Modules for Investors
Alternate investment options in India outside of pureplay financial instruments
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What are alternative investment options?
If you’ve been researching the many different investment options available in the Indian financial and non-financial markets, you may have no doubt come across the conventional choices like equity, fixed deposits, bonds and even the Public Provident Fund (PPF). However, if you are looking for alternative investments to add to your portfolio, the Indian markets do not disappoint.
What are alternative investment options?
An alternative investment option is any financial or non-financial asset that does not belong to any of the conventional or traditional investment categories available today. Broadly speaking, alternative investment options are assets other than stocks, debt instruments and cash instruments, among others.
There are many types of alternative investments available today, such as gold, real estate, venture capital and angel funding, and even peer-to-peer lending. In this module, we’ll take a closer look at the investment options outside of pureplay financial instruments.
When should you invest in an alternative investment fund or vehicle?
If you are just getting started with your investment journey, you will most likely opt for the tried and tested investment options like debt, equity, FDs and other cash and cash equivalents. However, if you wish to diversify your portfolio beyond these conventional assets, you can start by choosing some of the safer alternative investments like gold and real estate.
And as you get better acquainted with how investments work, you can enrich your portfolio with some of the more unconventional assets like art and antiques or even digital assets. There is also the choice of offbeat investment channels like P2P lending and angel investing.
What are the most popular types of alternative assets that you can invest in?
The world of alternative investment funds and options is quite vast, and is rapidly expanding too, as an increasing number of retail investors are displaying interest in expanding their portfolios beyond traditional investment options. That said, there are some alternative assets that are more popular than others. Here is a closer look at the top 5 alternative assets you can add to your portfolio.
Gold is perhaps the most popular alternative investment option available in the market today. It has been a preferred investment vehicle for generations of Indians. Today, you can invest in the yellow metal in many ways, such as physical gold, digital gold, gold ETFs, gold mutual funds and even Sovereign Gold Bonds (SGBs). It is one of the safest alternative assets to invest in when the markets are volatile.
Real estate is another popular alternative investment option that has been around for ages. The real estate investment sector has also evolved with time. Earlier, residential real estate was the first choice of investment for the average retail investor. However, with the advent of REITs and other investment channels, it is now easy to invest in luxury and commercial real estate as well.
Digital assets like cryptocurrencies and NFTs have taken over the alternative investment market in recent years. Since these segments are vastly unregulated, they do come with a certain degree of risk. However, if your portfolio can withstand exposure to that level of risk, you could also consider investing in some new-age digital assets like Bitcoin, Ethereum, or other cryptocurrencies.
Collectibles have been considered as exotic and offbeat investment options for several centuries now. However, in recent years, an increasing number of retail investors are showing interest in adding rare collectibles to their investment portfolio. Collectibles can range from art and antiques to vintage cars and even luxury goods. The options are many and varied, since collectibles derive their importance from their perceived value.
Listed equity is itself a high-risk investment option. Its private counterpart is even riskier, since there is no regulating authority to oversee the private equity market. This is a broad category of investments that include capital inflow to businesses that are not listed on the stock exchanges. For example, angel investing and venture capital investing are some examples of private equity transactions.
What are the key features of alternative assets and investment options?
Many of the alternative investment options available today have some distinct features that set them apart from traditional investment avenues. Here is a closer look at the key features of the alternative assets you can add to your portfolio.
Ambiguity about the underlying value of the asset
Valuation of alternative investments options can be quite ambiguous, because many of these investments rely on perceived value rather than actual, asset-backed value. This is especially true in the case of exotic investments like art, antiques, and luxury goods.
Lack of liquidity
With the exception of gold, most alternative investments come with relatively low liquidity. This is primarily because there are no regulated and centralized markets for trading such alternative investment options.
Less correlation with conventional investments
Unconventional assets do not share a high correlation with the markets and with other traditional investment options, for the most part. So, they can be very useful for diversifying your portfolio.
High initial investment
Most alternative assets do not support fractional or smaller investment amounts. The initial outlay of capital is typically on the higher end for investors choosing to add some of these unconventional assets to their portfolio.
This sums up the fundamentals of expanding your investment portfolio to include assets beyond the conventional options. You now know when to go about taking this step, and also have a fair idea about the types of alternative assets available. But the question remains - why should you choose to invest in these investment options? To find the answer to this question, head to the next chapter in this module.
A quick recap
- An alternative investment option is any financial or non-financial asset that does not belong to any of the conventional or traditional investment categories available today.
- Broadly speaking, alternative investment options are assets other than stocks, debt instruments and cash instruments, among others.
- If you are just getting started with your investment journey, you will most likely opt for the tried and tested investment options like debt, equity, FDs and other cash and cash equivalents.
- However, if you wish to diversify your portfolio beyond these conventional assets, you can start by choosing some of the safer alternative investments like gold and real estate.
- There is a lot of ambiguity about the underlying value of alternative assets, and they are typically not highly liquid.
- Additionally, they also come with lower correlation with conventional investments and require a high initial outlay.
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