes.

IndiaP2P considers the data provided by credit bureaus and alternate data collected directly to arrive at a combined credit rating graded across 6 categories A to F. In the absence of credit bureau data (a good percentage of Indian adults do not have credit scores as they may be new to credit, may not have taken any credit before, etc.), only alternate data is used and this is reflected as a lower rating. IndiaP2P directly or via affiliates also physically verifies borrowers through field partners where possible. We aim to physically verify 100% of the borrowers/loans onboarded. Deviation from the same (due to COVID or other reasons) may be seen and such loans are not included in the auto-invest Growth and Income plans.

  1. Both you and your referred friend would earn 1% of their first investment as a top-up to your first investment plans.
  2. You can refer to as many friends as you like.
  3. Total referral earnings are capped at INR 5000.
  4. Referral earnings will be visible separately in your dashboard under the Rewards section.
  5. If you'd like to earn more than INR 5000 via referrals then please contact us to join our Ambassador program.
  6. IndiaP2P reserves all rights to amend this scheme at any time without prior notice.
We follow RBI’s mandated escrow mechanism process wherein your funds are deposited into a Lender Escrow and the borrower’s repayments are received into a Borrower Escrow.
Our system thereafter processes and manages transactions from one escrow to another i.e. you simply deposit funds into a designated IndiaP2P account from your bank account and receive repayments seamlessly into your IndiaP2P account or bank account.

You can email us at investors@indiap2p.com or schedule a quick call with our investor support team at your convenience here

IndiaP2P screens and rates borrowers using our credit-algorithm as defined here (IndiaP2P Credit Policy) to ensure their creditworthiness and assess risk potential. In addition, most borrowers are verified physically by our team. As an investor lender, you can see and filter borrowers basis various criteria.
We do not list borrowers that have very high-risk ratings even though they are willing to repay with higher interest rates.
All investments in loans made on IndiaP2P are secured by a loan agreement ensuring that the borrower’s obligation to repay stands. As an investor lender, you can take the borrower to court in case of non-repayment of outstanding dues. IndiaP2P will also assist you in initiating this legal process if needed.
In addition, all of the borrower’s repayment information is reported to all credit bureaus ensuring that defaulting borrower’s credit profile is suitably affected and is visible to all other lending institutions.
It may be noted that IndiaP2P does not guarantee returns on the investment in loans made on its platform.

We require your KYC and tax identification information as per law. Details of additional information collected can be seen in our Privacy Policy. Please note that we do not share your information with any third parties for sale purposes.

Yes, you can invest as low as ₹5000.

As an investor you do not need to pay any upfront fee. A nominal percentage of the interest you earn every month is deducted as IndiaP2P’s fee from your earnings along with ₹250 + taxes at the end of 12 months of investment.

Yes, every investment you make is locked-in for a period of 12 months after which your principal invested (along with interest) will be repaid to you monthly. 

Pre-mature withdrawals are facilitated on a best effort basis and subject to an exit fee of 3% of the principal invested + INR 500 in facilitation fee. Your IndiaP2P investment is deployed from your escrow account into borrowers escrow accounts directly and a pre-mature withdrawal implies that an alternate investor is required for taking over the loans you have funded.  This may not always be possible or quick. 

Hence, while we do our best to facilitate early withdrawals, we request investors to consider this as a full, 12 month investment.

Please note that IndiaP2P does not 'pool investments' i.e. you have full visibility and transparency over where your investment has been deployed.

Yes, all earnings are subject to taxation. Your interest earnings on IndiaP2P will be considered as ‘other income’ in your annual returns and taxed as per your prevailing income bracket.

Using IndiaP2P Auto-Invest, you can structure your investments in loans to best suit your needs by choosing a Plan and a Risk

Category:

Plans:

Growth Plan - In the Growth Plan, an initial investment is made across a portfolio and all repayments (principal + interest) is quickly reinvested (as principal) in another portfolio of loans that match your risk profile and tenure. Thereby, giving you the power of compounding to grow your wealth. And, compounding is great!

Income Plan - In the Income Plan, an initial investment is made across a portfolio and principal repaid from monthly EMIs repaid is quickly reinvested (as principal) in another portfolio of loans that match your risk profile and tenure, while the interest earnings are credited monthly to your escrow account as income. Thereby, giving a regular interest income every month.

Risk Profile:

Conservative – The best credit-rated borrowers are listed in this category i.e. minimum risk category. Lender investors can earn up to 12% lending to borrowers in this category.

Aggressive – This category includes slightly lower credit-rated borrowers on which Lenders can earn highest returns.

Please note that IndiaP2P grades borrowers across risk ratings from A to F, with A being the highest i.e. most credit-worthy or least risky. 

Fee and Charges:

Investor onboarding fee: Nil, Pre-mature exit fee: 2% of investment amount. All withdrawals are subject to best efforts only.

Yes, you can invest in more than one plan or even add more funds to a plan you have invested in before

We offer loans of up to ₹10 lakhs across multiple categories with a maximum tenure of 36 months. Please download the IndiaP2P Borrower app if available in your geography to see all available loan offers with interest rates, tenure and more. 

IndiaP2P is a digital platform that enables you to apply conveniently and offers a variety of collateral-free loans with quick disbursements. We offer the most competitive interest rates due to direct matchmaking with lenders and low fees.

We expect all borrowers to have a clean credit history, income commensurate with loan requirement, stated purpose of loan, KYC and completion of physical verification in most cases. You can easily check eligibility via our app.

We calculate interest on a reducing balance basis.

No, we do not expect you to provide any collateral.

In most cases, borrowers receive an instant approval/rejection of their loan application. However, at times, certain additional checks are required which may delay the approval process by 2 to 5 working days.

Yes, we allow for loan pre-payment of certain loans with a nominal pre-payment charge.

Multiple lenders are likely to be funding your loan especially if the loan amount exceeds ₹50,000. However, you don’t have to repay each of them separately. Your EMIs/due repayments will be debited from your registered bank account to the IndiaP2P borrower escrow. Thereafter, we will manage credits to all lender accounts with the due proportion of your repayment.

Yes, please contact us at borrowers@indiap2p.com to change your registered account details. Please note that this change requires a re-registration of NACH mandate and thus a small fee.

You are legally obligated to all Lenders who have funded you to repay all due EMIs on time. Delay in payment of due EMIs will attract a penalty chargeable to you. These charges are mentioned in the Loan Agreement you sign. Indicatively, ₹300 are chargeable for every month of delay and a minimum of ₹300 + taxes in processing fee with a maximum capped at 2%. Failure to pay may attract legal action by the Lender(s).
All delays and defaults if any are also reported regularly to all active Credit Bureaus in the country and will adversely impact your credit profile.

No, your contact details will not be made public and neither will your photo be shown to anyone. Your identification details and other information will only be shared with the lenders who fund you at the time of agreement signing.

Please email us at borrowers@indiap2p.com

Traditional lending involves giving credit or loans to individuals or businesses by banks and other financial institutions.  Herein, banks and other financial institutions get money to lend further via savings and deposits made by individuals and businesses.
Peer-to-Peer lending bypasses banks and similar intermediaries. It implies direct lending between two peers.  A peer here can be a person or business.  P2P lending is typically facilitated by online, digital platforms.
In India, like other formats of lending, P2P lending is also regulated by the Reserve Bank of India (RBI).
A fraction represents a part of something, the something being a loan here.  So when you make an IndiaP2P investment, you are investing into fractions or parts of many loans instead of concentrating your investment over a few loans.
This spreads or diversifies your investments over more borrowers thereby limiting your exposure to any one borrower.  This means that in the unfortunate scenario of any borrower defaulting your capital and returns are affected only up to a limit.  

IndiaP2P focuses its loan sourcing from women borrowers that have successful prior credit histories and incomes/operating businesses.  Most loans sought are for business/income enhancement purposes and some loans for household asset purchases.

Why does IndiaP2P prioritize women borrowers?

Women borrowers are known to have better credit ratings and repayment discipline.

women have a higher average CIBIL score than that of men indicates that women have a better credit history and therefore lesser probability of default which makes them better customers for banks and credit institutions”  TransUnion CIBIL, 2021

IndiaP2P sourcing processes are designed for easy and prioritized access for women borrowers.

High-quality borrowers make for a safer investment product, which is exactly what IndiaP2P intends to do.

Fixed-Income investments typically pay investors fixed-interest or dividend income over the time period of investment. After this time period, the initial investment amount is due to be returned. 
Examples: Bonds, Loans, IndiaP2P etc.
While there is a cap on the maximum earnings hence the term fixed income, these investments promise regular and safer returns as there is no/low speculation given that market psychology/movements do not affect these investments, unlike stocks, equity mutual funds, crypto, even gold and real estate.
Fixed-income investments are not risk-free.  Different fixed-income investments come with different risk types.  In the case of IndiaP2P, the risk to your returns comes from the possibility of borrowers whose loans you have invested in defaulting i.e. not repaying.  
This type of risk is common to all investments in lending whether the lending is done by a bank or investors like yourself via IndiaP2P. 
For the borrower segment IndiaP2P sources loans, historical default rates also called NPA (Non-Performing Assets) can be seen here.  It should be noted that historical default rates only indicate the quality of loans sourced and do not guarantee future performance.  

While we source high-quality loans, we further reduce the risk of loss from potential defaults by fractionalizing loans as explained earlier.    Fractionalizing limits exposure to a borrower and also enables your investment to be diversified over borrowers from different geographies, income sources etc. This diversification adds another layer of risk reduction on your investment.

Passive Income is income earned without significant effort, employment or labour.  It’s basically making money without doing anything barring an initial effort to start. 
Some examples of passive income include stable rental income, interest income such as that earned on the IndiaP2P Income Plan, royalty income etc.

As retail investors we have many investment options today, common ones such as stocks, MFs, rental income, etc., and newer ones such as P2P lending, angel investing, digital gold, etc.

However, not all products and companies selling those products are regulated i.e. do not have oversight of regulators such as the RBI and SEBI.  While not all unregulated investment products are unsafe, they are more prone to fraud and losses.

Before you make an investment, check if the product and/or entity providing the product is regulated.

Examples of Unregulated Investment Types: Digital Gold, Deposit Schemes, Some types of Chit Funds, Crypto etc.

Examples of Regulated Investment Types: Mutual Funds, Stocks, P2P Lending, Real Estate Investment Trusts, Bonds etc.

Regulators often explicitly ban financial advisors and registered brokers from recommending/selling unregulated assets until they come up with qualification criteria and rules for such investment assets and the companies that offer them.  These regulatory safeguards are for investor protection.

Diversification is mixing a variety of assets within a portfolio thereby limiting exposure any one single asset and risk. 
On average, a diversified portfolio delivers higher long-term returns at lower risk.

“The beauty of diversification is it's about as close as you can get to a free lunch in investing.”

Barry Ritholtz

Related question - How does IndiaP2P diversify your investment?
IndiaP2P’s investment products are essentially portfolios of fractions of loans.  Let’s break this down:
 

1. Fractions of loans - Your investment only funds a part of a loan i.e. you have co-lenders or co-investors in every loan.

2. You invest in a portfolio (of loans) i.e. your funds are spread across multiple loans so that the affect of a particular borrower defaulting is limited.  Furthermore this ‘spreading’ is done scientifically ensuring that your exposure to a geography, income source of borrower etc. are also diversified further reducing risk.

Reinvesting the earnings such as interest, dividend or capital gains into an existing or new investment to earn more is compounding.  It essentially means adding your earnings to increase your investment corpus and thereby earn on a bigger corpus.

The IndiaP2P Growth Plan puts the power of compounding to work for you by re-investing your monthly interest earnings into new loans.

The ups and downs in the price of an asset such as stocks, mutual funds, crypto, currency or gold, etc. over a time period (daily, weekly, monthly, etc.) is termed as volatility.  Mathematically, volatility is measured via standard deviation around the average price of the asset.

Fixed-income investments such as bonds and IndiaP2P have low or no volatility as returns are fixed and predictable.

High volatility implies lesser predictability and more risk. However, many traders play on volatility to earn also.

A 2020 study on the S&P500 index by Crestmont Research has found that higher volatility means a higher chance of the market declining while lower volatility means a higher chance of market rising.

Asset allocation is an investing technique that involves selecting how to distribute your money among several types of types.

A few examples of asset types

1. Equities (Direct Stocks, Equity oriented Mutual funds etc)

2. Fixed Income (Fixed Deposits, debt oriented mututal funds, Provident fund etc)

3. Gold

4. Real estate

An asset allocation decision is influenced by your age, risk tolerance, and time horizon for achieving your financial goals. Asset allocation's goal is to build a portfolio of on-correlating assets that minimizes portfolio risk while maximizing profits.

P.S. IndiaP2P combines high-quality fractionalized loans into ready-to-invest portfolios, resulting in increased portfolio diversification and improved returns. 

Angel Investors are investors who typically invest in a startup in its early stages basis the idea and the credibility or promise of the entrepreneur.  In return, they receive an equity stake in the company, and often the % of the company they receive is decided later when the startup raises a larger amount of funding for an institutional investor i.e. it is linked to a formal valuation of the startup which would be done later by an institutional investor in the future.

Startups are booming, should you Angel Invest in one?
It is true that more and more young startups are scaling very fast but they still come with a very, very high risk of failure and more so in the early stages.  
You should invest only if you have the domain knowledge to assess the idea objectively and know the entrepreneur well enough to estimate their execution capabilities.  You must also spend enough to keep up to date with industry and technology trends, other competing startups etc.
 
I have funds but not enough time but I want to allocate some part of my investment portfolio to startups?
It’s important to invest time to explore and diligence various startup ideas. This also requires that you have access to a pipeline of startups.  If this is not the case, and you still wish to allocate funds to promising startups then investing via a VC fund may be a better option. VC funds are professional investors and have access to a strong pipeline of startups to qualify and assess.

FOMO = Fear Of Missing Out

We are often triggered when we read or hear about some stock, crypto or other investment gaining in price very quickly.  We feel this urgency to invest quickly without spending enough time on diligence.
This type of investing is dangerous - one) you may be investing in a fundamentally good product when it is overpriced.  two) you may be investing in something that is primarily hype and speculation.
  
Why do we still FOMO invest?
Behavioural economist Daniel Kahneman conducted many studies that can explain investing FOMO.  His work indicates that people are more affected by the fear of losing (money) as opposed to the joy of gaining.  So, when we see in the media (or socially) that others may be making money and we are not, we start feeling that we are missing our i.e. losing. This leads to poor investment decisions.

So how do I control FOMO when others talk about the hottest coin, stock etc.?

Make it a rule to invest only in products you understand and aren’t hyped. How popular or fast-growing an investment, it does not translate it into being a good one.

Provision of financial services such as loans to businesses that are small, specifically in hard to reach borrower segments is called micro-finance.
Small businesses and self-employed individuals often do not access to loans from traditional banking sources along with insurance, investments etc. making it difficult for them to grow their businesses and incomes
Microfinance is typically provided by specialised institutions who have networks within the user communities they serve.  Globally, microfinance has seen great success with women entrepreneurs who have organised themselves as self-help-groups (SHGs). This SHG-microfinance template was formalised by Nobel Laureate Muhammad Yunis of Bangladesh and is implemented is most low and mid-income countries.
In India, estimates suggest that nearly 25% of households avail microfinance i.e. ~ over 6 Crore households wherein predominantly women seek out loans for their businesses.
This segment follows stringent social underwriting practices and is known for low default rates even in the absence of collateral
A mutual fund is a company that pools in money from many investors and invests it in multiple stocks, bonds etc. usually following a theme and creating a portfolio. 
As investors, you buy units in the mutual fund where each unit represents part ownership in the fund and profits, if it generates any.

The mutual fund company is managed by fund managers who take a management fee, typically ~ 2% plus other additional fees may be applicable. It’s important to check all fees before investing in a mutual fund as these are deducted from your investment or earnings.

The performance of a mutual fund is usually measured via two metrics called alpha and beta.
Let’s start with alpha: Alpha measures how well or badly the fund did in comparison with an index. Remember that mutual funds are thematic - can be a sector, size of companies etc. To estimate alpha we need to know the closest index, let’s say for a fund that invests in large companies, BSE100 index may be appropriate.

What fund managers aim to achieve is a positive alpha i.e. deliver greater returns than the index however, negative alphas are also a reality.

On the other hand, beta, is about volatility i.e. the ups and downs in prices and hence your earnings.  If your mutual fund is more volatile than the comparative index that it has a high beta (>1) and low beta (<1) if it is less volatile than the market.
It is preferred that a fund have a high beta when the markets are generally trending up and a low beta when they are in a decline.  This adjustment is dependent on the fund managers’ skills.

India has nearly 2000 mutual fund schemes  registered with SEBI with the option of investing directly i.e. when you don’t have to go through an intermediary (advisor/broker) and regular when you do. The latter comes with some advice that may reduce risk.

It’s important that you choose a mutual fund after necessary understanding and diligence. It is also critical that you keep track of your investment as mutual funds are dependent on every changing market conditions and volatility.

Your net worth is simply the difference between your assets (what you own) and liabilities (what you owe).

Assets: Investments (MFs, stocks, IndiaP2P), cash, value of owned property, gold etc.
Liabilities: Loans, bills outstanding, income tax payable, credit card dues etc.

IndiaP2P pro tip: Self Worth is more important than Net Worth.  Love yourself, Embrace challenges and don't fear money.

According to author Kate Northrup -  "paying attention to your money is an act of self-care."

The rule of 72 is a thumb rule to quickly estimate how many years it will take for your money to double for a given rate of return.

For example: 
If your Fixed Deposits are paying a return of 4.5%.
It will take 72/4.5 = 16 years for your money to double.
 

With IndiaP2P, you can earn up to 18%. Thereby doubling you money in 72/18 = 4.5 years.

The Icarus paradox is a book by author Daniel Miller that uses the phrase, borrowed from Greek mythology, to signify the phenomenon of why once very successful companies fail for the same factors that made them successful in the first place.

Miller states that the ‘formula’ that initially makes a company successful becomes ritualized and repeated as the company grows without introspection and analysis.  He studied Fortune 100 companies from the 1960s and found that only 19 of them continued on the list 4 decades later, In fact, two-thirds of them no longer existed. 

While it may seem obvious that organisations must adapt their ‘winning formula’, Miller analyses and explains why that is a lot harder than it seems and many of the factors at play that make it harder in large companies are also at play in smaller businesses.

Further research on this paradox has been conducted by many noted experts such as Prof. Drummond who found that intensification of IT systems i.e. making even complex decisions purely IT and data-driven has led to the downfall of organisations.

Tips on earnings, investments, and savings.

First of all, we must understand that any cash sitting with us is decreasing in value due to inflation and investing smartly becomes all the more important.

1.  Invest in assets that offer clear, positive real returns
Estimate real returns on your current and planned investments.  Real returns = Indicated investment earnings - Inflation rate 

February 2022,  WPI and CPI inflation rates in India are 13.1% and 6.1% respectively.

2.  Avoid investing in companies/stocks that need regular, consistent capital infusion to sustain their business model - for example equipment leasing/rental businesses that constantly need to retire old and buy new equipment.
Instead, invest in companies that have the brand power to increase prices without impacting sales.
 

3.  Try to estimate your personal inflation rate and make changes to your expense patterns to reduce it.  You can do this by simply comparing your expenses on c regular items between two time periods.

4.  Seek a raise, increase the price of your time/service in line with inflation

Assets that can generate cash flows and profits/dividend/interest are called ‘productive assets’ basically investments that ‘produce a return’
Examples are stocks/shares of existing businesses, bonds, IndiaP2P etc.
Real estate can also be a productive asset since it can give you rental income.
 

On the other hand, non-productive assets such as gold, art/NFTs and many crypto tokens do not produce any return, they purely change in value due to demand-supply and nothing else.  For these types of assets, the returns are pinned on the hope that more people will want it in the future i.e. demand will be much higher than today.

Real return on investment = Returns Generated - Inflation

February 2022 inflation in India -  WPI and CPI are 13.1% and 6.1% respectively.

We often ignore the impact of inflation on our investments. In times of high inflation, some of your investments may be giving negative real returns.

The term Illusion of Control was coined by psychologist Ellen Langer after identifying how people often tend to overestimate their ability to control events. A good part of this is due to the fact that we often tend to confuse between skill and chance events and start seeing connections or causality where there isn’t any.

For example, in investing, we may be picking stocks without proper diligence during a bull run and attribute the increase in value to our ‘skill’ at choosing stocks.  Leading us to overestimate our abilities and give us an ‘illusion of control over the value change of our chosen stocks.

However, this rise in value is likely to have occurred with a majority of stocks anyway and has nothing to do with our skills. Overconfidence in our skills or sense of control over the outcome of our investments may lead to losses when the overall circumstances aren’t conducive.

Remember that nobody accepts randomness in his own success, only in his failure.” Nassim Nicholas Taleb

Loss Aversion is the phenomenon where say a loss of Rs 100 hurts a lot more than the joy of an unexpected gain of Rs. 100 would bring us.  

In fact, studies in psychology have suggested that losses are 2x more impactful than gains this leads us to make some very irrational investing decisions as well. For example:

-    Refusing to sell an asset (stock, property, crypto etc.) when all analysis and price trends tell us that it is a bad investment heading towards worse. This irrational refusal is also attributed to our          perception that it is not a loss until we sell i.e. realize it.

-   Selling an asset after small gains and booking small profits even though we may believe that it will go up further in price over the long term

The concept  Time Value of Money says that Rs. 100 today is more valuable than the same amount at a time in the future.  

This decline in the value of future money is due to the potential earnings you can generate by investing today.

Simply put, Rs.100 invested productively is likely to be worth more in the future, say Rs, 120.  But, if not invested, it stays at Rs. 100.  This hypothetical difference of Rs. 20 is the Time Value of Money in this case.

So. what does this mean for you?
Amongst other things, this concept tells us not to delay or snooze investing!

The  different values we as people put on the same amount of money based on subjective or emotional criteria is our personal mental accounting.  This type of accounting may seem useful or in the very least harmless but it is simply bad for us.

Mental Accounting has been studied and popularised by behavioral economist Richard Thaler. He says that we tend to ‘mentally classify’ money even though money is just money (i.e. its fungible), leading to both irrational spending and irrational investments. 

For most of us, money received unexpectedly is always considered more spendable or put in the ‘can afford to risk’ category.  In reality, money categorised as ‘can afford to risk’ and money categorised otherwise/for safekeeping/monthly budget, etc. should be treated with the same diligence.

   "Like most trends, in the beginning, it's driven by fundamentals, at some point speculation
takes over. What the wise man does in the beginning, the fool does in
the end."
Warren Buffett
 

The level of risk is the main difference between investing and speculating. While investing requires digesting data and evidence to to understand the underlying assets risks and return potential often seeking assets that are relatively low risk and often lower return in the short term. Speculation, on the other hand means putting your money in assets or trades that are expected to deliver high returns in short to medium-term; this expectation of high return comes with high risk too.

 

Professional speculators understand this high-risk high-return scenario and use advanced risk management tools while also preparing for high losses.

Many of us are attracted to quick, high returns but we never consider that this makes us speculators.
Putting money in the hottest new crypto or a stock tip for a new/unknown company are more obvious instances of speculation but even with more credible assets, we often invest for quick gains without understanding the risks a.k.a. speculation.
While investing and speculating are both means of making money, it is important to recognize what path one is taking.
“For most things are differently valued by those who have them and by those who wish to get them: what belongs to us, and what we give away, always seems very precious to us.
 Aristotle,  ~ 330 BC
 

This bias toward over-valuing assets and items (or investments) we already own is called the ‘endowment bias’ or the endowment effect as coined by economist Richard Thaler.

 
We tend to value things we own more often on account of the fact that we invested time and our attention in making the decisions to own them.
And of course, as human beings, the suffering of losing something outweighs the pleasure of receiving something identical – something that would not bother a truly rational human being but then who is.
The endowment bias is almost a part of human nature with significant repercussions on how we live and also how we look at money and wealth.
We’ve all heard about and possibly experienced market bubbles.  And, we never want to find ourselves in one. 
Here’s a quick recap from the famous Dr.  Jean-Paul Rodrigue on the ‘phases of a bubble’ to help us understand and identify potential market bubbles whether is stocks, gold, crypto, or other assets:

 

 

This analysis tells us that while the "smart money" has purchased during the earlier "stealth phase", institutional investors begin to buy during "take off". Following media coverage, the general public begins to invest leading to steep rise in prices as "enthusiasm" and then "greed" kick in. "Delusion" 

Inflation is a measure of general increase in price levels over a period of time. 
Prices of items that affect consumers the most are measured under the Consumer Price Index or CPI inflation.
 
CPI inflation measures the change in prices of items over a 12 month period. Presently, India's CPI estimation includes the following categories and weights i.e. it assumes that your expenses are roughly in the proportion indicated below:
 
  • Food & beverages: 46%
  • Alcohol, tobacco, pan: 2.2%
  • Clothing & footwear: 6.5%
  • Housing: 10.1%
  • Fuels & lighting: 6.8%
  • Healthcare: 5.9%
  • Education: 4.5%
  • Others: 17.8%
You can view the increase in prices across all these categories separately.
 
Please note that the CPI number is an average and the impact of change in prices of different items may be affecting your expenses and savings very differently.  
You can estimate your personal inflation rate by calculating your expense mix across these categories and multiplying it with the prevailing inflation rate across them.

 

 

Asset allocation is an investing technique that involves selecting how to distribute your money among several types of assets.

A few examples of asset types

1. Equities (Direct Stocks, Equity oriented Mutual funds etc)

2. Fixed Income (Fixed Deposits, debt-oriented mutual funds, Provident fund etc)

3. Gold

4. Real estate

An asset allocation decision is influenced by your age, risk tolerance, and time horizon for achieving your financial goals. Asset allocation's goal is to build a portfolio of on-correlating assets that minimises portfolio risk while maximising profits.

 

P.S. IndiaP2P combines high-quality fractionalized loans into ready-to-invest portfolios, resulting in increased portfolio diversification and improved returns.


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