Are Alternative Investments The Future Of Investing?

Humans are unique creatures. Their wants are unlimited, and they constantly seek variety in those wants. This is also applicable to investment dynamics. Given the rapid innovation in technology, there is also a rising demand for innovation in investment instruments. Investors now seek an amalgamation of existing and new investment options. Alternative investments can be the instrument for this new age! These are investments, different from traditional instruments like equity, bonds, mutual funds and others. They offer some key innovative benefits, which can cater to growing demands. Let us explore more!

What Are Alternative Investments?

An alternative investment is an unconventional asset that does not fit into the conventional categories of equity/income/cash. This new class of alternate investment opportunities are expected to reap benefits in the coming age. 

A separate investment product - ‘Alternative Investment Funds (AIFs)’ has also gained popularity in recent years. As of June 30, 2024, a total ?4,32,248 crores of alternative investment fund investments have been made in India¹.

These assets have the potential to provide significant returns at moderate to high-risk. Some of these assets are those that traditionally, despite their existence, were not as prevalent as an asset, such as private equity. Other assets are modern creations born from involving demands, such as cryptocurrency.

Investors should ascertain their financial goals, capacity and risk appetite before investing.

Significance Of Alternative Investments

The  core rationale behind growing attention to alternative investments is its uniqueness. Due to financial awareness and digital facilities, investment in traditional sources is attracting people. However, when the number of people increases, there are potential chances of less returns owing to its spread. 

Alternative investment uses modern and unique strategies that can potentially fill the gap for investors willing to take some risk. They address novel needs, fill the gap for pacing the digitalisation of investments and can be a prospective market instrument for businesses.

Benefits Of Alternative Investments

• Tailored Portfolios: Alternative investment options can help investors build customised investment portfolios rather than relying on traditional investment options.
• Diversification: It has a large set of varied assets like private equity, hedge funds, commodities, cryptocurrency, structured investment, funds of funds, and many more. Such a large investment universe offers an opportunity for diversification of investments.
• Lack of Correlation: When a portfolio has low correlation, meaning there is significant diversification within it, then the risk and returns are spread across the portfolio.

Types Of Alternative Investment Opportunities

There are varied types of alternative investments. However, some of the famous instruments are as follows:

1. Private Equity and Private Credit

The investments not listed on the public markets/exchanges are private ones. Private equity is one of the most famous alternative investments due to its structure, which is somewhat similar to regular equity instruments. Investors invest in unlisted companies and receive shares to indicate their ownership. It includes venture capital, growth capital and buyout investment strategies.

Private credit is a part of the universe of private debt, which lends money to private companies (unlisted) in the form of debt instruments. Companies may find debt listing regulations stringent and can opt for private debt to raise the funds.

2. Commodities

Raw materials or natural resources are usually categorised as commodities. Minerals like gold and silver, along with other natural resources like oil, gas, agricultural produce, etc. constitute this group. Some unique assets, such as paintings, wine, stamps, etc. are also considered in this group.

Commodity trading is already present in several exchanges in the world. As an alternative investment option, it is likely to gain a lot more popularity in the upcoming years.

3. Real Estate Instruments

It has been one of the most regarded investment avenues for ages. However, real estate investment is always considered to be the purchase and sale of tangible immovable properties. It requires a substantial amount and has many regulatory obstacles.

Modern-day instruments like Real Estates Investment Trusts (REITs) solve this issue. These funds invest in real estate by pooling investments. Investors seeking to invest in real estate can purchase REIT units and earn rent or dividend income from the same without tangible investment in real estate.

Similar to REITs, Infrastructure Investment Trusts (InvITs) can help investors invest in the infrastructure sector as part of their alternative investment strategy.

4. Hedge Funds

Professional fund managers pool funds from investors and use diverse investment strategies to generate potential market returns in the short term. Usually, High Net Worth Individuals (HNIs) invest in such funds owing to their high-risk appetite.

They use techniques such as equity hedging, macro evaluation, relative valuations in the market, and arbitrage trading.

5. Alternative Investment Funds (AIFs) 

It is a separate investment product, which includes different alternative investment opportunities. It mainly has three categories as per the Securities Exchange Board of India (SEBI):

• Category 1: Includes investments in startups and early-stage organisations
• Category 2: The investments not included in categories 1 and 2 are categorised in it.
• Category 3: It includes alternative investments investing in instruments with complex trading techniques and using leverage.

Future Of Alternative Investments

Perspectives towards investments have evolved over the years. The characteristics and benefits of alternative investment opportunities attract new-age investors willing to expand their investment horizons. Owing to this gradual shift in investment philosophies like impact investing, diversification, digitalisation of finance, etc. the future of alternative investments is set to shine in the upcoming years. Globally, the alternative investment space is expected to reach the mark of $29.2 trillion by 2029².

Where Can I Find Alternative Investments Options?

Alternative investment platforms are making their presence digitally and investors can easily find them through the search engine. However, the model that we have been discussing is unique and brought by Grip. Investments in this platform are carefully imagined covering a range of investors in all ticket sizes. The founders have brought their years of experience in an investment practice that sets out to make ordinary Indian wealthy. 

An excellent way to earn and accumulate wealth is with these alternative approaches. Visit Grip to invest in assets that offer attractive risk-adjusted returns.

Frequently Asked Questions On Alternative Investments 

1. Why choose alternative investments?

In the pacing age of digitalisation and market dynamics, investment aspirations are also evolving. In the wake of it, alternative investments help expand the investment universe to unconventional instruments. Moreover, its unique strategies help tap the gaps in traditional investments.

2. What is the projected growth of alternative investments?

The shifting investment philosophies, market regulations, investment horizons, digitalisation, growing inflations, etc., can pave the path for preference towards alternative investment options in the upcoming years. As per a report, the global projected growth rate of alternative investments is 10.5% from 2023-2029.

3. What is the demand for alternative investments?

The demand for alternative investments globally is expected to aggravate with growing investment requirements. A report suggests that the alternative investments constitute 6% of global assets as of January 2024³. The core reason behind this growth is evolving investment strategies, products, market dynamics, etc.

References

1. SEBI, Accessed from https://www.sebi.gov.in/statistics/1392982252002.html 
2. Prequin, Accessed from https://www.preqin.com/about/press-release/global-alternatives-markets-on-course-to-exceed-usd30tn-by-2030-preqin-forecasts 
3. CAIA, Accessed from https://caia.org/content/january-2024-next-20-trillion-alternative-investments

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