Alternative investment to IPO

When diversifying an investment portfolio, investors often seek alternatives to traditional stocks listed on public markets, such as Initial Public Offerings (IPOs). IPOs can be exciting but also risky and subject to market fluctuations. 

Alternative investments cover a wide range of options outside of standard stock and bond markets. They can offer investors the potential for high returns and lower correlations to traditional markets, which can be attractive, especially in times of volatility.

In this blog, we will discuss the safest alternative investment to IPO.

P2P lending

P2P lending involves individual investors providing loans to individual borrowers or small businesses through online platforms that match lenders with borrowers. Investors can fund a portion of a loan or entire loans, earning interest as borrowers repay the loans over time.

This system bypasses banks and can potentially offer investors higher returns than traditional banking products.

Benefits of an Alternative Investment as P2P Lending

• Higher Returns: Typically, P2P lending offers higher returns on investment compared to traditional savings and fixed-income investments.
• Diversification: By adding P2P loans to an investment portfolio, investors can diversify beyond stocks and bonds, potentially reducing overall portfolio risk.
• Control Over Risks: Investors can choose which loans to fund based on the risk levels they are comfortable with. Most platforms provide ratings and full disclosure about the borrowers.
• Regular Income: P2P lending can generate a steady flow of income through regular monthly repayments of principal and interest by the borrowers.

Risks Involved in P2P Lending

• Credit Risk: There is always a risk that the borrower may default. While higher rates of return may seem attractive, they also come with higher risks.
• Liquidity Risk: Unlike stocks, P2P loans cannot be easily sold or liquidated. Your capital is typically tied up until the loan matures.
• Platform Dependence: The stability and reliability of the P2P platform are critical. Investors depend on the platform’s ability to vet borrowers adequately and manage collections effectively.

Fixed Deposits

Fixed Deposits are financial instruments provided by banks and financial institutions where an investor deposits a lump sum amount of money for a specific period at a predetermined interest rate. 

Upon maturity, the investor receives their initial deposit plus the accumulated interest.

Benefits of an Alternative Investment as Fixed Deposits

• Guaranteed Returns: The interest rates on FDs are fixed and guaranteed for the term of the deposit, providing a stable and predictable return.
• Capital Safety: FDs are considered one of the safest investments as they are usually insured up to a certain amount and less influenced by market fluctuations.
• Flexible Terms: Investors can choose the duration of their investment, which can range from a few days to several years, depending on their financial objectives.
• Ease of Investment: Fixed Deposits are straightforward to set up and require minimal management, making them suitable for novice investors.

Risks Involved with Fixed Deposits

• Lower Returns: The returns from FDs are usually lower compared to potentially high-yield investments like stocks or IPOs.
• Inflation Risk: If the interest rate earned on the FD is lower than the inflation rate, there is a risk that the investment’s real value could decrease over time.
• Liquidity Risk: Although some FDs allow early withdrawal, breaking an FD before maturity may result in penalties or lower interest rates.

Real Estate Structured Debt

Structured debt secured by real estate pertains to fixed-income financial instruments that are collateralized by property assets, including mortgages or securities underpinned by real estate. 

Such instruments offer investors a channel to gain exposure to the property market, circumventing the necessity to directly purchase or oversee the real estate themselves.

It is one of the best alternative investments to IPO.

Benefits of an alternative investment as Real Estate Structured Debt

• Predictable Income: Structured debt provides regular interest payments, akin to receiving rent.
• Security: Loans are collateralized by tangible assets (property), potentially protecting capital.
• Seniority in Capital Stack: In case of default, structured debt holders often have priority over equity investors, reducing potential loss.
• Portfolio Diversification: Real estate investment adds another layer of diversification to an investment portfolio, which can be used as a hedge against market volatility.

Real Estate Structured Debt vs IPO

Feature	Real Estate Structured Debt	IPO
Returns	12-20%	Varies
Yield	12-20%	Varies
Security	Secured by Real Estate	Sovereign Guarantee
Volatility Risk	Low-None	Low
Diversification	Unlimited	Limited
Liquidity	Certain liquidity via secondary market	None
Risk Profile	Low-risk, stable returns	Low-risk, stable returns
Investment Horizon	Long-term	Long-term
Minimum Investment	Rs. 10 lacs (for some products)	Varies
Tax Benefits	Tax savings up to Rs. 50,000	Tax benefits vary
Accessibility	Wide range of investors can participate	Limited to those who can participate in IPOs
Potential for Higher Returns	Higher returns due to real estate backing	Higher returns only if the company performs well

Hedge Funds 

Amid the broad spectrum of investment options, hedge funds stand out as a sophisticated alternative to traditional investments like Initial Public Offerings (IPOs). 

Unlike the straightforward purchase of shares in a newly public company (IPO), investing in a hedge fund involves committing capital to a pooled investment vehicle managed by professional fund managers. 

These managers deploy a range of strategies to achieve high returns, including leveraging, derivatives, and short selling, which are often beyond the reach or risk appetite of individual investors

Benefits of Hedge Funds as an Alternative Investment:

• High Return Potential: Hedge funds aim for high absolute returns, and their aggressive strategies can capitalize on market inefficiencies which might not be available to the typical investor.
• Diversification: By investing in non-traditional assets and using unique strategies, hedge funds can provide diversification benefits within an investor’s portfolio, which can spread risk across various investment instruments.
• Risk Management: Advanced risk management techniques and the ability to hedge against market downturns are central tenets of hedge fund operations, potentially protecting investments during volatile periods.
• Flexibility in Investment Choices: Hedge funds are not bound by the same regulations that often limit other funds, allowing them to pursue a broader range of investment opportunities.

Risks Involved in Hedge Fund Investments:

• Complexity and Higher Risks: The strategies employed can be complex and sometimes deploy high degrees of leverage, amplifying losses just as much as gains.
• Liquidity Constraints: Investments in hedge funds often require longer lock-up periods where funds cannot be withdrawn. This can pose a significant liquidity risk.
• Fee Structure: Hedge funds typically charge management fees plus a substantial fraction of the profits (performance fee), which can diminish investor returns if not offset by higher-than-average fund performance.
• Dependency on Fund Manager: Performance is closely tied to the acumen of the fund manager. Poor management decisions can lead to significant losses.

Bottom Line

Whether or not to move forward with an IPO will be dependent on your investment goals and risk profile. Therefore, when you are contemplating an IPO be careful to consider your alternatives, be patient, and weigh the advantages and disadvantages to ensure that you make the best decision for your investment portfolio.

Assetmonk is a pioneer in alternative real estate investment, and we understand the immense potential in the Indian commercial real estate industry. We make alternative assets, such as real estate, more accessible. 

We have customized investment options to suit individual financial goals like passive income capital appreciation and portfolio diversification. 

Our expertise is identifying opportunities with high yields within the retail, office, and industrial asset classes. This enables our investors to maximize profits while diversifying their portfolios. 

We offer various alternative investment options, such as fractional or joint ownership of high-end commercial properties, sub-leasing ventures, etc. Trophy locations with the potential for high Internal Rates of Return (IRR) are prioritized, and due diligence is done to ensure these provide profitable returns for our investors.