To have your money work for you is a great feat. Traditional investment vehicles including stocks, bonds, mutual funds, savings accounts are the more conventional investment options known to most. These investment options give a decent return over a period of time and usually are considered safer as compared to more speculative and high risk options. However, for High Net Worth Individuals (HNIs) and Ultra HNIs, unconventional investments options can promise high returns. Diversifying your portfolio to include alternate investment vehicles such as Alternate Investment Funds (AIFs), Real Estate Investment Trusts (REITs), private equity can help attain high returns without putting all eggs in one basket.
In this blog, we will look at non-traditional investment options and how exploring this side of the investing universe with the right approach can prove to be fruitful.
Traditional vs Non-Traditional Investments
Traditional investments offer a promise of stability and liquidity as compared to unconventional investments however they are riddled with problems like low returns on investment, high market volatility and volume. While higher volume investments can help with higher returns, to be able to tap into exponential returns, unconventional investment options can be promising. However, it would be wrong to assume that all is rosy with non-traditional investing and it comes with problems like higher risk on investment, need of specialised knowledge and expertise, lower liquidity, among others. The usual investor might not have the kind of assets or the risk appetite required to engage in such activities thereby making unconventional investments more suitable for HNIs and Ultra HNIs.
Thus, it is good practice to engage in risk assessment and analysis and consult expert advisors before going ahead with a new form of investment.
Why Diversifying into Non-Traditional Investments Can Be a Good Option?
While traditional investments have their merits, relying solely on them can expose investors to various risks and limit their potential for long-term growth. Here are some key reasons why diversification beyond traditional investments is crucial:
- Higher Returns: Investment options such as Alternate Investment funds (AIFs), Real Estate Investment Trusts (REITs) and even some cryptocurrencies deal with high volume investments and thus promise a higher return compared to some traditional options.
- Inflation Hedge: As inflation rises, prices of real estate and crypto might also rise. This helps investors maintain purchasing power and maintain the value of their investments.
- Diversification: Investing in non-traditional options helps diversifying the portfolio which in turn helps in mitigating risks and protects the capital invested.
- Growth Potential and Innovation: AI is getting integrated in investment technology with some investment vehicles already utilising its offerings. The blockchain technology underlying cryptocurrency has the potential to transform various industries, including finance, supply chain management, and healthcare. This can help investors accrue the benefits of investing in such unconventional investment options.
Different Types of Non-Traditional Investments
The following are a few non traditional investment options that you as investor can check out:
- Alternate Investment Funds (AIFs): As the name suggests, AIFs are privately pooled investment funds that invest in a range of alternative assets, such as private equity, venture capital, real estate, infrastructure, hedge funds. To read more about AIFs, read this- link the AIF blog post
- Real Estate Investment Trusts (REITs): These trusts invest pooled investor funds into income generating real estate properties. This enables returns from real estate without direct ownership of the same.
- Cryptocurrency: The world recently witnessed the crypto boom with rise and fall in various cryptocurrencies including Bitcoin, Dogecoin, Ethereum. Although, already under the purview of the Government of India, it has the potential to provide returns not directly impacted by the usual country specific factors.
- Peer-to-Peer Lending (P2P): Peer-to-peer lending, also known as P2P lending, is a relatively new type of alternative investment. It enables borrowers and lenders to connect directly without the involvement of traditional intermediaries such as banks.
- Private Equity: This is the investment of capital in private companies and includes venture capital, growth equity, and buyouts.
- Venture Capital: This is the capital that can be earned by financing small businesses or startups in exchange for equity. Venture capitals require a significantly higher capital compared to other non traditional investments.
- Art and Collectibles: This is yet another area inviting investments but is highly speculative in nature and so is not explored by many.
- Commodities: commodity exchanges such as Multi Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (NCDEX). Commodities like gold, silver, crude oil, natural gas, and agricultural products can be traded through futures contracts, providing an avenue for diversification and potential hedging against inflation.
Some AIFS including Alchemy Leaders of Tomorrow Closed-Ended Fund—Series 2, ASK Golden Decade Fund, Karma Capital AIF are considered as well performing assets. Mindspace REIT, Brookfield REIT, and Embassy REIT are good options to consider. Cryptocurrencies such as Bitcoin, Ethereum as well as Tether are the go to choices for many investors.
Risks and Rewards of Non-Traditional Investments
However, it is pertinent to remember that investing in such vehicles can often be riddled with intricacies which you as an investor might not be aware of. This is where Karma Capital comes in and provides it’s expert services. Using portfolio management services could be a game changer for the future of your investments. At Karma Capital you also get access to expert fund managers who can help you map out the right investment strategy for your portfolio.
We are existing in a global world order which is getting increasingly borderless. With new technology revolutions like AI, non-traditional investment options are going to rise. By comprehending factors such as investment duration, market trends, liquidity, industry dynamics, and risk levels associated with each alternative, you can make informed choices that reduce overall portfolio risk and enhance returns.
Navigating this space can be exciting and promises great returns but one must proceed with caution. Things that seem too good to be true often are so. Getting professional advice while being aware of common malpractices can help you reap the best out of this ever enlarging investing nexus.