Are Alternative Investments The Next Big Thing?

Whether diversification is your objective or you are simply hesitant to put your money in the stock market, your investment efforts for wealth creation should not take a back seat. Investments that were initially only available to high-net-worth individuals are now being made accessible to retail investors like yourself.

With the support of the government, and regulatory frameworks, and due to the soaring concerns of inflation & market volatility, these new-age investments are gaining momentum in the wealth creation economy. But are these alternative investment options the next big thing?

First let us understand the concept of alternative investments and what all in can encompass.

What Are Alternative Investments?

Alternative investments are any and every type of investments that cannot be categorised into the traditional asset classes. The traditional assets are broadly classified into: cash, stocks, and mutual funds.

Here is a broad list of alternative investment types that most retail investors will or already have encountered:

• Digital properties
• Real estate
• NFTs
• Commodities: precious metals, agriculture products
• Cryptocurrencies
• Derivatives
• Hedge funds
• Insurance products
• Collectibles
• Private capital and venture capital
• Asset backed securities

Alternative Investments Vs Traditional Investments

To understand the basic difference between alternative and traditional investments, let’s take a quick look at the different parameters basis of which the two types of investments vary.

Benefits of Alternative Investments

There are strong arguments that make alternative investments a valued addition to the portfolios of retail/DIY investors. Here are some of the highlights that are worth mentioning…

1. Asset Backed – Some investors have a penchant for tangible investments and some prefer less risky but more sustainable avenues of wealth creation. Many alternative investment options that are available today are asset-backed and are ideal for such investors. Options like Leasing, Invoice Discounting, Collectibles, etc. are some of the notable alternative investment options available today.
2. Portfolio Diversification – As the old adage goes “have a concentrated portfolio to build wealth, a diversified portfolio to preserve wealth”; investors whose wealth creation goals are long-term and meant to survive all markets, should ideally build a diversified portfolio for a more sustainable way to generate wealth that lasts them through the years. Most alternatives available today are spread across different risk-reward spectrum but are a valued addition to your portfolio if you are looking for seamless diversification.
3. Exposure To New Sectors – Alternative investments give you exposure to new and emerging markets. Could you have imagined buying/investing in digital arts? NFTs made it possible for retail investors to get access to it. Even fractional purchases of blue-chip paintings are now available to investors, wherein investors can invest and generate wealth like they would from a stock. Not only are alternative investment models innovative and path breaking but they also give you exposure to high-growth sectors that traditional funds might not be able to.
4. Investors Enjoy More Control – Control is something most investors will have to learn to relinquish, as there is little that can be done to really “manage” traditional investments. However, many alternative investments put a little bit of control back into the hands of the investor. Collectibles, digital properties, and real estate assets are all alternative investments that investors can get involved with, to manage them and even influence their value.
5. Beat Inflation – Most traditional investments are market-linked and therefore tank in performance during economic slowdowns. While India’s average inflation has been better in recent years, it definitely hasn’t been the most consistent. The global economic crisis and after effect of the pandemic still lingers and continues to impact the stock market. Investors who have a higher concentration of equity investments bear the brunt of such instances of market volatility. Alternative investments however can provide the necessary cushion against volatility as most of these investments are not market linked.

Alternative Investment Options Worth The Mention

Now that you are familiar with the features and benefits of alternative investments, let’s introduce you to some of the most accessible options that are available in the market today.

1. Asset Leasing

Leasing involves the renting of movable or immovable assets for a specified period. It is an agreement between a lender, the lessor, and a borrower, the lessee. The owner of the asset, typically an individual or a company, leases it to the borrower for a specific period and at a certain cost. The lessee is provided with exclusive use of the asset in exchange for periodic payments throughout the agreed-upon lease term. This leasing contract is then converted into an investment opportunity and is made available to retail investors.

Asset leasing can be an attractive investment approach for those seeking to generate passive income and diversify their portfolios. With asset leasing, investors have the opportunity to earn a fixed income while minimising risk and capital outlay.

2. Commercial Real Estate

Real estate investments are generally a safe bet for most Indian investors due to the appreciating inherent land value. Most real estate options would traditionally require high-capital involvement and therefore were only accessible to high net worth individuals (HNIs). However, there are many alternative modes of real estate investments available to investors today. One such option is the fractional ownership of commercial real estate. Retail investors can now invest in prime commercial property and generate predictable returns. The best part is that these investments do not require high capital involvement and are a great addition to your portfolio for long-term wealth creation.

3. Inventory Finance

Investors who aspire to fulfil their extremely short term goals while earning fixed income should definitely explore this opportunity. Businesses that have high capex requirements but do not have the means to fulfil obligations generally require funding to purchase inventory. Through inventory financing they are able to do and meet their short term financial obligations. Just like asset leasing this asset-backed mortgage is then converted into an investment offering and made available to retail investors. And they are generally tenured between 3-12 months.

4. LeaseX (SDI Framework)

LeaseX is the first alternative investment option to be listed on the National Stock Exchange. It’s a SEBI compliant, fixed income product that gives you attractive returns.

LeaseX is based on SEBI’s SDI (Securitized Debt Instrument) framework under which:

• It must adhere to SEBI’s norms for the offer process, disclosure and monthly reporting
• It is also rated by reputed agencies like Crisil, which provide credit assessment for investors
• And since it is NSE listed, it can be held in your Demat account

LeaseX gives investors access to monthly lease payments from a single or a pool of leasing partners. Mission-critical assets are leased to these partners for a fixed term. These partners are then contractually bound to make monthly rental payments that are transferred to investors. You can explore more about this opportunity on Grip – India’s leading multi-asset alternative investment platform.

5. Cryptocurrency

Blockchain technology is here to stay, and with it some variation on the cryptocurrencies we know today. Cryptocurrencies are perhaps slightly more volatile than the other honorary mentions but investors who are well-informed about this emerging space can manage their investments carefully while mitigating risks. It is however highly recommended that you consult with an expert or opt for more established currencies to invest in.

6. Collectibles

If there’s a market for it, it can be an alternative asset. When it comes to collectibles, anything and everything from antique jewels to baseball cards to delicious old wines goes and can help diversify your portfolio.

The great thing here is that you can actually invest in an asset you’re interested in, making portfolio balancing a lot more fun!

How To Add Alternative Investments To Your Portfolio?

Alternative investments are a great way to exercise more control over your portfolio. With so many options at your disposal today, you can carefully explore your options and find the one best suited for your financial goals.

Identifying your risk tolerance and financial goals is the first step towards building your alternative portfolio. Treat alternative investments like any other asset and do not go headlong into it without fully comprehending the efficacies of such options. There are many platforms available today that give you exposure to different asset classes. Some of the most notable ones include – KredX, Wint Wealth, IndiaP2P, etc.

You can alternatively opt for a multi-asset platform like Grip, a one-stop platform to manage all your alternative investment needs. Grip offers investments across different asset classes to retail investors that were earlier only accessible to HNIs. Grip is democratising wealth creation for Indians by empowering them with more avenues of wealth generation.