Navigating Alternative Investments In India: Meaning, Benefits And Options
Almost everyone is familiar with fixed deposits and stocks when it comes to investing. However, an entire universe of possibilities exists outside these traditional asset classes. The established 60/40 allocation portfolio to stocks and bonds is old school and may not be enough to achieve your long-term investment goals. That is where alternative investments enter the picture.
These alternative assets, lying outside the traditional asset categories, are gaining immense popularity globally, with institutional and retail investors embracing their benefits.
Projections indicate that AUM for global alternative investments will hit $23.21 trillion by 2026, a significant leap from $13.32 trillion recorded in 20211. These staggering figures underscore investors' growing participation and interest in this space.
What makes them an attractive option for investors? This article will discuss the benefits and list some popular alternative assets to help you get started. So, let us dive in!
Key Advantages Of Investing In Alternative Assets
Some of the key benefits of investing in alternative assets have been summarised in an infographic and listed below:
- Lower Volatility: The stock market is famous for its ups and downs. Even in stable market conditions, the prices tend to fluctuate. Alternative investments are less affected by the stock market volatility. It is an attractive option for investors looking for more stability.
- Diversification: Allocating funds to alternative investments can diversify your portfolio. Diversifying your portfolio across asset classes helps spread risk and enhances overall returns. These options do not directly correlate to traditional asset classes. Hence, it presents an excellent diversification opportunity during turbulent times.
- Potential To Earn Higher Returns: Alternative investments like peer-to-peer lending and securitised debt instruments (LeaseX, LoanX, InvoiceX, BondX) offer higher fixed returns than traditional investment options like fixed deposits. Other assets, like startup equity, collectibles, hedge funds, etc., do not offer fixed returns but can provide better returns than equity markets.
Popular Alternative Investments In India
Here are some popular instruments to invest in alternative assets worth exploring:
LeaseX
This investment opportunity introduced by Grip Invest is linked to asset leasing. LeaseX is structured as a securitised debt instrument (SDI). Moreover, it is a listed, regulated and rated option. It provides investors with fixed, monthly payouts (and/or principal) made by one or more lessee(s). Lessee(s) are well-established companies looking for assets to grow their business.
The table below shows the Profile Of LeaseX:
Returns | Up to 17% IRR |
|---|---|
Average Tenure | 24-36 Months |
Risk Mitigators/ Security Measures | -Partially by cash-collateralised bank guarantee -Managed by an independent SEBI registered trustee |
Investment-grade Rated | Yes |
Regulated | Yes |
Listed, Demat Held Investment | Yes |
Diversification | Yes |
LeaseX is the first-ever instrument of its kind to be listed on the exchange. It is also rated by CRISIL, making it the first such instrument to receive a credit rating in India.
LoanX
It is an instrument backed by a pool of diversified loans such as MSME loans, business loans, etc. The instrument is credit rated, listed, SEBI/RBI regulated and demat held. Through this, investors receive regular returns from interest and/or principal. Originators of these loans are investment-grade-rated NBFCs.
The table below shows the Profile Of LoanX:
Returns | Up to 14% IRR |
|---|---|
Average Tenure | 12-18 Months |
Risk Mitigators/ Security Measures | -Cash collateral -Over-collateralisation -Excess Interest Spread -Managed by an independent SEBI registered trustee |
Investment-grade Rated | Yes |
Regulated | Yes |
Listed, Demat Held Investment | Yes |
Diversification | Yes |
On Grip Invest, transactions in SDIs are executed through the exchange, making the process secure and hassle-free.
BondX
It is a basket of investment-grade bonds. It provides exposure to a diverse pool of bonds issued by a curated set of fundamentally strong issuers. Here, investors are entitled to monthly returns in interest and staggered principal repayments. It aims to make high face-value bonds accessible to retail investors at lower ticket sizes along with diversification.
The table below shows the Profile Of BondX:
Returns | Up to 13% IRR |
|---|---|
Average Tenure | 12-36 Months |
Risk Mitigators/ Security Measures | -Managed by an independent SEBI registered trustee -The issuers secure each bond by placing collateral of a minimum of 1.0x of the outstanding principal |
Investment-grade Rated | Yes |
Regulated | Yes |
Listed, Demat Held Investment | Yes |
Diversification | Yes |
BondX retains all the existing features of Bonds, such as non-market linked fixed returns and more, with the X factor of securitisation.
InvoiceX
It is a short-term instrument where the receivable is generated from a pool of loans backed by invoices raised on multiple companies. These companies are well-reputed and are known as anchors. Issued in accordance with the RBI-compliant framework, this rated instrument helps investors receive consistent income in the form of interest.
The table below shows the Profile Of InvoiceX:
Returns | Up to 13% IRR |
|---|---|
Average Tenure | 6-12 Months |
Risk Mitigators/Security Measures | -Managed by an independent SEBI registered trustee - Over-collateralisation - Cash Collateral - Excess Interest Spread |
Investment-grade Rated | Yes |
Regulated | Yes |
*Listed, Demat Held Investment | Yes |
Diversification | Yes |
*The first InvoiceX opportunity by Grip Invest was not listed
InvoiceX presents a more streamlined approach towards short-tenure, fixed-income, regulatory-compliant products.
P2P Lending
Peer-to-peer (P2P) lending has become a feasible but riskier substitute for traditional bank loans. They allow borrowers to seek loans from individual investors. On P2P online lending platforms, investors lend money directly to borrowers. P2P lending platforms remove the banks/NBFCs from the equation and enable you to earn the margin as extra interest.
The table below shows the Profile Of P2P Lending:
Returns | Up to 12%2 |
|---|---|
Average Tenure | 12-36 Months |
Risk Mitigators/Security Measures | -Excess Interest Spread -Single Lender to Borrower exposure capped at INR 50,000 by RBI |
Rating | No |
Regulated | Yes |
Listed, Demat Held Investment | No |
Diversification | Yes |
Peer-to-peer lending allows you to diversify your portfolios across various loan types and enhances risk management.
The Bottom Line
Alternative investments are compelling for investors looking for newer instruments. Various alternatives are available, and selecting the best depends entirely on your overall investment strategy and financial goals.
Visit Grip Invest today to explore alternative investments that overstep inflation, volatility, and unpredictable returns and help diversify your portfolio.
Frequently Asked Questions
- What Are The Risks Associated With Investing In Alternative Assets?
Two major risks associated with alternative assets are default risk and liquidity risk. Investors should carefully analyse the instrument and platform before investing. - What Is Excess Interest Spread (EIS)?
EIS is the difference between interest generated by a pool of underlying assets and interest paid to the holder. This is a margin of safety and acts as a cushion. - What Is Over-Collateralisation?
Over-collateralisation refers to having collateral worth more than the amount to cover losses in case of default. For example, collateral worth INR (100+x) against a loan of INR 100. For LoanX, if over-collateralisation is 10%, it has loans worth INR 110 as collateral against an INR 100 investment to mitigate any default. - What Is Cash Collateral?
Cash collateral is an upfront fixed deposit by the originator, which acts as a safety net.
References:
- Forbes <https://bit.ly/3Ay6r8w>
- Business Today <https://bit.ly/4cBhfAb>
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Disclaimer - Investments in debt securities are subject to risks. Read all the offer-related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading. This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip Invest”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip Invest or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip Invest does not guarantee or assure any return on investments and accepts no liability for the consequences of any actions taken based on the information provided. For more details, please visit https://www.gripinvest.in/.
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