Alternative investments in India

19 May 2022
Alternative investments in India

Alternate investments simply refer to any class of assets which do not include your traditional stocks, bonds, or cash-related securities. Their appeal primarily lies in the fact that they have a low or no correlation with the market, i.e. the fluctuations in the market have no impact on the price of these securities, which is why they are often used to hedge the risk of overall portfolios.

Some alternate investments available in India include-

REITs

Real estate investment trusts are companies that allow individual retail investors to invest in large-scale upcoming real estate projects at a nominal cost. REIT companies typically hold, own, and operate high-return producing real estate and related assets such as shopping malls, office buildings, storage units, luxury hotels or serviced apartments etc.

Real estate

Of course, if you’d like to own the asset itself then investing in real estate is also an option. Homeownership is a financial dream many of us may want to materialize, the difference between REITs and investing directly in property is that costs such as EMIs, maintenance, and resale options are all available and born by the investor themselves.

P2P Lending and Private debt

Peer to Peer lending refers to the process of lending money with hopes of interest and principal return on maturity - apart from corporate or government-backed lending. This could include lending directly to other individuals without having any intermediaries. This is a highly risky investment if borrowers are not deemed creditworthy or verified by a credible source.

Private debt also includes lending to creditors outside the banking system but apart from individuals, these can involve entities like private companies or small businesses.

Private equity and venture capital

While private debt involves lending, issuing interest, and the payback of principal upon maturity, private equity is a category of alternate investments where investors have the opportunity to buy shares of a company that is not listed on any public exchange. There are different subsets of private equity like - Venture capital, growth capital, buyouts etc.

Private equity is a broad category that refers to capital investment made into private companies, or those not listed on a public exchange. There are several subsets of private equity, including:

Venture capital- capital investment in start-ups or emerging businesses

Growth capital- capital investment that helps an established enterprise structure and scale their operations

Buyouts- completely buying the entire company or its different subsidiaries outright

Inventory financing

Some companies operate on a heavy volume of inventory in the form of both raw materials and finished goods. They do so to keep up with rising demands in the market but turn towards investors for capital to support their high inventory costs. This is inventory financing, where companies can raise capital through investors and pay them back with interest on a pre-meditated date post-sale.

Crypto FDs

Just the way you park your regular fiat currency in FDs or savings accounts, platforms now offer Crypto FDs too! Under this type of alternate investment strategy, you deposit your crypto holdings on the platform and receive a corresponding fixed return against them.

Things to remember before investing in alternatives

While alternate investment vehicles can seem like a great way to cut out the middle man and earn returns that are unlinked to the fluctuations of the market, they do come with a higher amount of risk since it can be harder to get verified data on these assets. Alternative investments can also pose a risk in liquidity especially if they are niche and are in low demand, this can even cause difficulty in valuing the security itself since they have a lower trading volume.

It is imperative that when you select an alternative investing platform you conduct thorough checks on their credibility and license to provide these services under RBI.