As financial markets evolve and investors seek to broaden their portfolios, alternative investments have emerged as an enticing landscape filled with opportunities. From corporate bonds providing stability and fixed income to commercial properties offering income generation and appreciation, and from asset leasing providing cash flow to inventory finance fueling business growth – these alternative investments promise to unlock new avenues of wealth creation.
With recent regulatory developments, access to the non traditional category of assets has been much more widely available, and the advantages are far greater than you may anticipate. Earlier, only the top 1% could access investment options other than the usual ones like mutual funds, bonds and stock because alternative assets such as leasing, startup equity, commercial property, venture capital, hedge funds, and real estate etc. had a high minimum investment amount.
But with the advent of new technology and start-ups aiming to democratize access, alternative investments have trickled down to the masses.
What Are Alternative Investments?
More investors are turning to alternative investments as a potentially profitable investment option as market volatility, increasing interest rates, uncertainty, and a lack of confidence in publicly traded assets and markets persist.
Alternative investments are often domestic or international, privately held investment funds that are set up as a company, trust, limited liability partnership, or firm. In essence, they stand for investments in asset types that go above and beyond the typical stock, mutual funds, or cash.
Different Types Of Alternative Investments
Smart investors are increasingly looking for alternative investments that go beyond the traditional options as the investing landscape changes. For those prepared to look outside the norm, these investments—which include real estate, precious metals, private equity, venture capital—offer an intriguing and wide spectrum of options.
Corporate Bonds
Corporate bonds are debt securities issued by corporations to raise capital. When an investor purchases a corporate bond, they are essentially lending money to the issuing company. In return, the investor receives periodic interest payments and the principal amount upon maturity. Corporate bonds are typically considered less risky than stocks, making them an appealing alternative investment for individuals seeking income and capital preservation
Asset Leasing
Asset leasing involves leasing tangible assets such as machinery, equipment, or vehicles to individuals or businesses in exchange for regular lease payments. As an alternative investment, asset leasing can provide steady cash flow and potential tax benefits. Investors can participate in asset leasing through alternative investment platforms like Grip. Leasing companies benefit from the income generated by leasing assets without the need for direct ownership.
Hedge Funds
These funds utilise a variety of advanced investment strategies, such as leverage, derivatives, short selling, and global macro, with the aim of generating maximum returns for their clients. Access to these funds is typically limited to certified investors who can meet high minimum investment requirements and pay substantial fees.
Private Equity
Private equity encompasses a broad range of private investments, from real estate to infrastructure and oil & gas. These investments can range from several million dollars to multiple billions, and fund managers may take controlling interests in operating businesses as well.
Inventory Finance
Inventory finance involves providing short-term loans or credit facilities to businesses to help them manage their inventory. This type of financing is particularly relevant for retailers and wholesalers who need to purchase inventory but may face cash flow constraints. Investing in inventory finance provides opportunities for earning interest income and establishing relationships with businesses in need of working capital. The loans are typically secured by the inventory itself, reducing the risk of default.
Commercial Property
Investing in commercial property involves purchasing properties such as office buildings, retail spaces, warehouses, or hotels for income generation and capital appreciation. Commercial real estate offers the potential for long-term returns through rental income and property value appreciation. Investors can generate income from commercial properties by leasing the space to businesses. The stability of cash flows can be enhanced through long-term lease agreements with reputable tenants.
Why Should One Invest In Alternative Investments?
Alternative investments provide diversity to the portfolio and higher returns than traditional investments, whether it be purchasing a work of great art or investing in a potential company. Investors may broaden their investing views and discover new avenues for financial success by thinking about alternative investments.
Advantages of Alternatives Investments:
- Higher returns:. Alternative investments offer the potential for higher returns compared to traditional investments like FDs. This make it a lucrative investment avenue for investors looking for earning inflation beating returns.
- Lower volatility: Alternative investments can also reduce the volatility of your portfolio by having a low or negative correlation with traditional assets because they are not dependent or linked to the market. For instance, J.P. Morgan’s research found that increasing a 20% allocation to alternatives over the course of a 20-year period may lower the volatility of a 60/40 portfolio by 12%.
- Diversification: Alternative investments can also enhance the diversification of your portfolio by exposing you to different sources of risk and return than traditional assets. This can help reduce your portfolio’s exposure to any single market factor or event that may affect traditional assets negatively.
Diversify Your Portfolio: Discover 5 Alternative Investments
Alternative Investment Platforms You Can Consider in India
Investing in alternative investment platforms has been gaining popularity in India in recent years. Here are four alternative investment platforms you can consider in India:
#1 Grip
Grip helps you #GoBeyond inflation, low returns & volatility through a discovery platform that offers non-market linked & regulated investment opportunities!
With Grip, retail investors can now explore options across different risk-reward levels at accessible minimums. From their flagship product Asset Leasing or LeaseX to Corporate Bonds, Commercial Property & Startup Equity, they have something for every investment goal all under one roof. You can discover non-market linked opportunities giving monthly/quarterly payout options from renowned & creditworthy high-growth companies.
#2 Strata
Strata is India’s premier prop-tech platform that enables fractional ownership in Grade-A commercial real estate. It allows investors to co-own pre-leased commercial properties like office spaces, warehouses etc. for as low as ₹25 Lakhs and earn returns.
#3 Lendbox
Lendbox is an RBI-licensed NBFC-P2P lending platform that connects borrowers with investors eager to lend them money via an Internet platform. Recently, Lendbox has been redesigned, and many innovative services have been added for customers.
#4 Tradecred
Tradecred is an investment platform that operates solely on one investment option, invoice discounting. Companies use invoice discounting as a form of fundraising strategy. They obtain small sums of money from regular investors in the short term. Tradecred uses its platform to make such investment options available to retail investors.
FAQs
What are alternative investments?
Alternative investments encompass a broad range of assets outside traditional stocks, bonds, and cash, including real estate, commodities, private equity, hedge funds, venture capital, and cryptocurrency.
Are alternative investments suitable for all investors?
Alternative investments may not be suitable for all investors, as they often involve higher risks and may require a long-term investment horizon. Investors should carefully assess their risk tolerance and objectives before allocating capital to alternative assets.
How can I mitigate the risks associated with alternative investments?
Mitigating risks associated with alternative investments requires thorough due diligence, diversification, and careful consideration of factors such as liquidity, regulatory considerations, and investment structures.
Can alternative investments provide stable returns?
While alternative investments offer potential for higher returns, they may also be subject to greater volatility and uncertainty compared to traditional assets. Investors should be prepared for fluctuations in returns and consider the long-term investment horizon.
Is diversification with alternative investments worth the effort?
Diversification with alternative investments can be worth the effort for investors seeking to reduce risk and enhance returns. By spreading investments across different asset classes, investors can build a more resilient portfolio and potentially achieve their long-term financial goals.
