How can I accumulate a ₹7.7 cr corpus before retirement?
cash at frequent intervals and can demand their money back anytime. SVB’s troubles began when borrowers wanted to withdraw money at the same time as bond prices were falling. The bank was forced to sell its bond investments at a steep discount to repay its startup investors. This led to its collapse.
P2P platforms do not face such risks as long as they stick to the RBI guidelines of being a pass-through between the borrower and lender. Nevertheless, some venture capital-funded P2P players went ahead and launched instant liquidity products. This meant the investors and lenders on their platforms were promised instant liquidity at any time.
RBI mandates P2P firms to maintain a capital of ₹2 crore but this amount can easily be breached when many people want to withdraw funds during a downturn. Some platforms have more than ₹500 crore in assets under management (AUM).
Yash Roongta, founder of Alt investor, said P2P platforms opting for liquid schemes need to get fresh inflows regularly but the equation might change in a situation when liquidity dries up. He also said that P2P firms are not supposed to get into such complicated structures in the first place.
Additionally, many P2P firms bundle borrowers and package them for a single investor. For instance, if someone wants to invest ₹1,000, then this amount is split among 200 borrowers. There is no way the lenders can know who they are lending it to or if the loan was sold through the secondary market.
“This is contradictory to RBI’s mandate of P2P NBFCs to simply match lenders and borrowers,” said Bubna.
On 9 February 2023, RBI deputy governor M. Rajeshwar Rao sounded an alarm. He said, “Of late, some of the business practices of NBFC-P2Ps do not appear to be in line with the regulatory guidelines. A large proportion of lenders on NBFC-P2Ps are individuals and they are not expected to be wellequipped to understand the risks involved in providing credit. Instead of educating the lenders about the inherent risks in the lending activity, NBFC-P2Ps have been observed to underplay the risks through various means such as promising high/ assured returns, structuring the transactions, providing anytime fund recall facilities, etc.”
Damage control
The news of P2P players stopping liquid facilities is not good news for its investors. Naturally, some investors want to pull out money from the P2P platform. This can potentially create an asset liability mismatch scenario where investors want to pull out money but the underlying loans are illiquid in nature. To counter this, P2P firms have started offering discounts and incentives for investments in their platform. For instance, Lendbox’s P2P platform ‘Per Annum’ is offering 1% cashback for a 12-month plan, 0.50% for 6 months and 0.25% cashback for 3 months.
An email sent to Lendbox did not elicit any response.
Industry and financial experts say the RBI needs to look closely into the P2P ecosystem, particularly in view of reports suggesting that the industry has surpassed ₹10,000 crore in AUM and is now susceptible to systemic financial shocks.
The P2P Association said that P2P firms operate on a non-balance sheet model and there is no room for asset-liability mismatch . P2P platforms communicate and educate lenders that any liquidity on the platform is facilitated through the reassignment of loans. This process operates on a best-effort basis and is dependent on the availability of willing lenders on the platform.
I want to plan for my retirement beyond 2030. Considering inflation at 7% and taking into account my savings so far, my calculation indicates that I will require a corpus of ₹7.7 crore for future expenses. In addition, I require ₹30 lakh to cover my mother’s medical costs and ₹1 crore for my children’s schooling. How do I plan my finances?
We suggest that you set aside the anticipated ₹1 crore for your children’s education and ₹30 lakh for your mother’s medical needs separately, possibly in low-risk investments, you can use your savings for this purpose. You can consider moving any balance to bonds as currently interest rates are at peak and as interest rate heads southward, we anticipate better returns there.
Consider rebalancing your investment portfolio to reduce risk as you reach retirement age. A diversified mix of equity, debt, and other assets in your portfolio can help manage volatility. Move towards more conservative investments every 4-5 years for a regular income stream at reduced risk. We call it a bucketing strategy.
Ensure you have a comprehensive lifelong health insurance coverage for you and your family and maintain a sufficient emergency fund, equivalent to 6-12 months of living expenses, in highly liquid instruments.
Optimize your tax planning for post-retirement income by investing in tax efficient instruments like senior citizen savings schemes.
To ensure a smooth transisuch
The newly formed P2P Association is responsible for nurturing the peer lending industry, on the lines of Amfi
tion of financial assets to your heirs, ensure to make a comprehensive estate plan, including wills and nominations. By addressing these aspects, you can build a robust retirement plan that accommodates your financial goals and safeguards against uncertainties. It’s advisable to consult with a financial advisor to get a tailor-made retirement plan made for you.