7 Proven Strategies For Passive Income Generation Through Alternative Investments

Having a diversified investment portfolio is essential in today’s economy. This is true especially to increase returns and secure funds. While conventional investment options like stocks and fixed deposits can do the trick, they might not be the best option for meeting your long-term financial goals. Equities are riskier, and fixed deposits do not offer significant returns. Many prefer these because they are the preferred ways of investment as advised by their elders. However, considering alternative investments might be smart if you want to expand and diversify your investment portfolio.

Alternative investments include startup equity, venture capital, hedge funds, securitised debt instruments and collectibles like art and antiques. They are financial assets that do not fall under the conventional cash, income, or equity categories. There are certain risks and benefits that these investments come with.

If you are looking to invest in alternative investment options, it is important to have a comprehensive idea of its risks and benefits. Keep reading to know 7 proven catalysts for passive income generation.

Passive Income Generation By Alternative Or Traditional Investments?

Alternative investments are seen as riskier than conventional ones, yet they offer higher returns. They were formerly only available to high-net-worth individuals (HNIs) and institutional investors. But they are now more widely available on new-age fintech platforms like Grip. Based on the research firm Preqin's global report, the alternative investment market is anticipated to increase to $23.3 trillion by the end of 2027 compared to $13.7 trillion in assets in 2021¹. 

Benefits And Risks Of Alternative Investments

Alternative investments offer higher returns on your investment than traditional options while enabling a more diverse portfolio. Thereby, the risk factor is slightly reduced. They also offer protection against inflation and can sometimes come with tax benefits to help reduce your tax liability. 

It is also important to consider the risks of these investments. Since they have lower liquidity than traditional investments, they might need more time to exit, sell, or trade immediately. They are also accompanied by higher risk and are more complex than traditional investments. They require research to leverage in a lucrative manner, and Grip provides a lot of information on these alternative investments

Here are some alternative investment assets to reduce risk and increase returns

7 Proven Catalysts For Passive Income Generation

1. Fractional Real Estate
   Real estate is one of the biggest asset classes worldwide. These investments show similarities to bond investments. This is due to the steady cash flow gained periodically on the leased properties; for small investors looking to try real estate, modern fractional real estate investment methods like fractional ownership provide stable options.
   Investing in real estate also helps increase the long-term value, enabling capital gains and appreciation.
2. Leasing
   Recently, leasing has become a very popular alternative investment tool. Leasing involves the renting of movable or immovable assets for a specified period. It is a contract between a lessor, a lender, and the lessee, a borrower. 
   It provides many advantages, such as higher returns compared to fixed deposits, less volatility and lower risks compared to equities. Regulated products like LeaseX offer SEBI-compliant Securitised debt instrument (SDI) opportunities in a tradable, dematerialised form. It is an asset-backed investment that provides exciting non-market-linked returns.
3. Startup Equity
   Generally, this capital is invested in private businesses or not traded on a public exchange and is considered private equity. Startup equity investments are collective investments. Investors operate to acquire significant shares or positions in both private and public businesses. 
   They can achieve high returns due to the buying-to-sell business strategy, as the Harvard Business Review analysed². They also contribute to economic growth, diversification, and job creation. They also have a low correlation to other asset classes.
4. Hedge Funds
   Hedge funds are privately shared investment funds that target large returns. They use a range of risky trading tactics. Hedge funds are often set up as private investment firms. A common partner oversees the portfolio of investments and makes choices about investments. 
   It is a perfect tool for those looking to manage investment risk, diversify their portfolios, and seek reliable returns over time.
5. Gold And Precious Metals
   A common and traditional investment option in India is Gold. Gold investments offer great protection against inflation. Gold has proven its stability during pandemics, wars and emergencies and remains a tangible asset providing a sense of safety among investors.
   The high liquidity is a desired advantage and a beginner-friendly asset. It does not require any specialisation or expertise to ensure risk reduction.
6. Invoice Discounting
   Companies use invoice discounting to finance their short-term loans, where unpaid invoices are collateral for securing the loan. In India, a sizable portion of the short-term finance market is based on this method of financing. Due to its quicker return on investment and inflation-insured profits, invoice discounting has become popular among independent investors.
   A diversified pool of invoices, offered by instruments like InvoiceX, offers a reduced-risk, RBI-complaint, government-regulated, credit-rated instrument for investors. 
7. Collectibles
   Collectibles are items that appreciate with time and are valued more than originally sold. Paintings, artwork, coins, stamps, vintage automobiles, first editions, and pop culture-influenced items are valuable collectibles. They may have a forecasted increase in value and capital appreciation.
   Despite their low liquidity, well-researched collectibles can drive a huge profit margin and be a bargain for the investor.

Scaling And Growing Passive Income Streams

• Focus On Your Numbers: From the money you invest to the potential returns you are looking at, investment is truly a number game.
• Diversify Your Portfolio: Choose diversified assets to invest in to reduce risk. Explore and venture.
• Conduct Thorough Research: Explore and research alternative investments to match your financial goals and risk appetite.
• Constantly Monitor And Track Returns: Take note of your investment returns to ensure you are moving towards your financial goals. 

Conclusion

Utilising the benefits of alternative investments has proven to be a beneficial strategy for many. But you must understand all the associated risks and benefits before going knee-deep. Find more research on alternative investment options to fit your portfolio on Grip. Start your journey towards financial freedom today!

References:

1. Preqin <https://www.preqin.com/global-report>
2. Harvard Business Review <https://hbr.org/2007/09/the-strategic-secret-of-private-equity>

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