Traditional Investments vs Alternative Investments
- There has been an age old debate among investors about traditional investments vs alternative investments. Some investors swear by their traditional private equity funds, and some investors are mesmerised by the increasing popularity of alternative investment funds (AIFs) in India.
- The ultimate aim of both kinds of investors, however, is to maximise returns and minimize risk. In this guide we’ll delve into the nuances that set apart traditional investments and alternative investment funds, and see what they both have to offer.
Traditional Investments Explained
- Traditional investments, like the name suggests, have historically been a hallmark of strategies to grow and acquire wealth. Traditional assets encompass stocks, bonds, mutual funds and real estate. These avenues, by offering stability and relative predictability, are great at attracting investors. they prove suitable for both risk-averse individuals or those seeking a more hands-off approach to investing.
- Stability of traditional investments is their number one selling point.
Risks Associated with Traditional Investments
- No investment or asset class, no matter how stable, is completely risk free. And traditional investments are no different.
- There are some inherent risks associated with traditional investments. These include: market fluctuations; economic downturns; and changes in interest rates.
- All of these can adversely affect the underlying instruments in these investments and affect the performance of your investment. In addition, due to a lack of diversification in these conventional portfolios, investors often come across a number of sector specific risks associated with them.
Returns in Traditional Investments
- Now let’s talk about what you’re here for: The returns. The average rate of return for traditional investments is anywhere between 5-12%, although that is reduced by inflation.
- Traditional investments have always provided consistent, but not spectacular returns. Their nature doesn’t guarantee exponential growth. Nevertheless, many investors do derive steady returns from traditional investments and they are a staple for both income and capital appreciation in the long run.
Are You the Ideal Investor for Traditional Investments?
- Conservative investors prioritizing stability over rapid growth ideally opt for traditional investments. The tried and tested nature of these assets often provides comfort to individuals with a low risk tolerance and long-term investment horizon.
- Investors who possess a low-risk tolerance and demonstrate a preference for long-term growth: they are particularly well-suited to the stability that traditional investments offer.
Understanding Alternative Investments
- Alternative investments, like the name suggests, represent a departure from the conventional. If you’re tired of your same old boring home cooked lunch and want to try something avante garde, alternative investments are for you.
- Based on a recent study by PMS Bazaar, the alternative investment fund (AIF) industry in India has experienced remarkable growth in the last few years, and has outpaced mutual funds with over twice the growth rate in 5 years.
- As per the study, the AIF industry is projected to grow by 26% Compound Annual Growth Rate (CAGR) to about 43 lakh crore by 2028.
- As per the Economic Times, investments in alternative real estate increased to $418.7 million in the fourth quarter of 2023. This brought in total annual inflows to $650 million and is a strong indicator of investor confidence in the AIF industry.
So what exactly are alternative investments?
Alternative investments encompass a diverse range of assets. These include: hedge funds, private equity, venture capital, and alternative real estate.
These asset classes have a lot of potential to yield higher returns. At the same time, this advantage comes with its own heightened complexity and risk. Investors looking to amplify their portfolio gains are attracted by the potentially higher returns alternative investment funds have to offer.
Risks Associated with Alternative Investments
While the allure of higher returns is hard to resist, alternative investments come with their own unique risks. Their might be issues with liquidity and market volatility. These factors, plus the complexity of certain investment instruments can prove to be challenging for investors who are just starting out their investment journey.
Returns in Alternative Investments
The main draw for investors in the AIF space is the returns. Alternative investments usually provide returns in the space of 15-18%: Venture capital, and alternative investments in commercial real estate in particular, have demonstrated an ability to yield substantial profits.
Are You the Right Investor for Alternative Investments?
Alternative investments cater to individuals with a higher risk tolerance, a keen interest in active portfolio management, and the flexibility to navigate the intricacies of these unconventional assets.
|Nature of Investments
|Stocks, Bonds, Mutual Funds, Real Estate
|Hedge Funds, Private Equity, Venture Capital, Real Estate
|Prone to Volatility
|Limited due to traditional asset types
|Potential for Diversification
|5-10% annually (e.g., Stocks, Bonds)
|10-20% or higher annually (e.g., Private Equity, Venture Capital)
|Risk-Averse Investors with Low Tolerance
|Investors with Higher Risk Tolerance and Active Management Preference
Assetmonk: Alternative Investments in Real Assets
Assetmonk, which specialises in fractional ownership of high-end commercial real estate, is a unique player in the real estate alternative investment space. Providing a web-based dynamic alternative investment platform, it empowers investors to own stakes in high-value commercial properties, opening up opportunities for them in real estate investments with significantly lower entry barriers.
Invest in Fractional Ownership with Assetmonk
Through Assetmonk’s innovative approach to fractional ownership, investors gain access to premium real estate assets without bearing the weighty upfront costs. The minimum entry ticket to invest in our fractional ownership models is Rs 25 lakh. This model enables portfolio diversification with commercial properties.
Assetmonk, by marrying the stability of conventional real estate investments with modern financial investments, constructs an innovative bridge between traditional property investment and contemporary wealth management strategies. In doing so; it presents investors a unique avenue for growth by putting them in pole position for reaping off of their financial investments.