Alternative Investments: The Future Is Here
The world of investments is changing every day. With newer options, technologies and ideas making their way, alternative investment options are the trending topic for smart investors. So, what is an alternative investment? In the most basic language, alternative investment is an investment that does not fall under the conventional investment categories of stocks, bonds, PPF, and cash.
But does that mean we are talking about the good old private equity, gold, venture capital and hedge fund as the innovative options? Not at all! Stay with us, and we are just starting.
THE RISE OF ALTERNATIVE INVESTMENTS
Since 2008, the global economic slump has largely been responsible for the rise in popularity and accessibility of the alternative investments sector.
People who had previously extensively relied on conventional investments saw the value of their holdings drop, which prompted many of them to explore alternative investing options. Alternatives typically trend in the opposite way from traditional assets since they have a low correlation with them. As a result, they are sensible additions to the portfolios of investors seeking to diversify, disperse risk, and boost profits.
After the recession, three trends emerged:
- A shift from indirect investing to direct investing
- A shift of companies from public to private
- A shift from active investing to passive investing
As a new wave of investors entered the alternative investments industry, investors tended to favour direct investments over indirect investments. This might have been brought on by direct investing’s enhanced sense of investment control.
A number of publicly traded businesses also turned private following the recession, maybe to restructure and rebuild before returning to the public market. Due to the movement in investing opportunities into the private sector, many people who hadn’t previously thought about alternatives began to find them appealing.
In terms of investor behaviour, the propensity for active investing eventually gave way to passive investing a “set it and forget it” approach. Traditional assets, like publicly traded equities, have a high degree of liquidity and a volatile value. The investor is responsible for choosing when to buy and sell, which is the “active” aspect of traditional investing. Alternative investments, on the other hand, have far longer time horizons and are often illiquid; until they start to produce returns, which could take months or years, there isn’t much you as an investor can do. Alternative investments can provide you with a piece of mind that you didn’t miss your time to buy or sell while you have to wait to be paid off.
These three tendencies are still present now and serve as a foundation for the future of the sector.
Why Are Investors Looking For Alternative Investments?
It all comes down to the urge to think out of the box and the ability to take a risk. With the traditional options giving slow and fixed returns, today’s investors are looking for better value and faster returns. Alternative investment options do just that. Though returns are not guaranteed, just the quick turnaround time and potential to offer much higher returns are what drives the world of alternative investments.
Also, alternative investments rely less on broad market trends and more on the strength of a particular investment, therefore reducing the overall risk of a portfolio. Then there’s the plus point of portfolio diversification. Alternative investments give investors a chance to diversify their portfolios, plus many of these alternative assets also provide a shield against inflation.
Which Alternative Investment Options Attract New-Age Investors?
NFTs or Non-Fungible Tokens are a buzzing phenomenon of tech-savvy India. So, what are NFTs? NFTs are primarily digital assets based on blockchain technology. These assets are linked to unique digital or physical goods like real estate, films, music, or artworks. NFTs are like digital collectables and are available for purchase and sale online.
The blockchain ensures the security and authenticity of ownership of a particular NFT. NFTs can be accessed on platforms like BeyondLife Club, known to hold Celebrity NFTs or WazirX. The downside to this type of investment is that not many people understand NFT yet, and so to trade one might be a difficult task, posing a risk of a highly volatile pricing structure.
Crypto has been a hot topic for years now, though still cryptic for a few of us! With this year’s Budget validating it further, Indian investors will surely keep an eye on the Crypto Staking platforms. So, what is Crypto Staking? Basics first.
Crypto Staking is a method of gaining rewards for holding certain cryptocurrencies. Not all cryptocurrencies allow staking, but if you happen to hold the one that does, there’s a “staking pool” waiting for you to be staked and put to work. Though staking is complicated, platforms like Coinbase or Staderlabs provide a simpler way to get into that pool.
This is 2022, and technology is your biggest friend today, at work and in life! And in this world of tech, some new and blazing platforms let you innovatively invest in real estate. Nope, we don’t mean buying a property against a loan, then maintaining it for years until the market prices go up when you can finally yield returns with your now grey hair.
Without the responsibilities of maintaining the property, platforms like Myre Capital and Property Share allow you to own a part of the property with other like-minded investors and reap the benefits of a real estate investment. However, there are some fees and a certain minimum amount to go ahead.
So, who is called an angel investor? In exchange for equity, angel investors are the affluent private investors looking to invest in small businesses or start-ups. Unlike a Venture Capital firm that uses an investment fund, angel investors rely on their net worth. So, in case you’re thinking of angel investing, there are some great pros to go about it.
First off, you get to interact with upcoming entrepreneurs, get actively involved in their goals and businesses, and guide them with your skills. Plus, if the goal is achieved, along with the satisfaction, there’s the direct ROI waiting for you, and you never know, you might become Shark Tank India’s next Judge!
Then there’s also the option of using online platforms for angel investing in India. If you want to invest lower amounts, there are platforms like Mumbai Angels doing the rounds. With opportunities starting from as low as Rs 5 lacs, they offer over 500 companies to choose from for your angel investment.
So, imagine there’s a pool of money created by various investors, and you chip in too. This pool goes on to be someone’s loan, and you receive a fixed repayment each month along with the interest you’re due. This is how peer-to-peer lending works. There’s no bank involved, and everything happens on online platforms.
The online P2P platforms offer loans for any requirement like business, car, or even personal use. Returns on P2P lending are typically great. The only risk with this option is you’re providing a loan to an unknown person, and it might end up in default. But you can always take a look at the borrower’s credit ratings and then make an informed call.
Another star on the block is the option of investing in the process of Invoice discounting investment. So, what is invoice discounting? It’s a term in supply chain finance when a financier like KredX helps clear the accounts payable of an enterprise to help stabilise their working capital and improve the payment window of the supplier.
Now, imagine a colossal corporation putting up their invoice for discounting. As an alternative investment, an investor can chip in on funding that invoice with KredX. This will not only benefit the SME vendor but also ensure great returns to the investor.
Digitally innovative modern-day India has brought forward great opportunities for proactive investors. Sure, the risks are high, but so are the stakes! It’s ultimately an investor’s sharp mind that knows which one is higher in a particular option. So, which of these alternative investment options struck a chord with you and where does your investor mind take you next?