Investing your money can be an overwhelming idea, but it’s the only way to create wealth from your savings. And while the stock market, mutual funds and insurance companies provide various investment options, individuals with high net worth have a lot to gain from a more diversified portfolio — one that has unconventional investment as well.
In conversation with TC46, Finance Specialist Abhinav Angirish, the founder of Invest Online, shares top alternative investment options, their eligibility criteria and risks associated with each.
1. An alternative investment is a wide world of investments
The world of investments is a broad one. There are various asset classes like bonds, real estate, precious metals, stocks, currencies. Even coins, stamps and paintings are considered investments. Even diamonds are considered as alternative investments. An alternative investment is a relatively loose term that signifies anything that helps to create and enhance wealth. Normally, alternative investments are those which are in sharp contrast to traditional investments.
2. VC funding is a form of alternative investment
As mentioned above, any investment that is not traditional and which enhances wealth is called alternative investment. Let’s say someone invests in forestry or shipping. Since both forestry and shipping help to generate wealth, they are considered as alternative investments. In recent years, private equity and venture capital funds have emerged as investment vehicles for wealth creation. Such investments can be termed alternative investments.
3. Interest in alternative investments is on an upward swing
In recent years there has been a surge in interest in alternative investments. The scenario of alternative investments is growing more complex, and worldwide fund managers are recognising the importance of alternative investments. The alternative investment market is estimated at $9 trillion and is growing exponentially.
When it comes to investing, women have lagged behind. But the gender gap is fast closing as women have begun taking an active part in investments. Women can participate through indirect investing i.e investing in funds that invest in diverse asset classes.
4. Alternative investing has higher rewards
Alternative investments are attracting investor’s attention. These investments are considered as vehicles of long term wealth creation. Even though such investments are marked with illiquidity, they are generally considered safe due to lower correlation with financial markets.
Traditional stock investing can be highly rewarding, but it is also fraught with volatility and constant monitoring of one’s portfolio. By contrast, alternative investments are considered as real assets due to the intrinsic value they hold. Precious metals have long been held as valuable investments due to their ability to offer a hedge against inflation.
For someone having no experience in understanding alternative investments, mutual funds offer ideal investment opportunities to invest in such assets. A layman does not have access to venture capital or paintings or cryptocurrencies. Hence, he can invest in such assets through mutual funds that invest in such assets.
5. Alternative investments are mostly done by individuals of high net-worth
Since alternative investments are illiquid, most of them require a certain lock-in period. Also, due to the nature of the product, only high net-worth individuals can invest in such funds. For example, infrastructure funds are closed-ended funds with a minimum lock-in of three years and an option to extend for two years. Social venture capital funds have a lock-in period of three years and a minimum investment of Rs 1 crore.
Retail investors can invest in debt funds or funds of funds. Debt funds invest in companies with good corporate practice and growth potential but facing a capital crunch. Thus, they offer a good opportunity to invest in papers of companies having high ratings. They are ideal for conservative and aggressive investors.
6. Consult a financial advisor before investing
Alternative investments require considerable expertise to evaluate such investments. However, the risk is negligible if someone wants to invest in debt funds or fund of funds. These funds have a professional research team backed by professional management. Hence, the investor can be assured of the safety of capital.
However, one must consult his financial advisor before investing in mutual funds.
7. Alternative investments for Indian women for 2021
I would recommend investing in REITs, debt funds and fund of funds. One can invest in relatively small amounts. A SIP route is preferred for investing in debt funds and fund of funds. Fund of funds offers ideal diversification opportunities for women investors. These funds are ideal for small investors due to the transparent nature of their investment strategy.
