What Are Asset Backed Investments? Everything You Need To Know

Did you know that asset backed investments account for a significant portion of the global investment market, offering a blend of security and potential returns that traditional stocks and bonds often can’t match? 

According to the business research company,  The global asset backed securities market size is expected to reach $3112.45 billion by 2028, growing at a compound annual growth rate (CAGR) of 6.3%.

asset backed investments, broadly speaking, involve putting money into assets or loans that are expected to generate income or appreciate over time. 

What are asset backed Investments?

At its core, an asset backed investment is a type of investment that is secured by an underlying asset. These can range from real estate and commodities to more complex instruments like debt securities backed by loans. Investors receive income from these investments in the form of interest payments, dividends, or the appreciation of the asset’s value over time.

The process of securitization transforms these assets into tradable securities, thereby enhancing their accessibility to investors like you.

What are the Types of asset backed Investments?

asset backed investments come in various forms, each with unique characteristics and degrees of complexity. Below are several types of asset backed investments:

Real Estate

Real estate is one of the most recognizable forms of asset backed investment. It encompasses a wide range of options, from direct property ownership to investing in real estate development projects or participating in real estate investment trusts (REITs).

• Direct Ownership: Investors purchase residential or commercial property with the intent to earn returns through rental income and property value appreciation.
• Real Estate Investment Trusts (REITs): REITs allow investors to buy shares in real estate portfolios, which may include large-scale properties such as shopping malls, hospitals, and apartment buildings. They offer the advantage of liquidity, as shares can be traded like stocks and typically disburse a substantial portion of their profits as dividends.
• Real Estate Crowdfunding: This is a more recent approach where investors pool their money to fund real estate projects, and in return, they receive a share of the profits from rentals or sales.
• Real Estate Structured Debts: Real estate structured debts are loans backed by property. This type of investment allows you to invest in real estate without buying the property yourself. With real estate structured debts, you get regular payments from the interest on the loan. The property itself is used as a guarantee, adding a layer of safety to your investment.

Debt Securities

• Mortgage-Backed Securities (MBS): These are investments backed by mortgage loans. When homeowners pay their mortgage payments, those payments are distributed to MBS investors.
• Collateralized Debt Obligations (CDOs): Similar in structure to MBS, CDOs are typically backed by pools of debt like corporate loans or other types of consumer credit outside of mortgage loans, such as auto loans or credit card debt.

Commodities

• Commodity Futures: These are agreements to buy or sell a specific amount of a physical commodity (like gold, oil, or agricultural products) at an agreed-upon price at a future date.

Business Loans and Receivables

• asset backed Commercial Paper (ABCP): This is a short-term investment in debt that is backed by other financial assets – often receivables like credit card payments, lease payments, or company invoices.

Equipment Trust Certificates

• Leasing: Some industries, particularly transportation like airlines or railways, offer investments in physical equipment. Investors contribute capital for the purchase of new equipment, which is then leased to companies that pay regular lease payments that are passed along to investors.

Specialized asset backed Securities

• Art and Collectibles: Investments that are based on ownership of high-value art, vintage cars, or even rare wines. The asset backs the investment with its perceived value and potential for appreciation over time.

The Appeal of asset backed Investments

• Security and Stability: Because these investments are backed by real, tangible assets, they are often perceived as less volatile and more stable compared to stocks.
• Potential Returns: The return on asset backed investments can be attractive, especially for assets like real estate, which appreciate over time.
• Diversification: Incorporating asset backed investments into your portfolio can help spread risk, ensuring that your investments are not overly exposed to fluctuations in any single market.
• Access to Capital: Issuers benefit from asset backed securities (ABS) as they provide a way to generate funds by selling assets but keeping the rights to service them. This influx of capital can then be used for issuing new loans, contributing to economic growth.
• Liquidity in the Market: The ABS markets tend to be fluid, enabling you to buy and sell these securities with ease. Such liquidity helps improve the market’s efficiency and aids in accurately setting prices.
• Mitigating Balance Sheet Risks: For financial entities, utilizing ABS for securitization can lessen the risk on their balance sheets. It does this by moving the credit risk from the original assets to the investors. With this risk transferred, institutions can allocate more capital for future lending.

How to Get Started with asset backed Investments

• Research and Due Diligence: Start by researching the specific asset classes and market conditions. Look for assets with a track record of stable returns.
• Consultation with Financial Advisors: A financial advisor can help you understand how asset backed investments fit into your overall investment portfolio.
• Entry Points for Retail Investors: Many platforms now offer simplified access to asset backed investments, from online REITs to commodity futures trading platforms. Look for options that match your investment budget and risk appetite.

Currently, Assetmonk has developed a fixed-income offering related to the electric vehicle (EV) public charging industry, available for an initial investment of INR 5 lakhs and providing a 12% fixed return. 

This investment will support a burgeoning business in establishing public charging stations equipped with rapid charging technology along major highways in the South, connecting 18 cities such as Bengaluru, Chennai, Vizag, Hyderabad, Vijayawada, and Tirupati. Additionally, investors will benefit from a revenue-sharing agreement.

Bottom Line

asset backed investments offer a compelling blend of stability, potential returns, and diversification. While they present a unique set of considerations, particularly around market factors and liquidity, their foundation in real, tangible assets can make them an attractive proposition for the long-term investor. As with any investment, it’s crucial not to over-commit to a single asset type. Balance and due diligence are key. 

If you’re ready to explore how asset backed investments can fit into your portfolio, start by researching options and consulting with a financial advisor. The world of asset backed investments is vast and diverse, offering numerous opportunities for those willing to delve into it.

Want to start your investment journey with asset backed investments? 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.