P2P lending versus mutual funds

Before P2P lending became widespread, investors looking for great returns could choose to invest in mutual funds. In this article, I’ll try to compare these two kinds of investments.


Mutual funds operate on a variety of ‘themes’ : for example they may be invested in European equities, emerging markets equities, treasury bonds, commodities… There’s a large choice available, and it will often greatly influence the expected return. Here’s for example the classification used by Fidelity :

And for each of these, you can select a category : for example, the geographic area for the international equity class.

While P2P lending investments seem much more limited at first, a closer look reveals many available options. You can lend money to individual or businesses; individual loans can themselves be segregated into car loans, payday loans, home improvement loans… Real estate crowdfunding also gives you yet another opportunity to invest.

Funds availability : mutual funds are more liquid

Mutual funds are very liquid : once you decide to buy or sell, the order needs at most a few days to be processed – nearly always less than one week-.

When you invest your funds through P2P lending companies, on the other hand, there’s a specified investment duration. If you need early access to your funds, the situations will vary from website to website. You often have access to a secondary market, where you can sell you loan – sometimes for a fee -. For some companies, you may also be able to withdraw your funds, but by doing so you will lose the accrued interest. Finally, there are companies which don’t allow an early access to your funds.

Investment duration

While investments in mutual funds can be exited at virtually any time, it may not always be wise to do so. Usually, the investment duration is directly correlated to the expected volatility. As a result, you should plan to hold investments in high returns/high risk mutual funds for several years (in order to smooth out the risk over a long period of time). Investments in less volatile mutual funds may last only for a few months.

When lending money through P2P companies, you know for how long your funds are invested – although it’s possible for loans to get extended –


Mutual funds are extremely regulated; P2P lending companies are more or less unregulated. This allows for a lot of innovation, but is of course also a risk for the investor.

Potentially better returns for mutual funds, more regular for P2P lending

It’s obviously hard to compare returns between these two investments kinds, mostly because mutual funds have hugely varying returns depending on the assets they’re invested in, and of course on the market conditions.

One thing to note is that mutual funds that achieve high returns usually come with a very large volatility. As a result, although their average performance over a large period of time will be very good, their yearly performance can be very contrasted.

For example, here’s the annual return of the mutual fund “Optimiz Best Timing II A/I”. This mutual fund is listed by my bank as having the best performance over the last year (a very nice 115%). However, the yearly performance since 2008 varied from an impressive gain of 86% to a disastrous loss of nearly 60% !

Mutual funds irregular performance : Optimiz Best Timing II A/I performance

Of course, more conservative mutual funds will probably have more regular performances.

Most mutual funds impose entry and/or exit fees; together, these two fees may eat up anywhere from 1% to 10% of the performance ! The P2P lending model, on the other hand, displays the net interest rate, making it easier to compare returns.

P2P lending returns are often more regular than those of mutual funds. If you invest in loans providing a buyback guarantee, you’re nearly 100% guaranteed to receive the agreed interest rate, albeit maybe at a later date. Note that in the event of an originator bankruptcy, you may lose the invested funds. It’s unlikely but of course not impossible : just check this very insightful article from p2p hero regarding the possible bankruptcy of EuroCent, one of Mintos originators.


As an investor, our task is to use a diversified array of investment to reach our financial goals. P2P lending is getting more and more popular, but mutual funds offer a much stronger regulation and potentially better returns if you can tolerate large volatility.

Your allocation will vary depending on your risk tolerance, investment duration and expected return, but in any case I wouldn’t advise you to ignore either of these two investment vehicles. P2P lending returns are often better than those of mutual funds, and less volatile; ignoring P2P lending can this lead to a lower performance for your portfolio. But investing your whole portfolio in P2P loans is dangerous : it’s a rather new industry, with few regulations, and the risk of capital loss is real.

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