Bonds vs. P2P Lending in India: Regulated Ways to Earn Better Yields

Bonds and P2P Lending. Two regulated ways to earn better yields

Bonds and P2P lending are now mainstream options for Indian retail investors who want credit-linked returns inside the regulated financial system. Both instruments work differently, but each offers a clear role in a balanced portfolio.

Bonds. Listed fixed income you can buy and sell

Bonds in India are issued as non convertible debentures and listed on exchanges. You can buy them directly or through SEBI regulated Online Bond Platform Providers. These platforms help retail investors access live listed bonds with clear disclosure on coupon, maturity, issuer rating, and last traded price.  Investors can also buy unlisted bonds however, these do not come with the same investor protection mandates as listed ones do under SEBI’s OBPP framework.

Some examples SEBI regulated  OBPPs:

• Altifi
• BondBazaar
• Equirize Securities
• GoldenPi
• IndiaBonds
• Wint Wealth

What makes bonds attractive for retail investors:

• Fixed-returns
• Ability to sell on the exchange before maturity. However sale is not assured as it depends upon the availability of a buyer.
• Choice of PSU issuers and corporate issuers across credit grades
• Regulated processes and trustee oversight
• Rated by credit rating agencies such as CRISIL, ICRA etc.

P2P lending. Direct credit with higher return potential

P2P lending enables you to lend directly to individual borrowers as opposed to an institution in case of bonds. In India, it is fully regulated by the Reserve Bank of India. Platforms must be registered as an NBFC under the P2P category and must follow strict norms on credit assessment, disclosures, fund flow rules, borrower limits and lender exposure limits. 

Prominent NBFC P2P platforms include:

1. IndiaP2P
2. Lendbox
3. Liquiloans
4. LenDenClub
5. Finzy
6. Rang De

Why P2P lending appeals to yield seekers:

• Higher returns because lending is direct to borrowers i.e. no middlemen at all
• Transparent borrower level data including CIBIL scores, incomes etc.
• Diversification across grades and loan types
• RBI regulated framework with periodic audits and reporting
• Capital is not locked in a market traded price the way bonds are when rates move

Recent RBI enforcement actions on the P2P Lending sector

In August 2024 following a review of P2P lending operations across platforms, the RBI clarified multiple provisions in its applicable NBFC-P2P master directions and introduced the T+1 settlement requirement.  This T+1 rule ensures that no lender funds sit idle beyond one working day and lenders can earn optimal interest.  Alongside this change, RBI also penalised platforms such as Lenden Club, Faircent, Liquiloans, Finxy, Lendbox, Rang De for operational violations.

How Bonds and P2P lending fit together

Bonds provide stability and liquidity. You know your coupon, and you can exit through the exchange.

P2P lending provides higher potential returns by taking direct borrower risk under the RBI NBFC P2P framework.

Both are regulated. Both offer transparency. Both allow retail investors to earn credit linked income without entering unregulated schemes. It may be well noted that both carry the risk of delay and default and can lead to full loss of principal as well.

Considering this, a smart portfolio can use both instruments at the same time.