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Alternative Investments Can Help Combat Sluggish Production

26, June 2017 | Vikash

Imagine if you found out that the wealthiest Indians were eating differently than everyone else. Not simply that they ate at exclusive restaurants or private clubs, but that there was literally different food on their plates. They were eating meals that were meant to be healthier for them and their family. Now, you feel that you have been handed a very different menu. You would be outraged, and with good reason. However, too often, that's exactly what happens in the world of investment.

Let's think of a traditional menu of most Indian investors. It is pretty short and comprises basically stocks, bonds, and mutual funds. The very wealthy have a very different menu and for one, it is longer. It still has stocks and bonds, but it also includes investments such as hedge funds, private equity funds, venture capital funds, and real estate funds. These investments are popularly known as alternative investments. They represent a different way of investing. The best thing about alternative investments is that they become a strong and consistent source of absolute and non-correlated returns for investors.

Alternative investments seem to zig when the stock markets zag. In simple terms, they tend to perform well in the face of declining stock markets owing to strong investment strategies, stronger research, and wider asset diversification. Thus, alternative investments act as a good mode of portfolio diversification to improve an investor's 'risk vs. return' profile. That said, a good amalgamation of clear financial objectives and a shrewd fund manager becomes vital for ensuring sturdy returns from alternative investments.

Alternative investment funds (AIFs) tend to pool in and build their corpus from high net-worth individuals (HNIs). They invest this corpus in various asset classes such as unlisted securities, small business, start-ups, and SMEs largely to promote entrepreneurship, while generating strong returns for the investors. India in the past decade has become a highly popular investment hub, with venture capital and private equity funds investing large corpuses in India's growth story and industrial growth.

Nasscom and Zinnov Consulting stated in its study that India ranks third globally with regards to number of start-ups, with the US and the UK in the first and second positions. Currently, as per the Nasscom study, AIFs have pumped in around $5 bn into Indian start-ups to promote their business. Moreover, as per the government of India panel led by Narayana Murthy, during 2001-15, AIFs have provided more than $100 bn funds to 3000+ Indian start-ups operating in 12 top performing sectors in the Indian economy. This is slowly but surely helping India boost its sluggish production levels. Moreover, the government's focus on boosting the manufacturing sector through its FDI initiatives augurs well for the India growth story.

Alternative investments have made a huge difference to the portfolio of many an investor, which is why most investors are leaving enough room for allocating alternative investments in their portfolio. Today, alternative investments are in the portfolio of almost everyone who is a millionaire. That said, there is great news for everyday investors. Now, they can also access these strategies through liquid alternative funds and trade with the ease of a mutual fund. Yes, there are no guarantees in the world of investing. However, including some of these alternative investments in your portfolio might just give you some peace of mind.

 

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