5 Reasons People Invest In Alternative Investments

Introduction

As traditional investments such as stocks become increasingly volatile, investors seek alternative ways to diversify their portfolios and achieve higher returns.

Alternative investments have emerged as a popular option for investors seeking opportunities beyond traditional assets. In this blog, we will explore the top five reasons people invest in alternative investments and how to invest in them.

Understanding Alternative Investments

Alternative investments are any asset classes that are not traditional investments, such as stocks, bonds, fixed deposits, and cash. Alternative investments include fractional commercial real estate, start-up equity, P2P lending, asset leasing, inventory financing, hedge funds, commodities, art, wine, and cryptocurrencies. These investments often have a low correlation to the stock market and offer unique investment opportunities and higher returns.

5 Reasons Why People Opt For Alternative Investments

People opt to invest in alternatives due to the following 5 main reasons:

1. Diversification

Alternative investments offer excellent diversification opportunities. They are also low-correlated with traditional investments, which can help reduce overall portfolio risk.

2. Potential For Higher Returns

Alternative investments offer the potential for higher returns compared to traditional investments. For example, real estate investments may offer rental income and capital appreciation, while private equity investments may offer high returns due to the growth potential of the underlying companies.

3. Lower Correlation With Traditional Assets

Alternative investments are not linked to the stock market, which can offer protection during market downturns. This is especially important for investors looking to protect their portfolios during economic recessions or market crashes.

4. Unique Investing Opportunities

Alternative investments offer unique investment opportunities not available in the stock market. For example, investing in art or wine can give you a chance to own a piece of history while also offering the potential for high returns.

5. Risk Management And Hedging

Fixed-income alternative investments, such as securitised debt instruments (SDIs), can protect from inflation. These alternative strategies offer inflation-beating returns, which can help offset the impact of rising prices on an investor's portfolio and protect from market volatility.

Conclusion

Adding alternative investments to your portfolio offers a unique opportunity for investors seeking diversification and achieving higher returns. With the right platform, alternative investments can be a simple and effective way to reach your investment goals. Explore Grip Invest and stay updated on all relevant and best investment opportunities. 

Frequently Asked Questions On Reasons Why People Invest In Alternative Investments

1. How do alternative investments differ from traditional investments?

Alternative investments differ from traditional investments as they are non-market-linked and offer predictable returns.

2. What are some examples of alternative investments?

Various types of alternative investment  options are:

• Private Equity/Startup Equity: You can invest in private companies or startup ventures with high growth potential. This high-risk, high-reward investment has the potential to generate significantly high returns. Investors should carefully choose a platform that does the due diligence and offers a transparent investing experience for retail investors, which is crucial.
• LeaseX: Investors can buy assets in principle to lease to various businesses with LeaseX. It is a one-of-a-kind investment product that allows investors to become lessors. It offers a straightforward structure, stable, fixed returns, and diversity at a low initial investment. 
• InvoiceX: Individual investors can invest in InvoiceX by Grip Invest, the first-ever credit-rated, RBI-compliant, diversified version of invoice discounting. It enables them to take exposure simultaneously to a pool of hundreds of invoices and get predictable fixed returns. It offers up to 11-12% pre-tax returns for a 6-12 month tenure.
• Peer-to-peer Lending: Investment in loans directly to individuals through online lending platforms is a budding alternative investment option to earn lucrative returns. However, investors should consider the risks of unregulated P2P lending in India.

3. What are the potential benefits of investing in alternatives?

Investing in alternatives offers potential benefits such as diversification, higher returns, inflation-hedging capabilities, and access to innovative companies with high growth potential. 

4. What are the risks associated with alternative investments?

Alternative investments carry several risks, including their illiquid nature, higher initial investment and fees, and complex structures. They may also have limited historical risk and return data, making it challenging to assess potential performance. Additionally, the lack of regulation in some alternative markets can increase the risk of fraud. Therefore, careful due diligence is crucial before investing in alternatives. 

Online discovery platforms like Grip Invest are mainstreaming alternative investments through a SEBI-regulated, transparent online bond-providing platform at lower minimum investment amounts. The investment opportunities are exchange-listed, credit-rated, and regulated. 

5. How can investors access alternative investments?

Investing in alternative investments used to be challenging, as these assets often required high minimum investment and specialised knowledge. However, today, many online bond-providing platforms are available that make investing in alternative investments easier. One such platform is Grip Invest, a multi-asset alternative investment platform where you can access multiple alternative investment opportunities together and diversify your portfolio beyond traditional assets.

6. What factors should investors consider before investing in alternatives?

Before investing in alternatives, investors should consider several factors:

1. Investment’s structure and underlying assets

2. Liquidity of the investment

3. Investment transparency, including access to timely and accurate information. 

4. Regulatory environment of the alternative investment market, as it can vary widely and impact the investment risk.

7. How do alternative investments perform compared to traditional investments?

Due to their low correlation with traditional asset classes, they can provide diversification benefits, enhancing portfolio performance and reducing risk. 

However, alternative investments can be less liquid than traditional investments and may require a longer investment horizon. While some alternative investments like startup equity have the potential for high returns, they also carry a higher risk. Therefore, the performance of alternative investments can vary greatly and is highly dependent on the specific investment and market conditions.

8. What role do alternative investments play in a changing market environment?

In a changing market environment, alternative investments can be crucial in portfolio diversification. Due to their low correlation with traditional asset classes, alternative investments can provide a hedge against market volatility, potentially enhancing portfolio performance and reducing risk. However, they require careful management and a thorough understanding of the specific investment and market dynamics. 

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