Diversification is a powerful strategy to increase your profits while minimizing your losses. And alternative investments are an essential component of diversification. Let us see the alternative investments in India in this blog. Let’s start by learning about alternative investments.
Also, read 7 Alternate Investment Options for Savvy Investors.
Alternative Investments Meaning
Financial assets that are not included in traditional investments are alternative investments. Cash, stocks, and bonds are examples of traditional assets. Venture capital, derivatives contracts, and art and antiques are examples of alternative investments. Real estate investment is also categorized as an alternative investment.
Types of Alternative Investment Options in India
- P2P Lending: P2P lending is one of the alternative investments. It is quite similar to how a bank works. In a classic arrangement, the bank maintains the difference between interest paid and interest earned. P2P lending systems have been created by removing the need for banks. So, investors or lenders might receive higher interest rates on their funds. Borrowers can also obtain financing through customized approval procedures. P2P lending services such as RupeeCircle, Faircent, LiquiLoans, and Lendbox, in essence, serve as risk mitigators and facilitators. Throughout, they offer a variety of services such as onboarding, agreement signing, credit evaluation, collection services, and loan distribution. Lenders may now choose borrowers based on their chosen profile, loan purpose, and tenor. Their targeted interest rate is between 12 and 35%.
- Real Estate: To many people’s astonishment, real estate investments are considered alternative investments. Purchasing real estate may necessitate tremendous work. However, depending on the location and economic conditions, real estate as an alternative investment might have a high resale value. Renting or leasing real estate can also create passive income. There are clear benefits to investing in real estate. It is critical to conduct research on the area and its future possibilities. The complex paperwork required in real estate transactions, significant minimum investment amounts, physically traveling to the property to keep an eye on it, and the upkeep expense are a few disadvantages. But not anymore if you invest in alternative investment platforms like Assetmonk that handle real estate investments.
- Fractional Real Estate: The fractional ownership strategy is also one of the alternative investments. Fractional ownership platforms locate a Grade-A property to invest in, such as a warehouse or office space. The majority of the listed properties have current tenants on long-term contracts. This leads to assured cash flow. Such properties get valued in crores. But, the portal allows investors to combine funds to fund the asset’s acquisition. The minimum investment for investors is Rs 25 lacs. However, it may alter depending on the platform. Now, because owning such a property would cost a few crores, the portal allows investors to combine funds to finance the asset’s acquisition. The minimum investment for investors is Rs 10 lakh. The platform forms an SPV or special purpose vehicle to buy the property after combining funds from different investors. Then, the investor now owns stock in the firm. So, fractional ownership platforms offer rental rates of 8% to 9%. Furthermore, when property value increase is taken into account, these offers appear to aim for an average yearly return of 12% to 15% in a period of 5 years.
- High-Yielding Fixed Income Investments: The previous 2 years have witnessed FD returns struggling to keep pace with inflation. But that is changing. There are a number of start-ups selling high-yielding fixed-income securities, structured debt, and bonds to investors. They not only provide greater interest rates, but they also enable investors to deposit just Rs 10k. AltiFi, BondsKart, Wint Wealth, and other platforms provide structured debt, government bonds, private bond placements, BBB-rated corporate bonds, and AAA-rated papers. As a result, investors may select from a wide range of products, returns, credit safeguards, and liquidity.
- Invoice Discounting: Typically, there is a time gap between a seller giving products or services. There is also a time gap with the price he receives later. Vendors engage a bank to effectively handle cash flows during this period. The bank then buys the receivables for a discount in exchange for cash upfront. Many sites, such as TradeCred, Jiraaf, KredX, and others, have omitted the banking link. They connect investors and vendors that want to take advantage of this lucrative potential. Invoices can now be in the millions or crores. The platforms divide the invoice into chunks, permitting investors to purchase a portion of the outstanding amount for the invoice. The least investment amount varies with deals. However, in rare circumstances, transactions begin at Rs 50k or higher. They generally have a brief duration of 30 days to 90 days, with a before-tax average yearly return of up to 15%.
- Alternative Investment Funds: Any fund founded or incorporated in India that is a privately pooled investment entity that accumulates funds from intelligent investors, whether Indian or international, is referred to as an AIF. Alternative investment funds come in a variety of forms, including Venture Capital Funds, Infrastructure Funds, Angel Funds, Social Venture Funds, Private Equity Funds, Hedge Funds, Fund of Funds, Debt Funds, and Private Investment in Public Equity Funds. The average return on alternative investment funds India ranges between 11% and 13%.
- Venture Capital: Venture capital is another type of alternative investment available in India. It is a type of financing given by investors to small businesses and startups with rapid development potential. It gets frequently used in the early phases of a company’s growth to fund the initial expenditures of research and development or to pay for business expansion. There are several types of venture capital. The three most common types of venture capital are seed money, angel investing, and venture loans. You can earn dividends and royalties from the company in which you have invested. A future sale of the firm may potentially result in a lucrative buyout.
- Structured Debt: Structured debts are another type of alternative investment. They are fixed-income securities with a short maturity. These have guaranteed exits that are secured by a real estate asset. Firms, businesses, and corporations can get funds using this strategy. This also enables investors to engage in risk-free, high-yielding opportunities. These are simple for liquidating since they offer a definite exit clause at the end of the period. It has zero volatility and guaranteed average returns of 16-18% through alternative investing platforms such as Assetmonk.
Alternative investments are one of the most effective means of diversifying your portfolio. Most alternative investments may provide passive income, which can be used to cover post-retirement expenditures as well as periodic subscriptions and payments. Most alternative investments are not market-linked. So, the general market conditions and volatility do not apply to them. As a result, alternative investments can serve as an inflation hedge.
Assetmonk is one of the most credible alternative investment platforms in India. You can invest on a budget in alternative investment opportunities such as real estate via Assetmonk. We cater alternative investment assets, such as real estate to investors. Hit us up!
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Q1. What are the 3 categories of AIF?
A. The 3 types of AIF are
- Infrastructure Funds.
- Angel Funds.
- Venture Capital Funds.
- Social Venture Funds.
Q2. What are some types of alternative investments?
A. Venture capital, art and antiques, and derivatives contracts are examples of alternative investments.
Q3. What investment alternatives are available in India?
A. Real estate, real estate structured debt, and hedge funds are some alternative investments available in India.
Q4. How many alternative investment funds are there in India?
A. Per SEBI, there are more than 900 registered alternative investment funds in India right now.
Q5. What are alternative investments?
A. Financial assets that are not included in traditional investments are alternative investments. Cash, stocks, and bonds are examples of traditional assets. Venture capital, derivatives contracts, and art and antiques are examples of alternative investments. Real estate investment is also categorized as an alternative investment.