Digital investment products like P2P lending, invoice discounting, bonds, and alternative platforms are attracting Indian investors. They promise higher returns than bank deposits, but they also come with risks, tax rules, and the need for due diligence. This guide explains how these products work, the risks involved, how taxation applies, and what to check before investing.
How These Products Work
- P2P Lending: Investors lend directly to borrowers via regulated NBFC-P2P platforms. Returns come from interest payments, usually higher than FDs.
- Invoice Discounting: Businesses borrow against unpaid invoices; investors earn interest once customers settle payments.
- Corporate Bonds/Debt Products: Companies raise funds by issuing bonds; investors earn fixed interest but face credit risk.
- Digital Gold/Tokenized Assets: Platforms offer fractional investments, but risks depend on custody and regulation.
Common feature: All rely on digital platforms as intermediaries — so platform reliability is critical.
Platform Risks
Not all risks come from the borrower or company; some come from the platform itself:
- Default Risk: Borrower doesn’t repay loan/invoice → investor bears loss.
- Platform Risk: If the platform shuts down, operations and repayments may be delayed.
- Liquidity Risk: Unlike stocks, you may not be able to sell quickly.
- Regulatory Risk: Rules may change (e.g., RBI restrictions, SEBI oversight).
- Data & Security Risk: Cyberattacks or misuse of KYC/financial data.
Taxation Rules
Different products have different tax treatment:
| Product | Tax Treatment |
|---|---|
| P2P Lending Returns | Taxed as “Income from Other Sources” at your slab rate. No TDS deduction yet. |
| Invoice Discounting | Interest taxed as income; GST may apply for business borrowers. |
| Corporate Bonds | Interest taxed at slab rate; capital gains taxed at STCG/LTCG rates depending on holding period. |
| Digital Gold/Token Assets | Treated like physical gold; capital gains tax applies. |
Due Diligence Checklist
Before investing, run through this quick checklist:
Platform Registration: Is it regulated by RBI/SEBI (NBFC-P2P, bond broker, TReDS)?
Track Record: Years of operation, default rates, total volume processed.
Escrow Mechanism: Are funds routed via regulated bank escrow accounts?
Transparency: Clear fees, borrower data, risk grading, and reporting.
Diversification: Can you spread small amounts across many loans/invoices?
Customer Reviews: Independent feedback, app ratings, and complaints.
Exit/Repayment Policy: What happens if borrowers delay? Any buyback/insurance support?
Digital products like P2P lending and invoice discounting offer higher returns but are not risk-free. Investors should:
- Start small,
- Diversify widely,
- Understand taxation,
- And always check the platform’s credibility.
By understanding how these products work, the associated risks, and keeping a careful eye on taxation and due diligence, you can make smarter, safer financial decisions in the digital lending space.
