Passive Investing: Mutual Funds Vs. Alternative Investments In The Pursuit Of Returns

In the world of investing, there are different paths that one can take to achieve their financial goals and targets. People like to invest to generate passive income over a period of time. Two prominent investments focus on passive investing - mutual funds and alternative investments.
A clear idea about them before investing can help you determine the right strategy.

So what are they? Or how to know which one will work for you? Read more for insight into both strategies to help you decide which is better.

What Is Passive Investing?

Passive investing is a long-term investment strategy involving buying and holding assets for a longer period of time instead of frequent turnover to match market expectations. Passive investing aims to blend and match the market performance rather than surpass it. Passive investments include ETFs, Index Funds, Fixed Deposits, Corporate Bonds, Startup Equity, etc. 

Considerations For Passive Investors

The primary factors to keep in mind while passive investing include:

• Long-Term Focus: Passive investing is typically best for the long term, where you buy and hold the security to yield market returns.
• Right Scheme For Your Risk Profile: Consider your risk tolerance before investing.
• Performance Expectations: Investors should have realistic expectations to match their investment performance with the underlying asset class and not expect to exceed it.
• Market Conditions: The investment returns can be impacted because of the market conditions. In a bull market, passive investing gives expected returns vis a vis bear market, where the returns are negative.

Passive Investment Instruments: Mutual Funds And Alternative Investments

Let us discuss Mutual Funds and Alternative Investments as important passive investment instruments.

Mutual Funds

Mutual funds are a pool of money managed by professional fund managers. Multiple investors invest money for a particular objective, which is then invested in promising securities. Thousands of options are there when planning to invest in mutual funds. There are different categories of Mutual Funds, which are detailed below. 

• Index Funds: Index funds are mutual funds that copy the performance of popular market indices. The fund managers do not actively select industries and stocks to build the fund’s portfolio. They invest in all the stocks that make up the index to be followed with similar weightage as that of each of the stocks in the index.
• Equity Funds: An equity fund is a mutual fund if it contains more than 60% of equity shares of different companies, with the remaining share going to money market instruments or debt securities as per the financial goal of the scheme. The investment decisions like investing in growth-oriented or value-oriented companies lie with the fund manager.
• Debt Funds: Contrary to equity funds, debt mutual funds invest in fixed-income securities like government bonds, corporate bonds, treasury bonds, etc. They suit investors seeking a predictable, fixed income without major default risks. 

Alternative Investments 

As the name suggests, alternative investments are assets other than traditional ones, like stocks, fixed deposits, and mutual funds, due to their non-market-linked nature. They offer better returns than fixed deposits and better security than stocks. Some of the examples of alternative investments that can offer predictable returns are:

• Fractional Real Estate: The business model of Fractional Real Estate involves a pool of investors' funds leading them to purchase a property. While they are fractional owners of the property, they enjoy passive ownership of highly valued assets. The single-ownership financial burden is reduced, while investors enjoy a high return on investment from the commercial property. 
• LoanX: In LoanX, a type of securitised debt instrument, each opportunity entails receiving returns from a pool of many loans provided to individuals, businesses, or other entities. An NBFC has already provided these loans, and an investor gets direct access to the returns these loans generate without dealing with the hassles of the process. 
  LoanX by Grip presents a more streamlined approach towards short tenure, fixed income, and regulatory-compliant products, enabling investors access to new investment opportunities.
• LeaseX: LeaseX, a type of asset leasing, is a unique investment product that allows investors to become lessors and earn predictable returns by leasing different kinds of assets to different companies. 
  LeaseX offers investments backed by real assets, such as equipment or property. It provides a secure form of collateral which is often more reliable than other forms of investing. In addition, it offers low initial capital investment due to its pooled nature.
• Startup Equity As An Investment Tool: Startup Equity investment is a passive investment where you put a certain amount of capital into a business in exchange for receiving financial returns. Startup Equity describes company ownership as a percentage of your stock shares. Startups offer stocks at a certain amount to investors. Investors buy the shares and receive returns if the valuation goes up in the future.

The Bottom Line

Passive investment is a lucrative way towards wealth generation. It requires investors’ minimum involvement and time. However, researching and analysing the benefits and drawbacks of the available options is essential before investing. Ultimately, the money matters and capital appreciation is the key attraction for any investment decision.

In pursuing returns, the choice between mutual funds and alternative investments ultimately depends on your investment goals, risk tolerance, and time horizon. Some investors choose to allocate a portion of their portfolio to alternative investments while retaining the investment in mutual funds. In contrast, others prefer exposure to alternative investments more than mutual funds. This hybrid approach aims to capture the benefits of both worlds.

Passive investing does not outsmart the market. It mirrors the market in your portfolio and allows you to enjoy returns in the long term. Curious to learn more about passive investing instruments? Grip is the platform for you! It offers a range of investment opportunities and guides you through the process. 

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