Global Alternate Investment Opportunities for Indians

About Me: I am a capital market professional with deep interest in derivatives, asset management and portfolio construction strategies. I write a blog on alternative investment platforms. I invest and evaluate their performance and publish my results every month on my blog Randomdimes.com

Aternative investments, also known as “alternatives” or “alts” are generally considered to be any investments made in asset classes other than stocks, bonds, and cash. Alternate Investment include vanilla products such as real estate, currency, commodities, and private equity. However, alternatives can also include more exotic products like invoice discounting, cryptocurrency, art, cars, and business lending investment. In the past, alternative investments were only available to institutional, accredited, qualified, and high-net-worth investors. However, in the past five years or so, alternative investments have been accessible to retails Investors also.

Why to Invest in Alternate Investment?

Most people relate investments to equity and bonds.Many times, the risk is defined by how much a portfolio has in equities. For example, a “moderate risk portfolio” would typically be associated with the 60/40 rule of investing. That is a portfolio with 60%stocks and 40%bonds.
The reason investors should consider alternatives in their portfolio is to potentially reduce risk.A common belief among misinformed investors and financial advisors is that they feel that alternative investments carry far more risk than other investments. On the contrary, they have the potential to reduce the overall risk of your portfolio. When non-correlated investments are included in a portfolio, you have the potential to decrease risk and potentially not sacrifice returns. They do this by not following the same up and down patterns as stocks and bonds. So, when your stock and bond investments fall in value, the alternative investments can potentially follow the same path and could improve your portfolio’s overall performance.
From a point of view of Investor by adding alternate Investment:
He can allocate capital to multiple assets than take risk of over-concentration in one asset class
Most alternate assets have low correlation to stock market; hence they reduce overall volatility of the portfolio.
Some alternate investment can add additional yield to overall portfolio
Some alternates provide monthly income and suit individual looking to earn regular cashflow.

Risk in Alternatives:

Each alternative investment has its own risk which the investor must fully understand before making the plunge. For instance, P2P lending has risk of borrower default hence the higher interest rate to compensate for it. Cryptocurrency is speculative in nature and can be very volatile.

What options are available for Indian Investors?

The alternate investment can be segregated into three categories:

Income– These are investments that give you consistent cashflow. Example would be real estate rental property

Growth – This is investing in goods or commodities that do not produce income but could potentially have a large price appreciation. An example of a growth investment might be art, fine wine, coins or gold.

Balance – These investments provide both income and growth. An example of a balanced investment strategy might be to purchase a property that you then rent out to get income and stand to also gain from its growth because of home price appreciation.

List of Alternative Investment Options:

Invoice Discounting: Invoice Discounting or Invoice Bill Discounting is a method to arrange working capital by a business in which the Invoice is sold to the lender at a reduced price than the one quoted on the bill. For example, if a vendor of company like Amazon needs money immediately it can sell its outstanding invoice at a discount to an Investor. The invoice amount will be directly paid by Amazon to the investor.

Expected Yield:12-14%p.a.

Tenor:1-3 Months

P2P Lending:  Peer-to-Peer lending is a form of debt-based crowdfunding enabled by online P2P lending platforms that connect borrowers and lenders by circumventing conventional loan processes, requirements, and intermediaries. For investors, P2P lending offers (potential) stable returns in the form of frequent interest payments, why it can be a great supplement to more traditional asset classes like bonds and stocks. So far, P2P lending is still viewed as an alternative investment but with low interest rates on savings accounts as far as the eye can see, it is likely to develop into an essential part of a diversified investment portfolio.

Expected Yield :12-36%p.a.

Tenor: 6 Months -3 Years

Fractional Real Estate Global:  Have you always dreamed about becoming a real estate investor but could not afford it because you did not have any money for it? There is a solution for you – it is called Peer-to-peer (P2P) real estate lending. You can literally become a real estate investor with as little as €50.Within the P2P real estate industry, you can invest in real estate loans, rental properties, real estate equity or participate in group buying deals.

Expected Yield:10-14%p.a.

Tenor: 1-2years

Gold Mine Investment:  Gold has been in a stellar rally for the last few months. Many economists believe the price of gold should be significantly higher right now. It’s prudent to have gold in our portfolio as a hedge against inflation. An interesting way is to invest in gold royalty in portfolio which can give significant upside and gold accumulation in the long run. A gold royalty gives owner to right to a percentage of gold production or revenue in exchange for an upfront payment. You can get up to 20% of all gold produced in the mines during its lifetime

Expected Yield: 20-30% p.a.

Tenor: 3-5 years

Crypto Currency Investment: Cryptocurrencies such as Bitcoin are digital currencies not backed by real assets or tangible securities. They are traded between consenting parties with no broker and tracked on digital ledgers. Some of the cryptocurrency have sound used cases. Recently lot of institutional investors have plunged into accumulating crypto which has led to astonishing bull run (some currencies have gained 200-400% return in past 6 months)

Expected Yield:-100% to 100%

Tenor: 3-5 years

Conclusions: Alternate Investments are great way to enhance your portfolio yield and increase diversification. Investors should do their own due diligence before investing money and understand the risk and reward of each investment