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India's economic landscape is rapidly going through a vibrant transformation, fuelled by an increasing appetite for wealth creation. As investors seek to navigate this dynamic scenario, traditional options like stocks and bonds are the bare minimum options that the financial services market has to offer. This is a key reason alternative investments emerge as potent allies, offering a world of possibilities beyond the mainstream.
Let’s look at a few numbers to help understand the investor trends in the alternative investments market:
- Leading asset class: Private equity is the largest segment, with Assets Under Management (AUM) exceeding $24 billion.
- Other prominent segments: Real estate ($10 billion), infrastructure ($4.4 billion), and private debt ($3.3 billion) also hold significant allocations.
- Investor preferences: Private equity and infrastructure are the most preferred alternatives among Indian investors, with 63% and 62% allocating to them, respectively.
Source: Preqin, 2017
Beyond the Familiar: Demystifying Alternative Investments
Keeping in mind the above statistics, the next question that arises here is why investors are turning to AIF funds.
It is safe to consider an alternate investment fund as venturing off the beaten path. Unlike their readily traded counterparts, they are typically illiquid, subject to varying levels of regulation, and often demand a higher minimum investment. However, this exclusivity unlocks access to a unique range of asset classes with the potential for:
- Higher Returns: Certain alternatives, like private equity and real estate, have the potential to generate significantly higher returns compared to traditional investment options.
- Portfolio Diversification: By diversifying their investments across multiple asset classes, investors can mitigate risk by reducing their exposure to market fluctuations.
- Inflation Hedging: Other alternatives, like gold and infrastructure funds, can act as a buffer against rising inflation, protecting your wealth's purchasing power.
- Unique Opportunities: Investing in alternate investments helps investors gain exposure to emerging sectors and high-growth companies not readily available through traditional channels.
Exploring the Spectrum: Promising Alternatives in India
The Indian market presents a particularly fertile ground for exploring alternative investments. Here are some exciting investment opportunities to consider:
- Private Equity & Venture Capital: Invest in the future of Indian businesses with high growth potential, gaining access to exciting new ventures before they go public with an effective venture capital fund.
- Real Estate: Participate in the Indian real estate boom through a fractional ownership platform like Strata. At Strata, investors get a chance to invest in commercial properties, land, or even specific projects, generating rental income and potential capital appreciation.
- Infrastructure: Contribute to the development of India's crucial infrastructure projects like roads, bridges, and renewable energy through specialised infrastructure funds.
- Hedge Fund: Explore and employ diverse strategies with an experienced fund manager to navigate market volatility and aim for positive returns regardless of market conditions.
- Commodities: Gain exposure to gold, oil, and agricultural products, potentially hedging against inflation and diversifying your portfolio.
- P2P Lending: Multiple digital platforms allow you to directly lend to individuals or businesses, earning attractive interest rates while also helping other brands grow.
Taking the Leap: Considerations for Indian Investors
While the potential of an alternative investment fund is undeniable, it's crucial to understand the inherent risks before diving in:
- Higher Risk: It is important to keep in mind that an alternative investment vehicle can be riskier than traditional investments, thus requiring careful research and due diligence to align with your risk tolerance.
- Illiquidity: Most alternative investment options are less liquid than stocks and bonds, making it challenging to quickly sell your investment if needed.
- Investment Lock-in: Some AIF funds have lock-in periods, restricting access to your invested capital for a defined time.
- Regulation: Certain alternatives may have complex regulations, necessitating professional guidance to navigate compliance requirements.
Navigating the Maze: Tips for Success
Before embarking on your journey with alternative investments, you must have a clear investment strategy in place. For that, you should consider these essential steps:
- Consult a Financial Advisor: Seek professional guidance from a qualified advisor who understands your risk tolerance, and investment goals, and can recommend suitable alternative investment fund options aligned with your needs.
- Start Small: Begin with a smaller investment to gain experience and confidence before committing larger sums.
- Thorough Research: Conduct extensive research on each alternative asset class, understanding its risks, returns, and market dynamics. Utilise resources like industry reports, investment platforms, and expert analyses.
- Invest with Reputable Platforms: Choose SEBI-registered platforms or established investment firms with a proven track record and transparent investment processes. Strata is a leading player in fractional real estate ownership, offering a secure user-friendly experience and top-class financial services.
Ready to explore the exciting world of alternative investments in India?
Connect with a qualified financial advisor to discuss your investment goals and receive personalised recommendations. Visit Strata to explore fractional ownership of commercial real estate projects and experience a new way to invest in the Indian property market with a real estate fund.
Stay tuned for future discussions on specific alternative investment options and strategies! You can also get in touch with us if you wish to diversify your investment portfolio.
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