Alternate investments: Which suits your investment portfolio?
By IBS Intelligence
The world of alternate investments has gained momentum, captivating attention for its potential to diversify portfolios and create new passive income sources. In this blog, we embark on a journey through the landscape of alternate investments, uncovering the dynamic range of alternate assets in India. By the end, you’ll have a clearer compass to navigate and discover the best alternative investment that has the potential to make your portfolio shine.
As the ﬁnancial landscape evolves, alternate investments are emerging as a compelling investment choice. But what exactly are they?
Alternate investments stretch beyond the conﬁnes of traditional stocks and bonds, oﬀering a diverse array of options. They provide a gateway to potentially higher returns and a reduced correlation with mainstream markets. The charisma of alternative assets lies in their power to introduce diversiﬁcation in the investors’ portfolios and mitigate risk.
Alternate investments were conﬁned to big institutional investors but with the growing trend of fractionalization & the diverse digital options, these are now accessible to all investors.
Popular alternate investments in India:
We have assessed the majority of the alternative assets present & curated this list on the basis of returns provided, liquidity & accessibility. This list is built taking into consideration all portfolio sizes
- Alternate investment- Real Estate:
Real estate is an alternate investment that has long been a cornerstone of alternative investing. On an average, real estate gives an annual return of ~9% in India. Investors can get additional beneﬁt by renting out their properties & obtaining a rental income on top of price appreciation.
Investing in real estate is pretty expensive. In metro cities, real estate prices start from~50L & go up to a few crores depending on the location & amenities. However, investing in real estate requires a lot of due diligence about the location, market demand & sales price, exit strategy, expected rental income in the location etc. Fractional real estate on a good platform could be a great option where the minimum investment amount can be as low as Rs 1 Lakh & save time on due diligence
- Alternative investment – Gold Leasing:
Gold has been a popular investment in India & Gold’s track record against inﬂation has been better than other investments. With this alternative investment of Gold leasing, investors can now make up to 16% p.a. Platforms such as Gullak Gold+ allow investors to lease their digital Gold to large jewellers & get an extra 5% Gold every year on top of Gold’s CAGR of 11%. This option helps you get a monthly rental income in Gold. With the increase in Gold price, your rental income/extra interest also appreciates, making it a lucrative option. This alternate investment option is backed by bank guarantees & inventors have the ﬂexibility to withdraw the amount any time without a penalty fee.
- Alternate investment- Hedge funds
Hedge funds pool money from high-net-worth individuals & is managed by professional fund managers. These fund managers use a wide range of investment strategies to invest in traditional & non traditional assets in order to earn above average investment returns. This usually requires a high minimum investment amount & often targets wealthy individuals.
- Alternate investment- Peer-to-Peer Lending:
Investing in P2P lending platforms allows you to lend funds to individuals or businesses for interest payments. It oﬀers the potential for higher returns than traditional ﬁxed-income investments. Platforms that oﬀer P2P lending investment options generally provide 10%–12%pa. There may or may not be lock-in periods, depending on the borrower & the terms of the lease.
However, it’s essential to be aware of its default risks and creditworthiness. Borrowers with low creditworthiness provide higher returns but there’s a chance of default.
- Alternate investment- Debt funds:
This fund primarily invests in corporate debt securities, government bonds, and corporate bonds. These give lower returns vs equity funds but are considered to be less riskier.
Before we dive into which alternate investment to choose, let’s take a look at factors that we should examine before choosing alternative assets.
- Risk Tolerance: Some alternate investments like private equity & venture capitals provide high returns but generally come with high risk & are At the same time, bonds oﬀer comparatively lower returns but are low risk assets. Investors should consider their risk appetite before choosing an alternate investment.
- Lock-in periods: Alternate investments like bonds come with a lock-in period between 6 months to 8 years(depending on the bond) while hedge funds are comparatively
- Rental income : Passive income sources refer to a steady ﬂow of cash from The quest for consistent earnings often leads us to real estate, where investors get the beneﬁt of rental income on top of appreciation. Rental income adds further value on your investments, on top of appreciation.
- Post tax returns & indexation beneﬁts: Each of these investments have a diﬀerent taxation Debt funds are taxed at income slab(30% if income > 10L) whereas Gold has an LTCG of 20% with indexation beneﬁt.
Investors should understand & evaluate these factors carefully before choosing an alternative asset. Alternate investments like Gold leasing & real estate could be a decent choice considering the above factors. However, an investor will have to carefully consider their risk appetite, goals & current portfolio before making an investment decision.
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