In extremely uncertain occasions, investors should really seize any chance readily available in the market place to develop a effectively-diversified and sound monetary portfolio. The Covid-19 occasions have taught salaried people the value of obtaining a passive supply of earnings, apart from the standard month-to-month salary. In the last couple of years, various new option investment avenues like REITs, peer-to-peer lending, cryptocurrency and so forth. have emerged. All of these have established to be higher-yield asset classes. However, ahead of creating any investment, it is extremely crucial to assess the pros and cons of assets vis-à-vis one’s investment appetite. A effectively-balanced portfolio backed by cautious and calculated choices can enable a lot in wealth creation in the extended run.
According to Bhavin Patel, Co-founder & CEO, LenDenClub, there has been a boom in rapidly-expanding FinTech businesses. With their tech-backed, consumer-friendly options, they present a lot of investment avenues. “For instance, a large chunk of new mutual fund investors are now being added by wealth-tech platforms. Low commission stockbroker platforms have already revolutionized the stock investment market. Peer to Peer (P2P) lending platforms have brought much better returns generating debt instruments to investors etc. Mutual funds or stocks are known instruments. However, P2P lending is a new kid on the block to give people diversification options in their debt portfolio,” Patel told FE Online.
“Lately, investors are also exploring other alternative investment tools like lease financing, venture capital, fractional investments in US stocks or real estate, etc. that allows them to have a diverse portfolio,” he added.
In current years, the worldwide option market has grown at a fast pace, driven by the have to have to improve diversification and improve returns. This development is underpinned by various external situations such as reduced interest prices, declining pension funding ratio, the maturation of emerging markets, structural modify in capital formation, and the pandemic-infused market place volatility.
WintWealth Co-founder Anshul Gupta cited a study by CAIA Association, which says that option investments contribute roughly $13 trillion (or 12%) of the worldwide investible market place, comprising hedge funds/liquid options, private equity, true assets, and structured solutions. By 2025, the market is anticipated to develop to 18-24% of the worldwide investible market place. India’s option investment market is nonetheless at a nascent stage as compared to the rest of the world. Asset below management (AUM) for option investments in India is estimated to be $54 billion as of June 2020.
ALSO Study | Make the most of your funds: Know how to earn steady returns in a extremely uncertain atmosphere
Alternative Investment Options comprise a wide variety of non-conventional assets such as P2P lending, covered bonds, receipt financing, asset lease financing, and so forth.
“Alternative investments were exclusively available to HNIs owing to their unconventional and unique nature coupled with inadequate public information surrounding them. But several personal investment companies have also contributed to the increased awareness and demand around alternative investments by making them available to the regular retail investor,” Gupta mentioned.
He additional mentioned that option investments can turn out to be a hedge against inflation, as they are not straight correlated to the market place. AIF’s can also enable create a passive earnings, which is a recurring theme across some solutions, if not all, option assets. The interest payments can enable you post-retirement.
“AIF’s can be great portfolio diversifiers and help mitigate risks, generate passive income as they offer safer yields, and not all but some are tax-efficient. However, one must be wary of risk, regulation, and lock-ins associated with them. They are more complex than traditional investment vehicles. Even though the AIFs are not directly linked with the market, it is crucial to monitor market, credit, liquidity, counterparty, and operational risks. Every investment carries its benefits and risks. Therefore, it becomes crucial to invest through platforms that are transparent and can help you make informed decisions,” mentioned Gupta.
Sudarshan Lodha, Co-founder of Strata, mentioned option investment does not include things like assets that commonly fall below the category of stocks, bonds or money. They are non-conventional investment platforms that are not straight correlated to markets and but present a fantastic supply of option earnings apart from portfolio diversification.
“Owing to the pandemic and volatility of the market and economy, there has been a drastic shift in investor sentiments towards alternative asset classes. Investors are now looking for investment avenues that, along with long term appreciation, would also offer guaranteed passive income. While we have seen the rise of a host of new-age wealth-tech platforms such as P2P lending, cryptocurrency, investment in US equity among others, today even traditional sectors such as real estate are now re-inventing and evolving to offer themselves as an investment platform. Fractional investment in commercial real estate (CRE) is the latest on the block. While the concept is well-established in the US and the UK. it is picking up significantly in India wherein it aims to democratise CRE for larger audiences in the country,” mentioned Lodha.